<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-24543
COST-U-LESS, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1615590
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12410 SE 32ND STREET
BELLEVUE, WASHINGTON 98005
(Address of principal executive office) (Zip Code)
(425) 644-4241
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. / /YES /X/NO.
The registrant had 1,999,961 common shares, par value $0.001, outstanding
at June 28, 1998.
<PAGE>
COST-U-LESS, INC.
INDEX TO FORM 10-Q
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................................. 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 11
PART 2--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................ 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 17
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cost-U-Less, Inc.'s (the "Company" or "Cost-U-Less") unaudited condensed
consolidated balance sheet as of June 28, 1998, and the condensed consolidated
balance sheet as of December 28, 1997, unaudited condensed consolidated
statements of income for the 13- and 26-weeks ended June 28, 1998, and June 29,
1997 and the unaudited condensed consolidated statements of cash flows for the
26-weeks then ended are included below. Also, included below are notes to the
unaudited condensed consolidated financial statements.
The Company reports on a 52/53-week fiscal year, consisting of four
thirteen-week periods and ending on the Sunday nearest the end of December.
Fiscal 1998 is a 52-week year with period four ending on December 27, 1998.
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COST-U-LESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
JUNE 28, DECEMBER 28,
1998 1997
----------- ------------
(Unaudited)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,291 $ 1,028
Receivables, net 775 1,023
Inventories, net 14,973 12,271
Other current assets 2,145 987
-------- --------
Total current assets 19,184 15,309
Property and equipment, net 10,441 6,847
Deposits and other assets 832 518
Total assets 141 141
-------- --------
$ 30,598 $ 22,815
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 9,136 $ 8,953
Accrued expenses 1,684 1,235
Income taxes payable -- 141
Line of credit 5,081 376
Current portion of long-term debt 633 384
Current portion of capital leases 422 406
-------- --------
Total current assets 16,956 11,495
Deferred rent 524 481
Long-term debt, less current portion 2,049 --
Capital lease obligations, less current portion 955 1,169
-------- --------
Total liabilities 20,484 13,145
Shareholders' equity:
Preferred stock, $0.001 par value:
Authorized shares--2,000,000
Issued and outstanding shares--none -- --
Common stock, $0.001 par value:
Authorized shares--25,000,000
Issued and outstanding shares--1,999,961 3,600 3,525
Retained earnings 6,553 6,165
Accumulated other comprehensive income (39) (20)
-------- --------
Total shareholders' equity 10,114 9,670
-------- --------
Total liabilities and shareholders' equity $ 30,598 $ 22,815
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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COST-U-LESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
--------------------------- ---------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 31,453 $ 31,868 $ 63,205 $ 63,657
Merchandise costs 26,159 26,628 52,711 53,351
--------- --------- --------- ---------
Gross profit 5,294 5,240 10,494 10,306
Operating expenses:
Store 3,655 3,677 7,189 7,517
General and administrative 890 788 1,871 1,583
Store opening 334 46 464 68
Store closing 244 600 244 1,300
--------- --------- --------- ---------
Total operating expenses 5,123 5,111 9,768 10,468
--------- --------- --------- ---------
Operating income (loss) 171 129 726 (162)
Other income (expense):
Interest expense (80) (121) (134) (245)
--------- --------- --------- ---------
Income (loss) before income taxes 91 8 592 (407)
Income tax provision (benefit) 29 5 205 (132)
--------- --------- --------- ---------
Net income (loss) $ 62 $ 3 $ 387 $ (275)
========= ========= ========= =========
Earnings (loss) per common share:
Basic $ 0.03 $ 0.00 $ 0.19 $ (0.14)
Diluted 0.03 0.00 0.18 (0.14)
Weighted average common shares
outstanding 1,999,961 1,999,961 1,999,961 1,999,961
========= ========= ========= =========
Weighted average common shares
outstanding, assuming dilution 2,123,383 2,137,693 2,134,971 1,999,961
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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COST-U-LESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS ENDED
-----------------------------
JUNE 28, JUNE 29,
1998 1997
--------- ----------
<S> <C> <C>
Operating activities:
Net income (loss) $ 387 $ (275)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 486 474
Writedown of property and equipment 203 635
Deferred tax provision 33 --
Stock compensation 75 --
Reserve for bad debts 39 (5)
Cash provided by (used in) changes in operating
assets and liabilities:
Receivables 209 109
Refundable income taxes 68 (383)
Inventories (2,702) 1,787
Prepaid expenses (1,258) (239)
Deposits and other assets (313) (44)
Accounts payable 183 (804)
Accrued expenses 449 (107)
Income tax payable (141) --
Deferred rent 43 76
-------- ---------
Net cash provided by (used in) operating activities (2,239) 1,224
Investing activity--purchases of property and equipment (4,284) (376)
Financing activities:
Net borrowings under line of credit 4,706 518
Proceeds from long-term debt 2,771 --
Principal payments on long-term debt (473) (611)
Payments on capital lease obligations (198) (187)
Unrealized foreign exchange loss (19) --
-------- ---------
Net cash provided by (used in) financing activities 6,787 (280)
-------- ---------
Net increase in cash and cash equivalents 264 568
Cash and cash equivalents at beginning of year 1,027 95
-------- ---------
Cash and cash equivalents at end of year $ 1,291 $ 663
======== =========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 184 $ 245
Income taxes $ 246 $ 270
</TABLE>
The accompanying notes are an integral part of these financial statements.
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COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Cost-U-Less, Inc. (the "Company") operates mid-sized warehouse club-style
stores in "island" markets in U.S. territories throughout the Pacific and
Caribbean. The Company currently operates seven island stores located in Hawaii,
U.S. Virgin Islands, Guam, American Samoa, and one U.S. mainland store in
California.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). The financial information includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
dates and the operations and cash flows for the periods then ended. The balance
sheet at December 31, 1997 has been derived from the audited financial
statements at that date. Certain information and footnote disclosure normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to SEC
rules and regulations. Operating results for the quarter ended June 28, 1998,
are not necessarily indicative of results that may be expected for the entire
year. All quarterly periods reported consist of 13 weeks. For further
information, refer to the financial statements and footnotes included in the
Company's Registration Statement on Form S1, including the related Prospectus
dated July 23, 1998, as filed with the SEC (the "Registration Statement").
PRINCIPLES OF CONSOLIDATION
The Company operates wholly owned subsidiaries in Guam, U.S. Virgin
Islands, American Samoa, Nevada, Republic of Fiji, New Zealand, Vanuatu and
Curacao, Netherlands Antilles. All significant intercompany balances and
transactions have been eliminated in consolidation.
The U.S. dollar is the functional currency for all locations, except for
Fiji, New Zealand and Curacao, which uses that countries local currency.
FISCAL YEAR
The Company's fiscal year ends on the last Sunday in December. The year
ended December 28, 1997 represents a 52-week fiscal year.
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COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
As of December 29, 1997, the Company adopted Statement No. 130, Reporting
Comprehensive Income. Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholder's
equity. Statement No. 130 requires foreign currency translation adjustments,
which prior to adoption were reported separately in shareholder's equity to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement No. 130.
For the 13 weeks ended June 28, 1998 and June 29, 1997, total comprehensive
income amounted to $62,000 and $3,000, respectively. For the 26 weeks ended June
28, 1998 and the 26 weeks ended June 29, 1997, total comprehensive income
amounted to $368,000 and $(275,000), respectively.
SEGMENT REPORTING
Effective January 1, 1997, the Company adopted Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of Enterprise and Related Information. This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement No. 131 also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The adoption of this Statement did not affect results of operations
or financial position.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
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COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
--------------------------- ----------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
---------- ----------- ---------- -----------
(In thousands except per-share data)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 62 $ 3 $ 387 $ (275)
Denominator:
Denominator for basic earnings per
share--weighted average shares 1,999,961 1,999,961 1,999,961 1,999,961
Effect of dilutive securities:
Stock options and warrants 123,422 137,732 135,010 --
Denominator for diluted earnings per
share--adjusted weighted average shares and
assumed conversion of stock options and
warrants 2,123,383 2,137,693 2,134,971 1,999,961
Basic earnings (loss) per common share $ 0.03 $ 0.00 $ 0.19 $ (0.14)
Diluted earnings (loss) per common share $ 0.03 $ 0.00 $ 0.18 $ (0.14)
</TABLE>
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COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SEGMENT INFORMATION
<TABLE>
<CAPTION>
ISLAND MAINLAND
STORES STORES OTHER TOTALS
----------- ------------ ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
26 WEEKS ENDED JUNE 28, 1998
Net sales $ 58,924 $ 3,246 $ 1,035 $ 63,205
Contribution (loss) 3,127 (42) 220 3,305
Store opening expense 464 -- -- 464
Store closing expense 244 -- -- 244
Store operating profit (loss) 2,420 (42) 220 2,597
Segment inventories 11,605 673 -- 12,278
Segment total assets 23,164 1,233 -- 24,397
26 WEEKS ENDED JUNE 29, 1997
Net sales 55,637 7,116 904 63,657
Contribution (loss) 2,838 (153) 104 2,789
Store opening expense 68 -- -- 68
Store closing expense -- 1,300 -- 1,300
Store operating profit (loss) 2,770 (1,453) 104 1,421
Segment inventories 9,522 1,006 -- 10,528
Segment total assets 16,081 2,415 -- 18,496
13 WEEKS ENDED JUNE 28, 1998
Net sales 29,377 1,676 400 31,453
Contribution (loss) 1,545 (7) 101 1,639
Store opening expense 334 -- -- 334
Store closing expense 244 -- -- 244
Store operating profit (loss) 967 (7) 101 1,061
13 WEEKS ENDED JUNE 29, 1997
Net sales 27,755 3,368 745 31,868
Contribution (loss) 1,495 32 36 1,563
Store opening expense 46 -- -- 46
Store closing expense -- 600 -- 600
Store operating profit (loss) 1,449 (568) 36 917
</TABLE>
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COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. SEGMENT INFORMATION (CONTINUED)
Reconciliation of Income Contribution to Consolidated Income before Tax
<TABLE>
<CAPTION>
26 WEEKS ENDED 13 WEEKS ENDED
--------------------------- ---------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Total contribution for reportable
segments $ 3,305 $ 2,789 $ 1,639 $ 1,563
Administrative expense not
allocated to segments (1,871) (1,583) (890) (788)
Store opening/closing expenses (708) (1,368) (578) (646)
Interest expense (134) (245) (80) (121)
------- ------- ------- -------
Consolidated income before tax $ 592 $ 407 $ 91 $ 8
======= ======= ======= =======
</TABLE>
Reconciliation of Significant Items
<TABLE>
<CAPTION>
SEGMENT CONSOLIDATED
TOTALS CORPORATE TOTALS
-------------- -------------- -------------
(In Thousands)
<S> <C> <C> <C>
JUNE 28, 1998
Inventories $ 12,278 $ 2,695 $ 14,973
Total assets 24,397 6,201 30,598
</TABLE>
4. DEBT
On May 1, 1998, the Company increased its line of credit from a commercial
bank to $7,000,000. In addition, the maturity date was extended to May 1, 1999.
Borrowings under the line of credit were $5,081,000 at June 28, 1998. Borrowings
under the line of credit bear interest at the bank's prime rate (8.5% at June
28, 1998) or, at the Company's option, at LIBOR index plus 1.5%, and are secured
by various Company assets. The line of credit contains certain restrictive
covenants relating to working capital, debt to equity ratios, minimum equity and
payment of cash dividends and cash flow coverage.
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COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. INCOME TAX PROVISION
The effective income tax rate in the second quarter of fiscal 1998 was
32.2% compared to a 60% effective tax rate in the second quarter of fiscal 1997.
The fluctuation in rate was primarily due to state income tax expense and
varying profits in international locations with tax rates higher than the U.S.
rates .
6. STOCKHOLDERS' EQUITY
On May 12, 1998, the Company's Board of Directors authorized management to
file a Registration Statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.
On May 13, 1998, the Company effected a 1-for-3.38773 reverse split of its
common stock. All share and per-share information has been restated to reflect
this stock split.
7. SUBSEQUENT EVENTS
On July 23, 1998, the Company completed its initial public offering of
1,380,000 shares of common stock at $7.00 per share. Concurrent with the sale of
shares to the public, the Company sold an additional 160,000 shares of common
stock at $7.00 per share in a private placement to the Kula Fund, an affiliate
of Commonwealth Development Corporation ("CDC"), in reliance on Regulation S
under the Securities Act of 1933, as amended. To further develop its
relationship with CDC, the Company also issued warrants to the Kula Fund and
appointed a representative of CDC to the Board of Directors. Net proceeds to the
Company aggregated $9.1 million.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the
Company's condensed consolidated financial statements and the related notes
thereto appearing in Item 1 of this report. In addition to historical
information, this Form 10-Q contains and may incorporate by reference statements
which may constitute forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
predicted results. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "estimate,"
"anticipate," "continue," or similar terms, variations of such terms or the
negative of those terms, but the absence of such terms does not mean that a
statement is not forward looking. Factors that could affect the Company's actual
results include, but are not limited to: (i) transportation difficulties; (ii)
isolation of store operations from corporate management; (iii) weather and other
risks associated with island operations, (iv) dependence on expansion outside
the U.S.; (v) dependence on key personnel and local managers; (iv) reliance on
computer systems; (v) risks associated with significant growth; and (vi)
competition. More information about factors that could affect the Company's
financial results is included in the "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" sections of the
Company's final prospectus dated July 23, 1998, included in the Company's
Registration Statement on Form S-1 (No. 333-52459), as filed with the Commission
(the "Registration Statement").
OVERVIEW
During the second quarter ended June 28, 1998, the Company operated eight
retail stores located in Guam (2), American Samoa (1), Hawaiian Islands (2);
U.S. Virgin Islands (2) and California (1). Although the Company's stores are
patterned after the warehouse club concept, the stores (i) are smaller
(averaging 28,500 square feet vs. large format warehouse clubs of approximately
130,000 square feet.), (ii) target niche markets, including foreign island
countries (and U.S. Territories and states) where demographics do not support
large format warehouse clubs, (iii) carry a wide assortment of local and ethnic
food items and (iv) do not charge a membership fee.
Although the Company does not have large seasonal fluctuations in sales,
the fourth quarter is typically the best quarter due to the Christmas holiday
business. Operating profits have varied by quarter primarily as a result of
store opening and closing expenses. For the thirteen weeks ended June 28, 1998,
store opening and store closing (relocation) costs totaled $578,000 compared to
$130,000 for the thirteen weeks ended March 29, 1998 and $646,000 for the
thirteen weeks ended June 29, 1997. For the first twenty-six weeks of fiscal
1998 and 1997, these costs totaled $708,000 and $1,368,000, respectively. For
the remainder of 1998, the Company does not expect any additional store closure
costs as the Company has closed all non-performing stores. Store opening costs
will be lower for the third quarter as no store openings are planned that
period, but will increase in the fourth quarter in connection with one new store
opening planned for the fourth quarter of 1998 and one in the first quarter of
1999. The company expenses store opening costs as incurred.
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COMPARISON OF THE 13 WEEKS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (DOLLARS IN
THOUSANDS, EXCEPT EARNINGS PER SHARE):
Net Sales: Net sales for the second quarter of fiscal 1998 decreased 1.3%
to $31,453 from $31,868 during the second quarter of fiscal 1997, primarily from
the closure of one mainland store at the end of the second quarter of fiscal
1997 that generated $1,428 in net sales during the second quarter of fiscal
1997. Comparable-store sales for the second quarter of fiscal 1998 (stores open
for a full 13 months) increased 4.6% from the second quarter of fiscal 1997,
which was attributable primarily to new merchandising and store promotions
implemented in early 1998.
Gross Profit: Gross profit in the second quarter of fiscal 1998 increased
to $5,294 from $5,240 in the second quarter of fiscal 1997, despite closure of
one mainland store at the end of the second quarter of fiscal 1997, which
generated $148 in gross profit. Gross profit margin increased to 16.8% in the
second quarter of fiscal 1998 compared to 16.4% for the second quarter of fiscal
1997, primarily from increased sales from higher margin stores, such as American
Samoa and stores in the U.S. Virgin Islands ("USVI").
Operating Expenses: Store expenses remained approximately the same for the
second quarter of fiscal 1998 compared to the second quarter of fiscal 1997.
Store expenses increased as a percentage of net sales to 11.6% for the second
quarter of fiscal 1998 compared to 11.5% for the second quarter of fiscal 1997.
General and administrative expenses increased $102, or 12.9%, to $890 for
the second quarter of fiscal 1998 from $788 for the second quarter of fiscal
1997. General and administrative expenses increased as a percentage of net sales
to 2.8% for the second quarter of fiscal 1998 compared to 2.5% for the fiscal
year 1997. These increases were from costs associated with the Company's
expansion program and indirect costs associated with the Company's initial
public offering.
Store opening expenses were $334 in the second quarter of fiscal 1998
compared to $46 in the second quarter of fiscal 1997. These expenses were
attributable to the new stores that opened in St. Thomas on June 25, 1998 and in
Nadi, Fiji on July 2, 1998.
The Company incurred store closing expenses of $244 in the second quarter
of fiscal 1998 in connection with the closing and relocation of an existing
store in St. Thomas. The Company incurred store closing expenses in the second
quarter of fiscal 1997 of $600 in connection with the closure of one mainland
store.
Interest expense: Interest expense declined to $80 for the second quarter
of fiscal 1998 from $121 in the second quarter of fiscal 1997 due to a decrease
in the Company's average outstanding borrowings.
Income Tax Provision: The effective income tax rate in the second quarter
of fiscal 1998 was 31.8% compared to a 62.5% effective tax rate in the second
quarter of fiscal 1997. The fluctuation in rate was primarily due to state
income tax expense and varying profits in foreign subsidiaries (including U.S.
territories) where tax rates are different than U.S. tax rates.
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<PAGE>
Net Income: Net income for the second quarter of fiscal 1998 increased to
$62 or $0.03 per share (diluted), compared to net income of $3 or $0.00 per
share (diluted), for the second quarter of fiscal 1997.
COMPARISON OF THE 26 WEEKS ENDED JUNE 28, 1998 AND JUNE 29, 1997 (DOLLARS IN
THOUSANDS, EXCEPT EARNINGS PER SHARE):
Net Sales: Net sales decreased 0.7% to $63,205 for the first 26 weeks of
fiscal 1998 from $63,657 during the first 26 weeks of fiscal 1997. The decrease
was primarily due to store closures at the end of the first and second quarter
of fiscal 1997. The combined sales for these two stores for the first 26 weeks
of fiscal 1997 totaled $ 3,433. Comparable-store sales in the first 26 weeks of
fiscal 1998 (for stores open for a full 13 months) increased 4.9% from the first
26 weeks of fiscal 1997, which was attributable primarily to new merchandising,
and store promotions implemented in early 1998.
Gross Profit: Gross profit increased to $10,494 for the first 26 weeks of
fiscal 1998 from $10,306 for the first 26 weeks of fiscal 1997. Gross profit
margin increased to 16.6% in the first 26 weeks of fiscal 1998 from 16.2% in the
first 26 weeks of fiscal 1997. The increase in gross margin was due primarily to
the closure of two lower-margin mainland stores, and sales increases in fiscal
1998 in higher margin stores.
Operating Expenses: Store expenses decreased $328, or 4.4%, to $7,189 for
the first 26 weeks of fiscal 1998 from $7,517 for the first 26 weeks of fiscal
1997, and decreased as a percentage of net sales for the same periods to 11.4%
from 11.8%. The decrease was primarily due to a reduction in store expenses from
closed stores of $884. This reduction was offset by an increase in store
expenses for existing stores of $556, primarily from increased rent and facility
costs, including utilities and maintenance costs.
General and administrative expenses increased $288, or 18.2%, to $1,871 for
the first 26 weeks of fiscal 1998 from $1,583 for the first 26 weeks of fiscal
1997, and increased as a percentage of net sales to 3.0% from 2.5%. These
increases were from costs associated with the Company's expansion program and
indirect costs associated with the initial public offering.
The Company incurred store opening expenses of $464 in the first 26 weeks
of fiscal 1998 compared to $68 in the first 26 weeks of fiscal 1997. The
increase was due to the opening of the new store in St. Thomas on June 25, 1998
and the new store in Nadi, Fiji on July 2, 1998.
Store closing expenses decreased to $244 in fiscal 1998 from $1,300 in
fiscal 1997. The store closing expenses in the first 26 weeks of fiscal 1998
were due to the relocation of the St. Thomas store and the closure of the
existing location. The store closing expenses in the first 26 weeks of fiscal
1997 were a result of closing two mainland stores.
Interest Expense: Interest expense declined to $134 in the first 26 weeks
of fiscal 1998 compared to $245 in the first 26 weeks of fiscal 1997 due to a
decrease in the average outstanding borrowings during the first 26 weeks ended
fiscal 1998.
Income Tax Provision: The effective income tax rate for the first 26 weeks
of fiscal 1998 was 34.6% compared to 32.4% effective tax rate for the first 26
weeks of fiscal 1997. The
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<PAGE>
fluctuation in rates was primarily due to state income tax expense and varying
profits in foreign subsidiaries (including U.S. territories) where tax rates are
different than U.S. tax rates.
Net Income (Loss): Net income for the first 26 weeks of fiscal 1998
increased to $387, or $0.18 per share (diluted), compared to a loss of $275, or
$0.14 per share (diluted), during the first 26 weeks of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS, EXCEPT STOCK PRICE)
The discussion below contains forward-looking statements that involve risks
and uncertainties, and should be read in conjunction with the disclosure in the
Registration Statement. Actual results may differ materially.
The Company's primary requirement for capital is the financing of equipment
and initial store opening costs for new stores. In addition, working capital
requirements, as well as the purchase of land and construction of store
facilities, determine capital needs.
While there can be no assurance that current expectations will be realized,
and plans are subject to change upon further review, it is management's
intention to spend an aggregate of approximately $5,600 during fiscal 1998 on
construction, remodeling and equipment for three new stores (including the newly
relocated store in St. Thomas). Of this total, approximately $3,100 was utilized
on the new St. Thomas store facility and equipment, which was financed through
two term loans. Management is actively seeking a sale-leaseback arrangement and,
if consummated, intends to retire the existing debt. In addition, approximately
$1,500 will be used to purchase equipment for the two new stores in Fiji (one
opened July 2, 1998 and the second is scheduled to open in the fourth quarter of
1998) and an additional $1,000 to purchase new computer equipment and to pay for
software development costs in connection with the central office and the New
Zealand buying offices system. Capital expenditures totaled $4,284 during the
first 26 weeks of fiscal 1998.
When opening a new store, as well as on an on-going basis, the Company
expects to be able to finance a substantial portion of its merchandise inventory
cost by using a combination of vendor and bank financing. However, there can be
no assurance that this level of financing will be available in the future on
terms acceptable to the Company.
On May 1, 1998, the Company renewed and increased its line of credit with
Seafirst Bank to $7,000. The line expires May 1, 1999. Borrowings under the line
of credit were $5,081 at June 28, 1998. Borrowings under the line of credit bear
interest at the bank's prime rate (8.5% at June 28, 1998). The borrowing
collateral for the line of credit consists of inventories, equipment and trade
accounts receivable. The line of credit contains certain restrictive covenants
relating to working capital, debt to equity ratios, minimum equity and payment
of cash dividends and cash flow coverage. The balance decreased to approximately
$4,000 by July 28, 1998 at which time the line of credit was paid off from the
proceeds from the Company's initial public offering.
The new St. Thomas store was opened on June 25, 1998 and was constructed by
the Company at a cost of approximately $3,100, including approximately $500 for
equipment. The Company obtained $3,000 of construction financing from two banks
for the new store. This is the only store owned by the Company. The construction
financing included a $1,000 note payable with interest at the LIBOR rate index
plus 1.75% (7.77% at June 28, 1998), maturing on April 30, 2000.
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The construction financing also included a $2,000 note payable with interest at
the bank's prime rate plus 1.0% (9.5% at June 28, 1998) maturing on June 1,
2013. The second note is secured by a first priority leasehold mortgage on the
new St. Thomas store. Each of these agreements contains certain restrictive
covenants relating to payment of cash dividends and other matters. Amounts
outstanding under the two loan agreements totaled $2,682 as of June 28, 1998.
The Company entered into its expansion program at an accelerated rate in
the first 26 weeks of fiscal 1998, spending $464 in working capital toward store
opening costs and $4,284 in equipment and building construction costs primarily
related to the new store in St. Thomas and equipment for two new stores in Fiji.
In connection with these new stores, inventory levels increased $2,702 during
the first 26 weeks of fiscal 1998. Net cash provided by (used in) operations was
($2,239) and $1,224 for the first 26 weeks of fiscal 1998 and 1997,
respectively. In the first 26 weeks of fiscal 1998, operating cash flow was used
primarily to supply inventories for the new stores that opened in St. Thomas
USVI at the end of the second quarter and Fiji that opened July 2, 1998. For the
first 26 weeks of fiscal 1997, the Company reduced inventories $1,787, primarily
as a result of the closure of two mainland stores.
Net cash used in investing activities was $4,284 for the first 26 weeks of
fiscal 1998 compared to $376 for the first 26 weeks of fiscal 1997. The increase
was primarily due to construction costs and equipment for the two new stores.
Net cash provided by (used in) financing activities was $6,787 for the
first 26 weeks of fiscal 1998 and ($280) for the first 26 weeks of fiscal 1997.
The increase was primarily due to the proceeds of $2,771 related to the
construction loans for the new St. Thomas building and additional borrowing on
the line of credit for inventories for new store openings.
The Company completed an initial public offering on July 28, 1998 selling
1,380,000 shares of common stock at $7.00 per share and, concurrently selling
160,000 common shares in a Reg. S placement at $7.00 per share. The Common stock
sold in connection with the Reg. S. placement was to the Kula Fund, an
investment fund managed by Pacific Capital Partners Ltd. and affiliated with the
Commonwealth Development Corporation, a development finance institution of the
U.K. Government. Net proceeds, after selling commission and other expenses where
in the aggregate approximately $9,100 for the initial public offering and the
Reg. S sale of common stock.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. If not addressed,
the direct result of the Year 2000 issue could be a system failure or
miscalculations, causing disruption of operations, including a temporary
inability to process customer transactions, order merchandise, accurately track
inventory and revenue, or engage in similar normal business activities.
The Company believes that all of its material systems are Year
2000-compliant, and expects that its total costs to make all its systems Year
2000-compliant will be immaterial. The Company has initiated a program to
contact all of it inventory suppliers plus other vendors and suppliers with
which its systems interface and exchange data or upon which it business depends,
such as banks,
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security alarm monitoring providers, refrigeration equipment suppliers and
maintenance providers and other service suppliers. These efforts are designed to
minimize the extent to which the Company's business will be vulnerable in the
event of the failure of these third parties to remedy their own year 2000
issues.
The Company's failure to implement its Year 2000 corrections in a timely
fashion or in accordance with its current cost estimates, or the failure of
third-party vendors to correct their Year 2000 problems, could have a material
adverse effect on the Company's business, financial condition and operating
results.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
As of December 29, 1997, the Company adopted Statement No. 130, Reporting
Comprehensive Income. Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholder's
equity. Statement No. 130 requires foreign currency translation adjustments,
which prior to adoption were reported separately in shareholder's equity to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement No. 130.
For the 13 weeks ended June 28, 1998 and June 29, 1997, 1997, total
comprehensive income amounted to $62,000 and $3,000, respectively. For the 26
weeks ended June 28, 1998 and the 26 weeks ended June 29, 1997, total
comprehensive income amounted to $368,000 and $(275,000), respectively.
Effective January 1, 1997, the Company adopted Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of Enterprise and Related Information. This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement No. 131 also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The adoption of this Statement did not affect the Company's results
of operations or financial position.
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PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 23, 1998, the Commission declared effective the Company's
Registration Statement as filed with the Commission in connection with the
Company's initial public offering (the "Offering") of common stock, par value
$0.001 per share (the "Common Stock"). The date of commencement of the Offering
was July 23, 1998. The Offering was co-managed by Cruttenden Roth Incorporated
and Black & Company. Pursuant to such Registration Statement, the Company
registered and sold an aggregate of 1,380,000 shares of its Common Stock for a
gross aggregate-offering price of $9,660,000. In connection with the Offering,
the Company incurred total expenses of approximately $1,658,400, including
underwriting discounts and commissions of approximately $772,800. All of these
expenses were direct or indirect payments to others and not payments to
directors or officers (or their associates) or to affiliates or 10% shareholders
of the Company. Of the approximately $8 million in net proceeds received by the
Company upon consummation of the Offering, approximately $4 million were used to
pay off the outstanding balance under the Company's line of credit with Seafirst
Bank. The remaining net proceeds of approximately $4 million were deposited in a
money market account with Bank of America. None of the proceeds was used as
payments to directors or officers (or their associates), or to affiliates or 10%
shareholders of the Company.
Concurrent with the Offering, the Company sold 160,000 shares of Common
Stock at $7.00 per share, in a placement to Kula Fund, an affiliate of
Commonwealth Development Corporation, in reliance on Regulation S under the
Securities Act of 1933, as amended (the "Concurrent Reg. S Placement"). As part
of the Concurrent Reg. S Placement, the Company also sold to Kula Fund a warrant
to purchase 117,000 shares of Common Stock at an exercise price equal to 120% of
the per share price in the Offering. The Company incurred total expenses of
approximately $112,000 in the Concurrent Reg. S Placement. The net proceeds of
approximately $1 million dollars from the Concurrent Reg. S Placement were
deposited in a money market account with Bank of America.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Lease Agreement between Fiji Public Service Association and the
registrant, dated June 4, 1998
11.1 Computation of Earnings Per Share*
27.1 Financial Data Schedule
* See Note 2 to the Unaudited Condensed Consolidated Financial Statements
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated July 28, 1998, relating to
the sale of Common Stock to the Kula Fund in the Concurrent Reg. S Placement.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
COST-U-LESS, INC.
(Registrant)
Date 9/2/1998 /s/ Michael J. Rose
------------------ -----------------------------------------
Michael J. Rose
Chairman of the Board, President and
Chief Executive Officer
Date 9/2/1998 /s/ Allan C. Youngberg
------------------ -----------------------------------------
Allan C. Youngberg
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.1 Lease Agreement between Fiji Public Service Association
and the registrant, dated June 4, 1998
11.1 Computation of Earnings Per Share*
27.1 Financial Data Schedule
________________
* See Note 2 to the Unaudited Condensed Consolidated Financial Statements
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MEMORANDUM OF AGREEMENT made the 4th day of June 1998
BETWEEN FIJI PUBLIC SERVICE ASSOCIATION a trade union duly registered under the
Trade Union Act Cap 96 (which together with its successors and assigns is
hereinafter called "the Lessor") of the one part
AND CUL (FIJI) LIMITED a limited liability company having its registered office
at Lautoka (which together with its successors and assigns is hereinafter called
"the Lessee") of the other part
BACKGROUND
A. The Lessor owns an estate in freehold more particularly described in clause
1.1 as "the Lessor's Property".
B. The Lessor is developing the Centre described in clause 1.1 in the position
on the Lessor's Property shown on the Site Plan referred to in clause 1.1.
C. The Lessee wishes to lease the Premises described in clause 1. 1 and the
parties have entered into this agreement to record the basic terms of an
agreement to lease.
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<PAGE>
THIS AGREEEMENT WITNESSETH as follows:-
1.0 INTERPRETATION
1.1 In this Agreement unless the context otherwise requires:
"MONTHLY RENTAL" means the monthly rental payable by the Lessee to the
Lessor pursuant to the terms of the Lease;
"THE ARCHITECT" means Larsen Holtom Maybin & Company Limited or such other
architect retained by the Lessor with the prior written approval of the
Lessee in respect of the Centre;
"THE BUILDER" means Fletcher Construction Company (Fiji) Limited or such
other contractor retained by the Lessor with the prior written approval of
the Lessee to construct the Centre;
"THE CENTRE" means the Shopping Centre Complex planned for construction on
the Lessor's Property as shown on the Site Plan;
"THE DATE OF PRACTICAL COMPLETION" means the date on which Suva City
Council provides its Certificate of Completion in writing to the Lessor or
the date on which possession of the completed Centre is handed over to the
Lessor by the Builder for the time being constructing the Centre which in
any event shall not be later than 30 November 1998.
"THE FITTING OUT PERIOD" means the period fixed in clause 2 of the First
Schedule;
"THE LEASE" means the lease agreed pursuant to this Agreement to be entered
into pursuant to clause 7 in the form annexed hereto in the Second
Schedule;
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<PAGE>
"THE LEASE COMMENCEMENT DATE" means the 28th day after and excluding the
Date of Practical Completion;
"THE LESSEE" and "THE LESSOR" includes their respective successors,
executors, administrators and assigns;
"THE LESSEE'S WORK" means the works to be carried out in clause 3 of the
First Schedule;
"THE LESSOR'S PROPERTY" means the land comprised on Certificate of Title
No. 24859 being Lot 1 on Deposited Plan No. 6617 and situated at the south
western part of the land adjacent to Laucala Bay Road, Suva comprising of
an area slightly in excess of one (1) acre;
"THE LESSOR'S WORK" means the works to be carried out by the Lessor as set
out in clause 1 of the First Schedule;
"THE OUTLINE PLANS" means the outline plans and specifications for the
Centre attached to First Schedule;
"THE PLANS" means the full plans and specifications for the Centre to be
developed in accordance with and based on the Outline Plans pursuant to
clause 2.1;
"THE PREMISES" means the supermarket building of approximately 30,0000
square feet to be constructed on the Lessor's Property and includes the
adjacent customers' car park;
"THE SITE PLAN" means the plan of the Lessor's Property showing the
approximate location of the Centre.
"THE WARRANTY PERIOD" means six months from the day after the Lessor has
given vacant possession of the Centre to the Lessee in order for the Lessee
to carry out the Lessee's work or the date of practical completion
whichever is the later.
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<PAGE>
1.2 Where obligations bind more than one person those obligations shall bind
those persons jointly and severally.
2.0 LESSOR TO COMPLETE BUILDING
2.1 The Lessor shall arrange for the Architect to with due diligence and
substantially in accordance with and based on the Outline Plans and
specifications of the premises provided by the Lessee to complete the usual
detailed plans and specifications required for building permits and
construction detail.
2.2 The Lessor shall subject to:
(a) the provisions of this Agreement; and
(b) any delays caused through unavailability of building permits or local
authority requirements, strikes, lock-outs, weather, acts of God or
Parliament, or loss by fire, explosion, earthquake or perils or causes
beyond the reasonable control of the Lessor
engage the Builder to complete the Centre and the Premises substantially in
accordance with the Plans by the Date of Practical Completion.
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<PAGE>
2.3 The Lessor shall at its sole cost and expense arrange with the Builder for
the construction works to be carried out with all due diligence, in a
thorough and workmanlike manner and in accordance with normal standard
trade practices and comply with all lawful conditions imposed by the
authority issuing the building permit.
2.4 The Lessor shall have no right to carry out and effect any changes to the
Outline Plans, the Plans and the Premises unless the Lessor obtains in
writing (prior to the carrying of such changes) from the Lessee a change
order to the effect which change order shall not be unreasonably withheld.
2.5 If any materials as set out in the specifications are unprocurable or
subsequently prohibited by any statute, regulation or by-law then the
Builder may, with the prior written consent signed by the Lessor who shall
consult the Lessee, substitute any approved equal permissible materials to
be of a value and quality as near as reasonably practicable with the
specified materials.
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<PAGE>
2.6 The Lessor shall:-
(a) use reasonable endeavours to ensure that the Date of Practical
Completion is not later than 30th day of November 1998;
(b) keep the Lessee fully informed of any likely change to the estimated
completion date as construction proceeds; and
(c) give as much notice as is reasonably possible of the proposed Date of
Practical Completion; and
(d) obtain all necessary approvals, permits and consent from all relevant
statutory authorities before commencement of the Lessor's work and
during each and every stage throughout.
2.7 If the Lessor shall fail to deliver possession of the Shopping Centre
Complex to the Lessee on or before the date of Practical Completion then
the Lessor shall pAy to the Lessee the equivalent of the amount that the
Builder is liable to pay to the Lessor as compensation for each day the
Builder fails to complete the premises (and if there is no such provision
then a sum equal to no less than $1,000.00 per
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<PAGE>
day) as liquidated damages per day including weekends and public holidays
between the proposed Date of Practical Completion and the date when the
Lessor actually delivers possession of the premises.
2.8 If, at any time during the Warranty Period, the Lessor receives from the
Lessee notice of any failure to comply with warranty set forth in clause
2.1 and 2.3, the Lessor shall within a reasonable time but no later than 21
days of the notice and at such times as the Lessee directs, satisfactorily
correct such noncompliance. All costs incidental to such correction and
remedy shall be borne by Lessor.
2.9 If, the Lessor fails to satisfactorily correct or remedy any non-compliance
or damage in accordance with clause 2.8, then the Lessee shall have the
right, but not the obligation to perform, on behalf and at the expense of
the Lessor, any correction or remedy which the Lessor has failed to perform
and of which the Lessee has given the Lessor notice.
7
<PAGE>
3.0 LESSEE'S FIT-OUT WORK
3.1 The Lessee shall upon delivery of possession of the Centre or the premises
by the Lessor carry out the construction in the Premises of the Lessee's
Work and other fitting out works reasonably necessary for the purposes of
Lessee's occupation as set out in clause 3 of the First Schedule hereto.
3.2 To enable the Lessee to have the immediate use and occupation of the
Premises at the Lease Commencement Date the Lessor shall give to the Lessee
the Fitting Out Period during which period the Premises will be available
free of rental for the carrying out by the Lessee of the Lessee's Work and
any other approved fitting out.
3.3 The Lessor will make the Premises available for occupation by the Lessee
for the Fitting Out Period commencing on the date notified by the Lessor
under clause 3.2. During the Fitting Out Period the Lessee shall carry out
and complete the Lessee's Work and other approved fitting out.
3.4 The Lessee shall not use or occupy the Premises during the Fitting Out
Period for any purpose
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<PAGE>
other than the carrying out of the Lessee's Work and any other
approved fitting out.
3.5 The Lessee shall:
(a) with all due speed carry out and complete the Lessee's Work and other
approved fitting out in a good and workmanlike manner during the
Fitting Out Period;
(b) complete the interior of the Premises to a high and tasteful standard
and in accordance with all statutory regulations applicable.
3.6 The Lessee shall immediately upon the expiry of the Fitting Out Period and
prior to the date for the opening of the Centre remove from the Premises
and surrounds all rubbish and trade waste so as to leave the Premises and
surrounds in a clean and tidy condition. If the Lessee fails to comply with
this requirement the Lessor may attend to such removal and cleaning work
and recover the full costs of so doing from the Lessee on demand.
3.7 The Premises shall be at the risk of the Lessee from commencement of the
Fitting Out Period. The Lessee shall during the Fitting
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<PAGE>
Out Period effect and maintain in full force in the name of the Lessor and
the Lessee comprehensive insurance (including contractors all risks and
public liability) in respect of the Lessee's Work and other approved
fitting out with an approved insurance company.
3.8 The Lessee shall keep against all claims, the lessor indemnified actions,
losses and expenses of any nature which the Lessor may suffer or incur or
for which the Lessor may become liable in respect of the carrying out and
existence of the Lessee's Work.
4.0 FORCE MAJEURE
4.1 If at any time the Lessor is prevented from fulfilling the Lessor's
obligations pursuant to this Agreement where such failure is directly or
indirectly caused by or in any way arises or results from force Majeure
beyond the Lessor's reasonable control, the Lessor may terminate this
Agreement by giving written notice to the Lessee accordingly. An act of
force Majeure shall include by way of example only flood, earthquake, civil
disturbances, war, war rationing allocation or embargoes,, national strikes
or labour shortages not peculiar to the Lessor's Property or acts of God or
government
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<PAGE>
or local or regional authorities or any branch or agency of them.
5.0 INSURANCE
5.1 Before work is commenced and during the period of construction and
extension thereto, the Lessor shall insure the works and upon completion of
the Centre in the names of the Lessor and the Lessee for their respective
rights and interests against fire floods lightning storm tempest earthquake
strikes riots civil commotion malicious damage or action of the State's
enemies to their full insurable value.
6.0 ACCESS TO LAND
6.1 The Lessee and the agents of the Lessee are entitled at all reasonable
times to enter upon the land to inspect the Lessor's work.
7.0 AGREEMENT TO ENTER INTO A LEASE
7.1 The Lessor agrees to lease and the Lessee to take on the lease of the
Premises on the terms set out therein and in accordance with this
Agreement. Such Lease shall be in the form and contain the terms,
conditions, covenants and
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<PAGE>
provisions of the Lease attached to this Agreement as attached in the
Second Schedule hereto.
7.2 The Lessee will execute such Lease and redeliver to the Lessor within 30
days of receipt of the Lease by the Lessee or the Lessee's Solicitors.
7.3 Until the Lease has been executed and delivered to the Lessor the parties
shall be bound by the terms, covenants and conditions contained in this
Agreement.
7.4 The Lessee shall be permitted to lodge a Caveat on the Lessor's Property
any time after the execution of this Agreement to protect its interest as a
Lessee only PROVIDED HOWEVER that the Lessee shall withdraw its Caveat at
the written request or on the application of the Lessor on the condition
precedent that the Lessor procures the execution of the deed (to which it
will also be a party) by the relevant financial institution from which the
Lessor intends to obtain financial assistance for the purposes of
construction of the premises herein that the financial institution as
mortgagee along with its successors and assigns will not exercise any of
its rights as mortgagee
12
<PAGE>
including (but not limited to) its powers of sale whereby the Lessee would
or may be deprived of any of its rights under the Lease or suffers any loss
or damage on account of such exercise AND IT IS FURTHER PROVIDED that the
Lessor will after the registration of the said mortgage undertake to
register with the Registrar of Titles the Lease giving the Lessee an
overall second priority ranking over the Lessor's property and until the
Lease is registered as aforesaid the Lessor acknowledges that the Lessee is
entitled to register another caveat to protect its interest as Lessee over
the Lessor's property.
8.0 PREMISES
8.1 The rentable areas of the Premises shall be subject to final measurement by
the Architect whose calculations of area shall be final and binding on both
parties.
8.2 The rental area shall not be less than 30,000 sq feet.
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<PAGE>
9.0 ARBITRATION
9.1 If any dispute or difference shall arise between the parties as to:
(a) the meaning or application of any part of this Agreement; or
(b) concerning any other matter arising from this Agreement for the
proposed lease
the dispute or difference ("the Issue") shall be referred to the award of a
single arbitrator to be agreed upon between the Lessor and the Lessee.
9.2 If the Lessor and the Lessee are unable to agree upon a single arbitrator
within 10 days of either notifying the other in writing of their wish to
have the Issue arbitrated then either party ("the Notifying Party") may at
any time subsequently by notice in writing to the other party ("the
Receiving Party") require the Issue to be determined by two arbitrators
(one to be appointed by the Lessor and one to be appointed by the Lessee)
and their umpire (to be appointed by the arbitrators before proceeding to
determine the Issue). The notice
14
<PAGE>
to be given by the Notifying Party Pursuant to this clause shall:
(a) nominate the arbitrator appointed by the Notifying Party; and
(b) require the Receiving Party to nominate their arbitrator by a date not
less than 10 days after the date of service of the notice by the
Receiving Party; and
(c) warn the Receiving Party of the consequences under clause 10.3 of
failure to appoint an arbitrator by the date specified by the
Notifying Party.
9.3 If the Receiving Party shall fail to appoint their arbitrator by the date
specified then the Notifying Party may by notice in writing to the
Receiving Party have the Issue determined solely by the Notifying Party's
arbitrator.
9.4 If any arbitrator appointed pursuant to clauses 9.1 and 9.2 refuses or
fails to act in pursuance of the arbitration (including appointing an
umpire if necessary) within a reasonable time of their appointment then
either the Lessor or the Lessee may (provided the defaulting arbitrator has
first been given
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<PAGE>
in writing a reasonable time in which request the President of the Fiji Law
to act) Society to appoint a replacement arbitrator or an umpire (if the
arbitrators are unable to agree on an umpire) who shall act in lieu of the
defaulting arbitrator or as the umpire as the case may be.
9.5 Time shall be of the essence under clauses 9.1 to 9.4 (inclusive).
9.6 The parties agree to be bound by any decision or award completed pursuant
to clauses 9.1 to 9.8 (inclusive).
9.7 This provision shall survive the expiration or earlier determination of
this Agreement and the commencement, execution, expiration or earlier
determination of the Lease.
9.8 A referral to arbitration under clause 9.1 shall be a submission to
arbitration under the Arbitration Act and the provisions of that Act shall,
to the extent they re not inconsistent with anything in clauses 9.1 to 9.7
(inclusive), apply.
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<PAGE>
10.0 ASSIGNMENT
10.1 The Lessee shall have the right to assign this Agreement provided it
obtains the prior consent of the Lessor which consent shall not be
unreasonably withheld where the proposed assignee is financially sound,
reputable and reliable and is able to provide a similar bank bond in
respect of the Lease.
11.0 CONSENT
11.1 The Lessor will do all things necessary and incidental to obtain the
written consent of the Minister of Lands to the Lease contemplated herein.
Such written consent shall be obtained by the Lessor on or before the
beginning of the Fitting Out Period.
12.0 SIGNS
12.1 The Lessee shall, at its sole cost and expense, lawfully erect signs
concerning the business of the Lessee or displaying the Lessee's name on
the parking area and building of the demised premises, and the roof
thereof, if permitted by local regulations, by the date of completion
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<PAGE>
and the Lessee agrees to maintain the said signs in good state of repair.
13.0 THE OBLIGATIONS
13.1 The obligation of the Lessee herein shall not merge upon the completion of
the Lessor's Work herein but shall continue to be binding.
15.0 NOTICES
15.1 All notices required hereunder shall be in writing and may be personally
delivered or mailed by certified or registered mail, addressed to the
respective parties, and all notices, demands or other writing to be made,
given or sent hereunder, or which may be so given or made or sent by any
party to the other shall be deemed to have been fully given or made when
personally delivered or if mailed, 3 calendar days following the deposit
thereof at the Post Office, registered or certified, postage prepaid, and
addressed to the respective parties as follows:-
Lessor: The Secretary,
FIJI PUBLIC SERVICES ASSOCIATION,
G.P.O. Box 1405,
Suva, Fiji.
Tel : 311662
Fax : 301099
Attn: Mr. Mahendra Chaudhary
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<PAGE>
Lessee: The Managing Director,
CUL (FIJI) LIMITED,
P.O. Box 7,
Nadi, Fiji.
Tel : 722670
Fax : 720080
Attn: Mr. Terence Buckley
15.0 COST
15.1 EACH party shall bear its own Solicitors cost in preparing and attending
to execution of this Agreement and the Lease except that the Lessee shall
pay disbursements for the stamping of the same.
16.0 PROVISO
16.1 This Agreement and the proposed Lease is subject to the consent of the
Minister of Lands pursuant to Section 6 of the Land Sales Act and also
subject to the Lessor entering into a written contract for construction of
the premises with the Builder.
16.2 The Lessee shall be required on execution hereof to provide to the Lessor
copies of all relevant consents and approvals from the Minister of
Finance, Reserve Bank of Fiji and Trade and Investments Board concerning
its right to carry on business in Fiji.
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<PAGE>
FIRST SCHEDULE
LESSOR AND LESSEES' WORK
1. THE LESSOR'S WORK
The Lessor shall carry out all works to construct the Centre and the
premises be completed substantially in accordance with the Site Plans, the
Outline Plans and the Plans, specifications and calculations provided by
the Architect and the Builder as per Site Plans attached hereto.
2. FITTING OUT PERIOD
The Fitting Out Period shall be a period of 28 days prior to the Lease
Commencement Date.
3. LESSEE'S WORKS
The Lessee shall carry out all works to be completed substantially in
accordance with the Plans and will provide at the Lessee's own cost:
(i) installation of Refrigeration equipment (excluding electrical to main
panel which is Lessor's responsibility);
(ii) installation of steel-racks and shelving;
20
<PAGE>
(iii) Computers,Cash Registers and Counters;
(iv) Office Equipment & Furniture.
(v) Sign Boards, internal partitions, offices and storerooms.
21
<PAGE>
[MAP OF SITE APPEARS HERE]
<PAGE>
[MAP OF SITE APPEARS HERE]
<PAGE>
SECOND SCHEDULE
F I J I
-------
LEASE
-----
FIJI PUBLIC SERVICE ASSOCIATION a trade union duly registered under the Trade
Union Act (Cap 96) (hereinafter called "the Lessor") hereby leases to CUL
(FIJI) LIMITED a limited liability company having its registered office at
Lautoka (hereinafter called "the Lessee") to be held by the Lessee as tenant for
the period of ten (10) years commencing no later than the 1st day of January
1999 or if consent of the Minister of Lands is not obtained by that day then the
1st day of the 1st month following the date of the Minister of Land's consent at
the monthly rental of $30,850.00 (thirty thousand eight hundred and fifty
dollars) per month plus VAT payable on the 1st day of each and every month at
the times and in the manner hereinafter provided for the initial period of 5
years and thereafter at a Fair Market Value rent to be agreed between the Lessor
and the Lessee for the next 5 years which rent is to be determined in accordance
with the procedure set out in clause 4 hereof if no agreement is reached the
Lessor and the Lessee which rent in any event shall not be less than $30,850.00
per month TOGETHER WITH ALL THAT improvement by way of a supermarket complex
(comprising a floor area of not less than 30,000 square feet) with car-park
space for 90 vehicles constructed by the Lessor pursuant to an Agreement dated
____ day of _________, 1998 between the Lessor and Lessee situated on the south
western part of the freehold land situated at Laucala Bay Road, Suva hereinafter
referred to as "the demised premises" and identified in the Schedule hereto ON
ALL THAT OR PARCEL OF LAND described as follows:-
<TABLE>
<CAPTION>
Area
Title Number Description Island City A R P
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lot 1 on Slightly in excess
C. T. 24859 DP No. 6617 Vitilevu Suva of 1 acre
- -------------------------------------------------------------------------------------------------------
</TABLE>
______________________________________________ Lodged by: YOUNG & ASSOCIATES,
SOLICITORS,
No. LAUTOKA. FIJI.
- ---------------------------- ---------------
Registered at
------------------ ----------------
------------------------------------ Date
Registrar of Titles ---------------------------
Documents:
______________________________________________ ----------------------
24
<PAGE>
This Lease is subject to the following conditions, restrictions and covenants:
1. THE Lessee hereby agrees with the Lessor as follows: -
(a) To pay the reserved rent Plus VAT in Suva to the Lessor or to such
agent as it shall from time to time in writing direct;
(b) To pay promptly all apportioned (according to the area utilized) Suva
City Council rates, garbage fees, charges for electricity and water
consumed on the demised premises and not to commit or permit any act
or omission whereby the water or electricity supply shall be or become
liable to be disconnected;
(c) Subject to paragraph 3(h) hereof from time to time and at all times
throughout the said term to uphold and maintain in good and tenantable
repair the interior of the walls floors and ceilings but not if it
relates to structural aspect thereof of the demised premises and the
windows doors locks and fastenings thereof and (but without prejudice
to the Lessee's obligations under paragraph (d) of this clause) the
electrical water and sewerage installations therein and all the
Lessor's fittings and fixtures in connection therewith (fair wear and
tear and damage by fire storm earthquake or inevitable accident or
strikes and riots or civil commotion or action of the States enemies
(without neglect or wilful default of the Lessee) alone excepted and
at the expiry or sooner determination of the said term to deliver up
to the Lessor the demised premises in and tenantable repair save only
as aforesaid;
(d) At the expense of the Lessee to replace or repair all defective or
broken circuit fuses, wall switches and lampholders in the electricity
installations of the demised premises, promptly renew the washers or
any leaking taps in the demised premises and repair and replace all
broken glass including exterior windows in the premises;
(e) Not to throw or permit to be thrown any rubbish or other substances or
things out of any windows or doors of the demised premises or in or
about other parts of the said building to which the Lessee shall have
access or into any water closet or other water supply apparatus of the
demised premises and not to do or permit any act whereby the exterior
walls of the demised premises shall be discolored defaced or damaged;
(f) To duly and promptly comply with all lawful notices and requirements
of the relevant City Council; Medical; Health and other proper Public
Authorities relating to the demised premises in respect of matters
arising from the Lessee's neglect or default;
(g) (i) Not at any time to do or suffer any act or omission upon or about
the demised premises which may render any increased or extra premium
payable for the insurance of the said building against loss or damage
by fire or which may make void or voidable any policy for such
insurance;
(ii) To keep the Lessor indemnified against all claims, actions,
losses and expenses of any nature which the Lessor may suffer or incur
or for which the Lessor may become liable in respect of:
25
<PAGE>
(1) The neglect or careless use or misuse by the Lessee or persons
under the control of the Lessee of the demised premises or
arising out of any faulty fixture or fitting of the Lessee;
(2) Any accident or damage to property or any person arising from any
occurrence in or near the demised premises wholly or in part by
reason of any act or omission by the Lessee or persons under the
control of the Lessee;
(h) Not to suffer or permit any person or persons to carry out or permit
to be carried on in or upon the demised premises any noise or
offensive or immoral business trade calling or purpose nor create any
nuisance thereon or do or suffer to be done any act matter or thing
which shall or may be or may grow to the annoyance nuisance grievance
damage or disturbance of the Lessor or occupiers of any adjoining
lands or premises;
(i) To permit the Lessor or its servants agents contractors or workmen at
all reasonable times and on giving notice to the Lessee to enter into
and upon the demised premises to view the state and condition thereof
or for the purpose of executing repairs or renovations thereto or to
any other part of the building of which the demised premises form part
provided however that the Lessor its servants agents contractors or
workmen shall not enter any strong-room cage or place in the demised
premises where money securities or documents are kept unless
accompanied by an officer of the Lessee and that the Lessor will use
all reasonable endeavors to ensure that any repair or renovation work
shall be carried out in a manner which will not unduly interfere with
the Lessee's business;
(j) The Lessee will not without the consent in writing of the Lessor bring
upon the demised premises any machinery or plant or equipment unless
reasonably necessary or proper for the conduct of the Lessees use of
the demised premises as herein provided and in no event shall any such
machinery plant or equipment be of such nature or size as to cause or
in the reasonable opinion of the Lessor be likely to cause any
structural or other damage to the floors or walls or any other parts
of the demised premises or the common parts. Before bringing any such
equipment upon the demised premises, or the common parts the Lessee
shall inform the Lessor of the Lessee's intention so to do and the
Lessor may direct the routing installation and location of all such
machinery plant and equipment and the Lessee shall observe and comply
with all such directions PROVIDED HOWEVER the Lessor acknowledges that
not withstanding the foregoing, it will and does permit the Lessee to
use heavy duty fork lifts on the demised premises or the common parts
in the normal course of business;
(k) The Lessee will not use or permit to be used the premises or any part
thereof otherwise then as a supermarket;
(l) The Lessee will not assign transfer demise sublet or part with or
share the possession of or grant any license affecting or otherwise
deal with or dispose of the demised premises or any part thereof or
any act or deed procure the demised premises or any part thereof to be
assigned transferred demised sublet shared or put into the possession
of any person or persons without the consent in writing of the Lessor
first had and
26
<PAGE>
obtained which consent shall not be reasonably or arbitrarily withheld
where the assignee or sub-lessee is financially sound reputable and
reliable and is able to provide a similar bank bond in respect of this
Lease as set out in clause 13 hereof.
2. THE Lessor hereby agrees with the lessee as follows:-
(a) Except as expressly made payable by the Lessee to duly and punctually
pay all insurance premiums and other assessments and charges levied
charged or imposed on the Lessor's said land and/or the building
thereon or on the Lessor or occupier thereof in respect thereof;
(b) The Lessee paying the rent hereby reserved and observing and
performing all and singular the agreements and stipulations on the
Lessee's part herein contained or implied shall peaceably hold and
enjoy the demised premises during the said term of years without any
interruption by the Lessor or any person rightfully claiming under or
in trust for the Lessor;
(c) The Lessor will keep in good and tenantable repair and condition the
buildings on the demised premises so that the Lessee shall have the
full and free use and benefit thereof and the demised premises and
without limiting the generality of the foregoing the Lessor will at
all times maintain in good condition and proper working order the
water electrical sewerage and drainage installation in or serving the
said buildings or the demised premises except in the case of a defect
occasioned by the negligence or default of the Lessee;
(d) The Lessee may at its option and at its own cost, paint the interior
or exterior of the demised premises or any part thereof during the
currency of the Lease;
(e) The Lessor will insure and keep insured during the currency of this
Lease all buildings on the demised premises for their full replacement
value against all risks including (but not limited to) fire, malicious
damage, hurricane and earthquake and shall apply all or any proceeds
received under any policy of insurance towards reinstatement or repair
of the buildings or any part thereof as hereafter provided.
3. IT is hereby agreed and declared by and between the parties hereto as
follows:-
(a) If the demised premises or any part thereof shall at any time during
the continuance of this lease be partially destroyed or damaged by
fire floods lighting storm tempest earthquake strikes riots civil
commotion or action of the State's enemies but not to such an extent
as to render the same unfit for the occupation and use of the Lessee
then the Lessor will at Lessor's expense forthwith and with all
reasonable speed reinstate the same and a fair and just proportion of
the rent hereby reserved according to the nature and extent of the
damage sustained shall be suspended and cease to be payable until the
premises shall have been reinstated and made fit for the occupation
and use of the Lessee and in the case of any dispute arising as to the
amount of such abatement of rent the same shall be referred to
arbitration under the provisions of the Arbitration Act;
27
<PAGE>
(b) In case the demised premises shall be destroyed or damaged by fire
flood lightning storm tempest earthquake strikes riots civil commotion
or action of the State's enemies to such an extent as to render the
same wholly untenantable or if through the lawful act of any public
authority the Lessee shall be deprived of the use and enjoyment of the
demised premises then at the absolute option of the Lessee to be
exercised in writing the Lease hereby created may immediately cease
and determine but without prejudice to the rights of either party in
respect of any antecedent breach or non-observance of any covenant or
provisions hereof. If the Lessee does not so exercise the lessee
right to determine this Lease within (6) six months from the date of
entitlement or if it earlier notifies the Lessor of its desire not to
so determine the Lease then this Lease shall continue for the
remaining term and any renewal hereby granted in respect of the
demised term premises. In that event the Lessee shall be entitled to
construct such new building as it shall decide and the Lessor will
apply or cause to be applied insurance proceeds received by or for it
towards such cost of construction;
(c) If the whole of the demised Premises, or if such portions of the
facilities and building improvements comprising part of the demised
Premises as may be required for the reasonable use of the Lessee's
business, shall be taken by virtue of any condemnation or eminent
domain proceeding, this Lease, at the option of the Lessee, shall
automatically terminate as of the date of any final judgment entered
under such condemnation, or as of the date possession is taken by the
condemning authority, whichever is earlier. In the event the Lessee
does not exercise such right to terminate this lease, this Lease shall
continue and the Lessee shall continue in possession of the remainder
of the demised Premises under the terms herein provided, except that
the monthly rent payable herein shall be reduced in proportion to the
amount of the land area of the demised Premises so taken. The Lessee
shall have the right to recover from any condemning authority that
portion of any award attributed to the Lessee's leasehold interest;
(d) If and whenever the rent shall be in arrear and unpaid for twenty (21)
days from the due date the same may be levied by distress;
(e) Without prejudice to the rights power and remedies of the Lessor
otherwise under this Agreement the Lessee will pay to the Lessor
interest at the rate of 13.5% per annum on any moneys including rent
due but unpaid for seven (7) days by the Lessee to the Lessor on any
account whatsoever pursuant to this Agreement such interest to be
computed from the due date for the payment of the moneys in respect of
which the interest is chargeable until payment of such moneys in full
and to be recoverable in like manner as rent in arrears;
(f) If the rent hereby reserved or any part thereof shall be in arrear and
unpaid for the space of twenty-eight (28) days whether the same shall
have been legally or formally demanded or not or if and whenever there
shall be any breach or non-observance or non-performance of any
stipulation condition or agreement herein on the part of the Lessee
contained or implied it shall be lawful for the Lessor forthwith or at
any time thereafter without making any demand or giving any notice or
doing or seeing to the doing of any act matter or thing to re-enter
upon and take possession of the demised
28
<PAGE>
premises or any part thereof in the name of the whole whereupon the
term hereby created shall absolutely cease any rent due or accruing
due hereunder or from liability for any antecedent breach of any
stipulation agreement or condition hereunder;
(g) That no waiver by the Lessor of one breach of any covenant obligation
or provision in this Lease contained or implied shall operate as a
waiver of another breach of the same or of any other covenant
obligation or provision in this Agreement contained or implied;
(h) In the event of the Lessee holding over after the expiration or sooner
determination of the term hereby granted or any lawful renewal thereof
with the consent of the Lessor the Lessee shall become a monthly
Lessee only of the Lessor at a monthly rental equivalent to a monthly
rent payable by the Lessee hereunder after the expiration or sooner
determination of such term or renewal thereof and otherwise on the
said terms and conditions mutatis mutandis as those herein contained
so far as applicable;
(i) The Lessee may prior to the commencement of the said term and from
time to time during the said term and at its discretion make erect or
install alterations additions decorations improvements fixtures
fittings and appliances within the existing building on the demised
premises for the purpose of its business and such shall remain the
property of the Lessee and upon the expiration or earlier termination
of this Lease, the Lessee may remove the same provided that it makes
good any damage to the Lessor's premises occasioned by such removal.
4. AS long as the Lessee is not in default under this Lease, the Lessee shall
have the option to renew the term of this Lease for two renewal terms (each, a
"Renewal Term") of five (5) years provided the Lessee gives to the Lessor at
least nine (9) months notice of its intention to renew the Lease such renewal to
be upon the covenants, terms and conditions as set forth in this Lease, except
that annual rent for such Renewal Term will be the "Fair Market Rental Value"
(defined below) of the Premises at the commencement of the Renewal Term but in
any event the annual rent shall not be less than the rent for the previous term.
In order to exercise its option to renew, Lessee shall give written notice to
Lessor not less that one (1) year prior to the end of the then-current lease
term.
"Fair Market Rental Value" shall be determined as follows: Lessor and Lessee
shall seek to agree as to Fair Market Value within thirty (30) days after Lessee
gives Lessor notice of its election to renew this Lease. If Lessor and Lessee
do not agree about Fair Market Rental Value within such thirty (30) day period,
the following provisions shall apply:
(a) Within fifteen (15) days after the expiration of the thirty (30) day
period, the Lessor and Lessee shall each identify an impartial,
licensed real estate professional familiar to
29
<PAGE>
the Suva area to act as a valuation expert. If either party fails to
appoint an expert within such fifteen (15) day period, then the
determination of the expert first appointed will be final, conclusive
and binding on both parties.
(b) The named experts shall together determine the Fair Market Rental
Value. In making such determination, the experts shall consider the
rentals at which leases are being concluded for comparable space in
the Building and for comparable space in comparable buildings. If the
experts fail to agree on the Fair Market Rental Value within thirty
(30) days of their appointment and the difference in their conclusions
about Fair Market Rental Value is (10%) or less of the lower of the
two determinations. Fair Market Rental Value shall be the average of
the two determinations.
(c) If the two experts fail to agree on Fair Market Rental Value and the
difference between the two determinations exceeds ten percent (10%) of
the lower of the two determinations then the experts shall appoint a
third expert, similarly impartial and qualified, to determine the Fair
Market Rental Value. This third expert shall determine the Fair
Market Rental Value within thirty (30) days of his or her appointment,
and his or her determination will be final, conclusive and binding on
Lessor and Lessee. The Lessor and Lessee shall each execute and
deliver an agreement confirming annual rent for the renewal term.
(d) The Lessor and the Lessee shall each pay the fees of any expert
appointed by the Lessor and Lessee, respectively, and Lessor and
Lessee shall each pay one-half (1/2) of the fees of the third expert,
if any.
5. IN consideration of the sum of $1.00 (One dollar) paid to the Lessor by
the Lessee (the receipt of which sum the Lessor hereby acknowledges) the Lessor
agrees and undertakes that if at any time during the term of this Lease or any
renewal thereof the Lessor shall decide to sell the property comprised in
Certificate of Title No. 24859 then the said property shall be first offered in
writing to the Lessee. The said offer shall be at a price and upon the terms
and conditions as the Lessor shall advise and the offer shall remain open for
acceptance by the Lessee for such period as shall be stipulated being not less
than one month from the date of the service of the offer upon the Lessee. Upon
receipt of
30
<PAGE>
the said offer the Lessee may cause a valuation to be done at its
cost of the property by a qualified registered valuer in Fiji appointed mutually
by the parties or failing agreement by the firm. Such valuation shall be used
by the parties as a basis for negotiating an acceptance of the said offer or any
other price that may be mutually agreed. Should the parties fail to mutually
agree upon a price or should the Lessee refuse to accept the said offer or fail
to do so within the stipulated time then the Lessor shall be free to sell the
said property to anyone else but such sale shall not be at a price lower nor the
terms and conditions any less onerous than those already offered to the Lessee.
In any event the cost of the said valuation shall be shared equally by the
Lessor and the Lessee.
6. THIS Lease is subject to the consent of Minister of Lands pursuant to the
provisions of Section 6 of the Lands Sales Act. The Lessor shall obtain such
consent before the execution of this Lease.
7. (a) THE Lessee shall pay all Value Added Tax (or any similar tax
levied in substitution therefore) on all payments by the Lessee in
terms of this Lease where such payments are levied with such tax.
(b) THE Lessee shall upon demand pay to the Lessor all Value Added Tax (or
Any similar tax levied in substitution therefore) paid or payable by
the Lessor in respect of:
(i) the rental payable under this Lease;
(ii) any other payments paid or payable by the Lessee under this Lease
or paid by the Lessor on behalf of the Lessee in terms of the
Lessee's obligations to make such payment under this Lease.
8. (a) IF any dispute or difference shall arise between the parties as to:
(i) The meaning or application of any part of this Lease; or
(ii) Any other matter in connection with or which may have an effect
on this Lease
the dispute or difference ("the Issue") shall be referred to the award of a
single arbitrator to be agreed upon between the Lessor and the Lessee.
(b) If the Lessor and the Lessee are unable to agree upon a single
arbitrator within 10 days of either the Lessor or the Lessee notifying
the other in writing of their wish to
31
<PAGE>
have the Issue arbitrated then either party ("the Notifying Party")
may at any time subsequently by notice in writing to the other party
("the Receiving Party") required the Issue to be determined by two
arbitrators (one to be appointed by the Lessor and one to be appointed
by the Lessee) and their umpire (to be appointed by the arbitrators
before proceeding to determine the Issue). The notice to be given by
the Notifying Party pursuant to this subclause shall:
(i) Nominate the arbitrator appointed by the Notifying Party; and
(ii) Require the Receiving Party to nominate its arbitrator by a
date not less than 10 days after the date of service of the
notice on the Receiving Party; and
(iii) Warn the Receiving Party of the consequences under subclause 8
(c) of failure to appoint an arbitrator by the date specified
by the Notifying Party.
(c) If the Receiving Party shall fail to appoint its arbitrator by the
date specified then the Notifying Party may by notice in writing to
the Receiving Party have the Issue determined solely by the Notifying
Party's arbitrator.
(d) If any arbitrator appointed pursuant to subclauses 8 (a) or (b)
refuses or fails to act in pursuance of the arbitration (including
appointing an umpire if necessary) within a reasonable time of their
appointment then either the Lessor or the Lessee may (provided the
defaulting arbitrator has first been given in writing a reasonable
time in which to act) request the President of the Fiji Law Society to
appoint a replacement arbitrator or an umpire (if the arbitrators are
unable to agree on an umpire) who shall act in lieu of the defaulting
arbitrator or as the umpire as the case may be.
(e) Time shall be of the essence under this clause.
(f) The parties agree to be bound by any decision or award completed
pursuant to this clause.
(g) This provision shall survive the expiration or earlier determination
of this Lease.
32
<PAGE>
(h) Any referral to arbitration under this clause shall be a submission to
arbitration under the Arbitration Act Cap 38 which Act shall, to the
extent not inconsistent with anything in this clause, apply to any
such submission.
10. ALL notices required hereunder shall be in writing and may be personally
delivered or mailed by certified or registered mail, addressed to the respective
parties, and all notices, demands or other writing to be made, given or sent
hereunder, or which may be so given or made or sent by any party to the other
shall be deemed to have been fully given or made when personally delivered or if
mailed, 3 calendar days following the deposit thereof in the Fiji mail,
registered or certified, postage prepaid, and addressed to the respective
parties as follows:-
Lessor: The Secretary,
FIJI PUBLIC SERVICES ASSOCIATION,
G.P.O. Box 1405,
Suva, Fiji.
Tel: 311662
Fax: 301099
Attn: Mr. Mahendra Chaudhary
Lessee: The Managing Director,
CUL (FIJI) LIMITED,
P.O. Box 7,
Nadi, Fiji.
Tel: 722670
Fax: 720080
Attn: Mr. Terence Buckley
11. EACH party shall bear its own Solicitors cost in preparing and attending to
execution of this Lease except that the Lessee shall pay disbursements for the
stamping and registration of the same.
12. THIS Lease shall be governed by the laws of Fiji.
13. IN consideration of this Lease the Lessee shall arrange with a Bank in Fiji
on execution hereof to give to the Lessor a Bank Bond in the sum of $180,000.00
for the first 5 years as security for the due observance and performance by the
Lessee of the conditions and stipulations hereinbefore contained and on its part
to be observed and performed. The Bank Bond shall be reduced by $30,000.00 per
completed year after completion of 5 years of the Lease until it is reduced to
$90,000.00 on completion of the eighth year of the lease when it shall be
maintained at $90,000.00 for
33
<PAGE>
the balance of the term and the said Bank Bond will apply to any renewal of the
term in accordance with clause 4 hereof.
AND IT ITS EXPRESSILY DECLARED AND AGREED by the Lessee that the said Bank Bond
shall be provided to the Lessor until expiration of the term of this Lease and
that the Lessor shall be entitled to the proceeds of the Bank Bond or part
thereof in the event any rent monies is owing or any loss or damage is sustained
to the Lessor by reason of the non-fulfillment or non-observance of any of the
terms and covenants herein to be performed by the Lessee.
PROVIDED HOWEVER at the expiration or earlier lawful termination of the Lease,
the Lessor shall be entitled to the proceeds of the Bank Bond held hereunder.
IN WITNESS WHEREOF the parties have subscribed their names the day and year
hereinbefore appearing.
THE COMMON SEAL of FIJI PUBLIC )
SERVICE ASSOCIATION was hereunto )
affixed by direction of the Council )
of the Association in the presence of )
A. BATISARESAR the President and )
M.P. CHAUDHARY the General ) [Seal]
Secretary of the Association and who )
certify that they are the proper officers )
by whom and in whose presence the )
Seal is to be affixed: )
/s/ A. Batisaresar /s/ M.P. Chaudhary
- ----------------------------- -----------------------------
President General Secretary
THE COMMON SEAL of CUL (FIJI) )
LIMITED was hereunto affixed in our )
presence and we certify that we are the ) [Seal]
proper officers by whom and in whose )
presence the said Seal is to be affixed: )
/s/ Michael J. Rose /s/ Allan Youngberg
- ----------------------------- -----------------------------
Director Secretary
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<CASH> 1,291
<SECURITIES> 0
<RECEIVABLES> 839
<ALLOWANCES> 64
<INVENTORY> 14,973
<CURRENT-ASSETS> 19,184
<PP&E> 13,751
<DEPRECIATION> 3,310
<TOTAL-ASSETS> 30,598
<CURRENT-LIABILITIES> 16,956
<BONDS> 0
0
0
<COMMON> 3,600
<OTHER-SE> 6,514
<TOTAL-LIABILITY-AND-EQUITY> 30,598
<SALES> 63,205
<TOTAL-REVENUES> 63,205
<CGS> 52,711
<TOTAL-COSTS> 52,711
<OTHER-EXPENSES> 9,768
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> 592
<INCOME-TAX> 205
<INCOME-CONTINUING> 387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 387
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
