<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998.
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
COST-U-LESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
WASHINGTON 5331 91-1615590
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
12410 S.E. 32ND STREET
BELLEVUE, WASHINGTON 98005
(425) 644-4241
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL J. ROSE
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF THE BOARD
COST-U-LESS, INC.
12410 S.E. 32ND STREET
BELLEVUE, WASHINGTON 98005
(425) 644-4241
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
<TABLE>
<S> <C>
GREGORY GORDER MICHAEL J. ERICKSON
NEAL M. SUGGS LAURA A. BERTIN
PERKINS COIE LLP SUMMIT LAW GROUP, P.L.L.C.
1201 THIRD AVENUE, 40TH FLOOR 1505 WESTLAKE AVENUE N., SUITE 300
SEATTLE, WASHINGTON 98101-3099 SEATTLE, WASHINGTON 98109
(206) 583-8888 (206) 281-9881
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share........ 1,963,222 shares $10.50 $20,613,831 $6,082
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 240,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 12, 1998
PROSPECTUS
1,723,222 SHARES
[LOGO OF COST-U-LESS]
COMMON STOCK
Of the 1,723,222 shares of Common Stock offered hereby (the "Offering"),
1,600,000 shares are being sold by Cost-U-Less, Inc. ("Cost-U-Less" or the
"Company") and 123,222 shares are being sold by certain shareholders (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Shareholders. Prior to the Offering, there has been no public market for the
Company's Common Stock. It is currently estimated that the initial public
offering price will be between $9.50 and $10.50 per share. See "Underwriting"
for factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock listed on the Nasdaq
National Market under the symbol "CULS."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS (2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- -----------------------------------------------------------------------------------------------
Total (3).............. $ $ $ $
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Excludes a nonaccountable expense allowance payable to Cruttenden Roth
Incorporated, representative of the Underwriters (the "Representative"),
and the value of a warrant to purchase up to 160,000 shares of Common
Stock at an exercise price equal to 120% of the public offering price to
be issued to the Representative (the "Representative's Warrant"). The
Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $920,000 and the Selling Shareholders estimated at $50,000, including
the Representative's nonaccountable expense allowance, assuming a public
offering price of $10.00 per share.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
240,000 shares of Common Stock on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If all such shares
of Common Stock are purchased, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to certain other conditions, including the right of the Underwriters to
withdraw, cancel, modify or reject any order in whole or in part. It is
expected that delivery of certificates representing the shares will be made on
or about , 1998, at the offices of the Representative, Irvine,
California.
-----------
CRUTTENDEN ROTH
I N C O R P O R A T E D
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
INSIDE FRONT COVER:
[COST-U-LESS LOGO]
[MAP DEPICTING THE COMPANY'S CURRENT STORES, STORES UNDER CONSTRUCTION, SITES
UNDER CONSIDERATION, CORPORATE HEADQUARTERS AND FREIGHT CONSOLIDATION DEPOTS]
CURRENT STORES: Pago Pago, American Samoa; Sonora, California; Dededo, Guam;
Tamuning, Guam; Hilo, Hawaii; Kapaa, Kauai, Hawaii; St. Croix, U.S. Virgin
Islands; St. Thomas, U.S. Virgin Islands
STORES UNDER CONSTRUCTION: Nadi, Fiji; Suva, Fiji; Curacao, Netherlands
Antillies
SITES UNDER CONSIDERATION: Caribbean - Antigua; Aruba; Barbados; Bahamas;
Belize; Bermuda; Dominica; French Guiana; Jamaica; Martinique; St. Lucia; St.
Maartin; St. Vincent & The Grenadines; Trinidad & Tobago. South Pacific - New
Caledonia; New Zealand; Papua New Guinea; Solomon Islands; Suriname; Tahiti;
Tonga; Vanuatu; Western Samoa
CORPORATE HEADQUARTERS: Bellevue, Washington
FREIGHT CONSOLIDATION DEPOTS: Union City, California; Miami, Florida;
Auckland, New Zealand
INSIDE GATEFOLD:
[Nine different pictures depicting the Company's:
. Fresh Produce Department
. Refrigeration Cases
. Meat Department
. Forklift
. Check-out Lanes
. Store Interiors (from an aerial view)
. Computer Systems
. Steel Racking
. Store-fronts]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
The Company has applied for federal registration of the mark and the
stylized logo "Cost-U-Less." All other trademarks or service marks appearing
in this Prospectus are trademarks or service marks of the respective companies
that utilize them.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus. Prospective investors should carefully
consider the information set forth under "Risk Factors." Unless otherwise
indicated, the information contained in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised. Prior to effectiveness of
the Offering, the Company expects to effect a 1-for-3.38773 reverse split of
its outstanding Common Stock. All share and per share information has been
restated to reflect this reverse split.
THE COMPANY
Cost-U-Less is a leading operator of mid-sized warehouse club-style stores in
U.S. territory island markets throughout the Pacific and Caribbean. The
Company's seven island stores are located in Hawaii, the U.S. Virgin Islands,
Guam and American Samoa. The Company has increased its net sales from $13.5
million in 1991 to $125 million in 1997, thereby achieving a compound annual
growth rate of 45%. The Company believes it has developed a proven store
concept, as well as effective operating methods and systems, which together
provide it certain competitive advantages in pursuing the significant
opportunities represented by the many regions that satisfy the Company's
criteria for target island markets. By entering new island markets in the
Pacific and Caribbean, the Company plans to open at least 26 additional stores
within the next four years, including one in each of the last two quarters of
fiscal 1998.
Capitalizing on management's experience in the warehouse club industry, the
Company opened its first retail warehouse store in 1989. In 1992, the Company
initiated its expansion by opening stores in relatively remote island
locations. After experiencing success with its mid-sized store concept, the
Company began experimenting in late 1992 with similar stores in various
mainland markets while continuing to open stores in island markets. Facing
increasing competition from larger discount retailers and warehouse clubs in
its mainland markets while continuing to succeed against similar competitors in
its island stores, management decided in 1995 to return its focus to its core
island markets. In 1996, while further refining its island store concept,
enhancing inventory control and management information systems, adjusting its
island store product mix to include higher-margin items and local merchandise,
and developing a prototype island store design, the Company began the process
of closing nearly all its mainland stores. The Company believes it is now well
positioned to pursue an aggressive growth strategy focused on accelerating the
roll-out of its island stores, starting with two new stores in Fiji for which
leases have been signed and site development has begun.
The warehouse club industry has experienced strong growth in recent years and
consumer acceptance of warehouse club stores has been quite high. According to
Warehouse Club Focus, an industry research group, the U.S. warehouse club
industry achieved compound annual growth rates of 8.4% in retail market share
and 13.4% in industry sales from 1988 to 1997, and reached approximately $41.2
billion in total annual sales in 1997. As the industry has grown, retailing
methods pioneered by warehouse club operators have been well tested and
validated. These methods include emphasizing low overhead by using no-frills
shopping environments and volume purchasing, as well as achieving operating
efficiencies through limited handling of merchandise and floor-to-ceiling
racked shelving. The Company believes that these methods, in combination with
its "no membership fee" policy and its localized merchandising strategy, make
its warehouse club-style stores strongly appealing to island market consumers,
and that additional factors unique to island markets, such as handling
significant geographical or logistical challenges and dealing with various
governmental or cultural issues, together lead to certain competitive
advantages for the Company given its island operations expertise. In addition,
the Company believes that traditional large-format warehouse clubs and discount
retailers are generally unwilling to adapt their multiunit, continent-based
operations to meet the unique characteristics and small populations of island
markets. The Company estimates that there are at least 30 Pacific and Caribbean
islands that meet or exceed its minimum requirements of 40,000 population and
$125 million Gross Domestic Product, and believes these islands represent as
many as 90 potential locations for its island concept stores.
3
<PAGE>
To achieve its anticipated growth, the Company plans to employ a multitier
business strategy designed to leverage the Company's core competencies in
opening and operating stores in distant and diverse locations, while
capitalizing on the inherent features of island markets. Through its past
experience with island operations, the Company has (i) developed a cost-
effective store prototype designed to endure severe island weather conditions,
(ii) negotiated competitive transportation rates, and (iii) adopted innovative
shipping techniques, including use of both cross-dock depots (whereby product
is loaded directly from transportation vehicles to Company containers and
shipped to Company stores with minimal storage time) and independent
distribution facilities. In addition, the Company utilizes modern systems and
merchandising techniques often unused by its local competitors, including
sophisticated computerized systems, efficient shelving and state-of-the-art
refrigeration and air-conditioning equipment, to provide a shopping environment
the Company believes is superior to that of its local competition. Moreover,
benefiting from its retail operating efficiencies, "no membership fee" policy,
and access to volume purchasing discounts, the Company is able to offer
attractive consumer value while maintaining strong margins. The Company also
sources a meaningful portion of its product selection from local island vendors
while deriving the benefits of centralized purchasing. Finally, the Company
manages overhead through the use of efficient facilities, controlled operating
expenditures and labor that the Company believes is less costly than that
generally available in mainland markets.
In addition to its island-operations expertise, the Company believes that its
past success in island markets has also been attributable to a "first-mover"
advantage. By opening stores in markets that other warehouse clubs and discount
retailers have not yet entered, the Company believes that it will be better
able to achieve significant market share and develop name recognition and
customer loyalty, thus further discouraging entry by large-format discount
competition. Accordingly, the Company's future growth is focused on expanding
into relatively untapped markets.
The Company's principal executive offices are located at 12410 S.E. 32nd
Street, Bellevue, Washington 98005, and its telephone number is (425) 644-4241.
The Company was incorporated in the state of Hawaii in April 1989 and
reincorporated in Washington in January 1994. References to Cost-U-Less and the
Company in this Prospectus include the Company and its subsidiaries in Guam,
the U.S. Virgin Islands, American Samoa, Nevada, the Republic of Fiji, New
Zealand, Netherlands Antilles, and the Republic of Vanuatu.
4
<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by:
The Company......................... 1,600,000 shares
The Selling Shareholders............ 123,222 shares
Common Stock to Be Outstanding After
the Offering.......................... 3,599,961 shares(1)
Use of Proceeds........................ Repaying outstanding short-term
indebtedness, and funding the
Company's expansion program, working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol. "CULS"
</TABLE>
- --------
(1) Excludes 984,337 shares of Common Stock reserved for issuance pursuant to
the Company's benefit plans, agreements and warrants, of which options and
warrants to purchase 484,337 shares were outstanding as of March 29, 1998
at a weighted average exercise price of $6.41 per share. No options have
been granted by the Company between March 29, 1998 and the date of this
Prospectus. See "Management--Compensation Pursuant to Plans" and
"Description of Capital Stock."
----------------
This Prospectus contains certain forward-looking statements that involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company or industry trends to
differ materially from those expressed or implied by such forward-looking
statements. Such factors include, among others, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) QUARTER ENDED(1)
------------------------------ --------------------
DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $139,652 $134,820 $124,865 $31,789 $31,753
Gross profit........... 19,477 20,996 20,468 5,066 5,202
Store contribution(2).. 4,528 4,797 5,475 1,136 1,549
Store closing expenses. 400 918 1,346 700 --
Operating income
(loss)................ 800 1,196 1,027 (291) 556
Net income (loss)...... 250 370 363 (278) 326
Diluted earnings (loss)
per common share...... $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15
Weighted average common
shares outstanding,
assuming dilution..... 2,198 2,147 2,124 2,000 2,151
SELECTED OPERATING DATA:
Island stores:
Stores opened......... 2 -- -- -- --
Stores closed......... 1 -- -- -- --
Stores open at end of
period............... 7 7 7 7 7
Average net sales per
square foot(3)(4).... $ 550 $ 520 $ 519 $ 130 $ 138
Comparable store net
sales increase
(decrease)(4)(5)..... (18.5)% (5.0)% (0.2)% (0.4)% 6.1%
Mainland stores:
Stores opened......... 2 -- -- -- --
Stores closed......... -- 1 2 1 --
Stores open at end of
period............... 4 3 1 2 1
Average net sales per
square foot(3)(4).... $ 258 $ 230 $ 244 $ 49 $ 68
Comparable store net
sales increase
(decrease)(4)(5)..... 8.9% (4.2)% (3.2)% (4.9)% (10.0)%
Total stores open at
end of period......... 11 10 8 9 8
Total comparable store
net sales increase
(decrease)(4)(5)...... (15.8)% (4.9)% (0.5)% (0.9)% 5.2%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 29, 1998
----------------------
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 3,059 $16,859
Total assets............................................ 25,223 38,408
Line of credit.......................................... 615 --
Long-term debt, less current maturities................. 1,632 1,632
Total shareholders' equity.............................. 10,052 23,852
</TABLE>
- --------
(1) The Company's fiscal year ends on the last Sunday in December. The fiscal
years ended December 29, 1996 and December 28, 1997 were 52-week fiscal
years, and the fiscal year ended December 31, 1995 was a 53-week fiscal
year. The Company's fiscal quarters are 13 weeks.
(2) Store contribution is determined by deducting store expenses from store
gross profit.
(3) Quarterly average sales per square foot have not been annualized.
(4) Comparable store net sales and average net sales per square foot for fiscal
1995 have been adjusted to reflect a 52-week year.
(5) A new store becomes comparable after it has been open for a full 13 months.
(6) As adjusted to reflect the sale of the 1,600,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $10.00 per share and application of the estimated net proceeds
therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Certain statements under the captions "Prospectus Summary,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as statements
made in the following "Risk Factors" and elsewhere in this Prospectus,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: risks
associated with island and international operations; ability to manage growth;
small store base; competition; dependence on key personnel; general economic
conditions; fluctuations in comparable store sales; and other factors
referenced in this Prospectus. Prospective investors should carefully consider
the following risk factors, in addition to the other information in this
Prospectus.
RISKS ASSOCIATED WITH ISLAND AND INTERNATIONAL OPERATIONS
The Company's net sales from island operations represented approximately 89%
of the Company's total net sales for fiscal 1997. The Company expects that its
island and future international operations together will continue to account
for nearly all of its total net sales. The distance, as well as the time-zone
differences, involved with island locations impose significant challenges to
the Company's ability to manage its operations.
Transportation Issues. The Company's island locales require the
transportation of products over great distances on water, which results in (i)
substantial lags between the procurement and delivery of product, thus
complicating merchandising and inventory control methods, (ii) the possible
loss of product due to potential damage or destruction of ships or containers
delivering the Company's goods, (iii) tariff, customs and shipping regulation
issues, and (iv) substantial ocean freight and duty costs. Moreover, only a
limited number of transportation companies service the Company's regions, none
of which has entered into a long-term contract with the Company. The inability
or failure of one or more key transportation companies to provide
transportation services to the Company, any collusion among the transportation
companies regarding shipping prices or terms, changes in the regulations that
govern shipping tariffs or any other disruption in the Company's ability to
transport its merchandise could have a material adverse effect on the
Company's business, financial condition and operating results. See "Business--
Operations."
Isolation of Store Operations From Corporate Management; Increased
Dependence on Local Managers. The Company's headquarters and administrative
offices are located in Bellevue, Washington; however, seven of the Company's
eight stores and a majority of its employees are located on remote islands.
Although the Company invests resources to hire and train its on-site managers,
the inability of the Company's executives to be physically present at the
Company's current and planned store sites on a regular basis may result in (i)
an isolation of store operations from corporate management and an increased
dependence on store managers, (ii) a diminished ability to oversee employees,
which may lead to decreased productivity or other operational problems, (iii)
construction delays or difficulties caused by inadequate supervision of the
construction process, and (iv) communication challenges. The Company will need
to invest significant resources to update and expand its communications
systems and information networks and to devote a substantial amount of time,
effort and expense to national and international travel in order to overcome
these challenges; failure do so could have a material adverse effect on the
Company's business, financial condition and operating results. See "Business--
Operations."
Weather and Other Risks Associated With Island Operations. The Company's
operations will be subject to the volatile weather conditions and natural
disasters characteristic of the island markets in which the Company's stores
are located, which could result in delays in construction or result in
significant damage to, or destruction of, the Company's stores. In addition,
island operations involve uncertainties arising from
7
<PAGE>
(i) local business practices, language and cultural considerations, including
the capacity or willingness of local business and government officials to
provide necessary services, (ii) the ability to acquire and install modern
capabilities such as dependable and affordable electricity, telephone,
computer, Internet and satellite connections in remote and often undeveloped
regions, (iii) political, military and trade tensions, (iv) currency exchange
rate fluctuations, (v) local economic conditions, (vi) longer payment cycles,
(vii) difficulty enforcing agreements or protecting intellectual property, and
(viii) collection of debts and other obligations in foreign countries. There
can be no assurance that the Company will be able to devote the resources
necessary to meet the challenges posed by island operations; any failure to do
so would have a material adverse effect on the Company's business, financial
condition and operating results. See "Business--Expansion Plans."
Expansion Outside U.S. Territories. All of the Company's existing island
stores are located in U.S. territories throughout the Pacific and Caribbean
(the "U.S. Territories") or the Hawaiian Islands. The Company's future
expansion plans involve entry into foreign countries, which may involve
additional or heightened risks and challenges that are different from those
currently encountered by the Company, including risks associated with being
further removed from the political and economic systems in the United States.
Moreover, the Company intends to open two new stores in Fiji, which has been
subject to significant political and economic unrest during recent years. In
addition, while awaiting government approval of a long-term lease, the lessor
of one of the Company's Fijian sites currently holds a short-term lease on the
underlying property that expires prior to the expiration date of the lease
between the Company and the lessor. The failure to adequately address the
additional challenges involved with international operations, and specifically
those associated with the Company's Fijian stores, could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--Expansion Plans."
Governmental Regulations. Governmental regulations in foreign countries
where the Company plans to expand its operations might prevent or delay entry
into the market or prevent or delay the introduction, or require modification,
of certain of the Company's operations. Additionally, the Company's ability to
compete may be adversely affected by foreign governmental regulations that
encourage or mandate the employment of citizens of, or purchase of supplies
from vendors in, a particular jurisdiction. The Company may also be subject to
taxation in these foreign jurisdictions, and the final determination of its
tax liabilities may involve the interpretation of the statutes and
requirements of the various domestic and foreign taxing authorities. There can
be no assurance that any of these risks will not have an adverse effect on the
Company's business, financial condition and operating results. See "Business--
Governmental Regulations."
ABILITY TO MANAGE GROWTH
The Company intends to pursue an aggressive growth strategy, the success of
which will depend to a significant degree on the Company's ability to (i)
expand its operations through the opening of new stores, (ii) operate new
stores on a profitable basis, and (iii) maintain positive comparable store net
sales. The Company currently operates eight stores and plans to open at least
26 new stores by the end of the year 2002, which represents a significant
increase in the number of stores opened and operated by the Company. Although
in prior years the Company opened new stores on a fairly rapid schedule, it
has not opened any new stores in the last two fiscal years. Moreover, to date,
the Company has never opened more than four stores in any given fiscal year
and has no operating experience in most of the markets in which it expects to
open new stores. These new markets may present operational, competitive,
regulatory and merchandising challenges that are different from those
currently encountered by the Company. There can be no assurance that the
Company will be able to adapt its operations to support these expansion plans
or that the Company's new stores will be profitable.
The Company's ability to open new stores on a timely basis will also depend
on a number of factors, some of which may be beyond the Company's control,
including the ability to (i) properly identify and enter new markets, (ii)
locate suitable store sites, (iii) negotiate acceptable lease terms, (iv)
construct or refurbish sites, and (v) obtain necessary funds on satisfactory
terms. Additionally, the Company relies significantly on the skill and
expertise of its on-site store managers. The Company will be required to hire,
train and retain skilled managers and personnel to support its growth, and may
experience difficulties locating store managers and employees who possess the
training and experience necessary to operate the Company's new stores,
8
<PAGE>
including the Company's management information and communications systems,
particularly in island markets where language, education and cultural factors
may impose additional challenges. Further, the Company has encountered, and
may continue to encounter, substantial delays, increased expenses or loss of
potential sites due to the complexities, cultural differences and local
political issues associated with the regulatory and permitting processes in
the island markets in which the Company intends to locate its stores. There
can be no assurance that the Company will be able to open the planned number
of new stores according to its store-opening schedule or that it will be able
to continue to attract, develop and retain the personnel necessary to pursue
its growth strategy. Failure to do so could have a material adverse effect on
the Company's business, financial condition and operating results.
The Company also will need to continually evaluate the adequacy of its
existing systems and procedures, including store management, financial and
inventory control and distribution systems. Moreover, as the Company grows, it
will need to continually analyze the sufficiency of its distribution depots
and inventory distribution methods and may require additional facilities in
order to support its planned growth. There can be no assurance the Company
will anticipate all of the changing demands that its expanding operations will
impose on such systems. Failure to adequately update its internal systems or
procedures as required could have a material adverse effect on the Company's
business, financial condition and operating results. See "Business--Business
Strategy" and "--Expansion Plans."
SMALL STORE BASE
The Company opened its first store in 1989, opened a total of 14 stores in
the following six years, and presently operates eight stores. From December
1994 to June 1997, the Company has closed six stores, which has adversely
affected the Company's operating results. Should (i) any new store be
unprofitable, (ii) any existing store experience a decline in profitability,
or (iii) the Company's general and administrative expenses increase to address
the Company's expanded operations, the effect on the Company's operating
results would be more significant than would be the case if the Company had a
larger store base, and could have a material adverse effect on the Company's
business, financial condition and operating results. Although the Company
believes that it has carefully planned for the implementation of its expansion
program, there can be no assurance that such plans can be executed as
envisioned or that the implementation of those plans will not have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--General," "--Store Locations" and "--Properties."
COMPETITION
The warehouse club and discount retail businesses are highly competitive.
The Company currently competes in several of its markets against other
warehouse clubs and discount retailers, including Costco Companies, Inc.
("Costco"), Kmart Corporation ("Kmart") and Wal-Mart Stores, Inc. ("Wal-
Mart"). The Company's competition also consists of regional and smaller
discount retailers and other national and international grocery store chains.
Some of the Company's competitors have substantially greater resources, buying
power and name recognition than the Company. While the Company expects that
the size of many of the markets in which it operates or expects to enter will
deter entry by most of its larger competitors, there can be no assurance that
the Company's larger competitors will not decide to enter these markets or
that its smaller competitors will not compete more effectively against the
Company. The Company's gross margin and operating income are generally lower
for those stores in markets where traditional warehouse clubs and discount
retailers also operate stores. The Company may be required to implement price
reductions in order to remain competitive should any of its competitors reduce
prices in any of its markets. Moreover, the Company's ability to expand into
and operate profitably in new markets, particularly small markets, may be
adversely affected by the existence or entry of competing warehouse clubs or
discount retailers. See "Business--Competition."
9
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in large part on the abilities and continued
service of its executive officers and other key employees, including Michael
J. Rose, the Company's founder, Chairman of the Board, President and Chief
Executive Officer, Allan C. Youngberg, the Company's Vice President-Chief
Financial Officer, Secretary and Treasurer and Terence R. Buckley, the
Company's Director of Pacific Expansion. None of the Company's executive
officers or key employees, including Messrs. Rose, Youngberg and Buckley, are
subject to employment agreements that would prevent them from leaving the
Company. There can be no assurance that the Company will be able to retain the
services of such executive officers and other key employees, the loss of any
of whom could have a material adverse effect on the Company's business,
financial condition and operating results. See "Management--Directors,
Executive Officers and Key Employees."
FLUCTUATIONS IN COMPARABLE-STORE SALES
A variety of factors affect the Company's comparable store sales, including,
among others, actions of competitors (including the opening of additional
stores in the Company's markets), the retail sales environment, general
economic conditions, weather conditions and the Company's ability to execute
its business strategy effectively. In addition, the Company's expansion may
result in opening additional stores in markets where the Company already does
business. The Company has experienced a reduction in sales at an existing
Company store when a new Company store was opened in the same market. The
Company's comparable store sales increases (decreases) over the prior period
were (15.8)%, (4.9)% and (0.5)% in fiscal 1995, 1996 and 1997, respectively,
and 5.2% in the first quarter of fiscal 1998. These factors may result in
future comparable store sales increases that are lower than those experienced
in the first quarter of fiscal 1998. Moreover, there can be no assurance that
comparable store sales for any particular period will not decrease in the
future. Following the Offering, changes in the Company's comparable store
sales could cause the price of the Common Stock to fluctuate substantially.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
GENERAL ECONOMIC CONDITIONS
The success of the Company's operations depends to a significant extent on a
number of factors relating to discretionary consumer spending, including
employment rates, business conditions, interest rates, inflation, population
and Gross Domestic Product levels in each of its island markets, taxation,
consumer spending patterns and customer preferences. There can be no assurance
that consumer spending in the Company's markets will not be adversely affected
by these factors, thereby impacting the Company's growth, net sales and
profitability. A decline in the national or regional economies of the United
States and the U.S. Territories where the Company currently operates or any
foreign countries in which the Company will operate could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
DEPENDENCE ON SYSTEMS; YEAR 2000 COMPLIANCE
As the Company expands, it will need to upgrade or reconfigure its
management information systems. While the Company has taken a number of
precautions against certain events that could disrupt the operation of its
management information systems, including in connection with its planned
systems revisions, it may experience systems failures or interruptions, which
could have a material adverse effect on its business, financial condition and
operating results. The Company's business is highly dependent on
communications and information systems, primarily systems provided by third-
party vendors. Any failure or interruption of the Company's systems or systems
provided by third-party vendors could cause delays or other problems in the
Company's operations, which could have a material adverse effect on the
Company's business, financial condition and operating results. Such failures
and interruptions may result from the inability of certain systems (including
those of the Company and, in particular, of third-party vendors to the
Company) to recognize the
10
<PAGE>
year 2000. 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 has implemented a plan to review and monitor its computer systems
to ensure that they are Year 2000-compliant, but does not believe that it will
be required to invest a material amount of funds to make its systems Year
2000-compliant. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000" and "Business--Operations."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or,
if developed, will be sustained following the Offering. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and the Representative, and may not be indicative of the market
price of the Common Stock after the Offering. Certain factors, such as sales
of Common Stock into the market by existing shareholders, fluctuations in
operating results of the Company or its competitors, market conditions
generally for equity securities of similar companies, changes in earnings
estimates by analysts and changes in accounting policies, among other factors,
could cause the market price of the Common Stock to fluctuate substantially.
In addition, the market prices of many securities have been highly volatile in
recent years, often as a result of factors unrelated to a company's
operations. Accordingly, the market price of the Common Stock may decline even
if the Company's operating results or prospects have not changed. See "Shares
Eligible for Future Sale" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock in the public
market following the Offering, whether by purchasers in the Offering or
current shareholders or employees of the Company, could adversely affect the
market price of the Common Stock, and could impair the Company's future
ability to raise capital through an offering of its equity securities. Of the
3,599,961 shares to be outstanding following the Offering, the 1,723,222
shares offered hereby will be freely tradeable and the remaining 1,876,739
shares will be "restricted securities" under Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The Company, its
directors, executive officers, key employees and certain shareholders and
optionholders, who collectively hold an aggregate of 1,638,783 shares and
options and warrants to purchase an aggregate of 484,337 additional shares,
have agreed not to sell, directly or indirectly, any shares owned by them for
a period of 180 days after the date of this Prospectus without the prior
written consent of the Representative. Upon the expiration of this 180-day
lock-up period (or earlier upon the consent of the Representative), all of
these restricted shares (plus shares issuable upon exercise of then-vested
outstanding options and warrants) will become eligible for sale subject to the
restrictions of Rule 144 and Rule 701. The Representative has no current
intention to release any shareholder from the provisions of the lock-up
agreements prior to the expiration of the 180-day lock-up period. See "Shares
Eligible for Future Sale" and "Underwriting."
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, in the aggregate, will
beneficially own approximately 26.7% of the outstanding shares of Common Stock
after the Offering (approximately 25.2% if the Underwriters' over-allotment
option is exercised in full). As a result, the Company's directors and
executive
11
<PAGE>
officers, acting together, would be able to significantly influence and may be
able to control many matters requiring approval by the Company's shareholders,
including, without limitation, the election of directors and approval of
significant corporate transactions. In addition, this concentration of
ownership and voting power may have the effect of accelerating, delaying or
preventing a change in control of the Company or otherwise affect the ability
of other shareholders to influence the policies of the Company. See
"Management," "Principal and Selling Shareholders" and "Description of Capital
Stock."
ANTITAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without shareholder
approval, to issue up to 2,000,000 shares of Preferred Stock and to fix the
rights, preferences, privileges and restrictions of such shares without any
further vote or action by the Company's shareholders. This authority, together
with certain provisions of the Company's Restated Articles of Incorporation
(the "Restated Articles"), may have the effect of making it more difficult for
a third party to acquire, or discouraging a third party from attempting to
acquire, control of the Company, even if shareholders may consider such a
change in control to be in their best interests. In addition, Washington law
contains certain provisions that may have the effect of delaying, deterring or
preventing a hostile takeover of the Company. See "Description of Capital
Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of $3.38 per share in net tangible book value based on an
assumed initial public offering price of $10.00 per share. To the extent that
currently outstanding options to purchase Common Stock are exercised,
purchasers of Common Stock may experience additional dilution. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never declared or paid any cash dividends on the Common
Stock. In addition, the Company does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. See "Dividend Policy."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 1,600,000
shares of Common Stock by the Company hereby, assuming an initial public
offering price of $10.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $13.8 million (approximately $16.0 million if
the Underwriters' over-allotment option is exercised in full). The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders." The Company
intends to use the net proceeds of the Offering to repay outstanding short-
term indebtedness, to fund the Company's expansion program and for working
capital and other general corporate purposes. Specifically, the Company
intends to use approximately $4.0 million of the net proceeds to repay the
expected outstanding balance on the Company's revolving working capital line
of credit (the "Line of Credit") with Bank of America NT & SA dba Seafirst
Bank ("Seafirst Bank"). As of March 29, 1998, the outstanding principal on the
Line of Credit was $615,000. The Line of Credit bears interest at Seafirst
Bank's prime rate (8.5% as of March 29, 1998). In addition, the Company plans
to use approximately $7.0 million of the net proceeds to purchase equipment
and store fixtures for new stores and approximately $1.0 million to upgrade
computer systems for the Company's corporate office and its New Zealand buying
office. The remainder of the net proceeds will be used for working capital and
general corporate purposes. Pending their application, the net proceeds of the
Offering will be invested in short-term, interest-bearing, investment-grade
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock, and presently intends to retain any future earnings to finance its
operations and expand its business. In addition, the Company's various credit
facilities restrict the ability of the Company to declare dividends. The
Company therefore does not anticipate paying cash dividends in the foreseeable
future.
13
<PAGE>
CAPITALIZATION
The following table sets forth the Company's Line of Credit and
capitalization as of March 29, 1998, and as adjusted to give effect to the
Offering (after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company) and application of the estimated net
proceeds therefrom, at an assumed initial public offering price of $10.00 per
share.
<TABLE>
<CAPTION>
MARCH 29, 1998
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Line of Credit............................................... $ 615 $ --
======= =======
Long-term debt, less current maturities...................... $ 1,632 $ 1,632
Shareholders' equity:
Preferred Stock, $0.001 par value per share; 2,000,000
shares authorized; no shares issued or outstanding........ -- --
Common Stock, $0.001 par value per share; 25,000,000 shares
authorized; 1,999,961 shares issued and outstanding,
actual; 3,599,961 shares issued and outstanding, as
adjusted(1)(2)............................................ 3,600 17,400
Retained earnings.......................................... 6,491 6,491
Accumulated other comprehensive income..................... (39) (39)
------- -------
Total shareholders' equity................................. 10,052 23,852
------- -------
Total capitalization..................................... $11,684 $25,484
======= =======
</TABLE>
- --------
(1) Excludes 984,337 shares of Common Stock reserved for issuance pursuant to
the Company's benefit plans, agreements and warrants, of which options and
warrants to purchase 484,337 shares were outstanding as of March 29, 1998
at a weighted average exercise price of $6.41 per share. No options were
granted by the Company between March 29, 1998 and the date of this
Prospectus. See "Management--Compensation Pursuant to Plans" and
"Description of Capital Stock."
(2) See Note 6 of Notes to Consolidated Financial Statements.
14
<PAGE>
DILUTION
As of March 29, 1998, the Company's net tangible book value was
approximately $10.0 million, or $5.02 per share of Common Stock. Net tangible
book value per share represents the Company's total assets less intangible
assets less total liabilities divided by the number of shares of Common Stock
outstanding. Without taking into account any other changes in net tangible
book value after March 29, 1998, other than to give effect to the sale of
1,600,000 shares of Common Stock by the Company in the Offering at an assumed
initial public offering price of $10.00 per share and the receipt by the
Company of the estimated net proceeds therefrom, the net tangible book value
of the Company as of March 29, 1998 would have been approximately $23.8
million, or $6.62 per share. This represents an immediate increase in net
tangible book value of $1.60 per share to existing shareholders and an
immediate dilution of $3.38 per share to purchasers of shares of Common Stock
in the Offering, as illustrated by the following:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $10.00
Net tangible book value per share as of March 29, 1998........ $5.02
Increase per share attributable to new investors.............. 1.60
-----
Pro forma net tangible book value per share after the Offering.. 6.62
------
Dilution per share to new investors............................. $ 3.38
======
</TABLE>
The following table summarizes as of March 29, 1998, after giving effect to
the Offering, the differences between existing shareholders and purchasers of
shares of Common Stock in the Offering with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:
<TABLE>
<CAPTION>
SHARES
PURCHASED(1)(2) TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.... 1,999,961 55.6% $ 3,525,000 18.1% $ 1.76
New investors............ 1,600,000 44.4 16,000,000 81.9 10.00
--------- ----- ----------- -----
Total.................... 3,599,961 100.0% $19,525,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes 984,337 shares of Common Stock reserved for issuance pursuant to
the Company's benefit plans, agreements and warrants, of which options and
warrants to purchase 484,337 shares were outstanding as of March 29, 1998
at a weighted average exercise price of $6.41 per share. No options were
granted by the Company between March 29, 1998 and the date of this
Prospectus. See "Management--Compensation Pursuant to Plans" and
"Description of Capital Stock."
(2) The above table is based on ownership as of March 29, 1998. Sales by the
Selling Shareholders in the Offering will reduce the number of shares held
by existing shareholders to 1,876,739 shares, or 52.1% (48.9% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares outstanding after the Offering, and will increase the
number of shares held by new investors to 1,723,222 shares, or 47.9%
(51.1% if the Underwriters' over-allotment option is exercised in full) of
the total number of shares of Common Stock outstanding after the Offering.
See "Principal and Selling Shareholders."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified in their
entirety by, and should be read in conjunction with, the Company's
Consolidated Financial Statements, including the Notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus. The consolidated
statements of income data for the fiscal years ended December 29, 1996 and
December 28, 1997 and the consolidated balance sheet data as of December 29,
1996 and December 28, 1997 have been derived from the audited consolidated
financial statements of the Company, which were audited by Ernst & Young LLP,
independent auditors, as indicated in their report included elsewhere in this
Prospectus. The consolidated income statement data for the fiscal year ended
December 31, 1995 have been audited by Deloitte & Touche LLP, as indicated in
their report included elsewhere in this Prospectus. The consolidated
statements of income data for the fiscal years ended December 26, 1993 and
December 25, 1994 and the consolidated balance sheet data as of December 26,
1993, December 25, 1994 and December 31, 1995 are derived from consolidated
financial statements audited by Deloitte & Touche LLP that are not included
herein. The consolidated statements of income data and the consolidated
balance sheet data for the quarters ended March 30, 1997 and March 29, 1998
are derived from unaudited consolidated financial statements included herein
which, in the opinion of management of the Company, reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial data for such periods. The results of operations for the quarter
ended March 29, 1998 are not necessarily indicative of the results that may be
expected for any other interim period or for the full fiscal year.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) QUARTER ENDED(1)
-------------------------------------------------- --------------------
DEC. 26, DEC. 25, DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA, AVERAGE SALES PER SQUARE
FOOT, NUMBER OF STORES AND PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales.............. $85,567 $117,204 $139,652 $134,820 $124,865 $31,789 $31,753
Gross profit........... 12,144 16,351 19,477 20,996 20,468 5,066 5,202
Operating expenses:
Store.................. 6,414 10,512 14,949 15,843 14,543 3,840 3,535
General and
administrative........ 1,513 2,210 2,728 3,039 3,225 795 981
Store opening.......... 456 643 600 -- 327 22 130
Store closing.......... -- 840 400 918 1,346 700 --
------- -------- -------- -------- -------- ------- -------
Operating income
(loss)................ 3,761 2,146 800 1,196 1,027 (291) 556
Interest expense....... (84) (160) (555) (605) (427) (124) (55)
Other income (expense). 19 176 150 -- (40) -- --
------- -------- -------- -------- -------- ------- -------
Income (loss) before
income taxes.......... 3,696 2,162 395 591 560 (415) 501
Income tax provision
(benefit)............. 1,305 982 145 221 197 (137) 175
------- -------- -------- -------- -------- ------- -------
Net income (loss)...... $ 2,391 $ 1,180 $ 250 $ 370 $ 363 $ (278) $ 326
======= ======== ======== ======== ======== ======= =======
Diluted earnings (loss)
per common share...... $ 1.17 $ 0.53 $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15
======= ======== ======== ======== ======== ======= =======
Weighted average common
shares outstanding,
assuming dilution..... 2,042 2,210 2,198 2,147 2,124 2,000 2,151
SELECTED OPERATING DATA
Island stores:
Net sales.............. $81,369 $ 97,809 $120,010 $111,413 $111,480 $27,882 $29,547
Store contribution (2). $ 5,852 $ 6,547 $ 4,958 $ 5,212 $ 5,635 $ 1,321 $ 1,584
Stores opened.......... 2 1 2 -- -- -- --
Stores closed.......... -- -- 1 -- -- -- --
Stores open at end of
period................ 5 6 7 7 7 7 7
Average net sales per
square foot(1)(3)..... $ 827 $ 692 $ 560 $ 520 $ 519 $ 130 $ 138
Comparable store net
sales increase
(decrease)(1)(4)...... 10.9% 0.1% (18.5)% (5.0)% (0.2)% (0.4)% 6.1%
Mainland stores:
Net sales.............. $ 4,198 $ 19,394 $ 19,642 $ 23,407 $ 10,684 $ 3,748 $ 1,570
Store contribution (2). $ (157) $ (707) $ (430) $ (415) $ (160) $ (185) $ (35)
Stores opened.......... -- 3 2 -- -- -- --
Stores closed.......... -- 2 -- 1 2 1 --
Stores open at end of
period................ 1 2 4 3 1 2 1
Average net sales per
square foot(1)(3)..... $ 146 $ 208 $ 258 $ 230 $ 244 $ 49 $ 68
Comparable store net
sales increase
(decrease) (1)(4)..... 0.0% 17.6% 8.9% (4.2)% (3.2)% (4.9)% (10.0)%
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DEC. 26, DEC. 25, DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital......... $ 4,479 $ 4,710 $ 3,429 $ 3,635 $ 3,814 $ 3,005 $ 3,059
Total assets............ 13,836 21,907 28,525 24,856 22,815 25,494 25,223
Line of credit.......... -- 622 3,500 1,500 376 2,221 615
Long-term debt, less
current maturities..... 316 798 2,237 1,965 1,169 1,569 1,632
Total shareholders'
equity................. 7,289 8,704 8,957 9,327 9,670 9,049 10,052
</TABLE>
- --------
(1) Fiscal 1995 was a 53-week year; all other fiscal years were 52-week years.
Comparable store net sales and average sales per square foot for fiscal
1995 have been adjusted to reflect a 52-week year.
(2) Store contribution is determined by deducting store expenses from store
gross profit.
(3) Quarterly average sales per square foot have not been annualized.
(4) A new store becomes comparable after it has been open for a full 13
months.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with "Selected
Consolidated Financial Data" and the Company's Consolidated Financial
Statements, including the Notes thereto, included elsewhere in this
Prospectus. In addition to historical information, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains certain forward-looking statements that involve known and unknown
risks and uncertainties. The Company's actual results could differ
significantly from those anticipated in these forward-looking statements as a
result of certain factors, including those discussed in "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Background
Seeking to capitalize on management's experience in the warehouse club
industry, Cost-U-Less began operations in 1989 by opening a mid-sized
warehouse club-style store in Maui, Hawaii. In early 1992, the Company
expanded its operations by opening additional island stores in other
relatively remote island locations. After experiencing success with its mid-
sized store concept, the Company began experimenting in late 1992 with similar
stores in various mainland markets. Over the course of a three-year period,
the Company opened six mainland stores and seven island stores, but, over
time, found that most of the mainland stores were not profitable and did not
meet the Company's performance expectations. The Company believes that the
unanticipated concurrent expansion of large discount retailers in the
Company's mainland target markets, together with the substantially stronger
buying power, broader name recognition, better ability to afford prime
locations for new facilities and overall greater resources of these
competitors, combined to prevent the success of the Company's mainland stores.
The Company's store concept, however, continued to prove successful in the
more remote, and in many ways more challenging, island markets. The Company
therefore refocused on its core competencies in operating island stores and
began closing its mainland stores. The combined operating losses attributable
to mainland stores, including opening and closing expenses (but excluding any
allocation for related general and administrative or interest expenses) in
fiscal 1993 through 1997 totaled $5.8 million. Currently only one mainland
store remains open; the store is profitable and serves as an efficient testing
ground for new operating and merchandising methods. The Company intends to
retain this store while targeting its future growth on island markets. To
date, the Company's island stores have been located in the Hawaiian Islands
and the U.S. Territories. The Company's expansion strategy focuses primarily
on foreign island markets, beginning with the planned opening of its two
stores in Fiji in fiscal 1998.
Store Economics
Cost-U-Less benefits from attractive store-level economics and favorable
returns on investment at its island stores, which the Company believes will
help drive and support its planned expansion. The Company's seven island
stores open during all of fiscal 1997 generated average per store net sales of
$15.9 million, average net sales per square foot of $519, average annual per
store contribution of approximately $805,000 and average annual per store
contribution before depreciation of approximately $888,000. The Company
determines store contribution by deducting store expenses from gross profit.
The Company uses the entire interior space of its store, including receiving
and office space, in calculating average net sales per square foot.
In August 1995, the Company began a program aimed at increasing its gross
margin. The Company (i) added higher margin items, such as fresh meat and
perishables, to its product mix, (ii) negotiated lower freight rates, (iii)
improved and increased item selection in its stores, including offering sizes
that generate higher margins than traditional warehouse pack sizes, and (iv)
emphasized local ethnic items in addition to popular U.S. brand names. As a
result of this program, the Company increased its gross margin from 14.0% in
fiscal 1995 to 16.4% in fiscal 1997.
18
<PAGE>
Since June 1995, the Company has also upgraded its inventory control
systems, by (i) adding bar code scanning at all store cash registers,
receiving docks and distribution facilities, (ii) installing security cameras
in some of its stores, and (iii) implementing an employee incentive program
designed to reward, among other things, reductions in inventory shrink rates.
The effect of implementing these systems has reduced the Company's inventory
shrink expense from 0.6% of net sales in fiscal 1995 to 0.3% in fiscal 1997.
Distribution Facilities
The Company receives, consolidates and loads merchandise at its distribution
facilities, then ships merchandise to its island stores in fully loaded
containers. The Company does not own or operate a warehouse facility and
manages its in-store inventory primarily by electronically monitoring sell-
through of merchandise and maintaining efficient distribution facilities. The
Company's method of inventory management has enabled the Company to achieve
inventory turns of 7.7 for fiscal 1997, which represents an improvement over
the 7.2 inventory turns for fiscal 1996. In-store inventory turns (excluding
product in transit to stores and in the distribution facilities) were 9.5 for
fiscal 1997, compared to 8.5 for fiscal 1996.
Store Openings
The Company expenses store opening costs as incurred. Store opening expenses
include payroll, travel and other costs incurred by the Company in connection
with site selection, licensing, permitting, lease negotiations and
construction supervision, as well as training for new store managers. The
Company anticipates that in fiscal 1998 and 1999 its required investment to
open a new store will be approximately $2.0 million, including approximately
$300,000 for opening expenses, $800,000 for store fixtures and equipment and
$900,000 for inventory. The Company expects to carry approximately $1.8
million of inventory, including $600,000 of inventory in transit. Typically,
50% of the Company's inventory is vendor-financed, resulting in the $900,000
average per-store inventory investment by the Company.
Store Closings
The Company's store closing expenses consist primarily of costs related to
(i) buying out the unexpired portion of the store lease and writing off the
net book value of leasehold improvements and (ii) repairing facilities prior
to their return to the lessor. The Company expenses these items in the period
when the decision is made to close the store.
Wholesale Activities
Beginning in 1997, the Company has sold merchandise from its distribution
facilities at wholesale prices to retailers that, the Company believes, resell
the merchandise in markets not currently served by the Company. In fiscal 1997
and the first quarter of fiscal 1998, gross margin on the Company's wholesale
sales averaged 10.5%. Because there are less handling expenses associated with
the Company's wholesale operations, the Company believes that these operations
provide it with a profit opportunity that does not detract from its primary
business of retail sales.
19
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the percentage of
the Company's net sales represented by certain consolidated income statement
data.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
-------------------------- -------------------
DEC. 31, DEC. 29, DEC. 28, MARCH 29, MARCH 28,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................... 14.0 15.6 16.4 15.9 16.4
Operating expenses:
Store.......................... 10.7 11.7 11.6 12.1 11.1
General and administrative..... 2.0 2.3 2.6 2.5 3.1
Store opening.................. 0.4 -- 0.3 -- 0.4
Store closing.................. 0.3 0.7 1.1 2.2 --
----- ----- ----- ----- -----
Operating income (loss)......... 0.6 0.9 0.8 (0.9) 1.8
Interest expense................ (0.4) (0.5) (0.3) (0.4) (0.2)
Other income.................... 0.1 -- -- -- --
----- ----- ----- ----- -----
Income (loss) before income tax-
es............................. 0.3 0.4 0.5 (1.3) 1.6
Income tax provision (benefit).. 0.1 0.1 0.2 (0.4) 0.6
----- ----- ----- ----- -----
Net income (loss)............... 0.2% 0.3% 0.3% (0.9)% 1.0%
===== ===== ===== ===== =====
</TABLE>
Quarter Ended March 29, 1998 Compared to Quarter Ended March 28, 1997
Net Sales. Net sales of $31.8 million in the first quarter of fiscal 1998
were unchanged compared to the first quarter of fiscal 1997, despite closure
of two mainland stores, which stores in the first quarter of fiscal 1997
together generated approximately $2.0 million in net sales. The Company did
not open any new stores in the first quarter of either year. Comparable store
sales increased 5.2%, or $1.5 million. The Company believes the increase in
comparable store sales in the first quarter of fiscal 1998 was primarily
attributable to the introduction of the Company's program to improve
merchandising and store promotions, and that comparable-store sales could
fluctuate in the future.
Gross Profit. Gross profit increased to $5.2 million from $5.1 million in
the comparable period of the prior year, despite closure of two mainland
stores, which in the first quarter of 1997 together generated $246,000 in
gross profit. Gross margin increased to 16.4% from 15.9% in the comparable
prior period. The increase in gross margin was primarily due to the closure of
two mainland stores with lower gross profit margins, and to increased sales in
higher-margin departments such as fresh meat, perishables and frozen foods in
the Company's other stores. Comparable store gross profit increased $348,000.
Store Expenses. Store expenses decreased $305,000, or 7.9%, to $3.5 million
from $3.8 million in the comparable period of the prior year. The decrease was
primarily attributable to a $431,000 reduction in store expenses associated
with the two mainland stores that were closed in fiscal 1997, which was offset
primarily by an increase of $126,000 from higher wage rates, advertising
expenses and facility costs in the first quarter of fiscal 1998. Store
expenses overall decreased as a percentage of net sales to 11.1% from 12.1%.
General and Administrative Expenses. General and administrative expenses
increased $186,000, or 23.4%, to $981,000 from $795,000 in the comparable
period of the prior year, and increased as a percentage of net sales to 3.1%
from 2.5%. The increase was primarily due to hiring additional corporate
personnel in preparation for the Company's expansion program and a $75,000
one-time noncash expense associated with the grant in January 1998 of a stock
option to one of the Company's directors.
Store Opening Expenses. Store opening expenses were $130,000 in the first
quarter of fiscal 1998 and $22,000 in the comparable period in fiscal 1997.
These expenses were attributable to new stores scheduled to
20
<PAGE>
open in the second half of fiscal 1998 and site selection costs related to
store openings anticipated for fiscal 1999.
Store Closing Expenses. The Company incurred store closing expenses of
$700,000 in the first quarter of fiscal 1997. The Company did not incur any
store closing expenses in the comparable period in fiscal 1998. The Company
expects to incur an estimated $250,000 of expenses in the second quarter of
fiscal 1998 in connection with costs associated with closing the existing St.
Thomas facility, concurrent with opening the new St. Thomas facility.
Interest Expense. Interest expense declined to $55,000 from $124,000 in the
comparable period of the prior year due to a decrease in the Company's average
outstanding borrowings.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales in fiscal 1997 declined $9.9 million, or 7.4%, to
$124.9 million from $134.8 million in the prior year. The decrease was
primarily due to store closures, which reduced sales by $12.3 million, and a
decline in comparable store sales of $577,000. This decrease in comparable
store sales was largely attributable to the Company's Hawaii stores, for which
sales decreased $1.7 million in fiscal 1997 compared to fiscal 1996. The
Company believes that the decrease in sales for its Hawaii stores was
principally due to a long-term statewide recession and a significant increase
in the level of competition in the Hawaii market. The decrease in net sales
was partially offset by $2.7 million in wholesale sales and by a comparable
store sales increase in the Company's other island stores of $1.5 million, or
1.7%.
Gross Profit. Gross profit decreased to $20.5 million from $21.0 million,
which resulted from a comparable store gross profit increase of $966,000 in
fiscal 1997, offset by a $1.7 million decline in gross profit attributable to
store closures in fiscal 1997. Gross margin increased to 16.4% in fiscal 1997
from 15.6% in fiscal 1996. The increase in gross margin was due to the closure
of three low-margin mainland stores, increased sales in higher-margin
departments such as the fresh meat and perishable departments, and decreased
distribution costs in its island stores.
Store Expenses. Store expenses decreased $1.3 million, or 8.2%, to $14.5
million from $15.8 million, and decreased as a percentage of net sales to
11.6% from 11.7%. The decrease was primarily due to a reduction in store
expenses from closed stores of $2.0 million. This reduction was offset by an
increase in store expenses for existing stores of $673,000, primarily from
wage rate increases associated with pay raises provided by the Company to its
hourly employees during the first three years of employment, the increased
rate at which the Company accrues vacation pay, increased rent associated with
consumer price index increases and utility usage relating to added
refrigeration capabilities.
General and Administrative Expenses. General and administrative expenses
increased $186,000, or 6.1%, to $3.2 million from $3.0 million, and increased
as a percentage of net sales to 2.6% from 2.3%. The increase was primarily due
to an increase in the number of corporate employees hired to support the
Company's planned expansion and increased accounting and tax preparation fees
related to incorporation of U.S. Territory stores as wholly owned
subsidiaries.
Store Opening Expenses. The Company incurred store opening expenses of
$327,000 in fiscal 1997. The Company did not incur any store opening expenses
in fiscal 1996. The fiscal 1997 store opening expenses were primarily for
payroll and travel costs associated with site selection, licensing, permitting
and lease negotiations for new stores.
Store Closing Expenses. Store closing expenses increased to $1.3 million
from $918,000 due to closing two stores in fiscal 1997 compared to closing one
store in fiscal 1996.
Interest Expense. Interest expense declined $178,000 in fiscal 1997 due to a
decrease in average outstanding borrowings to $3.7 million in fiscal 1997 from
$6.0 million in fiscal 1996.
21
<PAGE>
Other Expenses. Other expenses were comprised of insurance deductibles for
property and business interruption claims, including those related to the
effects of Typhoon Paka in Guam in December 1997.
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales in fiscal 1996 declined $4.9 million, or 3.5%, to
$134.8 million from $139.7 million. The decrease was due to a number of
factors. Fiscal 1996 was a 52-week year while fiscal 1995 was a 53-week year,
with an additional $2.3 million in sales attributable to the extra week. In
fiscal 1996, the Company closed one store, which further reduced net sales by
$7.0 million, though this reduction was offset by sales increases of $9.0
million in fiscal 1996 in the four stores that the Company opened in fiscal
1995. The Company opened no new stores in fiscal 1996. Comparable store sales
decreased 4.9% in fiscal 1996, primarily due to opening an additional Guam
store in a neighboring town during March 1995. Excluding the original Guam
store, comparable store island sales increased 1.1%, or $856,000.
Gross Profit. The Company's gross profit increased to $21.0 million from
$19.5 million. Gross margin increased to 15.6% from 14.0%. The increase in
gross profit resulted from a comparable store gross profit increase of
$822,000 and a $1.5 million increase from four stores opened in fiscal 1995,
offset by a $758,000 loss of gross profit from a store closure at the end of
fiscal 1995. The increase in gross margin was primarily a result of sales in
higher-margin produce and meat departments, increased selection of other
higher-margin items, decreased freight and distribution costs and increased
prices on non-price-sensitive items.
Store Expenses. Store expenses increased $894,000, or 6.0%, to $15.8 million
from $14.9 million and increased as a percentage of net sales to 11.7% from
10.7%. The increase was attributable to a $1.8 million increase from stores
opened during fiscal 1995 and a $469,000 increase in store expenses related to
increased depreciation, utilities and maintenance expenses associated with new
refrigeration equipment, the increased rate at which the Company accrues
vacation pay, and professional fees associated with store lease negotiations
and incorporation of the island stores, offset by a $1.2 million reduction of
store expenses for stores closed in fiscal 1996. The increase in store
expenses as a percentage of net sales was due primarily to the effect of
opening a second store in Guam during fiscal 1995, which increased total store
expenses for the two Guam stores by $401,000 in fiscal 1996 compared to fiscal
1995.
General and Administrative Expenses. General and administrative expenses
increased $311,000, or 11.4%, to $3.0 million from $2.7 million and increased
as a percentage of net sales to 2.3% from 2.0%. The increase was primarily due
to additional personnel and costs related to four new stores opened in fiscal
1995.
Store Opening Expenses. In fiscal 1995, the Company incurred store opening
expenses of $600,000 for four new stores: one in Guam, one in American Samoa
and two in California. The Company did not incur any store opening expenses in
fiscal 1996.
Store Closing Expenses. Store closing expenses increased to $918,000 from
$400,000. The Company closed one mainland store in December 1996, which
necessitated buying out a long-term lease, and closed the Maui, Hawaii store
in December 1995. The Maui store was near the end of its lease term, and the
Company did not renew the lease because of the continued recession in Hawaii
and the opening of two new large-format discount retail stores in the same
town.
Interest Expense. Interest expense increased $50,000 due to an increase in
average outstanding borrowings to $6.0 million in fiscal 1996 from $4.4
million in fiscal 1995.
Other Income. Other income in fiscal 1995 of $150,000 was comprised of an
insurance recovery for business interruption claims related to the effects of
Hurricane Marilyn in St. Thomas in September 1995.
22
<PAGE>
QUARTERLY OPERATING RESULTS
The following table sets forth unaudited financial information derived from
the Company's consolidated quarterly statements of income for the nine
quarters ended March 29, 1998. This information includes all adjustments,
consisting only of normal recurring accruals, that the Company considers
necessary for a fair presentation.
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------------- ---------------------------------- -------
MAR. 31 JUN. 30 SEP. 29 DEC. 29 MAR. 30 JUN. 29 SEP. 28 DEC. 28 MAR. 29
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $33,443 $33,844 $32,717 $34,816 $31,789 $31,868 $29,747 $31,461 $31,753
Gross profit............ 4,940 5,194 5,210 5,652 5,066 5,240 4,876 5,286 5,202
Operating expenses:
Store.................. 3,841 3,918 3,918 4,166 3,840 3,677 3,484 3,542 3,535
General and administra-
tive.................. 823 752 691 773 795 788 769 873 981
Store opening.......... -- -- -- -- 22 46 115 144 130
Store closing.......... -- 25 30 863 700 600 -- 46 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss). 276 499 571 (150) (291) 129 508 681 556
Interest expense........ (135) (124) (117) (229) (124) (121) (118) (64) (55)
Other income (expense).. -- -- -- -- -- -- -- (40) --
Income tax provision
(benefit).............. 50 140 194 (163) (137) 5 126 203 175
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 91 $ 235 $ 260 $ (216) $ (278) $ 3 $ 264 $ 374 $ 326
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company's quarterly operating results have fluctuated in the past and
are expected to fluctuate in the future as a result of a variety of factors,
including the timing of store openings and related store opening expenses,
weather conditions, price increases by suppliers, actions by competitors,
conditions in the discount retail market in general, regional, national and
international economic conditions and other factors.
The Company expects its business to exhibit some measure of seasonality,
which it believes is typical of the retail industry. Per store sales in the
fourth quarter are typically higher than in other quarters due to holiday
sales. The Company's quarterly results also reflect variations due to the use
of estimates in the first and third quarters for inventory shrink. These
estimates are adjusted to actual physical counts in the second and fourth
quarters. The Company traditionally accrues 0.5% of net sales for inventory
shrink and adjusts the accrual based on the results of the actual physical
count, which generally results in a lower shrink expense in the second and
fourth quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations with internally
generated funds, the Company's credit facilities and private equity
transactions.
Net cash provided by (used in) operations was $205,000 and $(36,000) for the
first quarter of fiscal 1997 and 1998, respectively. In the first quarter of
fiscal 1998, operating cash flow was used primarily to replenish inventories
after the fourth quarter holiday season. In the comparable period in fiscal
1997, the Company was able to replenish inventories primarily from inventories
available from a store closure. For fiscal 1995, 1996 and 1997, net cash
provided by operations was $186,000, $2.3 million and $4.6 million,
respectively. The increase in net cash provided by operations over that period
was attributable to the Company's ability to reduce inventories through
improved inventory and purchasing systems in fiscal 1996 and 1997 and store
closures in each year.
Net cash used in investing activities was $581,000 and $1.8 million for the
first quarter of fiscal 1997 and 1998, respectively. The increase in the first
quarter of fiscal 1998 was primarily due to construction costs incurred for
the new St. Thomas store. Cash used in investing activities for fiscal 1995,
1996 and 1997 was $3.1 million, $2.0 million and $899,000, respectively. The
decline was primarily a result of discontinuing expansion activities during
these years.
23
<PAGE>
Net cash provided by financing activities was $324,000 and $778,000 for the
first quarter of fiscal 1997 and 1998, respectively. The increase in the first
quarter of fiscal 1998 was primarily due to the receipt of $1.0 million from
the construction loan for the new St. Thomas building. Net cash provided by
(used in) financing activities for fiscal 1995, 1996 and 1997 was $4.3
million, $(1.8) million and $(2.7) million, respectively, primarily reflecting
a reduction in the last two fiscal years of the outstanding balance on the
Company's bank credit facilities to $760,000 as of December 28, 1997 from a
high of $8.2 million in June 1995.
On May 1, 1998, the Company renewed and increased the Line of Credit to $7.0
million, which now expires May 1, 1999. Borrowings under the Line of Credit
were $2.1 million at May 1, 1998. Of the borrowings under the Line of Credit,
$633,000 bear interest at the bank's prime rate (8.5% at May 1, 1998) and $1.5
million at the LIBOR plus 1.5% (7.17% at May 1, 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, payment of
cash dividends and cash flow coverage.
The new St. Thomas store will be constructed and owned by the Company at a
total estimated cost of $3.0 million, including $400,000 for furniture,
fixtures and equipment. The Company obtained $3.0 million of construction
financing from two banks for its new store in St. Thomas. The construction
financing included a $1.0 million note payable with interest at the LIBOR plus
1.75% (7.77% at May 1, 1998), maturing on April 30, 2000. The construction
financing also included a $2.0 million note payable with interest at the
bank's prime rate plus 1.0% (9.5% at May 1, 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.
The Company estimates that its total cash outlay for opening a typical
island store will be approximately $2.0 million. The Company plans to open
three stores in fiscal 1998 (one store in St. Thomas and two stores in Fiji),
and six stores in each of fiscal 1999 and 2000. Overall, the Company
anticipates opening at least 26 new stores by the end of fiscal 2002. See
"Business--Expansion Plans."
When opening a new store, as well as on an on-going basis, the Company
expects 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.
The Company's cash needs are primarily for working capital to support its
inventory requirements and for store expansion. The Company intends to use a
portion of the net proceeds of the Offering to finance its expansion program
in fiscal 1998 and 1999 and to repay debt outstanding under the Line of
Credit, which is expected to be $4.0 million upon closing of the Offering. See
"Use of Proceeds." The Company believes that the net proceeds of the Offering,
together with amounts from bank financing and fixed-term capital asset loans
and net cash from operations, will be sufficient to satisfy the Company's
currently anticipated working capital and capital expenditure requirements
through fiscal 1999.
YEAR 2000
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 has implemented a plan to review and monitor its computer systems
to ensure that they are Year 2000-compliant, but does not believe that it will
be required to invest a material amount of funds to make its systems Year
2000-compliant. 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. See "Risk Factors--Dependence on Systems; Year 2000
Compliance."
24
<PAGE>
BUSINESS
GENERAL
Cost-U-Less is a leading operator of mid-sized warehouse club stores in the
U.S. Territories. The Company enjoys significant benefits from the extensive
experience of its management team in the warehouse club industry. As a result
of prior relationships with industry leaders such as Costco, the Company's
officers and key employees gained competencies related to the operation
methods, purchasing strategies and management information systems employed by
warehouse clubs. The Company's key personnel developed and implemented a
business plan whereby the Company purchased merchandise at retail from
existing large-format warehouse clubs and then resold the merchandise, at
attractive margins, through stores located in relatively remote and
underserved markets. By selling only products proven to be successful at
established warehouse clubs, the Company minimized its need for in-house
buyers and was able to keep corporate costs low. The Company utilized this
strategy for several years and maintained its focus on operating pursuant to
an effective and low-cost business model. However, as sales volume grew, the
Company became able to source its merchandise directly from manufacturers,
thereby significantly reducing its cost of goods. Over time, the Company
augmented its corporate buying team as it began to increasingly tailor its
product mix to its specific markets and further realize the benefits of direct
purchasing. The Company then began to build a functional corporate
infrastructure to support anticipated growth.
Capitalizing on management's experience in the warehouse club industry, the
Company opened its first retail warehouse store in 1989. In 1992, the Company
initiated its expansion by opening stores in relatively remote island
locations. After experiencing success with its mid-sized store concept, the
Company began experimenting in late 1992 with similar stores in various
mainland markets while continuing to open stores in island markets. Facing
increasing competition from larger discount retailers and warehouse clubs in
its mainland markets while continuing to succeed against similar competitors
in its island stores, management decided in 1995 to return its focus to its
core island markets. In 1996, while further refining its island store concept,
enhancing inventory control and management information systems, adjusting its
island store product mix to include higher-margin items and local merchandise,
and developing a prototype island store design, the Company began the process
of closing nearly all its mainland stores. The Company believes it is now well
positioned to pursue an aggressive growth strategy focused on accelerating the
roll-out of its island stores, starting with two new stores in Fiji for which
leases have been signed and site development has begun.
The Company intends to concentrate its future expansion efforts on island
markets, which it believes offer significant opportunities for growth. To
achieve its anticipated growth, the Company plans to employ a multitier
business strategy designed to leverage the Company's core competencies in
opening and operating stores in distant and diverse locations, while
capitalizing on the inherent features of island markets. Moreover, the Company
intends to continue utilizing a "first-mover" advantage. By opening stores in
markets that other warehouse clubs and discount retailers have not yet
entered, the Company believes that it will be better able to achieve
significant market share and develop name recognition and customer loyalty,
thus further discouraging entry by large-format discount competition.
Accordingly, the Company's future growth involves expanding into relatively
untapped markets, and the Company has identified a number of islands
throughout the Pacific and Caribbean in which warehouse clubs and discount
retailers have not opened stores.
INDUSTRY OVERVIEW
According to Warehouse Club Focus, an industry research group, sales in the
warehouse club industry totaled approximately $13.3 billion in 1988,
representing 1% of U.S. nonautomotive retail sales, which totaled
approximately $1.28 trillion. In calendar year 1997, industry-wide sales
totaled approximately $41.2 billion, or 2.1% of all U.S. nonautomotive retail
sales, which totaled approximately $1.93 trillion. These results represent
compound annual growth rates of 13.4% for warehouse club sales and 8.4% for
market share. The compound annual sales growth rate of 13.4% compares to only
4.7% in compound annual growth for U.S. nonautomotive retail sales over the
same period. Warehouse club industry sales have increased steadily, capturing
an increasing percentage of U.S. nonautomotive retail sales in each of the
last 10 years. Spawned in the 1970s with the introduction of a regional
Southern California membership-based retail and wholesale warehouse club, the
warehouse club industry has grown to include three national warehouse club
chains, Costco, BJ's
25
<PAGE>
Wholesale Club, Inc. and Sam's Club (a subsidiary of Wal-Mart), with 1997
annual sales growth rates of 16.5%, 8.6% and 4.8%, respectively.
Traditional warehouse clubs focus on both retail and small-business
customers, with store formats averaging approximately 115,000 square feet.
These retailers typically (i) offer a range of national brand and selected
private label products, often in case, carton or multiple-pack quantities,
(ii) provide no-frills, self-service warehouse facilities with pallet-stacked
product aisles, and (iii) charge annual membership fees. Prior to the
inception of the membership warehouse club concept in the mid-1970s, the
dominant companies selling comparable lines of merchandise were department
stores, grocery stores and traditional wholesalers. Warehouse clubs positioned
themselves as low-price leaders in the communities they entered and thereby
quickly gained market share as their new merchandising concepts and aggressive
marketing techniques led to a more competitive retail environment.
The Company believes that its target island markets are similar in many
respects to those found in the United States before the introduction of the
first warehouse club stores; however, island markets are characterized by
distinct attributes that, management believes, lead to certain competitive
advantages for the Company. Logistical challenges are presented by operating
individual store units in remote locations, whether in terms of information
flow or transportation of goods. Meeting these challenges requires specially
tailored systems and methods. Issues related to receiving local government
approvals, dealing with island real estate and site selection, and
constructing weather-resistant buildings that have been properly formatted for
efficient retailing are difficult to overcome. Retailers, and thus consumers,
in island markets often have limited experience with modern, more effective
retailing methods and therefore, the Company believes, an opportunity exists
to capitalize on competitive advantages inherent in employing such techniques.
In addition, while the typical U.S. warehouse club customer has virtually
unlimited access to popular U.S. brand-name products, these products are
carried by relatively few local island retailers. As a result, an unusually
strong yet largely unsatisfied demand for certain products may exist. Each
island or region demonstrates unique consumer preferences and thus may require
effective retailers to conduct regional research and to incorporate flexible
localized merchandise purchasing policies in order to offer a diverse
selection of local products, as well as popular U.S. brand-name products.
Based on the increasing acceptance of the traditional warehouse-club concept
in mainland markets, the Company's experience and operating results in current
island locations, as well as its market research of potential markets, the
Company believes that significant opportunities exist in island markets for
expansion of its warehouse club store concept.
The Company has identified its prototypical target market as an island with
a minimum population of 40,000 and a Gross Domestic Product of at least $125
million. The Company estimates that at least 30 Pacific and Caribbean islands
meet or exceed these criteria. Based on its estimates, the Company believes
these islands currently represent as many as 90 potential locations for its
island concept stores.
BUSINESS STRATEGY
The Company's goal is to become the leading operator of warehouse club-style
stores in island markets by leveraging its island-operations expertise,
utilizing modern systems and merchandising techniques, offering competitive
prices while maintaining attractive margins, providing a localized product mix
and benefiting from low overhead costs.
Concentrate Expansion Efforts in Island Markets. The Company's expansion
strategy focuses on opening mid-sized warehouse club-style stores in island
markets throughout the Pacific and Caribbean. The Company believes these
markets offer significant opportunities for growth. Specifically, island
markets are often characterized by (i) significant geographic and logistical
challenges, (ii) local competition with minimal experience in modern retailing
methods, and (iii) a high demand for U.S. brand-name products that have
limited availability. In addition, the Company believes that traditional
large-format warehouse club and discount retailers are generally unwilling to
adapt their multiunit, continent-based operations to meet the unique
characteristics and small populations of island markets.
Leverage Island-Operations Expertise. Capitalizing on its experience in
opening and operating retail warehouse club-style stores in remote U.S.
Territories and the Hawaiian Islands, the Company has developed
26
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core competencies in overcoming the inherent challenges of island market
operations. The Company has refined a mid-sized building prototype designed to
endure severe island weather conditions. This prototype also incorporates low
construction costs, specifications that can be easily and quickly replicated,
and standardized equipment designed either to be readily repaired by island
employees or efficiently monitored off-site by equipment vendors. Moreover,
the Company has made a significant investment in its information systems and
communication networks, enabling corporate management and store buyers to
receive daily sales and inventory information and maintain regular contact
with in-store management and employees. In addition, through its longstanding
relationships with steamship lines, and with its present volume of deliverable
goods, the Company has negotiated what it believes to be competitive
transportation rates while selecting efficient shipping routes and cost-
effective freight techniques, including the use of both a Company-operated
cross-dock depot and independently operated distribution facilities.
Utilize Modern Systems and Merchandising Methods to Successfully Enter
Target Markets. Merchants in target markets often have not adopted modern
retail operating efficiencies, including computerized cash registers and
inventory-tracking devices, state-of-the-art refrigeration and air-
conditioning equipment, efficient shelving and display racks, improved
forklifts and sophisticated security systems. Moreover, the Company believes
that many locally operated stores do not have access to the vendor network and
distribution channels developed by the Company. As a result, the Company
believes that it will be able to successfully enter remote island markets by
using its advanced systems to provide a superior shopping environment for its
customers by (i) monitoring sales and inventory levels and using this
information to respond rapidly to changing consumer preferences and (ii)
offering a level of product selection and customer service often not found in
most of its local competitors' island stores.
Emphasize Strong Margins While Maintaining Everyday Low Prices. In addition
to providing a pleasant shopping atmosphere, the Company is able to sell its
products at prices that it believes are substantially lower than those offered
by its local island competitors, yet are still above those that could be
charged in mainland markets. By leveraging its retail operating efficiencies
and access to volume-purchasing discounts, the Company is able to acquire its
products at a significantly lower cost than that paid by other island
retailers. The Company passes along much of these savings to its customers
through "low price leader," "everyday low prices" and "dare to compare"
pricing policies. In addition, unlike most warehouse clubs, the Company does
not charge a club membership fee, further providing cost-effective shopping to
its customers. However, due to the considerable demand in island markets for
the Company's goods, the lack of meaningful price competition and the
generally high price levels found in such markets, the Company's prices are
often higher than those charged on the mainland by warehouse clubs and
discount retailers, enabling the Company historically to achieve higher
margins than those achieved by mainland warehouse clubs and discount
retailers.
Use Localized Product Sourcing Yet Derive Benefits of Centralized
Purchasing. An important element of the Company's marketing strategy is to
specifically cater its product selection to each distinct island market. To
this end, the Company conducts market research through its vendors, store
managers and resident employees to ascertain the preferences of each
particular locale, including determining which national brands are favored and
which regional and ethnic items are desired. The Company's buyers then procure
a majority of these products through the Company's centralized purchasing
department, thus deriving the benefits of volume purchase discounts,
streamlined distribution and enhanced selection. The remaining products,
including locally produced items that are available only in a particular
region, are generally purchased by store managers and Company buyers directly
from suppliers located in the region.
Capitalize on Efficient Facilities, Controlled Operating Expenditures and
Cost-Effective Labor. The Company seeks to minimize costs throughout its
operations in an effort to decrease overhead and increase margins. These
savings are achieved through the use of efficient facilities, including
designing stores that (i) do not incorporate expensive fixtures such as floor
tiles and false ceilings, (ii) are energy-efficient as a result of modern
refrigeration and air-conditioning equipment, (iii) encourage self-service and
feature sophisticated scanning systems, thereby reducing labor and shrink
expense, and (iv) maximize selling-floor space, thus reducing overall space
requirements and rental expense. In addition, the Company has been able to
limit advertising expense by relying primarily on "word-of-mouth" publicity in
island markets because of its significant market presence in relation to most
of its competitors. Further, the Company's efforts at controlling
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<PAGE>
inventory shrink expense have contributed to increased gross profit. Finally,
although the Company generally pays its employees above-market wages and is
thereby able to attract and retain high-quality workers, the Company's labor
costs remain relatively low as a result of the overall low wages typically
paid in island markets.
EXPANSION PLANS
General. The Company's expansion plans focus on opening new stores in
foreign island markets. The Company believes such island markets offer
significant opportunities for growth because they are often characterized by
(i) significant geographic and logistical barriers to entry, (ii) existing
higher-priced local competitors with minimal experience with modern operating
processes in purchasing, distribution, merchandising and information
technologies, and (iii) a high demand for U.S. brand-name products with
limited availability. The Company intends to resume expansion efforts in
fiscal 1998 after concentrating its efforts in fiscal 1996 and 1997 on (i)
improving internal operating efficiencies, (ii) standardizing its island
business model and related strategies, and (iii) closing nearly all of its
U.S. mainland stores. The Company plans to open three stores in fiscal 1998
(one store in St. Thomas and two stores in Fiji), six stores in fiscal 1999
(one store in Curacao, Netherlands Antilles, where the Company has entered
into a lease and begun preconstruction activities) and six stores in fiscal
2000. Overall, the Company anticipates opening at least 26 new stores by the
end of fiscal 2002 throughout the Caribbean and Pacific.
Mid-Sized Format. The average size of the Company's seven island stores is
approximately 30,000 square feet, while the traditional warehouse stores found
in the United States average approximately 115,000 square feet. The Company
has developed a store "footprint" based on a 36,000-square-foot facility,
which it believes is adaptable from anywhere between 25,000 to 45,000 square
feet. The Company's prototype was developed in consultation with architects
and designers who helped design many of the warehouse stores operating in the
United States today. The 36,000-square-foot prototype is being used in the
construction of the two stores in Fiji, the store in St. Thomas, and the store
planned for Curacao.
Site Selection. The Company believes that the reduced size of its stores, as
compared to typical large-format discount retailers, will enable it to operate
profitably in markets far less populated than typical warehouse clubs. The
Company chooses potential store sites by comparing the demographics of its
current store base to the demographics of the target market. The following
chart reflects the demographics of the Company's current U.S. Territories
stores, sites under development and islands that the Company currently
considers to be potential markets for Company stores during the next several
years:
<TABLE>
<CAPTION>
GROSS
DOMESTIC
POPULATION PRODUCT
LOCATION (ESTIMATED) (ESTIMATED)
-------- ----------- -----------
<S> <C> <C>
CURRENT
Guam.......................... 154,000 $ 3.1B
U.S. Virgin Islands........... 102,000 $ 1.2B
American Samoa................ 51,000 $ 253M
UNDER DEVELOPMENT
Fiji.......................... 800,000 $ 1.6B
Netherlands Antilles.......... 211,000 $ 2.0B
SITE SELECTION PHASE
Papua New Guinea.............. 4,142,000 $ 4.6B
New Zealand................... 3,587,000 $65.6B
French Polynesia (Tahiti)..... 229,000 $ 3.4B
Tonga......................... 99,000 $ 125M
Aruba......................... 73,000 $ 1.1B
</TABLE>
Because of the unavailability of detailed demographic studies by third-party
consultants, the Company's market analysis is performed in-house. The Company
compares the results of its analysis with the demographic statistics of its
successful island stores. If the demographics for a targeted location compare
favorably with those of its current island operations, the Company includes
the target location as a potential site for expansion.
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<PAGE>
Once the Company identifies a target location as a possible site for its
expansion and, further, it is satisfied with political and regulatory
environment in the target location, the Company compares the prices charged by
local competitors to the prices the Company would need to charge in order to
achieve an acceptable return on its investment (after factoring in cost of the
product, cost of freight, duties, port charges, transportation and taxes). If
the Company's market research indicates that the Company would be able to
charge an adequate price for its products, the Company commences a formal
search for a suitable store site. Desirable attributes of suitable sites
include a central location in a population center of at least 40,000,
sufficient space for the Company's facility, including parking and loading
docks, access to utilities and suitable geological conditions for successful
construction.
Store Openings. The Company prefers to lease its facilities, which are
generally built to Company specifications. To this end, the Company has
developed a standard lease that it uses as a starting point for its lease
negotiations with each potential landowner/developer. The Company routinely
negotiates a 10-year lease with at least two five-year renewal options. The
Company generally does not incur construction expenses for the building
itself; however, the Company provides each developer with construction
specifications and a project timeline. The Company plans to source
construction materials for its buildings to help control lease costs and
ensure building quality. The Company estimates that it takes approximately
eight months from execution of the lease to store opening. The use of the
Company's prototype plans helps ensure that the building will be properly
configured for installation of the Company's fixtures. The refrigeration
equipment will be installed under the supervision of the equipment vendor,
with the Company's crew installing other equipment. The Company anticipates
that in fiscal 1998 and 1999 its required investment to open a new store will
be approximately $2.0 million, including approximately $300,000 for opening
expenses, $800,000 for store fixtures and equipment and $900,000 for
inventory. The Company expects to carry approximately $1.8 million of
inventory, including $600,000 of inventory in transit. Typically, 50% of the
Company's inventory is vendor-financed, resulting in a $900,000 average per-
store inventory investment by the Company.
The new St. Thomas store will be constructed and owned by the Company at a
total estimated cost of $3.0 million, including $400,000 for furniture,
fixtures and equipment. The existing St. Thomas store will be closed when the
new store is opened. The current lease on the existing St. Thomas store
expired March 31, 1998, and the store is being rented on a month-to-month
basis. The equipment and inventories will be relocated to existing and new
stores.
The Company generally does not intend to own the land or buildings for its
stores. To the extent, however, that the Company believes it to be
advantageous to purchase land for new store sites or to construct new store
buildings, the Company may use its cash resources or existing financing
sources during the construction period and subsequently attempt to obtain
permanent financing after the stores are opened. The ability of the Company or
its potential future landlords to secure financing for new stores is subject
to the availability of commercial real estate loans; failure to secure
adequate financing on a timely basis would delay or potentially prevent new
store openings.
STORE ECONOMICS
Cost-U-Less benefits from attractive store-level economics and favorable
returns on investment at its island stores, which it believes will help drive
and support its planned expansion. The Company's seven island stores open
during all of fiscal 1997 generated annual average net sales of approximately
$15.9 million, average net sales per square foot of $519, average annual per
store contribution of approximately $805,000 and average store contribution
before depreciation of approximately $888,000. The average investment in
equipment and leasehold improvements as of December 28, 1997 in the seven
island stores was approximately $884,000. The average investment in inventory,
net of accounts payable of approximately 50%, was $650,000 at December 28,
1997. The store contribution return on average island investment for fiscal
1997 was 53%.
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<PAGE>
STORE LOCATIONS
The Company currently operates eight warehouse club-style stores: two in
Hawaii, two in Guam, one in St. Thomas, one in St. Croix, one in American
Samoa and one in Sonora, California.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE OPTION TO
LOCATION DATE OPENED FOOTAGE TERM EXPIRATION DATE EXTEND
- -------- ---------------- ----------- -------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Dededo, Guam............ May 1, 1992 31,200 10 years May 1, 2002 10 years
Hilo, Hawaii............ August 27, 1992 23,000 15 years August 31, 2006 10 years
Kapaa, Kauai............ March 18, 1993 22,000 10 years November 15, 2002 10 years
St. Thomas, USVI........ August 19, 1993 38,700 monthly N/A N/A
Sonora, CA.............. January 27, 1994 23,150 10 years January 1, 2004 10 years
St. Croix, USVI......... November 3, 1994 26,210 10 years November 1, 2004 10 years
Tamuning, Guam.......... March 15, 1995 41,145 15 years March 1, 2010 10 years
Pago Pago, American
Samoa.................. March 20, 1995 32,055 10 years February 28, 2005 15 years
</TABLE>
The Company has signed a land lease to build a new, replacement store on St.
Thomas. The lease has a term of 20 years with an option to extend for an
additional 30 years. The Company has entered into an agreement to lease a
store in Nadi, Fiji, which the Company anticipates will occupy approximately
25,000 square feet and will be built to Company specifications. The lease
contemplated by the agreement will have a 10-year term with an option to
extend for an additional 20 years. The Company has entered into a similar
agreement to lease a store in Suva, Fiji, which it anticipates will occupy
approximately 30,000 square feet and will be built to Company specifications.
The lease contemplated by the agreement will have a 10-year term with an
option to extend for an additional 10 years. The Company is currently
subleasing two small sites in Fiji to maintain its business and regulatory
licenses and test its systems while it awaits the completion of the two new
Fiji stores. The Company has also signed a lease for a store in Curacao,
Netherlands Antilles. The Company anticipates that the store will occupy
approximately 39,000 square feet and will be built to Company specifications.
The lease has a 10-year term with options to extend for an additional 10
years.
MERCHANDISING
Store Layout. The Company has incorporated into its prototype store many
standard features found in domestic warehouse clubs that had been previously
unused in most island markets. Store layout and interior designs were planned
and calculated using computer models, with the goal of maximizing the sales
per square foot and providing uniformity among the stores. Further, the
Company believes that its use of loading docks, comparatively large freezer
and refrigeration space with state-of-the-art equipment, efficient shelving
and display racks, computerized cash registers and inventory tracking systems,
and multiple checkout lanes helps give it a competitive advantage over its
island competitors. Additionally, because of the damage often caused by severe
weather in its island markets, the Company has designed its prototype to
withstand the severe wind and heavy rain associated with hurricanes, typhoons
and tropical storms.
The Company has used considerable care in developing its store layout, which
features a logical flow to encourage shopping of all departments. Customers
enter through large roll-up metal doors and utilize a large shopping cart or,
in some instances, a rolling flat-bed cart for purchases in larger sizes or
quantities. All items are within easy reach on the floor or, because of the
Company's reduced store size, on a shelf above the sales floor. When ready for
check-out, the customer proceeds to the check-out area in the front of the
store, which usually features 10 lanes. During a typical store visit, the
average customer will spend approximately $50. Various forms of payment are
accepted, including food stamps and debit and credit cards, and credit is
extended to some local businesses and government agencies. Utilizing a no-
frills approach, the stores display items in steel racking, usually on the
vendor's pallets or in open cases, to maximize warehouse space and minimize
labor costs. In-store signage reinforces the basic value image, while stores
generate customer excitement through the use of end-cap displays featuring new
merchandise and special promotions, food demonstrators offering product
samples, and ongoing introduction of new items. The following diagram
represents the layout for the Company's prototype stores under development:
30
<PAGE>
[FLOORPLAN OF STORE]
STORE DIAGRAM
The Company has also attempted to minimize costs through the design of its
prototype. The Company does not use expensive fixtures such as floor tiles and
false ceilings, and thereby lowers construction and maintenance costs. In
addition, the Company's refrigeration supplier has designed a specialized
refrigeration units using modern equipment that allows for cost-effective
monitoring, maintenance and repair, and keeps energy costs to a minimum. The
Company has also developed standardized construction specifications. As a
result of the Company's planned expansion and through extensive negotiations
with suppliers, the Company has achieved competitive prices on its building
materials, such as metal exterior panels, building components, store equipment
and shelving, thus allowing the Company to control material costs on a per-
facility basis and help ensure uniformity of materials throughout its
facilities while reducing the Company's lease expenses.
Product Categories. The Company typically carries approximately 2,500 stock-
keeping units ("SKUs"), compared to the 3,500 to 5,000 SKUs estimated by
industry sources to be carried by traditional warehouse clubs. Certain
departments found in most large-format warehouse clubs such as apparel,
automobile tires and prescription drugs are eliminated at Cost-U-Less. All
Cost-U-Less stores feature the following main product categories:
Food--Perishables. Meat, produce, deli, dairy and frozen items represent
approximately 28% of a typical store's net sales. The "reach-in" freezers
and coolers are substantially larger than those found in the stores of most
of the Company's local island competitors.
Food--Nonperishables. Dry grocery goods, including soda, wine, beer,
liquor, candy and snacks, represent approximately 42% of a typical store's
net sales. Also included in this area are ethnic and specialty items
catering to local consumer demands.
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<PAGE>
Nonfood. Other nonfood items comprise the remaining 30% of a typical
store's net sales, and include tobacco, sundries, health and beauty,
office, hardware, electronics, housewares, furniture and sporting goods.
Purchasing. The Company balances its product mix by providing popular U.S.
brand names together with local ethnic items found in each island region.
Approximately one-third of the Company's product items are produced locally or
purchased through local suppliers in each market. Offering locally purchased
merchandise enables Cost-U-Less to better serve its island customers and offer
an innovative variation to the warehouse store format. Store managers are able
to purchase product that may be available only on their particular islands.
The Company's buyers monitor sales and inventory levels on a daily basis from
all of the Company's stores, which allows the Company to quickly spot product
trends and discontinue slow-moving products. Morever, in an effort to cater to
retail customers who generally purchase products for home use, the Company
carries products in various product sizes, including single packages, "bulk
packages" and mid-sized "value-packs." This strategy differs from traditional
warehouse clubs, which typically stock only products in bulk quantities to
satisfy their wholesale client base.
Pricing. The Company strives to be the "low price leader" for the markets it
serves. Cost-U-Less does not charge its customers a membership fee, which
allows all consumers to receive the benefits of the Company's value-pricing
philosophy. The Company provides everyday low prices that are often lower than
regular prices offered at most retailers, such as grocery stores, and are
generally intended to be slightly lower than those offered by mass merchant
discount retailers, such as Wal-Mart and Kmart, that operate in the Company's
island markets. In order to ensure that the Company has the lowest prices
available in a particular market, the Company regularly compares prices and
products being offered by the Company's local competitors. Generally, given
the economic efficiencies the Company can bring to bear with its ability to
purchase product at larger quantities as well as its efficient distribution
system that allows it to take advantage of optimal freight and transportation
costs, the Company has a competitive advantage when pricing most of its
products compared to local competition. However, if the comparison of local
competitors' prices discloses that the Company's prices exceed those of its
local competition, store managers have the authority to reduce prices to
remain competitive. This decentralization of pricing decisions allows the
Company to respond quickly and efficiently to competitive challenges in each
of its island markets.
OPERATIONS
Distribution and Inventory Management. The Company typically buys directly
from manufacturers in large quantities (full truck loads whenever possible).
The Company currently uses three distribution facilities: a Company-operated
facility in Union City, California and independently operated facilities in
Port Everglades, Florida and Auckland, New Zealand. At each distribution
facility, merchandise is received, consolidated and cross-docked, and
ultimately shipped in fully loaded containers to the Company's stores. Each
store has a "lane" designated to it in the depot; when a full container load
is queued into the lane, it is loaded by forklift into a cargo container,
which, when filled, is then delivered to the closest port for shipment to the
designated store. Management has significant experience and long-term
relationships with steamship lines and, with its present volume, has
negotiated what it believes to be competitive transportation rates. The
Company does not have a warehouse, but controls inventory levels in stores by
maintaining sufficient back stock in stores combined with efficient cross-dock
facilities. For perishable items, the Company uses independently operated
consignment depots that are for the Company's exclusive use. Each supplier of
perishable items, such as meats, frozen foods, fruits and vegetables, pays a
storage charge for use of such depots based upon the amount of space used for
storage of each supplier's goods. The Company gives its suppliers of
perishable items notice of its projected supply needs, and these suppliers
deliver product to the depots. However, the Company does not accept delivery
of the product, nor is it responsible for payment, until it places a final
order. Once the final order is placed, the goods are removed from the
consignment depot and loaded onto refrigerated shipping containers located at
the consignment depots, at which point the goods are deemed delivered. The
Company then transports the shipping containers to the nearest port for
shipment to its island stores. By using this procedure, the Company minimizes
loss of perishable product due to over-orders because it does not "purchase"
the goods until it is certain of the needs of its stores.
32
<PAGE>
Operating Systems. The Company believes that its operating systems provide a
competitive advantage compared to the local competition. Each Company store is
outfitted with adjustable metal shelving that allows the Company to vary the
display of its product based on each location's specific consumer needs. In
addition, the Company is making use of new forklifts that have a smaller
turning radius, resulting in the ability to decrease the width of aisles.
Reducing aisle widths reduces the size requirements for future stores while
maintaining selling space, and produces savings in rent expense as well as
energy costs. Each island store has backup generators designed to protect
perishables and the store's security system during disruption of electric
service caused by severe weather conditions that can occur in island markets.
The Company has designated the Sonora, California store as a testing facility
to test various store layouts and display patterns, which enables management
to review and monitor various store designs and innovations before they are
implemented in island locations. In its new stores, the Company will utilize a
specialized refrigeration system comprised of several smaller components
rather than one large component. Because the system uses many different
compressors, the loss of one compressor does not shut down the entire
refrigeration system. At the first indication of system failure, the
refrigeration supplier notifies a local service provider, who visits the
Company's facility and replaces the faulty component. Moreover, the Company
keeps many replacement components on-site. This system also helps minimize the
loss of product associated with damaged refrigeration units.
Management Information Systems. Cost-U-Less considers management information
systems to be a key component of its strategic plan. The Company tracks all
inventory movement, sales and purchase orders by SKU number, vendor number,
store and date. The Company currently uses electronic point-of-sale equipment
in all stores, and in the depot located in Union City, California. All data
from each location is sent via modems or the Internet to the computer system
located at the Company's corporate headquarters in Bellevue, Washington. Using
both Company personnel and contract consultants, the Company has enhanced,
extended and improved the data capabilities of its software systems to support
an inventory tracking report and comparisons by year, by store, by item and by
vendor. The Company is developing the specifications for integrated systems to
support automatic replenishment of inventory and supplies, and to profile
sales and purchasing trends. The Company is also testing its new procedures
for multi-currency inventory and purchase order functions. The Company
believes that its current computer systems will support anticipated growth
through fiscal 1999 though the Company may upgrade earlier. In order to
maintain its competitive advantage in its chosen markets, the Company uses a
corporate-wide intranet and the Internet, which allows for quick responses to
ever-changing customer needs and local retail opportunities. Because the
Company's stores are located on various islands, the ability to quickly,
consistently and accurately communicate between headquarters and store
locations is imperative. The Company's expansion plans anticipate continued
use of the intranet and the Internet to connect its stores, thereby decreasing
communication costs. The Company plans to integrate new applications aimed at
providing enhanced services, data analysis and improved customer service, thus
raising office and store productivity. While the Company has taken a number of
precautions against certain events that could disrupt the operation of its
management information systems, including in connection with its planned
systems revisions, there can be no assurance that the Company will not
experience systems failure or interruptions, which could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Risk Factors--Dependence on Systems; Year 2000 Compliance."
Employee Organization, Training and Compensation. Management of each Cost-U-
Less store consists of a store manager, two assistant managers and one or more
department managers, depending on the store. Typically, the department
managers are assigned to two categories: merchandising and administrative. The
merchandising manager oversees the training and day-to-day operations of the
stockers, forklift operators and receiving clerks. The administrative manager
oversees the training and day-to-day operations of the vault clerks, cashiers
and security personnel, if applicable.
In order to meet its expansion goals, the Company believes it will need to
hire approximately 45 employees for each new store. The Company's goal is to
hire most of those employees from the island market, thus creating job
opportunities for local residents. The Company attempts to promote its store
managers internally. The Company requires its store managers to complete an
approximately six-month training program
33
<PAGE>
in the Company's store in Tamuning, Guam, which is used as a training facility
for potential managers. New store employees receive initially one to two weeks
of training, which typically includes working alongside individuals in
comparable positions before working without direct supervision. The Company
has found that such on-the-job training, together with the use of detailed
operating and training manuals, is an effective way to introduce new employees
and managers to Cost-U-Less systems and procedures.
The Company strives to attract and retain highly motivated, performance-
oriented employees and managers by offering competitive compensation,
including bonus programs based on their performance. Store managers
participate in a manager bonus program that ties compensation awards to the
Company's overall profits. In addition, all store employees are eligible to
participate in an incentive plan whereby they receive monthly bonuses for
increased store sales and control of inventory shrink expense. Although the
Company believes that it generally pays its employees above-market wages and
is thereby able to attract and retain high-quality employees, it believes that
island wages are generally lower than mainland wages and thus result in
decreased labor costs.
Local service providers are also trained in the maintenance and repair of
the Company's refrigeration and air-conditioning systems. The Company and its
refrigeration supplier send crews to facilities during the construction phase
to install these systems. These crews work with local electricians, training
them in the operation and installation of the Company's systems. Thus, when
repairs are necessary, the Company may opt to use a local vendor rather than
incur the expense and time involved in using a service person from either the
U.S. mainland or New Zealand.
CUSTOMER SERVICE
The Company brings to its island markets a commitment to customer service
that it believes gives it a competitive advantage in each of the local markets
it serves. The Company's store layout is designed to maximize floor space used
for selling product as well as to give customers a spacious feel while
shopping. Various forms of payments are accepted, including food stamps and
credit and debit cards, and credit is extended to some local businesses and
government agencies. The Company has a 30-day, no-questions-asked return
policy. Each of the Company's stores has approximately ten checkout lanes,
which allows for quick and efficient shopping. Each store features a customer
desk where customers can have questions answered, usually by a management team
member. In addition, employees are trained to help customers locate store
products.
MARKETING AND ADVERTISING
The Company generally relies on word-of-mouth advertising in order to save
on advertising and marketing costs and pass on the savings to its customers.
The Company currently spends less than 0.2% of net sales on advertising, and
in the past has utilized coupon books, direct mail advertising and newspaper
advertisements. The Company recently hired a manager of marketing and
advertising to analyze demographic and market data necessary for its expansion
plans and to develop marketing and advertising strategies for those markets
that require it.
COMPETITION
The warehouse club and discount retail businesses are highly competitive.
The Company has faced significant competition from warehouse clubs and
discount retailers such as Wal-Mart, Kmart and Costco in Hawaii, Kmart in the
U.S. Virgin Islands, and Kmart and a local joint venture between Price
Enterprises, Inc. and a regional investor in Guam. The Company's competition
also consists of regional and smaller discount retailers and other national
and international grocery store chains. Some of the Company's competitors have
substantially greater resources, buying power and name recognition than the
Company. The Company is targeting expansion in additional island markets that
it believes are underserved by existing retailers. The cost of doing business
in island markets is typically higher than on the U.S. mainland because of
ocean freight and duty costs and higher facility costs . After eight years of
experience refining the warehouse club format in island markets, management
believes that significant growth and profit opportunities exist in remote
island markets. While the Company expects that the size of many of the markets
in which it operates or expects to enter will deter entry by most of its
larger competitors, there can be no assurance that the Company's larger
competitors will not decide to enter these markets or that its smaller
competitors will not compete more effectively against the Company. The
Company's gross margin and operating income are generally lower for
34
<PAGE>
those stores in markets where traditional warehouse clubs and discount
retailers also operate stores. The Company may be required to implement price
reductions in order to remain competitive should any of its competitors reduce
prices in any of its markets. Moreover, the Company's ability to expand into
and operate profitably in new markets, particularly small markets, may be
adversely affected by the existence or entry of competing warehouse clubs or
discount retailers. See "Risk Factors--Competition."
PROPERTIES
The Company currently leases its eight existing store locations. The stores
average approximately 30,000 square feet and range in size from approximately
22,000 square feet to approximately 41,000 square feet. The store leases
typically have a term of ten years with an option to lease for an additional
ten years, with lease rates that increase periodically over the term of the
lease. With the exception of the Sonora store and the current St. Thomas
store, both of which opened in existing facilities, all of the Company's
stores have been built to Company specifications. See "--Store Locations."
The Company leases approximately 40,000 square feet for its distribution
facility in Union City, California, which lease expires on December 31, 1998.
The Company also leases approximately 6,000 square feet of office space for
its headquarters in Bellevue, Washington, which lease expires on April 30,
1999. The Company subleases approximately 2,000 additional square feet at its
headquarters in Bellevue on a month-to-month basis. Beginning on July 1, 1998,
the Company will lease approximately 430 square feet of office space in
Auckland, New Zealand. Such lease term will expire on July 1, 1999, but can be
renewed thereafter on a month-to-month basis. The Company believes that such
corporate offices and distribution facilities will be sufficient to meet the
Company's needs through the end of fiscal 1999. The Company expects it will be
able to renew the Union City, California and Bellevue, Washington leases
annually; however, the Company believes it will be able to find suitable
replacements facilities if either facility lease is not extended.
TRADEMARKS
The Company has applied for registration of the name and stylized logo
"Cost-U-Less."
GOVERNMENTAL REGULATION
The Company is subject to various applicable laws and regulations
administered by federal, state or U.S. Territory regulatory authorities,
including, but not limited to, laws and regulations regarding tax, tariffs,
zoning, employment and licensing requirements. Additionally, as the Company
pursues future expansion in foreign countries, the Company's operations will
be subject to foreign regulatory standards involving corresponding laws and
regulations, in addition to customs, duties and immigration laws and
regulations. Changes in the foregoing laws and regulations, or their
interpretation by agencies and the courts, occur from time to time. While the
Company believes that it presently complies in all material respects with such
laws and regulations, there can be no assurance that future compliance will
not have a material adverse effect on the Company's business, financial
condition and operating results. See "Risk Factors--Risks Associated With
Island and International Operations."
EMPLOYEES
As of May 1, 1998, the Company employed 34 full-time people at its corporate
headquarters in Bellevue, Washington, and 10 people at its main distribution
facility in Union City, California. In total, the Company employs
approximately 365 people worldwide. None of the Company's employees are
covered by collective bargaining agreements. The Company considers its
relationship with its employees to be good.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Prospectus, the Company is not a party to any litigation that, if
adversely determined, would have a material adverse effect on its business,
financial condition and operating results.
35
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company, and
their ages and positions as of May 1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS
Michael J. Rose....... 47 Chairman of the Board, President and Chief Executive Officer
Allan C. Youngberg.... 45 Vice President-Chief Financial Officer, Secretary and Treasurer
Donald L. Gevirtz..... 70 Director
George C. Textor...... 53 Director
David A. Enger........ 52 Director
Wayne V. Keener....... 60 Director
Gary W. Nettles....... 46 Director
KEY EMPLOYEES
Terence R. Buckley.... 61 Director of Pacific Expansion
James F. Arcuri....... 48 Project Manager
Donald A. Kunecke..... 45 Management Information Systems Manager
William W. Lofgren.... 35 Operations Manager
Michael T. Scalzo..... 33 General Merchandise Manager
Paul J. Schulte....... 49 Sales and Marketing Manger
</TABLE>
Prior to the effective date of this Prospectus, the Board of Directors will
be divided into three classes. Each director will serve for a three-year term
and one class will be elected each year by the Company's shareholders,
commencing at the Company's annual shareholders meeting in 1999. Directors
hold office until their terms expire and their successors are elected and
qualified. The terms of the current directors will expire as follows: Messrs.
Nettles and Enger in 1999, Messrs. Keener and Textor in 2000, and Messrs. Rose
and Gevirtz in 2001. Executive officers are appointed by, and serve at the
direction of, the Board of Directors. There are no family relationships
between any of the directors or executive officers of the Company.
EXECUTIVE OFFICERS
Michael J. Rose is the founder, Chairman of the Board, President and Chief
Executive Officer of the Company. Prior to 1992, Mr. Rose was President and a
50% shareholder of Rose-Chamberlin Inc. ("Rose-Chamberlin"), a brokerage
company founded in 1985, which acted as a manufacturers' representative and
sold merchandise primarily to Costco.
Allan C. Youngberg has been Vice President-Chief Financial Officer,
Secretary and Treasurer of the Company since January 1993. Prior to joining
the Company, Mr. Youngberg was President and a 50% shareholder of Youngberg &
Schumacher, P.S., a certified public accounting firm in Bellevue, Washington,
which Mr. Youngberg formed in 1984 and sold in December 1992. Mr. Youngberg is
a Certified Public Accountant.
DIRECTORS
Donald L. Gevirtz has been a Director of the Company since January 1998.
Since 1996, Mr. Gevirtz has served as the director of the Gevirtz Research
Center, a nonprofit organization involved in educational outreach projects.
Mr. Gevirtz served as U.S. Ambassador to the Republic of Fiji, the Kingdom of
Tonga, the Republic of Nauru and the Republic of Tuvalu from 1996 through
1997. From 1970 to 1996, Mr. Gevirtz served as Chairman of the Board and Chief
Executive Officer of the Foothill Group, Inc., a public company engaged in
banking services, which was sold to Norwest Bank Corporation in 1995.
36
<PAGE>
George C. Textor has been a Director of the Company since January 1998. Mr.
Textor is a general partner of Capstan Partners, a Seattle-based private
equity investment fund which he co-founded in 1988. From 1982 to 1988, Mr.
Textor was a founding general partner of Cable Howse & Ragen (now Ragen
MacKenzie Group Incorporated), an investment banking and brokerage firm
located in the Pacific Northwest. Mr. Textor serves as a director of Pyramid
Breweries, Inc., a public company that makes specialty beers.
David A. Enger has been a Director of the Company since 1993. Mr. Enger has
served since 1992 as Executive Vice President of Keener's, Inc. dba K&N Meats
("Keener's"), one of the Northwest's largest distributors of fresh foods. In
1990, Mr. Enger founded the Business & Banking Institute, where he currently
engages in business and banking consulting and training. From 1980 to 1990,
Mr. Enger served as a principal of Management Advisory Services, Inc., a
business and banking consulting firm which he co-founded in 1980. From 1976 to
1980 Mr. Enger was a vice president of Seafirst Bank. Mr. Enger serves as a
director of Keener's, Colmac Industries, Inc., a dry-cleaning equipment
manufacturer, and Colmac Coil Manufacturing, Inc., a heating and air-
conditioning coils manufacturer.
Wayne V. Keener has been a Director of the Company since 1989. Since 1960,
Mr. Keener has been the President and Chief Executive Officer of Keener's, of
which he has been a 50% owner since 1989. Mr. Keener serves as a director of
both the National Meat Association and the North American Meat Association.
Gary W. Nettles has been a Director of the Company since 1996. Mr. Nettles
is a Certified Public Accountant and owner of Guchereau & Nettles, an
accounting firm located in Costa Mesa, California, where he has worked since
1987.
KEY EMPLOYEES
Terence R. Buckley has been Director of Pacific Expansion of the Company
since 1998, after joining the Company as a consultant in February 1997. Mr.
Buckley also serves on the board of directors of a wholly owned subsidiary of
the Company. From 1978 until joining the Company, Mr. Buckley worked on
various consulting projects for companies throughout the Pacific, including
projects for Hyatt International Corporation and Fletcher Challenge Limited, a
New Zealand natural resources and construction company. Mr. Buckley has lived
in Fiji for 10 years and has extensive knowledge and contacts in the Pacific
and New Zealand.
James F. Arcuri has been Project Manager of the Company since 1994. He
joined the Company in 1991 as a store manager in Hawaii and opened the Sonora,
California store in 1994. Mr. Arcuri is currently responsible for construction
of new stores and maintenance of store facilities. From 1979 to 1991, Mr.
Arcuri was President of A&F Stores Corporation, a chain of high-end specialty
markets based in southern California. Mr. Arcuri's responsibilities at A&F
Stores included site procurement, lease negotiations, construction management
and working with developers.
Donald A. Kunecke has been Management Information Systems Manager of the
Company since 1995, after joining the Company in 1994 as program manager. From
1992 to 1994, Mr. Kunecke was the principal and owner of Softnet, Inc., a
computer software support company. Mr. Kunecke has over 20 years of experience
with systems development and implementation of relational database management
systems. He has held positions in information technology with Northern
Telecom, Inc., Martin Marietta International, Inc. and Boeing Computer
Services.
William W. Lofgren has been Operations Manager of the Company since 1996,
after joining the Company in 1992 as Information Systems Manager. Mr. Lofgren
has overall operational responsibility for the Company's stores. Prior to
joining the Company, Mr. Lofgren served as Electronic Maintenance Manager of
Costco from 1986 to 1991.
Michael T. Scalzo has been General Merchandise Manager of the Company since
1995, after joining the Company in 1992 as a buyer. Mr. Scalzo assisted in
creating the Company's buying office and was one of
37
<PAGE>
the original buyers for the Company. From 1990 to 1992, Mr. Scalzo worked for
Rose-Chamberlin as an account executive.
Paul J. Schulte has been Sales and Marketing Manager of the Company since
January 1998. Mr. Schulte is responsible for the management and direction of
the Company's marketing, advertising and promotional activities. From February
1997 to January 1998, Mr. Schulte worked as a co-principal and consultant of
Crucible, Inc., a direct response mail-order catalog business. From 1995 to
1997, Mr. Schulte was Senior Vice President for Sales and Marketing of Acorto,
Incorporated, a manufacturer and wholesaler of automatic espresso equipment.
From 1994 to 1995, Mr. Schulte was Vice President of Marketing for Seattle
Coffee Holdings, a retailer and wholesaler of specialty coffees. From 1973 to
1994, Mr. Schulte held a variety of senior sales and marketing positions with
the Ford Motor Company.
BOARD COMMITTEES AND COMPENSATION
The Company has established an Audit Committee and a Compensation Committee.
The Audit Committee makes recommendations to the Board of Directors regarding
the selection of independent auditors, reviews the results and scope of the
audit and other services provided by the Company's independent auditors,
reviews the Company's balance sheet, statement of operations and cash flows
and reviews and evaluates the Company's internal control functions. The Audit
Committee consists of Messrs. Enger (Chairman), Keener, Nettles and Textor.
The Compensation Committee reviews and approves the compensation and benefits
for the Company's executive officers, administers the Company's stock option
plans and makes recommendations to the Board of Directors regarding such
matters. The Compensation Committee consists of Messrs. Nettles (Chairman),
Enger, Keener and Gevirtz.
Directors of the Company are paid $1,000 for each Board of Directors meeting
attended and $250 for each committee meeting attended. The Company also
reimburses directors for travel expenses in attending meetings. The Company
has granted nonqualified stock options to its directors pursuant to individual
director stock option agreements. Directors have generally been granted a 10-
year, immediately exercisable option to purchase 10,331 shares of Common Stock
at an exercise price at $10.16 per share, and a 10-year option to purchase
2,951 shares of Common Stock at an exercise price of $10.16 per share, vesting
ratably over a five-year period. In April 1997, the Board of Directors granted
Michael J. Rose a 10-year, immediately exercisable option to purchase 10,331
shares of Common Stock at an exercise price of $10.16 per share, and a 10-year
option to purchase 2,951 shares of Common Stock at an exercise price of $10.16
per share, which will become fully vested on August 1, 1998. See "--Executive
Compensation." In January 1998, the Company granted Donald L. Gevirtz a
10-year, immediately exercisable option to purchase 88,554 shares of Common
Stock at an exercise price of $7.62 per share. See "Certain Transactions." The
Company intends that any future option grants to directors will be made
pursuant to the Company's 1998 Stock Incentive Compensation Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors.
38
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information regarding compensation earned by the Company's Chief Executive
Officer and its one other executive officer (the "Named Executive Officers")
for the fiscal year ended December 28, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)(2)
------------------ --------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Michael J. Rose
Chairman of the Board,
President and Chief
Executive Officer..... $220,000 $22,600 13,282 $8,102
Allan C. Youngberg
Vice President-Chief
Financial Officer,
Secretary and
Treasurer............. $160,000 $16,500 -- $3,293
</TABLE>
- --------
(1) Represents bonuses paid pursuant to the Company's Manager Bonus Program.
(2) Consists of matching contributions to the Company's 401(k) profit-sharing
plan of $2,375 for both Mr. Rose and Mr. Youngberg, payments of life
insurance premiums of $1,227 to Mr. Rose and $918 to Mr. Youngberg, and
director's fees of $4,500 paid to Mr. Rose.
Option Grants in Last Fiscal Year. Mr. Youngberg was not granted any stock
options during fiscal 1997. The following table sets forth certain information
regarding stock options granted to Mr. Rose during fiscal 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------
NAME GRANTED FISCAL YEAR(1) PRICE($/SH)(2) DATE 5%($) 10%($)
---- ---------- -------------- -------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Rose......... 13,282 29.0% $10.16 4/30/07 $48,087 $156,503
</TABLE>
- --------
(1) Based on a total of 45,744 options granted to employees during fiscal
1997.
(2) In April 1997, the Board of Directors determined that Mr. Rose should
have been granted stock options with the same terms and conditions as
options granted to other directors who served on the Board of Directors
in June 1993. Accordingly, the Board of Directors granted Mr. Rose a 10-
year, immediately exercisable option to purchase 10,331 shares of Common
Stock at an exercise price of $10.16 per share, and a 10-year option to
purchase 2,951 shares of Common Stock at an exercise price of $10.16 per
share, which will become fully vested on August 1, 1998. The fair market
value of the Common Stock in April 1997 was $8.46 per share.
(3) The assumed rates of appreciation are prescribed by the Securities and
Exchange Commission (the "Commission") for illustrative purposes only and
are not intended to forecast or predict future stock prices.
39
<PAGE>
Fiscal 1997 Year-End Option Values. No options were exercised by the Named
Executive Officers during fiscal 1997. The following table sets forth certain
information regarding unexercised stock options held by the Named Executive
Officers as of December 28, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
END(#) FISCAL YEAR-END ($)(1)
----------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael J. Rose............ 49,589 590 $174,652 $ --
Allan C. Youngberg......... 41,325 2,951 $194,652 $ --
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the Common Stock on
December 28, 1997 at $8.46 per share, based on the price paid for shares
of Common Stock in a transaction between shareholders in November 1997.
COMPENSATION PURSUANT TO PLANS
Manager Bonus Program
The purpose of the Manager Bonus Program (the "Program") is to provide an
incentive to key employees to meet the Company's profit goals. Officers, store
managers and other Company managers are eligible to participate in the
Program. The bonus percentage under the Program is determined by the
Compensation Committee at the beginning of the Program year upon the
recommendation of the Company's Chief Executive Officer and Chief Financial
Officer. Bonuses under the Program are determined on the basis of the
Company's "Adjusted Net Income," as defined in the Program, which is
calculated based on the Company's net income for the previous fiscal year,
income tax expense, bonus expenses and other nonoperating income or expenses
as determined by the Compensation Committee. No bonus is paid under the
Program if the "Adjusted Net Income" is less than 80% of budgeted "Adjusted
Net Income" for the previous fiscal year. Participants in the Program are
eligible for a percentage of the total bonus paid under the Program, based
upon the participant's salary divided by the combined salaries of all
participants employed at the end of the fiscal year. The Compensation
Committee may modify or terminate the Program at any time.
1998 Stock Incentive Compensation Plan
Prior to the effective date of this Prospectus, the Company expects to adopt
the Company's 1998 Stock Incentive Compensation Plan (the "1998 Plan"). The
purpose of the 1998 Plan is to enhance the long-term shareholder value of the
Company by offering employees, directors, officers, consultants, agents,
advisors and independent contractors of the Company and its subsidiaries an
opportunity to participate in the Company's growth and success, and to
encourage them to remain in the service of the Company and its subsidiaries
and acquire and maintain stock ownership in the Company. The 1998 Plan
provides for both stock options and restricted stock awards. A maximum of
500,000 shares of Common Stock will be available for issuance under the 1998
Plan, although no options or stock awards will be granted until after
completion of the Offering.
Stock Option Grants. The Plan Administrator of the 1998 Plan will be the
Compensation Committee (the "Plan Administrator"), which will have the
authority to select individuals who are to receive options under the 1998 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which, for incentive stock options, must be
at least equal to the fair market value of the Common Stock on the date of
grant), the vesting provisions and the option term. For purposes of the 1998
Plan, fair market value means the closing sale price as reported on the Nasdaq
National Market on the date of grant. Unless otherwise provided by the Plan
Administrator, and to the extent required for incentive stock options by the
Internal Revenue Code of 1986, as amended, an option granted under the 1998
Plan will expire 10 years from the date of grant or, if earlier, three months
after the optionee's termination of service (other than termination for cause)
or one year after the optionee's death or disability.
40
<PAGE>
Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Restrictions may be based on continuous
service with the Company or its subsidiaries or the achievement of such
performance goals as the Plan Administrator may determine. Holders of
restricted stock are recorded as shareholders of the Company and have, subject
to certain restrictions, all the rights of shareholders with respect to such
shares.
Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
splits and other capital adjustments.
Corporate Transactions. In the event of certain Corporate Transactions (as
defined in the 1998 Plan), each outstanding option and restricted stock award
under the 1998 Plan will automatically accelerate so that it will become 100%
vested immediately before the Corporate Transaction, except that acceleration
will not occur if such option or restricted stock award is, in connection with
the Corporate Transaction, to be assumed by the successor corporation or
parent thereof. Any option or restricted stock award granted to an "executive
officer" (as that term is defined for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended) that is assumed or replaced in the Corporate
Transaction and does not otherwise accelerate at that time shall be
accelerated in the event such executive officer, for Good Reason (as defined
in the 1998 Plan), or the successor corporation, without Cause (as defined in
the 1998 Plan), terminates the executive officer's employment or services
within two years following such Corporate Transaction.
Amended and Restated 1989 Stock Option Plan
The Company's Amended and Restated 1989 Stock Option Plan (the "1989 Plan")
provides for the grant of incentive and nonqualified stock options to
employees, officers, directors, agents, consultants and independent
contractors of the Company. An aggregate of 1,350,000 shares of Common Stock
has been authorized for issuance under the 1989 Plan. As of May 1, 1998,
options to purchase an aggregate of 266,207 shares of Common Stock were
outstanding under the 1989 Plan, with exercise prices ranging from $2.37 to
$10.16 per share, and options to purchase 7,084 shares had been exercised. No
additional options will be granted under the 1989 Plan, as future option
grants will be made under the 1998 Plan. Options outstanding under the 1989
Plan will continue to be governed by the terms of the 1989 Plan.
The 1989 Plan is administered by the Compensation Committee, which has the
authority to select individuals who are to receive options under the 1989 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which for incentive stock options must be
at least equal to the fair market value of the Common Stock on the date of
grant), the vesting provisions and the option term. Each option is exercisable
after the period or periods specified in the option agreement, but no option
may be exercisable after the expiration of 10 years from the date of grant.
Options granted under the 1989 Plan are not transferable other than by will or
the laws of descent and distribution, or by operation of law in the event of
legal disability.
401(k) Plan
The Company maintains a 401(k) profit-sharing plan (the "401(k) Plan") that
covers employees who satisfy certain eligibility requirements relating to
minimum age, length of service and hours worked. Participating employees may
elect to defer and contribute up to 15% of their compensation plus up to 100%
of any Company-paid cash bonus to the 401(k) Plan, not to exceed the dollar
limit set by law. The Company matches 25% of each employee's contribution that
does not exceed 15% of such employee's compensation. The Company's matching
contributions vest over five years at the rate of 20% per year of service.
41
<PAGE>
CERTAIN TRANSACTIONS
Prior to the Offering, the Company entered into transactions and business
relationships with certain of its officers, directors and 5% shareholders. Any
future transactions between the Company and its officers, directors or 5%
shareholders will be subject to approval by a majority of the disinterested
directors and will be on terms that the Company believes are no less favorable
to it than would be available from independent third parties.
Gevirtz Option. In January 1998, Donald L. Gevirtz was granted a 10-year,
immediately exercisable option to purchase up to 88,554 shares of Common Stock
at an exercise price of $7.62 per share in connection with his appointment to
the Board of Directors. In order to encourage Mr. Gevirtz to join the Board of
Directors, the Board granted him an option with a per share exercise price
that was less than the fair market value of the Common Stock on the date of
grant. The Company therefore recognized a compensation expense of $75,000 in
the first quarter of fiscal 1998 in connection with this grant.
Streamline Capital Corporation. In December 1997, the Company entered into
an investment banking agreement with Streamline Capital Corporation
("Streamline Capital"). The principal of Streamline Capital is Steven L.
Gevirtz, the son of Donald L. Gevirtz, a director of the Company. The
agreement provides for investment banking services, including initiation and
implementation of strategic financing arrangements to fund the Company's
expansion. Pursuant to the agreement, as modified in March 1998, the Company
agreed to pay Streamline Capital a monthly retainer of $6,000 (the
"Retainer"), and a transaction fee of $75,000 in connection with the Offering.
The Retainer offsets any transaction fee earned by Streamline Capital. As of
May 1, 1998, the Company had paid Streamline Capital a total of $12,000. The
agreement terminates upon closing of the Offering.
Fiji Lease. In April 1998, the Company entered into a 10-year lease
agreement with Westmall Limited, a Fiji limited liability company, to lease
premises for its new store in Nadi, Fiji. Westmall Limited is partly owned by
Terence R. Buckley, the Company's Director of Pacific Expansion. The monthly
lease payments are approximately $14,000.
Nevada Property Sublease. In December 1996, the Company entered into an
agreement with Orchard Farms, Inc., a California corporation ("Orchard Farms")
wholly owned by Michael J. Rose, the Company's Chairman of the Board,
President and Chief Executive Officer, to sublease property in Sparks, Nevada
for the purposes of storing excess equipment and consolidating merchandise.
The monthly rent for the property was $2,435. The property was subject to a
lease between Orchard Farms and Newport Federal, Inc. In December 1996, the
property was damaged by a flood, and after repeated attempts to repair the
premises, Orchard Farms terminated rental payments in June 1997 due to the
uninhabitable nature of the premises. Orchard Farms and Newport Federal, Inc.
disputed the amount owed under the lease. As a result, in January 1998,
Newport Federal, Inc. brought suit against Orchard Farms and Mr. Rose, as
personal guarantor of the lease, for failure to pay rent. This suit is
currently pending in state district court in Nevada. The Company has not been
named as a defendant in the suit and does not expect the suit to have a
material adverse effect on it.
Employment of Gerald J. Rose. Gerald J. Rose, the brother of Michael J.
Rose, has been employed by the Company since January 1993. He currently serves
as the Company's logistics manager for general offshore operations. For fiscal
1995, 1996 and 1997, and the first quarter of fiscal 1998, he earned
compensation of approximately $56,700, $61,700, $67,200 and $20,100,
respectively.
Purchases of Product From Beneficial Owner. The Company has purchased
product from Keener's, a company that beneficially owns more than 5% of the
Company's Common Stock and that is 50% owned by Wayne V. Keener, a director of
the Company. David A. Enger, an Executive Vice President and director of
Keener's, is also a director of the Company. For fiscal 1995, 1996 and 1997
and the first quarter of fiscal 1998, the Company purchased approximately
$254,000, $164,000, $128,000 and $36,000 of product, respectively.
42
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of May 1, 1998, certain information
regarding the beneficial ownership of the Common Stock, as adjusted to reflect
the sale of shares of Common Stock in the Offering, by (a) each person known
by the Company to own beneficially more than 5% of the Common Stock, (b) each
director of the Company, (c) each of the Named Executive Officers, (d) all of
the Company's directors and Named Executive Officers as a group, and (e) each
Selling Shareholder. Except as otherwise indicated, and subject to community
property laws where applicable, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by
such owners, have sole voting and investment power with respect to such
shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP NUMBER AFTER THE
PRIOR TO THE OFFERING(1) OF SHARES OFFERING(1)
----------------------------- OFFERED --------------------
NAME AND ADDRESS SHARES PERCENTAGE HEREBY SHARES PERCENTAGE
---------------- -------------- ----------------------- --------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS, NAMED
EXECUTIVE OFFICERS
AND 5% SHAREHOLDERS
Michael J. Rose(2)...... 571,868 27.5% -- 571,868 15.5%
c/o Cost-U-Less, Inc.
12410 S.E. 32nd Street
Bellevue, WA 98005
Wayne V. Keener(3)...... 234,374 11.7 -- 234,374 6.5
P.O. Box 897
Renton, WA 98057
Keener's, Inc........... 221,387 11.1 -- 221,387 6.1
P.O. Box 897
Renton, WA 98057
Gerald M. Podolny and
Cheryl A. Podolny(4)... 143,901 7.2 22,433 121,468 3.4
2000 Partridge Lane
Highland Park, IL 60035
Stephen Lenz(5)......... 139,998 7.0 590 139,408 3.9
12239 N.E. 130th Way,
#F204
Kirkland, WA 98034
Willis Marketing, Inc... 121,024 6.1 -- 121,024 3.4
3010 Harborview Drive
Gig Harbor, WA 98335
Donald L. Gevirtz(6).... 88,554 4.2 -- 88,554 2.4
Gary W. Nettles(7)...... 67,915 3.4 -- 67,915 1.9
Allan C. Youngberg(8)... 45,457 2.2 -- 45,457 1.3
David A. Enger(9)....... 12,692 * -- 12,692 *
George C. Textor(10).... 10,331 * -- 10,331 *
All directors and
executive officers as a
group (7 persons)(11).. 1,031,191 45.7% -- 1,031,191 26.7%
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) OF SHARES AFTER THE OFFERING(1)
---------------------------- OFFERED -------------------------
NAME AND ADDRESS SHARES PERCENTAGE HEREBY SHARES PERCENTAGE
---------------- ------------- -------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
SELLING SHAREHOLDERS
Barett, Hale & Gilman
Profit Sharing Plan and
Trust FBO
Paul A. Barrett........ 9,838 * 2,951 6,887 *
Ernest A. Burgess and
Diane J. Burgess....... 7,969 * 7,969 -- *
David L. Chamberlin..... 6,494 * 2,951 3,543 *
Bernard R. Cote......... 2,361 * 2,361 -- *
Christine Gaeckle....... 590 * 590 -- *
Paul J. Lavin, O.D.
Profit Sharing Plan and
Trust.................. 15,644 * 12,692 2,952 *
Douglas W. McCallum..... 31,978 1.6 14,759 17,219 *
Delaware Charter
Guarantee & Trust Co.
TTEE FBO John W.
Peterson IRA........... 47,967 2.4 23,983 23,984 *
Kelley Shawver Rose..... 59,036 3.0 11,807 47,229 1.3
Mark Scalzo............. 11,216 * 4,216 7,000 *
Michael T. Scalzo(12)... 12,988 * 4,999 7,989 *
James Shawver........... 37,683 1.9 3,542 34,141 1.0
Charles H. Simonson and
Mia P. Simonson........ 7,379 * 7,379 -- *
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person holding
the options but are not deemed outstanding for computing the percentage
ownership of any other person.
(2) Includes 12,077 shares held by the Michael J. Rose Childrens' Trust dated
January 6, 1992, 32,470 shares held by the Michael J. Rose Trust for
Children and Grandchildren, and 79,699 shares subject to a warrant and to
options exercisable within 60 days of May 1, 1998. Mr. Rose disclaims
beneficial ownership of the shares held in trust.
(3) Includes 221,387 shares held by Keener's, Inc. and 12,692 shares subject
to options exercisable within 60 days of May 1, 1998. Mr. Keener has sole
voting and investment power with respect to the shares held by Keener's,
Inc.
(4) Includes 47,967 shares held by the Delaware Charter Guarantee & Trust Co.
Trustee for benefit of Gerald M. Podolny IRA.
(5) Includes 139,408 shares held by The January Trust dated January 23, 1990
of which Mr. Lenz acts as Trustee.
(6) Represents 88,554 shares subject to options exercisable within 60 days of
May 1, 1998.
(7) Includes 11,807 shares held by the Alyce Christene Gangwish Irrevocable
Trust of 1995, 27,477 shares held by The Lenz Educational Partnership,
8,855 shares held by the Brittany Elizabeth Lenz Irrevocable Trust of
1995, and 8,855 shares held by the Cody Allan Lenz Irrevocable Trust of
1995, for each of which Mr. Nettles acts as Co-Trustee, and 10,921 shares
subject to options exercisable within 60 days of May 1, 1998.
(8) Includes 41,325 shares subject to options exercisable within 60 days of
May 1, 1998.
(9) Represents 12,692 shares subject to options exercisable within 60 days of
May 1, 1998.
(10) Represents 10,331 shares subject to options exercisable within 60 days of
May 1, 1998.
(11) Includes 256,214 shares subject to a warrant and options exercisable
within 60 days of May 1, 1998.
(12) Michael T. Scalzo is currently employed by the Company as its General
Merchandise Manager.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $0.001 par value per share, and 2,000,000 shares of Preferred
Stock, $0.001 par value per share. The following summary description of the
Company's capital stock is qualified in its entirety by reference to the
Restated Articles and the Company's Restated Bylaws (the "Restated Bylaws"),
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.
COMMON STOCK
As of May 1, 1998, the Common Stock was held of record by 83 persons and
entities, and a total of 1,999,961 shares were outstanding or committed for
issuance. In addition, 41 persons held options to purchase up to 454,819
shares of Common Stock.
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders. Subject to preferences that may be
applicable to any outstanding shares of Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available for the
payment of dividends. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no rights to convert
their Common Stock into any other securities, and there are no redemption
provisions with respect to such shares. All the outstanding shares of Common
Stock are fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by,
the rights of holders of shares of any series of Preferred Stock that the
Company may designate and issue in the future.
ROSE WARRANT
In 1991, the Company issued to Michael J. Rose and Kendrick Chamberlin, for
nominal consideration, a warrant to purchase an aggregate of 29,518 shares of
Common Stock at an exercise price of $2.37 per share (the "Rose Warrant"). In
1992, Mr. Rose acquired Mr. Chamberlin's share of the Rose Warrant. The Rose
Warrant is currently exercisable and expires in 2001. The Rose Warrant has
conversion rights and rights in the event of a reclassification of the
Company's Common Stock.
REPRESENTATIVE'S WARRANT
The Company has agreed to sell to the Representative or its designees, for
nominal consideration, a warrant (the "Representative's Warrant") to purchase
up to 160,000 shares of the Company's Common Stock at an exercise price equal
to 120% of the public offering price. The Representative's Warrant is
exercisable for a period of four years, beginning one year from the date of
this Prospectus. At any time during this period, the holder of the
Representative's Warrant shall have the right to require the Company, at the
Company's expense (including reasonable expenses incurred in connection with
Blue Sky qualifications), to prepare and file a registration statement so as
to permit the public offering of the Common Stock underlying the
Representative's Warrant, such registration statement to be kept effective for
a period of up to 120 days. See "Underwriting."
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000 shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such
series, without any further vote or action by the Company's
45
<PAGE>
shareholders. No shares of Preferred Stock have been issued. The issuance of
Preferred Stock could have one or more of the following effects: (i) restrict
any Common Stock dividends if Preferred Stock dividends have not been paid,
(ii) dilute the voting power and equity interest of holders of Common Stock to
the extent that any series of Preferred Stock has voting rights or is
convertible into Common Stock or (iii) prevent current holders of Common Stock
from participating in the Company's assets upon liquidation until any
liquidation preferences granted to holders of Preferred Stock are satisfied.
In addition, the issuance of Preferred Stock may, under certain circumstances,
have the effect of discouraging a change in control of the Company by, for
example, granting voting rights to holders of Preferred Stock that require
approval by the separate vote of the holders of Preferred Stock for any
amendment to the Restated Articles or any reorganization, consolidation or
merger (or other similar transaction involving the Company). As a result, the
issuance of Preferred Stock may discourage bids for the Company's Common Stock
at a premium over the market price therefor and could have a material adverse
effect on the market value of the Common Stock. The Board of Directors does
not currently intend to issue any shares of Preferred Stock. See "Risk
Factors--Antitakeover Considerations."
WASHINGTON ANTITAKEOVER STATUTE
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act (the "WBCA") prohibits a "target
corporation," with certain exceptions, from engaging in certain significant
business transactions with a person or group of persons that beneficially owns
10% or more of the voting securities of the target corporation (an "Acquiring
Person") for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members
of the target corporation's board of directors prior to the time of
acquisition. Such prohibited transactions include, among other things, a
merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the Acquiring Person, termination of 5% or
more of the employees of the target corporation as a result of the Acquiring
Person's acquisition of 10% or more of the shares or allowing the Acquiring
Person to receive any disproportionate benefit as a shareholder. After the
five-year period, a "significant business transaction" may take place as long
as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of the
Company. See "Risk Factors--Antitakeover Considerations."
CERTAIN PROVISIONS IN RESTATED ARTICLES
The Restated Articles provide for the division of the Company's Board of
Directors into three classes, as nearly equal in number as possible, each for
a three-year term, with one class being elected each year by the Company's
shareholders. See "Management--Directors, Executive Officers and Key
Employees." Directors may be removed only for cause and only by a vote of not
less than two-thirds of the shares of the Company's capital stock entitled to
vote on an election of the director whose removal is sought.
The Restated Articles require that certain business combinations (including
a merger, share exchange or the sale, lease, exchange, mortgage, pledge,
transfer or other disposition of a substantial part of the Company's assets)
be approved by the holders of not less than two-thirds of the outstanding
shares, unless such business combination shall have been approved by a
majority of Continuing Directors (defined as those individuals who were
members of the Board of Directors on May 11, 1998 or were elected thereafter
on the recommendation of a majority of the Continuing Directors), in which
case the affirmative vote required shall be a majority of the outstanding
shares.
Under the Restated Articles, the shareholders may call a special meeting
only upon the request of holders of at least 25% of the outstanding shares.
The Restated Articles also provide that changes to certain provisions of the
Articles of Incorporation, including those regarding amendment of certain
provisions of the Restated Bylaws or Restated Articles, the classified Board
of Directors, special voting provisions for business combinations and special
meetings of shareholders, must be approved by the holders of not less than
two-thirds of the outstanding shares.
46
<PAGE>
It is possible that these provisions in the Restated Articles may have the
effect of delaying, deterring or preventing a change in control of the
Company.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Restated Articles include a provision that limits the liability of the
Company's directors to the fullest extent permitted by the WBCA as it
currently exists or as it may be amended in the future. Consequently, subject
to the WBCA, no person shall be liable to the Company or its shareholders for
monetary damages resulting from such person's conduct as a director of the
Company. Amendments to the Restated Articles may not adversely affect any
right of a director of the Company with respect to acts or omissions occurring
prior to such amendment. Section 23B.08.320 of the WBCA provides that the
Restated Articles may not limit any director's liability for acts or omissions
involving intentional misconduct or knowing violations of law, unlawful
distributions or transactions from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. In addition, Washington law provides for broad indemnification by
the Company of its officers and directors. The Restated Bylaws implement this
indemnification to the fullest extent permitted by law. Insofar as the
indemnification for liabilities arising under the Securities Act may be
permitted to directors or officers of the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,599,961 shares of
Common Stock outstanding (3,839,961 shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of outstanding options
under the 1998 Plan, the 1989 Plan, the outstanding directors' options or the
Rose Warrant. The 1,723,222 shares sold in the Offering will be freely
tradable without restriction or limitation under the Securities Act, except
for any such shares held by "affiliates" of the Company, as such term is
defined under Rule 144 of the Securities Act, which shares will be subject to
the resale limitations under Rule 144. The remaining 1,876,739 shares are
"restricted securities" within the meaning of Rule 144 and were issued and
sold by the Company in private transactions and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. The Company, the directors,
executive officers, key employees and certain shareholders and option holders,
who collectively hold an aggregate of 1,638,783 shares and options and
warrants to purchase an aggregate of 484,337 additional shares, have agreed
not to sell, directly or indirectly, any shares owned by them for a period of
180 days after the date of this Prospectus without the prior written consent
of the Representative. Upon the expiration of this 180-day lock-up period (or
earlier upon the consent of the Representative), all of these restricted
shares (plus shares issuable upon exercise of then-vested outstanding options
and warrants) will become eligible for sale subject to the restrictions of
Rule 144 and Rule 701.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year, including an affiliate of the Company, would be entitled to sell,
within any three-month period, that number of shares that does not exceed the
greater of 1% of the then-outstanding shares of Common Stock (approximately
36,000 shares) and the average weekly trading volume in the Common Stock
during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the Commission, provided certain manner of sale
and notice requirements and requirements as to the availability of current
public information about the Company are satisfied. In addition, affiliates of
the Company must comply with the restrictions and requirements of Rule 144,
other than the one-year holding period requirement, in order to sell shares of
Common Stock. As defined in Rule 144, an "affiliate" of an issuer is a person
who directly or indirectly through the use of one or more intermediaries
controls, or is controlled by, or is under common control with, such issuer.
Under Rule 144(k), a holder of "restricted securities" who is not deemed an
affiliate of the issuer and who has beneficially owned shares for at least two
years would be entitled to sell shares under Rule 144(k) without regard to the
limitations described above.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that such sales
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the prospect of such
sales, could adversely affect the market price of the Common Stock.
48
<PAGE>
UNDERWRITING
The Underwriters named below, acting through the Representative, have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock indicated below opposite
their respective names at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions, and that the Underwriters are committed to
purchase all of such shares (other than those covered by the over-allotment
option described below), if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Cruttenden Roth Incorporated.......................................
---------
Total............................................................ 1,723,222
=========
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
public offering price reflected on the cover page of this Prospectus and to
selected securities dealers at such price less a concession not exceeding
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not exceeding $ per share to other dealers. After the public
offering of the shares of Common Stock, the public offering price and other
offering terms may be changed.
The Company has granted the Underwriters an over-allotment option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to 240,000 additional shares of Common Stock at the public
offering price set forth on the cover page of this Prospectus less the
underwriting discounts and commissions. The Underwriters may exercise the
over-allotment option only to cover over-allotments in the sale of Common
Stock. If the Underwriters exercise the over-allotment option, the
Underwriters will purchase additional shares in approximately the same
proportion as the shares set forth in the above table.
In connection with the Offering, the Company has agreed to issue to the
Representative the Representative's Warrant to purchase up to 160,000 shares
of Common Stock. The Representative's Warrant is exercisable for a period of
four years, beginning one year from the date of this Prospectus. The
Representative's Warrant is exercisable at a price equal to 120% of the public
offering price. The Representative's Warrant is nontransferable for a period
of one year following the date of this Prospectus, except to (i) other brokers
or dealers; (ii) one or more bona fide officers and/or partners of the
Representative; (iii) a successor to the transferring holder in a merger or
consolidation; (iv) a purchaser of all or substantially all of the
transferring holder's assets; or (v) any person receiving the Representative's
Warrants from one or more of the persons listed in subsections (i), (ii),
(iii) and (iv). The holders of the Representative's Warrant will have, in that
capacity, no voting, dividend or other shareholder rights; provided, however,
that the number of shares covered by the Representative's Warrant and the
exercise price is subject to adjustment in certain events to prevent dilution.
Additionally, at any time during the period the Representative's Warrant is
exercisable, the holder of the Representative's Warrant shall have the right
to require the Company, at the Company's expense (including reasonable
expenses incurred in connection with Blue Sky qualifications), to prepare and
file a registration statement so as to permit the public offering of the
Common Stock underlying the Representative's Warrant, such registration
statement to be kept effective for a period of up to 120 days. Any profit
realized by the Representative on the sale of Common Stock issuable on the
exercise of the Representative's Warrant may be deemed to be additional
underwriting compensation.
In connection with the Offering, the Company will pay Streamline Capital a
transaction fee of $75,000, which may be deemed to be additional underwriting
compensation. See "Certain Transactions."
49
<PAGE>
The Representative will also receive at the Closing of the Offering a
nonaccountable expense allowance equal to 2% of the aggregate initial public
offering price of the shares of Common Stock sold in the Offering.
The directors, executive officers, key employees and certain shareholders of
the Company and their affiliates, who as of May 1, 1998 held an aggregate of
1,638,783 shares and options and warrants to purchase an aggregate of 484,337
additional shares, have agreed not to sell any shares of Common Stock owned by
such persons, pursuant to Rule 144 under the Securities Act or otherwise,
without the prior written consent of the Representative, for a period of 180
days from the date of the closing of the Offering. The Representative has the
discretion to reduce or eliminate the time period for the lock-up; the
Representative has no current intention to release anyone from the provisions
of the lock-up agreement prior to expiration of the 180-day lock-up period.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In addition, the Company and the Selling Shareholders have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, and to contribute in certain events to any
liabilities incurred by the Underwriters in connection with the sale of the
shares of Common Stock offered hereby.
Certain persons participating in the Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the Offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with the Offering when shares of Common Stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of
the Representative, the Company and the Commission. See "Additional
Information."
LEGAL MATTERS
Certain legal matters will be passed on for the Company and the Selling
Shareholders by Perkins Coie LLP, Seattle, Washington. Certain legal matters
will be passed on for the Underwriters by Summit Law Group, P.L.L.C., Seattle,
Washington. Steven Hale, a partner at Perkins Coie LLP, is a former partner of
Barrett Hale & Gilman (now Barrett Gilman & Ziker), the profit sharing plan of
which is a selling shareholder in the Offering. Mr. Hale has no continuing
interest in such profit sharing plan and disclaims any beneficial interest in
the shares held by the plan.
50
<PAGE>
EXPERTS
Effective December 12, 1996, the Company's Board of Directors retained Ernst
& Young LLP as the independent auditors for the Company. There were no
disagreements with Deloitte & Touche LLP, the Company's former independent
accountants, regarding accounting principles or practices, financial statement
disclosures, or auditing scope or procedures. The former accountants' report
for the fiscal year ended December 31, 1995, which report is included herein,
did not contain an adverse opinion or a disclaimer of an opinion or
qualifications as to uncertainty, audit scope or accounting principles. Prior
to retaining Ernst & Young LLP, the Company had not consulted with Ernst &
Young LLP regarding the application of accounting principles, the type of
audit opinion that might be rendered on the Company's consolidated financial
statements, or any event that was either a reportable event or the subject of
a disagreement.
The Company's consolidated financial statements as of December 29, 1996 and
December 28, 1997, and for the years then ended appearing in this Prospectus
and in the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
report thereon given upon the authority of such firm as experts in auditing
and accounting.
The Company's consolidated financial statements for the year ended December
31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing elsewhere herein and have been so included
in reliance on the reports of such firm given upon their authority as experts
in auditing and accounting.
51
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This Prospectus, which constitutes part of the
Registration Statement, omits certain information contained in the
Registration Statement and the exhibits thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including the exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies may be obtained at the prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. The Commission also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically, including the Company, with the
Commission at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any written
contract, agreement or other document referred to are not necessarily
complete, and reference is made to the copies of contracts, agreements or
other documents filed as exhibits to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by independent auditors and may furnish its shareholders with
quarterly reports for the first three quarters of each fiscal year containing
unaudited summary consolidated financial information.
52
<PAGE>
COST-U-LESS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Report of Deloitte & Touche LLP, Independent Auditors....................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Income......................................... F-5
Consolidated Statements of Shareholders' Equity........................... F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cost-U-Less, Inc.
We have audited the accompanying consolidated balance sheets of Cost-U-Less,
Inc. as of December 29, 1996 and December 28, 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cost-U-Less,
Inc. at December 29, 1996 and December 28, 1997, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
March 13, 1998, except as to Note 11,
as to which the date is May , 1998
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the reverse stock split described in Note 11 to the consolidated financial
statements.
/s/ ERNST & YOUNG LLP
Seattle, Washington
May 12, 1998
F-2
<PAGE>
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
Board of Directors
Cost-U-Less, Inc.
Bellevue, Washington
We have audited the consolidated balance sheet of Cost-U-Less, Inc. as of
December 31, 1995, which is not included herein, and the accompanying related
consolidated statements of income, shareholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of the Company at December 31,
1995, and the consolidated results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Seattle, Washington
April 4, 1996 (May 8, 1998 as to Notes 1, 6, and 7)
The accompanying consolidated financial statements reflect a one-for-3.38773
stock split of common stock, which is to be effected prior to the effective
date of the Prospectus. The above opinion is in the form that will be signed
by Deloitte & Touche LLP upon consummation of the above event, which is
described in Note 11 of notes to the consolidated financial statements, and
assuming that, from April 4, 1996 (May 8, 1998 as to Notes 1, 6, and 7), to
the date of such event, no other events have occurred that would affect the
accompanying consolidated financial statements and notes thereto.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
May 12, 1998
F-3
<PAGE>
COST-U-LESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, MARCH 29,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.............. $ 95 $ 1,028 $ --
Receivables (net of allowance of $25,
$25, and $40 in 1996, 1997, and 1998,
respectively)......................... 715 1,023 934
Refundable income taxes................ 387 179 195
Inventories............................ 14,938 12,271 13,772
Prepaid expenses....................... 315 137 693
Deferred tax assets.................... 418 671 493
------- ------- -------
Total current assets................. 16,868 15,309 16,087
Property and equipment, net.............. 7,428 6,847 8,387
Deposits and other assets................ 419 518 608
Deferred tax assets...................... 141 141 141
------- ------- -------
Total assets......................... $24,856 $22,815 $25,223
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable....................... $ 8,601 $ 8,953 $ 9,776
Accrued expenses....................... 1,517 1,235 1,752
Income taxes payable................... -- 141 --
Line of credit......................... 1,500 376 615
Current portion of long-term debt...... 1,247 384 475
Current portion of capital lease
obligations .......................... 368 406 410
------- ------- -------
Total current liabilities............ 13,233 11,495 13,028
Deferred rent............................ 331 481 511
Long-term debt, less current portion..... 383 -- 582
Capital lease obligations, less current
portion................................. 1,582 1,169 1,050
------- ------- -------
Total liabilities.................... 15,529 13,145 15,171
Commitments
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..... 3,525 3,525 3,600
Retained earnings...................... 5,802 6,165 6,491
Accumulated other comprehensive income. -- (20) (39)
------- ------- -------
Total shareholders' equity........... 9,327 9,670 10,052
------- ------- -------
Total liabilities and shareholders'
equity.............................. $24,856 $22,815 $25,223
======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
COST-U-LESS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
-------------------------------------- ----------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 139,652 $ 134,820 $ 124,865 $ 31,789 $ 31,753
Merchandise costs....... 120,175 113,824 104,397 26,723 26,551
---------- ---------- ---------- ---------- ----------
Gross profit............ 19,477 20,996 20,468 5,066 5,202
Operating expenses:
Store................. 14,949 15,843 14,543 3,840 3,535
General and
administrative....... 2,728 3,039 3,225 795 981
Store openings........ 600 -- 327 22 130
Store closings........ 400 918 1,346 700 --
---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 18,677 19,800 19,441 5,357 4,646
---------- ---------- ---------- ---------- ----------
Operating income (loss). 800 1,196 1,027 (291) 556
Other income (expense):
Interest expense...... (555) (605) (427) (124) (55)
Other................. 150 -- (40) -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 395 591 560 (415) 501
Income tax provision
(benefit).............. 145 221 197 (137) 175
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 250 $ 370 $ 363 $ (278) $ 326
========== ========== ========== ========== ==========
Earnings (loss) per
common share:
Basic................. $ 0.13 $ 0.19 $ 0.18 $ (0.14) $ 0.16
========== ========== ========== ========== ==========
Diluted............... $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15
========== ========== ========== ========== ==========
Weighted average common
shares outstanding..... 1,999,961 1,999,961 1,999,961 1,999,961 1,999,961
========== ========== ========== ========== ==========
Weighted average common
shares outstanding,
assuming dilution...... 2,197,786 2,146,745 2,123,784 1,999,961 2,150,935
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
COST-U-LESS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME TOTAL
--------- ------ -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 25, 1994.. 1,999,371 $3,522 $5,182 $-- $ 8,704
Exercise of stock options... 590 3 -- -- 3
Net income and comprehensive
income..................... -- -- 250 -- 250
--------- ------ ------ ---- -------
Balance at December 31, 1995.. 1,999,961 3,525 5,432 -- 8,957
Net income and comprehensive
income -- -- 370 -- 370
--------- ------ ------ ---- -------
Balance at December 29, 1996.. 1,999,961 3,525 5,802 -- 9,327
Net income.................. -- -- 363 -- 363
Other comprehensive income.. -- -- -- (20) (20)
-------
Comprehensive income........ 343
--------- ------ ------ ---- -------
Balance at December 28, 1997.. 1,999,961 3,525 6,165 (20) 9,670
Net income (unaudited)...... -- -- 326 -- 326
Other comprehensive income
(unaudited)................ -- -- -- (19) (19)
-------
Comprehensive income
(unaudited)................ 307
Stock compensation
(unaudited)................ -- 75 -- -- 75
--------- ------ ------ ---- -------
Balance at March 29, 1998
(unaudited).................. 1,999,961 $3,600 $6,491 $(39) $10,052
========= ====== ====== ==== =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
COST-U-LESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
-------------------------------------- -------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ 250 $ 370 $ 363 $(278) $ 326
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation........... 779 1,089 917 244 230
Writedown of property
and equipment......... 114 713 637 387 --
Deferred tax (benefit)
provision............. (220) (20) (253) -- 178
Stock compensation..... -- -- -- -- 75
Reserve for bad debts.. -- 25 -- (16) 15
Cash provided by (used
in) changes in
operating assets and
liabilities:
Receivables............ (908) 605 (308) 132 73
Refundable income
taxes................. (515) 128 208 (292) (15)
Inventories............ (665) 1,660 2,667 (65) (1,501)
Prepaid expenses....... 27 (108) 179 (455) (556)
Deposits and other
assets................ 2 31 (193) (44) (89)
Accounts payable....... 1,726 (1,860) 352 (139) 822
Accrued expenses....... (605) (496) (142) 692 376
Deferred rent.......... 201 129 151 39 30
------- ------- ------- ----- -------
Net cash provided by
(used in) operating
activities............. 186 2,266 4,578 205 (36)
INVESTING ACTIVITY--
purchases of property
and equipment.......... (3,081) (2,006) (899) (581) (1,770)
FINANCING ACTIVITIES
Proceeds from exercise
of stock options....... 3 -- -- -- --
Net borrowings
(repayments) under line
of credit.............. 2,878 (2,000) (1,125) 721 239
Proceeds from long-term
debt................... 3,500 1,747 -- -- 1,000
Principal payments on
long-term debt......... (2,112) (1,151) (1,246) (303) (327)
Payments of capital
lease obligations...... -- (406) (375) (94) (115)
Unrealized foreign
exchange loss.......... -- -- -- -- (19)
------- ------- ------- ----- -------
Net cash provided by
(used in) financing
activities............. 4,269 (1,810) (2,746) 324 778
------- ------- ------- ----- -------
Net increase (decrease)
in cash and cash
equivalents............ 1,374 (1,550) 933 (52) (1,028)
Cash and cash
equivalents:
Beginning of period.... 271 1,645 95 95 1,028
------- ------- ------- ----- -------
End of period.......... $ 1,645 $ 95 $ 1,028 $ 43 $ 0
======= ======= ======= ===== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for:
Interest............... $ 542 $ 619 $ 442 $ 119 $ 58
Income taxes........... $ 1,012 $ 107 $ 102 $ 175 $ 153
SUPPLEMENTAL DISCLOSURE
OF NONCASH FINANCING
AND INVESTING
ACTIVITIES
Property and equipment
acquired with capital
lease obligations..... $ 663 $ 1,660 $ -- $ -- $ --
</TABLE>
See accompanying notes.
F-7
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS 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.
Principles of Consolidation
The Company operates wholly owned subsidiaries in Guam, U.S. Virgin Islands,
American Samoa, Nevada, Republic of Fiji, New Zealand, and Vanuatu. 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, which uses the Fijian dollar.
Fiscal Year
The Company's fiscal year ends on the last Sunday in December. The years
ended December 29, 1996 and December 28, 1997 represent 52-week fiscal years,
and the year ended December 31, 1995 was a 53-week fiscal year.
Cash Equivalents
Highly liquid investments maturing within three months from the date of
purchase are classified as cash equivalents.
Financial Instruments
The carrying value of financial instruments, including cash, receivables,
payables, and long-term debt, approximates market value at December 29, 1996
and December 28, 1997.
Inventories
Merchandise inventories are recorded at the lower of average cost or market.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided using
the straightline method over the estimated useful lives of the assets, ranging
from 5 to 15 years. Equipment acquired under capitalized leases is depreciated
over the shorter of the asset's estimated useful life or the life of the
related lease.
The Company's policy to recognize impairment losses relating to long-lived
assets is based on several factors, including, but not limited to,
management's plans for future operations, recent operating results and
projected cash flows.
Advertising Costs
The cost of advertising is expensed as incurred. Advertising expenses
incurred during fiscal years 1995, 1996, and 1997 were not material to the
Company's operating results.
F-8
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
Preopening Costs
Costs incurred in connection with the startup and promotion of new store
openings are expensed as incurred.
Stock-Based Compensation
The Company has elected to apply the disclosure only provisions of Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation. Accordingly, the Company accounts for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations under APB No. 25, whereby compensation cost for stock options
is measured as the excess, if any, of the fair value of the Company's common
stock at the date of grant over the stock option price.
Earnings Per Share
Basic earnings per share is computed based on weighted average shares
outstanding. Diluted earnings per share includes the effect of dilutive
securities (options and warrants) except where their inclusion is
antidilutive.
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.
During the first quarter of 1997 and 1998, total comprehensive income (loss)
amounted to $(278,000) and $307,000, respectively.
Segment Reporting
Effective January 1, 1997, the Company adopted the 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.
F-9
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
Unaudited Interim Financial Information
The financial information as of March 29, 1998 and for the quarters ended
March 30, 1997 and March 29, 1998 is unaudited, but 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. Operating results
for the quarter ended March 29, 1998 are not necessarily indicative of results
that may be expected for the entire year. All quarterly periods reported
consist of 13 weeks.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 28, MARCH 29,
1996 1997 1998
------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment.............................. $8,537 $8,238 $8,932
Leasehold improvement.................. 1,204 1,339 1,361
Construction in progress............... -- 94 1,147
------ ------ ------
9,741 9,671 11,440
Less accumulated depreciation.......... 2,313 2,824 3,053
------ ------ ------
Total assets........................... $7,428 $6,847 $8,387
====== ====== ======
</TABLE>
Equipment under capitalized leases had a cost of $2,322,000, $1,733,000, and
$1,733,000 and accumulated depreciation of $184,000, $331,000, and $359,000 at
December 29, 1996, December 28, 1997, and March 29, 1998, respectively.
3. BANK LINE OF CREDIT
At December 28, 1997, the Company had a $6,000,000 line of credit available
from a commercial bank that expires May 1, 1998. Borrowings bear interest at
prime (8.5% at December 28, 1997) and are secured by various Company assets.
As of December 28, 1997, $376,000 was outstanding under the line of credit
agreement.
Terms of this line of credit include covenants that require, among other
things, that the Company maintain certain financial ratios. As of December 28,
1997, the Company was in compliance with these covenants.
4. LONG-TERM DEBT
Long-term debt consists of a note payable to bank due in monthly
installments of $111, including interest at the fixed rate index plus 1.75%
(7.73% at December 28, 1997). The note matures in March 1998, and is secured
by equipment with a net book value of $4,782.
At December 28, 1997, the Company secured additional long-term financing
totaling $3,000,000 for the construction of a new store in St. Thomas. The
financing included a $1,000,000 note payable to a bank with interest at the
fixed rate index plus 1.75% (7.7% at December 28, 1997), maturing April 30,
2000. The
F-10
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
financing also included a $2,000,000 note payable to a bank with interest at
the prime rate plus 1%, maturing June 2013. The note will be secured by a
first leasehold priority mortgage on the new St. Thomas building. There were
no amounts drawn on either of these notes in 1997.
5. INCOME TAXES
The provision for income taxes for the fiscal years ended December 31, 1995,
December 29, 1996, and December 28, 1997, respectively, consists of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $ 6 $ 10 $ --
Foreign............................................ 338 199 463
State.............................................. 21 32 (13)
----- ---- -----
365 241 450
Deferred:
Federal and state.................................. (220) (76) (268)
Foreign............................................ -- 56 15
----- ---- -----
(220) (20) (253)
----- ---- -----
$ 145 $221 $ 197
===== ==== =====
</TABLE>
A reconciliation between the U.S statutory income tax rate and the effective
rate follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rate.............. $134 34.0% $201 34.0% $190 34.0%
State income taxes, net of federal bene-
fit.................................... 14 3.5 21 3.6 (9) (1.6)
Foreign related taxes and other......... (3) (0.8) (1) (0.2) 16 2.8
---- ---- ---- ---- ---- ----
Income taxes at effective rate.......... $145 36.7% $221 37.4% $197 35.2%
==== ==== ==== ==== ==== ====
</TABLE>
F-11
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
The significant items comprising the Company's net deferred tax assets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current deferred tax
assets and (liabilities):
Uniform capitalization.. $111 $ 95
Store accruals.......... 289 --
Vacation pay and bad
debts.................. 41 52
Charitable contribution
carryovers............. -- 45
Net operating loss
carryforwards.......... 37 600
Cash discounts and
other.................. (60) (121)
---- ----
Current deferred tax as-
sets, net................ $418 $671
==== ====
Long-term deferred tax
assets and (liabilities):
Deferred rent credits... $112 $163
Foreign tax credits..... 424 434
AMT and other credits... 91 85
Other................... 18 8
Accelerated
depreciation........... (337) (382)
---- ----
308 308
Less valuation allowance.. (167) (167)
---- ----
Long-term deferred tax as-
sets, net................ $141 $141
==== ====
</TABLE>
The Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance indefinitely. Accordingly, no
provision for U.S. income taxes was required on such earnings. It is not
practicable to estimate the tax liabilities which would result upon such
repatriation.
The valuation allowance has been provided due to uncertainty regarding the
full realization of the Company's foreign tax credits and other long-term
deferred tax assets. Foreign tax credit carryforwards expire in 1999 and 2000.
As of December 28, 1997, the Company had a U.S. net operating loss of
approximately $1,362,000, which will expire in 2012, and a Fiji net operating
loss of approximately $165,000, which will expire in 2006.
6. SHAREHOLDERS' EQUITY
Stock Options
The Company's Amended and Restated 1989 Stock Option Plan (the "1989 Plan")
provides for the granting of incentive and nonqualified stock options to
employees, directors, and consultants of the Company. An aggregate of
1,350,000 shares of common stock has been authorized for issuance under the
1989 Plan. Options issued under the 1989 Plan vest ratably over five years and
expire after ten years from the date of grant and are generally granted at
prices equal to the fair value on the date of grant. There were 1,032,974
options available for future grant under the 1989 Plan at December 28, 1997.
F-12
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
The Company has also granted nonqualified stock options to its Directors.
Options granted to Directors have vesting provisions ranging from immediate
vesting to 20% vesting per year and are generally issued at the fair value at
the date of grant. Options expire after ten years. At December 28, 1997,
66,410 options have been granted at an exercise price of $10.16 per share.
A summary of stock option transactions for the years ended December 31,
1995, December 29, 1996, and December 28, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year.................... 352,557 $ 8.60 270,320 $ 6.20 270,320 $4.98
Granted................ 11,802 16.94 47,497 8.47 45,744 9.82
Forfeited.............. (93,420) 16.70 (47,497) 13.42 (25,055) 9.45
Exercised.............. (619) 4.03 -- -- -- --
------- ------- -------
Outstanding, end of year. 270,320 6.20 270,320 4.98 291,009 5.49
======= ======= =======
Exercisable, end of year. 174,748 4.78 206,257 4.51 255,340 5.03
======= ======= =======
</TABLE>
The weighted average fair value of options granted in 1995, 1996, and 1997
was $0.82, $0.42 and $0.09, respectively. The following table summarizes
information related to outstanding options at December 28, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------------- -------------------
RANGE OF WEIGHTED WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICES OPTIONS PRICE LIFE OPTIONS PRICE
------------- ------- -------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.81 - 2.37 73,795 $1.73 2.85 years 73,795 $1.73
3.39 - 3.73 102,569 3.69 4.65 years 102,569 3.69
8.47 - 10.16 114,645 9.49 7.43 years 78,976 9.82
------- -------
291,009 5.49 255,340 5.03
======= =======
</TABLE>
In 1996, the Company offered employees with options granted with exercise
prices of $16.94 per share the opportunity to surrender those options and
receive new options with an exercise price of $8.47 per share. With the
exception of the exercise price, the terms of the new options, including the
vesting schedule, are identical to the terms of the old options. The holders
of 29,789 options elected to exchange their options under this repricing
offer.
F-13
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
As described in Note 1, the Company has elected to account for stock-based
compensation expense in accordance with APB No. 25. Accordingly, for fiscal
years 1995, 1996, and 1997, no compensation expense has been recognized for
stock-based compensation since the grant price equaled the estimated fair
value of the stock on the date of grant. Had compensation cost been recognized
based on the fair value at the grant date for options awarded under the Plan,
pro forma net income and net income per share would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net income as reported............................ $250,000 $370,000 $363,000
Net income pro forma.............................. 248,000 367,000 357,000
Earnings per common share, basic as reported...... $ 0.13 $ 0.19 $ 0.18
Earnings per common share, basic pro forma........ $ 0.12 $ 0.18 $ 0.18
Earnings per common share, diluted as reported.... $ 0.11 $ 0.17 $ 0.17
Earnings per common share, diluted pro forma...... $ 0.11 $ 0.17 $ 0.17
</TABLE>
Compensation expense recognized in providing pro forma disclosures may not
be representative of the effects on pro forma net income for future years
because the above amounts include only the amortization for the fair value of
grants made in fiscal years 1995, 1996, and 1997.
The fair value of each option is estimated on the date of grant under the
Black-Scholes option pricing model with a volatility of zero and using the
following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ 6% 6.20% 6.20%
Expected life...................................... 3 years 3 years 3 years
</TABLE>
In January 1998, the Company granted 88,554 options with immediate vesting
to a director of the Company. The options were granted with an exercise price
of $7.62, with a deemed fair value of $8.47. Accordingly, for financial
statement presentation purposes, compensation expense of $75,000 has been
recognized.
Warrants
In 1991, the Company issued 29,518 warrants to an officer. The warrants
grant the holder the right to 29,518 shares of the Company's common stock at
$2.37 per share. The warrants are currently exercisable and expire in 2001.
COMMON STOCK RESERVED
Common stock reserved for future issuance at December 28, 1997 is as
follows:
<TABLE>
<S> <C>
Stock options.................................................... 1,462,612
Warrants......................................................... 29,518
---------
1,492,130
=========
</TABLE>
F-14
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
-------------------------------------- ----------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)...... $ 250 $ 370 $ 363 $ (278) $ 326
Denominator:
Denominator for basic
earnings per share--
weighted average
shares................ 1,999,961 1,999,961 1,999,961 1,999,961 1,999,961
Effect of dilutive
securities:
Stock options and
warrants............. 197,825 146,784 123,823 -- 150,974
Denominator for diluted
earnings per share--
adjusted weighted
average shares and
assumed conversion of
stock options and
warrants.............. 2,197,786 2,146,745 2,123,784 1,999,961 2,150,935
Basic earnings (loss)
per common share....... $ 0.13 $ 0.19 $ 0.18 $ (0.14) $ 0.16
Diluted earnings (loss)
per common share....... $ 0.11 $ 0.17 $ 0.17 $ (0.14) $ 0.15
</TABLE>
7. SEGMENT INFORMATION AND STORE CLOSURES
The Company reports operating results in two segments due to distinct
geographical and operational differences. These two segments include the
Company's discount retail stores located in its island markets and those
located on the U.S. mainland.
Other business activities include wholesale sales directly from the
Company's distribution facilities. These sales are not significant to include
as a separate segment and are aggregated with other income and expenses that
are not directly related to the operations of the stores in the particular
segments.
F-15
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
ISLAND MAINLAND
STORES STORES OTHER TOTALS
-------- -------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Net sales..................................... $120,010 $19,642 $ -- $139,652
Contribution.................................. 4,958 (430) -- 4,528
Depreciation.................................. 475 152 -- 627
Store opening expense......................... 267 333 -- 600
Store closing expense......................... 400 -- 400
Segment inventories........................... 10,725 3,196 -- 13,921
Segment total assets.......................... 16,845 5,204 -- 22,049
YEAR ENDED DECEMBER 29, 1996
Net sales..................................... 111,413 23,407 -- 134,820
Contribution.................................. 5,212 (415) 356 5,153
Depreciation.................................. 556 272 -- 828
Store closing expense......................... -- 918 -- 918
Segment inventories........................... 9,543 2,996 -- 12,539
Segment total assets.......................... 16,140 5,154 -- 21,294
YEAR ENDED DECEMBER 28, 1997
Net sales..................................... 111,480 10,684 2,701 124,865
Contribution.................................. 5,635 (160) 450 5,925
Depreciation.................................. 579 110 -- 689
Store opening expense......................... 327 -- -- 327
Store closing expense......................... -- 1,346 -- 1,346
Segment inventories........................... 8,655 764 -- 9,419
Segment total assets.......................... 16,240 1,350 -- 17,590
QUARTER ENDED MARCH 30, 1997
Net sales..................................... 27,882 3,748 159 31,789
Contribution.................................. 1,321 (185) 90 1,226
Segment inventories........................... 9,183 1,450 -- 10,633
Segment total assets.......................... 14,801 2,750 -- 17,551
QUARTER ENDED MARCH 29, 1998
Net sales..................................... 29,547 1,570 636 31,753
Contribution.................................. 1,584 (35) 118 1,667
Segment inventories........................... 8,538 780 -- 9,318
Segment total assets.......................... 15,654 1,345 -- 16,999
</TABLE>
F-16
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
Reconciliation of Contribution to Consolidated Income before Income Taxes
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
-------------------------------------- -------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total contribution for
reportable segments.... $ 4,528 $ 4,797 $ 5,475 $1,136 $1,549
Other contribution...... -- 356 450 90 118
Administrative expense
not allocated to
segments............... (2,728) (3,039) (3,225) (795) (981)
Store opening/closing
expenses............... (1,000) (918) (1,673) (722) (130)
Other income (expense).. 150 -- (40) -- --
Interest expense........ (555) (605) (427) (124) (55)
------- ------- ------- ------ ------
Consolidated income
(loss) before income
taxes.................. $ 395 $ 591 $ 560 $ (415) $ 501
======= ======= ======= ====== ======
</TABLE>
Reconciliation of Significant Items
<TABLE>
<CAPTION>
SEGMENT CONSOLIDATED
TOTALS CORPORATE TOTALS
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
DECEMBER 31, 1995
OTHER SIGNIFICANT ITEMS
Depreciation..................................... $ 627 $ 152 $ 779
Inventories...................................... 13,921 2,677 16,598
Total assets..................................... 22,049 6,476 28,525
DECEMBER 29, 1996
OTHER SIGNIFICANT ITEMS
Depreciation..................................... 828 261 1,089
Inventories...................................... 12,539 2,399 14,938
Total assets..................................... 21,294 3,562 24,856
DECEMBER 28, 1997
OTHER SIGNIFICANT ITEMS
Depreciation..................................... 689 228 917
Inventories...................................... 9,419 2,852 12,271
Total assets..................................... 17,590 5,225 22,815
MARCH 30, 1997
Inventories...................................... 10,633 4,370 15,003
Total assets..................................... 17,551 7,943 25,494
MARCH 29, 1998
Inventories...................................... 9,318 4,454 13,772
Total assets..................................... 16,999 8,224 25,223
</TABLE>
F-17
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
Geographic Information
<TABLE>
<CAPTION>
LONG-LIVED
SALES ASSETS
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
1995
United States.......................................... $ 51,346 $3,644
Other foreign countries*............................... 88,306 4,031
-------- ------
$139,652 $7,675
======== ======
1996
United States.......................................... $ 46,548 $4,091
Other foreign countries*............................... 88,272 3,756
-------- ------
$134,820 $7,847
======== ======
1997
United States.......................................... $ 34,801 $3,451
Other foreign countries*............................... 90,064 3,914
-------- ------
$124,865 $7,365
======== ======
</TABLE>
- --------
* including U.S. territories
In 1995 and 1996, the Company closed the Maui, Hawaii and San Jose,
California stores, respectively. In 1997, the Company permanently closed the
Davis, California and Walla Walla, Washington stores. The following represents
the costs charged to expense related to the store closures for the indicated
fiscal years:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Lease buyout............................................. $138 $225 $ 421
Leasehold improvement writeoff........................... 114 530 635
Other closure costs...................................... 148 163 290
---- ---- ------
$400 $918 $1,346
==== ==== ======
</TABLE>
The 1997 charge of $1,346,000 includes $256,000 of additional closure costs
related to the termination of stores previously closed.
Total revenues and net operating losses contributed by the four stores
closed during fiscal 1995, 1996, and 1997 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenues...................................... $18,480 $15,691 $3,433
======= ======= ======
Store operating losses.............................. $ 933 $ 608 $ 243
======= ======= ======
</TABLE>
F-18
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
8. LEASE COMMITMENTS
The Company has entered into operating leases for retail and administrative
office locations. The leases range from 5 to 15 years and include renewal
options. The Company is required to pay a base rent, plus insurance, taxes,
and maintenance. The Company also leases equipment that may be purchased for a
nominal amount on expiration of the lease.
A summary of the Company's future minimum lease obligations under leases
with initial or remaining terms of one year or more is as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASE LEASE
--------- -------
(IN THOUSANDS)
<S> <C> <C>
1998.................................................... $ 3,284 $ 537
1999.................................................... 3,044 537
2000.................................................... 3,086 778
2001.................................................... 3,110 --
2002.................................................... 2,830 --
Thereafter.............................................. 12,315 --
------- ------
$27,669 1,852
=======
Amounts representing interest........................... (277)
------
Present value of net minimum lease payments............. $1,575
======
</TABLE>
Rent expense under operating leases for the fiscal years ended December 31,
1995, December 29, 1996, and December 28, 1997 totaled $3,614,000, $4,103,000,
and $3,817,000, respectively.
Total minimum capital lease payments include $431,000 of residual value
payments to be paid in fiscal year 2000.
Subsequent to December 28, 1997, the Company entered into agreements to
lease two stores in Fiji, and entered into a lease for one store in Curacao,
Netherlands Antilles. The Fiji agreements contemplate leases with have ten-
year terms and renewal options. Rental rates for the Fiji stores in Fijian
dollars will be $27,000 and $29,000 per month, respectively ($14,000 and
$15,000 in U.S. dollars, respectively). A rental review and adjustment to the
rental rate, if required, will be made every five years on one of the leases.
The Curacao store is a ten-year lease with two five-year options to extend the
lease term. Rental rates for the Curacao store are $64,000 (in U.S. dollars)
per month fixed for the first seven years and adjusted by the Consumer Price
Index for the remaining three years. The Company's future minimum lease
obligations for the Fiji stores are $1,685,000 and $1,804,000, and its future
minimum lease obligation for the Curacao store is $7.7 million. None of the
stores will have any common area charges or taxes. Property insurance for the
buildings will be paid by the Company.
Lease payments will not begin until the buildings are completed. All three
are expected to be completed by the first quarter of 1999.
F-19
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
9. EMPLOYEE BENEFIT PLAN
The Company maintains a 40l(k) profit-sharing plan covering all eligible
employees. Participating employees may elect to defer and contribute a stated
percentage of their compensation to the plan, not to exceed the dollar limit
set by law. The Company matches 25% of each employee's contribution, up to a
maximum of the first 15% of each employee's compensation. The Company's
matching contributions to the plan approximated $70,000, $86,000, and $75,000
in fiscal 1995, 1996, and 1997, respectively.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the Company's unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
EARNINGS
(LOSS) PER
STORE COMMON
WEEKS NET SHARE(1)
IN NET GROSS INCOME ---------------
PERIOD SALES PROFIT (LOSS) BASIC DILUTED
------ ------- ------ ------ ------ -------
(IN THOUSANDS, EXCEPT STORE WEEKS AND PER-
SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1996
First quarter..................... 143 $33,443 $4,940 $ 91 $ 0.05 $ 0.04
Second quarter.................... 143 33,844 5,194 235 0.12 0.11
Third quarter..................... 143 32,717 5,210 260 0.13 0.12
Fourth quarter(2)................. 143 34,816 5,652 (216) (0.11) (0.11)
FISCAL 1997
First quarter(3).................. 130 $31,789 $5,066 $(278) $(0.14) $(0.14)
Second quarter(4)................. 117 31,868 5,240 3 -- --
Third quarter..................... 104 29,747 4,876 264 0.13 0.12
Fourth quarter.................... 104 31,461 5,286 374 0.19 0.18
</TABLE>
- --------
(1) Interim per share amounts may not accumulate to annual per share amounts
due to rounding.
(2) Includes store closure costs of $839,000.
(3) Includes store closure costs of $700,000.
(4) Includes store closure costs of $600,000.
11. SUBSEQUENT EVENTS
In December 1997, the Company entered into an investment banking agreement
with Streamline Capital Corporation ("Streamline Capital"). The agreement was
modified in March 1998, whereby the Company will pay Streamline Capital a
monthly retainer of $6,000 and pay a transaction fee of $75,000 for the
completion of an initial public offering ("IPO"). The retainer is used to
offset any transaction fees earned by Streamline Capital. The principal of
Streamline Capital is the son of a director of the Company.
On May 1, 1998, the Company increased its line of credit from a commercial
bank to $7,000,000. The line of credit expires May 1, 1999. Borrowings under
the line of credit bear interest at the bank's prime rate, 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 similar to
those under the previous line of credit. (See Note 3.)
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.
F-20
<PAGE>
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS
ENDED MARCH 30, 1997 AND MARCH 29, 1998 IS UNAUDITED)
On May , 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.
On February 28, 1998, the Company adopted the 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). The 1998 Plan includes both stock options
and stock awards, including restricted stock, with a maximum of 500,000 shares
of common stock available for issuance. On May , 1998, the shareholders
approved the 1998 Plan. All future option grants will be made under the 1998
Plan, and no additional options will be granted under the 1989 Plan.
F-21
<PAGE>
BACK COVER:
. Picture of a warehouse membership card with a circle/slash overlay with the
following text:
"At Cost-U-Less, You're Already a Member."
Unlike most warehouse club stores, we don't charge you an annual membership
fee just shop at Cost-U-Less."
. Picture of Cost-U-Less logo
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
page
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 25
Management................................................................ 36
Certain Transactions...................................................... 42
Principal and Selling Shareholders........................................ 43
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 48
Underwriting.............................................................. 49
Legal Matters............................................................. 50
Experts................................................................... 51
Additional Information.................................................... 52
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,723,222 SHARES
[LOGO OF COST-U-LESS]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
CRUTTENDEN ROTH
I N C O R P O R A T E D
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the sale of the Common Stock being registered hereby. All
amounts shown are estimates, except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 6,082
NASD filing fee.................................................. 2,562
Nasdaq National Market listing fee............................... 53,750
Representative's nonaccountable expense allowance................ 320,000
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 100,000
Legal fees and expenses.......................................... 175,000
Accounting fees and expenses..................................... 175,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous expenses........................................... 67,606
--------
Total.......................................................... $920,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the WBCA authorize a court to
award, or a corporation's board of directors to grant, indemnification to
directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"). Section 10 of the registrant's
Restated Bylaws (Exhibit 3.2 hereto) provides for indemnification of the
registrant's directors, officers, employees and agents to the maximum extent
permitted by Washington law. The directors and officers of the registrant also
may be indemnified against liability they may incur for serving in that
capacity pursuant to a liability insurance policy maintained by the registrant
for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in certain circumstances
involving intentional misconduct, knowing violations of law or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Article 8 of the registrant's Restated
Articles of Incorporation (Exhibit 3.1 hereto) contains provisions
implementing, to the fullest extent permitted by Washington law, such
limitations on a director's liability to the registrant and its shareholders.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and
directors, and by the registrant of the Underwriters, for certain liabilities,
including liabilities arising under the Securities Act, in connection with
matters specifically provided in writing by the Underwriters for inclusion in
this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From May 1, 1995 through May 1, 1998, the registrant granted stock options
to purchase 78,191 shares of Common Stock at a weighted average exercise price
of $9.50 per share to employees and officers pursuant to its 1989 Stock Option
Plan. Of these options, none have been canceled without being exercised, 590
have been exercised and 77,601 remain outstanding. From May 1, 1995 through
May 1, 1998, the registrant also granted stock options to directors, pursuant
to individual director stock option agreements, to purchase
II-1
<PAGE>
152,013 shares of Common Stock at a weighted average exercise price of $8.68
per share. Of these options, none have been canceled, none have been exercised
and 152,013 remain outstanding.
No underwriters were engaged in connection with these option grants, which
were deemed to be exempt from registration under the Securities Act
principally by virtue of Section 4(2) thereof as transactions not involving
any public offering, and by virtue of Rule 701 promulgated under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
1.2* Form of Warrant Agreement
3.1* Amended and Restated Articles of Incorporation of the registrant
3.2 Amended and Restated Bylaws of the registrant
4.1* Specimen Common Stock Certificate
5.1* Opinion of Perkins Coie LLP regarding legality of shares
10.1* 1998 Stock Incentive Compensation Plan
10.2 Amended and Restated 1989 Stock Option Plan
10.3 Form of Director Stock Option Agreement (Vesting)
10.4 Form of Director Stock Option Agreement (Nonvesting)
10.5 Manager Bonus Program
10.6 Common Stock Purchase Warrant between the registrant and Michael J.
Rose
10.7 Business Loan Agreement between Bank of America NT & SA dba
Seafirst Bank and the registrant, dated April 28, 1998
10.8 Promissory Note between Bank of America NT & SA dba Seafirst Bank
and the registrant, dated December 31, 1997
10.9 Construction/Permanent Loan Agreement by and among CULUSVI, Inc.,
the registrant and Banco Popular de Puerto Rico, dated November 6,
1997
10.10* Form of Lease Agreement between Westmall Limited and the registrant
10.11* Form of Lease Agreement between Fiji Public Service Association and
the registrant
10.12 Lease Agreement between Baroud Real Estate Development N.V. and the
registrant, dated April 3, 1998
10.13 Ground Lease between Market Square East, Inc. and the registrant,
dated October 20, 1997
10.14 Month-to-Month Rental Agreement (Gross) between Whipple Road
Associates and the registrant, dated January 6, 1995
10.15 Sublease Agreement between Tamuning Capital Investment, Inc. and
the registrant dated July 15, 1994
10.16 Lease Agreement between Ottoville Development Company and the
registrant, dated March 9, 1994
10.17 Lease Agreement between Inmostrat Corporation and the registrant,
dated August 1993
10.18 Lease Agreement between Hassan Rahman and the registrant, dated
July 30, 1993
10.19 Industrial Real Estate Lease (Single-Tenant Facility) between Hilo
Partners and the registrant, dated September 1, 1991
10.20 Indenture of Lease between Kai Pacific Limited and the registrant,
dated August 30, 1991
10.21 Lease Agreement between Tonko Reyes, Inc. and the registrant, dated
July 1991
21.1 Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Deloitte & Touche, LLP, Independent Auditors
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
23.3 Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the registrant
or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bellevue,
State of Washington, on the 12th day of May, 1998.
COST-U-LESS, INC.
/s/ Michael J. Rose
By: _________________________________
Michael J. Rose
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Michael J. Rose and Allan Youngberg, and each of them, with full
power of substitution and resubstitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-
effective amendments and amendments thereto and any registration statement
relating to the same offering as this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 12th day of May, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Michael J. Rose Chairman of the Board, President and Chief
___________________ Executive Officer (Principal Executive
Michael J. Rose Officer)
/s/ Allan Youngberg Executive Vice President, Chief Financial
___________________ Officer, Secretary and Treasurer (Principal
Allan Youngberg Financial and Accounting Officer)
/s/ David A. Enger Director
___________________
David A. Enger
/s/ Don L. Gevirtz Director
___________________
Don L. Gevirtz
/s/ Wayne V. Keener Director
___________________
Wayne V. Keener
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Gary W. Nettles Director
____________________
Gary W. Nettles
/s/ George C. Textor Director
____________________
George C. Textor
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
1.2* Form of Warrant Agreement
3.1* Amended and Restated Articles of Incorporation of the registrant
3.2 Amended and Restated Bylaws of the registrant
4.1* Specimen Common Stock Certificate
5.1* Opinion of Perkins Coie LLP regarding legality of shares
10.1* 1998 Stock Incentive Compensation Plan
10.2 Amended and Restated 1989 Stock Option Plan
10.3 Form of Director Stock Option Agreement (Vesting)
10.4 Form of Director Stock Option Agreement (Nonvesting)
10.5 1998 Manager Bonus Program
10.6 Common Stock Purchase Warrant between the registrant and Michael J.
Rose
10.7 Business Loan Agreement between Bank of America NT & SA dba Seafirst
Bank and the registrant, dated April 28, 1998
10.8 Promissory Note between Bank of America NT & SA dba Seafirst Bank and
the registrant, dated December 31, 1997
10.9 Construction/Permanent Loan Agreement by and among CULUSVI, Inc., the
registrant and Banco Popular de Puerto Rico, dated November 6, 1997
10.10* Form of Lease Agreement between Westmall Limited and the registrant
10.11* Form of Lease Agreement between Fiji Public Service Association and
the registrant
10.12 Lease Agreement between Baroud Real Estate Development N.V. and the
registrant, dated April 3, 1998
10.13 Ground Lease between Market Square East, Inc. and the registrant,
dated October 20, 1997
10.14 Month-to-Month Rental Agreement (Gross) between Whipple Road
Associates and the registrant, dated January 6, 1995
10.15 Sublease Agreement between Tamuning Capital Investment, Inc. and the
registrant dated July 15, 1994
10.16 Lease Agreement between Ottoville Development Company and the
registrant, dated March 9, 1994
10.17 Lease Agreement between Inmostrat Corporation and the registrant,
dated August 1993
10.18 Lease Agreement between Hassan Rahman and the registrant, dated July
30, 1993
10.19 Industrial Real Estate Lease (Single-Tenant Facility) between Hilo
Partners and the registrant, dated September 1, 1991
10.20 Indenture of Lease between Kai Pacific Limited and the registrant,
dated August 30, 1991
10.21 Lease Agreement between Tonko Reyes, Inc. and the registrant, dated
July 1991
21.1 Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Deloitte & Touche, LLP, Independent Auditors
23.3 Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1 hereto)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
COST-U-LESS, INC.
Originally adopted on: ______________, 1998
Amendments are listed on page i
- --------------------------------------------------------------------------------
BYLAWS
<PAGE>
AMENDMENTS
----------
<TABLE>
<CAPTION>
SECTION EFFECT OF AMENDMENT DATE OF AMENDMENT
- --------------------- ------------------------------------- ------------------------------
<S> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
BYLAWS Page i
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C>
SECTION 1 OFFICES......................................................... 1
SECTION 2 SHAREHOLDERS.................................................... 1
2.1 Annual Meeting................................................. 1
2.2 Special Meetings............................................... 1
2.3 Meetings by Communication Equipment............................ 1
2.4 Date, Time and Place of Meeting................................ 2
2.5 Business for Shareholders' Meetings............................ 2
2.5.1 Business at Annual Meetings............................ 2
2.5.2 Business at Special Meetings........................... 2
2.5.3 Notice to Corporation.................................. 3
2.6 Notice of Meeting.............................................. 3
2.7 Waiver of Notice............................................... 3
2.8 Fixing of Record Date for Determining Shareholders............. 3
2.9 Voting Record.................................................. 4
2.10 Quorum......................................................... 4
2.11 Manner of Acting............................................... 4
2.12 Proxies........................................................ 5
2.13 Voting of Shares............................................... 5
2.14 Voting for Directors........................................... 5
2.15 Action by Shareholders Without a Meeting....................... 5
SECTION 3 BOARD OF DIRECTORS.............................................. 6
3.1 General Powers................................................. 6
3.2 Number and Tenure.............................................. 6
3.3 Nomination and Election........................................ 6
3.3.1 Nomination............................................. 6
3.3.2 Election............................................... 7
3.4 Annual and Regular Meetings.................................... 7
3.5 Special Meetings............................................... 8
3.6 Meetings by Communications Equipment........................... 8
</TABLE>
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BYLAWS Page ii
<PAGE>
3.7 Notice of Special Meetings..................................... 8
3.7.1 Personal Delivery...................................... 8
3.7.2 Delivery by Mail....................................... 8
3.7.3 Delivery by Private Carrier............................ 8
3.7.4 Facsimile Notice....................................... 9
3.7.5 Delivery by Telegraph.................................. 9
3.7.6 Oral Notice............................................ 9
3.8 Waiver of Notice............................................... 9
3.8.1 In Writing............................................. 9
3.8.2 By Attendance.......................................... 9
3.9 Quorum......................................................... 9
3.10 Manner of Acting............................................... 10
3.11 Presumption of Assent.......................................... 10
3.12 Action by Board or Committees Without a Meeting................ 10
3.13 Resignation.................................................... 10
3.14 Removal........................................................ 10
3.15 Vacancies...................................................... 10
3.16 Executive and Other Committees................................. 11
3.16.1 Creation of Committees................................. 11
3.16.2 Authority of Committees................................ 11
3.16.3 Audit Committee........................................ 12
3.16.4 Compensation Committee................................. 12
3.16.5 Nominating and Organization Committee.................. 12
3.16.6 Quorum and Manner of Acting............................ 12
3.16.7 Minutes of Meetings.................................... 13
3.16.8 Resignation............................................ 13
3.16.9 Removal................................................ 13
3.17 Compensation................................................... 13
SECTION 4 OFFICERS........................................................ 13
4.1 Appointment and Term........................................... 13
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BYLAWS Page iii
<PAGE>
4.2 Resignation.................................................... 14
4.3 Removal........................................................ 14
4.4 Contract Rights of Officers.................................... 14
4.5 Chairman of the Board.......................................... 14
4.6 President...................................................... 14
4.7 Vice President................................................. 14
4.8 Secretary...................................................... 15
4.9 Treasurer...................................................... 15
4.10 Salaries....................................................... 15
SECTION 5 CONTRACTS, LOANS, CHECKS AND DEPOSITS........................... 15
5.1 Contracts...................................................... 15
5.2 Loans to the Corporation....................................... 15
5.3 Checks, Drafts, Etc............................................ 16
5.4 Deposits....................................................... 16
SECTION 6 CERTIFICATES FOR SHARES AND THEIR TRANSFER...................... 16
6.1 Issuance of Shares............................................. 16
6.2 Certificates for Shares........................................ 16
6.3 Stock Records.................................................. 16
6.4 Restriction on Transfer........................................ 16
6.5 Transfer of Shares............................................. 17
6.6 Lost or Destroyed Certificates................................. 17
SECTION 7 BOOKS AND RECORDS............................................... 17
SECTION 8 ACCOUNTING YEAR................................................. 18
SECTION 9 SEAL............................................................ 18
SECTION 10 INDEMNIFICATION................................................ 18
10.1 Right to Indemnification....................................... 18
10.2 Restrictions on Indemnification................................ 19
10.3 Advancement of Expenses........................................ 19
10.4 Right of Indemnitee to Bring Suit.............................. 19
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BYLAWS Page iv
<PAGE>
<TABLE>
<S> <C>
10.5 Procedures Exclusive........................................... 20
10.6 Nonexclusivity of Rights....................................... 20
10.7 Insurance, Contracts and Funding............................... 20
10.8 Indemnification of Employees and Agents of the Corporation..... 21
10.9 Persons Serving Other Entities................................. 21
SECTION 11 AMENDMENTS..................................................... 21
SECTION 12 VOTING SHARES OF ANOTHER CORPORATION........................... 21
</TABLE>
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BYLAWS Page v
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
COST-U-LESS, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the Board of Directors ("Board") may
designate. The corporation may have such other offices, either within or
without the State of Washington, as the Board may designate or as the business
of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held each year within 90 to
180 days after the fiscal year end of the corporation at a date, time and
location determined by resolution of the Board of Directors, for the purpose of
electing Directors and transacting such other business as may properly come
before the meeting. At any time prior to the commencement of the annual
meeting, the Board may postpone the annual meeting for a period of up to one
hundred twenty (120) days from the date fixed for such meeting in accordance
with this Subsection 2.1.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 25% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 MEETINGS BY COMMUNICATION EQUIPMENT
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall
constitute presence in person at a meeting.
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BYLAWS Page 1
<PAGE>
2.4 DATE, TIME AND PLACE OF MEETING
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board.
2.5 BUSINESS FOR SHAREHOLDERS' MEETINGS
2.5.1 BUSINESS AT ANNUAL MEETINGS
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a shareholder pursuant to written notice thereof,
in accordance with subsection 2.5.3 hereof, and received by the Secretary not
fewer than 60 nor more than 90 days prior to the date specified in subsection
2.1 hereof for such annual meeting (or if less than 60 days' notice or prior
public disclosure of the date of the annual meeting is given or made to the
shareholders, not later than the tenth day following the day on which the notice
of the date of the annual meeting was mailed or such public disclosure was
made). Any such shareholder notice shall set forth (i) the name and address of
the shareholder proposing such business; (ii) a representation that the
shareholder is entitled to vote at such meeting and a statement of the number of
shares of the corporation which are beneficially owned by the shareholder; (iii)
a representation that the shareholder intends to appear in person or by proxy at
the meeting to propose such business; and (iv) as to each matter the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, the language of the proposal (if appropriate), and any
material interest of the shareholder in such business. No business shall be
conducted at any annual meeting of shareholders except in accordance with this
subsection 2.5.1. If the facts warrant, the Board, or the chairman of an annual
meeting of shareholders, may determine and declare (a) that a proposal does not
constitute proper business to be transacted at the meeting or (b) that business
was not properly brought before the meeting in accordance with the provisions of
this subsection 2.5.1 and, if, in either case, it is so determined, any such
business shall not be transacted. The procedures set forth in this subsection
2.5.1 for business to be properly brought before an annual meeting by a
shareholder are in addition to, and not in lieu of, the requirements set forth
in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor provision.
2.5.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.4
hereof, shall come before such meeting.
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BYLAWS Page 2
<PAGE>
2.5.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.4, subsection 2.5.1 or subsection 2.5.2
hereof must be given, either by personal delivery or by registered or certified
mail, postage prepaid, to the Secretary at the corporation's executive offices
in the City of Bellevue, State of Washington.
2.6 NOTICE OF MEETING
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 nor more than 60 days before such
meeting. Such notice may be transmitted by mail, private carrier, personal
delivery, telegraph, teletype or communications equipment which transmits a
facsimile of the notice to like equipment which receives and reproduces such
notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it
shall be deemed effective when deposited in the official government mail, first-
class postage prepaid, properly addressed to the shareholder at such
shareholder's address as it appears in the corporation's current record of
shareholders. Notice given in any other manner shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five days after first publication.
2.7 WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance thereat in
person or by proxy, unless such shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
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BYLAWS Page 3
<PAGE>
2.8 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
For the purpose of determining shareholders entitled (a) to notice of or to
vote at any meeting of shareholders or any adjournment thereof, (b) to demand a
special meeting, or (c) to receive payment of any dividend, or in order to make
a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than 70 days, and in case of a meeting of shareholders not
less than 10 days prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares) the record date shall be the date the
Board authorizes the stock dividend or distribution.
2.9 VOTING RECORD
At least 10 days before each meeting of shareholders, an alphabetical list
of the shareholders entitled to notice of such meeting shall be made, arranged
by voting group and by each class or series of shares therein, with the address
of and number of shares held by each shareholder. This record shall be kept at
the principal office of the corporation for 10 days prior to such meeting, and
shall be kept open at such meeting, for the inspection of any shareholder or any
shareholder's agent.
2.10 QUORUM
A majority of the votes entitled to be cast on a matter by the holders of
shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business thereat, it is
deemed present for quorum purposes for the remainder of the meeting and any
adjournment thereof (unless a new record date is or must be set for the
adjourned meeting) notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
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BYLAWS Page 4
<PAGE>
2.11 MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
2.12 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder or
by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 11 months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle the holder thereof to vote at any reconvened meeting
following adjournment of such meeting but shall not be valid after the final
adjournment thereof.
2.13 VOTING OF SHARES
Except as provided in the Articles of Incorporation or in Section 2.13
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon such
matter.
2.14 VOTING FOR DIRECTORS
Each shareholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such shareholder for as many
persons as there are Directors to be elected and for whose election such
shareholder has a right to vote, or (unless otherwise provided in the Articles
of Incorporation) each such shareholder may cumulate such shareholder's votes by
distributing among one or more candidates as many votes as are equal to the
number of such Directors multiplied by the number of such shareholder's shares.
Unless otherwise provided in the Articles of Incorporation, the candidates
elected shall be those receiving the largest number of votes cast, up to the
number of Directors to be elected.
2.15 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting if one or more written consents setting forth the action
so taken are signed by all shareholders entitled to vote on the action and are
delivered to the corporation. If not otherwise fixed by the Board, the record
date for determining shareholders entitled to take action without a meeting is
the date the first shareholder signs the consent. A shareholder may withdraw a
consent only by delivering a written notice of withdrawal to the corporation
prior to the time that all consents are in the possession of the corporation.
Action taken by
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BYLAWS Page 5
<PAGE>
written consent of shareholders without a meeting is effective when all consents
are in the possession of the corporation, unless the consent specifies a later
effective date. Any such consent shall be inserted in the minute book as if it
were the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Washington Business Corporation Act.
3.2 NUMBER AND TENURE
The Board shall be composed of not less than two nor more than seven
Directors, the specific number to be set by resolution of the Board. The number
of Directors may be changed from time to time by amendment to these Bylaws, but
no decrease in the number of Directors shall have the effect of shortening the
term of any incumbent Director. Prior to the election of Directors at the May
1998 special meeting of shareholders (or written consent in lieu of such
meeting, if applicable), unless a Director dies, resigns, or is removed, his or
her term of office shall expire at the next annual meeting of shareholders.
At the election of Directors at the May 1998 special meeting of
shareholders (or written consent in lieu of such meeting, if applicable), the
Board of Directors shall be divided into three classes, with said classes to be
as equal in number as may be possible. At the first election of Directors to
such classified Board of Directors, each Class 1 Director shall be elected to
serve until the next ensuing annual meeting of shareholders, each Class 2
Director shall be elected to serve until the second ensuing annual meeting of
shareholders and each Class 3 Director shall be elected to serve until the third
ensuing annual meeting of shareholders. At each annual meeting of shareholders
following the meeting at which the Board of Directors is initially classified,
the number of Directors equal to the number of Directors in the class whose term
expires at the time of such meeting shall be elected to serve until the third
ensuing annual meeting of shareholders. Notwithstanding any of the foregoing
provisions of this Section 3.2, Directors shall serve until their successors are
elected and qualified or until their earlier death, resignation or removal from
office or until there is a decrease in the number of Directors. Directors need
not be shareholders of the corporation or residents of the State of Washington
and need not meet any other qualifications.
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<PAGE>
3.3 NOMINATION AND ELECTION
3.3.1 NOMINATION
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as Directors. Nominations for the election of
Directors may be made (a) by or at the direction of the Board or (b) by any
shareholder of record entitled to vote for the election of Directors at such
meeting; provided, however, that a shareholder may nominate persons for election
as Directors only if written notice (in accordance with subsection 2.5.3 hereof)
of such shareholder's intention to make such nominations is received by the
Secretary not later than (i) with respect to an election to be held at an annual
meeting of the shareholders, not fewer than 60 nor more than 90 days prior to
the date specified in subsection 2.1 hereof for such annual meeting (or if less
than 60 days' notice or prior public disclosure of the date of the annual
meeting is given or made to the shareholders, not later than the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made) and (ii) with respect to an election
to be held at a special meeting of the shareholders for the election of
Directors, the close of business on the seventh business day following the date
on which notice of such meeting is first given to shareholders. Any such
shareholder's notice shall set forth (a) the name and address of the shareholder
who intends to make a nomination; (b) a representation that the shareholder is
entitled to vote at such meeting and a statement of the number of shares of the
corporation which are beneficially owned by the shareholder; (c) a
representation that the shareholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (d) as to
each person the shareholder proposes to nominate for election or re-election as
a Director, the name and address of such person and such other information
regarding such nominee as would be required in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had such nominee
been nominated by the Board, and a description of any arrangements or
understandings, between the shareholder and such nominee and any other persons
(including their names), pursuant to which the nomination is to be made; and (e)
the consent of each such nominee to serve as a Director if elected. If the
facts warrant, the Board, or the chairman of a shareholders' meeting at which
Directors are to be elected, shall determine and declare that a nomination was
not made in accordance with the foregoing procedure and, if it is so determined,
the defective nomination shall be disregarded. The right of shareholders to
make nominations pursuant to the foregoing procedure is subject to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation. The procedures set forth in this
subsection 3.3 for nomination for the election of Directors by shareholders are
in addition to, and not in limitation of, any procedures now in effect or
hereafter adopted by or at the direction of the Board or any committee thereof.
3.3.2 ELECTION
At each election of Directors, the persons receiving the greatest number of
votes shall be the Directors.
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<PAGE>
3.4 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after and
at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee thereof, may specify the time and place either within or
without the State of Washington for holding regular meetings thereof without
notice other than such resolution.
3.5 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board may
be called by or at the request of the Chairman of the Board, the President, the
Secretary or, in the case of special Board meetings, any two Directors and, in
the case of any special meeting of any committee designated by the Board, by the
Chairman thereof. The person or persons authorized to call special meetings may
fix any place either within or without the State of Washington as the place for
holding any special Board or committee meeting called by them.
3.6 MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.7 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally. Neither
the business to be transacted at, nor the purpose of, any special meeting need
be specified in the notice of such meeting.
3.7.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two days before the meeting.
3.7.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting,
properly addressed to a Director at his or her address shown on the records of
the corporation, with postage thereon prepaid.
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3.7.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be deemed effective
when dispatched to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.7.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.7.5 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be deemed effective
if the content thereof is delivered to the telegraph company for delivery to a
Director at his or her address shown on the records of the corporation at least
three days before the meeting.
3.7.6 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice shall
be deemed effective if personally given to the Director at least two days before
the meeting.
3.8 WAIVER OF NOTICE
3.8.1 IN WRITING
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board or any committee
designated by the Board need be specified in the waiver of notice of such
meeting.
3.8.2 BY ATTENDANCE
A Director's attendance at or participation in a Board or committee meeting
shall constitute a waiver of notice of such meeting, unless the Director at the
beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
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3.9 QUORUM
A majority of the number of Directors fixed by or in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
3.10 MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority of
the Directors present at a Board meeting shall be the act of the Board, unless
the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Washington Business Corporation Act.
3.11 PRESUMPTION OF ASSENT
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.13 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of resignation
specifies a later effective date and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
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3.14 REMOVAL
At a meeting of shareholders called expressly for that purpose, one or more
members of the Board, including the entire Board, may be removed with or without
cause (unless the Articles of Incorporation permit removal for cause only) by
the holders of the shares entitled to elect the Director or Directors whose
removal is sought if the number of votes cast to remove the Director exceeds the
number of votes cast not to remove the Director. If the Articles of
Incorporation permit cumulative voting in the election of Directors, then a
Director may not be removed if the number of votes sufficient to elect such
Director if then cumulatively voted at an election of the entire Board or, if
there are classes of Directors, at an election of the class of Directors of
which such Director is a part, is voted against the Director's removal.
3.15 VACANCIES
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
3.16 EXECUTIVE AND OTHER COMMITTEES
3.16.1 CREATION OF COMMITTEES
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law. Each committee must have two or more members, who shall serve at the
pleasure of the Board.
3.16.2 AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (1)
authorize or approve a distribution except according to a general formula or
method prescribed by the Board, (2) approve or propose to shareholders actions
or proposals required by the Washington Business Corporation Act to be approved
by shareholders, (3) fill vacancies on the Board or any committee thereof, (4)
adopt, amend or
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repeal Bylaws, (5) amend the Articles of Incorporation pursuant to RCW
23B.10.020, (6) approve a plan of merger not requiring shareholder approval, or
(7) authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations of a
class or series of shares except that the Board may authorize a committee or a
senior executive officer of the corporation to do so within limits specifically
prescribed by the Board.
3.16.3 AUDIT COMMITTEE
In addition to any committees appointed pursuant to this Section 3.16.2,
there shall be an Audit Committee, appointed annually by the Board, consisting
of at least two Directors who are not members of management. It shall be the
responsibility of the Audit Committee to review the scope and results of the
annual independent audit of books and records of the corporation, to review
compliance with all corporate policies which have been approved by the Board and
to discharge such other responsibilities as may from time to time be assigned to
it by the Board. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board as they
consider appropriate.
3.16.4 COMPENSATION COMMITTEE
The Board may, in its discretion, designate a Compensation Committee
consisting of not less than two Directors as it may from time to time determine.
The duties of the Compensation Committee shall consist of the following: (a) to
establish and review periodically, but not less than annually, the compensation
of the officers of the corporation and to make recommendations concerning such
compensation to the Board; (b) to consider incentive compensation plans for the
employees of the corporation; (c) to carry out the duties assigned to the
Compensation Committee under any stock option plan or other plan approved by the
corporation; (d) to consult with the President concerning any compensation
matters deemed appropriate by the President or the Compensation Committee; and
(e) to perform such other duties as shall be assigned to the Compensation
Committee by the Board.
3.16.5 NOMINATING AND ORGANIZATION COMMITTEE
The Board may, in its discretion, designate a Nominating and Organization
Committee consisting of not less than two Directors as it may from time to time
determine. The duties of the Nominating and Organization Committee shall
consist of the following: (a) to report and make recommendations to the Board
on the size and composition of the Board and nominees for Directors; (b) to
evaluate the performance of the officers of the corporation and together with
management, select and recommend to the Board appropriate individuals for
election, appointment and promotion as officers of the corporation and ensure
the continuity of capable management; (c) to report and make recommendations to
the Board on the organization of the corporation; and (d) to perform such other
duties as shall be assigned to the Nominating and Organization Committee by the
Board.
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3.16.6 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of the Board,
as established and fixed by resolution of the Board, shall constitute a quorum
for the transaction of business at any meeting of such committee but, if less
than a majority are present at a meeting, a majority of such Directors present
may adjourn the meeting from time to time without further notice. Except as may
be otherwise provided in the Washington Business Corporation Act, if a quorum is
present when the vote is taken the act of a majority of the members present
shall be the act of the committee.
3.16.7 MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose.
3.16.8 RESIGNATION
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the President, the Secretary or the
Board. Any such resignation is effective upon delivery thereof, unless the
notice of resignation specifies a later effective date, and the acceptance of
such resignation shall not be necessary to make it effective.
3.16.9 REMOVAL
The Board may remove any member of any committee elected or appointed by it
but only by the affirmative vote of the greater of a majority of the Directors
then in office and the number of Directors required to take action in accordance
with these Bylaws.
3.17 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from time
to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall
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mean the President, any Vice President in charge of a principal business unit,
division or function or any other officer who performs a policy-making function.
The Board or the President may appoint such other officers and assistant
officers to hold office for such period, have such authority and perform such
duties as may be prescribed. The Board may delegate to any other officer the
power to appoint any subordinate officers and to prescribe their respective
terms of office, authority and duties. Any two or more offices may be held by
the same person. Unless an officer dies, resigns or is removed from office, he
or she shall hold office until his or her successor is appointed.
4.2 RESIGNATION
Any officer may resign at any time by delivering written notice thereof to
the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.3 REMOVAL
Any officer may be removed by the Board at any time, with or without cause.
An officer or assistant officer, if appointed by another officer, may be removed
by any officer authorized to appoint officers or assistant officers.
4.4 CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
4.5 CHAIRMAN OF THE BOARD
If appointed, the Chairman of the Board shall perform such duties as shall
be assigned to him or her by the Board from time to time and shall preside over
meetings of the Board and shareholders unless another officer is appointed or
designated by the Board as Chairman of such meetings.
4.6 PRESIDENT
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of a Chairman
of the Board, and, subject to the Board's control, shall supervise and control
all of the assets, business and affairs of the corporation. In general, the
President shall perform all duties incident to the office of President and such
other duties as are prescribed by the Board from time to time. If no Secretary
has been appointed, the President shall have responsibility for the preparation
of minutes of meetings of the Board and shareholders and for authentication of
the records of the corporation.
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4.7 VICE PRESIDENT
In the event of the death of the President or his or her inability to act,
the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the President or by or at
the direction of the Board.
4.8 SECRETARY
If appointed, the Secretary shall be responsible for preparation of minutes
of the meetings of the Board and shareholders, maintenance of the corporation
records and stock registers, and authentication of the corporation's records and
shall in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her by the President
or by or at the direction of the Board. In the absence of the Secretary, an
Assistant Secretary may perform the duties of the Secretary.
4.9 TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such amount
and with such surety or sureties as the Board shall determine.
4.10 SALARIES
The salaries of the officers shall be fixed from time to time by the Board
or by any person or persons to whom the Board has delegated such authority. No
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a Director of the corporation.
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SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board. Such authority may be general or confined to specific instances.
5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board.
5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed, either
manually or in facsimile, by the President or any Vice President and by the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary
and shall include on their face written notice of any restrictions which may be
imposed on the transferability of such shares. All certificates shall be
consecutively numbered or otherwise identified.
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6.3 STOCK RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 RESTRICTION ON TRANSFER
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of l933, as amended, or any applicable state
law, and no interest therein may be sold, distributed, assigned,
offered, pledged or otherwise transferred unless (a) there is an
effective registration statement under such Act and applicable state
securities laws covering any such transaction involving said
securities or (b) this corporation receives an opinion of legal
counsel for the holder of these securities (concurred in by legal
counsel for this corporation) stating that such transaction is exempt
from registration or this corporation otherwise satisfies itself that
such transaction is exempt from registration."
6.5 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to
the corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
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6.6 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its shareholders
and the Board, a record of all actions taken by the shareholders or the Board
without a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. the Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three years;
4. the financial statements described in Section 23B.16.200(1) of the
Washington Business Corporation Act, for the past three years;
5. all written communications to shareholders generally within the
past three years;
6. a list of the names and business addresses of the current Directors
and officers; and
7. the most recent annual report delivered to the Washington Secretary
of State.
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SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected by the Board for
purposes of federal income taxes, or any other purpose, the accounting year
shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal which shall consist of the name
of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a named party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of an executive officer of the corporation as a Director,
officer, partner, trustee, employee or agent of another corporation or of a
partnership, joint venture, trust, employee benefit plan or other enterprise
(hereinafter an "indemnitee"), whether the basis of a proceeding is alleged
action in an official capacity as such a Director, officer, partner, trustee,
employee or agent or in any other capacity while serving as such a Director,
officer, partner, trustee, employee or agent, shall be indemnified and held
harmless by the corporation against all expense, liability and loss (including
counsel fees, judgments, fines, ERISA excise taxes or penalties and amounts to
be paid in settlement) actually and reasonably incurred or suffered by such
indemnitee in connection therewith, and such indemnification shall continue as
to an indemnitee who has ceased to be a Director, officer, partner, trustee,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. Except as provided in subsection 10.2 of this
Section with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if a proceeding (or part thereof) was authorized or ratified by the Board. The
right to indemnification conferred in this Section shall be a contract right.
10.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was
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finally adjudged that such indemnitee personally received a benefit in money,
property or services to which the indemnitee was not legally entitled or if the
corporation is otherwise prohibited by applicable law from paying such
indemnification, except that if Section 23B.08.560 or any successor provision of
the Washington Business Corporation Act is hereafter amended, the restrictions
on indemnification set forth in this subsection 10.2 shall be as set forth in
such amended statutory provision.
10.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this subsection 10.3.
10.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within 60 days after a written claim has been received
by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim. If successful in whole or in part, in any such suit
or in a suit brought by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. The indemnitee
shall be presumed to be entitled to indemnification under this Section upon
submission of a written claim (and, in an action brought to enforce a claim for
an advancement of expenses, where the required undertaking has been tendered to
the corporation) and thereafter the corporation shall have the burden of proof
to overcome the presumption that the indemnitee is so entitled.
10.5 PROCEDURES EXCLUSIVE
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the procedures
required by Section 23B.08.550 or any successor provision of the Washington
Business Corporation Act.
10.6 NONEXCLUSIVITY OF RIGHTS
The right to indemnification and the advancement of expenses conferred in
this Section shall not be exclusive of any other right which any person may have
or hereafter
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acquire under any statute, provision of the Articles of Incorporation or Bylaws
of the corporation, general or specific action of the Board, contract or
otherwise.
10.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The
corporation may enter into contracts with any Director, officer, partner,
trustee, employee or agent of the corporation in furtherance of the provisions
of this Section and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in this Section.
10.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any class
or group of employees and agents of the corporation (i) with the same scope and
effect as the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (ii)
pursuant to rights granted pursuant to, or provided by, the Washington Business
Corporation Act; or (iii) as are otherwise consistent with law.
10.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the corporation,
is or was serving (a) as a Director or officer of another foreign or domestic
corporation of which a majority of the shares entitled to vote in the election
of its Directors is held by the corporation or (b) as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the corporation or a wholly owned
subsidiary of the corporation is a general partner or has a majority ownership
shall be deemed to be so serving at the request of an executive officer of the
corporation and entitled to indemnification and advancement of expenses under
subsections 10.1 and 10.3 of this Section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or
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adopt new Bylaws. All Bylaws made by the Board may be amended, repealed, altered
or modified by the shareholders.
SECTION 12. VOTING SHARES OF ANOTHER CORPORATION
Shares of another corporation held by this corporation may be voted by the
president or vice-president, or by proxy appointment form executed by either of
them, unless the Directors by resolution shall designate some other person to
vote the shares.
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The foregoing Amended and Restated Bylaws were adopted by the Board of
Directors on ______________, 1998.
----------------------------
Secretary
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COST-U-LESS, INC.
AMENDED AND RESTATED
1989 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Cost-U-Less, Inc. 1989 Stock Option Plan (this "Plan")
is to provide a means whereby selected employees, directors (subject to the
restrictions contained in Sections 2 and 4), officers, agents, consultants and
independent contractors of Cost-U-Less, Inc., a Washington corporation (the
"Company"), or of any parent or subsidiary (as defined in subsection 5.7 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to purchase the Common
Stock (as defined in Section 3) of the Company, in order to attract and retain
the services or advice of such employees, directors, officers, agents,
consultants and independent contractors and to provide added incentive to them
by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or a committee or committees (which term includes subcommittees)
appointed by, and consisting of two or more members of, the Board (the "Plan
Administrator"). If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall consider, in selecting the Plan Administrator and the
membership of any committee acting as the Plan Administrator of this Plan with
respect to any persons subject or likely to become subject to Section 16 under
the Exchange Act, the provisions regarding (a) "outside directors," as
contemplated by Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and (b) "nonemployee directors," as contemplated by Rule 16b-3
under the Exchange Act. The Board may delegate the responsibility for
administering this Plan with respect to designated classes of eligible
participants to different committees, subject to such limitations as the Board
deems appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
A member of the Board (or any committee) may be eligible to participate in
or receive or hold options under this Plan; provided, however, that no member of
the Board or any committee shall vote with respect to the granting of an option
hereunder to himself or herself, as the case may be, and, provided that if state
corporate law
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does not permit a committee to grant options to directors, then any option
granted under this Plan to a director for his or her services as such shall be
approved by the full Board.
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator as
chairman. The Plan Administrator may hold meetings at such times and places as
it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced to
or approved in writing by a majority of all Plan Administrator members, shall be
valid acts of the Plan Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan, the
Plan Administrator shall have the authority, in its discretion, to determine all
matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options, as well as amendments and modifications of already outstanding
options. Grants under this Plan need not be identical in any respect, even when
made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
corresponds to the requirements of Section 422 of the Code, the regulations
thereunder and any amendments thereto.
SECTION 3. STOCK SUBJECT TO THIS PLAN
The stock subject to this Plan shall be the Company's Common Stock (the
"Common Stock"), presently authorized but unissued or now held or subsequently
acquired by the Company. Subject to adjustment as provided in Section 7, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under this Plan shall not exceed 1,350,000 shares. If any
option granted under this Plan shall expire, be surrendered, exchanged for
another option, cancelled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of this Plan.
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SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee and not a director of the Company or
any related corporation. A nonqualified stock option may be granted to any
employee, director, officer, agent, consultant or independent contractor of the
Company or any related corporation. Any party to whom an option is granted
under this Plan shall be referred to hereinafter as an "Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the exercise
of each option and the price per share at which such option is exercisable (the
"exercise price") shall be as established by the Plan Administrator; provided
that the Plan Administrator shall act in good faith to establish the exercise
price which shall be not less than the fair market value per share of the Common
Stock at the time the option is granted, with respect to incentive stock
options, and provided, further, that, with respect to incentive stock options
granted to greater than ten percent shareholders, the exercise price shall be as
required by Section 6.
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to granting
incentive stock options to greater than ten percent shareholders, the term of
each incentive stock option shall be as established by the Plan Administrator
and, if not so established, shall be ten years from the date it is granted but
in no event shall the term of any incentive stock option exceed ten years. The
term of each nonqualified stock option shall be as established by the Plan
Administrator and, if not so established, shall be ten years from the date it is
granted but in no event shall the term of any nonqualified stock option exceed
ten years.
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5.3 EXERCISE
Subject to any terms and conditions which provide that such option shall
become exercisable in installments, each option may be exercised in whole or in
part; provided, however, that only whole shares will be issued pursuant to the
exercise of any option. During an Optionee's lifetime, any incentive stock
options granted under this Plan are personal to him or her and are exercisable
solely by such Optionee or a transferee as permitted under Section 5.6. Options
shall be exercised by delivery to the Company of notice of the number of shares
with respect to which the option is exercised.
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full within five
business days after the notice of exercise of the option is delivered to the
Company and shall be in cash, bank certified or cashier's check or personal
check (unless at any time the Plan Administrator in a particular case determines
otherwise) for the Common Stock being purchased.
The Plan Administrator can determine at the time the option is granted for
incentive stock options or at any time for nonqualified stock options that
additional forms of payment will be permitted. To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state corporate
law), an option may be exercised by:
(a) tendering (either actually or by attestation) shares of stock of
the Company held by the Optionee having a fair market value equal to the
exercise price, such fair market value ("Fair Market Value") to be determined in
good faith by the Plan Administrator; provided, however, that payment in stock
held by the Optionee shall not be made unless the stock shall have been owned by
the Optionee for a period of at least six months;
(b) delivery of a full-recourse promissory note executed by the
Optionee; provided that subject to the applicability of any exceptions to the
imputed interest rules contained in the Code, such note delivered in connection
with an incentive stock option shall, and such note delivered in connection with
a nonqualified stock option may, in the sole discretion of the Plan
Administrator, bear interest at a rate specified by the Plan Administrator but
in no case less than the rate required to avoid imputation of interest for
federal income tax purposes, and provided, further, that the Plan Administrator
in its sole discretion shall specify the term and other
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provisions of such note at the time the option is granted and may require that
the Optionee pledge his or her shares to the Company for the purpose of securing
the payment of such note and may require that the certificate representing such
shares be held in escrow in order to perfect the Company's security interest,
and provided, further, that the Plan Administrator in its sole discretion may at
any time restrict or rescind this right upon notification to the Optionee.
5.5 WITHHOLDING TAX REQUIREMENT
As a condition to the exercise of a nonqualified stock option (or a
disqualifying disposition of an incentive stock option), the Optionee shall,
upon exercise of an option and upon notification of the amount due and prior to
or concurrently with the delivery of the certificates representing the shares
purchased, pay to the Company amounts necessary to satisfy applicable federal,
state and local withholding tax requirements or shall otherwise make
arrangements satisfactory to the Company for such requirements. To the extent
permitted or required by the Plan Administrator, such arrangements may include
payment of the appropriate withholding tax in shares of stock of the Company
having a Fair Market Value equal to such withholding (such Fair Market Value to
be determined in good faith by the Plan Administrator), either through delivery
of shares held by the Optionee or by reduction in the number of shares to be
delivered to the Optionee upon exercise of such option.
5.6 NONTRANSFERABILITY OF OPTION
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of any option under this Plan or of any
right or privilege conferred hereby, contrary to the Code or to the provisions
of this Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred hereby shall be null and void. Notwithstanding
the foregoing, to the extent permitted by Section 422 of the Code, the Plan
Administrator may permit an Optionee to (a) during the Optionee's lifetime,
designate a person who may exercise the option after the Optionee's death by
giving written notice of such designation to the Plan Administrator (such
designation may be changed from time to time by the Optionee by giving written
notice to the Plan Administrator revoking any earlier designation and making a
new designation) or (b) transfer the option and the rights or privileges
conferred hereby; provided, however, that any option so assigned or transferred
shall be subject to all the same terms and conditions contained in the
instrument evidencing the option.
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5.7 TERMINATION OF RELATIONSHIP
(a) If the Optionee's relationship with the Company or any related
corporation ceases for any reason other than death or total disability, and
unless by its terms the Option sooner terminates or expires, then the Optionee
may exercise, for a three month period, that portion of his or her option which
is exercisable at the time of such cessation, but the Optionee's option shall
terminate at the end of the three month period following such cessation as to
all shares for which it has not theretofore been exercised, unless, in the case
of a nonqualified stock option, such provision is waived in the agreement
evidencing the option or by resolution adopted by the Plan Administrator within
30 days of such cessation. If, in the case of an incentive stock option, an
Optionee ceases to be an employee of this Company (i.e., from employee to a
consultant), such change shall constitute a termination of an Optionee's
employment with the Company or related corporation and the Optionee's incentive
stock option shall terminate in accordance with this subsection 5.7.
(b) If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12 month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
this Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or which has lasted or is
expected to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties as an employee, director, officer,
agent, consultant or independent contractor of the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
(c) For purposes of this subsection 5.7, a transfer of employment or
relationship between or among the Company and/or any related corporation shall
not be deemed to constitute a cessation of employment or relationship with the
Company or any of its related corporations. For purposes of this subsection 5.7
with respect to incentive stock options, employment shall be deemed to continue
while the Optionee is on military leave, sick leave or other bona fide leave of
absence (as determined by the Plan Administrator). The foregoing
notwithstanding, employment shall not be deemed to continue beyond the first 90
days of such leave, unless the Optionee's reemployment rights are guaranteed by
statute or by contract.
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<PAGE>
(d) If the Optionee is terminated for cause, any option granted
hereunder shall automatically terminate as of the first advise or discussion
thereof, and Optionee shall thereupon have no right to purchase any shares
pursuant to such option. "Termination for cause" shall mean dismissal for
dishonesty, conviction or confession of a crime punishable by law (except minor
violations), intoxication while at work, fraud, misconduct or disclosure of
confidential information.
(e) As used herein, the term "related corporation," when referring to
a subsidiary corporation, shall mean any corporation (other than the Company)
in, at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
5.8 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company or
any related corporation as an employee, director, officer, agent, consultant or
independent contractor, or within the three month period (or 12 month period in
the case of totally disabled Optionees) following cessation of such
relationship, any option held by such Optionee may, to the extent that the
Optionee would have been entitled to exercise such option, be exercised within
12 months after his or her death by the personal representative of his or her
estate or by the person or persons to whom the Optionee's rights under the
option shall pass by will or by the applicable laws of descent and distribution.
5.9 STATUS OF SHAREHOLDER
Neither the Optionee nor any person or persons to whom the Optionee's
rights and privileges under the option may pass shall be, or have any of the
rights or privileges of, a shareholder of the Company with respect to any of the
shares issuable upon the exercise of any option granted under this Plan unless
and until such option has been exercised.
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5.10 CONTINUATION OF EMPLOYMENT
Nothing in this Plan or in any option granted pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ of the Company or a
related corporation, or to interfere in any way with the right of the Company or
any such related corporation to terminate his or her employment or other
relationship with the Company at any time.
5.11 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to incentive
stock options and to the terms and conditions and within the limitations of this
Plan, the Plan Administrator may modify or amend outstanding options granted
under this Plan. Except as otherwise provided in this Plan, no outstanding
option shall be terminated without the consent of the Optionee. The
modification or amendment of an outstanding option shall not, without the
consent of the Optionee, impair or diminish any of his or her rights or any of
the obligations of the Company under such option. Unless the Optionee agrees
otherwise, any changes or adjustments made to outstanding incentive stock
options granted under this Plan shall be made in such a manner so as not to
constitute a "modification" as defined in Section 424(h) of the Code and so as
not to cause any incentive stock option issued hereunder to fail to continue to
qualify as an incentive stock option as defined in Section 422(b) of the Code.
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan, to
the extent that the aggregate Fair Market Value (determined at the time the
incentive stock option is granted) of the stock with respect to which incentive
stock options are exercisable for the first time by the Optionee during any
calendar year (under this plan and all other incentive stock option plans of the
Company, a related corporation or a predecessor corporation) exceeds $100,000,
such options shall be treated as nonqualified stock options.
SECTION 6. GREATER THAN TEN PERCENT SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If incentive stock options are granted under this Plan to employees who own
more than ten percent of the total combined voting power of all classes of stock
of the Company or any related corporation, the term of such incentive stock
options shall not
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exceed five years and the exercise price shall be not less than 110% of the Fair
Market Value of the Common Stock at the time the incentive stock option is
granted. This provision shall control notwithstanding any contrary terms
contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an employee
shall be deemed to own the stock owned, directly or indirectly, by or for his or
her brothers, sisters, spouse, ancestors and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership, estate or trust
shall be deemed to be owned proportionately by or for its shareholders, partners
or beneficiaries. If an employee or a person related to the employee owns an
unexercised option or warrant to purchase stock of the Company, the stock
subject to that portion of the option or warrant which is unexercised shall not
be counted in determining stock ownership. For purposes of this Section 6,
stock owned by an employee shall include all stock actually issued and
outstanding immediately before the grant of the incentive stock option to the
employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be granted
under this Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), and
each such option, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a split-up or consolidation of shares or any like capital adjustment, or
the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION OR REORGANIZATION
7.1.1 Cash, Stock or Other Property for Stock. Except as provided in
---------------------------------------
subsection 7.1.2, upon a merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation of the Company, as a result of
which the shareholders of the Company receive cash, stock or other property in
exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise his or her option
to the extent the vesting requirements set forth in the option agreement have
been satisfied.
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7.1.2 Conversion of Options on Stock for Stock Exchange. If the
-------------------------------------------------
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger, consolidation, acquisition of property or stock,
separation or reorganization, all options granted hereunder shall be converted
into options to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion determine that
any or all such options granted hereunder shall not be converted into options to
purchase shares of Exchange Stock but instead shall terminate in accordance with
the provisions of subsection 7.1.1. The amount and price of converted options
shall be determined by adjusting the amount and price of the options granted
hereunder in the same proportion as used for determining the number of shares of
Exchange Stock the holders of the Common Stock receive in such merger,
consolidation, acquisition of property or stock, separation or reorganization.
Unless accelerated by the Board, the vesting schedule set forth in the option
agreement shall continue to apply to the options granted for the Exchange Stock.
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its determination
as to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in such a manner so as not
to constitute a "modification" as defined in Section 424(h) of the Code and so
as not to cause his or her incentive stock option issued hereunder to fail to
continue to qualify as an incentive stock option as defined in Section 422(b) of
the Code.
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for
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the Company with respect to such compliance, including the availability of an
exemption from registration for the issuance and sale of any shares hereunder.
Inability of the Company to obtain from any regulatory body having jurisdiction,
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder or the unavailability of an exemption
from registration for the issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan, provided
that except as set forth in Section 7, the approval of a majority of stock
represented by shareholders voting either in person or by proxy at a duly held
shareholders' meeting or unanimous written consent of shareholders is necessary
within 12 months before or after the adoption by the Board of any amendment
which will:
(a) increase the number of shares which are to be reserved for the
issuance of options under this Plan;
(b) extend the maximum term of any stock option;
(c) change the manner of determining the maximum exercise price; or
(d) materially modify the requirements for eligibility for
participation in this Plan.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten years
from the earlier of (a) the date on which this Plan is adopted by the Board or
(b) the date on which this Plan is approved by the shareholders of the Company.
No option may be granted after such termination, or during any suspension of
this Plan. The amendment
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or termination of this Plan shall not, without the consent of the option holder,
alter or impair any rights or obligations under any option theretofore granted
under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as it
is approved by unanimous written consent of shareholders or by a majority of
stock represented by shareholders, voting either in person or by proxy at a duly
held shareholders' meeting at any time within 12 months before or after the
adoption of this Plan.
Adopted by the Board of Directors on March 26, 1990 and approved by the
shareholders on April 27, 1990. Amended by the Board of Directors on March 21,
1991 and amendment approved by the shareholders on April 19, 1991. Amended by
the Board of Directors on December 20, 1991 and amendment approved by the
shareholders on March 9, 1992. Amended by the Board of Directors on February 3,
1993 and amendment approved by the shareholders on March 31, 1993. Amended by
the Board of Directors on March 14, 1994 and amendment approved by the
shareholders on April 7, 1994. Amended and restated by the Board of Directors
on _________, 1998.
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AMENDMENT NO. 1
TO
COST-U-LESS, INC. 1989 STOCK OPTION PLAN
The Cost-U-Less, Inc. 1989 Stock Option Plan (the "Plan") is hereby amended
to read as follows:
1. Section 3 of the Plan is amended to read as follows:
"SECTION 3. Stock Subject to this Plan. The stock subject to
--------------------------
this Plan shall be the Company's Common Stock (the "Common Stock"),
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of
all options granted under this Plan shall not exceed One Hundred Fifty
Thousand (150,000) shares as such Common Stock was constituted on the
effective date of Amendment No. 1 to this Plan. If any option granted
under this Plan shall expire, be surrendered, exchanged for another
option, cancelled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall
thereupon again be available for purposes of this Plan, including for
replacement options which may be granted in exchange for such
surrendered, cancelled or terminated options."
The effective date of such amendment shall be March 21, 1991, the date of
adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within twelve months before or after the date of adoption
by the Board of Directors.
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AMENDMENT NO. 2
TO
COST-U-LESS, INC. 1989 STOCK OPTION PLAN
The Cost-U-Less, Inc. 1989 Stock Option Plan (the "Plan") is hereby amended
to read as follows:
1. Section 3 of the Plan is amended to read as follows:
"SECTION 3. Stock Subject to this Plan. The stock subject to
--------------------------
this Plan shall be the Company's Common Stock (the "Common Stock"),
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of
all options granted under this Plan shall not exceed Two Hundred
Thousand (200,000) shares as such Common Stock was constituted on the
effective date of Amendment No. 2 to this Plan. If any option granted
under this Plan shall expire, be surrendered, exchanged for another
option, cancelled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall
thereupon again be available for purposes of this Plan, including for
replacement options which may be granted in exchange for such
surrendered, cancelled or terminated options."
The effective date of such amendment shall be December 20, 1991, the date
of adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within twelve months before or after the date of adoption
by the Board of Directors.
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AMENDMENT NO. 3
TO
COST-U-LESS, INC. 1989 STOCK OPTION PLAN
The Cost-U-Less, Inc. 1989 Stock Option Plan (the "Plan") is hereby amended
as follows:
"SECTION 3. Stock Subject to this Plan. The stock subject to this
--------------------------
Plan shall be the Company's Common Stock (the "Common Stock"), presently
authorized but unissued or now held or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under this Plan shall not exceed One Million Two Hundred
Fifty Thousand (1,250,000) shares as such Common Stock was constituted on
the effective date of Amendment No. 3 to this Plan. If any option granted
under this Plan shall expire or be surrendered, exchanged for another
option, cancelled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon
again be available for purposes of this Plan, including for replacement
options which may be granted in exchange for such expired, surrendered,
exchanged, cancelled or terminated options."
The effective date of such amendment shall be February 3, 1993, the date of
adoption by the Board of Directors.
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AMENDMENT NO. 4
TO
COST-U-LESS, INC. 1989 STOCK OPTION PLAN
The Cost-U-Less, Inc. 1989 Stock Option Plan (the "Plan') is hereby amended
as follows:
"SECTION 3. Stock Subject to this Plan. The stock subject to this
--------------------------
Plan shall be the Company's Common Stock (the "Common Stock"), presently
authorized but unissued or now held or subsequently acquired by the Company.
Subject to adjustment as provided in Section 7 hereof, the aggregate amount
of Common Stock to be delivered upon the exercise of all options granted
under this Plan shall not exceed One Million Three Hundred Fifty Thousand
(1,350,000) shares as such Common Stock was constituted on the effective
date of Amendment No. 4 to this Plan. If any option granted under this Plan
shall expire or be surrendered, exchanged for another option, cancelled or
terminated for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan, including for replacement options which may be
granted in exchange for such expired, surrendered, exchanged, cancelled or
terminated options."
The effective date of such amendment shall be March 14, 1994, the date of
adoption by the Board of Directors.
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COST-U-LESS, INC.
DIRECTOR STOCK OPTION AGREEMENT
____________ SHARES OF COMMON STOCK
Cost-U-Less, Inc. (the "Company") hereby grants to ______________ (the
"Optionee"), in connection with the Optionee's service as a director of the
Company, the right and option to purchase _________ shares of the Company's
Common Stock at an exercise price of ______ per share.
DATE OF GRANT: The date of grant of the option is ______________.
TERMS: The term of the option is ten years from date of grant, unless
sooner terminated.
EXERCISE; PAYMENT FOR SHARES: This Option may be exercised in whole or in
part at any time and from time to time; provided, however, that no fewer than
100 shares (or the remaining shares then purchasable under this option, if less
than 100 Shares) may be purchased upon any exercise of option rights hereunder
and that only whole shares will be issued pursuant to the exercise of this
Option. This option may be exercised by giving written notice, signed by the
person exercising the option, to the Company stating the number of shares with
respect to which the option in being exercised, accompanied by payment in full
for such Shares, which payment may be made by the delivery of:
(a) Cash, personal check, bank certified or cashier's check;
(b) Unless the Board of Directors in its sole discretion determines
otherwise, shares of the capital stock of the Company held by the Optionee for a
period of at least six months having a fair market value at the time of
exercise, as determined in good faith by the Board of Directors, equal to the
exercise price; or
(c) A properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
TERMINATION: If the service of the Optionee as a Director of the Company
ceases for any reason, other than death, and unless by its terms this option
sooner terminates or expires, then you may exercise this option for two years
thereafter, but this Option shall terminate at the end of such period following
such cessation as to all shares for which it has not theretofore been exercised.
DEATH OF OPTIONEE: If the Optionee shall die while a Director or within two
years following cessation of the Optionee's service as a Director, this Option
may be exercised within two years after such death or cessation, whichever shall
first occur, by the personal representative
<PAGE>
of the Optionee's estate or by the person or persons to whom the Optionee's
rights under this Option shall pass by will or by the applicable laws of descent
and distribution.
TRANSFER OF OPTION: This Option and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will, or by the
applicable laws of descent and distribution and shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of this Option or of any right or
privilege conferred hereby, contrary to the provisions of this Agreement, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void.
Vesting: This option shall be exercisable with respect to the number of
shares set forth below on and after the respective dates indicated:
Number of Shares % of Total Shares Date
LIMITATION AS TO DIRECTORSHIP: Neither the granting of this Option nor any
other action taken pursuant to this Agreement shall constitute or be evidence of
any agreement or understanding, express or implied, that the Optionee has a
right to continue as a director for any period of time or an any particular rate
of compensation.
REGULATORY APPROVAL AND COMPLIANCE:
(a) The Company shall not be required to issue any certificate or
certificates for shares upon the exercise of this Option, or record the Optionee
as a holder of record of shares, without obtaining to the complete satisfaction
of the Board of Directors the approval of all regulatory bodies deemed necessary
by the Board of Directors, and without complying, to the Board of Directors'
complete satisfaction, with all rules and regulations under federal, state or
local law deemed applicable by the Board of Directors.
(b) As a condition to the exercise of this Option, the Company may require
the Options, to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares, if, in the opinion of counsel for the
Company, such representation is required by any relevant provision of federal or
state securities laws. At the option of the Company, a stop transfer order
against any shares may be placed on the official stock books and records of the
Company, and a legend indicating that the shares may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on the stock
<PAGE>
certificate in order to assure exemption from registration. The board of
Directors may also require such other action or agreement by the Optionee as may
from time to time be necessary to comply with the federal and state securities
laws. This provision shall not obligate the Company to undertake registration of
this Option or any shares issued hereunder.
CAPITAL ADJUSTMENTS:
(a) The number and class of shares covered by this option and the exercise
price per share hereof (but not the total price) shall be proportionately
adjusted for any stock dividends, stock splits, recapitalizations, combinations
or exchanges of shares, split-ups, split-offs, spinoffs, or other similar
changes in capitalization.
(b) Except as provided in subsection (c) below, upon a merger (other than
a merger of the Company in which the holders of Common Stock immediately prior
to the merger have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger), consolidation, acquisition
of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the shareholders of the Company receive cash,
stock or other property in exchange for or in connection with their shares of
Common Stock, this Option shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise this Option in
whole or in part.
(c) If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger, consolidation, acquisition of property or
stock, separation or reorganization, this Option shall be converted into an
option to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion, determine that
this option shall not be converted into an option to purchase shares of Exchange
Stock but instead shall terminate in accordance with the provisions of
subsection (b) above; provided, however, that this Option shall be converted
automatically into Exchange stock in (i) a merger of the Company in which the
holders of common stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger, (ii) a mere reincorporation, or (iii) the creation of a
holding company. The number and class of shares covered by this Option and the
exercise price per share hereof (but not the total price) shall be determined by
adjusting the number of shares and price hereunder in the same proportion as
used for determining the number of shares of Exchange Stock the holders of the
Common Stock receive in such merger, consolidation, acquisition of property or
stock, separation or reorganization.
(d) In the event of any adjustment in the number of shares covered by
this Option, any fractional shares resulting from such adjustment shall be
disregarded and this Option shall cover only the number of full shares resulting
from such adjustment.
<PAGE>
(e) All such adjustments shall be made by the Board of Directors, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
Status of Shareholders Neither the Optionee nor any person or persons to
whom your rights and privileges under this option may pass shall be, or have any
of the rights or privileges of, a shareholder of the Company with respect to any
of the shares issuable upon the exercise of this Option unless and until this
option has been exercised.
Dated this _____ day of ____________.
COST-U-LESS, INC.
By
---------------------------------
Its
--------------------------------
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of _____________________ accept the stock option
described above granted by Cost-U-Less, Inc., and acknowledge receipt of a copy
of this Agreement.
- ---------------------------------- -----------------------------------------
Taxpayer I.D. Number
Address
________________________________________________________________________________
<PAGE>
NOTICE OF EXERCISE OF DIRECTOR STOCK OPTION
________________________________________________________________________________
To: Cost-U-Less, Inc.
I, a resident of the State of ________________ hereby exercise my stock option
granted by Cost-U-Less, Inc.("Company") on ___________, subject to all the terms
and provisions thereof, and notify the Company of my desire to purchase
____________ shares of Common Stock of the Company (the "Securities") at the
exercise price of ______ per share which were offered to me pursuant to said
option.
I hereby represent and warrant that (1) I have been furnished with a copy
of the Director Stock option Agreement and all information which I deem
necessary to evaluate the merits and risks of the purchase of the Securities;
and (2) I have been given the opportunity to obtain any additional information I
deem necessary to verify the accuracy of any information obtained concerning the
Securities and the Company.
- ---------------------------------- -----------------------------------------
Taxpayer I.D. Number
<PAGE>
SCHEDULE 1
OPTIONS GRANTED TO DIRECTORS AS OF MAY 1, 1998
PURSUANT TO DIRECTOR STOCK OPTION AGREEMENTS (VESTING)
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED DATE OF GRANT PURCHASE PRICE
<S> <C> <C> <C>
John Anderson 2,951 July 28, 1993 $10.16/share
Terry Buckley 2,951 February 24, 1998 $10.16/share
David Enger 2,951 July 28, 1993 $10.16/share
Wayne Keener 2,951 July 28, 1993 $10.16/share
Gary Nettles 2,951 April 30, 1997 $10.16/share
Michael J. Rose 2,951 April 30, 1997 $10.16/share
George Textor 2,951 February 24, 1998 $10.16/share
</TABLE>
<PAGE>
COST-U-LESS, INC.
DIRECTOR STOCK OPTION AGREEMENT
_______ SHARES OF COMMON STOCK
Cost-U-Less, Inc. (the "Company") hereby grants to ___________ (the
"Optionee"), in connection with the Optionee's service as a director of the
Company, the right and option to purchase _______ shares of the Company's Common
Stock at an exercise price of ______ per share.
DATE OF GRANT: The date of grant of the option is _________________.
TERMS: The term of the option is ten years from date of grant, unless
sooner terminated.
EXERCISE; PAYMENT FOR SHARES: This Option may be exercised in whole or in
part at any time and from time to time; provided, however, that no fewer than
100 shares (or the remaining shares then purchasable under this option, if less
than 100 Shares) may be purchased upon any exercise of option rights hereunder
and that only whole shares will be issued pursuant to the exercise of this
Option. This option may be exercised by giving written notice, signed by the
person exercising the option, to the Company stating the number of shares with
respect to which the option in being exercised, accompanied by payment in full
for such Shares, which payment may be made by the delivery of:
(a) Cash, personal check, bank certified or cashier's check;
(b) Unless the Board of Directors in its sole discretion determines
otherwise, shares of the capital stock of the Company held by the Optionee for a
period of at least six months having a fair market value at the time of
exercise, as determined in good faith by the Board of Directors, equal to the
exercise price; or
(c) A properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
TERMINATION: If the service of the Optionee as a Director of the Company
ceases for any reason, other than death, and unless by its terms this option
sooner terminates or expires, then you may exercise this option for two years
thereafter, but this Option shall terminate at the end of such period following
such cessation as to all shares for which it has not theretofore been exercised.
DEATH OF OPTIONEE: If the Optionee shall die while a Director or within two
years following cessation of the Optionee's service as a Director, this Option
may be exercised within two years after such death or cessation, whichever shall
first occur, by the personal representative
<PAGE>
of the Optionee's estate or by the person or persons to whom the Optionee's
rights under this Option shall pass by will or by the applicable laws of descent
and distribution.
TRANSFER OF OPTION: This Option and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will, or by the
applicable laws of descent and distribution and shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of this Option or of any right or
privilege conferred hereby, contrary to the provisions of this Agreement, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void.
LIMITATION AS TO DIRECTORSHIP: Neither the granting of this Option nor any
other action taken pursuant to this Agreement shall constitute or be evidence of
any agreement or understanding, express or implied, that the Optionee has a
right to continue as a director for any period of time or an any particular rate
of compensation.
REGULATORY APPROVAL AND COMPLIANCE:
(a) The Company shall not be required to issue any certificate or
certificates for shares upon the exercise of this Option, or record the Optionee
as a holder of record of shares, without obtaining to the complete satisfaction
of the Board of Directors the approval of all regulatory bodies deemed necessary
by the Board of Directors, and without complying, to the Board of Directors'
complete satisfaction, with all rules and regulations under federal, state or
local law deemed applicable by the Board of Directors.
(b) As a condition to the exercise of this Option, the Company may
require the Options, to represent and warrant at the time of any such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares, if, in the opinion of counsel for
the Company, such representation is required by any relevant provision of
federal or state securities laws. At the option of the Company, a stop transfer
order against any shares may be placed on the official stock books and records
of the Company, and a legend indicating that the shares may not be pledged, sold
or otherwise transferred unless an opinion of counsel is provided (concurred in
by counsel for the Company) stating that such transfer is not in violation of
any applicable law or regulation, may be stamped on the stock certificate in
order to assure exemption from registration. The board of Directors may also
require such other action or agreement by the Optionee as may from time to time
be necessary to comply with the federal and state securities laws. This
provision shall not obligate the Company to undertake registration of this
Option or any shares issued hereunder.
CAPITAL ADJUSTMENTS:
(a) The number and class of shares covered by this option and the exercise
price per share hereof (but not the total price) shall be proportionately
adjusted for any stock dividends, stock splits, recapitalizations, combinations
or exchanges of shares, split-ups, split-offs, spinoffs, or other similar
changes in capitalization.
<PAGE>
(b) Except as provided in subsection (c) below, upon a merger (other than
a merger of the Company in which the holders of Common Stock immediately prior
to the merger have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger), consolidation, acquisition
of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the shareholders of the Company receive cash,
stock or other property in exchange for or in connection with their shares of
Common Stock, this Option shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise this Option in
whole or in part.
(c) If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger, consolidation, acquisition of property or
stock, separation or reorganization, this Option shall be converted into an
option to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion, determine that
this option shall not be converted into an option to purchase shares of Exchange
Stock but instead shall terminate in accordance with the provisions of
subsection (b) above; provided, however, that this Option shall be converted
automatically into Exchange stock in (i) a merger of the Company in which the
holders of common stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger, (ii) a mere reincorporation, or (iii) the creation of a
holding company. The number and class of shares covered by this Option and the
exercise price per share hereof (but not the total price) shall be determined by
adjusting the number of shares and price hereunder in the same proportion as
used for determining the number of shares of Exchange Stock the holders of the
Common Stock receive in such merger, consolidation, acquisition of property or
stock, separation or reorganization.
(d) In the event of any adjustment in the number of shares covered by this
Option, any fractional shares resulting from such adjustment shall be
disregarded and this Option shall cover only the number of full shares resulting
from such adjustment.
(e) All such adjustments shall be made by the Board of Directors, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
Status of Shareholders Neither the Optionee nor any person or persons to
whom your rights and privileges under this option may pass shall be, or have any
of the rights or privileges of, a shareholder of the Company with respect to any
of the shares issuable upon the exercise of this Option unless and until this
option has been exercised.
Dated this _____ day of ____________.
COST-U-LESS, INC.
By
---------------------------------
Its
--------------------------------
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of ____________________ accept the stock option
described above granted by Cost-U-Less, Inc., and acknowledge receipt of a copy
of this Agreement.
- ---------------------------------- -----------------------------------------
Taxpayer I.D. Number Address
________________________________________________________________________________
<PAGE>
NOTICE OF EXERCISE OF DIRECTOR STOCK OPTION
________________________________________________________________________________
To: Cost-U-Less, Inc.
I, a resident of the State of_____________________ hereby exercise my stock
option granted by Cost-U-Less, Inc.("Company") on ______________, subject to all
the terms and provisions thereof, and notify the Company of my desire to
purchase___________ shares of Common Stock of the Company (the "Securities") at
the exercise price of ________ per share which were offered to me pursuant to
said option.
I hereby represent and warrant that (1) I have been furnished with a copy
of the Director Stock option Agreement and all information which I deem
necessary to evaluate the merits and risks of the purchase of the Securities;
and (2) I have been given the opportunity to obtain any additional information I
deem necessary to verify the accuracy of any information obtained concerning the
Securities and the Company.
- ---------------------------------- -----------------------------------------
Taxpayer I.D. Number
<PAGE>
SCHEDULE 1
OPTIONS GRANTED TO DIRECTORS AS OF MAY 1, 1998
PURSUANT TO DIRECTOR STOCK OPTION AGREEMENTS (NONVESTING)
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED DATE OF GRANT PURCHASE PRICE
<S> <C> <C> <C>
John Anderson 10,331 July 28, 1993 $10.16/share
Terry Buckley 10,331 February 24, 1998 $10.16/share
David Enger 10,331 July 7, 1993 $10.16/share
Donald Gevirtz 88,554 January 8, 1998 $7.62/share
Wayne Keener 10,331 April 30, 1997 $10.16/share
Gary Nettles 10,331 April 30, 1997 $10.16/share
Michael J. Rose 10,331 April 30, 1997 $10.16/share
George Textor 10,331 February 24, 1998 $10.16/share
</TABLE>
<PAGE>
COST U LESS, INC.
MANAGER BONUS PROGRAM
Effective January 1, 1998, the following MANAGER BONUS PROGRAM will be in
effect and supersede any prior bonus agreement either oral or written. The
objective of this bonus program is to provide an incentive for key employees in
meeting the profit goals of the Company.
PARTICIPANTS
Only manager level personnel and above will be eligible for inclusion in
the manager bonus program. A signed agreement by the CEO or CFO of the Company
will be provided to all participants upon their inclusion in the program.
BONUS COMPUTATION
The bonus % is to be determined by the Compensation Committee upon the
recommendation of the CEO and CFO. "Adjusted Net Income" is computed by taking
the net income of the Company and adding back income tax expense, bonus expense
and other non operating income or expenses that Cost U Less Compensation
Committee so determines.
If "Adjusted Net Income" is less than 80% of budgeted "Adjusted Net
Income", no bonus will be paid. However, there is no limit on the amount of
income in excess of budget the Company can earn for which bonuses are
determined.
BONUS POOL
The Bonus Pool is determined under "Bonus Computation" above. Each
participant will be eligible for a % of the pool amount. Each participants
percentage will be based upon his or her salary as the numerator and the
denominator being the combined salaries for all participants employed at the end
of the year. For example, if your salary is $50,000 for the year and salaries
for all bonus participants for the year totals $2 million, your percentage of
the bonus pool would be 2.5%.
PAYMENT
Payment of bonuses will be made within 60 days of year end, providing
sufficient time to obtain year end income and computation of bonus pool
percentages for each participant. Payment will be subject to the financial
condition and resources of the Company at the time of calculation. Payment may
be deferred based upon financial circumstances.
<PAGE>
COST U LESS, INC.
MANAGER BONUS PROGRAM
PLAN TERMINATION
The Cost U Less Compensation Committee may modify or terminate this
agreement at any time. Amounts earned through the date of termination or
modification may not be retroactively changed. If the plan is terminated,
amounts will be paid 45 days after the end of the month in which terminated but
will be subject to the financial condition and resources of the Company at the
time of calculation. Payment may be deferred based upon the financial
circumstances.
EMPLOYEE TERMINATION
To be eligible for a bonus, you must be employed at the time the bonuses
are issued.
THE COMPENSATION COMMITTEE HAS SET THE BONUS POOL PERCENTAGE AT 9% FOR 1998.
Allan C. Youngberg, VP-CFO
/s/ Allan C. Youngberg
- ----------------------
Signature
-2-
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND LAWS.
COST-U-LESS, INC.
COMMON STOCK PURCHASE WARRANT
RECITALS
A. On March 8, 1991, Michael J. Rose and Kendrick Chamberlin were each
granted a warrant to purchase 10,000 shares of the Cost-U-Less, Inc., a
Washington Corporation (the "Company") Common Stock, par value $0.001 per share,
at an exercise price of $3.50 per share by the Board of Directors.
B. On January 1, 1992, pursuant to an Asset Exchange Agreement between
Michael J. Rose and Kendrick Chamberlin, Michael J. Rose acquired the warrant
held by Kendrick Chamberlin for good and valuable consideration.
C. On January 26, 1994, the Company effected a 5-for-1 stock split, the
result of which is that Michael J. Rose now holds a warrant to purchase 100,000
shares of the Company's Common Stock at an exercise price of $0.70 per share.
D. The Company expects to effect a 3.38773-for-1 reverse stock split, the
result of which will be that Michael J. Rose will hold a warrant to purchase
29,518 shares at an exercise price of $2.37 per share.
E. The Company wishes to evidence the warrant in writing for certainty of
the parties.
AGREEMENT
This certifies that for an agreed upon value of $1.00 and other good and
valuable consideration, Michael J. Rose, or his registered assigns (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after the date hereof (subject to the provisions of
Sections 1 and 2) to acquire from the Company, in whole or from time to time in
part, up to a maximum of 29,518 fully paid and nonassessable shares of the
Company's Common Stock, ("Warrant Stock") at a purchase price per share (the
"Exercise Price") of $2.37 per share. Such number of shares, type of security
and Exercise Price are
<PAGE>
subject to adjustment as provided herein, and all references to "Warrant Stock"
and "Exercise Price" herein shall be deemed to include any such adjustment.
1. EXERCISE OF WARRANT
Subject to the termination provisions of Section 10 hereof, the purchase
rights represented by this Warrant are exercisable by the registered holder
hereof, in whole or in part, at any time and from time to time at or prior to
the Expiration Time by the surrender of this Warrant and the Notice of Exercise
form attached hereto duly executed to the office of the Company at 12410 S.E.
32nd Street, Bellevue, Washington 98005 (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment of the Exercise Price for the shares thereby purchased (by cash or by
check or bank draft payable to the order of the Company or by cancellation of
indebtedness of the Company to the holder hereof, if any, at the time of
exercise in an amount equal to the purchase price of the shares thereby
purchased); whereupon the holder of this Warrant shall be entitled to receive
from the Company a stock certificate in proper form representing the number of
shares of Warrant Stock so purchased.
2. CONVERSION RIGHT
In lieu of exercising this Warrant as specified in Section 1, the Holder
may from time to time convert this Warrant, in whole or in part, into a number
of shares of Warrant Stock determined by dividing (a) the aggregate fair market
value of the Warrant Stock or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Exercise Price of such shares by (b) the
fair market value of one share of Warrant Stock. If the Warrant Stock is traded
in a public market, the fair market value of the Warrant Stock shall be the
closing price of the Warrant Stock reported for the business day immediately
before the Holder exercises its rights pursuant to this Section. If the Warrant
Stock is not traded in a public market, the Board of Directors of the Company
shall determine fair market value based upon the purchase price of the Warrant
Stock in the most recent arm's length transaction prior to the exercise of this
Warrant.
3. SECURITIES ACT COMPLIANCE
As a condition of its delivery of the certificates for the Warrant Stock,
the Company may require the registered holder hereof (or the transferee, if any,
of the Warrant Stock in whose name the shares of Warrant Stock are to be
registered) to deliver to the Company, in writing, representations regarding the
purchaser's sophistication, investment intent, acquisition for its own account
and such other matters as are reasonable and customary for purchasers of
securities in an unregistered private offering and the Company may place
conspicuously upon each certificate representing shares of Warrant Stock a
legend substantially in the following form, the terms of which are agreed to by
the registered holder hereof (including any transferee of this Warrant or the
Warrant Stock):
2
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE OR FOREIGN SECURITIES LAW, AND NO INTEREST THEREIN MAY BE SOLD,
DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
(I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
APPLICABLE STATE OR FOREIGN SECURITIES LAWS COVERING ANY SUCH TRANSACTION
INVOLVING SAID SECURITIES, (II) THIS CORPORATION RECEIVES AN OPINION OF
LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS
CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR
(III) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION
IS EXEMPT FROM REGISTRATION.
4. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP
Certificates for shares purchased hereunder shall be delivered to the
holder hereof within a reasonable time after the date on which this Warrant
shall have been exercised in accordance with the terms hereof. The Company
agrees that the shares so issued shall be, and be deemed to be, issued to such
holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been exercised in accordance with the
terms hereof. No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. With respect to any fraction
of a share called for upon the exercise of this Warrant, an amount equal to such
fraction multiplied by the then current price at which each share may be
purchased hereunder shall be paid in cash or check to the holder of this
Warrant.
5. CHARGES, TAXES AND EXPENSES
Issuance of certificates for shares of Warrant Stock upon the exercise of
this Warrant shall be made without charge to the holder hereof for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the holder of this Warrant or
in such name or names as may be directed by the holder of this Warrant;
provided, however, that in the event certificates for shares of Warrant Stock
- -------- -------
are to be issued in a name other than the name of the holder of this Warrant,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the holder hereof.
6. NO RIGHTS AS SHAREHOLDER
This Warrant does not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company prior to the exercise hereof.
7. Exchange and Registry of Warrant
This Warrant is exchangeable, upon the surrender hereof by the registered
holder at the above-mentioned office or agency of the Company, for a new Warrant
of like tenor and
3
<PAGE>
dated as of such exchange. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for
exchange, transfer or exercise, in accordance with its terms and subject to
compliance with applicable laws, at such office or agency of the Company, and
the Company shall be entitled to rely in all respects, prior to written notice
to the contrary, upon such registry.
8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) upon receipt of indemnity or security reasonably
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will make and deliver a new warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
9. SATURDAYS, SUNDAYS AND HOLIDAYS
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday, then such action may be taken or such right may be exercised
on the next succeeding day that is not a legal holiday.
10. MERGER, SALE OF ASSETS, INITIAL PUBLIC OFFERING, ETC.
If at any time the Company proposes to merge or consolidate with or into
any other corporation, effect any reorganization, or sell or convey all or
substantially all of its assets to any other entity, in a transaction in which
the shareholders of the Company immediately before the transaction will own
immediately after the transaction less than a majority of the outstanding voting
securities of the entity (or its parent) succeeding to the business of the
Company (each such transaction, a "corporate transaction"), then the Company
shall give the holder of this Warrant 20 days' prior written notice of the
proposed effective date of such corporate transaction. If this Warrant has not
been exercised by or on the effective date of such corporate transaction, it
shall terminate.
11. RECLASSIFICATION, CONVERSION, ETC.
If the Company at any time shall, by reclassification of securities or
otherwise, change the Warrant Stock into the same or a different number of
securities of any class or classes, this Warrant shall thereafter entitle the
holder to acquire such number and kind of securities as would have been issuable
in respect of the Warrant Stock (or other securities which were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change) as a result of such change if this Warrant had been exercised in
full for cash immediately prior to such change. The Exercise Price hereunder
shall be adjusted if and to the extent necessary to reflect such change. If the
Warrant Stock or other securities issuable upon exercise hereof are subdivided
or combined into a greater or smaller number of shares of such
4
<PAGE>
security, the number of shares issuable hereunder shall be proportionately
increased or decreased, as the case may be, and the Exercise Price shall be
proportionately decreased or increased, as the case may be, in both cases
according to the ratio which the total number of shares of such security to be
outstanding immediately after such event bears to the total number of shares of
such security outstanding immediately prior to such event. The Company shall
give the holder prompt written notice of any change in the type of securities
issuable hereunder, any adjustment of the Exercise Price for the securities
issuable hereunder, and any increase or decrease in the number of shares
issuable hereunder.
12. REPRESENTATIONS AND WARRANTIES
The Company hereby represents, warrants and covenants to the holder hereof
that:
(a) during the period this Warrant is outstanding, the Company will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise of this
Warrant;
(b) the issuance of this Warrant shall constitute full authority to
the Company's officers who are charged with the duty of executing stock
certificates to execute and issue, or cause to be issued, the necessary
certificates for the shares of Warrant Stock issuable upon exercise of this
Warrant;
(c) the Company has all requisite legal and corporate power to execute
and deliver this Warrant, to sell and issue the Warrant Stock hereunder and
perform its obligations under the terms of this Warrant; and
(d) the Warrant Stock, when issued in compliance with the provisions
of this Warrant and the Company's Articles of Incorporation and Bylaws, will be
validly issued, fully paid and nonassessable, and free of any liens or
encumbrances (other than liens or encumbrances created by or imposed upon the
holder of the Warrant Stock), and will be issued in compliance with all
applicable federal and state securities laws.
13. COOPERATION
The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such reasonable action as may be necessary or appropriate in order
to protect the rights of the holder of the Warrant against material impairment.
14. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the laws
of the state of Washington.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
COST-U-LESS, INC.
By ___________________________________________
Title Vice President - Chief Financial Officer
ACCEPTED:
_________________________________
Michael J. Rose
6
<PAGE>
NOTICE OF EXERCISE
To: Cost-U-Less, Inc.
(1) The undersigned hereby elects to purchase __________ shares of Common
Stock, par value $0.001 per share, of Cost-U-Less, Inc. pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price in
full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
________________________________
(Name)
________________________________
(Address)
(3) The undersigned represents that the aforesaid shares of [Company
Securities] are being acquired for the account of the undersigned for investment
and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing or
reselling such shares.
_______________________________ ______________________________________
(Date) (Signature)
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________________________________________
(Please Print)
whose address is ______________________________________________________________
(Please Print)
Dated: ____________________________________________________
Holder's Signature: _______________________________________
Holder's Address: _________________________________________
___________________________________________________________
Guaranteed Signature: _________________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
[LETTERHEAD OF SEAFIRST APPEARS HERE]
CHRISTINE M. BOMGARDNER
Vice President
Eastside Commercial Banking
April 28, 1998
Mr. Allan Youngberg
CFO
COST-U-LESS, INC.
12410 SE 32nd Street
Bellevue, WA 98005
Dear Allan:
Bank of America NT & SA dba Seafirst Bank ("Bank") is pleased to make available
to COST-U-LESS, INC. the following credit facilities based upon the terms and
conditions specifically noted below:
Borrower: COST-U-LESS
Corporation
Guarantor: NONE
FACILITY #1
- -----------
Credit Line: $7,000,000 aggregate line of credit, which is subject to the
following limitations:
. $5,895,390 maximum for advances.
. $1,104,660 maximum for standby letters of credit
Loan Purpose: Revolving line of credit for operating needs including
advances and standby letters of credit.
Interest Rate: 30, 60, 90, 120, 180 day LIBOR option plus 150 basis points;
or Bank's reference rate (prime rate) fully floating.
Loan Fee: As consideration for Bank issuance of this Commitment,
Borrower shall pay Bank a loan fee of $7,369 upon closing
which is fully earned and not refundable. In addition, a 1%
annual fee will be charged for the standby letter of credit.
Loan fee is 1/8% of revolving portion of line.
Compensating
Balances: None.
Repayment: Principal due on maturity; interest payment monthly.
Security: First lien security interest on domestic inventory.
Assignment of CULNEV note and security interest in foreign
inventory. Loan to be cross-collateralized with other debt
at Bank.
SEAFIRST BANK 10500 Northeast Eighth Street/Suite 500/Post Office Box
3217/Bellevue, Washington 98009
Telephone (206) 585-6194 FAX (206) 585-6393
<PAGE>
Mr. Allan Youngberg
Chief Executive Officer
COST-U-LESS, INC.
April 28, 1998
Page 2
Expiration: This revolving facility is available for advances until
May 1, 1999. If, however, advances are made and/or new
promissory notes executed after this date, such advances
will extend and be subject to this commitment until repaid
in full, unless a written statement signed by the Bank and
Borrower provides otherwise, or a subsequent mutually
satisfactory loan agreement is executed.
OTHER TERMS AND CONDITIONS
Before any advance is made, and from time to time as Bank may request
and/or as deemed under this agreement, you agree to negotiate, execute and
deliver a loan agreement and such other documents in a form and substance
such as Bank shall reasonably request.
Financial Information: You will provide to us the following financial
----------------------
exhibits at the following times:
. Annual unqualified financial statements within 90 days of year-end.
. Quarterly interim financial statements within 30 days of quarter end
to include breakdown by store location showing sales, cost of goods
sold, inventory.
Financial Standards: You agree to maintain the following, with
--------------------
compliance to be maintained on a quarterly basis:
. Minimum tangible net worth: $9,700,000; $10,500,000 FY '98.
. Minimum current ratio: 1.2 interim.
. Maximum debt to tangible net worth: 2.0:1.
. Quarterly cash flow coverage ratio of at least 1.20 times calculated
as follows:
EBITDA + Non Cash Adj. & Step Rent
----------------------------------
Int. Exp. & CPLTD
Other
-----
. Capital expenditures for 1998 not to exceed $5,000,000 without prior
written consent of Bank.
DEFAULT
If any of the following events should occur, Bank may cancel this
Commitment, retain the commitment fee and declare immediately due and
payable all principal, interest and other sums payable under the loan
documents and this Commitment and exercise any and all other rights
provided for by the loan documents:
1) If there shall be any material adverse change in the financial
conditions of, or bankruptcy of COST-U-LESS. You agree to notify Bank
of any material adverse change in financial condition, and to provide,
whether or not such notification is given, up-to-date financial
condition (certified by you) as requested by Bank to determine if
material adverse change has occurred.
2) If there is any default under any of the loan documents, or failure to
meet any of the conditions of this Commitment.
3) COST-U-LESS, INC. ceases to exist as a going concern.
This commitment may not be assigned without Bank's prior written
consent.
<PAGE>
Mr. Allan Youngberg
Chief Executive Officer
COST-U-LESS, INC.
April 28, 1998
Page 3
ENTIRE AGREEMENT, STATUTE OF FRAUDS AND ACKNOWLEDGMENT
The Commitment contains the entire agreement between us and may not be
amended except in writing executed by both of us. This Commitment
supersedes all oral negotiation/and oral agreements between us with respect
to the subject matter hereof. No waiver of any provision hereof shall be
effective unless in writing and then only in the specific instance and for
the specific purpose specified.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
-----------------------------------------------------------------------
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
--------------------------------------------------------------------
WASHINGTON LAW.
---------------
Please acknowledge your approval by signing below.
Sincerely,
/s/ Christine M. Bomgardner
CHRISTINE M. BOMGARDNER
Vice President
Bank of America NT & SA dba Seafirst Bank
Approved and accepted this ______ day of April, 1998.
COST-U-LESS, INC.
By: /s/ Allan Youngberg
---------------------------
Allan Youngberg
CFO
CB:jl
<PAGE>
[LOGO OF SEAFIRST BANK APPEARS HERE] LOAN MODIFICATION
(R) AGREEMENT
- --------------------------------------------------------------------------------
This agreement amends the REVOLVING NOTE dated APRIL 19, 1995 ("Note")
executed by COST-U-LESS, INC. ("Borrower") in favor of Bank of America National
Trust & Savings Association, doing business as SEAFIRST BANK, successor by name
change to Seattle-First National Bank ("Bank"), regarding a loan in the maximum
principal amount of $3,200,000.00 (the "Loan"), which currently has a maximum
principal amount of $6,000,000.00. For mutual consideration, Borrower and Bank
agree to amend the above loan documents as follows:
1. Credit Limit. The maximum principal amount of Borrower's line of
------------
credit is hereby changed to $7,000,000.00, and Borrower's maximum liability for
principal under the Note is also changed to $7,000,000.00.
2. Maturity Date. The maturity date of the Note is changed to MAY 1,
-------------
1999. Bank's commitment to make advances to Borrower under its line of credit is
also extended to MAY 1, 1999.
3. Other Terms. Except as specifically amended by this agreement or any
-----------
prior amendment, all other terms, conditions, and definitions of the Note and
all other security agreements, guaranties, deeds of trust, mortgages, and other
instruments or agreements entered into with regard to the Loan shall remain in
full force and effect.
DATED APRIL 22, 1998.
Bank: Borrower:
SEAFIRST BANK COST-U-LESS, INC.
By /s/ Christine M. Bomgardner By: /s/ Allan Youngberg
------------------------------- ----------------------------------
Title V.P. ALLAN YOUNGBERG, V.P. CFO
---------------------------
Loan Modification Agreement (COST-U-LESS, INC.; R/C No. 68601/CA0421CU)
---------------------------
AFS No. 1881931402
<PAGE>
[LOGO OF SEAFIRST BANK APPEARS HERE]
BUSINESS LOAN AGREEMENT
This Business Loan Agreement ("Agreement") is made between Bank of America NT&SA
doing business as Seafirst Bank ("Bank") and Cost U Less ("Borrower") with
-----------
respect to the following:
PART A
TERM LOAN # N/A, Subject to the terms of this Agreement, Bank agrees to
---
lend to Borrower as follows:
(A) AMOUNT: $N/A.
---
(B) [_] This loan must be closed by (date) N/A.
---
[_] This loan matures on (date) N/A.
---
(C) INTEREST RATE:
[_] Bank's publicly announced Reference rate plus N/A percent of
---
principal per annum. "Reference Rate" means the rate of interest
publicly announced from time to time by Bank in San Francisco,
California as its "Reference Rate." The Reference Rate is set
based on various factors, including Bank's costs and desired
return, general economic conditions, and other factors, and is
used as a reference point for pricing some loans. Bank may price
loans to its customers at, above, or below the Reference Rate. Any
change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a
change in the Reference Rate.
[_] N/A.
---
(D) INTEREST RATE BASIS: All interest will be calculated at the per annum
interest rate based on a 360-day year and applied to the actual number
of days elapsed.
(E) REPAYMENT: At the times and in amounts as set forth in note(s) required
under Part B Article 1 of this Agreement.
(F) LOAN FEE: $N/A payable on N/A. Loan fee is fully earned and
--- ---
non-refundable upon execution of this Agreement.
(G) OTHER FEES (IDENTIFY): N/A.
---
(H) COLLATERAL. This term loan shall be secured by a security interest,
which is hereby granted, in favor of Bank on the following collateral:
N/A.
---
Also, collateral securing other loans with Bank may secure this loan.
LINE OF CREDIT #75. Subject to the terms of this Agreement, Bank will make
--
loans to Borrower under a [x] revolving [_]non-revolving line of credit as
follows:
(A) TOTAL AMOUNT AVAILABLE: $7,000,000.
---------
[_] Subject to the provisions of any accounts receivable and/or
inventory borrowing plan required herein; it is expressly
understood that collateral ineligible for borrowing purposes is
determined solely by Bank.
[_] Subject to (describe): N/A.
---
(B) AVAILABILITY PERIOD: 5/1/98 through 5/1/99. However, if loans are made
------ ------
and/or new promissory notes executed after the last date, such
advances will be subject to the terms of this Agreement until repaid
in full unless a written statement signed by the Bank and Borrower
provides otherwise, or a replacement loan agreement is executed. The
making of such additional advances alone, however, does not constitute
a commitment by the Bank to make any further advances or extend the
availability period.
(C) INTEREST RATE:
[X] Bank's publicly announced Reference Rate plus -0- percent of the
---
principal per annum. "Reference Rate" means the rate of interest
publicly announced from time to time by Bank in San Francisco,
California as its "Reference Rate." The Reference Rate is set
based on various factors including Bank's cost and desired
return, general economic conditions, and other factors, and is
used as a reference point for pricing some loans. Bank may price
loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening
of business on the day specified in the public announcement of a
change in the Reference Rate.
[X] or 30, 60, 90, 120 and 180 day LIBOR + 150 bps.
----------------------------------------------
(D) INTEREST RATE BASIS: All interest will be calculated at the per annum
interest rate based on a 360-day year and applied to the actual number
of days elapsed.
(E) REPAYMENT: At the times and in amounts as set forth in note(s)
required under Part B Article 1 of this Agreement.
(F) LOAN FEE: $7,369 payable on at closing.
----- ----------
(G) FEE ON UNUTILIZED PORTION OF LINE: On N/A, and every N/A, thereafter,
--- ---
Borrower shall pay a fee based upon the average daily unused portion
of the line of credit. This fee will be calculated as follows: N/A.
---
(H) OTHER FEE(S) (Identify): N/A.
---
(I) COLLATERAL. This line of credit shall be secured by a security
interest, which is hereby granted, in favor of Bank on the following
collateral:Domestic inventory, assignment of Cul Nev note and
--------------------------------------------------
security interest in foreign inventory. Also, collateral securing
--------------------------------------
other loans with Bank secures this loan.
1
<PAGE>
covering property given as security for the loans shall have loss
payable clauses in favor of Bank. Borrower agrees to deliver to Bank
such evidence of insurance as Bank may reasonably require and, within
thirty (30) days after notice from Bank, to obtain such additional
insurance with an insurer satisfactory to the Bank;
4.8 Borrower will pay all indebtedness taxes and other obligations for
which the Borrower is liable or to which its income or property is
subject before they shall become deliquent, except any which is being
contested by the Borrower in good faith;
4.9 Borrower will continue to conduct its business as presently
constituted, and will maintain and preserve all rights, privileges and
franchises now enjoyed, conduct Borrower's business in an orderly,
efficient and customary manner, keep all Borrowers properties in good
working order and condition, and from time to time make all needed
repairs, renewals or replacements so that the efficiency of Borrower's
properties shall be fully maintained and preserved;
4.10 Borrower will maintain adequate books, accounts and records and
prepare all financial statements required hereunder in accordance with
generally accepted accounting principles and practices consistently
applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over Borrower or Borrower's
business;
4.11 Borrower will permit representatives of Bank to examine and make
copies of the books and records of Borrower and to examine the
collateral of the Borrower at reasonable times;
4.12 Borrower will perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security interest
provided for herein or otherwise carry out the intent of this
Agreement;
4.13 Borrower will comply with all applicable federal, state and municipal
laws, ordinances, rules and regulations relating to its properties,
charters, businesses and operations, including compliance with all
minimum funding and other requirements related to any of Borrower's
employee benefit plans;
4.14 Borrower will permit representatives of Bank to enter onto Borrower's
properties to inspect and test Borrower's properties as Bank, in its
sole discretion, may deem appropriate to determine Borrower's
compliance with section 5.8 of this Agreement; provided however, that
any such inspections and tests shall be for Bank's sole benefit and
shall not be construed to create any responsibility or liability on
the part of Bank to Borrower or to any third party.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under this
Agreement and promissory note(s):
+5.1 Borrower will not, during any fiscal year, expend or incur in the
aggregate more than $5,000,000 for fixed assets, nor more than $N/A
--------- ---
for any single fixed asset whether or not payable that fiscal year or
later under any purchase agreement or lease;
5.2 Borrower will not, without the prior written consent of Bank, purchase
or lease under an agreement for acquisition, incur any other
indebtedness for borrowed money, mortgage, assign, or otherwise
encumber any of Borrower's assets, nor sell, transfer or otherwise
hypothecate any such assets except in the ordinary course of business.
Borrower shall not guaranty, endorse, co-sign, or otherwise become
liable upon the obligations of others, except by the endorsement of
negotiable instruments for deposit or collection in the ordinary
course of business. For purposes of this paragraph, the sale or
assignment of accounts receivable, or the granting of a security
interest therein, shall be deemed the incurring of indebtedness for
borrowed money;
+5.3 The total of salaries, withdrawals, or other forms of compensation,
whether paid in cash or otherwise, by Borrower shall not exceed the
following amounts for the persons indicated, nor will amounts in
excess of such limits be paid to any other person:
Name: N/A Monthly/Yearly Amount: $N/A.
--- ----
Name: N/A Monthly/Yearly Amount: $N/A.
--- ----
5.4 Borrower will not, without Bank's prior written consent, declare any
dividends on shares of its capital stock, or apply any of its assets
to the purchase, redemption or other retirement of such shares, or
otherwise amend its capital structure;
+5.5 Borrower will not make any loan or advance to any person(s) or
purchase or otherwise acquire the capital stock, assets or obligations
of, or any interest in, any person, except:
(a) commercial bank time deposits maturing within one year,
(b) marketable general obligations of the United States or a State,
or marketable obligations fully guarantied by the United States,
(c) short-term commercial paper with the highest rating of a
generally recognized rating service, and
(d) other investments related to the Borrower's business which,
together with such other investments now outstanding, do not in
the aggregate exceed the sum of $N/A at any time;
---
5.6 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business assets
as a whole or such as in the opinion of Bank constitute a substantial
portion of Borrower's business or assets;
5.7 Borrower will not engage in any business activities or operations
substantially different from or unrelated to present business
activities or operations; and/or
5.8 Borrower, and Borrower's tenants, contractors, agents or other parties
authorized to use any of Borrower's properties, will not use,
generate, manufacture, store, treat, dispose of, or release any
hazardous substance or hazardous waste in, on, under or about any of
Borrower's properties except as previously disclosed to Bank in
4
<PAGE>
writing as provided in section 3.9; and any such activity shall
be conducted in compliance with all applicable federal, state and
local laws, regulations and ordinances, including without
limitation those described in section 3.9.
6. WAIVER, RELEASE AND INDEMNIFICATION. BORROWER HEREBY:
(a) releases and waives any claims against Bank for indemnity or
contribution in the event Borrower becomes liable for cleanup or
other costs under any of the applicable federal, state or local laws,
regulations or ordinances, including without limitation those
described in section 3.9, and (b) agrees to indemnify and hold Bank
harmless from and against any and all claims, losses, liabilities,
damages, penalties and expenses which Bank may directly or indirectly
sustain or suffer resulting from a breach of (i) any of Borrower's
representations and warranties with respect to hazardous wastes and
hazardous substances contained in section 3.9, or (ii) section 5.8.
The provisions of this section 6 shall survive the full and final
payment of all sums outstanding under this Agreement and promissory
notes and shall not be affected by Bank's acquisition of any interest
in any of the Borrower's properties, whether by foreclosure or
otherwise.
7. EVENTS OF DEFAULT. The occurrence of any of the following events ("Events
of Default") shall terminate any and all obligations on the part of Bank to
make or continue the loan and/or line of credit and, at the option of Bank,
shall make all sums of interest and principal outstanding under the loan
and/or line of credit immediately due and payable, without notice of
default, presentment or demand for payment, protest or notice of non
payment or dishonor, or other notices or demands of any kind or character,
all of which are waived by Borrower, and Bank may proceed with collection
of such obligations and enforcement and realization upon all security which
it may hold and to the enforcement of all rights hereunder or at law:
7.1 The Borrower shall fail to pay when due any amount payable by it
hereunder on any loans or notes executed in connection herewith;
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of
fifteen (15) days after the earlier of written notice thereof
shall have been given to the Borrower by Bank or Borrower or any
Guarantor has knowledge of an Event of Default or an event that
can become an Event of Default;
7.3 Borrower shall fail to pay when due any other obligation for
borrowed money, or to perform any term or covenant on its part to
be performed under any agreement relating to such obligation or
any such other debt shall be declared to be due and payable and
such failure shall continue after the applicable grace period;
7.4 Any representation or warranty made by Borrower in this Agreement
or in any other statement to Bank shall prove to have been false
or misleading in any material respect when made;
7.5 Borrower makes an assignment for the benefit of creditors, files
a petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions to any court for a receiver or trustee for Borrower or
any substantial part of its property, commences any proceeding
relating to the arrangement, readjustment, reorganization or
liquidation under any bankruptcy or similar laws, or if there is
commenced against Borrower any such proceedings which remain
undismissed for a period of thirty (30) days or, if Borrower by
any act indicates its consent or acquiescence in any such
proceeding or the appointment of any such trustee or receiver;
+7.6 Any judgment attaches against Borrower or any of its properties
for an amount in excess of $50,000 which remains unpaid, unstayed
------
on appeal, unbonded, or undismissed for a period of thirty (30)
days;
7.7 Loss of any required government approvals, and/or any
governmental regulatory authority takes or institutes action
which, in the opinion of Bank, will adversely affect Borrower's
condition, operations or ability to repay the loan and/or line of
credit;
7.8 Failure of Bank to have a legal, valid and binding first lien on,
or a valid and enforceable prior perfected security interest in,
any property covered by any deed of trust or security agreement
required under this Agreement;
7.9 Borrower dies, becomes incompetent, or ceases to exist as a going
concern;
7.10 Occurrence of an extraordinary situation which gives Bank
reasonable grounds to believe that Borrower may not, or will be
unable to, perform its obligations under this or any other
agreement between Bank and Borrower; or
7.11 Any of the preceding events occur with respect to any guarantor
of credit under this Agreement, or such guarantor dies or becomes
incompetent, unless the obligations arising under the guaranty
and related agreements have been unconditionally assumed by the
guarantor's estate in a manner satisfactory to Bank.
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower and
Bank, their respective successors and assigns, except that Borrower may not
assign its rights hereunder. No consent or waiver under this Agreement
shall be effective unless in writing and signed by the Bank and shall not
waive or affect any other default, whether prior or subsequent thereto, and
whether of the same or different type. No delay or omission on the part of
the Bank in exercising any right shall operate as a waiver of such right or
any other right.
9. ARBITRATION.
9.1 At the request of either Bank or Borrower any controversy or
claim between the Bank and Borrower, arising from or relating to
this Agreement or any loan document executed in connection with
this Agreement or arising from any alleged tort shall be settled
by arbitration in Seattle, Washington. The United States
Arbitration Act will apply to the arbitration proceedings which
will be administered by the American Arbitration Association
under its commercial rules of arbitration except that unless the
amount of the claim(s) being arbitrated exceeds $5,000,000 there
shall be only one arbitrator. Any controversy over whether an
issue is arbitrable shall be determined by the arbitrator(s).
5
<PAGE>
Judgment upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of any action for
judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of either party, including
plaintiff, to submit the controversy or claim to arbitration if such
action for judicial relief is contested.
9.2 For purposes of the application of the statute of limitations the
filing of an arbitration as provided herein is the equivalent of
filing a lawsuit and the arbitrator(s) will have the authority to
decide whether any claim or controversy is barred by the statute of
limitations, and if so, to dismiss the arbitration on that basis. The
parties consent to the joinder in the arbitration proceedings of any
guarantor, hypothecator or other party having an interest related to
the claim or controversy being arbitrated.
9.3 Notwithstanding the provisions of Section 9.1, no controversy or
claim shall be submitted to arbitration without the consent of all
parties if at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation secured by real property
or by a marine vessel;
9.4 No provision of this Section 9 shall limit the right of the Borrower
or the Bank to exercise self-help remedies such as setoff, foreclosure
or sale of any collateral, or obtaining any ancillary provisional or
interim remedies from a court of competent jurisdiction before, after
or during the pendency of any arbitration proceeding. The exercise of
any such remedy does not waive the right of either party to request
arbitration. At Bank's option foreclosure under any deed of trust may
be accomplished by exercise of the power of sale under the deed of
trust or judicial foreclosure as a mortgage.
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees to pay
Bank all of Bank's costs and expenses (including reasonable attorney's fees
and the allocated cost for in-house legal services incurred by Bank),
incurred in the documentation and administration of this Agreement and the
loans reflected herein. The nonprevailing party shall, upon demand by the
prevailing party, reimburse the prevailing party of all of its costs,
expenses and reasonable attorneys' fees (including the allocated cost of
in-house counsel) incurred in connection with any controversy or claim
between said parties relating to this Agreement or any of the loan
documents, or to an alleged tort arising out of the transactions evidence
by this agreement or any of the loan documents, including those incurred in
any action, bankruptcy proceeding, arbitration or other alternative dispute
resolution proceeding, or appeal, or in the course of exercising any
judicial or nonjudicial remedies. If suit is instituted by Bank to enforce
this Agreement or any of the loan documents, Borrower consents to the
personal jurisdiction of the courts of the State of Washington and Federal
Courts located in the State of Washington. Borrower further consents to the
venue of such suit being lain in Seattle, Washington. This Agreement and
any notes, security agreements and other loan documents entered into
pursuant to this Agreement shall be construed in accordance with the laws
of the State of Washington.
11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions set
forth immediately following this Section 11 or on any "Exhibit A*" attached
to and hereby incorporated into Agreement. This Agreement supersedes all
oral negotiations or agreements between Bank and Borrower with respect to
the subject matter hereof and constitutes the entire understanding and
Agreement of the matters set forth in this Agreement.
12. MISCELLANEOUS. If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed modified if
possible, or if not possible, such provision shall be deemed stricken, and
(b) all other provisions shall remain in full force and effect.
12.1 If the imposition of or any change in any law, rule, or regulation
guideline or the interpretation or application of any thereof by any
court of administrative or governmental authority (including any
request or policy whether or not having the force of law) shall impose
or modify any taxes (except U.S. federal, state or local income or
franchise taxes imposed on Bank), reserve requirements, capital
adequacy requirements or other obligations which would: (a) increase
the cost to Bank for extending or maintaining any loans and/or line of
credit to which this Agreement relates, (b) reduce the amounts payable
to Bank under this Agreement, such notes and other instruments, or (c)
reduce the rate of return on Bank's capital as a consequence of Bank's
obligations with respect to any loan and/or line of credit to which
this Agreement relates, then Borrower agrees to pay Bank such
additional amounts as will compensate Bank therefor, within five (5)
days after Bank's written demand for such payment, which demand shall
be accompanied by an explanation of such imposition or charge and a
calculation in reasonable detail of the additional amounts payable by
Borrower, which explanation and calculations shall be conclusive,
absent manifest error.
12.2 Bank may sell participations in or assign this loan in whole or in
part without notice to Borrower and Bank may provide information
regarding the Borrower and this Agreement to any prospective
participant or assignee. If a participation is sold or the loan is
assigned the purchaser will have the right of set off against the
Borrower and may enforce its interest in the Loan irrespective of any
claims or defenses the Borrower may have against the Bank.
13. NOTICES. Any notices shall be given in writing to the opposite party's
signature below or as that party may otherwise specify in writing.
14. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
-----------------------------------------------------------------------
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
--------------------------------------------------------------------
WASHINGTON LAW.
--------------
*Exhibit A refers to commitment letter dated 4/28/98.
6
<PAGE>
This Business Loan Agreement (Parts A and B) executed by the parties on 4/28/98
-------
(date) Borrower acknowledges having read all of the provisions of this Agreement
and Borrower agrees to its terms.
Bank of America NT&SA, D.B.A, Seafirst Western Commercial Banking Team 1.
----------------------------------
(Branch/Office)
By: /s/ Christine M. Bomgardner Title: Vice President.
-------------------------- ---------------
Chris Bomgardner
Address: 10500 NE 8th, Suite 500 City, State, Zip: Bellevue, Washington
------------------------- --------------------
98004.
------
Phone: (206) 585-6194 Fax: (206) 585-6393.
-------------- --------------
COST U LESS.
------------
(Borrower Name)
By: /s/ Allan Youngberg Title: VP-CFO
--------------------- --------------------
By: Title:
--------------------- --------------------
Address: 12410 SE 32nd Street City, State, Zip: Bellevue, WA 98005
--------------------- --------------------
Phone: (425) 644-4241 Fax: (425) 641-3383
--------------------- --------------------
7
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 04-30-2000 N 84106
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: COST-U-LESS, INC. Lender: BANK OF AMERICA NT&SA D/B/A/ SEAFIRST
12410 S.E. 32ND ST. BANK WESTERN COMMERCIAL TEAM 1/BELLEVUE
BELLEVUE, WA 98005 C/O CLSC-W (DOC'S)
800 FIFTH AVE (FAB-13)
SEATTLE, WA 98104
================================================================================
Principal Amount: $1,000,000.00 Date of Note: December 31, 1997
PROMISE TO PAY. COST-U-LESS, INC. ("Borrower") promises to pay to BANK OF
AMERICA NT&SA D/B/A SEAFIRST BANK ("Lender"), or order, in lawful money of the
United States of America, the principal amount of One Million & 00/100 Dollars
($1,000,000.00), together with interest at the initial rate of 7.770% per annum
on the unpaid principal balance until paid in full.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
4 consecutive monthly interest payments, beginning January 31,
1998, with interest calculated on the unpaid principal balances at an
interest rate of 7.770% per annum; and 24 consecutive monthly
principal and interest payments of $45,181.24 each, beginning May
31, 1998, with interest calculated on the unpaid principal balances at
an interest rate of 7.770% per annum. Borrower's final payment of
$45,181.24 will be due on April 30, 2000. This estimated final
payment is based on the assumption that all payments will be made
exactly as scheduled; the actual final payment will be for all
principal and accrued interest not yet paid, together with any other
unpaid amounts under this Note.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will
be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
AUTOMATIC PAYMENTS. Borrower hereby authorizes Lender to automatically deduct
from Borrower's checking/savings account number 68338813, or such other Seafirst
account as may be authorized in the future, the loan payment according to the
amount and terms of this Note. If the funds in the account are insufficient to
cover any payment, Lender shall not be obligated to advance funds to cover the
payment. At any time and for any reasons, Borrower or Lender may voluntarily
terminate Automatic Payments. Our business days are Monday through Friday.
Payments that come due on a Saturday, Sunday or legal bank holiday, will be
deducted on the following business day.
PREPAYMENT FEE. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Upon prepayment of this Note, Lender is entitled
to the following prepayment fee: SEE ATTACHED EXHIBIT "A". Early payments will
not, unless agreed to by Lender in writing, relieve Borrower of Borrower's
obligation to continue to make payments under the payment schedule. Rather,
they will reduce the principal balance due and may result in Borrower's making
fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $20.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due, (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender, (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished, (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws,
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender, (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor
of this Note, (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired, (h) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the interest rate
on this Note to 18.000% per annum, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note (including any increased rate). The interest rate will
not exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF WASHINGTON. IF THERE IS A
LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF
THE COURTS SITUATED IN KING COUNTY, THE STATE OF WASHINGTON. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
WASHINGTON.
STATUTE OF FRAUDS PROVISION. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
<PAGE>
PROMISSORY NOTE Page 2
(Continued)
================================================================================
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew, extend (repeatedly and for any length of time) or modify this loan,
with the consent of Borrower, or release any party or guarantor; or impair, fail
to realize upon or perfect Lender's security interest in the collateral; and
take any other action deemed necessary by Lender without the consent of or
notice to anyone.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
COST-U-LESS, INC.
By: /s/ Allan Youngberg
----------------------------------------
----------------------------------------
================================================================================
<PAGE>
EXHIBIT A
PREPAYMENT FEES
If the principal balance of this note is prepaid in whole or in part, whether by
voluntary prepayment, operation of law, acceleration or otherwise, a prepayment
fee, in addition to any interest earned, will be immediately payable to the
holder of this note.
The amount of the prepayment fee depends of the following:
(1) The amount by which interest reference rates as defined below have changed
between the time the loan is prepaid and either a) the time the loan was made
for fixed rate loans or b) the time the interest rate last changed (repriced)
for variable rate loans.
(2) A prepayment fee factor (see "Prepayment Fee Factor Schedule" on reverse).
(3) The amount of principal prepaid.
If the proceeds from a CD or time deposit pledged to secure the loan are used to
prepay the loan resulting in payment of an early withdrawal penalty for the CD,
a prepayment free will not also be charged under the loan.
Definition of Reference Rate for Variable Rate Loans
The Reference Rate used to represent interest rate levels for variable rate
loans shall be the index rate used to determine the rate on this loan having
maturities equivalent to the remaining period to interest rate change date
(repricing) of this loan rounded upward to nearest month. The "Initial Reference
Rate" shall be the Reference Rate at time of last repricing and a new Initial
Reference Rate shall be assigned at each subsequent repricing. The "Final
Reference Rate" shall be the Reference Rate at time of prepayment.
Definition of Reference Rate for Fixed Rate Loans
The "Reference Rate" used to represent interest rate levels on fixed rate loans
shall be the bond equivalent yield of the average U.S. Treasury rate having
maturities equivalent to the remaining period to maturity of this loan rounded
upward to the nearest month. The "Initial Reference Rate" shall be the Reference
Rate at the time the loan was made. The "Final Reference Rate" shall be the
Reference Rate at time of prepayment.
The Reference Rate shall be interpolated from the Federal Reserve Statistical
Release (Publication H.15) as displayed on Page 119 of the Dow Jones Telerate
Service (or such other page or service as may replace that page or service for
the purpose of displaying rates comparable to said U.S. Treasury rates) on the
day the loan was made (Initial Reference Rate) or the day of prepayment (Final
Reference Rate).
An initial reference rate of 5.68% has been assigned to this loan to represent
interest rate levels at origination.
Calculation of Prepayment Fee
If the Initial Reference Rate is less than or equal to the Final Reference Rate,
there is no prepayment fee.
If the Initial Reference Rate is greater than the Final Reference Rate, the
prepayment fee shall be equal to the difference between the Initial and Final
Reference Rates (expressed as a decimal), multiplied by the appropriate factor
from the Prepayment Fee Factor Schedule, multiplied by the principal amount of
the loan being prepaid.
Cost-U-Less, Inc. By:
- ------------------------------------ -------------------------------
CUSTOMER NAME(S) SIGNATURE TITLE
By: /s/ Allan Youngberg VP-CFO Date: December 29, 1997
--------------------------------- -------------------------------
SIGNATURE TITLE
<PAGE>
EXAMPLE OF PREPAYMENT FEE CALCULATION
Variable Rate Loan: A non-amortizing 6-month LIBOR based loan with principal of
- ------------------
$250,000 is fully prepaid with 3 months remaining until next interest rate
change date (repricing). An Initial Reference Rate of 7.0% was assigned to the
loan at last repricing. The Final Reference Rate (as determined by the 3-month
LIBOR Index) is 6.5%. Rates therefore have dropped 0.5% since last repricing and
a prepayment fee applies. A prepayment fee factor of 0.31 is determined from
Table 3 below and the prepayment fee is computed as follows:
Prepayment Fee = (0.07 - 0.065) X (0.31) X ($250,000) = $387.50
Fixed Rate Loan: An amortizing loan with remaining principal of $250,000 is
- ---------------
fully prepaid with 24 months remaining until maturity. An Initial Reference Rate
of 9.0% was assigned to the loan when the loan was made. The Final Reference
Rate (as determined be the current 24-month U.S. Treasury rate on Page 119 of
Telerate) is 7.5%. Rates therefore have dropped 1.5% since the loan was made and
a prepayment fee applies. A prepayment fee factor of 1.3 is determined from
Table 1 below and the prepayment fee is computed as follows:
Prepayment Fee = (0.09 - 0.075) X (1.3) X ($250,000) = $4,875
PREPAYMENT FEE FACTOR SCHEDULE
TABLE I. -- FULLY AMORTIZING LOANS
<TABLE>
<CAPTION>
Proportion of Remaining
Principal Amount Being Prepaid
- ------------------------------
Months Remaining to Maturity/Repricing(1)
0 3 6 9 12 24 36 48 60 84 120 240 360
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
90-100% 0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.3 5.9 10.3 13.1
60-89% 0 .24 .44 .63 .83 1.6 2.4 3.1 3.9 5.4 7.5 13.2 17.0
30-59% 0 .28 .53 .78 1.02 2.0 3.0 4.0 5.0 7.0 9.9 18.5 24.4
0- 29% 0 .31 .63 .92 1.22 2.4 3.7 5.0 6.3 9.0 13.4 28.3 41.8
</TABLE>
TABLE II. -- PARTIALLY AMORTIZING (BALLOON) LOANS
<TABLE>
<CAPTION>
Proportion of Remaining
Principal Amount Being Prepaid
- ------------------------------
Months Remaining to Maturity/Repricing(1)
0 3 6 9 12 24 36 48 60 84 120 240 360
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
90-100% 0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0
60-89% 0 .30 .59 .86 1.15 2.2 3.3 4.3 5.3 7.1 9.4 15.0 18.1
30-59% 0 .31 .63 .95 1.27 2.6 3.9 5.3 6.6 9.1 12.6 21.2 26.2
0- 29% 0 .31 .63 .95 1.27 2.6 4.0 5.4 7.0 10.2 15.7 33.4 46.0
</TABLE>
TABLE III. -- NON-AMORTIZING (INTEREST ONLY) LOANS
<TABLE>
<CAPTION>
Proportion of Remaining
Principal Amount Being Prepaid
- ------------------------------
Months Remaining to Maturity/Repricing(1)
0 3 6 9 12 24 36 48 60 84 120 240 360
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-100% 0 .31 .61 .91 1.21 2.3 3.4 4.4 5.3 6.9 8.9 13.0 14.8
</TABLE>
(1) For the remaining period to maturity/repricing between any tow
maturities/repricings shown in the above schedules, interpolate between
the corresponding factors to the closest month.
The holder of this note is not required to actually reinvest the prepaid
principal in any U.S. Government Treasure Obligations, or otherwise prove its
actual loss, as a condition to receiving a prepayment fee as calculated above.
<PAGE>
CONSTRUCTION/PERMANENT LOAN AGREEMENT
THIS LOAN AGREEMENT is dated the 6th day of November, 1997, by and among
CULUSVI, INC., a U.S. Virgin Islands corporation whose mailing address is 12410
SE 32nd Street, Bellevue, Washington 98005 (the "Borrower"), COST-U-LESS,
INC., a Washington corporation whose mailing address is 12410 SE 32nd
Street, Bellevue, Washington 98005 (the "Guarantor"), and BANCO POPULAR DE
PUERTO RICO, a commercial banking institution whose mailing address is P.O. Box
8580, St. Thomas, U.S. Virgin Islands 00801 (the "Bank").
WHEREAS, the Bank has agreed to make, and the Borrower has accepted, a loan
upon the terms and conditions hereinafter described (the "Loan"), to be used by
the Borrower for (a) the construction of a retail building and related
facilities (the "Project") on the real property herein described and in
accordance with plans and specifications submitted to and approved by the Bank
(the "Plans and Specifications") and (b) closing costs associated with the Loan;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:
1. REPRESENTATIONS. The Borrower and the Guarantor, respectively,
represent, covenant and warrant that:
1.1 Corporate Existence and Power. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the U.S.
Virgin Islands and has the corporate power to make this Agreement and to borrow
hereunder. The Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington and has the corporate
power to make this Agreement and to guaranty the Loan.
1.2 Corporate Authority. The making and performance by the Borrower and
Guarantor of this Agreement has been duly authorized by all necessary corporate
action and will
<PAGE>
not violate any provision of law or of their Articles of Incorporation or Bylaws
or result in the breach of, or constitute a default under, or, except as
hereinafter provided, result in the creation of any lien, charge or encumbrance
upon any property or assets of the Borrower or Guarantor pursuant to any
indenture or bank loan or credit agreement, or other agreement or instrument to
which the Borrower or Guarantor is a party or by which the Borrower, Guarantor
or the property or either may be bound or affected.
1.3 Financial Condition. The most recent financial statements of the
Borrower and Guarantor, and other related information, heretofore furnished to
the Bank, are complete and correct and fairly present the financial condition of
the Borrower and Guarantor and the results of operations for the period(s)
specified therein. To the best of the Borrower's and Guarantor's knowledge and
belief, the Borrower and Guarantor have no contingent obligations, liabilities
for taxes, or unusual forward or long term commitments, except as herein
specifically mentioned, not disclosed by, or reserved against, in said financial
statements, and, at the present time, there are no material unrealized or
anticipated losses from any unfavorable commitments of the Borrower or
Guarantor. Said financial statements have been prepared in accordance with
generally accepted accounting principles and practices consistently maintained
by the Borrower and Guarantor throughout the period involved. Since the dates of
such financial statements, and since the date of the other financial information
provided to the Bank, there have been no material adverse changes in the
financial condition of the Borrower or Guarantor from that set forth in said
financial statements or in said other financial information as of the date
thereof.
1.4 Litigation. Except as Bank has been advised in writing, there are no
suits or proceedings pending, or, to the knowledge of the Borrower or Guarantor,
threatened, against or
-2-
<PAGE>
affecting the Borrower or Guarantor which, if adversely determined, would have a
material adverse effect on the financial condition or business of the Borrower
or Guarantor. There are no proceedings by or before any governmental commission,
bureau or other administrative agency pending, or to the knowledge of the
Borrower or Guarantor threatened, against the Borrower or Guarantor.
1.5 Titles; Liens. The Borrower and Guarantor have exclusive good and
marketable title to each of the fixed properties and assets reflected in their
financial statements free and clear of all mortgages, liens and encumbrances,
except (a) liens, if any, for current taxes, assessments and governmental
charges not delinquent or whose validity is being contested at the time in good
faith and by appropriate proceedings, and covenants, restrictions, rights,
easements, liens, encumbrances and minor irregularities in title which, in their
opinion, do not and will not interfere with the occupation, use and enjoyment of
such properties and assets in the normal course of business as presently
conducted or planned or materially impair the value of such properties and
assets for the purpose of such business, (b) mortgages, liens and encumbrances
disclosed in the financial statements provided in Subsection 1.3 above, and (c)
mortgages, liens and encumbrances in favor of the Bank.
1.6 Environmental Compliance. To the best of the Borrower's knowledge and
belief, the Borrower has duly complied with, and the Mortgaged Property (as
hereinafter defined) and Borrower's business operations, assets, equipment,
property, leaseholds or other facilities are in compliance with the provisions
of all federal and territorial environmental, health, and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder and the
Borrower has been issued and will maintain all required federal and territorial
permits, licenses,
-3-
<PAGE>
certificates, and approvals relating to (1) air emissions, (2) discharges to
surface water or groundwater, (3) noise emissions, (4) solid or liquid waste
disposal, (5) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (intended hereby and hereafter to include any
and all such materials listed in any federal or territorial law, code or
ordinance, and all rules and regulations promulgated thereunder, as hazardous or
potentially hazardous), or (6) other environmental, health, or safety matters
and the Borrower has received no notice of, and neither knows of nor suspects,
facts which might constitute any violations of any federal or territorial
environmental, health, or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder with respect to the Mortgaged Property or
Borrower's business, operations, assets, equipment, property, leaseholds, or
other facilities and except in accordance with a valid governmental permit,
license, certificate or approval, there has been no emission, spill, release, or
discharge into or upon (1) the air, (2) soils or any improvements located
thereon, (3) surface water or groundwater, or (4) the sewer, septic system or
waste treatment, storage or disposal system servicing the Mortgaged Property, of
any toxic or hazardous substances or wastes at or from the Mortgaged Property;
and accordingly, except for inventory of raw materials, supplies, work in
progress and finished, that are to be used or sold in the ordinary course of
business, the Mortgaged Property is free of all such toxic or hazardous
substances or wastes and there has been no complaint, order, directive, claim,
citation, or notice by any governmental authority or any person or entity with
respect to (1) air emissions, (2) spills, releases, or discharges to soils or
improvements located thereon, surface water, groundwater or the sewer, septic
system or waste treatment, storage or disposal systems servicing the Mortgaged
Property, (3) noise emissions, (4) solid or liquid waste disposal, (5) the use,
generation, storage,
-4-
<PAGE>
transportation, or disposal of toxic or hazardous substances or waste, or (6)
other environmental, health, or safety matters affecting the Borrower, the
Mortgaged Property or Borrower's business, operations, assets, equipment,
property, leaseholds, or other facilities. The Borrower has received no notice
of indebtedness, obligation or liability, absolute or contingent, matured or not
matured, with respect to the storage, treatment, cleanup, or disposal of any
solid wastes, hazardous wastes, or other toxic or hazardous substances
(including without limitation any such indebtedness, obligation or liability
with respect to any current regulation, law or statute regarding such storage,
treatment, cleanup, or disposal) which has not been previously disclosed to the
Bank in writing.
1.7 Contract Obligations. The Borrower is not a party to any contract or
agreement which materially and adversely affects Borrower's business,
properties, or assets, or Borrower's condition, financial or otherwise, except
as hereinafter identified; and neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated herein, nor
compliance with the terms, conditions and provisions of this Agreement, the
Security Instruments referred to herein and the Note issued hereunder will
conflict with or result in a breach of the terms, conditions, or provisions of
any indenture or other agreement or instrument to which the Borrower is a party
or by which the Borrower is bound or will result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Borrower, except as permitted by the provisions
hereof. To the best of Borrower's knowledge and belief, the Borrower has no
contingent obligations except those arising in the ordinary course of the
Borrower's business.
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1.8 The Property. The Borrower has a leasehold interest in the Mortgaged
Property (hereinafter defined) and there are no encumbrances, restrictions or
covenants of record which would prevent or otherwise affect the development of
the Project, except as has been disclosed to and approved by the Bank in
writing.
1.9 Business Licenses and Governmental Permits. The Borrower possesses or
will obtain all licenses, franchises, and permits necessary for the conduct of
Borrower's business as now, or proposed to be, conducted, and for the
development and construction of the Project without substantial known conflict
with the rights of others.
1.10 Use of Loan Proceeds. The proceeds of the Loan shall be solely for
the purposes herein stated in connection with the Project in accordance with the
provisions hereof.
1.11 Enforceability. This Agreement, the Note (as defined in Subsection
2.4), Security Instruments (as defined in Section 3) and other documents to be
delivered and executed simultaneously herewith (collectively referred to herein
as the "Loan Documents") are the legal, valid and binding obligations of the
Borrower and Guarantor, enforceable against the Borrower and Guarantor in
accordance with their respective terms.
2. THE AGREEMENT TO LEND.
2.1 Type. The Loan shall be in the form of a fifteen year installment loan
in the maximum principal amount of TWO MILLION AND 00/100 DOLLARS
($2,000,000.00) payable in one hundred eighty (180) consecutive monthly
installments of principal and interest after an initial period of interest only
payments as set forth below.
2.2 Principal and Interest Payments. The Borrower shall repay the
principal amount of the Loan to the Bank in one hundred eighty (180) consecutive
monthly installments of
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principal as follows: (a) one hundred seventy nine (179) consecutive monthly
installments of ELEVEN THOUSAND ONE HUNDRED ELEVEN AND /100 DOLLARS ($11,111.00)
each, commencing on the first day of the seventh full month from the date
hereof and continuing each consecutive month, and (b) a one hundred eightieth
(180th), final installment of principal then outstanding, together with all
accrued and unpaid interest. Interest accrued on the principal sum from time to
time outstanding at the rate set forth in Subsection 2.3 below shall be due and
payable monthly together with each monthly payment of principal as set forth
above, provided however, that interest accrued from the date hereof until the
date that monthly payments of principal commence as provided above shall be due
and payable on the first day of each month commencing on the first day of the
first month following the date hereof and continuing on the first day of each
subsequent month. The Loan may be prepaid at any time, and from time to time, in
whole or in part, without any premium or penalty therefor. All payments and
prepayments shall be applied first to late charges (including any interest
charged at the Default Rate, as defined below), if any, second to other accrued
interest and the remainder to the outstanding principal balance.
2.3 Interest. The Loan shall bear interest on the principal sum advanced
and outstanding at a per annum rate equal to one percent (1%) above the prime
rate as it varies (any change in interest resulting from the change in the prime
rate to be effective at the beginning of the day on which such change in the
prime rate is announced). The term "prime rate" as used herein means that rate
of interest from time to time announced by Chase Manhattan Bank, N.A. ("Chase")
at its principal offices in New York, New York as its floating prime rate, which
is not necessarily the lowest rate charged by Chase or the Bank. Interest shall
be calculated daily on a
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three hundred sixty (360) day basis at the rate hereinabove set forth and shall
be due and payable monthly commencing on the first day of the first full month
following the date hereof as set forth in Subsection 2.2 above.
Notwithstanding the foregoing, at any time that an event of default, as
defined in Section 10, hereof, shall have occurred and be continuing, the Loan
shall bear interest at a rate per annum equal to two percent (2.0%) above the
prime rate as it varies (the "Default Rate") (any change in interest resulting
from the change in the prime rate to be effective at the beginning of the day on
which such change in the prime rate is announced). Interest at the Default Rate
shall be calculated daily on a three hundred sixty (360) day basis and shall be
due and payable monthly on the first day of each month as provided in the
preceding paragraphs.
2.4 The Note. The Loan shall be evidenced by a promissory note of the
Borrower (the "Note"), in the amount of the Loan, dated the date hereof, due and
payable to the order of the Bank as hereinabove and therein set forth.
3. SECURITY. The Loan shall be secured by this Agreement and the following
agreements, pledges, and assignments of the Borrower (collectively the "Security
Instruments"):
3.1 First Priority Leasehold Mortgage - Construction Security Interest. A
First Priority Leasehold Mortgage - Construction Security Interest of even date
herewith (the "Mortgage") from the Borrower to the Bank, which shall create a
first priority lien over the Borrower's leasehold interest in the real property
described below pursuant to a Ground Lease dated October 20, 1997, between
Market Square East, Inc., as Lessor, and Borrower, as Lessee (the "Lease"),
pursuant to which the Borrower possesses the real property and improvements
located or to be constructed thereon described as follows:
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a 46,538 square foot portion (known as "Lease Area 'A'"), the
survey plan and metes and bounds legal description of which are
attached hereto and made a part hereof as Exhibit A, of Parcel
No.1-2 Estate Donoe No. 2A New Quarter St. Thomas, U.S. Virgin
Islands, as shown on P.W.D. Drawing No. A9-369-T89
(the "Mortgaged Property").
3.2 Security Agreement and UCC-l Financing Statement. A Security Agreement
in favor of the Bank (the "Security Agreement"), granting to the Bank a first
priority security interest in all assets of the Borrower excluding inventory and
accounts receivable. The lien of said Security Agreement shall be perfected by a
UCC-l Financing Statement(s) to be executed of even date herewith by the
Borrower and the Bank and filed with the Corporate Division of the Office of the
Lieutenant Governor of the U.S. Virgin Islands.
3.3 Assignment of Lease. An Assignment of Lease, assigning to the Bank the
Borrower's leasehold interest in the Mortgaged Property.
3.4 Assignment of Subleases and Rents. An Assignment of Subleases and
Rents, which shall assign to the Bank all existing and future subleases to all
or any part of the Mortgaged Property and all rental income derived or to be
derived from the Mortgaged Property.
3.5 Assignment of Plans and Specifications. An Assignment of Plans and
Specifications, assigning to the Bank the Borrower's interest in the Plans and
Specifications.
3.6 Assignment of Construction Contract. An Assignment of Construction
Contract assigning to the Bank the Borrower's interest in the contract(s) with
the general contractor and/or construction manager for the Project
(collectively, the "Construction Contract").
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3.7 Assignment of Project Permits. An Assignment of Project Permits
assigning to the Bank the Borrower's interest in the governmental permits issued
for the Project.
3.8 Unlimited Guaranty. The unlimited and unconditional guaranty (the
"Guaranty") of the Guarantor, guaranteeing repayment of the Loan, and the
Borrower's obligations under this Agreement and the Security Instruments
securing the Note.
4. CONDITIONS TO CLOSING. The Bank shall close the Loan (but shall not be
obligated to make any advance for construction costs unless and until the
Borrower has complied with all other provisions of this Agreement), subject to
the fulfillment to the satisfaction of the Bank of the following conditions and
all other applicable terms of this Agreement and the Loan Documents:
4.1 Title Insurance. The Bank shall have received a commitment for title
insurance policy issued by a title company satisfactory to the Bank, dated the
date of this Agreement and satisfactory in substance and form to the Bank and
its counsel, stating that (a) the leasehold title to the Mortgaged Property is
vested in the Borrower, and (b) insuring the interest of the Bank under the
Mortgage as a holder of first priority leasehold mortgage on the Mortgaged
Property with no exceptions other than (i) a lien for real estate taxes not yet
due and payable, and (ii) such other exceptions acceptable to the Bank and its
counsel.
4.2 Survey. The Bank shall have received two (2) copies of a survey and
legal description (including a metes and bounds description) of the Mortgaged
Property together with an A.L.T.A. certification and a Surveyor's Report,
satisfactory in substance and form to the Bank and the title insurer, showing
all easements, encroachments, rights-of-way, roads, alleyways, paths, and set-
backs and such other matters as revealed by inspection and survey of the
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Mortgaged Property, and shall clearly indicate all monuments and other controls
relied upon by the surveyor (the "Survey"). All of the foregoing shall be
sufficient to delete the standard survey exception in the commitment for title
insurance provided for in Subsection 4.1 hereof.
4.3 Plans and Specifications. The Bank shall have received the Plans and
Specifications together with any and all changes made to the date of the
advance, together with such evidence as the Bank may require showing that such
Plans and Specifications have been approved by all governmental authorities
having or claiming jurisdiction thereover, which Plans and Specifications shall
be satisfactory and have the written approval of the Borrower and the Bank. No
material modification of said Plans and Specifications shall be effective unless
the Bank shall consent in writing thereto.
4.4 Supervisory Inspector's Review and Report. The Supervisory Inspector
appointed by the Bank as provided in Section 12 hereof shall review all Plans
and Specifications, and any other relevant material related to the Project,
prior to the making of the first advance. The Bank shall have received the
written opinion of the Supervisory Inspector satisfactory to the Bank with
regard to: (i) general completeness of the Plans and Specifications, (ii)
sufficiency of the design criteria, (iii) compliance with all applicable
Building Codes, Zoning Regulations and other laws requiring governmental permits
for the development or construction of the Project, (iv) adequacy of the
structural, electrical and mechanical systems for the Project, (v) adequacy of
the construction schedule, the Construction Contract, major subcontracts and any
agreements with the architect(s) and engineer(s) or record for the Project, (vi)
adequacy of the final construction hard costs budget and proposed trade payments
schedule for the Project submitted by or on behalf of the Borrower, (vii)
adequacy of the survey, plot plan, and soil report provided by or on
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behalf of Borrower along with the Plans and Specifications and (viii) the
Supervisory Inspector's satisfaction that the projected construction costs are
in line with market conditions.
4.5 Security Instruments. The Bank shall have received the fully executed
Security Instruments described in Section 3 hereof.
4.6 Proof of Corporate Action. The Bank shall have received certified
copies of all corporate organizational documents and all corporate action taken
by the Borrower and Guarantor to authorize the execution and delivery of this
Agreement, the Note and the borrowing and guaranteeing hereunder, and such other
papers as the Bank shall reasonably request.
4.7 Subordination of Shareholders' Loans. All shareholders shall have
executed and delivered to the Bank a subordination agreement, satisfactory in
form and substance to the Bank and its counsel, subordinating their shareholder
loans, if any, to the Loan.
4.8 Insurance. The Bank shall have received from the Borrower the
following policies of insurance procured through agencies licensed to do
business in the U.S. Virgin Islands, from insurance companies which shall be
financially sound, reputable and satisfactory to the Bank:
(a) Upon Completion of the Project (as defined in Section 7 hereof),
insurance coverage with respect to the improvements comprising the Mortgaged
Property providing for payment to the Bank as mortgagee/loss payee against loss
or damage by fire, earthquake, windstorm and other risks now embraced by the so-
called broad form extended coverage endorsement, in amounts not less than the
full insurable value of the improvements.
(b) Until Completion of the Project (as defined in Section 7 hereof),
insurance coverage providing for payment to the Bank as mortgagee/loss payee
against the risk of fire,
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windstorm, earthquake with extended coverage endorsements in Builder's Risk
Completed Value Non-reporting form with limits of not less than the full
insurable value of the improvements being built on the Mortgaged Property.
(c) Comprehensive General and Excess Liability Insurance coverage,
including employer's liability "stop-gap", personal injury, hired and no-owned
automobiles, products/completed operations, independent contractors (if any),
blanket liability broad form, property damage and personal injury, in form,
amount and coverage satisfactory to the Bank and its counsel.
(d) Appropriate workers' compensation insurance in respect of any work
on or about the Property in accordance with U.S. Virgin Islands law.
(e) If it is determined from the National Flood Insurance Report that
the Mortgaged Property is located in a designated flood prone area, Federal
Flood Insurance naming the Bank as mortgagee/loss payee up to the maximum amount
available covering such premises.
(f) Such other insurance with respect to the Mortgaged Property in
such amounts and against such insurable hazards as the Bank from time to time
may reasonably require.
(g) The foregoing insurance policies shall provide that they may not
be canceled, or the amount(s) of coverage provided reduced, for any reason until
not less than thirty (30) days written notice shall have been give to the Bank
of the insurance company's intention to cancel or reduce the amount(s) of
coverage provided under such policy or policies during which time the Borrower
shall replace said policy or policies with new, substitute or successor policies
to comply with the requirements of this Subsection 4.8.
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4.9 Loan Fees. The Bank shall have received from the Borrower the
Commitment Fee in the amount of TWENTY THOUSAND DOLLARS ($20,000.00) and the
Application Fee in the amount of ONE HUNDRED FIFTY DOLLARS ($150.00).
4.10 Taxes and Permits. The Bank shall have received copies of all site
development, construction and similar permits required in connection with the
initial construction of the Project together with evidence that all fees for
such permits have been paid. The Bank shall have received such written evidence
as it may require that all applicable taxes, due or past due have been paid. The
Bank shall have received a Certificate of Real Property Tax Status from the
Treasury Division, Department of Finance, showing that there are no taxes owed
on the Mortgaged Property, together with copies of the paid receipts for the
1992, 1993, 1994 and 1995 real property taxes.
4.11 Cost Breakdown - Construction Schedule. The Bank shall have received
from Borrower a projected development and construction cost breakdown,
satisfactory to the Bank in form and substance, specifying in reasonable detail
projected amounts to be payable for each category of work to be performed and
materials to be supplied in connection with the development and construction of
the Project, along with a projected schedule for the progress of such
construction (the "Construction Cost Breakdown and Schedule").
4.12 Draw Schedule. The Bank shall have received from Borrower a draw
schedule satisfactory to the Bank.
4.13 List of Contractors and Materialmen. The Bank shall have received
from Borrower a list of contractors and materialmen intended by the Borrower to
perform work or supply materials in connection with the development and
construction of the Project, together
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with conformed copies of the fully executed Construction Contract and
subcontracts for such work and material in form and substance satisfactory to
the Bank.
4.14 Landlord's Consent to Assignment of Lease. The Bank shall have
received a validly executed Consent to Assignment of Lease from the Lessor,
satisfactory in form and substance to the Bank and its counsel, consenting to
the Borrower's execution and recording of the Assignment of the Lease.
4.15 Landlord's Consent to Mortgage, Assignment of Subleases and Rents and
Estoppel Certificate. The Bank shall have received a validly executed Consent to
Mortgage, Assignment of Subleases and Rents and Estoppel Certificate from the
Lessor, satisfactory in form and substance to the Bank and its counsel,
consenting to the Borrower's execution and the recording of the Mortgage and the
Assignment of Subleases and Rents and stating that the Borrower is not in
default under the terms of the Lease.
4.16 Lease Memorandum. The Bank shall have been provided with a lease
memorandum, in recordable form, describing the provisions of the Lease, which
provisions shall include the term of the Lease, which, including any options to
extend, shall be for a period of not less than the life of the Loan.
4.17 Approval of Bank Counsel. All legal matters incident to the
transactions hereby contemplated shall be satisfactory to counsel for the Bank.
4.18 Opinion of Counsel for Borrower and Guarantor. The Bank shall have
received from counsel for the Borrower and Guarantor a favorable opinion dated
the same date hereof addressed to the Bank and satisfactory in scope, form and
substance to the Bank and its counsel, covering the following matters:
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(a) Borrower. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the U.S. Virgin Islands, has the
legal capacity and authority to own real property and other property to the
extent required to properly and adequately conduct its business and that no part
of this transaction violates any restriction, term, condition or provision of
the Borrower's Articles of Incorporation or its Bylaws.
(b) Guarantor. The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington and has
the legal capacity and authority to own real property and other property to the
extent required to properly and adequately conduct its business and that no part
of this transaction violates any restriction, term, condition or provision of
the Guarantor's Articles of Incorporation or Bylaws.
(c) Loan Agreement. This Agreement has been duly executed and
delivered by the Borrower and Guarantor and constitutes a legal, valid and
binding instrument except as may be limited by bankruptcy, insolvency,
moratorium, reorganization and similar laws generally affecting the rights of
creditors.
(d) Note. The Note has been duly executed and delivered by the
Borrower and constitutes a legal, valid and binding instrument, enforceable in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
moratorium, reorganization and other laws generally affecting the rights of
creditors.
(e) Security Instruments. The Security Instruments have been duly
executed and delivered by the Borrower and Guarantor and constitute legal, valid
and binding instruments, enforceable in accordance with their terms, except as
may be limited by bankruptcy, insolvency, moratorium, reorganization and other
laws generally affecting the rights of creditors.
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(f) Remedies. The remedies contained within all the Loan Documents are
effective under the laws of the U.S. Virgin Islands in order to expedite the
collection of the Loan and/or foreclosure upon default under the terms of the
Loan Documents.
4.19 Other Documentation. The Bank shall have received from the Borrower
such other items and documents required to be provided by the Borrower as may be
set forth on the Closing Agenda utilized by the Bank and the Borrower to close
the Loan, but not otherwise specifically referred to herein.
5. ADDITIONAL CONDITIONS OF LOAN ADVANCES FOR CONSTRUCTION COSTS. The Bank
shall make advances on the Loan and under the Note for construction costs,
subject to the fulfillment to the satisfaction of the Bank of the following
conditions and all other applicable terms of this Agreement and the Loan
Documents:
5.1 In General. Subject to the Borrower's compliance to the Bank's
satisfaction with the terms and conditions set forth in Section 5 and any and
all other applicable terms and conditions in this Agreement and the Loan
Documents and provided that no event of default (as defined in Section 10
hereof) shall have occurred and be continuing, the Bank shall make advances on
the Loan for construction costs upon not less than three (3) business days prior
written notice from the Borrower to the Bank, on standard A.I.A. Application for
Payment G-702 and G-703 forms, not more frequently than monthly, and in amounts
not less than Twenty Five Thousand Dollars ($25,000.00) each, in accordance with
the draw schedule approved by the Bank. All advances shall be made at the
principal office of the Bank or at such other place as the Bank may from time to
time designate. The Bank shall have no obligation to make a requested
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advance unless and until the Borrower has complied to the satisfaction of the
Bank and its counsel with all applicable terms and conditions of this Agreement.
(a) Amount of Advances. In the case of advances under the Loan with
respect to construction items, said advances shall be comprised as the total sum
of:
(i) the aggregate value of the class of work (including labor)
projected for the ensuing month, to the reasonable satisfaction
of the Bank; plus
(ii) reimbursement for non-construction expenditures as categorized
in the budget; plus
(iii) the aggregate value of the materials and equipment incorporated
into the work to the reasonable satisfaction of the Bank, or
ordered, with deposits placed, or stored on the Mortgaged
Property and insured; less
(iv) the amount of prior advances;
for purposes of Subparagraphs (i) and (iii) above, "value" shall be computed
substantially in accordance with the amounts assigned thereto in the
Construction Cost Breakdown and Schedule or other schedule of payments as shall
have been approved by the Borrower and the Bank, provided however, that if there
has not been a Construction Cost Breakdown and Schedule or other schedule of
payments agreed upon and approved by the Borrower and the Bank, said values
shall be determined by the Bank in its discretion.
(b) Non-Construction Expenses. Reimbursement for non-construction
expenditures ("soft costs") shall not exceed the sums allocated to such purpose
in the draw schedule approved by the Bank and shall be based upon requisitions
for expenditures as approved by the Bank's Supervisory Inspector.
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5.2 Draw Fee and Wire Transfer Fee. The Bank shall have received a draw
fee equal to one-eighth of one percent (1/8%) of the amount advanced, which
shall be due and payable at the time of the advance by debit from the amount
advanced. The Borrower shall pay one-half of any Bank wire transfer fees
associated with each advance.
5.3 Permits. The Bank shall have received copies of all building and
similar permits required in connection with the then current stage of
construction of the Project together with evidence that all fees for such
permits have been paid.
5.4 Work in Place. The Bank shall have received a report from its
Supervisory Inspector as to the value of the work in place (including the fair
market value of the Mortgaged Property).
5.5 Certificate From Supervisory Inspector. Once each week during the term
of the Project, the Bank shall have received a written report from its
Supervisory Inspector that the work completed as of such date complies with the
Plans and Specifications, as they may have been amended in compliance with this
Agreement, and that such work has been performed in a good and workmanlike
manner, and that all materials, supplies and fixtures usually furnished and
installed at such stage of the Project have been furnished or installed and are
of appropriate quality and that the Construction Cost Breakdown and Schedule has
been adhered to, and any other pertinent aspects of the Project which, in his
opinion, should be known to the Bank. Borrower shall reimburse the Bank for all
fees paid for each inspection trip performed by the Supervisory Inspector.
5.6 Title Insurance. The Bank shall have received an endorsement to the
title insurance policy referred to in Subsection 4.1, which endorsement shall
indicate that the title
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company has continued its title examination to the date of the contemplated
advance and that such examination has disclosed no lien, encumbrance or other
exception to the title other than those previously reported to and approved by
the Bank, shall insure to the extent of all previous advances and shall insure
the contemplated advance.
5.7 Surveyor's Certificate. The Bank shall have been furnished with two
copies of a certificate prepared by a licensed land surveyor (satisfactory to
the Bank and the title company and authorized to exercise his profession in St.
Thomas, U.S. Virgin Islands), certifying that the location of the improvements
to date are within the boundaries of the Mortgaged Property and established
building setback lines, if any, as shown on the Survey provided in connection
with the first advance, and disclosing no other state of facts which, in the
opinion of the Bank, would render title to the Mortgaged Property unmarketable;
provided, however, that after the construction of the foundations of all
buildings to be erected on the Mortgaged Property have been completed, an
updated survey shall have been furnished showing the "as built" location of the
foundations of the buildings, and thereafter the condition set forth in this
Subsection shall be satisfied if the Bank shall have been furnished with a
certificate of the licensed surveyor who shall have prepared such survey or such
other licensed surveyor satisfactory to the Bank and the title company, stating
that there have been no changes in the exterior lines of the improvements as
shown on the survey furnished in connection with the first advance and that
there is no encroachment over the Mortgaged Property or by any part of the
improvements over the boundary lines or any established building setback line of
the Mortgaged Property.
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5.8 Borrower's Contribution to Project. The Borrower shall have provided
the Bank with satisfactory proof of Borrower's contribution of a minimum of
$1,000,000.00 towards the hard costs of construction associated with the
Project.
6. INSPECTION. The Borrower shall permit any authorized representative
designated by the Bank to inspect the Borrower's books and records pertaining to
the Mortgaged Property or the Project, and to make extracts therefrom and to
discuss the affairs, finances and accounts of the Borrower, all at such
reasonable times and as often as may reasonably be requested and at the
Borrower's expense. The Bank or its representative shall be permitted, at all
reasonable times, to enter upon the Mortgaged Property, inspect the Project and
the construction thereof and all materials, fixtures and articles used or to be
used and to examine all detailed plans, shop drawings, specifications,
construction agreements and documents. The Borrower shall furnish to the Bank,
or its authorized representative, when requested, copies of such plans,
drawings, specifications, construction agreements and documents.
7. FINAL ADVANCE. When the Bank has determined to its satisfaction that
the Project has been substantially completed in accordance with the Plans and
Specifications (including all amendments and modifications thereof which have
been approved by the Bank) in a good and workmanlike manner and in conformity
with good construction and engineering practice, and the Bank shall have
received (a) a certificate to that effect from its Supervisory Inspector, (b)
evidence satisfactory to the Bank that all work requiring inspection by
governmental or regulatory authorities having or claiming jurisdiction has been
duly inspected and approved by such authorities and by any rating or inspection
organization, bureau, association or office having or claiming jurisdiction, (c)
to the extent any such certificate is a
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condition of the lawful use and occupancy of the improvements, a copy of the
Certificate of Occupancy validly issued by the appropriate governmental
authority, (d) two copies of a final survey showing the "as built" conditions of
the completed Project which survey shall be made in a manner and scope similar
to that described in Subsection 4.2 above, (e) a current and updated appraisal
showing an estimated value satisfactory to the Bank as set forth in Subsection
8.9, and (e) a final release of liens from the Contractors and all
subcontractors and materials suppliers (all of the foregoing being defined
herein as "Completion of the Project"), and so long as the Borrower is not in
default hereunder, the Bank shall advance to the Borrower the proceeds of the
Note which have not theretofore been disbursed. If the conditions of this
Section have not been fully satisfied, the Bank shall have no obligation to make
the final advance under the Loan.
8. AFFIRMATIVE COVENANTS. The Borrower agrees that so long as credit shall
remain available hereunder and until payment in full of the Note, and
performance of all of the Borrower's covenants and other obligations under this
Agreement are satisfied, unless the Bank shall otherwise consent in writing, the
Borrower will:
8.1 Payment of Taxes. Pay and discharge, or cause to be paid and
discharged, all taxes, assessments and governmental charges or liens imposed
upon the Borrower or upon the income or profits of the Borrower, or upon any
property belonging to the Borrower prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon the property of the Borrower; provided that the Borrower shall not be
required to pay any such tax, assessment, charge, levy or claim the payment of
which is being contested in good faith and by proper proceedings and so long as
Borrower furnishes the Bank,
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immediately upon such tax, assessment, charge, levy or claim becoming overdue,
notice of that which Borrower intends to contest.
8.2 Real Property Taxes. Pay or cause to be paid all real property taxes
on the Mortgaged Property and submit to the Bank evidence of such payments.
8.3 Insurance. Maintain, or cause to be maintained, the insurance coverage
specified in Subsection 4.8 above.
8.4 Notice of Litigation. Promptly give notice in writing to the Bank of
any material contingent liability of the Borrower and of all litigation and of
all proceedings by or before any governmental regulatory agency, against or
affecting the Borrower, where the amount in controversy exceeds $100,000.00 or
which, if adversely determined, would otherwise have a material adverse effect
on the financial condition or business of the Borrower.
8.5 Loan Proceeds. Apply proceeds of the Loan for the specific purposes
provided for herein.
8.6 Subordination of Loans. Subordinate all existing and future
shareholders' loans and/or advances to the Loan; provided that the Borrower may
make routine installment payments under such shareholders' loans so long as (a)
the Borrower is not in default hereunder, and (b) interest on any such
shareholders' loans does not exceed the interest rate charged on the Note,
provided, however, that any shareholders' loans existing as of the date hereof
may exceed the interest rate charged on the Note up to their current interest
rate of 9.18%.
8.7 Financial Statements. Furnish the Bank (1) within ninety (90) days
after the end of each fiscal year of the Borrower and Guarantor, (a) audited
financial statements of the Guarantor and its subsidiaries as of the close of
such fiscal year, and (b) financial statements of
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the Borrower as of the close of such fiscal year, prepared in such manner as is
acceptable to the Bank, which financial statements may be unaudited and prepared
internally by the Borrower, and (c) the income tax returns of Borrower and
Guarantor, and (2) such other information regarding the business affairs and
financial condition of the Borrower and Guarantor as may be requested by the
Bank, at such times, and prepared in such manner and by such persons as are
acceptable to the Bank.
8.8 Deposits. Maintain all direct and indirect depository accounts of the
Borrower with the Bank.
8.9 Appraisal. Upon Completion of the Project, provide the Bank with an
appraisal report, in form and substance satisfactory to the Bank, indicating
that the Mortgaged Property with improvements has a value of not less that
$3,000,000.00.
8.10 Debt Service Ratio. Maintain a debt service coverage ratio of 1.5,
which ratio shall be the sum of operating income and depreciation less
royalties, divided by the sum of the current portion of long term debt and
interest expense.
8.11 Environmental Compliance. Be and remain in compliance with the
provisions of all federal, territorial, and local environmental, health, and
safety laws, codes and ordinances, and all rules and regulations issued
thereunder; notify the Bank immediately of any notice of a hazardous discharge
or environmental complaint received from any governmental agency or any other
party; notify the Bank immediately of any hazardous discharge from or affecting
the Mortgaged Property; immediately contain and remove the same, in compliance
with all applicable laws; promptly pay any fine or penalty assessed in
connection therewith; and at the Bank's request, and at the Borrower's expense,
provide a report of a qualified environmental
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engineer, satisfactory in scope, form, and content to the Bank, and such other
and further assurances reasonably satisfactory to the Bank that the condition
has been corrected.
8.12 Inspection and Maintenance. Allow the Bank or its duly authorized
representatives to inspect the books, records, assets, property, and operations
of the Borrower at any reasonable time on reasonable notice and maintain said
books, records, assets, property and operations of the Borrower to the
satisfaction of the Bank.
8.13 Licenses. Obtain and promptly renew from time to time all consents,
licenses, approvals and authorizations as may be required under any applicable
law or regulation for the Project and the Borrower's business operations and for
the making, performance, validity and enforceability of the Security
Instruments.
8.14 Workers' Compensation. Pay or cause to be paid to the Commissioner of
Finance workers' compensation premiums for all employees of the Borrower, and
submit to the Bank upon payment evidence of said payments and insurance
coverage.
8.15 Vouchers and Receipts. Provide the Bank promptly on demand any
contracts, bills of sale, statements, receipts, vouchers or agreements pursuant
to which the Borrower has any claim of title to any materials, furniture,
fixtures or other articles delivered or to be delivered to the Mortgaged
Property or incorporated or to be incorporated into the Project.
8.16 Payments for Labor and Materials. Pay when due all bills for
materials supplied (including without limitation furniture and fixtures) for,
and for services of labor performed in connection with, the Project, and provide
the Bank promptly on demand a verified written statement, in such form and with
such detail as the Bank may require, showing all amounts paid
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and unpaid for labor and materials and all items of labor and materials to be
furnished for the Project for which payment has not been made and the amount to
be paid therefor.
8.17 Loan to Value Ratio. Maintain a loan-to-value-ratio of not more than
70% of the value of the Mortgaged Property.
8.18 Publicity. Allow the Bank to announce and publicize the source of the
financing of the Project in such manner as the Bank may elect and at the Bank's
expense, including without limitation the placement of a sign for display on the
Property, and the Borrower shall provide a prominent and suitable location for
the display of such sign for the duration of the Project or until the Loan has
been repaid in full, whichever shall first occur.
9. NEGATIVE COVENANTS. The Borrower hereby agrees that so long as credit
shall remain available hereunder and until payment in full of the Note, and all
other credit advanced by the Bank to the Borrower, without the prior written
consent of the Bank, Borrower will not:
9.1 Limitation of Liens to Secure Indebtedness. Sell, mortgage, pledge,
hypothecate, assign, transfer, suffer to exist, or voluntarily subject to any
lien or encumbrance to secure any indebtedness, the Mortgaged Property or the
assets used or useful in connection with the Project or the Borrower's business
located or to be located on the Mortgaged Property (the "Borrower's Business"),
now owned or hereafter acquired, excluding, however, from the operation of this
covenant, the Loan hereunder, other loans made by the Bank, insurance premium
financings and the liens of NCR Credit Corp. under UCC-l Financing Statement
C-2054 filed July 19, 1997, and any continuation of such UCC-l Financing
Statement.
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<PAGE>
9.2 Limitation of Construction and Other Liens. Allow to exist any
mechanics lien or similar encumbrance in respect to work performed by any
contractor, subcontractor or workman of any sort or any other lien as would
preclude the Bank from obtaining recognition by the title insurance company of
its valid first priority leasehold mortgage on the Property.
9.3 Limitation on Indebtedness. Create or incur any indebtedness or
obligation for borrowed money or issue or sell any obligations of the Borrower,
excluding, however, from the operation of this covenant, the Loan hereunder,
other loans made by the Bank and subordinated shareholders' loans.
9.4 Contingent Liabilities. Assume, guarantee, endorse or otherwise become
liable upon the obligations of any person, firm, partnership, corporation or any
other entity except by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
9.5 Consolidation or Merger. Merge into or consolidate with or into any
other corporation, partnership or business entity. For the purposes of this
Subsection 9.5, the acquisition by the Borrower of all or substantially all of
the assets, together with the assumption of all or substantially all of the
obligations and liabilities, of any other corporation or entity shall be deemed
to be a consolidation of such corporation or entity with the Borrower.
9.6 Disposition of Assets. Lend, sell, lease, transfer or otherwise
dispose of any of the assets of the Borrower (other than obsolete or worn-out
property not used or useful in its business), whether now owned or hereafter
acquired, except in the ordinary and regular course of the Borrower's Business.
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<PAGE>
9.7 Capital Expenditures. Incur capital expenditures in excess of
$50,000.00 annually, without the prior written approval of the Bank.
9.8 Dividends and Distributions. Declare or pay any dividends or authorize
or make any other distribution of any profits or other revenues of the Borrower
to any shareholder or third person in excess of $360,000.00 per annum, except as
may be required to service approved shareholder loans or to fund such payments
as are made out of surplus revenues, provided that such excess distributions
shall not be allowed at any time that Borrower is in default hereunder.
9.9 Capital Stock/Treasury Stock. Purchase, acquire, redeem or retire any
capital stock of the Borrower, or issue any further capital stock or permit the
sale of any treasury stock of the Borrower.
9.10 Change in Borrower's Business. Effect, cause or permit any change in
the Borrower's Business.
9.11 Change in Stock Ownership. Effect, cause or permit any change in the
ownership of Borrower or in the beneficiary or legal ownership of any shares in
Borrower, except by descent or demise or through an approved dividend
reinvestment plan.
9.12 Amendment to Articles or Bylaws. Amend the Borrower's Articles of
Incorporation or Bylaws.
10. DEFAULT. The occurrence of any of the following events shall
constitute a default under this Agreement:
(a) if the Borrower or Guarantor is in default under any of the terms
of this Agreement, the Note, the Mortgage, or any of the Security Instruments;
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(b) if the Borrower shall default in the due payment of the principal
of or interest on the Note, or of any other indebtedness, which term shall mean
any obligation or liability for borrowed money, owing by the Borrower to the
Bank now existing or hereafter incurred, when the same shall be due;
(c) if the Bank shall not approve of any requested payment because of
any lien or encumbrance (other than a construction lien, notice of which has
been filed and which is being contested pursuant to the Mortgage) which might
have priority over any advances made or to be made hereunder or because of any
structural or other defect with respect to the Project which materially impairs
the value of the security for the advances made or to be made hereunder;
(d) if the Borrower does not construct the Project in a good and
workmanlike manner in accordance with the Plans and Specifications as they may
have been modified or changed in compliance with this Agreement; or fails to
comply promptly with, or diligently proceed with compliance with, any
requirement, note or notice of violation of law issued by or filed in any
department of any governmental authority having jurisdiction, against the
Mortgaged Property or against the Borrower by reason of any material matter in
or about such construction, or fails to furnish to the Bank, when requested,
copies of official inquiries made by governmental authorities having
jurisdiction;
(e) if the Project be at any time discontinued for a period of more
than 30 consecutive days, or not carried on with reasonable dispatch, except for
Enforced Delays (the term "Enforced Delays" meaning delays in the performance of
Borrower's obligations due to unforeseeable causes beyond its control and
without its fault or negligence, including, without limitation, Acts of God,
acts of the public enemy, acts of the federal, territorial, or local
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<PAGE>
government, fires, floods, strikes and unusually severe weather or delays of
Trade Contractors due to such causes, but excluding delays caused by the
Borrower's lack of funds to continue or complete the Project);
(f) if the Borrower executes any conditional bill of sale, chattel
mortgage, or other security agreement, except the Security Instruments, covering
any materials, fixtures or articles used in the Project, or articles of personal
property placed therein, or if any of such materials, fixtures or articles be
not purchased so that the ownership thereof will vest unconditionally in the
Borrower, free from encumbrance, on delivery at the premises, or if the Borrower
does not produce to the Bank promptly after demand the contracts, bills of sale,
statements, receipt vouchers or agreements, or any of them, under which the
Borrower claims title to such materials, fixtures and articles;
(g) if the Borrower assigns this Agreement or any of the advances or
any interest therein, or Borrower's right to receive any advance or portion
thereof; or if the Mortgaged Property be transferred or encumbered in any way
without the consent of the Bank, or if the Borrower by operation of law shall be
deprived of Borrower's rights hereunder or in the Mortgaged Property;
(h) if any improvements or any portion thereof shall encroach over the
boundary lines or any established building setback lines of the Mortgaged
Property or violate the requirement of any governmental authority having
jurisdiction, or if any structure on adjoining property shall encroach upon the
Mortgaged Property;
(i) if the improvements, in the judgment of the Bank, be materially
injured or destroyed by fire or other cause and not have been promptly repaired
or restored;
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<PAGE>
(j) any representation or warranty made by the Borrower or Guarantor
in connection with the Loan proves to have been incorrect in any material
respect as of the date of this Agreement or as of the date on which it is made,
or any statement, certificate or data furnished by the Borrower or Guarantor
proves to have been incorrect in any material respect as of the date when the
facts therein set forth were stated or certified;
(k) a judgment for the payment of money shall be rendered against the
Borrower or Guarantor and any such judgment shall remain unsatisfied and in
effect for any period of sixty (60) consecutive days without a stay of
execution;
(1) the Borrower or Guarantor shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of the Borrower or Guarantor or
of all or a substantial part of the assets of the Borrower or Guarantor, (ii) be
unable, or admit in writing, the inability to pay debts as they mature, (iii)
make a general assignment for the benefit of creditors; (iv) be adjudicated a
bankrupt or insolvent, or (v) file a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization or an arrangement with creditors or
to take advantage of any insolvency law or an answer admitting the material
allegations of a petition filed against the Borrower or Guarantor in any
bankruptcy, reorganization or insolvency law or an answer admitting the material
allegations of a petition filed against the Borrower or Guarantor in any
bankruptcy proceeding, reorganization or insolvency proceeding, or corporate
action shall be taken by the Borrower or Guarantor for the purpose of effecting
any of the foregoing;
(m) if an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or Guarantor, by any court of
competent jurisdiction, appointing a receiver, trustee or liquidator of all or a
substantial part of the assets of the Borrower
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<PAGE>
or Guarantor, and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) consecutive days;
(n) if the Bank or the Bank's representative be not permitted, at all
reasonable times, to enter upon the Mortgaged Property, to inspect the
improvements and the construction thereof and all materials, supplies, chattels,
fixtures, machinery and equipment used or to be used in the construction and to
examine all detailed plans, shop drawings and specifications which are or may be
kept at the site of the improvements, or if the Borrower shall fail to furnish
to the Bank or the Bank's authorized representative, when requested, copies of
such detailed plans, shop drawings and specifications;
(o) if any of the materials, supplies, chattels, fixtures, machinery
or equipment used in the construction of the improvement or appurtenances
thereto or to be used in the operation thereof be not in accordance with the
Plans and Specifications as approved by the Supervisory Inspector and the Bank,
unless any substitutions therefor or variations therein have been waived or
approved in writing by said parties;
(p) the financial condition of the Borrower or Guarantor, or the
physical condition of the Mortgaged Property, shall adversely change in any
material respect from the condition of any of the foregoing represented in the
information and documentation submitted by the Borrower in support of its
application for the Loan; or
(q) the Borrower shall default under the Lease.
11. REMEDIES
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<PAGE>
11.1 Remedies Without Period of Grace. Upon the occurrence of an event
specified in Section 11, the Bank shall have, in addition to the rights
otherwise existing, the following rights and remedies:
(a) Refusal of Advances. All obligation on the Bank's part to make the
Loan or to make any advances shall be suspended, if the Bank so elects.
(b) Payment of Advances. The Bank may make any advance, if it deems it
advisable so to do, or may postpone or defer any advance or parts thereof. All
such advances or postponements or deferrals thereof shall be deemed to have been
made in pursuance of this Agreement and not in modification hereof. The Bank may
make any such advance, notwithstanding that the Borrower shall have refused to
request the same, such advance to be based upon work completed and costs
incurred since the time of the last previous advance. The making of any advance
or part thereof shall not be deemed an approval or an acceptance by the Bank of
the work theretofore done, and election to make any such advance shall not be
deemed a waiver of the right to demand payment of the Note, or an obligation to
make any other advance. The Bank may, at its option, upon written notice to
Borrower pay all or any part of any advance directly to any person, firm or
corporation whom the Borrower would otherwise be obligated to pay out of the
proceeds of such advance.
(c) Default Rate. For so long as such event of default shall continue,
the Loan shall accrue, and the Borrower shall pay to the Bank, interest at the
Default Rate.
11.2 Remedies After Period of Grace. Upon the occurrence of an event
specified in Section 10, and after the ten (10) days written notice thereof from
the Bank to the Borrower, the Bank shall have, in addition to the rights
specified in Subsection 11.1 hereof and any rights
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otherwise existing, the following rights and remedies: all sums theretofore
advanced with all accrued interest thereon shall at the option of the Bank
become immediately due and payable, or, without waiving the Bank's rights at any
time thereafter to elect to declare all sums advanced with all accrued interest
to be due and payable, the Bank may undertake to perform any and all work and
labor necessary to complete the Project in accordance with the Plans and
Specifications as they may have been amended in compliance with this Agreement
and make such payments as may be required by this Agreement, the Mortgage or
other Security Instruments. All sums so expended by the Bank, including any
amount in excess of the principal amount of the Note, shall be deemed to have
been paid to the Borrower and deemed to be secured by the Mortgage and the other
Security Instruments. For this purpose, the Borrower hereby constitutes and
appoints the Bank its true and lawful attorney-in-fact with full power of
substitution to complete the work in the name of the Borrower, and hereby
empowers such attorney (i) to use any funds of the Borrower, including any funds
which may remain unadvanced under the Note and hereunder for the purpose of
continuing the Project in the manner called for by the Plans and Specifications,
as they may have been amended in compliance with this Agreement, or paying,
settling or compromising all existing bills and claims which are or may be liens
against the Mortgaged Property, or as may be necessary or desirable for the
continuation of the work, or for the clearance of title, or paying, for the
account of the Borrower, any amounts payable by the Borrower under this
Agreement, the Mortgage or other Security Instruments; (ii) to make such
additions and changes and corrections in the Plans and Specifications as may be
necessary or desirable to complete the Project; (iii) to employ such
contractors, subcontractors, agents, architects and inspectors as shall be
required for such purpose; and (iv) to execute all applications
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and certificates in the name of the Borrower which may be required by any of the
contract documents and to do any and every act which the Borrower might do in
its own behalf. Such appointment shall be deemed to be coupled with an interest
which cannot be revoked. Such attorney-in-fact shall also have power to
prosecute and defend all actions or proceedings in connection with the Mortgaged
Property and to take such action and require such performance as it deems
necessary. The Borrower hereby assigns and quitclaims to the Bank all sums to be
advanced under the Note and hereunder (together with any interest in respect
thereof), conditioned upon the use of such sums as provided in this Section,
such assignment to become effective, however, only in case of the Borrower's
default.
11.3 Forbearance of Remedies Upon Default. The Bank will not exercise any
right, power or remedy with respect to any default hereunder until the
expiration of any grace period provided with respect thereto. The Bank will not
exercise any right, power or remedy described in Subsection 11.2 hereof, with
respect to the defaults, if the Bank shall have been provided with information
or evidence satisfactory to the Bank (i) that the default has been cured and
adequate compensation has been made for all damages occasioned by the default;
or (ii) that the Borrower intends to cure the default, so that the same can be
and will be cured expeditiously and in no event more than 30 days after the date
of such default (or such shorter time period as may be provided for herein, in
the Note or in the Security Instruments) or the date of the occurrence which
ripened into a default by passage of time, whichever shall first occur, and that
adequate provision has been made for any damage which might be occasioned by the
default. (Borrower's undertaking of a "Permitted Contest" as defined in and
pursuant to the terms of the Mortgage
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shall be deemed by the Bank as satisfactory evidence that the Borrower intends
to cure any such default).
12. SUPERVISORY INSPECTOR. The Borrower agrees to the appointment by the
Bank of TRACEY ROBERTS as the Bank's Supervisory Inspector and, in order to
enable the Supervisory Inspector and its representatives conveniently to perform
the Supervisory Inspector's duties to the Bank, agrees to cooperate with the
Supervisory Inspector and to cause the Borrower's architect and general
contractor, and the employees or subcontractors of each of them, to cooperate
with the Supervisory Inspector, and, upon its request, to furnish it whatever it
may consider necessary or useful in connection with the performance of its
duties aforesaid including, without limiting the generality of the foregoing,
true copies of working details, shop drawings and the Plans and Specifications
and details thereof, samples of materials, licenses, permits, relevant
certificates of public authorities, applicable zoning ordinances and building
codes. If the Supervisory Inspector shall be, or for any reason become,
disqualified or unable to continue to act as such, or if its services are
terminated, the Bank may appoint a successor Supervisory Inspector and any such
successor shall have the same duties to the Bank and shall be entitled to the
same cooperation as if it had originally been named herein as Supervisory
Inspector. The Borrower acknowledges that the duties of the Supervisory
Inspector run solely to the Bank, and that in such capacity the Supervisory
Inspector shall have no obligations or responsibilities whatsoever to the
Borrower or to any of the Borrower's agents, employees or contractors.
13. RELATIONSHIP OF PARTIES, INDEMNIFICATION. It is agreed between the
parties hereto that Borrower has selected or will select all architects,
engineers, contractors,
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materialmen, as well as all others furnishing services or materials for the
construction of the Project and the Bank has, and shall have, no responsibility
whatsoever for them or for the quality of their materials or workmanship, it
being understood that the Bank's sole function is that of lender and the only
consideration passing from the Bank to Borrower is the loan proceeds in
accordance with and subject to the terms of this Agreement. It is also agreed
that Borrower shall have no right to rely on any procedures required by the Bank
herein, such procedures being for the sole protection of the Bank as lender and
no one else. Borrower hereby agrees to hold and save the Bank harmless and
indemnify it against and from claims of any kind of any persons, including, but
without limiting the generality of the foregoing, employees of Borrower and
contractors constructing the Project and any of their respective employees, any
tenant of Borrower, any subtenant or concessionaire of any such tenant, and the
employees and business invitees of any such tenant, subtenant or concessionaire,
arising from or out of the construction, use, occupancy, or possession of the
Project in accordance with the Plans and Specifications so long as Borrower
shall remain in possession of the premises.
14. CHANGE OF PARTIES. The Borrower will not assign this Agreement or the
monies due hereunder or convey or further encumber the Mortgaged Property
without the prior written consent of the Bank; and in the event of any such
approved assignment, conveyance or encumbrance the Bank shall continue to make
advances hereunder to the Borrower or to the Borrower's successor or assignee,
and all sums so advanced shall be deemed advances under this Agreement and not
in modification hereof. In the event the Borrower shall part with or in any
manner be deprived of its leasehold interest to the Mortgaged Property in
violation of this Section, the Bank may, at its option, continue to make
advances under this Agreement and not in
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modification hereof. If the Borrower is in default under this Agreement, or as a
part of the sale, consolidation, liquidation or merger of the Bank, the Bank may
assign this Agreement and the Note and cause the assignee to make any advances
not made at the time of the assignment, in which event all of the terms hereof
shall continue to apply to the Loan, the Note, the Mortgage and the Security
Instruments. All sums so advanced shall be deemed advances under this Agreement
and not in modification hereof.
15. LOAN EXPENSES. The Borrower agrees to pay all reasonable expenses
(including legal expenses and attorneys' fees) payable in connection with the
execution and delivery of this Agreement and of the Note, and the Security
Instruments herein referred to, as well as all expenses (including legal
expenses and attorneys' fees) of every kind incidental to the collection or
enforcement of this Agreement, the Note and the other said Security Instruments;
and the Borrower shall indemnify the Bank against all reasonable claims for such
fees, charges and commissions arising in connection with the transaction
contemplated by this Agreement.
16. NO WAIVER; REMEDIES CUMULATIVE. No failure to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are not exclusive of any remedies provided by law.
17. ENTIRE AGREEMENT. The Borrower understands and agrees that this
Agreement, along with Security Instruments executed simultaneously herewith,
constitute the entire agreement of the parties with respect to the subject
matter hereof, and supersede any and all prior agreements, written or oral,
among the parties concerning the subject matter hereof
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(except that Commitment Letter dated August 25, 1997, and accepted August 28,
1997, as amended by an Addendum to Commitment Letter, accepted September 29,
1997, the terms and provisions of which are incorporated herein by this
reference and shall survive the closing of the Loan as set forth in Paragraph 16
of said Commitment Letter).
18. AMENDMENT TO LOAN AGREEMENT. This Agreement may not be changed orally,
but only by an agreement in writing signed by both parties to this Agreement.
19. WAIVER OF RIGHT TO TRIAL BY JURY. THE BORROWER AND GUARANTOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT EITHER OF THEM MAY
HAVE TO A TRIAL BY JURY WITH RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT AND THE LOAN DOCUMENTS, AND/OR ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BY
ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK'S PERFORMANCE
UNDER THIS AGREEMENT. FURTHER, THE BORROWER AND GUARANTOR HEREBY CERTIFY THAT NO
REPRESENTATIVE OR AGENT OF THE BANK, NOR THE BANK'S COUNSEL, HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. NO
REPRESENTATIVE OR AGENT OF THE BANK, NOR THE
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BANK'S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
20. MISCELLANEOUS.
20.1 Definitions. Any accounting term used herein shall, unless the
context otherwise specifies, be defined as most commonly defined in accordance
with generally accepted accounting principles.
20.2 Notice. Any notice required herein shall be deemed to have been
properly served if hand delivered or telecopied or if sent by United States
first class registered or certified mail, postage prepaid, return receipt
requested, addressed as follows (or at such other address as such party shall
have furnished to the other party in writing) if to the Borrower:
CULUSVI, Inc.
Attn: Allan C. Youngberg, Vice President
12410 SE 32nd Street
Bellevue, WA 98005
Telecopier No. 425-641-3383
and if to the Bank:
(BY U.S. MAIL)
Banco Popular de Puerto Rico
Attn: J. Arthur Downing,
Vice President
P.O. Box 8580
St. Thomas, U.S. Virgin Islands 00804
Telecopier No. 340-693-2782
(BY HAND DELIVERY)
Banco Popular de Puerto Rico
Attn: J. Arthur Downing,
Vice President
Veterans Drive
St. Thomas, U.S. Virgin Islands 00802
<PAGE>
20.3 Construction. This Agreement is being executed in and shall be
construed in accordance with the laws of the United States Virgin Islands.
IN WITNESS WHEREOF, the parties have caused these presents to be executed
as of the date first above written.
CULUSVI, INC., Borrower
By: /s/ Michael J. Rose
-------------------------------------
Michael J. Rose, President
(SEAL)
Attest: /s/ Allan C. Youngberg
---------------------------------
Allan C. Youngberg, Secretary
COST-U-LESS, INC., Guarantor
By: /s/ Michael J. Rose
-------------------------------------
Michael J. Rose, President
(SEAL)
Attest: /s/ Allan C. Youngberg
---------------------------------
Allan C. Youngberg, Secretary
BANCO POPULAR DE PUERTO RICO
By: /s/ J. Arthur Downing
-------------------------------------
J. Arthur Downing, Vice President
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EXHIBIT A
SURVEY PLAN AND METES AND BOUNDS DESCRIPTION
<PAGE>
[GRAPHIC APPEARS HERE]
[SEAL OF REGISTERED LAND SURVEYOR * U.S. VIRGIN ISLANDS]
<PAGE>
PROPERTY . TITLE . TOPOGRAPHIC. SUBDIVISIONS . LAND CONSULTANTS
BRIAN MOSELEY AND ASSOCIATES, INC.
DWG. NO. 3267-3A
August 27, 1997
Lease Area A of Parcel 1-2
Estate Donoe
No. 2 New Quarter
St. Thomas, US Virgin Islands
BOUNDARY DESCRIPTION:
Beginning at a point identified as N 185399.56 E 1030407.07, based on Puerto
Rico/US Virgin Islands Lambert Grid projection and common to parcel 1-2, the
line runs;
90 00' W a distance of 182.0' on parcel 1-2 to a point, thence
00 00' E a distance of 162.7' on parcel 1-2 to a point, thence
90 00' W a distance of 17.0' on parcel 1-2 to a point, thence
00 00' E a distance of 52.3' on parcel 1-2 to a point, thence
Northerly an arc distance of 24.8' on a right curve whose radius is 40.0' on
parcel 1-2 to a point, thence
Easterly an arc distance of 100.0' on a right curve whose radius is 492.6' on
parcel 1-2 to a point, thence
85 22' E a distance of 78.6' on parcel 1-2 to a point, thence
00 00' E a distance of 75.5' on parcel 1-2 to a point, thence
90 00' E a distance of 15.0' on parcel 1-2 to a point, thence
00 00' E a distance of 187.2' on parcel 1-2 to the point of origin.
Bearings are correlated to Lambert Grid.
The area is 46,538 sq. ft. / 1.068 acre.
Brian Mosely and Associates, Inc.
/s/ Brian M. Mosely
Brian M. Mosely, RLS #502
P.O. BOX 301710, ST. THOMAS, U.S. VIRGIN ISLANDS 00803-1710
(809) 774-5310
<PAGE>
Friday, April 03, 1998
LEASE AGREEMENT COMMERCIAL BUILDING
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THIS LEASE is made and entered into as of the day of
April ___, 1998, by and between:
1. Baroud Real Estate Development N.V. ("Landlord") a Netherlands- Antillean
Corporation based in Curacao, having its offices at Schottegatweg Oost # 82-84,
and
2. C.U.L. (Curacao) N.V., ("Tenant"), a Netherlands-Antillean Corporation based
in Curacao, having its offices at Pietermaai # 24
In consideration of the rents and mutual covenants set forth herein, Landlord
and Tenant agree as follows:
AGREEMENT
1. Premises
Landlord does hereby lease and demise to Tenant and Tenant does hereby lease
from Landlord under the terms and conditions set forth herein that certain real
property located at Jan Noorduynweg in Curacao, Netherlands Antilles, being part
of the lot number IX of the subdivision plan "Groot Piscadera" as this lot is
described in the official certificate of measurement number 556 of 1984, more
particularly described on EXHIBIT A attached hereto and incorporated herein,
together with the building of approximately 38,711 square feet to be constructed
in accordance with article 3 of this Lease and space for 150 parking stalls
("Premises").
2. Term
The term of this Lease shall be ten (10) years and shall commence thirty (30)
calendar days from the date on which Tenant receives a Certificate of
Completion executed by Landlord's architect, stating that the Premises have
been completed per specification proved by Tenant to Landlord.
The term of this Lease shall end at 6.00 p.m. on the date which is ten (10)
years from the Commencement Date, subject to the options to extend as set forth
in Section 5 of this Lease. The parties agree that when the Commencement Date
becomes certain, they shall complete and execute a supplement to this Lease to
reflect the actual Commencement Date. This supplement will be in the form shown
on EXHIBIT C attached hereto and incorporated herein.
3. Construction of Premises
3.1 Landlord's Construction
Landlord shall, subject to the conditions set forth below, proceed with all due
diligence to prepare the Premises at Landlord's sole cost and expense, in
accordance with the plans, outlines and specifications provided to Landlord by
Tenant, copies of which are attached as EXHIBIT B to this Lease. All labor and
materials required to prepare the Premises for Tenant's use other than those
described on EXHIBIT B shall be furnished by Tenant at Tenant's sole cost and
expense. All such preparations shall be accomplished in compliance with all
applicable laws, ordinances, regulations and restrictions. Landlord shall be
responsible to obtain any construction loan financing sufficient to make timely
payments of all costs of construction of the Landlord's work in accordance with
all of the cost estimates for such work, plus related costs such as professional
fees, bond and insurance premiums, interest on and charges for borrowed
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money, service and escrow fees, real estate taxes and assessments and similar
costs. Landlord shall be responsible to obtain all final administrative
approvals necessary to, and as conditions precedent for the issuance of building
permits by the appropriate jurisdiction or authority.
3.2 Commencement of Work
If Landlord's work has not been commenced by that date which is one hundred
twenty (120) calendar days, from the date of this Lease, Tenant may cancel this
Lease upon not less than ten (10) calendar days written notice to Landlord. If
Landlord shall not commence work or, if at any time prior to the above date
Landlord shall notify Tenant in writing that Landlord has been unable to obtain
the final approvals described in section 3.1 above, from and after the date of
such notice to Tenant, Tenant shall have the right to terminate this Lease, and
upon such termination, the parties shall have no further rights or liabilities
hereunder.
3.3 Completion of Work
Landlord shall not be held liable or responsible for delays in construction or
Landlord's work arising out of or occasioned by strikes, accidents, acts of God,
extreme weather conditions, unforeseen restrictions imposed by any government or
any governmental agency or other delays beyond Landlord's control. Subject to
the foregoing, Landlord agrees to deliver the Premises to Tenant for
commencement of Tenant's business not later than ten (10) months after the date
on which this Lease-contract will be signed by both parties. If Landlord fails
to deliver the Premises to Tenant for commencement of Tenant's business by the
Completion Date, Landlord shall pay to Tenant the amount of Five Hundred and
No/100 Dollars (US$500.00) per day for each and every day, including weekends,
between the Completion date and the date Landlord actually delivers the Premises
to Tenant for commencement of Tenant's business. If Landlord fails to deliver
the Premises to Tenant for commencement of Tenant's business within three
hundred and sixty (360) calendar days after the date on which this Lease-
Contract becomes effective, Tenant shall have right to terminate this Lease by
written notice.
3.4 Warranty
3.4.1 Warranty of Landlord's Work
Landlord warrants that Landlord's work on the Premises under this Section 3 (i)
shall be performed in a workmanlike and skillful manner, (ii) shall in all
respects be of a first class quality, free from all fault and defects in
workmanship, material, design and title, and (iii) shall be in strict compliance
with the requirements of the plans, outlines and specifications provided to
Landlord by Tenant. Landlord further warrants that all materials, equipment and
other items incorporated (or to be incorporated) in Landlord's work on the
Premises or consumed (or to be consumed) in the performance of Landlord's work
on the Premises shall be new and of the most suitable grade for the purpose
intended. Subject to any extension pursuant to section 3.4.2 below, this
warranty shall continue until that date which is twelve (12) months after the
Commencement Date ("Warranty Period").
3.4.2 Correction of defects
If any time during the Warranty Period, Landlord receives from Tenant notice of
any failure to comply with warranty set forth in this Section 3.4, Landlord
shall promptly and, at such times as Tenant directs, satisfactorily correct
such noncompliance and remedy any damage to other items of Landlord's work or
Tenant's property resulting from such noncompliance. The warranty period shall
then be extended as to any corrected work performed by the Landlord until the
expiration of twelve (12) months
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after acceptance by Tenant of the corrected work. All costs incidental to such
correction and remedy shall be borne by Landlord.
3.4.3 Tenant's right to correct
If after fourteen days written notice by Tenant, Landlord still fails to
satisfactorily correct or remedy any noncompliance or damage in accordance with
section 3.4.2, then Tenant shall have the right, but not the obligation, to
perform, on behalf and at the expense of Landlord, any correction or remedy
which Landlord has failed to perform and of which Tenant has given Landlord
notice. Tenant shall be permitted to offset the cost of any such correction or
remedy against any rent or other sums payable to Landlord under this Lease.
4. Rent
4.1 Payment of Rent
Commencing on the Commencement Date, and for a period of seven (7) years, Tenant
shall pay rent to Landlord in the amount of US$ 1.65 per square foot, totaling
Seven hundred and sixty-six Thousand Four hundred seventy-seven and 80/100
United States Dollars (US$ 766.477,80) per year payable in equal monthly
installments of sixty-three Thousand Eight hundred and Seventy Three and 15/100
United States Dollars (US$ 63.873,15) on or before the first day of each
calendar month commencing on the Commencement Date. All rental payments to be
made hereunder shall be made to Landlord on Landlord's account with the
"Antilles Banking Corporation" in Curacao or at such other place as Landlord may
direct in writing. If the term of this Lease does not commence on the first day
of the month, the rental payment for such month shall be prorated. In each of
the years eight (8) through ten (10) the rent will be adjusted upward based on
local CPI (as calculated by the Central Bank of the Neth. Antilles from the
previous year, with a maximum of 3% per year.
4.2 Security Deposit
Tenant shall pay the sum of One hundred and Fifty Thousand United States Dollars
(US$ 150.000,00) upon the execution of this Lease, said payment to be considered
as a Security Deposit. Security Deposit shall be held in an interest bearing
account. Landlord agrees that Security Deposit plus interest shall be refunded
to Tenant upon termination of Lease after deduction of the total sum of all
financial obligations due by the Tenant in virtue of this agreement or any court
resolution.
4.3 Costs of Collection
If the Tenant fails to pay rent in a timely manner, Tenant shall pay all costs
incurred by Landlord to collect all Rent or other charges which Landlord is
entitled to under this Lease, including, without limitation, reasonable
collection fees, legal costs and attorney's fees.
5. Option to Extend
5.1 Option
Tenant shall have the right to extend the term of this Lease for two (2)
successive terms of five (5) years each ("Option to Extend"), such extensions to
be upon the covenants, terms and conditions as set forth in this Lease except
that rent for each such extension shall be established as described below.
Tenant shall exercise any Option to Extend by written notice to Landlord of
Tenant's election to exercise such
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Option to Extend given not less than ninety (90) calendar days prior to the end
of the then current term.
5.2 Extension Rent
In case of such an extension the rent should be adjusted every 3 years based on
the local average CPI (as calculated by the Central Bank of the Neth. Antilles)
from the previous 3 years, not to exceed 9% in total.
6. Tenant's Right of First Refusal
If, at any time during the term of any extended term of this Lease, Landlord
shall receive a bona fide offer for the purchase of the Premises which Landlord
desires to accept, Landlord shall give written notice thereof (the "Offering
Notice") to Tenant. The Offering Notice Shall Contain:
(i) The name and address of the proposed purchaser,
(ii) A copy of the terms and conditions of the offer, and
(iii) An offer to sell the Premises to Tenant in preference to the
proposed purchaser and upon the same terms and conditions contained in the offer
received by Landlord.
Tenant shall be entitled to purchase the Premises offered by giving
written notice thereof to Landlord within thirty (30) calendar days after
receipt of the Offering Notice. If Tenant fails to agree to purchase the
Premises within the time aforesaid, Landlord shall have the right to complete
the sale of the Premises to the proposed purchaser who shall then hold the
Premises subject to the provisions of this Lease, including the right of first
refusal stated herein, to the same force and effect as if purchaser had been the
original party hereto.
7. Taxes and Assessments
7.1 Tenant's Payment
Tenant covenants and agrees to bear, pay and discharge, before delinquency its'
pro rata share of all taxes and assessments, general and special, which may be
taxed, charged, levied, assessed or imposed upon or against or be payable for or
in respect of Tenant's occupation of the Premises and Tenant's commercial
operation, except for Landlord's income and land taxes as well as other taxes
attributable to landlord.
Taxes and assessments for the year in which the term of this Lease commences,
and for the year in which this Lease expires or terminates, shall be prorated
between Landlord and Tenant as of such date of commencement, expiration or
termination. In the event the amount of such taxes and assessments for the year
of termination cannot be ascertained as of said date of termination, proration
shall be made on the basis of the taxes and assessments for the preceding year.
7.2 Right to Contest
Tenant shall have the right, in its or Landlord's name, with prior written
approval of the latter, to contest the validity of any tax or assessment which
Tenant is required to bear, pay and discharge hereunder, by appropriate legal
proceeding, provided that Tenant, before instituting any such contest, gives
Landlord written notice of its intention so to do. Landlord agrees to cooperate
fully with Tenant in good faith during the course of such contest. Tenant shall
diligently prosecute any such contest, at all times effectual stay or prevent
any official or judicial sale therefore, under execution
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or otherwise, and pay any final judgment enforcing the tax or assessment so
contested and thereafter promptly procure record satisfaction thereof.
8. Insurance
8.1 Insurance of the building
The Tenant shall keep the landlord's building insured in Landlord's name for the
full replacement value during the term of this Lease against all loss and damage
including, without limitation, coverage for fire, vandalism, extended coverage
in an amount determined by the Landlord or its mortgagees, such insurance to be
written by an insurance company or companies authorized to do business in
Curacao. Tenant may add additional insurance to increase protection provided
under the Landlord's policy. All rights in virtue of the policy will be assigned
to the financial institution holding the right of first mortgage on the land and
building and, after replacement of the mortgage-debt, to the Landlord.
8.2 Insurance by Tenant
Tenant shall, at its sole expense, maintain in force fire and extended coverage
insurance with respect to the Tenant's property. Landlord shall be named as an
additional insured on all such policies. The policies shall provide that they
may not be canceled or modified for any reason without fifteen (15) calendar
days prior written notice to landlord. In connection with all such insurance,
Tenant shall apply to such insurer to have such insurer waive in writing all
rights and subrogation's which such insurer might have otherwise acquired, if at
all, against Landlord and/or Tenant.
Landlord and Tenant each herewith and hereby releases and relieves the other and
waives its entire right of recovery against the other for loss or damage arising
out of or incident to the perils described in such policies which occur in, on
or about the Premises, whether due to the negligence of either party, their
agents or employees or otherwise and whether or not such insurance is in effect
as of the date of any damage. The waivers provided for herein shall be
applicable and effective only in the event such waivers are obtainable from the
insurance carriers concerned.
The Tenant shall keep the building and the Tenant's property insured for the
full replacement value during the term of this Lease against all risks, as
required by Landlord or its mortgagees, for the full replacement value and on
demand show prove of payment of the premiums to landlord and its mortgagee.
Tenant expressly understands it is responsible for insurance in control of all
of its property (i.e., equipment, records, inventory, furniture and personal
property), and Landlord shall not be liable to Tenant for any damage thereto,
unless such damage is due to the negligence or willful misconduct of Landlord,
its agents, contractors or employees.
During the term of this lease, Tenant shall, at its own cost and expense,
provide and keep in force general liability insurance, such insurance to be
written by an insurance company or companies authorized to do business in
Curacao, and reasonable acceptable to Landlord, against claims for death or
personal injuries in or about the Premises at least in the amount of $500,000
against loss for death or injuries to more than one person; and $1,000,000
against loss for death or injuries to more than one person in any one accident,
together with property damage coverage in the amount of
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$ 150,000. Certificates evidencing same shall be furnished to Landlord and, on
demand, receipts showing payment of the premium on such insurance shall be
exhibited to Landlord. Such certificate of insurance must include as additional
named insured Landlord and Landlord's mortgagee(s), if any, and a ten (10)
calendar day prior written notice to the additional named insured or
cancellation. If Tenant fails or neglects to provide such insurance, Landlord,
at its option, shall have the right but no obligation to cause such insurance to
be issued and the cost and expense thereof shall be Additional Rent.
Tenant shall also, at its sole cost and expense, provide and keep in force such
additional insurance as required, including, but not limited to, worker's
compensation. Certificates evidencing same shall be furnished to Landlord and,
on demand, receipts showing payment of the premium on such insurance shall be
exhibited to Landlord.
9. Landlord's Nonperformance
Landlord shall not be liable to Tenant for damages if Landlord is unable to
fulfill any of its obligations under this Lease, or to supply, or is delayed in
supplying, any service to be supplied, or is unable to make any repairs,
additions or alternations to the Premises by reason of strikes, Acts of God or
the public enemy, or other similar causes beyond Landlord's control, provided
however, that if the Landlord is unable to fulfill any of its obligations of
this Lease, supply any services to be supplied or make any repairs, additions
or alterations to the Premises as required under this Lease, for a continuing
period in excess of seventy two (72) hours and as a consequence thereof Tenant
is totally or partially prevented to conduct its business within the Premises,
the basic rent shall abate on a pro-rata basic until Landlord is again able to
fulfill its obligations, supply services or make repairs, additions or
alterations, Landlord agrees to use it's best efforts to cause the cessation of
any such interruption. If, however, Landlord is unable to fulfill its obligation
to supply service, or make necessary repairs within ninety (90) calendar days,
Tenant shall have the right to terminate this Lease with written notice of at
least 30 days, provided however that if Landlord, for supplying such services or
for making such repairs needs to import any material from abroad, the
aforementioned period of 90 days will be considered extended with the period
necessary to realize such import and furthermore provided that if the nature of
the services to be supplied or be supplied or the repairs to be made cannot
reasonable be realized within such 90 days period, such shall not be deemed to
be a default leading to the consequence referred to above, if within such period
a cure of such default is commenced and thereafter diligently prosecuted to
completion.
10. Maintenance- Repair or Damage- Destruction
10.1 Maintenance
Tenant covenants and agrees that it will during the term of this Lease keep and
maintain the premises and all improvements thereon, equipment, fixtures and
appliances therein, and all appurtenances thereto in good condition and repair,
ordinary wear and tear excepted, and keep the same free from trash, nuisance or
danger of fire and in all respects and at all times use and maintain the
Premises so as to fully meet and comply with all health and policy regulations
and the ordinances and all other laws now in force or which may hereafter be
enacted which affect the Premises.
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10.2 Repairs
Tenant shall, at Tenant's sole cost and expense, keep the Premises and every
part thereof in good condition and repair (except as hereinafter provided with
respect to Landlord's obligations) including without limitation, the
maintenance, replacement and repair of any storefront, doors, window casement,
glass, plumbing, pipes, HVAC-System, electrical wiring, lighting fixtures and
conduits.
Tenant shall, upon the expiration or sooner termination of this lease, surrender
the Premises to landlord in good condition, broom clean, ordinary wear and tear
and damage from causes beyond the reasonable control of Tenant excepted.
Notwithstanding any other provision hereof, Landlord at its expense, shall
maintain, replace and repair the following portion of the Premises: the interior
concrete floor, outer walls, and the roof, unless such maintenance and repair
are caused in part or in whole by the neglect, fault or omission of any duty by
the Tenant, its agents, servants, employees, invitees, in which case the Tenant
shall pay to Landlord the actual cost of such maintenance and repairs. Landlord
shall not be liable for any failure to make such repairs or to perform any
maintenance unless such failure shall persist for a period of thirty (30)
calendar days after written notice of the need of such repairs or maintenance is
given to Landlord by Tenant.
Landlord shall obtain Tenant's consent, which consent shall not be unreasonably
withheld, prior to making such repairs or performing maintenance, which will
cause a disruption to Tenant's business. Any disruption to Tenant's business
caused by Landlord making repairs to portions of Shopping center or Premises
shall not be unreasonable.
10.3 Damage to Premises
In the event that the premises are totally destroyed, or so damaged by fire or
other casualty not occurring through the fault or negligence of Tenant, its
employees, agents or business invitees, that the same, in the reasonable opinion
of Landlord cannot be repaired and restored within a period of nine (9) months,
this Lease shall absolutely cease and terminate and the Rent shall be
apportioned as of the date of the casualty and abate for the balance of the
term. Landlord shall serve notice upon Tenant within thirty (30) calendar days
after the casualty as to whether the premises can and will in fact be repaired
and restored within the nine (9) months period.
If the damage, caused as above, be only partial or such that the premises can in
the reasonable opinion of the Landlord, be restored to their present condition
within a period of nine (9) months, Landlord agrees with reasonable promptness
to restore the same, reserving the right to enter upon the premises for that
purpose. Landlord also reserves the right to enter upon the premises whenever
necessary to repair damaged caused by fire or other casualty to Tenant's
Building, even though the effect of such entry would be to render the premises
or a part thereof untenantable. In either event, the Rent shall be apportioned
and/or suspended during the time Landlord is in possession, taking into account
the portion of the premises rendered untenantable the duration of Landlord's
possession and the interference with the Tenant's business. In the event
Landlord undertakes to make repairs to or to restore the premises, Landlord
shall not be obligated to restore or replace property owned by Tenant including,
but not limited to, furniture, fixtures, improvements, inventory, equipment,
etc., unless damage is caused by the gross negligence of the Landlord.
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If such damage results from the negligent act or omission of Tenant or Tenant's
employees or agents, Tenant shall not be entitled to any abatement or reduction
of the rent.
11. Alterations
Tenant shall have the right with Landlord's prior consent in writing to make
changes or alterations in the building located on the Premises, or to construct
improvements on the Premises; provided, however, that Tenant shall not make any
alterations, additions or deletions to the building located on the Premises if
such alteration, addition or deletion shall (i) convert the building located on
the Premises to a structure which is not a complete, self-contained operating
unit; (ii) diminish or reduce the parking area of the Premises below that
required by local ordinances. Notwithstanding the foregoing, Tenant may make
such structural changes, alternations, additions or deletions as are approved in
advance and in writing by Landlord, which approval may not be unreasonably
withheld or delayed. If Landlord fails to respond within thirty (30) calendar
days to any request submitted by Tenant under this Section 11, such request
shall be deemed approved by Landlord. If Landlord shall consent, all
alterations, including but not limited to, electrical and plumbing installations
installed or made by Tenant shall, at Landlord's option, belong to Landlord
except Tenant's trade fixtures, and the following: Custom walk-in
Freezer/Cooler, Cash Registers, Checkout Counters, Shelving, Overhead Lighting,
Alarm Systems and other improvements/equipment not permanently attached by
Tenant to the building. All damage to the building as a result of Tenant's
removal of such improvements/equipment etc. shall be repaired promptly by Tenant
and at Landlord's satisfaction, with due observance of the stipulation in
article 15.
Improvements within a maximum range of US$ 25.000,00 will not require the prior
consent of Landlord.
12. Utilities
12.1 Generally
All heat, light, power, water, sewerage, trash removal, and other utilities and
utility services used in, on or about the Premises shall be paid for by Tenant
and shall be contracted for by Tenant in its own name.
13. Security Interest
13.1 Subordination
This Lease is subject and subordinate to any mortgage or encumbrance which may
now or hereafter encumber the Landlord's interest in the Premises or the
Property, or both, or upon any buildings placed upon the Property, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
need be required by any mortgagee. In confirmation of such subordination,
however, Tenant shall within ten (10) calendar days of Landlord's request,
execute, acknowledge and deliver to Landlord any unreasonable certificate or
instrument that Landlord may request evidencing such subordination. In the
event of the enforcement by the holder any such mortgage or encumbrance of the
remedies provided for by law or such mortgage or encumbrance, Tenant will, upon
request of any person or party succeeding to the interest of Landlord as a
result of such enforcement, automatically become the Tenant of such successor in
interest of Landlord as a result of such enforcement,
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automatically become the Tenant of such successor in interest without change in
the terms of other provisions of such Lease, provided, however that such
successor in interest shall not be bound by (a) any payment of rent or
additional rent for more than one (1) month in advance except prepayments in the
nature of security for the performance by Tenant of its obligations under this
Lease or (b) any amendment or modification of this Lease made without the
written consent of such holder or such successor in interest. Upon request by
such successor in interest, Tenant shall execute and deliver any reasonable
instrument or instruments confirming the attainment herein provided for.
14. Indemnity
14.1 Indemnification of Landlord
Tenant agrees to indemnify and save Landlord harmless from and against all
liability, and all loss, cost and expense, including reasonable attorney's fees,
arising out of Tenant's operation, maintenance, management and control of the
Premises or in connection with (i) any loss, injury or damage whatsoever caused
to or by any person, including, but not limited to, Tenant, its employees,
agents or business invitees, or property, including Tenant's property, arising
out of any occurrence on the Premises, (ii) any breach of this Lease by Tenant,
(iii) any act or omission of Tenant, its employees, agents or business invitees
occurring in, on or about the Premises, except in the event of negligence or
willful misconduct of the Landlord or its employees, agents or business
invitees.
14.2 Indemnification of Tenant
Landlord agrees to indemnify and save Tenant harmless from and against all
liability and all loss, cost and expense, including reasonable attorney's fees,
arising out of Landlord's operation, maintenance, management and control of the
property on which the Premises are located or in connection with (i) any loss,
injury or damage whatsoever caused to or by any person, including, but not
limited to, Landlord, its employees, agents or business invitees, or property,
including Landlord's property arising out of any occurrence on the property on
which the Premises are located, (ii) any breach of this Lease by Landlord or
(iii) any act or omission of Landlord, its employees, agents or business
invitees occurring in, on or about the property on which the Premises are
located.
15. Fixtures
Tenant may install on the Premises its fixtures, improvements and/or equipment
and, at the termination of this Lease, Tenant shall have the right to remove
fixtures, improvements and/or equipment owned by Tenant. Tenant shall repair all
damage to the building resulting from such removals. Insulation under freezer
slab on any part of the floor of the Premises will be left "as is" subsequent to
removal of freezer. However any other damage, including damages to the walls of
the Premises, resulting from above mentioned removals shall be repaired by
Tenant.
16. Use.
Tenant may use the Premises, to operate a retail warehouse/store including, but
not limited to the use of forklifts designed to operate inside and outside of
Premises. Tenant may without obtaining permission from Landlord, conduct
Sidewalk or tent Sales on Premises. However, in doing so, Tenant will adhere to
all conditions and provisions of this Lease.
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Tenant shall not use or occupy or permit the Premises or any part thereof to be
used or occupied for any unlawful business, use or purpose or other purpose than
a wholesale retail warehouse/store.
17. Quiet Enjoyment
Landlord covenants and warrants that it has full right and lawful authority to
enter into this Lease for the full term hereof, that Tenant will be put in
possession of the Premises when Tenant desires and is entitled hereunder, and
that Tenant, upon paying the rent and performing all of the terms, conditions
and provisions of this Lease to be performed by Tenant, shall peacefully and
quietly have, hold and enjoy the Premises for the full term of this Lease, and
any extension thereto, subject to the provisions herein contained.
18. Signs
Landlord shall, at Landlord's sole cost and expense, lawfully display Tenant's
name on the building of the Premises, in accordance with Tenant's indications on
page A-2.0 of the drawings dated 02/07/1997 supplied to Landlord, and Tenant
agrees to maintain said signs in a good state of repair. Specifications for
sign age provided to Landlord by Tenant, are attached as Exhibit B to this Lease
and may not deviate from the indications as mentioned on page A-2.0 of the
aforementioned drawings.
19. Personal Property
All personal property of every kind or description that may at any time be in
the Premises shall be at Tenant's sole risk, or at the risk of those claiming
under Tenant, and Landlord shall not be liable for any damage to said property
or loss suffered by the business or occupation of Tenant caused in any manner
whatsoever, except as may result from and be caused by the negligence or willful
misconduct of Landlord or its agents or employees.
20. Waste
Tenant shall use and occupy the Premises in a careful, safe and lawful manner
and not commit waste therein.
21. Non-Waiver
No waiver of any breach of any covenant or condition of this Lease by either
party shall be taken to constitute a waiver of any subsequent breach of such
covenant or condition nor to justify or authorize the non observance on any
other occasion of the same or of any other covenant or condition hereof.
22. Default
The following shall constitute a default under this Lease:
(i) Failure by Tenant to pay any installment of rent or other sums
required by Tenant to be paid under this Lease within ten (10) calendar days
after written notice from Landlord;
(ii) Failure by Tenant or Landlord to perform any non monetary covenant
under this lease within thirty (30) calendar days after written notice from the
non-defaulting party stating the nature of the default, provided that if the
nature of such default, other than for nonpayment of rent or other sums, is such
that the same cannot reasonable be cured within such thirty-day period, such
shall not be deemed to be a
10
<PAGE>
default if, within such period, a cure of such default is commenced and
thereafter diligently prosecuted to completion.
If default shall be made by Tenant in the payment of rent or in the performance
of any of the conditions of this Lease, Landlord in addition to all other
remedies now or hereafter afforded or provided by law, shall have the right to
reenter said Premises and remove Tenant and all other persons therefrom, and
shall have the option of terminating this Lease; provided, however, that such
rights of reentry and termination may be exercised by Landlord in accordance
with law, and only in the event that the breach or other default of Tenant shall
have continued for thirty (30) calendar days after written notice thereof and
Landlord's intention to terminate has been furnished to Tenant in writing at the
foregoing address, by registered or certified mail. If default be made by Tenant
and if Landlord exercises its option to terminate as herein provided, then
Landlord shall proceed to re-rent the Premises within a period of two (2) months
as of the date of the registered or certified mail, at the highest and best
offer received by it for the un-expired portion of this Lease and if the amount
of rental herein agreed to be paid by Tenant is more than the amount received,
then Tenant shall thereupon pay said difference to Landlord, in cash as the same
becomes due on the first day of each month, as Landlord's liquidated damages for
such breach. If after said period of two months no new Lease-agreement will have
been reached with a qualified Tenant (same or higher rent as present one and
same terms and conditions as contained in this Lease-contract) Landlord will
have the right to the use of any of the remedies provided by law as Landlord
will elect.
If default shall be made by Landlord in the performance of the conditions of
this Lease, and shall have continued for thirty (30) calendar days after notice
thereof has been furnished to Landlord in writing by registered mail, then
Tenant, in addition to all other remedies now or thereafter afforded or provided
by law, may cancel this Lease or may at its election perform such condition on
behalf of Landlord, or make good any such default, and any amount Tenant shall
advance pursuant thereto shall be repaid by Landlord to Tenant on demand
together with interest at the rate of 12% per annum and if Landlord shall not
repay any such amount, Tenant may deduct the same from the next installment or
installments of rent to accrue under this Lease.
23. Condemnation
If the whole of the Premises, or if such portion of the facilities and building
improvements comprising part of the Premises as may be required for the
reasonable use of the Premises, shall be taken by virtue of any condemnation or
eminent domain proceeding, this Lease, at the option of Tenant, 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 Tenant does not exercise such right to
terminate this Lease, this Lease shall continue and Tenant shall continue in
possession of the remainder of the 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 Premises so taken. Tenant shall have the
right to recover from any condemning authority that portion of any award
attributed to Tenant's leasehold interest.
11
<PAGE>
24. Notices
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, three (3) calendar days following the deposit thereof in the Curacao
mail, registered or certified, postage prepaid, and addressed to the respective
parties as follows:
Landlord: Baroud Real Estate Development N.V.
Schottegatweg Oost # 82-84
Curacao, Neth. Antilles
Tenant: C.U.L. (Curacao) N.V.
Pietermaai # 24
Curacao, Neth. Antilles
Any party may change the address to which notices are to be given by giving
notice as above provided.
25. Assignment and Sublease
Tenant shall have the right to sublease or assign all or any part of the
Premises only after prior consent in writing of Landlord. Such consent shall
not be unreasonably withheld.
26. Successors and Assignees
This Lease shall run with the land and shall be binding upon and inure to the
benefit of the, successors, administrators and assigns of the parties hereto.
27. Non-Modification
It is mutually agreed that the covenants and conditions herein contained are the
full and complete terms of this Lease and that no alterations, amendments or
modifications of the same shall be binding unless first reduced to writing and
signed by both parties hereto.
28. Memorandum of Lease
It is mutually agreed that this Lease will not be recorded, but that the parties
will execute a written memorandum acknowledging the tenancy, which may be
recorded in the records of Curacao and Bellevue, W.A., U.S.A.
29. Attorney's Fees
In the event of any action or proceeding to enforce and provision of this Lease,
the prevailing party shall be entitled to reasonable attorney's fees and all
costs and expenses expended or incurred in connection with such action or
proceeding.
30. Effect of Invalidity
If any term or provision of this Lease or the application thereof to any person
or circumstance shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of the terms and provisions to persons and
circumstances other than those to which it had been held invalid or
unenforceable, shall not be
12
<PAGE>
affected thereby, and each term and provision of this lease shall be valid and
enforceable to the fullest extent permitted by law.
31. Applicable Law
This Lease shall be governed by and construed in accordance with the laws of The
Netherlands Antilles; the guarantee-agreement as mentioned in article 37 shall
be governed by and construed at the option of the Landlord, with the laws of the
Netherlands Antilles or with the laws of the state of Washington, U.S.A.
32. Hold-Over
If Tenant shall, with the written consent of Landlord, hold over after the
expiration of the term of this Lease and the extension periods as mentioned in
article 5.1, such tenancy shall be for an indefinite period of time on a
month-to-month tenancy, which tenancy may be terminated as provided by the laws
of the Netherlands Antilles. During such tenancy Tenant agrees to pay to
Landlord the same rate of rental as set forth in article 5.2, unless a different
rate is agreed upon, and to be bound by all of the terms, covenants and
conditions as herein specified, so far as applicable.
33. Negotiation and Construction
This agreement and each of the terms and provisions hereof are deemed to have
been explicitly negotiated between the parties, and the language in all parts of
this Agreement shall, in all cases, be construed according to its fair meaning
and not strictly for or against either party.
34. Surety
Tenant guarantees to Landlord that at signing of this Lease Tenant's parent
company: "Cost-U-Less, Inc.", a Corporation incorporated and existing in
accordance with the laws of the State of Washington, U.S.A., shall deliver to
the Landlord a deed by which it institute itself as a guarantor towards
Landlord for all obligations of Tenant, especially the financial obligations, in
virtue or arising of this Lease-contract, Court resolutions and applicable
provisions of the law, such deed to be drawn up in accordance with the
applicable Law provisions of the State of Washington, U.S.A. and furthermore
that at signing this Lease Cost-U-Less, Inc. will provide a standby Letter of
Credit for a sum of $720,000 (seven hundred and twenty thousand dollars) under
standard conditions, to guarantee the payment by Tenant of one year's rent. Such
Letter of Credit will be renewed every year for a period of five (5) years and
if not renewed at least two weeks before expiration date, Landlord or its Bank-
mortgagee will have the right to draw the entire amount prior to expiration.
35. Excluded part of Lease-property
Parties have agreed that a part of the land as described in section 1 will be
excluded from this Lease; this excluded part is described on EXHIBIT A attached
hereto. On this part of the land Landlord will erect a 2-story commercial
building. Each story will be of approximately 330 m2 and will be subdivided into
smaller units for Lease to third parties. It has been agreed upon between
parties that none of those units will be used for the sale of the kind of goods
that will be offered for sale to the public by Tenant in the Premises. This
property will have its own parking stalls and will not share or make use of the
150 stalls in Paragraph 1.
13
<PAGE>
36. Indemnification of Landlord of Tenant for legal cost
If at any time a lien is filed against Tenant's property in/on the Premises by
or for any creditors of Landlord and for Landlord's debts and/or obligations,
all legal cost to be incurred by Tenant related to Tenant's contest of such lien
and Tenant's legal action to have Tenant's property discharged of such lien,
will be for the account of Landlord and payable on demand. Landlord agrees to
cooperate fully with Tenant in good faith during the course of such contest.
DATED this 3rd day of April, 1998
Landlord: /s/ Jack Baroud
Tenant:
Cost-U-Less, a Washington corporation
BY:
Name: /s/ Michael [ILLEGIBLE]
Title: C.E.O.
)
) SS. COUNTY OF
)
On this 3 day of April, 1998, before me, the undersigned, a Notary Public in
and fir the State of Washington, duly commissioned and sworn, personally
appeared to me known to be the person who signed as
Landlord of the corporation that
executed the within and foregoing instrument, and acknowledged said instrument
to be the free and voluntary act and deed of said corporation for the uses and
purpose therein mentioned, and on oath stated that was duly
elected, qualified and acting as said officer of the corporation, that
was authorized to execute said instrument, and that the seal
affixed, if any, is the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the date and
year first above written.
/s/ Gerald J. Rose
----------------------
(Signature of Notary)
/s/ Gerald J. Rose
- -------------------------
(Print or Stamp Name of Notary)
NOTARY PUBLIC in and for the State of WA,
residing at Bellevue
My Appointment Expires: 7-24-2000
14
<PAGE>
EXHIBIT A
(LEGAL DESCRIPTION)
16
<PAGE>
EXHIBIT B
(Plans, Outlines and Specifications)
ENTERED BY:
--------------
DATE: 3/16/98
--------------------
APPROVED: /s/ James
----------
___________________________________________________________________________
OPDRACHTGEVER: BAROUD REAL ESTATE DEVELOPMENT N.V.
___________________________________________________________________________
OPDRACHTGEVER: PARADISE GENERAL CONSTRUCTION| CONSULTING ENGINEERING
| CONTRACTING
__________________________________________________| [ILLEGIBLE] [LOGO OF
PROJECT: COMMERCIAL CENTER JAN NOORDYNWEG | [ILLEGIBLE] CONSULTING
__________________________________________________| [ILLEGIBLE] ENGINEERING
ONDERDEEL: ALGEMEEN OVERZICHT | CONTRACTING]
__________________________________________________|________________________
GEOPRO CONSULTANTS | [ILLEGIBLE]
SHOPPING CENTER |________________________
TEL [LOGO OF GEOPRO |________________________
FAX CONSULTANTS] |________________________
|________________________
|________________________
| TEK NO. 01
____________________________________________________________________________
17
<PAGE>
10/20/97
GROUND LEASE
------------
AGREEMENT made this 20th day of October, 1997, effective as of October 1,
1997, between MARKET SQUARE EAST, INC., a U.S. Virgin Islands corporation, with
a mailing address of P.O. Box 7020, St. Thomas, U.S. Virgin Islands 00801,
hereinafter referred to as Lessor, and CULUSVI, INC., a U.S. Virgin Islands
corporation, with a mailing address of 12410 S.E. 32nd Street, Bellevue,
Washington 98005, hereinafter referred to as Lessee.
SECTION ONE
DEMISE, DESCRIPTION, AND USE OF DEMISED PREMISES
Lessor leases to Lessee, for the purpose of constructing and operating a
facility, which shall consist of a floor space of not less than Thirty Six
Thousand (36,000) square feet, for the following use (the "Permitted Use"):
1. A discount retail supermarket and general merchandiser with
loading dock area; and for no other purpose, those certain premises with the
appurtenances, generally known and described as Lease Area A of Parcel No. 1-2
Estate Donoe, No. 2 New Quarter, St. Thomas, U.S. Virgin Islands consisting of
46,538 square feet for all purposes of this Lease, more or less, (36,000 square
feet, more or less, for the building (the "Building Area") and 10,538 square
feet, more or less, for the loading dock area and perimeter space around the
building to be constructed (the "Dock Area")), as more particularly shown and
described on the survey plan drawing and metes and bounds description attached
hereto as Exhibit A and made a part hereof (the "Demised Premises") in the
property known as Market Square East which is comprised of Parcel No. 1-2 Estate
Donoe, No. 2A New Quarter, St. Thomas, U.S. Virgin Islands as shown on P.W.D.
Drawing No. A9-369-T89 (the "Property"). As used herein, the term "Demised
Premises" refers to the real property above described and to any improvements
located thereon from time to time during the term hereof.
SECTION TWO
TERM
The initial term of this Lease shall be for twenty (20) years, commencing
on October 1, 1997, and ending on September 30, 2017. As used herein the
expression "term hereof" refers to such initial term and to any renewal thereof
as hereinafter provided.
SECTION THREE
RENT
(a) Basic Rent. Subject to adjustment as provided below, the rent for the
----------
initial term for the Building Area shall be THREE and 90/100 DOLLARS ($3.90) per
square foot of land and for the Dock Area shall be TWO and 25/100 DOLLARS
($2.25) per square foot of land of which the Demised Premises are comprised per
annum (the "Basic Rent") payable in equal monthly installments of THIRTEEN
THOUSAND SIX HUNDRED SEVENTY FIVE and 88/100
<PAGE>
DOLLARS ($13,675.88) per month commencing on the Rent Commencement Date as
hereafter defined.
(b) Rent Commencement Date. Lessee shall be liable for Basic Rent
----------------------
commencing October 1, 1997 (the "Rent Commencement Date").
(c) Rent Adjustments. During the term hereof, Additional Rent shall be
----------------
computed as follows:
If on the first day of a Lease Year the Consumer Price Index of the United
States Bureau of Labor Statistics for All Urban Consumers (CPI-U), 1982-84 Base,
All Items, U.S. City Average, as published by the Bureau of Labor Statistics of
the United States Department of Labor ("Index") for the last month of the Lease
Year (September), shall be greater than the level of the Index for the last
month of the previous Lease Year (September) ("Base Level"), Lessee shall pay to
Lessor the Basic Rent plus the Additional Rent computed as follows:
(i) After each Lease Year, the Index for the final month of such
Lease Year ("Annual Level") shall be determined.
(ii) If the Annual Level for such Lease Year shall exceed the Base
Level, the percentage by which the Annual Level exceeds the Base Level
shall constitute the Percentage of Increase ("Percentage of Increase").
(iii) The Basic Rent shall be multiplied by the Percentage of
Increase; the resulting amount thereof shall be deemed the Additional Rent
for the next succeeding Lease Year.
(iv) The Additional Rent for a Lease Year shall be payable in equal
monthly installments, in advance, on the first day of each calendar month
during such Lease Year.
(v) For each succeeding Lease Year, the Basic Rent for purposes of
computing any Additional Rent for the ensuing Lease Year shall be the sum
of Basic Rent plus Additional Rent from the previous Lease Year.
(vi) If the compilation or publication of the Index shall be revised
or discontinued, there shall be substituted therefor its successor, or, if
no successor is designated, any other index acceptable to Lessor and
Lessee, it being understood that such an index shall be utilized at all
times so that, in the event of a failure of Lessor and Lessee to agree upon
a mutually acceptable index, Lessor may designate the same. It is the
intent of the parties that any such successor index should accurately
reflect as nearly as reasonably possible the compilations and figures
formerly set forth in the Index.
Nothing contained in any provision of this Lease dealing with the
adjustments of the Base Rent or Additional Rent shall be construed so as to
reduce the rent due and payable for any Lease Year below the rental paid by
Tenant during the preceding Lease Year. If during the Lease Term, the Index
declines so as to cause the Additional Rent computed in accordance with the
terms of this Section Three (c) hereof to be less than the Additional Rent for
the preceding Lease Year, the
<PAGE>
Additional Rent for the current Lease Year shall be the same as the preceding
Lease Year.
The term "Lease Year" is defined to mean a period of twelve (12)
consecutive calendar months, the first Lease Year ("First lease Year") to
commence on October 1, 1997, the Rent Commencement Date, and each succeeding
Lease Year to commence on the first day of October. Any portion of the Lease
Term which is less than a Lease Year as hereinbefore defined shall be deemed a
"Partial Lease Year". Any reference in this Lease to a "Lease Year" shall,
unless the context clearly indicates otherwise, be deemed to be a reference to a
"Partial Lease Year" if the period in question involves less than a period of
twelve (12) consecutive calendar months.
(d) Additional Rent. Additional rent may also be due and payable to Lessor
---------------
in accordance with other terms and provisions of this Lease.
(e) Construction Period Rent. For a period not to exceed eight and one
------------------------
half (8 1\2) months after the Rent Commencement Date, Basic Rent shall be
abated, and commencing on the sooner of the date of substantial completion of
the improvements to be built on the Demised Premises or May 15, 1998, rents
shall be payable in the amount set forth in Section Three (a) above prorated for
the partial month.
(f) Interest. Interest ("Interest") shall accrue at the rate of EIGHTEEN
--------
(18%) percent per annum, from and after five (5) days following the due date of
any payment of Basic Rent or Additional Rent.
(g) No Waiver by Lessor. Any delay or failure by Lessor for any Lease Year
-------------------
in computing or billing Lessee for the adjustment in the Additional Rent as
herein provided shall not constitute a waiver of or in any way impair the
continuing obligation of Lessee to pay the Additional Rent. Notwithstanding any
expiration or termination of this Lease prior to the Expiration Date, Lessee's
obligation to pay rent as determined under this Article shall continue and shall
cover the period up to the Expiration Date, and shall survive any expiration or
termination of this Lease.
(h) Late Fees and Returned Check Charges. In addition to the Interest
------------------------------------
provisions set forth above, any payment of Basic Rent or Additional Rent not
received by the Lessor within ten (10) days from the date on which said payment
is due shall be assessed a late charge of five (5%) percent of the amount due
(the "Late Charge"); provided, however, that the late charge provided herein
shall not apply so long as Lessee arranges for a direct debit from its U.S.
Virgin Islands bank account for the benefit of the Lessor and such direct debit
clear's Lessee's account, is actually paid to Lessor and represents all Basic
Rent, Additional Rent, Common Area Charges and all other amounts due and owing
to Lessor.
Any checks tendered as payment of Basic Rent or Additional Rent which are
returned by the Lessor's bank for any reason whatsoever, except deficiencies in
the Lessor's endorsement of the check, shall result in a charge to the Lessee in
the amount of Twenty Five Dollars ($25.00) or such amount as may be charged by
Lessor's Bank, whichever is greater (the "Returned Check
<PAGE>
Charge").
Both the Late Charge and the Returned Check Charge are hereby deemed to be
added to the Basic Rent or Additional Rent, when applicable.
(i) Rent Increase in the Last Option Term. In addition to Basic Rent and
-------------------------------------
Additional Rent to be computed pursuant to Section 3(c) hereof, the Lessee shall
pay to the Lessor during the final Option Term, if exercised, an additional
seven and one half percent (7.5%) of the sum of Basic Rent and Additional Rent
computed during the final Option Term. Said Option Term rental increase shall be
paid in equal monthly installments on the same dates as Basic Rent and
Additional Rent are due.
SECTION FOUR
WARRANTIES OF TITLE AND QUIET POSSESSION
Lessor covenants that Lessor is seized of the Demised Premises in fee
simple and has full right to make this Lease and that, provided Lessee is not in
default hereunder and, subject to the terms and conditions of this Lease, Lessee
shall have quiet and peaceable possession of the Demised Premises during the
term hereof, subject to any easements, covenants or other encumbrances of
record.
SECTION FIVE
DELIVERY OF POSSESSION
On or before December 22, 1997, Lessor shall have completed grading of the
Property sufficient for the Lessee to gain access to the Demised Premises and to
commence construction of the improvements thereon in accordance with Section
Thirteen hereof.
Prior to substantial completion as defined in Section Thirteen (e), Lessor
shall ensure that:
(a) there is adequate access to the Demised Premises from a public way and
the parking area is available for use; and
(b) sewer, power and telephone lines are available at or near the boundary
lines of the Demised Premises.
Lessor agrees to commence construction of the infrastructure for Market
Square East within five (5) business days of the date of execution hereof by the
Tenant. Lessor further agrees to substantially complete the infrastructure for
Market Square East in accordance with the plans and specifications by June 15,
1998 (the "Delivery Date").
If Lessor fails to substantially complete the infrastructure for Market
Square East in accordance with the plans and specifications by the Delivery
Date, and no casualty has occurred at the Demised Premises, no unforseen site
conditions and no adverse Acts of God have struck the
<PAGE>
Virgin Islands, then Lessee shall be entitled to a credit towards future rent in
the amount of one thirtieth 1/30th) of the monthly rental for each day of delay
including weekends and holidays. Additionally, in the event that Lessee is in a
position to open for business on June 15, 1998, but is precluded from doing so
due to Lessor's failure to complete the infrastructure for Market Square East,
Lessor shall pay to Lessee the difference between the Basic Rent and $15,000.00
prorated for each day of delay, including weekends and holidays. For purposes of
the preceding sentence, the phase "in a position to open for business" shall be
construed in the most comprehensive sense including the Lessee being fully
stocked and prepared to sell inventory to the retail public.
In the event an Act of God or other casualty destroys more than fifty percent
(50%) of the infrastructural development of Market Square East then constructed
prior to the Delivery Date, the Delivery Date shall be extended an additional
one hundred eighty (180) days. In such event, if the infrastructure of Market
Square East is not substantially completed by the extended Delivery Date, then
Lessee shall be entitled to a credit towards future rent in the amount of one
thirtieth (1/30th) of the monthly rental for each day of delay. Notwithstanding
anything in this Lease to the contrary, if, despite its diligent efforts, Lessor
cannot deliver possession of the Demised Premises to Lessee on or before
February 22, 1998, this Lease shall be voidable by Lessee upon written notice to
Lessor unless Lessor has substantially completed the access to and grading of
the Property as provided above, in which case the rent credit provisions shall
control and this Lease shall remain in effect.
SECTION SIX
USES PROHIBITED
Lessee shall not use, or permit the Demised Premises, or any part thereof, to
be used, for any purpose other than the purpose or purposes for which the
Demised Premises are hereby leased; and no use shall be made or permitted to be
made of the Demised Premises, or acts done, which will cause a cancellation of
any insurance policy covering buildings to be located on the Demised Premises,
or any part thereof, nor shall Lessee sell, or permit to be kept, used, or sold,
in or about the Demised Premises, any article which may be prohibited by the
standard form of fire insurance policies. Lessee shall, at its sole cost, comply
with all requirements, pertaining to the Demised Premises, of any insurance
organization or company, necessary for the maintenance of insurance, as herein
provided, covering any building and appurtenances at any time located on the
Demised Premises.
SECTION SEVEN
WASTE AND NUISANCE PROHIBITED
During the term of this Lease, Lessee shall comply with all applicable laws
affecting the Demised Premises, the breach of which might result in any penalty
on Lessor or forfeiture of Lessor's title to the Demised Premises. Lessee shall
not commit, or suffer to be committed, any waste on the Demised Premises, or any
nuisance.
<PAGE>
SECTION EIGHT
ABANDONMENT OF DEMISED PREMISES
Lessee shall not vacate or abandon the Demised Premises at any time during the
term hereof; if Lessee shall abandon, vacate or surrender the Demised Premises,
or be dispossessed by process of
<PAGE>
law, or otherwise, any personal property belonging to Lessee and left on the
Demised Premises shall be deemed to be abandoned, at the option of the Lessor,
except such property as may be encumbered to Lessor.
SECTION NINE
LESSOR'S RIGHT OF ENTRY
Lessee shall permit Lessor and the agents and employees of Lessor to enter
into and upon the Demised Premises at all reasonable times for the purposes of
inspecting the same, or for the purpose of posting notices of non-responsibility
for alterations, additions, or repairs, without any rebate of rent and without
any liability to Lessee for any loss of occupation or quiet enjoyment of the
Demised Premises thereby occasioned (so long as such activities do not
substantially interfere with Lessee's business operations), and shall permit
Lessor and its agents and employees, at any time within the last one year prior
to the expiration of this Lease, to place on the Demised Premises any usual or
ordinary "To Let" or "To Lease" signs and exhibit the Demised Premises to
prospective lessees at reasonable hours.
SECTION TEN
SUBLETTING
(a) Lessor's Written Consent Required. Lessee may not sublet the improvements
---------------------------------
located on the Demised Premises in whole or in part without Lessor's prior
written consent and a consent to a sublease shall not be deemed a consent to any
subsequent sublet. The making of any such sublease shall not release Lessee
from, or otherwise affect in any manner, any of Lessee's obligations hereunder.
Any such sublet without such consent shall be void, and shall, at the option of
Lessor, terminate this Lease.
(b) Additional Rent to Lessor for Subleases. In the event that Lessee
---------------------------------------
subleases, licenses or otherwise permits any use or occupancy (collectively,
"Subleases") of all or any portion(s) of the improvements located on the Demised
Premises during the term hereof after obtaining Lessor's written consent in
accordance with paragraph (a) of this Section Ten, then Lessee shall pay to
Lessor additional rent in the amount of fifteen percent (15%) of the gross rent
received from such sublessee(s) (the "Sublease Rent"). Said additional rent
shall be due and payable to Lessor according to the same schedule for payment of
rent applicable to the sublessee under the Sublease(s), but in no event less
than once every month. Any failure to make said additional rent payments to
Lessor shall be deemed a default hereunder. Notwithstanding the foregoing,
Lessee shall not be liable for Sublease Rent unless and until a total of THREE
THOUSAND SIX HUNDRED (3,600) square feet of the building located on the Demised
Premises is subleased at which time Sublease Rent shall be due for all
subleases.
-6-
<PAGE>
SECTION ELEVEN
NOTICES
All notices, demands, or other writings in this Lease provided to be given or
made or sent, or which may be given or made or sent, by either party hereto to
the other, shall be deemed to have been fully given or made or sent when made in
writing and deposited in the United States mail, registered and postage prepaid,
and addressed as follows:
TO LESSOR: Market Square East, Inc.
P.O. Box 7020
St. Thomas, U.S.V.I. 00801
with a copy to: Henry C. Smock, Esq.
Law Offices of Henry C. Smock
P.O. Box 1498
Suite B-22 Palm Passage
Charlotte Amaile
St. Thomas, U.S. Virgin Islands 00804
TO LESSEE: CULUSVI, Inc.
12410 S.E. 32nd Street
Bellevue, Washington 98005
with a copy to: A. James Casner III, Esq.
Dudley, Topper and Feuerzeig
P.O. Box 756
No. lA Frederiksberg Gade
Charlotte Amalie
St. Thomas, U.S. Virgin Islands 00804
The address to which any notice, demand, or other writing may be given or made
or sent to any party as above provided may be changed by written notice given by
such party as above provided. Provided, however, that the failure to provide a
copy of any notice to the counsel named above shall not affect the efficacy of
such notice.
SECTION TWELVE
TAXES AND ASSESSMENTS
During the Lease Term and any Option Term, Lessee shall pay to Lessor, as
Additional Rent, the amount determined in accordance with this Section for real
estate taxes assessed against that portion of the Property which comprises the
Common Areas of Market Square East and the Demised Premises. The amount payable
by Lessee shall be such amount determined as follows: the total sum assessed for
the land and improvements comprising the Demised Premises, plus an amount
determined
-7-
<PAGE>
by multiplying the assessed real estate tax on the land comprising the Property
on which the Common Areas are located by a fraction, the numerator of which
shall be the Floor Space of the improvements located on the Demised Premises and
the denominator of which shall be the net square footage of lease space located
in Market Square East. As soon as practical after Lessor's receipt of the real
estate tax assessment each year, Lessor will submit to Lessee a statement
showing the real estate tax assessment, and the calculation for determining the
amount due from Lessee. The amount so determined shall be paid by Lessee within
thirty (30) days of receipt of such statement from Lessor.
Lessee agrees throughout the term of this Lease and any applicable Option Term
to pay as Additional Rent Gross Receipts Taxes levied by the Government but only
in excess of 4.00% of such levy which shall or may during the term of this Lease
and Option Term be levied, assessed, imposed, become due and payable out of, or
for, the Demised Premises or any part thereof or any land, buildings or other
improvements now or at any time hereafter constituting a part of the Demised
Premises, including interest on installment payments and all costs and fees
(excluding attorneys' fees) incurred by the Lessor in contesting the same and\or
negotiating with the public authorities as to the same.
SECTION TWELVE A
COMMON AREA CHARGES AND ASSESSMENTS
(a) Common Areas. Lessor shall make available within the Property within
------------
one (1) year of the Rent Commencement Date such areas and facilities ("Common
Areas") including, but not limited to a parking area containing not less than
235 parking spaces, walkways, entrances, directory signs, and other like public
facilities used by Lessor for the operation, maintenance and management of the
Property, as Lessor shall deem appropriate. Lessor shall operate, manage, equip,
light, repair replace and maintain the Common Areas for their intended purposes,
all in such manner as Lessor shall in its sole discretion determine. Lessee
agrees that Lessor may, at any time and from time to time, increase, reduce or
change the number, type, size, location, elevation, nature and use of any of the
Common Areas, make installations therein, move and remove the same. If the
Common Areas, be changed, altered or diminished, Lessor shall not be subject to
any liability to Lessee and Lessee shall not be entitled to any compensation or
diminution or abatement of rent, nor shall any such change, alteration or
diminution be deemed to be a constructive or action eviction. Notwithstanding
the foregoing, the total number of parking spaces shall not fall below 235, nor
shall the ratio of under roof square footage to available parking spaces as of
the date of execution of this Lease change without the Lessor providing such
additional parking spaces as may be required to maintain the foregoing ratio.
(b) Use of Common Areas. Lessee and its concessionaires, offices, employees,
-------------------
agents, customers and invitees shall have the nonexclusive right, in common with
Lessor and all others to whom Lessor has granted or may hereafter grant rights,
to use the Common Areas, subject to such reasonable rules and regulations as
Lessor may from time to time impose. Lessee further agrees, after notice
thereof, to abide by such rules and regulations and to use its best efforts to
cause its concessionaires, officers, employees, agents, customers and invitees
to abide thereby. Lessor may, at any time and from time to time, close any
Common Areas to make repairs or changes therein or to effect construction,
repairs or changes within Market Square East, to prevent the acquisition of
public
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rights in such areas, and may do such other acts in and to the Common Areas as
in its judgment may be desirable to improve the convenience thereof.
(c) Common Area Charges. As used herein:
-------------------
(i) The term "Common Area Charges" shall mean an amount equal to the
sum of the actual cost for Market Square East of operating, managing, equipping,
cleaning, lighting, landscaping, repairing, replacing and otherwise maintaining
order and security therein, including, but not limited to, all costs of
liability and casualty insurance relating thereto, all taxes allocable thereto
(other than those payable by Lessee pursuant to Section Twelve), the costs of
security, supervision and traffic control of the Common Areas if deemed
advisable by the Lessor from time to time, including without limitation, the
costs of installation and monitoring of security devices in and around Market
Square East, the costs for maintenance, repair and replacement of the sewage
treatment plant servicing Market Square East.
(ii) The term "Lessee's Proportionate Share of Common Area Charges"
shall mean an amount equal to the Common Area Charges multiplied by a fraction,
the numerator of which shall be the Floor Space of the improvements located on
the Demised Premises and the denominator of which shall be the net square
footage of the lease space located in Market Square East.
Lessee shall pay to Lessor, as Additional Rent, Lessee's Proportionate
Share of Common Area Charges in equal monthly installments in advance on the
first day of each calendar month. Lessor shall furnish to Lessee, for each lease
year, a statement of (i) the actual Common Area Charges for the prior lease year
(or partial lease year), (ii) Lessee's Proportionate Share of Common Area
Charges for the prior lease year (or partial lease year), (iii) the amount paid
by Lessee during the prior lease year (or partial lease year) in respect of such
Common Area Charges, (iv) either the deficiency or overage in such payments and
(v) Lessor's estimate of Lessee's Proportionate Share of Common Area Charges for
the then current lease year. Any deficiency in payment by Lessee shown on any
statement for the prior lease year (or partial lease year) shall be due and
payable within thirty (30) days after the receipt of such statement and any
overage in payment will be credited against the next succeeding payments of
Lessee's Proportionate Share of Common Area Charges. After receipt of a
statement, Lessee shall pay to Lessor on the first day of each succeeding
calendar month an amount equal to one-twelfth (1/12) of Lessor's estimate of
Lessee's Proportionate Share of Common Area Charges as shown on such statement
until receipt of a new statement. If a statement is furnished to Lessee after
the commencement of a lease year, Lessee shall pay to Lessor, within thirty (30)
days after the receipt of such statement or Lessor shall credit against the next
succeeding payments of Lessee's Proportionate Share of Common Area Charges, an
amount equal to the deficiency or overpayment allocable to the part of the lease
year which shall have elapsed prior to the first day of the calendar month next
succeeding the calendar month in which the statement is furnished to Lessee.
Each statement shall be conclusive and binding upon Lessee unless within thirty
(30) days after receipt of such statement Lessee shall notify Lessor that it
disputes the correctness of the statement, specifying the respect in which the
statement is claimed to be incorrect. Pending the determination of such dispute
by agreement or otherwise, Lessee shall pay Lessor's then current statement and
such payment shall be
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without prejudice to Lessee's position. If the dispute shall be determined in
Lessee's favor, the amount of Lessee's overpayment of Lessee's Proportionate
Share of Common Area Charges resulting from compliance with Lessor's estimate
will be credited against the next succeeding payments of Lessee's Proportionate
Share of Common Area Charges.
Lessor agrees to consult with Lessee with respect to any single item costing
in excess of $50,000.00 which will constitute a Common Area Charge for which
Lessee is required to pay its Proportionate Share; provided, however, that
Lessor shall retain the right to incur and charge the expense as a Common Area
Charge if it determines in its reasonable discretion that the cost or expense is
in the best interests of Market Square East.
SECTION THIRTEEN
CONSTRUCTION OF BUILDINGS
(a) Plans and Specifications. All plans and specifications for any building to
------------------------
be erected on the Demised Premises shall be submitted to Lessor for Lessor's
written approval or any revisions required by Lessor. Said right of approval
shall include, without limitation, size and general design of the building,
construction materials to be used, exterior paint colors, all to be (i)
compatible with existing and future improvements located or to be located on
adjacent land owned by the Lessor and (ii) in compliance with the development
guidelines attached hereto as Exhibit B. Lessor shall not unreasonably withhold
such approval, and in the event of disapproval, Lessor shall give to Lessee an
itemized statement of reasons therefor within thirty (30) days after the same
are submitted to Lessor. If such plans and specifications are not approved and
agreed to by Lessor and Lessee in writing within sixty (60) days after the same
are first submitted to Lessor, then Lessor and Lessee shall select a mutually
agreeable arbitrator, and the arbitrator so selected shall hear and determine
the controversy and its decision as to the final plans and specifications shall
be final and binding on both Lessor and Lessee, who shall bear the cost of such
arbitration equally between them. Such arbitrator shall determine the
controversy and notify Lessor and Lessee in writing of its determination within
thirty (30) days after the controversy has first been submitted to such
arbitrator. Within sixty (60) days after final approval of the plans, Lessee
shall, at Lessee's sole expense, commence, and shall thereafter diligently
prosecute to completion the construction of the proposed improvements in
accordance with such plans and specifications. Prior to the commencement of any
such work, Lessee shall furnish Lessor with a good and sufficient surety bond
guaranteeing the completion of such building and the payment of all bills
therefor or waivers of construction liens from all contractors and
subcontractors to be utilized on the project.
(b) Alterations Improvements and Changes Permitted. Lessee shall have the
------------------------------------ ---------
right to make such alterations, improvements, and changes to any building which
may from time to time be on the Demised Premises as Lessee may deem necessary,
or to replace any such building with a new one of at least equal value, provided
that prior to making any structural alterations, improvements, or changes, or to
replacing any such building, Lessee shall obtain Lessor's written approval of
plans and specifications therefor, which approval Lessor shall not unreasonably
withhold, provided that the value of the building shall not be diminished and
the structural integrity of the building shall not be adversely
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affected by any such alterations, improvements, or changes, or that any proposed
new building is at least equal in value to the one which it is to replace, as
the case may be. In the event of disapproval, Lessor shall give to Lessee an
itemized statement of reasons therefor. If Lessor does not disapprove the plans
and specifications provided for in this section within thirty (30) days after
the same have been submitted to Lessor, such plans and specifications shall be
deemed to have been approved by Lessor. Lessee will in no event make any
alterations, improvements, or other changes of any kind to any building on the
Demised Premises that will decrease the value of such building, or that will
adversely affect the structural integrity of the building. Prior to commencing
any work that will cost in excess of TWO HUNDRED THOUSAND DOLLARS ($200,000.00),
Lessee shall furnish Lessor with a good and sufficient surety bond insuring the
completion of such work and the payment of all bills therefor.
(c) Landscaping Improvements. After construction on the Demised Premises,
------------------------
Lessee shall make landscaping improvements to any portion of the Demised
Premises not otherwise paved or improved. All landscaping improvements shall be
installed in a good and sufficient workmanlike manner so as to enhance the
aesthetics of the Demised Premises and meet with the reasonable satisfaction of
the Lessor.
(d) Disposition of New Improvements. Any new building or improvements
-------------------------------
constructed by Lessee on the Demised Premises, and all alterations,
improvements, changes, or additions made in or to such Demised Premises shall
upon the termination of this Lease become the property of Lessor, excluding,
however, inventory, removable shelving and business equipment required for the
permitted use of the Demised Premsies, and Lessee shall at all times have no
more than a leasehold interest therein, subject to the terms hereof.
(e) Completion of Construction. All improvements to be constructed on the
--------------------------
Demised Premises shall be substantially complete by April 1, 1998. For purposes
of this Section Thirteen (e) "substantially complete" shall mean the following:
1. issuance of Certificates of Occupancy for all buildings;
2. completion of the landscaping improvements, if any, required by
Section Thirteen (c); and
3. the delivery of an As-built survey to the Lessor showing that all
improvements constructed on the Demised Premises are in accordance
with the plans and specifications previously approved by Lessor.
(f) Compliance with Laws. Lessee will perform and complete all construction of
--------------------
improvements on the Demised Premises in compliance with (i) the terms of this
Lease, (ii) such reasonable rules and regulations as Lessor and its architect,
or agents, may make including, without limitation, the development guidelines
attached hereto as Exhibit B and (iii) all applicable laws, orders, regulations
and requirements of all governmental authorities having jurisdiction thereof.
Lessor shall
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<PAGE>
not be subject to, and Lessee hereby agrees to indemnify and hold harmless from
and against any claim, action or any liability with respect with such statutes,
ordinances, regulations and codes. Lessee acknowledges that constructions of
improvements on the Demised Premises may be subject to various federal laws
governing new construction, including, without limitation, the Americans with
Disabilities Act of 1990 (Public Law 101-336). Lessee agrees to assume
responsibility for compliance with all such laws which may apply to it or any
construction which may take place on the Demised Premises.
(g) Construction on Adjacent Premises. If any excavation or other building
------------------------ --------
operation shall be about to be made or shall be made on any premises adjoining
the Demised Premises, the Lessee shall permit the Lessor, its agents, employees,
licensees and contractors, to enter the Demised Premises and to shore-up the
foundations and/or walls thereof, and to erect scaffolding and/or protective
barricades around and about the Demised Premises (but not so as to preclude
entry thereto or to materially interfere with the Lessee's use or quiet
enjoyment thereof) and to do any act or thing necessary for the safety or
preservation of the Demised Premises. The Lessee's obligations under this lease
shall not be affected by any such construction or excavation work or any such
shoring-up provided that such work does not materially interfere with the
Lessee's use or quiet enjoyment of the Demised Premises. The Lessor shall not be
liable in any such case for any inconvenience, disturbance, loss of business
(except as provided below) or any other annoyance arising from any such
construction, excavation, shoring-up scaffolding or barricades, but the Lessor
shall use its best efforts so that such work will cause as little inconvenience,
annoyance and disturbance to the Lessee as possible consistent with accepted
construction practice and so that such work shall be expeditiously completed.
Notwithstanding the foregoing, if the Lessors excavation or other building
operation on any premises adjoining the Demised Premises results in verifiable
loss of business to Lessee, Lessor and Lessee shall negotiate in good faith an
agreeable settlement of Lessor's responsibility.
SECTION FOURTEEN
REPAIRS AND DESTRUCTION OF IMPROVEMENTS
(a) Maintenance of Improvements. Lessee shall, throughout the term of this
---------------------------
Lease, at its own cost, and without any expense to Lessor, keep and maintain the
Demised Premises, including all building and improvements of every kind which
may be a part thereof, and all appurtenances thereto, including sidewalks
adjacent thereto, in good, sanitary, and neat order, condition and repair, and,
except as specifically provided herein, restore and rehabilitate any
improvements of any kind which may be destroyed or damaged by fire, casualty, or
any other cause whatsoever. Lessor shall not be obligated to make any repairs,
replacements, or renewals of any kind, nature, or description, whatsoever to the
Demised Premises or any buildings or improvements thereon. Lessee shall also
comply with and abide by all federal, territorial and other governmental
statutes, ordinances, laws, and regulations affecting the Demised Premises, the
improvements thereon or any activity or condition on or in such Demised
Premises.
(b) Damage to and Destruction of Improvements. The damage, destruction, or
-----------------------------------------
partial destruction of any building or other improvement which is a part of the
Demised Premises shall not release Lessee from any obligation hereunder, except
as hereinafter expressly provided, and in case
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of damage to or destruction of any such building or improvement, Lessee shall at
its own expense promptly repair and restore the same to a condition as good or
better than that which existed prior to such damage or destruction. Without
limiting such obligations of Lessee, it is agreed that, so long as Lessee is not
in default hereunder, the proceeds of any insurance covering such damage or
destruction shall be made available to Lessee for such repair or replacement.
All such maintenance, repairs, restorations and replacements of any building or
other improvement which is a part of the Demised Premises shall be performed in
accordance with the procedures set forth in Section Thirteen of this Lease.
(c) Damage or Destruction Occurring Toward End of Term. Anything to the
--------------------------------------------------
contrary in the immediately preceding paragraphs of this section
notwithstanding, in case of destruction of the building on the Demised Premises
or damage thereto from any cause so as to make it unuseable occurring during the
last three (3) years of the last option term available to Lessee, if not then in
default hereunder, Lessee may elect to terminate this Lease by written notice
served on Lessor within sixty (60) days after the occurrence of such damage or
destruction. In the event of such termination, there shall be no obligation on
the part of Lessee to repair or restore the building or improvements nor any
right on the part of Lessee to receive any proceeds collected under any
insurance policies covering such building or any part thereof, all of which
shall be paid to Lessor. On such termination, rent, taxes, assessments, and any
other sums payable by Lessee to Lessor hereunder shall be prorated as of the
termination date, and in the event any rent, taxes, or assessments shall have
been paid in advance, Lessor shall rebate the same for the unexpired period for
which payment shall have been made.
(d) Election Not to Terminate. If, in the event of such destruction or damage
-------------------------
during the last three (3) years of the term hereof, Lessee does not elect to
terminate this lease, so long as Lessee is not in default hereunder, the
proceeds of all insurance covering such damage or destruction shall be made
available to Lessee for such repair or replacement, and Lessee shall be
obligated to repair or rebuild the building as above provided.
SECTION FIFTEEN
UTILITIES
Lessee shall fully and promptly pay for all water, light, power, telephone
service, and other utilities of every kind applicable to the Demised Premises
throughout the term hereof, and all other costs and expenses of every kind
whatsoever of or in connection with the use, operation, and maintenance of the
Demised Premises and all activities conducted thereon, and Lessor shall have no
responsibility of any kind for any thereof. In the event that Lessor provides to
Lessee any utilities necessary or useful in connection with the use and
occupancy of the Demised Premises, then Lessee shall, within ten (10) days of
receipt of a bill therefor, pay to Lessor the amount due; provided, however,
that Lessor, at no expense to the Lessee, shall ensure that connections to the
Market Square East sewer system and public electrical distribution system are
available at or near the property line of the Demised Premises. Failure of
Lessee to pay said bills within the time period set forth herein shall be a
default under Sections Twenty Four and Twenty Five hereof.
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<PAGE>
Lessee shall obtain for itself from Lessors approved contractors and shall
pay all charges for utilities, including but not limited to, gas, fuel,
telephone, water, electricity, sewage treatment and other like utilities used or
consumed upon the Demised Premises. Lessee expressly agrees that, in order to
coordinate with Lessors need for standardized, consistent, adequately recorded
and well coordinated maintenance of its property, any and all electrical
improvements, installations and repairs to the Demised Premises undertaken by
Lessee shall be performed by such electrical contractor as the Lessor may from
time to time approve in its sole discretion, and any and all conditioning
installations and repairs shall be performed by such air conditioning contractor
as the Lessor may from time to time approve in its sole discretion. Lessor
further reserves the right to approve the installation and repair contractor for
all telephone service to the Demised Premises. All such work shall be performed
in accordance with plans submitted to and approved by Lessor which approval
shall not be unreasonably withheld.
Lessor shall not be responsible for the supply of publicly provided
electricity to the Demised Premises, provided, however, Lessor shall be
responsible for the maintenance of electrical wiring from the point said service
enters Market Square East to the point where the Lessee's electrical utility
meters are located. Lessee shall have the Demised Premises wired for connection
to the standby electrical generator to be installed by Lessee for Lessee's use
at Market Square East. Lessee shall have the right to draw emergency power from
the standby electrical generator at Lessee's sole risk. Lessee shall be
responsible for the upkeep, maintenance, repair, replacement and fueling of the
standby electrical generator. Lessor shall have the right to conduct annual
inspections of the standby electrical generator and to provide the Lessee with a
schedule of required maintenance and repairs required as a result of such
inspection which maintenance and repairs Lessee will immediately undertake at
its sole cost and expense.
Any damage sustained to pipes or wiring which result from Lessee's use
thereof shall be repaired at Lessee's expense. Lessor shall not be responsible
for any injury or loss sustained by Lessee by any interruption in said services.
SECTION SIXTEEN
LESSEE'S ADDITIONAL COVENANTS
Lessee covenants, at its expense, at all times during the Lease Term:
(a) To perform promptly all of the obligations of Lessee set forth in this
Lease; and to pay when due the Basic Rent and Additional Rent.
(b) Except when and to the extent that the Demised Premises may be
unleaseable by reason of damage by fire or other casualty, continuously and
uninterruptedly to use, occupy and operate only for Permitted Uses and for no
other purpose all of the Demised Premises other than such minor portions thereof
as are reasonably required for storage and office purposes; to use such storage
and office space only in connection with the business conducted by Lessee in the
Demised Premises; to
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<PAGE>
furnish, install and maintain all trade fixtures and permitted signs; and to
open for business and remain open during the entire Lease Term.
(c) To store in the Demised Premises only such goods as are to be offered for
sale or are necessary or useful for the Permitted Use of the Demised Premises;
and to receive and deliver goods and merchandise only in the manner and areas
and at times reasonably designated by Lessor; to store all trash and refuse in
appropriate containers within the Demised Premises so as not to be visible to
the public and to attend to regular disposal thereof in the manner and by an
agency approved by Lessor, which approval shall not be unreasonably withheld;
Lessee shall comply with all local and federal guidelines, statutes and
regulations that may apply to the Lessee's use of the Demised Premises,
including those guidelines promulgated by the U.S. Environmental Protection
Agency and the V.I. Department of Planning and Natural Resources.
(d) To keep and maintain the Demised Premises, including equipment, facilities
and fixtures therein and the entire Demised Premises clean, neat, landscaped and
in good order, repair and condition (including all necessary exterior and
interior painting and decorating) and free of vermin; and to keep all glass,
including that in windows and doors, clean and in good condition, and to replace
any glass which may be damaged or broken by Lessee, its invitees, its agents or
employees, with glass of the same quality.
(e) To make all repairs, alterations, additions or replacements to the Demised
Premises, equipment, facilities and fixtures therein as required by any federal
or local law or ordinance or any order or regulation of any governmental
authority having jurisdiction thereof or of any insurance company providing
coverage on any part of the Property, which is occasioned by Lessee's use of the
Demised Premises; and otherwise to comply with the orders and regulations of all
such governmental authorities and insurance companies.
(f) To pay promptly when due the entire cost of any work done in or with
respect to the Demised Premises or the installation of any equipment, facilities
and fixtures therein, undertaken by Lessee so that the Demised Premises shall at
all times be free of liens for labor and materials; to procure all necessary
permits before undertaking such work and the prior written consent of Lessor,
which shall not be unreasonably withheld; to maintain or cause to be maintained
throughout the course of the performance of such work, Workmen's Compensation
Insurance in statutory limits; to do all such work in a good and workmanlike
manner acceptable to Lessor, employing materials of good quality; to comply with
all governmental requirements relating thereto; and to save Lessor harmless and
indemnified from all injury, loss, claims or damage to any person or property
occasioned by or growing out of such work, which is performed by the Lessee, its
employees or contractors.
(g) To defend, indemnify and hold Lessor harmless from all injury, loss,
claims, demands, actions or damage (including attorney's fees and disbursements)
to any person or property, arising from the negligence, contractual or criminal
liability of Lessee or any of Lessee's employees or agents related to, or in
connection with work performed on or about the Demised Premises by Lessee, its
agents, servants, employees or contractors or the use or occupancy of the
Demised Premises or
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<PAGE>
conduct or operation of Lessee's business caused, suffered or permitted by
Lessee or Lessee's concessionaires or by any of their respective officers,
agents, servants, employees or contractors.
Lessor shall indemnify and hold Lessee harmless from and against all
liabilities , damages, losses, claims and expenses including attorneys' fees
arising from any act or omission or negligence of Lessor or its officers,
contractors, licensees, agents or employees in or about the Demised Premises or
from any breach or default under this Lease by Lessor. Lessor shall not be
liable for any loss or damage to persons or property sustained by Lessee or
other persons which may be caused by theft or by any act or neglect of Lessee or
any other lessee or occupant of Market Square East or any third parties.
(h) That neither Lessor nor Lessor's agents shall be liable for, and
Lessee waives all claims for any and all loss, cost, liability, damage and
expense (including attorney's fees and disbursements), penalties and fines
incurred in connection with or arising from any injury to Lessee or to any other
person or for any damage to, or loss (by theft or otherwise) of, any of Lessee's
property and/or of the property of any other person, irrespective of the cause
of such injury, damage or loss arising from the acts or negligence of any lessee
or occupant of the Property or of any owners or occupants of adjacent or
contiguous property or any other persons or entities, excluding Lessor, and
whether occasioned by or from explosion, falling plaster, broken glass,
electricity, smoke, wind, water, being upon or coming through or from the
street, roof, subsurface, skylight, trapdoor or other pipes or sewage, or from
any other cause whatsoever.
(i) That Lessor and Lessor's agents, servants and employees shall have the
right to enter upon the Demised Premises at all reasonable times during normal
business hours or at such other times as Lessee and Lessor shall agree (a) to
examine the Demised Premises or exercising any right or remedy reserved to
Lessor in this Lease; and (b) to exhibit the Demised Premises to prospective
purchasers, mortgagees or lessees. Nothing herein contained however, shall be
deemed or construed to impose upon Lessor any additional obligation,
responsibility or liability whatsoever for the care, supervision or repair of
the Property or of the Demised Premises, other than as in this Lease otherwise
provided.
(j) To pay upon demand Lessor's expenses (including reasonable attorney's
fees and disbursements incurred in enforcing any obligation of the Lessee under
this Lease or in curing any default by Lessee under this Lease.
(k) To cause promptly to be discharged of record (by payment, bond, order
of a court of competent jurisdiction or otherwise) any mechanic's lien at any
time filed against the Demised Premises, or the Property, for any work, labor,
services or materials claimed to have been performed at, or furnished to, the
Demised Premises, for or on behalf of Lessee, or any one holding the Demised
Premises through or under Lessee by anyone hired by Lessee or hired by anyone
holding the Demised Premises through or under Lessee. If Lessee shall fall to
cause such lien to be discharged upon demand, then, in addition to any other
right or remedy of Lessor, Lessor may, but shall not be obligated to, discharge
the same by paying the amount claimed to be due or by bonding or other
proceeding deemed appropriate by Lessor, and the amount so paid by Lessor and/or
all costs and expenses (including attorney's fees and disbursements) incurred by
Lessor in procuring the discharge
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of such lien, together with interest on the amount of costs and expenses so
incurred at the rate of eighteen percent (18%) per annum, shall be paid to
Lessor on demand and shall be recoverable as Additional Rent.
(l) Upon the expiration date to quit and surrender to Lessor the Demised
Premises broom clean, in good order, condition and repair except for ordinary
wear and tear and damage by fire or other insured casualty and free of all
property of Lessee. Lessee shall repair all damage to the Demised Premises
caused by removal of any of Lessee's property.
(m) To provide a suitable identification sign or signs of such size, design
and character as Lessor shall approve, which approval Lessor shall not
unreasonably withhold, and pursuant to all legal requirements and guidelines,
and to install such sign or signs at a place or places designated or approved by
Lessor. Such sign or signs shall be substantially the same as those shown on the
preliminary sign designs attached hereto as Exhibit D. Lessee shall maintain any
such sign or other installation in good condition and repair and shall pay any
and all fees assessed by the Government of the U.S. Virgin Islands and its
agencies for such sign permits or for any other exterior work performed by
Lessee which requires U.S. Virgin Islands governmental approval.
(n) To keep all ingress and egress usable and free of obstruction to all
invitees to the Demised Premises, as well as to the Lessor.
(o) During the term of this Lease, Lessee shall comply with all applicable
laws affecting the Demised Premises, the breach of which might result in any
penalty on Lessor or forfeiture of Lessor's title to the Demised Premises.
Lessee shall not commit, or suffer to be committed, any waste on the Demised
Premises, or any nuisance.
(p) Lessee shall duly comply with, and the Demised Premises and Lessee's
business operations, assets, equipment, property, and other facilities thereon
shall comply with the provisions of all federal and territorial environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder. The Lessee shall obtain and maintain all required
federal and territorial permits, licenses, certificates, and approvals relating
to (1) air emissions, (2) discharges to surface water or groundwater, (3) noise
emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or wastes (intended
hereby and hereafter to include any and all such materials listed in any federal
or territorial law, code or ordinance, and all rules and regulations promulgated
thereunder, as hazardous or potentially hazardous), or (6) other environmental,
health, or safety matters. The Lessee shall not commit or permit on the Demised
Premises any violations of any federal or territorial environmental, health, or
safety laws, codes or ordinances, and any rules or regulations promulgated
thereunder with respect to the Demised Premises or Lessee's business,
operations, assets, equipment, property, leasehold, or other facilities thereon.
Except in accordance with a valid governmental permit, license, certificate or
approval, Lessee shall not commit or permit on the Demised Premises any
emission, spill, release, or discharge into or upon (1) the air, (2) soils or
any improvements located thereon, (3) surface water or groundwater, or (4) the
sewer, septic system or waste treatment, storage or disposal system
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servicing the Demised Premises, of any toxic or hazardous substances or wastes
at or from the Demised Premises; and accordingly, except for inventory of raw
materials, supplies, work in progress and finished, that are to be used in the
ordinary course of business, the Demised Premises shall be kept free of all such
toxic or hazardous substances or wastes. Lessee shall not commit or permit any
act which would result in a complaint, order, directive, claim, citation, or
notice by any governmental authority or any person or entity with respect to (1)
air emissions, (2) spills, releases, or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the Demised Premises, (3) noise
emissions, (4) solid or liquid waste disposal, (5) the use, generation, storage,
transportation, or disposal of toxic or hazardous substances or waste, or (6)
other environmental, health, or safety matters affecting the Lessee, the Demised
Premises or Lessee's business, operations, assets, equipment, property,
leasehold, or other facilities thereon; provided, however, that Lessee shall not
be deemed to be in default so long as Lessee complies with the provisions of
Section Twenty Four (b) in its response to any such complaint, order, directive,
claim, citation, or notice by any governmental authority or any person or
entity. The Lessee shall not commit or permit on the Demised Premises any act
which could result in an indebtedness, obligation or liability, absolute or
contingent, matured or not matured, with respect to the storage treatment,
cleanup, or disposal of any solid wastes, hazardous wastes, or other toxic or
hazardous substances (including without limitation any such indebtedness,
obligation or liability with respect to any current regulation, law or statute
regarding such storage, treatment, cleanup, or disposal). Prior to the
expiration or earlier termination of this Lease, Lessee shall remove from the
Demised Premises and lawfully dispose of all waste oil, contaminated dirt and
any other toxic or hazardous substance which may now or hereafter affect or be
located on the Demised Premises. Lessee shall and hereby does agree to hold
harmless, indemnify and defend the Lessor from and against any and all claims
relating to any of the environmental matters set forth above.
Lessor represents that there are no pre-existing environmental, health or
safety hazards or violations at the Demised Premises and agrees to indemnify and
hold Lessee harmless from all claims and demands arising from any such hazards
or violations that are in existence prior to the Commencement Date.
(q) Rules and Regulations. To abide by and act in compliance with all rules
and regulations consistent with the provisions of this Lease that Lessor may
make in connection with the use of the Demised Premises and the common areas and
facilities of Market Square East. It is understood and agreed that Lessor may,
from time to time, make changes to such rules and regulations or may adopt new
rules and regulations.
(r) Control of Lessee. To provide to the Lessor prior to the execution of this
lease and thereafter, on demand a list containing the following information:
(1) names of all shareholders holding 10% or more of the
outstanding shares of the Lessee;
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(2) the number of shares held by each shareholder holding 10% or more
the outstanding shares of the Lessee; and
(3) the total number of shares outstanding.
SECTION SEVENTEEN
LESSEE'S NEGATIVE COVENANTS
Lessee covenants at all times during the lease term and such further time as
Lessee occupies the Demised Premises or any part thereof:
(a) Not to overload, deface or otherwise damage the Demised Premises or any
part thereof or any equipment or installation therein; or commit any nuisance;
or permit the emission of any objectionable noise or odor; or use or permit the
use of any advertising medium, including, without limitation, flashing lights,
search lights, loudspeakers, televisions, phonographs, radios, sound amplifiers
or other devices in a manner so as to constitute a nuisance or be heard or
experienced outside the Demised Premises; or burn any trash or refuse within the
Demised Premises; or install or cause to be installed any automatic garbage
disposal equipment; or conduct business at, in, on, about or from all or any
part of the Demised Premises on any day when the conduct of business is
prohibited by any statutes, laws, regulations, or ordinances of the U.S. Virgin
Islands or any governmental authority having jurisdiction over the Demised
Premises, or make any use of the Demised Premises or of any part thereof or
equipment therein which is improper, offensive or contrary to any law or
ordinance, or which will invalidate or increase the cost of any of Lessor's
insurance over a standard mercantile rating, notwithstanding the permitted uses;
or use any advertising medium or sound producing mechanism that may constitute a
nuisance , such as radios, television sets, loudspeakers, sound amplifiers or
phonographs in a manner to be heard outside the Demised Premises; or conduct any
auction, fire, "going out of business", "close out" or bankruptcy sales, or do
any act tending to injure the reputation of Lessor or Market Square East; or
otherwise obstruct the driveways, walks, parking areas and other Common Areas in
the Property; or use the walks for any purpose other than pedestrian traffic; or
suffer or commit any nuisance or other act or thing which may disturb the quiet
enjoyment of any lessee in Market Square East or which would disturb the quiet
enjoyment of any persons within five-hundred (500) feet of the boundaries of the
Demised Premises.
(b) Except as provided in Section Thirty Two hereof, not to assign, by
operation of laws or otherwise, sell, mortgage, pledge or in any manner transfer
this Lease or any interest herein, or sublet the Demised Premises or any part or
parts thereof, or grant any concession or license or otherwise permit occupancy
of all or any part thereof by any person, firm or corporation without the
Lessor's express written consent which Lessor may not unreasonably withhold.
Lessee acknowledges that Lessor's right to prohibit the transfer of Lessee's
interest in the Lease would be reasonable if Lessee's proposed assignee is not
in substantially the same financial condition as Lessee and its Guarantor were
as of December 31, 1996, adjusted by CPI annually using December of 1996 as the
base level. At any time Lessee proposes to assign this Lease pursuant to a firm
and binding written offer from a third party ("Third Party Offer"), Lessor
shall have a right of first refusal to acquire the Lessee's interest
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in the Lease under the same terms and conditions as set forth in the Third Party
Offer. Lessor shall exercise such right of first refusal within fifteen (15)
business days of receipt of a copy of the same from Lessee failing which, the
Lessee shall have the right to complete the transaction contemplated by the
Third Party Offer, subject, however, to all of the other terms and conditions of
this Section Seventeen (b). Notwithstanding any provisions of the such Third
Party Offer, Lessor shall have sixty (60) days from the date of exercise of the
first refusal right to consummate the transaction. The provisions of this
Section have been freely negotiated and constitute an integral part of this
lease agreement between Lessee and Lessor. Neither the consent by Lessor to an
assignment, subletting, concession or license, nor the references in this Lease
to concessionaires and licensees shall in any wise be construed to relieve
Lessee from obtaining the express consent of Lessor to any further assignment or
subletting or the granting of any concession or license for the use of any part
of the Demised Premises, nor shall the collection of Basic Rent or Additional
Rent by Lessor from any assignee, sublessee or other occupant be deemed a waiver
of this covenant or the acceptance of the assignee, sublessee or occupant as
Lessee or a release of Lessee or the Guarantor from the further performance by
Lessee and the Guarantor of the terms, covenants and conditions in this Lease
and the Guaranty on Lessee's and Guarantor's parts to be performed.
(c) Not to change the exterior color or architectural treatment of the Demised
Premises or any part thereof or install any exterior lighting without the
Lessor's prior written consent.
(d) Not to place, install or maintain or suffer to be placed or installed or
maintained any sign upon or outside the Demised Premises or on the Property
unless approved by Lessor; or any awning, canopy, banner, flag, pennant, aerial,
antenna or the like in or on the Demised Premises or the Property; or place in
the windows or display windows any sign, decoration, lettering, advertising
matter, colored shade or blind, without first obtaining Lessor's written
approval and consent.
(e) Not to file this Lease in the Office of the Recorder of Deeds for the
District of St. Thomas and St. John or for the District of St. Croix without the
express written consent of Lessor which consent the Lessor may withhold in its
sole discretion; provided, however, that Lessee may record a memorandum of Lease
setting forth the durational term of the Lease, the identity of Lessee and such
other terms and provisions (except Basic Rent) which Lessee's lender may require
to ensure a valid leasehold mortgage over the Demised Premises.
(f) Not to engage or hire or permit any barker on or about the Demised
Premises or Market Square East.
(g) Not to operate any coin or token operated video games, pinball machines or
similar device within the Demised Premises without Lessor's written consent
which Lessor may withhold in its sole discretion.
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SECTION EIGHTEEN
ATTORNEYS' FEES
If any action at law or in equity shall be brought to recover any rent under
this Lease, or for or on account of any breach of, or to enforce or interpret
any of the covenants, terms or conditions of this Lease, or for the recovery of
the possession of the Demised Premises, the prevailing party shall be entitled
to recover from the other party, as part of the prevailing party's costs,
reasonable attorneys' fees, the amount of which shall be fixed by the court and
shall be made a part of any judgment or decree rendered.
SECTION NINETEEN
OPTION TO EXTEND
Lessor grants to Lessee, subject to the conditions set forth below, the right
and option to extend this Lease for three (3) additional terms of ten (10) years
each at a rental determined as provided above, and otherwise subject to and on
all of the terms and conditions herein contained, except that there shall be no
further option to extend the Lease. These options must be exercised by the
giving to Lessor, six (6) months before the expiration of the preceding term, a
written notice of the exercise thereof by Lessee, but Lessee shall in no event
be entitled to extend the term hereof, even though such notice be timely given,
unless Lessee shall have timely performed all of its obligations hereunder, and
shall not be in default in the performance of any thereof, on the date of the
expiration of the initial and each subsequent term hereof.
SECTION TWENTY
REDELIVERY OF DEMISED PREMISES
Lessee shall pay the rent and all other sums required to be paid by Lessee
hereunder in the amounts, at the times, and in the manner herein provided, and
shall keep and perform all the terms and conditions hereof on its part to be
kept and performed, and, at the expiration or sooner termination of this Lease,
peaceably and quietly quit and surrender to Lessor the Demised Premises in good
order and condition subject to the other provisions of this Lease. In the event
of the non-performance by Lessee of any of the covenants of Lessee undertaken
herein, this Lease may be terminated as herein provided.
SECTION TWENTY-ONE
REMEDIES CUMULATIVE
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All remedies hereinbefore and hereafter conferred on Lessor shall be deemed
cumulative and no one exclusive of the other, or of any other remedy conferred
by law.
SECTION TWENTY-TWO
INSURANCE AND INDEMNIFICATION OF LESSOR
(a) Insurance Coverage of Improvements on the Demised Premises. Lessee shall,
----------------------------------------------------------
at all times during the term of this Lease and at Lessee's sole expense, keep
all improvements which are now or hereafter a part of the Demised Premises
insured against loss or damage by fire and the extended coverage hazards,
including, without limitation, earthquake and windstorm coverage, for the full
replacement value of such improvements, with loss payable to Lessor and Lessee
as their interests may appear. Any loss adjustment shall require the written
consent of both Lessor and Lessee.
(b) Personal Injury Liability Insurance. Lessee shall maintain in effect
-----------------------------------
throughout the term of this Lease personal injury liability insurance covering
the Demised Premises and its appurtenances and the sidewalks fronting thereon in
the amount of TWO MILLION DOLLARS ($2,000,000.00) for injury to or death of any
one person, and TWO MILLION DOLLARS ($2,000,000.00) for injury to or death of
any number of persons in one occurrence, and property damage liability insurance
in the amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00). Such
insurance shall specifically insure Lessee against all liability assumed by it
hereunder, as well as liability imposed by law, and shall insure both Lessor and
Lessee but shall be so endorsed as to create the same liability on the part of
the insurer as though separate policies had been written for Lessor and Lessee.
(c) Lessor's Right to Pay Premiums on Behalf of Lessee. All of the policies of
--------------------------------------------------
insurance referred to in this section shall be written in form satisfactory to
Lessor and by insurance companies satisfactory to Lessor. Lessee shall pay all
of the premiums therefor and deliver such policies, or certificates thereof, to
Lessor, and in the event of the failure of Lessee, either to effect such
insurance in the names herein called for or to pay the premiums therefor or to
deliver such policies, or certificates thereof, to Lessor, Lessor shall be
entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor, which premiums shall be repayable to Lessor with the next
installment of rent, and failure to repay the same shall carry with it the same
consequence as failure to pay any installment of rent. Each insurer mentioned in
this section shall agree, by endorsement on the policy or policies issued by it,
or by independent instrument furnished to Lessor, that it will give to Lessor
thirty (30) days' written notice before the policy or policies in question shall
be altered or canceled. Lessor agrees that it will not unreasonably withhold its
approval as to the form or to the insurance companies selected by Lessee.
(d) Adjustment of Coverage. In the event that either party shall at any time
----------------------
deem the limits of the personal injury or property damage public liability
insurance then carried to be either excessive or insufficient, the parties shall
endeavor to agree on the proper and reasonable limits for such insurance then to
be carried and such insurance shall thereafter be carried with the limits thus
agreed on until further change pursuant to the provisions of this section, but,
if the parties shall be unable to agree thereon, the proper and reasonable
limits for such insurance then to be carried shall be
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determined by an impartial third person selected by the parties, or should they
be unable to agree on a selection, by an impartial third person chosen by the
Commissioner of Insurance for the Virgin Islands or his successor, and the
decision of such impartial third person as to the proper and reasonable limits
for such insurance then to be carried shall be binding on the parties and such
insurance shall be carried with the limits as thus determined until such limits
shall again be changed pursuant to the provisions of this section. The expenses
of such determination shall be borne equally by the parties.
(e) Blanket Insurance Policies. Notwithstanding anything to the contrary
--------------------------
contained in this section, Lessee's obligations to carry the insurance provided
for herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Lessee provided, however, that
the coverage afforded Lessor will not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all other
requirements of this Lease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of the foregoing
Paragraphs (a) and (b) of this section are otherwise satisfied.
(f) Cost of Insurance Deemed Additional Rental. The cost of insurance required
------------------------------------------
to be carried by Lessee in this section shall be deemed to be additional rental
hereunder. All of said insurance shall be in form satisfactory to Lessor and
with companies rated A5 or better by A.M. Best.
(g) Indemnification of Lessor. Lessor shall not be liable for any loss,
-------------------------
injury, death, or damage to persons or property which at any time may be
suffered or sustained by Lessee or by any person whosoever may at any time be
using or occupying or visiting the Demised Premises or be in, on, or about the
same, whether such loss, injury, death, or damage shall be caused by or in any
way result from or arise out of any act, omission, or negligence of Lessee or of
any occupant, sublessee, visitor, or user of any portion of the Demised
Premises, or shall result from or be caused by any other matter or thing whether
of the same kind as or of a different kind than the matters or things above set
forth, and Lessee shall indemnify Lessor against all claims, liability, loss, or
damage whatsoever on account of any such loss, injury, death, or damage. Lessee
hereby waives all claims against Lessor for damages to the building and
improvements that are now on or hereafter placed or built on the Demised
Premises and to the property of Lessee in, on, or about the Demised Premises,
and for injuries to persons or property in or about the Demised Premises, from
any cause arising at any time. The two preceding sentences shall not apply to
loss, injury, death, or damage arising by reason of the gross negligence or
misconduct of Lessor, its agents, or employees.
Lessor, its agents, servants and employees and lessees and occupants of the
Property shall not be liable for any damage by fire or other casualty covered by
Lessee's insurance, no matter how caused, it being understood that the Lessee
will look solely to its insurer for reimbursement. If Lessee fails to comply
with the requirements of this Subsection, Lessor may, but shall not be obligated
to, obtain such insurance and keep the same in effect, and Lessee shall pay
Lessor as Additional Rent upon demand the premium therefor.
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(h) Waiver of Subrogation. Whether the loss or damage is due to the
---------------------
negligence of either Lessor or Lessee, or any other cause, Lessor and Lessee
each hereby release and relieve the other, its agents or employees, from
responsibility for, and waive its entire claim of recovery for (i) any loss or
damage to its real or property located anywhere in the Demised Premises, arising
out of or incident to the occurrence of any of the perils which are covered by
its property and related insurance policies and (ii) any loss resulting from
business interruption at the Demised Premises or loss of rental income from the
Demised Premises, arising out of or incident to the occurrence of any of the
perils covered by any business interruption or loss of rental income insurance
policy held by it. Each party shall use best efforts to cause its insurance
carriers to consent to the foregoing waiver of rights of subrogation against the
other party. Notwithstanding the foregoing, no such release shall be effective
except to the extent the applicable insurance policy or policies shall cover
such loss and expressly permit such a release or contain a waiver of the
carrier's right to be subrogated.
SECTION TWENTY-THREE
PROHIBITION OF INVOLUNTARY ASSIGNMENT:
EFFECT OF BANKRUPTCY OR INSOLVENCY
(a) Prohibition of Involuntary Assignment. Neither this Lease nor the
-------------------------------------
leasehold estate of Lessee nor any interest of Lessee hereunder in the Demised
Premises or in the building or improvements thereon shall be subject to
involuntary assignment, transfer, or sale, or to assignment, transfer, or sale
by operation of law in any manner whatsoever (except through statutory merger or
consolidation, or devise, or intestate succession) and any such attempt at
involuntary assignment, transfer, or sale shall be void and of no effect.
(b) Effect of Bankruptcy. Without limiting the generality of the provisions of
--------------------
the preceding Paragraph (a) of this section, Lessee agrees that in the event any
proceedings under the Bankruptcy Act or any amendment thereto be commenced by or
against Lessee, and, if against Lessee, such proceedings shall not be dismissed
before either an adjudication in bankruptcy or the confirmation of a
composition, arrangement, or plan or reorganization, or in the event Lessee is
adjudged insolvent or makes an assignment for the benefit of its creditors, or
if a receiver is appointed in any proceeding or action to which Lessee is a
party, with authority to take possession or control of the Demised Premises or
the business conducted thereon by Lessee, and such receiver is not discharged
within a period of sixty (60) days after his appointment, any such event or any
involuntary assignment prohibited by the provisions of the preceding Paragraph
(a) of this section shall be deemed to constitute a breach of this Lease by
Lessee and shall, at the election of Lessor, but not otherwise, without notice
or entry or other action of Lessor terminate this Lease and also all rights of
Lessee under this Lease and in and to the Demised Premises and also all rights
of any and all persons claiming under Lessee.
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SECTION TWENTY-FOUR
NOTICE OF DEFAULT
This Lease and the term and estate hereby granted are subject to the
limitation that:
(a) if Lessee shall default in the payment when due of any installment
of Basic Rent or in the payment when due of any Additional Rent, and such
default shall continue for a period of ten (10) business days after notice
from Lessor of such default; or
(b) if Lessee shall default in the observance or performance of any
term, covenant or condition of this Lease on Lessee's part to be observed or
performed (other than the covenants for the payment of Basic Rent and
Additional Rent) and Lessee shall fail to remedy such default within ten (10)
days after notice by Lessor to Lessee of such default, or if such default is
of such a nature that it cannot be completely remedied within said period
of ten (10) days if Lessee (a) shall not within ten (10) days after the giving
of such notice, advise Lessor in writing of Lessee's intention duly to
institute all steps necessary to remedy such situation, (b) shall not within
ten (10) days institute and thereafter diligently prosecute to completion all
steps necessary to remedy the same, and (c) shall not remedy the same within a
reasonable time after the date of the giving of said notice by Lessor;
then in any of said events Lessor may give to Lessee notice of intention to end
the Lease Term at the expiration of three (3) days from the date of the giving
of such notice, and, in the event such notice is given, this Lease and the term
and estate hereby granted shall terminate upon the expiration of said three (3)
days with the same effect as if that day were the Expiration Date, and Lessee
shall then quit and surrender the Demised Premises to Lessor but Lessee shall
remain liable as hereinafter set forth, provided, however, that if Lessee shall
default in the timely payment of Basic Rent or Additional Rent and any such
default shall continue for two (2) successive occasions or more for a total of
four (4) months in any period of twelve (12) months, or in performance of any
other term, covenant or condition of this Lease more than three (3) times in any
period of six (6) months, then, notwithstanding that such defaults shall have
each been cured by Lessee within the period after notice as above provided or by
Lessor pursuant to Section 10.6, any further similar default shall be deemed to
be deliberate and Lessor thereafter may serve the said written three (3) days
notice of termination without affording to Lessee an opportunity to cure such
further default.
If the notice provided for above in this Section Twenty Four shall have been
given and this Lease shall be terminated, or if any execution or attachment
shall be issued against Lessee with respect to the Demised Premises; then, in
any of such events Lessor may, without notice, terminate all services, and
pursuant to summary or other proceedings dispossess Lessee and the legal
representative of Lessee or other occupant of the Demised Premises as if this
Lease had not been made.
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SECTION TWENTY-FIVE
DEFAULT
If this Lease and the Lease Term shall terminate as provided in Section
Twenty Four, or by or under any summary proceeding or any other action or
proceeding, then, in any of said events:
(a) Lessee shall pay to Lessor all Basic Rent and Additional Rent due to
the date upon which this Lease and the Lease Term shall have terminated or to
the date of re-entry upon the Demised Premises by Lessor, as the case may be;
(b) Lessor shall be entitled to retain all monies, if any, paid by
Lessee to Lessor, whether as Basic Rent, Additional Rent, Security or
otherwise, but such monies shall be credited by Lessor against any Basic Rent
or Additional Rent due at the time of such termination or re-entry or, at
Lessor's option, against any other damages set forth herein;
(c) Lessor shall use reasonable efforts to mitigate its damages by
reletting the Demised Premises including the improvements thereon which shall
belong to Lessor as provided in Section Twenty-Nine. Lessee shall be liable
for and shall pay to Lessor, as damages, any deficiency between the Basic Rent
and Additional Rent payable hereunder for the period which otherwise would
have constituted the unexpired portion of the Lease Term and the net amount,
if any, of rents ("Net Rent") collected under any reletting for any part of
such period (first deducting from the rents collected under any such reletting
all of Lessor's documented expenses in connection with the termination of this
Lease or Lessor's re-entry upon the Demised Premises and in connection with
such reletting including all repossession costs, brokerage commissions, legal
expenses, and reasonable attorneys' fees;
(d) Any such deficiency shall be paid in monthly installments by Lessee
on the days specified in this Lease for the payment of installments of Basic
Rent. Lessor shall be entitled to recover from Lessee each monthly deficiency
as the same shall arise and no suit to collect the amount of the deficiency
for any month shall prejudice Lessor's right to collect the deficiency for any
subsequent month by a similar proceeding. Alternatively, suit or suits for the
recovery of such deficiencies may be brought by Lessor from time to time at
its election;
(e) (i) In no event shall Lessee be entitled to receive any excess of
such Net Rent over the sums payable by Lessee to Lessor hereunder, (ii) in no
event shall Lessee be entitled in any suit for the collection of damages
pursuant to this Section to a credit in respect of any Net Rent from a
reletting except to the extent that such Net Rent is actually received by
Lessor prior to the commencement of such suit, and (iii) if the Demised
Premises or any part thereof shall be relet in combination with other space,
then proper apportionment on a square foot area basis shall be made of the
rent received from such reletting and of the expenses of reletting;
(f) Lessor and Lessor's agents may immediately re-enter the Demised
Premises or any part thereof, without notice, either pursuant to summary
proceedings or by any other
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applicable action or proceeding (without being liable to indictment,
prosecution or damages therefor), and may repossess the Demised Premises and
dispossess Lessee and any other persons from the Demised Premises and remove
any and all of its or their property and effects from the Demised Premises and
in no event shall re-entry be deemed an acceptance of surrender of this Lease,
and in the event that the Lessee has abandoned the Demised Premises, title to
any property of the Lessee left in the Demised Premises shall immediately pass
to the Lessor, and the Lessor shall be entitled to dispose of, use or
otherwise own such property of Lessee, with the value thereof being credited
to the account of the Lessee; and
In the event of any breach or threatened breach by Lessee or any persons
claiming through or under Lessee of any of the agreements, terms, covenants or
conditions contained in this Lease, Lessor shall be entitled to enjoin such
breach or threatened breach and shall have the right to invoke any right and
remedy allowed at law or in equity or by statute or otherwise as if re-entry,
summary proceedings or other specific remedies were not provided for in this
Lease.
SECTION TWENTY-SIX
LESSOR'S RIGHT TO PERFORM
In the event that Lessee by failing or neglecting to do or perform any act or
thing herein provided by it to be done or performed, shall be in default
hereunder and such failure shall continue for a period of ten (10) days after
written notice from Lessor specifying the nature of the act or thing to be done
or performed, then Lessor may, but shall not be required to, do or perform or
cause to be done or performed such act or thing (entering on the Demised
Premises for such purposes, if Lessor shall so elect), and Lessor shall not be
or be held liable or in any way responsible for any loss, inconvenience,
annoyance, or damage resulting to Lessee on account thereof, and Lessee shall
repay to Lessor on demand the entire expense thereof, including compensation to
the agents and employees of Lessor. Any act or thing done by Lessor pursuant to
the provisions of this section shall not be or be construed as a waiver of any
such default by Lessee, or as a waiver of any covenant, term, or condition
herein contained or the performance thereof, or of any other right or remedy of
Lessor, hereunder or otherwise. All amounts payable by Lessee to Lessor under
any of the provisions of this Lease, if not paid when the same become due as in
this Lease provided, shall bear interest from the date they become due until
paid at the rate of eighteen percent (18%) per annum, compounded annually.
SECTION TWENTY-SEVEN
EFFECT OF EMINENT DOMAIN
(a) Effect of Total Condemnation. In the event the entire Demised Premises
----------------------------
shall be appropriated or taken under the power of eminent domain by any public
or quasi-public authority, this Lease shall terminate and expire as of the date
of such taking, and Lessee shall thereupon be released from any liability
thereafter accruing hereunder.
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(b) Effect of Partial Condemnation. In the event a portion of the Demised
------------------------------
Premises shall be so appropriated or taken and the remainder of the property
shall not be suitable for the use then being made of the property by Lessee, or
if the remainder of the property is not one undivided parcel of property, Lessee
shall have the right to terminate this Lease as of the date of such taking on
giving to Lessor written notice of such termination within thirty (30) days
after Lessor has notified Lessee in writing that the property has been so
appropriated or taken.
In the event of such partial taking and Lessee does not so terminate this
Lease, then this Lease shall continue in full force and effect as to the part
not taken, and the rental to be paid by Lessee during the remainder of the
term, subject to adjustment as provided in the rental adjustment provisions of
Section Three hereof, shall be renegotiated but in no event reduced to less than
seventy-five percent (75%) of the rent then being paid and any such adjustment
shall not affect or change the times at which Lessor may require an adjustment
in rent under the rental adjustment provisions of Section Three hereof.
(c) Condemnation Award. In the event of the termination of this Lease by
------------ -----
reason of the total or partial taking of the Demised Premises by eminent domain,
then in any such condemnation proceedings Lessor and Lessee shall be free to
make claim against the condemnation proceedings and Lessor and Lessee shall be
free to make claim against the condemning or taking authority for the amount of
any damage done to them, respectively, as a result thereof.
In the event of a partial taking of the Demised Premises and this Lease is not
terminated, then Lessee shall have the right to make claim against the
condemning or taking authority for only the unamortized cost of the improvements
placed on the Demised Premises by Lessee and located thereon at the time of the
taking or appropriation, which improvements shall be deemed to amortize in equal
monthly amounts over the period commencing with the date of completion of such
improvements and ending at the expiration of the initial term of this Lease.
SECTION TWENTY-EIGHT
SURRENDER OF LEASE
The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Lessor, terminate all or any existing subleases or subtenancies, or may, at the
option of Lessor, operate as an assignment to it of any or all such subleases or
subtenancies.
SECTION TWENTY-NINE
DISPOSITION OF IMPROVEMENTS ON TERMINATION OR EXPIRATION OF LEASE
On termination or expiration of this Lease for any cause, Lessor shall become
the owner of any building or improvements on the Demised Premises.
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<PAGE>
SECTION THIRTY
WAIVER
The waiver of, or the failure of the Lessor to take action with respect to any
breach of any term, covenant, or condition herein contained shall not be deemed
to be a waiver of such term, covenant, or condition, or subsequent breach of the
same, or any other term, covenant, or condition therein contained. The
subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a
waiver of any preceding breach by Lessee of any term, covenant, or condition of
this Lease, other than the failure of Lessee to pay the particular rental so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
SECTION THIRTY-ONE
EFFECT OF LESSEE'S HOLDING OVER
Any holding over after the expiration of the term of this Lease, with consent
of Lessor, shall be construed to be a tenancy from month to month, at twice the
monthly rental as required to be paid by Lessee for the period immediately prior
to the expiration of the term hereof, and shall otherwise be on the terms and
conditions herein specified, so far as applicable.
SECTION THIRTY-TWO
ENCUMBRANCE OF LESSEE'S LEASEHOLD INTEREST
Lessee may encumber by mortgage or other proper instrument, its leasehold
interest in the Demised Premises, together with all buildings and improvements
placed by Lessee thereon, as security for any indebtedness undertaken by Lessee
solely for the purpose of erecting such buildings and improvements. The
execution of any such mortgage or other instrument, or the foreclosure thereof,
or any sale thereunder, either by judicial proceedings or by virtue of any power
reserved in such mortgage, or conveyance by Lessee to the holder of such
indebtedness, or the exercising of any right, power, or privilege reserved in
any mortgage, shall not be held as a violation of any of the terms or conditions
hereof, or as an assumption by the holder of such indebtedness personally of the
obligations hereof except to the extent that such holder voluntarily assumes
said obligations in order to avoid termination of this Lease. No such
encumbrance, foreclosure, conveyance, or exercise of right shall relieve Lessee
from its liability hereunder.
If Lessee shall encumber his leasehold interest and estate in the Demised
Premises and if Lessee or the holder of the indebtedness secured by such
encumbrance shall give notice to Lessor of the existence thereof and the address
of such holder, then Lessor will mail or deliver to such holder, at such
address, a duplicate copy of all notices in writing which Lessor may, from time
to time, give to or serve on Lessee under and pursuant to the terms and
provisions hereof; such copies shall be mailed or delivered to such holder, at,
or as near as possible to, the same time such notices are given to or served on
Lessee. Such holder may, at its option, at any time before the rights of Lessee
shall be terminated as provided herein, pay any of the rents due hereunder, or
pay any taxes and assessments, or do any act or thing required of Lessee by the
terms hereof, or do any act or thing that may be
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<PAGE>
necessary and proper to be done in the observance of the covenants and
conditions hereof, or to prevent the termination hereof, all payments so made,
and all things so done and performed by such holder shall be as effective to
prevent a foreclosure of the rights of Lessee thereunder as the same would have
been if done and performed by Lessee.
SECTION THIRTY-THREE
PARTIES BOUND
The covenants and conditions herein contained shall, subject to the provisions
as to assignment, transfer, and subletting, apply to and bind the heirs,
successors, executors, administrators, and assigns of all of the parties hereto;
and all of the parties hereto shall be jointly and severally liable hereunder.
SECTION THIRTY-FOUR
TIME IS OF THE ESSENCE
Time is of the essence of this Lease, and of each and every covenant, term,
condition, and provision hereof
SECTION THIRTY-FIVE
SURVEY
Prior to the Rent Commencement Date, Lessor, at Lessor's sole expense, shall
cause to be prepared and furnished to Lessee a current on the ground plat survey
of the Demised Premises. The survey shall be staked on the ground and shall be
in such form and content as to permit the deletion from the title insurance
policy the standard printed "survey exception". The survey shall include the
following, all of which must be acceptable to the Lessee:
a) The total acreage and net acreage of the Demised Premises, as well as the
acreage of all easements, roads, rights of way, etc. within the Demised
Premises;
b) The location of all existing and proposed easements, building set-back
lines, existing lot lines, improvements, streets, roads, water courses, water
flood zones, and fences on or adjacent to the Demised Premises. The location of
all adjoining dedicated streets and the name of the nearest intersecting
dedicated streets shall be shown on the survey. The survey shall also show all
places where access to and egress from the Demised Premises to public streets
has been provided for;
c) All other natural monuments, improvements or other object on the Demised
Premises;
d) Metes and bounds or other appropriate legal description of the Demised
Premises; and
e) The current zoning classification of the Demised Premises.
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<PAGE>
SECTION THIRTY-SIX
SUBORDINATION
This lease shall become subject and subordinate to any mortgage affecting the
Property or the Demised Premises, made to a bank, trust company, savings and
loan association, title company, college, university, insurance company, or
federal or state pension or retirement fund, any and renewals, modifications,
replacements or extensions thereof, if and when a non~disturbance and attornment
agreement substantially in the form attached to this Lease as Exhibit C is
entered into in respect of such mortgage. In the event of such mortgage of the
Property by Lessor, Lessor shall obtain and Lessee shall execute a
non~disturbance and attornment agreement from the Lessor's mortgagee.
SECTION THIRTY~SEVEN
SECURITY DEPOSIT
Lessee has deposited TWENTY SEVEN THOUSAND ONE HUNDRED FIFTY DOLLARS
($27,150.00) with Lessor as security for Lessee's payment of rent and
performance of his other obligations under this Lease, and any renewals or
extensions of the Lease. If Lessee defaults in his payment of rent or
performance of his other obligations under this Lease, Lessor may use all or
part of the security deposit for the payment of rent or any other amount in
default or for the payment of any other amount which Lessor may spend or become
obligated to spend by reason of Lessee's default, or for the payment to Lessor
of any other loss or damage which Lessor may suffer by reason of Lessee's
default. If Lessor so uses any portion of the security deposit, Lessee will
restore the security deposit to its original amount within five (5) days after
written demand from Lessor. Lessor will not be required to keep the security
deposit separate from its general funds and Lessee will not be entitled to
interest on the security deposit. The security deposit will not be a limitation
on Lessor's damages or other rights under this Lease, or a payment of liquidated
damages, or an advance payment of the rent. If Lessor has evidence that the
security deposit has been assigned to an assignee of the Lease, Lessor will
return the security deposit to the assignee.
In the event that the Basic Rent plus any Additional Rent for any Lease Year
during the Lease Term is increased from the amount payable in the preceding
Lease Year pursuant to terms hereof, Lessee shall pay to Lessor as an Additional
Security Deposit held by Lessor equal to two (2) times the amount of the monthly
rental due hereunder for such Lease Year.
In the event that Lessee shall fully and faithfully comply with all of the
terms, covenants and conditions of this Lease, the Security Deposit shall be
returned to Lessee after the Expiration Date and after delivery of exclusive
possession of the Demised Premises to Lessor. In the event of a sale or leasing
of Market Square East or any part thereof which includes the Demised Premises,
Lessor shall have the right to transfer the Security Deposit to the vendee and
lessee and Lessor shall ipso facto be released by Lessee from all liability for
---- -----
the return of such Security Deposit, and Lessee agrees to look solely to the new
Lessor for the return of the Security Deposit. The provisions hereof shall apply
to every transfer or assignment made of the Security Deposit to a new Lessor.
Lessee further covenants
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<PAGE>
that it will not assign or encumber or attempt to assign or encumber the monies
deposited as security and that neither Lessor nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance. If Lessor has evidence that the security deposit has been
assigned to an assignee of the Lease, Lessor will return the security deposit to
the assignee.
If at any time during the period of time the Lessee is given possession of the
Demised Premises or throughout the Lease Term or at the Expiration Date or other
termination of the Lease Term the Lessee is in default under any covenant or
obligation contained in this Lease, the Lessor shall have a lien on all
stock-in-trade, inventory and fixtures, equipment and facilities of the Lessee,
as security against loss or damage resulting from any such default by the Lessee
and the said stock-in-trade, inventory, fixtures, equipment or facilities shall
not be removed by the Lessee until such default is cured, unless otherwise
permitted in writing by the Lessor. The provisions of this Section Thirty Seven
shall survive the Lease Term or earlier termination of this Lease. Consistent
with the provisions of 11A V.I.C. (S)1-102(3) and notwithstanding the provisions
11A V.I.C. (S)9-104(b), Lessee hereby acknowledges and agrees that the
provisions of Article 9 of the Uniform Commercial Code as codified in 11A V.I.C.
(S)9-101 et seq. shall govern the Lessor's rights and remedies under this
Section Thirty Seven.
SECTION THIRTY-EIGHT
MISCELLANEOUS PROVISIONS
(a) Nothing contained herein shall be deemed or construed by the parties
hereto, or by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto.
(b) Lessee hereby agrees that it will, at any time and from time to time,
within fifteen (15) calendar days following written notice by the other party
hereto specifying that it is given pursuant to this Section, execute,
acknowledge and deliver to the party who gave such notice a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications that the same is in full force and effect as
modified and stating the modifications), and the dates to which the Basic Rent
and Additional Rent and any other payments due hereunder from Lessee have been
paid and stating whether or not to the best of the knowledge of the signer of
such certificate the other party is in default in performance of any term,
covenant or condition contained in this Lease, and, if so, specifying each such
default of which the signer may have knowledge.
(c) Lessee hereby certifies that it has not dealt with any broker with regard
to the Demised Premises or this Lease. Lessee will indemnify, hold harmless and
defend Lessor against any loss, liability and expense (including attorneys' fees
and court costs) arising out of claims for fees or commissions from anyone
claiming to have brought Lessee to the Demised Premises, to have assisted Lessee
with this Lease or negotiations connected with this Lease.
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<PAGE>
(d) The laws of the U.S. Virgin Islands shall govern the validity,
performance and enforcement of this Lease. The invalidity or unenforceability of
any provision of this Lease shall not affect or impair any other provision. All
negotiations, considerations, representations and understandings between the
parties are incorporated in this Lease. The computation of any time period in
this Lease shall not include the day of the act, event or default from which the
designated time period begins to run, all other calendar days shall be included
in the computation; provided, however, that where this Lease refers to business
days, Saturdays, Sundays and federal holidays shall not be included. The
captions as to contents or particular paragraphs herein are inserted only for
convenience, and are in no way to be construed as a part of this Lease or as a
limitation on the scope of the particular paragraphs to which they refer.
Whenever herein the singular number is used, the same shall include the plural;
and the neuter gender shall include the masculine and feminine gender.
(e) The terms, covenants and conditions herein contained, except as herein
otherwise specifically provided, shall extend to, bind and inure to the benefit
of the parties hereto and their respective personal representatives, heirs,
successors and permitted assigns. Each term, covenant and condition herein
contained shall be deemed and construed as a separate and independent covenant
of the party bound by, undertaking or making the same, not dependent on any
other provision of this Lease unless otherwise expressly provided.
(f) All negotiations, representations, considerations, undertakings,
understandings and agreements heretofore made between the parties hereto are
merged in this Lease, which alone fully and completely expresses the agreement
between Lessor and Lessee and any executory agreement hereafter made shall be
ineffective to change, modify discharge or effect and abandonment of it in whole
or part, unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification, discharge or abandonment
is sought.
(g) If Lessee is a corporation or partnership and if at any time during the
Lease Term the Person(s) or entity who, at the time of the execution of this
Lease, own(s) a majority of such corporation's shares or the general partners'
interests in such partnership, as the case may be, cease(s) to own a majority of
such shares or general partners' interests, as the case may be (including as the
result of transfers by phantom stock or stapled stock but expressly excluding
transfers by bequest or inheritance), such transfer of ownership shall be deemed
an assignment of Lessee's interest in this Lease, which transfer shall be
subject to the provisions of hereof regarding assignment of the Lessee's
interest.
(h) If the Lessee is a corporation, simultaneously with execution of this
Lease, the principal shareholders of the Lessee shall execute a Guaranty of
Lease, in the form attached hereto as Exhibit E, in which the principals, as
guarantor, shall jointly and severally, personally guaranty the obligations of
the Lessee under this Lease. If the Guarantor is a corporation or partnership
and if at any time during the Lease Term the Person(s) or entity who, at the
time of the execution of the Guaranty, own(s) a majority of such corporation's
shares or the general partners' interests in such partnership, as the case may
be, cease(s) to own a majority of such shares or general partners' interests, as
the case may be (including as the result of transfers by phantom stock or
stapled stock but expressly excluding
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<PAGE>
transfers by bequest or inheritance), such transfer of ownership shall entitle
the Lessor to require new Guaranties from guarantors whose financial condition
is as good or better than the financial condition of the Guarantor at the
inception of this Lease. Failure to provide such new Guaranties shall be deemed
a default hereunder.
The Guarantor agrees to provide to the Lessor prior to the execution of this
lease and thereafter, on demand a list containing the following information:
(1) names of all shareholders holding 10% or more of the outstanding
shares of the Guarantor;
(2) the number of shares held by each shareholder holding 10% or more the
outstanding shares of the Guarantor; and
(3) the total number of shares outstanding.
Annually, within ninety (90) days of the end of each fiscal year, the Lessee
and any guarantor of Lessee's obligations hereunder shall provide to the Lessor
audited financial statements as of the close of such fiscal year.
(i) Nothing contained herein shall be deemed or construed by the parties
hereto, or by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto.
(j) Lessee hereby agrees that it will, at any time and from time to time,
within fifteen (15) calendar days following written notice by the other party
hereto specifying that it is given pursuant to this Section, execute,
acknowledge and deliver to the party who gave such notice a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the Basic Rent
and Additional Rent and any other payments due hereunder from Lessee have been
paid and stating whether or not to the best of the knowledge of the signer of
such certificate the other party is in default in performance of any term,
covenant or condition contained in this Lease, and, if so, specifying each such
default of which the signer may have knowledge.
(k) Lessee hereby certifies that it has not dealt with any broker with regard
to the Demised Premises or this Lease. Lessee will indemnify, hold harmless and
defend Lessor against any loss, liability and expense (including attorneys' fees
and court costs) arising out of claims for fees or commissions from anyone
claiming to have brought Lessee to the Demised Premises, to have assisted Lessee
with this Lease or negotiations connected with this Lease.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the day and
year first above written.
LESSOR:
------
WITNESSES: MARKET SQUARE EAST, INC.
/s/ Mona L. Charles BY: /s/ John P. deJongh Jr.
- ------------------------- ----------------------------------
John P. deJongh Jr., President
[SEAL]
/s/ Julienne Watley
- -------------------------
ATTEST: /s/ Cornel A. Williams
----------------------------------
Cornel A. Williams, Secretary
LESSEE:
------
CULUSVI, INC.
/s/ James J. BY: /s/ Michael
- ------------------------- ----------------------------------
, President
- ------------------------- [SEAL]
ATTEST: /s/ Allan Youngberg
----------------------------------
, Secretary
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<PAGE>
EXHIBIT A
SURVEY PLAN AND
PROPERTY DESCRIPTION
<PAGE>
[BRIAN MOSELEY AND ASSOCIATES, INC. LAND SURVEY OF LEASE AREA 'A']
<PAGE>
[LETTERHEAD OF BRIAN MOSELEY AND ASSOCIATES, INC.]
DWG. NO. 3267-3A
August 27, 1997
Lease Area A of Parcel 1-2
Estate Donoe
No. 2 New Quarter
St. Thomas, US Virgin Islands
BOUNDARY DESCRIPTION:
Beginning at a point identified as N 185399.56 E 1030407.07, based on Puerto
Rico/US Virgin Islands Lambert Grid projection and common to parcel 1-2, the
line runs;
N 90 00' W a distance of 182.0' on parcel 1-2 to a point, thence
N 00 00' E a distance of 162.7' on parcel 1-2 to a point, thence
N 90 00' W a distance of 17.0' on parcel 1-2 to a point, thence
N 00 00' E a distance of 52.3' on parcel 1-2 to a point, thence
Northerly an arc distance of 24.8' on a right curve whose radius is 40.0' on
parcel 1-2 to a point, thence
Easterly an arc distance of 100.0' on a right curve whose radius is 492.6' on
parcel 1-2 to a point, thence
N 85 22' E a distance of 78.6' on parcel 1-2 to a point, thence
S 00 00' E a distance of 75.5' on parcel 1-2 to a point, thence
N 90 00' E a distance of 15.0' on parcel 1-2 to a point, thence
S 00 00' E a distance of 187.2' on parcel 1-2 to the point of origin.
Bearings are correlated to Lambert Grid.
The area is 46,538 sq. ft./1.068 acre.
Brian Moseley and Associates, Inc.
/s/ Brian M. Moseley,
Brian M. Moseley, RLS #502
<PAGE>
EXHIBIT B
DEVELOPMENT GUIDELINES
<PAGE>
EXHIBIT - B
DESIGN REQUIREMENTS
MARKET SQUARE EAST
The following are the design requirements for Market Square East.
A. BUILDING PLANS & SPECIFICATIONS
All plans at the preliminary stage and at the final stage must be approved
by Market Square East, Inc. (MSE). Drawings required for preliminary
approval include but are not limited to the following:
1. Site Plan
2. Floor Plan(s)
3. Elevations
4. Section(s)
5. Landscape Plan
6. Sign Design and Location
7. Samples of Colors of Exterior Buildings
8. List of Exterior Building Materials
B. FLOOR AREA RATIO
The maximum floor area ratio for all structures shall be one (1) for any
leased lot.
C. OFF-STREET PARKING
1. A common parking lot designed to accomodate 235 parking spaces will be
provided by the Lessor (MSE). Per Lessor's approved site plan.
2. A minimum of one (1) off-street loading space shall be provided per
building by Lessee.
D. BUILDING SETBACKS FROM LEASE LINES/PROPERTY LINES
Per Lessor's approved site plan.
E. MAXIMUM BUILDING HEIGHT
The maximum building height measured from the lowest useable floor
elevation shall be per Lessor's design guidelines (see Exh. B illustrations
for design intent)
F. BUILDING MASS
Where there are no set formulas for calculating allowable building mass,
Lessor has the right to reject any design that is not in reasonable
compliance with Lessor's design guidelines as illustrated and noted in Exh.
B.
<PAGE>
Market Square East
Design Requirements
Page 2
G. SERVICE/DELIVERY AREAS
All service/delivery areas are to be screened from neighboring lots and the
street, by means of fences, vegetation and/or decorative walls.
H. TRASH CONTAINMENT
All trash shall be stored in a screened area on each tenant's site. Unless
otherwise agreed upon, trash, refuse, garbage shall be removed a minimum of
once every forty-eight hours, or when the containers are full (Restaurants
and other food operations shall haul daily.)
I. BUILDING MATERIALS
See Lessor's design guidelines in Exh. B for approved material
recommendations.
J. SITE/UTILITIES
1. Electrical service is supplied at or near the corner of the lots via
conventional pad mounted transformers fed from above ground utility poles.
Lessee will need to contact WAPA directly with anticipated load
requirements, service dates and meter location. Lessor will want to review
the location of any other utility requirements including telephone, cable
T.V., antennas and satellite dish installations to verify that they are
coordinated with existing utility easements, height clearances, the design
guidelines and underground utility installations.
2. Lessee is required to provide cisterns for rain water collection of usable
water.
3. Lessor will provide sanitary sewer lines, manholes and individual
connection points to the boundary line of each lease area as shown on
Lessor's site utility plan.
4. Lessor will deliver the site clear of vegetation, compacted and graded to
a specified elevation within the boundaries of the leased area.
K. BUILDING COLORS
See Lessor's design guidelines in Exh. B for approved color recommendations.
L. SIGNAGE
See Lessor's design guideline illustrations and notes in Exh. B for approved
signage size and placement recommendations. ALL SIGNAGE MUST BE PRE-APPROVED
BY MSE.
M. SITE AND SIGN LIGHTING
Each tenant is expected as part of the design of each plot to include
exterior
<PAGE>
Market Square East
Design Requirements
Page 3
M. SITE AND SIGN LIGHTING (cont.):
lighting for walkways and landscaping. MSE will supply street and parking
lot lighting, but all areas to be leased shall be lighted. MSE reserves the
right to reject all glaring lights, flashing or rotating lights, or badly
designed lighting.
O. LANDSCAPING
See Lease Agreement for requirements.
<PAGE>
EXHIBIT 'B'
- --------------------------------------------------------------------------------
INTENT OF DESIGN GUIDElINES:
To allow individual tenant
[DRAWING APPEARS HERE] expression and design
flexibility while maintaining a
certain level of design
consistency to assure a uniform
development image for all
phases of the Market Square
View from parking lot looking West East development.
DESIGN FORMS:
Buildings should evoke the local
architecture. For the larger
structures this could be achieved by
keeping the "big box" as a simple,
flat roof building with the addition
[DRAWING APPEARS HERE] of a pedestrian arcade or entrance
structure that uses the local
architectural vocabulary. Sloped
roofs, covered arcades, windows,
shutters and similar elements are
encouraged. Prominent corners and
facades will required additional
design attention. Rooftop mechanical
equipment should be located to
minimize views of the equipment from
Phase I Site Plan the main parking lots and main access
roads. All building elevations should
have the same exterior wall treatment
to assure a consistent image on every
side of the building.
COLORS:
A palette of owner approved colors
[DRAWING APPEARS HERE] needs to be matched to assure design
consistency for the project.
EXTERIOR WALL SYSTEMS:
Approved systems: 1. Smooth metal
panel system that allows horizontal
banding.
View from Route 38 looking North 2. EIFS or plaster type finishes with
horizontal banding in multiple
colors. Reveal details are required
at every color change.
ENTRANCE SIGN:
[DRAWING APPEARS HERE] Landlord will provide externally lit
entrance signs with tenant directory
identification.
Any proposed design will require full
View from Route 38 looking West review and approval by Landlord and
it's masterplanning consultant.
- --------------------------------------------------------------------------------
MARKET SQUARE EAST
St. Thomas, USVI
Design Guidelines
Prepared for: Market Square East. Inc.
Prepared by: Wallace Roberts & Todd, master planners and architects
<PAGE>
[DRAWING APPEARS HERE]
VIEW FROM PARKING LOT LOOKING WEST
MARKET SQUARE EAST
Design Guidelines
Exh. B.
<PAGE>
[DRAWING APPEARS HERE]
VIEW FROM ROUTE 38 LOOKING WEST
MARKET SQUARE EAST
Design Guidelines
Exh. B.
<PAGE>
[DRAWING APPEARS HERE]
VIEW FROM ROUTE 38 LOOKING NORTH
MARKET SQUARE EAST
Design Guidelines
Exh. B.
<PAGE>
EXHIBIT C
AGREEMENT OF SUBORDINATION, NON-DISTURBER AND ATTORNMENT
<PAGE>
AGREEMENT OF SUBORDINATION, NON-DISTURBER
AND ATTORNMENT
THIS AGREEMENT is made this 6th day of November, 1997 by and among MARKET
SQUARE EAST, INC., a U.S. Virgin Islands corporation (the "Lessor") whose
mailing address is P.O. Box 7020, St. Thomas, U.S. Virgin Islands 00801, BANCO
POPULAR de PUERTO RICO ("Banco Popular") whose mailing address is P.O. Box 8580,
St. Thomas, U.S. Virgin Islands 00801, and CULUSVI, INC., a U.S. Virgin Islands
corporation (the "Lessee") whose mailing address is 12410 S.E. 32nd Street,
Bellevue, Washington 98005.
WITNESSETH:
WHEREAS, Lessor is the owner in fee simple of the following described real
property:
Parcel No. 1-2 Estate Donoe
No. 2A New Quarter
St. Thomas, U.S. Virgin Islands
WHEREAS, under the terms of a certain Ground Lease dated October 20,
1997 between the Lessor and the Lessee, as amended (collectively, the "Lease")
Lessor did lease, let and demise to Lessee a portion of the above-described real
property described in the Lease as Lease Area A of Parcel No. 1-2 Estate Donoe
(the "Premises"); and
WHEREAS, the Lessor has or will mortgage the real property described above
by First Priority Mortgage Construction Security Interest dated November 6, 1997
(the "BP Mortgage") to Banco Popular as security for a loan to Lessor (the
"Loan"); and
WHEREAS, the Lessor has conditionally assigned the Lease and the rents to
be derived therefrom to Banco Popular as security for the Loan (the
"Assignment"); and
<PAGE>
WHEREAS by this Agreement of Subordination, Non-Disturber and Attornment
the parties hereto desire to establish their rights and obligations with respect
to the Lease, the BP Mortgage and the Assignment;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Lessor, the Lessee, and Banco
Popular, intending to be legally bound, hereby consent and agree as follows:
l. This Agreement shall control notwithstanding any contrary provisions in
the Lease.
2. As provided in Section Thirty Six of the Lease, the Lessee hereby
agrees that the Lease and any and all liens, estates, rights, options and
charges created thereby are subject to and subordinate to the lien created by
the BP Mortgage.
3. Except as set forth herein, and provided that the Lessee is not in
default under the terms of the Lease and the Lessee is then in possession of the
Premises the following shall apply:
(a) The right of possession of the Lessee to the Premises and Lessee's
rights arising out of the Lease shall not be affected or disturbed by Banco
Popular in the exercise of any of its rights under the BP Mortgage or the
Assignment; and
(b) Notwithstanding the exercise by Banco Popular of all or any of its
rights and remedies under the BP Mortgage or the Assignment, the Lease shall
continue in full force and effect, and Banco Popular shall recognize the Lease
and the Lessee's rights thereunder, including any extension options provided
therein, and will thereby establish direct privity of contract as between Banco
Popular and the Lessee with the same force and effect and with the same relative
-2-
<PAGE>
priority in time and right as though the Lease were originally made directly
from Banco Popular in favor of the Lessee.
4. Except as set forth herein, in the event Banco Popular obtains title to the
real property described above through foreclosure or deed in lieu of foreclosure
under the BP Mortgage, the Lessee agrees to continue occupancy of the Premises
and to make full and complete attornment to Banco Popular, its successors and
assigns, for the balance of the term of the Lease, including any extensions and
renewals thereof, upon the same terms, covenants and conditions as provided in
the Lease subject, however, in all events to the terms, covenants and conditions
of this Agreement, so as to establish direct privity of estate and contract as
between Banco Popular, its successors and assigns, and the Lessee with the same
force and effect and relative priority in time as though the Lease were
originally made directly from Banco Popular, or such successors or assigns, to
Lessee.
5. Banco Popular shall not, by virtue of the BP Mortgage, the Assignment or
this Agreement, or by virtue of its exercise of all or any rights and remedies
thereunder, be liable to Lessee in any way or to any extent:
(a) For any past act or default on the part of the Lessor under the Lease
occurring at any time prior to Banco Popular succeeding to the rights of the
Lessor, and Lessee shall have no right to assert same or any damages arising
therefrom as an offset or defense against Banco Popular; or
(b) For any prepayment of rent or security deposit given to or held by the
Lessor under the Lease, except to the extent that Banco Popular has actually
received such prepaid rent or security deposit out of accounts of the Lessor
specifically designated for such
-3-
<PAGE>
diligently pursued. Lessee expressly acknowledges that Banco Popular shall
have no obligation to cure such default of Lessor.
9. This Agreement shall inure to the benefit of and shall be binding upon
Lessee, Lessor, and Banco Popular, and their respective heirs, personal
representatives, successors and assigns. In the event any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, the remaining provisions of
this Agreement shall not be affected thereby, and in the place of such invalid
illegal or unenforceable provisions there shall be substituted a like, but
valid, legal and enforceable provision which most nearly accomplishes the
original intention of the parties, as evidenced by this Agreement. This
Agreement shall be governed by and construed according to the laws of the U.S.
Virgin Islands.
IN WITNESS WHEREOF, the parties hereto have caused this writing to be
signed, sealed and delivered on the day and year first above written.
LESSOR:
WITNESSES:
MARKET SQUARE EAST, INC., a U.S. Virgin
Islands corporation
/s/ Fiona L. Charlet
- ---------------------
/s/Julienne Watley
- ---------------------
By: /s/ John P. de Jongh
-----------------------------
John P. de Jongh, Jr., President
[SEAL]
Attest: /s/ Cornel A. Williams
------------------------
Cornel A. Williams, Secretary
-5-
<PAGE>
BANCO POPULAR de PUERTO RICO
By: /s/ J. Arthur Downing
-----------------------
J. Arthur Downing,
Senior Vice President
LESSEE:
CULUSVI, INC.
/s/ James F. Arcuri By:/s/ Allan Youngberg
- ------------------- ----------------------
Vice President duly authorized
/s/ Julie Abner
- -------------------
TERRITORY OF THE U.S. VIRGIN ISLANDS )
)SS.:
JUDICIAL DISTRICT OF ST. THOMAS AND ST. JOHN)
The foregoing instrument was acknowledged before me this 14th day of
November, 199 by John P. de Jongh, Jr., as President of Market Square East,
Inc., on behalf of said corporation.
/s/
-------------------
NOTARY PUBLIC
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<PAGE>
TERRITORY OF THE U.S. VIRGIN ISLANDS )
)SS.:
JUDICIAL DISTRICT OF ST. THOMAS AND ST. JOHN )
The foregoing instrument was acknowledged before me this 14th day of
November, 1997 by J. Arthur Downing, Senior Vice President of Banco Popular
de Puerto Rico.
/s/ J. Arthur Douning
------------------------
NOTARY PUBLIC
STATE OF WASHINGTON )
)SS.:
COUNTY OF KING )
The foregoing instrument was acknowledged before me this 19th day of
September, 1997 by Allan C. Youngberg as Vice President of CULUSVI, INC. on
behalf of said corporation.
/s/ Gerald J. Rose
------------------------
NOTARY PUBLIC
-7-
<PAGE>
EXHIBIT D
PRELIMINARY SIGN DESIGNS
PLEASE SEE EXHIBIT B DESIGN GUIDELINES FOR PRELIMINARY SIGN
DESIGNS AND LESSOR SIGN REQUIREMENTS
<PAGE>
EXHIBIT E
GUARANTY
<PAGE>
GUARANTY OF LEASE
THIS GUARANTY OF LEASE (the "Guaranty") is dated as of the 20th day of
October, 1997, by COST-U-LESS, INC., a Washington corporation with an address of
12410 S.E. 32nd Street, Bellevue, Washington 98005 (the "Guarantor").
WHEREAS, MARKET SQUARE EAST, INC. ("Lessor") and CULUSVI, INC., a Virgin
Islands corporation ("Lessee") are parties to a lease dated October 1, 1997 (as
may hereafter from time to time be amended, the "Lease") for premises (the
"Premises") located at Lease Area A of Parcel No.1-2 Estate Donoe, St. Thomas,
U.S. Virgin Islands; and
WHEREAS, as a condition to obtaining Lessor's agreement to enter into the
Lease with Lessee, Lessor requires Guarantor as the sole shareholder of all of
the stock of the Lessee to guarantee all obligations of Lessee under the Lease;
NOW THEREFORE, in consideration of Lessor's entering into the Lease with
Lessee, Guarantor, intending to be legally bound, hereby agrees as follows:
Section 1. GUARANTY. Guarantor, jointly and severally, hereby guarantees
--------
to Lessor the full performance of Lessee's obligations under the Lease. This
Guaranty extends to payment of basic rent (as adjusted from time to time),
additional rent and all other charges required to be paid under the Lease,
including Lessee's indemnification of Lessor.
Section 2. Waiver. Guarantor waives all notices or demands given or
------
required to be given to Lessee under the Lease. This waiver extends to any
notice of default under the Lease and to any notice of modification, extension
or indulgence granted to Lessee. Guarantor waives all right to trial by jury in
any action or proceeding hereinafter instituted by Lessor with respect to the
Lease or the relationship between Lessor and Lessee.
Section 3. Term of Guaranty.
3.1 Duration. This Guaranty shall commence on the date of the Lease
--------
and remain in effect during the entire term of the Lease, including any option,
renewal or extension terms, and thereafter until Lessee has discharged all of
its obligations under the Lease.
3.2 No Termination. This Guaranty shall not be terminated, modified,
--------------
or impaired because of any of the following actions: (a) the extension,
modification or amendment of the Lease; (b) any action Lessor may take or fail
to take against Lessee; (c) any waiver or failure to enforce any of the rights
or remedies available to Lessor or to which Lessor may be entitled under law or
in equity; (d) any assignment by Lessee of Lessee's leasehold interest in the
Premises or any sublease of the Premises; (e) any use or change in use of the
Premises; (f) damage to, destruction of or taking by power of eminent domain of
all or any part of the Premises; (g) any other dealings between Lessor and
Lessee; or (h) any bankruptcy, insolvency, dissolution, liquidation,
receivership, trusteeship,
<PAGE>
reorganization, assignment for the benefit of creditors, bankruptcy or rejection
of the Lease in any bankruptcy, or other similar proceeding affecting Lessee,
whether voluntary or involuntary.
Section 4. Enforcement of this Guaranty.
----------------------------
4.1 Action of Proceeding. At Lessor's option, (a) Guarantor may be
--------------------
joined in any action or proceeding against Lessee in connection with the Lease,
or (b) Lessor may recover against Guarantor in any action or proceeding even
if Lessor does not pursue or exhaust its remedies against Lessee.
4.2 Judgment Binding. Guarantor shall be conclusively bound by the
----------------
judgment in any action or proceeding brought by Lessor against Lessee in
connection with the Lease as if Guarantor were a party to the action or
proceeding, even if Guarantor is not joined in the action or proceeding as a
party, and regardless of the jurisdiction in which the action or proceeding is
brought.
4.3 Proceedings. Guarantor irrevocably consents to the jurisdiction
-----------
of any court in the U.S. Virgin Islands for any proceedings arising out of this
Guaranty or the enforcement hereof, and waives the right to trial by jury in any
such proceeding. In the event of a default by Lessee under the Lease where
Lessor shall employ attorneys or incur other expenses for the enforcement of
performance or observance of any obligation or agreement on the part of the
Guarantor contained in this Guaranty, the Guarantor shall on demand reimburse
the reasonable fees of such attorneys and such other expenses so incurred.
Section 5. Miscellaneous. This Guaranty shall apply to and bind the
------------
successors and assigns of Guarantor. If any provision of this Guaranty shall be
determined to be illegal or unenforceable, such determination shall not affect
any other provision of this Guaranty and all such other provisions shall remain
in full force and effect.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date and
year first above written.
WITNESSES:
GUARANTOR:
COST-U-LESS, INC., a Washington
corporation
/s/ James F. Arcuri By:/s/ Allan C. Youngberg
- -------------------- ----------------------
- --------------------
-2-
<PAGE>
STATE OF WASHINGTON )
)SS.:
COUNTY OF KING )
The foregoing instrument was acknowledged before me this 19 day of
September, 1997 by Allan C. Youngberg as Vice President of COST-U-LESS, a
Washington corporation on behalf of said corporation.
/s/ Gerald J. Rose
-----------------------
NOTARY PUBLIC
-3-
<PAGE>
MONTH-TO-MONTH RENTAL AGREEMENT (GROSS)
---------------------------------------
This Month-to-Month Rental Agreement is entered into this sixth (6th) day of
January 1995, between WHIPPLE ROAD ASSOCIATES, a California general partnership
("Lessor") and COST-U-LESS, INC., a Washington corporation ("Lessee"), for
approximately 40,000 square feet of space located at 1602 Whipple Road, Union
City, California 94587. This Agreement shall be effective on January 15, 1995
or upon possession, whichever occurs first, and shall continue month-to-month
thereafter. The rental of this space is made in consideration of ELEVEN
THOUSAND AND NO/100 DOLLARS ($11,000.00) per month. All rental payments shall
be payable in advance on the first (1st) day of each month. If any installment
of rent or other sums due from lessee is not received by Lessor when due, Lessee
shall pay to Lessor an additional sum equal to ten percent (10%) of the amount
due as a late charge. The Premises shall be used for warehousing and
distribution of general merchandise and for other related functions and uses,
but only to the extent permitted by the City of Union City and any and all other
entities having jurisdiction and for no other purpose without Lessor's prior
written consent.
Upon execution of this Agreement, Lessee shall pay Lessor the first month's rent
in advance, plus one month's rent as a security deposit. Upon termination of
the lease, the deposit will be refunded once the space has been broom cleaned
and any damage repaired by Lessee.
It is specifically understood that Lessee is responsible for the care,
maintenance, and repair of the premises. Any damage to the doors and parking
areas are the responsibility of the Lessee.
Lessee shall pay for all gas, heat, light, power, telephone, and other utilities
and services supplied to the Lessee. If any such services are not separately
metered to Lessee, Lessee shall pay a one-third (1/3) share of the water,
landscaping, and fire sprinklered protection.
Lessor shall provide dock levelers on each dock door and a 12'x60' office
trailer. These two contracts will be let immediately upon full lease execution.
Lessee shall maintain comprehensive general liability insurance against
liability for: (1) bodily injury in an amount not less than THREE MILLION AND
NO/100 DOLLARS ($3,000,000) per occurrence, and (2) property damage in an amount
not less than THREE MILLION AND NO/100 DOLLARS ($3,000,000) per occurrence. All
insurance shall be with companies licensed to do business with the Insurance
Commissioner of the State of California. A certificate of all such insurance
shall be delivered to the Lessor prior to occupancy and shall certify that the
policy: (1) names Lessor as an Additional Insured, and (2) shall not be canceled
or altered without thirty (30) days' prior written notice to Lessor.
If Lessor sues Lessee due to the default of Lessee, Lessor shall be entitled to
its attorneys' fees.
Lessor shall have the right at any and all reasonable times to enter and inspect
the Premises.
Lessee shall not keep or store on the Premises, chemicals in quantities,
amounts, concentrations or type which are in excess of those permitted by local,
state or federal laws, regulations or ordinances.
Except for damage resulting from the sole active negligence or willful
misconduct of Lessor or its authorized representatives, Lessee shall save and
hold Lessor harmless and indemnify Lessor against all liabilities, charges,
expenses (including reasonable attorneys' fees, cost of court, and expenses
necessary in the prosecution or defense of any litigation) by reason of injury
to person or property, from whatever cause, while in or on the leased Premises,
or in any way connected with the leased Premises with the improvement or
personal property therein, including any liability for injury to person or
property of Lessee, his agents, and employees or third persons.
Lessee shall not assign or transfer this Lease, nor sublet all or any portion of
the Premises without the prior written consent of Lessor.
Lessor and Lessee hereby waive any rights each may have against the other on
account of any loss or damage occasioned to the Lessor or the Lessee or to the
Premises or its contents which may arise from any risk generally covered by fire
and extended coverage insurance in forms approved for use in California. The
parties shall obtain from their respective insurance companies insuring the
Premises and/or its contents a waiver of any right of subrogation which such
insurance company may have against the Lessor or the Lessee.
It is understood that either party must provide written notification to the
other thirty (30) days in advance of intent to cancel the Premises. Upon
vacating the Premises, Lessee hereby agrees to return same in good repair and
"broom cleaned" condition acceptable to Lessor.
<PAGE>
IN WITNESS WHEREOF, this Month-to-Month Rental Agreement is executed on the
date and year first above written.
AGREED AND ACCEPTED:
LESSEE: LESSOR:
- ------- -------
Cost-U-Less, Whipple Road Associates
a Washington corporation a California general partnership
By: /s/ Allan Youngberg By: /s/ [SIGNATURE ILLEGIBLE]
Its: VP - CFO Its: Managing Partner
<PAGE>
SUBLEASE
THIS Sublease is made and entered into as of the 15th day of July, 1994
and by and between TAMUNING CAPITAL INVESTMENT, INC., a Guam corporation
("Sublessor"), and COST-U-LESS, a Washington corporation ("Sublessee").
WITNESSETH:
WHEREAS, Sublessor entered into two (2) Subleases, both dated July, 1994 as
shown with any amendments in EXHIBIT C, attached hereto and made a part hereof
by reference (collectively the "Master Subleases") with Pacific Tyre Capital
Investment, Inc. ("PTCI") under the terms of which PTCI, as sublessor, subleased
to Sublessor a certain tract of land consisting of Parcels 3 and 4 as shown on
EXHIBIT A, attached hereto and by reference made a part hereof (the "Real
Property"). The Real Property is a parceling for leasehold purposes only of the
property or lots under the Ground Leases described below;
WHEREAS, PTCI acquired its leasehold interest in the Real Property from the
fee owners of the Real Property by entering into the following two ground leases
as shown with any amendments in EXHIBIT D, attached hereto and made a part
hereof by reference (collectively, the "Ground Leases"):
(i) That certain Lease, dated November 13, 1992, between EDUARDO G.
CAMACHO and IRENE W. CAMACHO (HUSBAND AND WIFE), AND JOSEFINA C. TANAKA (A
WIDOW), collectively referred to therein as "Lessors", and PTCI, referred
to therein as the Lessee, as recorded in the Department of Land Management,
Government of Guam, under Instrument No. 479858; and
(ii) That certain Lease, dated April 6, 1992, by Carmelina J. Ouano
(Lessor) and PTCI (Lessee), as recorded in the Department of Land
Management, Government of Guam, under instrument no. 469677;
WHEREAS, Sublessor is willing to construct a building of approximately
35,000 square feet (the "Building") on the Real Property in accordance with the
plans, outlines and specifications (collectively the "Plans") which shall be
provided to Sublessor by Sublessee and shall be substantially similar to the
plans attached hereto as EXHIBIT B, but shall differ from the attached plans as
set forth in the letter dated July 11, 1994, which is also attached as
EXHIBIT B. The Real Property and the Building, collectively, are referred to
herein as the "Premises"; and
WHEREAS, Sublessor desires to sublease the Premises to Sublessee and
Sublessee desires to sublease the Premises from Sublessor on the terms set forth
in this instrument.
<PAGE>
Cost-U-Less Sublease
Page 2
NOW THEREFORE, in consideration of the above and foregoing premises which
are made a contractual part hereof, and in consideration of the rents and mutual
covenants set forth herein, Sublessor and Sublessee agree as follows.
1. PREMISES
Sublessor does hereby lease and demise the Premises together with any and
all improvements thereon, including, but not limited to, the Building, to
Sublessee and Sublessee does hereby accept the sublease of the Premises and such
improvements from Sublessor for the term and under the terms and conditions set
forth herein.
2. RECIPROCAL EASEMENTS
2.1 GRANT OF PARKING AREA EASEMENT
Sublessor grants to Sublessee for the term of this Sublease and all
extensions thereof, a nonexclusive easement for ingress, egress and passage,
both vehicular and pedestrian, and vehicle parking, in the respective areas from
time to time established therefor, including any and all service roads,
driveways, driveway entrances and exits, vehicle approaches, sidewalks,
pedestrian walkways and vehicle parking areas, which now are or hereafter may be
located on Parcels 1 and 2 as shown on EXHIBIT A (the "Parking Area"), such use
to be made solely in connection with the conduct of the user's lawful business
on the Real Property or any portion thereof. Sublessee shall have the right to
extend the benefit of the foregoing easement to its employees, suppliers,
customers, invitees, assigns and licensees during the term of this Sublease.
2.2 SUBLESSEE'S GRANT EASEMENT
Sublessee grants to Sublessor for the term of this Sublease and all
extensions a nonexclusive easement for ingress, egress and passage, both
vehicular and pedestrian, and vehicle parking, in the respective areas from time
to time established therefor, including any and all service roads, driveways,
driveway entrances and exits, vehicle approaches sidewalks, pedestrian walkways
and vehicle parking areas, which now are or hereafter may be located on the Real
Property. Sublessor shall have the right to extend the benefit of the foregoing
easement to any other party including but not limited to its employees,
suppliers, customers, invitees, assigns, tenants, predecessors in interest, and
licensees.
<PAGE>
Cost-U-Less Sublease
Page 3
2.3 DUTY TO DEVELOP THE PARKING AREA
Sublessor shall initially construct and pave the roads and parking areas
that comprise the Parking Area and the parking area on the Real Property, which
together shall contain no less than the parking spaces required by applicable
law.
2.4 UNIMPEDED ACCESS
Sublessee and Sublessor each agree to maintain unimpeded access at all
times between and among all vehicle parking areas from time to time located on
the Real Property and the Parking Area, or any portion thereof; and no fence,
wall, hedge, or other barrier (other than reasonable devices for the regulation
of traffic flow and the delineation of parking areas) shall be constructed or
installed on the Real Property and the Parking Area, or any portion thereof, in
such a manner as to interfere with such access between and among the Real
Property and the Parking Area. Notwithstanding any other provision hereof,
Sublessor shall have the right to erect and maintain a construction fence for a
period of thirty (30) calendar days for each building or other improvement to be
constructed on Parcels 1 and 2 as shown on Exhibit A attached hereto.
2.5 NO PUBLIC DEDICATION
Nothing contained in this Sublease shall constitute, or be construed to
constitute, a dedication of any portion of the Real Property or the Parking Area
to the general public or for the benefit of the general public or for any public
purposes whatsoever. The easements herein granted shall be for the exclusive
use of the parties hereto and those whom the parties permit to enter upon their
respective premises.
2.6 EASEMENTS RUN WITH LAND
The easements herein granted shall run with the land.
2.7 NO ENCROACHMENT
Sublessor shall have the right to construct such permanent buildings and
improvements on land abutting the Premises, whether now owned or subleased or
hereafter acquired or subleased by Sublessor, and such buildings and
improvements shall not be deemed to encroach on the easements created by this
instrument, provided Sublessor provides the parking required by Paragraph 2.3
and Sublessee has ingress and egress from the Premises to and from a public
thoroughfare.
<PAGE>
Cost-U-Less Sublease
Page 4
3. TERM
The term of this Sublease is fifteen (15) years, subject to the Options to
Extend set forth in Paragraph 6. This Sublease shall commence three (3) days
after the day Sublessor notifies Sublessee in writing that the Premises are
ready for Sub1essee's occupation, but only if i) a Certificate of Occupancy has
been issued with respect to the Building and ii) service roads, driveways,
driveway entrances and exits, vehicle approaches, sidewalks, pedestrian
walkways, vehicle parking areas have been built, paved and are operational and
comply with all applicable laws and ordinances (the "Commencement Date").
4. CONSTRUCTION OF PREMISES
4.1 SUBLESSOR'S CONSTRUCTION
Sublessor shall, subject to the conditions set forth below, use best
efforts to construct and prepare the Premises at Sublessor's sole cost and
expense, substantially in accordance with the Plans ("Sublessor's
Construction"). All labor and materials which Sublessee shall require to
prepare the Building for Sublessee's use other than those described in the Plans
shall be furnished by Sublessee at Sub1essee's sole cost and expense.
Sublessor's Construction shall be accomplished in compliance with all applicable
laws, ordinances, regulations and restrictions. Sublessor shall make timely
payments of all costs of Sublessor's Construction, plus related costs such as
professional fees, bond and insurance premiums, interest on and charges for
borrowed money, service and escrow fees, real estate taxes and assessments and
similar costs. Sublessor shall, at its own expense, obtain all final
administrative approvals, permits or other documentation necessary to legally
perform Sublessor's Construction.
4.2 COMMENCEMENT OF CONSTRUCTION
If Sublessor's construction has not been commenced by that day which is one
hundred eighty (180) days from the date of this Sublease, Sublessee may cancel
this Sublease. If, after using its best efforts, Sublessor is unable to obtain
the final administrative approvals, permits or other documents described in
Paragraph 4.1 above, Sublessor may terminate this Sublease, and upon such
termination, the parties shall have no further rights or liabilities hereunder.
4.3 COMPLETION OF WORK
<PAGE>
Cost-U-Less Sublease
Page 5
Sublessor shall not be liable or responsible for delays in Sublessor's
Construction arising out of or occasioned by strikes, accidents, acts of God,
extreme weather conditions, non-delivery or a delay in delivery of materials
from an off island supplier as a result of acts of God or events beyond the
control of the supplier, inability or change of zoning which prohibits
commercial use of the Premises, unforeseen restrictions imposed by any
government or any governmental agency or other delays beyond Sublessor's
control. Subject to the foregoing, Sublessor agrees to complete Sublessor's
Construction not later than that day which is the same number of days after
November 15, 1994 as the number of days between June 30, 1994 and the date of
this Sublease ("Completion Date"). In the event any event of force majeure
described above shall occur and result in delay, the Completion Date shall be
extended by the number of days of excused delay. If for any reason Sublessor
fails to complete Sublessor's Construction by the Completion Date (including
all extensions thereof) this Sublease shall not be void or voidable, but as
liquidated damages and as Sublessee's sole remedy, Sublessor shall grant
Sublessee two (2) months free rent from and after the Commencement Date. If
Sublessor fails to complete Sublessee's Construction by a date sixty (60) days
after the Completion Date, then in addition to the two months free rent, as
liquidated damages and as Sublessee's sole remedy, Sublessor shall pay to
Sublessee five hundred dollars ($500) per day for each day after the sixtieth
day following the Completion Date that Sublessor's Construction is not complete
provided, however Sublessor shall not be liable for any liquidated damages for
delays past May 1, 1995. If Sublessor fails to complete Sublessor's
Construction by May 1, 1995, then Sublessee may terminate this Sublease and
Sublessor shall have no further liability to Sublessee other than the liability
to pay liquidated damages in the amounts provided above. If Sublessor completes
Sublessor's Construction on or before the Completion Date, Sublessee shall, on
the Commencement Date, pay Sublessor a completion bonus in the amount of one
month's rent. For purposes of this paragraph, Sublessor shall be deemed to
complete Sublessor's Construction at the point construction on the Premises is
sufficiently complete for the Commencement Date to occur and the fifteen year
term to commence in accordance with Paragraph 3.
4.4 ASSIGNMENT OF WARRANTY
Sublessor shall, and by these presents does hereby assign to Sublessee all
warranties (whether express or implied) Sublessor obtains from the contractors,
suppliers and manufacturers who provide labor and materials for the construction
of the Premises. Upon termination of this
<PAGE>
Cost-U-Less Sublease
Page 6
Sublease, Sublessee shall reassign back to Sublessor all such warranties.
4.4.1 WARRANTY OF SUBLESSOR'S CONSTRUCTION
Sublessor warrants that Sublessor's Construction shall be performed in a
good workmanlike manner in compliance with the Plans. This warranty shall
continue until that date which is twenty-four (24) months after the Commencement
Date ("Warranty Period").
4.4.2 CORRECTION OF DEFECTS
If, at any time during the Warranty Period, Sublessor receives from
Sublessee notice of any failure to comply with the warranty set forth in
Paragraph 4.4.1, Sublessor shall promptly and, at such times as Sublessee
reasonably directs, satisfactorily correct such noncompliance and remedy any
damage resulting from the noncompliance. All costs of correction under this
paragraph shall be borne by Sublessor.
4.4.3 SUBLESSEE'S RIGHT TO CORRECT
If Sublessor fails to satisfactorily correct or remedy any noncompliance or
damage in accordance with Paragraph 4.4.2 within thirty (30) days of Sub1essee's
notification of Sublessor or commence such correction within such thirty (30)
day period, then Sublessee may, but is not obligated to, perform on behalf and
at the expense of Sublessor, any correction or remedy which Sublessor fails to
perform in accordance with Paragraph 4.4.2. Sublessee may offset the costs of
any correction under this paragraph against rent or any other sum payable to
Sublessor.
5. RENT
5.1 PAYMENT OF RENT
Throughout the term of this Sublease, Sublessee shall pay monthly rent to
Sublessor as rent for the Premises ("Monthly Rent"). Monthly Rent shall be paid
in advance on or before the first day of each calendar month of the term of this
Sublease. If the term of this Sublease commences on a day other than the first
day of a calendar month or ends on a day other than the last day of a calendar
month, then the Monthly Rent will be appropriately pro rated by the Sublessor
based on the amount of rent due in the month immediately following or preceding
the Commencement Date or termination day, as the case may be, of this Sublease
and based on the actual number of calendar days in the commencement or
termination month, as
<PAGE>
Cost-U-Less Sublease
Page 7
the case may be. If the Commencement Date falls on a day other than the first
day of a calendar month, then the prorated monthly rent for such month shall be
paid on or before the Commencement Date. Monthly Rent shall be paid to
Sublessor, without written notice or demand, in lawful money of the United
States of America at Sublessor's address or to such other address as Sublessor
may from time to time designate in writing.
5.2 AMOUNT OF RENT
The rent for the Premises shall be Six Hundred Thirty Thousand and No/100
Dollars (US$630,000.00) in the first Rent Year (as defined below) and $1,726.00
per day for each calendar day of the term prior to the first Rent Year, if any;
in every subsequent Rent Year, the Rent for the Premises shall be two percent
(2%) higher than the rent for the immediately preceding Rent Year. (Example: for
the first Rent Year the rent is $630,000.00 payable in monthly installments of
$52,500.00 per month; for the second Rent Year the rent is $642,600.00, payable
in monthly installments of $53,550.00; and in the third Rent Year the rent is
$655,452.00, payable in monthly installments of $54,621.00). If the Commencement
Date falls on the first day of the calendar month, then the Rent Year shall
begin on the Commencement Date and end one calendar year later; if the
Commencement Date does not fall on the first day of a calendar month, then the
Rent Year shall begin on the first day of the first calendar month beginning
after the Commencement Date and shall end one calendar year later.
Notwithstanding the foregoing, the monthly rent for the first Rent Year (with a
resulting adjustment in the annual rent for the first Rent Year and a resulting
adjustment in the monthly and annual rents for the subsequent Rent Years) shall
be adjusted as follows in the following events:
i) if the total cost of the Building and all site improvements, including
without limitation, the cost of the construction of the parking lot in
the rear of the Building, soil testing and site preparation expenses,
costs of permits, construction period interest and taxes, but
excluding land lease payments (the "Total Cost") exceeds the sum of
One Million Two Hundred Thousand Dollars ($1,200,000), the monthly
rent for the first Rent Year shall be increased by adding to the sum
of Fifty Two Thousand Five Hundred Dollars ($52,500) the product
derived by multiplying a fraction, the numerator of which is the
excess of the Total Cost over the sum of One Million Two Hundred
Thousand Dollars ($1,200,000) and the denominator of which is One
Million Two
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Hundred Thousand Dollars ($1,200,000) times the sum of Fifteen
Thousand Four Hundred Sixteen Dollars ($15,416.00), provided such
increase shall in no event cause the monthly rent for the first Rent
Year to be more than Fifty-Five Thousand Five Hundred and Eighty-Four
Dollars ($55,584) per month; and
ii) if the Total Cost is less than the sum of One Million Two Hundred
Thousand Dollars ($1,200,000), the monthly rent for the first Rent
Year shall be decreased by subtracting from the sum of Fifty Two
Thousand Five Hundred Dollars ($52,500) the product derived by
multiplying a fraction, the numerator of which is the excess of One
Million Two Hundred Thousand Dollars ($1,200,000) over the Total Cost
and the denominator of which is One Million Two Hundred Thousand
Dollars ($1,200,000) times the sum of Fifteen Thousand Four Hundred
Sixteen Dollars ($15,416.00), provided such decrease shall in no event
cause the monthly rent for the first Rent Year to be less than Forty-
Nine Thousand Four Hundred and Seventeen Dollars ($49,417) per month.
5.3 ACCOUNTING FOR RENT
No payment by Sublessee or receipt by Sublessor of a lesser amount than the
full amount of all rent due under this Sublease shall be deemed to be other than
on account of the earliest rent or other amounts then due hereunder, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction. Sublessor may accept
such check or payment without prejudice to Sublessor's right to recover the
balance of such rent or pursue any other remedy provided for in this Sublease,
or at law or in equity.
5.4 LATE PAYMENT OF RENT
In the event Sublessee fails to pay any portion of the rent or additional
charges (as defined in Paragraph 5.6 below) by the date due or within seven (7)
calendar days after Sublessor notifies Sublessee of the delinquent rent or
delinquent additional charge, a late charge of five percent (5%) of the
delinquent rent and delinquent additional charge shall be added to the
delinquent rent and delinquent additional charge and paid to Sublessor together
therewith. In addition to such late charge, any rent payment or additional
charge delinquent for more than seven (7) calendar days after Sublessor notifies
Sublessee, together with
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applicable late charges, shall bear interest at the rate of eighteen percent
(18%) per annum from the original due date until fully paid (including late
charge and interest).
5.5 RENT OFFSETS
Except as expressly provided in this Sublease, rent and additional charges
and all other sums payable by Sublessee hereunder shall be paid without notice,
demand, counterclaim, setoff, deduction or defense and without abatement,
suspension, deferment, diminution or reduction, and the obligations and
liabilities of Sublessee hereunder shall in no way be released, discharged or
otherwise affected by reason of: (i) any title defect in or encumbrance upon the
Premises or any part thereof which shall not limit or interfere with Sub1essee's
use of the Premises; (ii) any claim which Sublessee has or might have against
Sublessor; or (iii) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing and whether or not Sublessor or Sublessee shall have
notice or knowledge of any of the foregoing.
5.6 ADDITIONAL CHARGES
All taxes, assessments, insurance premiums, charges, costs and expenses
which Sublessee assumes or agrees to pay under this Sublease, together with all
interest and penalties that may accrue thereon in the event of Sub1essee's
failure to pay the same as provided in this Sublease, and all other damages,
costs and expenses which Sublessor may suffer or incur, and any and all other
sums which may become due, by reason of any default of Sublessee or failure on
Sub1essee's part to comply with the agreements, terms, covenants and conditions
of this Sublease on Sub1essee's part to be performed shall be referred to in
this Sublease as additional charges and, in the event of their nonpayment,
Sublessor shall have with respect thereto all rights and remedies provided in
this Sublease in the event of nonpayment of rent.
5.7 NET LEASE
After completion of Sublessor's Construction, all rent shall be absolutely
net to Sublessor, so that this Sublease shall, except as expressly provided to
the contrary in this Sublease with respect to maintenance of the Parking Area,
yield net to Sublessor the rent to be paid in accordance with this Sublease.
Accordingly, Sublessee hereafter shall pay, as they become due and payable, all
costs, expenses, and obligations of every kind and nature, relating to the
Premises (other than costs and expenses relating to the maintenance of the
Parking Area), or any improvements thereon, which may
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arise or become due during the term of this Sublease including without
limitation, additional charges as provided in Paragraph 5.6, all taxes and
assessments as provided in Paragraph 8, all insurance premiums as provided in
Paragraph 9, all maintenance, repair and restoration expenses as provided in
Paragraph 10.1, and all utilities as provided in Paragraph 14. Sublessee shall
furnish to Sublessor for inspection, within fifteen (15) days after payment,
official receipts of the appropriate authority or other proof satisfactory to
Sublessor evidencing payment of the matters referred to in this paragraph.
6. OPTION TO EXTEND
6.1 OPTION
Sublessee shall have the right to extend the term of this Sublease for two
(2) successive terms of five (5) years each ("Renewal Terms"), such extensions
to be upon the covenants, terms and conditions as set forth in this Sublease,
except that rent for each such extension shall be established as described
below. Sublessee may exercise any Option to Extend only by written notice to
Sublessor of Sub1essee's election to exercise such Option to Extend given not
less than one hundred and twenty (120) days prior to the end of the then-current
term, time being of the essence.
6.2 EXTENSION RENT
(a) The annual rent for the first Rent Year of each Renewal Term shall be
equal to the fair market rental value of the leased premises at the commencement
of the Renewal Term, provided however, in no event shall the fair rental value
----------------
of the Premises for the first Rental Year of any Renewal Term be less than the
rent for the immediately preceding Rental Year ("Fair Market Rental Value").
Thereafter, the rent shall increase for each successive one year period during
the Renewal Term by two percent (2%), computed in the same manner as provided
above for the base term and shall continue to be paid on a monthly basis in
advance on the first day of each calendar month.
(b) Sublessor and Sublessee shall seek to agree as to the Fair Market
Rental Value within thirty (30) days after Sublessee gives Sublessor notice of
its election to renew this Lease. If Sublessor and Sublessee shall not agree as
to the Fair Market Rental Value within such thirty (30) day period, the Fair
Market Rental Value shall be determined by appraisal as follows:
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Within fifteen (15) days after the expiration of the above-mentioned thirty
(30) day period, Sublessor and Sublessee shall each give notice to the other
stating the name and address of an impartial person to act as appraiser
hereunder. The appraiser specified in each of such notices shall be a qualified
M.A.I. appraiser doing business in the Territory of Guam and having not less
than ten (10) years' active experience as an appraiser in Guam.
The named appraisers shall together determine the Fair Market Rental Value
within thirty (30) days after their appointment; provided, however, if either
party fails to appoint an appraiser within such fifteen (15) day period, then
the determination of the appraiser first appointed shall be final, conclusive
and binding upon both parties. In making such determination, the appraisers
shall consider the rentals at which leases are being concluded for comparable
buildings in the general vicinity of the building. If the appraisers shall fail
to agree upon the Fair Market Rental Value within thirty (30) days of their
appointment, but the difference in their conclusions as to Fair Market Rental
Value is ten percent (10%) or less of the lower of the two appraisals, the Fair
Market Rental Value shall be the average of the two.
If the two appraisers fail to agree on the Fair Market Rental Value, and
the difference between the two appraisals exceeds ten percent (10%) of the lower
of the two appraisals, then the appraisers shall, within ten (10) days after the
expiration of such thirty (30) day period, appoint a third appraiser, similarly
impartial and qualified, to determine the Fair Market Rental Value. Such third
appraiser shall determine the Fair Market Rental Value within thirty (30) days
of his or her appointment, and the average of the appraisals of the two closest
appraisers shall be final, conclusive and binding upon Sublessor and Sublessee.
Upon the determination of the annual rent for the Renewal Term, Sublessor and
Sublessee shall execute and deliver to each other an agreement specifying the
amount of the annual rent for the Renewal Term.
Sublessor and Sublessee shall each pay the fees of any appraiser appointed
by Sublessor and Sublessee, respectively, and Sublessor and Sublessee shall each
pay one-half (1/2) of the fees of any third appraiser appointed pursuant to the
provisions of this option to renew.
7. SUBLESSEE'S FURTHER COVENANTS
Sublessee further covenants as follows:
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(a) That Sublessee is a valid and existing corporation under the laws of
the State of Washington, that it is duly qualified to do business in the
Territory of Guam, and that it has full right and authority to enter into this
Sublease. Sublessee further covenants that it shall, throughout the term of this
Sublease, continue to be a valid and existing corporation in good standing under
the laws of the State of Washington or under the laws of another state in the
United States and shall continue to be duly qualified to do business in the
Territory of Guam.
(b) Sublessee acknowledges that neither Sublessor nor any agent of
Sublessor has made any representation or warranty not contained herein with
respect to the Premises or the Building or the suitability of either for the
permitted use.
8. TAXES AND ASSESSMENTS
8.1 SUBLESSEE'S PAYMENT
Sublessee covenants and agrees to pay Sublessor as additional rent an
amount equal to the Premises' Portion (as hereinafter defined) of all taxes and
assessments, general and special, payable for or in respect of Parcels 1, 2, 3
and 4 described on Exhibit A (the "Entire Leasehold"), which first become due
during the term of this Sublease, except for Sublessor's income and franchise
taxes, unless the Real Property and/or the Building are separately assessed as a
separate parcel in which event Sublessee shall pay Sublessor as additional rent
the amount of all taxes and assessments, general and special, payable for or in
respect of the Real Property and/or the Building which first become due during
the term of this Sublease, except for Sublessor's income and franchise taxes.
Sublessee shall pay Sublessor the Premises' Portion of all taxes and special
assessments payable in respect of the Entire Leasehold or the actual amount of
the taxes and special assessments separately assessed against the Premises only,
within ten (10) days of presentation of a tax statement and a computation of the
Premises Portion thereof (if the Premises are not separately assessed). The
Premises Portion of the taxes and special assessments payable for or in respect
of the Entire Leasehold including land taxes and building taxes (the "Total
Taxes and Assessments") shall be computed in the following manner:
i) the portion of the Total Taxes and Assessment attributable to the
land included in the Premises shall be determined by multiplying
a fraction, the numerator of which is the total square footage of
the land included in the
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Premises (including without limitation the land on which any
improvements are constructed) and the denominator of which is the
total square footage of all land included in the Entire Leasehold
(including without limitation all land on which improvements are
constructed) times the portion of the Total Taxes and Assessments
attributable to the land value (the "Land Portion");
ii) the portion of the Total Taxes and Assessment attributable to the
improvements included in the Premises shall be determined by
multiplying a fraction, the numerator of which is the total
square footage of the gross leasable area of the improvements
included in the Premises and the denominator of which is the
total square footage of the gross leasable area of the
improvements included in the Entire Leasehold times the portion
of the Total Taxes and Assessments attributable to the
improvements (the "Improvements Portion"); and
iii) the Land Portion and Improvements Portion thus computed shall be
added together to arrive at the Premises Portion of the taxes and
special assessments payable for or in respect of the Entire
Leasehold.
If a special assessment, whether general or special, is levied, assessed or
imposed upon or against or is payable for or in respect of the Premises or any
part thereof or the improvements at any time thereon, during the period
commencing with the Commencement Date and ending with the expiration of the term
of this Sublease for which the taxing authority allows payments to be made over
a period of time, but which accrues at the time the assessment is imposed,
Sublessee shall be obligated to pay only the installments maturing during the
term of this Sublease.
8.2 RIGHT TO CONTEST
Sublessor shall institute proceedings, at Sublessor's option, to contest
the validity of any tax or assessment imposed upon the Premises. Sublessor
shall remit to Sublessee, Sub1essee's pro rata share of any net tax refunds
received by Sublessor, if any, after deducting reasonable expenses incurred in
connection therewith. Sublessee shall have the right, in its or Sublessor's
name, to contest the validity of any tax or assessment which Sublessee is
required
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to pay hereunder, by appropriate legal proceeding, provided that Sublessee,
before instituting any such contest, receives Sublessor's prior written consent.
Such contest shall be made at Sub1essee's expense and Sublessor shall remit to
Sublessee any refund after deducting all reasonable expenses incurred by
Sublessor and Sublessor's pro rata share of any such refund; provided, however,
that such action shall not relieve Sublessee of its obligations hereunder.
Sublessor agrees to cooperate fully with Sublessee in good faith during the
course of such contest. Sublessee shall diligently prosecute any such contest,
at all times effectually stay or prevent any official or judicial sale therefor,
under execution or otherwise, and pay any final judgment enforcing the tax or
assessment so contested and thereafter promptly procure record satisfaction
thereof.
8.3 RENT TAXES
Sublessee shall pay to Sublessor, with each payment of rent the amount of
all federal, state and local (and any subdivision thereof) excise taxes, gross
proceeds taxes, gross receipts taxes, transaction taxes, privilege taxes, sales
taxes or like taxes now or hereafter levied or assessed upon rent, or the
payment or receipt thereof, except that Sublessee shall not be obligated to pay
to Sublessor any amount on account of any income tax of Sublessor.
8.4 PERSONAL PROPERTY
During the term of this Sublease, Sublessee shall pay prior to delinquency
all taxes assessed against and levied upon fixtures, furnishings, equipment and
all other personal property of sublessee contained in the Premises, and when
possible sublessee shall cause said fixtures, furnishings, equipment and other
personal property to be assessed and billed separately from the Premises.
8.5 FUTURE TAXES
It is acknowledged by Sublessee and Sublessor that property tax legislation
may be adopted by the Territory of Guam and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such purposes as
fire protection, street, sidewalk and road maintenance, refuse removal and other
governmental services formerly provided without charge to the property owners or
occupants. It is the intention of Sublessee and Sublessor that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of real property taxes for purposes of this Sublease.
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9. INSURANCE
9.1 KINDS AND AMOUNTS
As additional rent for the Premises, Sublessee shall procure and maintain
policies of insurance, at its own cost and expense, insuring:
(a) The Building and all improvements at any time situated upon the
Premises against loss or damage by fire, lightning, wind storm, hail storm,
aircraft, vehicles, smoke, explosion, riot or civil commotion as provided by the
Standard Fire and Extended Coverage Policy, all other risks of direct physical
loss as insured against under Special Extended Coverage Endorsement and all loss
or damage by flood, typhoon, and earthquake to the extent not covered under the
Standard Fire and Extended Coverage and Special Endorsement. The insurance
coverage shall be for not less than one hundred percent (100%) of the full
replacement cost of the Building and such improvements, with all proceeds of
insurance payable to Sublessor and with Sublessor being a named insured under
such policies. The full replacement cost of the Building and all improvements
shall be determined every three (3) years by an insurance appraiser selected and
hired by Sublessor and paid for by Sublessee. The insurance appraiser shall
submit a written report of his appraisal and if said report shows that the
Building and the improvements are not insured as herein required, Sublessee
shall promptly obtain such additional insurance as is required;
(b) Sublessor, Sublessee and the lessors under the Ground Leases and the
Master Subleases against all claims, demands or actions to the limit of not less
than $2,000,000.00 for injury to or death of more than one person in any one
occurrence, to the limit of not less than $1,000,000.00 for injury or death of
one person and to the limit of not less than $200,000.00 for damage to property,
made by, or on behalf of, any person or persons, firm or corporation, arising
from, related to or connected with the Premises. Said liability insurance shall
comprehend full coverage of the indemnity set forth in Paragraph 15.1 and 36.3.
The limits of said liability insurance shall be reviewed every ten years during
the term of this Sublease and all extensions for adequacy and shall be increased
by such amount as may provide the same protection at the end of each ten year
period as the above limits provide at the Commencement Date, taking into account
the difference in the purchasing power of the dollar and the size of damage
awards prevailing in Guam at the end of each ten year review period;
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(c) Sublessor, Sublessee, the lessors under the Ground Leases and the
Master Subleases, with the same limits of coverage as provided in subsection
(b), against loss or damage by boiler or internal explosion or break down of
boilers;
(d) Sublessee against all workmen's compensation claims; and
(e) Sublessor and Sublessee against breakage of all plate glass utilized
in the Building and improvements on the Premises.
9.2 FORM OF INSURANCE
The aforesaid insurance shall be in companies authorized to do business in
the Territory of Guam and in such form, substance and amount (where not stated
above) as shall be reasonably satisfactory to Sublessor and any mortgagee of
Sublessor, and shall contain standard mortgage clauses satisfactory to
Sublessor's mortgagee. The aforesaid insurance shall not be subject to
cancellation except after at least thirty (30) days' prior written notice to
Sublessor and any mortgagee of Sublessor. The original insurance policies (or
certificates thereof satisfactory to Sublessor) together with satisfactory
evidence of payment of the premiums thereon, shall be deposited with Sublessor
at the Commencement Date and renewals thereof not less than thirty (30) days
prior to the end of the term of each such coverage. All public liability,
property damage and other casualty insurance policies required hereunder, shall
be written as primary policies, not contributing with, or in excess of, coverage
which Sublessor may carry.
9.3 MUTUAL WAIVER OF SUBROGATION RIGHTS
Whenever (a) any loss, cost, damage or expense resulting from fire,
explosion or any other casualty or occurrence is incurred by either of the
parties to this Sublease in connection with the Premises, and (b) such party is
then covered in whole or in part by insurance with respect to such loss, cost,
damage or expense, then the party so insured hereby releases the other party
from any liability it may have on account of such loss, cost, damage or expense
to the extent of any amount recovered by reason of such insurance and waives any
right of subrogation which might otherwise exist in or accrue to any person on
account thereof, provided that such release of liability and waiver of the right
of subrogation shall not be operative in any case where the effect thereof is to
invalidate such insurance coverage or increase the cost thereof (provided that
in the case of increased cost the
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liable party shall have the right, within thirty (30) days following written
notice, to pay such increased cost for the remainder of the term of this
Sublease, thereby keeping this release and waiver in full force and effect).
Sublessee further releases and waives subrogation rights against the lessors
under the Ground Leases and the Master Subleases on the same terms provided in
this paragraph.
10. MAINTENANCE
10.1 SUBLESSEE'S MAINTENANCE AND REPAIRS
Sublessee covenants and agrees, at Sub1essee's sole cost and expense, that
during the term of this Sublease it will keep and maintain (i) the Premises and
all improvements thereon (including without limitation the curbs, sidewalks, and
parking areas adjacent to and in the rear of the Building), and (ii) all
equipment, fixtures and appliances therein, in an attractive, good and safe
condition and repair, ordinary wear and tear excepted, and will keep the same
free from trash, nuisance or danger of fire, and provide and maintain adequate
drainage and lighting thereon, and in all respects and at all times use and
maintain the Premises so as to fully meet and comply with all applicable health
and policy regulations and the ordinances and all other laws now in force or
which may hereafter be enacted. Sublessee shall hold Sublessor free and
harmless of and from all costs and liabilities for such maintenance work, and
from any costs, expenses and liabilities arising from any mechanic's, laborer's
or materialmen's liens arising from such maintenance work.
10.2 SUBLESSOR'S MAINTENANCE AND REPAIRS
Sublessor covenants and agrees that, at Sublessor's sole cost and expense,
during the term of this Sublease it will keep and maintain (i) the Parking Area
and (ii) all equipment, fixtures and appliances therein in an attractive, good
and safe condition and repair, ordinary wear and tear excepted, and will keep
the same free from trash, nuisance or danger of fire and in all respects and at
all times maintain the Parking Area so as to fully meet applicable health and
policy regulations and ordinances and all other applicable laws now in force or
which may hereafter be enacted. Sublessor shall hold Sublessee free and
harmless of and from all costs and liabilities for such maintenance work, and
from any costs, expenses and liabilities arising from any mechanics', laborers'
or materialmen's liens arising from such maintenance work.
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10.3 FAILURE TO PERFORM MAINTENANCE
If Sublessor or Sublessee fails to perform its maintenance duties with
respect to any area covered by the reciprocal easements set forth in Paragraph
2, then the other party may, but is not required to, perform the maintenance
duties on behalf of, and at the expense of the party failing to perform its
maintenance duties.
10.4 SUBLESSEE'S OBLIGATION TO RESTORE OR REBUILD
In the event of damage to or destruction of the Premises by fire or other
casualty then, Sublessee, at its sole expense, shall promptly restore or rebuild
the Premises as nearly as possible to the condition thereof prior to such damage
or destruction, provided that, upon the completion of such repairs, restoration
or rebuilding, the value and rental value of the improvements upon the Premises
shall be substantially equal to or greater than the value and rental value of
the Building and other improvements thereon immediately prior to the happening
of such fire or other casualty.
10.5 RENT AFTER DAMAGE OR DESTRUCTION
Rent shall not be reduced or abated during the period of such repair,
restoration or rebuilding even if either the Building or other improvements are
not tenantable.
10.6 PRECONDITIONS TO REPAIR, RESTORATION OR REBUILDING
Before Sublessee commences such repairing, restoration or rebuilding
involving an estimated cost of more than Ten Thousand Dollars ($10,000.00),
plans and specifications therefor, prepared by a licensed architect satisfactory
to Sublessor shall be submitted to Sublessor for approval and Sublessee shall
furnish to Sublessor (a) an estimate of the cost of the proposed work, certified
to by said architect; (b) satisfactory evidence of sufficient contractor's
comprehensive general liability insurance covering Sublessor and the lessors
under the Ground Leases and Master Subleases, builder's risk insurance and
workmen's compensation insurance; and (c) a performance and payment bond
satisfactory in form and substance to Sublessor.
10.7 PAYMENT FOR RESTORATION OR REBUILDING
All sums arising by reason of loss under the insurance referred to in
Paragraph 9.1 shall be available to the
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Sublessee for restoration or rebuilding of the Premises. Sublessee shall pay any
excess cost of the work over the amount of insurance proceeds. Sublessee shall
diligently pursue the repair or rebuilding of the improvements in a good and
workmanlike manner, using only high quality workmen and materials. Sublessor
shall pay out construction funds from time to time upon receipt of appropriate
contractors' statements, with supporting affidavits and lien waivers.
10.8 EXCESS INSURANCE PROCEEDS
Any excess of money received from insurance remaining with Sublessor after
the repair or rebuilding of improvements shall be paid to Sublessee.
10.9 FAILURE TO REBUILD
If Sublessee shall not enter upon the repair or rebuilding of the
improvements within a period of ninety (90) days after damage or destruction by
fire or otherwise, and prosecute the same thereafter with such dispatch as may
be necessary to complete the same within a reasonable period after said damage
or destruction occurs, not to exceed one hundred eighty (180) days from the date
of commencement of such repair or rebuilding, then, in addition to whatever
other remedies Sublessor may have either under this Sublease, at law or in
equity, Sublessor may retain insurance proceeds, or the balance thereof
remaining in the hands of Sublessor, as security for the continued performance
and observance by Sublessee of Sub1essee's covenants and agreements hereunder,
or Sublessor may terminate this Sublease and then retain the amount so held as
liquidated damages resulting from the failure on the part of Sublessee to comply
with the provisions of this Paragraph.
11. ALTERATIONS
Sublessee shall have the right to make changes or alterations in the
Building, or to construct improvements on the Premises; provided, however, the
Sublessee shall not make any alterations, additions or deletions to the Building
if such alteration, addition or deletion shall (i) convert the Building to a
structure which is not a complete, self-contained, operating unit; (ii) be a
structural change in the Building; or (iii) diminish or reduce either the
parking area on the Real Property or Sublessor's ingress and egress from the
Real Property. Notwithstanding the foregoing, Sublessee may make such
structural changes, alterations, additions or deletions as are approved in
advance by Sublessor, which approval may not be unreasonably withheld or
delayed. If
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Sublessor fails to respond within thirty (30) days to any request submitted by
Sublessee under this Paragraph 11, such request shall be deemed approved by
Sublessor.
12. LIENS
Sublessee shall not do or suffer anything to be done whereby the Premises
or any part thereof may be encumbered by any mechanic's or similar lien and if,
whenever and as often as any mechanic's or similar lien is filed against said
Premises, done by, for or under the authority of Sublessee or anyone claiming
by, through or under Sublessee, Sublessee shall discharge the same of record,
within twenty (20) days after the date of filing.
13. CONTEST OF LIEN CLAIMS
Sublessee shall have the right in good faith and with reasonable diligence
to contest any mechanic's or other lien claim filed against the Premises or any
part thereof, if within twenty (20) days of the date of the filing of such lien,
it notifies Sublessor of its intention so to do, PROVIDED, HOWEVER, Sublessee
shall give to Sublessor such security as may be deemed satisfactory to Sublessor
to insure payment thereof and to prevent any sale, foreclosure, or forfeiture of
the Premises by reason of non-payment thereof; and PROVIDED FURTHER that on
final determination of the lien or claim for lien, Sublessee shall immediately
pay any judgment rendered, with all proper costs and charges, and shall have the
lien released and any judgment satisfied. Sublessor agrees to cooperate fully
with Sublessee in good faith during the course of such contest.
14. UTILITIES
All heat, telephone, light, power, water, sewerage, trash removal, and
other utilities and utility services used in, on or about the Premises shall be
paid for by Sublessee prior to delinquency and shall be contracted for by
Sublessee in its own name.
15. INDEMNITY
15.1 INDEMNIFICATION OF SUBLESSOR
Sublessee agrees to protect, indemnify and save Sublessor and the lessors
under the Ground Leases and the Master Subleases, and each of them, harmless
from and against all liability, obligations, penalties, causes of action,
claims, loss, cost, damage and expense (including without limitation
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reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted
against Sublessor and the lessors under the Ground Leases and the Master
Subleases or any one or more of them by reason of (i) any accident, injury to or
death of persons or loss of or damage to property occurring on or about the
Building and the Premises or any part thereof arising out of Sub1essee's
possession, use, operation, maintenance, management or control of the Premises,
(ii) any breach of this Sublease by Sublessee and (iii) performance of any labor
or services or the furnishing of any materials or other property in respect of
the Premises or any part thereof.
15.2 INDEMNIFICATION OF SUBLESSEE
Sublessor agrees to protect, indemnify and save Sublessee harmless from and
against all liability, obligations, penalties, causes of action, claims, loss,
cost, damage and expense (including without limitation reasonable attorneys'
fees and expenses) imposed upon or incurred by or asserted against Sublessee by
reason of (i) any accident, injury to or death of persons or loss of or damage
to property occurring on or about the Parking Area arising out of Sublessor's
possession, use, operation, maintenance, management or control of the Parking
Area, (ii) any breach of this Sublease by Sublessor and (iii) performance of any
labor or services or the furnishing of any materials or other property in the
respect of the Parking Area or any part thereof. Nothing contained in this
paragraph shall affect Sublessee's obligation to provide the liability
insurance described in Paragraph 9.1.
16. SUBLESSEE'S TRADE FIXTURES AND EQUIPMENT
Sublessee may install on the Premises its trade fixtures and equipment and,
at the termination of this Sublease, Sublessee shall have the right to remove
trade fixtures and equipment (other than property described in Paragraph 17)
installed by Sublessee within thirty (30) days of the termination of this
Sublease, provided, Sublessee is not then in default and Sublessee repairs any
damage to the Premises resulting from such removal. If Sublessee does not
remove Sublessee's furniture, machinery, equipment, trade fixtures and all
other items of personal property of every kind and description from the Premises
within thirty (30) days of Sublessor's request after the termination of the
Sublease, however ended, Sublessor may, at its option, remove the same and
deliver the same to any other place of business of Sublessee or warehouse the
same, and Sublessee shall pay Sublessor's cost of such removal (including the
repair of any injury or damage to the Premises resulting from such removal),
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Cost-U-Less Sublease
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delivery and warehousing on demand, or Sublessor may treat such property as
having been conveyed to Sublessor with this Sublease operating as a Bill of
Sale, without further payment or credit by Sublessor to Sublessee.
17. CONDITION OF PREMISES AT END OF TERM
At the end of the term of this Sublease, Sublessee shall leave and deliver
the Building and the Premises in as good a condition and substantial repair as
they were when delivered to Sublessee with the exception of usual wear and tear.
The Building shall include, without limitation, all plumbing, lighting,
electrical, heating, cooling and ventilating fixtures and equipment, together
with all duct work. All additions, hardware, non-trade fixtures and all
improvements, temporary or permanent, in or upon the Premises placed there by
Sublessee shall become Sublessor's property and shall remain upon the Premises
upon such termination of this Sublease by lapse of time or otherwise, without
compensation or allowance or credit to Sublessee, unless Sublessor requests
their removal in writing at or before the time of such termination of this
Sublease. If Sublessor so requests removal of said additions, hardware, non-
trade fixtures and all improvements and Sublessee does not make such removal
within ten (10) days after said termination, Sublessor may remove the same and
deliver the same to any other place of business of Sublessee or warehouse the
same, and Sublessee shall pay the cost of such removal, delivery and warehousing
to Sublessor on demand.
18. USE
(a) Sublessee shall use and occupy the Premises only to operate a discount
retail store, and other uses commonly associated therewith, including, but not
limited to, a tire shop, a bakery and a butcher shop (the "Permitted Business").
No other use of the Premises may be made without the prior written consent of
Sublessor. Sublessee agrees not to commit or permit any waste of the Premises.
Sublessee agrees to comply with all laws, ordinances, regulations and
conditions, covenants, and restrictions, public or private, affecting the
Premises and not to suffer or permit any act to be done in or about the Premises
in violation thereof.
(b) In addition to and not in limitation of the foregoing, Sublessee shall
neither use, generate, manufacture, produce, store or Release (as hereinafter
defined) on, or dispose of, under or about the Premises, or transfer to or from
the Premises, any amount of any Hazardous Substance (as hereinafter defined) nor
knowingly permit any third party to
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Cost-U-Less Sublease
Page 23
do so, except in compliance with all applicable Environmental Law (as
hereinafter defined), and Sublessee will indemnify and hold Sublessor and its
successors in interest and assigns harmless from all claims, expenses, costs,
including attorneys' fees, and actions which may result or be asserted from or
in connection with any Hazardous Substance (as hereinafter defined) arising out
of Sub1essee's possession, use, operation, maintenance, management or control of
the Premises
(c) The term "Release" as used in this Sublease shall mean any releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injection,
escaping, leaching, disposing, or dumping, or the threat of any of the
foregoing.
(d) The term "Environmental Law" as used in this Sublease shall mean any
federal, territorial, state or local statute, ordinance, or regulation
pertaining to the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. ("CERCLA"); the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Section 6901, et seq. ("RCRA"); and any Guam
environmental law presently in effect or hereafter enacted, and all successor
statutes and amendments and all rules adopted and guidelines promulgated
pursuant to the foregoing.
(e) The term "Hazardous Substance" as used in this Sublease shall include:
(i) those substances included within the definitions of "hazardous
substances," "hazardous material," or "toxic substances" in CERCLA, RCRA,
and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., as same may hereafter be amended from time to time, and in the
regulations promulgated pursuant thereto, as same may be amended from time
to time;
(ii) those substances defined as "hazardous substances" in any Guam
environmental law presently in effect or hereafter enacted, as same may be
amended from time to time, and in rules adopted or guidelines promulgated
pursuant thereto, as same may be amended from time to time;
(iii) those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental
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Cost-U-Less Sublease
Page 24
Protection Agency as hazardous substances (40 CFR Part 302 and amendments
thereto), as same may be amended from time to time; and
(iv) all other substances, materials, and wastes that are, or that
become, regulated under, or that are classified as hazardous or toxic
under, any Environmental Law. For such substances, materials, and wastes
that first become subject to regulation after the date hereof, Sublessee
shall have the period of time permitted by law or administrative decision,
or if no such period of time is specified (unless a period of time is
expressly prohibited), then a reasonable period of time not to exceed 180
days, within which to effect compliance with all applicable Environmental
Laws.
19. QUIET ENJOYMENT
Sublessor covenants and warrants that it has a good and marketable
leasehold interest in the Premises, that it has full right and lawful authority
to enter into this Sublease for the full term hereof, that Sublessee will be put
in possession of the Premises when Sublessee is entitled hereunder, and that
Sublessee, upon paying the rent and performing all of the terms, conditions and
provisions of this Sublease to be performed by Sublessee, shall peacefully and
quietly have, hold and enjoy the Premises for the full term of this Sublease,
and any extension thereto, subject to the provisions herein contained; provided,
however, that this Sublease and the Premises are subject to the easements,
covenants, agreements, encumbrances and restrictions of record on the date of
this Sublease, the reciprocal easement described in Paragraph 2 supra, and the
rights of the lessors under the Ground Leases and the Master Subleases. If
there is any conflict between this Sublease and the Master Subleases then the
Master Subleases and any future amendments shall control. If there is any
conflict between this Sublease and the Ground Leases then the Ground Leases and
any future amendments shall control.
20. SIGNS
Sublessee may, at Sub1essee's own risk, lawfully erect signs concerning the
business of Sublessee or displaying Sub1essee's name on the Building, and the
roof thereof, if permitted by local regulations, but in doing so Sublessee
agrees to maintain said signs in a good state of repair, save Sublessor harmless
from any loss, cost or damage as a result of the erection, maintenance,
existence or removal of the same at the end of the term of this Sublease and
shall repair any
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Cost-U-Less Sublease
Page 25
damage which may have been caused by the erection, existence, maintenance or
removal of such signs.
21. PERSONAL PROPERTY
All personal property of every kind or description that may at any time be
in the Premises shall be at Sub1essee's sole risk, or at the risk of those
claiming under Sublessee, and Sublessor shall not be liable for any damage to
said property or loss suffered by the business or occupation of Sublessee caused
in any manner whatsoever, except as may be caused by the negligence of Sublessor
or its agents or employees.
22. WASTE
Sublessee shall use and occupy the premises in a careful, safe and lawful
manner and not commit or permit any waste therein.
23. NON-WAIVER
No waiver of any breach of any covenant or condition of this Sublease shall
be taken to constitute a waiver of any subsequent breach of such covenant or
condition nor to justify or authorize the nonobservance on any other occasion of
the same or of any other covenant hereof. Acceptance of rent after a breach of
Sublessee of a provision of this Sublease shall not constitute a waiver of any
such breach.
24. DEFAULT
24.1 SUBLESSEE'S DEFAULT
The following shall constitute an event of default, as that term is used in
this Sublease:
(a) Sublessee shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against
Sublessee asking reorganization of Sublessee under the Federal bankruptcy
laws as now or hereafter amended, or under the laws of any United States
Territory or State, shall be entered, and any such decree or judgment or
order shall not have been vacated or stayed or set aside within sixty (60)
days from the date of entry or granting thereof; or
(b) Sublessee shall file or admit the jurisdiction of the court and the
material allegations contained in, any petition in bankruptcy, or any
petition pursuant or
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Cost-U-Less Sublease
Page 26
purporting to be pursuant to the Federal bankruptcy laws now or hereafter
amended, or Sublessee shall institute any proceedings or give its consent
to the institution of any proceedings for relief of Sublessee under any
bankruptcy or insolvency laws of any jurisdiction or the laws of any
jurisdiction relating to the relief of debtors, readjustment of
indebtedness, reorganization, arrangements, composition or extension; or
(c) Sublessee shall make any assignment for the benefit of creditors or
shall apply for or consent to the appointment of a receiver for Sublessee
or any of the property of Sublessee; or
(d) A decree or order appointing a receiver of the property of Sublessee
shall be made and such decree or order shall not have been vacated, stayed
or set aside within sixty (60) days from the date of entry or granting
thereof; and
(e) Sublessee shall vacate the Premises or abandon the same during the term
hereof; or
(f) Sublessee shall default in any monthly payments of rent required to be
made by Sublessee hereunder when due as herein provided with a grace period
of ten (10) days allowed; or
(g) Sublessee shall fail to contest the validity of any lien or claimed
lien and give security to Sublessor to insure payment thereof, or having
commenced to contest the same and having given such security, shall fail to
prosecute such contest with diligence, or shall fail to have the same
released and satisfy any judgment rendered thereon, and such default
continues for fifteen (15) days after notice thereof in writing to
Sublessee; or
(h) Sublessee shall default in any of the other covenants and agreements
herein contained to be kept, observed and performed by Sublessee, and such
default shall continue for thirty (30) days after notice thereof in writing
to Sublessee.
Upon the occurrence of any one or more of such events of default, Sublessor may
terminate this Sublease. Upon termination of this Sublease, Sublessor may re-
enter the Premises with or without process of law using such force as may be
necessary, and remove all persons, fixtures, and chattels therefrom and
Sublessor shall not be liable for any damages resulting therefrom. Such re-
entry and repossession
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Cost-U-Less Sublease
Page 27
shall not work a forfeiture of the rents to be paid and the covenants to be
performed by Sublessee during the full term of this Sublease. Upon such
repossession of the Premises, Sublessor shall be entitled to recover as
liquidated damages and not as a penalty a sum of money equal to the value of the
rent and other sums provided herein to be paid by Sublessee to Sublessor for the
remainder of the term of this Sublease, less the fair rental value of the
Premises for said period. Upon the happening of any one or more of the above-
mentioned events Sublessor may repossess the Premises by forcible entry or
detainer suit, or otherwise, without demand or notice of any kind to Sublessee
(except as hereinabove expressly provided for) and without terminating this
Sublease, in which event Sublessor may, but shall be under no obligation so to
do, relet all or any part of the Premises for such rent and upon such terms as
shall be satisfactory to Sublessor (including the right to relet the Premises
for a term greater or lesser than that remaining under the term of this
Sublease, and the right to relet the Premises as a part of a larger area, and
the right to change the character or use made of the Premises). For the purpose
of such reletting, Sublessor may decorate or make any repairs, changes,
alterations or additions in or to the Premises that may be necessary or
convenient. If Sublessor does not relet the Premises, Sublessee shall pay to
Sublessor on demand as liquidated damages and not as a penalty a sum equal to
the amount of the rent, and other sums provided herein to be paid by Sublessee
for the remainder of the term of this Sublease. If the Premises are relet and a
sufficient sum shall not be realized from such reletting after paying all of the
expenses of such decorations, repairs, changes, alterations, additions, the
expenses of such reletting and the collection of the rent accruing therefrom
(including, but not by way of limitation, attorneys' fees and brokers'
commissions), to satisfy the rent herein provided to be paid for the remainder
of the term of this Sublease, Sublessee shall pay to Sublessor on demand any
deficiency and Sublessee agrees that Sublessor may file suit to recover any sums
falling due under the terms of this paragraph from time to time. If default
shall be made in any covenant, agreement, condition or undertaking herein
contained to be kept, observed and performed by Sublessee, other than the making
of any payments as herein provided, which cannot with due diligence be cured
within a period of thirty (30) days, and if notice thereof in writing shall have
been given to Sublessee, and if Sublessee, prior to the expiration of thirty
(30) days from and after the giving of such notice, commences to eliminate the
cause of such default and proceeds diligently and with reasonable dispatch to
take all steps and do all work required to cure such default and does so cure
such default, then Sublessor shall not have the right to
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Cost-U-Less Sublease
Page 28
declare the said term ended by reason of such default or to repossess without
terminating the Sublease; provided, however, that the curing of any default in
such manner shall not be construed to limit or restrict the right of Sublessor
to declare the said term ended or to repossess without terminating the Sublease,
and to enforce all of its right and remedies hereunder for any other default not
so cured.
24.2 SUBLESSOR'S DEFAULT
In the event of any alleged default in the obligation of Sublessor under
this Sublease, Sublessee will deliver to Sublessor written notice listing the
reasons for Sublessor's default and Sublessor will have thirty (30) days
following receipt of such notice to cure such alleged default or, in the event
the alleged default cannot reasonably be cured within a thirty (30) day period,
to commence action and proceed diligently to cure such alleged default. A copy
of such notice to Sublessor will be sent to any holder of a mortgage or
beneficiary of a deed of trust on the Premises of which Sublessee has been
notified in writing, and any such holder will also have the same time periods to
cure such alleged default.
24.3 REMEDIES CUMULATIVE
Except as otherwise expressly provided herein, no remedy herein or
otherwise conferred upon or reserved to Sublessor or Sublessee shall be
considered to exclude or suspend any other remedy but the same shall be
cumulative and shall be in addition to every other remedy given hereunder now or
hereafter existing at law or in equity or by statute, and every power and remedy
given by this Sublease to Sublessor or to Sublessee may be exercised from time
to time and as often as occasion may rise or as may be deemed expedient. No
delay or omission of Sublessor as Sublessee to exercise any right or power
arising from any event of default, shall impair such right or power or shall be
construed to be a waiver of such default or any acquiescence therein. Neither
the rights herein given to receive, collect, sue for or distrain for any rent or
rents, moneys or payments, or to enforce the terms, provisions and conditions of
this Sublease, or to prevent the breach or non-observance thereof, or the
exercise of any such right or of any other right or remedy hereunder or
otherwise granted or arising, shall in any way affect or impair or toll the
right or power of Sublessor to declare the term of this Sublease hereby granted
ended, and to terminate this Sublease as provided for in this Sublease, or to
repossess without terminating this Sublease, because of any default in or breach
of the covenants, provisions or conditions of this Sublease.
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Cost-U-Less Sublease
Page 29
25. CONDEMNATION
25.1 WHOLE TAKING
If the whole of the Premises, or so much thereof, including however a
portion of the Building and other improvements, shall be taken or condemned for
a public or quasi-public use or purpose by any competent authority and as a
result thereof the balance of the Premises cannot be used for the same purpose
as expressed in Paragraph 18(a), then and in either of such events, the term of
this Sublease shall terminate when possession of the Premises shall be so taken
and surrendered, and any award, compensation or damages (hereinafter sometimes
called the "award"), shall be paid to and be the sole property of Sublessor
whether such award shall be made as compensation for diminution of the value of
the leasehold or the fee of the Premises or otherwise and Sublessee hereby
assigns to Sublessor all of Sub1essee's right, title and interest in and to any
and all such award. Sublessee shall continue to pay rent until the term of this
Sublease is terminated and any taxes and insurance premiums paid by Sublessee,
shall be adjusted between the parties.
25.2 PARTIAL TAKING
If only a part of the Premises shall be so taken or condemned, and although
as a result thereof the balance of the Premises can be used for the same purpose
as expressed in Paragraph 18(a), the Sublessee in good faith reasonably
determines that its use will be materially adversely impaired by the taking,
either party may terminate this lease upon notice to the other, provided, such
--------
notice is given prior to the tenth day following the first date the Condemner
has a right to possession of the part taken. In all other cases in which only a
part of the Premises shall be taken or condemned and the balance can be used for
the same purpose as expressed in Paragraph 18 (a), this Sublease shall not
terminate and Sublessee, at its sole cost and expense, shall repair and restore
the Premises and all improvements thereon. Sublessee shall promptly and
diligently proceed to make a complete architectural unit of the remainder of the
improvements first complying with the procedure set forth in Paragraph 10.2 and
10.3. For such purpose Sublessor shall receive and hold in trust the amount of
the award relating to the Building and improvements and shall disburse such
award to apply on the cost of said repairing or restoration in accordance with
the procedure set forth in Paragraph 10.2 and 10.3. If Sublessee does not make
a complete architectural unit of the remainder of the improvements within a
reasonable period after such taking or condemnation, not to exceed one hundred
eighty (180)
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Cost-U-Less Sublease
Page 30
days, then, in addition to whatever other remedies Sublessor may have either
under this Sublease, at law or in equity, Sublessor may retain the entire award
or the balance thereof remaining in the custody of Sublessor, as the case may
be, as liquidated damages resulting from the failure of Sublessee to comply with
the provisions of this paragraph. Any portion of such award as may not have to
be expended for such repairing or restoration shall be paid to Sublessor. There
shall be no abatement or reduction in any rental because of such taking or
condemnation.
26. NOTICES
All notices, demands or communication required or permitted to be given
hereunder shall be in writing and may be personally delivered or mailed by
certified or registered mail, addressed to the respective parties, and shall be
deemed to have been fully given or made when personally delivered, when
transferred by facsimile to a party at the Fax telephone number set forth below
for that party, when delivered by overnight courier, or if mailed, three (3)
calendar days following the deposit thereof with the United States Postal
Service, registered or certified, postage prepaid, and addressed to the
respective parties as follows:
Sublessor: Tamuning Capital Investment, Inc.
3443 North Central Avenue, Suite 1111
Phoenix, Arizona 85012
Attn: Harold Friend, President
Fax telephone number: (602) 279-1005
Sublessee: Cost-U-Less
1810 15th Place, N.W., Suite 203
Issaquah, Washington 98027
Attn: Jim Rose
Fax telephone number: (206) 641-3383
Any party may change the address to which notices are to be given or the
Fax telephone number to which notices may be facsimile transferred by giving
notice as above provided.
27. ASSIGNMENT, SUBLEASE AND MORTGAGE
(a) Sublessee shall not have the right without Sublessor's prior written
consent, which consent shall not be unreasonably withheld: (i) to mortgage or
encumber Sub1essee's leasehold interest; (ii) to sublet the Premises; or (iii)
to assign this Sublease. Within forty-five (45) days after Sublessee has
requested Sublessor's consent to mortgage
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Cost-U-Less Sublease
Page 31
or encumber Sub1essee's leasehold interest, or to sublet the Premises, or to
assign this Sublease, Sublessor shall consent to or deny the request. If the
request is denied, then Sublessor shall state in writing the reasons or grounds
for its denial. Sublessor shall not be deemed to have unreasonably withheld
consent in the event the prospective assignee or subtenant fails to provide
reasonable documents and evidence that (i) it has had for at least three
continuous years immediately prior to the proposed assignment or sublease a net
worth equal to or greater than that of Sublessee during the same period, and
(ii) the proposed assignee or sublessee, or any of its full time and regularly
employed corporate officers or general partners (if the assignee or sublessee is
a corporation or partnership) has at least five (5) years bona fide, personal
management experience in the business in which the proposed assignee or
sublessee is involved. If no consent or denial is received by Sublessee within
such forty-five (45) day period, then such request shall be deemed as approved
by Sublessor.
(b) Sublessor and Sublessee agree that: (i) a devolution by operation of
law (including without limitation, merger or consolidation); (ii) a change in
ownership of stock in Sublessee exceeding fifty percent (50%) of the issued and
outstanding stock of Sublessee at the date first above written; (iii) licensing
the use of all or a portion of the Premises, even though on a non-exclusive
basis; and (iv) any device designed to circumvent the foregoing definitions (the
"good faith" of Sublessee not being relevant in assessing whether a
circumvention has occurred) shall, in each instance, be deemed a subleasing or
assignment, as the case may be, within the meaning of Paragraph 27(a) requiring
Sublessor's consent as provided in Paragraph 27(a), provided, however, the
--------
provisions of subparagraph 27(b) (i) and (ii) shall not apply to any devolution
by operation of law or change in ownership and such transactions may occur
without Sublessor's consent, if the outstanding common stock of Sublessee is
publicly traded.
(c) Any attempted assignment, subleasing or mortgaging, including any
involuntary transfers or assignments by operation of law, without Sublessor's
written consent shall be void and confer no rights upon any third person. A
consent by Sublessor to one assignment, sublease or mortgage shall not operate
as a waiver of Paragraph 27(a) as to any further assignment, sublease or
mortgage, and Paragraph 27(a) shall apply to any assignee, sublessee or
mortgagee.
(d) Sublessor shall have the right to assign its interest under this
Sublease. Upon receipt of notice of such
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Cost-U-Less Sublease
Page 32
assignment, Sublessee shall look solely to the new assignee for the performance
of all obligations of Sublessor under this Sublease.
28. SUCCESSORS AND ASSIGNS
This Sublease shall run with the land and shall be binding upon and inure
to the benefit of the successors and assigns of the parties hereto and any other
person or persons claiming to hold or exercise any interest by, under or through
either of the Parties.
29. NON-MODIFICATION
It is mutually agreed that the covenants and conditions herein contained
are the full and complete terms of this Sublease and that no alterations,
amendments, modifications or waivers of the same shall be binding unless first
reduced to writing and signed by both parties hereto.
30. MEMORANDUM OF SUBLEASE
It is mutually agreed that this Sublease will not be recorded, but that the
parties will execute a written memorandum acknowledging the tenancy which may be
recorded in the records of the Department of Land Management, Government of
Guam.
31. ATTORNEYS' FEES
In the event of any action or proceeding is instituted in connection with
any controversy arising out of this Sublease or to enforce any provision of this
Sublease, the substantially prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary expenses expended or incurred in connection
with such action or proceeding in addition to any other relief to which such
party may be entitled.
32. EFFECT OF INVALIDITY
If any term or provision of this Sublease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Sublease, or the application of the terms and provisions to
persons and circumstances other than those to which it had been held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Sublease shall be valid and enforceable to the fullest extent permitted by
law.
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Cost-U-Less Sublease
Page 33
33. APPLICABLE LAW
This Sublease and all questions relating to its validity, interpretation,
performance and enforcement shall be construed, interpreted and governed in
accordance with the substantive and procedural laws of Guam, notwithstanding
any Guam or other conflict-of-law provisions to the contrary.
34. HOLD-OVER
If Sublessee remains in possession of the Premises after the expiration of
the term of this Sublease without the express written consent of Sublessor and
without executing a new lease, then such holding over shall be construed as a
month-to-month tenancy, subject to all the conditions, provisions and
obligations of this Sublease insofar as the same are applicable to a month-to-
month tenancy. During such tenancy Sublessee agrees to pay to Sublessor as
monthly rental one hundred fifty percent (150%) of the rental as set forth
herein, unless a different rate is agreed upon, and to be bound by all of the
terms, covenants and conditions as herein specified, so far as applicable.
35. APPROVAL BY GROUND LESSOR
Either party may cancel this lease without liability of either party to the
other if EDUARDO G. CAMACHO and IRENE W. CAMACHO (HUSBAND AND WIFE) AND JOSEFINA
C. TANAKA (A WIDOW) fail to execute a consent to this Sublease in the form
annexed hereto as Exhibit E on or before the fifteenth day following the date
first above written. Either party shall exercise the foregoing option by
delivering notice of cancellation of this Sublease to the other during the
period commencing with the sixteenth day following the date first above written
and ending the twenty fifth day following the date first above written, both
dates inclusive, time being of the essence. This condition shall be conclusively
deemed waived if neither party gives the notice described in the immediately
preceding sentence.
36. ENVIRONMENTAL
36.1 SUBLESSOR'S WARRANTIES
Sublessor warrants and represents that, to the best of its knowledge, any
use, storage, treatment or transportation of Hazardous Substances which has
occurred in or on the Premises prior to the date hereof has been in compliance
with
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Cost-U-Less Sublease
Page 34
all applicable federal, state and local laws, regulations and ordinances.
Sublessor additionally warrants and represents that, to the best of its
knowledge, no release, leak, discharge, spill, disposal or emission of Hazardous
Substances has occurred in, on or under the Premises, and that the Premises are
free of Hazardous Substances as of the date hereof.
36.2 SUBLESSOR'S INDEMNITY
Sublessor agrees to indemnify and hold harmless Sublessee from any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
(including, without limitation, any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the term of
this Sublease from or in connection with the presence or suspected presence of
Hazardous Substances Released in or on the Premises prior to the Commencement
Date, unless the Hazardous Substances are present solely as a result of the acts
of Sublessee, Sublessee's agents, licensees, employees, contractors or invitees.
Without limitation of the foregoing, this indemnification shall include any and
all costs incurred due to any investigation of the site or any cleanup, removal
or restoration mandated by a federal, state or local agency or political
subdivision.
36.3 SUBLESSEE'S INDEMNITY
Sublessee agrees to indemnify and hold harmless Sublessor from any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
(including, without limitation any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the term of
this Sublease, from or in connection with the presence or suspected presence of
Hazardous Substances Released in or on the Premises after Sublessee takes
possession of the Premises unless the Hazardous Substances are present solely as
a result of negligence, willful misconduct or other acts of Sublessor,
Sublessor's agents, licensees, employees, contractors or invitees. Without
limitation of the foregoing, this indemnification shall include any and all
costs incurred due to any investigation of the site or any cleanup, removal or
restoration mandated by a federal, state or local agency or political
subdivision.
37. NEGOTIATION AND CONSTRUCTION
(a) The express terms of this Sublease control and supersede any course of
dealing, usage of trade or course of performance inconsistent with its terms.
If any exhibits
<PAGE>
Cost-U-Less Sublease
Page 35
described in this Sublease have not been attached as completed exhibits at
execution of this Sublease, they shall be incorporated into this Sublease upon
delivery to each of the parties hereto and shall relate back to the effective
date of this Sublease.
(b) The headings contained in this Sublease are for convenience and
reference only and shall not be used to interpret or construe its provisions.
This Sublease and each of the terms and provisions hereof are deemed to have
been explicitly negotiated between the parties, and the language in all parts of
this Agreement shall, in all cases, be construed according to its fair meaning
and not strictly for or against either party.
38. SECURITY DEPOSIT
Sublessee shall deposit with Sublessor contemporaneously with the execution
of this Sublease an amount equal to the sum of One Hundred Twenty-one Thousand
Seven Hundred Seventy-three and No/100 Dollars (US$121,773.00) (the "Security
Deposit") as security for the full performance of this Sublease. If Sublessee
defaults under any provision of this Sublease, Sublessor shall be entitled, at
Sublessor's option and in addition to all other rights and remedies available to
Sublessor, to apply or retain the whole or any part of the Security Deposit for
the payment of any rent or any other charge due Sublessor or any other sum that
Sublessor may spend or become obligated to spend by reason of Sublessee's
default. If the Security Deposit is so used or applied, Sublessee shall, within
ten (10) days after written demand, deposit cash with Sublessor in an amount
sufficient to restore the Security Deposit to its original amount. Sublessor
shall not be required to keep the Security Deposit separate from its general
funds and Sublessee shall not be entitled to interest on the Security Deposit.
The Security Deposit or any balance thereof shall be returned to Sublessee after
Sublessor is able to determine the final amounts of Sublessee's obligations upon
the expiration or termination of this Sublease. If Sublessor transfers
Sublessor's interest in the Premises during the term of this Sublease, Sublessor
may transfer the Security Deposit to any subsequent owner and Sublessee hereby
releases Sublessor from all liability for the return of the Security Deposit,
provided the transferee assumes Sublessor's obligations hereunder with respect
- --------
to the Security Deposit. Sublessee shall not assign, pledge, mortgage, or
otherwise hypothecate its interest in the Security Deposit.
39. ESTOPPEL CERTIFICATE
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Cost-U-Less Sublease
Page 36
39.1 TERMS OF ESTOPPEL CERTIFICATE
Sublessee shall at any time within twenty (20) days after written request
by Sublessor, execute, acknowledge and deliver to Sublessor a statement in
writing: (i) certifying that this Sublease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Sublease, as so modified, is in full force and effect) and the date to
which the rents and other charges are paid in advance, if any; (ii)
acknowledging that there are not, to Sublessee's knowledge, any uncured defaults
on the part of Sublessor hereunder, or specifying such defaults if any are
claimed; and (iii) certifying or acknowledging such other matters that Sublessor
may reasonably request. Any such statement may be conclusively relied upon by
any prospective purchaser or encumbrancer of the Premises or any part thereof.
39.2 FAILURE TO DELIVER
Sublessee's failure to deliver such statement shall be conclusive upon
Sublessee that: (i) this Sublease is in full force and effect, without
modifications except as expressly represented otherwise by Sublessor; (ii)
Sublessor is not in default under the Sublease; and (iii) not more than one (1)
month's rent has been paid in advance.
40. SUBORDINATION, ATTORNMENT AND NONDISTURBANCE
40.1 SUBORDINATION OR SUPERIORITY
At Sublessor's option, this Sublease shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the Premises or any part thereof and to any and all
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements, and extensions thereof without the execution and
delivery of any instruments on the part of Sublessee. Any mortgagee or trustee
shall have to option to give the rights and interest of Sublessee under this
Sublease priority over the lien of its mortgage or deed of trust. In the event
of either such option and upon notification by such mortgagee or trustee to
Sublessee to that effect, the rights and interest of Sublessee under this
Sublease shall be deemed to be subordinate to, or to have priority over, as the
case may be, the lien of said mortgage or trust deed, whether this Sublease is
dated prior to or subsequent to the date of said mortgage or trust deed.
<PAGE>
Cost-U-Less Sublease
Page 37
40.2 AGREEMENTS
Sublessee agrees to execute any agreements reasonably required to
effectuate such subordination or to make this Sublease subordinate to the lien
of any mortgage, deed of trust, or ground lease.
40.3 ATTORNMENT
Sublessee hereby agrees, at the written request of the lienholder or the
purchaser of Sublessor's interest pursuant to foreclosure or other proceedings,
to attorn to such lienholder or purchaser or, at such lienholder's or
purchaser's option, to enter into a new lease for the balance of the term upon
the same terms and conditions as this Sublease.
41. NO BREACH OF THE GROUND LEASES AND THE MASTER SUBLEASES
Sublessee shall not do or permit to be done any act or thing which
constitutes a breach or violation of any term, covenant or condition of either
the Ground Leases or the Master Subleases by the tenant thereunder, whether or
not such act or thing is permitted under the provisions of this Sublease.
42. TERMINATION OF GROUND LEASES OR MASTER SUBLEASES
If for any reason the term of the Ground Leases or the Master Subleases
terminates prior to the expiration date of this Sublease, Sublessor shall not be
liable to Sublessee by reason thereof unless (a) Sublessee is not then in
default hereunder and (b) said termination is effected because of the breach or
default of Sublessor under the Master Subleases or either of them.
43. SURVIVAL
All representations and warranties made by either party shall survive the
expiration or sooner termination of this Sublease.
44. SUBLESSEE'S FINANCIAL STATEMENT
Sublessee shall furnish Sublessor annually within one hundred and twenty
(120) days after the end of each of Sublessee's fiscal years a copy of its
annual audited and certified statement. It is mutually agreed that Sublessor
may deliver a copy of such statements to its mortgagee, but
<PAGE>
Cost-U-Less Sublease
Page 38
otherwise Sublessor shall keep such statements and information contained therein
confidential.
45. LENDER'S REQUIREMENTS
If any mortgagee or committed financier of Sublessor should require, as a
condition precedent to the closing of any loan or the disbursal of any money
under any loan, that this Sublease be amended or supplemented in any manner,
Sublessor shall give written notice thereof to Sublessee, which notice shall be
accompanied by a Sublease Supplement Agreement embodying such amendments and
supplements. Sublessee shall, within twenty (20) days after the effective date
of Sublessor's notice, either consent to such amendments and supplements (which
consent shall not be unreasonably withheld) and execute the tendered Sublease
Supplement Agreement, or deliver to Sublessor a written statement of its reason
or reasons for refusing to so consent and execute. Failure of Sublessee to
respond within said twenty (20) day period shall be a default under this
Sublease.
46. SUBLESSOR
The term "Sublessor" as used in this Sublease, so far as covenants or
obligations on the part of Sublessor are concerned, shall be limited to mean and
include only the owner or owners at the time in question of the subleasehold
interest created under the Master Sublease, and in the event of any transfer or
transfers of the title to such subleasehold interest, the original Sublessor
(and in case of any subsequent transfer or conveyances, the then grantor) shall
be automatically freed and relieved, from and after the date of such transfer or
conveyance, of all liability as respects the performance of any covenants or
obligations on the part of Sublessor contained in this Sublease thereafter to be
performed; provided that any funds in the hands of such Sublessor or the then
grantor at the time of such transfer, in which Sublessee has an interest, shall
be turned over to the grantee, and any amount then due and payable to Sublessee
by Sublessor or the then grantor under any provisions of this Sublease, shall be
paid to Sublessee.
47. INSPECTION
Sublessor, or Sublessor's agent, may enter the Premises at any reasonable
time and in a manner that does not interfere with Sublessee's business, for the
purpose of inspecting the same, or of making repairs which Sublessee may neglect
or refuse to make in accordance with the covenants and agreements of this
Sublease, and also for the purpose of showing the
<PAGE>
Cost-U-Less Sublease
Page 39
Premises to persons wishing to purchase the same, or at any time within one (1)
year prior to the expiration of the term of this Sublease, to persons wishing to
rent the Premises. Sublessee shall within one hundred and twenty (120) days
prior to the expiration of the term of this Sublease, permit the usual notice of
"To Let" or "For Sale" to be placed on the Premises and to remain thereon
without molestation.
48. EXECUTION AND COUNTERPARTS
This Sublease may be executed by the parties in counterparts, which, taken
together, constitute the entire lease. The signature of any party to this
Sublease may be sent by facsimile and if so sent shall be treated as if
delivered in person as an original signature.
49. CONSENT REQUIREMENT
Wherever this Sublease requires the consent of either the Sublessor or the
Sublessee, that consent may not be unreasonably withheld.
50. MORTGAGE CONTINGENCY
This Sublease is contingent upon Sublessor obtaining financing for
Sublessor's Construction ("Construction Financing") within thirty (30) days of
the date of this Sublease. If, after using best efforts, Sublessor is unable to
obtain Construction Financing, then Sublessor may, by written notice to
Sublessee within forty (40) days of the date of this Sublease, terminate this
Sublease without further right or obligation for Sublessor or Sublessee.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the date
first above written.
Sublessor:
TAMUNING CAPITAL INVESTMENT,
INC., a Guam corporation
By /s/ Harold Friend
-----------------------
Harold Friend
President
<PAGE>
Cost-U-Less Sublease
Page 40
Sublessee:
COST-U-LESS,
a Washington corporation
By /s/ Michael J. Rose
--------------------
Name: Michael J. Rose
Title: CEO
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
On this 15th day of July, 1994, before me, the undersigned, personally
appeared Harold Friend, who acknowledged himself to be the President of Tamuning
Capital Investment, Inc., a Guam corporation, and that he, as such officer being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by himself as President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Jack A. Harvey
Notary Public
My Commission Expires:
May 26, 1995
STATE OF WASHINGTON )
) ss.
COUNTY OF Pierce )
On this 14th day of July, 1994, before me, the undersigned, a Notary Public
in and for the State of Washinqton, duly commissioned and sworn, personally
appeared Michael J. Rose, to me known to be the person who signed as CEO of
COST-U-LESS, the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath stated
that he was duly elected, qualified and acting as said officer of the
corporation, that he was authorized to
<PAGE>
Cost-U-Less Sublease
Page 41
execute said instrument and that the seal affixed, if any, is the corporate seal
of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
[NOTARY SEAL APPEARS HERE] /s/ Julianne M. Hazen
(Signature of Notary)
Julianne M. Hazen
(Print or stamp name of notary)
NOTARY PUBLIC in and for the
State of Washington, residing at
Gig Harbor, WA 98335
My Appointment Expires: 4-6-96
<PAGE>
EXHIBIT "A"
[MAP OF TAMUNING COMMERCIAL CENTER]
<PAGE>
EXHIBIT "A"
[MAP OF TAMUNING COMMERCIAL CENTER]
<PAGE>
Cost-U-Less Sublease
Page 43
EXHIBIT B
PLANS
(For American Samoa Store and a letter from Cost U Less's
architect explaining the differences.)
<PAGE>
- --------------------------------------------------------------------------------
)
)
RECORDATION )
)
DEPARTMENT )
)
OF )
)
LAND )
)
MANAGEMENT )
)
)
- --------------------------------------------------------------------------------
SUBLEASE
PARCEL 3
THIS Sublease is made effective and entered into July 1, 1994, by and between
PACIFIC TYRE CAPITAL INVESTMENT, INC., a Guam corporation ("Sublessor"), and
TAMUNING CAPITAL INVESTMENT, INC., a Guam corporation ("Sublessee").
W I T N E S S E T H:
FOR AND IN CONSIDERATION of the payment of rent and of the covenants,
terms, and conditions herein, the parties agree as follows:
1 PARCEL 3: Sublessor hereby subleases to Sublessee "Parcel 3"
--------
consisting of Lot No. 2145-REM-6NEW-R3, Dededo, Guam, containing an area of
72,773 +/- square feet, as shown on Exhibit "A" attached to, and by this
reference incorporated in, this Sublease and subject to the easements as
recorded in the Department of Land Management, Government of Guam, under
Instrument No.278081. Parcel 3 is a parcelling for leasehold purposes only of
the property or lots under the Ground Lease described in paragraph 23 below. The
Ground Lease is recorded in the Department of Land Management, Government of
Guam, as Instrument No.479857.
2 RECIPROCAL EASEMENTS
--------------------
(a) Sublessor's Grant of Easement
-----------------------------
Sublessor grants to Sublessee for the term of this Sublease and all
extensions thereof, a nonexclusive easement for ingress, egress and passage,
both vehicular and pedestrian, and vehicle parking, in the respective areas from
time to time established therefor, including any and all service roads,
driveways, driveway entrances and exits, vehicle approaches, sidewalks,
Exhibit "C" Page 1 of 25
<PAGE>
Sublease - Parcel 3
Page 2
pedestrian walkways and vehicle parking areas, which now are or hereafter may be
located on Parcels 1, 2, and 4 as shown on Exhibit "A". Sublessee shall have the
right to extend the benefit of the foregoing easement to its employees,
suppliers, customers, invitees, assigns, tenants, predecessors in interest, and
licensees during the term of this Sublease.
(b) Sublessee's Grant of Easement
-----------------------------
Sublessee grants to Sublessor for the term of this Sublease and all
extensions a nonexclusive easement for ingress, egress and passage, both
vehicular and pedestrian, and vehicle parking, in the respective areas from time
to time established therefor, including any and all service roads, driveways,
driveway entrances and exits, vehicle approaches, sidewalks, pedestrian walkways
and vehicle parking areas, which now are or hereafter may be located on Parcel
3. Sublessor shall have the right to extend the benefit of the foregoing
easement to any other party including but not limited to its employees,
suppliers, customers, invitees, assigns, tenants, predecessors in interest, and
licensees.
(c) Unimpeded Access
----------------
Sublessee and Sublessor each agree to maintain unimpeded access at all
times between and among all vehicle parking areas from time to time located on
Parcels 1, 2, 3, and 4, or any portion thereof; and no fence, wall, hedge, or
other barrier (other than reasonable devices for the regulation of traffic flow
and the delineation of parking areas) shall be constructed or installed on
Parcels 1, 2, 3, and 4, or any portion thereof, in such a manner as to interfere
with such access between and among Parcels 1, 2, 3, and 4. Notwithstanding any
other provision hereof, Sublessor shall have the right to erect and maintain a
construction fence for a period of thirty (30) calendar days for each building
or other improvement to be constructed on Parcels 1, 2, and 4 as shown on
Exhibit A attached hereto.
(d) No Public Dedication
--------------------
Nothing contained in this Sublease shall constitute, or be construed to
constitute, a dedication of any portion of Parcels 1, 2, 3 or 4 to the general
public or for the benefit of the general public or for any public purposes
whatsoever. The easements herein granted shall be for the exclusive use of the
parties hereto and those whom the parties permit to enter upon their respective
premises.
(e) Easements Run With Land
-----------------------
The easements herein granted shall run with the land.
Exhibit "C" Page 2 of 25
<PAGE>
Sublease - Parcel 3
Page 3
(f) No Encroachment
---------------
Sublessor shall have the right to construct such permanent buildings and
improvements on land abutting Parcel 3, whether now owned or subleased or
hereafter acquired or subleased by Sublessor, and such buildings and
improvements shall not be deemed to encroach on the easements created by this
instrument, provided Sublessee has ingress and egress from Parcel 3 to and from
a public thoroughfare.
3 TERM: The term of this Sublease shall be for approximately seventy-two
----
(72) years and 8 months commencing on July 1, 1994 and ending at midnight on
February 29, 2067, unless sooner terminated as provided herein.
4 RENTAL:
------
a) No rent shall be payable from July 1, 1994 until December 31, 1994.
The rent to be paid by Sublessee to Sublessor for the sublease herein granted
during calendar year 1995 shall be One Hundred Sixty-eight Thousand and No/100
Dollars ($168,000.00), payable in monthly installments on the first day of each
calendar month in the amount of Fourteen Thousand and No/100 Dollars
($14,000.00). In every subsequent calendar year during the term of this
Sublease, the rent to be paid by Sublessee to Sublessor for the sublease herein
granted shall increase by the sum of Five Thousand Forty and No/100 Dollars
($5,040.00) over the rent for the immediately preceding calendar year. Example:
For 1996 the rent shall be One Hundred Seventy-three Thousand Forty and No/100
Dollars ($173,040.00), payable in monthly installments on the first day of each
calendar month in the amount of Fourteen Thousand Four Hundred Twenty and No/100
Dollars ($14,420.00); for 1997 the rent shall be One Hundred Seventy-eight
Thousand Eighty and No/100 Dollars ($178,080.00), payable in monthly
installments on the first day of each calendar month in the amount of Fourteen
Thousand Eight Hundred Forty and No/100 Dollars ($14,840.00).
b) At all times during the term of this Sublease, in order to adjust the
rent payable under this Sublease in accordance with changes in Sublessor's basic
costs in connection with this Sublease, Sublessee agrees to pay to Sublessor, in
addition to the rental provided for in the preceding subparagraphs and as
additional rent under this Sublease, all gross receipt taxes and assessments,
and other business privilege tax or assessments, and governmental charges and
other similar taxes and assessments, whether federal, territorial or municipal,
and whether they be by taxing districts or authorities presently taxing Parcel 3
or by others, subsequently created or otherwise, and any other taxes and
assessments attributable to Parcel 3, including without limitation any form of
assessment, license fee, commercial rental tax, gross receipts tax, transaction
privilege tax, levy, charge or tax (other than net income taxes) imposed by any
authority having the direct or indirect power to tax, including any city,
territorial or federal government, or any school, agricultural, lighting,
drainage, flood control or other special district thereof, as against any legal
or equitable interest of Sublessor in Parcel 3, as against Sublessor's right to
rent or other income
Exhibit "C" Page 3 of 25
<PAGE>
Sublease - Parcel 3
Page 4
therefrom, or as against Sublessor's business of leasing Parcel 3, or any tax
imposed in substitution, partially or totally, for any such tax, levy,
assessment or charge, and any increases thereto. Any reference to "tax" in this
subparagraph shall not include income taxes due and payable by Sublessor on any
net income attributable to Sublessor.
5 MEMORANDUM OF SUBLEASE: It is mutually agreed that this Sublease will
----------------------
not be recorded, but that the parties will execute a written memorandum
acknowledging the tenancy which may be recorded in the records of the Department
of Land Management, Government of Guam.
6 UTILITIES, TAXES, AND ASSESSMENTS: Hereafter, Sublessee shall pay, as
---------------------------------
they become due and payable, all utilities, taxes, assessments, and other public
charges arising thereto, levied or assessed against Parcel 3, or arising by
reason of the occupancy, use, or possession of same. If Sublessee, in good
faith, shall contest such payment, Sublessee must make payment and file in the
name of Sublessor all such protests or other instruments and commence or
prosecute proceedings for the purpose of such contest.
7 Reserved.
---------
8 USE AND ZONING: Sublessee may use Parcel 3 in accordance with all
--------------
zoning laws, governmental rules, and regulations. Upon Sublessee's request,
Sublessor shall assist, cooperate, execute and shall use its best efforts to
have the fee simple owners under the Ground Lease assist, cooperate, and execute
any instruments for change in zoning, or for dedication to the Territory of Guam
any portion of Parcel 3, as may be desired by Sublessee in the development and
use of Parcel 3.
9 DEVELOPMENT, BUILDING AND IMPROVEMENTS:
--------------------------------------
a. Sublessee shall have the right to freely develop, construct,
build, modify, remove, alter and repair any building or improvements on or about
Parcel 3 without Sublessor's approval. All buildings and improvements shall be
constructed and maintained according to applicable building codes and permits.
Upon the expiration of the term of this Sublease, all buildings, fixtures, and
other permanent improvements left on Parcel 3 by Sublessee shall become the
property of Sublessor. Sublessee shall have the right to remove, dispose of and
sell any soil, coral, rocks and vegetation from Parcel 3 provided that such is
directly related to the development of Parcel 3. Sublessee shall have the right
to keep the proceeds if such soil, coral, rocks and vegetation are sold.
Provided, however, Sublessee shall not create a coral pit or mine coral on
Parcel 3 other than in connection with the construction of improvements on
Parcel 3.
b. Sublessee shall not cause or allow any mechanics lien, as a result
---
of any construction work on Parcel 3, to attach to Sublessor's interest. If such
a mechanic's lien attaches to Sublessor's interest then Sublessor shall
immediately notify Sublessee in writing,
Exhibit "C" Page 4 of 25
<PAGE>
Sublease - Parcel 3
Page 5
and Sublessee shall remove such mechanics lien within thirty (30) days
thereafter, or if Sublessee contests such lien, then Sublessee shall post a bond
with Sublessor covering one hundred ten percent (100%) of such lien. Prior to
the start of construction Sublessee shall cause the contractor to post
performance, payment and material bonds, naming Sublessor as an additionally
assured party thereunder, covering the full cost of construction.
10 LOSS OR DAMAGE SUSTAINED BY SUBLESSEE: Sublessor shall not be liable
-------------------------------------
to Sublessee, or to anyone claiming under or through Sublessee, for any loss
and/or damage which may occur for any reason whatsoever on or about Parcel 3 or
to any damage caused to Sublessee's property except for damage as a result of
Sublessor's negligence.
11 INDEMNIFICATION: Sublessee shall indemnity and hold harmless Sublessor
---------------
from all claims, losses and damages including expenses, costs and reasonable
attorneys' fees incurred by Sublessor as a result thereof, by third parties for
property damage, personal injury, or wrongful death arising out of or in any way
occasioned by an accident or condition on or about Parcel 3 or any water, fire,
or explosion occurring on Parcel 3 and caused by any act, omission or negligence
on the part of Sublessee.
12 INSURANCE: Sublessee shall maintain comprehensive public liability
---------
insurance at all times during the entire term of this Sublease, and shall be
with a company qualified to do business in Guam. Such insurance policies shall
designate specifically that Sublessor and the fee simple owners under the Ground
Lease are also named as an insured parties thereunder in the form and reasonable
substance approved by Sublessor. The comprehensive public liability insurance
shall have coverage in the minimum amount of TWO HUNDRED THOUSAND AND NO/100
DOLLARS ($200,000.00) for property; TWO MILLION AND NO/100 DOLLARS
($2,000,000.00) for injuries to more than one person arising out of one
accident; and ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) for injury to one
person. The minimum amount of insurance coverage shall be subject to adjustment
simultaneously when Sublessor is required to adjust the minimum insurance
coverage as required under the Ground Lease, which is approximately every ten
(10) years. Sublessee shall carry at all times the same amount of minimum
insurance coverage as required of Sublessor under the Ground Lease. Sublessee
shall also obtain and maintain fire insurance covering the full replacement
costs of the improvements on Parcel 3. Sublessee shall deliver copies of all
insurance policies on Parcel 3 and the "project" (as defined in the Ground
Lease) to Sublessor at Sublessor's request.
13 ASSIGNMENT, SUBLEASING AND MORTGAGING: Sublessee shall have the right
-------------------------------------
to mortgage or encumber Sublessee's subleasehold interest without Sublessor's
consent. Sublessee shall also have the right to sublet Parcel 3 and/or project
without Sublessor's consent. All subleases by Sublessee under this Sublease, or
all subletting of Sublessee's subleasehold interest shall be subject to this
Sublease and Sublessor shall not be required to accept or recognize any such
sublease or subletting by Sublessee. Sublessee shall not have the right to
assign this Sublease without the consent of Sublessor and
Exhibit "C" Page 5 or 25
<PAGE>
Sublease - Parcel 3
Page 6
Sublessor agrees to not unreasonably withhold its consent. Sublessor shall not
receive any money or additional consideration for giving of any consent to an
assignment of this Sublease. Within thirty (30) days after Sublessee has
requested Sublessor's consent to an assignment, Sublessor shall consent or deny
the request. If the request for an assignment is denied, then Sublessor shall
state in writing the reasons or grounds for the denial. If no consent or denial
is received by Sublessee within the said thirty (30) day period, then such
request shall be deemed as approved by Sublessor.
14 MORTGAGE: If Sublessee mortgages its Subleasehold interest, and if
--------
Sublessee is in default of the payment of rent or any payment due under this
Sublease, then Sublessor, upon giving sixty (60) days notice to Sublessee, shall
also give a copy by certified or registered mail to Sublessee's mortgagee, and
such mortgagee shall have the right but not the obligation to cure such default
within said sixty (60) days. If Sublessee's default concerns an act other than
the payment of money, then upon Sublessor giving Sublessee thirty (30) days to
commence to cure, Sublessor shall likewise give a copy, by registered, or
certified mail to Sublessee's mortgagee and such mortgagee shall have the right,
but not the obligation, to commence to cure such default and to cure the same
within a reasonable time thereafter. As long has Sublessee has a mortgage on
its subleasehold interest, no default or termination by Sublessor shall be valid
unless Sublessee's mortgage has received a proper notice and has had an
opportunity to cure the default as set forth herein.
15 ESTOPPEL CERTIFICATE: Upon Sublessee's request, Sublessor shall
--------------------
execute any estoppel certificate or statement stating that this Sublease is in
full force and effect, and that Sublessee is not in default; provided, however,
that the statement as requested is true and correct. Further, Sublessor shall
use its best efforts to assist Sublessee in obtaining an estoppel certificate
from the fee simple owners under the Ground Lease.
16 SUBLESSOR'S CONSENT: Whenever and if Sublessor's consent is required
-------------------
under this Sublease, then Sublessor shall not unreasonably withhold such consent
and Sublessor shall not be entitled to receive any additional consideration for
such consent.
17 CONDEMNATION: If the entire Parcel 3 and project should be taken
------------
during the term of this Sublease by the Government of Guam, or by any other
lawful governing authority, under the power of eminent domain, then this
Sublease shall terminate upon actual possession by the government. If only a
portion of Parcel 3 or project is taken so that such taking does not materially
interfere with Sublessee's business, than this Sublease shall not terminate but
shall continue. The rent must be adjusted on a fair and reasonable basis. Such
adjustment shall be in proportion to the amount of land (not building) taken as
fit bears to the original size of Parcel 3. Further, such rental adjustment
shall take into consideration the rental value of vacant land as a comparable
and the rental value of the remaining building and improvements and other
factors. However, if the portion taken by the government is substantial or if in
Sublessee's reasonable opinion such condemnation materially affects the business
of Sublessee, then this Sublease may be terminated by
Exhibit "C" Page 6 of 25
<PAGE>
Sublease - Parcel 3
Page 7
Sublessee. Each party may claim from the government the value of its interest
taken. If the parties cannot agree as to the adjusted rental, if a non-material
or non-substantial portion is taken, or if there is a disagreement between the
parties as to whether or not a material or substantial portion was taken to
justify a termination of this Sublease, then either party by giving the other at
least twenty (20) days written notice, may start arbitration proceedings. Each
shall then select a real estate appraiser, and the appraisers shall then select
a third appraiser. The appraisers shall then determine the non-material or
material issue of such taking, the values, rents, and other related issues
including the payment of all or any portion of such appraiser's fees. A majority
decision of the appraisers on any issue before them shall be necessary for a
determination.
18 SUCCESSORS: All terms and conditions of this Sublease shall be binding
----------
upon Sublessor and Sublessee, and their respective successors and assigns.
19 NOTICE:
-------
a. All notices shall be made by personal delivery or by registered or
certified mail, addressed to the proper party as set forth below:
As to Sublessor: 3443 North Central Avenue, Suite 1111
Phoenix, Arizona 85012
Attention: Harold Friend, President
with facsimile copy to (602) 279-1705
As to Sublessee: 3443 North Central Avenue, Suite 1111
Phoenix, Arizona 85012
Attention; Harold Friend, President
with facsimile copy to (602) 279-1705
b. All notices shall be deemed delivered as of the date of the postmark
of any mail or notices properly addressed and registered or certified mail,
return receipt requested, by the U.S. Post Office provided that such notice and
mail is properly addressed as set forth above, contains sufficient postage and
is registered or certified.
c. Sublessor shall, upon serving notice to Sublessee, simultaneously
serve a copy of such notice to any mortgagee of Sublessee.
d. Should either party desire to designate another individual to
receive payments or notice on its behalf, or shall have a change of address,
then such party shall give ten (10) days written notice of such new party to
receive such notice or payment and/or any new address.
Exhibit "C" Page 7 of 25
<PAGE>
Sublease - Parcel 3
Page 8
20 DEFAULT:
--------
a. Sublessee shall be in default of this Sublease if Sublessee shall
fail to make the payment of rent or monies due under this Sublease within sixty
(60) days after written notice thereof from Sublessor. Further, if Sublessee
shall breach the terms and conditions of this Sublease, other than those
requiring the payment of money or rent, and if Sublessee shall fail to commence
to correct or cure such breach within thirty (30) days after written notice and
correct or cure such breach within a reasonable time thereafter, then Sublessee
shall be in default of this Sublease.
b. If Sublessee fails to cure any default within the cure period
provided above, Sublessor shall have the right to terminate this Sublease and
may at once reenter Parcel 3 and take possession of Parcel 3 and the project and
all improvements thereon. If Sublessor so terminates this Sublease, Sublessor
may demand that Sublessee assign to Sublessor all of Sublessee's interest in and
to Parcel 3, and the project. If Sublessee shall voluntarily make such
assignment within thirty (30) days after Sublessor's written demand, then
Sublessee shall not be liable to Sublessor for any damages, costs, back rents,
shortages, attorney's fees, or for any money or obligations whatsoever.
Otherwise, Sublessor shall be entitled to all damages, money and remedies
allowed by law and this Sublease.
21 NONDISTURBANCE OF SUBTENANTS: If this Sublease is terminated due to
----------------------------
Sublessee's default or for any reason whatsoever, then such termination shall
not mean a termination of any sublease or subtenancy. Sublessors shall recognize
and accept all subleases and subtenancies on the above described property and
project. All subtenants or sublessees shall attorn directly to Sublessors, and
Sublessors shall be substituted as sublessor or the landlord of all subtenants
or sublessees. All terms and conditions of the subleases shall remain in full
force and effect and all rental payments thereunder due to Sublessee shall be
paid directly to Sublessor.
22 FORCE MAJEURE: The following shall be deemed as events of "force
-------------
majeure: Non-delivery or a delay in the delivery of materials from an off island
supplier as a result of acts of God or events beyond the control of the
supplier; typhoon; cyclone, tropical storms, earthquake; acts of God; hazardous
wastes and pollutants; strikes, inability to obtain materials; unreasonable
delays caused by the government; change in zoning which may prohibit or prevent
commercial use; or any event which is beyond the fault or reasonable control of
Sublessee; or any event which may frustrate the basic intent and purposes of
this Sublease between the parties. Events of force majeure shall justify the
delay or inaction of Sublessee of any required act hereunder.
23 GROUND LEASE: Any reference to "Ground Lease" shall mean that LEASE,
------------
(Novation or Substitute Lease) dated November 13, 1992, between EDUARDO G.
CAMACHO and IRENE W. CAMACHO (HUSBAND AND WIFE), AND JOSEFINA C. TANAKA (A
WIDOW), collectively referred to as "Lessors", and PACIFIC TYRE CAPITAL
Exhibit "C" Page 8 of 25
<PAGE>
Sublease - Parcel 3
Page 9
INVESTMENT, INC. referred to as the Lessee, as recorded in the Department of
Land Management, Government of Guam, under Instrument No. 479857, on Lot Nos.
2145-REM-6 and 2143-REM-7, Dededo, Guam. The terms and conditions of this
Sublease shall be subject to the terms and conditions of the Ground Lease and
any future amendments thereto. If there is any conflict between this Sublease
and the Ground Lease and any future amendments thereto then the Ground Lease and
its amendments shall control. Any reference in this Sublease to Ground Lessor
shall mean the lessor in the Ground Lease and any amendments thereto.
24. JOINT USE OF PARCELS: If Sublessee has other subleases from or with
--------------------
Sublessor which concern or are on portions of the lots under the Ground Lease,
then parcels as subleased by Sublessee from Sublessor may be used for the
benefit of each other. Sublessor, jointly and severally, consent to Sublessee
constructing buildings and improvements across the boundary lines between the
parcels. If Sublessor's approval on other documents are required to allow for
the construction or building across the boundary lines of the parcels, then
Sublessor shall execute such documents.
25. SUPERSEDES PRIOR SUBLEASE: This Sublease supersedes all prior
-------------------------
subleases relating to the above described property between the parties.
IN WITNESS WHEREOF, this Sublease is dated the day and year first above
written.
Sublessor: Sublessee:
PACIFIC TYRE CAPITAL TAMUNING CAPITAL INVESTMENT, INC.,
INVESTMENT, INC., a Guam corporation
a Guam corporation
By:/s/ Harold Friend By:/s/ Harold Friend
------------------------ ------------------------
Harold Friend, President Harold Friend, President
STATE OF ARIZONA )
)ss.
County of Maricopa )
On this, the 1st day of July, 1994 before me, the undersigned, personally
appeared Harold Friend, who acknowledged himself to be the President of PACIFIC
TYRE CAPITAL INVESTMENT INC., a Guam corporation, and that he, as such officer
being
Exhibit "C" Page 9 of 25
<PAGE>
Sublease - Parcel 3
Page 10
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by himself as President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Mary M. Wallace
-------------------
Notary Public
My Commission expires:
11-25-95
- ---------------------
STATE OF ARIZONA )
)ss.
County of Maricopa )
On this, the 1st day of July, 1994 before me, the undersigned, personally
appeared Harold Friend, who acknowledged himself to be the President of TAMUNING
CAPITAL INVESTMENT, INC., a Guam corporation, and that he, as such officer
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself as
President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Mary M. Wallace
-------------------
Notary Public
My Commission expires:
11-25-95
- ---------------------
Exhibit "C" Page 10 of 25
<PAGE>
EXHIBIT "A"
[MAP OF TAMUNING COMMERCIAL CENTER]
EXHIBIT "C" PAGE 11 OF 25
<PAGE>
EXHIBIT "A"
[MAP OF TAMUNING COMMERCIAL CENTER]
EXHIBIT "C" PAGE 12 OF 25
<PAGE>
- --------------------------------------------------------------------------------
RECORDATION )
)
DEPARTMENT )
)
OF )
)
LAND )
)
MANAGEMENT )
- --------------------------------------------------------------------------------
SUBLEASE
PARCEL 4
THIS Sublease is made effective and entered into July 1, 1994, by and
between PACIFIC TYRE CAPITAL INVESTMENT, INC., A Guam corporation
("Sublessor"), and TAMUNING CAPITAL INVESTMENT, INC., A Guam corporation
("Sublessee").
W I T N E S S E T H:
FOR AND IN CONSIDERATION of the payment of rent and of the covenants,
terms, and conditions herein, the parties agree as follows:
1 PARCEL 4: Sublessor hereby subleases to Sublessee "Parcel 4"
--------
consisting of Lot No 2146-3-13, Lot No.2146-3-12, and Lot No.2146-3-11,
Tamuning, Municipality of Dededo, Guam, as shown on Exhibit "A" attached to, and
by this reference incorporated in, this Sublease and subject to the easements as
recorded in the Department of Land Management, Government of Guam, as Instrument
No.278081. Parcel 4 is a parcelling for leasehold purposes only of the property
or lots under the Ground Lease described in paragraph 23 below. The Ground Lease
is recorded in the Department of Land Management, Government of Guam, as
Instrument No.469677.
2 RECIPROCAL EASEMENTS
--------------------
(a) Sublessor's Grant of Easement
-----------------------------
Sublessor grants to Sublessee for the term of this Sublease and all
extensions thereof, a nonexclusive easement for ingress, egress and passage,
both vehicular and pedestrian, and vehicle parking, in the respective areas from
time to time established therefor, including any
Exhibit "C" Page 13 of 25
<PAGE>
Sublease - Parcel 4
Page 2
and all service roads, driveways, driveway entrances and exits, vehicle
approaches, sidewalks, pedestrian walkways and vehicle parking areas, which now
are or hereafter may be located on Parcels 1, 2, and 3 as shown on Exhibit "A".
Sublessee shall have the right to extend the benefit of the foregoing easement
to its employees, suppliers, customers, invitees, assigns, tenants, predecessors
in interest, and licensees during the term of this Sublease.
(b) Sublessee's Grant of Easement
-----------------------------
Sublessee grants to Sublessor for the term of this Sublease and all
extensions a nonexclusive easement for ingress, egress and passage, both
vehicular and pedestrian, and vehicle parking, in the respective areas from
time to time established therefor, including any and all service roads,
driveways, driveway entrances and exits, vehicle approaches, sidewalks,
pedestrian walkways and vehicle parking areas, which now are or hereafter may be
located on Parcel 4. Sublessor shall have the right to extend the benefit of the
foregoing easement to any other party including but not limited to its
employees, suppliers, customers, invitees, assigns, tenants, predecessors in
interest, and licensees.
(c) Unimpeded Access
----------------
Sublessee and Sublessor each agree to maintain unimpeded access at all
times between and among all vehicle parking areas from time to time located on
Parcels 1, 2, 3, and 4, or any portion thereof; and no fence, wall, hedge, or
other barrier (other than reasonable devices for the regulation of traffic flow
and the delineation of parking areas) shall be constructed or installed on
Parcels 1, 2, 3, and 4, or any portion thereof in such a manner as to interfere
with such access between and among Parcels 1, 2, 3, and 4. Notwithstanding any
other provision hereof, Sublessor shall have the right to erect and maintain a
construction fence for a period of thirty (30) calendar days for each building
or other improvement to be constructed on Parcels 1, 2, and 3 as shown on
Exhibit A attached hereto.
(d) No Public Dedication
--------------------
Nothing contained in this Sublease shall constitute, or be construed to
constitute, a dedication of any portion of Parcels 1, 2, 3 or 4 to the general
public or for the benefit of the general public or for any public purposes
whatsoever. The easements herein granted shall be for the exclusive use of the
parties hereto and those whom the parties permit to enter upon their respective
premises.
(e) Easements Run With Land
-----------------------
The easements herein granted shall run with the land.
Exhibit "C" Page 14 of 25
<PAGE>
Sublease - Parcel 4
Page 3
(f) No Encroachment
---------------
Sublessor shall have the right to construct such permanent buildings and
improvements on land abutting Parcel 4, whether now owned or subleased or
hereafter acquired or subleased by Sublessor, and such buildings and
improvements shall not be deemed to encroach on the easements created by this
instrument, provided Sublessee has ingress and egress from Parcel 4 to and from
a public thoroughfare.
3 TERM: The term of this Sublease shall commence on July 1, 1994 and shall
----
end at midnight on March 31, 2092 unless sooner terminated as provided herein.
4 RENTAL:
------
(a) No rent shall be payable from July 1, 1994 until December 31,
1994. The rent to be paid by Sublessee to Sublessor for the sublease herein
granted shall be paid in eleven hundred seventy-nine (1,179) successive monthly
payments payable on the first day of each calender month commencing January 1,
1995 and continuing thereafter until and including March 1, 2092. The first
twelve (12) monthly installments of rent payable on the first day of each
calendar month in 1995 shall be in the amount of Three Thousand and No/100
Dollars ($3,000.00) each. Starting on April 1, 1997, the rent shall increase by
12 1/2% and the rent shall increase, every five (5) years thereafter at 12 1/2%
compounded, until March 1, 2047. "Every 5 years thereafter", shall mean that the
rent shall increase by 12 1/2%, compounded, on April 1 of the following years:
2002, 2007, 2012, 2017, 2022, 2027, 2032, and 2037.
(b) Starting as of April 1, 2042, the rent to be paid by Sublessee to
Sublessor during the term from April 1, 2042 to the end of this Sublease term,
March 31, 2092, shall increase by the same amount which Sublessor is required
to pay the Ground Lessor under the Ground Lease.
NOTE: For informational purposes only, the Ground Lease states that the rents
shall increase to nine percent (9%) of the land value of the then existing use
of the Parcel under the Ground Lease at the end of the original term of the
Ground Lease, namely the original term of the Ground Lease ends on April 6, 2042
with an option to extend. Sublessor has exercised the option to extend the
Ground Lease for the additional 50 year period. Further, in any event, the
rental for the first five (5) years of the extended term of the Ground Lease is
not to be less than the rental for the last five (5) years of the original term.
After each fifth anniversary of the extended term of the Ground Lease the rent
to be paid by the Ground Lessee to the Ground Lessor is to be increased by
twelve and one-half percent (12 1/2%) over nine percent (9%) of the land value
of the then existing use of the Parcel at the end of the original term of the
Ground Lease.
Exhibit "C" Page 15 of 25
<PAGE>
Sublease - Parcel 4
Page 4
(c) At all times during the term of this Sublease, in order to adjust
the rent payable under this Sublease in accordance with changes in Sublessor's
basic costs in connection with this Sublease, Sublessee agrees to pay to
Sublessor, in addition to the rental provided for in the preceding subparagraphs
and as additional rent under this Sublease, all gross receipt taxes and
assessments, and other business privilege tax or assessments, and other business
privilege tax or assessments, and governmental charges and other similar taxes
and assessments, whether federal, territorial or municipal, and whether they be
by taxing districts or authorities presently taxing Parcel 4 or by others,
subsequently created or otherwise, and any other taxes and assessments
attributable to Parcel 4, including without limitation any form of assessment,
license fee, commercial rental tax, gross receipts tax, transaction privilege
tax, levy, charge or tax (other than net income taxes) imposed by any authority
having the direct or indirect power to tax, including any city, territorial or
federal government, or any school, agricultural, lighting, drainage, flood
control or other special district thereof, as against any legal or equitable
interest of Sublessor in Parcel 4, as against Sublessor's right to rent or other
income therefrom, or as against Sublessor's business of leasing Parcel 4, or any
tax imposed in substitution, partially or totally, for any such tax, levy,
assessment or charge, and any increases thereto. Any reference to "tax" in this
subparagraph shall not include income taxes due and payable by Sublessor on any
net income attributable to Sublessor.
5 MEMORANDUM OF SUBLEASE: It is mutually agreed that this Sublease will
----------------------
not be recorded, but that the parties will execute a written memorandum
acknowledging the tenancy which may be recorded in the records of the Department
of Land Management, Government of Guam.
6 UTILITIES, TAXES, AND ASSESSMENTS: Hereafter, Sublessee shall pay, as
---------------------------------
they become due and payable, all utilities, taxes, assessments, and other public
charges arising thereto, levied or assessed against Parcel 4, or arising by
reason of the occupancy, use, or possession of same. If Sublessee, in good
faith, shall contest such payment, Sublessee must make payment and file in the
name of Sublessor all such protests or other instruments and commence or
prosecute proceedings for the purpose of such contest.
7 Reserved.
---------
8 USE AND ZONING: Sublessee may use Parcel 4 in accordance with all
--------------
zoning laws, governmental rules, and regulations. Upon Sublessee's request,
Sublessor shall assist, cooperate, execute and shall use its best efforts to
have the fee simple owners under the Ground Lease assist, cooperate, and execute
any instruments for change in zoning, or for dedication to the Territory of Guam
any portion of Parcel 4, as may be desired by Sublessee in the development and
use of Parcel 4.
Exhibit "C" Page 16 of 25
<PAGE>
Sublease - Parcel 4
Page 5
9 DEVELOPMENT, BUILDING AND IMPROVEMENTS:
--------------------------------------
(a) Sublessee shall have the right to freely develop, construct,
build, modify, remove, alter and repair any building or improvements on or about
Parcel 4 without Sublessor's approval. All buildings and improvements shall be
constructed and maintained according to applicable building codes and permits.
Upon the expiration of the term of this Sublease, all buildings, fixtures, and
other permanent improvements left on Parcel 4 by Sublessee shall become the
property of Sublessor. Sublessee shall have the right to remove, dispose of and
sell any soil, coral, rocks and vegetation from Parcel 4 provided that such is
directly related to the development of Parcel 4. Sublessee shall have the right
to keep the proceeds if such soil, coral, rocks and vegetation are sold.
Provided, however, Sublessee shall not create a coral pit or mine coral on
Parcel 4 other than in connection with the construction of improvements on
Parcel 4.
(b) Sublessee shall not cause or allow any mechanics lien, as a result
---
of any construction work on Parcel 4, to attach to Sublessor's interest. If such
a mechanic's lien attaches to Sublessor's interest then Sublessor shall
immediately notify Sublessee in writing, and Sublessee shall remove such
mechanics lien within thirty (30) days thereafter, or if Sublessee contests such
lien, then Sublessee shall post a bond with Sublessor covering one hundred ten
percent (110%) of such lien. Prior to the start of construction Sublessee shall
cause the contractor to post performance, payment and material bonds, naming
Sublessor as an additionally assured party thereunder, covering the full cost of
construction.
10 LOSS OR DAMAGE SUSTAINED BY SUBLESSEE: Sublessor shall not be liable
-------------------------------------
to Sublessee, or to anyone claiming under or through Sublessee, for any loss
and/or damage which may occur for any reason whatsoever on or about Parcel 4 or
to any damage caused to Sublessee's property except for damage as a result of
Sublessor's negligence.
11 INDEMNIFICATION: Sublessee shall indemnify and hold harmless Sublessor
---------------
from all claims, losses and damages including expenses, costs and reasonable
attorneys' fees incurred by Sublessor as a result thereof, by third parties for
property damage, personal injury, or wrongful death arising out of or in any
way occasioned by any accident or condition on or about Parcel 4 or any water,
fire, or explosion occurring on Parcel 4 and caused by any act, omission or
negligence on the part of Sublessee.
12 INSURANCE: Sublessee shall maintain comprehensive public liability
---------
insurance at all times during the entire term of this Sublease, and shall be
with a company qualified to do business in Guam. Such insurance policies shall
designate specifically that Sublessor and the fee simple owners under the Ground
Lease are also named as an insured parties thereunder in the form and reasonable
substance approved by Sublessor. The comprehensive public liability insurance
shall have coverage in the minimum amount of TWO HUNDRED THOUSAND AND NO/100
DOLLARS ($200,000.00) for property; TWO
Exhibit "C" Page 17 of 25
<PAGE>
Sublease - Parcel 4
Page 6
MILLION AND NO/100 DOLLARS ($2,000,000.00) for injuries to more than one person
arising out of one accident; and ONE MILLION AND NO/100 DOLLARS ($1,000,000.00)
for injury to one person. The minimum amount of insurance coverage shall be
subject to adjustment simultaneously when Sublessor is required to adjust the
minimum insurance coverage as required under the Ground Lease, which is
approximately every ten (10) years. Sublessee shall carry at all times the same
amount of minimum insurance coverage as required of Sublessor under the Ground
Lease. Sublessee shall also obtain and maintain fire insurance covering the
full replacement costs of the improvements on Parcel 4. Sublessee shall deliver
copies of all insurance policies on Parcel 4 and the "project" (as defined in
the Ground Lease) to Sublessor at Sublessor's request.
13 ASSIGNMENT, SUBLEASING AND MORTGAGING: Sublessee shall have the right
-------------------------------------
to mortgage or encumber Sublessee's subleasehold interest without Sublessor's
consent. Sublessee shall also have the right to sublet Parcel 4 and/or project
without Sublessor's consent. All subleases by Sublessee under this Sublease, or
all subletting of Sublessee's subleasehold interest shall be subject to this
Sublease and Sublessor shall not be required to accept or recognize any such
sublease or subletting by Sublessee. Sublessee shall not have the right to
assign this Sublease without the consent of Sublessor and Sublessor agrees to
not unreasonably withhold its consent. Sublessor shall not receive any money or
additional consideration for giving of any consent to an assignment of this
Sublease. Within thirty (30) days after Sublessee has requested Sublessor's
consent to an assignment, Sublessor shall consent or deny the request. If the
request for an assignment is denied, then Sublessor shall state in writing the
reasons or grounds for the denial. If no consent or denial is received by
Sublessee within the said thirty (30) day period, then such request shall be
deemed as approved by Sublessor.
14 MORTGAGE: If Sublessee mortgages its Subleasehold interest, and if
--------
Sublessee is in default of the payment of rent or any payment due under this
Sublease, then Sublessor, upon giving sixty (60) days notice to Sublessee, shall
also give a copy by certified or registered mail to Sublessee's mortgagee, and
such mortgagee shall have the right but not the obligation to cure such default
within said sixty (60) days. If Sublessee's default concerns an act other than
the payment of money, then upon Sublessor giving Sublessee thirty (30) days to
commence to cure, Sublessor shall likewise give a copy, by registered or
certified mail to Sublessee's mortgagee and such mortgagee shall have the right,
but not the obligation, to commence to cure such default and to cure the same
within a reasonable time thereafter. As long has Sublessee has a mortgage on its
subleasehold interest, no default or termination by Sublessor shall be valid
unless Sublessee's mortgagee has received a proper notice and has had an
opportunity to cure the default as set forth herein.
15 ESTOPPEL CERTIFICATE: Upon Sublessee's request, Sublessor shall
--------------------
execute any estoppel certificate or statement stating that this Sublease is in
full force and effect, and that Sublessee is not in default; provided, however,
that the statement as
Exhibit "C" Page 18 of 25
<PAGE>
Sublease - Parcel 4
Page 7
requested is true and correct. Further, Sublessor shall use its best efforts to
assist Sublessee in obtaining an estoppel certificate from the fee simple owners
under the Ground Lease.
16 SUBLESSOR'S CONSENT: Whenever and if Sublessor's consent is required
-------------------
under this Sublease, then Sublessor shall not unreasonably withhold such consent
and Sublessor shall not be entitled to receive any additional consideration for
such consent.
17 CONDEMNATION: if the entire Parcel 4 and project should be taken
------------
during the term of this Sublease by the Government of Guam, or by any other
lawful governing authority, under the power of eminent domain, then this
Sublease shall terminate upon actual possession by the government. If only a
portion of Parcel 4 or project is taken so that such taking does not materially
interfere with Sublessee's business, than this Sublease shall not terminate but
shall continue. The rent must be adjusted on a fair and reasonable basis. Such
adjustment shall be in proportion to the amount of land (not building) taken as
it bears to the original size of Parcel 4. Further, such rental adjustment shall
take into consideration the rental value of vacant land as a comparable and the
rental value of the remaining building and improvements and other factors.
However, if the portion taken by the government is substantial or if in
Sublessee's reasonable opinion such condemnation materially affects the business
of Sublessee, then this Sublease may be terminated by Sublessee. Each party may
claim from the government the value of its interest taken. If the parties cannot
agree as to the adjusted rental, if a non-material or non-substantial portion is
taken, or if there is a disagreement between the parties as to whether or not a
material or substantial portion was taken to justify a termination of this
Sublease, then either party by giving the other at least twenty (20) days
written notice, may start arbitration proceedings. Each shall then select a real
estate appraiser, and the appraisers shall then select a third appraiser. The
appraisers shall then determine the non-material or material issue of such
taking, the values, rents, and other related issues including the payment of all
or any portion of such appraiser's fees. A majority decision of the appraisers
on any issue before them shall be necessary for a determination.
18 SUCCESSORS: All terms and conditions of this Sublease shall be binding
----------
upon Sublessor and Sublessee, and their respective successors and assigns.
19 NOTICE:
------
(a) All notices shall be made by personal delivery or by registered or
certified mall, addressed to the proper party as set forth below:
As to Sublessor: 3443 North Central Avenue, Suite 1111
Phoenix, Arizona 85012
Attention: Harold Friend, President
with facsimile copy to (602) 279-1705
Exhibit "C" Page 19 of 25
<PAGE>
Sublease - Parcel 4
Page 8
As to Sublessee: 3443 North Central Avenue, Suite 1111
Phoenix, Arizona 85012
Attention: Harold Friend, President
with facsimile copy to (602) 279-1705
(b) All notices shall be deemed delivered as of the date of the
postmark of any mail or notices properly addressed and registered or certified
mail, return receipt requested, by the U.S. Post Office provided that such
notice and mail is properly addressed as set forth above, contains sufficient
postage and is registered or certified.
(c) Sublessor shall, upon serving notice to Sublessee, simultaneously
serve a copy of such notice to any mortgagee of Sublessee.
(d) Should either party desire to designate another individual to
receive payments or notice on its behalf, or shall have a change of address,
then such party shall give ten (10) days written notice of such new party to
receive such notice or payment and/or any new address.
20 DEFAULT:
-------
(a) Sublessee shall be in default of this Sublease if Sublessee shall
fail to make the payment of rent or monies due under this Sublease within sixty
(60) days after written notice thereof from Sublessor. Further, if Sublessee
shall breach the terms and conditions of this Sublease, other than those
requiring the payment of money or rent, and if Sublessee shall fail to commence
to correct or cure such breach within thirty (30) days after written notice and
correct or cure such breach within a reasonable time thereafter, then Sublessee
shall be in default of this Sublease.
(b) If Sublessee fails to cure any default within the cure period
provided above, Sublessor shall have the right to terminate this Sublease and
may at once reenter Parcel 4 and take possession of Parcel 4 and the project and
all improvements thereon. If Sublessor so terminates this Sublease, Sublessor
may demand that Sublessee assign to Sublessor all of Sublessee's interest in and
to Parcel 4, and the project. if Sublessee shall voluntarily make such
assignment within thirty (30) days after Sublessor's written demand, then
Sublessee shall not be liable to Sublessor for any damages, costs, back rents,
shortages, attorney's fees, or for any money or obligations whatsoever.
Otherwise, Sublessor shall be entitled to all damages, money and remedies
allowed by law and this Sublease.
21 NONDISTURBANCE OF SUBTENANTS: If this Sublease is terminated due to
----------------------------
Sublessee's default or for any reason whatsoever, then such termination shall
not mean a termination of any sublease or subtenancy. Sublessors shall
recognize and accept all subleases and subtenancies on the above described
property and project. All subtenants or
Exhibit "C" Page 20 of 25
<PAGE>
Sublease - Parcel 4
Page 9
sublessees shall attorn directly to Sublessors, and Sublessors shall be
substituted as sublessor or the landlord of all subtenants or sublessees. All
terms and conditions of the subleases shall remain in full force and effect and
all rental payments thereunder due to Sublessee shall be paid directly to
Sublessor.
22 FORCE MAJEURE: The following shall be deemed as events of "force
-------------
majeure: Non-delivery or a delay in the delivery of materials from an off island
supplier as a result of acts of God or events beyond the control of the
supplier; typhoon; cyclone, tropical storms, earthquake; acts of God; hazardous
wastes and pollutants; strikes, inability to obtain materials; unreasonable
delays caused by the government; change in zoning which may prohibit or prevent
commercial use; or any event which is beyond the fault or reasonable control of
Sublessee; or any event which may frustrate the basic intent and purposes of
this Sublease between the parties. Events of force majeure shall justify the
delay or inaction of Sublessee of any required act hereunder.
23 GROUND LEASE: Any reference to "Ground Lease" shall mean that Lease
------------
Agreement, dated April 6, 1992, by Carmelina J. Ouano (Lessor) and Pacific Tyre
Capital Investments, Inc. (Lessee), as recorded in the Department of Land
Management, Government of Guam, as Instrument No. 469677, for Lot No. 2146-3-13,
Lot No. 2146-3-12, and Lot No. 2146-3-11, Tamuning, Municipality of Dededo,
Guam. The terms and conditions of this Sublease shall be subject to the terms
and conditions of the Ground Lease and any future amendments thereto. If there
is any conflict between this Sublease and the Ground Lease and any future
amendments thereto then the Ground Lease and its amendments shall control. Any
reference in this Sublease to Ground Lessor shall mean the lessor in the Ground
Lease and any amendments thereto.
24 JOINT USE OF PARCELS: If Sublessee has other subleases from or with
--------------------
Sublessor which concern or are on portions of the lots under the Ground Lease,
then parcels as subleased by Sublessee from Sublessor may be used for the
benefit of each other. Sublessor, jointly and severally, consent to Sublessee
constructing buildings and improvements across the boundary lines between the
parcels. If Sublessor's approval on other documents are required to allow for
the construction or building across the boundary lines of the parcels, then
Sublessor shall execute such documents.
Exhibit "C" Page 21 of 25
<PAGE>
Sublease - Parcel 4
Page 10
25. SUPERSEDES PRIOR SUBLEASE: This Sublease supersedes all prior
-------------------------
subleases related to the above described property between the parties.
IN WITNESS WHEREOF, this Sublease is dated the day and year first above
written.
Sublessor: Sublessee:
PACIFIC TYRE CAPITAL TAMUNING CAPITAL INVESTMENT, INC.,
INVESTMENT, INC., a Guam corporation
a Guam corporation
By: /s/ Harold Friend By: /s/ Harold Friend
------------------------ -------------------------
Harold Friend, President Harold Friend, President
STATE OF ARIZONA )
) SS.
County of Maricopa )
On this, the 1st day of July, 1994, before me, the undersigned, personally
appeared Harold Friend, who acknowledged himself to be the President of PACIFIC
TYRE CAPITAL INVESTMENT, INC., a Guam corporation, and that he, as such officer
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself as
President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Mary M. Wallace
-----------------------
Notary Public
My Commission expires:
11-25-95
- --------------------
Exhibit "C" Page 22 of 25
<PAGE>
Sublease - Parcel 4
Page 11
STATE OF ARIZONA )
) SS.
County of Maricopa )
On this, the 1st day of July, 1994, before me, the undersigned, personally
appeared Harold Friend, who acknowledged himself to be the President of TAMUNING
CAPITAL INVESTMENT, INC., a Guam corporation, and that he, as such officer being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by himself as President.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Mary M. Wallace
------------------------
Notary Public
My Commission expires:
11-25-95
- ----------------------
Exhibit "C" Page 23 of 25
<PAGE>
EXHIBIT "A"
[MAP OF TAMUNING COMMERCIAL CENTER]
EXHIBIT "C" PAGE 24 OF 25
<PAGE>
- --------------------------------------------------------------------------------
REGISTRATION UNDER )
THE GUAM LAND TITLE ) TERRITORY OF GUAM, DEPARTMENT OF LAND MANAGEMENT
REGISTRATION ACT ) OFFICE OF THE RECORDER
REQUESTED BY ) INSTRUMENT NUMBER 479857
___________. AFTER ) -----------
REGISTRATION, ) This instrument was filed for record on 17
DELIVER COPIES TO ) ------
PACIFIC TYRE ) Day of Nov , 1992 at 4:21 P.M. and duly
CAPITAL INVESTMENTS, ) ----- -- ------
INC., TAMUNING, GUAM. ) recorded in Book ___________ at Page __________,
THE REAL PROPERTY ) Recording Fee 34 Voucher No. 637592.
AFFECTED BY THIS )
INSTRUMENT IS REGISTERED ) /s/ Charles Young
LAND AND THE NAME OF THE ) --------------------
REGISTERED OWNER BEING ) Deputy Recorder
___________________ AND )
THE NUMBER OF THE )
CERTIFICATE OF LAST )
REGISTRATION BEING NOS. )
- --------------------------------------------------------------------------------
LEASE
(Novation or Substitute Lease)
----------------------------
THIS LEASE (Novation or Substitute Lease) is dated November 13, 1992, and
is between EDUARDO G. CAMACHO and IRENE W. CAMACHO (HUSBAND AND WIFE) and
JOSEFINA C. TANAKA (A WIDOW) hereinafter collectively referred to as "Lessors",
and PACIFIC TYRE CAPITAL INVESTMENT, INC., a Guam corporation, whose mailing
address is 180 Chalan San Antonio Road, Tamuning, Guam 96911, hereinafter
referred to as "Lessee".
WITNESSETH:
WHEREAS, the parties have a prior lease on the property described below;
WHEREAS, the parties desire to substitute the prior lease with this LEASE
(Novation or Substitute Lease) and terminate the prior lease;
NOW, THEREFORE, for and in consideration of the payment of rent and of the
covenants, terms, and conditions hereinafter provided, the parties agree as
follows:
Exhibit "D" Page 1 of 34
<PAGE>
1. PRIOR LEASE: Any reference to "prior lease" shall mean the following
-----------
lease between the parties:
That Lease dated March 12, 1992, between EDUARDO G. CAMACHO and IRENE W.
CAMACHO (HUSBAND AND WIFE), AND JOSEFINA C. TANAKA (A WIDOW), collectively
referred to as "Lessors", and PACIFIC TYRE CAPITAL INVESTMENT, INC.,
referred to as the Lessee, as recorded in the Department of Land
Management, Government of Guam, under instrument no. 467887, on Lot nos.
2145-REM-6 and 2145-REM-7, Dededo, Guam.
2. LEASE: This LEASE (Novation or Substitute Lease), hereafter called
-----
"Lease" shall substitute, replace, and be lieu of the prior lease. The prior
lease shall no longer have any force and effect, and all terms and conditions of
this Lease shall control, be binding and be in full force and effect.
3. PROPERTY: Lessors hereby lease to Lessee the following parcels
--------
hereinafter referred to as the "property":
Parcel #1
---------
Lot No. 2145-REM-6, (Subdivision of Lot No. 2145-REM-R2) Municipality of
Dededo, containing an area of approximately 108,878+ -square feet or
approximately 10,115+ -square meters, as shown on that Drawing Number
PRB87-27, as L.M. Check Number 183 FY 88, as described in that Court
Distance Survey Map of Lot No. 2145-REM-R2 into Lot No. 2145-REM-3 through
2145-REM-R7-R/W, (Probate Case No. 101-85), recorded September 16, 1988 in
the Department of Land Management, Government of Guam, under Document
Number 403860. Last Certificate Title Number: 35307 (on Lot 2145-REM-R2).
Parcel #2
---------
LOT NUMBER 2145-REM-7, (a portion of Lot No. 2145-REM-R2), DEDEDO, GUAM,
ESTATE NUMBER 566700, as said Lot is marked and designated on Map Drawing
Number PRB87-27 recorded on September 16, 1988 in the Department of Land
Management, Government of Guam under Document No.403860. Said map shows the
area to be: 87,782+ -Square Feet or 8,155+ -Square Meters.
-2-
Exhibit "D" Page 2 of 34
<PAGE>
TOGETHER with all appurtenances and all rights of Lessors to use all
streets, highways, easements and rights-of-ways abutting on or appurtenant to
said property. Lessee shall have the right to use and have the benefits of all
easements on or about or affecting the property, particularly the easement shown
on as provided in Instrument No. 278081.
4. WARRANTY OF TITLE: Lessors hereby jointly and/or severally declare,
-----------------
represent and warrant the following:
a. that Lessors own the fee simple title to the property and/or lots
described above;
b. that said property or lots are free and clear of all liens and
encumbrances, except for easements under Instrument No. 278081;
c. that no other signatures or approvals other than the undersigned
Lessors are required;
d. that a certificate of title from the government of Guam has been
issued on the basic Lot No. 2145-REM-R2;
e. that the boundaries are true and correct as shown on the maps
referred to in this Lease, that there are no hazardous wastes or pollutants on
the property, and that there are no defects or problems in Lessors' fee simple
title, or claims by third parties concerning the land and/or Lessors' title,
which would hinder, delay or prevent Lessee in obtaining financing and/or
development of the project;
f. that Lessors shall indemnify and hold harmless the Lessee from any
claims, damages, expenses, losses and reasonable attorney's fees incurred by
Lessee as a result of any breach of the declarations, representations, and
warranties made hereunder.
5. TERM: The term of this Lease shall be for seventy-five (75) years
----
commencing on March 12, 1992, and ending at midnight on March 11, 2067, unless
sooner terminated as provided herein.
6. RENTAL:
------
a. During Development Period - rent during the development period
shall be at SIX THOUSAND SIX HUNDRED SIXTY-SEVEN DOLLARS AND NO/CENTS
($6,667.00) per month on the first day of each month. See paragraph 9 below on
the development period.
-3-
Exhibit "D" Page 3 of 34
<PAGE>
b. After the Development Period - rents due to Lessors after the
development period shall be FIVE HUNDRED THOUSAND DOLLARS AND NO/CENTS
($500,000.00) per year, payable, however, monthly at the rate of FORTY ONE
THOUSAND, SIX HUNDRED SIXTY-SIX DOLLARS AND SIXTY-SEVEN CENTS ($41,666.67) per
month on the first day of each month; subject, however, to the increases as set
forth below.
c. Beginning in the sixth year of the Lease, namely as of April
1,1998 the rent shall increase to FIVE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS
AND NO/CENTS ($575,000.00) for twelve (12) months, such 12 month period ending
on March 31,1999. Thereafter, starting on April 1, 1999, and on the first day of
April for each year of the term of the Lease, the rents shall be increased by
FIFTEEN THOUSAND DOLLARS ($15,000.000). For purposes of clarification and as an
example, the annual rents, starting on April 1, 1999, shall be:
April 1, 1999 to March 31, 2000...... $590,000.00 per year
April 1, 2000 to March 31, 2001...... $605,000.00 per year
April 1, 2001 to March 31, 2002...... $620,000.00 per year
and increasing at $15,000 each year thereafter, and on April 1 of each year
thereafter, until the end of the Lease term.
The rents as stated above are on a yearly basis (for a 12 month period) and such
rents are to be paid in monthly installments, in advance, due on the first day
of each month.
7. PRORATA - If the term of this Lease does not start on the first of a
-------
month, or end on the last day of a month, then the rental due shall be prorated
on a thirty (30) day basis for the first and last month.
8. UTILITIES, TAXES, AND ASSESSMENTS: Hereafter, the Lessee shall pay, as
---------------------------------
they become due and payable, all utilities, taxes, assessments, and other public
charges arising thereto, levied or assessed against the property, or arising by
reason of the occupancy, use, or possession of same. If the Lessee, in good
faith, shall contest such payment, the Lessee must make payment and file in the
name of the Lessors all such protests or other instruments and commence or
prosecute proceedings for the purpose of such contest.
9. DEVELOPMENT PERIOD: Lessee has represented that it shall be able to
------------------
commence and start development and the construction of improvements on the
property on or before June 1, 1993, then complete the development within
eighteen (18) months thereafter. Therefore, the Lessee estimates the development
to be completed on or about November 30, 1994. Any reference in this Lease to
the development period shall mean the period from the date of this Lease to
November 30, 1994, subject, however to extensions if delays are caused by acts
of God or by causes reasonably beyond the control of Lessee, or as a result of
force majeure. In any event any extensions of
-4-
Exhibit "D" Page 4 of 34
<PAGE>
time for delays caused by any reasons as set forth above, including but not
limited to acts of God, those reasonably beyond the control of Lessee,
governmental delay or as a result of force majeure shall not extend the
development period for a period of time greater than six (6) months or until May
31, 1995.
10. USE AND ZONING: Lessors warrants that Lessee may use the property in
--------------
accordance with all zoning laws governmental rules and regulation. Upon Lessee's
request, Lessors shall assist, cooperate and execute any instruments for change
in zoning, or for dedication to the territory of Guam any portion of said
property, as may be desired by Lessee in the development and use of said
property by Lessee.
11. DEVELOPMENT, BUILDING AND IMPROVEMENTS:
--------------------------------------
a. Lessee shall have the right to freely develop, construct, build,
modify, remove, alter and repair any building or improvements on or about the
property without Lessors's approval. All buildings and improvements shall be
constructed and maintained according the applicable building codes and permits.
Upon the expiration of the term of this Lease, all buildings, fixtures, and
other permanent improvements left on the property by Lessee shall become the
property of Lessors. Lessee shall have the right to remove, dispose of and sell
any soil, coral, rocks and vegetation from the property provided that such is
directly related to the development of the property. Lessee shall have the right
to keep the proceeds if such soil, coral, rocks and vegetation are sold.
Provided, however, Lessee shall not create a coral pit or mine coral on the
property other than in connection with the construction of improvements on the
property.
b. Lessee shall not cause or allow any mechanics lien, as a result
---
of any construction work on the property relating to Lessee's project, to attach
to Lessors' fee simple interest. If such a mechanic's lien attaches to Lessors'
fee simple interest then Lessors shall immediately notify Lessee in writing, and
Lessee shall remove such mechanics lien within 30 days thereafter, or if Lessee
contests such lien, then Lessee shall post a bond with Lessors covering one
hundred ten percent (110%) of such lien. Prior to the start of construction the
Lessee shall cause the contractor to post performance, payment and material
bonds, naming the Lessors as an additionally assured party thereunder, covering
the full cost of construction.
12. LOSS OR DAMAGE SUSTAINED BY LESSEE: Lessors shall not be liable to
----------------------------------
Lessee, or to anyone claiming under or through Lessee, for any loss and/or
damage which may occur for any reason whatsoever on or about the property or to
any damage caused to Lessee's property except for damage as a result of Lessors'
negligence.
13. INDEMNIFICATION: Lessee shall indemnify and hold harmless the Lessors
---------------
from all claims, losses and damages including expenses, costs and reasonable
attorneys' fees incurred by Lessors as a result thereof, by third parties for
property damage, personal injury, or wrongful death arising out of or in any way
occasioned by any accident
-5-
Exhibit "D" Page 5 of 34
<PAGE>
or condition on or about the property or any water, fire, or explosion occurring
on the property and caused by any act, omission or negligence on the part of
Lessee.
14. INSURANCE: Lessee shall maintain comprehensive public liability
---------
insurance at all times during the entire term of this Lease, and shall be with a
company qualified to do business in Guam. Such insurance policies shall
designate specifically that the Lessors are also named as an insured party
thereunder in the form and reasonable substance approved by the Lessor. The
comprehensive public liability insurance shall have coverage in the minimum
amount of TWO HUNDRED THOUSAND DOLLARS AND NO CENTS ($200,000.00) for property;
TWO MILLION DOLLARS AND NO CENTS ($2,000,000.00) for injuries to more than one
person arising out of one accident; and ONE MILLION DOLLARS AND NO CENTS
($1,000,000.00) for injury to one person. The minimum amount of insurance
coverage shall be subject to adjustment every ten (10) years in a reasonable
amount to the satisfaction of both parties. Lessee shall also obtain and
maintain fire insurance covering the full replacement costs of the improvements
on the property. Lessee shall deliver copies of all insurance policies on the
property and the project to Lessors at Lessors' request.
15. ASSIGNMENT, SUBLEASING AND MORTGAGING:
-------------------------------------
a. Lessee shall have the right to mortgage or encumber Lessee's
leasehold interest without Lessors' consent. Lessee shall also have the right to
sublet the property and/or project without Lessors' consent. Lessee shall not
have the right to assign this Lease without the consent of Lessors and Lessors
agree to not unreasonably withhold its consent. Lessors shall not receive any
money or additional consideration for giving of any consent to an assignment of
this Lease. Within thirty (30) days after Lessee has requested Lessors' consent
to an assignment, Lessors shall consent or deny the request. If the request for
an assignment is denied, then Lessors shall state in writing the reasons or
grounds for the denial. If no consent or denial is received by Lessee within the
said thirty (30) day period, then such request shall be deemed as approved by
Lessors.
b. Provided, however, the Lessor hereby consents to any assignment of
this Lease, in whole or a portion thereof, to Family Health Plan Inc.
16. MORTGAGE: If Lessee mortgages its leasehold interest, If Lessee is in
--------
default of the payment of rent or any payment due under this Lease, then
Lessors, upon giving sixty (60) days notice to the Lessee, shall also give a
copy by certified or registered mail to Lessee's mortgagee, and such mortgagee
shall have the right but not the obligation to cure such default within said
sixty (60) days. If Lessee's default concerns an act other than the payment of
money, then upon Lessors giving Lessee thirty (30) days to commence to cure, the
Lessors shall likewise give a copy, by registered or certified mail to Lessee's
mortgagee and such mortgagee shall have the right, but not the obligation, to
commence to cure such default and to cure the same within a reasonable
-6-
Exhibit "D" Page 6 of 34
<PAGE>
time thereafter. As long has Lessee has a mortgage on its leasehold interest, no
default or termination by Lessors shall be valid unless Lessee's mortgagee has
received a proper notice and has had an opportunity to cure the default as set
forth herein.
17. ESTOPPEL CERTIFICATE: Upon Lessee's request, Lessors shall execute any
--------------------
estoppel certificate or statement, as may be required by Lessee's financial
institution or mortgagee, declaring or stating matters such as, but not limited
to, that this Lease is in full force and effect, that the Lessee is not in
default, and other matters as may be requested by Lessors' mortgagee; provided,
however, that such is reasonable and that the statement as requested is true and
correct.
18. LESSORS' CONSENT: Whenever and if Lessors' consent is required under
----------------
this Lease, then Lessors shall not unreasonably withhold such consent and
Lessors shall not be entitled to receive any additional consideration for such
consent.
19 CONDEMNATION: If the entire property and project should be taken during
------------
the term of this Lease by the Government of Guam, or by any other lawful
governing authority, under the power of eminent domain, then this Lease shall
terminate upon actual possession by the government. If only a portion of the
property or project is taken so that such taking does not materially interfere
with the Lessee's business, than this Lease shall not terminate but shall
continue. The rent shall be adjusted proportionately to the satisfaction of the
parties, taking into consideration the rental value of vacant land as a
comparable and the rental value of the remaining building and improvements and
other factors. However, if the portion taken by the government is substantial or
if in Lessee's reasonable opinion such condemnation materially affects the
business of the Lessee, then this Lease may be terminated by Lessee. Each party
may claim from the government the value of its interest taken. If the parties
cannot agree as to the adjusted rental, if a non-material or non-substantial
portion is taken, or if there is a disagreement between the parties as to
whether or not a material or substantial portion was taken to justify a
termination of this Lease, then either party by giving the other at least twenty
(20) days written notice, may start arbitration proceedings. Each shall then
select a real estate appraiser, and the appraisers shall then select a third
appraiser. The appraisers shall then determine the non-material or material
issue of such taking, the values, rents, and other related issues including the
payment of all or any portion of such appraiser's fees. A majority decision of
the appraisers on any issue before then shall be necessary for a determination.
20. SUCCESSORS: All terms and conditions of this Lease shall be binding
----------
upon the Lessors and the Lessee, and their heirs, executors, administrators,
successors and assigns.
21. LESSORS' REPRESENTATIVE: The Lessors may designate one person, party
----------------------- ---
or company to represent Lessors on all matters concerning this Lease. Any such
designation of this representative shall be in writing and may be changed from
time to
-7-
Exhibit "D" Page 7 of 34
<PAGE>
time provided all the Lessors consent thereto. Any demand, notice or request
from such representative to Lessee shall then be a valid demand, notice or
request of all Lessors.
22. NOTICE:
------
a. All notices shall be made by personal delivery or by registered or
certified mail, addressed to the proper party as set forth below:
As to the Lessors: c/o Eduardo G. Camacho
Post Office Box 6891
Tamuning, Guam 96931
As to the Lessee: 180 Chalan San Antonio Road
Tamuning, Guam 96911
b. All notices shall be deemed delivered as of the date of the
postmark of any mail or notices properly addressed and registered or certified
mail, return receipt requested, by the U.S. Post Office provided that such
notice and mail is properly addressed as set forth above, contains sufficient
postage and is registered or certified.
c. Lessors shall, upon serving notice to the Lessee, simultaneously
serve a copy of such notice to any mortgagee of the Lessee.
d. All rents shall be sent in c/o Eduardo C. Camacho, Post Office Box
6891, Tamuning, Guam 96931.
e. Should the any party desire to redesignate another individual to
receive payments or notice on his/her/their behalf, or shall have a change of
address, then such party shall give ten (10) days written notice of such new
party to receive such notice or payment, and/or any new address.
23. DEFAULT:
-------
a. Lessee shall be in default of this Lease if the Lessee shall fail
to make the payment of rent or monies due under this Lease within sixty (60)
days after written notice thereof from the Lessors. Further, if Lessee shall
breach the terms and conditions of this Lease, other than those requiring the
payment of money or rent, and if Lessee shall fail to commence to correct or
cure such breach within thirty (30) days after written notice and correct or
cure such breach within a reasonable time thereafter, then Lessee shall be in
default of this Lease.
b. If Lessee fails to cure any default within the cure period
provided above, the Lessors shall have the right to terminate this Lease and may
at once reenter
-8-
Exhibit "D" Page 8 of 34
<PAGE>
the property and take possession of the property and the project and all
improvements thereon. Lessors shall also be entitled to Lessee's leasehold
interest in and to Lot No. 2146-3-11, Dededo, Guam. If the Lessor so terminates
this Lease, the Lessor may demand that Lessee assign to Lessor all of Lessee's
interest in and to the property, the project and Lessee's interest in and to Lot
No.2146-3-11, all at Lessee's sole expense. If Lessee shall voluntarily make
such assignment within thirty (30) days after Lessor's written demand, then
Lessee shall not be liable to Lessors for any damages, costs, back rents,
shortages, attorney's fees, or for any money or obligations whatsoever,
otherwise, Lessors shall be entitled to all damages, money and remedies allowed
by law and this Lease.
24. NONDISTURBANCE OF SUBTENANTS: If this Lease is terminated due to
----------------------------
Lessee's default or for any reason whatsoever, then such termination shall not
mean a termination of any sublease or subtenancy. Lessors shall recognize and
accept all subleases and subtenancies on the property and project. All
subtenants or sublessees shall attorn directly to the Lessors, and Lessors
shall be substituted as the sublessor or the landlord of all subtenants or
sublessees. All terms and conditions of the subleases shall remain in full force
and effect and all rental payments thereunder due to Lessee shall be paid
directly to the Lessor.
25. FORCE MAJEURE: The following shall be deemed as events of "force
-------------
majeure: Non-delivery or a delay in the delivery of materials from an off island
supplier as a result of acts of God or events beyond the control of the
supplier; typhoon; cyclone, tropical storms, earthquake; acts of God; hazardous
wastes and pollutants; strikes, inability to obtain materials; unreasonable
delays caused by the government; change in zoning which may prohibit or prevent
commercial use; or any event which is beyond the fault or reasonable control of
Lessee; or any event which may frustrate the basic intent and purposes of this
Lease between the parties. Events of force majeure shall entitle Lessee an
extension of the development period, or may justify the delay or inaction of
Lessee of any required act hereunder.
26. RIGHT OF FIRST REFUSAL.
----------------------
a. If Lessors (including, its successors, assigns, subsidiaries or
transferees) desires to dispose, assign or sell any interest in and to the
property in fee or otherwise, except by transfer by devise to Lessors' immediate
family or transfer to a trust created for the benefit of Lessors and/or Lessors'
immediate family, Lessors shall first offer the same in writing to Lessee who
shall have ninety (90) days within which to purchase the same upon the terms
offered by Lessor. If Lessee does not exercise this option to purchase on or
before the expiration of said ninety (90) day period, the interest may be so
transferred to any person. In the event Lessors, their successors, assigns,
subsidiaries or transferees shall from time to time change the terms of the
offering or in the event Lessors shall have transferred their interest to their
immediate family or shall have transferred their interest to a trust created for
the benefit of Lessors and/or Lessors'
-9-
Exhibit "D" Page 9 of 34
<PAGE>
immediate family, and such transferees shall either change the terms of the
offering or desire to dispose, assign or sell any interest in the property,
Lessee shall have the first opportunity to purchase upon the terms of the new
offering or the first opportunity to purchase upon the same terms offered by
Lessors' immediate family or by a trust created for the benefit of Lessors
and/or Lessors' immediate family. Under no circumstances shall any arrangement
whatsoever be made to circumvent Lessee's right to purchase the property in fee
as provided herein. The condition contained in this paragraph shall be covenant
running with the land, and shall be expressly stated in any document assigning
or conveying the property hereby leased or any part thereof to Lessors'
immediate family or a trust created for the benefit of Lessors and/or Lessors'
immediate family, and said document shall be duly recorded.
b. If Lessee (including, its successors, assigns, subsidiaries or
transferees) desires to dispose, assign or sell any of its leasehold interest in
and to the property, except by transfer to Lessee's subsidiary or affiliated
company or companies, Lessee shall first offer the same in writing to Lessors
who shall have ninety (90) days within which to purchase the same upon the terms
offered by Lessee. If Lessors do not exercise this option to purchase on or
before the expiration of said ninety (90) day period, the interest may be so
transferred by Lessee to any person, company, corporation or association,
subject to paragraph 16 of this Lease. If Lessee, its successors, assigns,
subsidiaries or transferees shall from time to time change the terms of the
offering, then Lessors shall have the first opportunity to purchase upon the
terms of the new offering. Under no circumstances shall any arrangement
whatsoever be made to circumvent Lessors' right to purchase the lease as
provided herein.
27. JOINT USE OF PROPERTIES: Both lots as described above are to be used
-----------------------
for the benefit of each other. Lessors, jointly and severally, consent to Lessee
constructing buildings and improvements across the lot lines. If Lessors'
approval on other documents are required to allow for the construction or
building across the lot lines, then Lessors shall execute such documents.
IN WITNESS WHEREOF, this Lease is dated the day and year first above
written.
LESSORS: LESSEE:
/s/ Eduardo G. Camacho PACIFIC TYRE CAPITAL
- -------------------------- INVESTMENT, INC.
EDUARDO G. CAMACHO
/s/ Irene W. Camacho By:/s/ Harold Friend
- -------------------------- ----------------------
IRENE W. CAMACHO Name: HAROLD FRIEND
--------------------
Title: President
-------------------
/s/ Josefina C. Tanaka
- --------------------------
JOSEFINA C. TANAKA
- 10 -
Exhibit "D" Page 10 of 34
<PAGE>
TERRITORY OF GUAM )
) ss:
CITY OF AGANA )
On this 4th day of November, 1992, before me a Notary Public in and for
the Territory of Guam, personally appeared EDUARDO G. CAMACHO, known to me to be
the person whose name is subscribed to the foregoing instrument and acknowledged
to me that he executed the same as his free and voluntary act and deed for the
uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the date last above written.
/s/ Dorothy C. Seagraves
--------------------------
Notary Public
DOROTHY C. SEAGRAVES
NOTARY PUBLIC
In and for the Territory of Guam
My Commission Expires: Aug. 28, 1993
TERRITORY OF GUAM )
) ss:
CITY OF AGANA )
On this 4th day of November, 1992, before me a Notary Public in and for
the Territory of Guam, personally appeared IRENE W. CAMACHO, known to me to be
the person whose name is subscribed to the foregoing instrument and acknowledged
to me that she executed the same as her free and voluntary act and deed for the
uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the date last above written.
/s/ Dorothy C. Seagraves
--------------------------
Notary Public
DOROTHY C. SEAGRAVES
NOTARY PUBLIC
In and for the Territory of Guam
My Commission Expires: Aug. 28, 1993
- 11 -
Exhibit "D" Page 11 of 34
<PAGE>
TERRITORY OF GUAM )
) SS:
CITY OF AGANA )
On this day of Nov 11 1992, 1992, before me a Notary Public in and for the
Territory of Guam, personally appeared JOSEFlNA C. TANAKA, known to me to be the
person whose name is subscribed to the foregoing instrument and acknowledged to
me that she executed the same as her free and voluntary act and deed for the
uses and purposes therein set forth.
IN WITNESS WHEREOF, I have herento set my hand and affixed my official seal
the date last above written.
/s/ Martie E. LaGuana
--------------------------
Notary Public
Marie E. LaGuana
NOTARY PUBLIC
In and for the Territory of Guam.
My Commission expires: 11/12/94
STATE OF ARIZONA )
) SS:
COUNTY OF PHOENIX )
- 12 -
Exhibit "D" Page 12 of 34
<PAGE>
TERRITORY OF GUAM )
) SS:
CITY OF AGANA )
On this 13th day of November, 1992, before me a Notary Public in and for
the Territory of Guam, personally appeared HAROLD FRIEND, known to me to be the
authorized representative of PACIFIC TYRE CAPITAL INVESTMENT, INC., whose name
is subscribed to the foregoing instrument and acknowledged to me that he
executed the same as his free and voluntary act and deed on behalf of PACIFIC
TYRE CAPITAL INVESTMENT, INC. for the uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the date last above written.
/s/ Cynthia T. Guerrero
-----------------------------
[Notary Seal Appears Here] Notary Public
- 13 -
Exhibit "D" Page 13 of 34
<PAGE>
- -------------------------------------------------------------------------------
RECORDATION )
)
DEPARTMENT )
)
OF )
)
LAND )
)
MANAGEMENT )
- -------------------------------------------------------------------------------
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 6th day of April,
1992, by and between CARMELINA J. OUANO, whose address is Post Office Box 1847,
Agana, Guam, 96911 ("Lessor"), and PACIFIC TYRE CAPITAL INVESTMENTS, INC., a
Guam Corporation, whose address is 180 Chalan San Antonio Road, Tamuuning, Guam
96911 ("Lessee").
Lessor owns the parce1 of land described hereinbelow, and Lessor
desires to lease such land to Lessee and Lessee desires to lease the same from
Lessor.
Lessor and Lessee mutually desire to enter into this lease to define
their rights, duties, and obligations relating to the lease of the subject
parcel of land.
NOW, THEREFORE, in consideration of the premises and the terms,
covenants, and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Lessor and Lessee enter into this lease and agree as follows:
Exhibit "D" Page 14 of 34
<PAGE>
Lease Agreement/Ouano Page 2
1. Premises
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
the following described parcel of land (the "Premises"):
Lot No. 2146-3-13, consisting of an area of 508.12 square
meters, Tamuning, Municipality of Dededo, Guam
Lot No. 2146-3-12, consisting of an area of 735.12 square meters
(revised 702.29), Tamuning, Municipality of Dededo, Guam
Lot No. 2146-3-11, consisting of an area of 626.51 square
meters, Tamuning, Municipality of Dededo, Guam
TOGETHER WITH all and singular, the tenements, rights, easements,
privileges, improvements, and appurtenances to the same belonging or
appertaining or held and enjoyed in connection therewith.
2. Original Term
The original term of this lease shall be for a period of fifty (50)
years, commencing April 6, 1992 and ending on April 6, 2042.
3. Rent
Lessee shall prepay in advance the sum of $20,000.00 on April 6, 1992
and $16,000.00 on September 6, 1992 for one (1) year's rent.Commencing April 6,
1993 Lessee shall pay rental to Lessor on the sixth (6) day of each month
thereafter, in the amount of $3,000.00. On each fifth anniversary of the
original term of this lease, rental shall increase by 12 1/2%.
Exhibit "D" Page 15 of 34
<PAGE>
Lease Agreement/Ouano Page 3
4. Option to Extend
Lessee shall have the option to extend the term of this lease for an
additional fifty (50) years upon the same terms, covenants and conditions as
provided herein for the original term except the amount of rent to be paid
during the extended term shall be as hereinafter provided. The option to extend
the term of this lease shall be deemed to have been automatically exercised and
the term extended unless Lessee shall have given Lessor not less than sixty (60)
days written notice, prior to the expiration of the original term hereof, of its
election not to extend the term of this lease.
5. RENT DURING EXTENDED TERM
The rent to be paid by Lessee to Lessor during the extended term shall
increase to nine percent (9%) of the land value of the then existing use of the
premises at the end of the original term of this lease ending on April 6, 2042;
in any event, the rental for the first five (5) years of the extended term shall
not be less then the rental for the last five (5) years of the original term.
After each fifth anniversary of the extended term of this lease, the rent to be
paid by Lessee to Lessor shall be increased by twelve and one-half percent
(12 1/2%) over nine percent (9%) of the land value of the then existing use of
the premises at the end of the original term of this lease.
Exhibit "D" Page 16 of 34
<PAGE>
Lease Agreement/Ouano Page 5
construction on the premises for which the value of said improvement or
construction exceeds the sum of Ten Thousand Dollars ($l0,000.00), Lessee's
contractor shall secure a bond naming Lessor as co-obligee.
During the term of this lease, title to any and all buildings or
improvements situated or erected on the premises and the building equipment,
fixtures, or other items installed thereon and any alterations or additions
thereto shall remain in Lessee, and Lessee shall be the owner of the same. Upon
expiration of this lease and any extensions hereof all improvements remaining on
the premises shall become the property of Lessor free and clear of all liens and
encumbrances. Further, said improvements will be in reasonable condition, normal
wear and tear excepted.
9. Assignment
Lessee may, at any time and from time to time, assign or mortgage and
encumber this lease, in whole or in part, and sublet all or any part of the
premises or any improvements thereon or space in said improvements, upon
Lessor's written consent. Lessor's written consent shall not be unreasonably
withheld. Lessor shall be deemed to have consented to Lessee's assignment or
sublease, unless Lessor shall have given Lessee written notice within thirty
(30) days after Lessee's request for Lessor's consent, of Lessor's objection to
Lessee's assignment or sublease.
Exhibit "D" Page 18 of 34
<PAGE>
Lease Agreement/Ouano Page 4
6. Quiet Enjoyment
Lessor shall put and keep Lessee in actual possession of the premises
at the beginning of and throughout the term of this lease, as may be extended.
Lessor warrants and represents that she is the sole and lawful owner of the
premises in fee simple and that she has the right to enter into and make this
lease. Lessor covenants and agrees that Lessee, upon paying the rent required
hereunder, shall lawfully, peacefully, and quietly have, hold, use, occupy, and
enjoy the premises without interruption or disturbance by Lessor or by any
persons claiming by, from, under, or against Lessor throughout the term of this
lease and any extension of such lease term.
7. Use
The premises may be used and occupied for any lawful purpose
whatsoever.
8. Alterations, Improvements, and Replacements
Lessee may, on all or any part of the premises, make any alterations,
changes, replacements, and additions in and to the premises, including the
contour and grade thereof, and the additions, buildings, and improvements
constructed thereon, including, without limitation, the demolition and/or
reconstruction of any buildings and improvements or structures which may be
situated or erected on the premises. In the event Lessee undertakes any
improvement or
Exhibit "D" Page 17 of 34
<PAGE>
Lease Agreement Page 6
10. Taxes and Assessments
Lessee shall pay all taxes, assessments, and other charges levied on
or assessed against the premises and improvements located on the premises during
the lease term or extensions thereof. Lessee shall make all such payments
directly to the taxing authority. Taxes, assessments, and charges shall be
prorated between the parties on a daily basis as of the date of this lease.
Lessee may contest in good faith the validity or amount of any tax, assessment,
or charge. Any return or rebate from any taxing authority on account of any tax
or assessment shall be the sole property of the Lessee.
11. Payment of Utilities
Lessee shall pay and be responsible for all charges for water, power,
and other utilities installed and supplied to and on the premises through the
term of this lease and any extensions thereof.
12. Maintenance
Lessee shall, at its own cost and expense, maintain all of the
improvements on the premises in good repair and condition throughout the term of
this lease, including any extension term and in accordance with all applicable
laws, rules, regulations, and ordinances of federal, local, or other
governmental agencies having or claiming jurisdiction.
13. Lessee's Right to Mortgage the Leasehold
Lessee may, at any time and from time to time, subject the leasehold
estate and any or all improvements to one or more mortgages or
Exhibit "D" Page 19 of 34
<PAGE>
Lease Agreement/Ouano Page 7
other liens as security for a loan or loans or other obligations of Lessee, with
the consent of Lessor and its (Lessor shall be deemed to have consented to
Lessee's encumbrance or mortgage unless Lessor shall have given Lessee written
notice within ten (10) days after Lessee's request for Lessor's consent, of
Lessor's objection to Lessee's encumbrance or mortgage) lender, if any, which
consent shall not be unreasonably withheld, provided that:
(a) The mortgage or other lien shall be subject to all of the
terms and conditions of this lease and to the rights and interest of Lessor
except as specifically provided to the contrary in this lease.
(b) Lessee shall notify Lessor of the creation of each such
mortgage or other lien and deliver to Lessor a true copy of the note and
mortgage or other lien documents.
(c) Consent to Cancellation
There shall be no cancellation, surrender, amendment, or modification
of this lease without the prior consent in writing of any leasehold mortgagee or
secured party except in accordance with the terms hereof.
(d) Notice
Lessor shall, upon serving upon Lessee any notice of default as
provided for herein, at the same time send a copy of such notice upon any
leasehold mortgagee or secured party, and any notice by Lessor to
Exhibit "D" Page 20 of 34
<PAGE>
Lease Agreement/Ouano Page 8
Lessee hereunder shall not be deemed to have been effectively given as to such
mortgagee or secured party, unless a copy thereof has been sent by regular
first-class mail to existing leasehold mortgagees and secured parties which
Lessee has previously notified Lessor are in existence.
(e) Remedy
Any leasehold mortgagee or secured party, in case Lessee shall be in
default hereunder, shall, with the term herein provided, have the right to
remedy such default, or cause the same to be remedied, and Lessor shall accept
such performance by or at the instigation of such leasehold mortgagee or secured
party as if the same had been performed by Lessee. For the purposes hereof, no
event of default shall be deemed to exist under this lease in respect to the
performance of work required to be performed, or of acts to be done, or of
conditions to be remedied, if steps shall, in good faith, have been commenced
within the time permitted therefor to rectify the same and shall be prosecuted
to completion with diligence and continuity. Anything herein contained to the
contrary notwithstanding, upon the occurrence of an event of default, other than
an event of default due to a default in the payment of money, Lessor shall take
no action to effect the termination of this lease if any leasehold mortgagee or
secured party after notice from Lessor as herein provided, acts diligently
within a reasonable time thereafter to accomplish one of the following, either
(i) to obtain
Exhibit "D" Page 21 of 34
<PAGE>
Lease Agreement/Ouano Page 9
possession of the premises (including possession by receiver), or (ii) to
institute, prosecute, and complete foreclosure proceedings or otherwise acquire
Lessee's interest under this lease with diligence. Such mortgagee or secured
party upon obtaining possession or acquiring Lessee's interest under this lease
shall be required promptly to cure all defaults, provided, however, that such
mortgagee or secured party shall not be obligated to continue such possession or
to continue such foreclosure proceedings after such defaults have been cured.
Any default by Lessee, not reasonably susceptible of being cured, shall be
deemed to have been waived by Lessor upon completion of such foreclosure
proceedings or upon such acquisition of Lessee's interest in this lease, except
that any such events of default which are reasonably susceptible of being cured
after such completion and acquisition shall then be cured with reasonable
diligence.
(f) Foreclosure
Any leasehold mortgagee or secured party shall have the right at any
time during the term of this lease to realize on the security afforded by the
leasehold estate by exercising foreclosure proceedings or power of sale or other
remedy afforded in law or in equity or by any applicable mortgage or security
documents and to transfer, convey, or assign the title of Lessee to the
leasehold estate created hereby to any purchaser at any foreclosure sale, and to
acquire and succeed to the interest of Lessee hereunder by virtue of any such
foreclosure sale.
Exhibit "D" Page 22 of 34
<PAGE>
Lease Agreement/Ouano Page 10
Such mortgagee or secured party, or its assignee or designee, or other purchaser
in foreclosure proceedings may become the legal owner and holder of this lease
through such foreclosure proceedings or by assignment of this lease in lieu of
foreclosure.
(g) It is acknowledged by Lessee that it shall have no right to
mortgage the fee simple interest of the Lessor.
14. Estoppel Certificate
Lessor agrees, at any time and from time to time, at no cost or
expense to Lessee, upon request of Lessee, to execute, acknowledge and deliver
to Lessee for the benefit of Lessee or any actual or potential lender, creditor,
inventor, or successor Lessee, within ten (10) days of the request, a statement
in writing certifying that this lease is unmodified and in full force and effect
and Lessee is not in default (or if modified, in full force and effect as
modified and stating the modifications, or if there is any default stating such
default), the dates to which rent or other sums have been paid in advance and
setting forth such further information with respect to this lease or the
premises as may be requested thereon, it being understood that any such
statement delivered pursuant hereto may be relied upon by Lessee or any actual
or prospective purchaser, mortgagee, assignee, beneficiary, or other party.
Exhibit "D" Page 23 of 34
<PAGE>
Lease Agreement/Ouano Page 11
15. Right Of First Refusal
In the event that Lessor (including, its successors, assigns,
subsidiaries or transferees) desires to dispose, assign or sell any interest in
and to the premises in fee or otherwise, except by transfer by desire to
Lessor's immediate family or transfer to a trust created for the benefit of
Lessor and/or Lessor's immediate family, Lessor shall first offer the same in
writing to Lessee who shall have sixty (60) days within which to purchase the
same upon the terms offered by Lessor. If Lessee does not exercise this option
to purchase on or before the expiration of said sixty (60) day period, the
interest may be so transferred to any person. In the event Lessor, her
successors, assigns, subsidiaries or transferees shall from time to time change
the terms of the offering or in the event Lessor shall have transferred her
interests to a trust created from the benefit of Lessor and/or Lessor's
immediate family, and such transferees shall either change the terms of the
offering or desire to dispose, assign or sell any interest in the premises,
Lessee shall have the first opportunity to purchase upon the terms of the new
offer by Lessor's immediate family or by a trust created for the benefit of
Lessor and/or Lessor's immediate family.
Under no circumstances shall any arrangement whatsoever be made to
circumvent Lessee's right to purchase the premises in fee as provided herein.
The condition contained in this paragraph shall be a
Exhibit "D" Page 24 of 34
<PAGE>
Lease Agreement/Ouano Page 12
covenant running with the land, and shall be expressly stated in any document
assigning or conveying the premises hereby leased or any part thereof to
Lessor's immediate family or a trust created for the benefit of Lessor and/or
Lessor's immediate family, and said document shall be duly recorded.
16. Warranties of Lessor
(a) Lessor warrants and represents that Lessor has all rights and
interest in the entire premises, including, without limitation, marketable
title to convey the premises as provided under the terms of this lease.
(b) There are no leases or subleases affecting or encumbering the
premises.
(c) At closing, all real property taxes shall be current.
(d) The premises have never been used in the past and at the time of
closing in the application, use, storage, handling or disposal of pollutants,
toxic or hazardous substances. In the event of breach of this warranty, Lessee
shall have the right to terminate this lease and surrender the premises to
Lessor with no liability to Lessor or third parties.
(e) There are no improvements of any nature owned by adjoining
property owners which encroach upon the premises.
(f) There are no improvements or conditions affecting thee possession,
use and quiet enjoyment of the premises by Lessee.
Exhibit "D" Page 25 of 34
<PAGE>
Lease Agreement/Ouano Page 13
17. Condemnation
In the event the entire premises is taken for public purposes by
condemnation as a result of any action or proceeding in eminent domain, or shall
be transferred in lieu of condemnation to any authority entitled to exercise the
power of eminent domain, this lease and all of the right, title, and interest
hereunder shall terminate and cease on the date title to the premises so taken
or transferred vests in the condemning authority.
In the event of taking or transfer of only a portion the premises
leaving a remainder in such location, or in such form, shape, or reduced size as
to be not effectively and practicably usable, this lease and all right, title,
and interest thereunder shall cease on the date title of the premises or the
portion thereof so taken or transferred vests in the condemning authority.
In the event of such taking or transfer of only a portion of the
premises leaving the remainder in such location, or in such form, shape, or size
as to be effectively and practicably usable in the opinion of Lessee, this lease
shall terminate and end as to the portion of the premises so taken or
transferred as of the date title to such portion vests in the condemning
authority, but shall continue in full force and effect as to the portion of the
premises not so taken or transferred. In such event, the rent payable hereunder
shall be reduced in proportion to the area of the premises taken.
All compensation and damages awarded for the taking of all buildings
and other improvements whatsoever on the premises or any
Exhibit "D" Page 26 of 34
<PAGE>
Lease Agreement/Ouano Page 14
portion thereof shall belong to and be the property of Lessee; provided however,
Lessor shall be entitled to receive an award and compensation from the
condemning authority for the value of its remainder interest in the premises.
Furthermore, Lessee shall be entitled to the award for and on account of any
cost or loss Lessee may sustain in the removal of Lessee's fixtures, equipment,
and furnishings from the premises, or as a result of any alterations,
modifications, or repairs may be reasonably required by Lessee in order to place
the remaining portion of the premises not so condemned in a suitable condition
for the continuance of Lessee's interest in the balance of the lease term, or on
account of any diminution in value of its leasehold estate hereunder. All
interested parties may independently file separate claims in the condemnation
proceedings for the purpose of having the value of their respective claims
determined.
18. Default
The following shall constitute a default or breach of this lease by
Lessee:
(a) If Lessee shall fail to pay Lessor any rent or any amounts owed
herein within thirty (30) days after written notice of said default from Lessor,
provided that Lessee at its election may be liable to Lessor for the amount of
any arrears not paid and tender such amount to Lessor. In this case, the lease
shall be peaceably surrendered to Lessor together with any improvements thereof.
Lessor will then have no further recourse or remedy against Lessee, in law or in
equity.
Exhibit "D" Page 27 of 34
<PAGE>
Lease Agreement/Ouano Page 15
(b) If Lessee shall fail in the performance of a covenant or agreement
on its part to be performed in this lease other than the payment of rent, and
such default shall not have been cured within thirty (30) days after written
notice of said default from Lessor.
(c) If such default cannot, with due diligence, be cured within thirty
(30) days, and Lessee shall not have commenced the remedying thereof within
such period (it being intended in connection with default not susceptible of
being cured by Lessee within thirty (30) days that the time within which to
remedy the same shall be extended for such period as may be necessary to
complete the same with due diligence), then Lessor shall have the rights and
remedies granted to Lessor in law and equity not inconsistent with the
specifications and provisions of this lease.
(d) In the event Lessee assigns any part of this lease or sublets any
part of the improvements thereon or space in said improvements pursuant to
paragraph 9 supra, any default of Lessee under this paragraph shall not be
-----
grounds for deeming any partial assignment or partial sublease in default and
any rental payments paid by Lessee's sublessee shall be tendered to Lessor.
19. Mortgagee's Notice and Right to Cure .
Provided Lessor has been notified of the name and address of the
holder of a leasehold mortgage, Lessor agrees to provide such mortgagee with a
copy of all required notices of default sent to Lessee. Such mortgagee shall
have the opportunity to either cure the default
Exhibit "D" Page 28 of 34
<PAGE>
Lease Agreement/Ouano Page 16
within the required time term or to commence foreclosure. If foreclosure is
commenced, Lessor shall not pursue any remedy for default during the pendency of
the foreclosure proceedings so long as the qualifying mortgagee prosecutes it
diligently to conclusion and pays all rents and performs all other covenants and
conditions of this lease requiring the payment of expenditure of money by the
Lessee until the leasehold estate is released from the mortgage or until it is
transferred or assigned to a new Lessee who expressly assumes and agrees to pay
and perform Lessee's remaining obligations under this lease.
20. Partial Invalidity
If any term, condition, or provision of this lease is held by a court
of competent jurisdiction to be invalid, void, or unenforceable, the remainder
of the provisions shall remain in full force and effect and shall in no way be
affected, impaired, or invalidated.
21. Indemnity Clause
Lessee shall indemnify and hold Lessor harmless against all expenses,
liabilities, demands, and claims of any kind whatsoever, by or on behalf of any
person or entity arising out of either: (1) a failure by Lessee to perform any
of the terms or conditions of this lease; (2) any injury or damage happening on
or about the premises, including damage to the premises and personal injury,
arising out of or in connection with the use or occupancy of the premises by
Lessee or any other person or entity claiming under Lessee, or any accident,
fire, or
Exhibit "D" Page 29 of 34
<PAGE>
Lease Agreement/Ouano Page 17
nuisance on the premises, or any failure by Lessee to keep the premises in a
safe condition; (3) failure to comply with any law or any governmental
authority; or (4) any mechanic's lien or security interest filed against the
premises or equipment, materials, or alterations of buildings or improvements
thereon.
22. Insurance
(a) Fire and Casualty Insurance. Lessee at Lessee's option and at
---------------------------
its own expense may keep insured all improvements erected on the premises
against the loss or damage by fire or other casualty. Any insurance proceeds
payable with respect to any loss to any improvements erected on the premises
shall belong to Lessee and Lessor shall have no right, claim or interest
therein.
(b) Personal Injury and Property Damage Insurance. Lessee shall
---------------------------------------------
obtain, keep and maintain in full force and effect, at its sole cost and expense
insurance against liability for bodily injury and property damage liability
insurance with a single limit of not less than ONE MILLION DOLLARS
($1,000,000.00) per accident, all in respect to bodily injury or property damage
arising out of Lessee's use and occupancy of the premises. This insurance
policy shall name Lessor as an additional insured.
23. Attorneys' Fees
Should either party commence any legal action or proceeding against
the other based upon this lease, or any provision hereof,
Exhibit "D" Page 30 of 34
<PAGE>
Lease Agreement/Ouano Page 18
including, without limitation, this provision, the prevailing party shall be
entitled to an award of attorneys' fees.
24. Government Restrictions
(a) At the request of Lessee, Lessor shall, from time to time, execute
and deliver or join in the execution and delivery of such documents as are
appropriate, necessary or required under the laws of the Territory of Guam for
Lessee's development plans for the premises, including, without limitation,
applications for zone changes or use variances.
(b) Lessee shall not grant any easements or rights of ways without
prior notice to Lessor, and any easements or rights of way granted by Lessee
shall not extend beyond the term of this lease or extensions thereof.
25. Additional Instruments
The parties agree to execute and deliver any instruments in writing
reasonably necessary to carry out the agreement, term, condition, or
assurance in the lease whenever the occasion shall arise and request for such
instruments shall be made. The execution and delivery of any such instrument
shall be at the expense of the requesting party.
26. Interpretation
The language and all parts of this lease shall be in all cases
construed simply, according to its fair meaning and the laws of the
Exhibit "D" Page 31 of 34
<PAGE>
Lease Agreement/Ouano Page 19
Territory of Guam, and not strictly for or against Lessor or Lessee. Captions in
paragraph headings contained herein are for convenience and reference only, and
shall not be deemed to limit or in any manner restrict the content of the
paragraph to which they relate.
27. Binding Effect
This lease and the terms, covenants, and conditions herein shall
extend to and be binding upon the parties, their respective heirs, legal
representatives, successors, and assigns.
28. Notice
All notices to be given with respect to this lease shall be in
writing. Each notice shall be sent by registered or certified mail, postage
prepaid, and return receipt requested, to the party to be notified at the
address first above written or at such other address as either party may from
time to time designate in writing. Nothing contained herein shall be construed
to preclude personal service of any notice in the manner prescribed for personal
service of a summons or other legal process.
29. Entire Agreement
This lease contains the entire agreement of the parties in respect to
Lessee's tenancy, use, and occupancy of the premises, and no other agreement,
statement, pertaining to the same shall be valid or of any force or effect.
This lease shall not be subject to modification except in writing signed by the
parties hereto.
Exhibit "D" Page 32 of 34
<PAGE>
Lease Agreement/Ouano Page 20
30. Water and Power (Electricity) Availability
Lessee under this lease agreement acknowledges that water and power
(electricity) are immediately available on the premises or within one hundred
(100) feet thereof.
LESSOR:
/s/ Carmelina J. Ouano
---------------------------------
CARMELINA J. OUANO
Territory of Guam )
) ss:
City of Agana )
On this 9th day of April, 1992, before me, a Notary Public in and for
the Territory of Guam, personally appeared CARMELINA J. OUANO, known to me to be
the person who executed the foregoing Lease Agreement, and acknowledged to me
that she executed the same as a free and voluntary act for the purposes therein
expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the date last above written.
/s/ Darla Lee Benito
-------------------------------
)SEAL( NOTARY PUBLIC
DARLA LEE BENITO
NOTARY PUBLIC
IN AND FOR THE TERRITORY OF GUAM
MY COMMISSION EXPIRES: JULY 15, 1992
Exhibit "D" Page 33 of 34
<PAGE>
LEASE Agreement/Ouano Page 21
LESSEE:
PACIFIC TYRE CAPITAL
INVESTMENTS, INC.
BY:/s/ Harold Friend
-------------------------------
HAROLD FRIEND, PRESIDENT
State of Arizona )
) ss:
County of Phoenix )
On this 6th day of Apri1, 1992, before me, a Notary Public, in and for
the State of Arizona, personally appeared HAROLD FRIEND, a duly authorized
representative of PACIFIC TYRE CAPITAL INVESTMENTS, INC., known to me to be the
person who executed the foregoing Lease Agreement, and acknowledged to me that
he executed the same on behalf of PACIFIC TYRE CAPITAL INVESTMENTS, INC., for
the purposes and considerations contained therein.
IN WITNESS WHEREOF, I have hereunto set my hands and affixed my
official seal the date last above written.
/s/ Jack A. Harvey
) SEAL( ----------------------------
My commission expires May 26, 1995 NOTARY PUBLIC
Exhibit "D" Page 34 of 34
<PAGE>
LEASE AGREEMENT
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THIS LEASE is made and entered into as of the 9th day of March, 1994 and by
--- -----
and between Ottoville Development Company ("Landlord") having an address of P.O.
Box 670, Pago Pago, American Samoa 96799 and COST-U-LESS, a Washington
Corporation ("Tenant") having an address of 12410 SE 32 No. Street, Bellevue,
Washington 98005.
In consideration of the rents and mutual covenants set forth herein,
Landlord and Tenant agree as follows:
AGREEMENT
1. PREMISES
Landlord does hereby lease and demise to Tenant and Tenant does hereby
lease from Landlord for the term and under the terms and conditions set forth
herein that certain real property located at Ottoville, American Samoa, more
particularly described on "EXHIBIT A", attached hereto and incorporated herein,
together with any and all improvements thereon, including, but not limited to, a
building of approximately 30,000 square feet to be constructed in accordance
with Section 3 of this Lease ("Premises").
2. TERM
The term of this Lease shall be approximately ten (10) years plus two (5)
year options and shall commence on the first to occur of the following dates,
referred to herein as the "Commencement Date".
(a) Thirty (30) days after the date on which Tenant receives a permanent
Certificate of Occupancy for the Premises.
(b) The term of this Lease shall end on March 8th, 2004, subject to the
---------------
options to extend as set forth in Section 5 of this Lease. The parties further
-------
agree that when the Commencement Date becomes certain, they shall complete and
execute a supplement to this Lease to reflect the actual Commencement Date and
---
if necessary, amend the date the Lease herein shall end.
- -------------------------------------------------------
3. CONSTRUCTION OF PREMISES
3.1 LANDLORD'S CONSTRUCTION
Landlord shall, subject to the conditions set forth below, proceed with all
due diligence to prepare the Premises at Landlord's sole cost and expense,
substantially in accordance with the plans, outlines and specifications prepared
by Landlord and approved by Tenant, copies of which are attached
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as EXHIBIT B to this Lease. All labor and materials required to prepare the
Premises for Tenant's use other than those described on EXHIBIT B shall be
furnished by Landlord at Landlord's sole cost and expense. All such preparation
shall be accomplished in compliance with all applicable laws, ordinances,
regulations and restrictions. Landlord shall be responsible to obtain any
construction loan financing sufficient to make timely payments of all costs of
construction of the Landlord's work in accordance with all of the cost estimates
for such work, plus related costs such as professional fees, bond and insurance
premiums, interest on and charges for borrowed money, service and escrow fees,
real estate taxes and assessments and similar costs. Landlord shall be
responsible to obtain all final administrative approvals necessary to, and as
conditions precedent for the issuance of building permits by the appropriate
jurisdiction or authority.
3.2 COMMENCEMENT OF WORK
If Landlord's work has not been commenced by that day which is one hundred
eighty (180) days from the date of this Lease, Tenant may cancel this Lease upon
not less than ninety (90) days written notice to Landlord; provided, however,
that if Landlord shall commence such construction during the notice period,
Tenant's cancellation shall have no further force or effect and this Lease shall
remain in force between the parties. If Landlord shall not commence work or, if
at any time prior to the above date Landlord shall notify Tenant in writing that
Landlord has been unable to obtain the final approvals described in Section 3.1
above, from and after the date of such notice to Tenant, Tenant shall have the
right to terminate this Lease, and upon such termination, the parties shall have
no further rights or liabilities hereunder.
3.3 COMPLETION OF WORK
Landlord shall not be held liable or responsible for delays in construction
or Landlord's work arising out of or occasioned by strikes, accidents, acts of
God, extreme weather conditions, unforeseen restrictions imposed by any
government or any governmental agency or other delays beyond Landlord's control.
Subject to the foregoing, Landlord agrees to deliver the Premises to Tenant for
commencement of Tenant's business not later than December, 1994 ("Completion
Date"), unless extended by written agreement by Landlord and Tenant.
3.4 WARRANTY
3.4.1 WARRANTY OF LANDLORD'S WORK
Landlord warrants that Landlord's work on the Premises under this Section
3, (i) shall be performed in a workmanlike and skillful manner, (ii) shall in
all respects be of a first
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class quality, free from all faults and defects in workmanship, material,
design and title, and (iii) shall be in strict compliance with the requirements
of the plans, outlines and specifications provided to Landlord by Tenant.
Landlord further warrants that all materials, equipment and other items
incorporated (or to be incorporated) in Landlord's work on the Premises or
consumed (or to be consumed) in the performance of Landlord's work on the
Premises shall be new and of the most suitable grade for the purpose intended.
Subject to any extension pursuant to Section 3.4.2 below, this warranty shall
continue until that date which is twenty-four (24) months after the Completion
Date ("Warranty Period").
3.4.2 CORRECTION OF DEFECTS
If, at any time during the Warranty Period, Landlord receives from Tenant
notice of any failure to comply with the warranty set forth in this Section 3.4,
Landlord shall promptly and, at such times as Tenant directs, satisfactorily
correct such noncompliance and remedy any damage to other items of Landlord's
work or Tenant's property resulting from such noncompliance. The Warranty
Period shall then be extended as to any corrected work performed by the Landlord
until the expiration of twelve (12) months after acceptance by Tenant of the
corrected work. All costs incidental to such correction and remedy shall be
borne by Landlord.
3.4.3 TENANT'S RIGHT TO CORRECT
If Landlord fails to satisfactorily correct or remedy any noncompliance or
damage in accordance with Section 3.4.2, then Tenant shall have the right, but
not the obligation, to perform, on behalf and at the expense of Landlord, any
correction or remedy which Landlord has failed to perform and of which Tenant
has given Landlord notice. Tenant shall be permitted to offset the cost of any
such correction or remedy against any rent or other sums payable to Landlord
under this Lease.
4. RENT
Commencing on the Commencement Date, Tenant shall pay rent to Landlord in
the amount of 1.00 per sq. ft. Three Hundred Sixty Thousand ($360,000.00) per
year payable in equal monthly installments of Thirty Thousand Dollars
($30,000.00) on or before the first day of each calendar (see attached schedule)
month commencing attached schedule). All rental payments to be made hereunder
shall be made to Landlord at its offices in Pava'ia'l, or at such other place as
Landlord may direct in writing. If the term of this Lease
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does not commence on the first day of the month, then the rental payment for
such month shall be prorated.
In addition, a Stand By Letter of Credit is to be established with Amerika
Samoa Bank by Tenant in the name of Landlord for $360,000. Said letter of credit
shall be in place for a term not less than seven (7) years. After the seven (7)
year period annual reductions of $100,000 per year is allowed by Landlord. By
year ten (10) the Stand By Letter of Credit shall be discontinued and it is
further agreed, that the Tenant will bear the cost to have this credit facility
in place for the first four (4) years; thereafter, the Tenant shall invoice the
Landlord for the following four (4) years for the cost of maintaining this
credit facility in a sum not to exceed $1,600.00 a year or $6,400.00, for four
(4) years.
5. OPTION TO EXTEND
Tenant shall have the right to extend the term of this Lease for one (1)
successive term of five (5) years ("Option to Extend"), such extension to be
upon the covenants, terms and conditions as set forth in this Lease, except that
rent for such extension shall be established as described below. Tenant shall
exercise the Option to Extend by written notice to Landlord of Tenant's election
to exercise such Option to Extend given not less than ninety (90) days prior to
the end of the current term.
6. TENANT'S RIGHT OF FIRST REFUSAL
If at any time during the term or any extended term of this Lease Landlord
shall receive a bona fide offer for the purchase of the Premises which Landlord
desires to accept, Landlord shall give written notice thereof (the "Offering
Notice") to Tenant. The Offering Notice shall contain:
(i) The name and address of the proposed purchaser;
(ii) A copy of the terms and conditions of the offer; and
(iii) An offer to sell the Premises to Tenant in preference to the
proposed purchaser and upon the same terms and conditions contained in the
offering Notice.
Tenant shall be entitled to purchase the Premises offered by giving written
notice thereof to Landlord within thirty (30) days after receipt of the Offering
Notice. If Tenant fails to agree to purchase the Premises within the time
aforesaid, Landlord shall have the right to complete the sale of the Premises to
the proposed purchaser who shall then hold the Premises subject to the
provisions of this Lease,
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<PAGE>
including the right of first refusal stated herein, to the same force and effect
as if purchaser had been in the original party hereto.
7. TAXES AND ASSESSMENTS
7.1 TENANT'S PAYMENT
Tenant covenants and agrees to bear, pay and discharge, before delinquency
thereof, all taxes and assessments, general and special, which may be taxed,
charged, levied, assessed or imposed upon or against or be payable for or in
respect of the Premises or any part thereof or the improvements at any time
thereon, except for Landlord's income and franchise taxes. Taxes and
assessments for the year in which the term of this Lease commences, and for the
year in which this Lease expires or terminates, shall be prorated between
Landlord and Tenant as of such date of commencement, expiration or termination.
In the event the amount of such taxes and assessments for the year of
termination cannot be ascertained as of said date of termination, proration
shall be made on the basis of the taxes and assessments for the preceding year.
7.2 RIGHT TO CONTEST
Tenant shall have the right, in its or Landlord's name, to contest the
validity of any tax or assessment which Tenant is required to bear, pay and
discharge hereunder, by appropriate legal proceeding, provided that Tenant,
before instituting any such contest, gives Landlord written notice of its
intention to do so. Landlord agrees to cooperate fully with Tenant in good
faith during the course of such contest. Tenant shall diligently prosecute any
such contest, at all times effectually stay or prevent any official or judicial
sale therefor, under execution or otherwise, and pay any final judgment
enforcing the tax or assessment so contested and thereafter promptly procure
record satisfaction thereof.
8. INSURANCE
Tenant shall, at its sole expense, maintain in force fire and extended
coverage insurance with respect to the Premises, subject to the approval by the
Landlord and is further agreed that the Landlord and Amerika Samoa Bank shall be
named as additional insureds on all such policies. The policies shall provide
that they may not be canceled or modified for any reason without fifteen (15)
days' prior written notice to Landlord. In connection with such insurance,
Tenant shall apply to such insurer to have such insurer waive in writing all
rights and subrogations which such insurer might have otherwise acquired, if at
all, against Landlord and/or Tenant. Landlord and Tenant each herewith and
hereby releases and relieves the other and waives its entire right of
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<PAGE>
recovery against the other for loss or damage arising out of or incident to the
perils described in such policies which occur in, on or about the Premises,
whether due to the negligence of either party, their agents or employees or
otherwise and whether or not such insurance is in effect as of the date of any
damage. The waivers provided for herein shall be applicable and effective only
in the event such waivers are obtainable from the insurance carriers concerned.
9. MAINTENANCE - REPAIR OF DAMAGE - DESTRUCTION
9.1 MAINTENANCE
Tenant covenants and agrees that it will during the term of this Lease keep
and maintain the Premises and all improvements thereon, equipment, fixtures and
appliances therein, and all appurtenances thereto in good condition and repair,
ordinary wear and tear excepted, and keep the same free from trash, nuisance or
danger of fire and in all respects and at all times use and maintain the
Premises so as to fully meet and comply with all health and policy regulations
and the ordinances and all other laws now in force or which may hereafter be
enacted which affect the Premises.
9.2 REPAIRS
In the event of damage to or destruction of the Premises by fire or other
casualty, Tenant, at its sole expense, shall promptly restore the Premises as
nearly as possible to the condition thereof prior to such damage or destruction.
All insurance proceeds received by Tenant pursuant to the provisions of this
Lease, less the cost of recovery, if any, shall be held in trust and applied to
the payment of such restoration as such restoration progresses; provided,
however, if Tenant determines, in its sole discretion, that restoration is not
economically feasible then Tenant shall have the right to terminate this Lease
and shall have no further obligations hereunder provided Tenant assigns to
Landlord all insurance proceeds received by Tenant as described above.
10. ALTERATIONS
Tenant shall have the right to make changes or alterations in the building
located on the Premises, or to construct improvements on the Premises; provided,
however, that Tenant shall not make any alterations, additions or deletions to
the building located on the Premises if such alteration, addition or deletion
shall (i) convert the building located on the Premises to a structure which is
not complete, self-contained, operating unit; (ii) be a structural change in the
building; (iii) diminish or reduce the parking area of the Premises below that
required by local ordinances. Notwithstanding the foregoing, Tenant may make
such structural changes, alterations, additions or deletions as are ap-
-6-
<PAGE>
proved in advance by Landlord, which approval may not be unreasonably withheld
or delayed. If Landlord fails to respond within thirty (30) days to any request
submitted by Tenant under this Section 11, such request shall be deemed approved
by Landlord.
11. LIENS
Tenant shall not do or suffer anything to be done whereby the Premises or
any part thereof may be encumbered by any mechanic's or similar lien and if,
whenever and as often as any mechanic's or similar lien is filed against said
Premises, done by, for or under the authority of Tenant or anyone claiming by,
through or under Tenant, Tenant shall discharge the same of record, within
twenty (20) days after the date of filing.
12. CONTEST OF LIEN CLAIMS
Tenant shall have the right to contest any such mechanic's or other lien
claim filed against the Premises or any part thereof, if within such (20) day
period it notifies Landlord of its intention to do so, provided that Tenant
shall diligently prosecute any such contest, at all times effectually stay or
prevent any official or judicial sale of the Premises under execution or
otherwise, and pay or otherwise satisfy any final judgment adjudicating or
enforcing such contested mechanic's or other lien claim and thereafter promptly
procure record release and satisfaction thereof. Landlord agrees to cooperate
fully with Tenant in good faith during the course of such contest.
13. UTILITIES
All light, power, water, sewerage, trash removal, and other utilities and
utility services used in, on or about the Premises shall be paid for by Tenant
and shall be contracted for by Tenant in its own name.
14. INDEMNITY
14.1 INDEMNIFICATION OF LANDLORD
Tenant agrees to indemnify and save Landlord harmless from and against all
liability, and all loss, cost and expense, including reasonable attorneys' fees,
arising out of Tenant's operation, maintenance, management and control of the
Premises or in connection with (i) any loss, injury or damage whatsoever caused
to or by any person, including, but not limited to, Tenant, its employees,
agents or business invitees, or property, including Tenant's property, arising
out of any occurrence on the Premises, (ii) any breach of this Lease by Tenant,
(iii) any act or omission of Tenant, its em-
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ployees, agents or business invitees occurring in, on or about the Premises.
14.2 INDEMNIFICATION OF TENANT
Landlord agrees to indemnify and save Tenant harmless from and against all
liability and all loss, cost and expense, including reasonable attorneys' fees,
arising out of Landlord's operation, maintenance, management and control of the
property on which the Premises are located or in connection with (i) any loss,
injury or damage whatsoever caused to or by any person, including, but not
limited to, Landlord, its employees, agents or business invitees, or property,
including Landlord's property arising out of any occurrence on the property on
which the Premises are located, (ii) any breach of this Lease by Landlord or
(iii) any act or omission of Landlord, its employees, agents or business
invitees occurring in, on or about the property on which the Premises are
located.
15. FIXTURES
Tenant may install on the Premises its fixtures, improvements and/or
equipment and, at the termination of this Lease, Tenant shall have the right to
remove fixtures, improvements and/or equipment owned by Tenant.
16. CONDITION OF PREMISES AT END OF TERM
At the end of the lease term, Tenant shall leave and deliver the Premises
in as good a condition and substantial repair as they now are with the exception
of usual wear and tear, fire, the elements, acts of God, civil riot, war,
insurrection or other unavoidable casualty.
17. USE
Tenant shall not use or occupy or permit the Premises or any part thereof
to be used or occupied for any unlawful business, use or purpose.
18. QUIET ENJOYMENT
Landlord covenants and warrants that it has good and marketable fee simple
title to the Premises, that it has full right and lawful authority to enter into
this Lease for the full term hereof, that Tenant will be put in possession of
the Premises when Tenant desires and is entitled hereunder, and that Tenant,
upon paying the rent and performing all of the terms, conditions and provisions
of this Lease to be performed by Tenant, shall peacefully and quietly have, hold
and enjoy the Premises for the full term of this Lease, and any extension
thereto, subject to the provisions herein contained; provided, however, that
the Premises may be subject
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to the easements, covenants, agreements, encumbrances and restrictions of record
on the date of this Lease.
19. SIGNS
Tenant may, at Tenant's own risk, lawfully erect signs concerning the
business of Tenant or displaying Tenant's name on the parking area and building
on the Premises, and the roof thereof, if permitted by local regulations, but in
doing so Tenant agrees to maintain said signs in a good state of repair, save
Landlord harmless from any loss, cost or damage as a result of the erection,
maintenance, existence or removal of the same and shall repair any damage which
may have been caused by the erection, existence, maintenance or removal of such
signs.
20. PERSONAL PROPERTY
All personal property of every kind or description that may at any time be
in the Premises shall be at Tenant's sole risk, or at the risk of those claiming
under Tenant, and Landlord shall not be liable for any damage to said property
or loss suffered by the business or occupation of Tenant caused in any manner
whatsoever, except as may result from and be caused by the negligence of
Landlord or its agents or employees.
21. WASTE
Tenant shall use and occupy the Premises in a careful, safe and lawful
manner and not commit waste therein.
22. NON-WAIVER
No waiver of any breach of any covenant or condition of this Lease shall be
taken to constitute a waiver of any subsequent breach of such covenant or
condition nor to justify or authorize the nonobservance on any other occasion of
the same or of any other covenant or condition hereof.
23. DEFAULT
The following shall constitute a default under this Lease:
(i) Failure by Tenant to pay an installment of rent or other sums
required by Tenant to be paid under this Lease within ten (10) days after
written notice from Landlord;
(ii) Failure by Tenant or Landlord to perform any nonmonetary covenant
under this Lease within thirty (30) days after written notice from the non-
defaulting party stating the nature of the default, provided that if the
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nature of such default, other than for nonpayment of rent or other sums, is
such that the same cannot reasonably be cured within such thirty-day
period, such shall not be deemed to be a default if, within such period, a
cure of such default is commenced and thereafter diligently prosecuted to
completion.
If default shall be made by Tenant in the payment of rent or in the
performance of any of the conditions of this Lease, Landlord shall have the
right to reenter said Premises and remove Tenant and all other persons
therefrom, and shall have the option of terminating this Lease; provided,
however, that such rights of reentry and termination may be exercised by
Landlord in accordance with law, and only in the event that the breach or other
default of Tenant shall have continued for thirty (30) days after written notice
thereof and Landlord's intention to terminate has been furnished to Tenant in
writing at the foregoing address, by registered or certified mail. If default be
made by Tenant and if Landlord exercises its option to terminate as herein
provided, then Landlord shall proceed to rerent the Premises at the highest and
best offer received by it for the unexpired portion of this Lease and if the
amount of rental herein agreed to be paid by Tenant is more than the amount
received, then Tenant shall thereupon pay said difference to Landlord, in cash
as the same becomes due on the first day of each month, as Landlord's liquidated
damages for such breach.
If default shall be made by Landlord in the performance of the conditions
of this Lease, and shall have continued for thirty (30) days after written
notice thereof has been furnished to Landlord in writing by registered mail,
then Tenant, in addition to all other remedies now or hereafter afforded or
provided by law, may cancel this Lease or may at its election perform such
condition on behalf of Landlord, or make good any such default, and any amount
tenant shall advance pursuant thereto shall be repaid by Landlord to Tenant on
demand together with interest at the rate of 12% per annum and if Landlord shall
not repay any such amount, Tenant may deduct the same from the next installment
or installments of rent to accrue under this Lease.
24. CONDEMNATION
If the whole of the Premises, or if such portion of the facilities and
building improvements comprising part of the Premises as may be required for the
reasonable use of the Premises, shall be taken by virtue of any condemnation or
eminent domain proceeding, this Lease, at the option of Tenant, 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 Tenant does not exercise such right to
terminate this Lease, this Lease shall continue and Tenant
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shall continue in possession of the remainder of the Premises under the terms
herein provided, except that the monthly rent payable herein shall be reduced in
proportion to the amount of land area of the Premises so taken. Tenant shall
have the right to recover from any condemning authority that portion of any
award attributed to Tenant's leasehold interest.
25. NOTICES
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, three (3) days following the deposit thereof in the United States mail,
registered or certified, postage prepaid, and addressed to the respective
parties as follows:
Landlord: Ottoville Development Co.
Attention: Dave O. Haleck
P.O. Box 670
Pago Pago, American Samoa 96799
Tenant: Cost-U-Less
Attention: Jim Rose
12410 SE 32nd Street
Bellevue, WA 98005
Any party may change the address to which notices are to be given by giving
notice as above provided.
26. ASSIGNMENT AND SUBLEASE
Tenant shall have the right to sublease or assign all or any part of the
Premises without the consent of Landlord, as long as the Sublessee or Assignee
is in the same or similar retail business as the Tenant. Any violation of this
provision shall be a default under section 23, of this Lease.
27. SUCCESSORS AND ASSIGNS
This Lease shall run with the land and shall be binding upon and inure to
the benefit of the heirs, successors, administrators and assigns of the parties
hereto.
28. NON-MODIFICATION
It is mutually agreed that the covenants and conditions herein contained
are the full and complete terms of this Lease and that no alterations,
amendments or modifications of the same shall be binding unless first reduced to
writing and signed by both parties hereto.
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29. MEMORANDUM OF LEASE
It is mutually agreed that this Lease will not be recorded, but that the
parties will execute a written memorandum acknowledging the tenancy which may be
recorded in the records of Territorial Registrar.
30. ATTORNEYS' FEES
In the event of any action or proceeding to enforce any provision of this
Lease, the prevailing party shall be entitled to reasonable attorneys' fees and
all costs and expenses expended or incurred in connection with such action or
proceeding.
31. EFFECT OF INVALIDITY
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of the terms and provisions to
persons and circumstances other than those to which it had been held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
32. APPLICABLE LAW
This Lease shall be governed by and construed in accordance with the laws
of the Territory of American Samoa.
33. HOLD-OVER
The Tenant shall, with the written consent of Landlord, hold over after the
expiration of the term of this Lease, such tenancy shall be for an indefinite
period of time on a month-to-month tenancy, which tenancy may be terminated as
provided by the laws of the Territory of American Samoa. During such tenancy
Tenant agrees to pay to Landlord the same rate of rental as set forth herein,
unless a different rate is agreed upon, and to be bound by all of the terms,
covenants, and conditions as herein specified, so far as applicable.
34. ENVIRONMENTAL
34.1 LANDLORD'S WARRANTIES
Landlord warrants and represents that any use, storage, treatment, or
transportation of Hazardous Substances, as defined in Section 35.4 below, which
has occurred in or on the Premises prior to the date hereof has been in
compliance with all applicable federal, state and local laws, regulations and
ordinances. Landlord additionally warrants and represents
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that no release, leak, discharge, spill, disposal or emission of Hazardous
Substances has occurred in, on or under the Premises, and that the Premises are
free of Hazardous Substances as of the date hereof.
34.2 LANDLORD'S INDEMNITY
Landlord agrees to indemnify and hold harmless Tenant from any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
(including, without limitation, any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the lease
term from or in connection with the presence of Hazardous Substances in or on
the Premises, unless Hazardous Substances are present solely as a result of
negligence, willful misconduct or other acts of Tenant, Tenant's agents,
employees, contractors or invitees. Without limitation of the foregoing, this
indemnification shall include any and all costs incurred due to any
investigation of the site or any cleanup, removal or restoration mandated by a
federal, state or local agency or political subdivision, unless the Hazardous
Substances are present solely as a result of negligence, willful misconduct or
other acts of Tenant, Tenant's agents, employees, contractors or invitees. This
indemnification shall specifically include any and all costs due to Hazardous
Substances which flow, diffuse, migrate or percolate into, onto or under the
Premises after the lease term commences.
34.3 TENANT'S INDEMNITY
Tenant agrees to indemnify and hold harmless Landlord from any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
(including, without limitation any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the lease
term, from or in connection with the presence or suspected presence of Hazardous
Substances in or on the Premises as a result of the operation of Tenant's
business, unless the Hazardous Substances are present solely as a result of
negligence, willful misconduct or other acts of Landlord, Landlord's agents,
employees, contractors or invitees. Without limitation of the foregoing, this
indemnification shall include any and all costs incurred due to any
investigation of the site or any cleanup, removal or restoration mandated by a
federal, state or local agency or political subdivision, unless the Hazardous
Substances are present solely as a result of negligence, willful misconduct or
other acts of Landlord, Landlord's agents, employees, contractors or invitees.
Without limitation of the foregoing, this indemnification shall include any and
all costs incurred due to any investigation of the site or any cleanup, removal
or restoration mandated by a federal, state or local agency or political
subdivision, unless the Hazardous Substances are
-13-
<PAGE>
present solely as a result of negligence, willful misconduct or other acts of
Landlord, Landlord's agents, employees, contractors or invitees.
34.4 HAZARDOUS SUBSTANCES
As used herein, "Hazardous Substances" shall mean any substance or material
defined or designated as hazardous or toxic waste, hazardous or toxic material,
a hazardous, toxic or radioactive substance or other similar term by any
federal, state or local environmental statute, regulation or ordinance presently
in effect or that may be promulgated in this future as such statutes,
regulations and ordinances may be amended from time to time.
35. NEGOTIATION AND CONSTRUCTION
This Agreement and each of the terms and provisions hereof are deemed to
have been explicitly negotiated between the parties, and the language in all
parts of this Agreement shall, in all cases, be construed according to its fair
meaning and not strictly for or against either party.
DATED this 28th day of April, 1994.
LANDLORD:
OTTOVILLE DEVELOPMENT COMPANY
/s/ Dave O. Haleck
------------------------------
Dave O. Haleck
TENANT
COST-U-LESS, A WASHINGTON CORPORATION
By: /s/ Michael J. Rose
----------------------------
Name: Michael J. Rose
Title: C.E.O.
-14-
<PAGE>
)
TERRITORY OF AMERICAN SAMOA )
) ss.
COUNTY OF TUALAUTA )
____________________________)
On this 28th day of April, 1994, before me, the undersigned, a Notary
Public in and for the Territory of American Samoa, duly commissioned and sworn,
personally appeared Dave O. Haleck, to me known to be the person who signed as
Vice President of Ottoville Development Company, the corporation that executed
the within and foregoing instrument, and acknowledged said instrument to be the
free and voluntary act and deed of said corporation for the uses and purposes
therein mentioned, and on oath stated that he was duly elected, qualified and
acting as said officer of the corporation, that he was authorized to execute
said instrument and that the seal affixed, if any, is the corporate seal of said
corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
/s/ Catherine D. Tholosega
----------------------------
(Signature of Notary)
CATHERINE D. THOLOSEGA
----------------------------
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the
Territory of American Samoa
My Appointment Expires: 12/31/94
--------
-15-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
__________________ )
On this 15 day of April, 1994, before me, the undersigned, a Notary Public
in and for the State of Washington duly commissioned and sworn, personally
appeared Michael J. Rose, to me known to be the person who signed as CEO of
COST-U-LESS, the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath stated
the uses and purposes therein mentioned, and on oat, stated that he was duly
elected, qualified and acting as said officer of the corporation, that he was
authorized to execute said instrument and that the seal affixed, if any, is the
corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
/s/ Stacey Loe
----------------------------
(Signature of Notary)
STACEY LOE
----------------------------
(Print of stamp name of Notary)
NOTARY PUBLIC in and for the
State of Washington
My appointment Expires: 03-25-98
--------
-16-
<PAGE>
December 23, 1993 Revised: Jan. 2.1995
--------------------
Mr. Jim Rose
Chairman
Cost U Less
1810 15th Place N.W.
Suite 203
Issaquah, Wa 98027
Dear Jim,
I propose the following changes to our agreed terms of a ten (10) year lease and
two (2) five (5) year options. New proposed lease term is a fifteen (15) year
lease with one (1) five (5) year option.
A 32,055 sq. ft. building is proposed.
------
Lease payments will be set up as follows.
Year 1-2 or 24 months.. $1.00 per square foot x 32,055 s.f. = $32,055. per
------ -------
month.
Year 3-5 or 36 months.. $1.10 per square foot x 32.055 s.f. = $35,260.50 per
------ ----------
month.
Year 6-7 or 24 months.. $1.20 per square foot x 32,055 s.f. = $38,466. per
------ --------
month.
Year 8-10 or 36 months.. $1.30 per square foot x 32,055 s.f. = $41,671.50 per
------ ----------
month.
Year 11-12 or 24 months.. $1.40 per square foot x 32,055 s.f. = $44,877. per
------ --------
month.
Year 13-15 or 36 months.. $1.50 per square foot x 32,055 s.f. = $48,082.50 per
------ ----------
month.
Year 16-17 or 24 months.. $1.60 per square foot x 32,055 s.f. = $51,288. per
------ -------
month.
Year 18-20 or 30 months.. $1.70 per square foot x 32,055 s.f. = $54,493.50 per
----------
month.
In addition, a Stand By Letter of Credit is to be established with Amerika Samoa
Bank by Cost U Less in the name of Ottoville Dev. Co. for $384.660. The Letter
--------
of Credit shall be in place for a term not less than seven (7) years. After the
seven (7) year period, annual reductions of $100,000 per year is allowed by
Ottoville Dev. Co. By year ten (10) the Stand By Letter of Credit shall be
discontinued.
I look forward to your early reply.
Regards,
/s/ Dave Haleck
Dave Haleck
Vice President
-17-
<PAGE>
LEASE AGREEMENT SUPPLEMENT
----------------------------
This Lease Supplement dated April 10th, 1997, between Ottoville Development
Company ("Landlord) having an address of P.O. Box 670, Pago Pago, American Samoa
96799 and COST U LESS, a Washington Corporation ("Tenant") having an address of
12410 SE 32 No. Street, Bellevue, Washington 98005.
In consideration of the rents and mutual covenants, as set forth in the
primary lease herein between the Landlord and Tenant entered March 1, 1995, it
is hereby further agreed as follows:
That the actual commencement date as set forth on 2. Term, of the said Lease
Agreement shall be March 1, 1995 and the term of the lease shall end on
February 28, 2005.
(2) That the actual floor space leased herein is 32,055 square feet.
(3) That the rent schedule herein shall be based upon the floor space of
32,055 square feet and paid as follows:
. Year 1-2 or 24 months. $1.00 per square foot x
32,055 s.f. = $32,055.00 per month.
. Year 3-5 or 36 months. $1.10 per square foot x
32,055 s.f. = $35,260.50 per month.
. Year 6-7 or 24 months. $1.20 per square foot x
32,055 s.f. = $38,466.00 per month.
. Year 8-10 or 36 months. $1.30 per square foot x
32,055 s.f. = $41,671.50 per month.
. Year 11-12 or 24 months. $1.20 per square foot x
32,055 s.f. = $44,877.00 per month.
. Year 13-15 or 36 months. $1.30 per square foot x
32,055 s.f. = $48,082.50 per month.
. Year 16-17 or 24 months. $1.20 per square foot x
32,055 s.f. = $51,288.00 per month.
. Year 18-20 or 36 months. $1.30 per square foot x
32,055 s.f. = $54,493.50 per month.
(4) The Stand By Letter of Credit is to be established with Bank of
Hawaii by Cost U Less in the name of Ottoville Development Company for
$384,660.00. The Letter of Credit shall be in place for a term not less than
seven (7) years. After the seven (7) years period, annual reductions of $100,000
per year is allowed by Ottoville Development Company and by year ten (10) the
Stand By Letter of Credit shall be discontinued and it is further agreed, that
the Tenant will bear the cost to have this credit facility in place for the
first four (4) years; thereafter, the Tenant shall invoice
-1-
<PAGE>
the Landlord for the following four (4) years for the cost of maintaining this
credit facility in a sum not to exceed $1,600.00 a year or $6,400.00 for four
(4) years.
LANDLORD:
OTTOVILLE DEVELOPMENT COMPANY
/s/ Dave O. Haleck
------------------------------
Dave O. Haleck
President
TENANT
COST-U-LESS, A WASHINGTON CORPORATION
/s/ Michael J. Rose
----------------------------
MICHAEL J. ROSE
Chief Executive Officer
TERRITORY OF AMERICAN SAMOA )
) ss.
COUNTY OF TUALAUTA )
____________________________)
On this 10th day of April, 1997, before me personally appeared DAVE HALECK,
President of OTTOVILLE DEVELOPMENT COMPANY, to me known to be the person
described in and who executed the foregoing instrument and acknowledged to me
that he executed the same as his free act and deed, in behalf of OTTOVILLE
DEVELOPMENT COMPANY.
In Witness Whereof I have hereunto set my hand and official seal.
/s/ Catherine D. Tholosega
----------------------------
NOTARY PUBLIC
My Commission Expires: 12/31/98
--------
-2-
<PAGE>
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
__________________ )
On this 7th day of April, 1997, before me personally appeared MICHAEL J.
ROSE, Chief Executive officer of COST U LESS, A WASHINGTON CORPORATION, to me
known to be the person described in and who executed the foregoing instrument
and acknowledged to me that he executed the same as his free act and deed, in
behalf of COST U LESS, A WASHINGTON CORPORATION.
In witness whereof I hereunto set my hand and official seal.
/s/ Judy A. Ward
----------------------------
NOTARY PUBLIC
My Commission Expires:
[OFFICIAL SEAL OF JUDY A. WARD]
-3-
<PAGE>
SONORA PLAZA
-------------------------
(PROJECT)
COST U LESS, INC.
--------------------------
(TENANT)
LEASE
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PREMISES............................................... 1
2. TERM................................................... 1
3. RENT................................................... 1
5. LATE CHARGES........................................... 5
6. INTEREST ON PAST-DUE OBLIGATIONS....................... 5
7. USE.................................................... 5
8. UTILITIES AND SERVICES................................. 6
9. MAINTENANCE AND REPAIR................................. 6
10. ALTERATIONS............................................ 6
11. MECHANICS' LIENS....................................... 7
12. INSURANCE AND INDEMNITY................................ 7
13. WAIVER OF SUBROGATION.................................. 8
14. DAMAGE OR DESTRUCTION.................................. 8
15. CONDEMNATION........................................... 9
16. ASSIGNMENT AND SUBLETTING.............................. 9
17. HAZARDOUS MATERIALS.................................... 10
18. DEFAULT................................................ 11
19 SUBORDINATION.......................................... 12
20. NOTICES................................................ 13
21. ATTORNEYS' FEES........................................ 13
22. ESTOPPEL CERTIFICATE................................... 13
23. LANDLORD'S LIABILITY................................... 13
24. BROKERS................................................ 13
25. LANDLORD'S ACCESS...................................... 13
26. EXAMINATION OF LEASE................................... 14
27. RECORDING.............................................. 14
28. SURRENDER OF PREMISES; HOLDING OVER.................... 14
29. COMMON AREA AND FACILITIES............................. 14
30. SIGNS.................................................. 15
31. MERGER................................................. 16
32. QUIET POSSESSION....................................... 16
33. SECURITY MEASURES...................................... 16
34. LANDLORD'S RESERVATIONS................................ 16
35. EASEMENTS.............................................. 16
37. GENERAL PROVISIONS..................................... 16
</TABLE>
FLOOR PLANS............................................ EXHIBIT "A"
LEASE SUMMARY.......................................... EXHIBIT "B"
RULES AND REGULATIONS.................................. EXHIBIT "C"
________________________________________________________________________________
_______Management ________Leasing ________Legal
________________________________________________________________________________
<PAGE>
LEASE
-----
This Lease is dated as of August __, 1993, by and between INMOSTRAT
CORPORATION, a Delaware corporation ("Landlord"), and COST U LESS, INC., a
Hawaii corporation ("Tenant"), who agree as follows:
1. Premises
--------
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, upon the terms and conditions hereof, those certain premises (the
"Premises") shown on the plan attached hereto as Exhibit "A", and further
described in the Lease Summary attached hereto as Exhibit "B". The Premises are
a portion of the retail center commonly known as Sonora Plaza located at 708 -
824 East Mono Way, California Highway 108, Sonora California, which retail
center, including all buildings and other improvements and appurtenances, is
hereinafter referred to as the "Project". A legal description of the Project is
set forth in Exhibit "A" hereto.
2. Term.
----
The term of this Lease shall be as specified in Exhibit "B" hereof and
shall commence upon the "Commencement Date" shown on Exhibit "B" hereto.
3. Rent.
----
3.1 Base Rent. Tenant shall pay to Landlord as basic monthly rental
---------
for the Premises the amount set forth in Item 4 of Exhibit "B" hereto (the "Base
Rent"), without offset or deduction, in advance on the first day of each month.
Rent for any period during the term hereof which is for less than one month
shall be prorated based upon a 30-day month. Rent shall be payable in lawful
money of the United States to Landlord at the address set forth in Exhibit "B"
hereto, or at such other places as Landlord may designate in writing.
3.2. Percentage Rent.
---------------
(a) In addition to the Base Rent, Tenant shall pay to Landlord at the
time and in the manner herein specified percentage rent equal to the amount set
forth in Item 5 of Exhibit "B" hereto (the "Percentage Rent"). The Percentage
Rent shall be computed monthly and on or before the fifteenth (15th) day
immediately following the end of each calendar month falling entirely within the
term hereof, Tenant shall pay to Landlord an amount equal to N/A% of the amount
by which Tenant's Net Sales during such month exceeds that month's pro rata
portion of the Annual Breakpoint (as such term is defined in Item 5 of Exhibit
"B"). Within thirty (30) days after the end of each calendar year and after the
end of the term hereof, there shall be determined the net sales of Tenant during
the year and thereupon an adjustment shall be made with respect to Percentage
Rent for such year to the end that if Tenant's obligation for Percentage Rent,
calculated on an annual basis, is less than the Percentage Rent actually paid by
Tenant for that year, the excess shall be applied toward subsequent installments
of Percentage Rent falling due, or, if the term of this Lease has expired,
Tenant shall be entitled to a refund forthwith of the excess amount paid. If
Tenant shall have paid Percentage Rent in an amount less than the Percentage
Rent due, as calculated on an annual basis, then Tenant shall forthwith pay such
difference. Tenant's net sales for any period during which Tenant does not
continuously and uninterruptedly conduct its business shall be deemed to be the
greater of Tenant's net sales for (i) such period or (ii) the corresponding
period of the preceding calendar year.
(b) Tenant shall furnish to Landlord an annual statement of Net Sales
thirty (30) days after the close of each year. Such statements shall be signed
and certified by Tenant and shall be accompanied by any Percentage Rent owed by
Tenant.
(c) Tenant shall keep full and accurate books and records of the Net
Sales as hereinafter defined including the Net Sales of any subtenant, licensee
or concessionaire) for a period of two (2) years after the close of each year.
Such books and records shall include, but not be limited to, such records which
would normally be examined and required to be kept by an independent certified
public accountant pursuant to accepted auditing standards in performing an audit
of Tenant's gross sales and all income, sales and occupation tax returns. Tenant
shall install in the Premises cash registers of a type acceptable to and
approved by Landlord, and such cash registers shall be equipped with a
cumulative totaling device which shall be sealed. Tenant shall cause all sales
in, upon or from the Premises to be registered upon said cash registers. The
receipt by Landlord of any statement or any payment of Percentage Rent for any
period shall
<PAGE>
not bind it as to the correctness of the statement or the payment. Within two
(2) years after the receipt of any such statement, Landlord at any time shall be
entitled to an audit of such Net Sales either by Landlord or by a certified
public accountant to be designated by Landlord. If it shall be determined as a
result of such audit, which shall be binding upon both Landlord and Tenant, that
there has been a deficiency in the payment of Percentage Rent, then such
deficiency shall become immediately due and payable with interest from the date
when said payment should have been made at a rate equal to three percent in
excess of the prime rate as established from time to time by First Interstate
Bank of California. If such audit shall disclose any wilful or substantial
inaccuracies, this Lease may thereupon be cancelled and terminated at the option
of Landlord. In any event, if Tenant's statement for the pertinent year shall
have understated net sales by more than two percent (2%), then the Tenant shall
pay all of Landlord's reasonable costs and expenses connected therewith,
including the cost of the audit. Any information gained from such statements or
inspection shall be confidential; provided, however, that such information may
-------- -------
be disclosed in connection with any litigation between the parties and may be
disclosed to any prospective purchaser or any lender or prospective lender for
the Project upon the condition that such purchaser or lender guard the
confidentiality of the information.
(d) "Net Sales" of Tenant is defined to be the gross selling price
of all merchandise or services sold in or from the Premises by the Tenant, its
subtenants, licensees and concessionaires, whether for cash or on credit and
whether made by store personnel or by vending machines, excluding therefrom the
following:
(i) The selling price of all merchandise returned by
customers and accepted for full credit or the amount of discounts and allowances
made thereon;
(ii) Goods returned to sources or transferred to another
store or warehouse owned by or affiliated with Tenant;
(iii) Sums and credits received in the settlement of claims
for loss of or damage to merchandise;
(iv) The price allowed on all merchandise traded in by
customers for credit or the amount of credit for discounts and allowances made
in lieu of acceptance thereof;
(v) Alteration workroom charges and delivery charges;
(vi) Cash refunds made to customers in the ordinary course
of business, but this exclusion shall not include any amount paid or payable for
what are commonly referred to as trading stamps;
(vii) Interest, service or sales carrying charges or other
charges, however denominated, paid by customers for extension of credit on sales
where not included in the merchandise sales price;
(viii) Receipts from public telephones, stamp machines, or
public toilet locks;
(ix) Gift certificates, or like vouchers, until such time as
the same shall have been converted into sale by redemption;
(x) Sales taxes, so-called luxury taxes, consumers' excise
taxes, gross receipts taxes and other similar taxes now or hereafter imposed
upon the sale of merchandise or services, but only if collected separately from
the selling price of merchandise or services and collected from customers;
(xi) Sales of fixtures, equipment or property which are not
stock in trade.
All sales originating at the Premises shall be considered as made and completed
therein, even though bookkeeping and payment of the account may be transferred
to another place for collection and even though actual filling of the sale or
service order and actual delivery of the merchandise may be made from a place
other than the Premises. Each sale upon installment of credit or layaway shall
be treated as a sale for the full price in the month during which the said sale
shall be made, irrespective of the time when Tenant shall receive payment from
its customers, and no deduction shall be allowed for uncollectible payments or
uncollectible credit accounts.
3.3. Additional Rents.
----------------
For each calendar year during the term hereof, Tenant shall pay
to Landlord, as additional rents, Tenant's Share (as defined below) of:
(a) the Real Property Taxes (as defined below) for such calendar
year;
(b) the Common Area Operating Expenses (as defined below) for such
calendar year; and
Tenant shall also pay the aggregate amount of Personal Property Taxes (as
defined below), and any value added tax, excise, sales or privilege tax which
are imposed or levied by any governmental agency upon Landlord on account of
this Lease or the rental paid hereunder.
Said categories of additional rents are mutually exclusive and may be billed
separately or in any combination as determined by Landlord. All amounts payable
by Tenant under this Paragraph 3.3 shall be collectively referred to as
"Additional Rents".
2
<PAGE>
3.3.1 Definitions:
-----------
(a) "Tenant's Share" is defined, for purposes of this Lease, as
the percentage determined by dividing the approximate rentable square footage of
the Premises by the total approximate rentable square footage contained in the
Project, except that, where a certain item is not attributable to all tenants
because a particular tenant has provided for certain service at that Tenant's
own expense with Landlord's consent, then in that event Landlord shall determine
a different proportion, as appropriate, from the proportion described above. Set
forth in Exhibit "B" hereto is a calculation of Tenant's Share based on the
current size of the Premises and the Project. It is understood and agreed that
the square footage figures set forth in Exhibit "B" are approximations which
Landlord and Tenant agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Project.
(b) "Real Property Taxes" is defined as all real property taxes
and assessments, general or special, ordinary or extraordinary (computed as if
paid in permitted installments regardless of whether actually so paid), and
other governmental levies imposed upon or with respect to the Project, together
with any tax on or measured by gross rentals received from the rental of space
in the Project.
(c) "Common Area Operating Expenses" is defined, for purposes of
this Lease, as all costs, if any, incurred by Landlord for:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the Common Areas (as defined in Section 29
of this Lease), including (without limitation) parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, curbs, signs, drainage systems, landscaped areas, striping, bumpers,
irrigation systems, common area lighting facilities and fences and gates;
(ii) Trash disposal services;
(iii) Tenant directories;
(iv) Fire detection systems, including sprinkler system
maintenance and repair;
(v) Security services, including any legal fees;
(vi) Painting and repainting of exterior walls, striping,
sealing and paving and repaving of all parking and driving areas;
(vii) Seasonal decorations and promotion of the Project;
(viii) Dues and assessments of any property owners'
association;
(ix) Property management services (which shall not be in
excess of 5% of gross rent collected) and any other service to be provided by
Landlord hereunder; and
(x) Water, gas and electricity to service the Common
Areas.
In addition, "Common Area Operating Expenses" shall include all expenses
incurred in connection with any additional land made available for parking or
other common purposes.
Notwithstanding anything to the contrary contained herein,
Common Area Operating Expenses shall not include any of the following:
(i) legal fees, auditing fees, brokerage commissions,
advertising costs, or other related expenses incurred by Landlord in an effort
to generate rental income;
(ii) repairs, alterations, additions, improvements, or
replacements made to rectify or correct any defect in the original design,
materials or workmanship of the Project or Common Areas (but not including
repairs, alterations, additions, improvements or replacements made as a result
of ordinary wear and tear);
(iii) damage and repairs attributable to fire or other
casualty;
(iv) damage and repairs necessitated by the negligence or
wilful misconduct of Landlord, Landlord's employees, contractors or agents;
(v) executive salaries to the extent that such services
are not in connection with the management, operation, repair or maintenance of
the Project;
(vi) Landlord's general overhead expenses not related to
the Project;
(vii) legal fees, accountant's fees and other expenses
incurred in connection with disputes with tenants or other occupants of the
Project or associated with the enforcement of the terms of any leases with
tenants or the defense of Landlord's title to or interest in the Project or any
part thereof unless the outcome is to the financial benefit of all tenants;
(viii) costs (including permit, license and inspection
fees) incurred in renovating or otherwise improving, decorating, painting or
altering (1) vacant space (excluding Common Areas) in the
3
<PAGE>
Project or (2) space for tenants or other occupants in the Project and costs
incurred in supplying any item or service to less than all of the tenants in the
Project;
(ix) costs incurred due to a violation by Landlord or
any other tenant of the Project of the terms and conditions of a lease;
(x) cost of any specific service provided to Tenant or
other occupants of the Project for which Landlord is reimbursed or any other
expense for which Lessor is or will be reimbursed by another source (i.e.,
expenses covered by insurance or warranties);
(xi) costs and expenses which would be capitalized
under generally accepted accounting principles, with the exception of the cost
of cost-saving capital improvements, which shall be amortized over their useful
life;
(xii) building management fees in excess of the
management fees specified hereinabove;
(xiii) cost incurred with owning and/or operating the
parking lot(s) serving the Project by independent parking operator(s) if a fee
is paid for parking;
(xiv) fees paid to Landlord or any affiliate of Landlord
for goods or services in excess of the fees that would typically be charged by
unrelated, independent persons or entities for similar goods and services.
(xv) rent called for under any ground lease or master
lease; and
(xvi) principal and/or interest payments called for
under any debt secured by a mortgage or deed of trust on the building.
(e) "Personal Property Taxes" is defined as all city, county,
and other jurisdictional impositions levied upon trade fixtures, furnishings,
equipment and all other personal property of Landlord or Tenant (in which case
Tenant's Share shall be 100%) on the Premises or otherwise used in connection
with the Premises. Tenant shall endeavor to secure from the taxing authorities
separate billings of taxes on its trade fixtures, furnishing, equipment and
other personal property on the Premises and, in such event, Tenant shall pay
such separate assessments in full prior to delinquency.
3.3.2 Tenant's Share of Real Property Taxes and Common Area
Operating Expenses shall be payable by Tenant within ten (10) days after a
reasonably detailed statement of actual expenses is presented to Tenant by
Landlord. At Landlord's option, however, an amount may be estimated by Landlord
from time to time of Tenant's Share of Real Property Taxes and Common Area
Operating Expenses and the same shall be payable monthly, as Landlord shall
designate, during each twelve-month period of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Tenant pays Landlord's
estimate of Tenant's Share of Real Property Taxes and Common Area Operating
Expenses as aforesaid, Landlord shall deliver to Tenant within one hundred
twenty (120) days after the expiration of each calender year a reasonably
detailed statement showing Tenant's Share of the actual Real Property Taxes and
Common Area Operating Expenses incurred during the preceding year. If Tenant's
payments under this paragraph during said preceding year exceed Tenant's Share
as indicated on said statement, Tenant shall be entitled to credit the amount of
such overpayment against Tenant's Share of Real Property Taxes and Common Area
Operating Expenses next falling due. If Tenant's payments under this paragraph
during said preceding year were less than Tenant's Share as indicated on said
statement, Tenant shall pay to Landlord the amount of the deficiency within ten
(10) days after delivery by Landlord to Tenant of said statements.
3.3.3 If Landlord incurs any Personal Property Tax, Landlord
shall furnish Tenant a statement showing the amount incurred and Tenant's Share
thereof, and Tenant shall pay the stated amount within thirty (30) days after
receipt thereof. Tenant shall also pay any value added tax, excise, sales,
rental, privilege tax or other similar tax at any time imposed upon the rent
payments or any other payments to Landlord hereunder, and such taxes shall be
paid by Tenant at the time and in addition to the rent or other payments
required under this Lease.
3.3.4 Tenant agrees to pay as Additional Rent all costs for any
additional services, goods or material provided by Landlord or others at
Tenant's request, other than those that are Landlord's obligation to provide
under this Lease.
3.3.5 The termination of this Lease shall not terminate
Tenant's obligation to pay the Additional Rents for the year in which the Lease
terminates. Tenant's obligations for the year of termination shall be prorated
as of the date of termination on the basis of a 360-day year. Such prorated
amount shall be billed to Tenant when the amount has been computed by Landlord,
and Tenant agrees to pay such amount to Landlord within ten (10) days after the
date of billing.
3.3.6 Tenant shall have the right, at Tenant's expense during
regular business hours and with prior notice, to inspect Landlord's books and
records at Landlord's principal office and verify the basis and computations of
any Additional Rents charged to Tenant under this Article 3. It is agreed that,
because of Tenant's access to Landlord's books and records, Landlord shall have
no obligation to duplicate any portion of Landlord's records or invoices for
Tenant. All computations shall be based upon unaudited
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amounts obtained from Landlord's books and records. If after such inspection and
computation, Tenant disputes the amount of Additional Rents owed, a
certification as to the proper amount shall be made by Landlord's certified
public accountant, which certification shall be final and conclusive. Tenant
agrees to pay the cost of such certification unless it is determined that
Landlord's original statement overstated the Additional Rents by more than five
percent (5%). Failure of Tenant to object in writing to Landlord's basis or
computation of any Additional Rents within thirty (30) days after Tenant's
receipt of Landlord's invoice shall conclusively constitute Tenant's acceptance
of such basis and computation.
3.3.7 All monetary obligations of Tenant to Landlord under the terms
of this Lease, including but not limited to Additional Rents and any other
expenses payable by Tenant hereunder, shall be deemed to be rent.
5. Late Charges.
------------
Tenant acknowledges that late payment by Tenant to Landlord of Base
Rent, Percentage Rent, Additional Rents or other sums due under this Lease will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impractical to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Landlord by the terms of any mortgage or trust
deed covering the Project. Accordingly, if any installment of Base Rent,
Percentage Rent, Additional Rents or any other sum due from Tenant is not
received by Landlord or Landlord's designee within five (5) days after such
amount is due, Tenant shall pay to Landlord a late charge equal to Fifty Dollars
($50.00) or eight percent (8%) of such overdue amount, whichever is greater. A
returned check due to insufficient funds will be treated as a late payment. The
parties agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payment by Tenant. Acceptance of
any late charge by Landlord shall not constitute a waiver of Tenant's default
with respect to the overdue amount, or prevent Landlord from exercising any of
the other rights and remedies available to Landlord.
6. Interest on Past-due Obligations.
--------------------------------
Any amount due to Landlord not paid when due shall bear interest from
the date due until paid at the rate of ten percent (10%) per annum; provided,
however, that interest shall not be payable on late charges pursuant to Article
5.
7. Use.
---
7.1 Specific Use. The Premises shall be used and occupied only under
------------
the trade name and for the purpose set forth in Item 10 of Exhibit "B" hereto
and shall not be used for any other purpose without Landlord's prior written
consent.
7.2 Compliance With Law. Tenant shall, at Tenant's expense, promptly
-------------------
comply with all applicable statutes, ordinances, rules, regulations, orders,
covenants and restrictions of record, and requirements of any fire insurance
underwriters or rating bureaus, now in effect or which may hereafter come into
effect, during the term of this Lease, relating in any manner to the Premises or
the occupation or use by Tenant of the Premises. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way obstruct or
interfere with the rights of other tenants of the Project, or injure or annoy
them; nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises or the Project or commit any waste in, on or about the Premises or
the Project. In the event Tenant fails to comply with the provisions of this
paragraph 7.2 and Landlord should therefore be charged an additional insurance
premium, Tenant immediately upon demand shall reimburse Landlord for such
additional premium.
7.3 General Business Use. Tenant agrees to be open for business and
--------------------
to operate all or substantially all of the Premises throughout the term of this
Lease during regular and customary hours for such type of business on all
business days. Tenant shall keep its display windows well lighted from dusk
until such reasonable time as may be fixed from time to time by Landlord for all
of the tenants in the Project unless prevented by causes beyond Tenant's
reasonable control. Tenant agrees not to change the advertised name of the
business operated in the Premises without the written permission of Landlord.
Tenant agrees to conduct its business at all times in a high-class and reputable
manner. Tenant covenants that it will not, during the term of this Lease
directly or indirectly operate or own any similar type of business within a
radius of the number of miles from the location of the Premises which is set
forth in Item 11 of Exhibit "B" hereto.
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The restriction contained in this paragraph shall apply to any corporation or
partnership of which Tenant is a principal shareholder or a partner; and if
Tenant is a corporation or partnership, said restriction shall apply to the
principal shareholders or to any partners of Tenant. Tenant shall not use the
sidewalks adjacent to the Premises for business purposes except ingress and
egress without the written consent of Landlord, nor permit the use of any part
of the Premises for sleeping apartments or lodging. No auction, distress,
going-out-of-business, fire or bankruptcy sales shall be conducted in the
Premises without the advance written consent of the Landlord, nor allow carts,
portable signs, devices or any other objects to be stored or to remain outside
the defined exterior walls and permanent doorways of the Premises. Tenant will
not use or operate the Premises so as to emit therefrom any noise, litter, or
odor which, in Landlord's reasonable opinion, is obnoxious or otherwise
constitutes a public or private nuisance and shall conduct or permit any use or
act which unreasonably disturbs or annoys any other tenant of Landlord. In
addition, Tenant shall at all times during the Lease term or any extension
thereof, comply with all other reasonable rules and regulations at any time or
from time to time established by Landlord covering use of the Premises and
Common Areas. Tenant further acknowledges that Tenant is familiar with all
conditions, restrictions and grants of easement affecting the Premises and
agrees to comply with the same so long as they are consistent with the
provisions of this Lease.
7.4 Acceptance of Premises. Tenant acknowledges that it has satisfied
----------------------
itself by its own independent investigation that the Premises are suitable for
their intended use, and that neither Landlord nor Landlord's agent or agents
have made any representation or warranty as to the present or future suitability
of the Premises or the Project for the conduct of Tenant's business. Tenant's
taking possession or use of the Premises for any purpose shall constitute
Tenant's acceptance of the Premises and the Project in their existing condition.
8. Utilities and Services.
----------------------
8.1 Tenant to Pay. Tenant shall pay, directly to the appropriate
-------------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Premises. However, if any services or utilities are jointly metered with
other premises, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
8.2 Interruptions. There shall be no abatement of rent and Landlord
-------------
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Landlord's
reasonable control or in cooperation with governmental request or directions;
provided, however, that if any utility to the Premises should become unavailable
for a continuous period in excess of 48 hours, and such unavailability is caused
by Landlord or Landlord's employees or agents, all Base Rent shall abate until
utility service to the Premises is restored. Landlord agrees to use reasonable
efforts to cause the cessation of any such interruption and, to the extent
reasonably possible, to effect repairs during non-business hours.
9. Maintenance and Repair.
----------------------
9.1 Landlord's Obligations. Landlord shall repair and maintain the
----------------------
Common Areas (as defined in Article 29) and the structural portions of the
building in which the Premises are located, which structural portions include
only the foundations, structural portions of exterior walls (excluding glass and
doors) and roof. There shall be no abatement of rent or liability of Landlord on
account of any injury or interference with Tenant's business with respect to any
improvements, alterations or repairs made by Landlord to the Premises or the
Project or any part thereof; provided, however, that if such repairs,
alterations or improvements are necessary as a result of any wilful misconduct
or negligence of Landlord or Landlord's employees or agents, or if the Premises
are rendered unusable by Tenant, all Base Rent shall abate until Tenant's full
use of the Premises is restored.
9.2 Tenant's Obligations. Except as provided in paragraph 9.1, Tenant
--------------------
at its cost shall keep the Premises in good and sanitary order, condition and
repair with ordinary wear and tear excepted. All of Tenant's repairs shall be of
a quality and class equal to the original work. If any portion of the Premises
or any system or equipment in the Premises which Tenant is obligated to repair
cannot be fully repaired, Tenant shall promptly replace such portion of or
system or equipment in the Premises, regardless of whether the benefit of such
replacement extends beyond the Lease term. Tenant shall also maintain a
preventive maintenance contract providing for the regular inspection and
maintenance of the heating and air conditioning system by a licensed heating and
air conditioning contractor and provide Landlord with copies thereof. Landlord
shall have the right, upon written notice to Tenant, to undertake the
responsibility for preventive maintenance of the heating and air conditioning
system at Tenant's expense. In addition, Tenant shall, at Tenant's expense,
repair any damage to the roof, foundation or structural portions of walls caused
by Tenant's acts or omissions. It is the intention of Landlord and Tenant that,
at all times during the Lease term, Tenant shall maintain the Premises in an
attractive, first-class and fully operative condition.
10. Alterations.
-----------
Tenant shall not make any alterations, additions or improvements in
excess of $10,000 to the Premises without Landlord's prior written consent. All
proposed alterations, additions or improvements shall be presented to Landlord
in written form with detailed plans and working drawings. Any consent given by
Landlord shall be deemed conditioned upon Tenant's acquiring all necessary
permits. All alterations shall be performed by a contractor approved by
Landlord, and shall be completed in compliance with law and the plans and
specifications approved by Landlord. Tenant shall give Landlord not less than
ten (10) days
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notice prior to the commencement of any work in the Premises by Tenant, and
Landlord shall have the right to post notices of non-responsibility in the
Premises as provided by law. Should Tenant make any alterations, improvements,
or additions without Landlord's prior approval, or use a contractor not
expressly approved by Landlord, Landlord may at any time during the term of this
Lease require that Tenant remove any or all such improvements.
11. Mechanics' Liens.
----------------
11.1 Tenant's Covenants. Tenant shall pay, when due, all claims for
------------------
labor or materials furnished or alleged to be furnished to or for Tenant at or
for use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or the Project.
11.2 Contest of Lien. Tenant may contest the correctness or the
---------------
validity of any mechanic's lien if, immediately upon demand by Landlord, Tenant
procures and records a lien release bond issued by a corporation authorized to
issue surety bonds in the jurisdiction in which the Premises are located in an
amount equal to the claim of lien. The bond shall provide for the payment of any
sum that the claimant may recover on the claim. If a final judgment establishing
the validity or existence of a lien for any amount is entered, Tenant shall
immediately pay and satisfy the same.
11.3 Right to Cure. If Tenant shall be in default in payment of any
-------------
mechanic's lien claim and shall not have given Landlord security to protect the
Premises, the Project, and Landlord from liability for such claim of lien,
Landlord may, but shall not be required to, pay said claim and any costs. The
amount so paid, together with reasonable attorneys' fees and court costs
incurred in connection with the release of such lien and/or the defense in a
foreclosure action, shall be immediately due and owing from Tenant to Landlord,
and Tenant shall pay the same to Landlord with interest at the maximum lawful
rate from the date of Landlord's payment.
12. Insurance; Indemnity.
--------------------
12.1 Tenant's Insurance. Tenant shall, at Tenant's expense, obtain
------------------
and keep in force during the term of this Lease:
(a) Comprehensive general liability insurance with broad form
general liability endorsement, in an amount of not less than $1,000,000 per
occurrence of bodily injury and property damage combined, and shall insure
Tenant with Landlord as an additional insured against liability arising out of
the use, occupancy or maintenance of the Premises. Compliance with the above
requirement shall not, however, limit the liability of Tenant hereunder.
(b) Worker's compensation coverage as required by law, together
with employer's liability coverage, with a limit of not less than $500,000.
(c) Replacement cost fire and extended coverage insurance, with
vandalism and malicious mischief, sprinkler leakage and earthquake sprinkler
leakage endorsements, in an amount sufficient to cover not less than 100% of the
full replacement cost, as the same may exist from time to time, of all Tenant's
personal property, fixtures, equipment, and tenant improvements.
12.2 Insurance Policies. Tenant shall deliver to Landlord copies of
------------------
liability insurance policies required under (a) above, or certificates
evidencing the existence and amounts of such insurance, within seven (7) days
after the Commencement Date. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days prior
written notice to Landlord. Tenant shall, prior to the expiration of such
policies, furnish Landlord with evidence of renewals thereof.
12.3 No Representation of Adequate Coverage. Landlord makes no
--------------------------------------
representation that the limits or forms of coverage of insurance specified in
this Article 12 are adequate to cover Tenant's property or obligations under
this Lease.
12.4 Hazard Insurance. During the Lease term, Landlord shall
----------------
maintain policies of insurance covering loss of or damage to the Premises in
such amount or percentage of replacement value as Landlord or its insurance
adviser deems reasonable in relation to the age, location, type of construction
and physical condition of the Premises and the availability of such insurance at
reasonable rates. Such policies shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage,
earthquake sprinkler leakage, and Inflation Guard endorsement, and any other
perils (except flood and earthquake, unless required by any lender holding a
security interest in the Premises) which Landlord deems necessary. Tenant shall
pay the Tenant's Share of the premiums for the insurance policies maintained
under this paragraph 12.4.
12.5 Indemnity. Tenant shall indemnify and hold harmless Landlord
---------
and Landlord's directors, officers, employees, agents, guests, invitees, and
lenders from and against all losses, claims, costs, damage, liability or
expenses, including but not limited to reasonable attorneys' fees, arising out
of any and all injuries to or death of any person or damage to any property
arising out of any occurrence on or in the Premises, except to the extent caused
by the wilful misconduct or negligence of Landlord, or arising from any breach
or default in the performance of any of Tenant's obligations under this Lease,
or arising from any act or omission of Tenant or Tenant's directors, officers,
contractors, customers, invitees, employees. If any action or proceeding is
brought against Landlord by reason of any such matter, Tenant upon notice from
Landlord shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord and Landlord shall cooperate with Tenant in such
defense. Landlord need not have first paid any such claim in order to be so
indemnified. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property of Tenant or injury to persons, in, upon
or about the
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Premises or the Project arising from any cause and Tenant hereby waives all
claims in respect thereof against Landlord.
12.6 Landlord hereby indemnifies and agrees to hold Tenant harmless
from and to defend Tenant against any and all claims of liability for any injury
or damage to any person or property whatsoever occurring in, on or about the
Premises or the Project, to the extent such injury or damage is caused by the
neglect, fault or omission of any duty with respect to the same by Landlord, its
agents, contractors, employees or invitees. Landlord further indemnifies and
agrees to hold Tenant harmless from and against any and all claims arising from
any breach or default in the performance of any obligation on Landlord's part to
be performed under the terms of this Lease or arising from any act or negligence
of Landlord or any of its agents, contractors, employees or invitees from and
against all reasonable costs, attorneys' fees, expenses and liabilities incurred
in or about any such claim or any action or proceeding brought thereon.
13. Waiver of Subrogation.
---------------------
As long as their respective insurers so permit, Landlord and Tenant
hereby mutually waive their respective rights of recovery against each other for
any loss insured by fire, extended coverage and other property insurance
policies existing for the benefit of the respective parties. Each party shall
obtain any special endorsements, if required by their insurer, to evidence
compliance with such waiver.
14. Damage or Destruction.
---------------------
14.1 Landlord's Obligation to Rebuild. If the Premises are damaged or
--------------------------------
destroyed, Landlord shall promptly and diligently repair the Premises unless
Landlord has the right to terminate this Lease as provided in paragraph 14.2
below and Landlord elects to so terminate.
14.2 Landlord's Right to Terminate. Landlord shall have the right to
-----------------------------
terminate this Lease following damage to or destruction of the Premises or the
Project if any of the following occurs: (i) insurance proceeds, together with
additional amounts Tenant agrees to contribute, are not available to Landlord to
pay one hundred percent (100%) of the cost to fully repair the damaged Premises
and the Project; (ii) more than fifty percent (50%) of the rentable square feet
of the Project is damaged or destroyed, or the Project is damaged or destroyed
to the extent of more than one-third (1/3) of the replacement cost thereof,
notwithstanding that the Premises may have sustained little or no damage; (iii)
the Premises cannot, in Landlord's reasonable opinion, be fully repaired by
Landlord within one hundred eighty (180) days after the date of the damage or
destruction; (iv) the Premises cannot be safely repaired because of the presence
of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers; (v) the then existing laws
do not permit the Premises to be restored to substantially the same condition as
they were in immediately before destruction; (vi) the Premises are destroyed or
damaged during the last two (2) years of the term of this Lease; or (vii) Tenant
is in default under the terms of this Lease at the time of such damage or
destruction.
If Landlord elects to terminate this Lease, Landlord shall give Tenant
written notice of its election to terminate within thirty (30) days after it has
knowledge of such damage or destruction, and this Lease shall terminate fifteen
(15) days after the date Tenant receives such notice. If this Lease is
terminated, Landlord shall, subject to the rights of its lenders, be entitled to
receive and retain all the insurance proceeds resulting from such damage,
except for those proceeds payable under policies obtained by Tenant which
specifically insure Tenant's personal property. If Landlord elects not to
terminate the Lease, Landlord shall, as soon as reasonably possible and to the
extent the required materials and labor are readily available through usual
commercial channels, repair such damage, and this Lease shall continue in full
force and effect.
If the Premises shall be destroyed or rendered untenantable and
Landlord fails to commence the restoration within 60 days after the casualty
occurs or fails to complete the restoration within 180 days after the casualty
occurs or the casualty occurs during the last 2 years of the Lease term, Tenant
may terminate this Lease upon written notice to Landlord.
14.3 Limited Obligation to Repair. Landlord's obligation, should it elect
----------------------------
or be obligated to repair or rebuild, shall be limited to the Premises and
Tenant shall, at its expense, replace or fully repair all Tenant's personal
property and any alterations paid for by Tenant existing at the time of such
damage or destruction. Tenant shall replace or repair all exterior signs, trade
fixtures, equipment, display cases and other personal property installed by
Tenant in the Premises immediately upon Landlord's completion or restoration of
the Premises.
14.4 Abatement of Rent. In the event of repair or restoration by Landlord
-----------------
as herein provided, rent shall be abated proportionately with the degree to
which the operation of Tenant's business from the Premises is impaired during
the period of such repair or restoration. Such abatement shall commence upon
such damage or destruction and end upon substantial completion by Landlord of
the repair or
8
<PAGE>
reconstruction which Landlord is obligated or undertakes to do. Tenant shall not
be entitled to any compensation or damages from Landlord for loss of the use of
the Premises, damage to Tenant's personal property or any inconvenience
occasioned by such damage, repair or restoration unless such loss or damage is a
result of the negligence or wilful misconduct of Landlord or Landlord's
employees or agents. Unless Landlord elects to terminate this Lease, this Lease
shall remain in full force and effect.
14.5 Replacement Cost. The determination in good faith by Landlord of
----------------
the estimated cost of repair of any damage, the replacement cost, or the time
period required for repair shall be conclusive for purposes of this Article 14.
15. Condemnation.
------------
15.1 Taking. The term "Taking", as used in this Article 15, shall mean
------
an appropriation or taking under the power of eminent domain by any public or
quasi-public authority or a voluntary sale or conveyance in lieu of condemnation
but under threat of condemnation.
15.2 Total Taking. In the event of a Taking of the entire Premises,
------------
this Lease shall terminate and expire as of the date possession is delivered to
the condemning authority and Landlord and Tenant shall each be released from any
liability accruing pursuant to this Lease after such termination.
15.3 Partial Taking. If there is a Taking of a portion of the
--------------
Premises, this Lease shall remain in effect, except that if more than twenty-
five percent (25%) of the total number of square feet in the Premises is taken,
or if the remaining portion of the Premises is rendered unsuitable for Tenant's
continued use of the Premises, either Landlord or Tenant may terminate this
Lease by giving written notice of such election within thirty (30) days after
Landlord gives Tenant written notice of such partial Taking, and in which event
this Lease shall terminate as of the date the condemnation authority takes
possession of the Premises. In the event of a partial Taking which does not
result in the termination of this Lease, on the date of such Taking rent shall
be reduced in the proportion that the number of square feet in the Premises
taken bears to the total number of square feet in the Premises, and Tenant at
its cost shall accomplish all necessary restoration.
15.4 Award. Any award for the Taking of all or any part of the
-----
Premises or the Project shall be the property of Landlord, except that Tenant
shall be entitled to any separate award for loss of or damage to Tenant's trade
fixtures, removable personal property and unamortized tenant improvements that
have been paid for by Tenant. For that purpose, the cost of such improvements
shall be amortized over the original term of this Lease excluding any options.
15.5 Temporary Taking. No temporary taking of the Premises or of
----------------
Tenant's rights under this Lease shall terminate this Lease or give Tenant any
right to abatement of rent. Any award made to Tenant by reason of such temporary
taking shall belong entirely to Tenant.
16. Assignment and Subletting.
-------------------------
16.1 Prohibition. Tenant shall not voluntarily or by operation of law
-----------
assign, mortgage, sublet, or otherwise transfer or encumber all or any part of
Tenant's interest in the Lease, or in the Premises, without Landlord's prior
written consent, which consent shall not be unreasonably withheld. Any purported
assignment or subletting contrary to the provisions hereof without consent shall
be void. "Transfer" within the meaning of this Article 16 shall include the
transfer or transfers aggregating: (a) if Tenant is a corporation, more than
fifty percent (50%) of the voting stock of such corporation, or (b) if Tenant is
a partnership, more than fifty percent (50%) of the profit and loss
participation in such partnership. As Additional Rent hereunder, Tenant shall
reimburse Landlord for actual legal and other expenses incurred by Landlord in
connection with any request by Tenant for consent to any assignment or
subletting; provided, however, that such expenses do not exceed $2,500. In
connection with any proposed assignment or sublease, Tenant shall submit to
Landlord in writing (i) the name of the proposed assignee or subtenant; (ii)
such information as to such assignee's or subtenant's financial responsibility
and standing as Landlord may reasonably require; (iii) the proposed use of the
Premises by such assignee or subtenant; (iv) all of the terms and conditions
upon which the proposed assignment or subletting is to be made; and (v) an
instrument of assignment or sublease wherein such assignee or subtenant assumes
all of Tenant's obligations hereunder and agrees to be bound by the terms
hereof.
16.2 If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under this
Lease 50% of the Profit (defined below) on such transaction as and when received
by Tenant, unless Landlord gives written notice to Tenant and the assignee or
subtenant that Landlord's share of the Profit shall be paid by the assignee or
subtenant to Landlord directly. The "Profit" means (A) all amounts paid to
Tenant for such assignment or sublease, including "key" money, monthly rent in
excess of the monthly rent payable under
9
<PAGE>
this Lease, and all fees and other consideration paid for the assignment or
sublease, including fees under any collateral agreements, less (B) costs and
expenses directly incurred by Tenant in connection with the execution and
performance of such assignment or sublease for real estate broker's commissions
and costs of renovation or construction of tenant improvements required under
such assignment or sublease. Tenant is entitled to recover such costs and
expenses before Tenant is obligated to pay Landlord's share of the Profit to
Landlord. The Profit in the case of a sublease of less than all the Premises is
the rent allocable to the subleased space as a percentage on a square footage
basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Premises within thirty (30) days after the transaction documentation is signed,
and Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to Landlord
copies of all the transaction documentation, all of which shall be certified by
Tenant to be complete, true and correct. Landlord's receipt of Landlord's share
of the Profit shall not be a consent to assignment or subletting. The breach of
Tenant's obligation under this paragraph shall be a material default of this
Lease.
16.3 Scope. If this Lease is assigned, or if the Premises or any part
-----
thereof is sublet or occupied by any person other than Tenant, Landlord may
collect rent from the assignee, subtenant or occupant and apply the net amount
collected to the rent under this Lease and apply any excess rent so collected as
provided herein. No assignment or subletting shall affect the continuing primary
liability of Tenant (which, following assignment, shall be joint and several
with the assignee), to pay the rent due Landlord and to perform all other
obligations to be performed by Tenant hereunder. If Landlord approves an
assignment or sublease proposal and Tenant fails to complete the proposed
assignment or sublease within sixty (60) days following Landlord's approval,
Tenant shall again comply with the notice and approval procedure set forth in
this Article 16 as if no notice had been received.
16.4 Waiver. Landlord's consent to any assignment or subletting of the
------
Premises by Tenant shall not constitute an acknowledgement that Tenant is not
then in default under this Lease, nor shall such consent be deemed a waiver of
any then existing default. The consent by Landlord to any assignment or
subletting shall not constitute a consent to any subsequent assignment or
subletting by Tenant or to any subsequent or successive assignment or subletting
by the subtenant. In the event of any default under this Lease, Landlord may
proceed directly against Tenant, any guarantors or any other person or entity
responsible for the performance of this Lease, including the subtenant, without
first exhausting Landlord's remedies against any other person or entity
responsible therefor, or any security held by Landlord or Tenant. Tenant waives
notice of any default of any assignee or subtenant.
17. Hazardous Materials.
-------------------
17.1 Hazardous Materials. Tenant shall comply with all environmental
-------------------
laws relating to "Hazardous Materials" (as hereinafter defined) affecting the
Premises, the improvements thereon, the business conducted thereon by Tenant, or
any activity or condition on or in the Premises. Without limiting the generality
of the foregoing, Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept, or used in or about the Premises by Tenant, its agents,
employees, contractors or invitees in violation of any environmental laws,
without the prior written consent of Landlord. If Tenant breaches the
obligations stated in the preceding sentence, or if the presence of Hazardous
Material on the Premises caused or permitted by Tenant results in contamination
of the Premises, the Project, or any adjacent property, then Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Premises, the Project, and/or adjacent
property, damages for the loss or restriction on use of rentable or usable space
or of any amenity of the Premises, the Project, and/or adjacent property,
damages arising from any adverse impact on marketing of the Premises, the
project, and/or adjacent property, and sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees which arise during or after the
term or extended term of this Lease as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision because of Hazardous Material
present in the soil or ground water on or under the Premises, the Project,
and/or adjacent property. Without limiting the foregoing, if the presence of any
Hazardous Material on the Premises caused or permitted by Tenant results in any
contamination of the Premises, the Project, and/or adjacent property, Tenant
shall promptly take all actions at its sole expense as are necessary to return
the Premises, the Project, and/or adjacent property to the condition existing
prior to the introduction of any such Hazardous Material to the Premises, the
Project, and/or adjacent property; 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, the Project, and/or adjacent
property. As used herein, the term "Hazardous Material" means any hazardous or
toxic substance, material or waste which is or becomes regulated by any local,
state or federal governmental authority. The provisions of this Article 17 shall
survive the expiration or earlier termination of this Lease and Tenant's
surrender of the Premises to Landlord.
17.2 Hazardous Materials Disclosure. Tenant shall immediately notify
------------------------------
Landlord of Tenant's receipt of any notice, citation or other communication
received by Tenant relating to the presence, storage, use or release of any
Hazardous Materials in, on or about the Premises.
17.3 Hazardous Materials Inspection. Landlord shall have the right,
------------------------------
but not the duty, to inspect the Premises at any time to determine whether
Tenant is complying with the requirements of this Article 17. If Tenant is not
in compliance with the requirements of this Article 17, Landlord shall have the
right, but not the obligation, to immediately enter upon the Premises to remedy
any condition which is in violation of the terms of this Lease or caused by
Tenant's failure to comply with the requirements of this
10
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Lease. Landlord shall use reasonable efforts to minimize interference with
Tenant's business as a result of any such entry by Landlord, but shall not be
liable for any interference caused thereby.
17.4 Default. Any failure of Tenant to comply with the provisions of
-------
this Article 17 shall be a material default enabling Landlord to exercise any of
the remedies set forth in this Lease.
17.5 Hazardous Waste. Landlord represents and warrants to Tenant that,
---------------
as of the date of this Lease, neither the Premises nor any portion of the
Project contains Hazardous Wastes or Hazardous Materials in violation of the
legal limitations imposed by laws applicable to the Project. Landlord agrees to
indemnify and hold Tenant harmless from and against any and all losses, damages,
claims, penalties, liabilities, suits, costs and expenses (including, without
limitation, reasonable attorneys' fees and also including, without limitation,
costs of remedial actions or cleanups suffered or incurred by Tenant) arising
out of or related to any release or presence of Hazardous Wastes or Materials
on, under or in the Premises or the Project to the extent such release or
presence is due to the act or omissions of Landlord or Landlord's agents and
employees.
18. Default.
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18.1 Default - Definition. The occurrence of any one or more of the
--------------------
following events shall constitute a material default of this Lease by Tenant:
(a) The vacation or abandonment of the Premises by Tenant. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) Suspension or cessation of business by Tenant on the Premises for
fourteen (14) consecutive days or for more than fourteen (14) days in any
calendar month (unless excused in connection with a casualty or condemnation as
provided herein).
(c) The unreasonable disturbance of other tenants in the Project by
Tenant or its customers or employees which continues or is repeated after
written notice by Landlord of the fact and nature of the disturbance.
(d) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Landlord to Tenant. In the event that Landlord serves Tenant with a
Notice to Pay Rent or Quit pursuant to the applicable unlawful detainer
statutes, such Notice to Pay Rent or Quit shall also constitute the notice
required by this paragraph.
(e) The breach by Tenant of any of the covenants, conditions or
provisions of paragraphs 11 (mechanics' liens), 16 (assignment), 17 (hazardous
materials), 18.1(b) (suspension of business), 18.1(g) (insolvency), 18.1(h)
(false statement), 19 (subordination), 22 (estoppel certificates), 27
(recording), or 35 (easements), and the continuation of such breach for a period
of ten (10) days.
(f) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
other than those referenced in subparagraphs (b) and (c) above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Tenant under applicable unlawful detainer statutes.
(g) (i) The making by Tenant of any general arrangement or general
assignment for the benefit of creditors; (ii) Tenant becoming a "debtor" as
defined in 11 U.S.C. (S) 101 or any successor statute thereto (unless, in the
case of a petition filed against Tenant, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 18.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(h) The discovery by Landlord that any financial statement given to
Landlord by Tenant, or its successor in interest, or by any guarantor of
Tenant's obligation hereunder, was materially false.
18.2 Remedies. In the event of any default or breach of this Lease by
--------
Tenant, Landlord shall have the following remedies, which remedies are not
exclusive and are cumulative in addition to any remedies now or later allowed by
law:
(a) Landlord may continue this Lease in full force and effect, and
the Lease will continue in effect as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to collect rent
when due. During the period Tenant is in default, Landlord may enter the
Premises and relet them, or any part of them, to third parties for Tenant's
account. Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises, including, without limitation, brokers'
commissions, expenses of remodeling the Premises required by the reletting, and
like costs. Reletting can be for a period shorter or longer than the remaining
term of this Lease. Tenant shall pay to Landlord the rent due under this Lease
on the dates the rent is due, less the rent Landlord receives from any
reletting.
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No act by Landlord allowed by this paragraph shall terminate this Lease unless
Landlord notifies Tenant that Landlord elects to terminate this Lease. After
Tenant's default and for as long as Landlord does not terminate Tenant's right
to possession of the Premise, if Tenant obtains Landlord's consent Tenant shall
have the right to assign or sublet its interest in this Lease, but Tenant shall
not be released from liability.
If Landlord elects to relet the Premises as provided in this
paragraph, rent received by Landlord from reletting shall be applied to the
payment of:
(i) First, any indebtedness from Tenant to Landlord other than rent
due from Tenant;
(ii) Second, all costs, including for maintenance, incurred by
Landlord in reletting;
(iii) Third, rent due and unpaid under this Lease. After deducting the
payments referred to in this paragraph, any sum remaining from the rent received
by Landlord from reletting shall be held by Landlord and applied in payment of
future rent as rent becomes due under this Lease. In no event shall Tenant be
entitled to any excess rent received by Landlord. If, on the date rent is due
under this Lease, the rent received from the reletting is less than the rent due
on that date, Tenant shall pay to Landlord, in addition to the remaining rent
due, all costs, including for maintenance, incurred by Landlord in reletting for
which Landlord has not been reimbursed.
(b) Upon such notice as provided for herein, Landlord may terminate
Tenant's right to possession of the Premises. No act by Landlord other than
giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts
to relet the Premises, or the appointment of a receiver on Landlord's initiative
to protect Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession. On termination, Landlord has the
right to recover from Tenant:
(i) The worth, at the time of the award, of the unpaid rent that
had been earned at the time of termination of this Lease;
(ii) The worth, at the time of the award, of the amount by which the
unpaid rent that would have been earned after the date of termination of this
Lease until the time of award exceeds the amount of the loss of rent that Tenant
proves could have been reasonably avoided;
(iii) The worth, at the time of the award, of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of rent that Tenant proves could have been reasonably
avoided; and
(iv) Any other amount, and court costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default.
"The worth, at the time of the award," as used in (i) and (ii) of this
paragraph, is to be computed by allowing interest at the rate of ten percent
(10%) per annum. "The worth, at the time of the award", as referred to in (iii)
of this paragraph, is to be computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
one percent (1%).
(c) Landlord shall have the right to have a receiver appointed to
collect rent. Neither the filing of a petition for the appointment of a receiver
nor the appointment itself shall constitute an election by Landlord to terminate
this Lease.
(d) Landlord, at any time after Tenant commits a default, may cure
the default at Tenant's cost. If Landlord at any time, by reason of Tenant's
default, pays any sum or does any act that requires the payment of any sum, the
sum paid by Landlord shall be due immediately from Tenant to Landlord at the
time the sum is paid, and if paid at a later date shall bear interest at the
rate of ten percent (10%) per annum from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant. The sum, together with interest on it,
shall be Additional Rent.
18.3 Landlord's Default. Landlord shall not be in default unless
------------------
Landlord fails to perform the obligations required of Landlord within a
reasonable time, but in no event later than thirty (30) days after receipt of
written notice by Tenant to Landlord (and its lender(s) of record who have
provided Tenant with notice) specifying the nature of such default; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for its performance, then Landlord shall not be
deemed to be in default if it shall commence such performance within such thirty
(30) day period and thereafter diligently prosecute the same to completion.
19. Subordination.
-------------
This Lease and Tenant's rights hereunder are and will remain
subordinate to any ground lease, mortgage, deed of trust or any other
hypothecation for security now or hereafter placed upon the Project, and to all
increases, renewals, modifications, consolidations, replacements, and extension
thereof (collectively referred to as the "Mortgage"); provided, however, that
Tenant's rights hereunder shall not be affected and its quiet enjoyment of the
Premises shall not be disturbed so long as Tenant performs its obligations
hereunder. If the holder of a Mortgage becomes the owner of the Project by
reason of foreclosure or acceptance of a deed in lieu of foreclosure, at such
holder's election Tenant will be bound to such holder or its
successor-in-interest under all terms and conditions of this Lease, and Tenant
will be deemed to have attorned to and recognized such holder or successor as
Landlord's successor-in-interest for the remainder of the Lease term of any
extension thereof. The foregoing is self-operative and no further instrument of
subordination and/or attornment will be necessary unless required by Landlord or
the holder of a Mortgage, in which case Tenant will, within ten (10) days after
written request, execute and deliver without charge any documents reasonably
required by Landlord or such holder in order to confirm the subordination and
attornment set forth above. Should the holder of a Mortgage request that this
Lease and Tenant's rights hereunder be made superior, rather than subordinate,
to the Mortgage, then Tenant will,
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<PAGE>
within ten (10) days after written request, execute and deliver without charge
such agreement as may be reasonably required by such holder in order to
effectuate and evidence such superiority of the Lease to the Mortgage. Tenant
hereby irrevocably appoints Landlord as Tenant's attorney-in-fact, which
appointment is coupled with an interest, to execute, deliver and record the
documents described in this Article 19 in Tenant's name, place and stead;
provided, however, that such appointment shall not take effect unless such ten
(10) day period shall have expired and Tenant shall have failed to respond or
object to such request.
20. Notices.
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Any notice required or permitted to be given under this Lease shall be
in writing and shall be by personal delivery or by mail. Mailed notices shall be
deemed given upon actual receipt at the address required, or forty-eight (48)
hours following deposit in the mail, postage prepaid, whichever first occurs. At
the date of execution of this Lease, the addresses of Landlord and Tenant are as
set forth in Exhibit "B" hereto. After the Commencement Date, the address of
Tenant shall be the address of the Premises, Landlord may change its address by
giving notice to Tenant in accordance with this Article 20.
21. Attorneys' Fees.
---------------
If either party brings an action to enforce the terms hereof or
declares rights hereunder, the prevailing party in such action, trial or appeal
thereon shall be entitled to his reasonable attorneys' fees to be paid by the
losing party as fixed by the court in the same or a separate suit, and whether
or not such action is pursued to decision or judgment. Landlord shall be
entitled to reasonable attorneys' fees and all other costs and expenses incurred
in the preparation and service of notice of default and consultations in
connection therewith, whether or not a legal proceeding is subsequently
commenced in connection with such default.
22. Estoppel Certificate.
--------------------
22.1 Tenant's Obligation. Tenant shall, within ten (10) days
-------------------
following written request by Landlord, execute and deliver to Landlord a
statement prepared by Landlord (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any; (ii) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord or stating the nature of any
uncured defaults; (iii) evidencing the status of the Lease as may be required
either by a lender making a loan to Landlord to be secured by deed of trust or
mortgage covering the Premises or a purchaser of the Premises from Landlord;
(iv) certifying the amount of current rent and security deposit; and (v)
certifying to such other information as Landlord, Landlord's agents, mortgagees,
prospective mortgagees, or purchasers may reasonably request.
22.2 Failure to Provide. Tenant's failure to deliver an estoppel
------------------
certificate within such ten (10) day period shall be conclusive upon Tenant (i)
that this Lease is in full force and effect without modification except as may
be represented by Landlord; (ii) that there are now no uncured defaults in
Landlord's performance; (iii) that not more than one month's rent has been paid
in advance; and (iv) that the other information requested by Landlord is correct
as stated in the form presented by Landlord.
23. Landlord's Liability.
--------------------
The term "Landlord" as used herein shall mean only the owner or
owners, at the time in question, of the fee title or a lessee's interest in a
ground lease of the Project. In the event of any transfer of such title or
interest, Landlord herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of any
liability as respects Landlord's obligations thereafter to be performed.
24. Brokers.
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The parties recognize as the broker(s) involved in this transaction
the person(s) or firm(s) specified in Exhibit "B" hereto, and agree that
Landlord shall be solely responsible for the payment of brokerage commission to
such broker(s) unless expressly provided otherwise under this Lease. Tenant
hereby indemnifies and holds Landlord harmless from and against any costs,
expenses, attorneys' fees or liability for compensation which may be claimed by
any broker, finder or other similar party by reason of any dealings or actions
of Tenant.
25. Landlord's Access.
-----------------
25.1 Landlord's Entry on Premises. Landlord and its authorized
----------------------------
representatives shall have the right to enter the Premises at all reasonable
times and upon reasonable notice to Tenant (except in the case of an emergency)
for any of the following purposes:
(a) To determine whether the Premises are in good condition and
whether Tenant is complying with its obligations under this Lease.
(b) To maintain and restore the Premises or the Project and other
improvements in which the Premises are located as Landlord deems necessary, or
to the extent of Landlord's right or obligation.
(c) To serve, post, or keep posted any notices required or allowed
under the provisions of this Lease.
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(d) To post "for sale" signs at any time during the term, and to
show the Premises to prospective brokers, agents, buyers, tenants, lenders, or
persons interested in an exchange, at any time during the term of this Lease.
(e) To shore the foundations, footings, and walls of the Premises or
the Project and to erect scaffolding and protective barricades around and about
the Premises, but not so as to prevent entry to the Premises, and to do any
other act or thing necessary for the safety or preservation of the Premises or
the Project and other improvements in which the Premises are located. Landlord's
right under this provision extends to the owner of any adjacent property on
which excavation or construction is to take place and the adjacent property
owner's authorized representatives.
Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance, or other damage arising out of
Landlord's entry on the Premises as provided in this Article 25. Landlord shall
conduct its activities on the Premises as allowed in this Article 25 in a manner
that will minimize, to the extent practicable, any annoyance, or disturbance to
Tenant or interference with Tenant's operation of its business. Tenant shall not
be entitled to an abatement or reduction of rent if Landlord exercises any
rights reserved in this Article 25.
Nothing in this Article 25 shall be deemed to impose any obligation on
the part of Landlord to do anything that is allowed by this Article 25.
25.2 Keys; Emergency. Landlord shall have the right to retain keys
---------------
to the Premises and to unlock all doors in or upon the Premises other than to
files, vaults and safes, and in the case of emergency to enter the Premises by
any reasonably appropriate means, and any such entry shall not be deemed a
forcible or unlawful entry or detainer of the Premise or an eviction.
26. Examination of Lease.
--------------------
Submission of this Lease for examination or signature by Tenant does
not create a reservation of or option to Lease. This Lease shall only become
effective and binding upon full execution hereof by both Landlord and Tenant.
27. Recording.
---------
Tenant shall not record this Lease nor a short form memorandum thereof
without Landlord's prior written consent.
28. Surrender of Premises; Holding Over.
-----------------------------------
28.1 Surrender of Premises. Upon the expiration or termination of
---------------------
this Lease, Tenant shall surrender the Premises to Landlord in good condition,
normal wear and tear excepted, clean and free of debris. Any alterations,
additions, or improvements shall remain on and be surrendered with the Premises,
except that Landlord may, at its option, require that Tenant at Tenant's cost
remove any or all of said alterations, additions, or improvements, including but
not limited to any signs, notices and displays placed by Tenant, and restore the
Premises to its condition as of the Commencement Date, normal wear and tear
excepted. Tenant shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, air-conditioning, window coverings,
wall coverings, carpets, wall panelling, ceilings and plumbing on the Premises
in good operating condition.
Landlord can elect to retain or dispose of in any manner any
alterations and/or Tenant's personal property that Tenant does not remove from
the Premises on expiration or termination of the Lease as allowed or required by
this Lease by giving at least ten (10) days' notice to Tenant. Title to any such
alterations and/or Tenant's personal property that Landlord elects to retain or
dispose of on expiration of the ten (10) day period shall vest in Landlord.
Tenant waives all claims against Landlord for any damages suffered by Tenant
resulting from Landlord's retention or disposition of any such items. Tenant
shall be liable to Landlord for Landlord's costs for restoring, removing and
disposing of any such alterations and/or Tenant's personal property.
If Tenant fails to surrender the Premises to Landlord on the date as
required herein, Tenant shall hold Landlord harmless from all damages resulting
from Tenant's failure to surrender the Premises, including, without limitation,
claims made by a succeeding tenant resulting from Tenant's failure to surrender
the Premises.
28.2. Holding Over. If Tenant, with Landlord's consent, remains in
------------
possession of the Premises or any part thereof after the expiration of the term
hereof, such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Tenant, except that
the rent payable shall be one hundred thirty-five percent (135%) of the rent
payable immediately preceding the termination date of this Lease, and all
options, if any, granted under this Lease shall be deemed terminated and be of
no further effect during said month-to-month tenancy
29. Common Area and Facilities.
--------------------------
29.1 Definition. The term "Common Areas" is defined as all areas and
----------
facilities outside the Premises and within the exterior boundary line of the
Project that are provided and designated by the Landlord from time to time for
the general non-exclusive use of Landlord, Tenant, and other tenants of the
Project and their respective employees, suppliers, shippers, customers and
invitees, including but not limited to common entrances, lobbies, corridors,
stairways and stairwells, public restrooms, elevators, parking areas to the
extent not otherwise prohibited by this Lease, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, ramps, driveways,
landscaped areas and decorative walls.
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29.2 Rules and Regulations. Tenant agrees to abide by and conform
---------------------
to the rules and regulations attached hereto as Exhibit "C" with respect to the
Project and Common Areas, and to cause its employees, suppliers, shippers,
customers, and invitees to so abide and conform. Landlord or such other
person(s) as Landlord may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Landlord shall not be
responsible to Tenant for the non-compliance with said rules and regulations by
other tenants, their agents, employees and invitees of the Project.
29.3 Changes. Landlord shall have the right, in Landlord's sole
-------
discretion, from time to time:
(a) To make changes to the Project interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, restrooms, driveways, entrances,
parking spaces, parking areas, loading and unloading areas, ingress, egress,
direction of traffic, decorative walls, landscaped areas and walkways; provided,
however, Landlord shall at all times provide the parking facilities required by
applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Project to be a part of the Common Areas, provided that such other land
and improvements have a reasonable and functional relationship to the Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project, or any portion thereof;
(f) To close all or a portion of Common Areas to such extent as may
be legally sufficient, in the opinion of Landlord's counsel, to prevent a
dedication thereof or the acquisition of any rights therein by any person or by
the public, such closing not to unreasonably interfere with the conduct of
Tenant's business; and
(g) To do and perform such other acts and make such other changes
in, to, or with respect to the Common Areas and Project as Landlord may, in the
exercise of sound business judgement, deem to be appropriate.
29.4 Parking.
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29.4.1 Unless Landlord otherwise notifies Tenant, Tenant shall
have Landlord's permission to use, together with the other tenants, the Common
Areas allocated for parking.
29.4.2 If Tenant commits, permits or allows any of the
prohibited activities in the parking areas as described in the Lease or the
rules then in effect, then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Tenant, which shall be
immediately payable upon demand by Landlord.
29.4.3 Neither Landlord nor any parking operator shall have
any liability or responsibility to Tenant or any party parking in the parking
areas for any loss or damage that may be occasioned by or may arise out of such
parking, including but not limited to loss of property or damage to person or
property from any cause whatsoever, and Tenant hereby waives any and all claims
of any kind or nature as against Landlord and/or Landlord's parking operator by
reason of occurrences in the parking areas and the driveway exits and entrances
thereto.
30. Signs.
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30.1 Tenant's Signs. Tenant acknowledges that the Premises are a
--------------
part of an integrated retail center and that control of all signs by Landlord is
essential to the maintenance of uniformity, propriety and aesthetic values in
the retail center. Landlord may attach hereto as Exhibit "D" sign criteria
which, if so attached, shall be adhered to by Tenant. Nonetheless, Tenant shall
not place on or about the exterior of the Premises or on the windows or doors
thereof any sign or other material without Landlord's prior written approval.
Tenant shall submit all exterior sign plans for Landlord's prior approval and
upon such approval, the same any be attached here as Exhibit "D". Tenant shall
have the right, at its own expense, to erect and maintain upon the interior of
the Premises all signs and advertising matter customary or appropriate in the
conduct of Tenant's business. Notwithstanding the above, Tenant shall upon
request of Landlord immediately remove any exterior or interior sign,
advertisement, decoration, lettering or notice which Tenant has placed in, upon,
above or about the Premises and which Landlord reasonably deems objectionable or
offensive, and if Tenant fails or refuses to do so Landlord may enter upon the
Premises and remove the same.
30.2 Landlord's Signs. Landlord reserves the right in Landlord's
----------------
sole discretion to place and locate on the roof, exterior of the Project, and in
any area of the Project not leased to Tenant such signs, notices, displays and
similar items as Landlord deems appropriate in the proper operation of the
Project.
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30.3 Compliance with Laws. Any sign that Tenant has the right to
--------------------
place, construct, and maintain shall comply with all laws, and Tenant shall
obtain any approval required by such laws. Landlord makes no representation with
respect to Tenant's ability to obtain such approval.
30.4 Landlord to Have Use of Premises for Its Signs. Landlord shall
----------------------------------------------
have the right to use for its signs the exterior walls and roof of the Project.
31. Merger.
------
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, or a termination by Landlord, shall not work a merger, and
shall, at the option of Landlord, terminate all or any existing subtenancies or
may, at the option of Landlord, operate as an assignment to Landlord of any or
all of such subtenancies.
32. Quiet Possession.
----------------
Upon Tenant paying the rent for the Premises and observing and
performing all of the covenants, conditions and provisions on Tenant's part to
be observed and performed hereunder, Tenant shall have quiet possession of the
Premises for the entire term hereof subject to all of the provisions of this
Lease.
33. Security Measures.
-----------------
Tenant hereby acknowledges that Landlord shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Project. Tenant assumes all responsibility for the
protection of Tenant, its agents, and invitees and the property of Tenant and of
Tenant's agents and invitees from acts of third parties. Nothing herein
contained shall prevent Landlord, at Landlord's sole option, from providing
security protection for the Project or any part thereof, in which event the cost
thereof shall be included within the definition of Operating Expenses, as set
forth in Paragraph 3.2.1(f).
34. Landlord's Reservations.
-----------------------
34.1 Landlord shall have the following rights:
(a) To change the name, address or title of the Project or the
building in which the Premises are located upon not less than 90 days prior
written notice;
(c) To place such signs, notices or displays as Landlord reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Project or on pole signs in the Common Areas.
34.2 Tenant shall not suffer or permit anyone, except in emergency,
to go upon the roof of any building in the Project.
35. Easements.
---------
35.1 Landlord reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not interfere
with the use of the Premises by Tenant. Tenant shall sign any reasonable
documents upon request of Landlord.
35.2 The obstruction of Tenant's view, air, or light by any
structure erected in the vicinity of the Project, whether by Landlord or third
parties, shall in no way affect this Lease or impose any liability upon
Landlord.
37. General Provisions.
------------------
37.1 Time. Time is of the essence with respect to the obligations
----
to be performed under this Lease.
37.2 Severability. The invalidity of any provision of the Lease as
------------
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
16
<PAGE>
37.3 Choice of Law. This Lease shall be construed and enforced in
-------------
accordance with the laws of the jurisdiction in which the Premises are located.
The language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning and not strictly for or against either
Landlord or Tenant.
37.4 Lender Modification. Tenant agrees to make such reasonable
-------------------
modifications to this Lease as may be reasonably required by an institutional
lender in connection with the obtaining of financing or refinancing of the
Project.
37.5 Merchant's Association. Tenant agrees that, in the event a
----------------------
merchant's association is formed in the Project by Landlord or with Landlord's
written consent, it will join said merchant's association, pay all reasonable
dues, and abide by all reasonable rules and regulations promulgated by said
association.
37.7 Multiple Parties. If more than one person or entity is named as
----------------
Tenant herein, except as otherwise expressly provided herein, the obligations of
Tenant herein shall be the joint and several responsibility of all persons or
entities named herein as such Tenant.
37.8 Conflict. Any conflict between the printed provisions,
--------
exhibits, or addenda of this Lease and the typewritten or handwritten
provisions, if any, shall be controlled by the typewritten or handwritten
provisions.
37.9 Binding Effect. The covenants and agreement contained in this
--------------
Lease shall be binding on the parties hereto and on their respective successors
and assigns to the extent this Lease is assignable.
37.10 Waiver. No waiver by Landlord of any provision hereof shall be
------
deemed to be a waiver of such provision or any subsequent breach of the same or
any other term, condition or covenant of this Lease. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach at the time of acceptance of such payment. No covenant, term or
condition of this Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing signed by Landlord.
37.11 Entire Agreement. This Lease contains all agreements of the
----------------
parties with respect to any matters mentioned herein and supersedes any prior or
contemporaneous agreement or understanding. This Lease may be modified in
writing only, signed by the parties in interest at the time of the modification.
Except as otherwise stated in this Lease, Tenant hereby acknowledges that
neither the real estate broker listed in Exhibit "B" hereto nor any cooperating
broker on this transaction nor the Landlord or any employee or agent of any of
said persons had made any oral or written warranties or representations to
Tenant relative to the condition or use by Tenant of the Premises or the
Project, and Tenant acknowledges that Tenant assumes all responsibility
regarding the Occupational Safety Health Act, the legal use and adaptability of
the Premises and the compliance thereof with all applicable laws and regulations
in effect during the term of this Lease.
37.12 Authority. If Tenant is a corporation, trust, or general or
---------
limited partnership, Tenant, and each individual executing this Lease on behalf
of such entity, represent and warrant that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity. Landlord may at its
option require evidence of such authority satisfactory to Landlord.
37.13 Exhibits. All exhibits, amendments, riders and addenda attached
--------
hereto are hereby incorporated herein and made a part hereof.
37.14 Landlord's Consent. Wherever Landlord's consent or permission
------------------
is required under this Lease, such consent or permission shall not be
unreasonably withheld or delayed.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first written above.
"LANDLORD"
INMOSTRAT CORPORATION,
a Delaware corporation
/s/ David Huyette
By: David Huyette
Its: President
"TENANT"
COST U LESS, INC.,
a Hawaii corporation
/s/ Allan C. Youngberg
By: Allan C. Youngberg
Its: Secretary/Treasurer
18
<PAGE>
--------------------------------------------------------
SONORA PLAZA SHOPPING CENTER
- ------------ ------------
708 - 824 East Mono Way, Sonora, CA 95370
--------------------------------------------------------
[PLAN OF SONORA PLAZA SHOPPING CENTER APPEARS HERE]
PLOT PLAN NOT TO SCALE
- --------------------------------------------------------------------------------
EXHIBIT A
- --------------------------------------------------------------------------------
<PAGE>
Form No. 1068 (11/83) Your No.: 975-760-51
Preliminary Report Our No.: 30505-TO
(Rev. 11/18/82)
EXHIBIT A
DESCRIPTION:
All that real property situate in the State of California, County of Tuolumne,
City of Sonora described as follows:
PARCEL 1:
A portion of Government LOT 3 in the Northwest Quarter of Section 6, Township 1
North, Range 15 East, M. D. B. & M., and more particularly described as follows:
BEGINNING at the intersection of the northwesterly right of way line of State
Highway 108 and the westerly boundary of that certain 2.05 acre Parcel 2 deeded
to the Sonora Elementary School in Volume 315 of Official Records at Page 392
and shown in Volume 12 of Record of Surveys at Page 64; thence from a tangent
which bears South 55 degrees 18' 03" West southwesterly along a curve, concave
to the southeast, having a radius of 1740.00 feet, a central angle of 02 degrees
19' 14" and an arc length of 70.47 feet to a brass pin in a 6" X 6" concrete
post; thence South 53 degrees 01' West 899.66 feet, more or less, to the South
boundary of the aforesaid Government LOT 3; thence North 89 degrees 30' West
along the South boundary of said Government LOT 3 about 116 feet to the center
of the Pacific Gas and Electric Company ditch; thence northeasterly along the
center of said water ditch, the following courses: North 56 degrees 14.7" East
26.93 feet to a 1/2 inch steel bar; North 31 degrees 19.3' East 38.36 feet to a
1/2 inch steel bar; North 05 degrees 57.3' East 67.09 feet to a 1/2 inch steel
bar; North 12 degrees 24.6' West 87.25 feet; North 09 degrees 11.1' East 77.43
feet; North 25 degrees 13.6' West 128.79 feet; North 05 degrees 36.5' West
149.10 feet; North 28 degrees 13' East 50.20 feet; North 47 degrees 28.7' East
204.44 feet; North 68 degrees 33.5' East 107.54 feet; South 82 degrees 10.1'
East 128.90 feet to a 1/2 inch steel bar; North 83 degrees 32.7' East 78.60 feet
to a 1/2 inch steel bar; North 71 degrees 04.7' East 110.55 feet to a 1/2 inch
steel bar; North 58 degrees 38.4' East 70.90 feet to a 1/2 inch steel bar; North
38 degrees 30.4' East 87.74 feet; to a 1/2 inch steel bar; North 18 degrees
13.3' East 102.86 feet; North 15 degrees 16.6' West 42.24 feet; North 51 degrees
14.9' East 44.47 feet to a point from which the northwest corner of Section 6
bears North 84 degrees 06' 46" West 2088.77 feet; thence North 82 degrees 45.9'
East along Pacific Gas and Electric Company ditch 41.00 feet to the westerly
boundary of the aforementioned 2.05 acre Parcel 2 shown in Volume 12 of Record
of Surveys at Page 64; thence from a tangent which bears South 21 degrees 01'
30" East, southeasterly
Page 14
<PAGE>
Form No. 1068 (11/83) Your No.: 975-760-51
Preliminary Report Our No.: 30505-TO
(Rev. 11/18/82)
along a curve, concave to the southwest, having a radius of 345.00 feet, a
central angle of 06 degrees 31' 01" and an arc length of 39.24 feet; thence
South 14 degrees 30' 29" East 210.16 feet; thence South 14 degrees 19' 29" East
280.65 feet to the northerly right of way line of State Highway 108 and the
point of beginning.
LESS AND EXCEPTING FROM the property just described the following:
BEGINNING at a point on the westerly boundary of that certain 2.05 acre parcel
of land shown as Parcel 2 in Volume 12 of Record of Surveys at Page 64, from
which the northwesterly line of State Highway 108 bears South 17 degrees 24' 12"
East 43.54 feet; thence South 17 degrees 24' 12" East 43.54 feet to the
northwesterly line of State Highway 108; thence from a tangent which bears North
53 degrees 49' 45" East, northeasterly along a curve, concave to the northwest,
having a radius of 60.00 feet, a central angle of 71 degrees 13' 57" and an arc
length of 74.59 feet to the POINT OF BEGINNING.
PARCEL 2:
A portion of Government LOT 3 in the Northwest Quarter of Section 6, Township 1
North, Range 15 East, M. D. B. & M., and more particularly described as follows:
COMMENCING at the Northwest corner of Section 6, Township 1 North, Range 15
East, M. D. B. & M., County of Tuolumne, State of California; thence South 86
degrees 45' 35" East 2068.63 feet to a 3/4 inch diameter steel bar with brass
tag L.S. 3159 on the westerly boundary of Parcel 2 as shown in Volume 12 of
Record of Surveys at Page 64 in the Office of the Tuolumne County Recorder;
thence from a tangent which bears South 38 degrees 50' 00" East, southeasterly
along a curve, concave to the southwest, having a radius of 345.00 feet, a
central angle of 17 degrees 43' 47" and an arc length of 106.76 feet; thence
South 82 degrees 41' 11" West 41.00 feet to the TRUE POINT OF BEGINNING; thence
southwesterly along the Pacific Gas and Electric Company water ditch the
following courses: South 51 degrees 15' 45" West 44.46 feet; South 15 degrees
16' 43" East 42.23 feet; South 18 degrees 13' 45" West 102.83 feet to a 1/2"
diameter steel bar; South 38 degrees 23' 31" West 87.73 feet to a 1/2" diameter
steel bar; South 58 degrees 36' 49" West 70.87 feet to a 1/2" diameter steel
bar; South 71 degrees 04' 32" West; 110.54 feet to a 1/2"
Page 15
<PAGE>
LEASE SUMMARY
1. TENANT: COST U LESS, INC.
2. PREMISES: 760 Mono Way
3. RENTABLE AREA: 23,150 sq.ft.
4. BASE RENT: $10,418 per month for the first 36 months; $11,575 per month for
Months 37-60; $12,733 per month for Months 61-96; $13,890 per month
thereafter
5. PERCENTAGE RENT: None
6. TERM: 10 YEARS AND 0 MONTHS
7. COMMENCEMENT DATE: See Item 14.2 below
8. TENANT'S SHARE: 23,150 / 162,595 = 14.2%
9. SECURITY DEPOSIT: None
10. USE: general retail
TRADE NAME: COST U LESS, INC.
11. NON-COMPETE: Tenant will not operate or own any similar type of business
within a radius of 20 miles from the Premises.
12. ADDRESS FOR PAYMENTS AND NOTICES:
LANDLORD
SONORA PLAZA
c/o CARLSBERG MANAGEMENT COMPANY
2800 28th Street, Suite 222
Santa Monica, CA 90405
TENANT
COST U LESS, INC.
1810 15th Place, NW #203
Issaquah, WA 98027
Attn:
13. BROKER(S): Pearson Realty, Iliff Thorn
14. ADDITIONAL PROVISIONS:
14.1 Advance Rent.
------------
Upon execution of this Lease, Tenant shall pay to Landlord the Base
Rent for one (1) full calendar month.
14.2 Commencement Date.
-----------------
The Commencement Date shall be five months following the date on which
Landlord tenders possession of the Premises to Tenant following the
vacation of the Premises by the former tenant and the removal of such
former tenant's trade fixtures.
EXHIBIT "B"
<PAGE>
14.3 First Option to Renew and Extend.
--------------------------------
In the event Tenant is not then in default of any of its obligations
pursuant to this Lease, Landlord hereby grants to Tenant an option to
extend the term of this Lease for an additional five (5) year period
at a monthly Base Rent of $15,048 for the first 24 months of such
period and $16,205 for the remainder thereof, and otherwise on the
terms of this Lease. In the event Tenant desires to exercise such
option and thereby extend the initial term of this Lease, Tenant shall
notify Landlord in writing of such intention no later than 60 days
prior to the expiration of the initial term.
14.4 Second Option to Renew and Extend.
---------------------------------
In the event Tenant is not then in default of any of its obligations
pursuant to this Lease, Landlord hereby grants to Tenant an option to
extend the term of this Lease beyond the first extended term for an
additional five (5) year period at a rental equal to the then "Fair
Market Rate" (as hereinafter defined), but in no event less than the
rental payable at the end of the first extended term hereof, and on
other terms to be determined by the parties. During the first 60 days
of the last six months of the first extended term, Tenant shall notify
Landlord of its intent to (i) pursue negotiations to extend the term
of this Lease or (ii) surrender the Premises to Landlord at the
expiration of the first extended term. In the event Tenant desires to
pursue negotiations to extend the term of this Lease, such
negotiations shall be completed no later than 90 days prior to the
expiration of the first extended term. In the event Tenant desires to
exercise such option and thereby extend the first extended term of
this Lease pursuant to the terms and conditions agreed to by the
parties, Tenant shall notify Landlord in writing of such intention no
later than 60 days prior to the expiration of the first extended term.
"Fair Market Rate" shall mean the rate for which comparable space in
the area of the Project is being rented at the time the Lease term is
extended pursuant to this option.
14.5 Notification of Available Space.
-------------------------------
In the event any other space in the Project becomes available for
lease, Landlord will so notify Tenant and will not enter into a lease
of such space with any other person (other than pursuant to any then-
existing renewal rights) until a period of ten (10) business days
after such notification shall have expired.
14.6 Early Occupancy.
---------------
Tenant shall be entitled to occupy the Premises prior to the
Commencement Date for the purpose of making improvements and setting
up only. Such occupancy shall be subject to all provisions of this
Lease, except for the obligation to pay rent therefor, and such
occupancy shall not advance the termination date thereof.
14.7 Tenant Improvements.
-------------------
Improvements. Tenant shall make the alterations to the Premises
------------
described in Exhibit "1" attached or to be attached to this Addendum
upon mutual approval of Landlord and Tenant ("Improvements"). Landlord
shall pay the cost of Improvements, including cost of space plans,
working drawings and cost of demolition, if any, up to a maximum of
$69,450; and all cost and expense in excess of such amount in
connection with the completion of Improvements shall be the sole
responsibility, cost and expense of Tenant, and shall be paid promptly
by Tenant, except that Tenant shall be given credits against its
obligation to pay Base Rent hereunder, up to a total of $50,550 in
such credits, taken at the rate of no more than $5,000 per month, to
offset the cost to Tenant of Improvements. Improvements shall be
performed by Tenant's contractor, which shall be subject to approval
by Landlord, in accordance with plans approved by Landlord and
pursuant to a construction contract approved by Landlord.
Funding. Notwithstanding the foregoing, Landlord shall be responsible
-------
for funding Improvements only in accordance with the following
procedures: (i) funding by Landlord will be prorata with Tenant's
funding, based on total
EXHIBIT "B"
<PAGE>
bid amount of entire cost of Improvements, except that Landlord
may holdback until completion up to 10% of the amount to the
funded by it, and (ii) such funding shall be subject to
Landlord's and/or its lender's reasonable satisfaction with
supporting documentation, such as invoices and lien releases.
Timetable. In connection with Improvements, Landlord and Tenant
---------
agree that time is of the essence and that they will cooperate in
adhering to the construction schedule.
Changes. Changes in the mutually approved working drawings and
-------
specifications for Improvements shall be made only by mutual
consent, which shall not be unreasonably withheld or delayed.
Tenant Approval. The taking of possession or use of the Premises
---------------
by Tenant for any purpose other than construction shall
conclusively establish that the Premises and the Project were at
such time in satisfactory condition and in conformity with the
provisions of this Addendum and the Lease in all respects.
Tenant Work. Tenant shall bear the entire expense and
-----------
responsibility for providing within the Premises (whether affixed
to the Premises or not) all trade fixtures and merchandise and
all other property incidental to the operation of the type of
business to be operated by Tenant, to the extent not provided
under Improvements. All of the foregoing shall meet the criteria
of building standard improvements utilized in the Project and
shall include, but not be limited to, the furnishing and
installation of all furniture, shelving, store fixtures,
furnishings, interior decorations, graphics, mirrors and other
fixtures, lighting and other special effects, electrical and
mechanical connections of all fixtures and equipment peculiar to
Tenant's occupancy, except as designated herein as Improvements.
14.8 Certain Repairs.
---------------
Prior to the Commencement Date, Landlord shall put the HVAC and
mechanical/electrical/plumbing systems for the Premises in good
working order. Thereafter, Tenant shall maintain a preventative
maintenance contract thereon with a qualified licensed
contractor. Landlord shall be responsible for the costs of any
HVAC repairs, other than routine maintenance, incurred before
June 30, 1994, but only so long as Tenant maintains such
contract, except that Landlord shall not be responsible for the
cost of any HVAC repair if it is required because of Tenant's
negligence or wilful misconduct. Landlord shall also be
responsible for repairs necessitated by any roof leaks through
June 30, 1994, except to the extent caused by Tenant's negligence
or wilful misconduct.
14.9 Limitation on Certain Common Area Operating Expenses.
----------------------------------------------------
Notwithstanding anything in this Lease to the contrary, (i) the
amount payable by Tenant with respect to each of 1994 and 1993,
to the extent applicable, on an annualized basis, on account of
Common Area Expenses, Real Property Taxes and hazard insurance
premiums shall not exceed $26,391 and (ii) the amount payable by
Tenant as Common Area Expenses on account of discretionary
contractual services and direct personnel costs shall not
increase more than ten percent (10%) annually on an annualized,
cumulative basis.
14.10 Limitation on Real Property Taxes.
---------------------------------
Notwithstanding anything herein to the contrary, Tenant shall not
be responsible for paying any portion of Real Property Taxes
which would not have been payable but for a sale of the Project
during the initial term hereof, except that Tenant shall be
responsible for paying such portion which is attributable to one
such sale (but only one such sale) during any five-year period to
the following extent: one-third of such portion in the first year
it becomes due, two-thirds thereof in the second year, and all of
such portion in each year thereafter.
EXHIBIT "B"
<PAGE>
Landlord reserves the right to prohibit or impose conditions upon the
installation in the Premises of heavy objects which might overload the floors.
13. No tenant shall purchase or otherwise obtain for use in the Premises
water, ice, towel, vending machine, janitorial, maintenance or other like
services, except from persons authorized by Landlord, and at hours and under
regulations fixed by Landlord.
14. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Project or its desirability as an office building and upon written notice from
Landlord any tenant shall refrain from or discontinue such advertising.
15. Any persons employed by any tenant to do janitor work, shall, while in
the Project and outside of the Premises, be subject to and under the control and
direction of the manager of the Project (but not as an agent or servant of said
manager or of Landlord, and tenant shall be responsible for all acts of such
persons).
16. All doors opening onto public corridors shall be kept closed, except
when in use for ingress and egress.
17. The requirements of tenants will be attended to only upon application
to the Office of the Building.
18. Canvassing, soliciting and peddling in the Project are prohibited and
each tenant shall cooperate to prevent the same.
19. All office equipment of any electrical or mechanical nature shall be
placed by tenants in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise or annoyance.
20. No air conditioning unit or other similar apparatus shall be installed
or used by any tenant without the written consent of Landlord.
21. There shall not be used in any space, or in the public halls of the
Project, either by tenants or others, any hand trucks except those equipped with
rubber tires and side guards.
22. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires or
stringing of wires will be allowed without written consent of Landlord. The
location of telephones, call boxes and other office equipment affixed to the
premises shall be subject to the approval of Landlord.
23. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by closing drapes when the sun's rays fall
directly on windows of the Premises. Tenant shall not obstruct, alter or in any
way impair the efficient operation of Landlord's heating, ventilating and air
conditioning system and shall not place bottles, machines, parcels or any other
articles on the induction unit enclosure so as to interfere with air flow.
Tenant shall not tamper with or change the setting of any thermostats or
temperature control valves.
24. All parking drives and area, pedestrian walkways and other public
areas forming a part of the Project shall be under the sole and absolute control
of Landlord with the exclusive right to regulate and control these areas. Tenant
agrees to conform to the rules and regulations that may be established by
Landlord for these areas from time to time.
EXHIBIT "C"
<PAGE>
RULES AND REGULATIONS ATTACHED
TO AND MADE A PART OF OFFICE SPACE LEASE
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than ingress and egress. The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control or prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation or interests of the Project and
its tenants, provided that nothing herein contained shall be construed to
prevent such access by persons with whom the tenant normally deals in the
ordinary course of its business unless such persons are engaged in illegal
activities. No tenant and no employees of any tenant shall go upon the roof of
the Project without the written consent of Landlord.
2. No awnings or other projections shall be attached to the outside walls
of the Project without the prior written consent of Landlord. Except as
otherwise specifically approved by Landlord, all electrical ceiling fixtures
hung in offices or spaces along the perimeter of the Project must be
fluorescent, or a quality, type, design and bulb color approved by Landlord.
3. No sign, advertisement or notice shall be exhibited, painted or
affixed by any tenant on any part of, or so as to be seen from the outside of,
the Premises or the Project without the prior written consent of Landlord. In
the event of the violation of the foregoing by any tenant, Landlord may remove
same without any liability, and may charge the expense incurred in such removal
to the tenant violating this rule. Interior signs on doors and directory tablet
shall be inscribed, painted or affixed for each tenant by Landlord at the
expense of such tenant, and shall be of a size, color and style acceptable to
Landlord.
4. The toilets and wash basins and other plumbing fixtures shall not be
used for any purpose other than for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein. All damage
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees shall have caused the
same.
5. No tenant shall in any way deface any part of the Project. No boring,
cutting or stringing of wires or laying of linoleum or other similar floor
coverings shall be permitted except with the prior written consent of Landlord
as Landlord may direct.
6. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises and no cooking shall be done or permitted by any
tenant on the Premises except that the preparation of coffee, tea, hot chocolate
and similar items for the tenant and its employees and business visitors shall
be permitted. No tenant shall cause or permit any unusual or objectionable odors
to escape from the Premises.
7. Except as may be specifically permitted by the Lease, the Premises
shall not be used for manufacturing or for the storage of merchandise except as
such storage may be incidental to the use of the Premises for general office
purposes. No tenant shall occupy or permit any portion of his premises to be
occupied as an office for a public stenographer or typist, or for the
manufacture or sale of liquor, narcotics, or tobacco in any form, or as a
medical office, or as a barber shop, manicure shop or employment agency. No
tenant shall engage or pay any employees on the Premises except those actually
working for such tenant on the Premises nor advertise for laborers giving an
address at the Premises. The Premises shall not be used for lodging or sleeping
or for any immoral or illegal purposes.
8. No tenant shall make, or permit to be made any unseemly or disturbing
noises, sounds or vibrations or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them whether by
the use of any musical instruments, radio, phonograph, unusual noise, or in any
other way.
9. No tenant shall throw anything out of doors or down the passageways.
10. No tenant shall at any time bring or keep upon the Premises any
inflammable, combustible or explosive fluid, chemical or substance except in
such compliance with all federal, state and local laws. The tenant shall not do
or permit anything to be done in the leased premises, or bring or keep anything
therein, which shall in any way increase the rate of fire insurance on the
Project, or on the property kept therein, or obstruct or interfere with the
rights of other tenants, or in any way injure or annoy them, or conflict with
the regulations of the Fire Department or the fire laws, or with any insurance
policy upon the Project, or any part thereof, or with any rules and ordinances
established by the Board of Health or other governmental authority.
11. No additional locks or bolts of any kind shall be placed on any of the
doors or windows by any tenant, nor shall any changes be made in existing locks
or the mechanism thereof. Each tenant must, upon the termination of this
tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys so furnished, such tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord may determine from time to time. The moving of safes or other
fixtures or bulky matter of any kind must be made upon previous notice to the
manager of the Project and under his supervision, and the persons employed by
any tenant for such work must be acceptable to Landlord. Landlord reserves the
right to inspect all safes, freight or other bulky articles to be brought into
the Project and to exclude from The Project all safes, freight or other bulky
articles which violate any of these Rules and Regulations or the lease of which
these Rules and Regulations are a part.
EXHIBIT "C"
<PAGE>
14.11 Exclusive Use.
-------------
Landlord shall not lease any other space in the Project to any other
person whose business is that of a warehouse club store carrying
substantially the same range of merchandise as Tenant.
IMPORTANT:
- ---------
Any additional provisions on any additional pages of this Exhibit "B" are
incorporated herein by reference.
"LANDLORD"
INMOSTRAT CORPORATION,
a Delaware corporation
/s/ David Huyette
By: David Huyette
Its: President
"TENANT"
COST U LESS, INC.,
a Hawaii corporation
/s/ Allan C. Youngberg
By: Allan C. Youngberg
Its: Secretary/Treasurer
<PAGE>
ESTOPPEL LETTER
---------------
Sonora Plaza Partnership
2800 28th Street, Suite 222
Santa Monica, CA 90405
RE: 760 E. Mono Way, Sonora California
---
Sonora, California (the "Premises")
Dear Sir or Madam:
Inmostrat Corporation, as landlord (the "Landlord"), entered into a lease
---------------------
for the above-referenced Premises (the "Lease") with the undersigned, as tenant,
dated August, 1993.
------------
At the request of the Landlord, and knowing that you or your successors and
assigns and all parties having any interest in the Premises are relying upon the
accuracy of the information contained herein, and the undersigned certifies as
follows:
1. The Lease is in full force and effect, and Tenant is in actual
possession of the Premises, except as follows: none.
----
2. The Lease has not been modified, supplemented or amended in any way
except as indicated therein or as follows: none.
----
3. All work required by the Lease to be performed by the Landlord has
been completed and is in accordance with the provisions of the Lease.
4. (a) The fixed monthly rent recently payable under the terms of the
Lease is $10,418.00.
---------
(b) The fixed monthly rent payable under the terms of the Lease has
been paid through October 31, 1995.
----------------
(c) All additional charges (rent or otherwise, i.e. taxes, insurance,
common area maintenance, other escalations, if applicable) payable under the
terms of the Lease has been paid through October 31, 1995.
----------------
(d) The Lease shall terminate on May 1, 2004.
-----------
(e) the Lease contains 2, 5-year year options to renew on the
---------
following terms and conditions: fixed $15,048-1st 24 months, $16,205-36 months,
----------------------------------------------
then "Fair Market".
- ------------------
5. Except as set forth in the Lease, there are no claims, offsets,
setoffs, rebates, concessions, abatements or defenses against or with respect to
rent, additional rent or other sums payable under the terms of the Lease.
<PAGE>
6. There are no defaults under the terms of the Lease by the Landlord
that have continued beyond the expiration of any applicable grace period
provided for in the Lease for the cure thereof. There are no defaults under the
terms of the Lease by the Tenant that have continued beyond the expiration of
any applicable grace period provided for in the Lease for the cure thereof,
except as follows: none.
----
7. The amount of the security deposit under the Lease is $0.00.
----
8. Tenant has no option or right to purchase the Premises or any part
thereof.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the
26 day of October, 1995.
Very truly yours,
Cost U Less, Inc.
-----------------
By: /s/ Allan C. Youngberg
----------------------------
VP-CFO
Allan C. Youngberg
------------------------------
(Printed Name and Title)
<PAGE>
Tenant Estoppel Letter
October 17, 1995
Belgravia Capital Corporation
19900 MacArthur Boulevard, Suite 1100
Irvine, CA 92715
RE: 760 E. Mono Way, Sonora, California
---
Gentlemen:
It is our understanding that you are about to make a loan to Sonora Plaza
------------
Partnership, the Landlord, or successor-in-interest to the landlord under our
- -----------
lease, secured by a mortgage on the captioned premises and, as a condition
precedent thereof, you have required this certification by the undersigned.
The undersigned, as tenant under that certain lease made with Inmostrat
---------
Corporation, as landlord, dated August, 1993, (the "Lease"), hereby ratifies the
- ----------- ------------
Lease and certifies to you and your successors and assigns that:
(a) the undersigned entered into occupancy of the premises described in
the Lease on December 2, 1993;
----------------
(b) the fixed monthly rental presently payable under the Lease is
$10,418.00;
- ----------
(c) the Lease is in full force and effect and, except as indicated above,
has not been assigned, modified, supplemented or amended in any way and the
undersigned has no notice of any assignment, pledge hypothecation by the
landlord of the Lease or of the rentals thereunder;
(d) a true and complete copy of the Lease (including all amendments and
modification thereof) is attached hereto as Exhibit A;
---------
(e) the Lease represents the entire agreement between the parties with
respect to the above space in the above-mentioned building;
(f) the term of the Lease expires on May 1, 2004;
-----------
(g) all construction and other obligations of a material nature to be
performed by the landlord under the Lease have been satisfied, except at
follows: none;
----
<PAGE>
Belgravia Capital Corporation
October 17, 1995
Page 2
(h) any required payments by the landlord to the undersigned for tenant
improvements have been made;
(i) on this date there are no existing defenses or offsets which the
undersigned has against the enforcement of the lease by the Landlord and the
undersigned has no knowledge of any event which with the giving of notice, the
passage of time or both would constitute a default under said Lease;
(j) the undersigned is not entitled to any offsets, abatements, deductions
or otherwise against the rent payable under the Lease from and after the date
hereof, except as follows: none;
----
(k) no rental, other than for the current month, has been paid in advance;
(l) the amount of the security deposit presently held under the Lease is
$0.00;
----
(m) the rentals under the Lease have been paid through the month of
October 31, 1995.
- ----------------
Very truly yours,
Cost U Less, Inc.
-----------------
By: /s/ Allan C. Youngberg
-----------------------
Title: VP-CFO
---------------------
<PAGE>
LEASE
THIS LEASE is made and entered into as of the 30th day of July, 1993 and by
and between HASSAN RAHMAN ("Landlord") having an address of P.O. Box 1497,
Kingshill U.S.V.I. 00851-1497 and COST-U-LESS, a Washington corporation
("Tenant") having an address of 1810 15th Place N.W., Suite 203, Issaquah,
Washington 98027.
In consideration of the rents and mutual covenants set forth herein,
Landlord and Tenant agree as follows:
AGREEMENT
1. Premises
Landlord does hereby lease and demise to Tenant and Tenant does hereby
lease from Landlord for the term and under the terms and conditions set forth
herein that certain real property located at Plot 3A Estate Hogensborg West End
Quarter, more particularly described on EXHIBIT A attached hereto and
incorporated herein, together with any and all improvements thereon, including,
but not limited to, a building of approximately 26,210 square feet to be
constructed in accordance with Section 3 of this Lease ("Premises").
2. Term
The term of this Lease shall be approximately ten (10) years and shall
commence thirty (30) days from the date on which Tenant receives a permanent
Certificate of Occupancy for the Premises, referred to herein as the
"Commencement Date."
The term of this Lease shall end at 6:00 p.m. on the date which is ten (10)
years from the Commencement Date, subject to the options to extend as set forth
in Section 5 of this Lease. The parties agree that when the Commencement Date
becomes certain, they shall complete and execute a supplement to this Lease to
reflect the actual Commencement Date.
3. Construction of Premises
3.1 Landlord's Construction
Landlord shall, subject to the conditions set forth below, proceed with
all due diligence to prepare the Premises at Landlord's sole cost and expense,
substantially in accor-
<PAGE>
dance with the plans, outlines and specifications provided to Landlord by
Tenant, copies of which are attached as EXHIBIT B to this Lease. All labor and
materials required to prepare the Premises for Tenant's use other than those
described on EXHIBIT B shall be furnished by Tenant at Tenant's sole cost and
expense. All such preparation shall be accomplished in compliance with all
applicable laws, ordinances, regulations and restrictions. Landlord shall be
responsible to obtain any construction loan financing sufficient to make timely
payments of all costs of construction of the Landlord's work in accordance with
all of the cost estimates for such work, plus related costs such as professional
fees, bond and insurance premiums, interest on and charges for borrowed money,
service and escrow fees, real estate taxes and assessments and similar costs.
Landlord shall be responsible to obtain all final administrative approvals
necessary to, and as conditions precedent for the issuance of building permits
by the appropriate jurisdiction or authority.
3.2 Commencement of Work
If Landlord's work has not been commenced by that day which is one hundred
eighty (180) days from the date of this Lease, Tenant may cancel this Lease upon
not less than ninety (90) days written notice to Landlord; provided, however,
that if Landlord shall commence such construction during the notice period,
Tenant's cancellation shall have no further force or effect and this Lease shall
remain in force between the parties. If Landlord shall not commence work or, if
at any time prior to the above date Landlord shall notify Tenant in writing that
Landlord has been unable to obtain the final approvals described in Section 3.1
above, from and after the date of such notice to Tenant, Tenant shall have the
right to terminate this Lease, and upon such termination, the parties shall have
no further rights or liabilities hereunder.
3.3 Completion of Work
Landlord shall not be held liable or responsible for delays in construction
or Landlord's work arising out of or occasioned by strikes, accidents, acts of
God, extreme weather conditions, unforeseen restrictions imposed by any
government or any governmental agency or other delays beyond Landlord's control.
Subject to the foregoing, Landlord agrees to deliver the Premises to Tenant for
commencement of Tenant's business not later than one hundred eighty (180) days
from the date of execution of this Lease. If Landlord fails to deliver the
Premises to Tenant for commencement of Tenant's business by the Completion Date,
Landlord shall pay to Tenant the amount of Five Hundred and No/100 Dollars
(US$500.00) per day for each and every day between the Completion Date and the
date
<PAGE>
Landlord actually delivers the Premises to Tenant for commencement of Tenant's
business.
3.4 Warranty
3.4.1 Warranty of Landlord's Work
Landlord warrants that Landlord's work on the Premises under this Section 3
(i) shall be performed in a workmanlike and skillful manner, (ii) shall in all
respects be of a first class quality, free from all faults and defects in
workmanship, material, design and title, and (iii) shall be in strict compliance
with the requirements of the plans, outlines and specifications provided to
Landlord by Tenant. Landlord further warrants that all materials, equipment
and other items incorporated (or to be incorporated) in Landlord's work on the
Premises or consumed (or to be consumed) in the performance of Landlord's work
on the Premises shall be new and of the most suitable grade for the purpose
intended. Subject to any extension pursuant to Section 3.4.2 below, this
warranty shall continue until that date which is twelve (12) months after the
Completion Date ("Warranty Period").
3.4.2 Correction of Defects
If, at any time during the Warranty Period, Landlord receives from Tenant
notice of any failure to comply with the warranty set forth in this Section 3.4,
Landlord shall promptly and, at such times as Tenant directs, satisfactorily
correct such noncompliance and remedy any damage to other items of Landlord's
work or Tenant's property resulting from such noncompliance. The Warranty
Period shall then be extended as to any corrected work performed by the Landlord
until the expiration of twenty-four (24) months after acceptance by Tenant of
the corrected work. All costs incidental to such correction and remedy shall be
borne by Landlord.
3.4.3 Tenant's Right to Correct
If Landlord fails to satisfactorily correct or remedy any noncompliance or
damage in accordance with Section 3.4.2, then Tenant shall have the right, but
not the obligation, to perform, on behalf and at the expense of Landlord, any
correction or remedy which Landlord has failed to perform and of which Tenant
has given Landlord notice. Tenant shall be permitted to offset the cost of any
such correction or remedy against any rent or other sums payable to Landlord
under this Lease.
<PAGE>
4. Rent
4.1 Payment of Rent
Commencing on the Commencement Date, Tenant shall pay rent to Landlord in
the amount of Two Hundred Twenty-Two Thousand Seven Hundred Eighty-Five and
No/100 Dollars (US$222,785.00) per year payable in equal monthly installments
of Eighteen Thousand Five Hundred Sixty-Five and 42/100 Dollars (US$18,565.42)
on or before the first day of each calendar month commencing on the Commencement
Date. All rental payments to be made hereunder shall be made to Landlord at
P.O. Box 1497, Kingshill U.S.V.I., or at such other place as Landlord may direct
in writing. If the term of this Lease does not commence on the first day of the
month, then the rental payment for such month shall be prorated. At the end of
the first five years of the lease, the rent shall increase to $19,650 per month
and remain at that rate until the end of the second five (5) years.
4.2 Security Deposit
Tenant shall pay the sum of Fifty-Five Thousand, Six Hundred Ninety-Six and
26/100 Dollars ($55,696.26) equal to three months of Basic Rent upon the
execution of this Lease, said payment to be considered Second and Last month's
rent as well as a Security Deposit. Landlord shall have no obligation
whatsoever to pay Tenant any interest of the Security Deposit.
4.3 Costs of Collection
If the tenant fails to pay rent in a timely manner, tenant shall pay all
costs incurred by Landlord to collect all Rent or other charges which Landlord
is entitled to under this Lease, including, without limitation, reasonable
collection fees, legal costs and attorney's fees.
5. Option to Extend
5.1 Option
Tenant shall have the right to extend the term of this Lease for two
(2) successive terms of five (5) years each ("Option to Extend"), such
extensions to be upon the covenants, terms and conditions as set forth in this
Lease, except that rent for each such extension shall be established as
described below. Tenant shall exercise any Option to Extend by written notice
to Landlord of Tenant's election to exercise such Option to Extend given not
less than ninety (90) days prior to the end of the then-current term.
5.2 Extension Rent
If Tenant elects to exercise its Option to Extend, Tenant shall pay rent to
Landlord in the amount of Two Hundred Forty-
<PAGE>
Eight Thousand Nine Hundred Ninety-Five and No/100 Dollars (US$248,995.00) per
year payable in equal monthly installments of Twenty Thousand Seven Hundred
Forty-Nine and 58/100 Dollars (US$20,749.58) on or before the first day of each
calendar month during the first option period under this Lease. If, at the end
of such first option period, Tenant elects to exercise its Option to Extend for
a second option period, Tenant shall pay rent to Landlord in the amount of Two
Hundred Seventy-Five Thousand, Two Hundred Five and no/100 Dollars
(US$275,205.00) per year payable in equal monthly installments of Twenty-Two
Thousand, Nine Hundred Thirty-Three and 75/100 Dollars (US$22,933.75) on
or before the first day of each calendar month during the second option period
under this Lease.
6. Tenant's Right of First Option
Tenant shall be entitled to purchase the Premises offered by giving written
notice thereof to Landlord within thirty (30) days after receipt of the Offering
Notice. If Tenant fails to agree to purchase the Premises within the time
aforesaid, Landlord shall have the right to complete the sale of the Premises to
the proposed purchaser who shall then hold the Premises subject to the
provisions of this Lease, including the right of first option stated herein, to
the same force and effect as if purchaser had been in the original party hereto.
7. Taxes and Assessments
7.1 Tenant's Payment
Tenant covenants and agrees to bear, pay and discharge, before delinquency
thereof, all taxes and assessments, general and special, which may be taxed,
charged, levied, assessed or imposed upon or against or be payable for or in
respect of the Premises or any part thereof or the improvements at any time
thereon, except for Landlord's income and franchise taxes.
<PAGE>
6. Tenant's Right of First Option
If at any time during the term or any extended term of this Lease Landlord
shall receive a bona fide offer for the purchase of the Premises which Landlord
desires to accept or Landlord shall decide to sell the Premises. Landlord shall
give written notice thereof (the "Offering Notice") to Tenant. The Offering
Notice shall contain a copy of the terms and conditions of the offer to sell.
<PAGE>
Taxes and assessments for the year in which the term of this Lease commences,
and for the year in which this Lease expires or terminates, shall be prorated
between Landlord and Tenant as of such date of commencement, expiration or
termination. In the event the amount of such taxes and assessments for the year
of termination cannot be ascertained as of said date of termination, proration
shall be made on the basis of the taxes and assessments for the preceding year.
7.2 Right to Contest
Tenant shall have the right, in its or Landlord's name, to contest the
validity of any tax or assessment which Tenant is required to bear, pay and
discharge hereunder, by appropriate legal proceeding, provided that Tenant,
before instituting any such contest, gives Landlord written notice of its
intention so to do. Landlord agrees to cooperate fully with Tenant in good
faith during the course of such contest. Tenant shall diligently prosecute any
such contest, at all times effectually stay or prevent any official or judicial
sale therefor, under execution or otherwise, and pay any final judgment
enforcing the tax or assessment so contested and thereafter promptly procure
record satistfaction thereof.
8. Insurance
Tenant shall, at its sole expense, maintain in force fire and extended
coverage insurance with respect to the Premises. Landlord shall be named as an
additional insured on all such policies. The policies shall provide that they
may not be canceled or modified for any reason without fifteen (15) days' prior
written notice to Landlord. In connection with all such insurance, Tenant shall
apply to such insurer to have such insurer waive in writing all rights and
subrogations which such insurer might have otherwise acquired, if at all,
against Landlord and/or Tenant. Landlord and Tenant each herewith and hereby
releases and relieves the other and waives its entire right of recovery against
the other for loss or damage arising out of or incident to the perils described
in such policies which occur in, on or about the Premises, whether due to the
negligence of either party, their agents or employees or otherwise and whether
or not such insurance is in effect as of the date of any damage. The waivers
provided for herein shall be applicable and effective only in the event such
waivers are obtainable from the insurance carriers concerned.
The Tenant shall keep the Premises insured for the full replacement value
during the term of this Lease against all loss and damage including, without
limitation, coverage for fire, flood insurance, as required by Landlord or its
mortgagees, for the full replacement value such insurance to be
<PAGE>
written by an insurance company or companies authorized to do business in the
U.S. Virgin Islands.
It is expressly understood and agreed that if for any reason directly
attributable to Tenant's use of the Premises it shall be impossible for Tenant
to obtain fire insurance on the Premises in an amount and in the form and with
fire insurance companies reasonably acceptable to Landlord, Landlord may, at its
option, (a) terminate this Lease upon giving Tenant not less than forty-five
(45) days notice of Landlord's intention to do so, and upon the expiration of
said forty-five (45) day period this Lease shall terminate, Tenant shall vacate
the Premises and Rent shall be apportioned as of the date of termination; or
(b) compute the additional cost for such insurance over and above the standard
cost as if the condition attributable to Tenant did not exist, and Tenant shall
be obligated to pay such additional cost or insurance as Additional Rent; or (c)
require Tenant to obtain additional specific coverage at its own cost and
expense and provide, within forty-five days, evidence of such insurance in a
form satisfactory to Landlord, and if Tenant does not, or cannot comply,
Landlord may terminate this Lease as provided in (a) above.
Tenant expressly understands it is responsible for insurance in control of
all of its property (i.e., equipment, records, inventory, furniture and
personal property), and Landlord shall not be liable to Tenant for any damage
thereto, unless such damage is due to the negligence or willful misconduct of
Landlord, its agents, contractors or employees.
During the term of this Lease, tenant shall, at its own cost and expense,
provide and keep in force general liability insurance, such insurance to be
written by an insurance company or companies authorized to do business in the
U.S. Virgin Islands and reasonably acceptable to Landlord, against claims for
death or personal injuries in or about the Premises at least in the amount of
$500,000 against loss for death or injuries to more than one person; and
$1,000,000 against loss for death or injuries to more than one person in any one
accident, together with property damage coverage in the amount of $150,000.
Certificates evidencing same shall be furnished to Landlord and, on demand,
receipts showing payment of the premium on such insurance shall be exhibited to
Landlord. Such certificate of insurance must include as additional named
insured Landlord and Landlord's mortgagee(s), if any, and a ten (10) day prior
written notice to the additional named insured or cancellation. If Tenant fails
or neglects to provide such insurance, Landlord, at its option, shall have the
right but not the obligation to cause such insurance to be issued and the cost
and expense thereof shall be Additional Rent.
<PAGE>
Tenant shall also, at its sole cost and expense, provide and keep in force
such additional insurance as required, including, but not limited to, worker's
compensation. Certificates evidencing same shall be furnished to Landlord and,
on demand, receipts showing payment of the premium on such insurance shall be
exhibited to Landlord.
9. Maintenance - Repair or Damage - Destruction
9.1 Maintenance
Tenant covenants and agrees that it will during the term of this Lease keep
and maintain the Premises and all improvements thereon, equipment, fixtures and
appliances therein, and all appurtenances thereto in good condition and repair,
ordinary wear and tear excepted, and keep the same free from trash, nuisance or
danger of fire and in all respects and at all times use and maintain the
Premises so as to fully meet and comply with all health and policy regulations
and the ordinances and all other laws now in force or which may hereafter be
enacted which affect the Premises.
9.2 Repairs
In the event of damage to or destruction of the Premises by fire or other
casualty, Tenant, at its sole expense, shall promptly restore the Premises as
nearly as possible to the condition thereof prior to such damage or destruction.
All insurance proceeds received by Tenant pursuant to the provisions of this
Lease, less the cost of recovery, if any, shall be held in trust and applied to
the payment of such restoration as such restoration progresses; provided,
however, if Tenant determines, in its sole discretion, that restoration is not
economically feasible then Tenant shall have the right to terminate this Lease
and shall have no further obligations hereunder provided Tenant assigns to
Landlord all insurance proceeds received by Tenant as described above.
10. Alterations
Tenant shall have the right to make changes or alterations in the building
located on the Premises, or to construct improvements on the Premises; provided,
however, that Tenant shall not make any alterations, additions or deletions to
the building located on the Premises if such alteration, addition or deletion
shall (i) convert the building located on the Premises to a structure which is
not a complete, self-contained, operating unit; (ii) be a structural change in
the building; (iii) diminish or reduce the parking area of the Premises below
that required by local ordinances. Notwithstanding the foregoing, Tenant may
make such structural changes, alterations, additions or deletions as are
approved
<PAGE>
in advance by Landlord, which approval may not be unreasonably withheld or
delayed. If Landlord fails to respond within thirty (30) days to any request
submitted by Tenant under this Section 10, such request shall be deemed approved
by Landlord.
11. Liens
Tenant shall not do or suffer anything to be done whereby the Premises or
any part thereof may be encumbered by any mechanic's or similar lien and if,
whenever and as often as any mechanic's or similar lien is filed against said
Premises, done by, for or under the authority of Tenant or anyone claiming by,
through or under Tenant, Tenant shall discharge the same of record, within
twenty (20) days after the date of filing.
12. Contest of Lien Claims
Tenant shall have the right to contest any such mechanic's or other lien
claim filed against the Premises or any part thereof, if within such twenty (20)
day period it notifies Landlord of its intention to so do, provided that Tenant
shall diligently prosecute any such contest, at all times effectually stay or
prevent any official or judicial sale of the Premises under execution or
otherwise, and pay or otherwise satisfy any final judgment adjudicating or
enforcing such contested mechanic's or other lien claim and thereafter promptly
procure record release and satisfaction thereof. Landlord agrees to cooperate
fully with Tenant in good faith during the course of such contest.
13. Utilities
13.1 Generally
All heat, light, power, water, sewerage, snow removal, trash removal, and
other utilities and utility services used in, on or about the Premises shall be
paid for by Tenant and shall be contracted for by Tenant in its own name.
13.2 Interruption of Services
It is expressly agreed that the suspension or interruption in utility
services, or any other services supplied by Landlord to the Premises for any
reason shall not constitute a default by Landlord or entitle Tenant to any
reduction or abatement of rent or otherwise entitle Tenant to not comply with
all of its obligations hereunder. There are no standby generators for the
Premises and there is no plan for Landlord to provide one.
<PAGE>
14. Security Interest
14.1 Subordination
This Lease is subject and subordinate to any mortgage or encumbrance which
may now or hereafter encumber the Landlord's interest in the Premises or the
Property, or both, or upon any buildings placed upon the Property, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
need be required by any mortgagee. In confirmation of such subordination,
however, Tenant shall within ten (10) days of Landlord's request, execute,
acknowledge and deliver to Landlord any appropriate certificate or instrument
that Landlord may request evidencing such subordination. Tenant hereby
constitutes and appoints Landlord the Tenant's attorney-in-fact to execute any
such certificate or instrument that Landlord may request evidencing such
subordination. Tenant hereby constitutes and appoints Landlord the Tenant's
attorney-in-fact to execute any such certificate or instrument for and on behalf
of Tenant. In the event of the enforcement by the holder any such mortgage or
encumbrance of the remedies provided for by law or by such mortgage or
encumbrance, Tenant will, upon request of any person or party succeeding to the
interest of Landlord as a result of such enforcement, automatically become the
tenant of such successor in interest without change in the terms or other
provisions of such Lease, provided, however, that such successor in interest
shall not be bound by (a) any payment of rent or additional rent for more than
one (1) month in advance except prepayments in the nature of security for the
performance by Tenant of its obligations under this Lease or (b) any amendment
or modification of this Lease made without the written consent of such holder or
such successor in interest. Upon request by such successor in interest, Tenant
shall execute and deliver an instrument or instruments confirming the attornment
herein provided for.
14.2 Security Interest
In consideration of the mutual benefits arising under this Lease, Tenant
hereby grants to Landlord a lien and security interest on all property of Tenant
now or hereafter placed in or upon the Premises, and such property shall be and
remain subject to such lien and security interest of Landlord for payment of all
rent and other sums agreed to be paid by Tenant herein and the performance by
Tenant of all its obligations hereunder. The provisions of this paragraph
relating to said lien and security interest shall constitute a security
agreement under the Uniform Commercial Code as enacted by the U.S. Virgin
Islands so that Landlord shall have and may enforce a security interest on all
property of Tenant now or
<PAGE>
hereafter placed in or on the Premises, including but not limited to all
fixtures, machinery, equipment, inventory, furnishings and other articles of
personal property now or hereafter placed in or upon the Premises by Tenant.
Tenant agrees to execute as debtor such financing statement or statements as
Landlord may now or hereafter reasonably request in order that such security
interest or interests may be perfected and protected pursuant to the Uniform
Commercial Code. Landlord may at its election at any time file a copy of this
Lease as a financing statement. Landlord, as secured party, shall be entitled
to all of the rights and remedies afforded a secured party under the Uniform
Commercial Code in addition to and cumulative of the Landlord's liens and rights
provided by law, in equity or by the other terms and provisions of this Lease.
15. Indemnity
15.1 Indemnification of Landlord
Tenant agrees to indemnify and save Landlord harmless from and against all
liability, and all loss, cost and expense, including reasonable attorneys'
fees, arising out of Tenant's operation, maintenance, management and control of
the Premises or in connection with (i) any loss, injury or damage whatsoever
caused to or by any person, including, but not limited to, Tenant, its
employees, agents or business invitees, or property, including Tenant's
property, arising out of any occurrence on the Premises, (ii) any breach of this
Lease by Tenant, (iii) any act or omission of Tenant, its employees, agents or
business invitees occurring in, on or about the Premises.
15.2 Indemnification of Tenant
Landlord agrees to indemnify and save Tenant harmless from and against all
liability and all loss, cost and expense, including reasonable attorneys' fees
arising out of Landlord's operation, management and control of the property on
which the Premises are located or in connection with (i) any loss, injury or
damage whatsoever caused to or by any person, including, but not limited to,
Landlord, its employees, agents or business invitees, or property, including
Landlord's property arising out of any occurrence on the property on which the
Premises are located, (ii) any breach of this Lease by Landlord or (iii) any act
or omission of Landlord, its employees, agents or business invitees occurring
in, on or about the property on which the Premises are located.
<PAGE>
16. Fixtures
Tenant may install on the Premises its fixtures, improvements and/or
equipment and, at the termination of this Lease, Tenant shall have the right to
remove fixtures, improvements and/or equipment owned by Tenant.
17. Condition of Premises at End of Term
At the end of the lease term, Tenant shall leave and deliver the Premises
in as good a condition and substantial repair as they now are with the exception
of usual wear and tear, fire, the elements, acts of God, civil riot, war,
insurrection or other unavoidable casualty.
18. Use
Tenant shall not use or occupy or permit the Premises or any part thereof
to be used or occupied for any unlawful business, use or purpose.
19. Quiet Enjoyment
Landlord covenants and warrants that it has full right and lawful
authority to enter into this Lease for the full term hereof, that Tenant will be
put in possession of the Premises when Tenant desires and is entitled hereunder,
and that Tenant, upon paying the rent and performing all of the terms,
conditions and provisions of this Lease to be performed by Tenant, shall
peacefully and quietly have, hold and enjoy the Premises for the full term of
this Lease, and any extension thereto, subject to the provisions herein
contained; provided, however, that the Premises may be subject to the easements,
covenants, agreements, encumbrances and restrictions of record on the date of
this Lease.
20. Signs
Tenant may, at Tenant's own risk, lawfully erect signs concerning the
business of Tenant or displaying Tenant's name on the parking area and building
on the Premises, and the roof thereof, if permitted by local regulations, but in
doing so Tenant agrees to maintain said signs in a good state of repair, save
Landlord harmless from any loss, cost or damage as a result of the erection,
maintenance, existence or removal of the same and shall repair any damage which
may have been caused by the erection, existence, maintenance or removal of such
signs.
<PAGE>
21. Personal Property
All personal property of every kind or description that may at any time be
in the Premises shall be at Tenant's sole risk, or at the risk of those
claiming under Tenant, and Landlord shall not be liable for any damage to said
property or loss suffered by the business or occupation of Tenant caused in any
manner whatsoever, except as may result from and be caused by the negligence of
Landlord or its agents or employees.
22. Waste
Tenant shall use and occupy the Premises in a careful, safe and lawful
manner and not commit waste therein.
23. Non-Waiver
No waiver of any breach of any covenant or condition of this Lease shall be
taken to constitute a waiver of any subsequent breach of such covenant or
condition nor to justify or authorize the nonobservance on any other occasion of
the same or of any other covenant or condition hereof.
24. Default
The following shall constitute a default under this Lease:
(i) Failure by Tenant to pay any installment of rent or other sums
required by Tenant to be paid under this Lease within ten (10) days after
written notice from Landlord;
(ii) Failure by Tenant or Landlord to perform any nonmonetary covenant
under this Lease within thirty (30) days after written notice from the non-
defaulting party stating the nature of the default, provided that if the
nature of such default, other than for nonpayment of rent or other sums, is
such that the same cannot reasonably be cured within such thirty-day
period, such shall not be deemed to be a default if, within such period, a
cure of such default is commenced and thereafter diligently prosecuted to
completion.
If default shall be made by Tenant in the payment of rent or in the
performance of any of the conditions of this Lease, Landlord shall have the
right to reenter said Premises and remove Tenant and all other persons
therefrom, and shall have the option of terminating this Lease; provided,
however, that such rights of reentry and termination may be exercised by
Landlord in accordance with law, and only in the event that
<PAGE>
the breach or other default of Tenant shall have continued for thirty (30) days
after written notice thereof and Landlord's intention to terminate has been
furnished to Tenant in writing at the foregoing address, by registered or
certified mail. If default be made by Tenant and if Landlord exercises its
option to terminate as herein provided, then Landlord shall proceed to rerent
the Premises at the highest and best offer received by it for the unexpired
portion of this Lease and if the amount of rental herein agreed to be paid by
Tenant is more than the amount received, then Tenant shall thereupon pay said
difference to Landlord, in cash as the same becomes due on the first day of each
month, as Landlord's liquidated damages for such breach.
. If default shall be made by Landlord in the performance of the conditions of
this Lease, and shall have continued for thirty (30) days after written notice
thereof has been furnished to Landlord in writing by registered mail, then
Tenant, in addition to all other remedies now or hereafter afforded or provided
by law, may cancel this Lease or may at its election perform such condition on
behalf of Landlord, or make good any such default, and any amount Tenant shall
advance pursuant thereto shall be repaid by Landlord to Tenant on demand
together with interest at the rate of 12% per annum and if Landlord shall not
repay any such amount, Tenant may deduct the same from the next installment or
installments of rent to accrue under this Lease.
25. Condemnation
If the whole of the Premises, or if such portion of the facilities and
building improvements comprising part of the Premises as may be required for the
reasonable use of the Premises, shall be taken by virtue of any condemnation or
eminent domain proceeding, this Lease, at the option of Tenant, 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 Tenant does not exercise such right to
terminate this Lease, this Lease shall continue and Tenant shall continue in
possession of the remainder of the Premises under the terms herein provided,
except that the monthly rent payable herein shall be reduced in proportion to
the amount of land area of the Premises so taken. Tenant shall have the right
to recover from any condemning authority that portion of any award attributed to
Tenant's leasehold interest.
26. Notices
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
<PAGE>
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, three (3)
days following the deposit thereof in the United States mail, registered or
certified, postage prepaid, and addressed to the respective parties as follows:
Landlord: Hassan Rahmari
P.O. Box 1497
Kingshill, U.S.V.I. 00851-1497
Tenant: Cost-U-Less
1810 15th Place N.W., Suite 203
Issaquah, Washington 98027
Attn: Jim Rose
Any party may change the address to which notices are to be given by giving
notice as above provided.
27. Assignment and Sublease
Tenant shall have the right to sublease or assign all or any part of the
Premises without the consent of Landlord.
28. Successors and Assigns
This Lease shall run with the land and shall be binding upon and inure to
the benefit of the heirs, successors, administrators and assigns of the parties
hereto.
29. Non-Modification
It is mutually agreed that the covenants and conditions herein contained
are the full and complete terms of this Lease and that no alterations,
amendments or modifications of the same shall be binding unless first reduced to
writing and signed by both parties hereto.
30. Memorandum of Lease
It is mutually agreed that this Lease will not be recorded, but that the
parties will execute a written memorandum acknowledging the tenancy which may be
recorded in the records of St. Croix, U.S.V.I.
31. Attorneys' Fees
In the event of any action or proceeding to enforce any provision of this
Lease, the prevailing party shall be entitled to reasonable attorneys' fees and
all costs and expenses
<PAGE>
expended or incurred in connection with such action or proceeding.
32. Effect of Invalidity
If any term or provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of the terms and provisions to
persons and circumstances other than those to which it had been held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
33. Applicable Law
This Lease shall be governed by and construed in accordance with the laws
of the U.S.V.I.
34. Hold-Over
If Tenant shall, with the written consent of Landlord, hold over after the
expiration of the term of this Lease, such tenancy shall be for an indefinite
period of time on a month-to-month tenancy, which tenancy may be terminated as
provided by the laws of the U.S.V.I. During such tenancy Tenant agrees to pay
to Landlord the same rate of rental as set forth herein, unless a different rate
is agreed upon, and to be bound by all of the terms, covenants, and conditions
as herein specified, so far as applicable.
35. Agency Disclosure
At the signing of this Agreement the leasing agent represented Landlord.
Each party signing this document confirms that prior oral and/or written
disclosure of agency was provided to him/her in this transaction.
36. Environmental
36.1 Landlord's Warranties
Landlord warrants and represents that any use, storage, treatment, or
transportation of Hazardous Substances, as defined in Section 36.4 below,
which has occurred in or on the Premises prior to the date hereof has been in
compliance with all applicable federal, state and local laws, regulations and
ordinances. Landlord additionally warrants and represents that no release,
leak, discharge, spill, disposal or emission of Hazardous Substances has
occurred in, on or under the Premises, and that the Premises are free of
Hazardous Substances as of the date hereof.
<PAGE>
36.2 Landlord's Indemnity
Landlord agrees to indemnify and hold harmless Tenant from any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
(including, without limitation, any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the lease
term from or in connection with the presence or suspected presence of Hazardous
Substances in or on the Premises, unless the Hazardous Substances are present
solely as a result of negligence, willful misconduct or other acts of Tenant,
Tenant's agents, employees, contractors or invitees. Without limitation of the
foregoing, this indemnification shall include any and all costs incurred due to
any investigation of the site or any cleanup, removal or restoration mandated by
a federal, state or local agency or political subdivision, unless the Hazardous
Substances are present solely as a result of negligence, willful misconduct or
other acts of Tenant, Tenant's agents, employees, contractors or invitees. This
indemnification shall specifically include any and all costs due to Hazardous
Substances which flow, diffuse, migrate or percolate into, onto or under the
Premises after the lease term commences.
36.3 Tenant's Indemnity
Tenant agrees to indemnify and hold harmless Landlord from any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
(including, without limitation any and all sums paid for settlement of claims,
attorneys' fees, consultant and expert fees) arising during or after the lease
term, from or in connection with the presence or suspected presence of Hazardous
Substances in or on the Premises as a result of the operation of Tenant's
business, unless the Hazardous Substances are present solely as a result of
negligence, willful misconduct or other acts of Landlord, Landlord's agents,
employees, contractors or invitees. Without limitation of the foregoing, this
indemnification shall include any and all costs incurred due to any
investigation of the site or any cleanup, removal or restoration mandated by a
federal, state or local agency or political subdivision, unless the Hazardous
Substances are present solely as a result of negligence, willful misconduct or
other acts of Landlord, Landlord's agents, employees, contractors or invitees.
36.4 Hazardous Substances
As used herein, "Hazardous Substances" shall mean any substance or material
defined or designated as hazardous or toxic waste, hazardous or toxic material,
a hazardous, toxic or radioactive substance or other similar term by any
federal, state or local environmental statute, regulation or ordinance
<PAGE>
presently in effect or that may be promulgated in this future as such statutes,
regulations and ordinances may be amended from time to time.
37. Negotiation and Construction
This Agreement and each of the terms and provisions hereof are deemed to
have been explicitly negotiated between the parties, and the language in all
parts of this Agreement shall, in all cases, be construed according to its fair
meaning and not strictly for or against either party.
DATED this 20 day of August, 1993.
LANDLORD:
/s/ Fakri A. Rahman Mustafa
-----------------------------
For Hassan Rahman
TENANT:
COST-U-LESS, a Washington
corporation
By /s/ Michael J. Rose
-----------------------------
Name: Michael J. Rose
Title: CEO
UNITED STATES VIRGIN ISLANDS )
COUNTY OF St. Croix ) ss. VIRGIN ISLANDS
On this 20 day of August, 1993, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Fakri A. Rahman Mustafa, to me known to be the person who
signed as Landlord of, the corporation that executed the within and foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said corporation for the uses and purposes therein mentioned, and
on oath stated that he was duly elected, qualified and acting as said officer
of the corporation, that he was authorized to execute said instrument and that
the seal affixed, if any, is the corporate seal of said corporation.
<PAGE>
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
RITA JOHANNES
-------------------------
(Signature of Notary)
/s/ Rita Joahnnes
-------------------------
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the
State of U.S.V.I., residing at
-----------------------------
My Appointment Expires: Ex-
Officio.
STATE OF WASHINGTON )
) ss. VIRGIN ISLANDS
COUNTY OF KING )
On this 26th day of July, 1993, before me, the undersigned, a Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared Michael J. Rose, to me known to be the person who signed as C.E.O. of
COST-U-LESS, the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath
stated that he was duly elected, qualified and acting as said officer of the
corporation, that he was authorized to execute said instrument and that the
seal affixed, if any, is the corporate seal of said corporation.
<PAGE>
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
/s/ Paul W. Traxler
-------------------------------
[NOTARY SEAL APPEARS HERE] (Signature of Notary)
PAUL W. TRAXLER
-------------------------------
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State of
Washington, residing at Puyallup, WA
My Appointment Expires: 2-17-96.
<PAGE>
EXHIBIT A
[Legal Description]
<PAGE>
TENANT ESTOPPEL CERTIFICATE AND NOTICE OF
ASSIGNMENT OF RENTS AND LEASES
TO: BANK OF NOVA SCOTIA and/or its affiliates
1. The undersigned is the Lessee (Tenant) under that certain Lease dated July
30, 1993, by and between HASSAN RAHMAN, as Lessor (Landlord) and CULW
CORPORATION (successor by merger to COST-U-LESS, INC.), a Washington
corporation, as Lessee (Tenant), covering those certain premises commonly known
and designated as Plot No. 3A, containing 2.0 U.S. acres, Estate Hogensborg,
West End Quarter, St. Croix, U.S. Virgin Islands as shown on PWD 1883, dated
March 25, 1966 revised August 27, 1992.
2. The Lease has not been modified, changed, altered or amended in any respect
(except as indicated following this sentence) and is the only Lease or agreement
between the undersigned and the Lessor affecting said premises. In none, state
"none".
-------------------------------------------------------------------------
First Amendment dated November 22, 1993
- --------------------------------------------------------------------------------
3. The undersigned has made no agreements with Lessor or its agents or
employees concerning free rent, partial rent, rebate of rental payments of any
other type of rental concession (except as indicated following this sentence).
If none state "none".
-----------------------------------------------------------
NONE
- --------------------------------------------------------------------------------
4. The fixed minimum rent to be paid is $18,565.42 per month for the first
five (5) years. Tenant has paid a security deposit, second month's rent and last
month's rent in the total amount of $55,696.26.
5. To Lessee's best knowledge and belief after inquiry, the Lease is not in
default and is in full force and effect. To Lessee's best knowledge and belief,
as of the date hereof, the undersigned is entitled to no credit, no free rent
and no offset or deduction in rent. The Tenant acknowledges that construction of
the improvements has commenced within the meaning of Section 3.2 of the
Lease.
6. The undersigned has received or will receive payment or credit for tenant
improvement work in the total amount of $0.00 (or if other than cash, describe
-----
below). If none, state "none".
--------------------------------------------------
NONE
- --------------------------------------------------------------------------------
7. The Lease does not contain and the undersigned does not have any outstanding
options or rights of first refusal to purchase the premises or any part thereof
or the real property of which the premises are a part except as set forth in
Section 6 of the Lease.
8. No actions, whether voluntary or otherwise, are pending against the
undersigned under the bankruptcy laws of the United States or any state thereof.
9. The undersigned acknowledges that all the interest of Lessor in and to the
above-mentioned Lease is being duly assigned to Bank of Nova Scotia or one of
its affiliates (hereinafter "Bank") and that pursuant to the terms thereof all
rental payments under said Lease shall continue to be paid to Lessor in
accordance with the terms of the Lease unless and until you are otherwise
notified in writing by Bank, or its successors or assigns.
<PAGE>
TENANT ESTOPPEL CERTIFICATE AND NOTICE
OF ASSIGNMENT OF RENTS AND LEASES
PAGE 2
It is particularly noted:
(a) That under the provisions of said assignment said Lease cannot be
terminated (either directly or by the exercise of any option which could lead
to termination) or modified in any of its terms, or consent be given to the
release of any party having liability thereon, without the prior written consent
of Bank, or its successor and assigns, which consent cannot be unreasonably
withheld or delayed, and without such consent no rent may be collected or
accepted more than two months in advance, except as may be required pursuant to
the terms of the Lease.
(b) That the interest of the Lessor in said Lease has been assigned to Bank,
for the purposes specified in the assignment and Bank, or its successors and
assigns, assumes no duty, liability or obligation whatever under said Lease or
any extension or renewal thereof.
(c) Any notices sent to Bank or its affiliates should be sent by Registered
Mail/Certified Mail and addressed to:
Bank of Nova Scotia
Sunny Isle Branch
Attn: Senior Account Manager
4500 Estate Diamond
Christiansted, St. Croix
U.S. Virgin Islands 00820-4451
10. The Lessee has not sublet the leased premises, or any part thereof, to any
sublessee and has not assigned any of its rights under the Lease. No one other
than the Lessee and its employees will occupy the leased premises upon
completion of construction of the improvements and Tenant taking possession of
the leased premises.
11. Lessee agrees to give Bank, by registered mail, a copy of any notice of
default served upon the Landlord. Lessee further agrees that if Landlord shall
have failed to cure such default within the time provided for in this Lease,
then Bank shall have an additional thirty (30) days within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days, Bank has
commenced and is diligently pursuing the remedies necessary to cure such default
(including, but not limited to, commencement of foreclosure proceedings, if
necessary to effect such cure) in which event this Lease shall not be terminated
while such remedies are being so diligently pursued. Lessee expressly
acknowledges that Bank shall have no obligation to cure such default of
Landlord.
12. The Lessee hereby agrees that if the Bank forecloses on its mortgage
encumbering the leased premises, and if the Landlord's interest in the leased
premises is sold at a foreclosure sale, then the Lessee's right of first option
to purchase the property as set forth in Section 6 of the Lease shall be deemed
to permit it only to purchase the property at the foreclosure sale and Lessee
shall have no other right to purchase the leased
<PAGE>
TENANT ESTOPPEL CERTIFICATE AND NOTICE
OF ASSIGNMENT OF RENTS AND LEASES
PAGE 3
premises in connection with such foreclosure sale. If the leased premises is
sold at the foreclosure sale to someone other than the Lessee, then such sale
shall be subject to the provisions of the Lease (including the Tenant's right of
first option) as provided in the Subordination, Nondisturbance and Attornment
Agreement entered into between the Bank and Lessee concurrently with the
execution of this Estoppel Certificiate.
13. This certification is made to induce Bank or one of its affiliates to
make certain findings, knowing that Bank relied upon the truth of this
certification in disbursing such funds.
Dated this 14th day of January, 1994.
---- -------
CULW CORPORATION
Lessee
By: /s/ Michael J. Rose
--------------------------------------
Print Name: Michael J. Rose
------------------------------
Print Title: CEO
-----------------------------
<PAGE>
[LETTERHEAD OF LOGAN & LOGAN]
January 13, 1994
Te1ecopy
--------
Allan C. Youngberg
Chief Financial Officer
Cost-U-Less
12410 SE 32nd Street
Bellevue, WA 98005
RE: Lease Between Hassan Rahman and Cost-U-Less, dated July 30, 1993
Dear Mr. Youngberg:
I received your letter to Brenda Gerdes, dated December 28, 1993 and
the requested additional paragraph. This additional language was approved by
the Bank of Nova Scotia's counsel and has been included as Paragraph No. 5
in the Subordination, Nondisturbance and Attornment Agreement. The revised
document is included herewith.
In concluding his review of this loan closing, the Bank's counsel has
requested several additional changes to the Tenant Estoppel Certificate. The
revised Certificate is enclosed with this letter.
We expect to be able to close this loan upon receipt of your signed
documents. Accordingly, your prompt attention to this matter is greatly
appreciated.
If you have any questions, please do not hesitate to contact me.
Very Truly Yours,
LOGAN & LOGAN
/s/ G. Hunter Logan, Jr.
G. Hunter Logan, Jr.
GHL/pcd
Encl.
cc: Hassan Rahman
Scott Silverlight, Esq.
<PAGE>
SUBORDINATION, NONDISTURBANCE, AND
ATTORNMENT AGREEMENT
THIS AGREEMENT dated the ______________ day of________________________,
199__, between BANK OF NOVA SCOTIA, hereinafter the "Mortgagee" and CULW
CORPORATION (successor by merger to COST-U-LESS, INC.) 12410 SE 32nd Street,
Bellevue, WA 98005, hereinafter called "Lessee/Tenant".
WITNESSETH:
(a) Lessee/Tenant entered into a certain Lease dated July 30, 1993 with
HASSAN RAHMAN, hereinafter called "Lessor/Landlord", covering premises known as
Plot No. 3A, Estate Hogensborg, West End Quarter, St. Croix, U.S. Virgin
Islands, as shown on PWD No 1883, dated March 25, 1966, revised August 27, 1992.
(b) Mortgagee has agreed to make a mortgage loan of $1,200,000.00 (the
"Mortgage") to the Lessor/Landlord and the parties desire to set forth their
agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and of the sum of One
Dollar ($1.00) by each party in hand paid to the other, the receipt of which
is hereby acknowledged, it is hereby agreed as follows:
1. The Lease is and shall be subject and subordinate to the Mortgage
insofar as it affects the real property of which the demised premises form a
part, and to all renewals, modifications, consolidations, replacements and
extensions thereof, to the full extent of the principal sum secured thereby and
interest thereon.
2. Lessee/Tenant agrees that it will attorn to and recognize any purchaser
at a foreclosure sale under the Mortgage, any transferee which acquires the
demised premises by deed in lieu of foreclosure, and the successors and assigns
of such purchasers, as its Lessor/Landlord for the unexpired balance (and any
extensions, if exercised) of the term of said Lease upon the same terms and
conditions set forth in said Lease.
3. In the event that Mortgagee shall succeed to the interest of
Lessor/Landlord under such Lease, Mortgagee shall not be:
(a) liable for any act or omission of any prior lessor/landlord
(including Lessor/Landlord); or
(b) subject to any offsets or defenses which Lessee/Tenant might have
against any prior lessor/landlord (including Lessor/Landlord); or
(c) bound by any rent or additional rent which Lessee/Tenant might
have paid for more than the current month and last month's rent to any prior
lessor/landlord (including Lessor/Landlord); or
(d) bound by any amendment or modification of the Lease made without
its consent, which consent shall not be unreasonably withheld or delayed.
<PAGE>
SUBORDINATION AND ATTORNMENT AGREEMENT
PAGE 2
4. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, and their respective successors and assigns.
5. In the event that Mortgagee shall succeed to the interest of
Lessor/Landlord under such Lease, Mortgagee agrees that if Tenant is not in
default under the terms of the Lease, then Mortgagee shall not disturb Tenant's
possession under the Lease, and the Lease will be recognized as a direct Lease
from Mortgagee, or any other party acquiring the premises upon the foreclosure
sale, except as specifically provided herein.
IN WITNESS WHEREOF, the parties hereto have executed these presents the day
and year first above written.
MORTGAGEE:
BANK OF NOVA SCOTIA
By:
-------------------------------------
Print Name:
-----------------------------
Print Title:
----------------------------
TENANT:
CULW CORPORATION
By: /s/ Michael J. Rose
-------------------------------------
Print Name: Michael J. Rose
-----------------------------
Print Title: C.E.O.
----------------------------
<PAGE>
[LETTERHEAD OF INDUSTRIAL REAL ESTATE LEASE APPEAR HERE]
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: September 1, 1991
-----------------------------------------------
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): HILO PARTNERS, a Washington
-----------------------------
general partnership
- --------------------------------------------------------------------------------
Address of Landlord: HILO PARTNERS, c/o Wahl & Associates, Inc. 710 Market
------------------------------------------------------------
Place Tower, 2025 First Avenue, Seattle, Washington 98121
- --------------------------------------------------------------------------------
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): COST U LESS, a Washington
-------------------------------
corporation
- --------------------------------------------------------------------------------
________________________________________________________________________________
Address of Tenant: COST U LESS, 330 Fourth Street, Kirkland, Washington 98033
-------------------------------------------------------------
________________________________________________________________________________
Section 1.04. PROPERTY: (include street address, approximate square footage
and description) Tax Map Key Division 3/Zone 2/Sec 2/Plat 09/Parcel 01 &
-----------------------------------------------------------
54; all that fee simple property situated at Kinoole Street, Hilo, Hawaii,
- --------------------------------------------------------------------------------
of approximately 23,000 s.f. of building and described as per the attached
- --------------------------------------------------------------------------------
legal description "Schedule C".
- --------------------------------------------------------------------------------
Section 1.05. LEASE TERM: 15 years 0 months BEGINNING ON
------------ -----------
September 1, 1991 * or such other date as is specified in this Lease, and
- -----------------------
ENDING ON August 31, 2006.
----------------------------------------------------------------------
Section 1.06. PERMITTED USES: (See Article Five) Retail
---------------------------
________________________________________________________________________________
Section 1.07. TENANT'S GUARANTOR: (If none, so state) None
----------------------
Section 1.08. BROKERS: (See Article Fourteen)(If none, so state)
Landlord's Broker: None
--------------------------------------------------------------
Tenant's Broker: None
----------------------------------------------------------------
Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ None
---------------------------------------------------------------------
LAST MONTH'S RENT (24th month)
Section 1.10. (See Section 3.03) $ 22,916.67
---------------------------------------
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: Sixty (60)
-----------------
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: Twenty-two Thousand Nine Hundred Sixteen &
-------------------------------------------------------------
67/100------Dollars ($ 22,916.67 ) per month, for the first 24
- ----------- ------------------ ----------------
months, as provided in Section 3.01, and shall be increased on the first day of
the 25th, 61st, and 121st month(s) after the Commencement Date, (i)
-----------------------------
as provided in Section 3.02, or (ii) ___________________________________________
_______________________________________________________________________________.
If (ii) is completed, then (i) and Section 3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Impounds for Insurance Premiums and Property Taxes (See Section 4.07); (v)
Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See
Section 9.05) One Hundred percent ( 100 %) of the Profit (the
------------------ ----------
"Landlord's Share").
Section 1.14. RIDERS: The following Riders are attached to and made a part
of this Lease: (If none, so state) ________
1. Rent: 25th month to 60th month @ $25,000.00 per month.
- --------------------------------------------------------------------------------
61st month to 120th month, see Section 3.02.
- --------------------------------------------------------------------------------
121st month to 180th month, see Section 3.02.
- --------------------------------------------------------------------------------
2. Options to renew: Two (2) Five (5) year lease term;
- --------------------------------------------------------------------------------
181st month to 240th month not to increase by more than 25%, see
- --------------------------------------------------------------------------------
Section 3.02;
- --------------------------------------------------------------------------------
241st month to 300th month not to increase by more than 25%, see
Section 3.02.
* 3. Lease Term of 15 years to BEGIN UPON THE OPENING DATE OF THE
COST-U-LESS IN HILO, HAWAII.
(c) 1988 Southern California Chapter 1 Initials ____________
of the Society of Industrial ____________
and Office Realtors,(R) Inc.
(SINGLE-TENANT NET FORM)
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ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant
if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60) -day period ends. If Tenant gives such notice, the Lease shall be cancelled
and neither Landlord nor Tenant shall have any further obligations to the other.
If Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and expiration date of the
Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all of
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease. Tenant shall pay Base Rent and all other
charges specified in this Lease for the early occupancy period.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for the indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration of earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.02. COST OF LIVING INCREASES. The Base Rent shall be increased on
each date (the "Rental Adjustment Date") stated in Paragraph 1.12(a) above in
accordance with the increase in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index for All Urban Consumers (all items for
the geographical Statistical Area in which the Property is located on the basis
of 1982-1984= 100) (the "Index") as follows: * NOT TO INCREASE BY MORE THAN 25%.
(a) The Base Rent (the "Comparison Base Rent") in effect immediately
before each Rental Adjustment Date shall be increased by the percentage that the
Index has increased from the date (the "Comparison Date") on which payment of
the Comparison Base Rent began through the month in which the applicable Rental
Adjustment Date occurs. The Base Rent shall not be reduced by reason of such
computation. Landlord shall notify Tenant of each increase by a written
statement which shall include the Index for the applicable Comparison Date, the
Index for the applicable Rental Adjustment Date, the percentage increase between
those two Indices, and the new Base Rent. Any increase in the Base Rent provided
for in this Section 3.02 shall be subject to any minimum or maximum increase, if
provided for in Paragraph 1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may be
given after the applicable Rental Adjustment Date of the increase, and Tenant
shall pay Landlord the accrued rental adjustment for the months elapsed between
the effective date of the increase and Landlord's notice of such increase within
ten (10) days after Landlord's notice. If the format or components of the Index
are materially changed after the Commencement Date, Landlord shall substitute an
index which is published by the Bureau of Labor Statistics or similar agency and
which is most nearly equivalent to the Index in effect on the Commencement Date.
The substitute index shall be used to calculate the increase in the Base Rent
unless Tenant objects to such index in writing fifteen (15) days after receipt
of Landlord's notice. If Tenant objects, Landlord and Tenant shall submit the
selection of the substitute index for binding arbitration in accordance with the
rules and regulations of the American Arbitration Association at its office
closest to the Property. The costs of arbitration shall be borne equally by
Landlord and Tenant.
Section 3.03. SECURITY DEPOSIT; INCREASES.
(c)1988 Southern California Chapter 2 Initials ____________
of the Society of Industrial ____________
and Office Realtors,(R) Inc. (SINGLE-TENANT NET FORM)
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Section 3.04. TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
under Article Seven (Damage or Destruction), Article Eight (Condemnation) or any
other termination not resulting from Tenant's default, and after Tenant has
vacated the Property in the manner required by this Lease, Landlord shall refund
or credit to Tenant (or Tenant's successor) the unused portion of the Security
Deposit, any advance rent or other advance payments made by Tenant to Landlord,
and any amounts paid for real property taxes and other reserves which apply to
any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes on the
Property (including any fees, taxes or assessments against, or as a result of,
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.07
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10) -day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
reassessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) JOINT ASSESSMENT. If the Property is not separately assessed, Landlord
shall reasonably determine Tenant's share of the real property tax payable by
Tenant under Paragraph 4.02(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written statement.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within fifteen
(15) days after Tenant receives a written statement from Landlord for such
personal property taxes.
(e) TENANT'S RIGHT TO CONTEST TAXES. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to prevent
the Property from being sold under a "tax sale" or similar enforcement
proceeding.
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
[LOGO APPEARS HERE]
(c) 1988 Southern California Chapter 3 Initials _______________
of the Society of Industrial _______________
and Office Realtors,(R) Inc. (SINGLE-TENANT NET FORM)
<PAGE>
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.07, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except Landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as provided in Paragraph
4.04(a). If insurance policies maintained by Landlord cover improvements on real
property other than the Property, Landlord shall deliver to Tenant a statement
of the premium applicable to the Property showing in reasonable detail how
Tenant's share of the premium was computed. If the Lease Term expires before the
expiration of an insurance policy maintained by Landlord, Tenant shall be liable
for Tenant's prorated share of the insurance premiums. Before the Commencement
Date, Tenant shall deliver to Landlord a copy of any policy of insurance which
Tenant is required to maintain under this Section 4.04. At least thirty (30)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord a renewal of such policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a certificate of
insurance, executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this Section 4.04
is in full force and effect and containing such other information which Landlord
reasonably requires.
(d) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to
give Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal
to Landlord required under this Lease within the prescribed time period or
if any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case
Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described
in this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance coverage
which is customary and commercially reasonable in the insurance industry
for Tenant's type of business, as that coverage may change from time to
time. Landlord makes no representation as to the adequacy of such insurance
to protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain
any such additional property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers
of this mutual waiver of subrogation.
Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment with ten (10)
days after it becomes due, Tenant shall pay Landlord a late charge equal to ten
percent (10%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.07. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12) -month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord upon
written request. If Tenant defaults under this Lease, Landlord may apply any
funds in the impound account to any obligation then due under this Lease.
(c) 1998 Southern California Chapter 4 Initials ____________
of the Society of Industrial ____________
and Office Realtors,(R) Inc. (LOGO APPEARS HERE) (SINGLE-TENANT NET FORM)
<PAGE>
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material. In no
event, however, shall Landlord be required to consent to the installation or use
of any storage tanks on the Property.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency. Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or upon other portions of the Project, or from other sources or places;
or (d) any act or omission of any other tenant of the Project. Landlord shall
not be liable for any such damage or injury even though the cause of or the
means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of Article
Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord shall
have absolutely no responsibility to repair, maintain or replace any portion of
the Property at any time. Tenant waives the benefit of any present or future law
which might give Tenant the right to repair the property at Landlord's expense
or to terminate the Lease due to the condition of the Property.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction) and
Article Eight (Condemnation), Tenant shall keep all portions of the Property
(including structural, nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the
(c) 1988 Southern California Chapter 5 Initials __________
of the Society of Industrial __________
and Office Realtors(R), Inc. [LOGO APPEARS HERE] (SINGLE-TENANT NET FORM)
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Property or any system or equipment in the Property which Tenant is obligated to
repair cannot be fully repaired or restored, Tenant shall promptly replace such
portion of the Property or system or equipment in the Property, regardless of
whether the benefit of such replacement extends beyond the Lease Term; but if
the benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. If any part of the Property is damaged by any act or omission of
Tenant, Tenant shall pay Landlord the cost of repairing or replacing such
damaged property, whether or not Landlord would otherwise be obligated to pay
the cost of maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the portions of the
Property which Tenant is obligated to maintain in an attractive, first-class and
fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for
non-structural alterations which do not exceed Ten Thousand Dollars ($10,000) in
cost cumulatively over the Lease Term and which are not visible from the outside
of any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate the
Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs, except
that upon satisfactory completion of such repairs, Landlord shall deliver to
Tenant any insurance proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such election within ten
(10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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of the Society of Industrial ___________
and Office Realtors,(R) Inc. (SINGLE-TENANT NET FORM)
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Section 7.02 SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04 WAIVER. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs
first. If more than twenty percent (20%) of the floor area of the building in
which the Property is located, or which is located on the Property, is taken,
either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession, by delivering written notice to
the other within ten (10) days after receipt of written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority takes title or possession). If neither Landlord nor Tenant terminates
this Lease, this Lease shall remain in effect as to the portion of the Property
not taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORDS'S CONSENT REQUIRED. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty percent
(20%) of the partnership interests shall require Landlord's consent. If Tenant
is a corporation, any change in the ownership of a controlling interest of the
voting stock of the corporation shall require Landlord's consent.
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
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of the Society of Industrial ______________
and Office Realtors(R), Inc. (SINGLE-TENANT NET FORM)
<PAGE>
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.13) of the Profit (defined below)
on such transaction as and when received by Tenant, unless Landlord gives
written nontice to Tenant and the assignee or subtenant that Landlord's
Share shall be paid by the assignee or subtenant to Landlord directly. The
"Profit" means (A) all amounts paid to Tenant for such assignment or
sublease, including "key" money, monthly rent in excess of the monthly rent
payable under the Lease, and all fees and other consideration paid for the
assignment or sublease, including fees under any collateral agreements,
less (B) costs and expenses directly incurred by Tenant in connection with
the execution and performance of such assignment or sublease for real
estate broker's commissions and costs of renovation or construction of
tenant improvements required under such assignment or sublease. Tenant is
entitled to recover such costs and expenses before Tenant is obligated to
pay the Landlord's Share to Landlord. The Profit in the case of a sublease
of less than all the Property is the rent allocable to the subleased space
as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying all
amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt of
Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a material default of the Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) -day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
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recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%). If Tenant has abandoned the Property, Landlord shall have the option of
(i) retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated Rent".
Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition required
by this Lease. Tenant acknowledges that its right to receive credit for the
Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual
performance of its obligations under this Lease. If Tenant defaults and does not
cure within any applicable grace period, the Abated Rent shall immediately
become due and payable in full and this Lease shall be enforced as if there were
no such rent abatement or other rent concession. In such case Abated Rent shall
be calculated based on the full initial rent payable under this Lease.
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
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and Office Realtors,(R) Inc. (SINGLE-TENANT NET FORM)
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(b) If Tenant does not deliver such statement to Landlord within such ten
(10) -day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgement entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such attorneys' fees
and costs. Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability Landlord may incur if
Landlord becomes or is made a party to any claim or action (a) instituted by
Tenant against any third party, or by any third party against Tenant, or by or
against any person holding any interest under or using the Property by license
of or agreement with Tenant; (b) for foreclosure of any lien for labor or
material furnished to or for Tenant or such other person; (c) otherwise arising
out of or resulting from any act or transaction of Tenant or such other person;
or (d) necessary to protect Landlord's interest under this Lease in a bankruptcy
proceeding, or other proceeding under Title 11 of the United States Code, as
amended. Tenant shall defend Landlord against any such claim or action at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs
Landlord incurs in any such claim or action.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES
(a) As used in this Lease, the term "Landlord" means only the current owner
or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds that Tenant
previously paid if such funds have not yet been applied under the terms of this
Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within thrity (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30) -day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. NOTICES. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
(c) 1988 Southern California Chapter 10 Initials _______________
of the Society of Industrial _______________
and Office Realtors,(R) Inc. [LOGO APPEARS HERE] (SINGLE-TENANT NET FORM)
<PAGE>
Section 13.07. WAIVERS. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short-Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR
IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW
A LINE THROUGH THE SPACE BELOW.
[LOGO APPEARS HERE]
(c) 1988 Southern California Chapter 11 Initials ______________
of the Society of Industrial ______________
and Office Realtors(R), Inc. (SINGLE-TENANT NET FORM)
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on 14 November , 1991 Arthur L. Wahl
-------------------- -- --------------------------------------
at Seattle, Wash Managing Partner
---------------------------------. --------------------------------------
By: Hilo Partners
-----------------------------------
Its:
----------------------------------
By:
-----------------------------------
Its:
----------------------------------
"TENANT"
Signed on 11/14 1991
-------------------, --- --------------------------------------
at Kirkland, Wash .
-------------------------------- --------------------------------------
By: /s/ [signature illegible]
----------------------------------
Its: Executive V.P.
----------------------------------
By:
----------------------------------
Its:
---------------------------------
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS(R), INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS(R), INC.,
ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
(c) 1988 Southern California Chapter 12 Initials _______________
of the Society of Industrial _______________
and Office Realtors(R), Inc. [LOGO APPEARS HERE] (SINGLE-TENANT NET FORM)
<PAGE>
THIS INDENTURE OF LEASE made this 30th day of August, 1991, by and
between KAI PACIFIC LIMITED, a Hawaii corporation, whose address is 99-1135
Iwaena Street, #1 Aiea, HI. 96701, hereinafter called "Lessor", and COST-U-LESS
INC. whose address is 330-4th Street, Kirkland, WA. 98033, hereinafter called
"Lessee,"
W I T N E S S E T H:
ARTICLES I
Grant and Term
--------------
Section 1.01. Demised Premises. In consideration of the rents,
-------------------------------
covenants, and agreements hereinafter reserved and contained on the part of
Lessee to be observed and performed, Lessor demises and leases to Lessee, and
Lessee rents from Lessor, all of those certain lots (the "Land") identified as
Lots No. 4 and 9 in Kapaa, Kauai, Hawaii, TMK 4-4-5-5:4 and 4-4-5-5:9,
consisting of approximately 56,256 square feet, and that certain building (the
"Building") to be constructed on the Land containing approximately 22,000 square
feet of ground floor warehouse area (the Land and such Building being
hereinafter called the "demised premises"). The demised premises is shown on the
plan marked Exhibit A attached hereto and by reference made a part hereof.
Section 1.02. Common Areas. Not applicable
------------- ------------
Section 1.03. Term.
------------- ----
a. Duration and Commencement. The term of this lease shall be for a
-------------------------
period of ten (10) years commencing on the date (the "Commencement Date") Lessor
notifies Lessee in writing that the Building to be occupied by Lessee has been
completed and that Lessor has received a certificate of occupancy from the
appropriate governmental body or agency certifying that the Building is ready
for occupancy. The anticipated Commencement Date is April 1, 1992.
b. Confirmation of Commencement Date. When the Commencement Date
---------------------------------
has been determined as herein set forth, Lessor shall at its own cost and
expense prepare and deliver to Lessee for its execution a written memorandum in
the form attached hereto marked Exhibit B, expressly confirming the Commencement
Date, and such memorandum shall thereupon be deemed attached hereto,
incorporated herein, and by this reference made a part of this lease. Failure
by Lessee to execute and deliver such memorandum when requested by Lessor within
15 days of Lessor's request shall constitute an acceptance of the demised
premises, and an acknowledgement by Lessee that the statements included in
Exhibit B are true and correct, without exception. In addition thereto, if
Lessee fails to execute and deliver such memorandum to Lessor within such 15-day
period, Lessor may, as attorney-in-fact for Lessee, coupled with a financial
interest, execute such memorandum
<PAGE>
for and on behalf of and in the name of Lessee.
c. Delays of Commencement Date. If Lessor is unable to deliver
---------------------------
possession of the demised premises by the anticipated Commencement Date
specified in Section 1.03.a above, Lessor shall not be liable for any damages
caused thereby nor shall this lease become void or voidable, but in any such
event, the term of this lease shall be extended until Lessor can give Lessee
notice of the Commencement Date. If the Commencement Date is extended as set
forth in this Section 1.03.c, no basic rent shall be payable by Lessee to Lessor
for any portion of the term prior to the actual Commencement Date.
d. Cancellation. Notwithstanding any provision to the contrary, if
------------
for any reason whatsoever, the term of this lease shall not have commenced by
September 1, 1992, this lease shall be deemed canceled and shall have no further
- -----------------
force or effect and Lessor and Lessee shall have no further obligations under
this lease, unless Lessor and Lessee agree in writing to extend this lease for a
mutually agreeable period in order to permit Lessor to complete construction of
the Building to be occupied by Lessee.
Section 1.04. Option to Extend. If Lessee is not in default of any
------------- ----------------
of the terms of this lease to be observed and performed, Lessee shall have the
option to extend the term for two (2) additional terms of five (5) years each on
the same terms and conditions as set forth herein by giving to Lessor notice of
Lessee's exercise of such option not less than one hundred twenty (120) days
prior to the end of the term, provided, however, that the basic rent for any
such extension of the term of the lease shall be as follows:
First and second years of
the first 5-year
extended term $30,518.00 per month
Third, fourth and fifth years
of the first 5-year
extended term $33,569.00 per month
First, second and third
years of the second
5-year extended term $36,927.00 per month
Fourth and fifth years of
the second 5-year
extended term $40,619.00 per month
Except as set forth herein, Lessee shall not have any option to further extend
the term of this lease.
Section 1.05. Rule Against Perpetuities. If for any
- ----------------------------------------
2
<PAGE>
reason whatsoever, the term of this lease shall not have commenced on or before
two (2) years after the date hereof, this lease shall thereupon be and become
entirely canceled and of no further force or effect.
ARTICLE II
Construction and Delivery of Premises
-------------------------------------
Section 2.01. The Building. Lessor covenants and agrees to
------------- ------------
erect, make and complete the following described improvements on the Land
in accordance with the provisions hereinafter set forth:
a. General Description of the Work. There shall be erected on the
-------------------------------
Land, the Building containing 22,000 square feet of ground floor warehouse area.
The Building shall be built in accordance with, equipped with, and shall
include, all such matters shown on the final plans and specifications discussed
below.
b. Physical Requirements of Site. Said improvements shall
-----------------------------
be designed, constructed, made and completed in accordance with all applicable
laws, ordinances, rules, regulations and orders of city, county, state or
other duly constituted authority applicable thereto at the time of construction.
It is further agreed that Lessor shall procure all building and other permits
required at the time of construction. Anything herein contained to the contrary
notwithstanding, if Lessor shall not be permitted by any applicable laws,
ordinances, rules, regulations or orders to construct a building having the
approximate dimensions and size specified in the final working plans and
specifications, Lessee may, at its option, which option may only be exercised
prior to taking occupancy of the demised premises, either accept a building of
such dimension as may be so permitted or cancel this lease by giving Lessor
written notice of Lessee's election to cancel the same.
c. Plans and Specifications. Said improvements shall be constructed
------------------------
and completed in accordance with final working plans and specifications to be
prepared in the following manner: Lessee agrees to prepare and furnish
preliminary plans and specifications, it being understood that said preliminary
plans and specifications will follow the general description of said
improvements hereinbefore set forth. In order to meet the anticipated
Commencement Date as set forth in Section 1.03 herein, Lessee shall deliver to
Lessor all necessary preliminary plans, specifications and company standard
details within 30 days after execution of this lease. For every day which Lessee
--
is in delayed after the expiration of said 30 days, the date set forth in
--
Section 1.03.d above shall be extended another day. Lessor shall have the right
to omit or modify any item or detail in Lessee's preliminary plans and
specifications if Lessor, in Lessor's
3
<PAGE>
reasonable judgment, determines that the construction or installation of such
detail or item is impractical. No later than 30 days after receipt of
--
Lessee's preliminary plans and specifications, Lessor shall prepare, or cause to
be prepared, and deliver to Lessee final plans and specifications for the
Building which shall, to the extent reasonably and practicably possible, follow
the preliminary plans and specifications delivered by Lessee and incorporate all
of Lessee's requirements. It is expressly understood and agreed that said final
working plans and specifications shall not deviate from, and shall in all
respects adhere to, and incorporate all details set forth in, said preliminary
plans and specifications, unless applicable law, ordinance, rule, regulation or
order of governmental authority require otherwise, or unless Lessor in Lessor's
reasonable judgment determines that any detail or item set forth in said
preliminary plans and specifications cannot be reasonably or practicably
incorporated into the final working plans and specifications. In order that
Lessee may satisfy itself that the proposed improvements will meet its
requirements, said final plans and specifications shall be submitted to Lessee
for Lessee's written approval before construction work is commenced, but such
approval, if given, shall not relieve Lessor of the responsibility of
constructing structurally sound improvements free from defects. Lessee agrees to
notify Lessor in writing of its approval or disapproval of the final plans and
specifications within thirty (30) days after they have been received by Lessee.
d. Lessee's Right to Change Plans and Specifications. By written
-------------------------------------------------
notice to Lessor, Lessee shall have the right at any time or times either prior
to or during the progress of the work to eliminate any item or detail contained
in said final working plans and specifications and/or to substitute and/or to
add other items or details not shown on said final working plans and
specifications. In such event, Lessor shall, at Lessee's cost and expense, make
such changes. If Lessor fails to do so Lessee shall have the right to issue
change orders covering such changes to the contractor or contractors doing the
work. If Lessee shall require any change or eliminate any item or detail in the
final working plans and specifications irrespective of whether such item or
detail has already completed, installed, or purchased, the cost of any such
change or removal shall be borne fully by Lessee. Additionally, the cancellation
date set forth in Section 1.03.d of this lease shall be extended for the number
of days equal to the number of days construction of the Building is delayed or
extended because of any change order requested by Lessee.
e. Cost of Work. Lessor agrees to pay the cost of said improvements
------------
and to pay the fees of architects and engineers (other than Lessee's regular
employees) in planning and supervising the work. Lessee shall pay all fees and
costs incurred in connection with any change order requested by Lessee. Lessee
shall, at its expense, install trade fixtures and equipment, and
4
<PAGE>
store merchandise, and may commence such activities as the improvements by
Lessor are being completed, but in so doing, Lessee shall have first complied
with the bond and insurance requirements of this lease and Lessee shall not
interfere with the completion of the improvements by Lessor. Lessor shall not be
liable for any injury to Lessee's employees.
f. Contracts and Bids. Lessor shall be responsible for the
------------------
engagement and supervision of the general contractor and subcontractors for
construction of the improvements on the Land, and all contracts for construction
of such improvements shall be (i) made by and in the name of Lessor, (ii) on
terms and conditions acceptable in the Lessor's sole judgment, and (iii) carried
out by Lessor. Lessee shall have no liability for performance of any of Lessor's
duties under such contracts and subcontracts.
g. Completion of Work. Lessor agrees to proceed with due diligence
------------------
to construct and complete said improvements as soon hereafter as reasonably
possible, subject to delays caused by strikes, acts of God, governmental
restrictions or shortages of materials or labor arising by reason of war or
other national emergency, or any other cause beyond Lessor's control (it being
agreed that liability or failure to finance said work shall not be considered a
cause beyond Lessor's control). As soon as work on said improvements shall have
progressed to a point where Lessee can do so without unreasonably interfering
with the work, as determined by Lessor in Lessor's sole judgment, Lessee shall
have access, subject to the provisions in Section 2.01.e, to the demised
premises for the purposes of installing trade fixtures and equipment, and store
merchandise and otherwise making the demised premises ready for Lessee's
operations. It is further agreed that Lessee shall have the right to make such
inspections at reasonable times during the progress of the work as Lessee deems
advisable, provided, however, that such inspections shall not interfere in any
way with Lessor's completion of the Building.
When said work has been fully and substantially completed and the
demised premises are ready for Lessee's occupancy, actual possession of the
demised premises shall be delivered to Lessee free and clear of all tenants and
occupants. If Lessor (1) fails to commence construction of said improvements by
a date not later than May 1, 1992 (30) days after receipt of Lessee's written
----------- ----
approval of the final plans and specifications; or (2) fails thereafter to
proceed diligently with such construction work; or (3) for any reason
whatsoever (including any cause within or beyond Lessor's control, fails to
substantially complete said improvements so that they are ready for Lessee's
occupancy and deliver actual possession thereof to Lessee free and clear of all
tenancies and occupancies by September 1, 1992, then Lessee shall have the
-----------------
right, at its option, at any time prior to taking possession of the demised
premises to cancel this lease by giving Lessor written notice of Lessee's
election to cancel the
5
<PAGE>
same. Upon Lessee's giving such written notice of cancellation, this lease
shall thereupon terminate and end, and Lessor and Lessee shall be released and
discharged from further liability or responsibility hereunder. Such right of
termination shall be the exclusive remedy Lessee shall have by reason of default
by Lessor under this section 2.01.g.
h. Quality of Construction. Lessor represents and warrants
-----------------------
that:
1) The development will be conducted in a workmanlike and
skillful manner;
2) The development will in all respects be of good quality,
free of all defects and faults in workmanship, material, design, and title;
3) The development will be performed in material compliance
with the final plans and specifications and with all federal, state, or local
laws, rules, regulations, and ordinances;
4) All materials, equipment, and other items incorporated in
the development or consumed in the performance of the development will be new
and of suitable grade for the purpose intended;
5) There will be no defects in the improvements or any
operating system including, but not limited to, defects in the electrical,
heating, air conditioning, plumbing or mechanical systems, foundations in
asphalt or other pavement;
6) The roofs on the improvements will be structurally sound
and waterproofed.
Section 2.02 Parking Areas and Other Exterior Areas. Lessor will, at
------------ --------------------------------------
Lessor's sole cost and expense, prior to the Commencement Date, grade, surface,
and mark the area to be devoted to parking areas and other exterior areas (as
shown on the attached Exhibit C) within the demised premises and will also
construct sidewalks, aisles, streets and driveways on portions of the parking
area and common area (also as shown on attached Exhibit C). Lessor will also
provide adequate water drainage and lighting systems for the parking area and
the aforesaid sidewalks, aisles, streets and driveways within the demised
premises for such costs and expenses. All sidewalks and aisles within the
demised premises shall be of concrete construction, and the parking areas shall
have a suitable and adequate base, and shall be surfaced with asphaltic
pavement. Such work shall be done in accordance with all requirements of law and
governmental authorities and shall be completed prior to the delivery of the
demised premises to Lessee.
Section 2.03. Additional Construction Covenants of
------------- ------------------------------------
6
<PAGE>
Lessor. Lessor covenants and agrees with Lessee as follows, respecting the
- ------
improvements work on the Land and the improvements described in this Article II
and the construction of any future expansion on the Land:
a. All utility services in the demised premises shall be installed
underground, unless impracticable, except to the extent within or on the
Building. Lessor shall have the right, without Lessee's consent or joinder, to
grant or relocate all easements now or hereafter required by Lessor for the
construction, installation, operation, maintenance, repair and replacement of
rights of way, underground lines, and other transmission facilities and
appurtenances for electricity, gas, telephone, water, sewage, drainage and other
public service and utilities affecting or serving the Building or the demised
premises.
b. Except for minor changes not resulting in a violation of the
parking requirements of this lease or traffic circulation, no changes shall be
made in the parking layout and detail shown on Exhibit C without Lessee's prior
written approval in each instance first obtained.
c. To the extent reasonable feasible, all roof-top mechanical
equipment, trash disposal systems and receiving areas within the demised
premises shall be enclosed with decorative or landscaped screening.
d. Lessor shall obtain Lessee's prior written approval of the final
landscape plan which shall include the planting of all landscaped areas on the
demised premises.
ARTICLE III
Rent
----
Section 3.01. Basic Rent. Commencing thirty (30) days after the
------------ ----------
Commencement Date as defined in Section 1.03, Lessee shall pay basic rent as
follows:
<TABLE>
<S> <C>
First thirty-six (36) months $24,200.00 per month
Next thirty-six (36) months $26,738.00 per month
Next thirty-six (36) months $28,916.00 per month
Next twelve (12) months $30,518.00 per month
</TABLE>
Said basic rent shall be paid in advance on the first day of each calendar
month at the principal place of business of Lessor or other place designated by
Lessor, without demand therefore and without deduction or offset whatsoever. In
the event that the duty to pay basic rent commences on other than the first day
of a
7
<PAGE>
calendar month or terminates on other than the last day of such a month, the
basic rent for such fraction of a month shall be prorated on a thirty (30) day
month basis.
Section 3.02 Additional Rent. Commencing thirty (30) days after the
------------ ---------------
Commencement Date, Lessee shall pay as additional rent any money required to be
paid to Lessor pursuant to Sections 4.03 - Rules and Regulations, 6.02 -
Lessor's right to Cure Lessee's Failure to Maintain Premises, 6.03- Structural
Repairs by Lessor, 6.05 - Cost of Services, 8.02 - Fire Insurance Premium and
Increase, 11.01 - Payment of Charges, 13.01 - Consent Required, 14.01- Personal
Property Taxes, 14.02 - Real Property Taxes, 14.03- Excise Taxes, 14.04- Tax on
Rental Income, 16.03 - Condemnation of Less Than a Fee, 17.05 - Interest on Past
Due Damages, 19.01 - Lessee's Liability and 19.02 - Performance by Lessor, and
any other provision of this lease not specifically set forth in this Section
3.02 requiring payments by Lessee to Lessor. If the additional amounts or
charges set forth in this Section are not paid at the time provided in this
lease or if no time is specified, they shall nevertheless by paid as additional
rent with the next succeeding installment of rent thereafter falling due
hereunder, but nothing herein contained shall be deemed to suspend or delay the
payment of any amount of money or charge at the time the same becomes due and
payable hereunder, or limit any other remedy by Lessor.
ARTICLE IV
Use of Premises
---------------
Section 4.01. Use of Premises The demised premises shall be used during
------------- ---------------
the term hereof for the sole purpose of retail sale of consumer goods, wholesale
sales of consumer goods, and any other legal business reasonably incidental to
retail and wholesale sales of consumer goods including the following:
1. Dry groceries, frozen foods, refrigerated foods, beer, wine and
liquor;
2. Electronics;
3. Major appliances and small appliances;
4. Sporting goods;
5. Domestics;
6. Auto supplies and tires;
7. Garden supplies;
8. Cameras, watches, and jewelry;
8
<PAGE>
9. Food concessions, such as hot dog carts.
10. Any other categories of merchandise allowed by Hawaii law.
The demised premises shall not be used for any other purpose without the
prior written consent of Lessor. Without limiting the generality of the
immediately preceding sentence, Lessee shall not keep, use, sell or offer for
sale in or upon the demised premises any article which may be prohibited by
standard form of fire insurance policy. Nothing contained in this lease shall be
construed as granting to Lessee the exclusive right to conduct such business.
Section 4.02. Use of Common Areas. Not applicable
------------- -------------------
Section 4.03. Rules and Regulations. Lessor reserves the right from
------------- ---------------------
time to time to adopt and promulgate, amend and supplement reasonable rules and
regulations applicable to the demised premises as a whole (see Exhibit D
attached hereto and made a part hereof). Thirty (30) days prior written notice
of such rules and regulations, and amendments and supplements thereto, shall be
given to Lessee; and Lessee hereby agrees thereupon to comply with and observe
all such rules and regulations, amendments and supplements provided that such
rules, regulations, amendments and supplements do not materially interfere with
Lessee's use of the demised premises. In addition to such other legal or
equitable remedies Lessor may have in the event of breach or default of the
provisions of this lease, said rules and regulations may provide reasonable
penalties for violation of them and vest in Lessor reasonable power of
enforcement thereof.
Section 4.04. Trash Storage Area. Lessor may from time to time at
------------- ------------------
Lessor's option designate an area or areas within the demised premises or areas
for use by Lessee for the location and use of trash and refuse storage bins and
other similar containers; Lessee shall, however, under no circumstances, place
or locate any such trash or refuse storage bins and other similar containers
next to any exterior building wall or under the roof eaves.
Section 4.05. Hazardous Waste. Without limiting the generality of the
------------- ---------------
provision of this lease, Lessee agrees that no portion of the demised premises
shall be used for, and the business of Lessee shall not involve, the disposal,
storage, treatment, processing or other handling of waste contamination, PCB's,
or other toxic or hazardous substances, including without limitation any
substances defined or included in the definition of "hazardous substances",
"hazardous waste", "hazardous materials" or "toxic substances" under any
applicable laws (collectively "Hazardous Materials"). Lessee expressly
acknowledges and agrees that it will reimburse, defend, indemnify and hold
harmless Lessor from and against any losses or charges (including, but not
limited to, all
9
<PAGE>
costs of investigation, monitoring, legal fees, remedial response, removal,
restoration or permit acquisition) which may now or in the future, be
undertaken, suffered, paid, awarded, assessed, or otherwise incurred as a result
of Lessee's breach of its agreements as set forth in this Section. This
indemnity shall survive the termination of this lease and shall be for the
benefit of Lessor and shall be assignable by Lessor to any subsequent purchaser
of Lessor's interest of any part thereof.
ARTICLE V
Alterations, Fixtures, Signs
----------------------------
Section 5.01. Lessee Alterations. Lessee or any person taking by,
------------- ------------------
through or under it may, at its own expense and as further provided in this
Article V, make nonstructural alterations or additions to the demised premises
which do not diminish the value thereof.
All alterations or additions to any of the walls, roof or structural
components of the demised premises; or which require or involve the penetration
of any wall, roof or structural component of the demised premises; or which will
cost more than Twenty-five Thousand Dollars ($25,000) in any instance and One
Hundred Thousand Dollars ($100,000) in the aggregate, must receive prior written
consent and approval by Lessor of plans and specifications hereof provided by
Lessee. Lessor shall not unreasonably withhold its approval of any proposed
alterations or additions to the demised premises and shall, no later than
fifteen (15) business days after receipt of any proposed plans and
specifications, advise Lessee of Lessor's approval or disapproval, and in the
event Lessor does not respond within such period, Lessor shall be deemed to
have disapproved the plans and specifications provided by Lessee. Lessee shall
ensure that all such alterations or additions are done in good and workmanlike
manner and in compliance with the insurance and bond requirements of this lease,
are diligently prosecuted to expedite the completion thereof, as determined at
sole discretion of Lessor, and are performed in strict conformance with all laws
or regulations of any nature which are applicable thereto.
Section 5.02. Lessee Shall Discharge All Liens. Lessee shall promptly
------------- --------------------------------
pay all contractors and materialmen who provide goods or services with respect
to the demised premises for or on behalf of Lessee or any person taking by,
through or under it, and shall take other appropriate precautions to
minimize the possibility of a lien attaching to the demised premises therefor.
In the event that any such lien is made or filed, Lessee shall discharge or bond
against the same within thirty (30) days after such lien is filed.
Section 5.03. Bond Against Liens. Prior to commencement of any
------------- ------------------
alteration, addition or other construction by or on behalf of Lessee or any
person taking by, through or under it in or at the
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demised premises, Lessee shall furnish evidence satisfactory to Lessor that
Lessee is financially able to pay for the material and labor and/or the services
of the contractor or contractors involved and shall furnish a copy of a bond in
an amount and in a form and with a surety acceptable to Lessor, which names
Lessor and Lessee as obligees, and which insures completion of the proposed work
free and clear of liens, provided, however, that Lessor may waive said
requirement to post bond by written notice thereof.
Section 5.04. Signs, Awnings and Canopies Lessee shall not place or
------------- ---------------------------
suffer to be placed or maintained on any exterior door, wall or window of the
demised premises any sign, awning, canopy, or advertising matter or other thing
of any kind, and will not place or maintain any decoration, lettering, or
advertising matter on the glass of any window or door of the demised premises
without first obtaining Lessor's written approval and consent, which approval
and consent shall not be unreasonably withheld. Lessee shall maintain such
signs, awnings, canopies, decorations, lettering, advertising matter and/or
other things as may be approved by Lessor, in good condition and repair at all
times. In any instance, such sign, awning, canopy or advertising matter shall
comply with all laws, ordinances, rules and regulations of governmental
authority.
ARTICLE VI
Maintenance of Buildings
------------------------
Section 6.01. Maintenance by Lessee Lessee shall at all times keep its
------------- ---------------------
trash storage area and the entire demised premises, exterior entrances, doors,
and all glass and show window moldings (but excluding other exterior structural
portions of the demised premises), and all partitions, fixtures, equipment and
appurtenances thereto, including lighting and plumbing fixtures, electrical
wiring, and air-conditioning equipment, if any, in good order, condition,
cleanliness and repair.
Section 6.02 Lessor's Right to Cure Lessee's Failure to Maintain
------------ ---------------------------------------------------
Premises. If Lessee refuses or neglects to repair or maintain the demised
- --------
premises properly as required hereunder and to the reasonable satisfaction of
Lessor as soon as reasonably possible after written demand by Lessor, Lessor, in
addition to such other remedies it may have, may make such repairs and perform
such maintenance without liability to Lessee for any loss or damage that may
accrue to Lessee's stock or other property or to Lessee's business by reason
thereof; and upon completion thereof and receipt of bill therefor, Lessee shall
pay as additional rent hereunder all Lessor's costs for making such repairs and
performing such maintenance, including a surcharge of ten percent (10%) to cover
Lessor's overhead.
Section 6.03. Structural Repairs by Lessor. In the event
------------- ----------------------------
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any repairs become necessary to the structural portions of the demised premises,
or sidewalks adjacent to the demised premises, Lessor voluntarily or upon
written notice from Lessee, stating the necessity therefore and the nature
thereof, shall with reasonable promptness, and at its own expense make any such
necessary repairs; provided, however, that if the need for such repairs arises
out of or by reason of Lessee's negligent act or failure to act, or
extraordinary use by Lessee of the demised premises or any portion thereof, all
costs of such repairs in addition to a ten percent (10%) surcharge to cover
Lessor's overhead shall be paid by Lessee to Lessor promptly upon Lessor's
demand therefore as additional rent.
Section 6.04. (Intentionally omitted)
-------------
Section 6.05. Cost of Services. Lessee shall pay to Lessor, as
------------- ----------------
additional rent, the total direct expenses (as herein defined) paid or incurred
by Lessor on account of the operation or maintenance of the demised premises.
The term "direct expenses" as used herein shall include all costs of operation
and maintenance of the Building and the Land, including open areas and parking
areas, and all easements thereto, and shall include the following costs by way
of illustration but not limitation: property taxes; the cost and expenses in
contesting the amount or validity of any property taxes by appropriate legal
proceedings; ground lease rent; water and sewer charges; insurance premiums;
license, permit and inspection fees; landscaping; security; maintenance of areas
outside the Building; Building maintenance and painting of Building, parking
area repairs and repaving of parking areas; janitorial services; labor;
supplies; and equipment used in maintenance. The term "property taxes" as used
herein shall include all real estate taxes or personal property taxes and other
taxes, charges and assessments which are levied with respect to the demised
premises and any improvements, fixtures and equipment and all other property of
Lessor, real or personal, located in the Building or on the Land. The term
"property taxes" shall also include any tax which shall be levied in addition to
or in lieu of real estate or personal property taxes.
The additional payment provided for in this Section shall be paid within
ten (10) days after demand therefor by Lessor. An invoice prepared and
submitted by Lessor to Lessee shall be sufficient evidence of the amount due
from Lessee.
ARTICLE VII
Non-Liability of Lessor
-----------------------
Section 7.01 Assumption of Risk by Lessee. Lessor shall not be liable
------------ ----------------------------
to Lessee or any person taking by, through or under it for any damage occasioned
by electricity, plumbing, gas, water, sprinkler or other pipes and/or sewage
system or by the bursting, leaking, overflowing or the function or malfunction
of any tank,
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washstand, closet or waste or other pipes in or about said demised premises, or
for any damage occasioned by water coming into the demised premises from any
source whatsoever or for any damage arising from any act or acts or neglect of
the general public, except such damage as may be caused by the willful act or
negligence of Lessor. All property kept or store on or at the demised premises
shall be so kept or stored at the risk of Lessee only and Lessee shall
indemnify, hold harmless and defend Lessor from any claims arising out of damage
to the same, including subrogation claims by Lessee's insurance carriers, unless
such damage is caused by the willful act or negligence of Lessor.
ARTICLE VIII
Insurance and Indemnity
-----------------------
Section 8.01 Insurance. Lessee, at its own expense, shall procure and
------------ ---------
keep in force policies of insurance in a form and with companies satisfactory to
Lessor as follows:
1. Commercial general liability insurance, including coverage for
premises/operations, independent contractors, products/completed operations,
contractual liability, personal injury, advertising injury, employees as
additional insureds, broad form property damage, liquor liability (if
applicable), pollution liability and coverage for collapse, explosion and
underground property damage, with combined single limit for bodily injury and
property damage of not less than $1,000,000 per occurrence, $2,000,000 general
aggregate and $2,000,000 products and completed operations aggregate.
2. In the event Lessee has any boiler on the demised premises, boiler
insurance in the face amount of no less than One Hundred Thousand Dollars
($100,000).
All such insurance shall name Lessor as additional insured and provide for
thirty (30) days' prior written notice to Lessor of cancellation or other
termination. A certificate evidencing such insurance shall be furnished to
Lessor prior to entry of the demised premises by Lessee.
Section 8.02. Fire Insurance Premium and Increase. Lessor shall insure
------------- -----------------------------------
at replacement values, the Building of which the demised premises are a part for
fire and other perils, on the Insurance Service Office Basic Form used in the
State of Hawaii or its equivalent. Lessee shall pay as additional rent
hereunder the premiums and any increases therefor for such insurance carried by
Lessor on the demised premises or the Building.
Section 8.03 Indemnification of Lessor. Lessee shall indemnify, save
------------ -------------------------
harmless, and defend Lessor from and against any and all claims, actions,
damages, liability and expense including attorneys' fees incurred by Lessor in
connection with loss of life,
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personal injury, death and/or damage to property caused by Lessee, its invitees,
licensees, agents, contractors, employees, servants, sublessees or
concessionaires, or arising from, out of or in connection with any occurrence
in, or about the demised premises, or the breach or default by Lessee of any
covenant or condition of this lease or acts by Lessor prompted thereby, or the
occupancy or use by Lessee of the demised premises or any part thereof, or
occasioned wholly or in part by any act or omission of Lessee, its invitees,
agents, contractors, employees, servants, sublessees or concessionaires.
Section 8.04 Mutual Waiver of Subrogation. The parties hereto for
------------ ----------------------------
themselves and their respective insurers hereby waive all and any rights or
subrogation which otherwise may be available against the other party and shall
so notify their respective insurers.
ARTICLE IX
Offset Statement, Attornment
----------------------------
Subordination and Ground Lease
------------------------------
Section 9.01. Offset Statements. In the event that Lessor's mortgagee,
------------- -----------------
or a prospective purchaser of Lessor's mortgage or of Lessor's interest in the
Building or the Land, requests a statement from Lessee as to claims against
Lessor on account of prepaid rent or any other matter, Lessee shall deliver (in
recordable form, if requested) to that party a certification that this lease is
in full force and effect and unmodified (if such be the case or stating the
modifications) and that there are no defenses or offsets thereto, or a notice
which states those claimed by Lessee.
Section 9.02. Subordination and Attornment. In the event that a
------------- ----------------------------
mortgage, encumbrance, or deed of trust is placed upon the demised premises
or the Building of which they are a party, after the commencement of the term
hereof, this lease and the interest created hereby shall immediately be
subordinate thereto if the holder or beneficiary thereof offers to enter into an
agreement with Lessee which provides that the possession and other rights of
Lessee will not be disturbed so long as Lessee performs its obligations
hereunder and Lessee will be recognized as Lessee of the demised premises under
the terms and conditions of this lease in the event of acquisition of title by
said holder or beneficiary through foreclosure proceedings or otherwise, and
which further provides that Lessee will recognize such holder or beneficiary as
Lessor in such event said agreement to be expressly binding upon the successors
and assigns of Lessee and upon said holder or beneficiary and upon anyone
purchasing the demised premises at any foreclosure sale.
Within fifteen (15) days of presentation, Lessee shall
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<PAGE>
execute, acknowledge and deliver to Lessor (i) any subordination or non-
disturbance agreement or other instrument which Lessor may require to carry out
the provision of this Article and (ii) any estoppel certificate requested by
Lessor from time to time in the standard form of any such mortgagee or
beneficiary, certifying in writing, if such be true, that Lessee shall be in
occupancy, that this lease is unmodified and in full force and effect. (or if
there have been modifications that the lease is in full force and effect as
modified and stating the modifications) and the date to which the rent and other
charges shall have been paid, and there shall be no rental offsets or claims. In
the event Lessee fails to provide any instrument as provided in this Section,
Lessee does hereby appoint Lessor as attorney-in-fact for Lessee, coupled with a
financial interest, with full power to execute in the name of the Lessee any
such instrument.
Section 9.03. Consent of Ground Lease. Lessee shall have no obligations
------------- -----------------------
under this lease unless and until the Consent of Lessor to Sublease, Estoppel
Certificate, and Attornment Agreements, attached hereto as Exhibit E (the
"Estoppel Certificate"), has been fully executed by the named parties and an
executed and acknowledged copy of the Estoppel Certificate is recorded in the
appropriate local offices. Lessor shall use its best efforts to obtain the
Estoppel Certificate and shall execute and deliver to Lessee the Estoppel
Certificate as soon as possible after the execution of this Agreement. If the
Estoppel Certificate is not recorded in the appropriate local office, in order
to protect the interest created thereby, on or before 30 days after the
--
execution of this Agreement, this lease shall terminate and Lessee shall have no
obligations or liabilities to Lessor hereunder. Assuming that Lessor properly
records the Estoppel Certificate, Lessee agrees that this lease and the interest
created hereby shall be subordinate to that certain Ground Lease dated March 1,
1991 (the "Ground Lease"), by and between Herman Rapozo, as lessor (the "Ground
Lessor"), and Halawa Sponsorship Corporation, as lessee.
Section 9.04. Compliance with Ground Lease. Throughout the term of this
------------- ----------------------------
lease, Lessor covenants in favor of Lessee that it will perform all of its
obligations under the Ground Lease and will defend, indemnify, and hold harmless
Lessee completely and absolutely in the event Lessee suffers any loss, injury,
damage or expense as a result of Lessor's failure to perform its obligations
under the Ground Lease. Lessor shall immediately notify Lessee of any default by
Lessor under the Ground Lease or receipt of any notice from the Ground Lessor
under the Ground Lease alleging the breach thereof.
Section 9.05. Ground Lease Termination. It is contemplated that the
------------- ------------------------
Lessor will acquire the ground lessor's interest under the Ground Lease. This
acquisition may occur before or after the Lessee occupies the demised premises.
In the event the Lessor acquires such interest, Lessor agrees that the lessee's
and the
15
<PAGE>
lessor's interest under the Ground Lease shall be merged as a matter of law, and
thereafter the Ground Lease shall not survive. Under those conditions, Lessee
shall have no obligation to make any payments under the Ground Lease, and Lessee
shall hold its interest under this lease free and clear of any rights, claims or
interest under the Ground Lease.
ARTICLE X
Waste, Government Regulations
-----------------------------
Section 10.01. Waste or Nuisance. Lessee shall not commit or suffer to
-------------- -----------------
be committed any waste upon the demised premises or cause or allow any nuisance
or other act or thing which may disturb the quiet enjoyment of any other
occupant of the Land or to bring or to keep anything thereon, which in the
judgment of Lessor, will or may detract in any way from the beauty,
attractiveness, usefulness or value of the demised premises.
Section 10.02. Governmental Regulations. Lessee, at Lessee's sole
-------------- ------------------------
cost and expense, shall comply with all of the requirements of county,
municipal, state and federal authorities now in force, or which may hereafter be
in force, pertaining to the demised premises, and shall faithfully observe in
the use or occupancy of the demised premises all municipal ordinances and state
and federal laws or regulations applicable thereto, except as to those laws and
regulations, the performance and observance of which are solely the duties of
------
Lessor under the terms of this lease.
Notwithstanding the foregoing, there shall be no obligation on the part of
Lessee to comply with any rules, regulations and law which may require
structural alterations, structural repairs or structural additions, or which
relate to the duties or obligations which are solely the duties and obligations
------
of Lessor under this lease, unless made necessary by act, work or omission by
Lessee, in which event Lessee shall comply at its expense.
ARTICLE XI
Utilities
---------
Section 11.01. Payment of Charges. Lessee shall pay all charges for
-------------- ------------------
water, electricity, and other utilities furnished to the demised premises, the
removal of sewage, refuse, and trash from the demised premises, whether the same
are charged to Lessee or Lessor in the first instance. Lessee shall pay to
Lessor, as additional rent, all of said charges billed directly to Lessor for
the demised premises.
Section 11.02. Non-liability for Interruption. Lessor shall under no
-------------- ------------------------------
circumstances be liable to Lessee or any person taking by, through or under it
for damages or otherwise for any
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<PAGE>
failure to furnish or interruption in service of any water, electricity or for
stoppage of sewers from any cause whatsoever, unless due to willful misconduct
or negligence of Lessor.
ARTICLE XII
Entry by Lessor
---------------
Section 12.01. Access to Demised Premises. Lessee and any person taking
-------------- --------------------------
by, through or under it shall permit Lessor and its agents to enter into and
upon the demised premises during normal business hours and upon three (3) days
advance notice for the purpose of inspecting the same or for the purpose of
maintaining the Building in which said demised premises are situated, or for the
purpose of making repairs, alterations or additions to any other portion of
said Building, including the erection and maintenance of such scaffolding,
canopies, fences and props as may be required, without any rebate of rent and
without any liability to Lessee for any loss of occupancy or quiet enjoyment of
the demised premises thereby occasioned; provided, that all such work shall be
done in such manner as to cause as little interference as reasonably possible
with the use and occupancy of the demised premises by Lessee; provided, further,
if there is substantial interruption with Lessee's operation of business, rent
and other charges will be abated as set forth in Section 15.04 hereof.
Section 12.02. Utility Mains. Lessor shall have the right to locate
-------------- -------------
within the demised premises utility mains and other facilities serving other
premises, when such location is dictated by necessities of convenient
engineering. Such mains and other facilities shall be located so as to cause a
minimum of interference with Lessee, and be reasonably unobtrusive in
appearance. These facilities shall include but not be necessarily limited to
drains, water supply, sewage lines, chilled water cooling pipes, electric power
circuits, telephone circuits, electric panelboards, sanitary vents, fresh air
supply and exhaust ducts.
ARTICLE XIII
Assignment and Subletting
-------------------------
Section 13.01. Consent Required. This lease and the leasehold
-------------- ----------------
interest hereby demised is not assignable, subleasable in whole or in part by
Lessee or any person taking by, through or under it whether by way of mortgage
or otherwise, and Lessee shall not assign or sublet, or allow assignment or
subletting of all or any part of the demised premises, or amendment thereof,
without the prior written consent of Lessor of the assignee, sublessee, or
mortgagee, and approval by Lessor of the form, terms, covenants, provisions and
amendments of any such assignment, sublease or mortgage, which consent and
approval shall not be unreasonably
17
<PAGE>
withheld. Without limitation to other rights Lessor may have, Lessor may
require, in Lessor's sole discretion, prior to consent and approval thereof,
such modifications or additions to any assignment, sublease, mortgage or
amendment thereof to ensure that such assignment, sublease, mortgage or
amendment will be subject and subordinate to this lease and consistent with the
terms, covenants, provisions and intent hereof, including without limitation the
requirement that consent and approval by Lessor to any act or agreement by an
assignee, sublessee, mortgagee or occupant shall be required to the same manner
and extent as is required under the terms of this lease with respect to Lessee.
The consent by Lessor to any assignment, subletting, or amendment thereof shall
not constitute a waiver of the necessity for such consent to any subsequent
assignment, subletting or amendment and may be contingent upon payment to Lessor
of a reasonable charge for the processing thereof. This prohibition against
assigning or subletting shall be construed to include a prohibition against any
assignment or subletting by operation of law. If this lease be assigned, or if
the demised premises or any part thereof shall be subleased or rented to anyone
other than Lessee, Lessor may collect rent from the assignee, sublessee or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, subletting, occupancy nor collection shall be deemed a waiver
of this covenant, or the acceptance by Lessor of any assignee, sublessee or
occupant as lessee during the lease term or any extension thereof, or a release
of Lessee, or any mesne assignors or sublessors, from the further performance by
Lessee, and any such mesne assignor or mesne sublessors, of all the covenants
binding upon Lessee in this lease contained during the lease term and any
extension pursuant to Section 13.02 thereof.
Lessee may assign this lease without Lessor's prior written consent to any
corporation which owns one hundred percent (100%) of the voting stock of Lessee,
or to any wholly-owned subsidiary corporation of Lessee, or to any corporation
which succeeds to or takes over the business conducted in the state of Hawaii by
Lessee; provided that Lessee shall have delivered a copy of such assignment to
Lessor within thirty (30) days after such assignment.
Section 13.02. Extensions. Any failure to completely surrender the
-------------- ----------
demised premises to Lessor, as specified in Section 18.01 hereof, on or before
the date of termination as specified in Section 1.03 hereof, shall be deemed to
extend the term of this lease on a month-to-month basis at the same rentals,
terms and conditions specified in this lease, and shall not be deemed to result
in a new tenancy.
ARTICLE XIV
Taxes
-----
Section 14.01. Personal Property Taxes. Lessee shall pay
-------------- -----------------------
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(and upon demand by Lessor, Lessee shall furnish Lessor with satisfactory
evidence of the payment thereof) all taxes and assessments of whatsoever kind or
nature, and penalties and interest thereof, if any, levied against Lessee's
property of whatsoever kind and to whomsoever belonging situate or installed in
or upon the demised premises, whether or not affixed to the realty. If at any
time any of said property, whether or not belonging to Lessee, is taxed or
assessed as part of the real property within the Building of which the demised
premises are a part, then such taxes or assessments shall, for the purpose of
this lease, be deemed to be personal property and attributable to the demised
premises. The additional rent provided for in this Section shall be paid by
Lessee within ten (10) days after demand therefor by Lessor. A tax bill
submitted by Lessor to Lessee shall be sufficient evidence of the amount of
taxes assessed or levied against the parcel or real property to which such bill
relates.
Section 14.02. Excise Taxes. Lessee shall pay to Lessor, as additional
-------------- ------------
rent, together with each payment of rent, an amount equal to the excise tax
which Lessor must pay on the rent received from Lessee, whether such tax applies
under the present form of state general excise (gross income) tax, or under some
amended form thereof, or under any other form of governmental tax or excise on
gross rents received.
ARTICLE XV
Destruction of or Damage to Building
------------------------------------
Section 15.01. Repairs by Lessor. If the demised premises or any
-------------- -----------------
portion of the Building in which the demised premises are located are damaged or
destroyed during the term hereof by any casualty insured under the commercial
property insurance policies, or should the Building be damaged to an extent less
than twenty-five percent (25%) of the then tax assessed value thereof by any
other casualty, Lessor, subject to any delay or inability from causes beyond
Lessor's control, shall repair and/or rebuild the same to substantially the
condition in which the same were immediately prior to such damage or
destruction; provided, however, Lessor shall not be obligated to so repair
and/or rebuild in the event such damage occurs within the last two years of the
term of this lease. Notwithstanding the foregoing, in the event the Building
in which the demised premises are located are damaged or destroyed to the extend
of twenty-five percent (25%) or more of the then tax assessed value thereof,
Lessor may at its option terminate this lease or repair or rebuild as
hereinabove provided.
Section 15.02. Non-insured Casualty. If the Building in which the
-------------- --------------------
demised premises are located is damaged or destroyed by a casualty not insured
under the commercial property policy in effect to the extent of twenty-five
percent (25%) or more of the then tax assessed value thereof, then Lessor may
either terminate
19
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this lease or elect to repair or restore said damage or destruction, in which
latter event Lessor shall repair and/or rebuild the same as provided in Section
15.01 of Article XV, Lessor shall advise Lessee in writing within thirty (30)
days after the casualty whether it intends to rebuild or repair. If Lessor
elects not to repair or rebuild, this lease shall terminate without further
notice, in which event all future obligations of either party shall cease,
effective as of the date Lessee ceases to do business in the demised premises.
If such damage or destruction occurs and this lease is not so terminated by
Lessor, this lease shall remain in full force and effect and the parties hereto
waive the provisions of any law to the contrary. Lessor's obligation to repair
or rebuild under this paragraph shall in no event exceed the scope of the work
to be done by Lessor in the original construction of the demised premises and
the Building in which the demised premises are located.
Section 15.03. Repairs by Lessee. In the event of any damage or
-------------- -----------------
destruction affecting the demised premises, unless this lease is terminated as
in Section 15.01 or 15.02 above provided, Lessee shall replace or fully repair,
promptly upon request by Lessor, all plate glass, exterior signs, trade
fixtures, equipment, display cases, and all installations originally installed
by Lessee. Lessee shall have no interest in the proceeds of any commercial
property insurance carried by Lessor, except to the extent such insurance covers
the personal property, fixtures and installation made by Lessee to the demised
premises.
Section 15.04. Abatement of Basic Rent. The basic rent shall be abated
-------------- -----------------------
proportionately during any period in which, by reason of any damage or
destruction, there is a substantial interference with the operation of the
business of Lessee in the demised premises. The degree of abatement shall be
based upon the extent to which Lessee's use of the demised premises has been
restricted or lost, and such abatement shall continue for the period commencing
with such destruction or damage and ending with the substantial completion of
such work or repair and/or reconstruction as Lessor or Lessee is obligated to
perform and evidence of Lessee's right to re-enter and use the demised premises.
ARTICLE XVI
Eminent Domain
--------------
Section 16.01. Automatic Termination of Lease. If the whole of the
-------------- ------------------------------
demised premises is taken by any public authority under the power of eminent
domain, then the term of this lease shall cease as of the day possession is
taken by such public authority and all rentals shall be payable by Lessee up to
that date. If only a part of the demised premises is taken under eminent domain,
the lease shall terminate as to the portion taken,
20
<PAGE>
and unless this lease is terminated as hereinafter provided, it shall continue
in full force and effect as to the remainder of said premises and Lessor, at its
own cost and expense, shall make all necessary structural repairs and
alterations to the demised premises required by such taking.
Section 16.02. Option to Terminate. If, after a taking under power of
-------------- -------------------
eminent domain, the remainder of the demised premises cannot be made tenantable
for the purposes for which Lessee has been using the premises, Lessee shall have
the option, to be exercised within thirty (30) days after the filing of such
eminent domain action, of terminating this lease effective as of the date the
condemning authority takes possession; provided, however, that if more than
fifty percent (50%) of the floor area of the demised premises is taken under
power of eminent domain, either party, by written notice to the other delivered
on or before the date of surrendering possession to the public authority, may
terminate this lease, effective as of such surrender of possession. All
compensation and damages of any type whatsoever awarded for any taking, whole or
partial, shall belong to and be the property of Lessor except that Lessee shall
have the right to claim and recover from the condemning authority, but not from
Lessor (but only to the extent that such compensation is not actually paid by
the condemning authority to Lessor), such compensation as may be separately
awarded or recoverable by Lessee in Lessee's own right on account of any cost or
loss to which Lessee might be put in removing Lessee's merchandise, furniture,
fixtures and equipment.
Section 16.03. Condemnation of Less Than a Fee. In the event of a
-------------- -------------------------------
condemnation of all or a portion of the demised premises without the
condemnation of the fee simple title thereto, this lease shall not terminate and
such condemnation shall not excuse Lessee from full performance of all of its
covenants hereunder, but Lessee in such event shall be entitled to present or
pursue against the condemning authority its claim for and to receive all
compensation or damages sustained by it by reason of such condemnation, and
Lessor's right to recover compensation or damages shall be limited to
compensation for and damages, if any, during such time as Lessee is out of
possession of the demised premises by reason of such condemnation, this lease
shall not be subject to forfeiture for failure to observe and perform those
covenants not calling for the payment of money. In the event the condemning
authority fails to keep the demised premises in the state of repair required
hereunder, or to perform any other covenant not calling for the payment of
money, Lessee shall have ninety (90) days after the restoration of possession to
it within which to carry out its obligations under such covenant or covenants.
During such time as Lessee shall be out of possession of the demised premises by
reason of such leasehold condemnation, Lessee shall continue to be obligated to
pay all rentals due hereunder. At any time after such condemnation proceedings
have commenced, Lessor shall have the option to require Lessee to assign to
Lessor all compensation and
21
<PAGE>
damages payable by the condemnor to Lessee, to be held by Lessor without
liability for interest thereon as security for the full performance of Lessee's
covenants hereunder, such compensation and damages received pursuant to said
assignment to be applied first to the payment of rents, taxes, assessments,
insurance premiums and all other sums from time to time payable by Lessee
pursuant to the terms of this lease as such sums fall due, and the remainder, if
any, to be payable to Lessee, it being understood and agreed that such
assignment shall not relieve Lessee of any of its obligations under this
indenture with respect to such rents, taxes, assessments, insurance premiums and
other sums except as the same are actually received by Lessor.
ARTICLE XVII
Default of Lessee
-----------------
Section 17.01. Right to Reenter. In the event of any failure of
-------------- ----------------
Lessee to pay any rental due hereunder within ten (10) days after written notice
from Lessor that such payment is due but has not been made; or any failure to
perform any other of the terms, conditions or covenants of this lease to be
observed or performed by Lessee for more than thirty (30) days after written
notice of such default has been given to Lessee, assuming that such performance
could be accomplished within such 30-day period, or if not curable within thirty
(30) days, for more than thirty (30) days after written notice of such default
has been given to Lessee if Lessee has not commenced such cure within the thirty
(30) days after written notice of default and diligently sought to prosecute the
cure thereafter; or if Lessee or an agent of Lessee falsifies any report
required to be furnished to Lessor pursuant to the terms of this lease, or if
Lessee or any quarantor of this lease becomes bankrupt or insolvent or files any
debtor proceedings or takes or has taken against Lessee or any guarantor of this
lease, in any court pursuant to any statute either of the United States or of
any state, a petition in bankruptcy or insolvency or for reorganization or for
the appointment of a receiver or trustee of all or a portion of Lessee's or any
such guarantor's property; or if Lessee or any such guarantor makes an
assignment for the benefit of creditors, or petitions for or enters into an
arrangement; or if Lessee abandons the demised premises; or suffers this lease
to be taken under any writ of execution; then Lessor besides other rights or
remedies it may have, shall have the immediate right of re-entry and may remove
all persons and property from the demised premises and such property may be
removed and stored in a public warehouse or elsewhere at the cost of, and for
the account of Lessee, all without service of notice or resort to legal process
and without being deemed guilty of trespass, or becoming liable for any loss or
damage which may be occasioned thereby.
Section 17.02. Right to Relet. In the event Lessor elects
------------- ---------------
to reenter, as provided in Section 17.01, or takes possession
22
<PAGE>
pursuant to legal proceedings or pursuant to any notice provided for by law, it
may either terminate this lease or from time to time without terminating this
lease, make such reasonable alterations and repairs as may be necessary in order
to relet the demised premises, and may relet the demised premises or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this lease) and at such rental or rentals and upon such other terms and
conditions as Lessor in its sole discretion may deem advisable. Upon each such
reletting all rentals received by Lessor for such reletting shall be applied:
first, to the payment of any indebtedness other than rent due hereunder from
Lessee to Lessor; second, to the payment of any costs and expenses of such
reletting, including brokerage fees and reasonable attorneys' fees and of costs
of such alterations and repairs; third, to the payment of rent due and unpaid
hereunder and the residue, if any, shall be held by Lessor and applied in
payment of future rent as the same may become due and payable hereunder;
provided, however, that in no event shall Lessee be entitled to any portion of
said rentals. If such rentals received from such reletting during any month be
less than that to be paid during that month by Lessee hereunder, Lessee shall
pay any such deficiency by Lessor. Such deficiency shall be calculated and paid
monthly. No such reentry or taking possession of the demised premises by Lessor
shall be construed as an election on its part to terminate this lease unless a
written notice of such intention be given to Lessee or unless the termination
thereof be decreed by a court of competent jurisdiction. Notwithstanding any
such reletting without termination, Lessor may at any time thereafter elect to
terminate this lease for such previous breach. Should Lessor at any time
terminate this lease for any breach, in addition to any other remedies it may
have, it may recover from Lessee all damages it may incur by reason of such
breach, including the cost of recovering the demised premises, reasonable
attorneys' fees, and including the worth at the time of such termination of the
excess, if any, of the amount of rent and charges equivalent to rent reserved in
this lease for the remainder of the stated term over the then reasonable rental
value of the demised premises for the remainder of the stated term, all of which
amounts shall be immediately due and payable from Lessee to Lessor. In
determining the rent which would be payable by Lessee hereunder, subsequent to
default, the annual rent for each year of the unexpired term shall be equal to
the average annual basic and additional rents paid by Lessee from the
commencement of the term to the time of default, or during the preceding three
full calendar years, whichever period is shorter.
Section 17.03. Separate Suits. Lessor shall have the privilege of
-------------- --------------
splitting its cause of action for rent to permit institution of a separate suit
or suits or proceedings for the basic rent and a separate suit or suits or
proceedings for any other payment required hereunder, and neither the
institution of such suit or proceeding, nor the entering of judgement therein,
shall bar Lessor from bringing a subsequent suit or proceeding for
23
<PAGE>
basic rental or for any other payments hereunder.
Section 17.04. No Accord and Satisfaction. No payment by Lessee or
-------------- --------------------------
receipt by Lessor of lesser amount than the rents herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Lessor may accept
such check or payment without prejudice to Lessor's right to recover the balance
of such rent or pursue any other remedy at law or in this lease provided.
Section 17.05. Interest on Past Due Amounts. Any amounts owing by
-------------- ----------------------------
Lessee to Lessor under the terms of this lease shall carry interest from the
date the same became due until paid at the lesser of (i) the legal maximum rate
of interest then prevailing in the State of Hawaii; or (ii) three percent (3%)
above the rate of interest then being charged for prime, short-term commercial
loans on Kauai by First Hawaiian Bank and said interest shall be considered as a
part of the rental payable hereunder.
ARTICLE XVIII
Surrender of Lease
------------------
Section 18.01. Surrender Upon Termination. At the expiration of the
-------------- --------------------------
tenancy hereby created or the date of termination of this lease, Lessee shall
surrender the demised premises in the same condition of cleanliness, repair and
sightliness as the demised premises were in upon the commencement of business
under the lease, reasonable wear and tear and damage by unavoidable casualty
excepted. Lessee shall surrender all keys for the demised premises to Lessor at
the place then fixed for the payment of rent and shall inform Lessor of all
combinations on locks, safes and vaults, if any, in the demised premises. On the
date of expiration or termination, all alterations, additions, improvements, all
hard surface bonded or adhesively affixed flooring, and all fixtures on the
demised premises other than Lessee's trade fixtures, operating equipment and
carpeting, shall become the property of Lessor and shall remain upon and be
surrendered with the demised premises as a part thereof, without disturbance,
molestation or injury, and without credit to Lessee, its sublessees,
concessionaires or licensees; provided, however, that if Lessor so requests in
writing within thirty (30) days after such expiration or termination, Lessee at
its sole expense shall remove any improvements, alterations, additions, fixtures
or flooring installed or made by or for Lessee and shall restore the demised
premises to the condition prevailing prior to such installation. On or before
the last day of the term or the sooner termination thereof, Lessee, if not then
in default, may remove all trade fixtures, operating equipment and other
personal property of Lessee from the demised premises and shall repair any
damage occasioned by
24
<PAGE>
any such removal. Property not so removed shall be deemed abandoned by Lessee.
If the demised premises is not surrendered by Lessee at such time, Lessee shall
indemnify Lessor against loss or liability resulting from delay by Lessee in so
surrendering the demised premises; including without limitation, any claims made
by any succeeding Lessee founded on such delay. Lessee's obligation to observe
or perform this covenant shall survive the expiration or other termination of
the term of this lease.
Section 18.02. Liquidated Damages. If, at the expiration or other
-------------- ------------------
termination of this lease, Lessee fails to yield up possession of the demised
premises to Lessor, Lessor shall have the option to require Lessee to pay and
Lessee shall pay as liquidated damages for each day possession of the demised
premises is withheld an amount equal to double the amount of the daily basic
rent computed on the thirty-day month basis.
Section 18.03. Extensions. Any failure to completely surrender the
-------------- ----------
demised premises to Lessor, as specified in Section 18.01 hereof, on or before
expiration of the then current term of this lease (including the original term
or any renewal thereof), shall be deemed to extend the term of this lease on a
month-to-month basis at the same rentals, terms and conditions specified in this
lease, and shall not be deemed to result in a new tenancy.
ARTICLE XIX
Litigation
----------
Section 19.01. Lessee's Liability. In the event Lessor is, without
-------------- ------------------
fault on its part, made a party to any litigation commenced by or against Lessee
arising out of Lessee's occupancy of the demised premises or any act of Lessee
or any person taking by, through or under it concerning the demised premises or
this lease, or in the event suit is brought for recovery of possession of the
demised premises, for the recovery of rent or any other amount due under the
provisions of this lease, or for enforcement of any covenant or condition of
this lease, or because of the breach of any covenant herein contained, on the
part of Lessee, Lessee shall indemnify, save harmless and defend Lessor, and
shall pay to Lessor all expenses incurred in connection therewith, including
reasonable attorneys' fees.
Section 19.02. Performance by Lessor. If Lessee fails to perform any
-------------- ---------------------
of the covenants to be performed by Lessee pursuant to the terms of this lease,
or if Lessee fails to make any payment which Lessee agrees to make, then Lessor
may, at Lessor's option, after ten (10) days' written notice to Lessee, perform
any such affirmative covenants, or make any such payment, as Lessee's agent and
Lessee shall pay the same together with a ten percent (10%) surcharge to cover
Lessor's overhead as additional rent. The option given in this Article is for
the sole protection of Lessor,
25
<PAGE>
and its existence shall not release Lessee from the obligation to perform any of
the covenants herein provided to be performed by Lessee, or deprive Lessor of
any legal rights which it may have by reason of any such failure of the Lessee
to perform or any other default by Lessee.
Section 19.03. Lessor's Liability. In the event Lessee is, without
-------------- ------------------
fault on its part, as determined by court judgment, arbitration or mutual
agreement, made a party to any litigation commenced by or against Lessee arising
out of Lessor's leasing of the demised premises or any act of Lessor or any
person taking by, through or under it concerning the demised premises of this
lease, or for enforcement of any covenant or condition of this lease, or because
of the breach of any covenant herein contained, by Lessor, Lessor shall
indemnify, save harmless and defend Lessee, and shall pay to Lessee all expenses
incurred in connection therewith, including reasonable attorneys' fees.
ARTICLE XX
Notices
-------
Section 20.01. Notice of Fire or Accidents. Lessee shall give
-------------- ---------------------------
immediate notice to Lessor of fire or accident in the demised premises or the
Building and of any defects therein or defects in any fixtures or equipment
situate therein or thereon.
Section 20.02. Notices. Any notice or other communication relating to
-------------- -------
this lease shall be deemed to be duly given if in writing and sent by registered
or certified mail, postage prepaid, addressed to the party and to the address
designated by Lessor and Lessee respectively in this section:
Lessor Designation: Kai Pacific Limited
99-1135 Iwaena Street, #1
Aiea, Hawaii 96701
Lessee Designation: Cost-U-Less Inc.
330 4th Street
Kirkland, WA. 98033
All payments of rent shall be made by Lessee to the party and at the address
designated by Lessor herein. Any written notice sent by certified mail, return
receipt requested, shall be deemed to have been served as of the date actually
received; provided, however that if not sooner actually received, said written
notice shall be deemed conclusively to have been received by the other party on
the fourth day after mailing.
ARTICLE XXI
Quiet Possession
----------------
26
<PAGE>
Section 21.01. Covenant of Quiet Enjoyment. Upon payment by Lessee of
-------------- ---------------------------
the rental as aforesaid and upon the observance and performance of the covenants
by Lessee herein contained, Lessee shall peaceably and quietly hold and enjoy
the demised premises for the term hereby demised without hindrance or
interruption by Lessor or any other person or persons lawfully or equitably
claiming by, through or under Lessor.
ARTICLE XXII
Miscellaneous
-------------
Section 22.01. No Partnership. Lessor does not by this lease, in any
-------------- --------------
way or for any purpose, become a partner of Lessee in the conduct of its
business, or otherwise, or joint adventurer or a member of a joint enterprise
with Lessee.
Section 22.02. Force Majeure. In the event that either party hereto is
-------------- -------------
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war or other reason of a like nature not the fault of the
party delayed in performing work or doing acts required under the terms of this
lease, then performance of such act shall be excused for the period of the delay
and the period for the performance of any such act shall be extended for a
period equivalent to the period of such delay. The provisions of this Section
shall not operate to excuse Lessee from prompt payment of basic rent, additional
rent or any other payments required by the terms of this lease, unless the act
delaying or hindering performance materially interferes with Lessee's occupancy
and use of the demised premises, in which event all rent due hereunder shall
abate during the period of such material interference.
Section 22.03. Security Deposit. Lessee has contemporaneously with
-------------- -----------------
the execution of this lease deposited with an escrow company mutually agreed
upon by Lessee and Lessor to hold in escrow pursuant to the terms of this
Section, the sum of FORTY-EIGHT THOUSAND FOUR HUNDRED AND NO/100 DOLLARS
($48,400.00), hereafter referred to as "security deposit." Lessee and Lessor
shall share equally all escrow fees and costs. The security deposit will stay in
escrow until Lessor delivers to Lessee evidence, in form and substance
reasonably satisfactory to Lessee, of the availability of financing for
construction of the Building to be constructed on the demised premises. Once the
financing is obtained, the entire amount of the funds held in escrow shall be
released to Lessor. At such time TWENTY-FOUR THOUSAND TWO HUNDRED AND 00/100
DOLLARS ($24,200.00) will be applied toward the second month's basic rent, and
the balance shall be held by Lessor as a security deposit. The security deposit
shall be held by Lessor during the term hereof without liability for interest,
as security
27
<PAGE>
for the performance by Lessee of all the terms, covenants conditions of this
lease to be kept and performed by Lessee. Lessor shall not be required to keep
the security deposit as a separate fund but may commingle it with Lessor's own
funds. If, at any time during the term of this lease, any of the rent herein
reserved or other payment hereunder required of Lessee is overdue and unpaid,
Lessor may, at the option of Lessor (but Lessor shall not be required to)
appropriate and apply any portion of said security deposit to the payment of any
such overdue rent or other payments. Should the security deposit, or any portion
thereof, be appropriated and applied by Lessor for the payment of overdue rent
or other sums due and payable to Lessor by Lessee hereunder prior to termination
of this lease, then upon written demand by Lessor, Lessee shall remit to Lessor
a sum in cash sufficient to restore said security deposit to TWENTY-FOUR
THOUSAND TWO HUNDRED AND 00/100 DOLLARS ($24,200.00). Lessee's failure to do so
within five (5) days after receipt of such demand shall constitute a breach of
this lease. In the event of failure or failures by Lessee to keep and perform
all the other terms, covenants and conditions of this lease to be kept and
performed by Lessee, then, at the option of Lessor and after terminating this
lease, Lessor may appropriate and apply said security deposit, or so much
thereof as Lessor in its sole discretion may reasonably determine to be
necessary to compensate Lessor for all loss, cost or damage, including
attorneys' fees, sustained or suffered by Lessor due to covenants and
conditions, the security deposit shall be returned in full to Lessee at the end
of the last extension of term of this lease without interest.
Section 22.04. Transfer of Security Deposit. Lessor may transfer
------------- ----------------------------
and/or deliver the security deposit, as such, to any assignee or successor of
Lessor's interest in this lease, and thereupon Lessor shall be discharged from
any further liability with respect thereto.
Section 22.05. Lessee Defined, use of Pronoun. The word "Lessee" shall
-------------- ------------------------------
be deemed and taken to mean each and every person or party mentioned as a Lessee
herein, be the same one or more. The use of the neuter singular pronoun to refer
to Lessor or Lessee shall be deemed a proper reference even though Lessor or
Lessee may be an individual, a partnership, a corporation, or a group of two or
more individuals or corporations. The necessary grammatical changes required to
make the provisions of this lease apply in the plural sense where there is more
than one Lessor or Lessee and to either corporations, associations,
partnerships, or individuals, males or females, shall in all instances be
assumed as though in each case fully expressed.
Section 22.06. Partial Invalidity. If any term, covenant or condition
-------------- ------------------
of this lease, or the application thereof to any person or circumstance, is to
any extent invalid or unenforceable, the remainder of this lease, or the
application of such term,
28
<PAGE>
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
term, covenant or condition of this lease shall be valid and be enforced to the
fullest extent permitted by law.
Section 22.07. Captions and Section Numbers. The captions, section
-------------- ----------------------------
numbers, and article numbers appearing in this lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of such sections or articles of this lease nor in any way affect
this lease.
Section 22.08. Entire Agreement. This lease contains the entire
-------------- ----------------
agreement between the parties and any executory agreement hereafter made shall
be ineffective to change, modify, discharge or effect an abandonment of it in
whole or in part unless such executory agreement is in writing and is signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought. The laws of the State of Hawaii shall govern the
validity, performance and enforcement of this lease.
Section 22.09. No Option. The submission of this lease for examination
-------------- ---------
does not constitute a reservation of or option for the demised premises and this
lease becomes effective as a lease only upon execution and delivery thereof by
Lessor and Lessee.
Section 22.10. Non-Waiver. No covenant, term or condition of this lease
-------------- ----------
shall be deemed to have been waived by Lessor unless such waiver be in writing
by Lessor. The waiver by Lessor of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Lessor shall not be deemed to be a waiver of any preceding breach
by Lessee of any term, covenant or condition of this lease other than the
failure of Lessee to pay the particular rental so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
Section 22.11. Time of the Essence. Time is of the essence of this lease
-------------- -------------------
and all of the terms, provisions, covenants and conditions hereof.
Section 22.12. Recordation. Lessee shall not record this lease without
-------------- -----------
the written consent of Lessor, however, upon the request of either party hereto
the other party shall join in execution of a memorandum "short form" of this
lease for the purpose of recordation. Said memorandum of short form of this
lease shall describe the parties, the demised premises, and the term of this
lease and shall incorporate this lease by reference only. All recordation fees
and conveyance taken in connection with the recordation of said memorandum or
short form of this lease
29
<PAGE>
shall be paid by or be the sole responsibility of Lessee.
Section 22.13. Guaranty. KEN CHAMBERLIN, 9715 S.E. 7th, Bellevue,
-------------- --------
Washington 98004 and MICHAEL J. ROSE, 4400-193rd Avenue S.E, Isasquah,
Washington 98022, hereinafter called "guarantor," which term, wherever used
shall mean all and each of the persons or entities, jointly and severally, named
herein as Guarantor, in consideration of these presents and for the purpose of
inducing Lessor to enter into this Lease with Lessee, hereby unconditionally
guarantee the observance and performance by Lessee of all the terms, conditions
and covenants to be observed or performed by Lessee during the term of this
lease, including without limitation the payment of all rentals, taxes, and other
charges and assessments due or to become due and owing under the Lease. No
extension of time, amendments to this lease, or other forbearance granted to
Lessee shall affect the liability of Guarantor, all notices thereof being
waived. Guarantor further agrees that upon any default by Lessee, Lessor may
proceed forthwith and directly against Guarantor to collect and recover all
damages and losses, including without limitation reasonable attorneys' fees,
without necessity of first or concurrently proceeding against Lessee.
IN WITNESS WHEREOF, Lessor and Lessee have executed these presents as of
the day and year first above written.
KAI PACIFIC LIMITED
By /s/ [Signature illegible]
-------------------------------
its "Lessor"
COST-U-LESS INC.
By /s/ Michael J. Rose
-------------------------------
its Chairman "Lessee"
/s/ Ken Chamberlin
----------------------------------
KEN CHAMBERLIN
/s/ Michael J. Rose
----------------------------------
MICHAEL J. ROSE
"Guarantors"
30
<PAGE>
KAUAI ESTOPPEL
- -----------------------------------------------------------------------------
Return By: Mail (x) Pickup ( ) To:
JERRY A. RUTHRUFF, ESQ
Suite 1855, Pioneer Plaza
900 Fort street Mall
Honolulu, Hawaii 96813
- -----------------------------------------------------------------------------
CONSENT OF LESSOR TO SUBLEASE;
ESTOPPEL CERTIFICATE
AND
ATTORNMENT AGREEMENT
------------------------
THIS AGREEMENT is made this 14th day of October, 1992, by and between
----
HERMAN RAPOZO, unmarried, ("Lessor") whose mailing address is 3533 Kaau Street,
Honolulu, Hawaii; H.C.L. INVESTMENTS, INC., a Hawaii corporation ("Lessee-
Sublessor") whose mailing address is Suite 1852 Pioneer Plaza, Honolulu, Hawaii;
and COST-U-LESS, INC., a Washington corporation ("Sublessor"), whose mailing
address is 1810 15th Place Northwest, Suite 203, Issaquah, Washington.
WHEREAS, by instrument dated as of March 1, 1990, Lessor did enter into
that certain lease with Halawa Sponsorship Corporation, as lessee, with respect
to the premises situated at Kapaa, District of Puna, County of Kauai, State of
Hawaii, more particularly described in Exhibit "A" attached hereto, which lease
was recorded in the Bureau of Conveyances of the State of Hawaii as Document No.
90-131759 (the "Master Lease"); and
WHEREAS, the Master Lease was assigned by mesne assignments to Lessee; and
WHEREAS, Lessee proposes to execute and deliver to Sublessee a sublease
(the "Sublease") covering the premises demised by the Master Lease; and
<PAGE>
WHEREAS, the Sublessee has agreed to execute the Sublease upon condition
that the Lessor consent to the Sublease upon the terms and conditions
hereinafter set forth; and
WHEREAS, the Lessor is willing to grant its consent to the Sublease upon
such terms and conditions;
1. Lessor's Consent and Agreement. The Lessor does hereby consent to the
------------------------------
Sublease upon the following terms and conditions:
(a) This consent shall not be deemed or construed to be a waiver of
any term, covenant, condition of provision contained in the Master Lease (except
as otherwise provided herein), nor to authorize any further sublease or
assignment not authorized by the Master Lease, all rights of the Lessor being
expressly reserved against the Lessee-Sublessor.
(b) The Lessor hereby agrees that in the event of the termination of
the Master Lease prior to the expiration of the term or any extended term
thereof, the Sublease shall remain in full force and effect as a direct lease
from the Lessor to the Sublessee for the remainder of the term or extended term
of the Sublease (the Lessor being thereupon substituted for the Lessee-Sublessor
under the Sublease) upon and subject to the express condition that the Sublessee
shall thereupon forthwith attorn to the Lessor upon the terms, covenants and
provisions of the Sublease, and that the sublessee shall fully and faithfully
perform and observe thereafter for the remainder of such term or extended term
all of the covenants, conditions and provisions (except such covenants,
conditions and provisions as shall be obviously inapplicable) to be performed
and observed by the sublessee under the Sublease, including, but not limited to,
the payment to the Lessor of all rent reserved in the Sublease and the payment
of all taxes, rates, assessments, impositions, duties and charges therein
stipulated to be paid.
2. Sublessee's Agreement. The Sublessee hereby agrees with the Lessor
---------------------
that in the event of the termination of the Master Lease prior to the expiration
of the term or extended term thereof, the Sublessee shall thereupon forthwith
attorn to the Lessor upon the terms, covenants and provisions of the Sublease,
and thereafter be the direct tenant and lessee of the Lessor under the Sublease,
and shall thereafter for the remainder of the term or extended term of the
Sublease fully and faithfully perform and observe for the benefit of the Lessor
all of the covenants, conditions and provisions of the Sublease (except such
covenants, conditions and provisions as shall be obviously inapplicable) to be
observed and performed by the Sublessee under the Sublease, including, but not
limited to, the payment to the Lessor of all rent reserved in the Sublease and
the payment of all taxes, rates, assessments, impositions, duties and charges
therein stipulated to be paid.
<PAGE>
3. Estoppel Certificate. The Lessor hereby certifies to the Sublessee
--------------------
that as of the date hereof (1) the Master Lease is in full force and effect and
unmodified by any instruments; (2) the Lessee-Sublessor is not in default in the
payment of rent under the Master Lease; (3) to the best knowledge of the Lessor,
the Lessee-Sublessor is not in default in the performance or observance of any
covenant or condition to be performed or observed by the lessee thereunder; (4)
to the best knowledge of the Lessor, no event has occurred which authorizes, or
with the lapse of time will authorize, the Lessor to terminate the Master Lease;
and (4) the execution and delivery by the Lessee-Sublessor of the Sublease will
constitute neither a breach of the Lessee-Sublessor's obligations as lessee
under the Master Lease nor an event of default thereunder.
4. Lessee-Sublessor's Agreement. The Lessee-Sublessor shall fully and
------------------ ---------
faithfully observe and perform all of the terms, covenants and conditions of the
Master Lease, and shall indemnify and forever hold and save harmless the
sublessor from and against any and all liabilities, loss, damage or expenses of
every kind or nature, including attorney's fees, which the Sublessee shall
sustain or incur by reason of any default by the Lessee-Sublessor under the
Master Lease.
As used herein the terms "Lessor," "Lessee-Sublessor," and "Sublessee"
shall mean and include the parties named above and their respective heirs,
personal representatives, successors and assigns.
IN WITNESS WHEREOF, the Lessor, the Lessee-Sublessor and the Sublessee have
executed this instrument as of the date first above written.
/s/ Herman Rapozo
----------------------------------------
HERMAN RAPOZO
"LESSOR"
H.C.L. INVESTMENTS
By [SIGNATURE ILLEGIBLE]
--------------------------------------
Its [ILLEGIBLE]
"LESSEE-SUBLESSOR"
COST-U-LESS, INC.
By
--------------------------------------
Its "SUBLESSOR"
3
<PAGE>
GROUND LEASE
------------
THIS INDENTURE OF LEASE is effective as of the 1st day of March, 1990,
by and between HERMAN RAPOZO, whose principal place of business and post office
address is 3533 Kaau Street, Honolulu, Hawaii 96816 (hereinafter called the
"Lessor"), and HALAWA SPONSORSHIP CORPORATION, whose principal place of business
and post office address is 4895 Akai Place, P.O. Box 3430, Princeville, Kauai,
Hawaii 96722 (hereinafter called the "Lessee").
W I T N E S S E T H:
- - - - - - - - - -
That Lessor in consideration of the rent hereinafter reserved and of the
covenants herein contained and on the part of Lessee to be observed and
performed, does hereby demise unto Lessee, and Lessee does hereby accept and
rent, all of the real property described in Exhibit "A" attached hereto and
incorporated herein by reference, subject, however, to the encumbrances set
forth in said Exhibit "A".
TO HAVE AND TO HOLD the same together with all buildings, improvements,
tenements, rights, easements, privileges and appurtenances thereunto
belonging or appertaining, unto Lessee for a term of FIFTY-FIVE (55) years
commencing on March 1, 1990 and ending on February 28, 2045 unless said term
shall be sooner terminated as hereinafter provided, Lessee yielding and paying
therefor unto Lessor, net over and above all taxes, assessments and other
charges hereunder payable by Lessee, in equal monthly installments as
hereinafter provided, each in advance, on the first day of each month, rent as
follows:
<TABLE>
<CAPTION>
Year Annual Increase Ground Rent
---- --------------- -----------
<S> <C> <C>
1 -- $2,200.00
2 0.03 $2,266.00
3 0.03 $2,333.00
4 0.03 $2,404.00
5 0.03 $2,476.12
6 0.10 $2,723.73
7 0.03 $2,805.44
8 0.03 $2,889.61
9 0.03 $2,976.29
10 0.03 $3,065.28
11 0.10 $3,372.14
12 0.03 $3,473.31
13 0.03 $3,577.51
14 0.03 $3,684.83
15 0.03 $3,795.38
16 0.10 $4,174.91
17 0.03 $4,300.16
18 0.03 $4,429.17
19 0.03 $4,562.04
20 0.03 $4,698.90
</TABLE>
<PAGE>
For the period of March 1, 2010 through February 28, 2030 and March 1,
2030 through February 28, 2045, the rent shall be determined by written
agreement of Lessor and Lessee, or if they fail to reach such agreement at least
ninety (90) days before the commencement of each such period, the rent shall be
determined by appraisal as hereinafter provided, and such rent shall be equal to
the product of seven percent (7%) of the then fair market value of the demised
land, exclusive of any buildings and other improvements constructed on the
demised and free and clear of all encumbrances, including but not limited
to this Lease and all subleases and tenancies hereunder, but in no event shall
the annual rent as so determined be less than the annual rent for the last lease
year preceding such period. Until such rent is determined, Lessee shall
pay on account thereof installments of rent to Lessor in the same amounts and
at the same times and manner as were payable for the last lease year preceding
the period in question, and Lessee shall within fifteen (15) days after such
determination pay to Lessor the amount of any increase in rent which shall have
accrued since the expiration of the preceding rental period.
AND LESSOR hereby covenants, represents and warrants with Lessee that
Lessor has good title to the premises and good power and authority to enter this
Lease, and, upon payment by Lessee of the rent as aforesaid and upon observance
and performance of the covenants by Lessee hereinafter contained, Lessee shall
peaceably hold and enjoy said premises for the term hereby demised without
hindrance or interruption by Lessor or any other person or persons lawfully
claiming by, through or under them except as herein expressly provided.
AND LESSEE hereby covenants with Lessor as follows:
1. PAYMENT OF RENT. Lessee will pay said rent in lawful money of the
---------------
United States of America at that times and in the manner aforesaid, without
deduction and without any notice or demand, at the office of Lessor in Honolulu.
2. TAXES AND ASSESSMENTS. At least ten (10) days before the same
---------------------
become delinquent, Lessee will pay and provide Lessor with a receipt for payment
or if such receipt is issued by the taxing authority all real property taxes and
assessments of every description to which said premises or any part thereof or
improvement thereon, or Lessor or Lessee in respect thereof, may during said
term be assessed or become liable, whether assessed to or payable by Lessor or
Lessee; provided, however, that with respect to any assessment made under any
betterment or improvement law which may be payable in installments, Lessee
shall be required to pay only such installments of principal together with
interest on unpaid balances thereof as shall become due and payable during said
term, and that such taxes shall be pro-rated as of the dates of commencement and
expiration, respectively, of said term. If at any time during said term there
shall be assessed against the demised land or any part thereof or any
improvement thereon or any rents payable to Lessor therefor or against Lessor in
respect thereof any new taxes (other than federal or state net income taxes or
any other taxes existing at the commencement of said term) which are in
substitution for real property taxes or are in lieu of increases thereof, Lessee
will also pay to Lessor as additional rent, at least ten (10) days before the
same become delinquent, all such new taxes. Lessee will also pay all conveyance
taxes imposed by the State of Hawaii in respect to any subleases made by Lessee.
-2-
<PAGE>
Nothing herein contained shall prevent the Lessee from contesting in
good faith the amount or validity, or both, of any such taxes, rates,
assessments, impositions, duties, charges or other outgoings by appropriate
legal proceedings commenced before the same become delinquent, and the Lessor,
if legally required to do so, shall join in such proceedings, on condition,
however, that such proceedings shall not operate to cause the sale of the
demised land or of the improvements thereon or any part thereof to satisfy any
such tax, rate, assessment, imposition, duty, charge or other outgoing, and on
further condition that the Lessee shall pay on demand any costs or attorneys'
fees incurred by the Lessor in any such proceedings, and on further condition
that if all or part of any such tax, rate, assessment, imposition, duty, charge
or other outgoing, the amount or validity of which shall have been so contested,
shall be finally determined by any court or other governmental authority of
competent jurisdiction to be lawfully charged, assessed, imposed, due or
payable, the Lessee will promptly pay the same, together with any interest,
penalty or fine resulting from any such contest by the Lessee. If the Lessee
shall fail to pay any such taxes, rates, assessments, impositions, duties,
charges or other outgoings as herein provided, the Lessor may at any time after
the same become due pay the same, together with any interest, penalties, fines
and costs accrued thereon or imposed in connection therewith, and the Lessee
will repay to the Lessor, upon demand, the full amount so paid by the Lessor,
together with interest at the rate of TWELVE PERCENT (12%) per annum.
3. ADDITIONAL RENT. Lessee will also pay to Lessor, as additional rent
---------------
and within ten (10) days after the date of mailing or personal delivery of
statements therefor, all costs and expenses paid or incurred by Lessor and
required to be paid by Lessee under any provision hereof. If Lessee shall
become delinquent in the payment of any rent, additional rent (which does not
constitute interest), or other payments required hereunder to be made by Lessee
to Lessor, Lessee will also pay to Lessor as additional rent interest thereon
from the respective due dates thereof until fully paid at the rate of twelve
percent (12%) per year.
4. GENERAL EXCISE TAX. Lessee will pay to Lessor as additional rent,
------------------
at the time and together with each payment of rent, additional rent, or other
charge required hereunder to be made by Lessee to Lessor which is subject to the
Hawaii general tax on gross income or any successor or similar tax, an amount
which, when added to said rent, additional rent, or other charge (whether
actually or constructively received by Lessor), shall yield to Lessor, after
deduction of all such taxes payable by Lessor with respect thereto, a net amount
equal to that which Lessor would have realized therefrom had no such taxes been
imposed.
5. RATES AND OTHER CHARGES. Lessee will pay directly before the same
-----------------------
become delinquent all utility charges, water and sewer rates, garbage rates and
other charges and outgoings of whatever description to which said premises or
any part thereof or improvement thereon, or Lessor or Lessee in respect thereof,
may during said term be assessed or become liable, whether assessed to or
payable by Lessor or Lessee.
6. IMPROVEMENTS REQUIRED BY LAW. Lessee will at its own expense
----------------------------
during the whole of said term make, build, maintain and repair all fences,
sewers, drains, roads, curbs, sidewalks and parking areas which may be
-3-
<PAGE>
required by law to be made, built, maintained and repaired upon or adjoining or
in connection with or for the use of said premises or any part thereof.
7. OBSERVANCE OF LAWS. Lessee will at all times during said term keep
------------------
said premises in a strictly safe, clean, orderly and sanitary condition and
observe and perform all laws, ordinances, rules and regulations now or hereafter
made by any governmental authority for the time being applicable to said
premises and will indemnify Lessor against all actions, suits, damages and
claims by whomsoever brought or made by reason of the nonobservance or
nonperformance of said laws, ordinances, rules and regulations or of this
covenant.
8. RESTORATION, REPAIR AND MAINTENANCE. Lessee will at its own expense
-----------------------------------
from time to time and at all times during said term well and substantially
restore, repair, maintain, amend and keep all buildings and other improvements
hereafter built or made on the demised land with all necessary reparations and
amendments whatsoever in good and safe repair, order and condition, reasonable
wear and tear and destruction by unavoidable casualty not herein required to be
insured against excepted.
Lessee may without further approval of Lessor, clear demolish and/or
remove any and all structures, plants and other improvements or growth now on
the premises without limitation.
9. INSPECTION. Lessee will permit Lessor and its agents at all
----------
reasonable times during said term to enter said premises and examine the state
of repair and condition thereof, and will repair and make good at Lessee's own
expense all defects required by the provisions of this Lease to be repaired by
Lessee of which notice shall be given by Lessor in its agents within sixty (60)
days after the giving of such notice or such other reasonable time as may be
specified therein. If for any reason Lessee shall fail to commence and complete
such repairs within sixty (60) days after the giving of such notice or such
other reasonable time as may be specified therein, and if Lessee shall not have
instituted a declaratory action to determine the necessity of the foregoing,
Lessor may, but shall not be obligated to, make or cause to be made such repairs
and shall not be responsible to Lessee or anyone claiming by, through or under
it for any loss or damage to the occupancy, business or property of any of them
by reason thereof, and Lessee will pay to Lessor on demand and as additional
rent all costs and expenses paid or incurred by Lessor in connection with such
repairs.
10. USE AND TYPE OF BUILDINGS. Lessee will use said premises solely for
-------------------------
such purposes as allowed by law (including, without limitation, the Kauai County
Code and any amendment and/or replacement thereof), and will not at any time
make or suffer any strip or waste or unlawful, improper or offensive use of said
premises.
11. CONSTRUCTION OF BUILDINGS. Lessee will not construct or place any
-------------------------
buildings or structures, including fences and walls, or other improvements on
the demised land costing more than TWENTY-FIVE THOUSAND DOLLARS
($25,000.00), nor make or suffer any additions to or structural alterations of
the basic structure of any buildings thereon, nor change the grading or drainage
thereof, except under the supervision of a licensed architect or structural
engineer and Lessor shall not withhold approval of any legal use or
-4-
<PAGE>
improvement to the premises, including placement of import fill necessary to
effect same, as defined pursuant to Paragraph 10 hereof. No such approval by
Lessor shall be deemed a warranty or other representation on its part that such
plans, specifications or detailed plot plans or the building or buildings or
other improvements therein described are legal, safe or sound. Prior to
compliance with the provisions of Paragraph 12 hereof and in compliance with
Paragraph H of the mutual convenants contained herein, Lessee may at its own
expense raze and remove from said land any or all improvements existing on the
premises as of the date hereof.
12. BONDS. Lessee will before commencing construction of any
-----
improvement on said premises costing more then TWENTY-FIVE THOUSAND DOLLARS
($25,000.00), deposit with Lessor (a) written evidence satisfactory to Lessor
that Lessee has or is entitled to sufficient funds comprising an unconditional
loan commitment by a recognized lending institution and/or evidence of a bank
deposit in a total sum not less than an amount equal to the total estimated cost
thereof, together with an executed copy of a construction loan agreement or
other financing arrangement acceptable to Lessor by and between Lessee and such
institution or bank which provides for the orderly disbursement of such funds
ratably according to the work completed less only a reasonable retainage, (b) a
fully executed copy of the construction contract therefor and (c) copies of the
contractor's (or Lessee's if it is acting as its own contractor) performance
bond and labor material payment bond naming Lessor as an obligee in an amount
equal to the total estimated cost thereof and in form and with surety reasonably
satisfactory to Lessor, guaranteeing the completion of such work free and clear
of all mechanic's and materialmen's liens by whomever claimed. Any bond issued
by a surety or insurance company registered to do business in the State of
Hawaii is satisfactory to Lessor and, if any other surety is proposed to issue
any bond, the surety must be reasonably satisfactory to Lessor.
13. SETBACK LINES. Lessee will observe any setback lines affecting
-------------
said premises as now or hereafter established by any governmental authority
having jurisdiction.
14. FIRE AND OTHER CASUALTY INSURANCE.
---------------------------------
(a) Existing Buildings. Lessee shall have no obligation to insure
------------------
existing buildings.
(b) New Project. This Subparagraph (b) shall apply to all new
-----------
buildings and other improvements constructed pursuant to Paragraph 11 hereof.
Lessee will at its own expense at all times during said term keep all new
buildings on the demised land insured against loss or damage by fire with
extended coverage and an inflation guard endorsement in an insurance company
authorized to do business in Hawaii and in time of war against war damage to the
extent such governmental insurance is obtainable at reasonable cost, in an
amount as near as practicable to the full insurable value thereof in the joint
names of Lessor, Lessee and any mortgagee as their interests may appear, and
will pay all premiums on such insurance when due, and will from time to time
deposit promptly with Lessor current certificates of such insurance and upon
request therefor true copies of such insurance policies. In every case of loss
or damage to said buildings all proceeds of such insurance (excluding the
proceeds of any rental value or use and occupancy insurance of Lessee) shall
-5-
<PAGE>
be used with all reasonable speed by Lessee for rebuilding, repairing or
otherwise reinstating the same buildings in a good and substantial manner
according to the original plan and elevation thereof or such modified plan
conforming to laws and regulations then in effect as shall be first approved in
writing by Lessor and any mortgagee, and Lessee will make up from its own funds
any deficiency in the insurance proceeds. Provided, that if said building(s)
shall during the last ten (10) years of the term of this Lease be destroyed or
damaged to an extent exceeding FIFTY PERCENT (50%) of the actual cash value
thereof immediately prior to such casualty, and the insurance proceeds are
insufficient for restoring such building(s) as herein provided, and with the
written consent of any mortgagee of this Lease, Lessee, in lieu of such
restoration may at its option within sixty (60) days after such casualty remove
all debris and remains of damaged building(s) and surrender to Lessor this
Lease and all interest of Lessee and any mortgagee in the remaining insurance
proceeds and thereby be relieved of any further obligations hereunder.
15. INDEMNITY. Lessee will indemnify and hold Lessor harmless from and
---------
against all claims and demands for loss or damage, including property damage,
personal injury and wrongful death, arising out of or in connection with the use
or occupancy of said premises by Lessee or any other person under Lessee, or any
accident or fire on said premises or any nuisance made or suffered thereon, or
any failure by Lessee to keep said premises or any adjacent sidewalks in a safe
condition, and will reimburse Lessor for all its costs and expenses including
reasonable attorneys' fees incurred in connection with the defense of any such
claims, and will hold all goods, materials, furniture, fixtures, equipment,
machinery and other property whatsoever on said premises at the sole risk of
Lessee and save Lessor harmless from any loss or damage thereto by any cause
whatsoever.
16. EXPENSES OF LESSOR. Lessee will pay to Lessor, within ten (10)
------------------
days after the date of mailing or personal delivery of statements therefor, (a)
all costs and expenses including reasonable attorneys' fees paid or incurred by
Lessor but required to be paid by Lessee under any covenant herein contained or
paid or incurred by Lessor in enforcing any of Lessee's covenants herein
contained, in protecting itself against any breach thereof, in remedying any
breach thereof, in recovering possession of said premises or any part thereof,
in collecting or causing to be paid any delinquent rent, taxes, or other charges
hereunder payable by Lessee, or in connection with any litigation (other than
condemnation proceedings) commenced by or against Lessee to which Lessor shall
without fault be a party, and (b) a reasonable fee for reviewing and processing
any request by Lessee for Lessor's consent or approval, including without
limitation reasonable fees of attorneys and other consultants retained by
Lessor.
17. LIENS. Lessee will not commit or suffer any act or neglect whereby
-----
said premises or any improvement thereon or the estate of Lessee therein shall
at any time during said term become subject to any attachment, judgment, lien,
charge or encumbrance whatsoever, except for mortgages, security agreements,
financing statements and similar voluntary financing vehicles and except as
herein expressly provided, and will indemnify and hold Lessor harmless from and
against all loss, cost and expense with respect thereto. If any lien for work,
labor, services or materials done for or supplied to the premises regardless of
who contracted therefor is filed
-6-
<PAGE>
against the premises, Lessee shall have 30 days from the date of filing in which
to cause such lien to be discharged of record by payment, deposit or bond.
18. LIABILITY INSURANCE. Lessee will at its own expense effect and
-------------------
maintain during the whole of said term comprehensive general liability insurance
with respect to said premises under policies naming Lessor as an additional
assured in an insurance company authorized to do business in Hawaii with minimum
limits of not less than ONE MILLION DOLLARS ($l,000,000.00) for injury to one or
more persons in any one accident or occurrence and ONE HUNDRED THOUSAND DOLLARS
($100,000.00) for property damage or such higher limits as Lessor may reasonably
from time to time establish with due regard to prevailing prudent business
practice as reasonably adequate for Lessor's protection, and will from time to
time deposit with Lessor current certificates of such insurance and upon request
therefor true copies of such insurance policies.
19. ASSIGNMENT. Lessee may assign lease with full rights within sixty
----------
(60) days of execution to any such entity as Lessee may designate. Lessee will
not without the prior written consent of Lessor assign or mortgage this Lease,
it being understood that Lessor will not, except as stated above, consent to any
assignment of this Lease except by way of mortgage, nor to any such assignment
by way of mortgage if the amount thereby secured exceeds the fair market value
of this Lease and all buildings and other improvements built on the land hereby
demised or to be built and paid for with the proceeds of such mortgage;
provided, however, that Lessor shall not require the payment of any moneys or
other consideration for the giving of such consent other than a reasonable fee
as hereinbefore provided in Paragraph 16. The term "assignment" herein shall
include one or more sales or transfers by operation of law or otherwise by which
(A) an aggregate of more than FIFTY PERCENT (50%) of (i) the total capital stock
of a corporate lessee, (ii) the total partnership interests of a general
partnership lessee, or (iii) the total beneficial interests of a trust lessee,
or (B) if the lessee is a limited partnership, FIFTY PERCENT (50%) of the
interest in the general partner thereof or, if there is more than one general
partner, FIFTY PERCENT (50%) of the interests in all such general partners in
the aggregate, shall become vested in one or more individuals, firms, or
corporations who or which are not stockholders, partners or beneficiaries
thereof, either legally or equitably, as of the date of this Lease or of
Lessee's subsequent acquisition of this Lease by assignment, it being understood
that ownership of such capital stock, partnership interests and beneficial
interests shall be determined in accordance with the principles enunciated in
Section 544 of the Internal Revenue Code of 1954; provided, however, that the
foregoing definition shall not apply with respect to a corporate lessee whose
capital stock is listed on a recognized stock exchange.
20. SURRENDER. At the end of said term or other sooner determination
---------
of this Lease, Lessee will peaceably deliver up to Lessor possession of the land
hereby demised, together with all buildings and other improvements upon or
belonging to the same, by whomsoever made, in good and safe repair, order and
condition except as otherwise expressly provided in Paragraph 8 hereof;
provided, further, that if not then in default hereunder, Lessee may thereupon
remove any trade fixtures installed on said premises during said term but shall
repair promptly all damage caused by such removal.
-7-
<PAGE>
The foregoing covenant of Lessee shall survive the expiration of said term.
21. HOLDOVER. If Lessee remains in possession of said premises after the
--------
expiration of said term, Lessee shall be deemed to occupy said premises only as
a tenant from month-to-month at the rents and on all the covenants, conditions
and provisions herein contained which are not inconsistent with a month-to-month
tenancy.
AND IT IS HEREBY MUTUALLY AGREED by and between the parties hereto as
follows:
A. ASSIGNMENT OF LESSOR'S INTEREST IN LEASES. By this Lease, Lessor
-----------------------------------------
hereby assigns to Lessee any and all rents to be received from any parties
currently leasing any portion of the demised premises from the date of execution
of this Lease for the duration of this Lease. Should there be an existing
lease for any portion of the demised premises, Lessor shall, concurrently with
the execution of this Lease, provide a copy to Lessee and shall cause to be
executed an assignment of Lessor's interest in the lease. If the lessee has a
month-to-month tenancy, Lessor shall, concurrently with the execution of this
Lease, provide written verification of said tenancy to Lessee.
Lessor warrants that there currently exists no lease for the premises
with a term or obligation which shall survive the commencement of this lease.
Lessor further warrants that there are no existing defaults under any
of the leases covering any portion of the demised premises by any party.
B. APPRAISAL. Whenever this Lease provides that the fair market
---------
value of the demised land shall be determined by appraisal for computation of
any rent hereunder, such fair market value or rate of return shall be determined
by three (3) qualified real estate appraisers, who are members of the American
Institute of Real Estate Appraisers or the Society of Real Estate Appraisers, or
successor entities, one to be appointed by each of the parties hereto, and
Lessor and Lessee each shall promptly name one such appraiser and give written
notice thereof to the other party, and in case either party shall fail so to do
within ten (10) days after such notice of the appointment of the first
appraiser, the party naming the first appraiser may apply to any person then
sitting as judge of the circuit court of the judicial circuit in which said
premises are located for appointment of a second appraiser, and the two
appraisers thus appointed in either manner shall appoint a third appraiser, and
in case of their failure to do so within ten (10) days after appointment of the
second appraiser, either party may have the third appraiser appointed by such
judge, and the three appraisers so appointed shall proceed to determine the
matter in question, and the decision of said appraisers or a majority of them
shall be final, inclusive and binding on both parties hereto, unless the same
shall be vacated, modified or corrected as provided in Chapter 658, Hawaii
Revised Statutes, as the same may from time to time, be amended. Lessor and
Lessee each shall pay their own appraiser and one-half (1/2) of the third
appraiser's fee and all proper costs and expenses of such appraisal other than
their own witness and attorneys' fees.
-8-
<PAGE>
C. CONDEMNATION. In case at any time or times during said term said
------------
premises shall be required, taken or condemned by any authority having the power
of eminent domain, then and in every such case the estate and interest of Lessee
in the premises so required, taken or condemned shall at once cease and
determine, and Lessee shall not by reason thereof be entitled to any claim
against Lessor for compensation or indemnity for leasehold interest, and all
compensation and damages payable for or on account of any land or improvements
thereon except improvements erected on the demised land during said term shall
be payable to and be the sole property of Lessor, and all compensation and
damages payable for or on account of any improvements erected on the demised
land during said term shall be divided between Lessor and Lessee as of the date
when Lessee loses the right of possession thereof according to the ratios that
the then expired and unexpired portions respectively of said term after the date
of original completion of such improvements bear to the sum of said portions.
Provided, that in case only part of said premises shall be so required, taken or
condemned, the rent payable for the remaining period of said term for which it
is fixed shall be reduced in the ratio that the land area of such part bears to
the total area of demised land immediately prior to such event, and all
compensation and damages payable for or on account of any improvements erected
on the demised land during said term shall be used promptly by Lessee to the
extent necessary for restoring or replacing such improvements on the remaining
land according to plans and specifications therefor first approved in writing by
Lessor; provided, further, that if more than half of the demised land shall be
so required, taken or condemned thereby rendering the remaining premises
unsuitable for the purposes of Lessee, Lessee may at its option surrender to
Lessor this Lease and all interest of Lessee and any mortgagee in the
compensation and damages payable on account of any improvements on the remaining
premises so surrendered and thereby be relieved of any further obligations under
this Lease.
D. CONSENT TO MORTGAGE. Lessee may from time to time without further
-------------------
consent of Lessor assign this Lease by way of mortgage to any bank, insurance
company, savings and loan, credit union, finance company, or other established
lending institution as mortgagee, provided that the amount secured by all such
assignments by way of mortgage shall not exceed the fair market value of this
Lease and all buildings and other improvements built on the land hereby demised
or to be built and paid for with the proceeds of such mortgage (said
determination of fair market value to be made, with respect to each lease-hold
mortgage, as of the date of recording such mortgage), and provided that Lessee
shall upon execution of such mortgage promptly deliver a true copy thereof to
Lessor. The mortgagee or its assigns may enforce such mortgage and acquire
title to the leasehold estate in any lawful way, and pending foreclosure of such
mortgage (or pending sale of this Lease in lieu of foreclosure of such mortgage)
may take possession of and rent said premises, and upon foreclosure thereof (or
upon such conveyance in lieu of foreclosure thereof) may without further consent
of Lessor sell and assign the leasehold estate by assignment in which the
assignee shall expressly assume and agree to observe and perform all the
covenants of Lessee herein contained and such assignee may make a purchase money
mortgage of this Lease to the assignor, provided that upon execution of any such
assignment or mortgage a true copy thereof shall be delivered promptly to Lessor
and that no other or further assignment of this Lease for which any provision
hereof requires the written consent of Lessor shall be made without such
consent. Upon the delivery and
-9-
<PAGE>
recordation of the conveyance through foreclosure (or delivery and recordation
of the conveyance in lieu of foreclosure) of the leasehold estate and/or the
mortgagee's sale or assignment thereof, this Lease shall remain in full force
and effect as a direct lease between Lessor and the mortgagee or such assignee.
The mortgagee or its assigns of such mortgage shall be liable to perform the
obligations herein imposed on Lessee only during the period such person has
possession or ownership of the leasehold estate. Nothing contained in such
mortgage shall release or be deemed to relieve Lessee from the full and faithful
observance and performance of its covenants herein contained or from any
liability for the nonobservance or nonperformance thereof, nor be deemed to
constitute a waiver of any rights of Lessor hereunder, and the terms, covenants
and conditions of this Lease shall control in case of any conflict with the
provisions of such mortgage, except as otherwise agreed by Lessor.
E. PROTECTION OF MORTGAGE. During the continuance in effect of any
----------------------
authorized mortgage of this Lease, Lessor will not terminate this Lease because
of any default on the part of Lessee to observe or perform any of the covenants
or conditions herein contained if the mortgagee or its assigns, within one
hundred twenty (120) days after Lessor has mailed to the mortgagee or its
assigns at the last known address thereof a written notice of intention to
terminate this Lease for such cause, shall cure such default, if the same can be
cured by the payment of money, or, if such is not the case, shall undertake in
writing to perform and shall thereafter pay all rent and other charges as and
when due under this Lease and perform all the covenants of this Lease capable of
performance by the mortgagee or its assigns until such time as this Lease shall
be sold upon foreclosure of such mortgage commenced promptly and completed with
due diligence, and any default (i) consisting of Lessee's failure promptly to
discharge any lien, charge or encumbrance against said premises junior in
priority to such mortgage or (ii) which is otherwise not susceptible to cure by
mortgagee except upon obtaining possession of the premises or foreclosure, shall
be deemed to be duly cured if such mortgage shall be foreclosed by appropriate
action instituted within said l20-day period and thereafter prosecuted in
diligent and timely manner. Lessor agrees that simultaneously with mailing or
delivering any notice of default or breach under or with respect to this Lease
to Lessee, that it will mail or deliver a copy thereof to the mortgagee(s) of
the Lease at their last known addresses.
In the event that, notwithstanding the mortgagee's compliance with the
above provisions of this Paragraph D, this Lease shall terminate prior to the
natural expiration of the term thereof (i) as a result of an actual or deemed
rejection of the Lease under any provision of the Bankruptcy Act (Title 11,
United States Code) or any successor law having similar effect, or
(ii) by operation of law or otherwise, then, and in any such event, Lessor shall
give written notice to the mortgagee (or first mortgagee if more than one) of
such termination, together with a statement of any and all sums which would at
that time be due under this Lease. The mortgagee (or the first mortgagee if more
than one) shall thereupon have the option to obtain a new Lease in accordance
with and upon the following terms and conditions:
(a) Upon the written request of the mortgagee within sixty (60)
days after service of the aforementioned notice of termination,
Lessor shall enter into a new lease of the premises with such
mortgagee, or its designee, as provided in (b) immediately below;
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<PAGE>
provided, however, that if Lessor receives no such written request
within said sixty (60) day period then all of mortgagee's rights to
a new Lease hereunder shall automatically terminate.
(b) Such new Lease shall be effective as of the date of termination
of this Lease and shall be for the remainder of the term of this
Lease at the same rent and other charges herein provided and
otherwise upon the same agreements, terms, covenants and conditions
contained herein, with the same relative priority in time and right
as this Lease and having the benefit of and vesting in the
mortgagee (or first mortgagee if more than one) all of the same
rights, title, interest, powers and privileges of the Lessee
hereunder but provided that the liability of he mortgagee under the
Lease will be limited to its interest in the premises and to the
period of time it is lessee under such new lease. The new lease
shall, subject to the same agreements, terms, covenants and
conditions contained herein, also demise to the mortgagee or its
designee all buildings, improvements and appurtenances situated on
the demised premises, together with all equipment, fixtures and
machinery therein. Concurrently with execution of the new lease,
Lessor shall assign its interest in and to any then existing
sublease under which the tenant has attorned to and been recognized
by Lessor. During the period between termination of this Lease and
execution of the new lease, Lessor shall not amend or modify the
subleases or take any action which will adversely affect the
premises or give rise to any liens against the premises. As a
condition to and concurrently with delivery of such new Lease, the
Lessee named therein shall pay any and all sums which would at the
time of the execution thereof be due under this Lease but for the
termination as aforesaid, and shall fully otherwise remedy any
existing defaults under this Lease susceptible of cure by the
mortgagee, or such designee, and shall pay all expenses, including
but not limited to reasonable attorney's fees, court costs and
disbursements incurred by Lessor in connection with the
preparation, execution and delivery of such new Lease. Any default
which cannot be cured by such Lessee until it obtains possession
shall be cured by the lessee within a reasonable time after it
obtains possession.
Ownership by or for the same person of both the fee and leasehold
estates in said premises shall not effect the merger thereof, without the prior
written consent of any mortgagee to such merger.
The parties will cooperate in including in this Lease, by suitable
amendment, from time to time any provision which may be reasonably necessary
-11-
<PAGE>
and customary to secure institutional financing; provided, however, that such
amendments shall not in any way affect the term hereby demised or the rent
payable hereunder, nor affect adversely any rights of Lessor in the premises or
under this Lease, nor increase the administrative burden of Lessor hereunder.
Lessor in all instances shall be the sole judge (in a reasonable manner) of the
adverse effects of such amendments.
F. DEFAULT AND DEFEASANCE. This demise is upon the express condition
----------------------
that if Lessee shall fail to pay said rent or any part thereof within thirty
(30) days after the same becomes due, whether the same shall or shall not have
been legally demanded, or shall fail to observe and perform faithfully any of
its covenants or agreements herein contained performable by the payment of money
(other than the payment of rent) and such default shall continue for sixty (60)
days after a statement therefor given by the obligee to Lessee, or shall fail to
observe or perform faithfully any of its other covenants or agreements herein
contained and such default shall continue for thirty (30) days after written
notice thereof given by Lessor to Lessee, or shall abandon said premises, or if
this Lease or any estate or interest of Lessee hereunder shall be sold under any
attachment or execution Lessor may at once re-enter said premises or any part
thereof in the name of the whole and, upon or without such entry, at its option
terminate this Lease, without service of notice or legal process and without
prejudice to any other remedy or right of action for arrears of rent or for any
preceding or other breach of contract. If this Lease is recorded in the Bureau
of Conveyances of the State of Hawaii or filed in the Office of the Assistant
Registrar of the Land Court of the State of Hawaii, such termination may but
need not necessarily be made effective by recording or filing in such place an
affidavit thereof by Lessor or a judgment thereof by a court of competent
jurisdiction. If Lessee shall fail to observe or perform any of its covenants
herein contained, Lessor at any time thereafter and without notice may, but
shall not be obligated to, observe or perform such covenant for the account and
at the expense of Lessee, and all reasonable costs and expenses incurred by
Lessor in observing and performing such covenant shall constitute additional
rent and shall bear interest as provided in Paragraph 3 hereof.
G. APPROVAL OR CONSENT. No approval or consent of Lessor required by
-------------------
any provision hereof shall be unreasonably withheld. Lessor shall cooperate with
Lessee in expediting all requests for approval or consent and if such approval
or consent is refused, Lessor shall so state in writing and give its reasons
therefor.
H. GOVERNMENTAL APPROVAL.
---------------------
(i) Lessee shall have ninety days from the date of execution of this
lease to determine to its satisfaction that it shall be able to obtain all
necessary governmental approvals which may include, but need not be limited to,
federal floodway, state land use, and local zoning ordinances. Should any agency
deny any use of the property permitted under current zoning, Lessee shall have
the option to declare this lease null and void. Should Lessee elect to appeal
any governmental ruling, Lessee shall have an additional ninety days from the
date of written notice to Lessor to pursue said appeal. If, at the end of said
appeal period, Lessee shall determine that it shall be unable to obtain
governmental approvals for any permitted use under current zoning, then Lessee
may, at its option, declare this lease null
-12-
<PAGE>
and void and Lessor shall return to Lessee all rents paid.
(ii) Lessee shall pay all scheduled rents to the client trust account
of Lessor's attorney for said period of ninety days and for said subsequent
period of ninety days, or for any portion thereof until such time as Lessee
shall notify Lessor in writing that said contingency is removed or that Lessee
elects to nullify and void this lease. Should Lessee fail to make payment of
rents as scheduled herein, all remedies of Lessor as delineated herein shall
become in full force and effect.
(iii) Amount of rents paid shall be per schedule of rents as
included herein and shall be paid according to the terms and conditions of this
lease, less that amount currently being received as rents to the Lessor from
existing tenants as of the date of execution of this Lease. Lessor shall
continue to receive said rents in their entirety directly from existing tenants
until such time as the contingencies herein are removed. At such time all rights
thereto shall accrue to Lessee. At no time shall Lessee owe as rents any amount
greater than as scheduled herein. Lessee may not evict or otherwise restrict
the current uses of the tenants, or cause reason for said rents to cease or be
interrupted as long as the contingencies herein remain in effect. At such time
as the contingencies herein are removed, full rights over the uses to collect
and possess without lien all tenant rents shall accrue to the Lessee, and all
reductions in the amounts of lease rents as scheduled herein shall no longer be
applicable.
(iv) In the event that this contingency is removed by notice in
writing to Lessor and/or Lessor's attorney, Lessor's attorney shall
immediately release to Lessor all rents held in trust as per this clause.
I. NONWAIVER. Acceptance of rent by Lessor or its agent shall not be
---------
deemed to be a waiver by it of any breach by Lessee of any covenant herein
contained or of Lessor's right to re-enter for breach of condition. Waiver by
Lessor of any breach by Lessee shall not operate to extinguish the term,
covenant or condition the breach whereof has been waived nor be deemed to be a
waiver of Lessor's right to declare a forfeiture for any other breach thereof.
J. PROOF OF TITLE. Lessor shall provide proof of title in the form of
--------------
a status title report, commitment for title insurance, or title policy within
thirty days of the date of execution of this Lease. Should Lessor fail to
provide said proof, Lessee may at its option, obtain proof of title by any form
stated above at Lessor's expense, or may declare this lease null and void and
shall be entitled to the return of all rents and deposits paid to Lessor
pursuant to this Lease.
K. ENVIRONMENTAL HAZARD. The Lessee may terminate this lease if any
--------------------
individual, organization, governmental body, or other entity brings an action to
remove or cleanup any toxic waste or other environmental hazard that may be
present on the demised premises at any time. The Lessor shall promptly
indemnify and hold Lessee harmless from any liabilities, damages, costs and
expenses, including without limitation reasonable attorneys fees, incurred by
Lessee, its successors and assigns, by virtue of the imposition, enforcement or
collection of any lien against the Premises, created as a result of any such
removal or cleanup.
-13-
<PAGE>
L. CONDOMINIUM PROPERTY REGIME. Lessee has the right at any time, but
---------------------------
not the obligation to submit the improvements constructed on the leased
premises to a Condominium Property Regime as provided in (S)514-A, Hawaii
Revised Statutes. Lessor shall cooperate with Lessee at all times in the
processing and expediting of all requests to obtain the necessary approval for
the permitted use of the said condominium property regime. Nothing herein shall
be construed to discharge or otherwise release the Lessee from any liability
with respect to this Lease or to the condominium property regime. Lessor and
Lessee mutually understand and agree that in the event that the demised premises
is submitted to a condominium property regime, Lessee shall execute subleases to
any subsequent tenants of the premises. This Lease shall remain in full force
and effect for its duration.
M. NOTICES. Any notice or demand to Lessor or Lessee provided for or
-------
permitted by this Lease may be given sufficiently for all purposes in writing
mailed as registered or certified mail, addressed to such party at its post
office address herein specified to the last such address designated by such
party in writing to the other, or delivered personally within the State of
Hawaii to any one of the Lessor or Lessee or any officer of Lessee if Lessee is
a corporation or any general partner of Lessee if Lessee is a partnership, as
the case may be, and shall be deemed conclusively to have been given on the date
of such mailing or personal delivery. Any notice or demand to Lessee hereunder
may be given sufficiently for all purposes to any person holding this Lease as
Lessee, whether solely or with others, and any notice or demand to or acts by
one such person with respect to this Lease shall constitute notice or demand to
or acts by all such persons as Lessee.
N. INTEGRATION AND AMENDMENT. This Lease is a complete integration of
-------------------------
every agreement and representation made by or on behalf of Lessor and Lessee
with respect to said premises and no implied covenant or prior oral or written
agreement shall be held to vary the provisions hereof, any law or custom to the
contrary notwithstanding. No amendment or modification of this Lease shall be
effective unless incorporated in a written instrument executed by Lessor and
Lessee.
O. NO PARTNERSHIP INTENDED. Lessor and Lessee hereby agree that Lessor
-----------------------
in no event and for no purpose is a partner of Lessee in the conduct of any of
its businesses or other affairs or a joint venturer or member of a joint
enterprise with Lessee.
P. ESTOPPEL CERTIFICATES. Lessor will from time to time, upon
---------------------
reasonable written request from Lessee or Lessee's mortgagee(s), furnish to the
party requesting it, an estoppel certificate duly executed and acknowledged by
Lessor certifying (i) that the Lease is unmodified and in full force and effect
or if the Lease has been modified, is in full force and effect as modified and
identifying the modifications; (ii) whether or not there is then any default by
Lessee of any condition which with the passage of time or delivery of notice
would become a default, and if so specifying the nature thereof; and (iii) the
dates to which rent and any other charges payable under the Lease have been
paid. Lessor will furnish the estoppel certificate without any charge other than
a reasonable fee for reviewing and processing the request as described in
Paragraph 16 of this Lease.
-14-
<PAGE>
STATE OF HAWAII )
) SS.
CITY AND COUNTY OF HONOLULU )
On this 23rd day of May, 1990, before me appeared Matthew H. Deal to me
---- --- ---------------
personally known, who, being by me duly sworn, did say that his is the
President, respectively of HALAWA SPONSORSHIP CORPORATION, and that the
- ---------
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors, and said officers severally acknowledged the instrument
to be the free act and deed of said corporation.
[SIGNATURE ILLEGIBLE]
-------------------------------
Notary Public, State of Hawaii
My commission expires: 09/15/92
------------
<PAGE>
Q. DEFINITIONS. The term "premises" herein shall be deemed or taken to
-----------
include (except where such meaning would be clearly repugnant to the context)
all buildings and other improvements now or any time hereafter built on the
land hereby demised. The term "Lessor" herein shall mean and include Lessor,
its successors in trust and assigns, and the term "Lessee" herein or any pronoun
used in place thereof shall mean and include the singular or plural number, and
jointly and severally corporations, and their and each of their respective
successors and assigns, according to the context hereof. The headings of
paragraphs herein are inserted only for convenience and reference and shall in
no way define, expand or limit the scope or intent of any provisions of this
Lease.
IN WITNESS WHEREOF, the parties hereto have executed these presents this
1st day of March, 1990, be effective as of the day and year first above written.
- --- ----- --
HERMAN RAPOZO
/s/ Herman Rapozo
----------------------------
"Lessor"
HALAWA SPONSORSHIP CORPORATION
By [SIGNATURE ILLEGIBLE]
--------------------------
Its
"Lessee"
-15-
<PAGE>
- --------------------------------------------------------------------------------
(Space Above for Recorder's Use Only)
LEASE
THIS LEASE is made this 1st day of July 1991, by and between TONKO
REYES, INC., a Guam corporation, whose mailing address is Suite 201, Pacifica
Plaza Bldg., 667 N. Marine Drive, Upper Tumon, Guam 96911, hereinafter
referred to as "Lessor", and COST U LESS, a Hawaii corporation, whose mailing
address is 330 4th Street, Kirkland, Washington 98033, hereinafter
referred to as "Lessee".
W I T N E S S E T H:
- - - - - - - - - -
1. PREMISES, RESTRICTIONS OF RECORD AND
--------- ------------ -- ------ ---
CONSTRUCTION:
- ------------
(a) Premises. Lessor hereby leases to Lessee the following
--------
described premises (herein the "premises"):
Building A, containing an area of approximately 24,000
square feet, as shown on Exhibit "A". This space is a part
of the TONKO REYES COMMERCIAL COMPLEX, fronting Harmon Loop
Road, and is located on Lot No. 5021-1NEW-1, Dededo, Guam
as depicted in Exhibit "A", containing three (3) sheets,
attached hereto and made a part hereof.
<PAGE>
Including the right to use, with others, the common areas shown on
Exhibit A together with any additional common areas as may be reasonably
designated by Lessor. Lessee shall have full and unimpaired access to the
premises at all times. Lessor represents that it is the rightful owner of
the Subleases described in Section 20 below, that all rents due under Subleases
and the Ground Leases described in Section 20 are current, that Lessor is not in
default under the Subleases, that the property is zoned for commercial use, that
the tenant is not in default under said Ground Leases, and that Lessee is
entitled to use the premises without any disturbances or interruption for the
purposes stated herein under this lease. Lessor further covenants that it will
continue to observe and perform the terms of said Ground Leases and Subleases.
In the event of any default by the tenant under the Ground Leases, Lessor shall
promptly exercise its rights to attorn to the fee simple owner in order to
preserve, protect and continue the Subleases. So long as Lessee pays the rent
due hereunder and observes and performs the conditions hereof, Lessee may
quietly enjoy and hold the premises.
(b) Restrictions of Record. It is understood and agreed that the
----------------------
lease is subject to any and all existing easements and other covenants of
record. Further, Lessee understands that Lessor shall be giving a leasehold
mortgage to finance the construction of said premises, and that this lease
2
<PAGE>
shall be subordinate to any and all leasehold mortgage given to finance said
construction and improvements; provided, however, that Lessor shall secure from
the mortgagee of said leasehold mortgage a non-disturbance agreement which
provides that as long as the Lessee is not in default of its rent payments and
other obligations under the lease, said mortgagee will not disturb Lessee's
interest under the lease and possession of the premises regardless of whether
Lessor is in default under its mortgage with the mortgagee, and that Lessee
shall attorn to any purchaser at any foreclosure sale or to any grantee
designated given in lieu of foreclosure, and such purchaser or grantee shall
accept such attornment. Lessee shall execute any and all agreements which may be
reasonably required by the lender to accomplish the purposes of this paragraph.
(c) Construction. It is agreed that the premises will be
------------
constructed by Lessor in accordance with the plans and specifications contained
in Exhibit A and that the Lessor will be responsible for complying with all
Government rules and regulations applicable to construction of said building. It
is recognized that Exhibit A consists of preliminary plans and specifications (a
site plan, basic floor plan and basic elevation plan). Lessor shall proceed with
preparation of full and complete plans and specifications for the building in
which the premises are to be located and will furnish such final plans and
specifications to Lessee for
3
<PAGE>
Lessee's approval. Final plans and specifications shall be in accordance with
the preliminary plans attached hereto as Exhibit A. Lessor shall cooperate
with Lessee in good faith so that final plans and specifications reasonably
meet the requirements of Lessee, and Lessee shall not unreasonably withhold
its approval to final plans and specifications. In the event of any dispute
between the parties as to final plans and specifications, such dispute shall
be resolved by arbitration in accordance with the then applicable rules of the
American Arbitration Association, with each party having the right to appoint
one (1) arbiter and the two (2) arbiters so appointed then having the right to
appoint a third arbiter. Upon approval of final plans and specifications, the
building in which the premises are to be located shall be constructed in
accordance with such final plans and specifications. Lessor shall notify Lessee
of the expected date upon which the premises shall be substantially
completed and ready for occupancy not less than sixty (60) days prior to that
date. After Lessor notifies Lessee of the date, Lessee shall have the right to
enter the premises to commence equipping and fixturing the premises, so long as
such entry does not interfere with Lessor or Lessor's contractor. If the
Lessee enters the premises as provided in this section prior to the date the
premises are available for occupancy, all provisions of the Lease shall be in
full force and effect except the rent
4
<PAGE>
provisions. Lessee shall take possession of the premises upon some
substantial completion of Lessor's construction obligations as required
in Exhibit A and Lessee's obligation to pay rent shall commence upon Lessee
taking such possession after the premises have been substantially completed and
are available for occupancy. Within five (5) days after Lessor has notified
Lessee that the premises (specifically the building and other improvements which
Lessor is required to construct and which are a part of the premises) have been
substantially completed (whether or not Lessee is then in possession of the
premises as allowed herein), Lessee shall deliver to Lessor a list of items that
Lessee deems necessary that Lessor complete or correct in order for the premises
to be acceptable. Lessor shall promptly commence to complete or correct (or to
have Lessor's contractor complete or correct) such items except those that
Lessor contends are not justified. Lessee's taking possession of the premises
and acceptance of the premises shall not constitute a waiver of any warranty or
a waiver of any defect with regard to workmanship or material of the building.
Lessee shall have one (1) year after it has taken possession of the premises
within which to notify Lessor of any construction defect, and in the event
Lessor is notified by Lessee of any construction defect, Lessor shall
promptly cause Lessor's contractor to correct and remedy any such construction
defect.
5
<PAGE>
(d) Air Conditioning System. As part of its construction, Lessor
-----------------------
shall cause to be purchased and installed in the premises an air conditioning
system for the premises, which system shall be purchased and installed in
accordance with the specifications and requirements (as to size, type, capacity,
etc.) of Lessee. Present plans and specifications for the air conditioning
system as agreed to by Lessee are attached hereto marked as Exhibit B. The cost
of the purchase and installation of the air conditioning system shall be for the
account of Lessee, and in acquiring and installing the air conditioning system
Lessor shall act as the agent for Lessee. Lessee shall therefore reimburse
Lessor for the monies which Lessor has spent for the cost of the air
conditioning system (the purchase price plus materials and installation costs).
Lessee shall make reimbursement by paying to Lessor the total cost of the air
conditioning system in thirty-six (36) equal consecutive monthly installments,
which monthly installments shall be paid concurrently with payment of monthly
rent, the first monthly installment to commence on the first full month after
Lessee takes occupancy and possession of the completed premises.
2. TERM AND REVOCATION:
-------------------
(a) Term. To have and to hold said premises for a term of ten (10)
----
years plus ten (10) months, commencing July 1, 1991, provided, further, that for
purposes of paying
6
<PAGE>
rent, Lessee is obligated to pay rent when it receives from Lessor a Notice of
Occupancy (with a copy of the occupancy permit attached), and if Lessee becomes
obligated to commence paying rent prior to April 15, 1992, the rent to be paid
for those months prior to April 15, 1992 shall be THIRTY THOUSAND AND NO/100
DOLLARS ($30,000) per month (pro rated if the beginning date is not the first
of the month). Lessee shall have the option to extend the term of this lease
for an additional ten (10) years on the same terms and conditions provided
herein upon ninety (90) days written notice; otherwise, the lease shall
become null and void.
(b) Revocation. In the event the premises are not constructed
----------
and available for Lessee to occupy within ten (10) months from the date of the
execution of this lease, Lessor agrees to pay Lessee interest on the advance
rents and security deposit paid by Lessee hereunder, such interest to be paid at
the rate of nine percent (9%) per annum from the date such monies were paid by
Lessee to Lessor until the premises are available for occupancy by Lessee;
provided, further, that in the event said premises is still not available for
occupancy within twelve (12) months after the execution of this lease, Lessee
shall have the sole option to terminate this lease, at which time Lessor shall
refund all deposits and rents paid plus interest accrued, and return within five
(5) days the letter of credit or bank guarantee issued hereunder; provided,
further,
7
<PAGE>
that any delays in the construction of said premises that are caused by acts of
God or events or acts beyond the reasonable control of Lessor will not be
counted in the deadlines mentioned above. To secure the refund of said
security deposit in the event Lessee revokes this lease after the said twelve
month deadline, Lessor will deposit said security deposit into a Time
Certificate of Deposit (TCD) or similar instrument which shall be pledged to
Lessee, and which will allow the Lessee to cash the TCD or similar instrument in
the event the Lessor does not refund said security deposit.
3. RENT:
----
Lessee shall pay the following amounts to Lessor, in advance, on the
first day of each calendar month for the term of this lease, over and above all
taxes, assessments and other charges as stated herein, without deduction, set-
off, prior notice or demand:
May 1, 1992 to April 30, 1995 - $30,000.00 per month
May 1, 1995 to April 30, 1997 - $32,880.00 per month
May 1, 1997 to April 30, 2003 - $36,168.00 per month
May 1, 2003 to April 30, 2008 - $39,784.80 per month
May 1, 2008 to April 30, 2013 - $43,763.28 per month
Lessee shall pay the first month's rent in the amount of $30,000 and
the last month's rent in the amount of $36,168.00 upon the execution of this
lease. In addition, as
8
<PAGE>
an incentive to Lessee, Lessor shall waive or forgive the second month's rent.
Said rent shall be paid at Lessor's address, or such other place as
may be designated in writing by Lessor. If the date of commencement or
expiration of the term of this lease occurs on a day other than the first day of
a calendar month, the rent for that month shall be prorated.
4. USE:
---
The use of the premises shall be limited to and used only for the
following purposes:
The wholesale and retail of general merchandise, including without
limitation maintenance of sales and showroom space, storage and warehouse
space, office facilities, facilities for employees and other uses
reasonably or necessarily related thereto. Further, Lessee agrees not to
compete directly or on the same scale with Lessor's other tenants, namely,
United Travel Agency, a travel agent business, MCL, an architectural and
engineering firm, Corporate Offices, a land planning, real estate development,
and consulting group, Western Pacific Appliances, a wholesaler and retailer
of appliances including service, and Coral Pacific Group, exporters and
importers of general construction, building, and house materials and other
supplies.
Provided, further, that with respect to Western Pacific Appliances
regarding the sale of appliances, Lessee may
9
<PAGE>
offer for sale and sell appliances but not on the same scale as Western Pacific
Appliances whose primary business is the retail and wholesale of household and
commercial appliances including electronics and air conditioners; Lessee will
not provide service for said appliances; and Lessee agrees to work or explore
with Western Pacific Appliances on possible joint purchasing, selling, and
servicing of appliances to service their respective customers.
For the purpose of the prohibitions applicable to Lessee under this
Section 4, the term "directly or on the same scale" means that Lessee may offer
such merchandise for sale and sell such merchandise but Lessee shall not conduct
the sale of such merchandise as its primary or fundamental business.
Lessor shall not operate or allow to be operated by any tenant or
lessee or other person within the complex of which the premises form a part any
business similar to the general merchandise sales business which Lessee conducts
upon the premises.
5. SECURITY DEPOSIT AND BANK GUARANTEE:
-----------------------------------
(a) Security Deposit. Upon execution of this Lease, Lessee shall pay
----------------
to Lessor a security deposit of Thirty Thousand Dollars ($30,000.00). Lessor
shall hold said security deposit during the term hereof, and for any extension
of said term, without interest, as security for the faithful performance by
Lessee of all of the terms, covenants and
10
<PAGE>
conditions hereof. Said deposit shall be returned to Lessee within thirty (30)
days after Lessee has surrendered possession of the premises in good order and
condition to Lessor and if Lessee is not then in breach of any of the provisions
of this lease; provided, however, that if any at time during the term of this
Lease any of the rent or charges are overdue and unpaid, or Lessor has sustained
any loss or damage due to any breach of covenant by Lessee, Lessor may, at
Lessor's option, appropriate and apply any or all of said deposit to the payment
of such overdue rent or charges for loss or damage sustained by Lessor, without
giving up any of Lessor's other rights; provided, further, that if Lessor
should appropriate and apply all or any portion of said deposit for the above
purposes, Lessee shall, upon written demand from Lessor, remit to Lessor a cash
amount sufficient to restore said deposit to the original sum deposited. As a
condition subsequent to this lease, Lessee must restore said deposit to the
original sum deposited within fifteen (15) calendar days of notice of such
demand from Lessor and if such monies are not paid within said fifteen (15)
calendar days, then Lessee shall be in default.
(b) Bank Guarantee. Within thirty (30) days after execution of this
--------------
lease, Lessee shall provide in favor of the Lessor and the Bank of Guam or any
other financial institution designated by Lessor a letter of credit or other
irrevocable bank guarantee issued or confirmed by a financial
11
<PAGE>
institution doing business in Guam for a term of five (5) years as follows:
$500,000 for the first three (3) years and $400,000 for the last two (2) years.
Lessor may use the letter of credit or bank guarantee as security to assist in
the financing of the premises described herein. Lessor and its bank may not
draw against the letter of credit, or guarantee unless (i) Lessee is in default
of its rent payments or other obligations under this lease and (ii) notice of
default has been given to Lessee as provided in Section 19 hereof and the time
period for cure as set forth in Section 19 hereof has expired. Lessee agrees
that said letter of credit may be for a one (1) year term so long as said letter
of credit or guarantee is renewed thirty (30) days prior to its expiration. If
said letter of credit or guarantee is not renewed within the deadline
mentioned above, Lessor may draw against the letter of credit, deposit the
amount in an interest bearing account, and such amount shall be held in lieu of
the letter of credit, and such amount cannot be drawn against unless Lessee is
in default of its rental payments or other obligations under this lease and
unless notice of default has been given to Lessee and the time for cure has
expired as provided herein. Upon the expiration of the five (5) year term
mentioned above, Lessor shall refund the amount plus interest deposited in the
interest bearing account to Lessee within five (5) days.
12
<PAGE>
6. OWNERSHIP OF IMPROVEMENTS AND USE OF LOADING
--------------------------------------------
DOCK:
- ----
(a) Ownership Of Improvements by Lessee. All improvements made on the
-----------------------------------
premises by Lessee shall remain on the premises at the expiration of this lease
and shall become the property of Lessor. All trade fixtures, furniture,
appliances and equipment made or placed upon said premises by Lessee shall
remain the property of Lessee and may be removed by Lessee in whole or in part
at any time before the termination of this lease or within a reasonable time
thereafter. All permanent fixtures added to the premises at the expense of
Lessee (that is fixtures which are attached to the premises and may not be
removed without substantial damage to the premises) shall become part of the
premises and shall become the property of Lessor unless there is an agreement in
writing between the parties hereto that such fixtures are trade fixtures and are
to remain the property of Lessee.
(b) Loading Dock. It is understood that Lessor will install a loading
------------
dock with space for three (3) forty (40) feet containers up to forty-five (45)
feet in length on the back of the premises. Loading dock 1 and 2 as shown on
Exhibit "A" are for the sole and exclusive use of Lessee (Building A), and
loading dock 3 as shown on Exhibit "A" is for the sole and exclusive use of
building B; provided further, that the use of a vacant dock for a certain period
of time may be used by the
13
<PAGE>
other party upon the consent and terms of the responsible party which shall not
be unreasonably withheld. Neither party may charge a fee to the other party for
the use of its loading dock, but the responsible party may impose certain
requirements such as insurance to protect it from liability and damage and other
reasonable restrictions.
7. COMMON AREA AND GENERAL EXPENSES:
--------------------------------
(a) Lessor agrees to pay for the expense of any repairs or maintenance
of the structural parts of the building and other improvements that are a part
of the premises or in which the premises are located, which structural parts
include foundations, bearing and exterior walls (excluding glass and doors) and
roof; together with unexposed electrical, plumbing and sewage systems. Any
other maintenance or repair expenses of the structure shall be paid by the
Lessee and as part of the common area cost and expense. To the extent Lessor
maintains ownership or use or occupancy of any portion of the building and
improvements of which the premises form a part, Lessor shall pay and be
obligated to pay its proportionate share of any and all common area expenses.
(b) Lessee shall be obligated and shall have the direct and personal
liability to pay Lessee's proportionate share of all or any common area
expenses. Lessor shall inform Lessee of the amount due and Lessee shall pay the
common area expense on the first day of each month and such shall be
14
<PAGE>
collected by Lessor. All checks shall be made out to "TONKO REYES, INC. COMMON
AREA TRUST FUND", or in such other name as the Lessor, as trustee, shall
designate.
(c) All expenses paid for the common area herein shall be paid into
a trust fund established by the Lessor for the purposes of handling the common
area expenses. This fund shall be kept in trust by the Lessor for the benefit of
the Lessee and the Lessor is hereby designated the trustee for the payment of
these expenses. All payments into the common area trust fund shall be for and
on behalf of the Lessee of the commercial complex. In no event shall these
common area expenses, as paid into the common area trust fund as required by the
terms and conditions of this lease, be deemed as rental payments to the Lessor
for it is specifically agreed by the Lessee that such common area expenses are a
direct and personal obligation and liability of the Lessee and not of the
Lessor.
(d) The Lessee's share of the common area expenses shall be as
follows:
(i) Sixty-six point six (66.6%) percent of all real property taxes and
assessments assessed against the entire commercial complex parcel and all
improvements thereon, with said assessments and taxes to be pro rated from the
date that Lessee becomes obligated to commence payment of monthly rent (receipt
by Lessee of a notice of occupancy) and at the date of its termination.
15
<PAGE>
(ii) Sixty-six point six percent (66.6%) for all water, sewer, refuse
collection, power, janitorial services, grounds maintenance (plantings and
changes in landscaping included), parking maintenance, insurance on all common
area, building maintenance (outside), security, and other operating expenses for
the maintenance and up keep of the common areas.
(iii) Sixty-six point six percent (66.6%) of all costs of insurance
for common area public liability and comprehensive damages (fire, typhoon,
earthquake, and extended coverage) to the entire building of which the premises
form a part.
(e) Lessee shall pay interest, upon demand by trustee, for any common
area payments not made on the due dates as set forth in this Lease. Lessee's
default in payment of common area expenses shall also mean a default of this
Lease.
7. MUTUAL INDEMNIFICATION:
----------------------
The Lessee shall hold Lessor free and harmless from any claim or
demand by third persons for damage, including claims for property damages,
personal injury or wrongful death arising out of any accident, fire or explosion
occurring on the premises and caused by any act, except for any acts or
omissions or willful misconduct of Lessor or of the Lessor's agents or
representatives. Lessor shall hold Lessee free and harmless from any such claim
or demand made by third persons arising out of or resulting from the acts or
omissions or
16
<PAGE>
willful misconduct of Lessor or of Lessor's agents or representatives
(except to the extent arising out of or resulting from any acts or omissions
or willful misconduct of Lessee or of Lessee's agents or representatives). A
party's obligations under this paragraph to indemnify and hold the other party
harmless shall be limited to the sum that exceeds the insurance proceeds, if
any, received by the party being indemnified (it being the intention of this
provision to prevent any subrogation and the parties hereby release each other
and their respective representatives, from any claims for damage to any person
or property that are caused by or result from risks insured against under any
insurance policies carried by the parties and in force at the time of any such
damage, to the extent of such insurance).
8. INSURANCE:
---------
The following types of insurance shall be obtained and maintained by
Lessee at Lessee's expense during the entire term of this Lease, and shall be
with a company qualified to do business in Guam, and in a form satisfactory to
Lessor, and as to liability insurance, shall designate specifically that
Lessor is an additional insured or coinsured thereunder. All insurance required
of Lessee under this lease shall contain a provision that the policy will not be
cancelled or changed without first giving Lessor thirty (30) days' prior written
notice. Copies of the insurance policies shall be deposited
17
<PAGE>
with Lessor within ten (10) days after occupancy or delivery of the premises:
(a) Public Liability. Lessor's and Lessee's public liability
----------------
insurance with coverage in the minimum amount of $100,000.00 for property,
$1,000,000.00 for injuries to more than one person arising out of one accident,
and $300,000.00 for injury to one person;
(b) Contents. Lessee's insurance coverage for Lessee's improvements
--------
in the premises and all of Lessee's personal property in the premises shall
cover fire, water and storm, with extended coverage and vandalism coverage
covering all Lessee's personal property, fixtures, furnishings, inventory
and other contents in an amount equal to the full insurable value thereof.
9. LOSS OR DAMAGE SUSTAINED BY LESSEE:
----------------------------------
Lessor shall not be liable to Lessee, or to anyone claiming under or
through Lessee, for any loss and/or damage which may occur for any reason
whatsoever on or about the premises; except that Lessor shall be liable to
Lessee for damages to Lessee resulting from the acts or omissions of Lessor or
Lessor's agents or Lessor's representatives.
10. ALTERATIONS, REPAIRS AND UPKEEP:
-------------------------------
(a) Premises. Lessee shall maintain the premises in good order,
--------
repair, and condition, at Lessee's expense, except that Lessor shall be
responsible for all repairs and
18
<PAGE>
maintenance of the structural parts of the building. Lessee shall maintain the
premises in an attractive, safe, clean and sanitary state, and in good order,
condition and state of repair as may be required by insurance companies, by law,
ordinance or regulations, or as may be reasonably required by Lessor. Provided
Lessor shall repair the premises if they are damaged by any acts or omissions of
Lessor or Lessor's agents or representatives. Provided further Lessee shall
repair the premises if they are damaged by any acts or omissions of Lessee or
Lessee's agents or representatives. Lessee, however, shall not make any
alterations and/or improvements in or to said premises without first submitting
to Lessor plans for the alterations and improvements, and obtaining Lessor's
written consent to same, which shall not be unreasonably withheld. Lessor may
require Lessee to post a payment and performance bond for any construction or
improvement work to be done on or in Lessee's premises, covering the full value
of the work to be done therein. Upon demand by Lessor, Lessee shall obtain such
bonds at Lessee's expense with a company satisfactory to Lessor, and the form
and substance of such bond must be to the satisfaction of Lessor. Finally, such
bond must be delivered to Lessor prior to the start of any construction work on
the premises.
(b) Common Areas. Lessor shall, subject to the obligation of Lessee
------------
to pay Lessee's portion of the common
19
<PAGE>
expenses, keep the common areas, including parking areas and landscaped exterior
areas in good order and repair and in an attractive, safe, clean and sanitary
condition. In the event Lessor leases to any third parties any other space in
the building of which the premises form a part, Lessor shall require such third
party tenant to maintain the property leased by such third party tenant in good
order and repair and in a safe, clean and sanitary state, and to the extent
Lessor itself occupies any other portion of the building of which the premises
form a part, Lessor shall on its part maintain its portion of the building in an
attractive, safe, clean and sanitary state and in good order, condition and
repair.
11. SURRENDER OF PREMISES:
---------------------
Upon the termination of this Lease, or the expiration of the term
hereof, Lessee shall vacate and surrender the premises in good order, condition
and repair, reasonable wear-and-tear excepted. Upon the termination of this
Lease, or the expiration of the term, Lessor shall have the option to require
Lessee to remove from the premises, at Lessee's expense, all or any part of the
improvements placed on or within the premises by Lessee, with the premises
thereafter to be restored to the condition they were in prior to this lease
(ordinary wear-and-tear excepted), all at the expense of Lessee.
20
<PAGE>
12. LIENS:
-----
Lessee shall keep the premises free and clear of any liens arising out
of any work performed, or caused to be performed, by Lessee on or about the
premises. Further, Lessee shall indemnify and hold harmless the Lessor from any
lien that is filed by reason of any claimed act or omission of Lessee or
Lessee's agents or Lessee's representatives, and Lessee shall discharge such
lien within ten (10) days after filing. If Lessee desires to contest any lien,
then Lessee shall deposit with Lessor, as security, a sum equal to 110% of the
amount claimed in said lien. Otherwise, Lessor shall have the right to pay such
lien, and all sums expended, including attorney's fees and court costs, and said
amount shall be reimbursed to the Lessor by Lessee.
13. DESTRUCTION OF PREMISES:
-----------------------
If the building in which the premises are situated is damaged to the
extent of less than one-third (1/3) of the then replacement cost of the entire
building, but not by any acts of the Lessee, Lessor shall repair the damage
within a reasonable time. While repairs are being made by Lessor, Lessee shall
be entitled to a proportionate reduction of the rent based upon the extent to
which the portion of the premises damaged are being used by the Lessee, as that
portion bears to the total area of the premises. Lessee hereby waives any and
all claims
21
<PAGE>
for damages against the Lessor resulting from the destruction of the premises,
or of Lessee's property.
If the entire building in which the premises are situated is destroyed
to the extent of one-third (1 /3) or more of the then replacement cost of the
entire building, Lessor may elect to terminate this Lease without any other
liability on Lessor's part for such termination.
14. CONDEMNATION:
------------
This lease shall be subject to the Government's right of eminent
domain. If all or a substantial part of the demised premises should be taken
during the term of this lease by the Government of Guam, or by any other lawful
governing authority, or private person or persons, in whom the laws of Guam vest
the right to take property under the power of eminent domain, then Lessor may
terminate this lease by giving Lessee sixty (60) days' written notice. If only
a portion of the premises is taken by condemnation, Lessee may terminate this
Lease at Lessee's election if the remaining portion of the premises (including
without limitation common areas such as parking areas) is rendered unsuitable
for Lessee's continued use of the premises. If a portion of the premises
is taken by condemnation and this lease remains in effect, rent shall be
reduced by an amount that is in the same ratio to monthly rent as the total
number of square feet in the premises taken bears to the total number of square
feet in the premises immediately
22
<PAGE>
before the date of taking. In the event of a condemnation, each party shall be
entitled to file its own separate claim against the condemning authority to the
extent of any loss or damage suffered by each party.
15. DELINQUENT PAYMENTS:
-------------------
If any payment due hereunder is not paid on the due date Lessor shall
have the right, without waiving any breach or default by Lessee, to demand and
receive the unpaid sum, together with interest thereon from the date of
delinquency at the rate of two percent (2%) per month on the declining balance
due.
16. PAYMENTS, ACCORD AND SATISFACTION:
---------------------------------
No payment by Lessee or receipt by Lessor of an amount less than the
monthly rent or payments herein due shall be deemed to be other than on account
of the rents, interest or amounts past due; nor shall any endorsement of any
check or any other document accompanying any check or payment of rent or
payments be deemed an accord or satisfaction, and Lessor may accept the same
without prejudice to Lessor's right to recover the balance of such rent or
payments due, or pursue any other remedy under this lease. The acceptance of any
payments due herein shall not be deemed the waiver of any of Lessor's rights
against Lessee for default unless the same is placed in writing. Lessor shall
have the right to apply all sums received from Lessee first to any interest or
expenditures by Lessor for
23
<PAGE>
which Lessee must reimburse Lessor pursuant to this lease, then to the rentals
due.
17. ASSIGNMENT and SUBLEASE:
-----------------------
Lessee shall not have the right to assign this lease or sublet the
premises in whole or in part without the prior written consent of Lessor, except
that Lessee may assign this lease or sublet the premises in whole or in part to
a subsidiary or affiliate of Lessee. A subsidiary. or affiliate means a company
in which at least fifty percent (50%) of the voting stock is owned by Lessee.
18. SUCCESSORS:
----------
All terms and conditions of this lease shall be binding upon Lessor
and Lessee, and their heirs, executors, administrators, successors and assigns.
19. REMEDIES:
--------
If Lessee shall, at any time, be in default in the payment of rent
herein reserved, or in the performance of any of the covenants, terms,
conditions or provisions of this lease, and Lessee shall fail to remedy such
default within thirty (30) days after written notice thereof from Lessor, Lessor
lawfully may, immediately, or at any time thereafter, and without demand or
notice, enter into and upon said premises, or any part thereof, and lock out the
repossess the same and expel Lessee and those claiming through or under Lessee
and remove their effects (forcibly if necessary),
24
<PAGE>
without being guilty of any manner of conversion, trespass or tort, and without
prejudice to any remedies of Lessor which might otherwise be used for arrears of
rent or default by Lessee, and upon entry as aforesaid this Lease shall
terminate. Lessee covenants that in case of such termination, Lessee will
indemnify Lessor, and Lessor's successors and assigns, against all loss of rent
and any other payments which they may incur by reason of such termination for
the remainder of the term.
20. GROUND LEASE:
------------
The underlying real property on which the premises is located is
subject to two (2) Ground Leases and two (2) Subleases. Said Subleases have
been assigned to Lessee herein. The underlying real property is broken into two
(2) lots: Lot 5021-1 as shown on map Document no. 422640 and six thousand
(6,000) square meters of Lot 5022-R6 (later consolidated with lot 5022-2 as lot
5022-2NEW as shown on map document no. 399066) as shown on map document no.
313575. Both lots are now being consolidated as lot 5021-1NEW-1 , Dededo per
Drawing no. PRB9l-75, L.M. Check No. 320-FY91, prepared by P.R. Balagtas, RLS
#62, marked as Exhibit "B", attached hereto, and made a part hereof. This lease
shall be subject to the following ground leases:
(a) Ground Lease: "Ground Lease" for the lease of lot 5021 dated
July 21, 1987 between CHAMORRO EQUITIES, INC., as Lessor, and UNCAMCO, INC., as
Lessee, recorded under a
25
<PAGE>
short form lease as Document no. 389155 and later recorded in its entirety as
Document no. 418558, Dededo, as amended by that "Amendment to Ground Lease" and
"Amendment to Lease" dated April 17 and April 29, 1989. respectively, and
recorded in the Department of Land Management as Document nos. 41 8559 and 41
621 8 respectively; and
(b) Ground Lease: Ground Lease for six thousand (6,000) square meters
of lot 5022-R6 between CHAMORRO EQUITIES, INC., as Lessor, and UNCAMCO, INC., as
Lessee, and recorded with the Department of Land Management as Document
no. 429731; and
(c) The term and conditions of the lease entitled "Sublease" for lots
5021-1 and 5021-R1 dated July 1, 1989 as recorded in the Department of Land
Management under Document no. 418560, between UNCAMCO, Inc., as landlord, and
J.P.D. Guam Co., Inc., as tenant, and as assigned or sublet, as the case may be,
to TONKO REYES, INC. dated June 6, 1991, and recorded in the Department of Land
Management as Document no. 455761; and
(d) The terms and conditions of the lease entitled "Sublease" for six
thousand (6,000) square meters of lot 5022-R6 dated February 1, 1990, as
recorded in the Department of Land Management, Government of Guam, under
Document No. 430268, between UNCAMCO, INC., as landlord, and J.P.D. GUAM CO.,
INC., as tenant, and as assigned or sublet, as
26
<PAGE>
the case may be, to TONKO REYES, INC. dated June 6, 1991, and recorded in the
Department of Land Management as Document no. 455760.
In the event of any conflict between this lease and the said
Subleases, the terms and conditions of the said Subleases shall prevail.
21. ACCEPTANCE OF PREMISES:
----------------------
By entering into and occupying the demised premises, Lessee shall be
deemed to have acknowledged that the same is in good order and condition,
except to the extent otherwise provided herein.
22. EXPENDITURES BY LESSOR ON BEHALF ON LESSEE:
------------------------------------------
That if Lessor shall made any expenditure or incur any liability which
Lessee is required to make or pay under this lease, the amount thereof shall be
added to and deemed a part of the next succeeding payment of rent thereafter
falling due, and said amount shall bear interest at the rate of two percent (2%)
per month on the declining balance.
23. SIGNS AND ADVERTISING:
---------------------
That Lessee will not, without the prior written approval of Lessor,
which shall not unreasonably be withheld:
(a) Display, erect, install, paint or place any sign or other
advertisement whatsoever on or about the exterior of the demised premises or any
other portion of the commercial complex;
27
<PAGE>
(b) Will not use audible advertising without prior written
consent of the Lessor.
Provided, however, that Lessor agrees to the form of signs or
advertising to be initially installed or displayed by Lessee during occupancy so
long as Lessee complies with all Government rules and regulations, and so long
as Lessee submits to Lessor a sample of said signs and advertising prior to
occupancy.
24. RECORDATION; TIME:
-----------------
Lessor and Lessee agree, at Lessee's expense, to record this lease
at the Department of Land Management, Government of Guam. Time is of the
essence of this lease.
25. LESSOR'S RIGHT TO MAKE ALTERATIONS AND
-------------------------------------------
ADDITIONS:
- ---------
Lessor hereby reserves the right at any time to make reasonable
alterations or additions to the complex or any other portion of the building in
which the demised premises are contained, to build adjoining the same or within
any other portion of said commercial complex, and to reasonably change, alter
or modify the parking areas, roadways, ramps, and landscaping, and Lessee
hereby agrees to this provision with the understanding that Lessee shall not in
any way prevent, interfere with or obstruct the undertaking of any such
alterations or additions by Lessor; provided, however, that the alterations and
additions of Lessor shall not unreasonably
28
<PAGE>
interfere with the operation and conduct of Lessee's business or Lessee's use of
the premises. The parties shall reasonably cooperate so as to allow Lessor to
make reasonable additions and improvements while at the same time not
unreasonably interfering with Lessee's business or Lessee's use of the premises.
26. SPECIAL CONDITIONS:
------------------
Lessor acknowledges that, as part of the use of the premises for the
sale of general merchandise by Lessee, Lessee intends to sell (for off-site
consumption) alcoholic beverages. Guam law presently provides, in part, that no
license will be issued for the sale of alcoholic beverages from any premises
which are located less than a specified minimum distance from the nearest church
or school. Lessor represents that the distance from the premises to the
nearest church or school exceeds the minimum distance presently required under
Guam law for the premises to be eligible for a license to sell (for off-site
consumption) alcoholic beverages.
27. GENERAL:
-------
Captions used in this lease are for the convenience of the parties and
shall have no affect on the interpretation of the lease. The unenforceability,
invalidity or illegality
29
<PAGE>
of any provision hereof shall not render any other provision of this lease
unenforceable, invalid or illegal.
IN WITNESS WHEREOF, this Lease has been executed effective as of the
day and year first above written.
LESSOR: TONKO REYES, INC.
By: /s/ Johnny C. Reyes
------------------------------
JOHNNY C. REYES, President
LESSEE: COST U LESS
By: /s/ Warren Lieb
------------------------------
WARREN LIEB
Duly Authorized Representative
TERRITORY OF GUAM
Municipality of Agana
On this 28th day of June, 1991, before me, a notary public in and for
----
the Territory of Guam, personally appeared JOHNNY C. REYES, President of TONKO
REYES, INC., known to me to be the person who executed the foregoing LEASE, and
acknowledged to me that he executed the same on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year first above written.
/s/ Mary P. Quinata
)SEAL( -----------------------------------
MARY P. QUINATA
NOTARY PUBLIC
In and for the Territory of Guam
My Commission Expires: NOV. 18, 1991
30
<PAGE>
STATE OF WASHINGTON
County of King
On this 28 day of June, 1991, before me, a notary public in and for
--
the ________________________, personally appeared WARREN LIEB, Duly Authorized
Representative of COST U LESS, known to me to be the person who executed the
foregoing LEASE, and acknowledged to me that he executed the same on behalf of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year first above written.
)SEAL( /s/ Catherine Anne Lane
-----------------------
10-21-94
Notary Public
King County, Wash
31
WCW: jrt:aam:mpq
034054-1
6/25/91
6/28/91 rev.
<PAGE>
ADDENDUM
--------
For good, valuable, and legally sufficient consideration, this Addendum
is made this 4th day of March 1994, between Tonko Reyes, Inc., as Lessor, and
Cost-U-Less, as Lessee, as an addition to that certain lease dated July 1, 1991
between the parties herein for the lease of Building A of the Tonko Reyes
Commercial Complex, located off Harmon Loop Road, Dededo Guam.
1. Lessee agrees to lease an additional 2,592 square feet of space at
$1.25 per square foot as shown in the sketch attached as Exhibit A, and made a
part hereof
a. The initial payment date of the additional rent shall be December 1,
1993.
b. Lessee shall pay an additional security deposit for the additional
space equivalent to one month's rent due upon execution of this
addendum.
c. Lessor should be responsible for installing the wall as shown on
Exhibit A, with all other improvements at the expense of Lessee.
d. Lessee shall pay for its proportionate share of common area expense
of the additional space in proportion to what is being assessed to
tenants of Bldg. B, and shall be effective on December 1, 1993.
2. Lessee agrees to lease further an additional 4,608 square feet of space
at $1.25 per square foot as shown in the sketch attached as Exhibit B, and made
a part hereto.
a. Rent shall be effective on April 1, 1994.
-------
b. Lessee shall pay its proportionate share of common area
expense of the additional space in proportion to what is
being assessed to tenants of Bldg. B, effective March 1,
1994.
c. Lessee shall be responsible for all improvements to the additional
space.
d. Lessor waives any security deposit for the additional
space.
<PAGE>
3. The remaining terms and conditions of the July 1st lease shall remain
in full force and effect, and all provisions regarding the increased in rent and
other similar provisions shall apply to the Addendum as though the effective
date of Addendum is July 1, 1991, unless it specifically states otherwise in
this Addendum.
IN WITNESS WHEREOF, the parties hereby execute this agreement as of March,
1993.
LESSOR: LESSEE:
/s/ Johnny C. Reyes /s/ Michael James Rose
- --------------------------------- -----------------------------------
Johnny C. Reyes Michael James Rose
Tonko Reyes, Inc. Cost-U-Less
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
CULNEV, Inc., a Nevada corporation and wholly owned subsidiary of the
registrant
CULGUAM, Inc., a Territory of Guam corporation and wholly owned subsidiary
of the registrant
CULSAMOA, Inc., a Territory of American Samoa corporation and wholly owned
subsidiary of the registrant
CULUSVI, Inc., a United States Virgin Islands corporation and wholly owned
subsidiary of the registrant
CUL (FIJI) Limited, a Fiji limited company and wholly owned subsidiary of
the registrant
CUL (N.Z.) Limited, a New Zealand corporation and wholly owned subsidiary
of the registrant
CULVAN Limited, a Vanuatu corporation and wholly owned subsidiary of the
registrant
C.U.L. (CURACAO) N.V., a Curacao, Netherlands Antilles limited liability
company and wholly owned subsidiary of the registrant
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
March 13, 1998, except for Note 11 as to which the date is May , 1998 in the
Registration Statement (Form S-1) and related Prospectus of Cost-U-Less, Inc.
for the registration of 1,963,222 shares of its Common Stock.
ERNST & YOUNG LLP
Seattle, Washington
- -------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the reverse stock split described in Note 11 to the consolidated financial
statements.
/s/ ERNST & YOUNG LLP
Seattle, Washington
May 12, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Cost-U-Less, Inc. on
Form S-1 of our report dated April 4, 1996 (May 8, 1998 as to Notes 1, 6 and
7) on the consolidated financial statements of Cost-U-Less, Inc. as of
December 31, 1995 and for the year then ended, appearing in the Prospectus,
which is part of this Registration Statement, and to the reference to us under
the headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
Seattle, Washington
The above consent is on the form which will be signed by Deloitte & Touche
LLP upon the consummation of a 1 for 3.38773 reverse stock split of common
stock, which is to be effected prior to the effective date of the Prospectus
assuming that, from April 4, 1996 (May 8, 1998 as to Notes 1, 6 and 7) to the
date of such consummation, no other events have occurred that would affect our
consent thereto.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
May 12, 1998
<TABLE> <S> <C>
<PAGE>
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<PERIOD-START> DEC-30-1996 DEC-29-1997
<PERIOD-END> DEC-28-1997 MAR-29-1998
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<PP&E> 9,671 8,932
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0 0
0 0
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