Form of Lease Agreement

TITLE OF DOCUMENT:


LEASE AGREEMENT


- ------------------------------------------------------------------------------ PARTIES:


LESSOR: HAWAII BREWERY DEVELOPMENT CO., INC., A HAWAII
CORPORATION


LESSEE: HAWAIIAN NATURAL WATER COMPANY, INC., A HAWAII
CORPORATION


- ------------------------------------------------------------------------------ PROPERTY DESCRIPTION: | LIBER/PAGE:
| That certain land situate at Keaau, | DOCUMENT NO. District of Puna, Island, County | and State of Hawaii, being Lot | Numbers A-31-B and A-31-A-l, | bearing TMK(s) (3)1-6-141-001; and -002 |


- ------------------------------------------------------------------------------


LEASE AGREEMENT
---------------


THIS LEASE AGREEMENT ("Lease") is made as of June 1, 2001, by and between HAWAII BREWERY DEVELOPMENT CO., INC., a Hawaii corporation, whose principal place of business and mailing address is 2592 Makiki Heights Drive, Honolulu, Hawaii 96822 ("Lessor"), and HAWAIIAN NATURAL WATER COMPANY, INC., a Hawaii corporation, whose principal place of business and mailing address is 98-746 Kuahao Place, Pearl City, Hawaii 96782 ("Lessee").


W I T N E S S E T H:


This Lease replaces and supercedes that certain Lease Agreement between Lessor and Lessee, dated October 3, 1994, and all amendments thereto, all of which are hereby cancelled and terminated and of no further force or effect.


AGREEMENT TO LEASE:


Lessor demises and leases, and Lessee does hereby accept to rent under the terms and conditions being agreed to in this Lease, the following:


That certain real property (hereinafter "Property") situated in Keaau, Puna, Hawaii, described in Exhibit "A" attached hereto, together with all buildings and other improvements located thereon, the water well located thereon (hereinafter "Well") and the appurtenant pumping


equipment more particularly described in Exhibit "B" attached hereto and by this reference made a part hereof (hereinafter "Equipment").


Together with non-exclusive easements of ingress and egress to a public road, and for utility purposes, over, under and upon the following:


Lot A-31-A-3 as shown on Land Court Map 134;
Lot 1092-K-1, area 1.133 acres, as shown on Map 224;
Lot 1092-U, area 2.876 acres, as shown on Map 81; and
Lot 1150-B-1, area 0.428 acre, as shown on Map 457,


all filed in the Office of the Assistant Registrar of the Land Court of the State of Hawaii (the "Land Court") with Land Court Application No. 1053 (amended) of W.H. Shipman, Limited.


The Property, Well and Equipment and the foregoing easements hereafter collectively referred to as the "Premises".


TERMS:
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1. Lease Term:
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The Lease term (the "Term") shall commence on the date of this Lease and end at midnight on September 30th, 2044. Lessee shall have an option to extend the term of this Lease for an additional fifty (50) years under the same terms and conditions (except for duration) as set forth herein (the "Extension Option"). Lessee may exercise the Extension Option by delivering written notice (the "Extension Option Notice") of its election to exercise the Extension Option. Not later than six (6) months prior to the expiration of the Term, Lessor will deliver to Lessee written notice ("Lessor's Lease Notice") that the Extension Option will expire if not exercised on or before that date which is three (3) months prior to the expiration of the Term. Lessee's right to exercise the Extension Option will expire if not exercised on or before the date which is three (3) months prior to the expiration of the Term; provided, however, that if Lessor fails to deliver the Lessor's Lease Notice on or before that date which is six (6) months prior to the expiration of the Term, then Lessee's right to exercise the Extension Option shall not expire until that date which is ninety (90) days after Lessor's delivery of Lessor's Lease Notice. If Lessee exercises the Extension Option, the Term shall end at midnight on September 30th, 2094.


2. Quiet Enjoyment:
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Lessor promises Lessee that upon payment by Lessee of the rent required and performance by Lessee of its obligations under this Lease, that Lessee shall peaceably hold and enjoy the Premises for the Term without hindrance or interruption by Lessor or any other person or persons lawfully claiming by, through or under Lessor.


3. Payment of Rent and Gross Excise Tax:
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A. During the Term, Lessee shall pay Lessor as consideration for this Lease, at Lessor's principal place of business in Honolulu, Hawaii, in lawful money of the United States of America, an amount, payable on the first day of each and every month, equal to the Base Rent


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(as hereinafter defined), plus an additional amount (the "Additional Rent"),
---- payable on a quarterly basis as provided below, equal to the excess, if any, of (A) two percent (2%) of Lessee's Net Sales (as hereinafter defined) for the fiscal quarter ended immediately prior to the date of determination (the "Prior Quarter"), over (B) the aggregate Base Rent payable during the Prior Quarter. For purposes hereof, (A) Base Rent means $5569.00 per month through September 30, 2004, adjusted on October 1, 2004 and every five years thereafter (an "Adjustment Year") based upon the change in the Consumer Price Index in Hawaii as it existed on the third to last month before the Adjustment Year compared to the Consumer Price Index in Hawaii as it existed in July, 1999, and (B) Net Sales for any given Prior Quarter means Lessee's net sales for such Prior Quarter as set forth in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the "SEC") for such Prior Quarter or, if Lessee is not then obligated to file Quarterly Reports with the SEC, as set forth in Lessee's financial statements for such Prior Quarter, determined in accordance with generally accepted accounting principles, less the aggregate amount of (A) any such net sales which have
---- been written off or reserved against as bad debts, (B) any sales or general excise taxes included therein, and (C) any sales included therein which were made by Lessee from a business operation, enterprise or location other than upon the Property. Additional Rent with respect to any given Prior Quarter shall be payable as soon as practicable after the Net Sales with respect thereto have been determined, but in no event later than forty-five (45) days following the end of such Prior Quarter.


B. To measure additional rent required hereby, Lessee shall provide Lessor with sales invoices of product sold and such other records as Lessor may reasonably request, all of which sales invoices and other records Lessor shall keep strictly confidential.


C. On all Base Rent and Additional Rent, Lessee shall pay to Lessor the amount of the Hawaii General Excise Tax due on said payments.


D. Lessee shall, also, pay interest of one percent (1%) per month on all Base Rent or Additional Rent which are not paid on or before their due dates.


4. Payment of Charges and Taxes:
----------------------------


During the Term, Lessee will pay directly, before the same become delinquent, all assessments and taxes levied on the Property and the costs of all utilities and services consumed or used by Lessee on the Property. Assessments and taxes for the first and last years of the Term shall be prorated between Lessor and Lessee. Notwithstanding the foregoing, Lessor shall pay the full amount of any conveyance tax due in connection with this Lease.


5. Use:
----


A. Lessee may use the Premises for the extraction of water from the Well (and any subsequent well as hereinafter provided) into bulk containers for transportation and shipment to other sites and in addition may engage in the processing, bottling, packaging and wholesale sales of the water. Lessee may conduct all activities as are reasonably required or desired to carry on the permitted use, such as, but not necessarily limited to, the repair, maintenance and operation of the Well and Equipment, and the storage of trucks and bulk containers; provided, however, that all such activities shall be consistent with and permitted by


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applicable law for the Property. In the event that the permitted use or the activities engaged in by Lessee to conduct such permitted use shall be enjoined or prohibited due to non-compliance with zoning ordinances, land use classifications, permits or approvals, or other applicable governmental regulations, Lessee may in its sole discretion, terminate this Lease by written notice to Lessor. In addition to Lessor's obligations under Paragraph 29 of this Lease, Lessor shall cooperate with Lessee to obtain a change of zone, a special permit, or such other governmental authorization as would allow Lessee to engage in or continue the use permitted by this Lease; provided, however, that except as set forth in Paragraph 29 of this Lease, said documents shall not obligate Lessor to perform any of the covenants therein undertaken by Lessee, or to warrant or confirm the truth or accuracy of the representations made therein by Lessee.


B. Lessor agrees that should the existing Well become unusable or should the Well generate insufficient quantities of water to satisfy the needs of Lessee for such water, and Lessee desires to drill a second well, then Lessee shall be allowed to do so. Lessee shall not be charged any additional Base Rent with respect to said second well but shall pay the same Additional Rent for the extraction of water therefrom.


C. In the event that the Property or any part thereof is subdivided or subjected to a condominium property regime, as hereinafter provided, and either Lessor or Lessee shall propose a use that shall result in the county or other governmental authority requiring improvements to common roadways, utilities, or other amenities serving both Lessor's and Lessee's property, the cost of such improvements shall be borne by the party proposing such use, regardless of any benefit to the other party that such improvement may cause.


6. Joint Use
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Lessor shall be entitled to extract water from the Well to meet its requirements for the brewing of beer or the manufacture of beverages other than natural water, but only to the extent that such activity by Lessor does not interfere with, restrict or limit Lessee's business as currently conducted or as it may be reasonably expected to expand in the future (based upon plans or other evidence), provided that Lessor shall not be entitled to use water from the Well or any other well located on the Property for irrigation, cleaning or purposes other than beverage production as described above and provided, further, that in no event shall Lessor be entitled to more than fifty percent (50%) of water production from the Well. Lessor shall meter its water extraction and Lessee shall not be liable to Lessor for any Additional Rent with respect to water pumped for Lessor's use. At the end of each calendar year, Lessor shall pay Lessee its pro rata share of the utility, maintenance, repair and replacement costs for the Equipment, which shall be based upon the ratio which Lessor's gallonage bears to the total gallonage pumped from the Well by Lessor and Lessee that year.


7. Maintenance and Repair of Premises:
----------------------------------


Except as otherwise provided in this Lease, Lessee will, at its own expense, during the whole of the Term, make, build, maintain and repair all improvements, including, but not limited to, sewers, drains, pavements and parking areas which now exist, or are later built by Lessee or which may be required by law to be made, built, maintained and repaired upon the


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Property or any part of it. In addition, Lessee shall operate, maintain, repair and replace, if necessary, the Equipment, at Lessee's sole expense. Lessee shall be entitled to the benefit of any warranty relating to the Equipment as may be available or provided to Lessor.


8. Additions and Alterations:
-------------------------


Lessee may make and construct improvements, alterations and additions on and to the Premises, but only in compliance with all applicable laws, ordinances and governmental regulations.


9. Observance of Laws:
------------------


Except as otherwise provided in this Lease, Lessee will, at all times during this Lease, keep the Property and any improvements on it in good order and in a sanitary condition and observe, abide by, and perform all laws, ordinances, rules and regulations applicable to the Premises, now or hereafter made by governmental authority.


10. Prohibition Against Strip or Waste:
----------------------------------
Lessee will not commit or permit any strip or waste or unlawful, improper or offensive use of the Premises including the pollution of the Well by irresponsible surface use or grossly negligent maintenance of the Well.


11. Assignment, Mortgage or Sublease:
--------------------------------


Lessee may not, without the prior written consent of Lessor, which consent (except as hereinafter provided) shall not be unreasonably withheld, delayed or conditioned, mortgage or otherwise encumber Lessee's leasehold interest in the Premises, nor assign or sublet or part with possession of the whole or any part of the Premises and any attempt to do so without the required approval shall be void and Lessee will be in default under this Lease.


Notwithstanding the foregoing, Lessor acknowledges and agrees that Lessee may merge into a wholly-owned subsidiary of AMCON Distributing Company and that the surviving or resulting company shall be the lessee under this Lease without same violating the foregoing prohibition. In addition, Lessor hereby agrees and consents that Lessee may mortgage and pledge its leasehold interest in the Premises to AMCON Distributing Company without obtaining any further consent from Lessor.


It is understood between Lessor and Lessee that Lessor has entered into this Lease for the primary purpose of allowing Lessee to use the Premises for the permitted use described in Paragraph 5 herein. If Lessee should propose to assign or sublet in whole or part the Premises for a use unrelated to that described in Paragraph 5, Lessor may arbitrarily withhold its consent to the assignment or sublease.


12. Indemnification:
---------------


Except as provided in Paragraph 29 of this Lease, Lessee will save, indemnify and hold harmless Lessor from and against all claims and demands for loss or damage, including


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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 person claiming by, through or under Lessee, except as caused by the Lessor's negligence or willful misconduct and Lessee will reimburse Lessor for all its costs and expenses, including reasonable attorney's fees, incurred in connection with the defense of any such claims.


13. Surrender of Premises and Who Owns Improvements:
-----------------------------------------------


At the end of the Term or upon sooner termination of this Lease by mutual consent, Lessee will peaceably deliver up to Lessor possession of the Premises, including all improvements, fixtures, buildings and other structures placed upon the Premises by Lessor and paid for by Lessor. Lessee shall be entitled, but not obligated, to remove any improvements, alterations, additions or trade fixtures installed or constructed upon the Premises by Lessee provided that Lessee do so prior to the end of the Term and that Lessee shall repair all damages caused by the removal.


14. Liability Insurance:
-------------------


Lessee shall obtain and keep in effect and maintain at Lessee's own expense during the Term a policy or policies of comprehensive general liability insurance with respect to the Premises with a responsible insurance company in the sum of not less than Two Million and no/100 Dollars ($2,000,000.00) coverage for personal injury and death and Five Hundred Thousand and no/100 Dollars ($500,000.00) coverage for property damage, which policy or policies shall name Lessor as an additional insured. Should Lessee fail to procure and/or maintain such insurance, Lessor shall have the right to so procure and/or maintain such policy or policies, and charge Lessee the amount of the premiums paid for it. Lessee shall provide proof of coverage within fifteen (15) days of execution of this Lease together with a statement from the insurer that Lessor will be notified if the policy is canceled.


15. Casualty Insurance:
------------------


Lessee shall obtain and keep in effect and maintain at Lessee's own expense during the Term a policy or policies of "all-risk" casualty or hazard insurance with a responsible insurance company in the sum of the replacement cost of the Equipment and all buildings and other insurable improvements on the Property, which policy or policies shall name Lessor as an additional insured. Should Lessee fail to procure and/or maintain such insurance, Lessor shall have the right to so procure and/or maintain such policy or policies, and charge Lessee the amount of the premiums paid for it.


In the event of damage or destruction that renders the Premises untenantable or otherwise unfit for Lessee reasonably to continue the operation of its business thereon for the permitted use, Lessee shall have the option to terminate this Lease effective as of the date of such damage or destruction, by written notice to Lessor within forty-five (45) days after such damage or destruction, in which case the insurance proceeds shall be assigned and paid to Lessor. In the event of lesser damage, or in the event that Lessee elects not to terminate this Lease due to major damage or destruction as provided in the previous sentence, this Lease shall continue in full force and effect, without any abatement of rent, Lessee shall repair, restore or rebuild the Premises to a


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condition at least as ...