LEASE AGREEMENT

 

 

                                LEASE AGREEMENT

 

 

(1) THIS LEASE AGREEMENT made this 25th day of February, 2005, by and between MB

Monroe Properties Inc. (MB), a Michigan Corporation whose address is 115 Foxhunt

Crescent,   Syosset   NY   11791,   (the   "Lessor"),   hereafter   designated   as   the

Landlord,   and Loretta   Baking   Products   Ltd.,   a Michigan   corporation,   whose

address   is 317   Front   Street,   Monroe   Michigan   (the   "Lessee"),   hereinafter

designated   as the Tenant.   Monaco   Group   Inc.,   a Delaware   Corporation   whose

address is 2405 Lucknow Drive, Mississauga,   Ontario, Canada L5S 1H9 ("MGI"), is

the parent and sole   shareholder   of Loretta   Baking   Products   Ltd.   and is the

guarantor of this lease.   This Lease Agreement shall be effective on the closing

date (the   "Closing   Date") of the real   estate   purchase   agreement   (the "Real

Estate Purchase Agreement") by and between MB Monroe Properties Inc. and Loretta

Baking Mix Products   Ltd.   whereby MB Monroe   Properties   Inc.   shall become the

owner of the   Leased   Premises   (defined   below).   If the Real   Estate   Purchase

Agreement is terminated, then this Lease Agreement shall become null and void.

 

                                   WITNESSETH:

 

DESCRIPTION

(2) The Landlord,   in   consideration of the rents to be paid and the

covenants and agreements to be performed by the Tenant and the   Guarantor,   does

hereby lease unto the Tenant Premises (the "Leased Premises") situated in Monroe

County, City of Monroe,   Michigan,   commonly known as 317 Front Street,   Monroe,

Michigan to-wit:

 

                  SEE ATTACHED LEGAL DESCRIPTION AS Exhibit A.

 

TERM

(3)   (A) The term of the Lease   shall be for ten (10)   years   from and after the

Closing Date. The Landlord,   at its sole discretion,   may allow Tenant to remain

in the Leased Premises for an extended period, subject to the terms of paragraph

3 (B). Any subsequent   extension beyond the initial renewal will be for five (5)

additional   years,   or such   other term as the   Landlord   shall   designate.   All

provisions of this Lease shall apply during all extension terms hereof.

 

     (B) If Tenant fully   complies with each and every covenant and condition as

contained in this Lease, and the Lease continues in full force and effect during

the entire original ten (10) year term the Tenant, at its option, may extend the

term of this lease for an additional   five (5) year period,   upon the same terms

and conditions as herein contained, except for the monthly rental payment, which

shall be as described in paragraph   (4) hereafter   (the   "Extended   Lease").   If

Tenant   desires to exercise   this option to extend under the Lease,   Tenant must

give written notice to Landlord of its intention to exercise the option to renew

not less than two   hundred   seventy   (270) days prior to the   expiration   of the

original term of this lease,   which written   notice must be provided to Landlord

either by hand   delivery or by receipt of   Landlord   via   certified   mail of the

written   notice,   which   written   notice,   if sent by   certified   mail,   must be

received by Landlord not less than two hundred   seventy   (270) days prior to the

expiration of the original   term of the lease.   If Tenant does not exercise this

option,   Tenant   agrees to vacate the premises   and have all   personal   property

belonging to Tenant   removed by the date that is one hundred twenty (120) months

after the Closing Date.

 

 

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     (C) If the Tenant   exercises   its option to extend the term of the original

lease in accordance   with paragraph 3(B),   then the Tenant,   at its option,   may

extend the term of the Extended   Lease for an   additional   five (5) year period,

upon the same terms and conditions of the Extended   Lease.   If Tenant desires to

exercise   this   option to extend   under the   Extended   Lease,   Tenant   must give

written   notice to Landlord of its intention to exercise the option to renew not

less than two hundred seventy (270) days prior to the expiration of the original

term of this lease,   which written notice must be provided to Landlord either by

hand   delivery   or by receipt of   Landlord   via   certified   mail of the   written

notice,   which written   notice,   if sent by certified   mail, must be received by

Landlord not less than two hundred seventy (270) days prior to the expiration of

the term of the Extended Lease.

 

RENT

(4) The   annual   Rent for the   initial   term of the   Lease,   which Rent does not

include   additional   amounts to be paid by Tenant as set forth in paragraph (5),

(6) and any   amounts,   other than Rent,   which   Tenant   may be   required   to pay

pursuant   to   additional   terms of this Lease,   totals One   Hundred   Twenty Five

Thousand Dollars,   with monthly Rent payments in the amount of Ten Thousand Four

Hundred Sixteen Dollars and sixty seven cents ($10,416.00) Dollars per month due

on the first day of each month,   beginning on the Closing Date,   and   subsequent

payments   ($10,416.67)   due every month on the 1st day of each month   thereafter

until all Rent   amounts   herein have been paid in full for the year.   The annual

rental shall   increase each year by 5% over the preceding   year's rent until the

lease expiration in 2014.

 

If the Tenant   shall   default   in any   payment   or   expenditure   other than Rent

required   to be paid or   expended   by the   Tenant   under the terms   hereof,   the

Landlord may at its option make such payment or expenditure,   in which event the

amount thereof shall be paid as rental to the Landlord by the Tenant on the next

ensuing day Rent would be due,   together   with interest at ten (10%) percent per

annum from the date any payment or   expenditure   other than Rent   required to be

paid or   expended   by the   Tenant   was due or from the date of such   payment   or

expenditure   by the Landlord   and on default in such payment the Landlord   shall

have the same   remedies as on default in payment of rent. If the Tenant shall be

in default in the payment of Rent required to be paid pursuant to Paragraph 4 of

this Agreement,   a late fee in the amount of One Hundred ($100.00) Dollars shall

become   due and owing and paid as rental to the   Landlord   by the   Tenant on the

next   ensuing   day Rent would be due and on default   of such   payment,   Landlord

shall be entitled to pursue all legal or equitable   remedies it may have against

Tenant.   If the Tenant   defaults on any rent or required   payments   and does not

cure any default within 10 business days of said default,   the landlord shall be

entitled to accelerate all rental payments due under the terms of this lease and

the landlord   may, at its sole   discretion   declare the lease null   canceled and

require the tenant to vacate the premises.

 

All payments of Rent or other sums to be made to the   Landlord   shall be made at

such place as the Landlord   shall   designate   in writing from time to time.   The

Landlord shall have the option to receive the monthly lease   payments   either in

the form of cash or shares of common stock of MGI ("Monaco Shares").   The Monaco

Shares shall be registered pursuant to MGI's S-8 stock plan at the closing price

on the date of payment.

 

RENT SECURITY AND ADDITIONAL INDUCEMENT IN FAVOR OF LANDLORD

a) The Tenant shall pay the landlord $24,000 as security deposit upon signing of

this lease agreement.

 

b) MGI agrees to guarantee all the lease   payments   payable by the Tenant to the

Landlord   pursuant   to the terms and   conditions   of this   Lease and will   issue

600,000   Monaco Shares of its common stock to the Landlord,   which shall be held

 

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in escrow,   by an escrow   agent to be mutually   agreed upon by the parties   (the

"Escrow   Agent"),   as   additional   collateral to guarantee   payments   under this

Lease.   Said shares shall have piggy back   registration   rights and, at the sole

discretion   of the Landlord,   may be used in   connection   with the share payment

option of the Landlord as described above in this paragraph (4).

 

c) As an inducement to the Landlord to acquire the premises from Monroe Bank and

Trust and to lease the premises to the Tenant, MGI agrees to grant three hundred

fifty thousand   (350,000) options on its common stock   ("Stock-Options")   to the

Landlord.   The   350,000   Stock-Options   shall   be   validly   issued   by   MGI   and

irrevocably   granted to the Landlord and evidenced by a written option agreement

pursuant   to Rule   144.   The   option   period   shall be valid for seven (7) years

following the date granted to acquire 350,000 shares of the capital stock of MGI

at a per share price of $1.50.   Shares   underlying the above warrants shall have

piggy back registration rights. The number of shares underlying the options will

be adjusted   upward pari pasu with any forward splits or downward in the case of

any   reverse   splits but in no case shall the   Landlord be entitled to less than

150,000   shares under the option   agreement.   The options shall be issued at the

time of the execution of this Lease.

 

d) MGI herby represents that it has induced the Landlord to acquire the property

at 317 Front   Street in Monroe,   Michigan   in order to be able to   complete   the

acquisition   of the   business   formerly   owned by   Amendt   Corporation   ("Amendt

Business")   from Monroe Bank & Trust and to be able to operate the   facility for

the benefit of the Tenant and MGI. MGI   represents   that the   acquisition of the

Amendt   Business   is a critical   part of MGI's   strategic   business   plan and is

therefore   binding itself as a party to this lease agreement and hereby warrants

and   guarantees   all   of the   terms,   conditions   and   representations   in   this

agreement as though it were the Tenant in this contract.

 

INSURANCE

(5) In addition to the rentals hereinbefore specified,   the Tenant agrees to pay

as additional   rental all premiums for   insurance,   as described in Paragraph 11

hereof, that are charged during the term of the Lease on the Leased Premises and

on the improvements situated on said Leased Premises, which amount shall be paid

as and when due to the insurance company issuing the subject insurance and which

amount is in addition to the amount set forth in Paragraph 4 above.

 

TAXES

(6) In addition to the rentals hereinbefore specified,   the Tenant agrees to pay

as additional   rental all taxes that may be charged during the term of the Lease

on the Leased Premises and on the improvements situated on said Leased Premises,

which amount shall be due as and when the same are due   according to the charges

billed and before interest accrues on the amounts due.

 

ASSIGNMENT

(7) The Tenant   covenants not to assign or transfer this Lease or hypothecate or

mortgage the same or sublet said Leased Premises or any part thereof without the

written   consent   of the   Landlord.   Any   assignment,   transfer,   hypothecation,

mortgage or subletting   without said written consent shall give the Landlord the

right to terminate this Lease and to re-enter and repossess the Leased Premises.

 

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BANKRUPTCY AND INSOLVENCY

(8) The   Tenant   agrees   that if the   estate   created   hereby   shall be taken in

execution,   or by other   process   of law,   or if the   Tenant   shall be   declared

bankrupt or   insolvent,   according to law, or any receiver be appointed   for the

business and property of the Tenant,   or if any assignment   shall be made of the

Tenant's   property   for the   benefit of   creditors,   then and in such event this

Lease may be canceled at the option of the Landlord.

 

RIGHT TO MORTGAGE

(9) The Landlord reserves the right to subject and subordinate this Lease at all

times to the lien of any mortgage or mortgages now or hereafter   placed upon the

Landlord's interest in the said Leased Premises and on the land and buildings of

which the said Leased Premises are a part or upon any buildings hereafter placed

upon the land of which the Leased Premises form a part. The Tenant covenants and

agrees to execute and deliver upon demand such further instrument or instruments

subordinating   this Lease to the lien of any such mortgage or mortgages as shall

be desired by the Landlord and any mortgagees or proposed   mortgagees and hereby

irrevocably   appoints the Landlord the attorney-in-fact of the Tenant to execute

and   deliver   any   such   instrument   or   instruments   for and in the name of the

Tenant.

 

USE AND OCCUPANCY

(10) It is   understood   and agreed   between the parties   hereto that said Leased

Premises   during the   continuance   of this Lease shall be used and   occupied for

those purposes   required by Tenant as a manufacturer   and   distributor of baking

mix products and for no other purpose or purposes without the written consent of

the   Landlord,   and that the   Tenant   will not use the Leased   Premises   for any

purpose in violation of any law, municipal ordinance or regulation,   and that on

any breach of this   agreement   the Landlord may at their option   terminate   this

Lease forthwith and re-enter and repossess the Leased Premises.

 

FIRE AND INSURANCE

 

(11) It is   understood   and agreed   that if the Leased   Premises   are damaged or

destroyed in whole or in part by fire,   the elements or other   casualty which is

insured under insurance carried by Landlord during the term hereof, the Landlord

shall,   within one   hundred   eighty   (180)   days from the date of the   casualty,

repair and restore the Leased   Premises to good tenantable   condition,   and that

the rent   herein   provided   for shall abate   entirely in case the entire   Leased

Premises are untenantable and pro rata for the portion rendered untenantable, in

case a part   only is   untenantable,   until   the   same   shall   be   restored   to a

tenantable condition; provided, however, that if the Tenant shall fail to adjust

its own insurance or to remove its damaged goods,   wares,   equipment or property

within a reasonable   time, and as a result thereof the repairing and restoration

is delayed,   there   shall be no   abatement   of rental   during the period of such

resulting delay, and provided further that there shall be no abatement of rental

if such fire or other cause   damaging or destroying   the Leased   Premises   shall

result   from   the   negligence   or   willful   act of the   Tenant,   its   agents   or

employees,   and   provided   further   that if the Tenant shall use any part of the

Leased   Premises   for storage   during the period of repair a   reasonable   charge

shall be made therefore   against the Tenant,   and provided   further that in case

the   Leased   Premises,   or the   building   of   which   they   are a part,   shall be

destroyed to the extent of more than one-half of the value thereof, the Landlord

may at its option   terminate   this Lease   forthwith   by a written   notice to the

Tenant.   In no event   shall   Landlord   be   required   to   expend in excess of the

insurance proceeds allocated to the Leased Premises which Landlord receives from

its insurance   carrier to repair and restore the Leased   Premises.   In the event

Landlord   repairs or   restores   the Leased   Premises,   any   amount   expended   by

Landlord in repairing or restoring   the Leased   Premises   which are in excess of

the proceeds of   insurance   received by   Landlord,   said excess   amount shall be

 

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repayable   by Tenant to Landlord   within ten (10) days after   received by Tenant

from   Landlord   of a   statement   setting   forth the amount of such   excess.   The

Landlord's   insurance   carrier shall determine the amount of insurance   proceeds

attributable to the damage to such improvements,   which   determination   shall be

binding upon Landlord and Tenant.

 

The Tenant   agrees,   at its sole cost and expense,   to keep the Leased   Premises

insured with a responsible Insurance Company with the Landlord being named as an

additional   insured for all risk hazard insurance for fire and extended coverage

(the "All Risk   Policy")   and to deliver the policy or policies to the   Landlord

and upon its failure to do so the Landlord may place such   insurance   and charge

the same to the Tenant as so much   additional   rent as provided in Paragraph (4)

and (5);   but the failure on the part of t