Internal Audit Report

West Coast Cold, LLC

d/b/a CityIce Cold Storage, LLC

Lease and Concession Compliance Audit

January 1, 2009 to December 31, 2010

Issue Date: August 02, 2011

Report No. 2011-14

Internal Audit

West Coast Cold, LLC d/b/a CityIce Cold Storage, LLC

Agreement #131, #594, #842 and #1481

Table of Contents

Transmittal Letter .............................................................................................................. 3

Executive Summary .......................................................................................................... 4

Background ....................................................................................................................... 5

Audit Objective .................................................................................................................. 5

Audit Scope and Methodology ......................................................................................... 6

Conclusion ......................................................................................................................... 6

Internal Audit

West Coast Cold, LLC d/b/a CityIce Cold Storage, LLC

Agreement #131, #594, #842 and #1481

Transmittal Letter

We have completed an audit of the Lease and Concession Agreement, as amended, between

the Port of Seattle and West Coast Cold, LLC d/b/a CityIce Cold Storage, LLC.

The purpose of the audit was to determine whether:

1) Reported concession was complete and properly calculated.

2) The Port and the lessee complied with provisions of the Lease and Concession Agreement.

We examined information related to a two-year period from January 1, 2009, through December

31, 2010.

We conducted our audit using due professional care. We planned and performed the audit to

obtain reasonable assurance as to compliance with significant provisions of the agreement,

including complete and timely reporting of concessionable revenues.

CityIce Cold Storage, LLC materially complied with the terms of the Lease and Concession

agreement.

We extend our appreciation to the Seaport Industrial, Cruise and Dock Services management

and staff of Real Estate Lease Administration, and Accounting & Financial Reporting for their

assistance and cooperation during the audit.

Thank you.

Joyce Kirangi, CPA

Director, Internal Audit

Internal Audit

West Coast Cold, LLC d/b/a CityIce Cold Storage, LLC

Agreement #131, #594, #842 and #1481

Executive Summary

Audit Scope and Objective The purpose of the audit was to determine the following:

1) Reported concession was complete and properly calculated.

2) The Port and the lessee complied with provisions of the Lease and Concession Agreement.

We examined the books and records of CityIce Cold Storage, LLC for a two-year period from

January 1, 2009 through December 31, 2010. Seaport Industrial, Cruise and Dock Services, in

conjunction with Accounting and Financial Reporting (AFR), has the primary responsibility for

administering and monitoring the agreement to ensure compliance with agreed-upon terms.

Agreement Terms The agreement requires CityIce Cold Storage, LLC to pay the Port a

quarterly Percentage Rental fee of 3% of its Gross Revenue. The fee is payable only to the

extent that it is greater than the Guaranteed Minimum Rent (GMR) attributable to Building No.

39 and 390 land area on the agreement # 131. The agreements # 594, #842, and #1481 were

subject to an adjustment annually to reflect changes in the Consumer Price Index (CPI).

The GMR and monthly rent are payable in advance on or before the first day of each month,

without notice from the Port and without setoff or deduction. The Percentage Rental, if

applicable, is due on or before the 20

of the month following the end of each calendar quarter.

For untimely payments, the agreement provides for a one-time late fee of 5% of the overdue

amount and interest to be accrued at the rate of 18% per annum from the due date until paid.

Audit Result Summary CityIce Cold Storage, LLC materially complied with the terms of the

Lease and Concession agreement.

Internal Audit

West Coast Cold, LLC d/b/a CityIce Cold Storage, LLC

Agreement #131, #594, #842 and #1481

Background

West Coast Cold, LLC acquired CityIce Cold Storage, LLC Company in 2010 and Seafreeze in

2008, and combined them into the current Seafreeze/CityIce operations. West Coast Cold LLC

is a Delaware corporation with many independent operations in the United States, Canada and

around the world. CityIce Cold Storage, LLC provides secondary packaging, onsite processing,

agricultural storage, and industrial Imports.

The Port currently has five separate agreements with CityIce Cold Storage, LLC for various

locations at Terminal 91 and south end of Terminal 115. All five agreements have a fixed

monthly rent to be adjusted annually based on CPI, but they do not all have a concession as

part of the agreed-upon terms and conditions. Agreement #131 is the only agreement of the five

where a concession of 3% of Gross Revenue is required. If applicable, CityIce Cold Storage,

LLC pays the Port a quarterly concession percentage fee of 3% of its Gross Revenue in excess

of quarterly Guaranteed Minimum Rent applicable to Building # 39 and 390 land area.

The concession fee is payable to the Port no later than 20 days after the end of calendar

quarter. For untimely payments, the agreement provides a one-time late fee of 5% of the

overdue amount and interest to be accrued at the rate of 18% per annum from the due date until

paid.

Below are CityIce Cold Storage, LLC financial highlights for the last three years related to the

building No. 39 and 390 land area:

Year

Reported

Gross Revenue

Percentage

Rental

(payable if it

exceeds the

rent paid)

Rent

Paid

2008

$3,802,705

$114,081

$286,936

2009

$4,220,211

$126,606

$298,882

2010

$313,824

Total

$8,022,916

$240,687

$585,818

Source: PROPWorks and PeopleSoft

* Effective January 1, 2010, the Percentage Rental fee under lease agreement #131 was no longer applicable.

Audit Objective

The purpose of the audit was to determine the following:

1) Reported concession was complete and properly calculated.

2) The Port and the lessee complied with provisions of the Lease and Concession Agreement.

The scope of the audit covered the period of January 1, 2009 through December 31, 2010.

Internal Audit

West Coast Cold, LLC d/b/a CityIce Cold Storage, LLC

Agreement #131, #594, #842 and #1481

Audit Scope and Methodology

We conducted the audit to determine whether the parties were in compliance with the lease

agreements including, but not limited to, the percentage rental. Our approach to the audit was

risk-based from planning to test sampling. We applied additional detailed audit procedures to

areas with the highest likelihood of significant negative impact as follows:

• Percentage Rental

• The CPI adjustment

• Insurance liability

• Surety Bond/Security Deposit.

a. Percentage Rental

We evaluated the lessee’s 2009 Statement of Operations and the 4

quarter state Business

Occupation (B&O) tax return to determine if reported gross revenues were reasonably

complete. We further calculated the gross revenues at which the 3% Percentage Rental

would have been triggered. We compared the calculated gross revenues to the reported in

order to determine whether the percentage rental fee was applicable, and if so, it was

completely and accurately calculated.

b. The CPI (Consumer Price Index) Adjustment

We individually reviewed the CPI adjustment under each agreement and confirmed

compliance.

c. Insurance Liability

We individually reviewed insurance requirements under each agreement. The review results

were compared to coverage, as reflected in Insurance Certificate, to ensure compliance.

d. Surety Bond/Security Deposit

We reviewed surety requirements under each agreement. We agreed such requirements to

Surety Bond to ensure compliance.

Conclusion

Based on our audit, CityIce Cold Storage, LLC materially complied with the terms of the Lease

and Concession agreement.