<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1995.
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file number 0-18237
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VIKING OFFICE PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
California 95-2082946
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13809 South Figueroa Street, Los Angeles, California 90061
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 321-4493
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing sales price as reported on
The Nasdaq National Market on September 21, 1995, is approximately
$1,567,132,000. In determining the market value of the voting stock held by
non-affiliates, shares of Common Stock beneficially owned by each executive
officer and director have been excluded. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Number of shares outstanding on
Class September 21, 1995
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<C> <S>
Common Stock 41,048,659 shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 5, 6, 7 and 8 of this form is incorporated by
reference from the registrant's Annual Report to Shareholders for the fiscal
year ended June 30, 1995.
Pursuant to General Instruction G(3) to this form, the information required
by Part III (Items 10, 11, 12 and 13) hereof is incorporated by reference from
the registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders scheduled to be held on November 16, 1995.
<PAGE>
CROSS REFERENCE SHEET
The following table identifies information incorporated by reference into
Part II of this report from the registrant's Annual Report to Shareholders for
the fiscal year ended June 30, 1995 (the "Annual Report"):
PART II ITEM INCORPORATED BY REFERENCE FROM
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Item 5. Market for the Registrant's Annual Report section entitled "Securities
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Common Stock and Related Information" (page 27).
Stockholder Matters
Item 6. Selected Financial Data Annual Report section entitled "Financial
- ------ Highlights" (page 4).
Item 7. Management's Discussion and Annual Report section entitled
- ------ "Management's Discussion and Analysis of
Analysis of Financial Condition and Financial Condition and Results of
Results of Operations Operations" (pages 11 through 13).
Item 8. Financial Statements and Pages 15 through 25 of the Annual Report.
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Supplementary Data
<PAGE>
PART I
ITEM 1: BUSINESS
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GENERAL
Viking Office Products, Inc. ("Viking") sells office products to small and
medium-sized businesses in the United States, Europe and Australia through
innovative direct marketing catalogs and aggressive marketing programs. Viking
is one of the largest direct marketers of office products to small and medium-
sized businesses. In order to compete effectively nationwide and to maintain
high service levels, Viking operates four full-service and three satellite
distribution centers that are strategically located to serve customers
throughout the continental United States. Viking also operates a full-service
distribution center and a satellite distribution center serving the United
Kingdom and the Republic of Ireland, a full-service distribution center serving
France, Belgium, Luxembourg and The Netherlands (with a separate call center in
Holland) and a full-service distribution center serving Australia. For
financial information about Viking's operations by geographic segment, see Note
I of Notes to the Consolidated Financial Statements incorporated by reference in
Item 8 of this report.
Viking's target customers are businesses with less than 100 office
employees. The traditional source of office products for these businesses has
been small retail dealers which purchase products from wholesalers in limited
quantities for resale at or near manufacturers' list prices. In recent years,
small and medium-sized businesses have increased their purchases of office
products from alternative distribution channels such as office products
superstores, direct marketing companies, mass merchandisers and warehouse clubs.
Office products superstores have emerged in most urban and suburban markets of
the United States, targeting home office buyers and the small and medium-sized
businesses that purchase from retail dealers, by offering a wide selection of
products and substantially lower prices. Office products superstores also have
recently begun to appear across Europe and in Australia. The entry of
superstores into the office products market has increased customer price
awareness and has resulted in increased price competition.
Viking offers a comprehensive selection of over 10,000 office products,
including general office supplies, computer supplies, paper products, office
furniture, selected business machines and janitorial and safety supplies.
Viking's strategy emphasizes frequent mailings of a variety of distinctive, full
color catalogs, exceptional customer service, prompt order fulfillment and
discounted prices. Viking believes that the majority of its sales are made in a
range of 30% to 50% below manufacturers' suggested list prices.
During 1990, Viking opened a full-service distribution center in the United
Kingdom. Viking expanded its European operations in fiscal 1992 by opening a
full-service distribution center serving France, and opened a satellite
distribution center in London, England, in fiscal 1994. Viking has established
its United Kingdom and French distribution centers in order to take advantage of
the opportunities it believes exist throughout Europe for direct marketers of
office products. In May 1994, Viking commenced cross-border shipping from
France into Belgium and, in September 1994, began cross-border shipping from
France into Luxembourg
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and from the United Kingdom into the Republic of Ireland. In November 1994,
Viking commenced cross-border shipping from France into The Netherlands and
opened a separate call center for the Netherlands in Venlo, Holland in April,
1995. Viking anticipates opening, before the end of calendar 1995, a
distribution center in Germany, which will provide overnight delivery to over
98% of Germany, and opening, during fiscal 1996, a satellite warehouse in
Dublin, Ireland and adding a satellite warehouse to its call center in Venlo,
Holland. Viking will continue to evaluate a further expansion of its European
operations, including cross-border shipping into other countries, in the near
future.
Viking further expanded its international operations in fiscal 1994 by
opening a full-service distribution center in Sydney, Australia. Initial
catalog mailings and sales in Australia began in November 1993. During fiscal
1994, sales in Australia primarily consisted of consumable office supplies, and
Viking expanded its product offerings in Australia during fiscal 1995. Viking
anticipates opening a satellite warehouse in Melbourne, Australia during fiscal
1996.
Revenues from Viking's European and Australian operations were
approximately $451 million in fiscal 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for information
regarding capital expenditures incurred in connection with the expansion of
Viking's European and Australian operations.
Sales by Viking foreign distribution centers are made in the local
currencies and translated into U.S. dollars for financial statement
presentation. Therefore, the results of foreign operations included in Viking's
consolidated financial statements are affected by fluctuations in the value of
the U.S. dollar as compared to the local currencies of the foreign distribution
centers.
Viking opened a satellite distribution center in Seattle, Washington, in
September 1992, converted its Jacksonville, Florida, facility from a full-
service distribution center to a satellite distribution center in July 1993 and
opened a satellite distribution center in Minneapolis, Minnesota in June 1995.
Viking also intends to open a satellite distribution center in Baltimore,
Maryland in fiscal 1996. These facilities primarily serve as order fulfillment
centers and perform a smaller range of functions than Viking's other regional
distribution centers. Other satellite distribution centers are being considered
for the United States and elsewhere.
Viking was organized as a California corporation in 1960. Viking's
principal executive offices are located at 13809 South Figueroa Street, Los
Angeles, California 90061. Viking's telephone number is (213) 321-4493. As
used herein, the term "Viking" refers to Viking Office Products, Inc., its
wholly-owned subsidiaries and its predecessor, unless the context indicates
otherwise.
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CATALOG PUBLICATION
GENERAL
Viking uses its various catalogs to market directly to both existing and
prospective customers. Each catalog is printed in full color with an effective
selling presentation, including a picture of each item and a narrative
description that emphasizes key product benefits and features. In addition, the
catalogs typically compare the manufacturers' suggested list price with Viking's
discount price for each item to illustrate the savings offered. Viking has
developed a consistent and distinctive style for its catalogs. The catalogs are
created and produced in-house by Viking's designers, writers and production
artists and are printed by a commercial printer.
Viking has developed a computer based catalog creation system which
streamlines the catalog production process. The system electronically stores
all photographs and images used in the production of Viking's catalogs,
eliminates the need for outside services for typesetting and the production of
color film separations and allows production artists to manipulate images and
format individual catalog pages on a computer terminal. Since the first quarter
of fiscal 1992, the system has been used for the production of all of Viking's
catalogs. The system reduces the time required to produce a catalog, provides
for greater flexibility and creativity in catalog production and has increased
production capacity.
Viking uses a single commercial printer and its affiliates for the printing
of substantially all of Viking's catalogs, including catalogs distributed in
Europe, pursuant to an agreement entered into in October 1991. The printing
agreement and catalog creation system have resulted in cost savings to Viking.
CATALOG PROGRAMS
Viking's regular catalog mailings include a monthly sale catalog, which is
mailed to all active customers and contains Viking's most popular items, and
specialty catalogs which are delivered to selected customers monthly. Selected
items in these catalogs are offered at sale prices reduced from Viking's regular
discount prices. A complete Buyers Guide is delivered to customers every six
months and contains all of the products offered by Viking at its regular
discount prices. Prospecting catalogs with sale prices specially designed to
acquire new customers are mailed frequently. As part of its ongoing efforts to
increase market share, Viking introduced a catalog dedicated to office furniture
in October 1988, a catalog dedicated to computer supplies in October 1989, a
catalog dedicated to custom printed business forms and stationery in January
1991, a catalog dedicated to paper products in February 1992, a catalog
dedicated to shipping and warehouse supplies (including cleaning and janitorial
products) in September 1993 and a catalog dedicated to presentation supplies
(including transparencies and overhead slides) in March 1994. Other specialty
catalogs are being researched and considered, and additional specialty catalogs
may be introduced in the future.
The current edition of Viking's Buyers Guide for United States customers is
over 500 pages and featured over 10,000 items. Viking's other domestic catalogs
typically contain from 50 to 130 pages and feature from 200 to 2,000 items. A
Buyers Guide for active customers was
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introduced in the United Kingdom in January 1991 and in France in September
1992. The current edition of the United Kingdom Buyers Guide is 316 pages and
features over 7,000 items. The current edition of the Buyers Guide for France is
252 pages and features over 5,700 items. Viking introduced its furniture and
computer supplies catalogs in the United Kingdom during fiscal 1992 and
introduced its computer supplies catalog in France in fiscal 1993. In fiscal
1994, Viking introduced its paper products and its warehouse supplies catalogs
in the United Kingdom and France, and its custom printed business forms catalog
in the United Kingdom. Viking's initial catalog mailings in Belgium were created
in both Walloon (Belgian French) and Flemish, and during fiscal 1995, Viking
introduced a 268 page Buyers Guide, featuring over 5,200 products, and its paper
products and computer supplies catalogs in Belgium. During fiscal 1995, Viking
also introduced its custom printed business forms catalog in France, a 340 page
Buyers Guide, featuring over 4,500 products, and its paper products and computer
supplies catalogs in Ireland and a 220 page Buyers Guide, featuring over 3,500
products, and its computer supplies catalog in the Netherlands. Viking expects
to introduce additional catalogs and programs in Europe during fiscal 1996.
Viking's initial catalog mailings in Australia consisted exclusively of
prospecting catalogs, and a Buyers Guide for active customers was introduced in
Australia in February 1994. The current edition of the Australian Buyers Guide
is 196 pages and features over 4,000 items. Viking also introduced its computer
supplies catalog in Australia during fiscal 1994 and its furniture, paper
products and warehouse supplies catalogs during fiscal 1995. Viking intends to
introduce additional catalogs and programs in Australia during fiscal 1996.
During fiscal 1995, Viking mailed approximately 140 million copies of over
100 different catalogs, of which approximately 53% were mailed to existing
customers. The following table shows the approximate number of catalogs mailed
by Viking during the five years ended June 30, 1995. Information for all years
includes customers in both the United States and the United Kingdom.
Information for fiscal 1992, 1993, 1994 and 1995 also includes mailings to
customers in France, which began in June 1992, and information for fiscal 1994
and 1995 also includes mailings to customers in Australia, which began in
November 1993, and mailings to customers in Belgium, which began in May 1994.
Information for fiscal 1995 also includes mailings to customers in Luxembourg
and the Republic of Ireland, which began in September 1994, and mailing to
customers in The Netherlands, which began in November 1994.
<TABLE>
<CAPTION>
YEAR ENDED JUNE
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1991 1992 1993 1994 1995
------ ------ ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Catalogs mailed to existing customers... 21,582 30,742 41,970 56,507 74,091
Prospects and inactive customers........ 28,825 39,571 53,961 59,784 66,583
------ ------ ------ ------- -------
Total................................. 50,407 70,313 95,931 116,291 140,674
====== ====== ====== ======= =======
</TABLE>
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MARKETING
Vikings's various marketing programs are designed to attract new customers
and to stimulate additional purchases from existing customers. The following
table shows certain information with respect to Viking's customer population
during the five years ended June 30, 1995. Information for all years includes
customers in both the United States and the United Kingdom. Information for
fiscal 1992, 1993, 1994 and 1995 also includes customers in France, where sales
began in June 1992, and information for fiscal 1994 and 1995 also includes
customers in Australia, where sales began in November 1993, and customers in
Belgium, where sales began in May 1994. Information for fiscal 1995 also
includes customers in Luxembourg and the Republic of Ireland, where sales began
in September 1994, and customers in The Netherlands, where sales began in
November 1994.
<TABLE>
<CAPTION>
YEAR ENDED JUNE
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1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
Total active customers (1)........... 571,000 745,000 1,010,000 1,240,000 1,530,000
Average annual revenues per active
customer (during the fiscal year)... $ 397 $ 430 $ 445 $ 456 $ 531
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</TABLE>
(1) An active customer has made at least one purchase during the preceding 12
months.
Viking continuously acquires new customers by selectively mailing specially
designed catalogs to prospective customers. Viking obtains the names of
prospective customers through the rental of selected mailing lists from outside
marketing information services and other sources. These lists include lists of
business buyers of noncompeting direct mail companies, subscribers to business
publications and compiled business names.
After placing an initial order, new customers receive additional catalogs
and other mailings to stimulate continued product purchases. Generating follow-
on orders is an important aspect of Viking's marketing program since the costs
incurred in acquiring new customers from a particular mailing exceed the profit
generated by that mailing. Viking's catalog mailings to its existing customer
base always have been profitable and currently account for approximately 70% of
its revenue.
During the third quarter of fiscal 1991, Viking began mailing catalogs
which include personalized offers of a "private sale" for individual customers.
The offers consist of a special sale price on a particular product for a
specific customer and are based on information in Viking's customer database.
Inkjet technology and proprietary software programs developed by Viking are used
to imprint the customer's personalized offer on the catalog. In the first
quarter of fiscal 1992, Viking also began the use of prospecting catalogs which
include a personalized message specially designed for the recipient of the
catalog. Over the past several years, Viking further developed and expanded the
use of personalized database marketing programs, and Viking intends to continue
to develop and enhance these programs. Viking believes the use of personalized
database marketing programs has increased the performance of its catalogs and
plans to expand their use. Currently, approximately one-half of all catalogs
mailed by Viking in the
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United States include a personalized message for the recipient. Viking
introduced personalized database marketing programs in the United Kingdom in
fiscal 1993, in France in fiscal 1994 and in Belgium in fiscal 1995. Viking
intends to introduce personalized database marketing programs in other markets
during fiscal 1996.
Viking uses sophisticated proprietary information systems to analyze the
results of individual catalog mailings and uses the information derived from
these analyses to target future mailings. By analyzing the results of mailings
to prospective customers, Viking can capture and measure its cost to acquire new
customers. Each new customer is identified and categorized. The cost to
acquire each customer is then compared to the profitability of the future
business that can be expected from a typical customer from this category based
upon Viking's prior experience. Management uses these analyses to plan future
prospecting selections and mailings.
Viking also uses its information systems to update and segment its
proprietary customer database. Viking is able to capture and analyze customer
response to specific catalog mailings through criteria such as recency and
frequency of purchases, the dollar amount of orders and specific products
ordered. The resulting information is used to adjust the frequency and
selectivity of Viking's various catalog mailings to particular groups of
customers in order to achieve improved response and profitability and to develop
personalized offers for Viking's database marketing programs.
In addition, Viking uses these systems to analyze the performance of each
product and product family. This analysis enables Viking to strengthen the
merchandising of its catalogs and to determine the placement of and amount of
space devoted to each product in a particular catalog based upon response, sales
and profit performance.
DISTRIBUTION CENTERS
General
Viking currently maintains its corporate headquarters and a full-service
distribution center in a combined facility in Los Angeles, California, and full-
service regional distribution centers in Dallas County, Texas, Cincinnati, Ohio,
East Windsor, Connecticut, Leicester, England, Paris, France, and Sydney,
Australia. Viking also maintains satellite distribution centers in Seattle,
Washington, Jacksonville, Florida, Minneapolis, Minnesota and London, England,
and expects to open other satellite distributions center in Baltimore, Maryland,
Dublin, Ireland, Venlo, The Netherlands, and Melbourne, Australia, and a full-
service distribution center in Germany, during fiscal 1996. Viking believes
that, as a result of its network of distribution centers, it is within one or
two business days' surface delivery from over 95% of the small and medium-sized
businesses in the continental United States, the United Kingdom and France.
Viking also believes that its use of regional distribution centers enhances
Viking's domestic marketing efforts due to a preference on the part of many
customers to obtain products from local or regional sources and resulting
efficiencies in order fulfillment.
Each distribution center maintains a complete inventory of the products
offered to its customers other than custom printed items and large furniture.
Furniture such as chairs, chairmats
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and typing stands, which may be shipped by national parcel carriers, is
stocked at each distribution center. Larger furniture, such as desks and filing
cabinets, is shipped from the manufacturer directly to Viking's customer.
Viking has entered into arrangements with its furniture suppliers intended to
assure that shipment is made within five business days of the receipt of the
customer's order. To expedite prompt delivery of furniture orders, Viking
electronically transmits a purchase order to the manufacturer, generally within
one hour of receipt of the customer's order.
A full-service distribution center typically is staffed with a division
general manager, a customer relations manager, order entry and customer service
representatives, a fulfillment warehouse manager and warehouse and shipping
employees. Order entry representatives generally operate from 7:00 a.m. to 7:00
p.m., local time, Monday through Friday and from 8:00 a.m. to 2:00 p.m., local
time, on Saturdays. Credit and collection services for the United States are
consolidated in two distribution centers and are performed locally at each
European distribution center and in Australia. Administrative, purchasing,
accounting, marketing, data processing, programming and creative services
functions are centralized at Viking's Los Angeles headquarters, with additional
accounting and purchasing functions performed at Viking's European and
Australian distribution centers. Viking's satellite distribution centers are
primarily order fulfillment facilities which perform a smaller range of
functions than Viking's other distribution centers and are supported by a full-
service distribution center in a neighboring region.
Order Entry and Fulfillment
Viking attempts to make purchasing office products as convenient as
possible for small and medium-sized business. Since approximately 75% of
customer orders are received by telephone, the efficient handling of calls is an
extremely important aspect of Viking's business. Viking offers a toll-free
telephone number which automatically directs calls to the full-service
distribution center closest to the customer. Calls are received by well-trained
order entry representatives who utilize personal computer workstations to enter
customer orders into the fully computerized order processing systems. The order
entry representatives use these systems, including client server applications
developed by Viking, to access detailed data about all of Viking's products,
pricing, promotions and each customer's order history in order to provide better
service and answer customer questions. Viking's telephone systems enable prompt
and efficient service and have a rate of abandoned and lost calls which, on
average, is less than 1% of all incoming calls. In addition to telephone
orders, Viking also receives orders by mail and through toll-free fax lines.
When an order is entered into the system, a computer credit check is
performed, and, if credit is approved, the order is electronically transmitted
to the warehouse and a packing slip is laser printed for order fulfillment.
Viking has achieved efficiencies in order entry and fulfillment which permit the
shipment of over 98% of all orders on the day received and the shipment of
substantially all remaining orders on the following business day. Orders
generally are shipped by national parcel carriers, various freight lines and
local carriers. Because customers are serviced from the nearest distribution
center, Viking estimates that most customers receive their orders (other than
custom printed items and large furniture shipped directly by the manufacturer)
within one or two business days of the order date. Back orders, i.e., orders
for products which are not in stock at the distribution center where the order
is taken, average less than 1% of total orders
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and generally are shipped the next business day from another Viking distribution
center. Viking provides free delivery on all orders exceeding the applicable
minimum order amount.
Viking provides same-day delivery to customers located in the vicinity of
its distribution centers in the United States and France, in London, Leicester
and Birmingham in the United Kingdom and in Sydney, Australia. This service,
which is provided without additional charge (except for deliveries in France),
is available on all orders received before 11:00 a.m. from customers located in
same-day service areas. During fiscal 1996, Viking intends to expand the
geographic areas served by this program to include Baltimore, Maryland,
Washington, D.C., Dublin, Ireland, Melbourne, Australia and portions of Germany.
Customer Service
Viking believes that exceptional customer service and customer relations
are key elements of its marketing program. Viking trains its order entry and
customer relations representatives to provide prompt, efficient and courteous
service to all customers. In addition to providing toll-free ordering, Viking
also maintains a separate toll-free customer service telephone number for its
customers.
As part of its commitment to customer service, Viking allows a product to
be returned for any reason whatsoever, free of charge, within 30 days after the
date of purchase, and Viking provides a one-year guarantee on all products. At
the customer's request, Viking will arrange for the pick-up of products to be
returned and pay all return shipping costs. Management believes that Viking's
convenient return policies help overcome a customer's initial reluctance to
ordering products from a catalog. For each of the fiscal years ended June 24,
1994 and June 30, 1995, total returns and allowances were approximately 6% of
gross sales.
MERCHANDISING AND PURCHASING
General
Viking offers a comprehensive selection of over 10,000 office products,
including general office supplies, computer supplies, office furniture and
selected business machines. Merchandise consists largely of brand name items,
but also includes certain items, such as xerographic paper, legal pads and ring
binders, which meet Viking's quality standards and are offered under the Viking
label. Viking's merchandising strategy is to maintain a product selection broad
enough to satisfy its customers' everyday office needs and to offer these
products at discount prices. Viking believes that the majority of its sales are
made at prices in a range of 30% to 50% below manufacturers' suggested list
prices. The following table shows sales by each major product group as a
percentage of total sales for fiscal 1993, 1994 and 1995:
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<TABLE>
<CAPTION>
PERCENTAGE OF SALES
----------------------
YEAR ENDED JUNE
----------------------
1993 1994 1995
------ ----- -----
<S> <C> <C> <C>
General office supplies and business machines (1)... 75% 74% 73%
Computer supplies (2)............................... 15 15 16
Furniture (3)....................................... 10 11 11
---- ---- ----
100% 100% 100%
==== ==== ====
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</TABLE>
(1) Business machines offered by Viking include calculators, adding machines,
typewriters, telephones, facsimile machines and compact copiers.
(2) Includes paper, diskettes, ribbons, furniture and other computer-related
supplies and accessories.
(3) Includes chairs, desks, tables, partitions and filing and storage cabinets.
Purchasing
Viking purchases substantially all of its products in large volumes
directly from manufacturers, who deliver the merchandise to Viking's
distribution centers. Viking believes that, because of its volume purchases, it
has significant bargaining power with its suppliers that has enabled it to
benefit from favorable pricing, promotional allowances and payment and delivery
terms. Certain vendors provide advertising allowances to Viking to promote and
increase sales of their products. Generally, Viking has been able to return any
unsold or obsolete inventory to the manufacturer, resulting in negligible
inventory write-offs.
Initial buying decisions are made by product managers who are responsible
for selecting and pricing products. In addition, the product managers negotiate
with suppliers, analyze customer response and sales results and plan catalog
page presentations, product promotions and mailing schedules. Inventory levels
are maintained by rebuyers through the use of Viking's computerized inventory
control system. This system has enabled Viking to minimize its inventory out-
of-stock position.
In fiscal 1993, Viking began using an electronic data interchange ("EDI")
program to purchase products from a major supplier. During fiscal 1995, Viking
increased its use of EDI programs to include 110 suppliers, and, as of September
1, 1995, over 77% of Viking's inventory purchases were being made through EDI
programs. Viking intends to continue to increase its use of EDI programs for
product purchases and believes that its participation in EDI programs will
improve operating efficiencies by reducing back orders, while at the same time
allowing Viking to maintain lower inventory levels.
A substantial portion of Viking's purchases are concentrated with a
relatively small number of suppliers. However, Viking believes that alternative
sources of supply are available for virtually every product it carries.
Notwithstanding the availability of alternative sources of supply, Viking
believes that customer brand preference is an important factor in the purchase
of certain office
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products and that its competitive position is enhanced by the inclusion of
popular brand name items in its catalogs. Viking considers its relationships
with its suppliers to be excellent and has not experienced any difficulty in
obtaining brand name products.
During fiscal 1995, paper prices increased sharply, resulting in increased
costs to Viking. Although Viking did not have any difficulty in obtaining
supplies of paper during fiscal 1995, it did experience delays in passing such
unexpected price increases on to its customers, as Viking continued to honor the
paper prices set forth in its catalogs. No assurances can be given that paper
prices will not continue to increase in the future.
MANAGEMENT INFORMATION SYSTEMS
Viking has committed significant resources to the development of a
sophisticated proprietary computer system involving all aspects of Viking's
business. Each full-service regional distribution center processes order entry,
order fulfillment, inventory management and customer service functions utilizing
IBM AS/400 and client server computer systems. These regional computers are
linked by a dedicated communication line to Viking's main computer system in Los
Angeles.
By handling all order entry and fulfillment functions regionally, Viking
can provide faster order entry and fulfillment and better customer service. The
general accounting system and inventory control, product merchandising, customer
development and catalog analysis functions are supported by Viking's computers
in Los Angeles. All programming and systems design are performed by Viking's
Information Systems departments in Los Angeles and Europe. Programs are then
downloaded into each regional computer to assure consistency and reduce the
amount of computer support required to manage Viking's computer network. Each
regional computer file is backed-up every night and duplicated in Los Angeles.
Viking believes that, because of its distributed structure and centralized back-
up and control, the loss of any regional computer system would not have a
material impact on its operations. Data processing operations at Viking's
European and Australian distribution centers generally are handled in the same
manner as domestic data processing operations, except that additional general
accounting and inventory purchasing functions are performed locally.
COMPETITION
Viking operates in a highly competitive environment. In its targeted
market of small to medium-sized businesses, Viking believes that its principal
competitors are other direct marketing companies, traditional office products
dealers and office products superstores. To a lesser extent, Viking also
competes with contract stationers, which traditionally serve larger businesses,
mass merchandisers and warehouse clubs. Some of Viking's competitors are larger
and have greater financial resources than Viking.
Viking believes that its competitive position is enhanced by its ability to
satisfy its customers' office products needs with a wide variety of quality,
brand name merchandise, its discount prices and its strong commitment to
customer service. Viking believes that its customer service performance has
enabled it to compete effectively against other direct marketers of office
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products, some of which offer comparable products at prices lower than those
usually charged by Viking. Viking believes that it has two principal
competitors, Quill Corporation and The Reliable Corporation, in the direct
marketing segment of the domestic office products industry.
Direct marketing of office products in the United Kingdom is much less
common than in the United States. Viking believes that its principal direct
marketing competitor in the United Kingdom is Neat Ideas, a wholly-owned
subsidiary of Kaiser + Kraft GmbH. Direct marketing of office products is well-
established in France, and Viking has encountered strong competition from
existing direct marketing companies. Viking believes that its principal direct
marketing competitors in France are J.M. Bruneau and Gaspard and Guilbert.
Viking believes that direct marketing of office producers did not exist in
Australia to any material extent prior to Viking's entry into that market.
The office products industry in the United States has experienced increased
competition in recent years due to the emergence and rapid growth of office
products superstores. Superstores offer a wide variety of office products in a
warehouse-type setting at prices that are lower than those typically offered by
Viking. Superstores are continuing to increase their share of the office
products market. The expansion of the superstores has resulted in increased
price competition throughout the industry. Viking has responded to this
increased competition by selectively reducing prices and by aggressively
emphasizing Viking's free delivery, one year guarantee and other benefits.
Viking estimates that, as of June 1995, approximately 40% of its active
customers in the United States were located within five to seven miles of an
office products superstore.
Viking believes that, although office products superstores currently
operate in the United Kingdom and Australia only on a limited basis, their
presence has increased during the past fiscal year and is expected to increase
in the future. An increase in the number of office products superstores in the
United Kingdom or Australia could lead to increased price competition. Viking
currently is not aware of any significant operations by office products
superstores in France.
EMPLOYEES AND EMPLOYEE TRAINING
Viking places great emphasis on employee training and seeks to instill in
each employee a commitment to provide his or her best, honest and personal
service to every customer, large or small. Viking conducts advanced training
programs for all managers which impart and improve management skills.
Viking's executive officers meet with all employees several times each year
at each distribution center. Employees are given updates on Viking's programs,
products and progress and are provided an opportunity to comment openly on its
operations and management. Viking provides additional incentives for
outstanding job performance and affords career opportunities to each employee in
accordance with his or her skills, personal effort and future potential. Viking
maintains a bonus program for its officers and managers, as well as the
opportunity to acquire equity in Viking through employee stock option plans.
Employee stock purchase plans are available to all full-time employees in the
United States and the United Kingdom.
-11-
<PAGE>
Viking considers its relations with its employees to be excellent. At
August 31, 1995, Viking employed 1,926 persons on a full-time basis, of whom 363
were engaged in management and administration, 916 were engaged in marketing,
order processing, customer service, credit collection and creative services and
647 were engaged in warehouse and distribution operations. None of Viking's
employees is covered by a collective bargaining agreement.
STATE SALES TAXES
Viking collects sales taxes only in the seven states in which it has
operating facilities in the United States. Viking sells products to customers
in all states of the United States other than Alaska and Hawaii. From time to
time, legislation has been proposed in Congress that would have the effect of
requiring Viking to collect and remit sales taxes in each state where sales are
consummated. The United States Supreme Court recently ruled that, unless
Congress enacts such legislation, vendors whose only contacts with the taxing
state are by mail or common carrier (i.e., direct marketing companies with no
physical presence in the state) are not required to collect and remit sales
taxes. Any changes in applicable law that would require Viking to collect sales
takes in states where it has no physical presence would impose some additional
costs and administrative burdens.
ITEM 2: PROPERTIES
----------
Viking's corporate headquarters and Western distribution center are
currently located at 13809 South Figueroa Street, Los Angeles, California. The
facility includes approximately 105,000 square feet, of which approximately
35,000 square feet are dedicated to office space and approximately 70,000 square
feet are used for warehouse and distribution purposes. The facility is occupied
pursuant to a lease which expires in November 1998 and provides for an option to
renew for two successive five-year periods. Viking intends to relocate its
corporate offices to Gardena, California in November 1995 and to convert the
space in its Figueroa Street property presently used for its corporate offices
into warehouse and distribution space. The new corporate office will consist of
approximately 43,000 square feet and will be occupied pursuant to a lease which
expires in November 1997 and provides for an option to renew for two consecutive
one-year periods. Since March 1993, Viking also has occupied an additional
30,000 square feet in a facility adjacent to its Figueroa Street property
pursuant to a sublease which expires at the end of September 1995. Upon the
expiration of this sublease, Viking intends to enter into a three-month lease
for the entire adjacent facility, consisting of approximately 82,000 square
feet, providing Viking with additional warehouse space until the conversion of
the Figueroa Street property is completed.
The Cincinnati distribution center is owned by Viking and consists of
approximately 123,000 square feet. Viking relocated to its new Jacksonville
distribution center in June 1995, and this facility, which also is owned by
Viking, consists of approximately 78,000 square feet.
The Dallas distribution center is located in a facility of approximately
97,000 square feet in Dallas County, Texas. The facility is occupied pursuant
to a lease which expires in 1996 and provides Viking with an option to renew for
two additional terms of three years each. The East Windsor distribution center
is located in a 145,000 square foot facility which is occupied pursuant to a
lease which expires in June 2006.
-12-
<PAGE>
The Pacific Northwest distribution center is located in Seattle,
Washington, in a facility of approximately 53,000 square feet. The facility is
occupied pursuant to a lease which expires in February 1997 and provides for an
option to renew for four successive three-year periods. The Minneapolis
distribution center is in a facility of approximately 51,000 square feet, and is
occupied pursuant to a lease which expires in April 2000 and provides for an
option to renew for two consecutive two-year periods.
In July 1995, Viking entered into a lease for a 61,000 square foot
satellite facility in Jessup, Maryland, near Baltimore, and occupied this
facility in August 1995. The lease for this facility expires in July 2000 and
provides for an option to renew for two consecutive two-year periods.
The United Kingdom distribution center is located in Leicester, England,
and is occupied pursuant to a lease which expires in 2011. This facility, which
Viking had previously expanded to approximately 116,000 square feet, was further
expanded by approximately 67,000 square feet, consisting of 27,000 square feet
of office space and 40,000 square feet of warehouse and shipping space, during
fiscal 1995. Viking also purchased a 128,000 square foot distribution facility
in London, England, and commenced operations at this facility in July 1994.
In January 1994, Viking relocated its French distribution center to a
larger facility in Paris, France. Viking occupies the facility pursuant to a
lease which expires in December 2003. The facility consists of approximately
140,000 square feet, of which approximately 20,000 square feet are dedicated to
office space and approximately 120,000 square feet are used for warehouse and
shipping purposes.
Viking's temporary call center in Venlo, Holland consists of approximately
48,000 square feet and is occupied pursuant to a lease which expires in March
1996. During fiscal 1995, Viking purchased approximately twelve acres of land
in Venlo on which Viking intends to build a 60,000 square foot distribution
facility during fiscal 1996. Viking anticipates that the land will allow this
facility to be expanded to approximately 80,000 square feet if the need arises.
In March, 1995, Viking entered into a lease for a 72,000 square foot
facility in GroBostheim, Germany, near Frankfurt, and intends to occupy this
facility by December 1995. The lease expires in June 2005 and provides for an
option to renew for one five-year period.
Viking's Australian distribution center is located in Sydney, Australia,
and is occupied pursuant to a lease which expires in September 1998, with an
option to renew for an additional five years. The facility consists of
approximately 85,000 square feet, of which approximately 15,000 square feet are
dedicated to office space and approximately 70,000 square feet are used for
warehouse and shipping purposes. During fiscal 1996, Viking intends to purchase
land and build a 67,000 square foot distribution facility in Melbourne,
Australia.
Viking believes that, taking into account the planned relocations and
expansions described above, its facilities are adequate for its current and near
term operations. For information regarding rental obligations, see Note F of
Notes to the Consolidated Financial Statements incorporated by reference in Item
8 of this report.
-13-
<PAGE>
ITEM 3: LEGAL PROCEEDINGS
-----------------
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of Viking's security holders during the
fourth quarter of the fiscal year covered by this report.
SUPPLEMENTAL ITEM: EXECUTIVE OFFICERS
------------------
The executive officers of Viking are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ----------------------------------------------------
<S> <C> <C>
Irwin Helford 61 Chairman of the Board, President and Chief
Executive Officer
M. Bruce Nelson 50 Executive Vice President and Chief Operating Officer
Lisa Y. Billig 38 Vice President, Finance and Chief Financial Officer
Mark R. Brown 46 Vice President, Information Systems
Stephen R. Kroll 48 Vice President, Administration and Secretary
Mark Muir 33 Vice President, Marketing
Ronald W. Weissman 58 Vice President, Logistics
Donald M. Wilson 55 Vice President, Operations
</TABLE>
IRWIN HELFORD has served as President since joining Viking in January 1984
and also has served as Chairman of the Board and Chief Executive Officer since
September 1988.
M. BRUCE NELSON joined Viking in January 1995 as Executive Vice President
and was elected Chief Operating Officer in July 1995. From 1990 until joining
Viking, Mr. Nelson was President and Chief Executive Officer of BT Office
Products USA. Mr. Nelson had previously worked for over 22 years at Boise
Cascade Office Products.
LISA Y. BILLIG was elected Vice President, Finance and Chief Financial
Officer of Viking in July 1994. From October 1987 to July 1994, Ms. Billig
served as Corporate Controller of Viking.
MARK R. BROWN joined Viking in October 1986 as Director of Data Processing.
In July 1989, Mr. Brown was elected Vice President, Information Systems.
STEPHEN R. KROLL has served as Vice President, Administration since July
1991 and as Secretary since January 1990. From May 1989 to July 1991, Mr. Kroll
served as Viking's Vice President, Finance and Chief Financial Officer.
MARK MUIR has served as Vice President, Marketing since July 1992 and has
been employed by Viking in various marketing positions since May 1987.
-14-
<PAGE>
RONALD W. WEISSMAN was elected Vice President, Logistics, of Viking in
August 1994. Prior to joining Viking, Mr. Weissman spent 27 years with United
Stationers, most recently as Senior Vice President of Logistics.
DONALD M. WILSON joined Viking in December 1979 as the division general
manager at the Cincinnati distribution center and was elected to his current
position in January 1991.
Executive officers are elected by and serve at the discretion of the Board
of Directors. No family relationships exist between any of the officers or
directors of Viking.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------
The information required by this item is included in Viking's Annual Report
to Shareholders for the fiscal year ended June 30, 1995 on page 27, under the
caption "Securities Information". Said portion of the Annual Report is
incorporated herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
-----------------------
The information required by this item is included in Viking's Annual Report
to Shareholders for the fiscal year ended June 30, 1995 on page 4, under the
caption "Financial Highlights". Said portion of the Annual Report is
incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by this item is included on pages 11, 12 and 13 of
Viking's Annual Report to Shareholders for the fiscal year ended June 30, 1995.
Said portion of the Annual Report is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is included on pages 15 through 27 of
Viking's Annual Report to Shareholders for the fiscal year ended June 30, 1995.
Said portion of the Annual Report is incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
-15-
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item is set forth, in part, in the
Supplemental Item "Executive Officers" in Part I of this report. The balance of
the information required by this item is incorporated by reference from Viking's
definitive proxy statement for its Annual Meeting of Shareholders scheduled to
be held on November 16, 1995.
ITEM 11: EXECUTIVE COMPENSATION
----------------------
The information required by this item is incorporated by reference from
Viking's definitive proxy statement for its Annual Meeting of Shareholders
scheduled to be held on November 16, 1995.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is incorporated by reference from
Viking's definitive proxy statement for its Annual Meeting of Shareholders
scheduled to be held on November 16, 1995.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is incorporated by reference from
Viking's definitive proxy statement for its Annual Meeting of Shareholders
scheduled to be held on November 16, 1995.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a)1. Financial Statements:
--------------------
The following financial statements are incorporated by reference from the
registrant's Annual Report to Shareholders for the fiscal year ended June 30,
1995:
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of June 30, 1995 and June 24, 1994
Consolidated Statements of Income for the years ended June 30, 1995,
June 24, 1994 and June 25, 1993
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1995, June 24, 1994 and June 25, 1993
-16-
<PAGE>
Consolidated Statements of Cash Flows for the years ended June 30,
1995, June 24, 1994 and June 25, 1993
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules:
------------------------------
Independent Auditors' Report on Schedules
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
(b) Reports on Form 8-K:
--------------------
The registrant did not file any Reports on Form 8-K for the last quarter of
the fiscal year ended June 30, 1995.
(c) Exhibits:
---------
The following exhibits are filed as part of this report:
3. Articles of Incorporation and Bylaws
------------------------------------
3.1 Amended and Restated Articles of Incorporation of the registrant.(1)
3.2 Certificate of Amendment of Articles of Incorporation dated January
10, 1992.(6)
3.3 Certificate of Amendment of Articles of Incorporation dated May 11,
1994.(8)
3.4 Amended and Restated Bylaws of the registrant.(1)
4. Instruments Defining the Rights of Security Holders
---------------------------------------------------
4.1 Form of certificate representing shares of the registrant's Common
Stock.(1)
10. Material Contracts
------------------
10.1 Revolving Credit Agreement, dated as of June 24, 1992, among the
registrant, Citicorp USA, Inc. and Union Bank, as lenders, and
Citicorp USA, Inc., as agent.(6)
-17-
<PAGE>
10.2 First Amendment to Revolving Credit Agreement, dated as of June 30,
1995, among the registrant, the Lenders party thereto and Citicorp
USA, Inc, as agent.
10.3 Lease, dated August 11, 1988, between Stephen Meadow and Figueroa
Onroerend Goed N.V. and the registrant.(1)
10.4 Lease, dated April 11, 1990, between LCV International Limited and
Viking Direct Limited.(2)
10.5 Lease, dated February 28, 1991, between Crowe-Statesman and the
registrant.(3)
10.6 Assignment and Assumption Agreement and Amendment to Sublease,
dated July 1, 1991, among Easco Hand Tools, Inc., Pearson/Moore
Development Company and the registrant.(4)
10.7 Commercial Lease, dated October 12, 1993, between Society Des
Entrepots Des Marechaux MacDonald-Ney S.A. and Viking Direct, SARL
(in the original French, accompanied by an English translation).(8)
10.8 Lease Agreement, dated March 27, 1992, between Mario A. Segale,
d/b/a Segale Business Park, and Viking Office Products, Inc.(6)
10.9 Sublease, dated January 18, 1993, between Lee Thomas, Inc. and the
registrant.(7)
10.10 Lease, dated September 24, 1993, between Permanent Trustee
Australia Limited and Viking Office Products PTY Limited.(8)
10.11 Lease, dated December 1994, between 5001 Investment Limited
Partnership and the registrant.
10.12 Lease, dated June 15, 1995, between OTR, an Ohio General
Partnership, and the registrant.
10.13 Lease, dated July 10, 1995, between Hyundai Merchant Marine
(America), Inc. and the registrant, together with amendment dated
August 31, 1995.
10.14 Lease, dated May 4, 1995, between GAW Vermogensverwaltung and
Viking Direct GmbH.
10.15 Lease Contracts for Office Premises between Roof Real Estate I B.V.
and Viking Direct B.V.
10.16* Employment Agreement, dated June 30, 1993, between Irwin Helford
and the registrant.(7)
10.17* Long Term Stock Incentive Plan.(7)
-18-
<PAGE>
10.18* Amended and Restated 1989 Incentive Stock Option Plan.(5)
10.19* 1991 Nonstatutory Stock Option Plan.(5)
10.20* 1992 Directors' Stock Option Plan.(6)
10.21* 1994 Employee Stock Purchase Plan.(1)
10.22* Form of Profit-Sharing Plan.(1)
10.23 Form of Indemnification Agreement between the registrant and its
directors and certain of its officers.(1)
10.24 Letter Agreement, dated January 31, 1991, between Donald M. Wilson
and Mary K. Wilson and the registrant.(3)
10.25 Printing Agreement, dated October 9, 1991, between Quebecor
Printing (USA), Inc. and the registrant.(5)
10.26 Agreement, dated October 9, 1991, between BPCC Limited and the
registrant.(5)
10.27 Letter Agreement, dated October 1, 1993, between Stephen R. Kroll
and Judy A. Kroll and the registrant.(8)
10.28 Letter Agreement, dated October 1, 1993, between Mark Muir and
Teresa Muir and the registrant.(8)
10.29* Chief Executive Officer Performance Based Bonus Plan.(8)
10.30* Letter Agreement, dated April 1995, between M. Bruce Nelson and the
registrant.
13. Annual Report to Security Holders
---------------------------------
13.1 Annual Report to Shareholders for the fiscal year ended June 30,
1995. (Such Annual Report, except for those portions thereof which
are expressly incorporated by reference in this filing, is
furnished solely for the information of the commission and is not
to be deemed "filed" as part of this report.)
21. Subsidiaries of the Registrant
------------------------------
21.1 Subsidiaries of the registrant.
23. Consent of Independent Public Accountants
-----------------------------------------
23.1 Independent Auditors' Consent.
27. Financial Data Schedule
-----------------------
27.1 Financial Data Schedule for the fiscal year ended June 30, 1995.
-19-
<PAGE>
- -------------
* Management contract, compensatory plan or arrangement.
(1) Previously filed in the Exhibits to the registrant's Registration Statement
on Form S-1 (File No. 33-33029) and incorporated by reference herein.
(2) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 29, 1990 and incorporated by reference
herein.
(3) Previously filed in the Exhibits to the registrant's Registration Statement
on Form S-1 (File No. 33-40040) and incorporated by reference herein.
(4) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 28, 1991 and incorporated by reference
herein.
(5) Previously filed in the Exhibits to the registrant's Registration Statement
on Form S-1 (File No. 33-43974) and incorporated by reference herein.
(6) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 26, 1992 and incorporated by reference
herein.
(7) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 25, 1993 and incorporated by reference
herein.
(8) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 24, 1994 and incorporated by reference
herein.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIKING OFFICE PRODUCTS, INC.
Date: September 25, 1995 By: IRWIN HELFORD
--------------------
Irwin Helford, Chairman of the
Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
Date: September 25, 1995 IRWIN HELFORD
----------------------------------------
Irwin Helford, Chairman of the Board,
President, Chief Executive Officer and Director
<S> <C> <C>
Date: September 25, 1995 LISA BILLIG
----------------------------------------
Lisa Billig, Vice President, Finance and
Chief Financial Officer (Principal
Accounting Officer)
Date: September 25, 1995 LEE A. AULT III
----------------------------------------
Lee A. Ault III, Director
Date: September 25, 1995 NEIL R. AUSTRIAN
----------------------------------------
Neil R. Austrian, Director
Date: September 25, 1995 CHARLES P. DURKIN, JR.
----------------------------------------
Charles P. Durkin, Jr., Director
Date: September 25, 1995 JOAN D. MANLEY
----------------------------------------
Joan D. Manley, Director
Date: September 25, 1995 ROLF OSTERN
----------------------------------------
Rolf Ostern, Director
Date: September 25, 1995 H.B. RICHMAN
----------------------------------------
H.B. Richman, Director
</TABLE>
-21-
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
Board of Directors and Stockholders
Viking Office Products, Inc.
Los Angeles, California:
We have audited the consolidated financial statements of Viking Office Products,
Inc. and subsidiaries (the "Company") as of June 30, 1995 and June 24, 1994, and
for each of the three years in the period ended June 30, 1995, and have issued
our report thereon dated August 14, 1995, such financial statements and report
are included in your 1995 Annual Report to Shareholders and are incorporated
herein by reference. Our audits also included the financial statement schedule
of Viking Office Products, Inc. and subsidiaries listed in Item 14(a)2. This
financial statement schedule is the repsonsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
August 14, 1995
<PAGE>
VIKING OFFICE PRODUCTS INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Provision Balance at
beginning for bad end
Description of period debts Net writeoff of period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 25, 1993
Accounts receivable reserve $1,913,501 $7,183,508 $5,871,123 $3,225,886
Year ended June 24, 1994
Accounts receivable reserve 3,225,886 9,398,000 6,589,053 6,034,833
Year ended June 30, 1995
Accounts receivable reserve 6,034,833 10,110,943 7,457,032 8,688,744
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibits Description Page
-------- ----------- ------------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation of the registrant.(1)
3.2 Certificate of Amendment of Articles of Incorporation dated January
10, 1992.(6)
3.3 Certificate of Amendment of Articles of Incorporation dated May 11,
1994.(8)
3.4 Amended and Restated Bylaws of the registrant.(1)
4.1 Form of certificate representing shares of the registrant's Common
Stock.(1)
10.1 Revolving Credit Agreement, dated as of June 24, 1992, among the
registrant, Citicorp USA, Inc. and Union Bank, as lenders, and
Citicorp USA, Inc., as agent.(6)
10.2 First Amendment to Revolving Credit Agreement, dated as of June 30,
1995, among the registrant, the Lenders party thereto and Citicorp
USA, Inc, as agent.
10.3 Lease, dated August 11, 1988, between Stephen Meadow and Figueroa
Onroerend Goed N.V. and the registrant.(1)
10.4 Lease, dated April 11, 1990, between LCV International Limited and
Viking Direct Limited.(2)
10.5 Lease, dated February 28, 1991, between Crowe-Statesman and the
registrant.(3)
10.6 Assignment and Assumption Agreement and Amendment to Sublease, dated
July 1, 1991, among Easco Hand Tools, Inc., Pearson/Moore Development
Company and the registrant.(4)
10.7 Commercial Lease, dated October 12, 1993, between Society Des
Entrepots Des Marechaux MacDonald-Ney S.A. and Viking Direct, SARL
(in the original French, accompanied by an English translation).(8)
10.8 Lease Agreement, dated March 27, 1992, between Mario A. Segale,
d/b/a Segale Business Park, and Viking Office Products, Inc.(6)
10.9 Sublease, dated January 18, 1993, between Lee Thomas, Inc. and the
registrant.(7)
10.10 Lease, dated September 24, 1993, between Permanent Trustee Australia
Limited and Viking Office Products PTY Limited.(8)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<C> <S> <C>
10.11 Lease, dated December 1994, between 5001 Investment Limited
Partnership and the registrant.
10.12 Lease, dated June 15, 1995, between OTR, an Ohio General
Partnership, and the registrant.
10.13 Lease, dated July 10, 1995, between Hyundai Merchant Marine
(America), Inc. and the registrant, together with amendment dated
August 31, 1995.
10.14 Lease, dated May 4, 1995, between GAW Vermogensverwaltung and Viking
Direct GmbH.
10.15 Lease Contracts for Office Premises between Roof Real Estate I B.V.
and Viking Direct B.V.
10.16* Employment Agreement, dated June 30, 1993, between Irwin Helford
and the registrant.(7)
10.17* Long Term Stock Incentive Plan.(7)
10.18* Amended and Restated 1989 Incentive Stock Option Plan.(5)
10.19* 1991 Nonstatutory Stock Option Plan.(5)
10.20* 1992 Directors' Stock Option Plan.(6)
10.21* 1994 Employee Stock Purchase Plan.(1)
10.22* Form of Profit-Sharing Plan.(1)
10.23 Form of Indemnification Agreement between the registrant and its
directors and certain of its officers.(1)
10.24 Letter Agreement, dated January 31, 1991, between Donald M. Wilson
and Mary K. Wilson and the registrant.(3)
10.25 Printing Agreement, dated October 9, 1991, between Quebecor Printing
(USA), Inc. and the registrant.(5)
10.26 Agreement, dated October 9, 1991, between BPCC Limited and the
registrant.(5)
10.27 Letter Agreement, dated October 1, 1993, between Stephen R. Kroll
and Judy A. Kroll and the registrant.(8)
10.28 Letter Agreement, dated October 1, 1993, between Mark Muir and
Teresa Muir and the registrant.(8)
10.29* Chief Executive Officer Performance Based Bonus Plan.(8)
10.30* Letter Agreement, dated April 1995, between M. Bruce Nelson and the
registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<C> <S> <C>
13.1 Annual Report to Shareholders for the fiscal year ended June 30,
1995. (Such Annual Report, except for those portions thereof which
are expressly incorporated by reference in this filing, is furnished
solely for the information of the commission and is not to be deemed
"filed" as part of this report.)
21.1 Subsidiaries of the registrant.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule for the fiscal year ended June 30, 1995.
</TABLE>
______________________
* Management contract, compensatory plan or arrangement.
(1) Previously filed in the Exhibits to the registrant's Registration Statement
on Form S-1 (File No. 33-33029) and incorporated by reference herein.
(2) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 29, 1990 and incorporated by reference
herein.
(3) Previously filed in the Exhibits to the registrant's Registration Statement
on Form S-1 (File No. 33-40040) and incorporated by reference herein.
(4) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 28, 1991 and incorporated by reference
herein.
(5) Previously filed in the Exhibits to the registrant's Registration Statement
on Form S-1 (File No. 33-43974) and incorporated by reference herein.
(6) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 26, 1992 and incorporated by reference
herein.
(7) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 25, 1993 and incorporated by reference
herein.
(8) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 24, 1994 and incorporated by reference
herein.
<PAGE>
EXHIBIT 10.2
Credit Agreement
FIRST AMENDMENT
FIRST AMENDMENT dated as of June 30, 1995 (this "Amendment") to REVOLVING
CREDIT AGREEMENT dated as of June 24, 1992 (the "Credit Agreement") among VIKING
OFFICE PRODUCTS, INC., a California corporation (the "Borrower"), the Lenders
party thereto (the "Lenders") and CITICORP USA, INC. as Agent for the Lenders
("the Agent").
PRELIMINARY STATEMENTS. The parties hereto wish to modify the Credit
Agreement in certain respects as hereinafter set forth. Terms defined in the
Credit Agreement are used in this Amendment as defined in the Credit Agreement
and, except as otherwise indicated, all references to Sections refer to the
corresponding Sections of the Credit Agreement.
The parties hereto therefore agree as follows:
SECTION 1. Amendments to Credit Agreement. Effective as of the Amendment
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Effective Date (as defined in Section 3 hereof) and subject to the satisfaction
of the conditions precedent set forth in Section 3 hereof, the Credit Agreement
is hereby amended as follows:
(a) Section 2.01(a) is amended by deleting "June 30, 1995" wherever it
appears and inserting in its place "June 30, 1996".
(b) Section 2.08 shall be amended by inserting a new subsection (c) as
follows:
(c) The Borrower acknowledges that the method funding by each Lender
of its Advances hereunder shall be in sole discretion of such Lender. The
Borrower agrees that for purposes of any determination to be made under
this Section 2.08 or Sections 2.11 or 8.04(b) hereof each Lender shall be
deemed to have funded its Adjusted CD Rate or Eurodollar Rate Advances
directly in the domestic bank certificate of deposit market or London
interbank market, as the case may be.
(c) Section 5.10(g)(i) is amended by deleting the words "if any Advances
are outstanding on the date such statements are delivered".
(d) Section 5.02(i) is deleted and restated as follows:
(i) Capital Expenditures. Make, or permit of its Subsidiaries to
make, any Consolidated Capital Expenditures which would cause the aggregate
of all such expenditures made by the Borrower and its Subsidiaries in any
fiscal year of the Borrower ended on or after June 30, 1995 to exceed
$50,000,000.
(e) Section 8.05 is deleted and restated as follows:
SECTION 8.05. Right of Set-Off. Upon the occurrence and during the
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continuance of any Event of Default each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set-
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by such Lender or any affiliate thereof to or for the credit or the
account of the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under this Agreement or the Notes,
whether or not such Lender shall have made any demand under this Agreement
or the Notes, and although such obligations may be unmatured, and each
affiliate of the Lenders is hereby irrevocably authorized to permit such
setoff and application. Each Lender agrees promptly to notify the Borrower
and the Agent after any such set-off and application; provided that the
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failure to give such notice shall not affect the validity of
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such set-off and application. The rights of the Lenders under this Section
8.05 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Lenders may have.
(f) Section 8.07(h) is deleted and restated in full as follows:
(h) Notwithstanding anything else contained herein, each Lender may,
without notice to or consent of the Borrower or the Agent assign any of its
rights under this Agreement (including without limitation rights to payment
of principal and interest under any Note or Notes held by it) to any of its
affiliates or to any Federal Reserve Bank, provided that such Lender shall
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not thereby be released from any of its obligations hereunder.
SECTION 2. Certain Information. The Borrower hereby reaffirms its
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obligation to deliver to the Agent and the Lenders the financial statements,
certificates and other information provided for in subparagraphs (ii) and (iii)
of Section 5.01(g) and acknowledges that the failure of the Agent or the Lenders
to request such information and certificates at any time (whether before or
after the date hereof) shall not constitute a waiver of the rights of the Agent
or the Lenders under Section 5.01(g) or any other provision of the Credit
Agreement.
SECTION 3. Conditions to Effectiveness. This Amendment shall be effective
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as of June 30, 1995 (the "Amendment Effective Date"), subject to the
satisfaction of the conditions precedent that the Agent shall have received (a)
counterparts of this Amendment executed by the Borrower and each Lender or, as
to any Lender, advice satisfactory to the Agent that such Lender has executed a
counterpart of this Amendment; and (b) a certificate of the Secretary or an
Assistant Secretary of Borrower attaching a copy of the resolutions of its Board
of Directors authorizing its execution, delivery and performance of this
Amendment, and certifying the name and true signature of each of its officers
executing the same on its behalf.
SECTION 4. Representations and Warranties. Borrower represents and
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warrants as follows: (a) the Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Amendment; (b) the execution, delivery by the Borrower of
this Amendment, and the performance by the Borrower of the Credit Agreement as
hereby amended, are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene the
Borrower's charter or by-laws, any law, regulation or order binding on or
affecting the Borrower or the terms of any indenture, loan or credit agreement
or other agreement or instrument by which the Borrower is bound or to which
the Borrower is a party; (c) no authorization, approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required for the due execution or delivery by the Borrower of this Amendment or
the performance by the Borrower of the Credit Agreement as hereby amended; (d)
each of this Amendment and the Credit Agreement as amended hereby constitutes
the legal, valid and binding obligations of the Borrower enforceable against
the Borrower in accordance with its respective terms; (e) all representations
and warranties of the Borrower contained in Article IV of the Credit Agreement
are true and correct, as if repeated and restated in full herein (except to the
extent that such representations and warranties expressly relate solely to an
earlier date and then are correct as of such date); and (f) no Event of Default
or event which, with the giving of notice or lapse of time, would become an
Event of Default has occurred and is continuing, or will occur and be continuing
after giving effect to this Amendment.
SECTION 5. Reference to and Effect on the Credit Agreement. On and after
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the Amendment Effective Date, each reference in the Credit Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import, and each
reference in the Notes to "the Credit Agreement," "thereunder," "thereof,"
"therein" or words of like import referring to the Credit Agreement shall mean
and be a reference to the Credit Agreement as amended by this Amendment. Except
as expressly modified herein, the Credit Agreement shall continue to be in full
force and effect and is hereby in all respects ratified and confirmed.
SECTION 6. Execution in Counterparts. This Amendment may be executed in
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any number of counterparts and by any combination of the parties hereto in
separate counterparts, each of which counterparts shall be an original and all
of which taken together shall constitute one and the same Amendment.
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SECTION 7. Governing Law. This Amendment shall be governed by, and
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construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
VIKING OFFICE PRODUCTS, INC.
By: Lisa Billig
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Title: V.P. - Finance, C.F.O.
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CITICORP USA, INC.
By: _________________________
Title: ______________________
UNION BANK
By: _________________________
Title: ______________________
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EXHIBIT 10.11
OFFICE/INDUSTRIAL BUILDING LEASE
THIS LEASE is made this day of December , 19 94,
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between 5001 Investment Limited Partnership
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("LANDLORD") and Viking Office Products, Inc., a California corporation
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("TENANT").
WITNESSETH:
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In consideration of the mutual covenants, promises, and agreements herein
contained, the parties agree as follows:
1. DESCRIPTION OF THE PREMISES
TENANT hereby leases from LANDLORD certain Premises ("Leased Premises")
within the building ("Building"), identified as 5001 France Avenue North,
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Brooklyn Center, Minnesota.
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The Leased Premises is specifically designated in Exhibit "A" which is made a
part hereof. The Leased Premises is measured from the outside of all exterior
walls to the center of tenant division and common area walls. The Leased
Premises contain: 51,570 square feet.
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Office: 1,225
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Warehouse: 50,345
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2. RENT
TENANT covenants to pay annual Base Rent for the Leased Premises of
One Hundred Eighty Thousand Four Hundred Ninety-Five and 00/100s
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($180,495.00) payable, without further notice, to the LANDLORD, or, upon notice
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to TENANT, to any other entity designated by LANDLORD, without further notice,
in equal monthly installments, subject to proration in the case of the first and
last months of the lease term (which proration shall be based on the actual
number of days in the calendar month during which the Term commenced or
terminates, of Fifteen Thousand Forty-One and 25/100s , ($ 15,041.25 ) in
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advance of the first business day of each month during the full term hereof.
See Section 7 for TENANT's additional rent obligations. So long as LANDLORD
complies with its obligations under Section 26 of this Lease, TENANT's
obligation to pay Base and Additional rent is unconditional and independent of
any other provision of this lease. The first month's rent is included with this
lease as Check # , dated , $ 15,041.25 , issued
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by Viking Office Products, Inc. .
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3. TERM OF LEASE
The term of this lease is 5 years 2 months commencing on the
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1 day of March 19 95 and expiring on the last day of April, 2000.
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LANDLORD grants to TENANT two, two-year Lease Extensions. In order to
exercise the first two year Lease Extension TENANT shall notify LANDLORD in
writing of its intent to exercise its first Lease Extension option no later than
November 1, 1999. Provided TENANT has exercised its first two year Lease
Extension, TENANT may exercise its option to extend for a second two year option
by so notifying LANDLORD in writing no later than November 1, 2001. The Base
Rent for the option periods shall be increased as provided in the following
paragraph. It shall be a condition of the exercise of either Lease Extension
that a Default, as hereafter defined, does not continue to exist at either the
time of exercise or commencement of the Lease Extension.
During the Extension terms, if exercised by TENANT, Base Rent shall be
increased by the percentage increase (but not decrease) in the Revised Price
Index for All Urban Consumers, published by the United States Department of
Labor, Bureau of Labor Statistics for the Minneapolis-St. Paul Metropolitan
Area, from the commencement of the preceding term or Extension term through the
month prior to the first month of such Extension term.
4. USE OF PREMISES
TENANT agrees to use the Leased Premises for office and warehouse purpose
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and no other
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purpose; subject to all local, state, and federal laws regulating such use.
Such use shall not cause excessive odors, humidity, noise or vibrations which
may injure the building, cause harm to, or disrupt other tenants (as reasonably
determined as to warehouse tenants).
5. PARKING AND COMMON AREAS
The TENANT, its employees and invitees shall have the non-exclusive right
to use the common areas, driveways and parking lots along with the other tenants
of the building and their employees and invitees. The use of common areas, and
the portion of the land set aside by LANDLORD for non-exclusive use of tenants,
is subject to such reasonable rules and regulations as the LANDLORD may impose
from time to time. No more than fifty (50) parking spaces are to be occupied at
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any one time by the TENANT, its employees and invitees; provided, the parties
acknowledge that to the extent such parking requirement cannot be accommodated
with parking spaces directly in front of the Leased Premises, the balance of
such number of parking spaces shall be made available through the use of parking
spaces in the parking lot adjoining the
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Leased Premises at France Avenue. Overnight parking of vehicles and the
storage, at any time, of any other property in the common areas is prohibited
without the consent of LANDLORD, which consent shall not be unreasonably
withheld or delayed.
6. NET LEASE
This is a "net" Lease, and LANDLORD shall not be required to provide any
services or do any acts in connection with the Leased Premises not specifically
set forth in this Lease. This Section 6 shall not limit or in any way abrogate
LANDLORD's obligations expressly set forth in this Lease, including without
limitation its obligations under Sections 10-13, 24 or 26 hereof. As
hereinafter further described in Section 7 of this Lease the TENANT is
responsible for and shall pay for utility charges and trash removal with respect
to the Leased Premises, and its proportionate share of real estate taxes
including installments of special assessments and its proportionate share of the
building's operating expenses.
7. ADDITIONAL RENT
The net rentable area of the building(s) in the project (is) are 121,675
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square feet and accordingly, the TENANT's proportionate share for purposes of
allocating real estate taxes and assessments and operating expenses is 42.38 %.
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Commencing with the operating expenses incurred and real estate taxes
(meaning all real estate taxes and installments of assessments, general or
special, levied on the land) payable in the year this Lease commences and each
subsequent year during the Lease Term, the TENANT shall pay to LANDLORD, as
additional rent during the full term of this lease, its "proportionate share" of
all such real estate taxes and operating expenses. As the actual amount will
not be known at the beginning of each calendar year, LANDLORD shall make a
reasonable estimate of what the amount will be for that year, and TENANT will
pay an estimated share each month, with the exception that TENANT'S pro rata
share of the estimated real estate taxes shall be paid semiannually. After
LANDLORD has received the actual real estate tax statement an adjustment shall
be made by payment in cash to the appropriate party for any difference between
that which TENANT paid and that which it should have paid. TENANT shall then
start paying its pro rata share semiannually based upon the actual tax
statement, upon delivery to TENANT each year of the actual tax statement.
8. OPERATING EXPENSES
Operating Expenses include the following with respect to the buildings in
the Project:
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(a) City water and sewer charges, except where used by tenants in
substantial amounts for production and is therefore separately metered, and
the monitoring surveillance of the fire protection system.
(b) Lawn care, snow and litter removal, and the repair and maintenance
as reasonably required for: parking lots, drives, sidewalks, and landscaped
areas.
(c) Electrical service for mechanical rooms and for exterior lighting,
and replacement of bulbs used for exterior lighting.
(d) Insurance for fire and extended coverage, loss of rents insurance
or business interruptions and general liability.
(e) All other maintenance, replacement, repair and miscellaneous
operating expenses for portions of the common areas and for building
systems which are not exclusively used by any other occupant or occupants
of the building except that which is covered by manufacturer or
subcontractor warranties. All major repairs and/or replacements to the
Building and Common Areas shall be amortized over their useful lives,
regardless of the amortization period required under generally acceptable
accounting principles.
(f) Property management expenses not to exceed 24.4% of Operating
Expenses (excluding real estate taxes and special assessments).
(g) Expenses for the repair, but not replacement, of a roof incurred
on or after March 1, 1997.
(h) Such other expenses incurred in operating the building generally,
if of a type normally incurred in the operation of similar buildings.
LANDLORD agrees to exercise due care and diligence to obtain operating
expenses, services and supplies at competitive and reasonable market costs with
acceptable quality and service standards. LANDLORD shall have the right to
invoice these costs monthly to TENANT on an estimated basis, making adjustments
based on actual costs annually. LANDLORD shall deliver to TENANT an annual
statement of the Operating Expenses for the prior year and the estimated
Operating Expenses for the current year on or before each April 1 during the
term of this Lease. Any overpayment of Operating Expenses shall be credited
against Base Rent and Additional Rent otherwise due. The amount of any
underpayment shall be paid to Landlord in cash with the next installment of Base
Rent. LANDLORD shall make available for inspection by TENANT, at LANDLORD's
office or where such records are maintained by LANDLORD, invoices and all other
reasonable supporting documentation in regard to Operating Expenses.
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In addition, provided TENANT pays the reasonable costs to copy the same,
LANDLORD shall at TENANT's request furnish copies of such invoices and
documentation to TENANT. Attached to and made a part hereof as Exhibit C is
LANDLORD's Schedule of Estimated 1994 Operating Expenses and Real Estate Taxes
stating the estimates on an annual cost per square foot basis.
9. UTILITIES
TENANT is responsible and shall pay for all of its utility services except
City water and sewer, which are an operating expense. The TENANT is separately
metered for gas and electricity and will contract with the utility companies for
service requirements and billing. TENANT is also responsible for its own
telephone service.
In the event the TENANT uses water and sewer in substantial amounts for
purposes other than toilet and drinking purposes, the LANDLORD may install at
TENANT's expense a water meter to sub-meter said water and sewer, and shall
charge TENANT for said water and sewer at rates as charged by the City.
LANDLORD shall not be liable to TENANT for any loss or damage of any kind
or description whatsoever caused or sustained resulting from the failure of the
heating or ventilating and air conditioning system servicing the Leased Premises
or inability to obtain energy or utilities for any reason beyond LANDLORD's
control.
10. INSURANCE
The TENANT shall maintain in full force and effect during the term hereof,
a policy of public liability insurance under which LANDLORD and TENANT are named
insured. The minimum limits of liability of such insurance shall be
$1,000,000.00 combined single limit for bodily injury and property damage, and
in addition the TENANT shall carry a policy of property insurance for fire and
extended coverage including an all risk endorsement and necessary coverage for
any type of water damage on TENANT's personal property, trade fixtures and
contents and all leasehold improvements made by TENANT to the Leased Premises on
a replacement cost value. TENANT agrees to deliver a duplicate copy of said
policy, or a certificate of insurance evidencing such coverage, to LANDLORD.
Such policy shall contain a provision requiring thirty (30) days written notice
to the LANDLORD before cancellation of the policy can be effected.
The LANDLORD shall carry and cause to be in full force and effect a fire
and extended coverage insurance policy on the building and leasehold
improvements; but not on TENANT's personal property, trade fixtures, contents or
improvements owned, leased to or otherwise in possession of the TENANT, or any
leasehold improvements to the Leased Premises which improvement and contents are
to be insured by the TENANT. Such policy shall contain a
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provision that the policy shall not be cancelled except upon thirty (30) days
written notice to the TENANT. LANDLORD agrees to deliver a duplicate copy of
said policy, or a certificate of insurance evidencing such coverage to TENANT.
LANDLORD shall have the right to maintain additional insurance as long as such
insurance is expressly noncontributory with the policies of insurance which
TENANT is required to and does carry hereunder.
Each insurance policy carried by either the LANDLORD or TENANT covering the
Leased Premises or its contents shall provide that the insurer acknowledges that
the insured party has relinquished all rights to recover against the other party
for loss or damage resulting from perils insured against by the policy and that
such relinquishing of rights does not in any manner adversely affect the rights
the of the insured under the policy. LANDLORD and TENANT each hereby waive any
claim based upon liability which may arise against the other so far as the claim
relates to loss or damage to the premises or contents which is covered by
insurance or coverable under the aforementioned insurance policies, whether
maintained or not. The TENANT will make no claim against the LANDLORD for any
loss of or damage to property caused by theft, burglary, water, gas, electricity
or other means, unless LANDLORD or its agents, employees or contractors have
been willful, wanton or grossly negligent in not taking reasonable precaution to
prevent such loss.
11. MAINTENANCE
The TENANT shall be wholly responsible for the maintenance and repair of
the interior of the Leased Premises, and will keep it in as good condition as
when turned over to TENANT, reasonable wear and tear and damage by fire and the
elements excepted.
The TENANT agrees to keep the Leased Premises in a clean, orderly and
sanitary condition and will neither do nor permit to be done therein anything
which is in violation of insurance policies on the building or that is contrary
to law. The TENANT will neither commit nor suffer waste to the building or to
the Leased Premises.
The maintenance and repair obligations of the TENANT specifically extend to
all interior walls, doors, windows, plumbing and electrical fixtures within the
Leased Premises, except as these obligations may be covered by manufacturer or
contractor warranties. The LANDLORD agrees to cooperate with and reasonably
assist TENANT in pursuing each of the warranties which are still in effect.
During the first year of the Lease, LANDLORD shall be responsible for the
maintenance, repair and replacement of all heating ventilating and air
conditioning equipment (HVAC) within the Leased Premises. At the end of the
first year of the Lease LANDLORD shall provide certification by an HVAC
contractor that all HVAC units are in good operating condition.
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Thereafter, all HVAC maintenance, repair and replacement for the Leased Premises
shall be the responsibility of TENANT.
The LANDLORD shall at its own expense keep in good order, safe condition
and repair the exterior walls, foundations, exterior (excluding plate glass and
signage) and the structural integrity of the building, except where repairs to
the structural parts are required due to the fault or negligence of the TENANT,
its employees or invitees (and without fault or negligence on the part of the
LANDLORD or its agents, representatives, contractors or employees), in which
case the TENANT shall be responsible. LANDLORD shall keep the roof in good
order and repair during the first two years of this Lease. Thereafter during
the term hereof, the LANDLORD shall, at TENANT's expense, make any required
repair to the portion of the roof affecting the Leased Premises. LANDLORD shall
select contractors so as to comply with the provisions of any roof warranty.
LANDLORD shall as an operating expense of the building in which the Leased
Premises are located, keep all parking areas, driveways and walkways clear of
snow and ice, so that reasonable access to the Leased Premises is maintained.
TENANT agrees to accept the loading doors for the Leased Premises in "as
is" condition and with all faults and shall have the right to repair or replace
the same without LANDLORD's consent.
12. APPEARANCE AND ACCESS
LANDLORD and TENANT mutually agree to keep the grounds, Building, Leased
Premises and common areas in a condition of good repair and appearance as their
respective responsibilities and rights may allow. LANDLORD shall as an
Operating Expense, maintain all acres of landscaping in a reasonably attractive
and groomed condition. LANDLORD shall provide general access to TENANT and its
invitees to the common areas except as reasonable security requirements and
temporary conditions may prevent, and shall make a reasonable effort to keep the
common areas well maintained and free of nuisance. LANDLORD may establish from
time to time and TENANT will abide by reasonable rules for parking, security,
handling of trash and like procedures.
TENANT agrees to keep all of its trash pallets, refuse and waste within
its Leased Premises or on the loading docks immediately adjacent thereto and not
outside or in common areas and agrees not to litter any of the grounds or
entries. TENANT is responsible for the cost of the removal of its trash.
TENANT may position a dumpster in the loading dock area serving the Leased
Premises.
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Window coverings, if desired by TENANT, are to be installed by TENANT at
TENANT's expense. TENANT shall also provide fire extinguishers as required for
its particular use by the City.
13. LANDLORD'S RESPONSIBILITY
LANDLORD agrees that prior to the commencement of the term hereof, at its
sole cost and expense, it will construct and finish the Leased Premises
substantially in accordance with specifications in the Finishing Schedule set
forth in Exhibit "B" attached and made a part hereof. It is understood and
agreed that minor changes from the specifications which may be necessary during
construction and finishing of the Leased Premises but do not change the general
appearance or the overall quality of the finishes specified in the
specifications shall not affect or invalidate this Lease.
TENANT agrees that, upon occupancy hereof, it will inspect the Leased
Premises in order to ascertain the condition thereof; that any objections
(except for latent deficiencies not then discoverable) thereto not delivered in
writing to LANDLORD by April 1, 1995, shall be deemed waived; and that no
representations, either expressed or implied, have been made regarding the
quality or condition thereof except as specifically stated below:
(a) LANDLORD shall cause the leased premises, at the time of initial
occupancy, to comply with all applicable building codes, laws, statutes and
ordinances to the extent required by governmental authorities or required
to comply with a settlement of a lawsuit or other legal process or
administrative proceedings brought against TENANT; and
(b) The Leased Premises will be completed substantially as agreed to
in this Lease; and
(c) The mechanical systems serving the Leased Premises will have been
checked by LANDLORD and found by LANDLORD to be in sound condition and
operating satisfactorily.
14. CONDEMNATION LOSS
Should all the Leased Premises be taken in condemnation proceedings or by
exercise of any right of eminent domain, then this Lease shall automatically
terminate as of the date the condemning authority or the authority exercising
its right of eminent domain takes possession of the Leased Premises. If, as a
result of a partial taking, the Leased Premises is no longer useable for the
purposes specified in this Lease or TENANT's Leased Premises is reduced to
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less than 40,000 square feet, then, in any such case, the TENANT may terminate
this Lease as of the date the condemning authority or the authority exercising
its right of eminent domain takes possession of the property by giving written
notice thereof to the LANDLORD. The LANDLORD shall be specifically entitled to
all awards for condemnation unless a specific aware is made to TENANT for its
trade fixtures, relocation or moving expense.
15. ASSIGNMENT
The Tenant shall not assign this Lease, and shall not sublet any part of
said Leased Premises without the prior written consent of the LANDLORD. Said
consent will not be unreasonably withheld or delayed. Any such assignment or
subletting will not release the TENANT from its responsibilities under this
Lease, unless expressly agreed to in writing by the LANDLORD.
The LANDLORD shall have the right to one-half of any profit made in such
assignment or subletting during the original Term and the entire profit during
any Extension term, but only in the event that the TENANT will be using less
than one-half of its Leased Premises for its business operation. For this
purpose, "profit" shall mean the sum of all payments received by TENANT by
reason of such assignment or subletting in excess of all costs incurred by
Tenant in connection therewith, including all commissions, costs of
reconfiguring the Leased Premises and Base Rent and additional rent payable to
LANDLORD. If the TENANT shall be declared bankrupt, shall have a receiver
appointed of its property, shall make an assignment for the benefit of
creditors, or its rights hereunder shall be taken under execution; it shall be
construed as an assignment of this Lease within the meaning hereof, and the
LANDLORD shall have the right to terminate this Lease.
16. DEFAULT BY TENANT
It is a Default for TENANT (and for the purposes of this Lease, the term
"Default" shall mean the continuance of the breach specified in this Section 16
after the expiration of the applicable cure period): (a) if rent, additional
rent, or any other sum due by TENANT under this Lease shall be unpaid on the
date payment is required and such Default shall continue for ten (10) days after
written notice thereof from LANDLORD. Any sum due hereunder shall bear interest
from the due date until paid at the prime or reference rate (the "Prime Rate")
of First Bank of Minneapolis, Minnesota, or other similar financial institution
designated by LANDLORD. In addition, TENANT shall pay to LANDLORD late charges
equal to five percent (5%) of any sum due and unpaid to LANDLORD within ten (10)
days after written notice thereof; (b) if TENANT fails to perform any of the
other terms, conditions, covenants and obligations of this Lease to be observed
or performed by the TENANT for more than thirty (30) days after LANDLORD gives
TENANT written notice of such Default (it being agreed that a
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default, other than failure to pay rent, additional rent or other sums due,
which is of such a character that the cure thereof reasonably requires longer
than thirty (30) days, shall be deemed cured within said period, if TENANT in
good faith commences a cure within the thirty (30) day period and diligently
undertakes to complete the cure with reasonable dispatch); (c) if TENANT
commits (3) three material Defaults (as defined in this Lease) violations of the
Lease within a (12) twelve month period; (d) if TENANT abandons the Leased
Premises; (e) if TENANT knowingly misrepresents any material fact in any written
statement provided to the LANDLORD or at its request, pursuant to or in
connection with this Lease; or (f) if TENANT or guarantor becomes insolvent or
the subject of a bankruptcy petition.
A Default gives LANDLORD the right (without further notice except as
hereinafter expressly provided) to: (a) immediately commence legal proceedings
to reenter the Leased Premises, and (solely pursuant to court order issued as a
final and non-appealable order of the court) change the locks, and remove all
persons and property; (b) at TENANT's expense, store or sell said property for
TENANT's account; (c) treat said property as abandoned upon TENANT's failure to
remove it within (10) ten days of written demand to remove; (d) make alterations
and repairs; (e) without terminating the Lease, relet all or part of the Leased
Premises, at TENANT's expense and for its account, on such terms, for such
rentals, and for such a term as LANDLORD in it sole discretion deems advisable;
and/or (f) resort to any other remedy authorized by this Lease or by statute,
law or equity. LANDLORD shall have no right to forcibly reenter or exercise any
right of self-help with respect to the Leased Premises.
Whether or not LANDLORD relets the Leased Premises, TENANT will remain
liable, for all periods in which this Lease is in force and not terminated, for
the base and additional rent due hereunder, subject only to a credit for rentals
received from a substitute tenant over and above expenses and other sums due
hereunder. Additionally, whether or not LANDLORD has already resorted to any
other above-mentioned right, LANDLORD may elect, by giving a written notice, to
terminate the Lease effective as of any date specified in the notice. No act,
except the giving of such notice, shall be deemed a termination, or acceptance
of surrender of the Lease. Upon said effective date, TENANT will comply with
the surrender provisions of this Lease, remain liable thereafter under any
indemnification covenant contained herein for events occurring prior to the date
of such termination, and, at LANDLORD's option, pay on written demand the sum
determined as per the next paragraph.
Whether or not LANDLORD terminates the Lease, LANDLORD may elect, by giving
written notice, to accelerate unaccrued rent and hold TENANT immediately liable
for the amount of the base and additional rents payable during the remainder of
the Leased term, which rents shall be discounted to the date of payment at a
rate equal to the Prime Rate.
17. ALTERATIONS
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<PAGE>
The TENANT shall not make any structural alterations to the Leased Premises
or make alterations costing in excess of $10,000 in any single or related
instance without the written consent of the LANDLORD, such consent not to be
unreasonably withheld or delayed. If the TENANT shall desire to make any such
alternations, it shall furnish to LANDLORD plans and specifications of the work
to be so performed. TENANT agrees to obtain a building permit from the city for
any alteration requiring a building permit. TENANT agrees that all such work
shall be done in a good, workmanlike manner, and in compliance with applicable
building codes, that the structural integrity of the building shall not be
impaired, and that no liens shall attach to the premises by reason thereof.
LANDLORD consents to TENANT's request to install additional light fixtures
within the Leased Premises at TENANT's expense.
TENANT shall indemnify and save LANDLORD harmless form and against any lien
or claim of lien attached to or upon the Leased Premises or any part thereof by
reason of any act or omission on the part of TENANT. LANDLORD shall have the
right to post on the Leased Premises notices of non-responsibility or any or all
forms of notice reasonably necessary or proper to protect LANDLORD or the Leased
Premises against mechanic's or materialmen's liens, or charges, or other liens
or charges which might or could arise out of the use of the Leased Premises by
TENANT or the construction of the improvements or the making of alterations or
repairs to the Leased Premises by TENANT.
The TENANT shall, before the expiration of the Lease, restore the premises
to its original condition, reasonable wear and tear and damage due to insured
fire and the elements excepted, if the LANDLORD at the time it consents to the
making of such alterations notifies TENANT that the alterations may not remain.
Otherwise, Tenant shall at the expiration of the Lease, surrender the Leased
Premises and all alterations in good condition, reasonable wear and tear and
damage caused by insured fire and the elements excepted. Any such alterations
shall become the property of LANDLORD as soon as they are affixed to the
premises and all right, title and interest therein of the TENANT shall
immediately cease unless otherwise stated in writing. The TENANT however, shall
remain the owner of any installed trade fixtures and shall have the right to
remove such trade fixtures at the expiration of this Lease Agreement, so long as
any damages occasioned by the removal of such fixtures is repaired.
18. SIGNS
The LANDLORD will allow TENANT to install one standard exterior entry sign
at the TENANT's front entry and, in common with tenants of the other buildings
in the project on a sign adjacent to France Avenue identifying the location. No
other signage, promotional material, or identification of any type shall be
placed in, on, or externally visible from, any entry, window, outer door, or
exterior surface without the written consent of LANDLORD, which
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<PAGE>
consent will not be unreasonably withheld or delayed. The LANDLORD reserves the
right to remove all unauthorized signs at the expense of TENANT.
19. ENTRY
The TENANT shall have the right to install its own locks on all doors
serving the Leased Premises and the right to install a security system within
the Leased Premises. LANDLORD shall have the right to enter the Leased Premises
for the purposes of inspection during TENANT's normal business hours. LANDLORD
shall have the right to enter the Leased Premises at other times only in the
event of a bona fide emergency. If LANDLORD needs access to the Leased Premises
to exhibit the space to others or to make repairs or to inspect the property at
times other than normal business hours, LANDLORD shall notify TENANT of such
need and TENANT shall use its best efforts to accommodate LANDLORD's request.
All notices required by this paragraph may be by person or by phone to the
operation manager at the Leased Premises.
20. SUBORDINATION
It is mutually agreed that this Lease shall be subordinate to any and all
mortgages, ground leases, other securities, or the interests of financial
participants including any renewals, modifications, consolidations, replacements
and extensions thereof now or hereafter recorded against the Leased Premises by
the LANDLORD or the express condition that TENANT's right to quiet possession of
the premises shall not be disturbed if TENANT is not in default and so long as
TENANT shall pay the rents and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms.
21. NOTICES
Except as expressly provided in the last sentence of Section 19 of this
Lease, all notices, consents, demands and requests which may be or are required
to be given by either party of the other, shall be in writing, and sent by
United States registered or certified mail, with return receipt requested,
addressed to the TENANT at the Leased Premises and at Viking Office Products,
Inc., 13809 South Figueroa Street, Los Angeles, California 90061-1000,
Attention: Donald M. Wilson and to the LANDLORD 5001 Investment Limited
------------------------
Partnership, 600 South Highway 169, Suite 1970, Minneapolis, Minnesota 55426,
- -----------------------------------------------------------------------------
Attention: Kirt Woodhouse or to such other address as LANDLORD may direct in
- --------------------------
writing in the future.
Three (3) days after the date on which registered or certified mail is
mailed, or one (1) day following deposit with a national overnight courier
service, or the date of personal service, by the LANDLORD or TENANT shall be
conclusively deemed to be the date on which a notice, consent, demand, or
request is given or made.
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<PAGE>
The above address of a party may be changed at any time or from time to
time by notice given by said party to the other party in the manner herein above
provided.
22. SHORT FORM LEASE
The parties hereto shall, at the option of either party, execute a short
form lease for recording purposes only; provided, however, that the terms
thereof shall not supersede the terms of this Lease.
23. ASSUMPTION
The LANDLORD may assign its right, title and interest in this Lease, and
such assignment shall thence terminate all the LANDLORD's obligations accruing
at the date of such assignment so long as the LANDLORD is not in default when
such assignment is made and the assignee assumes the LANDLORD's responsibilities
thereafter.
24. OCCUPANCY
If the Leased Premises is not ready for occupancy on the lease commencement
date, then the lease term shall commence on the date of TENANT's possession but
still terminate on the date previously shown. LANDLORD shall not be liable to
TENANT for any loss or damage resulting if the Leased Premises is not ready for
occupancy on the commencement date of this Lease. All TENANT's obligations
hereunder, except the obligation to pay rent, will commence on the first day
the Leased Premises are ready for occupancy. Any occupancy by TENANT prior to
the commencement of the Lease Term shall be subject to all of the other terms
and conditions of this Lease, excluding payment of rent or additional rent as
expressly provide above.
LANDLORD shall provide to TENANT the right to occupy the Leased Premises as
of February 1, 1995, for the purpose of installing TENANT's fixtures. During
such period of early occupancy TENANT shall not interfere with or hinder
LANDLORD's ability to complete those LANDLORD improvements as set forth in
paragraph 13 and Exhibit B of this Lease. At the time that TENANT takes early
occupancy of the Leased Premises the cost of the gas and electricity serving the
Leased Premises shall thereafter be equally split between LANDLORD and TENANT.
As of March 1, 1995, or, assuming TENANT has taken early occupancy, when
LANDLORD's improvements have been substantially completed, whichever occurs
first, all the gas and electricity serving the Leased )Premises shall be paid by
TENANT. If the Leased Premises are not ready for occupancy on or before April
15, 1995, TENANT may on or before the earlier of TENANT's receipt of a factually
accurate notice that the same is ready for occupancy or April 25, 1995,
terminate this Lease upon written notice to LANDLORD.
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<PAGE>
25. FIRE REPAIR
In the event of destruction of or substantial damage to the Leased Premises
by fire, the elements or other casualty, LANDLORD shall have the option of
terminating this Lease by written notice to the TENANT, provided that such
notice shall be given within thirty days of the date of such damage or
destruction. In the event that LANDLORD shall elect to repair the damage or
restore the Leased Premises, LANDLORD shall do so with reasonable dispatch (with
rent to abate in the meantime) unless any mortgage or financial participant who,
from time to time, might have an interest in or on the Leased Premises, shall
require the fire insurance proceeds be used to reduce its interest or the
indebtedness on the Leased Premises. During the period of restoration or
repair, LANDLORD shall, if requested by TENANT, attempt to relocate TENANT to
suitable and acceptable substitute space. The cost of such relocation shall be
borne by the TENANT. In the event of relocation, TENANT shall pay rent upon the
substitute space at the market rates then prevailing, not to exceed the rental
rate due under this Lease. In the event that the Leased Premises cannot be
restored or repaired within nine months from the date of damage or destruction
and LANDLORD shall be unable to provide TENANT with substitute space, TENANT
shall have the option to terminate this Lease, provided that notice of
termination shall be given within sixty days of the date of damage or
destruction. In the event that the damage to or destruction of the Leased
Premises occurs during the last year of the term of this Lease, either LANDLORD
or TENANT may terminate this Lease upon thirty days written notice to the other.
During any period when TENANT's use of the Leased Premises is impaired due to
any damage or destruction of the Leased Premises, Base Rent and additional rent
shall abate in proportion to the degree TENANT's use and enjoyment is so
impaired.
26. QUIET ENJOYMENT
TENANT, upon payment of the rent herein reserved and upon performance of
all of the terms, covenants and conditions of this lease by it to be kept and
performed, shall at all times during the term hereof or during any extension or
renewal hereof, peaceably and quietly enjoy the Leased Premises without any
disturbance from LANDLORD or from any other person claiming through LANDLORD.
Upon expiration or sooner termination of the term hereof, TENANT shall surrender
the Leased Premises in good condition and repair, except for reasonable wear and
tear, condemnation and casualty.
27. HOLDING OVER
If TENANT shall hold over the Leased Premises or any part thereof after the
expiration of the term hereof, or any extension thereof, such holding over shall
be construed only to be a tenancy from day to day subject to all of the
covenants, conditions and obligations hereof except that the rent shall be 150%
of the rent normally due. Nothing herein shall be construed to give
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<PAGE>
TENANT any rights to holdover and to continue in possession of the Leased
Premises after expiration of the term hereof.
28. DEPOSIT
This Article 28 has been intentionally deleted.
29. OTHER PROVISIONS
The invalidity or unenforceability of any provision hereof shall not affect
or impair the validity of any other provision. The headings herein are inserted
only for convenience and reference and shall have no substantive import. Where
necessary, the singular imports the plural and vice versa, and masculine,
feminine and neuter pronouns and expressions are interchangeable. The Lease
shall bind and inure to the benefit of the LANDLORD and TENANT, their respective
heirs, administrators, legal representatives, successors and assigns.
During the term of the Lease, LANDLORD's acceptance of an amount which is
less than the amount due at that time, will be deemed partial payment only, not
payment in full.
This Lease shall be governed by Minnesota Law.
One or more waivers of any provision by either party shall not be construed
as a waiver of subsequent breach of same. Failure to enforce or delay in
enforcing any right hereunder will not be construed as a waiver thereof. Each
party expressly (a) consents to the maintaining of any action as to any claim
under this Lease in any court of competent subject matter jurisdiction, and (c)
agrees that the mailing, with postage prepaid, registered or certified mail, of
any complaint or other legal process to it, at the addresses stated in paragraph
21 of this Lease constitutes legally sufficient service of the same upon that
party as of receipt, it being each party's intent to waive, in the event of such
a mailing, any insufficiency of service of process, lack of personal
jurisdiction claim, or the like that might otherwise arise from provisions of
the law otherwise requiring a different form of personal service.
TENANT agrees to provide LANDLORD with a current financial statement (or
Form 10-K as filed with the U.S. Securities and Exchange Commission) on or
before four (4) months after the end of their fiscal year.
EXHIBITS AND ADDENDUMS
This instrument contains all of the agreements made between the parties and
may not be modified orally or in any manner other than by agreement in writing
signed by all parties to this
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<PAGE>
Lease. The following exhibits and addendums are attached and hereby made a part
of this Lease:
Exhibit A Floor Plan of Leased Premises
-------
Exhibit B LANDLORD's Finishing Schedule of Leased Premises
-------
Exhibit C 1994 Estimate of Real Estate Taxes and Operating Costs
-------
Exhibit D Hazardous Substances
-------
The signatories below warrant that they are duly authorized to enter into this
Lease representing the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed
the day and year first above written.
LANDLORD: TENANT:
By: By
------------------------------ -------------------------------
Kirt Woodhouse
Its: General Partner Its
--------------------------- ------------------------------
By:
------------------------------
Its:
-----------------------------
Date Date
---------------------------- -----------------------------
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<PAGE>
EXHIBIT "B"
LANDLORD'S FINISHING SCHEDULE
. Electrical: Provide electrical service of at least 400 amps, 3 phase
. Office Area:
. New carpet and base board in open office and three private offices.
. New tile floor and base board in restroom and room adjacent to restroom.
. In room adjacent to restroom, install a counter with sink, cabinets
underneath, install new ceiling and light fixtures, paint walls.
. Clean and repair restroom.
. Replace all ceiling tile, paint ceiling grid.
. Replace all wall board with sheetrock, paint sheetrock.
. New Restrooms: In area adjacent to and immediately behind office area,
provide men's and women's restrooms suitable for a total of thirty
employees.
. Demolition: Remove enclosed area adjacent to east warehouse wall of Leased
Premises. Remove sheetrock demising wall in warehouse located on line 5 of
floor plan identified as Exhibit A.
. New Wall: In warehouse, install wall in opening between Leased Premises
and premises to the east.
. Dock Bumpers: Repair and/or replace all dock bumpers.
. Weatherseals: Provide four sets of weatherseals in good condition for four
dock doors at locations specified by TENANT.
. Dock Levelers: Provide two new dock levelers with steel plates at least
eight feet long at locations specified by TENANT.
. Floors: Scrub warehouse floors.
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<PAGE>
EXHIBIT "B"
LANDLORD'S FINISHING SCHEDULE (continued)
. Warehouse Heaters; All warehouse heaters to be put in good operating
condition with thermostats located no higher than five feet off the floor.
Certify that warehouse heaters can maintain 62 (degree) F within the
warehouse when outside temperature is 10 (degree) F. If such certification
cannot be achieved with existing heating units, LANDLORD shall install
additional units so that such certification can be achieved.
. Drinking Fountain: Remove existing drinking fountain from office area and
install in warehouse area.
. Exterior Lights: Install exterior lights necessary to provide for safe
access to the Leased premises during night time hours.
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<PAGE>
EXHIBIT "C"
1994 ESTIMATE OF REAL ESTATE TAXES AND OPERATING EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Real Estate Taxes $0.78
Snow Removal $0.05
Lawn Care $0.02
Fire Sprinkler Alarm $0.01
Building Insurance $0.07
Property Management $0.10
Repairs and Maintenance $0.08
Miscellaneous $0.08
-----
TOTAL $1.19
</TABLE>
-19-
<PAGE>
EXHIBIT "D"
HAZARDOUS SUBSTANCES
Except as may be contained within standard and customary office or art supplies
(so long as TENANT complies with all laws, ordinances, statutes and regulations
with respect thereto) the TENANT, its employees and/or invitees will not,
without the LANDLORD's prior written consent, bring onto the Lease Premises,
common area, or allow thereon, any "hazardous substance" within the meaning of
any federal or state statute, "release" (within the meaning of the Minnesota
Environmental Response and Liability Act, or any successor statute) thereon or
within 200 feet thereof any "hazardous substance" or natural gas or petroleum
product, or refuel any vehicle thereon or within 200 feet thereof. LANDLORD
acknowledges and agrees that TENANT may bring onto the Leased Premises and
maintain, use or store any office supply or art supply so long as TENANT
complies with all laws, ordinances, statutes and regulations with respect
thereto.
The LANDLORD may withhold or condition consent as it sees fit, in its absolute
discretion. Notwithstanding any termination of the Lease, the TENANT will
indemnify and hold the LANDLORD harmless from any cost, expense, or damage
resulting from a violation of this paragraph, and will, upon request from the
LANDLORD promptly remove, at its sole expense, any material so brought or
released in violation of this paragraph. The LANDLORD may, from time to time,
inspect the Leased Premises to determine compliance with this paragraph, and
require the TENANT to certify to such compliance. A violation of this paragraph
is a breach for which the LANDLORD need not provide notice or a period to cure,
and any contrary provision in this lease is hereby modified to so provide.
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<PAGE>
EACH ITEM ON THE FOLLOWING CHECKLIST MUST BE ANSWERED.
1. Will any chemicals be used or stored on the premises? YES NO
If yes, list all chemicals that are to be used or stored in the premises.
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
If more space is required, attach a signed list to this exhibit.
2. Will any materials be used or stored on the premises that appear on any
local, state or federal list of "HAZARDOUS SUBSTANCES"? YES NO
If yes, list all items in the space provided.
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
___________________________________________________________
3. Do you have any permits to handle, use or store "HAZARDOUS SUBSTANCES"?
YES NO
If yes, attach copies of these permits to this exhibit.
4. Will any flammables be used or stored on premises? YES NO
If yes, list type, quantities and how the flammable will be stored.
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
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<PAGE>
I, ________________________________, certify that the above information is true,
complete and correct. Further, I understand and agree that no substance other
than those listed above and approved by the Landlord may be used or stored on
the premises and that any additions to the above list must be approved in
writing by the Landlord or its authorized agent.
TENANT:
By _________________________________
Its ________________________________
By _________________________________
Its ________________________________
Date _______________________________
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<PAGE>
EXHIBIT 10.12
STANDARD INDUSTRIAL LEASE
INFORMATION SCHEDULE
This Information Schedule is a part of the Lease between the parties named
below. The information in this Schedule is further explained and detailed in the
rest of the Lease, most particularly in the referenced Lease Paragraphs.
INFORMATION PARAGRAPH
DATE OF LEASE: ____________, 1995 #1
PARTIES:
LANDLORD: OTR, an Ohio General Partnership #1,19
Copy: CB Commercial Real Estate
Group, Inc.
250 West Pratt Street
Suite 700
Baltimore, Maryland 21201
Attention: Portfolio Manager
TENANT: Viking Office Products, Inc. #1,19
Copy: Donald Wilson
Vice President Operations
13809 South Figueroa
Los Angeles, California 90061
PREMISES: Approximately 61,523 Square Feet at #2.1
10650 Riggs Hill Road, Suites 101-102
Jessup, Maryland 20794
Adjacent Site Improvements (if none,
so state): N/A #2.1(b)
BUILDING: 10650 Riggs Hill Road
Jessup, Maryland 20794
INDUSTRIAL PARK: N/A
DATE OF OCCUPANCY: The "Date of Occupancy" shall be #3.2
June 15, 1995 for Suite 101, and not
later than August 1, 1995 for Suite
102.
TERM: The "Lease Term" shall be for Six #4
(6) years and forty-five (45) days
beginning on June 15, 1995 and ending
at midnight on the last day of July,
2001.
<PAGE>
<TABLE>
<CAPTION>
FIXED MINIMUM RENT: Fixed Monthly
Lease Year Rental Rate Minimum Rent
---------- ----------- -------------
<S> <C> <C>
1 $3.60/sf $18,456.90
2 $3.60/sf $18,456.90
3 $3.74/sf $19,174.67
4 $3.89/sf $19,943.71
5 $4.05/sf $20,764.01
6 $4.21/sf $21,584.32
</TABLE>
RENT COMMENCEMENT
DATE: August 1, 1995
ADDITIONAL RENTS: Tenant's Share of the Operating #5.2,
Costs, Real Estate Taxes, and 8.2,
Insurance Premiums is established at 10.1,
Fifty-One and Ten One Hundredths 11
(51.10%) percent.
SECURITY DEPOSIT: The initial Security Deposit is #5.4
$ N/A
---------.
PREPAID RENT: $18,456.90
PERMITTED USES: The sale and distribution of office
supplies and related items. #6.1
LANDLORD'S BROKER
(if none, so state): CB Commercial Real Estate Group, Inc. #20
TENANT'S BROKER
(if none, so state): Midland Realty, Inc. #20
ADDITIONAL EXHIBITS: The following Exhibits are attached to and
made a part of this Lease.
A. Description of the Premises
B. Plan of the Premises
C. Landlord's Work and Tenant's Work
D. Dangerous/Hazardous Chemicals and Materials
E. Tenant Substances
F. Parking Plan
2
<PAGE>
1. Parties.
This lease is made as of the date shown in the Information Schedule,
between the parties as provided in said schedule.
2. Premises, Property.
2.1 Premises.
In consideration of the agreements in this Lease and other consideration
paid, Landlord leases to the Tenant and Tenant leases from Landlord:
(a) the "Premises" are located in the "Building" described in Exhibit A and
the Information Schedule and are shown on Exhibit B.
(b) the sole right to use the parking and loading area, if any, as set
forth on Exhibit F.
(c) the non-exclusive right to use together with Landlord and other tenants
of the Building the driveways, parking (to the extent not leased to other
tenants for their sole use), and grounds.
(d) Tenant acknowledges that Landlord has the right and authority to erect
freestanding buildings or other structures or facilities in the common areas or
elsewhere in the Building, and to manage and operate the common areas, including
all means of exit and entrance and approaches thereto within the Building.
Landlord shall at all times have the right, at Landlord's sole discretion from
time to time, to erect freestanding buildings or other structures or facilities,
and to determine and change the common areas and parking plan for the Building,
and the arrangement of entrances, exits and approaches thereto, providing the
same satisfies governmental codes. Landlord further reserves the right at any
time to relocate the various buildings, automobile parking areas, and other
common areas located in the Building.
3. Improvements, Date of Occupancy.
Date of Occupancy.
If the Date of Occupancy occurs under (b) as provided in the Information
Schedule, Landlord and Tenant each agrees, if asked, to execute an addendum
listing the date.
Tenant may take occupancy of the Premises prior to the date of
substantial completion of the construction of the Premises provided that such
possession does not unreasonably interfere with the construction of the
Premises. If Tenant shall take such early occupation of the Premises, Tenant
shall provide Landlord with evidence that it has obtained all necessary
insurance coverage
3
<PAGE>
required to be maintained by it by the terms and conditions of this Lease.
Except as specifically set forth in this Lease, Tenant leases the
Premises from Landlord in "as is" condition.
4. Term: Commencement and Termination.
The Lease Term is as provided in the Information Schedule. This lease is
not terminable by Tenant, except as expressly stated.
5. Rents, Security Deposits.
5.1(a) Fixed Minimum Rent.
Tenant agrees to pay Landlord Fixed Minimum Rent (the Rent) for the
Premises in the amounts listed in the Information Schedule. The Rent will be
paid in monthly installments, in advance, without offset, deduction or prior
demand, on the first day of each month of the original and any renewal Lease
Term.
5.1(b) Rent Tax.
If any governmental agency imposes any tax measured by the amount of rent
paid, Tenant will pay such tax at the time of each payment of Fixed Minimum Rent
or Additional Rent.
Landlord agrees to invoice Tenant on a monthly basis, or on such other
schedule as necessary in order to collect such rent tax in a timely manner in
order that Landlord can make payments of such tax to the taxing authority on its
due date.
However, in the event that any such rent tax is imposed, Tenant shall
have sixty (60) days from the date of receipt of the first invoice from the
Landlord to make payment of the tax. Thereafter, the Tenant shall make payment
of any future invoices for such tax at the time of each payment of the Fixed
Minimum Rent.
5.2(a) Additional Rent.
In addition to the Fixed Minimum Rent, Tenant will pay as Additional Rent
Tenant's Share of Operating Costs, Insurance Premiums (Paragraph 8.2) and Real
Estate Taxes (Paragraph 10) (collectively "Property Costs"). Operating Costs
include all costs and expenses of any kind or nature incurred by Landlord in
managing, operating, equipping, policing, protecting, lighting, repairing,
replacing and maintaining the Building and the common areas, including, but not
limited to, maintenance and repairs, common area utilities, water and sewer,
landscaping, irrigation systems, cleaning of the common areas, snow removal,
lighting, pest control, security costs (if any), supplies pertaining to the
operation of the property, trash removal, parking lot sweeping, personal
property taxes for personal property related to the Premises or the Building,
Owners' Association dues (if any), maintenance of and replacement of equipment,
exterior painting, roof repairs, parking lot repairs, seal coating, and
striping,
4
<PAGE>
plumbing repairs, and compensation and benefits of employees involved in such
work which is not included as part of the management fees. Any costs associated
with the cleanup of any Hazardous Materials shall be excluded from the Operating
Costs, provided that any such cleanup caused directly or indirectly by the
Tenant's use or occupation of the Premises shall be paid for solely by Tenant.
Notwithstanding any language to the contrary in this Paragraph 5.2(a), Operating
Costs shall not include management fees or any items typically considered as
capital improvements to be made by the Landlord, including, by way of example,
the full replacement of the roof or the full repaving of the parking lot.
If Tenant fails to pay its share of these expenses, Landlord shall have
the remedies provided for the failure to pay rent. The obligation of Tenant as
set forth in this Paragraph 5.2(a) shall survive the expiration or earlier
termination of this Lease.
5.2(b) Payment of Additional Rent.
Additional Rent, together with any tax measured by the amount of
Additional Rent, will be paid in monthly installments on the first day of each
month in an amount reasonably established from time to time by Landlord.
Property Costs for periods including time outside the Lease Term will be
prorated.
The Tenant's Share of Property Costs shall be reasonably estimated by the
Landlord as per an annual statement itemizing those Property Costs, which
statement shall be subject to reconciliation by the Landlord of the actual
amount of such Property Costs within one hundred and twenty (120) days after the
end of each calendar year during the Term. Tenant shall not be responsible for
any Property Costs that are not enumerated in the reconciliation for a calendar
year, provided that Landlord shall be permitted to notify Tenant that additional
items may be included in an amendment to the annual reconciliation, although, as
of the date of the issuance of the reconciliation, Landlord does not know the
exact amount of such Property Costs. If the accounting so provided by Landlord
is not objected to by Tenant within thirty (30) days after issuance, then said
accounting shall be deemed to be final and approved by Tenant. Tenant shall
have the right to audit Landlord's books with regard to the computation of
Property Costs, provided that such audit occurs within thirty (30) days of
Tenant's notice of objection to Landlord, and that such audit occurs at a place
and time mutually agreeable to Landlord and Tenant. Tenant shall pay all costs
of such audit. Tenant shall not have the right to audit Landlord's accounts
more than one time during any calendar year during the Term. If the Tenant's
audit determines that it has been overcharged by more than five percent (5%),
then Landlord shall pay the reasonable cost of Tenant's audit.
Any rent due Tenant or payment due Landlord as indicated by such annual
reconciliation shall be paid within fifteen (15) days from receipt of such
reconciliation.
Any sum of money payable by Tenant to Landlord pursuant to the terms of
this Lease shall be deemed to be Additional Rent.
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The obligation of Tenant as set forth in this Paragraph 5.2(b) shall survive the
expiration or earlier termination of this Lease.
5.2(c) Tenant's Share.
Tenant's Share is the percentage obtained by dividing the area of the
Premises (61,523 sf) by the number of square feet of leasable area in the
Building (120,400 sf).
The Tenant's Share is initially established as set forth in the
Information Schedule.
5.3 Rent Obligations Independent; Abatement; Proration; Where Payable;
Late Charges.
The rent obligations are independent of any other obligations of Tenant
or Landlord, and Tenant is not entitled to any abatement or reduction in rent
except as expressly provided. Tenant waives the benefit of any statute which
would alter this agreement of the parties. Rent due for any period which is
less than one month will be prorated. Rent is payable to Landlord at the
address listed in the Information Schedule or such other places the Landlord may
designate from time to time in writing. A five percent (5%) handling fee is due
on any rent (including Additional Rent) not paid within ten (10) days of the due
date.
6. Use.
6.1 Use.
(a) Tenant covenants and agrees to use the Premises for no purpose other
than those listed in the Information Schedule.
(b) Landlord hereby grants to Tenant, its employees and invitees the right,
during the term of this Lease, to use, in common with others entitled to the use
thereof, the parking areas and access roads in the Building. The manner in
which such areas and facilities shall be maintained, and the expenditures
therefor, shall be at the discretion of Landlord and the use of such areas and
facilities shall be subject to such reasonable regulations as Landlord shall
make from time to time and shall apply uniformly to all tenants of the Building.
(c) Landlord shall have the right to require Tenant and its employees to
park in designated parts of the parking area or to park in those parts of the
parking area specifically reserved for the Tenant's exclusive use. Tenant shall
not at any time allow any trucks or any other vehicles servicing the Premises to
stand or park unnecessarily in the access roads or areas provided for use by
vehicles providing services to other tenants of the Building.
(d) The Building may be expanded or it may be determined that alterations
are to be made, and construction of later stages or future alterations may
necessitate the rearrangement and alteration of some or all of the common areas.
Landlord, therefore, reserves
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the right, in its sole reasonable discretion, to change, rearrange, alter,
modify or supplement any or all of the areas designed for the common use and
convenience of all tenants so long as adequate common area facilities are made
available to Tenant herein, regardless of whether the real property constituting
the common area is owned by the Landlord as of the date of this Lease or is
purchased by Landlord thereafter.
(e) Landlord shall have the right at any time and from time to time to
exclude and restrain any person from use or occupancy of the common areas,
excepting, however, bona fide clients, patrons, and service suppliers of Tenant
or other tenants of Landlord who make use of said areas in accordance with the
rules and regulations established by Landlord from time to time with respect
thereto. The rights of Tenant with respect to the common area be at all times
be subject to the rights of Landlord, the other tenants of Landlord, and the
other owners of the Building to use the same in common with Tenant. If, in the
opinion of Landlord, unauthorized persons are using any of the common area by
reason of the presence of Tenant in the Premises, Tenant, upon demand of
Landlord, shall enforce Landlord's right to exclude or restrain all such
unauthorized persons by appropriate proceedings. Nothing therein shall affect
the rights of Landlord at any time to remove any such unauthorized persons from
the common area or to restrain such persons from using any of said areas.
6.2 Compliance with Law.
Tenant, at its expense, will promptly comply with all statutes,
ordinances, rules and regulations, orders and requirements (including the
recommendations of fire rating organizations, Tenant's and Landlord's
underwriters and insurance companies), in effect during the Lease Term
regulating the use of the demised Premises by Tenant. Tenant will not carry on,
nor permit any dangerous or offensive activity so as to create damage to the
Property, waste, a nuisance, or, disturbance to other tenants. If Tenant's use
or occupation of the Premises requires that changes be made to the Premises in
order to comply with the Americans with Disabilities Act, or any similar legal
requirements, then Tenant will effect all such changes at its sole cost and
expense, provided that it shall first submit plans and specifications to
Landlord for its prior approval in accordance with the terms and conditions of
this Lease. If the use or occupation of the Premises by Tenant should require
that changes be made to the common areas or any other portion of the Building in
order to comply with the Americans with Disabilities Act or any similar legal
requirements, then the Landlord will effect all such changes, and Tenant shall
repay promptly to Landlord all reasonable costs and expenses incurred by
Landlord in effecting such compliance.
6.3 Environmental Protections.
(a) Tenant acknowledges that there are in effect Federal,
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State, and Local laws, regulations, and guidelines, and that additional and
other laws, regulations, and guidelines (collectively the "Environmental
Requirements") may hereinafter be enacted to take effect relating to or
affecting the Premises, and concerning the impact on the environment of
construction, land use, maintenance and operation of structures, and the conduct
of business. Tenant will not cause or permit to be caused, any act or practice,
by negligence, omission, or otherwise that would adversely affect the
environment, or do anything or permit anything to be done that would violate any
of said Environmental Requirements. Tenant agrees to comply with Exhibit "D"
("Control of Dangerous/Hazardous Chemicals and Materials"). Tenant shall
indemnify, defend, protect and hold Landlord, its employees, agents, officers
and directors, harmless from and against all claims, accidents, suits,
proceedings, judgments, losses, costs, damages, liabilities (including, without
limitation, sums paid in settlement of claims), deficiencies, fines, penalties,
punitive damages or expenses (including, without limitation, reasonable
attorneys', experts', and consultants' fees, investigation and laboratory fees,
court costs and litigation expenses) resulting from any adverse affect to the
environment by Tenant, directly or indirectly resulting from the presence of any
Hazardous Materials in, on, or under the Premises that were introduced to the
Premises by Tenant. Tenant shall, within fifteen (15) days after written demand
therefor, reimburse Landlord for any amounts expended by Landlord to comply with
any Environmental Requirements with respect to the Premises or any other
portions of the Building as the result of the placement or storage of Hazardous
Materials by Tenant, its agents, employees, contractors or invitees, or in
connection with any judicial or administrative investigation or proceeding
relating thereto, including, without limitation, reasonable attorney's fees,
fines or other penalty payments. All obligations of Tenant under this Paragraph
6.3 shall survive the expiration or earlier termination of the Lease.
(b) For purposes of this provision, Tenant shall be conclusively deemed to
have violated the Environmental Requirements if (i) any notice or order is
directed to either Landlord or Tenant by any governmental agency, body, or court
alleging that such violation has occurred, if Landlord subsequently obtains and
delivers to Tenant a report prepared by an engineer or other party engaged in
the business of testing or determining the existence of Hazardous Materials,
which report states that there are or were Hazardous Materials used, stored or
placed upon the Premises; or (ii) without the precondition of Landlord's having
received a notice or order as set forth in Subsection (b)(i) herein, if Landlord
obtains and delivers to Tenant a report prepared by an engineer or other party
engaged in the business of testing or determining the existence of Hazardous
Materials, which report states that there are or were Hazardous Materials used,
stored or placed upon the Premises. With regard to the report noted in this
Subparagraph (b), Tenant shall reimburse Landlord for the cost of said report if
it is determined that it is the Tenant's fault that there are or were Hazardous
Materials used, stored or placed upon
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the premises. In the event Tenant is deemed to have violated any of the
Environmental Requirements as set forth in the preceding sentence, Landlord
shall have the right and option, after fifteen (15) days prior written notice to
Tenant, to terminate this lease by written notice thereof to Tenant, in which
event Landlord shall retain all rights and remedies, and Tenant shall be subject
to all liabilities, set forth in Paragraph 6 of this lease notwithstanding such
termination. Landlord's right to terminate this Lease pursuant to this
Paragraph 6(b) shall be ineffective if the report described above in (i) or (ii)
shall state that the existence of the Hazardous Materials upon the premises is
clearly not Tenant's fault. Landlord agrees to give Tenant a copy of any notice
of violation received by it within seventy-two (72) hours or receipt. Tenant
shall have the right to cure the noted violation within said fifteen (15) day
period or within the cure period given Tenant in the notice of violation, but in
no case to exceed sixty (60) days from the date of Tenant's receipt of the
notice of violation or the date of its receipt of the fifteen (15) day notice
from Landlord, whichever shall be the earlier, and in no case shall any attempt
to effect such cure diminish, decrease, or in any other manner modify Landlord's
termination right as set forth herein, should such attempted cure be
unsuccessful in obviating any violation. Notwithstanding any language to the
contrary in this Paragraph 6.3(b), prior to its engaging any engineer or other
party to test for or to determine the existence of Hazardous Materials in the
Premises, Landlord shall give Tenant one (1) week's advance notice of its intent
in this regard.
(c) Tenant hereby grants Landlord, and Landlord's agents and employees
(including but not limited to, any engineers or other parties engaged in the
testing of Hazardous Materials) the right to enter upon the Premises for the
purpose of determining whether Tenant, its agents, employees, contractors or
invitees, has violated any of the provisions of this paragraph and, if the
Tenant is in default pursuant to the terms of this Paragraph 6 with regard to
any then-existing notice to comply with Environmental Requirements, Landlord may
make such reasonable repairs in order to comply with said notice to comply with
Environmental Requirements. In furtherance of this Paragraph 6(c), Landlord
agrees to use reasonable efforts not to unreasonably interrupt Tenant's business
activities.
(d) Tenant represents and warrants that, as of the date of this Lease, it
currently uses, employs, stores, or intends to use, employ or store on the
premises those substances listed in Exhibit "E" to this Lease (hereinafter
collectively called "Tenant Substances"). Without representing that the Tenant
Substances are or are not Hazardous Materials, as that term is used herein,
Tenant warrants and represents that it shall use, employ, store or otherwise
handle or deal with said Tenant Substances in accordance with all applicable
Environmental Requirements. Landlord agrees that Tenant is authorized to store
on the premises those substances listed in Exhibit "E" and that such storage, if
permitted under applicable Environmental Requirements, will not constitute an
event
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of default under the terms and conditions of this Lease.
(e) For purposes of Subparagraph (a) and (b) of this
Paragraph 6, the term "Tenant" refers not only to Viking Office Products, Inc.,
but also to its agents, employees, contractors, or invitees.
(f) Landlord represents that, to the best of its knowledge, without
independent investigation, no Hazardous Materials were placed upon the Premises
in violation of any Environmental Requirements prior to the commencement date of
this Lease.
6.4 Condition of Premises.
Tenant accepts the Premises in the condition existing as of the Date of
Occupancy. Tenant accepts the Premises subject to all applicable zoning,
municipal, county, state and federal laws, ordinances and regulations governing
use of the Premises and to any covenants or restrictions of record, and matters
disclosed by any attached exhibits. Tenant acknowledges that Landlord and
Landlord's agent have not made any representation or warranty as to the
suitability of the Premises for Tenant's business.
7. Maintenance, Repairs and Alterations.
7.1(a) Maintenance, Tenant's Obligations.
During the Lease Term, Tenant shall maintain, replace and keep the
Premises, fixtures and equipment in good and clean order, condition and repair,
including, but not limited to, all windows and doors and their fixtures, loading
dock equipment (dock levelers, overhead doors, dock shelters, seals and
bumpers), pavement under the sole control of Tenant, electrical system, lighting
(fixtures, bulbs, ballasts, starters, and diffusers), plumbing, doors, sprinkler
system within the Premises, interior wall surfaces, interior partitions and
mezzanines. Notwithstanding any language to the contrary in this Paragraph
7.1(a), Tenant shall not effect any repairs to any portion of the pavement, dock
shelters, or any other portion of the Building which is obligated to maintain,
without first submitting plans and specifications to Landlord for its prior
written approval.
In addition, Tenant shall maintain the heating and air conditioning
systems within the Premises. As part of such maintenance of those systems, the
Tenant shall maintain service contracts satisfactory to Landlord, a copy of
which maintenance contract shall be sent to Landlord within twenty (20) days
after its commencement, covering the heating and air conditioning systems.
Provided such regular maintenance of the heating and air conditioning systems
has been maintained by the Tenant, then if a capital component of a heating or
air conditioning system requires replacement during the Term and such
replacement is not covered under the terms of a reasonable maintenance agreement
for such system as required to be maintained by the Tenant, then the Landlord
shall make such replacement at its expense.
Tenant waives the benefits of any statute which would
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give Tenant the right to make repairs at Landlord's expense or to terminate this
Lease because of Landlord's failure to keep the Premises in good order,
condition and repair.
Landlord represents that the electrical, plumbing, HVAC, and other
mechanical Building systems are in good working order and condition and will be
so for the first ninety (90) days following the Date of Occupancy.
7.1(b) Trash Storage.
Tenant agrees to store trash in dumpsters or other suitable containers
outside the Building which shall be provided by the Landlord as part of the
Operating Costs of the Property. Tenant agrees not to store goods, pallets,
drums, or other materials outside the Premises. Tenant agrees that all trash
produced or kept by it shall be removed from the Premises and the Building at
least two times per week, provided that the Landlord shall at all times have the
right to determine that the Tenant shall be required to remove its trash more
frequently if the circumstances warrant more frequent removal.
7.1(c) Floor Loading.
Tenant shall not place a load upon any floor of the Premises exceeding
the floor load per square foot area which such floor was designed to carry and
which is allowed by law. Use by Tenant of any mezzanines for storage is at
Tenant's sole risk and Tenant agrees to indemnify Landlord from any claims
resulting from any such use.
7.1(d) Parking.
In the event Landlord designates specific parking areas within the
parking and loading areas, Tenant will cause its employees, agents, and invites
to park only in the designated areas.
7.1(e) Vehicle Repair or Storage.
No repair or servicing of any motorized vehicle shall be allowed in the
Premises or in any parking or loading areas, roadways, or service areas within
the Building. No vehicle (including equipment, trailers, and machinery) shall be
abandoned or disabled or in a state of non-operation or disrepair upon the
property of the Landlord, and Tenant shall enforce this restriction against
Tenant's employees, agents, and invitations. Should Landlord determine that a
violation of this restriction has occurred, Landlord shall have the right to
cause the offending vehicle to be removed and all costs of such removal shall be
the obligation of the Tenant responsible for such vehicle within ten (10) days
of written notice to Tenant.
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7.2 Landlord's Obligations.
Landlord will maintain the roof (including the roof membrane, if any, but
not including any items placed on the roof for or on behalf of the Tenant, even
if the Landlord has given its permission for such placement), the structural
integrity of the exterior walls, structural supports and foundations of the
Building and the paved areas of the Property owned by the Landlord and serving
the Building, unless covered by the provisions of Paragraph 9.3. Landlord may
enter the Premises on reasonable notice to carry out its obligations. Landlord
will not unduly interfere with Tenant's operations. Landlord is not liable for
any reasonable interruption of Tenant's use of the Premises.
It is expressly agreed between the parties that the Landlord will not be
liable to the Tenant for any damage or injury which may be sustained by the
Tenant or those claiming through Tenant as a result of leaks in the room;
foundation or outside walls. The Landlord will be liable to the Tenant only in
the event of the Landlord's willful refusal to repair the roof foundation and
outside walls or Landlord's gross negligence in making such repairs.
If Landlord shall not have performed any roof repair required of it by
this Lease within thirty (30) days of written notice from Tenant, then Tenant
shall have the right to effect any such necessary repair. Landlord shall then
repay the reasonable costs of such repair by Tenant within thirty (30) days of
receipt of an invoice from Tenant, as well as other reasonable documents that
may be requested by Landlord concerning such roof repair.
7.3 Rail Spur Use and Costs.
(a) If Tenant has sole access to a rail spur servicing the Building,
Tenant, at its sole cost and expense, shall maintain and repair the entire rail
spur. Tenant also agrees to reimburse Landlord as Additional Rent for all
insurance and other operating costs incurred by Landlord regarding the rail spur
within ten (10) days after receipt of a statement from Landlord.
(b) If more than one tenant has access to a rail spur(s) servicing the
Building, the Landlord shall coordinate all maintenance and repairs. Tenants
with access to the rail spur(s) shall reimburse Landlord for the maintenance,
repairs, insurance, and other operating costs based upon the proportion of the
Premises to the total leasable area leased, from time to time, to tenants having
access to the rail spur(s). Tenant shall reimburse Landlord as Additional Rent
for such costs within ten (10) days after receipt of a statement from Landlord.
7.4 Surrender of Premises.
At the end of the term, or any other termination, Tenant will return the
Premises in good, clean condition and operating
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order, after completing all maintenance and replacement which is Tenant's
responsibility. Damage by ordinary wear and tear is excepted to the extent that
it is not part of Tenant's obligation to maintain and replace. Also excepted is
casualty from causes against which Landlord carries insurance and for which
casualty Landlord actually collects insurance proceeds. Damage to the Premises
caused by Paragraph 7.5(c) removals will be repaired by Tenant. If Tenant shall
fail to take all measures required to return the Premises as required by this
Paragraph 7.4 within a reasonable period of time, then Landlord shall have the
right to take all such measures on behalf of the Tenant, and the Tenant shall be
obligated to repay, as Additional Rent, all costs incurred by Landlord in such
undertaking.
Tenant shall notify Landlord in writing at least 120 days prior to vacating
the Premises and shall within 30 days prior to vacating arrange to meet with
Landlord for a joint inspection of the Premises prior to vacating. If Tenant
fails to give such notice or to arrange for such inspection, then Landlord's
inspection of the Premises shall be deemed correct for the purpose of
determining Tenant's responsibility for repairs and restoration of the Premises.
7.5 Alterations and Additions.
7.5(a) Consent.
Tenant will not make any alterations or improvements to the Premises, or
changes to the exterior of the Premises, or the exterior of the Building without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed. Tenant shall furnish the Landlord with copies of any
construction drawings and contracts with contractors for any proposed
improvements. Landlord may condition its consent with any of the following:
(i) Tenant's agreement to remove any alterations or improvements upon
termination, and to restore the Premises to the prior condition. Landlord agrees
to advise the Tenant at the time of consent to any proposed alterations whether
or not the Landlord requires such alterations to be removed at the termination
of the Lease Term pursuant to Paragraph 7.5(c).
(ii) A performance, payment, and completion bond in a reasonable amount
based upon the nature and cost of the alterations to be constructed.
(iii) Insurance necessary to protect both parties while work is in
progress.
(iv) Waivers of Liens from all contractors or sub-contractors involved in
the alterations or improvements.
Notwithstanding any language to the contrary in this Lease,
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Tenant shall be permitted to perform any of the Tenant's Work set forth in
Exhibit C at any time during the term of this Lease, provided that Tenant
provides Landlord with the necessary plans pursuant to which Landlord can
reasonably approve the Tenant's Work, and further provided that Tenant gives
Landlord written notice after it has performed any such items of Tenant's Work.
This provision shall apply solely to the Tenant's Work set forth in Exhibit C,
and all other alterations or additions desired by Tenant will be performed in
strict accordance with the terms of this Section 7.5.
7.5(b) Liens.
Claims for labor or materials for, or purporting to be for labor or
materials furnished to Tenant shall be paid by Tenant when due, or secured by
bond, so as to immediately discharge any liens held against the Premises or
Building. In the event Tenant does not discharge any such liens, Landlord shall
have the right, but not the obligation, to discharge such liens. Any such amount
paid or incurred by Landlord shall be immediately due and payable as Additional
Rent by Tenant to Landlord together with interest at the rate indicated in
Paragraph 24.10 from the date of payment by Landlord until paid by Tenant.
7.5(c) Surrender or Removal of Alterations.
Unless removal has been required by Landlord pursuant to 7.5(a)(i), at
Landlord's option, all alterations or improvements will become the property of
Landlord and will be surrendered with the Premises at the end of the Lease Term
or other termination, without payment. Tenant's machinery and equipment, unless
it is fixed to the Premises so that it cannot be removed without material
damage, remains the property of Tenant and may be removed by Tenant subject to
Paragraph 7.4.
8. Insurance.
8.1 Tenant's Insurance.
(a) During the Lease Term, Tenant will maintain a broad form policy of
commercial general liability insurance insuring the Tenant and naming the
Landlord, its employees, agents and real estate managers as additional insureds
against liability arising out of the use, occupancy or maintenance of the
Premises. The insurance will be for not less than $2,000,000 combined single
limit personal injury and property damage. The limits of the insurance will not
limit the liability of Tenant. The policy will contain cross-liability
endorsements and additional insured endorsements and will insure Tenant's
performance of the indemnity provisions of Paragraph 8.5. Tenant may provide
the coverage required herein by means of a blanket policy, provided that the
coverage afforded is on a per location basis. If Tenant fails to
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maintain the required insurance, Landlord may, but is not obligated to, maintain
the insurance at Tenant's expense. The policy shall expressly provide that it
is not subject to invalidation of the Landlord's interest by reason of any act
or omission on the part of Tenant.
(b) If Tenant's Premises shall contain a boiler or other pressure
vessel, Tenant shall carry Boiler and Machinery Insurance with a direct damage
limit not less than the full value of the building in which the Premises are
situated. Such insurance shall be written on a "repair and replacement"
(replacement cost) basis.
(c) Tenant shall maintain plate glass insurance covering all plate
glass in the Premises. Tenant shall be and remain liable for the repair and
restoration of all such plate glass.
(d) Tenant shall maintain workers' compensation and employer's liability
insurance in the form and amount satisfactory to Landlord.
(e) Tenant shall maintain any other form or forms of insurance as Land-
lord or Landlord's mortgagees may reasonably require from time to time, and such
other insurance in form and amounts and for insurance risks as a prudent tenant
would maintain to protect itself.
8.2(a) Landlord's Insurance.
During the Lease Term, Landlord will maintain policies of insurance
covering loss or damage to the Building in the amount of the full replacement
value, providing protection against all perils included within the
classification of fire and extended coverage. Landlord will also maintain
comprehensive general liability insurance insuring the Landlord. The Landlord
may also elect to provide rent loss, vandalism, malicious mischief sprinkler
leakage, war, automobile, umbrella, flood, boiler, air conditioner and all-risk
insurance. The insurance will provide for payment for loss to Landlord or to the
holder of a first mortgage or deed of trust on the property.
8.2(b) Payment of Premiums; Insurance Policies.
(i) Landlord shall pay the "Base Premiums" for the insurance policies
maintained by Landlord under Paragraph 8.2(a). The "Base Premiums" shall be the
insurance premiums paid during or applicable to the last calendar year
immediately prior to the Commencement Date.
(ii) During the Lease Term, the Tenant shall pay the Landlord the
Tenant's Share of the amount, if any, by which the insurance premiums for all
policies maintained by Landlord under Paragraph 8.2(a) exceed the Base Premiums.
Tenant shall pay its
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share of such excess premiums in accordance with paragraph 5.2(b). If the Lease
Term expires before the expiration of the insurance period, Tenant's Share of
such excess premiums shall be prorated.
Tenant's obligation under this Paragraph 8.2(b) shall survive the expiration or
earlier termination of this Lease.
8.2(c) Tenant's Personal Property.
Tenant assumes all risk of loss or damage to Tenant's Property. Tenant
assumes the risk that loss or damage to Tenant's Property, to the Premises or to
the Property may result in loss of income, profits or good will to the business
of Tenant or other persons interested in Tenant's Property. Tenant releases and
holds Landlord harmless from liability for these losses or damage, except
arising out of Landlord's gross negligence or willful misconduct. Tenant's
Property includes all goods, equipment, inventory, merchandise, records and
other personal property and all fixtures, improvements and betterments placed in
or about the Premises, belonging to Tenant or any person connected with, or
claiming under or through Tenant. Tenant agrees to indemnify Landlord and save
it harmless from all loss or claims, including reasonable attorneys' fees and
costs in defending a claim, arising out of loss or damage to Tenant's Property
belonging to others. Landlord means Landlord, its employees and agents.
TENANT SHALL PROVIDE INSURANCE TO THE EXTENT OF NOT LESS THAN ONE HUNDRED
PERCENT (100%) OF THE FAIR MARKET VALUE OF TENANT'S PROPERTY AS APPRAISED BY
TENANT'S INSURER(S), WITH AN AGREED AMOUNT ENDORSEMENT. TENANT, AT ITS SOLE COST
AND EXPENSE, SHALL OBTAIN THE INSURANCE COVERAGES NECESSARY TO PROVIDE
PROTECTION FOR THE RISKS AND OBLIGATIONS TO INDEMNIFY ASSUMED BY TENANT AND
SHALL MAINTAIN SUCH INSURANCE FOR THE LEASE TERM. TENANT AGREES TO NOTIFY EACH
INSURANCE CARRIER OF THE TENANT'S ASSUMPTION OF RISK, RELEASE AND
INDEMNIFICATION STATED ABOVE. TENANT ACKNOWLEDGES THAT ITS INSURANCE COVERAGES
COULD BE VOIDED OR OTHERWISE ADVERSELY AFFECTED BY THE FOREGOING PARAGRAPH
UNLESS THE INSURANCE CARRIER HAS WAIVED ITS RIGHT OF SUBROGATION OR HAS
OTHERWISE AGREED TO THE ABOVE ASSUMPTION OF RISK, RELEASE AND HOLD HARMLESS
AGREEMENT AND INDEMNIFICATION.
8.3(a) Tenant's Insurance Policies.
All policies of insurance to be provided by Tenant shall be issued in
form acceptable to Landlord by insurance companies with general policyholder's
rating of not less than A and a financial rating of AAA as rated in the most
current available "Best's" Insurance Reports, and qualified to do business in
Maryland. Each such policy shall be issued in the name of Tenant, with Landlord
named as an additional insured. Said policies shall be for the mutual and joint
benefit and protection of each of said parties and executed copies of each such
policy of insurance or a certificate thereof shall be delivered to Landlord
within ten (10)
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days after delivery of possession of the premises to Tenant and thereafter at
least fifteen (15) days prior to the expiration of each such policy. As often
as any such policy shall expire or terminate, renewal or additional policies
shall be procured and maintained by Tenant in like manner and to like extent.
All such policies of insurance shall contain a provision that the company
writing said policy will give to Landlord at least thirty (30) days' notice in
writing in advance (but in no event less than the amount of notice required by
Maryland law) of any cancellations, or lapse, or the effective date of any
reduction in the amounts of insurance. In the event Tenant shall fail to
promptly furnish any insurance herein required, Landlord may effect the same for
a period not exceeding one (1) year and Tenant shall promptly reimburse Landlord
upon demand, as Additional Rent, the premium so paid by Landlord, in addition to
an administrative surcharge of Five Hundred Dollars ($500.00). If, upon
Tenant's failure, rather than purchase separate insurance coverage, Landlord
chooses to include Tenant's coverage under Landlord's insurance policies, then
Tenant shall promptly reimburse Landlord upon demand, as Additional Rent, the
cost of the increase in Landlord's premium resulting therefrom plus fifteen
percent (15%) of the cost of obtaining such additional coverage for
administrative overhead. All such public liability, property damage and other
casualty policies shall be written as primary policies which do not contribute
to and are not in excess of coverage which Landlord may carry. All such public
liability and property damage policies shall contain a provision that Landlord
shall nevertheless be entitled to recover under said policies for any loss
occasioned to it, its servants, agents and employees by reason of the negligence
of Tenant or any other named insured. Any insurance provided for may be
affected by a policy or policies of blanket insurance, covering additional items
or locations; provided, however, that (i) Landlord shall be named as an
additional insured thereunder as its interests may appear; (ii) the coverage
afforded Landlord will not be reduced or diminished by reason of the use of such
blanket policy of insurance; (iii) any such policy or policies shall specify
therein (or Tenant shall furnish Landlord with a written statement from the
insurers under such policy specifying) the amount of the total insurance
allocated to the "Tenant Improvements and Property" more specifically detailed
in Paragraph 8.2(c), above; and (iv) the requirements set forth herein are
otherwise satisfied. Any insurance policies herein required to be procured by
Tenant shall contain an express waiver of any right of subrogation by the
insurance company against the Landlord.
8.3(b) Increased Risk.
Tenant will not do anything or permit anything to be done or any
hazardous condition to exist ("Increased Risk") which shall invalidate or cause
the cancellation of the insurance policies carried by either Tenant or Landlord.
If Tenant does or permits any Increased Risk which causes an increase in the
cost of Landlord's
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insurance policies then Tenant shall reimburse Landlord pursuant to Paragraph 23
for additional premiums attributable to any act, omission or operation of Tenant
causing the increase in the premiums, including, but not limited to, non-
compliance with recommendations under Paragraph 6.2. Payment of additional
premiums will not excuse Tenant from terminating or removing the Increased Risk
unless Landlord agrees in writing. Absent agreement, Tenant shall promptly
terminate or remove the Increased Risk.
8.4 Waiver of Subrogation on Property Policies.
Each party releases the other party from any and all liability and
responsibility (to the other party or anyone claiming through or under them by
way of subrogation or otherwise) for loss or damage to property resulting from
causes insured against, except if such casualty has been caused by the fault or
gross negligence of the other party, or for whom such party may be responsible.
8.5 Indemnity.
8.5(a) Tenant Indemnity.
Tenant shall indemnify and hold harmless Landlord, its agents, employees
and real estate managers, from and against any and all claims arising from: (a)
Tenant's use of the Premises, (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Premises or
elsewhere in the Building, (c) any breach or default in the performance of
Tenant's obligations under the Lease, or arising from any negligence of the
Tenant, or Tenant's agents, contractors or employees. Tenant shall defend
Landlord against all costs, attorney's fees, expenses and liabilities incurred
in the defense of any such claim, action or proceeding. In case any action or
proceeding is brought against Landlord by reason of any such aforementioned
claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's
expense by counsel satisfactory to Landlord. Tenant assumes all risk of damage
to property or injury to persons, in or about the Premises arising from any
cause and Tenant waives all such claims against Landlord, except claims due to
Landlord's gross negligence. The liability of Tenant to indemnify Landlord, its
agents and employees, shall not extend to any matter against which Landlord
shall be effectively protected by insurance, provided that if any liability
shall exceed the amount of effective and collectable insurance, the liability of
Tenant shall apply to the excess. Whether the insurance is "effective" depends
in part, but not by way of limitation, on the absence of any defense to coverage
made by the insurer.
8.5(b) Landlord Indemnity.
Landlord shall indemnify and hold harmless the Tenant, its agents and
employees from and against any and all claims arising at the Building but
outside of the Premises and arising
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from: (a) the conduct of Landlord's business or anything else done or permitted
by Landlord to be done on the Building but outside of the Premises, or (b) any
breach or default in the performance of Landlord's obligations under the Lease,
or arising from negligence of the Landlord or Landlord's agents, contractors or
employees.
9. Casualty Damage.
9.1 Damage to Premises.
Tenant will give immediate notice to Landlord of fire or other casualty
damage to the Premises. Landlord will repair the Premises, except damage from
items in which Tenant is responsible for under Paragraph 6.3 herein and unless
it decides to terminate under Paragraph 9.2. Tenant will be obligated to pay pro
rata Fixed Minimum Rent and Additional Rent only on the portion of the Premises
it can occupy.
9.2 Options to Terminate Due to Casualty Damage.
9.2(a) Premises Damage, Repairs Requiring More Than 150 Days.
If the Building is substantially destroyed or the damage requires more
than 150 days from the date of the damage to repair, either Landlord or Tenant
has the option to terminate this Lease by giving written notice within 60 days
after the date of the damage (except Tenant shall not have such option if less
than twenty-five percent (25%) of the Premises is damaged, in which case the
provisions of Paragraph 9.2(b) shall apply). This Lease shall terminate either
30 days after receipt of the notice or the date Tenant vacates the Premises,
whichever is sooner. Landlord shall reimburse the Tenant for any Fixed Minimum
Rent or Additional Rent which the Landlord has received from the Tenant which is
attributable to the period after the date of termination pursuant to this
paragraph.
9.2(b) Repairs Requiring Less Than 150 Days to Repair.
If the estimated repair time is less than 180 days and Landlord
diligently pursues repair, Tenant may not terminate if repair time runs over 150
days due to causes specified in Paragraph 15.
9.2(c) Damage During Last Six Months of Term.
If casualty damage occurs to the Premises or to the Building during the
last six (6) months of the Lease Term, Landlord or Tenant may terminate this
Lease by thirty (30) days prior written notice.
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9.3 Negligence of Tenant - Uninsured Loss
An "Insured Loss" is damage caused by an event which is either required
to be or which has been elected by Landlord to be covered by insurance described
in Paragraph 8.2(a). If casualty damage occurs which is not an Insured Loss and
which is due to a negligent or willful act of Tenant, Tenant will repair the
damage at its expense and will remain liable for the full rent during repair.
Termination under Paragraph 9.2 will not be available to Tenant.
9.4 Tenant Claims.
No compensation, claims, or diminution of rent will be paid or allowed by
Landlord, by reason of inconvenience, annoyance, or injury to business, arising
from the necessity of repairing any other portion of the Building, however the
necessity may occur.
10. Real Property Taxes.
10.1 Payment of Taxes.
Landlord shall pay the "Base Real Property Taxes" on the Property during
the Lease Term. Base Real Property Taxes are real property taxes applicable to
the Property as shown on the tax bill for the most recent tax fiscal year, July
1, 1995 through June 30, 1996. During the Lease Term, Tenant shall pay to the
Landlord the Tenant's Share of the amount, if any, by which the real property
taxes for any fiscal year during the Lease Term exceed the Base Real Property
Taxes. Such payments by the Tenant shall be Additional Rent payable as provided
in Paragraph 5.2. Tenant shall pay Tenant's Share of the Real Property Taxes on
an annual basis, within thirty (30) days of receipt of an invoice from Landlord
and a copy of the real estate tax bill for the Building.
10.2 Definition of Real Property Tax.
The term "Real Property Tax" includes any form of assessment, license
fee, levy, penalty or tax (other than inheritance or estate taxes), including,
but not limited to, real estate taxes, sewer taxes, front foot benefit charges,
school taxes, sanitary sewer assessments, impact fees, or other such taxes
levied directly upon the Landlord as, or in lieu of, real estate property taxes
on the Building, imposed by an authority with direct or indirect power to tax
any legal or equitable interest of Landlord in the real property of which the
Premises are a part, but shall not include any rent tax payable by Tenant under
Paragraph 5, nor any corporate franchise or income taxes.
10.3 Personal Property Taxes.
Tenant will pay, before delinquent, all taxes assessed
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against the Tenant's trade fixtures, furnishings, equipment and all other
personal property. Tenant will cause these items to be assessed and billed
separately from the real property of Landlord.
11. Utilities.
Tenant will pay directly to the appropriate supplier, the cost of all
gas, electricity, telephone and other utilities and services supplied to the
Premises, and any taxes on those bills. If any services are not separately
metered, Tenant will pay as Additional Rent as provided in Paragraph 5.2 its pro
rata share of all jointly metered utilities used by other occupants of the
property based either upon type and extent of use or on area, as reasonably
determined by Landlord. Landlord reserves the right to recalculate the pro rata
share allocable to Tenant if the Tenant, in Landlord's reasonable judgment, uses
more than its proportionate share of a particular utility. The Landlord also
reserves the right to require the separate metering of the Premises at the
Tenant's sole cost and expense. Tenant acknowledges that Landlord shall not be
liable under any circumstances for a loss of or injury to Tenant's property or
business, however occurring, through or in connection with or incidental to the
failure to furnish any utilities. Landlord represents and warrants that the
Premises are separately metered for all common utilities.
12. Assignment and Subletting.
12.1 Landlord's Consent Required.
Tenant will not voluntarily or by operation of law assign, transfer,
mortgage, sublet or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises, without Landlord's prior written
consent which consent may not be unreasonably conditioned, withheld or delayed
by Landlord. Any attempted assignment, transfer, mortgage, encumbrance or
subletting without consent shall be void as against Landlord, and shall
constitute a breach of the Lease. Landlord and Tenant agree that reasonable
factors to be considered by Landlord when requested to give its permission to
Tenant to assign or sublease the Premises include, but are not limited to, (1)
the compatibility or appropriateness of the proposed assignee or subtenant
within the desired overall tenant mix for the Building, (2) the reputation of
the proposed assignee or subtenant, and (3) the financial capability or
creditworthiness of the proposed assignee or subtenant.
12.2 No Release of Tenant.
Regardless of Landlord's consent, no subletting or assignment will alter
the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant. Acceptance of rent from any other person
will not be deemed
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a waiver by Landlord of any provision of this Lease. Consent to one assignment
or subletting will not be deemed consent to any subsequent assignment or
subletting.
12.3 Participation by Landlord.
In the event of any assignment or sublease involving rent in excess of
the Fixed Minimum Rent or Additional Rent required under this Lease (Excess
Rent), Landlord shall participate in the Excess Rent. Tenant shall promptly
forward to Landlord one hundred (100%) percent of all such Excess Rent collected
from the assignee or subtenant after Tenant has been reimbursed for its actual,
reasonable costs in connection with any such assignment or sublease. The Tenant
shall supply Landlord with true copies as executed of all assignments and
subleases as well as an accurate accounting of any costs incurred by the Tenant
in connection with such transaction. If Landlord shall chose to retain one
hundred (100%) percent of the Excess Rent, then Tenant shall be released from
all obligations thereafter under the Lease; if Landlord shall chose not to
release the Tenant from its obligations pursuant to this Lease from and after
the date of any such assignment or sublease, then the Excess Rent shall be
shared equally by Landlord and Tenant.
12.4 Processing Fees.
If Landlord consents to a sublease or assignment, Tenant will pay a
processing fee of $500.00 in addition to all legal fees incurred by Landlord.
13. Defaults; Remedies.
13.1 Events of Default.
It is a default under this Lease if any of the following "Events of
Default" happens:
(a) if any Fixed Minimum Rent or Additional Rent is not paid when due; or
(b) if the Premises are vacated or abandoned by Tenant, without
Landlord's prior written approval, for more than ten (10) consecutive business
days; or
(c) if the provisions of Paragraph 6.3 are not fully complied with; or
(d) if Tenant defaults under any of the terms of this Lease other than
those in Paragraphs 13.1(a), (b), and (c), and default continues for fifteen
(15) days after written notice is sent to Tenant (except if default cannot be
completely cured within fifteen (15) days, it will not be an Event of Default if
Tenant
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starts to cure within the fifteen (15) day period, and in good faith continually
proceeds to remedy the default beyond the fifteen (15) day period). Anything to
the contrary notwithstanding, if the default existing under the lease, other
than those in Paragraphs 13.1(a), (b), and (c), still exist after 60 days, the
Landlord may pursue its remedies under the lease; or
(e) if Tenant or any person who has guaranteed performance, files a
voluntary petition in bankruptcy or is adjudicated a bankrupt or insolvent, or
files a petition or answer seeking relief under any federal, state or other
statue or regulation, or seeks or consents or acquiesces in the appointment of a
trustee, receiver or liquidator of Tenant or guarantor, or of all or any
substantial part of Tenant's properties or of the Premises or any or all rents,
earnings, or income or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally as they become due;
or
(f) if a petition is filed against Tenant, or any person who has
guaranteed performance, seeking relief under any federal, state or other statue
or regulation, which remains undismissed or unstayed for an aggregate of 60 days
(whether or not consecutive), or if a trustee, receiver or liquidator of Tenant
or guarantor, or of all or any substantial part of its properties or of the
Premises or any or all rents, or income is appointed without the consent or
acquiescence of Tenant, or guarantor, and the appointment remains unvacated or
unstayed for an aggregate of 60 days (whether or not consecutive).
13.2 Notice; Termination.
At any time after the happening of an Event of Default Landlord may send
Tenant written notice stating that Landlord elects that this Lease terminate at
5:00 p.m. on the date listed by Landlord. The date will be at least 5 days
after the giving of the termination notice (including the termination date). On
the date in the notice, subject to Paragraph 13.4, the Lease and all interests
demised will terminate and all rights of the Tenant to possession of the
Premises shall cease. The termination will not take place before the stated
date and time if:
(i) Tenant has paid all arrears of Fixed Minimum Rent and Additional Rent
and all other amounts payable by Tenant (together with interest pursuant to
Paragraph 24.10), and as Additional Rent all expenses (including, without
limitation, attorney's fees and expenses) incurred by Landlord due to any
default by Tenant, (the "Arrearages"), and
(ii) all other defaults have been cured to the satisfaction of Landlord.
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13.3 Repossession, Re-letting.
After notice of an Event of Default, whether before or after a
termination as provided in Paragraph 13.2, Landlord, without further notice and
with no liability to Tenant, may repossess the Premises, by summary proceedings,
ejectment or otherwise, and may remove Tenant and all other persons and any and
all property from the Premises. After such repossession, Landlord may (but is
under no obligation to) re-let the Premises, any part thereof or the Premises
with additional premises, on account of Tenant (until Landlord makes demand for
final damages), in Tenant's or Landlord's name, without notice to Tenant, for a
term (which may be more or less than the period which would have been the
balance of the term of this Lease) and on conditions (including concessions,
periods of rent free use, or alterations) and for purposes which Landlord
determines and Landlord may receive the rents. Landlord is not liable for
failure to collect any rent due upon any such reletting.
13.4 Survival of Tenant's Obligations; Damages.
No provisions in Paragraphs 13.1, 13.2, or 13.3 will relieve Tenant of
its liability and obligations under this Lease, all of which will survive.
Landlord will not be deemed to accept a surrender of Tenant's lease or otherwise
discharge Tenant because Landlord takes or accepts possession of the Premises or
exercises control over them as provided. Acceptance of surrender and discharge
may be done only by an instrument executed on behalf of Landlord by its duly
authorized officer or employee.
In the event of termination or repossession following an Event of
Default, Tenant will pay to Landlord the Arrearages up to the earlier of the
date of termination or repossession. Further, Tenant, until the end of what
would have been the term of this Lease in the absence of termination and whether
or not the Premises or any part have been re-let, is liable to Landlord for, and
will pay to Landlord, as liquidated and agreed "Current Damages" for Tenant's
default as Additional Rent:
(a) the Fixed Minimum Rent and all Additional Rent and any other charges
payable by Tenant or which would be payable if this Lease had not terminated,
plus all Landlord's reasonable, actual expenses in connection with any
reletting, including, without limitation, repossession costs, brokerage
commission, legal expenses, attorney's fees, expenses of employees, alteration
costs, and expenses of preparation for such reletting, in addition to the
proportion of the Tenant improvement monies expended by Landlord on fitting up
the Premises for Tenant's use, calculated based upon the portion of the term
during which the Tenant shall not occupy the Premises divided by the total
length of the term of this Lease, LESS
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(b) the net proceeds, if any, of any re-letting on account of Tenant
pursuant to Paragraph 13.3. If the Premises have been relet with additional
premises, the net proceeds, if any, of reletting shall be prorated.
Tenant shall pay Current Damages to Landlord monthly on the days on which
the Fixed Minimum Rent would have been payable if the Lease were not terminated,
and Landlord is entitled to recover from Tenant each month.
After termination under Paragraph 13.2, whether or not Landlord has
collected Current Damages, Tenant will pay to Landlord, on demand, as liquidated
and agreed "Final Damages" for Tenant's default and in lieu of all Current
Damages beyond the date of demand, an amount equal to the present cash value on
the date of demand on the Fixed Minimum Rent and Additional Rent which would
have been payable from the date of demand for what would have been the unexpired
term of this Lease if it has not been terminated plus the Arrearages to the
earlier of the date of termination or repossession and Current Damages up to the
date of demand which remain unpaid.
If any statute or rule of law governing a proceeding in which Final
Damages are to be proved validly limits the amount to an amount less than that
provided for, Landlord is entitled to the minimum amount allowable under the
statute or rule of law. The rate of interest shall be as provided in Paragraph
24.10.
Notwithstanding any language to the contrary in this Lease, if Tenant
fails to take possession of the Premises after entering into this Lease, Tenant
and Landlord agree that, in addition to any other right available to Landlord
pursuant to the terms and conditions of this Lease or Maryland law for the
remedy of such breach of Lease, the proper measure of the damages for which
Tenant shall be liable to Landlord (i.e., the excess of the rent reserved under
the Lease or the reasonable rental value of the Premises at the time of Tenant's
default) shall be equivalent to the amount of Fixed Minimum Rent that would have
been paid by Tenant to Landlord from the Lease Commencement Date to the Lease
Termination Date, discounting such amount to present worth at a discount rate
equal to one (1) percentage point above the discount rate then in effect at the
Federal Reserve Bank in Baltimore. The parties hereto agree that said sum shall
not preclude the Landlord from recovering any special damages which may have
resulted from the Tenant's breach. Tenant further agrees that Landlord shall in
no matter be required to mitigate its damages upon Tenant's default as set forth
in this Paragraph 13.
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14. Condemnation.
14.1 Permanent Condemnation.
If the Premises or any portion are taken under the power of eminent
domain, or sold under the threat of the exercise of the power (both called
"Condemnation"), this Lease will terminate as to the part taken as of the first
date the condemning authority takes either title or possession. If the portion
of the Premises taken is more than fifty percent (50%) or makes the balance
unfit for Tenant's use, Tenant has the option to terminate this Lease without
penalty as of the date the condemning authority takes possession. The option
will be exercised in writing as follows:
(i) within thirty (30) days after Landlord or the condemning authority
has given Tenant written notice of the taking; or
(ii) absent notice, within ten (10) days after the condemning authority
has taken possession.
If Tenant does not terminate, this Lease will remain in full force and effect as
to the portion of the Premises remaining. The Rent and Additional Rent will be
proportionately reduced and adjusted.
Any award for Condemnation is the Landlord's, whether the award is made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages. Tenant is entitled to all of the proceeds of any
award for damage to Tenant's trade fixtures and removable personal property and
moving expenses. If this Lease is not terminated, Landlord, to the extent of
severance damages received, will repair damage to the Premises caused by
Condemnation except to the extent that Tenant has been reimbursed by the
condemning authority.
14.2 Temporary Condemnation.
Upon Condemnation of all or a part of the Premises for temporary use,
this Lease will continue without change or abatement in Tenant's obligations, as
between Landlord and Tenant. Tenant is entitled to the award made for the use.
If the Condemnation extends beyond the term of the Lease, the award will be
prorated between the Landlord and the Tenant as of the expiration date of the
term. If the temporary use causes damage which must be restored upon termination
of the temporary use, the Tenant shall be entitled to the award for the cost of
any such restoration and the Tenant shall be responsible for completion of any
restoration work required to place the Premises in the condition they were in
prior to Condemnation unless the release of the Premises occurs after
termination. In such case, Tenant will assign to the Landlord any claim it may
have against the condemning authority. If Tenant has received restoration funds,
it will give the funds to the Landlord
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within 15 days after demand.
15. Force Majeure.
If either parties performance of any obligations under any provision in
this Lease is delayed by an act or neglect of the other party, an Act of God,
strike, labor dispute, unavailability of materials, boycott, governmental
restrictions, riots, insurrection, war, catastrophe, or act of the public enemy,
the period for the beginning or completion of the obligation is extended for a
period equal to the delay. The provisions of this Paragraph 15 shall in no
manner permit any delay with regard to the Tenant's payment of all items of Rent
and Additional Rent as they become due hereunder.
16. Subordination & Non-Disturbance
16.1 Subordination.
This Lease, at Landlord's option, shall be subordinate to any form of
security now or later placed on the Property and to all advances made on the
security and to all renewals, modifications, consolidations, replacements and
extensions. Tenant's right to quiet possession of the Premises will not be
disturbed if Tenant is not in default under this Lease, unless it is otherwise
terminated under the terms. If any mortgagee, trustee or ground lessor elects to
have this Lease prior to the lien of its security, and gives written notice to
Tenant, this Lease will be deemed prior to the security, whether dated before or
after the date of the security, or the recording date. Tenant agrees to execute
any required documents, and Tenant irrevocably appoints Landlord as Tenant's
attorney-in-fact to do so, if Tenant fails to so execute within ten (10) days
after written demand.
16.2 Non-Disturbance.
Landlord represents that as of the date of this Lease there are no
present mortgages encumbering the Premises. Landlord agrees to use reasonable
efforts to secure a non-disturbance agreement from all future mortgage holder(s)
in a form reasonably acceptable to such mortgage holder(s) which shall provide
that so long as this Lease is fully executed and in full force and effect, and
the Tenant fully performs its obligations under this Lease, and the Tenant fully
attorn to such mortgage holder(s), then Tenant shall be permitted to remain in
quiet possession of the Premises without interruption or disturbance from such
mortgage holder(s).
17. Estoppel Certificate & Financial Statements
17.1 Estoppel Certificate.
Tenant, within ten (10) days after receipt of written
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notice from Landlord, will deliver to Landlord a written statement in a form
supplied and approved by the Landlord (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
the 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) stating the amount of the security deposit, if any, held
by Landlord and (iii) acknowledge that there are not, to Tenant's knowledge, any
uncured defaults on the part of Landlord, or stating any claimed defaults. The
statement may be relied upon by any prospective purchaser or lender of the
Premises.
Tenant's failure to deliver the statement within said time will 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 any security
deposit is as represented by Landlord, (iii) that there are no uncured defaults
in Landlord's performance, and (iv) that not more than one month's rent has been
paid in advance.
17.2 Financial Statement.
If Landlord desires to sell or finance or refinance all or part of the
Premises, Tenant agrees to deliver to any proposed purchaser or lender named by
Landlord all financial statements of Tenant as may be reasonably required by the
proposed purchaser or lender. The statements will include the past three years'
financial statements of Tenant. All financial statements will be received by
Landlord in confidence and will be used only for these purposes. In lieu of
providing the financial documents specified in this Section 17.2, Tenant shall
be permitted to present Landlord with its most recent annual report, provided
that the report is certified by an officer of the Tenant.
18. Corporate Authority.
If Tenant is a corporation, each individual executing this Lease on
behalf of the corporation represents and warrants that he/she is duly authorized
to execute and deliver this Lease on behalf of the corporation, in accordance
with a duly adopted resolution of the Board of Directors of the corporation, or
in accordance with the bylaws of the corporation, and that this Lease is binding
upon the corporation.
19. Notices.
All notices required or permitted under this Lease shall be in writing
and shall be deemed duly given if sent by United States certified or registered
mail, return receipt requested, or by Federal Express or other major overnight
courier that provides evidence of delivery, addresses to Landlord or Tenant,
respectively, at the addresses provided in the Information Schedule.
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Either party by notice as provided above may change the address for
notices and/or payment of rent.
20. Broker's Fee.
Landlord and Tenant represent and warrant to each other that except as
listed in the Information Schedule, no broker, agent or lender has been employed
by it in connection with this Lease and no commission are payable by it to any
person. Tenant and Landlord each agree to indemnify, defend and save harmless
the other from any expenses of claim or fees or commissions resulting from the
indemnifying party having dealt with any broker agent or lender in negotiating
this Lease. Landlord and Tenant acknowledge that the broker(s) in this
transaction are as listed in the Information Schedule and that payments of
commissions will be in accordance with their respective agreements. Tenant
represents it did not deal with any other broker, agent or lender purporting to
represent Landlord.
21. Landlord's Access.
Landlord and Landlord's agents have the right to enter the Premises at
reasonable times, upon 24 hours advance notice, for the purpose of inspecting,
showing the Premises to prospective purchasers, tenants, lenders, and making
alterations, repairs, improvements or additions to the Premises or to the
Building that Landlord deems necessary or desirable. Landlord shall have
unrestricted access to the Premises in the case of a bona fide emergency.
Landlord may place any ordinary "For Sale" or "For Lease" signs on the Building,
without rebate of rent liability during the last six (6) months of the term of
the Lease, or any renewal thereof.
22. Landlord's Liability.
The term "Landlord" means only the owner or owners of the fee title at
the time in question. If the Landlord (or the then grantor) transfers any title
or interest, from and after the date of transfer the Landlord (or the then
grantor) is relieved of all liability for Landlord's obligations. Any Security
Deposit not delivered to the grantee is excepted. Landlord's obligations under
this Lease shall thereafter be binding on Landlord's successors and assigns.
Tenant agrees to attorn to any transferee or lender of Landlord. Tenant shall
look to the Landlord's successors for the return of the Security Deposit and the
original Landlord shall be obligated to transfer the Security Deposit upon any
sale or transfer of the Property.
Tenant shall indemnify and hold harmless Landlord from any liability for
damages to any person or any property in or upon the Premises, the sidewalks
adjoining the Premises, and any loading platform area allocated to the use of
Tenant, including the person
29
<PAGE>
and property of the Tenant, and its employees, agents, contractors, and all
persons in the Premises at its or their invitation or their consent, unless such
damages are the result of the gross negligence or willful misconduct of the
Landlord. In order to effect the indemnification set forth herein, Landlord
shall be defended in court or otherwise, at Tenant's sole cost and expense, by
counsel satisfactory to Landlord, provided that no settlement of any claim
brought against Landlord and so indemnified by Tenant shall be settled without
first obtaining Landlord's approval, which consent shall not be unreasonably
withheld or delayed, provided that such settlement shall be fully paid by
Tenant.
Landlord shall not be liable to Tenant for Tenant's loss of business, or
other consequential loss or damage, regardless of howsoever caused. The
liability of the Landlord under this Lease shall be limited solely to the assets
and property of the Building, no general partner or stockholder of Landlord
shall be personally liable with respect to any claim arising out of or related
to this Lease, and a deficit capital account of a partner of Landlord shall not
be deemed an asset or property of the Building.
23. Landlord's Right.
If Tenant fails to make any required payment (other than rent or
additional rent) or defaults in performing any other term in this Lease,
Landlord may, but need not (and without waiving the default), make such payment
or remedy other defaults for Tenant's account and at Tenant's expense,
immediately and without notice in case of emergency, otherwise on ten (10)
business days written notice to Tenant. The costs, with interest under Paragraph
24.10, and with charge equaling 5% of the cost (to cover Landlord's overhead),
is due as Additional Rent with Tenant's next Fixed Minimum Rent installment.
24. Miscellaneous.
24.1 Time of Essence.
Time is of the essence under this Lease.
24.2 Covenants and Conditions.
Each provision of this Lease performable by Tenant is both a covenant
and a condition.
24.3 Captions.
Paragraph captions are only for convenience.
24.4 Incorporation of Prior Agreements, Amendments.
This Lease contains all the agreements of the parties
30
<PAGE>
with respect to any matter mentioned. No prior agreement or understanding is
effective after execution of this Lease. This Lease may be modified in writing
only, signed by the parties. The exhibits listed on the Information Schedule and
attached to this Lease are part of this Lease as fully as if placed in the body
of the Lease.
24.5 Cumulative Remedies.
No remedy or election is exclusive but, wherever possible, is cumulative
with all other remedies at law or in equity.
24.6 Severability.
The invalidity of any provision of this Lease as determined by a court of
competent jurisdiction, shall not affect the validity of any other provision.
The valid portions of the Lease shall be interpreted together to accomplish the
intent of the parties.
24.7 Merger.
The voluntary or other surrender by Tenant or a mutual cancellation will
work a merger, and at Landlord's option, will terminate existing subtenancies or
operate as an assignment of subtenancies.
24.8 Holding Over.
If Tenant retains possession after the Lease Term expires, without the
prior written consent of Landlord, the occupancy will be a tenancy from month-
to-month at a rent in the amount of one and one-half the highest Fixed Monthly
Minimum Rent during the term of this Lease, plus all Additional Rent and other
charges payable, and upon all other terms contained herein. Any options (i.e.,
renewal, expansion) and rights of first refusal contained in the Lease are
terminated in the event of a holdover tenancy.
24.9 Waivers.
Waiver by Landlord or Tenant of any provision is not a waiver of any
other provision or of any subsequent breach by Tenant or Landlord of the same or
any other provision. Landlord's or Tenant's consent or approval of any act will
not make it unnecessary to obtain Landlord's or Tenant's consent or approval in
the future. The acceptance of rent by Landlord is not a waiver of any breach by
Tenant other than a failure of Tenant to pay the particular rent accepted,
regardless of whether Landlord knows of such a breach.
31
<PAGE>
24.10 Interest on Past-due Obligations.
Any amount due to Landlord not paid when due will bear interest from the
date due at the prime lending rate in effect from time to time as reported in
The Wall Street Journal or the highest rate of interest payable under the law,
- -----------------------
whichever is lower. Payment of interest will not cure any default by Tenant
under this Lease except as expressly provided.
24.11. Attorney's Fees.
If either party brings an action regarding terms or rights under this
Lease, the prevailing party in any action, on trial or appeal, is entitled to
reasonable attorney's fees as fixed by the court to be paid by the losing party.
The term "attorney's fees" shall include, but is not limited to, reasonable
attorney's fees incurred in any and all judicial, bankruptcy, reorganization,
administrative or other proceeding, including appellate proceedings, whether the
proceedings arise before or after entry of a final judgment and all costs and
disbursements in connection with the matter.
24.12 Waiver of Jury Trial.
THE LANDLORD AND THE TENANT WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, COUNTERCLAIM, OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS LEASE. THIS WAIVER APPLIES TO ALL CLAIMS AGAINST ALL PARTIES TO
SUCH ACTIONS AND PROCEEDINGS, INCLUDING PARTIES WHO ARE NOT PARTIES TO THIS
LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE
TENANT AND THE TENANT ACKNOWLEDGES THAT NEITHER THE LANDLORD, NOR ANY PERSON
ACTING ON BEHALF OF THE LANDLORD, HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE
TENANT FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, IN THAT
IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. THE TENANT
FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND
RAMIFICATIONS OF THIS WAIVER PROVISION AND AS EVIDENCE OF THIS FACT SIGNS ITS
INITIALS.
------------------
Initials of Tenant or
Tenant's Representative
24.13 Recording.
Either party may record this Lease or a short form of this lease upon
payment by the recording party of all recording fees. The party that records
this Lease or a short form of this Lease shall pay all recordation costs.
32
<PAGE>
24.14 Signs and Auctions.
Tenant covenants and agrees that it will not place or permit any window
display, sign, billboard, marquee, lights, awning, poles, placard, advertising
matter, or other thing of any kind, in or about the exterior of the Premises or
the Building (including without limitation any displays on or in any motor
vehicles placed by Tenant, its employees, agents and servants on or about the
Building), nor paint or make any change in, to or on the exterior of said
Premises to change the uniform architecture, paint or appearance of the
Building, without in each such instance obtaining the prior written consent of
Landlord, which consent may be withheld in its sole and absolute discretion. In
the event such consent is given, Tenant agrees to pay any minor privilege or
other tax arising as a result of any such installation immediately when due.
Tenant shall obtain, at Tenant's expense, all permits required for such
installation. Tenant further agrees to maintain any sign, billboard, marquee,
awning, decoration, placard, or advertising matter or other thing of any kind as
may be approved by Landlord in good condition and repair at all times.
(b) Tenant further covenants and agrees not to pile or place anything on
the sidewalk, parking lot or other exterior portion of the Premises or Building
in the front, rear or sides of the building, nor block any sidewalk, parking lot
or other exterior portion of the Premises or Building, nor do anything that
directly or indirectly will interfere with any of the rights of ingress or
egress or of light from any other tenant, nor do anything which will, in any
way, change the uniform and general design of the Building.
(c) Tenant agrees not to conduct any auction on the Premises without
Landlord's prior written consent.
24.15 Security.
Tenant acknowledges that the rents reserved in this Lease do not include
the cost of security guards or other security measures, and that Landlord has no
obligation to provide such services. Tenant assumes all responsibility for the
protection of Tenant, its agents, employees and invites from acts of third
parties.
24.16 Relocation of Tenant.
[Intentionally Omitted.]
24.17 Easements and Restrictive Covenants.
Landlord reserves the right to grant and record easements, cross
easements, rights, restrictive covenants and conditions and dedications which it
deems necessary or desirable.
33
<PAGE>
The grants will not unreasonably interfere with Tenant's use of the Premises.
Tenant agrees to execute documents requested by Landlord within ten (10) days of
receipt from the Landlord. Failure to execute will be a material breach under
this Lease.
24.18 Rules and Regulations.
Tenant will comply with Landlord's reasonable rules and regulations
respecting the Building. Notice of the rules and regulations will be given to
the Tenant in writing.
24.19 Binding Effect; Choice of Law.
Subject to provisions restricting assignments or subletting and to the
provisions of Paragraph 22, this Lease will bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the state in which the Premises are located.
24.20 Absence of Option.
The submission of this Lease for examination does not constitute a
reservation of/or an option for the Premises and this Lease becomes effective
only upon execution by Landlord.
24.21 Notices to Mortgagee.
Tenant agrees that a copy of any notice of default from Tenant to
Landlord shall also be sent to the holder of any mortgage or deed of trust on
the Premises, provided that Tenant has been given written notice of the fact
that such mortgage or deed of trust has been made; and Tenant shall allow
mortgagee or holder of the deed of trust a reasonable time, not to exceed ninety
(90) days from the receipt of said notice, to cure, or cause to be cured, any
such default. If such default cannot reasonably be cured within the time
specified herein, then such additional time as may be necessary shall be
allowed, provided the curing of such default is commenced and diligently pursued
(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 thus diligently pursued.
24.22 Additional Rent.
All sums of money required to be paid by Tenant to Landlord pursuant to
the terms of this Lease, unless otherwise specified herein, shall be considered
Additional Rent and shall be collectible by Landlord as Additional Rent, in
accordance with the terms of this Lease. 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 to limit any other remedy of
Landlord.
34
<PAGE>
24.23 Delivery of Premises.
Tenant acknowledges and agrees that Landlord shall deliver Suite 101,
consisting of approximately 41,910 square feet, on June 15, 1995, and that
Landlord shall deliver to it Suite 102, consisting of approximately 19,613
square feet, on or before August 1, 1995.
24.24 Rent Commencement Date.
Notwithstanding any language to the contrary in this Lease, the rent
commencement date shall be August 1, 1995.
24.25 Lease Renewal.
(a) Provided that Tenant is not in default under any of the terms,
covenants, and conditions of this Lease at the time of Tenant's giving notice of
its intention to renew or at any time from that date to the commencement date of
any Renewal Term hereunder, Landlord hereby grants Tenant the optional right to
extend the term of this Lease for two (2) successive periods of three (3) years
each (the "First Renewal Term and the Second Renewal Term" respectively). Each
Renewal Term added to the term of this Lease by the exercise of an option shall
be called a Renewal Term. An option to create a Renewal Term may be exercised
only by written notice from Tenant to Landlord not less than one hundred eighty
(180) days before the start of the respective Renewal Term.
(b) The following limitations shall apply to the exercise of Tenant's
renewal options:
(i) if any option to extend the term of this Lease is not timely
exercised, all unexercised options to extend shall automatically become null and
void;
(ii) each right to extend the term of this Lease may be exercised
only by the undersigned Tenant or its permitted assignee for its continued use
and occupancy of the Premises and only if it is in possession of the Premises
and operating a permitted use therein when it exercised the right; and
(iii) if a non-technical default by Tenant shall exist under the
terms and conditions of this Lease, all unexercised rights to extend the term of
this Lease shall automatically be extinguished and become null and void, unless
such non-technical default shall be cured by Tenant. As used herein, the term
"non-technical default" shall mean any monetary or material defaults of the
Lease, and it is the intention of the Landlord and Tenant that technical
defaults such as, by way of example, delay in the delivery of any documents
required by the terms and conditions of the Lease to be presented by Tenant to
Landlord, shall not be cause
35
<PAGE>
for the forfeiture of the rights contained in this Paragraph 24.25.
(c) All terms, covenants, and conditions set forth in the Lease with the
respect to the original Term shall apply to any Renewal Term, provided that the
following exceptions shall apply:
(i) the Fixed Annual Minimum Rent due from Tenant during each lease
year of the First Renewal Term, which shall commence on August 1, 2001 and
terminate on July 30, 2004, shall equal a sum equal to the Fixed Annual Minimum
Rent payable by Tenant to Landlord during the period August 1, 2000 through July
30, 2001 (the "First Renewal Term Base Rent"), increased by the increase, if
any, in the CPI Index (as defined below) from August 1, 2000 to the commencement
of the lease year within the First Renewal Term for which such computation is
being made, which sum shall be determined by multiplying the First Renewal Term
Base Rent by a fraction, the numerator of which is the CPI which shall most
recently have been published prior to the commencement of the lease year for
which such computation is being made, and the denominator of which is the CPI
Index which shall most recently have been published prior to August 1, 2000.
Notwithstanding any language to the contrary in this Paragraph 24.25, the Fixed
Annual Minimum Rent due from Tenant during each lease year of the First Renewal
Term shall never be less than the First Renewal Term Base Rent. As used herein,
the term "CPI Index" shall mean the official Consumer Price Index for the Urban
Wage Earners and Clerical Workers, All Items, for the Baltimore, Maryland
Metropolitan Area, published by the Bureau of Labor Statistics, U.S. Department
of Labor (1982-1984 = 100). In the event that the Bureau of Statistics should
cease to publish the aforesaid index in its present form and calculated on the
present basis, a similar index or an index reflecting similar changes in the
cost of living shall be chosen by Landlord, which index shall then be the CPI
Index for all purposes in this Lease. If the Bureau of Labor Statistics should
merge the CPI indices for the Baltimore, Maryland Metropolitan Area and the
Washington, D.C. Metropolitan Area, then the term "CPI Index" shall thereafter
mean the merged CPI Index.
(ii) the Fixed Annual Minimum Rent due from Tenant during each
lease year during the Second Renewal Term, which shall commence on August 1,
2004 and terminate on July 30, 2007, shall equal the "market rate" (as
hereinafter defined). As used herein, "market rate" shall mean the then
prevailing market rental for comparable space within the same market area. If
the parties are unable to agree upon a market rate within thirty (30) days
following Tenant's exercise of its option to extend the term of the Lease, the
market rate shall be determined by a panel consisting of three (3) real estate
brokers licensed in Maryland and having the experience of leasing similar space,
one (1) of whom shall be appointed by the Landlord, one (1) of whom shall be
appointed by the Tenant, and one (1) of whom shall be appointed by the two
brokers so appointed by Landlord and Tenant. The decision of the
36
<PAGE>
panel so appointed shall be final and conclusive between the parties hereto, and
if the members of the panel are unable to agree upon the market rate, the
average of the three determinations of market rate by the members of the panel
shall govern for purposes of this provision.
PAGE INTENTIONALLY ENDED HERE TO CONTINUE ON THE
NEXT PAGE WHICH IS THE SIGNATURE PAGE.
37
<PAGE>
SIGNATURE PAGE:
Both parties acknowledge that they have reviewed this lease thoroughly
and have given their voluntary consent to the provisions. The Landlord and
Tenant agree that, at execution, the terms are commercially reasonable and show
the intent of the parties.
The parties hereto have executed this Lease on the dates specified below,
with the intent that this Lease be executed under seal by each of them.
WITNESS/ATTEST: LANDLORD:
OTR, an Ohio general partnership
_____________________________ By: _______________________ (SEAL)
Title: ____________________
on: _______________________
WITNESS/ATTEST: TENANT:
VIKING OFFICE PRODUCTS, INC.
_____________________________ By: ______________________ (SEAL)
Title: ___________________
on: ______________________
38
<PAGE>
EXHIBIT "B"
PLAN OF THE PREMISES
EXHIBIT "A"
DESCRIPTION OF THE PREMISES AND ADJACENT SITE IMPROVEMENTS
The Premises are described as follows:
10650 Riggs Hill Road
Suites 101-102
Jessup, Maryland 20785
The Adjacent Site Improvements are described as follows:
N/A
<PAGE>
EXHIBIT "B"
PLAN OF THE PREMISES
<PAGE>
EXHIBIT "C"
DESCRIPTION OF LANDLORD'S WORK AND TENANT'S WORK
LANDLORD'S WORK:
1. Deliver 4,000+ square foot existing office, in broom clean condition
-
(otherwise in "as is" condition).
TENANT'S WORK:
1. Install four pit levelers.
2. Install new bumpers and shelters.
3. Confirm 400 amp electrical service.
4. Demolish 2,400 square foot air conditioning assembly.
5. Demolish 2 rear offices and rooms.
6. Install 30 metal halide lights.
7. Clean Building below blue stripe.
8. Repaint and recarpet office to be delivered by Landlord.
9. Demolish demising wall between Suites 101 and 102.
All of the Tenant's Work shall be shown on the plans attached hereto as
Exhibit C-1, subject to the terms and conditions of this Lease.
<PAGE>
EXHIBIT "D"
CONTROL OF DANGEROUS/HAZARDOUS CHEMICALS AND MATERIALS
In consideration of existing and future legislation concerning the handling,
storage, use and disposition of dangerous/hazardous chemicals and materials,
Tenant acknowledges the risks and liabilities associated with same agrees to the
following:
A. Tenant shall determine what laws, regulations and ordinance regarding the
handling, storage, use and disposition of dangerous/hazardous chemicals and
materials apply to Tenant's business with respect to the leased premises. Tenant
shall take all reasonable and necessary steps, including any inspections, tests
or studies, as required by such laws to cause prompt and ongoing compliance
therewith.
B. Tenant agrees to immediately notify Landlord and the appropriate authorities
of any spills, accidents, or improper discharges of any dangerous/hazardous
chemicals and materials. Further, in addition to and in further support of and
compliance with other hold harmless and indemnification obligations, Tenant
acknowledges and assumes total responsibility for any and all
dangerous/hazardous chemicals and materials it may handle, store, use and
dispose of in or about Tenant's leased premises. Such responsibility shall
include, but not be limited to, medical costs and personal injury awards
(compensatory and/or punitive), environmental cleanups and related costs,
governmental fines against Landlord and/or Tenant resulting from Tenant's
willful and/or negligent handling, storage, use, disposition of
dangerous/hazardous chemicals and materials, and/or Tenant's non-compliance with
acceptable law.
C. Tenant shall, upon Landlord or governmental request, disclose the type and
quantity of dangerous/hazardous chemicals and materials Tenant is/has handled,
stored, used, disposed of in or about Tenant's leased premises.
D. Tenant shall endeavor to:
1. Maintain and control all inventories of dangerous/hazardous chemicals
and materials handled, stored, used, disposed of in or about tenant's leased
premises.
2. Educate managers, employees, and shipping personnel on the property
handling, storage, use, disposition of dangerous/hazardous chemicals and
materials.
3. Develop a dangerous/hazardous chemicals and materials accident plan.
4. Isolate key use and storage areas of dangerous/hazardous chemicals and
materials from ground waters, surface waters, and soils.
<PAGE>
5. Keep informed about existing and future governmental requirements
concerning dangerous/hazardous chemicals and materials and Tenant's respective
compliance obligations.
<PAGE>
EXHIBIT "E"
-----------
TENANT SUBSTANCES
<PAGE>
EXHIBIT "F"
-----------
PARKING PLAN
<PAGE>
EXHIBIT 10.13
STANDARD FORM
OFFICE LEASE
FOR
ANDREX POINT
GARDENA, CALIFORNIA
LANDLORD: HYUNDAI MERCHANT MARINE (AMERICA), INC.
TENANT: VIKING OFFICE PRODUCTS, INC.
<PAGE>
TABLE OF CONTENTS
1. BASIC LEASE TERMS.......................................... 1
2. PREMISES................................................... 2
3. TERM....................................................... 3
4. RENT....................................................... 3
5. [Intentionally left blank.]................................ 7
6. USE OF PREMISES AND PROJECT FACILITIES..................... 7
7. SIGNAGE.................................................... 8
8. PERSONAL PROPERTY TAXES.................................... 8
9. PARKING..................................................... 8
10. SERVICES AND UTILITIES...................................... 8
11. MAINTENANCE................................................. 9
12. ALTERATIONS................................................. 10
13. RELEASE AND INDEMNITY....................................... 11
14. INSURANCE................................................... 11
15. DESTRUCTION................................................. 12
16. CONDEMNATION................................................ 13
17. ASSIGNMENT OR SUBLEASE...................................... 14
18. DEFAULT..................................................... 16
19. ENTRY ON PREMISES........................................... 17
20. SUBORDINATION............................................... 17
21. ESTOPPEL CERTIFICATES....................................... 18
22. NOTICES..................................................... 18
23. CHANGES REQUESTED BY LENDER................................. 18
24. WAIVER...................................................... 18
25. SURRENDER OF PREMISES; HOLDING OVER......................... 18
<PAGE>
26. MORTGAGE PROTECTION......................................... 19
27. DEFAULT OF LANDLORD; LIMITATION OF LIABILITY................ 19
28. LANDLORD'S RULES............................................ 20
29. RESERVATION OF RIGHTS....................................... 20
30. [Intentionally left blank.]................................. 20
31. EXERCISE ROOM............................................... 20
32. MISCELLANEOUS PROVISIONS.................................... 20
ii
<PAGE>
EXHIBIT A Description of Premises
EXHIBIT B Description of Project
EXHIBIT C Landlord's Rules
EXHIBIT D Release and Indemnification
EXHIBIT E Release
EXHIBIT F Tenant Improvement Work Agreement
EXHIBIT G Memorandum of Commencement Date
EXHIBIT H Certified Copy of Corporate Resolution to Lease
EXHIBIT I [Intentionally left blank]
EXHIBIT J Addendum to Lease
iii
<PAGE>
STANDARD FORM OFFICE LEASE
THIS LEASE is made as of the 10th day of July, 1995, by and between
Landlord and Tenant.
WITNESSETH:
1. BASIC LEASE TERMS.
(a) Tenant: Viking Office Products, Inc., a California corporation
(b) Mailing Address of Premises: 879 West 190th Street
Gardena, California 90248
Suite Nos.: 1080, 1100 and 1200 (comprising part of the tenth
floor and the entire eleventh and twelfth floors)
(The Premises lie within the City of Los Angeles.)
(c) Landlord: Hyundai Merchant Marine (America), Inc., a
California corporation
Landlord's Address: c/o Landmark Management, Inc.
879 West 190th Street
Suite 400
Gardena, California 90248
Attention: H.S. Choi
Copy to: James R. Haslem, Esq.
879 West 190th Street
Suite 540
Gardena, California 90248
(d) Use of Premises: general office use
(e) Premises Area: 43,185.48 rentable square feet
(f) Project Area: 248,895.19 rentable square feet
(g) Premises Percent of Project: 17.3509%, which percentage has been
determined by dividing the Premises Area shown above by the Project Area shown
above.
(h) Term of Lease: 24 months
(1) Commencement Date: November 15, 1995
(2) Expiration Date: November 14, 1997
(3) Rent Commencement Date: December 15, 1995
<PAGE>
(i) Base Monthly Rent: $53,981.85
(j) [Intentionally left blank]
(k) Tenant's Annual Expense Base: For purposes of Section 4(c), the
------------
Expenses for the calendar year in which the Commencement Date falls.
(l) Prepaid Rent for first month of term: $53,981.85; due upon
execution of this Lease
(m) Security Deposit: None
(n) Extension/Renewal Option(s): See Exhibit J
---------
(o) Broker(s): Cushman & Wakefield of California, Inc.
Joseph M. Vargas and David Mackenbach
(for Landlord)
The Klabin Company
Todd N. Taugner (for Tenant)
(p) Brokerage Commission Payable by: Landlord
(q) Guarantor(s): None
(r) [Intentionally left blank]
(s) Exhibits: Exhibits A through J are attached hereto and made part
---------- -
hereof.
2. PREMISES. Landlord hereby leases to Tenant and Tenant leases from Landlord
those premises described in Section 1(b) and in Exhibit A (the "Premises"),
------------ --------- --------
located in the building described in Section 1(b) and Exhibit B (the "Project").
------------ --------- -------
Landlord reserves the right to modify Tenant's Premises Percent of Project set
forth in Section 1(g) (the "Premises Percent"), if the Project size is increased
------------ ----------------
or decreased. It is understood and agreed that the Premises Area described in
Section 1(e) and the Project Area described in Section 1(f) 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 space available for lease in the Project. Those measurements
were made using the American National Standard Measure of Measuring Floor Area
in Office Buildings, ANSI Z65.1-1980, published by the Building Owners and
Managers Association International. Except as specifically provided in the
Tenant Improvement Work Agreement attached hereto as Exhibit F (the "T.I. Work
--------- ---------
Agreement"), Landlord has not agreed to install any improvement on the Premises
- ---------
or do any other work to ready the Premises for occupancy by Tenant. By entry on
the Premises, Tenant acknowledges that it has examined the Premises and accepts
the Premises in their present condition, subject to Tenant's rights under the
T.I. Work Agreement.
The Premises shall include the appurtenant right to the use, in common with
others, of lobbies, entrances, stairs, elevators and other public portions of
the Project. All of the outside walls and windows of the Premises and any space
in the Premises used for shafts, stacks, pipes, conduits, ducts and electric or
other utilities, sinks or other Project facilities, and the use thereof and
access thereto through the Premises for the purposes of operation, maintenance
and repairs, are reserved to Landlord. Landlord may change the common areas if
the changes do not materially and unreasonably interfere with Tenant's access to
the Premises or use thereof.
2
<PAGE>
3. TERM. The term of this Lease shall commence on the date set forth in
Section 1(h)(1) (the "Commencement Date") and shall expire on the date set forth
- --------------- -----------------
in Section 1(h)(2) (the "Expiration Date") unless earlier terminated as provided
--------------- ---------------
in this Lease. If Landlord delivers possession of the Premises to Tenant prior
to the Commencement Date, such occupancy shall be subject to all the terms and
conditions of this Lease. If for any reason Landlord cannot deliver possession
of the Premises to Tenant on the Commencement Date, this Lease shall not be void
or voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting from such delay. In that event, the Rent Commencement Date (as
hereinafter defined) shall be extended as provided in Paragraph 6 of the T.I.
-----------
Work Agreement. Landlord will use reasonable good faith efforts to deliver the
Premises to Tenant on or before the Commencement Date. If Landlord determines
that it cannot deliver possession of the Premises to Tenant, Landlord may by
notice to Tenant terminate this Lease without any liability to Tenant, in which
case Tenant shall have no further liability to Landlord. Except as provided in
the T.I. Work Agreement, in no event shall the expiration of this Lease be
extended beyond the Expiration Date set forth in Section 1(h)(2) unless agreed
---------------
upon between Landlord and Tenant in writing. Subject to the provisions of the
next two sentences, Tenant may cancel the Lease if the Premises are not Ready
for Occupancy (as defined in the T.I. Work Agreement) on or before the
Completion Deadline (as defined below). For purposes hereof, the "Completion
----------
Deadline" means the date which is 120 days after the Commencement Date set forth
- --------
in Section 1(h)(1); provided, however, the Completion Deadline shall be extended
--------------- -------- -------
for each day that performance of the Work contemplated by the T.I. Work
Agreement is prevented or delayed for any reason referred to in Section 3, 4 or
5 of the T.I. Work Agreement. In order to cancel the Lease under this Section 3,
---------
Tenant must deliver written notice of cancellation to Landlord during the period
commencing on the Completion Deadline and ending on the day which is 30 days
thereafter, and (notwithstanding anything to the contrary in this Lease) if
Tenant fails to do so, Tenant's right of cancellation under this Section 3 shall
---------
be waived.
4. RENT.
(a) Base Monthly Rent. Tenant shall pay Landlord base monthly rent in the
-----------------
initial amount set forth in Section 1(i) in advance on the first day of each and
------------
every calendar month ("Base Monthly Rent") beginning on the date set forth in
-----------------
Section 1(h)(3) (the "Rent Commencement Date"); provided, however, (a) upon
- --------------- ---------------------- -------- -------
execution of this Lease, Tenant shall deposit with Landlord prepaid rent
("Prepaid Rent") in the amount and for the period indicated in Section 1(l)
- -------------- ------------
above, and (b) the amount of Base Monthly Rent payable by Tenant for the first
full calendar month of the term shall be reduced by the portion of Prepaid Rent
applied to the payment of such Base Monthly Rent. Base Monthly Rent and all
other rent and charges for any period during the term which is not a full
calendar month shall be prorated in accordance with the actual number of days of
such period which fall within the term.
(b) [Intentionally left blank.]
(c) Expenses. Tenant shall pay Landlord during the term hereof, in
--------
addition to the Base Monthly Rent, the amount by which Tenant's Premises Percent
of Expenses (as defined below) for each Escalation Year (as defined below)
exceeds Tenant's Premises Percent of Expenses for the Base Year (as defined in
Section 1(k)).
- ------------
(1) Escalation Year Defined. The term "Escalation Year" shall mean
-----------------------
each calendar year, commencing with the first full calendar year after the
Base Year.
(2) Expenses Defined. The term "Expenses" shall mean all costs and
----------------
expense adjusted (in accordance with industry standards) to ninety-five
percent (95%) occupancy of the operation, administration, maintenance,
repair and insurance of the Project and the sidewalks, landscaping, service
areas, common areas, driveways, parking areas, walkways, building exteriors
(including painting),
3
<PAGE>
signs and directories within or around the Project, including, without
limitation, all costs of the following:
(a) Supplies, material, labor and equipment used in the maintenance,
operation and repair of the Project;
(b) Janitorial services and utilities, including water, electricity,
gas, heating, lighting, sewer, waste disposal, security, air conditioning
and ventilating;
(c) Contract fees for maintenance, management, janitorial and
service agreements, provided that such fees are negotiated on an
--------
arm's-length basis; and membership fees of the Building Owners and Managers
Association International and similar organizations;
(d) Legal and accounting expenses (excluding legal costs of
negotiating, terminating or extending leases, or legal costs incurred in
proceeding against any tenant);
(e) Premiums and costs of all risk, casualty and liability, including
boiler and machinery, flood, earthquake and other insurance coverages deemed
necessary by Landlord; provided that the premiums and costs of earthquake
insurance shall be included only if Landlord is required to obtain
earthquake insurance by applicable law, regulation or court order, by a
lender or by a ground lessor of the Project;
(f) Contingency contract fees for tax consultants, appraisers, etc.
used by Landlord in connection with the appeal of the tax assessment rate
of the Project;
(g) Painting, resurfacing and restriping parking areas, and making
other repairs and replacements pertaining to the Project;
(h) Amortization (along with reasonable financing charges) of
capital improvements required by any government authority or which will
improve the operating efficiency or of any capital expenditure required for
structural repairs to the Project (provided, however, that the amount of
-------- -------
such amortization for improvements not mandated by government authority
shall not exceed in any calendar year the amount of costs reasonably
determined by Landlord to have been saved by the expenditure either through
the reduction of costs or minimization of increases which would otherwise
have occurred);
(i) Real property taxes and assessments currently due and imposed by
any authority having the direct or indirect power to tax, including any
city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof, as against any
legal or equitable interest of Landlord in the Premises or in the real
property of which the Premises are a part; and the City of Los Angeles gross
receipts business tax applicable to the Project's rent receipts; government
permit and licensing fees applicable to operation and maintenance of the
Project (including the fees of the South Coast Air Quality Management
District); and personal property taxes assessed against personal property
used in connection with the operation, maintenance or administration of the
Project;
(j) [intentionally left blank].
Except as otherwise provided in Section 4(c), Expenses shall not include
------------
the following items:
(i) all costs of alterations or improvements to Tenant's Premises
or to the premises of any other tenant or occupant of the Project;
4
<PAGE>
(ii) any cash or consideration paid by Landlord on account of, with
respect to, or in lieu of the tenant improvement work or alterations
described in clause (i) above;
----------
(iii) costs of capital improvements, capital equipment and capital
tools, all as determined in accordance with generally accepted accounting
principles consistently applied;
(iv) costs of any services sold or provided to tenants or other
occupants for which Landlord is entitled to be reimbursed by such tenants
or other occupants as an additional charge or rental over and above the
basic rent (and escalations thereof);
(v) depreciation and amortization of the Project;
(vi) interest on debt or amortization payments on any mortgages or
deeds of trust or any other debt service or instrument encumbering the
Project;
(vii) Landlord's general corporate overhead;
(viii) advertising and promotional costs;
(ix) leasing commissions, attorneys' fees, costs and disbursements
and other expenses incurred in connection with negotiations or disputes
with tenants or other occupants or prospective tenants or other occupants,
or associated with the enforcement of any leases;
(x) rental payments and related costs pursuant to any ground lease
of land underlying all or any part of the Project;
(xi) any costs, fees, dues, contributions or similar expenses for
political, charitable or similar associations;
(xii) any bad debt loss, rent loss or reserves for bad debt or rent
loss;
(xiii) costs of remediation of hazardous materials other than in the
ordinary course of operation and maintenance of the Project;
(xiv) personal and corporate income taxes, inheritance, gift and
estate taxes.
(3) Audit by Tenant. Upon the request of Tenant, Landlord shall
---------------
provide reasonable detail of the calculation of Tenant's Premises Percent
of Expenses for a particular year. Tenant shall have the right, at it own
cost and expense, to audit Landlord's records not more than one time per
calendar year with respect to the Expenses and other rent payable by Tenant
under this Lease. Tenant shall give Landlord not less than ten (10)
business days' prior written notice of its intention to conduct any such
audit, which shall be conducted on mutually agreeable dates and during
normal business hours in the Project's management office. Tenant shall not
be entitled to photocopy any records of Landlord without Landlord's prior
written consent, and Tenant shall keep strictly confidential all
information received in connection with such audit. If the audit discloses
that the amount paid by Tenant as Tenant's Premises Percent of Expenses or
of other rent payable under this Lease has been overstated, then Landlord
shall promptly remit to Tenant any such excess to Tenant, and if an amount
has been overstated by more than ten (10) percent, Landlord shall also pay
the lesser of (a) the reasonable costs incurred by Tenant in connection
with such audit, and (b) the amount overstated.
5
<PAGE>
(4) Annual Estimate of Expenses. Prior to each Escalation Year (or as
---------------------------
soon as practical thereafter), Landlord shall deliver to Tenant an
estimate of Expenses for the Project for such Escalation Year.
(5) Monthly Payment of Expenses. If Tenant's Premises Percent of the
---------------------------
estimate of Expenses for an Escalation Year exceeds the Tenant's Premises
Percent of Expenses for the Base Year, Tenant shall pay to Landlord, as
additional rent, one-twelfth (1/12) of the estimated excess on the first
day of each calendar month of such Escalation Year; provided, however, if
-------- -------
the estimate of Expenses for such Escalation Year is delivered to Tenant
after the commencement of such Escalation Year, Tenant shall pay the then
unpaid installments of such additional rent in a lump-sum and upon demand
from Landlord. In the event of any extraordinary expense or expense
increase during an Escalation Year, Landlord may upon thirty (30) days
written notice to Tenant increase the estimate of Expenses and require an
increase in Tenant's monthly payment hereunder. As soon as practical
following each Escalation Year, Landlord shall prepare an accounting of
actual Expenses incurred during such Escalation Year, and such accounting
shall reflect Tenant's Premises Percent of Expenses for such Escalation
Year in excess of Tenant's Premises Percent of Expenses for the Base Year,
proportionately adjusted for any partial year. If Tenant's payments under
this Section 4(c)(5) during any Escalation Year were less than Tenant's
---------------
Premises Percent of the actual Expenses, Landlord shall so notify Tenant,
and Tenant shall pay the amount of the deficiency to Landlord within thirty
(30) days after notice. Such amount shall be deemed to have accrued during
such Escalation Year and shall be due and payable from Tenant, even if this
Lease has terminated prior to the notice. If Tenant's payments, based on
Landlord's estimate, were greater than Tenant's Premises Percent of the
actual Expenses, then Landlord shall promptly so notify Tenant, and such
overpayment shall be immediately credited by Landlord, at its election, to
all present rent due under this Section 4(c)(5) or against the Base Monthly
---------------
Rent.
(d) Rent Without Offset. All rent shall be paid monthly in advance on the
-------------------
first day of every calendar month, at the address shown in Section 1(c), or such
------------
other place as Landlord may designate in writing from time to time. All rent
shall be paid without prior demand or notice and without any deduction of offset
whatsoever, in lawful currency of the United States of America. Rent due for
any partial month shall be prorated in accordance with the actual number of days
of such period which fall within such period.
(e) Late Charge. Late payment by Tenant of any rent or other sums due
-----------
under this Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance on or note secured by the Premises. Therefore, if any
rent is not paid within ten (10) days after it is due or other sum due from
Tenant is not paid when due, Tenant shall pay to Landlord an additional sum
equal to the greater of $150 or 5% of such overdue payment, which represents a
fair and reasonable estimate of the costs that Landlord will incur by reason of
any such late payment. Additionally, all delinquent rent or other sums, plus
this late charge shall bear interest at the lesser of the then maximum lawful
contract rate permitted to be charged by Landlord or 5% over the base rate of
interest per annum established from time to time by Bank of America National
Trust and Savings Association, and designated as its prime rate, as it
fluctuates (the "Default Rate"). If Tenant fails in two (2) consecutive months
------------
to make payment when due of rent or other charges required hereunder, so that a
late charge is payable hereunder (whether collected or not), Landlord may
require that all future payments of rent or other charges be made on or before
the due date thereof by cash, cashier's check or money order, and in addition
thereto, upon demand by Landlord, rent shall be due and payable two (2) months
in advance. Any payments returned for insufficient funds will be considered a
late payment and subject to the late charge as provided in this paragraph.
6
<PAGE>
5. [Intentionally left blank.].
6. USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises
solely for the purposes set forth in Section 1(d) and for no other purpose.
------------
Neither Landlord nor any agent of Landlord has made any representation or
warranty respecting the Premises or the Project or the suitability of the
Premises of the Project for the conduct of Tenant's business, nor has Landlord
agreed to undertake any alteration or improvement to the Premises or the
Project, except as provided in this Lease. Landlord agrees to operate and
------
maintain the Project in accordance with applicable law. Landlord may from time
to time, in its sole discretion, make such alterations, deletions or
improvements to the Project as Landlord may deem necessary or desirable, without
compensation to Tenant, provided that such alterations, deletions or
--------
improvements do not materially and unreasonably interfere with Tenant's access
to the Premises or use thereof. Tenant shall promptly comply with and be
responsible for its agents, employees or invitees complying with all applicable
laws, orders and regulations, including the rules and regulations attached to
this Lease as Exhibit C and any reasonable modifications to these rules and
---------
regulations as Landlord may adopt from time to time. Tenant shall not do or
permit anything to be done in or about the Premises or Project or bring or keep
anything in the Premises that will in any way increase the premiums paid by
Landlord on its insurance related to the Project or which will in any way
increase the premiums for fire or casualty insurance carried by other tenants in
the Project. Tenant will not perform any act or carry on any practice that may
injure the Premises or the Project; that may be a nuisance or menace to other
tenants in the Project; or that shall in any way interfere with the quiet
enjoyment of such other tenants.
Tenant represents, warrants and covenants to Landlord that Tenant shall at
no time use or permit the Premises to be used in violation of any statute,
regulation, rule, order or governmental determination of any kind whatsoever
which relates to or governs Hazardous Materials (as defined below) and/or the
environmental conditions in, on, under or about the Premises, including, but not
limited to, air quality, soil and surface and subsurface water conditions
(individually and collectively, "Environmental Regulations"). Tenant shall
-------------------------
assume sole and full responsibility for, and shall remedy at its sole cost and
expense, all such violations. Tenant shall at no time use, generate, release,
store, treat, transport, dispose of, or otherwise deposit, in, on, under or
about the Premises, any Hazardous Materials or permit or allow any third party
to do so, without Landlord's express, prior written consent and Tenant's
compliance, at Tenant's sole cost and expense, with all Environmental
Regulations. Tenant shall pay or reimburse Landlord for any costs or expenses
incurred by Landlord, including reasonable attorneys', engineers', consultants'
and other experts' fees and disbursements incurred or payable to determine,
review, approve, consent to or monitor the requirements for compliance with
Environmental Regulations. For the purposes of this Section, Hazardous
Materials shall included, but not be limited to, asbestos, asbestos-containing
matter, and the group of organic compounds known as polychlorinated biphenyls,
as well as substances defined as "hazardous substances", "toxic substances",
"pollutants", or "contaminants" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et
--
seq. ("CERCLA"); as "hazardous materials" in the Hazardous Materials
- --- ------
Transportation Act, 49 U.S.C. Section 1801 et seq.; as "hazardous wastes" in the
------
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901, et
--
seq. ("RCRA"); as "pollutants" and "hazardous substances" in the Clean Water
- --- ----
Act, 33 U.S.C. Section 1251 et seq.; as "hazardous pollutants" and "criteria
------
pollutants" in the Clean Air Act, 42 U.S.C. Section 7401 et seq.; as "hazardous
------
chemicals", "extremely hazardous substances" and "toxic chemicals" in the
Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et
--
seq.; as "chemical substances" and "mixtures" in the Toxic Substances Control
- ---
Act, 15 U.S.C. Section 2601 et seq.; those substances identified in regulations,
------
orders and publications adopted pursuant to California Health and Safety Code
Section 2249.8, as "Chemicals Know to Cause Cancer or Reproductive Toxicity";
and those substances defined as "hazardous wastes" in Section 25117 of the
California Health and Safety Code and in the regulations adopted and
publications promulgated pursuant thereto and all Hazardous Materials which may
be defined or listed in amendments to Environmental Regulations or in any other
applicable Environmental Regulations which not exist or which may be enacted or
become effective after the date of this Lease; all as the
7
<PAGE>
foregoing may be amended or recodified from time to time. Tenant shall provide
Landlord with written notification, as soon as practicable after the discovery
or notice or reasonable grounds to suspect, by Tenant, its successors, assigns,
licensees, invitees, employees, agents, partners and/or any other third party,
that any provision of this Section has not been strictly complied with. It shall
be a default by Tenant under this Lease, entitling Landlord to exercise any of
its rights and remedies under this Lease, if any provision of this Section is
not strictly complied with at all times.
In addition to such other remedies as may be available to Landlord,
Landlord shall have the right, without any obligation to do so, to cure or cause
to be cured any environmental problem or violation of any environmental statute,
law, ordinance, regulation or governmental determination caused by Tenant. Said
cost to cure shall be the sole obligation and expense of Tenant and shall be
paid to the Landlord by Tenant within thirty (30) days from the date of notice
to Tenant of the amount due together with supporting invoices. Said amount is
deemed to be additional rent and, in the event it is not paid when due, Landlord
shall be entitled to exercise all remedies available to it to collect same,
including, but not limited to, the remedies set forth in Section 18.
----------
7. SIGNAGE. Landlord shall install, at Tenant's expense, a sign on the main
entrance to Tenant's suite, which sign shall be in Landlord's standard building
form and shall identify Tenant's name and suite number. In addition, Landlord
shall provide, at Tenant's expense, a standard listing in the building
directory, which listing shall set forth Tenant's name and suite number.
Landlord, in its sole discretion, may from time to time change the form of
standard suite signage and/or modify or replace the building directory. Tenant
shall not place any additional signs on any of the entrances to Tenant's suite
or elsewhere in the Project without the prior written consent of Landlord. Any
sign erected or maintained in violation hereof may be removed by Landlord at
Tenant's expense.
8. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes,
assessments, license fees and public charges imposed upon its business
operations as well as upon all trade fixtures, leasehold improvements,
merchandise and other personal property in or about the Premises.
9. PARKING. Tenant is granted a non-exclusive license to use the designated
parking areas in the Project for the use of motor vehicles during the term of
this Lease. Landlord reserves the right at any time to grant similar non-
exclusive use to other tenants, to promulgate rules and regulations relating to
the use of such parking areas, including reasonable restrictions on parking by
tenants, employees and invitees to designate specific spaces for the use of any
tenant, to make changes in the parking layout from time to time, and to
establish reasonable time limits on parking. Within ten (10) days after
Landlord's request, Tenant shall provide Landlord a list of the automobile
license numbers for Tenant and all of Tenant's employees employed in the
Premises, which list shall be updated from time to time by Tenant as necessary.
Overnight parking is prohibited, and any vehicle of Tenant, its employees,
guests or invitees violating this or any other vehicle regulation adopted by
Landlord is subject to removal without notice at Tenant's expense.
10. SERVICES AND UTILITIES.
(a) Provided that Tenant is not in default hereunder, Landlord agrees to
furnish to the Premises Monday through Friday between the hours of 8:00 a.m.
through 6:00 p.m., and Saturday between the hours of 9:00 a.m. through 1:00 p.m.
(Sunday and all holidays designated by Landlord excepted), electricity for
normal lighting and fractional horsepower office machines, heat, ventilation and
air conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises, and such janitorial service, Monday through Friday
(holidays designated by Landlord excepted), as is commercially reasonable.
Landlord shall use its
8
<PAGE>
reasonable efforts to maintain the temperature in the Premises during the agreed
upon hours of heat, ventilation and air conditioning service within the range of
70 and 74 degrees Fahrenheit. Tenant shall pay as additional rent the cost of
heat, ventilation and air conditioning furnished during other than the normal
hours established by Landlord, at the hourly rate from time to time specified by
Landlord. (As of May 1, 1995, such hourly rate is fifty dollars ($50.00) per
hour for each floor (or portion thereof) for which Tenant requests such
additional use.) Tenant shall provide Landlord with reasonable prior (and, if
practicable, not less than 24 hours' prior) notice of the need for such
additional use. Landlord shall also maintain and keep lighted the common stairs,
common entries and toilet rooms in the Project of which the Premises are a part.
In the event that all heat, ventilation, air conditioning or electrical service,
or all elevator service, devoted to the Premises shall be interrupted, Landlord
and Tenant shall agree upon a reasonable reduction in the amount of the Base
Monthly Rent accruing during the period of interruption (any such reduction not
to exceed 20% of the Base Monthly Rent accruing during such period); provided,
--------
however (i) no such reduction shall commence prior to the fifth consecutive
- -------
business day of interruption, and (ii) no reduction shall be allowed if the
interruption is caused by the act or omission of Tenant or its agents or
invitees, or by accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be
liable under any circumstances for a loss or injury to property, however,
occurring, through or in connection with or incidental to failure to furnish any
of the foregoing, except to the extent that such loss or injury is due to the
gross negligence of Landlord or Landlord's agents or employees. Wherever heat
generating machines or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord shall
give written notice to Tenant to such effect and if Tenant shall fail to cure
such effect within 5 days thereafter, Landlord reserves the right to install
supplementary air conditioning units in the Premises and the cost thereof,
including the cost of installation, and the cost of operation and maintenance
thereof shall be paid by Tenant to Landlord upon demand by Landlord.
(b) Tenant shall not, without written consent of Landlord, use any
apparatus or device in the Premises, including, but without limitation thereto,
electronic data processing machines, punch card machines, and machines using in
excess of 120 volts, which will in any way increase the amount of electricity
usually furnished or supplied for the use of the Premises as general office
space; nor connect with electric current except through existing electrical
outlets in the Premises, any apparatus or device, for the purpose of using
electric current. If Tenant shall require water or electric current in excess
of that usually furnished or supplied for the use of the Premises as general
office space, Tenant shall first procure the written consent of Landlord, which
shall not be unreasonably withheld or delayed, to the use thereof and Landlord
may cause a water meter or electrical current meter to be installed in the
Premises, so as to measure the amount of water and electric current consumed for
any such use. The cost of any such meters and of installation, maintenance and
repair thereof shall be paid for by the Tenant and Tenant agrees to pay Landlord
promptly upon demand thereof by Landlord for all such water and electric current
consumed as shown by said meters, at the rates charged for such services by the
local public utility furnishing the same, plus any additional expense incurred
in keeping account of the water and electric current so consumed. If a separate
meter is not installed, such excess cost for such water and electric current
will be established by an estimate made by a utility company or consulting
engineer.
(c) In addition to the foregoing provisions of this Section 10, Tenant
----------
agrees to pay (i) the cost of electricity furnished to the Premises during hours
other than the hours specified in Section 10(a), and (ii) the cost of installing
-------------
and maintaining any air conditioning and/or ventilation equipment which is
dedicated specifically to the Premises, and the costs of electricity and water
associated with operating such equipment. Landlord shall install and maintain,
at Tenant's cost and expense, meters to measure all such costs of electricity
and water.
11. MAINTENANCE.
9
<PAGE>
(a) Landlord's Maintenance. Except for damage caused by any negligent or
----------------------
intentional act or omission of Tenant or Tenant's agents, employees or invitees,
which damage shall be repaired by Landlord at Tenant's expense, Landlord shall
maintain in good condition the structural parts of the Project and the Premises,
which shall include the foundations, bearing and exterior walls, subflooring and
roof, interior structural walls, those portions of the electrical, plumbing and
sewage systems not exclusively serving the Premises, gutters and downspouts on
the Project and the heating, ventilating and air conditioning system serving the
Premises; provided, however, the cost of all such maintenance shall be
-------- -------
considered "Expenses" for purposes of Section 4(c) hereof. In no event shall
------------
Tenant be entitled to undertake any such maintenance or repairs whether at the
expense of Tenant or Landlord. Landlord shall perform such maintenance within a
reasonable time after receipt of notice or actual knowledge of the need for such
maintenance.
(b) Tenant's Maintenance. Except as provided above, Tenant at its sole
--------------------
cost shall maintain and keep in good repair every part of the interior of the
Premises, including, without limitation, all walls, floors, ceilings, interior
doors, together with all fixtures, appliances and equipment, and will make all
repairs and replacements thereto at its own expense. Upon termination of this
Lease, Tenant shall surrender the Premises to Landlord in the same condition as
existed at the commencement of the term, except for reasonable wear and tear or
damage caused by fire or other casualty for which Tenant, its agents and
invitees are not responsible.
(c) Landlord's Maintenance at Tenant's Cost. Landlord shall maintain in
---------------------------------------
good condition and repair and replace as needed the exterior doors, windows
(including window cases) and their appurtenant sills and frames, specialty
lighting or hardware, skylights, plumbing, utility lines and sewage systems
serving exclusively the Premises and the heating, ventilating and air
conditioning system serving the Premises. Tenant shall pay Landlord, as
additional rent, the cost of all work Landlord performs pursuant to this
Section 11(c) within ten (10) days after Tenant receives an invoice from
- -------------
Landlord for such costs. Upon Tenant's request, Landlord shall provide evidence
of the costs of such repairs.
(d) Landlord's Substitute Performance. If Tenant fails to perform its
---------------------------------
obligations under this Section 11, Landlord may enter the Premises after ten
----------
(10) days prior written notice to Tenant (except in the case of emergency, in
which case no notice shall be required), perform such obligations on Tenant's
behalf and put the Premises in good order, condition and repair, and the cost
thereof together with interest thereon at the Default Rate shall be due and
payable as additional rent to Landlord together with Tenant's next Base Monthly
Rent payment.
12. ALTERATIONS. Tenant shall not make any alterations to the Premises or to
the Project (including any changes to the existing landscaping), without
Landlord's prior written consent, other than alterations to the Premises costing
less than $2,500.00 for any single item or $5,000.00 in the aggregate, so long
as such alterations to the Premises shall not affect the aesthetics of the
Project or have a negative effect on the function or structure of the Premises
or the Project. Any alterations shall remain on and be surrendered with the
Premises upon termination of this Lease, except that Landlord may, promptly
after termination of this Lease, require Tenant (and Tenant agrees, at its own
cost) to remove any alterations made by Tenant (other than alterations approved
in writing by Landlord) and otherwise to restore the Lease Premises to the same
condition as existed on the Commencement Date, except for reasonable wear and
tear.
A proposal for any alterations in or about the Premises that Tenant shall
desire to make and which requires the prior consent of Landlord shall be
presented to Landlord in written form accompanied by a complete set of detailed
plans and specifications for such proposed alterations. Should Landlord consent
in writing to Tenant's alteration of the Premises, Tenant shall contract with a
contractor preapproved by Landlord for the construction of such alterations,
shall secure all appropriate governmental approvals and permits, and shall
complete such alterations with due diligence in compliance with plans and
specifications approved by Landlord. All such construction shall be performed
in a manner which will not interfere with the quiet
10
<PAGE>
enjoyment of other tenants of the Project. Tenant shall pay all costs for such
construction and keep the Premises and the Project free and clear of all
mechanics' liens which may result from construction by Tenant. Prior to
commencement of any construction, Tenant shall post and file on behalf of
Landlord a notice of non-responsibility or other similar notice permitted under
applicable law and shall deliver to Landlord a lien and completion bond in the
amount of 1 1/2 times the cost of construction. As used in this Section 12,
----------
"cost" shall include the full commercial value of labor and materials for any
such alterations.
13. RELEASE AND INDEMNITY. As material consideration to Landlord, Tenant
agrees that Landlord, Cushman & Wakefield of California, Inc., any other
property management firm engaged by Landlord, Landmark Management, Inc. and
their respective shareholders, officers, directors, employees, agents, legal
counsel and other advisors (collectively, the "Indemnitees"), shall not be
-----------
liable to Tenant for any damages to Tenant or Tenant's property from any cause,
other than the gross negligence or willful misconduct of any such Indemnitee,
and Tenant waives all claims against each Indemnitee for damage to persons or
property arising for any reason, except for damage resulting directly from such
Indemnitee's gross negligence or willful misconduct. Tenant shall indemnify,
hold harmless each Indemnitee, and at such Indemnitee's option, defend such
Indemnitee from any and all legal and equitable claims, demands, causes of
action, liabilities, obligations, costs and expenses (including reasonable
attorneys' fees, court costs and litigation expenses) of any kind arising out of
injury, damage or other loss to any person or property occurring in, on or about
the Premises or Project which arise out of the use of the Premises or Project by
Tenant, its employees or invitees or Tenant's breach of this Lease. Landlord
shall indemnify, hold harmless Tenant, and at such Tenant's option, defend
Tenant from any and all legal and equitable claims, demands, causes of action,
liabilities, obligations, costs and expenses (including reasonable attorneys'
fees, court costs and litigation expenses) of any kind arising out of injury,
damage or other loss to any person or property occurring in, on or about the
Premises or Project which arise solely out of the gross negligence or wilful
misconduct of Landlord. Each party's obligations under this Section 13 shall not
----------
be limited to the amounts of coverage of insurance maintained or required to be
maintained by such party under this Lease. It is the intention of the parties
that their indemnity obligations under this Section 13 do not require payment as
----------
a condition precedent to recovery by an indemnified party against the
indemnifying party, and that each indemnified party shall be indemnified by the
indemnifying party to the full extent permitted by law.
14. INSURANCE.
(a) Tenant's Liability Insurance. Tenant (with respect to the Premises)
----------------------------
shall maintain or cause to be maintained a policy or policies of comprehensive
general liability insurance and blanket contractual liability insurance with the
premiums thereon fully paid, issued by and binding upon an insurance company of
good financial standing, such insurance to afford minimum protection of not less
than $2,000,000 for personal injury, death or property damage in any one
occurrence and in the aggregate. Such insurance shall insure performance by
Tenant of the indemnity provisions of Section 13 and the policy shall name
----------
Landlord, Landmark Management, Inc. and Landlord's property management firm as
additional insureds.
(b) Tenant's Workers' Compensation Insurance. Tenant shall maintain such
----------------------------------------
workers' compensation and employers' liability insurance as shall be required by
applicable law or by Landlord's first mortgage.
(c) Tenant's Property Insurance. Tenant shall carry fire and special
---------------------------
extended coverage insurance on Tenant's own fixtures, personal property,
furniture, freestanding workstations, telephones, computers and related
telecommunications or computing cables in the Premises (but excluding the items
otherwise constituting tenant improvements and any alterations, additions or
improvements to the Premises) in an amount at least equal to 100% of the
replacement cost thereof. Notwithstanding the foregoing, Tenant may
11
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elect to self-insure the fire and special extended coverage insurance described
in the immediately preceding sentence of this Section 14(c), in which event
-------------
(i) such self-insurance shall be deemed to include full waiver of subrogation
against Landlord, and (ii) Tenant hereby waives any right it may have against
Landlord with respect to any damage, loss, expense, claim or liability which
would otherwise have been covered by such insurance coverage had Tenant obtained
same.
(d) Insurance Requirements. All insurance required to be provided by
----------------------
Tenant under this Lease:
(1) shall be issued by insurance companies which are authorized to do
business in the State of California and which have a financial rating of at
least an A V, B+ VI or B VIII status, as rated in the most recent edition
of Best's Insurance Reports;
(2) shall be issued as a primary policy and shall expressly provide
that any policies carried by Landlord shall be excess and noncontributory
of such primary insurance;
(3) shall, with the exception of the workers' compensation and
employers' liability policy, name Landlord as additional insured and shall
expressly provide that the interest of Landlord shall not be affected by
any breach of Tenant of any policy provision; and
(4) shall contain an endorsement requiring at least thirty (30) days
prior written notice to Landlord and, if requested, to Landlord's lender,
before cancellation or change in coverage, scope or amount of any policy.
Tenant shall deliver an originally signed certificate of insurance or a
certified copy of each policy to Landlord on or prior to the Commencement
Date and thereafter at least thirty (30) days prior to policy expiration,
together with evidence of payment of all current premiums.
(e) Modification of Requirements. Landlord may in its sole discretion
----------------------------
modify or amend, in whole or in part, the requirements for insurance policies
under this Section 14. Upon expiration of any existing policy or policies of
----------
insurance and upon written notice from Landlord, Tenant shall provide a
replacement policy or policies meeting such amended or modified insurance
standards.
(f) Substitute Performance. If Tenant fails to comply with this Section 14,
---------------------- ----------
Landlord may obtain such insurance, and Tenant shall pay to Landlord upon demand
as additional rent the premium cost thereof.
(g) Landlord's Insurance. Landlord shall maintain such insurance, or shall
--------------------
self-insure, in such amounts and with such other terms and conditions as may be
required by applicable law or as Landlord may otherwise deem necessary or
sufficient to protect its interest in the Project.
(h) Waiver of Subrogation. Each party covenants that no property insurer
---------------------
shall hold any right of subrogation against the other party; provided, however,
-------- -------
no such waiver of subrogation shall be effective with respect to a party's
insurance policy if such waiver would result in an increase in the premium
payable by such party or would violate the terms and provisions of such policy.
15. DESTRUCTION. If during the term, the Premises or Project are damaged from
any cause to the extent that the cost of repair in Landlord's good faith
estimate exceeds thirty percent (30%) of the replacement cost of the Premises or
Project, whichever is damaged, regardless of the amount of time which would be
required for repair or restoration, or if the Premises are rendered inaccessible
or unusable from any cause, Landlord may, in its sole discretion, terminate this
Lease without compensation to Tenant by delivery of notice to Tenant within
sixty (60) days after Landlord receives notice of the occurrence of such damage.
If in Landlord's good faith estimation, the Premises cannot be restored within
one hundred twenty (120) days after Landlord receives notice of such damage,
Landlord shall notify Tenant within sixty (60) days after notice to
12
<PAGE>
Landlord of the occurrence of the damage, and Tenant or Landlord may terminate
this Lease by delivery of notice to the other within thirty (30) days after
Landlord's notice. If this Lease does not terminate, Landlord shall proceed to
commence to restore the Premises and the tenant improvements funded by Landlord
under the T.I. Work Agreement (but not Tenant's fixtures, equipment, alterations
or tenant improvements funded by Tenant under the T.I. Work Agreement which
shall be Tenant's responsibility) promptly to the condition existing immediately
prior to the damage in compliance with then existing laws and shall complete
such restoration within such 120 days or within such additional time as Landlord
may have been delayed in doing so by acts of God, adjustment of insurance, labor
trouble, governmental controls, unavailability of materials, or any other cause
beyond Landlord's reasonable control. Landlord shall use reasonable efforts to
effect such repair or restoration in such a manner as to not unreasonably
interfere with Tenant's use and occupancy of the Premises. In such event, this
Lease shall remain in full force and effect, but Base Monthly Rent shall be
abated in the proportion that the part of the Premises which is unusable by
Tenant in the conduct of its business bears to the entire Premises, between the
date of damage and the date of completion of restoration. If the damage was
caused by the negligence or wilful misconduct of Tenant, its agents, invitees or
employees, there shall be no rent abatement. A total destruction of the Premises
shall automatically terminate this Lease.
16. CONDEMNATION.
(a) Definitions. The following definitions shall apply: (1)
-----------
"Condemnation" means (a) the exercise of any governmental power of eminent
------------
domain, whether by legal proceeding or otherwise by the condemnor and (b) the
voluntary sale or transfer by Landlord to any condemnor either under threat of
condemnation or while legal proceedings for condemnation are pending; (2) "Date
----
of Taking" means the date the condemnor has the right to possession of the
- ---------
property being condemned; (3) "Award" means all compensation, sums or anything
-----
of value awarded, paid or received on a total or partial condemnation; and (4)
"Condemnor" means any public or quasi-public authority, or private corporation
- ----------
or individual, having a power of condemnation.
(b) Obligations to be Governed by Lease. If during the term of this Lease,
-----------------------------------
any condemnation of all or any part of the Premises or the Project occurs, the
rights and obligations of the parties shall be governed
by this Lease.
(c) Total or Partial Taking. If the Premises are totally taken by
-----------------------
condemnation, this Lease shall terminate on the date of taking. If any portion
of the Premises is, or the portions of the Project required for reasonable
access to or the reasonable use of the Premises are, taken by condemnation, this
Lease shall remain in effect, except that Tenant can elect to terminate this
Lease if the remaining portion of the Premises is rendered unsuitable or
inaccessible for Tenant's continued use of the Premises by giving notice to
Landlord within thirty (30) days after the nature and extent of the taking have
been finally determined, setting forth the date of termination, which shall not
be earlier than thirty (30) days nor later than ninety (90) days after delivery
of the notice. Tenant shall have no claim against Landlord for the value of any
unexpired term of the Lease. If any portion of the Premises is taken by
condemnation and this Lease remains in effect, on the date of taking the Base
Monthly Rent shall be reduced in the proportion that the total number of square
feet in the Premises taken bears to the total number of square feet in the
Premises immediately before the date of taking, Tenant's Premises Percent shall
be appropriately adjusted, and Landlord shall proceed to restore the remainder
of the Premises to substantially their same condition prior to such partial
taking (but not Tenant's fixtures, equipment, alterations or tenant improvements
funded by Tenant which shall be Tenant's responsibility). Any award for any
total or partial taking shall be the property of Landlord; nothing, however,
------- -------
shall preclude Tenant from obtaining an award for loss or damage to Tenant's
trade fixtures or removal of personal property or for damages for cessation or
interruption of Tenant's business or for relocation costs, or for the portion of
such award as is allocable to improvements constructed or paid for by Tenant.
13
<PAGE>
17. ASSIGNMENT OR SUBLEASE.
(a) Prohibition. Tenant shall not assign or encumber all or any interest
-----------
in this Lease or the Premises or sublease all or any part of the Premises or
allow any other person or entity (except Tenant's authorized representatives,
employees, invitees or guests) to occupy or use all or part of the Premises
either voluntarily, involuntarily or by operation of law without first obtaining
Landlord's written consent. If Tenant is a partnership, a reduction in
partnership interest of any general partner, or the dissolution of the
partnership, shall be deemed an assignment. If Tenant consists of more than one
person, an assignment from one person to the other shall be deemed an
assignment. If Tenant is a corporation, any dissolution or any transfer of
twenty-five percent (25%) or more of the voting stock of Tenant, except for
stock which is traded through an exchange or over the counter, shall be deemed
an assignment. Any assignment, encumbrance or sublease in violation hereof
shall be voidable and, at Landlord's election, shall constitute a default.
Acceptance of rent by Landlord from anyone other than Tenant shall not be
construed as a waiver by Landlord of the actions prohibited by this paragraph,
nor as a release of Tenant from any obligation or liability under this Lease,
but the same shall be taken to be a payment on account by Tenant.
Notwithstanding the foregoing provisions of this Section 17(a), Tenant shall
-------------
have the right to sublease or assign all or any portion of the Premises to any
related entity or affiliate, without the consent of Landlord, provided that
Tenant remains obligated under the Lease.
(b) Request for Consent; Options of Landlord. If Tenant desires at any
----------------------------------------
time to assign this Lease or to sublet the Premises or any portion thereof, it
shall first notify Landlord of its desire to do so and shall submit in writing
to Landlord information respecting the proposed subtenant or assignee, financial
statements of the proposed subtenant or assignee meeting the requirements of
Section 32(i), and the terms of the proposed sublease or assignment, as shall be
- -------------
required by Landlord's standard request for consent form. At any time within
thirty (30) days after Landlord's receipt of the information specified above,
Landlord may by written notice to Tenant elect to (1) not consent to the
proposed subletting or assignment; or (2) consent to the proposed subletting or
assignment, which consent shall not be unreasonably withheld or delayed,
provided, that: (a) the proposed assignee's or subtenant's financial condition
- --------
shall comply with Landlord's standard tenant financial requirements for leasing
of space in the Project as of the date of such assignment or sublease, (b) the
proposed use of the Premises by such assignee or subtenant shall comply with
Section 6 hereof and be of a compatible use with other tenants of the Project,
- ---------
and (c) the proposed assignment or sublease does not violate the provisions of
Section 32, if applicable.
- ----------
(c) Landlord Consent. If Tenant requests Landlord's consent to an
----------------
assignment or sublease, Landlord and Tenant agree (by way of example and without
limitation) that it shall be reasonable for Landlord to withhold its consent if
any of the following situations exists or may exist: (1) the proposed
subtenant's or assignee's use of the Premises conflicts with the "Use of
Premises" as set forth in Section 1(d); (2) in Landlord's reasonable business
------------
judgment, the proposed subtenant or assignee lacks sufficient business
reputation or experience to operate a successful business of the type and
quality permitted under this Lease; (3) Tenant is in default pursuant to this
Lease; (4) in Landlord's reasonable business judgment, the proposed subtenant or
assignee lacks sufficient financial resources to satisfy its obligations under
the applicable assignment or sublease agreement; and/or (5) the assignment or
sublease would breach any covenant of Landlord respecting radius, location, use
or exclusivity in any lease (including, without limitation, the provisions of
Section 32 hereof, if applicable), financing agreement or other agreement
- ----------
relating to the Project.
(d) Excess Rent. One-half of all Profits (as defined below) received by
-----------
Tenant from its subtenants in excess of the rent payable by Tenant to Landlord
under this Lease for the sublet space shall be paid to Landlord. One-half of
any sums to be paid by an assignee to Tenant in consideration of the assignment
of this Lease, whether paid in a lump sum or periodically, shall belong to and
be paid to Landlord. As used herein, "Profits" shall mean consideration
-------
received by Tenant in connection with an assignment or sublease that exceeds the
amount Tenant must pay Landlord as Base Monthly Rent and its share of Expenses,
which amount is to be prorated where part of the Premises is assigned or
subleased, less the reasonable leasing commissions,
14
<PAGE>
broker's fees, attorneys' fees and other out-of-pocket expenses, if any, paid
by Tenant and directly related to arranging such assignment or sublease.
(e) No Waiver. No consent by Landlord to any assignment or subletting by
---------
Tenant shall relieve Tenant or any guarantor of Tenant of any obligation to be
performed by Tenant under this Lease, whether accruing before or after such
assignment or subletting. No consent by Landlord to any assignment, encumbrance
or sublease shall operate as a consent to future assignments, encumbrances or
subleases.
(f) Assumption of Liability. Each assignee, other than Landlord, shall
-----------------------
assume and covenant to perform all obligations of Tenant under this Lease.
Tenant shall be and remain liable jointly and severally with assignee for
performance of Tenant's obligations. No assignment shall be binding on Landlord
unless such assignee or Tenant shall deliver to Landlord a counterpart of such
assignment fully signed by all parties to the agreement and an instrument in
recordable form which contains a covenant of assumption of the assignee
satisfactory in substance and form to Landlord. No assignment or sublease shall
relieve Tenant of its obligation hereunder.
(g) Involuntary Assignments. No interest of Tenant in this Lease shall be
-----------------------
assignable by involuntary assignment through operation of law (including,
without limitation, the transfer of this Lease by will, intestacy, merger,
consolidation, dissolution or foreclosure). Without limitation, each of the
following acts by Tenant, any guarantor of this Lease, or, if Tenant is a
partnership, any partner who is a general partner of Tenant (each such person, a
"Pertinent Person"), shall be considered an involuntary assignment by Tenant:
----------------
(1) Bankruptcy and Insolvency. Any Pertinent Person becomes insolvent
-------------------------
(as defined in the Federal Bankruptcy Code), admits in writing its
insolvency or its present or prospective inability to pay its debts as they
become due, is unable to or does not pay all or any material portion (in
number of dollar amount) of its debts as they become due, permits or
suffers a judgment against it which affects such Pertinent Person's ability
to conduct its business in the ordinary course (unless enforcement thereof
is stayed pending appeal), makes or proposes an assignment for the benefit
of creditors, convenes or proposes to convene a meeting of its creditors,
or any class thereof, for purposes of effecting a moratorium upon or
extension or composition of its debts, proposes any such moratorium,
extension or composition, or commences or proposes to commence any
bankruptcy, reorganization or insolvency proceeding, or other proceeding
under any provision or chapter of the Federal Bankruptcy Code or any other
federal, state or other law for the relief of debtors.
(2) Dismissal or Stay of Proceedings. Any Pertinent Person fails to
--------------------------------
obtain the dismissal, within sixty (60) days after the commencement
thereof, of any bankruptcy, reorganization or insolvency proceeding, or
other proceeding under any law for the relief of debtors, instituted
against it by one or more third parties or fails actively to oppose any
such proceeding, or, in any such proceeding, defaults or files an answer
admitting the material allegations upon which the proceeding was based or
alleges its willingness to have an order for relief entered or its desire
to seek liquidation, reorganization or adjustment of any of its debts.
(3) Receivers. Any receiver, trustee, or custodian is appointed to
---------
take possession of all or any assets of any Pertinent Person or any
committee of such Pertinent Person's creditors, or any class thereof, is
formed for the purpose of monitoring or investigating the financial affairs
of such Pertinent Person or enforcing such creditors' rights.
(h) Limitation of Liability. Tenant agrees that in case it contends
-----------------------
successfully that Landlord has unreasonably refused or withheld its consent to
an assignment or subletting, Tenant's sole remedy shall be an action for
declaratory judgment and an injunction and Tenant shall have no remedy for
damages, actual or exemplary.
15
<PAGE>
18. DEFAULT. If (a) Tenant (i) shall fail to pay any rent within 10 calendar
days after the date when due, (ii) shall fail to pay any other sum of money due
hereunder when due (although no legal or formal demand has been made therefor)
and shall fail to pay the same within ten (10) days after written notice from
Landlord that the same is overdue (which notice shall be in addition to, and not
in lieu of, the notice requirements of Code of Civil Procedure Section 1161),
(iii) shall fail to occupy the Premises at all times during the term of this
Lease, except for the periods, if any, during which tenant improvements are
initially being constructed or the Premises are unusable by Tenant as provided
in Section 15 or 16 hereof, notwithstanding Tenant's payment of rent, or (iv)
---------- --
shall violate or fail to perform any other provision and shall fail to correct
or perform the same within twenty (20) days after written notice thereof from
Landlord (or such longer period as is reasonably necessary to remedy such
default, provided that Tenant shall commence such action to cure such failure
--------
within said 20 calendar days and thereafter continuously and diligently pursue
such action to cure until such default is cured)(which notice shall be in
addition to, and not in lieu of, the notice requirements of Code of Civil
Procedure Section 1161); or (b) any of the events referred to in Section 17(g)
-------------
shall have occurred, then this Lease shall be in default and at any time
thereafter Landlord may at its option:
(a) Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In such
event, Landlord shall be entitled to recover from Tenant: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of rental loss that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of rental loss that Tenant proves could be 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 this
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, the cost of recovering possession of
the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and the unamortized
portion of the leasing commission and tenant improvement costs paid by Landlord
and applicable to the balance of the term of this Lease. The worth at the time
of award of the amount referred to in clause (iii) of the prior sentence shall
------------
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
Efforts by Landlord to mitigate damages caused by Tenant's default or breach of
this Lease shall not waive Landlord's right to recover damages under this
Section 18(a). If termination of this Lease is obtained through the provisional
- -------------
remedy of unlawful detainer, Landlord shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Landlord
may reserve therein the right to recover all or any part thereof in a separate
suit for such rent and/or damages. If a notice and grace period required under
this Section 18 was not previously given, a notice to pay rent or quit, or to
----------
perform or quit, as the case may be, given to Tenant under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice or grace period required by this Section 18. In such
----------
case, the applicable grace period under this Section 18 and under the unlawful
----------
detainer statute shall run concurrently after the one such statutory notice, and
the failure of Tenant to cure the applicable default or breach within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a breach of this Lease entitling Landlord to remedies provided for in this
Lease and/or by said statute.
(b) Continue this Lease and Tenant's right to possession in effect under
California Civil Code Section 1951.4 after Tenant's breach and abandonment and
recover the rent as it becomes due, provided Tenant has the right to sublet or
--------
assign, subject only to reasonable limitations. See Section 17 for the
----------
limitations on assignment and subletting, which limitations Landlord and Tenant
agree are reasonable. Acts of maintenance or preservation, efforts to relet the
Premises, the appointment of a receiver to protect Landlord's interest under
this Lease, and/or withholding consent to a subletting or assignment or
terminating a subletting or assignment (if the
16
<PAGE>
withholding or terminating does not violate the rights of Tenant specified in
this Section 18(b)), shall not constitute a termination of Tenant's right to
-------------
possession.
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the State of California.
The expiration or termination of this Lease and/or the termination of
Tenant's right to possession shall not relieve Tenant from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Tenant's occupancy of the Premises.
Landlord shall not be obligated to notify Tenant of the due date of rent
nor demand payment thereof on its due date, the same being expressly waived by
Tenant. The acceptance of any sums of money from Tenant after the expiration of
any ten (10) day or thirty (30) day notice as above provided shall be taken to
be payment on account by Tenant and shall not constitute a waiver by Landlord of
any rights nor shall it reinstate the Lease or cure a default on the part of
Tenant. All rights and remedies of Landlord under this Lease shall be
cumulative and shall not be exclusive of any other rights and remedies provided
to Landlord under applicable law.
19. ENTRY ON PREMISES.
(a) Entry. Landlord and its agents shall have the right to enter the
-----
Premises at all reasonable times for the purpose of examining or inspecting the
same, to supply any service to be provided by Landlord or Tenant hereunder, to
show the same to prospective purchasers, lenders or tenants of the Project, and
make such alterations, repairs, improvements or additions to the Premises or to
the Project as Landlord may deem necessary or desirable. If Tenant shall not be
personally present to open and permit an entry into the Premises at any time
when such entry by Landlord is necessary or permitted hereunder, Landlord may
enter by means of a master key without liability to Tenant except for any
failure to exercise due care for Tenant's property, and without affecting this
Lease. Landlord, during the entire term of the Lease, shall have the right,
upon ninety (90) days' prior written notice to Tenant, to change the name,
number or designation of all or any portion of the Project without liability to
Tenant. Landlord may at any time during the last ninety (90) days of the term
of the Lease place on or about the Premises any ordinary "for lease" signs;
Landlord may at any time place on or about the Premises any ordinary "for sale"
signs. Tenant acknowledges that the layout of the Premises requires entry into
the Premises in order to gain access to the roof of the building from the
twelfth floor of the building. Accordingly, in addition to the foregoing,
Tenant agrees that Landlord and its employees, agents and contractors shall at
any time, and without prior notice to Tenant, enter the twelfth floor of the
Premises for the purpose of gaining access to the roof of the building.
(b) Keys. Landlord shall at all times have and retain a key with which to
----
unlock all the doors in, upon and about the Premises. Tenant shall not alter
any lock or install a new or additional lock or bolt on any door of the Premises
without prior written consent of Landlord. If Landlord shall give its consent,
Tenant shall in each case furnish Landlord with a key for any such lock.
20. SUBORDINATION. Without the necessity of any additional documents being
executed by Tenant, and at the election of Landlord or any mortgagee or any
beneficiary of a deed of trust on the Project or any ground lessor of the
Project, this Lease shall be subject and subordinate at all times to (a) all
ground leases or underlying leases which may now exist or hereafter be executed
affecting the Project, and (b) the lien of any mortgage or deed of trust which
may now exist or hereafter be executed in any amount encumbering the Project,
ground lease or underlying leases, or Landlord's interest or estate in any of
them. If any ground lease or underlying lease terminates for any reason or any
mortgage or deed of trust is foreclosed or a conveyance in
17
<PAGE>
lieu of foreclosure is made for any reason, notwithstanding this subordination
and subject to the terms of any non-disturbance agreement then in effect, at the
option of such successor in interest, the same shall not terminate this Lease,
and Tenant shall attorn to and become the Tenant of the successor in interest.
Tenant shall execute and deliver any additional documents in the form reasonably
requested by Landlord, evidencing the priority or subordination of this Lease
with respect to any such ground lease or underlying leases or the lien of any
such mortgage or deed of trust.
21. ESTOPPEL CERTIFICATES. As soon as practicable and within 20 days after
notice from Landlord, Tenant shall execute and deliver to Landlord a certificate
stating such matters reflecting the status of this Lease or the Premises as
Landlord, Landlord's lender, purchaser or ground lessor may reasonably request.
However, Tenant's default shall not be cured thereby, and Tenant shall continue
to be obligated to deliver the certificate. Tenant shall pay to Landlord a fee
of ten dollars ($10.00) per day for every day after the 20 day period provided
above that Tenant fails to deliver the certificate required under this
Section 21.
- ----------
22. NOTICES. Any notices provided or permitted to be given under this Lease
must be in writing and may be served (i) by depositing same in the United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested; (ii) by overnight, third party prepaid
courier service, requiring signed receipt; (iii) by delivering the same in
person to such party; or (iv) by prepaid telegram, telecopy or telex with
delivery of an original copy of any such notice delivered pursuant to clause
------
(ii) or (iii) above to be received no later than the next business day. Notice
- ---- -----
personally delivered or sent by courier service, telegram, telecopy or telex
shall be effective upon receipt. Any notice mailed in the foregoing manner
shall be effective three (3) business days after its deposit in the United
States mail. For purposes of notice, the addresses of the parties shall be as
set forth in Section 1. Either party can change its address by written
---------
notification to the other party.
23. CHANGES REQUESTED BY LENDER. If, in connection with obtaining financing
for the Project, or any part thereof, Landlord's lender shall request
modifications in this Lease as a condition to such financing, Tenant shall not
withhold or delay its consent thereto, provided that such modification do not
increase Tenant's obligations hereunder or materially adversely affect the
leasehold interest hereby created.
24. WAIVER. No delay or omission in the exercise of any right or remedy or
acceptance of any payment or portion thereof due hereunder by Landlord or Tenant
shall impair such right or remedy or be construed as a waiver. No act or
conduct of Landlord, including, without limitation, acceptance of the keys to
the Premises, shall constitute an acceptance of the surrender of the Premises by
Tenant before the expiration of the term. Only written notice from Landlord to
Tenant of such acceptance shall constitute acceptance of the surrender of the
Premises and accomplish termination of this Lease. Landlord's consent to any
act by Tenant shall not be deemed to waive or render unnecessary Landlord's
consent to any subsequent act by Tenant. Any waiver by Landlord of any default
must be in writing and shall not be a waiver of any other default concerning the
same or any other provision of this Lease.
25. SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the term, Tenant
shall surrender to Landlord the Premises and all Tenant improvements and
alterations in good condition, except for ordinary wear and tear, damage caused
by fire or other casualty for which Tenant, its agents and invitees are not
responsible, and alterations Tenant is obligated to remove under Section 12.
----------
Tenant at its expense shall remove all personal property and, unless Landlord
otherwise elects, all improvements or alterations not made with Landlord's
consent, and shall perform all restoration made necessary by the removal thereof
before the
18
<PAGE>
expiration of the term. Landlord can elect to retain or dispose of in any manner
Tenant's personal property not removed from the Premises by Tenant prior to the
expiration of the term. Tenant waives all claims against Landlord for any damage
to Tenant resulting from Landlord's retention or disposition of Tenant's
personal property. Tenant shall be liable to Landlord for Landlord's costs for
storage, removal or disposal of Tenant's personal property.
Notwithstanding anything to the contrary in this Lease, on or before
expiration of the term of this Lease, Tenant shall remove, at its own cost, all
telecommunications and/or computer cable and any raised floor installed in the
Premises, including all associated racks, trays, monuments and hardware.
If Tenant, with Landlord's written consent, remains in possession of the
Premises after expiration of this Lease, such possession by Tenant shall be
deemed to be a month-to-month tenancy on all provisions of this Lease, except
those pertaining to term and rent. Tenant shall pay the higher of (1) Base
Monthly Rent in an amount equal to 150% of Base Monthly Rent for the last full
calendar month during the regular term plus 100% of the last month's estimate of
Tenant's share of Expenses or (2) the market rental value of the Premises as
determined by Landlord. So long as Tenant is in possession of the Premises
under such month-to-month tenancy, Landlord shall have the rights provided it at
law or in equity including, without limitation, the right upon thirty (30) days
notice to (1) terminate Tenant's right to possession of the Premises; (2) make
adjustments in the amount payable as Base Monthly Rent; or (3) make such other
changes to the terms and provisions of this Lease as Landlord in its sole
discretion shall determine.
26. MORTGAGE PROTECTION. In the event of any default by Landlord, Tenant will
give notice by registered or certified mail or by third party prepaid overnight
courier service, requiring a signed receipt to any beneficiary of a deed of
trust or mortgagee of a mortgage covering the Premises or any leasehold interest
therein whose address shall have been furnished to Tenant, and shall offer such
beneficiary or mortgagee a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or a judicial
foreclosure, if such should prove necessary to effect a cure.
27. DEFAULT OF LANDLORD; LIMITATION OF LIABILITY. In the event of any default
by Landlord hereunder, Tenant agrees to give notice of such default, by
registered mail, to Landlord at Landlord's address as stated in Section 1(c) and
------------
to offer Landlord a reasonable opportunity to cure the default. Such notice
shall be given as herein provided no later than thirty (30) days after the
occurrence of the default.
The Lease and Tenant's obligations hereunder shall in no way be affected,
impaired or excused because Landlord is unable to fulfill any of its obligations
under this Lease, if Landlord is prevented or delayed from so doing by reason of
fire, earthquake, inclement weather or other acts of God, acts of the public
enemy, riot, insurrection, governmental regulation of the sales of materials or
supplies or the transportation thereof, strikes or boycotts, shortages of
materials or labor, or any other cause beyond the control of Landlord.
In the event of any actual or alleged failure, breach or default hereunder
by Landlord, Tenant's sole and exclusive remedy shall be against the Project and
Landlord's interest therein, and no principal of Landlord shall be sued, be
subject to service of process, or have a judgment obtained against such
principal in connection with any alleged breach or default, and no writ of
execution shall be levied against the assets of any principal of Landlord. The
covenants and agreements contained in this Lease are enforceable by Landlord and
also by any principal of Landlord. As used in this paragraph, "principal of
------------
Landlord" shall mean any officer, director, trustee, shareholder, employee or
- --------
representative of Landlord.
Notwithstanding anything to the contrary in this Lease, Landlord shall not
be liable to Tenant for any consequential loss or damage, including loss of
revenue, profit and/or goodwill.
19
<PAGE>
28. LANDLORD'S RULES. Tenant shall faithfully observe and comply with the
Rules that Landlord shall from time to time promulgate. Landlord reserves the
right from time to time to make all reasonable modifications to such Rules. The
additions and modifications to those Rules shall be binding upon Tenant upon
delivery of a copy of them to Tenant. Landlord shall not be responsible to
Tenant for the non-performance of any such Rules by other tenants or occupants.
The parties acknowledge that the Rules attached hereto as Exhibit C are
---------
presently the Rules which are in effect.
29. RESERVATION OF RIGHTS. No payment by Tenant or receipt by Landlord of a
lesser amount than stipulated herein for Rent, additional Rent or any other
charge hereunder shall be deemed other than payment on account of the earliest
stipulated Rent, additional Rent or other charge then due, nor shall any
endorsement or statement on a check or letter accompanying any check or payment
be deemed in accord and satisfaction. Landlord may accept such check or payment
without prejudice to Landlord's rights to recover the balance of such Rent,
additional Rent or other charges or pursue any other remedy, in this Lease, at
law or in equity.
30. [Intentionally left blank.]
31. EXERCISE ROOM. The employees and officers of Tenant who are working at the
Premises shall have the right to use the exercise room (the "Exercise Room")
-------------
located on the third (3rd) floor of the building during the term of this Lease
and any renewal(s) thereof; provided, that Tenant executes a Release and
--------
Indemnification in the form attached hereto as Exhibit D, and causes each of its
---------
employees and officers who use such facility to execute and deliver to Landlord
a Release in the form of Exhibit E. The use of the Exercise Room shall at all
---------
times be subject to Landlord's Rules, as amended from time to time, and Landlord
specifically reserves the right to limit the means of access to the Exercise
Room, limit the hours during which the Exercise Room may be used, provide
security or attendants for the Exercise Room (without being under any obligation
however to do so) or to eliminate the Exercise Room from the Project, at
Landlord's discretion. The costs specific to operating and maintaining the
Exercise Room shall be made part of the Expenses.
32. MISCELLANEOUS PROVISIONS.
(a) Time of Essence. Time is of the essence of each provision of this
---------------
Lease.
(b) Successor. This Lease shall be binding on and inure to the benefit of
---------
the parties and their successors, except as provided in Section 17.
----------
(c) Landlord's Consent. Any consent required by Landlord under this Lease
------------------
must be granted in writing and may be withheld by Landlord in its sole and
absolute discretion, except where otherwise expressly stated in this Lease and
any delay in consenting will not be a breach of this Lease.
(d) Commissions. Each party represents that it has not had dealings with
-----------
any real estate broker, finder or other person with respect to this Lease in any
manner, except for the broker(s) identified in Section 1(o), who shall be
------------
compensated by the party identified in Section 1(p).
------------
(e) Other Charges.
-------------
20
<PAGE>
(1) If Landlord becomes a party to any litigation concerning this
Lease, the Premises or the Project, by reason of any act or omission of any
act of Tenant or Tenant's authorized agents, employees or invitees, Tenant
shall be liable to Landlord for reasonable attorneys' fees, court costs and
litigation expenses incurred by Landlord in the litigation, whether or not
such litigation leads to actual court action.
(2) If either party commences an action against the other party
arising out of this Lease, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees, court costs and
litigation expenses, as determined by the court.
(3) If Landlord employs a collection agency to recover delinquent
amounts, Tenant shall pay all collection agency fees charged to Landlord in
addition to rent, late charges, interest and other sums payable under this
Lease.
(4) If Tenant shall request Landlord to execute and deliver a
Landlord's waiver, an amendment to this Lease, a consent to an assignment,
encumbrance or subletting, or any other documents, Landlord may charge
Tenant a reasonable processing fee, the amount of which Landlord shall
notify Tenant in advance, whether or not Landlord executes and delivers the
requested documents. Nothing in this Section 32(e)(4) shall be construed
----------------
to obligate Landlord to execute any such document.
(f) [Intentionally left blank.]
(g) Additional Rent. All monetary sums due from Tenant to Landlord under
---------------
this Lease shall be deemed to be rent.
(h) Authority. If Tenant is a corporation, trust, or general or limited
---------
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of the entity, and upon execution of this Lease, Tenant shall
deliver to Landlord satisfactory evidence of such authority, and that this Lease
is binding upon said entity and each individual signing this Lease in accordance
with its terms.
(i) Financial Statements. Upon submission of this Lease to Landlord and
--------------------
any time thereafter within thirty (30) days after delivery of a request from
Landlord, Tenant shall furnish Landlord copies of the following documents:
Tenant's most recent audited or certified annual financial statements,
including, without limitation, balance sheets, statements of profits and losses
and changes in financial condition, reflecting Tenant's current financial
condition. Tenant hereby represents and warrants that financial statements
submitted are true, accurate and up-to-date representations of its financial
condition including, without limitation, all of its assets, liabilities, income
and sources of income as of the date thereof. If Landlord desires to finance,
refinance or sell the Project or any part thereof, Tenant hereby agrees to
deliver to any lender, prospective lender, or prospective purchaser designated
by Landlord such financial statements of Tenant as may be reasonably required by
such lender or prospective purchaser.
(j) Landlord's Successors. In the event of a conveyance or ground lease of
---------------------
the Project or the Premises, the same shall operate to release Landlord from any
liability under this Lease including the obligation to return the Security
Deposit, and in such event Landlord's successor in interest or ground lessee
shall be solely responsible for all obligations of Landlord under this Lease.
(k) Interpretation. This Lease shall be construed and interpreted in
--------------
accordance with the laws of the State of California. This Lease (including the
exhibits and any addendum attached hereto) constitutes the entire agreement
between the parties respecting the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the parties from
time to time. Landlord and Tenant
21
<PAGE>
acknowledge that all prior negotiations, inducements and agreements by and
between Landlord and Tenant and all agents and employees of Landlord and Tenant
are merged herein, and that neither party is relying upon any promises,
representations or other inducements not set forth herein, all of which are
superseded by this Lease and are void. When required by the context of this
Lease, the singular shall include the plural, and the masculine shall include
the feminine and/or neuter. "Party" shall mean Landlord or Tenant. If more than
-----
one person or entity constitutes Landlord or Tenant, the obligations imposed
upon that party shall be joint and several and Landlord may release any of them
and may release any Collateral without affecting the liability of any of them,
who have not been released in writing from liability under this Lease. The
enforceability, invalidity or illegality of any provision shall not render the
other provisions unenforceable, invalid or illegal. All provisions, whether
conditions or covenants on the part of Tenant, shall be deemed to be both
conditions and covenants.
(l) Monitoring Services. Tenant assumes sole 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. Landlord may, at its
sole option, however, provide monitoring services for the Premises, Building or
Project, in which event the costs and expenses of such monitoring services shall
be included within the definition of Expenses herein defined for purposes of
Section 4(c). Landlord currently provides limited monitoring services in the
- ------------
lobby of the building in which the Premises are located.
(m) Landlord Substitute Performance. If Tenant defaults in the performance
-------------------------------
of any obligation under this Lease, Landlord in its sole discretion may without
notice perform such obligation, in which event Tenant shall pay Landlord as
additional rent all sums pay by Landlord in connection with such substitute
performance within ten (10) days following Landlord's written notice for such
payment. Any delinquent sum shall bear interest at the Default Rate.
(n) Recording. Tenant shall not record this Lease or any memorandum
---------
thereof without the prior written consent of Landlord. Tenant, upon the request
of Landlord shall execute and acknowledge a short form memorandum of this Lease
for recording purposes. Upon the termination of this Lease for any reason,
including, but not limited to, surrender or cancellation under Section 32(o)
-------------
below, Tenant shall within three (3) days of the date of request by Landlord,
convey to Landlord, by quitclaim deed in recordable form and any and all
interest Tenant may have under this Lease.
(o) Surrender or Cancellation. The voluntary or other surrender of this
-------------------------
Lease by Tenant, or a mutual cancellation thereof shall terminate all or any
existing subleases, unless Landlord elects to treat such surrender or
cancellation as an assignment to Landlord of any or all of such subleases.
(p) Submission of Lease. Submission of this Lease for examination, even
-------------------
though executed by Tenant, shall not bind Landlord in any manner, and no Lease
or other obligation on the part of the Landlord shall arise, until this Lease is
executed and delivered by Landlord to Tenant.
22
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date first written above.
LANDLORD: TENANT:
HYUNDAI MERCHANT MARINE (AMERICA), VIKING OFFICE PRODUCTS, INC., a California
INC., a California corporation corporation
By:___________________________ By:___________________________
Its____________________________ Its___________________________
By:___________________________
Its___________________________
23
<PAGE>
EXHIBIT A
DESCRIPTION OF PREMISES
-----------------------
<PAGE>
EXHIBIT B
DESCRIPTION OF PROJECT
----------------------
PARCEL 1:
That portion of Lot 110 of McDonald Tract, in the City of Los Angeles, in the
County of Los Angeles, State of California, as per map recorded in Book 15,
Pages 21 and 22 of miscellaneous records, in the office of the county recorder
of said county, described as follows:
Beginning at the southwest corner of said lot; thence north along the west line
thereof, 7.66 chains; thence east 14.40 chains to the southerly line of said
lot; thence along said southerly line south 62(degrees) west, 16.31 chains to
the point of beginning.
Except therefrom that portion thereof described as follows:
Beginning at the intersection of the center line of an unnamed street 60.00 feet
wide as shown on said map, said street now known as Vermont Avenue, with the
southeasterly boundary of said tract; thence along said center line north
0(degrees) 01' 47" west 429.32 feet; thence north 89(degrees) 58' 13" east,
50.00 feet to a line parallel with and 50.00 feet northeasterly measured at
right angles to said center line; thence along said parallel line south
0(degrees) 01' 47" east 152.72 feet to the intersection with a curve concave
southwesterly having a radius of 3100.00 feet (a radial of said curve to said
intersection has a bearing of north 18(degrees) 20' 35" east); thence along said
curve southeasterly through an angle of 4(degrees) 34' 47" an arc distance of
247.79 feet to a line parallel with and 34.00 feet northwesterly measured at
right angles to said southeasterly boundary of said tract; thence along said
parallel line north 61(degrees) 50' 30" east, 190.64 feet; thence south
28(degrees) 09' 30" east, 34.00 feet to a point on the southeasterly boundary of
said tract, distant along said southeasterly boundary north 61(degrees)50' 30"
west 528.34 feet to the point of beginning.
PARCEL 2:
The west 700 feet of that portion of Lot 110 of the McDonald Tract, in the
Rancho San Pedro, in the City of Los Angeles, in the County of Los Angeles,
State of California, as per map recorded in Book 15, Pages 21 and 22 of
miscellaneous records, in the office of the county recorder of said county,
lying south of the line described as follows:
Beginning at a point on the west line of said lot which point is 211.28 feet
south of the northwest corner thereof and running east at right angles to said
west line, a distance of 1681.72 feet, more or less, to a point in the
southeasterly line of said lot.
Except the west 10 feet thereof.
Also except that portion of said lot, described as follows, to wit:
Beginning at the southwest corner of said Lot 110; thence north 7.66 chains;
thence east 14.40 chains to the southerly line of said lot; thence westerly
along said southerly line 16.31 chains to the point of beginning.
<PAGE>
PARCEL 3:
That portion of Lot 110 of McDonald Tract, in the City of Los Angeles, in the
County of Los Angeles, State of California, as shown on map recorded in Book 15,
Pages 21 and 22 of miscellaneous records, in the office of the county recorder
of said county, described as follows:
Beginning at the intersection of the center line of an unnamed street, 60.00
feet wide, as shown on said map, said street now known as Vermont Avenue, with
the southeasterly boundary of said tract; thence along said center line, north
0(degrees) 01' 47" west, 429.32 feet; thence north 89(degrees) 58' 13" east,
50.00 feet to a line parallel with and 50.00 feet easterly measured at right
angles to said center line; thence along said parallel line, south 0(degrees)
01' 47" east, 152.72 feet to the intersection thereof with a curve concave
southwesterly having a radius of 3100.00 feet (a radial of said curve to said
intersection has a bearing north 18(degrees) 20' 35" east), said intersection
also being the true point of beginning; thence along said curve southeasterly
through an angle of 4(degrees) 34' 47", a distance of 247.79 feet to a line
parallel with and 34.00 feet northwesterly measured at right angles to said
southeasterly boundary of said tract; thence along said parallel line south
61(degrees) 50' 30" west, 234.49 feet to the beginning of a tangent curve,
concave northeasterly having a radius of 17.00 feet; thence southwesterly,
westerly, and northerly along said curve through an angle of 118(degrees) 07'
43", a distance of 35.05 feet to the southerly prolongation of that certain
course hereinabove described as south 0(degrees) 01' 47" east, 152.72 feet;
thence along said course, north 0(degrees) 01' 47" west, 183.00 feet to the true
point of beginning.
Excepting therefrom all those portions of the above-described property occupied
or to be occupied by the supports and foundations of the viaduct, including
possible future expansion of the viaduct during the term of this Lease.
Also excepting therefrom all that portion of said property above a horizontal
plane 3 feet below the underside or soffit of the viaduct which plane extends to
the vertical boundaries of the above-described property.
2
<PAGE>
EXHIBIT C
LANDLORD'S RULES
----------------
1. NO SMOKING. No smoking shall be permitted within the Premises or any
other part of the Project's office building. Smoking at the Project shall be
permitted only in areas designated by Landlord.
2. ENTRANCES AND EXITS. The sidewalks, entrance, elevators, stairways
and halls shall not be obstructed or used for any purpose other than ingress or
egress. The common areas of the Project 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. Tenant shall not enter the mechanical rooms, air handler rooms,
electrical closets or janitorial closets or go upon the roof of the Project
without the prior written consent of Landlord.
3. AWNINGS. No awnings or other projections shall be attached to the
outside walls of any building in the Project, and no window shades, blinds,
drapes or other window coverings shall be hung in the Premises, without the
prior written consent of Landlord. Except as otherwise specifically approved by
Landlord, all electrical ceiling fixtures hung along the perimeter of the
Project must be approved by Landlord.
4. RESTROOMS. The toilets, water basins and other plumbing fixtures
shall be used solely for the purposes for which they were constructed, and no
garbage shall be thrown therein. All damage resulting from any misuse of such
fixtures shall be borne by the tenant who, or whose employees, agents or
invitees shall have caused the same.
5. DEFACEMENT. No tenant shall in any way deface any part of the
Premises or the Project. No boring or cutting for wires, stringing of wires or
laying of linoleum or other similar floor coverings shall be permitted without
the prior written consent of Landlord and then only as Landlord may direct.
6. PROHIBITED ACTIVITIES. No 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 without the prior written consent of
Landlord, except the preparation of coffee, tea and other beverages for the
tenant, its employees and visitors. No tenant shall cause or permit any unusual
or objectionable odors to escape from the Premises. The Premises shall not be
used for lodging or sleeping or for any immoral or illegal purposes. No tenant
shall make, or permit to be made, any unseemly or disturbing noises, sounds or
vibrations, or otherwise disturb or interfere with occupants of the Project or
those having business with them. No tenant shall throw anything out of doors or
in the corridors, stairways or other common areas of the Project. Tenant shall
not obtain access to, or permit its agents, servants, employees or contractors
to obtain access to utility lock-boxes, janitorial and building storage areas,
or other storage compartments not leased to Tenant without Landlord's prior
written approval.
7. DELIVERIES AND PICK-UPS. All removals or deliveries of freight must
take place during normal business hours and in the locations designated by
Landlord from time to time. The moving of fixtures,
<PAGE>
furniture or other large objects 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 prohibit or impose conditions upon the installation in the Premises of
heavy objects which might overload the Project floors.
8. ENTRY. Landlord reserves the right to exclude unauthorized parties
from the Project or Building at all times other than the reasonable hours of
generally recognized days of operation of the Project determined by Landlord.
All doors opening onto public corridors shall be kept closed, except when in use
for ingress or egress. On weekends and legal holidays, and on other days
between the hours of 6:00 p.m. and 7:00 a.m. the following day, access to the
Project, the Building or the Premises may be refused unless the person seeking
access is known to the employee of the Project in charge or is properly
identified. Landlord shall in no case be liable for damages for any error
respecting admission to or exclusion from the Project, the Building or the
Premises of any person. In case of riot or other commotion, Landlord reserves
the right to prevent access to the Project or the Building during the
continuance of the same by closing the door or otherwise, for the safety of the
tenants and protection of property in the Project. All of Tenant's agents,
employees and invitees shall comply with all security regulations established
from time to time by Landlord.
9. SOLICITORS. Canvassing, soliciting and peddling in the Project are
prohibited, and each tenant shall cooperate to prevent the same.
10. TELEPHONES. Landlord will direct technicians as to where and how
telephone wires are to be installed. The location of telephones and other
office equipment affixed to the Premises shall be subject to the approval of
Landlord.
11. EXPLOSIVES AND FIREARMS. No explosives, firearms or flammables of any
kind shall be brought into the Premises or the Project.
12. BUILDING DIRECTORY. The bulletin board or directory of the Building
(1) will be provided exclusively for the display of the name and location of
tenants only, (2) shall be maintained exclusively by Landlord with the cost of
such maintenance included in Expenses, as defined in Section 4(c), and (3) shall
------------
be in the form, location and size as determined by Landlord in its sole
discretion.
13. EXPULSION. Landlord reserves the right to exclude or expel from the
Project any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner violate the rules of
the Project.
14. REFUSE AND GARBAGE. Refuse and garbage shall be removed from the
Premises at such times and intervals, through such exits thereof and over such
routes of egress therefrom as Landlord may designate from time to time. No
refuse or garbage will be stored anywhere except inside the Premises or in the
areas designated by Landlord.
15. USE OF EXERCISE ROOM. Tenants shall notify their employees that their
use of the Exercise Room is at their own risk, in accordance with the Rules for
the Exercise Room and subject to release
2
<PAGE>
and hold harmless forms requested by Landlord which Landlord requires users of
the facility to sign. Tenants shall distribute copies of the Exercise Room rules
and release forms to its employees.
3
<PAGE>
EXHIBIT D
RELEASE AND INDEMNIFICATION
---------------------------
This Release and Indemnification ("Release") is made by VIKING OFFICE
-------
PRODUCTS, INC., a California corporation, as Tenant ("Tenant"), in favor of
------
HYUNDAI MERCHANT MARINE (AMERICA), INC., a California corporation, as Landlord
("Landlord"). This Release is made with reference to the following facts:
--------
A. Landlord is the owner of the office building (the "Building") located
--------
at 879 West 190th Street, Los Angeles, California, known as Andrex Point.
B. Tenant currently leases or concurrently herewith is leasing space in
the Building from Landlord, under the lease, dated as of July 10, 1995 (the
"Lease").
- ------
C. Tenant desires to be permitted to use the weight lifting and exercise
equipment and facilities on the third floor of the Building (the "Exercise
--------
Room").
D. Landlord requires this Release to be executed prior to permitting
Tenant and its employees to enter the Exercise Room.
NOW, THEREFORE, in consideration of permission for Tenant and its employees
to use or be present in the Exercise Room, Tenant hereby agrees with Landlord as
follows:
1. The Exercise Room is for the use of Tenant and its employees in common
with other tenants of the Building and their employees. Tenant agrees to
monitor the use of the Exercise Room by its employees to insure that any such
persons are physically able to use the Exercise Room and that such persons use
the Exercise Room at their own risk.
2. Tenant will not make a claim, demand, sue, or attach the property of
Landlord, Cushman & Wakefield of California, Inc., any other property management
firm engaged by Landlord, Landmark Management, Inc., any supplier of any of the
equipment in the Exercise Room or any of their respective shareholders,
officers, directors, employees, agents, legal counsel and other advisors
(collectively, the "Indemnitees"), for personal injury, property damage, or
-----------
death arising out of the use of or presence in the Exercise Room by Tenant, its
employees, or any other person using the Exercise Room with the consent of or
under authority of Tenant (collectively, "Tenant Users"), including, without
------------
limitation, those arising from the negligent or grossly negligent acts or
omissions of any Indemnitee, notwithstanding anything which is or appears to be
to the contrary in the Lease.
3. Tenant hereby releases and discharges each Indemnitee and agrees to
indemnify, defend and hold each Indemnitee harmless from any and all claims,
demands, liabilities, judgments and expenses, including, without limitation,
reasonable attorneys' fees and costs, of whatever nature and kind, whether known
or unknown by Tenant, arising out of the use of or presence in the Exercise Room
by Tenant Users, including, without limitation, those arising from the negligent
or grossly negligent acts or omissions of any Indemnitee, notwithstanding
anything which is or appears to be to the contrary in the Lease.
4. It is the intention of Tenant that this Release shall be effective
with respect to each and every claim, demand, liability, judgment, cause of
action and expense specified above, and in furtherance of this intention, Tenant
waives and relinquishes all rights and benefits under Section 1542 of the Civil
Code of the State of California, which provides:
<PAGE>
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have affected his settlement with the
debtor."
5. If any action or proceeding is brought against any Indemnitee by
reason of any such claim by any Tenant Users, Tenant agrees to defend the action
or proceeding, at its expense, by counsel reasonably satisfactory to such
Indemnitee upon notice from such Indemnitee. Tenant shall pay, satisfy and
discharge any judgments, orders and decrees which may be recovered against such
Indemnitee in connection with the foregoing.
6. The foregoing indemnity shall not require payment as a condition
precedent to recovery and shall survive the expiration or earlier termination of
the Lease with respect to personal injury, property damage, or death arising
from acts or omissions which occurred prior to such expiration or earlier
termination.
7. Tenant shall deliver or cause to be delivered to Landlord a Release in
the form of Exhibit E to the Lease executed by each Tenant User prior to his or
---------
her entering the Exercise Room.
8. The terms and provisions of this Release shall be binding upon and
inure to the benefit of the partners, affiliates, subsidiaries, parent
companies, stockholders, directors, officers, employees, agents and attorneys or
Landlord and Tenant and their respective predecessors, heirs, successors or
assigns.
Executed on _________________, 19__, at ___________________, California.
"TENANT"
VIKING OFFICE PRODUCTS, INC.,
a California corporation
By_________________________________
By_________________________________
2
<PAGE>
EXHIBIT E
RELEASE
-------
Voluntary Participation
-----------------------
1. I, _________________________________________________________,
acknowledge that I have voluntarily applied to enter the Exercise Room at the
premises of HYUNDAI MERCHANT MARINE (AMERICA), INC., a California corporation,
located at 879 West 190th Street, Los Angeles, California, known as Andrex
Point. I acknowledge that I have received a copy of the Exercise Room Rules &
Regulations and Equipment Operation. Furthermore, I agree to abide by all rules
and regulations of the Exercise Room.
Assumption of Risk
------------------
2. I AM AWARE THAT THIS EXERCISE ROOM AND EXERCISE ACTIVITIES INVOLVE
POSSIBLE HAZARDS. I AM VOLUNTARILY ENTERING THE EXERCISE ROOM AND USING THE
FACILITIES WITH KNOWLEDGE OF THE DANGER INVOLVED, AND HEREBY AGREE TO ACCEPT ANY
AND ALL RISKS OF INJURY OR DEATH.
Release
-------
3. In consideration of permission to use and be present in the Exercise
Room, I hereby agree that I will not make a claim, demand, sue, or attach the
property of HYUNDAI MERCHANT MARINE (AMERICA), INC., a California corporation,
Cushman & Wakefield of California, Inc., any other property management firm
engaged by Landlord, Landmark Management, Inc., any supplier of any of the
equipment of the Exercise Room, or any of their respective shareholders,
officers, directors, employees, agents, legal counsel and other advisors
(collectively, the "Releasees"), for injury, damage or death resulting from my
---------
presence in or use of the Exercise Room, including, without limitation, those
arising from the negligent or grossly negligent acts or omissions of any
Releasee. I hereby release and discharge each Releasee from any and all claims,
demands, liabilities, judgments, expenses, including, without limitation,
attorneys' fees and costs, of whatever nature and kind, whether known or
unknown, which I may at any time have against any Releasee arising out of my
presence in or use of the Exercise Room, including, without limitation, those
arising from the negligent or grossly negligent acts or omissions of any
Releasee.
It is my intention that this Release will be effective with respect to each
and every claim, demand, liability, judgment, cause of action and expense
specified above, and in furtherance of this intention, I waive all rights and
benefits under Section 1542 of the Civil Code of the State of California, which
provides:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have affected his settlement with the
debtor."
The terms and provisions of this Release shall be binding upon and benefit
the respective successors and assignees, heirs, distributees, guardians, and
legal representatives of the undersigned and Releasee.
Knowing and Voluntary Execution
-------------------------------
4. I HAVE CAREFULLY READ THIS AGREEMENT AND FULLY UNDERSTAND ITS
CONTENTS. I AM AWARE THAT THIS IS A RELEASE OF LIABILITY AND A CONTRACT BETWEEN
MYSELF AND HYUNDAI MERCHANT MARINE (AMERICA), INC., A CALIFORNIA CORPORATION,
AND SIGN IT OF MY OWN FREE WILL.
<PAGE>
Executed on _________________, 19__, at ___________________, California.
RELEASOR
___________________________________
2
<PAGE>
EXHIBIT F
TENANT IMPROVEMENT WORK AGREEMENT
---------------------------------
This Agreement is entered into as of the 10th day of July, 1995, by and
between HYUNDAI MERCHANT MARINE (AMERICA), INC., a California corporation
("Landlord"), and VIKING OFFICE PRODUCTS, INC., a California corporation
- ----------
("Tenant").
- --------
Whereas, Landlord and Tenant are executing, simultaneously with this
Agreement, a written lease (the "Lease") covering the premises located at 879
-----
West 190th Street, Los Angeles, California, Suite Nos. 1080, 1100 and 1200 (the
"Premises").
--------
Whereas, Landlord and Tenant desire to enter into an agreement regarding
the preparation of the Premises for occupancy by Tenant.
Now, therefore, to induce Landlord and Tenant to enter into the Lease
(which is hereby incorporated by reference to the extent that the provisions of
this Agreement may apply thereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant mutually agree as follows:
1. PREPARATION OF PLANS. On or before July 17, 1995, Tenant shall submit
to Landlord complete space design drawings prepared by Tenant's architect (the
"Space Plans") showing all tenant improvements which Tenant desires to install
- ------------
for its use of the Premises. Promptly after Landlord's receipt of the Space
Plans, Landlord shall solicit the construction bids of at least three
contractors. Landlord shall select the contractor to complete such tenant
improvements, subject to the approval of Tenant.
Tenant's architect shall submit definitive construction drawings to the
City of Los Angeles not later than August 15, 1995, and shall assist Landlord in
meeting the other deadlines set forth in the attached construction schedule.
The approval by Landlord of the Space Plans, the construction drawings or
any changes thereto, or any suggestions with respect thereto, shall not
constitute an opinion or representation with respect to the sufficiency thereof
or impose any present or future liability or responsibility upon Landlord.
Any redrawing of and any changes requested in the Space Plans or the
construction drawings by Tenant after Tenant's prior approval shall be at
Tenant's sole cost and expense. All such changes are expressly subject to
Landlord's prior written approval.
2. GOVERNMENTAL APPROVALS. The Space Plans and the construction drawings
(collectively, the "Plans"), and the work contemplated thereby, shall comply
-----
with the requirements of all governmental departments and agencies having
jurisdiction and the Board of Underwriters, Fire Rating Bureau, and other
similar body and the cost of all work required to bring the Premises, as
proposed to be improved pursuant to the Plans, into such compliance (including
the cost of installing energy efficient light fixtures and seismic upgrades)
shall be included within the Costs (as that term is defined below).
Landlord will cause the approved Plans to be filed with the appropriate
governmental agencies in such form as may be required and obtain the necessary
permits for the work to be performed pursuant hereto.
<PAGE>
3. CONSTRUCTION. Immediately upon approval of the Plans and the
obtaining of any required permits therefor, Landlord, subject to the other terms
and conditions of this Agreement and the Lease, shall proceed diligently to
cause the construction of the improvements in accordance with the approved Plans
(the "Work") to be completed on or before the Commencement Date of the Lease,
----
except if Landlord is prevented and delayed from so doing by reason of fire,
earthquake, inclement weather or other acts of God, acts of the public enemy,
riot, insurrection, governmental regulation of the sales of materials or
supplies or the transportation thereof, strikes or boycotts, shortages of
materials or labor or any other cause beyond the control of Landlord.
4. PAYMENT OF COSTS. Tenant shall reimburse Landlord for all costs and
expenses relating to obtaining necessary permits and completing the Plans and
the Work (the "Costs"), provided, however, (i) Landlord shall provide a tenant
----- -------- -------
improvement allowance not to exceed the sum of $3.36 per usable square foot of
the Premises (the "Tenant Improvement Allowance"), and (ii) Tenant shall pay
----------------------------
directly all space planning and architectural costs owing to Tenant's architect.
On or prior to the date on which the contractor commences construction,
Tenant shall pay to Landlord an amount equal to 50% of the excess of the
estimated total cost of completion of the Work over the Tenant Improvement
Allowance. An amount equal to 40% of such excess shall be paid by Tenant to
Landlord upon substantial completion of the Work, and the remaining 10% of such
excess shall be paid upon completion of the punch list items.
If the Costs are estimated to exceed the amount originally estimated by
Landlord, Landlord shall promptly furnish Tenant with written estimates of such
Costs. If Tenant shall fail to approve or disapprove in writing such estimates
in their entirety within five (5) business days from receipt thereof, Landlord
shall deem that the estimates are disapproved in all respects by Tenant, and
Landlord shall delay commencement of all Work, notify Tenant of potential delays
in completion and potential additional costs, which delays and additional costs
shall be the sole responsibility of Tenant, and in such event, Tenant shall be
responsible for rent and all other obligations set forth in the Lease from the
Commencement Date set out on page 1 of the Lease regardless of whether or not
the work in the Premises is substantially complete as of such date. If Tenant
disapproves or is deemed to have disapproved such estimates, Tenant shall
immediately meet with Landlord and/or Landlord's construction manager (the
"Construction Manager") to revise the Plans to an extent that the Costs are
- ---------------------
reduced to an amount which is either within the amount originally estimated or
to an amount in excess of the amount originally estimated which is acceptable to
Tenant. If, however, Tenant approves in writing such estimates as furnished by
Landlord within said five (5) business-day period or approves revisions thereto
based on revisions to the Plans as provided herein, Tenant shall pay Landlord
the actual Costs in excess of the amount originally estimated, as follows:
(a) an amount equal to fifty percent (50%) of the Costs in excess of
the amount originally estimated shall be paid to Landlord before
commencement of any Work; and
(b) an amount equal to the unpaid balance of the total actual Costs in
excess of the amount originally estimated shall be paid to Landlord upon
substantial completion of the Work.
Tenant shall pay, upon receipt of Landlord's invoice therefor, a
construction management fee to Landlord equal to Landlord's actual construction
management costs (not to exceed 5% of the total Costs). Landlord may withhold
and pay such fee from the Tenant Improvement Allowance.
In addition to the Tenant Improvement Allowance, Landlord shall recarpet
the Premises with the building standard carpet. Landlord agrees that Tenant may
remove the curved wall on the 10th floor as part of the Work and that such
curved wall shall not be restored upon termination of the Lease.
2
<PAGE>
5. COMMENCEMENT OF RENT. Tenant's obligations under the Lease shall not
commence until Landlord shall have substantially completed the Work as
determined by the Construction Manager or such other party appointed by Landlord
to supervise the performance of the Work; provided, however, that if Landlord
-------- -------
shall be delayed in substantially completing such Work as a result of any one or
more of the following:
(a) Tenant's failure to devote the time or furnish information
required in connection with the Work; or
(b) Tenant's failure to approve cost estimates for the Work within the
time period specified in Section 4 hereof; or
---------
(c) Tenant's changes in the Work or the Plans relating thereto
(notwithstanding Landlord's approval of any such changes); or
(d) any other act or omission by Tenant or its agents;
then and in any such event, Tenant's obligations, including, without limitation,
the payment of rent, under the Lease as provided for in the Lease shall not be
affected or deferred on account of such delay.
6. ALTERNATE COMMENCEMENT DATE. If Landlord is able to cause the
Premises to be Ready for Occupancy (as hereinafter defined) prior to the
Commencement Date of the Lease or if Landlord is unable to cause the Premises to
be Ready for Occupancy by the Commencement Date for reasons other than those set
out in subsections (a) through (d) of Section 5 above, the Commencement Date of
--------------- --- ---------
the Lease shall be on the first date the Premises are Ready for Occupancy. In
the event the Commencement Date set out on page 1 of the Lease is changed as
provided in this Section 6, then (i) if the Premises are Ready for Occupancy
---------
prior to the Commencement Date set out on page 1 of the Lease, the Commencement
Date shall be adjusted as provided in this Section 6 and the Rent Commencement
---------
Date shall be adjusted so that the number of months between the Commencement
Date and the Rent Commencement Date as adjusted shall be the same as the number
of months between the Commencement Date and the Rent Commencement Date shown on
page 1 of the Lease; provided, however, the Expiration Date shall remain as set
-------- -------
out on page 1 of the Lease, or (ii) if the Premises are Ready for Occupancy
after the Commencement Date set out on page 1 of the Lease, the Expiration Date
of the initial term of the Lease shall be extended by the number of days between
the Commencement Date set out on page 1 of the Lease and the Commencement Date
as adjusted by this Section 6 such that the initial term of the Lease extends
---------
for the number of months set out on page 1 of the Lease and the Rent
Commencement Date shall be similarly adjusted. In either such event, Tenant and
Landlord shall execute a Memorandum of Commencement Date in the form attached as
Exhibit G to the Lease, in which the parties specify the Commencement Date and
- ---------
the Expiration Date of the initial term of the Lease and the Rent Commencement
Date.
"Ready for Occupancy" as used herein shall mean the date on which Landlord
-------------------
shall have substantially completed all of the Work outlined in this Agreement
based solely on either the issuance of a Temporary Certificate of Occupancy (or
its equivalent) for the Premises or a certificate from the Construction Manager,
or such other party appointed by Landlord to supervise the performance of the
Work, certifying substantial completion of the Work. Landlord agrees to use
reasonable efforts to provide Tenant with at least ten (10) days prior notice of
the date the Premises are expected to be Ready for Occupancy. Landlord's
undertaking to provide ten (10) days prior notice to Tenant shall not change,
alter or otherwise affect Tenant's obligations under the Lease to take occupancy
of the Premises when the same are Ready for Occupancy.
3
<PAGE>
7. ACCESS BY TENANT PRIOR TO THE COMMENCEMENT DATE. Upon reasonable
request and prior notice of Tenant, Landlord shall permit Tenant and Tenant's
agents to enter the Premises prior to the Commencement Date in order that Tenant
may make the Premises ready for Tenant's use and occupancy. If Landlord permits
such entry prior to the Commencement Date, such permission shall constitute a
license only and not a lease and such license shall be conditioned upon (i)
Tenant's working in harmony and not interfering with Landlord and Landlord's
agents, contractors, workmen, mechanics and suppliers in doing the Work, or
Landlord's work in the Building or with other tenants and occupants of the
Building, and (ii) Tenant's furnishing Landlord with such insurance and other
security as Landlord may require against liabilities which may arise out of such
entry. Landlord shall have the right to withdraw such license for any reason
upon twenty-four (24) hours written notice to Tenant. Tenant agrees that
Landlord shall not be liable in any way for any injury or damage of, or loss to,
any of Tenant's property placed on, or installations made in, the Premises prior
to the commencement of the term of the Lease, the same being at Tenant's sole
risk, and Tenant agrees to protect, defend, indemnify and hold harmless Landlord
from all liabilities, costs, damages, fees and expenses arising out of or
connected with the activities of Tenant or its agents, contractors, suppliers or
workmen in or about the Premises or the Project.
8. TENANT DEFAULT. If Tenant fails to perform any of its obligations
under this Agreement, Landlord may, at its option, declare a default under the
Lease and terminate the Lease by written notice to Tenant. If Landlord so
terminates the Lease, and without limitation of Landlord's other remedies
provided under the Lease or by law, equity or otherwise, Tenant shall pay
Landlord the full amount of all expenses incurred by Landlord in connection with
this Agreement and the Work.
9. MISCELLANEOUS.
(a) Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Agreement shall have the meanings assigned
to them in the Lease.
(b) The terms and provisions of this Agreement are intended to
supplement and are specifically subject to all the terms and provisions of
the Lease. In the event of conflict between the terms of this Agreement
and the Lease, then the provisions of the Lease shall govern, except for
the provisions contained in the Memorandum of Commencement Date provided
for in Section 6 hereof, which shall supersede the Lease with respect to
---------
all matters contained therein.
(c) Within fifteen (15) days after the Commencement Date, Landlord's
contractor and Tenant shall inspect the Premises and jointly complete a
"punch list" of incomplete or defective work and thereafter Landlord shall
exercise due diligence to cause such punch list items to be completed.
(d) This Agreement may not be amended or modified other than by
supplemental written agreement executed by authorized representatives of
the parties hereto.
(e) Tenant shall not be entitled to any credits, whether in the form
of materials, rent credits or money, for any unused portion of the Tenant
Improvement Allowance.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LESSOR: LESSEE:
HYUNDAI MERCHANT MARINE (AMERICA), VIKING OFFICE PRODUCTS, INC., a California
INC., a California corporation corporation
By:___________________________ By:___________________________
Its___________________________ Its___________________________
By:___________________________
Its___________________________
5
<PAGE>
EXHIBIT G
MEMORANDUM OF COMMENCEMENT DATE
-------------------------------
This Memorandum of Commencement Date is entered into on this _____ day of
__________________, 19__, by and between HYUNDAI MERCHANT MARINE (AMERICA),
INC., a California corporation ("Landlord"), and VIKING OFFICE PRODUCTS, INC., a
--------
California corporation ("Tenant").
------
Whereas, Landlord and Tenant are parties to a written lease (the "Lease"),
-----
dated as of July 10, 1995, covering the premises located at 879 West 190th
Street, Los Angeles, California, Suite Nos. 1080, 1100 and 1200 (the
"Premises"), and that certain Tenant Improvement Work Agreement (the "T.I.
-------- ----
Agreement") providing for the preparation of the Premises for Tenant's
- ---------
occupancy.
Whereas, the Work (as defined in the T.I. Agreement) has been completed and
Landlord and Tenant wish to confirm the date the Premises were Ready for
Occupancy (as defined in T.I. Agreement) and certain other dates provided in the
Lease as required under Section 6 of the T.I. Agreement.
---------
Now, therefore, in consideration of the mutual covenants hereinafter
contained, Landlord and Tenant mutually agree as follows:
1. The Premises was Ready for Occupancy and delivered by Landlord to
Tenant and such Premises was accepted by Tenant, subject to Tenant's right under
Section 9(c) of the T.I. Agreement to prepare a "punch list" of incomplete or
- ------------
defective work, on the _____ day of _______________, 19__, which date shall
constitute the Commencement Date of the Lease.
2. Pursuant to the terms of the T.I. Agreement, certain other dates
provided in the Lease may be subject to adjustment. Landlord and Tenant hereby
acknowledge and confirm the following dates with regard to the Lease:
Commencement Date: _____________________, 19__
Expiration Date: ______________________, 19__
Rent Commencement Date: _____________________, 19__
Except as specifically modified herein, all other terms and conditions of
the Lease shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum as of
the day and year first above written.
HYUNDAI MERCHANT MARINE (AMERICA), VIKING OFFICE PRODUCTS, INC., a
INC., a California corporation California corporation
By:___________________________
By:___________________________
"Landlord"
By:___________________________
"Tenant"
2
<PAGE>
EXHIBIT H
CERTIFIED COPY OF CORPORATE RESOLUTION TO LEASE
-----------------------------------------------
The undersigned, as Secretary of VIKING OFFICE PRODUCTS, INC. , a
corporation organized and existing under the laws of the state of California,
hereby certifies that at a meeting of the Board of Directors of such
corporation, duly called and held on the _____ day of ______________, 19__, at
which meeting a quorum of said Board was present and acting throughout, the
following resolution was duly adopted by the unanimous vote of all the Directors
present, and the same has not since been rescinded or modified, and is presently
in full force and effect:
WHEREAS, this corporation desires to enter into a lease (the "Lease") with
-----
HYUNDAI MERCHANT MARINE (AMERICA), INC., a California corporation
("Landlord") wherein Landlord will lease to this corporation as tenant the
----------
premises commonly known as 879 West 190th Street, Los Angeles, California,
Suite Nos. 1080, 1100 and 1200;
NOW, THEREFORE, BE IT RESOLVED, that the President, any Vice President, any
Assistant Vice President, the Secretary, the Treasurer or any Assistant
Secretary or Assistant Treasurer of this corporation, acting together or
any one acting alone, be, and they hereby are, authorized on behalf of and
in the name of this corporation to enter into the Lease, for such time and
upon such terms as such officers, or any one of them acting alone, may
agree upon in their or his discretion.
RESOLVED FURTHER, that the President, any Vice President, any Assistant
Vice President, the Secretary, the Treasurer or any Assistant Secretary or
Assistant Treasurer of this corporation are authorized to execute the
Lease, and such other instruments or documents as such officer or officers
in their discretion may deem necessary or desirable in connection with such
Lease.
RESOLVED FURTHER, that this corporation ratifies the actions previously
taken by the officers of this corporation, or any one of them acting alone,
in connection with the obtaining of said Lease, actions taken to comply
with requirements of Landlord, and all other actions taken incidental
thereto.
RESOLVED FURTHER, that the authority conferred upon the aforesaid officers
by this resolution shall remain in full force and effect until written
notice of revocation by further resolution of the Board of Directors shall
have been received by said Landlord, and that a copy of this resolution
certified by the Secretary be delivered to said Landlord.
The undersigned further certifies that the officers of this corporation
hereunder set forth have been duly elected and hold the offices specified with
this corporation, and that the signature set forth beside each person's name is
the true signature of such person.
<PAGE>
TITLE TYPED NAME SIGNATURE
____________________ _______________________________ ________________________
____________________ _______________________________ ________________________
____________________ _______________________________ ________________________
IN WITNESS WHEREOF, this certification has been signed on behalf of this
corporation by its Secretary as of this _____ day of _________________, 19__.
____________________________________
Secretary
[corporate seal]
2
<PAGE>
EXHIBIT I
[Intentionally left blank]
<PAGE>
EXHIBIT J
ADDENDUM TO LEASE
-----------------
This Addendum is attached to and made a part of that certain Lease, dated
as of July 10, 1995, between HYUNDAI MERCHANT MARINE (AMERICA), INC., a
California corporation, as Landlord, and VIKING OFFICE PRODUCTS, INC., a
California corporation, as Tenant.
The following provisions amend and, to the extent of any conflict,
supersede the provisions of the aforementioned Lease:
1. OPTIONS TO EXTEND AT MARKET RENT. Provided that (1) Tenant is not in
default under any of the terms of this Lease at the time of exercise of each
option or at the expiration of the term of this Lease nor has an event occurred
which upon notice or lapse of time, or both, would create a default, and (2)
Tenant has not assigned this Lease nor sublet the Premises in whole or in part,
Tenant shall have two options to extend the term of this Lease for an additional
period of one year each.
Should Tenant exercise such option, the terms and conditions shall be in
accordance with the terms and conditions of the Lease, except for the amount
------
determined to be the market rent as provided herein.
Rent to be paid by the Tenant to the Landlord for the extended term shall
be the market rent for similar space in comparable buildings in the Los
Angeles/South Bay area as determined by Landlord at the time each option to
extend is exercised; provided, however, that in no such event shall the monthly
-------- -------
rental be decreased below the monthly rental then in effect under this Lease.
The criteria for the establishment of market rent (the "Criteria") shall
--------
include, but not be limited to, rental rate escalation provisions, expense
recapture and security deposit requirements as necessary to reflect the then
prevailing market conditions. To exercise each option, Tenant must give notice
in writing of its election to exercise such option to Landlord a minimum of one
hundred-twenty (120) days and a maximum of two hundred-ten (210) days prior to
the expiration of the initial term of this Lease. Landlord shall have sixty
(60) days from the date of receipt of Tenant's notice to advise Tenant of
Landlord's determination of market rent for the extended period.
Upon Tenant's receipt of notice from Landlord as to Landlord's
determination of market rent, Tenant shall have thirty (30) days to notify
Landlord in writing that it accepts such determination or that Tenant rejects
such determination (in which latter case, Tenant shall simultaneously notify
Landlord of Tenant's determination of the market rent). Tenant's failure to
respond within such thirty (30) day period shall be deemed an acceptance of
Landlord's determination of market rent and the Lease shall thereupon be
extended for an additional one-year period at a rental rate equal to Landlord's
determination of market rent.
If Tenant rejects the rental rate, as provided above, Landlord and Tenant
shall forthwith attempt in good faith to agree upon the market rent. If
Landlord and Tenant fail to reach agreement on such market rent within thirty
(30) days after the date of rejection (such date, the "Outside Agreement Date"),
----------------------
then each party's determination shall be submitted to appraisal in accordance
with the appraisal provisions set forth in Section 2 below.
---------
<PAGE>
2. APPRAISAL PROVISIONS.
(i) Landlord and Tenant shall each appoint a real estate appraiser who
shall be an individual of substantial experience and qualifications in
commercial real estate appraisal for mid-rise or high-rise office buildings in
the Los Angeles/South Bay area and who shall have been active in such appraisal
activities over the five (5) year period ending on the date of such appointment.
The determination of the appraisers shall be limited solely to the issue of
whether Landlord's or Tenant's determination of market rent is the closer to the
actual fair market rental (considering the Criteria referred to in Section 1
---------
above). Each such appraiser shall be appointed within fifteen (15) days after
the Outside Agreement Date.
(ii) The two appraisers so appointed shall within fifteen (15) days of the
date of the appointment of the second appointed appraiser agree upon and appoint
a third appraiser who shall be qualified under the same criteria referred to in
paragraph (i) above.
- -------------
(iii) The three appraisers shall within thirty (30) days of the
appointment of the third appraiser reach a decision as to whether the parties
shall use Landlord's or Tenant's determination of market rent, and shall notify
Landlord and Tenant thereof, whereupon the Lease shall be extended for an
additional one-year period at a rental rate equal to the market rate, as so
decided by the appraisers.
(iv) The decision of the majority of the three appraisers shall be binding
upon Landlord and Tenant.
(v) If either Landlord or Tenant fails to appoint an appraiser within the
time period specified in paragraph (i) above, the appraiser appointed by one of
-------------
them shall reach a decision based upon the same procedures as set forth above
(i.e., by selecting either Landlord's or Tenant's determination of market rent),
- -----
and shall notify Landlord and Tenant thereof, and such appraiser's decision
shall be binding upon Landlord and Tenant.
(vi) If the two appraisers fail to agree upon and appoint a third
appraiser, both appraisers shall be dismissed and the matter to be decided shall
be forthwith submitted to arbitration under the provisions of the American
Arbitration Association based upon the same procedures as set forth above (i.e.,
----
by selecting either Landlord's or Tenant's determination of market rent).
(vii) The cost of appraisal (and, if necessary, arbitration) shall be paid
by Landlord and Tenant equally.
3. PARKING. Landlord shall provide Tenant with four (4) parking spaces
per 1,000 usable square feet for the term of the Lease (including renewal
periods) at no additional cost, including nine designated parking spaces for the
exclusive use of Tenant (as shown on the attached diagram).
4. RIGHT OF FIRST OFFER. During the first twelve months of the initial
term of the Lease, so long as Tenant is not in default under the Lease, Tenant
shall have an option, exercisable by written notice delivered to Lessor, to
lease any available space on the tenth floor of the building (the "available
---------
space") in accordance with the provisions of this Lease, except that the Base
- -----
Monthly Rent for the available space shall be the prevailing market rent as
determined in accordance with the provisions of Section 1 above (but in no event
---------
shall the Base Monthly Rent be less than the Base Monthly Rent in effect at the
time of exercise of such option). Notwithstanding the foregoing, in the event
that Landlord desires to lease the available space (or any portion thereof) to a
prospective tenant (other than Tenant), Tenant shall have an option (during the
first twelve
2
<PAGE>
months of the initial term of the Lease and so long as Tenant is not in default
under the Lease) to lease the available space (or portion thereof) offered to
such prospective tenant for a period of 10 days after Tenant receives Landlord's
notice of its intent to offer the available space (or portion thereof) to a
prospective tenant (other than Tenant). In the event that Tenant fails to
exercise its option, as provided in the preceding sentence, Tenant's option to
lease the available space (or portion thereof) offered by Landlord to such
prospective tenant shall be subject and subordinate to Landlord's right to lease
the available space (or portion thereof) to such prospective tenant (and if such
prospective tenant leases the available space (or portion thereof), Tenant's
option rights under this Section 4 with respect to the available space (or
---------
portion thereof) leased by such prospective tenant shall terminate). In the
event that Tenant exercises its option under this Section 4, the Base Monthly
---------
Rent and additional rent for the available space shall commence on the date
Landlord delivers to Tenant free of other tenants and occupants the available
space with respect to which Tenant has exercised its option. Tenant shall submit
its plans and specifications for such additional space not later than 30 days
after it gives notice exercising its option. Promptly after Tenant exercises its
option the parties shall enter into an amendment to this Lease which
incorporates the available space as part of the Premises. Tenant shall construct
and bear the costs of construction of any improvement to such available space
which Tenant may desire, subject to execution of a mutually acceptable tenant
improvement work agreement with Landlord. Any such improvements shall be subject
to Landlord's prior written approval.
5. MONUMENT SIGNAGE AND BUILDING DIRECTORY. Tenant shall be granted the
right to place its name on the building monument signs located on the 190th
Street and Vermont Avenue frontages, provided that such placement shall be
subject to Landlord's reasonable aesthetic requirements. Tenant shall be
provided with 10 lines in the building's lobby directory.
6. NON-DISTURBANCE AGREEMENT. Landlord shall use its commercially
reasonable efforts to obtain a non-disturbance agreement (acceptable to Landlord
and Tenant) from the current lender or any future lenders and/or ground lessors
of the building parcel.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of
July 10, 1995.
HYUNDAI MERCHANT MARINE (AMERICA), VIKING OFFICE PRODUCTS, INC., a
INC., a California corporation California corporation
By:___________________________
By:___________________________
"Landlord"
By:___________________________
"Tenant"
4
<PAGE>
EXHIBIT F
AMENDED AND RESTATED TENANT IMPROVEMENT WORK AGREEMENT
------------------------------------------------------
This AMENDED AND RESTATED TENANT IMPROVEMENT WORK AGREEMENT (this
"Agreement") is entered into as of the 31st day of August, 1995, by and between
- ----------
HYUNDAI MERCHANT MARINE (AMERICA), INC., a California corporation ("Landlord"),
--------
and VIKING OFFICE PRODUCTS, INC., a California corporation ("Tenant").
------
WHEREAS, Landlord and Tenant have entered into a written office lease,
dated as of July 10, 1995 (the "Lease"), covering certain premises located in
-----
the City of Los Angeles and whose mailing address is 879 West 190th Street,
Suite Nos. 1080, 1100 and 1200, Gardena, California 90248 (the "Premises").
--------
WHEREAS, in connection with the Lease, Landlord and Tenant also entered
into a written Tenant Improvement Work Agreement, dated as of July 10, 1995 (the
"Original TI Work Agreement"), pertaining to the preparation of the Premises for
--------------------------
occupancy by Tenant.
WHEREAS, Landlord and Tenant now desire to amend and restate the Original
TI Work Agreement in its entirety, and to amend the Lease, in each case, as set
forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as
follows:
AMENDED AND RESTATED TENANT IMPROVEMENT WORK AGREEMENT
Landlord and Tenant hereby agree to amend and restate the Original TI Work
Agreement in its entirety as set forth below, and to replace the Exhibit F
originally attached to the Lease with this Agreement:
1. PREPARATION AND APPROVAL OF PLANS. Space design drawings prepared by
Tenant's architect (the "Space Plans") showing all tenant improvements which
-----------
Tenant desires to install for its use of the Premises have been completed and
approved by Landlord's construction manager ("Landlord's Construction Manager").
-------------------------------
Definitive construction drawings pertaining to such improvements have been
submitted to and approved by the City of Los Angeles, and Tenant has obtained
all permits required for the commencement of construction of such improvements.
The construction schedule pertaining to completion of such improvements (the
"Construction Schedule") has been approved by Landlord's Construction Manager
- ----------------------
and is attached hereto.
2. GOVERNMENTAL APPROVALS. The Space Plans and the construction drawings
(collectively, the "Plans"), and the work contemplated by this Agreement, shall
-----
comply with the requirements of all governmental departments and agencies having
jurisdiction and the Board of Underwriters, Fire Rating Bureau, and other
similar body and the cost of all work required to bring the Premises, as
proposed to be improved pursuant to the Plans, into such compliance (including
the cost of installing energy efficient light fixtures and seismic upgrades)
shall be included within the Costs (as that term is defined below).
Tenant shall obtain the necessary permits for the work to be performed
pursuant hereto, and shall complete all aspects of the Work in accordance with
all applicable laws and permits. Tenant shall be responsible for obtaining
temporary and will cooperate with Landlord in obtaining final certificates of
occupancy for the Premises upon completion of construction.
3. CONSTRUCTION. Tenant, subject to the other terms and conditions of this
Agreement and the Lease, shall proceed diligently to cause the construction of
the improvements in accordance with the approved Plans and the Construction
Schedule (the "Work") to be completed on or before the Commencement Date of the
----
Lease, except if Tenant is prevented and delayed from so doing by reason of
fire, earthquake,
<PAGE>
inclement weather or other acts of God, acts of the public enemy, riot,
insurrection, governmental regulation of the sales of materials or supplies or
the transportation thereof, strikes or boycotts, shortages of materials or
labor, unreasonable delay or interference on the part of Landlord or Landlord's
Construction Manager or any other cause beyond the control of Tenant.
All aspects of the Work (including the selection of contractors,
subcontractors, suppliers, vendors, materials and equipment) shall be subject to
the prior approval of Landlord. In furtherance of the foregoing, prior to
commencing construction, Tenant shall submit to Landlord's Construction Manager
a list of the contractors, subcontractors, suppliers and vendors (the
"Contractors") which will provide labor, materials or equipment in connection
- ------------
with completion of the Work (together with such information regarding the
Contractors' qualifications and experience as Landlord's Construction Manager
may request). All Contractors selected by Tenant shall be subject to the prior
reasonable approval of Landlord's Construction Manager. Tenant shall enter into
a construction contract (the "Construction Contract") with a general contractor
---------------------
approved by Landlord's Construction Manager. Landlord hereby consents to
Tenant's selection of Innerspace Constructors, Inc., as general contractor, and
to Tenant's selection of Electrical Construction Company, as electrical
subcontractor. The Plans, the Construction Schedule, the Construction Contract
and all other material construction agreements and documents (collectively, the
"Construction Documents") shall be in form and substance reasonably acceptable
----------------------
to Landlord's Construction Manager. Tenant shall not amend, modify or
supplement any Construction Document without the prior written approval of
Landlord's Construction Manager (not to be unreasonably withheld or delayed).
Landlord shall have complete access to all Construction Documents and shall
have the right to inspect all aspects of the Work.
The approval by Landlord and/or Landlord's Construction Manager of the
Contractors, the Construction Documents, any changes thereto or any suggestions
with respect thereto shall not constitute an opinion or representation with
respect to the sufficiency thereof or impose any present or future liability or
responsibility upon Landlord or Landlord's Construction Manager.
Tenant shall be responsible for obtaining the waiver or release of any and
all liens or encumbrances affecting the Premises or the Project which may arise
in connection completion of the Work.
All improvements made in connection with the Work (other than telephone
switching and data processing equipment) shall, upon installation, become the
property of Landlord and shall be left in place in the Premises upon termination
of the Lease.
4. PAYMENT OF COSTS. Tenant shall pay directly for all costs and expenses
relating to completing the Work (the "Costs"), provided, however, Landlord shall
----- -------- -------
provide a tenant improvement allowance not to exceed the sum of $3.36 per usable
square foot of the Premises (the "Tenant Improvement Allowance") following
----------------------------
receipt by Landlord of written acknowledgement from Tenant and Landlord's
Construction Manager that substantial completion of the Work has been achieved
in accordance with the requirements of this Agreement.
Tenant shall pay, upon receipt of Landlord's invoice therefor, a
construction management fee to Landlord equal to Landlord's actual construction
management costs (not to exceed 5% of the total Costs (exclusive of amounts paid
by Tenant to its architect and its construction manager)). Landlord may
withhold and pay such fee from the Tenant Improvement Allowance.
In addition to the Tenant Improvement Allowance, Landlord shall recarpet
the Premises with the building standard carpet. Landlord agrees that Tenant may
remove the curved wall on the 10th floor as part of the Work and that such
curved wall shall not be restored upon termination of the Lease.
2
<PAGE>
5. COMMENCEMENT OF RENT. Except as otherwise provided in Section 6 below,
---------
(i) Tenant's obligations under the Lease shall commence on the Commencement Date
set forth in Section 1(h)(1) of the Lease even if the Work is not completed
---------------
and/or the Premises are not Ready for Occupancy (as defined below) by said
Commencement Date, and (ii) Tenant's obligation to pay rent shall commence on
the Rent Commencement Date set forth in Section 1(h)(3) of the Lease, even if
---------------
the Work is not completed and/or the Premises are not Ready for Occupancy (as
defined below) by said Rent Commencement Date.
In consideration of this Agreement, Tenant and Landlord hereby agree that
the last three sentences of Section 3 of the Lease are hereby deleted in their
entireties.
6. ALTERNATE COMMENCEMENT DATE. If Tenant is able to cause the Premises
to be Ready for Occupancy (as hereinafter defined) prior to the Commencement
Date of the Lease or if Tenant is unable to cause the Premises to be Ready for
Occupancy by the Commencement Date for any reason referred to in the first
paragraph of Section 3 above, the Commencement Date of the Lease shall be on the
---------
first date that Tenant is able to cause the Premises to be Ready for Occupancy.
In the event the Commencement Date set out on page 1 of the Lease is changed as
provided in this Section 6, then (i) if the Premises are Ready for Occupancy
---------
prior to the Commencement Date set out on page 1 of the Lease, the Commencement
Date shall be adjusted as provided in this Section 6 and the Rent Commencement
---------
Date shall be adjusted so that the number of months between the Commencement
Date and the Rent Commencement Date as adjusted shall be the same as the number
of months between the Commencement Date and the Rent Commencement Date shown on
page 1 of the Lease; provided, however, the Expiration Date shall remain as set
-------- -------
out on page 1 of the Lease, or (ii) if the Premises are Ready for Occupancy
after the Commencement Date set out on page 1 of the Lease, the Expiration Date
of the initial term of the Lease shall be extended by the number of days between
the Commencement Date set out on page 1 of the Lease and the Commencement Date
as adjusted by this Section 6 such that the initial term of the Lease extends
---------
for the number of months set out on page 1 of the Lease and the Rent
Commencement Date shall be similarly adjusted. In either such event, Tenant and
Landlord shall execute a Memorandum of Commencement Date in the form attached as
Exhibit G to the Lease, in which the parties specify the Commencement Date and
- ---------
the Expiration Date of the initial term of the Lease and the Rent Commencement
Date.
"Ready for Occupancy" as used herein shall mean the date on which Tenant
-------------------
shall have substantially completed all of the Work outlined in this Agreement
based solely on either the issuance of a Temporary Certificate of Occupancy (or
its equivalent) for the Premises or a certificate from Landlord's Construction
Manager, or such other party appointed by Landlord to supervise the performance
of the Work, certifying substantial completion of the Work. Tenant agrees to
use reasonable efforts to provide Landlord with at least ten (10) days prior
notice of the date the Premises are expected to be Ready for Occupancy.
7. ACCESS BY TENANT PRIOR TO THE COMMENCEMENT DATE. Upon reasonable prior
notice of Tenant, Landlord shall permit Tenant and Tenant's agents to enter the
Premises prior to the Commencement Date in order that Tenant may make the
Premises ready for Tenant's use and occupancy. Such permission shall constitute
a license only and not a lease and such license shall be conditioned upon (i)
Tenant's working in harmony and not interfering with Landlord and contractors,
workmen, mechanics and suppliers in doing the Work, or Landlord's work in the
Building or with other tenants and occupants of the Building, and (ii) Tenant's
furnishing Landlord with such insurance and other security as Landlord may
require against liabilities which may arise out of such entry. Landlord shall
have the right to withdraw such license for any reason upon twenty-four (24)
hours written notice to Tenant. Tenant agrees that Landlord shall not be liable
in any way for any injury or damage of, or loss to, any of Tenant's property
placed on, or installations made in, the Premises prior to the commencement of
the term of the Lease, the same being at Tenant's sole risk, and Tenant agrees
to protect, defend, indemnify and hold harmless Landlord from all liabilities,
costs, damages, fees and expenses arising out of or connected with the
activities of Tenant or its agents, contractors, suppliers or workmen in or
about the Premises or the Project.
3
<PAGE>
8. INSURANCE REQUIREMENTS. Tenant shall cause each Contractor, Tenant's
construction manager and architect to obtain liability and property insurance
from insurance carriers acceptable to Landlord and in such amounts and otherwise
on such terms and conditions as shall be acceptable to Landlord in order to
protect Landlord against all risks which may arise in connection with completion
of the Work. In furtherance of the foregoing, Landlord shall be named as the
loss payee under each such policy of insurance covering property, and Landlord,
Landlord's Construction Manager, Cushman & Wakefield of California, Inc., and
Landmark Management, Inc. shall be named as additional insureds under each such
policy of liability insurance.
9. INDEMNITY. Tenant agrees that each of Landlord, Landlord's
Construction Manager, Cushman & Wakefield of California, Inc., Landmark
Management, Inc. and their respective shareholders, officers, directors,
employees, agents and counsel (collectively, the "Indemnitees") shall not be
-----------
liable in any way for any injury or damage of, or loss to, any of Tenant's
property placed on, or installations made in, the Premises prior to the
completion of the Work, the same being at Tenant's sole risk. Tenant shall
indemnify and hold harmless each Indemnitee, and at such Indemnitee's option,
defend such Indemnitee from any and all legal and equitable claims, demands,
causes of action, liabilities, obligations, costs and expenses (including
reasonable attorneys' fees, court costs and litigation expenses) of any kind
arising out of the activities of Tenant or its employees or agents, contractors,
subcontractors, architects, suppliers or workmen in or about the Premises or the
Project or the performance of the Work. In addition, Tenant shall indemnify and
hold harmless each Indemnitee, and at such Indemnitee's option, defend such
Indemnitee from any and all costs and expenses incurred in connection with the
nonpayment of any mechanic, materialman or other entity or person providing
goods or services in connection with the Work and/or in connection with the
release of any mechanic's, materialman's or similar lien or encumbrance
affecting the Premises or the Project. Tenant's obligations under this Section
-------
9 shall not be limited to the amounts of coverage of insurance maintained or
- -
required to be maintained by Tenant under this Lease. It is the intention of
the parties that this indemnity does not require payment as a condition
precedent to recovery by any Indemnitee against Tenant under this indemnity and
that each Indemnitee shall be indemnified by Tenant to the full extent permitted
by law.
10. TENANT DEFAULT. If Tenant fails to perform any of its obligations
under this Agreement, Landlord may, at its option, declare a default under the
Lease and terminate the Lease by written notice to Tenant. If Landlord so
terminates the Lease, and without limitation of Landlord's other remedies
provided under the Lease or by law, equity or otherwise, Tenant shall pay
Landlord the full amount of Landlord's damages associated with Tenant's
nonperformance of this Agreement and all expenses incurred by Landlord in
connection with the Lease, this Agreement and the Work, including all broker's
commission paid or payable in connection with the Lease and all attorneys' fees
(including the cost to Landlord of preparing the Lease and this Agreement), and
all costs incurred by Landlord in reviewing and supervising the Construction
Documents and/or the Work.
11. MISCELLANEOUS.
a. Except to the extent otherwise indicated herein, the initially
capitalized terms used in this Agreement shall have the meanings assigned
to them in the Lease.
b. Within fifteen (15) days after the Commencement Date, Landlord's
Construction Manager and Tenant shall inspect the Premises and jointly
complete a "punch list" of incomplete or defective work and thereafter
Tenant shall exercise due diligence to cause such punch list items to be
completed.
c. This Agreement may not be amended or modified other than by
supplemental written agreement executed by authorized representatives of
the parties hereto.
4
<PAGE>
d. Tenant shall not be entitled to any credits, whether in the form of
materials, rent credits or money, for any unused portion of the Tenant
Improvement Allowance.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LANDLORD: TENANT:
HYUNDAI MERCHANT MARINE (AMERICA), VIKING OFFICE PRODUCTS, INC., a
INC., a California corporation California corporation
By:___________________________
By:___________________________
Its___________________________
Its___________________________
By:___________________________
Its___________________________
5
<PAGE>
EXHIBIT 10.14
L E A S E
=========
The following LEASE is contracted
between
the GAW VERMOGENSVERWALTUNG Georg A. Wissler,
Babenhauser Str. 4, 63762 Grossostheim, Tel. 06026 / 7068,
represented by Mr. Georg A. Wissler
- LESSOR -
and
the company VIKING Direct GmbH
63762 Grossostheim, Babenhauser Strasse 50
Phone Fax
represented by the President Mr. Rudolf Kaldekerken
- LESSEE -
Paragraph I.
Lease object:
- -------------
1. The lessor leases building No. 8, ground floor of the IndustrieHandelsPark
Nord, Babenhauser Str. 50, 63762 Grossostheim, together with the included
social and administrative building No. 8 a, including truck and auto parking
spaces, to the lessee as a warehouse and sales center for office products.
The leased total utilizable area of the buildings No. 8 + 8 a amounts to
6547 m/2/ according to the included ground-plan. The arrangement of the also
leased truck and auto parking spaces is also shown in the included plans of
the site.
<PAGE>
2. The hall 8 and the office building 8 a will be transferred in newly
renovated condition.
3. The leased space will be measured together with the lessor - according to
DIN 283 upon request of the lessee by August 15th, 1995, at the latest,
otherwise the square meters-stated in paragraph III, are valid.
4. The included plans from March 8th, 1995, consisting of the following, are
the foundation of this contract:
No. 5080 a Site - plan of the IndustrieHandelsPark Nord
No. 5080 b Site - plan of the auto and truck parking spaces
Bldg. 8 + 8 a
No. 5080 c Ground - plan of the ground floor Hall No. 8
No. 5080 d Cross - section Hall No. 8
No. 5080 e Views of Hall 8
No. 5080 f Ground - plan Office 8 a. ground floor. 1st and 2nd upper
floors
5. The areas are marked as following in the site plans 5080 a and 5080 b:
----------------------------------------------------------------------
- Building leased to the lessee green
- Parking spaces leased to the lessee yellow
- Surrounding leased area blue
- Courtyard and street areas, which the lessee uses
together with the other tenants as driveways red
Paragraph II.
Beginning of lease / Transfer / Duration of lease / Termination:
----------------------------------------------------------------------
1. The tenancy begins on July 1st, 1995 or at the latest upon transfer.
2. Upon transfer, a written protocol describing the condition of the lease
object upon occupation is to be drawn up. This protocol is to be signed
by both parties.
3. The tenancy is contracted for a fixed duration of 10 years, in other words
until June 30th, 2005.
4. The tenancy can be terminated by both parties of the contract with
adherence to a notice period of 12 calendar months before the end of the
fixed duration of the contract, in other words, June 30th, 2005. The
termination must be sent by registered mail with return confirmation. The
day of the postage stamp cancellation is decisive for punctuality. In case
the termination is served personally, the termination shall be confirmed by
the owner.
<PAGE>
5. If the tenancy is not terminated with the proper notice as determined in
paragraph II, chapter 4, it is extended for 5 more years after the fixed
duration of the contract has expired. It can be terminated with adherence
to a notice period of 12 months before the end of the extended term. This
termination must also be sent with registered mail with return
confirmation. The day of the postage stamp cancellation is decisive for
punctuality.
6. The right to exceptional termination for important reasons is untouched by
the foregoing provisions.
Paragraph III.
Rent / Ancillary expenses:
--------------------------
1. The monthly rent is composed of the following:
a) Ground level hall utilizable space
6112 m/2/ @ DM 8.00 DM 48,896.00
b) Social rooms ground floor 145 m/2/
Office 1st upper floor 144 m/2/
Office 2nd upper floor 144 m/2/
--------
435 m/2/ @ DM 14.80 DM 6,438.00
c) Truck parking spaces
located at the ramp 3.50 x 14 m
14 spaces @ DM 225.00 DM 3,150.00
d) Truck parking spaces
located next to the ramp 4.50 x 11 m
2 spaces @ DM 300.00 DM 600.00
e) Hall surrounding area
in range of entrance and hall gates
210 m/2/ @ DM 3.50 DM 735.00
f) Auto parking spaces
asphalt and marked parking spaces on
East + West + North sides
61 spaces @ DM 42.00 DM 2,562.00
------------
Net monthly rent DM 62,381.00
Plus 15 % VAT DM 9,357.15
------------
Gross monthly rent DM 71,738.15
============
<PAGE>
2. Ancillary Expenses
------------------
a) Heating costs: The buildings No. 8 + 8 a are heated by a pump warm -
water heater 80/60 (degree)C from building 7 b. which delivers an
inside temperature of +20 (degree)C in the hall and an inside
temperature of +22 (degree)C in the offices, at an outside temperature
of -10 (degree)C.
The heating costs are registered by a calorimeter. The calculation is
done by representation, related to the heated building utilized spaces
and measured consumption of the leased number of square meters.
The heat is delivered by WIDEFLEX GmbH at the rates which are common
(comparable or cheaper than public heat plants for supplying commercial
rooms), and include operational, maintenance, and service costs. The
settlement of accounts is carried out by an authority after the heating
period has ended.
The lessee will make an appropriate monthly advance payment from June
1st to May 31st of the following year. These advance payments are
calculated according to the consumption during the previous heating
period, and take any possible changes in costs into account.
b) Service costs heating devices inside the building:
-------------------------------------------------
The operating and maintenance expenses for the consumption metering
devices (heat quantity meter, among others) and the heating
installations are to be appointed and carried out by the lessee.
c) Heating costs advance payment:
-----------------------------
The present monthly heating cost advance payment amounts to:
6.547 m/2/ @ DM 1.10 DM 7,201.70
plus 15% VAT DM 1,080.26
-----------
DM 8,281.96
===========
d) Additional heating costs are created by the following: fuel oil,
corresponding order and delivery costs, daily supervision of the
heating system, burner maintenance including repair work, etc.
e) Electricity: The power and light electricity supply (220/230 Volt,
50 Hz) for the building No. 8 + 8 a, connected load approx. 90 kW, is
done by WIDEFLEX GmbH via the transformer location of the
IndustrieHandelsPark Nord. The electricity consumption is registered by
the metering devices in building No. 8 + 8 a, which are read off
monthly, and is billed according to the common rates of the company
EVU - WIDEFLEX, consisting of representation + measured consumption +
power losses etc.
<PAGE>
This includes the operating and maintenance costs for the transformer
location, the high voltage switching system, the low voltage main
distributor, the low voltage cable network. These costs are added to
the electricity price.
The present calculated electricity price for the time being per kWh of
effective power consumption, including representation, amounts to DM
0.32 + Tax. WIDEFLEX GmbH retains the right to change the power price
so that it passes on any discounts offered by the power supplier or
increases in expense to the lessee.
f) Water / Sewer fees: The water and sewer fees are registered via the
-------------------
water meters in building No. 8 + 8 a, and the lessee is billed
according to the fee rates of the Marktgemeinde Grossostheim, plus
reading fees.
These are presently DM/m/3/ 4.10 plus tax for water supply and
drainage together.
g) Garbage removal service: If the public garbage removal service is
------------------------
used, the costs are to be paid directly to the garbage removal service
by the lessee.
h) Cleaning of the leased rooms: The cleaning of the leased rooms
-----------------------------
including the glass front is to be taken care of by the lessee. The
cleaning is to be done in weekly intervals, in order to present the
object, at all times, in an immaculate condition. Furthermore, once a
year, during the month of March, the lessee is to have a base cleaning
done by a building cleaning service at her own expense, so that the
standard of cleanliness present upon transfer remains extensively
maintained.
i) Property tax: The lessee takes over the accruing property tax for the
-------------
leased buildings No. 8 + 8 a and the parking spaces.
j) Plant security: It will be inevitable, due to the size of the
---------------
IndustrieHandelsPark Nord and its valuable inventories, to pursue a
guard of the objects by two plant security members, during the time
period from 4.00 p.m. to 6.00 a.m. on weekdays, and 24 hours on
weekends.
The guarding service will be organized by the WIDEFLEX service
company, in other words it will authorize a plant security company.
The accommodation will be provided by guard house, to be built by the
GAW Vermogensverwaltung. The GAW Vermogensverwaltung remains the right
to introduce this guarding service, provided that more than 51% of the
lessees, according to the leased area of the IndustrieHandelsPark Nord
wish to have a guarding service.
<PAGE>
The GAW Vermogensverwaltung must only introduce this guarding service,
if the costs for this security service, according to the leased area,
can be covered by all lessees, or, if the majority of the lessees,
requiring the introduction of plant security, also takes care of the
generated costs.
The costs generated by plant security will be proportionally calculated
according to the leased and covered (heated) leased area, provided that
all lessees had required this service. Provided all lessees wish to
have plant security, the costs will be calculated proportionally to the
expense of the lessees who had asked for the guarding service.
The costs include: staff expenses, guard house rent, heating costs -
cleaning, maintenance and servicing of the technical installations:
barriers, gate + gate motor, fencing, telecommunications installations,
fire department telephone connection, registration systems, telephone
bills, electricity, water, billing and supervision expenses of the
WIDEFLEX GmbH, etc.
3. Ancillary costs for outside installations:
-----------------------------------------
The IndustrieHandelsPark Nord is a privately run industrial and commercial
area with extensive gate and fence installations and extensive green
areas, etc.
These common installations which are used by all tenants are tended and
maintained by WIDEFLEX GmbH. The operation and maintenance costs for
outside installations are determined and apportioned to the tenants with
proof of cost account by an authority at the end of the year. The services
include:
a) Cleaning of the streets:
------------------------
Half of the cleaning in the area of the Babenhauser Strasse, the
Bauhofstrasse, the Stockstadter Strasse, in the IndustrieHandelsPark
Nord, according to the community fee rates of the Marktgemeinde
Grossostheim. Cleaning of the commonly used asphalt private streets,
open areas, and parking spaces in the IndustrieHandelsPark Nord, based
upon 52 cleanings per year, including sewer and street drain cleaning.
b) Winter service:
---------------
The winter service (clearing snow and littering) is done for the leased
open areas, the commonly used streets, the parking areas and the
apportioned part of the local road.
<PAGE>
c) Green areas:
------------
Tending of the green areas in the complete IndustrieHandelsPark Nord
Gro(beta)ostheim, based upon 15 lawn mowings, pruning 6 times in the
plant area (conifers and thickets), 3 times weed killing in the areas
of the street edges and borders of the halls, including waste removal,
fertilization, maintaining the fences and gates with partial locking
service, flowers: summer and fall plantings.
d) Outside lighting:
-----------------
Maintaining the outside and security lighting, including replacement
of disposable, glimmer switches, etc.
e) Advance payment:
----------------
The monthly advance payment amounts to:
Utilized area buildings No. 8 + 8 a
6.547 m/2/ @ DM 0.25 DM 1,636.75
plus 15 % VAT DM 245.51
------------
DM 1,882.26
============
f) Sprinklers:
-----------
The hall 8 is protected with a sprinkler system, protection class Bg
4.2 7.5 mm, which is taken care off and protected under supervision of
the technical guidelines of the VDS, and supplied by a common central
headquarters in building 7 b. The maintenance of the sprinkler
headquarters is done by WIDEFLEX GmbH.
The operating and service costs which accrue, for example,
electricity, water, fuel, heating, daily visual checks, weekly trial
alarms, semiannual testing by the VDS or by equivalent organizations,
i.e. TUV, or independent experts, are apportioned to the tenants of
the sprinkled buildings (hall6+7+8) according to area, and are to be
paid by the lessee. The monthly advance payment presently amounts to:
6.112 m/2/ sprinkled area @ DM 0.15 DM 916.80
plus VAT DM 137.52
------------
Gross advance payment DM 1,054.32
============
<PAGE>
4. Non-recurring ancillary costs address signs:
--------------------------------------------
The lessor will have two eloxated, engraved aluminum signs 30 x 60 cm
hung up at the entrance of the IndustrieHandelsPark and at building 8.
The costs for these signs, their installation and removal after the
end of the lease period are to be carried by the lessee. The costs
are:
3 signs @ DM 110.-- DM 330.--
plus 15 % VAT DM 49.50
---------
DM 379.50
=========
5. Due Date:
---------
a) The rent must be paid monthly into a bank account which is named by
the lessor by the 5th work day of every month in advance. This account
at the present is: "Mietkonto der GAW Vermogensverwaltung, acc. no.
21824, BLZ (bank no.) 795 500 00, Sparkasse Aschaffenburg-Alzenau,
63739 Aschaffenburg, Friedrichsstrasse 19.
b) The rent ancillary costs must be paid monthly into the bank account of
the WIDEFLEX GmbH by the 5th work Day of every month in advance. This
account at the present is: WIDEFLEX GmbH. Bayerische Vereinsbank,
Filiale Grossostheim, acc.-no. 6815049, BLZ 795 200 70.
6. Accounting period ancillary costs + rent ancillary expenses:
------------------------------------------------------------
The settlement of the rent ancillary expenses is carried out by the
service company WIDEFLEX Grossostheim.
The accounting period for the heating costs is from June 1st until May
31st of the following year. The final settlement is carried out 6
months after the end of the heating period, at the latest. Electricity
and water/sewage fees are calculated monthly.
The accounting period for the ancillary costs outside installations
and sprinkler system is comprised by the complete year. Final
settlement is reached, at the latest, 6 months after the end of the
year.
7. Most favourable price clause:
-----------------------------
All ancillary costs mentioned in (S) III subparagraph 2 like heating
costs, electricity, guarding service and subparagraph 3 ancillary
costs for outside area like street cleaning, winter service, green
areas, outside lighting and sprinklers correspond with the most
favourable customary local price. The lessor agrees that no cost
exceeding the customary local price will be charged. The customary
local price, for the purpose of this agreement, will be determined by
a certified authority (Chamber of Industry and Commerce) who will be
commissioned by the lessor.
<PAGE>
Paragraph IV.
Setting off prohibition / Retention:
------------------------------------
Setting off claims of the lessee against the claims of the lessor to
payment of rent and the contractually agreed upon ancillary costs is not
possible, unless the claim is specifically recognized in writing by the
lessor beforehand, or has been legally determined by court judgment. The
lessee practicing retention rights against the lessor is excluded from this
contract.
Rent reduction is only permissible, if the lessee had announced her
intention towards rent reduction in written style, at least a month ahead
of time, and if she had asked the lessor to eliminate the rent shortage
during an appropriate time period, in the same letter.
Paragraph V.
1. Value insurance clause:
-----------------------
a) In respect of long duration of the tenancy, which is automatically
renewed if not terminated, the parties to the contract agree that as of
January 1st, 1996 an appropriate adaptation of the rent by increase in
rent or rent reduction shall occur, in so far as the cost of living
index for an average 4 person employee household in the area of the
Federal Republic, including West Berlin (not including the new federal
states), goes up or down by more than 10 points according to the
Statistisches Bundesamt Wiesbaden in regard to determined index for the
key date January 1st, 1991-- depending on the index base 1980 = 100
points. Several increases or reductions are added together by addition
to the point count.
b) If a change in rent has occurred because of relevant conditions, a
renewed change occurs if during the further duration of the contract an
increase or reduction of at least 10 points happens according to the
key date of the last change.
c) In every case of increase or reduction of 10 points, the rent increases
or decreases as of the first of the month on which the full 10 points
were attained by a 0.5% of the last valid rent per full index point.
Example:
--------
Should an increase of 14 points occur in the period of Janaury 1st,
1996 to December 31st, 1997, the rent increases as of January 1st, 1998
by 14 x 0.5% = 7.0%. The same is valid for a reduction.
2. The lessor takes over the responsibility of obtaining any necessary
permission for the value insurance clause from the Landeszentralbank.
<PAGE>
Paragraph VI.
Usage compensation / Subletting:
- --------------------------------
1. Every change in the usage of the lease object requires written permission
from the lessor. Any necessary notification, reports, and permits necessary
with the authorities are completely the task of the lessee. The lessor
commits himself to support the lessee as required, if permission is granted
by the lessor.
The lessor may refuse consent in case the proposed change in usage
jeopardizes the lessor's own conserns which are worth being protected.
2. Previous written permission from the lessor is necessary before subletting.
The lessor has the right to refuse permission if there are important
reasons.
3. The lessee is committed to notify the lessor in writing of any changes in
usage and/or subletting, and also to substantiate them if required. The
lessor is committed to notify the lessee of her permission or denial in
writing within one month.
Paragraph VII.
Installations and miscellaneous measures for using the lease object:
- --------------------------------------------------------------------
1. The lessee is obliged to handle the lease object carefully and
considerately.
2. The lessee has the right to have any installations which are usual for the
the intended use of the tenancy, installed at her own expense. Written
permission, after submitting plans, is to be obtained from the lessor for
necessary constructional changes during tenancy. The lessor has the right
to deny permission if an impairment of her interests or danger to the lease
object could occur through the planned measures. A reduction of the rent is
out of the question, should the usefulness of the lease object be impaired
by reconstruction.
3. Usage of forklifts:
-------------------
Four wheel forklifts with electric drive or gas drive + soot filter may be
used in the hall. The wheels should have a great diameter and possibly air
pressurized. The usage of three wheel forklifts is not permitted. The usage
of other forklift types requires the lessor's permission.
<PAGE>
Paragraph VIII.
Liability of the parties of the contract / Fire insurance costs:
- ----------------------------------------------------------------
1. Occurring damages to the lease object are to be reported to the lessor
immediately. If there is danger in delay, the lessee may have the necessary
measures taken at the expense of the lessor. The lessee must however,
notify the lessor beforehand by telephone.
2. Minor and small repairs of up to DM 300.--in special cases up to a yearly
maximum amount of DM 1,000.--are at expense of the lessee. They will be
done and paid for by the lessee.
3. The lessee will take out a liability insurance policy for the business in
the warehouse No. 8, with office building No. 8 a, including the
surrounding streets, free areas, parking lots, and additional areas.
4. The lessee assumes the risk of fire, water, also rain water, storm,
breaking and entering, theft, etc. for the goods which are brought into the
rented rooms and for the damages which may occur to the building during
breaking and entering robbery or vandalism. Upon request the lessee must
provide the lessor with written proof of such an insurance policy. In so
far as the risk cannot be insured by the lessee, the insurance policy will
be taken out of the lessor. The costs which accrue as a result (premiums)
are carried by the lessee.
5. The lessor bears the building fire insurance, for an empty building. The
lessee bears the excess sum of the premium for the building fire insurance
which is the result of the increase in risk due to commercial usage. The
lessor will present the building fire insurance premium, and pass on the
excess sum for the lessee to pay, and submit a copy of the bill for the
premium. The sum of the premium which has been passed on is due upon
presentation to the bill.
6. Recourse renunciation:
----------------------
The lessee respectively her insurance withholds from claims against the
lessor, in case of damage to property caused by the lessor, the WIDEFLEX
GmbH resp. on of their employees due to fire or explosion, provided that
her liability insurance is not exceeded.
7. Necessary repairs to the roof and walls will be carried out and paid for by
the lessor, with the exception of the carpeting. If the lessee is
responsible for damages to the building, she must reimburse the lessor for
these repair costs. She had the right to repair the damage herself if she
observes the quality standards of the lessor. This is valid for all damages
caused by suppliers, customers, visitors or employees and miscellaneous
persons of the lessee.
<PAGE>
8. The building will be transferred in newly renovated condition as listed in
the transfer protocol with new lighting.
9. The expense for renovation measures, especially cosmetic repairs, including
carpeting base cleaning inside of the building, during the tenancy will be
done by and paid for by the lessee. This is to be done in intervals of five
years at the least or earlier, should it be necessary, so that the building
always makes a clean well groomed impression.
10. The lessee and the lessor oblige themselves to keep the common driveways
and passages free: Special care is to be taken to keep the driveways and
surrounding passages, free at all times, especially for the fire brigade.
Paragraph IX.
In order to secure all claims of GAW Vermogensverwaltung under this lease
the lessee as principal debtor will provide the lessor with an
unconditional, unlimited guaranty of a major German bank in the amount of
DM 600.000.00.
This letter of guaranty shall be deposited with GAW Vermogensverwaltung at
the latest 4 weeks upon execution of this lease. The performance of this
obligation is an essential prerequisite for the validity of this lease. GAW
Vermogensverwaltung agrees to keep this letter of guaranty in custody, GAW
Vermogensverwaltung shall not encumber or transfer the letter of guaranty.
After 2 years as of the occupation of hall 8 GAW will release a part of the
guaranty in the amount of DM 200.000.00. After 6 years as of the occupation
of hall 8 GAW will return the letter of guaranty of the lessee.
GAW Vermogensverwaltung shall pay 50% of the guaranty commission, which
has to be paid for by the lessee, however, a maximum of 0.75% per annum of
the guaranty amount of DM 600.000.00 initially and then DM 400.000.00.
The lessee will invoice this share of the commission to the lessor 3 months
after the beginning of each year of lease.
Paragraph X.
Termination of the tenancy / Return:
- ------------------------------------
1. Upon termination of the tenancy, the lease object is to be returned base
cleaned, tidy, and newly renovated.
<PAGE>
2. Damages to the building which happen during removal of the business
furnishings occur to the lessee and must be corrected at her expense.
3. The lessee must remove the installations and reconstruction which was done
by her and restore the original constructional condition upon occupation at
her own expense upon request of the lessor. If the installations are taken
over by the lessor, compensation is to be taken according to their current
value.
4. The object is returned with new fluorescent tubes + HQL bulbs + PAR bulbs.
Upon returning the buildings No. 8 + 8 a, the lessee replaces all luminous
matter with new luminous matter. The lessee bears the expense.
5. Upon returning the lease object, a written transfer protocol is to be drawn
up and signed by the involved parties. The condition of the lease object
upon returning must be described in it.
Paragraph XI.
Lease of building No. 7 IndustrieHandelsPark Nord:
- --------------------------------------------------
Building 7 is presently occupied by Motex GmbH, Grossostheim. GFW
Vermogensverwaltung is planning on erecting a 20.000 m/2/ warehouse in
1995/96 for Motex GmbH. After completion of the new warehouse Motex GmbH
will leave building 7 which can relet.
The lease intends to lease the one-storey building 7 with the three-storey
social and administrative building 7a plus POV and truck carparks.
The area of building 7 is composed as follows:
a) Ground floor hall utilizable area: 5,944 m/2/
b) Social rooms ground floor 144 m/2/
Office rooms 1st floor 143 m/2/
Office rooms 2nd floor 143 m/2/
--------
430 m/2/
c) Ramp area = 14 truck parking spaces
d) Surrounding area resp. frontal area:
East 520 m/2/ = 42 parking spaces
West 520 m/2/ = 41 parking spaces
<PAGE>
The lessor is prepared to let building 7, as soon as it is available to the
lessee applying the same conditions as for building 8, the rent being
adjusted in accordance with the inflation rate. The lessor shall use its
best endeavours to make available the building by 1 January 1997 as
requested by the lessee.
Paragraph XII.
Miscellaneous agreements:
- -------------------------
1. The lessor has the right to view the lease object herself during business
hours, or have it viewed by a representative after previous notification.
2. The property management company WIDEFLEX GmbH has the right to enter the
building for service work and to read the meters at the end of the month.
3. The lessee will give a set of keys, which will be kept in a sealed envelope
in the property management company's safe, so that the lease object can be
opened in case of danger such as fire, water pipes bursting, short circuit
etc.
These keys will only be used by the manager of the property management
company under supervision in case of immediate danger. The use will be
reported to the lessee on the next day, and the keys will once again be
placed in a sealed envelope and given to the property management for safe
keeping. The lessee has the right to inspect the seal.
4. Locking installation: The lessee will have a locking installation put into
building No. 8 + 8 a at her own expense. The construction cylinders which
are there will be returned to the property management company WIDEFLEX GmbH.
5. Mr. Georg A. Wissler, Babenauser Strasse 4, 63762 Grossostheim is authorized
for all legal valid declarations from the lessee to the lessor.
In case Mr. Georg A. Wissler is absent he will nominate a representative who
will be authorized to receive declarations .
6. Should a specification of this contract be, become, or remain legally
invalid, the effectiveness of the remainder of the contract is not affected
by this. The parties to the contract will replace the specific agreement
with another, which comes closest to its meaning and commercial sense.
7. Changes and supplements to this contract require written form.
<PAGE>
8. Court forum and place of fulfillment for all obligations which result from
this contract for both parties is Aschaffenburg.
9. Supplements:
------------
The following is included with this contract:
Site plan IndustrieHandelsPark Nord
Grossostheim No. 5080 a from 03/08/1995
Site plan parking spaces hall No. 8 No. 5080 b from 03/08/1995
Ground plan ground floor hall No. 8 No. 5080 c from 03/08/1995
Cross section hall No. 8 No. 5080 d from 03/08/1995
View hall No. 8 No. 5080 e from 03/08/1995
Ground plan office No. 8 a No. 5080 f from 03/08/1995
Grossostheim, 05.04.1995 Grossostheim. ...................
........................ ..................................
GAW Vermogensverwaltung Viking Direct GmbH
Georg A. Wissler
<PAGE>
[LETTERHEAD OF VTP VASTGOED IN VENLO APPEARS HERE]
EXHIBIT 10.15
LEASE CONTRACT FOR OFFICE PREMISES
----------------------------------
following the model drawn up in 1988 by the Real Estate Board.
Reference to this model is authorised only if the text which is completed, added
or deviating is clearly recognisable. By preference, any additions and
deviations should be included under the heading 'special conditions'.
The undersigned:
ROOF REAL ESTATE I B.V.
based at CH. VAN MONTPENSIERLAAN 2-ALPHA
1181 RR AMSTELVEEN
represented in this matter by VTP VASTGOED IN VENLO, represented herein by
L.G.E. Schreinemachers (tel.: 077-871671) and hereafter referred to as the
'leasing agent'.
and
VIKING DIRECT B.V. (in the process of being formed) legally represented in this
matter by; Mr. Rolf van Kaldekerken (Managing Director)
based at/residing at Celsiusweg 38, 5928 PR Venlo
(presently residing at Am Seestern 24, 3rd Floor D-40547 Dusseldorf, tel.: 0049
211 593404)
and hereafter referred to as the 'tenant'
hereby agree to the following lease contract:
Premises, designation, floor load
- ---------------------------------
1.1 This contract relates to the premises hereafter referred to as the 'lease
premises' known locally as Celsiusweg 38, 5928 PR Venlo
and which is further specified in the drawing and/or description of the
lease premises attached to this contract and authenticated by the parties.
1.2 The tenant will use the leased premises exclusively as office space.
1.3 The highest permissible load on the floors of the lease premises is
a. On the ground floor 400 kg/m/2/
b. On the other floors 400 kg/m/2/
1
<PAGE>
Conditions
- ----------
2.1 This following documents form part of this contract:
a. The general conditions for the lease contract for office space, ROZ
registered with the recorder of the district court in 's-Gravenhage on 12th
April 1989, under the number 58/1989, hereafter referred to as the 'general
conditions'. Both parties are familiar with these general conditions. The
tenant has received a copy of them.
b. The conditions of the division act. The associated regulation governing the
division of property and any household regulations that have been drawn up,
to the extent that these conditions are applicable and in the event that
the leased premises belong to a building or a complex that has been divided
into apartments.
2.2 The rules arising from clause 2.1 are applicable unless the conditions
stated below expressly deviate from them, or unless their application is
not possible in relation to the leased premises.
Term, extension and giving notice of termination
- ------------------------------------------------
3.1 This contract is closed for the term of 1 year with effect from 1st May
1995 and it expires on 1st May 1996 or as soon as the new construction in
Trade Port West has been completed whichever occurs the soonest.
3.2 During the period stated in clause 3.1, it will not be possible for either
party to terminate the contract prematurely by giving notice.
In order to terminate the contract at the end of this period, notice has to
be given in accordance with clause 3.4.
3.3 (Not applicable)
If the period stated under clause 3.1 elapses without any notice having
been given in accordance with 3.2, the contract will be extended
automatically for a successive period of 1 year, therefore until 30st April
1997.
The contract will expire at that moment however, only if notice has been
given in accordance with clause 3.4. If notice has not been given in that
manner, the contract will continue for a further period of 1 year and
likewise each time, unless notice is given towards the end of a subsequent
period in accordance with clause 3.4.
3.4 Notice of the termination of the contract may only be given by means of a
baliff's summons or by registered post and while observing a period of at
least three months prior to the expiry of the term in question.
3.5 This article does not prejudice the conditions described under clause 7, of
the general conditions.
2
<PAGE>
[LETTERHEAD OF VTP VASTGOED IN VENLO APPEARS HERE]
Payment obligation, payment period
- ----------------------------------
4.1 The payment obligation on the part of the tenant consists of
- the lease price
- the payment due for the additional supplies and services described under
clause 6.
- the legally payable value-added tax due over the lease price and the
payment mentioned above or the corresponding amount stipulated under 5.
4.2 The lease price amounts to Hfl 150.000,--per year (onehundredfifty thousand
guilders).
The lease price will be raised annually on 1st of May, for the first time
on 1st May, 1996, and subsequently in accordance with article 4 of the
general conditions.
4.3 The payment of additional supplies and services is determined in accordance
with article 11 of the general conditions. This payment is payable
according to a system of advance instalments to be settled at a later date
as indicated in article 11.
4.4 The lease price and the advance instalment of the payment for additional
supplies and services and the value-added tax or the corresponding amount
are payable in advance prior to or on the first day of the period to which
the payment applies.
4.5 The payment due for each payment period of 3 months amounts to
- the lease price Hfl 37.500,--
- the advance instalment of the payment
of the supply of heat and hot water
- the advance instalment of the payment
of additional supplies and services
so that the tenant is liable to pay to total of Hfl 37.500,--
the sum of thirty seven thousand and five hundred guilders
exclusive VAT
plus the legally payable VAT or the corresponding amount as described under
clause 5.
4.6 Bearing in mind the date on which this contract takes effect, the first
payment period relates to 01-05-1995 and the amount of Hfl 25.000,-- is
payable over this first period, plus the legally payable VAT or the
corresponding amount as described under clause 5. (2 months)
The tenant will remit this amount prior to or on 15-05-1995.
3
<PAGE>
Value-added tax
- ---------------
5.1 All amounts mentioned in this contract are stated exclusive of value-added
tax. The tenant is liable to pay value-added tax over the lease amount and
over the payment of additional supplies and services. The value-added tax
will be charged by the leasing agent and it should be remitted at the same
time as the lease price and payment of additional supplies and services, or
its advance instalment.
5.2 The tenant hereby empowers the leasing agent irrevocably to submit on his
behalf a request as described in article 11, sub b, 5# of the Value-Added
Tax Act 1968 (option request for taxed rental). If required, he will
co-sign this request and return it to the leasing agent within 14 days of
having received it from the leasing agent.
5.3 In the event that the request is not submitted within the legally specified
period of time or is not granted, the tenant is liable to pay an amount
that corresponds with the amount of value-added tax that would have been
payable if the request had been granted, in addition to the lease price and
the payment of additional supplies and services. The same applies in the
event that the request is granted with effect from a date later than that
which was requested, albeit only during the period that ends with the
commencement date of the taxed lease.
5.4 In the event that the tenant is able to show that the leasing agent was to
blame for the fact that the request was not submitted punctually or was
not granted, the amount corresponding with the value-added tax described in
clause 5.3 is not payable.
5.5 In the event that the leasing agent sells the leased premises or the
building or complex to which they belong and the new owner also opts for
taxed leasing, the tenant is also bound to the conditions of this article.
Supplies and services
- ---------------------
6. The parties agree to the following as being the additional supplies and
services to be provided by the leasing agent:
FOR THIS SEE THE ATTACHED LIST OF SERVICE COSTS
4
<PAGE>
Bank guarantee
- --------------
7.1 With respect to the security to be supplied by the tenant, the condition
under clause 8 of the general conditions is applicable.
The caretaker
- -------------
8. Until notified otherwise by the leasing agent, the following will act as
caretaker: VTP VASTGOED IN VENLO, Mr. L.G.E. Schreinemachers
Tel.: 077-871671.
Appendices
- ----------
9. The following appendices belong to this contract:
- the general conditions as described in clause 2.1.a.
- the drawing of the leased premises attached to this contract and
authenticated by both parties.
- the description of the leased premises attached to this contract and
authenticated by both parties.
- the bank guarantee as described under clause 7.
Special conditions
- ------------------
* The following articles of the general conditions are not applicable:
articles 2.8.1, 2.8.2, 2.8.3.
In principle, advertisements on or on top of the building are permitted
provided that they have been approved by ROOF REAL ESTATE I B.V. and by
Venlo municipal council.
In the event that the tenant activates a false alarm causing Forum or the
police to attend without due cause, the tenant will be liable for the costs
incurred.
The tenant is liable for the costs incurred for the drawing up of this
contract, namely Hfl 440.63 (including 17.5% VAT). These costs should be
paid into Post Office account no. 30.28.44 in the name of VTP VASTGOED in
VENLO. (not applicable)
With regard to article 13 of the general conditions, it is hereby agreed
that the lease payments will be paid to account no. 68.87.59.041 in the
name of ROOF REAL ESTATE I B.V. at the ING Bank in Venlo.
The tenant is liable for the costs of the necessary direction signs
indicating the company name.
In the interests of uniformity, these signs will be ordered by the leasing
agent.
The tenant is liable for the entire cost of any partitioning and window
blinds required.
5
<PAGE>
The leasing agent is entitled to request the revision of the lease price
after each period of five lease years, for the first time on 01-01-1999.
In the event that the leasing agent wishes to make use of this entitlement,
the agent shall notify the tenant by means of registered post with a
confirmation of receipt at least 6 months prior to the date on which the
revised price would take effect. If the parties have not come to an agree-
ment within 2 months after the receipt of the notification as described
above, the lease price will be decided by three estate agents, members of
the Association of Estate Agents in Amsterdam or of the Dutch Association
of Estate Agents, of which each of the parties will assign one within 14
days after one party will have received a request to do so by the other
party. The third estate agent will be appointed by both of the estate
agents within 8 days after they have accepted their appointment.
Should one of the parties fail to appoint an estate agent or should the two
appointed estate agents be unable to come to an agreement as to the
appointment of a third, the most obvious party is entitled to ask the
chairman of the Chamber of Commerce of the region in which the real estate
is located to appoint, in the first case two estate agents, and in the
second case one estate agent. The costs of the estate agents will be born
equally by both of the parties.
The estate agents will submit their report within one month after being
appointed.
The lease price revised in the manner described above will be adapted
annually in accordance with the price index figure as fixed in this
contract.
* As far as is applicable.
The attached house rules must also be strictly adhered to.
Drawn up and undersigned in triplicate
Venlo 18 May 1995 Venlo May 18 1995
ROOF REAL ESTATE I VIKING DIRECT B.V. (in the process
of being formed)
6
<PAGE>
VERZOEK OM BELASTE VERHUUR VAN ONROEREND GOED DOOR HUURDER EN VERHUURDER
- ------------------------------------------------------------------------
De Weledelgestrenge Heer
Inspecteur der Omzetbelasting
Wibautstraat 2-4
1091 GM Amsterdam
- ------------------------------------
De ondergetekenden:
1. Roof Real Estate I B.V. Omzetbel.nr: 800191171 B01
gevestigd aan de Charlotte van Montpensierlaan 2a,
1181 RR Amstelveen
hierna te noemen Verhuurder
----------
en
2. ..................................
ten deze rechtsgeldig vertegenwoordigd door.....
.................................
hierna te noemen Huurder
-------
B.T.W. Nummer: Kadastraal bekend als:
Gemeente Venlo
Sectie O nummer 1283
Verklaren te zijn overeengekomen als volgt:
A. Huurder verklaart te hebben gehuurd van verhuurder met
ingang van 01-05-95 het bedrijfsonroerend goed,
staande en gelegen aan de cilkusing
te Venlo., kadastraal bekend Gem. Venlo..........sectie
...O..., nummer 1283
B. Verhuurder en Huurder verzoeken U hen met betrekking
tot bovengenoemde percelen uit te zonderen van de
vrijstelling van Omzetbelasting voor verhuur van
onroerend goed (art. 11 lid 1 letter b sub 5 Wet OB 1968)
en toestemming te verlenen tot het met omzetbelasting
belasten van de huurpenningen op grond van art. 6a
Uitvoeringsbeschikking OB 1968.
Getekend te Venlo Getekend te Venlo
De Datum 18-05-95 De Datum 18-05-95
(Verhuurder) (Huurder)
(Signature appears here) (Signature appears here)
Voor Accoord:
De Inspecteur der Omzetbelasting
Amsterdam, ..-..-,....
7
<PAGE>
OMSCHRUVING VAN HET GEHUURDE:
- -----------------------------
Kantoorruimte: 500 m2 bruto inclusief omslag etage en omslag overige.
Paraaf huurder: paraaf verhuurder:
8
<PAGE>
Inhoud Servicekosten
- --------------------
FACILITAIR CENTRUM VENLO TRADE PORT
- -----------------------------------
1. Alarminstallatie
2. Bewaking
3. Brandmeldinstallatie
4. Bekabeling voor: telefoon, computer en fax
5. Elektraverbruik
6. Gasverbruik
7. Huur van: handdoeken, zeepbakjes, toiletrollen toiletrolhouders
8. Liftinstallatie
9. Onderhoud groenvoorziening buiten
10. Onderhoudscontract voor: centrale verwarming
liftinstallatie
ventilatiesysteem
11. Plantenbakken centrale ruimten
12. Schoonmaak algemene ruimten
13. Forum Secretariaatsservice:
* ontvangen van clienten
* doorverwijzen van clienten
* ontvangen van de post
* doorsturen van de post naar
de kantoren
14. Verlichting
15. Vuiltransport
16. Waterverbruik
17. Topkoeling
9
<PAGE>
[FLOORPLAN APPEARS HERE]
<PAGE>
2nd Floor-Venlo
LEASE CONTRACT FOR OFFICE PREMISES
----------------------------------
following the model drawn up in 1988 by the Real Estate Board.
Reference to this model is authorised only if the text which is completed, added
or deviating is clearly recognisable. By preference, any additions and
deviations should be included under the heading 'special conditions'.
The undersigned:
ROOF REAL ESTATE I B.V.
based at CH. VAN MONTPENSIERLAAN 2-ALPHA
1181 RR AMSTEL VEEN
represented in this matter by VTP VASTGOED IN VENLO, represented herein by
L.G.E. Schreinemachers (tel.: 077-871671) and hereafter referred to as the
'leasing agent'.
and
VIKING DIRECT B.V. (in the process of being formed) legally represented in this
matter by; Mr. Rolf van Kaldekerken (Managing Director)
based at/residing at Celsiusweg 40-42, 5928 PR Venlo
(presently residing at Am Seestern 24, 3rd Floor D-40547 Dusseldorf, tel.: 0049
211 593404)
and hereafter referred to as the 'tenant'
hereby agree to the following lease contract:
Premises, designation, floor load
- ---------------------------------
1.1 This contract relates to the premises hereafter referred to as the 'lease
premises' known locally as Celsiusweg 40-42, 5928 PR Venlo
and which is further specified in the drawing and/or description of the
lease premises attached to this contract and authenticated by the parties.
1.2 The tenant will use the leased premises exclusively as office space.
1.3 The highest permissible load on the floors of the lease premises is
a. On the ground floor 400 kg/m/2/
b. On the other floors 400 kg/m/2/
1
<PAGE>
Conditions
- ----------
2.1 This following documents form part of this contract:
a. The general conditions for the lease contract for office space, ROZ
registered with the recorder of the district court in 's-Gravenhage on 12th
April 1989, under the number 58/1989, hereafter referred to as the 'general
conditions'. Both parties are familiar with these general conditions. The
tenant has received a copy of them.
b. The conditions of the division act. The associated regulation governing the
division of property and any household regulations that have been drawn up,
to the extent that these conditions are applicable and in the event that
the leased premises belong to a building or a complex that has been divided
into apartments.
2.2 The rules arising from clause 2.1 are applicable unless the conditions
stated below expressly deviate from them, or unless their application is
not possible in relation to the leased premises.
Term, extension and giving notice of termination
- ------------------------------------------------
3.1 This contract is closed for the term of 1 year with effect from 1st March,
1995 and it expires on 1st March, 1996 or as soon as the new construction
in Trade Port West has been completed whichever occurs the soonest.
3.2 During the period stated in clause 3.1, it will not be possible for either
party to terminate the contract prematurely by giving notice.
In order to terminate the contract at the end of this period, notice has to
be given in accordance with clause 3.4.
3.3 (Not applicable)
If the period stated under clause 3.1 elapses without any notice having
been given in accordance with 3.2, the contract will be extended
automatically for a successive period of 1 year, therefore until 31st
January, 1997.
The contract will expire at that moment however, only if notice has been
given in accordance with clause 3.4. If notice has not been given in that
manner, the contract will continue for a further period of 1 year and
likewise each time, unless notice is given towards the end of a subsequent
period in accordance with clause 3.4.
3.4 Notice of the termination of the contract may only be given by means of a
bailiff's summons or by registered post and while observing a period of at
least three months prior to the expiry of the term in question.
3.5 This article does not prejudice the conditions described under clause 7 of
the general conditions.
2
<PAGE>
Payment obligation, payment period
- ----------------------------------
4.1 The payment obligation on the part of the tenant consists of
- the lease price
- the payment due for the additional supplies and services described under
clause 6.
- the legally payable value-added tax due over the lease price and the
payment mentioned above or the corresponding amount stipulated under 5.
4.2 The lease price amounts to Hfi 240.000, -- per year (two hundred thousand,
guilders).
The lease price will be raised annually on 1st of March, for the first time
on 1st March, 1996, and subsequently in accordance with article 4 of the
general conditions.
4.3 The payment of additional supplies and services is determined in accordance
with article 11 of the general conditions. This payment is payable
according to a system of advance instalments to be settled at a later date
as indicated in article 11.
4.4 The lease price and the advance instalment of the payment for additional
supplies and services and the value-added tax or the corresponding amount
are payable in advance prior to or on the first day of the period to which
the payment applies.
4.5 The payment due for each payment period of 3 months amounts to
- the lease price Hfl 60,000,--
- the advance instalment of the payment of
the supply of heat and hot water
- the advance instalment of the payment of
additional supplies and services
so that the tenant is liable to pay the total of Hfl 60.000,--
the sum of sixty thousand guilders exclusive of VAT
plus the legally payable VAT or the corresponding amount as described under
clause 5.
4.6 Bearing in mind the date on which this contract takes effect, the first
payment period relates to 01-03-1995 and the amount of Hfl 20.000,-- is
payable over this first period, plus the legally payable VAT or the
corresponding amount as described under clause 5.
The tenant will remit this amount prior to or on 01-03-1995.
3
<PAGE>
Value-added tax
- ---------------
5.1 All amounts mentioned in this contract are stated exclusive of value-added
tax. The tenant is liable to pay value-added tax over the lease amount and
over the payment of additional supplies and services. The value-added tax
will be charged by the leasing agent and it should be remitted at the same
time as the lease price and the payment of additional supplies and
services, or its advance instalment.
5.2 The tenant hereby empowers the leasing agent irrevocably to submit on his
behalf a request as described in article 11, sub b, 5* of the Value-Added
Tax Act 1968 (option request for taxed rental). If required, he will co-
sign this request and return it to the leasing agent within 14 days of
having received it from the leasing agent.
5.3 In the event that the request is not submitted within the legally specified
period of time or is not granted, the tenant is liable to pay an amount
that corresponds with the amount of value-added tax that would have been
payable if the request had been granted, in addition to the lease price and
the payment of additional supplies and services. The same applies in the
event that the request is granted with effect from a date later than that
which was requested, albeit only during the period that ends with the
commencement date of the taxed lease.
5.4 In the event that the tenant is able to show that the leasing agent was to
blame for the fact that the request was not submitted punctually or was not
granted, the amount corresponding with the value-added tax described in
clause 5.3 is not payable.
5.5 In the event that the leasing agent sells the leased premises or the
building or complex to which they belong and the new owner also opts for
taxed leasing, the tenant is also bound to the conditions of this article.
Supplies and services
- ---------------------
6. The parties agree to the following as being the additional supplies and
services to be provided by the leasing agent:
FOR THIS SEE THE ATTACHED LIST OF SERVICE COSTS
4
<PAGE>
Bank guarantee
- --------------
7.1 With respect to the security to be supplied by the tenant, the condition
under clause 8 of the general conditions is applicable.
7.2 The amount described under 8.1 of the general conditions is fixed by both
parties at Hfl 20.000,-- (twenty thousand guilders) exclusive of VAT, to be
placed in a deposit-account. Interest payable to tenant.
The caretaker
- -------------
8. Until notified otherwise by the leasing agent, the following will act as
caretaker: VTP VASTGOED IN VENLO, Mr. L.G.E. Schreinemachers Tel.:
077-871671.
Appendices
- ----------
9. The following appendices belong to this contract:
- the general conditions as described in clause 2.1.a.
- the drawing of the leased premises attached to this contract and
authenticated by both parties.
- the description of the leased premises attached to this contract and
authenticated by both parties.
- the bank guarantee as described under clause 7.
Special conditions
- ------------------
* The following articles of the general conditions are not applicable:
articles 2.8.1, 2.8.2, 2.8.3.
In principle, advertisements on or on top of the building are permitted
provided that they have been approved by ROOF REAL ESTATE IB.V. and by
Venlo municipal council.
In the event that the tenant activates a false alarm causing Forum or the
police to attend without due cause, the tenant will be liable for the costs
incurred.
The tenant is liable for the costs incurred for the drawing up of this
contract, namely Hfl 440.63 (including 17.5% VAT). These costs should be
paid into Post Office account no. 30.28.44 in the name of VTP VASTGOED in
VENLO.
With regard to article 13 of the general conditions, it is hereby agreed
that the lease payments will be paid to account no. 68.87.59.041 in the
name of ROOF REAL ESTATE I B.V. at the ING Bank in Venlo.
The tenant is liable for the costs of the necessary direction signs
indicating the company name.
In the interests of uniformity, these signs will be ordered by the leasing
agent.
The tenant is liable for the entire cost of any partitioning and window
blinds required.
5
<PAGE>
The leasing agent is entitled to request the revision of the lease price
after each period of five lease years, for the first time on 01-01-1999. In
the event that the leasing agent wishes to make use of this entitlement,
the agent shall notify the tenant by means of registered post with a
confirmation of receipt at least 6 months prior to the date on which the
revised price would take effect. If the parties have not come to an
agreement within 2 months after the receipt of the notification as
described above, the lease price will be decided by three estate agents,
members of the Association of Estate Agents in Amsterdam or of the Dutch
Association of Estate Agents, of which each of the parties will assign one
within 14 days after one party will have received a request to do so by the
other party. The third estate agent will be appointed by both of the estate
agents within 8 days after they have accepted their appointment.
Should one of the parties fail to appoint an estate agent or should the two
appointed estate agents be unable to come to an agreement as to the
appointment of a third, the most obvious party is entitled to ask the
chairman of the Chamber of Commerce of the region in which the real estate
is located to appoint, in the first case two estate agents, and in the
second case one estate agent. The costs of the estate agents will be borne
equally by both of the parties.
The estate agents will submit their report within one month after being
appointed.
The lease price revised in the manner described above will be adapted
annually in accordance with the price index figure as fixed in this
contract.
* As far as is applicable.
The attached house rules must also be strictly adhered to.
Drawn up and undersigned in triplicate
Venlo 1995 Venlo 1995
ROOF REAL ESTATE I VIKING DIRECT B.V. (in the process of being
formed)
/s/ Signature appears here /s/ Signature appears here
6
<PAGE>
VERZOEK OM BELASTE VERHUUR VAN ONROEREND GOED DOOR HUURDER EN VERHUURDER
- ------------------------------------------------------------------------
De Weledelgestrenge Heer
Inspecteur der Omzetbelasting
Wibautstraat 2-4
1091 GM Amsterdam
- --------------------------------------------------------------------------------
De ondergetekenden:
1. Roof Real Estate I B.V.,
gevestigd aan de Charlotte van Montpensier 2a,
1181 RR Amstelveen
hierna te noemen Verhuurder
----------
en
2. De Firma VIKING DIRECT B.V.i.o.,
hierna te noemen Huurder
-------
BTW Nummer: NL 803.071.590.B01
Verklaren te zijn overeengekomen als volgt:
A. Huurder verklaart te hebben gehuurd van verhuurder met ingang van
01-03-1995 het onroerend goed, staande en gelegen aan de Celsiusweg 40-42
te
5928 PR Venlo., kadestraal bekend Gemeente Venlo sectie O, nummer 1283.
B. Verhuurder en Huurder verzoeken U hen met betrekking tot bovengenoemde
percelen uit te zonderan van de vrijstelling van Omzetbelasting voor
verhuur van onroerend goed (art. 11 lid 1 letter b sub 5 Wet OB 1968) en
toestemming te verlenen tot en met omzetbelasting belasten van de
huurpenningen op grond van art. 6a Uitvoeringsbeschikking OB 1968.
Getekend te Venlo Getekend te Venlo
De Datum De Datum
Roof Real Estate I Viking Direct BV i.o.
(Verhuurder) (Huurder)
Voor accoord:
De Inspecteur der Omzetbelasting
Amsterdam, ..-..-.1995
7
<PAGE>
OMSCHRIJVING VAN HET GEHUURDE:
- ------------------------------
Kantooruimte: 800 m2 bruto inclusief omslag etage en omslag overige.
Paraaf huurder: paraaf verhuurder:
(Signature appears here) (Signature appears here)
<PAGE>
[FLOORPLAN APPEARS HERE]
<PAGE>
Exhibit 10.30
April __, 1995
Mr. Bruce Nelson PERSONAL AND
c/o Viking Office Products, Inc. ------------
13809 South Figueroa Street CONFIDENTIAL
Los Angeles, CA 90061-1000 ------------
Dear Bruce:
This letter (the "Agreement") sets forth the understanding between you
("Executive") and Viking concerning the continuation of your employment
following a "Change in Control" and the "Termination Benefit" you would receive
in the event your employment with Viking were terminated by Viking without
"Cause" or by you for "Good Reason" during a "Post-Change Employment Period," as
those terms are defined in this letter.
1. Certain Definitions. The following terms used herein shall have the
-------------------
following meanings:
"Cause", when used with reference to termination of the employment of
Executive by Viking for Cause, shall mean:
(a) Executive's continuing wilful and material breach of his duties to
Viking after he receives a demand from Viking's Chief Executive or Board of
Directors specifying the manner in which he has wilfully and materially
breached such duties, other than any such failure resulting from Disability
of Executive or his resignation for Good Reason, as those terms are defined
herein; or
(b) the conviction of Executive by any governmental agency or
prosecutor on charge of a felony;
(c) Executive's committing fraud in the course of his employment with
Viking, such as embezzlement or other material and intentional violation of
law against Viking; or
(d) Executive's gross misconduct causing material harm to Viking.
"Change in Control" shall mean and shall be deemed to occur on the date
that:
(a) Viking first has actual knowledge that any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) has become the
beneficial owner (as defined in Rule 13(d)-3 under the Exchange Act),
directly or indirectly, of securities of Viking representing forty percent
(40%) or more of the combined voting power of Viking's outstanding
securities; or
(b) the shareholders of Viking approve (i) a merger of Viking with or
into any other corporation in which Viking is not the surviving corporation
or in which Viking survives as a subsidiary of another corporation, (ii) a
consolidation of Viking with any other corporation, or (iii) the sale or
disposition of all or substantially all of Viking's assets or a plan of
complete liquidation.
<PAGE>
Mr. Bruce Nelson
April __, 1995
Page 5
"Code" means the Internal Revenue Code of 1986, as amended.
"Disability" shall mean Executive's full-time absence from his duties with
Viking, as a result of incapacity due to physical or mental illness.
"Disability Period" shall mean a period of six (6) months commencing on the
first day of a Disability occurring during the Post-Change Employment Period.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Good Reason" shall mean any one or more of the following, occurring
without Executive's express written consent during the Post-Change Employment
Period and within 90 days prior to Executive's resignation as a result thereof:
(a) the failure of Viking's Board of Directors to elect and retain
Executive as either Viking's Chief Executive Officer or its Chief Operating
Officer, with duties commensurate with such title;
(b) a reduction by Viking in Executive's annual base salary as in
effect immediately prior to the Change in Control; or
(c) the failure of Viking to grant Executive a performance bonus
reasonably equivalent to the same percentage of salary Executive normally
received prior to the Change in Control, given comparable performance by
Viking and Executive.
"Post-Change Employment Period" shall mean a period of two years commencing
when a Change in Control occurs.
"Termination Benefit" shall mean the amount determined in accordance with
paragraph (a) below, reduced as provided in paragraph (b) below, if applicable.
If Executive is entitled to a Termination Benefit, it shall be paid to Executive
no later than the 60th day following the date on which his employment
terminates.
(a) The Termination Benefit shall be an amount equal to three times
the average of Executive's annual salary and bonus for the three years
immediately preceding the Change in Control or, if shorter than three
years, the period for which Executive has been employed by Viking
immediately preceding the Change in Control.
(b) The Termination Benefit otherwise payable hereunder shall be
reduced to the extent, if any, necessary to prevent (i) the sum of all
amounts (whether pursuant to the Agreement or otherwise) that constitute
"parachute payments" to Executive under Section 280G (or any successor
section) of the Code, from exceeding (ii) One Dollar less than three times
Executive's "base amount", as defined in said section of the Code.
Viking's independent certified public accountants shall determine
Executive's "base amount" and the amounts that constitute "parachute
payments" to Executive, and such determinations shall be final and binding
on Viking and Executive.
<PAGE>
Mr. Bruce Nelson
April __, 1995
Page 6
2. Applicability of Agreement. This Agreement shall have no force or effect
--------------------------
prior to a Change in Control and may be terminated by Viking by written notice
to Executive at any time prior to a Change in Control. Nothing herein shall in
any way obligate Viking to retain Executive in its employ or entitle Executive
to any compensation in the event his employment is terminated prior to a Change
in Control. Executive's rights in such event shall be determined without
reference to this Agreement.
3. Consideration; Termination During Post-Change Employment Period.
---------------------------------------------------------------
3.1 Subject to the terms and conditions of this Agreement, you agree that
you will not resign from Viking during the Post-Change Employment Period except
for Good Reason.
3.2 If your employment with Viking is terminated during the Post-Change
Employment Period, Viking shall pay you the Termination Benefit, unless such
termination is (a) because of your death, (b) because of your failure to resume
full-time performance of your duties after the end of a Disability Period, (c)
by Viking for Cause or (d) by your resignation other than for Good Reason.
3.3 If your employment with Viking is terminated by Viking for Cause,
Viking shall give you written notice of termination specifying the facts and
circumstances constituting such Cause.
4. Compensation Upon Termination or During Disability.
--------------------------------------------------
4.1 During any Disability Period you shall continue to receive your full
base salary at the rate then in effect, unless and until your employment is
terminated.
4.2 If your employment is terminated by Viking for Cause during the Post-
Change Employment Period, Viking shall pay you your full base salary at the rate
then in effect through the date of termination, together with any severance pay,
vacation pay and sick leave pay to which you are entitled in accordance with
company policy.
4.3 If you become entitled to the Termination Benefit in accordance with
Paragraph 3.2, you shall receive, in addition to the Termination Benefit, your
full base salary and bonus at the rates then in effect through the date of
termination. The Termination Benefit shall be in lieu of any severance pay,
vacation pay and sick leave pay to which you would otherwise be entitled in
accordance with company policy.
4.4 You shall not be required to mitigate the amount of any Termination
Benefit by seeking other employment or otherwise, nor shall the amount of any
Termination Benefit be reduced by any compensation earned by you as the result
of employment by another employer, or otherwise.
4.5 Except as expressly provided otherwise herein, none of the provisions
of this Agreement is intended to curtail or limit in any way any contractual
rights which you may have under any company plan in which you are eligible to
participate or under any agreement binding on Viking to which you are a party,
and all such contractual rights shall survive the execution of this Agreement
and any Change in Control. The Termination Benefit shall not be considered
compensation for any benefit calculation or other purpose under any retirement
plan or other benefit plan maintained by Viking.
<PAGE>
Mr. Bruce Nelson
April __, 1995
Page 7
5. Successors; Binding Agreement. This Agreement shall be binding on and
-----------------------------
inure to the benefit of Viking and any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Viking. This Agreement shall inure to the benefit of
and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
6. Notices. All notices and all other communications provided for in the
-------
Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth on the first
page of this Agreement, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt. Notices to Viking shall
be directed to the attention of the President of Viking.
7. Attorneys' Fees. In any litigation relating to this Agreement the
---------------
prevailing party shall be entitled to recover its costs and reasonable
attorneys' fees.
8. Choice of Law. The validity, interpretation, construction and performance
-------------
of this Agreement shall be governed by the laws of the State of California.
If this letter correctly sets forth our understanding on the subject matter
hereof, kindly sign and return to Viking the enclosed copy of this letter, which
will then constitute our Agreement on this subject.
Very truly yours,
VIKING OFFICE PRODUCTS, INC.
By /s/ IRWIN HELFORD
-------------------------------------------------------
IRWIN HELFORD, President and Chief Executive Officer
Agreed to this __ day of
April, 1995.
/s/ BRUCE NELSON
- -------------------------------------------
BRUCE NELSON
<PAGE>
EXHIBIT 13.1
VIKING
OFFICE PRODUCTS
1995 ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1995
[Artwork of Viking Office Products Catalogs encircling the globe]
<PAGE>
EVERYWHERE IN THE UNITED STATES, UNITED KINGDOM,
REPUBLIC OF IRELAND, FRANCE, THE NETHERLANDS,
LUXEMBOURG, BELGIUM AND AUSTRALIA...
VIKING DELIVERS!
--------
RIGHT THERE -- WITHOUT
[PHOTO OF DELIVERY MAN LEAVING THE CONVENIENCE [PHOTO OF TYPICAL VIKING
APPEARS HERE] OF HER DESK... CUSTOMER APPEARS HERE]
...VIKING DELIVERS
MOST EVERYTHING FREE,
SAME DAY OR
OVERNIGHT, AND
SAVES HER UP TO 69%!
- --------------------------------------------------------------------------------
[CUSTOMER PHOTO APPEARS HERE] LOVE THAT MY BUSINESS RAN AS SMOOTHLY AS YOURS!
I feel I really must write to tell you how impressed I am with the service you
offer. We run two dental practices and always buy whatever supplies we can from
your company, knowing that delivery will be prompt and any problems will be
dealt with in a most courteous and efficient manner. Please accept my sincere
congratulations on a superbly-run organisation. I would love to think that my
business ran as smoothly as yours.
Bridget K. Ashton
Plymouth, Devon, England
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CUSTOMER PHOTO APPEARS HERE] I WAS ASTONISHED!
Late one afternoon I telephoned Viking Direct to make inquiries regarding
ordering and account facilities. To my astonishment an account was opened
immediately, my order was taken and I had the stationery the very next morning!
When I added the Viking one-year guarantee and 30-day free trial to this level
of service, I felt compelled to advise my Head Office to switch stationery
suppliers. Please pass my compliments on to all your team, who must be very
proud to work for a company which obviously has the highest commitment to
customer service.
C. M. Jones
Dingle Belles Vehicle
Accessory Group
Up Holland, Lancashire, England
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CUSTOMER PHOTO APPEARS HERE] THANKS FOR MAKING THE TASK EASIER!
We are a small, but fast growing company that at first only used Superstores as
our main office supplier. After receiving one of your sale catalogs in the mail
one day we decided to give your company a try. You didn't let us down! Since
then we have been ordering from you more than any of the others, thanks to your
friendly customer service reps., ease and timely way the orders are taken, and
the important fact that your items are always in stock. Your orders always
arrive promptly, and with today's increasing concern for the environment, you
don't overload the orders with packing peanuts! We just wanted to say THANK YOU
for making the task of ordering office supplies that much easier! Keep up the
good work!
Catherine Lord
President
Fawn Run Corp.
Mahwah, NJ
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CUSTOMER PHOTO APPEARS HERE] IF THE WORLD RAN AS WELL, THINGS WOULD
DEFINITELY BE BETTER!
I have to tell you about my last order. It is unbelievable. WOW. On Monday,
after 5pm, I placed an order for 6 full cartons of copy paper. I told the order
taker that I know that Viking is fast but there is no hurry -- we would use it
later in the week. Second WOW. Shortly after 9am the next day, the paper arrived
at the door. I couldn't believe it. I just hung up the phone it seemed. And
besides I ordered late in the day. You should be home by then!! I just can't
tell you how pleased we are. If our carnival runs as smoothly as this or if the
world ran as well, things would definitely be better. Thanks again and WOWs
to all.
Rev. Michael Happy Hoyer
Pastor
Our Lady Queen of Martyrs Church
Fort Lauderdale, FL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CUSTOMER PHOTO APPEARS HERE] EVEN AFTER YEARS, YOU REPLACED IT FREE!
I am writing to commend you on your excellent service. Recently we contacted you
regarding a paper cutter we had purchased from you a few years ago that was
broken. It was under warranty according to the catalog but we were unable to
retrieve our receipt. You immediately told us to send it back to you and we
received a new one the next day. Thank you for your promptness and for standing
behind your products. We have always received excellent service from your
company and will continue to order our office supplies from you. Your company
has been the most efficient office supply company that we have ever done
business with. Again, thanks!
Vickie Miller
Secretary
Warren Assembly of God
Cincinnati, OH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CUSTOMER PHOTO APPEARS HERE] YOUR SERVICE REMAINS UNBEATABLE!
On Thursday, I faxed an order to your company at 8:50 AM. By 9:00 AM my new
account was being verified by your staff. At approximately 10:30 AM next day, my
goods arrived. This is one occasion that I can honestly say that the service you
provide remains unbeatable. My company is a small consultancy which operates on
a worldwide basis. Sometimes I do become involved with vendors for our clients,
and it is with this in mind that I shall do my best to promote Viking Direct
Ltd. Once again, thank you for the unbeatable service.
S. Wears
Dakka Engineering Services, Ltd.
Tyne & Wear, United Kingdom
- --------------------------------------------------------------------------------
<PAGE>
VIKING CONTINUES TO GROW!
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
REVENUES ACTIVE CUSTOMERS
1990 TO 1995 1990 TO 1995
MILLIONS OF DOLLARS THOUSANDS
[GRAPH APPEARS HERE] [GRAPH APPEARS HERE]
1990 $157.9 1990 423
1991 $226.3 1991 571
1992 $320.1 1992 745
1993 $449.7 1993 1,010
1994 $565.1 1994 1,240
1995 $811.9 1995 1,530
NET INCOME EARNINGS PER SHARE
1990 TO 1995 1990 TO 1995
MILLIONS OF DOLLARS DOLLARS
[GRAPH APPEARS HERE] [GRAPH APPEARS HERE]
1990 $ 5.2 1990 $0.19
1991 $ 7.8 1991 $0.22
1992 $12.8 1992 $0.34
1993 $17.2 1993 $0.42
1994 $31.8 1994 $0.76
1995 $46.1 1995 $1.08
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 1
<PAGE>
VIKING GETS "CLOSER" TO ITS CUSTOMERS...
WITH "FANATICAL" CUSTOMER SERVICE, FREE OVERNIGHT DELIVERY
AND THE BEST PEOPLE IN THE BUSINESS!
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Los Angeles, California
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Dallas, Texas
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Cincinnati, Ohio
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
East Windsor, Connecticut
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Jacksonville, Florida
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Seattle, Washington
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Minneapolis, Minnesota
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Leicester, England, U.K.
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
London, England, U.K.
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Paris, France
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Sydney, Australia
[PHOTO OF VIKING EMPLOYEES APPEARS HERE]
Venlo, The Netherlands
2 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
TO OUR SHAREHOLDERS
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
[PHOTO OF IRWIN HELFORD APPEARS HERE]
VIKING BELIEVES THAT IT'S NOT WHAT YOU SAY THAT COUNTS, IT'S WHAT YOU DO.
IN FISCAL YEAR 1995, VIKING DID A LOT!
Record revenues of $811.9 million increased 43.7% over 1994. Net income
increased even more, 45.1% over last year to a record $46.1 million. Earnings
per share were $1.08 compared to $.76 in 1994.
Gross margins were affected by skyrocketing paper costs and new country opening
promotions. Catalog costs rose as paper expense escalated and U.S. postage
increased. Yet through it all, our overhead costs (SG&A) were reduced by 90
basis points. And, our net income rose faster than sales.
In just 14 months, we opened new markets in Belgium, Luxembourg, The Netherlands
and Ireland. We doubled the size of our main facilities in the U.K. and added
our London distribution center. Even in the U.S., we greatly increased our
capabilities and added a distribution satellite in Minneapolis. We now provide
delivery the same day a customer calls in seven major U.S. markets, London and
Leicester, England, Paris, France and Sydney, Australia.
Our customers now buy more from Viking than ever before. Their loyalty and
retention is at the highest level in our history.
Accomplishments like these are only possible with the finest employees and
exceptional managers. They're here.
/s/ Irwin Helford
Irwin Helford
President, Chief Executive Officer,
Chairman of the Board
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 3
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues $811,899 $565,055 $449,687 $320,066 $226,345
Cost of Goods Sold,
Including Delivery 535,789 365,159 292,486 205,984 145,627
-------- -------- -------- -------- --------
Gross Profit 276,110 199,896 157,201 114,082 80,718
Selling, General and
Administrative Expenses 211,611 152,224 127,843 93,172 66,700
-------- -------- -------- -------- --------
Operating Income 64,499 47,672 29,358 20,910 14,018
Other Income 7,929 4,579 2,953 2,214 1,498
Interest Expense 164 167 182 700 2,056
-------- -------- -------- -------- --------
Income Before Income Taxes 72,264 52,084 32,129 22,424 13,460
Income Taxes 26,158 20,304 14,972 9,599 5,684
-------- -------- -------- -------- --------
Net Income $ 46,106 $ 31,780 $ 17,157 $ 12,825 $ 7,776
======== ======== ======== ======== ========
Net income per common
and common equivalent share (/1/) $1.08 $0.76 $0.42 $0.34 $0.22
======== ======== ======== ======== ========
FINANCIAL POSITION:
Working Capital $127,580 $ 95,223 $ 68,699 $ 49,464 $ 25,508
Total Assets 308,344 227,220 165,345 135,662 95,892
Long-Term Debt -- -- -- -- 13,000
Stockholders' Equity 208,526 150,232 112,660 95,080 54,963
</TABLE>
(/1/) Restated for 2-for-1 stock splits in January 1992 and May 1994.
4 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING UNITED STATES
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Viking's domestic business in 1995 grew at an exceptional rate -- amid the most
competitive market ever. U.S. revenue increased more than 21% to $360.3 million,
while catalog mailings grew only 5%, reflecting greater customer response.
Our active customer base in the U.S. grew by 10% to 689,000. On average, these
customers purchased 11% more from Viking in 1995 than they did in 1994. Most
important of all, 70% who ordered in 1994 continued to buy from Viking in 1995.
Over 200,000 new business customers began with Viking during 1995.
Impressing customers is Viking's primary mission. Practically all orders are
delivered complete, overnight and free, nationwide. Customers now get "same-day
delivery" in Los Angeles, Dallas, Cincinnati, Hartford, Jacksonville, Seattle
and Minneapolis. Viking's results in 1995 reconfirm its belief:
"IT'S NOT WHAT YOU SAY THAT COUNTS... IT'S WHAT YOU DO!"
[PHOTO OF U.S. DIVISIONAL MANAGERS APPEARS HERE]
United States Divisional Managers:
Bill Meehan, Ted Gewanter, Jodie Pettijohn and John Basso
- --------------------------------------------------------------------------------
REVENUE GROWTH -- UNITED STATES
- --------------------------------------------------------------------------------
($ MILLIONS)
[CHART APPEARS HERE]
1993 18.0% $255.4
1994 16.0% $296.8
1995 21.0% $360.3
[PHOTO OF VIKING U.S. CATALOGS APPEARS HERE]
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 5
<PAGE>
VIKING UNITED KINGDOM
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
[PHOTO OF U.K. MANAGEMENT TEAM APPEARS HERE]
United Kingdom Management Team:
Seated: Kerry Byrne, Sally Kenney, Maria Weaver, Lesley Burchnall,
Keith Cain, Graham Cundick, Terina Carnachan,
Amanda Smith, Beverly Adams
Standing: Roger Thompson, David Batson, Tom Priest, Phil Davis,
Mick Gilbert, Pankaj Patel, David Wallis
- --------------------------------------------------------------------------------
REVENUE GROWTH -- UNITED KINGDOM
- --------------------------------------------------------------------------------
($ MILLIONS)
[CHART APPEARS HERE]
1993 40.0% $141.9
1994 23.0% $175.0
1995 48.0% $258.3
Viking's team in England continues to outpace everyone's expectations. After its
successful start-up in 1990, profitability was achieved quickly and continues to
expand. Revenues in 1995 grew by over 47% to $258.3 million, aided by favorable
currency translation. In local currency ((Pounds)), revenue grew over 39%.
Active customers in Great Britain increased more than 20% to 437,000. On
average, these customers purchased 16% more from Viking in 1995 than in 1994.
Customer retention grew to 80%, our highest ever. More than 160,000 new accounts
were added.
British customers respond well to Viking's own "Fanatical Customer Service."
Practically no backorders, friendly, compassionate people, nationwide free
delivery overnight -- and now same-day delivery in the London and Leicester
areas earn their continuing business. In 1995, we opened our same-day
distribution center in London, and doubled our size in Leicester to support and
continue our profitable growth.
Utilizing Viking's "cross-border" capabilities, our U.K. team successfully
entered the Republic of Ireland. Our all-Irish catalog and overnight delivery
generated over $6 million in revenue in just 10 months.
[PHOTO OF VIKING CATALOGS FOR UNITED KINGDOM APPEARS HERE]
6 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING FRANCE
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
France was Viking's first entry into Continental Europe in June 1992. Our
objectives were to establish our business in France -- and to implement our plan
for cross-border opportunities throughout the European Union. It proved more
difficult and more costly than expected. In 1995, great results finally were
achieved with major revenue growth, strong profitability and successful cross-
border sales to the Benelux countries.
French revenues grew 56% to $118.7 million, helped by favorable currency
translations. In local currency, revenue grew 39%. Profitability was achieved
and sustained in 1995. Active customers grew 22% to 224,000. Average revenue per
customer increased by 13%. More than 93,000 new customers were added.
Today our French team has greatly increased their capabilities with expanded
facilities, advanced technology fulfillment systems and a renewed commitment to
Viking's unique "Fanatical Customer Service".
[PHOTO OF FRENCH MANAGEMENT TEAM APPEARS HERE]
France Management Team:
Catherine Moritz, Cyril Tetard, Laurence Marie,
Richard Pedreira, Bernard Pagneux, Alain Dieutegard,
Barbara Bleny, Philippe Steinbock, Lucie Laufer,
Gilles Fleurance (not pictured)
- --------------------------------------------------------------------------------
REVENUE GROWTH -- FRANCE
- --------------------------------------------------------------------------------
($ MILLIONS)
[CHART APPEARS HERE]
1993 N/A* $ 52.4
1994 45.0% $ 76.1
1995 56.0% $118.7
*Start June 1992
[PHOTO OF VIKING CATALOGS FOR FRANCE APPEARS HERE]
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 7
<PAGE>
THE NETHERLANDS
VIKING BELGIUM AND LUXEMBOURG
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
[PHOTO OF BENELUX MANAGEMENT TEAM APPEARS HERE]
Benelux Management Team:
Arun Kapoor, Debbie Vermie, Rolf van Kaldekerken,
Anita Luijsterburg, Peter Damman
- --------------------------------------------------------------------------------
REVENUE GROWTH -- BENELUX
- --------------------------------------------------------------------------------
($ MILLIONS)
BELGIUM -- LUXEMBOURG THE NETHERLANDS
[CHART APPEARS HERE] [CHART APPEARS HERE]
1994 N/A* $ 1.1 1994 N/A* $0.0
1995 N/A* $19.7 1995 N/A* $8.1
*Start May 1994 *Start November 1994
Viking entered Europe knowing the European Union of countries promised a market
potential greater than the United States. With borders open, goods and services
could cross country lines as easily as U.S. state lines. After a successful
beginning in Great Britain, Viking entered France as its first step to cross-
border marketing.
Our American and French teams began cross-border activity from France to Belgium
in May 1994. Logistics were put in place for overnight delivery throughout
Belgium from our existing Paris facility. Languages, currencies, catalogs and
full customer service were implemented. To Belgian customers, we were a Belgian
supplier. It worked...and the promise of cross-border potential became a
reality. In 1995, more than 75,000 Benelux customers were serviced in Viking's
cross-border program.
Soon Luxembourg was added, then The Netherlands -- all utilizing our existing
French facilities. Our Benelux revenue in 1995 was $27.8 million. Venlo, The
Netherlands is now being established as our European multi-function center, for
continued growth throughout Europe.
[PHOTO OF VIKING CATALOGS FOR THE NETHERLANDS, BELGIUM AND LUXEMBOURG APPEARS
HERE]
8 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING AUSTRALIA
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Viking entered Australia in November 1993. Although far away in miles, Australia
is close in market characteristics to Great Britain, with some American touches.
As Viking does in each country, a full team was developed, marketing plans
established and logistics implemented for overnight delivery to 80% of the
Australian businesses.
Operating just 8 months in fiscal 1994, revenues reached $16.1 million. In the
full fiscal year 1995, revenues increased 149% to over $40 million. In local
currency, revenues increased 138%. More than 88,000 customers chose Viking in
1995 and average annual revenue per customer increased 64% over 1994.
Australia became profitable in the third quarter of 1995 and has great potential
for the future. Larger facilities are now being sought in Sydney, and a
satellite distribution center will be added in Melbourne. When Viking looks to
Asia, our Australian base will provide a solid platform.
[PHOTO OF AUSTRALIA MANAGEMENT TEAM APPEARS HERE]
Australia Management Team:
Seated: Tim Burke, Alan Verey, Anthony Keyzer, Fraser Phillips
Standing: Brian Rennie, Margaret Mantle, Michael Mullen,
Lyn Gough, Louise Rochfort, Alicia Allsopp, Michael Mariakis,
Sharon Hawke, Caren Williams
- --------------------------------------------------------------------------------
REVENUE GROWTH -- AUSTRALIA
- --------------------------------------------------------------------------------
($ MILLIONS)
[CHART APPEARS HERE]
1993 N/A* $ 0.0
1994 N/A* $16.1
1995 149% $40.1
*Start November 1993
[PHOTO OF VIKING CATALOGS FOR AUSTRALIA APPEARS HERE]
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 9
<PAGE>
VIKING THE FUTURE
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
[ARTWORK OF WORLD MAP APPEARS HERE]
Viking opens new countries every year
[PHOTOS OF VARIOUS VIKING EMPLOYEES APPEAR HERE]
"Fanatical" service in every country.
Viking's future has never been brighter -- or more challenging. As revenues
break through $1 billion in 1996, the issues of long-distance international
expansion, new country openings, and advanced technology application while
"talking to one customer at a time" will be managed by our best leaders ever.
Viking Direct will begin in Germany before the end of calendar 1995. Germany is
the greatest potential market for Viking in all of Europe. It will not be easy,
but we are confident Viking can be very successful in entering Germany and
earning a major market share.
In the foreseeable future, Viking intends to establish new operations and
markets in Austria, the Czech Republic, and other European and Scandinavian
countries.
To penetrate markets deeper and provide same-day delivery to our customers,
satellite distribution centers will be added in the Washington-Baltimore area
and other major U.S. cities, as well as Dublin, the Republic of Ireland;
Melbourne, Australia; Venlo, The Netherlands; Southern Germany; and elsewhere.
Getting "closer" to customers with "fanatical" service earns loyalties which
cannot be bought with price.
PERSONALIZED CATALOGS
"TALK" TO ONE CUSTOMER
AT A TIME.
[PHOTO OF VIKING CATALOGS APPEARS HERE]
10 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At June 30, 1995, Viking Office Products, Inc. ("Viking" or the "Company")
operated seven distribution centers throughout the United States, one in
Australia and three in Europe. Operations in the foreign countries account for
an increasing percentage of the Company's consolidated revenues and expenses,
and an increasing amount of Viking's consolidated assets. As described in Note A
of the Notes to Consolidated Financial Statements, the asset and liability
accounts of Viking's foreign subsidiaries are translated for consolidated
financial reporting purposes into United States Dollar amounts at year end
exchange rates. Revenue and expense accounts are translated at weighted average
exchange rates for the year. The Company utilizes a 52 or 53 week fiscal year
ending on the last Friday in June. The fiscal year ended June 30, 1995 was a 53
week year. The years ended June 24, 1994 and June 25, 1993 were 52 week years.
Foreign currency fluctuations and the number of weeks in the fiscal year can
impact the results of operations.
The following table shows, for the years indicated, the percentage
relationships to revenues of items included in the Financial Highlights and the
percentage changes in the dollar amounts of such items from year to year.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
FOR THE FISCAL YEAR ENDED (DECREASE)
---------------------------------- ---------------------
JUNE 30, JUNE 24, JUNE 25, 1995 VS. 1994 VS.
1995 1994 1993 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. 100.0% 100.0% 100.0% 43.7% 25.7%
Cost of goods sold, including delivery................ 66.0 64.6 65.0 46.7 24.8
-------- -------- --------
Gross profit.......................................... 34.0 35.4 35.0 38.1 27.2
Selling, general
and administrative expenses...................... 26.1 27.0 28.5 39.0 19.1
-------- -------- --------
Operating income...................................... 7.9 8.4 6.5 35.3 62.4
Other income.......................................... 1.0 0.8 0.6 73.1 55.1
Interest expense...................................... 0.0 0.0 0.0 (1.8) (8.2)
-------- -------- --------
Income before income taxes............................ 8.9 9.2 7.1 38.7 62.1
Income taxes.......................................... 3.2 3.6 3.3 28.8 35.6
-------- -------- --------
Net income............................................ 5.7% 5.6% 3.8% 45.1% 85.2%
======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
Year ended June 30, 1995 compared to year ended June 24, 1994
Revenues for fiscal 1995 increased $246.8 million, or 43.7% from fiscal
1994. This increase was primarily attributable to a 23.4% increase in the number
of customers who purchased products during fiscal 1995, a 16.4% increase in the
average revenue per customer and a 21.6% increase in the number of catalogs
mailed. The revenue increase in fiscal 1995 included an increase of $63.5
million in the United States, $159.3 million increase in sales to customers in
European markets (the United Kingdom, Ireland, France, Belgium, Luxembourg and
the Netherlands) and a $24.0 million increase in Australia. Revenue in the
United States represents approximately 44% of the consolidated total, with
the balance coming from Europe and Australia. Revenue was also favorably
impacted in fiscal 1995 by a 4.0% average increase in the value of the foreign
currencies in the countries where Viking is engaged in business relative to the
United States Dollar, and from an additional week of sales in the current year.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 11
<PAGE>
The increase in catalogs mailed and the number of customers purchasing
products was attributable to the continuing expansion of the United Kingdom,
France and Australia markets, increased mailings in the United States and to the
establishment of new markets in Belgium, Luxembourg, Ireland and The
Netherlands. The increase in the average revenue per customer is the result of
improved database marketing techniques, a wider selection of products and
product lines and higher customer retention rates.
Gross profit for fiscal 1995 increased by $76.2 million, or 38.1%, from
fiscal 1994. As a percentage of revenues, gross profit declined to 34.0% from
35.4% in the prior year. The decline in gross profit as a percentage of sales is
primarily attributable to the lower margins associated with the Company's entry
into new markets as indicated above and higher costs related to paper products.
Selling, general and administrative expenses for fiscal 1995 increased by
$59.4 million, or 39.0%, from fiscal 1994. As a percentage of revenues, these
expenses decreased from 27.0% in fiscal 1994 to 26.1% in fiscal 1995. The
increase in the dollar amount of selling, general and administrative expenses is
primarily attributable to catalog costs, which increased 43.8% in the current
year. The increase in catalog costs was primarily attributable to the 21.6%
increase in the number of catalogs mailed and higher paper costs. In addition to
selling costs, operating costs have increased in the aggregate as the Company
continues its expansion programs. As a percentage of sales however, these costs,
which include branch operating costs and general and administrative expenses,
have declined from the prior year. This decrease is primarily the result of the
Company's ability to expand sales without a proportionate increase in overhead
expenses. Additionally, the Company continues to invest in staffing and systems
that should result in improved efficiency throughout the organization. While
these investments increase operating and administrative expenses in the near
term, the Company believes that this improved infrastructure should provide
benefits into the future.
Other income, which consists primarily of cash discounts from suppliers and
interest income, increased $3.3 million during fiscal 1995. This increase was
attributable to cash discounts received on increased levels of purchasing, and
to higher income on investments.
The effective tax rate was 36.2% for fiscal 1995 compared to 39.0% in
fiscal 1994. The decrease is primarily attributable to the utilization of
available operating loss carryforwards in France.
Year ended June 24, 1994 compared to year ended June 25, 1993
Revenues for fiscal 1994 increased $115.4 million, or 25.7% from fiscal
1993. This increase was primarily attributable to a 22.8% increase in the number
of customers who purchased products during fiscal 1994, a 2.4% increase in the
average revenue per customer and a 21.2% increase in the number of catalogs
mailed. The revenue increase in fiscal 1994 included a $57.9 million increase in
sales to customers in the United Kingdom, France and Belgium and to $16.1
million of sales from the new Australian operation, which began in November
1993. The increase in catalogs mailed and the number of customers purchasing
products was attributable to the continuing expansion of the United Kingdom and
France markets, increased mailings in the United States and to the establishment
of the Australia and Belgium markets.
Gross profit for fiscal 1994 increased by $42.7 million, or 27.2%, from
fiscal 1993. As a percentage of revenues, gross profit remained relatively
constant.
Selling, general and administrative expenses for fiscal 1994 increased by
$24.4 million, or 19.1%, from fiscal 1993. As a percentage of revenues, these
expenses decreased from 28.5% in fiscal 1993 to 27.0% in fiscal 1994. The
increase in the dollar amount of selling, general and administrative expenses is
primarily attributable to catalog costs, which increased $7.8 million, or 15.7%
versus the prior year. The increase in catalog costs was primarily attributable
to a 21.2% increase in the number of catalogs mailed. Operating and
administrative expenses also fell as a percentage of sales but increased in the
aggregate versus the prior year. These costs increased as a result of expansion
in Europe and Australia.
12 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
Other income, consisting primarily of cash discounts from suppliers and
interest income, increased by $1.6 million, or 55.1% in fiscal 1994 versus the
prior year. This increase was attributable to cash discounts received on higher
European inventory purchases and to higher investment income.
The effective tax rate was 39.0% in fiscal 1994 compared to 46.6% in fiscal
1993. Beginning in fiscal 1994, Viking adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." In previous years,
Viking recognized income tax expense in accordance with SFAS No. 96. The effect
of adopting SFAS No. 109 was not significant. The high effective income tax rate
in fiscal 1993 was due to start-up costs and operating losses incurred in France
for which a valuation allowance has been established.
Liquidity and Capital Resources
Viking's primary source of liquidity and capital has been cash flow from
operations. Viking believes that its existing cash and short-term investments,
cash generated from operations and available credit under its revolving credit
facility will be sufficient to finance its working capital and capital
expenditure requirements for the foreseeable future.
At June 30, 1995, the Company had working capital of $127.6 million
compared to $95.2 million last year. The improved working capital position
primarily reflects cash provided by operating activities of $23.7 million for
fiscal 1995. Capital expenditures amounted to $31.3 million for fiscal 1995 as
Viking purchased land and buildings for its Jacksonville, Florida and Leicester,
England distribution centers, purchased land for expansion in Germany and
continued to invest in its domestic and international operations. Cash provided
by operating and financing activities that exceeded current working capital and
capital expenditures requirements was invested in short-term marketable
securities.
Viking has a revolving credit agreement with Citibank, N.A., which provides
for an unsecured revolving credit facility up to $30 million through June 1996.
Advances under this credit facility currently bear interest at the bank's base
rate or at the bank's base rate less 1/4% depending on certain of Viking's
financial ratios. At the option of Viking, the rate of interest may be
determined by reference to LIBOR or domestic certificate of deposit rates. In
addition, Viking is required to pay a commitment fee varying from 1/4% to 1/2%
on the unused amount of the revolving credit facility. Such commitment fee rates
are dependent on certain of Viking's financial ratios. At June 30, 1995, no
amounts were outstanding under this credit facility and the entire $30 million
was available for borrowing.
The Company believes that there are substantial opportunities throughout
Europe to expand its business and is currently developing plans for entry into
Germany during the latter part of calendar 1995. Future capital expenditures
related to specific expansion plans in Germany and other European countries have
not yet been determined. In addition to the expansion referred to above, the
Company will continue to invest in information systems, distribution facilities
and other capital projects designed to improve operational efficiencies.
Management believes that capital requirements for such expenditures will be
provided from existing cash and short-term investments, as well as cash from
operations. Capital expenditures in fiscal 1996 are expected to be between $40
million and $50 million.
Inflation and Seasonality
The Company cannot accurately determine the precise effects of inflation,
however, it does not believe that inflation has had a material impact on the
results of operations. The Company considers its business to be somewhat
seasonal, with revenue and profitability slightly higher during the third
quarter of each year.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 13
<PAGE>
MANAGEMENT RESPONSIBILITY FOR
FINANCIAL STATEMENTS
The financial statements included in this report were prepared by the Company in
conformity with generally accepted accounting principles consistently applied.
Management's best estimates and judgments were used, where appropriate.
Management is responsible for the integrity of the financial statements and for
other financial information included in this report. The financial statements
have been audited by the Company's independent auditors, Deloitte & Touche LLP.
As set forth in their report, their audits were conducted in accordance with
generally accepted auditing standards and formed the basis for their opinion on
the accompanying financial statements. They evaluate the system of internal
accounting controls and perform such tests and other procedures as they deem
necessary to reach and express an opinion on the fairness of the financial
statements.
The Company maintains a system of internal accounting controls, which is
designed to provide reasonable assurance that assets are safeguarded, and that
the financial records reflect the authorized transactions of the Company.
The Audit Committee of the Board of Directors includes directors who are neither
officers nor employees of the Company. The Audit Committee meets periodically
with management and the independent auditors to discuss auditing, internal
accounting controls and financial reporting matters. The independent auditors
have full and free access to meet with the Audit Committee with and without
management being present.
/s/ Lisa Billig
Lisa Billig
Vice President, Finance and
Chief Financial Officer
14 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Viking Office Products, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Viking Office
Products, Inc. and subsidiaries (the "Company") as of June 30, 1995 and June 24,
1994, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended June 30, 1995.
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 financial position of Viking Office Products, Inc.
and subsidiaries as of June 30, 1995 and June 24, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
August 14, 1995
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 15
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, JUNE 24,
1995 1994
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 11,080 $ 25,609
Short-term investments.................................................. 36,383 22,921
Accounts receivable, net................................................ 96,000 65,079
Merchandise inventories................................................. 64,670 45,298
Prepaid catalog costs................................................... 16,292 10,929
Prepaid expenses and other current assets............................... 2,587 2,068
-------- --------
Total current assets.................................................... 227,012 171,904
-------- --------
Property and equipment, net.................................................... 49,083 23,172
Other assets:
Deposits and other assets............................................... 2,364 1,350
Intangible assets, net.................................................. 29,885 30,794
-------- --------
Total other assets...................................................... 32,249 32,144
-------- --------
$308,344 $227,220
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................... $ 76,312 $ 61,006
Sales and value added taxes payable..................................... 6,184 2,153
Income taxes payable.................................................... 16,936 13,522
-------- --------
Total current liabilities............................................... 99,432 76,681
-------- --------
Deferred income taxes.......................................................... 386 307
Commitments
Stockholders' equity:
Preferred stock, no par value; authorized, 40,000,000 shares;
issued and outstanding, none
Common stock, no par value; authorized, 60,000,000 shares;
issued and outstanding, 40,790,787 shares at June 30, 1995 and
40,211,870 shares at June 24, 1994................................. 92,036 84,706
Retained earnings.............................................................. 121,251 75,145
Unamortized value of long-term incentive stock grant........................... (7,768) (8,416)
Cumulative foreign currency translation adjustment............................. 3,007 (1,203)
-------- --------
Total stockholders' equity..................................................... 208,526 150,232
-------- --------
$308,344 $227,220
======== ========
</TABLE>
See notes to consolidated financial statements.
16 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
----------------------------------------
JUNE 30, JUNE 24, JUNE 25,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................. $811,899 $565,055 $449,687
Cost of goods sold, including delivery............... 535,789 365,159 292,486
-------- -------- --------
Gross profit......................................... 276,110 199,896 157,201
Selling, general and administrative expenses......... 211,611 152,224 127,843
-------- -------- --------
Operating income..................................... 64,499 47,672 29,358
Other income......................................... 7,929 4,579 2,953
Interest expense..................................... 164 167 182
-------- -------- --------
Income before income taxes........................... 72,264 52,084 32,129
Income taxes......................................... 26,158 20,304 14,972
-------- -------- --------
Net income........................................... $ 46,106 $ 31,780 $ 17,157
======== ======== ========
Net income per common
and common equivalent share....................... $1.08 $.76 $.42
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding.............. 42,550 41,850 40,575
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 17
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNAMORTIZED CUMULATIVE
VALUE OF FOREIGN
COMMON STOCK LONG-TERM CURRENCY
---------------------- RETAINED INCENTIVE TRANSLATION
SHARES AMOUNT EARNINGS STOCK GRANT ADJUSTMENT TOTAL
---------- ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 26, 1992 38,748,392 $68,947 $ 26,208 $ -- ($75) $ 95,080
Common stock issued 328,514 1,424 1,424
Tax benefit related to stock options 658 658
Long-term incentive stock grant 9,225 (9,225) --
Amortization of long-term
incentive stock grant 162 162
Foreign currency translation adjustment (1,821) (1,821)
Net income 17,157 17,157
---------- ------- -------- ------ ------ --------
Balance, June 25, 1993 39,076,906 80,254 43,365 (9,063) (1,896) 112,660
Common stock issued 534,964 3,270 3,270
Tax benefit related to stock options 1,182 1,182
Long-term incentive stock grant 600,000 --
Amortization of long-term
incentive stock grant 647 647
Foreign currency translation adjustment 693 693
Net income 31,780 31,780
---------- ------- -------- ------ ------ --------
Balance, June 24, 1994 40,211,870 84,706 75,145 (8,416) (1,203) 150,232
Common stock issued 645,584 6,004 6,004
Tax benefit related to stock options 1,326 1,326
Long-term incentive stock grant
canceled (66,667) --
Amortization of long-term
incentive stock grant 648 648
Foreign currency translation adjustment 4,210 4,210
Net income 46,106 46,106
---------- ------- -------- ------ ------ --------
Balance, June 30, 1995 40,790,787 $92,036 $121,251 ($7,768) $3,007 $208,526
========== ======= ======== ====== ====== ========
</TABLE>
See notes to consolidated financial statements.
18 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
--------------------------------------------
JUNE 30, JUNE 24, JUNE 25,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.................................... $776,232 $542,364 $425,852
Cash paid to suppliers and employees............................ (733,481) (498,844) (396,483)
Interest received............................................... 2,711 1,075 425
Interest paid................................................... (164) (169) (183)
Income taxes paid............................................... (21,633) (14,327) (9,980)
-------- -------- --------
Net cash provided by operating activities....................... 23,665 30,099 19,631
Cash flows from investing activities:
Proceeds from sale of property and equipment.................... 57 71 868
Capital expenditures............................................ (31,324) (16,096) (2,842)
Increase in short-term investments.............................. (13,462) (18,085) (4,836)
Issuance of notes receivable and other.......................... (912) 45 (291)
-------- -------- --------
Net cash used in investing activities........................... (45,641) (34,065) (7,101)
Cash flows from financing activities:
Proceeds from issuance of stock................................. 6,004 3,270 1,424
-------- -------- --------
Net cash provided by financing activities....................... 6,004 3,270 1,424
Effect of exchange rate changes on cash................................ 1,443 216 (316)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents................... (14,529) (480) 13,638
Cash and cash equivalents, beginning of year........................... 25,609 26,089 12,451
-------- -------- --------
Cash and cash equivalents, end of year................................. $ 11,080 $ 25,609 $ 26,089
======== ======== ========
Reconciliation of net income to net cash provided
by operating activities:
Net income...................................................... $ 46,106 $ 31,780 $ 17,157
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................ 8,052 5,043 3,663
Provision for doubtful accounts.......................... 10,400 9,398 7,184
Deferred (prepaid) taxes on income....................... (103) 906 (992)
Loss on sale of property and equipment................... 35 435 26
Increase in accounts receivable.......................... (37,994) (24,415) (23,288)
Increase in merchandise inventories...................... (18,257) (13,819) (595)
Increase in prepaid expenses and other assets............ (5,743) (4,753) (1,526)
Increase in accounts payable and accrued expenses........ 13,144 20,042 9,390
Increase in other liabilities............................ 8,025 5,482 8,612
-------- -------- --------
Net cash provided by operating activities....................... $ 23,665 $ 30,099 $ 19,631
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 19
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
Viking Office Products, Inc. and subsidiaries ("Viking" or the "Company")
sells office products through direct marketing catalogs and programs to small
and medium-sized businesses throughout the continental United States, United
Kingdom, Ireland, France, Belgium, Luxembourg, The Netherlands and Australia.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Fiscal Year
The Company utilizes a 52 or 53 week fiscal year ending on the last Friday
in June. The fiscal year ended June 30, 1995 was a 53 week year. The years ended
June 24, 1994 and June 25, 1993 were 52 week years.
Cash and Cash Equivalents
The Company considers any highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
Short-Term Investments
Short-term investments are classified as "available for sale" under the
provisions of SFAS No. 115 and are reported at fair value. Under SFAS No. 115,
fluctuations in fair value are included as a separate component of stockholders'
equity. Short-term investments are comprised of tax exempt municipal bonds and
other highly liquid marketable securities. At June 30, 1995 and June 24, 1994,
fair value did not differ significantly from cost.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
Prepaid Catalog Costs
Catalog costs, which consist primarily of the costs of producing and
mailing catalogs, are charged to the periods in which the catalogs generate
revenue.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Provisions for depreciation of buildings and improvements are made using the
straight-line method. Provisions for depreciation of equipment and other fixed
assets are generally made using straight-line and accelerated methods. The
useful lives of property and equipment are as follows:
Buildings and improvements.......................... 10-20 years
Furniture, equipment and other...................... 5-10 years
Leasehold improvements.............................. Remaining Lease Term
Computers........................................... 3-8 years
Deposits and Other Assets
Deposits and other assets include investments in the personal residences of
certain executive officers of Viking that amount to $563,000 and $513,000 at
June 30, 1995 and June 24, 1994, respectively.
Intangible Assets
On September 1, 1988, Viking was acquired from its founders by VOP
Acquisition Corporation ("VOP") in a transaction accounted for as a purchase
(the "Acquisition"). In December 1989, VOP was merged into Viking with Viking
continuing as the surviving corporation. Intangible assets arising from the
Acquisition represent the excess of the purchase price and related costs over
the fair value assigned to the net tangible assets of the business purchased.
Intangible assets are amortized on a straight-line basis over 40 years.
Accumulated amortization was $6,691,000 and $5,771,000 at June 30, 1995 and June
24, 1994, respectively.
Management reviews intangible assets for impairment at each balance sheet
date by comparing anticipated undiscounted future cash flows from operating
activities to the carrying value of the assets. If there is a permanent decline
in value, the carrying value of the intangible asset would be reduced.
20 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Effective June 26, 1993, Viking adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." In previous years,
Viking recognized income tax expense in accordance with SFAS No. 96. The effect
of adopting SFAS No. 109 was not significant. Under SFAS 109, income tax expense
includes income taxes payable for the current year, and certain deferred income
taxes resulting from temporary differences between assets and liabilities for
tax purposes and for financial statement purposes.
Viking has not recognized income tax expense on the undistributed earnings
of its foreign subsidiaries. It is the Company's intention to reinvest such
earnings permanently to fund further overseas expansion. However, if such
earnings are distributed to the United States, it is anticipated that federal
income taxes would be substantially offset by available foreign tax credits.
Translation of Foreign Currencies
The assets and liabilities of the Company's foreign subsidiaries are
translated into United States dollars at exchange rates in effect at the balance
sheet date. Revenues and expenses are translated at weighted average exchange
rates for the year. The aggregate effect of the foreign currency translation
adjustments are shown as a separate component of stockholders' equity titled
"Cumulative foreign currency translation adjustment" and include gains and
losses on intercompany loans that are not expected to be repaid in the
foreseeable future. Foreign currency transaction gains and losses were not
material for the periods presented.
Foreign Exchange Instruments
The Company's use of derivatives is currently limited to forward exchange
contracts which are used to minimize foreign exchange transaction gains and
losses. Viking purchases foreign currency contracts to hedge short-term advances
to foreign subsidiaries, and to hedge inventory purchases. The Company's foreign
exchange contracts minimize the exposure to exchange rate movement risk, as any
gains or losses on these contracts are offset by the gains and losses on the
transactions being hedged.
At June 30, 1995, Viking had approximately $1,500,000 of forward exchange
contracts outstanding, which mature at varying dates through November 1995. The
fair value of foreign exchange contracts does not differ significantly from
their carrying value.
Fair Value of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 107,
"Disclosure About Fair Value of Financial Instruments," the Company has
estimated the fair value of its financial instruments using the following
methods and assumptions: a) The carrying amounts of cash and cash equivalents,
receivable and accounts payable approximate fair value because of their short-
term nature; and b) The fair values of short-term investments are based on
quoted market prices.
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period. The weighted average number of common and common
equivalent shares outstanding for the years ended June 30, 1995, June 24, 1994
and June 25, 1993 were 42,550,000, 41,850,000 and 40,575,000, respectively. For
the years presented, primary and fully diluted per share amounts do not differ
materially.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 21
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B -- ACCOUNTS RECEIVABLE:
Accounts receivable is comprised primarily of trade receivables from
customers, and is net of an allowance for doubtful accounts of $8,689,000 and
$6,035,000 at June 30, 1995 and June 24, 1994, respectively. The credit risk
related to these receivables is limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different industries and geographies.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 24,
1995 1994
------- -------
<S> <C> <C>
Land............................................. $ 3,490 $ 283
Buildings and improvements....................... 16,809 8,589
Furniture, equipment and other................... 22,144 11,106
Leasehold improvements........................... 3,159 2,631
Computers........................................ 20,273 10,793
------- -------
65,875 33,402
Less accumulated depreciation
and amortization............................... 16,792 10,230
------- -------
$49,083 $23,172
======= =======
</TABLE>
NOTE D -- INCOME TAXES
A summary of the components of income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------
JUNE 30, JUNE 24, JUNE 25,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current
Federal........................ $12,079 $ 8,371 $ 7,438
European and other............. 12,548 9,709 6,808
State.......................... 1,634 1,318 1,718
------- ------- -------
26,261 19,398 15,964
Deferred........................... (103) 906 (992)
------- ------- -------
$26,158 $20,304 $14,972
======= ======= =======
</TABLE>
Income taxes on income as a percentage of earnings before income taxes
differed from the United States statutory rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------
JUNE 30, JUNE 24, JUNE 25,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes at
statutory rate..................... 35.0% 35.0% 34.0%
State income taxes,
net of federal benefit............. 1.4 1.9 3.4
Amortization of intangible
assets............................. 0.4 0.5 0.9
Change in income tax
valuation allowance................ (1.7) 2.0 7.8
Other.................................. 1.1 (0.4) 0.5
-------- -------- --------
Effective tax rate..................... 36.2% 39.0% 46.6%
======== ======== ========
</TABLE>
The tax effects of temporary differences that resulted in deferred assets
and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 24,
1995 1994
------- -------
<S> <C> <C>
Deferred income tax assets:
Foreign operating loss
carryforwards.................................... $3,141 $3,802
Accounts receivable allowance...................... 1,376 1,041
State taxes on income.............................. 617 601
Uniform capitalization rules....................... 390 297
Other.............................................. 299 518
Less valuation allowance........................... (3,141) (3,802)
------ ------
$2,682 $2,457
====== ======
Deferred income tax liabilities:
Prepaid catalog costs.............................. $2,786 $2,012
Other.............................................. 282 934
------ ------
$3,068 $2,946
====== ======
</TABLE>
Certain foreign subsidiaries have operating loss carryforwards that expire
generally through fiscal 1997 and 1998. A valuation allowance was recognized
because these subsidiaries are in the start-up phase. Cumulative undistributed
earnings of foreign subsidiaries, for which no deferred taxes have been
provided, approximated $53,000,000 at June 30, 1995.
22 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- PROFIT SHARING PLAN
The employees of Viking participate in a profit sharing plan covering
substantially all employees with more than three months of service.
Contributions to the plan are made at the discretion of Viking's Board of
Directors. Profit sharing expense was $1,300,000, $1,200,000 and $1,000,000 for
the years ended June 30, 1995, June 24, 1994, and June 25, 1993, respectively.
NOTE F -- COMMITMENTS
Viking leases facilities for certain distribution centers. Future minimum
rental payments required under noncancelable leases for the five years following
June 30, 1995 are (in thousands):
1996......................................................... $ 5,812
1997......................................................... 4,920
1998......................................................... 4,684
1999......................................................... 4,028
2000......................................................... 3,713
Thereafter................................................... 18,695
-------
Total minimum payments required.............................. $41,852
=======
Viking has options to extend certain leases with rental rate adjustments
based on the Consumer Price Index. Other leases can be extended based on fair
market value. Rent expense was $5,226,000, $4,632,000, and $4,161,000, in the
years ended June 30, 1995, June 24, 1994 and June 25, 1993, respectively.
NOTE G -- REVOLVING CREDIT AGREEMENT
Viking has a revolving credit agreement with Citibank, N.A. which provides
for an unsecured revolving credit facility up to $30.0 million through June
1996. Advances under this credit facility bear interest at the bank's base rate
or at the bank's base rate less 1/4% depending on certain of Viking's financial
ratios. At the option of Viking, the rate of interest may be determined by
reference to LIBOR or domestic certificate of deposit rates. In addition, Viking
is required to pay a commitment fee varying from 1/4% to 1/2% on the unused
amount of the revolving credit facility. Such commitment fee rates are dependent
on certain of Viking's financial ratios. At June 30, 1995 and June 24, 1994, no
amounts were outstanding under the revolving credit facility, and the entire
$30.0 million was available for borrowing.
NOTE H -- STOCKHOLDERS' EQUITY
Employee Stock Option Plans
The Company currently has three employee stock option plans. Under the 1989
Incentive Stock Option Plan ("1989 Plan") as amended, 5,400,000 shares of Common
Stock were available for grant during fiscal 1995 (less options previously
granted or exercised) to key employees of Viking at an exercise price at least
equal to the fair market value of the Common Stock on the date of the grant. The
shareholders approved an amendment in July 1994, which included a provision to
further increase the maximum shares issuable under the 1989 Plan on the last
business day of each fiscal year commencing June 30, 1995 by a number equal to
1.25% of the number of shares issued and outstanding on such date up to a
maximum of 7,000,000 shares. Accordingly, for fiscal 1996, 5,909,885 shares of
Common Stock will be available for grant under the 1989 Plan, less options
previously granted or exercised.
The 1991 Nonstatutory Stock Option Plan ("1991 Plan") provides for the
grant of stock options to purchase an aggregate of 200,000 shares of Common
Stock at exercise prices which may be less than the fair market value of the
Common Stock on the date of the grant. At June 30, 1995, 20,000 shares of Common
Stock have been granted under the 1991 Plan and none were exercisable.
The Long-Term Incentive Stock Plan, which was approved at the 1993 annual
meeting of stockholders, enables the Board of Directors to award up to 800,000
shares of common stock to key employees of Viking. Under the Long-Term Incentive
Stock Plan, 600,000 shares were awarded at no cost to key employees by the Board
of Directors. The fair market value of the shares at the date of the award was
$9,225,000. The shares awarded under the Long-Term Incentive Stock Plan vest at
the end of fifteen years, or if certain performance criteria were met during the
fiscal year ending June 1995, the shares were to vest in equal amounts over a
five-year period beginning June 30, 1995. The performance criteria were not met,
therefore, the shares will vest at the end of fifteen years. Compensation
expense is being recognized over this fifteen year restriction period and
amounted to $648,000 in 1995 and 1994.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 23
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H -- STOCKHOLDERS' EQUITY (CONTINUED)
Directors Stock Option Plan
The Company's 1992 Directors Stock Option Plan ("1992 Plan") provides for
the grant of stock options to purchase an aggregate of 200,000 shares of Common
Stock by non-employee directors at an exercise price at least equal to the fair
market value of the Common Stock on the date of the grant. A total of 60,000
options have been granted under the 1992 Plan.
Options to purchase 1,233,047 shares and 986,938 shares of Common Stock
were exercisable at June 30, 1995 and June 24, 1994, respectively. Stock option
activity with respect to the above plans is as follows:
<TABLE>
<S> <C> <C>
Outstanding at
June 26, 1992......................... 2,277,600 $.25 - $9.13
Granted........................... 1,351,000 $7.50 - $15.57
Exercised......................... (272,200) $.25 - $9.13
Canceled.......................... (231,200) $.25 - $15.57
Outstanding at
June 25, 1993......................... 3,125,200 $.25 - $15.57
Granted........................... 902,000 $16.13 - $24.13
Exercised......................... (497,862) $2.44 - $16.13
Canceled.......................... (100,400) $.25 - $16.13
Outstanding at
June 24, 1994......................... 3,428,938 $2.44 - $24.13
Granted........................... 523,000 $5.00 - $30.50
Exercised......................... (614,091) $2.44 - $26.00
Canceled.......................... (36,800) $4.13 - $26.00
Outstanding at
June 30, 1995......................... 3,301,047 $2.44 - $30.50
</TABLE>
Employee Stock Purchase Plans
The Company has two different employee stock purchase plans. The 1994
Employee Stock Purchase Plan ("Purchase Plan") was approved by the shareholders
in November 1994 to replace the 1989 Employee Stock Purchase Plan which expired
in December 1994. The Purchase Plan allows participating United States employees
to purchase up to 720,000 shares of Common Stock at 85% of the fair market value
of the Common Stock. The actual amount of shares that may be purchased by
employees is determined by the Compensation Committee of the Board of Directors
based on parameters set forth in the Purchase Plan. As of June 30, 1995, no
shares had been issued under the Purchase Plan. Viking commenced offerings under
the Purchase Plan in March 1995.
In April 1993, the Board of Directors adopted the Viking Direct U.K. Share
Savings Scheme ("U.K. Purchase Plan"). Under the U.K. Purchase Plan, up to
100,000 shares of Common Stock are available for purchase by full-time employees
of Viking Direct, Ltd. at 80% of the fair market value of the Common Stock. As
of June 30, 1995, no shares had been issued under the U.K. Purchase Plan.
NOTE I -- OPERATIONS BY GEOGRAPHIC SEGMENT
Viking has operations in the United States, United Kingdom, Ireland,
France, Belgium, Luxembourg, The Netherlands and Australia. Summarized financial
information relating to those operations has been included in the Consolidated
Financial Statements as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
------------------------------------
JUNE 30, JUNE 24, JUNE 25,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues
Domestic........................... $360,306 $296,752 $255,358
European and Other................. 451,593 268,303 194,329
-------- -------- --------
$811,899 $565,055 $449,687
======== ======== ========
Operating Profit:
Domestic........................... $42,456 $34,182 $25,866
European and Other................. 36,432 26,143 12,997
-------- -------- --------
$78,888 $60,325 $38,863
======== ======== ========
Income Before Income Taxes:
Domestic........................... $33,026 $24,910 $19,073
European and Other................. 39,238 27,174 13,056
-------- -------- --------
$72,264 $52,084 $32,129
======== ======== ========
Identifiable Assets:
Domestic........................... $166,073 $134,008 $111,088
European and Other................. 142,271 93,212 54,257
-------- -------- --------
$308,344 $227,220 $165,345
======== ======== ========
</TABLE>
24 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating profit is revenue less all operating expenses associated with the
geographic segment. General corporate expenses that are not specifically related
to a particular geographic segment are excluded from operating profit.
Identifiable assets are those assets that are identified with the operations in
each geographic area. Corporate assets are included in the domestic category.
NOTE J -- QUARTERLY SUMMARY OF OPERATIONS
The following quarterly summary of operations is unaudited. In the opinion
of Viking's management, all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the interim periods presented,
have been included (in thousands, except per share data).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended June 30, 1995
Revenues....................... $182,393 $189,160 $232,109 $208,237
Gross profit................... 62,675 63,062 78,108 72,265
Operating income............... 15,053 12,972 19,839 16,635
Income before income taxes..... 16,629 14,707 22,168 18,760
Net income..................... 10,317 9,240 14,685 11,864
Net income per share........... $.24 $.22 $.34 $.28
Year ended June 24, 1994
Revenues....................... $129,836 $133,117 $162,596 $139,506
Gross profit................... 45,306 46,388 57,079 51,123
Operating income............... 10,574 9,523 15,739 11,836
Income before income taxes..... 11,650 10,549 16,905 12,980
Net income..................... 6,726 6,235 10,794 8,025
Net income per share........... $.16 $.15 $.26 $.19
</TABLE>
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 25
<PAGE>
DIRECTORS AND OFFICERS 1995
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
[PHOTO OF MEMBERS OF VIKING'S BOARD OF DIRECTORS APPEARS HERE]
BOARD OF DIRECTORS
. NEIL R. AUSTRIAN . H.B. RICHMAN
President & Former Vice President,
Chief Operating Officer Finance &
National Football League Chief Financial Officer
Viking Office Products, Inc.
. IRWIN HELFORD . JOAN D. MANLEY
Chairman, President & Group Vice President (retired)
Chief Executive Officer Time Inc.
Viking Office Products, Inc.
. CHARLES P. DURKIN, JR. . LEE A. AULT III
Managing Director Private Investor
Dillon, Read & Co. Inc. Former Chairman &
Chief Executive Officer
Telecredit, Inc.
. ROLF OSTERN
Founder of Viking Office
Products, Inc.
(not pictured)
[PHOTO OF VIKING'S EXECUTIVE OFFICERS APPEARS HERE]
EXECUTIVE OFFICERS
. IRWIN HELFORD (seated) . BRUCE NELSON
Chairman, President & Executive Vice President &
Chief Executive Officer Chief Operating Officer
. LISA BILLIG . MARK L. MUIR
Vice President, Vice President,
Finance & Marketing
Chief Financial Officer
. DONALD M. WILSON . MARK R. BROWN
Vice President, Vice President,
Operations Information Systems
. RON WEISSMAN . STEPHEN R. KROLL
Vice President, Vice President,
Logistics Administration &
Secretary
26 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
CORPORATE COUNSEL
ERVIN, COHEN AND JESSUP
Beverly Hills, California
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
Los Angeles, California
STOCK REGISTRAR AND
TRANSFER AGENT
AMERICAN STOCK TRANSFER AND TRUST CO.
40 Wall Street, New York, NY 10005
(212) 936-5100
HOLDERS OF RECORD
At August 25, 1995, the approximate number
of holders of record of the Company's
Common Stock was 947.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended June 30,
1995, as filed with the Securities and Exchange Commission, will be furnished
without charge to shareholders of record upon written request to:
Corporate Secretary
Viking Office Products, Inc.
13809 S. Figueroa
Los Angeles, California 90061-1000
SECURITIES INFORMATION
Viking Office Products, Inc. Common Stock is traded in the over-the-counter
market in the NASDAQ National Market System under the symbol "VKNG." The
following table sets forth the range of high and low sale prices for the
Company's Common Stock, adjusted for the May 1994 2-for-1 stock split.
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------
FISCAL YEAR ENDED HIGH LOW
---- ----
<S> <C> <C>
First Quarter............................. 30 3/4 22
Second Quarter............................ 32 1/2 26 1/2
Third Quarter............................. 31 25
Fourth Quarter............................ 37 25
<CAPTION>
JUNE 24, 1994
--------------------
FISCAL YEAR ENDED HIGH LOW
---- ----
<S> <C> <C>
First Quarter........................... 21 3/8 15 1/2
Second Quarter.......................... 24 5/8 19 3/4
Third Quarter........................... 26 21 3/8
Fourth Quarter.......................... 27 1/2 21
</TABLE>
The Company has not paid dividends on Common Stock and does not anticipate doing
so in the foreseeable future. The Company intends to utilize its earnings to
invest in the future growth and development of the Company.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 27
<PAGE>
VIKING'S U.S. CATALOGS
[ARTWORK SHOWING EXAMPLES OF VIKING CO. U.S. CATALOG COVERS]
<PAGE>
...now in many countries & languages.
[ARTWORK SHOWING EXAMPLES OF VIKING CO. INTERNATIONAL CATALOG COVERS]
<PAGE>
VIKING
OFFICE PRODUCTS
================================================================================
Corporate Offices: 13809 South Figueroa Street, Los Angeles, CA 90061
Telephone: 213-321-4493
. Los Angeles, CA . Dallas, TX . Cincinnati, OH
. East Windsor, CT . Jacksonville, FL . Seattle, WA
. Minneapolis, MN
. Leicester & London, England, U.K.
. Paris, France
. Sydney, Australia
. Venlo, The Netherlands
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Organization
------------------ ----------------------------
<S> <C>
1. Viking Direct Limited United Kingdom
2. Viking Office Products Pty. Ltd. Australia
3. Viking Direct S.A.R.L. France
4. Viking Direct B.V.I.O. The Netherlands
5. Viking Direct Limited GMBH Germany
</TABLE>
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 33-33565 and in Registration Statements
No. 33-45337, No. 33-56884 and No. 33-73196 of Viking Office Products, Inc. on
Form S-8 of our reports dated August 14, 1995, appearing in and incorporated by
reference in the Annual Report on Form 10-K of Viking Office Products, Inc. for
the year ended June 30, 1995.
/s/ Deloitte & Touche LLP
September 22, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,080
<SECURITIES> 36,383
<RECEIVABLES> 104,689
<ALLOWANCES> 8,689
<INVENTORY> 64,670
<CURRENT-ASSETS> 227,012
<PP&E> 65,875
<DEPRECIATION> 16,792
<TOTAL-ASSETS> 308,344
<CURRENT-LIABILITIES> 99,432
<BONDS> 0
<COMMON> 92,036
0
0
<OTHER-SE> 116,490
<TOTAL-LIABILITY-AND-EQUITY> 308,344
<SALES> 811,899
<TOTAL-REVENUES> 811,899
<CGS> 535,789
<TOTAL-COSTS> 535,789
<OTHER-EXPENSES> 201,211
<LOSS-PROVISION> 10,400
<INTEREST-EXPENSE> 164
<INCOME-PRETAX> 72,264
<INCOME-TAX> 26,158
<INCOME-CONTINUING> 46,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,106
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
