<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 28, 1996.
-------------
[_] 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
-------
VIKING OFFICE PRODUCTS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-2082946
------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
879 W. 190th Street, 10th Floor, Gardena, California 90248
---------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 225-4500
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
------------------------
(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
----- -----
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 16, 1996, is approximately
$2,228,283,615. 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 16, 1996
----- -------------------------------
<S> <C>
Common Stock 83,209,356 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 28, 1996.
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 14, 1996.
<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 28, 1996 (the "Annual Report"):
<TABLE>
<CAPTION>
PART II ITEM INCORPORATED BY REFERENCE FROM
- ------------ ------------------------------
<S> <C>
Item 5. Market for the Registrant's Annual Report section entitled
- ------- "Securities Information" (page 30).
Common Stock and Related
Stockholder Matters
Item 6. Selected Financial Data Annual Report section entitled "Financial
- ------ Highlights" (page 2).
Item 7. Management's Discussion and Annual Report section entitled "Management's
- ------ Discussion and Analysis of Financial Condition
Analysis of Financial Condition and and Results of Operations" (pages 15 through 17).
Results of Operations
Item 8. Financial Statements and Pages 19 through 29 of the Annual Report.
- ------
Supplementary Data
</TABLE>
<PAGE>
PART I
ITEM 1: BUSINESS
--------
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 database marketing programs.
Viking's target customers are businesses with less than 100 employees, and
Viking has become one of the largest direct marketers of office products to
these businesses.
Viking offers a comprehensive selection of over 10,000 office products,
including general office supplies, computer supplies, paper products, office
furniture, selected business machines, janitorial and safety supplies and
presentation supplies. Viking's strategy emphasizes frequent mailings of a
variety of distinctive full color catalogs, "fanatical customer service", prompt
order fulfillment and discounted prices. Viking believes that the majority of
its sales are made in a range from 30% to 50% below manufacturers' suggested
list prices.
In the United States, Viking operates four full-service and five satellite
distribution centers that are strategically located to serve customers
throughout the 48 contiguous states, including new satellite facilities in
Minneapolis, Minnesota (opened in June 1995), Baltimore, Maryland/Washington,
D.C. (opened in December 1995) and San Francisco, California (opened in June
1996). Viking's satellite facilities serve primarily as order fulfillment
centers and perform a smaller range of functions than Viking's full-service
centers. Each satellite facility is supported by a full-service distribution
center in a neighboring region.
In Europe, Viking operates full-service distribution centers in Leicester,
England, which opened in fiscal 1991, London, England, which opened in July
1994, and Dublin, Ireland, which opened in December 1995. Since fiscal 1992,
Viking has operated a full-service distribution center in Paris, France, serving
France, Belgium and Luxembourg. Since April 1995, Viking has operated a call
center in Venlo, Holland, serving The Netherlands and, since November 1995,
Germany. Viking's Venlo facility also serves as Viking's European headquarters,
housing creative services and corporate and administrative offices. Viking
opened a separate satellite distribution center in Utrecht, Holland in August
1996. In November 1995, Viking opened a full-service distribution center in
Frankfurt, Germany, and Viking anticipates opening a satellite distribution
center in Munich, Germany, in fiscal 1997. Viking intends to continue to
evaluate a further expansion of its European operations, including cross-border
shipping into other countries.
In Australia, Viking operates a full-service distribution center in Sydney,
which opened in November 1993, and a satellite distribution center in Melbourne,
which opened in January 1996.
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.
<PAGE>
For the fiscal year ended June 28, 1996, Viking had revenues of $1.056
billion, with $429.4 million generated from operations in the United States,
$573.2 million from operations in Europe and $53.4 million from operations in
Australia. Sales by Viking foreign businesses are made in the local currencies
and translated into U.S. dollars for financial statement presentation.
Therefore, the results of foreign subsidiaries 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 subsidiaries. For
financial information about Viking's operations by geographic segment, see Note
I of Notes to Consolidated Financial Statements incorporated by reference in
Item 8 of this report.
Viking was organized as a California corporation in 1960, and its principal
executive offices are located at 879 W. 190th Street, 10th Floor, Gardena,
California 90248. Viking's telephone number is (310) 225-4500. As used herein,
the term "Viking" refers to Viking Office Products, Inc., its wholly-owned
subsidiaries and its predecessor, unless otherwise indicated.
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 pictures and narrative descriptions that
emphasize key product benefits and features. In addition, the catalogs
typically compare the manufacturers' suggested list price with Viking's discount
price to illustrate the savings offered. Viking has developed a consistent and
distinctive style for its catalogs. The catalogs are produced in-house by
Viking's designers, writers and production artists and are printed by a
commercial printer. Viking uses a computer based catalog creation system for
the development of all of its catalogs. The system reduces the time required to
produce a catalog and provides for greater flexibility and creativity in catalog
production.
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. The current edition of Viking's Buyers Guide for United States
customers is over 540 pages and features over 10,000 items, while the Buyers
Guides for Europe and Australia are somewhat smaller. Prospecting catalogs with
sale prices specially designed to acquire new customers are mailed frequently.
Viking currently has 13 different specialty catalogs, including catalogs
dedicated to office furniture, computer supplies, custom printed business forms
and stationery, paper products, shipping and warehouse supplies (including
cleaning and janitorial products) and presentation supplies (including
transparencies and overhead slides). Other specialty catalogs are being
considered and may be introduced in the future. Substantially all of Viking's
specialty catalogs
-2-
<PAGE>
have been introduced in the United Kingdom and France, and are being gradually
introduced throughout the remainder of Viking's European and Australian markets.
Viking also anticipates introducing an electronic catalog on the Internet during
fiscal 1997.
During fiscal 1996, Viking mailed approximately 155 million copies of over
100 different catalogs, with approximately 52% mailed to existing customers.
The following table shows the approximate number of catalogs mailed by Viking
during the five years ended June 28, 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE
---------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Existing customers................. 30,742 41,970 56,507 74,091 81,255
Prospects and inactive customers... 39,571 53,961 59,784 66,583 73,897
------ ------ ------- ------- -------
Total catalogs mailed............ 70,313 95,931 116,291 140,674 155,152
====== ====== ======= ======= =======
</TABLE>
MARKETING
Viking's 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 28, 1996:
<TABLE>
<CAPTION>
YEAR ENDED JUNE
------------------------------------------------------------
1992 1993 1994 1995 1996
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total active customers (1)........... 745,000 1,010,000 1,240,000 1,530,000 1,918,000
Average annual revenues per active
customer (during the fiscal year)... $ 430 $ 445 $ 456 $ 531 $ 550
</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 business
buyers of noncompeting direct mail companies, subscribers to business
publications and compiled business names.
After placing an initial order, a new customer receives 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 have always been profitable and currently account for more than 70% of its
revenue.
Inkjet technology and proprietary software programs developed by Viking are
used to imprint personalized offers on catalogs for individual customers based
on information in Viking's customer database. Viking also uses prospecting
catalogs which include a personalized message specially designed for the
recipient of the catalog. Viking has continued to develop and expand
-3-
<PAGE>
the use of personalized database marketing programs, and Viking intends to
continue to develop and enhance these programs. Currently, approximately one-
half of all catalogs mailed by Viking in the United States include a
personalized message for the recipient. Viking has also introduced personalized
database marketing programs in Europe and Australia.
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. Through this analysis, Viking can
capture and measure its cost to acquire new customers and then compare such cost
to the profitability of future business that can be expected from a typical
customer from this category based upon Viking's prior experience. Viking also
uses its information systems to update and segment its proprietary customer
database by capturing and analyzing customer response to specific catalog
mailings through criteria such as recency and frequency of purchases, the dollar
amount of orders and specific products ordered. Viking can then adjust its
mailings 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, enabling Viking to strengthen the merchandising of its catalogs and to
determine the placement and space devoted to each product in a catalog.
DISTRIBUTION CENTERS
GENERAL
Viking currently maintains full-service distribution centers in Los
Angeles, California, Dallas, Texas, Cincinnati, Ohio, East Windsor, Connecticut,
Leicester and London, England, Paris, France, Sydney, Australia, Frankfurt,
Germany (opened in November 1995) and Dublin, Ireland (opened in December 1995).
Viking also maintains satellite distribution centers in Seattle, Washington,
Jacksonville, Florida, Minneapolis, Minnesota (opened in June 1995), Baltimore,
Maryland/Washington, D.C. (opened in October 1995), San Francisco, California
(opened in June 1996), Utrecht, The Netherlands (opened in August 1996) and
Melbourne, Australia (opened in January 1996). Viking believes that, as a
result of its network of distribution centers, it is within one or two business
days' surface delivery of over 95% of the small and medium-sized businesses in
the continental United States, the United Kingdom, Ireland, France, The
Netherlands and Germany. 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. Viking anticipates opening a satellite distribution center in
Munich, Germany, in fiscal 1997, and other satellite distribution centers are
being considered for the United States and elsewhere.
Each distribution center maintains a complete inventory of the products
offered to Viking's customers other than custom printed items and large
furniture. Furniture such as chairs, chair mats 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.
-4-
<PAGE>
ORDER ENTRY AND FULFILLMENT
Viking attempts to make purchasing office products as convenient as
possible for small and medium-sized businesses. Since many 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 call center closest to the
customer or, if all order entry representatives at the local call centers in the
United States are busy, to an overflow call center in Los Angeles. 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, answer customer questions and
even suggest additional products that could be used with the products ordered.
In addition to telephone orders, Viking also receives orders by mail and through
toll-free fax lines.
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.
Viking has installed an automated fulfillment system in three of its facilities
in Europe and one in the United States, and plans to install this system in
additional facilities in the United States, Europe and Australia during fiscal
1997. Viking believes that the automated fulfillment system, which uses
conveyors to fill orders into environmentally friendly packaging, minimizes
breakage, improves productivity and expands the capacity of the distribution
centers.
Viking provides same-day delivery to customers located in the vicinity of
its distribution centers in the United States, Europe and Australia, with
delivery typically made within four hours of Viking's receipt of the order.
This service is provided without additional charge on orders meeting a minimum
amount. During fiscal 1997, Viking intends to expand the geographic areas
served by this program to include Munich, Germany and one or more additional
cities in the United States.
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) on the same day or 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 and generally are shipped the next business day from another Viking
distribution center. Viking provides free delivery on all orders exceeding an
applicable minimum order amount, which varies by country.
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
maintains a separate toll-free customer service telephone number.
-5-
<PAGE>
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 28,
1996 and June 30, 1995, total returns and allowances were approximately 6% of
gross sales.
MERCHANDISING
Viking offers a comprehensive selection of over 10,000 office products,
including general office supplies, computer supplies, paper products, office
furniture, selected business machines, janitorial and safety supplies and
presentation supplies. 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 1994, 1995 and 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
----------------------
YEAR ENDED JUNE
----------------------
1994 1995 1996
------ ----- -----
<S> <C> <C> <C>
General office supplies and business machines (1)... 74% 73% 75%
Computer supplies (2)............................... 15 16 17
Furniture (3)....................................... 11 11 8
---- ---- ----
100% 100% 100%
==== ==== ====
</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
most unsold or obsolete inventory to the manufacturer, resulting in negligible
inventory write-offs. Viking uses electronic data interchange ("EDI") programs
to purchase products from many of its suppliers.
-6-
<PAGE>
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 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.
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, 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, then downloaded into each regional computer to
assure consistency and reduce the amount of computer support required to manage
Viking's computer network. Viking believes that, because of its distributed
structure and centralized 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.
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
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 (a subsidiary of
Boise Cascade Office Products), in the direct marketing segment of the domestic
office products industry. Several office products superstores, including
Staples and Office Depot, also have direct marketing catalogs that compete with
Viking.
-7-
<PAGE>
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 subsidiary of Boise
Cascade Office Products. 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, JPG, and Gaspard and Guilbert.
In Germany, where sales of office products have typically been handled by many
small, independent distributors, Viking believes that its principal direct
marketing competitor is Printus. Viking believes that direct marketing of
office products did not exist in Australia to any material extent prior to
Viking's entry into that market, but several contract stationers from the United
States, including Boise Cascade and Corporate Express, acquired dealers in
Australia during fiscal 1996.
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 and their presence has increased in Europe and Australia over
the past several years. 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 believes that the presence of superstores will increase in all of
Viking's markets in the future, resulting in increased price competition.
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, and
Viking's executive officers meet with all employees at each distribution center
several times each year.
Viking considers its relations with its employees to be excellent. At
September 2, 1996, Viking employed 2,826 persons on a full-time basis, of whom
479 were engaged in management and administration, 1,336 were engaged in order
processing, customer service, credit collection and creative services and 1,011
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 eight 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
-8-
<PAGE>
and remit sales taxes. Any changes in applicable law that would require Viking
to collect sales taxes in states where it has no physical presence would impose
some additional costs and administrative burdens.
ITEM 2: PROPERTIES
----------
Viking's corporate headquarters are currently located in Gardena,
California, and consist of approximately 43,000 square feet of office space.
These offices are occupied pursuant to a lease which expires in November 1997
and provides for an option to renew for two consecutive one-year periods. In
December 1995, Viking purchased a 180,000 square foot facility in Torrance,
California, where it intends to house its world headquarters within two years.
The following table sets forth certain information regarding Viking's
distribution centers:
<TABLE>
<CAPTION>
SQUARE OWNED OR
LOCATION TYPE FEET LEASED LEASE TERM
-------- ---- ---- ------ ----------
<S> <C> <C> <C> <C>
Los Angeles, CA Full-service 105,000 Leased Expires in November 1998, with
option to renew for two successive
five year periods.
Carson, CA Warehouse 53,700 Leased Expires in August 1998.
Hamilton (Cincinnati), Full-service 125,000 Owned
OH
Irving (Dallas), TX Full-service 97,000 Leased Expires in 1999, with option to
renew for an additional three year
term.
Hartford (East Full-service 143,000 Leased Expires in June 2006.
Windsor), CT
Jacksonville, FL Satellite 76,800 Owned
Tukwila (Seattle), WA Satellite 75,000 Leased Expires in February 1997, with
option to renew for four
successive three year periods.
Brooklyn Center Satellite 51,000 Leased Expires in April 2000, with
(Minneapolis), MN option to renew for two
consecutive two-year periods.
Jessup, MD (Baltimore Satellite 61,000 Leased Expires in July 2000, with option
and Washington, to renew for two consecutive two-
D.C.) year periods.
Hayward (San Satellite 59,600 Leased Expires in February 2001, with
Francisco), CA option to renew for two
consecutive three-year periods.
Leicester, England(1) Full-service 115,000 Leased Expires in 2011.
Leicester, England(1) Full-service 86,000 Owned
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
SQUARE OWNED OR
LOCATION TYPE FEET LEASED LEASE TERM
-------- ---- ---- ------ ----------
<S> <C> <C> <C> <C>
London, England Full-service 128,000 Owned
Dublin, Ireland Full-Service 63,000 Leased Expires in August 2005.
Paris, France Full-service 240,000 Leased Expires in December 2003.
GroBostheim Full-service 149,000 Leased Expires in June 2005, with option
(Frankfurt), Germany to renew for one five-year period.
Beesd (Utrecht), The Satellite 90,000 Leased Expires in 2006
Netherlands
Rydalmere (Sydney), Full-service 85,000 Leased Expires in September 1998, with
Australia(2) option to renew for one five-year
period.
Laverton (Melbourne), Satellite 66,600 Owned
Australia
</TABLE>
- ---------------------------
(1) These two facilities are located across the street from one another and
together operate as Viking's Leicester full-service distribution center.
(2) During fiscal 1996, Viking purchased property in North Rocks (Sydney),
Australia, of which it uses approximately 32,000 square feet as corporate
offices. Viking intends to build a new full-service distribution center on
this property to be occupied in fiscal 1998 upon the expiration of the
lease for the current facility.
Viking believes that, taking into account the planned relocations described
above, its facilities are adequate for its current and near term operations.
For information regarding rental obligations, see Note F of Notes to
Consolidated Financial Statements incorporated by reference in Item 8 of this
report.
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.
-10-
<PAGE>
SUPPLEMENTAL ITEM: EXECUTIVE OFFICERS
------------------
As of September 16, 1996, the executive officers of Viking were:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Irwin Helford 62 Chairman of the Board and Chief Executive Officer
M. Bruce Nelson 51 President and Chief Operating Officer
Frank R. Jarc 54 Executive Vice President and Chief Financial Officer
Lisa Y. Billig 39 Vice President, Finance
Mark R. Brown 47 Vice President, Information Systems
Graham Cundick 36 Vice President, European Merchandising
Stephen R. Kroll 49 Vice President, Administration and Secretary
Mark Muir 34 Vice President, Marketing
Ronald W. Weissman 59 Vice President, Logistics
</TABLE>
IRWIN HELFORD served as President since joining Viking in January 1984
until January 1996 and 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 and President in January
1996. From 1990 until July 1994, 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 in a number of executive positions.
FRANK R. JARC has served as Executive Vice President and Chief Financial
Officer of Viking since July 1996. From October 1987 until September 1995, Mr.
Jarc was Executive Vice President and Chief Financial Officer of R.R. Donnelley
& Company.
LISA Y. BILLIG has served as Vice President, Finance of Viking since July
1994 and served as Chief Financial Officer from July 1994 until July 1996. 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.
GRAHAM CUNDICK joined Viking in April 1990 as Merchandising Manager for the
United Kingdom. Mr. Cundick was elected Vice President, European Merchandising
in July 1996.
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.
-11-
<PAGE>
MARK MUIR has served as Vice President, Marketing since July 1992 and has
been employed by Viking in various marketing positions since May 1987.
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.
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 28, 1996 on page 30, 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 28, 1996 on page 2, 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 15, 16 and 17 of
Viking's Annual Report to Shareholders for the fiscal year ended June 28, 1996.
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 19 through 29 of
Viking's Annual Report to Shareholders for the fiscal year ended June 28, 1996.
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.
-12-
<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 14, 1996.
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 14, 1996.
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 14, 1996.
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 14, 1996.
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 28,
1996:
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of June 28, 1996 and June 30, 1995
Consolidated Statements of Income for the years ended June 28, 1996,
June 30, 1995 and June 24, 1994
Consolidated Statements of Stockholders' Equity for the years ended
June 28, 1996, June 30, 1995 and June 24, 1994
Consolidated Statements of Cash Flows for the years ended June 28,
1996, June 30, 1995 and June 24, 1994
Notes to Consolidated Financial Statements
-13-
<PAGE>
(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 28, 1996.
(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 Certificate of Amendment of Articles of Incorporation dated May 1,
1996.
3.5 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 Credit Agreement, dated as of June 21, 1996, among the registrant,
the Guarantors party thereto, the Banks party thereto and ABN AMRO
Bank N.V., as Administrative Agent.
10.2 Lease, dated August 11, 1988, between Stephen Meadow and Figueroa
Onroerend Goed N.V. and the registrant.(1)
10.3 Lease, dated April 11, 1990, between LCV International Limited and
Viking Direct Limited.(2)
10.4 Lease, dated February 28, 1991, between Crowe-Statesman and the
registrant.(3)
10.5 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)
10.6 Commercial Lease, dated October 12, 1993, between Society Des
Entrepots Des Marechaux MacDonald-Ney S.A. and Viking Direct,
SARL.(8)
-14-
<PAGE>
10.7 Lease Agreement, dated March 27, 1992, between Mario A. Segale,
d/b/a Segale Business Park, and the registrant.(6)
10.8 Lease, dated September 24, 1993, between Permanent Trustee
Australia Limited and Viking Office Products PTY Limited.(8)
10.9 Lease, dated December 1994, between 5001 Investment Limited
Partnership and the registrant.(9)
10.10 Lease, dated June 15, 1995, between OTR, an Ohio General
Partnership, and the registrant.(9)
10.11 Lease, dated July 10, 1995, between Hyundai Merchant Marine
(America), Inc. and the registrant, together with amendment dated
August 31, 1995.(9)
10.12 Lease, dated May 4, 1995, between GAW Vermogensverwaltung and
Viking Direct GmbH.(9)
10.13 Lease Contracts for Office Premises between Roof Real Estate I
B.V. and Viking Direct B.V.(9)
10.14 Lease, dated January 5, 1996, between Mortimer Zuckerman and the
registrant.
10.15 Printing Agreement, dated May 31, 1996, between Quebecor Printing
(USA), Inc. and the registrant.
10.16 Agreement, dated October 9, 1991, between BPCC Limited and the
registrant.(5)
10.17* Employment Agreement, dated June 30, 1993, between Irwin Helford
and the registrant.(7)
10.18* Long Term Stock Incentive Plan.(7)
10.19* Amended and Restated 1989 Incentive Stock Option Plan.(5)
10.20* 1991 Nonstatutory Stock Option Plan.(5)
10.21* 1992 Directors' Stock Option Plan.(6)
10.22* 1994 Employee Stock Purchase Plan.(1)
10.23* Form of Profit-Sharing Plan.(1)
10.24* Form of Indemnification Agreement between the registrant and its
directors and certain of its officers.(1)
10.25* Form of Letter Agreement between the registrant and certain of its
officers.(9)
10.26* Chief Executive Officer Performance Based Bonus Plan, as amended.
10.27* President's Performance Based Bonus Plan.
10.28* Letter Agreement, dated April 1995, between the registrant and M.
Bruce Nelson.
10.29* Form of Letter Agreement, dated July 1996, between the registrant
and Frank R. Jarc.
13. Annual Report to Security Holders
---------------------------------
13.1 Annual Report to Shareholders for the fiscal year ended June 28,
1996. (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.(9)
-15-
<PAGE>
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 28, 1996.
______________________
* 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.
(9) Previously filed in the Exhibits to the registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995 and incorporated by
reference herein.
-16-
<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 17, 1996 By: /s/ IRWIN HELFORD
----------------------------------------
Irwin Helford, Chairman of the Board
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.
Date: September 17, 1996 /s/ IRWIN HELFORD
-------------------------------------------
Irwin Helford, Chairman of the Board, Chief
Executive Officer and Director
Date: September 17, 1996 /s/ M. BRUCE NELSON
-------------------------------------------
M. Bruce Nelson, President and Chief
Operating Officer
Date: September 17, 1996 /s/ FRANK R. JARC
-------------------------------------------
Frank R. Jarc, Executive Vice President and
Chief Financial Officer
Date: September 17, 1996 /s/ KEITH BJELAJAC
-------------------------------------------
Keith Bjelajac, Controller (Principal
Accounting Officer)
Date: September 17, 1996 /s/ LEE A. AULT III
-------------------------------------------
Lee A. Ault III, Director
Date: September 17, 1996 /s/ NEIL R. AUSTRIAN
-------------------------------------------
Neil R. Austrian, Director
Date: September 17, 1996 /s/ CHARLES P. DURKIN, JR.
-------------------------------------------
Charles P. Durkin, Jr., Director
Date: September 17, 1996 /s/ JOAN D. MANLEY
-------------------------------------------
Joan D. Manley, Director
-17-
<PAGE>
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 28, 1996 and June 30, 1995, and
for each of the three years in the period ended June 28, 1996, and have issued
our report thereon dated August 20, 1996, such financial statements and report
are included in your 1996 Annual Report to Shareholders and are incorporated
herein by reference. Our audit 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 responsibility 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
Los Angeles, CA
August 20, 1996
<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 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
Year ended June 28, 1996
Accounts receivable reserve 8,688,744 9,774,435 11,047,673 7,415,506
</TABLE>
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF
VIKING OFFICE PRODUCTS, INC.
M. BRUCE NELSON AND STEPHEN R. KROLL certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Viking Office Products, Inc.
2. The Articles of Incorporation of the corporation are amended by
amending Paragraph A of Article THIRD of the Articles of Incorporation of the
corporation to read as follows:
"THIRD: A. The corporation is authorized to issue two classes of shares
of stock, to be designated "Common Stock" and "Preferred Stock". The
number of shares of Common Stock authorized is 120,000,000 and the number
of shares of Preferred Stock authorized is 10,000,000. The Preferred Stock
may be issued in one or more series, the first series to be "Series A.
Stock". Upon amendment of this Paragraph to read as set forth herein, each
outstanding share of Common Stock is split up, divided, and converted into
two shares of Common Stock."
3. The foregoing amendment has been approved by the Board of Directors of
the corporation.
4. The foregoing amendment is one that may be adopted with approval of
the Board of Directors alone because the corporation has only one class of
shares outstanding, i.e., Common Stock, and the amendment effects only a stock
split of the Common Stock, including an increase in the authorized number of
shares in proportion thereto.
Each of the undersigned further declares under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of their own knowledge. Executed at Los Angeles,
California, this 12th day of April, 1996.
/s/ M. Bruce Nelson
--------------------------------
M. Bruce Nelson, President
/s/ Stephen R. Kroll
--------------------------------
Stephen R. Kroll, Secretary
<PAGE>
EXHIBIT 10.1
================================================================================
$60,000,000
Credit Agreement
Dated as of
June 21, 1996
Among
Viking Office Products, Inc.,
The Guarantors from time to time party hereto,
The Banks Party Hereto,
and
ABN AMRO Bank N.V.,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is not part of the Agreement)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions; Interpretation........................................................ 1
Section 1.1. Definitions..................................................................... 1
Section 1.2. Interpretation.................................................................. 9
Section 2. The Revolving Credit...............................................................10
Section 2.1. The Loan Commitment.............................................................10
Section 2.2. Applicable Interest Rates.......................................................10
Section 2.3. Minimum Borrowing Amounts.......................................................12
Section 2.4. Manner of Borrowing Loans and Designating Interest Rates Applicable to Loans....12
Section 2.5. Interest Periods................................................................14
Section 2.6. Maturity of Loans...............................................................14
Section 2.7. Prepayments.....................................................................15
Section 2.8. Default Rate....................................................................15
Section 2.9. The Notes.......................................................................15
Section 2.10. Funding Indemnity...............................................................16
Section 2.11. Commitment Terminations.........................................................16
Section 3. Fees and Extensions................................................................17
Section 3.1. Fees............................................................................17
Section 4. Place and Application of Payments..................................................17
Section 4.1. Place and Application of Payments...............................................17
Section 5. Representations and Warranties.....................................................18
Section 5.1. Corporate Organization and Authority............................................18
Section 5.2. Subsidiaries....................................................................18
Section 5.3. Corporate Authority and Validity of Obligations.................................18
Section 5.4. Financial Statements............................................................19
Section 5.5. No Litigation; No Labor Controversies...........................................19
Section 5.6. Taxes...........................................................................19
Section 5.7. Approvals.......................................................................20
Section 5.8. ERISA...........................................................................20
Section 5.9. Government Regulation...........................................................20
Section 5.10. Margin Stock; Use of Proceeds...................................................20
Section 5.11. Licenses and Authorizations; Compliance with Laws...............................20
Section 5.12. Ownership of Property; Liens....................................................21
Section 5.13. No Burdensome Restrictions; Compliance with Agreements..........................21
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
Section 5.14. Full Disclosure.................................................................21
Section 6. Conditions Precedent...............................................................21
Section 6.1. Initial Credit Event............................................................21
Section 6.2. All Credit Events...............................................................22
Section 6.3. Determinations Under Section 6.1................................................23
Section 7. Covenants..........................................................................23
Section 7.1. Corporate Existence; Subsidiaries...............................................23
Section 7.2. Maintenance.....................................................................23
Section 7.3. Taxes...........................................................................24
Section 7.4. ERISA...........................................................................24
Section 7.5. Insurance.......................................................................24
Section 7.6. Financial Reports and Other Information.........................................24
Section 7.7. Bank Inspection Rights..........................................................26
Section 7.8. Conduct of Business.............................................................26
Section 7.9. Liens...........................................................................27
Section 7.10. Use of Proceeds; Regulation U...................................................28
Section 7.11. Mergers, Consolidations and Sales...............................................29
Section 7.12. Use of Property and Facilities; Environmental and Health and Safety Laws........30
Section 7.13. Investments, Acquisitions, Loans and Advances...................................30
Section 7.14. Restrictions on Indebtedness....................................................32
Section 7.15. Consolidated Net Worth..........................................................32
Section 7.16. Leverage Ratio..................................................................33
Section 7.17. Interest and Rent Coverage Ratio................................................33
Section 7.18. Dividends and Other Shareholder Distributions...................................33
Section 7.19. Compliance with Laws............................................................33
Section 7.20. Guarantees of Certain Material Subsidiaries.....................................33
Section 8. Events of Default and Remedies.....................................................33
Section 8.1. Events of Default...............................................................33
Section 8.2. Non-Bankruptcy Defaults and Change of Control...................................35
Section 8.3. Bankruptcy Defaults.............................................................36
Section 8.4. Expenses........................................................................36
Section 9. Change in Circumstances............................................................36
Section 9.1. Change of Law...................................................................36
Section 9.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR...36
Section 9.3. Increased Cost and Reduced Return...............................................37
Section 9.4. Lending Offices.................................................................39
Section 9.5. Discretion of Bank as to Manner of Funding......................................39
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
Section 10. The Agent..........................................................................39
Section 10.1. Appointment and Authorization of Administrative Agent...........................39
Section 10.2. Administrative Agent and its Affiliates.........................................39
Section 10.3. Action by Administrative Agent..................................................39
Section 10.4. Consultation with Experts.......................................................40
Section 10.5. Liability of Administrative Agent; Credit Decision..............................40
Section 10.6. Indemnity.......................................................................41
Section 10.7. Resignation of Administrative Agent and Successor Administrative Agent..........41
Section 11. The Guarantees.....................................................................42
Section 11.1. The Guarantees..................................................................42
Section 11.2. Guarantee Unconditional.........................................................42
Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances.....43
Section 11.4. Waivers.........................................................................43
Section 11.5. Limit on Recovery...............................................................43
Section 11.6. Stay of Acceleration............................................................43
Section 12. Miscellaneous......................................................................44
Section 12.1. Withholding Taxes...............................................................44
Section 12.2. No Waiver of Rights.............................................................45
Section 12.3. Non-Business Day................................................................45
Section 12.4. Documentary Taxes...............................................................46
Section 12.5. Survival of Representations.....................................................46
Section 12.6. Survival of Indemnities.........................................................46
Section 12.7. Set-Off.........................................................................46
Section 12.8. Notices.........................................................................47
Section 12.9. Counterparts....................................................................48
Section 12.10. Successors and Assigns..........................................................48
Section 12.11. Participants and Note Assignees.................................................48
Section 12.12. Assignment of Commitments by Banks..............................................48
Section 12.13. Amendments......................................................................49
Section 12.14. Headings........................................................................49
Section 12.15. Legal Fees, Other Costs and Indemnification.....................................49
Section 12.16. Confidentiality.................................................................51
Section 12.17. Entire Agreement................................................................51
Section 12.18. Construction....................................................................51
Section 12.19. Governing Law...................................................................51
Section 12.20. Submission to Jurisdiction; Waiver of Jury Trial................................52
Signature..............................................................................................53
</TABLE>
-iii-
<PAGE>
Exhibits
Exhibit A - Form of Note
Exhibit B - Form of Legal Opinion
Exhibit C - Compliance Certificate
Exhibit D - Form of Subsidiary Guarantee Agreement
Exhibit E - Assignment and Assumption Agreement
Schedules
Schedule 1 Pricing Grid
Schedule 5.2 Schedule of Existing Subsidiaries
Schedule 5.5 Litigation and Labor Controversies
Schedule 7.9 Existing Liens
-iv-
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of June 21, 1996 among Viking Office Products,
Inc., a California corporation (the "Borrower"), the Guarantors from time to
time party hereto, the banks from time to time party hereto (each a "Bank," and
collectively the "Banks") and ABN AMRO Bank N.V. in its capacity as agent for
the banks hereunder (in such capacity, the "Administrative Agent").
WITNESSETH THAT:
WHEREAS, the Borrower desires to obtain the several commitments of the
Banks to make available a revolving credit for loans and letters of credit (the
"Revolving Credit"), as described herein; and
WHEREAS, the Banks are willing to extend such commitments subject to all of
the terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth.
NOW, THEREFORE, in consideration of the recitals set forth above and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions; Interpretation.
Section 1.1. Definitions. The following terms when used herein have the
following meanings:
"Adjusted Domestic Net Worth" means, as of the date of any determination
thereof, Domestic Net Worth minus the amount of any assets relating to
intercompany Indebtedness or Investments between the Borrower and its
Subsidiaries otherwise included in calculating Domestic Net Worth, as computed
and shown on a net basis in accordance with the consolidating financial
statements referred to in Section 5.4 hereof.
"Adjusted LIBOR" is defined in Section 2.2(b) hereof.
"Administrative Agent" is defined in the first paragraph of this Agreement
and includes any successor Administrative Agent pursuant to Section 10.7 hereof.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with their
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction of
the management and policies of a Person (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise), provided
-1-
<PAGE>
that, in any event for purposes of this definition: (i) any Person which owns
directly or indirectly 5% or more of the securities having ordinary voting power
for the election of directors or other governing body of a corporation or 5% or
more of the partnership or other ownership interests of any other Person (other
than as a limited partner of such other Person) will be deemed to control such
corporation or other Person; and (ii) each director and executive officer of the
Borrower or any Subsidiary shall be deemed an Affiliate of the Borrower and such
Subsidiary.
"Agreement" means this Credit Agreement, including all Exhibits and
Schedules hereto, as it may be amended, supplemented or otherwise modified from
time to time in accordance with the terms hereof.
"Applicable Margin" means, at any time (i) with respect to Base Rate Loans,
the Base Rate Margin and (ii) with respect to Eurodollar Loans, the Eurodollar
Margin.
"Applicable Telerate Page" is defined in Section 2.2(b) hereof.
"Assignment and Assumption Agreement" means an Assignment and Assumption
Agreement in substantially the form of Exhibit E attached hereto.
"Authorized Representative" means those persons shown on the list of
officers provided by the Borrower pursuant to Section 6.1(e) hereof, or on any
updated such list provided by the Borrower to the Administrative Agent, or any
further or different officer of the Borrower so named by any Authorized
Representative of the Borrower in a written notice to the Administrative Agent.
"Bank" is defined in the first paragraph of this Agreement.
"Base Rate" is defined in Section 2.2(a) hereof.
"Base Rate Loan" means a Loan bearing interest prior to maturity at a rate
specified in Section 2.2(a) hereof.
"Base Rate Margin" means the percentage set forth in Schedule 1 hereto as
the "Base Rate Margin" beside the then applicable Leverage Ratio.
"Borrower" is defined in the first paragraph of this Agreement.
"Borrowing" means the total of Loans of a single type advanced, continued
for an additional Interest Period, or converted from a different type into such
type by the Banks on a single date and for a single Interest Period. Borrowings
of Loans are made and maintained ratably from each of the Banks according to
their Percentages. A Borrowing is "advanced" on the day Banks advance funds
comprising such Borrowing to the Borrower, is "continued" on the date a new
Interest Period for the same type of Loans commences for such Borrowing, and is
"converted" when such Borrowing is changed from one type of Loan to the other,
all as requested by the Borrower pursuant to Section 2.4(a).
-2-
<PAGE>
"Business Day" means any day other than a Saturday or Sunday on which Banks
are not authorized or required to close in New York, New York or Los Angeles,
California and, if the applicable Business Day relates to the borrowing or
payment of a Eurodollar Loan, on which banks are dealing in U.S. Dollar deposits
in the interbank market in London, England.
"Capital Lease" means at any date any lease of Property which, in
accordance with GAAP, would be required to be capitalized on the balance sheet
of the lessee.
"Capitalized Lease Obligations" means, for any Person, the amount of such
Person's liabilities under Capital Leases determined at any date in accordance
with GAAP.
"Change of Control Event" means (i) any Person or two or more Persons
acting in concert shall have acquired beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934), directly or indirectly of securities of the Borrower (or
other securities convertible into such securities) representing 20% or more of
the combined voting power of all securities of the Borrower entitled to vote in
the election of directors or (ii) any Person or two or more Persons acting in
concert shall have acquired by contract or otherwise, or shall have entered into
a contract or arrangement that, upon consummation, will result in its or their
acquisition of control over securities of the Borrower (or other securities
convertible into such securities) representing 20% or more of the combined
voting power of all securities of the Borrower entitled to vote in the election
of directors.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitments" is defined in Section 2.1 hereof.
"Compliance Certificate" means a certificate in the form of Exhibit C
hereto.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Borrower and its Subsidiaries for such period computed on a
consolidated basis in accordance with GAAP, adjusted by excluding the income (or
loss) of any Person accrued prior to the date it becomes a Subsidiary of or is
merged into or consolidated with the Borrower or any of its Subsidiaries or that
Person's assets are acquired by the Borrower or any of its Subsidiaries.
"Consolidated Net Worth" means, as of the date of any determination
thereof, the amount reflected as stockholders' equity upon a consolidated
balance sheet of the Borrower and its Subsidiaries.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of its Property is bound.
"Controlled Group" means all members of a controlled group of corporations
and all trades and businesses (whether or not incorporated) under common control
that, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
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"Credit Documents" means this Agreement, the Notes and each Subsidiary
Guarantee Agreement.
"Credit Event" means the advancing of any Loan or the continuation of or
conversion of a Borrowing into a Eurodollar Loan.
"Domestic EBIT" means, for any period, Domestic Net Income for such period
plus all amounts deducted in arriving at such Domestic Net Income amount for
such period for Domestic Interest Expense and for federal, state and local
income tax expense.
"Domestic Interest and Rent Coverage Ratio" means, for any period of four
consecutive fiscal quarters of the Borrower ending with the most recently
completed such fiscal quarter, the ratio of the sum of Domestic EBIT plus
Domestic Lease Payments to the sum of Domestic Interest Expense plus Domestic
Lease Payments for such period.
"Domestic Interest Expense" means, for any period, the sum of all interest
charges of the Borrower for such period determined on a consolidating basis but
otherwise in accordance with GAAP.
"Domestic Lease Payments" means, for any period, the aggregate amount of
payments required to be made by the Borrower, on a consolidating basis but
otherwise in accordance with GAAP, during such period in respect of operating
leases or similar arrangements under which the Borrower is liable as lessee.
"Domestic Leverage Ratio" means the ratio of (a) all Indebtedness of the
Borrower determined on a consolidating basis to (b) the sum of all Indebtedness
of the Borrower determined on a consolidating basis plus Adjusted Domestic Net
Worth.
"Domestic Net Income" means, for any period, the net income (or net loss)
of the Borrower for such period computed on a consolidating basis but otherwise
in accordance with GAAP, adjusted by excluding the income (or loss) of any
Person accrued prior to the date it is merged into or consolidated with the
Borrower or that Person's assets are acquired by the Borrower.
"Domestic Net Worth" means, as of the date of any determination thereof,
the amount reflected as stockholders' equity upon the balance sheet of the
Borrower prepared on a consolidating basis but otherwise in accordance with
GAAP.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"EBIT" means, for any period, Consolidated Net Income for such period plus
all amounts deducted in arriving at such Consolidated Net Income amount for such
period for Interest Expense and for foreign, federal, state and local income tax
expense.
"Effective Date" means the date on which the Administrative Agent has
received signed counterpart signature pages of this Agreement from each of the
signatories (or, in the case of
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a Bank, confirmation that such Bank has executed such a counterpart and
dispatched it for delivery to the Administrative Agent) and the documents
required by Section 6.1 hereof.
"Environmental and Health Laws" means any and all federal, state and local
statutes, laws, regulations, ordinances, judgments, permits and other
governmental rules or regulations relating to human health, safety (including
without limitation occupational safety and health standards), or the environment
or to emissions, discharges or releases of pollutants, contaminants, hazardous
or toxic substances, wastes or any other controlled or regulated substance into
the environment, including without limitation ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, hazardous or toxic substances, wastes or any other
controlled or regulated substance or the clean-up or other remediation thereof.
"ERISA" is defined in Section 5.8 hereof.
"Eurodollar Loan" means a Loan bearing interest prior to maturity at the
rate specified in Section 2.2(b) hereof.
"Eurodollar Margin" means the percentage set forth in Schedule 1 hereto as
the "Eurodollar Margin" beside the then applicable Leverage Ratio.
"Eurodollar Reserve Percentage" is defined in Section 2.2(b) hereof.
"Event of Default" means any of the events or circumstances specified in
Section 8.1 hereof.
"Facility Fee Rate" means the percentage set forth in Schedule 1 hereto as
the "Facility Fee Rate" beside the then applicable Leverage Ratio.
"Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (ii) of the definition of Base Rate set forth in
Section 2.2(a) hereof.
"Fee Letter" means that certain letter between the Administrative Agent and
the Borrower dated on or about the date hereof pertaining to fees to be paid by
the Borrower to the Administrative Agent for its sole account and benefit.
"Funded Debt" means and includes, for any Person (i) all obligations of
such Person for borrowed money, (ii) all obligations of such Person representing
the deferred purchase price of property or services, (iii) all obligations of
such Person evidenced by bonds, debentures, notes, acceptances, or other
instruments of such Person, (iv) all obligations, whether or not assumed,
secured by Liens on or payable out of the proceeds or production from Property
now or hereafter owned or acquired by such Person, but only to the extent of the
lesser of (x) the amount of the obligations so secured or (y) the greater of the
net book or fair market value of such Property and (v) Capitalized Lease
Obligations of such Person.
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"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time, applied by the Borrower and its Subsidiaries on
a basis consistent with the preparation of the Borrower's financial statements
furnished to the Banks as described in Section 5.4 hereof.
"Guarantor" means each Subsidiary of the Borrower party hereto or that
executes and delivers to the Administrative Agent a Subsidiary Guarantee
Agreement in the form of Exhibit D hereto along with the accompanying closing
documents required by Section 7.1.
"Guaranty" by any Person means all obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation (including, without limitation,
limited or full recourse obligations in connection with sales of receivables or
any other Property) of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any Property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, or (y) to maintain working capital
or other balance sheet condition, or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, or (iii)
to lease property or to purchase Securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of the
Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purpose of all computations made under this Agreement, the
amount of a Guaranty in respect of any obligation shall be deemed to be equal to
the maximum aggregate amount of such obligation or, if the Guaranty is limited
to less than the full amount of such obligation, the maximum aggregate potential
liability under the terms of the Guaranty.
"Hazardous Material" means any substance or material which is hazardous or
toxic, and includes, without limitation, (a) asbestos, polychlorinated
biphenyls, dioxins and petroleum or its by-products or derivatives (including
crude oil or any fraction thereof) and (b) any other material or substance
classified or regulated as "hazardous" or "toxic" pursuant to any Environmental
and Health Law.
"Indebtedness" means and includes, for any Person, all obligations of such
Person, without duplication, which are required by GAAP to be shown as
liabilities on its balance sheet, and in any event shall include all of the
following whether or not so shown as liabilities (i) obligations of such Person
for borrowed money, (ii) obligations of such Person representing the deferred
purchase price of property or services, (iii) obligations of such Person
evidenced by bonds, debentures, notes, acceptances, or other instruments of such
Person or arising out of letters of credit or surety instruments issued for such
Person's account, (iv) obligations, whether or not assumed, secured by Liens on
or payable out of the proceeds or production from Property now or hereafter
owned or acquired by such Person, but only to the extent of the lesser of (x)
the amount of the obligations so secured or (y) the greater of the net book or
fair market value of such Property, (v) Capitalized Lease Obligations of such
Person and (vi) obligations for which such Person is obligated pursuant to
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a Guaranty (the amount of which shall be calculated as provided in the last
sentence of the definition of "Guaranty").
"Interest and Rent Coverage Ratio" means, for any period of four
consecutive fiscal quarters of the Borrower ending with the most recently
completed such fiscal quarter, the ratio of the sum of EBIT plus Lease Payments
to the sum of Interest Expense plus Lease Payments for such period.
"Interest Expense" means, for any period, the sum of all interest charges
of the Borrower and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP.
"Interest Period" is defined in Section 2.5 hereof.
"Investments" is defined in Section 7.13.
"Lease Payments" means, for any period, the aggregate amount of payments
required to be made by the Borrower and its Subsidiaries during such period in
respect of operating leases or similar arrangements under which the Borrower or
any Subsidiary is liable as lessee.
"Lending Office" is defined in Section 9.4 hereof.
"Leverage Ratio" means the ratio of (a) all Funded Debt of the Borrower and
its Subsidiaries determined on a consolidated basis to (b) the sum of all Funded
Debt of the Borrower and its Subsidiaries determined on a consolidated basis
plus Consolidated Net Worth.
"LIBOR" is defined in Section 2.2(b) hereof.
"Lien" means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, including, but not limited to,
the security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale, security agreement or trust receipt, or a lease, consignment
or bailment for security purposes. For the purposes of this definition, a
Person shall be deemed to be the owner of any Property which it has acquired or
holds subject to a conditional sale agreement, Capital Lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes, and such retention of title
shall constitute a "Lien."
"Loan" is defined in Section 2.1 hereof and the term "type" of Loan refers
to its status as a Base Rate Loan or Eurodollar Loan.
"Material Subsidiary" means a Subsidiary of the Borrower (i) whose total
assets (as determined in accordance with GAAP) represent at least 5% of the
total assets of the Borrower and its Subsidiaries (as determined on a
consolidated basis in accordance with GAAP) determined based upon the most
recent financial statements delivered pursuant to Section 7.6 or (ii) that
contributes more than 10% to the EBIT for the Borrower and its
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Subsidiaries (as determined on a consolidated basis in accordance with GAAP)
based upon the most recent audited financial statements delivered pursuant to
Section 7.6.
"Multiemployer Plan" means a multiemployer plan, as such term is defined in
Section 4001(a)(3) of ERISA, which is maintained (on the date hereof, within the
five years preceding the date hereof, or at any time after the date hereof) for
employees of the Borrower or any member of the Controlled Group.
"Note" is defined in Section 2.9(a) hereof.
"Obligations" means all fees payable hereunder, all obligations of the
Borrower to pay principal or interest on Loans, and all other payment
obligations of the Borrower arising under or in relation to any Credit Document.
"Percentage" means, for each Bank, the percentage of the Commitments
represented by such Bank's Commitment or, if the Commitments have been
terminated, the percentage of the Commitments that was represented by such
Bank's Commitment immediately prior to such termination.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or any agency or political subdivision
thereof.
"Plan" means at any time an employee pension benefit plan covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code that is either (i) maintained by a member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions, other than a Multiemployer Plan.
"PBGC" is defined in Section 5.8 hereof.
"Pricing Date" is defined in Schedule 1 hereto.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, whether now owned or
hereafter acquired.
"Required Banks" means, as of the date of determination thereof, (i) prior
to the termination of the Commitments, Banks holding at least 66-2/3% of the
Percentages and (ii) following the termination of the Commitments, Banks holding
at least 66-2/3% of the Obligations.
"SEC" means the Securities and Exchange Commission.
"Security" has the same meaning as in Section 2(l) of the Securities Act of
1933, as amended.
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"Subsidiary" means, as to the Borrower, any corporation or other entity of
which more than fifty percent (50%) of the outstanding stock or comparable
equity interests having ordinary voting power for the election of the Board of
Directors of a corporation or similar governing body in the case of a non-
corporation (irrespective of whether or not, at the time, stock or other equity
interests of any other class or classes of such corporation or other entity
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned by the Borrower or by
one or more of its Subsidiaries.
"Subsidiary Guarantee Agreement" means a letter to the Administrative Agent
in the form of Exhibit D hereto executed by a Subsidiary whereby it acknowledges
it is party hereto as a Guarantor under Section 7.1 hereof.
"Telerate Service" means the Dow Jones Telerate Service.
"Termination Date" means May 31, 2001.
"Unfunded Vested Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all vested nonforfeitable
accrued benefits under such Plan exceeds (ii) the fair market value of all Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plan, but only to the extent that such excess represents
a potential liability of a member of the Controlled Group to the PBGC or the
Plan under Title IV of ERISA.
"U.S. Dollars" and "$" each means the lawful currency of the United States
of America.
"Voting Stock" of any Person means capital stock of any class or classes or
other equity interests (however designated) having ordinary voting power for the
election of directors or similar governing body of such Person.
"Welfare Plan" means a "welfare plan", as defined in Section 3(1) of ERISA.
"Wholly-Owned" when used in connection with any Subsidiary of the Borrower
means a Subsidiary of which all of the issued and outstanding shares of stock or
other equity interests (other than directors' qualifying shares as required by
law) shall be owned by the Borrower and/or one or more of its Wholly-Owned
Subsidiaries.
Section 1.2. Interpretation. The foregoing definitions shall be equally
applicable to both the singular and plural forms of the terms defined. All
references to times of day in this Agreement shall be references to New York,
New York time unless otherwise specifically provided. Where the character or
amount of any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, the same shall be done in accordance
with GAAP, to the extent applicable, except where such principles are
inconsistent with the specific provisions of this Agreement. When reference is
made in this Agreement to consolidating financial information pertaining to the
Borrower, such references shall for all purposes be deemed to be references to
consolidating financial information pertaining solely
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to Viking Office Products, Inc. and shall not be deemed to include references to
consolidating financial information pertaining to any of the Subsidiaries.
Section 2. The Revolving Credit.
Section 2.1. The Loan Commitment. Subject to the terms and conditions
hereof, each Bank, by its acceptance hereof, severally agrees to make a loan or
loans (individually a "Loan" and collectively the "Loans") to the Borrower from
time to time on a revolving basis in U.S. Dollars in an aggregate outstanding
amount up to the amount of its commitment set forth on the applicable signature
page hereof (such amount, as reduced pursuant to Section 2.11 or changed as a
result of one or more assignments under Section 12.12, its "Commitment" and,
cumulatively for all the Banks, the "Commitments") before the Termination Date,
provided that the sum of the aggregate amount of Loans at any time outstanding
shall not exceed the Commitments in effect at such time. Each Borrowing of Loans
shall be made ratably from the Banks in proportion to their respective
Percentages. As provided in Section 2.4(a) hereof, the Borrower may elect that
each Borrowing of Loans be either Base Rate Loans or Eurodollar Loans. Loans may
be repaid and the principal amount thereof reborrowed before the Termination
Date, subject to all the terms and conditions hereof.
Section 2.2. Applicable Interest Rates. (a) Base Rate Loans. Each Base Rate
Loan made or maintained by a Bank shall bear interest during each Interest
Period it is outstanding (computed (x) at all times the Base Rate is based on
the rate described in clause (i) of the definition thereof, on the basis of a
year of 365 or 366 days, as applicable, and actual days elapsed or (y) at all
times the Base Rate is based on the rate described in clause (ii) of the
definition thereof, on the basis of a year of 360 days and actual days elapsed)
on the unpaid principal amount thereof from the date such Loan is advanced,
continued or created by conversion from a Eurodollar Loan until maturity
(whether by acceleration or otherwise) at a rate per annum equal to the sum of
the Applicable Margin plus the Base Rate from time to time in effect, payable on
the last day of its Interest Period and at maturity (whether by acceleration or
otherwise).
"Base Rate" means for any day the greater of:
(i) the rate of interest announced by the Administrative Agent in
the United States from time to time as its prime rate, or equivalent, for
U.S. Dollar loans as in effect on such day, with any change in the Base
Rate resulting from a change in said prime rate to be effective as of the
date of the relevant change in said prime rate; and
(ii) the sum of (x) the rate published by the Federal Reserve Bank
of New York as the prevailing rate per annum (rounded upwards, if
necessary, to the nearest one hundred-thousandth of a percentage point) at
approximately 10:00 a.m. (New York time) (or as soon thereafter as is
practicable) on such day (or, if such day is not a Business Day, on the
immediately preceding Business Day) for the purchase at face value of
overnight Federal funds in an amount comparable to the principal amount
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owed to the Administrative Agent for which such rate is being determined,
plus (y) 1/2 of 1% (0.50%).
(b) Eurodollar Loans. Each Eurodollar Loan made or maintained by a Bank
shall bear interest during each Interest Period it is outstanding (computed on
the basis of a year of 360 days and actual days elapsed) on the unpaid principal
amount thereof from the date such Loan is advanced, continued, or created by
conversion from a Base Rate Loan until maturity (whether by acceleration or
otherwise) at a rate per annum equal to the sum of the Applicable Margin plus
the Adjusted LIBOR applicable for such Interest Period, payable on the last day
of the Interest Period and at maturity (whether by acceleration or otherwise),
and, if the applicable Interest Period is longer than three months, on each day
occurring every three months after the commencement of such Interest Period.
"Adjusted LIBOR" means, for any Borrowing of Eurodollar Loans a rate per
annum determined in accordance with the following formula:
Adjusted LIBOR = LIBOR
---------------------------------
1 - Eurodollar Reserve Percentage
"LIBOR" means, for an Interest Period for a Borrowing of Eurodollar Loans
(a) the LIBOR Index Rate for such Interest Period, if such rate is available, or
(b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the
rates of interest per annum (rounded upwards, if necessary, to the nearest one-
sixteenth of one percent) at which deposits in U.S. Dollars, in immediately
available funds are offered to the Administrative Agent at 11:00 a.m. (London,
England time) two (2) Business Days before the beginning of such Interest Period
by major banks in the interbank eurodollar market for delivery on the first day
of and for a period equal to such Interest Period in an amount equal or
comparable to the principal amount of the Eurodollar Loan scheduled to be made
by the Administrative Agent as part of such Borrowing.
"LIBOR Index Rate" means, for any Interest Period, the rate per annum
(rounded upwards, if necessary, to the next higher one-sixteenth of one percent)
for deposits in U.S. Dollars, for delivery on the first day of and for a period
equal to such Interest Period in an amount equal or comparable to the principal
amount of the Eurodollar Loan scheduled to be made by the Administrative Agent
as part of such Borrowing, which appears on the Applicable Telerate Page, as of
11:00 a.m. (London, England time) on the day two (2) Business Days before the
commencement of such Interest Period.
"Applicable Telerate Page" means the display page designated as "Page 3750"
on the Telerate Service (or such other page as may replace such page on that
service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for deposits in U.S. Dollars).
"Eurodollar Reserve Percentage" means, for any Borrowing of Eurodollar
Loans, the daily average for the applicable Interest Period of the maximum rate,
expressed as a decimal, at which reserves (including, without limitation, any
supplemental, marginal and emergency
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reserves) are imposed during such Interest Period by the Board of Governors of
the Federal Reserve System (or any successor) on "eurocurrency liabilities", as
defined in such Board's Regulation D (or in respect of any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurodollar Loans is determined or any category of extensions of credit or other
assets that include loans by non-United States offices of any Bank to United
States residents), subject to any amendments of such reserve requirement by such
Board or its successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the Eurodollar Loans shall be deemed
to be "eurocurrency liabilities" as defined in Regulation D without benefit or
credit for any prorations, exemptions or offsets under Regulation D.
(c) Rate Determinations. The Administrative Agent shall determine each
interest rate applicable to Obligations and a determination thereof by the
Administrative Agent, if reasonably calculated, shall be conclusive and binding
except in the case of manifest error.
Section 2.3. Minimum Borrowing Amounts. Each Borrowing of Loans shall be in
an amount not less than $1,000,000 and in integral multiples of $500,000.
Section 2.4. Manner of Borrowing Loans and Designating Interest Rates
Applicable to Loans. (a) Notice to the Administrative Agent. The Borrower shall
give written notice to the Administrative Agent by no later than 2:00 p.m. (New
York time) (i) at least three (3) Business Days before the date on which the
Borrower requests the Banks to advance a Borrowing of Eurodollar Loans and (ii)
on the date the Borrower requests the Banks to advance a Borrowing of Loans
comprised of Base Rate Loans. The Loans included in each such Borrowing shall
bear interest initially at the type of rate specified in such notice of a new
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Borrowing of Loans or, subject
to Section 2.3's minimum amount requirement for each outstanding Borrowing, a
portion thereof, as follows: (i) if such Borrowing is of Eurodollar Loans, on
the last day of the Interest Period applicable thereto, the Borrower may
continue part or all of such Borrowing as Eurodollar Loans for an Interest
Period or Interest Periods specified by the Borrower or, convert part or all of
such Borrowing into Base Rate Loans, and (ii) if such Borrowing is of Base Rate
Loans, on any Business Day, the Borrower may convert all or part of such
Borrowing into Eurodollar Loans for an Interest Period or Interest Periods
specified by the Borrower. The Borrower shall give all such notices requesting
the advance, continuation, or conversion of a Borrowing of Loans to the
Administrative Agent by telecopy (which notice shall be irrevocable once given).
Notices of the continuation of a Borrowing of Loans comprised of Eurodollar
Loans for an additional Interest Period or of the conversion of part or all of a
Borrowing of Eurodollar Loans into Base Rate Loans or of Base Rate Loans into
Eurodollar Loans must be given by no later than 2:00 p.m. (New York time) at
least three (3) Business Days before the date of the requested continuation or
conversion. All such notices concerning the advance, continuation, or conversion
of a Borrowing of Loans shall be signed by two Authorized Representatives and
shall specify the date of the requested advance, continuation or conversion of
such Borrowing (which shall be a Business Day), the amount of the requested
Borrowing of Loans to be advanced, continued, or converted, the type of Loans to
comprise such new, continued or converted Borrowing and, if such Borrowing is to
be comprised of Eurodollar Loans, the Interest Period applicable thereto. The
Borrower agrees that the Administrative
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Agent may rely on any such telecopy notice given by any two persons it in good
faith believes are Authorized Representatives without the necessity of
independent investigation. There may be no more than ten different Interest
Periods for Eurodollar Loans in effect at any one time.
(b) Notice to the Banks. The Administrative Agent shall give prompt
telephonic or telecopy notice to each Bank of any notice from the Borrower
received pursuant to Section 2.4(a) above. The Administrative Agent shall give
notice to the Borrower and each Bank by like means of the interest rate
applicable to each Borrowing of Eurodollar Loans.
(c) Borrower's Failure to Notify. Any outstanding Borrowing of Base Rate
Loans shall automatically be continued for an additional Interest Period on the
last day of its then current Interest Period unless the Borrower has notified
the Administrative Agent within the period required by Section 2.4(a) that it
intends to convert such Borrowing into a Borrowing of Eurodollar Loans or
notifies the Administrative Agent within the period required by Section 2.7(a)
that it intends to prepay such Borrowing. If the Borrower fails to give notice
pursuant to Section 2.4(a) above of the continuation or conversion of any
outstanding principal amount of a Borrowing of Eurodollar Loans before the last
day of its then current Interest Period within the period required by Section
2.4(a) and has not notified the Administrative Agent within the period required
by Section 2.7(a) that it intends to prepay such Borrowing, such Borrowing shall
automatically be converted into a Borrowing of Base Rate Loans.
(d) Disbursement of Loans. Not later than (i) 1:00 p.m. (New York time) on
the date of any requested advance of a new Borrowing of Loans comprised of
Eurodollar Loans and (ii) 3:00 p.m. (New York time) on the date of any requested
advance of a new Borrowing of Loans comprised of Base Rate Loans, subject to
Section 6 hereof, each Bank shall make available its Loan comprising part of
such Borrowing in funds immediately available at the principal office of the
Administrative Agent in New York, New York. The Administrative Agent promptly
thereafter shall make available to the Borrower Loans at the Administrative
Agent's principal office in New York, New York or such other office as the
Administrative Agent has previously agreed in writing with the Borrower, in each
case in the type of funds received by the Administrative Agent from the Banks.
(e) Administrative Agent Reliance on Bank Funding. Unless the
Administrative Agent shall have been notified by a Bank before the date on which
such Bank is scheduled to make payment to the Administrative Agent of the
proceeds of a Loan (which notice shall be effective upon receipt) that such Bank
does not intend to make such payment, the Administrative Agent may assume that
such Bank has made such payment when due and the Administrative Agent may in
reliance upon such assumption (but shall not be required to) make available to
the Borrower the proceeds of the Loan to be made by such Bank and, if any Bank
has not in fact made such payment to the Administrative Agent, such Bank shall,
on demand, pay to the Administrative Agent the amount made available to the
Borrower attributable to such Bank together with interest thereon in respect of
each day during the period commencing on the date such amount was made available
to the Borrower and ending on (but excluding) the date such Bank pays such
amount to the Administrative Agent at a rate per annum equal to the Federal
Funds Rate. If such amount is not received from such Bank by the Administrative
Agent immediately upon demand, the Borrower will, on demand, repay
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to the Administrative Agent the proceeds of the Loan attributable to such Bank
with interest thereon at a rate per annum equal to the interest rate applicable
to the relevant Loan. If the Borrower shall repay to the Administrative Agent
such amount, such payment shall not relieve the defaulting Bank of any
obligation it may have to the Borrower hereunder. The failure of any Bank to
make the Loans to be made by it as part of any Borrowing shall not relieve any
other Bank of its obligation hereunder to make its Loan on the date of such
Borrowing, but no Bank shall be responsible for the failure of any other Bank to
make the Loans to be made by such other Bank on the date of any Borrowing. The
Bank which failed to make such Loans shall indemnify the Administrative Agent
for any loss, cost or expense it may incur as a result of such failure.
Section 2.5. Interest Periods. The term "Interest Period" means the period
commencing on the date a Borrowing of Loans is advanced, continued, or created
by conversion and ending: (a) in the case of Base Rate Loans, on the last
Business Day of the calendar quarter in which such Borrowing is advanced,
continued, or created by conversion (or on the last day of the following
calendar quarter if such Loan is advanced, continued or created by conversion on
the last Business Day of a calendar quarter); and (b) in the case of Eurodollar
Loans, the date selected by the Borrower that is 1, 2, 3, or 6 months
thereafter; provided, however, that:
(a) any Interest Period for a Borrowing of Base Rate Loans that otherwise
would end after the Termination Date shall end on the Termination Date;
(b) for any Borrowing of Eurodollar Loans, the Borrower may not select an
Interest Period that extends beyond the Termination Date;
(c) whenever the last day of any Interest Period would otherwise be a day
that is not a Business Day, the last day of such Interest Period shall be
extended to the next succeeding Business Day, provided that, if such
extension would cause the last day of an Interest Period for a Borrowing of
Eurodollar Loans to occur in the following calendar month, the last day of
such Interest Period shall be the immediately preceding Business Day; and
(d) for purposes of determining an Interest Period for a Borrowing of
Eurodollar Loans, a month means a period starting on one day in a calendar
month and ending on the numerically corresponding day in the next calendar
month; provided, however, that if there is no numerically corresponding day
in the month in which such an Interest Period is to end or if such an
Interest Period begins on the last Business Day of a calendar month, then
such Interest Period shall end on the last Business Day of the calendar
month in which such Interest Period is to end.
Section 2.6. Maturity of Loans. Unless an earlier maturity is provided for
hereunder (whether by acceleration or otherwise), each Eurodollar Loan shall
mature and become due and payable by the Borrower on the last day of the
Interest Period applicable thereto and each Base Rate Loan shall mature and
become due and payable by the Borrower on the Termination Date.
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Section 2.7. Prepayments. (a) The Borrower may prepay without premium or
penalty and in whole or in part (but, if in part, then: (i) if such Borrowing is
of Base Rate Loans, in an amount not less than $1,000,000 and integral multiples
of $500,000, (ii) if such Borrowing is of Eurodollar Loans, in an amount not
less than $3,000,000 and integral multiples of $1,000,000, and (iii)
in an amount such that the minimum amount required for a Borrowing pursuant to
Section 2.3 hereof remains outstanding) any Borrowing of Eurodollar Loans upon
three Business Days' prior notice to the Administrative Agent or, in the case of
a Borrowing of Base Rate Loans, notice delivered to the Administrative Agent no
later than 10:00 a.m. (New York time) on the date of prepayment, such prepayment
to be made by the payment of the principal amount to be prepaid and accrued
interest thereon to the date fixed for prepayment. The Administrative Agent will
promptly advise each Bank of any such prepayment notice it receives from the
Borrower. Any amount paid or prepaid before the Termination Date may, subject to
the terms and conditions of this Agreement, be borrowed, repaid and borrowed
again. Any prepayment of Eurodollar Loans shall be subject to Section 2.10.
(b) If the aggregate amount of outstanding Loans shall at any time for any
reason exceed the Commitments then in effect, the Administrative Agent shall
notify the Borrower of such circumstance and the Borrower shall, within three
(3) Business Days, pay the amount of such excess to the Administrative Agent for
the ratable benefit of the Banks as a prepayment of the Loans. Immediately upon
determining the need to make any such prepayment the Borrower shall notify the
Administrative Agent of such required prepayment. Each such prepayment shall be
accompanied by a payment of all accrued and unpaid interest on the Loans prepaid
and shall be subject to Section 2.10.
Section 2.8. Default Rate. If any payment of principal on any Loan is not
made when due (whether by acceleration or otherwise), such Loan shall bear
interest (computed on the basis of a year of 360 days and actual days elapsed
or, if based on the rate described in clause (i) of the definition of Base Rate,
on the basis of a year of 365 or 366 days, as applicable, and the actual number
of days elapsed) from the date such payment was due until paid in full, payable
on demand, at a rate per annum equal to:
(a) for any Base Rate Loan, the sum of two percent (2%) plus the
Base Rate Margin plus the Base Rate from time to time in effect; and
(b) for any Eurodollar Loan, the sum of two percent (2%) plus the
rate of interest in effect thereon at the time of such default until the
end of the Interest Period applicable thereto and, thereafter, at a rate
per annum equal to the sum of two percent (2%) plus the Base Rate Margin
plus the Base Rate from time to time in effect.
Section 2.9. The Notes. (a) All Loans made to the Borrower by a Bank shall
be evidenced by a single promissory note of the Borrower issued to such Bank in
the form of Exhibit A hereto (each a "Note" and collectively the "Notes"), each
such note to be payable to the order of the applicable Bank in the amount of its
Commitment.
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(b) Each Bank shall record on its books and records or on a schedule to
the appropriate Note the amount of each Loan advanced, continued, or converted
by it, all payments of principal and interest and the principal balance from
time to time outstanding thereon, the type of such Loan, and, for any Eurodollar
Loan, the Interest Period, and the interest rate applicable thereto, provided
that prior to the transfer of such Note all such amounts shall be recorded on a
schedule thereto. The record thereof, whether shown on such books and records
of a Bank or on a schedule to any Note, shall be prima facie evidence as to all
such matters; provided, however, that the failure of any Bank to record any of
the foregoing or any error in any such record shall not limit or otherwise
affect the obligation of the Borrower to repay all Loans made to it hereunder
together with accrued interest thereon. At the request of any Bank and upon
such Bank tendering to the Borrower the Note to be replaced, the Borrower shall
furnish a new Note to such Bank to replace any outstanding Note, and at such
time the first notation appearing on a schedule on the reverse side of, or
attached to, such Note shall set forth the aggregate unpaid principal amount of
all Loans, if any, then outstanding thereon.
Section 2.10. Funding Indemnity. If any Bank shall incur any loss, cost or
expense (including, without limitation, any loss of profit, and any loss, cost
or expense incurred by reason of the liquidation or re-employment of deposits or
other funds acquired by such Bank to fund or maintain any Eurodollar Loan or the
relending or reinvesting of such deposits or amounts paid or prepaid to such
Bank) as a result of:
(a) any payment (whether by acceleration or otherwise), prepayment
or conversion of a Eurodollar Loan on a date other than the last day of its
Interest Period (other than pursuant to Section 2.4(e)),
(b) any failure (because of a failure to meet the conditions of
Section Six or otherwise (other than pursuant to Section 9.2 or as a result
of a default by any Bank or the Administrative Agent)) by the Borrower to
borrow or continue a Eurodollar Loan, or to convert a Base Rate Loan into a
Eurodollar Loan, on the date specified in a notice given pursuant to
Section 2.4(a) or established pursuant to Section 2.4(c) hereof, or
(c) any acceleration of the maturity of a Eurodollar Loan as a
result of the occurrence of any Event of Default hereunder,
then, upon the demand of such Bank, the Borrower shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense. If any Bank
makes such a claim for compensation, it shall provide to the Borrower, with a
copy to the Administrative Agent, a certificate executed by an officer of such
Bank setting forth the amount of such loss, cost or expense in reasonable detail
(including an explanation of the basis for and the computation of such loss,
cost or expense) and the amounts shown on such certificate if reasonably
calculated shall be conclusive absent manifest error.
Section 2.11. Commitment Terminations. The Borrower shall have the right at
any time and from time to time, upon five (5) Business Days' prior written
notice to the Administrative Agent signed by two Authorized Representatives, to
terminate the
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Commitments without premium or penalty, in whole or in part, any partial
termination to be (i) in an amount not less than $5,000,000 or an integral
multiple thereof, and (ii) allocated ratably among the Banks in proportion to
their respective Percentages, provided that the Commitments may not be reduced
to an amount less than the sum of the amount of all Loans then outstanding. The
Administrative Agent shall give prompt notice to each Bank of any such
termination of Commitments. Any termination of Commitments pursuant to this
Section 2.11 may not be reinstated.
Section 3. Fees and Extensions
Section 3.1. Fees.
(a) Facility Fee. For the period from the Effective Date to and
including the Termination Date, the Borrower shall pay to the Administrative
Agent for the ratable account of the Banks in accordance with their Percentages
a facility fee accruing at a rate per annum equal to the Facility Fee Rate on
the average daily amount of the Commitments (whether used or unused). Such
facility fee is payable in arrears on June 28, 1996, on the last Business Day of
each calendar quarter thereafter and on the Termination Date, unless the
Commitments are terminated in whole on an earlier date, in which event the fee
for the period to but not including the date of such termination shall be paid
in whole on the date of such termination.
(b) Other Fees. The Borrower shall pay to the Administrative Agent for
the account of the Administrative Agent the fees agreed to between the
Administrative Agent and the Borrower in the Fee Letter or as otherwise agreed
in writing between them.
(c) Fee Calculations. All fees payable under this Agreement shall be
computed on the basis of a year of 360 days, for the actual number of days
elapsed. All determinations of the amount of fees owing hereunder (and the
components thereof) shall be made by the Administrative Agent and, if reasonably
calculated, shall be conclusive absent manifest error.
Section 4. Place and Application of Payments
Section 4.1. Place and Application of Payments. All payments of principal of
and interest on the Loans, and of all other amounts payable by the Borrower
under this Agreement, shall be made by the Borrower to the Administrative Agent
by no later than 2:00 p.m. (New York time) on the due date thereof at the
principal office of the Administrative Agent in New York, New York (or no later
than 12:00 noon local time at such other location as the Administrative Agent
and the Borrower may agree) for the benefit of the Person or Persons entitled
thereto. Any payments received after such time shall be deemed to have been
received by the Administrative Agent on the next Business Day. Subject to
Section 12.1, all such payments shall be made free and clear of, and without
deduction for, any set-off, counterclaim, levy or any other deduction of any
kind in U.S. Dollars, in immediately available funds at the place of payment.
The Administrative Agent will promptly thereafter cause to be distributed like
funds relating to the payment of principal or interest on Loans or applicable
fees ratably to the Banks and like funds relating to the payment of any other
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amount payable to any Person to such Person, in each case to be applied in
accordance with the terms of this Agreement.
Section 5. Representations and Warranties.
The Borrower hereby represents and warrants to each Bank as to itself and,
where the following representations and warranties apply to Subsidiaries, as to
each of its Subsidiaries, as follows:
Section 5.1. Corporate Organization and Authority. The Borrower is duly
organized and existing in good standing under the laws of the State of
California; has all necessary corporate power to carry on its present business;
and is duly licensed or qualified and, in good standing in each jurisdiction in
which the nature of the business transacted by it or the nature of the Property
owned or leased by it makes such licensing, qualification or good standing
necessary and in which the failure to be so licensed, qualified or in good
standing would materially and adversely affect its business, operations,
Property or financial or other condition.
Section 5.2. Subsidiaries. Schedule 5.2 (as updated from time to time
pursuant to Section 7.1) hereto identifies each Subsidiary, the jurisdiction of
its incorporation, and the percentage of issued and outstanding shares of each
class of its capital stock owned by the Borrower and the Subsidiaries. Each
Material Subsidiary is duly incorporated and existing in good standing as a
corporation under the laws of the jurisdiction of its incorporation, has all
necessary corporate power to carry on its present business, and is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business transacted by it or the nature of the Property owned or leased by
it makes such licensing or qualification necessary and in which the failure to
be so licensed or qualified would have a material adverse effect on the
business, operations, Property or financial or other condition of such
Subsidiary. All of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and outstanding and fully paid and nonassessable.
All such shares owned by the Borrower are owned beneficially, and of record,
free of any Lien. There are no Material Subsidiaries who, if required to deliver
a Subsidiary Guarantee Agreement pursuant to Section 7.20, have not so delivered
such Subsidiary Guarantee Agreement.
Section 5.3. Corporate Authority and Validity of Obligations. The Borrower
has full corporate power and authority to enter into this Agreement and the
other Credit Documents to which it is a party, to make the borrowings herein
provided for, to issue its Notes in evidence thereof, and to perform all of its
obligations under the Credit Documents to which it is a party. Each Credit
Document to which it is a party has been duly authorized, executed and delivered
by the Borrower and each Guarantor enforceable in accordance with its terms. No
Credit Document, nor the performance or observance by the Borrower or any
Guarantor of any of the matters or things therein provided for, contravenes any
provision of law binding on or affecting the Borrower or any Guarantor or any
charter or by-law provision of the Borrower or any Guarantor or (individually or
in the aggregate) any material Contractual Obligation of or affecting the
Borrower or any Guarantor or any of their respective
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Properties or results in or requires the creation or imposition of any Lien on
any of the Properties or revenues of the Borrower or any Guarantor.
Section 5.4. Financial Statements; No Material Adverse Change. (a) All
consolidated financial statements heretofore delivered to the Banks showing
historical performance of the Borrower and its Subsidiaries for any of the
Borrower's fiscal years ending on or before June 30, 1995, have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent, except as otherwise noted therein, with that of the previous fiscal
year. Each of such financial statements fairly presents on a consolidated basis
the financial condition of the Borrower and its Subsidiaries as of the dates
thereof and the results of operations for the periods covered thereby. The
Borrower and its Subsidiaries have no material contingent liabilities required
to be disclosed by GAAP other than those disclosed in the most recent financial
statements referred to in this Section 5.4 or in comments or footnotes thereto,
or in any report supplementary thereto, heretofore furnished to the Banks. Since
June 30, 1995, there has been no material adverse change in the business,
operations, Property or financial or other condition of the Borrower
individually or the Borrower and its Subsidiaries taken as a whole.
(b) The consolidating financial information on the Borrower heretofore
delivered to the Banks is, taken as a whole and to the best of Borrower's
knowledge, true and complete in all material respects.
Section 5.5. No Litigation; No Labor Controversies. (a) Except as set forth
on Schedule 5.5, there is no litigation or governmental proceeding pending, or
to the knowledge of the Borrower or any Guarantor, threatened, against the
Borrower or any Subsidiary which, if adversely determined, could (individually
or in the aggregate) reasonably be expected to have a material adverse effect on
the business, operations, Property or financial or other condition of the
Borrower individually or the Borrower and its Subsidiaries taken as a whole.
(b) Except as set forth on Schedule 5.5, there are no labor controversies
pending or, to the best knowledge of the Borrower or any Guarantor, threatened
against the Borrower or any Subsidiary which could reasonably be expected to
have a material adverse effect on the business, operations, Property or
financial or other condition of the Borrower individually or the Borrower and
its Subsidiaries taken as a whole.
Section 5.6. Taxes. The Borrower and its Subsidiaries have filed all United
States federal tax returns, and all other tax returns, required to be filed
(after giving effect to all filing extensions granted by appropriate taxing
authorities) and have paid all taxes due pursuant to such returns or pursuant to
any assessment received by the Borrower or any Subsidiary, except such taxes, if
any, as are being contested in good faith and for which adequate reserves have
been provided if required by GAAP. No notices of tax liens have been filed and
no claims are being asserted concerning any such taxes, which liens or claims
are material to the financial condition of the Borrower individually or the
Borrower and its Subsidiaries taken as a whole. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries for any taxes or
other governmental charges are adequate.
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Section 5.7. Approvals. No authorization, consent, license, exemption,
filing or registration with any court or governmental department, agency or
instrumentality, nor any approval or consent of the stockholders of the Borrower
or any Subsidiary or from any other Person, is necessary to the valid execution,
delivery or performance by the Borrower of any Credit Document to which it is a
party.
Section 5.8. ERISA. With respect to each Plan, the Borrower and each other
member of the Controlled Group has fulfilled its obligations under the minimum
funding standards of and is in compliance in all material respects with the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and with
the Code to the extent applicable to it and has not incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") or a Plan under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA. Neither the Borrower nor any Subsidiary has any material contingent
liabilities for any post-retirement benefits under a Welfare Plan, other than
liability for continuation coverage described in Part 6 of Title I of ERISA.
Section 5.9. Government Regulation. Neither the Borrower nor any Subsidiary
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or a "holding company", or a "Subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "Subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
Section 5.10. Margin Stock; Use of Proceeds. Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its primary activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock ("margin stock" to have the same meaning herein as in Regulation U of
the Board of Governors of the Federal Reserve System). The proceeds of the Loans
are to be used solely for the purposes set forth in and permitted by Section
7.10. The Borrower will not use the proceeds of any Loan in a manner that
violates any provision of Regulation U or X of the Board of Governors of the
Federal Reserve System.
Section 5.11. Licenses and Authorizations; Compliance with Laws. (a) The
Borrower and its Subsidiaries have all necessary licenses, permits and
governmental authorization to own and operate their Properties and to carry on
their business as currently conducted and contemplated, except to the extent the
failure to have the same could not reasonably be expected to have a material
adverse effect on the business, operations, Property or financial or other
condition of the Borrower individually or the Borrower and its Subsidiaries
taken as a whole. The Borrower and each of its Subsidiaries is in material
compliance with all applicable laws, regulations, ordinances and orders of any
governmental or judicial authorities except where the failure to comply
therewith could not reasonably be expected to have a material adverse effect on
the business, operations, property or financial or other condition of the
Borrower individually or the Borrower and its Subsidiaries taken as a whole.
(b) The Borrower has reasonable grounds to believe that Environmental and
Health Laws are unlikely to have any material adverse effect on the business,
operations, Property or financial or other condition of the Borrower
individually or the Borrower and its Subsidiaries taken as a whole.
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(c) Neither the Borrower nor any Subsidiary has given, nor, to the
knowledge of the Borrower, is it required to give, nor has it received, any
notice, letter, citation, order, warning, complaint, inquiry, claim or demand to
or from any governmental entity or in connection with any court proceeding which
could reasonably be expected to have a material adverse effect on the Property,
business or operations of the Borrower and its Subsidiaries taken as a whole
claiming that: (i) the Borrower or any Subsidiary has violated, or is about to
violate, any Environmental and Health Law; (ii) there has been a release, or
there is a threat of release, of Hazardous Materials from the Borrower's or any
Subsidiary's Property, facilities, equipment or vehicles; (iii) the Borrower or
any Subsidiary may be or is liable, in whole or in part, for the costs of
cleaning up, remediating or responding to a release of Hazardous Materials; or
(iv) any of the Borrower's or any Subsidiary's property or assets are subject to
a Lien in favor of any governmental entity for any liability, costs or damages,
under any Environmental and Health Law arising from, or costs incurred by such
governmental entity in response to, a release of a Hazardous Materials.
Section 5.12. Ownership of Property; Liens. The Borrower and each
Subsidiary has good title to or valid leasehold interests in all its material
Properties. None of the Borrower's or any Subsidiary's Property is subject to
any Lien, except as permitted in Section 7.9.
Section 5.13. No Burdensome Restrictions; Compliance with Agreements.
Neither the Borrower nor any Subsidiary is (a) party or subject to any law,
regulation, rule or order that (individually or in the aggregate) materially
adversely affects the business, operations, Property or financial or other
condition of the Borrower or the Borrower and its Subsidiaries taken as a
whole or (b) in default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any Contractual Obligation
to which it is a party, which default materially adversely affects the business,
operations, property or financial or other condition of the Borrower and its
Subsidiaries taken as a whole.
Section 5.14. Full Disclosure. All information, taken as a whole, heretofore
furnished by the Borrower or any Guarantor to the Administrative Agent or any
Bank for purposes of or in connection with the Credit Documents or any
transaction contemplated thereby is, and all such information, taken as a whole,
hereafter furnished by the Borrower or any Guarantor to the Administrative Agent
or any Bank will be, true and accurate in all material respects and such
information, taken as a whole, does not and will not omit any material fact
necessary to make the statements therein not misleading on the date as of which
such information is provided, stated or certified.
Section 6. Conditions Precedent.
The obligation of each Bank to advance, continue, or convert any Loan shall
be subject to the following conditions precedent:
Section 6.1. Initial Credit Event. On or before the Effective Date:
(a) The Administrative Agent shall have received for each Bank the
favorable written opinion of Ervin, Cohen & Jessup, counsel to the Borrower
substantially in the
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form of Exhibit B attached hereto and otherwise in form and substance
satisfactory to the Banks;
(b) The Administrative Agent shall have received for each Bank
copies of (i) the Certificate of Incorporation, together with all
amendments, and a certificate of good standing, for the Borrower certified
as of a date not earlier than 30 days prior to the date hereof by the
appropriate governmental officer of the Borrower's jurisdiction of
incorporation and (ii) the Borrower's bylaws (or comparable constituent
documents) and any amendments thereto, certified in each instance by its
Secretary or an Assistant Secretary;
(c) The Administrative Agent shall have received for each Bank
copies of resolutions of the Borrower's Board of Directors authorizing the
execution and delivery of the Credit Documents to which it is a party and
the consummation of the transactions contemplated thereby together with
specimen signatures of the persons authorized to execute such documents on
the Borrower's behalf, all certified in each instance by its Secretary or
Assistant Secretary;
(d) The Administrative Agent shall have received for each Bank such
Bank's duly executed Note dated the date hereof and otherwise in compliance
with the provisions of Section 2.9 hereof;
(e) The Administrative Agent shall have received for each Bank a
list of the Borrower's Authorized Representatives and such other documents
as any Bank may reasonably request;
(f) All legal matters incident to the execution and delivery of the
Credit Documents shall be reasonably satisfactory to the Banks;
(g) The Administrative Agent shall have received a certificate by
the chief financial officer, vice president-finance, corporate controller
or treasurer of the Borrower, on behalf of the Borrower and not in such
officer's individual capacity, stating that on the date of such initial
Credit Event no Default or Event of Default has occurred and is continuing;
and
(h) The Administrative Agent shall have received a duly executed
Compliance Certificate containing financial information as of the last day
of the most recently completed fiscal quarter of the Borrower.
Section 6.2. All Credit Events. As of the time of each Credit Event
hereunder:
(a) In the case of a Borrowing, the Administrative Agent shall have
received the notice required by Section 2.4;
(b) Each of the representations and warranties set forth in Section
5 hereof shall be and remain true and correct in all material respects as
of said time, taking into account any amendments to such Section (including
without limitation any amendments
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to the Schedules referenced therein) made after the date of this Agreement
in accordance with its provisions, except that if any such representation
or warranty relates solely to an earlier date it need only remain true as
of such date;
(c) No Default or Event of Default shall have occurred and be
continuing or would occur as a result of such Credit Event; and
(d) After giving effect to the Credit Event the aggregate amount of
all Loans shall not exceed the Commitments then in effect.
Each Credit Event hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Credit Event as to the facts
specified in paragraphs (b)-(d) of this Section 6.2.
Section 6.3. Determinations Under Section 6.1. For purposes of determining
compliance with the conditions specified in Section 6.1, each Bank shall be
deemed to have consented to, approved or accepted or to be satisfied with each
document or other matter required thereunder to be consented to or approved by
or acceptable or satisfactory to the Banks unless an officer of the
Administrative Agent responsible for the transactions contemplated by this
Agreement shall have received notice from such Bank prior to the Effective Date
specifying its objection thereto.
Section 7. Covenants.
The Borrower covenants and agrees that, so long as any Note is outstanding
hereunder, or any Commitment is available to or in use by the Borrower
hereunder, except to the extent compliance in any case is waived in writing by
the Required Banks or except as otherwise provided herein:
Section 7.1. Corporate Existence; Subsidiaries. The Borrower shall, and
shall cause each of its Material Subsidiaries to, preserve and maintain its
corporate existence, subject to the provisions of Section 7.11 hereof. As a
condition to establishing or acquiring any Subsidiary, unless the Required Banks
otherwise agree, the Borrower shall (i) if required pursuant to Section 7.20,
cause such Subsidiary to execute a Subsidiary Guarantee Agreement, (ii) if such
Subsidiary is required to execute a Subsidiary Guarantee Agreement pursuant to
Section 7.20, cause such Subsidiary to deliver documentation similar to that
described in Section 6.1(a) through (c) relating to the authorization for,
execution and delivery of, and validity of such Subsidiary's obligations as a
Guarantor hereunder and under the Subsidiary Guarantee Agreement in form and
substance reasonably satisfactory to the Required Banks and (iii) deliver an
updated Schedule 5.2 to reflect the new Subsidiary.
Section 7.2. Maintenance. The Borrower will maintain, preserve and keep its
plants, Properties and equipment necessary to the proper conduct of its business
in reasonably good repair, working order and condition and will from time to
time make all reasonably necessary repairs, renewals, replacements, additions
and betterments thereto so that at all times such
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plants, Properties and equipment shall be reasonably preserved and maintained,
and the Borrower will cause each of its Subsidiaries to do so in respect of
Property owned or used by it.
Section 7.3. Taxes. The Borrower will duly pay and discharge, and will
cause each of its Subsidiaries duly to pay and discharge, all taxes, rates,
assessments, fees and governmental charges upon or against it or against its
Properties, in each case before the same becomes delinquent and before penalties
accrue thereon, unless and to the extent that the same is being contested in
good faith by appropriate proceedings and reserves in conformity with GAAP, if
required, have been provided therefor on the books of the Borrower.
Section 7.4. ERISA. The Borrower will, and will cause each of its
Subsidiaries to, promptly pay and discharge all obligations and liabilities
arising under ERISA of a character which if unpaid or unperformed might result
in the imposition of a Lien against any of its properties or assets and will
promptly notify the Administrative Agent of (i) the occurrence of any reportable
event (as defined in ERISA) affecting a Plan, other than any such event with
respect to which the PBGC has waived the thirty day notice requirement by
regulation, (ii) receipt of any written notice from the PBGC of its intention to
seek termination of any Plan or appointment of a trustee therefor, (iii) its or
any of its Subsidiaries' intention to terminate or withdraw from any Plan or
Multiemployer Plan, to the extent the Borrower would incur a material liability
as a result thereof, and (iv) the occurrence of any event affecting any Plan or
Multiemployer Plan which could result in the incurrence by the Borrower or any
of its Subsidiaries of any material liability, fine or penalty, or any material
increase in the contingent liability of the Borrower or any of its Subsidiaries
under any post-retirement Welfare Plan benefit.
Section 7.5. Insurance. The Borrower will insure, and keep insured, and
will cause each of its Subsidiaries to insure, and keep insured, with good and
responsible insurance companies, all insurable Property owned by it of a
character usually insured by companies similarly situated and operating like
Property. To the extent usually insured (subject to self-insured retentions) by
companies similarly situated and conducting similar businesses, the Borrower
will also insure, and cause each of its Subsidiaries to insure, employers' and
public and product liability risks with good and responsible insurance
companies. The Borrower will upon request of any Bank furnish to such Bank a
summary setting forth the nature and extent of the insurance maintained pursuant
to this Section 7.5.
Section 7.6. Financial Reports and Other Information. (a) The Borrower will
maintain a system of accounting in accordance with GAAP and will furnish to the
Banks and their respective duly authorized representatives (as may be reasonably
acceptable to the Borrower) such information respecting the business and
financial condition of the Borrower and its Subsidiaries as any Bank may
reasonably request through the Administrative Agent; and without any request,
the Borrower will furnish each of the following to each Bank:
(i) within 90 days after the end of each fiscal year of the
Borrower, a copy of the Borrower's consolidated and consolidating financial
statements for such fiscal year, including the consolidated and
consolidating balance sheet of the Borrower for such
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year and the related consolidated and consolidating statements of income,
and the related consolidated statement of cash flow, and, with regard to
the consolidated statements, as certified by independent public accountants
of recognized national standing selected by the Borrower, in accordance
with GAAP with such accountants' unqualified opinion to the effect that
such financial statements have been prepared in accordance with GAAP and
present fairly in all material respects in accordance with GAAP the
consolidated financial position of the Borrower and its Subsidiaries as of
the close of such fiscal year and the results of their operations and cash
flows for the fiscal year then ended and that an examination of such
accounts in connection with such financial statements has been made in
accordance with generally accepted auditing standards and, accordingly,
such examination included such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances;
(ii) within 45 days after the end of each of the first three
quarterly fiscal periods of the Borrower, a consolidated and consolidating
unaudited balance sheet of the Borrower, and the related consolidated and
consolidating statements of income, and the related consolidated statement
of cash flow, as of the close of such period, all of the foregoing prepared
by the Borrower in reasonable detail in accordance with GAAP (except for
the fact that the consolidating financial statements were not consolidated)
and certified by the Borrower's chief financial officer, vice president-
finance, corporate controller or treasurer, on behalf of the Borrower and
not in such officer's individual capacity, as fairly presenting the
consolidated financial condition as at the dates thereof and the
consolidated and consolidating results of operations for the periods
covered thereby (subject to normal and recurring year-end adjustments),
provided that certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP may be
condensed or omitted pursuant to applicable rules and regulations for
interim financial statements, if the disclosures made are adequate to make
the information presented not misleading; and
(iii) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports the Borrower sends to
its shareholders generally, and copies of all other regular, periodic and
special reports and all registration statements the Borrower files with the
SEC or any successor thereto, or with any national securities exchanges.
(b) Each financial statement furnished to the Banks pursuant to
subsection (i) or (ii) of this Section 7.6 shall be accompanied by (A) a written
certificate signed by the Borrower's chief financial officer, vice president-
finance, corporate controller or treasurer, on behalf of the Borrower and not in
such officer's individual capacity, to the effect that, to the best of his or
her knowledge after due inquiry, (i) no Default or Event of Default has occurred
during the period covered by such statements or, if any such Default or Event of
Default has occurred during such period, setting forth a description of such
Default or Event of Default and specifying the action, if any, taken by the
Borrower to remedy the same, and (ii) the representations and warranties
contained in Section 5 hereof are true and correct in all material respects as
though made on the date of such certificate (other than those made solely as of
an earlier date, which need only remain true as of such date), and (B) a
Compliance
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Certificate in the form of Exhibit C hereto showing the Borrower's compliance
with the covenants set forth in Sections 7.9, 7.11 and 7.13-7.17 hereof.
(c) The Borrower will promptly (and in any event within five Business
Days after an officer of the Borrower has knowledge thereof) give notice to the
Administrative Agent and each Bank:
(i) of the occurrence of any Default or Event of Default;
(ii) of any default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries that could reasonably
be expected to have a material adverse effect on the business, operations,
property or condition, financial or otherwise, of the Borrower individually
or the Borrower and its Subsidiaries taken as a whole;
(iii) of a material adverse change in the business, operations,
Property or financial or other condition of the Borrower individually or
the Borrower and its Subsidiaries taken as a whole; and
(iv) of any litigation or governmental proceeding of the type
described in Section 5.5 hereof.
(d) The Borrower will furnish to each Bank within 90 days after the end
of each fiscal year financial projections for the Borrower for the fiscal year
immediately following such fiscal year end, such projections to include a pro
forma balance sheet and statement of income for the Borrower.
Section 7.7. Bank Inspection Rights. Upon reasonable notice from any Bank
at any time during which Borrowings are outstanding or have been requested
hereunder, the Borrower will, at the Borrower's expense at any time an Event of
Default has occurred and is continuing and at the Bank's expense at all other
times, permit such Bank (and such Bank's representatives as are reasonably
acceptable to Borrower) during normal business hours to visit and inspect, under
the Borrower's guidance, any of the properties of the Borrower or any of its
Subsidiaries, to examine all of their books of account and to discuss their
respective affairs, finances and accounts with their respective officers, and,
with the consent of the Borrower (such consent not to be unreasonably withheld),
with their independent public accountants (and by this provision the Borrower
authorizes such accountants to discuss with the Banks (and such Persons
reasonably acceptable to the Borrower as any Bank may designate) the finances
and affairs of the Borrower and its Subsidiaries) all at such reasonable times
and as often as may be reasonably requested; provided, however, that if any Bank
initiates the discussion with such accountants, the Borrower shall have the
right to be present at such discussion, provided, further, however, that except
upon the occurrence and during the continuation of any Default or Event of
Default, not more than one such set of visits and inspections may be conducted
each calendar quarter.
Section 7.8. Conduct of Business. Neither the Borrower nor any Subsidiary
will engage in any line of business that would be material to the operations of
the Borrower
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individually if, as a result, the general nature of the business of the Borrower
individually would be substantially changed from that conducted on the date
hereof.
Section 7.9. Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, permit to exist or to be incurred any Lien of
any kind on any Property owned by the Borrower or any Subsidiary; provided,
however, that this Section 7.9 shall not apply to nor operate to prevent:
(a) Liens arising by operation of law in connection with worker's
compensation, unemployment insurance, social security obligations, taxes,
assessments, statutory obligations or other similar charges, good faith
deposits, pledges or Liens in connection with bids, tenders, contracts or
leases to which the Borrower or any Subsidiary is a party (other than
contracts for borrowed money), or other deposits required to be made in the
ordinary course of business; provided that in each case the obligation
secured is not overdue or, if overdue, is being contested in good faith by
appropriate proceedings and for which reserves in conformity with GAAP, if
required, have been provided on the books of the Borrower;
(b) Mechanics', workmen's, materialmen's, landlords', carriers' or
other similar Liens arising in the ordinary course of business (or deposits
to obtain the release of such Liens) securing obligations not due or, if
due, being contested in good faith by appropriate proceedings and for which
reserves in conformity with GAAP, if required, have been provided on the
books of the Borrower;
(c) Liens for taxes or assessments or other government charges or
levies on the Borrower or any Subsidiary of the Borrower or their
respective Properties, not yet due or delinquent, or which can thereafter
be paid without penalty, or which are being contested in good faith by
appropriate proceedings and for which reserves in conformity with GAAP, if
required, have been provided on the books of the Borrower;
(d) Liens arising out of judgments or awards against the Borrower or
any Subsidiary of the Borrower, or in connection with surety or appeal
bonds in connection with bonding such judgments or awards, the time for
appeal from which or petition for rehearing of which shall not have expired
or with respect to which the Borrower or such Subsidiary shall be
prosecuting an appeal or proceeding for review, and with respect to which
it shall have obtained a stay of execution pending such appeal or
proceeding for review; provided that the aggregate amount of liabilities
(including interest and penalties, if any) of the Borrower and its
Subsidiaries secured by such Liens shall not exceed $15,000,000 at any one
time outstanding;
(e) Liens upon any Property acquired by the Borrower or any
Subsidiary of the Borrower to secure any Indebtedness of the Borrower or
any Subsidiary incurred at the time of the acquisition of such Property or
within 60 days thereafter to finance the purchase price of such Property,
Liens existing on any Property at the time of its acquisition by the
Borrower or any Subsidiary, or Liens upon Property resulting from the sale
by the Borrower or any Subsidiary of Property and the leasing of the same
or similar Property from the purchaser thereof (or a subsequent purchaser
or lessee),
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provided that any such Lien shall apply only to the Property that was so
acquired or sold and leased back and the aggregate principal amount of
Indebtedness secured by such Liens shall not exceed $25,000,000 at any
time outstanding;
(f) Survey exceptions or encumbrances, easements, reservations,
encroachments, rights-of-way, zoning or other restrictions as to the use of
real properties which do not materially impair their use in the operation
of the business of the Borrower or any Subsidiary of the Borrower;
(g) Liens listed on Schedule 7.9 hereto;
(h) Liens arising from precautionary UCC-1 financing statement
filings regarding operating leases entered into by the Borrower or any of
its Subsidiaries in the ordinary course of business, provided that such
filings are limited to the Property being leased pursuant to such operating
leases;
(i) Liens securing Indebtedness permitted pursuant to Sections
7.14(a), (b) and (c) hereof, provided however, that (i) in the case of
Liens securing Indebtedness permitted pursuant to Section 7.14(a), the
amount of such secured Indebtedness (exclusive of Indebtedness secured by
Liens permitted by Section 7.9(d) or 7.9(e) hereof) shall not exceed an
amount equal to 5% of the Borrower's total assets determined on a
consolidating basis minus the amount of any assets relating to intercompany
Indebtedness or Investments between the Borrower and its Subsidiaries
otherwise included in calculating total consolidating assets (as such
assets are computed and shown on a net basis in accordance with the
consolidating financial statements referred to in Section 5.4 hereof) but
otherwise in accordance with GAAP (calculated based upon the most recent
consolidating financial statements of the Borrower delivered pursuant to
Section 7.6) and (ii) in the case of Liens securing Indebtedness permitted
pursuant to Section 7.14(b), the amount of such secured Indebtedness
(exclusive of Indebtedness secured by Liens permitted by Section 7.9(d) or
7.9(e) hereof) shall not exceed an amount equal to 5% of the Borrower's
total assets determined on a consolidated basis in accordance with GAAP
(calculated based upon the most recent consolidated financial statements of
the Borrower delivered pursuant to Section 7.6).
(j) Any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Lien referred to in
the foregoing paragraphs (a) through (i), inclusive, provided, however,
that the principal amount of Indebtedness secured thereby shall not exceed
the principal amount of Indebtedness so secured at the time of such
extension, renewal or replacement, and that such extension, renewal or
replacement shall be limited to the Property which was subject to the Lien
so extended, renewed or replaced.
Section 7.10. Use of Proceeds; Regulation U. The proceeds of each Borrowing
will be used by the Borrower for general corporate and working capital purposes,
including advances to Subsidiaries, and for acquisitions permitted by Section
7.13(j). Following application of the proceeds of each Loan, not more than 25%
of the value of the assets (either of the
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Borrower only or of the Borrower and its Subsidiaries on a consolidated basis)
subject to the provisions of Section 7.9 hereof will be margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System).
Section 7.11. Mergers, Consolidations and Sales. (a) The Borrower shall
not, nor shall it permit any Subsidiary to, be a party to any merger or
consolidation; provided, however, that this Section shall not apply to nor
operate to prevent (i) the Borrower being a party to any merger where (A) the
Board of Directors or such other governing body of the other Person party to
such merger has approved of the terms of such merger, (B) the Borrower is the
surviving Person and (C) after giving effect to such merger, no Default or Event
of Default would then exist or (ii) any Subsidiary (A) merging into the
Borrower, (B) merging into another Subsidiary of the Borrower or (C) being a
party to any merger which does not involve the Borrower as a constituent party
where (x) the Board of Directors or such other governing body of the other
Person party to such merger has approved of the terms of such merger, (y) such
Subsidiary is the surviving Person or the surviving Person is or becomes a
Subsidiary of the Borrower as a result of the merger and (z) after giving effect
to such merger, no Default or Event of Default would then exist.
(b) The Borrower shall not, nor shall it permit any Subsidiary to sell,
transfer, lease or otherwise dispose of all or any substantial part of their
Property taken as a whole, (excluding any disposition of Property as part of a
sale and leaseback transaction), or in any event sell or discount (with
recourse) any of their notes or accounts receivable; provided, however, that
this Section shall not apply to nor operate to prevent (i) the Borrower or any
Subsidiary from selling its inventory in the ordinary course of its business,
(ii) the sale of accounts receivable without recourse, (iii) sales of assets
made pursuant to sale-leaseback transactions and (iv) sales and transfers of
assets between Subsidiaries of the Borrower or sales and transfers of assets
from Subsidiaries to the Borrower. The term "substantial" as used in this
Section 7.11(b) shall mean an amount (excluding dispositions otherwise permitted
pursuant to clause (i) - (iv) above) in excess of the lesser of (i) 10% of the
total assets of the Borrower and its Subsidiaries (computed on a consolidated
basis based upon the total assets of the Borrower and its Subsidiaries set forth
in the most recently prepared consolidated balance sheet) per fiscal year or
(ii) 25% of the total assets of the Borrower and its Subsidiaries (computed on a
consolidated basis based upon the total assets of the Borrower and its
Subsidiaries set forth in the most recently prepared consolidated balance sheet)
cumulatively from the Effective Date through the Termination Date. For purposes
of this Section 7.11(b) the Property of the Borrower and its Subsidiaries taken
as a whole shall be valued at the book value of such Property.
(c) The Borrower shall not sell, transfer, lease or otherwise dispose of
all or any substantial part of its Property, (excluding any disposition of
Property as part of a sale and leaseback transaction), or in any event sell or
discount (with recourse) any of its notes or accounts receivable; provided,
however, that this Section shall not apply to nor operate to prevent (i) the
Borrower from selling its inventory in the ordinary course of its business, (ii)
the sale of accounts receivable without recourse and (iii) sales of assets made
pursuant to sale-leaseback transactions. The term "substantial" as used in this
Section 7.11(c) shall mean an amount (excluding dispositions otherwise permitted
pursuant to clause (i) - (iii) above) in excess of the lesser of (i) 10% of the
total assets of the Borrower (computed based upon the
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total assets of the Borrower on a consolidating basis as set forth in the most
recently prepared consolidating balance sheet) per fiscal year or (ii) 25% of
the total assets of the Borrower (computed based upon the total assets of the
Borrower on a consolidating basis as set forth in the most recently prepared
consolidating balance sheet) cumulatively from the Effective Date through the
Termination Date. For purposes of this Section 7.11(c) the Property of the
Borrower shall be valued at the book value of such Property.
Section 7.12. Use of Property and Facilities; Environmental and Health
and Safety Laws. (a) The Borrower will, and will cause each of its Subsidiaries
to, comply in all material respects with the requirements of all Environmental
and Health Laws applicable to or pertaining to the Properties or business
operations of the Borrower or any Subsidiary of the Borrower. Without limiting
the foregoing, the Borrower will not, and will not permit any Person to, except
in accordance with applicable law, dispose of any Hazardous Material into, onto
or upon any real property owned or operated by the Borrower or any of its
Subsidiaries.
(b) The Borrower will promptly provide the Banks with copies of any
notice or other instrument of the type described in Section 5.11(c) hereof, and
in no event later than five (5) Business Days after an officer of the Borrower
receives such notice or instrument.
Section 7.13. Investments, Acquisitions, Loans and Advances. The Borrower
will not, nor will it permit any Subsidiary to, directly or indirectly, make,
retain or have outstanding any investments (whether through purchase of stock or
obligations or otherwise) in, or loans or advances to, any other Person, or
acquire all or any substantial part of the assets or business of any other
Person or division thereof (cumulatively, all of the foregoing, being
"Investments"); provided, however, that the foregoing provisions shall not apply
to nor operate to prevent:
(a) investments in readily marketable short term direct obligations
of the United States of America or any other member state of the
Organization of Economic Cooperation and Development (each an "OECD
Country") or any U.S. federal or any OECD Country government agencies or
instrumentalities;
(b) investments in certificates of deposit, time deposits, or
bankers' acceptances issued by commercial banks of recognized standing
organized and supervised in the United States of America or any OECD
Country and having a commercial paper rating in one of the two highest
categories of Standard & Poor's Corporation or Moody's Investor's Service
Inc. or, if not rated by either of such rating agencies, having an
equivalent rating from any nationally recognized rating service in any OECD
Country;
(c) investments in commercial paper rated in one of the two highest
categories by Standard & Poor's Corporation or Moody's Investor's Service
Inc. or, if not rated by either of such rating agencies, having an
equivalent rating from any nationally recognized rating service in any OECD
Country;
(d) investments in other readily marketable debt securities maturing
in three years or less and rated BBB or higher by Standard & Poor's
Corporation and Baa2 or higher by Moody's Investor's Service Inc. or, if
not rated by either of such rating
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agencies, having an equivalent rating from any nationally recognized
rating service in any OECD Country;
(e) investments in repurchase agreements, the underlying securities
for which consist of securities of the type described in clause (a) above,
provided that such repurchase agreements are entered into with a commercial
bank meeting the requirements of clause (b) above;
(f) nonspeculative hedging activities related to investments of the
type referred to in clauses (i) through (e) above;
(g) ownership of stock, obligations or securities received in
settlement of debts (created in the ordinary course of business) owing to
the Borrower or any Subsidiary;
(h) endorsements of negotiable instruments for collection in the
ordinary course of business;
(i) loans and advances to employees of the Borrower or the
Subsidiaries in the ordinary course of business or as approved by the Board
of Directors of the Borrower;
(j) acquisitions of all or any substantial part of the assets or
business of any other Person or division thereof engaged in a line of
business related to that of the Borrower (whether by reason of the nature
of the products sold by such business, the methods of distribution used by
such business or otherwise), or capital stock or other Securities of such a
Person which include at least a majority of the Voting Stock of such Person
(including any such acquisition by way of merger or consolidation),
provided that (i) no Default or Event of Default exists or would exist
after giving effect to such acquisition, (ii) the Board of Directors or
other governing body of such Person whose Property, or Voting Stock or
other interests in which, are being so acquired has approved the terms of
such acquisition, (iii) the aggregate purchase price of any such
acquisition does not exceed $50,000,000, and (iv) no more than one such
acquisition per fiscal year of the Borrower is permitted;
(k) Investments in Subsidiaries;
(l) investments in money market funds that invest solely, and which
are restricted by their respective charters to invest solely, in
investments of the type described in subsections (a), (b), (c) and (d) of
this Section 7.13; and
(m) other Investments, provided that the aggregate amount of any
such Investments at any time outstanding does not exceed $15,000,000.
In determining the amount of investments, loans and advances permitted
under this Section 7.13, investments shall always be taken at the original cost
thereof (regardless of any subsequent appreciation or depreciation therein) and
loans and advances shall be taken at the principal amount thereof then remaining
unpaid.
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Section 7.14. Restrictions on Indebtedness. The Borrower will not, and will
not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness of the Borrower which, when in place, will not
cause the Borrower to be in violation of Sections 7.9 and 7.15-7.17 hereof;
(b) Indebtedness of Subsidiaries of the Borrower (exclusive of
intercompany Indebtedness) which, when in place, will not cause the
Borrower to be in violation of Section 7.14(a), provided that such
Subsidiary Indebtedness shall not exceed an amount equal to 10% of the
Borrower's total assets determined on a consolidated basis in accordance
with GAAP (calculated based upon the most recent consolidated financial
statements of the Borrower delivered pursuant to Section 7.6);
(c) Indebtedness of the Borrower and its Subsidiaries secured by
Liens permitted pursuant to Section 7.9(e) hereof which, when in place,
will not cause the Borrower to be in violation of Sections 7.14(a) or
7.14(b) hereof, provided that the aggregate amount of outstanding
Indebtedness permitted pursuant to this Section 7.14(e) shall not exceed
$25,000,000; and
(d) Indebtedness of any Subsidiary of the Borrower to the Borrower
or to any other Subsidiary of the Borrower.
Section 7.15. Consolidated Net Worth. The Borrower will at all times:
(a) Maintain Consolidated Net Worth of not less than the Minimum
Required Amount; provided that if a change in accounting rules shall take
effect which requires the Borrower to write-down any intangible assets on
its balance sheet, the Banks and the Borrower shall negotiate in good faith
to determine a new consolidated net worth covenant to replace this Section
7.15(a). For purposes of this Section 7.15(a), the "Minimum Required
Amount" shall mean $175,000,000 and shall increase as of the first day of
each fiscal year of the Borrower ending after the Effective Date, by an
amount equal to 50% of the net positive Consolidated Net Income earned each
fiscal year completed after June 30, 1995; and
(b) Maintain Adjusted Domestic Net Worth of not less than the
Domestic Minimum Required Amount; provided that if a change in accounting
rules shall take effect which requires the Borrower to write-down any
intangible assets on its balance sheet, the Banks and the Borrower shall
negotiate in good faith to determine a new adjusted domestic net worth
covenant to replace this Section 7.15(b). For purposes of this Section
7.15(b), the "Domestic Minimum Required Amount" shall mean $110,000,000 and
shall increase as of the first day of each fiscal year of the Borrower
ending after the Effective Date, by an amount equal to 50% of the net
positive Domestic Net Income earned each fiscal year completed after June
30, 1995.
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Section 7.16. Leverage Ratio. The Borrower will, as of the last day of
each fiscal quarter of the Borrower, (i) maintain a Leverage Ratio of not more
than 0.45 to 1.00 and (ii) maintain a Domestic Leverage Ratio of not more than
0.45 to 1.00.
Section 7.17. Interest and Rent Coverage Ratio. The Borrower will, as of
the last day of each fiscal quarter of the Borrower, (i) maintain an Interest
and Rent Coverage Ratio of not less than 3.5 to 1 and (ii) maintain a Domestic
Interest and Rent Coverage Ratio of not less than 3.5 to 1.
Section 7.18. Dividends and Other Shareholder Distributions. (a) The
Borrower shall only declare or pay any dividends or make a distribution of any
kind (including by redemption or purchase) on its outstanding capital stock, if
no Default or Event of Default exists prior to or would result after giving
effect to such action.
(b) The Borrower shall not permit any Subsidiary to enter into any
agreement or instrument which by its terms restricts the ability of such
Subsidiary to (i) declare or pay dividends or make similar distributions, (ii)
repay principal of, or pay any interest on, any Indebtedness owed to the
Borrower or any Subsidiary, (iii) make payments of royalties, licensing fees and
similar amounts to the Borrower or any other Subsidiary, or (iv) make loans or
advances to the Borrower or any other Subsidiary.
Section 7.19. Compliance with Laws. Without limiting any of the other
covenants of the Borrower in this Section Seven, the Borrower will, and will
cause each of its Subsidiaries to, conduct its business, and otherwise be, in
compliance with all applicable laws, regulations, ordinances and orders of any
governmental or judicial authorities; provided, however, that neither the
Borrower nor any Subsidiary of the Borrower shall be required to comply with any
such law, regulation, ordinance or order if the failure to comply therewith
could not reasonably be expected to have a material adverse effect on the
business, operations, property or financial or other condition of the Borrower
individually or the Borrower and its Subsidiaries taken as a whole.
Section 7.20. Guarantees of Certain Material Subsidiaries. If any Material
Subsidiary can execute and deliver a Subsidiary Guarantee Agreement without
causing the undistributed earnings of such Subsidiary (as determined for Federal
income tax purposes) to be treated as a deemed dividend to the Borrower for
Federal income tax purposes or without resulting in any other material adverse
tax consequences, then such Subsidiary shall execute and deliver a Subsidiary
Guaranty Agreement.
Section 8. Events of Default and Remedies.
Section 8.1. Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) default in the payment when due of the principal amount of any
Loan or default in the payment when due of fees, interest or of any other
Obligation and such default shall continue for a period of three days;
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(b) default (i) by the Borrower or any Subsidiary in the observance
or performance of any covenant set forth in the first sentence of Section
7.1 (with respect to the Borrower), 7.10, 7.15, 7.16, 7.17 or 7.18(a)
hereof or (ii) default by the Borrower or any Subsidiary in the observance
or performance of any covenant set forth in Section 7.6(a), 7.9, 7.11,
7.13, 7.14 or 7.18(b) hereof, which is not remedied within five (5)
Business Days after notice thereof shall have been given to the Borrower by
the Administrative Agent;
(c) default by the Borrower or any Subsidiary in the observance or
performance of any provision hereof or of any other Credit Document not
mentioned in (a) or (b) above, which is not remedied within ninety (90)
days after notice thereof shall have been given to the Borrower by the
Administrative Agent;
(d) (i) failure to pay when due Indebtedness in an aggregate
principal amount of $5,000,000 or more of the Borrower or any Subsidiary or
(ii) default shall occur (which is not waived within 10 Business Days from
the date thereof) under one or more indentures, agreements or other
instruments under which any Indebtedness of the Borrower or any Subsidiary
in an aggregate principal amount of $5,000,000 or more is outstanding and
such default shall continue for a period of time sufficient to permit the
holder or beneficiary of such Indebtedness or a trustee therefor to cause
the acceleration of the maturity of any such Indebtedness or any mandatory
unscheduled prepayment, purchase or funding thereof;
(e) any material representation or warranty made herein or in any
other Credit Document by the Borrower or any Subsidiary, or in any
statement or certificate furnished pursuant hereto or pursuant to any other
Credit Document by the Borrower or any Subsidiary, proves untrue in any
material respect as of the date of the issuance or making, or deemed making
or issuance, thereof;
(f) the Borrower or any Material Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States
Bankruptcy Code, as amended, or any analogous action is taken under any
other applicable law relating to bankruptcy or insolvency, (ii) fail to
pay, or admit in writing its inability to pay, its debts generally as they
become due, (iii) make an assignment for the benefit of creditors, (iv)
apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, examiner, liquidator or similar official for
it or any substantial part of its Property, (v) institute any proceeding
seeking to have entered against it an order for relief under the United
States Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to
file within the period provided therefor an answer or other pleading
denying the material allegations of any such proceeding filed against it,
(vi) take any corporate action (such as the passage by the Borrower's board
of directors of a resolution) in furtherance of any matter described in
parts (i)-(v) above, or (vii) fail to contest in good faith any appointment
or proceeding described in Section 8.1(g) hereof;
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(g) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any Material Subsidiary or
any substantial part of any of their Property, or a proceeding described in
Section 8.1(f)(v) shall be instituted against the Borrower or any Material
Subsidiary, and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of sixty (60) days;
(h) the Borrower or any Subsidiary shall fail within thirty (30)
days to pay, bond or otherwise discharge any judgment or order for the
payment of money in excess of $5,000,000, which is not stayed on appeal or
otherwise being appropriately contested in good faith in a manner that
stays execution thereon;
(i) the Borrower or any other member of the Controlled Group shall
fail to pay when due an amount or amounts exceeding $2,000,000 which it
shall have become liable to pay to the PBGC or to a Plan or a Multiemployer
Plan under Title IV of ERISA; or notice of intent to terminate a Plan or
Plans having aggregate Unfunded Vested Liabilities in excess of $2,000,000
(collectively, a "Material Plan") shall be filed under Title IV of ERISA by
the Borrower or any Subsidiary or any other member of the Controlled Group,
any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any Material Plan or a
proceeding shall be instituted by a fiduciary of any Material Plan against
the Borrower or any other member of the Controlled Group to enforce Section
515 or 4219(c)(5) of ERISA and such proceeding shall not have been
dismissed within thirty (30) days thereafter; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating
that any Material Plan must be terminated;
(j) the Borrower or any Subsidiary, or any Person acting on behalf
of the Borrower or a Subsidiary, or any governmental authority challenges
the validity of any Credit Document or the Borrower's or a Subsidiary's
obligations thereunder or any Credit Document ceases to be in full force
and effect in any material respect or is materially modified other than in
accordance with the terms thereof and hereof; or
(k) subject to the rights of holders of Liens permitted by this
Agreement, the Obligations shall cease to rank at least pari passu in right
of payment with all other senior obligations of the Borrower.
Section 8.2. Non-Bankruptcy Defaults and Change of Control. When any Event
of Default other than those described in subsections (f) or (g) of Section 8.1
hereof with respect to the Borrower has occurred and is continuing or a Change
of Control Event has occurred, the Administrative Agent shall, by written notice
to the Borrower, if so directed by the Required Banks: (a) terminate the
remaining Commitments and all other obligations of the Banks hereunder on the
date stated in such notice (which may be the date thereof); and (b) declare the
principal of and the accrued interest on all outstanding Notes to be forthwith
due and payable and thereupon all outstanding Notes, including both principal
and interest thereon, shall be and become immediately due and payable together
with all other amounts payable under the Credit Documents without further
demand, presentment, protest or notice
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of any kind. The Administrative Agent, after giving notice to the Borrower
pursuant to Section 8.1(b) or (c) or this Section 8.2, shall also promptly send
a copy of such notice to the other Banks, but the failure to do so shall not
impair or annul the effect of such notice. In the event a Change of Control
Event has occurred, the Required Banks agree to cause the Administrative Agent
to notify the Borrower no later than 60 days from the date the Borrower delivers
notice of such Change of Control Event to the Administrative Agent whether or
not the Required Banks intend to exercise any remedies set forth herein on
account of the occurrence thereof.
Section 8.3. Bankruptcy Defaults. When any Event of Default described in
subsections (f) or (g) of Section 8.1 hereof has occurred and is continuing with
respect to the Borrower, then all outstanding Notes shall immediately become due
and payable together with all other amounts payable under the Credit Documents
without presentment, demand, protest or notice of any kind, and the obligation
of the Banks to extend further credit pursuant to any of the terms hereof shall
immediately terminate.
Section 8.4. Expenses. The Borrower agrees to pay to the Administrative
Agent and each Bank, and any other holder of any Note outstanding hereunder, all
costs and expenses incurred or paid by the Administrative Agent or such Bank or
any such holder, including reasonable attorneys' fees and court costs, in
connection with the enforcement of any of the Credit Documents.
Section 9. Change in Circumstances.
Section 9.1. Change of Law. Notwithstanding any other provisions of this
Agreement or any Note, if at any time after the date hereof any change in
applicable law or regulation or in the interpretation thereof makes it
unlawful for any Bank to make or continue to maintain Eurodollar Loans or to
perform its obligations as contemplated hereby, such Bank shall promptly give
notice thereof to the Borrower and such Bank's obligations to make or maintain
Eurodollar Loans under this Agreement shall be suspended until it is no longer
unlawful for such Bank to make or maintain Eurodollar Loans. To the extent such
change makes it unlawful for such Bank to maintain outstanding Eurodollar Loans
to the end of the then applicable Interest Period therefor, the Borrower shall
prepay on demand the outstanding principal amount of any such affected
Eurodollar Loans, together with all interest accrued thereon at a rate per annum
equal to the interest rate applicable to such Loan; provided, however, that the
Borrower may then elect to borrow the principal amount of the affected
Eurodollar Loans from such Bank by means of Base Rate Loans from such Bank,
which Base Rate Loans shall not be made ratably by the Banks but only from such
affected Bank.
Section 9.2. Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period
for any Borrowing of Eurodollar Loans:
(a) the Administrative Agent determines that deposits in U.S.
Dollars (in the applicable amounts) are not generally being offered in the
eurodollar interbank market for such Interest Period, or that by reason of
circumstances affecting the interbank
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eurodollar market adequate and reasonable means do not exist for
ascertaining the applicable LIBOR, or
(b) Banks having 50% or more of the aggregate amount of the
Commitments reasonably determine and so advise the Administrative Agent
that LIBOR will not adequately and fairly reflect the cost to such Banks or
Bank of funding their or its Eurodollar Loans or Loan for such Interest
Period,
then the Administrative Agent shall forthwith give notice thereof to the
Borrower and the Banks, whereupon until the Administrative Agent notifies the
Borrower that the circumstances giving rise to such suspension no longer exist,
the obligations of the Banks or of the relevant Bank to make Eurodollar Loans
shall be suspended.
Section 9.3. Increased Cost and Reduced Return. (a) If, on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Lending Office) with any request or directive (whether or not having the force
of law but, if not having the force of law, compliance with which is customary
in the relevant jurisdiction) of any such authority, central bank or comparable
agency:
(i) shall subject any Bank (or its Lending Office) to any tax, duty
or other charge with respect to its Eurodollar Loans, its Notes, or its
obligation to make Eurodollar Loans, or shall change the basis of taxation
of payments to any Bank (or its Lending Office) of the principal of or
interest on its Eurodollar Loans, or any other amounts due under this
Agreement in respect of its Eurodollar Loans, or its obligation to make
Eurodollar Loans (except for changes in the rate of tax on the overall net
income or profits of such Bank or its Lending Office imposed by the
jurisdiction in which such Bank or its Lending Office is incorporated or
located or in which such Bank's principal executive office or Lending
Office is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding with respect to any Eurodollar Loans any such
requirement included in an applicable Eurodollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit extended
by, any Bank (or its Lending Office) with respect to, or shall impose on
any Bank (or its Lending Office) any other condition affecting, its
Eurodollar Loans, its Notes, or its obligation to make Eurodollar Loans
(other than as provided in (i) above);
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Eurodollar Loan, or to reduce
the amount of any sum received or receivable by such Bank (or its Lending
Office) under this Agreement or under its Notes with respect thereto, by an
amount deemed by such Bank to be material, then, subject to the further
provisions of this Section 9.3, within fifteen (15) days after demand by such
Bank (with a copy to the Administrative Agent), the Borrower shall be obligated
to pay to
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such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
(b) If on or after the date hereof, any Bank shall have determined that
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein (including, without limitation, any revision in
the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal
Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of
the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), or in
any other applicable capital rules heretofore adopted and issued by any
governmental authority), or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Lending Office) with any request or directive regarding capital adequacy
made after the Effective Date (whether or not having the force of law but, if
not having the force of law, compliance with which is customary in the
applicable jurisdiction) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Bank's capital, or on the capital of any corporation controlling such Bank, as a
consequence of its obligations hereunder to a level below that which such Bank
could have achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, subject to
the further provisions of this Section 9.3, within fifteen (15) days after
demand by such Bank (with a copy to the Administrative Agent), the Borrower
shall pay to such Bank such additional amount or amounts as will compensate such
Bank for such reduction.
(c) Each Bank that determines to seek compensation under this Section 9.3
shall notify the Borrower and the Administrative Agent of the circumstances that
entitle the Bank to such compensation pursuant to this Section 9.3 and will
designate a different Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the sole
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section 9.3 and setting forth the
additional amount or amounts to be paid to it hereunder, if prepared in good
faith and reasonably calculated, shall be conclusive in the absence of manifest
error. In determining such amount, such Bank may use any reasonable averaging
and attribution methods.
(d) Notwithstanding any other provision of this Section 9, each Bank
will, to the extent the increased costs or reductions in amounts receivable
above relate to such Bank's loans or commitments in general and are not
specifically attributable to a Loan or Commitment hereunder, use averaging and
attribution methods which cover all loans and commitments similar to the Loans
and Commitments made by such Bank in similar circumstances, whether or not the
loan documentation for such other loans and commitments permits the Bank to make
the determinations specified in this Section 9.
(e) Notwithstanding anything in this Agreement to the contrary, to the
extent any notice or request required by Section 2.10, 9.3 or 12.1 is given by
any Bank more than 90 days after such Bank obtains knowledge of the occurrence
of the event giving rise to additional costs, reductions in amounts, losses,
taxes or other additional amounts of the type described in said Sections, such
Bank shall not be entitled to compensation under Section 2.10,
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9.3 or 12.1, as the case may be, for any amounts incurred or accruing prior to
the giving of such notice to the Borrower.
Section 9.4. Lending Offices. Subject to the provisions of Section 9.3(c),
each Bank may, at its option, elect to make its Loans hereunder at the branch,
office or affiliate specified on the appropriate signature page hereof or in the
assignment agreement which any assignee bank executes pursuant to Section 12.12
hereof (each a "Lending Office") for each type of Loan available hereunder or at
such other of its branches, offices or affiliates as it may from time to time
elect and designate in a written notice to the Borrower and the Administrative
Agent.
Section 9.5. Discretion of Bank as to Manner of Funding. Notwithstanding
any other provision of this Agreement, each Bank shall be entitled to fund and
maintain its funding of all or any part of its Loans in any manner it sees fit,
it being understood, however, that for the purposes of this Agreement all
determinations under Section 2.10 hereof shall be made as if each Bank had
actually funded and maintained each Eurodollar Loan through the purchase of
deposits of U.S. Dollars in the eurodollar interbank market having a maturity
corresponding to such Loan's Interest Period and bearing an interest rate equal
to LIBOR for such Interest Period.
Section 10. The Agent.
Section 10.1. Appointment and Authorization of Administrative Agent. Each
Bank hereby appoints ABN AMRO Bank N.V. as the Administrative Agent under the
Credit Documents and hereby authorizes the Administrative Agent to take such
action as Administrative Agent on its behalf and to exercise such powers under
the Credit Documents as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are reasonably incidental thereto. The
relationship between the Administrative Agent and the Banks is and shall be that
of agent and principal only, and nothing contained in this Agreement or any
other Credit Document shall be construed to constitute the Administrative Agent
as a trustee or fiduciary for any Bank or the Borrower. The term "Bank" as used
herein and in all other Credit Documents, unless the context otherwise clearly
requires, includes the Administrative Agent in its individual capacity as a
Bank.
Section 10.2. Administrative Agent and its Affiliates. The Administrative
Agent shall have the same rights and powers under this Agreement and the other
Credit Documents as any other Bank and may exercise or refrain from exercising
the same as though it were not the Administrative Agent, and the Administrative
Agent and its affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with the Borrower or any Affiliate of the
Borrower as if it were not the Administrative Agent under the Credit Documents.
Section 10.3. Action by Administrative Agent. If the Administrative Agent
receives from the Borrower a written notice of an Event of Default pursuant to
Section 7.6(c)(i) hereof, the Administrative Agent shall promptly give each of
the Banks written notice thereof. The obligations of the Administrative Agent
under the Credit Documents are only those
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expressly set forth therein. Without limiting the generality of the foregoing,
the Administrative Agent shall not be required to take any action hereunder with
respect to any Default or Event of Default, except as expressly provided in
Sections 8.2 and 8.3. In no event, however, shall the Administrative Agent be
required to take any action in violation of applicable law or of any provision
of any Credit Document, and the Administrative Agent shall in all cases be fully
justified in failing or refusing to act hereunder or under any other Credit
Document unless it shall be first indemnified to its reasonable satisfaction by
the Banks against any and all costs, expense, and liability which may be
incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall be entitled to assume that no Default or Event of
Default exists unless notified to the contrary by a Bank or the Borrower. In all
cases in which this Agreement and the other Credit Documents do not require the
Administrative Agent to take certain actions, the Administrative Agent shall be
fully justified in using its discretion in failing to take or in taking any
action hereunder and thereunder.
Section 10.4. Consultation with Experts. The Administrative Agent may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 10.5. Liability of Administrative Agent; Credit Decision. Neither
the Administrative Agent nor any of its directors, officers, agents, or
employees shall be liable for any action taken or not taken by it in connection
with the Credit Documents (i) with the consent or at the request of the Required
Banks or (ii) in the absence of its own gross negligence or willful misconduct.
Neither the Administrative Agent nor any of its directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement, any other Credit Document or any Credit Event; (ii) the
performance or observance of any of the covenants or agreements of the Borrower
or any Guarantor or any other party contained herein or in any other Credit
Document; (iii) the satisfaction of any condition specified in Section 6 hereof,
except receipt of items required to be delivered to the Administrative Agent; or
(iv) the validity, effectiveness, genuineness, enforceability, perfection,
value, worth or collectibility hereof or of any other Credit Document or of any
other documents or writing furnished in connection with any Credit Document; and
the Administrative Agent makes no representation of any kind or character with
respect to any such matter mentioned in this sentence. The Administrative Agent
may execute any of its duties under any of the Credit Documents by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Banks, the Borrower, or any Guarantor or any other Person for the default or
misconduct of any such agents or attorneys-in-fact selected with reasonable
care. The Administrative Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, other document or statement
(whether written or oral) believed by it to be genuine or to be sent by the
proper party or parties. In particular and without limiting any of the
foregoing, the Administrative Agent shall have no responsibility for confirming
the accuracy of any Compliance Certificate or other document or instrument
received by it under the Credit Documents. The Administrative Agent may treat
the payee of any Note as the holder thereof until written notice of transfer
shall have been filed with the Administrative Agent signed by such payee in form
satisfactory to the Administrative Agent.
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Each Bank acknowledges that it has independently and without reliance on the
Administrative Agent or any other Bank, and based upon such information,
investigations and inquiries as it deems appropriate, made its own credit
analysis and decision to extend credit to the Borrower in the manner set forth
in the Credit Documents. It shall be the responsibility of each Bank to keep
itself informed as to the creditworthiness of the Borrower or any Guarantor and
any other relevant Person, and the Administrative Agent shall have no liability
to any Bank with respect thereto.
Section 10.6. Indemnity. The Banks shall ratably, in accordance with their
respective Percentages, indemnify and hold the Administrative Agent, and its
directors, officers, employees, agents and representatives harmless from and
against any liabilities, losses, costs or expenses suffered or incurred by it
under any Credit Document or in connection with the transactions contemplated
thereby, regardless of when asserted or arising, except to the extent they are
promptly reimbursed for the same by the Borrower or the Agent has not, if
permitted by applicable law, made written demand for reimbursement on the
Borrower and except to the extent that any event giving rise to a claim was
caused by the gross negligence or willful misconduct of the party seeking to be
indemnified. To the extent the Administrative Agent is fully reimbursed by the
Banks pursuant to this Section 10.6 for any liabilities, losses, costs or
expenses and is subsequently reimbursed by the Borrower for such liabilities,
losses, costs or expenses, the Administrative Agent shall distribute to such
Banks, pro rata based upon the amount each Bank paid to the Administrative
Agent, any such amounts so reimbursed by the Borrower. The obligations of the
Banks under this Section 10.6 shall survive termination of this Agreement.
Section 10.7. Resignation of Administrative Agent and Successor
Administrative Agent. ABN AMRO Bank N.V. agrees that, for so long as it or any
of its Affiliates is a Bank hereunder, it shall continue to serve as the
Administrative Agent. Subject to the foregoing, the Administrative Agent may
resign at any time by giving written notice thereof to the Banks and the
Borrower. Upon any such resignation of the Administrative Agent, the Required
Banks shall have the right to appoint a successor Administrative Agent with the
consent of the Borrower. If no successor Administrative Agent shall have been so
appointed by the Required Banks with the consent of the Borrower, and shall have
accepted such appointment, within thirty (30) days after the retiring
Administrative Agent's giving of notice of resignation, then the retiring
Administrative Agent may, on behalf of the Banks with the consent of the
Borrower, appoint a successor Administrative Agent, which shall be any Bank
hereunder or any commercial bank organized under the laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $200,000,000. Upon the acceptance of its appointment as the
Administrative Agent hereunder, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Agent under the Credit Documents, and the retiring
Administrative Agent shall be discharged from any further duties or obligations
thereunder. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Section 10 and all protective
provisions of the other Credit Documents shall inure to its benefits as to any
actions taken or omitted to be taken by it while it was Administrative Agent.
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Section 11. The Guarantees.
Section 11.1. The Guarantees. To induce the Banks to provide the credits
described herein and in consideration of benefits expected to accrue to each
Guarantor by reason of the Commitments and for other good and valuable
consideration, receipt of which is hereby acknowledged, each Guarantor hereby
unconditionally and irrevocably guarantees jointly and severally to the
Administrative Agent, the Banks, and each other holder of an Obligation, the due
and punctual payment of all present and future indebtedness of the Borrower
evidenced by or arising out of the Credit Documents, including, but not limited
to, the due and punctual payment of principal of and interest on the Notes and
the due and punctual payment of all other Obligations now or hereafter owed by
the Borrower under the Credit Documents as and when the same shall become due
and payable, whether at stated maturity, by acceleration or otherwise, according
to the terms hereof and thereof. In case of failure by the Borrower punctually
to pay any indebtedness or other Obligations guaranteed hereby, each Guarantor
hereby unconditionally agrees jointly and severally to make such payment or to
cause such payment to be made punctually as and when the same shall become due
and payable, whether at stated maturity, by acceleration or otherwise, and as if
such payment were made by the Borrower.
Section 11.2. Guarantee Unconditional. The obligations of each Guarantor as
a guarantor under this Section 11 shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Borrower or of any other
Guarantor under this Agreement or any other Credit Document or by operation
of law or otherwise;
(b) any modification or amendment of or supplement to this Agreement
or any other Credit Document;
(c) any change in the corporate existence, structure or ownership
of, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting, the Borrower, any other Guarantor, or any of their
respective assets, or any resulting release or discharge of any obligation
of the Borrower or of any other Guarantor contained in any Credit Document;
(d) the existence of any administrative claim, set-off or other
rights which the Guarantor may have at any time against the Administrative
Agent, any Bank or any other Person, whether or not arising in connection
herewith;
(e) any failure to assert, or any assertion of, any claim or demand
or any exercise of, or failure to exercise, any rights or remedies against
the Borrower, any other Guarantor or any other Person or Property;
(f) any application of any sums by whomsoever paid or howsoever
realized to any obligation of the Borrower, regardless of what obligations
of the Borrower remain unpaid;
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(g) any invalidity or unenforceability relating to or against the
Borrower or any other Guarantor for any reason of this Agreement or of any
other Credit Document or any provision of applicable law or regulation
purporting to prohibit the payment by the Borrower or any other Guarantor
of the principal of or interest on any Note or any other amount payable by
it under the Credit Documents; or
(h) any other act or omission to act or delay of any kind by the
Administrative Agent, any Bank or any other Person or any other
circumstance whatsoever that might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of the obligations of
the Guarantor under this Section 11.
Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances. Each Guarantor's obligations under this Section 11
shall remain in full force and effect until the Commitments are terminated and
the principal of and interest on the Notes and all other amounts payable by the
Borrower under this Agreement and all other Credit Documents shall have been
paid in full. If at any time any payment of the principal of or interest on any
Note or any other amount payable by the Borrower under the Credit Documents is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Borrower or of a Guarantor, or otherwise,
each Guarantor's obligations under this Section 11 with respect to such payment
shall be reinstated at such time as though such payment had become due but had
not been made at such time.
Section 11.4. Waivers. (a) General. Each Guarantor irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by the
Administrative Agent, any Bank or any other Person against the Borrower, another
Guarantor or any other Person.
(b) Subrogation and Contribution. Each Guarantor hereby irrevocably
waives any claim or other right it may now or hereafter acquire against the
Borrower or any other Guarantor that arises from the existence, payment,
performance or enforcement of such Guarantor's obligations under this Section 11
or any other Credit Document, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, or any
right to participate in any claim or remedy of the Administrative Agent, any
Bank or any other holder of an Obligation against the Borrower or any other
Guarantor whether or not such claim, remedy or right arises in equity or under
contract, statute or common law, including, without limitation, the right to
take or receive from the Borrower or any other Guarantor directly or indirectly,
in cash or other property or by set-off or in any other manner, payment or
security on account of such claim or other right.
Section 11.5. Limit on Recovery. Notwithstanding any other provision
hereof, the right to recovery of the holders of the Obligations against each
Guarantor under this Section 11 shall not exceed $1.00 less than the amount
which would render such Guarantor's obligations under this Section 11 void or
voidable under applicable law, including without limitation fraudulent
conveyance law.
Section 11.6. Stay of Acceleration. If acceleration of the time for payment
of any amount payable by the Borrower under this Agreement or any other Credit
Document is
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stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all
such amounts otherwise subject to acceleration under the terms of this Agreement
or the other Credit Documents shall nonetheless be payable jointly and severally
by the Guarantors hereunder forthwith on demand by the Administrative Agent made
at the request of the Required Banks.
Section 12. Miscellaneous.
Section 12.1. Withholding Taxes. (a) Payments Free of Withholding. Subject
to the submission by each Bank that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) of forms concerning its complete
exemption from United States withholding taxes pursuant to Section 12.1(b)
hereof, and such form not being withdrawn pursuant to Section 12.1(c) hereof,
each payment by the Borrower and each Guarantor under this Agreement or the
other Credit Documents shall be made without withholding for or on account of
any present or future taxes (other than overall net income taxes on the
recipient). If any such withholding is so required, the Borrower or relevant
Guarantor shall make the withholding, pay the amount withheld to the appropriate
governmental authority before penalties attach thereto or interest accrues
thereon and forthwith pay such additional amount as may be necessary to ensure
that the net amount actually received by each Bank and the Administrative Agent
free and clear of such taxes (including such taxes on such additional amount) is
equal to the amount which that Bank or the Administrative Agent (as the case may
be) would have received had such withholding not been made provided, the
Borrower shall not be obligated pursuant to this Section 12.1(a) to gross-up
payments to be made to a Bank in respect of income or similar taxes imposed by
the United States if, subject to Section 12(c), such Bank has not provided to
the Borrower the forms required to be provided to the Borrower pursuant to
Section 12.1(b) or to the extent that such forms do not establish a complete
exemption from withholding of such taxes. If the Administrative Agent or any
Bank pays any amount in respect of any such taxes, penalties or interest the
Borrower shall reimburse the Administrative Agent or that Bank for that payment
on demand in the currency in which such payment was made. If the Borrower or any
Guarantor pays any such taxes, penalties or interest, it shall deliver official
tax receipts evidencing that payment or certified copies thereof to the Bank or
Administrative Agent on whose account such withholding was made (with a copy to
the Administrative Agent if not the recipient of the original) on or before the
thirtieth day after payment. If any Bank or the Administrative Agent determines
it has received or been granted a credit against or relief or remission for, or
repayment of, any taxes paid or payable by it because of any taxes, penalties or
interest paid by the Borrower or any Guarantor and evidenced by such a tax
receipt, such Bank or Administrative Agent shall, to the extent it can do so
without prejudice to the retention of the amount of such credit, relief,
remission or repayment, pay to the Borrower or such Guarantor, as applicable
such amount as such Bank or Administrative Agent reasonably determines is
attributable to such deduction or withholding and which will leave such Bank or
Administrative Agent (after such payment) in no better or worse position than it
would have been in if the Borrower had not been required to make such deduction
or withholding. Except as provided in Section 12.1(b), nothing in this Agreement
shall interfere with the right of each Bank and the Administrative Agent to
arrange its tax affairs in whatever manner it thinks fit nor oblige any Bank or
the Administrative Agent to disclose any information relating to its tax affairs
or any computations in connection with such taxes.
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(b) U.S. Withholding Tax Exemptions. Each Bank that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Borrower and the Administrative Agent on or before (i) in the case
of Banks party to this Agreement as of the date hereof, the earlier of the date
the initial Borrowing is made hereunder and thirty (30) days after the date
hereof, and (ii) in the case of a Bank that subsequently becomes a party hereto,
the effective date of the applicable assignment or amendment, two duly completed
and signed copies of either Form 1001 (relating to such Bank and entitling it to
a complete exemption from withholding under the Code on all amounts to be
received by such Bank, including fees, pursuant to the Credit Documents and the
Loans) or Form 4224 (relating to all amounts to be received by such Bank,
including fees, pursuant to the Credit Documents and the Loans) of the United
States Internal Revenue Service, or any successor forms thereto. Thereafter and
from time to time, each Bank shall submit to the Borrower and the Administrative
Agent such additional duly completed and signed copies of one or the other of
such Forms (or such successor forms as shall be adopted from time to time by the
relevant United States taxing authorities) as may be (i) requested by the
Borrower in a written notice, directly or through the Administrative Agent, to
such Bank and (ii) required under then-current United States law or regulations
to avoid or reduce United States withholding taxes on payments in respect of all
amounts to be received by such Bank, including fees, pursuant to the Credit
Documents or the Loans.
(c) Inability of Bank to Submit Forms. If any Bank determines, as a
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Borrower or Administrative Agent any form or certificate that such Bank is
obligated to submit pursuant to subsection (b) of this Section 12.1 or that such
Bank is required to withdraw or cancel any such form or certificate previously
submitted or any such form or certificate otherwise becomes ineffective or
inaccurate, such Bank shall promptly notify the Borrower and Administrative
Agent of such fact and the Bank shall to that extent not be obligated to provide
any such form or certificate and will be entitled to withdraw or cancel any
affected form or certificate, as applicable.
Section 12.2. No Waiver of Rights. No delay or failure on the part of the
Administrative Agent or any Bank or on the part of the holder or holders of any
Note in the exercise of any power or right under any Credit Document shall
operate as a waiver thereof, nor as an acquiescence in any default, nor shall
any single or partial exercise thereof preclude any other or further exercise of
any other power or right, and the rights and remedies hereunder of the
Administrative Agent, the Banks and the holder or holders of any Notes are
cumulative to, and not exclusive of, any rights or remedies which any of them
would otherwise have.
Section 12.3. Non-Business Day. Subject to the definition of Interest
Period, if any payment of principal or interest on any Loan or of any other
Obligation shall fall due on a day which is not a Business Day, such payment
shall be due on the following Business Day and interest or fees (as applicable)
at the rate, if any, such Loan or other Obligation bears for the period prior to
maturity shall continue to accrue on such Obligation from the stated due date
thereof to and including the next succeeding Business Day.
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Section 12.4. Documentary Taxes. The Borrower agrees that it will pay any
documentary, stamp or similar taxes payable in respect to any Credit Document,
including interest and penalties, in the event any such taxes are assessed,
irrespective of when such assessment is made and whether or not any credit is
then in use or available hereunder.
Section 12.5. Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Credit Documents, and
shall continue in full force and effect with respect to the date as of which
they were made as long as any credit is in use or available hereunder.
Section 12.6. Survival of Indemnities. All indemnities and all other
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield of the Banks with respect to the Loans, including, but not
limited to, Section 2.10, Section 9.3 and Section 12.15 hereof, shall survive
the termination of this Agreement and the other Credit Documents and the payment
of the Loans and all other Obligations.
Section 12.7. Set-Off. (a) In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default, each
Bank and each subsequent holder of any Note is hereby authorized by the Borrower
and each Guarantor at any time or from time to time, without prior notice to the
Borrower or the Guarantors or to any other Person, to set off and to appropriate
and to apply any and all deposits (general or special, including, but not
limited to, Indebtedness evidenced by certificates of deposit, whether matured
or unmatured, and in whatever currency denominated) and any other Indebtedness
at any time held or owing by that Bank or that subsequent holder to or for the
credit or the account of the Borrower or any Guarantor, whether or not matured,
against and on account of the obligations and liabilities of the Borrower or any
Guarantor to that Bank or that subsequent holder under the Credit Documents,
including, but not limited to, all claims of any nature or description arising
out of or connected with the Credit Documents, irrespective of whether or not
(a) that Bank or that subsequent holder shall have made any demand hereunder or
(b) the principal of or the interest on the Loans or Notes and other amounts due
hereunder shall have become due and payable pursuant to Section 8 and although
said obligations and liabilities, or any of them, may be contingent or
unmatured. Each Bank and such subsequent holder shall promptly notify the
Borrower and the Administrative Agent after any such set off and application,
provided that the failure to give such notice shall not affect the validity of
such set off and application.
(b) Each Bank agrees with each other Bank a party hereto that if such
Bank shall receive and retain any payment, whether by set-off or application of
deposit balances or otherwise, on any of the Loans in excess of its ratable
share of payments on all such obligations then outstanding to the Banks, then
such Bank shall purchase for cash at face value, but without recourse, ratably
from each of the other Banks such amount of the Loans held by each such other
Banks (or interest therein) as shall be necessary to cause such Bank to share
such excess payment ratably with all the other Banks; provided, however, that if
any such purchase is made by any Bank, and if such excess payment or part
thereof is thereafter recovered from such purchasing Bank, the related purchases
from the other Banks shall be
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rescinded ratably and the purchase price restored as to the portion of such
excess payment so recovered, but without interest.
Section 12.8. Notices. Except as otherwise specified herein, all notices
under the Credit Documents shall be in writing (including telecopy or other
electronic communication) and shall be given to a party hereunder at its address
or telecopier number set forth below or such other address or telecopier number
as such party may hereafter specify by notice to the Administrative Agent and
the Borrower, given by courier, by United States certified or registered mail,
or by telecommunication device capable of creating a written record of such
notice and its receipt. Notices under the Credit Documents to the Banks shall
be addressed to their respective addresses, telecopier or telephone numbers set
forth on the signature pages hereof or in the assignment agreement which any
assignee bank executes pursuant to Section 12.12 hereof, and to the Borrower,
the Guarantors and to the Administrative Agent to:
If to the Borrower and/or the Guarantors:
Viking Office Products, Inc.
879 West 190th Street
Gardena, California 90248
Attention: Ms. Carolyn Clarke, Corporate Treasurer
Telecopy: (310) 225-4513
Telephone: (310) 225-4209
If to the Administrative Agent:
Agency Services
335 Madison Avenue
New York, New York 10017
Attention: Linda Boardman
Telecopy: (212) 682-0364
Telephone: (212) 370-8509
Each such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 12.8 or on the signature pages hereof and a
confirmation of receipt of such telecopy has been received by the sender if such
transmission occurs on any Business Day prior to 5:00 p.m., local time, or on
the next succeeding Business Day if such transmission occurs on a non-Business
Day or after 5:00 p.m., local time, (ii) if given by courier, when delivered if
such delivery occurs on any Business Day prior to 5:00 p.m., local time, or on
the next succeeding Business Day if such delivery occurs on a non-Business Day
or after 5:00 p.m., local time, (iii) if given by mail, three Business Days
after such communication is deposited in the mail, registered with return
receipt requested, addressed as aforesaid or (iv) if given by any other means,
when delivered at the addresses specified in this Section 12.8; provided that
any notice given pursuant to Section 2 hereof shall be effective only upon
receipt.
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Section 12.9. Counterparts. This Agreement may be executed in any number of
counterpart signature pages, and by the different parties on different
counterparts, each of which when executed shall be deemed an original but all
such counterparts taken together shall constitute one and the same instrument.
Section 12.10. Successors and Assigns. This Agreement shall be binding upon
the Borrower and its successors and assigns, and shall inure to the benefit of
each of the Banks and the benefit of their respective successors and assigns,
including any subsequent holder of any Note. The Borrower may not assign any of
its rights or obligations under any Credit Document without the written consent
of all of the Banks.
Section 12.11. Participants and Note Assignees. Each Bank shall have the
right at its own cost to grant participations (to be evidenced by one or more
agreements or certificates of participation) in the Loans made and Commitments
held by such Bank at any time and from time to time, and to assign its rights
under such Loans or the Note evidencing such Loans to a federal reserve bank;
provided that (i) no such participation or assignment shall relieve any Bank of
any of its obligations under this Agreement, and such Bank shall remain solely
responsible to the Borrower for the performance of such obligations, (ii) no
such assignee or participant shall have any rights under this Agreement or any
other Credit Documents except as provided in this Section 12.11 or shall
constitute a "Bank" hereunder, (iii) the Borrower shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement and the other Credit Documents, and (iv) the
Administrative Agent shall have no obligation or responsibility to such
participant or assignee, except that nothing herein is intended to affect the
rights of a Federal Reserve Bank to enforce the Note assigned. Any party to
which such a participation or assignment has been granted shall have the
benefits of Section 2.10 and Section 9.3, but shall not be entitled to receive
any greater payment under either such Section than the Bank granting such
participation would have been entitled to receive in connection with the rights
transferred. Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of the Borrower and Guarantors
hereunder, including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement that would (A) increase any
Commitment of such Bank if such increase would also increase the participant's
obligations, (B) forgive any amount of or postpone the date for payment of any
principal of or interest on any Loan or of any fee payable hereunder in which
such participant has an interest or (C) reduce the stated rate at which
interest or fees in which such participant has an interest accrue hereunder.
Section 12.12. Assignment of Commitments by Banks. Each Bank shall have the
right at any time, with the written consent of the Borrower and Administrative
Agent (which consent shall not be unreasonably withheld or delayed), at its own
cost to assign all or any part of its Commitment (including the same percentage
of its Note and outstanding Loans) to one or more other Persons; provided that
such assignment is in an amount of at least $10,000,000 or the entire Commitment
of such Bank, and if such assignment is not for such Bank's entire Commitment
then such Bank's Commitment after giving effect to such assignment shall not be
less than $10,000,000; and provided further that neither the consent of the
Borrower nor of
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the Administrative Agent shall be required for any Bank to assign all of its
Commitment to its parent company or any Affiliate of the assigning Bank which is
at least 50% owned by such Bank or its parent company; and provided further,
subject to the provisions of the preceding clause of this Section 12.12, at all
times that this Agreement is in effect, the Administrative Agent, in its
capacity as a Bank hereunder, shall retain a Commitment in an amount of at least
$10,000,000. Each such assignment shall be made pursuant to an Assignment and
Assumption Agreement which shall, among other things, set forth the assignee's
address for notices to be given under Section 12.8 hereunder and its designated
Lending Office pursuant to Section 9.4 hereof. Upon any such assignment,
delivery to the Administrative Agent and the Borrower of an executed copy of
such assignment, delivery to the Administrative Agent and the Borrower of an
executed copy of such assignment agreement and the forms referred to in Section
12.1 hereof, if applicable, and the payment of a $3,000 recordation fee to the
Administrative Agent, the assignee shall become a Bank hereunder, all Loans and
the Commitment it thereby holds shall be governed by all the terms and
conditions hereof and the Bank granting such assignment shall have its
COmmitment, and its obligations and rights in connection therewith, reduced by
the amount of such assignment. The Administrative Agent shall provide prompt
notice of the effective date of any such assignment to the Borrower.
Section 12.13 Amendments. Any provision of the Credit Documents may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by (a) two Authorized Representatives of the Borrower, (b) the Required
Banks, and (c) if the rights or duties of the Administrative Agent are affected
thereby, the Administrative Agent; provided that:
(i) no amendment or waiver pursuant to this Section 12.13 shall (A)
increase or extend the term of any Commitment of any Bank without the
consent of such Bank or (B) reduce the amount of or postpone any fixed date
for payment of any principal of or interest on any Loan or of any fee
payable hereunder without the written consent of each Bank; and
(ii) no amendment or waiver pursuant to this Section 12.13 shall,
unless signed by each Bank, change this Section 12.13, or the definition of
Required Banks, or affect the number of Banks required to take any action
under the Credit Documents, or release any Guarantor from its guaranty of
any Obligations.
Section 12.14. Headings. Section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
Section 12.15. Legal Fees, Other Costs and Indemnification. The Borrower
agrees to pay all reasonable costs and expenses of the Administrative Agent in
connection with the preparation and negotiation of the Credit Documents,
including without limitation, the reasonable fees and disbursements of Chapman
and Cutler, counsel to the Administrative Agent, in connection with the
preparation and execution of the Credit Documents up to the amount set forth in
the Fee Letter, and any amendment, waiver or consent related hereto, whether or
not the transactions contemplated herein are consummated, except that under no
circumstances shall the Borrower be responsible for costs and expenses incurred
solely in connection with the execution of participations and assignments
pursuant to Sections 12.11 or 12.12. The Borrower further agrees to indemnify
each Bank, the Administrative Agent, and
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their respective directors, agents, officers, employees and attorneys
(collectively, the "Indemnities"), against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation
but subject to the further provisions of this Section, all reasonable expenses
of litigation or preparation therefor, whether or not the indemnified Person is
a party thereto) which any of them may incur or reasonably pay arising out of or
relating to any Credit Document or any of the transactions contemplated thereby
or the direct or indirect application or proposed application of the proceeds of
any Loan (including, without limitation, the application of such proceeds to an
acquisition), other than those which arise from the gross negligence or willful
misconduct of the party claiming indemnification. If any claim, demand, action
or proceeding for which indemnity may be sought hereunder is asserted against
any Indemnitee, such Indemnitee shall promptly notify the Borrower, but the
failure to so notify the Borrower shall not affect the Borrower's obligations
under this Section 12.15 unless such failure shall result in a material
prejudice to the Borrower. Upon receipt of such notice and the Borrower's
execution of an acknowledgment in form and substance reasonably satisfactory to
such Indemnitee pursuant to which the Borrower acknowledges that it is obligated
to indemnify such Indemnitee, the Borrower may, so long as no Event of Default
has occurred and is continuing, and if requested in writing by such Indemnitee
the Borrower shall, assume the defense of such claim, demand, action or
proceeding with legal counsel selected by the Borrower and reasonably
satisfactory to the Indemnitee. In connection with any such claim, demand,
action or proceeding, the Borrower and all such Indemnitees may be represented
by the same legal counsel selected by the Borrower and reasonably satisfactory
to each of the Indemnitees, provided that if legal counsel to any Indemnitee
determines in good faith that such representation would or could reasonably be
expected to result in a conflict of interest under any applicable law or ethical
rules or that a defense or counterclaim is available to any such Indemnitee that
is not available to all persons so represented, then, to the extent determined
by legal counsel to Indemnitee to be reasonably necessary to avoid such a
conflict of interest or to permit unqualified assertion of such a defense or
counterclaim, each Indemnitee shall be entitled (at Borrower's expense) to
separate representation by legal counsel selected by that Indemnitee and, so
long as no Event of Default has occurred and is continuing, reasonably
satisfactory to the Borrower, provided, further that if it is not, in the
reasonable opinion of each Indemnitee using separate legal counsel pursuant to
the first proviso of this sentence, disadvantageous to such Indemnitee, such
Indemnitees shall use the same legal counsel, such legal counsel to be
satisfactory to each such Indemnitee. So long as no Event of Default has
occurred and is continuing, no Indemnitee shall settle any claim, demand, action
or proceeding for which indemnity may be sought hereunder without the Borrower's
prior consent to the terms of such proposed settlement or compromise. The
Borrower may settle any claim, demand, action or proceeding for which indemnity
may be sought hereunder without obtaining the consent of any Indemnitee provided
that such settlement or compromise requires no more than a monetary payment for
which the Indemnitee is fully indemnified (as acknowledged by the Borrower in a
writing in form and substance reasonably satisfactory to such Indemnitee) or
involves other matters not binding upon the Indemnitee. The Borrower, upon
demand by the Administrative Agent or a Bank at any time, shall reimburse the
Administrative Agent or Bank for any reasonable legal or other expenses
(including allocable fees and expenses of in-house counsel) incurred in
connection with investigating or defending against any of the foregoing except
if (i) the same is directly due to the gross negligence or willful misconduct of
the party to be indemnified or (ii) pursuant to the fourth to last sentence of
this
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Section 12.15, the same legal counsel represents the Borrower and the
Administrative Agent or Bank, as applicable, and the Borrower has paid the fees
and expenses of such counsel.
Section 12.16. Confidentiality. (a) The Administrative Agent and the Banks
hereby acknowledge and agree that, except as hereinafter provided, all
information concerning the Borrower and its business (and the Subsidiaries and
their business) heretofore or hereafter provided to them by or on behalf of the
Borrower under or pursuant to the Credit Documents and the transactions
contemplated thereby is confidential information and proprietary to the
Borrower. Subject to the requirements of any applicable law, order or decree,
the Administrative Agent and the Banks each hereby agree that, at all times,
they shall keep in confidence and not use or disclose to any other Person any
such information; provided that any such information may be disclosed to the
"Representatives" of the Administrative Agent or any Bank as and to the extent
reasonably necessary in connection with the negotiation and administration of
the Credit Documents and the enforcement of the rights of the Administrative
Agent and Banks hereunder; and provided further, the Administrative Agent and
the Banks shall cause their Representatives to maintain the confidentiality of
all such information disclosed to them hereunder as and to the extent required
herein. The obligations of the Administrative Agent and the Banks under this
Section 12.16 shall not apply to information which is ascertainable from public
or trade sources or public information or which becomes generally available to
the public other than as a result of a disclosure by a party or a parties'
Representatives in violation of this Agreement. As used herein, the term
"Representatives" of a person means the respective directors, officers,
employees, agents and professional advisors of such Person and its Affiliates.
(b) Notwithstanding the foregoing, each Bank may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
Section 12.11 or 12.12, disclose to the assignee or participant or proposed
assignee or participant any information relating to the Borrower furnished to
such Bank by or on behalf of the Borrower; provided that prior to any such
disclosure, the assignee or participant or proposed assignee or participant
shall agree in writing (a copy of which shall be delivered to the Borrower) to
preserve the confidentiality of any such information as and to the extent
required hereunder.
Section 12.17. Entire Agreement. The Credit Documents constitute the
entire understanding of the parties thereto with respect to the subject matter
thereof and any prior or contemporaneous agreements, whether written or oral,
with respect thereto are superseded thereby.
Section 12.18. Construction. The parties hereto acknowledge and agree that
neither this Agreement nor the other Credit Documents shall be construed more
favorably in favor of one than the other based upon which party drafted the
same, it being acknowledged that all parties hereto contributed substantially to
the negotiation of this Agreement and the other Credit Documents.
Section 12.19. Governing Law. This Agreement and the other Credit
Documents, and the rights and duties of the parties hereto, shall be construed
and determined in accordance with the internal laws of the State of New York.
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Section 12.20. Submission to Jurisdiction; Waiver of Jury Trial. THE
BORROWER AND EACH GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF
ANY NEW YORK STATE COURT SITTING IN THE COUNTY OF NEW YORK FOR PURPOSES OF ALL
LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER AND
EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER
AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
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In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
Viking Office Products, Inc.
By: /s/ M. Bruce Nelson
------------------------------
Name: M. Bruce Nelson
Its: President & Chief Operating
Officer
By: /s/ Lisa Billig
------------------------------
Name: Lisa Billig
Its: Vice President - Finance
ABN AMRO BANK N.V., as Administrative
Agent
By: ABN AMRO North America, Inc.
its agent
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
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In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
Viking Office Products, Inc.
By:
------------------------------
Name:
Its:
By:
------------------------------
Name:
Its:
ABN AMRO BANK N.V., as Administrative
Agent
By: ABN AMRO North America, Inc.
its agent
By: /s/ Ellen M. Coleman
------------------------------
Name: Ellen M. Coleman
Title: Assistant Vice President
By: /s/ John A. Miller
------------------------------
Name: John A. Miller
Title: Group Vice President/Director
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Address and Amount of
Commitments:
Address:
300 South Grand Avenue ABN AMRO Bank N.V., Los Angeles
Suite 1115 International Branch, in its
Los Angeles, California 90071 individual capacity as a Bank
Attention: John Miller or Ellen Coleman
Telephone: (213) 687-2306/2072
Telecopy: (213) 687-2061 By: ABN AMRO North America, Inc.,
as Agent
Commitment: $20,000,000.00
By: /s/ Ellen M. Coleman
---------------------------
Name: Ellen M. Coleman
Title: Assistant Vice President
By: /s/ John A. Miller
---------------------------
Name: John A. Miller
Title: Group Vice President/
Director
Lending Offices:
Base Rate Loans:
300 South Grand Avenue
Suite 1115
Los Angeles, California 90071
Attention: Carol Yi
Telephone: (213) 687-2026
Telecopy: (213) 687-2085/2061
Eurodollar Loans:
300 South Grand Avenue
Suite 1115
Los Angeles, California 90071
Attention: Carol Yi
Telephone: (213) 687-2026
Telecopy: (213) 687-2085/2061
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Address and Amount of
Commitments:
Address:
550 South Hope Street - 3rd Floor Union Bank of California, N.A.
Los Angeles, California 90071
Attention: Andrew G. Ewing, Jr.
Telephone: (213) 243-3557 By: /s/ Andrew G. Ewing, Jr.
Telecopy: (213) 243-3552 ------------------------------
Name: Andrew G. Ewing, Jr.
Title: Vice President
Commitment: $20,000,000.00
Lending Offices:
Base Rate Loans:
550 South Hope Street - 3rd Floor
Los Angeles, California 90071
Attention: Andrew G. Ewing, Jr.
Telephone: (213) 243-3557
Telecopy: (213) 243-3552
Eurodollar Loans:
550 South Hope Street - 3rd Floor
Los Angeles, California 90071
Attention: Andrew G. Ewing, Jr.
Telephone: (213) 243-3557
Telecopy: (213) 243-3552
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<PAGE>
Address and Amount of
Commitments:
Address:
707 Wilshire Boulevard Wells Fargo Bank, N.A.
Los Angeles, California 90017
Attention: Gregory P. Brown
Telephone: (213) 614-3084 By: /s/ Gregory P. Brown
Telecopy: (213) 614-2569 ---------------------------
Name: Gregory P. Brown
Title: Vice President
Commitment: $20,000,000.00
Lending Offices:
Base Rate Loans:
201 Third Street
San Francisco, California 94103
Attention: Tessie Melgar
Telephone: (415) 477-5421
Telecopy: (415) 979-0675
(415) 512-9068
Eurodollar Loans:
201 Third Street
San Francisco, California 94103
Attention: Tessie Melgar
Telephone: (415) 477-5421
Telecopy: (415) 979-0675
(415) 512-9068
-57-
<PAGE>
EXHIBIT A
NOTE
$_________________ _________, 1996
For Value Received, the undersigned, Viking Office Products, Inc., a
____________ corporation (the "Borrower"), promises to pay to the order of
_______________ (the "Bank") at the principal office of ABN AMRO Bank N.V. in
New York, New York, in immediately available funds, the principal sum of
________________ ($_______________), or if less, the aggregate unpaid principal
amount of all Loans made by the Bank to the Borrower under its Commitment
pursuant to the Credit Agreement (as defined below), with each Eurodollar Loan
to mature and become payable on the last day of the Interest Period applicable
thereto, but in no event later than the Termination Date, and each Base Rate
Loan to mature and become due and payable on the Termination Date, together with
interest on the principal amount of each Loan from time to time outstanding
hereunder at the rates, and payable in the manner and on the dates, specified in
the Credit Agreement.
The Bank shall record on its books and records or on a schedule attached to
this Note, which is a part hereof, each Loan made by it pursuant to its
Commitment, together with all payments of principal and interest and the
principal balances from time to time outstanding hereon, whether the Loan is a
Base Rate Loan, or a Eurodollar Loan and the interest rate and Interest Period
applicable thereto, provided that prior to the transfer of this Note all such
amounts shall be recorded on a schedule attached to this Note. The record
thereof, whether shown on such books and records or on a schedule to this Note,
shall be prima facie evidence of the same; provided, however, that the failure
of the Bank to record any of the foregoing or any error in any such record shall
not limit or otherwise affect the obligation of the Borrower to repay all Loans
made to it pursuant to the Credit Agreement together with accrued interest
thereon.
This Note is one of the Notes referred to in the Credit Agreement dated as
of ___________, 1996, among the Borrower, certain Guarantors, ABN AMRO Bank
N.V., as Administrative Agent, and the banks from time to time party thereto (as
amended, the "Credit Agreement"), and this Note and the holder hereof are
entitled to all the benefits provided for thereby or referred to therein, to
which Credit Agreement reference is hereby made for a statement thereof. All
defined terms used in this Note, except terms otherwise defined herein, shall
have the same meaning herein as in the Credit Agreement. This Note shall be
governed by and construed in accordance with the internal laws of the State of
New York.
Prepayments may be made hereon and this Note may be declared due prior to
the expressed maturity hereof, all in the events, on the terms and in the manner
provided in the Credit Agreement.
<PAGE>
The Borrower hereby waives demand, presentment, protest or notice of any
kind hereunder.
Viking Office Products, Inc.
By_______________________________________
Its___________________________________
By_______________________________________
Its____________________________________
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<PAGE>
EXHIBIT 10.14
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[Logo]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
January 5, 1996, is made by and between Mortimer B. Zuckerman, an individual
with an address c/o Boston Properties,* ("LESSOR") and Viking Office Products,
Inc., a California corporation with an address at 879 West** ("LESSEE"),
(collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: The approximately 60,000 square feet of space (the
"Premises") shown on Exhibit A attached hereto in the building (the "Building")
containing approximately 220,213 square feet of space***. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)
1.2(b) PARKING: sixty (60) unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); (Also see Paragraph 2.6.)
1.3 TERM: See Rider Paragraphs 1 & 3.
1.5 BASE RENT: See Rider Paragraphs 2 & 3. (Also see Paragraph 4.)
1.6(a) BASE RENT PAID UPON EXECUTION: $19,500 as Base Rent for the period
March , 1996.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: twenty-seven and
25/100 percent (27.25%) ("LESSEE'S SHARE") as determined by prorata square
footage of the Premises as compared to [X] the total square footage of the
Building.
1.7 SECURITY DEPOSIT: $ None
1.8 PERMITTED USE: Distribution and warehousing of office products and
office uses ancillary thereto. See Rider Paragraph 5 ("PERMITTED USE") (Also
see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. See Rider Paragraph 6.
1.12 ADDENDA AND EXHIBITS. Attached hereto is a Rider and Exhibits all
of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system and lighting systems and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date See Rider
Paragraph 55. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a non-
compliance with this warranty within See Rider Paragraph 43, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record See Rider
Paragraph 8 and applicable building codes, regulations and ordinances in effect
on the Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations, or ordinances
exist with regard to the Premises as of the Commencement Date. Said warranties
shall not apply to any Alterations or Utility Installations (defined in
Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply
with said warranties, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee given within six (6) months
following the Commencement Date and setting forth with specificity the nature
and extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
satisfied itself with respect to the condition of the Premises (including but
not limited to the electrical and fire sprinkler systems, security,
environmental aspects, seismic and earthquake requirements, and compliance with
the Americans with Disabilities Act and applicable zoning, municipal, county,
state and federal laws, ordinances and regulations and any covenants or
restrictions of record (collectively, "APPLICABLE LAWS") and the present and
future suitability of the Premises for Lessee's intended use; (b) that Lessee
has made such investigation as it deems necessary with reference to such
matters, is satisfied with reference thereto, and assumes all responsibility
therefore as the same relate to Lessee's occupancy of the Premises and/or the
terms of this Lease; and (c) that neither Lessor, the Brokers nor any of
Lessor's agents, has made by oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
** 190th Street, Los Angeles, California 90061
*** located on land (the "Property") commonly known as 2391 West Winton Avenue,
Hayward, California and more particularly described in Exhibit B attached
hereto.
Initials:______
______
MULTI-TENANT--GROSS
(C) American Industrial Real Estate Association 1993
<PAGE>
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the
Common Areas designated as "Lessee's Parking Areas" on Exhibit C attached
hereto. Lessee shall not use more parking spaces than said number. Said
parking spaces shall be used for parking by vehicles no larger than full-size
passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.7 COMMON AREAS--DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. See Rider Paragraph
8. Under no circumstances shall the right herein granted to use the Common Areas
be deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only by
the prior written consent of Lessor or Lessor's designated agent, which consent
may be revoked at any time. In the event that any unauthorized storage shall
occur then Lessor shall have the right, without notice, in addition to such
other rights and remedies that it may have, to remove the property and charge
the cost to Lessee, which cost shall be immediately payable upon demand by
Lessor.
2.9 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate, See Rider
Paragraph 44.
3. TERM. See Rider Paragraph 1.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor See Rider Paragraph 40 relating to
the ownership and operation of the Industrial Center, including, but not limited
to, the following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management See Rider Paragraph
45 and security services and the costs of any environmental inspections.
(iv) Reasonable reserves set aside for maintenance and
repair of Common Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect to
the Common Areas, the Building, the Property and the Industrial Center.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas*
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.**
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center based upon square footage.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such over-
* See Rider Paragraph 46.
** See Rider Paragraph 46.1
Initials:______
______
MULTI-TENANT--GROSS
(C) American Industrial Real Estate Association 1993
-2-
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement. See Rider Paragraphs 41 and 47.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste or
a nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. See Rider
Paragraph 9 shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including but
not limited to the installation (and, at Lessor's option, removal on or before
Lease expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received
from, any governmental authority or private party concerning the presence,
spill, release, discharge of, or exposure to, such Hazardous Substance including
but not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for See Rider Paragraph 10. Lessee's obligations under
this Paragraph 6.2(c) shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee See Rider Paragraph 11, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement. See Rider Paragraph 56.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record See Rider Paragraph 8, permits, the requirements of any
applicable fire insurance underwriter or rating bureau and Lessor's insurance
carriers, and the recommendations of Lessor's engineers and/or consultants,
relating in any manner to the Premises (including but not limited to matters
pertaining to (i) industrial hygiene, (ii) environmental conditions on, in,
under or about the Premises, including soil and groundwater conditions, and
(iii) the use, generation, manufacture, production, installation, maintenance,
removal, transportation, storage, spill, or release of any Hazardous Substance),
now in effect or which may hereafter come into effect. Lessee shall, within five
(5) days after receipt of Lessor's written request, provide Lessor with copies
of all documents and information, including but not limited to permits,
registrations, manifests, applications, reports and certificates, evidencing
Lessee's compliance with any Applicable Requirements specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Requirements. See Rider Paragraph 5.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, telephone
and other communication, lighting facilities, boilers, fired or unfired pressure
vessels, fire hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof. See Rider Paragraph 14.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
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systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the interior surfaces of exterior walls nor shall Lessor
be obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessor may, but shall not be obligated to, paint the exterior surfaces
of exterior walls. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, telephone and other
communications systems, lighting fixtures, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). See Rider
Paragraph 48.
(b) CONSENT. See Rider Paragraph 15. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may, (but without obligation to do so) condition its consent to
any requested Alteration or Utility Installation that costs $2,500.00 or more
upon Lessee's providing Lessor with a lien and completion bond in an amount
equal to one and one-half times the estimated cost of such Alteration or Utility
Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Requirements and/or good practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed
by Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the Industrial
Center and required or permitted to be carried by Lessor pursuant to Paragraphs
8.2(b), 8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base
Premium, as hereinafter defined, calculated on an annual basis. "Insurance Cost
Increase" shall include, but not be limited to, requirements of the holder of a
mortgage or deed of trust covering the Premises, increased valuation of the
Premises, and/or a general premium rate increase. The term "Insurance Cost
Increase" shall not, however, include any premium increases resulting from the
nature of the occupancy of any other lessee of the Building. See Rider Paragraph
42.
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant
to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and managing agent and any Lender(s) whose names have
been provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises, the
Building, the Property and the Industrial Center and all areas appurtenant
thereto. Such insurance shall be on an occurrence basis providing single limit
coverage in an amount not less than $5,000,000 per occurrence with an
"Additional Insured-Managers or Lessors of Premises" endorsement and contain the
"Amendment of the Pollution Exclusion" endorsement for damage caused by heat,
smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only. See Rider Paragraph 48.1.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance, in addition to and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises*. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s).
Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's
personal property shall be insured by Lessee pursuant to Paragraph 8.4. If the
coverage is available and commercially appropriate, Lessor's policy or policies
shall insure against all risks of direct physical loss or damage See Rider
Paragraph 16, including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located. See Rider Paragraph 18.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
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* ,the Building, the Property and the Industrial Center
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures See Rider
Paragraph 19, and Lessee-Owned Alterations and Utility Installations in, on, or
about the Premises similar in coverage to that carried by Lessor as the Insuring
Party under Paragraph 8.3(a). Such insurance shall be full replacement cost
coverage with a deductible not to exceed $10,000 per occurrence. The proceeds
from any such insurance shall be used by Lessee for the replacement of personal
property and the restoration of Trade Fixtures and Lessee-Owned Alterations and
Utility Installations. Upon request from Lessor, Lessee shall provide Lessor
with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least A-VIII, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. See Rider Paragraph 21. Lessee shall cause to
be delivered to Lessor, within seven (7) days after the earlier of the Early
Possession Date or the Commencement Date, certified copies of, or certificates
evidencing the existence and amounts of, the insurance required under Paragraph
8.2(a) and 8.4. No such policy shall be cancelable or subject to modification
except after thirty (30) days' prior written notice to Lessor. Lessee shall at
least thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Lessee shall indemnify, protect, defend and hold
harmless the Premises, the Building, the Property and the Industrial Center,
Lessor and its agents, Lessor's master or ground lessor, partners and Lenders,
from and against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, loss of permits, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the occupancy of the Premises by Lessee, the conduct of Lessee's business, any
act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, or any Lessee Party, and out of any Default or Breach by Lessee in the
performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or See Rider Paragraph 22, goods, wares,
merchandise or other property of Lessee, Lessee's employees, contractors,
invitees, customers, or any other person* in or about the Premises,** whether
such damage or injury is caused by or results from fire, steam, electricity,
gas, water or rain, or from the breakage, leakage, obstruction or other defects
of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether said injury or damage
results from conditions arising upon the Premises or upon other portions of the
Building of which the Premises are a part, from other sources or places, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is accessible or not. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee of Lessor nor from
the failure by Lessor to enforce the provisions of any other lease in the
Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease,
Lessor shall under no circumstances be liable for injury to Lessee's business or
for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE--INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within forty-five (45) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease See Rider Paragraph 23. In the event Lessor elects to give
such notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following such commitment from Lessee. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible after the required funds are available.
If Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), ________.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease See Rider Paragraph 23, by giving written
notice to Lessee of Lessor's election to do so within thirty (30) days after the
date of occurrence of such damage. Provided, however, if Lessee at that time has
an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by (a) exercising such option, and (b) providing
Lessor with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs on or before the earlier of (i) the date which is ten
(10) days after Lessee's receipt of Lessor's written notice purporting to
terminate this Lease, or (ii) the day prior to the date upon which such option
expires. If Lessee duly exercises such option during such period and provides
Lessor with funds (or adequate assurance thereof) to cover any shortage in
insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon
as reasonably possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate as of the date set forth in
the first sentence of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraphs 9.2, 9.3, 9.4 or
9.7, the Base Rent, Common Area Operating Expenses and other charges, if any,
payable by Lessee hereunder for the period during which such damage or
condition, its repair, remediation or restoration continues, shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not in excess of proceeds from insurance required to be carried under Paragraph
8.3(b). Except for abatement of Base Rent, Common Area Operating Expenses and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such damage, destruction, repair,
remediation or restoration.
* See Rider Paragraph 11
** the Building, the Property or the Industrial Center
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. REAL PROPERTY TAXES. See Rider Paragraph 25.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) applicable to the Lease Term
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, See Rider Paragraph 49. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be
the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in calendar year 1996. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax
year shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and tax
year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING. See Rider Paragraph 27.
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13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1 (b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
See Rider Paragraph 28.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (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 such rental loss that the Lessee 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 such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee'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 that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve 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 Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering in this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease. The
acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this Paragraph 13.3 shall not be deemed a waiver by Lessor of the
provisions of this Paragraph 13.3 unless specifically so stated in writing by
Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within fifteen (15) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to four percent (4%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. See Rider Paragraph 29. If more than
twenty-five percent (25%) of the floor area of the Premises, or more than
twenty-five percent (25%) of the portion of the Common Areas designated for
Lessee's parking, is taken by condemnation,* Lessee may, at such party's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If either party does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the Premises. No reduction of Base Rent shall occur if
the condemnation does not apply to any portion of the Premises. Any award for
the taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. See Rider Paragraph 30. In the event
that this Lease is not terminated by reason of such condemnation, Lessor shall
to the extent of its net severance damages received, over and above Lessee's
Share of the legal and other expenses incurred by Lessor in the condemnation
matter, repair any damage to the Premises caused by such condemnation authority.
Lessee shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair. See Rider Paragraph 31.
15. BROKERS' FEES. See Rider Paragraph 6.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 See Rider Paragraph 32.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee, See Rider Paragraph 51, and such Guarantors as
may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Upon such transfer or assignment, the prior Lessor shall be relieved
of all liability with respect to the obligations and/or covenants under this
Lease thereafter to be performed by the Lessor. Subject to the foregoing, the
obligations and/or covenants in this Lease to be performed by the Lessor shall
be binding only upon the Lessor as hereinabove defined. See Rider Paragraph 33.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
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* See Rider Paragraph 50.
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23. NOTICES. See Rider Paragraph 34.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. See Rider Paragraph 35.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease shall be subject and subordinate to any
ground lease, mortgage, deed of trust, or other hypothecation or security device
(collectively, "SECURITY DEVICE"), now or hereafter placed by Lessor upon the
real property of which the Premises are a part, to any and all advances made on
the security thereof, and to all renewals, modifications, consolidations,
replacements and extensions thereof. Lessee agrees that the Lenders holding any
such Security Device shall have no duty, liability or obligation to perform any
of the obligations of Lessor under this Lease, but that in the event of Lessor's
default with respect to any such obligation, Lessee will give any Lender whose
name and address have been furnished Lessee in writing for such purpose notice
of Lessor's default pursuant to Paragraph 13.5. If any Lender shall elect to
have this Lease superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorneys' fee
award shall not be computed in accordance with any court fee schedule, but shall
be such as to fully reimburse all attorneys' fees reasonably incurred. Lessor
shall be entitled to attorneys' fees, costs and expenses incurred in preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with such
Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times See Rider Paragraph 52 for the
purpose of showing the same to prospective purchasers, lenders, or lessees, and
making such alterations, repairs, improvements or additions to the Premises or
to the Building, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or Building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to
identify the building as containing space leased to Lessee so long as such signs
are in a location designated by Lessor and comply with Applicable Requirements
and the signage criteria established for the Industrial Center by Lessor. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof of the Building, and the right
to install advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs. See Rider Paragraph 36.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request See Rider Paragraph 53. Any
unused portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
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38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS. See Rider Paragraph 3.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations See Rider Paragraph 54 ("Rules
and Regulations") which Lessor may make from time to time for the management,
safety, care and cleanliness of the grounds, the parking and unloading of
vehicles and the preservation of good order, as well as for the convenience of
other occupants or tenants of the Building and the Industrial Center and their
invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Initials:______
______
MULTI-TENANT--GROSS
-10-
(C) American Industrial Real Estate Association 1993
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at: 1/5/96
-------------------------- ----------------------------
on: on:
----------------------------------- -------------------------------------
by LESSOR: By LESSEE:
/s/ Mortimer B. Zuckerman VIKING OFFICE PRODUCTS, INC.
- -------------------------------------- ----------------------------------------
MORTIMER B. ZUCKERMAN
- -------------------------------------- ----------------------------------------
By: /s/ Lisa Billig
-------------------------------------
Name Printed: LISA BILLIG
---------------------------
Title: Vice President, CFO
---------------------------------
By:
-------------------------------------
Name Printed:
---------------------------
Title:
---------------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
St., M-1, Los Angeles, CA 90071, (213) 687-8777.
Initials:
-----------
-----------
MULTI-TENANT--GROSS
(C) American Industrial Real Estate Association 1993
(C) 1993 by American Industrial Real Estate Association. All rights reserved. No
part of these words may be reproduced in any form without permission in
writing.
-11-
<PAGE>
RIDER TO LEASE BETWEEN
MORTIMER B. ZUCKERMAN, AS LESSOR,
AND VIKING OFFICE PRODUCTS, INC., AS LESSEE
2391 WEST WINTON AVENUE
HAYWARD, CALIFORNIA
1. LEASE TERM. The term (the "Term") of this Lease shall be for that period
----------
of time commencing on March 1, 1996 (the "Commencement Date") and expiring on
February 28, 2001 (the "Expiration Date") (the "Original Lease Term"), unless
extended as provided in Rider Paragraph 3 or sooner terminated as provided in
this Lease.
2. (A) ORIGINAL LEASE TERM-BASE RENT. For each month within the Original
-----------------------------
Lease Term, Lessee shall pay to Lessor as monthly Base Rent for the Premises,
payments of NINETEEN THOUSAND FIVE HUNDRED DOLLARS ($19,500.00) (sometimes
called the "Original Monthly Base Rent"). All payments of monthly Base Rent
(during both the Original Lease Term and the Extended Terms, if exercised, and
at the monthly Base Rent provided for in this Rider) shall be paid in legal
tender of the United States and shall be paid in advance on the first day of
each and every calendar month, provided, however, that appropriate adjustment
shall be made at the beginning and end of the Term of this Lease as it may be
extended and at the end of any period immediately preceding an adjustment date
during the Lease Term as it may be extended.
2. (B) DEFINITION. The term "Base Rent" as it may be used in this Lease
----------
shall mean the rent determined as provided in Rider Paragraphs 2 and 3, as
applicable.
3. (A) EXTENSION OPTIONS. Provided that at the time of the exercise of the
-----------------
applicable option to extend (i) there shall not be existing any Lessee Default
or Breach (defined in Paragraph 13.1), (ii) this Lease is still in full force
and effect, (iii) Lessee has neither assigned this Lease nor sublet any portion
of the Premises (except for an assignment or subletting permitted under
Paragraph 27.2 of this Rider) and (iv) in the case of the second Extension
Option, Tenant has timely and validly exercised the first Extension Option,
Lessee shall have the right to extend the Term of this Lease in the manner
hereinafter provided upon all of the same terms, conditions, covenants and
agreements contained in this Lease (except for the monthly Base Rent which shall
be adjusted during the applicable option period as hereinbelow set forth and
except, further, that there shall be no option to extend the term of this Lease
beyond the extension options herein provided) for
<PAGE>
two (2) successive periods of three (3) years each. Each option period is
sometimes herein referred to as an "Extended Term" and sometimes hereinafter
referred to as an "Extension Option". Notwithstanding anything contained in the
Lease and this Rider to the contrary, in no event shall the Term be extended for
more than six (6) years beyond the expiration of the Original Lease Term.
3. (B) EXERCISE OF EXTENSION OPTIONS AND MONTHLY BASE RENT FOR THE EXTENDED
------------------------------------------------------- ------------
TERMS. If Lessee desires to exercise the applicable Extension Option, then
- -----
Lessee shall give notice to Lessor not earlier than twelve (12) months nor later
than six (6) months prior to the expiration of the Lease Term (as it may have
been previously extended) of Lessee's request for Lessor's quotation of the fair
market monthly base rent for the Premises as of the commencement date of the
applicable Extended Term, such quotation to be based upon the use of the
Premises as first class warehouse/distribution/office space (herein called the
"Extended Term Market Rent"). In the case of the first Extended Term only, the
Extended Term Market Rent shall not exceed the product of (i) the Original
Monthly Base Rent and (ii) one hundred twenty percent (120%). Within fifteen
(15) days after receipt by Lessee of Lessor's quotation of the Extended Term
Market Rent, Lessee shall have the right to extend the Term for the applicable
extended Term by written notice to Lessor within said last mentioned 15-day
period upon all of the same terms, conditions, covenants and agreements
contained in this Lease except that the monthly Base rent for the applicable
Extended Term shall be equal to the Extended Term Market Rent as quoted by
Lessor; provided, however, in no event shall the monthly Base Rent payable
during the applicable Extended Term be less than the monthly Base Rent for the
last month of the Lease Term immediately prior to such Extended Term and except
further that the only extension option shall be that set forth in this Rider
Paragraph 3. Upon the giving of such notice, this Lease and the Term hereof
shall be extended, for the applicable Extended Term, without the necessity for
the execution of any additional documents (except that Lessor and Lessee agree
to enter into an instrument in writing setting forth the monthly Base Rent for
the applicable Extended Term); and in such event all references herein to the
Lease Term or the term of this Lease shall be construed as referring to the
Term, as so extended unless the context clearly other requires.
4. INTENTIONALLY OMITTED.
---------------------
5. USE. Notwithstanding anything contained in this Lease, Lessee shall be
---
solely responsible for obtaining and maintaining in full force and effect such
permits, licenses, approvals, special permits and other governmental
authorizations, if any, as shall be required for Lessee's use of the Property,
the Building, the Premises and the Industrial Center by Applicable Requirements
and the failure or inability of Lessee to obtain any such permits, licenses,
approvals, special permits and
-2-
<PAGE>
other governmental authorizations shall in no way (i) constitute a breach or
default of Lessor, (ii) give Lessee any right to an abatement, offset or other
reduction in monthly Base Rent, other rent or other charges payable under this
Lease or (iii) give Lessee any right to terminate this Lease.
6. BROKERAGE. Lessee hereby warrants and represents to Lessor that Lessee
---------
has not dealt with any broker, finder or agent in connection with the
transaction evidenced by this Lease except White Commercial Real Estate and CB
Commercial Real Estate Group, Inc.; and in the event any claim is made against
Lessor relative to dealings with any broker, finder or agent other than White
Commercial Real Estate and CB Commercial Real Estate Group, Inc. (the
"Brokers"), Lessee shall defend the claim against Lessor with counsel of
Lessor's selection and save harmless and indemnify Lessor on account of all
loss, cost or damage which may arise because of such claim. Lessor agrees that
it shall be solely responsible for the payment of a brokerage commission to the
Brokers in connection with this Lease.
7. IMPROVEMENTS. Except as provided in Paragraphs 2.2 and 2.3 of the Lease,
------------
the Premises shall be delivered to Lessee and Lessee hereby accepts the Premises
in their condition as of the Commencement Date, subject to Applicable
Requirements and the terms and provisions of this Lease and the Exhibits
attached hereto and all matters disclosed thereby and Lessor shall have no
obligations to perform any additions, alterations, improvements or demolition in
the Premises.
8. INSERT TO PARAGRAPHS 2.3, 2.8 AND 6.3: ", including, without limitation,
-------------------------------------
the Declaration of Covenants and Restrictions attached hereto as Exhibit D (the
"Exhibit D Covenants"),"
9. INSERT TO PARAGRAPH 6.2 (a): "Neither Lessee nor any assignee, subtenant,
---------------------------
agent, independent contractor, contractor, employee, servant, invitee, customer,
client, supplier, shipper or any other individual or entity that enters upon
the Premises, the Building, the Property or the Industrial Center by, through or
under Lessee (individually, a "Lessee Party", collectively, "Lessee Parties")"
10. INSERT TO PARAGRAPH 6.2(c): "Lessee or any Lessee Party or under the
--------------------------
control of Lessee or any Lessee Party (collectively, "Lessee's Toxic Materials
Activities")."
11. INSERT TO PARAGRAPH 6.2(c), PARAGRAPH 8.7 AND PARAGRAPH 8.8: "or any
-----------------------------------------------------------
Lessee Party"
12. INTENTIONALLY OMITTED.
---------------------
-3-
<PAGE>
13. INTENTIONALLY OMITTED.
---------------------
14. INSERT TO PARAGRAPH 7.1 (b): "If Lessor reasonably determines that any
---------------------------
such contract fails to satisfy the requirements of this Lease, within fourteen
(14) days after Lessor notifies Lessee of such failure, Lessee shall deliver to
Lessor a substitute contract which complies with such requirements."
15. INSERT TO PARAGRAPH 7.3(b): "Lessee shall not make any Alterations or
--------------------------
Utility Installations in, on, under or about the Premises, whether before or
during the Term of this Lease, except in each instance in accordance with plans
and specifications therefore first submitted to and approved by Lessor, which
approval shall not be withheld unreasonably or delayed. Lessor shall notify
Lessor of its approval or disapproval within fourteen (14) days after Lessor
receives all information required to be submitted by Lessee. Lessor shall not
be deemed unreasonable for withholding its approval of any alterations,
improvements or additions which (a) would involve or affect any structural or
exterior element of the Building, the Premises or the Industrial Center: (b)
increase or decrease the size of the Building, the Premises or the Industrial
Center or otherwise change the exterior of the Building or the Premises; (c)
adds any other buildings, structures or improvements; (d) would affect any
Utility Installation or utility service, line or conduit serving the Building,
the Premises or the Industrial Center; or (e) will require unusual expense to
readapt the Building, the Premises or the Industrial Center to normal warehouse
and/or distribution use upon the termination of this Lease. Lessor's review and
approval of any such plans and specifications and consent to perform work
described therein shall not be deemed an agreement by Lessor that such plans,
specifications and work conform with Applicable Requirements nor deemed a waiver
of Tenant's obligations under this Lease with respect to Applicable Requirements
nor impose any liability or obligation upon Lessor with respect to the
completeness, design sufficiency or compliance of such plans, specifications and
work with Applicable Requirements. All consents given by Lessor shall be deemed
conditioned on Lessee prior to commencing any such work, (i) acquiring all
requisite permits, licenses and approvals to do so from appropriate governmental
authorities and bodies and other bodies; (ii) delivering to Lessor a statement
of the names and addresses of all its contractors and subcontractors and
evidence satisfactory to Lessor that all of such contractors and subcontractors
are currently licensed by the appropriate governmental authorities to perform
such work and the estimated costs of all labor and materials to be furnished by
them; (iii) causing each contractor and subcontractor to carry workmen's
compensation insurance in statutory amounts covering all contractor's and
subcontractor's employees and comprehensive general liability insurance with
such limits as Lessor may require reasonably, but in no event less than
$2,000,000.00 combined single limit (and property damage) with such insurance to
be written in companies approved reasonably by Lessor and insuring Lessor
-4-
<PAGE>
and Lessee as well as the contractors and subcontractors and delivering to
Lessor certificates of all such insurance; and (iv) complying with all
conditions and requirements of said permits, licenses and approvals in a prompt
and expeditious manner. Lessee covenants and agrees that any Alterations and
Utility Installations made by it to or upon the Premises shall be done in a good
and workmanlike manner and in compliance with all Applicable Requirements now or
hereafter in force and that materials of first and otherwise good and sufficient
quality shall be employed therein."
16. INSERT TO PARAGRAPH 8.3(a): "(including, without limitation, the peril of
--------------------------
flood and, at Lessor's option, the peril of earthquake)"
17. INTENTIONALLY OMITTED.
---------------------
18. INSERT TO PARAGRAPH 8.3(a): "Lessor may also maintain such other
--------------------------
insurance as may be required by any ground lessor or the holder of any mortgage
or deed of trust upon the Building, the Property, the Premises or the Industrial
Center or Lessor's interest therein and any such insurance shall be deemed to be
"Required Insurance.""
19. INSERT TO PARAGRAPH 8.4: "and other fixtures and equipment, goods, wares,
-----------------------
merchandise, products"
20. INTENTIONALLY OMITTED.
21. INSERT TO PARAGRAPH 8.5: "With respect to any insurance required to be
-----------------------
maintained by Lessee under this Lease,"
22. INSERT TO PARAGRAPH 8.8: "Trade Fixtures and other fixtures and
-----------------------
equipment, Lessee Owned Alterations and Utility Installations, products"
23. INSERT TO PARAGRAPH 9.3 AND 9.5: "as of the date specified in Lessor's
-------------------------------
notice, which shall not be less than thirty (30) days nor more than sixty (60)
days after the giving of such notice"
24. INSERT TO PARAGRAPH 9.4: "Lessor may, at Lessor's option by written
-----------------------
notice to Lessee given within forty five (45) days after the occurrence of such
damage or destruction, either elect (i) to repair such damage as soon as
reasonably practicable under the circumstances with (but only to the extent of)
the insurance proceeds, in which case this Lease shall continue in force or (ii)
to cancel and terminate this Lease as of a date set forth in said notice which
shall be not earlier than thirty (30) nor later than sixty (60) days from the
date of said notice, in which case this Lease shall terminate as of the date so
set forth in Lessor's notice."
-5-
<PAGE>
25. INSERT AT END OF PARAGRAPH 9.9:
------------------------------
"9.10 COMPLETION OF RESTORATION. Where Lessor is obligated or elects to
-------------------------
effect restoration of the Premises pursuant to the provisions of any
subdivisions of Paragraph 9 of this Lease, unless such restoration is completed
within one hundred eighty (180) days after the date of the occurrence of the
damage or destruction, such period to be subject, however, to extensions of no
more than ninety (90) days in the aggregate where the delay in completion of
such work is due to Lessor's Force Majeure, Lessee shall have the right to
terminate this Lease exercised by the giving of notice to Lessor at any time
within the time period from the expiration of such one hundred eighty (180) day
period (as extended pursuant to the provisions of this Paragraph 9.10)) until
the date which is thirty (30) days subsequent to the expiration of such one
hundred eighty (180) day period (as so extended), such termination to take
effect as of the thirtieth (30th) day after the date of receipt by Lessor of
Lessee's notice, with the same force and effect as if such date were the date
originally established as the expiration date hereof unless, within such thirty
(30) day period such restoration is substantially completed, in which case
Lessee's notice of termination shall be of no force and effect and this Lease
and the Lease Term shall continue in full force and effect. If the Lessor shall
determine within such one hundred eighty (180) day (as extended) period that
such restoration shall not be substantially completed within such one hundred
eighty (180) day (as extended) period, Lessor shall notify Lessee within ten
(10) days after such determination, and Lessee shall have the right by notice to
Lessor within ten (10) days after Lessor's notice to terminate this Lease,
whereupon this Lease shall terminate as of the date of Lessee's notice with the
same force and effect as if such date were the date originally established as
the expiration date hereof. For the purposes of this Paragraph 9.10, a
restoration shall be "substantially completed" if it is complete except for
items of work and adjustments of equipment and fixtures which can be completed
after occupancy has been taken without causing substantial interference with
Lessee's use of the Premises.
9.11 GENERAL. Notwithstanding anything contained in this Paragraph 9 or any
-------
other provision of this Lease to the contrary, (i) if there is damage or
destruction to the Premises, the Building, the Property or the Industrial Center
which is caused by Lessee or any Lessee Party, Lessor shall have the right to
recover Lessor's damages from Lessee, except as released and waived in Paragraph
8.6, (ii) Lessor's obligation to restore or repair shall be subject to the
rights of any ground lessor or the holders of any mortgage or deed of trust on
the Premises, the Building, the Property or the Industrial Center or Lessor's
interest therein, (iii) Lessor shall not be
-6-
<PAGE>
obligated to expend for any repair or restoration any amount in excess of the
net insurance proceeds available to Lessor, (iv) Lessor's obligations for any
repair or restoration, including, without limitation, the commencement of any
repair or restoration as required by Paragraph 9.6(b), shall be subject to, and
Lessor's time for performance shall be extended by, delays due to governmental
regulation, unusual scarcity of or inability to obtain labor or materials, labor
difficulties, casualty or other causes reasonably beyond Lessor's control
(collectively, "Lessor's Force Majeure") and (v) Lessee shall in no event have
any right to reimbursement from Lessor for any funds spent by Lessee to repair
any damage or destruction. If such insurance proceeds are not allowed by such
holder of any mortgage or deed of trust to be applied to, or are insufficient
for, the restoration of the Premises and if Lessor does not otherwise elect to
restore the Premises, then Lessor shall give prompt notice to Lessee terminating
this Lease, the effective date of which termination shall not be less than
thirty (30) days after the date of such notice of termination."
26. INTENTIONALLY OMITTED.
---------------------
27. ASSIGNMENT AND SUBLETTING.
-------------------------
27.1 RESTRICTIONS ON TRANSFER. Except as otherwise expressly provided
------------------------
herein, Lessee covenants and agrees that it shall not assign, mortgage, pledge,
hypothecate or otherwise transfer this Lease and/or Lessee's interest in this
Lease or sublet (which term, without limitation, shall include granting of
concessions, licenses or the like) the whole or any part of the Premises. Any
assignment, mortgage, pledge, hypothecation, transfer or subletting not
expressly permitted in or consented to by Lessor in accordance with Rider
Paragraphs 27.1 through 27.7 shall be void, ab initio; shall be of no force and
effect; and shall confer no rights on or in favor of third parties. In
addition, Lessor shall be entitled to seek specific performance of or other
equitable relief with respect to the provisions hereof.
27.2 EXCEPTIONS FOR PARENT OR SUBSIDIARY. Notwithstanding the foregoing
-----------------------------------
provisions of Rider Paragraph 27.1 above and the provisions of Rider Paragraphs
27.3, 27.4 and 27.6 below, but subject to the provisions of Rider Paragraphs
27.5 and 27.7 below, Lessee shall have the right to assign this Lease or to
sublet the Premises (in whole or in part) to any parent or subsidiary
corporation of Lessee or to any corporation into which Lessee may be converted
or with which it may merge or to any affiliated corporation which is controlled
by, controlling or under common control with Lessee, provided that if Lessee
does not survive as an independent entity the entity to which this Lease is so
assigned or which so sublets the Premises has a credit worthiness (e.g. assets
and capitalization) and net worth (which shall be determined on a pro forma
basis
-7-
<PAGE>
using generally accepted accounting principles consistently applied and using
the most recent financial statements) which is the same or better than Lessee as
of the Commencement Date of this Lease.
27.3 SUBLEASE OF A PORTION OF SPACE. Notwithstanding the provisions of
------------------------------
Rider Paragraph 27.1 above but subject to the provisions of this Rider Paragraph
27.3 and the provisions of Rider Paragraphs 27.5, 27.6 and 27.7 below, Lessee
may sublease less than fifty percent (50%) of the floor area of the Premises in
the aggregate provided that in each instance Lessee first obtains the express
prior written consent of Lessor, which consent shall not be unreasonably
withheld or delayed. Lessor shall not be deemed to be unreasonably withholding
its consent to such a proposed subleasing if:
(a) the proposed assignee or sublessee is not of a character consistent
with the operation of the Building, or
(b) the proposed assignee or sublessee is not of good character and
reputation, or
(c) the proposed assignee or sublessee does not possess adequate financial
capability to perform the Lessee's obligations as and when due or required, or
(d) the assignee or sublessee proposes to use the Premises (or part
thereof) for a purpose other than the purpose for which the Premises may be used
as stated in Paragraph 1.8 hereof, or
(e) the nature of the proposed assignee of subtenant's use of the Premises
would involve any increased risk of the use, release or mishandling of Hazardous
Substances, or
(f) there shall be existing any Default or Breach of Lessee (defined in
Paragraph 13.1).
27.4 SUBSTANTIAL SUBLEASING OR ASSIGNMENT. Notwithstanding the provisions of
------------------------------------
Rider Paragraph 27.1 above, but subject to the provisions of this Rider
Paragraph 27.4 and the provisions of Rider Paragraphs 27.5, 27.6 and 27.7 below,
Lessee covenants and agrees not to assign this Lease or to sublet fifty percent
(50%) or more of the floor area of the Premises (which shall be deemed to
include, without limitation, any proposed subleasing which together with prior
subleasings would result in an area equal to or greater than fifty percent (50%)
of the floor area of the Premises in the aggregate being the subject of one or
more subleases) without, in each instance, having first obtained the prior
written
-8-
<PAGE>
consent of Lessor, which consent shall not be unreasonably withheld or delayed.
Lessor shall not be deemed to be unreasonably withholding its consent to such a
proposed assignment or subleasing if:
(a) the proposed assignee or sublessee is not of a character consistent
with the operation of the Building, or
(b) the proposed assignee or sublessee is not of good character and
reputation, or
(c) the proposed assignee or sublessee does not possess adequate financial
capability to perform the Lessee's obligations as and when due or required, or
(d) the assignee or sublessee proposes to use the Premises (or part
thereof) for a purpose other than the purpose for which the Premises may be used
as stated in Paragraph 1.8 hereof, or
(e) the nature of the proposed assignee of subtenant's use of the Premises
would involve any increased risk of the use, release or mishandling of Hazardous
Substances, or
(f) there shall be existing any Default or Breach of Lessee (defined in
Paragraph 13.1), or
(g) in the case of a proposed assignment or a proposed subleasing which
together with prior subleasing would result in an area equal to fifty percent
(50%) or more of the floor area of the Premises being the subject of one or more
subleases, Lessor elects, at its option, by notice given within thirty (30) days
after receipt of Lessee's notice given pursuant to Paragraph 27.5 below, to
terminate this Lease as of a date which shall be not earlier than sixty (60)
days nor later than one hundred twenty (120) days after Lessor's notice to
Lessee; provided, however, that upon the termination date as set forth in
Lessor's notice, all of Lessor's and Lessee's obligations relating to the period
after such termination date (but not those relating to the period before such
termination date) shall cease.
27.5 LESSEE'S NOTICE. Lessee shall give Lessor notice of any proposed
---------------
sublease or assignment, and said notice shall specify the provisions of the
proposed assignment or subletting, including (a) the name and address of the
proposed assignee or sublessee, (b) in the case of a proposed assignment or
subletting pursuant to Rider Paragraphs 27.3 or 27.4, such information as to the
proposed assignee's or proposed sublessee's net worth and financial capability
and standing
-9-
<PAGE>
as may reasonably be required for Lessor to make the determination referred to
in Rider Paragraphs 27.3 or 27.4 above (provided, however, that Lessor shall
hold such information confidential having the right to release same to its
officers, accountants, attorneys and mortgage lenders on a confidential basis),
(c) all of the terms and provisions upon which the proposed assignment or
subletting is to be made, (d) in the case of a proposed assignment or subletting
pursuant to Rider Paragraphs 27.3 or 27.4, all other information necessary to
make the determination referred to in Rider Paragraphs 27.3 or 27.4 above and
(e) in the case of a proposed assignment or subletting pursuant to Rider
Paragraph 27.2, such information as may be reasonably required by Lessor to
determine that such proposed assignment or subletting complies with the
requirements of said Rider Paragraph 27.2.
If Lessor shall consent to the proposed assignment or subletting, as the case
may be, then, in such event, Lessee may thereafter sublease the Premises (in
whole or part) or assign pursuant to Lessee's notice, as given hereunder;
provided, however, that if such assignment or sublease shall not be executed and
delivered to Lessor within ninety (90) days after the date of Lessor's consent,
the consent shall be deemed null and void and the provisions of Rider Paragraph
27.3 shall be applicable.
27.6 PROFIT ON SUBLEASING OR ASSIGNMENT. In addition, in the case of any
----------------------------------
assignment or subleasing as to which Lessor may consent (other than an
assignment or subletting permitted under Rider Paragraph 27.2 hereof) such
consent shall be upon the express and further condition, covenant and agreement,
and Lessee hereby covenants and agrees that, in addition to the monthly Base
Rent, other rent (including, without limitation, payments for insurance premiums
and real estate taxes) and other charges to be paid pursuant to this Lease,
fifty percent (50%) of the "Assignment/Sublease Profits" (hereinafter defined),
if any, shall be paid to Lessor.
The "Assignment/Sublease Profits" shall be the excess, if any, of (a) the
"Assignment/Sublease Net Revenues" as hereinafter defined over (b) the monthly
Base Rent, other rent (including without limitation, payments for insurance
premiums and real estate taxes) and other charges provided in this Lease
(provided, however, that for the purpose of calculating the Assignment/Sublease
Profits in the case of a sublease, appropriate proportions in the applicable
monthly Base Rent, other rent (including, without limitation, payments for
insurance premiums and real estate taxes) and other charges under this Lease
shall be made based on the percentage of the Premises subleased and on the terms
of the sublease). The "Assignment/Sublease Net Revenues" shall be the monthly
Base Rent, other rent (including, without limitation, payments for insurance
premiums and real estate taxes) and all other charges and sums payable either
initially or
-10-
<PAGE>
over the term of the sublease or assignment plus all other profits and increases
----
to be derived by Lessee as a result of such subletting or assignment, less the
reasonable costs of Lessee incurred for brokerage and tenant improvements in
such subleasing or assignment amortized over the term of the sublease or
assignment.
All payments of the Assignment/Sublease Profits due to Lessor shall be made
within ten (10) days of receipt of same by Lessee.
27.7 ADDITIONAL CONDITIONS. (A) It shall be a condition of the validity of
---------------------
any assignment or subletting of right under Rider Paragraph 27.2 above, or
consented to under Rider Paragraph 27.4 above, that the assignee or sublessee
agrees directly with Lessor, in form reasonably satisfactory to Lessor, to be
bound by all the obligations of the Lessee hereunder, including, without
limitation, the obligations to pay the monthly Base Rent, other rent,
(including, without limitation, payments for insurance premiums and real estate
taxes), and other amounts provided for under this Lease (but in the case of a
partial subletting, such sublessee shall agree on a pro rata basis to be so
bound) including the provisions of Rider Paragraphs 27.1 through 27.7 hereof,
but such assignment or subletting shall not relieve the Lessee named herein of
any of the obligations of the Lessee hereunder, and Lessee shall remain fully
and primarily liable thereof.
(B) As other rent, Lessee shall reimburse Lessor promptly for reasonable out of
pocket legal and other expenses incurred by Lessor in connection with any
request by Lessor for consent to assignment or subletting.
(C) If this Lease be assigned, or if the Premises or any part thereof be sublet
or occupied by anyone other than Lessee, Lessor may upon prior notice to Lessee,
at any time and from time to time, collect monthly Base Rent, other rent
(including, without limitation, payments for insurance premiums and real estate
taxes), and other charges from the assignee, sublessee or occupant and apply the
net amount collected to the monthly Base Rent, other rent (including, without
limitation, payments for insurance premiums and real estate taxes), and other
charges herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of this covenant, or a waiver of the
provisions of Rider Paragraphs 27.1 through 27.7 hereof, or the acceptance of
the assignee, sublessee or occupant as a lessee or a release of Lessee from the
further performance by Lessee of covenants on the part of Lessee herein
contained, the Lessee herein named to remain primarily liable under this Lease.
(D) The consent by Lessor to an assignment or subletting under any of the
provisions of Rider Paragraphs 27.2 or 27.4 shall in no way be construed to
-11-
<PAGE>
relieve Lessee from obtaining the express consent in writing to Lessor to any
further assignment or subletting.
28. INSERT TO PARAGRAPH 13.1: "(h) Any other matter explicitly deemed to be
------------------------
a Breach by the terms of this Lease."
29. INSERT TO PARAGRAPH 14: ", but this Lease shall terminate only as to the
----------------------
portion so taken and this Lease shall continue in full force and effect as to
that portion not so taken except as hereinafter provided."
30. INSERT TO PARAGRAPH 14: ", provided that such award does not affect the
----------------------
amount of the award otherwise recoverable by Lessor from the condemning
authority."
31. INSERT TO PARAGRAPH 14: "Notwithstanding anything contained in this
----------------------
Paragraph 14 or any other provisions of this Lease to the contrary, (i) Lessor's
obligations to repair or restore in the event of a condemnation are subject to
(i) the rights of, and the availability of any condemnation award from, any
ground lessor or the holder of any mortgage or deed of trust covering the
Premises, the Building, the Property or the Industrial Center or Lessor's
interest therein and (ii) Lessor's Force Majeure."
32. INSERT TO PARAGRAPH 16.1. "(a) Lessee shall at any time upon not less
------------------------
than ten (10) business days prior written notice from Lessor execute,
acknowledge and deliver to Lessor a statement in writing (i) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the rent and other charges
are paid in advance, if any, and (ii) acknowledging that there are not, to
Lessee's knowledge, any uncured defaults or breaches on the part of Lessor
hereunder, or specifying such defaults or breaches if any are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser,
financier, ground lessor or encumbrancer of the Premises, the Building, the Land
or the Industrial Center or Lessor's interest therein.
(b) At Lessor's option, Lessee's failure to deliver such statement within five
(5) days after notice from Lessor that Lessee has failed to deliver such
statement within the time period required by (a) above, shall be a Breach
by Lessee under this Lease and/or shall be conclusive upon Lessee (i) that
this Lease is in full force and effect, without modification except as may
be represented by Lessor, (ii) that there are no uncured defaults or
breaches in Lessor's performance, and (iii) that not more than one (1)
month's rent has been paid in advance.
-12-
<PAGE>
33. INSERT TO PARAGRAPH 17: "In addition to the foregoing provisions, Lessee
----------------------
specifically agrees to look solely to Lessor's then equity interest in the
Property at the time owned, or in which Lessor holds an interest as ground
lessee, for recovery of any judgement from Lessor, it being specifically agreed
that neither Lessor (original or successor), nor any partner of Lessor nor any
trustee or beneficiary of any trust of which any person holding Lessor's
interest is trustee, shall ever be personally liable for any such judgement, or
for the payment of any monetary obligation to Lessee. Further, Lessor shall not
be liable for any indirect or consequential damages.
34. NOTICES AND TIME FOR ACTION. Whenever, by the terms of this Lease,
---------------------------
notice shall or may be given either to Lessor or to Lessee such notices shall be
in writing and shall be sent by hand, registered or certified mail, or overnight
or other commercial courier, postage or delivery charges, as the case may be,
prepaid as follows:
If intended for Lessor, addressed to Lessor at the address set forth in
Paragraph 1.1 of this Lease (or to such other address or addresses as may from
time to time hereafter be designated by Lessor by like notice).
If intended for Lessee, addressed to Lessee at the address set forth in
Paragraph 1.1 of this Lease, Attention: Lisa Billig, Chief Financial Officer (or
to such other address or addresses as may from time to time hereafter be
designated by Lessee by like notice).
Except as otherwise provided herein, all such notices shall be effective when
received; provided, that (i) if receipt is refused, notice shall be effective
upon the first occasion that such receipt is refused or (ii) if the notice is
unable to be delivered due to a change of address of which no notice was given,
notice shall be effective upon the date such delivery was attempted.
Where provision is made for the attention of an individual or department, the
notice shall be effective only if the wrapper in which such notice is sent is
addressed to the attention of such individual or department.
Time is of the essence with respect to any and all notices and periods for
giving of notice or taking any action thereto under this Lease."
35. INSERT TO PARAGRAPH 26: "Lessee has no right to retain possession of the
----------------------
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. Any holding over by Lessee after the expiration of the term of this
Lease
-13-
<PAGE>
shall be treated as a tenancy at sufferance at one hundred fifty percent (150%)
of the rents and other charges herein (prorated on a daily basis) and shall
otherwise be on the terms and conditions set forth in this Lease, as far as
applicable; provided, however, that neither the foregoing nor any other term or
provision of this Lease shall be deemed to permit Lessee to retain possession of
the Premises or hold over in the Premises after the expiration or earlier
termination of the Lease Term."
36. INSERT TO PARAGRAPH 34. "Notwithstanding any consent to a sign by
----------------------
Lessor, prior to installing a sign approved by Lessor, Lessee shall comply with
all Applicable Requirements, including, without limitation, sign by-laws and the
Exhibit D Restrictions and shall deliver to Lessor copies of the applicable
permits and the approval of such sign as given by the Plan Approving Agent under
the Exhibit D Restrictions. Any such sign shall be maintained by Lessee, at
Lessee's sole cost and expense, in good order, condition and repair and Lessee
shall do no damage to the Premises, the Building and the Industrial Center in
connection with the installation, repair and maintenance of such sign and shall
repair any such damage done, any damage caused by the failure to properly
install, repair and maintain such sign and any damage caused by the removal of
any such sign. Upon the occurrence of a Breach of Lessee, Lessor, at Lessor's
option and at Lessee's expense, may remove any such sign.
37. INTENTIONALLY OMITTED
---------------------
38. INTENTIONALLY OMITTED.
---------------------
39. TERMINOLOGY. (a) Wherever in this Lease the Term "Landlord" is used it
-----------
shall be deemed to mean "Lessor" and wherever in this Lease the Term "Tenant" is
used it shall be deemed to mean "Lessee."
(b) Whenever in the Lease or in this Rider (i) the term "mortgagee" is used it
shall be deemed to also mean the beneficiary of a deed of trust and (ii)
the term "mortgage" is used it shall be deemed to also mean "deed of
trust."
40. INSERT TO PARAGRAPH 4.2 (a): "in excess of Base Year Common Area
---------------------------
Operating Expenses" (as hereinafter defined) (except in the case of items (v)
and (vi) below, which shall be included in Common Area Operating Expenses in the
amounts described in (v) and (vi) below)"
41. INSERT TO PARAGRAPH 4.2: "(e) Notwithstanding the foregoing, no
-----------------------
decrease in Common Area Operating Expenses shall result in a reduction in the
amount otherwise payable by Lessee to the extent said decrease is attributable
to vacancy and no other cause.
-14-
<PAGE>
(f) Notwithstanding the foregoing, if Lessor shall spend any amount included
within Common Area Operating Expenses or perform any obligation of Lessor
under Paragraph 7.2 of this Lease or otherwise because of damage to the
Premises, the Building, the Property or the Industrial Center, including,
without limitation, the parking lots and areas, the truck storage drop off
and other truck areas, loading areas and loading doors, caused by Lessee or
its employees, agents, servants, independent contractors, drivers, haulers
or hauling agents, shipping companies, delivery companies, carriers,
customers or clients or any Lessee Party, Lessee shall be responsible for
one hundred percent (100%) of the cost thereof, which cost shall be payable
as rent hereunder within fifteen (15) days after Lessor bills Lessee
therefor, provided that, except in emergencies, Lessor has notified Lessee
of such damage prior to the commencements of the repair. If Lessee fails
to pay such costs as provided above, Lessor shall have the same remedies
for such non-payment as Lessor has for the non-payment of rent hereunder.
(g) The term "Base Year Common Area Operating Expenses" shall mean Common Area
Operating Expenses for the period from January 1, 1996 through December 31,
1996."
(h) "Operating Expenses" shall not include capital expenditures (except as
otherwise set forth herein), the cost of the removal of Hazardous
Substances required by Applicable Requirements, leasing brokerage
commissions, attorneys fees for the enforcement of leases, compensation and
benefits of any of Lessor's employees at or below the level of building
manager for their services in operating or maintaining the Building or the
Industrial Center to the extent such employees are not performing such
services for the Building or the Industrial Center, and the compensation
and benefits of Lessor's employees above the level of building manager.
42. INSERT TO PARAGRAPH 8.1: "The term "Insurance Cost Increase" shall not
-----------------------
include increases in premiums for (i) earthquake, (ii) rental interruption or
(iii) additional incurrence required by a ground lessor or the holder of any
mortgage or deed of trust upon the Building, the Property, the Premises or the
Industrial Center, if the cost of such type of insurance is not included in the
Base Premium. The term "Base Premium" shall mean the premium applicable to the
Required Insurance for the period from January 1, 1996 through December 31,
1996."
43. INSERT TO PARAGRAPH 2.2: "(i) ninety (90) days after the Commencement
-----------------------
Date with respect to non-compliance of the heating and air conditioning systems
in the Premises and (ii) thirty (30) days after the Commencement Date with
respect to all other non-compliance,"
-15-
<PAGE>
44. INSERT TO PARAGRAPH 2.10(f): ", provided that the same do not reduce the
---------------------------
number of Unreserved Parking Spaces set forth in Paragraph 1.2(b)."
45. INSERT TO PARAGRAPH 4.2(a)(iii): "(at reasonable rates consistent with
-------------------------------
the type of occupancy and the services rendered)"
46. INSERT TO PARAGRAPH 4.2 (a)(viii): "not actually recovered from another
---------------------------------
lessee in the Industrial Center."
46.1 INSERT TO PARAGRAPH 4.2(a): "(x) Depreciation for capital
--------------------------
expenditures made by Lessor (a) to reduce Operating Expenses if Lessor has a
reasonable basis for believing the capital expenditure will reduce Operating
Expenses, (b) to comply with Applicable Requirements other than (i) the cost of
the removal of Hazardous Substances required by Applicable Requirements or (ii)
the cost of complying with Applicable Requirements requiring seismic bracing to
be installed in the Building or (c) to perform Lessor's obligations under
Paragraph 7.2 of this Lease or which are otherwise included in the definition of
"Operating Expenses" (plus, in the case of (a), (b) and (c), an interest factor,
reasonably determined by Lessor, as being the interest rate then charged for
long term mortgages by institutional lenders on like properties within the
general locality in which the Building is located), and in the case of (a), (b)
and (c) depreciation shall be determined by dividing the original cost of such
capital expenditure by the number of years of useful life of the capital item
acquired, which useful life shall be determined reasonably by Lessor in
accordance with generally accepted accounting principles and practices in effect
at the time of acquisition of the capital item."
47. INSERT TO PARAGRAPH 4.2: "At the request of Lessee, Lessor shall make
-----------------------
available for Lessee's review, at Lessee's expense, at a time and place
reasonably determined by Lessor, the records of Lessor for Operating Expenses
charged to Lessee pursuant to Paragraph 4.2, insurance premiums charged to
Lessee pursuant to Paragraph 8.1 and real property taxes charged to Lessee
pursuant to Paragraph 10.1."
48. INSERT TO PARAGRAPH 7.3 (a): "Lessor expressly acknowledges that
---------------------------
Lessee's rack and conveyor system and phone and data switches are "Trade
Fixtures"."
48.1 INSERT TO PARAGRAPH 8.2(a): "All insurance required to be maintained by
--------------------------
Lessee hereunder may be in the form of blanket policies, so called, insuring the
Premises as well as other locations leased by Lessee."
-16-
<PAGE>
49. INSERT TO PARAGRAPH 10.2(a): "provided, however, that if at any time
---------------------------
during the Lease Term the present system of ad valorem taxation of real property
shall be changed so that in lieu of, or in addition to, the whole or any part of
the ad valorem tax on real property, there shall be assessed on Lessee a capital
levy or other tax on the gross rents received with respect to the Premises, the
Building, the Property or the Industrial Center, or a Federal, State, County,
Municipal, or other local income, franchise, excise or similar tax, assessment,
levy, charge, license fee or commercial rental tax (distinct from any now in
effect in the jurisdiction in which the Property is located) measured by or
based, in whole or in part, upon any such gross rents, then any and all of such
taxes, assessments, levies, charges, license fees or commercial rental taxes to
the extent so measured or based, shall be deemed to be included within the term
"Real Property Taxes" but only to the extent that the same would be payable if
the Premises, the Building, the Property or the Industrial Center were the only
property of Lessor."
50. INSERT TO PARAGRAPH 14: "or if Lessee loses all reasonable access to or
----------------------
egress from the Premises,"
51. INSERT TO PARAGRAPH 16.2: "(which shall be limited to audited annual and
------------------------
quarterly statements)"
52. INSERT TO PARAGRAPH 32: ", which access, except in emergencies, shall be
----------------------
upon no less than twenty-four (24) hours notice and accompanied by Lessee's
representative,"
53. INSERT TO PARAGRAPH 36(a): ", which shall not exceed $1,000.00 per
-------------------------
request."
54. INSERT TO PARAGRAPH 40: "of general applicability to all lessees in the
----------------------
Industrial Center"
55. INSERT TO PARAGRAPH 2.2: "and the heating and air conditioning systems,
-----------------------
if any, in the Premises, other than those constructed by Lessee and except for
damage caused by Lessee or any Lessee Party, shall be in good operating
condition for a period of sixty (60) days after the Commencement Date."
56. INSERT TO PARAGRAPH 6.2(c): "Lessor shall indemnify, protect, defend and
--------------------------
hold Lessee, its agents and employees harmless from and against any and all
damages, liabilities, judgements, costs, claims, expenses, penalties and
attorneys' and consultants' fees resulting from the presence of Hazardous
Substances on the Premises to the extent the same are not directly or indirectly
caused by or related to Lessee's Toxic Materials Activities. Lessor's
obligations under the preceding sentence shall include, but not be limited to,
the effects of any contamination or
-17-
<PAGE>
injury to person, property or the environment and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement of any contamination involved."
-18-
<PAGE>
EXHIBIT 10.15
PRINTING AGREEMENT
------------------
AGREEMENT dated as of May 31, 1996, by and between QUEBECOR PRINTING (USA)
CORP., a Delaware corporation, having an office at 301 Howard Street, San
Francisco, CA. 94105 ("Printer") and VIKING OFFICE PRODUCTS, INC., a California
Corporation, having an office at 879 West 190th Street, Gardena, CA. 90248
("Customer" or "Viking").
WHEREAS, Printer and Customer desire to enter into an agreement for the
printing by Printer of certain quantities of the Viking Office Products U.S.
Catalog Program (the "Catalogs") on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Quantities
----------
A. Printer agrees to print and Customer agrees to purchase during the term
of this Agreement Customer's entire printing requirements for the U.S.
Catalog Program at prices agreed upon between Printer and Customer.
B. In order to assist the Printer in providing for the Customer's
requirements, the Customer shall submit a forecast once ever six (6)
months during the term of this Agreement showing its total requirements
hereunder, including, without limitation, the number of copies and
pages for each effort to be produced in the succeeding twelve (12)
month period. The Customer shall not in any way be limited by nor
obligated to the requirements shown on such forecast.
C. Any variation from total quantities ordered are the responsibility of
the Printer. Customer reserves the right to purchase overrun copies up
to 1% of the print order at the invoiced price per thousand copies.
<PAGE>
2. The Work
--------
Subject to the provisions of this Agreement, Printer shall perform, cause to
be performed or supply all labor, supervision, equipment, utilities and
facilities, and production materials for (cylinder or plate making), press
work, binding, packing, loading, and all other work necessary to complete
the printing, manufacturing and readying for mailing and delivery of the
Catalogs (collectively, "the Work") at Printer's facility in Dallas, Mt.
Morris, and St. Cloud or at any other plants or facilities of Printer or
its affiliates (at no additional manufacturing cost to Customer) in
accordance with the specifications ("Specifications") and production
schedule ("Production Schedule") which the parties have previously executed,
and will amend in writing from time to time. If overtime is required to meet
Customer's delivery or quantity requirements, Printer shall use its best
efforts to make any necessary overtime available and will charge for such
overtime at its then current rates. If overtime is required due to Printer's
internal scheduling problems arising after a production schedule has been
agreed upon and not due to Customer's failure to comply with the production
schedule, Printer shall not charge for such overtime. No chargeable overtime
work will be performed without Customer's prior approval, and in the absence
of such approval, deliver of the Work will be made as promptly as
practicable consistent with Printer's then available capacity.
3. Guarantee
---------
A. Printer shall perform the Work in a good and workmanlike manner and in
accordance with the Specifications and Production Schedule. Annual
Production Schedules will be updated on or before August 1 of each year
during the term of this Agreement.
B. In the event that Customer submits materials per the established
production schedule, and Printer is unable to meet the established
Catalog drop dates of the Customer, Printer shall place said work at no
additional cost to Viking with a qualified mutually agreeable resource
(internally or outside printer) to effect and meet Viking's requested
drop dates.
C. If Printer fails to meet drop dates after Customer has submitted all
materials and instructions per the established production schedule or as
reasonably requested by the Printer, Printer and Customer shall endeavor
to arrive at a mutually satisfactory arrangement to compensate Customer
for loss. Should the parties fail to arrive at a mutually satisfactory
settlement, parties will submit the dispute to binding arbitration in
the City of Los Angeles, CA, before a single arbitrator in accordance
with the rules and procedures of the American Arbitration Association.
Arbitration in Los Angeles shall be the sole forum for the resolution of
any such dispute, and the decision of such arbitrator shall be final and
not subject to appeal by either party.
2
<PAGE>
D. Any change requested by Customer in the specifications for the Catalog
Program or the Production Schedule shall require, in each case, the
prior consent of Printer. Printer shall use its best efforts to
accommodate such request but may decline to do so if, i) such changes
are not feasible or practical because of limitations of labor or
equipment, ii) the equipment being utilized by Printer for the Work is
unable to accommodate such change, or iii) Customer and Printer fail to
agree to such adjustment of Prices as is necessary to reflect any
resulting increases in unit cost.
E. This is a performance-based Agreement. If either party, Printer or
Customer, fails to fulfill its respective obligations under the terms
of this Agreement, the other party shall have the right to terminate
this Agreement, pursuant and subject to the following provisions:
Written notice must be submitted to the party in default specifying in
detail the failure or failures that the claiming party claims. If such
failures are not fully corrected within ninety (90) days of the date of
such notice to the reasonable satisfaction of the party giving such
notice, such party shall have the right to terminate this Agreement, by
giving written notice to that effect, in which case this Agreement will
terminate thirty (30) days after the date of the termination notice,
without prejudice to any claims or rights of the non-defaulting party
under this Agreement.
4. Prices, Price Adjustments and Terms of Payments
-----------------------------------------------
A. The prices charged to Customer for the Work shall be as set forth in
the Price Schedule which the parties have previously executed, and
will amend in writing from time to time (the "Price Schedule"). Prices
are based on the cost of materials furnished by Printer, scales of
wage rates and payroll taxes, hours of work, cost of employee benefits
and other terms of employment and utilities of the Printer in effect on
January 1, 1996.
B. Prices shall be adjusted on January 1 (the "Adjustment Date") of each
year during the term of this Agreement at a mutually agreed upon
general wage increase not to exceed 3% to be applied against labor
costs only.
C. The prices on the Price Schedule for ink, other materials and utilities
shall be adjusted from time to time by adding thereto or subtracting
therefrom the actual percentage increase or decrease to Printer for
such materials since the prior adjustment; however, any ink price
increases in 1996 will be delayed until 1997.
D. Each change in Prices shall become effective as to all Work performed
for the issue date following the date on which the change in prices to
Customer becomes effective, irrespective of the date of billing.
3
<PAGE>
E. Printer shall furnish Customer with a revised Price Schedule when
practicable after each such increase, together with a detailed breakdown
of all such adjustments in Prices. Such revised Price Schedule shall be
the basis for subsequent price adjustments.
F. Upon request by Customer within six (6) months of notice of a price
change, Printer shall furnish Customer with documentary proof, including
invoices, bills and statements, reasonably supporting invoices of
Printer to Customer and establishing and justifying price adjustments
provided for in this Agreement. Customer shall also be entitled to
receive, provided Customer so requests and pays for, a signed opinion of
Printer's then independent certified public accountants (which
accountants shall be permitted to examine invoices, statements and other
such documents of Printer that show costs of materials and all other
costs which are relevant to determining price adjustments hereunder) to
the effect that they have examined such records of Printer and that the
adjustments in Prices result from actual changes in costs and have been
computed correctly and in accordance with the terms of this Agreement.
If any price adjustment or amount payable to Printer was incorrectly or
improperly determined, the price or amount in question shall be properly
recomputed and appropriate adjustments shall promptly be made.
G. Customer shall pay Printer for the Work net cash, due within thirty (30)
days from date of invoices for Work. Customer shall pay interest on any
invoice amount outstanding after the due date, except for amounts
disputed in good faith by Customer as provided below, at the then prime
lending rate established by Chase Manhattan Bank plus one percent (1%).
In the event Customer shall dispute any amount of an invoice, Customer
shall notify Printer in writing of the dispute, specifying in detail the
basis for disputing the invoice, and the amount in dispute and pay to
Printer that portion of the invoice not in dispute in accordance with
the foregoing. The parties shall use their best efforts to resolve any
such disputes as promptly as possible.
H. All copies of the Catalogs shall be shipped F.O.B. Printer's dock and
all freight will be prepaid, billed directly to Customer by Printer. The
delivery schedules and methods of delivery are to be in accordance with
the Production Schedule. All handling charges inside Printer's plants,
including loading on carriers, shall be paid by Printer.
4
<PAGE>
I. Customer shall reimburse Printer for any personal taxes imposed after
the date of this Agreement on all materials owned by Customer and kept
at Printer's plants, if any, and on completed copies of the Catalog,
and for all additional taxes levied on the manufacturing, production,
processing or changing the form of any article of commodity or upon the
sale of any article or commodity, which may be imposed upon and paid by
Printer on account of any act required to be done by Printer in the
performance of its services hereunder, whether such taxes shall be
called excise taxes, processing taxes, sales taxes, or by any other
name (except franchise and income taxes).
J. Unless otherwise specified, the Prices do not cover storage of paper,
other materials, work in process or finished goods beyond the
production schedule span. If Customer delays completion of the Work or
postpones delivery of finished goods beyond the date specified in the
production schedule, or if Customer's furnished materials arrive prior
to the dates specified in the production schedule, storage will be
charged at the prevailing rates for the period that the finished goods,
work in process or furnished materials remain in Printer's possession.
5. Paper
-----
A. Customer shall furnish all paper for the Work in accordance with the
Specifications. If an identifiable substandard and/or defective paper
roll or series of rolls is received by Printer which affects runability
or printability, Printer will provide prompt notification to Customer
by telephone upon discovery of such substandard or defective condition,
confirming such notification to Customer in writing within three (3)
business days. If, after such telephone notification, Printer is
required by Customer to use said paper to perform the services set
forth hereunder and incurs extra cost as a result thereof, said cost
will be charged to and paid by Customer.
Printer agrees to provide storage facilities for Customer's paper,
without charge, for a period of ninety (90) days from receipt. Paper
shipped in excess of an effort's contract-calculated requirements will
be stored on Printer's premises, if space is available. In the event
space is not available, Printer will assist Customer in arranging to
store excess paper at a public warehouse. It is understood and agreed
that storing paper away from Printer's premises may result in
additional cost to Customer, which may include, but not be limited to,
demurrage, extra loading charges, addition freight and drayage
charges, additional in-plant transportation costs, additional transit
damage and waste. Printer may invoice Customer for any additional
costs involved for such storage, on or off the premises, and such
invoices will be payable net cash within thirty (30) days from date
of invoice. In providing the aforesaid facilities and assistance,
Printer shall not be deemed to be acting as Customer's agent in
connection therewith.
5
<PAGE>
Printer will act as Customer's agent in receiving paper, at its plant,
using the same reasonable care and diligence no matter who the provider,
inspecting it and notifying Customer of transit damage whenever
necessary. Customer shall pay Printer a handling fee of $1.36 per cwt.
of paper delivered to Printer's facilities. Printer shall have no
liability or responsibility for damaged or defective paper. Customer
will furnish Printer, if necessary, with such data as the original bill
of lading, freight bill and certified invoice and other records
necessary for filing such claims.
B. Printer shall conduct a semi-annual inventory confirmation and
reconciliation of all paper consumed after the production of six months
of efforts to determine the net over/under consumption per grade. Should
the paper consumed during the accounting period exceed the allowances in
the Price Schedule per paper stock type, Printer shall compensate
Customer for the paper overconsumed by either replenishing that
particular stock inventory one-for-one the pounds overconsumed or
remitting to Customer the dollar value of the stock. Should the amount
of paper consumed during this accounting period be less than that
allowed in the Price Schedule, Customer shall share with Printer 50% of
the savings which shall be based upon the pounds of paper per grade and
weight during the accounting period. This final settlement shall be
based upon the sum total of over and/or underconsumption per paper
grade. Manufacturing waste will be the property of Printer.
6. Term and Termination
--------------------
A. The term of this Agreement shall commence as of January 1, 1996 and end
upon the completion of the Work for the issue date closest to December
31, 2001.
B. Printer and Customer reserve the right to check prevailing market
pricing in 1999. This check will be performed via the solicitation of
manufacturing proposals for the entire U.S. Catalog Program from no less
than three mutually agreed upon vendors. Should either party identify
significant differences between the average of these solicited proposals
and prices set forth in, both parties agree to make appropriate and
mutually agreed upon adjustments to the pricing set forth in the Price
Schedule to be effective January 1, 2000. If the parties hereto fail to
reach agreement within ninety (90) days, the issue shall be submitted
to arbitration, the rules and procedures of which shall be mutually
agreed upon by the parties.
6
<PAGE>
C. Customer may terminate this Agreement upon the permanent
discontinuance in good faith of the U.S. Catalog Program without
publication of a successor or similar Catalogs named Viking or not.
Customer shall notify Printer at least twelve (12) months in advance
of the effective date of such discontinuance. The publication of a
nominal number of copies for the sole purpose of protecting trademark
shall not be deemed a continuation of publication.
D. Upon termination of this Agreement for whatever cause, all unpaid sums
for any of the Work done or in process as of the date of termination,
whether or not invoiced at that date, shall become immediately due and
payable. In the event of termination, Customer shall also reimburse
Printer for costs which it cannot avoid through reasonable control.
7. Force Majeure
-------------
A. If either party is unable to perform hereunder because of war, fire,
strikes, labor strife or slowdown, civil commotion, freight embargoes,
material shortages, floods, or other acts of God, action of any
governmental authority (including, without limitation, priorities or
restrictions effected pursuant to the provisions of emergency
legislation by any governmental authority) or any other causes of like
or unlike nature beyond its reasonable control, the party so unable to
perform shall give prompt notice thereof and shall thereby be excused
from such performance during the continuation of such period of
inability, provided, however, that Customer shall accept and pay for
all copies of the Catalogs that have been printed for it before its
written notice to Printer of any such inability to perform. If such
interruption shall continue for a period of two (2) months or more,
either party shall have the right to terminate this Agreement at the
expiration of said period by giving the other party thirty (30) days
advance notice thereof.
B. If Printer notifies Customer in writing that it is unable to secure
one or more of the materials necessary for production of the Catalogs
required hereunder to be furnished by Printer, Customer may, at its
option, purchase such materials and furnish them to Printer until such
inability ceases. In such case, Customer shall be granted an allowance
equal to the cost of the materials supplied.
7
<PAGE>
8. Indemnification
---------------
A. Customer shall indemnify and hold Printer harmless from and against any
and all losses, claims, or damages, including reasonable attorney's
fees, for libel, copyright infringement, plagiarism, unauthorized
additions, omissions, or modifications, and any other claims that any
rights have been infringed by the content of the Product, provided that
such claims are based upon matters which were contained in the copy
furnished to Printer by Customer and are not based on any unauthorized
deletions, modifications or additions to such copy by Printer.
B. Printer shall promptly notify Customer of any and all losses, claims,
or damages, referred to in Clause A above, in writing, and shall afford
Customer an opportunity to defend the same for an on behalf of
Printer. Customer shall pay the cost of such defense, whether it
shall be conducted by Customer or by Printer at Customer's request,
provided that notice of suit and the opportunity to defend it shall
have been given as aforesaid. If Customer elects to defend such suit,
Printer may participate in such defense at its own discretion.
C. Printer similarly shall indemnify and hold Customer harmless from and
against any and all claims, losses, or damages, including reasonable
attorney's fees, referred to in Clause A above, which arise because of
the failure of Printer or any of its employees to accurately reproduce
the copy, art work or illustrations furnished by Customer. All the
foregoing terms shall apply mutatis mutandis. The provisions of this
Article 8 shall survive indefinitely the termination of this Agreement
for any reason.
9. Credit Review
-------------
Should there be substantial adverse change in Customer's credit standing or
in the event that Customer does not comply with the payment provisions
hereunder, Printer shall have the right to change terms of payment and its
obligation to perform further work will be subject to reaching mutual
agreement on such revised terms.
10. Bankruptcy
----------
If either party shall be adjudicated a bankrupt, institute voluntary
proceedings for bankruptcy or reorganization, make an assignment for the
benefit of its creditors, apply for or consent to the appointment of a
receiver for it or its property, or admit in writing its inability to pay
its debts as they become due, the other party may terminate this agreement
by written notice. Any such termination shall not relieve either party from
any accrued obligations hereunder.
<PAGE>
11. Additions or Modifications of Equipment/Technology
--------------------------------------------------
Customer may from time to time request Printer in writing and install new
equipment or modify its existing equipment, including that installed at
Customer's premises, to take into account technological changes and/or
changes in the practices of the prepress, presswork, binding, and
packaging/addressing segments of the commercial print industry.
Customer, at the time of these requests, must provide Printer with a
preliminary forecast of the volume affected by this new investment(s) -
efforts, quantities - and a projected time frame for implementation. As
soon as practicable after such request, Printer shall notify Customer in
writing whether or not the requested addition or modification is
technologically possible, practical and whether or not such change can be
effected. If such changes are feasible, the parties shall thereafter
negotiate in good faith the volume and timing commitments and the
adjustment of the Prices necessary to reflect any change in cost or any
resulting savings which will be realized in the Work as a result of such
change and enable Printer to recover the cost of all capital expenditures
necessary for such addition or modification. If Printer and Customer cannot
agree on requested modifications or additions to equipment and/or pricing
adjustments for same and/or volume and timing commitments for same, the
requested modifications or additions to equipment shall not be implemented.
Printer's determination that such changes are not feasible will not
constitute a breach of this Agreement.
The parties have separately agreed upon specific capital investments to be
made by Printer.
12. Insurance
---------
Printer shall carry, at its expense, fire, sprinkler leakage and extended
coverage insurance, subject to the usual exclusions, limitations and
conditions of such policies, for the Catalogs, all paper, roll stock, and
all work in process while in Printer's facilities, excluding the value of
any materials furnished by Customer (except paper and roll stock), and for
all materials furnished by Printer, to the date of shipping. Customer shall
carry such insurance as it deems desirable on furnished films, data, copy,
and other materials furnished by it, whether or not in process or
completed, including the value of Work performed in creating or producing
such furnished items and, as to the value of Printer's Work or materials
furnished by Printer, on Work that has been shipped. To the extent that
Customer carries such insurance, Customer shall provide a waiver of
subrogation in Printer's favor on all materials furnished by Customer.
9
<PAGE>
13. Limitation of Liability
-----------------------
In the event Work is defective or delayed due to Printer's fault, Printer
shall not be liable for any special, indirect or consequential damages,
including, but not limited to, loss of advertising, circulation, profits,
income or revenue. The foregoing limitations shall not be applicable in the
event of a bad faith or willful refusal of Printer to perform its
obligations pursuant to this Agreement or anticipatory repudiation by
Printer of this Agreement.
14. Sale of Catalog Program
-----------------------
If Customer proposes to sell the Catalog Program, Customer shall use its
best efforts to give Printer written notice of any contemplated sale,
stating the name of the prospective purchaser and the proposed date of
sale. Thereafter, Customer shall keep Printer fully advised of the progress
of any such proposed sales. Printer shall keep such information
confidential. Subject to the prior written consent of Printer, Customer
shall cause the purchaser, concurrently with the consummation of such sale,
to assume all of Customer's obligations under this Agreement by an
instrument in writing satisfactory to Printer.
If Printer shall not consent to the assignment of this Agreement by
Customer to such prospective purchaser, this Agreement shall terminate upon
the earlier of: (i) the consummation of such sale, or (ii) the expiration
of 180 days after Printer advises Customer that Printer will not consent to
the proposed assignment, unless within such 180 day period the Customer
notifies Printer (a) that the Customer no longer proposes to consummate
such sale, or (b) that Customer agrees to an earlier termination date.
15. Lien on Property
----------------
As security for payment of any sum due or to become due to Printer under
the terms of this Agreement, Printer shall have the right, if necessary, to
retain possession of and shall have a lien on all property owned by
Customer and in Printer's possession, and all work in process and
undelivered Work.
16. Representatives
---------------
Customer may at any time designate a production representative to visit
Printer's plant to observe, monitor and review quality, production,
scheduling, delivery, paper, and other matters related to performance under
this Agreement. Printer shall cooperate with and afford such employees
reasonable access to its premises and personnel to facilitate performance
of such functions.
10
<PAGE>
Printer shall provide transportation and lodging costs for one Customer's
representative to and from the manufacturing facility for up to six (6)
visits per year.
17. Assignment
----------
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Customer may
not assign this Agreement to any party other than a party who has acquired
or is acquiring the Catalog Programs in accordance with the provisions of
Section 14 of this Agreement. Except as set forth in the preceding
sentence, no assignment of this Agreement shall be made by either party to
anyone without the prior written consent of the other party, which consent
shall not be unreasonably withheld. In determining reasonableness as
providing above, the relevant factors shall be the financial strength and
the reputation of the assignee and the assignee's ability to comply with
the provisions and obligations of this Agreement. The assignee shall in
each case assume in writing all of the obligations of the assignor.
18. Confidentiality
---------------
Terms and conditions of this agreement, and any and all production
information relating to the Catalog Program are to be kept in the strictest
of confidence and shared only with those employees, agents and
subcontractors deemed as having a need to know in order to fulfill the
obligations set forth in this agreement. See Exhibit A.
Customer may, from time to time, require that a particular technology
developed by Printer to meet a specific requirement of Customer be treated
as proprietary. Customer, in this instance, may request that Printer
execute a mutually agreeable Exclusivity Agreement which Customer and
Printer will negotiate in good faith.
19. European Production
-------------------
See Exhibit B.
20. Applicable Law
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, and each party consents to jurisdiction
over it of any Federal or State courts in the State of California.
11
<PAGE>
21. Notices
-------
All notices, claims, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered personally or transmitted by telecopier as follows:
(a) If to Customer:
Attention: Mr. Rex Ciavola
Telecopy No: 310-329-5017
With a copy to: Mr. Mark Muir
(b) If to a Printer:
Attention: Mr. Joe Johnson
Telecopy No: 714-975-1944
With a copy to: Mr. Tim Methenitis
Telecopy No: 415-541-7855
22. Attorney's Fees
---------------
In the event of any litigation or arbitration between us arising out of
this agreement, the prevailing party shall be entitled to reasonable
attorney's fees and costs computed so as to fully reimburse all attorney's
fees incurred and without regard to any court fee schedule.
23. Acceptance
----------
This Agreement, and any supplement, modification or amendment thereto,
shall not be valid or become effective unless signed by a duly authorized
officer of Printer.
24. Entire Agreement
----------------
This Agreement, and the Schedules, Exhibits and other agreements referred
to herein, contain the entire agreement between the parties with respect to
the subject matter hereof and supersede all prior negotiations, memoranda,
agreements and understandings. This Agreement may not be changed or
terminated other than by an instrument in writing signed by a duly
authorized officer of the party against which enforcement of such change or
termination is sought.
12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in Los Angeles, CA, as of the day and year first above written.
VIKING OFFICE PRODUCTS, INC. QUEBECOR PRINTING (USA) CORP.
/s/ IRWIN HELFORD 8/9/96 /s/ JACK WALKLET 8/9/96
- ---------------------- ------ ---------------------- ------
Mr. Irwin Helford Date Mr. Jack Walklet Date
/s/ MARK MUIR 8/9/96 /s/ TIM METHENITIS 8/9/96
- ---------------------- ------ ---------------------- ------
Mr. Mark Muir Date Mr. Tim Methenitis Date
/s/ REX CIAVOLA 8/9/96 /s/ JOE JOHNSON 8/9/96
- ---------------------- ------ ---------------------- ------
Mr. Rex Ciavola Date Mr. Joe Johnson Date
13
<PAGE>
EXHIBIT 10.26
VIKING OFFICE PRODUCTS, INC.
CHIEF EXECUTIVE OFFICER
PERFORMANCE BASED BONUS PLAN
1. Purpose. The purpose of the Viking Office Products, Inc., Chief
-------
Executive Officer Performance Based Bonus Plan (hereinafter the "Plan") is to
provide for the payment of annual performance bonuses to Irwin Helford
("Executive"), as long as he remains Chief Executive Officer of the Company,
that qualify for federal income tax deduction by the Company.
2. Certain Definitions. The following terms used in the Plan
-------------------
(whether used in the singular or plural) have the following meanings:
"Annual Award" means the actual dollar amount of the annual bonus
determined by the Committee to be payable to Executive under the Plan,
which may not exceed the Maximum Bonus.
"Board" means the Board of Directors of the Company.
"Business Plan" for any fiscal year means the consolidated business
plan or budget of the Company and its consolidated subsidiaries prepared by
the management of the Company and presented to and approved by the Board
prior to or within thirty days after the commencement of the fiscal year
for which it is prepared.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute or statutes thereto, and the regulations
thereunder. Reference to any specific Code section shall include any
successor section.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as the Board may appoint to administer the
Plan.
"Company" or "Viking" means Viking Office Products, Inc., a California
corporation, or any successor.
"Discount Option" means a stock option issued under the Company's 1991
Nonstatutory Stock Option Plan or any successor plan adopted by the
Company on similar terms (the "Option Plan"). Each Discount Option (a)
shall be governed by the terms of the Option Plan, (b) shall have a term of
ten years, subject to termination as provided in the Option Plan, (c) shall
be granted at an exercise price of $2.50 per share, subject to adjustment
as provided in the Option Plan, (d) shall be granted on the date the
conditions of this Plan for payment of the Annual Award are satisfied,
including the Committee's determination of the amount of the Annual Award,
(e) shall be exercisable in full six months and one day after the date of
grant or on such longer vesting schedule as the Committee shall determine,
and (f) shall be deemed to have a value equal to the difference between the
exercise price and the closing price of a share of common stock of the
Company for the last preceding day prior to the date of grant on which such
shares were traded.
"Financial Statements" for any year means the consolidated financial
statements of the Company and its consolidated subsidiaries for such year,
prepared in accordance with
<PAGE>
generally accepted accounting principles applicable to the Company and
audited by independent accountants.
"Fiscal Year" or "fiscal year" means the Company's regular fiscal
year, and "Fiscal 1995" or "fiscal 1995" (or any subsequent year) means the
fiscal year ending in such numbered calendar year.
"Gross Profit" for any fiscal year means the amount derived from the
Financial Statements for such fiscal year that comprises the same elements
of income and cost as and otherwise corresponds to Target Gross Profit in
the Business Plan for such fiscal year.
"Limit" for any fiscal year means $950,000 for fiscal 1995,
$1,300,000 for fiscal 1996, $1,400,000 for fiscal 1997 and $1,500,000 for
fiscal 1998 and each subsequent fiscal year, or such other amount as the
Committee may determine prior to or within ninety days after the beginning
of such fiscal year.
"Maximum Bonus" means the lesser of the Limit and the sum of the
following:
1% of Salary for each full 0.5% of Target Revenues by which Revenues
exceed 90% of Target Revenues and do not exceed 100% of Target
Revenues; plus
1% of Salary for each full 0.4% of Target Gross Profit by which Gross
Profit exceeds 90% of Target Gross Profit and does not exceed 100% of
Target Gross Profit; plus
1% of Salary for each full 2/7 of 1.0% of Target Pre-Tax Profit by
which Pre-Tax Profit exceeds 90% of Target Pre-Tax Profit and does not
exceed 100% of Target Pre-Tax Profit; plus
1% of Salary for each full 0.25% of Target Net Income by which Net
Income exceeds 90% of Target Net Income and does not exceed 100% of
Target Net Income; plus,
If each of Revenues, Gross Profit, Pre-Tax Profit and Net Income
equals or exceeds 100% of Target Revenues, Target Gross Profit, Target
Pre-Tax Income and Target Net Income, respectively:
20% of Salary; plus
1% of Salary for each full 1.0% of Target Revenues by which
Revenues exceed 100% of Target Revenues; plus
1% of Salary for each full 1.0% of Target Gross Profit by which
Gross Profit exceeds 100% of Target Gross Profit; plus
1% of Salary for each full 1.0% of Target Pre-Tax Profit by which
Pre-Tax Profit exceeds 100% of Target Pre-Tax Profit; plus
1% of Salary for each full 1.0% of Target Net Income by which Net
Income exceeds 100% of Target Net Income.
2
<PAGE>
"Net Income" for any fiscal year means the amount derived by adding
back to the amount identified as Net Income (or similar term) in the
Financial Statements for such fiscal year the amount deducted therein (net
of tax benefit) for the Annual Award for such fiscal year.
"Performance Goals" means 90% of Target Revenues, 90% of Target Gross
Profit, 90% of Target Pre-Tax Income and 90% of Target Net Income, or any
one or more of them.
"Pre-Tax Profit" for any fiscal year means the amount derived by
adding back to the amount identified as Income Before Taxes on Income (or
similar term) in the Financial Statements for such fiscal year the amount
deducted therein for the Annual Award for such fiscal year.
"Revenues" for any fiscal year means the amount derived from the
Financial Statements for such fiscal year that comprises the same elements
of income and deductions, if any, as and otherwise corresponds to Target
Revenues in the Business Plan for such fiscal year.
"Salary" for any fiscal year means the amount payable to Executive as
salary for such fiscal year in accordance with his Employment Agreement, as
approved by the Committee, as in effect on the thirtieth day of such fiscal
year, without regard to any subsequent changes.
"Target Gross Profit" for any fiscal year means the amount identified
as Gross Profit on Sales (or similar term) in the Business Plan for such
fiscal year.
"Target Net Income" for any fiscal year means the amount derived by
adding back to the amount identified as Net Income (or similar term) in the
Business Plan for such fiscal year the amount deducted therein (net of tax
benefit) for the Annual Award for such fiscal year.
"Target Pre-Tax Profit" for any fiscal year means the amount derived
by adding back to the amount identified as Pretax Income (or similar term)
in the Business Plan for such fiscal year the amount deducted therein for
the Annual Award for such fiscal year.
"Target Revenues" for any fiscal year means the amount identified as
Total Revenue (or similar term) in the Business Plan for such fiscal year.
3. Payment of Annual Bonus. Subject to the other provisions of this
-----------------------
Section 3, the Committee shall determine the amount and time of payment of the
Annual Award.
3.1 Before the Committee makes an Annual Award, the Company's
independent auditors shall review the calculations of the Maximum Bonus, and the
Committee shall certify that one or more of the Performance Goals have been met.
3.2 Notwithstanding the foregoing, the Committee may in its
discretion determine to make an Annual Award for any year in an amount that is
less than the Maximum Bonus.
3
<PAGE>
3.3 One-fourth of each Annual Award (or such lesser portion as does
not result in the issuance of Discount Options in excess of the individual limit
set forth in the Option Plan) shall be paid by issuing to Executive Discount
Options having a value equal to one-fourth of the amount of the Annual Award (or
such lesser amount). Such options shall be valued as provided in this Plan.
The balance of the Annual Award shall be paid in cash.
3.4 Subject to Section 5 of this Plan, payment of an Annual Award,
if any, under the Plan with respect to any fiscal year shall be made as soon as
practicable after the Committee certifies that one or more of the Performance
Goals have been met or exceeded.
4. Administration. The Plan shall be administered by the Committee
--------------
subject to the express provisions of the Plan and the requirements of section
162(m) of the Code. The Committee shall have plenary authority to interpret the
Plan, to prescribe, amend and rescind the rules and regulations relating to it
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. Each member of the Committee shall be an "outside
director" within the meaning of the Code. The Board may from time to time
appoint members of the Committee in substitution for or in addition to members
previously appointed and may fill vacancies in the Committee.
5. Deferral of Annual Award. Executive may elect by written notice
------------------------
delivered to the Company at least 15 days prior to the commencement of any
fiscal year with respect to which an Annual Award would be payable under the
Plan to defer payment of all or any portion of the Annual Award Executive might
earn with respect to such year, all in accordance with the Code and on such
terms and conditions as the Committee may establish from time to time or as may
be provided in any employment agreement between the Company and Executive.
6. Termination and Amendment. The Plan shall continue in effect until
-------------------------
terminated by the Committee or the Board. The Committee may at any time modify
or amend the Plan in such respects as it shall deem advisable; provided,
however, that any such modification or amendment shall comply with all
applicable laws and applicable requirements for exemption (to the extent
necessary) under section 162(m) of the Code.
7. Effectiveness of the Plan. The Plan shall become effective upon
-------------------------
approval by the vote of a majority of the votes cast at a duly called and held
meeting of shareholders of the Company. Subject to such shareholder approval,
the Plan shall apply to the annual bonus payable to Executive in respect of
fiscal 1995 and each year thereafter.
8. Withholding. The obligations of the Company to make payments under
-----------
the Plan shall be subject to applicable federal, state and local tax withholding
requirements.
9. Severability. If any of the terms or provisions of this Plan conflict
------------
with the requirements of section 162(m) of the Code or applicable law, then such
terms or provisions shall be deemed inoperative to the extent necessary to avoid
conflict with the requirements of section 162(m) of the Code or applicable law
without invalidating the remaining provisions hereof. If this Plan does not
contain any provision required to be included herein under section 162(m) of the
Code, such provision shall be deemed to be incorporated herein with the same
force and effect as if such provision had been set out at length herein.
4
<PAGE>
10. Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
---------------------------
Committee nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Committee or the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options or the
awarding of stock or cash or other benefits otherwise than under the Plan, and
such arrangements may be either generally applicable or applicable only in
specific cases. None of the provisions of this Plan shall be deemed to be an
amendment to or incorporated in any employment agreement between the Company and
Executive.
11. Beneficiaries. Executive may designate a beneficiary or beneficiaries
-------------
to receive, in the event of the death of Executive, any payments remaining to be
made to Executive under the Plan. The Executive shall have the right to revoke
any such designation and to redesignate a beneficiary or beneficiaries by
written notice to the Company to such effect. If Executive dies without naming
a beneficiary or if all of the beneficiaries named by Executive predecease
Executive, then any amounts remaining to be paid under the Plan shall be paid to
Executive's estate.
12. Law Governing. The Plan shall be governed by, and construed in
-------------
accordance with, the laws of the State of California.
5
<PAGE>
EXHIBIT 10.27
VIKING OFFICE PRODUCTS, INC.
PRESIDENT'S PERFORMANCE BASED BONUS PLAN
1. Purpose. The purpose of the Viking Office Products, Inc.,
-------
President's Performance Based Bonus Plan (hereinafter the "Plan") is to provide
for the payment of annual performance bonuses to M. Bruce Nelson ("Executive")
that qualify for federal income tax deduction by the Company.
2. Certain Definitions. The following terms used in the Plan
-------------------
(whether used in the singular or plural) have the following meanings:
"Annual Award" means the actual dollar amount of the annual bonus
determined by the Committee to be payable to Executive under the Plan,
which may not exceed the Maximum Bonus.
"Board" means the Board of Directors of the Company.
"Business Plan" for any fiscal year means the consolidated business
plan or budget of the Company and its consolidated subsidiaries prepared by
the management of the Company and presented to and approved by the Board
prior to or within ninety days after the commencement of the fiscal year
for which it is prepared.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute or statutes thereto, and the regulations
thereunder. Reference to any specific Code section shall include any
successor section.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as the Board may appoint to administer the
Plan.
"Company" or "Viking" means Viking Office Products, Inc., a California
corporation, or any successor.
"Financial Statements" for any year means the consolidated financial
statements of the Company and its consolidated subsidiaries for such year,
prepared in accordance with generally accepted accounting principles
applicable to the Company and audited by independent accountants.
"Fiscal Year" or "fiscal year" means the Company's regular fiscal
year, and "Fiscal 1997" or "fiscal 1997" (or any subsequent year) means the
fiscal year ending in such numbered calendar year.
"Gross Profit" for any fiscal year means the amount derived from the
Financial Statements for such fiscal year that comprises the same elements
of income and cost as and otherwise corresponds to Target Gross Profit in
the Business Plan for such fiscal year.
"Limit" for any fiscal year means $800,000 or such other amount as the
Committee may determine prior to or within thirty days after the beginning
of such fiscal year.
<PAGE>
"Maximum Bonus" means the lesser of the Limit and the sum of the
following:
1% of Salary for each full 0.8333% of Target Revenues by which
Revenues exceed 90% of Target Revenues and do not exceed 100% of
Target Revenues; plus
1% of Salary for each full 0.625% of Target Gross Profit by which
Gross Profit exceeds 90% of Target Gross Profit and does not exceed
100% of Target Gross Profit; plus
1% of Salary for each full 0.4167% of Target Pre-Tax Profit by which
Pre-Tax Profit exceeds 90% of Target Pre-Tax Profit and does not
exceed 100% of Target Pre-Tax Profit; plus
1% of Salary for each full 0.35714% of Target Net Income by which Net
Income exceeds 90% of Target Net Income and does not exceed 100% of
Target Net Income.
"Net Income" for any fiscal year means the amount derived by adding
back to the amount identified as Net Income (or similar term) in the
Financial Statements for such fiscal year the amount deducted therein (net
of tax benefit) for the Annual Award for such fiscal year.
"Performance Goals" means 90% of Target Revenues, 90% of Target Gross
Profit, 90% of Target Pre-Tax Income and 90% of Target Net Income, or any
one or more of them.
"Pre-Tax Profit" for any fiscal year means the amount derived by
adding back to the amount identified as Income Before Taxes on Income (or
similar term) in the Financial Statements for such fiscal year the amount
deducted therein for the Annual Award for such fiscal year.
"Revenues" for any fiscal year means the amount derived from the
Financial Statements for such fiscal year that comprises the same elements
of income and deductions, if any, as and otherwise corresponds to Target
Revenues in the Business Plan for such fiscal year.
"Salary" for any fiscal year means the amount payable to Executive as
salary for such fiscal year in accordance with his Employment Agreement, as
approved by the Committee, as in effect on the thirtieth day of such fiscal
year, without regard to any subsequent changes.
"Target Gross Profit" for any fiscal year means the amount identified
as Gross Profit on Sales (or similar term) in the Business Plan for such
fiscal year.
"Target Net Income" for any fiscal year means the amount derived by
adding back to the amount identified as Net Income (or similar term) in the
Business Plan for such fiscal year the amount deducted therein (net of tax
benefit) for the Annual Award for such fiscal year.
-2-
<PAGE>
"Target Pre-Tax Profit" for any fiscal year means the amount derived
by adding back to the amount identified as Pre-tax Income (or similar term)
in the Business Plan for such fiscal year the amount deducted therein for
the Annual Award for such fiscal year.
"Target Revenues" for any fiscal year means the amount identified as
Total Revenue (or similar term) in the Business Plan for such fiscal year.
3. Payment of Annual Bonus. Subject to the other provisions of this
-----------------------
Section 3, the Committee shall determine the amount and time of payment of the
Annual Award.
3.1 Before the Committee makes an Annual Award, the Company's
independent auditors shall review the calculations of the Maximum Bonus, and the
Committee shall certify that one or more of the Performance Goals have been met.
3.2 Notwithstanding the foregoing, the Committee may in its
discretion determine to make an Annual Award for any year in an amount that is
less than the Maximum Bonus.
3.3 Subject to Section 5 of this Plan, payment of an Annual Award, if
any, under the Plan with respect to any fiscal year shall be made as soon as
practicable after the Committee certifies that one or more of the Performance
Goals have been met or exceeded.
4. Administration. The Plan shall be administered by the Committee
--------------
subject to the express provisions of the Plan and the requirements of section
162(m) of the Code. The Committee shall have plenary authority to interpret the
Plan, to prescribe, amend and rescind the rules and regulations relating to it
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. Each member of the Committee shall be an "outside
director" within the meaning of the Code. The Board may from time to time
appoint members of the Committee in substitution for or in addition to members
previously appointed and may fill vacancies in the Committee.
5. Deferral of Annual Award. Executive may elect by written notice
------------------------
delivered to the Company at least 15 days prior to the commencement of any
fiscal year with respect to which an Annual Award would be payable under the
Plan to defer payment of all or any portion of the Annual Award Executive might
earn with respect to such year, all in accordance with the Code and on such
terms and conditions as the Committee may establish from time to time or as may
be provided in any employment agreement between the Company and Executive.
6. Termination and Amendment. The Plan shall continue in effect until
-------------------------
terminated by the Committee or the Board. The Committee may at any time modify
or amend the Plan in such respects as it shall deem advisable; provided,
however, that any such modification or amendment shall comply with all
applicable laws and applicable requirements for exemption (to the extent
necessary) under section 162(m) of the Code.
7. Effectiveness of the Plan. The Plan shall become effective upon
-------------------------
approval by the vote of a majority of the votes cast at a duly called and held
meeting of shareholders of the Company. Subject to such shareholder approval,
the Plan shall apply to the annual bonus payable to Executive in respect of
fiscal 1997 and each year thereafter.
-3-
<PAGE>
8. Withholding. The obligations of the Company to make payments under the
-----------
Plan shall be subject to applicable federal, state and local tax withholding
requirements.
9. Severability. If any of the terms or provisions of this Plan conflict
------------
with the requirements of section 162(m) of the Code or applicable law, then such
terms or provisions shall be deemed inoperative to the extent necessary to avoid
conflict with the requirements of section 162(m) of the Code or applicable law
without invalidating the remaining provisions hereof. If this Plan does not
contain any provision required to be included herein under section 162(m) of the
Code, such provision shall be deemed to be incorporated herein with the same
force and effect as if such provision had been set out at length herein.
10. Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
---------------------------
Committee nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Committee or the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options or the
awarding of stock or cash or other benefits otherwise than under the Plan, and
such arrangements may be either generally applicable or applicable only in
specific cases. None of the provisions of this Plan shall be deemed to be an
amendment to or incorporated in any employment agreement between the Company and
Executive.
11. Beneficiaries. Executive may designate a beneficiary or beneficiaries
-------------
to receive, in the event of the death of Executive, any payments remaining to be
made to Executive under the Plan. The Executive shall have the right to revoke
any such designation and to redesignate a beneficiary or beneficiaries by
written notice to the Company to such effect. If Executive dies without naming
a beneficiary or if all of the beneficiaries named by Executive predecease
Executive, then any amounts remaining to be paid under the Plan shall be paid to
Executive's estate.
12. Law Governing. The Plan shall be governed by, and construed in
-------------
accordance with, the laws of the State of California.
-4-
<PAGE>
EXHIBIT 10.28
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
<PAGE>
Mr. Bruce Nelson
April __, 1995
Page 2
(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.
"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
<PAGE>
Mr. Bruce Nelson
April __, 1995
Page 3
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.
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
<PAGE>
Mr. Bruce Nelson
April __, 1995
Page 4
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.
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.
<PAGE>
Mr. Bruce Nelson
April __, 1995
Page 5
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 10.29
July __, 1996
Mr. Frank R. Jarc PERSONAL AND
c/o Viking Office Products, Inc. ------------
879 West 190th Street CONFIDENTIAL
Suite 1100 ------------
Gardena, CA 90248
Dear Frank:
This letter (the "Agreement") sets forth the understanding between you
("you" or "Executive") and Viking concerning (i) continuation of your salary in
the event your employment with Viking is terminated by Viking without "CAUSE"
before June 15, 1997, and (ii) 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 Chairman, President 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 any of the following events and shall be
deemed to have occurred 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
<PAGE>
Mr. Frank R. Jarc
July __, 1996
Page 2
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.
"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 Financial 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.
<PAGE>
Mr. Frank R. Jarc
July __, 1996
Page 3
(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.
2. EARLY TERMINATION. If your employment is terminated by Viking without
-----------------
"cause" at any time before June 15, 1997, you will receive an amount equal to
your full monthly salary for twelve months following the date of termination of
your employment. This provision shall survive any termination of this
Agreement.
3. APPLICABILITY OF AGREEMENT. Except as provided in Paragraph 2 above, this
--------------------------
Agreement shall have no force or effect prior to a CHANGE IN CONTROL. This
Agreement shall terminate automatically upon termination of the employment of
Executive prior to a CHANGE IN CONTROL and, unless previously extended in
writing by mutual agreement of Viking and Executive, shall terminate
automatically on June 15, 1999, without notice from either party. Nothing
herein shall in any way obligate Viking to retain Executive in its employ or
entitle Executive to any compensation (except as provided in Paragraph 2) 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,
other than Paragraph 2.
4. CONSIDERATION; TERMINATION DURING POST-CHANGE EMPLOYMENT PERIOD.
---------------------------------------------------------------
4.1 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.
4.2 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.
<PAGE>
Mr. Frank R. Jarc
July __, 1996
Page 4
4.3 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.
5. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
--------------------------------------------------
5.1 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.
5.2 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.
5.3 If you become entitled to the TERMINATION BENEFIT in accordance with
Paragraph 4.2, 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.
5.4 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.
5.5 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.
6. 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.
7. 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
<PAGE>
Mr. Frank R. Jarc
July __, 1996
Page 5
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.
8. ATTORNEYS' FEES. In any litigation relating to this Agreement the
---------------
prevailing party shall be entitled to recover its costs and reasonable
attorneys' fees.
9. 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
------------------------------------
M. BRUCE NELSON, President
Agreed to this ___ day of
July, 1996.
- --------------------------
FRANK R. JARC
<PAGE>
[VIKING OFFICE PRODUCTS LOGO APPEARS HERE]
1996 ANNUAL REPORT
FISCAL YEAR ENDED JUNE 28, 1996
[Graphics here]
<PAGE>
VIKING customers say it best!
---------
[photo here] PROFESSIONALISM,
COURTESY AND
PATIENCE!
It is with pleasure that I write this letter to you regarding one of your
employees. A few weeks ago, I had to place a rather large order and had the
opportunity to work with one of your representatives in getting the order
completed. There were also some special requests made of her which she
performed with professionalism, courtesy, and patience. She should be given
whatever acknowledgement Viking bestows on their employees for a job well
done.
Phyllis Diakos, Executive Director
Women's Health & Counseling Center
Somerville, NJ
[photo here] I TELL FRIENDS
AND STRANGERS
ABOUT VIKING!
I'm a pleased Viking customer. In fact, I'm so pleased that I tell both
friends and strangers about the quality, price and SPEED of Viking. Just
within the past week, I've told my church secretary, a business associate
and a complete stranger of the savings and speed! The order arrived THE
NEXT DAY! Unbelievably fast, efficient and the most competitive price
around. I just thought you'd like to hear from a very satisfied customer.
Peter Loehr, Ph.D.
Hudson Management Services
Hudson, OH
[photo here] MY FIRST
ORDER PLACED
AND RECEIVED
ALL ON THE
SAME DAY!
I just placed and received my first order, all on the same day. I am
impressed! Speed, efficiency, helpfulness and a personal delivery man too.
And prices even lower than the local office warehouse. All this and free
delivery too. You can bet I will be calling you again.
GregRobin Smith
A Knight's Tour
Seattle, WA
[photo here] THE GOODS WERE
DELIVERED
THE SAME DAY!
I phoned your company to place an order at 10:45 a.m. To my amazement, the
goods were delivered at 3:30 p.m. the same day. Your service is second to
none, from the telesales girl who took my order to the young chap that
delivered it.
Mr. Geoff Walker
Hostess Restaurant
Nettleworth, Nottinghamshire
England
[photo here]
NEVER BEFORE
ENCOUNTERED YOUR
LEVEL OF COURTESY,
EFFICIENCY,
PERSONNEL AND
PRODUCT SELECTION!
I cannot resist the pleasure to write to you to tell you how much I appreciate
your new office products company. Not only is there everything essential in your
catalog, which perfectly avoids useless items and for which the selection of
products is remarkably done, all your personnel perform with a level of courtesy
and efficiency that I have never encountered to such a degree. Noelle, along
with others whose name unfortunately I cannot remember, were perfect. Some of
your competition is good, but you are excellent.
F. Pardos
Pardos Marketing
Oreval, France
[photo here] WILL ENJOY
WORKING
TOGETHER
FOR A LONG
TIME!
I have just received my first order and would like to thank you for the
quality and speed. Also I respect the way your people coordinate everything
so well. With such a company we will really enjoy working together for a
long time.
Gert Habig
ABC Arbeitsbeschaffungsconcept
Zeitarbeit GmbH
Dresden, Germany
................................................................................
Index to Contents
Financial Highlights..........2 Balance Sheet.......................20
Chairman's Letter.............3 Financial Results................21-23
Results by Country.........6-13 Notes to Financial Statements....24-29
The Future...................14 Shareholders' Information...........30
Management's Discussion...15-17 Directors and Officers..............31
................................................................................
<PAGE>
VIKING CONTINUES TO GROW!
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REVENUES
1991 TO 1996
MILLIONS OF DOLLARS
[BAR GRAPHIC APPEARS HERE]
'91 $226.3
'92 $320.1
'93 $449.7
'94 $565.1
'95 $811.9
'96 $1,055.8
ACTIVE CUSTOMERS
1991 TO 1996
THOUSANDS
[BAR GRAPHIC APPEARS HERE]
'91 571
'92 745
'93 1,010
'94 1,240
'95 1,530
'96 1,918
NET INCOME
1991 TO 1996
MILLIONS OF DOLLARS
[BAR GRAPHIC APPEARS HERE]
'91 $7.8
'92 $12.8
'93 $17.2
'94 $31.8
'95 $46.1
'96 $60.5
EARNINGS PER SHARE
1991 TO 1996
DOLLARS
[BAR GRAPHIC APPEARS HERE]
'91 $0.11
'92 $0.17
'93 $0.21
'94 $0.38
'95 $0.54
'96 $0.70
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues $1,055,754 $811,899 $565,055 $449,687 $320,066
Cost of Goods Sold,
Including Delivery 693,573 535,789 365,159 292,486 205,984
---------- -------- -------- -------- --------
Gross Profit 362,181 276,110 199,896 157,201 114,082
Selling, General and
Administrative Expenses 280,321 211,611 152,224 127,843 93,172
---------- -------- -------- -------- --------
Operating Income 81,860 64,499 47,672 29,358 20,910
Other Income 8,126 7,929 4,579 2,953 2,214
Interest Expense 346 164 167 182 700
---------- -------- -------- -------- --------
Income Before Income Taxes 89,640 72,264 52,084 32,129 22,424
Provision for Income Taxes 29,169 26,158 20,304 14,972 9,599
---------- -------- -------- -------- --------
Net Income $ 60,471 $ 46,106 $ 31,780 $ 17,157 $ 12,825
========== ======== ======== ======== ========
Net income per common
and common equivalent share (1) $.70 $.54 $.38 $.21 $.17
========== ======== ======== ======== ========
FINANCIAL POSITION:
Working Capital $146,756 $127,580 $ 95,223 $ 68,699 $ 49,464
Total Assets 399,641 308,344 227,220 165,345 135,662
Stockholders' Equity 275,029 208,526 150,232 112,660 95,080
</TABLE>
(1) Restated for 2-for-1 stock splits in May 1996, May 1994 and January 1992.
VIKING REVENUES
UNITED STATES vs INTERNATIONAL
[Bar Graphic goes here]
'92
United States 68%
International 32%
'93
United States 57%
International 43%
'94
United States 53%
International 47%
'95
United States 44%
International 56%
'96
United States 41%
International 59%
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
TO OUR SHAREHOLDERS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Viking achieved record results in fiscal 1996 and
has great plans for 1997 and beyond.
[PICTURE APPEARS HERE]
For the first time ever, revenues exceeded $1 billion!
Yes, $1,055,754,000 --an increase of 30% over 1995.
Net income was $60.5 million, increasing 31.2% over
last year. This growth was accomplished without
acquisitions or debt -- and includes our costly, but
successful opening of Germany.
. . . . . . . . .
In addition to our new German business ($52.1 million of
revenue in just 8 months), we opened Viking distribution
centers in Baltimore and San Francisco; Dublin, Ireland; Melbourne, Australia;
and a major European facility in Venlo, The Netherlands. Viking customers now
receive Same-Day Delivery, within hours in 9 major markets in the United States,
and in 11 major cities of Europe and Australia. We earn customers' business,
not by "buying it with price", but with "fanatical customer service" and
impressive performance.
Viking's future has exciting opportunities
Our unique Same-Day Delivery will be expanded to new markets in the United
States and to new cities in Europe. Viking's new, advanced fulfillment systems
will be introduced in the United States ensuring problem-free, damage-free order
delivery without messy plastic foam peanuts or any excess, unwanted packing
materials at all!
Viking's MAGIC system of artificial intelligence for enhanced customer service
will be expanded and introduced overseas for the first time ever. Manager
training and development programs continue for all levels, in all countries, to
help our people be even better than ever before.
Our proprietary Database Marketing will expand to impress more customers and
generate profitable growth with "personalized" catalogs and programs. We'll mail
over 160 million catalogs in fiscal 1997, many "talking" to one customer at a
time.
All of this is to earn our customers' business by impressing them so much, they
WANT to buy from us again and again. Earning customer loyalty, after all, is
pretty simple.
Sincerely,
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
IRWIN HELFORD BRUCE NELSON
Chairman of the Board, President,
Chief Executive Officer Chief Operating Officer
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
<PAGE>
VIKING customers get
"fanatical customer service"...
................................................................................
[GRAPHIC APPEARS HERE]
Los Angeles, California
[GRAPHIC APPEARS HERE]
Cincinnati, Ohio
[GRAPHIC APPEARS HERE]
Dallas, Texas
[GRAPHIC APPEARS HERE]
East Windsor, Connecticut
[GRAPHIC APPEARS HERE]
Seattle, Washington
[GRAPHIC APPEARS HERE]
Jacksonville, Florida
[GRAPHIC APPEARS HERE]
Minneapolis, Minnesota
[GRAPHIC APPEARS HERE]
San Francisco, California
[GRAPHIC APPEARS HERE]
Baltimore/Washington D.C.
4 ..............................................................................
<PAGE>
Free overnight or Same-Day Delivery, and
The Best People in the Business!
................................................................................
[GRAPHIC APPEARS HERE]
Leicester, England, U.K.
[GRAPHIC APPEARS HERE]
Dublin, Ireland
[GRAPHIC APPEARS HERE]
London, England, U.K.
[GRAPHIC APPEARS HERE]
Sydney, Australia
[GRAPHIC APPEARS HERE]
Melbourne, Australia
[GRAPHIC APPEARS HERE]
Frankfurt, Germany
[GRAPHIC APPEARS HERE]
Venlo, The Netherlands
[GRAPHIC APPEARS HERE]
Paris, France
.............................................................................. 5
<PAGE>
VIKING UNITED STATES
................................................................................
Viking's business in the United States grew by 19% this year, to $429.4 million,
with improved profitability.
Active customers grew to a record 733,810. Average annual revenue from these
customers increased 12% over last year. More than 220,000 new customers began
buying from Viking this year.
Impressing customers is our business. Most orders are delivered free, complete
and overnight. Furthermore, our customers now get Same-Day Delivery in Los
Angeles, Dallas, Cincinnati, Hartford, Jacksonville, Seattle, Minneapolis,
Baltimore/Washington D.C., and San Francisco.
We believe that a customer's loyalty is not "bought with price", it is earned
with "fanatical customer service".
[PHOTO HERE]
Ron Weissman, Vice President, Logistics
Fred Abt, Merchandise Director
-------------------------------
Revenue Growth -- UNITED STATES
-------------------------------
($ Millions)
+19%
+21%
+16%
$429.4
$360.3
$296.8
1994 1995 1996
-------------------------------
[BAR GRAPHIC HERE]
[PHOTO APPEARS HERE]
6 ..............................................................................
<PAGE>
VIKING UNITED KINGDOM
................................................................................
Viking's business in the United Kingdom continues to grow profitably. Revenues
increased 20% to $310.8 million. In local currency, revenue increased 23%.
More British customers use Viking than ever before. More than 160,000 new
customers were added this year, and nearly 500,000 business customers ordered
from Viking in fiscal 1996.
British customers receive their orders overnight - and in London, Leicester and
Birmingham, delivery is usually made the same day our customer calls.
Our facilities have been expanded and are ready for continued growth with strong
profitability.
[PHOTO HERE]
Keith Cain, Country Manager
Tom Priest, Merchandise Director
--------------------------------
Revenue Growth -- UNITED KINGDOM
--------------------------------
($ Millions)
+20%
+48%
+23%
$310.8
$258.3
$175.0
1994 1995 1996
--------------------------------
[BAR GRAPHIC HERE]
[GRAPHICS APPEAR HERE]
.............................................................................. 7
<PAGE>
Viking began marketing in Ireland in September 1994. Utilizing our "cross-
border" capabilities, orders were actually received in England and delivered
overnight to Ireland from our Leicester, England facility. In its first 10
months of operation, Ireland generated over $6 million in revenues.
This year, our revenue from Ireland nearly doubled, to $13.2 million. Therefore,
we established a fulfillment center near Dublin to better service our customers.
Now, delivery is assured overnight throughout the Republic of Ireland and
Northern Ireland. Customers in Dublin receive Same-Day Delivery.
Growth continues strong with over 22,000 active accounts.
[PHOTO HERE]
Keith Cain, Country Manager
Tom Priest, Merchandise Director
-------------------------
Revenue Growth -- IRELAND
-------------------------
($ Millions)
+97%
Start $13.2
September
1994
$6.7
1995 1996
-------------------------
[BAR GRAPHIC HERE]
[GRAPHICS APPEAR HERE]
8 ..............................................................................
<PAGE>
VIKING FRANCE
................................................................................
Viking France continued its successful growth with revenues increasing 21% to
$143.2 million. Previous years' losses were totally offset and French income
taxes were recognized for the first time. Even so, net earnings were
outstanding.
Revenue growth was slowed during the year by national and local strikes against
the government over social welfare. Many of our customers were harmed and some
effects still linger.
Facilities and capabilities have been expanded for continued growth. Over
245,000 French customers actively purchase from Viking.
[PHOTO HERE]
Bernard Pagneux, Country Manager
Marc Lefebvre, Merchandise Director
------------------------
Revenue Growth -- FRANCE
------------------------
($ Millions)
+21%
+56%
+45%
$143.2
$118.7
$76.1
1994 1995 1996
------------------------
[BAR GRAPH HERE]
[GRAPHICS APPEAR HERE]
.............................................................................. 9
<PAGE>
VIKING BELGIUM & LUXEMBOURG
................................................................................
Viking's revenues in Belgium and Luxembourg increased 57% to $31 million. Active
customers have grown to over 55,000.
Customers in Belgium and Luxembourg are serviced by our operations in France,
with overnight delivery.
Viking's "cross-border" strategy to service customers in several smaller
countries from one central operation began with Belgium in 1994. These customers
still receive complete overnight delivery and "local" language catalogs and
service.
[PHOTO HERE]
Bernard Pagneux, Country Manager
Marc Lefebvre, Merchandise Director
--------------------------------------
Revenue Growth -- BELGUIM & LUXEMBOURG
--------------------------------------
($ Millions)
+57%
$31.0
$19.7
$1.1
1994 1995 1996
--------------------------------------
[BAR GRAPH HERE]
[GRAPHICS APPEAR HERE]
10 .............................................................................
<PAGE>
VIKING THE NETHERLANDS
................................................................................
Viking's revenues in The Netherlands increased to $22.7 million. Sales began in
November 1994, and fiscal 1995 contained only 8 months of revenue compared to 12
months in fiscal 1996. Nevertheless, growth was dramatic with over 56,000 active
customers throughout The Netherlands.
Our multi-function facility in Venlo, The Netherlands receives orders from
Germany, The Netherlands and parts of Belgium. Each country's caller is answered
in his or her own local language.
Today, our new distribution center in Utrecht services all of The Netherlands
with overnight delivery and provides our customers in Amsterdam, Rotterdam and
Utrecht with Same-Day Delivery.
[PHOTO HERE]
Rolf van Kaldekerken, Country Manager
Peter Damman, Merchandise Manager
---------------------------------
Revenue Growth -- THE NETHERLANDS
---------------------------------
($ Millions)
Start
November
1994 +180%
$8.1 $22.7
1995 1996
---------------------------------
[BAR GRAPH HERE]
[GRAPHICS APPEAR HERE]
............................................................................. 11
<PAGE>
VIKING AUSTRALIA
................................................................................
Viking Australia continued its growth with revenues of $53.4 million, up 33%.
Active customers have grown to over 102,000.
Increased business required more capacity than we began with in fiscal 1994.
Additional space was leased near our Sydney facility, and construction began for
our main operation.
An additional distribution center has been opened in Melbourne to fulfill
increasing orders and improve delivery service. Customers in Sydney and
Melbourne now receive their orders the same day they call.
As we consider future markets in Asia, our Australia base can be an important
resource.
[PHOTO HERE]
Alan Verey, Country Manager
Anthony Keyzer, Merchandise Director
---------------------------
Revenue Growth -- AUSTRALIA
---------------------------
($ Millions)
+33%
+149%
Start
November $53.4
1993 $40.1
$16.1
1994 1995 1996
---------------------------
[BAR GRAPHIC HERE]
[GRAPHICS APPEAR HERE]
12 .............................................................................
<PAGE>
VIKING GERMANY
................................................................................
Viking began business in Germany in November 1995. In just 8 months of
operations in fiscal year 1996, revenues were $52.1 million. Over 200,000
German business customers have purchased from Viking.
Our entry into Germany, with the biggest market potential in Europe, was planned
for over 2 years by Viking. Many obstacles existed, including very high costs,
stringent recycling demands and extremely restrictive marketing rules. After
careful preparation, Viking's business began in Germany and achieved our best
results ever for a new country.
In addition to our distribution center near Frankfurt, a second center will be
opened near Munich. We're very proud of our new Viking German employees who
accomplished so much, so quickly.
[PHOTO HERE]
Rolf van Kaldekerken, Country Manager
Thomas Nicolay, Merchandise Manager
-------------------------
Revenue Growth -- GERMANY
-------------------------
($ Millions)
Start
November
1995
$52.1
1996
-------------------------
[BAR GRAPHIC HERE]
[GRAPHICS APPEAR HERE]
............................................................................. 13
<PAGE>
VIKING THE FUTURE
................................................................................
Viking's future is exciting and filled with opportunities. In the United States,
Europe, Australia and eventually Asia, Viking will expand its marketing presence
and "fanatical customer service".
. SAME-DAY DELIVERY. Customers get complete delivery within hours, the same
day they call or fax us.
. "MAGIC" COMPUTER DRIVEN CUSTOMER SERVICE ARTIFICIAL INTELLIGENCE. Customer
service representatives are aided by proprietary systems that make them
experts.
. DAMAGE PROOF PACKAGING. Customers receive their orders without damage,
shortage, or problems and without annoying foam or excess packing
materials.
. NEW CITIES, NEW COUNTRIES. United States satellites will open with Same-
Day Delivery to new cities. New countries will experience Viking for the
first time ever.
Viking's Database Marketing
creates "Personalized" catalogs
that avoid waste and
get responses.
[GRAPHICS APPEAR HERE]
14 .............................................................................
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At June 28, 1996, Viking Office Products, Inc. ("Viking" or the "Company")
operated nine distribution centers throughout the United States, two in
Australia and five 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 28, 1996 and June 24, 1994 were 52 week years. Foreign currency
fluctuations and the number of weeks in the fiscal year can impact the results
of operations.
The table below 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.
Results of Operations
Year ended June 28, 1996 compared to year ended June 30, 1995
Revenues for fiscal 1996 increased $243.8 million, or 30.0% from fiscal
1995. This increase was primarily attributable to a 25.4% increase in the number
of customers who purchased products during fiscal 1996, a 3.7% increase in the
average revenue per customer and a 10.3% increase in the number of catalogs
mailed. The revenue increase in fiscal 1996 included increases of $69.1 million
in the United States, $161.4 million in European markets (the United Kingdom,
Ireland, France, Belgium, Luxembourg, The Netherlands and Germany) and $13.3
million in Australia. The Company began operations in Germany in November 1995.
In eight months of operation, over 200,000 new customers generated revenues of
$52.1 million in Germany. During fiscal 1996, revenues in the United States
represented approximately 41% of the consolidated total, with the balance coming
from Europe and Australia.
<TABLE>
<CAPTION>
Percentage Increase
For The Fiscal Year Ended (Decrease)
----------------------------------- -----------------------
June 28, June 30, June 24, 1996 vs. 1995 vs.
1996 1995 1994 1995 1994
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 30.0% 43.7%
Cost of goods sold, including delivery...... 65.7 66.0 64.6 29.4 46.7
--------- --------- ---------
Gross profit................................ 34.3 34.0 35.4 31.2 38.1
Selling, general............................
and administrative expenses............ 26.6 26.1 27.0 32.5 39.0
--------- --------- ---------
Operating income............................ 7.7 7.9 8.4 26.9 35.3
Other income................................ 0.8 1.0 0.8 2.5 73.1
Interest expense............................ 0.0 0.0 0.0 111.0 (1.8)
--------- --------- ---------
Income before income taxes.................. 8.5 8.9 9.2 24.0 38.7
Provision for income taxes.................. 2.8 3.2 3.6 11.5 28.8
--------- --------- ---------
Net income.................................. 5.7% 5.7% 5.6% 31.2% 45.1%
========= ========= =========
</TABLE>
..............................................................................15
<PAGE>
The increase in catalogs mailed and the number of customers purchasing
products was attributable to the continuing expansion of existing markets in
Europe and Australia, increased mailings in the United States and the
establishment of our new market in Germany. The increase in the average revenue
per customer is the result of continued improvement in database marketing
techniques and a wider selection of product lines.
Gross profit for fiscal 1996 increased by $86.1 million, or 31.2% from
fiscal 1995. As a percentage of revenues, gross profit rose
to 34.3% from 34.0% in the prior year. The rise in gross profit as a percentage
of sales is primarily attributable to lower costs related to paper products,
partially offset by the lower margins associated with the Company's entry into
Germany. Excluding Germany, gross profit would have been 34.7% of revenues.
Gross profit also improved due to reductions in delivery costs.
Selling, general and administrative expenses for fiscal 1996 increased by
$68.7 million, or 32.5% compared to fiscal 1995. As a percentage of revenues,
these expenses increased from 26.1% in fiscal 1995 to 26.6% in fiscal 1996.
Selling, general and administrative expenses have increased in the aggregate as
the Company continued its expansion in Europe, primarily Germany. Without
Germany, these expenses would have decreased as a percentage of revenues, from
26.0% last year to 25.7% in the current year. Catalog costs increased 25.7% in
the current year driven by the increase in the number of catalogs mailed.
Operating costs, consisting of branch and general and administrative expenses,
have also risen from the prior year reflecting expansion in Germany and
expenditures in systems and staffing to accommodate our rapid growth. While
these investments increase operating and administrative expenses in the near
term, the Company believes that this improved infrastructure should provide
benefits in the future.
Other income, which consists primarily of cash discounts from suppliers and
interest income, increased $197,000 during fiscal 1996. This increase was
attributable to cash discounts received on higher levels of purchasing,
partially offset by lower interest income. The lower interest income on
investments resulted from a reduction in invested balances throughout the year
due to increased levels of capital expenditures.
The effective tax rate was 32.5% for fiscal 1996 compared to 36.2% in
fiscal 1995. The decrease is primarily attributable to the utilization of net
operating loss carryforwards in France and Australia, combined with the use of
foreign losses to offset domestic taxable income.
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 incremental revenue in fiscal 1995 included an increase of $63.5
million in the United States,a $159.3 million increase in sales in European
markets (the United Kingdom, Ireland, France, Belgium, Luxembourg and The
Netherlands) and a $24.0 million increase in Australia. Revenue was 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 fiscal 1995.
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 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 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 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.
16..............................................................................
<PAGE>
The increase in the dollar amount of selling, general and administrative
expenses was primarily attributable to catalog costs, which rose 43.8% in fiscal
1995. The increase in catalog costs was the result of a 21.6% increase in the
number of catalogs mailed, and higher paper costs. In addition to selling costs,
operating costs increased in the aggregate as the Company continued its
expansion programs. As a percentage of sales, however, these costs declined from
the prior year. The decrease was primarily the result of the Company's ability
to expand sales without a proportionate increase in overhead expenses.
Additionally, the Company continued to invest in staffing and systems that
should eventually 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 in 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 interest 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 net
operating loss carryforwards in France.
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 28, 1996, the Company had working capital of $146.8 million
compared to $127.6 at June 30, 1995. The improved working capital position
primarily reflects cash provided by operating activities of $57.4 million for
fiscal 1996. Capital expenditures amounted to $61.6 million for fiscal 1996,
almost twice as much as the prior year, as Viking expanded into Germany and
continued to invest in its domestic and international operations. During the
year, the Company opened five new distribution facilities worldwide and acquired
land and buildings in the United States and Australia for headquarter buildings.
Additionally, the Company continued to invest in systems that should eventually
result in improved efficiency throughout the organization. During the year, cash
provided by operating and financing activities that exceeded current working
capital and capital expenditure requirements was invested in short-term
marketable securities.
Viking has a new revolving credit agreement which provides for an unsecured
revolving credit facility up to $60 million through June 2001. Advances under
this credit facility bear interest at the bank's base rate or, at the option of
Viking, the LIBOR rate plus a percentage spread based upon certain defined
ratios. In addition, Viking is required to pay a commitment fee of 1/8% on the
total amount of the revolving credit facility. The availability of the line of
credit is subject to Viking's maintenance of certain financial ratios. At June
28, 1996, no amounts were outstanding under this credit facility and the entire
$60 million was available for borrowing.
The Company believes that there are substantial opportunities throughout
Europe to expand its business, and is currently developing plans to enter
additional countries during fiscal 1997. Future capital expenditures related to
specific expansion plans 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 from operations. Capital
expenditures in fiscal 1997 are expected to be between $55 and $60 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 the fiscal year.
..............................................................................17
<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.
Management believes that existing internal accounting control systems are
achieving their objectives and that they provide reasonable assurance concerning
the accuracy of the financial statements.
The Audit Committee of the Board of Directors includes only 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/ Frank R. Jarc
Frank R. Jarc
Executive Vice President and
Chief Financial Officer
18..............................................................................
<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 28, 1996 and June 30,
1995, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended June 28, 1996.
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 28, 1996 and June 30, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 28, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
August 20, 1996
..............................................................................19
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
ASSETS
<TABLE>
<CAPTION>
June 28, June 30,
1996 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 11,693 $ 11,080
Short-term investments................................................ 33,068 36,383
Accounts receivable, net.............................................. 121,061 96,000
Merchandise inventories............................................... 81,753 64,670
Prepaid catalog costs................................................. 17,831 16,292
Prepaid expenses and other current assets............................. 3,430 2,587
--------- --------
Total current assets.................................................. 268,836 227,012
--------- --------
Property and equipment, net................................................ 95,231 49,083
Other assets:
Deposits and other assets ............................................ 6,590 2,364
Intangible assets, net................................................ 28,984 29,885
--------- --------
Total other assets.................................................... 35,574 32,249
--------- --------
$399,641 $308,344
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................. $ 91,975 $ 76,312
Sales and value added taxes payable................................... 3,956 6,184
Income taxes payable.................................................. 26,149 16,936
--------- --------
Total current liabilities............................................. 122,080 99,432
--------- --------
Deferred income taxes...................................................... 2,532 386
Commitments
Stockholders' equity:
Preferred stock, no par value; authorized, 10,000,000 shares;
issued and outstanding, none
Common stock, no par value; authorized, 120,000,000 shares; issued and
outstanding, 82,964,193 shares at June 28, 1996 and
81,714,908 shares at June 30, 1995................................. 98,567 92,036
Retained earnings..................................................... 181,722 121,251
Unamortized value of long-term incentive stock grant.................. (4,346) (7,768)
Cumulative foreign currency translation adjustment.................... (914) 3,007
--------- --------
Total stockholders' equity............................................ 275,029 208,526
--------- --------
............................................................. $ 399,641 $308,344
========= ========
</TABLE>
See notes to consolidated financial statements.
20..............................................................................
<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 28, June 30, June 24,
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenues ..................................................... $1,055,754 $ 811,899 $ 565,055
Cost of goods sold, including delivery........................ 693,573 535,789 365,159
---------- ---------- ---------
Gross profit.................................................. 362,181 276,110 199,896
Selling, general and administrative expenses.................. 280,321 211,611 152,224
---------- ---------- ---------
Operating income.............................................. 81,860 64,499 47,672
Other income.................................................. 8,126 7,929 4,579
Interest expense.............................................. 346 164 167
---------- ---------- ---------
Income before income taxes.................................... 89,640 72,264 52,084
Provision for income taxes.................................... 29,169 26,158 20,304
---------- ---------- ---------
Net income.................................................... $ 60,471 $ 46,106 $ 31,780
========== ========== =========
Net income per common
and common equivalent share................................ $.70 $.54 $.38
========== ========== =========
Weighted average number of common and
common equivalent shares outstanding....................... 86,560 85,100 83,700
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
..............................................................................21
<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 25, 1993 78,153,812 $ 80,254 $ 43,365 ($9,063) ($1,896) $ 112,660
Common stock issued 1,069,928 3,270 3,270
Tax benefit related to stock options 1,182 1,182
Long-term incentive stock grant 1,200,000 --
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 80,423,740 84,706 75,145 (8,416) (1,203) 150,232
Common stock issued 1,291,168 6,004 6,004
Tax benefit related to stock options 1,326 1,326
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 81,714,908 92,036 121,251 (7,768) 3,007 208,526
Common stock issued 1,649,285 6,108 6,108
Tax benefit related to stock options 3,498 3,498
Long-term incentive stock grant
canceled (400,000) (3,075) 3,075 --
Amortization of long-term
incentive stock grant 347 347
Foreign currency translation adjustment (3,921) (3,921)
Net income 60,471 60,471
---------- --------- --------- --------- --------- ---------
Balance, June 28, 1996 82,964,193 $ 98,567 $ 181,722 ($4,346) ($914) $ 275,029
========== ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
22..............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
<TABLE>
<CAPTION>
For the fiscal years ended
---------------------------------------
June 28, June 30, June 24,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers......................................... $1,022,290 $ 776,232 $ 542,364
Cash paid to suppliers and employees................................. (952,586) (733,481) (498,844)
Interest received.................................................... 1,669 2,711 1,073
Interest paid........................................................ (346) (164) (167)
Income taxes paid.................................................... (13,628) (21,633) (14,327)
---------- ---------- ---------
Net cash provided by operating activities............................ 57,399 23,665 30,099
Cash flows from investing activities:
Proceeds from sale of property and equipment......................... 788 57 71
Capital expenditures................................................. (61,568) (31,324) (16,096)
Decrease (increase) in short-term investments........................ 3,315 (13,462) (18,085)
Issuance of notes receivable and other............................... (4,264) (912) 45
---------- ---------- ---------
Net cash used in investing activities................................ (61,729) (45,641) (34,065)
Cash flows from financing activities:
Proceeds from issuance of stock...................................... 6,108 6,004 3,270
---------- ---------- ---------
Net cash provided by financing activities............................ 6,108 6,004 3,270
Effect of exchange rate changes on cash.................................. (1,165) 1,443 216
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents..................... 613 (14,529) (480)
Cash and cash equivalents, beginning of year............................. 11,080 25,609 26,089
---------- ---------- ---------
Cash and cash equivalents, end of year................................... $ 11,693 $ 11,080 $ 25,609
========== ========== =========
Reconciliation of net income to net cash provided by operating activities:
Net income ......................................................... $ 60,471 $46,106 $31,780
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................... 13,696 8,052 5,043
Provision for doubtful accounts................................. 9,700 10,400 9,398
Deferred income taxes........................................... 2,146 (103) 906
Loss on sale of property and equipment.......................... 4 35 435
Increase in accounts receivable................................. (37,545) (37,994) (24,415)
Increase in merchandise inventories............................. (18,042) (18,257) (13,819)
Increase in prepaid expenses and other current assets........... (1,942) (5,743) (4,753)
Increase in accounts payable and accrued expenses............... 13,079 13,144 20,042
Increase in other liabilities................................... 15,832 8,025 5,482
---------- ---------- ---------
Net cash provided by operating activities............................ $57,399 $23,665 $30,099
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
..............................................................................23
<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")
sell office products through direct marketing catalogs and other programs to
small and medium-sized businesses throughout the continental United States,
United Kingdom, Ireland, France, Belgium, Luxembourg, The Netherlands, Germany
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 28, 1996 and June 24, 1994 were 52 week years.
Cash and Cash Equivalents The Company considers all highly liquid
investments 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 Statement of Financial Accounting Standards ("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 $25.3 million of tax exempt municipal bonds, $4.0 million of
investments in bond funds and $3.8 million of other highly liquid marketable
securities. The maturities of tax exempt municipal bonds at June 28, 1996
include $10.6 million due within one year and $14.7 million due in one to three
years. At June 28, 1996 and June 30, 1995, 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
Components of 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.....Shorter of Useful Life or
Remaining Lease Term
Computer equipment.........................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 $3,446,000 and $563,000 at
June 28, 1996 and June 30, 1995, 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 $7,352,000 and $6,691,000 at June 28, 1996 and June
30, 1995, 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 decline in value,
the carrying value of the intangible asset would be reduced to fair value.
Income Taxes
Viking provides for income taxes in accordance with SFAS No. 109. Under
SFAS No. 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.
24..............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 were 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 28, 1996, Viking had approximately $4,127,000 of forward exchange
contracts outstanding, which mature at varying dates through December 1996. The
fair value of foreign exchange contracts does not differ significantly from
their carrying value. At June 30, 1995, Viking had $1,500,000 of foreign
exchange contracts outstanding.
Fair Value of Financial Instruments
Pursuant to SFAS 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, accounts 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 28, 1996, June 30, 1995
and June 24, 1994 were 86,560,000, 85,100,000 and 83,700,000, respectively. For
the years presented, primary and fully diluted per share amounts do not differ
materially.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS No. 121 also addresses the accounting for the
disposal of long-lived assets. The Company will adopt SFAS No. 121 in the first
quarter of fiscal 1997 and, based on current circumstances, does not believe the
effect of adoption will have a significant effect on the financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123, which is required
to be adopted by the Company in the first quarter of fiscal year 1997, defines
and encourages the use of the fair-value method of accounting for employee
stock-based compensation, but allows the continued use of the intrinsic value
based method of accounting prescribed in Accounting Principles Board Opinion No.
25 ("APB 25"). The Company plans to continue to measure
..............................................................................25
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compensation cost for these plans using the intrinsic value based method of
accounting prescribed by APB 25, and will adopt the new disclosure requirements
of SFAS No. 123 in fiscal year 1997.
Reclassifications
Certain reclassifications were made to prior year statements to conform to
the current year presentation.
Note B -- Accounts Receivable:
Accounts receivable is comprised primarily of trade receivables from
customers, and is net of an allowance for doubtful accounts of $7,416,000 and
$8,689,000 at June 28, 1996 and June 30, 1995, 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 consists of the following (in thousands):
<TABLE>
<CAPTION>
June 28, June 30,
1996 1995
-------- --------
<S> <C> <C>
Land............................. $ 7,000 $ 3,490
Buildings and improvements....... 25,137 16,809
Furniture, equipment and other... 53,321 22,144
Leasehold improvements........... 6,162 3,159
Computer equipment............... 31,623 20,273
-------- --------
123,243 65,875
Less accumulated depreciation
and amortization............ (28,012) (16,792)
-------- --------
$ 95,231 $ 49,083
======== ========
</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 28, June 30, June 24,
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Current
Federal............. $ 7,157 $12,079 $ 8,371
European and other.. 18,416 12,548 9,709
State............... 1,450 1,634 1,318
-------- ------- --------
27,023 26,261 19,398
Deferred............... 2,146 (103) 906
-------- ------- --------
$ 29,169 $26,158 $ 20,304
======== ======= ========
</TABLE>
Income taxes as a percentage of income before income taxes differed from
the United States statutory rate as follows:
<TABLE>
<CAPTION>
For the fiscal years ended
-----------------------------
June 28, June 30, June 24,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes at
statutory rate........ 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 1.3 1.4 1.9
Amortization of intangible
assets................ 0.3 0.4 0.5
Change in income tax
valuation allowance... (2.7) (1.7) 2.0
Other.................... (1.4) 1.1 (0.4)
-------- -------- --------
Effective tax rate....... 32.5% 36.2% 39.0%
======== ======== ========
</TABLE>
The tax effects of temporary differences that resulted in deferred assets
and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
June 28, June 30,
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax assets:
Foreign operating loss
carryforwards................ $4,583 $7,084
Accounts receivable allowance.... 1,257 1,376
State taxes on income............ 359 617
Uniform capitalization rules..... 453 390
Other............................ 361 299
Less valuation allowance......... (4,583) (7,084)
------- -------
$2,430 $2,682
======= =======
Deferred income tax liabilities:
Prepaid catalog costs............ $3,609 $2,786
Depreciation..................... 801 73
Other............................ 552 209
------ ------
$4,962 $3,068
====== ======
</TABLE>
Certain foreign subsidiaries have operating loss carryforwards that expire
generally through fiscal 1998. A valuation allowance was recognized because
these subsidiaries are in the start-up phase. Cumulative undistributed earnings
of foreign subsidiaries, for which no United States taxes have been provided,
approximated $101,000,000 at June 28, 1996 and $53,000,000 at June 30, 1995.
26..............................................................................
<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 $1,500,000, $1,300,000 and $1,200,000 for
the years ended June 28, 1996, June 30, 1995, and June 24, 1994, respectively.
Effective January 1, 1996, the Company adopted a 401(k) plan which is
available to all employees of the Company who meet certain age and length of
service requirements. Company contributions are based on a matching formula
applied to employee contributions, and are made with the approval of the Board
of Directors. The Company contributed $130,000 to the 401(k) plan for the year
ended June 28, 1996.
Note F -- Commitments
Viking leases facilities for certain distribution centers. Future minimum
rental payments required under noncancelable leases for the five years following
June 28, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................... $ 9,479
1998.................................... 8,489
1999.................................... 7,446
2000.................................... 6,932
2001.................................... 6,223
Thereafter.............................. 32,298
--------
Total minimum payments required......... $ 70,867
========
</TABLE>
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 $7,488,000, $5,226,000, and $4,632,000 for the
years ended June 28, 1996, June 30, 1995 and June 24, 1994, respectively.
Note G -- Revolving Credit Agreement
Viking has a new revolving credit agreement which provides for an unsecured
revolving credit facility up to $60 million through June 2001. Advances under
this credit facility bear interest at the bank's base rate or, at the option of
Viking, the LIBOR rate plus a percentage spread based upon certain defined
ratios. In addition, Viking is required to pay a commitment fee of 1/8% on the
total amount of the revolving credit facility. The availability of the line of
credit is subject to Viking's maintenance of certain financial ratios. At June
28, 1996, no amounts were outstanding under the revolving credit facility, and
the entire $60 million was available for borrowing.
Note H -- Stockholder's Equity
On April 11, 1996, the Board of Directors approved a 2-for-1 stock split of
the common stock. The stock split was effective May 1, 1996 and was distributed
on May 15, 1996. Accordingly, all amounts per share and the number of shares for
all periods presented have been retroactively adjusted to reflect the stock
split.
Employee Stock Option Plans
The Company currently has three employee stock option plans. Under the 1989
Incentive Stock Option Plan ("1989 Plan") as amended, 11,819,770 shares of
Common Stock were available for grant during fiscal 1996 (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 to the 1989 plan 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 14,000,000 shares. Accordingly, for fiscal 1997,
12,856,822 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 400,000 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 28, 1996, 156,518 shares of
Common Stock have been granted under the 1991 Plan and 8,000 were exercisable.
The Long-Term Incentive Stock Plan, which was approved at the 1993 annual
meeting of
..............................................................................27
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stockholders, enables the Board of Directors to award up to 1,600,000
shares of common stock to key employees of Viking. Under the Long-Term Incentive
Stock Plan, 1,200,000 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. As of June 28, 1996, 400,000 of these shares have been canceled.
The shares awarded under the Long-Term Incentive Stock Plan vest at the end of
fifteen years. Compensation expense is being recognized over this fifteen year
restriction period and amounted to $347,000 in 1996, $648,000 in 1995 and
$647,000 in 1994.
Directors Stock Option Plan
The Company's 1992 Directors Stock Option Plan ("1992 Plan") as amended,
provides for the grant of stock options to purchase an aggregate of 400,000
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. In
November 1995, the shareholders approved an amendment to the 1992 Plan to
provide for (i) the automatic grant, at five year intervals, of additional stock
options to purchase 20,000 shares of Common Stock to each non-employee director
who continues to serve on the board and (ii) that any director who was an
employee of Viking and later ceases to be an employee, will be automatically
granted a stock option to purchase 40,000 shares of Common Stock on the first
date after such director is not an employee and is re-elected as a director. A
total of 200,000 options have been granted under the 1992 Plan.
Options to purchase 2,133,937 shares and 2,466,094 shares of Common Stock
were exercisable at June 28, 1996 and June 30, 1995, respectively. Stock option
activity with respect to the above plans is as follows:
<TABLE>
<S> <C> <C>
Outstanding at
June 25, 1993......... 6,250,400 $.12 - $7.79
Granted.............. 1,804,000 $8.06 - $12.06
Exercised............ (995,724) $1.22 - $8.06
Canceled............. (200,800) $.12 - $8.06
Outstanding at
June 24, 1994......... 6,857,876 $1.22 - $12.06
Granted.............. 1,046,000 $2.50 - $15.25
Exercised............ (1,228,182) $1.22 - $13.00
Canceled............. (73,600) $2.06 - $13.00
Outstanding at
June 30, 1995......... 6,602,094 $1.22 - $15.25
Granted.............. 2,190,518 $.25 - $26.94
Exercised............ (1,599,155) $.25 - $15.25
Canceled............. (203,200) $1.22 - $17.38
Outstanding at
June 28, 1996......... 6,990,257 $.25 - $26.94
</TABLE>
Employee Stock Purchase Plans
The Company has three 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 1,440,000 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 28, 1996, 60,130
shares had been issued under the Purchase Plan.
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
200,000 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 28, 1996, no shares had been issued under the U.K. Purchase Plan.
28..............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 1993, the Board of Directors adopted the Australia Stock
Purchase Scheme ("Australia Plan"). Under the Australia Plan, up to 100,000
shares of Common Stock are available for purchase by qualified employees of
Viking Office Products PTY Ltd. at 85% of the fair market value of the Common
Stock. As of June 28, 1996, no shares had been issued under the Australia Plan.
Note I -- Operations By Geographic Segment
Viking has operations in the United States, United Kingdom, Ireland,
France, Belgium, Luxembourg, The Netherlands, Germany 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 28, June 30, June 24,
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Revenues:
Domestic............. $ 429,413 $ 360,306 $ 296,752
European and Other... 626,341 451,593 268,303
---------- --------- ---------
$1,055,754 $ 811,899 $ 565,055
========== ========= =========
Operating Profit:
Domestic............. $ 57,506 $ 42,456 $ 34,182
European and Other... 44,975 36,432 26,143
---------- --------- ---------
$ 102,481 $ 78,888 $ 60,325
========== ========= =========
Income Before Income Taxes:
Domestic............. $ 42,668 $ 33,026 $ 24,910
European and Other... 46,972 39,238 27,174
---------- --------- ---------
$ 89,640 $ 72,264 $ 52,084
========== ========= =========
Identifiable Assets:
Domestic............. $ 191,896 $ 166,073 $ 134,008
European and Other... 207,745 142,271 93,212
---------- --------- ---------
$ 399,641 $ 308,344 $ 227,220
========== ========= =========
</TABLE>
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 28, 1996
Revenues............. $230,010 $250,437 $306,828 $268,479
Gross profit......... 80,011 85,446 104,540 92,184
Operating income..... 18,696 17,225 24,321 21,618
Income before
income taxes..... 20,649 19,359 26,480 23,152
Net income........... 13,302 12,810 18,142 16,217
Net income per share. $.15 $.15 $.21 $.19
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. $.12 $.11 $.17 $.14
</TABLE>
..............................................................................29
<PAGE>
SHAREHOLDERS' INFORMATION
................................................................................
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 29, 1996, the approximate number
of holders of record of the Company's
Common Stock was 1,077.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended June 28,
1996, 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.
879 West 190th Street
P.O. Box 61144
Los Angeles, CA 90061
(310) 225-4500
SECURITIES INFORMATION
Viking Office Products, Inc. Common Stock is traded in the over-the-counter
market on The Nasdaq National Market 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 1996 2-for-1 stock split.
<TABLE>
<CAPTION>
June 28, 1996
------------------
Fiscal Year Ended High Low
-------- -------
<S> <C> <C>
First Quarter............... 21 1/8 15 3/4
Second Quarter.............. 24 5/16 18 5/8
Third Quarter............... 29 3/16 20 7/8
Fourth Quarter.............. 34 25 3/4
<CAPTION>
June 30, 1995
------------------
Fiscal Year Ended High Low
-------- -------
<S> <C> <C>
First Quarter............... 15 3/8 11
Second Quarter.............. 16 1/4 13 1/4
Third Quarter............... 15 1/2 12 1/2
Fourth Quarter.............. 18 1/2 12 1/2
</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.
30..............................................................................
<PAGE>
DIRECTORS and OFFICERS 1996
................................................................................
[GRAPHIC APPEARS HERE]
BOARD OF DIRECTORS
NEIL R. AUSTRIAN
President &
Chief Operating Officer
National Football League
JOAN D. MANLEY
Group Vice President (retired)
Time Inc.
IRWIN HELFORD
Chairman &
Chief Executive Officer
Viking Office Products, Inc.
CHARLES P. DURKIN, JR.
Managing Director
Dillon Read & Co., Inc.
LEE A. AULT III
Private Investor
Former Chairman &
Chief Executive Officer
Telecredit, Inc.
ROLF OSTERN
Founder of
Viking Office Products, Inc.
(not pictured)
[GRAPHIC APPEARS HERE]
EXECUTIVE OFFICERS
IRWIN HELFORD (seated)
Chairman, & Chief Executive Officer
BRUCE NELSON
President &
Chief Operating Officer
RON WEISSMAN
Vice President,
Logistics
LISA BILLIG
Vice President,
Finance
MARK L. MUIR
Vice President,
Marketing
MARK R. BROWN
Vice President,
Information Systems
FRANK R. JARC
Executive
Vice President &
Chief Financial Officer
STEPHEN R. KROLL
Vice President, Administration &
Secretary
..............................................................................31
<PAGE>
Viking catalogs in 9 countries...
[MANY GRAPHICS APPEAR HERE]
<PAGE>
...and 6 languages!
[MANY GRAPHICS APPEAR HERE]
<PAGE>
[LOGO OF VIKING APPEARS HERE]
VIKING
OFFICE PRODUCTS
----------------------------------------------------------------------
Corporate Offices: 879 West 190th Street, P.O. Box 61144, Los Angeles, CA 90061
Telephone: 310-225-4500
[] Los Angeles, CA [] Dallas, TX [] Cincinnati, OH
[] East Windsor, CT [] Jacksonville, FL [] Seattle, WA
[] Minneapolis, MN [] San Francisco, CA [] Baltimore, MD
[] Leicester & London, England, U.K.
[] Dublin, The Republic of Ireland
[] Paris, France
[] Sydney & Melbourne, Australia
[] Venlo, The Netherlands
[] Franfurt, Germany
[GRAPHIC APPEARS HERE]
<PAGE>
EXHIBIT 23.1
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, No. 33-73196 and No. 33-89456 of Viking Office Products,
Inc. on Form S-8 of our reports dated August 20, 1996, appearing in and
incorporated by reference in Annual Report on Form 10K of Viking Office
Products, Inc. for the year ended June 28, 1996.
/s/ Deloitte & Touche LLP
Los Angeles, California
September 17, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-END> JUN-28-1996
<CASH> 11,693
<SECURITIES> 33,068
<RECEIVABLES> 128,477
<ALLOWANCES> 7,416
<INVENTORY> 81,753
<CURRENT-ASSETS> 268,836
<PP&E> 123,243
<DEPRECIATION> 28,012
<TOTAL-ASSETS> 399,641
<CURRENT-LIABILITIES> 122,080
<BONDS> 0
0
0
<COMMON> 98,567
<OTHER-SE> 176,462
<TOTAL-LIABILITY-AND-EQUITY> 399,641
<SALES> 1,055,754
<TOTAL-REVENUES> 1,055,754
<CGS> 693,573
<TOTAL-COSTS> 693,573
<OTHER-EXPENSES> 270,547
<LOSS-PROVISION> 9,774
<INTEREST-EXPENSE> 346
<INCOME-PRETAX> 89,640
<INCOME-TAX> 29,169
<INCOME-CONTINUING> 60,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,471
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
</TABLE>
