<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 27, 1997.
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--------------- ---------------
Commission file number 0-18237
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VIKING OFFICE PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
California 95-2082946
------------ ------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
950 West 190th Street, Torrance, California 90502
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(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. [X]
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 18, 1997, is approximately
$1,810,280,592. 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:
Number of shares outstanding on
Class September 18, 1997
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Common Stock 84,039,343 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 5, 6, 7 and 8 of this form is incorporated by
reference from the registrant's Annual Report to Shareholders for the fiscal
year ended June 30, 1997.
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 13, 1997.
<PAGE>
CROSS REFERENCE SHEET
The following table identifies information incorporated by reference into
Part II of this report from the registrant's Annual Report to Shareholders for
the fiscal year ended June 30, 1997 (the "Annual Report")/1/:
<TABLE>
<CAPTION>
PART II ITEM INCORPORATED BY REFERENCE FROM
- ------------ ------------------------------
<S> <C>
Item 5. Market for the Annual Report section entitled "Securities
- ------- Information" (page 38).
Registrant's Common Stock
and Related Stockholder
Matters
Item 6. Selected Annual Report section entitled "Financial
- ------ Highlights" (page 2).
Financial Data
Item 7. Management's Annual Report section entitled "Management's
- ------ Discussion and Analysis of Financial Condition
Discussion and Analysis and Results of Operations" (pages 21 through 23).
of Financial Condition and
Results of Operations
Item 8. Financial Pages 24 through 37 of the Annual Report.
- ------
Statements and
Supplementary Data
</TABLE>
- ---------------
/1/ Viking utilizes a 52 or 53 week fiscal year ending on the last Friday in
June. For clarity of presentation, Viking has described all periods
presented as if the years ended on June 30.
<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. Viking uses data base marketing techniques to personalize many of
its mailings.
In the United States, Viking operates four full-service and six satellite
distribution centers that are strategically located to serve customers
throughout the 48 contiguous states, including a new satellite facility in
Denver, Colorado (opened in March 1997). 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, Germany and Austria. Viking's
Venlo facility also serves as Viking's European headquarters, housing corporate
and administrative offices. Viking opened a separate satellite distribution
center in Utrecht, Holland, in August 1996. In November 1995, Viking opened a
satellite distribution center near Frankfurt, Germany, and, in December 1996,
opened a satellite distribution center in Munich, Germany, which also handles
cross-border shipping into Austria. In August 1997, Viking opened a satellite
distribution center in Manchester, England, and anticipates opening a
distribution center and a call center in Italy during fiscal 1998. 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 30, 1997, Viking had revenues of $1.3
billion, with $472.2 million generated from operations in the United States,
$749.2 million from operations in Europe and $64.9 million from operations in
Australia. Sales by Viking's 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
9 of Notes to Consolidated Financial Statements incorporated by reference in
Item 8 of this report.
Viking was organized as a California corporation in 1960. Viking is
currently in the process of relocating its principal executive offices to its
new world headquarters at 950 West 190th Street, Torrance, California 90502.
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, in most countries, 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 560 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
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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 have been introduced in the United Kingdom
and France, and are being gradually introduced throughout the remainder of
Viking's European and Australian markets. During fiscal 1997, Viking introduced
an electronic catalog on the Internet for United States customers, and
international customers can also obtain local catalogs using the Internet.
During fiscal 1997, Viking mailed approximately 191 million copies of over
100 different catalogs, with approximately 55% mailed to existing customers. The
following table shows the approximate number of catalogs mailed by Viking during
the five years ended June 30, 1997:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(In thousands)
Existing customers................. 41,970 56,507 74,091 81,255 104,967
Prospects and inactive customers... 53,961 59,784 66,583 73,897 86,021
------ ------- ------- ------- -------
Total catalogs mailed............ 95,931 116,291 140,674 155,152 190,988
====== ======= ======= ======= =======
</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 30, 1997:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total active customers (1)........... 1,010,000 1,240,000 1,530,000 1,918,000 2,235,000
Average annual revenues per active
customer (during the fiscal year)... $445 $456 $531 $550 $576
</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.
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<PAGE>
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 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 ten distribution centers in the United States,
seven in Europe and two in Australia. 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 opened a
satellite distribution center in Manchester, England, in August 1997, and
anticipates opening a distribution center and a call center in Italy in fiscal
1998. 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 primarily 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.
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<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. 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 proprietary
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 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 two in the United States, and plans to install this system in
additional facilities in the United States, Europe and Australia during fiscal
1998. Viking believes that the new 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 1998, Viking intends to expand the geographic areas served
by this program.
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. 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.
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
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<PAGE>
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 the fiscal years ended June 30, 1997 and June 30, 1996, total
returns and allowances were approximately 5.6% and 6.1% of gross sales,
respectively.
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 1995, 1996 and 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
----------------------
YEAR ENDED JUNE 30,
----------------------
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
General office supplies and business machines (1)... 73% 75% 74%
Computer supplies (2)............................... 16 17 18
Furniture (3)....................................... 11 8 8
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
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(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.
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
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<PAGE>
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. By
handling all order entry and fulfillment functions regionally, Viking can
provide faster order entry and fulfillment and better customer service. 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 and buying power 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.
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 (a subsidiary of Boise Cascade
Office Products), 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
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<PAGE>
stationers from the United States, including Boise Cascade, Corporate Express
and U.S. Office Products, have expanded operations in Australia during fiscal
1997.
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. In
addition, Viking's executive officers meet with all employees at its call
centers and distribution centers at least once each year.
Viking considers its relations with its employees to be excellent. At
September 2, 1997, Viking employed 3,226 persons on a full-time basis, of whom
628 were engaged in management and administration, 1,456 were engaged in order
processing, customer service, credit collection and creative services and 1,142
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 nine states in which it has
operating facilities in the United States. Viking sells products to customers in
all states of the United States other than Alaska and Hawaii. From time to time,
legislation has been proposed in Congress that would have the effect of
requiring Viking to collect and remit sales taxes in each state where sales are
consummated. The United States Supreme Court recently ruled that, unless
Congress enacts such legislation, vendors whose only contacts with the taxing
state are by mail or common carrier (i.e., direct marketing companies with no
physical presence in the state) are not required to collect and remit sales
taxes. Any changes in applicable law that would require Viking to collect sales
taxes in states where it has no physical presence would impose some additional
costs and administrative burdens.
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ITEM 2: PROPERTIES
----------
Viking is in the process of moving into a 180,000 square foot facility
owned by Viking in Torrance, California. This facility will serve as Viking's
world headquarters and will house corporate and administrative offices, a call
center and certain other functions currently handled at Viking's Los Angeles
distribution center. Viking's previous headquarters were located in Gardena,
California, and consisted of approximately 54,000 square feet of office space.
These offices were occupied pursuant to a lease which expires in November 1997.
Since April 1995, Viking has operated a call center in Venlo, Holland,
serving The Netherlands, Germany and Austria. Viking's Venlo facility, which
consists of approximately 77,000 square feet and is owned by Viking, also serves
as Viking's European headquarters, housing corporate and administrative offices.
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(1) 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 2000, with
option to renew for three
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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SQUARE OWNED OR
LOCATION TYPE FEET LEASED LEASE TERM
- ------------------------- ------------ ------- -------- -----------------------------------
<S> <C> <C> <C> <C>
Denver, CO Satellite 75,000 Leased Expires in December 2003, with
option to renew for one three
year period.
Leicester, England(2) Full-service 115,000 Leased Expires in 2011.
Leicester, England(2) Full-service 86,000 Owned
London, England Full-service 128,000 Owned
Manchester, England Satellite 117,000 Owned
Dublin, Ireland Full-Service 63,000 Leased Expires in August 2015.
Paris, France Full-service 240,000 Leased Expires in December 2003.
GroBostheim Satellite 149,000 Leased Expires in June 2005, with option
(Frankfurt), Germany to renew for one five year period.
Munich, Germany Satellite 178,000 Leased Expires in October 2007.
Beesd (Utrecht), The Satellite 90,000 Leased Expires in 2006
Netherlands
Rydalmere (Sydney), Full-service 85,000 Leased Expires in September 1998, with
Australia(3) option to renew for one five year
period.
Laverton (Melbourne), Satellite 66,600 Owned
Australia
Milan, Italy Warehouse 56,000 Leased Expires in January 2003, with
option to renew for one six year
period.
Milan, Italy Office 12,000 Leased Expires in February 2003, with
option to renew for one six-year
period.
</TABLE>
___________________________
(1) Upon completion of Viking's relocation to its new world corporate
headquarters, this facility will be converted into a satellite distribution
center.
(2) These two facilities are located across the street from one another and
together operate as Viking's Leicester full-service distribution center.
(3) During fiscal 1996, Viking purchased property in North Rocks (Sydney),
Australia, of which it uses approximately 32,000 square feet as corporate
offices. Viking is currently building 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 6 of Notes to
Consolidated Financial Statements incorporated by reference in Item 8 of this
report.
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ITEM 3: LEGAL PROCEEDINGS
-----------------
Viking is the defendant in an action that was filed on July 18, 1997, in
the Circuit Court of Cook County, Illinois, as Pandolfi, Topolski, Weiss & Co.
-------------------------------
Ltd., et al, vs. Viking Office Products, Inc. The plaintiffs allege misleading
- ---------------------------------------------
advertising with respect to Viking's insurance charges and are seeking to
obtain, on behalf of themselves and a purported class of other potential
plaintiffs, reimbursement for insurance charges paid by them over a four-year
period (estimated by plaintiffs to be $25 million), injunctive relief, interest
and costs of suit, including attorneys' fees. Viking believes that the action is
without merit and will not have a material adverse effect on the financial
position of Viking.
Viking also is involved in various other legal proceedings arising in the
normal course of its business. In the opinion of management, these matters will
not, individually or in the aggregate, materially affect Viking's financial
position or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of Viking's security holders during the
fourth quarter of the fiscal year covered by this report.
SUPPLEMENTAL ITEM: EXECUTIVE OFFICERS
------------------
As of September 18, 1997, the executive officers of Viking were:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ----------------------------------------------------
<S> <C> <C>
Irwin Helford 63 Chairman of the Board and Chief Executive Officer
M. Bruce Nelson 52 President and Chief Operating Officer
Frank R. Jarc 55 Executive Vice President and Chief Financial Officer
Mark R. Brown 48 Vice President, Information Systems
Graham Cundick 37 Vice President, European Merchandising
Mark Muir 35 Vice President, Marketing
Ronald W. Weissman 60 Vice President, Logistics
Charlotte Wiethoff 34 Vice President, Administration and Secretary
</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.
-11-
<PAGE>
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.
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.
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 Executive Vice President of Logistics.
CHARLOTTE WIETHOFF was elected Vice President, Administration and Secretary
in July 1997 and has been employed by Viking in various administrative positions
since May 1989.
Executive officers are elected by and serve at the discretion of the Board
of Directors. No family relationships exist between any of the officers or
directors of Viking.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------
The information required by this item is included in Viking's Annual Report
to Shareholders for the fiscal year ended June 30, 1997 on page 38, under the
caption "Securities Information". Said portion of the Annual Report is
incorporated herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
-----------------------
The information required by this item is included in Viking's Annual Report
to Shareholders for the fiscal year ended June 30, 1997 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 21, 22 and 23 of
Viking's Annual Report to Shareholders for the fiscal year ended June 30, 1997.
Said portion of the Annual Report is incorporated herein by reference.
-12-
<PAGE>
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is included on pages 24 through 37 of
Viking's Annual Report to Shareholders for the fiscal year ended June 30, 1997.
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.
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 13, 1997.
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 13, 1997.
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 13, 1997.
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 13, 1997.
-13-
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a)1. Financial Statements:
--------------------
The following financial statements are incorporated by reference from
the registrant's Annual Report to Shareholders for the fiscal year ended June
30, 1997:
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and June 30, 1996
Consolidated Statements of Income for the years ended
June 30, 1997, June 30, 1996 and June 30, 1995
Consolidated Statements of Shareholders' Equity for the years
ended June 30, 1997, June 30, 1996 and June 30, 1995
Consolidated Statements of Cash Flows for the years ended June
30, 1997, June 30, 1996 and June 30, 1995
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules:
------------------------------
Independent Auditors' Report on Schedules
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
(b) Reports on Form 8-K:
--------------------
The registrant did not file any Reports on Form 8-K for the last
quarter of the fiscal year ended June 27, 1997.
(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.(10)
3.5 Amended and Restated Bylaws of the registrant.(1)
-14-
<PAGE>
3.6 Amendment to Bylaws dated January 20, 1997.(12)
4. Instruments Defining the Rights of Security Holders
---------------------------------------------------
4.1 Form of certificate representing shares of the registrant's Common
Stock.(1)
4.2 Certificate of Determination of Series A Junior Participating
Preferred Stock.
4.3 Rights Agreement, dated as of January 20, 1997, between the registrant
and American Stock Transfer and Trust Company.(12)
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)
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)
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)
10.15 Form of Tenancy Agreement between DIBAG and Viking Direkt GmbH.
10.16 Standard Industrial/Commercial Single-Tenet Lease-Net, dated August
8, 1996, between Pacifica Northeast Industrial Partnership and the
registrant.
10.17 Form of Indenture between Lydgrove Limited and Viking Direct Limited.
10.18 Form of Commercial Lease between I.C.I.M. S.p.a. - Immobili
Commerciali Industriali Mirabella and the registrant.
-15-
<PAGE>
10.19 Printing Agreement, dated May 31, 1996, between Quebecor Printing
(USA), Inc. and the registrant.(10)
10.20 European Printing Agreement, dated October 31, 1997, between BPC
Catalogues Limited and the registrant.
10.21* Employment Agreement, dated July 1, 1997, between Irwin Helford and
the registrant.
10.22* Long Term Stock Incentive Plan.(7)
10.23* Amended and Restated 1989 Incentive Stock Option Plan.(5)
10.24* 1991 Nonstatutory Stock Option Plan.(5)
10.25* 1992 Directors' Stock Option Plan.(6)
10.26* 1994 Employee Stock Purchase Plan.(1)
10.27* 1997 Incentive Stock Option Plan.
10.28* Form of Profit-Sharing Plan.(1)
10.29* Form of Indemnification Agreement between the registrant and its
directors and certain of its officers.(1)
10.30* Form of letter agreement between the registrant and certain of its
officers.(9)
10.31* Chief Executive Officer Performance Based Bonus Plan, as amended.
10.32* President's Performance Based Bonus Plan, as amended.
10.33* Form of letter agreement regarding change in control, dated May 12,
1997, between the registrant and each of Irwin Helford and M. Bruce
Nelson.
10.34* Form of letter agreement regarding change in control, dated May 12,
1997, between the registrant and Frank R. Jarc.
10.35* Form of letter agreement regarding change in control between the
registrant and each of the registrant's vice presidents.
13. Annual Report to Security Holders
---------------------------------
13.1 Annual Report to Shareholders for the fiscal year ended June 30,
1997. (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)
23. Consent of Independent Public Accountants
-----------------------------------------
23.1 Independent Auditors' Consent.
27. Financial Data Schedule
-----------------------
27.1 Financial Data Schedule for the fiscal year ended June 30, 1997.
______________________
* Management contract, compensatory plan or arrangement.
-16-
<PAGE>
(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.
(10) Previously filed in the Exhibits to the registrant's Annual Report on Form
10-K for the fiscal year ended June 28, 1996 and incorporated by reference
herein.
(11) Previously filed in the Exhibits to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1996 and incorporated
by reference herein.
(12) Previously filed in the Exhibits to the registrant's Current Report on Form
8-K dated January 31, 1997 and incorporated by reference herein.
-17-
<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 22, 1997 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 22, 1997 /s/ Irwin Helford
----------------------------------------
Irwin Helford, Chairman of the Board,
Chief Executive Officer and Director
Date: September 22, 1997 /s/ M. Bruce Nelson
----------------------------------------
M. Bruce Nelson, President, Chief
Operating Officer and Director
Date: September 22, 1997 /s/ Frank R. Jarc
----------------------------------------
Frank R. Jarc, Executive Vice President
and Chief Financial Officer
Date: September 22, 1997 /s/ Keith Bjelajac
----------------------------------------
Keith Bjelajac, Controller (Principal
Accounting Officer)
Date: September 22, 1997 /s/ Lee A. Ault III
----------------------------------------
Lee A. Ault III, Director
Date: September 22, 1997 /s/ Neil R. Austrian
----------------------------------------
Neil R. Austrian, Director
Date: September 22, 1997 /s/ Charles P. Durkin, Jr.
----------------------------------------
Charles P. Durkin, Jr., Director
Date: September 22, 1997 /s/ Joan D. Manley
----------------------------------------
Joan D. Manley, Director
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
Board of Directors and Stockholders
Viking Office Products, Inc.
Los Angeles, California
We have audited the consolidated financial statements of Viking Office Products,
Inc. and subsidiaries (the "Company") as of June 30, 1997 and 1996, and for each
of the three years in the period ended June 30, 1997, and have issued our report
thereon dated August 20, 1997, such financial statements and report are included
in your 1997 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of Viking
Office Products, Inc. and subsidiaries listed in Item 14(a)2. This financial
statement schedule is the 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.
Deloitte & Touche LLP
Los Angeles, California
August 20, 1997
<PAGE>
VIKING OFFICE PRODUCTS INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<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 30, 1995
Accounts receivable reserve $6,035 $10,111 $ 7,457 $8,689
Year ended June 30, 1996
Accounts receivable reserve 8,689 9,774 11,047 7,416
Year ended June 30, 1997
Accounts receivable reserve 7,416 12,623 11,462 8,577
</TABLE>
<PAGE>
EXHIBIT 4.2
CERTIFICATE OF DETERMINATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
VIKING OFFICE PRODUCTS, INC.
(Pursuant to Section 401 of the
General Corporation Law of the State of California)
_____________________________
The undersigned hereby certify that:
1. They are the chairman of the Board and Secretary, respectively, of
Viking Office Products, Inc., a California corporation.
2. The following resolution was adopted by the Board of Directors of the
Corporation as required by Section 401 of the General Corporation Law of the
State of California at a meeting duly called and held on January 20, 1997.
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
------------------
the "Board") in accordance with the provisions of the Articles of Incorporation,
-----
the Board of Directors hereby creates a series of Preferred Stock, no par value
(the "Preferred Stock"), of the Corporation and hereby states the designation
---------------
and number of shares, and fixes the relative rights, preferences, and
limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Junior Participating Preferred Stock" (the "Series A
--------
Preferred Stock") and the number of shares constituting the Series A Preferred
- ---------------
Stock shall be 600,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
no par value (the "Common Stock"), of the Corporation, and of any other
------------
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on or about the first day of March,
June, September and December in each year (each such date being referred to
herein
1
<PAGE>
as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
-------------------------------
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 200 times the aggregate per
share amount of all cash dividends, and 200 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions,
other than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series A Preferred Stock. In the event the Corporation shall at any time
after the date on which the Preferred Stock Purchase Rights of the
Corporation are declared by the Board of Directors (the "Rights Declaration
------------------
Date") declare or pay any dividend on the Common Stock payable in shares of
----
Common Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section 2
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
2
<PAGE>
Section 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
200 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time after the
Rights Declaration Date declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes per share to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in any other Certificate of
Determination creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
which may from time to time be accorded such voting right shall vote
together as one class on all matters submitted to a vote of shareholders of
the Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six (6) quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all
shares of Series A Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period,
the holders of Series A Preferred Stock, voting as a class, shall have the
right to elect two (2) directors.
(ii) During any default period, such voting right of the holders
of Series A Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 3(C) or
at any annual meeting of shareholders, and thereafter at annual
meetings of shareholders, provided that such voting right shall not be
exercised unless the holders of ten percent (10%) in number of shares
of Series A Preferred Stock outstanding shall be present in person or
by proxy. The absence of a quorum of the holders of Common Stock
shall not affect the exercise by the holders of Series A Preferred
Stock of such voting right. At any meeting at which the holders of
Series A Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right, voting
as a class, to elect two (2) directors and the Common Stock shall have
the right to elect the remaining directors. Upon the election of
directors by the Series A Preferred Stock, the terms of all persons
who were directors immediately prior hereto shall terminate and the
directors elected by the Series A Preferred Stock together with those
elected by the Common Stock shall constitute the directors of the
Corporation. After the holders of the Series A Preferred Stock shall
have exercised their right to elect directors in any default period
and during the continuance of such period, the number of directors
shall not be increased or decreased except by
3
<PAGE>
vote of the holders of Series A Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior to or
pari passu with the Series A Preferred Stock.
(iii) Unless the holders of Series A Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect directors, the Board of Directors may order, or any
shareholder or shareholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Series A Preferred
Stock outstanding may request, the calling of a special meeting of the
holders of Series A Preferred Stock, which meeting shall thereupon be
called by the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which
holders of Series A Preferred Stock are entitled to vote pursuant to
this paragraph (C)(iii) shall be given to each holder of record of
Series A Preferred Stock by mailing a copy of such notice to him at
his last address as the same appears on the books of the Corporation.
Such meeting shall be called for a time not earlier than 20 days and
not later than 60 days after such order or request or in default of
the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any
shareholder or shareholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Series A Preferred
Stock outstanding. Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next
annual meeting of the shareholders.
(iv) In any default period, the holders of Common Stock and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of directors until
the holders of Series A Preferred Stock shall have exercised their
right to elect two (2) directors voting as a class, after the
exercise of which right the directors so elected by the holders of
Series A Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period. References in this paragraph (C)
to directors elected by the holders of a particular class or classes
of stock shall include directors elected by such directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Series A Preferred Stock as a class to
elect directors shall cease, (y) the term of any directors elected by
the holders of Series A Preferred Stock as a class shall terminate,
and (z) the number of directors shall be such number as may be
provided for in the articles of incorporation or bylaws irrespective
of any increase made pursuant to the provisions of paragraph (C)(ii)
of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the articles of
incorporation or bylaws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining directors.
(D) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock and other classes of stock of the
Corporation, if applicable, as set forth herein) for taking any corporate
action.
4
<PAGE>
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, redeem on or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on, or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series
A Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such on a parity stock in
exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein, in the
Corporation's Articles of Incorporation, or in any other Certificate of
Determination creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
5
<PAGE>
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
--------------------------------------
liquidation (voluntary, or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received $200 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Liquidation
-----------
Preference"). Following the payment of the full amount of the Liquidation
- ----------
Preference, no additional distributions shall be made to the holders of shares
of Series A Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
-----------------
equal to the quotient obtained by dividing (i) the Liquidation Preference by
(ii) 200 (as appropriately adjusted as set forth in subparagraph (C) below to
reflect such events as stock splits, stock dividends and recapitalizations with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
----------
Number"). Following the payment of the full amount of the Liquidation Preference
- ------
and the Common Adjustment in respect of all outstanding shares of Series A
Preferred Stock and Common Stock, respectively, holders of Series A Preferred
Stock and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Series A Preferred Stock and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Liquidation Preference and the liquidation
preferences of all other series of stock, if any, which rank on a parity with
the Series A Preferred Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 200 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Declaration Date
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the
6
<PAGE>
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. Ranking. The Series A Preferred Stock shall rank junior to all
-------
other series of the Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets, unless the terms of any such series shall
provide otherwise.
Section 9. Amendment. The Articles of Incorporation of the Corporation
---------
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of a majority
or more of the outstanding shares of Series A Preferred Stock, voting together
as a single class.
Section 10. Fractional Shares. Series A Preferred Stock may be issued in
-----------------
fractions of a share which, shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
3. The number of shares constituting the Series A Preferred Stock shall
be 600,000. None of the shares of Series A Preferred Stock authorized hereby
has been issued.
4. None of the shares of Series A Stock authorized by the Amended and
Restated Articles of Incorporation of this Corporation filed on December 2, 1989
are currently outstanding.
7
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
on our own knowledge. This declaration was executed on this 18th day of August,
1997, in Los Angeles, California.
/s/ Irwin Helford
----------------------
Chairman of the Board
/s/ Charlotte Wiethoff
----------------------
Secretary
8
<PAGE>
EXHIBIT 10.15
TENANCY AGREEMENT
The following tenancy agreement is reached
between DIBAG
Industriebau Aktiengesellschaft
Riesstrasse 25
80992 Munich
-in the following LESSOR-
and Viking Direkt GmbH
IndustrieHandelsParkNord
Babenhaeuser Strasse 50
63762 Grossostheim
-in the following LESSEE-
(S) 1 RENTAL OBJECT
- ---------------------
1.1 The warehouse, including office and social rooms with a surface area of
approx. 13,200 m/2/ hall surface area
approx. 450 m/2/ office and social rooms
approx. 5,100 m/2/ sealed transport-area,
which is to be built in Ludwigstrasse in 85399 Hallbergmoos, shall be
leased. The property has a total size of 24,000 m/2/.
1.2 The Lessor shall carry out a measurement of the leased surface area at
the time of delivery, in which interior walls and supports shall be
overmeasured. Thus, the surface area rented will be calculated from
inner side to inner side of the external walls.
Included in the rental surface area are transport and function areas
within the building and any ramp areas.
The Lessor shall send the Lessee the measurement by registered
letter/return receipt. If the Lessee does not object to this
measurement in writing within 21 days of its receipt, the measurement
shall be considered as bindingly approved and shall become an element
of the Agreement.
1.3 The rental property is marked in green in the enclosed plan of the
building site (Enclosure 1).
<PAGE>
(S) 5 PURPOSE AND USE
- -------------------------
The Lessee shall use the hall area for the storage and commissioning
of office materials and the office and social rooms as their names
suggest.
(S) 3 CONDITION OF THE RENTAL OBJECT/DELIVERY
- -------------------------------------------------
3.1 The Lessor shall construct the Rental Object in accordance with the
enclosed building-site plan M 1 : 1,000 Pl.- No. BK-L 00 (Enclosure 1)
and the enclosed building specifications (Enclosure 2). The Lessor
shall compose the application plan in agreement with the Lessee
immediately upon the signing of the Agreement. If structural
alterations or requirements should be demanded when the building
permit is granted. These are to be carried out in agreement with the
Lessee. The Lessee shall agree to these structural changes inasmuch as
these do not pose an important interference to his business operation.
3.2 Upon delivery, a mutual Protocoll will be written up, in which any
defects will be included. Defects shall be defined as services of the
Lessor which are guaranteed in the building specifications but which
are missing or imperfectly executed. These defects are to be
eliminated by the Lessor within an appropriate period of time.
3.3 Defects, which do not represent an important limitation to the
intended use of the Rental Object by the Lessee, shall not hinder the
delivery. Construction work remaining to be finished must be accepted
by the Lessee. Claims by the Lessee for defects which are not included
in the Protocoll shall not be valid unless they are hidden defects.
(S) 4 COMMENCEMENT OF THE RENTAL PERIOD
- -------------------------------------------
4.1 The binding date for the beginning of the Rental Period for the hall
area, which is yet to be determined, of 11,000 m/2/, and for the
office and social rooms shall be October 1, 1996.
4.2 The remaining hall area of approx. 2,200 m/2/ shall be taken over by
the Lessee within a period of 2 years; thus on September 30, 1998 at
the latest. The Lessee will inform the Lessor of the takeover date 3
full months in advance. The takeover shall take effect on the 1st of
the month.
4.3 The Lessor shall be authorized to rent the hall area of approx. 2,200
m/2/ to third parties until such time as the takeover is effected by
the Lessee. In doing so, he shall take into account the fair interests
of the Lessee. The third party shall be allowed the free rental of the
entrance driveway and service areas to an appropriate degree.
4.4 The Lessee can begin constructing fittings before taking over the
approx. 11,000 m/2/ hall area, inasmuch as these do not cause a delay
or hindrance to the completion of the Rental Object. The same is true
for the attachment of the advertising fittings.
4.5 Should the Lessee make use of the rental areas before their delivery,
the Lessor shall be authorized to invoice the rental fee and the
advance payment of the agreed operating costs as of this date. In the
case of partial use the rent due shall also be partial to the same
extent.
<PAGE>
(S) 5 TERM AND TERMINATION OF THE TENANCY
- ---------------------------------------------
5.1 The Tenancy Agreement shall be valid for a period of 11 years. It
shall extend by terms of 5 years at the end of each term unless
terminated with 12 months notice by one of the parties to the
Agreement. The notice of termination shall be delivered by registered
letter/return receipt.
5.2 The Lessor can terminate the Tenancy Agreement without notice if an
important reason exists, especially
(a) if the Lessee is in arrears of more than two monthly rental
installments and more than two advanced payments for operating
costs,
(b) if court composition or bankruptcy proceedings are opened on the
assets of the Lessee or denied due to lack of insolvent assets,
or,
(c) if the Lessee fails to properly deliver the security deposit to
the Lessee in accordance with (S) 17 before the beginning of the
contractual term, despite being requested to do so in writing.
In the case of such a termination, the Lessee shall be liable for the
cost of the rental, incidental and other costs agreed to in this
Agreement up to the last agreed upon end of the Agreement. Other
claims for damages by the Lessor shall remain unaffected.
(S) 6 RENT
- --------------
6.1 The monthly rental installment shall be
DM 13.--/m/2/ for hall area
DM 19.50/m/2/ for office and social rooms
DM 1.--/m/2/ for sealed ground surfaces.
6.2 The rent shall be paid plus the statutory V.A.T. and shall be subject
to the stable-value clause agreed to in (S) 7.
The Lessee expressly ensures that he is a manufacturer as understood
in accordance with the UStG (turnover tax law) and that he will not
use the Rental Object for residential or other non-business oriented
ends. The Lessee also expressly ensures, not to carry out any dealings
which, due to their manner and scope, would not allow the Lessor to
waive the exemption of the turnover tax.
Upon the demand of the Lessor, the Lessee shall be obliged to produce
evidence that the exclusive use of the Rental Object is for dealings
which do not exclude deduction of input tax.
6.3 The rent is to be paid in advance every month before the 3rd working
day of each month at no cost to the Lessor into an account which is to
be named by the Lessor. The Lessee agrees to allow the Lessor to
direct debit the monthly rental and incidental payments from his
account. The Lessee shall be obliged to sign the initial direct debit
authorization which accompanies the initial invoice and to sent it
back to the Lessor.
6.4 In the case of delays in payment, the Lessor shall be authorized to
charge a lump sum of DM 5.-- for each written reminder. Should the
payment of the rent be overdue by more than 10 days, the Lessor shall
be authorized to charge an interest on arrears of 5% above the valid
Discount Rate of the German Bundesbank at the time and not less than
10%.
<PAGE>
(S) 7 FLOATING RENT CLAUSE
- ----------------------------
7.1 Should the cost of living index, as calculated by the Federal Bureau of
Statistics (Statistisches Bundesamt) in Wiesbaden, for a 4 person
household of employees with an average income, basis 1991 = 100, change,
either upwards or downwards with regard to the index level at the time
of commencement of the Agreement, the Rent shall change accordingly
subject to the proviso that the initial change take effect 24 months
after the commencement of the obligation to pay rent. The adaptation of
the rent shall then take place after further periods of 24 months and by
a sum equalling the change calculated by the above-mentioned cost of
living index.
7.2 Should the above-mentioned cost of living index from the Statisches
Bundesamt in Wiesbaden discontinue to be calculated in its current form,
it shall be replaced by the new index which takes its place.
7.3 The Lessor shall apply for the necessary approval for the preceeding
currency floating clause. Should the approval not be granted, both
parties shall be obliged to agree to an officially acceptable agreement
or an agreement which doesn't require official acceptance which
approximates as closely as possible the intention of the non-approved
clause.
(S) 8 INCIDENTAL COSTS
- ------------------------
8.1 The Lessee shall take care of the Rental Object independently and shall
bear the costs for the allocatable operating costs of the second
calculation ordinance which arise for the Lessor for the building or the
rental unit, in accordance with Enclosure 3 to (S) 27 subsection 1. The
overview of the operating costs is annexed in Enclosure 3.
8.2 Operating costs, which are charged to the Lessor, but which, in
accordance with Subsection 8.1, are to be paid by the Lessee, are to be
charged, upon production of evidence of their falling due, to the Lessee
by the Lessor. These invoices are due for payment within 10 days.
(S) 9 OFFSETTING, REDUCTION OF RENT
- ------------------------------------
Offsetting, rent reduction or assertion of a right to withhold shall not
be permissible unless the Lessee's claim is acknowledged by the Lessor or
becomes legally valid.
(S) 10 MAINTENANCE AND STRUCTURAL MODIFICATIONS
- -----------------------------------------------
10.1 Repairs and maintenance costs to structural sections of the Rental Object
are to be borne by the Lessor.
10.2 The Lessee will carry out all repairs and maintenance work becoming
necessary within the rented rooms and on technical equipment which do not
fall under subsection 10.1 and will maintain all fixtures in a functional
condition. All superficial repairs are also included here.
10.3 The Lessee shall be exempted from his repair and maintenance obligation
pursuant to (S) 10.2 if the Lessor has a warranty claim for such cases
with regard to a third party.
<PAGE>
10.4 Wear and damage which is caused by a non-contractual use of the rental
property, as well as damage caused by the Lessee, his employees or
other persons in connection with the business operations of the Lessee,
is to be repaired or reimbursed by the Lessee.
10.5 Structural alterations to the rental property after the commencement of
the Rental Period require the prior written agreement of the Lessor.
Any required official permits for such work are to be acquired by the
Lessee at his own cost and to be presented upon request to the Lessor.
10.6 The Lessee shall be authorized to attach fixtures which he deems
necessary for the utilization of the Rental Object, inasmuch as these
do not encroach upon the interests of the Lessor and/or other Lessees.
10.7 Official requirements, which are imposed with regard to the rental area
after delivery and which are based on the management or behaviour of
the Lessee or the manner of his operation, are to be fulfilled by the
Lessee at his own cost.
10.8 The Lessee accepts the complete liability for premises for the entire
Rental Object and liberates the Lessor from all claims by third parties
with regard to such liablities.
(S) 11 ADVERTISING
- --------------------
11.1 If the Lessee intends to affix his company logo to the outer wall of
the Rental Object, he shall apply to the Lessor for permission in
writing, explaining in detail the proposed advertising attachment. The
Lessor shall approve of such an advertising attachment if it fits in
harmoniously and does not infringe on the interests of the Lessor
and/or other Lessees.
11.2 The Lessee shall acquire any necessary official authorizations for this
advertising at his own cost and shall observe all official regulations.
The Lessee shall, on request, provide the Lessor with evidence that the
required official permits for the advertising have been acquired.
11.3 The Lessee frees the Lessor from all costs involved in attaching and
maintaining the advertising attachments. Inasmuch as the advertising
fixture is supplied with electricity, the Lessee shall ensure that the
electricity supply takes place from his own Rental Object. All work is
to be carried out in professional quality.
11.4 Repairs to the advertising and repairs which could occur due to its
presence are the responsibility of the Lessee. The Lessee shall be
obliged to maintain his advertising fixtures in a clean, safe and
attractive condition.
11.5 If a temporary removal of the advertising fixture should become
necessary, due to work which has to be carried out by the Lessor, the
costs involved in the removal of the advertising fixture are to be
borne by the Lessee. Claims for damages, regardless of their form, will
not be acknowledged by the Lessor.
11.6 The approval for the attachment of advertising fixtures is valid for
the term of the existing Tenancy Agreement. The Lessor reserves the
right to revoke this right at any time due to important reasons. In
this case, the advertising attachment is to be removed, at the latest
at the end of the Tenancy Agreement, and the outer wall is to be
returned to its original condition.
11.7 The Lessee frees the Lessor from all damage caused in connection with
the attachment and presence of the advertising fixture - also in cases
of force majeur - and from all claims of third parties which can be
raised against the Lessor.
<PAGE>
(S) 12 RETURN OF THE RENTAL OBJECT
- -------------------------------------
12.1 The Lessee shall return the Rental Object to the Lessor at the end of
the rental term in a well cleaned state. The parts of the Rental
Object which were newly painted at the commencement of the Rental
Agreement (e.g. walls, ceilings, doors etc.) shall be returned in a
newly painted condition.
12.2 The Lessee shall eliminate all structural alterations on request of
the Lessor before returning the Rental Object and shall return the
Rental Object to its original condition before the alterations were
made.
12.3 The Lessee may remove attachments which he has affixed to the Rental
Object. The Lessor can, after the Tenancy Agreement has been
terminated, demand in writing the removal of remaining attachments for
payment of the current market price of the attachment.
The Lessor does not have a right to the attachments inasmuch as the
Lessee has a justified interest in taking them away. Attachments which
are not purchased by the Lessor at the current market price, can be
left by the Lessee only inasmuch as the Lessor does not demand their
removal. The Lessee shall return the Rental Object to its original
state after removal of the attachments.
(S) 13 SUBLETTING
- --------------------
13.1 The Lessee shall only be authorized to sublet part or all of the
rental area upon agreement of the Lessor. The Lessor shall be able to
refuse permission for an important reason.
13.2 If the Lessee receives permission to sublet, the obligations of the
Lessee with regard to the Lessor to fulfill all the conditions in this
Agreement remain unchanged.
13.3 In the case of a future subletting, the Lessee now passes on to the
Lessor all claims that he has with regard to the subtenant as security
in addition to rights of lien to the extent of all due and future rent
claims and incidental costs.
(S) 14 ALIENATION OF THE RENTAL OBJECT
- -----------------------------------------
In the case of the Rental Object being alienated, the Lessee releases
the Lessor as of the commencement of rental, from all Lessor's
obligations, inasmuch as the new owner takes over these obligations.
(S) 15 DESTRUCTION OF THE RENTAL OBJECT
- ------------------------------------------
In the case of the destruction of or damage to the Rental Object which
renders it unsuitable for use, the Lessor shall be obliged to return
the Rental Object to its original state. As soon as the Rental Object
is in its original condition, the Lessee shall be obliged to take it
over once again and resume rental payments, unless other legal reasons
force he to continue rental payments throughout.
(S) 16 ADDITIONAL OBLIGATIONS
- --------------------------------
16.1 Lessor and Lessee promise to be considerate and to cooperate together
and with the other Lessees to ensure a peaceful co-existence.
<PAGE>
16.2 The Lessee shall report damage to the Rental Object to the Lessor as
soon as he notices it.
16.3 Even if the Lessee does not intend to heat the rented rooms, he shall
be obliged to keep the temperature above freezing point.
16.4 The Lessee shall be obliged to close insurance policies necessary for
the fulfillment of his obligations under this Agreement, including
adequate glass breakage insurance and he shall observe all industrial,
fire prevention and police regulations when building up and carrying
out his business.
16.5 The Lessor or his agent shall be authorized to enter the rental rooms
during office hours with the prior permission of the Lessee.
If the tenancy is terminated, the Lessor shall be authorized to carry
out inspections with prospective tenants during office hours after
previously informing the Lessee of this intention.
(S) 17 SECURITY DEPOSIT
- --------------------------
17.1 The Lessee shall be obliged to deliver to the Lessor an unrestricted,
absolute bank guaranty for 545,000 DM (in words: five hundred and
forty five thousand German Marks) from a large German bank by May 31,
1996 at the latest, as a security for his payment obligations. The
bank guaranty is to be such that the bank pays out the maney at the
first request without a deposit clause.
17.2 The Lessee shall appropriately adjust the sum of the security deposit
if requested by the Lessor to do so, in the case of an increase in his
obligation to pay, whether this be in the form of a raise in the rent,
operating costs or of the V.A.T..
17.3 The Lessor shall be authorized to satisfy himself through this
security deposit for all claims based on this Agreement, should the
Lessee not fulfill his obligations completely or on time. If the
security deposit is made use of by the Lessor during the term of
tenancy, it is to be returned to the initial sum immediately, or in
the case of a bank guaranty, renewed.
17.4 The Lessee shall not be permitted to begin using the Rental Object
before the security deposit has been delivered. In the case of the
security deposit being delayed, the Lessee shall remain obliged to
make all payments relating to the Rental Object.
17.5 The security deposit/bank guaranty is to be returned 3 months after
moving out and contractual return of the Rental Object at the latest.
The Lessee remains, however, authorized to withhold a suitable amount
of the deposit or the bank guaranty until the calculation of the
annual operating costs. If Litigation is pending between Lessor and
Lessee based on the tenancy relationship, the security deposit/bank
guaranty can be retained with respect to the expected costs of this
litigation. The Lessee shall not be authorized to assign or pledge the
security deposit.
(S) 18 SUBSTITUTE PERFORMANCE, DAMAGES
- -----------------------------------------
18.1 Should the Lessee not fulfill an obligation of this Agreement, despite
being requested to do so and a deadline being set with threat of
denial, the Lessor shall be authorized to revert to substitute
performance without any further announcement. The Lessee shall
reimburse the Lessor for any costs or damage incurred by the Lessor in
doing so.
<PAGE>
18.2 Should the lessee not fulfill his obligations upon termination of
the tenancy, the Lessor shall be authorized to demand payment of the
sum of money which would have to be spent on the substitute
performance instead of the regulation in Subsection 18.1. The Lessor
is not obligated to carry out a substitute performance. Claims for
damages of the Lessor remain unaffected.
18.3 Should the Lessor not fulfill his obligations as laid down in (S)
10.1 despite expert proof followed by a written reminder and an
appropriate deadline being set, the Lessee shall be authorized to a
substitute performance. The costs for the substitute performance
are to be borne by the Lessor. In this case, the Lessee shall be
authorized to offset these costs. The costs for the expert shall be
shared by the parties.
(S) 19 PENALTY UNDER CONTRACT
- ----------------------------------
The Lessor shall be obliged to pay the Lessee a conventional penalty
of DM 75,000.00 for every month which the delivery deadline of
October 1, 1996 is not upheld. Payment of this penalty is due on the
second of each applicable month.
(S) 20 PERSONAL LIABILITY (CUMULATIVE ASSUMPTION OF DEBTS)
- ---------------------------------------------------------------
The partner of the Lessee:
VIKING OFFICE PRODUCTS INC.
13809 S. Figueroa Street
Los Angeles, CA 90061
U.S.A.
shall be directly liable for the obligations of the Lessee from this
Agreement. The Lessee shall be obliged to produce confirmation of
the direct, personal liability of this above-mentioned company in
the legally binding form before February 28, 1996. The commencement
of tenancy mentioned in (S) 4.1 shall be extended by the period of
time by which the production of the assumption of debts is delayed
after February 28, 1996. The production of the assumption of debts
is a main obligation of the Lessee and thus comes under (S) 326 of
the German Civil Code.
(S) 21 FINAL PROVISIONS
- ----------------------------
21.1 Should a provision in this Agreement be or become invalid, or should
a gap be found in the provisions, the effectiveness of the remaining
provisions remains unchanged. The parties to the Agreement undertake
to replace the invalid provision with another, valid one which
approximates the commercial intention of the invalid provision as
closely as possible. A gap in the provisions is to be closed while
maintaining the commercial intentions of this Agreement.
21.2 The parties to this Agreement are aware of the statutory requirement
of written form in (S)(S) 566 section 1, 126 of the German Civil
Code. They hereby mutually undertake to carry out all actions and to
make all declarations necessary to fulfill the statutory requirement
of written form and not to terminate the Agreement with referral to
the non-compliance to the statutory written form, should this be
demanded at any time by either party. This shall be valid not only
for the closing of the original/main Agreement but also for
supplementary and amending agreements.
21.3 Alterations and amendments must be made in writing to be valid.
<PAGE>
21.4 The following Enclosures are component part of this Tenancy
Agreement:
Enclosure 1 Building site plan
Enclosure 2 Building specifications
Enclosure 3 Overview of operating costs
21.5 Place of jurisdiction and performance is Munich, Germany.
Munich,
--------------------------- ----------------- ----------------
- ---------------------------------- ------------------------------------
Lessor Lessee
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EXHIBIT 10.16
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION]
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, August
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8, 1996, is made by and between Pacifica Northeast Industrial Partnership, a
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Colorado General Partnership ("LESSOR") AND Viking Office Products, Inc., a
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California Corporation ("LESSEE"), (collectively the "PARTIES," or individually
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a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein
or to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of 3871 Revere Street, Denver, Colorado 80239, located in the
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County of Denver, State of Colorado and generally described as (describe briefly
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the nature of the property) an approximately 75,265 square foot single tenant,
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free-standing industrial building ("PREMISES"). (See Paragraph 2 for further
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provisions.)
1.3 TERM: Seven (7) years and -0- months ("ORIGINAL TERM") commencing
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January 1, 1997 ("COMMENCEMENT DATE") and ending December 31, 2003 ("EXPIRATION
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DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: November 1, 1996 ("Early Possession Date"). (See
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Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $ see below per month ("BASE RENT"), payable on the first
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(1st) day of each month commencing January 1, 1997 for the Primary Lease Term.
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Base Rent shall be as follows: Years 1 and 2: $18,502.65 per month; Years 3 and
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4: $20,070.67 per month; Years 5 and 6: $21,325.08 per month; Year 7: $22,579.50
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per month (See Paragraph 4 for further provisions.)
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[_] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ 18,502.65 as Base Rent for the period
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January 1st through January 31, 1997.
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1.7 SECURITY DEPOSIT: $ -0- ("SECURITY DEPOSIT"). (See Paragraph 5 for
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further provisions.)
1.8 PERMITTED USE: general office, warehousing and distribution as related
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to Lessee's office supply operations (See Paragraph 6 for further provisions.)
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1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
represents
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[_] Lessor exclusively ("LESSOR'S BROKER"); [_] both Lessor and Lessee, and
Pacifica Holding Company represents
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[_] Lessee exclusively ("LESSEE'S BROKER"); [xx] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further provisions.)
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1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Addendum "A", Addendum "B" - Rules and Regulations, Exhibit "A" Site Plan all
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of which constitute a part of this Lease.
2. PREMISES.
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, is an approximation which Lessor and
Lessee agree is reasonable and the rental 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, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date and that the roof
shall be structurally sound and free of leaks. 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 thirty (30) days after the
Commencement Date, 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 to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee, but shall apply to apply to Lessor's performance to the
tenant improvement work set forth in Addendum "A", Paragraph 2. If the Premises
do not comply with said warranty, 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 the same
at Lessor's expense. If Lessee does not give Lessor written notice of a non-
compliance with this warranty within six (6) months following the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) 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 and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor with thirty (30) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said thirty (30) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by 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 (1) full calendar month shall be prorated based upon the actual number
of days of the calendar 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.
5. SECURITY DEPOSIT.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES. See Addendum "B", Article II.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, 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 or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within ten (10) 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 Law 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 Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise with 24 hours advanced verbal notice, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease and all Applicable Laws (as defined in
Paragraph 6.3), and to employ experts and/or consultants in connection therewith
and/or to advise Lessor with respect to Lessee's activities, including but not
limited to the installation, operation, use, monitoring, maintenance, or removal
of any Hazardous Substance or storage tank 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, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or 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 any 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 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2
(Lessor's obligations to repair), 9 (damage and 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, non-structural (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
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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 serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities, fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior surfaces), ceilings, normal
roof maintenance not to exceed $15,000 in any lease year, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. 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. continued, See Addendum "A", Paragraph 4
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor
contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of, any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication 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 that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "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 as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $50,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
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 $50,000 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 and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. 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 mechanics' 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.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions 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
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless Lessor has elected to become the owner of such Lessee
owned Alterations or Utility Installations, 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 their installation may
have been consented to by Lessor. Lessor may require the removal at any time of
all or any part of any Lessee Owned 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, with all of
the improvements, parts and surfaces thereof 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 in writing by Lessor, the Premises, as surrendered, shall include
the 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 Alterations and/or 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 Law 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 FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor monthly in advance with payment of Base Rent.
8.2 LIABILITY INSURANCE
(a) CARRIED BY LESSEE. LESSEE shall obtain and keep in force during the
term of this Lease a Commerical General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) 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 and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in any amount less than $1,000,000 per occurrence with an
"Additional Insured-Managers or Lessors of Premises" Endorsement and contain the
"Amendment of the Pollution Exclusion" 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.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above, 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. The Insuring Party 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 the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss
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or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), 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 Premises 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 cause of loss. Said policy or policies shall
also contain an agreed valuation provision in lieu of any coinsurance 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. If such insurance
coverage has a deductible clause, the deductible amount shall not exceed $1,000
per occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, 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 Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall 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 coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase in caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
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. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or by endorsement to a
policy already carried, maintain insurance coverage on all of Lessee's personal
property, Lessee Owned Alterations and Utility Installations in, on, or about
the Premises similar in coverage to that carried by the Insuring Party under
Paragraph 8.3. Such insurance shall be full replacement cost coverage with a
deductible of not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal property or
the restoration of Lessee Owned Alterations and Utility Installations. Lessee
shall be the Insuring Party with respect to the insurance required by this
Paragraph 8.4 and 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 B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, 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. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable 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. If the Insuring Party shall fail to procure and maintain the insurance
required to be carried by the Insuring Party under this Paragraph 8, the other
Party may, but shall not be required to, procure and maintain the same, but at
Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") 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 of or damage to the Waiving Party's
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.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, 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, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing 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,
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
forgoing 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, and
whether well founded or not. 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 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 the 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, or 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 tenant of Lessor.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 40%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(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 40% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
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 PARTIAL DAMAGE--INSURED LOSS. If a 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; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total costs to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. 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.
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9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a 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, but subject to Lessor's
rights under Paragraph 13), 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 thirty (30) days after receipt by Lessor or knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving 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 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 Lessee's said commitment. 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 and 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 a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or willful
act of Lessee. In the event, however, that the damage or destruction was caused
by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
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 (1) month's Base Rent, whether or not an insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage 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, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor, with any shortage in Insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise 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 said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, 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 repair or
restoration.
(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
sixty (60) 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 receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
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 Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under 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, 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 giving 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 investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve (12)
times the then monthly Base Rent. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. 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 and the required funds are available.
If Lessee does not give such notice and provide the required funds or assurance
thereof within the times specified above, this Lease shall terminate as of the
date specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve months.
*CONTINUED--SEE ADDENDUM "A", PARAGRAPH 8
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee 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 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid,. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, monthly in advance with the payment of the Base
Rent. If Lessor elects to require payment monthly in advance, the monthly
payment shall be that equal monthly amount which, over the number of months
remaining before the month in which the applicable tax installment would become
delinquent (and without interest thereon), would provide a fund large enough to
fully discharge before delinquency the estimated installment of taxes to be
paid. When the actual amount of the applicable tax bill is known, the amount of
such equal monthly advance payment shall be adjusted as required to provide the
fund needed to pay the applicable taxes before delinquency. If the amounts paid
to Lessor by Lessee under the provisions of this Paragraph are insufficient to
discharge the obligations of Lessee to pay such Real Property Taxes as the same
become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional
sums as are necessary to pay such obligations. All moneys paid to Lessor under
this Paragraph may be intermingled with other moneys of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." 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) imposed
upon the Premises 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 Premises or in the real
property of which the Premises are a part. The term "REAL PROPERTY TAXES" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of changes in applicable law taking effect, during the term of
this Lease, including in the improvement thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability 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. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its 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 personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $500 as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
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), $200.00 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" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" 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.
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(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, 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 five (5) 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 law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (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 fifteen (15) 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 (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.C. (S)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 (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
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 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 to
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 the leasing
commission paid by Lessor 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
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent. 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. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages.
(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
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree 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 the 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 into 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 of this Lease by Lessee, as defined in Paragraph 13.1, 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 pad by Lessor under such an
Inducement Provision shall be immediately die and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease but subject to
any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent
or the cure of the breach which initiated the operation of this Paragraph shall
not be deemed a waiver by Lessor of the provisions of this Paragraph 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 trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) 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 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 the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished 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 twenty (20) 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 twenty (20) 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. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, or if access to the
Premises is impaired by such condemnation action so that Lessee's business is
materially impacted. Lessee may, at Lessee'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
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have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee 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 building located on the Premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. 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 in 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. 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 the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Lessor and Lessee hereby consent to and approve all agency relationships,
including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within twenty (20) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser. 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, or, if this
is a sublease, of the lessee's interest in the prior lease. 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.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, 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.
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 thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first 931st) day after it was due at the rate of 10% per annum, but not
exceeding the maximum rate allowed by law, in addition to the 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.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given seventy-two (72) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
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 of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any 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 preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. 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. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
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.
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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 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. Subject to obtaining a commercially reasonable form of
non-disturbance agreement which shall provide, among other things, that Lessee's
possession, use and enjoyment of the Premises shall not be disturbed so long as
Lessee pays rent and other monetary obligations and does not commit a default
hereunder, Lessee agrees that this lease and any Option granted hereby 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 and
allows such Lender thirty (30) days following receipt of such notice for the
cure of said default before invoking any remedies Lessee may have by reason
thereof. If any Lender shall elect to have this Lease and/or any Option granted
hereby superior to the lien of its Security Device and shall give written notice
thereof to Lessee and such Options 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 disclosure, such new owner shall not: (i) be liable
for any fact or omission of any prior lessor 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 the 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. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's 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 or Broker 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 or Broker of its
claims or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the 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 on 24 hours advanced verbal notice for the purpose of showing the
same to prospective purchases, lenders, or lessees, and making such
alterations, repairs, improvements, or additions to the Premises or to the
building of which they are a part, 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 twenty
(120) 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 Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business.
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 and the right to install, and
all revenues from the installation of such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
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) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or 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, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that lessee
deposit with Lessor an amount of money (in addition to the Security Deposit held
under Paragraph 5) reasonably calculated by Lessor to represent the cost lessor
will incur in considering and responding to Lessee's request. Except as
otherwise provided, 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 of 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 imposition 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.
37. GUARANTOR.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all 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.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of refusal to lease the Premises or the right of first
offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal
to purchase other property of Lessor, or the right of first offer to purchase
other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as part of an assignment of this lease or separately apart
therefrom, and no Option may be separated form thus Lease in any manner, by
reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
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39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor form Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this lease, (i) Lessee fails to give notice thereof to Lessee), or (ii) Lessor
gives to Lessee three or more notices of Default under Paragraph 13.1 during any
twelve month period, whether or not the Defaults are cured, or (iii) if Lessee
commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable 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 such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith, provided that (1) Lessee is given thirty (30) days'
advance notice of any change thereof, (ii) such rules do not unreasonably and
materially interfere with Lessee's conduct of its' business or Lessee's use and
enjoyment of the Premises, and (iii) Lessee's fair share of expenses are
reasonable and approved by Lessee prior to such common expenses being incurred.
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 the
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 to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation or parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee or do not result in additional costs to 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 (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 Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed 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.
LESSOR AND LESSEE HAVE CAREFFULY 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 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 SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR 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 LOCATED 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 on the dates specified
above to their respective signatures.
Executed at_____________________________ Executed at ________________________
on 9-7-91 on
-------------------------------------- ------------------------------------
by LESSOR: by LESSEE:
PACIFICA NORTHEAST INDUSTRIAL PARTNERSHIP VIKING OFFICE PRODUCTS, INC.,
- ---------------------------------------- ------------------------------------
A COLORADO GENERAL PARTNERSHIP A CALIFORNIA CORPORATION
- ---------------------------------------- ------------------------------------
By /s/ Steve Leonard By /s/ Ronald Weissman
-------------------------------------- ----------------------------------
Name Printed: Steve Leonard Name Printed:
--------------------------- ------------------------
Title: General Partner Title:
---------------------------------- -------------------------------
By______________________________________ By___________________________________
Name Printed:___________________________ Name Printed:________________________
Title:__________________________________ Title:_______________________________
Address:________________________________ Address:_____________________________
________________________________________ _____________________________________
Tel. No. (___)____Fax No. (___)_________ Tel. No. (___)____Fax No. (___)______
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071. (213) 687-6777. Fax No. (213) 687-
8616.
<PAGE>
EXHIBIT "A"
(SITE PLAN)
[MAP OF SITE PLAN] 3871 Revere Street
INITIAL
_______
_______
<PAGE>
ADDENDUM "A"
ADDITIONAL PROVISIONS
This Addendum ("Addendum") is to that certain ("Lease") by and between
Pacifica Northeast Industrial Partnership, a Colorado General Partnership
("Lessor") and Viking Office Products, Inc. ("Lessee"), entered into this _____
day of __________, 1996. In the event of a conflict between the terms and
provisions of this Addendum and the Lease, the terms and provisions of this
Addendum shall govern.
1. OPTION TO EXTEND: As additional consideration for the covenants hereunder,
Lessor hereby grants unto Lessee an option (the "Option") to extend the
term of this Lease for one (1) additional term of three (3) years (the
"Option Term"). The Option shall apply to all space then under the Lease at
the time the Option Term would commence and shall be on the following terms
and conditions:
a. Written notice of Lessee's interest in exercising the option shall be
given to Lessor not earlier than twelve months and not later than six
months prior to the expiration of the primary Lease term ("Lessee's
Notice").
b. The base rent payable by Lessee to Lessor during the Option Term shall
be in accordance with the following schedule:
<TABLE>
<C> <S>
Option Year 1: $22,579.50 per month ($3.60 per square foot)
Option Years 2 and 3: $23,520.31 per month ($3.75 per square foot)
</TABLE>
2. TENANT IMPROVEMENTS: Lessor, at Lessor's sole cost and expense, shall
perform the following improvements to the Premises prior to November 1,
1996:
a. Deliver all mechanical systems, including HVAC and warehouse heaters,
in good operating condition.
b. Scrub and seal the warehouse floors and fill holes in the floor around
existing concrete patched ares.
c. Remove the chain link fence near the north end of the warehouse and
clean the building of all miscellaneous debris.
d. Install two (2) dock levelers of the same type currently used on
existing loading doors at door locations which will be designated by
Lessee within thirty (30) days following execution of this Lease.
e. Install one (1) additional overhead door with dock leveler and dock
seal at the north end of the south loading area where current knockout
for such a door exists.
f. Paint all office walls and remove existing telephone and other
miscellaneous cabling in the office area.
g. Replace all carpeting, tile and baseboards in the existing offices.
h. Convert the southwest office into a lunch room and provide power for
vending machines, install tile floor and clear glass windows in the
existing window openings.
i. Convert the next office north of the southwest office into two
restrooms.
j. Remove the freestanding office located in the warehouse.
<PAGE>
All work shall be performed in accordance with applicable building codes
and regulations, including the Americans with Disabilities Act.
3. RIGHT OF FIRST OPPORTUNITY TO PURCHASE PREMISES: In the event Lessor elects
to sell the building during the term of the Lease, Lessor shall immediately
notify Lessee of their proposed offered terms. Lessee shall have a period
of thirty days to agree to such terms or negotiate an agreement with the
Lessor after which Lessor shall have no further obligation to pursue a sale
of the Premises to Lessee.
4. (a) Notwithstanding Lessee's obligations pursuant to Paragraph 7.1(a)
herein, Lessor shall, subject to reimbursement by Lessee, procure and
maintain service contracts necessary to maintain the Premises in a
manner consistent with the Industrial Center of which the Premises is
a part. Prior to January 1st of each year under the Lease Term
(including the Option Term), Lessor shall provide Lessee with Lessor's
estimated operating expense budget for the Premises only, not the
Industrial Center of which the Premises is a part. Lessee shall be
responsible for the payment of said estimated operating expenses
monthly in advance with the payment of Base Rent. All operating
expenses shall remain reasonable and competitive with the marketplace
throughout the Lease Term and any extensions thereof. Actual operating
expenses incurred shall be reconciled with the estimated amounts at
the end of each calendar year of the Lease Term and any extensions
thereof. If Lessee's estimated payments exceed the actual operating
expenses incurred for the preceding year, Lessee shall be credited the
amount of such overpayment against Lessee's monthly operating expense
installment next becoming due. If Lessee's payments during said
preceding year were less than the actual operating expenses incurred
during the same period, Lessee shall pay to Lessor the amount of
deficiency within ten (10) days after delivery by Lessor to Lessee of
notice of such deficiency. Lessor's failure to deliver such
reconciliation notice to Lessee within one hundred twenty (120) days
shall not relieve Lessee of the obligation to pay sums otherwise due.
Included in those items described in Paragraph 7.1(a) which are
subject to Lessee's reimbursement as operating expenses are:
i. Snow, ice and debris removal service, property management and
security services, and
ii. Annual reserve to be used for capital improvements, which for
items costing in excess of $25,000 will be calculated each year
by dividing the estimated cost of such items by the estimated
useful life of such items,
iii. Any deductible portion of an insured loss concerning the
Premises.
(b) Notwithstanding the provisions of Paragraph 7.1(a) herein with respect
to the painting of the building exterior, Lessee shall pay one-half
(1/2) of the cost of such painting (Lessee's share), however, Lessee's
share shall be amortized over a five (5) year period, which
amortization shall commence with the year of the repainting of the
Premises. For example, if the exterior of the Premises is repainted
during the 5th year of the lease term and the cost to repaint is
$20,000, then Lessee's share is $10,000 which shall be paid $2,000 per
year over the remaining Lease Term and Option Term, if applicable.
(c) Notwithstanding Lessee's obligations pursuant to 7.1(a) herein, Lessor
shall be responsible for the cost to repair any damage to the
structural components of the Premises (unless such damage is caused by
the negligence of Lessee, its agents or employees) and roof
replacement, if necessary, during the Lease Term and Option Term, if
applicable. Such costs shall not be subject to reimbursement by Lessee
as otherwise provided for under Addendum "A", Paragraph 4(a) above.
INITIAL _____
_____
<PAGE>
(d) LESSEE AUDIT RIGHTS: Lessor shall provide to Lessee substantial detail
of the calculations of the Operating Expenses each year in accordance with
the applicable provisions of the Lease. Lessor shall show by account the
total operating costs for the Premises and all adjustments corresponding to
the requirements set forth in Paragraph 7.1 of the Lease and this Addendum,
Article 4. Lessor shall also provide in reasonable detail the calculation
of Lessee's pro rata share of the real estate taxes and insurance premiums
as said calculations are delineated in the Lease. Lessee shall have the
right, at its own cost and expense, to audit or inspect Lessor's detailed
records each year with respect to Operating Expenses for any lease year.
Lessor shall utilize, and cause to be utilized, accounting records and
procedures for each year conforming to generally accepted accounting
principles consistently applied with respect to all of the Operating
Expenses for such lease year, including without limitation, all payments
for Operating Expenses, to enable the audit or inspection by Lessee
pursuant to this clause to be conducted. Pursuant to the foregoing, Lessor
shall be obligated to keep such records for all years associated with this
Lease until two (2) years following the termination of the Lease. Lessee
shall give Lessor not less than thirty (30) business days prior written
notice of its intention to conduct any such audit. Lessor shall cooperate
with Lessee during the course of such audit, which shall be conducted
during normal business hours in Lessor's Building management office and
Lessor shall make such records available to Lessee, Lessee's employees and
agents, for inspection during normal business hours. Lessee, Lessee's
employees and agents, shall be entitled to make Photostat copies of such
records, provided Lessee bears the expense of such copying, and further
provided that Lessee keeps such copies in a confidential manner and does
not show or distribute such copies to any other third party. The results of
such audit, as reasonably determined by both parties, shall be binding upon
Lessor and Lessee. If such audit discloses that the amount paid by Lessee
as Lessee's Premises Percent, or of other additional rental payable
pursuant to the Lease, has been overstated by more than five percent (5%),
then, in addition to immediately repaying such overpayment to Lessee,
Lessor shall also pay interest at the rate of ten percent (10%) on any such
overpayment.
5. LESSEE INDEMNIFICATION: Except for Lessee's negligence, Lessor shall
indemnify, protect, defend, and hold harmless Lessee, its agents or
employees from all liability, loss damages, cost or expense, including
attorney's fees on account of injuries to the person or property of third
parties where the injuries are caused by the gross negligence or willful
misconduct of Lessor, its agents or employees.
6. Notwithstanding the provisions of Paragraph 7.4(a) hearin, the racking and
conveyor systems and the computer and telephone switches installed by
Lessee shall at all times remain the property of Lessee.
7. In addition to the Terms and Conditions Applicable to Assignment and
Subletting as provided for in Paragraph 12.2 of the Lease, if Lessee
collects any rental or other amounts from a sublessee or assignee in excess
of the Base Rent, Lessee shall pay Lessor, as and when Lessee receives the
same, 50% of such excess amounts received by Lessee less any improvements,
broker's fees, advertising expenses or other concessions to the extend all
of the above are actually paid by Lessee in the procurement of a sublessee
or assignee.
8. Additionally, in the event a Hazardous Substance Condition occurs, unless
Lessee is legally responsible therefor, which materially impairs Lessee's
use of the Premises and such condition can not be remedied within six (6)
months following Lessor's obligation to commence the repair or restoration
of the Premises as provided for under Paragraph 9.6(b) herein, then Lessee
shall have the right to terminate the Lease by providing Lessor not less
than sixty (60) days prior written notice.
Initial:
________
________
<PAGE>
ADDENDUM "B" TO LEASE AGREEMENT
RULES AND REGULATIONS
To that certain Lease dated August 8, 1996 between Pacifica Northeast
Industrial Partnership, a Colorado General Partnership, as Lessor, and Viking
Office Products, Inc., a California Corporation, as Lessee, covering the
property located at 3871 Revere Street, Denver, Colorado 80239.
To the extent that this Addendum conflicts with, modifies or supplements other
portions of the Lease, the provisions contained in this Addendum shall govern
and control the rights and obligations of the parties.
I. SIGN CRITERIA: These regulations are established for the purpose of
maintaining uniformity and overall appearance of Lessee identification
signs in Peoria Park. Lessee hereby agrees to comply with the terms and
conditions of these regulations. ANY SIGN THAT DOES NOT CONFORM TO THESE
REGULATIONS WILL BE REMOVED AND REPLACED WITH A CONFORMING SIGN AT LESSEE'S
EXPENSE.
A. General Requirements:
1. Within thirty (30) days after execution of this Lease, Lessee
will provide, at its sole cost and expense, the Lessee's portion
of the sign in conformance with the criteria below.
2. The sign base complete with the unit number has been provided on
the building. The sign base is the property of the Lessor.
3. Lessee identification shall be restricted to the Lessee portion
of the sign except for item "6" below.
4. The lettering/logo and installation of the Lessee portion of the
sign on the sign base shall be paid for by Lessee and remain the
property of Lessor. All letters and other scripting shall be
consistent in color and style with the lettering on the base and
in good taste, in the opinion of Lessor.
5. Lessee shall submit to Lessor for its approval all copy and/or
logo prior to installation of the Lessee portion of the sign.
6. In addition to the Lessee portion of the sign, Lessee may place a
gold leaf sign on the entry door, or on one exterior window in
letters not to exceed 3" in height and not to exceed 288 square
inches (gross area).
7. Upon Lease termination, Lessee shall remove its sign and return
the premises to their original condition.
B. General Restrictions:
1. No electrical or audible signs will be allowed.
2. Except as provided herein, no banners, pennants, placards,
freestanding signs, or signs affixed to automobiles or trailers
are allowed on the building, in the landscaped areas, or on
streets or parking area. The restriction pertaining to
automobiles or trailers does not apply to magnetic or painted
identification signs placed on company or private vehicles for
use in the normal course of business.
Initial:
_______
_______
<PAGE>
II. HAZARDOUS SUBSTANCES:
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCES" 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 of the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for 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, by-products or fractions thereof. Lessee
shall not engage in any activity in, on 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 Law. "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. Reportable Use shall also include Lessee being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior written
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by any Lessee in the normal
course of Lessee's business permitted on the Premises, 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 the use or presence of any Hazardous Substances,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurance 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 therefrom or therefor, including, but
not limited to, installation (and removal on or before Lease expiration or
earlier termination) or reasonably necessary protective modification to the
Premises (such as concrete encasements) and/or deposit of an additional Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under, or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
to such fact to Lessor. Lessee shall also immediately give Lessor 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, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) BOND TO BE POSTED. In the event of such notification by Lessee, Lessee
shall post a bond satisfactory to the Lessor equal to the estimated cost of
removal, transporting, storage, disposal and clean up of its regulated
substances should Lessee vacate the leased premises without lawfully disposing
of those regulated substances.
(d) INDEMNIFICATION. Except for the negligence of Lessor, its agents or
employees, 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 loss of rents and/or damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, permits and attorney's and
consultant's fees arising out of or involving any Hazardous Substance or storage
tank brought onto the Premises by or for Lessee or under Lessee's control.
Lessee's obligations under this Paragraph II shall include, but not be limited
to, the effect of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultant's and attorney's 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
Initials _________
_________
<PAGE>
release agreement entered into by Lessor and Lessee shall release Lessee from
its obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the time of such
agreement.
(e) In addition to all other indemnities under the Lease, Lessor shall
indemnify, defend and hold harmless Lessee (as well as Lessee's successors,
assigns, affiliates, owners, officers, and directors) harmless from and against
any claims, demands, liabilities or damages (including but not limited to
attorneys' fees and court costs, removal, remediation, restoration and/or
abatement of any Hazardous Substance) arising out of any violation of any
Environmental Law or contamination or pollution of, or from the Industrial
Center, Building, or Premises caused by (1) conduct or condition occurring prior
to the commencement of the Lease or (2) Lessor's or its agents or employees' use
of, or acts or omission on or in, the Industrial Center, Building, or Premises.
This indemnification shall survive the expiration or earlier termination of this
Lease.
The provisions of this paragraph are in addition to, and not in lieu of,
any other provisions contained in this Lease.
III. TEMPERATURE:
Lessee shall maintain the air temperature in its leased space warm enough
to prevent the freezing of plumbing and sprinkler systems, if any.
IV. DISCLOSURE
(a) This Lease has been prepared by Pacifica Holding Company, a Colorado
Corporation, at the request of the Lessor and Lessee, who are herein referred to
as "the Parties" without regard to number or gender. The Parties have been
advised to have this document reviewed by their own independent counsel, and
confirm that in signing this document, they have not relied on any acts or any
conduct of Pacifica Holding Company, and its agents with regard to the
interpretation or meaning of this documents. The Parties jointly and severally
waive any and all claims, actions, demands, and loss against Pacifica Holding
Company, its agents, employees, and each of them, that a party may incur by
reason of any act, error, or omission in the preparation of this document and
in its interpretation and meaning, whether or not the interpretation and
meaning is the result of determination by a court or arbitration panel of
competent jurisdiction. The preceding waiver provisions have been negotiated by
and between the Parties on the one part, and Pacifica Holding Company on the
other part.
(b) Please be advised that the Lessor or Lessee of the Premises may be
subject to the Americans With Disabilities Act (the ADA), a Federal law codified
at 42 USC Section 12101 et seq. Among other requirements of the ADA that could
apply to the Premises, Title III of the ADA requires the Lessor and Lessee of
"public accommodations" to remove barriers to access by disabled persons and
provide auxiliary aids and services for hearing, vision or speech impaired
persons by January 26, 1992. The regulations under Title III of the ADA are
codified at 28 CFR Part 36. The Lessor and Lessee have been advised to have
independent counsel review the ADA and the regulations to determine if this law
would apply, and the nature of the requirements.
V. CONFIDENTIALITY:
All information contained in this Lease Agreement is hereby deemed
confidential and shall not be divulged to anyone without the express written
consent of Lessor except as otherwise specified in Section 16, and Section 25,
of this Lease Agreement or as otherwise required by law.
Initial:
________
________
<PAGE>
EXHIBIT 10.17
THIS INDENTURE made the day of One thousand
nine hundred and ninety-five
BETWEEN LYDGROVE LIMITED having its registered office at Centre Park
Road, Cork (hereinafter called "the Landlord" which expression shall
where the context so admits shall include the immediate reversioner or
reversioners for the time being expectant on the term hereby created)
of the One Part and VIKING DIRECT LIMITED having its registered office
at Tollwell Road, Leicester, England, Limited Liability Company
incorporated in England under Company Office Number 2472621
(hereinafter called "the Tenant" which expression shall where the
context so admits shall include its successors in Title) of the Other
Part WITNESSETH as follows:-
DEMISE
------
1. In consideration of the yearly rents (and the increases thereof as
hereinafter provided) and the covenants on the part of the Tenant and
the conditions hereinafter reserved and contained the Landlord HEREBY
------
DEMISES unto the Tenant ALL THAT AND THOSE the premises described in
------- ------------------
the Schedule hereto and all additions alterations and extensions
thereto (hereinafter called "the demised premises")
TOGETHER WITH:-
1. All Landlord's fixtures and fittings in and about the demised
premises.
2. A right for the Tenant and all persons expressly or by implication
authorized by the Tenant (in common with the Landlord and all other
person having like right) to pass and re-pass through the lobby serving
the demised premises and also the offices on the first floor (which are
not included in this Demise) for all purposes connected with the use
and enjoyment of the demised premises not otherwise.
<PAGE>
3. The right (in common with the Landlord and all others having like
right) (subject to such reasonable regulations as the Landlord may
make from time to time in connection with the use thereof) to use the
forecourt area in front of the demised premises for the purpose of
parking of motor vehicles and the loading and discharge of goods.
EXCEPTIONS
----------
1. EXCEPTED AND RESERVED unto the Landlord and any Superior Landlords
---------------------
and their tenants servants agents licensees and all other persons
entitled from time to time thereto:-
1.1.1. The free right of uninterrupted passage and running of water
soil air gas electricity telephone and other services from and to any
adjoining or neighbouring property through any gutters pipes sewers
mains drains watercourses channels conduits ducts flues wires or
cables which may at any time during the said term be through in over
or under the demised premises or otherwise together with full right of
access at all reasonable times (on giving due notice in writing except
in cases of emergency) for the purpose of installing adding to
inspecting maintaining replacing and repairing the same the person or
persons exercising such right making good any damage thereby
occasioned to the demised premises.
1.1.2. full right and liberty on giving seven days notice in writing
except in case of emergency when no notice shall be required at all
times during the said term to enter the demised premises in order to
lay maintain replace or relay electricity or telecommunication cables
gas mains water mains sewers drains and all other services to and from
adjoining
<PAGE>
or adjacent premises the person or persons exercising such right
making good any damage thereby occasioned to the demised premises.
1.1.3. full right and liberty on giving seven days notice in writing
except in case of emergency when no notice shall be required at any
time hereafter to execute works and make erections upon or to erect
rebuild or alter any buildings or erections on their adjoining and
neighbouring lands and to use their adjoining and neighbouring lands
and buildings in such manner as they may think fit notwithstanding
that the access of light and air to the demised premises or any part
thereof may thereby be interfered with otherwise than in a material
fashion.
1.1.4. all rights easements and privileges now belonging to or
enjoyed by any adjoining or neighbouring property.
1.1.5. the airspace over the demised premises.
1.1.6. all mines and minerals in or under the demised premises with
full power of working and getting same reasonable compensation being
made for any damage thereby occasioned to the demised premises.
HABENDUM
--------
TO HOLD the demised premises unto the Tenant from the 1st day of
-------
September One thousand nine hundred and ninety five for the term of
twenty years.
REDDENDUM
---------
YIELDING AND PAYING therefor during each and every year of the said
-------------------
term the yearly rent of IR(L)147,000.00 without any deduction or such
increased rent as may from time to time be payable hereunder as
hereinafter provided without any deduction all rent
<PAGE>
throughout the entire of the term hereby granted to be paid by Bankers
Order in equal quarterly payments in advance by standing order to the
account of the Landlords Agents Messrs Frank Frisby & Associates at AIB
79a, Talbot Street, Dublin 2, Branch account number 08142470 (or to such
other account as the Landlord may notify in writing from time to time)
in every year without any deduction the first payment to be made on the
execution hereof in respect of the period from the 2nd day of October
1995 to 1st day of January 1996
AND ALSO PAYING the amount or amounts payable by the Tenant pursuant to
---------------
the Tenant's covenant hereinafter contained in Clause 3.1.2. in respect
of insurances effected from time to time by the Landlord such additional
payment to be payable at the times and in the manner specified at the
said Clause 3.1.2.
2.1. IN this Clause the following expressions shall have the following
--
meanings respectively:-
2.1.1. "Review Date" shall mean the last day of the fifth year and the
last day of each subsequent fifth year of the term hereby granted.
2.1.2. "Current Market Rent" shall mean the gross full market rent
without any deduction whatsoever at which the demised premises might
reasonably be expected to be let at the nearest Review Date in the
open market without a fine or premium as between a willing Lessor and a
willing Lessee and with vacant possession for the term of this Lease and
on the same terms and conditions in all other respects as this present
Lease (including the provision for five yearly rent reviews) and upon the
supposition (if not a fact) that the Tenant has complied with all the
obligations as to repair and decoration herein imposed and that in the
event of the demised premises
<PAGE>
having been destroyed or damaged the same shall then have been fully
re-built repaired or re-instated (as the case may be) in a good and
substantial manner there being disregarded:
2.1.2.1. any effect on rent of the fact that the Tenant has been in
occupation of the demised premises and any good will attached to the
demised premises by reason of the carrying on therein of the business
of the Tenant.
2.1.2.2. any effect on rent of any improvement (whether within the
meaning of the Landlord and Tenant Acts 1931 to 1980 or any Acts
amending or extending or re-enacting same) of the demised premises or
any part thereof or any alteration, addition or other work made or
carried out by the Tenant with the license of the Landlord at the
Tenant's own expense (otherwise than in pursuance of any obligation to
the Landlord whether pursuant to the provisions of this Lease or
otherwise) and carried out during the currency of this Lease.
2.2. The rent for the time being payable by the Tenant hereunder shall
be subject to increase in accordance with the following provisions of
this Clause.
2.3. The Landlord his servants and agents shall be entitled by notice
in writing given to the Tenant his servants or agents not earlier than
twelve months before and not more than twelve months after a Review
Date to call for review of the rent payable by the Tenant to the
Landlord, at the Review Date specified in the notice and if upon any
such review it shall be ascertained or determined that the Current
Market Rent of the demised premises at the Review Date is greater than
the rent payable hereunder immediately prior to such Review Date then
as from that Review
<PAGE>
Date the yearly rent payable hereunder shall be increased to the
Current Market Rent so ascertained PROVIDED ALWAYS that if the
---------------
Landlord shall not serve such notice as aforesaid for the review of
rent prior to or within twelve months after any Review Date he shall
nevertheless be entitled to do so at any time prior to the following
Review Date upon the same terms and conditions as are hereinbefore
provided for save that the expression Current Market Rent shall be
deemed to be the Current Market Rent on the immediately preceding
Review Date and in such event such reviewed rent shall be payable by
the Tenant from the gale day next preceding the date of the said
Notice up to the following Review Date or until it is further reviewed
in accordance with the foregoing provisions
PROVIDED FURTHER that in no circumstances shall the rent payable
----------------
hereunder following such review be less than the rent payable by the
Tenant immediately prior to the Review Date.
2.4. Every such review as aforesaid shall in the first instance be
made by the Landlord and the Tenant or their respective Surveyors in
collaboration but if no agreement as to the amount of the Current
Market Rent at the Review Date shall have been reached between the
parties hereto or their Surveyors within three months or such extended
period as may be agreed by the Landlord and the Tenant after the date
of the Landlord's notice calling for such review then the question of
the amount of the Current Market Rent of the demised premises at the
Review Date shall be referred to the decision of a single Chartered
Surveyor who at the election of the Landlord shall act as an expert or
an Arbitrator such Chartered Surveyor to be nominated by the Landlord
by notice in writing to the Tenant and if the Tenant shall reject such
nomination or fail or neglect to agree within
<PAGE>
one month of the Landlord's notice such Chartered Surveyor (whether to
act as expert or Arbitrator) shall be appointed on the application of
either party by the Chairman or acting Chairman for the time being of
The Society of Chartered Surveyors which term shall include any other
body established from time to time in succession or substitution or
carrying on the function currently carried out by the same and in
default of any such appointment for any reason within one month of
such application by a Chartered Surveyor to be nominated by the
Landlord.
2.5. In the event of the Landlord electing for arbitration as
aforesaid this Clause shall be deemed to be a submission to
arbitration within the Arbitration Act 1954 or any statutory
modification or re-enactment thereof for the time being in force and
to the jurisdiction of the Courts or the State for the enforcement of
any award of said Arbitrator and in the event of the Current Market
Rent being determined by the Chartered Surveyor as an expert the
Landlord and Tenant shall pay his expenses in equal shares.
2.6. In the event of the rent being determined by an independent
Chartered Surveyor acting as an expert or an arbitrator either party
shall be at liberty to pay the entire of the fees and expenses of such
independent Chartered Surveyor in which event the party so paying
shall be entitled to be reimbursed by and to recover from the other on
demand the proportion so paid on behalf of such other.
2.7. If the Charter Surveyor shall fail to determine the new rent
within four months of his appointment or nomination or if he shall
relinquish his appointment or die or if it shall become apparent that
for any reason he will be unable to complete his
<PAGE>
duties hereunder a new Chartered Surveyor shall be appointed or
nominated in his place in accordance with sub-clause 2.4. above.
2.8. If upon any such review the amount of any increased rent shall
not be ascertained or determined prior to the Review Date, the Tenant
shall continue to pay rent at the yearly rate payable immediately
prior to the Review Date until the quarter day next following the
ascertainment or determination of any increased rent whereupon there
shall be due as a debt payable by the Tenant to the Landlord on demand
a sum equal to the amount by which the rent for the period since the
Review Date or the gale day preceding the date of a late Rent Review
Notice as provided for in Sub-Clause 2.3. hereof as the case may be
calculated at the increased rate exceeds the rent for that period
calculated at the previous rate and in addition shall pay interest on
said sums from the Review Date until the date of actual payment at
three month Dublin Inter Bank rate at the Review Date or if there
shall be no three month Dublin Inter Bank Rate the corresponding or
nearest appropriate rate thereto or if there shall be no such rate as
aforesaid twelve per centum.
2.9. If upon any such review as aforesaid it shall be agreed or
determined that the rent previously payable hereunder shall be
increased the Landlord and the Tenant shall (if required by the
Landlord) forthwith complete and sign a written memorandum or if the
Landlord shall so elect execute a deed of record recording the
increased rent thenceforth payable and the Tenant shall pay the Stamp
Duty (if any) payable on such memorandum or deed of record.
2.10. In the event of the Landlord being prevented of prohibited in
whole or in part from exercising its
<PAGE>
rights under this Clause and/or obtaining an increase in the rent on
any of the Review Dates by reason of any legislation Government Order
or Decree or Notice (increase in this context meaning such increase as
would be obtainable disregarding the provisions of any such
legislation or otherwise as aforesaid) then the date at which the
review would otherwise have taken effect shall be deemed to be
extended to permit and require such review to take place on the first
date thereafter upon which such right or increase may be exercised
and/or obtained in whole or in part and when in part on so many
occasions as shall be necessary to obtain the whole increase (meaning
the whole of the increase which the Landlord would have obtained if
not prevented or prohibited as aforesaid) and if there shall be a
partial prevention only there shall be a further review on the first
date or dates as aforesaid notwithstanding the rent may have been
increased in part on or since the date of review but in no instance
shall the increase in rent be dated back to exceed the statutory
controls on increases of rent laid down by law PROVIDED ALWAYS that
---------------
the provisions of this sub-clause shall be without prejudice to the
Landlord's rights to review the yearly rents on the Review Dates as
specified in sub-clause 2.1.1.
TENANT'S COVENANTS
------------------
3. THE Tenant to the intent that the obligations may continue
---
throughout the term hereby granted hereby covenants with the Landlord
as follows:-
PAY RENT
--------
3.1.1. To pay the rent or increased rent hereby reserved or any sums
payable hereunder on the days and in manner herein prescribed without
any deductions.
<PAGE>
INSURANCE PREMIUMS
------------------
3.1.2. To pay to the Landlord from time to time on demand without any
deduction or abatement two thirds of the amount or amounts expended by
the Landlord for keeping on foot the insurance of the landlords
building of which the demised premises form part in accordance with
covenant 4.1. hereunder.
INTEREST ON ARREARS
-------------------
3.1.3. If the Tenant shall fail to pay the rent hereinbefore reserved
or any other sum reserved or made payable hereunder within fourteen
days of the day and in the manner herein prescribed for the payment of
same such unpaid rent or sum shall bear interest from the day or days
on which the same shall become due to the date of actual payment
(after as well as before any judgment) at a rate which shall exceed
the three month Dublin Inter-Bank rate by four percent or if there
should be no such rate the corresponding or nearest appropriate rate
thereto at the date upon which the said sums fall due or become
payable or if there shall be no such rate twenty-four per centum.
CONTRIBUTION TO MAINTENANCE OF FORECOURT
----------------------------------------
3.1.4. To pay to the Landlord on demand two thirds of any sums that
may be incurred by the Landlord in or incidentally to repairing and
keeping in good repair the forecourt area and keeping the same clean
and tidy.
PAY OUTGOINGS
-------------
3.2. To pay and discharge all rates and taxes duties charges
assessments impositions and outgoings.
<PAGE>
whatsoever whether parliamentary parochial local or of any other
description which are now or may at any time hereafter be charged
taxed assessed levied or imposed upon or payable in respect of the
demised premises or on the owner or occupier in respect thereof except
only such as the owner is by law bound to pay notwithstanding any
contract to the contrary and except all Landlord's Capital Taxes and
to indemnify and keep indemnified the Landlord against or arising out
of same or any expenses (legal or otherwise) in connection therewith.
Pending a separate valuation of the ground floor office portion of the
demised premises the Tenant shall contribute on the basis of a
rateable valuation of (L)60.00 to the rates on the rateable
hereditament of which the said offices form part (which are rated at
(L)120.00).
PAY FOR SERVICES
----------------
3.3. To pay all sums due for electricity or gas or water (or other
fuel or service used) consumed by it on the demised premises.
COMPLY WITH ENACTMENTS
----------------------
3.4.1. At all times during the said term to observe and comply in all
respects with the provisions and requirements of any and every
enactment for the time being in force or any orders or regulations
thereunder for the time being in force and to do and execute or cause
to be done and executed all such works as under or by virtue of any
such enactment or any orders or regulations thereunder for the time
being in force are or shall be properly directed or necessary to be
done or executed upon or in respect of the demised premises or any
part thereof whether
<PAGE>
by the owner landlord lessee tenant or occupier and at all times to
keep the Landlord indemnified against all claims demands and liability
in respect thereof and without derogating from the generality of the
foregoing to comply with the requirements of any local or other
statutory authority and the order or orders of any Court of competent
jurisdiction.
FIRE REQUIREMENTS
-----------------
3.4.2. At all times during the said term to comply with all the
recommendations or requirements of the appropriate Authority whether
notified or directed to the Landlord or the Tenant in relation to fire
precautions and to comply with all the recommendations or requirements
of the Landlord's insurers and to indemnify the Landlord against any
costs or expenses in complying with any such requirement or
recommendation and not to obstruct the access to or means of working
any fire fighting apparatus and appliances for the time being
installed in the demised premises.
NUISANCE
--------
3.5. To pay to the Landlord all costs charges and expenses which may
be incurred by the Landlord in abating a nuisance in respect of the
demised premises and to execute all such works as may be necessary for
abating such a nuisance in obedience to a notice lawfully served by
a local or public authority or pursuant to any Court Order.
REPAIR
------
3.6. To keep clean and tidy and to repair and to put and keep in good
order repair and condition from time to time and at all times during
the term hereby
<PAGE>
created the interior and exterior of the demised premises and all
additions and alterations thereto, and without derogating from the
generality of the foregoing the roof, structure, drains, foundations,
external and load bearing walls, timbers, joists and beams of the
floors and ceilings and chimney stacks, gutters, curtilage and
landscaping, doors, locks, plate glass and other windows, fixtures,
fittings, fastenings, wires, waste water drains and other pipes and
sanitary and water apparatus and central heating plant apparatus and
installations therein and the painting papering and decoration thereof
(damage by any of the Insured Risks as hereinafter defined in Clause
4.1. hereof excepted if and so long only as the policy or policies of
insurance shall not have been vitiated or payment of the policy monies
withheld or refused in whole or in part by reason of any act neglect
or default of the Tenant or the servants agents licensees or invitees
of the Tenant).
PAINT OUTSIDE AND INSIDE
------------------------
3.7. In every fourth year and in the last year of the said term
(whether determined by effluxion of time or otherwise) to prepare and
paint in a proper and workmanlike manner all the outside and inside
wood metal and other works of the demised premises usually or
requiring to be painted with two coats at least of good oil paint or
good synthetic paint AND ALSO with such internal painting to whitewash
--- ----
colour-wash distemper grain varnish french or wax polish paper and
otherwise decorate in a proper and workmanlike manner and with good
quality materials all such external and internal parts of the demised
premises as have been or ought properly to be so treated AND as often
---
as may be necessary to clean and treat in a suitable manner for its
maintenance in good condition all the outside and inside wood and
metal work and stone work (whether polished or not)
<PAGE>
not required to be painted or french polished or distempered and to
clean all tiles glazed bricks aluminium windows and doors and similar
washable surfaces.
KEEP TIDY
---------
3.8. To keep such part of the land forming part of or adjoining the
demised premises as is not built on and the car parking spaces
forecourt and roadways within the demised premises grass gardens and
any trees shrubs and hedges in proper and neat order and condition and
any ditches streams culverts and watercourses properly cleared and
cleaned and the banks thereof in proper repair and condition and in
particular not to deposit or permit to be deposited any rubbish or
refuse nor without the consent in writing of the Landlord (and then
only on such parts of the said land and subject to such conditions as
the Landlord may stipulate or impose) to store stack or lay out any
material used for the purpose of manufacture or otherwise on any part
of the said land.
PERMIT ENTRY
------------
3.9. To permit the Landlord and any Superior Landlords their
Surveyors and agents with or without workmen and others at all
reasonable times after seven days notice in writing (except in cases
of emergency when no notice shall be required) to enter into and upon
the demised premises and every part thereof and to take a plan of and
examine the state of repair and condition of the same and to take
inventories of the Landlord's fixtures to be yielded up at the
expiration of the said terms and within three calendar months (or
sooner if requisite) after notice in writing to the Tenant of all
defects and wants of reparation found on such examination shall have
been
<PAGE>
given to repair and make good the same according to such notice and
the covenants in that behalf herein contained and in case the Tenant
shall make default in so doing it shall be lawful for the workmen or
others to be employed by the Landlord to enter upon the demised
premises (but without prejudice to the proviso for re-entry
hereinafter contained) and repair and restore the same and all
expenses incurred thereby shall on demand be paid by the Tenant to the
Landlord and if not paid shall be recoverable by the Landlord as
liquidated damages.
PERMIT WORKS
------------
3.10 To permit the Landlord and any Superior Landlords and their
agents and workmen and other persons authorised by the Landlord or
Superior Landlord with all necessary appliances at all reasonable
times after seven days notice in writing (except in cases of emergency
when no notice shall be required) to enter upon the demised premises
or any part thereof to execute repairs or alterations to or upon any
adjoining premises or to cleanse empty or repair any of the sewers
watercourses drains or gutters belonging to the same the Landlord or
Superior Landlord and others causing as little inconvenience as
possible and making good with all practicable speed all damage to the
demised premises thereby occasioned.
NOTIFICATION OF DAMAGE
----------------------
3.11. to notify the Landlord immediately of any damage or injury
caused to the demised premises by any of the Insured Risks as
hereinafter defined.
NOT TO AVOID INSURANCE
----------------------
3.12. Not to do or omit or suffer to be done or
<PAGE>
omitted any act matter or thing whatsoever the doing or omission of
which would make void or voidable the insurance of the demised
premises or of any adjoining or neighbouring premises or of the
Landlord's fixtures and fittings therein or of any adjoining or nearby
premises or whereby the rate of premium thereupon may be increased and
forthwith to repay on demand to the Landlord all sums paid by way of
increased premiums and all expenses incurred by the Landlord in or
about the renewal of such policy or policies in respect of the demised
premises or of any adjoining or neighbouring premises rendered
necessary by a breach of this covenant all of which payments shall be
added to the amount payable by the Tenant in respect of Insurance
Premium or Premiums as if the same had been reserved as rent
hereunder.
NOT TO OVERLOAD STRUCTURE
-------------------------
3.13. Not to do or permit or bring in or upon the demised premises
anything which may throw on the demised premises or on any adjoining
premises any weight or strain in excess of that which such premises
are capable of bearing with due margin for safety and in particular
not to overload the floors or the electrical installations or the
other services of in or to the demised premises nor suspend any
excessive weight from the ceilings, walls staunchions or the
structure thereof. The Tenant shall seek professional advice at the
Tenant's own expense to ensure that there shall not be an infringement
of this covenant.
NO BUILDINGS
------------
3.14. Not to erect or suffer to be erected any buildings or erections
on the demised premises nor without the previous consent in writing of
the
<PAGE>
Landlord to cut alter main or injure or permit to be cut altered
maimed or injured any of the ceilings roofs walls floors or timbers of
the demised premises or alter or change or permit to be altered or
changed the plan elevation or architectural decorations thereof or
alter any of the Landlord's fixtures fittings and appliances in and
about the demised premises or make or permit to be made any external
alterations or additions whatsoever.
REMOVE UNAUTHORISED STRUCTURES
------------------------------
3.15. On the request in writing of the Landlord or his agent
forthwith to pull down and remove any building erection alteration or
addition erected placed or made in breach of any of the foregoing
covenants and if any portion of the demised premises has been altered
pulled down or removed in breach of any of the foregoing covenants
upon such request in writing as herein provided forthwith to amend,
restore, replace, or rebuild the demised premises according to the
original plans and elevations thereof.
NUISANCE
--------
3.16.1. Not to do or permit to be done upon or in connection with the
demised premises or any part thereof any act matter or thing
whatsoever which may be or grow to be a nuisance annoyance disturbance
or inconvenience or cause damage to any neighbouring adjoining or
adjacent property of the owners or occupier thereof.
3.16.2. To ensure that every furnace employed in the working of
engines by stream or other motive power and every other furnace
employed in any building or erection on the demised premises is
constructed so as
<PAGE>
substantially to consume or burn the smoke arising therefrom and not
to use or suffer to be used negligently any such furnace so that the
smoke arising therefrom is not substantially consumed or burnt and not
to cause or permit any grit or noxious or offensive effluvia to be
emitted from any engine furnace chimney or other apparatus on the
demised premises without using the best practicable means for
preventing or counteracting such emission and in all aspects to comply
with the provisions of all relevant statutes and statutory regulations
and with the requirements or any notice of the local or other
competent authority served thereunder.
3.16.3. To take such measures as may be necessary to ensure that any
effluent discharged into the drains or sewers which belong to or are
used for the demised premises in common with other premises will not
be corrosive or in any way harmful to the said drains or sewers or
cause any obstruction or deposit therein.
3.16.4. Not to discharge or allow to be discharged any solid matter
from the demised premises into the drains or sewers as aforesaid and
not to discharge or allow to be discharged therein any fluid of a
poisonous or noxious nature or of a kind calculated to or that does in
fact destroy sicken or injure the fish or contaminate or pollute the
water of any stream or river and not to do or omit or allow or suffer
to be done or omitted any act or thing whereby any land or the waters
of any stream or river may be polluted or the composition thereof so
changed as to render the Landlord liable to any action or proceedings
by any person whomsoever.
NO SIGNS
--------
3.17. Not to affix or exhibit or permit to be affixed or exhibited to
or upon any part of the
<PAGE>
exterior or interior so as to be visible from the exterior of the
demised premises or of the external walls windows rails or fences
thereof any sign placard poster signboard or other advertisement
Television Aerial or thing except such as subject to Planning
Permission shall be approved in writing by the Landlord's Surveyor,
such approval not to be unreasonably withheld.
INFLAMMABLE GOODS AND NOISY MACHINERY
-------------------------------------
3.18. Not to have store or keep upon the demised premises or any part
thereof any substance of an explosive or of an especially inflammable
or dangerous nature or such as might increase the risk of fire or
explosion or which might attack or in any way injure by percolation
corrosion or otherwise the demised premises or the keeping or use
whereof may contravene any statute or local regulation or bye-law and
not to house or operate or permit to be housed or operated in or upon
the demised premises or any part thereof any engine or machinery of
any kind other than the usual office machines and which are not likely
to cause any undue vibration or be or become a nuisance annoyance or
disturbance to any other tenants or occupiers in any adjoining or
neighbouring premises.
USER
----
3.19. Not to use or permit the demised premises or any part thereof
to be used for any purpose other than as Warehousing and ancilliary
offices and not for any purpose or in any manner inconsistent with
such user or occupation save with the Landlords written consent, which
consent will not be unreasonably refused but it is hereby agreed and
declared that it shall be reasonable for the Landlord
<PAGE>
to refuse his consent on the grounds that the change of user sought
would substantially increase the rate of insurance in respect of the
demised premises or nearby or adjoining premises.
3.19.1. Not at any time to use the demised premises or any part
thereof or allow the same to be used for any entertainment or for any
dangerous noisy noxious or offensive trade business manufacture or
occupation whatsoever or for a residence or for any illegal or immoral
purpose nor permit any sale by auction to be held on the demised
premises.
KEEP OPEN
---------
3.19.2. At all reasonable times during the usual business hours of
the locality to keep the demised premises open for carrying on the
Tenant's business and at all times comply with all requirements of the
relevant local Authority in connection with the user of the demised
premises for the purpose of the Tenant's business.
GARBAGE
-------
3.19.3. To make use of a covered bin or bins or plastic sacks for
removal of refuse by the Local Authority.
FORECOURT
---------
3.19.4. Not to place or deposit or allow to be placed or deposited on
or in any part of the demised premises any goods articles or things
whatsoever and not to obstruct or allow to be obstructed the forecourt
surrounding the demised premises.
CONVEYANCING ACT NOTICES
------------------------
3.20 To pay to the Landlord all costs charges and
<PAGE>
expenses (including legal costs and surveyors fees) which may be
incurred by it incidental to the preparation and service of any
notices under Clause 3.9 hereby and any notices and proceedings under
Section 14 of the Conveyancing Act 1881 notwithstanding that
forfeiture is avoided otherwise than by relief granted by the Court.
NOT TO ASSIGN UNDERLET OR PART WITH POSSESSION
----------------------------------------------
3.21. Not to assign transfer or underlet or part with the possession
or occupation of the demised premises or any part thereof or suffer
any person to occupy the demised premises or any part thereof as a
licencee without the Lessor's consent in writing which shall not be
unreasonably withheld.
3.21.1. Within fourteen days of any assignment or under-Lease the
Tenant shall give notice thereof in writing with particulars to the
Landlord or the Landlord's Solicitors or Agent and shall furnish them
with a true copy of such instrument and shall pay to the Landlord's
Solicitors their reasonable legal costs and other expenses in
connection with such an assignment or under-Lease.
NO OBSTRUCTION
--------------
3.22. Not to block up obstruct or enlarge any doorway passage window
light or other easement or make any new window or other opening in the
demised premises or in any manner obscure any grating window or
opening therein giving light to or otherwise intended for the benefit
of other premises and not to give permission for any new window light
opening doorway path passage drain or other encroachment or easement
to be made into or against or upon the demised premises which might be
or grow to the damage
<PAGE>
annoyance or inconvenience of the Landlord (other than those agreed
between the parties) AND in case any such window light opening doorway
---
path passage drain or other encroachment or easement shall be made to
give immediate notice thereof to the Landlord immediately the same
shall come to the notice of the Tenant and at the request and cost of
the Landlord to adopt such means as may be reasonably required or
deemed proper for preventing any such encroachment or the acquisition
of any such easement.
PLANNING ACTS
-------------
3.23. In relation to the Planning Acts (by which expression it is
intended herein to designate the Local Government (Planning and
Development) Acts 1963 to 1976 and any statutory modification or re-
enactment thereof for the time being in force and any Regulations or
Orders made thereunder).
3.23.1. Not to do or omit or permit to be done or omitted anything on
or in connection with the demised premises the doing or omission of
which shall be a contravention of the Planning Acts or of any notices
orders licences consents permissions and conditions (if any) served
made granted or imposed thereunder or under any enactment repealed
thereby and to indemnify (as well after the expiration of the said
term by effluxion of time or otherwise as during its continuance) and
keep indemnified the Landlord against all actions proceedings damages
penalties costs charges claims and demands in respect of such acts and
omissions or any or them and against the costs of any application for
planning permission and the works and things done in pursuance
thereof.
3.23.2. In the event of the Landlord giving written
<PAGE>
consent to any of the matters in respect of which the Landlord's
consent shall be required under the provisions of this Lease or
otherwise and in the event of permission from any Planning Authority
under the Planning Acts being necessary for any addition alteration or
change in or to the demised premises or for the change of user thereof
to apply at the cost of the Tenant to the Local and Planning
Authorities for all consents an permissions which may be required in
connection therewith and to give notice to the Landlord of the
granting or refusal (as the case may be) of all such consents and
permissions forthwith on the receipt thereof
3.23.3. To give notice forthwith to the Landlord of any notice order
or proposal for a notice or order served on the Tenant under the
Planning and Development Acts and if so required by the Landlord to
produce the same and at the request and cost of the Tenant to make or
join in making such objections or representations in respect of any
proposal as the Landlord may require.
3.23.4. To comply at his own cost with any notice or order served on
the Tenant under the provisions of the Planning Acts.
3.23.5. If and when called upon so to do to produce to the Landlord
or his Surveyor all such plans documents and other evidence as the
Landlord may reasonably require in order to satisfy itself that the
provisions of this sub-clause have been complied with in all respects.
INSURE PLATE GLASS
------------------
3.24. To insure and keep insured the plate glass (if any) in the
demised premises in the name of the
<PAGE>
Landlord and Tenant in the full reinstatement cost thereof and if
required to produce the policy and the receipt for the latest premium.
TO GIVE NOTICE
--------------
3.25. Within seven days of the receipt of notice of the same to give
full particulars to the Landlord of any permission notice order or
proposal for a notice or order made given or issued to the Tenant by
any Government Department or Local or Public Authority under or by
virtue of any statutory power and if so required by the Landlord to
produce such permission notice or order or proposal for a notice or
order to the Landlord and also without delay to take all reasonable
and necessary steps to comply with any such notice or order and also
at the request of the Landlord to make or join with the Landlord in
making objections or making representations against or in respect of
any such notice order or proposal as aforesaid as the Landlord shall
deem expedient.
SUPERIOR LEASE
--------------
3.26. To comply with all the covenants (other than for payment of
rent) conditions and provisions contained in any Superior Lease or
Leases.
REVERSIONARY INTEREST
---------------------
3.27. At all convenient hours in the daytime on twenty-four hours
notice being given to permit all prospective purchasers or dealers in
the reversionary interests of the Landlord by order in writing of the
Landlord or his agents to view the demised premises without
interruption but so that no undue interference is caused to the
business of the Tenant.
<PAGE>
RE-LETTING SIGN
---------------
3.28. To permit the Landlord and his agents at any time within three
calendar months next before the expiration or sooner determination of
the said term to enter upon the demised premises and to fix and retain
without interference upon any suitable part or parts thereof (but not
in any position likely to interfere with the user of the demised
premises) a notice board for re-letting or disposing of the same and
not to remove or obscure the same and to permit all persons by order
in writing of the Landlord or his agents to view the demised premises
at all reasonable hours in the daytime without interruption.
LOSS BY LESSOR
--------------
3.29. To make good all loss sustained by the Landlord in consequence
of any breach by the Tenant or any under-Lease of the Tenant of any
covenant or condition herein contained.
INDEMNITY
---------
3.30. To indemnify and keep indemnified the Landlord against all and
any expenses costs claims demands damages and other liabilities
whatsoever in respect of the injury or death of any person or damage
to any property howsoever arising directly or indirectly during the
term of the lease out of:-
3.30.1. the state of repair or condition of the demised premises;
3.30.2. the existence of any alterations thereto or the state of
repair or condition of such alteration;
3.30.3 the user of the demised premises;
<PAGE>
3.30.4. any work carried out or in the course of being carried out to the
demised premises by the Tenant his servants or agents sub-lessees or sub-
tenants;
3.30.5. anything now or hereafter attached to or projecting therefrom or
any other cause arising out of the demised premises.
TO YIELD UP
-----------
3.31. At the expiration or sooner determination of the said term quietly
to yield up the demised premises together with all the Landlord's fixtures
and all other fixtures and fastenings that now are or which during the said
term shall be affixed or fastened thereto (except tenant's or trade
fixtures) in such good and substantial repair and condition as shall be in
accordance with the covenants on the part of the Tenant herein contained
and in case any of the said fixtures and fittings shall be missing broken
damaged or destroyed to forthwith replace them with others of a similar
kind and of equal value and to make good any damage caused to the demised
premises by the removal of the Tenant's fixtures fittings furniture and
effects (damage by any of the Insured Risks as hereinafter defined in
Clause 4.1. excepted if and so long only as the policy or policies of
insurance shall not have been vitiated or payment of the policy monies
withheld or refused in whole or in part by reason of any act neglect or
default of the Tenant or the servants agents licensees or invitees of the
Tenant).
TO PAY STAMP DUTY AND VAT
-------------------------
3.32. To pay to the Landlord the stamp duty on this Lease and the
counterpart thereof and to pay all
<PAGE>
Value Added Tax (if any) payable on the delivery hereof or on any rent or other
payment to be made hereunder and to indemnify the Landlord against same.
4. THE Landlord hereby convenants with the Tenant:-
4.1. Subject to the Landlord being able to effect insurance against any one
or more of the risks hereinafter specified and subject to re-imbursement of the
appropriate insurance premium as provided by Clause 3.1.2. hereof to insure in
the name of the Landlord the demised premises and all Landlord's fixstures and
fittings therein or theron including glass (but excluding plate glass) and to
keep the same insured in the full reinstatement cost (to be determined from time
to time by the Landlord or his Surveyor and including an inflationary factor)
subject to the Tenant's right to require the Landlord to insure for a higher
amount than the full reinstatement cost as determined by the Landlord) against
damage by fire, explosion, lightning, impact, earthquake, aircraft, floods,
storm and tempest, riot, civil commotion and malicious damage or bursting or
overflowing of water tanks, apparatus or pipes and including demolition and site
clearance expenses Architects and other fees and taxes in relation to the
reinstatement of the demised premises and three years' loss of rent and all
Stamp Duties exigible on any building or like Contract as may be entered into
relative to the reconstruction reinstatement or repair of the demised premises
or any part thereof resulting from the destruction loss or damage thereof or
thereto from any of the perils aforesaid and public liability and against such
other risks as the Landlord may from time to time consider prudent and desirable
(all such perils and risks for the time being so covered by insurance are herein
called "the insured risks") and such risks may be
<PAGE>
covered by any Policy or Policies of Insurance as the Landlord may consider
appropriate.
RE-INSTATE
- ----------
4.2. In case the demised premises or any part thereof shall be destroyed or
damaged by fire or from any of the Insured Risks then (subject to the Landlord
obtaining Planning Permission and all other necessary permits licenses and
approvals) and as often as shall happen to lay out all monies received in
respect of such insurance as aforesaid as soon as practicable in or upon
rebuilding repairing or reinstating the demised premises in a good and
substantial manner unless the relevant policy shall have been vitiated or
rendered less than fully effective by any act neglect default or omission on the
part of the Tenant.
PROVIDED ALWAYS:-
- -----------------
4.2.1. That in the event of the Landlord being unable to reinstate the demised
premises substantially in accordance with its existing plan and elevation due to
refusal of planning or other approvals consents or licences the Tenant agrees
to surrender this Lease when called upon by the Landlord so to do.
4.2.2. If the demised premises are totally destroyed or so damaged as to require
reconstruction by any of the insured risks in the period subsequent to the
first fifteen years of the term of the Lease the Landlord shall be entitled in
lieu of reinstating the premises to give written notice within six months of
said destruction to the Tenant stating that the demised premises will not be
reconstructed or rebuilt and thereupon the Tenant shall forthwith surrender
<PAGE>
this lease without any compensation being paid to the Tenant in respect of such
early termination but without prejudice to any right of action or remedy of
either party to this Lease in respect of any breach non-observance or
non-performance of any of the covenants or conditions herein contained prior to
such termination.
QUIET ENJOYMENT.
- ----------------
4.3. That the Tenant paying the rents hereby reserved and observing and
performing the covenants and agreements on the part of the Tenant hereinbefore
contained shall and may peaceably hold and enjoy the demised premises during the
said term without any interruption by the Landlord or any person or persons
lawfully claiming under or in trust for him.
5. PROVIDED ALWAYS and it is hereby agreed and declared as follows:-
---------------
5.1. If:
5.1.1. the said rent or any interest on arrears of rent or any sum payable
hereunder or any part thereof shall be unpaid for fourteen days after any of the
days hereinbefore appointed for payment whether the same shall have been
lawfully demanded or not; or
5.1.2. any covenants on the Tenant's part herein contained shall not be observed
or performed; or
5.1.3. the Tenant being an individual or a firm shall become bankrupt or
compound or arrange with his or its creditors or being a company shall go into
liquidation either compulsory or voluntary except for the purpose of
reconstruction or amalgamation; or
<PAGE>
5.1.4. the Tenant being a company shall permit or suffer to be appointed a
Receiver over its assets THEN and in any of the said cases and at any time
thereafter it shall be lawful for the Landlord or any person or persons
authorised by the Landlord to enter upon the demised premises or any part
thereof in the name of the whole and to repossess the same and enjoy the same as
if this Lease had not been executed but without prejudice to any right of action
or remedy on either party in respect of any antecedent breach of any of the
covenants by the other herein contained.
SUSPENSION OF RENT
- ------------------
5.3. If during the said term the demised premises or any part thereof shall be
destroyed or damaged by any of the Insured Risks so as to be unfit for
occupation or use and the policy or policies of insurance effected by the
Landlord shall not have been vitiated or payment of the policy monies withheld
or refused in whole or in part in consequence of any act neglect or default of
the Tenant his servants agents or licensees the rent hereby reserved and the
obligations of the Tenant as to maintenance and repair of the demised premises
or a fair proportion thereof according to nature and extent of the damage
sustained shall be suspended until the demised premises shall have again been
rendered fit for occupation or use by the Tenant or become accessible again or
for two years whichever is the shorter and any dispute concerning the provisions
of this Clause shall be determined by a single arbitrator in accordance with the
provisions of the Arbitration Act 1954 or any statutory enactment in that behalf
for the time being in force.
SECTION 40 DEASY'S ACT 1860
- ---------------------------
5.4. In case the demised premises or any part
<PAGE>
thereof shall be destroyed or become ruinous and uninhabitable or incapable of
beneficial occupation or enjoyment by for or from any of the insured risks the
Tenant hereby absolutely waives and abandons all rights (if any) to surrender
this Lease under the provisions of Section 40 of the Landlord and Tenant Law
Amendment Act, Ireland, 1860 or otherwise.
ADJOINING LANDS
- ---------------
5.5.1. That the Landlord shall have the power at all times without obtaining
any consent from or making any compensation to the Tenant to deal as the
Landlord may think fit with any of the lands and premises adjoining neighbouring
or opposite with any of the lands and premises hereby demised and to erect or
suffer to be erected on such adjoining opposite or neighbouring lands and
premises any buildings whatsoever whether such buildings shall or shall not
affect or diminish the light or air which may now or at any time or times during
the said term be enjoyed by the Tenant or other lessees or tenants or occupiers
of the demised premises or any part thereof.
PARTY WALLS
- -----------
5.5.2. All walls and structures separating the demised premises from any
adjoining or neighbouring premises shall be party walls and structures and shall
be used maintained and repaired as such.
NO WARRANTY
- -----------
5.6. Nothing in this Lease contained shall be deemed to constitute any warranty
by the Landlord that the demised premises or any part thereof are authorised
under the Planning Acts or otherwise for use for any specific purpose.
<PAGE>
NO WAIVER
- ---------
5.7. The demand for and the acceptance of rent by the Landlord or his Agents
shall not constitute and shall not be construed to mean a waiver of any of the
covenants on the part of the Tenant herein contained and the penalties attached
to the non-performance thereof.
BREAK CLAUSE
- ------------
5.8. If the Tenant wishes to determine this Lease on the 1st day of September
2000 or on the 1st day of September 2005 and shall give not less than six
calendar months notice in writing and shall up to the time of such determination
pay the rents reserved by and perform and observe the covenants contained in
this Lease then upon the expiry of such notice the term hereby granted shall
immediately cease and determine but without prejudice to the respective rights
of the either party in respect of any antecedent claim or breach of covenant.
CONSTRUCTION.
- -------------
6.1. WHERE the Tenant consists of two or more persons all the respective
-----
covenants by the Tenant shall be deemed to be by such persons jointly and
severally and reference to the masculine gender shall include reference to the
feminine gender and neuter shall include masculine and feminine gender and
reference to the singular shall include reference to the plural and reference to
a person shall include corporation and vice versa respectively.
6.2. Each covenant by the Tenant not to do any act or thing shall be deemed to
include a covenant not to permit or suffer that act or thing to be done.
<PAGE>
6.3. Month shall mean calendar month.
6.4. Reference to any Act of Parliament or of the Oireachtas shall include any
Act replaced by it or any Act replacing or amending it and any Order regulation
instrument direction scheme or permission made under it or deriving validity
from it.
NOTICES.
- --------
7. IN addition to any other prescribed mode of service any notices requiring
--
to be served on the Tenant hereunder shall be validly served if left addressed
or sent by post to the Tenant (or if there shall be more than one of them to any
one or more of them) at the demised premises or at the last known address or
addresses of the Tenant or Tenants or any of them in the Republic of Ireland and
any notice required to be served on the Landlord shall be validly served if left
or posted to the registered office of the Landlord and any such notices may be
served by the Landlord's servants or agents and be served on the Tenant's
servants or agents.
8. Where the Landlord has the right or obligation to serve a notice demand
or certificate or to enter the demised premises for any purposes such right or
obligation may be exercised by a surveyor or agent authorised to act on the
Landlord's behalf and (in the case of entry) if appropriate with workmen
materials and equipment.
9. THE paragraph headings shall not affect in any way the construction of
this Lease.
IT IS HEREBY CERTIFIED for the purposes of the stamping of this instrument that
- ----------------------
this is an
<PAGE>
instrument to which the provisions of Section 112 of the Finance act 1990 do not
apply by reason of the fact that the premises hereby demised are part of an
existing building.
IT IS HEREBY CERTIFIED that the Lessee being the person becoming entitled under
- ----------------------
or by virtue of this instrument to the entire beneficial interest in the
property hereby demised is a body corporate incorporated in a Member State of
the European Community or other European State which is a contracting party to
the European Economic Area Agreement and having its registered office, central
administration or principal place of business within the territory of those
states and as such is a qualified person within the meaning of Section 45 of the
Land Act 1965.
IN WITNESS whereof the parties hereto have hereunto executed these presents the
- ----------
day and year first herein WRITTEN
-------
S C H E D U L E
---------------
ALL THAT AND THOSE the premises known as Unit Number 1, John F. Kennedy park in
- ------------------
the Townland of Bluebell, Barony of Upper Cross and County of Dublin (but
excluding the first floor offices therein) which said premises hereby demised
comprising thirty five thousand three hundred and seventy square feet or
thereabouts of warehousing, two thousand five hundred and forty eight square
feet or thereabouts of loading area and three thousand six hundred and ninety
six square feet or thereabouts of office space.
<PAGE>
PRESENT when the Common Seal of
LYDGROVE LIMITED
was affixed hereto:-
[COMMON SEAL OF VIKING
DIRECT LIMITED]
PRESENT when the Common Seal of
VIKING DIRECT LIMITED
was affixed hereto:-
WITNESS: P. PATEL
VIKING DIRECT LTD.,
TOLLWELL ROAD,
LEICESTER,
LE4 1BR
OCCUPATION: CHIEF ACCOUNTANT.
<PAGE>
EXHIBIT 10.18
(TRANSLATION)
COMMERCIAL LEASE AGREEMENT
--------------------------
By the present private deed dated ________ ____, the Landlord I.C.I.M.
S.p.A.-Immobili Commerciali Industriali Mirabella - , with registered office in
Trezzano sul Naviglio, Viale Leonardo da Vinci 143, Fiscal Code and V.A.T. Code
n. 0279885058, herein represented by Mr. Guido Mazzi as President and legal
representative, leases to the Tenant Viking Office Products, Inc., with
Registered Office in 13809 South Figueroa Street, Los Angeles, California 90061,
U.S.A., represented by its Vice-President Logistic Mr. Ronald William Weissman,
who accepts, the real estate located in Siziano (PV), Via Lombardia n. 1,
registered with the Building Cadastral Register of Pavia at entry 684, section
A, sheet 3, map\zone 113, outlined in red in the plan attached hereto (annex
"A"), consisting of an industrial shed of 4,800 sq.m., with offices of 280
sq.m. and technical rooms of 130 sq.m., and external roofed surface for loading
of 200 sq.m., at the following conditions:
1. The lease shall have the duration of 6 (six) years, from January 15, 1997
until January 14, 2003, and shall be tacitly renewed by another period of 6
(six) years, unless notice is given by one of the parties by registered letter
R.R.R., delivered to the post at least 12 months prior the contract's expiration
date.
<PAGE>
2. The rent is agreed in L. 400,000,000 (four hundred million) plus V.A.T., to
be paid in advance to the Landlord's domicile in quarterly installments of L.
100,000,000 (one hundred million) plus V.A.T. each, with expiration dates on
_______________. As guarantee of the fulfillment of the contractual obligations,
the Tenant releases to the Landlord a security deposit in the amount equivalent
to one quarter rent, by means of a bank or of an insurance guarantee.
3. Pursuant to Article 32 of Law 392/78, the parties expressly agree that the
rent will be adjusted each year, beginning as from the third year of the lease,
on demand of the Landlord, in the amount of 75% of the variations, ascertained
by ISTAT, of the index price consumers' for families of workers and employees.
4. The Tenant shall not be able to delay, for any reason, the payment of the
rent and shall not be able to submit exceptions or wage actions, unless after
the payment of the expired installments.
5. The premises are granted for the sole use of warehouse, storehouse and
connected activities, subletting or partial assignment prohibited except for
affiliate or controlled companies; change of destination of use is also
prohibited. As established in Articles 34, 35 and 36 of Law 392/78, the Tenant
declares that the property shall be used for activities that do not entail
direct contacts with the public of users or consumers.
2
<PAGE>
6. Pursuant to article 27, 8 degrees para. of Law 392/78 (withdrawal of Tenant
for serious reasons), it is declared that reason for withdrawal may be the
refusal of the authorizations or grants required by the Laws in force concerning
the performance the Tenant's activities. Moreover, the Landlord grants to the
Tenant the right to withdraw in advance from the present contract and without
disbursement beyond payment of the rent until the effective date of withdrawal,
as from the end of the third year of lease, by prior written notice given by
registered letter, to be sent to the Landlord at least 6 (six) months before
expiration (article 27, comma 7 degrees, of Law 392/78).
7. The Landlord declares that the real estate is fully in accordance with
building and urban rules.
8. The Tenant declares to have examined the rented properties and to have found
them suitable for its use, in good state of maintenance and free from any
defects that might anyhow affect the health of the people working there, and
undertakes to return the properties in the same conditions at the expiration of
the contract, except for deterioration due to normal wear and tear.
Simultaneously with the redelivery of the property, minutes shall be drawn up by
the parties, to be used in determining the amount the damages if any caused by
the Tenant. Any modification and/or innovation may made by the Tenant only with
the prior approval of the Landlord. The Tenant is liable, pursuant to article
1609 Civil Code, for the cost of reparations of
3
<PAGE>
ordinary maintenance, and expressely for those concerning the water, gas, light
and sanitary installations, locks and keys, hinges of fixtures, wall surfaces,
ceiling and fixtures, flooring and wall tiles. If Tenant does not attend to
them, the Landlord will perform them, charging the cost to the Tenant.
9. The Landlord undertakes to restore the at its own care and expenses
asphalt's coating of the internal road system of the property, with black
streets with a minimum width of 2,50 m., and to set-up a parking space with
adequately paving in the south end of the real estate for the maximum exthension
permitted by the Public Administration., in compliance with applicable laws.
10. The Tenant expressly exempts the Landlord from any liability for direct or
indirect damages deriving from actions or omissions of other tenants or third
parties.
11. The Landlord is exempted from any responsibility in case of interruption of
services for reasons beyond his will.
12. The Landlord shall have the right to inspect or cause others to inspect the
leased premises, by prior appointment with the Tenant, during working days and
working hours.
13. The breach by the Tenant of one of the provisions of this agreement and, in
particular, the failure or delay in paying of the monthly rents, shall result in
the termination of the agreement.
4
<PAGE>
14. The sum eventually deposited by Tenant as a security for damages and
set-aside pursuant with the current Laws, shall be returned following the
regular redelivery of the properties and cannot ever be set-off against the
rent. On demand of one of the parties, the deposit shall be adjusted to the
variations of the rent.
15. The Tenant undertakes to buy a fire insurance policy with a primary
company, with the following guarantees and clauses:
a) property for a maximum of ITL. 4,500,000,000 (four billion five hundred
million)
b) recourse of neighbours ITL. 1,000,000,000 (one billion);
c) guaranteed extended coverage complete;
d) waiver of any recourse against Landlord.
16. The costs for the registration of the present contract and the stamp duty
are charged to the Landlord and the Tenant in equal parts. The registration of
the agreement will be made at the care of the Landlord. The expenses for the
consumption of drinkable water and of the water of the firefighting plant will
be shared at 50% (fifty percent) with the Tenant of the adjoining building owned
by I.C.I.M., with whom the relatives meters are in common. The care and expenses
concerning the heating and conditioning services, the supply of electric power,
the tax for garbage collection, the purging of cesspools and latrines, the
maintenance of the internal asphalt and green areas, rest wholly on the Lessee.
5
<PAGE>
17. The clauses of the present agreement are valid and binding between the
parties unless derogated or modified by special Laws on leasing, insofar as
applicable, or by written agreement between the parties.
18. In regard of any disputes concerning this agreement, the parties elect their
respective domiciles as follows:
the Landlord: at the above address
the Tenant: at the above address
Judge of venue is that where the real estate is located.
The Landlord The Tenant
6
<PAGE>
EXHIBIT 10.20
DATED 31 OCTOBER 1996
---------------------
(1) BPC CATALOGUES LIMITED
- and -
(2) VIKING OFFICE PRODUCTS, INC.
----------------------
EUROPEAN
PRINTING AGREEMENT
----------------------
<PAGE>
THIS AGREEMENT is dated 31 October, 1996.
BETWEEN:-
(1) BPC CATALOGUES LIMITED, an English company, whose registered office is at
Park Street, Aylesbury, Buckinghamshire HP20 1LB, England (the "Printer");
and
(2) VIKING OFFICE PRODUCTS, INC. a California Corporation, having an office at
879 West 190th Street, Los Angeles, CA 90061, USA (the "Publisher").
WHEREAS the Printer and the Publisher wish to enter into an agreement for the
printing by the Printer of certain quantities of the Viking Office Products
European Catalogues Program on the terms and conditions hereinafter set forth.
IT IS HEREBY AGREED as follows:-
1. DEFINITIONS
-----------
1.1 In this agreement the following words and expressions shall have the
following meanings unless the context otherwise requires:-
"Affiliate" shall mean in respect of any party a company which is a
Subsidiary or Holding Company of such party or a
Subsidiary of such Holding Company;
"Catalog" shall mean the catalogs that the Publisher or any of its
Affiliates may from time to time publish (including
without limitation all catalogs falling within the
specific catalog types A, E, F, G, H, K, M, N, P, R, V,
W, X, Y);
"Catalog Program" shall mean the Publisher's and its Affiliates' entire
program for the publishing of Catalogs;
-1-
<PAGE>
"Drop Dates" shall mean the dates in the Production Schedule on
which it is intended that the Catalogs in question
will be ready for mailing or pick up;
"film" the film to be supplied by the Publisher to the
Printer, all such film to be in the form of single
page film or such digital data form as is agreed
between the parties from time to time;
"Forecast Schedule" shall mean the forecast to be provided by the
Publisher from time to time pursuant to Clause 2.2;
"Prepress Service" shall mean the provision of basic pre-press
services, equipment, utilities, labor, supervision
and production materials for the production of film
origination and supply of proofing of that
origination including without limitation the supply
of film;
"Prices" shall mean in respect of each of the countries
comprised within the Territory as appropriate, the
prices to be charged to the Publisher for the Work
as set forth in the Price Matrix or as may be
varied in accordance with Clause 5 or as otherwise
agreed between the parties;
"Price Matrix" shall mean the price matrix approved by the Printer
and the Publisher in writing from time to time
setting out the Prices;
"Production Schedule" shall mean the schedule for the production of the
Work to be agreed from time to time in the course
of this agreement in accordance with Clause 3;
-2-
<PAGE>
"Quarter" shall mean as the context requires the three month
period commencing on either 1st January, 1st April,
1st July or 1st October;
"Retail Prices Index" shall mean the index entitled "Retail Prices
Index - All Items" prepared by the Central
Statistical Office and published by the Department
of Employment or, if that index is no longer
published, the nearest equivalent statistical index
agreed upon by the parties or failing such
agreement selected by an expert agreed by the
parties or in the event of a failure to agree
chosen by the President for the time being of the
Institute of Chartered Accountants in England and
Wales;
"Subsidiary" and shall have the meanings ascribed to them in Section
"Holding Company" 736 Companies Act 1985 (as amended);
"Territory" shall mean the countries listed in Schedule A
hereto;
"Work" shall mean the provision of all labor, supervision,
equipment, utilities, facilities and production
materials for cylinder or plate making, press work,
binding, packing, loading and all other work
necessary to complete the printing manufacture and
the preparation for delivery of the Catalogs
including without prejudice to that generality
placing the Catalogs into plastic envelopes
suitable for marking and attaching labels bearing
addressees' names and addresses to such envelopes;
-3-
<PAGE>
2. QUANTITIES
----------
2.1 Subject to sub-clause 2.4 below, the Printer agrees to print and the
Publisher agrees to purchase and to procure that its Affiliates shall
purchase from the Printer during the term of this Agreement the Publisher's
and its Affiliates entire printer requirements for the Catalog Program in
the Territory in accordance with the terms of this Agreement.
2.2 In order to assist the Printer in providing for the Publisher's
requirements, the Publisher shall on the 1st of August of each year of this
Agreement submit a forecast in respect of the twelve month period
commencing on the immediately following 1st January such forecast in each
case to show the publishers and its Affiliates' total requirements
hereunder, including, without limitation, in respect of each country
comprised in the Territory and for each type of Catalog, the number of
copies and pages, for each issue to be published in the relevant twelve
(12) month period and the Drop Date (as referred to in the Production
Schedule) when the Printer is required to have completed the work in
respect of that issue. All film to be supplied by the Publisher shall be
provided in accordance with the terms of this Agreement in good time so as
to enable the Printer to comply with the Forecast Schedule in accordance
with the time for performance set out in the Production Schedule and so
that the Printer shall be required to perform its obligations any faster
than provided for in the Production Schedule. The Publisher shall not in
any way be limited by nor obligated to the requirements shown on such
forecast.
2.3 Subject to Clause 2.4 below any variation from total quantities ordered are
the responsibility of the Printer. The Publisher reserves the right to
purchase overrun copies up to 1% of the print order at the invoiced price
per thousand copies.
2.4 In the event that any of the Publisher's printing requirements for the
Catalog Program cannot be met by the Printer, the Printer shall so inform
the Publisher and shall use its reasonable endeavours to assist the
Publisher to place the work with a suitable alternative.
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3. THE WORK
--------
3.1 Subject to the provisions of this agreement, the Printer shall perform, or
procure the performance of, in a good and workmanlike manner, the Work at
the Printers' facilities at East Kilbride and Bristol or at any other
facilities of the Printer or its Affiliates (at no additional manufacturing
cost to Publisher) or, with the Publisher's prior written consent (such
consent not to be unreasonably withheld), a third party in accordance with
the Forecast Schedule and the Production Schedule.
3.2 The Publisher will be responsible for the Prepress Service for the
Catalogs.
3.3 The Publisher and Printer shall use their best efforts to agree on
Production Schedules at least two months prior to the date on which the
Production Schedule is due to come into force.
3.4 If overtime is required to meet any Drop Date due to the Publisher's
failure to comply with Production Schedules or any change to the Forecast
Schedule (and notwithstanding the last sentence of Clause 2.2), the Printer
will use its reasonable efforts to make any necessary overtime available
and will charge for such overtime at negotiated and mutually agreed upon
rates. If overtime is required due to the Printer's internal scheduling
problems arising after a Production Schedule is agreed upon and is not due
to Publisher's failure to comply with the Production Schedule or any change
to the Forecast Schedule, overtime charges will not be made. No chargeable
overtime will be worked without Publisher's prior approval, and in the
absence of such approval, delivery of the Work will be made as soon as
practicable, consistent with the Printer's then available capacity.
3.5 The Publisher shall provide the Printer with all films in accordance with
the requirements of Clause 2.2, such films to be of a good quality and so
as to enable the Printer to carry out its obligations hereunder. The
Publisher shall also provide the Printer with all such other assistance and
co-operation as is reasonably required by the Printer in order to carry out
its obligations hereunder.
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4. WARRANTY
--------
4.1 Printer shall perform the Work in a good and workmanlike manner and in
accordance with the Forecast Schedule and the Production Schedule. The
Production Schedule will be updated by agreement of both parties on or
before 1st August of each year during the term of this Agreement.
4.2 In the event that Publisher submits materials in accordance with the
Forecast Schedule, and subject to Clause 2.2 above Printer is unable to
meet the Drop Dates of the Publisher, Printer shall place said work at no
additional cost to the Publisher with a qualified mutually agreeable
resource (whether the Printer or a third party) to effect and meet the Drop
Dates in question.
4.3 If the Printer fails to meet Drop Dates, the Printer and the Publisher
shall endeavour to arrive at a mutually satisfactory arrangement to
compensate the Publisher 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 London, England before a single
Arbitrator in accordance with the rules and procedures of the Governing
Arbitration Association. Arbitration in London shall be the sole forum for
the resolution of such dispute, and the decision of such Arbitrator shall
be final and not subject to appeal by either party.
4.4 Any change requested by Publisher in the Production Schedule or Forecast
Schedule shall require, in each case, the prior consent of Printer. Printer
shall use its reasonable efforts to accommodate such request but may
decline to do so if, i) such changes are not feasible or practical because
of limitations of labour or equipment, ii) the equipment being utilized by
Printer for the Work is unable to accommodate such change, or iii)
Publisher and Printer fail to agree on such adjustment of Prices as is
necessary to reflect any resulting increases in unit cost.
4.5 This is a performance-based Agreement. If either party, Printer or
Publisher, fails to fulfil 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
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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.
5. PRICES, PRICE ADJUSTMENTS AND TERMS OF PAYMENTS
----------------------------------------------
5.1 The Publisher shall pay the Printer the Prices for the Work for duration of
this Agreement in accordance with this Clause 5. The Prices in the initial
Price Matrix will be based on the cost of materials furnished by the
Printer, scales of wage rates and other terms of employment and overheads of
the Printer in effect on 1 January 1996 and thereafter.
5.2 Prices shall be adjusted on or about 1st January of each year during term of
this agreement by the change in the Retail Prices Index over the relevant
period subject to a cap of 3% to reflect manufacturing costs (defined as
labor and variable overheads) which currently constitute 70% of total
manufacturing costs. The first of such adjustments shall take place on 1st
January 1998.
5.3 The components of the Prices for ink and other materials shall be adjusted
from time to time by adding thereto or subtracting therefrom the actual
percentage increase or decrease to the Printer for such materials since the
prior escalation.
5.4 Prices adjusted in accordance with this Clause 5 shall become effective in
relation to the Work performed for any Drop Date following the date of
delivery to the Publisher of the revised Price Matrix referred to in Clause
5.5, irrespective of the date of billing.
5.5 The Printer shall furnish the Publisher with a revised Price Matrix as soon
as practicable after each such increase or decrease, together with a
detailed breakdown
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of all such adjustment in Prices. Such revised Price Matrix shall be the
basis for subsequent price adjustments.
5.6 Upon the reasonable request by the Publisher within six (6) months of
notice of a price change, the Printer shall furnish the Publisher with
documentary proof, including invoices, bills and statements, reasonably
supporting the price adjustments provided for in this Agreement. The
Publisher shall also be entitled to receive, provided the Publisher so
requests in writing and pays for, a signed opinion by the Printer's then
independent certified public accountants (which accountants shall be
permitted to examine invoices, statements and other such documents of the
Printer that show costs of materials and all costs which are relevant to
determining price adjustments hereunder) to the effect that they have
examined such records of the 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 the Printer was incorrectly or improperly determined,
the price or amount in question shall be properly recomputed and
appropriate adjustments shall promptly be made.
5.7 The Publisher shall pay the Printer for the Work in pounds sterling, net
cash, due within 40 days from the date of receipt of invoices for Work.
Publisher shall pay interest at 1% per annum above the bank base rate of
Lloyds Bank PLC calculated on a day to day basis on any invoice amount
outstanding after the due date, except for amounts disputed in good faith
by Publisher as provided below. In the event the Publisher shall
reasonably dispute any amount of any invoice, the Publisher shall notify
the Printer in writing of the dispute, specifying in detail the basis for
disputing the invoice, and the amount in dispute and pay to the Printer
that portion of the invoice not in dispute in accordance with the
foregoing. The parties shall use their reasonable efforts to resolve any
such disputes as promptly as possible.
5.8 All copies of the Catalogs shall be shipped FOB Printer's dock. The costs
of all freight will be prepaid and billed directly to the Publisher by the
Printer at the rate set out in the Price Matrix.
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5.9 The Prices are exclusive of any value added tax or other similar tax, levy
or imposts which shall, if applicable, be payable in addition on the
rendering by the Printer of the appropriate invoice.
5.10 Unless otherwise specified, the Prices do not cover storage of materials
(other than paper), work-in-progress or finished goods held or conducted
beyond the Production Schedule span. If the Publisher delays completion of
the Work or postpones delivery of finished goods beyond the date specified
in the Production Schedule, or if the Publisher's furnished materials
arrive prior to the dates specified in the Forecast Schedule, storage will
be charged at the prevailing rates for the period that the finished goods,
work-in-progress or furnished materials remain in the Printer's
possession.
5.11 The Prices do not include the costs of correcting mistakes or making
changes to prepared film, which the Printer shall carry out if feasible
and if requested for a mutually agreed fee.
6. PAPER SUPPLY
------------
6.1 The Prices do not include the price of any paper furnished by the Printer
or the Publisher for the Work.
6.2 The Printer agrees to act as paper merchant on behalf of the Publisher in
accordance with the paper supply procedures set out in Schedule B.
6.3 The Printer agrees to supply paper if requested by the Publisher in
writing at such price as may be agreed between the parties at the time of
such request two months' prior to the beginning of the Quarter in which
the scheduled print date falls (as set out in the Forecast Schedule).
6.4 If the Publisher does not request the Printer to supply paper in
accordance with Clause 6.2, or if following any such request the parties
are unable to agree upon the price at which such paper is to be supplied,
the Publisher agrees to furnish sufficient paper for
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the Work (including a 10% buffer stock to accommodate unforeseen printing
problems) in accordance with the specification and conditions as agreed
upon between Printer and Publisher in writing from time to time at least
seven days before the scheduled print date (as set out in the Forecast
Schedule). If an identifiable substandard and/or defective paper roll or
series of rolls is received by the Printer which affects runnability or
printability, the Printer will provide prompt notification to the Publisher
by telephone upon discovery of such substandard or defective condition,
confirming such notification to the Publisher in writing within three (3)
business days. If after such telephone notification, the Printer is
required by the Publisher to use said paper to perform the relevant Work
and incurs extra cost as a result thereof, said cost will be charged to and
paid by the Publisher.
6.5 The Publisher agrees to pay a paper handling charge of 0.88 (Pounds) per
cwt of paper handled by the Printer under this Agreement (whether supplied
by the Printer or the Publisher) in accordance with the payment terms set
out in Clause 5.7.
6.6 The Printer agrees to store paper free of charge for a period of 90 days.
Thereafter, the Publisher agrees to pay the Printer (in accordance with
Clause 5.7) 4.84 (Pounds) per month or part thereof per tonne of paper
stored.
6.7 Upon completion of the production of each job, the Printer shall furnish
the Publisher with an inventory report documenting paper used in the
production of that job. The Printer shall conduct a semi-annual inventory
confirmation and reconciliation of all paper consumed after the production
of six months of jobs. Should the paper consumed during the accounting
period exceed the allowances as agreed between the Printer and Publisher in
writing from time to time per paper stock type, the Printer shall
compensate the Publisher for the paper overconsumed by replenishing that
particular stock inventory pound for pound of paper overconsumed. Should
the amount of paper consumed during this accounting period be less that
allowed as agreed between the Printer and the Publisher in writing from
time to time, the Publisher shall share with the Printer 50% of the savings
which shall be based upon the pounds of paper per grade and weight during
the accounting period. This final
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settlement shall be based upon the sum total of over and/or
underconsumption per paper grade. Manufacturing waste will be the property
of the Printer.
6.8 If there is a paper stock deficit due, inter alia, to increased paginations
or print quantities or paper fault problems, the Printer shall use its
reasonable endeavours to replace such stock with the nearest suitable
alternative. The Publisher shall pay for the replacement stock at cost to
the Printer of such replacement stock.
6.9 Should the Publisher propose the use of grades of paper different from
those agreed upon between the Printer and Publisher in writing from time to
time, then such paper will be subject to a trial procedure to be determined
by the Printer. This trial procedure must be completed to the satisfaction
of the Printer before the Publisher may request the inclusion of such paper
in any Work.
7. EQUIPMENT AND TECHNOLOGY
------------------------
7.1 The Publisher may from time to time request the Printer in writing to
install new equipment or modify its existing equipment either (i) to take
into account technological changes and changes in the practices of the
catalog printing industry or (ii) to print copies of the Catalogs other
than by the roto or web offset processes. The Publisher, at the time of
these requests, must provide the Printer with a preliminary forecast of the
volume affected by this new investment(s) including efforts, quantities,
and a projected time frame for implementation. As soon as practicable after
such request, the Printer shall notify the Publisher in writing whether or
not the requested addition or modification is technologically possible,
practical and whether or not such change can be effected. If the Printer
determines that such changes are feasible, the parties shall thereafter
negotiate in good faith 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 to enable Printer to recover the cost
of all capital expenditures necessary for such addition or modification. If
the Printer and the Publisher cannot agree on the requested modifications
or additions to equipment/and or pricing adjustments for the same and/or
volume and timing commitments for the same, the requested modifications
shall not be implemented. The Printers
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determination that such changes are not feasible will not constitute a
breach of this Agreement.
7.2 The Parties have separately agreed in writing upon certain capital
investments to be made by the Printer.
8. TERM AND TERMINATION
--------------------
8.1 The term of this agreement shall commence on 1st January 1997 and end upon
the completion of the Work for the first Drop Date following 31st December
2001.
8.2 The Printer and the Publisher reserve the right to check prevailing market
pricing in 1999. Unless otherwise agreed in writing by the parties, this
check will be performed via the solicitation of manufacturing proposals for
the entire 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 the Prices, both parties agree to
make appropriate and mutually agreed upon adjustments to the Prices to be
effective from 1st January 2000. If the parties hereto fail to reach
agreement within ninety (90) days of submission of the results of the market
pricing check referred to above by either party to the other, the issue
shall be submitted to arbitration, the rules and procedures of which shall
be mutually agreed upon by the parties.
8.3 Publisher may terminate this agreement upon the permanent discontinuance in
good faith of the Catalog Program (in all the Territory) without publication
of successor or similar catalogs, whether named Viking or not. Publisher
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 a trademark shall not be deemed a
continuation of publication.
8.4 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 pursuant
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to Paragraph 8.3 above, the Publisher shall also reimburse the Printer for
costs related to work in progress which it cannot reasonably avoid.
8.5 Termination of this agreement for whatever cause shall not affect any
rights of either party which have accrued due up to the date of such
termination.
9. FORCE MAJEURE
-------------
9.1 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 the Publisher shall accept and pay for all copies of the Catalogs that
have been printed for it before its written notice to the 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.
9.2 If the Printer notifies the Publisher 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 the Printer, the Publisher
may, at its option, purchase such materials and furnish them to the Printer
until such inability ceases. In such case, the Publisher shall be granted
an allowance equal to the cost of the materials supplied.
10. INDEMNITY
---------
10.1 Publisher shall indemnify and hold Printer harmless from and against any
and all claims for libel, infringement of any intellectual property rights
including without prejudice to that generality copyright and rights in the
nature of copyright, plagiarism,
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unauthorized additions, omissions, or modifications, and any other claims
that any rights have been infringed by the literary or art work included in
the Catalogs; provided that such claims are based upon matters which were
contained in the copy furnished to Printer by Publisher and are not based
on any unauthorized deletions, modifications or additions to such copy by
Printer.
10.2 Printer shall promptly notify Publisher of any and all claims referred to
in Clause 10.1 above in writing, and shall afford Publisher an opportunity
to defend the same for and on behalf of Printer. Publisher shall pay the
cost of such defense, whether it shall be conducted by Publisher or by
Printer at Publisher's request, provided that notice of suit and
opportunity to defend shall have been given as aforesaid. If Publisher
elects to defend such suit, Printer may participate in such defense at its
own expense.
10.3 Printer similarly shall indemnify and hold Publisher harmless from and
against all claims or suits for libel, infringement of any third party
intellectual property rights including without prejudice to that generality
copyright and rights in the nature of copyright, plagiarism, unauthorized
additions, omissions or modifications, and any other claims that any such
rights have been infringed as aforesaid, because of the failure by the
Printer or any of its employees accurately to reproduce the copy, art work
and illustrations furnished by Publisher subject to terms set out in Clause
10.2 above which shall apply mutatis mutandis.
11. CREDIT REVIEW
-------------
Should there be substantial adverse change in Publisher's credit standing
or in the event that Publisher 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.
12. INSOLVENCY
----------
Either party may terminate this agreement by notice in writing to the other
if the other party is unable to pay its debts as they ordinarily become due
or enters into
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compulsory or voluntary liquidation or bankruptcy (other than for the
purpose of effecting a solvent reconstruction or amalgamation in such a
manner that the company resulting from such solvent reconstruction or
amalgamation if a different legal entity shall agree to be bound by and
assume the obligations of the relevant party under this agreement) or
compounds with or convenes a meeting of its creditors or has a receiver,
manager, trustee, liquidator, administrative receiver or administrator
appointed over its assets or if it ceases for any reason to carry on
business or takes or suffers any similar action which in the reasonable
opinion of the party giving notice means that the other may be unable to
pay its debts.
13. INSURANCE
---------
The 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 work in progress and
paper supplied by the Printer or the Publisher under this agreement while
in the Printer's facilities, excluding the value of any materials furnished
by the Publisher (other than paper), and on all materials furnished by the
Printer (other than paper), to the earlier of the date of shipping or date
of invoicing. The Publisher shall carry such insurance as it deems
desirable on furnished positives, copy and other materials furnished by it
(other than paper), whether or not in process or completed, including the
balance of work performed in creating or producing such furnished items
and, as to the value of the Printer's work or materials furnished to the
Printer, on production completed which has been finally invoiced but not
shipped. To the extent that the Publisher carries such insurance, the
Publisher shall provide a waiver of subrogation in the Printer's favour on
materials furnished by the Publisher.
14. LIMITATION OF LIABILITY
-----------------------
14.1 The following provisions set out the Printer's entire liability to the
Publisher in respect of (a) any breach of its contractual obligations
arising under this contract; and (b) any representation, statement or
tortious act or omission including negligence arising under or in
connection with this contract (hereafter an "Event of Default"). Subject to
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Clause 15.4, the Printer shall only be liable to the Publisher in respect
of any Event of Default for loss (including loss or damage suffered by the
Publisher as a result of an action brought by a third party) where the
Publisher, first, (i) has served written notice of the Event of Default
upon the Printer within six (6) months of the date upon which the same has
occurred, and (ii) has afforded the Printer sixty (60) days to remedy such
Event of Default.
14.2 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.
14.3 Save as expressly contained herein, all warranties, conditions or
representations, express or implied, statutory or otherwise are hereby
expressly excluded.
14.4 Nothing in this agreement shall affect either party's liability to the
other for death or personal injury resulting from its own or that of its
employees' agents' or sub-contractors' negligence.
15. SALE OF PUBLICATION
-------------------
15.1 If Publisher proposes to sell the whole or any part of the Catalog
Program, or to sell all or any of its Affiliates (or the business and
assets of any such Affiliates), (or any agreement is entered into by any
of its Affiliates for the sale of all or any of its Affiliates (or the
business and assets of any such Affiliates) or if the Publisher proposes
to dispose of its business and assets or any part thereof, the Publisher
shall use its best efforts to notify and advise Printer in advance of any
such sale giving Printer details of the name or any prospective purchaser,
and the proposed date of any sale. Publisher shall keep Printer fully
advised of the progress of any such proposed sale and Printer shall keep
such information confidential. Publisher shall, in any event, procure
that, concurrently with the consummation of any such sale, the purchaser
shall enter into an agreement with Printer, in terms substantially the
same as those set out in this Agreement such terms to be satisfactory to
both Printer and Publisher, pursuant to which such purchaser shall agree
to purchase its entire printing requirements for any
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catalogs to be published by such purchaser and which catalogs prior to any
such sale would have formed part of the Catalog Program and so that such
purchaser shall assume all of Publishers obligations hereunder.
15.2 If Printer shall not consent to the assignment by Publisher to such
prospective purchaser or if terms satisfactory to Printer in accordance
with Clause 15.1 cannot be established, this agreement shall at the option
of the Printer terminate upon the first to occur of the following events:
(a) the consummation of any such sale as is referred to in Clause 15.1,
or
(b) the expiration of 180 days after Printer advises Publisher that
Printer will not consent to the proposed assignment or that
satisfactory terms cannot be agreed, unless within such 180 day
period the Publisher notifies the Printer that the Publisher does not
propose to consummate such sale.
16. LIEN ON PROPERTY
----------------
As security for payments of any sum due or to become due Printer under the
terms of this agreement, Printer shall have the right, if necessary, to
retain possession of and shall have a particular as well as a general lien
on all property owned by Publisher and in Printer's possession, and all
work in progress and undelivered Work.
17. REPRESENTATIVES
---------------
17.1 Publisher 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
employee reasonable access to its premises and personnel to facilitate
performance of such functions.
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17.2 The Printer shall pay transport costs (by business class or equivalent
standard) and accommodation for one of the Publisher's representatives to
visit the Printer's manufacturing facilities on up to six (6) visits per
calendar year.
18. ASSIGNMENT
----------
This agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns. Publishers may not
without the written consent of the Printer assign this agreement to any
party other than a party who has acquired or is acquiring the Catalog
Program (subject to Clause 15 above). No assignment of this agreement shall
be made by either party to anyone other than an Affiliate without consent of
the other party, which consent shall not be unreasonably withheld. In
determining reasonableness as provided 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
assignees shall in each case assume in writing all of the obligations of the
assignor.
19. GOVERNING LAW
-------------
This agreement shall be governed by and construed in accordance with the
laws of England and Wales applicable to contracts made and to be performed
therein, and each party hereto submits to the exclusive jurisdiction of the
Supreme Court of England and Wales.
20. NOTICES
-------
All notices, claims, requests, demands, invoices and other communications
hereunder will be in writing and will be deemed to have been duly given if
delivered personally or transmitted by telecopier as follows:-
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(a) If to Publisher:-
Attention: Rex Ciavola
Telecopy Number: 310-329-5017
With a copy to: Mark Muir
(b) If to Printer:-
Attention: J. Mellon
Telecopy Number: 013552 848376
with a copy to
Clive Bridges
The British Printing Company Limited
Park Street
Aylesbury
Buckinghamshire
HP20 1LB
Telecopy number: 01296 330162
21. 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.
22. ENTIRE AGREEMENT
----------------
This agreement, the Price Matrix and the other Schedules and documents
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 cannot be changed
or terminated orally.
23. CONFIDENTIALITY
---------------
23.1 Each party shall during the full term of this agreement and thereafter
keep secret and confidential all information disclosed to it by the other
party or otherwise belonging to the other party (and shall procure that
its agents and/or employees are similarly bound) and shall not disclose
the same to any person save to the extent necessary to
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the proper performance of its obligation in accordance with the terms of
this agreement and save as expressly authorized in writing to be disclosed
by the other party. For the avoidance of doubt and without prejudice to the
foregoing, the terms and conditions of this Agreement and all production
information relating to the Catalog Program is confidential information.
23.2 The obligation of confidentiality contained in Clause 23.1 shall not apply
or (as the case may be) shall cease to apply to information which:
(a) at the time of its disclosure by the disclosing party is already in
the public domain or which subsequently enters the public domain other
than by breach of the terms of this agreement by the receiving party;
(b) is already known to the receiving party (as evidenced by written
records) at the time of its disclosure by the disclosing party and was
not otherwise acquired by the receiving party from the disclosing
party under any obligations of confidence;
(c) is at any time after the date of this agreement acquired by the
receiving party from a third party having the right to disclose the
same to the receiving party without breach of obligation owed by that
third party to the disclosing party; or
(d) is required to be disclosed by applicable law or order of a court of
competent jurisdiction or government department or agency, provided
that prior to such disclosure the receiving party shall advise the
disclosing party of the proposed form of the disclosure.
24. WAIVER
------
The failure of a party to insist in any one or more instances upon the
performance of any provisions of this agreement shall not be construed as a
waiver or relinquishment
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of that party's rights to future performance of such provision and the
other party's obligation in respect of such future performance shall
continue in full force and effect.
25. SEVERABILITY
------------
25.1 If Clause 2.1 of this agreement becomes void or unenforceable as a result
of any decision, opinion or finding of any court or regulatory body of
competent jurisdiction, each of the Printer and the Publisher shall at
their sole discretion have the option to terminate by notice in writing to
the other.
25.2 Insofar as any part or provision of this agreement other than Clause 2.1 is
or becomes void or unenforceable it shall be deemed not to be or never to
have been or formed a part of this agreement and the remaining provisions
of this agreement shall continue in full force and effect. The parties
shall meet to discuss the void or unenforceable provisions and shall
negotiate in good faith to substitute therefor a lawful and enforceable
provision which so far as possible results in the same economic effects.
26. NO JOINT VENTURE OR PARTNERSHIP
-------------------------------
Nothing in this agreement shall create a partnership or joint venture
between the parties hereto and save as expressly provided in this agreement
neither party shall enter into or have authority to enter into any
engagement or make any representation or warranty on behalf of or pledge
the credit of or otherwise bind or oblige the other party hereto.
27. EXECUTION
---------
Each party warrants to the other party hereto that the signatories hereto
for and on behalf of that party are authorized and fully empowered to
execute this agreement on that party's behalf.
-21-
<PAGE>
IN WITNESS WHEREOF the parties have caused this agreement to be executed as of
the day and year first above written.
-22-
<PAGE>
SCHEDULE A
----------
THE TERRITORY
-------------
United Kingdom
Belgium
France
Netherlands
Ireland
Luxembourg
Denmark
Finland
Norway
Sweden
Germany
Italy
Austria
Czech Republic
Switzerland
Poland
Hungary
Spain
<PAGE>
SCHEDULE B
----------
PAPER SUPPLY PROCEDURES
-----------------------
1. CONTROL PROCEDURES
------------------
All deliveries to the Printer will be arranged via a representative of the
Printer as notified by the Printer to the Publisher in writing from time to
time (the "Printer's Representative") who will discuss and agree tonnage's,
reel sizes, delivery requirements and designate which Printer's plant will
receive the stock.
The Printer will communicate directly with merchants and/or mills to ensure
timely delivery and will keep the Publisher informed of any possible
problems.
Upon receipt of stock the Printer will verify safe delivery or document
faulty reels. Tonnages received will be noted and cross checked against
supplier consignment note.
A weekly paper statement, split out grade by grade, will be published to
provide the Publisher with sufficient detail to track stock receipts.
Paper usage will be documented on the catalog first invoice, this usage will
show contractual requirements. Actual consumption will then be provided upon
completion of the said catalogue.
A paper inventory will be kept as a running total grade by grade to
accommodate stock surpluses and to show stock deficits produced by over-under
consumption. The deficits/surpluses could come from genuine over/under
consumption or through changes to the forecasted paginations or quantities.
-24-
<PAGE>
2. COMMUNICATION
-------------
All communications relating to the supply of paper shall be handled by the
Printer's Representative from the Printer's premises in East Kilbridge.
Calculations for expected stock usage and timings for stock deliveries will
be presented on the Last Date of Change Form and Paper Order Verification
Form.
The Printer's Representative will handle all documentation and communications
necessary to ensure all the Printer's Plants are kept fully informed of paper
receipts, quantities and print dates.
-25-
<PAGE>
for and on behalf of
Viking Office Products Inc.
Mr. Irwin Helford /s/ Irwin Helford Date 31 October 1996
Mr. Mark Muir /s/ Mark Muir Date 31 October 1996
Mr. Rex Ciavola /s/ Rex Ciavola Date 31 October 1996
for and on behalf of
BPC Catalogues Limited
Mr. Chris Bramley /s/ Chris Bramley Date 31 October 1996
Mr. Jim Mellon /s/ Jim Mellon Date 31 October 1996
-26-
<PAGE>
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
July 1, 1997, by and between VIKING OFFICE PRODUCTS, INC. ("Employer"), a
California corporation, and IRWIN HELFORD ("Employee"), with reference to the
following facts:
A. Employee has been employed by Employer as its Chairman, Chief
Executive Officer and (until January 1996) President under an employment
agreement dated as of June 30, 1993, as amended (the "Prior Agreement"), with a
term expiring on or about June 30, 1998, except as otherwise provided therein.
B. Employer desires to assure itself of the continued services of
Employee for a term expiring no sooner than June 30, 2002, and the parties are
entering into this Agreement for that purpose and in order to set forth the
terms of the employment of Employee to take effect on July 1, 1997.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth herein, the parties agree as follows:
1. Term of Employment.
------------------
Employer hereby continues the employment of Employee, and Employee
hereby accepts continued employment with Employer, for a period commencing on
July 1, 1997, and, except as otherwise provided herein, expiring June 30, 2002,
provided, however, that, each time neither party terminates this Agreement by
written notice given at least sixty (60) days prior to the expiration of the
employment term as last renewed or extended, it shall be automatically renewed
for an additional twelve month period. As used herein, the phrase "employment
term" refers to the entire period that Employee shall be employed hereunder,
whether for the initial period provided above, or whether this Agreement is
terminated earlier or extended automatically as provided herein or by mutual
agreement between Employer and Employee.
2. Duties of Employee.
------------------
2.1 Employee shall serve as Chairman and Chief Executive Officer of
Employer or in such other capacity as may be agreed upon by Employee and
Employer's Board of Directors (the "Board"). He shall do and perform all
services, acts and things necessary or advisable to manage and conduct the
business of Employer, subject to the instructions of and policies and
limitations set by the Board.
2.2 Employee shall devote his entire productive time, ability and
attention to the business of Employer during the employment term. Employee
shall not directly or indirectly render any services of a business, commercial
or professional nature to any other person or organization, whether for
compensation or otherwise, without the prior written consent of the Board.
<PAGE>
2.3 Employee agrees to serve without additional compensation, if
elected or appointed thereto, in one or more offices as an officer, director or
member of any committee of the board of directors of Employer or of any direct
or indirect subsidiary of Employer.
2.4 Employee acknowledges and agrees that his services to Employer
are of a special, unique and extraordinary character and further acknowledges
and agrees that a breach of any of the covenants or agreements contained in this
Agreement (including but not limited to Paragraphs 2 and 9 hereof) is likely to
result in irreparable and continuing damage to Employer for which there will be
no adequate remedy at law. Accordingly, in the event of such breach Employer
shall be entitled to injunctive relief and/or a decree for specific performance,
and such other and further relief as may be proper (including monetary damages
if appropriate).
3. Compensation of Employee.
------------------------
3.1 As compensation for his services hereunder, Employee shall
receive a salary of $800,000.00 per annum, payable in equal weekly installments
during the employment term. The Board or Employer's Compensation Committee (the
"Compensation Committee") will review Employee's salary annually, and, in its
sole discretion, may increase such salary.
3.2 For the fiscal year of Employer ended on or about June 27, 1997,
and for each fiscal year of Employer ending during or on the last day of the
employment term, Employer shall pay to Employee, in addition to his salary, such
bonus, if any (the "Plan Bonus"), as is determined in accordance with the Chief
Executive Officer Performance Based Bonus Plan, as amended from time to time
(the "Plan"), provided, however, that the Plan Bonus for Employer's fiscal year
ended on or about June 27, 1997, shall be determined in accordance with the Plan
as in effect on the date of this Agreement. Nothing herein is intended to limit
the Compensation Committee's discretion or exercise thereof as provided in the
Plan.
3.3 Employer shall pay to Employee such additional bonuses and
compensation, if any, as may be determined by the Board or Compensation
Committee, in its sole discretion.
4. Employee Benefits.
-----------------
4.1 Employee shall be entitled to participate in and receive benefits
under all profit-sharing plans, pension plans, group medical plans and other
plans for payment of additional compensation or benefits to employees of
Employer which Employer at any time maintains for executive employees.
4.2 Employer shall pay to Employee a non-accountable automobile
expense allowance in the amount of $2,600.00 per month.
4.3 Employer will continue in effect a term life insurance policy on
the life of Employee in the face amount of $500,000.00, payable to a beneficiary
or beneficiaries designated by Employee, and will pay all premiums on the policy
during the employment term. Notwithstanding anything hereinabove to the
contrary, in the event that Employee should at any time become uninsurable at
standard rates for term life insurance, Employer's obligation under this
paragraph shall cease unless Employee elects to pay any excess above such
standard rates.
-2-
<PAGE>
5. Business Expenses.
-----------------
Employee is authorized to incur reasonable expenses for promoting and
conducting the business of Employer, including expenditures for entertainment
and travel. Employer shall reimburse Employee monthly for all such business
expenses upon presentation of reasonable documentation establishing the amount,
date, place and essential character of the expenditures.
6. Disability.
----------
6.1 If Employee becomes "disabled," as defined herein, he shall be
entitled to compensation as provided in this Agreement until the total period of
disability shall equal an aggregate of six months during any period of twelve
consecutive months. Employee shall not be entitled to compensation for any
subsequent periods of disability during said twelve month period. If the period
for which Employee is disabled exceeds six consecutive months or exceeds nine
months in any period of twelve consecutive months, Employer shall have the
option to terminate this Agreement effective immediately by giving written
notice of termination to Employee within a reasonable time after such option
arises as provided in this sentence. The terms "disabled" and "disability"
shall mean the material impairment of Employee's ability to perform his duties
under this Agreement with reasonable accommodation by reason of sickness,
physical or mental incapacity, or any similar cause.
6.2 In the event of the termination of this Agreement pursuant to the
provisions of Paragraph 6.1 above, Employee shall be entitled to compensation
earned by him prior to the date of termination as provided for in this Agreement
computed prorata up to and including that date; but he shall not be entitled to
compensation after the date of termination.
7. Termination of Employment.
-------------------------
7.1 Notwithstanding anything hereinabove to the contrary, Employer,
at its option, may terminate this Agreement and Employee's employment hereunder
for cause (as hereinafter defined) by giving written notice of termination to
Employee, which notice shall be effective upon delivery. As used herein, the
term "for cause" shall be limited to the following:
7.1.1 Employee's willful failure or habitual neglect to
perform his duties as set forth in Paragraph 2 of this Agreement, of this
Agreement; or
7.1.2 Employee's engaging in any activity or conduct which
is specifically precluded by this Agreement, including any activity competitive
with or intentionally injurious to Employer; or
7.1.3 Conviction of Employee of a major felony (whether or
not committed in the course of his employment) from which no successful appeal
has been made; or
7.1.4 Employee's committing any act of dishonesty against
Employer or using or appropriating for his personal use or benefit any funds or
properties of Employer, unless such use or appropriation was specifically
authorized by the Board.
-3-
<PAGE>
7.2 This Agreement shall not be terminated by any merger or
consolidation where Employer is not the consolidated or surviving corporation or
by any transfer of all or substantially all of the assets of Employer. In the
event of any such merger or consolidation or transfer of assets, the surviving
or resulting corporation or the transferee of the assets of Employer shall be
bound by and shall have the benefit of the provisions of this Agreement; and
Employer shall take all actions necessary to ensure that such corporation or
transferee is bound by the provisions of this Agreement.
7.3 If, prior to a "Change in Control," as defined in the Change in
Control Agreement described in Paragraph 8.1, Employer should breach this
Agreement by terminating the employment of Employee prior to the expiration of
the employment period as last extended or renewed, other than "for cause," as
defined in Paragraph 7.1 hereof, Employee shall have the right to continue to
receive his salary, Plan Bonus and automobile allowance as they become due, to
the extent salary, Plan Bonus and automobile allowance would have accrued
(whenever payable in accordance with Paragraphs 3.1, 3.2 and 4.2) to and
including the expiration of the employment term as last extended or renewed, and
Employee shall be under no obligation to seek other employment in order to
mitigate damages; in addition, Employee shall be entitled to recover additional
damages, if any, suffered by him as a result of such breach, provided however,
that, in the event Employee shall actually obtain other employment in the direct
mail office products business prior to the expiration of the employment term as
last extended or renewed, all compensation received by him from such employment
shall reduce Employer's liability to Employee hereunder. Subject to the
provisions of Paragraph 8.2, Paragraph 8 and not this Paragraph 7.3, shall
govern Employee's rights on termination of his employment after a Change in
Control.
7.4 Upon termination of this Agreement for any reason whatsoever,
Employee shall return to Employer all automobiles, equipment, books, records,
customer lists, catalogs, invoices, correspondence and other property which was
acquired from or otherwise belongs to Employer, including any property or
documentation developed by Employee in the course of his employment.
8. Change in Control Provisions.
----------------------------
8.1 On or about May 12, 1997, Employer and Employee entered into a
letter agreement (the "Change in Control Agreement") to provide for the payment
to Employee of certain severance payments under certain circumstances if the
employment of Employee with Employer were to terminate following a "Change in
Control" (which term, as used herein, shall have the same meaning as in the
Change in Control Agreement). Except as provided in Paragraph 8.2, the
provisions of the Change in Control Agreement shall govern the payments to which
Employee is entitled by reason of termination of his employment following a
Change in Control.
8.2 The foregoing notwithstanding, if Employee is in the employ of
Employer when a Change in Control occurs, and the employment of Employee is
terminated by Employer thereafter in breach of this Agreement, Employee shall
have the right, at his irrevocable election, (a) to waive all of his rights
under the Change in Control Agreement and retain all of his rights under this
Agreement or (b) to waive all of his rights under this Agreement and retain his
rights under the Change in Control Agreement. If Employee has not notified
Employer in writing
-4-
<PAGE>
within ten days after termination of his employment by Employer that he elects
to waive his rights under the Change in Control Agreement, he shall be deemed
irrevocably to have elected clause (b), i.e., to waive his rights under this
Agreement and retain his rights under the Change in Control Agreement.
9. Proprietary Information and Non-Competition.
-------------------------------------------
9.1 Employee recognizes and acknowledges that the performance of his
services hereunder will necessarily result in disclosure to him of certain trade
secrets and confidential information, including source of supply information,
sales information, customer lists, customer information and pricing, all of
which are special and unique assets and trade secrets of Employer's business.
For the purpose of this Agreement, such information shall be referred to and is
acknowledged as "proprietary information of the Employer."
In view of the foregoing, Employee agrees that:
9.1.1 During and after the employment term, Employee will not
disclose or use any proprietary information of Employer, except for the purpose
of carrying out his duties hereunder, unless such use or disclosure is
specifically consented to in writing by Employer.
9.1.2 For the period of two years after the employment term,
Employee will not in any way, directly or indirectly, for himself or on behalf
of any other person or entity, associate in business as an employer, employee or
otherwise, with any employee, officer or agent of Employer until such person has
terminated with Employer for a period of two years.
9.1.3 During the employment term and thereafter, Employee
will not, directly or indirectly, for himself or on behalf of any other person
or entity, induce or attempt to induce any of Employer's personnel to terminate
their relationship with Employer, nor will Employee induce or attempt to induce
any of Employer's personnel to do anything contrary to the best interests of
Employer.
9.2 Concurrently with the execution and delivery of this Agreement,
Employer and Employee have executed and delivered an exclusive license (the
"License") whereby Employee irrevocably granted to Employer, in consideration of
this Agreement, the exclusive right, in perpetuity, without payment of any
royalty or license fee, and regardless of the continuation or termination of
this Agreement, to use his name and likeness in catalogs, advertising and other
materials.
10. General Provisions.
------------------
10.1 Any notices to be given hereunder by either party to the other
may be effected either by personal delivery in writing or by mail, registered or
certified, return receipt requested, postage prepaid. Mailed notices shall be
addressed to the parties at the addresses appearing next to their respective
signatures below and shall be deemed effective 24 hours after being deposited in
the U.S. mails, postage prepaid and property addressed. Each party may change
its address by written notice in accordance with this paragraph.
-5-
<PAGE>
10.2 Effective July 1, 1997, this Agreement supersedes the Prior
Agreement. Any modification of this Agreement will be effective only if it is
in writing signed by the party to be charged.
10.3 Any paragraph, sentence, phrase, or other provision of this
Agreement which is in conflict with any applicable statute, rule, or other law
shall be deemed, if possible, to be modified or altered to conform thereto or,
if not possible, to be omitted from this Agreement. The invalidity of any
portion hereof shall not affect the force or effect of the remaining portions
hereof.
10.4 Employee acknowledges that in the negotiations relating to this
Agreement, he was advised by independent legal counsel of his own choosing. In
any litigation relating to this Agreement the prevailing party shall be entitled
to recover its costs and reasonable attorneys' fees.
10.5 This Agreement shall be governed by and construed in accordance
with the laws of the State of California, and the Courts of Los Angeles County
shall be the only proper forum for disputes hereunder.
10.6 The rights and obligations of Employer under this Agreement
shall enure to the benefit of and shall be binding on the successors and assigns
of Employer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
VIKING OFFICE PRODUCTS, INC. Address:
879 West 190th Street
Suite 1100
By: Gardena, CA 90248
---------------------------------
M. Bruce Nelson, President
EMPLOYEE Address:
27 Crest Road West
Rolling Hills, CA 90274
- ------------------------------------
Irwin Helford
-6-
<PAGE>
EXHIBIT 10.27
VIKING OFFICE PRODUCTS, INC.
1997 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. This Viking Office Products, Inc., 1997 Incentive Stock
-------
Option Plan (the "Plan") is intended to allow designated employees, executive
officers and other corporate and divisional officers (all of whom are sometimes
collectively referred to herein as "Employees") of Viking Office Products, Inc.,
a California corporation ("Viking"), and Subsidiaries which it may have from
time to time (Viking and such Subsidiaries being together referred to herein as
the "Company") to receive certain options under the Plan ("Stock Options") to
purchase Viking's common stock ("Common Stock") as herein provided.
"Subsidiary" shall mean each corporation which is a "subsidiary corporation" of
Viking, within the definition contained in Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code"). The purpose of the Plan is to
provide Employees with additional incentives to make significant and
extraordinary contributions to the long-term perfor mance and growth of the
Company and to attract and retain Employees of exceptional ability.
2. ADMINISTRATION.
--------------
2.1 The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors of Viking (the "Board"). Each member
of the Committee shall be a "Non-Employee Director" as that term is defined in
Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"), but no action of the Committee shall be invalid if this
requirement is not met. The Committee shall select one of its members as
Chairman and shall act by vote of a majority of a quorum or by unanimous written
consent. A majority of its members shall constitute a quorum. The Committee
shall be governed by the provisions of Viking's Bylaws and of California law
applicable to the Board, except as otherwise provided herein or determined by
the Board.
2.2 The Committee shall have full and complete authority, in its
discretion, but subject to the express provisions of the Plan: to approve the
Employees nominated by the management of the Company to be granted Stock
Options; to determine the number of Stock Options to be granted to an Employee;
to determine the time or times at which Stock Options shall be granted; to
establish the terms and conditions upon which Stock Options may be exercised; to
remove or adjust any restrictions and conditions upon Stock Options; to specify,
at the time of grant, provisions relating to the exercisability of Stock Options
and to accelerate or otherwise modify the exercisability of any Stock Options;
to reprice Stock Options; and to adopt such rules and regulations and to make
all other determinations deemed necessary or desirable for the administration of
the Plan. All interpretations and constructions of the Plan by the Committee,
and all of its actions hereunder, shall be binding and conclusive on all persons
for all purposes.
2.3 The Company hereby agrees to indemnify and hold harmless each
Committee member and each employee of the Company, and the estate and heirs of
such Committee member or employee, against all claims, liabilities, expenses,
penalties, damages or other pecuniary losses, including legal fees, which such
Committee member or employee or his or her estate or heirs may suffer as a
result of his or her responsibilities, obligations or duties in connection with
the Plan, to the extent that insurance, if any, does not cover the payment of
such items.
<PAGE>
3. ELIGIBILITY AND PARTICIPATION. Employees eligible under the Plan
-----------------------------
shall be approved by the Committee from those Employees who, in the opinion of
the management of the Company, are in positions which enable them to make
significant and extraordinary contributions to the long-term performance and
growth of the Company. In selecting Employees to whom Stock Options may be
granted, consideration shall be given to factors such as employment position,
duties and respon sibilities, ability, productivity, length of service, morale,
interest in the Company and recommendations of supervisors.
4. GRANTS. The Committee may grant Stock Options in such amounts, at
------
such times, and to such Employees nominated by the management of the Company as
the Committee, in its discretion, may determine; provided, however, that,
subject to adjustment as provided in paragraph 11, the maximum number of shares
of Common Stock for which Stock Options may be granted to any one Employee
during any one calendar year shall be 200,000. Stock Options granted under the
Plan shall constitute "incentive stock options" within the meaning of Section
422 of the Code, if so designated by the Committee on the date of grant. The
Committee shall also have the discretion to grant Stock Options which do not
constitute incentive stock options and any such Stock Options shall be
designated non-statutory stock options by the Committee on the date of grant.
The aggregate fair market value (determined as of the time an incentive stock
option is granted) of the Common Stock with respect to which incentive stock
options are exercisable for the first time by any Employee during any one
calendar year (under all plans of the Company and any parent or sub sidiary of
the Company) may not exceed the maximum amount permitted under Section 422 of
the Code (currently $100,000.00). Non-statutory stock options shall not be
subject to the limitations relating to incentive stock options contained in the
preceding sentence. Subject to the provisions of paragraph 11 hereof, the
number of shares of Common Stock issued and issuable pursuant to the exercise of
Stock Options granted hereunder shall not exceed 5,000,000; provided, however,
that on the last business day of each fiscal year of the Company, commencing
with the last business day of the fiscal year ending June 26, 1998, such maximum
number shall be increased by a number equal to 1.30% of the number of shares of
Common Stock issued and outstanding on the close of business on such day;
provided, further, that in no event shall the aggregate number of shares issued
and issuable pursuant to the exercise of Stock Options granted hereunder exceed
10,000,000. Each Stock Option shall be evidenced by a written agreement (the
"Option Agreement") in a form approved by the Committee, which shall be executed
on behalf of the Company and by the Employee to whom the Stock Option is
granted. If a Stock Option expires, terminates or is cancelled for any reason
without having been exercised in full, the shares of Common Stock not purchased
thereunder shall again be available for purposes of the Plan.
5. PURCHASE PRICE. The purchase price (the "Exercise Price") of
--------------
shares of Common Stock subject to each Stock Option ("Option Shares") shall
equal the fair market value ("Fair Market Value") of such shares on the date of
grant of such Stock Option. Notwithstanding the foregoing, the Exercise Price
of Option Shares subject to an incentive stock option granted to an Employee who
at the time of grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any parent or
Subsidiary shall be at least equal to 110% of the Fair Market Value of such
shares on the date of grant of such Stock Option. The Fair Market Value of a
share of Common Stock on any date shall be equal to the closing price of the
Common Stock for the last preceding day on which Viking's shares were traded,
and the method for determining the closing price shall be determined by the
Committee.
2
<PAGE>
6. OPTION PERIOD. The Stock Option period (the "Term") shall
-------------
commence on the date of grant of the Stock Option and shall be ten years or such
shorter period as is determined by the Committee. Notwithstanding the
foregoing, the Term of an incentive stock option granted to an Employee who at
the time of grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any parent or
subsidiary shall not exceed five years. Each Stock Option shall provide that it
is exercisable over its term in such periodic installments as the Committee in
its sole discretion may determine. Such provisions need not be uniform. If an
Employee shall not in any period purchase all of the Option Shares which the
Employee is entitled to purchase in such period, the Employee may purchase all
or any part of such Option Shares at any time prior to the expiration of the
Stock Option.
7. EXERCISE OF OPTIONS.
-------------------
7.1 Each Stock Option may be exercised in whole or in part (but
not as to fractional shares) by delivering it for surrender or endorsement to
the Company, attention of the Vice President, Administration, at the principal
office of the Company, together with payment of the Exercise Price and an
executed Notice and Agreement of Exercise in the form prescribed by paragraph
7.2. Payment may be made in cash, by cashier's or certified check or by
surrender of previously owned shares of the Company's Common Stock valued
pursuant to paragraph 5 (if the Committee authorizes payment in stock).
7.2 Exercise of each Stock Option is conditioned upon the
agreement of the Employee to the terms and conditions of this Plan and of such
Stock Option as evidenced by the Employee's execution and delivery of a Notice
and Agreement of Exercise in a form to be determined by the Committee in its
discretion. Such Notice and Agreement of Exercise shall set forth the agreement
of the Employee that: (a) no Option Shares will be sold or otherwise distributed
in violation of the Securities Act of 1933 (the "Securities Act") or any other
applicable federal or state securities laws, (b) each Option Share certificate
may be imprinted with legends reflecting any applicable federal and state
securities law restrictions and conditions, (c) the Company may comply with said
securities law restrictions and issue "stop transfer" instructions to its
Transfer Agent and Registrar without liability, (d) if the Employee is subject
to the reporting requirements of Section 16(a) of the Exchange Act (a "Section
16 Reporting Person"), the Employee will furnish to the Company a copy of each
Form 4 or Form 5 filed by said Employee and will timely file all reports
required under federal securities laws, and (e) the Employee will report all
sales of Option Shares to the Company in writing on a form prescribed by the
Company.
7.3 No Stock Option shall be exercisable unless and until any
applicable registration or qualification requirements of federal and state
securities laws, and all other legal requirements, have been fully complied
with. The Company will use reasonable efforts to maintain the effectiveness of a
Registration Statement under the Securities Act for the issuance of Stock
Options and shares acquired thereunder, but there may be times when no such
Registration State ment will be currently effective. The exercise of Stock
Options may be temporarily suspended without liability to the Company during
times when no such Registration Statement is currently effective, or during
times when, in the reasonable opinion of the Committee, such suspension is neces
sary to preclude violation of any requirements of applicable law or regulatory
bodies having jurisdiction over the Company. If any Stock Option would expire
for any reason except the end of its term during such a suspension, then, if the
exercise of such Stock Option is duly tendered before its expiration, such Stock
Option shall be exercisable and exercised (unless the attempted exercise is
3
<PAGE>
withdrawn) as of the first day after the end of such suspension. The Company
shall have no obligation to file any Registration Statement covering resales of
Option Shares.
8. CONTINUOUS EMPLOYMENT. Except as provided in paragraph 10 below,
---------------------
an Employee may not exercise a Stock Option unless from the date of grant to the
date of exercise such Employee remains continuously in the employ of the
Company. For purposes of this paragraph 8, the period of continuous employment
of an Employee with the Company shall be deemed to include (without extending
the term of the Stock Option) any period during which such Employee is on leave
of absence with the consent of the Company, provided that such leave of absence
shall not exceed three (3) months and that such Employee returns to the employ
of the Company at the expiration of such leave of absence. If such Employee
fails to return to the employ of the Company at the expiration of such leave of
absence, such Employee's employment with the Company shall be deemed terminated
as of the date such leave of absence commenced. The continuous employment of an
Employee with the Company shall also be deemed to include any period during
which such Employee is a member of the Armed Forces of the United States,
provided that such Employee returns to the employ of the Company within ninety
(90) days (or such longer period as may be prescribed by law) from the date such
Employee first becomes entitled to discharge. If an Employee does not return to
the employ of the Company within ninety (90) days (or such longer period as may
be prescribed by law) from the date such Employee first becomes entitled to
discharge, such Employee's employment with the Company shall be deemed to have
terminated as of the date such Employee's military service ended.
9. RESTRICTIONS ON TRANSFER. Incentive stock options granted under
------------------------
this Plan shall be transferable only by will or the laws of descent and
distribution. The Committee shall have discretion to grant non-statutory stock
options that are not subject to the restrictions on transfer relating to
incentive stock options contained in the preceding sentence; provided, however,
that non-statutory stock options granted to a Section 16 Reporting Person shall
be subject to such restrictions on transfer as may be required to qualify for
the exemption provided for in Rule 16b-3 or otherwise imposed by the Committee
in its sole and absolute discretion. No interest of any Employee under the Plan
shall be subject to attachment, execution, garnishment, sequestration, the laws
of bankruptcy or any other legal or equitable process. Each Stock Option shall
be exercisable during an Employee's lifetime only by such Employee and, in the
case of non-statutory stock options, such Employee's permitted transferees.
10. TERMINATION OF EMPLOYMENT.
-------------------------
10.1 Subject to the discretion of the Committee with respect to
non-statutory Stock Options, upon termination of an Employee's employment with
the Company by reason of death, all outstanding Stock Options to the extent
exercisable on the date of death of the Employee shall remain in full force and
effect and may be exercised pursuant to the provisions thereof at any time prior
to expiration at the end of the fixed term thereof. Upon termination of an
Employee's employment with the Company by reason of Disability, all outstanding
Stock Options to the extent exercisable on the date of termination of employment
may be exercised pursuant to the provisions thereof at any time until the
earlier of the end of the fixed term thereof and the expiration of twelve months
following termination of the Employee's employment. Unless otherwise provided by
the Committee, all Stock Options to the extent not presently exercisable by such
Employee at the date of death or termination of employment by reason of
Disability shall terminate as of the date of death or such termination of
employment and shall not be exercisable thereafter.
4
<PAGE>
10.2 Subject to the discretion of the Committee with respect to
non-statutory Stock Options, upon the termination of the Employee's employment
with the Company for any reason other than the reasons set forth in paragraph
10.1 hereof, the Stock Option may be exercised during the period of three months
following the date of such termination of employment, but only to the extent
that such Stock Option was outstanding and exercisable on such date of
termination of employment. Unless otherwise provided by the Committee, all Stock
Options to the extent not then presently exercisable by such Employee shall
terminate as of the date of such termination of employment and shall not be
exercisable thereafter.
10.3 For purposes of this Plan, "Disability" shall mean total
and permanent incapacity of an Employee, due to physical impairment or legally
established mental incompetence, to perform the usual duties of such Employee's
employment with the Company, which disability shall be determined: (i) on
medical evidence by a licensed physician designated by the Committee, or (ii) on
evidence that the Employee has become entitled to receive primary benefits as a
disabled employee under the Social Security Act in effect on the date of such
disability.
11. ADJUSTMENTS UPON CHANGE IN CAPITALIZATION.
-----------------------------------------
11.1 The number and class of shares subject to each outstanding
Stock Option, the Exercise Price thereof (but not the total price) and the
maximum number of Stock Options that may be granted under the Plan shall be
proportionately adjusted in the event of any increase or decrease in the number
of the issued shares of Common Stock which results from a split-up or
consolidation of shares, payment of a stock dividend or dividends exceeding a
total of two and one-half percent (2.5%) for which the record dates occur in any
one fiscal year, a recapitalization (other than the conversion of convertible
securities according to their terms), a combination of shares or other like
capital adjustment, so that upon exercise of the Stock Option, the Employee
shall receive the number and class of shares such Employee would have received
had such Employee been the holder of the number of shares of Common Stock for
which the Stock Option is being exercised upon the date of such change or
increase or decrease in the number of issued shares of the Company.
11.2 Upon a reorganization, merger or consolidation of the
Company with one or more corporations as a result of which Viking is not the
surviving corporation or in which Viking survives as a wholly-owned subsidiary
of another corporation, or upon a sale of all or substantially all of the
property of the Company to another corporation, or any dividend or distribution
to shareholders of more than ten percent (10%) of the Company's assets, adequate
adjustment or other provisions shall be made by the Company or other party to
such transaction so that there shall remain and/or be substituted for the Option
Shares provided for herein, the shares, securities or assets which would have
been issuable or payable in respect of or in exchange for such Option Shares
then remaining, as if the Employee had been the owner of such Option Shares as
of the applicable date. Any securities so substituted shall be subject to
similar successive adjustments.
11.3 In the sole discretion of the Committee, Stock Options may
include provisions, on terms (which need not be uniform) authorized by the
Committee in its sole discretion, that accelerate the Employees' rights to
exercise Stock Options upon a "Change in Control" (as defined by the Committee
in its sole discretion) of the Company.
12. WITHHOLDING TAXES. The Company shall have the right at the time
-----------------
of exercise of any Stock Option to make adequate provision for any federal,
state, local or foreign taxes which it
5
<PAGE>
believes are or may be required by law to be withheld with respect to such
exercise ("Tax Liability"), to ensure the payment of any such Tax Liability.
The Company may provide for the payment of any Tax Liability by any of the
following means or a combination of such means, as determined by the Committee
in its sole and absolute discretion in the particular case: (i) by requiring
the Employee to tender a cash payment to the Company, (ii) by withholding from
the Employee's salary, (iii) by withholding from the Option Shares which would
otherwise be issuable upon exercise of the Stock Option that number of Option
Shares having an aggregate fair market value (determined in the manner
prescribed by paragraph 5) as of the date the withholding tax obligation arises
that is equal to the Employee's Tax Liability or (iv) by any other method deemed
appropriate by the Committee. Satisfaction of the Tax Liability of a Section 16
Reporting Person may be made by the method of payment specified in clause (iii)
above upon satisfaction of such additional conditions as the Committee shall
deem in its sole and absolute discretion as appropriate in order for such
withholding of Option Shares to qualify for the exemption provided for in
Section 16b-3 of the Exchange Act.
13. RELATIONSHIP TO OTHER EMPLOYEE BENEFIT PLANS. Stock Options
--------------------------------------------
granted hereunder shall not be deemed to be salary or other compensation to any
Employee for purposes of any pension, thrift, profit-sharing, stock purchase or
any other employee benefit plan now maintained or hereafter adopted by the
Company.
14. AMENDMENTS AND TERMINATION. The Board of Directors may at any
--------------------------
time suspend, amend or terminate this Plan. No amendment or modification of
this Plan may be adopted, except subject to shareholder approval, which would
materially increase the number of securities which may be issued under this Plan
(except for adjustments pursuant to paragraph 11 hereof) or change the
designation of Employees eligible to receive incentive stock options under the
Plan.
15. SUCCESSORS IN INTEREST. The provisions of this Plan and the
----------------------
actions of the Committee shall be binding upon all heirs, successors and assigns
of the Company and of Employees.
16. OTHER DOCUMENTS. All documents prepared, executed or delivered
---------------
in connection with this Plan shall be, in substance and form, as established and
modified by the Committee or by persons under its direction and supervision;
provided, however, that all such documents shall be subject in every respect to
the provisions of this Plan, and in the event of any conflict between the terms
of any such document and this Plan, the provisions of this Plan shall prevail.
All Stock Options shall be evidenced by written agreements executed by the
Company and the Employees to whom the Stock Options have been granted.
17. NO OBLIGATION TO CONTINUE EMPLOYMENT. This Plan and grants
------------------------------------
hereunder shall not impose any obligation on the Company to continue to employ
any Employee. Moreover, no provision of this Plan or any document executed or
delivered pursuant to this Plan shall be deemed modified in any way by any
employment contract between an Employee (or other employee) and the Company.
18. MISCONDUCT OF AN EMPLOYEE. Notwithstanding any other provision
-------------------------
of this Plan, if an Employee commits fraud or dishonesty toward the Company or
wrongfully uses or discloses any trade secret, confidential data or other
information proprietary to the Company, or intentionally takes any other action
materially inimical to the best interests of the Company, as determined by the
Committee, in its sole and absolute discretion, such Employee shall forfeit all
rights and benefits under this Plan.
6
<PAGE>
19. TERM OF PLAN. This Plan was adopted by the Board effective July
------------
10, 1997. No Stock Options may be granted under this Plan after July 9, 2007.
20. GOVERNING LAW. This Plan shall be construed in accordance with,
-------------
and governed by, the laws of the State of California.
21. SHAREHOLDER APPROVAL. No Stock Option shall be exercisable
--------------------
unless and until the shareholders of the Company have approved this Plan and all
other legal requirements have been fully complied with.
22. PRIVILEGES OF STOCK OWNERSHIP. The holder of a Stock Option
-----------------------------
shall not be entitled to the privileges of stock ownership as to any shares of
the Company common stock not actually issued to such holder.
IN WITNESS WHEREOF, this Plan has been executed effective as of the
10th day of July, 1997.
VIKING OFFICE PRODUCTS, INC.
By
----------------------------------------
Irwin Helford, Chairman of the Board
7
<PAGE>
EXHIBIT 10.31
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 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.
"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
(adjusted to $1.25 upon 2:1 stock split effective May 1, 1996), (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
<PAGE>
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 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
-2-
<PAGE>
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.
"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 ninetieth 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-
<PAGE>
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 to which Executive is entitled under the Plan for
such year.
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, including shareholder approval of certain amendments) under section
162(m) of the Code.
7. Effectiveness of the Plan. The Plan has been duly approved by the
-------------------------
shareholders of the Company by vote of a majority of the votes cast at a duly
called and held shareholders' meeting. Subject to the discretion of the
Committee and the provisions of the Plan, Executive
-4-
<PAGE>
shall be entitled to an Annual Award under the Plan in respect of fiscal 1995
and each fiscal year thereafter until further action of the Committee.
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 approval of the Plan by the shareholders of the Company 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 10.32
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
<PAGE>
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 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.
"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
-2-
<PAGE>
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, as approved by the Committee, as in effect on
the ninetieth 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 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-
<PAGE>
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 to which Executive is entitled under the Plan for
such year.
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, including shareholder approval of certain amendments) under section
162(m) of the Code.
7. Effectiveness of the Plan. The Plan has been duly approved by the
-------------------------
shareholders of the Company by vote of a majority of the votes cast at a duly
called and held shareholders' meeting. Subject to the discretion of the
Committee and the provisions of the Plan, Executive shall be entitled to an
Annual Award under the Plan in respect of fiscal 1997 and each fiscal year
thereafter until further action of the Committee.
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
-4-
<PAGE>
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 approval of the Plan by the shareholders of the Company 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>
(b) In the event there is any disagreement between you and the Company as
to the amount of any payment required hereunder, the amount of income or
excise tax liability incurred or which would be incurred if the payments
were exempt from Code Section 4999, or the application of applicable
provisions of the Code, Treasury Regulations or applicable tax laws, such
disputes shall be submitted for resolution to an independent certified
public accountant ("Independent Arbiter") mutually acceptable to you and
the Company. The resolution reached by the Independent Arbiter shall be
binding on you and the Company. You and the Company shall prepare all
returns and reports to relevant tax authorities in a manner consistent with
determination of the Independent Arbiter. Notwithstanding the above, if
you liability for income or estate taxes is redetermined, the actual
amount of such redetermined tax liability shall be substituted for the
amount of tax liability agreed to or otherwise determined by Independent
Arbiter provided that you have reasonably endeavored to maintain the
positions reflected in your original returns and shall have afforded the
Company a reasonable opportunity to assist you in resisting any such
redetermination. All expenses incurred in connection with the retention of
the Independent Arbiter and (if applicable) responding to any audit or
resisting any redetermination of the tax liability involving the payments
to be made hereunder shall be paid by the Company.
6. MITIGATION. You will not be required to mitigate payments received under
----------
this Agreement when employed by another company.
7. COSTS, EXPENSES AND LEGAL FEES. The Company will pay or reimburse you for
------------------------------
all costs and expenses incurred by you on behalf of the Company, consistent with
the Company's reimbursement policy in effect prior to the Change in Control, and
will also pay or reimburse you for all legal fees and expenses, if any, incurred
by you in seeking to obtain or enforce any right or benefit provided by this
Agreement, including such fees and expenses incurred in connection with any
arbitration proceeding. Such payments and reimbursements will be made within
five business days after your request for payment, accompanied by evidence of
such costs, fees and expenses, is received by the Company, and, if not timely
paid, will bear interest at the lower of ten percent per annum and the maximum
rate permitted by California law.
8. DELAYED TERMINATION. One year after the date that a Change in Control is
-------------------
effective you will have 30 days to resign your employment (whether or not such
resignation qualifies as a Resignation for Good Reason) and receive (a) fifty
percent of the CIC Severance Payments and (b) the payments contemplated by
Paragraph 2 of this Part Two. In addition, Paragraphs 3, 5, 6 and 7 of this
Part Two shall apply when applicable. All payments required hereunder shall be
made at the times provided in the Paragraphs referred to herein.
-6-
<PAGE>
PART THREE -- MISCELLANEOUS PROVISIONS
1. TERMINATION FOR CAUSE. Should termination of your employment constitute
---------------------
Termination for Cause, then the Company shall be required to pay you only (i)
any unpaid compensation earned for services previously rendered through the date
of such termination and (ii) any accrued but unpaid vacation benefits or sick
days, and no other benefits shall be payable to you under Part Two of this
letter.
2. DEATH. Should you die after your Termination Without Cause or Resignation
-----
for Good Reason under Part Two of this Agreement but before receipt of the CIC
Severance Payments to which you have become entitled under Part Two of this
Agreement, then those payment(s) shall be made to the executors or
administrators of your estate.
3. DISABILITY. Should you become totally and permanently disabled as defined
----------
in the Company's long-term disability program after your Termination Without
Cause or Resignation for Good Reason under Part Two of this Agreement but before
receipt of the CIC Severance Payments to which have become entitled under Part
Two, then those payment(s) shall be made to you in accordance with the
provisions of this Agreement.
4. GENERAL CREDITOR STATUS. The payments and benefits to which you become
-----------------------
entitled hereunder shall be paid, when due, from the general assets of the
Company, and no trust fund, escrow arrangement or other segregated account shall
be established as a funding vehicle for such payments. Accordingly, your right
(or the right of the personal representatives or beneficiaries of your estate)
to receive any payments or benefits hereunder shall at all times be that of a
general creditor of the Company and shall have no priority over the claims of
other general creditors.
5. INDEMNIFICATION. If applicable, the indemnification provisions for
---------------
officers and directors under the Company's Articles of Incorporation and Bylaws
and the provisions of any written Indemnification Agreement between you and the
Company shall be extended to you (to the maximum extent permitted by law),
during the period following your Termination Without Cause or Resignation for
Good Reason under Part Two, with respect to any and all matters, events or
transactions occurring or effected during your employment with the Company.
6. CONTRACTUAL RIGHTS. Except as expressly provided in paragraph 1 of Part
------------------
Two, 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, and all such contractual rights shall
survive the execution of this Agreement and any Change in Control.
7. BINDING AGREEMENT. This Agreement shall be binding upon the Company, its
-----------------
successors and assigns (including, without limitation, the surviving entity in
any Change in Control).
-7-
<PAGE>
8. LAW GOVERNING. This Agreement shall be construed and interpreted under the
-------------
laws of the State of California applicable to agreements executed and to be
wholly performed within the State of California.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements between
----------------
you and the Company relating to the subject of severance benefits payable to you
upon the cessation of your employment with the Company and may be amended only
by a written instrument signed by you and an authorized officer of the Company.
10. SEVERABILITY. If any provision of this Agreement as applied to you or the
------------
Company or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Agreement, or the enforceability or validity of this Agreement as a whole.
Should any provision of this Agreement become or be deemed invalid, illegal or
unenforceable in any jurisdiction by reason of the scope, extent or duration of
its coverage, then such provision shall be deemed amended to the extent
necessary to conform to applicable law so as to be valid and enforceable or, if
the parties, then such provision shall be stricken and the remainder of this
Agreement shall continue in full force and effect.
11. REMEDIES. All rights and remedies provided pursuant to this Agreement or
--------
by law will be cumulative, and no such right or remedy will be exclusive of any
other. A party may pursue any one or more rights or remedies hereunder or may
seek damages or specific performance in the event of another party's breach
hereunder or may pursue any other remedy by law or equity, whether or not stated
in this Agreement.
12. ARBITRATION. Any controversy which may arise between you and the Company
-----------
with respect to the construction, interpretation or application of any of the
terms, provisions or conditions of this agreement or any monetary claim arising
from or relating to this agreement will be submitted to final and binding
arbitration in Los Angeles, California, in accordance with the rules of the
American Arbitration Association then in effect.
13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is intended
---------------------------------
to provide you with any right to continue in the employ of the Company (or any
subsidiary) for any period of or interfere with or otherwise restrict in any way
your rights or the rights of the Company (or any subsidiary), which rights are
hereby expressly reserved by each. The Company reserves the right to terminate
your employment at any time for any reason whatsoever, with or without cause,
except as otherwise provided in any written employment agreement between you and
the Company.
-8-
<PAGE>
Please indicate your acceptance of the foregoing provisions of this Agreement
by signing the enclosed copy of this Agreement and returning it to the Company.
VIKING OFFICE PRODUCTS, INC.
By:
-------------------------------------------------
Title:
----------------------------------------------
ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing Agreement
governing the special benefits to which I may become entitled in connection with
the cessation of my employment with Viking Office Products, Inc., under certain
specified conditions following a Change in Control.
Signature:
------------------------------------------
Date: _______, 1997
-9-
<PAGE>
EXHIBIT 10.33
VIKING OFFICE PRODUCTS, INC.
879 W. 190th Street, Suite 1100
Gardena, California 90248
May 12, 1997
Mr. Irwin Helford
c/o Viking Office Products, Inc.
879 W. 190th Street, Suite 1100
Gardena, CA 90248
Dear Irwin:
The purpose of this letter agreement ("Agreement") is to document the terms
and conditions of the severance package to which you shall be entitled in
certain circumstances should your employment with Viking Office Products, Inc.
(the "Company"), terminate following a change in control.
Part One of this Agreement sets forth certain definitional provisions to be in
effect for purposes of determining your benefit entitlements. Part Two hereof
specifies benefits in connection with a change in control of the Company. Part
Three hereof concludes this Agreement with a series of general terms and
conditions applicable to your severance benefits.
PART ONE -- DEFINITIONS
For purposes of this Agreement, the following definitions shall be in effect:
1. "BASE SALARY" means the annual rate of base salary in effect for you
immediately prior to termination of your employment or immediately prior to a
Change in Control, whichever is greater.
2. "BENEFICIAL OWNER" has the meaning set forth in subdivision (d) of
Paragraph 4 of this Part One.
3. "BOARD" means the Company's Board of Directors.
4. "CHANGE IN CONTROL" means any of the following transactions or events
effecting a change in ownership or control of the Company:
(a) A merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(b) The sale, transfer or other disposition of all or substantially all of
the assets of the Company;
<PAGE>
(c) Any merger or reverse merger in which the Company ceases to exist as
an independent corporation or becomes the subsidiary of another
corporation;
(d) If any Person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) becomes the Beneficial Owner (as defined in Rule 13(d)-3
under the Exchange Act), of securities possessing more than twenty percent
(20%) of the total combined voting power of the Company's outstanding
securities;
(e) If any Person becomes the Beneficial Owner of securities of the
Company possessing sufficient voting power in the aggregate to elect an
absolute majority of the members of the Board (rounded up to the nearest
whole number); or
(f) A change in the composition of the Board over a period of twenty-four
(24) consecutive months or less such that a majority of the Board ceases,
by reason of one or more contested elections for Board membership, to
consist of individuals who either (i) have been members of the Board
continuously since the beginning of such period or (ii) have been elected
or nominated for election as Board members during such period by at least a
majority of Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
5. "CIC SEVERANCE PAYMENT" means the severance payments to which you may
become entitled under Paragraph 1 of Part Two hereof.
6. "CODE" means the Internal Revenue Code of 1986, as amended.
7. "COMMON STOCK" means the Company's common stock.
8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
9. "FAIR MARKET VALUE" means, with respect to any shares of Common Stock
subject to any of your Options, the closing selling price per share of Common
Stock on the date in question, as reported on the Nasdaq National Market (if
there is no reported sale of Common Stock on such date, then the closing selling
price on the Nasdaq National Market on the next preceding day for which there
does exist such quotation shall be determinative of Fair Market Value).
10. "INDEPENDENT ARBITER" has the meaning set forth in subdivision (b) of
Paragraph 5 of Part Two of this Agreement.
11. "NET AFTER TAX PAYMENT AMOUNT" has the meaning set forth in subdivision
(a) of Paragraph 5 of Part Two of this Agreement.
12. "OPTION" means any option granted to you under the Plan (or any
installment thereof) which is outstanding at the time of the Change in Control
which automatically accelerates, pursuant to the Plan or the acceleration
provisions of the agreement evidencing that Option.
-2-
<PAGE>
13. "OPTION PARACHUTE PAYMENT" means the portion of an Option which is
treated as a payment described in Code Section 280G(b)(2)(A) and the Treasury
Regulations thereunder. The portion of such Option which is categorized as an
Option Parachute Payment shall be calculated in accordance with the valuation
provisions established under Code Section 280G and the applicable Treasury
Regulations and shall include an appropriate dollar adjustment to reflect the
lapse of your obligation to remain in the Company employ as a condition to the
vesting of the accelerated installment. In no event, however, shall the Option
Parachute Payment exceed the spread (the excess of the Fair Market Value of the
accelerated option shares over the option exercise price payable for those
shares) existing at the time of acceleration.
14. "OTHER PARACHUTE PAYMENT" means any payment in the nature of compensation
which is made to you in connection with the Change in Control and which are
payments described in Code Section 280G(b)(2)(A) and the Treasury Regulations
issued thereunder. Your Other Parachute Payments shall include the Present
Value, measured as of the Change in Control, of the aggregate Option Parachute
Payment.
15. "PERSON" has the meaning set forth in subdivision (d) of Paragraph 4 of
this Part One.
16. "PLAN" means (i) the Company's 1989 Amended and Restated Incentive Stock
Option Plan, (ii) the Company's 1991 Amended and Restated Nonstatutory Stock
Option Plan (iii) the Company's Long Term Stock Incentive Plan and (iv) any
further or replacement stock option plan or restricted stock plan hereafter
implemented by the Company.
17. "PRESENT VALUE" means the value, determined as of the date of the Change
in Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or your subsequent Termination
Without Cause or Resignation for Good Reason. The Present Value of such payment
shall be determined in accordance with the provisions of Code Section 280G.
18. "RESIGNATION FOR GOOD REASON" means your voluntary resignation subsequent
to a Change in Control following (a) a change in your position with the Company
which materially reduces your duties or level of responsibility, (b) a reduction
in your level of compensation (including base salary, fringe benefits and
participation in non-discretionary bonus programs under which awards are payable
pursuant to objective financial or other performance standards) by an amount in
excess of ten percent (10%) or (c) a change in your place of employment which is
more than thirty (30) miles from your place of employment prior to the Change in
Control, but only if such change or reduction is effected without your written
concurrence.
In no event shall Resignation for Good Reason be deemed to occur should your
employment terminate by reason of your permanent disability as defined under the
Company's long-term disability program or your death.
19. "TERMINATION FOR CAUSE" means the termination of your employment by the
Company upon your:
-3-
<PAGE>
(a) dishonesty resulting, or intending to result, directly or indirectly,
in gain or personal enrichment at the expense of the Company; or
(b) gross misconduct, including, without limitation, fraud, sexual
harassment or misappropriation of Company property or confidential
information; or
(c) conviction for a felony under the laws of the United States or any
state thereof; or
(d) wilful and continued failure substantially to perform your duties with
the Company (other than any such failure resulting from your incapacity due
to physical or mental illness), which is not remedied within a reasonable
period after a written demand for substantial performance is delivered to
you which specifically identifies the manner in which it is believed that
you have not substantially performed your duties.
20. "TERMINATION WITHOUT CAUSE" means the Company's termination of your
employment with the Company other than a Termination for Cause.
21. "TOTAL COMPENSATION" means the aggregate of (a) Base Salary, (b) the
average cash bonuses paid to you by the Company for services rendered during the
two (2) Company fiscal years immediately preceding the fiscal year of
termination of your employment or the fiscal year immediately preceding the
fiscal year in which the Change in Control occurred, whichever is greater, and
(c) the total costs to the Company of any other benefits, including but not
limited to life, disability, accident and health insurance and employee
assistance plan benefits, automobile allowances and other executive benefits and
perquisites, made available to you by the Company in the Company fiscal year
immediately preceding the year of termination of your employment.
PART TWO -- CHANGE IN CONTROL BENEFITS
Upon your Termination Without Cause or Resignation for Good Reason within
twenty-four (24) months following a Change in Control you shall become entitled
to receive the special benefits provided in this Part Two.
1. CIC SEVERANCE PAYMENTS. You shall be entitled to CIC Severance Payments in
----------------------
an aggregate amount equal to three times your Total Compensation. The CIC
Severance Payments shall be in lieu of all damages and other compensation to
which you may be entitled by reason of termination of your employment and shall
also be in lieu of further salary payments to you for periods subsequent to the
termination of your employment, provided, however, that, if your employment was
terminated by the Company and at the time of termination there was in effect a
written employment agreement between you and the Company (the "Employment
Agreement"), you shall have the right, at your irrevocable election, (a) to
waive all of your rights under this Agreement and retain all of your rights
under the Employment Agreement or (b) to waive all of your rights under the
Employment Agreement and retain your rights under this Agreement. If you have
not notified the Company in writing within ten days after termination of your
employment by the Company that you elect to waive your rights under this
Agreement, you shall be deemed irrevocably to have elected clause (b), i.e., to
waive your rights under the Employment Agreement and retain your rights under
this Agreement. The CIC Severance Payments shall not
-4-
<PAGE>
be considered compensation for any benefit calculation or other purpose under
any retirement plan or other benefit plan maintained by the Company.
The CIC Severance Payments will be paid to you in a lump sum, net of all
applicable withholding taxes, within 15 days after your date of termination,
and, if not timely paid, will bear interest at the lower of ten percent per
annum and the maximum rate permitted by California law.
In the event your employment terminates by reason of your death or permanent
and total disability as defined by the Company's long-term disability program
before you become eligible for CIC Severance Payments, or your Termination for
Cause or resignation other than Resignation for Good Reason, you shall not be
entitled to receive any CIC Severance Payments or other benefits under this
Agreement, except as provided in Paragraph 8 of this Part
Two.
2. ADDITIONAL BENEFITS. You will receive payment for all unpaid vacation
-------------------
benefits, time off and sick days that you have accrued through the date of your
termination. In addition, you will receive a payment equal to the target bonus
amount for which you are eligible for the year in which your employment
terminates. Such payments will be paid to you in a lump sum, net of all
applicable withholding taxes, within 15 days after your date of termination,
and, if not timely paid, will bear interest at the lower of ten percent per
annum and the maximum rate permitted by California law.
3. OUTPLACEMENT SERVICES. You will be eligible for outplacement services
---------------------
through a third party selected by the Company.
4. OPTION ACCELERATION. The provisions of your outstanding Options and the
-------------------
applicable Plans shall govern the acceleration of the exercise thereof in the
event of a Change in Control, including but not limited to the effect on such
acceleration of your death or disability or termination of employment. This
Agreement is not intended to amend any of your Options.
5. BENEFIT TAX PROTECTION. In the event of a Change in Control, the following
----------------------
protection against taxation shall become applicable:
(a) To the extent that you incur any tax liability under Code Section 4999
as a result of payments hereunder, the Option Parachute Payment or the
Other Parachute Payments (or any portion of any such amount) being treated
as an excess parachute payment within the meaning of Code Section 280G, the
amount of your severance payment under Paragraph 1 of this Part Two shall
be increased to the extent necessary to assure that the "Net After Tax
Payment Amount" (as defined below) will be equal to the Net After Tax
Payment Amount which you would have received pursuant to this Agreement if
all payments hereunder had been exempt from the application of Code Section
4999. The Net After Tax Payment Amount means the excess of the total
amounts paid hereunder reduced by the sum of (i) the amount of any excise
tax payable under Code Section 4999 and (ii) any and all applicable local,
state and/or federal income taxes payable with respect to the payments made
hereunder.
-5-
<PAGE>
(b) In the event there is any disagreement between you and the Company as
to the amount of any payment required hereunder, the amount of income or
excise tax liability incurred or which would be incurred if the payments
were exempt from Code Section 4999, or the application of applicable
provisions of the Code, Treasury Regulations or applicable tax laws, such
disputes shall be submitted for resolution to an independent certified
public accountant ("Independent Arbiter") mutually acceptable to you and
the Company. The resolution reached by the Independent Arbiter shall be
binding on you and the Company. You and the Company shall prepare all
returns and reports to relevant tax authorities in a manner consistent with
determination of the Independent Arbiter. Notwithstanding the above, if
your liability for income or estate taxes is redetermined, the actual
amount of such redetermined tax liability shall be substituted for the
amount of tax liability agreed to or otherwise determined by Independent
Arbiter provided that you have reasonably endeavored to maintain the
positions reflected in your original returns and shall have afforded the
Company a reasonable opportunity to assist you in resisting any such
redetermination. All expenses incurred in connection with the retention of
the Independent Arbiter and (if applicable) responding to any audit or
resisting any redetermination of the tax liability involving the payments
to be made hereunder shall be paid by the Company.
6. MITIGATION. You will not be required to mitigate payments received under
----------
this Agreement when employed by another company.
7. COSTS, EXPENSES AND LEGAL FEES. The Company will pay or reimburse you for
------------------------------
all costs and expenses incurred by you on behalf of the Company, consistent with
the Company's reimbursement policy in effect prior to the Change in Control, and
will also pay or reimburse you for all legal fees and expenses, if any, incurred
by you in seeking to obtain or enforce any right or benefit provided by this
Agreement, including such fees and expenses incurred in connection with any
arbitration proceeding. Such payments and reimbursements will be made within
five business days after your request for payment, accompanied by evidence of
such costs, fees and expenses, is received by the Company, and, if not timely
paid, will bear interest at the lower of ten percent per annum and the maximum
rate permitted by California law.
8. DELAYED TERMINATION. One year after the date that a Change in Control is
-------------------
effective you will have 30 days to resign your employment (whether or not such
resignation qualifies as a Resignation for Good Reason) and receive (a) fifty
percent of the CIC Severance Payments and (b) the payments contemplated by
Paragraph 2 of this Part Two. In addition, Paragraphs 3, 5, 6 and 7 of this
Part Two shall apply when applicable. All payments required hereunder shall be
made at the times provided in the Paragraphs referred to herein.
-6-
<PAGE>
PART THREE -- MISCELLANEOUS PROVISIONS
1. TERMINATION FOR CAUSE. Should termination of your employment constitute
---------------------
Termination for Cause, then the Company shall be required to pay you only (i)
any unpaid compensation earned for services previously rendered through the date
of such termination and (ii) any accrued but unpaid vacation benefits or sick
days, and no other benefits shall be payable to you under Part Two of this
letter.
2. DEATH. Should you die after your Termination Without Cause or Resignation
-----
for Good Reason under Part Two of this Agreement but before receipt of the CIC
Severance Payments to which you have become entitled under Part Two of this
Agreement, then those payment(s) shall be made to the executors or
administrators of your estate.
3. DISABILITY. Should you become totally and permanently disabled as defined
----------
in the Company's long-term disability program after your Termination Without
Cause or Resignation for Good Reason under Part Two of this Agreement but before
receipt of the CIC Severance Payments to which have become entitled under Part
Two, then those payment(s) shall be made to you in accordance with the
provisions of this Agreement.
4. GENERAL CREDITOR STATUS. The payments and benefits to which you become
-----------------------
entitled hereunder shall be paid, when due, from the general assets of the
Company, and no trust fund, escrow arrangement or other segregated account shall
be established as a funding vehicle for such payments. Accordingly, your right
(or the right of the personal representatives or beneficiaries of your estate)
to receive any payments or benefits hereunder shall at all times be that of a
general creditor of the Company and shall have no priority over the claims of
other general creditors.
5. INDEMNIFICATION. If applicable, the indemnification provisions for
---------------
officers and directors under the Company's Articles of Incorporation and Bylaws
and the provisions of any written Indemnification Agreement between you and the
Company shall be extended to you (to the maximum extent permitted by law),
during the period following your Termination Without Cause or Resignation for
Good Reason under Part Two, with respect to any and all matters, events or
transactions occurring or effected during your employment with the Company.
6. CONTRACTUAL RIGHTS. Except as expressly provided in Paragraph 1 of Part
------------------
Two, 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, and all such contractual rights shall
survive the execution of this Agreement and any Change in Control.
7. BINDING AGREEMENT. This Agreement shall be binding upon the Company, its
-----------------
successors and assigns (including, without limitation, the surviving entity in
any Change in Control).
-7-
<PAGE>
8. LAW GOVERNING. This Agreement shall be construed and interpreted under the
-------------
laws of the State of California applicable to agreements executed and to be
wholly performed within the State of California.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements between
----------------
you and the Company relating to the subject of severance benefits payable to you
upon the cessation of your employment with the Company and may be amended only
by a written instrument signed by you and an authorized officer of the Company.
10. SEVERABILITY. If any provision of this Agreement as applied to you or the
------------
Company or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Agreement, or the enforceability or validity of this Agreement as a whole.
Should any provision of this Agreement become or be deemed invalid, illegal or
unenforceable in any jurisdiction by reason of the scope, extent or duration of
its coverage, then such provision shall be deemed amended to the extent
necessary to conform to applicable law so as to be valid and enforceable or, if
such provision cannot be so amended without materially altering the intention of
the parties, then such provision shall be stricken and the remainder of this
Agreement shall continue in full force and effect.
11. REMEDIES. All rights and remedies provided pursuant to this Agreement or
--------
by law will be cumulative, and no such right or remedy will be exclusive of any
other. A party may pursue any one or more rights or remedies hereunder or may
seek damages or specific performance in the event of another party's breach
hereunder or may pursue any other remedy by law or equity, whether or not stated
in this Agreement.
12. ARBITRATION. Any controversy which may arise between you and the Company
-----------
with respect to the construction, interpretation or application of any of the
terms, provisions or conditions of this agreement or any monetary claim arising
from or relating to this agreement will be submitted to final and binding
arbitration in Los Angeles, California, in accordance with the rules of the
American Arbitration Association then in effect.
13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is intended
---------------------------------
to provide you with any right to continue in the employ of the Company (or any
subsidiary) for any period of or interfere with or otherwise restrict in any way
your rights or the rights of the Company (or any subsidiary), which rights are
hereby expressly reserved by each. The Company reserves the right to terminate
your employment at any time for any reason whatsoever, with or without cause,
except as otherwise provided in any written employment agreement between you and
the Company.
-8-
<PAGE>
Please indicate your acceptance of the foregoing provisions of this Agreement
by signing the enclosed copy of this Agreement and returning it to the Company.
VIKING OFFICE PRODUCTS, INC.
By:
-------------------------------------------------
Title:
----------------------------------------------
ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing Agreement
governing the special benefits to which I may become entitled in connection with
the cessation of my employment with Viking Office Products, Inc., under certain
specified conditions following a Change in Control.
Signature:
------------------------------------------
Dated: ______, 1997
-9-
<PAGE>
EXHIBIT 10.34
VIKING OFFICE PRODUCTS, INC.
879 W. 190th Street, Suite 1100
Gardena, California 90248
May 12, 1997
Mr. Frank R. Jarc
c/o Viking Office Products, Inc.
879 W. 190th Street, Suite 1100
Gardena, CA 90248
Dear Frank:
The purpose of this letter agreement ("Agreement") is to document the terms
and conditions of the severance package to which you shall be entitled in
certain circumstances should your employment with Viking Office Products, Inc.
(the "Company"), terminate following a change in control.
Part One of this Agreement sets forth certain definitional provisions to be in
effect for purposes of determining your benefit entitlements. Part Two hereof
specifies benefits in connection with a change in control of the Company. Part
Three hereof concludes this Agreement with a series of general terms and
conditions applicable to your severance benefits.
PART ONE -- DEFINITIONS
For purposes of this Agreement, the following definitions shall be in effect:
1. "BASE SALARY" means the annual rate of base salary in effect for you
immediately prior to termination of your employment or immediately prior to a
Change in Control, whichever is greater.
2. "BENEFICIAL OWNER" has the meaning set forth in subdivision (d) of
Paragraph 4 of this Part One.
3. "BOARD" means the Company's Board of Directors.
4. "CHANGE IN CONTROL" means any of the following transactions or events
effecting a change in ownership or control of the Company:
(a) A merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(b) The sale, transfer or other disposition of all or substantially all of
the assets of the Company;
(c) Any merger or reverse merger in which the Company ceases to exist as
an independent corporation or becomes the subsidiary of another
corporation;
1
<PAGE>
(d) If any Person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) becomes the Beneficial Owner (as defined in Rule 13(d)-3
under the Exchange Act), of securities possessing more than twenty percent
(20%) of the total combined voting power of the Company's outstanding
securities;
(e) If any Person becomes the Beneficial Owner of securities of the
Company possessing sufficient voting power in the aggregate to elect an
absolute majority of the members of the Board (rounded up to the nearest
whole number); or
(f) A change in the composition of the Board over a period of twenty-four
(24) consecutive months or less such that a majority of the Board ceases,
by reason of one or more contested elections for Board membership, to
consist of individuals who either (i) have been members of the Board
continuously since the beginning of such period or (ii) have been elected
or nominated for election as Board members during such period by at least a
majority of Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
5. "CIC SEVERANCE PAYMENT" means the severance payments to which you may
become entitled under Paragraph 1 of Part Two hereof.
6. "CODE" means the Internal Revenue Code of 1986, as amended.
7. "COMMON STOCK" means the Company's common stock.
8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
9. "FAIR MARKET VALUE" means, with respect to any shares of Common Stock
subject to any of your Options, the closing selling price per share of Common
Stock on the date in question, as reported on the Nasdaq National Market (if
there is no reported sale of Common Stock on such date, then the closing selling
price on the Nasdaq National Market on the next preceding day for which there
does exist such quotation shall be determinative of Fair Market Value).
10. "INDEPENDENT ARBITER" has the meaning set forth in subdivision (b) of
Paragraph 5 of Part Two of this Agreement.
11. "NET AFTER TAX PAYMENT AMOUNT" has the meaning set forth in subdivision
(a) of Paragraph 5 of Part Two of this Agreement.
12. "OPTION" means any option granted to you under the Plan (or any
installment thereof) which is outstanding at the time of the Change in Control
which automatically accelerates, pursuant to the Plan or the acceleration
provisions of the agreement evidencing that Option.
13. "OPTION PARACHUTE PAYMENT" means the portion of an Option which is
treated as a payment described in Code Section 280G(b)(2)(A) and the Treasury
Regulations thereunder. The portion of such Option which is categorized as an
Option Parachute Payment shall be calculated in accordance with the valuation
provisions established under Code Section 280G and
2
<PAGE>
the applicable Treasury Regulations and shall include an appropriate dollar
adjustment to reflect the lapse of your obligation to remain in the Company
employ as a condition to the vesting of the accelerated installment. In no
event, however, shall the Option Parachute Payment exceed the spread (the excess
of the Fair Market Value of the accelerated option shares over the option
exercise price payable for those shares) existing at the time of acceleration.
14. "OTHER PARACHUTE PAYMENT" means any payment in the nature of compensation
which is made to you in connection with the Change in Control and which are
payments described in Code Section 280G(b)(2)(A) and the Treasury Regulations
issued thereunder. Your Other Parachute Payments shall include the Present
Value, measured as of the Change in Control, of the aggregate Option Parachute
Payment.
15. "PERSON" has the meaning set forth in subdivision (d) of Paragraph 4 of
this Part One.
16. "PLAN" means (i) the Company's 1989 Amended and Restated Incentive Stock
Option Plan, (ii) the Company's 1991 Amended and Restated Nonstatutory Stock
Option Plan (iii) the Company's Long Term Stock Incentive Plan and (iv) any
further or replacement stock option plan or restricted stock plan hereafter
implemented by the Company.
17. "PRESENT VALUE" means the value, determined as of the date of the Change
in Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or your subsequent Termination
Without Cause or Resignation for Good Reason. The Present Value of such payment
shall be determined in accordance with the provisions of Code Section 280G.
18. "RESIGNATION FOR GOOD REASON" means your voluntary resignation subsequent
to a Change in Control following (a) a change in your position with the Company
which materially reduces your duties or level of responsibility, (b) a reduction
in your level of compensation (including base salary, fringe benefits and
participation in non-discretionary bonus programs under which awards are payable
pursuant to objective financial or other performance standards) by an amount in
excess of ten percent (10%) or (c) a change in your place of employment which is
more than thirty (30) miles from your place of employment prior to the Change in
Control, but only if such change or reduction is effected without your written
concurrence.
In no event shall Resignation for Good Reason be deemed to occur should your
employment terminate by reason of your permanent disability as defined under the
Company's long-term disability program or your death.
19. "TERMINATION FOR CAUSE" means the termination of your employment by the
Company upon your:
(a) dishonesty resulting, or intending to result, directly or indirectly,
in gain or personal enrichment at the expense of the Company; or
(b) gross misconduct, including, without limitation, fraud, sexual
harassment or misappropriation of Company property or confidential
information; or
<PAGE>
(c) conviction for a felony under the laws of the United States or any
state thereof; or
(d) wilful and continued failure substantially to perform your duties with
the Company (other than any such failure resulting from your incapacity due
to physical or mental illness), which is not remedied within a reasonable
period after a written demand for substantial performance is delivered to
you which specifically identifies the manner in which it is believed that
you have not substantially performed your duties.
20. "TERMINATION WITHOUT CAUSE" means the Company's termination of your
employment with the Company other than a Termination for Cause.
21. "TOTAL COMPENSATION" means the aggregate of (a) Base Salary, (b) the
average cash bonuses paid to you by the Company for services rendered during the
two (2) Company fiscal years immediately preceding the fiscal year of
termination of your employment or the fiscal year immediately preceding the
fiscal year in which the Change in Control occurred, whichever is greater, and
(c) the total costs to the Company of any other benefits, including but not
limited to life, disability, accident and health insurance and employee
assistance plan benefits, automobile allowances and other executive benefits and
perquisites, made available to you by the Company in the Company fiscal year
immediately preceding the year of termination of your employment. In the event
that you were not employed during the entire two (2) Company fiscal years, any
of the bonuses or benefits (including executive benefits and perquisites)
described in (b) and (c) above for a partial year of employment shall be
annualized in accordance with the frequency which such compensation is paid
during such partial year, and in the event that you were not employed by the
Company for at least one full fiscal year prior to termination of your
employment, such bonuses shall be based on your target bonus for the fiscal year
in which your employment terminated or the prior year, whichever is greater.
PART TWO -- CHANGE IN CONTROL BENEFITS
Upon your Termination Without Cause or Resignation for Good Reason within
twenty-four (24) months following a Change in Control you shall become entitled
to receive the special benefits provided in this Part Two.
1. CIC SEVERANCE PAYMENTS. You shall be entitled to CIC Severance Payments in
----------------------
an aggregate amount equal to three times your Total Compensation. The CIC
Severance Payments shall be in lieu of all damages and other compensation to
which you may be entitled, under any employment agreement or otherwise, by
reason of termination of your employment and shall also be in lieu of further
salary payments to you for periods subsequent to the termination of your
employment. The CIC Severance Payments shall not be considered compensation for
any benefit calculation or other purpose under any retirement plan or other
benefit plan maintained by the Company.
The CIC Severance Payments will be paid to you in a lump sum, net of all
applicable withholding taxes, within 15 days after your date of termination,
and, if not timely paid, will bear interest at the lower of ten percent per
annum and the maximum rate permitted by California law.
4
<PAGE>
In the event your employment terminates by reason of your death or permanent
and total disability as defined by the Company's long-term disability program
before you become eligible for CIC Severance Payments, or your Termination for
Cause or resignation other than Resignation for Good Reason, you shall not be
entitled to receive any CIC Severance Payments or other benefits under this
Agreement.
2. ADDITIONAL BENEFITS. You will receive payment for all unpaid vacation
-------------------
benefits, time off and sick days that you have accrued through the date of your
termination. In addition, you will receive a payment equal to the target bonus
amount for which you are eligible for the year in which your employment
terminates. Such payments will be paid to you in a lump sum, net of all
applicable withholding taxes, within 15 days after your date of termination,
and, if not timely paid, will bear interest at the lower of ten percent per
annum and the maximum rate permitted by California law.
3. OUTPLACEMENT SERVICES. You will be eligible for outplacement services
---------------------
through a third party selected by the Company.
4. OPTION ACCELERATION. The provisions of your outstanding Options and the
-------------------
applicable Plans shall govern the acceleration of the exercise thereof in the
event of a Change in Control, including but not limited to the effect on such
acceleration of your death or disability or termination of employment. This
Agreement is not intended to amend any of your Options.
5. BENEFIT TAX PROTECTION. In the event of a Change in Control, the following
----------------------
protection against taxation shall become applicable:
(a) To the extent that you incur any tax liability under Code Section 4999
as a result of payments hereunder, the Option Parachute Payment or the
Other Parachute Payments (or any portion of any such amount) being treated
as an excess parachute payment within the meaning of Code Section 280G, the
amount of your severance payment under Paragraph 1 of this Part Two shall
be increased to the extent necessary to assure that the "Net After Tax
Payment Amount" (as defined below) will be equal to the Net After Tax
Payment Amount which you would have received pursuant to this Agreement if
all payments hereunder had been exempt from the application of Code Section
4999. The Net After Tax Payment Amount means the excess of the total
amounts paid hereunder reduced by the sum of (i) the amount of any excise
tax payable under Code Section 4999 and (ii) any and all applicable local,
state and/or federal income taxes payable with respect to the payments made
hereunder.
(b) In the event there is any disagreement between you and the Company as
to the amount of any payment required hereunder, the amount of income or
excise tax liability incurred or which would be incurred if the payments
were exempt from Code Section 4999, or the application of applicable
provisions of the Code, Treasury Regulations or applicable tax laws, such
disputes shall be submitted for resolution to an independent certified
public accountant ("Independent Arbiter") mutually acceptable to you and
the Company. The resolution reached by the Independent Arbiter shall be
binding on you and the Company. You and the Company shall prepare all
returns and reports to
5
<PAGE>
relevant tax authorities in a manner consistent with determination of the
Independent Arbiter. Notwithstanding the above, if your liability for
income or estate taxes is redetermined, the actual amount of such
redetermined tax liability shall be substituted for the amount of tax
liability agreed to or otherwise determined by Independent Arbiter provided
that you have reasonably endeavored to maintain the positions reflected in
your original returns and shall have afforded the Company a reasonable
opportunity to assist you in resisting any such redetermination. All
expenses incurred in connection with the retention of the Independent
Arbiter and (if applicable) responding to any audit or resisting any
redetermination of the tax liability involving the payments to be made
hereunder shall be paid by the Company.
6. MITIGATION. You will not be required to mitigate payments received under
----------
this Agreement when employed by another company.
7. COSTS, EXPENSES AND LEGAL FEES. The Company will pay or reimburse you for
------------------------------
all costs and expenses incurred by you on behalf of the Company, consistent with
the Company's reimbursement policy in effect prior to the Change in Control, and
will also pay or reimburse you for all legal fees and expenses, if any, incurred
by you in seeking to obtain or enforce any right or benefit provided by this
Agreement, including such fees and expenses incurred in connection with any
arbitration proceeding. Such payments and reimbursements will be made within
five business days after your request for payment, accompanied by evidence of
such costs, fees and expenses, is received by the Company, and, if not timely
paid, will bear interest at the lower of ten percent per annum and the maximum
rate permitted by California law.
PART THREE -- MISCELLANEOUS PROVISIONS
1. TERMINATION FOR CAUSE. Should termination of your employment constitute
---------------------
Termination for Cause, then the Company shall be required to pay you only (i)
any unpaid compensation earned for services previously rendered through the date
of such termination and (ii) any accrued but unpaid vacation benefits or sick
days, and no other benefits shall be payable to you under Part Two of this
letter.
2. DEATH. Should you die after your Termination Without Cause or Resignation
-----
for Good Reason under Part Two of this Agreement but before receipt of the CIC
Severance Payments to which you have become entitled under Part Two of this
Agreement, then those payment(s) shall be made to the executors or
administrators of your estate.
3. DISABILITY. Should you become totally and permanently disabled as defined
----------
in the Company's long-term disability program after your Termination Without
Cause or Resignation for Good Reason under Part Two of this Agreement but before
receipt of the CIC Severance Payments to which have become entitled under Part
Two, then those payment(s) shall be made to you in accordance with the
provisions of this Agreement.
4. GENERAL CREDITOR STATUS. The payments and benefits to which you become
-----------------------
entitled hereunder shall be paid, when due, from the general assets of the
Company, and no trust fund, escrow arrangement or other segregated account shall
be established as a funding vehicle for such
6
<PAGE>
payments. Accordingly, your right (or the right of the personal representatives
or beneficiaries of your estate) to receive any payments or benefits hereunder
shall at all times be that of a general creditor of the Company and shall have
no priority over the claims of other general creditors.
5. INDEMNIFICATION. If applicable, the indemnification provisions for
---------------
officers and directors under the Company's Articles of Incorporation and Bylaws
and the provisions of any written Indemnification Agreement between you and the
Company shall be extended to you (to the maximum extent permitted by law),
during the period following your Termination Without Cause or Resignation for
Good Reason under Part Two, with respect to any and all matters, events or
transactions occurring or effected during your employment with the Company.
6. CONTRACTUAL RIGHTS. Except as expressly provided in Paragraph 1 of Part
------------------
Two, 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, and all such contractual rights shall
survive the execution of this Agreement and any Change in Control.
7. BINDING AGREEMENT. This Agreement shall be binding upon the Company, its
-----------------
successors and assigns (including, without limitation, the surviving entity in
any Change in Control).
8. LAW GOVERNING. This Agreement shall be construed and interpreted under the
-------------
laws of the State of California applicable to agreements executed and to be
wholly performed within the State of California.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements between
----------------
you and the Company relating to the subject of severance benefits payable to you
upon the cessation of your employment with the Company and may be amended only
by a written instrument signed by you and an authorized officer of the Company.
10. SEVERABILITY. If any provision of this Agreement as applied to you or the
------------
Company or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Agreement, or the enforceability or validity of this Agreement as a whole.
Should any provision of this Agreement become or be deemed invalid, illegal or
unenforceable in any jurisdiction by reason of the scope, extent or duration of
its coverage, then such provision shall be deemed amended to the extent
necessary to conform to applicable law so as to be valid and enforceable or, if
such provision cannot be so amended without materially altering the intention of
the parties, then such provision shall be stricken and the remainder of this
Agreement shall continue in full force and effect.
11. REMEDIES. All rights and remedies provided pursuant to this Agreement or
--------
by law will be cumulative, and no such right or remedy will be exclusive of any
other. A party may pursue
7
<PAGE>
any one or more rights or remedies hereunder or may seek damages or specific
performance in the event of another party's breach hereunder or may pursue any
other remedy by law or equity, whether or not stated in this Agreement.
12. ARBITRATION. Any controversy which may arise between you and the Company
-----------
with respect to the construction, interpretation or application of any of the
terms, provisions or conditions of this agreement or any monetary claim arising
from or relating to this agreement will be submitted to final and binding
arbitration in Los Angeles, California, in accordance with the rules of the
American Arbitration Association then in effect.
13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is intended
---------------------------------
to provide you with any right to continue in the employ of the Company (or any
subsidiary) for any period of or interfere with or otherwise restrict in any way
your rights or the rights of the Company (or any subsidiary), which rights are
hereby expressly reserved by each. The Company reserves the right to terminate
your employment at any time for any reason whatsoever, with or without cause,
except as otherwise provided in any written employment agreement between you and
the Company.
Please indicate your acceptance of the foregoing provisions of this Agreement
by signing the enclosed copy of this Agreement and returning it to the Company.
VIKING OFFICE PRODUCTS, INC.
By:
__________________________________________________________
Title:
_______________________________________________________
ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing Agreement
governing the special benefits to which I may become entitled in connection with
the cessation of my employment with Viking Office Products, Inc., under certain
specified conditions following a Change in Control.
Signature:
__________________________________________________
Dated: ______, 1997
8
<PAGE>
EXHIBIT 10.35
VIKING OFFICE PRODUCTS, INC.
879 W. 190th Street, Suite 1100
Gardena, California 90248
May 12, 1997
Mr. [Vice President]
c/o Viking Office Products, Inc.
879 W. 190th Street, Suite 1100
Gardena, CA 90248
Dear [ ]:
The purpose of this letter agreement ("Agreement") is to document the terms
and conditions of the severance package to which you shall be entitled in
certain circumstances should your employment with Viking Office Products, Inc.
(the "Company"), terminate following a change in control.
Part One of this Agreement sets forth certain definitional provisions to be in
effect for purposes of determining your benefit entitlements. Part Two hereof
specifies benefits in connection with a change in control of the Company. Part
Three hereof concludes this Agreement with a series of general terms and
conditions applicable to your severance benefits.
PART ONE -- DEFINITIONS
For purposes of this Agreement, the following definitions shall be in effect:
1. "BASE SALARY" means the annual rate of base salary in effect for you
immediately prior to termination of your employment or immediately prior to a
Change in Control, whichever is greater.
2. "BENEFICIAL OWNER" has the meaning set forth in subdivision (d) of
Paragraph 4 of this Part One.
3. "BOARD" means the Company's Board of Directors.
4. "CHANGE IN CONTROL" means any of the following transactions or events
effecting a change in ownership or control of the Company:
(a) A merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(b) The sale, transfer or other disposition of all or substantially all of
the assets of the Company;
(c) Any merger or reverse merger in which the Company ceases to exist as
an independent corporation or becomes the subsidiary of another
corporation;
<PAGE>
(d) If any Person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) becomes the Beneficial Owner (as defined in Rule 13(d)-3
under the Exchange Act), of securities possessing more than twenty percent
(20%) of the total combined voting power of the Company's outstanding
securities;
(e) If any Person becomes the Beneficial Owner of securities of the
Company possessing sufficient voting power in the aggregate to elect an
absolute majority of the members of the Board (rounded up to the nearest
whole number); or
(f) A change in the composition of the Board over a period of twenty-four
(24) consecutive months or less such that a majority of the Board ceases,
by reason of one or more contested elections for Board membership, to
consist of individuals who either (i) have been members of the Board
continuously since the beginning of such period or (ii) have been elected
or nominated for election as Board members during such period by at least a
majority of Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
5. "CIC SEVERANCE PAYMENT" means the severance payments to which you may
become entitled under Paragraph 1 of Part Two hereof.
6. "CODE" means the Internal Revenue Code of 1986, as amended.
7. "COMMON STOCK" means the Company's common stock.
8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
9. "FAIR MARKET VALUE" means, with respect to any shares of Common Stock
subject to any of your Options, the closing selling price per share of Common
Stock on the date in question, as reported on the Nasdaq National Market (if
there is no reported sale of Common Stock on such date, then the closing selling
price on the Nasdaq National Market on the next preceding day for which there
does exist such quotation shall be determinative of Fair Market Value).
10. "INDEPENDENT ARBITER" has the meaning set forth in subdivision (b) of
Paragraph 5 of Part Two of this Agreement.
11. "NET AFTER TAX PAYMENT AMOUNT" has the meaning set forth in subdivision
(a) of Paragraph 5 of Part Two of this Agreement.
12. "OPTION" means any option granted to you under the Plan (or any
installment thereof) which is outstanding at the time of the Change in Control
which automatically accelerates, pursuant to the Plan or the acceleration
provisions of the agreement evidencing that Option.
13. "OPTION PARACHUTE PAYMENT" means the portion of an Option which is
treated as a payment described in Code Section 280G(b)(2)(A) and the Treasury
Regulations thereunder. The portion of such Option which is categorized as an
Option Parachute Payment shall be calculated in accordance with the valuation
provisions established under Code Section 280G and
2
<PAGE>
the applicable Treasury Regulations and shall include an appropriate dollar
adjustment to reflect the lapse of your obligation to remain in the Company
employ as a condition to the vesting of the accelerated installment. In no
event, however, shall the Option Parachute Payment exceed the spread (the excess
of the Fair Market Value of the accelerated option shares over the option
exercise price payable for those shares) existing at the time of acceleration.
14. "OTHER PARACHUTE PAYMENT" means any payment in the nature of compensation
which is made to you in connection with the Change in Control and which are
payments described in Code Section 280G(b)(2)(A) and the Treasury Regulations
issued thereunder. Your Other Parachute Payments shall include the Present
Value, measured as of the Change in Control, of the aggregate Option Parachute
Payment.
15. "PERSON" has the meaning set forth in subdivision (d) of Paragraph 4 of
this Part One.
16. "PLAN" means (i) the Company's 1989 Amended and Restated Incentive Stock
Option Plan, (ii) the Company's 1991 Amended and Restated Nonstatutory Stock
Option Plan (iii) the Company's Long Term Stock Incentive Plan and (iv) any
further or replacement stock option plan or restricted stock plan hereafter
implemented by the Company.
17. "PRESENT VALUE" means the value, determined as of the date of the Change
in Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or your subsequent Termination
Without Cause or Resignation for Good Reason. The Present Value of such payment
shall be determined in accordance with the provisions of Code Section 280G.
18. "RESIGNATION FOR GOOD REASON" means your voluntary resignation subsequent
to a Change in Control following (a) a change in your position with the Company
which materially reduces your duties or level of responsibility, (b) a reduction
in your level of compensation (including base salary, fringe benefits and
participation in non-discretionary bonus programs under which awards are payable
pursuant to objective financial or other performance standards) by an amount in
excess of ten percent (10%) or (c) a change in your place of employment which is
more than thirty (30) miles from your place of employment prior to the Change in
Control, but only if such change or reduction is effected without your written
concurrence.
In no event shall Resignation for Good Reason be deemed to occur should your
employment terminate by reason of your permanent disability as defined under the
Company's long-term disability program or your death.
19. "TERMINATION FOR CAUSE" means the termination of your employment by the
Company upon your:
(a) dishonesty resulting, or intending to result, directly or indirectly,
in gain or personal enrichment at the expense of the Company; or
(b) gross misconduct, including, without limitation, fraud, sexual
harassment or misappropriation of Company property or confidential
information; or
3
<PAGE>
(c) conviction for a felony under the laws of the United States or any
state thereof; or
(d) wilful and continued failure substantially to perform your duties with
the Company (other than any such failure resulting from your incapacity due
to physical or mental illness), which is not remedied within a reasonable
period after a written demand for substantial performance is delivered to
you which specifically identifies the manner in which it is believed that
you have not substantially performed your duties.
20. "TERMINATION WITHOUT CAUSE" means the Company's termination of your
employment with the Company other than a Termination for Cause.
21. "TOTAL COMPENSATION" means the aggregate of (a) Base Salary, (b) the
average cash bonuses paid to you by the Company for services rendered during the
two (2) Company fiscal years immediately preceding the fiscal year of
termination of your employment or the fiscal year immediately preceding the
fiscal year in which the Change in Control occurred, whichever is greater, and
(c) the total costs to the Company of any other benefits, including but not
limited to life, disability, accident and health insurance and employee
assistance plan benefits, automobile allowances and other executive benefits and
perquisites, made available to you by the Company in the Company fiscal year
immediately preceding the year of termination of your employment. In the event
that you were not employed during the entire two (2) Company fiscal years, any
of the bonuses or benefits (including executive benefits and perquisites)
described in (b) and (c) above for a partial year of employment shall be
annualized in accordance with the frequency which such compensation is paid
during such partial year, and in the event that you were not employed by the
Company for at least one full fiscal year prior to termination of your
employment, such bonuses shall be based on your target bonus for the fiscal year
in which your employment terminated or the prior year, whichever is greater.
PART TWO -- CHANGE IN CONTROL BENEFITS
Upon your Termination Without Cause or Resignation for Good Reason within
twenty-four (24) months following a Change in Control you shall become entitled
to receive the special benefits provided in this Part Two.
1. CIC SEVERANCE PAYMENTS. You shall be entitled to CIC Severance Payments in
----------------------
an aggregate amount equal to one and one-half (1.5) times your Total
Compensation. The CIC Severance Payments shall be in lieu of all damages and
other compensation to which you may be entitled, under any employment agreement
or otherwise, by reason of termination of your employment and shall also be in
lieu of further salary payments to you for periods subsequent to the termination
of your employment. The CIC Severance Payments shall not be considered
compensation for any benefit calculation or other purpose under any retirement
plan or other benefit plan maintained by the Company.
The CIC Severance Payments will be paid to you in a lump sum, net of all
applicable withholding taxes, within 15 days after your date of termination,
and, if not timely paid, will bear interest at the lower of ten percent per
annum and the maximum rate permitted by California law.
4
<PAGE>
In the event your employment terminates by reason of your death or permanent
and total disability as defined by the Company's long-term disability program
before you become eligible for CIC Severance Payments, or your Termination for
Cause or resignation other than Resignation for Good Reason, you shall not be
entitled to receive any CIC Severance Payments or other benefits under this
Agreement.
2. ADDITIONAL BENEFITS. You will receive payment for all unpaid vacation
-------------------
benefits, time off and sick days that you have accrued through the date of your
termination. In addition, you will receive a payment equal to the target bonus
amount for which you are eligible for the year in which your employment
terminates. Such payments will be paid to you in a lump sum, net of all
applicable withholding taxes, within 15 days after your date of termination,
and, if not timely paid, will bear interest at the lower of ten percent per
annum and the maximum rate permitted by California law.
3. OUTPLACEMENT SERVICES. You will be eligible for outplacement services
---------------------
through a third party selected by the Company.
4. OPTION ACCELERATION. The provisions of your outstanding Options and the
-------------------
applicable Plans shall govern the acceleration of the exercise thereof in the
event of a Change in Control, including but not limited to the effect on such
acceleration of your death or disability or termination of employment. This
Agreement is not intended to amend any of your Options.
5. BENEFIT TAX PROTECTION. In the event of a Change in Control, the following
----------------------
protection against taxation shall become applicable:
(a) To the extent that you incur any tax liability under Code Section 4999
as a result of payments hereunder, the Option Parachute Payment or the
Other Parachute Payments (or any portion of any such amount) being treated
as an excess parachute payment within the meaning of Code Section 280G, the
amount of your severance payment under Paragraph 1 of this Part Two shall
be increased to the extent necessary to assure that the "Net After Tax
Payment Amount" (as defined below) will be equal to the Net After Tax
Payment Amount which you would have received pursuant to this Agreement if
all payments hereunder had been exempt from the application of Code Section
4999. The Net After Tax Payment Amount means the excess of the total
amounts paid hereunder reduced by the sum of (i) the amount of any excise
tax payable under Code Section 4999 and (ii) any and all applicable local,
state and/or federal income taxes payable with respect to the payments made
hereunder.
(b) In the event there is any disagreement between you and the Company as
to the amount of any payment required hereunder, the amount of income or
excise tax liability incurred or which would be incurred if the payments
were exempt from Code Section 4999, or the application of applicable
provisions of the Code, Treasury Regulations or applicable tax laws, such
disputes shall be submitted for resolution to an independent certified
public accountant ("Independent Arbiter") mutually acceptable to you and
the Company. The resolution reached by the Independent Arbiter shall be
binding on you and the Company. You and the Company shall prepare all
returns and reports to
5
<PAGE>
relevant tax authorities in a manner consistent with determination of the
Independent Arbiter. Notwithstanding the above, if your liability for
income or estate taxes is redetermined, the actual amount of such
redetermined tax liability shall be substituted for the amount of tax
liability agreed to or otherwise determined by Independent Arbiter provided
that you have reasonably endeavored to maintain the positions reflected in
your original returns and shall have afforded the Company a reasonable
opportunity to assist you in resisting any such redetermination. All
expenses incurred in connection with the retention of the Independent
Arbiter and (if applicable) responding to any audit or resisting any
redetermination of the tax liability involving the payments to be made
hereunder shall be paid by the Company.
6. MITIGATION. You will not be required to mitigate payments received under
----------
this Agreement when employed by another company.
7. COSTS, EXPENSES AND LEGAL FEES. The Company will pay or reimburse you for
------------------------------
all costs and expenses incurred by you on behalf of the Company, consistent with
the Company's reimbursement policy in effect prior to the Change in Control, and
will also pay or reimburse you for all legal fees and expenses, if any, incurred
by you in seeking to obtain or enforce any right or benefit provided by this
Agreement, including such fees and expenses incurred in connection with any
arbitration proceeding. Such payments and reimbursements will be made within
five business days after your request for payment, accompanied by evidence of
such costs, fees and expenses, is received by the Company, and, if not timely
paid, will bear interest at the lower of ten percent per annum and the maximum
rate permitted by California law.
PART THREE -- MISCELLANEOUS PROVISIONS
1. TERMINATION FOR CAUSE. Should termination of your employment constitute
---------------------
Termination for Cause, then the Company shall be required to pay you only (i)
any unpaid compensation earned for services previously rendered through the date
of such termination and (ii) any accrued but unpaid vacation benefits or sick
days, and no other benefits shall be payable to you under Part Two of this
letter.
2. DEATH. Should you die after your Termination Without Cause or Resignation
-----
for Good Reason under Part Two of this Agreement but before receipt of the CIC
Severance Payments to which you have become entitled under Part Two of this
Agreement, then those payment(s) shall be made to the executors or
administrators of your estate.
3. DISABILITY. Should you become totally and permanently disabled as defined
----------
in the Company's long-term disability program after your Termination Without
Cause or Resignation for Good Reason under Part Two of this Agreement but before
receipt of the CIC Severance Payments to which have become entitled under Part
Two, then those payment(s) shall be made to you in accordance with the
provisions of this Agreement.
4. GENERAL CREDITOR STATUS. The payments and benefits to which you become
-----------------------
entitled hereunder shall be paid, when due, from the general assets of the
Company, and no trust fund, escrow arrangement or other segregated account shall
be established as a funding vehicle for such
6
<PAGE>
payments. Accordingly, your right (or the right of the personal representatives
or beneficiaries of your estate) to receive any payments or benefits hereunder
shall at all times be that of a general creditor of the Company and shall have
no priority over the claims of other general creditors.
5. INDEMNIFICATION. If applicable, the indemnification provisions for
---------------
officers and directors under the Company's Articles of Incorporation and Bylaws
and the provisions of any written Indemnification Agreement between you and the
Company shall be extended to you (to the maximum extent permitted by law),
during the period following your Termination Without Cause or Resignation for
Good Reason under Part Two, with respect to any and all matters, events or
transactions occurring or effected during your employment with the Company.
6. CONTRACTUAL RIGHTS. Except as expressly provided in Paragraph 1 of Part
------------------
Two, 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, and all such contractual rights shall
survive the execution of this Agreement and any Change in Control.
7. BINDING AGREEMENT. This Agreement shall be binding upon the Company, its
-----------------
successors and assigns (including, without limitation, the surviving entity in
any Change in Control).
8. LAW GOVERNING. This Agreement shall be construed and interpreted under the
-------------
laws of the State of California applicable to agreements executed and to be
wholly performed within the State of California.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements between
----------------
you and the Company relating to the subject of severance benefits payable to you
upon the cessation of your employment with the Company and may be amended only
by a written instrument signed by you and an authorized officer of the Company.
10. SEVERABILITY. If any provision of this Agreement as applied to you or the
------------
Company or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision shall in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Agreement, or the enforceability or validity of this Agreement as a whole.
Should any provision of this Agreement become or be deemed invalid, illegal or
unenforceable in any jurisdiction by reason of the scope, extent or duration of
its coverage, then such provision shall be deemed amended to the extent
necessary to conform to applicable law so as to be valid and enforceable or, if
such provision cannot be so amended without materially altering the intention of
the parties, then such provision shall be stricken and the remainder of this
Agreement shall continue in full force and effect.
11. REMEDIES. All rights and remedies provided pursuant to this Agreement or
--------
by law will be cumulative, and no such right or remedy will be exclusive of any
other. A party may pursue
7
<PAGE>
any one or more rights or remedies hereunder or may seek damages or specific
performance in the event of another party's breach hereunder or may pursue any
other remedy by law or equity, whether or not stated in this Agreement.
12. ARBITRATION. Any controversy which may arise between you and the Company
-----------
with respect to the construction, interpretation or application of any of the
terms, provisions or conditions of this agreement or any monetary claim arising
from or relating to this agreement will be submitted to final and binding
arbitration in Los Angeles, California, in accordance with the rules of the
American Arbitration Association then in effect.
13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is intended
---------------------------------
to provide you with any right to continue in the employ of the Company (or any
subsidiary) for any period of or interfere with or otherwise restrict in any way
your rights or the rights of the Company (or any subsidiary), which rights are
hereby expressly reserved by each. The Company reserves the right to terminate
your employment at any time for any reason whatsoever, with or without cause,
except as otherwise provided in any written employment agreement between you and
the Company.
Please indicate your acceptance of the foregoing provisions of this Agreement
by signing the enclosed copy of this Agreement and returning it to the Company.
VIKING OFFICE PRODUCTS, INC.
By:
__________________________________________________________
Title:
_______________________________________________________
ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing Agreement
governing the special benefits to which I may become entitled in connection with
the cessation of my employment with Viking Office Products, Inc., under certain
specified conditions following a Change in Control.
Signature:
___________________________________________________
Dated: ______, 1997
8
<PAGE>
VIKING
OFFICE PRODUCTS
1997 ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1997
[ARTWORK]
<PAGE>
OUR CUSTOMERS GET MORE THAN JUST LOW PRICES FORM VIKING!
FANATICAL SERVICE...SAME-DAY DELIVERY!
Viking delivers the SAME-DAY
[ARTWORK] our customer calls in more than 17 major markets
in the U.S. and in 15 international markets!
And, it's FREE on orders as small as $25.
Viking earns its customers' loyalty.
-----
OVERNIGHT DELIVERY VIRTUALLY EVERYWHERE ELSE.
INTERNATIONAL BUSINESS
STRONG, HEALTHY, PROFITABLE GROWTH IN
10 COUNTRIES AND 7 LANGUAGES WITH
2.2 MILLION CUSTOMERS.
[ARTWORK]
DATABASE UNIQUE CUSTOMERS COVERS
TARGETED
[ARTWORK]
................................................................................
INDEX TO CONTENTS
Financial Highlights................2 Balance Sheet........................26
Chairman's Letter...................3 Financial Results.................27-29
Results by Country..............10-18 Notes to Financial Statements.....30-37
The Future.........................19 Shareholders' Information............38
Management's Discussion.........21-23 Directors and Officers...............39
................................................................................
<PAGE>
VIKING CONTINUES TO GROW!
.........................
REVENUES
1992 TO 1997
[GRAPH APPEARS HERE]
MILLIONS OF DOLLARS
1992 $ 320.1
1993 $ 449.7
1994 $ 565.1
1995 $ 811.9
1996 $1,055.8
1997 $1,286.3
ACTIVE CUSTOMERS
1992 TO 1997
[GRAPH APPEARS HERE]
THOUSANDS
1992 745
1993 1,010
1994 1,240
1995 1,530
1996 1,918
1997 2,235
NET INCOME
1992 TO 1997
[GRAPH APPEARS HERE]
MILLIONS OF DOLLARS
1992 $12.8
1993 $17.2
1994 $31.8
1995 $46.1
1996 $60.5
1997 $70.1
EARNINGS PER SHARE
1992 TO 1997
[GRAPH APPEARS HERE]
DOLLARS
1992 $0.17
1993 $0.21
1994 $0.38
1995 $0.54
1996 $0.70
1997 $0.81
........................................................................... 1
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues $1,286,289 $1,055,754 $811,899 $565,055 $449,687
Cost of Goods Sold,
Including Delivery 841,180 693,573 535,789 365,159 292,486
---------- ---------- -------- -------- --------
Gross Profit 445,109 362,181 276,110 199,896 157,201
Selling, General and
Administrative Expenses 351,094 280,321 211,611 152,224 127,843
---------- ---------- -------- -------- --------
Operating Income 94,015 81,860 64,499 47,672 29,358
Other Income, Net 8,997 7,780 7,765 4,412 2,771
---------- ---------- -------- -------- --------
Income before Income Taxes 103,012 89,640 72,264 52,084 32,129
Provision for Income Taxes 32,892 29,169 26,158 20,304 14,972
---------- ---------- -------- -------- --------
Net Income $ 70,120 $ 60,471 $ 46,106 $ 31,780 $ 17,157
========== ========== ======== ======== ========
Net income per common
and common equivalent share (1) $ .81 $ .70 $ .54 $ .38 $ .21
========== ========== ======== ======== ========
FINANCIAL POSITION:
Working Capital $ 197,656 $ 146,756 $127,580 $ 95,223 $ 68,699
Total Assets 474,508 399,641 308,344 227,220 165,345
Stockholders' Equity 352,638 275,029 208,526 150,232 112,660
</TABLE>
(1) Restated for 2-for-1 stock splits in May 1996 and May 1994.
VIKING REVENUES
UNITD STATES vs INTERNATIONAL
[GRAPH APPEARS HERE]
UNITED STATES INTERNATIONAL
------------- -------------
1992 68% 32%
1993 57% 43%
1994 53% 47%
1995 44% 56%
1996 41% 59%
1997 37% 63%
2 ..............................................................................
<PAGE>
[PICTURE APPEARS HERE]
TO OUR SHAREHOLDERS
................................................................................
NEW RECORDS SET
Once again, Viking achieved record revenues and record net income for its fiscal
year 1997. Revenues grew 21.8% to nearly $1.3 billion, and net income increased
16% to $70.1 million. Our business outside the United States is now more than
63% of our total revenue, and growing.
NO, IT'S NOT EASY
Growing profitably in today's intensely competitive and global office products
market is certainly not easy. Fiscal 1997 presented challenges to Viking in
several countries. In the U.S. and almost everywhere else, paper prices were
lower by as much as 34%, slowing our overall revenue growth. In France,
countrywide strikes and social issues prior to their recent elections negatively
affected our business during the first, second and third quarters. However, we
resumed strong top-line growth in the fourth quarter. In the United Kingdom,
our own capacity constraints led to slower growth in the year's second half.
Now, the opening of our third distribution center in Manchester has alleviated
the issue. All in all, by focusing on core issues, strengthening our catalogs,
facilities, systems and people, we are set to achieve continued profitable
growth.
1997 ACCOMPLISHMENTS
Fiscal year 1997 had many significant accomplishments:
. German revenue of $138 million.
. Austria, in only 6 months, had revenue of $4 million.
. New distribution centers opened in Denver, Colorado, Utrecht, The
Netherlands and Munich, Germany.
. New call centers opened in London, England and Dublin, Ireland.
. Major investments in new communication networks, systems and computer
capabilities.
. Prepared to open Italy and began research on Japan.
Even more importantly, our average annual revenue per customer increased nearly
5% and our customer retention, year over year, rose to its highest level ever.
All growth has been achieved without acquisition or debt.
1998 AND BEYOND
We are planning for strong, healthy growth. Our third U.K. distribution center
in Manchester opened in August 1997; we will open Italy in early calendar 1998;
all corporate functions and Western U.S. Call Centers will consolidate in our
new World Headquarters in Los Angeles this fall 1997; and our new "breakthrough"
digital one-on-one catalogs will have the potential to get results never before
possible.
Our future is exciting and limited only by our own ability to create and
successfully execute.
Sincerely,
/s/ Irwin Helford /s/ Bruce Nelson
IRWIN HELFORD BRUCE NELSON
Chairman & Chief Executive Officer President & Chief Operating Officer
.............................................................................. 3
<PAGE>
................................................................................
IT'S WHAT CUSTOMERS THINK THAT COUNTS!
---------
PLACED ORDER THIS MORNING AND RECEIVED AT 1:10 P.M.
THIS AFTERNOON!
Just had to write to commend your company on the speedy service I received
today. I placed an order over the phone this morning at 7:55 AM for some
computer supplies, and received the shipment early this afternoon around 1:10
PM! Everything was in order, nothing was amiss. Glad I waited until your sale
catalog came out, because I almost bought something at a bookstore, but I like
your prices better. Keep up the good work.
/s/ Jean Heather Akins
Jean Heather Akins
Alameda County Law Library
Oakland, CA
I DON'T HAVE TO BE STRESSED OR WORRIED ABOUT MY OFFICE SUPPLIES ANYMORE!
Your service is impeccable! Not to mention quick! Before I ever started ordering
from you, I was getting supplies from what I thought was a reputable company.
They would send different brands from what I had ordered, shorted me product and
took forever before I got my order. And their prices were not even close to
yours. Viking is a blessing in disguise! In this day and age of stress and
worry, it is great to know I do not have to be stressed or worried about my
office supplies order anymore.
/s/ Dru Clementz
Dru Clementz
Clementz Appliance Sales & Service
Geneseo, IL
OTHERS IMPERSONAL, VIKING "OLD FASHION" SERVICE!
In these days of high technology and the impersonal computerization of dealing
with customers, it is always a pleasure to call Viking and always (I stress the
word always!) get an operator who 1) thanks me for calling; 2) has a pleasant
and business-like tone; 3) takes the time to deal with me in the old-fashioned
"the customer is nearly-always-right" manner. After doing business with Viking
since 1988, it is a pleasure doing business with you!
/s/ Mrs. James E. Booker
Mrs. James E. Booker
The Booker Group
New York, NY
THEIR DISCOUNT PRICE WAS ALMOST $30 HIGHER THAN VIKING!
A local office products company in our town recently changed ownership. We
thought it wouldn't hurt to order just one box of computer paper. Sure they
delivered it free (from 3 blocks away) but even their discount price was almost
$30 higher than the Viking price. Needless to say, the delivery person from that
local store ended up taking his box back. I promptly got on the phone to your
800 number and got not only satisfaction, but a great deal from Viking Office
Products again. Thank you, we have learned our lesson.
/s/ Carol N. Flitton
Carol N. Flitton
Northwoodlands, Inc.
Newport, NH
ORDERED AT 1:30 P.M.... DELIVERED AT 2:30 P.M.
I just opened an account with Viking yesterday. I placed my first order via
phone at approximately 1:30 P.M. What a pleasant surprise to find my package at
the door at 2:30 today.
I find it incredible that you can have more than competitive prices and
unparalleled first class service. Viva la Viking.
/s/ Bob Pantina
Bob Pantina
Morganville, New Jersey
YOU HAVE MY BUSINESS FOR LIFE!
I have a small tax preparation business and am about to enter my second year. I
was amazed at how professional your staff treated me. The products were as
stated in the catalog and arrived as promised. It is difficult for a small
company like mine to get the quality of service that your staff gave to me. I
will not forget how I was treated. You have my business for life and I intend
to let others know about Viking Office Products.
/s/ Edward Solomon
Edward Solomon
Jackson Hewitt Tax Service
Farmingville, NY
4 ..............................................................................
<PAGE>
................................................................................
INK THAT COUNTS!
YOU HAVE MANAGED TO GIVE A FIRST-CLASS SERVICE WHILST STILL RETAINING THAT
PERSONAL TOUCH!
We have used your company for some years now, and have always been pleased with
the efficient, helpful service you provide, as well as your sensible prices! I
congratulate you on your success with your business, you have managed to give a
first-class service whilst still retaining that personal touch. Keep up the good
work!
/s/ Jenny A'Bear
Mrs. Jenny A'Bear
Cirencester, England
IT WOULD TAKE ME AS LONG TO GET GOODS FROM THE LOCAL STORE AND THEY WOULD COST
ME MORE!
Your organization is fantastic, the people that man the phones are extremely
helpful. The quality of the products you sell is first class. The prices are
highly competitive. The delivery service is incredible. I felt I must thank you.
It would take me as long to get goods from the local store and they would cost
me more.
/s/ John Chambers
John Chambers
Warminster, England
I ASSURE YOU I WILL BE A LOYAL CUSTOMER BECAUSE I AM COMPLETELY SATISFIED BY
YOUR SERVICES!
I can tell you that you are unbeatable! Delivery in 24 hours throughtout France:
that's not true! Actually, I placed an order around 3:00 P.M. and the next
morning, it was delivered at 10:15 A.M. --never seen before!
Here are your grades on a scale of 20, keeping in mind that I don't yet know all
of your products: Delivery: 20. Quality: 20. Kindness of your people: 20.
/s/ S. Lagarde
S. Lagarde
Chateauneuf-sur-Charente, France
I'M OVERWHELMED BY YOUR SERVICE!
I have now ordered twice from Viking Direkt Office Products and I want to tell
you that I'm overwhelmed by your service. The quick delivery and the way the
products are wrapped up, to avoid damage, got my positive attention.
/s/ M. Igney
M. Igney
Igney & Igney Finanzmakler
Gittelde, Germany
VIKING, YOU SAVE US TIME AND MONEY!
In the past we had to go to a store downtown whenever we had a shortage. This
did cost us a lot of time and therefore money. Right now we send a fax and to
our surprise everything gets delivered at our door right away.
Besides, the prices are favourable compared to what we used to pay in the past.
Because we work the same way you do and also depend on customer service, we
wanted to let you know, Viking, you're doing, according to us, fine. Your
folders are clear and invite you to buy due to the friendly gentleman, who is
not only business-like but also human and that counts for something in 1997!
/s/ M. Ebben
M. Ebben
Interzon-Vakanties
Nijmegen, The Netherlands
GENUINE DISCOUNTS, AMAZINGLY FAST DELIVERY!
I have been operating a small business for several years now and it is extremely
important to me to have access to stationery supplies that are both economically
priced and of good quality. I have had a number of local stationers seeking to
take your place, but frankly, none of them measure up to Viking. Also
appreciate the fact that you seem to value even "small" customers like myself.
Local competitors may try to keep up with you, but they'll try in vain!
/s/ Cindy Tarry
Cindy Tarry
Adelaide Computype
Secretarial Services
Valley View, SA, Australia
.............................................................................. 5
<PAGE>
VIKING'S UNITED STATES
OPERATIONS
................................................................................
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Jacksonville, Florida Seattle, Washington
Since 1988 Since 1992
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Minneapolis, Minnesota Baltimore, Maryland
Since 1995 Since 1995
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
San Francisco, California Denver, Colorado
Since 1996 Since 1997
6 ..............................................................................
<PAGE>
SAME-DAY DELIVERY TO CUSTOMERS IN LOCAL MARKETS,
OVERNIGHT DELIVERY MOST ANYWHERE ELSE!
................................................................................
MAJOR DISTRIBUTION AND CALL CENTERS
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Los Angeles, California Dallas, Texas
Since 1960 Since 1975
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Cincinnati, Ohio East Windsor, Connecticut
Since 1979 Since 1987
VIKING'S NEW
WORLD HEADQUARTERS
TORRANCE, CALIFORNIA
In September 1997, all [PICTURE APPEARS HERE]
corporate functions will merge
into our new World Headquarters
with enhanced systems
and world wide communications networks.
...............................................................................7
<PAGE>
VIKING'S
INTERNATIONAL OPERATIONS
................................................................................
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Leicester, England, UK London, England, UK
Since 1990 Since 1994
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Manchester, England, UK Dublin, Ireland
Since 1997 Since 1995
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Sydney, Australia Melbourne, Australia
Since 1993 Since 1996
8 ..............................................................................
<PAGE>
SAME-DAY DELIVERY TO CUSTOMERS IN LOCAL MARKETS,
OVERNIGHT DELIVERY MOST ANYWHERE ELSE!
................................................................................
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Paris, France Utrecht, The Netherlands
Since 1992 Since 1996
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
Frankfurt, Germany Munich, Germany
Since 1995 Since 1996
VIKING'S EUROPEAN
BASE CENTER [PICTURE APPEARS HERE]
Venlo, The Netherlands
Since 1995
.............................................................................. 9
<PAGE>
[ARTWORK] VIKING UNITED STATES
................................................................................
[PICTURE APPEARS HERE]
Ron Weissman, Vice President, Logistics
Fred Abt, Merchandise Director
Viking's revenue in the United States grew to $472.2 million, an increase of 10%
over last year. Our selling price on paper was about 30% less than last year
resulting in 4-5% less overall growth.
Almost 245,000 new customers began buying from Viking this year and active
customers grew to a record 797,941. In the fourth quarter of fiscal 1997,
Viking added more new customers in the United States than in any other quarter
in our history. New accounts in the quarter grew at a record 39% over last
years fourth quarter.
Impressing customers is our business. In 17 major U.S. markets customers now
get Same-Day delivery. Most orders are delivered free and complete. In the 10
cities where Viking has distribution centers, customers can order as late as
6:00pm local time and get delivery, almost always free, before they leave their
office that night. That's impressing customers!
"THAT EVERY CUSTOMER, LARGE OR SMALL, RECEIVE OUR BEST, HONEST AND PERSONAL
SERVICE."
[GRAPH]
[ARTWORK]
10 .............................................................................
<PAGE>
[ARTWORK] VIKING UNITED KINGDOM
................................................................................
[PICTURE APPEARS HERE]
Keith Cain, Country Manager
Brian Powell, Merchandise Director
Viking's business in the United Kingdom increased by 18% (14% in local currency)
to $368.2 million and achieved record profitability. Over 541,000 customers
purchased from Viking this year, more than ever before.
During the year, a new call center was opened in London to handle our increasing
phone and fax volumes. During the third quarter of fiscal 1997, capacity
constraints limited our growth potential. In August 1997, we opened our third
distribution center in the UK at Manchester, which now provides us the necessary
capacity to continue our growth.
In London, Leicester, Birmingham and now Manchester, customers can get delivery
the same day they order. Same-Day delivery is the fastest growing segment of
our business, and we intend to earn more of our customers business than ever
before.
"THAT EACH OF OUR EFFORTS RESULTS IN SO IMPRESSING OUR CUSTOMERS, THAT THEY WANT
TO BUY FROM US AGAIN."
[GRAPH]
[ARTWORK]
............................................................................. 11
<PAGE>
[ARTWORK] VIKING IRELAND
................................................................................
[PICTURE APPEARS HERE]
Keith Cain, Country Manager
Brian Powell, Merchandise Director
This year, Viking's revenue in Ireland grew by more than 42% to $18.8 million.
Ireland began in 1994 utilizing our "cross-border" capabilities from our English
facility. Ireland is now serviced by its own full-service distribution center
and call center in Dublin, insuring that over 99.5% of all items ordered are
delivered complete the first time.
Customers in Dublin get Same-Day delivery, and customers throughout the rest of
the Republic of Ireland and Northern Ireland get delivery overnight. Active
accounts grew to a record 28,168 with some of our highest catalog response rates
ever.
[GRAPH]
[ARTWORK]
12 .............................................................................
<PAGE>
[ARTWORK] VIKING FRANCE
................................................................................
[PICTURE APPEARS HERE]
Bernard Pagneux, Country Manager
Marc Lefebvre, Merchandise Director
Fiscal 1997 was a difficult year for Viking's business in France. Continued
political and social unrest, high French unemployment and a strong dollar
resulted in only a 5% growth in revenues (13.4% in local currency) to $150.4
million. As a result, profitability was affected and disappointing. However,
during the fourth quarter, Viking's French business began to show signs of
significant improvement. Fourth quarter revenue grew by 23% in local currency.
Almost 285,000 French customers actively purchase from Viking, up almost 16%
over last year. During this fiscal year, 103,466 new customers ordered from
Viking. In the fourth quarter alone, new customers grew a record 35% over the
same quarter last year.
French customer retention has never been higher. Earning our customer's loyalty
is what it is all about.
"THAT WE PROVIDE QUALITY BUSINESS PRODUCTS AT SIGNIFICANT SAVINGS WHILE
GENERATING ACCEPTABLE PROFITS FOR OUR COMPANY."
[GRAPH]
[ARTWORK]
............................................................................. 13
<PAGE>
[ARTWORK] VIKING
BELGIUM & LUXEMBOURG
................................................................................
[PICTURE APPEARS HERE]
Bernard Pagneux, Country Manager
Marc Lefebvre, Merchandise Director
Viking's revenues in Belgium and Luxembourg increased 25% to $38.6 million.
Active customers grew to 75,699, an increase of 37% over last year.
Utilizing our "cross-border" capabilities from our French distribution center in
Paris, Viking's Belgium and Luxembourg customers receive complete overnight
delivery, usually free. Customers have a choice of Walloon or Flemish catalogs.
The Flemish orders are taken in Venlo, The Netherlands, and the Walloon orders
are processed in Paris, France. All calls are answered in "local" voices.
Though smaller than other Viking markets, these countries continue to grow
profitably.
[GRAPH]
[ARTWORK]
14 .............................................................................
<PAGE>
[ARTWORK] VIKING THE NETHERLANDS
................................................................................
[PICTURE APPEARS HERE]
Rolf van Kaldekerken, Country Manager
Peter Damman, Merchandise Manager
Viking's revenues in The Netherlands grew by 37% to $31.2 million (51% growth in
local currency), and achieved profitability for the first time.
Almost 70,000 Netherlands customers purchased from Viking in fiscal 1997,
growing by more than 23%. Customer retention grew by a greater percentage than
in any other country last year.
From our warehouse near Utrecht, Viking's customers in three of the largest
Netherlands markets -- Amsterdam, Rotterdam and Utrecht -- can get delivery the
same day they order.
During fiscal 1997, we opened and expanded a new multifunction office facility
in Venlo. This facility serves as our customer service and call center for
Viking's customers in The Netherlands, all of Germany, a portion of Belgium,
Luxembourg and Austria. Customer calls are always answered in "local" voices.
This facility and our outstanding people keep us closer to our Pan-European
markets and customers -- today, and for future expansion.
[GRAPH]
[ARTWORK]
............................................................................. 15
<PAGE>
[ARTWORK] VIKING AUSTRIA
................................................................................
[PHOTO]
Thomas Nicolay, Merchandise Manager
Rolf van Kaldekerken, Country Manager
Viking began business in Austria in January 1997. Utilizing our "cross-
border" capabilities, orders are received in our Venlo, The Netherlands call
center and most are delivered free and overnight from our Munich, Germany
distribution center. In Venlo, customer calls from Austria are always answered
with "local" voices.
In its first 6 months of operation, Austria generated almost $4 million in
revenues from 17,973 new customers.
Viking's Austrian target business customer base is approximately 10% the
size of the German market. Early results are encouraging.
[GRAPH]
[ARTWORK]
16..............................................................................
<PAGE>
[ARTWORK] VIKING GERMANY
................................................................................
[PHOTO]
Thomas Nicolay, Merchandise Manager
Rolf van Kaldekerken, Country Manager
Viking Germany, in its first full fiscal year of operation, achieved very
strong revenues of $138.0 million. Over 296,000 German business customers
purchased from Viking in fiscal 1997. Only the United States and the United
Kingdom currently have more active customers than Germany.
In fiscal 1997, we opened our second distribution center to serve our
growing German market. Located in Munich, this center provides Same-Day delivery
to Munich, and by utilizing our "cross-border" capabilities, ships orders
overnight to Austria. Now, for the first time ever, Viking customers get Same-
Day delivery in the Munich area, just as many have enjoyed in Frankfurt.
Germany represents the largest market potential for Viking in Europe, but
also has the biggest obstacles to success. Restrictive marketing rules, high
wages and social costs, and very high postage make achieving profitability
difficult. Even so, Germany became profitable during this fiscal year. These are
our best early results ever for a new country business.
"That Viking be recognized by its employees, customers and suppliers for
Excellence, Integrity, and Market Leadership."
[GRAPH]
[ARTWORK]
..............................................................................17
<PAGE>
[ARTWORK] VIKING AUSTRALIA
................................................................................
[PHOTO]
Alan Verey, Country Manager
Anthony Keyzer, Merchandise Director
Viking's revenues in Australia increased 22% to $64.9 million. Active
customers grew by 21% to almost 124,000. During the fourth quarter of this
fiscal year, new customers increased by 66% compared to the same quarter last
year.
Viking relocated to our new expanded Sydney office facility during the
fiscal year, and we began construction on a new, larger Sydney distribution
center. Our rapid and successful growth outpaced the capacity of the smaller
facilities.
Viking's customers in Sydney and Melbourne receive their orders the same
day they call, almost always free. Most of Viking's other Australian customers
get their orders overnight and usually free.
"THAT WE STRIVE TO PROVIDE 'SAME-DAY' OR 'NEXT-DAY' DELIVERY TO ALL OF OUR
CUSTOMERS."
[GRAPH]
[ARTWORK]
18..............................................................................
<PAGE>
VIKING THE FUTURE
................................................................................
[ARTWORK]
Viking's future is filled with opportunities for solid growth in both
revenues and profitability. We are confident and excited about our future
potential.
We believe that a customer's loyalty is not "bought with price", it is
earned with "FANATICAL CUSTOMER SERVICE". We intend to be even better at
"IMPRESSING" our customers so much that they want to buy from us again.
We'll continue to work hard impressing customers with effective
merchandising and exceptional service. Among others, here are three key
strategies for our future:
. OPENING NEW COUNTRIES & MARKETS. We will begin operations in Italy early in
calendar year 1998. Japan and other parts of Asia are on our horizon.
Spain, Portugal, the Scandinavian countries, portions of Eastern Europe and
South America all represent future growth opportunities for Viking.
. EXPANDING SAME-DAY DELIVERY. Customers in our Same-Day Delivery zones are
more loyal and grow faster than most other customers. We will expand this
unique service, now in 32 markets worldwide, in both our existing countries
and in new countries we enter.
. UNIQUE "ONE-TO-ONE" CATALOGS. Since 1991, Viking has created unique,
innovative catalogs that target individual customers with one-of-a-kind
offers and messages. Now in 1997, new "breakthrough" technologies have
enabled us to custom print unique presentations, different for each
customer. This new capability can lead us to end "junk mail", eliminate
waste and generate greater customer response and loyalty than ever before
possible.
[ARTWORK]
.............................................................................19
<PAGE>
SAME DAY DELIVERY
................................................................................
Thousands of Viking Customers love it today. Millions will "tomorrow"!
Viking Customers in 17 U.S. markets and 15 international markets get delivery
the same day they call us.
. No time lost traveling to stores
. No lifting, carrying or cash needed
. FREE pick ups of returns and 100% refunds
[PICTURE APPEARS HERE]
It starts with our customers:
She calls or faxes us. No busies, no delays, no machines.
[PICTURE APPEARS HERE]
We answer instantly, personally:
Viking representative assists and enters order. Friendly, helpful and
compassionate.
[PICTURE APPEARS HERE]
Fullfillment begins:
Within minutes, order is processed and completed in distribution center nearest
customer.
Damage-proof carton:
Viking's new carton is so strong, it resists virtually all damage, openings or
other carton problems. It's custom sized for each order, and contains no
plastic peanuts or other messy fillers.
It's now out for delivery:
Viking's contract fleet of trucks deliver to local customers within hours of
ordering. The drivers are friendly and helpful, too.
[PICTURE APPEARS HERE]
Customer is impressed:
Customers receive their order before day's end. And, delivery is almost always
free.
20 .............................................................................
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At June 30, 1997, Viking Office Products, Inc. ("Viking" or the "Company")
operated ten distribution centers throughout the United States, two in Australia
and seven 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 1 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 27, 1997 and June 28, 1996 were 52 week years. For clarity
of presentation, the Company has described all periods presented as if the years
ended on June 30. Foreign currency fluctuations and the number of weeks in the
fiscal year can impact the results of operations. Foreign currency fluctuations
did not materially impact the results of operations for the years presented.
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 30, 1997 compared to year ended June 30, 1996
Revenues for fiscal 1997 increased $230.5 million, or 21.8% from fiscal
1996. This increase was primarily attributable to a 16.5% increase in the number
of customers who purchased products during fiscal 1997, a 4.6% increase in the
average revenue per customer and a 23.1% increase in the number of catalogs
mailed. The revenue increase in fiscal 1997 included increases of $42.8 million
in the United States, $176.2 million in European markets (the United Kingdom,
Ireland, France, Belgium, Luxembourg, The Netherlands, Austria and Germany) and
$11.5 million in Australia. During fiscal 1997, revenues in the United States
represented approximately 36.7% of the consolidated total, with the balance
coming from Europe and Australia.
The increase in catalogs mailed and the number of customers purchasing
products was attributable to the continuing expansion of existing markets in
Europe, especially 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.
<TABLE>
<CAPTION>
Percentage Increase
For The Fiscal Years Ended (Decrease)
------------------------------------ -------------------------
June 30,
------------------------------------ 1997 vs. 1996 vs.
1997 1996 1995 1996 1995
------- ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 21.8% 30.0%
Cost of goods sold, including delivery 65.4 65.7 66.0 21.3 29.4
Gross profit 34.6 34.3 34.0 22.9 31.2
Selling, general 27.3 26.6 26.1 25.2 32.5
Operating income 7.3 7.7 7.9 14.8 26.9
Other income, net .7 .8 1.0 15.6 .2
Income before income taxes 8.0 8.5 8.9 14.9 24.0
Provision for income taxes 2.6 2.8 3.2 12.8 11.5
Net income 5.4% 5.7% 5.7% 16.0% 31.2%
</TABLE>
............................................................................. 21
<PAGE>
Gross profit for fiscal 1997 increased by $82.9 million, or 22.9% from
fiscal 1996. As a percentage of revenues, gross profit rose to 34.6% from 34.3%
in the prior year. The rise in gross profit as a percentage of revenue is
primarily attributable to lower costs related to paper products, and higher
margins in Germany. During fiscal 1996, Germany was in the start up phase when
margins are generally lower. Gross profit also improved due to reductions in
delivery costs.
Selling, general and administrative expenses for fiscal 1997 increased by
$70.8 million, or 25.2% compared to fiscal 1996. As a percentage of revenues,
these expenses increased from 26.6% in fiscal 1996 to 27.3% in fiscal 1997. The
increase in selling, general and administrative expenses reflects major
investments in new countries, facilities and systems as well as increased
advertising in the form of prospecting, which resulted in a record number of new
account additions in the United States, France and Australia.
Other income, which consists primarily of cash discounts from suppliers and
interest income, increased $1.2 million during fiscal 1997. 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 lower interest rates, and a reduction in average
invested balances throughout the year.
The effective tax rate was 31.9% for fiscal 1997 compared to 32.5% in
fiscal 1996. The decrease is primarily attributable to the implementation of tax
strategies in certain European countries, and the change in the valuation
allowance associated with net operating loss carryforwards.
Year ended June 30, 1996 compared to year ended June 30, 1995
Revenues for fiscal 1996 increased $243.8 million, or 30.0% from fiscal
1995. The 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. During fiscal 1996, revenues in the United States
represented approximately 41% of the consolidated total, with the balance coming
from Europe and Australia.
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 the German market. The increase in the average revenue per
customer was the result of continued improvement in database marketing
techniques.
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 was 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 increased in the aggregate as the
Company continued its expansion in Europe, primarily Germany. Catalog costs
increased 25.7% driven by the increase in the number of catalogs mailed.
Operating costs, consisting of branch and general and administrative expenses,
also rose from the prior year reflecting expansion in Germany and expenditures
for systems and staffing.
Other income, which consisted 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 average invested balances throughout
the year.
22 .............................................................................
<PAGE>
The effective tax rate was 32.5% for fiscal 1996 compared to 36.2% in
fiscal 1995. The decrease was 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.
Liquidity and Capital Resources
Viking's primary source of liquidity and capital has been cash flow from
operations. Viking believes that its existing cash and short-term investments,
cash generated from operations and available credit under its revolving credit
facility will be sufficient to finance its working capital and capital
expenditure requirements for the foreseeable future.
At June 30, 1997, the Company had working capital of $197.7 million
compared to $146.8 at June 30, 1996. The improved working capital position
primarily reflects cash provided by operating activities of $49.8 million in
fiscal 1997. Capital expenditures were $49.9 million in fiscal 1997, as Viking
expanded its domestic and international operations, and invested in new
corporate facilities. During the year, the Company opened three new distribution
facilities worldwide. Additionally, the Company continued to invest in systems
the Company believes will 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 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 maintaining certain financial ratios. At June 30,
1997, 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
the world to expand its business, and is currently developing plans to enter
additional countries during fiscal 1998. 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 1998 are expected to be between $70 million and $75
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.
............................................................................. 23
<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
24 .............................................................................
<PAGE>
INDEPENDENT AUDITORS' REPORT
[LOGO OF DELOITTE & TOUCHE LLP]
Board of Directors and Stockholders
Viking Office Products, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Viking Office
Products, Inc. and subsidiaries (the "Company") as of June 30, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Viking Office Products, Inc.
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
August 20, 1997
............................................................................. 25
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
June 30,
------------------
1997 1996
-------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 29,856 $ 11,693
Short-term investments................................ 26,021 33,068
Accounts receivable, net.............................. 150,931 121,061
Merchandise inventories............................... 89,279 81,753
Prepaid catalog costs................................. 18,290 17,831
Prepaid expenses and other current assets............. 3,986 3,430
-------- --------
Total current assets................................ 318,363 268,836
-------- --------
Property and equipment, net............................. 121,800 95,231
Other assets:
Deposits and other assets............................. 6,262 6,590
Intangible assets, net................................ 28,083 28,984
-------- --------
Total other assets.................................. 34,345 35,574
-------- --------
$474,508 $399,641
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................. $ 94,386 $ 91,975
Sales and value added taxes payable................... 10,388 3,956
Income taxes payable.................................. 15,933 26,149
-------- --------
Total current liabilities........................... 120,707 122,080
-------- --------
Deferred income taxes................................... 1,163 2,532
Commitments and contingencies
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,
83,814,745 shares and 82,964,193 shares at
June 30, 1997 and 1996, respectively................ 110,845 98,567
Retained earnings....................................... 251,842 181,722
Unamortized value of long-term incentive stock grant.... (3,917) (4,346)
Cumulative foreign currency translation adjustment...... (6,132) (914)
-------- --------
Total stockholders' equity.............................. 352,638 275,029
-------- --------
$474,508 $399,641
======== ========
</TABLE>
See notes to consolidated financial statements.
26 .............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the fiscal years ended
---------------------------------------
June 30,
---------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenues............................................................ $1,286,289 $1,055,754 $811,899
Cost of goods sold, including delivery.............................. 841,180 693,573 535,789
---------- ---------- ---------
Gross profit........................................................ 445,109 362,181 276,110
Selling, general and administrative expenses........................ 351,094 280,321 211,611
---------- ---------- ---------
Operating income.................................................... 94,015 81,860 64,499
Other income, net................................................... 8,997 7,780 7,765
---------- ---------- ---------
Income before income taxes.......................................... 103,012 89,640 72,264
Provision for income taxes.......................................... 32,892 29,169 26,158
---------- ---------- ---------
Net income.......................................................... $ 70,120 $ 60,471 $ 46,106
========== ========== ========
Net income per common
and common equivalent share.................................... $.81 $.70 $.54
========== ========== ========
Weighted average number of common and common
equivalent shares outstanding....................................... 87,000 86,560 85,100
========== ========== ========
</TABLE>
See notes to consolidated financial statements.
............................................................................. 27
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<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 30, 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) 2,775 (300)
Amortization of long-term incentive
stock grant 647 647
Foreign currency translation adjustment (3,921) (3,921)
Net income 60,471 60,471
---------- -------- -------- ------- ------- --------
Balance, June 30, 1996 82,964,193 98,567 181,722 (4,346) (914) 275,029
Common stock issued 1,020,552 6,800 6,800
Tax benefit related to stock options 6,271 6,271
Long-term incentive stock grant 30,000 745 (745) --
Long-term incentive stock grant canceled (200,000) (1,538) 712 (826)
Amortization of long-term
incentive stock grant 462 462
Foreign currency translation adjustment (5,218) (5,218)
Net income 70,120 70,120
---------- -------- -------- ------- ------- --------
Balance, June 30, 1997 83,814,745 $110,845 $251,842 ($3,917) ($6,132) $352,638
========== ======== ======== ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
28 .............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the fiscal years ended
--------------------------------------
June 30,
--------------------------------------
1997 1996 1995
---------- ------------ ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 70,120 $ 60,471 $ 46,106
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization....................... 19,707 13,696 8,052
Provision for doubtful accounts..................... 12,623 9,700 10,400
Deferred income taxes............................... (1,369) 2,146 (103)
Loss on sale of property and equipment.............. 140 4 35
Increase in accounts receivable..................... (44,985) (37,545) (37,994)
Increase in merchandise inventories................. (9,280) (18,042) (18,257)
Increase in prepaid expenses
and other current assets.......................... (1,692) (1,942) (5,743)
Increase in accounts payable
and accrued expenses.............................. 657 13,079 13,144
Increase in other liabilities....................... 3,859 15,832 8,025
-------- -------- --------
Net cash provided by operating activities............... 49,780 57,399 23,665
Cash flows from investing activities:
Proceeds from sale of property and equipment............. 313 788 57
Capital expenditures..................................... (49,902) (61,568) (31,324)
Decrease (increase) in short-term investments............ 7,047 3,315 (13,462)
Issuance (repayment) of notes receivable and other....... 756 (4,264) (912)
-------- -------- --------
Net cash used in investing activities.................... (41,786) (61,729) (45,641)
Cash flows from financing activities:
Proceeds from issuance of stock.......................... 6,800 6,108 6,004
-------- -------- --------
Net cash provided by financing activities................ 6,800 6,108 6,004
Effect of exchange rate changes on cash
and cash equivalents........................................ 3,369 (1,165) 1,443
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.......... 18,163 613 (14,529)
Cash and cash equivalents, beginning of year.................. 11,693 11,080 25,609
-------- -------- --------
Cash and cash equivalents, end of year........................ $ 29,856 $ 11,693 $ 11,080
======== ======== ========
Supplemental cash flow information:
Income taxes paid........................................ $ 35,629 $ 13,628 $ 21,630
======== ======== ========
Interest paid............................................ $ 126 $ 346 $ 167
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
............................................................................. 29
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- 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,
Austria 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 27, 1997 and June 28, 1996 were 52 week years. For clarity of
presentation, the Company has described all periods presented as if the years
ended on June 30.
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. At June 30, 1997,
short-term investments are comprised of $22.5 million of tax exempt municipal
bonds, $2.0 million of investments in corporate bonds and $1.5 million of other
highly liquid marketable securities. The maturities of tax exempt municipal
bonds at June 30, 1997 include $9.7 million due within one year and $12.8
million due in one to three years. At June 30, 1997 and June 30, 1996, fair
value approximates 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...................... 10-30 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 amounted to $3,650,000 and $3,446,000
at June 30, 1997 and 1996, respectively.
Intangible Assets
On September 1, 1988, Viking was acquired from its founders in a
transaction accounted for as a purchase. 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 $8,254,000 and $7,352,000 at June 30, 1997 and
1996, 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 were 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
"Accounting for Income Taxes." Under SFAS No. 109, income tax expense includes
income taxes payable for the current year, and certain deferred income
30 .............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
taxes resulting from temporary differences between assets and liabilities for
tax purposes and for financial statement purposes.
Viking has not recognized income tax expense on the undistributed earnings
of its foreign subsidiaries. It is the Company's intention to reinvest such
earnings permanently to fund further overseas expansion. However, if such
earnings were distributed to the United States, it is anticipated that federal
income taxes would be substantially offset by available foreign tax credits.
Cumulative undistributed earnings of foreign subsidiaries, for which no United
States taxes have been provided, approximated $145,000,000 at June 30, 1997 and
$101,000,000 at June 30, 1996.
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 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. Gains
and losses related to qualifying hedges of these exposures are deferred and
recognized in operating income when the underlying hedged transaction occurs.
At June 30, 1997, Viking had approximately $1,950,000 of forward exchange
contracts outstanding, which mature at varying dates through August 1997. The
fair value of foreign exchange contracts does not differ significantly from
their carrying value. At June 30, 1996, Viking had $4,127,000 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 30, 1997, 1996 and 1995
were 87,000,000, 86,560,000 and 85,100,000, 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 adoption of SFAS No. 121 in fiscal 1997 did
not have a material effect on the Company's financial statements.
............................................................................. 31
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 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") and related interpretations. The Company has adopted SFAS No. 123
during fiscal 1997; however, The Company will continue to measure compensation
cost for these plans using the intrinsic value based method of accounting
prescribed by APB 25 (See Footnote 8).
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share". This statement simplifies the computation of earnings
per share ("EPS") and makes them comparable with the EPS standards in other
countries. Had SFAS No. 128 been effective during the fiscal years ended June
30, 1997, 1996 and 1995 "Basic Earnings Per Share" would have been $.84, $.73,
and $.57, respectively, and "Diluted Earnings Per Share" would have been $.81,
$.70, and $.54, respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial statements issued for periods beginning
after December 15, 1997. The Company has not yet analyzed the impact of adopting
this statement.
Reclassifications
Certain reclassifications were made to prior year statements to conform to
the current year presentation.
NOTE 2 -- ACCOUNTS RECEIVABLE
Accounts receivable is comprised primarily of trade receivables from
customers, and is net of an allowance for doubtful accounts and customer returns
of $8,577,000 and $7,416,000 at June 30, 1997 and 1996, 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 geographic regions.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Land............................. $ 6,513 $ 7,000
Buildings and improvements....... 31,271 25,137
Furniture, equipment and other... 61,436 43,969
Leasehold improvements........... 8,808 6,162
Computer equipment............... 39,162 31,623
Construction in progress......... 20,276 9,352
-------- --------
167,466 123,243
Less accumulated depreciation
and amortization............ (45,666) (28,012)
-------- --------
$121,800 $ 95,231
======== ========
</TABLE>
NOTE 4 -- INCOME TAXES
A summary of the components of income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
For the fiscal years ended
-----------------------------
June 30,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current
Federal.............. $12,036 $ 7,157 $12,079
European and other... 19,675 18,416 12,548
State................ 2,550 1,450 1,634
------- ------- -------
34,261 27,023 26,261
Deferred................. (1,369) 2,146 (103)
------- ------- -------
$32,892 $29,169 $26,158
======= ======= =======
</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 30,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Federal income taxes at
statutory rate................... 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit........... 1.4 1.3 1.4
Amortization of intangible assets.... .1 .3 .4
Change in income tax
valuation allowance.............. (1.6) (2.7) (1.7)
Foreign income taxed at
rates other than Federal......... (2.8) -- --
Other................................ (.2) (1.4) 1.1
Effective tax rate................... 31.9% 32.5% 36.2%
==== ==== ====
</TABLE>
32 .............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that resulted in deferred income
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
For the fiscal years ended
----------------------------
June 30,
----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Deferred income tax
assets:
Foreign operating loss
carryforwards.................. $ 2,949 $ 4,583 $ 7,084
Accounts receivable
allowance...................... 1,442 1,257 1,376
State taxes on income.............. 583 359 617
Uniform capitalization rules....... 516 453 390
Other.............................. 1,825 361 299
Less valuation allowance........... (2,949) (4,583) (7,084)
------- ------- -------
$ 4,366 $ 2,430 $ 2,682
======= ======= =======
Deferred income tax liabilities:
Prepaid catalog costs.............. $ 3,155 $ 3,609 $ 2,786
Depreciation....................... 1,512 801 73
Other.............................. 862 552 209
------- ------- -------
$ 5,529 $ 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.
NOTE 5 -- 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 $1,800,000, $1,500,000 and $1,300,000 for
the years ended June 30, 1997, 1996 and 1995, 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 $267,000 and $130,000 to the 401(k) plan
for the years ended June 30, 1997 and 1996, respectively.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Viking leases facilities for certain distribution centers. Future minimum
rental payments required under noncancelable leases for the five years following
June 30, 1997 are as follows
<TABLE>
<CAPTION>
(in thousands):
<S> <C>
1998.............................. $ 9,025
1999.............................. 8,196
2000.............................. 7,652
2001.............................. 7,141
2002.............................. 6,528
Thereafter........................ 28,106
Total minimum payments required... $66,648
</TABLE>
Viking has leases with rental rate adjustments based on the Consumer Price
Index. Rent expense was $10,139,000, $7,488,000 and $5,226,000 for the years
ended June 30, 1997, 1996 and 1995, respectively.
The Company is the defendant in an action that was filed on July 18, 1997,
in The Circuit Court of Cook County, Illinois, as Pandolfi, Topolski, Weiss &
Co., Ltd., et al, vs. Viking Office Products, Inc. The plaintiffs allege
misleading advertising with respect to the Company's insurance charges and are
seeking to obtain, on behalf of themselves and a purported class of other
potential plaintiffs, reimbursement for insurance charges paid by them over a
four-year period, estimated by plaintiffs to be $25 million, injunctive relief
and interest and costs of suit, including attorneys' fees. The Company believes
that the action is without merit and will not have a material adverse effect on
the financial position of the Company.
NOTE 7 -- REVOLVING CREDIT AGREEMENT
Viking has a 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 maintaining certain financial ratios. At June 30,
1997, no amounts were outstanding under the revolving credit facility, and the
entire $60 million was available for borrowing.
............................................................................. 33
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- STOCKHOLDER'S EQUITY
Long-Term Incentive Stock Plan
The Long-Term Incentive Stock Plan, which was approved at the 1993 annual
meeting of stockholders, enables the Board of Directors to award up to 1,600,000
shares of common stock to key employees of Viking. Under the Long-Term Incentive
Stock Plan, 1,230,000 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
awards was $9,971,250. As of June 30, 1997, 600,000 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 $462,000 in 1997, $647,000 in
1996 and $648,000 in 1995.
Employee Stock Option Plans
The Company currently has two employee stock option plans. Under the
Amended and Restated 1989 Incentive Stock Option Plan ("1989 Plan"), stock
options may be granted 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
maximum number of shares issuable under the 1989 Plan increases on the last day
of each fiscal year by a number equal to 1.25% of the number of shares of Common
Stock issued and outstanding on such date, up to a maximum of 14,000,000 shares.
As of June 30, 1997, the maximum number of shares of Common Stock issuable under
the 1989 Plan was 13,904,506, options to purchase 7,023,351 shares of Common
Stock were outstanding, of which 2,396,651 options were presently exercisable,
and options to purchase 5,673,749 shares of Common Stock had been exercised.
Accordingly, at June 30, 1997, 1,207,406 shares of Common Stock remained
available for grant.
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 30, 1997, options to purchase
199,087 shares of Common Stock were outstanding under the 1991 Plan, of which
43,567 were exercisable, options to purchase 89,638 shares of Common Stock had
been exercised and 111,275 shares of Common Stock were available for grant. The
weighted average fair value of options granted in 1997 and 1996 were $9.55 and
$9.23 respectively.
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 220,000 options have been granted under the 1992 Plan.
Total options granted under both plans to purchase 2,568,218 shares and
2,133,937 shares of Common Stock were exercisable at June 30, 1997 and 1996,
respectively. Stock option activity with respect to the above plans is as
follows:
<TABLE>
<CAPTION>
Weighted
Price Average
Options Range Price
------- ----- --------
<S> <C> <C> <C>
Outstanding at
June 30, 1994..... 6,857,876 $1.22-$12.06 $ 4.47
Granted........... 1,046,000 2.50-15.25 12.84
Exercised......... (1,228,182) 1.22-13.00 4.09
Canceled.......... (73,600) 2.06-13.00 8.94
Outstanding at
June 30, 1995..... 6,602,094 1.22-15.25 6.13
Granted........... 2,190,518 .25-26.94 19.74
Exercised......... (1,599,155) .25-15.25 3.67
Canceled.......... (203,200) 1.22-17.38 9.85
Outstanding at
June 30, 1996..... 6,990,257 .25-26.94 10.83
Granted........... 1,920,907 1.25-29.13 21.34
Exercised......... (1,012,326) .25-22.25 6.21
Canceled.......... (496,400) .25-29.13 16.24
Outstanding at
June 30, 1997..... 7,402,438 .25-29.13 13.80
</TABLE>
34 .............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding In Years Price Exercisable Price
- --------------- ----------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.2500 to $3.750 1,242,377 5 $ 2.6196 1,000,057 $ 2.5277
4.1880 to 8.375 1,587,661 6 6.5554 953,661 6.1406
11.1250 to 13.970 953,300 7 12.6317 352,500 12.4304
17.3750 to 20.938 1,041,200 8 17.9168 177,200 18.0117
22.2500 to 25.875 1,208,000 9 24.3856 43,600 22.2500
26.9380 to 29.125 691,600 9 27.2670 32,800 26.9380
14.3125 to 15.250 678,300 10 14.3606 8,400 15.2500
- ------------------ --------- ---------
$0.2500 to $29.125 7,402,438 2,568,218
========= =========
</TABLE>
Employee Stock Purchase Plans
The Company has five different employee stock purchase plans. The plans
allow participating employees to purchase up to 1,840,000 shares of Common Stock
at 80-85% 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 plans.
As of June 30, 1997, 118,142 shares had been issued under the stock purchase
plans.
The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, compensation cost has been recognized under its stock-based
compensation plans in accordance with APB 25. Had compensation cost for the
Company's stock-based compensation plans been determined based on their fair
value at the grant date for options granted in 1997 and 1996 consistent with the
provisions of SFAS No. 123, the Company's net income and net income per common
share would have been reduced to the pro forma amounts presented below (In
thousands, except per share amounts):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
Net Income
As reported $70,120 $60,471
Pro forma 66,063 58,442
Net Income per common share
As reported $ 0.81 $ 0.70
Pro forma 0.76 0.68
</TABLE>
The fair value of each option grant is established on the date of the grant
using the Black-Scholes option pricing model with the following assumptions for
fiscal 1997 and 1996, respectively; risk-free interest rates of 6.32% and 6.47%;
expected lives of approximately four and one-half years for both years; expected
volatility of 39.7% and 36.6%; dividend yield of zero for both years.
Shareholder Rights Plan
On January 20, 1997, the Board of Directors adopted a Shareholder Rights
Plan designed to assure that all Viking shareholders receive fair and equal
treatment in the event of any proposed takeover of the Company, and to guard
against partial tender offers, open market accumulations and other abusive
tactics to gain control of Viking without paying all stockholders a control
premium. The Board of Directors declared a dividend of one Preferred Share
Purchase Right (a "Right") for each outstanding share of common stock. The
Rights have an exercise price of $150, trade automatically with shares of Viking
common stock and may become exercisable if a person or a group acquires 15% or
more of the common stock. Each Right entitles the holder to purchase, at the
Rights then current exercise price, a number of common shares of Viking (or,
under certain circumstances, of the acquiring person or entity) having a market
value of twice the Rights exercise price. Viking's Board is entitled to redeem
the Rights at $0.01 per Right at any time before the tenth day after a person
has acquired 15% or more of the outstanding common stock. The dividend was
distributed to shareholders of record on February 3, 1997. The Rights expire in
ten years.
............................................................................. 35
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- OPERATIONS BY GEOGRAPHIC SEGMENT
Viking has operations in the United States, United Kingdom, Ireland,
France, Belgium, Luxembourg, The Netherlands, Germany, Austria and Australia.
Summarized financial information relating to those operations has been included
in the Consolidated Financial Statements as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
----------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Revenues:
Domestic $ 472,194 $ 429,413 $360,306
European and Other 814,095 626,341 451,593
---------- ---------- --------
$1,286,289 $1,055,754 $811,899
========== ========== ========
Operating Profit:
Domestic $ 58,346 $ 57,506 $ 42,456
European and Other 61,603 44,975 36,432
---------- ---------- --------
$ 119,949 $ 102,481 $ 78,888
========== ========== ========
Income Before Income Taxes:
Domestic $ 39,419 $ 42,668 $ 33,026
European and Other 63,593 46,972 39,238
---------- ---------- --------
$ 103,012 $ 89,640 $ 72,264
========== ========== ========
Identifiable Assets:
Domestic $ 195,831 $ 191,896 $166,073
European and Other 278,677 207,745 142,271
---------- ---------- --------
$ 474,508 $ 399,641 $308,344
========== ========== ========
</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.
36 .............................................................................
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- QUARTERLY SUMMARY OF OPERATIONS
The following quarterly summary of operations is unaudited. In the opinion
of Viking's management, all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the interim periods presented,
have been included (in thousands, except per share data).
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Year ended June 30, 1997
Revenues $290,532 $316,494 $353,083 $326,180
Gross Profit 102,530 110,620 121,193 110,766
Operating income 22,495 22,637 27,368 21,515
Income before income taxes 24,595 25,139 29,632 23,646
Net income 16,232 16,585 20,748 16,555
Net income per share $ .19 $ .19 $ .24 $ .19
Year ended June 30, 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
</TABLE>
............................................................................. 37
<PAGE>
SHAREHOLDERS' INFORMATION
CORPORATE COUNSEL
Ervin, Cohen and Jessup LLP
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, 1997, the approximate number of holders of record of the Company's
Common Stock was 1,449.
Form 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended June 30,
1997, 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.
P.O. Box 61144
Los Angeles, CA 90061
(310) 225-4500
(800) 565-4858
SECURITIES INFORMATION
Viking Office Products, Inc. Common Stock trades on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "VKNG." The following table
sets forth the range of high and low sale prices for the Company's Common Stock.
<TABLE>
<CAPTION>
June 30, 1997
---------------
Fiscal Year Ended High Low
------ ------
<S> <C> <C>
First Quarter 31 3/4 22 1/8
Second Quarter 30 7/8 25
Third Quarter 29 1/8 19 1/8
Fourth Quarter 21 3/8 13 1/2
<CAPTION>
June 30, 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
</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.
38
................................................................................
<PAGE>
DIRECTORS and OFFICERS 1997
[PHOTO APPEARS HERE]
BOARD OF DIRECTORS
. Neil R. Austrian
President & Chief Operating Officer
National Football League
. Charles P. Durkin, Jr.
Managing Director
Dillon Read & Co., Inc.
. Joan D. Manley
Group Vice President (retired)
Time, Inc.
. Irwin Helford
Chairman & Chief Executive Officer
Viking Office Products, Inc.
. Bruce Nelson
President & Chief Operating Officer
Viking Office Products, Inc.
. Lee A. Ault III
Private Investor
Former Chairman & Chief Executive Officer
Telecredit, Inc.
EXECUTIVE OFFICERS
[PHOTO APPEARS HERE]
. Irwin Helford (seated)
Chairman & Chief Executive Officer
. Ron Weissman
Vice President, Logistics
. Bruce Nelson
President & Chief Operating Officer
. Charlotte Wiethoff
Vice President, Administration &
Corporate Secretary
. Mark L. Muir
Vice President, Marketing
. Mark R. Brown
Vice President, Information Systems
. Frank R. Jarc
Executive Vice President &
Chief Financial Officer
. Graham Cundick
Vice President, European Merchandising
............................................................................. 39
<PAGE>
190,987,845 Viking catalogs......in 10 countries and 7 languages!
UNITED STATES
UNITED KINGDOM
IRELAND
AUSTRALIA
FRANCE
BELGIUM & LUXEMBOURG
THE NETHERLANDS
GERMANY
AUSTRIA
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[LOGO OF VIKING OFFICE PRODUCTS]
World Headquarters
950 West 190th Street, Torrance, CA 90502
Telephone: (310) 225-4500 Fax: (310) 327-2376
Investor Relations: (800) 565-4858
www.vikingop.com
United States
-------------
. Los Angeles, CA . Dallas, TX . Cincinnati, OH
. East Windsor, CT . Jacksonville, FL . Seattle, WA
. Minneapolis, MN . Baltimore, MD . San Franscisco, CA
. Denver, CO
International
-------------
. Leicester, London & Manchester, England, U.K.
. Dublin, The Republic of Ireland
. Paris, France
. Venlo & Beesd, The Netherlands
. Munich & Frankfurt, Germany
. Sydney & Melbourne, Australia
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EXHIBIT 23.1
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 33-33565 and in Registration Statements
No. 33-45337, No. 33-56884, No. 33-73196 and No. 33-89458 of Viking Office
Products, Inc. on Form S-8 of our reports dated August 20, 1997, appearing in
and incorporated by reference in this Annual Report on Form 10-K of Viking
Office Products, Inc. for the year ended June 30, 1997.
/s/ Deloitte & Touche LLP
Los Angeles, California
September 20, 1997
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