<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 0-18237
VIKING OFFICE PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
California 95-2082946
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
950 West 190th Street
Torrance, California 90502
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(Address of Principal Executive Offices)
(Zip Code)
(310) 225-4500
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(Registrant's Telephone Number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT FEBRUARY 6, 1998
----- -------------------------------
Common Stock 84,853,829
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
-------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $25,244 $29,856
Short-term investments 32,864 26,021
Accounts receivable, net 157,844 150,931
Merchandise inventories 123,513 89,279
Prepaid catalog costs 17,733 18,290
Prepaid expenses and other current assets 3,294 3,986
-------- --------
Total current assets 360,492 318,363
-------- --------
Property and equipment, net 146,013 121,800
Other assets:
Deposits and other assets 5,592 6,262
Intangible assets, net 27,633 28,083
-------- --------
Total other assets 33,225 34,345
-------- --------
Total assets $539,730 $474,508
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $132,049 $94,386
Sales and value added taxes payable 7,316 10,388
Income taxes payable 10,469 15,933
-------- --------
Total current liabilities 149,834 120,707
-------- --------
Deferred income taxes 1,163 1,163
Stockholders' equity:
Common stock 116,005 110,845
Retained earnings 289,724 251,842
Unamortized value of long-term incentive stock grant (3,210) (3,917)
Cumulative foreign currency translation adjustment (13,786) (6,132)
-------- --------
Total stockholders' equity 388,733 352,638
-------- --------
Total liabilities and stockholders' equity $539,730 $474,508
======== ========
</TABLE>
2
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- --------------------
1997 1996 1997 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues $363,268 $316,494 $703,542 $607,026
Cost of goods sold, including delivery 237,975 205,874 461,424 393,876
-------- -------- -------- --------
Gross profit 125,293 110,620 242,118 213,150
Selling, general & administrative expenses 99,777 87,983 193,184 168,018
-------- -------- -------- --------
Operating income 25,516 22,637 48,934 45,132
Other income, net of interest expense 3,291 2,502 5,966 4,602
-------- -------- -------- --------
Income before income taxes 28,807 25,139 54,900 49,734
Income taxes 8,931 8,554 17,018 16,917
-------- -------- -------- --------
Net income $19,876 $16,585 $37,882 $32,817
======= ======= ======= =======
Earnings per share:
Basic $0.24 $0.20 $0.45 $0.39
======= ======= ======= =======
Diluted $0.23 $0.19 $0.44 $0.38
======= ======= ======= =======
Weighted average shares outstanding:
Basic 84,410 83,550 84,170 83,410
======= ======= ======= =======
Diluted 87,000 87,500 87,000 87,500
======= ======= ======= =======
</TABLE>
3
<PAGE>
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------
1997 1996
--------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $37,882 $32,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,876 9,137
Provision for doubtful accounts and customer returns 6,824 6,124
Gain on sale of property and equipment (248) (46)
Increase in accounts receivable (17,293) (16,889)
Increase in merchandise inventories (36,477) (18,683)
Decrease in prepaid expenses and other assets 878 1,551
Increase in accounts payable and accrued expenses 40,445 14,321
(Decrease) increase in other liabilities (8,234) 3,315
--------------------
Net cash provided by operating activities 35,653 31,647
Cash flows from investing activities:
Capital expenditures (38,043) (25,636)
Increase in short-term investments (6,803) (4,790)
Proceeds from sale of property and equipment 47 183
Repayment (issuance) of notes receivable and other 713 (637)
--------------------
Net cash used in investing activities (44,086) (30,880)
Cash flows from financing activities:
Proceeds from issuance of common stock 5,160 4,429
--------------------
Net cash provided by financing activities 5,160 4,429
Effect of exchange rate changes on cash (1,339) (461)
--------------------
Net (decrease) increase in cash and cash equivalents (4,612) 4,735
Cash and cash equivalents, beginning of period 29,856 11,693
--------------------
Cash and cash equivalents, end of period $25,244 $16,428
====================
Supplemental cash flow information:
Income taxes paid $22,267 $14,068
====================
Interest paid $7 $52
====================
</TABLE>
4
<PAGE>
VIKING OFFICE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The consolidated financial statements included herein have been prepared by
Viking Office Products, Inc. ("Viking" or the "Company") without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission and
reflect all adjustments, consisting only of normal recurring adjustments, which,
in the opinion of management, are necessary for a fair presentation of the
results of the interim periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report to Shareholders for the year
ended June 30, 1997.
The June 30, 1997 Consolidated Balance Sheet was derived from the audited
Consolidated Balance Sheet at June 30, 1997, which was incorporated by reference
in the Company's annual report on Form 10-K.
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standard No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128 replaces the
presentation of primary earnings per share ("EPS") with a presentation of basic
EPS based upon weighted average number of common shares for the period. It also
requires dual presentation of basic and diluted EPS for companies with "complex
capital structures", as defined. EPS for the current and prior periods has been
presented in conformity with the provisions of SFAS 128. The following table
shows the calculation of Basic EPS and Diluted EPS for the income statement
periods presented herein.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ---------------------
1997 1996 1997 1996
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net Income $19,876 $16,585 $37,882 $32,817
Earnings per Share:
Basic $.24 $.20 $.45 $.39
========= ========= ========== =========
Diluted $.23 $.19 $.44 $.38
========= ========= ========== =========
Weighted Average Shares:
Common Shares Outstanding 84,410 83,550 84,170 83,410
Assumed Exercise of Stock Options 2,590 3,950 2,830 4,090
--------- ---------- ---------- ---------
Diluted Shares Outstanding 87,000 87,500 87,000 87,500
========= ========= ========== =========
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Viking operates ten distribution centers in the United States, two in
Australia and nine 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. The asset and liability
accounts of Viking's foreign subsidiaries are translated for consolidated
financial reporting purposes into United States Dollar amounts at period end
exchange rates. Revenue and expense accounts are translated at weighted average
exchange rates for the period. For the quarter ended December 31, 1997, foreign
currency fluctuations negatively impacted revenue growth and net income as
reported in US dollars. In local currencies, excluding the foreign currency
translation effect, consolidated revenues grew at 20.2% versus the reported
growth of 14.8%, and net income would have been approximately 3% higher than
reported.
The following table shows, for the periods indicated, the percentage
relationships to revenues of items included in the Consolidated Statements of
Income and the percentage changes in the dollar amounts of such items from
period to period.
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(As a Percentage of Revenue)
<TABLE>
<CAPTION>
Percentage
Three Months Ended Six Months Ended Increase (Decrease)
December 31, December 31, 3 Months 6 Months
------------------ ------------------ -----------------------------
1997 1996 1997 1996 1997 vs. 1996 1997 vs. 1996
-------- ------- ------- ------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 14.8% 15.9%
Cost of goods sold, including delivery 65.5% 65.0% 65.6% 64.9% 15.6% 17.1%
-------- ------- ------- ------
Gross profit 34.5% 35.0% 34.4% 35.1% 13.3% 13.6%
Selling, general & administrative expenses 27.5% 27.8% 27.5% 27.7% 13.4% 15.0%
-------- ------- ------- ------
Operating income 7.0% 7.2% 6.9% 7.4% 12.7% 8.4%
Other income, net of interest expense 0.9% 0.8% 0.9% 0.8% 31.5% 29.6%
-------- ------- ------- ------
Income before income taxes 7.9% 8.0% 7.8% 8.2% 14.6% 10.4%
Income taxes 2.4% 2.7% 2.4% 2.8% 4.4% 0.6%
-------- ------- ------- ------
Net income 5.5% 5.3% 5.4% 5.4% 19.8% 15.4%
-------- ------- ------- ------
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE MONTHS ENDED DECEMBER
- --------------------------------------------------------------------------------
31, 1996
- --------
Consolidated revenues for the second quarter ended December 31, 1997 were
$363.3 million. In U.S. dollars, revenues increased 15% over last year's second
quarter; in local currencies, without exchange rate effects, worldwide revenues
grew over 20%. International revenues, which include Europe and Australia, were
$236.0 million, an increase over last year's second quarter of 26% in their
local currencies and 17% in U.S. dollars. Most European countries had one
additional billing day in this year's quarter. Second quarter revenues in the
United States grew 11% to $127.3 million with an equal number of billing days.
Factors impacting this year's second quarter included the final effects of the
August 1997 UPS strike in the United States, the stronger translated dollar and
the November 1997 truckers strike in France.
Gross profit for the three months ended December 31, 1997 increased by
$14.7 million, or 13.3% over last year. As a percentage of revenues, gross
profit decreased from 35.0% in the three months ended December 31, 1996 to 34.5%
in the current quarter. The decrease in gross profit is primarily attributable
to lower margins on paper products.
6
<PAGE>
Selling, general and administrative expenses ("SG&A") for the three
months ended December 31, 1997 increased by $11.8 million, or 13.4% over the
comparable period of the prior year. As a percentage of revenues, these
expenses decreased from 27.8% in the three months ended December 31, 1996 to
27.5% in the current quarter. During this year's second quarter, Viking incurred
startup costs and early operating expenses for Italy and for new facilities in
Linz, Austria and Wichita, Kansas. SG&A as a percentage of sales also improved
as a result of higher revenues in Germany which resulted in greater coverage of
Germany's fixed costs. In last year's second quarter, Viking incurred higher
expenses in Germany which resulted from opening a second distribution center in
Munich.
Income taxes for the three months ended December 31, 1997 increased by
$377,000 over the same period of the prior year. The effective tax rate
decreased from 34.0% for the three months ended December 31, 1996 to 31.0% for
the current period. This decrease was primarily attributable to a statutory
rate reduction in the UK as well as the implementation of tax strategies in
certain European countries.
Consolidated net income for the quarter ended December 31, 1997 was $19.9
million, an increase of 19.8% over the prior year's second quarter. Basic net
income per share was $.24 compared to $.20 last year, and diluted net income per
share was $.23 compared to $.19 last year.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1996
- ----
Consolidated revenues for the six months ended December 31, 1997 were $703.5
million. In U.S. dollars, revenues increased 16% over the same six month period
last year; in local currencies, without exchange rate effects, worldwide
revenues grew over 21%. International revenues for the six months ended December
31, 1997 were $451.6 million, an increase of 27% in local currencies and 18% in
U.S. dollars over the same period last year. Revenues in the U.S. for this six
month period grew 12% to $252.0 million. Factors impacting this year's second
quarter included lower selling prices of paper products versus last year, the
August 1997 UPS strike in the United States, the stronger translated dollar and
the November 1997 truckers strike in France.
Gross profit for the six months ended December 31, 1997 increased by
$29.0 million, or 13.6% over last year. As a percentage of revenues, gross
profit decreased from 35.1% in the six months ended December 31, 1996 to 34.4%
in the six months ended December 31, 1997. The decrease in gross profit is
primarily attributable to lower margins on paper products.
Selling, general and administrative expenses for the six months ended
December 31, 1997 increased by $25.2 million, or 15.0% over the comparable
period of the prior year. As a percentage of revenues, these expenses decreased
from 27.7% in the six months ended December 31, 1996 to 27.5% in the six months
ended December 31, 1997. This decrease is primarily due to higher revenues in
Germany which resulted in greater coverage of Germany's fixed costs.
Income taxes for the six months ended December 31, 1997 increased by
$101,000. The effective tax rate decreased from 34.0% for the six months ended
December 31, 1996 to 31.0% for the current period. This decrease was primarily
attributable to a statutory rate reduction in the UK as well as the
implementation of tax strategies in certain European countries.
Consolidated net income for the six months ended December 31, 1997 was $37.9
million, an increase of 15.4% over the prior year. Basic net income per share
was $.45 compared to $.39 last year, and diluted net income per share was $.44
compared to $.38 last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Viking's primary source of liquidity has been cash flow from operations.
Viking believes that its existing cash and short-term investments, funds
generated from operations and available credit under its revolving credit
facility will be sufficient to finance its anticipated working capital
requirements. At December 31, 1997, the Company had working capital of $210.7
million compared to $197.7 million at June 30, 1997. The improved working
capital position primarily reflects increased net income, net of
investing activities. Cash provided by operating and financing activities that
exceeded current working capital and capital expenditures requirements was
invested in short-term marketable securities.
7
<PAGE>
Capital expenditures were $38.0 million for first six months of fiscal 1998
as Viking continued to invest in domestic and international operations. During
the quarter ended December 31, 1997, Viking incurred startup expenditures for
Italy, costs for construction of a new facility in Australia and final
completion costs for Viking's new worldwide headquarters building in Torrance,
California. Capital expenditures related to expansion have been funded by cash
from operations. In fiscal 1998, capital expenditures are expected to be between
$65 million and $75 million.
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 maintenance of certain financial ratios. At
December 31, 1997, no amounts were outstanding under this credit facility,
Viking was in compliance with all of the terms of the credit facility, and the
entire $60 million was available for borrowing.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders for Viking Office Products, Inc.
was held on November 13, 1997. At the meeting, the shareholders elected a Board
of Directors pursuant to management's nomination in the proxy statement dated
October 3, 1997.
At the meeting, the shareholders also voted to adopt the 1997
Incentive Stock Option Plan and to ratify the selection of Deloitte and Touche
LLP as independent auditors.
The vote on the proposal to adopt the 1997 Incentive Stock Option
Plan was as follows:
VOTES FOR AGAINST ABSTENTIONS
--------- ------- ------------
41,067,542 25,417,024 151,357
The vote on the proposal to ratify the selection of auditors was as
follows:
VOTES FOR AGAINST ABSTENTIONS
--------- ------- -----------
74,936,091 27,411 38,679
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:
10.36 Lease, dated August 22, 1997, between Ablah Enterprises, Inc.
and the registrant
10.37 Form of letter agreement, dated November 13, 1997, regarding
amendment to change in control agreement, dated May 12, 1997,
between the registrant and each of Irwin Helford and M. Bruce
Nelson
27 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the three months ended
December 31, 1997.
9
<PAGE>
SIGNATURE
- ---------
Pursuant to the requirements 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: February 6, 1998 BY: /s/ Frank R. Jarc
-------------------
Executive Vice President,
Chief Financial Officer
By: /s/ Keith Bjelajac
---------------------
Corporate Controller
10
<PAGE>
Exhibit 10.36
Exhibit 10.36 Lease, dated August 22, 1997, between Ablah Enterprises, Inc. and
- -------------
the registrant
LEASE
-----
DATE: August 22, 1997
PRIMARY LEASE TERM: Ten (10) Years
--------------
PREMISES: The building, parking and access areas having an address of 8200
----------------------------------------------------------------
East 32nd Street North, Wichita, Kansas
---------------------------------------
PARKING STALLS: All available parking which contains approximately 220 parking
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stalls
------
USE: General office purposes
-----------------------
TENANT: LANDLORD:
Viking Office Products, Inc. Ablah Enterprises, Inc.
879 W. 190th Street 3101 N. Rock Road, Suite 125
Los Angeles, CA 90061 Wichita, Kansas 67206
1. LEASE: In consideration of the mutual agreements and provisions, Landlord
-----
hereby leases to Tenant, and Tenant hereby leases from Landlord the Premises
contained herein for the use specified above, together with fixtures appurtenant
thereto, for the term stated above. The parties have assumed, for purposes of
this Lease, that the Premises contain approximately 50,000 net rentable square
feet. Tenant shall have the exclusive right to use the roof of the building
within the Premises at no additional cost to Tenant; provided such usage
complies with applicable laws, codes and regulations and so long as Tenant
obtains Landlord's prior written consent before installing equipment on the
roof, which consent shall not be unreasonably withheld or delayed so long as
such usage will not damage the roof or create a condition wherein the roof is
likely to leak. As of the Rent Commencement Date (defined below), Landlord
shall assign and Tenant shall assume those certain Leases (hereafter the
"Subleases") referenced on Exhibit "A" hereto concerning a portion of the
Premises, it being understood that Tenant's rights under this Lease are subject
to the rights of the sub-tenants under the Subleases. As of the date of the
assignment of the Subleases the rent thereunder shall be prorated. Landlord
shall perform all obligations of Landlord under the Subleases arising prior to
such assignment and Tenant shall perform all obligations of Landlord under the
Subleases arising subsequent to such assignment. The assignment of the
Subleases shall contain provisions whereby Landlord agrees to indemnify, defend,
and hold Tenant harmless from any claims under the Subleases arising prior to
the assignment to Tenant and Tenant shall indemnify and hold Landlord harmless
from any claims arising under the Subleases subsequent to the date of such
assignment.
2. RENT PAYMENTS: Tenant shall pay to Landlord, in advance, on the first day
-------------
of each calendar month during the term hereof, without any deduction or setoff
whatsoever, for the term hereof, the monthly fixed rent required herein and
Tenant's obligation to pay the other sums
<PAGE>
required hereunder (with such monthly fixed rent and any other payment
obligations of Tenant under this Lease referred to collectively as "rent"). Upon
execution hereof, Tenant shall pay Landlord the rent applicable to the first
month following the Rent Commencement Date (defined below). The "Rent
Commencement Date" shall be December 1, 1997. Failure of Tenant to pay any rent
due hereunder within ten (10) days of the due date shall subject Tenant to a
late charge at the rate of eighteen percent (18%) per annum, based on the amount
of the delinquent payment, charged retroactively to the first day such payment
was due. Landlord may designate from time to time, in writing, the address where
Tenant is to send payments hereunder. Initially, such address shall be the
address for Landlord specified above. The amount of monthly and annual fixed
rent payable hereunder shall be paid as follows:
<TABLE>
<CAPTION>
Period Monthly Fixed Rent Annual Fixed Rent
------ ------------------ -----------------
<S> <C> <C>
Rent Commencement Date through the
5th lease year thereafter $44,667.00 $536,000.00
6th lease year through the expiration of the
primary lease term $49,125.00 $589,500.00
</TABLE>
As usual herein, the term "lease year" shall mean the consecutive 12-month
periods beginning the Rent Commencement Date or any anniversary thereof. In the
event Tenant exercises the renewal option available hereunder, the monthly and
annual rent hereunder shall be increased in accordance with paragraph 3.b.
below.
3. TERM; RENEWAL OF TERM:
---------------------
a. The term of this Lease shall extend for a period of ten (10) lease
years from and after the Rent Commencement Date. Subject to the rights and
obligations of Landlord and the subtenants under the Subleases, its licensees
and invitees, Tenant shall have access to the Premises beginning September 1,
1997, for the purpose of planning improvements therein; access to all but the
third floor on September 15, 1997, for construction of improvements pursuant to
this Lease and on or before October 1, 1997, Tenant shall have exclusive
possession of the Premises for construction of Tenant's leasehold improvements
subject to the Subleases.
b. Tenant, provided it is not in default hereunder either at the time of
exercise of the renewal option or at the commencement of the renewal option
term, shall have the right and option to extend ("the renewal option") the term
of this Lease for two additional periods of five (5) years each, upon the same
terms and conditions as herein contained, provided the amount of monthly and
annual fixed rent shall be increased to $54,037.00 and $648,450.00,
respectively, for the initial renewal period and $59,441.00 and $713,295.00,
respectively, for the second renewal period. In the event Tenant desires to
exercise either renewal option, it shall do so by giving Landlord written notice
of not less than 180 days prior to the expiration of the primary term hereof, or
the first renewal period, as applicable. If Tenant fails to timely exercise the
initial renewal option hereunder, it shall have no further right to renew this
Lease.
2
<PAGE>
4. USE OF PREMISES: Tenant shall use the Premises solely for the use or
-------
purpose set forth in the preamble to this Lease.
5. TAXES:
-----
a. As used herein, "Real Estate Taxes" shall mean: (i) all ad valorem
taxes applicable to the Premises (adjusted after protest or litigation, if any),
or for any portion thereof, for any part of the term of this Lease; (ii) any
special assessments assessed against the Premises (if such special assessments
may be paid in installments, then Tenant shall pay only the installments due for
the term of this Lease); (iii) occupational taxes or excise taxes levied on
rentals derived from the operation of the Premises or the privilege of leasing
property; and (iv) reasonable expenses of such protests, negotiations, or
contests which the Landlord reasonably undertakes concerning the amount or
validity of any such taxes, charges, or assessments, such expenses to be
proportionate to the Lease term and the period of the item contested, protested,
or negotiated; provided at Tenant's request, Landlord shall allow Tenant to
conduct such protests, negotiations or contests. Beginning the Rent Commencement
Date and thereafter during the term hereof, Tenant shall pay the Real Estate
Taxes applicable for such period. Payment shall be made by Tenant before the
Real Estate Taxes become delinquent and Tenant shall provide to Landlord proof
of payment of such taxes promptly following such payment. The Real Estate Taxes
for the first and final calendar years of the term hereof shall be prorated so
that Landlord shall pay the same for the portion of such years preceding or
subsequent to the periods Tenant is required to pay the Real Estate Taxes
hereunder.
b. Tenant shall pay, when due, all taxes and assessments attributable to any
personal property, trade fixtures, furnishings, equipment or stock-in-trade
located on or within the Premises.
6. UTILITIES: Tenant shall, in its own name, contract for utility services
---------
to the Premises and pay the charges for such service. Tenant agrees that if any
utilities are interrupted or limited for any reason, such event shall not be
grounds for abatement or rental adjustment and all provisions of this Lease
shall remain in full force and effect. In the event of the occurrence of any
such interruption, Landlord shall endeavor to assist Tenant in bringing about
the restoration of such service. Tenant shall not at any time overburden or
exceed the capacity of any utilities serving the Premises.
7. TENANT'S IMPROVEMENTS: Landlord agrees to deposit $500,000.00 into an
---------------------
escrow account to be established with Landlord's lender in Wichita, Kansas, on
or before thirty (30) days following execution of this Lease, which funds shall
accrue interest and shall be utilized to pay the costs of constructing Tenant's
leasehold improvements (which improvements may in addition to more typical
leasehold improvements include, in Tenant's discretion, cabling for telephone
and computer equipment, a backup generator, an uninterrupted power source, and
maintaining and replacing capital items ("Capital Expenses")) and leasehold
improvements for sublessees to occupy the Premises prior to November 30, 2007.
If such funds are not timely deposited by Landlord, Tenant shall have the right
to terminate this Lease. Landlord, Tenant and Landlord's lender shall enter into
an escrow/disbursement agreement providing the mechanism for disbursement by
such lender of escrowed funds hereunder. Tenant shall make permanent
3
<PAGE>
leasehold improvements ("Improvements") to the Premises for the purposes of
Tenant's leasehold improvements and for leasehold improvements for the benefit
of sublessees occupying the Premises in accordance with outlined plans and
specifications ("Outline Specifications") to be prepared by Tenant and submitted
to and approved by Landlord, which approval shall not be unreasonably withheld
or delayed. Tenant shall cause the Improvements to be constructed in a good and
workmanlike manner and in accordance with all governmental laws, rules and
regulations in existence at the time of construction. Tenant shall from time to
time provide copies of invoices, along with lien waivers, for construction
service and materials acquired in connection with the Improvements to Landlord
and Landlord's lender. Within thirty (30) days after the submittal of invoices
by Tenant, but not more frequently than once a calendar month, lender shall pay
to Tenant out of the escrow established by the aggregate sum of invoices
received by lender in connection with Improvements. In the event the total costs
of the Improvements and Capital Expenses exceed $500,000, plus accrued interest
thereon, Tenant shall promptly pay the same in full; and in the event the total
costs are less than $500,000, plus accrued interest thereon, the difference
shall be returned to Landlord by lender, together with the interest thereon.
During the course of construction of the Improvements, Tenant is authorized to
make such changes in the Outline Specifications as may be necessary or proper in
order to comply with applicable building codes, without the written consent of
Landlord, so long as such changes do not materially, adversely affect the
appearance, structure or intended use of the Improvements. Any other changes to
such Outline Specifications shall require the prior approval of Landlord, which
consent shall not be unreasonably withheld or delayed.
8. MAINTENANCE, REPAIRS, AND REPLACEMENTS: Subject to Landlord's obligation
--------------------------------------
concerning the Premises as specified in subparagraph 35.f. hereof, Tenant shall
at all times be responsible for all replacements, repairs, maintenance, and
restorations required to be made to the Premises in order that it shall at all
times be in good operating condition. By way of illustration, and not
limitation, of Tenant's obligation described in the previous sentence, Tenant
shall at all times keep the Premises, interior and exterior, in good order and
good operating condition, including, but not limited to: the parking lot and
access areas; all yard and landscape areas; the building within the Premises,
including the roof, the structural and non-structural and interior and exterior
portions thereof, all entrances, all plate glass windows, all partitions, all
doors, floors, insulation, hardware, fixtures, and equipment, and appurtenances
thereof (such as lighting, plumbing and plumbing fixtures, and any heating,
ventilating, and air conditioning systems), including reasonably periodic
painting of the interior and exterior of the Premises and replacement of any
equipment or appurtenance, if necessary. Subject to Landlord's obligation under
paragraph 29 hereof, Tenant shall keep the Premises in compliance with all
codes, ordinances, statutes, regulations, and other governmental requirements
applicable to the Premises as any such codes, ordinances, statutes, regulations,
or requirements may be amended from time to time, including structural or non-
structural modifications required thereby. Tenant further agrees to keep the
Premises adequately heated so as to prevent the freezing of pipes. Tenant
shall, at its cost, and as Landlord may reasonably require, use a reputable
service company to inspect the heating, air conditioning and ventilating systems
of the Premises and shall promptly perform any repair, maintenance and
replacement recommended by such contractor.
9. INSURANCE; WAIVER OF SUBROGATION:
--------------------------------
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a. Landlord shall maintain such fire and extended coverage insurance on the
Premises as is commercially reasonable and industry standard, or is required by
its lender, along with liability and "loss of rents" insurance. Beginning with
the Rent Commencement Date, and for each lease year during the term hereof,
Tenant shall pay the premiums ("Premiums") for such insurance coverage;
provided, Landlord shall pay the portion of the Premiums applicable to all
periods prior or subsequent to the term hereof. The Premiums for the first and
final lease years shall be prorated so that Tenant shall only pay the portion of
such Premiums which are applicable to the term of this Lease.
b. Tenant shall maintain in force, for the benefit of Landlord and Tenant,
during the term of this Lease, an all-risks property and casualty policy
insuring the contents (including, without limitation, inventory, personalty,
trade fixtures, vehicles, and equipment) located in the Premises. Tenant shall
also maintain in force, for the benefit of Landlord and Tenant during the term
hereof, a public liability and property damage insurance policy to afford
protection of not less than $2,000,000 for injury or death, $2,000,000 for any
one accident, and $4,000,000 for property damage, and shall designate Landlord
as an additional insured. Tenant agrees to deliver to Landlord, prior to the
date Tenant or any contractor on its behalf enters the Premises, a Certificate
of Insurance with a twenty-day notice of cancellation, material modification or
failure to renew benefiting Landlord and Tenant shall thereafter provide
Landlord a Certificate of Insurance at any time requested by Landlord from time
to time. The insurance required pursuant to this subparagraph shall be from an
insurance company authorized to do business in the State of Kansas and have a
policy holder's rating of no less than "A" in the most current edition of Best's
Insurance Reports; provided if Landlord's lender will accept less than an "A"
rating, Tenant shall be permitted to obtain coverage from an insurance company
with a lower rating acceptable to such lender.
c. Each of the parties hereto does hereby release the other party from all
liability for damage due to any act or neglect of the other party (except as
hereafter provided) occasioned to property owned by said parties which is or
might be incident to or the result of a fire or any other casualty against loss
from which either of the parties is now carrying or hereafter may carry
insurance; provided, however, that the releases herein contained shall not apply
to any loss or damage occasioned by the grossly negligent and willful acts of
either of the parties. The parties further covenant that any insurance obtained
on their respective properties shall contain an appropriate provision whereby
the insurance company or companies consents to the mutual release of liability
contained in this paragraph.
10. LOSS PROTECTION: Tenant shall indemnify, hold harmless, and defend
---------------
Landlord from and against any and all claims, actions, suits, judgments,
decrees, orders, damages, liabilities, and expenses, including, but not limited
to, attorneys' and other professional fees and costs, in connection with (a) the
loss of life, personal injury and/or damage to property of whatever kind or
character, howsoever caused, arising from or out of any occurrence, in, upon or
about the Premises, or any part thereof other than to the extent the same is
caused by the acts of Landlord of its employees, and (b) any breach or default
by Tenant in the full and prompt payment and performance of Tenant's obligations
under this Lease. Tenant shall obtain counsel
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to defend Landlord, subject to the approval of Landlord, which approval shall
not be unreasonably withheld or delayed.
11. FIXTURES AND EQUIPMENT; PERSONALTY: All fixtures and equipment now or
----------------------------------
hereafter a part of the Premises shall be the property of Landlord, except that
any "trade fixtures" (which shall include a backup generator, and uninterrupted
power source, all computer equipment, telecommunications equipment, telephone
switches and equipment installed on the roof of the building within the
Premises) installed by Tenant and any sublessees shall remain the property of
Tenant or sublessee, as applicable, and shall be removed, upon the expiration or
termination of this Lease; provided, however, Tenant shall repair (or cause a
sublessee to repair) any damage resulting from such removal.
12. ADDITIONAL RENT: The payments to be paid by Tenant to Landlord for the
---------------
Tenant's share of Real Estate Taxes and Premiums and any other payments required
to be made by Tenant to Landlord hereunder shall be considered additional rent
hereunder. Landlord shall have the right to require Tenant to pay such
additional rent, monthly and in advance, as Landlord, in its reasonable
judgment, estimates from time to time to be due from Tenant thereunder for each
calendar month during the term hereof. Such estimates by Landlord shall be
adjusted from time to time as the circumstances and actual expenses dictate, and
Tenant shall pay monthly installments of such additional rent according to such
estimates. If the amount of such estimated additional rent paid by Tenant
during any lease year shall be less than the additional rent due for such year,
then Tenant shall pay to Landlord, upon demand, the amount of any such
deficiency. If the amount of such estimated additional rent paid by Tenant
during any lease year is greater than the additional rent actually due for such
year, provided Tenant is not in default hereunder, such excess will be applied
by Landlord to the next succeeding installment of additional rent due hereunder
or refunded to Tenant. If there is any excess not credited at the expiration of
the term hereof, the amount thereof shall be refunded by Landlord to Tenant
within thirty (30) days after the expiration of the term hereof. Landlord shall
provide to Tenant upon its request adequate documentation of its calculation of
such amounts owed by Tenant.
13. SUBLETTING; ASSIGNMENT: No subletting, pledging, hypothecation
----------------------
(including mortgage), or assignment by Tenant shall be allowed without the prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed concerning any such subletting or assignment. Failure to object within
five (5) business days following Landlord's actual receipt of a proposed
sublease is deemed approval by Landlord. No sublease shall extend beyond the
expiration of this Lease. Any consent of Landlord to any of the foregoing shall
not release the subletting or assigning party of any obligation or liability
arising under the terms of this Lease. This Lease and the deposits hereunder
may be assignable by Landlord, so long as Landlord and the assignee notify
Tenant in writing that the assignee assumes all of Landlord's obligations
hereunder, in which event the Landlord specified herein shall have no further
obligation or liability hereunder to Tenant.
14. DEFAULT AND REMEDIES: In the event:
--------------------
6
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a. Tenant shall at any time fail to pay rent, or any other payment to
Landlord required hereunder, within ten (10) days following the date the same is
due; provided, in the event Tenant fails to timely pay its rent hereunder,
Landlord shall give written notice specifying such delinquency, a maximum of two
occasions each lease year, and Tenant shall have five (5) days following its
receipt of such notice to cure such delinquency (it being understood that
Landlord shall not be required to give written notice for any default under this
subparagraph a. more than two occasions in any lease year);
b. Tenant shall fail to keep, perform, or observe any other covenant,
agreement, condition, or undertaking hereunder, and shall fail to remedy such
default within thirty (30) days after written notice thereof has been mailed by
Landlord to Tenant;
c. Tenant makes an assignment for the benefit of creditors;
d. Tenant has filed against it a petition for bankruptcy and such petition is
not vacated or stayed within ninety (90) days after its entry; or
e. Tenant files a petition for bankruptcy or arrangement in settlement of
liabilities or reorganization; then Landlord shall have the right pursuant to
legal process, without further notice to or demand upon Tenant, to re-enter or
take exclusive possession of the Premises, and to refuse to allow Tenant to
enter the same or have possession thereof; to change the locks on the doors to
the Premises; and to remove any furniture or other property in or upon the
Premises, all without being liable to Tenant for any damages or to any
prosecution therefor.
Should Landlord elect to re-enter as permitted in this paragraph, or should it
take possession pursuant to legal proceedings or pursuant to any notice provided
for by law, it may either terminate this Lease or it may, from time to time
without terminating this Lease, make such alterations and repairs as may be
necessary in order to relet the Premises, and relet said Premises or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this Lease) and at such rent or rents (including rent concessions) and
upon such other terms and conditions as Landlord, in its sole discretion, may
deem advisable, for its own account or as agent for Tenant's account in the name
of Tenant, or its own name. Upon each such reletting, all rents received by
Landlord from such reletting shall be applied, first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord; second, to
the payment of any costs and expenses of such reletting, including brokerage
fees, attorneys' fees, and the costs of such re-entry, alterations and repairs;
third, to the payment of rent due and unpaid hereunder; and the residue, if any,
and if Landlord shall have relet as agent of Tenant for Tenant's account, shall
be held by Landlord and applied in payment of future rent as the same may become
due and payable hereunder, or if Landlord has relet on its own account, then the
residue shall belong to Landlord. If such rents received from such reletting
during any month shall be less than that to be paid during that month by Tenant
hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency
shall be calculated and paid monthly. No such re-entry or taking possession of
the Premises by Landlord shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Tenant or unless the termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such reletting without termination, Landlord
may at any time
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<PAGE>
thereafter elect to terminate this Lease for such previous breach. Should
Landlord at any time terminate this Lease for any breach, in addition to any
other remedies it may have, it may recover from Tenant all damages it may incur
by reason of such breach, including the cost of recovering the Premises,
reasonable attorneys' fees, and the worth at the time of such termination of the
excess, if any, of the amount of rent and charges equivalent to rent reserved in
this Lease for the remainder of the stated term over the fair market rental
value of the Premises for the unexpired term of this Lease as reasonably
estimated by Landlord, all of which amounts shall be immediately due and payable
from Tenant to Landlord. If the Premises or any part thereof be relet by Lessor
for the unexpired term of this Lease, the amount of rent reserved upon such
reletting shall be deemed to be the fair market rental value of the Premises for
the calculation of the preceding sentence.
In addition to its other rights and remedies available hereunder, if Tenant
refuses or neglects to perform any covenant contained herein, Landlord may upon
ten (10) days' advance written notice to Tenant specifying Tenant's failure to
perform (provided no such notice shall be required upon circumstances which
Landlord reasonably regards as an emergency) perform such covenant and Tenant
shall pay the cost thereof on demand.
All rights and remedies expressly provided in this Lease for Landlord's
protection shall be cumulative and in addition to any other rights and remedies
provided by law or equity. Tenant agrees to reimburse Landlord for reasonable
attorneys' fees and costs for any proceedings necessary to enforce any remedies
available to Landlord hereunder.
A waiver by Landlord of a breach of default by Tenant under the terms and
conditions of this Lease shall not be construed to be a waiver of any subsequent
breach or default or of any other term or condition of this Lease, and the
failure of Landlord to assert any breach or to declare a default by Tenant shall
not be construed to constitute a waiver thereof so long as such breach or
default continues unremedied.
15. DESTRUCTION OF PREMISES: If the Premises shall be partially or totally
-----------------------
destroyed by fire or other casualty so as to become partially or totally
untenantable, the same (unless Landlord or Tenant shall elect not to rebuild as
hereinafter provided) shall be repaired and restored by and at the cost of
Landlord.
If (i) more than one-half (1/2) of the building included in the Premises shall
be destroyed or damaged by fire or other casualty, (ii) any lender of Landlord
does not permit use of insurance proceeds to repair and restore the building, or
(iii) the unexpired portion of the term of this Lease shall be two (2) years or
less at the date of the damage and more than 75 days are required for
substantial completion of repair or restoration of such damage, then Landlord
may elect not to repair or rebuild by giving written notice within sixty (60)
days after such occurrence of its election to terminate this Lease; otherwise,
Landlord shall proceed with such reconstruction with reasonable speed after such
occurrence. If (i) the unexpired portion of the term of this Lease shall be two
(2) years or less at the date of the damage and more than 75 days are required
for substantial completion of repair or restoration of such damage, or (ii) more
than 180 days are required for substantial completion of repair or restoration
of such damage, then Tenant may elect to terminate this Lease by giving written
notice within fifty-five (55) days after such occurrence of its election to
terminate this Lease.
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In the event that Landlord or Tenant shall exercise the right given heretofore
to terminate, then this Lease and the terms hereof shall cease as of the date of
such damage or destruction, and all rent or other charges payable by Tenant
shall be prorated to the date of such damage or destruction. In the event that
this Lease is not canceled, then the rent shall be abated or reduced
proportionately during any period in which the Premises are rendered wholly or
partially untenantable to the extent such damage or destruction shall interfere
with the operation of Tenant's business in the Premises based on the ratio of
square footage of the Premises rendered untenantable compared to the entire
Premises. Such abatement or reduction shall continue for the period commencing
with such destruction or damage and ending with Landlord's substantial
completion of such work or repair or restoration as Landlord is obligated or
elects to do, as the case may be, and as in this paragraph provided.
16. EMINENT DOMAIN:
--------------
a. If the entire Premises shall be acquired or condemned by eminent domain
for any public or quasi-public use or purpose, the term of this Lease shall
terminate as of the date on which Tenant is no longer able to conduct its
business, all rent shall be paid up to that date and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease.
b. If a substantial portion of the building which is a part of the Premises
shall be acquired or condemned as aforesaid so that the Premises are not
reasonably suitable for Tenant's purposes, then the term of this Lease shall
cease and terminate as of the date on which Tenant is no longer able to conduct
its business. Tenant shall have no claim against Landlord for the value of any
unexpired term of this Lease, and rent shall be adjusted to the date of such
termination. In the event of a partial taking or condemnation which is not a
---
substantial taking, then Landlord shall promptly restore the building to a
condition comparable to the condition at the time of such condemnation, less the
portion lost in the taking, and this Lease shall continue in full force and
effect. The monthly fixed rent and additional rent shall be adjusted
proportionally to the portion of the Premises lost in the taking.
c. Subject to the provisions of subparagraph d below, in the event of any
condemnation or taking as aforesaid, whether whole or partial, Tenant shall not
be entitled to any part of the award paid for such condemnation and Landlord is
to receive the full amount of such award, Tenant hereby expressly waiving any
right or claim to any part thereof.
d. Although all damages in the event of any condemnation are to belong to
Landlord, whether such damages are awarded as compensation for diminution in
value of the leasehold or to the fee of the Premises, Tenant shall have the
right to claim and recover from the condemning authority, but not from Landlord,
such compensation as may be separately awarded or recoverable by Tenant, in
Tenant's own right, on account of any and all damage to Tenant's business by
reason of the condemnation and for or on account of any cost or loss to which
Tenant might be put in removing Tenant's merchandise, furniture, fixtures,
leasehold improvements, and equipment.
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17. CREDIT INFORMATION: Tenant agrees to supply Landlord with audited
------------------
financial statements within 120 days after the close of each of Tenant's fiscal
years.
18. ALTERATIONS AND ADDITIONS: Tenant shall not make any alterations,
-------------------------
improvements, or additions to the Premises without prior written consent and
approval of the plans and specifications therefor by Landlord, which shall not
be unreasonably withheld or delayed. Alterations, improvements, or additions so
made, except moveable office furniture and trade fixtures (which may include
telephone and computer cabling, a backup generator and an uninterrupted power
source, along with all computer equipment, telephone switches and electronics
equipment) placed in the Premises at the expense of Tenant, shall be the
property of Landlord and shall remain upon and be surrendered with the Premises
as a part thereof at the termination of this Lease, without disturbance,
molestation, injury, or damage; provided, at Landlord's election, Tenant shall
remove any alterations, improvements, and additions made by Tenant prior to or
during the term hereof, and restore the Premises, in a good and workmanlike
manner, to its condition prior to such alterations, improvements, and additions.
In the event damage to the Premises shall be caused by moving or removing said
furniture, equipment, or trade fixtures in or out of the Premises, said damage
shall be repaired at the cost of Tenant. Tenant has advised Landlord that it
desires to install an antenna on the building within the Premises and an
uninterrupted power source for such building, and Landlord is willing to permit
such additions subject to being satisfied with specific plans for the location
and method of installation for such alterations, which approval shall not be
unreasonably withheld or delayed.
19. ACCEPTANCE OF PREMISES; ACTS OF OTHERS; RULES: Subject to the other
---------------------------------------------
provisions of this Lease (including, but not limited to, subparagraph 35.f.
hereof), Tenant shall receive and accept the Premises in its condition at the
time of the Rent Commencement Date, which condition Tenant has examined and
hereby approves. Landlord shall not be responsible or liable to Tenant for any
loss or damage occasioned by the acts or omissions of persons occupying other
portions of the Premises. Tenant assumes all risks of, and Landlord shall not
be liable for, injury to persons and damage to property resulting from the
condition of the Premises or from the bursting or leaking of any and all pipes,
utility lines, connections, or air conditioning or heating equipment in, on, or
about the Premises, or from water, rain, or snow, which may flow into, issue, or
flow from any part of the Premises, or surrounding property.
Landlord may establish and enforce reasonable rules and regulations uniformly
applicable to all tenants in the Premises so that the Premises shall be
maintained in a neat and orderly appearance; provided such rules do not
unreasonably interfere with Tenant's normal business usage of the Premises and
do not conflict with any term of this Lease.
20. MECHANICS' LIENS: Tenant will not permit any mechanics' liens, or other
----------------
liens or similar encumbrances, to be placed upon the Premises or any building or
improvement on the Premises during the term hereof as a result of any work
performed or materials installed at the request of Tenant or its employees or
agents, and in case of the filing of any such lien or encumbrances, Tenant will
promptly pay and discharge the same.
21. NET LEASE: It is the intent of the Landlord that this Lease be construed
---------
a net lease so that the rent received by Landlord pursuant to this Lease is not
reduced by taxes,
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assessments, insurance, operating expenses, maintenance and repair of the
Premises or the costs of complying with laws, except to the extent specifically
provided herein.
22. LANDLORD'S RIGHTS; SUBORDINATION:
--------------------------------
a. Landlord shall have the right to transfer, subject to a mortgage, pledge,
security interest or otherwise encumber, assign, convey and/or lease (other than
leasing the Premises), in whole or in part, this Lease, the Premises and/or
improvements included in the Premises, and all rights now or hereafter existing,
and all rents and amounts payable to it under the provisions hereof. Nothing
herein contained shall limit or restrict any such rights, and the rights of
Tenant under this Lease are subject and subordinate to all instruments executed
and to be executed in connection with the exercise of any of such rights,
including, but not limited to, the lien or rights arising under any mortgage or
security agreement now or hereafter placed upon Landlord's interest in the
Premises. Tenant covenants and agrees to execute and deliver, within fifteen
(15) days following demand by Landlord, such further instruments subordinating
this Lease to the lien of any such mortgage or security agreement as shall be
requested by Landlord and/or any mortgagee or proposed mortgagee or holder of
any security agreement; provided that such mortgagee or proposed mortgagee
executes a nondisturbance agreement in a form reasonably protective of Tenant's
continued occupancy and rights under the Lease so long as Tenant complies with
its obligations hereunder, notwithstanding the exercise of the mortgagee's
rights under its credit instruments. In the event the Premises are hereafter
subjected to mortgage(s) by Landlord from time to time, Landlord shall endeavor
in good faith to obtain a reasonable nondisturbance agreement from the party
holding such mortgage(s), such agreement to be obtained (if the lender is
willing to do so) simultaneously with the granting of any such mortgage(s) by
Landlord. If any person shall succeed to all or part of Landlord's interest in
the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease, or otherwise, and if so requested or
required by such successor-in-interest, Tenant shall attorn to such successor-
in-interest and shall execute such agreement in confirmation of such attornment
as such successor-in-interest shall reasonably request.
b. Landlord shall constantly have pass keys to the Premises; and may enter
the Premises on a minimum of twenty-four (24) hours advance notice given to
Tenant's employee in charge at the Premises; provided no such notice shall be
required in an emergency.
c. Landlord shall have the right to exhibit the Premises to others and to
display "For Rent" signs on the Premises during the last one hundred sixty (160)
days of the term or any renewal thereof;
d. Landlord shall, after ten (10) days' advance written notice to Tenant
(except in an emergency), have the right to take any and all measures, including
making inspections, repairs, alterations, additions, and improvements to the
Premises, as may be necessary or desirable for the safety, protection, or
preservation of the Premises, or Landlord's interests, or as may be necessary or
desirable in the operation of the Premises. Landlord may enter upon the
Premises for the purpose of exercising any or all of the foregoing rights hereby
reserved without being deemed guilty of an eviction or disturbance of Tenant's
use or possession, and without being liable in any manner to Tenant.
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23. HOLDING OVER: In the event of a holding over by Tenant after expiration
------------
or termination of this Lease without the consent in writing of Landlord, Tenant
shall pay as monthly fixed rent 175% the amount of monthly fixed rent applicable
to the final month prior to the expiration of the term hereof for the entire
holdover period and all attorneys' fees and expenses incurred by Landlord in
enforcing its rights hereunder. Any holding over with consent of Landlord shall
constitute this Lease a lease from month to month.
24. OUTSIDE STORAGE: Tenant shall not use any part of the Premises outside
---------------
the building thereon, for outside storage without the prior written permission
of Landlord, which shall not be unreasonably withheld or delayed, and any
outside storage so permitted shall be maintained only in accordance with the
provisions of such permission. No trash, crates, pallets, or refuse shall be
permitted anywhere on the outside of the Premises, except in closed metal
containers to be located as directed by Landlord.
25. SIGNS; ADVERTISING; AND AWNINGS: Tenant shall have the exclusive right
-------------------------------
to install signage on the top of the building which is a part of the Premises
during the term of this Lease; however, Tenant shall not put upon, nor permit to
be put upon, any part of the Premises any signs, billboards, advertisements,
awnings, canopies, decorations or lettering whatsoever, without the prior
written consent of Landlord, which shall not be unreasonably withheld or
delayed. All signs, billboards, advertisements, awnings, canopies decorations
and lettering must conform to the sign ordinances and regulations of the City of
Wichita, Kansas, to any other governmental body having jurisdiction over the
placement and use of signs, and to any applicable restrictive covenants.
26. NOTICES: Any notice pursuant hereto shall be given in writing by (a)
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personal delivery, or (b) a nationally recognized overnight delivery service
with proof of delivery, or (c) United States Mail, postage prepaid, registered
or certified mail, return receipt requested, or (d) prepaid telegram, telex, or
telefacsimile transmission (provided that such telegram, telex, or telefacsimile
transmission is confirmed by expedited delivery service or by mail in the manner
previously described), sent to the intended addressee at the address set forth
at the beginning of this Agreement (or to such other address or to the attention
of such other person as the addressee shall have designated by written notice
sent in accordance herewith), and shall be deemed to have been given either at
the time of personal delivery or, in the case of expedited delivery service or
mail, as of the date of first attempted delivery at the address and in the
manner provided herein or, in the case of telegram, telex, or telefacsimile
transmission, upon receipt. Any such notices may be under the signature of the
Landlord's or Tenant's (as the case may be) agent, attorney, or representative.
27. PERSONS BOUND: Subject to the provisions of paragraph 13 hereof, the
-------------
agreements, covenants, and conditions of this Lease shall be binding upon and
inure to the benefit of the heirs, legal representatives, successors, and
assigns of each of the parties hereto.
28. QUIET ENJOYMENT: Landlord covenants that Tenant, on paying the rent
---------------
herein provided and keeping, performing and observing the covenants, agreements,
and
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conditions herein required of Tenant, shall peaceably and quietly hold and enjoy
the Premises for the term aforesaid, subject, however, to the terms of this
Lease.
29. COMPLIANCE WITH LAW: Tenant, at Tenant's expense, shall comply with all
-------------------
laws, rules, orders, ordinances, directions, regulations, and requirements of
federal, state, county, and municipal authorities pertaining to Tenant's use or
occupancy of the Premises, regardless of when they become effective, including,
without limitation, all applicable federal, state, and local laws, regulations,
or ordinances pertaining to air and water quality, Hazardous Material (as
hereinafter defined), waste disposal, air emissions and other environmental
matters, all zoning and other land use matters and utility availability, and
with any direction of any public officer or officers, pursuant to law, which
shall impose any duty upon Landlord or Tenant with respect to the use or
occupation of the Premises. Notwithstanding anything to the contrary appearing
above in this paragraph or elsewhere in this Lease, Landlord hereby agrees in
the event the Premises or any portion thereof, including without limitation, the
building, the common areas and parking lot, is not in compliance with The
Americans With Disabilities Act of 1990, as amended, on the date hereof based
upon the current usage thereof, Landlord shall, at its cost and expense (which
shall not be paid out of the escrow account established pursuant to paragraph 7
hereof), cause the same to be brought into compliance as soon as reasonably
possible following written notice by Tenant to Landlord specifying reasonable
detail of such noncompliance or pay Tenant the amount of money required for
Tenant's contractor to correct such noncompliance.
30. USE OF HAZARDOUS MATERIAL: (a) Tenant shall only cause or permit any
-------------------------
Hazardous Material (as hereafter defined) to be brought upon, kept, or used in
or about the Premises by Tenant, its agents, employees, contractors, or
invitees, as long as such Hazardous Material is necessary or useful to Tenant's
business and will be used, kept, and stored in a manner that complies with all
laws, rules, regulations, decrees and orders regulating any such Hazardous
Material so brought upon or used or kept in or about the Premises. If Tenant, or
any of its licensees or invitees, breaches the obligations stated in the
preceding sentence, or if the presence of Hazardous Material on the Premises
which is caused or permitted by Tenant, or any of its licensees or invitees,
results in contamination of the Premises, or if contamination of the Premises by
Hazardous Material otherwise occurs for which Tenant is legally liable to
Landlord for damage resulting therefrom, then Tenant shall indemnify, defend,
and hold Landlord harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (including, without limitation,
diminution in value of the Premises, damages for the loss or restriction on use
of rentable or usable space or of any amenity of the Premises, damages arising
from any adverse impact on marketing of space, and sums paid in settlement of
claims, and reasonable attorneys' consultants fees, and experts' fees), which
arise during or after the Lease term as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any clean-
up, remedial, removal, or restoration work required by any federal, state, or
local governmental agency or political subdivision because of Hazardous Material
present in the soil or ground water on or under the Premises for which Tenant is
otherwise responsible under this paragraph 29. Without limiting the foregoing,
if the presence of any Hazardous Material for which Tenant is otherwise
responsible under this Paragraph 29, on the Premises which is caused or
permitted by Tenant, or any of its licensees or invitees, results in any
contamination of the Premises, Tenant shall promptly take all corrective
actions, at its sole expense, as are required by
13
<PAGE>
applicable law. Landlord's approval of such action shall first be obtained,
which approval shall not be unreasonably withheld or delayed so long as such
actions would not potentially have any material adverse long-term or short-term
effect on the Premises. The foregoing indemnity shall survive the expiration or
earlier termination of this Lease. As used herein, the term "Hazardous
Material" means any hazardous or toxic substance, material, or waste, including,
but not limited to, those substances, materials, and wastes listed in the United
States Department of Transportation Hazardous Materials Table (49 CFR 172.101),
or by the Environmental Protection Agency as hazardous substances (40 CFR Part
302), and amendments thereto, or such substances, materials, and wastes that are
or become regulated under any applicable local, state, or federal law.
(b) Landlord represents and warrants that, to its best knowledge, the Lease
Premises is not in violation of any federal, state, or municipal laws, order or
regulations, or any environmental requirements imposed by any local, federal or
state agency and that it has not placed, installed, disposed or released any
Hazardous Material on the Leased Premises. Prior to the date hereof Landlord
has obtained and provided to Tenant a Phase I environmental report concerning
the Premises.
31. CAPTIONS: The captions used throughout this Lease are for convenience
--------
and reference only and shall in no way be held to explain, modify, amplify, or
aid in the interpretation, construction, or meaning of any provisions in the
Lease.
32. ENTIRE AGREEMENT: This Lease contains the entire agreement between the
----------------
parties, and no modification of this Lease shall be binding upon the parties
unless evidenced by an agreement in writing signed by Landlord and Tenant after
the date hereof.
33. LIMITATION OF RIGHT OF RECOVERY AGAINST LANDLORD: Tenant agrees and
------------------------------------------------
acknowledges that the liability of Landlord under this Lease shall be limited to
its interest in the Premises, and any judgments rendered against Landlord shall
be satisfied solely out of the proceeds of sale of its interest in the Premises.
No personal judgment shall lie against Landlord, and any judgment so rendered
shall not give rise to any right of execution or levy against Landlord's assets,
other than as to the Premises. The foregoing provisions are not intended to
relieve Landlord from performance of its obligations, but only to limit the
personal liability of Landlord in case of recovery of a judgment against
Landlord.
34. SURRENDER OF PREMISES: At the expiration of the term hereof, Tenant
---------------------
shall peaceably surrender the Premises, including all alterations, additions,
improvements, decorations and repairs thereto (excluding all trade fixtures,
inventory, equipment, signs and other personal property installed by Tenant)
broom-cleaned and in good operating condition. All property not required to be
surrendered to Landlord shall be removed prior to the surrendering of the
Premises and Tenant shall repair all damage to the Premises caused by such
removal. Any personal property remaining on the Premises at the expiration of
this Lease shall be deemed abandoned by Tenant and any other occupant of the
Premises and Landlord shall claim the same and shall in no circumstances have no
liability therefor. If the Premises are not surrendered at the end of the term
as hereinabove set out, Tenant shall indemnify the Landlord against loss,
liability, or consequential damages resulting from such delay, including without
limitation, claims made by any succeeding
14
<PAGE>
Tenant founded on such delay. Tenant's obligation to observe and perform this
covenant shall survive the expiration or termination of this Lease.
35. MISCELLANEOUS:
-------------
a. Each party hereto represents to the other that the execution, delivery,
and performance hereof has been fully executed by them and that the party
executing this Lease has full right and authority to do so.
b. Except for Jeffrey L. Osborn of Cushman Realty Corporation and Classic
Real Estate, Inc. (collectively the "Broker"), Landlord and Tenant agree that no
discussions or negotiations were had with any other broker or agent concerning
this Lease, and each agree to indemnify and hold the other harmless from and
against any claim or liability for a brokerage commission, finder's fee, or
other compensation arising out of their respective agreements or conduct.
Landlord shall be responsible for payment of the fee due the Broker.
c. At any time and from time to time, Tenant shall execute and deliver to
Landlord, within fifteen (15) days following the request of Landlord, estoppel
certificates in form requested and required by Landlord as to matters relating
to this Lease.
d. If any term, covenant, or condition of this Lease or the application
thereof to any person or circumstances, to any extent, is held to be invalid or
unenforceable, the remainder of the Lease, or the application of such term,
covenant, or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and shall be
valid and enforceable to the fullest extent permitted by law.
e. As of the date of execution hereof, Landlord does not own the Premises,
however, Landlord is under contract to acquire the Premises. In the event
Landlord does not acquire the Premises on or before September 15, 1997, this
Lease shall be void and of no further force or effect. Landlord shall provide
evidence establishing Landlord's ownership of the Premises satisfactory to
Tenant not later than September 30, 1997.
f. As soon as reasonably possible following execution hereof, Landlord shall
cause the roof and mechanical systems within the building which is a part of the
Premises to be inspected by experienced professionals and cause such inspectors
to prepare written reports containing recommendations of any corrective work
necessary so that the roof will be watertight and in good condition and the
mechanical systems within such building to be in good operating condition.
Landlord shall promptly provide Tenant with a copy of such inspection reports.
Landlord shall cause any repairs or replacements to be made as soon as
reasonably possible as required by such reports in order that the roof shall be
in good condition and watertight and the mechanical equipment be in good
operating condition prior to the Rent Commencement Date. Landlord shall, after
completion of any suggested repairs, have the roof and/or mechanical systems
reinspected and such inspectors shall issue reports confirming that the
suggested repair work has been completed in good order. All such reports shall
specifically state that they were prepared for the benefit of both Landlord and
Tenant and all warranties, if any, shall be assigned to Tenant.
15
<PAGE>
g. If Tenant so requests, Landlord shall locate an individual acceptable to
Tenant and capable of serving as a building manager for operating the building
which is part of the Premises. Tenant shall hire or contract directly with such
individual; otherwise, Tenant's own personnel shall be responsible for operation
of such building and its systems.
IN WITNESS WHEREOF, the parties have caused this Lease to be signed by their
proper officers and/or representatives, and warrant that they have the authority
to bind same.
LANDLORD: TENANT:
ABLAH ENTERPRISES, INC., VIKING OFFICE PRODUCTS, INC.,
a Kansas corporation a California corporation
By: By:
------------------------- ---------------------------
George J. Ablah, President Title:
-------------------------
16
<PAGE>
Exhibit 10.37
Exhibit 10.37 Form of letter agreement, dated November 13, 1997, regarding
- -------------
amendment to change in control agreement, dated May 12, 1997, between the
registrant and each of Irwin Helford and M. Bruce Nelson
VIKING OFFICE PRODUCTS, INC.
950 West 190th Street
Los Angeles, CA 90061-1000
November 13, 1997
Mr. Irwin Helford
c/o Viking Office Products, Inc.
950 West 190th Street
Los Angeles, CA 90061
Dear Irwin:
The purpose of this letter (the "Amendment") is to amend the letter
Agreement dated as of May 12, 1997 (the "Change in Control Agreement") between
you and Viking Office Products, Inc. (the "Company"), in order to correct an
error herein. Terms used in this Amendment that are defined in the Change in
Control Agreement shall have the same meanings herein as in the Change in
Control Agreement unless otherwise provided herein.
Please sign the enclosed copy of this letter in the space indicated and
return it to me to evidence your agreement to the following provisions:
A. Paragraph 8 of Part Two of the Agreement is hereby amended so that, as
amended, it shall be and read as follows:
"8. DELAYED TERMINATION. One year after the date that 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) 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."
B. The Change in Control Agreement, as amended by this Amendment, is and
shall remain in full force and effect in accordance with its terms.
Very truly yours,
VIKING OFFICE PRODUCTS, INC.
By: _________________________
M. Bruce Nelson, President
APPROVED AND AGREED:
By: _______________________
Irwin Helford
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