<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended DECEMBER 31, 1995
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the transition period from to
---------------------- ----------------------
Commission file number 0-10322
--------------------------------------------------------
CORPORATE PROPERTY ASSOCIATES 3
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2708080
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 492-1100
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
- -------------------------------- -------------------------------------------
- -------------------------------- -------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
- -------------------------------------------------------------------------------
(Title of Class)
- -------------------------------------------------------------------------------
(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.
[X] Yes [_] No
Indicate by check mark if disclosure of deliquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Aggregate market value of the voting stock held by non-affiliates of Registrant:
There is no active market for Limited Partnership Units.
<PAGE>
PART I
------
Item 1. Business.
---------
Registrant is engaged in the business of investing in commercial and
industrial real estate properties which are net leased to commercial and
industrial entities. Registrant was organized as a California limited
partnership on November 7, 1980. The General Partners of Registrant are W.P.
Carey & Co., Inc. (the "Corporate General Partner" or "W.P. Carey") and William
Polk Carey (the "Individual General Partner"). The Corporate General Partner,
the Individual General Partner and/or affiliates are also the General Partners
of affiliates of Registrant, Corporate Property Associates ("CPA(R):1"),
Corporate Property Associates 2 ("CPA(R):2"), Corporate Property Associates 4, a
California limited partnership ("CPA(R):4"), Corporate Property Associates 5
("CPA(R):5"), Corporate Property Associates 6 - a California limited partnership
("CPA(R):6"), Corporate Property Associates 7 - a California limited partnership
("CPA(R):7"), Corporate Property Associates 8, L.P., a Delaware limited
partnership ("CPA(R):8"), Corporate Property Associates 9, L.P., a Delaware
limited partnership ("CPA(R):9"), the advisor of Corporate Property Associates
10 Incorporated ("CPA(R):10"), Carey Institutional Properties Incorporated
("CIP(TM)") and Corporate Property Associates 12 Incorporated ("CPA(R):12").
Registrant has a management agreement with Carey Corporate Property Management
Company ("Carey Management"), a division of W.P. Carey. According to the terms
of this agreement, Carey Management performs a variety of management services
for Registrant. Registrant has entered into an agreement with Fifth Rock L.P.,
an affiliate, for the purpose of leasing office space. Reference is made to the
Prospectus of Registrant dated July 31, 1981, as supplemented by Supplements
dated December 9, 1981, January 8, 1982 and February 10, 1982, filed pursuant to
Rules 424(b) and 424(c) under the Securities Act of 1933 and such Prospectus and
such Supplements are incorporated herein by reference (said Prospectus, as so
supplemented, is hereinafter called the "Prospectus").
Registrant has only one industry segment which consists of the
investment in and the leasing of industrial and commercial real estate. See
Selected Financial Data in Item 6 for a summary of Registrant's operations. Also
see the material contained in the Prospectus under the heading INVESTMENT
OBJECTIVES AND POLICIES .
The properties owned by Registrant are described in Properties in Item
2. Registrant's entire net proceeds from the public offering, less any return of
capital and the working capital reserve have been fully invested in net leased
commercial and industrial real estate since June 1, 1983, the date of
Registrant's final real estate acquisition.
For the year ended December 31, 1995, revenues from properties occupied
by Gibson Greetings, Inc. ("Gibson") amounted to 81% of the total operating
revenues of Registrant. No other property owned by Registrant accounted for 10%
or more of its total operating revenues during 1993. See Note 9 to the Financial
Statements in Item 8.
Except for an untenanted property in Reno, Nevada, all of Registrant's
properties are leased to corporate tenants under long-term net leases. A net
lease generally requires tenants to pay all operating expenses relating to the
leased properties including maintenance, real estate taxes, insurance and
utilities which under other forms of leases are often paid by the lessor.
Lessees are required to include Registrant as an additional insured party on all
insurance policies relating to the leased properties. In addition, substantially
all of the net leases include indemnification provisions which require the
lessees to indemnify Registrant and the General Partners for liabilities on all
matters relating to the leased properties. Registrant believes that the
insurance and indemnity provided on its behalf by its lessees provides adequate
coverage for property damage and any liability claims which may arise against
Registrant's ownership interests. In addition to the insurance and
indemnification provisions of the lease, Registrant has contingent property and
liability insurance for its leased properties and primary property and liability
coverage on the Moorestown and Reno properties. To the extent that any lessees
are not financially able to satisfy indemnification obligations which exceed
insurance reimbursements, Registrant may incur the costs necessary to repair
property and settle liabilities. Presently there are no claims pending for
property damages or liability claims.
As described above, lessees retain the obligation for the operating
expenses of their leased properties so that, other than rental income, there are
no significant operating data (i.e. expenses) reportable on Registrant's leased
properties. As discussed in Registrant's Management's Discussion and Analysis in
Item
- 1 -
<PAGE>
7, Registrant's leases generally provide for periodic rent increases which are
either stated and negotiated at the inception of the lease or based on formulas
indexed to increases in the Consumer Price Index. During the year ended
December 31, 1995, lease terms were modified or the Registrant's lease with
Gibson. In addition, the Company entered into a lease on a property in
Moorestown, New Jersey and agreed to a settlement with Leslie Fay Company
("Leslie Fay"). Other than Registrant's lease with Hughes Markets, Inc.
("Hughes") which represents approximately 4% of Registrant's rental income and
expires in 1996, all of Registrant's lease terms expire between 2001 and 2013
and provide for renewal terms.
As Registrant has generally invested in properties which are occupied by
a single corporate tenant and subject to long-term leases with such lease
obligations backed by the credit of the corporate lessee, most of Registrant's
properties have not been greatly affected by competitive conditions of local and
regional real estate markets. Competitive conditions of such markets have become
more significant due to the vacancy of the Reno, Nevada and the anticipated
expiration of the lease with Hughes for a property in Los Angeles, California.
Registrant is in discussions regarding a lease extension with Hughes. In
selecting real estate investments, Registrant's strategy was to identify
properties which included operations of material importance to the lessee so
that the lessee may be more likely to extend its lease beyond the initial term
or exercise a purchase option if such option was provided for in the lease
agreement. Registrant believes that this strategy reduces its exposure to the
competitive conditions of the local and regional real estate markets. Because
Registrant may be affected by the financial condition of its lessees rather than
the competitive conditions of the real estate marketplace, Registrant's strategy
has been to diversify its investments among tenants, property types and
industries in addition to achieving geographical diversification.
In April 1995, Registrant entered into a lease with Sports & Recreation,
Inc. ("Sports & Recreation") for Registrant's property in Moorestown, New Jersey
which it owns as a tenant-in-common with CPA(R):2 . Sports & Recreation is
currently retrofitting the building for use as retail store. At the earlier of
May 1, 1996 or the end of the construction period, a 16 year lease term will
commence. Registrant's share of annual rentals will be $187,750 during the first
five lease years with stabled increase every five years thereafter. Registrant
and CPA(R):2 have an obligation to reimburse Sports & Recreation for the costs
of replacing the heating, ventilation, and air conditioning systems and
installing a new roof and drainage system. Registrant's share of such costs is
estimated to be approximately $455,000.
In November 1995, Registrant and CPA(R):2 which own three properties
leased to Gibson agreed to restructure the Gibson lease and consented to
severing one of the properties from the master lease and entered into a new
lease for such property with Cleo, Inc. ("Cleo"). In connection with consenting
to the restructuring, Registrant received a one-time lump sum payment of
$8,723,000. As amended, Gibson's lease for the two remaining properties in
Berea, Kentucky and Cincinnati, Ohio have been extended through November 2013
from January 2002. Registrant's share of annual rents on the two remaining
properties will be approximately $2,367,000 with a 20% increase every five
years. In addition, Gibson has purchase options to purchase either or both of
its leased properties in 2005 and 2010. The Cleo lease for the property formerly
leased to Gibson in Memphis, Tennessee provides for a ten year lease term with a
rent increase in January 2001. Registrant's current share of annual rentals is
$1,145,000. Although annual rentals from the three properties decreased as a
result of the modification of the leases, cash flow will increase as a mortgage
loan which was collateralized by the three properties was paid off at the time
the modification agreement was executed.
In September 1995, the United States Bankruptcy Court approved a
compromise and settlement agreement to settle Registrant's dispute with The
Leslie Fay Company ("Leslie Fay"). Under the agreement Leslie Fay was released
from its lease agreement with Registrant for the property, leased in Wilkes
Barre, Pennsylvania and the purchase option was rescinded. In reaching such
settlement, Registrant received a payment of $5,000,000 plus interest of
$174,149 from a surety company which provided coverage to Leslie Fay. In
addition, Registrant retained (i) a lump sum deposit of $7,200,000 it received
from Leslie Fay in 1992 plus monthly installments $6,465,601 which had been
received from Leslie Fay during the period of the dispute, and (ii) ownership of
the property. Registrant sold the property in January 1996.
- 2 -
<PAGE>
Registrant has entered into discussion with Hughes regarding a two-year
lease extension; however, there is no assurance that an extension will be
executed. Registrant voluntarily contracted for Phase I environmental reviews of
all of its properties in 1993. Registrant believes, based on the results of such
reviews and Phase II environmental reviews of certain of its properties in 1994,
that its properties are in substantial compliance with Federal and state
environmental statutes and regulations. Phase II reviews were only performed on
certain properties based on the recommendations of the Phase I reviews. Portions
of certain properties have been subject to a limited degree of contamination,
principally in connection with either leakage from underground storage tanks or
surface spills from facility activities. In many instances, tenants are actively
engaged in the remediation process and addressing identified conditions. For
those conditions which were identified, Registrant advised its tenants of such
findings and of their obligations to perform additional investigations and any
required remediation. Tenants are generally subject to environmental statutes
and regulations regarding the discharge of hazardous materials and any related
remediation obligations. In addition, Registrant's leases generally require
tenants to indemnify Registrant from all liabilities and losses related to the
leased properties. Accordingly, Management believes that the ultimate resolution
of the aforementioned environmental matters will not have a material adverse
effect on Registrant's financial condition, liquidity or results of operations.
Registrant does not have any employees. The Corporate General Partner of
Registrant together with its affiliates employ twelve individuals who perform
accounting, secretarial and transfer services for Registrant. Gemisys, Inc.
performs certain transfer services for Registrant and The Bank of New York
performs certain banking services for Registrant. In addition, Registrant has
entered into an agreement with Carey Management pursuant to which Carey
Management provides certain management services to Registrant.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Item 2. Properties.
<S> <C> <C> <C>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ---------------------- ----------------- --------------- -----------------
GIBSON GREETINGS, Land and Manufac- Cincinnati, Ownership of a
INC. turing/Warehouse Ohio and 71.5% interest
Buildings - 2 Berea, Kentucky in land and
locations buildings
CLEO, INC. Land and Manufac- Memphis, Ownership of a 71.5%
turing/Warehouse Tennessee interest in land and
Building building
NEW VALLEY Land and Bridgeton, Ownership of an
CORPORATION Centralized Missouri approximate 61%
Telephone Bureau interest in land
and building
SPORTS & Land and Moorestown, Ownership of an
RECREATION, INC. Building New Jersey approximate 61%
interest in land
and building
(1) Land and Reno, Nevada Ownership of an
Building approximate 61%
interest in land
and building
HUGHES MARKETS, Land and Dairy Los Angeles, Ownership of an
INC. Processing California approximate
Facility 16.76% interest
in land and
building
AT&T CORPORATION Land and a Bridgeton, Ownership of an
Computer Center Missouri approximate 61%
interest in land
and building
</TABLE>
(1) This property is vacant.
- 4 -
<PAGE>
The material terms of Registrant's leases with its significant tenants are
summarized in the following table: ---
<TABLE>
<CAPTION>
Partnership's
Share Current Lease Terms of
Lease of Current Square Rent Per Expiration Renewal Ownership Purchase Gross
Obligor Annual Rents Footage Sq.Ft.(1) (Mo/Year) Terms Interest Option Costs (2)
- --------------------------- ------------ ---------- -------------- ----------- ------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gibson $2,366,571 1,194,840 2.59 11/2013 YES 71.5% Fair $9,304,694
Greetings, interest; market
Inc. remaining value as
interest encumbered
owned by the
by lease
Property
Associates
Corporate
2("CPA(R):2")
Cleo, Inc. 1,145,400 1,006,566 1.49 12/2005 YES 71.5% The 7,896,281
interest; greater of
remaining fair
interest market
owned by value
CPA(R):2 capped at
by the $11,618,750
lease or $10,725,000
New Valley 372,987 78,080 7.86 11/2001 YES 61% N/A 3,586,847
Corporation interest;
remaining
interest
owned
by CPA(R):2
AT&T 453,422 55,810 13.37 11/2001 YES 61% N/A 4,503,970
Corporation interest;
remaining
interest
owned
by CPA(R):2
Hughes 305,045 390,000 4.67 04/1996 YES 16.76% N/A 1,969,927
Markets Inc. interest;
remaining
interest owned
by Corporate
Property
Associates 4
Sports & 187,750 (3) 74,066 4.17 5/2012 YES 61% interest; N/A 1,800,000
Recreation remaining
Inc. interest owned
by CPA(R):2
</TABLE>
(1) Represents rate for rent per square foot when combined with rents applicable
to tenants-in-common.
(2) Includes original cost of investment and net increases or decreases to net
investment subsequent to purchase.
(3) Commencing of rent is the earlier of May 1, 1996 or completion of
construction.
None of Registrant's properties are encumbered by mortgage debt.
- 5 -
<PAGE>
Item 3. Legal Proceedings.
-----------------
On April 1, 1993, New Valley Corporation, ("New Valley"), a tenant of a
property owned by Registrant and formerly a tenant of two other of Registrant's
properties, filed a petition of voluntary bankruptcy seeking reorganization
under Chapter 11 of the United States Bankruptcy Code. In connection with the
filings, Registrant and Corporate Property Associates 2, which together own the
properties as tenants-in-common, filed a bankruptcy claim in the amount of
$6,766,904. New Valley is contesting the claims and Registrant and New Valley
are now in litigation regarding this claim. The matter is expected to go to
trial in May of 1996. No prediction regarding the outcome of this litigation can
be made at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matter was submitted during the fourth quarter of the year ended
December 31, 1995 to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related
-------------------------------------------------
Stockholder Matters.
-------------------
Information with respect to Registrant's common equity is hereby
incorporated by reference to page 22 of Registrant's Annual Report contained in
Appendix A.
Item 6. Selected Financial Data.
------------------------
Selected Financial Data are hereby incorporated by reference to page 1
of Registrant's Annual Report contained in Appendix A.
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations.
Management's Discussion and Analysis are hereby incorporated by
reference to pages 2 to 5 of Registrant's Annual Report contained in Appendix A.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The following financial statements and supplementary data are hereby
incorporated by reference to pages 5 to 18 of Registrant's Annual Report
contained in Appendix A:
(i) Report of Independent Accountants.
(ii) Balance Sheets as of December 31, 1994 and 1995.
(iii) Statements of Income for the years ended December 31, 1993, 1994 and
1995.
(iv) Statements of Partners' Capital for the years ended December 31, 1993,
1994 and 1995.
(v) Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995.
(vi) Notes to Financial Statements.
Item 9. Disagreements on Accounting and Financial Disclosure.
-----------------------------------------------------
NONE
- 6 -
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
Registrant has no officers or directors. The executive officers and
directors of the Corporate General Partner are as follows:
<TABLE>
<CAPTION>
Has Served as a
Director and/or
Name Age Positions Held Officer Since (1)
---- --- -------------- ----------------
<S> <C> <C> <C>
William Polk Carey 65 Chairman of the Board 11/80
Director
Francis J. Carey 70 President 11/80
Director
George E. Stoddard 79 Chairman of the Investment Committee 11/80
Director
Raymond S. Clark 82 Chairman of the Executive Committee 11/80
Director
Madelon DeVoe Talley 64 Vice Chairman of the Board 4/86
Director
Barclay G. Jones III 35 Executive Vice President 8/82
Director
Lawrence R. Klein 75 Chairman of the Economic Policy 4/84
Committee
Director
Claude Fernandez 43 Executive Vice President 3/83
Chief Administrative Officer
Howard J. Altmann 32 Senior Vice President 8/90
H. Augustus Carey 38 Senior Vice President 8/88
John J. Park 31 Senior Vice President 7/91
Treasurer
Michael D. Roberts 44 First Vice President 4/89
Controller
</TABLE>
(1) Each officer and director of the Corporate General Partner will hold office
until the next annual meeting of the Board of Directors and thereafter until
his successor shall have been elected and shall have qualified or until his
prior death, resignation or removal.
William Polk Carey and Francis J. Carey are brothers and Raymond S.
Clark is their brother-in-law. H. Augustus Carey is the nephew of William Polk
Carey and Raymond S. Clark and the son of Francis J. Carey.
A description of the business experience of each officer and director of
the Corporate General Partner is set forth below:
William Polk Carey, Chairman and Chief Executive Officer, has been
active in lease financing since 1959 and a specialist in net leasing of
corporate real estate property since 1964. Before founding W.P. Carey & Co.,
Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of
Hubbard,
- 7 -
<PAGE>
Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate and
Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of Real
Estate and Private Placements, Director of Corporate Finance and Vice Chairman
of the Investment Banking Board of duPont Glore Forgan Inc. A graduate of the
University of Pennsylvania's Wharton School of Finance, Mr. Carey is a Governor
of the National Association of Real Estate Investment Trusts (NAREIT). He also
serves on the boards of The Johns Hopkins University and its medical school, The
James A. Baker III Institute for Public Policy at Rice University, and other
educational and philanthropic institutions. He founded the Visiting Committee
to the Economics Department of the University of Pennsylvania and co-founded
with Dr. Lawrence R. Klein the Economics Research Institute at that university.
Francis J. Carey was elected President and a Managing Director of W.P.
Carey in April 1987, having served as a Director since its founding in 1973. He
served as a member of the Executive Committee and Board of Managers of the
Western Savings Bank of Philadelphia from 1972 until its takeover by another
bank in 1982 and is former chairman of the Real Property, Probate and Trust
Section of the Pennsylvania Bar Association. Mr. Carey served as a member of the
Board of Overseers of the School of Arts and Sciences of the University of
Pennsylvania from 1983 through 1990 and has served as a member of the Board of
Trustees of the Investment Program Association since 1990. From April 1987 until
August 1992, he served as counsel to Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships and W.P. Carey and
some of its affiliates. A real estate lawyer of more than 30 years' experience,
he holds A.B. and J.D. degrees from the University of Pennsylvania.
George E. Stoddard, Chief Investment Officer, was until 1979 head of the
bond department of The Equitable Life Assurance Society of the United States,
with responsibility for all activities related to Equitable's portfolio of
corporate investments acquired through direct negotiation. Mr. Stoddard was
associated with Equitable for over 30 years. He holds an A.B. degree from
Brigham Young University, an M.B.A. from Harvard Business School and an LL.B.
from Fordham University Law School.
Raymond S. Clark is former President and Chief Executive Officer of the
Canton Company of Baltimore and the Canton Railroad Company. A graduate of
Harvard College and Yale Law School, he is presently a Director and Chairman of
the Executive Committee of W.P. Carey and served as Chairman of the Board of
W.P. Carey from its founding in 1973 until 1982. He is past Chairman of the
Maryland Industrial Development Financing Authority.
Madelon DeVoe Talley, Vice Chairman, is a member of the New York State
Controller's Investment Committee, a Commissioner of the Port Authority of New
York and New Jersey, former CIO of New York State Common Retirement Fund and New
York State Teachers Retirement System. She also served as a managing director of
Rothschild, Inc. and as the President of its asset management division. Besides
her duties at W.P. Carey, Mrs. Talley is also a former Governor of the N.A.S.D.
and is a director of Biocraft Laboratories, a New York Stock Exchange company.
She is an alumna of Sarah Lawrence College and the graduate school of
International Affairs at Columbia University.
Barclay G. Jones III, Executive Vice President, Managing Director, and
co-head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant
to the President in July 1982 after his graduation from the Wharton School of
the University of Pennsylvania, where he majored in Finance and Economics. He
was elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is
also a Director of the Wharton Business School Club of New York.
- 8 -
<PAGE>
Lawrence R. Klein, Chairman of the Economic Policy Committee since 1984,
is Benjamin Franklin Professor of Economics Emeritus at the University of
Pennsylvania, having joined the faculty of Economics and the Wharton School in
1958. He holds earned degrees from the University of California at Berkeley and
Massachusetts Institute of Technology and has been awarded the Nobel Prize in
Economics as well as over 20 honorary degrees. Founder of Wharton Econometric
Forecasting Associates, Inc., Dr. Klein has been counselor to various
corporations, governments, and government agencies including the Federal Reserve
Board and the President's Council of Economic Advisers.
Claude Fernandez, Chief Administrative Officer, Managing Director, and
Executive Vice President, joined W.P. Carey in 1983. Previously associated with
Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a
Certified Public Accountant. Mr. Fernandez received his B.S. degree in
Accounting from New York University in 1975 and his M.B.A. in Finance from
Columbia University Graduate School of Business in 1981.
Howard J. Altmann, Senior Vice President, Investment Department, joined
W.P. Carey in August 1990. He was a securities analyst at Goldman Sachs & Co.
for the retail industry from 1986 to 1988. Mr. Altmann received his
undergraduate degree in economics and finance from McGill University and his
M.B.A. from the Stanford University Graduate School of Business.
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in
1988. Mr. Carey previously worked for W.P. Carey from 1979 to 1981 as Assistant
to the President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan
officer of the North American Department of Kleinwort Benson Limited in London,
England. He received an A.B. from Amherst College in 1979 and an M.Phil. in
Management Studies from Oxford University in 1984. Mr. Carey is a trustee of the
Oxford Management Centre Associates Council.
John J. Park, Senior Vice President and Treasurer, joined W.P. Carey as
an Investment Analyst in December 1987. Mr. Park received his undergraduate
degree from Massachusetts Institute of Technology and his M.B.A. in Finance from
New York University.
Michael D. Roberts joined W. P. Carey as a Second Vice President and
Assistant Controller in April 1989 and is currently First Vice President and
Controller. Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers &
Lybrand, where he attained the title of audit manager. A certified public
accountant, Mr. Roberts received a B.A. from Brandeis University and an M.B.A.
from Northeastern University.
Item 11. Executive Compensation.
-----------------------
Under the Amended Agreement of Limited Partnership of Registrant (the
"Agreement"), 1.9% of Distributable Cash From Operations, as defined, is payable
to the Corporate General Partner and .1% of Distributable Cash From Operations
is payable to the Individual General Partner. The Corporate General Partner and
the Individual General Partner received $89,725 and $84,722 respectively, from
Registrant as their share of Distributable Cash From Operations during the year
ended December 31 1995. As owner of 200 Limited Partnership Units, the
Corporate General Partner received cash distributions of $38,024 ($190.12 per
Unit) during the year ended December 31, 1995. See Item 6 for the net income
allocated to the General Partners under the Agreement. Registrant is not
required to pay, and has not paid, any remuneration to the officers or directors
of the Corporate General Partner or any other affiliate of Registrant during the
year ended December 31, 1995. Although Registrant is authorized to pay the
Individual General Partner a fee of up to $15,000 in any year beginning after
December 31, 1980, no fee will be paid so long as Mr. Carey is the Individual
General Partner and no fee may be paid to any successor Individual General
Partner appointed by Mr. Carey pursuant to the Agreement.
In the future, the Corporate General Partner will continue to receive
1.9% of Distributable Cash From Operations, the Individual General Partner will
continue to receive .1% of Distributable Cash From Operations and each General
Partner will continue to be allocated the same percentage of the profits and
losses of Registrant as had been allocated in the past. For a description of
the subordinated interest of the Corporate General Partner and the Individual
General Partner in Cash From Sales and Cash From Financing, reference is made to
the materials contained in the Prospectus under the heading MANAGEMENT
COMPENSATION.
- 9 -
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
---------------------------------------------------
Management.
-----------
As of December 31, 1995, no person owned of record, or was known by
Registrant to own beneficially, more than 5% of the Limited Partnership Units of
Registrant.
The following table sets forth as of March 20, 1996 certain
information as to the ownership by directors and executive officers of
securities of Registrant:
<TABLE>
<CAPTION>
Number of Units
Name of and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership (1) of Class
- --------------------------- ---------------------- ------------------------ ---------
<S> <C> <C> <C>
Limited
Partnership Units William Polk Carey (1) 200 units .30%
Francis J. Carey
George E. Stoddard
Raymond S. Clark 15 .02
Madelon DeVoe Talley
Barclay G. Jones III
Lawrence R. Klein
Claude Fernandez
Howard J. Altmann
H. Augustus Carey
John J. Park
Michael D. Roberts ___ _______
All executive officers
and directors as a
group (12 persons) 215 units .32%
=== =====
</TABLE>
(1) As of March 20, 1996, the Corporate General Partner, W. P. Carey & Co.,
Inc., owned 200 Limited Partnership Units of Registrant. William Polk
Carey, the sole shareholder of the Corporate General Partner, is the
beneficial owner of these Units.
There exists no arrangement, known to Registrant, the operation of which
may at a subsequent date result in a change of control of Registrant.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
For a description of transactions and business relationships between
Registrant and its affiliates and their directors and officers, see Notes 2 and
3 to the Financial Statements contained in Item 8. Michael B. Pollack, First
Vice President and Secretary of the Corporate General Partner, is a partner of
Reed Smith Shaw & McClay which is engaged to perform legal services for
Registrant.
No officer or director of the Corporate General Partner or any other
affiliate of Registrant or any member of the immediate family or associated
organization of any such officer or director was indebted to Registrant at any
time since the beginning of Registrant's last fiscal year.
- 10 -
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
------------------------------------------------------
Form 8-K
--------
(a) 1. Financial Statements:
---------------------
The following financial statements are filed as a part of this Report:
Report of Independent Accountants.
Balance Sheets, December 31, 1994 and 1995.
Statements of Income for the years ended December 31, 1993, 1994 and 1995.
Statements of Partners' Capital for the years ended December 31, 1993, 1994 and
1995.
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995.
Notes to Financial Statements.
The financial statements are hereby incorporated by reference to pages 7 to 18
of Registrant's Annual Report contained in Appendix A.
(a) 2. Financial Statement Schedule:
-----------------------------
The following schedule is filed as a part of this Report:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1995.
Notes to Schedule III.
Schedule III and notes thereto are hereby incorporated by reference to pages
19 to 20 of Registrant's Annual Report contained in Appendix A.
Financial Statement Schedules other than those listed above are omitted
because the required information is given in the Financial Statements, including
the Notes thereto, or because the conditions requiring their filing do not
exist.
- 11 -
<PAGE>
(a) 3. Exhibits:
---------
The following exhibits are filed as part of this Report. Documents
other than those designated as being filed herewith are incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
3.1 Amended Agreement of Limited Partnership of Exhibit 3(B) to Regis-
Registrant dated as of June 1, 1981. tration Statement (Form
S-11) No. 2-70773
4.1 Deed from Western Union Realty Corporation Exhibit 10(H)(3) to Post-
("WURC") to Corporate Property Associates 2 Effective Amendment No. 1
("CPA(R):2") and Registrant, as tenants in to Registration Statement
common, dated November 16, 1981. (Form S-11) No. 2-70773
4.6 Deed from WURC to CPA(R):2 and Registrant Exhibit 10(H)(13) to Post-
as tenants in common, dated November 16, Effective Amendment No. 1
1981 to Registration Statement
(Form S-11) No. 2-70773
4.10 Deed from WURC to CPA(R):2 and Registrant, as Exhibit 10(H)(23) to Post-
tenants in common, dated November 16, 1981. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
4.15 Deed from WURC to CPA(R):2 and Registrant, as Exhibit 10(H)(33) to Post-
tenants in common, dated November 16, 1981. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
4.43 Agreement for Sale and Sale of Property Exhibit 4.1 to Regis-
and Escrow Instructions, dated October 17, trant's Form 8-K dated
1986, by and between Registrant, CPA(R):4, November 6, 1986
collectively as Seller, and Kraft, Inc.
("Kraft"), as Purchaser.
4.44 Agreement for Sale and Sale of Property Exhibit 4.2 to Regis-
and Escrow Instructions, dated October 17, trant's Form 8-K dated
1986, by and between Registrant, CPA(R):4, November 6, 1986
collectively as Seller, and Hughes Markets,
Inc. ("Hughes"), as Purchaser.
4.45 Letter Agreement dated October 17, 1986 Exhibit 4.3 to Regis-
from Registrant and CPA(R):4, and agreed to trant's Form 8-K dated
and accepted by Kraft and Hughes. November 6, 1986
4.46 Guaranty made as of October 21, 1986 by Exhibit 4.4 to Regis-
Hughes, as Guarantor, to Registrant and trant's Form 8-K dated
CPA(R):4. November 6, 1986
10.1 Contract of Sale dated November 16, 1981 Exhibit 10(H)(1) to Post-
between WURC as seller, and CPA(R):2 and Effective Amendment No. 1
Registrant, as purchasers. to Registration Statement
(Form S-11) No. 2-70773
</TABLE>
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.2 Indenture of Lease dated September 16, Exhibit 10(H)(1) to Post-
1971 between WURC as landlord, and The Effective Amendment No. 1
Western Union Telegraph Company ("WUTCO"), to Registration Statement
as tenant. (Form S-11) No. 2-70773
10.3 Amendment of Lease dated March 27, 1972 Exhibit 10(H)(5) to Post-
between WURC and WUTCO. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
10.4 Second Amendment of Lease dated November 16, Exhibit 10(H)(6) to Post-
1981 between WURC and WUTCO. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
10.5 Assignment of Lease from WUTCO to CPA(R):2 Exhibit 10(H)(7) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773
10.6 Indenture of Lease dated November 14, Exhibit 10(H)(14) to Post-
1972 between WURC, as landlord, and Effective Amendment No. 1
Western Union Corporation ("WUC"), as to Registration Statement
tenant. (Form S-11) No. 2-70773
10.7 Amendment of Lease dated December 12, Exhibit 10(H)(15) to Post-
1972 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
10.8 Amendment of Lease dated April 30, 1973 Exhibit 10(H)(16) to Post-
between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
10.9 Third Amendment of Lease Agreement dated Exhibit 10(H)(17) to Post-
November 12, 1981 between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
10.10 Assignment of Lease from WURC to CPA(R):2 and Exhibit 10(H)(18) to Post-
Registrant, as tenants in common, dated Effective Amendment No. 1
November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773
10.11 Indenture of Lease dated July 12, 1972 Exhibit 10(H)(24) to Post-
between WURC, as landlord, and WUC, as Effective Amendment No. 1
tenant. to Registration Statement
(Form S-11) No. 2-70773
10.12 Amendment of Lease dated March 1, 1973 Exhibit 10(H)(25) to Post-
between WURC and WUC. Effective Amendment No. 1
to Registration Statement
(Form S-11) No. 2-70773
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.13 Second Amendment of Lease Agreement Exhibit 10(H)(26) to Post-
dated November 16, 1981 between WURC Effective Amendment No. 1
and WUC. to Registration Statement
(Form S-11) No. 2-70773
10.14 Assignment of Lease from WURC to CPA(R):2 Exhibit 10(H)(27) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773
10.15 Indenture of Lease dated December 18, Exhibit 10(H)(34) to Post-
1973 between WURC, as landlord, and WUC, Effective Amendment No. 1
as tenant. to Registration Statement
(Form S-11) No. 2-70773
10.16 Second Amendment of Lease Agreement Exhibit 10(H)(35) to Post-
dated November 16, 1981 between WURC Effective Amendment No. 1
and WUC. to Registration Statement
(Form S-11) No. 2-70773
10.17 Assignment of Lease from WURC to CPA(R):2 Exhibit 10(H)(36) to Post-
and Registrant, as tenants in common, Effective Amendment No. 1
dated November 16, 1981. to Registration Statement
(Form S-11) No. 2-70773
10.19 Lease Agreement dated January 25, 1982 Exhibit 10(J)(4) to Post-
between CPA(R):2 and Registrant, as landlord, Effective Amendment No. 1
and Gibson as tenant. to Registration Statement
(Form S-11) No. 2-70773
10.22 Management Agreement among Registrant, Exhibit 10(C) to Amendment
and Carey Corporate Property Management, No. 1 to Registration
Inc. Statement (Form S-11)
No. 2-70773
10.23 Support Agreement among Registrant, Exhibit 10(D) to Amendment
Third Carey Corporate Property, Inc. No. 1 to Registration
and W.P. Carey & Co., Inc. Statement (Form S-11)
No. 2-70773
10.24 Lease Agreement dated June 1, 1983 Exhibit 10.1 to Form 8-K
between Registrant and CPA(R):4, as dated June 22, 1983 of
landlord, and Knudsen Corporation CPA(R):4 (Commission File
("Knudsen") as tenant. No. 2-79041
10.25 Agreement dated June 1, 1983 between Exhibit 10.2 to Form 8-K
Registrant and CPA(R):4, as landlord, and dated June 22, 1983 of
Knudsen as tenant. CPA(R):4 (Commission File
No. 2-79041
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit Method of
No. Description Filing
- ------- ----------- ---------
<S> <C> <C>
10.26 Second Amendment of Lease entered into as Exhibit 10.1 to Regis-
of October 21, 1986, by and between trant's Form 8-K dated
Registrant and CPA(R):4, collectively as November 6, 1986
Landlord, and Santee Dairies, Inc. as
Tenant.
10.27 Lease Agreement dated November 15, 1995 Filed herewith
by and between Registrant and CPA(R):2, as
Landlord, and Cleo, Inc., as Tenant.
10.28 Lease Amendment Agreement dated November 15, 1995 Filed herewith
by and between Registrant and CPA(R):2, as
Landlord, and Gibson Greetings, Inc., as Tenant.
28.2 Press release regarding Pennsylvania Exhibit 28.1 to Form 8-K
Superior Court decision. dated December 10, 1992.
28.3 Prospectus of Registrant Exhibit 28.3 to Form 10-K/A
dated July 31, 1981. dated September 24, 1993
28.4 Supplement dated December 9, 1981 Exhibit 28.4 to Form 10-K/A
to Prospectus dated July 31, 1981. dated September 24, 1993
28.5 Supplement dated January 8, 1982 Exhibit 28.5 to Form 10-K/A
to Prospectus dated July 31, 1981. dated September 24, 1993
28.6 Supplement dated February 10, 1982 Exhibit 28.6 to Form 10-K/A
to Prospectus dated July 31, 1981. dated September 24, 1993
28.8 Press release dated June 30, 1993 Exhibit 28.1 to Form 8-K
announcing the suspension of secondary dated July 12, 1993
market sales of Limited Partnership Units.
28.9 Compromise and Settlement Agreement dated as of Exhibit 28.1 to Form 8-K
May 1, 1995 between The Leslie Fay Companies, Inc., dated May 1, 1995
Registrant and the Official Committee of
Unsecured Creditors of Leslie Fay and
National Union Fire Insurance Company.
</TABLE>
(b) Reports on Form 8-K
-------------------
During the quarter ended December 31, 1995 the Registrant was not
required to file any reports on Form 8-K.
- 15 -
<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.
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
BY: W. P. CAREY & CO., INC.
04/08/96 BY: /s/ Claude Fernandez
----------- --- ---------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial 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.
BY: W. P. CAREY & CO., INC.
William P. Carey
Chairman of the Board
and Director
(Principal Executive Officer)
Francis J. Carey
President and Director
George E. Stoddard BY: /s/ George E. Stoddard
Chairman of the Investment -----------------------
Committee and Director George E. Stoddard
Attorney in fact
April 8, 1996
Dr. Lawrence R. Klein
Chairman of the Economic Policy
Committee and Director
Madelon DeVoe Talley
Vice Chairman of the Board of
Directors and Director
04/08/96 BY: /s/ Claude Fernandez
-------------- --- ---------------------
Date Claude Fernandez
Executive Vice President and
Chief Administrative Officer
(Principal Financial Officer)
04/08/96 BY: /s/ Michael D. Roberts
-------------- --- -----------------------
Date Michael D. Roberts
First Vice President and Controller
(Principal Accounting Officer)
- 16 -
<PAGE>
APPENDIX A TO FORM 10-K
CORPORATE PROPERTY ASSOCIATES 3
(A CALIFORNIA LIMITED PARTNERSHIP)
1995 ANNUAL REPORT
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except per unit amounts)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $8,669 $ 8,478 $7,554 $7,392 $ 7,249
Net income 5,632 4,900 2,929 3,215 15,976
Net income allocated:
To General Partners 113 98 59 64 320
To Limited Partners 5,519 4,802 2,870 3,151 15,656
Per unit 83.62 72.76 43.49 47.74 237.21
Distributions attributable (1):
To General Partners 95 130 93 93 168
To Limited Partners 4,650 8,032 (2) 4,536 4,568 12,208 (2)
Per unit 70.46 121.70 68.72 69.21 184.97
BALANCE SHEET DATA:
Total assets 55,185 57,978 57,171 57,050 33,223
Long-term
obligations (3) 19,549 17,078 15,624 14,026 -
</TABLE>
(1) Includes distributions attributable to the fourth quarter of each fiscal
year payable in the following fiscal year less distributions in the first
fiscal quarter attributable to the prior year.
(2) Include special distributions of $50 and $120 in 1992 and 1995,
respectively, per Limited Partnership Unit.
(3) Represents mortgage obligations due after more than one year.
-1-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Results of Operations
---------------------
Net income for the year ended December 31, 1995 increased by $12,761,000
as compared with net income for the year ended December 31, 1994, primarily due
to the successful settlement of litigation with the Leslie Fay Company ("Leslie
Fay") which accounted for $11,499,000 of the increase to net income. Excluding
the effect of Leslie Fay, other nonrecurring income of $225,000 and writedowns
of properties to net realizable value in 1995 and 1994 of $146,000 and $697,000,
respectively, the Partnership would have reflected an increase in net income of
$485,000. The increase in income, as adjusted, was due to decreases in interest
and property expenses and an increase in other interest income and was partially
offset by a decrease in lease revenues. The decrease in interest expense
resulted from the $1,320,000 prepayment of mortgage loans on properties leased
or formerly leased to New Valley Corporation ("New Valley") in the first quarter
of 1995 and the prepayment of the mortgage loan on the Gibson Greetings, Inc.
("Gibson") properties in November 1995 in connection with the restructuring of
the Gibson lease. The decrease in property expenses was due to the costs
incurred in 1994 in connection with the Partnership's assessment of its
liquidity alternatives which included environmental reviews and property
valuations. Other interest income increased as the result of the receipt of a
lump sum cash payment of $5,000,000 received upon resolution of the dispute with
Leslie Fay and invested in money market funds, before being distributed to
partners through a special distribution. The decrease in lease revenues was due
to the termination of the New Valley lease on the Reno, Nevada property in
December 1994 and the modification and restructuring of the Gibson lease as
described below. The substantial increase in cash flow provided from operations
was primarily due to the receipt of lump sum payments of $13,732,000 relating to
Gibson and Leslie Fay.
The Partnership realized a net gain of $11,499,000 upon settlement of a
dispute with Leslie Fay, described in Note 10 to the Financial Statements.
Proceeds from the settlement amount to $18,900,000, of which $13,081,000 had
been collected prior to 1995. Pursuant to the settlement, Leslie Fay was
released from all obligations under the lease, relinquished all claims to the
property and vacated the facility. In connection with the settlement, the
Partnership incurred a $7,400,000 writeoff on the property to its net realizable
value, unencumbered by the lease. The Leslie Fay property was purchased by the
Partnership for $9,400,000 in 1982. The vacant property was subsequently sold to
a third party in January 1996 and, in connection with the sale, the Partnership
recognized an additional writeoff of $146,000 to net realizable value in 1995.
Total proceeds from the settlement of the Leslie Fay dispute and the sale of the
property amount to approximately $20,900,000. In addition, as more fully
described in Note 11 to the Financial Statements, the Partnership received
$8,723,000 ($8,150,941, net of costs) in connection with consenting to a
modification of the Gibson lease. The Partnership severed one of three
properties from the Gibson master lease, modified the master lease for the
remaining two properties and entered into a new lease with Cleo, Inc. ("Cleo"),
a new lessee, for the severed property. Annual gross revenues will decrease as a
result of the lease modification; however, net cash flow will increase as a
result of the retirement of the Gibson mortgage which was paid off with proceeds
from the lump sum payment. For financial reporting purposes, income from this
transaction has been deferred and will be recognized over the remaining terms of
the Gibson and Cleo leases.
Net income for the year ended December 31, 1994 increased by $286,000 to
$3,215,000 as compared with net income for the year ended December 31, 1993. In
addition, cash provided from operations for 1994 increased by $260,000 to
$4,647,000 as compared with 1993. The increase in net income was primarily due
to the noncash charges of $1,302,000 in 1993 for the writedown on the
Partnership property in Moorestown, New Jersey as compared with the noncash
charge of $697,000 in 1994 on the writedown of the Partnership's property in
Reno, Nevada. Excluding the effect of the writedowns, income would have
decreased by $319,000 in 1994 as compared with 1993. Such a decrease would have
resulted from the increase in property expenses and a decrease on other interest
income due to the Leslie Fay litigation and bankruptcy proceedings and related
interest incurred on the Leslie Fay installments.
-2-
<PAGE>
Net income and cash flow provided by operating activities may be
affected by the uncertainty related to the Hughes Markets, Inc. ("Hughes")
lease. The lease with Hughes for a dairy processing plant in Los Angeles,
California is currently scheduled to expire in April 1996. The Partnership and
Hughes have entered into negotiations for a two-year lease extension; however,
there can be no assurance that such an extension will be executed. The
Partnership is in the process of remarketing the property in the event that
Hughes vacates. The Partnership's share of annual rent from the Hughes lease is
currently $305,000. If the property were vacated, the Partnership estimates that
annual carrying costs for insurance, real estate taxes and maintenance and
security would be approximately $100,000. The Partnership's share of annual
carrying charges on the vacant property in Reno, Nevada is currently $80,000.
The Partnership is continuing its efforts to remarket the Reno property for
either lease or sale.
In May 1996, the Partnership is scheduled to start receiving rent of
$188,000 per year from its lease with Sports & Recreation, Inc. ("Sports &
Recreation") on the Moorestown, New Jersey property. Sports & Recreation is in
the process of retrofitting the Moorestown property for use as a retail store.
Annual rentals on the two Gibson properties and the Cleo property which had
formerly been leased to Gibson are $2,367,000 and $1,145,000, respectively.
Prior to the modification of the Gibson lease, the Partnership's annual rentals
from the property were $5,962,000. Although annual revenues from these
properties will be reduced by $2,450,000, the Partnership had been paying annual
debt service of $2,510,000 on the Gibson mortgage loan. As the result of the
prepayment of the mortgage loan, annual cash flow from the Gibson and Cleo
properties will reflect an increase of $60,000 in spite of the reduction in
rental income. The Gibson mortgage loan had been scheduled to mature with a
balloon payment of $12,582,000 in 1996 and the Partnership would have attempted
to refinance the loan at that time. It is possible that the Partnership would
have realized a reduction in debt service on any refinancing. Prior to the
restructuring, Gibson represented approximately 80% of lease revenues. If the
Hughes lease is extended, Gibson's share of lease revenues will decrease to
approximately 50% of lease revenues, thereby reducing the Partnership's exposure
to any adverse changes in the financial condition of Gibson. By entering into
the lease with Cleo, the Partnership has achieved greater diversification.
Because of the long-term nature of the Partnership's net leases,
inflation and changes in prices have not unfavorably affected the Partnership's
net income or had an impact on the continuing operations of the Partnership's
properties. The leases with Gibson, New Valley, Sports & Recreation and AT&T
Corporation ("AT&T") provide periodic fixed rent increases and the lease with
Cleo provides for periodic rent increases based on formulas indexed to increases
in the Consumer Price Index. No rental increases are scheduled to occur until
1997, when an increase is scheduled on the AT&T lease.
Financial Condition
-------------------
Except for the vacant property in Reno, Nevada, all of the Partnerships
properties are leased to corporate tenants under net leases by which tenants are
generally required to pay all operating expenses relating to the leased
properties. The Partnership depends on a relatively stable operating cash flow
from its net leases to meet operating expenses and fund quarterly distributions
to partners. During 1995, the Partnership significantly modified its capital
structure by liquidating all of its mortgage debt. At the beginning of the
year, the Partnership had a remaining mortgage obligation at the beginning of
the year of approximately $15,600,000. In addition, the Company paid a special
distribution of $8,000,000 (resulting in a $120 return of capital per Limited
Partnership Unit as defined in the Partnership Agreement). As a result, the
Partnership's cash balances decreased from $8,851,000 to $1,158,000.
Cash provided from operating activities of $12,918,000 was sufficient to
pay distributions to partners of $4,722,000 and scheduled mortgage installment
payments of $1,113,000. Approximately $8,151,000 of the cash provided from
operations resulted from nonrecurring lump sum payments, net of the related
costs. Future operating cash flows are subject to various uncertainties
described herein and the ability to sustain or increase the distribution rate is
subject to the outcome of the uncertainty related to the Hughes property.
-3-
<PAGE>
Cash flow generated from operating and investing activities has
generally exceeded distributions paid. Distributions paid per Limited
Partnership Unit in 1993 and 1994 exceeded net income per Limited Partnership
Unit by $24.91 and $21.40 in 1993 and 1994, respectively. This is because the
Partnership evaluates its projection of cash flows in determining the
distribution rate. Net income is reduced by charges such as depreciation,
amortization and property writedowns which do not impact cash flows.
The Partnership's financing activities in 1995 included paying off all
of the Partnership's remaining mortgage balances and paying a special
distribution to partners of $8,000,000 as well as paying quarterly distributions
to partners of $4,722,000. As a result of these activities, the Partnership
significantly reduced its cash reserves. Since the inception of the Partnership,
special distributions of $250 per Unit have been paid representing a return of
50% of the original cost of a Unit. Accordingly, the amount of quarterly
distributions per Unit can be expected to decrease even though the distribution
rate on adjusted capital, as defined in the Partnership Agreement, may continue
to increase. The Corporate General Partner advanced a loan of $2,300,000 to help
retire the Gibson mortgage loan. The loan is a demand note and it is anticipated
that the note will be repaid from future operating cash flow. Since December 31,
1995, the Partnership has repaid $1,500,000 of the advance. The Partnership has
ample unused borrowing capacity because all of its properties are unleveraged;
however, no financings are currently being contemplated.
The Partnership's sole investing activity for the periods presented in
the financial statements consisted of the receipt of purchase installments and
settlement payments from Leslie Fay. Pursuant to its lease with Sports and
Recreation, the Partnership has an obligation to reimburse Sports and Recreation
for certain retrofitting costs which are currently estimated to be $458,000. It
is currently anticipated that such costs will be funded from operating cash
flow. In the event that there are insufficient cash reserves, the Partnership
could seek an additional advance from the Corporate General Partner or borrow on
its unleveraged properties.
In connection with the termination of the Moorestown and Reno leases,
the Partnership expects to receive a bankruptcy settlement; however, the amount
of such settlement cannot be estimated and no amounts that the Partnership may
ultimately receive have been recorded in the accompanying financial statements.
Cleo has an option to purchase its property which is exercisable at any
time with at least six months notice.
All of the Partnership's properties are subject to environmental
statutes and regulations regarding the discharge of hazardous materials and
related remediation obligations. All but two of the Partnership's properties are
currently leased to corporate tenants. The Partnership generally structures a
lease to require the tenant to comply with all laws. In addition, substantially
all of the Partnership's net leases include provisions which require tenants to
indemnify the Partnership from all liabilities and losses related to their
operations at the leased properties. If the Partnership undertakes to clean up
or remediate any of its properties, the General Partners believe that in most
cases the Partnership will be entitled to reimbursement from tenants for such
costs. In the event that the Partnership absorbs a portion of such costs because
of a tenant's failure to fulfill its obligations (or because a property
currently has no tenant), the General Partners believe such expenditures will
not have a material adverse effect on the Partnership's financial condition,
liquidity or results of operations.
In 1994, the Partnership voluntarily conducted Phase II environmental
reviews of certain of its properties based on the results of Phase I
environmental reviews conducted in 1993. The Partnership believes, based on the
results of such reviews, that its properties are in substantial compliance with
Federal and state environmental statutes and regulations. Portions of certain
properties have been documented as having a limited degree of contamination,
principally in connection with either leakage from underground storage tanks or
surface spills from facility activities. For those conditions which were
identified, the Partnership advised the affected tenant of the Phase II findings
and of its obligation to perform required remediation.
-4-
<PAGE>
Effective January 1, 1995, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of ("SFAS
121"). Pursuant to SFAS 121, the Partnership assesses the recoverability of its
real estate assets, including residual interests, based on projections of cash
flows over the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their estimated net realizable value.
The adoption of SFAS 121 did not have a material effect on the Partnership's
financial condition or results of operations.
-5-
<PAGE>
REPORT of INDEPENDENT ACCOUNTANTS
To the Partners of
Corporate Property Associates 3:
We have audited the accompanying balance sheets of Corporate Property
Associates 3 (a California limited partnership) as of December 31, 1994 and
1995, and the related statements of income, partners' capital and cash flows for
each of the three years in the period ended December 31, 1995. We have also
audited the financial statement schedule included on pages 19 to 20 of this
Annual Report. These financial statements and financial statement schedule are
the responsibility of the General Partners. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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 the
General Partners, 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 Corporate Property
Associates 3 (a California limited partnership) as of December 31, 1994 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the Schedule of
Real Estate and Accumulated Depreciation as of December 31, 1995, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the financial information required to
be included therein pursuant to Securities and Exchange Commission Regulation S-
X Rule 12-28.
/s/ Coopers & Lybrand L.L.P.
NEW YORK, NEW YORK
March 29, 1996
-6-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
BALANCE SHEETS
December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
ASSETS:
Real estate leased to others:
Accounted for under the
operating method:
Land $ 1,255,499 $ 1,255,499
Buildings 4,514,428 4,514,428
----------- -----------
5,769,927 5,769,927
Accumulated depreciation 976,612 1,175,202
----------- -----------
4,793,315 4,594,725
Net investment in direct financing leases 33,415,760 25,291,792
----------- -----------
Real estate leased to others 38,209,075 29,886,517
Real estate held for sale 9,400,000 1,853,816
Cash and cash equivalents 8,851,419 1,158,302
Accrued interest and rents receivable 524,060 210,362
Due from affiliates 29,101
Other assets, net of accumulated amortization
of $193,827 in 1994 35,870 114,160
----------- -----------
Total assets $57,049,525 $33,223,157
=========== ===========
LIABILITIES:
Mortgage notes payable $15,624,196
Note payable to affiliate $ 2,300,000
Accrued interest payable 351,372
Accounts payable and accrued expenses 428,778 86,776
Prepaid rental income 38,695
Accounts payable to affiliates 57,298
Purchase installments 13,080,601
----------- -----------
Total liabilities 29,523,642 2,444,074
----------- -----------
Commitments and contingencies
PARTNERS' CAPITAL:
General Partners 46,541 191,606
Limited Partners (66,000 Limited
Partnership Units issued and
outstanding) 27,479,342 30,587,477
----------- -----------
Total partners' capital 27,525,883 30,779,083
----------- -----------
Total liabilities and
partners' capital $57,049,525 $33,223,157
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-7-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
STATEMENTS of INCOME
For the years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 287,779 $ 287,779 $ 290,657
Interest income from direct financing leases 7,056,551 7,055,695 6,502,361
Other interest Income 209,897 48,378 230,926
Other income 225,321
---------- ---------- -----------
7,554,227 7,391,852 7,249,265
---------- ---------- -----------
Expenses:
Interest 1,734,434 1,602,175 1,255,047
Depreciation 147,229 158,567 198,590
General and administrative 339,230 309,069 372,006
Property expenses 1,079,551 1,387,498 781,442
Amortization 22,405 22,405 19,605
Writedown to net realizable value 1,302,318 697,325 146,184
---------- ---------- -----------
4,625,167 4,177,039 2,772,874
---------- ---------- -----------
Income before gain on settlement 2,929,060 3,214,813 4,476,391
Gain on settlement, net of $7,400,000
writedown to net realizable value 11,499,176
---------- ---------- -----------
Net income $2,929,060 $3,214,813 $15,975,567
========== ========== ===========
Net income allocated to:
Individual General Partner $ 2,929 $ 3,215 $ 15,976
========== ========== ===========
Corporate General Partner $ 55,652 $ 61,081 $ 303,536
========== ========== ===========
Limited Partners $2,870,479 $3,150,517 $15,656,055
========== ========== ===========
Net income per Unit
(66,000 Limited Partnership
Units outstanding) $43.49 $47.74 $237.21
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-8-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
STATEMENTS of PARTNERS' CAPITAL
For the years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Partners' Capital Accounts
--------------------------
Limited
Partners'
General Limited Amount Per
Total Partners Partners Unit (a)___
----- -------- --------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $ 30,644,908 $ 108,922 $ 30,535,986 $ 463
Distributions (4,606,531) (92,131) (4,514,400) (68)
Net income 1993 2,929,060 58,581 2,870,479 43
------------ --------- ------------ -----
Balance, December 31, 1993 28,967,437 75,372 28,892,065 438
Distributions (4,656,367) (93,127) (4,563,240) (69)
Net income 1994 3,214,813 64,296 3,150,517 48
------------ --------- ------------ -----
Balance, December 31, 1994 27,525,883 46,541 27,479,342 417
Distributions (12,722,367) (174,447) (12,547,920) (190)
Net income 1995 15,975,567 319,512 15,656,055 237
------------ --------- ------------ -----
Balance, December 31, 1995 $ 30,779,083 $ 191,606 $ 30,587,477 $ 464
============ ========= ============ =====
</TABLE>
(a) Based on 66,000 Units issued and outstanding during all periods.
The accompanying notes are an integral part of the financial statements.
-9-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
STATEMENTS of CASH FLOWS
For the years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 2,929,060 $ 3,214,813 $ 15,975,567
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 169,634 180,972 218,195
Gain on settlement, net (11,499,176)
Restructuring fees received, net of costs 8,150,941
Cash receipts on direct financing leases in excess
of (less than) amortization of unearned income 8,193 9,046 (26,973)
Writedown to net realizable value 1,302,318 697,325 146,184
Net change in operating assets and liabilities (21,484) 545,219 (47,161)
----------- ------------ ------------
Net cash provided by operating
activities 4,387,721 4,647,375 12,917,577
----------- ------------ ------------
Cash flows from investing activities:
Proceeds from settlement, net 4,850,869
Payments received in connection with
exercise of purchase option 2,260,792 2,286,195 585,000
----------- ------------ ------------
Net cash provided by
investing activities 2,260,792 2,286,195 5,435,869
----------- ------------ ------------
Cash flows from financing activities:
Distributions to partners (4,606,531) (4,656,367) (12,722,367)
Payment of mortgage principal (1,322,185) (1,453,396) (1,113,283)
Prepayment of mortgage principal (14,510,913)
Proceeds from issuance of note to affiliate 2,300,000
----------- ------------ ------------
Net cash used in
financing activities (5,928,716) (6,109,763) (26,046,563)
----------- ------------ ------------
Net increase (decrease) in cash
and cash equivalents 719,797 823,807 (7,693,117)
Cash and cash equivalents,
beginning of year 7,307,815 8,027,612 8,851,419
----------- ------------ ------------
Cash and cash equivalents,
end of year $ 8,027,612 $ 8,851,419 $ 1,158,302
=========== ============ ============
Supplemental cash flows information:
Interest paid $ 1,744,897 $ 1,613,684 $ 1,357,609
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-10-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
-------------------------------------------
Real Estate Leased to Others:
----------------------------
Real estate is leased to others on a net lease basis, whereby the tenant is
generally responsible for all operating expenses relating to the
property, including property taxes, insurance, maintenance, repairs,
renewals and improvements.
The Partnership diversifies its real estate investments among various corporate
tenants engaged in different industries and by property type throughout
the United States.
The leases are accounted for under the direct financing or operating methods.
Such methods are described below:
Direct financing method - Leases accounted for under the direct
-----------------------
financing method are recorded at their net investment (Note 5). Unearned
income is deferred and amortized to income over the lease terms so as to
produce a constant periodic rate of return on the Partnership's net
investment in the lease.
Operating method - Real estate is recorded at cost, revenue is
----------------
recognized as rentals are earned and expenses (including depreciation)
are charged to operations as incurred.
Effective January 1, 1995, the Partnership adopted the provisions of Statement
of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
("SFAS 121"). Pursuant to SFAS 121, the Partnership assesses the
recoverability of its real estate assets, including residual interests,
based on projections of cash flows over the life of such assets. In the
event that such cash flows are insufficient, the assets are adjusted to
their estimated net realizable value. The adoption of SFAS 121 did not
have a material effect on the Partnership's financial condition or
results of operations.
Substantially all of the Partnership's leases provide for either scheduled rent
increases or periodic rent increases based on formulas indexed to
increases in the Consumer Price Index ("CPI").
Use of Estimates:
- -----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Real Estate Held for Sale:
- --------------------------
Real estate held for sale is accounted for at the lower of cost or fair value
less costs to sell.
Depreciation:
- -------------
Depreciation is computed using the straight-line method over the estimated
useful lives of components of the property, which range from 5 to 36
years.
Cash Equivalents:
- -----------------
Corporate Property Associates 3 (the "Partnership") considers all short-term,
highly-liquid investments that are both readily convertible to cash and
have a maturity of generally three months or less at the time of
purchase to be cash equivalents. Items classified as cash equivalents
include commercial paper and money market funds. Substantially all of
the
Continued
-11-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
Partnership's cash and cash equivalents at December 31, 1994 and 1995
were held in the custody of two financial institutions.
Other Assets:
- -------------
Included in other assets at December 31, 1994 are costs incurred in connection
with mortgage note refinancings which are amortized on a straight-line
basis over the terms of the mortgages.
Income Taxes:
- -------------
A partnership is not liable for income taxes as each partner recognizes his
proportionate share of the partnership income or loss in his tax return.
Accordingly, no provision for income taxes is recognized for financial
statement purposes.
2. Partnership Agreement:
----------------------
The Partnership was organized on November 7, 1980 under the Uniform Limited
Partnership Act of the State of California for the purpose of engaging
in the business of investing in and leasing industrial and commercial
real estate. The Corporate General Partner purchased 200 Limited
Partnership Units in connection with the Partnership's public offering.
The Partnership will terminate on December 31, 2018, or sooner, in
accordance with the terms of the Amended Agreement of Limited
Partnership (the "Agreement").
The Agreement provides that the General Partners are allocated 2% (.1% to the
Individual General Partner, William P. Carey, and 1.9% to the Corporate
General Partner, W. P. Carey & Co., Inc. ("W.P. Carey") and the Limited
Partners are allocated 98% of the profits and losses as well as
distributions of distributable cash from operations, as defined. The
partners are also entitled to receive net proceeds from the sale of the
Partnership properties as defined in the Agreement. An affiliate of the
General Partners may be entitled to incentive fees during the
liquidation stage of the Partnership. A division of W.P. Carey is
engaged in the real estate brokerage business. The Partnership may sell
properties through the division and pay subordinated real estate
commissions as provided in the Agreement. The division could ultimately
earn a real estate commission of up to $675,477 with respect to the
sales of properties, which amounts will be retained by the Partnership
unless the subordination provisions of the Agreement are satisfied.
3. Transactions with Related Parties:
----------------------------------
Under the Agreement, a division of W.P. Carey is also entitled to receive a
property management fee and reimbursement of certain expenses incurred
in connection with the Partnership's operations. Property management
fee in 1995 includes the effects of certain transactions described in
Notes 10 and 11. General and administrative expense reimbursements
consist primarily of the actual cost of personnel needed in providing
administrative services necessary to the operation of the Partnership.
Property management fee and general and administrative expense
reimbursements are summarized as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- ----------
<S> <C> <C> <C>
Property management fee $175,759 $162,711 $ 930,191
General and administrative
expense reimbursements 86,909 84,839 86,183
-------- -------- ----------
$262,668 $247,550 $1,016,374
======== ======== ==========
</TABLE>
During 1993, 1994 and 1995, fees and expenses aggregating $246,406, $32,352 and
$96,306, respectively, were incurred for legal services performed by a
firm in which the Secretary of the Corporate General Partner and other
affiliates is a partner.
Continued
-12-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
The Partnership is a participant in an agreement with W.P. Carey and other
affiliates for the purpose of leasing office space used for the
administration of real estate entities and W.P. Carey and for sharing
the associated costs. Pursuant to the terms of the agreement, the
Partnership's share of rental, occupancy and leasehold improvement costs
is based on adjusted gross revenues as defined. Net expenses incurred
in 1993, 1994 and 1995 were $50,655, $53,757 and $87,907 respectively.
The increase in 1995 is due, in part, to certain nonrecurring costs
incurred in connection with the relocation of the Partnership's offices.
On November 16, 1995, the Partnership borrowed $2,300,000 from W.P. Carey in
connection with the retirement of a mortgage loan (see Note 11). The
loan which is evidenced by a promissory note and bears interest at the
prime rate requires the Partnership to pay the entire principal amount
and accrued interest thereon on demand. The Partnership may prepay the
note, in whole or in part, at any time without penalty. The retired
mortgage loan had a fixed interest rate of 10%. Interest incurred of
$25,586 on the loan is included in interest expense for the year ended
December 31, 1995. Such amount is also included in accounts payable to
affiliates as of December 31,1995. The Partnership repaid $1,500,000 to
W.P. Carey since December 31, 1995.
The Partnership's ownership interests in certain properties are jointly held
with affiliated entities as tenants-in-common with the Partnership's
ownership interests in such jointly held properties ranging from 16.76%
to 71.5%. The Partnership accounts for its assets and liabilities
relating to tenants-in-common interests on a proportional basis.
4. Real Estate Leased to Others Accounted for Under the Operating Method:
----------------------------------------------------------------------
The scheduled minimum future rentals, exclusive of renewals, under a
noncancelable operating lease with Hughes Markets, Inc. aggregate
approximately $84,000 through April 1996 at which time the lease
terminates.
Contingent rentals were approximately $36,000 in both 1993 and 1994 and $39,000
in 1995.
5. Net Investment in Direct Financing Leases:
------------------------------------------
Net investment in direct financing leases is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------
1994 1995
---- ----
<S> <C> <C>
Minimum lease payments
receivable $34,447,858 $ 72,193,297
Unguaranteed residual value 33,409,444 33,409,444
----------- ------------
67,857,302 105,602,741
Less, Unearned income 34,441,542 80,310,949
----------- ------------
$33,415,760 $ 25,291,792
=========== ============
</TABLE>
The scheduled minimum future rentals, exclusive of renewals, under noncancelable
direct financing leases amount to approximately $4,338,000 in 1996,
$4,375,000 in 1997, $4,339,000 in 1998, $4,321,000 in 1999 and
$4,360,000 in 2000 and aggregate approximately $72,193,000 through 2013.
Contingent rentals were approximately $1,904,000 in both 1993 and 1994 and
$1,142,000 in 1995.
6. Distributions:
--------------
Distributions are declared and paid to partners quarterly and are
summarized as follows:
Continued
-13-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
Year Ending Distributions Paid to Distributions Paid to Per Limited
December 31, General Partners Limited Partners Partners Unit
- ----------- --------------------- -------------------- --------------
<S> <C> <C> <C>
1993 $ 92,131 $4,514,400 $ 68.40
=========== =========== =======
1994 $ 93,127 $4,563,240 $ 69.14
=========== =========== =======
1995
Quarterly distributions $ 94,447 $4,627,920 $ 70.12
Special distribution
-Note 10 80,000 7,920,000 120.00
----------- ---------- -------
$174,447 $12,547,920 $190.12
=========== =========== =======
</TABLE>
Distributions of $15,599 to the General Partners and $804,540 to the Limited
Partners for the quarter ended December 31, 1995 were declared and paid in
January 1996.
7. Income for Federal Tax Purposes:
--------------------------------
Income for financial statement purposes differs from income for Federal income
tax purposes because of the difference in the treatment of certain
items.for income tax purposes and financial statement purposes. A
reconciliation of accounting differences is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net income per Statements of Income $ 2,929,060 $ 3,214,813 $15,975,567
Excess tax depreciation (1,468,616) (1,423,529) (1,364,376)
Recognition of purchase installments
as operating income 2,286,192 2,286,195 (5,880,601)
Writedown to net realizable value 1,302,318 697,325 7,546,184
Restructuring fee 8,150,941
Other 455,701 (312,950) (474,841)
----------- ----------- -----------
Income reported for Federal income
tax purposes $ 5,504,655 $ 4,461,854 $23,952,874
=========== =========== ===========
</TABLE>
8. Industry Segment Information:
-----------------------------
The Partnership's operations consist of the investment in and the leasing of
industrial and commercial real estate.
In 1993, 1994 and 1995, the Partnership earned its total operating revenues
(rental income plus interest income from direct financing leases) from
the following lease obligors:
<TABLE>
<CAPTION>
1993 % 1994 % 1995 %
---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Gibson Greetings, Inc. $5,962,090 81% $5,962,090 81% $5,525,671 81%
AT&T Corporation 457,394 6 457,818 6 458,275 7
New Valley Corporation 637,067 9 635,786 9 367,530 6
Hughes Markets, Inc. 287,779 4 287,779 4 290,657 4
Cleo, Inc. 150,885 2
---------- ---- ---------- ---- ---------- ---
$7,344,330 100% $7,343,473 100% $6,793,018 100%
========== === ========== === ========== ===
</TABLE>
9. Properties Formerly Leased to New Valley Corporation:
-----------------------------------------------------
The Partnership and Corporate Property Associates 2 ("CPA(R):2"), an affiliate,
own approximate 61% and 39% interests, respectively, in three properties
located in Reno, Nevada; Bridgeton,
Continued
-14-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
Missouri and Moorestown, New Jersey. On April 1, 1993, the lessee, New Valley
Corporation ("New Valley"), filed a petition of voluntary bankruptcy
seeking reorganization under Chapter 11 of the United States Bankruptcy
Code. In connection with the bankruptcy filing, the Bankruptcy Court
approved New Valley's termination of its lease with the Partnership and
CPA(R):2 for the Moorestown, New Jersey property in May 1993. In 1993,
the Partnership wrote down the Moorestown property to its estimated net
realizable value of $1,800,000 and recognized a charge of $1,302,318 on
the writedown. In December 1994, the Bankruptcy Court also approved the
termination of New Valley's lease on the Reno property effective
December 31, 1994. In connection with the lease termination, the
Partnership recognized a charge of $697,325 and wrote down the Reno
property in 1994 to its estimated net realizable value of $2,000,000.
On April 7, 1995, the Partnership and CPA(R):2, entered into a net lease for the
property with Sports & Recreation, Inc. ("Sports & Recreation") which is
retrofitting the Moorestown Property into a retail store. The lease
provided for a feasibility period through September 30, 1995 which was
extended through December 31, 1995 and is followed by an initial term of
16 years. Sports & Recreation will commence paying rent at the earlier
of completion of construction or 120 days after the end of the
feasibility period (May 1, 1996). Sports & Recreation will incur all
retrofitting costs; however, the Partnership and CPA(R):2 will reimburse
Sports & Recreation for the cost of replacing the HVAC system and
installing a new roof and drainage system. The Partnership's share of
the cost for replacing the HVAC system and installing a new roof and
drainage system is estimated to be approximately $458,000. Annual
rentals will initially be $308,750 (of which the Partnership's share is
approximately $187,750) during the first five lease years with stated
increases every five years thereafter.
In connection with the termination of the Moorestown and Reno leases, the
Partnership and CPA(R):2 expect to receive a bankruptcy settlement from
New Valley. The amount of such settlement cannot be estimated and no
amounts that the Partnership may ultimately receive have been recorded
in the accompanying financial statements. The Partnership and CPA(R):2
are currently remarketing the Reno property.
10. Gain on Settlement:
-------------------
During 1991, The Leslie Fay Company ("Leslie Fay") informed the Partnership that
it was exercising an option to purchase its leased property from the
Partnership as of April 30, 1992. Under the purchase option in the
lease, Leslie Fay's purchase exercise price was to be the greater of
$9,400,000, the price the Partnership paid for the property in 1982, or
the fair market value of the property as impacted by the lease as of the
option exercise date. The process of determining the fair market value
of the property was underway when Leslie Fay filed suit to ask the court
to intervene in order to determine the contractual interpretation of
fair value. The court ruled in favor of the Partnership and the ruling
was upheld on appeal by the Pennsylvania Superior and Supreme Courts.
Leslie Fay also filed a second lawsuit seeking to transfer the property
and other benefits of ownership. In connection with this second suit,
the court ordered Leslie Fay to pay $7,200,000 to the Partnership as
partial payment for the purchase of the Leslie Fay property, post a
surety bond for $15,000,000 and to continue making its monthly payments
of $190,516 to the Partnership, for application of such payments to the
ultimate purchase price. Effective January 1, 1995, the monthly payment
was reduced to $65,000. For financial reporting purposes, the
$7,200,000 payment and all subsequent monthly payments were recorded as
installment payments at the time such payments were received by the
Partnership pending final resolution of the suits. In addition, Leslie
Fay was entitled to interest on its monthly installments and the
Partnership would be entitled to interest on the difference between the
ultimate purchase price and the initial $7,200,000 payment upon
resolution of the second suit.
Continued
-15-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
On April 5, 1993, Leslie Fay filed a voluntary bankruptcy petition under Chapter
11 of the United States Bankruptcy Code and continued to make monthly
payments to the Partnership for the period subsequent to the filing of
the petition. In July 1995, Leslie Fay, the Partnership, the surety
company and the Official Committee of Unsecured Creditors of Leslie Fay
signed and entered into a compromise and settlement agreement which was
intended to resolve the dispute between Leslie Fay and the Partnership.
The agreement was presented to the bankruptcy court on August 7, 1995
and subsequently approved.
In connection with a compromise and settlement agreement, on August 29, 1995,
the Partnership received $5,250,000 plus interest of $174,149, from the
surety company and, in turn, made a lump sum payment to Leslie Fay of
$250,000. Under the agreement the Partnership unconditionally retained
ownership of the property as well as the aggregate installment payments
received from Leslie Fay of $13,665,601, consisting of the initial
payment of $7,200,000 and $6,465,601 of monthly payments which were
received through September 30, 1995.
As the fair value of the property was no longer impacted by the Leslie Fay
lease, the Partnership wrote down the estimated estimated fair value of
the property, net of anticipated selling costs, to $2,000,000 and
recognized a noncash charge of $7,400,000, which is netted against the
gain on settlement.
In connection with the settlement, the Partnership has recognized a gain of
$11,499,176, which consists of aggregate net cash received from Leslie
Fay and the surety company of $18,839,750 and the waiving of the
$382,706 interest obligation that had been accrued on the Leslie Fay
monthly payments, offset by the writedown of $7,400,000 and aggregate
management fees, payable to an affiliate, of $323,280 on the monthly
payments received from Leslie Fay. Under the compromise and settlement
agreement, Leslie Fay is required to dismiss with prejudice all of its
suits filed against the Partnership, and the Partnership's bankruptcy
claim against Leslie Fay, as an unsecured creditor, has been reduced to
$2,650,000. The Partnership may not realize the full amount of the
bankruptcy claim.
As a result of the settlement, a special distribution of $120 per Limited
Partner Unit ($7,920,000) was declared and paid in October 1995. In
1992, a special distribution of $50 per Limited Partner Unit
($3,300,000) was paid from the receipt of the $7,200,000 installment
from Leslie Fay.
On January 10, 1996, the Partnership sold the vacant property to a third party,
net of transaction costs, for $1,853,816. The Partnership has
recognized an additional writedown on the property to an amount equal to
the net sales proceeds, resulting in a charge to income in 1995 of
$146,184. Accordingly, no gain or loss will be recognized in 1996 in
connection with the sale.
11. Properties Leased to Gibson Greetings, Inc.:
--------------------------------------------
On January 25, 1982, the Partnership and CPA(R):2 entered into a net lease with
Gibson Greetings, Inc. ("Gibson"), for three properties in Memphis,
Tennessee, Berea, Kentucky and Cincinnati, Ohio. In 1988, the
Partnership and CPA(R):2 consented to Gibson's sublease of the Memphis,
Tennessee property to a wholly-owned subsidiary, Cleo, Inc. ("Cleo").
The lease for the three properties had an initial term of 20 years with
two five-year renewal options and provided for minimum annual rentals of
$5,865,000 with increases every five years based on a formula indexed to
the CPI. The lease also provided Gibson with a purchase option which
was exercisable during the tenth year of the lease and at the end of the
initial term. Gibson declined to exercise its option during the tenth
lease year in 1992.
Continued
-16-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
In connection with Gibson's sale of the Cleo subsidiary to CSS Industries, Inc.
("CSS"), the Partnership, CPA(R):2 and Gibson entered into a transaction
on November 15, 1995, whereby the Memphis, Tennessee property occupied
by Cleo was severed from the Gibson master lease, the Gibson lease was
amended and Cleo entered into a separate lease for the Tennessee
property with CSS as the guarantor of Cleo's lease obligations. The
Partnership and CPA(R):2 received $12,200,000 (of which the
Partnership's share was $8,723,000) as a one-time lump sum payment in
consideration for severing the Tennessee property from the Gibson master
lease. Gibson still retains certain specific obligations for any
environmental violations which may be detected and which resulted from
any pre-existing conditions and is ensuring that roof repairs or
replacement are performed on the Tennessee property. Gibson and Cleo
have until May 15, 1996 to complete the roof repair.
The Gibson lease, as amended, on the two remaining properties in Kentucky and
Ohio provides for an initial term which has been extended through
November 30, 2013 and provides for one renewal term of ten years.
Annual rent is $3,100,000 (of which the Partnership's share is
approximately $2,367,000) with stated increases of 20% every five years
through the end of the renewal term. The lease includes new purchase
options, exercisable on November 30, 2005 and 2010 and Gibson has the
right to exercise the purchase option on one of its leased properties or
both. The option is exercisable at fair market value of the properties
as encumbered by the lease.
The Cleo lease provides for a ten-year term through December 31, 2005 with two
five-year renewal terms. Annual rent is $1,500,000 (of which the
Partnership's share is approximately $1,145,000) with a rent increase
effective January 1, 2001. The rent which will be based on a formula
indexed to the CPI, will be at least $1,689,000 but no more than
$1,898,000. Cleo has an option to purchase the property at any time
during the term of the lease including the renewals terms so long as
there is no event of monetary default. Exercise of the purchase option
requires between six and twelve months notice. The exercise price is
the greater of (i) $15,000,000 or (ii) fair market value capped at a
maximum of $16,250,000.
In connection with consenting to sever the Tennessee property from the Gibson
lease, the Partnership has deferred recognition of a gain on
restructuring of $8,150,941, consisting of its $8,723,000 share of the
lump sum payment offset by costs of $572,059, including management fees
of $429,560, payable to an affiliate, and will amortize such deferral
over the remaining initial terms of the Gibson and Cleo direct financing
leases. The net proceeds from the agreement as well as other available
funds were used to pay off the Partnership's share of the mortgage loan
collateralized by the Gibson properties of $13,190,566 in November 1995.
12. Environmental Matters:
----------------------
All of the Partnership's properties are subject to environmental statutes and
regulations regarding the discharge of hazardous materials and related
remediation obligations. All but one of the Partnership's properties
are currently leased to corporate tenants. The Partnership generally
structures a lease to require the tenant to comply with all laws. In
addition, substantially all of the Partnership's net leases include
provisions which require tenants to indemnify the Partnership from all
liabilities and losses related to their operations at the leased
properties. The costs for remediation, which are being performed and
paid for by the affected tenant at three of the properties, are not
expected to be material. In the event that the Partnership absorbs a
portion of
Continued
-17-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES to FINANCIAL STATEMENTS, Continued
such costs because of a tenant's failure to fulfill its obligations (or because
a property currently has no tenant), the General Partners believe such
expenditures will not have a material adverse effect on the Partnership's
financial condition, liquidity or results of operations.
In 1994, based on the results of Phase I environmental reviews performed in
1993, the Partnership voluntarily conducted Phase II environmental
reviews on four of its properties. The Partnership believes, based on
the results of Phase I and Phase II reviews, that its properties are in
substantial compliance with Federal and state environmental statutes and
regulations. Portions of certain properties have been documented as
having a limited degree of contamination, principally in connection with
surface spills from facility activities. For those conditions which
were identified, the Partnership advised the affected tenants of the
Phase II findings and of their obligations to perform required
remediation.
13. Disclosures About Fair Value of Financial Instruments:
------------------------------------------------------
The carrying amounts of cash, receivables and accounts payable and accrued
expenses approximate fair value because of the short maturity of these
items.
-18-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
as of December 31, 1995
<TABLE>
<CAPTION>
Cost Increase
Initial Cost to Capitalized (Decrease) in Gross Amount at which Carried
Partnership Subsequent to Net at Close of Period(c)(d) Accumulated
--------------------- -----------------------------
Description Land Buildings Acquisition(a) Investment(b) Land Buildings Total Depreciation(d)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Method:
Dairy processing
facility leased to
Hughes Markets, Inc. $ 340,146 $ 1,625,424 $4,357 $ 344,503 $1,625,424 $ 1,969,927 $ 986,639
Centralized telephone
bureaus formerly
leased to New Valley
Corporation 1,104,487 5,037,432 3,829 $(2,345,748) 910,996 2,889,004 3,800,000 188,563
---------- ----------- ----------- ----------- ---------- ---------- ----------- -----------
$1,444,633 $ 6,662,856 $8,186 $(2,345,748) $1,255,499 $4,514,428 $ 5,769,927 $1,175,202
========== =========== =========== =========== ========== ========== =========== ===========
Direct financing method:
Centralized Telephone
Bureau leased to
New Valley
Corporation $ 542,884 $ 3,069,669 $ (25,706) $ 3,586,847
Computer Center
leased to American
Telephone and
Telegraph Company 224,642 4,245,903 $2,006 31,419 4,503,970
Warehouse and
manufacturing
buildings leased to
Gibson Greetings, Inc. 1,361,493 12,325,776 (4,382,575) 9,304,694
Warehouse and
manufacturing
building leased to
Cleo, Inc. 810,639 10,826,432 (3,740,790) 7,896,281
---------- ----------- ----------- -----------
$2,939,658 $30,467,780 $2,006 $(8,117,652) $25,291,792
========== =========== =========== =========== ===========
Real estate held
for sale:
Warehouse and
Distribution
building formerly leased
to
The Leslie Fay Company $1,075,000 $ 8,325,000 $(7,546,184) $ 1,853,816
========== =========== =========== ===========
<CAPTION>
Life on which
Depreciation
in Latest
Statement of
Income
Date Acquired is Computed
- ----------------------------------------------------------------------------
<S> <C> <C>
Operating Method:
Dairy processing
facility leased to
Hughes Markets, Inc. June 1 1983 5-36 yrs.
Centralized telephone
bureaus formerly
leased to New Valley
Corporation November 24, 1981 30 yrs.
Direct financing method:
Centralized Telephone
Bureau leased to
New Valley
Corporation November 24, 1981
Computer Center
leased to American
Telephone and
Telegraph Company November 24, 1981
Warehouse and
manufacturing
buildings leased to
Gibson Greetings, Inc. January 26, 1982
Warehouse and
manufacturing
building leased to
Cleo, Inc. January 26, 1982
Real estate held
for sale:
Warehouse and
Distribution
building formerly leased
to
The Leslie Fay Company April 30, 1982
</TABLE>
See accompanying notes to Schedule.
-19-
<PAGE>
CORPORATE PROPERTY ASSOCIATES 3
(a California limited partnership)
NOTES TO SCHEDULE OF REAL ESTATE and ACCUMULATED DEPRECIATION
(a) Consists of acquisition costs including legal fees, appraisal fees, title
costs and other related professional fees, and the purchase of additional
land subsequent to purchase.
(b) The increase (decrease) in net investment is due to the amortization of
unearned income producing a constant periodic rate of return on the net
investment which is greater (less) than lease payments received, the
writedowns to net realizable value of the Moorestown, New Jersey; Reno,
Nevada and Wilkes Barre, Pennsylvania properties and adjustments relating to
deferred gains on lease restructurings.
(c) At December 31, 1995, the aggregate cost of real estate owned for Federal
income tax purposes is $50,925,119.
(d)
Reconciliation of Real Estate Accounted
---------------------------------------
for Under the Operating Method
------------------------------
December 31,
------------
1994 1995
---- ----
Balance at beginning of period $ 3,769,927 $5,769,927
Additions during period
Reclassification from
direct financing
real estate 2,000,000
---------- ---------
Balance at close of period $5,769,927 $5,769,927
========== ==========
Reconciliation of Accumulated Depreciation
------------------------------------------
December 31,
-----------
1994 1995
---- ----
Balance at beginning of period $ 818,045 $ 976,612
Depreciation expense for
the period 158,567 198,590
---------- ----------
Balance at close of period $ 976,612 $1,175,202
=========== ==========
-20-
<PAGE>
PROPERTIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE TYPE OF OWNERSHIP
OBLIGOR TYPE OF PROPERTY LOCATION INTEREST
- ------------------- ----------------- --------------- -----------------
<S> <C> <C> <C>
GIBSON GREETINGS, Land and Manufac- Cincinnati, Ownership of a
INC. turing/Warehouse Ohio; and 71.5% interest
Buildings - 2 Berea, Kentucky in land and
locations buildings
CLEO, INC. Land and Manufacturing/ Memphis Ownership of a
Warehouse Buildings Tennessee 71.5% interest
in land and
buildings
NEW VALLEY Land and Bridgeton, Ownership of a
CORPORATION Centralized Missouri 61% interest
Telephone Bureau in land and
buildings
SPORTS & Land and Moorestown, Ownership of an
RECREATION, INC. Building New Jersey approximate 61%
interest in land
and building
(1) Land and Reno, Nevada Ownership of an
Building approximate 61%
interest in land
and building
HUGHES MARKETS, Land and Dairy Pro- Los Angeles, Ownership of an
INC. cessing Facility California approximate
16.76% interest
in land and
building
AT&T CORPORATION Land and a Bridgeton, Ownership of an
Computer Center Missouri approximate 61%
interest in land
and building
</TABLE>
(1) Formerly leased to New Valley Corporation.
-21-
<PAGE>
MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED
UNITHOLDER MATTERS
- --------------------------------------------------------------------------------
Except for limited or sporadic transactions, there is no established
public trading market for the Limited Partnership Units of the Partnership. As
of December 31, 1995 there were 2,457 holders of record of the Limited
Partnership Units of the Partnership.
In accordance with the requirements of the Partnership's Amended
Agreement of Limited Partnership (the "Agreement") contained as Exhibit A to the
Prospectus, the Corporate General Partner expects to continue to make quarterly
distributions of Distributable Cash From Operations as defined in the Agreement.
The following table shows the frequency and amount of distributions paid per
Unit since 1992:
<TABLE>
<CAPTION>
Cash Distributions Per Unit
---------------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
First quarter $16.95 $17.27 $ 17.34
Second quarter 17.05 17.28 17.39
Third quarter 17.15 17.29 17.58
Fourth quarter 17.25 17.30 137.81 (a)
------ ------ -------
$68.40 $69.14 $190.12
====== ====== =======
</TABLE>
(a) Includes a special distribution of $120 per Unit.
REPORT ON FORM 10-K
- --------------------------------------------------------------------------------
The Corporate General Partner will supply to any owner of Limited
Partnership Units, upon written request and without charge, a copy of the Annual
Report on Form 10-K for the year ended December 31, 1995 as filed with the
Securities and Exchange Commission.
-22-
<PAGE>
DIRECTORS AND SENIOR OFFICERS
- -------------------------------------------------------------------------------
The Partnership has no directors or officers. The directors and senior
officers of the Corporate General Partner are as follows:
William Polk Carey Chairman of the Board
Director
Francis J. Carey President
Director
George E. Stoddard Chairman of the Investment Committee
Director
Raymond S. Clark Chairman of the Executive Committee
Director
Madelon DeVoe Talley Vice Chairman of the Board
Director
Barclay G. Jones III Executive Vice President
Director
Lawrence R. Klein Chairman of the Economic Policy
Committee
Director
Claude Fernandez Executive Vice President
Chief Administrative Officer
Howard J. Altmann Senior Vice President
H. Augustus Carey Senior Vice President
John J. Park Senior Vice President
Treasurer
Debra E. Bigler First Vice President
Ted G. Lagried First Vice President
Anthony S. Mohl First Vice President
Michael D. Roberts First Vice President
Controller
The directors and senior officers of W. P. Carey & Co., Inc. are
substantially the same as above.
A description of the business experience of each officer and director of
the Corporate General Partner is set forth below:
William Polk Carey, Chairman and Chief Executive Officer, has been
active in lease financing since 1959 and a specialist in net leasing of
corporate real estate property since 1964. Before founding W.P. Carey & Co.,
Inc. ("W.P. Carey") in 1973, he served as Chairman of the Executive Committee of
Hubbard, Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate
and Equipment Financing at Loeb Rhoades & Co. (now Lehman Brothers), head of
Real Estate and Private Placements, Director of Corporate Finance and Vice
Chairman of the Investment Banking Board of duPont Glore Forgan Inc. A graduate
of the University of Pennsylvania's Wharton School of Finance, Mr. Carey is a
Governor of the National Association of Real Estate Investment Trusts (NAREIT).
He also serves on the boards of The Johns Hopkins University and its medical
school, The James A. Baker III Institute for Public Policy at Rice University,
and other educational and philanthropic institutions. He founded the Visiting
Committee to the Economics Department of the University of Pennsylvania and co-
founded with Dr. Lawrence R. Klein the Economics Research Institute at that
university.
-23-
<PAGE>
Francis J. Carey was elected President and a Managing Director of W.P.
Carey in April 1987, having served as a Director since its founding in 1973. He
served as a member of the Executive Committee and Board of Managers of the
Western Savings Bank of Philadelphia from 1972 until its takeover by another
bank in 1982 and is former chairman of the Real Property, Probate and Trust
Section of the Pennsylvania Bar Association. Mr. Carey served as a member of the
Board of Overseers of the School of Arts and Sciences of the University of
Pennsylvania from 1983 through 1990 and has served as a member of the Board of
Trustees of the Investment Program Association since 1990. From April 1987 until
August 1992, he served as counsel to Reed Smith Shaw & McClay, counsel for
Registrant, the General Partners, the CPA(R) Partnerships and W.P. Carey and
some of its affiliates. A real estate lawyer of more than 30 years' experience,
he holds A.B. and J.D. degrees from the University of Pennsylvania.
George E. Stoddard, Chief Investment Officer, was until 1979 head of the
bond department of The Equitable Life Assurance Society of the United States,
with responsibility for all activities related to Equitable's portfolio of
corporate investments acquired through direct negotiation. Mr. Stoddard was
associated with Equitable for over 30 years. He holds an A.B. degree from
Brigham Young University, an M.B.A. from Harvard Business School and an LL.B.
from Fordham University Law School.
Raymond S. Clark is former President and Chief Executive Officer of the
Canton Company of Baltimore and the Canton Railroad Company. A graduate of
Harvard College and Yale Law School, he is presently a Director and Chairman of
the Executive Committee of W.P. Carey and served as Chairman of the Board of
W.P. Carey from its founding in 1973 until 1982. He is past Chairman of the
Maryland Industrial Development Financing Authority.
Madelon DeVoe Talley, Vice Chairman, is a member of the New York State
Controller's Investment Committee, a Commissioner of the Port Authority of New
York and New Jersey, former CIO of New York State Common Retirement Fund and New
York State Teachers Retirement System. She also served as a managing director
of Rothschild, Inc. and as the President of its asset management division.
Besides her duties at W.P. Carey, Mrs. Talley is also a former Governor of the
N.A.S.D. and is a director of Biocraft Laboratories, a New York Stock Exchange
company. She is an alumna of Sarah Lawrence College and the graduate school of
International Affairs at Columbia University.
Barclay G. Jones III, Executive Vice President, Managing Director, and
co-head of the Investment Department. Mr. Jones joined W.P. Carey as Assistant
to the President in July 1982 after his graduation from the Wharton School of
the University of Pennsylvania, where he majored in Finance and Economics. He
was elected to the Board of Directors of W.P. Carey in April 1992. Mr. Jones is
also a Director of the Wharton Business School Club of New York.
Lawrence R. Klein, Chairman of the Economic Policy Committee since 1984,
is Benjamin Franklin Professor of Economics Emeritus at the University of
Pennsylvania, having joined the faculty of Economics and the Wharton School in
1958. He holds earned degrees from the University of California at Berkeley and
Massachusetts Institute of Technology and has been awarded the Nobel Prize in
Economics as well as over 20 honorary degrees. Founder of Wharton Econometric
Forecasting Associates, Inc., Dr. Klein has been counselor to various
corporations, governments, and government agencies including the Federal Reserve
Board and the President's Council of Economic Advisers.
Claude Fernandez, Chief Administrative Officer, Managing Director, and
Executive Vice President, joined W.P. Carey in 1983. Previously associated with
Coldwell Banker, Inc. for two years and with Arthur Andersen & Co., he is a
Certified Public Accountant. Mr. Fernandez received his B.S. degree in
Accounting from New York University in 1975 and his M.B.A. in Finance from
Columbia University Graduate School of Business in 1981.
Howard J. Altmann, Senior Vice President, Investment Department, joined
W.P. Carey in August 1990. He was a securities analyst at Goldman Sachs & Co.
for the retail industry from 1986 to 1988. Mr. Altmann received his
undergraduate degree in economics and finance from McGill University and his
M.B.A. from the Stanford University Graduate School of Business.
-24-
<PAGE>
H. Augustus Carey, Senior Vice President, returned to W.P. Carey in
1988. Mr. Carey previously worked for W.P. Carey from 1979 to 1981 as Assistant
to the President. Prior to rejoining W.P. Carey, Mr. Carey served as a loan
officer of the North American Department of Kleinwort Benson Limited in London,
England. He received an A.B. from Amherst College in 1979 and an M.Phil. in
Management Studies from Oxford University in 1984. Mr. Carey is a trustee of the
Oxford Management Centre Associates Council.
John J. Park, Senior Vice President and Treasurer, joined W.P. Carey as
an Investment Analyst in December 1987. Mr. Park received his undergraduate
degree from Massachusetts Institute of Technology and his M.B.A. in Finance from
New York University.
Debra E. Bigler, First Vice President, joined W.P. Carey in 1989 as an
assistant marketing director, rising to her present position where she bears
responsibility for investor services throughout the southern United States. She
was previously employed by E. F. Hutton & Company for nine years where she began
as a Marketing Associate in Private Placement, Sales and Marketing and was then
promoted to Regional Director.
Ted G. Lagreid, First Vice President, joined W.P. Carey in 1994 and is
regional director responsible for investor services in the western United
States. Prior to joining the firm, he was a Vice President with Shurgard Capital
Group, then for Sun America where he was an executive in its mutual funds group.
He earned an A.B. from the University of Washington, received an M.P.A. from the
University of Puget Sound and then spent eight years in the city of Seattle's
Office of Management and Budget and Department of Community Development. Mr.
Lagreid was a commissioner of the City of Oakland, California, serving on its
Community and Economic Advisory Commission.
Anthony S. Mohl, First Vice President, Director of Portfolio Management,
joined W.P. Carey as Assistant to the President after receiving his M.B.A. from
the Columbia University Graduate School of Business. Mr. Mohl was employed as an
analyst in the strategic planning group at Kurt Salmon Associates after
receiving an undergraduate degree from Wesleyan University.
Michael D. Roberts joined W. P. Carey as a Second Vice President and
Assistant Controller in April 1989 and is currently First Vice President and
Controller. Prior to joining W.P. Carey, Mr. Roberts was employed by Coopers &
Lybrand, where he attained the title of audit manager. A certified public
accountant, Mr. Roberts received a B.A. from Brandeis University and an M.B.A.
from Northeastern University.
-25-
<PAGE>
EXHIBIT 10.27
LEASE AGREEMENT
by and between
CORPORATE PROPERTY ASSOCIATES 2
and
CORPORATE PROPERTY ASSOCIATES 3
as
LANDLORD
and
CLEO, INC.
as
TENANT
Dated: November 15, 1995
- 1 -
<PAGE>
TABLE OF CONTENTS
-----------------
Lease Agreement
1. Demise of Premises
2. Certain Definitions
3. Title and Conditions
4. Use of Leased Premises; Quiet Enjoyment
5. Term
6. Rent
7. Net Lease; Non-Terminability
8. Payment of Impositions; Compliance with Law;
Environmental Matters
9. Liens; Recording and Title; Easements
10. Indemnification
11. Maintenance and Repair
12. Alterations
13. Condemnation
14. Insurance
15. Restoration; Reduction of Rent
16. Procedures Upon Purchase
17. Assignment and Subletting
18. Permitted Contests
19. Conditional Limitations; Default Provision
20. Additional Rights of Landlord
21. Notices
22. Estoppel Certificate
23. Surrender
24. Risk of Loss
25. No Merger of Title
26. Books and Records
27. Option to Purchase
28. Non-Recourse
29. Miscellaneous
- 2 -
<PAGE>
List of Exhibits
----------------
Exhibit A Description of Leased Premises
Exhibit B List of Machinery and Equipment
Exhibit C Intentionally Omitted
Exhibit D Permitted Encumbrances
Exhibit E Intentionally Omitted
Exhibit F Rent Schedule
- 3 -
<PAGE>
LEASE AGREEMENT, executed the 15th day of November, 1995, between
CORPORATE PROPERTY ASSOCIATES 2 and CORPORATE PROPERTY ASSOCIATES 3
(collectively, "Landlord"), both California limited partnerships with an address
c/o W. P. Carey & Co., Inc., 50 Rockefeller Plaza, New York, New York 10020 and
CLEO, INC. ("Tenant"), a Tennessee corporation with an address at 4025 Viscount,
Memphis, Tennessee 38118.
- 4 -
<PAGE>
In consideration of the rents and provisions herein stipulated to be
paid and performed, Landlord and Tenant hereby covenant and agree as follows:
1. Demise of Premises. Landlord hereby demises and lets to Tenant,
-------------------
and Tenant hereby takes and leases from Landlord, for the term or terms and upon
the provisions hereinafter specified, the following described property which
shall include the portions of items (i), (ii) and (iii) of this Paragraph 1
located therein or appertaining thereto (collectively the "Leased Premises"):
(i) the premises described in Exhibit "A" attached hereto and made a part
hereof, together with the easements, rights and appurtenances thereunto
belonging or appertaining (collectively, the "Land"); (ii) the buildings,
structures and other improvements constructed and to be constructed on the Land
(collectively, the "Improvements"); and (iii) that machinery and equipment
installed in and upon the Improvements described in Exhibit "B" attached hereto,
together with all additions and accessions thereto, substitutions therefor and
replacements thereof permitted by this Lease (collectively, the "Equipment").
2. Certain Definitions.
--------------------
(a) "Additional Rent" shall mean Additional Rent as defined in Paragraph
6.
(b) "Adjoining Property" shall mean all sidewalks, curbs, gores and vault
spaces adjoining any of the Leased Premises.
(c) "Alterations" shall mean all changes, additions, improvements or
repairs to, all alterations, reconstructions, renewals or removals of and all
substitutions or replacements for any of the Improvements or Equipment, both
interior and exterior, structural and non-structural, and ordinary and
extraordinary.
(d) "Assignments" shall mean any assignment of rents and lessor's interest
in leases from Landlord to First Lender and such other assignments as are
executed by Landlord.
(e) "Basic Rent" shall mean Basic Rent as defined in Paragraph 6.
(f) "Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as
defined in Paragraph 6.
(g) "Beginning CPI" shall mean the Beginning CPI as defined in Exhibit F.
(h) "Casualty Termination Date" shall mean the Casualty Termination Date
as defined in Paragraph 14(b).
(i) "Closing Date" shall mean the Closing Date as defined in Paragraph
16(b).
(j) "Condemnation" shall mean a Taking and/or a Requisition.
(k) "Condemnation Termination Date" shall mean the Condemnation
Termination Date as defined in Paragraph 13(b).
(l) "Default Rate" shall mean the Default Rate as defined in Paragraph 6.
(m) "Ending CPI" shall mean the Ending CPI as defined in Exhibit F.
(n) "Environmental Law" shall mean whenever enacted or promulgated, any
applicable federal, state, foreign and local law, statute, ordinance, rule,
regulation, or code relating to pollution or protection of the environment or to
health and safety, including, without limitation, laws relating to (i)
emissions, discharges, releases or threatened releases of Hazardous Substances
into the environment (including ambient air, surface water, groundwater, or
land) and (ii) the processing, use, generation, treatment, storage, disposal,
recycling, or remediation of Hazardous Substances or Hazardous Conditions.
- 5 -
<PAGE>
(o) "Environmental Violation" shall mean (a) any direct or indirect
discharge, disposal, spillage, emission, escape, pumping, pouring, injection,
leaching, release, seepage, filtration or transporting of any Hazardous
Substance at, upon, under, onto or within the Leased Premises, or from the
Leased Premises to the environment, in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which could result in any liability to Landlord, Tenant or First Lender, any
Federal, state or local government or any other Person for the costs of any
removal or remedial action or natural resources damage or for bodily injury or
property damage, (b) any deposit, storage, dumping, placement or use of any
Hazardous Substance at, upon, under or within the Leased Premises or which
extends to any Adjoining Property in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which could result in any liability to any Federal, state or local government or
to any other Person for the costs of any removal or remedial action or natural
resources damage or for bodily injury or property damage, (c) the abandonment or
discarding of any barrels, containers or other receptacles containing any
Hazardous Substances in violation of any Environmental Laws, (d) any Hazardous
Condition which results in any liability, cost or expense to Landlord or First
Lender or any other owner or occupier of the Leased Premises, or which could
result in a creation of a lien on the Leased Premises under any Environmental
Law, or (e) any material violation of or noncompliance with any Environmental
Law; provided, however, Environmental Violation shall not include any matter
described in the foregoing clauses (a) through (e) of this definition that (i)
arises out of or relates to a condition existing at the Leased Premises on the
date of this Lease, (ii) arises or results from the migration of any Hazardous
Substance onto the Leased Premises from any other property, or (iii) arises or
accrues due to acts or omissions occurring prior to the date of this Lease.
(p) "Event of Default" shall mean an Event of Default as defined in
Paragraph 19(a).
(q) "Final Payment" shall mean the final payment to Landlord of Net
Proceeds or of a Net Award or of a Remaining Sum, as applicable, and "Final
Payment Date" shall mean the first Basic Rent Payment Date occurring after said
Final Payment.
(r) "First Lender" shall mean the holder of a note or notes secured by a
first priority mortgage encumbering the Leased Premises, or if there be more
than one such holder, then the trustee for such holders or any other entity
designated to act on their behalf; and "First Loan" shall mean the loan made by
First Lender secured by the Mortgage, and evidenced by the First Note. Any other
provision of this Lease to the contrary notwithstanding, so long as no First
Lender exists to exercise such rights or give such consents, all rights and
remedies granted to the First Lender under this Lease shall be deemed suspended
and of no force and effect and neither Landlord nor Tenant shall have any
obligation under this Lease to seek or obtain the prior consent, approval or
waiver of the First Lender for any matter arising under or relating to this
Lease unless a specific alternate procedure is set forth in any particular
provision hereof in a case where there is no First Lender.
(s) "First Note" shall mean a promissory note or notes from Landlord to
First Lender, secured by the Mortgage and the Assignment to First Lender.
(t) "Guarantor" shall mean CSS Industries, Inc., a Delaware corporation,
the parent of Tenant, and its successors and assigns.
(u) "Guaranty" shall mean the Guaranty and Suretyship Agreement in favor
of Landlord, dated of even date herewith, executed by Guarantor, as the same may
hereafter be amended.
(v) "Hazardous Conditions" shall mean conditions of the environment,
including soil, surface water, groundwater, subsurface strata or the ambient
air, relating to or arising out of the use, handling, storage, treatment,
recycling, generation, release, disposal, or threatened release of Hazardous
Substances.
(w) "Hazardous Substances" shall mean any pollutant, contaminant,
hazardous or toxic substance, hazardous waste, or other chemicals, substances or
materials subject to regulation under any Environmental Law.
- 6 -
<PAGE>
(x) "Impositions" shall mean the Impositions as defined in Paragraph 8.
(y) "Institutional Investor" shall mean an insurance company, savings
bank, trust company or commercial bank (acting as trustee under any trust or
under any public or private indenture or otherwise), savings and loan
association, real estate investment trust, pension fund, company or foundation
having gross assets of more than $25,000,000, any government or any agency of
any government or entity owned in substantial part by any government or agency
thereof.
(z) "Law" shall mean any constitution, statute or rule of law.
(aa) "Legal Requirements" shall mean all present and future Laws, codes,
ordinances, orders, judgments, decrees, injunctions, rules, regulations and
requirements, even if unforeseen or extraordinary, of every duly constituted
governmental authority or agency and all covenants, restrictions and conditions
now or hereafter of record which may be applicable to Tenant or to any of the
Leased Premises, or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration, repair or reconstruction of any of the Leased Premises,
even if compliance therewith necessitates structural changes or improvements or
results in interference with the use or enjoyment of any of the Leased Premises.
(bb) "Mortgage" shall mean any first priority mortgage or deed of trust
encumbering the Leased Premises.
(cc) "Net Award" shall mean the entire award payable to Landlord by
reason of a Condemnation, less any expenses incurred by Landlord in collecting
such award.
(dd) "Net Proceeds" shall mean the entire proceeds of any insurance
required under clauses (i), (ii), (iv) and (v) of Paragraph 14(a), less any
expenses incurred by Landlord in collecting such proceeds.
(ee) "Offer Amount" shall mean Offer Amount as defined in Paragraph 13(b)
and 14(h).
(ff) "Permitted Encumbrances" shall mean all covenants, restrictions,
reservations, liens, conditions and easements of record, together with those
encumbrances permitted pursuant to Paragraph 9(d).
(gg) "Remaining Sum" shall mean the Remaining Sum as defined in Paragraph
15(a).
(hh) "Rent Adjustment Date" shall mean January 1, 2002.
(ii) "Replaced Equipment" shall mean the Replaced Equipment as defined in
Paragraph 11.
(jj) "Replacement Equipment" shall mean the Replacement Equipment as
defined in Paragraph 11.
(kk) "Requisition" shall mean any temporary requisition or confiscation of
the use or occupancy of any of the Leased Premises by any governmental
authority, civil or military, whether pursuant to an agreement with such
governmental authority in settlement of or under threat of any such requisition
or confiscation, or otherwise.
(ll) "Retention Date" shall mean the date on which the amount of a
Remaining Sum is finally determined.
(mm) "Site Assessments" shall mean Site Assessments as defined in
Paragraph 8(c).
- 7 -
<PAGE>
(nn) "Site Reviewers" shall mean Site Reviewers as defined in Paragraph
8(c).
(oo) "State" shall mean the State or Commonwealth in which the Leased
Premises are situate.
(pp) "Taking" shall mean any taking, other than a Requisition, by a duly
constituted governmental authority or agency having jurisdiction of any of the
Leased Premises in or by condemnation or other eminent domain proceedings
pursuant to any Law, general or special, or by reason of any agreement with any
condemnor in settlement of or under threat of any such condemnation or other
eminent domain proceeding, or by any other means, or any de facto condemnation.
(qq) "Term" shall mean the Term as defined in Paragraph 5.
(rr) "Termination Value" shall mean $15,000,000.
3. Title; Condition; Subordination.
--------------------------------
(a) The Leased Premises are demised and let subject to (i) the rights of
any parties in possession of any of the Leased Premises, (ii) the existing state
of title of the Leased Premises, including the Permitted Encumbrances, as of the
commencement of the Term, (iii) any state of facts which an accurate survey or
physical inspection of the Leased Premises might show, (iv) all Legal
Requirements, including any existing violation of any thereof, and (v) the
condition of the Leased Premises as of the commencement of the Term, without
representation or warranty by Landlord; it being understood and agreed, however,
that the recital of the Permitted Encumbrances herein shall not be construed as
a revival of any thereof which for any reason may have expired. The provisions
of this Paragraph 3(a) shall not be construed to preclude Tenant from enforcing
any remedies it may have against Landlord by virtue of a determination that
Landlord is in breach of or in default under a provision of this Lease, or
against third parties other than Landlord or its successors by virtue of the
existence of any Legal Requirement.
(b) TENANT ACKNOWLEDGES THAT LANDLORD HAS NOT MADE AND WILL NOT MAKE ANY
INSPECTION OF ANY OF THE LEASED PREMISES, AND LANDLORD LEASES AND WILL LEASE AND
TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS, AND TENANT ACKNOWLEDGES
THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY)
HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE
LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO ITS FITNESS FOR
USE OR PURPOSE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, AS TO
LANDLORD'S TITLE THERETO, OR AS TO VALUE, COMPLIANCE WITH SPECIFICATIONS,
LOCATION, USE, CONDITION, MERCHANTABILITY, QUALITY, DESCRIPTION, DURABILITY OR
OPERATION, IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY
TENANT. TENANT ACKNOWLEDGES THAT THE LEASED PREMISES ARE OF ITS SELECTION AND TO
ITS SPECIFICATIONS AND THAT THE LEASED PREMISES HAVE BEEN INSPECTED BY TENANT
AND ARE SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF
THE LEASED PREMISES OF ANY NATURE, WHETHER PATENT OR LATENT, LANDLORD SHALL NOT
HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL
OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF
THIS PARAGRAPH 3(b) HAVE BEEN NEGOTIATED; AND THE FOREGOING PROVISIONS ARE
INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD,
EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT
TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR
OTHERWISE. TENANT ALSO ACKNOWLEDGES THAT FOR PURPOSES OF THIS LEASE THE
CONDITION OF THE LAND, THE IMPROVEMENTS AND THE EQUIPMENT COMPRISING THE LEASED
PREMISES ARE DEEMED TO HAVE BEEN IN GOOD CONDITION AND REPAIR ON JANUARY 25,
1982. TENANT FURTHER ACKNOWLEDGES THAT LANDLORD HAS NO OBLIGATION TO MAINTAIN OR
REPAIR
- 8 -
<PAGE>
THE LEASED PREMISES AND THAT TENANT HAS THE SOLE OBLIGATION TO DO SO AS MORE
PARTICULARLY SET FORTH HEREIN.
(c) Tenant represents to Landlord that Tenant has found the state of title
to the Leased Premises to be satisfactory for the purposes contemplated hereby,
and acknowledges that title is in Landlord and that Tenant has only those rights
with respect to the Leased Premises as provided in this Lease. Tenant further
acknowledges and represents to Landlord that to the best of Tenant's knowledge,
(i) the Improvements conform to all Legal Requirements and all requirements of
the carriers of all insurance on any of the Leased Premises, (ii) all necessary
easements have been obtained, (iii) all contractors and subcontractors have been
fully paid and all material and supplies have been fully paid for, (iv) the
Improvements have been fully completed in a workmanlike manner of first class
quality, and (v) all Equipment has been installed and is fully operative. If any
of the foregoing representations prove to be incorrect, Tenant acknowledges that
it is Tenant's obligation and responsibility to remedy any problem resulting
therefrom or relating thereto.
(d) Landlord hereby assigns, without recourse or warranty whatsoever, to
Tenant all warranties, guarantees and indemnities, express or implied, and
similar rights which Landlord may have against any manufacturer, seller,
engineer, contractor or builder in respect of any of the Leased Premises,
including any rights and remedies existing under contract or pursuant to the
Uniform Commercial Code. Such assignment shall remain in effect so long as no
Event of Default exists hereunder or until the termination of this Lease.
Landlord hereby agrees to execute and deliver at Tenant's expense such further
documents, including powers of attorney, as Tenant may reasonably request (and
which, in the good faith judgment of Landlord, do not adversely affect a
substantial general interest of Landlord) in order that Tenant may have the full
benefit of the assignment effected or intended to be effected by this Paragraph
3(d).
(e) Landlord represents to Tenant that on the date of execution of this
Lease there exists no Mortgage encumbering the Leased Premises. Notwithstanding
the foregoing, this Lease automatically shall be subject and subordinate to the
lien of any Mortgage hereafter placed upon the Leased Premises on condition that
the holder of the Mortgage agrees in writing not to disturb Tenant in its
rights, use and possession of the Leased Premises under this Lease or to
terminate this Lease, except to the extent permitted to Landlord by the terms of
this Lease, notwithstanding the foreclosure or the enforcement of the Mortgage.
4. Use of Leased Premises; Quiet Enjoyment.
---------------------------------------
(a) Tenant may occupy and use the Leased Premises for any lawful purpose,
provided that no Alterations may be made except in accordance with Paragraph 12,
no Equipment may be removed from the Leased Premises except in accordance with
Paragraphs 11(c), 13(d) and 14(h), and such use will not otherwise violate any
provision of this Paragraph 4. Tenant shall not permit any unlawful occupation,
business or trade to be conducted on any of the Leased Premises or any use to be
made thereof contrary to any applicable Legal Requirement. Tenant shall not use
or occupy or permit any of the Leased Premises to be used or occupied, nor do or
permit anything to be done in or on any of the Leased Premises, in a manner
which would or might (i) violate any certificate of occupancy affecting any of
the Leased Premises, (ii) make void or voidable any insurance then in force with
respect to any of the Leased Premises, (iii) make it difficult or impossible to
obtain fire or other insurance which Tenant is required to furnish hereunder,
(iv) cause structural injury to any of the Improvements, or (v) constitute a
public or private nuisance or waste.
(b) Subject to the provisions of Paragraphs 3 and 7(b), so long as no Event
of Default exists hereunder, Landlord covenants that neither Landlord nor anyone
rightfully claiming by, through or under Landlord, shall do any act to disturb
the peaceful and quiet occupation and enjoyment of the Leased Premises, provided
that Landlord may enter upon and examine any of the Leased Premises at
reasonable times upon reasonable prior written notice to Tenant.
5. Term.
-----
(a) Subject to the provisions hereof, Tenant shall have and hold the Leased
Premises for an initial term (the "Term") commencing on the date hereof and
ending on December 31, 2005.
- 9 -
<PAGE>
If all Basic Rent for the entire Term, all Additional Rent and all other sums
due hereunder shall not have been fully paid on the latter date, the Term shall
automatically be extended until all said sums shall have been fully paid.
Landlord shall have the right during the last twelve months of the Term to (i)
advertise the availability of the Leased Premises for sale or for reletting and
to erect upon the Leased Premises signs indicating such availability (provided
that such signs do not unreasonably interfere with the use of the Leased
Premises by Tenant), and (ii) show the Leased Premises to prospective purchasers
or tenants at such reasonable times during normal business hours as Landlord may
select.
(b) Landlord hereby grants to Tenant the right at Tenant's option to extend
the Term of this Lease for two (2) separate and additional periods of five (5)
years each after the expiration of the initial term hereof (each additional
five-year period is hereinafter referred to as a "renewal term"). Each such
renewal term shall be subject to all the terms and conditions of this Lease as
if the Term originally included such renewal term, except that Basic Rent during
such renewal periods shall be calculated as set forth on Exhibit F, Section B.
Upon the exercise of any such option, the Term shall include such renewal term
therein. Tenant may exercise each of its options to extend the Term only by
giving written notice of such extension to Landlord no earlier than twenty-four
(24) months and no later than twelve (12) months prior to the expiration of the
Term then in effect. Each renewal option may not be exercised if an Event of
Default has occurred and is continuing on the date notice of the renewal is
given to Landlord. In addition, the then current term may not be extended if, on
the date the term is to be extended, an Event of Default has occurred and is
continuing but Landlord may, in its sole discretion and without the consent of
Tenant, waive such condition.
6. Rent.
-----
(a) Tenant shall pay to Landlord, as rent for the Leased Premises during
the Term, the amounts determined in accordance with the schedule contained in
Exhibit "F" attached hereto ("Basic Rent"), in advance, commencing on the first
day of the first month next following the date hereof and continuing on the
first day of each month thereafter during the Term (the said days being called
the "Basic Rent Payment Dates"), and shall pay the same at Landlord's address
set forth above, or at such other place or to such other person as Landlord from
time to time may designate to Tenant in writing, by check such that funds will
be available in payment of said check on or before the date Basic Rent is due
and in moneys which at the time of such payment shall be legal tender for the
payment of public or private debts in the United States of America. Pro rata
Basic Rent shall be due for the period from the date hereof through the last day
of November, 1995 and shall be paid contemporaneously with the execution of this
Lease by Tenant.
(b) Tenant shall pay and discharge when the same shall become due, as
additional rent, all other amounts and obligations whether payable to Landlord
or others ("Additional Rent") which Tenant assumes or agrees to pay or discharge
pursuant to this Lease (except that amounts payable as liquidated damages
pursuant to Paragraph 19(b)(4) shall not constitute Additional Rent), together
with every fine, penalty, interest and cost which may be added for non-payment
or late payment thereof. In the event of any failure by Tenant to pay or
discharge any of the foregoing, Landlord shall have all rights, powers and
remedies provided herein, by law or otherwise, in the event of non-payment of
Basic Rent.
(c) If any installment of Basic Rent is not paid on the due date thereof,
Tenant shall pay to Landlord immediately and without demand an amount equal to
four percent of the amount of such installment. In addition, Tenant shall pay to
Landlord on demand interest at the maximum legal rate permitted to be collected
under applicable law from time to time (the "Default Rate") on all installments
of Basic Rent more than one month past due, commencing on the Basic Rent Payment
Date next succeeding the Basic Rent Payment Date on which said installment was
originally due, and on all amounts of Additional Rent owed to Landlord from the
due date thereof until paid in full and on all amounts of Additional Rent
relating to obligations which Landlord shall have paid on behalf of Tenant, from
the date of payment thereof, until paid in full.
7. Net Lease; Non-Terminability.
-----------------------------
- 10 -
<PAGE>
(a) This is a net lease and Basic Rent, Additional Rent and all other sums
payable hereunder by Tenant shall be paid without notice or demand, and without
set-off, counterclaim, recoupment, abatement, suspension, deferment, diminution,
deduction, reduction or defense.
(b) Except as otherwise expressly provided in this Lease, (aa) this Lease
shall not terminate, (bb) Tenant shall not have any right to terminate this
Lease during the Term, (cc) Tenant shall not be entitled to any set-off,
counterclaim, recoupment, abatement, suspension, deferment, diminution,
deduction, reduction or defense of or to Basic Rent, Additional Rent or any
other sums payable under this Lease, and (dd) the obligations of Tenant under
this Lease shall not be affected by any interference with Tenant's use of any of
the Leased Premises for any reason, including the following: (i) any damage to
or destruction of any of the Leased Premises by any cause whatsoever, (ii) any
Condemnation, (iii) the prohibition, limitation or restriction of Tenant's use
of any of the Leased Premises, (iv) any eviction by paramount title or
otherwise, (v) Tenant's acquisition of ownership of any of the Leased Premises
other than pursuant to an express provision of this Lease, (vi) any default on
the part of Landlord hereunder or under any other agreement, (vii) any latent or
other defect in, or any theft or loss of, any of the Leased Premises, (viii) the
breach of any warranty of any seller or manufacturer of any of the Equipment,
(ix) any violation of Paragraph 4(b) by Landlord, or (x) any other cause,
whether similar or dissimilar to the foregoing, any present or future Law to the
contrary notwithstanding. It is the intention of the parties hereto that the
obligations of Tenant hereunder shall be separate and independent covenants and
agreements, that Basic Rent, Additional Rent and all other sums payable by
Tenant hereunder shall continue to be payable in all events (or, in lieu
thereof, Tenant shall pay amounts equal thereto), and that the obligations of
Tenant hereunder shall continue unaffected, unless the requirement to pay or
perform the same shall have been terminated pursuant to an express provision of
this Lease.
(c) Tenant agrees that it shall remain obligated under this Lease in
accordance with its provisions and that, except as otherwise expressly provided
herein, it shall not take any action to terminate, rescind or avoid this Lease,
notwithstanding (i) the bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding-up or other proceeding affecting
Landlord, (ii) the exercise of any remedy, including foreclosure, under the
Mortgage, or (iii) any action with respect to this Lease (including the
disaffirmance hereof) which may be taken by any trustee, receiver or liquidator
of Landlord or by any court.
(d) Except as expressly provided for in this Lease, Tenant waives all
rights which may now or hereafter be conferred by law (i) to quit, terminate or
surrender this Lease or any of the Leased Premises, or (ii) to any set-off,
counterclaim, recoupment, abatement, suspension, deferment, diminution,
deduction, reduction or defense of or to Basic Rent, Additional Rent or any
other sums payable under this Lease.
(e) Nothing in this Paragraph 7 shall be construed to preclude Tenant from
enforcing such remedies as it may have against Landlord or third parties arising
by virtue of a determination that Landlord is in breach of or default under a
provision of this Lease, other than those remedies specifically waived.
8. Payment of Impositions; Compliance with Law; Environmental Matters.
------------------------------------------------------------------
(a) Subject to the provisions of Paragraph 18 relating to contests, Tenant
shall, before interest or penalties are due thereon, pay and discharge all taxes
of every kind and nature (including real and personal property, sales, use,
income, franchise, withholding, profits and gross receipts taxes), all charges
for any easement or agreement maintained for the benefit of any of the Leased
Premises, all general and special assessments, levies, permits, inspection and
license fees, all water and sewer rents and charges, all ground rents, and all
other public charges whether of a like or different nature, even if unforeseen
or extraordinary, imposed upon, or in respect of or be measured by or become a
lien upon, or assessed against (i) Landlord or Tenant as a result of the
acquisition, use, or leasing of the Leased Premises or any portion thereof, (ii)
any of the Leased Premises or (iii) arising in respect of the occupancy, use or
possession thereof or any activity conducted on the Leased Premises or any part
thereof, or the Basic Rent or Additional Rent (including, without limitation,
any gross income tax or excise tax levied by any governmental body on or with
respect to the receipt of such Basic Rent or Additional Rent [computed as if
- 11 -
<PAGE>
such Basic Rent or Additional Rent or Landlord's income from the Leased
Premises were the only income of Landlord (collectively, the "Impositions").
Nothing herein shall obligate Tenant to pay (i) franchise, capital stock
or similar taxes, if any, of Landlord, and assessments, levies and liens arising
therefrom, (ii) transfer, income, profits or revenue taxes and assessments,
levies and liens arising therefrom, other than any gross receipts or gross
income taxes imposed or levied upon or measured by Basic Rent, Additional Rent
or other sums payable by Tenant pursuant to this Lease, or (iii) any estate,
inheritance, succession, gift, capital levy or similar tax, unless the taxes
referred to in clauses (i) and (ii) above are in lieu of or a substitute for any
other tax or assessment upon or with respect to any of the Leased Premises
which, if such other tax or assessment were in effect, would be payable by
Tenant. In the event that any assessment against any of the Leased Premises may
be paid in installments, Tenant shall have the option to pay such assessment in
installments; and in such event, Tenant shall be liable only for those
installments which become due and payable during the Term. Tenant shall prepare
and file all tax reports required by governmental authorities which relate to
the Impositions. If any such reports require information from Landlord not
available to or known by Tenant, or signatures of Landlord, Tenant shall request
same from Landlord and upon obtaining such information from Landlord, shall
prepare and file such tax reports. Tenant shall deliver to Landlord, with the
affidavit of the chief financial officer of Tenant required under Paragraph 26,
copies of real estate tax notices, bills and/or assessments relating to the
Leased Premises and evidence of payment of same.
(b) Tenant shall promptly comply with and conform to all of the Legal
Requirements (including all Environmental Laws but not including any matter
expressly excluded from the definition of Environmental Violation), subject
to the provisions of Paragraph 18 hereof.
(c) Upon prior reasonable written notice from Landlord, Tenant shall permit
such persons as Landlord may designate ("Site Reviewers") to visit the Leased
Premises during normal business hours and perform, as agents of Landlord, in a
manner that does not unduly interfere with Tenant's business operations,
environmental site investigations and assessments ("Site Assessments") on the
Leased Premises for the purpose of determining whether there exists on the
Leased Premises any Environmental Violation or any condition which could result
in any Environmental Violation. Such Site Assessments may include both above and
below the ground testing for Environmental Violations and such other tests as
may be necessary, in the opinion of the Site Reviewers, to conduct the Site
Assessments. Tenant shall supply to the Site Reviewers such historical and
operational information regarding the Leased Premises in the possession or
control of Tenant as may be reasonably requested by the Site Reviewers to
facilitate the Site Assessments, and shall make available for meetings with the
Site Reviewers appropriate personnel having knowledge of such matters. The cost
of performing and reporting Site Assessments shall be paid by Landlord, except
if performed pursuant to Paragraph 8(d) hereof.
(d) If Tenant fails to correct any Environmental Violation which occurs or
is found to exist, Landlord shall have the right (but no obligation) at Tenant's
sole cost and expense to take any and all actions as Landlord shall deem
necessary or advisable in order to cure such Environmental Violation including,
without limitation, the right to perform Site Assessments.
(e) Tenant shall notify Landlord as expeditiously as possible after
becoming aware of any Environmental Violation (or alleged Environmental
Violation) or noncompliance with any of the covenants contained in this
Paragraph 8 and shall forward to Landlord immediately upon receipt thereof
copies of all orders, reports, notices, permits, applications or other
communications relating to any such violation or noncompliance.
(f) All future leases, subleases or concession agreements relating to the
Leased Premises entered into by Tenant shall contain covenants of the other
party to not at any time (i) cause any Environmental Violation to occur or (ii)
permit any Person occupying the Leased Premises through said subtenant or
concessionaire to cause any Environmental Violation to occur.
9. Liens; Recording and Title; Easements.
-------------------------------------
(a) Tenant shall not, directly or indirectly, create or permit to be
created or to remain, and shall promptly discharge, any lien on any of the
Leased Premises or Basic Rent, Additional
- 12 -
<PAGE>
Rent or any other sums payable by Tenant under this Lease, other than (i) the
Mortgage, (ii) this Lease and any subleases hereunder, (iii) the Assignment,
(iv) the Permitted Encumbrances, (v) any mortgage, lien, encumbrance or other
charge created by or resulting from any act or omission of Landlord and (vi)
liens for Impositions not yet payable or being contested as permitted pursuant
to Paragraph 8. The existence of any mechanics', laborers', materialmen's,
suppliers' or vendors' liens or any right in respect thereof shall not
constitute a violation of' this Paragraph 9 if discharged within sixty (60) days
of completion of the labor or services or delivery of the materials which gave
rise to imposition of said liens. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT
BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
TENANT, OR TO ANYONE HOLDING ANY OF THE LEASED PREMISES THROUGH OR UNDER TENANT,
AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS
SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF THE LEASED
PREMISES.
(b) Tenant shall execute, deliver and record, file or register from time to
time all such instruments as may be required by any present or future Law in
order to evidence the respective interests of Landlord and Tenant in any of the
Leased Premises, and shall cause this Lease, or a memorandum of this Lease, and
any supplement hereto or to such other instrument, if any, as may be
appropriate, to be recorded, filed or registered and re-recorded, refiled or re-
registered in such manner and in such places as may be required by any present
or future Law in order to publish notices and protect the validity of this
Lease.
(c) Nothing in this Lease and no action or inaction by Landlord shall be
deemed or construed to mean that Landlord has granted to Tenant any right, power
or permission to do any act or to make any agreement which may create, give rise
to, or be the foundation for, any right, title, interest or lien in or upon the
estate of Landlord in any of the Leased Premises.
(d) Landlord agrees from time to time at the request of Tenant (but at
Tenant's sole cost and expense) (i) to grant easements, licenses, rights of way
and other rights and privileges in the nature of easements for gas, electric,
telephone and other utilities for the purpose of serving the Leased Premises,
provided such easements shall, in the reasonable opinion of First Lender, have
no more than a de minimis adverse effect on the value of the Leased Premises,
(ii) to release similar existing utility easements and appurtenances which are
for the benefit of the Leased Premises, and (iii) to execute and deliver any
instrument necessary or appropriate to confirm such grants or releases to any
person, with or without consideration but only in each case upon obtaining the
prior approval of First Lender described in (i) above and delivery of (x) a
certificate of the President or a Vice President of Tenant stating that such
grant or release is not detrimental to the proper conduct of the business of
Tenant, the consideration, if any, being paid for such grant or release, and
that such consideration is being paid to Tenant and that such grant or release
does not materially impair the use of the Leased Premises for the purposes for
which it is then held by Tenant or materially impair its value; and (y) a duly
authorized undertaking of Tenant, in form and substance satisfactory to
Landlord, to the effect that Tenant will remain obligated under the terms of
this Lease to the same extent as if such easement, license, right of way or
other right or privilege had not been granted or released, and that Tenant will
perform all obligations of the grantor or releasor under such instrument of
grant or release.
10. Indemnification. (a) Tenant agrees to pay, protect, indemnify, save
---------------
and hold harmless Landlord from and against any and all liabilities, losses,
damages, penalties, costs, expenses (including all reasonable attorneys' fees
and expenses), causes of action, suits, claims, demands or judgments of any
nature whatsoever, howsoever caused, arising from (i) any of the Leased Premises
or Adjoining Property or the use, non-use, occupancy, condition, design,
construction, maintenance, repair or rebuilding of any of the Leased Premises or
Adjoining Property, and any injury to or death of any person or any loss of or
damage to any property in any manner arising therefrom, connected therewith or
occurring thereon, whether or not Landlord has or should have knowledge or
notice of the defect or conditions, if any, causing or contributing to said
injury, death, loss, damage or other claim, (ii) any violation by Tenant of any
provision of this Lease or of any contract or agreement to which Tenant is a
party or of any Legal Requirement or Permitted Encumbrance, (iii) any
Environmental Violation; or (iv) any other cause, provided, however, if any such
liability, loss, damage, penalty, cost or expense, cause of action, suit, claim,
demand or judgment results from any tortious act or omission of Landlord, its
agents or employees, or if any such act
- 13 -
<PAGE>
or omission is determined to be a breach or default by Landlord under this
Lease, the foregoing indemnity of Tenant shall apply only to the extent of the
insurance coverage maintained (or required to be maintained, if greater) by
Tenant pursuant to the provisions of Paragraph 14 of this Lease.
(b) In case any action or proceeding is brought against Landlord by reason
of any such claim, (i) Tenant may, except in the event of a conflict of interest
or a dispute between Tenant and Landlord during the continuance of an Event of
Default, retain its own counsel and defend such action (it being understood that
Landlord may, at Landlord's sole cost and expense, employ counsel of its choice
to monitor the defense of any such action) and (ii) Landlord shall notify Tenant
to resist or defend such action or proceeding by retaining counsel reasonably
satisfactory to Landlord, and Landlord will cooperate and assist in the defense
of such action or proceeding if reasonably requested so to do by Tenant.
(c) The obligations of Tenant under this Paragraph 10 shall survive any
termination, expiration or rejection in bankruptcy of this Lease. The
obligations of Tenant under this Paragraph 10 shall also apply whether or not
the act or omission giving rise to such indemnification occurred prior to the
date of this Lease, except for indemnification obligations relating to
Environmental Violations (which by definition arise only due to acts or
omissions arising after the date hereof).
11. Maintenance and Repair.
-----------------------
(a) Tenant shall at all times, including any Requisition period or any
period of occupancy by others, maintain the Leased Premises and the Adjoining
Property in good repair and appearance and, shall maintain the Equipment in good
mechanical condition, except for ordinary wear and tear, and shall promptly make
all Alterations (substantially equivalent in quality and workmanship to the
original work) of every kind and nature, whether foreseen or unforeseen, which
may be required to be made upon or in connection with any of the Leased Premises
in order to keep and maintain the Land and Improvements in as good repair and
appearance as they were on January 25, 1982, and the Equipment in as good
mechanical condition as it was originally, except for ordinary wear and tear on
such Land, Improvements and Equipment. Tenant shall do or cause others to do all
shoring of the Leased Premises or Adjoining Property or of foundations and walls
of the Improvements and every other act necessary or appropriate for the
preservation and safety thereof, by reason of or in connection with any
excavation or other building operation upon any of the Leased Premises or
Adjoining Property, whether or not Landlord shall, by any Legal Requirement, be
required to take such action or be liable for failure to do so. Landlord shall
not be required to make any Alteration, whether foreseen or unforeseen, or to
maintain any of the Leased Premises or Adjoining Property in any way, and Tenant
hereby expressly waives the right to make Alterations at the expense of
Landlord, which right may be provided for in any Law now or hereafter in effect.
(b) In the event that any Improvement, now or hereafter constructed, shall
encroach upon any property, street or right-of-way adjoining any of the Leased
Premises or Adjoining Property, shall violate the provisions of any restrictive
covenant affecting any of the Leased Premises, shall hinder or obstruct any
easement or right-of-way to which any of the Leased Premises is subject, or
shall impair the rights of others in, to or under any of the foregoing then,
promptly after written request of Landlord, Tenant shall either (i) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation, hindrance, obstruction or
impairment, whether the same shall affect Landlord, Tenant or both, or (ii) take
such action as shall be necessary to remove such encroachments, hindrances or
obstructions and to end such violations or impairments, including, if necessary,
and if and to the extent permitted by First Lender an Alteration. Any such
Alteration shall be made in conformity with the provisions of Paragraph 12.
(c) Landlord shall have the right, upon notice to Tenant (or without notice
in case of emergency), to enter upon any of the Leased Premises for the purpose
of making any Alterations which may be necessary by the occurrence of an Event
of Default by reason of Tenant's failure to comply with the provisions of
subparagraphs (a) and (b) of this Paragraph 11. Except in case of emergency, the
right of entry shall be exercised at reasonable times and at reasonable hours.
The cost of any such entry together with the cost of all such Alterations shall
be Additional Rent; and Tenant shall pay the same to Landlord, together with
interest thereon at the Default Rate from the time of payment by Landlord until
paid
- 14 -
<PAGE>
by Tenant, immediately upon written demand therefor and upon submission of
evidence of Landlord's payment of such costs.
(d) Tenant shall, from time to time, replace with other operational
equipment or parts (the "Replacement Equipment") any of the Equipment (the
"Replaced Equipment") which shall have (i) become worn out, obsolete or unusable
for the purpose for which it is intended, (ii) been taken by a Condemnation as
provided in Paragraph 13(d) to the extent Replacement Equipment is required to
service the portion of the Improvements remaining after such Condemnation, or
(iii) been lost, stolen, damaged or destroyed as provided in Paragraph 14(h);
provided, however, that the Replacement Equipment shall (l) be in good operating
condition, (2) have a value and useful life at least equal to the value and
estimated useful life of the Replaced Equipment immediately prior to the time
that the Replaced Equipment had become so worn out, obsolete or unusable, so
taken, or so lost, stolen, damaged or destroyed, and (3) be suitable for a use
which is the same or similar to that of the Replaced Equipment. All Replacement
Equipment shall become the property of Landlord, shall be free and clear of all
liens and rights of others except for the Mortgage and the Permitted
Encumbrances and shall become a part of the Equipment to the same extent as the
Replaced Equipment had been. If so requested by Landlord in writing, Tenant
shall cause to be executed and delivered to Landlord, effective as of the
expiration of the applicable Term or the sooner termination of this Lease, an
invoice, bill of sale or other appropriate instrument evidencing the transfer or
assignment to Landlord of all estate, right, title and interest of Tenant or any
other party in and to the Replacement Equipment, free from all liens and other
exceptions to title except as aforesaid; and Tenant shall pay all taxes, fees,
costs and other expenses that may become payable as a result thereof. At the
expiration of the Term or the sooner termination of this Lease, the Equipment
shall be in good operating condition, ordinary wear and tear excepted.
(e) Tenant acknowledges that it has been advised by Gibson Greetings, Inc.,
a prior tenant of the Leased Premises pursuant to a Lease Agreement dated
January 25, 1982, that expired contemporaneously with the execution of this
Lease, that the roof over certain portions of the Improvements is anticipated to
need major repairs within the next few years. Tenant further acknowledges that
Paragraph 11(a) of this Lease obligates Tenant, and not Landlord, to maintain
the roof in as good repair and appearance as it was on January 25, 1982,
ordinary wear and tear excepted. Tenant has requested that Landlord grant Tenant
a period of six (6) months following the date of this Lease ("Roof Evaluation
Period") to evaluate the condition of the roof and to identify those areas of
the roof that are not presently in good condition and are in need of repair.
Prior to the expiration of the Roof Evaluation Period, Tenant shall (i) notify
Landlord in writing of the results of Tenant's evaluation of the condition of
the roof and of Tenant's intended action including with such notice a copy of
the contractor proposal accepted by Tenant; (ii) commence all necessary roof
repair work; and (iii) thereafter promptly and with due diligence complete the
same. All such work shall be done at Tenant's sole cost and expense in a good
and workmanlike manner and in conformity with the requirements of this Lease.
Landlord agrees Athat during the Roof Evaluation Period Landlord shall not
assert that the Tenant is in default of its obligation to maintain and repair
the roof as expressed in this Lease. Such forebearance by Landlord is expressly
without prejudice to Landlord's rights and remedies under this Lease following
the expiration of the Roof Evaluation Period on May 15, 1996.
12. Alterations. (a) Tenant shall at its expense, from time to time, have
-----------
the right to make Alterations, construct upon the Land additional Improvements,
install equipment in the Improvements or accessions to the Equipment, and in the
course of same demolish portions or all of existing improvements provided that
(aa) the proposed Alterations, additions or other improvements or equipment or
accessions thereto shall not reduce the value of the Leased Premises or its
usefulness, (bb) all such Alterations, construction and installations shall be
performed in a good and workmanlike manner, (cc) all such Alterations,
construction and installations shall be expeditiously completed in compliance
with all Legal Requirements, (dd) all work done in connection with any such
Alteration, construction or installation shall comply with the requirements of
any insurance policy required to be maintained by Tenant hereunder, (ee) Tenant
shall promptly pay all costs and expenses of any such Alteration, construction
or installation and shall discharge all liens filed against any of the Leased
Premises arising out of the same, (ff) Tenant shall procure and pay for all
permits and licenses required in connection with any such Alteration,
construction or installation, (gg) all such Alterations, construction and
installations shall be the property of Landlord and shall be subject to this
Lease, (hh) Tenant shall obtain in advance the written consent, which consent
shall not be unreasonably withheld, of Landlord and First Lender for all
improvements in excess of 5% of the
- 15 -
<PAGE>
Termination Value for the respective Leased Premises and (ii) Tenant shall
comply, to the extent requested by Landlord, with the provisions of Paragraph
12(c) below.
(b) Tenant may, at its expense, install and remove additional equipment and
machinery used or useful in Tenant's business, which equipment and machinery
shall remain the property of Tenant and not become part of the real estate,
provided that Tenant agrees in connection with any installation of additional
equipment or machinery, to comply with the provisions of subsections (aa), (bb),
(cc), (dd), (ee), and (ff) of Paragraph 12(a) above. Any equipment of Tenant not
removed by Tenant within 15 days after the expiration or earlier termination of
this Lease shall be considered abandoned by Tenant and may be appropriated,
sold, destroyed or otherwise disposed of by Landlord without first giving notice
thereof and without obligation to account therefor. Tenant agrees to pay all
costs and expenses incurred in removing, storing and disposing of Tenant's
equipment. Tenant will repair, at its expense, all damage to the Leased Premises
caused by removal of Tenant's equipment whether effected by Landlord or Tenant.
Landlord shall not be responsible for any loss or damage to Tenant's equipment
under any circumstances. Landlord shall, from time to time upon Tenant's written
request, execute appropriate documents for the benefit of equipment lenders or
lessors confirming the provisions of this Paragraph 12(b).
(c) If the estimated cost of such Alterations is equal to or exceeds
$250,000, (i) prior to commencement of restoration, the architects, contracts,
contractors, plans and specifications for the Alterations shall have been
approved by Landlord which approval shall not be unreasonably withheld, and
Landlord shall be provided with mechanics' lien insurance or such other
reasonable assurance against mechanics' liens, accrued or inchoate, as Landlord
shall require and acceptable performance and payment bonds, which are in an
amount and form and have a surety reasonably acceptable to Landlord, and name
Landlord and First Lender each as additional obligees; and (ii) at the time
construction of any Alteration is proposed to commence, no Event of Default or
event which would constitute an Event of Default by notice or grace period or
both shall exist and no mechanics' or materialmen's liens shall have been filed
and remain undischarged except as permitted pursuant to Paragraph 9(a) above.
13. Condemnation.
-------------
(a) Tenant, immediately upon obtaining knowledge of the institution of any
proceeding for Condemnation, shall notify Landlord thereof and Landlord shall be
entitled to participate, with Tenant in any Condemnation proceeding at Tenant's
expense. Subject to the provisions of this Paragraph 13 and Paragraph 15, Tenant
hereby irrevocably assigns to Landlord any award or payment to which Tenant is
or may be entitled by reason of any Condemnation, whether the same shall be paid
or payable for Tenant's leasehold interest hereunder or otherwise but nothing in
this Lease shall impair Tenant's right to any award or payment on account of
Tenant's trade fixtures, equipment or other tangible property, moving expenses,
loss of business and the like, if available, to the extent Tenant shall have a
right to make a separate claim therefor against the appropriate governmental
authority, but in no event shall any such separate claim be based upon the value
of Tenant's leasehold interest. To the extent of such right Tenant shall not be
deemed to have assigned the same to Landlord.
(b) If (i) the entire Leased Premises or (ii) any substantial portion of
the Leased Premises, which portion, in Tenant's judgment, is sufficient to
render the remaining portion thereof unsuitable or uneconomic for the use of
Tenant or any other tenant to which the Leased Premises might be leased, shall
be taken by a Taking or (iii) First Lender shall retain the Net Award pursuant
to the Assignment, then Tenant shall, in the case of (i) above and may, in the
case of (ii) and (iii) above, not later than thirty (30) days after any such
Taking, give notice to Landlord of its intention to terminate this Lease on any
Basic Rent Payment Date specified in such notice, which date (the "Condemnation
Termination Date") shall not be prior to the actual date of the vesting of title
in the condemning authority. Such notice shall contain (1) an irrevocable offer
of Tenant to purchase the remaining portion of the Leased Premises, (or in the
case of a Taking of the entire Leased Premises, the Net Award payable in
connection with such Taking or the right to receive the same when made, if
payment thereof has not yet been made) on the Condemnation Termination Date at
an amount (the "Offer Amount") not less than the Termination Value for the
Leased Premises, and (2) in the event that Tenant seeks to terminate this Lease
pursuant to clause (ii) of this paragraph 13(b), a certificate of Tenant, signed
by the President or a Vice President thereof, stating that the portion of the
Leased Premises so taken is sufficient to fulfill the conditions set forth in
clause (ii) of
- 16 -
<PAGE>
this Paragraph 13(b) and certifying that Tenant will forever abandon operations
on the remainder of the Leased Premises.
Tenant agrees that no rejection of an offer hereunder shall be effective
for any purpose unless consented to by First Lender. If Landlord shall reject
such offer by notice to Tenant containing the written consent of First Lender to
such rejection not later than the twentieth day prior to the Condemnation
Termination Date, then upon (i) payment of all installments of Basic Rent,
Additional Rent and any other charges then due and unpaid and (ii) compliance by
Tenant with all its other obligations and liabilities under this Lease which
have arisen on or prior to the Condemnation Termination Date, this Lease shall
terminate as to the entire Leased Premises, and Tenant shall immediately vacate
and have no further right, title or interest in or to any of the Leased Premises
and the Basic Rent Installments shall abate as of the Condemnation Termination
Date and Tenant shall receive a refund of any Basic Rent paid by Tenant which is
attributable to the period following the Condemnation Termination Date.
Unless Landlord shall have rejected such offer by the foregoing notice to
Tenant not later than the twentieth day prior to the Condemnation Termination
Date, Landlord shall be conclusively presumed to have accepted such offer. On
the Condemnation Termination Date, Tenant shall pay to Landlord the Offer Amount
and, provided an Event of Default does not exist hereunder, Landlord shall
convey to Tenant or its designee the remaining portion of the Leased Premises,
if any, in accordance with the provisions of Paragraph 16, at the option of
Tenant, and Landlord shall (i) assign to Tenant or its designee its entire
interest in and to the Net Award; (ii) deliver to Tenant such Net Award or any
part thereof which shall have been received by Landlord; or (iii) credit the
full amount of the Net Award against the Offer Amount.
Commencing on any Condemnation Termination Date, the installments of
Basic Rent shall be reduced by the amount equal to the product of the Basic Rent
payable immediately prior to such Taking multiplied by a fraction, the numerator
of which shall be the amount of the Net Award so retained and the denominator of
which shall be the sum of the then Termination Values for the Leased Premises or
portion thereof remaining after all prior reductions in Basic Rent pursuant to
this Paragraph 13 or Paragraph 15.
(c) In the event of any Condemnation of any of the Land or Improvements
which does not result in a Termination of this Lease, the Term shall
nevertheless continue and there shall be no abatement or reduction of Basic
Rent, Additional Rent or any other sums payable by Tenant hereunder, except as
specifically provided in this subparagraph (C). Subject to the requirements of
Paragraph 15, the Net Award of such Condemnation shall be retained by Landlord
and, promptly after such Condemnation and payment of the Net Award to Landlord,
Tenant, in conformity with the provisions of Paragraph 11(a), shall commence and
diligently continue to restore the Land and Improvements as nearly as possible
to their value, condition and character immediately prior to such Condemnation.
Upon the Final Payment to Landlord of the Net Award of a Taking which falls
within the provisions of this subparagraph (c), then Landlord shall make the Net
Award available to Tenant for restoration, in accordance with the provisions of
clauses (i) through (iv) Paragraph 15(a). If after Tenant restores as aforesaid
a surplus remains from the Net Award, such surplus shall be retained by Landlord
and each installment of Basic Rent after the Final Payment Date shall be
reduced, in accordance with the provisions of Paragraph 15(b).
In the event of a Requisition of any of the Land or Improvements, the Term
shall not be reduced or affected in any way and Tenant shall continue to pay in
full all Basic and Additional Rent stipulated in this Lease. Tenant shall be
entitled to receive the entire Net Award; provided, however, that:
(i) If the Requisition is for a period not extending beyond the Term and if
such Net Award is made in a lump sum, the same shall be held in an interest-
bearing investment or account approved by Tenant, Landlord and any First Lender
by Chicago Title Insurance Company as condemnation trustee, as a fund which
shall be withdrawn by Tenant on a pro rata basis (such proration to take into
account the estimated amount of any future increases in Basic Rent which are to
occur during the period of such Requisition and to allow a proportionate amount
of interest accumulated to date to be withdrawn) on each Basic Rent Payment Date
over the same time period as such Requisition, provided that if such Requisition
results in changes or Alterations to the Leased Premises that would necessitate
an expenditure
- 17 -
<PAGE>
to restore the Leased Premises to its former condition, then Tenant shall make
such restorations and a portion of the Net Award sufficient to pay the cost
thereof shall be paid to Tenant in the manner specified in clauses (i) through
(iv) of Paragraph 15(a) over the course of such restoration.
(ii) If the Requisition is for a period extending beyond the Term of this
Lease, the Net Award shall be apportioned on a present value basis between
Landlord and Tenant as of the stated expiration date of the Term and Tenant's
share thereof, if paid in a lump sum, shall be paid to the aforesaid
condemnation trustee and applied in accordance with the provisions of clause (i)
above; provided, however, that the portion of any Net Award required to pay for
restoration, on a present value basis, shall remain the property of Landlord if
the Term shall expire prior to such restoration.
(d) If any of the Equipment shall be taken by a Condemnation other than a
Condemnation which falls within the provisions of Paragraph 13(b), the Term
shall nevertheless continue and there shall be no abatement or reduction of
Basic Rent, Additional Rent or any other sums payable by Tenant hereunder.
Tenant shall, whether or not the Net Award is sufficient for the purpose in
addition to the other restorations and repairs required to be made by Tenant,
promptly replace the Equipment so taken, in accordance with the provisions of
Paragraph 11(d), and the Net Award of such a Condemnation shall thereupon be
payable to Tenant.
(e) No agreement with any condemnor in settlement of or under threat of any
Condemnation shall be made by either Landlord or Tenant without the written
consent of the other. Notwithstanding the foregoing provisions of this Paragraph
13, in the event Tenant, at its expense, makes leasehold improvements to the
premises which are permitted by Paragraph 12, having a cost in excess of
$100,000, and for which Tenant is not reimbursed, Tenant shall have the right to
claim in any condemnation proceeding for and, subject to the prior payment of
the indebtedness secured by the Mortgage, shall be entitled to receive out of
any condemnation award or payment, the then fair market value of such leasehold
improvements.
14. Insurance.
----------
(a) Tenant shall maintain at its sole cost and expense, the following
insurance with deductible provisions not exceeding $250,000 per occurrence:
(i) Insurance against loss or damage to the Improvements and Equipment
by fire and other risks from time to time included under standard extended and
additional extended coverage policies, vandalism and malicious mischief,
sprinkler, plate glass and flood, in amounts not less than the actual
replacement value of the Improvements and Equipment, excluding footings and
foundations and other parts of the Improvements which are not insurable. Such
policies shall contain the "Replacement Cost" Endorsement.
(ii) General public liability insurance against claims for bodily
injury, death or property damage occurring on, in or about any of the Leased
Premises or the Adjoining Property, in an amount not less than $5,000,000
Dollars for bodily injury or death to any one person, not less than $10,000,000
Dollars for any one accident, and not less than $1,000,000 Dollars for property
damage. Policies for such insurance shall be for the mutual benefit of Landlord,
Tenant and First Lender.
(iii) Workmen's compensation insurance covering all persons employed
in connection with any work done on or about any of the Leased Premises for
which claims for death or bodily injury could be asserted against Landlord,
Tenant or any of the Leased Premises, or in lieu of such workmen's compensation
insurance, a program of self-insurance complying with the rules, regulations and
requirements of the appropriate agency of the State from time to time in force.
(iv) Boiler and pressure vessel insurance on any of the Equipment
which by reason of its use or existence is capable of bursting, erupting,
collapsing or exploding, in an amount not less than $5,000,000 Dollars for
damage to property, bodily injury or death resulting from such perils.
(v) Such other insurance, including war-risk if and to the extent
available from the United States Government or any agency thereof, on any of the
Leased Premises as Landlord and
- 18 -
<PAGE>
First Lender may require, which at the time is commonly obtained in connection
with properties similar to the Leased Premises.
(b) The insurance required by Paragraph 14(a) shall be written by
companies of recognized financial standing which are authorized to do an
insurance business in the appropriate State and which are rated by A-XV or
better by A. M. Best Company, Inc. The insurance policies (i) shall be for such
terms as Landlord shall give its approval, which approval shall not be
unreasonably withheld or delayed, (ii) shall be in amounts sufficient at all
times to satisfy any co-insurance requirements thereof and (iii) shall name
Landlord and Tenant as insured parties, as their respective interests may
appear. If said insurance or any part thereof shall expire, be withdrawn, become
void by breach of any condition thereof by Tenant or become void or unsafe by
reason of the failure or impairment of the capital of any insurer, or if for any
other reason whatsoever said insurance shall not be reasonably satisfactory to
Landlord, Tenant shall immediately obtain new or additional insurance
satisfactory to Landlord.
(c) Each insurance policy referred to in clauses (i), (iv) and (v) of
Paragraph 14(a) shall contain standard non-contributory mortgagee clauses in
favor of and acceptable to First Lender and shall provide that all property
losses insured against shall be adjusted by Tenant (subject to Landlord's and
First Lender's approval of final settlement of estimated losses of $750,000 or
more). Each policy shall provide that it may not be cancelled except after 30
days prior notice to Landlord and First Lender and that any loss otherwise
payable thereunder shall be payable notwithstanding (i) any act or omission of
Landlord or Tenant which might, absent such provision, result in a forfeiture of
all or a part of such insurance payment, (ii) the occupation or use of any of
the Leased Premises for purposes more hazardous than permitted by the provisions
of such policy, (iii) any foreclosure or other action or proceeding taken by
First Lender pursuant to any provision of the Mortgage upon the happening of an
event of default therein, or (iv) any change in title or ownership of any of the
Leased Premises.
(d) Tenant shall pay as they become due all premiums for the insurance
required by this Paragraph 14, shall renew or replace each policy, shall deliver
to Landlord evidence of the payment of the full premium therefor with the
affidavit of the chief financial officer of Tenant required under Paragraph 26,
and shall deliver to Landlord all original policies or duplicate originals; and
in the event of Tenant's failure to comply with any of the foregoing
requirements, Landlord shall be entitled, two days after giving notice to
Tenant, to procure such insurance if Tenant shall not have complied with the
foregoing requirements prior to the expiration of such two-day period. Any sums
expended by Landlord in procuring such insurance shall be Additional Rent and
shall be repaid by Tenant, together with interest thereon at the Default Rate
from the time payment is due until fully paid by Tenant, within five (5) days of
written demand therefor by Landlord.
(e) Anything in this Paragraph 14 to the contrary notwithstanding, any
insurance which Tenant is required to obtain pursuant to Paragraph 14(a) may be
carried under a "blanket" policy or policies covering other properties or
liabilities of Tenant, and may be effected by a combination of basic and excess
or umbrella policies, provided that such "blanket" policy or policies otherwise
comply with the provisions of this Paragraph 14. The amount of the total
insurance allocated to the Leased Premises, which amount shall be not less than
the amounts required pursuant to this Paragraph 14, shall be specified either
(i) in each such "blanket" policy, or (ii) in a written statement, which Tenant
shall deliver to Landlord, from the insurer thereunder.
(f) Tenant shall promptly comply with and conform to (i) all provisions
of each insurance policy and (ii) all requirements of the insurers thereunder,
applicable to Landlord, Tenant or any of the Leased Premises or to the use,
manner of use, occupancy, possession, operation, maintenance, alteration or
repair of any of the Leased Premises, even if such compliance necessitates
structural changes or improvements or results in interference with the use or
enjoyment of any of the Leased Premises. Tenant shall not use any of the Leased
Premises in any manner which would permit the insurer to cancel any insurance
policy unless Tenant obtains, prior to such cancellation, substitute insurance
in accordance with the provisions of this Paragraph 14 which permits such use of
the Leased Premises.
(g) In the event of any loss in excess of $25,000, Tenant shall give
Landlord immediate notice thereof. Tenant is hereby authorized to adjust,
collect and compromise, in its discretion, all claims under any of the insurance
policies required by this Paragraph 14 (subject to Landlord's and First
- 19 -
<PAGE>
Lender's approval of final settlement of estimated losses of $750,000 or more)
and to execute and deliver all necessary proofs of loss, receipts, vouchers and
releases required by the insurers; and Tenant agrees to sign, upon request of
Landlord, all such proofs of loss, receipts, vouchers and releases. Landlord and
First Lender shall have the right to prosecute or contest, or to require Tenant
to prosecute or contest, any claim, adjustment, settlement or compromise in the
amount of $750,000 or more. Landlord will join in, at Tenant's request, any
prosecution of a claim against, or contesting of any settlement proposed by, an
insurer, provided Tenant indemnifies Landlord against all costs, liabilities and
expenses in connection with the prosecution of such contest. All proceeds of any
insurance required under clauses (i), (ii), (iv) and (v) of Paragraph 14(a)
shall be payable to First Lender, or at its option an insurance trustee
designated by First Lender, and reasonably satisfactory to Landlord and Tenant,
or if there be no First Lender then an insurance trustee selected by Landlord
and reasonably satisfactory to Tenant and each insurer is hereby authorized and
directed to make payment under said policies, except for return of unearned
premiums or dividends which shall be paid to Tenant, directly to First Lender or
such insurance trustee (instead of to Landlord and Tenant jointly) for
disbursement in accordance with the provisions of this Lease; and Tenant hereby
appoints Landlord and First Lender and each of them as Tenant's attorneys-in-
fact to endorse any draft therefor. If Landlord is an Institutional Investor and
there is no First Lender then Landlord or an insurance trustee designated by
Landlord and reasonably satisfactory to Tenant shall receive and disburse the
insurance proceeds specified in the immediately preceding sentence.
In the event of any casualty (whether or not insured against and
whether or not, if insured against, the Net Proceeds, if any, available for
restoration shall be sufficient to pay for such) resulting in damage to any of
the Leased Premises, the Term shall nevertheless continue and there shall be no
abatement or reduction of Basic Rent, Additional Rent or any other sums payable
by Tenant hereunder, except as hereinafter in this subparagraph (g) specifically
provided. Subject to the provisions of Paragraph 15, the Net Proceeds of such
casualty shall be retained by Landlord and, except as hereinafter specifically
provided in subparagraph (h) following, Tenant shall promptly after such
casualty (whether or not insured against and whether or not, if insured against,
the Net Proceeds, available for restoration, shall be sufficient to pay for such
restoration so long as the First Lender does not retain the Net Proceeds
pursuant to the Mortgage), as required in Paragraph 11(a), commence and
diligently continue to restore the Land and Improvements as nearly as possible
to their value, condition and character immediately prior to such damage, in
accordance with the provisions of clauses (i) through (iv) of Paragraph 15(a);
provided, however, in no event shall Tenant be required to restore if First
Lender is entitled to retain the Net Proceeds pursuant to the Mortgage or if the
casualty is uninsurable under the policies required to be maintained by Tenant
hereunder, and in the reasonable judgment of First Lender, the fair market value
of the Leased Premises is not materially impaired by such damage. In the event
the Net Proceeds exceed the Termination Value for such Premises, then unless
Landlord and Tenant shall agree, if so requested by First Lender, to extend the
remaining term of this Lease (including any Renewal Term exercised by Lessee) to
a term at least 15 years beyond the Final Payment Date of said Net Proceeds,
First Lender shall be entitled to retain such Net Proceeds. Upon payment to
Landlord of such Net Proceeds, Landlord shall make the Net Proceeds available to
Tenant for restoration, in accordance with the provisions of Paragraph 15(a).
If, after tenant restores as aforesaid a surplus remains from the Net Proceeds,
such surplus shall be retained by Landlord and each instalment of Basic Rent
payable on and after the Final Payment Date shall be reduced, in accordance with
the provisions of Paragraph 15(b). In the event of any loss of any of the
Equipment which does not fall within the provisions of the immediately preceding
paragraph, the Term shall nevertheless continue and there shall be no abatement
or reduction of Basic Rent, Additional Rent or any other sums payable by Tenant
hereunder. Tenant shall, whether or not the Net Proceeds are sufficient for the
purpose, promptly repair or replace such Equipment, in accordance with the
provisions of Paragraph 11(c), and the Net Proceeds of such loss shall thereupon
be payable to Tenant.
(h) If (i) the entire Leased Premises or (ii) all or any substantial portion
of the Leased Premises, which portion, in Tenant's judgment, is sufficient to
render the remaining portion thereof unsuitable or uneconomical for restoration
for continued use and occupancy by Tenant or any other tenant to which the
Leased Premises might be leased, shall be damaged or destroyed by fire or other
casualty, or if (iii) the First Lender shall retain the Net Proceeds payable as
a result of said fire or other casualty pursuant to the Mortgage, then Tenant
may, not later than ninety (90) days after such occurrence, give notice to
Landlord of its intention to terminate this Lease on any Basic Rent Payment Date
specified in such notice, as to the entire Leased Premises, which date (the
"Casualty Termination Date") shall be not less than ninety (90) nor more than
one hundred twenty (120) days after such notice. Such notice shall contain
- 20 -
<PAGE>
(1) an irrevocable offer of Tenant to purchase the Leased Premises on the
Casualty Termination Date at an amount (the "Offer Amount") not less than the
Termination Value for the entire Leased Premises, and (2) in the event that
Tenant seeks to terminate this Lease pursuant to clause (ii) of this Paragraph
14(h), a certificate of Tenant, signed by the President or a Vice President
thereof, stating that the portion of the Leased Premises so damaged or destroyed
is sufficient to fulfill the conditions set forth in clause (ii) of this
Paragraph and certifying that Tenant will not restore the Leased Premises for
the use to which such premises was devoted prior to such damage or destruction.
Tenant agrees that no rejection of an offer hereunder shall be effective
for any purpose unless consented to by First Lender. If Landlord shall reject
such offer by notice to Tenant containing the written consent of First Lender
not later than the twentieth day prior to the Casualty Termination Date, then
upon (i) payment of all installments of Basic Rent, Additional Rent and any
other charges then due and unpaid and (ii) compliance by Tenant with all other
obligations and liabilities under this Lease which have arisen on or prior to
the Casualty Termination Date, this Lease shall terminate, and Tenant shall
immediately vacate and have no further right, title or interest in or to any of
the Leased Premises.
Unless Landlord shall have rejected such offer by the foregoing notice to
Tenant not later than the twentieth day prior to the Casualty Termination Date,
Landlord shall be conclusively presumed to have accepted such offer. On the
Casualty Termination Date, Tenant shall pay to Landlord the Offer Amount,
Landlord shall convey to Tenant or its designee the Leased Premises or
appropriate portion thereof in accordance with the provisions of Paragraph 16
and, at the option of Tenant, Landlord shall (i) assign to Tenant or its
designee all rights to receive the Net Proceeds payable in connection with such
damage or destruction; (ii) deliver to Tenant such Net Proceeds or any part
thereof which shall have been received by Landlord; or (iii) credit the full
amount of the Net Proceeds against the Offer Amount.
(i) Tenant shall not carry separate insurance concurrent in form or
contributing in the event of loss with that required in this Paragraph 14 unless
(i) Landlord is included therein as a named insured, with loss payable as
provided herein, and (ii) such separate insurance complies with the other
provisions of this Paragraph 14. Tenant shall immediately notify Landlord of
such separate insurance and shall deliver to Landlord duplicate original
policies therefor.
15. Restoration; Reduction of Rent.
------------------------------
(a) Unless the Net Proceeds or Net Award are retained by First Lender
pursuant to the Assignment, Landlord shall cause the Net Proceeds or
Net Award to be disbursed in accordance with the following conditions:
(i) if the estimated cost of restoration is equal to or exceeds $250,000,
prior to commencement of restoration, the architects, contracts, contractors,
plans and specifications for the restoration shall have been approved by
Landlord, and Landlord shall be provided with mechanics' lien insurance or such
other reasonable assurance against mechanics' liens, accrued or inchoate, as
Landlord may reasonably require and acceptable performance and payment bonds
reasonably acceptable to Landlord in an amount and form and have a surety
reasonably acceptable to Landlord, and name Landlord and First Lender each as
additional obligees;
(ii) at the time of any disbursement, no Event of Default or event which
would constitute an Event of Default by notice or grace period or both shall
exist and no mechanics' or materialmen's liens shall have been filed and remain
undischarged except as permitted pursuant to Paragraph 9(a) above; provided that
if any Event of Default shall be subsequently cured and the Lease restored to
good standing, any disbursement withheld shall be promptly paid over to Tenant;
(iii) if the estimated cost of restoration is equal to or exceeds
$250,000, disbursements shall be made from time to time in an amount not
exceeding the cost of the work completed since the last disbursement, upon
receipt of (1) satisfactory evidence, including architects' certificates, of the
stage of completion, of the estimated cost of completion and of performance of
the work to date in a good and workmanlike manner in accordance with the
contracts, plans and specifications, (2) waivers of liens, (3) contractors' and
subcontractors' sworn statements, (4) a satisfactory bringdown of title
insurance, and (5) other evidence of cost and payment so that Landlord can
verify that the amounts disbursed from
- 21 -
<PAGE>
time to time are represented by work that is completed, in place and free and
clear of mechanics' lien claims; or if the estimated cost of restoration is less
than $250,000, such disbursement shall be made in a lump sum payment upon Final
Payment by the insurer, subject to satisfaction of the condition set forth in
clause (ii) of this Paragraph 15(a).
(iv) each request for disbursement shall be accompanied by a certificate
of Tenant, signed by the President or any Vice President thereof, describing the
work for which payment is requested, stating the cost incurred in connection
therewith and stating that Tenant has not previously received payment for such
work; the certificate to be delivered by Tenant upon completion of the work
shall, in addition, state that the work has been completed and complies with the
applicable requirements of this Lease;
(v) Landlord may retain ten percent of the restoration fund until the
restoration is fully completed subject to reduction of the retained
amount upon approval by First Lender in accordance with local custom;
(vi) the restoration fund shall not bear interest but shall not be
commingled with First Lender's or depositary's other funds;
(vii) at all times the undisbursed balance of the restoration fund shall
be not less than the cost of completing the restoration work free and clear of
all liens; and
(viii) Landlord may impose other reasonable conditions provided the same
are also imposed upon such disbursements by the First Lender or any subsequent
holder of a first mortgage or deed of trust.
In addition, prior to commencement of restoration and at any time during
restoration, if the estimated cost of restoration, exceeds the amount of the Net
Proceeds or the Net Award available for such restoration, the amount of such
excess shall be paid by Tenant to First Lender or depositary to be added to the
restoration fund. Any sum which remains in the restoration fund upon completion
of restoration shall be refunded to Tenant up to the amount of Tenant's deposits
pursuant to the immediately preceding sentence. If no such refund is required
or any sum remains in the restoration fund after such refund, such sum remaining
in the restoration fund upon completion of restoration (the "Remaining Sum")
shall be retained by Landlord.
(b) In the event that there is a Remaining Sum upon completion of restoration,
or if there is no damage in condemnation, then each installment of Basic Rent
payable on or after the Final Payment Date or the Retention Date, as applicable,
shall be reduced by an amount equal to the product of the Basic Rent payable
immediately prior to such Date multiplied by a fraction, the numerator of which
shall be the Net Proceeds or Net Award not made available for restoration by
First Lender or the Remaining Sum, as the case may be, and the denominator of
which shall be the then aggregate Termination Values for all the Leased Premises
or portion thereof remaining after all prior reductions in Basic Rent pursuant
to Paragraph 13 or this Paragraph 15.
16. Procedures Upon Purchase.
-------------------------
(a) In the event of the purchase of any of the Leased Premises by Tenant
pursuant to any provision of this Lease, Landlord need not transfer and convey
to Tenant or its designee any better title thereto than that which was
transferred and conveyed to Landlord, and Tenant shall accept such title,
subject, however, to all liens, exceptions and restrictions on, against or
relating to the Leased Premises and to all applicable laws, regulations and
ordinances, but free of the lien of and security interest created by the
Mortgage, the Assignment, and any and all other liens, exceptions and
restrictions on, against or relating to the Leased Premises which have been
created by or resulted from acts of Landlord, unless the same were created with
the concurrence of Tenant.
(b) Upon the date fixed for any such purchase of any of the Leased Premises
pursuant to any provision of this Lease, Tenant shall pay to Landlord
or to any person to whom Landlord
- 22 -
<PAGE>
directs payment, at its address set forth above, or at any other place
designated by Landlord, the Offer Amount therefor specified herein, or, as the
case may be, the purchase price therefor as determined pursuant to the
provisions of Paragraph 27, in lawful money of the United States, less any
credits of the Net Award or Net Proceeds allowed against the Offer Amount
pursuant to the provisions of Paragraphs 13(b) and 14(h), and Landlord shall
thereupon deliver to Tenant (i) a special warranty deed which describes any of
the Leased Premises then being sold to Tenant and conveys and transfers the
title thereto which is described in Paragraph 16(a), together with (ii) such
other instruments as shall be necessary to transfer to Tenant or its designee
any other property (or rights to any Net Proceeds or Net Award not yet received
by Landlord) then required to be sold by Landlord pursuant to this Lease and
(iii) any Net Award or Net Proceeds received by Landlord and not credited to
Tenant against the Offer Amount. Tenant shall pay all charges incident to such
conveyance and transfer, including Landlord's reasonable counsel fees, escrow
fees, recording fees, title insurance or guarantee premiums and all applicable
federal, state and local taxes which may be incurred or imposed by reason of
such conveyance and transfers and/or by reason of the delivery of said deed and
other instruments. Upon the completion of such purchase, but not prior thereto
(whether or not any delay in the completion of or the failure to complete such
purchase shall be the fault of Landlord, provided that Tenant shall have the
right to pursue its remedies, if any, against Landlord for such failure or delay
except for those waived pursuant to Paragraph 7), this Lease and all obligations
hereunder (including the obligations to pay Basic Rent and Additional Rent)
shall terminate with respect to any of the Leased Premises conveyed to Tenant,
except any obligations and liabilities of Tenant under this Lease which arose on
or prior to such date of purchase; provided, however, that if there shall be a
delay in the foregoing purchase and payment due to the fault of Landlord at any
time after the First Note shall have been paid in full, all obligations imposed
on Tenant pursuant to this Lease shall, if Tenant so elects in writing and
thirty (30) days after delivery of written notice to Landlord, terminate with
respect to the Leased Premises or portion thereof to be sold, as the case may
be, as of the date provided in this Lease for completion of such purchase and
payment (the "Closing Date"); provided, further, however, if the First Note
shall not have been fully paid at the time of such delay caused by Landlord, the
portion of the Basic Rent payable after the Closing Date in excess of the debt
service on the First Note shall be held by the First Lender and not remitted to
Landlord until First Lender receives written instructions jointly executed by
Landlord and Tenant as to the disposition of all such funds or a final judgment
of a court of competent jurisdiction has been delivered to First Lender
instructing First Lender as to the disposition thereof. Any prepaid Basic Rent
or other prepaid sums paid to Landlord shall be prorated as of the date the
purchase is completed, and the prorated unapplied balance shall be deducted from
the Offer Amount due to Landlord.
No apportionment of any Impositions shall be made upon such purchase,
Tenant being liable for payment thereof during the Term, as Tenant, and
being liable thereafter as owner.
17. Assignment and Subletting. Tenant may not assign this Lease without
-------------------------
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, nor shall Tenant sublet the Leased Premises in its entirety at any
time without the prior written consent of Landlord, which consent shall not be
unreasonably withheld; provided, however, that Tenant may sublet portions of the
Leased Premises without such consent. Each sublease of any portion of the Leased
Premises shall be subject and subordinate to the provisions of this Lease; if
Tenant assigns all its rights and interest under this Lease, the assignee under
such assignment shall expressly assume all the obligations of Tenant hereunder,
including obligations, actual or contingent, of Tenant which may have arisen on
or prior to the date of such assignment, by a written instrument delivered to
Landlord at the time of such assignment; and no assignment or sublease made as
permitted by this Paragraph shall affect or reduce any of the obligations of
Tenant hereunder, and all such obligations shall continue in full force and
effect as obligations of a principal and not as obligations of a guarantor, as
if no assignment or sublease had been made. No assignment or sublease shall
impose any obligations on Landlord under this Lease. Tenant shall, within ten
(10) days after the execution and delivery of any such assignment, deliver a
duplicate original copy thereof in recordable form to Landlord, and within ten
(10) days after the execution and delivery of any such sublease, Tenant shall
deliver a duplicate original copy thereof to Landlord.
Upon the occurrence of an Event of Default under this Lease, Landlord shall
have the right to collect and enjoy all rents and other sums of money payable
under any sublease of any of the Leased Premises, and Tenant hereby irrevocably
and unconditionally assigns such rents and money to Landlord, which assignment
may be exercised upon and after (but not before) the occurrence of an Event of
Default. From and after the date, if any, that such Event of Default is cured,
such rents shall again become payable
- 23 -
<PAGE>
to Tenant. Tenant shall not mortgage or pledge this Lease, and any such
mortgage or pledge made in violation of this Paragraph shall be void.
18. Permitted Contests. Notwithstanding any provision of this Lease to the
contrary, Tenant shall not be required to (i) pay any Imposition, (ii) comply
with any Legal Requirement or with the requirements of any insurance policy
referred to in Paragraph 12(a), (iii) discharge or remove any lien referred to
in Paragraph 9 or 12, or (iv) take any action with respect to any encroachment,
violation, hindrance, obstruction or impairment referred to in Paragraph 11(b),
so long as Tenant shall contest, in good faith and at its expense, the
existence, the amount or the validity thereof, the amount of the damages caused
thereby, or the extent of its or Landlord's liability therefor, by appropriate
proceedings (or in the case of non-compliance with regulations of the National
Fire Protection Association or said other body exercising similar function in
accordance with the rules of such Board or body) which shall operate during the
pendency thereof to prevent (i) the collection of, or other realization upon,
the Imposition or lien so contested, (ii) the sale, forfeiture or loss of any of
the Leased Premises, any Basic Rent or any Additional Rent to satisfy the' same
or to pay any damages caused by the violation of any such Legal Requirement or
by any such encroachment, violation, hindrance, obstruction or impairment, (iii)
any interference with the use or occupancy of any of the Leased Premises, (iv)
any interference with the payment of any Basic Rent or any Additional Rent, and
(v) the cancellation of any fire or other insurance policy, unless such policy
is replaced prior to its cancellation by a successor policy complying with the
provisions of this Lease. Tenant shall provide security reasonably satisfactory
to Landlord assuring the payment, compliance, discharge, removal and/or other
action, including all costs, attorneys' fees, interest and penalties in the
event that the contest is unsuccessful. If, and only if, any such proceedings
are pending and the required security is held by Landlord, Landlord shall not
have the right to pay, remove or cause to be discharged the Imposition or lien
thereby being contested. Tenant further agrees that each such contest shall be
promptly and diligently prosecuted to a final conclusion, except that Tenant
shall, so long as the conditions of the first sentence of this Paragraph are at
all times complied with, have the right to attempt to settle or compromise such
contest through negotiations. Tenant shall pay, and save Landlord harmless
against, any and all losses, judgments, decrees and costs (including all
reasonable attorneys' fees and expenses) in connection with any such contest and
shall, promptly after the final determination of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or be
determined to be payable therein or in connection therewith, together with all
penalties, fines, interest, costs and expenses thereof or in connection
therewith, and perform all acts the performance of which shall be ordered or
decreed as a result thereof. No such contest shall subject Landlord to the risk
of any civil or criminal liability.
19. Conditional Limitations; Default Provision.
------------------------------------------
(a) The occurrence of any one or more of the following shall constitute an
Event of Default under this Lease: (i) a failure by Tenant to make (regardless
of the pendency of any bankruptcy, reorganization, receivership, insolvency or
other proceeding, in law, in equity, or before any administrative tribunal,
which have or might have the effect of preventing Tenant from complying with the
provisions of this Lease) any payment of Basic Rent, Additional Rent or other
sum herein required to be paid by Tenant, which failure continues uncorrected
for a period of 10 days or more after written notice thereof to Tenant; (ii) a
failure by Tenant to duly perform and observe or a violation or breach of any
other provision hereof or the Assignment of Lease to First Lender, which
failure, violation or breach continues uncorrected for a period of 20 days or
more after written notice thereof to Tenant, provided that, if such failure,
violation or breach cannot be cured within a period of 20 days, then the same
shall not be deemed to continue if Tenant proceeds promptly and with due
diligence to cure the same and completes the curing thereof; (iii) Tenant or
Guarantor shall (a) voluntarily be adjudicated a bankrupt or insolvent, (b) seek
or consent to the appointment of a receiver or trustee for itself or for any of
the Leased Premises, (c) file a petition commencing a voluntary case under the
bankruptcy or other similar laws of the United States, any state or any
jurisdiction, (d) make a general assignment for the benefit of creditors, or (e)
be unable to pay its debts as they mature; (iv) a court shall enter an order,
judgment or decree appointing, with the consent of Tenant, a receiver or trustee
for it or for any of the Leased Premises or approving a petition filed against
Tenant which seeks relief under the bankruptcy or other similar laws of the
United States, any state or any jurisdiction, and such order, judgment or decree
shall remain in force, undischarged or unstayed, ninety days after it is
entered; (v) the Leased Premises shall have been abandoned; (vi) Tenant or
Guarantor shall be liquidated or dissolved or shall begin proceedings towards
its liquidation or dissolution, other than pursuant to the acquisition by a
transferee corporation of substantially all the assets and an assumption by
- 24 -
<PAGE>
such transferee of all liabilities provided the net worth of such transferee,
after giving affect to such acquisition and assumption, computed in accordance
with generally accepted accounting principles, is not materially less than that
of the transferor corporation immediately prior to such acquisition; (vii) the
estate or interest of Tenant in any of the Leased Premises shall be levied upon
or attached in any proceeding and such estate or interest is about to be sold or
transferred or such process shall not be vacated or discharged within ninety
days after such levy or attachment; or (viii) any material adverse change in the
financial condition of Tenant or Guarantor.
(b) If an Event of Default shall have occurred, Landlord shall have the
right at its option, then or at any time thereafter to do any one or
more of the following without demand upon or notice to Tenant.
(1) Landlord may give Tenant notice of Landlord's intention to terminate
this Lease on a date specified in such notice. Upon the date therein specified,
the Term, the estate hereby granted and all rights of Tenant hereunder, shall
expire and terminate as if such date were the date hereinbefore fixed for the
expiration of the Term, but Tenant shall remain liable for all its obligations
hereunder, including its liability for Rent, as hereinafter provided.
(2) Landlord may, whether or not the Term of this Lease shall have been
terminated pursuant to clause (1) above, (a) give Tenant notice to surrender any
of the Leased Premises to Landlord immediately or on a date specified in such
notice, at which time Tenant shall surrender and deliver possession of the
Leased Premises or the specified portion thereof to Landlord or (b) re-enter and
repossess any of the Leased Premises by force, summary proceedings, ejectment or
any other means or procedure. Upon or at any time after taking possession of any
of the Leased Premises, Landlord may remove any persons or property therefrom.
Landlord shall be under no liability for or by reason of any such entry,
repossession or removal. No such entry or repossession shall be construed as an
election by Landlord to terminate this Lease unless Landlord gives a written
notice of such intention to Tenant pursuant to clause (1) above.
(3) After repossession of any of the Leased Premises pursuant to clause
(2) above, whether or not this Lease shall have been terminated pursuant to
clause (1) above, Landlord shall use reasonable efforts to relet the Leased
Premises or any part thereof, to such Tenant or Tenants for such term or terms
(which may be greater or less than the period which would otherwise have
constituted the balance of the Term) for such rent, on such conditions (which
may include concessions or free rent) and for such uses as Landlord, in its
absolute discretion, may determine; and Landlord may collect and receive any
rents payable by reason of such reletting. Provided Landlord has used reasonable
efforts to relet, Landlord shall not be responsible or liable for any failure to
relet the Leased Premises or any part thereof. If Landlord shall use reasonable
efforts to collect any rent due upon any reletting, it shall not be responsible
for any failure to collect any said rent. Landlord may make such Alterations as
Landlord, in its sole discretion may deem advisable. Tenant agrees to pay
Landlord, as Additional Rent, immediately upon demand, all expenses incurred by
Landlord in obtaining possession, in performing Alterations and in reletting any
of the Leased Premises, including fees and commissions of attorneys, architects,
agents and brokers.
(4) Whether or not Landlord shall have collected any current damages
pursuant to Paragraph 19(d), Landlord may, upon written demand to Tenant,
recover from Tenant, and Tenant shall pay to Landlord, as and for liquidated and
agreed final damages for Tenant's default and in lieu of all current damages
beyond the date of such demand (it being agreed that it would be impracticable
or extremely difficult to fix the actual damages), an amount equal to the
excess, if any, of (a) all Basic Rent and Additional Rent from the date of such
demand for what would be the then unexpired term of this Lease in the absence of
such expiration, termination, re-entry or repossession, discounted at the rate
of 12% per annum over (b) the then fair rental value of the Leased Premises
(determined by applying a discount rate of 12% per annum) for the same period.
If any Law shall validly limit the amount of such liquidated final damages to
less than the amount above agreed upon, Landlord shall be entitled to the
maximum amount allowable under such Law.
(5) Landlord may exercise any other right or remedy now or hereafter
existing by Law or in equity.
- 25 -
<PAGE>
(c) No expiration or termination of this Lease pursuant to Paragraph 19(b)
(1) or any other provision of this Lease, by operation of law or otherwise,
repossession of any of the Leased Premises pursuant to Paragraph 19(b) (2) or
otherwise, or reletting of any of the Leased Premises pursuant to Paragraph
19(b) (3), shall relieve Tenant of any of its liabilities and obligations
hereunder, including the liability for Basic and Additional Rent, all of which
shall survive such expiration, termination, repossession or reletting.
(d) In the event of any expiration or termination of this Lease or
repossession of any of the Leased Premises by reason of the occurrence of an
Event of Default, Tenant shall pay to Landlord Basic Rent, Additional Rent and
all other sums required to be paid by Tenant to and including the date of such
expiration, termination or repossession and, thereafter, Tenant shall, until the
end of what would have been the Term in the absence of such expiration,
termination or repossession, and whether or not any of the Leased Premises shall
have been relet, be liable to Landlord for, and shall pay to Landlord monthly,
on the Basic Rent Payment Dates as liquidated and agreed current damages (i)
Basic Rent, Additional Rent and all other sums which would be payable under this
Lease by Tenant in the absence of such expiration, termination or repossession,
less (ii) the net proceeds, if any, of any reletting pursuant to Paragraph 19(b)
(3), after deducting from such proceeds all of Landlord's expenses in connection
with such reletting (including all repossession costs, brokerage commissions,
legal expenses, attorneys' fees, employees' expenses, costs of Alterations and
expenses of preparation for reletting). Tenant hereby agrees to be and remain
liable for all sums aforesaid; and Landlord may recover such damages from Tenant
and to institute and maintain successive actions or legal proceedings against
Tenant for the recovery of such damages. Nothing herein contained shall be
deemed to require Landlord to wait to begin such action or other legal
proceedings until the date when the Term would have expired by limitation had
there been no such Event of Default.
(e) The words "enter," "re-enter," or "re-entry," as used in this Paragraph
19 are not restricted to their technical meaning.
(f) With respect to any remedy or proceeding of Landlord hereunder, Tenant
waives (a) any right to a trial by jury and (b) the service of any
notice which may be required by a present or future law or decision.
20. Additional Rights of Landlord.
------------------------------
(a) No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing by law or in equity. Tenant
acknowledges that time is of the essence in the performance of its obligations
under this Lease. No failure of Landlord (i) to insist at any time upon the
strict performance of any provision of this Lease or (ii) to exercise any
option, right, power or remedy contained in this Lease shall be construed as a
waiver, modification or relinquishment thereof. A receipt by Landlord of any
Basic or Additional Rent or other sum due hereunder with knowledge of the
breach of any provision contained in this Lease shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in a writing signed by Landlord. In
addition to the other remedies provided in this Lease, Landlord shall be
entitled, to the extent permitted by applicable law, to injunctive relief in
case of the violation, or attempted or threatened violation, of any of the
provisions of this Lease, or to specific performance of any of the provisions
of this Lease.
(b) Tenant hereby waives and surrenders, for itself and all those claiming
under it, including creditors of all kinds, (i) any right and privilege which it
or any of them may have under any present or future law to redeem any of the
Leased Premises or to have a continuance of this Lease after termination of this
Lease or of Tenant's right of occupancy or possession pursuant to any court
order or any provision hereof, and (ii) the benefits of any present or future
law which exempts property from liability for debt or for distress for rent.
(c) Tenant shall pay to Landlord, as Additional Rent, all the expenses
incurred by Landlord in connection with any Event of Default or the exercise of
any remedy by reason of an Event of
- 26 -
<PAGE>
Default, including reasonable attorneys' fees and expenses. If Landlord shall be
made a party to any litigation commenced against Tenant or any litigation
pertaining to this Lease or any of the Leased Premises, at the option of
Landlord, Tenant, at its expense, shall provide Landlord with counsel reasonably
satisfactory to Landlord and, in any event, Tenant shall pay all costs and
reasonable attorneys' fees incurred or paid by Landlord in connection with such
litigation; provided, however, if Landlord (but not First Lender or its nominee
as successor Landlord) shall be the losing party as to any claim by Landlord
against Tenant, then Landlord shall not be entitled to reimbursement by Tenant
for any expenses incurred by Landlord in pursuing such claim against Tenant.
21. Notices. All notices, demands, requests, consents, approvals, offers,
-------
statements and other instruments or communications required or permitted to be
given pursuant to the provisions of this Lease shall be in writing and shall be
deemed to have been given for all purposes when delivered in person or when
deposited in the United States mail, by registered or certified mail, return
receipt requested, postage prepaid, addressed to the other party at its address
stated above. For the purposes of this Paragraph, any party may substitute its
address by giving fifteen days' notice to the other party, in the manner
provided above.
22. Estoppel Certificates. Landlord or Tenant, as the case may be, shall,
---------------------
at any time and from time to time, upon not less than twenty days' prior written
request by the other, execute, acknowledge and deliver to the requesting party a
statement in writing, executed by a general partner of Landlord or by the
President or a Vice President of Tenant, as the case may be, certifying (i) that
this Lease is unmodified and in full effect (or, if there have been
modifications, that this Lease is in full effect as modified, and setting forth
such modifications), (ii) the dates to which Basic Rent, Additional Rent and all
other sums payable hereunder have been paid, (iii) that to the knowledge of the
signer of such certificate no default by either Landlord or Tenant exists
hereunder or specifying each such default of which the signer may have
knowledge; and (iv) that, in the case of any statement being given by Tenant, to
the knowledge of the signer of such certificate, there are no proceedings
pending or threatened against Tenant before or by any court or administrative
agency which, if adversely decided, would materially and adversely affect the
financial condition and operations of Tenant, or if any such proceedings are
pending or threatened to said signer's knowledge, specifying and describing the
same. It is intended that any such statements may be relied upon by First
Lender, Landlord or their assignees or by any prospective purchaser of the
Leased Premises or by any transferee or assignee of Tenant's interest in the
Lease or a sublessee of Tenant. Any certificate required under this Paragraph 22
shall (i) state briefly the nature and scope of the examination or investigation
upon which the statements contained in such certificate are based, (ii) state
that in the opinion of each person signing such certificate he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to the subject matter of such certificate, and (iii) certify
to the correctness of the statements contained therein.
23. Surrender. Upon the expiration or earlier termination of this Lease,
---------
Tenant shall peaceably leave and surrender the Leased Premises (except for any
portion thereof with respect to which this Lease has previously terminated) to
Landlord in the same condition in which the Leased Premises were originally
received from Landlord at the commencement of this Lease, except as repaired,
rebuilt, restored, altered, replaced, added to or destroyed as permitted or
required by any provision of this Lease, and except for ordinary wear and tear.
Tenant shall remove from the Land and Improvements on or prior to such
expiration or earlier termination, trade fixtures, machinery, equipment or other
all property situated thereon which is owned by Tenant or third parties other
than Landlord and Tenant, at its expense, shall, on or prior to such expiration
or earlier termination, repair any damage caused by such removal. Property not
so removed shall become the property of Landlord, and Landlord may thereafter
cause such property to be removed from the Leased Premises and the cost of
removing and disposing of such property and repairing any damage to any of the
Leased Premises caused by such removal shall be borne by Tenant. Landlord shall
not in any manner or to any extent be obligated to reimburse Tenant for any
property which becomes the property of Landlord as a result of such expiration
or earlier termination.
24. Risk of Loss. The risk of loss or of decrease in the enjoyment and
beneficial use of any of the Leased Premises in consequence of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosure, attachments, levies or executions
(other than by Landlord and those claiming from, through or under Landlord) is
assumed by Tenant, and Landlord shall in no event be answerable or accountable
therefor. Except as otherwise
- 27 -
<PAGE>
specifically provided in this Lease none of the events mentioned in this
Paragraph shall entitle Tenant to any abatement of Basic Rent or Additional
Rent; provided, however, in no event shall Tenant be required to pay more than
the Basic Rent or Additional Rent due under Paragraph 6 of this Lease
notwithstanding any attachment, levy or execution thereon by any party claiming
by, under, or through Landlord.
25. No Merger of Title. There shall be no merger of this Lease nor of the
------------------
leasehold estate created by this Lease with the fee estate in or ownership of
any of the Leased Premises by reason of the fact that the same person,
corporation, firm or other entity may acquire or hold or own, directly or
indirectly, (a) this Lease or the leasehold estate created by this Lease or any
interest in this Lease or in such leasehold estate, and (b) the fee estate or
ownership of any of the Leased Premises or any interest in such fee estate or
ownership; and no such merger shall occur unless and until all persons,
corporations, firms and other entities having any interest in (i) this Lease or
the leasehold estate created by this Lease and (ii) the fee estate in or
ownership of the Leased Premises or any part thereof sought to be merged shall
join in a written instrument effecting such merger and shall duly record the
same.
26. Books and Records. Tenant shall keep adequate records and books of
-----------------
account with respect the finances and business of Tenant generally, in
accordance with generally accepted accounting principles consistently applied
and shall permit Landlord by its agents, accountants and attorneys, to visit and
inspect the Leased Premises and examine the records and books of account and to
discuss the finances and business with the officers of Tenant, at such
reasonable times as may be requested by Landlord.
Tenant shall deliver to Landlord as soon as available to Tenant all
publicly filed periodic reports, statements and other information relating to
the financial condition of Guarantor, filed with and/or required by the
Securities and Exchange Commission including, but not limited to, all filings of
Form 10K and Form 10Q.
Tenant shall also deliver to Landlord as soon as available annual financial
statements of Tenant and such other relevant financial data as Landlord may
reasonably require pertaining to Tenant or to the Leased Premises. All financial
statements shall be accompanied by a certificate of the chief financial officer
of Tenant, dated within five days of the delivery of such statements, stating
that such officer knows of no default which has occurred and is continuing
hereunder, or, if any such default has occurred and is continuing, specifying
the nature and period of existence thereof and what action Tenant has taken or
proposes to take with respect thereto and, except as otherwise specified,
stating that, to the knowledge of the affiant, Tenant has fulfilled all of its
obligations under this Lease which are required to be fulfilled on or prior to
the date of such affidavit. THE FOREGOING PARAGRAPH SHALL HAVE NO FORCE OR
EFFECT SO LONG AS TENANT IS PART OF THE GUARANTOR'S CONSOLIDATED REPORTING GROUP
FOR PURPOSES OF FEDERAL INCOME TAXATION.
27. Option to Purchase. Landlord does hereby give and grant to Tenant the
------------------
option to purchase the Leased Premises at any time during the Term and any
renewal term beginning January 1, 2002, so long as there is no monetary Event of
Default which has not been cured both at the time of exercise of the option and
at the time of title closing on the purchase. If there is a non-monetary Event
of Default existing either at the time of the exercise of the option or at the
time of title closing on the purchase which adversely affects the fair market
value of the Leased Premises in the reasonable opinion of Landlord and Landlord
and Tenant are unable to agree upon the purchase price, the arbitration
appraisers who are to determine fair market value, as set forth below in this
Paragraph 27, shall be instructed to disregard such default and, instead,
determine fair market value as if Tenant were in full compliance with its
obligations hereunder including, without limitation, its maintenance and repair
obligations.
Tenant may exercise its option to purchase the Leased Premises by giving
Landlord at least six (6) months (but no more than 12 months) written notice of
Tenant's intention to purchase the Leased Premises. If Tenant shall exercise its
option to purchase the Leased Premises, the title closing shall take place on
the date specified in Tenant's written notice, which date shall be at least six
(6) months after the date of the notice, except that if the date specified is
not a business day then the said title closing shall take place on the first
business day following such date. All of the terms, covenants, and provisions
contained in Paragraph 16 hereof shall apply to the sale and conveyance of the
Leased Premises pursuant to this Paragraph 27. If this Lease shall terminate for
any reason prior to the date originally fixed herein for
- 28 -
<PAGE>
the expiration of the Term, the option provided in this Paragraph 27 and any
exercise thereof by Tenant shall cease and terminate and shall be null and void.
The purchase price to be paid by Tenant to Landlord upon the sale and
conveyance of the Leased Premises pursuant to this Paragraph 27 shall be the
greater of (a) $15,000,000, or (b) the fair market value of the Leased Premises
as of the date of the exercise of the option to purchase by Tenant. However, in
no event shall the purchase price exceed $16,250,000. The parties shall endeavor
to agree upon such fair market value. Upon reaching such agreement, the parties
shall execute an instrument setting forth such agreed fair market value. If the
parties shall not have signed such agreement fixing such fair market value
within thirty (30) days after the exercise by Tenant of its option to purchase,
such fair market value shall be determined by arbitration as herein provided.
Within sixty (60) days following the exercise by Tenant of its option to
purchase, Tenant shall select an appraiser and shall notify Landlord in writing
of the name and address of such appraiser. Within ten (10) days thereafter,
Landlord shall select an appraiser and shall notify Tenant of the name and
address of such appraiser. The appraiser selected by Tenant and the appraiser
selected by Landlord shall endeavor to reach agreement upon the fair market
value of the Leased Premises as of the date of the exercise of the option to
purchase by Tenant. If the said two appraisers shall agree upon such fair market
value, the amount of such fair market value as agreed by the said two appraisers
shall be binding and conclusive upon Landlord and Tenant. If the appraiser
selected by Tenant and the appraiser selected by Landlord shall be unable to
agree upon such fair market value within twenty (20) days after the selection of
an appraiser by Landlord, then the said two appraisers shall select a third
appraiser to make the determination of such fair market value and the
determination of such third appraiser shall be binding and conclusive upon
Landlord and Tenant. In the event the appraiser selected by Tenant and the
appraiser selected by Landlord shall be unable to agree upon the designation of
a third appraiser within ten (10) days after the expiration of the aforesaid
twenty (20) day period, then such third appraiser, at the request of either
party, shall be selected by the President or Chairman of the American
Arbitration Association in New York City, New York. The determination of fair
market value made by the third appraiser appointed pursuant hereto shall be
binding and conclusive upon Landlord and Tenant. The costs of the above
described arbitration proceeding shall be borne equally by Landlord and Tenant.
The appraisers shall have no right, power or authority to alter or modify the
terms and provisions contained herein, and in determining the fair market value
of the Leased Premises the appraisers shall utilize the definition of fair
market value set forth herein. For the purposes of this Paragraph 27, the term
"fair market value" shall mean the value of the Leased Premises vacant and free
of this Lease and any and all other leases affecting the Leased Premises or any
part thereof and free of the Mortgage and any other mortgages or deeds of trust.
28. Non-Recourse. Anything contained herein to the contrary
------------
notwithstanding, any claim based on or in respect of any liability of Tenant
under this Lease shall be enforced only against the Leased Premises and not
against any other assets, properties or funds of (i) Landlord or any director,
officer, general partner, limited partner, employee or agent of Landlord (or any
legal representative, heir, estate, successor assign of any thereof), (ii) any
predecessor or successor partnership or corporation (or other entity) of
Landlord, either directly or through Landlord or any predecessor or successor
partnership or corporation (or other entity) of Landlord, or (iii) any other
person or entity (including Carey Corporate Property, Inc., W. P. Carey & Co.
Inc., Carey Corporate Property Management, Inc. or any person, corporation or
other entity affiliated with any of the foregoing).
29. Miscellaneous. The paragraph headings in this Lease are used only for
-------------
convenience in finding the subject matters and are not part of this Lease
or to be used in determining the intent of the parties or otherwise
interpreting this Lease. As used in this Lease, the singular shall include
the plural as the context requires and the following words and phrases
shall have the following meanings: (a) "including" shall mean "including
but not limited to"; (b) "provisions" shall mean "provisions, terms,
agreements, covenants and/or conditions"; (C) "lien" shall mean "lien,
charge, encumbrance, title retention agreement, pledge, security interest,
mortgage and/or deed of trust"; (d) "obligation" shall mean "obligation,
duty, agreement, liability, covenant and/or condition" (e) "any of the
Leased Premises" shall mean "the Leased Premises or any part thereof or
interest therein"; (f) "any of the Land" shall mean "the Land or any part
thereof or interest therein"; (g) "any of the Improvements" shall mean "the
Improvements or any part thereof or interest therein"; (h) "any of the
Equipment" shall mean "the Equipment or any part thereof or interest
therein"; and (i) "any of the Adjoining Property" shall mean "the Adjoining
Property or any part thereof or interest therein." Any act which Landlord
is permitted to perform under this Lease may be
- 29 -
<PAGE>
performed at any time and from time to time by Landlord or any person or entity
designated by Landlord. Any act which Tenant is required to perform under this
Lease shall be performed at Tenant's sole cost and expense. Each appointment of
Landlord as attorney-in-fact for Tenant under this Lease is irrevocable and
coupled with an interest. Landlord has the right to refuse to grant its consent
subject to the express provisions set forth in this Lease governing the
withholding of such consent by Landlord in certain circumstances. This Lease may
be modified, amended, discharged or waived only by an agreement in writing
signed by the party against whom enforcement of any such modification,
amendment, discharge or waiver is sought. The covenants of this Lease shall run
with the land and bind Tenant, the heirs, distributees, personal
representatives, successors and assigns of Tenant, and all present and
subsequent encumbrancers and subtenants of any of the Leased Premises, and shall
inure to the benefit of Landlord, its successors and assigns. In the event there
is more than one Tenant, the obligation of each shall be joint and several. In
the event any one or more of the provisions contained in this Lease shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Lease, but this Lease shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Lease will be
simultaneously executed in several counterparts, each of which, when so executed
and delivered, shall constitute an original, fully enforceable counterpart for
all purposes except that only the counterpart stamped or marked "Counterpart
Number I" shall constitute "chattel paper" or other "collateral" within the
meaning of the Uniform Commercial Code in effect in any jurisdiction. This Lease
shall be governed by and construed according to the law of the state of
Tennessee.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly
executed under seal as of the day and year first above written.
CORPORATE PROPERTY ASSOCIATES 2
By: W.P. Carey & Co., Inc.,
General Partner
By:_______________________
CORPORATE PROPERTY ASSOCIATES 3
By: W.P. Carey & Co., Inc.,
General Partner
By:_______________________
CLEO, INC.
By______________________________
Chairman of the Board
Attest:______________________
Secretary
- 30 -
<PAGE>
EXHIBIT A
Description of Leased Premises
- 31 -
<PAGE>
EXHIBIT B
List of Machinery and Equipment
Any machinery, equipment or fixtures owned by Landlord and used in the operation
of the buildings located on the Leased Premises or used for maintenance of the
integrity of such buildings as buildings, including but without limitation
thereto, all equipment, fixtures, systems and apparatus for the heating,
lighting, plumbing, fire preventing, fire extinguishing, ventilating, air
cooling and air conditioning of the said buildings; and all elevators,
escalators, storm doors and windows, sump pump, partitions and ducts located on
the Leased Premises.
- 32 -
<PAGE>
EXHIBIT C
Intentionally Omitted
- 33 -
<PAGE>
EXHIBIT D
Permitted Encumbrances
All matters of record to the extent valid and enforceable.
- 34 -
<PAGE>
EXHIBIT E
Intentionally Omitted.
- 35 -
<PAGE>
EXHIBIT F
Rent Schedule
A. Basic Rent for Initial Term:
---------------------------
1. Basic Rent. The Basic Rent due from November 15, 1995 through
----------
December 31, 2001 shall be $1,500,000 per annum, payable in monthly installments
of $125,000 each, in advance, on the Basic Rent Payment Dates. Basic Rent for
the month in which this Lease is executed shall be prorated for such month and
paid to Landlord on the date this Lease is executed.
2. CPI Adjustments to Basic Rent. Basic Rent shall be subject to
-----------------------------
adjustment, in the manner hereinafter set forth, for changes in the index known
as "United States Bureau of Labor Statistics, Consumer Price Index for All Urban
Consumers (CPI-U)," United States City Average, All Items (1982-84=100) ("CPI")
or the successor index that most closely approximates the CPI. If the CPI shall
be discontinued with no successor or comparable successor index, Landlord and
Tenant shall attempt to agree upon a substitute index or formula, but if they
are unable to so agree, then the matter shall be determined by arbitration in
accordance with the rules of the American Arbitration Association then
prevailing in New York City, New York. Any decision or award resulting from such
arbitration shall be final and binding upon Landlord and Tenant and judgment
thereon may be entered in any court of competent jurisdiction.
3. Effective Dates of CPI Adjustments. Basic Rent shall not be adjusted
----------------------------------
to reflect changes in the CPI until January 1, 2002 (the "Rent Adjustment
Date"). As of the Rent Adjustment Date, Basic Rent shall be adjusted to reflect
changes in the CPI during the period commencing November 1, 1995 and ending
October 31, 2001.
4. Method of Adjustment. (a) On the Rent Adjustment Date, the Rent in
--------------------
effect immediately prior to the Rent Adjustment Date shall be multiplied by a
fraction, the numerator of which shall be the difference between (i) the Ending
CPI and (ii) the Beginning CPI, and the denominator of which shall be the
Beginning CPI. The product of such multiplication shall be added to the Basic
Rent in effect immediately prior to such Rent Adjustment Date; provided,
however, that the Basic Rent payable on and after the Rent Adjustment Date shall
not be less than $1,689,300 per annum nor more than $1,897,950 per annum.
(b) As used herein, "Beginning CPI" shall mean the CPI reported for the
month of November 1995. As used herein, "Ending CPI" shall mean the CPI reported
for the month of October 2001.
(c) Effective as of the Rent Adjustment Date, Basic Rent payable under
this Lease shall be the Basic Rent in effect after the adjustment provided for
as of such Rent Adjustment Date.
(d) Notice of the new annual Basic Rent shall be delivered to Tenant on
or before the tenth (10th) day preceding the Rent Adjustment Date.
B. Basic Rent for Renewal Terms.
-----------------------------
1. If Tenant exercises its option to renew the Lease, Basic Rent during
such renewal term or terms, as the case may be, will be based on the fair market
rental value of the Leased Premises determined as set forth in paragraph B.2
below.
2. (a) Landlord and Tenant shall endeavor to agree on fair market rental
value at least eighteen (18) months prior to the date the then current Term is
to expire. If Landlord and Tenant are unable to reach agreement on the fair
market rental value of the Leased Premises within such time period, the
procedure set forth in paragraph 27 for determining the fair market value of the
Leased Premises shall
- 36 -
<PAGE>
be followed except that the appraisers shall be instructed to determine the fair
rental value, and not fair market value, with no "ceiling" or "floor" on the
fair rental value.
(b) In determining fair market rental value, the appraisers shall
determine the amount that a willing tenant would pay, and a willing landlord of
a comparable property located in a radius of 10 miles of the Leased Premises
would accept, at arm's length, to rent a property of comparable size and quality
as the Leased Premises during the extended term; taking into account: (a) the
age, quality, and condition of the Improvements; (b) that the Leased Premises
will be leased as a whole or substantially as a \whole to a single user; (c) a
lease term of five (5) years; (d) the fact that the lease will be a net lease of
the exact type as this Lease; and (e) such other items that professional real
estate appraisers customarily consider.
(c) If, by virtue of any delay, fair market rental value is not
determined by the expiration or termination of the then current Term, then until
fair market rental value is determined, Tenant shall continue to pay Basic Rent
during the succeeding renewal term in the same amount which it was obligated
under this Lease to pay prior to the commencement of the renewal term. When fair
market rental value is determined, the appropriate Basic Rent shall be
calculated retroactive to the commencement of the renewal term and Tenant shall
either receive a refund from Landlord (in the case of an overpayment) or shall
pay any deficiency to Landlord (in the case of an underpayment).
- 37 -
<PAGE>
Exhibit 10.28
LEASE AMENDMENT AGREEMENT
-------------------------
THIS LEASE AMENDMENT AGREEMENT (this "Agreement") is made this 15th day
of November 1995 by and among CORPORATE PROPERTY ASSOCIATES 2 AND CORPORATE
PROPERTY ASSOCIATES 3 (collectively "Landlord"), both California limited
partnerships with an address c/o W.P. Carey & Co., Inc., 50 Rockefeller Plaza,
New York, New York 10020 and GIBSON GREETINGS, INC., formerly known as Gibson
Greeting Cards, Inc. ("Gibson"), a Delaware corporation, with an address at 2100
Section Road, Cincinnati, Ohio 45237.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Landlord and Gibson entered into a Lease Agreement dated
January 25, 1982, as amended by Amendment dated June 25, 1985 and as further
amended by an undated Letter Agreement executed by Landlord and Gibson on or
about April 25, 1986 (collectively, as so amended, the "Lease"). Pursuant to the
Lease, Landlord is currently leasing to Gibson three parcels of Land, together
with the Improvements and Equipment erected thereon and pertaining thereto
(individually, the "Ohio Premises", the "Tennessee Premises" and the "Kentucky
Premises" and collectively, the "Leased Premises"). The Leased Premises are more
particularly described in the Lease.
WHEREAS, by Sublease of Tennessee Premises dated as of the first day of
January, 1989, Gibson subleased to CLEO, Inc., a Tennessee corporation, a
subsidiary of Gibson, ("CLEO") the Tennessee Premises (the "Sublease"). Landlord
consented to the Sublease by letter to Gibson dated December 30, 1988.
WHEREAS, a Memorandum of Lease was filed in Hamilton County, Ohio as to
the Ohio Premises, Madison County, Kentucky, as to the Kentucky Premises, and
Shelby County, Tennessee as to the Tennessee Premises, with respect to the
Lease.
WHEREAS, Gibson, with the consent of Landlord, is, contemporaneously
with the execution of this Agreement, selling all of the stock of CLEO to CSS
Industries, Inc., a Delaware corporation ("CSS") and terminating the Sublease.
WHEREAS, CLEO and Landlord, contemporaneously with the execution of this
Agreement, will execute a separate Lease Agreement with respect to the Tennessee
Premises.
WHEREAS, Landlord and Gibson wish to clarify their mutual rights, duties
and obligations under the Lease and make various amendments to the Lease all as
more particularly set forth herein.
NOW, THEREFORE, the parties hereto in consideration of the mutual
promises contained herein and intending to be legally bound hereby, covenant and
agree as follows:
1. The recitals set forth above, all exhibits attached hereto, if any,
and the Lease referred to therein, are incorporated herein by reference and all
definitions and document identifications, shall, except as expressly provided to
the contrary herein, have the same meanings in this Agreement as are
respectively ascribed to them in the Lease as if set forth in full in the body
of this Agreement.
2. The Lease is hereby terminated with respect to the Tennessee Premises
only. Accordingly, all references in the Lease to the Tennessee Premises are
hereby deleted and the term "Leased Premises" shall hereafter mean collectively
only the Ohio Premises and the Kentucky Premises.
3. From and after the date hereof Gibson shall be obligated to perform
all of the terms, covenants and conditions and shall hold all of the rights,
duties, obligations and benefits of the tenant under the Lease (including,
without limitation, liability for any Environmental Violation) as the same
applies to the Ohio Premises and the Kentucky Premises only, as the same may be
amended by this Agreement.
- 1 -
<PAGE>
4. Gibson shall remain liable to Landlord for the performance of all of
tenant's liabilities, duties, obligations, covenants and agreements under the
Lease (including, without limitation, liability for any Environmental Violation)
as they pertain to the Tennessee Premises (a) which arose on or prior to the
date hereof or (b) which arise on or after the date hereof due to acts or
omissions of Gibson and/or conditions existing at the Tennessee Premises prior
to the date hereof. The foregoing agreement shall remain in full force and
effect in favor of Landlord, notwithstanding any agreement between Gibson and
CLEO and/or CSS with respect to assumption of liabilities under the Lease.
5. Landlord hereby agrees to enter into a direct Lease Agreement with
CLEO contemporaneously with the execution of this Agreement. Landlord hereby
acknowledges that (a) Basic Rent under the Lease has been paid through October
31, 1995; (b) to the knowledge of Landlord without independent investigation, no
Event of Default exists under the Lease with respect to the Tennessee Premises;
and (c) to the knowledge of Landlord without independent investigation, no
condition exists which with the giving of notice or the passage of time or both
would constitute an Event of Default under the Lease with respect to the
Tennessee Premises except that the roof is in disrepair and needs to be repaired
or replaced; provided, however, that Landlord shall take no action against
Gibson with reference to the condition of the roof until after May 15, 1996.
6. (a) Gibson shall pay to Landlord, within two (2) business days
following the execution and delivery of this Agreement, the sum of Twelve
Million Two Hundred Thousand Dollars ($12,200,000) (the "Consideration"). The
Consideration is a one-time lump sum payment as consideration for Landlord
terminating the Lease as to the Tennessee Premises. Such payment shall not
reduce or be credited toward the Basic Rent, Additional Rent or any other amount
owed to Landlord by Gibson under the Lease or otherwise.
7. (b) As directed by Landlord, Gibson shall wire the Consideration
directly to Principal Mutual Life Insurance Company ("Lender") to be applied
toward the payoff of the loan secured by a mortgage encumbering the Leased
Premises (the "Loan"). Landlord covenants that Landlord will initiate a wire for
the balance of funds necessary to fully pay off the Loan, including any
prepayment penalty, contemporaneously with confirmation of receipt of the wire
of the Consideration from Gibson to Lender.
8. Paragraph 5(a) of the Lease shall be amended to extend the Term of
the Lease through November 30, 2013.
The options to extend the Lease granted to Gibson in Paragraph 5(b) of
the Lease are hereby terminated. Paragraph 5(b) of the Lease is deleted in its
entirety and replaced by the following:
"(b) Landlord hereby grants to Tenant the right at Tenant's option to
extend the Term of this Lease for one additional period of ten (10)
years after the expiration of the initial Term hereof (the "Renewal
Term"). The Renewal Term shall be subject to all of the terms and
conditions of this Lease as if the Term originally included such Renewal
Term and upon the exercise of such option, the Term shall include such
Renewal Term therein. Tenant may exercise its option to extend the Term
only by giving written notice of such extension to Landlord no later
than twelve (12) months, and no earlier than 18 months, prior to the
expiration of the initial Term."
All other provisions of Paragraph 5 of the Lease remain unchanged and in
full force and effect.
In consideration of the extension of the Term of the Lease as
provided in Paragraph 7 above, Exhibit F of the Lease is deleted in its entirety
and Paragraph 6 of the Lease is amended to change Basic Rent as follows:
Beginning November 15, 1995, the Basic Rent shall be Three Million One Hundred
Thousand ($3,100,000) Dollars per annum, payable monthly, in arrears, as more
particularly set forth in Paragraph 6 of the Lease. Every five (5) years, annual
Basic Rent shall increase twenty percent (20%) over the then current Basic Rent
as follows: For the period December, 2000 through November, 2005, inclusive,
Basic Rent shall be Three Million Seven Hundred Twenty Thousand ($3,720,000)
Dollars per annum; for the period December, 2005 through November, 2010,
inclusive, Basic Rent shall be Four Million Four Hundred Sixty-Four Thousand
($4,464,000) Dollars per annum; for the
- 2 -
<PAGE>
period December, 2010 through November, 2013, inclusive, Basic Rent shall be
Five Million Three Hundred Fifty-Six Thousand Eight Hundred ($5,356,800) Dollars
per annum.
Basic Rent for the Ohio Premises, the Kentucky Premises and the
Tennessee Premises for the fourteen (14) days from November 1 through November
14, 1995, computed using the annual Basic Rent under the Lease in effect just
prior to this Agreement, shall be paid by Gibson on December 1, 1995. Basic
Rent, computed using the annual Basic Rent set forth above in this Paragraph 8,
for the Ohio Premises and the Kentucky Premises for the sixteen (16) days from
November 15 through November 30, 1995 shall be paid by Gibson on December 1,
1995.
If Gibson exercises its option to extend the Lease pursuant to Paragraph
5(b) of the Lease as amended herein, the annual Basic Rent for the Renewal Term
shall be the lower of: (a) Six Million Four Hundred Twenty Eight Thousand One
Hundred Sixty ($6,428,160) Dollars; and (b) the fair market rental value of the
Leased Premises. The fair market rental value of the Leased Premises shall be
determined as follows: Landlord and Tenant shall endeavor to agree on fair
market rental value at least nine (9) months prior to the expiration of the then
current lease Term. If Landlord and Tenant are unable to reach agreement on the
fair market rental value of the Leased Premises within said time period, the
procedure set forth in Paragraph 27 of the Lease for determining the fair market
value of the Leased Premises shall be followed except that the appraisers shall
be instructed to determine fair market rental value, and not fair market value.
In determining fair market rental value, the appraisers shall determine the
amount that a willing tenant would pay, and a willing landlord of a comparable
property located in a radius of 10 miles of the Leased Premises would accept, at
arm's length, to rent a property of comparable size and quality as the Leased
Premises taking into account: (a) the age, quality, and condition of the
Improvements; (b) that the Leased Premises will be leased as a whole or
substantially as a whole to a single user; (c) a lease term of ten (10) years;
(d) an absolute triple net lease; and (e) such other items that professional
real estate appraisers customarily consider. The fair market rental value shall
be determined separately for each property comprising the Leased Premises. If,
by virtue of any delay, fair market rental value is not determined by the
expiration or termination of the then current Term, then until fair market
rental value is determined, Tenant shall continue to pay Basic Rent during the
Renewal Term in the same amount which it was obligated under this Lease to pay
prior to the commencement of the Renewal Term. When fair market rental value is
determined, the appropriate Basic Rent shall be calculated retroactive to the
commencement of the Renewal Term and Tenant shall either receive a refund from
Landlord (in the case of an overpayment) or shall pay any deficiency to Landlord
(in the case of an underpayment)."
All other provisions of Paragraph 6 remain unchanged and in full force
and effect.
9. In consideration of the extension of the Term of the Lease as
provided in Paragraph 7 above, Paragraph 27 of the Lease shall be amended as
follows:
The options to purchase the Leased Premises granted to Gibson on the
last day of the tenth (10th) year of the Term and on the last day of the
twentieth (20th) year of the Term are hereby terminated.
Landlord hereby grants Gibson the option to purchase the Ohio Premises,
the Kentucky Premises or both on the last day of November, 2005 and, if Gibson
does not exercise this option, Landlord hereby grants Gibson a second option to
purchase the Ohio Premises, the Kentucky Premises or both on the last day of
November, 2010, and if Gibson does not exercise this option and has extended the
Lease pursuant to Paragraph 5(b) as amended herein, Landlord grants Gibson a
third option to purchase the Ohio Premises, the Kentucky Premises or both on the
last day of November, 2023. Accordingly, all references in Paragraph 27 of the
Lease to "the last day of the tenth (10th) year of the Term" shall be deleted
and replaced by "the last day of November, 2005," all references in Paragraph 27
of the Lease to "the last day of the twentieth (20th) year of the Term" shall be
deleted and replaced by "the last day of November, 2010" and a reference to the
third option granted herein on the last day of November, 2023 shall be added.
The options to purchase granted to Gibson hereunder may only be
exercised if no Event of Default has occurred which has not been cured both at
the time of the exercise of the option and at the time of title closing on such
purchase.
- 3 -
<PAGE>
If Tenant exercises its option to purchase the Ohio Premises, the
Kentucky Premises or both, the purchase price shall be the fair market value of
such premises at the time of the exercise of the option determined in accordance
with the provisions of Paragraph 27 of the Lease (the fair market value of both
premises comprising the Leased Premises shall be determined, even if Tenant
desires to buy only one such premises, if on the purchase date the Basic Rent
will not be determined by reference to the fair market rental value of the
Leased Premises). If Gibson exercises its option to purchase either the Ohio
Premises or the Kentucky Premises but not both, the Lease will continue with
respect to the premises not being purchased, if the Term of the Lease has not
terminated by the date of title closing on the purchase, and the Basic Rent for
such remaining premises shall be either (a) the fair market rental value of such
remaining premises, if Basic Rent is then being determined by reference to the
fair market rental value of each premises comprising the Leased Premises
determined in accordance with the provisions of Paragraph 6 of the Lease as
amended in Paragraph 8 hereof, or (b) if the Basic Rent is not then being
determined by reference to fair market rental value, the new Basic Rent shall be
the product obtained by multiplying Basic Rent then in effect by a fraction, the
numerator of which is the fair market value of the premises not being purchased
and the denominator of which is the fair market value of both properties
comprising the Leased Premises.
All other provisions of Paragraph 27 remain unchanged and in full force
and effect.
10. The following definitions shall be added to Paragraph 2 of the
Lease:
11. (a) "Environmental Law" shall mean whenever enacted or promulgated
any applicable federal, state, foreign and local law, statute, ordinance, rule,
regulation, or code relating to pollution or protection of the environment or to
health and safety, including, without limitation, laws relating to (i)
emissions, discharge, releases or threatened releases of Hazardous Substances
into the environment (including ambient air, surface water, groundwater, or
land) and (ii) the processing, use, generation, treatment, storage, disposal,
recycling, or remediation of Hazardous Substances or Hazardous Conditions.
12. (b) "Environmental Violation" shall mean (a) any direct or indirect
discharge, disposal, spillage, emission, escape, pumping, pouring, injection,
leaching, release, seepage, filtration or transporting of any Hazardous
Substance at, upon, under, onto or within the Leased Premises, or from the
Leased Premises to the environment, in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which could result in any liability to Landlord, Tenant or First Lender, any
Federal, state or local government or any other Person for the costs of any
removal or remedial action or natural resources damage or for bodily injury or
property damage, (b) any deposit, storage, dumping, placement or use of any
Hazardous Substance at, upon, under or within the Leased Premises or which
extends to any Adjoining Property in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which could result in any liability to any Federal, state or local government or
to any other Person for the costs of any removal or remedial action or natural
resources damage or for bodily injury or property damage, (c) the abandonment or
discarding of any barrels, containers or other receptacles containing any
Hazardous Substances in violation of any Environmental Laws, (d) any Hazardous
Condition which results in any liability, cost or expense to Landlord or First
Lender or any other owner or occupier of the Leased Premises, or which could
result in a creation of a lien on the Leased Premises under any Environmental
Law, or (e) any material violation of or noncompliance with any Environmental
Law; provided, however, Environmental Violation shall not include any matter
described in the foregoing clauses (a) through (e) of this definition that (i)
arises out of or relates to a condition existing at the Leased Premises on the
date of this Lease, (ii) arises or results from the migration of any Hazardous
Substance onto the Leased Premises from any other property, or (iii) arises or
accrues due to acts or omissions occurring prior to the date of this Lease.
13. (c) "Hazardous Conditions" shall mean conditions of the environment,
including soil, surface water, groundwater, subsurface strata or the ambient
air, relating to or arising out of the use, handling, storage, treatment,
recycling, generation, release, disposal, or threatened release of Hazardous
Substances.
14. (d) "Hazardous Substances" shall mean any pollutant, contaminant,
hazardous or toxic substance, hazardous waste, or other chemicals, substances or
materials subject to regulation under any Environmental Law.
- 4 -
<PAGE>
15. (e) "Renewal Term" shall have the meaning set forth in Paragraph
5(b) of the Lease as amended in Paragraph 7 of this Agreement.
16. The effectiveness of this Agreement, the Lease Agreement with CLEO
and the transactions contemplated by those documents is specifically conditioned
and contingent upon: (a) Landlord and CLEO entering into a Lease Agreement for
the Tennessee Premises in form and substance acceptable to Landlord; (b) CSS
executing a Guaranty and Suretyship Agreement in favor of Landlord, guarantying
CLEO's obligations under the lease with Landlord, in form and substance
acceptable to Landlord; and (c) receipt of the Consideration by Lender within
two (2) business days of the execution of this Agreement.
Except as expressly amended hereby, the Lease remains in full force and
effect in accordance with its terms.
- 5 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
Signed and acknowledged in the
presence of: CORPORATE PROPERTY ASSOCIATES 2
By: W.P. Carey & Co., Inc.,
General Partner
__________________________ By:______________________
Name: Title:
__________________________
Name:
CORPORATE PROPERTY ASSOCIATES 3
By: W.P. Carey & Co., Inc.,
General Partner
__________________________ By: ____________________
Name: Title:
__________________________
Name:
GIBSON GREETINGS, INC.
__________________________ By:___________________________
Name: William L. Flaherty
Vice President and
Chief Executive Officer
__________________________
Name:
- 6 -
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF :
On this, the ____ day of November, 1995, before me, a notary public, the
undersigned officer, personally appeared __________________, who acknowledged
himself to be the ____________ of W.P. Carey & Co., Inc., a ______________
corporation, and that he, as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained, by signing the name
of the corporation by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal the day and
year aforesaid.
Notary Public
My Commission Expires:
- 7 -
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF :
On this, the _____ day of November, 1995, before me, a notary public,
the undersigned officer, personally appeared William L. Flaherty, who
acknowledged himself to be the Vice President and Chief Financial Officer of
Gibson Greetings Inc., a Delaware corporation, and that he, as such officer,
being authorized to do so, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself as such
officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal the day and
year aforesaid.
Notary Public
My Commission Expires:
- 8 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1158302
<SECURITIES> 0
<RECEIVABLES> 210362
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3336640
<PP&E> 31061719
<DEPRECIATION> 1175202
<TOTAL-ASSETS> 33223157
<CURRENT-LIABILITIES> 2444074
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30779083
<TOTAL-LIABILITY-AND-EQUITY> 33223157
<SALES> 0
<TOTAL-REVENUES> 7249265
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1371643
<LOSS-PROVISION> 146184
<INTEREST-EXPENSE> 1255047
<INCOME-PRETAX> 15975567
<INCOME-TAX> 0
<INCOME-CONTINUING> 15975567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15975567
<EPS-PRIMARY> 237.21
<EPS-DILUTED> 237.21
</TABLE>
