<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 0-11902
GIBSON GREETINGS, INC.
INCORPORATED UNDER THE LAWS IRS EMPLOYER
OF THE STATE OF DELAWARE IDENTIFICATION NO. 52-1242761
2100 SECTION ROAD, CINCINNATI, OHIO 45237
TELEPHONE NUMBER : AREA CODE 513-841-6600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No__
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 15,831,897 shares of
common stock, par value $.01, outstanding at November 9, 1998.
<PAGE> 2
PART I. ITEM 1. FINANCIAL STATEMENTS
- ------------------------------------
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 63,794 $ 114,267 $ 94,942
Trade receivables, net 40,360 30,325 26,818
Inventories 93,113 59,424 75,078
Prepaid expenses 3,928 4,435 3,714
Deferred income taxes 31,196 41,399 35,557
------------- ------------- -------------
Total current assets 232,391 249,850 236,109
PLANT AND EQUIPMENT, NET 71,368 85,376 89,456
DEFERRED INCOME TAXES 25,993 18,524 18,991
OTHER ASSETS, NET 74,244 89,572 90,352
------------- ------------- -------------
$ 403,996 $ 443,322 $ 434,908
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 153 $ 7,890 $ 7,888
Accounts payable 21,043 11,810 13,335
Income taxes payable 1,106 14,502 6,250
Other current liabilities 60,550 68,443 73,581
------------- ------------- -------------
Total current liabilities 82,852 102,645 101,054
LONG-TERM DEBT 10,360 24,158 24,117
SALES AGREEMENT PAYMENTS DUE AFTER ONE YEAR 7,515 11,612 12,939
OTHER LIABILITIES 37,463 23,163 22,477
------------- ------------- -------------
Total liabilities 138,190 161,578 160,587
------------- ------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00; 5,000,000 shares
authorized, none issued - - -
Preferred stock, Series A, par value $1.00; 300,000 shares
authorized, none issued - - -
Common stock, par value $.01; 50,000,000 shares
authorized, 17,123,498, 17,023,306 and 17,008,306
shares issued, respectively 171 170 170
Paid-in capital 54,609 52,872 51,660
Retained earnings 231,046 235,353 227,850
Accumulated other comprehensive income 980 733 592
------------- ------------- -------------
286,806 289,128 280,272
Less treasury stock, at cost, 1,241,601, 556,601
and 494,601 shares, respectively 21,000 7,384 5,951
------------- ------------- -------------
Total stockholders' equity 265,806 281,744 274,321
------------- ------------- -------------
$ 403,996 $ 443,322 $ 434,908
============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 86,805 $ 92,145 $ 293,531 $ 284,421
------------- ------------- ------------- -------------
COST AND EXPENSES
Operating expenses:
Cost of products sold 42,846 38,645 124,393 105,931
Selling, distribution and administrative
expenses 48,966 48,890 154,606 152,425
Restructuring (3,045) - 23,055 -
------------- ------------- ------------- -------------
Total operating expenses 88,767 87,535 302,054 258,356
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (1,962) 4,610 (8,523) 26,065
------------- ------------- ------------- -------------
Financing expenses:
Interest expense 754 1,398 3,054 6,034
Interest income (1,029) (1,433) (4,209) (4,403)
------------- ------------- ------------- -------------
Total financing (income) expense, net (275) (35) (1,155) 1,631
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (1,687) 4,645 (7,368) 24,434
Income tax provision (benefit) (723) 1,974 (3,061) 10,339
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (964) $ 2,671 $ (4,307) $ 14,095
============= ============= ============= =============
NET INCOME (LOSS) PER SHARE:
Basic $ (0.06) $ 0.16 $ (0.26) $ 0.86
============= ============= ============= =============
Diluted $ (0.06) $ 0.15 $ (0.26) $ 0.83
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,307) $ 14,095
------------- -------------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation including write-down of display fixtures 16,968 16,784
Impairment of plant and equipment 12,967 -
Loss on disposal of plant and equipment 843 12
Deferred income taxes 1,576 6,642
Amortization of deferred costs and intangibles 13,921 17,037
Change in assets and liabilities:
Trade receivables, net (10,275) 15,605
Inventories (47,981) (10,009)
Prepaid expenses (995) (756)
Other assets, net of amortization (7,682) (18,274)
Accounts payable 9,107 (85)
Income taxes payable (13,530) (9,566)
Other current liabilities (7,628) (7,857)
Other liabilities (1,834) (354)
All other, net 180 (3)
------------- -------------
Total adjustments (34,363) 9,176
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (38,670) 23,271
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (25,393) (14,153)
Proceeds from sale of plant and equipment 3,682 274
Investment in The Virtual Mall, Inc. (1,437) -
Acquisition of The Ink Group Companies (1,000) -
Proceeds from the sale of The Paper Factory of Wisconsin, Inc. 36,216 -
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,068 (13,879)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt, net (11,993) (16,794)
Issuance of common stock 1,738 4,189
Acquisition of common stock for treasury (13,616) -
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (23,871) (12,605)
------------- -------------
NET DECREASE IN CASH AND EQUIVALENTS (50,473) (3,213)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 114,267 98,155
------------- -------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 63,794 $ 94,942
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,913 $ 1,613
Income taxes 8,880 13,261
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
GIBSON GREETINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND RESTRUCTURING PLAN
- -----------------------------------------------------
Basis of Presentation -
The accompanying unaudited condensed consolidated financial statements include
the accounts of Gibson Greetings, Inc. and its subsidiaries (the Company).
Intercompany transactions and balances have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared in
accordance with Article 10-01 of Regulation S-X of the Securities and Exchange
Commission and, as such, do not include all information required by generally
accepted accounting principles. However, in the opinion of the Company, these
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position as of
September 30, 1998, December 31, 1997 and September 30, 1997, the results of its
operations for the three and nine months ended September 30, 1998 and 1997 and
its cash flows for the nine months ended September 30, 1998 and 1997. The
accompanying financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Use of Estimates -
The preparation of the 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 amounts could differ from those estimates.
Comprehensive Income -
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 130 - "Reporting Comprehensive Income" in June
1997. The Company adopted SFAS No. 130 in the first quarter of 1998.
Comprehensive income (loss) was $(767) and $2,531 for the three months and
$(4,060) and $13,816 for the nine months ended September 30, 1998 and 1997,
respectively. Comprehensive income (loss) includes foreign currency translation
adjustments, net of taxes, of $197 and $(140) for the three months and $247 and
$(279) for the nine months ended September 30, 1998 and 1997, respectively.
Restructuring Plan -
On March 31, 1998, the Company announced a restructuring plan (the Plan) under
which the Company is outsourcing its principal manufacturing operations
previously performed at its Cincinnati, Ohio headquarters. Implementation of
outsourcing under the Plan began in the second quarter of 1998 and was
substantially completed by September 30, 1998. The total cost of the Plan is
expected to be $26,100 before income taxes and was recognized as a separate
component of operating expenses in the first quarter of 1998. In addition, the
Company will invest an estimated $30,000 to $35,000 over a 30-month period to
significantly upgrade or replace its existing business information systems. The
investment in business information systems will be expensed as incurred or
capitalized as appropriate in accordance with AICPA Statement of Position 98-1 -
"Accounting for the Costs of Software Developed or Obtained for Internal Use."
Management believes these plans will enhance the Company's flexibility and
operating efficiency while lowering fixed costs and improving customer service.
The Company has recognized within the total restructuring cost approximately
$17,100 representing costs related to the facility, $5,800 related to
involuntary employee severance, and $3,200 in other costs. The facility costs of
$17,100 include an adjustment of $12,967 to write-off the capitalized lease
asset, leasehold improvements, and certain furniture and equipment (included in
plant and equipment) associated with the Cincinnati manufacturing operations;
and a reserve of $4,133 included in other liabilities representing the amount by
which total future lease commitments and related operating costs of the
Cincinnati facility exceed the recorded lease obligation and estimated sublease
income over the remaining term of the lease. The recorded lease obligation,
representing the portion of the capital lease obligation (see Note 5) associated
with the Cincinnati facility of $12,040 has been reclassified from debt to other
liabilities. Involuntary employee severance costs and other costs are included
in other current liabilities. As a result of the restructuring and the
information systems plans, approximately 480 employees will be terminated,
consisting of approximately 415 plant operations and manufacturing personnel and
approximately 65 employees from various support and administrative functions
within the Company. The involuntary severance package which was communicated to
employees on March 31, 1998 includes salary continuation, subsidized medical
coverage during the salary continuation period, professional outplacement
assistance and career counseling. As of September 30, 1998, approximately 395
employees have been terminated under the Plan or have taken other open
5
<PAGE> 6
positions within the Company. The termination of these employees resulted in the
curtailment of a defined benefit pension plan. The curtailment resulted in a
gain of $3,045 before income taxes and was recognized as a restructuring gain in
the third quarter of 1998.
NOTE 2 - SEASONAL NATURE OF BUSINESS
- ------------------------------------
Because of the seasonal nature of the Company's business, results of operations
for interim periods are not necessarily indicative of results for the full year.
NOTE 3 - TRADE RECEIVABLES, NET
- -------------------------------
Trade receivables consist of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Trade receivables $ 73,894 $ 85,537 $ 65,979
Less reserves for returns, allowances, cash discounts
and doubtful accounts 33,534 55,212 39,161
------------ ------------ ------------
$ 40,360 $ 30,325 $ 26,818
============ ============ ============
</TABLE>
NOTE 4 - INVENTORIES
- --------------------
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Finished goods $ 56,857 $ 43,098 $ 56,864
Work-in-process 23,147 10,082 10,769
Raw materials and supplies 13,109 6,244 7,445
------------ ------------ ------------
$ 93,113 $ 59,424 $ 75,078
============ ============ ============
</TABLE>
NOTE 5 - DEBT
- -------------
Debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------ ------------ -------------
<S> <C> <C> <C>
Note bearing interest at 13.50%, payable to National Australia
Bank $ 2,373 $ - $ -
Senior notes bearing interest at 9.33%, retired on June 1, 1998 - 11,428 11,428
Industrial revenue bonds bearing interest at 9.25%, payable in
semi-annual installments of $300 - 600 600
Other 207 301 337
------------ ------------ ------------
2,580 12,329 12,365
Capital lease obligation payable in monthly installments through 2013,
net of $12,040 included in other liabilities at
September 30, 1998 7,933 19,719 19,640
------------ ------------ ------------
10,513 32,048 32,005
Less debt due within one year 153 7,890 7,888
------------ ------------ ------------
$ 10,360 $ 24,158 $ 24,117
============ ============ ============
</TABLE>
6
<PAGE> 7
Effective April 24, 1998, the Company entered into a $30,000, 364-day revolving
credit agreement that will provide for borrowings in an amount adequate for the
Company's needs over the term of the facility. This facility replaced a 364-day
revolving credit agreement providing $40,000 which expired in late April 1998.
Under the terms of its Senior Note Agreement, the Company prepaid $4,285 in
principal, without premium, on June 1, 1998, in addition to the $7,143 principal
amount the Company was required to pay under the Note Agreement. As a result of
these payments and prior retirements, all Senior Notes have been repaid in their
entirety.
In connection with the sale in 1995 of Cleo Inc. (Cleo), a former wholly-owned
subsidiary, the Company renegotiated its long-term lease agreement for certain
of its principal facilities. The initial term of this amended lease agreement
runs through November 30, 2013, with one 10-year renewal option available. The
basic rent under the lease provides scheduled rent increases every five years,
including the renewal period. The lease contains a purchase option in 2005 (and
again in 2010) at the fair market value of the properties at the date of
exercise. As a condition of the lease, all property taxes, insurance costs and
operating expenses are to be paid by the Company. For accounting purposes, this
lease has been treated as a capital lease.
Minimum rental commitments under the noncancelable capital lease obligation,
including the amount recorded in other liabilities, as of September 30, 1998 are
as follows:
<TABLE>
<CAPTION>
Capital
Year Ending September 30, Lease
------------------------------ -------------
<S> <C> <C>
1999 $ 3,100
2000 3,100
2001 3,668
2002 3,720
2003 3,720
Thereafter 46,140
-------------
Net minimum commitments 63,448
Less amount representing interest 43,475
-------------
Present value of net minimum lease commitments $ 19,973
=============
</TABLE>
NOTE 6 - COMPUTATION OF NET INCOME (LOSS) PER SHARE
- ---------------------------------------------------
The Company adopted SFAS No. 128 - "Earnings per Share" in the fourth quarter of
1997. All previously reported earnings per share (EPS) amounts have been
restated to conform to the new presentation. Assuming the exercise of all
outstanding contracts to issue common stock, the effect on EPS was antidilutive
for the three and nine months ended September 30, 1998; therefore such exercises
were not considered.
The following table reconciles basic weighted average shares outstanding to
diluted weighted average shares outstanding for the three and nine months ended
September 30, 1998 and 1997. There are no adjustments to net income (loss) for
the basic or diluted EPS computations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding 16,216,148 16,500,565 16,330,789 16,358,270
Effect of dilutive securities - stock options held by employees - 543,262 - 526,821
---------- ---------- ---------- ----------
Diluted weighted average shares outstanding 16,216,148 17,043,827 16,330,789 16,885,091
========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
NOTE 7 - LEGAL MATTERS
- ----------------------
In July 1994, immediately following the Company's announcement of an inventory
misstatement at Cleo, which resulted in an overstatement of the Company's
previously reported 1993 consolidated net income, five purported class actions
were commenced by certain stockholders. These suits were consolidated and a
Consolidated Amended Class Action Complaint against the Company, its then
Chairman, President and Chief Executive Officer, its then Chief Financial
Officer and the former President and Chief Executive Officer of Cleo was filed
in October 1994, in the United States District Court for the Southern District
of Ohio (In Re Gibson Securities Litigation). The Complaint alleged violations
of the federal securities laws and sought unspecified damages for an asserted
public disclosure of false information regarding the Company's earnings. In
August 1996, the Court certified the case as a class action. The Court
subsequently concluded that the certified class representative could represent
only those class members who purchased Gibson stock after April 19, 1994 and
before July 1, 1994. All other claims were dismissed. In April and June 1998,
the Court granted motions for summary judgment filed by the Company, by its
former Chairman, President and Chief Executive Officer, by its former Chief
Financial Officer and by Cleo's former President and Chief Executive Officer.
Only the Third Party claim by the Company against its former auditor for
professional malpractice, the former auditor's counterclaim against the Company
for unpaid fees and cross-claims and counterclaims now remain before the Court.
Plaintiffs' appeal of the Court's decisions to the Sixth Circuit Court of
Appeals was dismissed because there is not yet a final order. The third-party
claim, counterclaim and cross-claims are scheduled for trial in May 1999.
The Company presently is unable to predict the effect of the ultimate resolution
of the matter described above upon the Company's results of operations and cash
flows. As of this date, however, management does not expect that such resolution
would result in a material adverse effect upon the Company's total net worth.
In addition, the Company is a defendant in certain other routine litigation
which is not expected to result in a material adverse effect on the Company's
net worth, total cash flows or operating results.
NOTE 8 - COMMITMENTS
- --------------------
On August 13, 1998, the Company signed a 10-year lease agreement to occupy
approximately 148,000 square feet of office space in Northern Kentucky. The
Company will relocate its Cincinnati, Ohio corporate headquarters to this new
facility in 1999. Minimum rental commitments under the lease, which begin
January 1, 1999 and extend until December 31, 2008, total $25,105.
The sale of The Paper Factory of Wisconsin, Inc. as of August 31, 1998, as
discussed in Note 9, resulted in the transfer of lease obligations totaling
approximately $22,814. These lease obligations extended through 2006.
NOTE 9 - ACQUISITIONS AND DIVESTITURES
- --------------------------------------
On July 3, 1998, the Company acquired a majority interest in The Ink Group, a
leading publisher of alternative cards, calendars, address books and diaries
based in Sydney, Australia, with additional operations in New Zealand and the
United Kingdom, for $1,000 and an agreement to provide operating loans. These
loans totaled approximately $7,700 as of September 30, 1998. The Company
acquired 60% ownership of The Ink Group's operating companies in Australia and
New Zealand and 100% ownership of its subsidiary in the United Kingdom.
Effective August 31, 1998, the Company completed the previously announced sale
of 100% of the capital stock of The Paper Factory of Wisconsin, Inc. (The Paper
Factory) for approximately $36,200 in cash to PFW Acquisition Corp. The sale
price approximated the Company's investment in The Paper Factory.
8
<PAGE> 9
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
AND FINANCIAL CONDITION
- -----------------------
RESULTS OF OPERATIONS
- ---------------------
On March 31, 1998, the Company announced a restructuring plan (the Plan) and
recorded an expected total cost of $26.1 million for the Plan in the results of
operations of the first quarter of 1998. The Plan is designed to enhance the
Company's flexibility and operating efficiency, lower fixed costs and improve
customer service. In connection with the Plan, the Company is outsourcing all
card, gift wrap and other manufacturing operations previously performed at its
Cincinnati, Ohio headquarters. Implementation of outsourcing under the Plan
began in the second quarter of 1998 and was substantially completed by September
30, 1998.
In addition, the Company has initiated a significant investment in business
information systems. The Company will invest an estimated $30.0 to $35.0 million
over a 30-month period to significantly upgrade or replace its existing business
information systems. Management has analyzed its computer hardware and software
in connection with the Company's need for improved information systems as well
as the potential dating problems that may arise with the Year 2000. Management
has decided to replace core business applications which support sales and
customer services, procurement and distribution, and finance and accounting with
Enterprise Resource Planning (ERP) software. The primary purpose of the ERP
software is to add functionality and efficiency to the business processes of the
Company as well as address the Year 2000 issue.
On July 3, 1998, the Company acquired a majority interest in The Ink Group, a
leading publisher of alternative cards, calendars, address books and diaries
based in Sydney, Australia, with additional operations in New Zealand and the
United Kingdom, for $1.0 million and an agreement to provide operating loans to
the companies acquired. The Company acquired 60% ownership of The Ink Group's
operating companies in Australia and New Zealand and 100% ownership of its
subsidiary in the United Kingdom.
Effective August 31, 1998, the Company completed the sale of 100% of the capital
stock of The Paper Factory of Wisconsin, Inc. (The Paper Factory) to PFW
Acquisition Corp. for approximately $36.2 million in cash. The Paper Factory
had sales of approximately $86.1 million for the year ended December 31, 1997.
The Company continues to face strong competitive pressure with regards to both
price and terms of sale. These competitive conditions, combined with a shift in
product sales mix resulting from lower greeting card sales and higher new
product sales, have resulted in reduced profit margins. Due to reduced profit
margins, the sale of The Paper Factory and other factors, the Company expects
to report lower earnings for the full year 1998 in comparison to the comparable
1997 period.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
- ---------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------
Revenues in the third quarter of 1998 decreased 5.8% to $86.8 million from
revenues of $92.1 million in the third quarter of 1997 reflecting a shift in
the timing of Gibson Card Division holiday product shipments and the August 31,
1998 sale of The Paper Factory. The decline was partially offset by shipments
of The Ink Group acquired on July 3, 1998 and an increase in shipments at
Gibson Greetings International Limited (Gibson International), the Company's
subsidiary based in the United Kingdom. The shift in timing of Gibson Card
Division holiday product shipments was mainly due to delays resulting from
unexpected problems associated with the Company's move to outsource production.
Shipments of approximately $20.0 million anticipated for September were delayed
until the fourth quarter. Everyday greeting card shipments were also below last
year during the third quarter primarily due to the loss of certain customers.
The decline in greeting card shipments was partially offset by the sales of
Silly Slammers, the Company's beanbag toy. Silly Slammers, which have a lower
profit margin than greeting cards, account for an increased portion of the
Gibson Card Division's sales. Overall, returns and allowances were 16.6% of
sales for the three months ended September 30, 1998 compared to returns and
allowances of 14.9% for the comparable period in 1997 reflecting increased
seasonal and everyday provisions. Returns of certain spring seasonal products
were higher than provided for during the first half of 1998.
Total operating expenses were $88.8 million in the third quarter of 1998
compared to total operating expenses of $87.5 million in the third quarter of
1997. Included in the third quarter of 1998 is a restructuring gain of $3.0
million resulting from a pension plan curtailment related to the Company's
restructuring plan. Without this gain, total operating expenses would have
increased 4.9% from the comparable period in 1997. Cost of products sold as a
percent of revenues was 49.4% for the third quarter of 1998 versus 41.9% for the
third quarter of 1997. The increase was primarily due to a change in product
sales mix and higher product costs associated with new products, new designs and
other product related costs. Selling, distribution and administrative expenses
as a percent of revenues were 56.4% for the third quarter of 1998 versus 53.1%
for the third quarter of 1997 primarily due to higher selling and marketing
expenses to support new product programs.
Interest income, net of $0.3 million was recorded in the third quarter of 1998
compared to $35,000 for the third quarter of 1997. The improvement resulted from
lower interest expense due to a reduction in interest-bearing obligations.
Pretax loss for the third quarter of 1998 was $1.7 million compared to pretax
income for the third quarter of 1997 of $4.6 million. The effective income tax
rate was 42.9% for the third quarter of 1998 compared to an effective income tax
rate of 42.5% for the third quarter of 1997.
Net loss for the three months ended September 30, 1998 was $1.0 million compared
with net income of $2.7 million for the comparable period in 1997. The net loss
per diluted share was $0.06 for the third quarter of 1998 compared to net income
per diluted
9
<PAGE> 10
share of $0.15 for the third quarter of 1997. Excluding the restructuring gain
resulting from the pension plan curtailment, the net loss for the third quarter
of 1998 would have been approximately $0.16 per diluted share.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE
- -------------------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------
Revenues for the nine months ended September 30, 1998 increased 3.2% to $293.5
million from revenues of $284.4 million for the nine months ended September 30,
1997 reflecting increased sales volume from the Gibson Card Division and Gibson
International, as well as the sales volume resulting from the July 3, 1998
acquisition of The Ink Group. The increased sales at the Gibson Card Division
resulted from shipments of Silly Slammers, which offset decreased sales of
holiday products due to production delays and lower everyday greeting card
sales primarily due to the loss of certain customers. Silly Slammers, which
have a lower profit margin than greeting cards, account for an increased
portion of the Gibson Card Division's sales. Sales increases were partially
offset by the August 31, 1998 sale of The Paper Factory. Sales for The
Paper Factory for the eight-month period of 1998 were $46.6 million, while sales
for the nine-month period of 1997 were $55.1 million. Overall, returns and
allowances were 15.2% of sales for the nine months ended September 30, 1998
compared to returns and allowances of 16.7% for the comparable period in 1997
reflecting decreased seasonal provisions and lower customer allowances.
Total operating expenses were $302.1 million for the nine months ended
September 30, 1998 compared to total operating expenses of $258.4 million for
the nine months ended September 30, 1997. Included in the nine months ended
September 30, 1998 is the restructuring charge of $26.1 million less the $3.0
million pension plan curtailment gain related to the restructuring. Total
operating expenses without the net restructuring charge were $279.0
million for the nine months ended September 30, 1998 which were up 8.0% from
the comparable period in 1997. Cost of products sold as a percent of revenues
was 42.4% for the nine months ended September 30, 1998 versus 37.2% for the
nine months ended September 30, 1997. The increase was primarily due to a
change in product sales mix and higher product costs. Selling, distribution,
and administrative expenses as a percent of revenues were 52.7% for the nine
months ended September 30, 1998 versus 53.6% for the nine months ended
September 30, 1997. Selling and marketing expenses increased to support new
product programs, partially offset by a decrease in administrative expenses.
Interest income, net of $1.2 million was recorded for the nine months ended
September 30, 1998 compared to interest expense, net of $1.6 million for the
nine months ended September 30, 1997. The improvement resulted from lower
interest expense due to a reduction in interest-bearing obligations.
Pretax loss for the nine months ended September 30, 1998 was $7.4 million
compared to pretax income for the nine months ended September 30, 1997 of $24.4
million. The pretax loss for the nine months ended September 30, 1998 includes a
net restructuring charge of $23.1 million. Without the net restructuring charge,
pretax income for the nine month period would have been $15.7 million. The
effective income tax rate was 41.5% for the nine months ended September 30, 1998
compared to an effective income tax rate of 42.3% for the nine months ended
September 30, 1997.
Net loss for the nine months ended September 30, 1998 was $4.3 million compared
with net income of $14.1 million for the comparable period in 1997. The net loss
per diluted share was $0.26 for the nine months of 1998 compared to net income
per diluted share of $0.83 for the nine months of 1997. Excluding the net
restructuring charge, the net income for the nine months of 1998 would have been
approximately $0.56 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash used in operating activities for the nine months ended September 30, 1998
was $38.7 million compared to cash provided by operating activities of $23.3
million for the comparable period in 1997. The most significant increase in cash
used in operating activities resulted from the increase in inventories primarily
at the Gibson Card Division. The increase in inventories was attributed to new
products, such as Silly Slammers, and the outsourcing of production which
increased work-in-process and raw materials inventory levels. Trade receivables,
net also increased primarily due to lower reserves for returns and allowances.
In accordance with the Company's restructuring plan, approximately $5.8 million
will be spent on involuntary employee severance and outplacement costs and
approximately $2.0 million on related expenses during the 12-month period ending
March 31, 1999. As of September 30, 1998, restructuring expenditures for 1998
totaled approximately $4.0 million.
Cash provided by investing activities in the first nine months of 1998 was $12.1
million compared to cash used in investing activities of $13.9 million in the
first nine months of 1997. Cash provided by investing activities in the 1998
period resulted from the cash proceeds received from the sale of The Paper
Factory, partially offset by higher purchases of plant and equipment mainly
related to information systems expenditures and display fixture additions at the
Gibson Card Division.
Cash used in financing activities for the nine months ended September 30, 1998
was $23.9 million compared to cash used in financing activities of $12.6 million
in the comparable period of 1997. Under the terms of its Senior Note Agreement,
the Company prepaid $4.3 million in principal, without premium, on June 1, 1998,
in addition to the $7.1 million principal amount the Company was
10
<PAGE> 11
required to pay under the Note Agreement. As a result of these payments and
prior retirements, all Senior Notes have been repaid in their entirety.
Effective April 24, 1998, the Company entered into a $30.0 million, 364-day
revolving credit agreement that will be utilized, if needed, for working capital
purposes. This credit line replaced the previous agreement that expired in late
April 1998.
The Company extended until July 31, 1999 the stock repurchase program originally
announced on July 31, 1997. This program provides for the repurchase of up to
one million shares of the Company's common stock. As of September 30, 1998,
745,000 shares had been repurchased pursuant to this program at a total cost of
approximately $15.0 million. On October 8, 1998, the Company announced a second
stock repurchase program which provides for an additional one million shares of
the Company's common stock to be repurchased over a 12-month period.
Management continues to address the Year 2000 issue. As discussed above, the
Company plans to invest $30.0 to $35.0 million to implement a major business
information systems plan to replace core business applications with ERP
software. The installation of ERP software will also address the Year 2000 issue
associated with the software being replaced. The Company has completed the
vendor selection phase for the ERP software and related hardware, and has
initiated the pilot phase which is expected to continue through 1998. As of
September 30, 1998, expenditures for the ERP project totaled $6.3 million of
which $1.1 million has been expensed in the results of operations for the nine
months ended September 30, 1998 and $5.2 million has been capitalized.
In addition, the Company is upgrading software systems not addressed by the ERP
project to correct potential problems associated with the Year 2000. The Company
estimates it will spend approximately $1.8 million, in total, on Year 2000
software upgrades not related to the ERP project. As of September 30, 1998, the
Company has spent an estimated $0.5 million on such upgrades.
While the ability of third parties, with whom the Company transacts business, to
address adequately their Year 2000 issues is outside the Company's control, the
Company intends to discuss with its vendors and customers the possibility of any
interface difficulties which may affect the Company, and to the extent necessary
and possible will develop appropriate contingency plans.
Management believes that substantially all Year 2000 issues will be addressed
prior to December 31, 1999, although the ERP project will extend beyond that
date. There can be no assurance that the failure of the Company or
third parties, with whom the Company transacts business, to adequately address
their respective Year 2000 issues will not have a material effect on the
Company's business, the results of operations, cash flows and financial
condition.
The Company is carrying significant cash balances. Other than general working
capital needs, capital expenditures, other asset spending, the restructuring
plan, the business information systems projects, and the stock repurchase plans,
there currently are no commitments for the use of this cash; however, management
is evaluating various alternatives, including strategic acquisitions. Management
believes that its cash flows from operations and credit sources will provide
adequate funds, both on a short-term and on a long-term basis, for currently
foreseeable debt payments, lease commitments and payments under existing
customer agreements, as well as for financing existing operations, currently
projected capital expenditures, anticipated long-term sales agreements
consistent with industry trends and other contingencies. (See Note 7 of Notes to
Condensed Consolidated Financial Statements)
Management does not believe that there are any events, commitments or
uncertainties, except for previously disclosed items (see Notes 1, 7 and 8 of
Notes to Condensed Consolidated Financial Statements), the items discussed
above, and normal seasonal fluctuations and general industry competitive
conditions, that should be expected to have a material effect on the results of
operations, financial condition, liquidity or capital resources of the Company.
However, except for the historical information contained herein, the matters
discussed are forward-looking statements which involve risks and uncertainties.
There are numerous important factors that could adversely affect the Company,
including but not limited to competitive pressures with regard to price and
terms of sale, unforeseen financial difficulties of significant customers, lack
of market acceptance of the Company's new products and other economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices. Because of these, as well as
other factors, historical information should not be relied upon as an indicator
of future financial performance.
PART I. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------
Not applicable.
11
<PAGE> 12
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
The information presented in Note 7 of Notes to Condensed Consolidated Financial
Statements (Part I. Item 1.) is incorporated by reference in response to this
item.
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
- -------------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
<TABLE>
<S> <C>
a) Exhibit 10.1 Amendment No. 3 and Release dated as of August 26, 1998 to Credit Agreement dated as of April 26, 1996 by
and among Gibson Greetings, Inc., the Lenders party thereto and the Bank of New York, as Agent.
Exhibit 10.2 August 13, 1998 lease, and September 16, 1998 Amendment No.1 thereto, of Towers of RiverCenter located at
Covington, Kentucky, by and between CPX-RiverCenter Two Limited Partnership and Gibson Greetings, Inc.
Exhibit 10.3 Employment Agreement between Gibson Greetings, Inc. and Frank J. O'Connell dated August 11, 1998.
Exhibit 27 Financial Data Schedule (contained in EDGAR filing only).
b) Reports on Form 8-K The Company filed a Form 8-K with the Securities and Exchange Commission on September 15, 1998 (date of
report: September 1, 1998) reporting the sale of its subsidiary The Paper Factory of Wisconsin, Inc.
</TABLE>
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Gibson
Greetings, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GIBSON GREETINGS, INC.
Date: November 16, 1998
By: /s/ James T. Wilson
-------------------
James T. Wilson
Executive Vice President-
Finance and Operations and
Chief Financial Officer
(principal financial officer)
By: /s/ Paul W. Farley
------------------
Paul W. Farley
Vice President - Controller and
Assistant Treasurer
(principal accounting officer)
13
<PAGE> 1
Exhibit 10.1
AMENDMENT NO. 3 AND RELEASE
---------------------------
AMENDMENT NO. 3 AND RELEASE (this "AMENDMENT"), dated as of August 26,
1998, under the Credit Agreement, dated as of April 26, 1996, by and among
Gibson Greetings, Inc., the Lenders party thereto, and The Bank of New York, as
Agent (as amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT").
RECITALS
I. Capitalized terms used herein which are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
II. The Borrower has requested certain amendments to the Credit
Agreement.
Accordingly, in consideration of the Recitals and the covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Borrower and the
Agent agree as follows:
1. Section 1.1 of the Credit Agreement is hereby amended by adding the
following defined terms thereto in alphabetical order:
"INK GROUP COMPANIES": as defined in Section 8.5(d).
"NON-GUARANTOR INTERCOMPANY DEBT" (a) Indebtedness of the Borrower to
one or more of the Domestic Subsidiaries or Foreign Subsidiaries which are not
Guarantors, and (b) demand indebtedness of one or more of the Domestic
Subsidiaries or Foreign Subsidiaries which are not Guarantors to the Borrower or
any one or more of the Domestic Subsidiaries or Foreign Subsidiaries.
"TVM": as defined in Section 8.5(f).
2. Section 8.1 of the Credit Agreement is amended by adding the
following at the end thereof:
, (h) Indebtedness of the Ink Group Companies to the Borrower to the
extent permitted by Section 8.5, (i) Indebtedness of TVM to the
Borrower to the extent permitted by Section 8.5, and (j) Non-Guarantor
Intercompany Debt to the extent permitted by Section 8.5(g).
<PAGE> 2
3. Section 8.3 of the Credit Agreement is amended by adding the
following at the end thereof:
, and (e) the Disposition by the Borrower of all of the capital stock
of The Paper Factory of Wisconsin, Inc. (the " TPF Disposition").
4. Section 8.4 of the Credit Agreement is amended by adding the
following at the end thereof:
, and (d) other Acquisitions the cost of which, when aggregated with
the aggregate cost of all Investments made pursuant to Section 8.5(g)
and Restricted Payments made pursuant to Section 8.6(c) shall not
exceed $10,000,000.
5. Section 8.5 of the Credit Agreement is amended by adding the
following at the end thereof:
, (d) the Borrower may make equity Investments in The Ink Group,
provided however that (1) the Borrower shall acquire not less than 100%
of the ownership interests in The Ink Group subsidiary operating in the
United Kingdom and not less than 60% of the ownership interests in The
Ink Group's operating companies in Australia and New Zealand (such
United Kingdom, Australian and New Zealand companies being referred to
as the "Ink Group Companies"), and (2) the cash consideration therefor
paid by the Borrower and its Subsidiaries shall not be in excess
$1,000,000, (e) the Borrower may make loans to and advances for the
benefit of the Ink Group Companies, provided that the aggregate
principal balance of all such loans and advances shall not exceed
$8,000,000 at any one time outstanding, (f) the Borrower may make one
or more additional Investments in The Virtual Mall, Inc. ("TVM"),
provided that immediately after giving effect thereto, the aggregate
cost of all Investments made by the Borrower and its Subsidiaries in
TVM shall not exceed $5,000,000, and (g) other Investments the cost of
which, when aggregated with the aggregate cost of all Acquisitions made
pursuant to Section 8.4(d) and Restricted Payments made pursuant to
Section 8.6(c) shall not exceed $10,000,000.
6. Section 8.6 of the Credit Agreement is amended by adding the
following at the end thereof:
, and (c) provided that immediately before and after giving effect
thereto no Default or Event of Default shall or would exist, the
Borrower may pay additional dividends and make additional distributions
on and additional
-2-
<PAGE> 3
redemption of any class of Stock or other type or class of equity
interest or equity investment the cost of which, when aggregated with
the aggregate cost of all Acquisitions made pursuant to Section 8.4(d)
and Investments made pursuant to Section 8.5(g) shall not exceed
$10,000,000.
7. The Agent agrees that on and as of the date of the TPF Disposition,
if any, TPF shall be released from all of its obligations and liabilities under
the Subsidiary Guaranty.
8. Paragraphs 1 - 7 of this Amendment shall not be effective until such
date as the Agent shall have received counterparts of this Amendment executed by
the Borrower and Required Lenders.
9. On the date hereof, the Borrower hereby (a) reaffirms and admits the
validity and enforceability of the Loan Documents and all of its obligations
thereunder, (b) agrees and admits that it has no defenses to or offsets against
any such obligation, and (c) represents and warrants that, after giving effect
to this Amendment, no Default or Event of Default exists and that the
representations and warranties contained in the Credit Agreement are true and
correct with the same effect as though such representations and warranties had
been made on the date hereof.
10. In all other respects, the Loan Documents shall remain in full
force and effect, and no consent or other agreement in respect of any term or
condition of any Loan Document contained herein shall be deemed to be a consent
or other agreement in respect of any other term or condition contained in any
Loan Document.
11. This Amendment may be executed in any number of counterparts all of
which, taken together, shall constitute one Amendment. In making proof of this
Amendment, it shall only be necessary to produce the counterpart executed and
delivered by the party to be charged.
12. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED
TO BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCEABLE
IN ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
-3-
<PAGE> 4
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
GIBSON GREETINGS, INC.
By: /s/ J. Wilson
------------------------
Name: James T. Wilson
----------------------
Title: CFO
----------------------
THE BANK OF NEW YORK
individually and as Agent
By: /s/ Edward J. Dougherty III
---------------------------
Name: Edward J. Dougherty III
-------------------------
Title: Vice President
-------------------------
U.S. Commercial Banking
Each of the following Lenders consents
to the execution and delivery of this
Amendment by the Agent and agrees to all
of the terms and conditions hereof:
FIFTH THIRD BANK
By: /s/ Andrew K. Haven
------------------------
Name: Andrew K. Haven
----------------------
Title: Vice President
----------------------
HARRIS TRUST AND SAVINGS BANK
By: /s/ W. A. McDonnell
------------------------
Name: William McDonnell
----------------------
Title: Vice President
----------------------
(312) 461-5244
-4-
<PAGE> 5
NBD BANK, N.A.
By: /s/ Scott A. Dvornik
-------------------------
Name: Scott A. Dvornik
-----------------------
Title: Vice President
---------------------
<PAGE> 1
Exhibit 10.2
AMENDMENT NO. 1
TO LEASE AGREEMENT
TOWERS OF RIVERCENTER
COVINGTON, KENTUCKY
WHEREAS, CPX-Rivercenter Two Limited Partnership (Landlord) and Gibson
Greetings, Inc. (Tenant), entered into an agreement dated August 13, 1998,
which lease agreement provided Tenant an option to terminate the lease in whole
or in part in the event Landlord was unable to secure an agreement to relocate
the Northern Kentucky Convention and Visitors Bureau;
WHEREAS, Landlord was unable to achieve said agreement in writing
before August 31, said relocation agreement has been secured in written form as
of September 14, 1998;
NOW THEREFORE, Gibson Greetings, Inc., Tenant, does hereby waive any
and all rights it may have or had within paragraph 1(c) to terminate the lease
agreement as of this date; and the lease shall remain in full force and effect
as originally intended. Landlord's obligations regarding the retrofitting of
the Retail Level shall remain as stated in Paragraph 1(c).
The undersigned have set their hand and deed this 16th day of
September, 1998.
LANDLORD:
Witness: CPX-Rivercenter Two Limited Partnership
By: /s/ William P. Butler
- --------------------- --------------------------------
William P. Butler, President
TENANT:
Witness: Gibson Greetings, Inc.
By: /s/ J. Wilson
- --------------------- --------------------------------
<PAGE> 2
REV. 8/11/98
LEASE AGREEMENT
Between
CPX-RIVERCENTER TWO LIMITED PARTNERSHIP
LANDLORD
and
GIBSON GREETINGS, INC.
TENANT
<PAGE> 3
TABLE OF CONTENTS
1. PREMISES
2. TERM
3. CONDITION OF AND IMPROVEMENTS TO LEASED PREMISES
4. OCCUPANCY PRIOR TO TERM
5. SECURITY DEPOSIT
6. BASE RENT
7. ESCALATION OF BASE RENT
8. ADDITIONAL RENT ADJUSTMENT AND EXPENSE STOP
9. SERVICES AND UTILITIES
10. USE OF LEASED PREMISES
11. PARKING
12. CONTINUANCE OF OCCUPANCY
13. REPAIRS
14. ALTERATIONS
15. FIXTURES AND UNAUTHORIZED USE OF PREMISES
16. WARRANTY OF QUIET ENJOYMENT
17. INTERRUPTION OF SERVICE
18. RIGHTS RESERVED BY LANDLORD
19. FIRE OR OTHER CASUALTY
20. INSURANCE
21. INDEMNIFICATION
22. BROKER'S COMMISSION
23. SUBORDINATION AND ATTORNMENT
24. ASSIGNMENT AND SUBLETTING
25. EMINENT DOMAIN
26. ESTOPPEL CERTIFICATE
27. DEFAULT; REMEDIES UPON DEFAULT
28. HOLDING OVER
29. REDELIVERY OF PREMISES
30. CUMULATIVE REMEDIES
31. INTEREST ON PAST DUE OBLIGATIONS
32. ATTORNEYS' FEES
33. NOTICES
34. LANDLORD'S LIABILITY
35. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS
36. WAIVERS
37. SEVERABILITY
38. RECORDING
39. BINDING EFFECT
40. AUTHORITY
41. CONFLICT
42. GOVERNING LAW; FORUM
43. JOINT AND SEVERAL OBLIGATIONS
44. GUARANTORS
<PAGE> 4
45. AIR RIGHTS LEASE
46. FINANCIAL STATEMENTS
47. HAZARDOUS SUBSTANCES
48. ADDITIONAL EXHIBITS
EXHIBITS
--------
A. LEASED PREMISES
B. DEVELOPED PARCEL
C. ALTERATIONS AND IMPROVEMENTS
D. SCHEDULE OF RENT
E. CLEANING, JANITOR AND ROUTINE MAINTENANCE SERVICE
F. RULES AND REGULATIONS
G. PARKING
<PAGE> 5
LEASE AGREEMENT
---------------
TOWERS OF RIVERCENTER
COVINGTON, KENTUCKY
THIS LEASE AGREEMENT, hereinafter known as the "Lease," entered into
effect this 13th day of August, 1998, between CPX-RiverCenter Two Limited
Partnership, a Kentucky limited partnership, whose principal place of business
is 50 E. RiverCenter Boulevard, Covington, Kentucky, 41011 and CPX-RiverCenter
Limited Partnership, a Kentucky limited partnership, whose principal place of
business is 50 E. RiverCenter Boulevard, Covington, Kentucky 41011, hereinafter
collectively known as "Landlord," and Gibson Greetings, Inc., a Delaware
corporation, whose principal place of business is 2100 Section Road, Cincinnati,
Ohio 45237, hereinafter known as "Tenant."
WITNESSETH:
In consideration of the rent hereafter reserved and the covenants herein
contained, each party to this Lease hereby agrees:
(1) PREMISES:
--------
(a) Landlord does hereby lease and demise to the Tenant and Tenant
does hereby take and rent from Landlord, the following
premises:
Agreed to be One Hundred forty-eight thousand seven hundred
eighty-two (148,782) rentable square feet of the Plaza Level,
Retail Level, and 3rd, 5th, 6th, 7th, 8th, 9th, 11th and 12th
floor(s) of the Towers of RiverCenter located at 100 East
RiverCenter Boulevard, Covington, Kentucky 41011. That portion
which is leased to Tenant is designated on the floor plan
attached as Exhibit "A" and is hereinafter known as the
"Leased Premises". The entire building, of which the Leased
Premises form a part, is hereinafter known as the "Building".
The Building and other buildings which comprise RiverCenter,
if any, are situated upon a tract of land hereinafter known as
the "Developed Parcel," which is more particularly described
in Exhibit "B". The Building is also part of the property
demised to Landlord pursuant to an Air Rights Lease, which is
more fully described in Paragraph (45). Use of the Leased
Premises shall include the exclusive right to have, at
Tenant's sole expense, its name mounted on the existing
exterior Pylon in front of the RiverCenter II office building
or in the alternative Landlord shall have the option to
provide at Landlord's expense an equal Pylon for exclusive use
of tenant in front of the Building. Tenant shall also be
entitled to have its name mounted on the south elevation of
the RiverCenter II office building at all times during which
Tenant occupies the Retail Level space. All such signage both
on the monument sign as well as the face of the Building
(RiverCenter II) on the South Retail Level elevation shall be
subject to the review and approval of the Landlord and shall
be required to be in compliance with the City of Covington
zoning and signage regulations. Landlord agrees that at no
1
<PAGE> 6
time during the term of this Lease shall a competitor of
Tenant be permitted to place its name on the monument sign.
(b) Notwithstanding the above, the parties hereto agree that
Tenant shall have until August 31, 1998 to review and
determine its space planning needs and the actual number of
rentable square feet it will initially require and which shall
comprise the Leased Premises. Tenant agrees that it shall
determine such space planning needs and will advise Landlord
of same on or before August 31, 1998. Tenant shall be entitled
to give back one full floor in its entirety to Landlord from
the above described Leased Premises. If Tenant has not advised
Landlord in writing on or before the close of business on
August 31, 1998 of its intent to give back a floor of the
Leased Premises, Tenant shall be deemed to have elected to
retain all of the Leased Premises as first described in
Section 1(a) herein. This Lease shall be amended by separate
written amendment to reflect space given back by Tenant
pursuant to the terms of this Section 1(b). In the event
Tenant elects to give back a floor, such floor shall be the
ninth (9th) floor of the RiverCenter II Office tower.
(c) The obligations of Landlord and Tenant to perform on this
Lease Agreement are expressly contingent upon Landlord
entering into an agreement with the current tenant of the
space on the Retail Level on or before August 31, 1998
providing for the termination of such current Retail Level
lease and/or relocation of such Tenant to other space within
the Towers of RiverCenter on terms and conditions and within a
time frame acceptable to Landlord in its sole discretion.
Notwithstanding the prior sentence, Tenant shall have the
right in the event Landlord is unable to reach an agreement
for the termination or relocation of such current Retail Level
tenant to waive this condition precedent and to proceed with
this Lease Agreement, in which event the Retail Level space
shall be deleted from the Leased Premises and thereafter this
Agreement shall be appropriately amended to reflect such space
deletion. The parties hereto acknowledge and agree that
Landlord shall cause the Retail Level of the Leased Premises
to be retrofitted within ninety (90) days of the date that the
current tenant vacates the Retail Level of the Leased
Premises.
(2) TERM:
----
The term of this Lease shall be for ten (10) years and zero (0) months
beginning on the first day of January, 1999 and ending on the last day
of December, 2008, subject however to the terms of Paragraph (3) and
further subject to any of the conditions or covenants of this Lease or
pursuant to law.
(3) CONDITIONS OF AND IMPROVEMENTS TO LEASED PREMISES:
--------------------------------------------------
Immediately upon execution of this Lease, Landlord shall commence any
alterations or improvements to the Leased Premises indicated on Exhibit
"C." Landlord shall proceed diligently with said work and use its best
efforts to complete same by December 31, 1998, if this Lease is fully
executed by August 10, 1998; but, if the alterations or
2
<PAGE> 7
improvements are not substantially completed or if the Leased Premises
are not available for occupancy by said date, Tenant shall have no
claim against Landlord due to such delay, excepting only that the term
of this Lease shall not commence until the Leased Premises are deemed
to be available to Tenant (provided, however, that Tenant's failure to
provide final space plans and schedule of Tenant Finishes on or before
the dates set forth on Exhibit "C-1" attached hereto and made a part
hereof shall not be a basis upon which Tenant may rely to extend the
initial commencement date of the term of this Lease Agreement), and the
term shall expire ten (10) years and zero (0) months thereafter. The
Leased Premises shall be deemed to be available to Tenant at the
earlier of the time when:
(a) the alterations or improvements to be made by Landlord are
substantially completed (notwithstanding the necessity of
punch list or minor repairs and adjustments still to be made
by the Landlord and provided that the completion of such minor
punch list items shall not be of a nature which unreasonably
interferes with Tenant's business operations or
notwithstanding the Tenant has not completed installation
and/or connection of its fixtures and/or equipment); or
(b) the Tenant actually occupies the Leased Premises.
Provided the dates for providing plans, specifications and other space
planning and design information as per Paragraph 3 and Exhibit C-1 are
met by Tenant, Landlord agrees to use its best efforts to have the
spaces completed to a point by December 20, 1998 to allow Tenant to
commence installation of its fixtures, built-in furniture, and
equipment. While Landlord is completing final improvements to the
Leased Premises, Tenant shall be permitted to begin moving into
portions of the Leased Premises on a floor by floor basis prior to the
commencement date of this Lease as individual floors are completed.
Immediately after the actual commencement date of this Lease has been
determined, if at variance with Paragraph (2), Landlord and Tenant
shall execute a written instrument fixing the commencement and
termination dates of this Lease.
Notwithstanding the above, in the event the Plaza Level and 3rd, 5th,
6th, 7th, 8th, 9th, 11th and 12th Floors of the Leased Premises are
completed prior to the Retail Level, the term of this Lease shall
commence as to such floors when the alterations and improvements are
substantially completed. In such event, Base Rent and Additional Rent
shall be payable only as to such substantially completed floors.
Thereafter, Landlord shall continue to use its best efforts to complete
the Retail Level of the Leased Premises by March 31, 1999, but in any
event shall not be obligated to complete the Retail Level by December
31, 1998. Base Rent and Additional Rent for the Retail Level shall
commence when the Retail Level is substantially completed.
Tenants taking possession shall be conclusive evidence that Leased
Premises were then in good order and satisfactory condition, except for
the completion of punch list items, if any. Notwithstanding the
foregoing, Landlord shall be responsible at its cost and expense
3
<PAGE> 8
to repair latent defects in the improvements to the Leased Premises
reported by Tenant within one (1) year of the commencement date of this
Lease Agreement.
Notwithstanding anything else to the contrary in this Paragraph (3), if
Landlord is not able to complete alterations or improvements to the
Leased Premises due to delays caused by Tenant, its employees, agents
or contractors, then the term of this Lease shall not be delayed, but
shall commence according to Paragraph (2).
(4) OCCUPANCY PRIOR TO TERM:
------------------------
To the extent permitted by law, Landlord may allow Tenant to occupy the
Leased Premises prior to the commencement of the term stated in
Paragraph (2). If Tenant occupies the Leased Premises on a day other
than the first day of the month, the Monthly Base Rent provided for in
Paragraph (6) and the Additional Rent provided for in Paragraph (8)
shall be adjusted and prorated so that Tenant shall only pay rent for
the actual number of days in the month. Tenant shall also comply with
all other terms and provisions of this Lease in the same manner as if
the term had, in fact, commenced.
(5) SECURITY DEPOSIT:
-----------------
Tenant shall deposit with Landlord upon execution hereof the sum of
______NONE______ Dollars ($0) as security for Tenant's faithful
performance of Tenant's obligations hereunder. If Tenant fails to pay
rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this Lease, Landlord may use, apply or retain all
or any portion of said deposit for the payment of any rent or other
charge in default or for the payment of any other sum to which Landlord
may become obligated by reason of Tenant's default, or to compensate
Landlord for any loss or damage which Landlord may suffer thereby. Said
Security Deposit shall not earn interest thereon for the benefit of
Tenant. No trust relationship is created herein between Landlord and
Tenant with respect to said Security Deposit.
(6) BASE RENT:
----------
(a) As Annual Base Rent for the use and occupancy of the Leased
Premises during the initial term, Tenant shall pay to Landlord
rent pursuant to the schedule attached as Exhibit "D."
The Annual Base Rent is to be payable in equal monthly
installments, (the "Monthly Base Rent") in advance on the
first day of each and every month during the initial or
extended term of this Lease, except that Tenant shall pay the
first installment of Monthly Base Rent upon the execution of
this Lease.
(b) Tenant agrees upon prior notice from Landlord to Tenant of
Tenant's non-payment and the failure of Tenant to pay such
monthly Base Rent within one (1) business day of Tenant's
receipt of such notice of non-payment to pay as supplemental
base rent for the use of said Leased Premises an amount equal
to ten
4
<PAGE> 9
percent (10%) of any Monthly Base Rent payment which is not
received by Landlord within ten (10) days of the date said
Monthly Base Rent is due. Said supplemental base rent shall be
in addition to any other amounts due under this Lease.
(c) Rent shall be mailed by Tenant to Landlord at Landlord's
principal place of business or at such other place as Landlord
may designate in writing. Rent shall be payable promptly
without deduction or setoff or prior demand thereof by
Landlord. All payments shall be in U.S. dollars, in cash or by
check, all checks subject to collection.
(7) ESCALATION OF BASE RENT:
------------------------
(a) [Deleted]
(b) As used herein, the term "Lease Year" means the one year
period of time commencing on the first day of the term of this
Lease, and each subsequent anniversary of the first day of the
term of this Lease, and terminating at midnight of the day
preceding the next following anniversary of the first day of
the term of this Lease; provided, however, that a different
Lease Year may be defined in Exhibit "D."
(8) ADDITIONAL RENT:
---------------
5
<PAGE> 10
(a) For each calendar year or partial calendar year during the
term hereof (or renewal periods, if any), Tenant shall pay to
Landlord, as Additional Rent, its pro rata share of (i) the
Operating Expenses of the Building, and (ii) the Building's
proportionate share of the Operating Expenses incurred for the
maintenance, repair, and cleaning of areas within the
Developed Parcel reasonably related to the operation and
enjoyment of the Building, as hereinafter defined. For
purposes of this Lease, Tenant's pro rata share of the
Operating Expenses is deemed to be fifty-seven and 95/100
percent (57.95%)
(b) At the commencement of this Lease, or prior to or at the
commencement of any calendar year during the term hereof,
Landlord may deliver to Tenant a written estimate of any
Additional Rent (such estimate being hereinafter referred to
as "Estimated Operating Expenses") which may be due hereunder
during the calendar year in which this Lease commences or for
any such succeeding calendar year as the case may be. For each
month, Tenant shall pay 1/12 of the amount of the Estimated
Operating Expenses for that particular calendar year in
addition to the Monthly Base Rent.
(c) Statements showing the actual Operating Expenses of the
Building and the Building's proportionate share of Operating
Expenses incurred for maintenance, repair, and cleaning of
areas within the Developed Parcel reasonably related to the
operation and enjoyment of the Building and Tenant's
proportionate share thereof (hereinafter referred to as
"Statement of Actual Adjustment") shall be delivered by
Landlord to Tenant within a reasonable period of time after
the end of any calendar year in which Estimated Operating
Expenses was paid by Tenant or due Landlord under the
provisions hereof. Within thirty (30) days after the delivery
by Landlord to Tenant of such Statement of Actual Adjustment,
Tenant shall pay to Landlord the amount by which the actual
adjustment exceeds the amount paid by Tenant as Estimated
Operating Expenses during said previous calendar year, or
Landlord shall credit Tenant the amount by which the Estimated
Operating Expenses exceeded the Statement of Actual
Adjustment. Notwithstanding the actual operating expenses
incurred during the year 1999, and notwithstanding any of the
provisions in this Section 8 to the contrary, Landlord agrees
that Tenant shall only be required to pay $4.50 per square
foot during the first year of this Lease. Landlord further
represents and warrants that the Operating Expenses for the
Building shall at all times be held to a level which is at
least seven (7%) per cent below the BOMA published average
annual square foot operating expenses for comparable Class A
office buildings in the Central Business District of
Cincinnati/Northern Kentucky. In the event operating expenses
in any given year exceed such level, Tenant shall not be
required to pay any operating expenses in excess of such
level.
(d) The computations set forth in this Paragraph shall be made on
a calendar year basis except if this Lease commences on a day
other than the first day of a calendar year or terminates on a
day other than the last day of a calendar year, in
6
<PAGE> 11
such event the computations shall be made on the basis of the
proportion that the number of days that this Lease was in
effect for such calendar years bears to 365.
(e) For the purposes of this Lease, Operating Expenses shall mean
any and all costs paid or incurred in connection with the
operation, servicing, maintenance and repair of the Building
and the Building's proportionate share of Operating Expenses
incurred for maintenance, repair and cleaning of areas within
the Developed Parcel reasonably related to the operation and
enjoyment of the Building determined on a cash basis, which
shall include, but not be limited to the following:
(i) All real estate taxes, assessments, governmental
levies, county taxes or any other governmental
charge, ordinary or extraordinary, unforeseen as well
as foreseen, of any kind or nature whatsoever which
are or may be assessed or imposed upon the Building
and the Developed Parcel under the laws of the United
States, the State of Kentucky, County of Kenton, or
any political subdivision thereof or by the City of
Covington, as a substitute in whole or in part for
taxes payable or hereinafter imposed on the Building
and the Developed Parcel or resulting from or due to
any change in method of taxation, but excluding any
income, franchise, excise, corporation, estate,
inheritance, succession, capital stock or transfer
tax levied on Landlord to the extent that it is not a
substitute in whole or in part for real estate taxes.
Landlord agrees to reimburse to Tenant its
proportionate share of any portion of any of the
above items rebated or refunded to Landlord. In no
event shall Operating Expenses include interest or
penalties resulting from Landlord's failure to timely
pay any of the taxes or assessments set forth in this
sub-paragraph.
(ii) Compensation provided in the form of wages, salaries
and such other compensation and benefits (including
insurance, welfare, retirement, vacation, holiday,
sick pay and other fringe benefits) as well as any
adjustments thereto for the following classes of
employees, employees of agents, or agents of Landlord
performing services rendered in connection with the
management, operation and maintenance of the Building
and the Developed Parcel;
a. Building Manager;
b. Building department heads and assistants;
c. clerical and accounting staff;
d. elevator operators, including starters and
assistant starters;
e. window cleaners, porters, janitors,
cleaners, dusters, sidewalk shovelers and
miscellaneous handymen;
f. watchmen, gardeners, caretakers and
persons engaged in patrolling and
protecting the Building;
g. engineers, firemen, mechanics, electricians,
plumbers and persons engaged in the
operating and maintenance of the heating,
air
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<PAGE> 12
conditioning, ventilating, plumbing,
electrical and elevator systems of the
Building; and
h. carpenters, plasterers, painters and other
persons engaged in connection with the
management, operating and maintenance of the
Building.
(iii) The uniforms of employees specified in subdivision
(ii) above and the cleaning, pressing and replacement
thereof.
(iv) Payroll taxes, including federal and state
unemployment taxes and social security taxes and any
other such taxes that may be created, payable in
connection with the employment of any of the
employees specified in subdivision (ii) above.
(v) Premiums and other charges incurred by Landlord with
respect to the following insurance (listed below) on
employees specified in subdivision (ii) above, and on
the Building and the Developed Parcel as required by
Paragraph (20), and, if Landlord elects to self
insure (provided that CPX RiverCenter Limited
Partnership and CPX RiverCenter II Limited
Partnership agree that they shall not elect to self
insure for any of the following during any time that
they are the Landlords under this Lease Agreement)
some or all of the risks as would normally be covered
by insurance, an amount deemed by Landlord in its
reasonable discretion to be equal to the amount which
would have been incurred if insurance had been
purchased provided that Landlord shall not accumulate
funds or reserves in any such self insurance funds in
amounts in excess of that required by applicable
governmental regulations:
a. fire; extended coverage, including
windstorm, hail, explosion, riot, rioting
attending a strike, civil commotion,
vehicle and smoke; all risk; flood; and
earthquake;
b. public liability;
c. elevator;
d. boiler damage, water damage, legal
liability, and pilferage on equipment and
materials for the Building and the Developed
Parcel;
e. workmen's compensation for the employees
specified in subdivision (ii) above;
f. health, accident, disability and group life
on employees enumerated in subdivision (ii)
above as therein qualified; and
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<PAGE> 13
g. other insurance which Landlord reasonably
deems necessary for a first class office
building would carry or which the holder of
any mortgage affecting the Building or the
Building and the Developed Parcel might
require to be carried under the terms of
such mortgage (excluding mortgage
insurance).
(vi) Costs, premiums, or penalties incurred for
electricity, steam, gas, water or other utilities or
fuels required in connection with the operation and
maintenance of the Building and the Developed Parcel.
(vii) Water and sewer charges.
(viii) Repairs or maintenance of the Building and the
Developed Parcel and the cost of supplies, tools,
materials and equipment used in connection therewith.
(ix) Replacement of tools and equipment.
(x) Charges of any independent contractor incurred in
connection with operating, maintaining or repairing
the Building and its appurtenances, including
inspection and servicing of elevator, electrical,
plumbing and mechanical equipment; and the furnishing
of cleaning and janitorial services and the cost of
materials, tools, supplies and equipment used in
connection thereof.
(xi) Sales, use and excise taxes on goods and services
purchased or provided by Landlord to properly manage,
operate and maintain the Building and the Developed
Parcel.
(xii) Taxes levied against and paid by Landlord on rents
collected, excepting taxes levied and paid under the
provisions of (i) above.
(xiii) Vaults or tunnel taxes, permits or rentals.
(xiv) License, permit and inspection fees.
(xv) Auditor's fees for public accounting.
(xvi) Legal fees of outside or special counsel retained by
Landlord in connection with proceedings for the
reduction of real estate taxes, labor relations, or
other matters to the extent that the same shall be of
general benefit to all tenants in the Building.
(xvii) Cost of telephone, telegraph, postage, stationery
supplies and other materials required for routine
operation of the Building Manager's office.
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<PAGE> 14
(xviii) Association dues and subscriptions.
(xix) Management fees.
(xx) Restroom keys, security passes, directory strips,
control cards.
(xxi) The cost of operating and owning vehicular shuttle
service for the benefit of the occupants of the
building (such expenses and costs to be shared with
RiverCenter I and RiverCenter II).
(xxii) Amortization of capital improvements which will
improve Building operating efficiencies or which may
be required by governmental authorities, with interest
at the rate of ten percent (10%) per annum on the
unamortized amount.
(xxiii) Such other expenses and costs of any nature
whatsoever, whether or not herein mentioned, which
would be construed as an operating expense by Landlord
in its reasonable discretion and in accordance with
sound real estate accounting practices.
(xxiv) [Deleted]
(xxv) Any amounts (including but not limited to ground rent)
which Landlord, as lessee under the Air Rights Lease,
is required to pay to its lessor.
(f) Notwithstanding anything contained in Subparagraph (e), no
expense incurred for the following shall be included in
Operating Expenses.
(i) Any repairs to the Building including the Leased
Premises where the occurrence causing the damage or
loss necessitating repair is reimbursed by insurance
carried by Landlord.
(ii) Leasing or procuring new tenants including leasing
commissions paid to agents of Landlord or other
brokers.
(iii) Renovating space for new tenants or in renovating
space vacated by any tenant.
(iv) Income, capital stock, estate or inheritance taxes
payable by Landlord, provided the same shall not have
been levied as a substitute for or supplement to real
property taxes.
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<PAGE> 15
(v) Cost of utilities charged to tenants and any portion
of Landlord's payroll, material and contract costs of
other services charged to tenants.
(vi) Costs incurred by Landlord for Tenant's alterations.
(vii) Cost of painting and decorating the premises of other
tenants.
(viii) Depreciation of the Building.
(ix) Cost of capital improvements (except as set forth in
(xxii) above).
(x) Interest on debt or amortization payments on any
mortgage or mortgages.
(xi) Any cost or expense of any nature whatsoever which
Landlord shall incur in connection with the operation
of the Building which is specifically reimbursed to
the Landlord from any source, charged directly to the
tenant on whose behalf it is incurred (whether or not
the same shall finally be paid), or for which Landlord
is otherwise compensated or recoups such expense by
way of setoff, reduction of recovery allowed, or
otherwise.
(g) If at any time during the term of this Lease the occupancy of
the Building is less than one hundred percent (100%) of its
capacity, then for the purpose of this Paragraph, the
Operating Expenses per rentable square foot of rentable floor
space shall nevertheless be computed as if the Building were
one hundred percent (100%) occupied.
(h) The obligations of Landlord and Tenant under this Paragraph
shall survive the expiration or other termination of this
Lease.
(i) All costs and expenses which Tenant assumes or agrees to pay
to Landlord pursuant to this Lease shall be deemed additional
rent, and, in the event of nonpayment, Landlord shall have all
the rights and remedies herein provided for in case of
nonpayment of rent.
(j) In no event will the Annual Base Rent be reduced below the
amount in Paragraph (6) and (7) as a result of any adjustments
pursuant to this Paragraph.
(k) Tenant is hereby granted the right within sixty (60) days of
receipt of the Annual Operating Expense Reconciliation, to
audit the books and records of the Landlord relating to
Operating Expenses, and such audit shall be done by a
qualified professional auditor selected by Tenant at the
Landlord's office where books and records are maintained or at
such other place as Landlord may reasonably designate. The
Landlord shall pay the reasonable and customary cost of any
audit which reveals a discrepancy in excess of five (5%)
percent, and the Operating Expenses paid by Tenant shall be
adjusted accordingly.
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<PAGE> 16
(9) SERVICES AND UTILITIES:
-----------------------
(a) The Landlord hereby covenants and agrees to maintain in good
condition and repair the foundation, roof, elevators, exterior
masonry walls of the Building and all common areas in the
Building and on the Developed Parcel, as well as sewer, water
and other pipes and conduits located beyond the boundaries of
the Leased Premises; and to make all repairs becoming
necessary by reason of any structural defects in the Building;
provided, however, that Landlord shall not be required to make
any repairs necessitated by reason of any act or omission of
Tenant, its officers, agents, employees, visitors, or anyone
claiming under Tenant, or caused by any alteration, addition,
or improvement made by Tenant or anyone claiming under Tenant,
and that if Landlord does make any such repairs Tenant shall
promptly, upon demand, reimburse to Landlord the cost thereof.
(b) The Landlord shall maintain, operate and repair heating,
ventilation, air conditioning, plumbing and sprinkler systems
(hereinafter known as the "Systems") and shall provide:
(i) Heating, ventilating and air conditioning in the
Leased Premises at the temperature required in
Landlord's judgment for a comfortable occupancy of
the Leased Premises during normal business hours
(that is, daytime hours of 8:00 a.m. through 6:00
p.m. weekdays and 8:00 a.m. to 1:00 p.m. on
Saturdays, excluding Sunday and Holidays). Because of
System requirements, if Tenant shall require air
conditioning or heating service at any other time,
Landlord shall furnish such "after hours" air
conditioning or heating service upon reasonable
advance notice from Tenant and Tenant shall pay
Landlord's actual cost. A minimum charge for two (2)
hours of "after hours" service will be made for any
such service.
Use of the Leased Premises (or any part thereof) in a
manner exceeding the designed conditions therefor for
air conditioning services, or rearrangement of
partitioning which interferes with normal operation
of the Systems, or use of computer or data processing
machines may require changes in the System service
for the Leased Premises.
Tenant acknowledges and agrees that it shall cause a
separate ventilating and air conditioning system to
be installed to serve as the primary system to
provide ventilation, cooling and air conditioning
service on those floor(s) of the Leased Premises
which house Tenant's main data processing and
computer systems. Such ventilation, cooling and air
conditioning system shall be installed, maintained
and operated at Tenant's sole expense and shall be
connected to a separate electric meter with such
electric consumption being invoiced and paid directly
to Tenant.
12
<PAGE> 17
Such changes so occasioned for the Leased Premises
shall be made by Tenant at its expense but subject to
Landlord's approval. Tenant agrees to cooperate
through the use of lowered or closed venetian blinds
or other window coverings whenever required for
proper operation of the System.
(ii) Cold water for drinks, lavatory and toilet purposes
and hot water for lavatory purposes.
(c) The Landlord shall provide electricity consumed in the Leased
Premises for normal lighting, air conditioning and operation
of the Tenant's normal office equipment only. However,
Landlord shall not be liable in any way to Tenant for any
failure or default in supply or character of electric current
furnished to the Leased Premises unless due to the negligence
and/or willful misconduct of Landlord, its contractors or
employees. Landlord shall supply the Leased Premises with
required lamps, bulbs, ballast, starters, and replacements
thereof in the ordinary course of business, with Tenant's
cooperation, through proper communication of need for said
replacement items. Tenant's use of electric current in the
Leased Premises shall not at any time exceed the capability of
the electrical conductors and equipment in or otherwise
servicing the Leased Premises. Tenant shall not make or
perform or permit any alterations to wiring, installations,
lighting fixtures or other electrical facilities in any manner
without prior written consent of Landlord. In each instance,
should Landlord grant any such consent for additional risers
or other equipment required thereof, such equipment shall be
installed by Landlord or Landlord's approved agent and the
cost thereof shall be paid by Tenant upon Landlord's demand.
As a condition to grant any such consent, Landlord may require
that Tenant agree to an increase in the Additional Rent
payable hereunder by an amount which will reflect the value to
Tenant of the additional electrical current to be made
available to the Tenant. Such calculation, if required, may be
determined by a reputable independent electrical engineer to
be selected by Landlord with the cost of said engineer to be
paid equally by both parties.
(d) Tenant will not install or operate in the Leased Premises any
heavy duty electrical equipment or machinery, without first
obtaining prior written consent of Landlord. Landlord may
require, as a condition to its consent for the installation of
such equipment or machinery, payment by Tenant of additional
rent for excess consumption of electricity that may be
occasioned by the operation of said equipment or machinery.
Landlord may make periodic inspections of the Leased Premises
at reasonable times to determine that Tenant's electrically
operated equipment and machinery complies with the provisions
of this section and to review for excessive heat generation.
Any individual piece of electrically operated machinery or equipment
that draws in excess of two (2) kilowatts shall be deemed as requiring
excess electrical current. The total average consumption of electricity
in excess of five (5) watts per square foot for the Leased Premises
shall also be deemed excessive.
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<PAGE> 18
Landlord may require that one or more separate meters be installed to
record the consumption or use of electricity, or shall have the right
to cause a reputable independent electrical engineer to survey and
determine the quantity of electricity consumed by such excessive use.
The cost of any such survey or meters and of installation, maintenance
and repair thereof shall be paid for by Tenant. Tenant agrees to pay
Landlord (or the utility company, if direct service is provided by the
utility company), promptly upon demand therefor, for all such electric
consumption and demand as shown by said meters, or a flat monthly
charge determined by the survey, as applicable, at the rates charged
for such service by the local public utility company. If Tenant's cost
of electricity based on meter readings is to be paid to Landlord,
Tenant shall pay a service charge related thereto.
The parties hereto agree that Tenant will be installing and operating
its information technology and imaging processing equipment on the
third floor of the Leased Premises and that the electrical wiring and
outlets required to power such equipment and systems and the cooling
system to be installed by Tenant for such third floor space shall be
connected to a separate meter and invoiced directly to Tenant.
Consequently, such electrical consumption related directly to such
equipment and cooling system shall not be taken into consideration by
Landlord in monitoring excess electrical current use by Tenant. No
other electrical wiring on the third floor of the Leased Premises shall
be connected to such special meter.
(e) Landlord shall not be liable for its failure to maintain
comfortable atmospheric conditions in all or any portion of
the Leased Premises due to heat generated by any equipment or
machinery installed by Tenant (with or without Landlord's
consent) that exceeds generally accepted engineering design
practices for normal office purposes. If Tenant desires
additional cooling to offset excessive heat generated by such
equipment or machinery, Tenant shall pay for auxiliary cooling
equipment and its operating costs including without limitation
electricity, gas, oil and water, and/or pay for excess
electrical consumption by the existing cooling system, as
appropriate.
(f) The Landlord shall also provide the cleaning services detailed
on Exhibit "E."
(10) USE OF LEASED PREMISES:
-----------------------
(a) Tenant shall use and occupy the Leased Premises for general
business offices and no other purpose, except that Tenant
shall be entitled to use and occupy the Retail Level and Plaza
Level of the Leased Premises for retail and showroom purposes.
(b) Tenant, at its expense, shall comply with all Federal, State,
County and City laws, ordinances, rules and regulations
affecting the use or occupancy of the Leased Premises by
Tenant or the business at any time transacted by Tenant;
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<PAGE> 19
(c) As of the commencement date of this Lease, the Leased Premises
shall be in compliance with all applicable laws, ordinances,
rules and regulations of governmental authorities.
(d) Tenant shall comply with all the Rules and Regulations which
have been adopted by Landlord, attached as Exhibit "F," (and
such reasonable changes or additions thereto) for the
protection and welfare of the Building, the Developed Parcel
and other tenants. Landlord shall enforce such rules and
regulations in a uniform and non-discriminatory manner as to
all tenants in the building.
(e) Tenant shall also comply with all the terms and conditions
contained in the Air Rights Lease.
(11) PARKING:
-------
Parking will be provided to Tenant in accordance with Exhibit "G"
attached hereto.
(12) CONTINUANCE OF OCCUPANCY:
------------------------
It is further agreed by Landlord and Tenant that Tenant shall
physically occupy the Leased Premises during the entire original term
and renewal term, if any, inasmuch as Tenant's continued occupancy of
the Leased Premises and the regular conduct of its business therein are
of utmost importance to the Landlord in the renewal of other leases in
the Building, in the renting of vacant space to other tenants and in
the maintenance of the character and quality of the Building. Thus
should Tenant move out of the Leased Premises prior to its lease
expiration without the consent of Landlord, the Tenant shall have
breached its lease obligation herein and in such case Landlord may
exercise any and all remedies for default provided by this Lease or by
law.
(13) REPAIRS:
-------
(a) Tenant shall at its expense keep in good order, condition, and
repair the interior of the Leased Premises, excluding such
items as Building HVAC equipment, structural systems and
lighting. However, Tenant shall pay for any and all damage
caused by negligence of Tenant, its officers, agents,
employees and guests. Tenant shall not be obligated to pay for
any damage caused to the Leased Premises caused by the
negligence of Landlord, its officers, agents, employees and
guests. Landlord shall keep in good order, condition, and
repair the exterior and common areas of the Building.
(b) If Tenant fails to maintain and repair the Leased Premises as
required by Subparagraph (13)(a), Landlord may, on ten (10)
days prior notice (except that no notice shall be required in
case of emergency), enter the Leased Premises and perform such
maintenance or repair on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in
performing such maintenance or repair immediately upon demand.
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<PAGE> 20
(14) ALTERATIONS:
-----------
No alterations, modifications, additions or installations to the Leased
Premises costing in excess of two thousand five hundred dollars
($2,500.00) per occurrence to complete shall be made unless the
Landlord shall first have given written approval of the plans and
specifications thereof (provided, however, that Tenant shall not make
any modifications to the location of interior walls without Landlord's
prior consent), and shall have been protected, to the Landlord's
satisfaction, against any cost or damage incidental thereto. Prior to
any approved construction, Tenant shall first have secured all
necessary building and other permits. Tenant agrees to make such
alterations, modifications, additions or installations to the Leased
Premises as may be required by building, OSHA, or other applicable
regulations or local codes in the jurisdiction in which the Leased
Premises are located. No alterations, modifications, additions or
installations shall be made which in any way conflict with the
requirements of Landlord's insurance company. All such alterations,
modifications, additions, or installations, when made, shall become,
unless the Landlord elects otherwise as provided in Paragraph (16)
hereof, the property of the Landlord and shall remain upon and be
surrendered with said Leased Premises as a part thereof at the end of
the term of this Lease.
(15) FIXTURES AND UNAUTHORIZED USE OF PREMISES:
------------------------------------------
Tenant shall not without Landlord's prior written consent attach any
fixtures in or to the Leased Premises or change, alter, or make
additions to the Leased Premises nor permit any annoying sound device,
install any additional locks, overload any floor, or deface the Leased
Premises. Any attached fixtures or any alterations, additions, or
improvements made or attached by Tenant shall on the expiration or
termination of this Lease, if requested by Landlord, be promptly
removed at Tenant's expense, and the Leased Premises restored by Tenant
at its expense to its original condition, ordinary wear and tear
excepted. Any such fixture, alteration, addition and/or improvement not
requested to be moved shall remain on the Leased Premises and shall
become and remain the property of Landlord. All Tenant's fixtures,
installations, and personal property not removed from the Leased
Premises upon expiration or termination and not required by Landlord to
have been removed as provided in this Paragraph shall be conclusively
presumed to have been abandoned by Tenant, and title thereto shall pass
to Landlord under this Lease as by a bill of sale.
(16) WARRANTY OF QUIET ENJOYMENT:
---------------------------
Tenant, upon paying the rents and keeping and performing the covenants
of this Lease to be performed by Tenant, shall peacefully and quietly
hold, occupy, and enjoy said Leased Premises during said term or any
renewal thereof.
(17) INTERRUPTION OF SERVICE:
-----------------------
16
<PAGE> 21
Landlord does not warrant that any services to be provided by Landlord
will be free from interruption due to causes beyond Landlord's
reasonable control. Temporary interruption of services or unavoidable
delay in the making of repairs shall not be deemed an eviction or
disturbance of Tenant's use and possession nor render Landlord liable
to Tenant for damage by abatement of rent or otherwise nor relieve
Tenant from performance of its obligations under this Lease.
(18) RIGHTS RESERVED BY LANDLORD:
---------------------------
Landlord shall have the following rights exercisable without notice and
without liability to Tenant:
(a) To change the name or street address of the Building;
(b) To have pass keys to the Leased Premises;
(c) To require all persons entering or leaving the Building during
such hours as Landlord may from time to time reasonably
determine to identify themselves to a watchman by registration
or otherwise, and to establish their right to enter or leave,
and to exclude or expel any peddler, solicitor or beggar at
any time from the Developed Parcel or the Building;
(d) To approve the weight, size and location of safes, computers,
and other heavy articles or equipment in and about the Leased
Premises and to require all such items and other office
furniture and equipment to be moved in and out of the Building
only at such times and in such manner as Landlord shall direct
and in all events at Tenant's sole risk and responsibility;
(e) Landlord may, at its expense, relocate those portions of the
Tenant's Leased Premises upon which Tenant occupies only
partial floors within the Building in order to facilitate
leasing of the Building and/or construction and/or alterations
of the Building, provided, however, that Landlord shall under
no circumstances be entitled to relocate less than all of
Tenant's space on any partial floor occupied by Tenant, and
such relocation shall be within the same building as the space
being relocated, and further provided that Landlord shall
under no circumstance be entitled to relocate Tenant for any
portion or partial space occupied by Tenant as part of the
Leased Premises on the Retail Level or Plaza Level of the
Leased Premises;
(f) Landlord or its agents shall have the right upon at least
twenty-four (24) hours prior notice to Tenant to enter the
Leased Premises at reasonable times during normal business
hours for the purpose of inspecting the same, showing the same
to prospective purchasers, lenders, or tenants, making such
alterations, repairs, improvements or additions to the Leased
Premises as Landlord may deem necessary or desirable. Landlord
may at any time place on or about the Leased Premises any
ordinary "For Sale" signs; and,
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<PAGE> 22
(g) Within six (6) months prior to the date of the expiration of
this Lease, Landlord or its agents shall have the right upon
at least twenty-four (24) hours prior notice to Tenant to
enter the Leased Premises at all reasonable times during
normal business hours for the purpose of exhibiting the Leased
Premises to prospective tenants.
(h) At any time after the completion of the Building, Landlord
shall have the right to change the arrangement or location of
such of the following as are not contained within the Leased
Premises or any part thereof: entrances, signs, passageways,
doors and doorways, corridors, stairs, toilets and other like
public service portions of the Building; providing, however,
that in no event shall Landlord make any change which shall
diminish the area of the Leased Premises, make any change
which shall interfere with the access to the Leased Premises
from and through the Building, or change the character of the
Building from that of a first-class office building.
(19) FIRE OR OTHER CASUALTY:
-----------------------
Should the Leased Premises be damaged or destroyed by any cause and
such damage or destruction be of such a nature that it may be repaired
or restored within a period of one hundred twenty (120) days after the
occurrence, then this Lease shall not terminate, but it shall be the
obligation of Landlord to repair or restore the Leased Premises as
nearly as possible to its condition prior to such damage or
destruction, and the Landlord shall proceed promptly to make such
repairs or restoration; provided, however, that such repairs or
restoration can be made by Landlord for an amount not in excess of the
amount recovered by Landlord on the fire, extended coverage and all
risk insurance. There shall be an equitable abatement of rent during
the period that the Leased Premises may be wholly or partially
unavailable for use by Tenant for the operation of its business.
Should the damage or destruction be of a character that will not permit
repair or restoration of the Leased Premises within the one hundred
twenty (120) days after the occurrence thereof, or if the cost of such
repair or restoration exceeds Landlord's insurance recovery, Landlord
shall give Tenant written notice within forty-five (45) days of such
damage or destruction whether such Leased Premises can or will be
rebuilt within such one hundred and twenty (120) day period, and
thereafter, either Landlord or Tenant shall have the privilege of
canceling the unexpired term of this Lease upon giving written notice
to the other within fifteen (15) days after delivery of such notice by
Landlord to Tenant.
(20) INSURANCE:
----------
(a) Landlord shall keep the Building insured against loss by fire
or other casualty with both extended coverage and all risk
coverage in an amount reasonably determined by the Landlord.
In the event that the Landlord's cost of premiums on such
insurance increases due to the hazardous nature of the use and
occupancy by
18
<PAGE> 23
Tenant of the Leased Premises, then the entire increase in
such insurance cost shall be paid by Tenant in a lump sum upon
receipt of invoice from Landlord.
(b) Landlord shall maintain public liability insurance for the
common areas and the exterior of the Building, as well as the
sidewalks and the parking lot on the Developed Parcel with
limits of (a) at least One Million Dollars ($1,000,000.00) for
bodily injury, including death and property damage, and (b) at
least One Million Dollars ($1,000,000.00) aggregate.
(c) Tenant shall, at all times during the term hereof, at its own
expense, carry and keep in full force and effect in companies
satisfactory to Landlord, public liability insurance in form
reasonably satisfactory to Landlord, with limits of (a) at
least ONE MILLION DOLLARS ($1,000,000.00) for bodily injury,
including death, and property damage, and (b) at least ONE
MILLION DOLLARS ($1,000,000.00) aggregate. Landlord may
increase the above limits to such greater amounts of insurance
coverage as Landlord may from time to time reasonably require.
Tenant shall also carry Worker's Compensation insurance for
all of Tenant's employees working in the Leased Premises, in
an amount sufficient to comply with applicable laws or
regulations. Tenant may elect to self insure with respect to
the worker's compensation insurance requirements herein.
(d) All property in the Leased Premises, in the Building or on the
Developed Parcel, belonging to Tenant, its agents, employees,
or invitees or to any other person, shall be there at the risk
of Tenant or such other person only, and Landlord shall not be
liable for damage thereto or loss thereof, except for damage
or loss arising out of theft or misappropriation occasioned by
Landlord or its employees. In furtherance of this provision,
Tenant shall, during the entire term of this Lease, keep in
full force and effect insurance upon all property situated in
the Leased Premises owned by Tenant or for which Tenant is
legally liable and also upon fixtures and improvements
installed in the Leased Premises by or on behalf of Tenant.
Such policies shall be for an amount of not less than one
hundred percent (100%) of the full replacement cost with
protection against (at a minimum) fire or other casualty, with
both extended coverage and all risk coverage.
(e) All public liability insurance policies maintained by Tenant
shall name the Landlord as an additional party insured, and
the Tenant as a named party insured and shall contain a
provision that the same may not be canceled or changed without
giving to the Landlord at least thirty (30) days written
notice prior to expiration or cancellation of any such policy.
Tenant shall furnish to Landlord a certificate of insurance
for each insurance policy, and if requested by Landlord, a
copy of such policy(ies) of insurance. Furthermore, renewals
of such insurance policies shall be presented to Landlord at
least thirty (30) days before the expiration of such insurance
coverages.
(f) Landlord and Tenant, for themselves and their respective
insurers, agree to and do hereby release each other of and
from any and all claims, demands, actions and
19
<PAGE> 24
causes of action that each may have or claim to have against
the other for loss or damage to the property of the other,
both real and personal, caused by or resulting from casualties
insured against, or, if there is no insurance, caused by or
resulting from casualties customarily insurable under ordinary
fire insurance policies with both extended and all risk
coverage, notwithstanding that any such loss or damage may be
due to or result from the negligence of either of the parties
hereto or their respective employees or agents.
(g) Landlord, its agents and employees shall not be liable for
losses or damages as a result of any injury to any person or
damage to property (except for damage to the Building itself)
sustained by Tenant, by Tenant's agents or employees, by any
occupant of the Leased Premises, the Building or the Developed
Parcel, or by any other person, occurring or resulting
directly or indirectly from any existing or future condition,
defect, matter, or thing in the Leased Premises, in the
Building or on the Developed Parcel or from equipment or
appurtenance therein or from accident or from any occurrence,
act, or from negligence or omission of any tenant, occupant or
any other person; but nothing in this Subparagraph (g) shall
be deemed to relieve Landlord from liability for damages for
bodily injuries to any person caused by or resulting from the
negligence of Landlord, its agents or employees.
(21) INDEMNIFICATION:
---------------
(a) Tenant shall indemnify and hold Landlord (and any mortgagee of
Landlord) harmless from and against all claims, actions,
lawsuits, damages, liabilities, expenses and costs (including
reasonable attorneys' fees) for any loss of life, bodily
injury or property damage to the extent caused by or resulting
from: 1) the use or occupancy of the Leased Premises, the
Building, or the Developed Parcel by the Tenant, its officers,
agents, employees, invitees, guests, assignees or subtenants;
2) any occurrence within the Leased Premises; 3) a breach of
this Lease by the Tenant; or 4) any negligent act or omission
or misconduct on the part of Tenant, its officers, agents,
employees, invitees, guests, assignees or subtenants. Nothing
in this Paragraph shall require Tenant to indemnify Landlord
for damage to the Building, to the extent released in
Paragraph (20)(f) of this Lease.
(b) Landlord shall indemnify and hold Tenant harmless from and
against all claims, actions, law suits, damages, liabilities,
expenses and costs for any loss of life, bodily injury or
property damage to the extent caused by or resulting from: (i)
any occurrence arising out of the negligent actions of
Landlord, its agents or employees, except to the extent
resulting from the negligent acts, omissions, or misconduct of
Tenant, its agents, employees, invitees or guests; or (ii) a
breach of this Lease by the Landlord, except that Landlord
shall under no circumstances be liable to Tenant for damage to
Tenant's personal property located within the Lease Premises.
Nothing in this paragraph shall require Landlord to indemnify
Tenant
20
<PAGE> 25
for damage to the Building or Leased Premises, to the extent
released in paragraph 20(f) of this Lease.
(22) BROKER'S COMMISSION:
--------------------
Tenant represents that it has dealt directly with Staubach Company,
Inc. (and only with), (as broker) in connection with this Lease and
that no other broker negotiated or participated in the negotiations of
this Lease or submitted or showed the Leased Premises to it or is
entitled to any commission in connection therewith. Landlord shall be
liable for the payment of any commission due to the broker named in
this Paragraph; however, if there is a violation of the representation
herein made by Tenant, and any other broker claims a commission from
Landlord, Tenant shall indemnify and hold the Landlord harmless from
such claim.
(23) SUBORDINATION AND ATTORNMENT:
-----------------------------
(a) The Tenant accepts this Lease subject and subordinate to the
Air Rights Lease, any ground lease, mortgage, deed of trust,
or any other hypothecation or security now or hereafter placed
upon the Developed Parcel and to any and all advances made on
the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof. If any
mortgagee, shall elect to have this Lease prior to the lien of
its mortgage, and shall give written notice thereof to Tenant,
this Lease shall be deemed prior to such mortgage, whether
this Lease is dated prior or subsequent to the date of said
mortgage, or the date of recording thereof.
(b) Although the provisions of Paragraph (23)(a) shall be self
operative, Tenant agrees, upon request of Landlord or
Landlord's lender, to execute any documents required to
effectuate any attornment, a subordination or to make this
Lease prior to the lien of any mortgage. Tenant's failure to
execute such documents within 10 days after written demand
shall constitute a material default by Tenant hereunder.
(c) If by reason of a default under the mortgage upon the
Developed Parcel, the interest of Landlord in the Developed
Parcel is terminated, the Tenant will attorn to the holder of
such mortgage (or to any person or entity to which the
Developed Parcel is conveyed by such holder) and will
recognize such holder, person or entity as Tenant's landlord
under this Lease. Tenant agrees to execute and deliver, at any
time and from time to time, upon the request of Landlord or of
the Landlord's lender any instrument which may be necessary or
appropriate to evidence such attornment. Tenant further waives
the provision of any statute or rule of law now or hereafter
in effect which may give or purport to give Tenant any right
of election to terminate this Lease or to surrender possession
of the Leased Premises in the event any proceeding is brought
by Landlord's lender to terminate the interest of the Landlord
in the Developed Parcel, and agrees that this Lease shall not
be affected in any way whatsoever by any such proceeding.
21
<PAGE> 26
(24) ASSIGNMENT AND SUBLETTING:
--------------------------
Tenant shall not assign, mortgage or encumber this Lease nor sublet or
permit the Leased Premises or any part thereof to be used by others,
without the prior written consent of Landlord in each instance. The
consent by Landlord to an assignment or subletting shall not be
construed to relieve Tenant from obtaining the consent of the Landlord
to any further assignment or subletting. The consent by Landlord will
not be given unless: a) the subtenant or assignee assumes the Tenant's
obligations under this Lease; and b) Tenant remains liable for all its
obligations under this Lease, including extensions or renewals provided
for herein. Nor will consent be given if Tenant is in default under
this Lease. Tenant shall notify Landlord of the name of each proposed
assignee or subtenant and shall provide information to Landlord
pursuant to the financial standing of the proposed assignee or
subtenant and shall offer to surrender such space to Landlord.
In no event shall proposed subtenant or assignee be an existing tenant
of the Building or its subtenant or assignee. In no event shall the
proposed subtenant or assignee be a person or entity with whom Landlord
or its agent is negotiating and to or from whom Landlord, or its agent,
has given or received any written or oral proposal within the past one
hundred twenty (120) days regarding a lease of space in the Building.
Landlord reserves the right to require as additional rent, one-half of
any subtenant or assignee rent which is in excess of the base rent and
additional rent then being paid by Tenant pursuant to this Lease, and
any other profit or gain realized by Tenant from such assignment or
subletting. All sums payable hereunder by Tenant shall be paid as
additional rent upon receipt by Tenant or upon request by Landlord.
(25) EMINENT DOMAIN:
---------------
Tenant agrees that if the Leased Premises, or any part thereof, shall
be taken or condemned for public or quasi-public use or purpose by any
competent authority, Tenant shall have no claim against Landlord and
shall not have any claim or right to any portion of the amount that may
be awarded as damages or paid as a result of any such condemnation,
whether such amount be awarded for diminution in value to the leasehold
or to the fee. It is agreed that the full amount of such award, if any,
made by the taking authorities shall be paid to and retained by
Landlord, free of any claim by Tenant to any portion thereof, and all
rights of Tenant to damages therefor, if any, are hereby assigned by
Tenant to Landlord. In the event that all or any part of the Leased
Premises shall be taken or condemned by any governmental authority, the
effect of which taking is such that the Leased Premises is rendered
unusable by Tenant, in Tenant's reasonable discretion, for the
operation of its normal business within the Leased Premises, then the
term of this Lease shall cease and terminate from the date on which the
Tenant is required, by such taking authority, to surrender possession
of said Leased Premises and the Tenant shall not have nor make any
claim against Landlord for the value of any unexpired term of this
Lease. In the event that a portion of the Leased Premises shall be
taken or condemned by any governmental authority, which taking does not
render the Leased Premises unusable by Tenant, in Tenant's reasonable
discretion, then this Lease
22
<PAGE> 27
shall continue in full force and effect, and rent shall abate in an
amount which bears the same ratio to the Annual Base Rent as the value
of the floor space taken bears to the value of the total floor space of
the Leased Premises. All rentals and other sums payable by Tenant
hereunder shall be adjusted to the date on which Tenant is required, by
the taking authority, to surrender possession of the Leased Premises or
portion of the Leased Premises so taken. Nothing herein shall prevent
Tenant from seeking a separate award for the taking of any fixtures or
other property within the Leased Premises owned by Tenant.
(26) ESTOPPEL CERTIFICATE:
--------------------
(a) Tenant shall at any time upon not less than ten (10) business
days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing: (i) certifying
that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification and
certifying that this Lease as so modified, is in full force
and effect) and the date to which rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are
no uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed. Such statement
shall be in a form as Landlord, purchaser or mortgagee shall
require. Any such statement may be conclusively relied upon by
any prospective purchaser or mortgagee of the Leased Premises,
or the lessor under the Air Rights Lease.
(b) Tenant's failure to deliver such statement within one (1)
business day after receipt of written notice from Landlord of
Tenant's failure to provide such statement within such time
shall be a material default under this Lease or, at Landlord's
option, Tenant's failure to furnish such statement within one
(1) business day after receipt of written notice from Landlord
of Tenant's failure to provide such statement within such
time, shall be conclusive upon Tenant: (i) that this Lease is
in full force and effect, without modification except as may
be represented by Landlord, (ii) that there are no uncured
defaults in Landlord's performance, and (iii) that not more
than one month's rent has been paid in advance or such failure
may be considered by Landlord as a default by Tenant under
this Lease.
(27) DEFAULT; REMEDIES UPON DEFAULT:
------------------------------
(a) Each of the following shall be a Default hereunder: (i) the
failure of Tenant to pay when due any installment of Monthly
Base Rent, Additional Rent or any other charge hereunder
within ten (10) days after the receipt of written notice from
Landlord of such failure to pay; (ii) the failure of Tenant to
timely or fully perform or observe any other provision of this
Lease and the continuation of such failure for twenty (20)
days after Landlord gives Tenant notice thereof, provided that
is such failure is not reasonably susceptible to being cured
within such twenty (20) day period and provided Tenant
promptly commences and continuously and
23
<PAGE> 28
diligently pursues such cure, Tenant shall have such
additional time, not to exceed sixty (60) days, as is
reasonably required to effect such cure; (iii) the breach by
Tenant of any representation or warranty in this Lease; (iv)
the filing by or against Tenant or any guarantor hereof of any
petition in bankruptcy; (v) the filing of any voluntary or
involuntary proceeding instituted to declare Tenant or any
guarantor hereof insolvent or unable to pay its debts as they
mature; (vi) the making by Tenant or any guarantor hereof of
an assignment for the benefit of its creditors; or (vii) the
appointment of a trustee or receiver for Tenant or any
guarantor hereof or for the major part of Tenant's or
guarantor's property.
(b) Upon and after a Default, Landlord shall have the following
remedies in addition to all other remedies allowed at law or
in equity or elsewhere in this Lease, all of which shall be
cumulative and not in the alternative and any or all of which
may be exercised successively or concurrently and at such time
or times as Landlord elects, except as provided to the
contrary below:
(i) Landlord shall have the right to terminate this Lease
or to terminate Tenant's right to possession of the
Leased Premises without terminating this Lease, but
in either event Tenant shall surrender possession of
and vacate the Leased Premises immediately upon
Landlord's notice to Tenant of either such
termination and Landlord shall have the further right
to enter the Leased Premises with or without process
of law, retake possession of the Leased Premises and
expel or remove Tenant (or anyone occupying the
Leased Premises) and its effects therefrom without
being liable or subject to prosecution or any claim
for damages therefor. In such event, Landlord shall
retain possession of the Leased Premises and shall
use reasonable efforts to relet the Leased Premises
or any part thereof as agent for Tenant for such rent
and other consideration, for such time and upon such
terms and conditions as Landlord determines
appropriate. Landlord shall have no duty to accept
any tenant offered by Tenant or to observe any
instructions given by Tenant concerning such
reletting. If the consideration collected by Landlord
during the remainder of the term by reason of such
reletting exceeds the Annual Base Rent, Additional
Rent and other charges hereunder for the remainder of
the term, Landlord shall pay such excess to Tenant
within sixty (60) days after the expiration of the
term.
(ii) Landlord shall have the right to terminate Tenant's
right to possession of the Leased Premises without
terminating this Lease and to recover from Tenant
within ten (10) days after Landlord's demand a sum
equal to the entire amount of the Annual Base Rent,
Additional Rent and other charges hereunder for the
remainder of the Term. If, due to escalation
mechanisms in this Lease or other factors, the
balance of the Annual Base Rent, Additional Rent and
other charges due for the remainder of the Lease term
cannot be precisely determined as of the date of such
termination, Tenant shall pay the amount Landlord
reasonably estimates would result from
24
<PAGE> 29
such escalation mechanisms and other factors. Upon
the expiration of the term or at such earlier time as
may be practicable, Landlord shall determine the
actual Annual Base Rent, Additional Rent and other
charges hereunder and Landlord or Tenant shall pay to
the other the resulting excess or deficiency, as the
case may be.
(iii) Landlord shall have the right to terminate this Lease
and to recover from Tenant immediately all losses and
damages suffered or incurred by Landlord by reason of
such termination, including without limitation the
excess of all Annual Base Rent, Additional Rent and
other charges hereunder for what would have been the
balance of the term in the absence of any such
termination over the aggregate fair market rental
value of the Leased Premises during the same period
of time.
(iv) Landlord shall have the right, except in the case
where Tenant is contesting in good faith in
proceedings brought by Tenant in an appropriate court
of law such claim of default, but not the duty to
perform any of Tenant's obligations hereunder which
Tenant has not timely and fully performed and to
charge to Tenant the cost of such performance,
together with a service charge of ten percent (10%)
of such cost, to compensate Landlord for
administrative and other services associated with
such performance.
(v) If Landlord is not permitted to terminate this Lease
as provided above because of the provisions of Title
11 of the United States Code relating to bankruptcy,
then Landlord shall have the right to require Tenant
as a debtor in possession or any trustee for Tenant,
within no more than thirty (30) days upon request by
Landlord to the Bankruptcy Court, to assume or reject
this Lease and Tenant on behalf of itself, and any
trustee, agrees not to seek or request any extension
or adjournment of any application by Landlord to
assume or reject this Lease. In such event, Tenant or
any trustee for Tenant may only assume this Lease if
(A) it cures or provides adequate assurance that the
Tenant will promptly cure any default hereunder, (B)
compensates or provides adequate assurance that
Tenant will promptly compensate Landlord for any
actual pecuniary loss of Landlord resulting from
Tenant's defaults hereunder, and (C) provides
adequate assurance of performance during the full
term of all of the Tenant's obligations under this
Lease. In no event after the assumption of this Lease
shall any then-existing default remain uncured for a
period in excess of the earlier of ten (10) days or
the time period set forth herein.
(vi) Landlord shall have the right to recover from Tenant,
if Landlord relets or attempts to relet the Leased
Premises, all costs and expenses incurred in
connection with such reletting, including without
limitation broker's commissions, advertising costs,
reasonable legal fees for lease preparation
25
<PAGE> 30
and negotiations and the cost of alterations or
improvements to the Leased Premises.
(vii) Notwithstanding anything to the contrary contained in
this Section 27, nothing herein shall be construed so
as to relieve Landlord of its obligation to use
reasonable efforts to mitigate its damages in the
event of any default or breach by Tenant.
(c) Any property which may be removed from the Leased Premises by
the Landlord pursuant to the authority of the Lease or of law
to which the Tenant is or may be entitled may be handled,
removed, or stored in a commercial warehouse or otherwise by
the Landlord at the risk, cost, and expense of the Tenant.
Landlord shall in no event be responsible for the value,
preservation, or safekeeping thereof. The Tenant shall pay to
the Landlord, upon demand, all expenses incurred in such
removal and all storage charges against such property. Any
such property of Tenant not removed from the Leased Premises
or retaken from storage by Tenant within thirty (30) days
after the end of the term of this Lease, however terminated,
shall be conclusively deemed to have been abandoned by Tenant.
(d) If Tenant violates any of the terms and provisions of this
Lease or defaults in any of its obligations hereunder other
than the payment of rent or other sums payable hereunder, such
violation may be restrained or such obligation enforced by
injunction.
Any costs and expenses incurred by Landlord (including,
without limitation, reasonable attorney's fees) in enforcing
any of its rights or remedies under this Lease shall be deemed
to be Additional Rental and shall be repaid to Landlord by
Tenant upon demand.
(28) HOLDING OVER:
------------
Tenant shall pay Landlord for each month, or part thereof, that Tenant
retains possession of the Leased Premises or any part thereof after
termination or expiration of the term of this Lease one hundred and
fifty (150%) percent of the amount of the monthly rent then required by
the terms hereof and also pay all damages sustained by Landlord by
reason of such retention.
(29) REDELIVERY OF PREMISES:
-----------------------
Tenant shall, on the expiration of this Lease, deliver up the Leased
Premises in as good order and condition as it now is or may be put by
Landlord, reasonable use and ordinary wear and tear thereof and damage
by fire or other unavoidable casualty, condemnation or appropriation
excepted. Tenant shall promptly surrender all keys to the Leased
Premises to Landlord.
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<PAGE> 31
(30) CUMULATIVE REMEDIES:
-------------------
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in
equity.
(31) INTEREST ON PAST DUE OBLIGATIONS:
---------------------------------
Any amount owed by Tenant to Landlord which is not paid when due shall
bear interest at the rate of fifteen percent (15%) per annum from the
due date of such amount. However, interest shall not be payable on late
charges to be paid by Tenant under this Lease. The payment of interest
on such amounts shall not excuse or cure any default by Tenant under
this Lease. If the interest rate specified in this Lease is higher than
the rate permitted by law, the interest rate is hereby decreased to the
maximum legal interest rate permitted by law.
(32) ATTORNEYS' FEES:
----------------
In the event any sums payable to Landlord hereunder are past due beyond
any grace and/or notice and cure period and same are collected at law
or through any attorney at law, Tenant shall pay all attorneys' fees
and expenses which Landlord incurs in enforcing any obligation of the
Lease. The parties hereto agree that the prevailing party in any action
brought by either party against the other under the terms of this Lease
Agreement shall be entitled to full reimbursement from such
non-prevailing party for all attorney's fees and related costs of
litigation incurred in any such proceedings by the prevailing party.
(33) NOTICES:
--------
All notices required or permitted to be given to Tenant under this
Lease shall be given to it at 2100 Section Road, Cincinnati, Ohio
45237. After occupancy of the Leased Premises, Tenant's address shall
be 100 RiverCenter Blvd., Covington, Kentucky 41011.
Any such notice to Landlord under this Lease shall be given to it at
P.O. Box 75020, Cincinnati, OH 45275, Attn: Property Management. All
notices shall be in writing and sent by certified mail, postage
prepaid.
Notice so mailed shall be effective upon the third day after its
deposit into the mails. Notice given in any other manner shall be
effective under this Paragraph (33) only if and when received by the
addressee.
(34) LANDLORD'S LIABILITY:
---------------------
(a) The term "Landlord" as used herein shall mean only the owner
or owners at the time in question of the fee title. In the
event of any transfer of such title, Landlord herein named
(and in case of any subsequent transfers, then the grantor)
shall be relieved from and after the date of such transfer of
all liability as respects Landlord's obligations thereafter to
be performed, provided that any funds in the
27
<PAGE> 32
hands of Landlord or the then grantor at the time of such
transfer, in which Tenant has an interest, shall be delivered
to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding
on Landlord's successors and assigns, only during their
respective periods of ownership. Tenant shall attorn to any
such purchaser, grantee, assignee or transferee.
(b) Tenant shall look solely to the estate and property of
Landlord in the Developed Parcel for the collection of any
judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default or breach by
Landlord with respect to any of the terms and provisions of
this Lease to be kept, observed, and performed by Landlord,
subject, however, to the prior rights of any mortgagee of all
or any part of the property; no other assets of Landlord shall
be subject to levy, execution or other judicial process for
the satisfaction of Tenant's claim. Nothing in this Lease
shall be construed in any event whatsoever to impose any
personal liability upon the trustees, officers or the
shareholders of the Landlord, or of the general or limited
partners comprising the Landlord, as Landlord herein or
otherwise.
(35) INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS:
----------------------------------------------
This Lease including any exhibits, schedules or attachments, hereto,
contains all agreements of the parties with respect to any matter
mentioned herein. No prior agreement or understanding pertaining to any
such matter shall be effective. This Lease may be modified in writing
only, signed by the parties in interest at the time of the
modification. Except as otherwise stated in this Lease, Tenant hereby
acknowledges that neither any cooperating broker on this transaction
nor the Landlord or any employees or agents of any of said persons has
made any oral or written warranties or representations to Tenant
relative to the condition or use by Tenant of said Leased Premises, the
Building or the Developed Parcel.
(36) WAIVERS:
--------
(a) No waiver by Landlord or Tenant of any provision hereof shall
be deemed a waiver of any other provision hereof or of any
subsequent breach by Landlord or Tenant of the same or any
other provision. Landlord's consent to, or approval of, any
act shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by
Tenant.
(b) The acceptance of rent hereunder by Landlord shall not be a
waiver of any preceding breach by Tenant of any provision
hereof, other than the failure of Tenant to pay the particular
rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent.
(37) SEVERABILITY:
-------------
28
<PAGE> 33
If any provision of this Lease (or portion thereof) shall at any time
be deemed to be invalid, illegal or unenforceable by any court of
competent jurisdiction, this Lease shall not be invalidated thereby.
Any such provision shall be construed to be valid, legal and
enforceable to the fullest extent permitted by law and this Lease shall
be read and construed as if such invalid, illegal or unenforceable
provision had not been contained herein.
(38) RECORDING:
----------
This Lease shall not be placed of record; however, either Landlord or
Tenant shall, upon request of the other, execute, acknowledge and
deliver to the other a "short form" memorandum of this Lease for
recording purposes.
(39) BINDING EFFECT:
---------------
Subject to any provisions hereof restricting assignment or subletting
by Tenant, this Lease shall be binding upon and inure to the benefit of
the parties, their heirs, personal representatives, successors and
assigns.
(40) AUTHORITY:
----------
If Tenant is a corporation, trust, general or limited partnership, each
individual executing this Lease on behalf of such entity represents and
warrants that he or she is duly authorized to execute and deliver this
Lease on behalf of said entity and shall, at the execution of this
Lease, deliver to Landlord evidence of such authority satisfactory to
Landlord.
(41) CONFLICT:
---------
Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provision.
(42) GOVERNING LAW; FORUM:
---------------------
This Lease is made under and is to be governed by the laws of the State
of Kentucky. Any action arising out of this Lease shall be brought only
in a court of competent jurisdiction in Kenton County, Kentucky.
(43) JOINT AND SEVERAL OBLIGATIONS:
------------------------------
In case two (2) or more persons or entities shall constitute the Tenant
hereunder, the covenants, obligations, and agreements herein made
binding upon the Tenant, shall be the joint and several obligations of
such persons or entities, and in the event of the death or dissolution
of any one or more of them, the survivors or survivor shall succeed to
all Tenant's right, title and interest hereunder.
29
<PAGE> 34
(44) GUARANTORS:
-----------
The following person(s) or entity(ies) are guaranteeing the performance
of Tenant's obligations under this Lease pursuant to separate
instrument(s) entitled "Lease Guaranty": None.
--------------
(45) AIR RIGHTS LEASE:
----------------
(a) The leasehold estate created by this Lease for the Plaza Level
and floors 3, 5, 6, 7, 8, 9, 11, and 12 of the RiverCenter II
Office Building constitutes a sublease of a portion of the
premises demised to CPX RiverCenter Two Limited Partnership, as
lessee, by the City of Covington, as lessor, by an instrument
dated and recorded in the lease records of the Kenton County
Clerk at Covington, Kentucky as follows: instrument dated August
1, 1988 and recorded September 8, 1988 at 10:22 a.m. in Lease
Book 17, Page 645, Kenton County, Kentucky Clerk's records at
Covington, Kentucky as assigned by Assignment and Assumption of
Second Office Air Rights Lease Agreement and Grant of Easement by
and between Corporex Companies, Inc. and CPX RiverCenter
Development Corporation recorded September 8, 1988 in
Miscellaneous Book 127, Page 762, Kenton County, Kentucky Clerk's
records at Covington, Kentucky, as amended by First Amendment to
Second Office Air Rights Lease Agreement recorded April 20, 1995
in Miscellaneous Book 301, Page 262, Kenton County, Kentucky
Clerk's records at Covington, Kentucky, and as Subsequently
amended by Second Amendment to Second Office Air Rights Lease
Agreement recorded August 23, 1995 in Miscellaneous Book 315,
Page 277, Kenton County, Kentucky Clerk's records at Covington,
Kentucky, and as amended by the Third Amendment to Second Office
Air Rights Lease Agreement and Grant of Easements dated December
12, 1995 and recorded December 13, 1995 in Miscellaneous Book
329, Page 92, of the Kenton County, Kentucky Clerk's records at
Covington, Kentucky, and as subsequently assigned by Second
Assignment and Assumption of Second Office Air Rights Lease
Agreement and Grant of Easement by and between CPX-RiverCenter
Development Corporation and CPX RiverCenter II Limited
Partnership, a Kentucky limited partnership, dated September 4,
1996 and recorded September 6, 1996 in Miscellaneous Book 364,
Page 314 Kenton County, Kentucky Clerk's records at Covington,
Kentucky, demising the "Second Office Air Lot" as further set
forth and described on the Plat of Covington RiverCenter recorded
in Plat Envelope 1467, 1467A, 1468, and 1468A, and on the Amended
Plat of Covington RiverCenter recorded on August 23, 1995 in Plat
Envelope 1726, 1727, and 1728, Kenton County, Kentucky Clerk's
records at Covington, Kentucky. Such instruments shall be
collectively referred to under this Lease as the "Air Rights
Lease". This Lease and all of Tenant's rights hereunder are and
shall be subject and subordinate to the Air Rights Lease and the
rights of all parties under such Air Rights Lease.
(b) The leasehold estate created by this Lease for the Retail Level
of the RiverCenter I office building constitutes a sublease of a
portion of the premises demised to CPX RiverCenter Limited
Partnership by that certain
30
<PAGE> 35
Office Air Rights Lease Agreement and Grant of Easements among
The City of Covington, Kentucky, a municipal corporation, The
City of Covington, Kentucky Municipal Properties Corporation, and
Corporex Companies, Inc. dated as of August 1, 1988, and recorded
September 8, 1988 at 9:54 a.m. in Lease Book 17, Page 452, Kenton
County, Kentucky Clerk's records at Covington, Kentucky, as
subsequently assigned by Corporex Companies, Inc. to
CPX-RiverCenter Development Corporation, by Assignment and
Assumption of Office Air Rights Lease Agreement and Grants of
Easements dated as of August 1, 1988 and recorded September 8,
1988 at 10:25 a.m. in Miscellaneous Book 127, Page 746, Kenton
County, Kentucky Clerk's records at Covington, Kentucky, and as
confirmed by that certain Notice Confirming the issuance of the
Certificate of Occupancy for the Office Building and confirming
the Office Date of Occupancy, recorded September 28, 1990 in
Miscellaneous Book 143, Page 808, Kenton County, Kentucky Clerk's
records at Covington, Kentucky, and as subsequently assigned by
CPX-RiverCenter Development Corporation to CPX RiverCenter
Limited Partnership, by Second Assignment and Assumption of
Office Air Rights Lease Agreement and Grant of Easements dated as
of December 20, 1993 and recorded December 28, 1993 in
Miscellaneous Book 247, Page 39, Kenton County Clerk's records at
Covington, Kentucky, and as subsequently amended by this First
Amendment to Office Air Rights Lease Agreement and Grant of
Easements, dated as of April 11, 1995 and recorded April 20, 1995
in Miscellaneous Book 301, Page 257, Kenton County, Kentucky
Clerk's records at Covington, Kentucky and as subsequently
amended by the Second Amendment to Office Sir Rights Lease
Agreement and Grant of Easements dated as of August 22, 1995 and
recorded August 23, 1995 in Miscellaneous Book 315, Page 173 of
the Kenton County Clerk's records at Covington, Kentucky, and as
subsequently amended by Third Amendment to Office Air Rights
lease Agreement and Grant of Easements, dated December 12, 1995
and recorded December 13, 1995 in Miscellaneous Book 329, Page 84
of the Kenton County Clerk's records at Covington, Kentucky,
demising the "Office Air Lot" (as defined in said Lease), as
further set forth and described on the Plat of Covington
RiverCenter recorded on August 23, 1995 in Plat Envelope 1726,
1727, and 1728, Kenton County Clerk's Office at Covington,
Kentucky.
(46) FINANCIAL STATEMENTS:
---------------------
Within (20) days of written request by Landlord, Tenant will provide
Landlord with its most recent financial statement, certified to be true
and correct by either Tenant's chief financial officer or an
independent certified public accountant; provided, however, Landlord
may only share such statements with its mortgagee, ground lessor,
prospective mortgagees and ground lessors, purchasers and partners, and
attorneys, accountants, and other advisors of Landlord and each of the
foregoing.
(47) HAZARDOUS SUBSTANCES:
---------------------
31
<PAGE> 36
For the purposes of this Lease, the term "Hazardous Substance" shall be
interpreted broadly to mean (i) petroleum, (ii) asbestos, (iii)
polychlorinated biphenyls, (iv) radioactive materials, (v) radon gas or
(vi) any chemical, material or substance defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous waste", "restricted hazardous waste"
or "toxic substances" or words of similar impact under any applicable
laws, including but not limited to, the Federal Water Pollution Act, as
amended, 33 U.S.C. sec. 1251 ET SEQ., the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. sec. 6901 ET SEQ., the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. sec. 9601 ET SEQ., the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. sec. 1801 ET SEQ., or any
other federal or state laws, in any amount which: (a) exceeds the
"action level", "maximum allowable level", or any similar base level
amount which is determined by any governmental or quasi-governmental
authority or health advisory board (or any similar body) to be the
maximum allowable or recommended concentration for the Hazardous
Material in question; (b) results in any investigative or remedial
order or activity by any governmental or quasi-governmental authority;
(c) would constitute a health hazard to occupants of the Property; or
(d) would result in any material disruption or interference with
Tenant's use of the Premises.
Tenant warrants and represents that it shall not use, store, treat,
accumulate or transport Hazardous Substances at, on, to or from the
Leased Premises during the Lease Term except in the ordinary conduct of
its business and in a manner that complies with all federal, state, and
local laws, regulations, and ordinances. Tenant additionally warrants
and represents that Tenant's occupancy of the Leased Premises and its
activities thereon shall not cause or result in any release, leak,
discharge, spill, disposal, or emission of Hazardous Substances at, in,
on, from or under the Leased Premises during or following the Lease
Term.
Tenant agrees to indemnify and hold Landlord harmless from any and all
claims, damages, fines, judgements, penalties, costs, liabilities, or
losses (including, without limitation reasonable sums paid for
settlement of claims, attorneys fees, consultant and expert fees)
arising during or after the Lease Term from or in connection with the
presence of any Hazardous Substances in, on or under the Leased
Premises during or after the Lease Term where the presence of such
Hazardous Substances is caused by or arises from Tenant's occupancy of
the Leased Premises or otherwise from Tenant's activities. Without
limitation the foregoing, this Indemnification shall include reasonable
costs incurred due to any investigation of the Leased Premises or any
clean-up, removal or restoration mandated by a federal, state or local
agency or political subdivision with respect to any such Hazardous
Substance present on the Leased Premises during the Lease Term. The
provisions of this paragraph shall survive the expiration or
termination of this Lease.
Landlord warrants and represents that, to the best of its knowledge,
any use, storage, treatment, accumulation, or transportation of
Hazardous Substances which has occurred in or on the Developed Parcel
prior to the date hereof has been in compliance with the
32
<PAGE> 37
applicable federal, state, or local laws, regulations, and ordinances.
Landlord additionally warrants and represents that, to the best of its
knowledge, no release, leak, discharge, spill, disposal, or emission of
Hazardous Substances has occurred in, or under the Developed Parcel
prior to the date hereof.
Landlord agrees to indemnify and hold the Tenant harmless from any and
all claims, damages, fines, judgements, penalties, costs, liabilities,
or losses (including without limitation reasonable sums paid for
settlement of claims, attorneys' fees, consultant and expert fees)
arising during or after the Lease Term from or in connection with the
presence of any Hazardous Substance in, or under the Premises prior to
the Lease Term. Without limiting the foregoing, this Indemnification
shall include reasonable cost incurred due to any investigation of the
Premises or any clean-up, removal or restoration mandated by a federal,
state or local agency or political subdivision, with respect to any
Hazardous Substance present on the Premises prior to the Lease Term
other than such as may be caused by or arise out of Tenant's occupancy
of the Leased Premises or from Tenant's activities. The provisions of
this paragraph shall survive the expiration or termination of this
Lease.
(48) ADDITIONAL EXHIBITS:
--------------------
The following exhibits are attached hereto and incorporated into this
Lease, in addition to previously identified Exhibits A, B, C, D, E, F,
and G (identify additional exhibits by letter and title; if none,
please so state): None.
(49) CONSENTS:
---------
Unless expressly stated to the contrary herein, anytime the consent of
either Landlord or Tenant is required as to any matter, such consent
shall not be unreasonably withheld, delayed or conditioned.
(50) RIGHT OF RENEWAL:
-----------------
Provided Tenant is not in default during the initial term of this
Lease, Tenant shall have the privilege of renewing this Lease for two
additional terms of five (5) years each. The first renewal term, if
exercised, shall commence upon the expiration of the initial term of
this Lease. The second renewal term, shall commence on the expiration
of the first renewal term, provided Tenant has exercised its option for
the first renewal term.
If Tenant desires to exercise a renewal option, Tenant shall give
Landlord written notice of such intent at least twenty-four (24) months
prior to the expiration of the initial term or the first renewal term.
All the conditions which prevailed during the initial term shall also
prevail during each renewal term, except only that:
1. The Annual Base Rent and the Additional Rent shall be set at
the then current market rate for the Towers of RiverCenter,
but in no event less than the current
33
<PAGE> 38
Annual Base Rent charged per square foot for the Leased
Premises pursuant to this lease Agreement; and
2. The Annual Base Rent shall escalate throughout the term of the
renewal option by 3% annually.
3. There shall be no financial incentives as previously granted
to Tenant in this Lease (such as Landlord Incentives)
Once Tenant exercises its right to renew, the parties shall have thirty
(30) days to enter into a written lease or amendment to this Lease
which establishes the new financial terms for the renewal.
(51) Intentionally omitted.
(52) RIGHTS OF FIRST REFUSAL
-----------------------
(a) For Floors 9 and 10, RiverCenter I Office Building:
---------------------------------------------------
Provided that Tenant is not in default under this Lease Agreement and
in the event that Landlord at anytime, and from time to time, during
the term of this Lease Agreement receives an offer(s) to rent all or
portions of Floors 9 and/or 10 in the RiverCenter Tower I office
building, Landlord hereby grants to Tenant a one-time right of first
refusal to lease such space or portions thereof. This right will be
explicitly subject to pre-existing rights, if any, of any other tenant
in the complex, as they may apply to those spaces. Landlord shall
notify Tenant when it receives a bona fide offer(s), acceptable to
Landlord, to lease any part of or all of such expansion space. Tenant
shall have ten (10) business days from receipt or delivery of written
notice from Landlord to exercise its right of first refusal by entering
into a written addendum(s) to this Lease Agreement for the expansion
space. The first year annual rental rate per square foot for such
additional space shall be calculated as the average rent per square
foot (annualized) for all leases within building I of the Towers of
RiverCenter as they exist in the month that Tenant notifies Landlord of
its intent to exercise this right. The annual rental rate per square
foot shall escalate 3% per annum. If such right of first refusal is
exercised during the first five years of the Lease term, the expansion
space shall have a term coterminous with the then remaining term of the
primary lease term. If such right of first refusal is exercised during
the second five years of the primary lease term or any extensions
thereof, the expansion space term shall have a term coterminous with
the primary lease term, but in no event less than 5 years. In the event
that at the time of exercise of such right(s) of first refusal Tenant
has less than 5 years remaining on the base lease term, then in order
to exercise this right Tenant shall extend the lease term for the
entire leased premises for a minimum of five (5) years from the date of
occupancy of the latest occupied expansion space. No financial
incentives previously granted to Gibson in the Lease Agreement shall
apply to the right of first refusal space, except that Tenant shall be
entitled to a $5.00 per occupiable square foot allowance towards
retrofitting the space.
34
<PAGE> 39
If Tenant fails to exercise its right of first refusal and so lease
upon the conditions set forth above, the Landlord may lease such
expansion space or such portion(s) thereof, to any third party and
Tenant shall have no further right of first refusal with regard to that
part of the expansion space. Any space added pursuant to the written
addendum shall thereafter become part of the Leased Premises and shall
be subject to all other terms and conditions contained in this Lease
Agreement.
(b) RiverCenter II Office Building:
-------------------------------
Provided that Tenant is not in default under this Lease Agreement and
in the event that Landlord at anytime, and from time to time, during
the term of this Lease Agreement receives an offer(s) to rent all or
portions of Floors 2, 4, and 10 in the RiverCenter Tower
35
<PAGE> 40
II office building, Landlord hereby grants to Tenant a continuing right
of first refusal to lease such space or portions thereof. This right
will be explicitly subject to any pre-existing rights of any other
tenant in the complex, as they may apply to those spaces. Landlord
shall notify Tenant when it receives a bona fide offer(s), acceptable
to Landlord, to lease any part of or all of such expansion space.
Tenant shall have ten (10) business days from receipt or delivery of
written notice from Landlord to exercise its right of first refusal by
entering into a written addendum(s) to this Lease Agreement for the
expansion space. The first year annual rental rate per square foot for
such additional space shall be calculated as the average rent per
square foot (annualized) for all leases within buildings I and II of
the Towers of RiverCenter as they exist in the month that Tenant
notifies Landlord of its intent to exercise this right. The annual
rental rate per square foot shall escalate 3% per annum. If such right
of first refusal is exercised during the first five years of the Lease
term, the expansion space shall have a term coterminous with the then
remaining term of the primary lease term. If such right of first
refusal is exercised during the second five years of the primary lease
term or any extensions thereof, the expansion space term shall have a
term coterminous with the primary lease term, but in no event less than
5 years. In the event that at the time of exercise of such right(s) of
first refusal Tenant has less than 5 years remaining on the original
lease term, then in order to exercise this right Tenant shall extend
the lease term for the entire leased premises for a minimum of five (5)
years from the date of occupancy of the latest occupied expansion
space. No financial incentives previously granted to Gibson in the
Lease Agreement shall apply to the right of first refusal space, except
that Tenant shall be entitled to a $5.00 per occupiable square foot
allowance towards retrofitting the space.
If Tenant fails to exercise its right of first refusal and so lease
upon the conditions set forth above, the Landlord may lease such
expansion space or such portion(s) thereof, to any third party and
Tenant shall have no further right of first refusal with regard to that
part of the expansion space. Any space added pursuant to the written
addendum shall thereafter become part of the Leased Premises and shall
be subject to all other terms and conditions contained in this Lease
Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed this
Lease as of the day and year first above written.
WITNESSES: LANDLORD (as to the Plaza Level and Floors, 3, 5, 6,
7, 8, 9, 11, & 12, RiverCenter II Office Building
only):
CPX-RIVERCENTER TWO LIMITED
PARTNERSHIP, a Kentucky limited partnership
By: CPX-RiverCenter Development
Corporation, a Kentucky corporation
/s/ Martin C. Butler Its: General Partner
- ------------------------
Martin C. Butler
By: /s/ W. P. Butler
---------------------
W. P. Butler
/s/ Robert MacLachlan Its: President
- ------------------------ ---------------------
Robert MacLachlan
36
<PAGE> 41
WITNESSES: LANDLORD (as to the Retail Level, RiverCenter I
Office Building only):
CPX-RIVERCENTER LIMITED PARTNERSHIP,
a Kentucky limited partnership
By: CPX-RiverCenter Development
Corporation, a Kentucky corporation
/s/ Martin C. Butler Its: General Partner
- ------------------------
Martin C. Butler
By: /s/ W. P. Butler
---------------------------
/s/ Robert MacLachlan Its: President
- ------------------------ ---------------------------
Robert MacLachlan
WITNESSES: TENANT
------
GIBSON GREETINGS, INC.
/s/ Sharon A. Shelton By: /s/ J. Wilson
- ----------------------- ----------------------------------
Sharon A. Shelton ITS: Executive Vice President
---------------------------------
Finance & Operations and
Chief Financial Officer
/s/ Donita Konrad
- -----------------------
Donita Konrad
STATE OF KENTUCKY )
------------- ) SS:
COUNTY OF KENTON )
-------------
The foregoing instrument was acknowledged before me this 13th day
of August, 1998, by William P. Butler, the President of CPX-RiverCenter
Development Corporation, a Kentucky corporation, general partner of
CPX-RiverCenter Two Limited Partnership, a Kentucky limited partnership,
Landlord in the foregoing Lease Agreement, on behalf of the corporation and the
partnership.
/s/ Martin C. Butler
-----------------------------------
NOTARY PUBLIC
My Comm. Expires:__________________
MARTIN C. BUTLER
Notary Public, Kentucky State at Large
My Commission Expires June 13, 2000
STATE OF KENTUCKY )
---------------- ) SS:
COUNTY OF KENTON )
----------------
37
<PAGE> 42
The foregoing instrument was acknowledged before me this 13th day
of August, 1998, by William P. Butler, the President of CPX-RiverCenter
Development Corporation, a Kentucky corporation, general partner of
CPX-RiverCenter Limited Partnership, a Kentucky limited partnership, Landlord in
the foregoing Lease Agreement, on behalf of the corporation and the partnership.
/s/ Martin C. Butler
---------------------------------------
NOTARY PUBLIC
My Comm. Expires:
----------------------
MARTIN C. BUTLER
Notary Public, Kentucky State at Large
My Commission Expires June 13, 2000
(for corporate tenant)
STATE OF OHIO )
--------- ) SS:
COUNTY OF HAMILTON )
----------
The foregoing instrument was acknowledged before me this 12th day
of August, 1998 by James T. Wilson, the Executive Vice President-Finance and
Operations of Gibson Greetings, Inc., a Delaware corporation, Tenant in the
foregoing Lease Agreement, on behalf of the corporation.
/s/ Donita J. Konrad
-----------------------------------
NOTARY PUBLIC
My Comm. Expires: DONITA J. KONRAD
Notary Public, State of Ohio
My Commission Expires May 9, 2000
38
<PAGE> 43
EXHIBIT "A"
LEASED PREMISES
The Leased Premises are shown on the drawings attached hereto, marked as
Exhibits A-1 through A-6, and made a part hereof.
Initials:
LANDLORD /s/ WPB/MCB
-------------------------
TENANT JW
-------------------------
A
<PAGE> 44
EXHIBIT A
---------
Retail Level
5, 023 R.S.F.
Diagram Showing Floor Plan of Retail Level
A-1
<PAGE> 45
EXHIBIT A
---------
PLAZA LEVEL
-----------
11,898 R.S.F.
Diagram Showing Floor Plan of Plaza Level
A-2
<PAGE> 46
3rd, 5th & 6th Levels
TYPICAL FLOOR PLAN
16, 618 R.S.F. Per Floor
Diagram Showing Typical Floor Plans of 3rd, 5th and 6th Levels
A-3
<PAGE> 47
7th, 8th & 9th Levels
TYPICAL FLOOR PLAN
16, 473 R.S.F. Per Floor
Diagram Showing Typical Floor Plan of 7th, 8th and 9th Levels
A-4
<PAGE> 48
11th Level
16, 294 R.S.F.
Diagram Showing Floor Plan of 11th Level
A-5
<PAGE> 49
12th Level
16, 294 R.S.F.
Diagram Showing Floor Plan of 12th Level
A-6
<PAGE> 50
EXHIBIT "B"
DEVELOPED PARCEL
Initials:
LANDLORD /s/ MCB
-----------------------
TENANT /s/ JW
-----------------------
B-1
<PAGE> 51
EXHIBIT "B"
DEVELOPED PARCAL
Diagram Showing Developed Parcal
B-2
<PAGE> 52
EXHIBIT "C"
ALTERATIONS AND IMPROVEMENTS
(WORK LETTER)
No promise of Landlord to alter, remodel, improve, repair, decorate, or clean
the Leased Premises or any part thereof, and no representation respecting the
condition of the Leased Premises, the Building or the Developed Parcel has been
made to Tenant by Landlord except as made herein. In the event Landlord has
agreed or is required to make any alterations or improvements to the Leased
Premises to prepare same for Tenant's occupancy, the same shall be limited to
those alterations and improvements which are enumerated and detailed in this
Work Letter.
I. GENERAL PROVISION'S RELATING TO
-------------------------------
PREPARATION OF PLANS AND SPECIFICATIONS
------------------------------------------
Landlord has heretofore delivered to Tenant, and Tenant has heretofore
received and approved, a floor plan prepared by Landlord's architect
for the Premises detailing Landlord's work as described in Section II
of this Exhibit "C" ("Landlord's Plans"). In the event Tenant requests,
which request will not be unreasonably denied by Landlord, any
additional changes, modifications or alterations to Landlord's Plans or
the work to be performed by Landlord pursuant to Section II hereof, or
both, as a result of a change in Tenant's space or design requirements
or otherwise, all additional architectural and engineering fees,
construction costs and other costs and expenses incurred by Landlord in
connection therewith shall be the sole responsibility of Tenant and
payable by Tenant to Landlord. If, as a result of any changes,
modifications or alterations to Landlord's Plans or the work required
to be performed by Landlord pursuant to Section II hereof made at the
request of Tenant, there is any delay in the substantial completion of
Landlord's work, then for all intents and purposes of this Lease,
including this Exhibit "C", Landlord's work shall be deemed to have
been substantially completed on the date, that such work would have
been substantially completed before such changes, modifications or
alterations made at the request of the Tenant.
II. GENERAL PROVISIONS RELATING TO
-------------------------------
CONSTRUCTION OF LANDLORD'S WORK
---------------------------------
The term "Landlord's Work" shall mean the construction by Landlord of
only the following work as part of Landlord's base building costs as
distinguished from tenant finish cost.
<PAGE> 53
BASE BUILDING
-------------
1. Floor:
-----
The floor shall be smooth finish concrete ready to receive
finish flooring and base.
2. Core and Public Areas:
----------------------
Main building entrance provided in accordance with building
plans and code requirements. Each floor shall have men's and
women's lavatories in accordance with code.
3. Heating and Air Conditioning:
-----------------------------
The building has incorporated a modern forced air, chilled
water system. Each floor contains its own air handling unit
with main trunk distribution through-out.
4. Fire Protection:
----------------
Landlord provides a primary sprinkler main loop through-out as
required by code. The branching of secondary lines and the
dropping of sprinkler heads is included in tenant work.
5. Emergency Exit Signage and Emergency Lighting
---------------------------------------------
Landlord provides building standard and code required signs to
identify core exits only. Additional exit signs and emergency
lighting required in Tenant space is Tenant's expense.
6. Power
-----
Main power is distributed to an electrical panel on each
floor. Secondary power distribution to tenant's panel and
circuiting from this panel is included in tenant work.
<PAGE> 54
TENANT WORK
-----------
Landlord will provide in addition, an allowance towards Tenant
installation work, as herein outlined:
1. Floor Covering
--------------
a) Carpet: Building standard carpet, without pad, of
color and texture as selected by Tenant from choice
of selections furnished by landlord, except for
toilet rooms and areas subject to soiling and
spillage.
b) Vinyl Composition Tile: Armstrong Excelon, 1 ft.
squares.
c) Vinyl cove Base 4".
2. Ceiling:
-------
Suspended acoustical building standard revealed edge tile in
exposed metal 2'x 2' grid. The ceiling height is 8'6" - 9'.
3. Corridor & Demising Walls:
--------------------------
Shall extend from floor to structure above and shall be
constructed of metal studs and gypsum wallboard. Sound
attenuation blanket shall be included. Tenant Work Letter
shall include a pro rata share of the corridor wall
construction.
4. Perimeter Walls
---------------
The exterior walls of the leased space shall be gypsum
wallboard construction (taped and spackled) on metal studs, or
glass as shown on the drawings.
5. Interior Partitions:
--------------------
One lineal foot of metal studs and gypsum board partition per
12.5 square feet of usable tenant area, trimmed and painted
with two (2) coats of flat latex paint, 9'0".
6. Columns:
--------
Interior column wraps finished smooth and ready for paint.
7. Entry Door:
-----------
Full height 1 3/4" solid core with associated hardware -
Number required by Code.
8. Interior Doors:
---------------
3' 0" x 7'0" solid core with associated hardware - One door
per 300 square feet of usable Tenant area.
<PAGE> 55
EXHIBIT "C"
ALTERATIONS AND IMPROVEMENTS
Continued
(WORK LETTER)
Landlord has agreed to build out the Leased Premises based upon Building
Standard Specifications, with a mixture of 90% open office area and 10% enclosed
private office area within the Leased Premises. The parties hereto further agree
that the additional allowance of $200,000.00 set forth below herein for electric
and wire distribution has been given in consideration of such reduced percentage
of enclosed private office space. Notwithstanding the above, Landlord agrees
that it will build out the Leased Premises based upon Building Standard
Specifications and Finishes at Tenant's request up to a ratio of 70% open space
and 30% enclosed private office area, provided, however, in such event, that the
parties hereto agree that the additional $200,000.00 allotment for electrical
and wiring distribution provided for below herein shall be decreased by up to
$100,000.00 in proportion to the percentage increase in enclosed private office
space exceeds ten (10%) (i.e. an increase in enclosed private office area from
10% to 15% shall cause a decrease of $25,000.00 in the Special Electrical
Allowance). Building Standard Finishes are further delineated in the remainder
of Exhibit "C". The Building Standard Specifications and Building Standard
Finishes are collectively referred to as the "Building Standards." Provided
Tenant adheres to these Building Standards, the Leased Premises shall be built
at Landlord's expense. In the event that Tenant requests over standard
improvements or any other improvements in excess of Building Standards, Tenant
shall be responsible for payment of such over standard improvement costs at
least 14 days prior to occupancy of the Leased Premises.
In consideration of the reduction of private enclosed offices to 10% of the
total space, Landlord, subject to the provisions first set forth in the first
paragraph in this Exhibit "C", shall provide the sum of $200,000.00 for electric
and wiring distribution beyond the subpanels on each floor of the Leased
Premises ( the "Special Electrical Allowance"). Such Special Electrical
Allowance shall be payable only in the proportion that the amount of square feet
of leased space actually occupied bears to 148,782 square feet.
With respect to the Retail Level and Plaza Level (containing approximately
16,500 square feet) tenant improvements, Landlord has no "turn-key"
responsibility. In substitution thereof, Landlord shall provide $300,000.00
allowance toward the tenant improvements for the showroom and display facility
to be located on the Retail and Plaza Levels. In the event the costs for Retail
Level and Plaza Level tenant improvements are less than $300,000.00, Tenant
shall be entitled to apply the remaining amount of such $300,000.00 allowance to
any other portion of the Leased Premises as Tenant may designate.
Landlord will have sole right to act as general contractor.
<PAGE> 56
Landlord further agrees to pay Tenant a monthly payment in the amount of
$13,105.86 per month during the original ten (10) year term of this lease for
computer and data processing room expenses incurred by Tenant.
Tenant shall be entitled to cause a stairway to be installed between the Retail
and Plaza Levels of the Leased Premises. Such stairway shall be installed in a
location which is mutually agreeable to Landlord and Tenant by Landlord at
Tenant's expense.
Landlord agrees to use its best efforts to cause one of the existing public
building elevators to be retrofitted to allow double door access from the Plaza
Level only by adding a door on the south elevator of the Plaza Level space. Such
elevator retrofitting shall be made by Landlord at Tenant's cost and expense.
In addition, Landlord shall also install, at Tenant's cost, certain
extraordinary items for the Tenant's use and benefit. Landlord agrees to provide
Tenant a copy of minimum of two qualified subcontractor bids for each
construction category division of the extraordinary work indicated on Exhibit
"C-2." Landlord shall include, with the two qualified bids, its recommendation
for subcontractor selection. The Tenant shall have 24 hours to consent to the
subcontractor recommended by Landlord. Tenant shall also have the right to
select a subcontractor that is not included with the Landlord's qualified
subcontractor bids, however, in such event, Landlord shall not be responsible
for delays in Lease Commencement due to construction delays caused by such
subcontractor. Landlord shall be entitled to compute as cost for the Exhibit
"C-2" alterations and improvements, the actual cost thereof (including General
Conditions) plus (12%) overhead and profit computed on the actual cost.
Initials:
LANDLORD /s/ MCB
------------------
TENANT /s/ JW
------------------
<PAGE> 57
EXHIBIT "C-1"
The following critical dates must be met by Tenant and Tenant's architect:
- - All preliminary drawings, including, but not limited to, Computers,
HVAC/Liebert Units, FM 200 Fire Suppression. 8/28/98
The following dates shall be met by Landlord:
- - All construction/permit final drawings 9/4/98
NOTE 1: The construction permit documents need to be complete, including all
finish selections (including color, style, model, etc.) electrical/telecom
location, lighting layouts, these drawings are to be clear and descriptive so
that they can be bid out and sent to the State of Kentucky for permit.
NOTE 2: Long lead times may be experienced on non-standard items. For instance:
- ----------------------------------------------------------------------------
- - Computer HVAC/Liebert Units 8 to 10 weeks
- ----------------------------------------------------------------------------
- - FM 200 Fire Suppression 8 to 10 weeks
- ----------------------------------------------------------------------------
- - Carpet (other than standard) 6 to 8 weeks
- ----------------------------------------------------------------------------
- - Wall coverings 4 to 6 weeks
- ----------------------------------------------------------------------------
Upon completion of construction drawings, Landlord shall advise Tenant of any
finish selections that have long lead times that will affect the schedule.
Tenant shall immediately make alternative selections or make other arrangements
to accommodate the schedule.
<PAGE> 58
EXHIBIT "C-2"
List of Extraordinary Tenant Improvement Items:
1) Raised computer flooring
2) Dry pipe sprinkler system required for the computer room
3) All HVAC equipment for the computer room
4) Internal staircase between the plaza level and the retail level
5) Upgraded electric for the computer room including separate electric
meters
6) HVAC/Leibert Units
7) FM 200 Fire Suppression
8) Carpet (other than standard)
9) Wall coverings
<PAGE> 59
EXHIBIT "D"
The Annual Base Rent for the initial term of this lease is as follows:
<TABLE>
<CAPTION>
Total Annual Total Monthly
Year Base Rent Rent
------ ------------ -------------
<S> <C> <C>
1 $2,189,927 $182,493
2 $2,255,624 $187,969
3 $2,323,294 $193,608
4 $2,392,992 $199,416
5 $2,464,782 $205,399
6 $2,538,725 $211,560
7 $2,614,887 $217,907
8 $2,693,334 $224,444
9 $2,774,134 $231,178
10 $2,857,358 $238,113
</TABLE>
Initials:
LANDLORD /s/ MCB
------------
TENANT /s/ JW
------------
<PAGE> 60
EXHIBIT "E"
CLEANING, JANITOR AND ROUTINE MAINTENANCE SERVICE
Nightly: Empty wastepaper baskets, ash trays and other receptacles.
Dry mop all resilient and hard floors, vacuum clean or carpet
sweep all carpets and rugs.
Dust and wipe clean all office furniture, fixtures, including
telephones and window sills.
Wipe clean all water fountains and coolers.
Dust and damp dust, as necessary, ash trays.
Remove waste paper and normal office refuse.
Sweep and dust all private stairways.
Clean all Men's and Ladies' Toilets. These areas will be
checked daily for neatness and orderliness.
Damp mop all ceramic tile, marble and terrazzo flooring.
Clean elevator cabs nightly.
Clean, as necessary, the outside of all mail chutes.
Clean all cigarette urns as necessary.
Fill toilet tissue holders, soap and towel dispensers, as
needed.
Clean all glass furniture tops.
Clean entrance doors.
Buff halls and lobby area, as necessary.
Clean and polish washroom mirrors.
Wash and wipe washroom towel and waste receptacles.
Scour all washroom wash basins.
Remove splash marks from wall in washroom wash basin area.
Wet mop restroom floors.
After cleaning, all lights shall be turned off (except as
otherwise directed by Tenant), doors locked and offices left
in an orderly fashion.
Weekly: Wet mop, spot wax and buff traffic area.
Wash sides of drinking fountains.
Clean washroom partitions.
Monthly: Dust all door and other ventilating louvers, as necessary.
Wash unblocked partition glass.
Remove dust from hard to reach places (picture frames,
baseboards, ledges, etc.).
Keep venetian blinds dusted, as required.
Machine scrub all floors wherever required.
Wax all scrubbed flooring, as required.
Machine polish all waxed flooring, as required.
E-1
<PAGE> 61
Annually: Dust ceiling surfaces, other than acoustical ceiling material.
Vacuum all radiator and under-window air conditioning
equipment and reassemble.
Other: Clean all building standard lighting fixtures, as necessary.
Wash all exterior windows outside three times a year, weather
permitting, inside three times a year.
Daily check building plaza for neatness and appearance, as
expected for a Class "A" building.
Initials:
LANDLORD /s/ MCB
------------------
TENANT /s/ JW
------------------
E-2
<PAGE> 62
EXHIBIT "F"
RULES AND REGULATIONS
Definitions:
- ------------
Wherever in these Rules and Regulations the word "Tenant" is used, it
shall be taken to apply to and include Tenant and its agents,
employees, invitees, licensees, subtenants, and contractors, and is to
be deemed of such number and gender as the circumstances require. The
word "Landlord" shall be taken to include the employees and agents of
the Landlord.
1. The entry passages, lobbies, elevators, stairways and fire
exits of the Building may be used for ingress and egress only.
2. Doors leading to the corridors or main halls shall be kept
closed at all times except as they may be used in ingress and
egress.
3. All entrance doors in the Leased Premises shall be left locked
when not in use.
4. Furniture, supplies and equipment of Tenant shall be delivered
only at times and in locations designated by Landlord.
5. No bicycles or vehicles of any kind shall be brought into or
kept in or about said premises or the lobby or halls of the
Building.
6. Space for admitting natural light into any public area of the
Building shall not be covered or obstructed by Tenant except
in a manner approved by Landlord.
7. No sign, advertisement, notice or the like, shall be used in
the Building by Tenant (other than on its office doors and
then only as approved by Landlord), provided, however, that
Tenant shall be entitled to install signage on the Retail
Level of the Leased Premises upon Landlord's prior consent,
which consent shall not be unreasonably withheld or delayed,
provided that such signage is not detrimental to the overall
appearance of the Building and further provided that such
signage complies with all laws, ordinances, rules, and
regulations of all applicable governmental authorities. If
Tenant violates the foregoing, Landlord may remove the
violation without liability and may charge all costs and
expenses incurred in so doing to Tenant.
8. Landlord will furnish Tenant with a key for said premises. All
such keys in Lessee's possession or known by Tenant to be in
existence shall be delivered to Landlord at the termination of
this Lease. (If more than two keys for one lock are desired,
Landlord will provide them upon payment by Tenant.) Tenant
shall not place any additional lock on any door in the
Building.
F-1
<PAGE> 63
9. A Directory Board will be furnished to identify tenants within
the building. Landlord reserves the right to determine the
number of letters allowed by tenant on any directory it
maintains.
10. The said premises shall not be defaced in any way. Excepting
for those normally used in hanging of pictures,
certifications, artwork, and the like, no nails shall be
driven, no screws inserted, there shall be no boring or
cutting from wires, and no change in electric fixtures or
other appurtenances of said premises shall be made without
prior written approval of the Landlord.
11. Toilets and other like apparatus shall be used only for the
purpose for which they were constructed. Any and all damage
from misuse shall be borne by Tenant.
12. Tenant shall not install or use any air conditioning or
heating device or system other than approved by Landlord.
13. Tenant shall not place a load on any floor of said premises
exceeding one hundred (100) pounds per square foot. Landlord
reserves the right to prescribe the weight and position of all
safes and heavy equipment.
14. Tenant shall not throw or permit to be thrown anything out of
windows or doors or down passages or elsewhere in the Building
or bring or keep any pets or other animals therein, or commit
or make any indecent or improper act or noise, or do or permit
anything which will in any way obstruct, injure, annoy or
interfere with other tenants or those having business with
them, or affect any insurance rates on the Building or violate
any provision of any insurance policy on the Building.
15. Tenant and Lessee's agents, employees, licensees, and invitees
shall have the right to use in common with Landlord and
Lessor's tenants and the agents, employees, licensees and
invitees of each, the public sidewalks, entrances, lobbies,
vestibules, stairways, corridors, passenger and freight
elevators, public toilets and other public areas of the
Building, subject, however, to applicable Building rules,
regulations and security measures. Tenant and Lessee's agents,
employees, licensees and invitees shall not obstruct or
litter, or use for storage (temporary or otherwise) or for the
display of merchandise or services or for any purpose other
than the intended and normal purpose, any of said public
sidewalks, entrances, lobbies, vestibules, stairways,
corridors, passenger and freight elevators, public toilets and
other public areas of said Building; and no floor mats or
runners shall be placed by Tenant in any Building corridor,
lobby or vestibule.
F-2
<PAGE> 64
16. No cooking shall be done or permitted by Tenant on said
premises. Tenant, its officers and employees, shall however be
entitled to use small microwave ovens, coffee makers and
refrigerators in the Leased Premises, provided that the use of
same is not in violation of any fire, electrical, or building
codes, laws, ordinances, rules, and regulations of any
applicable governmental authorities. Tenant shall not cause or
permit any unusual or objectionable odors to be produced upon
or emanate from said premises.
17. Tenant shall not be permitted to install vending machines or
similar types of electric appliances such as coffee makers or
hot plates without Landlord's approval, and no Tenant shall
obtain or accept for use in the Leased Premises, ice, coffee
service, catering, drinking water, barbering and bootblacking
from any person not authorized by Landlord in writing to
furnish such services.
18. Tenant shall not permit cleaning by any person other than
employees of the Building or persons approved by Landlord.
19. Unless specifically authorized by Landlord, employees of
Landlord shall not perform nor be asked to perform work other
than their regularly assigned duties.
20. Landlord may close or temporarily suspend operation of
entrances, doors, corridors or other facilities, provided that
Landlord shall cause as little inconvenience or annoyance to
Tenant as it is reasonably necessary in the circumstances, and
shall not do any act which permanently reduces the size of the
Leased Premises. Landlord may do any such work during ordinary
business hours. If such work is done during other hours at
Tenant's request, Tenant shall pay Landlord for overtime and
any other expenses incurred.
21. Canvassing, soliciting or peddling in the Building is
prohibited and each Tenant shall cooperate to prevent the
same.
22. Tenant shall not carry on or permit to be carried on upon said
Leased Premises or any part thereof any immoral or illegal
business, gambling, the selling of pools, lotteries or any
business that is prohibited by law.
23. Landlord shall have the right to prohibit any advertising by
Tenant on the Leased Premises, or showing, depicting or
providing the location of the Leased Premises, which, in
Lessor's opinion tends to impair the reputation of the
Building or its desirability as an office building and, upon
written notice from Landlord, Tenant shall promptly
discontinue such advertising.
24. Any parking regulations which may be established from time to
time by Landlord shall be obeyed.
F-3
<PAGE> 65
25. For the general welfare of all tenants and the security of the
Building, Landlord may require all persons entering and/or
leaving the Building on Saturdays, Sundays and/or holidays and
on other days between the hours of 6:00 P.M. and 8:00 A.M. to
register With the Building attendant or custodian by signing
his name and writing his destination in the Building, and the
time of entry and actual or anticipated departure. Landlord
may deny entry during such hours to any person who fails to
provide satisfactory identification.
26. Landlord shall have the right to change these Rules and
Regulations at any time, and Tenant shall be subject to all
such changed Rules and Regulations of which Tenant has been
notified in writing, provided such changes do not have a
material impact, financial or otherwise, on Tenant's business,
occupancy, or use of the Leased Premises for the permitted
uses stated herein.
27. All rules and regulations shall be enforced fairly and
uniformly by Landlord. Authorizations, as necessary, shall not
be unreasonably withheld.
Initials:
LANDLORD /s/ MCB
---------------
TENANT /s/ JW
---------------
F-4
<PAGE> 66
EXHIBIT "G"
CONTROLLED PARKING
It is the intention of the parties that the City of Covington will own and
operate a Parking Garage upon the Developed Parcel. This Parking Garage shall be
available for the use of tenants of the Building, tenants of other buildings
which may be built as part of the RiverCenter development, the general public
and others. No parking spaces in this Parking Garage are included as part of the
Leased Premises, except as otherwise provided in this Exhibit G.
Initials:
LANDLORD /s/ MCB
--------------
TENANT /s/ JW
--------------
G-1
<PAGE> 67
LEASE ADDENDUM TO
GIBSON GREETINGS, INC. LEASE FOR
RIVERCENTER I AND RIVERCENTER II OFFICE TOWERS
DATED AUGUST 13, 1998
WHEREAS, Landlord and Tenant have entered into a Lease Agreement dated
August 13, 1998, which lease embodies the occupancy by Tenant of approximately
148,782 rentable square feet within the RiverCenter I and RiverCenter II Office
Towers for a term of ten (10) years (the Base Lease); and
WHEREAS, pursuant to the provisions of Paragraph 1 of the Lease
Agreement, Tenant is entitled on or before August 31, 1998, to give back the
ninth (9th) floor of the Leased Premises; and
WHEREAS, certain allowances and incentives have been provided by
Landlord in order to induce the Tenant to enter into the Base Lease; and
WHEREAS, such allowances and incentives shall be subject to reduction
on a proportionate basis in the event that tenant elects to give back such ninth
floor space;
NOW, THEREFORE, in consideration of the terms and conditions of the
Base Lease and the mutual covenants of the parties hereto,
IT IS HEREBY AGREED as follows:
The parties hereto acknowledge and agree that the following allowances
and incentives as hereinafter set forth have been provided in order to induce
Tenant to execute and deliver the Base Lease:
(a) Monthly payments for the computer and data processing room expenses
incurred by Tenant as referenced in Exhibit "C" of the Base Lease;
(b) Two hundred thousand dollar ($200,000.00) electrical allowance for
electric and wiring distribution beyond the sub-panels on each floor of the
Leased Premises as referenced in Exhibit "C" of the Base Lease; and
(c) Three hundred thousand dollar ($300,000.00) Retail Level and Plaza
Level space fit-out allowance as referenced in Exhibit "C" of the Base Lease.
IT IS HEREBY ACKNOWLEDGED AND AGREED by the parties hereto that, to the
extent that the total rentable square footage of the base Leased Premises is
reduced pursuant to the give-back provisions of Paragraph 1 of the Base Lease
that the above-noted allowances and/or incentives shall be payable by Landlord
only in the proportion that the amount of square feet of leased space actually
occupied bears to 148,782 square feet.
LANDLORD /s/ MCB
-------------
TENANT /s/ JW
-------------
<PAGE> 68
LEASE ADDENDUM TO
GIBSON GREETINGS, INC. LEASE FOR
RIVERCENTER I AND RIVERCENTER II OFFICE TOWERS
DATED AUGUST 13, 1998
WHEREAS, Landlord and Tenant have entered into a Lease Agreement dated
August 13, 1998 which lease embodies the occupancy by Tenant of approximately
148,782 rentable square feet within the RiverCenter I and RiverCenter II Office
Towers for a term of ten (10) years (the Base Lease); and
WHEREAS, Tenant desires certain additional special equipment to be
installed in or about the Leased Premises for Tenant's sole benefit and use; and
WHEREAS, the parties hereto desire to set forth the terms and
conditions upon which such special equipment may be installed.
NOW, THEREFORE, in consideration of the terms and conditions of the
Base Lease and the mutual covenants of the parties hereto, the parties hereto
agree as follows:
LANDLORD HEREBY AGREES that Tenant shall have the right, at Tenant's
sole cost and expense, to install, maintain and operate a proprietary Liebert
air conditioning unit, a special electrical generator, and related electrical
and condensation lines and conduit. Landlord shall provide Tenant a location for
the placement of such special equipment acceptable to Landlord, together with
such specifications that may be required by Landlord for architectural
screening, landscaping, and installation and maintenance of said special
equipment within a distance that will allow normal operation of the system.
LANDLORD /s/ MCB
----------------
TENANT /s/ JW
----------------
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT made on August 11, 1998 by and between GIBSON
GREETINGS, INC., a Delaware corporation (the "Corporation"), and FRANK J.
O'CONNELL ("Executive").
WITNESSETH:
WHEREAS, the Corporation desires to assure itself of the continued
services of Executive, and Executive is willing to make his services available
to the Corporation on the terms and conditions set forth below;
WHEREAS, except as expressly set forth herein below, this Agreement
supersedes the Employment Agreement dated as of August 25, 1996, by and between
the Corporation and the Executive (the "Predecessor Agreement").
NOW, THEREFORE, in consideration of the premises and mutual promises
contained in this Agreement, IT IS AGREED:
1. EMPLOYMENT. The Corporation hereby employs Executive, and Executive
hereby accepts employment with the Corporation, on the terms and conditions set
forth in this Agreement.
2. TERM. The Term of Executive's employment hereunder shall commence
as of the date hereof. Unless sooner terminated pursuant to Paragraph 6 hereof,
Executive's employment hereunder shall continue until December 31, 2002 (the
"Term"), which Term shall renew automatically from year to year thereafter
(each such year hereinafter referred to as a "Renewal Term") unless notice of
an intention not to renew is given by either party to the other at least six
(6) months before the end of the Term or any Renewal Term, in which event
Executive's employment shall cease as of the end of such Term or Renewal Term,
as applicable.
3. DUTIES. Executive shall continue to serve as, and have the duties
and responsibilities of, the Chairman, President and Chief Executive Officer of
the Corporation and will, under the direction of the Board of Directors of the
Corporation (the "Board"), devote substantially all of his working time and
effort to the performance of the duties of such offices provided, however, that
nothing herein shall prohibit Executive from participating in charitable and
other activities described in a letter to the Corporation delivered prior
hereto.
4. COMPENSATION. Executive's compensation for the services performed
under this Agreement shall be as follows:
(a) BASE SALARY. Executive shall receive a base salary of
Five Hundred Thousand ($500,000) Dollars per year (the "Base Salary"),
effective August 1, 1998 and
<PAGE> 2
payable in regular semimonthly installments, which Base Salary shall be
reviewed by the Board in August of each year beginning with 1999 for possible
increases.
(b) INCENTIVE COMPENSATION. In addition to Base Salary,
Executive shall earn incentive compensation ("Incentive Compensation") for
fiscal year 1998 and each fiscal year thereafter during the Term or any Renewal
Term of this Agreement (provided Executive has served as Chairman, President or
Chief Executive Officer for part or all of such fiscal year), to be paid on or
before each April 1 of the succeeding fiscal year, in an amount equal to up to
200% of the Base Salary in effect for such fiscal year, based upon (1) the
percentage increase in the Corporation's operating income for such fiscal year
(on a consolidated basis using generally accepted accounting principles
consistently applied) and (2) the percentage increase in the Corporation's
revenue for such fiscal year, in accordance with the terms set forth in
Appendix A attached hereto. Nothing herein shall prohibit the Board from
granting in its discretion additional Incentive Compensation to Executive.
(c) NEW STOCK OPTION. On the date hereof, Executive shall be
granted a non-qualified stock option (the "Stock Option") to purchase an
aggregate of 500,000 shares of common stock of the Corporation, par value $.01
per share (the "Common Stock"), to be issued under, and pursuant to the terms
of, the Corporation's 1991 Stock Incentive Plan (the "Stock Plan"). The Stock
Option granted hereby will have the following exercise schedule and exercise
prices:
(1) 166,667 shares of Common Stock will be
exercisable from and after the date hereof at the market price for Common
Shares as of the close of trading on the date hereof;
(2) 166,666 shares of Common Stock to vest on
April 15, 1999 and to be exercisable from and after such date at $28.00 per
share; and
(3) 166,667 shares of Common Stock to vest on
April 15, 2000 and to be exercisable from and after such date at $30.00 per
share.
The Stock Option shall expire ten (10) years from the date hereof,
subject to the other terms and conditions of the applicable Stock Option
Agreement and Stock Plan.
Notwithstanding the foregoing, all unvested portions of the Stock
Option will vest at the applicable exercise price if there is a Change in
Control (as defined in Paragraph 7 below) or the average closing price for any
period of 20 consecutive trading days equals or exceeds $35.
(d) EXISTING STOCK OPTIONS. Any and all stock options granted
to the Executive by the Corporation pursuant to Paragraph 4(c) of the
Predecessor Agreement shall continue and remain in effect in accordance with
the terms and conditions of the grants
2
<PAGE> 3
("Existing Stock Options"), except that the Corporation immediately shall amend
the grants of the Existing Stock Options to provide:
(1) Executive may use "mature" shares to pay part or all of
the exercise price of Existing Stock Options;
(2) Executive may transfer all or part of the Existing
Stock Options to designated family members, trusts for the benefit of family
members, or family partnerships; and
(3) For vesting and exercisability in accordance with
Paragraphs 6(a)(2), 6(b)(2), 6(d)(2), 6(e)(2) and 6(f)(2).
5. FRINGE BENEFITS.
(a) VACATION. Executive shall be entitled to four (4) weeks of
paid vacation annually.
(b) CLUB MEMBERSHIPS. The Corporation shall pay all of
Executive's dues (including initiation dues) and membership assessments for
such club or clubs which membership(s) are determined by the Board to be useful
in connection with Executive's duties on behalf of the Corporation. The
Corporation also shall reimburse Executive for all expenses incurred by
Executive at such clubs on behalf of the Corporation.
(c) REIMBURSEMENT FOR REASONABLE BUSINESS EXPENSES. The
Corporation shall reimburse Executive for reasonable expenses incurred by him
in connection with the performance of his duties pursuant to this Agreement,
including, but not limited to, travel expenses, expenses in connection with
seminars, professional conventions or similar professional functions and other
reasonable business expenses.
(d) AUTOMOBILE. The Corporation shall provide Executive with full
use of a luxury automobile (e.g. Cadillac, STS, or motor vehicle of comparable
cost), owned or leased by the Corporation, for use in carrying out his duties
for the Corporation and otherwise. The Corporation agrees to provide adequate
liability and collision insurance for the automobile, protecting the Executive
and the Corporation, and to pay all lease, maintenance and operating costs
appropriate or necessary to maintain and operate such automobile in prime
condition.
(e) GENERALLY. Executive shall be eligible to participate in such
health, dental, welfare and other fringe benefits as are currently available
(and as may be made available in the future) to other senior executive-level
employees of the Corporation.
(f) LIFE AND DISABILITY INSURANCE. The Corporation shall provide
Executive with, and shall pay when due all premiums on and otherwise keep in
force, (1) split-dollar
3
<PAGE> 4
life insurance with a face amount of $2.5 million, and (2) disability insurance
that provides after-tax benefits to Executive equaling 60% of his Base Salary
(determined at the time of disability) per year up to age 65.
(g) SUPPLEMENTAL RETIREMENT BENEFITS. The Executive shall
continue to participate in the Corporation's make-up pension plan and SERP
(collectively, the "Retirement Plans"). The Corporation shall immediately take
such actions and execute such documents as are necessary to ensure that
Executive is provided under the Retirement Plans with (1) additional credit as
of the date hereof for five years of service for all purposes under the
Retirement Plans, (2) credit for one additional year of service for all
purposes under the Retirement Plans (up to a maximum of five years additional
deemed service) for each year of actual service after December 31, 1997, and
(3) vesting in and entitlement to receive early retirement benefits. In the
event the Corporation is unable to provide any of the foregoing, or any of the
benefits provided for in Paragraphs 6(a)(5), 6(b)(5), 6(d)(6), 6(e)(6) or
6(f)(4), through the Retirement Plans, the Corporation shall provide Executive
with equivalent (in all material respects) benefits in a form acceptable to
Executive.
6. TERMINATION OF EMPLOYMENT.
(a) TERMINATION FOR DISABILITY. If during the Term or any Renewal
Term, Executive shall be unable to perform his duties hereunder on account of
illness or other incapacity, and such illness or other incapacity shall
continue for a period of more than six (6) months in any twelve-month period,
the Corporation shall thereafter have the right to terminate Executive's
employment prior to conclusion of the Term or Renewal Term, provided that such
illness or incapacity remains in effect at the time of termination. In the
event of termination of employment under this Paragraph 6(a), all compensation
and other benefits accruing after such date of termination pursuant to
Paragraphs 4(a), 4(b) and 5(a)-(g) of this Agreement shall terminate on the
date of employment termination, and the following payments and benefits instead
shall be provided:
(1) Incentive Compensation under Paragraph 4(b) with
respect to the fiscal year immediately preceding the year in which employment
termination occurs shall be paid Executive or his designee if it has not been
paid by the time of termination and a pro-rata portion (based on the number of
days of employment in the year of termination) of the amount of Incentive
Compensation payable with respect to the fiscal year in which employment
termination occurs;
(2) The Stock Option, and Existing Stock Options and other
equity grants immediately shall become fully vested and fully exercisable.
(3) Semi-monthly installments of "Current Compensation"
(defined as the sum of Executive's then current Base Salary plus the average of
the Incentive Compensation he earned for the two consecutive fiscal years
immediately preceding the fiscal year in which his employment terminates;
provided that his 1997 Incentive Compensation is
4
<PAGE> 5
deemed to be $500,000 for this purpose) shall be continued for a period at
least one (1) year after termination but not beyond the Term or Renewal Term;
(4) Medical, dental and health coverage to the extent
provided under Paragraph 5(e) shall be continued (at the Corporation's expense)
for a period of one (1) year after termination; and
(5) One (1) additional year of credit under the Retirement
Plans shall be granted Executive.
(b) TERMINATION FOR DEATH. In the event of Executive's death
during the Term or any Renewal Term, all compensation and other benefits
accruing after such date of termination pursuant to Paragraphs 4(a), 4(b) and
5(a)-(g) of this Agreement shall terminate on the date of death, and the
following payments and benefits instead shall be provided:
(1) Incentive Compensation under Paragraph 4(b) with
respect to the fiscal year immediately preceding the year in which death occurs
shall be paid Executive's estate if it has not been paid by the time of
termination and a pro-rata portion (based on the number of days of employment
in the year of termination) of the amount of Incentive Compensation payable
with respect to the fiscal year in which employment termination occurs;
(2) The Stock Option, Existing Stock Options and other
equity grants immediately shall become fully vested and fully exercisable;
(3) Semi-monthly installments of Current Compensation shall
be paid to Executive's wife or, if deceased, to his estate for a period of one
(1) year after death but not beyond the Term or Renewal Term;
(4) Medical, dental and health coverage to the extent
provided under Paragraph 5(e) shall be continued (at the Corporation's expense)
for Executive's wife and family, if living, for a period equal to one (1) year;
and
(5) One (1) additional year of service shall be granted
Executive for all purposes under the Retirement Plans.
(c) TERMINATION FOR JUST CAUSE. During the Term or any Renewal
Term, the Corporation's Board of Directors shall be entitled to terminate
Executive's employment for Just Cause upon written notice to Executive, upon a
two-thirds vote of the Directors at a meeting called and held for that purpose
and of which the Executive has been given prior notice and at which he has been
given an opportunity to participate with counsel of his choice. For the
purposes of this Agreement, "Just Cause" shall mean (1) the Executive engages
in an intentional act of fraud, embezzlement, theft or other material violation
of law involving dishonesty in carrying out his duties under this Agreement,
resulting, in any case,
5
<PAGE> 6
in material harm to the Corporation, unless the Executive believed in good
faith that such conduct was in the bests interests of the Corporation and such
conduct in fact did not constitute a felony, (2) conviction of a felony, or (3)
any material breach by the Executive of any of his material agreements or
covenants with the Corporation set forth in this Agreement that results in
material harm to the Corporation and that is not cured by the Executive within
30 days after written notice from the Board of Directors specifying the breach
and requesting a cure. Failure to meet performance standards or objectives of
the Corporation shall not constitute Just Cause for purposes hereof. In the
event of termination of employment under this Paragraph 6(c), all compensation
and other benefits accruing after such date of termination pursuant to
Paragraphs 4(a), 4(b) and 5(a) -(g) of this Agreement shall terminate on the
date of employment termination, and the following payments and benefits instead
shall be provided:
(1) Incentive Compensation under Paragraph 4(b) with
respect to the fiscal year immediately preceding the year in which employment
termination occurs shall be paid Executive or his designee if it has not been
paid by the time of termination, and Executive shall receive no Incentive
Compensation with respect to the year of termination; and
(2) Outstanding portions of the Stock Option and the
Existing Stock Options which are exercisable at the time of Executive's
termination shall be exercisable in accordance with the terms of the applicable
Stock Option agreements and Stock Plans.
(d) TERMINATION WITHOUT JUST CAUSE. During the Term or any
Renewal Term, the Corporation shall be entitled to terminate Executive's
employment upon written notice to Executive for any reason and without meeting
the standards of Just Cause set forth in Paragraph 6(c) above. In the event of
termination of employment under this Paragraph 6(d), all compensation and other
benefits accruing after such date of termination pursuant to Paragraphs 4(a),
4(b) and 5(a)-(g) of this Agreement shall terminate on the date of employment
termination, and the following payments and benefits instead shall be provided:
(1) Incentive Compensation under Paragraph 4(b) with
respect to the fiscal year immediately preceding the year in which employment
termination occurs shall be paid Executive or his designee if it has not been
paid by the time of termination;
(2) The Stock Option, Existing Stock Options and other
equity grants immediately shall become fully vested and fully exercisable;
(3) Executive as and for severance pay shall be paid (i) on
the date of such termination, three (3) times Executive's Current Compensation,
plus (ii) a pro rata portion (based on the number of days of employment in the
year of termination) of
6
<PAGE> 7
the amount of Incentive Compensation paid or payable with respect to the fiscal
year in which employment termination occurs, payable at the time provided by
Paragraph 4(b);
(4) Medical, dental and health coverage to the extent
provided under Paragraph 5(e) shall be continued (at the Corporation's expense)
for a period of three (3) years after termination;
(5) Life insurance coverage to the extent provided under
Paragraph 5(f) shall be continued (at the Corporation's expense) for a period
of three (3) years after termination; and
(6) Three (3) additional years of service shall be granted
Executive for all purposes under the Retirement Plans.
(e) TERMINATION BY EXECUTIVE FOR GOOD REASON. During the Term or
any Renewal Term, the Executive shall be entitled to terminate his employment
upon written notice to the Corporation for Good Reason. For purposes of this
Paragraph 6(e), "Good Reason" shall mean a reduction in Executive's titles as
President, Chief Executive Officer and Chairman of the Board of Directors; a
material reduction in Executive's duties or responsibilities hereunder; a
Change in Control as defined in Paragraph 7; the relocation of the
Corporation's principal executive offices to a location more than 25 miles from
Cincinnati, Ohio; or the Corporation's material breach of any of the
Corporation's material agreements or covenants set forth in this Agreement,
which breach shall not have been remedied or discontinued within 30 days after
written notice by Executive specifying such breach to the Corporation. In the
event of termination of employment under this Paragraph 6(e), all compensation
and other benefits accruing after such date of termination pursuant to
Paragraphs 4(a), 4(b) and 5(a) - (g) of this Agreement shall terminate on the
date of employment termination, and the following payments and benefits instead
shall be provided:
(1) Incentive Compensation under Paragraph 4(b) with
respect to the fiscal year immediately preceding the year in which employment
termination occurs shall be paid Executive or his designee if it has not been
paid by the time of termination;
(2) The Stock Option, Existing Stock Options and other
equity grants immediately shall become fully vested and fully exercisable;
(3) Executive as and for severance pay shall be paid (i) on
the date of such termination, three (3) times Executive's Current Compensation
plus (ii) a pro rata portion (based on the number of days of employment in the
year of termination) of the amount of Incentive Compensation paid or payable
with respect to the fiscal year in which employment termination occurs, payable
at the time provided by Paragraph 4(b);
7
<PAGE> 8
(4) Medical, dental and health coverage to the extent
provided under Paragraph 5(e) shall be continued (at the Corporation's expense)
for a period of three (3) years after termination;
(5) Life insurance coverage to the extent provided under
Paragraph 5(f) shall be continued (at the Corporation's expense) for a period
of three (3) years after termination; and
(6) Three (3) additional years of credit under the
Retirement Plans under Paragraph 5(g) shall be granted Executive.
(f) FAILURE TO RENEW EMPLOYMENT AGREEMENT. In the event this
Employment Agreement is not renewed in accordance with the terms of Paragraph 2
hereof all compensation and other benefits accruing after such date of
termination pursuant to Paragraphs 4(a), 4(b) and 5(a)-(g) of this Agreement
shall terminate on the date employment ceases, and the following payments and
benefits instead shall be provided:
(1) Incentive Compensation under Paragraph 4(b) with
respect to the fiscal year in which the notice of non-renewal is given shall be
paid Executive or his designee in accordance with the provisions of Paragraph
4(b);
(2) The Stock Option, Existing Stock Options and other
equity grants immediately shall become fully vested and fully exercisable;
(3) In the event the failure to renew is a result of the
Corporation giving Executive notice of non-renewal under Paragraph 2, Executive
or his designee will be paid an amount equal to semi-monthly installments of
Current Compensation (payable two (2) business days after the date employment
ceases) and medical, dental and health coverage, to the extent provided under
Paragraph 5(e), shall be continued (at the Corporation's expense) for a period
of one (1) year after the date employment ceases; and
(4) One additional year of service shall be granted
Executive for all purposes under the Retirement Plans.
7. CHANGE OF CONTROL.
(a) DEFINITION. A Change in Control as used herein shall be
deemed to have occurred if the conditions set forth in any one of the following
subparagraphs shall have been satisfied:
(1) Any Person is or becomes the beneficial owner
("Beneficial Owner"), as defined in Rule 13d-3 of the Securities Exchange Act
of 1934, as amended from time to time ("Exchange Act"), directly or indirectly,
of securities of the Corporation representing 30% or more of the combined
voting power of the Corporation's
8
<PAGE> 9
then outstanding securities, except that this Paragraph 7(a)(1) shall apply to
Prudential only if it is or becomes the Beneficial Owner of securities of the
Corporation representing 50% or more of the combined voting power of the
Corporation's then outstanding securities; or
(2) If any action relating to termination is taken by the
Corporation pursuant to the request or direction of any Person who by
agreement, whether actual, implied or otherwise, will become a Beneficial Owner
with ownership as described in (1) above, or pursuant to the request or
direction of any Person who requests or directs such action as a condition to
becoming a Beneficial Owner with ownership as described in (1) above, then a
Change in Control shall be deemed to have occurred with respect to such action
and to have preceded such action; or
(3) During any period of two consecutive years (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board and any new director
(other than a director designated by a Person who has entered into an agreement
with the Corporation, to effect a transaction described in clause (1), (4) or
(5) of this definition) whose election by the Board or nomination for election
by the Corporation's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board; or
(4) The stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than (a) a
merger or consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities prior to such
merger or consolidation under an employee benefit plan of the Corporation at
least 50% of the combined voting power of the voting securities of the
Corporation or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (b) a merger or
consolidation effected to implement a recapitalization of the Corporation (or
similar transaction) in which no Person acquires more than 50% of the combined
voting power of the Corporation's then outstanding securities; or
(5) The stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all the Corporation's
assets.
As used in this Paragraph, "Person" shall have the meaning given in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof; however, a Person shall not include (i) the Corporation or any
of its subsidiaries, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation or any of its subsidiaries, which
held stock of the Corporation prior to the Change in Control, (iii) an
9
<PAGE> 10
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, both
immediately before and immediately after the Change of Control event, by the
stockholders of the Corporation in substantially the same proportions as their
ownership of stock of the Corporation.
(b) In the event Executive voluntarily terminates his employment
for Good Reason within 60 days following a Change in Control or the Company
terminates the Executive's employment pursuant to Paragraph 6(d) or 6(f) within
one (1) year following a Change in Control, he shall receive the payments and
benefits set forth in Paragraph 6(d), (e), or (f) above, as applicable. In the
event that such payments and benefits result in the Executive incurring the tax
(the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986
(the "Code") on "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code (the "Parachute Amount"), the Corporation will pay to
Executive an amount (the "Gross Up Payment") such that the net amount retained
by Executive, after deduction of any Excise Tax on the excess parachute payment
and any federal, state and local taxes (together with penalties and interest)
and Excise Tax upon the payment provided for by this Paragraph 7(b), will be
equal to the Parachute Amount, subject to the following provisions:
(1) For purposes of determining the amount of the Gross Up
Payment, Executive will be deemed to pay federal income taxes at the highest
marginal rate of federal taxation in the calendar year in which the Gross Up
Payment is to be made and state and local income taxes at the highest marginal
rates of taxation in the state and locality of Executive's residence on the
date of Executive's Termination, net of the maximum reduction in federal income
taxes that could be obtained from deduction of such state and local taxes.
(2) The determination of whether the Excise Tax is payable
and the amount thereof will be based upon the opinion of tax counsel selected
by Executive and approved by the Corporation, which approval will not be
unreasonably withheld. The costs of obtaining the opinion of tax counsel shall
be borne by the Corporation. If such determination is not finally accepted by
the Internal Revenue Service (or state and local taxing authorities), then
appropriate adjustments to the Excise Tax will be computed and additional Gross
Up Payments will be made in the manner provided by this Paragraph 7(b).
(3) The Corporation will pay the estimated amount of the
Gross Up Payment in cash to Executive concurrent with Employee's Termination.
Executive and the Corporation agree to reasonably cooperate in the determination
of the actual amount of the Gross Up Payment. Further, Executive and the
Corporation agree to make such adjustments to the estimated amount of the Gross
Up Payment as may be necessary to equal the actual amount of the Gross Up
Payment, which in the case of Executive will refer to refunds of prior
overpayments and in the case of the Corporation will refer to makeup of prior
underpayments.
(4) The amount of Gross Up Payment paid by the Corporation
shall not exceed $5,000,000.
10
<PAGE> 11
8. NONCOMPETITION. The Corporation and Executive agree that the
Corporation's customer contacts and relations are established and maintained at
great expense and that Executive by virtue of employment under this Agreement,
will have unique and extensive exposure to the Corporation's customers and that
he will be able to establish a unique relationship with those customers and the
opportunity, both during and after employment, to unfairly compete with the
Corporation (which term, for purposes of this Paragraph 8, shall include the
Corporation, or any affiliate or subsidiary of the Corporation which provides
similar products and services). Therefore, Executive and the Corporation agree
as follows:
(a) DURING TERM OF EMPLOYMENT. During the Term or any Renewal
Term of his employment, Executive agrees that he shall not, directly or
indirectly, either individually or as an employee, agent, partner, shareholder,
consultant or in any other capacity participate in, engage in or have an
ownership interest in any business that competes with the Corporation's
Business. The "Corporation's Business" shall mean the business of the
Corporation and its subsidiaries of selling greeting cards and gift wrapping.
The ownership of an interest constituting not more than two (2%) percent of the
outstanding debt or equity in a corporation the shares of which are traded on a
recognized stock exchange or trade in the over-the-counter market, even though
that corporation may be a competitor of the Corporation, shall not be deemed
financial participation in a competitor.
(b) UPON TERMINATION OF EMPLOYMENT. Executive agrees that,
for a period of one (1) year after the termination of his employment with the
Corporation, he will not, directly or indirectly, individually or as an
employee, agent, partner, shareholder, consultant or in any other capacity,
canvass, contact, solicit or accept on behalf of himself or any other
corporation, any customers of the Corporation, for the purpose of providing
services, products or business competitive with those then being provided by
the Corporation nor shall Executive during said one (1) year period solicit or
otherwise induce any then employee of the Corporation to leave his or her
employment with the Corporation.
9. CONFIDENTIAL INFORMATION. During the Term of this Agreement or any
renewal term and at all times subsequent thereto, Executive shall keep secret
and shall not exploit or disclose or make accessible to any person or entity,
except in furtherance of the business of the Corporation, and except as may be
required by law or legal process, any confidential business information of any
type relating to the business of the Corporation that was acquired or developed
by either the Corporation or any of its subsidiaries or affiliates, or
Executive, prior to or during the Term or renewal term. In addition, the term
"confidential business information" shall not include information which (i) is
or becomes generally available to the public other than as a result of a
disclosure by Executive; or (ii) was available to Executive prior to any
employment by the Corporation.
10. RELIEF. Executive acknowledges that the provisions of Paragraphs 8
and 9 of this Agreement are reasonable and necessary for the protection of the
Corporation and that the Corporation will be irreparably damaged if such
covenants are not specifically enforced. Accordingly, it is agreed that the
Corporation will be entitled to injunctive relief for the
11
<PAGE> 12
purpose of restraining Executive from violating such covenants (and no bond or
other security shall be required in connection therewith), in addition to any
other relief to which the Corporation may be entitled.
11. SALE, CONSOLIDATION OR MERGER. In the event of a sale of the stock
of the Corporation, or consolidation or merger of the Corporation with or into
another corporation or entity, or the sale of substantially all of the
operating assets of the Corporation to another corporation, entity or
individual, the Corporation's successor-in-interest shall be deemed to have
assumed all liabilities of the Corporation under this Agreement but the
Corporation shall not be relieved of any of its obligations hereunder.
12. WAIVER. The failure of any party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any such terms, covenant or condition.
13. NOTICES. Any notice to be given hereunder shall be deemed
sufficient if addressed in writing, and delivered by registered or certified
mail or delivered personally, in the case of the Corporation, to its principal
business office with a copy to Taft, Stettinius & Hollister, 1800 Star Bank
Center, 425 Walnut Street, Cincinnati, Ohio 45202-2957, Attention: Charles D.
Lindberg, Esq., and in the case of Executive, to his address appearing on the
records of the Corporation or to such other addresses as he may designate in
writing to the Corporation with a copy to Goodwin, Procter & Hoar LLP, Exchange
Place, Boston, Massachusetts 02109, Attention: Stephen W. Carr, P.C.
14. SEVERABILITY. In the event that any provision of this Agreement
shall be held to be invalid or unenforceable for any reason whatsoever, it is
agreed such invalidity or unenforceability shall not affect any other provision
of this Agreement, the remaining covenants, restrictions and provisions hereof
shall remain in full force and effect and any court of competent jurisdiction
may so modify the objectionable provision as to make it valid, reasonable and
enforceable.
15. AMENDMENT. This Agreement may be amended only by an agreement in
writing signed by the parties hereto.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to Executive's employment by the Corporation and
supersedes the Predecessor Employment Agreement (except as provided in
Paragraph 4(d) hereinabove).
17. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Ohio.
18. BENEFIT. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against the Corporation, its
successors and assigns, and
12
<PAGE> 13
Executive, his heirs, beneficiaries and legal representatives. It is agreed
that the rights and obligations of Executive may not be delegated or assigned
except as specifically set forth in this Agreement.
19. ATTORNEYS' FEES. Executive's reasonable attorneys' fees incurred
in connection with the negotiation of the terms of this Agreement shall be paid
by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the day, month and year first above written.
GIBSON GREETINGS, INC.
August 11, 1998 By:/s/ C. Anthony Wainwright
- --------------------- -------------------------------------
Date Its:
-----------------------------
August 11, 1998 /s/ Frank J. O'Connell
- --------------------- ----------------------------------------
Date Frank J. O'Connell
<PAGE> 14
Appendix A
----------
<TABLE>
- -------------------------------------------------------------------------------------
Performance Performance Performance
Measure Weight Targets(1) Bonus
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Increase in operating 50% Minimum: 5% 50% of Base Pay
income (2) Target: 10% 75% of Base Pay
Maximum: 15% 100% of Base
Pay
- -------------------------------------------------------------------------------------
2. Increase in revenue (2,3) 50% Minimum: 5% 50% of Base Pay
Target: 10% 75% of Base Pay
Maximum: 15% 100% of Base
Pay
- -------------------------------------------------------------------------------------
</TABLE>
- ------------------------
1 If the performance falls between the targets shown, the amount of
bonus percentage shall be determined by linear interpolation.
2 Based on increase over the base period. The base period shall be the
average of the two fiscal years preceding the year in respect of which
performance is being measured. Operating income shall be adjusted for
acquisitions, divestitures and other extraordinary items.
3 No award with respect to a year will be due and payable for an
increase in revenue unless the increase in operating income with respect to such
a year as compared to the base period shall be at least 5%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GIBSON
GREETING, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 63794
<SECURITIES> 0
<RECEIVABLES> 73894
<ALLOWANCES> 33534
<INVENTORY> 93113
<CURRENT-ASSETS> 232391
<PP&E> 171953
<DEPRECIATION> 100585
<TOTAL-ASSETS> 403996
<CURRENT-LIABILITIES> 82852
<BONDS> 0
0
0
<COMMON> 171
<OTHER-SE> 265635
<TOTAL-LIABILITY-AND-EQUITY> 403996
<SALES> 293531
<TOTAL-REVENUES> 293531
<CGS> 124393
<TOTAL-COSTS> 302054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3054
<INCOME-PRETAX> (7368)
<INCOME-TAX> (3061)
<INCOME-CONTINUING> (4307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4307)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
