<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, 1999
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: 15,846,663 shares of common
stock, $.01 par value, outstanding at November 5, 1999.
<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,
1999 1998 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,696 $ 44,267 $ 63,794
Trade receivables, net 58,166 71,438 40,360
Inventories 70,129 84,489 93,113
Prepaid expenses 4,401 4,958 3,928
Income taxes receivable 15,799 - -
Deferred income taxes 37,572 39,897 31,196
------------------ ------------------ ------------------
Total current assets 187,763 245,049 232,391
PLANT AND EQUIPMENT, NET 86,403 75,906 71,368
DEFERRED INCOME TAXES 30,259 28,445 25,993
OTHER ASSETS, NET 88,283 88,051 74,244
------------------ ------------------ ------------------
$ 392,708 $ 437,451 $ 403,996
================== ================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 12,039 $ 155 $ 153
Accounts payable 26,593 32,990 21,043
Income taxes payable - 13,415 1,106
Other current liabilities 64,051 61,494 60,550
------------------ ------------------ ------------------
Total current liabilities 102,683 108,054 82,852
LONG-TERM DEBT 10,129 10,384 10,360
OTHER LIABILITIES 46,689 47,535 44,978
------------------ ------------------ ------------------
Total liabilities 159,501 165,973 138,190
------------------ ------------------ ------------------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 11)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00; 5,100,000 shares
authorized, none issued - - -
Preferred stock, Series B, par value $1.00; 200,000
shares authorized, none issued - - -
Common stock, par value $.01; 50,000,000 shares
authorized; 17,138,264 issued at September 30,
1999; 17,123,498 at December 31, 1998 and
September 30, 1998 171 171 171
Paid-in capital 54,926 54,926 54,609
Retained earnings 199,780 237,536 231,046
Accumulated other comprehensive income 329 844 980
------------------ ------------------ ------------------
255,206 293,477 286,806
Less treasury stock, at cost; 1,291,601 shares at
September 30, 1999 and December 31, 1998;
1,241,601 shares at September 30, 1998 21,999 21,999 21,000
------------------ ------------------ ------------------
Total stockholders' equity 233,207 271,478 265,806
------------------ ------------------ ------------------
$ 392,708 $ 437,451 $ 403,996
================== ================== ==================
</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,
-------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
REVENUES, net $ 69,703 $ 86,805 $ 214,201 $ 293,531
-------------- ------------- -------------- ----------------
COST AND EXPENSES
Operating expenses:
Cost of products sold 40,321 42,846 127,225 124,393
Selling, distribution and administrative expenses 45,976 48,966 148,412 154,606
Restructuring charge - (3,045) - 23,055
-------------- ------------- -------------- ----------------
Total operating expenses 86,297 88,767 275,637 302,054
-------------- ------------- -------------- ----------------
OPERATING LOSS (16,594) (1,962) (61,436) (8,523)
-------------- ------------- -------------- ----------------
Financing expenses:
Interest expense, net of capitalized interest 454 754 1,529 3,054
Interest income (75) (1,029) (874) (4,209)
-------------- ------------- -------------- ----------------
Total financing expenses, net 379 (275) 655 (1,155)
-------------- ------------- -------------- ----------------
LOSS BEFORE INCOME TAXES (16,973) (1,687) (62,091) (7,368)
Income tax benefit (7,009) (723) (24,335) (3,061)
-------------- ------------- -------------- ----------------
NET LOSS $ (9,964) $ (964) $ (37,756) $ (4,307)
============== ============= ============== ===============
NET LOSS PER SHARE:
Basic $ (0.63) $ (0.06) $ (2.38) $ (0.26)
============== ============= ============== ===============
Diluted $ (0.63) $ (0.06) $ (2.38) $ (0.26)
============== ============= ============== ===============
</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,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (37,756) $ (4,307)
------------------ ------------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation including write-down of display fixtures 17,029 16,968
Impairment of plant and equipment - 12,967
Loss on disposal of plant and equipment 1,364 843
Deferred income taxes 511 1,576
Amortization of deferred costs and goodwill 24,073 13,921
Change in assets and liabilities:
Trade receivables, net 12,522 (10,275)
Inventories 14,360 (47,981)
Income taxes receivable (15,799) -
Prepaid expenses 557 (995)
Other assets, net of amortization (20,733) (7,682)
Accounts payable (6,397) 9,107
Income taxes payable (13,415) (13,530)
Other current liabilities 2,557 (7,628)
Other liabilities (846) (1,834)
All other, net 865 180
------------------ ------------------
Total adjustments 16,648 (34,363)
------------------ ------------------
NET CASH USED IN OPERATING ACTIVITIES (21,108) (38,670)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (29,833) (25,393)
Proceeds from sale of plant and equipment 1,525 3,682
Acquisition of The Ink Group Companies - (1,000)
Proceeds from the sale of The Paper Factory of Wisconsin, Inc. - 36,216
Acquisition of Gibson Greetings International Limited minority interest (1,046) -
Investment in Internet Companies (3,738) (1,437)
------------------ ------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (33,092) 12,068
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 12,000 -
Payments on long-term debt, net (371) (11,993)
Issuance of common stock - 1,738
Acquisition of common stock for treasury - (13,616)
------------------ ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,629 (23,871)
------------------ ------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (42,571) (50,473)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44,267 114,267
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,696 $ 63,794
================== ==================
</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, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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, 1999, December 31, 1998 and September 30, 1998, the results of its
operations for the three and nine months ended September 30, 1999 and 1998 and
its cash flows for the nine months ended September 30, 1999 and 1998. 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, 1998.
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 LOSS
The Company's comprehensive loss was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- ------------------------------------
1999 1998 1999 1998
---------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Net loss $ (9,964) $ (964) $ (37,756) $ (4,307)
Other comprehensive income (loss) -
currency translation, net 314 197 (515) 247
---------------- ------------------ --------------- -----------------
Comprehensive loss $ (9,650) $ (767) $ (38,271) $ (4,060)
================ ================== =============== =================
</TABLE>
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 - SIGNIFICANT EVENTS
CUSTOMER BANKRUPTCY
On October 12, 1999, one of the Company's major customers, Jitney-Jungle Stores
of America, Inc. (Jitney-Jungle), filed for Chapter 11 bankruptcy protection.
Due to the uncertainty surrounding the financial stability of Jitney-Jungle, the
Company has recorded a pretax charge totaling $7,864 to write down the assets
considered to be impaired as a result of the bankruptcy filing, as follows:
write-off of the unamortized balance of deferred sales agreement costs
($5,100), doubtful accounts provision for the outstanding trade receivable
balance ($1,500) and write-off of the net book value of greeting card fixtures
($1,264). These expenses are included as components of revenue, net ($5,100) and
selling, distribution and administrative expenses ($2,764) within the
accompanying Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 1999.
5
<PAGE> 6
SILLY SLAMMERS CHARGES
In June 1999, the Company made the decision to seek a buyer for its Silly
Slammers business. With the Company's focus on its core card line, alternative
card business and its expanding role as a provider of creative content to the
Internet, the Company believes the Silly Slammers brand can best be marketed
outside of Gibson. However, at the present time, no transaction is anticipated
and pretax charges of $2,000 and $21,152 were recorded in the quarters ended
September 30, 1999 and June 30, 1999, respectively, to write down inventory and
related assets. The charges are included as a component of cost of products sold
within the accompanying Condensed Consolidated Statements of Operations for the
respective periods.
RESTRUCTURING CHARGE
During the first quarter of 1998, the Company recorded asset write-downs and
other charges of $26,100 in connection with a restructuring plan (the Plan)
announced March 31, 1998 under which the Company has outsourced its principal
manufacturing operations formerly performed at its Cincinnati, Ohio
headquarters. The costs related to the Plan, which were recognized as a separate
component of operating expenses in the first quarter of 1998, included
approximately $17,100 related to the facility, $5,800 related to involuntary
severance of approximately 480 employees 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 machinery and
equipment (included in plant and equipment) associated with the Cincinnati
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. Approximately $350 and
$1,000 of the restructuring reserve was used for payment of various
restructuring-related costs during the three and nine months ended September 30,
1999, respectively. The recorded lease obligation of $12,040, representing the
portion of the capital lease obligation associated with the Cincinnati facility,
has been reclassified from debt to other liabilities (see Note 6). Involuntary
employee severance costs and other costs are included in other current
liabilities.
The termination of employees in connection with the Plan resulted in a
curtailment of a defined benefit pension plan, and a curtailment gain of $3,045
before income taxes was recognized as a restructuring gain in the third quarter
of 1998, resulting in a net pretax restructuring charge for the year of $23,055.
NOTE 4 - TRADE RECEIVABLES
Trade receivables consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Trade receivables $ 96,261 $ 128,136 $ 73,894
Less reserves for returns, allowances, cash discounts
and doubtful accounts 38,095 56,698 33,534
----------------- ----------------- -----------------
$ 58,166 $ 71,438 $ 40,360
================= ================= =================
</TABLE>
NOTE 5 - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Finished goods $ 50,682 $ 54,523 $ 56,857
Work-in-process 16,884 27,498 23,147
Raw materials and supplies 2,563 2,468 13,109
----------------- ----------------- -----------------
$ 70,129 $ 84,489 $ 93,113
================= ================= =================
</TABLE>
6
<PAGE> 7
NOTE 6 - DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revolving credit agreement bearing variable interest
(8.25% at September 30, 1999) $ 12,000 $ - $ -
Financing arrangement bearing variable interest
(5.26% at September 30, 1999) 1,891 2,449 2,373
Other notes bearing interest at a weighted average rate
of 5.20%, payable in quarterly installments 39 155 207
----------------- ----------------- ----------------
13,930 2,604 2,580
Capital lease obligation payable in monthly installments
through 2013, net of $12,040 included in other liabilities 8,238 7,935 7,933
----------------- ----------------- ----------------
22,168 10,539 10,513
Less debt due within one year 12,039 155 153
----------------- ----------------- ----------------
$ 10,129 $ 10,384 $ 10,360
================= ================= ================
</TABLE>
As a result of the Silly Slammers charge during the quarter ended June 30, 1999,
the Company no longer met the conditions for borrowings under its 364-day
$30,000 revolving credit agreement (Credit Agreement) entered into on May 11,
1999. Accordingly, since July 27, 1999, the Company and its lenders have entered
into a series of amendments to the Credit Agreement, each of which has included
a commitment of funds to the Company for approximately 30 days, with any
borrowings secured by the Company's trade receivables and inventory. The Fourth
Amendment to the Credit Agreement, entered into November 1, 1999, is the most
recent such agreement. It makes $27,500 available to the Company for general
corporate purposes through November 30, 1999 on a secured basis. See Note 13.
On October 29, 1999, the Company received a Commitment Letter from a lender,
committing to make up to $50,000 available to the Company during the next three
years for general corporate purposes. The exact amount of funds available will
be determined by the Company's level of qualifying assets (trade receivables and
inventory). Outstanding borrowings will be secured by substantially all of the
Company's assets. The Company anticipates closing on this borrowing arrangement
on or about November 23, 1999.
In November 1998, the Company replaced the existing debt of The Ink Group
Companies (The Ink Group) with an Australian-Dollar-denominated multi-option
financing arrangement (Financing Arrangement) which is scheduled to expire
January 31, 2000. At September 30, 1999, the maximum amount available under the
Financing Arrangement was approximately $4,200. Depending upon the financing
option elected, borrowings under the Financing Arrangement bear interest at
varying rates, which are based upon prevailing rates. The average interest rate
for borrowings under the Financing Arrangement was 5.40% and 6.15% during the
three and nine months ended September 30, 1999, respectively. Borrowings under
the Financing Arrangement have been classified as long-term debt based on
management's ability and intent to refinance borrowings on a long-term basis.
The Company's debt agreements contain customary covenants and events of
defaults.
The Company has a noncancelable long-term lease for certain of its principal
facilities, which runs through November 30, 2013. The basic rent under the lease
contains scheduled rent increases every five years. All property taxes,
insurance costs and operating expenses are paid by the Company. For accounting
purposes, this lease has been treated as a capital lease.
7
<PAGE> 8
Minimum rental commitments under the capital lease obligation, including the
amount recorded in other liabilities, as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Capital
Quarter Ending September 30, Lease
---------------------------- -------------
<S> <C>
2000 $ 3,100
2001 3,617
2002 3,720
2003 3,720
2004 3,720
Thereafter 42,730
-------------
Net minimum commitments 60,607
Less amount representing interest 40,329
-------------
Present value of net minimum lease commitments $ 20,278
=============
</TABLE>
NOTE 7 - COMMON STOCK RIGHTS
On August 26, 1999, the Company's Board of Directors declared a dividend
distribution of one Right for each outstanding share of the Company's common
stock to stockholders of record on September 8, 1999. Each Right entitles the
holder to purchase, at the price of $25 per share, 1/100th of a share of Series
B Preferred Stock. Until exercisable, the Rights are attached to all outstanding
shares of the Company's common stock.
The Rights are exercisable only in the event that a person or group of persons
(i) acquires 15% or more of the Company's common stock and there is a public
announcement to that effect (25% in the case of a person or group of persons
which was a 15% stockholder on August 26, 1999), or (ii) announces an intention
to commence or commences a tender or exchange offer which would result in that
person or group beneficially owning 15% or more of the Company's common stock.
If the Rights become exercisable, upon a subsequent merger or other business
combination transaction, each Right may entitle the holder to purchase common
stock of the acquiring company worth two times the exercise price of the Right.
Under certain other circumstances (defined in the Rights Agreement) each Right
may entitle the holder (with certain exceptions) to purchase common stock, or in
certain circumstances, cash, property or other securities of the Company, having
a value worth two times the exercise price of the Right.
The Rights are redeemable at one cent per Right at any time prior to 20 days
after the public announcement that a person or group has acquired 15% of the
Company's common stock. Unless exercised or redeemed earlier by the Company, the
Rights expire on August 31, 2009. The Company's Board of Directors retains the
right to amend the terms of the Rights Agreement, subject to certain
restrictions. See Note 13.
NOTE 8 - INTEREST EXPENSE
Capitalized interest totaled $349 and $810 for the three and nine months ended
September 30, 1999, respectively, and $0 in each of the corresponding 1998
periods.
NOTE 9 - COMPUTATION OF NET LOSS PER SHARE
Assuming the exercise of all outstanding contracts to issue common stock, the
effect on loss per share was antidilutive for the three and nine months ended
September 30, 1999 and 1998; therefore, such exercises were not considered and
the same weighted average shares were utilized in both the basic and diluted
loss per share computations, as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding -
basic and diluted 15,837,675 16,216,148 15,833,844 16,330,789
</TABLE>
In addition, there were no adjustments to net loss for the basic or diluted loss
per share computations.
8
<PAGE> 9
NOTE 10 - LEGAL MATTERS
The Company is a defendant in certain 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 11 - COMMITMENTS
The Company is in the process of investing approximately $35,000 to implement a
major management information systems plan to replace core business applications
which support sales and customer services, procurement and manufacturing,
distribution and finance with Enterprise Resource Planning (ERP) software. As of
September 30, 1999, expenditures for the ERP project totaled $23,015, of which
$232, $245 and $1,540 were expensed in the results of operations for the three
and nine months ended September 30, 1999 and the year ended December 31, 1998,
respectively, and $11,960 and $9,270 were capitalized in 1999 and 1998,
respectively.
NOTE 12 - ACQUISITIONS AND DIVESTITURES
On July 3, 1998, the Company acquired a majority interest in The Ink Group,
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
operating loans totaled approximately $9,400 as of September 30, 1999. The
Company acquired 60% ownership of The Ink Group's operating companies in
Australia and New Zealand and 100% ownership of its operating company in the
United Kingdom. This transaction was accounted for using the purchase method of
accounting, resulting in the Company recording goodwill totaling $10,495.
On August 31, 1998, the Company sold The Paper Factory of Wisconsin, Inc. (The
Paper Factory) to PFW Acquisition Corp. for $36,216, which approximated the
Company's investment. The Paper Factory's sales totaled $12,127 and $46,635 for
the three and nine months ended September 30, 1998, respectively.
NOTE 13 - SUBSEQUENT EVENTS
AGREEMENT WITH AMERICAN GREETINGS
On November 2, 1999, the Company entered into a definitive Agreement and Plan of
Merger (Merger Agreement) with American Greetings Corporation (American
Greetings) and a subsidiary of American Greetings under which the subsidiary has
offered to purchase all outstanding shares of the Company's common stock (and
associated Rights) for $10.25 per share. Closing of the tender offer is subject
to the satisfaction of certain conditions, including regulatory approval, the
absence of any injunction and the tender of a majority of the outstanding shares
of common stock. Subsequent to the consummation of the tender offer, the
subsidiary will be merged into the Company and each remaining share of
outstanding common stock of the Company (other than shares held by American
Greetings and dissenting shares) will be exchanged for a right to receive $10.25
in cash. The transaction is subject to termination under certain conditions,
including if the transaction has not closed on or before 18 months from the date
of the Merger Agreement. Simultaneously with approving this transaction, the
Company's Board of Directors amended the Rights Agreement to exempt the
transaction from the provisions of the Agreement.
CREDIT AGREEMENT WAIVER
The Company obtained a waiver to the Fourth Amendment to the Credit Agreement to
permit the signing of the Merger Agreement with American Greetings.
9
<PAGE> 10
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
Gibson Greetings, Inc. (the Company) operates in a highly competitive industry
dominated by two companies. The Company's mass-merchandiser customer base, which
typically operates on low margins, is particularly susceptible to financial
constraints and to offers of more favorable terms from competitors of the
Company which have significantly greater financial resources. As a result, the
Company has, for some time, faced strong competitive pressures with regard to
both price and terms of sale. It is anticipated that these pressures will
continue and contribute, along with the charges discussed in "Silly Slammers
Charges" below, to the Company reporting a loss for full-year 1999.
On July 3, 1998, the Company acquired a majority interest in The Ink Group
Companies (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. The Company acquired 60% ownership of The Ink Group's
operating companies in Australia and New Zealand and 100% ownership of its
operating company in the United Kingdom.
On August 31, 1998, the Company sold The Paper Factory of Wisconsin, Inc. (The
Paper Factory) to PFW Acquisition Corp. for $36.2 million, which approximated
the Company's investment. The Paper Factory operated retail stores under the
names of The Paper Factory, Greetings 'n More and Great Party, which were
located primarily in manufacturers' outlet shopping centers.
AGREEMENT WITH AMERICAN GREETINGS
On November 2, 1999, the Company entered into a definitive Agreement and Plan of
Merger (Merger Agreement) with American Greetings Corporation (American
Greetings) and a subsidiary of American Greetings under which the subsidiary has
offered to purchase all outstanding shares of the Company's common stock (and
associated Rights) for $10.25 per share. Closing of the tender offer is subject
to the satisfaction of certain conditions, including regulatory approval, the
absence of any injunction and the tender of a majority of the outstanding shares
of common stock. Subsequent to the consummation of the tender offer, the
subsidiary will be merged into the Company and each remaining share of
outstanding common stock of the Company (other than shares held by American
Greetings and dissenting shares) will be exchanged for a right to receive $10.25
in cash. The transaction is subject to termination under certain conditions,
including if the transaction has not closed on or before 18 months from the date
of the Merger Agreement. Simultaneously with approving this transaction, the
Company's Board of Directors amended the Rights Agreement to exempt the
transaction from the provisions of the Agreement.
CUSTOMER BANKRUPTCY
On October 12, 1999, one of the Company's major customers, Jitney-Jungle Stores
of America, Inc. (Jitney-Jungle), filed for Chapter 11 bankruptcy protection.
Due to the uncertainty surrounding the financial stability of Jitney-Jungle, the
Company has recorded a pretax charge totaling $7.9 million to write down the
assets considered to be impaired as a result of the bankruptcy filing, as
follows: write-off of the unamortized balance of deferred sales agreement costs
($5.1 million), doubtful accounts provision for the outstanding trade receivable
balance ($1.5 million) and write-off of the net book value of greeting card
fixtures ($1.3 million). These expenses are included as components of revenue,
net ($5.1 million) and selling, distribution and administrative expenses ($2.8
million) within the accompanying Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 1999.
SILLY SLAMMERS CHARGES
In June 1999, the Company made the decision to seek a buyer for its Silly
Slammers business. With the Company's focus on its core card line, alternative
card business and its expanding role as a provider of creative content to the
Internet, the Company believes the Silly Slammers brand can best be marketed
outside of Gibson. However, at the present time, no transaction is anticipated
and pretax charges of $2.0 million and $21.2 million were recorded in the
quarters ended September 30, 1999 and June 30, 1999, respectively, to write down
inventory and related assets. The charges are included as a component of cost of
products sold within the accompanying Condensed Consolidated Statements of
Operations for the respective periods.
RESTRUCTURING CHARGE
During the first quarter of 1998, the Company recorded asset write-downs and
other charges of $26.1 million in connection with a restructuring plan (the
Plan) announced March 31, 1998 under which the Company has outsourced its
principal manufacturing operations formerly performed at its Cincinnati, Ohio
headquarters. The costs related to the Plan, which were recognized as a separate
component of operating expenses in the first quarter of 1998, included
approximately $17.1 million related to the facility, $5.8 million related to
involuntary severance of approximately 480 employees and $3.2 million in other
costs.
The facility costs of $17.1 million include an adjustment of $13.0 million to
write off the capitalized lease asset, leasehold improvements and certain
machinery and equipment (included in plant and equipment) associated with the
Cincinnati operations, and a reserve of $4.1 million included in other
liabilities representing the amount by which total future lease commitments and
related
10
<PAGE> 11
operating costs of the Cincinnati facility exceed the recorded lease obligation
and estimated sublease income over the remaining term of the lease.
Approximately $0.4 million and $1.0 million of the restructuring reserve was
used for payment of various restructuring-related costs during the three and
nine months ended September 30, 1999, respectively. The recorded lease
obligation of $12.0 million, representing the portion of the capital lease
obligation associated with the Cincinnati facility, has been reclassified from
debt to other liabilities. Involuntary employee severance costs and other costs
are included in other current liabilities.
The termination of employees in connection with the Plan resulted in a
curtailment of a defined benefit pension plan, and a curtailment gain of $3.0
million before income taxes was recognized as a restructuring gain in the third
quarter of 1998, resulting in a net pretax restructuring charge for the year of
$23.1 million.
MANAGEMENT INFORMATION SYSTEMS UPGRADE
The Company is in the process of investing approximately $35 million to
implement a major management information systems plan to replace core business
applications which support sales and customer services, procurement and
manufacturing, distribution and finance with Enterprise Resource Planning (ERP)
software. While the primary purpose of the ERP software is to add functionality
and efficiency to the Company's business processes, installation of the software
also addresses Year 2000 issues associated with the software being replaced.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1998
Pretax loss totaled $17.0 million in the three months ended September 30, 1999
(the 1999 quarter), including the $7.9 million Jitney-Jungle charge and $2.0
Silly Slammers charge, compared to a pretax loss of $1.7 million in the three
months ended September 30, 1998 (the 1998 quarter), which included the $3.0
million pension curtailment gain. Net loss was $10.0 million, or $0.63 per
diluted share, in the 1999 quarter compared to a net loss of $1.0 million, or
$0.06 per diluted share, in the 1998 quarter.
Revenues in the 1999 quarter decreased 19.7% to $69.7 million from revenues of
$86.8 million in the 1998 quarter, reflecting decreased revenues at the
Company's Card Division and the effect of the sale of The Paper Factory, which
had sales totaling $12.1 million in the 1998 quarter. Decreased revenues of $8.9
million at the Card Division reflect lower shipments of Silly Slammers, the
Jitney-Jungle charge and increased returns and allowances. The effects of these
items were partially offset by increased shipments of everyday and seasonal
greeting cards, with the increase in seasonal shipments resulting largely from
lower than normal revenues in the third quarter of 1998 due to delays in
shipping seasonal product. The decreased revenues were partially offset by
increased revenues of $3.9 million from the Company's international operations.
Overall, returns and allowances were 25.2% of shipments for the 1999 quarter
compared to 18.8% for the 1998 quarter, excluding the effect of The Paper
Factory revenues in 1998. This increase reflects an increase in the return of
both seasonal and everyday product and higher customer allowances.
Total operating expenses were $86.3 million in the third quarter of 1999
compared to $88.8 million in the third quarter of 1998. Cost of products sold as
a percent of revenues was 57.8% for the 1999 quarter versus 49.4% for the 1998
quarter. The increase, as a percentage of revenues, was primarily due to the
previously discussed decline in revenues, the Silly Slammers charge and
increased royalty expenses. The effects of these items were partially offset by
a shift in the Card Division's product mix away from items with higher product
costs, most notably Silly Slammers. Selling, distribution and administrative
expenses, including $1.1 million related to workforce reductions announced in
April 1999, were 66.0% of revenues in the 1999 quarter, compared to 56.4% in the
1998 quarter. This increase, as a percentage of revenues, primarily resulted
from the previously discussed decline in revenues, increased administrative
expenses and the Jitney-Jungle charge, partially offset by a reduction in
operating expenses due to the sale of The Paper Factory.
The Company recorded net interest expense of $0.4 million in the third quarter
of 1999 compared to $0.3 million of net interest income in the third quarter of
1998. The change reflects the combined effects of decreased earnings on the
Company's lower invested cash balance and decreased interest expense resulting
from interest capitalization.
The effective income tax rate for the 1999 quarter was 41.3% compared to 42.9%
in the 1998 quarter.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE
MONTHS ENDED SEPTEMBER 30, 1998
Pretax loss totaled $62.1 million for the nine months ended September 30, 1999
(the 1999 period), including the $23.2 million of Silly Slammers charges and the
$7.9 million Jitney-Jungle charge, compared to a pretax loss of $7.4 million for
the nine months ended September 30, 1998 (the 1998 period), which included the
$23.1 million restructuring charge. Net loss was $37.8 million, or $2.38 per
diluted share, in the 1999 period compared to a net loss of $4.3 million, or
$0.26 per diluted share, in the 1998 period.
Revenues in the 1999 period decreased 27.0% to $214.2 million from revenues of
$293.5 million in the 1998 period, reflecting decreased revenues at the
Company's Card Division and the effect of the sale of The Paper Factory, which
had sales totaling $46.6 million in the 1998 period. Decreased revenues of $43.0
million at the Card Division reflect lower shipments of Silly Slammers,
11
<PAGE> 12
increased returns and allowances and the Jitney-Jungle charge. The effects of
these items were partially offset by increased shipments of everyday and
seasonal greeting cards, with the increase in seasonal shipments resulting
largely from lower than normal revenues in the third quarter of 1998 due to
delays in shipping seasonal product. The decreased revenues were partially
offset by increased revenues of $10.3 million from the Company's international
operations. Overall, returns and allowances were 26.7% of shipments for the 1999
period compared to 17.5% for the 1998 period, excluding the effect of The Paper
Factory revenues in 1998. This increase reflects a significant increase in the
return of seasonal product and, to a lesser degree, an increase in everyday
returns and higher customer allowances, resulting largely from new accounts
signed in the fourth quarter of 1998 and the first quarter of 1999.
Total operating expenses were $275.6 million in the 1999 period compared to
$279.0 million, excluding the restructuring charge in the 1998 period. Excluding
the $23.2 million of Silly Slammers charges, cost of products sold as a percent
of revenues was 48.6% for the 1999 period versus 42.4% for the 1998 period. The
increase, as a percentage of revenues, was primarily due to the previously
discussed decline in revenues and increased royalty expenses. The effects of
these items were partially offset by a shift in the Card Division's product mix
away from items with higher product costs, most notably Silly Slammers. Selling,
distribution and administrative expenses, including $2.2 million related to
workforce reductions announced in April 1999, were 69.3% of revenues in the 1999
period compared to 52.7% in the 1998 period. This increase, as a percentage of
revenues, primarily resulted from the previously discussed decline in revenues
and from higher operating expenses, particularly the Jitney-Jungle charge,
selling and marketing expenses associated with setting up new accounts at the
Card Division and increased administrative expenses, and the addition of The Ink
Group. These increases were partially offset by a reduction in operating
expenses due to the sale of The Paper Factory.
The Company recorded net interest expense of $0.7 million in the 1999 period
compared to $1.2 million of net interest income in the 1998 period. The change
reflects the combined effects of decreased earnings on the Company's lower
invested cash balance and decreased interest expense resulting from interest
capitalization and the mid-year 1998 retirement of senior notes.
The effective income tax rate for the 1999 period was 39.2% compared to 41.5% in
the 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in the Company's operating activities totaled $21.1 million for the
first nine months of 1999 compared to $38.7 million of cash used in operating
activities for the comparable period in 1998. This net improvement in cash usage
was largely due to changes in the trade receivables and inventory balances
during the two nine-month periods. As a result of the unusually high balances in
these working capital components at December 31, 1998 and their subsequent
reductions during the first nine months of 1999, the period-to-period change in
cash provided by trade receivables and inventory activities (excluding the
Silly Slammers write-downs and 1998 restructuring charge) totaled $19.7 million
and $47.9 million, respectively. Also contributing to the decreased cash usage
was a $12.0 million change in other current liabilities (excluding
restructuring-related items).
Partially offsetting the effects of these working capital components were (i)
the approximate $33.4 million increase in the usage of cash resulting from the
1999 period's aftertax loss, excluding the Silly Slammers charges, compared to
the aftertax net earnings in the 1998 period, excluding the effect of the
restructuring charge; (ii) the $15.5 million period-to-period increase in the
usage of cash related to accounts payable activities, primarily resulting from
the unusually high accounts payable balances at December 31, 1998 and their
subsequent reductions during the first nine months of 1999; and (iii) the $13.1
million period-to-period increase in the usage of cash related to other asset
activities, primarily resulting from long-term customer sales agreements entered
into during the first nine months of 1999.
Cash used in investing activities for plant and equipment purchases totaled
$29.8 million in the 1999 period compared to $25.4 million in the 1998 period.
Increased capital spending during 1999 reflects expenditures related to the
Company's project to replace numerous of its existing management information
systems applications with new ERP software, and increased display fixture
purchases by the Company's Card Division. In addition, during the 1999 period,
$3.7 million was used to make investments in certain Internet companies, and
$1.0 million was used to acquire the remaining minority interest in Gibson
Greetings International Limited, a subsidiary of the Company headquartered in
the United Kingdom.
Cash provided by financing activities for the first nine months of 1999 was
$11.6 million, primarily as a result of the Company drawing $12.0 million on its
revolving credit agreement (see discussion below). During the comparable 1998
period, cash used in financing activities totaled $23.9 million, primarily
reflecting the Company's $11.4 million repayment of senior notes in their
entirety and the repurchase of 685,000 shares of common stock to be held as
treasury stock as part of its stock repurchase program.
As a result of the Silly Slammers charge during the quarter ended June 30, 1999,
the Company no longer met the conditions for borrowings under its 364-day $30.0
million revolving credit agreement (Credit Agreement) entered into on May 11,
1999. Accordingly, since July 27, 1999, the Company and its lenders have entered
into a series of amendments to the Credit Agreement, each of which has included
a commitment of funds to the Company for approximately 30 days, with any
borrowings secured by the
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<PAGE> 13
Company's trade receivables and inventory. The Fourth Amendment to the Credit
Agreement, entered into November 1, 1999, is the most recent such agreement. It
makes $27.5 million available to the Company for general corporate purposes
through November 30, 1999 on a secured basis, $20.5 million of which was
outstanding as of November 12, 1999. The Company obtained a waiver to the Fourth
Amendment to the Credit Agreement to permit the signing of the Merger Agreement
with American Greetings.
On October 29, 1999, the Company received a Commitment Letter from a lender,
committing to make up to $50.0 million available to the Company during the next
three years for general corporate purposes. The exact amount of funds available
will be determined by the Company's level of qualifying assets (primarily trade
receivables and inventory). Outstanding borrowings will be secured by
substantially all of the Company's assets. The Company anticipates closing on
this borrowing arrangement on or about November 23, 1999.
Capital expenditures for 1999 are expected to be in the $40 - $45 million range
or $2 - $7 million higher than the 1998 level. Included in the projected 1999
capital expenditures is $17 - $22 million related to the Company's ERP project.
As noted above, the Company has received a Commitment Letter from a lender for a
new long-term secured credit agreement. Assuming the success of completing this
transaction, management believes that this agreement, along with cash flows from
operations, 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 sales agreements, as well as for financing existing operations,
currently projected capital expenditures including those for information
systems, anticipated long-term sales agreements consistent with industry
practices and other contingencies.
YEAR 2000 READINESS
The Year 2000 problem is the result of two potential malfunctions that could
have an impact on the Company's systems and equipment. The first problem arises
due to computers being programmed to use two rather than four digits to define
the applicable year. The second problem arises where embedded microchips and
micro-controllers have been designed using two rather than four digits to define
the applicable year. Certain of the Company's computer programs and building
infrastructure components (e.g., telecommunications, alarm and HVAC systems)
that are date sensitive, may recognize a date using "00" as the year 1900 rather
than the year 2000. If uncorrected, the problem could result in computer system
and program failures or equipment malfunctions that could result in a disruption
of business operations (such as billing and collection, tracking inventory,
maintaining product supply flow and shipping product).
In general, the Company's Year 2000 project consists of four phases -
assessment, remediation, validation and implementation - and is categorized into
the following four divisions:
Information Technology (IT) - software essential for day-to-day
operations (including both internally developed and third-party
software).
IT Infrastructure - mainframe, network, telecommunications interfaces
and self-contained operating systems.
Non-IT Infrastructure - telecommunications equipment, elevators, public
safety equipment (e.g., security and fire) and HVAC systems.
Third-Party Business Partners and Intermediaries - business partners,
including foreign entities, on which the Company relies for
manufacturing, supply and shipping of its products, and customers to
whom the Company sells its products.
As discussed above, the Company is in the process of investing approximately $35
million to implement a major business information systems plan to replace
certain core business applications with ERP software. The installation of the
ERP software also addresses Year 2000 issues associated with the software being
replaced, with substantially all such Year 2000 issues being satisfactorily
addressed prior to the end of 1999 despite the ERP project being expected to
extend beyond this date. With regards to software systems not addressed by the
ERP project:
- The Company remediated its core business applications earlier this
year and is on schedule to complete testing and certification that the
applications are Year 2000 compliant by the end of November 1999.
- Certain other business applications (most notably payroll and systems
utilized in warehouse operations) are being upgraded or replaced with
Year 2000 compliant software, with testing having been either
satisfactorily completed or scheduled for completion in early December
1999.
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<PAGE> 14
- The components of the Company's IT Infrastructure have been remediated
per vendor specifications, with testing having been either
satisfactorily completed or scheduled for completion by the end of
November 1999.
Given the material importance of the Company's relationships with third-party
business partners to its everyday business processes, in addition to addressing
the software and infrastructure issues, the Company has contacted third-party
business partners regarding their Year 2000 compliance. The majority of these
business partners have responded, with all respondents indicating that they
expect to be sufficiently compliant.
As indicated above, the Company is currently on schedule to complete, in all
material respects, its entire Year 2000 project during the 1999 fourth quarter.
As of September 30, 1999, expenditures for the ERP project totaled $23.0
million, of which $0.2 million and $1.5 million were expensed in the results of
operations for the nine months ended September 30, 1999 and the year ended
December 31, 1998, respectively, and $12.0 million and $9.3 million were
capitalized in 1999 and 1998, respectively. The Company estimates it will spend
approximately $2 - $2.5 million, in total, on Year 2000 software upgrades not
related to the ERP project. As of September 30, 1999, the Company had spent an
estimated $1.8 million on such upgrades.
From a forward-looking perspective, the extent and magnitude of the Year 2000
problem, as it will affect the Company both before and for some period after
January 1, 2000, are difficult to predict or quantify. The Company has developed
certain contingency plans in the event its Year 2000 efforts are not accurately
or timely completed, including identifying potential alternative sources of
products and services currently provided by various third parties. While the
Company presently believes that the timely completion of its Year 2000 efforts
will limit exposure so that the Year 2000 will not pose material operational
problems, the Company has not received assurances that all third parties on
which it relies will be compliant. Additionally, if Year 2000 modifications or
upgrades are not accomplished in a timely manner or proper contingency plans are
not implemented, the Company's Year 2000 related failures could have a material
adverse impact on operations.
The costs and completion dates of the Company's Year 2000 efforts are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and the ability of the Company's
significant suppliers, customers and others with which it conducts business to
identify and resolve their own Year 2000 issues.
OTHER INFORMATION
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,
loss of or unforeseen financial difficulties of significant customers, lack of
market acceptance of the Company's 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
In light of the Company's level of outstanding debt ($13.9 million at September
30, 1999, excluding capitalized lease obligations), the Company's market risk
related to fluctuations in interest rates is minimal, as evidenced by the fact
that a 500 basis point movement in the interest rate charged on the current
level of debt would have less than a $0.1 million impact on interest expense.
Therefore, the Company's market risk is primarily related to fluctuations in
foreign currency exchange rates arising from its transactions with international
customers and subsidiary operations in the United Kingdom, Australia and New
Zealand.
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
a) In accordance with the Company's 1996 Nonemployee Director Stock Plan, on
August 26, 1999, the Company issued 14,766 shares of common stock to each
of its nonemployee directors: George M. Gibson, Robert P. Kirby, Charles D.
Lindberg, Albert R. Pezzillo, Charlotte A. St. Martin and C. Anthony
Wainwright. The shares were issued in lieu of cash consideration for
approximately one-half of the directors' annual retainer fees. These
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
b) On August 26, 1999, the Company's Board of Directors declared a dividend
distribution of one Right for each outstanding share of the Company's
common stock to stockholders of record on September 8, 1999. See Note 7 of
Notes to Condensed Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on August 26, 1999
for the purpose of:
a) Electing three directors;
b) Approving the Gibson Greetings, Inc. 1999 Stock Incentive
Plan; and
c) Considering a stockholder proposal to urge the Board of
Directors to take the necessary steps to declassify the Board
of Directors for the purpose of director elections.
The results of the matters voted on are as follows:
<TABLE>
<CAPTION>
Against
or Broker
For Withheld Abstentions Non-Votes
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Election of Directors:
Charles D. Lindberg 9,948,819 4,607,088 - -
Albert R. Pezzillo 10,218,144 4,337,763 - -
C. Anthony Wainwright 10,220,470 4,335,437 - -
1999 Stock Incentive Plan 9,741,200 4,779,196 35,511 -
Stockholder Proposal 7,140,694 2,359,788 909,466 4,145,959
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a) Exhibits:
---------
<S> <C>
Exhibit 10.1 Second Amendment to Amended and Restated Credit Agreement dated as of August 27,
1999 by and among Gibson Greetings, Inc. and the Lenders party to the Amended and
Restated Credit Agreement, dated as of May 11, 1999, and Bank One, Indiana, N.A., as
Agent.
Exhibit 10.2 First Amendment to Security Agreement dated as of August 27, 1999 between Gibson
Greetings, Inc. and Bank One, Indiana, N.A.
Exhibit 10.3 Third Amendment to Amended and Restated Credit Agreement dated as of September 27,
1999 by and among Gibson Greetings, Inc. and the Lenders party to the Amended and
Restated Credit Agreement, dated as of May 11, 1999, and Bank One, Indiana, N.A., as
Agent.
Exhibit 10.4 Fourth Amendment to Amended and Restated Credit Agreement dated as of November 1,
1999 by and among Gibson Greetings, Inc. and the Lenders party to the Amended and
Restated Credit Agreement, dated as of May 11, 1999, and Bank One, Indiana, N.A., as
Agent.
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C>
Exhibit 10.5 Severance Agreement and Release of all Claims between Gibson Greetings, Inc. and
Gregory A. Brown, dated as of October 1, 1999.
Exhibit 27 Financial Data Schedule (contained in EDGAR filing only).
</TABLE>
b) Reports on Form 8-K:
--------------------
Form 8-K filed on September 13, 1999 (Date of Report: August 26, 1999) -
Items 5 and 7.
Form 8-K filed on July 22, 1999 (Date of Report: July 19, 1999) - Items 5
and 7.
16
<PAGE> 17
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 15, 1999
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)
17
<PAGE> 1
Exhibit 10.1
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of August 27, 1999 (this "Amendment"), is among GIBSON GREETINGS, INC., a
Delaware corporation (the "Borrower"), the lenders party to the Credit Agreement
described below (each a "Lender" and, collectively, the "Lenders") and BANK ONE,
INDIANA, NATIONAL ASSOCIATION, a national banking association formerly known as
NBD Bank, N.A., as agent (in such capacity, the "Agent") for the Lenders.
INTRODUCTION
The Borrower, the Lenders, and the Agent have entered into the Amended
and Restated Credit Agreement, dated as of May 11, 1999, as amended by the First
Amendment to Amended and Restated Credit Agreement, dated as of July 27, 1999
(the "Credit Agreement"). The Company now desires that the Credit Agreement be
further amended in certain respects, and the Lenders and the Agent are willing
to so amend the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
Effective upon the date that the conditions precedent set forth in
Article 2 of this Amendment are satisfied, which date (the "Amendment Date")
shall be determined by the Agent in its sole discretion, the Credit Agreement is
amended as follows:
1.1 The following definitions of the terms "Borrowing Base" and
"Borrowing Base Certificate", respectively are added to Section 1.1 in
alphabetical order:
"Borrowing Base": as of any date, the sum of (a) an amount equal to 35%
of the value of Eligible Accounts Receivable, plus (b) an amount equal
to 15% of the value of Eligible Inventory, less (c) the face amount of
any standby or commercial letters of credit then outstanding for the
account of the Borrower, whether issued by Fifth Third Bank or
otherwise.
"Borrowing Base Certificate": for any date, an appropriately completed
report as of such date in substantially the form of Exhibit H hereto,
certified as true and correct as of such date by a duly authorized
officer of the Borrower.
1.2 The definition of the term "Commitment Amount" in Section 1.1 is
amended and restated in full as follows:
<PAGE> 2
"Commitment Amount": as of any date prior to the end of the Review
Period and with respect to any Lender, the amount set forth below
opposite each such Lender's name:
Lender Commitment Amount
------ -----------------
Bank One, Indiana, National Association $ 8,333,333.33
Harris Trust and Savings Bank $ 6,666,666.67
Fifth Third Bank $ 5,000,000.00
---------------
Total $20,000,000.00
and, as of any date during the portion of the Commitment Period, if
any, after the Review Period and with respect to any Lender, the amount
set forth adjacent to its name under the heading "Commitment Amount" in
Exhibit A on such date or, in the event that such Lender is not listed
on Exhibit A, the "Commitment Amount" which such Lender shall have
assumed from another Lender in accordance with Section 11.7 on or prior
to such date, as all of the same may be adjusted from time to time
pursuant to Sections 2.4 and 11.7(c).
1.3 The definition of the term "Disposition" is amended and restated in
full as follows:
"Disposition": with respect to any Person, any sale, assignment,
transfer or other disposition by such Person, by any means, of (a) the
Stock of, or other equity interests of, any other Person, (b) any
business, Operating Entity or division or segment thereof, or (c) any
other Property of such Person other than in the ordinary course of
business, provided, however, that no such sale, assignment, transfer or
other disposition of Property shall be deemed to be in the ordinary
course of business (i) if it is the sale, assignment, transfer or
disposition of (1) all or substantially all of the Property of such
Person, or (2) any Operating Entity, (ii) if the fair market value of
the Property is in excess of $2,000,000, or (iii) to the extent that
the aggregate fair market value of all sales, assignments, transfers
and other dispositions of Property made by such Person within the same
fiscal year which are individually equal to or less than $2,000,000,
would exceed $10,000,000, and provided, further, that, notwithstanding
anything to the contrary contained in this definition, (I) all sales of
inventory (other than in connection with bulk transfers of Property in
connection with a liquidation or similar disposition of the Property of
such Person) shall be deemed to be in the ordinary course of business,
and (II) any sale, assignment, transfer or other disposition of any
obsolete tangible personal Property shall each be deemed to be in the
ordinary course of business.
1.4 The following definitions of the terms "Eligible Accounts
Receivable" and "Eligible Inventory", respectively, are added to Section 1.1 in
alphabetical order:
-2-
Second Amendment to Credit Agreement
<PAGE> 3
"Eligible Accounts Receivable": as of any date, those trade accounts
receivable owned by the Borrower which are payable in Dollars and in
which the Borrower has granted to the Agent for the benefit of the
Lenders and the Agent a first-priority perfected security interest
pursuant to the Security Agreement, valued at the face amount thereof
less sales, excise or similar taxes and less returns, discounts,
claims, credits and allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed, but shall not include any
such account receivable (a) that is not a bona fide existing obligation
created by the sale and actual delivery of inventory, goods or other
property or the furnishing of services or other good and sufficient
consideration to customers of the Borrower in the ordinary course of
business, (b) that is more than 90 days past due, (c) that is subject
to any dispute, contra-account, defense, offset or counterclaim or any
Lien (except those in favor of the Agent for the benefit of the Lenders
and the Agent under the Security Documents), or the inventory, goods,
property, services or other consideration of which such account
receivable constitutes proceeds is subject to any such Lien, (d) in
respect of which the inventory, goods, property, services or other
consideration have been rejected or the amount is in dispute, (e) that
is due from any Affiliate or Subsidiary of the Borrower, (f) that has
been classified by the Borrower as doubtful or has otherwise failed to
meet established or customary credit standards of the Borrower, (g)
that is payable by any person located outside the United States (which
shall not be deemed to include any territories of the United States)
and is not supported by a letter of credit issued to the Agent by a
commercial bank, and in form and substance, acceptable to the Agent,
(h) with respect to which any representation or warranty contained in
Section 5.13 is incorrect at any time, (i) that is payable by the
United States or any of its departments, agencies or instrumentalities
or by any state or other governmental entity, (j) that is payable by
any person as to which 50% or more of the aggregate amount of such
accounts receivable payable by such person to the Borrower do not
otherwise constitute Eligible Accounts Receivable, (k) that is payable
by any person that is the subject of any proceeding seeking to
adjudicate it a bankrupt or insolvent or seeking liquidation, winding
up or reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief or protection of debtors or
seeking the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property, or
that is not generally paying its debts as they become due or has
admitted in writing its inability to pay its debts generally or has
made a general assignment for the benefit of creditors, (l) that is
evidenced by a promissory note or other instrument, (m) that is
subordinate or junior in right or priority of payment to any other
obligation or claim, or (n) that for any other reason is at any time
reasonably deemed by the Agent to be ineligible.
"Eligible Inventory": as of any date, that inventory owned by the
Borrower that constitutes raw materials or finished goods in which the
Borrower has granted to the Agent for the benefit of the Lenders and
the Agent a first-priority perfected security interest pursuant to the
Security Agreement, valued at the lower of cost or market on a FIFO
basis, but shall not include any such inventory (a) that does not
constitute raw materials or finished goods readily salable or usable in
the business of the
-3-
Second Amendment to Credit Agreement
<PAGE> 4
Borrower, (b) that is located outside the United States (which shall
not be deemed to include any territories of the United States), (c)
that is subject to, or any accounts or other proceeds resulting from
the sale or other disposition thereof could be subject to, any Lien
(except those in favor of the Lenders and the Agent under the Security
Documents), including any sale on approval or sale or return
transaction or any consignment, (d) that is not in the possession of
the Borrower, (e) that is held for lease or is the subject of any
lease, (f) that is subject to any trademark, trade name or licensing
arrangement, or any law, rule or regulation, that could limit or impair
the ability of the Lenders and the Agent to promptly exercise all
rights of the Lenders and the Agent under the Security Documents, (g)
if, after October 1, 1999, such inventory is located on premises not
owned by the Borrower and the landlord or other owner of such premises
shall not have waived its distraint, lien and similar rights with
respect to such inventory and shall not have agreed to permit the Agent
to enter such premises pursuant to a waiver and agreement of such
person in favor of and in form and substance acceptable to the Agent,
(h) with respect to which any insurance proceeds are not payable to the
Agent as a loss payee or are payable to any loss payee other than the
Agent or the Borrower, or (i) that for any other reason is at any time
reasonably deemed by the Agent to be ineligible.
1.5 The definition of the term "Review Period" in Section 1.1 is
amended and restated in full as follows:
"Review Period": the period from and including the First Amendment
Effective Date to and including September 27, 1999.
1.6 The following sentence is added to the end of Section 2.1:
Notwithstanding anything in this Agreement or any other Loan Document
to the contrary, the aggregate outstanding principal balance of all of
the Loans at any time shall not exceed the amount of the Borrowing Base
as shown on the latest Borrowing Base Certificate delivered under
Section 7.7(i).
1.7 The first sentence of Section 2.7 is amended and restated in full
as follows:
To secure the payment when due of the Notes and all other
obligations of the Borrower under this Agreement, the Notes and the
other Loan Documents, on or before the First Amendment Effective Date,
the Borrower, and each of its Domestic Subsidiaries, if any, shall
execute and deliver a Security Agreement granting a first-priority,
perfected security interest in all present and future accounts
receivable, inventory and general intangibles, including without
limitation, tax refunds and tax refund claims, of the Borrower and such
Domestic Subsidiaries and all related assets as described in the
Security Agreement.
1.8 The following subpart (d) is added to Section 2.7:
(d) The Borrower agrees that if at any time any trade account
receivable or any inventory of the Borrower fails to constitute
Eligible Accounts
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Second Amendment to Credit Agreement
<PAGE> 5
Receivable or Eligible Inventory, as the case may be, for any reason,
the Agent may, at any time and notwithstanding any prior classification
of eligibility, classify such asset or property as ineligible and
exclude the same from the computation of the Borrowing Base without in
any way impairing the rights of the Banks and the Agent in and to the
same under the Security Agreement.
1.9 The following subpart (iii) is added to Section 2.5(b):
(iii) If at any time the aggregate outstanding principal
amount of the Loans shall exceed the lesser of the Borrowing Base or
the Aggregate Commitment Amount, the Borrower shall forthwith pay to
the Banks, without demand, an amount not less than the amount of such
excess for application to the outstanding principal amount of the
Loans.
1.10 Section 4.19 is added immediately following Section 4.18, as
follows:
4.19 Borrowing Base.
All trade accounts receivable and inventory of the Borrower
represented or reported by the Borrower to be, or otherwise included
in, Eligible Accounts Receivable and Eligible Inventory comply in all
respects with the requirements therefor set forth in the definitions
thereof, and the computation of the Borrowing Base set forth in each
Borrowing Base Certificate is true and correct.
1.11 Section 6.4 is added immediately following Section 6.3, as
follows:
6.4 Borrowing Base Certificate
The Agent shall have received the Borrowing Base Certificate
required pursuant to Section 7.7(i) as of the Borrowing Date.
1.12 Subpart (i) of Section 7.7 is relabeled as subpart (j), and new
subpart (i) is added to Section 7.7, as follows:
(i) No later than the tenth Business Day following the end of each
month, a Borrowing Base Certificate prepared as of the close of
business on the last day of such month, together with supporting
schedules, in form and detail satisfactory to the Agent, setting forth
such information as the Agent may request with respect to (i) the
aging, value, location, and other information relating to computing the
Borrowing Base, (ii) the eligibility of any property or assets included
in such computation, and (iii) the face amount and beneficiary of any
outstanding letters of credit, certified as true and correct by the
chief financial officer of the Borrower; and
1.13 Exhibit H is added to the Credit Agreement in the form of Exhibit
H attached hereto.
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Second Amendment to Credit Agreement
<PAGE> 6
ARTICLE 2. CONDITIONS PRECEDENT
As conditions precedent to the effectiveness of the amendments to the
Credit Agreement set forth in Article 1 of this Amendment, the Agent shall
receive the following documents and the following matters shall be completed,
all in form and substance satisfactory to the Agent and the Required Banks:
2.1 This Amendment duly executed on behalf of the Borrower, the Agent
and the Required Lenders.
2.2 An amendment to the Security Agreement duly executed on behalf of
the Borrower and completion of the other matters contemplated by Section 2.7 of
the Credit Agreement, as amended by this Amendment.
2.3 A Borrowing Base Certificate prepared as of the close of business
on August 25, 1999, together with such other information as is required under
Section 7.7(i), as amended hereby.
2.4 An incumbency certificate, and such documents evidencing necessary
corporate action of the Borrower with respect to this Amendment and the
transactions contemplated hereby as the Agent may request.
2.5 Payment to each Lender executing this Amendment of a fee for this
Amendment in the amount equal to one-quarter percent (1/4%) of the difference
between such Lender's Commitment Amount for the Review Period pursuant to the
First Amendment referenced above and such Lender's Commitment Amount for the
Review Period pursuant to this Amendment, and payment to the Agent (for its own
account) of such fees to which the Agent and the Borrower may agree in
connection with this Amendment.
2.6 Such other documents, and completion of such other matters, as the
Agent and the Required Banks may reasonably request.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this
Amendment, the Borrower represents and warrants that:
3.1 The execution, delivery and performance by the Borrower of this
Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, or of the terms of the Borrower's
charter or by-laws, or of any contract or undertaking to which the Borrower is a
party or by which the Borrower or its property is or may be bound or affected.
3.2 This Amendment is a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms.
-6-
Second Amendment to Credit Agreement
<PAGE> 7
3.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental or nongovernmental person or
entity, including without limitation any creditor, stockholder or lessor of the
Borrower, is required on the part of the Borrower in connection with the
execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
3.4 Excluding the effect of the Known Default (as defined in the First
Amendment referenced above), (a) after giving effect to the Amendments contained
in Article 1 of this Amendment, the representations and warranties contained in
Section 4 of the Credit Agreement are true on and as of the date hereof with the
same force and effect as if made on and as of the date hereof, and (b) no
Default or Event of Default has occurred and is continuing under the Credit
Agreement.
ARTICLE 4. MISCELLANEOUS
4.1 If the Borrower shall fail to perform or observe any term, covenant
or agreement in this Amendment, or any representation or warranty made by the
Borrower in this Amendment shall prove to have been incorrect in any material
respect when made, such occurrence shall be deemed to constitute an Event of
Default. Upon the occurrence of any such Event of Default, any other Event of
Default (other than the Known Default) under the Credit Agreement and the other
Loan Documents or the Commitment Termination Date (whether before, at or after
the end of the Review Period), notwithstanding anything in this Amendment to the
contrary, the Agent and the Lenders shall be entitled to exercise any and all
rights and remedies available to the Agent and the Lenders under the Credit
Agreement and the other Loan Documents and by law and the temporary waiver under
Article 2 of the First Amendment referenced above shall automatically be
terminated and have no further force or effect.
4.2 All references to the Credit Agreement in any document, instrument
or certificate referred to in the Credit Agreement or delivered in connection
therewith or pursuant thereto, hereafter shall be deemed references to the
Credit Agreement, as amended hereby.
4.3 Subject to the amendments herein provided and the other terms and
conditions of this Amendment, the Credit Agreement shall in all respects
continue in full force and effect.
4.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
4.5 This Amendment shall be governed by and construed in accordance
with the laws of the State of Indiana.
4.6 The Borrower agrees to pay the reasonable fees and expenses of
Dickinson Wright PLLC, counsel for the Agent, in connection with the negotiation
and preparation of this Amendment and the documents referred to herein and the
consummation of the transactions contemplated hereby.
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Second Amendment to Credit Agreement
<PAGE> 8
4.7 This Amendment may be executed upon any number of counterparts with
the same effect as if the signatures thereto were upon the same instrument.
4.8 The Borrower hereby represents and warrants that it is aware of no
claims or causes of action against the Agent, the Lenders or any of them.
Notwithstanding such representation and warranty, and as further consideration
for the agreements set forth in this Amendment, the Borrower, for itself and its
successors and assigns, hereby releases the Agent and each Lender, and their
respective officers, directors, employees, agents, attorneys, affiliates,
subsidiaries, and successors and assigns, from any liability, claim, right or
cause of action which now exists or hereafter arises, whether known or unknown,
arising from or in any way related to facts in existence as of the date hereof.
4.9 Each party hereto, after consulting or having had the opportunity
to consult with counsel, knowing, voluntarily, and intentionally waives any
right any of them may have to a trial by jury in any litigation based upon or
arising out of this Amendment, or any agreement referenced herein or other
related instrument or agreement, or any of the transactions contemplated by this
Amendment, or any course of conduct, dealing, statements (whether oral or
written) or actions of any of them. None of the parties hereto shall seek to
consolidate, by counterclaim or otherwise, any such action in which a jury trial
has been waived with any other action in which a jury trial cannot be or has not
been waived. These provisions shall not be deemed to have been modified in any
respect or relinquished by any party hereto except by a written instrument
executed by all of them.
4.10 The Borrower agrees to execute any and all documents reasonably
deemed necessary or appropriate by the Agent to carry out the intent of, and/or
to implement, this Amendment.
4.11 This Amendment constitutes the entire understanding of the parties
with respect to the subject matter hereof. This Amendment is binding on the
parties hereto and their respective successors and assigns, and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
If any of the provisions of this Amendment are in conflict with any applicable
statute or rule or law or otherwise unenforceable, such offending provisions
shall be null and void only to the extent of such conflict or unenforceability,
but shall be deemed separate from and shall not invalidate any other provision
of this Amendment.
4.12 No course of dealing on the part of the Agent or any Lender, nor
any delay or failure on the part of the Agent or any Lender in exercising any
right, power or privilege hereunder shall operate as a waiver of such right,
power or privilege or otherwise prejudice the Agent's or any Lender's rights and
remedies hereunder or under any Loan Document or any other agreement or
instrument of the Borrower with or in favor of the Agent and the Lenders; nor
shall any single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or privilege. No right or
remedy conferred upon or reserved to the Agent and the Lenders under this
Amendment or under any Loan Document or any other agreement or instrument of the
Borrower with or in favor of the Agent and the Lenders is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy granted thereunder or
now or hereafter existing under any applicable law. Every right and remedy
granted by this Amendment or under any Loan
-8-
Second Amendment to Credit Agreement
<PAGE> 9
Document or any other agreement or instrument of the Borrower with or in favor
of the Agent and the Lenders or by applicable law to the Agent and the Lenders
may be exercised from time to time and as often as may be deemed expedient by
the Agent and the Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first-above written.
GIBSON GREETINGS, INC.
By: /s/ James T. Wilson
----------------------
Its: CFO
------------------
BANK ONE, INDIANA, NATIONAL ASSOCIATION,
in its capacity as a Lender and in its
capacity as the Agent
By: /s/ Andrea E. Hosken
----------------------
Its: Vice President
------------------
HARRIS TRUST AND SAVINGS BANK
By:
----------------------
Its:
------------------
FIFTH THIRD BANK
By: /s/ David Gordley
----------------------
Its: Vice President
------------------
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Second Amendment to Credit Agreement
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT, dated as of August 27, 1999
(this "Amendment"), between GIBSON GREETINGS, INC., a Delaware corporation (the
"Debtor"), and BANK ONE, INDIANA, NATIONAL ASSOCIATION, a national banking
association and the Agent for the Lenders (the "Agent").
RECITALS
The Debtor, the Lenders, and the Agent have entered into an Amended and
Restated Credit Agreement dated as of May 11, 1999 (as amended from time to
time, the "Credit Agreement") pursuant to which the Lenders may make Loans to
the Debtor.
In connection with the First Amendment to Amended and Restated Credit
Agreement dated as of July 27, 1999, among the Debtor, the Lenders, and the
Agent, the Lenders required that the Debtor execute that certain Security
Agreement dated as of July 27, 1999, in favor of the Agent for itself and on
behalf of the Lenders (the "Security Agreement").
In connection with the Second Amendment to Amended and Restated Credit
Agreement of even date herewith among the Debtor, the Lenders, and the Agent,
the parties desire to amend the Security Agreement to add certain additional
Collateral, as hereinafter set forth.
THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. The definition of "Collateral" in the Security Agreement is deleted
in its entirety and the following new definition is substituted therefor:
(i) All of the Company's present and future accounts
receivable, documents, instruments, general intangibles, and chattel
paper, including without limitation all contract rights, all deposit
accounts, all tax refunds and tax refund claims, and all other monies
and claims for money due or to become due to the Company
(ii) All of the Company's present and future inventory of
every type, wherever located, including but not limited to raw
materials, work in process, finished goods and all inventory that is
available for leasing or leased to others by the Company;
(iii) All books, records, files, correspondence, computer
programs, tapes, disks, cards, accounting information and other data of
the Company related in any way to the Collateral described in clauses
(i) and (ii) above, including but not limited to any of the foregoing
necessary to administer, sell or dispose of any of the Collateral;
<PAGE> 2
(iv) All substitutions and replacements for, and all additions
and accessions to, any and all of the foregoing; and
(v) All products and all proceeds of any and all of the
foregoing, and, to the extent not otherwise included, all payments
under insurance (whether or not the Agent is the loss payee thereof),
and any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing.
2. All of the terms of the Security Agreement, as amended hereby, are
affirmed by the Debtor, and remain in full force and effect.
3. Nothing contained herein shall in any way affect the perfection or
the priority of the security interest created by the Security Agreement.
IN WITNESS WHEREOF, the Debtor has caused this Amendment to be duly
executed as of the date first set forth above, which shall be the effective date
of this Amendment.
GIBSON GREETINGS, INC.
By: /s/ James T. Wilson
------------------------------------
Its: CFO
-----------------------------------
BANK ONE, INDIANA, NATIONAL ASSOCIATION,
Individually and as Agent
By: /s/ Andrea E. Hosken
------------------------------------
Its: Vice President
------------------------------------
2
<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated as
of September 27, 1999 (this "Amendment"), is among GIBSON GREETINGS, INC., a
Delaware corporation (the "Borrower"), the lenders party to the Credit Agreement
described below (each a "Lender" and, collectively, the "Lenders") and BANK ONE,
INDIANA, NATIONAL ASSOCIATION, a national banking association formerly known as
NBD Bank, N.A., as agent (in such capacity, the "Agent") for the Lenders.
INTRODUCTION
The Borrower, the Lenders and the Agent have entered into the Amended
and Restated Credit Agreement, dated as of May 11, 1999, as amended by the First
Amendment to Amended and Restated Credit Agreement, dated as of July 27, 1999,
and the Second Amendment to Amended and Restated Credit Agreement, dated as of
August 27, 1999 (the "Credit Agreement"). The Company now desires that the
Credit Agreement be further amended in certain respects, and the Lenders and the
Agent are willing to so amend the Credit Agreement on the terms and conditions
herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
Effective upon the date that the conditions precedent set forth in
Article 2 of this Amendment are satisfied, which date (the "Amendment Date")
shall be determined by the Agent in its sole discretion, the Credit Agreement is
amended as follows:
1.1 The definition of the term "Commitment Amount" in Section 1.1 is
amended and restated in full as follows:
"Commitment Amount": as of any date prior to the end of the Review
Period and with respect to any Lender, the amount set forth below
opposite each such Lender's name:
<TABLE>
<CAPTION>
Lender Commitment Amount
------ -----------------
<S> <C>
Bank One, Indiana, National Association $ 9,583,333.33
Harris Trust and Savings Bank $ 7,666,666.67
Fifth Third Bank $ 5,750,000.00
--------------
Total $23,000,000.00
--------------
</TABLE>
<PAGE> 2
and, as of any date during the portion of the Commitment Period, if
any, after the Review Period and with respect to any Lender, the amount
set forth adjacent to its name under the heading "Commitment Amount" in
Exhibit A on such date or, in the event that such Lender is not listed
on Exhibit A, the "Commitment Amount" which such Lender shall have
assumed from another Lender in accordance with Section 11.7 on or prior
to such date, as all of the same may be adjusted from time to time
pursuant to Sections 2.4 and 11.7(c).
1.2 In clause (g) of the definition of the term "Eligible Inventory" in
Section 1.1, the date "October 1, 1999" is deleted, and the date "October 15,
1999 is inserted in its place.
1.3 The definition of the term "Review Period" in Section 1.1 is
amended and restated in full as follows:
"Review Period": the period from and including the First Amendment
Effective Date to and including November 1, 1999.
ARTICLE 2. CONDITIONS PRECEDENT
As conditions precedent to the effectiveness of the amendments to the
Credit Agreement set forth in Article 1 of this Amendment, the Agent shall
receive the following documents and the following matters shall be completed,
all in form and substance satisfactory to the Agent and the Required Banks:
2.1 This Amendment duly executed on behalf of the Borrower, the Agent
and the Required Lenders.
2.2 Payment to each Lender executing this Amendment of a fee for this
Amendment in the amount equal to one-quarter percent (1/4%) of the difference
between such Lender's Commitment Amount for the Review Period pursuant to the
Second Amendment referenced above and such Lender's Commitment Amount for the
Review Period pursuant to this Amendment, and payment to the Agent (for its own
account) of such fees to which the Agent and the Borrower may agree in
connection with this Amendment.
2.3 Such other documents, and completion of such other matters, as the
Agent and the Required Banks may reasonably request.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this
Amendment, the Borrower represents and warrants that:
3.1 The execution, delivery and performance by the Borrower of this
Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction,
-2-
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 3
order or award of any arbitrator, court or governmental authority, or of the
terms of the Borrower's charter or by-laws, or of any contract or undertaking to
which the Borrower is a party or by which the Borrower or its property is or may
be bound or affected.
3.2 This Amendment is a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms.
3.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental or nongovernmental person or
entity, including without limitation any creditor, stockholder or lessor of the
Borrower, is required on the part of the Borrower in connection with the
execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
3.4 Excluding the effect of the Known Default (as defined in the First
Amendment referenced above), (a) after giving effect to the Amendments contained
in Article 1 of this Amendment, the representations and warranties contained in
Section 4 of the Credit Agreement are true on and as of the date hereof with the
same force and effect as if made on and as of the date hereof, and (b) no
Default or Event of Default has occurred and is continuing under the Credit
Agreement.
ARTICLE 4. MISCELLANEOUS
4.1 If the Borrower shall fail to perform or observe any term, covenant
or agreement in this Amendment, or any representation or warranty made by the
Borrower in this Amendment shall prove to have been incorrect in any material
respect when made, such occurrence shall be deemed to constitute an Event of
Default. Upon the occurrence of any such Event of Default, any other Event of
Default (other than the Known Default) under the Credit Agreement and the other
Loan Documents or the Commitment Termination Date (whether before, at or after
the end of the Review Period), notwithstanding anything in this Amendment to the
contrary, the Agent and the Lenders shall be entitled to exercise any and all
rights and remedies available to the Agent and the Lenders under the Credit
Agreement and the other Loan Documents and by law and the temporary waiver under
Article 2 of the First Amendment referenced above shall automatically be
terminated and have no further force or effect.
4.2 All references to the Credit Agreement in any document, instrument
or certificate referred to in the Credit Agreement or delivered in connection
therewith or pursuant thereto, hereafter shall be deemed references to the
Credit Agreement, as amended hereby.
4.3 Subject to the amendments herein provided and the other terms and
conditions of this Amendment, the Credit Agreement shall in all respects
continue in full force and effect.
4.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
4.5 This Amendment shall be governed by and construed in accordance
with the laws of the State of Indiana.
-3-
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 4
4.6 The Borrower agrees to pay the reasonable fees and expenses of
Dickinson Wright PLLC, counsel for the Agent, in connection with the negotiation
and preparation of this Amendment and the documents referred to herein and the
consummation of the transactions contemplated hereby.
4.7 This Amendment may be executed upon any number of counterparts with
the same effect as if the signatures thereto were upon the same instrument.
4.8 The Borrower hereby represents and warrants that it is aware of no
claims or causes of action against the Agent, the Lenders or any of them.
Notwithstanding such representation and warranty, and as further consideration
for the agreements set forth in this Amendment, the Borrower, for itself and its
successors and assigns, hereby releases the Agent and each Lender, and their
respective officers, directors, employees, agents, attorneys, affiliates,
subsidiaries, and successors and assigns, from any liability, claim, right or
cause of action which now exists or hereafter arises, whether known or unknown,
arising from or in any way related to facts in existence as of the date hereof.
4.9 Each party hereto, after consulting or having had the opportunity
to consult with counsel, knowing, voluntarily, and intentionally waives any
right any of them may have to a trial by jury in any litigation based upon or
arising out of this Amendment, or any agreement referenced herein or other
related instrument or agreement, or any of the transactions contemplated by this
Amendment, or any course of conduct, dealing, statements (whether oral or
written) or actions of any of them. None of the parties hereto shall seek to
consolidate, by counterclaim or otherwise, any such action in which a jury trial
has been waived with any other action in which a jury trial cannot be or has not
been waived. These provisions shall not be deemed to have been modified in any
respect or relinquished by any party hereto except by a written instrument
executed by all of them.
4.10 The Borrower agrees to execute any and all documents reasonably
deemed necessary or appropriate by the Agent to carry out the intent of, and/or
to implement, this Amendment.
4.11 This Amendment constitutes the entire understanding of the parties
with respect to the subject matter hereof. This Amendment is binding on the
parties hereto and their respective successors and assigns, and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
If any of the provisions of this Amendment are in conflict with any applicable
statute or rule or law or otherwise unenforceable, such offending provisions
shall be null and void only to the extent of such conflict or unenforceability,
but shall be deemed separate from and shall not invalidate any other provision
of this Amendment.
4.12 No course of dealing on the part of the Agent or any Lender, nor
any delay or failure on the part of the Agent or any Lender in exercising any
right, power or privilege hereunder shall operate as a waiver of such right,
power or privilege or otherwise prejudice the Agent's or any Lender's rights and
remedies hereunder or under any Loan Document or any other agreement or
instrument of the Borrower with or in favor of the Agent and the Lenders; nor
shall any single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or privilege. No right or
remedy conferred upon or reserved to the Agent and
-4-
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 5
the Lenders under this Amendment or under any Loan Document or any other
agreement or instrument of the Borrower with or in favor of the Agent and the
Lenders is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to every other right or
remedy granted thereunder or now or hereafter existing under any applicable law.
Every right and remedy granted by this Amendment or under any Loan Document or
any other agreement or instrument of the Borrower with or in favor of the Agent
and the Lenders or by applicable law to the Agent and the Lenders may be
exercised from time to time and as often as may be deemed expedient by the Agent
and the Lenders.
[The rest of this page intentionally left blank.]
-5-
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first-above written.
GIBSON GREETINGS, INC.
By: /s/ James T. Wilson
--------------------------------------------
Its: Exec. Vice President -
Finance & Operations
----------------------------------------
BANK ONE, INDIANA, NATIONAL ASSOCIATION,
in its capacity as a Lender and in its capacity
as the Agent
By: /s/ Andrea E. Hosken
--------------------------------------------
Its: VP
----------------------------------------
HARRIS TRUST AND SAVINGS BANK
By:
--------------------------------------------
Its:
----------------------------------------
FIFTH THIRD BANK
By: /s/ David C. Gordley
--------------------------------------------
Its: Vice President
----------------------------------------
-6-
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 1
EXHIBIT 10.4
EXECUTION COPY
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of November 1, 1999 (this "Amendment"), is among GIBSON GREETINGS, INC., a
Delaware corporation (the "Borrower"), the lenders party to the Credit Agreement
described below (each a "Lender" and, collectively, the "Lenders") and BANK ONE,
INDIANA, NATIONAL ASSOCIATION, a national banking association formerly known as
NBD Bank, N.A., as agent (in such capacity, the "Agent") for the Lenders.
INTRODUCTION
The Borrower, the Lenders and the Agent have entered into the Amended
and Restated Credit Agreement, dated as of May 11, 1999, as amended by the First
Amendment to Amended and Restated Credit Agreement, dated as of July 27, 1999,
the Second Amendment to Amended and Restated Credit Agreement, dated as of
August 27, 1999, and the Third Amendment to Amended and Restated Credit
Agreement, dated as of September 27, 1999 (the "Credit Agreement"). The Company
now desires that the Credit Agreement be further amended in certain respects,
and the Lenders and the Agent are willing to so amend the Credit Agreement on
the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
Effective upon the date that the conditions precedent set forth in
Article 2 of this Amendment are satisfied, which date (the "Amendment Date")
shall be determined by the Agent in its sole discretion, the Credit Agreement is
amended as follows:
1.1 The definition of the term "Commitment Amount" in Section 1.1 is
amended and restated in full as follows:
"Commitment Amount": as of any date prior to the end of the Review
Period and with respect to any Lender, the amount set forth below
opposite each such Lender's name:
<TABLE>
<CAPTION>
Lender Commitment Amount
------ -----------------
<S> <C>
Bank One, Indiana, National Association $11,458,333.33
Harris Trust and Savings Bank $ 9,166,666.67
Fifth Third Bank $ 6,875,000.00
--------------
Total $27,500,000.00
--------------
</TABLE>
<PAGE> 2
and, as of any date during the portion of the Commitment Period, if
any, after the Review Period and with respect to any Lender, the amount
set forth adjacent to its name under the heading "Commitment Amount" in
Exhibit A on such date or, in the event that such Lender is not listed
on Exhibit A, the "Commitment Amount" which such Lender shall have
assumed from another Lender in accordance with Section 11.7 on or prior
to such date, as all of the same may be adjusted from time to time
pursuant to Sections 2.4 and 11.7(c).
1.2 In clause (g) of the definition of the term "Eligible Inventory" in
Section 1.1, the date "October 15, 1999" (as inserted therein pursuant to the
Third Amendment referenced above) is deleted, and the date "November 15, 1999"
is inserted in its place.
1.3 The definition of the term "Review Period" in Section 1.1 is
amended and restated in full as follows:
"Review Period": the period from and including the First Amendment
Effective Date to and including November 30, 1999.
ARTICLE 2. CONDITIONS PRECEDENT
As conditions precedent to the effectiveness of the amendments to the
Credit Agreement set forth in Article 1 of this Amendment, the Agent shall
receive the following documents and the following matters shall be completed,
all in form and substance satisfactory to the Agent and the Required Banks:
2.1 This Amendment duly executed on behalf of the Borrower, the Agent
and the Required Lenders.
2.2 Payment to each Lender executing this Amendment of a fee for this
Amendment in the amount equal to one-quarter percent (1/4%) of the difference
between such Lender's Commitment Amount for the Review Period pursuant to the
Third Amendment referenced above and such Lender's Commitment Amount for the
Review Period pursuant to this Amendment, and payment to the Agent (for its own
account) of such fees to which the Agent and the Borrower may agree in
connection with this Amendment.
2.3 Such other documents, and completion of such other matters, as the
Agent and the Required Banks may reasonably request.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this
Amendment, the Borrower represents and warrants that:
-2-
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 3
3.1 The execution, delivery and performance by the Borrower of this
Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, or of the terms of the Borrower's
charter or by-laws, or of any contract or undertaking to which the Borrower is a
party or by which the Borrower or its property is or may be bound or affected.
3.2 This Amendment is a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms.
3.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental or nongovernmental person or
entity, including without limitation any creditor, stockholder or lessor of the
Borrower, is required on the part of the Borrower in connection with the
execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
3.4 Excluding the effect of the Known Default (as defined in the First
Amendment referenced above), (a) after giving effect to the Amendments contained
in Article 1 of this Amendment, the representations and warranties contained in
Section 4 of the Credit Agreement are true on and as of the date hereof with the
same force and effect as if made on and as of the date hereof, and (b) no
Default or Event of Default has occurred and is continuing under the Credit
Agreement.
ARTICLE 4. MISCELLANEOUS
4.1 If the Borrower shall fail to perform or observe any term, covenant
or agreement in this Amendment, or any representation or warranty made by the
Borrower in this Amendment shall prove to have been incorrect in any material
respect when made, such occurrence shall be deemed to constitute an Event of
Default. Upon the occurrence of any such Event of Default, any other Event of
Default (other than the Known Default) under the Credit Agreement and the other
Loan Documents or the Commitment Termination Date (whether before, at or after
the end of the Review Period), notwithstanding anything in this Amendment to the
contrary, the Agent and the Lenders shall be entitled to exercise any and all
rights and remedies available to the Agent and the Lenders under the Credit
Agreement and the other Loan Documents and by law and the temporary waiver under
Article 2 of the First Amendment referenced above shall automatically be
terminated and have no further force or effect.
4.2 All references to the Credit Agreement in any document, instrument
or certificate referred to in the Credit Agreement or delivered in connection
therewith or pursuant thereto, hereafter shall be deemed references to the
Credit Agreement, as amended hereby.
4.3 Subject to the amendments herein provided and the other terms and
conditions of this Amendment, the Credit Agreement shall in all respects
continue in full force and effect.
4.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
-3-
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 4
4.5 This Amendment shall be governed by and construed in accordance
with the laws of the State of Indiana.
4.6 The Borrower agrees to pay the reasonable fees and expenses of
Dickinson Wright PLLC, counsel for the Agent, in connection with the negotiation
and preparation of this Amendment and the documents referred to herein and the
consummation of the transactions contemplated hereby.
4.7 This Amendment may be executed upon any number of counterparts with
the same effect as if the signatures thereto were upon the same instrument.
4.8 The Borrower hereby represents and warrants that it is aware of no
claims or causes of action against the Agent, the Lenders or any of them.
Notwithstanding such representation and warranty, and as further consideration
for the agreements set forth in this Amendment, the Borrower, for itself and its
successors and assigns, hereby releases the Agent and each Lender, and their
respective officers, directors, employees, agents, attorneys, affiliates,
subsidiaries, and successors and assigns, from any liability, claim, right or
cause of action which now exists or hereafter arises, whether known or unknown,
arising from or in any way related to facts in existence as of the date hereof.
4.9 Each party hereto, after consulting or having had the opportunity
to consult with counsel, knowing, voluntarily, and intentionally waives any
right any of them may have to a trial by jury in any litigation based upon or
arising out of this Amendment, or any agreement referenced herein or other
related instrument or agreement, or any of the transactions contemplated by this
Amendment, or any course of conduct, dealing, statements (whether oral or
written) or actions of any of them. None of the parties hereto shall seek to
consolidate, by counterclaim or otherwise, any such action in which a jury trial
has been waived with any other action in which a jury trial cannot be or has not
been waived. These provisions shall not be deemed to have been modified in any
respect or relinquished by any party hereto except by a written instrument
executed by all of them.
4.10 The Borrower agrees to execute any and all documents reasonably
deemed necessary or appropriate by the Agent to carry out the intent of, and/or
to implement, this Amendment.
4.11 This Amendment constitutes the entire understanding of the parties
with respect to the subject matter hereof. This Amendment is binding on the
parties hereto and their respective successors and assigns, and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
If any of the provisions of this Amendment are in conflict with any applicable
statute or rule or law or otherwise unenforceable, such offending provisions
shall be null and void only to the extent of such conflict or unenforceability,
but shall be deemed separate from and shall not invalidate any other provision
of this Amendment.
4.12 No course of dealing on the part of the Agent or any Lender, nor
any delay or failure on the part of the Agent or any Lender in exercising any
right, power or privilege hereunder shall operate as a waiver of such right,
power or privilege or otherwise prejudice the Agent's or any Lender's rights and
remedies hereunder or under any Loan Document or any other
-4-
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 5
agreement or instrument of the Borrower with or in favor of the Agent and the
Lenders; nor shall any single or partial exercise thereof preclude any further
exercise thereof or the exercise of any other right, power or privilege. No
right or remedy conferred upon or reserved to the Agent and the Lenders under
this Amendment or under any Loan Document or any other agreement or instrument
of the Borrower with or in favor of the Agent and the Lenders is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy granted thereunder or
now or hereafter existing under any applicable law. Every right and remedy
granted by this Amendment or under any Loan Document or any other agreement or
instrument of the Borrower with or in favor of the Agent and the Lenders or by
applicable law to the Agent and the Lenders may be exercised from time to time
and as often as may be deemed expedient by the Agent and the Lenders.
[The rest of this page intentionally left blank.]
-5-
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first-above written.
GIBSON GREETINGS, INC.
By: /s/ James T. Wilson
--------------------------------------------
Its: Executive Vice President,
Finance and Operations
----------------------------------------
BANK ONE, INDIANA, NATIONAL ASSOCIATION,
in its capacity as a Lender and in its capacity
as the Agent
By: /s/ Edward C. Hathaway
--------------------------------------------
Its: First Vice President
----------------------------------------
HARRIS TRUST AND SAVINGS BANK
By:
--------------------------------------------
Its:
----------------------------------------
FIFTH THIRD BANK
By: /s/ Andrew K. Hauck
--------------------------------------------
Its: Vice President
----------------------------------------
-6-
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE> 1
EXHIBIT 10.5
SEVERANCE AGREEMENT AND
RELEASE OF ALL CLAIMS
The intent of this Severance Agreement and Release of All Claims (hereinafter
"Agreement") is to amicably and finally resolve all issues concerning Greg
Brown's employment with Gibson Greetings, Inc., all actions and conduct
occurring during his employment with Gibson Greetings, Inc. and the termination
thereof.
THEREFORE, in consideration of the mutual promises and releases
contained herein, and other good and valuable consideration between the parties
as provided herein, the sufficiency of which is hereby acknowledged, it is
agreed as follows:
1. Greg Brown hereby waives, releases, discharges and covenants not to
sue Gibson Greetings, Inc. or its directors, officers, managers, agents or
employees, successors, predecessors, assigns, or affiliated entities with
respect to all past or present claims of any nature whatsoever, whether known or
unknown, foreseen or unforeseen, including all claims in any way relating to
Greg Brown's employment with Gibson Greetings, Inc. or the termination thereof,
including but not limited to any claims based on race, color, religion, age,
sex, marital status, national origin, handicap, disability and/or retaliation,
including any and all claims arising under any statute, including but not
limited to the Ohio Fair Employment Practice Act, Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act (ADEA), the Older Workers
Benefit Protection Act, the Family and Medical Leave Act (FMLA) and the
Americans With Disabilities Act (ADA), and any and all laws and regulations
relating to employment termination, employment discrimination or retaliation,
wages, hours, benefits, compensation and any and all claims for attorneys' fees
and costs.
2. In consideration for this Agreement and the undertakings described
herein, including Greg Brown's written acceptance of this Agreement, Gibson
Greetings, Inc. agrees, in lieu of any other severance payments provided by the
company pursuant to any plan or policy, to pay to Greg Brown two times his
current annual base salary as severance within seven (7) days of the effective
date of this Agreement as described in Paragraph 5 below. Gibson further agrees
to provide Greg Brown with Senior Executive Outplacement Assistance for a period
of six months following the effective date of this Agreement and, if necessary,
for up to three additional months thereafter. In addition, Gibson will reimburse
Greg Brown for COBRA payments made to continue his health and dental insurance
for up to 18 months.
-1-
<PAGE> 2
3. Greg Brown acknowledges that, during his employment with Gibson
Greetings, Inc., he has come into the possession of confidential, privileged
and/or proprietary information, and agrees not to divulge any such information
to any third party without the express written consent of Gibson Greetings,
Inc.'s Senior Vice President-Human Resources. Further, both parties agree that
this agreement and its terms are confidential and shall not be disclosed to any
third party (excepting the parties' attorneys and accountants) without the prior
written consent of the nondisclosing party.
4. Exclusively as this Agreement pertains to Greg Brown's release of
claims under the Age Discrimination and Employment Act (ADEA), Greg Brown hereby
acknowledges that he has had the opportunity to consult with an attorney prior
to signing this Agreement, and that he has been advised and understands that he
has twenty-one (21) days in which to consider whether he should sign this
Agreement, and he further understands that he has seven (7) days following the
date upon which he signed this Agreement to revoke his acceptance.
5. This Agreement shall become effective upon the expiration of the
seven-day revocation period described in Paragraph 4 above.
6. This Agreement shall be interpreted and enforced under the laws of
the State of Ohio. If, for any reason, a portion of this Agreement is deemed
invalid or unenforceable, all remaining parts shall remain binding and in full
force and effect.
7. For a period of 1 year following the effective date of this
Agreement, you will refrain from making any oral or written statements to any
third party in any way disparaging or demeaning Gibson Greetings, it products,
employees or services.
8. Greg Brown affirms that he has fully read this entire Agreement,
that he fully understands the meaning and intent of this Agreement, that this
Agreement constitutes the full and complete understanding between the parties,
and that he signed this Agreement consisting of two (2) pages as his own free
and voluntary act.
GIBSON GREETINGS, INC.
By: /s/ Karen L. Kemp /s/ Greg Brown
--------------------------- -------------------------------
Date: Sept.27, 1999 Date: 10/1/99
--------------------------- -------------------------------
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GIBSON
GREETINGS, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,696
<SECURITIES> 0
<RECEIVABLES> 96,261
<ALLOWANCES> 38,095
<INVENTORY> 70,129
<CURRENT-ASSETS> 187,763
<PP&E> 162,908
<DEPRECIATION> 76,505
<TOTAL-ASSETS> 392,708
<CURRENT-LIABILITIES> 102,683
<BONDS> 10,129
0
0
<COMMON> 171
<OTHER-SE> 233,036
<TOTAL-LIABILITY-AND-EQUITY> 392,708
<SALES> 212,870
<TOTAL-REVENUES> 214,201
<CGS> 127,225
<TOTAL-COSTS> 275,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 655
<INCOME-PRETAX> (62,091)
<INCOME-TAX> (24,335)
<INCOME-CONTINUING> (37,756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,756)
<EPS-BASIC> (2.38)
<EPS-DILUTED> (2.38)
</TABLE>
