FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-19835 DAY RUNNER, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3624280
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
15295 Alton Parkway
Irvine, California 92618
(Address and zip code of principal executive offices)
(714) 680-3500
(Registrant's telephone number, including area code)
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 Registrant's
classes of Common Stock, as of the latest practicable date:
Class Number of Shares Outstanding at May 9, 1997
- ------------------------------- -------------------------------------------
Common Stock, $0.001 par value 6,347,297
<PAGE>
DAY RUNNER, INC.
INDEX
Page Reference
COVER PAGE....................................................................1
INDEX .....................................................................2
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1997 and June 30, 1996.......................3
Consolidated Statements of Income
Three Months and Nine Months Ended
March 31, 1997 and 1996.................................4
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1997 and 1996..............5
Notes to Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............8
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................13
SIGNATURES...................................................................14
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
<TABLE>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
ASSETS
March 31, June 30,
1997 1996
--------- ----------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 27,838 $ 19,765
Accounts receivable (less allowances for doubtful accounts and sales returns
and other allowances of $7,123 and $7,374 at March 31, 1997 and
June 30, 1996, respectively)............................................... 7,611 21,441
Inventories..................................................................... 23,189 20,040
Prepaid expenses and other current assets....................................... 2,234 1,710
Income taxes receivable......................................................... 2,345 1,930
Deferred income taxes........................................................... 5,200 5,200
--------- ---------
Total current assets....................................................... 68,417 70,086
--------- ---------
Property and equipment -- At cost:
Machinery and equipment......................................................... 8,846 6,942
Data processing equipment and software.......................................... 5,809 4,707
Leasehold improvements.......................................................... 1,693 1,514
Vehicles........................................................................ 213 202
--------- ---------
Total...................................................................... 16,561 13,365
Accumulated depreciation and amortization....................................... (8,080) (5,864)
--------- ---------
Property and equipment -- net................................................... 8,481 7,501
--------- ---------
Other assets......................................................................... 338 344
--------- ---------
Total assets......................................................................... $ 77,236 $ 77,931
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 5,726 $ 8,063
Accrued expenses................................................................ 8,887 10,370
Current portion of capital lease obligations.................................... 16
-------- ---------
Total current liabilities.................................................. 14,629 18,433
--------- ---------
Long-term liabilities:
Capital lease obligations....................................................... 64
---------
Stockholders' equity:
Preferred stock (1,000,000 shares authorized, $0.001 par value; no shares issued
or outstanding).............................................................
Common stock (14,000,000 shares authorized, $0.001 par value; 6,344,297
issued and 6,119,997 outstanding at March 31, 1997; 6,304,771 issued
and
outstanding at June 30, 1996)............................................... 6 6
Additional paid-in capital...................................................... 23,259 22,869
Retained earnings............................................................... 45,030 36,620
Cumulative translation adjustment............................................... 10 3
Treasury stock: 224,300 shares, at cost........................................ (5,762)
--------- ---------
Total stockholders' equity................................................. 62,543 59,498
--------- ---------
Total liabilities and stockholders' equity........................................... $ 77,236 $ 77,931
========= =========
See accompanying notes to consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales........................................................ $ 21,020 $ 18,106 $ 89,583 $ 90,970
Cost of goods sold........................................... 10,035 8,601 42,783 44,332
--------- --------- --------- ---------
Gross profit................................................. 10,985 9,505 46,800 46,638
--------- --------- --------- ---------
Operating expenses:
Selling, marketing and distribution..................... 6,273 5,381 21,874 21,224
General and administrative.............................. 3,469 3,103 10,276 10,713
Costs incurred in pursuing acquisitions................. 1,491 1,491
--------- --------- --------- ---------
Total operating expenses............................ 11,233 8,484 33,641 31,937
--------- --------- --------- ---------
(Loss) income from operations................................ (248) 1,021 13,159 14,701
Net interest income.......................................... 345 252 858 410
--------- --------- --------- ---------
Income before provision for income taxes..................... 97 1,273 14,017 15,111
Provision for income taxes................................... 39 528 5,607 6,271
--------- --------- --------- ---------
Net income................................................... $ 58 $ 745 $ 8,410 $ 8,840
========= ========= ========= =========
Earnings per common and common equivalent share.............. $ 0.01 $ 0.11 $ 1.26 $ 1.35
========= ========= ========= =========
Weighted average number of common and common
equivalent shares................................... 6,532 6,657 6,651 6,564
========= ========= ========= =========
See accompanying notes to consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 8,410 $ 8,840
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.............................................. 2,379 1,333
Provision for losses on accounts receivable................................ 275 557
Write-off of barter credits................................................ 220
Changes in operating assets and liabilities:
Accounts receivable..................................................... 13,571 13,306
Inventories............................................................. (3,096) 7,331
Prepaid expenses and other current assets............................... (520) (71)
Income taxes receivable................................................. (415) (1,079)
Accounts payable........................................................ (2,551) (5,092)
Accrued expenses........................................................ (1,552) 136
Income taxes payable.................................................... (2,719)
--------- ---------
Net cash provided by operating activities............................ 16,501 22,762
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment......................................... (3,269) (1,914)
Other assets.................................................................. 5 (5)
--------- ---------
Net cash used in investing activities.................................... (3,264) (1,919)
---------- ---------
Cash flows from financing activities:
Repayment of long-term debt................................................... (115)
Repayment of capital lease obligations........................................ (10) (11)
Net proceeds from issuance of common stock.................................... 390 1,192
Repurchase of common stock.................................................... (5,762)
---------- ---------
Net cash (used in) provided by financing activities...................... (5,382) 1,066
---------- ---------
Effect of exchange rate changes in cash........................................... 218 121
--------- ---------
Net increase in cash and cash equivalents......................................... 8,073 22,030
Cash and cash equivalents at beginning of period.................................. 19,765 4,269
--------- ---------
Cash and cash equivalents at end of period........................................ $ 27,838 $ 26,299
========= =========
See accompanying notes to consolidated financial
statements.
</TABLE>
<PAGE>
DAY RUNNER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Information relating to the three
months and nine months ended
March 31, 1997 and 1996 is unaudited)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying consolidated balance sheet as of March 31, 1997,
consolidated statements of income for the three-month and nine-month periods
ended March 31, 1997 and 1996 and consolidated statements of cash flows for the
nine-month periods ended March 31, 1997 and 1996 are unaudited but, in the
opinion of management, include all adjustments consisting of normal, recurring
accruals necessary for a fair presentation of the financial position and the
results of operations for such periods. Certain information and footnote
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been omitted pursuant to the
requirements of the Securities and Exchange Commission, although the Company
believes that the disclosures included in the financial statements included
herein are adequate to make the information therein not misleading. The
financial statements included herein should be read in conjunction with the
Company's audited consolidated financial statements for the year ended June 30,
1996, and the notes thereto, which are included in the Company's Annual Report
on Form 10-K.
The results of operations for the three months and nine months ended
March 31, 1997 and 1996 are not necessarily indicative of the results for a full
year. The seasonality of the Company's financial results and the
unpredictability of the factors affecting such seasonality make the Company's
quarterly and yearly financial results difficult to predict and subject to
significant fluctuation.
2. INVENTORIES
Inventories consist of the following (in thousands):
March 31, June 30,
1997 1996
---- ----
Raw materials................... $ 7,320 $ 8,212
Work in process................. 462 327
Finished goods.................. 15,407 11,501
---------- ----------
Total.................. $ 23,189 $ 20,040
========== ==========
3. LINE OF CREDIT
Effective November 1, 1996, the Company amended its credit agreement
with a bank. The amended terms of the agreement allow the Company to borrow up
to $5,000,000 under a line of credit and open commercial letters of credit or
open standby letters of credit up to $5,000,000 through November 1, 1997.
However, in no event may the aggregate of borrowings and letters of credit
exceed $5,000,000. Commercial letters of credit and standby letters of credit
shall be issued for a term not to exceed 180 days and shall not expire
subsequent to February 1, 1998 and May 1, 1998, respectively. Borrowings are
collateralized by accounts receivable, inventories and certain other assets.
Borrowings under the line of credit bear interest either at the bank's prime
rate (8.50% at March 31, 1997) or at LIBOR (5.6875% at March 31, 1997) plus
1.75%, at the Company's election. The credit agreement requires the Company to
maintain total debt to tangible net worth of not more than 1.5 to 1 and to
maintain certain specified operating ratios. The agreement also requires that
the Company obtain the bank's approval to declare or pay dividends in excess of
$200,000.
4. STOCKHOLDERS' EQUITY
During the nine months ended March 31, 1997, certain directors,
officers and employees exercised options and warrants to purchase an aggregate
of 39,526 shares of the Company's Common Stock for an aggregate of approximately
$390,000.
5. OTHER TRANSACTIONS
During fiscal 1995 and calendar 1993, the Company entered into barter
agreements whereby it delivered $132,000 and $1,098,000, respectively, of its
inventory in exchange for future advertising credits and other items. The
credits, which expire in October 1998, are valued at the lower of the Company's
cost or market value of the inventory transferred. The Company has recorded
barter credits of $36,000 in prepaid expenses and other current assets at March
31, 1997 and at June 30, 1996. At March 31, 1997 and June 30, 1996, other assets
include $279,000 of such credits. These credits are charged to expense as they
are used. During the nine months ended March 31, 1997 and 1996, no amounts were
charged to expense for barter credits used.
The Company assesses the recoverability of barter credits periodically.
Factors considered in evaluating the recoverability include management's plans
with respect to advertising and other expenditures for which barter credits can
be used. Any impairment losses are charged to operations as they are
determinable. During the nine months ended March 31, 1996, the Company charged
$220,000 to operations for such impairment losses. No amounts were charged to
operations during the nine months ended March 31, 1997 for such impairment
losses.
6. EARNINGS PER SHARE
Earnings per share information is computed using the weighted average
number of shares of common stock outstanding and dilutive common equivalent
shares from stock options and warrants. In computing earnings per share, the
Company used the modified treasury stock method for the three and nine months
ended March 31, 1997 and the treasury stock method for the three and nine months
ended March 31, 1996.
7. STATEMENTS OF CASH FLOW
During the nine months ended March 31, 1997, the Company incurred a
total of $88,000 in capital lease obligations, comprised of leases on certain
vehicles.
Nine Months Ended March 31,
1997 1996
-----------------------------
Supplemental disclosure of cash flow
information (in thousands)-
Cash paid during the period for:
Interest $ 90 $ 22
Income taxes $5,958 $9,988
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto included elsewhere in this Quarterly Report. Historical results and
percentage relationships among any amounts included in the Consolidated
Financial Statements are not necessarily indicative of trends in operating
results for any future period.
Since the Company's introduction of the first Day Runner System
organizer in 1982, the Company's revenues have been generated by unit sales
primarily of organizers and planners and secondarily of refills. Sales increases
have resulted from higher sales of existing products, new products and/or
product line extensions. The Company focuses the great majority of its product
development, sales and marketing efforts on the office products channel, which
accounted for 34.2% of third quarter fiscal 1997 sales and 50.8% of sales for
the nine months ended March 31, 1997, and the mass market channel, which
accounted for 48.6% of third quarter fiscal 1997 sales and 37.1% of sales for
the nine months ended March 31, 1997.
Results of Operations
The following table sets forth, for the periods indicated, the
percentages that income statement items bear to sales and the percentage change
in the dollar amounts of such items.
<TABLE>
<CAPTION>
Percentage Change
-----------------
Percentage of Sales Three Nine
-------------------- Months Months
Three Nine Ended Ended
Months Ended Months Ended March 31 March 31
March 31, March 31, 1996 1996
1997 1996 1997 1996 to 1997 to 1997
---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales............................................ 100.0% 100.0% 100.0% 100.0% 16.1% (1.5)%
Cost of goods sold............................... 47.7 47.5 47.8 48.7 16.7 (3.5)
----- ----- ----- -----
Gross profit..................................... 52.3 52.5 52.2 51.3 15.6 0.3
----- ----- ----- -----
Operating expenses:
Selling, marketing and distribution........... 29.8 29.7 24.4 23.3 16.6 3.1
General and administrative.................... 16.5 17.2 11.4 11.8 11.8 (4.1)
Costs incurred in pursuing acquisitions....... 7.1 1.7 NM NM
----- ---- ----- ----
Total operating expenses.................... 53.4 46.9 37.5 35.1 32.4 5.3
----- ----- ----- -----
(Loss) income from operations.................... (1.1) 5.6 14.7 16.2 (124.3) (10.5)
Net interest income.............................. 1.6 1.4 1.0 0.4 36.9 109.3
---- ----- ---- ------
Income before provision for income taxes......... 0.5 7.0 15.7 16.6 (92.4) (7.2)
Provision for income taxes....................... 0.2 2.9 6.3 6.9 (92.6) (10.6)
----- ----- ----- -----
Net income....................................... 0.3% 4.1% 9.4% 9.7% (92.2) (4.9)
===== ===== ===== =====
</TABLE>
<PAGE>
The following tables set forth, for the periods indicated, the
Company's approximate sales by product category and distribution channel and as
a percentage of total sales.
<TABLE>
<CAPTION>
PRODUCT CATEGORY:
Three Months Ended March 31, Nine Months Ended March 31,
1997 1996 1997 1996
-------------- ----------------- --------------- -----------------
(unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Organizers and planners......... $11,636 55.4% $10,421 57.5% $52,876 59.0% $55,573 61.1%
Refills......................... 7,598 36.1 6,840 37.8 31,023 34.6 33,213 36.5
Other........................... 1,786 8.5 845 4.7 5,684 6.4 2,184 2.4
------- ------ ------- ----- -------- ------ -------- ------
Total........................ $21,020 100.0% $18,106 100.0% $89,583 100.0% $90,970 100.0%
======= ====== ======== ====== ======== ====== ========= ======
</TABLE>
<TABLE>
DISTRIBUTION CHANNEL:
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1997 1996 1997 1996
----------------- ----------------- --------------- -----------------
(unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office products................. $ 7,181 34.2% $ 7,491 41.4% $45,510 50.8% $ 49,133 54.0%
Mass market..................... 10,224 48.6 6,521 36.0 33,229 37.1 30,101 33.1
Foreign customers............... 1,443 6.9 1,301 7.2 4,561 5.1 4,560 5.0
Other........................... 2,172 10.3 2,793 15.4 6,283 7.0 7,176 7.9
------- ------ ------- ------ -------- ------ -------- -----
Total........................ $21,020 100.0% $18,106 100.0% $89,583 100.0% $ 90,970 100.0%
======= ====== ======= ====== ======== ====== ======== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH
THE THREE MONTHS ENDED MARCH 31, 1996
SALES. Sales consist of revenues from gross product shipments net of
allowances for returns, rebates and credits. In the third quarter of fiscal
1997, sales increased by $2,914,000, or 16.1%, primarily because of a higher
average selling price for organizers and planners. (Sales of discontinued items
had increased unit sales of organizers and planners and reduced the average
selling price during the third quarter of fiscal 1996.) In the quarter ended
March 31, 1997, sales of organizers and planners grew by $1,215,000, or 11.7%;
sales of refills (which include calendars and accessories) grew by $758,000, or
11.1%; and sales of miscellaneous products grouped together as "other" grew by
$941,000, or 111.4%. Product sales were primarily to mass market customers and
secondarily to office products customers. Sales to mass market customers grew by
$3,703,000, or 56.8%, and sales to foreign customers grew by $142,000, or 10.9%.
These increases were partially offset by decreases of $310,000, or 4.1%, in
sales to office products customers and $621,000, or 22.2%, in sales to
miscellaneous customers grouped together as "other."
GROSS PROFIT. Gross profit is sales less cost of goods sold, which is
comprised of materials, labor and manufacturing overhead. Gross profit may be
affected by, among other things, product mix, production levels, changes in
vendor and customer prices and discounts, sales volume and growth rate, sales
returns, purchasing and manufacturing efficiencies, tariffs, duties and
inventory carrying costs. Gross profit as a percentage of sales decreased from
52.5% in the third quarter of fiscal 1996 to 52.3% in the third quarter of
fiscal 1997 primarily because of an increase in the provision for sales returns.
OPERATING EXPENSES. Total operating expenses increased by $2,749,000, or
32.4%, in the third quarter of fiscal 1997 compared with the third quarter of
fiscal 1996 and increased as a percentage of sales from 46.9% to 53.4% primarily
because of $1,491,000 of costs incurred in pursuing acquisitions. These costs,
which were incurred in pursuing two significant acquisitions that did not come
to fruition, included legal, advisory and accounting fees and miscellaneous
expenses. Without such costs, operating expenses, as a percentage of sales, for
the quarter ended March 31, 1997 would have been 46.3% compared with 46.9% for
the same quarter in the prior year. Primarily because of higher freight costs,
selling, marketing and distribution expenses increased by $892,000 and from
29.7% to 29.8% as a percentage of sales. General and administrative expenses
increased by $366,000 primarily because of increased legal and accounting and
personnel costs, but decreased from 17.2% to 16.5% as a percentage of sales.
NET INTEREST INCOME. Primarily because of the Company's higher levels
of cash available for short-term investment, net interest income in the third
quarter of fiscal 1997 increased by $93,000 compared with the third quarter of
fiscal 1996 and increased as a percentage of sales from 1.4% to 1.6%.
INCOME TAXES. Primarily because of the improved financial results of
the Company's Hong Kong subsidiary, the Company's third quarter fiscal 1997
effective tax rate was 40.2%, compared with 41.5% for the third quarter of
fiscal 1996.
NET INCOME. Net income for the third quarter of fiscal 1997 decreased
by $687,000 and from 4.1% to 0.3% as a percentage of sales. Without the costs
incurred in pursuing acquisitions, net income would have grown by $208,000 and
increased from 4.1% to 4.5% as a percentage of sales.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED WITH
THE NINE MONTHS ENDED MARCH 31, 1996
SALES. In the nine months ended March 31, 1997 compared with the nine
months ended March 31, 1996, sales decreased by $1,387,000, or 1.5%, due
primarily to lower unit sales of organizers and planners and secondarily to
lower sales of refills. Sales of organizers and planners declined by $2,697,000,
or 4.9%, and sales of refills declined by $2,190,000, or 6.6%. These decreases
were partially offset by an increase in sales of miscellaneous products grouped
together as "other," which grew by $3,500,000, or 160.3%. Product sales were
primarily to the office products customers and secondarily to mass market
customers. Sales to office products customers declined by $3,623,000, or 7.4%,
and sales to miscellaneous customers grouped together as "other" decreased by
$893,000, or 12.4%. These decreases were partially offset by growth of
$3,128,000, or 10.4%, in sales to mass market customers.
GROSS PROFIT. Gross profit as a percentage of sales increased from
51.3% in the first nine months of fiscal 1996 to 52.2% in the first nine months
of fiscal 1997 primarily because of improved purchasing efficiencies.
OPERATING EXPENSES. Total operating expenses increased by $1,704,000,
or5.3%, in the first nine months of fiscal 1997 compared with the first nine
months of fiscal 1996 and increased as a percentage of sales from 35.1% to 37.5%
primarily because of $1,491,000 of costs incurred in pursuing acquisitions.
These costs, which were incurred in pursuing two significant acquisitions that
did not come to fruition, included legal, advisory and accounting fees and
miscellaneous expenses. Without such costs, operating expenses, as a percentage
of sales, for the nine months ended March 31, 1997 would have been 35.8%
compared with 35.1% for the same period in the prior year. Due primarily to
increased display costs, selling, marketing and distribution expenses increased
by $650,000 and from 23.3% to 24.4% as a percentage of sales. Primarily because
of a decrease in consulting costs and secondarily because of a decrease in the
provision for losses on accounts receivable, general and administrative expenses
decreased by $437,000 and from 11.8% to 11.4% as a percentage of sales.
NET INTEREST INCOME. Primarily because of the Company's higher levels
of cash available for short-term investment, net interest income in the first
nine months of fiscal 1997 increased by $448,000 compared with the first nine
months of fiscal 1996 and increased as a percentage of sales from 0.4% to 1.0%.
INCOME TAXES. Primarily because of the improved financial results of
the Company's Hong Kong subsidiary, the effective tax rate for the first nine
months of fiscal 1997 was 40.0%, compared with 41.5% for the first nine months
of fiscal 1996.
NET INCOME. Net income for the nine months ended March 31, 1997
decreased by $430,000 and from 9.7% to 9.4% as a percentage of sales. Without
the costs incurred in pursuing acquisitions, net income would have grown by
$465,000 and from 9.7% to 10.4% as a percentage of sales.
SEASONAL FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its sales and other financial
results that it believes have resulted and will continue to result primarily
from its customers' and users' buying patterns. These buying patterns have
typically adversely affected orders for the Company's products in the third
quarter of each fiscal year.
Although it is difficult to predict the future seasonality of sales,
the Company believes that future seasonality should be influenced at least in
part by customer and user buying patterns similar to those that have
historically affected the Company. Quarterly financial results are also affected
by timing and size of orders from large customers, new product introductions and
line extensions, timing and size of orders for new products, changes in product
mix, customer mix, competition, large customers' inventory management, vendor
and customer pricing, corporate finance activities, general economic conditions,
the health of the retail environment, production levels, supply constraints,
manufacturing delays and supplier performance. The seasonality of the Company's
financial results and the unpredictability of the factors affecting such
seasonality make the Company's quarterly and yearly financial results difficult
to predict and subject to significant fluctuation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at March 31, 1997 increased to
$27,838,000 from $19,765,000 at June 30, 1996. In the nine months ended March
31, 1997, net cash of $16,501,000 provided by operating activities, offset net
cash of $3,264,000 and $5,382,000 used in investing activities and financing
activities, respectively. Of the $16,501,000 net amount provided by the
Company's operating activities, $8,410,000 was provided by net income,
$13,571,000 was provided by a decrease in accounts receivable and $2,379,000 was
provided by depreciation and amortization, which amounts were partially offset
by an increase of $3,096,000 in inventories, a decrease of $2,551,000 in
accounts payable and a decrease of $1,552,000 in accrued expenses. The
$3,264,000 used in the Company's investing activities was used to acquire
primarily machinery and equipment and secondarily computer equipment and
software. Of the $5,382,000 net amount used in the Company's financing
activities, $5,762,000 was used to repurchase 224,300 shares of Common Stock
under the Company's stock repurchase program, which amount was partially offset
by $390,000 which was provided by the issuance of Common Stock upon exercise of
stock options and warrants.
Because of the Company's seasonal sales patterns, accounts receivable
(net) at March 31, 1997 decreased by 64.5% from the fiscal 1996 year-end amount.
Compared with the March 31, 1996 amount, accounts receivable (net) increased by
38.4% primarily because of the growth in sales. Primarily due to a change in the
payment terms extended to a large customer, the average collection period of
accounts receivable at March 31, 1997 was 47 days, compared with 43 days at both
June 30 and March 31, 1996.
Inventories at March 31, 1997 increased by 15.7% compared with the
fiscal 1996 year-end amount and by 21.2% from the March 31, 1996 amount
primarily because of a planned inventory build-up done in preparation for the
Company's June quarter back-to-school selling season.
The Company's bank line of credit allows for borrowings and the
issuance of commercial or standby letters of credit up to an aggregate of
$5,000,000. Borrowings under the line of credit bear interest at either the
bank's prime rate or at LIBOR plus 1.75%, at the Company's election, and are due
and payable in full on November 1, 1997. At March 31, 1997, Day Runner had no
borrowings under its bank line of credit but had used the line of credit to
secure outstanding letters of credit of approximately $1,125,000, which reduced
the availability under the line of credit to approximately $3,875,000. (See Note
2 to Consolidated Financial Statements.)
The Company has not incurred significant losses or gains from foreign
currency exchange rate fluctuations. The continuing expansion of the Company's
operations in Hong Kong, Mexico and the United Kingdom could, however, result in
larger gains or losses as a result of fluctuations in foreign currency exchange
rates as those subsidiaries conduct business in whole or in part in foreign
currencies.
The Company believes that cash flow from operations, vendor credit
its existing working capital and its bank line of credit will be sufficient to
satisfy the Company's anticipated cash requirements at least through the next 12
months. Nonetheless, the Company may seek additional sources of capital as
necessary or appropriate for acquisitions or corporate finance activities, or to
otherwise finance the Company's growth or operations; however, there can be no
assurance that such funds if needed will be available on favorable terms, if at
all.
FORWARD LOOKING STATEMENTS
With the exception of the actual reported financial results and other
historical information, the statements made in the Management's Discussion and
Analysis of Financial Condition and Results of Operations are forward looking
statements that involve risks and uncertainties that could affect actual future
results. Such risk and uncertainties include, but are not limited to: timing and
size of orders from large customers, timing and size of orders of new products,
competition, large customers'inventory management, sales returns, corporate
finance activities, general economic conditions, the health of the retail
environment, supply constraints, supplier performance and other risks indicated
in the Company's filings with the Securities and Exchange Commission.
<PAGE>
PART II --OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended(1)
3.2 Bylaws of the Registrant, as amended(2)
10.1 Consulting Agreement (including Warrant to purchase shares
of the Registrant's Common Stock and Confidentiality Agreement)
effective April 22, 1997 between the Registrant and
Alan R. Rachlin
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1997.
(1) Incorporated by reference to the Registrant's Transition report on Form
10-K (File No. 0-19835) filed with the Commission on September 27, 1994.
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
(File No. 0-19835) filed with the Commission on August 5, 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 15, 1997
Day Runner, Inc.
By: /s/ MARK A. VIDOVICH
----------------------------
Mark A. Vidovich
Chairman of the Board and
Chief Executive Officer
By: /s/ DENNIS K. MARQUARDT
----------------------------
Dennis K. Marquardt
Executive Vice President, Finance
& Administration and
Chief Financial Officer
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), which includes Exhibits A
and B hereto which are incorporated herein by this reference, is entered into by
and between DAY RUNNER, INC., a Delaware corporation (the "Company"), and ALAN
R. RACHLIN, a resident of Virginia who is operating a consulting business as a
sole proprietorship ("Consultant"), and shall be effective as of April 22, 1997
(the "Effective Date").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the receipt and sufficiency of which are hereby acknowledged,
the Company and Consultant agree as follows:
1. CONSULTANCY. The Company hereby retains Consultant, and Consultant
hereby accepts such retention, upon the terms and subject to the conditions set
forth herein, commencing as of April 22, 1997 and continuing through and
including April 21, 1999 (the "Term"). Consultant shall render such services to
the Company as an independent contractor, and not as an employee, agent, joint
venturer or otherwise. Although Consultant is an attorney, it is understood that
such services shall be rendered as a consultant to, and not as an attorney for,
the Company. By executing this Agreement, the parties hereto acknowledge and
agree that (i) the Consulting Agreement between the Company and Consultant
effective as of July 28, 1995 the "1995 Consulting Agreement") shall terminate
effective as of the Effective Date and (ii) the warrants to purchase 25,000
shares of the Company's Common Stock issued to Consultant pursuant to the terms
of the 1995 Consulting Agreement have vested as to all such 25,000 shares and
are exercisable in full.
2. DUTIES. Consultant shall make himself available during the Term to
advise the Chief Executive Officer and such Company employees as he designates
with regard to such strategic business issues and projects as he shall select,
including, without limitation, those relating to new or existing business
development, strategic and tactical planning, corporate finance or business
aspects of potential securities or other legal matters. Time devoted to
Consultant's duties as a member of the Company's Board of Directors and
committees thereof shall not be considered as consulting services under this
Agreement. The Company shall be entitled to require Consultant to make himself
available up to 60 days during the Term (but not more than 10 days in any single
month) for the performance of consulting services hereunder at such times and
places as are mutually satisfactory to the Company and Consultant. Consultant
will travel to the Company's principal offices as necessary to meet with
management but will not otherwise be required to perform any of his duties
outside of Virginia.
3. COMPENSATION. In consideration for his agreement herein to render
consulting services to the Company, the Company agrees to issue to Consultant as
of the Effective Date the warrants in the form attached hereto as Exhibit A (the
"Warrants") and shall use reasonable efforts to cause the securities issuable
upon exercise thereof to be registered under the Securities Act of 1933 during
the period they are exercisable. If Consultant performs greater than 60 days of
consulting services during the Term at the CEO's request, Consultant shall be
compensated in cash at the rate of $2,500 per each such day in excess of 60
days.
4. EXPENSES. Any and all expenses incurred by Consultant in rendering
consulting services hereunder shall be borne by Consultant, such expenses to
include travel within the Virginia-Washington D.C.-area, secretarial support
(unless provided with the CEO's permission by an employee of the Company),
office supplies, telephone (unless long distance), overhead, meals, market
research, seminars, textbooks and computer time. The Company shall pay all its
own expenses incurred by it in connection with such consulting and shall
reimburse Consultant for all long distance telephone charges and expenses for
travel (including transportation, hotel, meals and other reasonable charges
resulting from such travel) outside of the Virginia-Washington D.C.- area and
for such other expenses as are authorized by the CEO as appropriate for
reimbursement.
5. TERMINATION. Consultant's retention hereunder shall continue during
the Term unless earlier terminated by Consultant's death or by lawful
termination of this Agreement after breach hereof by Consultant. Neither party
may terminate this Agreement for breach except after providing written notice to
the other of the alleged breach (specifically describing therein in full detail
the basis for such alleged breach) and allowing 30 days after such notice for
the other party to cure such breach or cease breaching the Agreement.
6. CONFIDENTIALITY. Consultant shall execute on the date hereof and
send to the Company the Confidentiality Agreement attached hereto as
Exhibit B (the "Confidentiality Agreement").
7. MISCELLANEOUS.
7.1 Notices. Except as otherwise noted herein, all notices pursuant to
this Agreement shall be in writing, shall specifically reference this
Agreement and shall be deemed duly sent and given upon actual delivery to
and receipt by the relevant party (which in the case of the Company, shall
be the CEO).
7.2 Legal Advice and Construction of Agreement. Both parties hereto
have received independent legal advice with respect to, and neither has
relied upon the other (or his or its advisors) in, entering into this
Agreement.
7.3 Entire Agreement. This Agreement, the Confidentiality Agreement
and the Warrants constitute a single integrated contract expressing the
entire agreement of the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof.
7.4 Amendment and Waiver. This Agreement and each provision hereof may
be amended, modified, supplemented or waived only by a written document
specifically identifying this Agreement and signed by both parties hereto.
7.5 Specific Performance. Each party hereto may obtain specific
performance to enforce its/his rights hereunder and each party acknowledges
that failure to fulfill its/his obligations to the other party hereto would
result in irreparable harm.
7.6 Virginia Law. This Agreement was negotiated and delivered within
the Commonwealth of Virginia and the rights and obligations of the parties
hereto shall be construed and enforced in accordance with and governed by
the internal (and not the conflict of laws) laws of Virginia applicable to
the construction and enforcement of contracts between parties resident in
Virginia which are entered into and fully performed in Virginia. Any action
or proceeding arising out of, relating to or concerning this Agreement
shall be filed in the state courts of the County of Fairfax, Commonwealth
of Virginia or in a U.S. District Court in the Eastern District of
Virginia. The parties hereby waive the right to object to such location on
the basis of venue.
7.7 Attorney's Fees. In the event a lawsuit is instituted by either
party concerning a dispute under this Agreement, the prevailing party in
such lawsuit shall be entitled to recover from the losing party all
reasonable attorneys' fees, costs of suit and expenses (including the
reasonable fees, costs and expenses of appeals), in addition to whatever
damages or other relief the injured party is otherwise entitled to under
law or equity.
7.8 Force Majeure. Neither party hereto shall be deemed in default if
its/his performance of obligations hereunder is delayed or becomes
impossible or impracticable by reason of any act of God, war, fire,
earthquake, strike, civil commotion, epidemic, or any other cause beyond
such party's reasonable control.
7.9 Successors and Assigns. Neither party may assign this Agreement or
any of its/his rights or obligations hereunder to any third party or
entity, and this Agreement may not be involuntarily assigned or assigned by
operation of law, without the prior written consent of the nonassigning
party, which consent may be given or withheld by such nonassigning party in
the sole exercise of its/his discretion, except that the Company may assign
this Agreement to a corporation acquiring: (1) 50% or more of the Company's
capital stock in a merger or acquisition; or (2) all or substantially all
of the assets of the Company in a single transaction; and except that
Consultant may transfer or assign his rights under this Agreement
voluntarily, involuntarily or by operation of law upon or as a result of
his death to his heirs, estate and/or personal representative(s). Any
prohibited assignment or attempted assigned shall be null and void. This
Agreement shall be binding upon and inure to the benefit of each of the
parties hereto and their respective lawful successors and permitted
assigns.
7.10 Limitation of Damages. Except as expressly set forth herein, in
any action or proceeding arising out of, relating to or concerning this
Agreement, including any claim of breach of contract, liability shall be
limited to compensatory damages, proximately caused by the breach and
neither party shall, under any circumstances, be liable to the other party
for consequential, incidental, indirect or special damages, including but
not limited to lost profits or income, even if such party has been apprised
of the likelihood of such damages occurring.
7.11 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall
constitute one and the same instrument.
DAY RUNNER, INC. ALAN R. RACHLIN
By:/s/ Mark Vidovich By: /s/ Alan R. Rachlin
------------------------------------- -----------------------------
Mark Vidovich, Chief Executive Officer Alan R. Rachlin
Date: April 22, 1997 Date: April 22, 1997
<PAGE>
EXHIBIT A
WARRANTS TO PURCHASE COMMON STOCK
OF
DAY RUNNER, INC.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
Warrants to Purchase
25,000 Shares of Common Stock
DAY RUNNER, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
Void after April 21, 2007
THE WARRANTS evidenced by this certificate have been issued for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
THIS CERTIFICATE evidences the right of Alan R. Rachlin to purchase
25,000 shares of Common Stock, without par value (the "Shares"), of Day Runner,
Inc., a Delaware corporation (the "Company"), at the Warrant Price (as defined
below), subject, however, to the terms and conditions hereinafter set forth.
1. Term of Warrants. The Warrants may be exercised only during the
period commencing on May 22, 1997 through the close of business on April 21,
2007 (the "Warrant Term"), and may be exercised only in accordance with the
terms and conditions hereinafter set forth.
2. Exercise of Warrants.
(a) Right to Exercise. The Warrants shall vest and become
exercisable cumulatively in 24 equal monthly installments, as long as the
Consulting Agreement between the Company and Alan R. Rachlin ("Consultant")
effective as of April 22, 1997 (the "Consulting Agreement") has not terminated,
with the first monthly installment vesting on May 22, 1997 and one additional
monthly installment vesting on the 22nd day of each of the 23 calendar months
thereafter; provided, however, that notwithstanding the foregoing, in the event
that Consultant has performed a total of:
(i) 30 days of consulting services under the Consulting Agreement prior to
April 22, 1998, then (A) the Warrants shall vest and become
exercisable immediately as to such number of additional shares as
shall make the Warrants then vested and exercisable as to a total of
12,500 shares less that number of shares, if any, previously issued
upon exercise of the Warrants, and (B) the Warrants as to the
remaining 12,500 shares subject thereto, subject to earlier vesting as
provided in subpart (ii) of this Section 2(a), shall vest and become
exercisable in 12 equal monthly installments, as long as the
Consulting Agreement has not terminated, with the first such monthly
installment vesting on May 22, 1998 and one additional monthly
installment vesting on the 22nd day of each of the 11 calendar months
thereafter; or
(ii) 60 days of consulting services under the Consulting Agreement prior to
April 22, 1999, then the Warrants shall vest and become exercisable
immediately as to all remaining shares as to which the Warrants are
not then vested.
(b) Method of Exercise; Payment; Issuance of New Warrants;
Transfer and Exchange. The Warrants may be exercised by the holder of the
Warrants, in whole or in part, by the surrender of this Certificate, properly
endorsed, at the principal office of the Company, and by the payment to the
Company by certified or cashier's check of the then applicable Warrant Price. In
the event of any exercise of the Warrants, certificates for the Shares so
purchased shall be delivered to the holder of the Warrants within a reasonable
time after the Warrants shall have been so exercised, and unless the Warrants
have expired, a new certificate representing the right to purchase the number of
Shares, if any, with respect to which this Certificate shall not then have been
exercised shall also be issued to the holder within such time. All such new
certificates shall be dated the date hereof and shall be identical with this
Certificate except as to the number of Shares issuable pursuant thereto.
(c) Restrictions on Exercise. The Warrants may not be
exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Warrants, the Company may
require the holder of the Warrants to make such representations and warranties
to the Company as may be required by applicable law or regulation.
3. Stock Fully Paid; Reservations of Shares. The Company covenants and
agrees that all Shares will, upon issuance and payment in accordance herewith,
be fully paid, validly issued and nonassessable. The Company further covenants
and agrees that during the Warrant Term the Company will at all times have
authorized and reserved for the purpose of the issue upon exercise of the
Warrants at least the maximum number of Shares as are issuable upon the exercise
of the Warrants.
4. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrants and the
Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(a) Consolidation, Merger or Reclassification. If the Company
at any time while the Warrants remain outstanding and unexpired shall
consolidate with or merge into any other corporation, or sell all or
substantially all of its assets to another corporation, or reclassify or in any
manner change the securities then purchasable upon the exercise of the Warrants
(any of which shall constitute a "Reorganization"), then lawful and adequate
provision shall be made whereby this Certificate shall thereafter evidence the
right to purchase such number and kind of securities and other property as would
have been issuable or distributable on account of such Reorganization upon or
with respect to the securities which were purchasable under the Warrants
immediately prior to the Reorganization. The Company shall not effect any such
Reorganization unless prior to or simultaneously with the consummation thereof
the successor corporation (if other than the Company) resulting from such
Reorganization shall assume by written instrument executed and mailed or
delivered to the holder of the Warrants, at the last address of the holder
appearing on the books of the Company, the obligation to deliver to the holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to purchase. Notwithstanding anything in
this Section 4(a) to the contrary, the prior two sentences shall be inoperative
and of no force and effect and those Warrants which are unexercised shall expire
on the completion of such Reorganization if upon the completion of any such
Reorganization the stockholders of the Company immediately prior to such event
do not own at least 50% of the equity interest of the corporation resulting from
such Reorganization, the notice required by Section 4(e) hereof has been duly
given and the Warrants were fully exercisable at the time such notice was
provided.
(b) Subdivision or Combination of Shares. If the Company at
any time while the Warrants remain outstanding and unexpired shall subdivide or
combine its Common Stock, the Warrant Price shall be adjusted to that price
determined by multiplying the Warrant Price in effect immediately prior to such
subdivision or combination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
subdivision or combination and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such subdivision
or combination.
(c) Certain Dividends and Distributions. If the Company
at any time while the Warrants are outstanding and unexpired shall take a record
of the holders of its Common Stock for the purpose of:
(i) Stock Dividends. Entitling them to receive a
dividend payable in, or other distribution without consideration of, Common
Stock, then the Warrant Price shall be adjusted to that price determined by
multiplying the Warrant Price in effect immediately prior to each dividend or
distribution by a fraction (A) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (B) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution; or
(ii) Distribution of Assets, Securities, etc.
Making any distribution without consideration with respect to its Common
Stock (other than a cash dividend) payable otherwise than in its Common Stock,
the holder of the Warrants shall, upon the exercise thereof, be entitled to
receive, in addition to the number of Shares receivable thereupon, and without
payment of any additional consideration therefor, such assets or securities as
would have been payable to him as owner of that number of Shares receivable by
exercise of the Warrants had he been the holder of record of such Shares on the
record date for such distribution, and an appropriate provision therefor shall
be made a part of any such distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price pursuant to Subsections (b) or (c) (i) of this Section 4, the
number of Shares purchasable hereunder shall be adjusted to that number
determined by multiplying the number of Shares purchasable upon the exercise of
the Warrants immediately prior to such adjustment by a fraction, the numerator
of which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately following such
adjustment.
(e) Notice. In case at any time:
(i) The Company shall pay any dividend payable
in stock upon its Common Stock or make any distribution, excluding a cash
dividend, to the holders of its Common Stock;
(ii) The Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights;
(iii) There shall be any reclassification of the
Common Stock of the Company, or consolidation or merger of the Company with,
or sale of all or substantially all of its assets to, another corporation; or
(iv) There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to the holder of
the Warrants at least 10 days' prior written notice (or, in the event of notice
pursuant to Section 4(e)(iii), at least 30 days' prior written notice) of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect to any such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up. Such notice in accordance with the
foregoing clause shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each such written
notice shall be given by first-class mail, postage prepaid, addressed to the
holder of the Warrants at the address of the holder as shown on the books of the
Company.
(f) No Change in Certificate. The form of this Certificate
need not be changed because of any adjustment in the Warrant Price or in the
number of Shares purchasable on its exercise. The Warrant Price or the number of
Shares shall be considered to have been so changed as of the close of business
on the date of adjustment.
5. Fractional Shares. No fractional Shares will be issued in
connection with any subscription hereunder but, in lieu of such fractional
Shares, the Company shall make a cash payment therefor upon the basis of the
fair market value of the Shares.
6. Transfer and Exchange of Warrants. Subject to the terms hereof,
including, without limitation, Section 7, the Warrants and all rights hereunder
are transferable, in whole or in part, on the books of the Company maintained
for such purpose at its principal office referred to above by the registered
holder hereof in person or by its duly authorized attorney, upon surrender of
the Warrants properly endorsed and upon payment of any necessary transfer tax or
other governmental charge imposed upon such transfer. Upon any partial transfer,
the Company will issue and deliver to such holder a new Warrant or Warrants with
respect to the shares of Common Stock not so transferred. Each taker and holder
of the Warrants, by taking or holding the same, consents and agrees that the
Warrants when endorsed in blank shall be deemed negotiable and that when the
Warrants shall have been so endorsed, the holder hereof may be treated by the
Company and all other persons dealing with the Warrants, as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented hereby, or to the transfer hereof on the books of the Company, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Company may treat the registered holder hereof as the owner for all
purposes.
The Warrants are exchangeable at such office for Warrants for
the same aggregate number of shares of Common Stock, all new Warrants to
represent the right to purchase such number of shares as the holder hereof shall
designate at the time of such exchange.
7. Restrictions on Transfer of Warrants. The holder of the Warrants, by
acceptance hereof, agrees that, absent an effective notification under
Regulation A or a registration statement, in either case under the Securities
Act of 1933, covering the disposition of the Warrants or Common Stock issued or
issuable upon exercise hereof, such holder will not sell, transfer, pledge or
hypothecate any or all of such Warrants or Common Stock, as the case may be,
unless such sale or transfer will be exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933 and applicable state
securities laws, and such holder consents to the Company making a notification
on its records or giving instructions to any transfer agent of the Warrants or
such Common Stock in order to implement such restriction on transferability.
8. No Rights as Shareholder. The holder of the Warrants, as such, shall
not be entitled to vote or receive dividends or be considered a stockholder of
the Company for any purpose, nor shall anything in this Certificate be construed
to confer on such holder, as such, any rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action, to receive
notice of meetings of stockholders, to receive dividends or subscription rights
or otherwise.
9. Definitions. As used in this Certificate:
(a) "Warrants" shall mean the rights evidenced by this
Certificate.
(b) "Warrant Price" shall mean the per share closing sales
price of the Company's Common Stock as quoted on The Nasdaq Stock Market on
April 22, 1997, as adjusted in accordance with Section 4 hereof.
Dated as of April 22, 1997.
DAY RUNNER, INC.
By: /s/Mark Vidovich
----------------------
Mark Vidovich,
Chief Executive Officer
Attest:
By: /s/ Dennis K. Marquardt
------------------------
Dennis K. Marquardt
<PAGE>
DAY RUNNER, INC.
SUBSCRIPTION FORM
(To be completed and signed only upon exercise of the Warrants)
TO: Day Runner, Inc.
15295 Alton Parkway
Irvine, CA 92718
Attention: Secretary
The undersigned, the holder and registered owner of the attached
Warrants, hereby irrevocably and unconditionally elects to exercise such
Warrants and to purchase * shares of Day Runner, Inc. Common Stock pursuant to
the terms and conditions thereof, and herewith tenders a check in the amount of
$_________ in full payment of the purchase price for such shares, and requests
that the certificate(s) for such shares be issued in the name of and delivered
to:
(Please print name and address)
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Dated: __________________ Signature:________________________
- ---------------------
*Insert here the number of shares called for on the face of the
Warrants (or in the case of partial exercise, that portion as to which the
Warrants are being exercised), without making any adjustment for additional
Common Stock or any other securities or property which, under the adjustment
provisions of the Warrants, may be deliverable upon exercise.
<PAGE>
EXHIBIT B
CONFIDENTIALITY AGREEMENT
AGREEMENT, dated and made effective as of this 22nd day of April,
1997, by and between Day Runner, Inc., a Delaware corporation
("Discloser"), and Alan R. Rachlin, a Virginia resident ("Disclosee");
WHEREAS, Discloser intends to provide Disclosee with certain data and
other information possibly of a confidential or proprietary nature to Discloser;
and
WHEREAS, Discloser considers certain of this information confidential
but is willing to provide such information to Disclosee on a confidential basis;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. For purposes of this Agreement, the term "Confidential Information"
shall mean that information of Discloser which is disclosed to Disclosee under
the Consulting Agreement, effective as of the date hereof by and between the
Discloser and Disclosee and which is in written, graphic, recorded, photographic
or any machine readable form, and which is conspicuously marked as confidential.
2. (a) Disclosee will use such Confidential Information for his own use
only and shall use the same degree of care he uses to protect and safeguard the
confidentiality of his own proprietary information to not disclose such
Confidential Information to any person or persons other than his attorneys or
accountants. Disclosee covenants that such degree of care is reasonably designed
to protect the confidentiality of Disclosee's proprietary and confidential
information.
(b) Disclosee shall not be liable for disclosure of any
such Confidential Information if the same:
(i) was in the public domain at the time it was
disclosed;
(ii) was known to Disclosee prior to the time of
disclosure;
(iii) is disclosed with the prior written approval
of Discloser;
(iv) is or becomes publicly known through no
wrongful act of Disclosee;
(v) is disclosed after two years from the date
of this Agreement;
(vi) was or is independently developed by
Disclosee without any use of the
Confidential Information;
(vii) becomes known to Disclosee from a source
other than Discloser without breach of this
Agreement by Disclosee;
(viii) is or has been furnished by Discloser to
others not in a confidential relationship
with Discloser without restrictions similar
to or stricter than those herein on the
right of the receiving party to use or
disclose;
(ix) is received by Disclosee after written
notification to Discloser that Disclosee
will not accept any further information;
(x) is disclosed pursuant to the order or
requirement of a court, administrative
agency, or other governmental body; or
(xi) is disclosed pursuant to litigation
involving Disclosee and relating to the
information disclosed hereunder.
(c) In the event of a disclosure under subsection (b)(x)
above, Disclosee shall give Discloser written notice of such order or
requirement as soon as practicable prior to disclosure of the Confidential
Information.
3. The provisions of this Agreement shall supersede the provisions of
any legends which may be affixed to any Confidential Information provided
by Discloser to Disclosee.
4. This document contains the entire agreement between the parties as
to the subject matter hereof and supersedes any previous or contemporaneous
understandings, commitments or agreements, oral or written, as to such subject
matter. This Agreement can only be amended by a written document executed by the
parties hereto.
5. This Agreement shall be governed by the laws of the Commonwealth of
Virginia.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first
above-written.
Understood and Agreed:
"Discloser" "Disclosee"
DAY RUNNER, INC. ALAN R. RACHLIN
By: /s/ Mark Vidovich Signature: /s/ Alan R. Rachlin
- -------------------------------------- ------------------------------
Mark Vidovich Alan R. Rachlin
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Consolidated Balance Sheet And The Consolidated Statement Of Income Filed As
Part Of The Quarterly Report On Form 10-Q And Is Qualified In Its Entirety By
Reference To Such Quarterly Report On Form 10-Q.
</LEGEND>
<CIK> 0000853102
<NAME> Day Runner, Inc.
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Mar-31-1997
<CASH> 27,838
<SECURITIES> 0
<RECEIVABLES> 14,734
<ALLOWANCES> 7,123
<INVENTORY> 23,189
<CURRENT-ASSETS> 68,417
<PP&E> 16,561
<DEPRECIATION> 8,080
<TOTAL-ASSETS> 77,236
<CURRENT-LIABILITIES> 14,629
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 62,537
<TOTAL-LIABILITY-AND-EQUITY> 77,236
<SALES> 89,583
<TOTAL-REVENUES> 89,583
<CGS> 42,783
<TOTAL-COSTS> 42,783
<OTHER-EXPENSES> 33,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (858)
<INCOME-PRETAX> 14,017
<INCOME-TAX> 5,607
<INCOME-CONTINUING> 8,410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,410
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
