UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
Commission file number 0-19835
DAY RUNNER, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3624280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
15295 Alton Parkway, Irvine, California 92618
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 680-3500
Securities registered pursuant to Section 12(b) of
the Act: None Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on September
16, 1998 as reported on The Nasdaq Stock Market, was approximately $171,000,000.
The number of shares outstanding of the registrant's Common Stock on
September 16, 1998 was 11,880,098.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be delivered to
stockholders in connection with their Annual Meeting of Stockholders to be held
on November 23, 1998 are incorporated by reference into Part III of this Annual
Report.
<PAGE>
PART I
Item 1. Business
THE COMPANY
Day Runner(R), Inc. ("Day Runner") develops, manufactures and markets
personal organizing products to broad-based consumer audiences through retail
distribution channels. We are the leading developer, manufacturer and marketer
of paper-based organizers for the retail market. We also develop, manufacture
and market related organizing products. Day Runner's products are carried by
more than 20,000 retail stores across the U.S. and are available in a number of
other countries in North America, Europe and the Asia-Pacific region.
We market our products to customers through our own sales force, through
manufacturers' representatives and, in certain markets outside the U.S., through
independent distributors. Our major customers in our primary domestic channels
include office products superstores Office Depot, Inc., Staples, Inc. and
OfficeMax, Inc. and mass market retailers Wal-Mart and Kmart. Sales to the
office products and mass market channels accounted for approximately 47% and
39%, respectively, of fiscal 1998 sales.
Our organizers and planners are loose-leaf and spiral-bound time and
information management systems that range from simple to sophisticated. For
example, our flagship Day Runner System organizers include not only the
traditional planner components of appointment calendar, telephone/address
section and note pad but also interrelated pages for managing time and
information, tracking expenses, establishing goals and planning projects.
Segmenting the market for organizers and planners is a key element of our
strategy. We aim our product lines at market segments ranging from students to
women shopping in the mass market to business and professional people and offer
many of our organizers and planners in a choice of sizes, styles, cover
materials and colors. Suggested retail prices for our organizers and planners
range from $4 to $150. Organizers and planners accounted for approximately 49%
of our fiscal 1998 sales.
Most of our organizers and planners are refillable. Refills, which include
calendars, other pages and accessories, accounted for approximately 31% of our
sales in fiscal 1998. Suggested retail prices for refills range from $0.75 to
$40.
Our related organizing products include telephone/address books,
appointment books, products for students from elementary school through college,
business accessories, organizing and other wall boards and personal information
management (PIM) software designed to complement our paper-based organizers,
among others. This category accounted for approximately 20% of fiscal 1998
sales.
With the exception of our software and electronic products we include in
certain of our products and sell as accessories, all of our current products
have been developed internally. In addition, all of the products of Ram
Manufacturing and Timeposters Inc., companies we acquired in fiscal 1998, were
developed by those companies. We manufacture and assemble a portion of our
products at our Fullerton, California and Little Rock, Arkansas facilities and
at our Mexican and Toronto subsidiaries and also use foreign and domestic
contractors to supply both product components and finished goods.
BUSINESS STRATEGY
Day Runner sells broad-based personal organizing products through retail
distribution channels. Our strategy is to leverage our brand name awareness and
distribution strength to maximize sales of our existing products, extend those
product lines and introduce new product lines. Key elements of our strategy
include:
o Segmenting the market for organizers and planners.
o Entering related organizing product categories.
o Building sales through major customers.
o Marketing to increase sales.
o Expanding foreign sales.
o Providing excellent customer service.
o Pursuing strategic acquisitions and alliances.
SEGMENTING THE MARKET FOR ORGANIZERS AND PLANNERS. In order to expand
and segment our market, we offer our organizers and planners in a broad range of
systems, sizes, styles and cover materials and at suggested retail prices
ranging from $4 to $150. As a result, our products appeal to a large consumer
market comprised of users with differing needs, tastes and budgets and are
appropriate for sale through a broad range of retailers. Versatile Day Runner
System organizers and planners are suitable for use by adults in virtually all
walks of life. Specific target markets addressed by other Day Runner organizers
and planners include business and professional people, cost-conscious consumers,
young women shopping in the mass market and students from elementary school
through college, among others.
ENTERING RELATED ORGANIZING PRODUCT CATEGORIES. Day Runner believes that
related personal organizing products offer us an opportunity to leverage our
brand name and distribution and build upon our heritage in the area of personal
organization. Our strategy is to:
o Redefine existing product categories as value-added and offer
a superior price/value relationship to the consumer.
o Create new categories of personal organizing products.
o Gain initial distribution through our existing customers.
o Produce sales results we can build upon.
BUILDING SALES THROUGH MAJOR CUSTOMERS. To reach consumers with differing
needs and varying retail shopping habits, we distribute our products in the U.S.
through multiple channels, including:
o Office products superstores, wholesalers and dealers.
o Mass market retailers, including discount department stores,
wholesale clubs, drug chains and other mass market retailers.
o A wide variety of other customers, including the U.S.
Government and book, department, gift, leather and luggage,
stationery and other specialty stores.
Day Runner's products are carried by more than 20,000 retail outlets in the
U.S., including leading retailers in our key office products and mass market
channels of distribution. Our strategy is to grow our sales through our major
customers by increasing our everyday shelf space where appropriate, continuing
to expand our product selection, serving the back-to-school market and creating
other seasonal, promotional and product opportunities.
PURSUING STRATEGIC ACQUISITIONS AND ALLIANCES. Day Runner believes that
acquisitions and other strategic alliances are important to the future growth of
the Company. During fiscal 1998, we acquired three companies: Ultima
Distribution Inc., our Canadian distributor based in Toronto; Ram Manufacturing,
Inc., a developer, manufacturer and marketer of wall boards, headquartered in
Little Rock, Arkansas; and Timeposters Inc., a Toronto-based developer,
manufacturer and marketer of planning and presentation products, including
laminated flexible wall planners.
On September 24, 1998, Day Runner announced a cash offer for Filofax Group
plc ("Filofax"), a UK-based company traded on the London Stock Exchange. The
offer was for (pound)2.00 (approximately US $3.36) per share pursuant to a
tender offer for all of the outstanding ordinary shares of stock of Filofax.
This offer was not recommended by Filofax's Board of Directors.
On September 25, 1998, we announced that the Company had reached agreement
with the Board of Directors of Filofax on the terms of a recommended cash tender
offer (the "Recommended Offer"). The Recommended Offer was for (pound)2.10
(approximately US $3.53) per share for all of the outstanding ordinary shares of
stock of Filofax for a total purchase price for such shares of appoximately
(pound)50,300,000 (approximately US $84,500,000). The proposed acquisition of
Filofax (the "Proposed Acquisition of Filofax") will be funded by bank debt
pursuant to a credit facility Day Runner entered into on September 23, 1998 (see
Note 20 to the Consolidated Financial Statements). The Company currently
estimates that the aggregate fees and expenses of the Proposed Acquisition of
Filofax, including investment banking, legal, accounting and other fees and
expenses, will be in the range of $4 to 6 million. Actual total fees and
expenses may differ from this estimate and are subject to future contingencies.
Filofax is a manufacturer and supplier of stationery products, including
Filofax, Lefax and Microfile brand personal organizers. In addition to its core
personal organizer business, Filofax markets business forms and high-end pens.
Filofax has wholly owned sales subsidiaries in France, Germany, Hong Kong,
Scandinavia, the UK and the U.S. and sells primarily through retail distribution
channels in each market. Filofax's sales from continuing operations for its
fiscal year ended March 31, 1998 were (pound)37,700,000 (approximately US
$63,300,000), with 86%, or approximately US $54,600,000, to markets outside the
U.S.
In this discussion all exchange rate conversions between the U.S. dollar
and the UK pound sterling were based on an exchange rate of 1.68, which was the
exchange rate on September 23, 1998. The exchange rate between the dollar and
the pound sterling is likely to fluctuate, up or down, between such date and
the date of any payments to Filofax stockholders. The Company has purchased a
call option to partially hedge our exposure to such currency fluctuations.
Consummation of Day Runner's Proposed Acquisition of Filofax is subject to,
among other things, the acceptance of Filofax's stockholders, regulatory
approvals and the satisfaction or waiver of various other conditions. There can
be no assurance at this time that the Proposed Acquisition of Filofax will be
completed.
MARKETING TO INCREASE SALES. We market our products to customers to inform
them of the benefits of selling Day Runner's products and to consumers to
further build brand name awareness and to maximize the productivity of the
retail shelf space our products occupy.
EXPANDING FOREIGN SALES. We are working to build our sales outside the
United States by focusing on key markets and offering products with features,
aesthetics and price points appropriate for those markets. We offer some of our
products in French, German and Spanish versions. During fiscal 1998, we launched
several product lines designed especially for Europe and for Asia. We completed
two acquisitions in Canada in fiscal 1998, purchasing Ultima Distribution Inc.,
our Canadian distributor, and Timeposters Inc., a manufacturer and marketer of
planning and presentation products. These acquisitions are intended to help us
further expand our business in Canada. We also established a direct sales and
marketing subsidiary in Australia in fiscal 1998. We expect Day Runner's foreign
sales to substantially increase if the Proposed Acquisition of Filofax is
consummated. In Filofax's most recent fiscal year, 86% of its sales from
continuing operations were to markets outside the U.S. There can be no assurance
at this time that the Proposed Acquisition of Filofax will be completed.
PROVIDING EXCELLENT CUSTOMER SERVICE. Day Runner believes that excellent
customer service can provide us with additional competitive advantage. We serve
customers from both our Fullerton, California and our Nashville, Tennessee-area
distribution centers and ship directly to the individual retail locations of a
number of our large customers. We conduct business via EDI (Electronic Data
Interchange) with virtually all our key customers and recognize the importance
of continuing to implement applicable customer service/distribution technology.
Industry Overview
Day Runner's roots are in paper-based organizers and planners and their
refills, and approximately 80% of our fiscal 1998 sales were generated by this
core business. In recent years, we have moved beyond organizers and now market a
number of other products that help people become better organized in a variety
of ways.
ORGANIZERS. Day Runner was instrumental in creating and defining
paper-based "organizers" as a product category in the United States. Although
time management products that included some "organizer" features had been on the
market for some time, the product category, as such, did not emerge until the
1980s. We believe that the introduction of the Day Runner System in 1982 helped
define the product category and, ultimately, led to the growth of the organizer
industry. By the late 1980s, organizers had become accepted tools for improving
individual and group productivity. (Because the distinctions between organizers
and planners have become blurred, except where otherwise specified, we are using
the terms "organizer" and "planner" interchangeably in this report.)
Today, awareness of the organizer product category is widespread;
organizers are broadly accepted as substitutes for traditional dated goods; and
the usefulness of time management techniques is well recognized. Organizers are
sold through a wide variety of channels, including: office products superstores,
wholesalers and dealers; mass market retailers; book, department, gift, leather
and luggage, stationery and other specialty stores; and are sold direct to
organizations, the U.S. Government and individuals.
RELATED ORGANIZING PRODUCTS. Product categories Day Runner has entered
include telephone/address books, diaries, assignment books and similar products
for children, appointment books (also referred to as traditional spiral dated
goods), organizing and other wall boards, such as Home Manager(TM); pocket
calendars, desk and desk pad calendars, and business accessories, among others.
Day Runner sells these products through the same channels as its organizers. In
fiscal 1998, we acquired companies that manufacture and market cork boards,
white boards and combination boards, laminated wall planners, easels, signage
boards and similar planning and presentation products.
We group all these products under the umbrella term "related organizing
products," but this does not constitute an industry as such. Some of these
products are office supplies, and some are school supplies. Others share
features and functions with office and/or school supplies but are intended for
use in the home. These products are generally marketed through the same channels
as organizers.
There are many companies, both domestic and foreign, that compete with us,
with competition varying from product category to product category. Day Runner
believes the current principal competitive factors in the industries in which it
participates are distribution breadth, depth and strength; brand name
recognition; product development capability; product function, design, perceived
quality and value; marketing capability; breadth of product lines; financial
resources; customer service; manufacturing/sourcing expertise; and price.
MARKET POTENTIAL. Day Runner believes that the appeal of organizers and
other personal organizing products in the United States is attributable to a
number of economic and cultural trends, including: the increased percentage of
women in the work force and the resulting prevalence of two-income families; the
continuing trend toward corporate downsizing; the growth of the small business
sector; the rising percentage of business done away from the office; the greater
emphasis on productivity; the ongoing shift to a service economy; and the trend
towards global competition. Many of these trends contribute to widespread
concerns with saving and better using time and increasing personal productivity.
Day Runner's products address these concerns. We target both potential
first-time organizer users and existing users who may need refills or
replacements for their organizers. In addition, our expansion into related,
non-organizer/planner products that provide other ways for people to become
better organized offers us an opportunity to reach consumers who do not use an
organizer or planner and to market additional Day Runner branded products to
consumers who already use a Day Runner organizer or planner. Our goal is to
offer one or more products that appeal to and meet the organizing needs of
virtually every American consumer, no matter what that individual's income,
occupation or age.
INDUSTRIES MARKETING SIMILAR OR SUBSTITUTE PRODUCTS. Day Runner's products
have features, functions or components in common with products in several other
industries. Our market overlaps to a limited extent that of companies marketing
training products and services designed to improve group and individual
productivity and to upgrade management skills. In addition, both PIM software
and electronic organizers are designed to fill many of the same needs addressed
by paper-based organizers, although virtually all PIM software products provide
for paper-based output and a number of such products allow users to print out
pages in sizes that fit Day Runner's organizers.
PRODUCTS
Day Runner's products are designed to help people become better organized.
We aim our products at various segments of a broad-based consumer audience. Our
goal is to help consumers to be "organized for life(TM)" and to offer consumers
in each target segment the perception of broad choice and good value for their
money. Our products include:
o Multiple lines of paper-based organizers and planners.
o Refills, which include calendars and accessories.
o Related organizing products.
ORGANIZERS AND PLANNERS. Our organizers and planners are available in
varying systems, sizes, styles, cover materials and colors and at a broad range
of price points. These loose-leaf and spiral-bound portable "books" help users
keep "Everything in One Place(TM)." For example, in addition to the traditional
planner components of appointment calendar, telephone/address section and note
pad, Day Runner System organizers include, among other things, interrelated
pages for managing time and information, tracking expenses, establishing goals
and planning projects.
REFILLS. The great majority of our organizers, planners and
telephone/address books are refillable. Users may customize their loose-leaf
organizers and planners by choosing from a variety of additional pages and
accessories, ranging from Mileage Record, Strategy and Things To Do pages to
Currency/Checkbook Insert, Diskette Holders and a solar powered
Calculator/Ruler.
RELATED ORGANIZING PRODUCTS. Our related organizing products include
telephone/address books, appointment books, products for students from
elementary school through college, business accessories, organizing and other
wall boards and PIM software designed to complement our paper-based organizers,
among others. For a complete list, see the breakdown of current products below.
The following table sets forth, for the periods indicated, approximate Day
Runner sales by product category and as a percentage of total sales.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
Products 1998 1997 1996
-------- ----------------- ------------------- -------------------
(Unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Organizers and planners. $ 83,069 49.5% $ 73,858 58.0% $ 77,293 61.8%
Refills................. 51,876 30.9 43,264 34.0 43,473 34.7
Related organizing products 32,896 19.6 10,254 8.0 4,360 3.5
-------- ----- -------- ------ --------- ------
Total............. $167,841 100.0% $127,376 100.0% $125,126 100.0%
======== ===== ======== ====== ========== ======
</TABLE>
Covers for Day Runner's organizers, planners and paper-based related
organizing products are made of leathers, vinyls and a variety of other natural
and man-made materials. In addition to holding loose-leaf or spiral-bound pages,
the covers of most of our organizers and loose-leaf planners are also designed
to hold note pads and many have additional features, such as places to store
pens, business and credit cards, calculators, loose papers and spare keys.
The following table sets forth basic price and other information concerning
the products we market in the United States.
<TABLE>
<CAPTION>
Current
Suggested
Current Products Retail Price(s)
<S> <C>
Organizers and planners: $4-150
Day Runner
DILBERT(TM)
FactCentre(TM)
THE FAR SIDE(R)
4-1-1 Student Planners(TM)
Looney Tunes(TM
Mickey Unlimited(TM)
Perennials(TM)
PRO Business System(R)
Refills (which include calendars, other pages and accessories) $0.75-40
<PAGE>
Current
Suggested
Current Products Retail Price(s)
Related organizing products:
Assignment books: $3-9.50
4-1-1
Mickey Unlimited
Mickey For Kids(TM)
Business accessories $4-50
Telephone/address books: $6-24
Day Runner
DILBERT
FactCentre
Looney Tunes
Perennials
Mickey For Kids
Mickey Unlimited
Appointment books $4.30-35.75
Software and electronics:
Day Runner PC $17
Day Runner Planner for Windows(R)95 $75
Electronic Teleplanner $30-40
Pocket Calendars: $5-8
DILBERT
Looney Tunes
Perennials
Wall Boards $3.75-$650
Core boards
Wipe-Out(R)
Timeposters(R)
Planning boards
Flexible planners
Timeposters
Organizing boards
Home Manager(TM)
Business Manager(TM)
Cubicle Manager(TM)
Message Manager(TM)
org.board(TM)
Looney Tunes
DILBERT
Other:
Mickey For Kids Sticker Books $6.50-10.50
Mickey For Kids Diaries $10-26
Day Runner, PRO Business System, Timeposters and Wipe-Out are registered
trademarks, and Business Manager, Cubicle Manager, Entrepreneur, Everything in
One Place, FactCentre, 4-1-1, Home Manager, Message Manager, org.board and
Perennials are trademarks of Day Runner, Inc. DILBERT(C) is a trademark of
United Feature Syndicate, Inc. Mickey For Kids and Mickey Unlimited are
trademarks of Disney. THE FAR SIDE is a registered trademark of FarWorks, Inc.
LOONEY TUNES characters, names and all related indicia are trademarks of Warner
Bros. Post-it(R) is a registered trademark of 3M. Windows is a registered
trademark of Microsoft Corporation. </TABLE>
<PAGE>
PRODUCT DEVELOPMENT
Day Runner's product development programs emphasize (i) identifying unmet
consumer needs and developing organizers, planners and related organizing
products to meet those needs; (ii) extending our existing product lines through
additional sizes, styles and materials; and (iii) augmenting the selection of
refills and accessories available for our product lines.
In addition, we monitor our existing products for continued viability,
needed enhancements, improvements in quality and potential reductions in cost.
With the exception of our software product and the calculators we include in
certain of our products and sell as accessories, all of our current products
have been developed internally. Internally developed products accounted for
substantially all of Day Runner's fiscal 1998 sales. The products of Ram
Manufacturing and Timeposters Inc., companies we acquired during fiscal 1998,
were also developed by those companies.
Since the introduction of the first Day Runner System organizer in 1982, we
have transformed this single product into a broad line. Our products are
available in a variety of sizes, styles and materials, designed to appeal to a
broad spectrum of consumers and at a wide range of price points. We offer
organizers that appeal to students from elementary school through college,
business professionals and people working at home. Our product introductions
reflect our focus on market segmentation and consumer needs.
In 1991, as part of our strategy of offering products aimed at more
cost-conscious consumers, we introduced the FactCentre line, which now includes
organizers, planners and telephone/address books.
In 1993, we introduced the PRO Business System organizer, aimed at people
seeking a sophisticated but easy-to-use organizing system that is designed
specifically for business and professional use.
In short fiscal 1994 (effective January 1, 1994, the Company changed its
fiscal year end from December 31 to June 30, resulting in a short fiscal year),
we began shipping 4-1-1 Student Planners, a line aimed at middle school, high
school and college students and marketed primarily for sale during the
back-to-school consumer buying season.
In fiscal 1995, we added telephone/address books to our Day Runner and
FactCentre lines and launched Perennials, a line of organizers, planners and
telephone/address books aimed primarily at young women shopping in mass market
outlets.
In fiscal 1996, we launched our first licensed products: a line of planners
and telephone/address books featuring Warner Bros. Looney Tunes cartoon
characters and a line of "sticker books" and "sticker diaries" developed and
marketed under the Mickey Unlimited brand of Disney Enterprises. The Mickey
Unlimited Sticker Books and Diaries incorporate colorful stickers to make
planning and diary-keeping fun. We also introduced a line of appointment books
designed for consumers who prefer traditional planning tools.
In fiscal 1997, we introduced THE FAR SIDE organizers featuring the classic
cartoons created by Gary Larson, a line of business accessories, including
travel document holders, business card cases, business card files and pad
holders, and the Home Manager, a unique product that builds upon the American
family's habit of using the refrigerator door as a communication center. The
Home Manager combines a dry-erase board, bulletin board strip or storage pocket,
Post-it(R) notes in a holder and a dated monthly calendar and mounts on a
refrigerator via heavy-duty magnetic backing or on a wall with hooks.
In fiscal 1998, we began shipment of a line of DILBERT organizers, refills,
telephone/address books and pocket calendars. Building on the success of Home
Manager, we extended our line of organizing wall boards to include Business
Manager, Cubicle Manager and Message Manager, designed for business
professionals and office workers. We expanded our selection of everyday student
products, introducing additional accessories like calculator/rulers and binder
accessories.
Also in fiscal 1998, we introduced Day Runner PC Software, consisting of
three value-priced software modules that allow users to create and update
telephone/address directories, notes and calendars on the PC. We also introduced
Day Runner Planner for Windows 95 software, a more complex software program for
updating organizer information on-line, for Windows users. Both software
offerings were developed under our direction. Users of our software can print
out updated pages on paper compatible with Day Runner organizers.
SALES AND DISTRIBUTION
We market our products to customers through our own sales force, through
manufacturers' representatives and, in certain markets outside the U.S., through
independent distributors. Our primary domestic channels of distribution are
office products and the mass market.
Day Runner's products are carried by more than 20,000 retail stores across
the U.S. Our sales policies encourage smaller customers to purchase through
wholesalers. In fiscal 1998, we shipped directly to approximately 9,500 retail
locations, to distribution centers serving approximately 9,700 retail locations
and to approximately 200 wholesalers, each of which serves a number of dealers.
During fiscal 1998 and 1997, Day Runner sold products to approximately 700
different customers. The only customers accounting for 10% or more of the
Company's fiscal 1998 sales were Wal-Mart Stores, Inc. and its affiliates,
including Sam's Clubs; Office Depot, Inc. and its affiliates; Staples, Inc. and
its affiliates; and OfficeMax, Inc. and its affiliates. These customers
accounted for approximately 28%, 16%, 15% and 14%, respectively, of fiscal 1998
sales. Including their affiliates, the top five customers of the Company
accounted for an aggregate of approximately 80% of fiscal 1998 sales.
The following table sets forth, for the periods indicated, approximate Day
Runner sales by distribution channel and as a percentage of total sales.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
Distribution Channel 1998 1997 1996
-------------------- ------------------ ------------------- -----------------
(Unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Office products channel. $ 79,303 47.2% $ 59,416 46.7% $ 62,381 49.8%
Mass market............. 65,752 39.2 53,785 42.2 46,804 37.4
Foreign customers....... 12,182 7.3 5,583 4.4 6,346 5.1
Other channels.......... 10,604 6.3 8,592 6.7 9,595 7.7
-------- ----- -------- ------ -------- ------
Total............. $167,841 100.0% $127,376 100.0% $125,126 100.0%
======== ===== ======== ====== ======== ======
</TABLE>
OFFICE PRODUCTS CHANNEL. Since 1987, Day Runner products have been broadly
distributed through the office products channel. While sales to the office
products superstores have become increasingly significant, we continue to sell
our products to office products wholesalers and dealers.
OFFICE PRODUCTS SUPERSTORES. Since their emergence in 1986,
office products superstores offering discount prices in a
warehouse atmosphere have become a major factor in office
products distribution. Our products are carried by all the
leading superstores, including Office Depot, Inc., Staples, Inc.
and OfficeMax, Inc.
OFFICE PRODUCTS WHOLESALERS. Day Runner products are currently
distributed by local and regional office products wholesalers
and by both national wholesalers, S.P. Richards Company and
United Stationers Supply Co., which reach office products
consumers through dealers nationwide.
OFFICE PRODUCTS DEALERS. Our products are also distributed
through traditional office products dealers, which buy directly
from manufacturers and indirectly through wholesalers. These
customers include both storefront dealers and contract
stationers (also known as commercial dealers) that specialize in
selling to larger businesses through catalogs and their direct
sales forces.
MASS MARKET. Discount chains addressing the mass market have become an
increasingly important factor in the distribution of a wide variety of consumer
goods. Day Runner products are distributed through a number of mass market
retailers, including: Wal-mart, Kmart, and Target; the major wholesale clubs,
Sam's Clubs and Costco Companies, Inc.; a number of discount drug chains,
including CVS Corp., Rite Aid Corp., and Eckerd Drug; and a variety of other
mass market resellers.
FOREIGN CUSTOMERS. Day Runner products are marketed internationally through
Day Runner Australia Limited, Day Runner Hong Kong Limited, Day Runner
International Limited, and Ultima Distribution Inc. (the Company's wholly owned
Australian, Hong Kong, United Kingdom and Canadian subsidiaries), independent
foreign distributors and our own sales force. The United Kingdom and key markets
on the European continent are served by Day Runner International; Asian and
Pacific Rim markets are served by Day Runner Hong Kong Limited and Day Runner
Australia; Canada is served by Ultima; and Mexico is served by Day Runner's
U.S.-based sales force. If the Proposed Acquisition of Filofax is completed, we
may market current Day Runner products through Filofax's distribution system in
countries in Europe and Asia. There can be no assurance at this time that the
Proposed Acquisition of Filofax will be completed.
OTHER CHANNELS. The Company also distributes its products through a number
of additional channels, including book, department, gift, leather and luggage
and stationery stores and other specialty retailers. Since March 1989, Day
Runner has held a General Services Administration ("GSA") contract, which
extends through February 2002 and which allows the Company to market certain of
its products to the U.S. Government.
MARKETING
We market our products to consumers to increase awareness of the Day Runner
brand name and of specific products, to communicate the benefits of our products
and to create and reinforce an image that our products enable the user to manage
time and personal resources more effectively. Our packaging, merchandising and
promotions are designed to appeal to the consumer on the retail floor. We
position Day Runner to our distribution channels as the leader in the retail
organizer market and the logical source for organizers, planners and related
organizing products at a wide range of price points and appropriate for a wide
range of broad consumer markets.
PROMOTIONAL PROGRAMS. Day Runner offers special promotional and incentive
programs as part of our introduction of new products and to build sales at
specific times of the year; conducts promotions designed to build awareness,
expand distribution and increase sales of specific products; and conducts sales
incentive programs for wholesalers, dealers and manufacturers' representatives.
ADVERTISING AND PUBLIC RELATIONS. Day Runner participates with customers in
co-op advertising and advertises from time to time in certain wholesale flyers
and in trade publications. In addition, from time to time, we conduct consumer
advertising campaigns, primarily in business and lifestyle magazines. Public
relations campaigns, focused on trade and consumer publications, is another
important element in our marketing strategy.
SALES SUPPORT. We support our retailers with point-of-sale materials
developed based upon research and intended to build brand name awareness and
increase sales. Day Runner displays are designed to be easy for consumers to
shop and for store personnel to refill. Our packaging is designed to help
consumers choose the right product and make the decision to buy.
TRADE SHOWS. Day Runner exhibits or is represented by manufacturers'
representatives in a number of national and regional trade shows aimed at office
products, mass market and other customers.
MARKET RESEARCH. We regularly conduct market research and test product
concepts and prototypes through the use of focus groups and other consumer
research. In addition, we maintain a database containing information on users
who have mailed in the Welcome Cards included in many of our products.
USER SUPPORT. We estimate that we have sold approximately 38 million
organizers and planners since our inception. To encourage our current users to
continue to purchase and recommend our products and their refills, we provide a
toll-free consumer hotline that consumers may call for referral to conveniently
located dealers or dealers that carry specific refills or accessories, for
customer service, to contribute suggestions and to purchase products directly
from Day Runner. We make such sales primarily as a service to our users and
charge consumers full suggested retail price plus handling and shipping.
Although Day Runner products require no special training, we provide a free
user's guide in each of our two most sophisticated organizers. Each Day Runner
System and PRO Business System organizer includes an "Owner's Manual." Each of
these booklets includes illustrations showing effective use of the system and of
specific pages as well as tips on time management, project management and
organization.
MANUFACTURING
Day Runner's manufacturing strategy combines internal manufacturing with
the domestic and foreign subcontracting of product components and finished
goods. Our policy is to develop and maintain at least two sources for key raw
materials, product components and the finished products we subcontract. Although
we rely on foreign subcontractors for adequate capacity, we have the ability to
act as our own second or third source for the manufacture of our loose-leaf
binders and for the final assembly of many of our products. This provides a
degree of protection against vendor problems and, under certain conditions,
allows us to respond to higher than anticipated demand and improve turn-around
time.
INTERNAL MANUFACTURING. We manufacture a portion of our binders and assemble a
portion of our finished products in our Fullerton, California facility and at
Day Runner de Mexico, S.A. de C.V., our wholly owned manufacturing subsidiary
located in Tijuana. Wall boards are manufactured at our facilities in Little
Rock, Arkansas and Toronto, Canada.
PURCHASED COMPONENTS. In addition to vinyl and leather raw materials, we
purchase from suppliers certain major product components, including printed
pages, loose-leaf rings, pens, software disks containing our PIM software,
electronic components and certain accessories. With few exceptions, these items
are manufactured by a variety of outside contractors and are available both
domestically and overseas.
SUBCONTRACTED FINISHED GOODS. We subcontract the manufacture and assembly
of a portion of our finished products, including the great majority of our lower
priced organizers, planners and related products. Day Runner Hong Kong Limited
acts as our liaison with our Asian suppliers.
COMPETITION
The product categories in which Day Runner participates are competitive and
subject to rapid change. Day Runner competes directly with other companies
marketing paper-based organizers and planners, appointment books, calendars,
wall boards, laminated wall planners and business accessories to consumers
through retail channels and indirectly with companies marketing such products
through mail order or via other means. Our competitors also include companies
marketing substitutes for paper-based organizer and planner products, such as
electronic organizers and PIM software, and we compete for the same target
market with companies marketing organizers and/or organizers coupled with time
management training via direct sales to individuals and to organizations.
The companies with which Day Runner competes vary by product category. Each
product category is competitive and subject to rapid change, and none of the
lists of competitors provided here are intended to be all inclusive. Our
competitors in personal organizers/planners include At-A-Glance(R),
Day-Timer(R), Filofax(R), FranklinCovey(TM), Mead, many leather goods
manufacturers and a number of companies manufacturing inexpensive, non-branded
organizers overseas for sale in the United States. (If the Proposed Acquisition
of Filofax is completed, Filofax will, of course, cease to be a competitor;
however, there can be no assurance at this time that the Proposed Acquisition of
Filofax will be completed.) Competitors in telephone/address books include
At-A-Glance, E-Z Record, Stuart Hall(R) and a number of companies marketing
inexpensive imported products. Companies marketing appointment books and
calendars include At-A-Glance, House of Doolittle(R), Southworth(TM), Visual
Organizer and many printers producing inexpensive calendars for use in
advertising promotion. A number of calendar companies also produce laminated
wall planners. Business accessories are marketed by Day-Timer, Hazel(R), and
many leather goods manufacturers. Wall board manufacturers include Baker(R),
Boone(R) Boards, Quartet(R), Rose Art, Sanford(R) and Stempel.
Day Runner believes the current principal competitive factors in the
product categories in which we participate are distribution breadth, depth and
strength; brand name recognition; product development capability; product
function, design, perceived quality and value; marketing capability; breadth of
product lines; financial resources; customer service; manufacturing/sourcing
expertise; and price. In the organizer/planner category, the size and loyalty of
a company's user base is also a key factor. Although a number of our competitors
have greater financial resources than Day Runner, we believe that we compete
well against our direct competition on each of the other principal competitive
factors and against certain of our direct competition with respect to our
financial strength.
We believe that Day Runner has a number of competitive advantages. Our
products occupy significant shelf space in the office products and mass market
channels. Our leadership position in the retail organizer/planner market, brand
name recognition, ability to develop new products, broad product lines,
marketing expertise, manufacturing/sourcing skill, large user base and the
appeal of our products to consumers have been competitive advantages for us in
these channels and in certain other channels. There can be no assurance,
however, that we will be able to maintain or continue to benefit from our
competitive advantages or that the competitive environment will not change to
our detriment.
EMPLOYEES
At September 3, 1998, Day Runner had 1,298 full-time employees, including
71 in sales; 37 in marketing; 123 in executive, finance and administration; 31
in product development; and 1,036 in manufacturing operations and distribution.
None of our employees is represented by a labor union, and we have experienced
no labor-related work stoppages.
PATENTS, COPYRIGHTS AND TRADEMARKS
Day Runner relies upon, among other things, a combination of copyright,
patent and trademark laws to protect our rights to certain aspects of our
products. There can be no assurance, however, that the steps taken by Day Runner
to protect our proprietary rights will be adequate to prevent imitation of our
products or independent development by others of similar products.
Day Runner holds fourteen United States patents and sixteen foreign
patents. The Company also has several United States and foreign patents pending.
The patents we hold are related to improvements in the structure of and devices
associated with our loose-leaf binders and related organizing products, and we
do not believe that any of these patents is material to our business. We have
also been issued United States copyright registrations covering the text and the
compilation and editing of data in certain of our material products. Day Runner
holds United States trademark registrations for "Day Runner," "MEMO-RY," "PRO
Business System," "Running Mate," "Timeposters," "Wipe-Out," and the Day Runner
logo and we have obtained certain state and foreign registrations for certain of
our trademarks.
Item 2. PROPERTIES.
Day Runner's principal operating facility is located in an approximately
221,000-square foot building in Fullerton, California, under leases expiring in
2001. The leases include multiple, successive renewal options that, if exercised
in full, would extend the lease terms to expire in 2011. The Company's corporate
headquarters occupy approximately 21,300-square feet in Irvine, California under
a lease that expires in August 2001. The Company's LaVergne, Tennessee
distribution facility occupies an approximately 101,200-square foot facility
under a lease expiring in 2005. The lease includes multiple, successive renewal
options that, if exercised in full, would extend the lease terms to expire in
2011. The Company's Little Rock, Arkansas manufacturing facility occupies an
approximately 114,000-square foot facility under a lease expiring in 2002. The
Company Canadian subsidiary occupies an approximately 40,200-square foot
facility under a lease expiring in 2008. The Company's Mexican subsidiary
operates in approximately 54,860 square feet in four buildings under separate
leases expiring in 1999. The Company currently has under construction a 70,000
square foot building to replace the currently leased buildings. The new building
lease will expire in 2006 and includes options to extend the terms. The
Company's Hong Kong subsidiary occupies an approximately 1,200-square foot
facility under a lease expiring in June 2000 and the Company's Canadian
subsidiary occupies an approximately 40,000-square foot facility under a lease
expiring in 2008. The Company believes it has sufficient space in its facilities
or will be able to lease additional space on acceptable terms to meet its needs
for the foreseeable future.
Item 3. LEGAL PROCEEDINGS.
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Day Runner's Common Stock is traded over-the-counter on The Nasdaq Stock
Market under the symbol "DAYR." The table below shows the high and low closing
sales prices for the Common Stock as reported on The Nasdaq Stock Market for the
fiscal years ended June 30, 1998 and 1997. As of September 16, 1998, there were
189 recordholders of the Company's Common Stock based on information provided by
the Company's transfer agent.
Fiscal Year Fiscal Year
1998 1997
---------------- ------------------
Quarter High Low High Low
-------- ---------------- ------------------
First $19-1/2 $16-1/4 $15 $12-3/4
Second 21-1/16 18 15-1/2 9-3/8
Third 23-1/16 18-7/16 13 8-15/16
Fourth 25-1/4 18-1/8 16-3/4 12-9/16
The Company has never paid cash dividends. It is the present policy of the
Company to retain earnings to finance the growth and development of its
business, and therefore the Company does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. Certain financial covenants in the
Company's bank line of credit agreement restrict the Company's ability to pay
cash dividends in excess of $200,000.
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated income statement data for the fiscal years ended
June 30, 1998, 1997 and 1996 and the consolidated balance sheet data at June 30,
1998 and 1997 are derived from, and are qualified in their entirety by reference
to, the Company's audited consolidated financial statements and notes thereto
included elsewhere in this Annual Report that have been audited by Deloitte &
Touche LLP, independent auditors, as indicated in their report, which is also
included elsewhere in this Annual Report. Information for the twelve months
ended June 30, 1994 is unaudited, and in the opinion of the Company's
management, the accounting principles used to prepare the unaudited financial
information are consistent with those used to prepare the audited financial
statements. The selected consolidated income statement data for the fiscal year
ended June 30, 1995, short fiscal year ended June 30, 1994 and the year ended
December 31, 1993 and the consolidated balance sheet data at June 30, 1996, 1995
and 1994 are derived from audited consolidated financial statements of the
Company that are not included herein. Effective January 1, 1994, the Company
changed its fiscal year end from December 31 to June 30. The six-month period
ended June 30, 1994 is therefore referred to as "short fiscal year 1994."
<TABLE> <CAPTION>
Consolidated Income Statement Data:
(In thousands, except per share data)
Twelve Months Short Year Ended
Fiscal Ended Fiscal Year December 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 June 30, 1994 1994 1993
------- ------- ------- -------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $167,841 $127,376 $125,126 $121,801 $ 97,027 $ 43,160 $81,892
Cost of goods sold.............. 80,663 60,452 59,920 62,175 50,405 22,981 41,699
------- ------- ------- -------- -------- -------- -------
Gross profit.................... 87,178 66,924 65,206 59,626 46,622 20,179 40,193
------- ------- ------- -------- -------- -------- -------
Operating expenses:
Selling, marketing and
distribution................ 43,193 31,673 29,878 32,154 25,180 12,156 21,786
General and administrative... 18,416 14,451 16,376 13,792 11,400 5,686 9,479
Costs incurred in pursuing
acquisitions................ 1,451
------- ------- ------- -------- -------- -------- -------
Total operating expenses..... 61,609 47,575 46,254 45,946 36,580 17,842 31,265
------- ------- ------- -------- -------- -------- -------
Income from operations.......... 25,569 19,349 18,952 13,680 10,042 2,337 8,928
Net interest (income)........... (172) (1,301) (706) (161) (88) (91)
------- ------- ------- -------- -------- -------- -------
Income before provision for
income taxes, extraordinary
item and cumulative effect of
accounting change............ 25,741 20,650 19,658 13,841 10,130 2,428 8,928
Provision for income taxes...... 9,833 8,102 7,840 5,863 4,196 1,061 3,638
------- ------- ------- -------- -------- -------- -------
Income before extraordinary item
and cumulative effect of
accounting change............ 15,908 12,548 11,818 7,978 5,934 1,367 5,290
Extraordinary item litigation
settlement - net............ 718 718
Cumulative effect of change in
accounting for income taxes.. 350
------- ------- ------- -------- -------- -------- -------
Net income...................... $15,908 $12,548 $11,818 $ 7,978 $ 6,652 $ 2,085 $ 5,640
======= ======= ======= ======== ======== ======== =======
Earnings per common share:
Basic......................... $ 1.38 $ 1.01 $ 0.95 $ 0.66 $ 0.57 $ 0.17 $ 0.50
======== ======== ======== ======== ======= ========= =======
Diluted....................... $ 1.27 $ 0.95 $ 0.89 $ 0.63 $ 0.54 $ 0.17 $ 0.47
======== ======== ======== ======== ======= ========= =======
Weighted average number of common shares outstanding:
Basic......................... 11,533 12,432 12,468 12,176 11,731 11,956 11,276
======== ======== ========= ========= ======== ======== =======
Diluted....................... 12,523 13,182 13,252 12,748 12,370 12,616 12,130
======== ======== ========= ========= ======== ======== =======
(1) Information for the twelve months ended June 30, 1994 is provided on an unaudited basis for comparison purposes
only.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data:
(In thousands)
June 30,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Working capital............. $ 57,975 $ 50,710 $ 51,653 $ 38,260 $ 30,581
Total assets................ 101,179 78,880 77,931 63,650 50,769
Short-term debt............. 2,749 475 152 200
Long-term liabilities....... 53 52 12 141
Stockholders' equity........ 74,532 59,484 59,498 44,787 35,786
</TABLE>
Item 7. 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 Annual 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.
OVERVIEW
Since the Company's introduction of the first Day Runner System organizer
in 1982, the Company's revenues have been generated by sales primarily of
organizers and planners and secondarily of refills. Since fiscal 1995, a
majority of the Company's growth has resulted from sales of related organizing
products, virtually all of which have been introduced since January 1, 1995. The
Company focuses the great majority of its product development, sales and
marketing efforts on the office products and the mass market channels. The
office products channel and the mass market channel accounted for 47.2% and
39.2%, respectively, of fiscal 1998 sales.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the percentages
that selected income statement items bear to sales and the percentage change in
the dollar amounts of such items. <TABLE> <CAPTION>
Percentage of Sales
Years Ended June 30,
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0%
Cost of goods sold........................... 48.1 47.5 47.9
------ ----- -----
Gross profit................................. 51.9 52.5 52.1
------ ----- -----
Operating expenses:
Selling, marketing and distribution....... 25.7 24.9 23.9
General and administrative................ 11.0 11.3 13.1
Costs incurred in pursuing acquisitions... 1.1
----- -----
Total operating expenses................. 36.7 37.3 37.0
------ ----- -----
Income from operations....................... 15.2 15.2 15.1
Net interest income.......................... 0.1 1.0 0.6
------ ----- -----
Income before provision for income taxes..... 15.3 16.2 15.7
Provision for income taxes................... 5.8 6.3 6.3
------ ----- -----
Net income................................... 9.5% 9.9 % 9.4%
====== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percentage Change
Fiscal 1997 Fiscal 1996
to to
Fiscal 1998 Fiscal 1997
-------------------- -----------------
<S> <C> <C>
Net sales......................................... 31.8% 1.8%
Cost of goods sold................................ 33.4 0.9
Gross profit...................................... 30.3 2.6
Operating expenses:
Selling, marketing and distribution............ 36.4 6.0
General and administrative..................... 27.4 (11.8)
Costs incurred in pursuing acquisitions........ (100.0) NM
Total operating expenses...................... 29.5 2.9
Income from operations............................ 32.1 2.1
Net interest income............................... (86.8) 84.3
Income before provision for income taxes.......... 24.7 5.0
Provision for income taxes........................ 21.4 3.3
Net income........................................ 26.8 6.2
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1997
NET SALES. Net sales consist of revenues from gross product shipments net
of allowances for returns, rebates and credits. In fiscal 1998, sales increased
by $40,465,000, or 31.8%, compared with fiscal 1997 primarily because of higher
unit sales of related organizing products. Product sales were primarily to the
office products channel and secondarily to mass market customers. Sales to the
office products channel increased by $19,887,000, or 33.5%; sales to mass market
customers grew by $11,967,000, or 22.2%; sales to foreign customers grew by
$6,599,000, or 118.2%; and sales to miscellaneous customers grouped together as
"other," grew by $2,012,000, or 23.4%. Sales of related organizing products
increased by $22,642,000, or 220.8%; sales of organizers and planners increased
during the year by $9,211,000, or 12.5%; and sales of refills increased by
$8,612,000, or 19.9%.
GROSS PROFIT. Gross profit is net 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 fiscal 1997 to 51.9% in fiscal 1998 primarily because the gross profit
levels of certain of the Company's smaller operations are lower as a percentage
of sales than those of the parent company.
OPERATING EXPENSES. Total operating expenses increased by $14,034,000, or
29.5%, for fiscal 1998 compared with fiscal 1997 but decreased as a percentage
of net sales from 37.3% to 36.7% primarily because operating expenses for fiscal
1997 included $1,451,000 of costs incurred in pursuing acquisitions that did not
come to fruition. No such costs were incurred in fiscal 1998.
Excluding the fiscal 1997 costs of pursuing acquisitions, total operating
expenses would have grown by $15,485,000, or 33.6%, and increased as a
percentage of net sales from 36.2% to 36.7%.
Primarily because of expenses associated with new and recently introduced
products, selling, marketing and distribution expenses increased by $11,520,000
and from 24.9% to 25.7% as a percentage of net sales. General and administrative
expenses increased by $3,965,000, but declined from 11.3% to 11.0% as a
percentage of net sales primarily because of the Company's increased ability to
absorb fixed costs as a result of higher sales.
NET INTEREST INCOME. Primarily because of a decrease in the Company's cash
available for short-term investment resulting from the Company's repurchase of
common stock, net interest income in fiscal 1998 compared with fiscal 1997
decreased by $1,129,000 and by 0.9% as a percentage of net sales.
INCOME TAXES. Primarily as a result of state tax planning and secondarily
the continued growth of the Company's Hong Kong subsidiary, the Company's fiscal
1998 effective tax rate was 38.2%, compared with 39.2% for fiscal 1997.
NET INCOME. Compared with fiscal 1997, net income for fiscal 1998 increased
by $3,360,000, or 26.8%. Excluding the fiscal 1997 costs incurred in pursuing
acquisitions, fiscal 1998 net income would have grown $2,471,000 or 18.4%,
compared with fiscal 1997.
EARNINGS PER SHARE. In fiscal 1998, the Company repurchased an aggregate of
695,588 shares from certain officers and directors of the Company. Separately,
during fiscal 1997, the Company repurchased 1,026,200 shares of Common Stock
under the Company's stock repurchase program. These repurchases reduced the
number of shares that would otherwise have been used to calculate earnings per
share.
Subsequent to fiscal year end 1998, the Company repurchased an additional
76,000 shares of Common Stock under its stock repurchase program (see Note 13 to
Consolidated Financial Statements).
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1996
NET SALES. In fiscal 1997, net sales increased by $2,250,000, or 1.8%,
compared with fiscal 1996 primarily because of higher unit sales of related
organizing products. Product sales were primarily to the office products channel
and secondarily to mass market customers. Sales to mass market customers grew by
$6,981,000, or 14.9%, primarily due to higher sales to Wal-Mart. Sales to the
office products channel decreased by $2,965,000, or 4.8%. Sales to foreign
customers declined by $763,000, or 12.0%, and sales to miscellaneous customers
grouped together as "other," decreased by $1,003,000, or 10.5%. Sales of related
organizing products increased by $5,894,000, or 135.2%. Sales of organizers and
planners decreased during the year by $3,435,000, or 4.4%, and sales of refills
decreased by $209,000, or 0.5%.
GROSS PROFIT. Primarily because of improved purchasing efficiencies, gross
profit as a percentage of sales increased to 52.5% for fiscal 1997 from 52.1%
for fiscal 1996.
OPERATING EXPENSES. Total operating expenses increased by $1,321,000, or
2.9%, for fiscal 1997 compared with fiscal 1996 and increased as a percentage of
net sales from 37.0% to 37.3% primarily because of $1,451,000 of costs incurred
in pursuing two significant acquisitions that did not come to fruition. These
costs included legal and accounting fees and miscellaneous expenses. Without
such costs, operating expenses for fiscal 1997 compared with fiscal 1996 would
have declined by $130,000 and would have decreased as a percentage of net sales
from 37.0% to 36.2%. Selling, marketing and distribution expenses as a
percentage of net sales increased from 23.9% to 24.9% primarily because of
increased display costs. General and administrative expenses as a percentage of
net sales decreased from 13.1% to 11.3% primarily because of lower personnel
costs.
NET INTEREST INCOME. Primarily because of the Company's higher levels of
cash available for short-term investment during the year, net interest income in
fiscal 1997 compared with fiscal 1996 increased by $595,000 and by 0.4% as a
percentage of net sales.
INCOME TAXES. Primarily as a result of the improved financial results of
the Company's Hong Kong subsidiary, the Company's fiscal 1997 effective tax rate
was 39.2%, compared with 39.9% for fiscal 1996. Prior to fiscal 1996, the
operating losses incurred by the Company's United Kingdom and Hong Kong
subsidiaries, which were formed in 1993 and 1994, respectively, and the tax
treatment required for these losses had increased the Company's effective tax
rate above what it otherwise would have been.
NET INCOME. Compared with fiscal 1996, net income for fiscal 1997 increased
by $730,000, or 6.2%. Without the costs of pursuing acquisitions, fiscal 1997
net income would have grown $1,619,000 or 13.7%, compared with fiscal 1996.
QUARTERLY RESULTS
The following tables set forth selected unaudited quarterly consolidated
financial data and the percentages such items represent of sales. The quarterly
consolidated financial data reflect, in the opinion of Management of the
Company, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the results of operations for such periods. Results
of any one or more quarters are not necessarily indicative of annual results or
continuing trends. <TABLE> <CAPTION>
Quarters Ended
--------------
June 30, March 31, December 31, September 30,
1998 1998 1997 1997
--------------- ------------------ ---------------- ----------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 50,927 100.0% $ 29,388 100.0% $ 49,388 100.0% $ 38,138 100.0%
Gross profit........................ 26,057 51.2 15,253 51.9 25,762 52.2 20,106 52.7
Total operating expenses............ 18,392 36.1 13,474 45.8 16,677 33.8 13,066 34.3
Income from operations.............. 7,665 15.1 1,779 6.1 9,085 18.4 7,040 18.4
Net interest (income) expense....... (123) (0.2) 16 0.1 30 0.1 (95) (0.3)
Income before provision for
income taxes..................... 7,788 15.3 1,763 6.0 9,055 18.3 7,135 18.7
Net income.......................... $ 4,957 9.7 $ 1,075 3.7 $ 5,524 11.2 $ 4,352 11.4
Earnings per common share:
Basic.......................... $ 0.42 $ 0.09 $ 0.49 $ 0.38
Diluted........................ $ 0.39 $ 0.09 $ 0.45 $ 0.35
Weighted average number of common shares outstanding:
Basic.......................... 11,776 11,571 11,273 11,513
Diluted........................ 12,695 12,520 12,323 12,511
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
--------------
June 30, March 31, December 31, September 30,
1997 1997 1996 1996
------------------- ----------------- ----------------- -----------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 37,793 100.0% $ 21,020 100.0% $ 35,014 100.0% $ 33,549 100.0%
Gross profit........................ 19,803 52.4 11,024 52.4 18,512 52.9 17,585 52.4
Total operating expenses............ 13,613 36.0 11,272 53.6 11,308 32.3 11,382 33.9
Income (loss) from operations....... 6,190 16.4 (248) (1.2) 7,204 20.6 6,203 18.5
Net interest (income)............... (443) (1.1) (345) (1.7) (303) (0.9) (210) (0.6)
Income before provision for
income taxes..................... 6,633 17.5 97 0.5 7,507 21.5 6,413 19.1
Net income.......................... $ 4,138 10.9 $ 58 0.3 $ 4,504 12.9 $ 3,848 11.5
Earnings per common share:
Basic.......................... $ 0.35 $ 0.00 $ 0.36 $ 0.30
Diluted........................ $ 0.33 $ 0.00 $ 0.34 $ 0.29
Weighted average number of common shares outstanding:
Basic.......................... 11,831 12,603 12,663 12,635
Diluted........................ 12,666 13,229 13,398 13,448
</TABLE>
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 new
product introductions and line extensions, the timing of large orders, changes
in product sales or customer mix, vendor and customer pricing, production
levels, supply and manufacturing delays, large customers' inventory management
and general industry and economic conditions. 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
During fiscal 1998, the Company financed its operating cash needs primarily
from internally generated funds. The Company's cash and cash equivalents at June
30, 1998 decreased to $2,923,000 from $15,550,000 at June 30, 1997. In fiscal
1998, net cash of $7,035,000 provided by operating activities, was offset by net
cash of $11,911,000 and $7,697,000 used in investing activities and financing
activities, respectively.
Of the $7,035,000 net amount provided by the Company's operating
activities, $15,908,000 was provided by net income, $5,517,000 was provided by
depreciation and amortization and $3,755,000 was provided by an increase in
accrued expenses. These amounts were partially offset by an increase of
$11,050,000 in inventories and an increase of $8,100,000 in accounts receivable.
Of the $11,911,000 net amount used in the Company's investing activities,
$7,175,000 was used to acquire primarily machinery and equipment and secondarily
computer equipment and software, and $4,626,000 was used for business
acquisitions.
Of the $7,697,000 net amount used in the Company's financing activities,
$11,564,000 was used to repurchase 695,588 shares of Common Stock from certain
officers and directors. This amount was partially offset by $4,580,000 and
$673,000 that were provided by the issuance of Common Stock upon exercise of
then-outstanding stock options and warrants, respectively.
Accounts receivable (net) at June 30, 1998 increased by $10,239,000, or
45.9%, from the amount at June 30, 1997 primarily due to the growth in sales.
The average collection period of accounts receivable at June 30, 1998 decreased
to 45 days from 47 days at June 30, 1997.
Inventories increased by $14,204,000, or 60.7%, from the June 30, 1997
amount primarily because of the inventories of the three companies acquired
during fiscal 1998 and secondarily because of new and recently introduced
products.
Effective February 1, 1998, the Company entered into a $15,000,000 line of
credit. Borrowings under this line of credit bear interest at the Company's
election at either the bank's prime rate less certain margins, or at LIBOR plus
certain margins, with the margins dependent upon the Company's meeting certain
funded debt-to-EBITDA ratios. Prior to February 1, 1998, borrowings under the
line bore interest either at the bank's prime rate or at LIBOR plus 1.75%. At
June 30, 1998, the Company had $1,253,000 outstanding under its primary bank
line and had outstanding letters of credit totaling approximately $1,050,000,
which reduced the availability under the line to approximately $12,697,000. (See
Note 5 to Consolidated Financial Statements.)
The Canadian lines of credit allow for aggregate borrowings by the
Company's two Canadian subsidiaries of up to Canadian $3,000,000 (approximately
US $2,039,000). Borrowings bear interest at the Canadian bank's prime rate and
are due and payable on demand. At June 30, 1998, approximately Canadian
$2,155,000 (approximately US $1,463,000) was outstanding under these lines of
credit. (See Note 5 to Consolidated Financial Statements.)
On September 23, 1998, the Company entered into a Revolving Loan Agreement
(the "Loan Agreement") with Wells Fargo Bank, National Association ("Wells
Fargo"). The Loan Agreement provides for borrowings through September 30, 2005
(the "Maturity Date"). Borrowings will bear interest either at fixed rates based
on the higher of the bank's prime rate and the Federal Funds Rate published by
the Federal Reserve Bank of New York or at floating rates calculated by
reference to the interest rates at which the bank offers deposits in U.S.
dollars in amounts approximately equal to the amount of the relevant Loan and
for a period of time comparable to the number of days the relevant Loan will
remain outstanding, together with a margin. The maximum amount that may be
outstanding under the Loan Agreement is $160,000,000 through December 31, 2000.
Thereafter, the maximum amount of borrowings that may be outstanding under the
Loan Agreement is reduced by $20,000,000 in calendar 2001 and by $10,000,000 in
each of the following calendar years up to the Maturity Date. This Loan
Agreement replaces the Company's domestic and Canadian lines of credit discussed
above. (see Note 20 to the Consolidated Financial Statements).
In connection with the Proposed Acquisition of Filofax, the Company
currently estimates that the aggregate fees and expenses of the transaction,
including investment banking, legal, accounting and other fees and expenses,
will be in the range of $4 to 6 million. Actual total fees and expenses may
differ from this estimate and are subject to future contingencies. The fees and
expenses, as well as any payments for the Filofax shares, will be paid with
available cash and with borrowings under the Loan Agreement.
The Company has not incurred significant losses or gains from foreign
currency exchange rate fluctuations. The continuing expansion of the Company's
international operations 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's
exposure to the impact of interest changes and foreign currency fluctuations is
expected to increase if the Proposed Acquisition of Filofax is completed and the
Company incurs substantial debt under its new Loan Agreement. The Company has
entered into a call option with respect to the Proposed Acquisition of Filofax
and may in the future enter into additional call options or foreign currency
exchange contracts, swap agreements or other financial instruments as hedges to
moderate the impact of foreign currency fluctuations. There can be no assurance
that the Proposed Acquisition of Filofax will be completed.
A single currency called the euro will be introduced in certain countries
in Europe on January 1, 1999, but will not be introduced in England. The use of
a single currency may affect the ability of Day Runner and other companies to
price their products differently in various European markets. The Company has
not yet evaluated the impact of the single currency.
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 fiscal
1999. Nonetheless, the Company may seek additional sources of capital as
necessary or appropriate to finance acquisitions 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.
The "Year 2000" issue refers to the inability of certain computer systems,
as well as certain hardware and equipment containing date sensitive data, to
recognize accurate dates commencing on or after January 1, 2000. This has the
potential to affect the operation of these systems adversely and materially. Day
Runner has identified four phases in its Year 2000 compliance efforts:
discovery, assessment, remediation and applicable testing and verification. The
Company has substantially completed the discovery and assessment phases for its
own systems and applications and believes that by modifying existing software
and converting to new software for certain tasks it can prevent the Year 2000
transition from posing significant internal operational problems.
The Company plans to complete the remediation phase by the second quarter
of fiscal year 1999 and complete the applicable testing and verification phase
by the end of the third quarter of fiscal year 1999. Day Runner currently
estimates that total incremental cash requirements related to the Year 2000
issue will be approximately $750,000 to $1,200,000, of which approximately
$650,000 was incurred as of June 30, 1998. The Company does not anticipate that
the costs of these modifications and conversions will be material to its
financial position or results of operations in any given year. Expenditures will
be expensed or capitalized as appropriate. The cash requirements described above
do not include any estimates for costs of Year 2000 remediation or compliance
that may be incurred if the Proposed Acquisition of Filofax is completed. The
Company is unable to estimate these costs at this time. There can be no
assurance that the Proposed Acquisition of Filofax will be completed.
Day Runner is surveying its vendors, customers and others on whom it relies
to assure that their systems will be Year 2000 compliant and that they will be
able to continue their business with the Company without interruption. However,
there can be no assurance that the systems of other parties on which the
Company's systems rely will also be compliant or that any failure to be
compliant in this area by another party would not have an adverse effect on the
Company's systems. Furthermore, no assurance can be given that any or all of the
Company's systems are or will be Year 2000 compliant, that the ultimate costs
required to address the Year 2000 issue will not exceed the amounts indicated
above, or that the impact of any failure to achieve substantial Year 2000
compliance will not have a material adverse effect on the Company's financial
condition.
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 and elsewhere in this
annual report are forward looking statements that involve risks and
uncertainties that could affect actual future results. Such risks and
uncertainties include, but are not limited to: timing and size of orders from
large customers, timing and size of orders for new products, competition, large
customers' inventory management, 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.
EFFECTS OF INFLATION
The Company believes that inflation has not had a material effect on its
operations.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Inapplicable
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements of the Company and its
subsidiaries included herein and listed in Item 14(a) of this Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to the
sections of the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 23, 1998, entitled "Election of Directors"
and "Executive Officers," to be filed with the Commission.
Item 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the
sections of the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 23, 1998, entitled "Election of Directors --
Compensation of Directors," "Executive Compensation and Other Information,"
"Compensation Committee Report on Executive Compensation" and "Performance
Graph," to be filed with the Commission.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item is incorporated by reference to the
section of the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 23, 1998, entitled "Common Stock Ownership
of Principal Stockholders and Management," to be filed with the Commission.
Item 13. CERTAIN TRANSACTIONS.
The information required by this Item is incorporated by reference to the
sections of the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 23, 1998, entitled "Election of Directors --
Compensation of Directors" and "Certain Relationships and Related Transactions,"
to be filed with the Commission.
<PAGE>
<TABLE>
<CAPTION>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) The following documents are filed as part of this Report: PAGE
<S> <C>
1. Consolidated Financial Statements
Independent Auditors' Report F-1
Consolidated Balance Sheets at June 30, 1998 and
1997 F-2
Consolidated Statements of Income for Each of the Three
Years in the Period Ended June 30, 1998 F-3
Consolidated Statements of Stockholders' Equity for Each
of the Three Years in the Period Ended June 30, 1998 F-4
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended June 30, 1998 F-5
Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying Accounts S-2
Schedules which are not listed above have been omitted because they are
not applicable or the information required to be set forth therein is included
in the Consolidated Financial Statements or notes thereto.
</TABLE>
3. List of Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended(1)
3.2 Bylaws of the Registrant(2)
10.1 Amended and Restated 1986 Stock Option Plan, including forms
of Stock Option Agreements and Stock Purchase Agreement(3) and
Amendment Nos. 1(4), 2(5), 3(5) and 4(6) thereto dated July
17, 1992, February 28, 1993, May 10, 1993 and May 12, 1994,
respectively(7)
10.2 1995 Stock Option Plan, including forms of Stock Option
Agreements(8) and Amendment Nos. 1 (9) and 2 (10) thereto
dated October 21, 1996 and September 19, 1997 (7)
10.3 Employee Stock Purchase Plan(3) and Amendment No. 1 thereto
dated July 17, 1992(4)(7)
10.4 Day Runner Restated 401(k) Plan effective as of July 1, 1998
and Trust Agreement effective as of July 1, 1998 between the
Registrant and New York Life Trust Company(7)
10.5 1998 Officer Bonus Plan(7)(12)
10.6 1999 Officer Bonus Plan(7)
10.7 Officer Severance Plan effective as of February 28, 1993,
including form of Employment Separation Agreement(11) and
First Amendment thereto effective as of August 17, 1998(7)
10.8 Credit Agreement dated as of February 1, 1998 between the
Registrant and Wells Fargo Bank, National Association,
including Revolving Line of Credit Note(13)
10.9 Triple Net Lease, as amended, effective as of March 22, 1991
between Catellus Development Corporation and the Registrant(3)
and as amended by Lease Amendment dated June 29, 1992(10)
10.10 Triple Net Lease dated July 28, 1992 between Catellus
Development Corporation and the Registrant(11)
10.11 Koll Business Center Lease dated September 7, 1994 between the
Registrant and Koll Alton Plaza and Aetna Life Insurance
Co.(14)
10.12 Standard Commercial Lease Agreement dated as of July 31, 1996
between System Realty Nine, Inc. and the Registrant(15)
10.13 Standard Commercial Lease Agreement dated as of October 1,
1997 between RDC Sales and the Registrant
10.14 Standard Commercial Lease Agreement dated as of May 11,
1998 between GPM Real Property (7) Ltd. and Endow (7) Inc. and
the Registrant
10.15 Form of Warrant to purchase shares of the Registrant's Common
Stock issued to certain directors and officers of the
Registrant(3) and Schedule of Warrants(7)
10.16 Form of Warrant dated August 19, 1997 to purchase shares of
the Registrant's Common Stock issued to certain officers of
the Company and Schedule of Warrants(7)(16)
10.17 Form of Stock Purchase Agreement dated August 27, 1997 and
Schedule of Sellers(12)
10.18 Form of Warrant dated April 20, 1998 to purchase shares of the
Registrant's Common Stock issued to the non-employee directors
of the Company and Schedule of Warrants(7)
10.19 Consulting Agreement effective April 22, 1997 between the
Registrant and Alan R. Rachlin(7)(17)
10.20 Revolving Loan Agreement dated September 23, 1998 between the
Registrant, Day Runner UK plc, Ultima Distribution Inc. and
Wells Fargo Bank, National Association, including Revolving
Line of Credit Note(18)
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed by the
Registrant during the fourth quarter of the fiscal year ended June 30,
1998.
(c) Exhibits
See the list of Exhibits under Item 14(a)3 of this Annual Report on
Form 10-K.
(d) Financial Statement Schedules
See the list of Schedules under Item 14(a)2 of this Annual Report on
Form 10-K.
- ------------------------
(1) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on May 15, 1998.
(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.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-45391) filed with the Commission on
January 30, 1992.
(4) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-53422) filed with the Commission on
October 15, 1992.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (Registration No. 0-19835) filed with the Commission on August 16,
1993.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-84036) filed with the Commission on
September 15, 1994.
(7) Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of this
Annual Report on Form 10-K.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-80819) filed with the Commission on
December 22, 1995.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333-20247) filed with the Commission on
January 23, 1997.
(10) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 333-44627) filed with the Commission on
January 21, 1998.
(11) Incorporated by reference to the Registrant's Annual Report on Form
10-K (File No. 0-19835) filed with the Commission on March 31, 1993.
(12) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on November 13, 1997.
(13) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q(File No. 0-19835) filed with the Commission on February 17, 1998.
(14) 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.
(15) Incorporated by reference to the Registrant's Annual Report on Form
10-K(File No. 0-19835) filed with the Commission on September 27, 1996.
(16) Incorporated by reference to the Registrant's Annual Report on Form
10-K(File No. 0-19835) filed with the Commission on September 29, 1997.
(17) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on May 15, 1997.
(18) Incorporated by reference to the Registrant's Current Report on Form
8-K (File No. 0-19835) filed with the Commission on September 24, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
California.
DAY RUNNER, INC.
By: /s/ James E. Freeman, Jr.
--------------------------------
James E. Freeman, Jr.
Chief Executive Officer
Dated: September 30, 1998
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated. <TABLE> <CAPTION>
<S> <C> <C> <C>
Signature Title Date
------------- ------------------------- -----------------------
/s/ Mark A. Vidovich Chairman of the Board September 30, 1998
- ----------------------------------------
Mark A. Vidovich
/s/ James E. Freeman, Jr.
- ----------------------------------------- Chief Executive Officer September 30, 1998
James E. Freeman, Jr (Principal Executive Officer)
.
/s/ Dennis K. Marquardt Executive Vice President, September 30, 1998
- ---------------------------------------- Finance & Administration and
Dennis K. Marquardt Chief Financial Officer
(Principal Financial Officer
and Accounting Officer)
/s/ James P. Higgins Director September 30, 1998
- ----------------------------------------
James P. Higgins
3029, 1998
- ----------------------------------------
Jill Tate Higgins
/s/ Charles Miller Director September 30, 1998
----------------------------------------
Charles Miller
/s/ Alan R. Rachlin Director September 30, 1998
- ----------------------------------------
Alan R. Rachlin
/s/ Boyd I. Willat Director September 30, 1998
- ----------------------------------------
Boyd I. Willat
/s/ Felice Willat Director September 30, 1998
- ----------------------------------------
Felice Willat
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Day Runner, Inc.:
We have audited the accompanying consolidated balance sheets of Day Runner, Inc.
and subsidiaries (the "Company") as of June 30, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Day Runner, Inc. and subsidiaries
as of June 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
Los Angeles, CA
August 17, 1998
(September 25, 1998 as to Note 20)
F-1
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30,
1998 1997
<S> <C> <C>
--------- ------
Current assets:
Cash and cash equivalents...................................................... $ 2,923 $15,550
Accounts receivable (less allowance for doubtful accounts and
sales returns and other allowances of $9,942 and $8,664 at
June 30, 1998 and 1997, respectively)....................................... 32,542 22,303
Inventories.................................................................... 37,610 23,406
Prepaid expenses and other current assets...................................... 1,670 2,409
Income taxes receivable........................................................ 2,606
Deferred income taxes.......................................................... 7,218 6,386
--------- -------
Total current assets........................................................ 84,569 70,054
Property and equipment, net ....................................................... 11,888 8,688
Other assets (net of accumulated amortization of $196,000 at June 30, 1998)........ 4,722 138
--------- -------
Total assets....................................................................... $101,179 $78,880
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit................................................................ $ 2,716 $ 452
Accounts payable............................................................... 9,969 8,320
Accrued expenses............................................................... 13,876 9,500
Income taxes payable........................................................... 1,049
Current portion of capital lease obligations................................... 33 23
--------- -------
Total current liabilities................................................... 26,594 19,344
--------- -------
Long-term liabilities:
Capital lease obligations...................................................... 53 52
--------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock (1,000,000 shares authorized; $0.001 par value, no shares
issued or outstanding)
Common stock (29,000,000 shares authorized; $0.001 par value; 13,677,386
shares issued and 11,955,598 outstanding at June 30, 1998;
12,728,858 shares issued and 11,702,658 outstanding at June 30, 1997)........ 14 13
Additional paid-in capital..................................................... 34,445 23,752
Retained earnings.............................................................. 65,076 49,168
Cumulative translation adjustment.............................................. 102 92
Treasury stock - At cost (1,721,788 and 1,026,200 shares, at June 30, 1998 and
1997, respectively).......................................................... (25,105) (13,541)
--------- --------
Total stockholders' equity.................................................. 74,532 59,484
--------- -------
Total liabilities and stockholders' equity......................................... $101,179 $78,880
========= =======
See accompanying notes to consolidated financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended June 30,
1998 1997 1996
--------- ---------- --------
<S> <C> <C> <C>
Net sales................................................... $ 167,841 $ 127,376 $125,126
Cost of goods sold.......................................... 80,663 60,452 59,920
--------- --------- ---------
Gross profit................................................ 87,178 66,924 65,206
--------- --------- ---------
Operating expenses:
Selling, marketing and distribution..................... 43,193 31,673 29,878
General and administrative.............................. 18,416 14,451 16,376
Costs incurred in pursuing acquisitions................. 1,451
--------- ---------
Total operating expenses............................. 61,609 47,575 46,254
--------- --------- ---------
Income from operations...................................... 25,569 19,349 18,952
--------- --------- ---------
Interest (income) expense:
Interest income......................................... (390) (1,431) (823)
Interest expense........................................ 218 130 117
--------- --------- ---------
Net interest income.................................. (172) (1,301) (706)
--------- --------- ---------
Income before provision for income taxes.................... 25,741 20,650 19,658
Provision for income taxes.................................. 9,833 8,102 7,840
--------- --------- ---------
Net income.................................................. $ 15,908 $ 12,548 $ 11,818
========= ========= =========
Earnings per common share:
Basic................................................ $ 1.38 $ 1.01 $ 0.95
========= ========= =========
Diluted.............................................. $ 1.27 $ 0.95 $ 0.89
========= ========= =========
Weighted average number of common shares outstanding:
Basic................................................ 11,533 12,432 12,468
========= ========= =========
Diluted.............................................. 12,523 13,182 13,252
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Number Additional Cumulative
of Shares Common Paid-In Retained Translation Treasury
Outstanding Stock Capital Earnings Adjustment Stock Total
----------- --------------- ---------------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995..................... 12,251,594 $ 12 $ 19,936 $ 24,802 $ 37 $44,787
Exercise of options......................... 357,948 1,475 1,475
Tax benefit of options...................... 1,452 1,452
Cumulative translation adjustment .......... (34) (34)
Net income.................................. 11,818 11,818
---------- ------ -------- ------ ------ -------- -------
Balance, June 30, 1996...................... 12,609,542 12 22,863 36,620 3 59,498
Exercise of warrants........................ 11,000 22 22
Exercise of options......................... 108,316 1 660 661
Tax benefit of options...................... 157 157
Compensation cost associated with
warrant grant........................... 50 50
Cumulative translation adjustment........... 89 89
Treasury stock.............................. (1,026,200) $(13,541) (13,541)
Net income.................................. 12,548 12,548
---------- ------- ----------- -------- ----- --------- --------
Balance, June 30, 1997...................... 11,702,658 13 23,752 49,168 92 ( 13,541) 59,484
Exercise of warrants........................ 278,000 673 673
Exercise of options......................... 670,528 1 4,579 4,580
Tax benefit of options...................... 5,208 5,208
Compensation cost associated with
warrant grant........................... 233 233
Cumulative translation adjustment........... 10 10
Treasury stock.............................. (695,588) (11,564) (11,564)
Net income.................................. 15,908 15,908
---------- ------- --------- --------- ------ -------- --------
Balance, June 30, 1998...................... 11,955,598 $ 14 $ 34,445 $ 65,076 $ 102 $(25,105) $74,532
========== ===== ========= ========= ===== ======== ========
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended June 30,
1998 1997 1996
--------- ---------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 15,908 $ 12,548 $11,818
Adjustments to reconcile net income to net cash provided
by(used in) operating activities:
Depreciation and amortization......................... 5,517 3,869 2,548
Provision for losses on accounts receivable........... 381 810
Write-off of barter credits........................... 200 520
Utilization of barter credits......................... 100
Compensation expense related to issuance of warrants.. 233 50
Deferred income tax benefit........................... (832) (1,186) (26)
Changes in operating assets and liabilities,
net of effects from purchase
of businesses:
Accounts receivable................................ (8,100) (1,220) (2,884)
Inventories ...................................... (11,050) (3,294) 6,543
Prepaid expenses and other current assets.......... 595 (689) (87)
Income taxes receivable............................ 2,087 1,930 (1,930)
Accounts payable................................... (725) 225 (1,028)
Accrued expenses................................... 3,755 (872) 3,606
Income taxes payable............................... (453) 1,206 (1,247)
-------- -------- -------
Net cash provided by operating activities........... 7,035 13,148 18,643
-------- -------- -------
Cash flows from investing activities:
Acquisition of property and equipment................... (7,175) (4,972) (4,393)
Purchase of businesses...................................... (4,626)
Other assets............................................ (110) 5 (8)
--------- ---------- ----------
Net cash used in investing activities................... (11,911) (4,967) (4,401)
--------- ---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit..................... (338) 452
Payment of long-term debt............................... (990) (141)
Payment of capital lease obligations.................... (58) (13) (23)
Exercise of warrants.................................... 673 22
Exercise of options......................................... 4,580 661 1,475
Repurchase of common stock.............................. (11,564) (13,541)
-------- --------
Net cash (used in) provided by financing activities..... (7,697) (12,419) 1,311
-------- -------- -------
Effect of exchange rate changes on cash and cash equivalents (54) 23 (57)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ (12,627) (4,215) 15,496
Cash and cash equivalents, beginning of year................ 15,550 19,765 4,269
--------- -------- ---------
Cash and cash equivalents, end of year...................... $ 2,923 $ 15,550 $19,765
======== ======== =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
DAY RUNNER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Day Runner, Inc. and subsidiaries (the "Company") is a developer,
manufacturer and marketer of paper-based organizers for the retail market. The
Company also develops, manufactures and markets a number of related organizing
products, including telephone/address books, spiral dated goods, executive
accessories, products for children and students, organizing and other wall
boards and planners. A substantial portion of the Company's sales is to office
products superstores, wholesalers and dealers and to mass market retailers
throughout the United States and abroad. The Company grants credit to
substantially all of its customers.
CONSOLIDATION. The consolidated financial statements include the accounts
of Day Runner, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for the reporting period. Actual
results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the exchange rate
prevailing at the balance sheet date and, where appropriate, at historical rates
of exchange. Income and expense accounts are translated at the weighted average
rate in effect during the year. The aggregate effect of translating the
financial statements of the foreign subsidiaries is included as a separate
component of stockholders' equity. Foreign exchange gains (losses) were not
significant during the years ended June 30, 1998, 1997 and 1996.
CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS. THe Company's financial instruments
consist primarily of cash, accounts receivable and payable, and debt
instruments. The book values of financial instruments, other than the debt
instruments, are representative of their fair values due to their short-term
maturity. The book value of the Company's debt instruments is considered to
approximate its fair value because the interest rate of these instruments is
based on current rates offered to the Company.
PROPERTY AND DEPRECIATION. Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided for over the estimated useful
lives of the respective assets, using the straight-line method. Estimated useful
lives range from three to seven years. Vehicles and equipment under capital
leases and leasehold improvements are amortized using the straight-line method
over the lesser of the estimated useful life of the asset or the life of the
lease.
F-1
OTHER ASSETS. Other assets consist primarily of goodwill and
non-competition agreements that arose as a result of the Company's acquisitions
during fiscal 1998. Goodwill is being amortized using the straight- line method
over a period of 20 years, and the non-competition agreements are being
amortized using the straight-line method over a period of five years.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for
impairment, based on cash flows undiscounted without interest charges, whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Impairment losses would be recognized if the
carrying amount of the asset exceeds the fair value of the assets.
INCOME TAXES. Deferred taxes are determined based on temporary differences
between the financial reporting and income tax bases of assets and liabilities
at the balance sheet date multiplied by the applicable tax rates.
NET SALES. Revenue is recognized upon shipment of product to the customer,
with appropriate allowances for estimated returns, rebates and other allowances.
SIGNIFICANT CUSTOMERS. In 1998, sales to four customers accounted for 28%,
16%, 15% and 14% of the Company's sales. In 1997, sales to four customers
accounted for 25%, 15%, 14% and 11% of the Company's sales. In 1996, sales to
three customers accounted for 17%, 15% and 12% of the Company's sales.
NEW ACCOUNTING STANDARDS. In June 1997, the Financial Accounting Standards
Board (the "Board") issued Statement of Financial Accounting Standards ("SFAS")
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. These statements are
effective for financial statements issued for periods beginning after December
15, 1997. In June 1998, the Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for financial
statements issued for periods beginning after June 15, 1999. The Company is
evaluating what, if any, additional disclosures may be required upon
implementation of SFAS Nos. 130, 131 and 133.
RECLASSIFICATIONS. Certain reclassifications were made to the prior year
financial statements to conform to the current presentation.
2. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out basis. Inventories consist of the following (in
thousands):
June 30,
1998 1997
--------- ---------
Raw materials................. $ 14,087 $ 10,204
Work in process............... 831 426
Finished goods................ 22,692 12,776
--------- --------
Total................ $ 37,610 $ 23,406
========= ========
F-2
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1998 1997
-------- -------
<S> <C> <C>
Displays..................................... $ 9,003 $ 6,094
Data processing equipment and software....... 8,913 5,863
Machinery and equipment...................... 6,577 4,222
Leasehold improvements....................... 2,229 1,838
Vehicles..................................... 250 214
-------- ---------
Total................................ 26,972 18,231
Accumulated depreciation and amortization.... (15,084) (9,543)
-------- ---------
Property and equipment - net................. $ 11,888 $ 8,688
======== =========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1998 1997
-------- -------
<S> <C> <C>
Accrued sales and promotion costs........ $ 7,473 $ 5,223
Accrued payroll and related costs........ 2,955 2,128
Other.................................... 3,448 2,149
-------- ---------
Total............................ $ 13,876 $ 9,500
======== =========
</TABLE>
5. LINES OF CREDIT
Effective February 1, 1998, the Company entered into a credit agreement
with a bank to allow the Company to borrow up to $15,000,000 under a line of
credit through February 1, 2000 and open commercial or standby letters of credit
up to $10,000,000, with the aggregate of borrowings and letters of credit not to
exceed $15,000,000. Commercial letters of credit shall be issued for a term not
to exceed 180 days, provided, however, that no letters of credit shall have an
expiration date subsequent to May 1, 2000. At June 30, 1998, the Company had
$1,253,000 outstanding under this line of credit and had outstanding letters of
credit totaling approximately $1,050,000.
Under this new credit agreement, borrowings bear interest at the Company's
election either at the bank's prime rate (8.50% at June 30, 1998) less certain
margins, which range from .50% to 1.00%, or at LIBOR (5.66% at June 30, 1998)
plus certain margins, which range from .75% to 1.25%, with the margins dependent
upon the Company's meeting certain funded debt-to-EBITDA ratios. The credit
agreement requires the Company to: maintain a current ratio of not less than
1.50 to 1.00, maintain tangible net worth of not less than $45,000,000, and
maintain a funded debt-to-EBITDA ratio of less than 1.50 to 1.00. The Company
also is required to obtain the bank's approval to declare or pay dividends in
excess of $200,000 (See Note 20).
Each of the Company's two Canadian subsidiaries has a credit agreement with
a Canadian bank. The aggregate borrowings under these lines of credit, which are
guaranteed by the Company and are used for working capital by these
subsidiaries, may not exceed Canadian $3,000,000 (approximately US $2,039,000),
bear interest at the bank's prime rate (6.50% at June 30, 1998) and are due and
payable on demand. At June 30, 1998, approximately Canadian $2,155,000
(approximately US $1,463,000) was outstanding under these lines of credit. These
borrowings were collateralized by substantially all of the two Canadian
subsidiaries' assets (See Note 20).
F-3
<PAGE>
Total borrowings under the credit agreement and the two Canadian credit
agreements bore interest at an average interest rate of 7.00% and 8.50% for the
years ended June 30, 1998 and 1997, respectively. The Company had no borrowings
outstanding under its lines of credit during the year ended June 30, 1996.
6. LEASES
The Company has four noncancelable operating leases for its principal
operating facilities and its corporate headquarters. The leases expire through
2005. The leases include renewal options that, if exercised, would extend the
lease terms through 2011, and the leases provide for increases in future minimum
annual rental payments based on defined increases in the Consumer Price Index,
subject to certain minimum increases. The Company also has entered into leases
for certain production, warehouse, computer and office equipment under
noncancelable operating leases that expire through August 2002.
The Company also leases certain vehicles and equipment under agreements
that meet the criteria for classification as capital leases. Future minimum
lease payments under these capital leases, and the future minimum lease payments
under the operating leases at June 30, 1998, are summarized as follows (in
thousands): <TABLE> <CAPTION>
Capital Operating
Years Ending June 30, Leases Leases
--------------------- --------- ---------
<S> <C> <C> <C>
1999.................................................... $ 33 $ 4,525
2000.................................................... 24 3,626
2001.................................................... 12 3,014
2002.................................................... 13 1,478
2003.................................................... 4 1,137
Thereafter.............................................. 836
--------- --------
Total minimum lease payments............................ 86 $ 14,616
========
Less current portion of capital lease obligations....... 33
---------
Long-term portion of capital lease obligations.......... $ 53
=========
</TABLE>
Included in property and equipment at June 30, 1998 and 1997 are vehicles
and equipment under capital leases with a cost of $157,000 and $88,000 and
accumulated depreciation of $47,000 and $43,000, respectively.
Rent expense was $4,025,000, $3,841,000 and $3,927,000 for the years ended
June 30, 1998, 1997 and 1996, respectively.
7. INCOME TAXES
The components of income before provision for income taxes were (in
thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
United States......................... $ 22,856 $ 18,765 $ 18,029
Other................................. 2,885 1,885 1,629
--------- --------- ---------
Total.............................. $ 25,741 $ 20,650 $ 19,658
========= ========= =========
</TABLE>
F-4
<PAGE>
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996
---------- --------- -------
<S> <C> <C> <C>
Current:
Federal............................... $ 8,565 $ 7,076 $ 6,051
State................................. 1,477 1,825 1,473
Foreign............................... 623 387 342
--------- --------- ---------
Total current........................... 10,665 9,288 7,866
--------- --------- ---------
Deferred:
Federal............................... (920) (961) (37)
State................................. 88 (225) 11
--------- --------- ---------
Total deferred.......................... (832) (1,186) (26)
--------- --------- ---------
Total provision for income taxes........ $ 9,833 $ 8,102 $ 7,840
========= ========= =========
</TABLE>
Differences between the total income tax provision and the amount
computed by applying the statutory federal income tax rate to income before
provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996
---------- ----------- -------
<S> <C> <C> <C>
Computed tax expense using the
statutory federal income tax rate..... $ 9,009 $ 7,228 $ 6,880
Increase (decrease) in taxes arising from:
State taxes, net of federal benefit... 769 1,000 980
Foreign earnings taxed at other
than federal statutory rate......... (387) (273) (229)
Other................................. 442 147 209
--------- --------- ---------
Total................................. $ 9,833 $ 8,102 $ 7,840
========= ========= =========
Effective income tax rate............... 38% 39% 40%
========= ========= =========
</TABLE>
Total deferred tax assets and deferred tax liabilities consist of the
following (in thousands):
<TABLE>
<CAPTION>
June 30,
1998 1997
---------------- ----------
<S> <C> <C>
Allowance for sales returns............................ $ 2,918 $ 2,490
Inventory obsolescence reserve......................... 1,220 1,394
Allowance for doubtful accounts........................ 1,074 1,147
State taxes............................................ 615 615
Sales programs......................................... 608 374
Other deferred tax assets.............................. 1,368 1,117
------ --------
Total deferred tax assets.............................. 7,803 7,137
Deferred tax liabilities............................... (585) (751)
------- --------
Total.................................................. $7,218 $ 6,386
======= ========
</TABLE>
Cumulative undistributed earnings of foreign subsidiaries for which no
deferred taxes have been provided approximated $4,153,000 at June 30, 1998. The
additional taxes payable on the earnings of foreign subsidiaries, if remitted,
would be offset by U.S. tax credits for foreign taxes paid.
F-5
<PAGE>
8. EARNINGS PER SHARE
The Company adopted SFAS No. 128, Earnings Per Share, which requires the
Company to present basic and diluted earnings per share on the face of the
income statement. Basic earnings per share is computed by dividing net income by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the sum of the weighted
average number of common shares outstanding for the period plus the assumed
exercise of all dilutive securities. The following reconciles the numerator and
denominator of the basic and diluted per share computations for net income (in
thousands, except per share amounts): <TABLE> <CAPTION>
Years Ended June 30,
1998 1997 1996
------------ ------------- ----------
<S> <C> <C> <C>
Net Income $ 15,908 $ 12,548 $ 11,818
========== ============= ==========
Basic Weighted Average Shares
Weighted average number of
common shares outstanding 11,533 12,432 12,468
Effect of Dilutive Securities
Additional shares from the assumed
exercise of options and warrants 3,093 2,757 2,295
Shares assumed to be repurchased
under the treasury stock method (2,103) (2,007) (1,511)
---------- ----------- ----------
Diluted Weighted Average Shares
Weighted average number of
common shares outstanding and
common share equivalents 12,523 13,182 13,252
========== =========== ==========
Basic $ 1.38 $ 1.01 $ 0.95
========== ========== ==========
Diluted $ 1.27 $ 0.95 $ 0.89
========== =========== ==========
</TABLE>
9. STOCK OPTION PLANS
Under the Company's 1995 Stock Option Plan (the "Plan"), an aggregate
of 1,550,000 shares of common stock is reserved for issuance to key employees,
including officers and directors, and consultants of the Company. Both incentive
stock options and nonstatutory stock options are authorized for issuance under
the Plan. The terms of the options are determined at the time of grant. Pursuant
to the Plan, the per share option price of incentive stock options may not be
less than the fair market value of a share of common stock at the date of grant,
and no options may be granted after December 2005. The outstanding options
typically become exercisable over a period of five years from the date of
issuance and have terms of up to ten years.
The Company also authorized the issuance of up to 3,450,000 shares of
the Company's common stock under its Amended and Restated 1986 Stock Option
Plan. Such options typically become exercisable ratably over a period of five
years from the date of issuance and have terms of six to ten years. As of June
30, 1998, options covering 2,406,564 shares have been exercised and options
covering 1,027,186 shares remain outstanding. No additional options will be
granted under this plan.
F-6
<PAGE>
During the years ended June 30, 1998, 1997 and 1996, certain officers
and employees exercised options to purchase an additional 651,414, 74,300 and
328,050 shares, respectively, of the Company's common stock for an aggregate of
$4,278,000, $381,000 and $1,214,000, respectively (see Note 10).
In connection with the exercise of nonstatutory stock options and the
sale of shares purchased pursuant to incentive stock options, the Company
realized a reduction in its current tax liability during the years ended June
30, 1998, 1997 and 1996. This reduction totaled $5,208,000, $157,000 and
$1,452,000, respectively, and was credited to additional paid-in capital.
<TABLE>
<CAPTION>
A summary of option activity is as follows:
Weighted Weighted
Average Average
Number of Exercise Options Exercise
Options Price Exercisable Price
------- ----- ----------- -----
<S> <C> <C> <C> <C>
Outstanding, July 1, 1995........... 1,733,450 $ 5.96
Granted.......................... 336,750 8.38
Exercised........................ (328,050) 3.69
Cancelled........................ (10,000) 7.65
------------
Outstanding, June 30, 1996.......... 1,732,150 6.85 753,774 $ 6.22
Granted.......................... 465,000 13.00
Exercised........................ (74,300) 5.13
Cancelled........................ (31,250) 11.96
------------
Outstanding, June 30, 1997.......... 2,091,600 8.20 1,102,314 6.90
Granted.......................... 565,000 17.10
Exercised........................ (651,414) 6.57
------------
Outstanding, June 30, 1998.......... 2,005,186 11.24 933,648 8.61
============
</TABLE>
At June 30, 1998, the range of option prices for shares under options
and the weighted average remaining contractual life is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number of Exercise Contractual Number Exercise
Range of Option Exercise Price Options Price Life Exercisable Price
------------------------------ ------------ -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
$ 5.13 - $8.38 818,636 $ 6.69 5.80 601,098 $ 6.32
9.75 - 13.00 623,550 11.91 7.42 253,050 11.41
16.88 - 20.63 563,000 17.10 9.16 79,500 17.00
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for stock option awards. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans as required by
SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net income
and earnings per common and common equivalent shares would have been reduced to
the pro forma amounts indicated below:
F-7
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
As reported $ 15,908 $ 12,548 $ 11,818
Pro forma $ 12,617 $ 11,094 $ 11,294
Earnings per common and common equivalent shares:
As reported:
Basic $ 1.38 $ 1.01 $ 0.95
Diluted $ 1.27 $ 0.95 $ 0.89
Pro forma:
Basic $ 1.09 $ 0.89 $ 0.91
Diluted $ 1.01 $ 0.84 $ 0.85
</TABLE>
The fair values of the options granted under the plans during 1998,
1997 and 1996 were estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted-average fair value of the options at the date
of grant were $9.03, $14.53 and $10.10, during fiscal 1998, 1997 and 1996,
respectively. The following weighted average assumptions for 1998, 1997 and
1996, respectively, were used: no dividend yield; volatility of 57.21%, 53.28%
and 56.26%; risk-free interest rates of 5.24% to 6.21%, 5.41% to 6.95% and 5.69%
to 6.40%; and expected option lives of one to four years for all periods. Pro
forma compensation cost of options granted under the Employee Stock Purchase
Plan is measured based on the discount from market value (see Note 10).
On August 17, 1998, the Company issued options to key employees to
purchase 375,000 shares of the Company's common stock at $18.75 per share. The
options vest over a period of five years and expire in 2008.
10. EMPLOYEE STOCK PURCHASE PLAN
During 1992, the Company adopted an Employee Stock Purchase Plan under
which 350,000 shares of common stock were authorized for issuance to employees.
Under the plan, eligible employees may purchase, through payroll deductions
withheld during an offering period, an amount of common stock not to exceed
approximately 5% of the employee's annual compensation. The purchase price per
share is the lower of 85% of the fair market value of a share of common stock on
the first day of the offering period or on the last day of the offering period.
There are two offering periods during each year. During the years ended June 30,
1998, 1997 and 1996, employees purchased an aggregate of 19,114, 34,016 and
29,898 shares of common stock for $302,000, $280,000 and $261,000, respectively,
under this plan. These amounts are included in the amounts shown for exercise of
options on the consolidated statements of stockholders' equity (see Note 9).
11. WARRANTS
During the years ended June 30, 1998, 1997 and 1996, the Board of
Directors approved the issuance of warrants to purchase an aggregate of 565,000
shares of the Company's common stock. Such warrants are exercisable at prices
ranging from $9.50 to $20.625 per share, vest over periods up to 48 months and
expire at various times through April 2008.
F-8
<PAGE>
During fiscal 1998 and 1997, certain directors exercised warrants to
purchase 278,000 and 11,000 shares, respectively, of the Company's common stock
for an aggregate of $673,000 and $22,000, respectively. No warrants were
exercised during the year ended June 30, 1996.
Included in the issuance of warrants to purchase 565,000 aggregate
shares of the Company's common stock is a warrant to purchase 50,000 shares that
was issued to a director under the terms of a consulting agreement during fiscal
1997. Such issuance was accounted for under SFAS No. 123 using the Black-Scholes
option pricing model, which resulted in the recording of $233,000 and $50,000 in
compensation cost during the years ended June 30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
A summary of warrant activity is as follows:
<S> <C> <C> <C> <C>
Weighted Weighted
Average Average
Number of Exercise Options Exercise
Warrants Price Exercisable Price
-------- ----- ----------- -----
Outstanding, July 1, 1995........... 427,000 $ 3.84
Granted.......................... 50,000 9.50
------------
Outstanding, June 30, 1996.......... 477,000 4.44 449,916 $4.13
Granted.......................... 300,000 11.95
Exercised........................ (11,000) 2.00
------------
Outstanding, June 30, 1997.......... 766,000 7.42 493,082 4.91
Granted.......................... 215,000 17.31
Exercised........................ (278,000) 2.42
------------
Outstanding, June 30, 1998.......... 703,000 12.42 482,166 12.20
============
</TABLE>
At June 30, 1998, the range of warrant prices for shares under warrants
and the weighted average remaining contractual life is as follows:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number of Exercise Contractual Number Exercise
Range of Warrant Exercise Price Warrants Price Life Exercisable Price
------------------------------- ---------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 6.00 - 9.50 200,000 $ 7.81 5.83 200,000 $ 7.81
11.78 - 12.81 288,000 11.96 6.01 92,166 12.11
16.88 - 20.63 215,000 17.31 9.22 190,000 16.88
</TABLE>
12. STOCK SPLIT
At a Special Meeting of the Company's stockholders held on March 17,
1998, the Company's stockholders approved an amendment to the Company's
Certificate of Incorporation to (i) effect a two-for-one split of each of the
outstanding shares of common stock of the Company and (ii) increase the number
of authorized shares of all classes of stock of the Company from 15,000,000 to
30,000,000, consisting of 29,000,000 shares of common stock, $0.001 par value
per share, and 1,000,000 shares of preferred stock, $0.001 par value per share.
Both actions were effective March 18, 1998. All share and per share data has
been retroactively restated to reflect the two-for-one stock split.
F-9
<PAGE>
13. TREASURY STOCK
In fiscal 1997, the Board of Directors authorized the purchase of up to
1,200,000 shares of the Company's common stock, which may be used to meet the
Company's common stock requirements for its stock benefit plans. In fiscal 1998,
the Board of Directors increased the number of shares of common stock that the
Company is authorized to repurchase under this plan by 200,000 shares and
authorized the purchase of up to 720,000 shares of the Company's common stock
from officers and directors. During fiscal 1998 and 1997, the Company
repurchased 695,588 and 1,026,200 shares, respectively, at an average per share
cost of $16.625 and $13.195, respectively. All the shares repurchased in fiscal
1998 were from officers and directors at a per share cost equal to the closing
price of the stock on the day of the repurchase.
14. ACQUISITIONS
On July 29, 1997, the Company purchased the stock of Ultima
Distribution Inc. ("Ultima"), which was the distributor of the Company's
products in Canada, for approximately $130,000. The Company also entered into
non-competition agreements with certain of Ultima's former stockholders. In
addition, contingent payments may be paid over the two years following the
acquisition based on Ultima's operating performance during that period.
On October 1, 1997, the Company purchased substantially all the
operating assets of Ram Manufacturing, Inc. ("Ram"), an Arkansas based
developer, manufacturer and marketer of wall boards. The purchase price was
approximately $2,400,000, of which approximately $1,950,000 had been paid as of
June 30, 1998. The Company also assumed certain liabilities totaling
approximately $3,000,000. In addition, contingent payments may be paid over the
three years following the acquisition based upon Ram's operating performance
during that period. The owner of Ram, who now works for the Company, entered
into a non-competition agreement with the Company.
On February 1, 1998, the Company purchased the stock of Timeposters
Inc. ("Timeposters"), a Canadian developer, manufacturer and marketer of
planning and presentation products, including flexible planners, planning
boards, other wall boards and easels, and entered into certain non-competition
agreements with the founders, who continue to work for Timeposters. The purchase
price was approximately $2,546,000. In addition, contingent payments may be paid
over the two years following the acquisition based on Timeposters' operating
performance during that period.
The following table presents summarized unaudited pro forma operating
results assuming that the Company had acquired these three companies on July 1,
1996 (in thousands, except per share amounts):
Years Ended June 30,
1998 1997
------------- -----------
Net Sales $ 172,168 $ 138,475
Income from opera $ 25,667 $ 19,616
Net income $ 15,959 $ 12,574
Earnings per share
Basic $ 1.38 $ 1.01
Diluted $ 1.27 $ 0.95
Weighted average shares outstanding:
Basic 11,533 12,432
Diluted 12,523 13,182
F-10
<PAGE>
15. OTHER TRANSACTIONS
During 1995 and 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 1999, are valued at the lower of the Company's cost or market
value of the inventory transferred. The Company has recorded barter credits of
$15,000 and $36,000 in prepaid expenses and other current assets at June 30,
1998 and 1997, respectively. At June 30, 1997, other assets include $79,000 of
such credits. No amounts were included in other assets at June 30, 1998. Under
the terms of the agreement, the Company is required to pay cash equal to a
negotiated amount of the bartered advertising, or other items, and use the
barter credits to pay the balance. These credits are charged to expense as they
are used. During the year ended June 30, 1998, approximately $100,000 was
charged to expense for barter credits used. No amounts were charged to expense
for barter credits used during the years ended June 30, 1997 and 1996.
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 years ended June 30, 1997 and 1996, the Company charged
$200,000 and $520,000, respectively, to operations for such impairment losses.
No such impairment losses were charged to operations during the year ended June
30, 1998.
16. PROFIT-SHARING AND BONUS PLANS
In January 1991, the Company established a 401(k) profit-sharing plan
in which eligible employees may contribute up to 15% of their eligible earnings.
The Company may contribute to the plan at the discretion of the Board of
Directors, subject to applicable regulations. In the years ended June 30, 1998,
1997 and 1996, the Board elected to contribute an amount equal to 25% of the
first 6% of eligible earnings. Participants vest in the Company's contributions
at a rate of 20% after two years of plan participation and 20% each year
thereafter until fully vested.
During the years ended June 30, 1998, 1997 and 1996, the Company's
matching contributions were $156,000, $133,000 and, $128,000, respectively.
The Company has an executive bonus plan and incentive compensation
arrangements for key employees based on an earnings formula. Compensation
expense recorded under these plans was $628,000 and $1,120,000 during the years
ended June 30, 1998 and 1996, respectively. No amounts were recorded under these
plans during the year ended June 30, 1997.
17. OPERATIONS IN FOREIGN COUNTRIES
The following is a summary of the financial activity of the Company by
geographical area (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30, 1998
United States Other Eliminations Total
------------- ----- ------------ -----
<S> <C> <C> <C> <C>
Net sales to unaffiliated entities $ 152,938 $ 14,903 $ 167,841
Transfers between geographic areas 2,348 2,125 $ (4,473)
------------- --------- ----------- ----------
Net sales $ 155,286 $ 17,028 $ (4,473) $ 167,841
============= ========= =========== ==========
Income from operations $ 31,883 $ 2,671 $ (8,985) $ 25,569
============= ========= =========== ==========
Identifiable assets $ 88,818 $ 13,096 $ (735) $ 101,179
============= ========= =========== ==========
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30, 1997
United States Other Eliminations Total
------------- ----- ------------ -----
<S> <C> <C> <C> <C>
Net sales to unaffiliated entities $ 122,618 $ 4,758 $ 127,376
Transfers between geographic areas 490 1,621 $ (2,111)
------------- --------- ---------- ----------
Net sales $ 123,108 $ 6,379 $ (2,111) $ 127,376
============= ========= ========== ==========
Income from operations $ 23,927 $ 1,834 $ (6,412) $ 19,349
============= ========= ========== ==========
Identifiable assets $ 74,050 $ 4,968 $ (138) $ 78,880
============= ========= ========== ==========
Year Ended June 30, 1996
United States Other Eliminations Total
Net sales to unaffiliated entities $ 120,519 $ 4,607 $ 125,126
Transfers between geographic areas 443 1,302 $ (1,745)
------------- --------- ----------
Net sales $ 120,962 $ 5,909 $ (1,745) $ 125,126
============= ========= ========== ==========
Income from operations $ 22,022 $ 1,675 $ (4,745) $ 18,952
============= ========= =========== ==========
Identifiable assets $ 73,940 $ 4,061 $ (70) $ 77,931
============= ========= ========== ==========
</TABLE>
18. CONTINGENCIES
In the normal course of business, the Company and certain of its
subsidiaries are defendants in various lawsuits. After consultation with
counsel, management is of the opinion that these various lawsuits, individually
or in the aggregate, will not have a materially adverse effect on the
consolidated financial statements.
19. SUPPLEMENTAL CASH FLOW INFORMATION
Disclosure of cash flow information (in thousands):
Years Ended June 30,
1998 1997 1996
------------ ----------- --------
Cash paid during the period for:
Interest....................... $ 91 $ 130 $ 24
Income taxes................... $ 8,862 $6,026 $ 9,988
In fiscal 1998, the Company purchased all of the capital stock of
Ultima Distribution Inc. and Timeposters Inc. The Company also purchased certain
of the assets of Ram Manufacturing, Inc. In conjunction with these acquisitions,
net cash expended was as follows (in thousands) (see Note 14):
Fair value of assets acquired $ (11,809)
Liabilities assumed 7,183
---------
Cash paid $ (4,626)
==========
F-12
<PAGE>
Disclosure of noncash investing and financing activities:
Capital lease obligations totaling $88,000 were incurred in 1997 when
the Company entered into leases to acquire certain vehicles.
The Company realized a reduction in its current tax liability during
1998, 1997 and 1996 in the amount of $5,208,000, $157,000 and $1,452,000,
respectively. Such amounts were credited to additional paid-in capital (see Note
9).
20. SUBSEQUENT EVENTS
On September 15, 1998, the Board of Directors of the Company approved
the Non-Employee Director Stock Option Plan. Under this plan, an aggregate of
150,000 shares of common stock is reserved for issuance to members of the Board
of Directors who are not employees of the Company. In accordance with the plan,
the per share option price must equal the fair market value of a share of common
stock at the date of grant. The outstanding options become exercisable over a
period of one year from the date of issuance and have terms of 10 years. The
plan is subject to final approval by the stockholders of the Company.
On September 23, 1998, the Company entered into a Revolving Loan
Agreement (the "Loan Agreement") with Wells Fargo Bank, National Association
("Wells Fargo"). The Loan Agreement provides for borrowings through September
30, 2005 (the "Maturity Date"). Borrowings will bear interest either at fixed
rates based on the higher of the bank's prime rate and the Federal Funds Rate
published by the Federal Reserve Bank of New York or at floating rates
calculated by reference to the interest rates at which the bank offers deposits
in U.S. dollars in amounts approximately equal to the amount of the relevant
Loan and for a period of time comparable to the number of days the relevant Loan
will remain outstanding, together with a margin. The maximum amount that may be
outstanding under the Loan Agreement is $160,000,000 through December 31, 2000.
Thereafter, the maximum amount of borrowings that may be outstanding under the
Loan Agreement is reduced by $20,000,000 in calendar 2001 and by $10,000,000 in
each of the following calendar years up to the Maturity Date. Under the terms of
the Loan Agreement, the Company will pay the Wells Fargo $1.2 million plus an
unused commitment fee during the term of the Loan Agreement. The Company will
also pay legal, accounting and other fees and expenses in connection with the
Loan Agreement.
On September 24, 1998, the Company announced a cash offer for Filofax
Group plc ("Filofax"), a UK-based company traded on the London Stock Exchange.
The offer was for (pound)2.00 (approximately US $3.36) per share pursuant to a
tender offer for all of the outstanding ordinary shares of stock of Filofax. The
offer was not recommended by Filofax's Board of Directors.
On September 25, 1998, the Company announced it had reached agreement
with the Board of Directors of Filofax on the terms of a recommended cash tender
offer (the "Recommended Offer"). The Recommended Offer was for (pound)2.10
(approximately US $3.53) per share for all of the outstanding ordinary shares of
Filofax for a total purchase price of approximately (pound)50,300,000
(approximately US $84,500,000). The proposed acquisition of Filofax (the
"Proposed Acquisition of Filofax") will be funded by bank debt pursuant to the
Loan Agreement. In this discussion all exchange rate conversions between the
U.S. dollar and the UK pound sterling were based on an exchange rate of 1.68,
which was the exchange rate on September 23, 1998.
Consummation of the Company's Proposed Acquisition of Filofax is
subject to, among other things, the tender of at least the majority of shares by
Filofax's stockholders, regulatory approvals and the satisfaction or waiver of
various other conditions. There can be no assurance at this time that the
Proposed Acquisition of Filofax will be completed. <PAGE>
F-13
INDEPENDENT AUDITORS' REPORT
Day Runner, Inc.:
We have audited the consolidated financial statements of Day Runner, Inc. and
its subsidiaries as of June 30, 1998 and 1997, and for each of the three years
in the period ended June 30, 1998, and have issued our report thereon dated
August 17, 1998 (September 25, 1998 as to Note 20); such report is included
elsewhere in this Form 10-K. Our audits also included the consolidated financial
statement schedule of Day Runner, Inc. and its subsidiaries, listed in Item
14(a)2. This consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
August 17, 1998
S-1
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at Balance at
June 30, Charged to June 30,
Classification 1997 Operations Deductions 1998
- -------------- ---------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts............ $2,682 $ 76 $ 2,606
Allowance for sales returns................ 5,982 $ 9,799 8,445 7,336
Reserve for obsolete inventory............. 3,259 898 1,105 3,052
Balance at Balance at
June 30, Charged to June 30,
Classification 1996 Operations Deductions 1997
- -------------- ---------------- ---------- ---------- ---------
Allowance for doubtful accounts............ $2,358 $ 381 $ 57 $ 2,682
Allowance for sales returns................ 5,016 13,883 12,917 5,982
Reserve for obsolete inventory............. 3,473 1,267 1,481 3,259
Balance at Balance at
June 30, Charged to June 30,
Classification 1995 Operations Deductions 1996
- -------------- ---------------- ---------- ---------- ---------
Allowance for doubtful accounts............ $1,671 $ 810 $ 123 $ 2,358
Allowance for sales returns................ 5,461 8,221 8,666 5,016
Reserve for obsolete inventory............. 3,214 2,754 2,495 3,473
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.4 Day Runner Restated 401(K) Plan effective as of July
1, 1998 and Trust Agreement effective as of July 1,
1998 between the Registrant and New York Life Trust
Company
10.6 1999 Officer Bonus Plan
10.7 First Amendment to Officer Severance Plan effective
as of August 17, 1998
10.13 Standard Commercial Lease Agreement dated as of
October 1, 1997 between RDC Sales and the
Registrant
10.14 Standard Commercial Lease Agreement dated as of
May 11, 1998 between GPM Real Property (7)
Ltd. and Endow (7) Inc. and the Registrant
10.15 Schedule of Warrants
10.18 Form of Warrant dated April 20, 1998 to purchase
shares of the Registrant's Common Stock issued to the
non-employee directors of the Company and Schedule of
Warrants
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
DAY RUNNER, INC.
<PAGE>
DAY RUNNER, INC. 401(k) PLAN
WHEREAS, Day Runner, Inc. (hereinafter referred to as the "Employer") heretofore
adopted the Day Runner, Inc. 401(k) Plan (hereinafter referred to as the "Plan")
for the benefit of its eligible Employees, effective as of January 1, 1991; and
WHEREAS, the Employer reserved the right to amend the Plan; and
WHEREAS, the Employer heretofore amended the Plan from time to time and desires
to further amend the Plan; and
WHEREAS, it is intended that the Plan is to continue to be a qualified plan
under Section 401(a) of the Internal Revenue Code for the exclusive benefit of
the Participants and their Beneficiaries;
NOW, THEREFORE, the Plan is hereby amended by restating the Plan in its entirety
as follows:
<PAGE>
Table of Contents
ARTICLE ONE--DEFINITIONS
1.1 Account
1.2 Administrator
1.3 Beneficiary
1.4 Break in Service
1.5 Code
1.6 Compensation
1.7 Disability
1.8 Effective Date
1.9 Employee
1.10 Employer
1.11 Employment Date
1.12 Highly-Compensated Employee
1.13 Hour of Service
1.14 Leased Employee
1.15 Nonhighly-Compensated Employee
1.16 Normal Retirement Date
1.17 Participant
1.18 Plan
1.19 Plan Year
1.20 Trust
1.21 Trustee
1.22 Valuation Date
1.23 Year of Service
ARTICLE TWO--SERVICE DEFINITIONS AND RULES
2.1 Year of Service
2.2 Break in Service
2.3 Leave of Absence
2.4 Rule of Parity on Return to Employment
2.5 Service in Excluded Job Classifications or with Related Companies
ARTICLE THREE--PLAN PARTICIPATION
3.1 Participation
3.2 Re-employment of Former Participant
3.3 Termination of Eligibility
ARTICLE FOUR--ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS,
ROLLOVERS AND TRANSFERS FROM OTHER PLANS
4.1 Elective Deferrals
4.2 Employer Contributions
4.3 Rollovers and Transfers of Funds from Other Plans
4.4 Timing of Contributions
ARTICLE FIVE--ACCOUNTING RULES
5.1 Investment of Accounts and Accounting Rules
5.2 Participants Omitted in Error
ARTICLE SIX--VESTING, RETIREMENT AND DISABILITY BENEFITS
6.1 Vesting
6.2 Forfeiture of Nonvested Balance
6.3 Return to Employment Before Distribution of Vested Account Balance
6.4 Normal Retirement
6.5 Disability
ARTICLE SEVEN--MANNER AND TIME OF DISTRIBUTING BENEFITS 7.1 Manner of Payment
7.2 Time of Commencement of Benefit Payments 7.3 Furnishing Information 7.4
Amount of Death Benefit 7.5 Designation of Beneficiary 7.6 Distribution of
Death Benefits 7.7 Eligible Rollover Distributions
ARTICLE EIGHT--LOANS AND IN-SERVICE WITHDRAWALS
8.1 Loans
8.2 Hardship Distributions
8.3 Withdrawals of Rollover Contributions
8.4 Withdrawals After Age 59 1/2
ARTICLE NINE--ADMINISTRATION OF THE PLAN
9.1 Plan Administration
9.2 Claims Procedure
9.3 Trust Agreement
ARTICLE TEN--SPECIAL COMPLIANCE PROVISIONS
10.1 Distribution of Excess Elective Deferrals
10.2 Limitations on 401(k) Contributions
10.3 Nondiscrimination Test for Employer Matching Contributions
10.4 Limitation on the Multiple Use Alternative
ARTICLE ELEVEN--LIMITATION ON ANNUAL ADDITIONS
11.1 Rules and Definitions
ARTICLE TWELVE--AMENDMENT AND TERMINATION
12.1 Amendment
12.2 Termination of the Plan
ARTICLE THIRTEEN--TOP-HEAVY PROVISIONS
13.1 Applicability
13.2 Definitions
13.3 Allocation of Employer Contributions and Forfeitures for
Top-Heavy Plan Year
13.4 Vesting
ARTICLE FOURTEEN--MISCELLANEOUS PROVISIONS
14.1 Plan Does Not Affect Employment
14.2 Successor to the Employer
14.3 Repayments to the Employer
14.4 Benefits not Assignable
14.5 Merger of Plans
14.6 Investment Experience not a Forfeiture
14.7 Distribution to Legally Incapacitated
14.8 Construction
14.9 Governing Documents
14.10 Governing Law
14.11 Headings
14.12 Counterparts
14.13 Location of Participant or Beneficiary Unknown
<PAGE>
ARTICLE ONE--DEFINITIONS
For purposes of the Plan, unless the context or an alternative definition
specified within another Article provides otherwise, the following words and
phrases shall have the definitions provided:
1.1 "ACCOUNT" shall mean the individual bookkeeping accounts maintained for a
Participant under the Plan which shall record (a) the Participant's allocations
of Employer contributions and forfeitures if applicable, (b) amounts of
Compensation deferred to the Plan pursuant to the Participant's election, (c)
any amounts transferred to this Plan under Section 4.3 from another qualified
retirement plan, and (d) the allocation of Trust investment experience.
1.2 "ADMINISTRATOR" shall mean the Plan Administrator appointed from time to
time in accordance with the provisions of Article Nine hereof.
1.3 "BENEFICIARY" shall mean any person, trust, organization, or estate entitled
to receive payment under the terms of the Plan upon the death of a Participant.
1.4 "BREAK IN SERVICE" shall mean the twelve (12)-month computation period
specified in Article Two.
1.5 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
1.6 "COMPENSATION" shall mean the compensation paid to a Participant by the
Employer for the Plan Year, but exclusive of stock options, expense allowances
and reimbursements, any program of deferred compensation or additional benefits
payable other than in cash and any compensation received prior to his becoming a
Participant in the Plan. Compensation shall include any amounts deferred under a
salary reduction agreement in accordance with Section 4.1 or under a Code
Section 125 plan maintained by the Employer.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Participant taken into account under the Plan shall not
exceed the OBRA `93 annual compensation limit. The OBRA `93 annual compensation
limit is $150,000, as adjusted by the Secretary of the Treasury or his delegate
for increases in the cost of living in accordance with Section 401(a)(17)(B) of
the Code. The cost-of-living adjustment in effect for a calendar year applies to
any period, not exceeding twelve (12) months, over which Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than twelve (12) months, the OBRA `93
annual compensation limit shall be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is twelve (12).
Any reference in the Plan to the limitation under Section 401(a)(17) of the Code
shall mean the OBRA `93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining a Participant's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA `93
annual compensation limit in effect for that prior determination period.
For purposes of determining who is a Highly-Compensated Employee, Compensation
shall mean compensation as defined in Code Section 414(q)(4).
1.7 "DISABILITY." Disability shall mean a "permanent and total" disability
incurred by a Participant while in the employ of the Employer. For this purpose,
a permanent and total disability shall mean suffering from a physical or mental
condition for which the Participant is eligible to receive benefits under the
Employer's long-term disability insurance plan covering such Participant.
1.8 "EFFECTIVE DATE." The Plan's initial Effective Date is January 1, 1991. The
Effective Date of this restated Plan, on and after which it supersedes the terms
of the existing Plan document, is July 1, 1998 except where the provisions of
the Plan shall otherwise specifically provide. The rights of any Participant who
separated from the Employer's Service prior to this date shall be established
under the terms of the Plan and Trust as in effect at the time of the
Participant's separation from Service, unless the Participant subsequently
returns to Service with the Employer. Rights of spouses and Beneficiaries of
such Participants shall also be governed by those documents.
1.9 "EMPLOYEE" shall mean a common law employee of the Employer, who for the
entire period of his employment, was also treated as a common law employee on
the payroll records of the Employer.
1.10 "EMPLOYER" shall mean Day Runner, Inc. and any subsidiary or affiliate
which is a member of its "related group" (as defined in Section 2.5) which has
adopted the Plan (a "Participating Affiliate"), and shall include any
successor(s) thereto which adopt this Plan. Any such subsidiary or affiliate of
Day Runner, Inc. may adopt the Plan with the approval of its board of directors
(or noncorporate counterpart) subject to the approval of Day Runner, Inc. The
provisions of this Plan shall apply equally to each Participating Affiliate and
its Employees except as specifically set forth in the Plan; provided, however,
notwithstanding any other provision of this Plan, the amount and timing of
contributions under Article 4 to be made by any Employer which is a
Participating Affiliate shall be made subject to the approval of Day Runner,
Inc. For purposes hereof, each Participating Affiliate shall be deemed to have
appointed Day Runner, Inc. as its agent to act on its behalf in all matters
relating to the administration, amendment, termination of the Plan and the
investment of the assets of the Plan. For purposes of the Code and ERISA, the
Plan as maintained by Day Runner, Inc. and the Participating Affiliates shall
constitute a single plan rather than a separate plan of each Participating
Affiliate. All assets in the Trust shall be available to pay benefits to all
Participants and their Beneficiaries.
1.11 "EMPLOYMENT DATE" shall mean the first date as of which an Employee is
credited with an Hour of Service, provided that, in the case of a Break in
Service, the Employment Date shall be the first date thereafter as of which an
Employee is credited with an Hour of Service.
1.12 "HIGHLY-COMPENSATED EMPLOYEE" shall mean any Employee of the Employer who:
(a) was a five percent (5%) owner of the Employer (as defined in Code
Section 416(i)(1)) during the "determination year" or "look-back
year"; or
(b) earned more than $80,000 (as increased by cost-of-living
adjustments) of Compensation from the Employer during the
"look-back year" and, if the Employer elects, was in the top
twenty percent (20%) of Employees by Compensation for such year.
An Employee who separated from Service prior to the "determination year" shall
be treated as a Highly-Compensated Employee for the "determination year" if such
Employee was a Highly-Compensated Employee when such Employee separated from
Service, or was a Highly-Compensated Employee at any time after attaining age
fifty-five (55).
For purposes of this Section, the "determination year" shall be the Plan Year
for which a determination is being made as to whether an Employee is a
Highly-Compensated Employee. The "look-back year" shall be the twelve (12) month
period immediately preceding the "determination year".
1.13 "HOUR OF SERVICE" shall mean:
(a) each hour for which an Employee is paid or entitled to payment for the
performance of duties for the Employer. These hours shall be credited to
the Employee for the computation period in which the duties are performed;
and
(b) each hour for which an Employee is paid, or entitled to payment, by the
Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, involuntary military duty, or leave of
absence. No more than five hundred and one (501) Hours of Service shall be
credited under this subsection for any single continuous period during
which no duties are performed (whether or not such period occurs in a
single computation period). Hours under this subsection shall be calculated
and credited pursuant to Section 2530.200b-2(b) and (c) of the Department
of Labor Regulations which are incorporated herein by this reference; and
(c) each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer. The same Hours of Service
shall not be credited both under subsection (a) or subsection (b), as the
case may be, and under this subsection (c). These hours shall be credited
to the Employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the award,
agreement, or payment is made.
In crediting Hours of Service for Employees who are paid on an hourly basis, the
"actual" method shall be utilized. For this purpose, the "actual" method shall
mean the determination of Hours of Service from records of hours worked and
hours for which the Employer makes payment or for which payment is due from the
Employer, subject to the limitations enumerated above. In crediting Hours of
Service the "weeks of employment" method shall be utilized. Under this method,
an Employee shall be credited with forty-five (45) Hours of Service for each
week for which the Employee would be required to be credited with at least one
(1) Hour of Service pursuant to the provisions enumerated above.
1.14 "LEASED EMPLOYEE" shall mean any person who, pursuant to an agreement
between the Employer and any other person or organization, has performed
services for the Employer (determined in accordance with Code Section 414(n)(6))
on a substantially full-time basis for a period of at least one (1) year and
where such services are performed under the primary direction and control of the
Employer. A person shall not be considered a Leased Employee if the total number
of Leased Employees does not exceed twenty percent (20%) of the
Nonhighly-Compensated Employees employed by the Employer, and if any such person
is covered by a money purchase pension plan providing (a) a nonintegrated
employer contribution rate of at least ten percent (10%) of compensation, as
defined in Section 11.1(b)(2) of the Plan but including amounts contributed
pursuant to a salary reduction agreement which are excludable from the
employee's gross income under Code Sections 125, 402(g) or 403(b), (b) immediate
participation, and (c) full and immediate vesting.
1.15 "NONHIGHLY-COMPENSATED EMPLOYEE" shall mean an Employee of the Employer who
is not a Highly-Compensated Employee.
1.16 "NORMAL RETIREMENT DATE" shall mean a Participant's sixty-fifth (65th)
birthday.
1.17 "PARTICIPANT" shall mean any Employee who has satisfied the eligibility
requirements of Article Three and who is participating in the Plan.
1.18 "PLAN" shall mean the Day Runner, Inc. 401(k) Plan, as set forth herein and
as may be amended from time to time. ----
1.19 "PLAN YEAR" shall mean the twelve (12)-consecutive month period beginning
January 1 and ending December 31. ----
1.20 "TRUST" shall mean the Trust Agreement entered into between the Employer
and the Trustee forming part of this Plan, together with any amendments thereto.
"Trust Fund" shall mean any and all property held by the Trustee pursuant to the
Trust Agreement, together with income therefrom.
1.21 "TRUSTEE" shall mean the Trustee or Trustees appointed by the Employer, and
any successors thereto.
1.22 "VALUATION DATE" shall mean the date or dates established by the
Administrator for the valuation of the assets of the Plan. In no event shall the
assets of the Plan be valued less frequently than once each Plan Year.
1.24 "YEAR OF SERVICE" or "SERVICE" and the special rules with respect to
crediting Service are in Article Two of the Plan.
<PAGE>
ARTICLE TWO--SERVICE DEFINITIONS AND RULES
Service is the period of employment credited under the Plan. Definitions and
special rules related to Service are as follows:
2.1 YEAR OF SERVICE. An Employee shall be credited with a Year of Service for
each Plan Year in which he is credited with at least one thousand (1,000) Hours
of Service.
2.2 BREAK IN SERVICE. A Break in Service shall be a twelve (12)-month
computation period (as used for measuring Years of Service) in which an Employee
or Participant is not credited with at least five hundred and one (501) Hours of
Service.
2.3 LEAVE OF ABSENCE. A Participant on an unpaid leave of absence pursuant to
the Employer's normal personnel policies shall be credited with Hours of Service
at his regularly-scheduled weekly rate while on such leave, provided the
Employer acknowledges in writing that the leave is with its approval. These
Hours of Service shall be credited only for purposes of determining if a Break
in Service has occurred and, unless specified otherwise by the Employer in
writing, shall not be credited for eligibility to participate in the Plan,
vesting, or qualification to receive an allocation of Employer contributions and
forfeitures. Hours of Service during a paid leave of absence shall be credited
as provided in Section 1.13.
For any individual who is absent from work for any period by reason of the
individual's pregnancy, birth of the individual's child, placement of a child
with the individual in connection with the individual's adoption of the child,
or by reason of the individual's caring for the child for a period beginning
immediately following such birth or adoption, the Plan shall treat as Hours of
Service, solely for determining if a Break in Service has occurred, the
following Hours of Service:
(a) the Hours of Service which otherwise normally would have been
credited to such individual but for such absence; or
(b) in any case where the Administrator is unable to determine the
Hours of Service, on the basis of an assumed eight (8) hours per
day.
In no event shall more than five hundred and one (501) of such hours be credited
by reason of such period of absence. The Hours of Service shall be credited in
the computation period (used for measuring Years of Service) which starts after
the leave of absence begins. However, the Hours of Service shall instead be
credited in the computation period in which the absence begins if it is
necessary to credit the Hours of Service in that computation period to avoid the
occurrence of a Break in Service.
2.4 RULE OF PARITY ON RETURN TO EMPLOYMENT. An Employee who returns to
employment after a Break in Service shall retain credit for his pre-Break Years
of Service, subject to the following rules:
(a) If a Participant incurs five (5) or more consecutive Breaks in
Service, any Years of Service performed thereafter shall not be
used to increase the nonforfeitable interest in his Account
accrued prior to such five (5) or more consecutive Breaks in
Service.
(b) If when a Participant incurred a Break in Service, he had not
completed sufficient Years of Service to be credited with a vested
benefit under the schedule set forth in Section 6.1, his pre-Break
Years of Service shall be disregarded if his consecutive Breaks in
Service equal or exceed five (5).
2.5 SERVICE IN EXCLUDED JOB CLASSIFICATIONS OR WITH RELATED COMPANIES.
(a) Service while a Member of an Ineligible Classification ofEmployees.An
Employee who is a member of an ineligible classification of Employees shall not
be eligible to participate in the Plan while a member of such ineligible
classification. However, if any such Employee is transferred to an eligible
classification, such Employee shall be credited with any prior periods of
Service completed while a member of such an ineligible classification both for
purposes of determining his Years of Service and his "Months of Service" under
Section 3.1. For this purpose, an Employee shall be considered a member of an
ineligible classification of Employees for any period during which: (i) he is a
Leased Employee; or (ii) he is employed in a job classification which is
excluded from participating in the Plan under Section 3.1 below.
(b) Service with Related Group Members. For each Plan Year in which the
Employer is a member of a "related group", as hereinafter defined, all
Service of an Employee with any one or more members of such related group
shall be treated as employment by the Employer for purposes of determining
the Employee's Years of Service under Section 2.1 and his Months of Service
under Section 3.1. The transfer of employment by any such Employee to
another member of the related group shall not be deemed to constitute a
retirement or other termination of employment by the Employee for purposes
of the Plan, but the Employee shall be deemed to have continued in
employment with the Employer for purposes hereof. For purposes of this
subsection (b), "related group" shall mean the Employer and all
corporations, trades or businesses (whether or not incorporated) which
constitute a controlled group of corporations with the Employer, a group of
trades or businesses under common control with the Employer, or an
affiliated service group which includes the Employer, within the meaning of
Section 414(b), Section 414(c), or Section 414(m), respectively, of the
Code or any other entity required to be aggregated under Code Section
414(o).
(c) Construction. This Section is included in the Plan to comply with the Code
provisions regarding the crediting of Service, and not to extend any
additional rights to Employees in ineligible classifications other than as
required by the Code and regulations thereunder.
<PAGE>
ARTICLE THREE--PLAN PARTICIPATION
3.1 PARTICIPATION. All Employees participating in the Plan prior to the Plan's
restatement shall continue to participate, subject to the terms hereof.
Each other Employee shall become a Participant under the Plan effective as of
the January 1, April 1, July 1 or October 1 coincident with or next following
the later of the Employee's completion of six (6) Months of Service and
attainment of age twenty-one (21). For purposes of this Section 3.1, an Employee
shall be credited with six (6) Months of Service for each six (6) month period
commencing on his Employment Date and the six (6) month anniversaries of that
date and ending on the date he separates from Service. Fractional periods of a
month shall be expressed in terms of days, with thirty (30) days being equal to
one (1) month.
In no event, however, shall any Employee participate under the Plan while: (i)
he is included in a unit of Employees covered by a collective bargaining
agreement between the Employer and the Employee representatives under which
retirement benefits were the subject of good faith bargaining, unless the terms
of such bargaining agreement expressly provides for inclusion in the Plan; (ii)
he is employed on a "temporary basis", that is, hired for the duration of a
particular project or projects; (iii) employed as a nonresident alien who
receives no earned income (within the meaning of Section 911(d)(2) of the Code)
from the Employer which constitutes income from sources within the United States
(within the meaning of Section 861(a)(3) of the Code); or (iv) he is a Leased
Employee.
3.2 RE-EMPLOYMENT OF FORMER PARTICIPANT. A Participant whose participation
ceased because of termination of employment with the Employer shall participate
as soon as administratively possible following his re-employment.
3.3 TERMINATION OF ELIGIBILITY. In the event a Participant is no longer a member
of an eligible class of Employees and he becomes ineligible to participate, such
Employee shall participate as soon as administratively possible following his
return to an eligible class of Employees.
In the event an Employee who is not a member of an eligible class of Employees
becomes a member of an eligible class, such Employee shall participate as soon
as administratively possible thereafter, if such Employee has satisfied the
eligibility requirements of Section 3.1 and would have otherwise previously
become a Participant.
<PAGE>
ARTICLE FOUR--ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS,
ROLLOVERS AND TRANSFERS FROM OTHER PLANS
4.1 ELECTIVE DEFERRALS.
(a) Elections. A Participant may elect to defer a portion of his Compensation
for a Plan Year. The amount of a Participant's Compensation that is
deferred in accordance with the Participant's election shall be withheld by
the Employer from the Participant's Compensation. The amount deferred on
behalf of each Participant shall be contributed by the Employer to the Plan
and allocated to the Participant's Account.
(b) Changes in Election. A Participant may prospectively elect to change or
revoke the amount (or percentage) of his elective deferrals during the Plan
Year by filing a written election with the Employer, or via a telephone
"voice response" or on-line access system designated by the Administrator,
provided that a written confirmation is forwarded in response to such
request.
(c) Limitations on Deferrals. No Participant shall defer an amount which
exceeds $10,000 (or such amount as adjusted for cost-of-living increases
under Section 402(g) of the Code) for any calendar year ending with or
within the Plan Year.
(d) Administrative Rules. All elections made under this Section 4.1, including
the amount and frequency of deferrals, shall be subject to the rules of the
Administrator which shall be consistently applied and which may be changed
from time to time.
4.2 EMPLOYER CONTRIBUTIONS.
(a) Employer Matching Contributions. For each Plan Year, the Employer may
contribute to the Plan, on behalf of each Participant, a discretionary
matching contribution equal to a percentage of the elective deferrals made
by each such Participant. The amount, if any, of the Employer matching
contribution for any Plan Year shall be made at the discretion of the board
of directors of the Employer. The Employer's board of directors may also
determine to suspend or reduce its contributions under this Section for any
Plan Year or any portion thereof. Allocations under this Section shall be
subject to the special rules of Section 13.3 in any Plan Year in which the
Plan is a Top-Heavy Plan (as defined in Section 13.2(c)).
Notwithstanding the foregoing provisions of this Section 4.2(a),
at the end of each Plan Year, the Employer may elect to make a
supplemental matching contribution on behalf of a Participant, to
the extent required, to ensure that such Participant receives the
same rate of matching contribution afforded to the remaining
eligible Participants for such Plan Year. Such supplemental
matching contribution shall be made only on behalf of a
Participant who is employed by the Employer on the last day of the
Plan Year. Any supplemental matching contribution and matching
contributions received by any such Participant shall, however, be
limited to the extent required to comply with the requirements of
applicable Federal law.
(b) Additional Employer Contributions. Additional Employer contributions may be
made at the discretion of the Employer's board of directors for any Plan
Year, subject to limits for tax deductions under the Code and provided that
the special allocation in Section 13.3 has been satisfied if the Plan is a
Top-Heavy Plan (as defined in Section 13.2(c)).
(c) Eligibility for Additional Employer Contributions. To be eligible for an
allocation of additional Employer contributions under Section 4.2(b) for a
Plan Year, a Participant must be employed by the Employer on the last day
of the Plan Year.
(d) Allocation of Additional Employer Contributions. Any contribution made
under Section 4.2(c) shall be allocated among the Accounts of eligible
Participants in accordance with the ratio that each such eligible
Participant's Compensation bears to the total Compensation of all such
eligible Participants for the Plan Year.
4.3 ROLLOVERS AND TRANSFERS OF FUNDS FROM OTHER PLANS. With the approval of the
Administrator, there may be paid to the Trustee amounts which have been held
under other plans qualified under Code Section 401 either (a) maintained by the
Employer which have been discontinued or terminated with respect to any
Employee, or (b) maintained by another employer with respect to which any
Employee has ceased to participate. Any such transfer or rollover may also be
made by means of an Individual Retirement Account qualified under Section 408 of
the Code, where the Individual Retirement Account was used as a conduit from the
former plan. Any amounts so transferred on behalf of any Employee shall be
nonforfeitable and shall be maintained under a separate Plan account, to be paid
in addition to amounts otherwise payable under this Plan. The amount of any such
account shall be equal to the fair market value of such account as adjusted for
income, expenses, gains, losses, and withdrawals attributable thereto.
Notwithstanding anything contained herein to the contrary, in no event shall the
Administrator accept on behalf of any Employee a transfer of funds from a
qualified plan which would subject the Plan to the provisions of Section
401(a)(11) of the Code.
An Employee who would otherwise be eligible to participate in the Plan but for
the failure to satisfy the age and/or service requirement for participation as
set forth under Section 3.1, shall be eligible to complete a rollover to the
Plan. Such an Employee shall also be eligible to obtain a loan or withdrawal in
accordance with the provisions of Article Eight prior to satisfying such age
and/or service requirement.
4.4 TIMING OF CONTRIBUTIONS. Employer contributions shall be made to the Plan no
later than the time prescribed by law for filing the Employer's Federal income
tax return (including extensions) for its taxable year ending with or within the
Plan Year. Elective deferrals under Section 4.1 shall be paid to the Plan as
soon as administratively possible, but no later than the time prescribed by
applicable law, following receipt of such deferrals by the Administrator.
<PAGE>
ARTICLE FIVE--ACCOUNTING RULES
5.1 INVESTMENT OF ACCOUNTS AND ACCOUNTING RULES.
(a) Investment Funds. The investment of Participants' Accounts shall be made in
a manner consistent with the provisions of the Trust. The Administrator, in
its discretion, may allow the Trust to provide for separate funds for the
directed investment of each Participant's Account.
(b) Participant Direction of Investments. In the event Participants' Accounts
are subject to their investment direction, each Participant may direct how
his Account is to be invested among the available investment funds in the
percentage multiples established by the Administrator. In the event a
Participant fails to make an investment election, with respect to all or
any portion of his Account, the Trustee shall invest all or such portion of
his Account in the investment fund to be designated by the Administrator. A
Participant may change his investment election, with respect to future
contributions and, if applicable, forfeitures, and/or amounts previously
accumulated in the Participant's Account, in writing, on such form as the
Administrator shall specify, or via a telephone "voice response" or on-line
access system designated by the Administrator, provided that a written
confirmation is forwarded in response to such request. Any such change in a
Participant's investment election shall be effective at such time as may be
prescribed by the Administrator. If the Plan's recordkeeper or investments
are changed, the Administrator may suspend the Participants' investment
direction of their Accounts.
(c) Allocation of Investment Experience. As of each Valuation Date, the
investment fund(s) of the Trust shall be valued at fair market value, and
the income, loss, appreciation and depreciation (realized and unrealized),
and any paid expenses of the Trust attributable to such fund shall be
apportioned among Participants' Accounts within the fund based upon the
value of each Account within the fund as of the preceding Valuation Date.
(d) Allocation of Contributions. Employer contributions shall be allocated to
the Account of each eligible Participant as of the last day of the period
for which the contributions are made, or as soon as administratively
practical thereafter. Elective deferrals shall be allocated to the Account
of each Participant as soon as administratively practical following receipt
of such contributions by the Administrator.
(e) Manner and Time of Debiting Distributions. For any Participant who is
entitled to receive a distribution from his Account, such distribution
shall be made in accordance with the provisions of Section 7.2. The amount
distributed shall be based upon the fair market value of the Participant's
vested Account as of the Valuation Date preceding the distribution.
5.2 PARTICIPANTS OMITTED IN ERROR. In the event a Participant is not allocated a
share of the Employer contribution and/or forfeitures as a result of an
administrative error in any Plan Year, the Employer may elect to either (a) make
an additional contribution on behalf of such omitted Participant in an
appropriate amount, or (b) deduct the appropriate amount from the next
succeeding Employer contribution and/or forfeitures and allocate such amount to
the Participant's Account prior to making the allocations set forth under
Section 5.1(d).
<PAGE>
ARTICLE SIX--VESTING, RETIREMENT AND DISABILITY BENEFITS
6.1 VESTING. A Participant shall at all times have a nonforfeitable (vested)
right to his Account derived from elective deferrals, Employer "fail-safe"
contributions under Section 10.2, and rollovers or transfers from other plans,
as adjusted for investment experience. Except as otherwise provided with respect
to Normal Retirement, Disability, or death, a Participant shall have a
nonforfeitable (vested) right to a percentage of the value of his Account
derived from Employer matching contributions under Section 4.2(a) and additional
Employer contributions under Section 4.2(b) as follows:
Years of Service Vested Percentage
Less than 2 years 0%
2 years but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 years but less than 6 80%
6 years and thereafter 100%
6.2 FORFEITURE OF NONVESTED BALANCE. The nonvested portion of a Participant's
Account, as determined in accordance with Section 6.1, shall be forfeited as of
the earlier of (i) the date on which the Participant receives distribution of
his vested Account or (ii) the last day of the Plan Year in which the
Participant incurs five (5) consecutive Breaks in Service. The amount forfeited
shall be used to reduce Employer contributions under Sections 4.2(a)/4.2(b).
If the Participant returns to the employment of the Employer prior to incurring
five (5) consecutive Breaks in Service, and prior to receiving distribution of
his vested Account, the nonvested portion shall be restored. However, if the
nonvested portion of the Participant's Account was allocated as a forfeiture as
the result of the Participant receiving distribution of his vested Account
balance, the nonvested portion shall be restored if:
(a) the Participant resumes employment prior to incurring five (5) consecutive
Breaks in Service; and
(b) the Participant repays to the Plan, as of the earlier of (i) the date which
is five (5) years after his reemployment date or (ii) the date which is the
last day of the period in which the Participant incurs five (5) consecutive
Breaks in Service, an amount equal to the total distribution, derived from
Employer contributions under Section 4.2 and, if applicable, Section 13.3.
The nonvested amount shall be restored to the Participant's Account, without
interest or adjustment for interim Trust valuation experience, by a special
Employer contribution or from the next succeeding Employer contribution and
forfeitures, as appropriate.
6.3 RETURN TO EMPLOYMENT BEFORE DISTRIBUTION OF VESTED ACCOUNT BALANCE. If
distribution is made to an Employee of less than the Employee's entire vested
Account, and if the Employee returns to Service, a separate record shall be
maintained of said Account balance. The Employee's vested interest at any time
in this separate account shall be an amount equal to the formula P(AB+D)-D,
where P is the vested percentage at the relevant time, AB is the Account balance
at the relevant time, and D is the amount of the distribution made to the
Employee.
6.4 NORMAL RETIREMENT. A Participant who is in the employment of the Employer at
his Normal Retirement Date shall have a nonforfeitable interest in one hundred
percent (100%) of his Account, if not otherwise one hundred percent (100%)
vested under the vesting schedule in Section 6.1. A Participant who continues
employment with the Employer after his Normal Retirement Date shall continue to
participate under the Plan.
6.5 DISABILITY. If a Participant incurs a Disability, the Participant shall have
a nonforfeitable interest in one hundred percent (100%) of his Account, if not
otherwise one hundred percent (100%) vested under the vesting schedule in
Section 6.1. Payment of such Participant's Account balance shall be made at the
time and in the manner specified in Article Seven, following receipt by the
Administrator of the Participant's written distribution request.
<PAGE>
ARTICLE SEVEN--MANNER AND TIME OF DISTRIBUTING BENEFITS
7.1 MANNER OF PAYMENT. The Participant's vested Account shall be distributed to
the Participant (or to the Participant's Beneficiary in the event of the
Participant's death) in a single lump-sum payment.
7.2 TIME OF COMMENCEMENT OF BENEFIT PAYMENTS. If a Participant terminates
employment on or after his Normal Retirement Date, or as a result of his
Disability, and if his vested Account balance totals $5,000 or less,
distribution of his vested Account balance shall be made as soon as
administratively practical following the Participant's separation from Service.
Subject to the following provisions of this Section, if the Participant's vested
Account balance exceeds $5,000, distribution shall not be made or commence,
unless the Participant otherwise requests in writing.
If a Participant terminates employment for any reason other than Normal
Retirement, Disability or death, and if his vested Account balance totals $5,000
or less, distribution of his vested Account balance shall be made as soon as
administratively practical following the Participant's separation from Service.
Subject to the following provisions of this Section, if the vested balance of a
Participant's Account exceeds $5,000, distribution shall not be made or commence
unless the Participant otherwise requests in writing.
The failure of a Participant to consent to a distribution while his vested
Account balance is immediately distributable, shall be deemed to be an election
to defer commencement of payment of his vested Account balance.
Notwithstanding any provision contained herein to the contrary, a Participant
who is not vested in any portion of his Account balance attributable to Employer
contributions shall be deemed to have received distribution of such portion of
his Account as of the end of the Plan Year in which he incurs a Break in
Service.
A Participant who terminates employment after his Normal Retirement Date may
elect to defer receipt of his Account; provided however, that in no event shall
the distribution be made or commence later than the April 1st following the end
of the calendar year in which the Participant attains age seventy and one-half
(70-1/2), or except for a Participant who is a five percent (5%) owner of the
Employer (within the meaning of Section 401(a)(9) of the Code), if later, the
April 1st following the calendar year in which the Participant retires or
otherwise separates from service.
In the event distribution is required to be made while the Participant is
employed by the Employer, such Participant may elect to receive the minimum
required under Section 401(a)(9) of the Code and the regulations thereunder.
7.3 FURNISHING INFORMATION. Prior to the payment of any benefit under the Plan,
each Participant or Beneficiary may be required to complete such administrative
forms and furnish such proof as may be deemed necessary or appropriate by the
Employer, Administrator, and/or Trustee.
7.4 AMOUNT OF DEATH BENEFIT.
(a) Death Before Termination of Employment. In the event of the death of a
Participant while in the employ of the Employer, vesting in the
Participant's Account shall be one hundred percent (100%), if not otherwise
one hundred percent (100%) vested under Section 6.1, with the credit
balance of the Participant's Account being payable to his Beneficiary.
(b) Death After Termination of Employment. In the event of the death of a
former Participant after termination of employment, but prior to the
complete distribution of his vested Account balance under the Plan, the
undistributed vested balance of the Participant's Account shall be paid to
the Participant's Beneficiary.
7.5 DESIGNATION OF BENEFICIARY. Each Participant shall file with the
Administrator a designation of Beneficiary to receive payment of any death
benefit payable hereunder if such Beneficiary should survive the Participant.
However, no Participant who is married shall be permitted to designate a
Beneficiary other than his spouse unless the Participant's spouse has signed a
written consent witnessed by a Plan representative or a notary public, which
provides for the designation of an alternate Beneficiary.
Subject to the above, Beneficiary designations may include primary and
contingent Beneficiaries, and may be revoked or amended at any time in similar
manner or form, and the most recent designation shall govern. In the absence of
an effective designation of Beneficiary, or if the Beneficiary dies before
complete distribution of the Participant's vested Account, all amounts shall be
paid to the surviving spouse of the Participant, if living, or otherwise to the
Participant's estate. Notification to Participants of the death benefits under
the Plan and the method of designating a Beneficiary shall be given at the time
and in the manner provided by regulations and rulings under the Code.
7.6 DISTRIBUTION OF DEATH BENEFITS. Distribution of any death benefit hereunder
shall be made within one (1) year of the Participant's death or, in the case of
a surviving spouse, within a reasonable time after the Participant's death or,
if the surviving spouse so elects and if the Participant's vested Account
exceeds $5,000, no later than the date on which the Participant would have
reached age seventy and one-half (70-1/2). If a surviving spouse dies before
distributions to the spouse begin, this paragraph shall be applied as if the
surviving spouse were the Participant.
To the extent payments are not designated to or for the benefit of a natural
person, or if payments commence after the required time, any death benefit shall
be paid in a lump sum within five (5) years of the Participant's death.
If a Participant dies after payments have commenced, any survivor's benefit must
be paid no less rapidly than the method of payment in effect at the time of the
Participant's death.
7.7 ELIGIBLE ROLLOVER DISTRIBUTIONS. Notwithstanding the foregoing provisions of
this Article Seven, the provisions of this Section 7.7 shall apply to
distributions made under the Plan.
(a) A distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an eligible rollover distribution
paid directly to an eligible retirement plan specified by the distributee
in a direct rollover.
(b) Definitions:
(i) Eligible Rollover Distribution. An eligible rollover
distribution is any distribution of all or any
portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
designated Beneficiary, or for a specified period of ten
(10) years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not
includable in gross income (determined without regard to
the exclusion for net unrealized appreciation with respect
to employer securities).
(ii) Eligible Retirement Plan. An eligible retirement plan is an
individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code or a qualified trust described
in Section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(iii) Distributee. A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(iv) Direct Rollover. A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the
distributee.
(c) If a distribution is one to which Sections 401(a)(11) and 417 of
the Code do not apply, such distribution may commence less than 30
days after the notice required under Section 1.411(a)-11(c) of the
Income Tax Regulations is given, provided that:
(i) the Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable,
a particular distribution option), and
(ii) the Participant, after receiving the notice, affirmatively
elects a distribution.
<PAGE>
ARTICLE EIGHT--LOANS AND IN-SERVICE WITHDRAWALS
8.1 LOANS.
(a) Permissible Amount and Procedures. Upon the application of a Participant,
the Administrator may, in accordance with a uniform and nondiscriminatory
policy, direct the Trustee to grant a loan to the Participant, which loan
shall be secured by the Participant's vested Account balance. The
Participant's signature shall be required on a promissory note. In
determining a rate of interest on such loan, the Administrator may refer to
the rate of interest used for obligations of a comparable nature by
commercial lending institutions within a radius of fifty (50) miles of the
Employer's principal place of business. Participant loans shall be treated
as segregated investments, and interest repayments shall be credited only
to the Participant's Account.
(b) Limitation on Amount of Loans. A Participant's loan shall not exceed the
lesser of:
(1) $50,000, which amount shall be reduced by the highest
outstanding loan balance during the preceding twelve
(12)-month period; or
(2) one-half (1/2) of the vested value of the Participant's
Account, determined as of the Valuation Date preceding the
date of the Participant's loan; or
(3) the value of the Participant's Account attributable to his
elective deferrals and rollover contributions, including
earnings thereon.
Any loan must be repaid within five (5) years, unless made for the purpose of
acquiring the primary residence of the Participant, in which case such loan may
be repaid over a longer period of time not to exceed ten (10) years. The
repayment of any loan must be made in at least quarterly installments of
principal and interest. If a Participant defaults on any outstanding loan, the
unpaid balance, and any interest due thereon, shall become due and payable in
accordance with the terms of the underlying promissory note; provided, however,
that such foreclosure on the promissory note and attachment of security shall
not occur until a distributable event occurs in accordance with the provisions
of Article Seven.
If a Participant terminates employment while any loan balance is outstanding,
the unpaid balance, and any interest due thereon, shall become due and payable
in accordance with the terms of the underlying promissory note. If such amount
is not paid to the Plan, it shall be charged against the amounts that are
otherwise payable to the Participant or the Participant's Beneficiary under the
provisions of the Plan.
In the case of a Participant who has loans outstanding from other plans of the
Employer (or a member of the Employer's related group (within the meaning of
Section 2.5(b)), the Administrator shall be responsible for reporting to the
Trustee the existence of said loans in order to aggregate all such loans within
the limits of Section 72(p) of the Code.
8.2 HARDSHIP DISTRIBUTIONS. In the case of a financial hardship resulting from a
proven immediate and heavy financial need, a Participant may receive a
distribution not to exceed the lesser of (i) the value of the Participant's
Account attributable to his elective deferrals, without regard to earnings
thereon, and any rollover contributions made pursuant to Section 4.3, including
earnings thereon, or (ii) the amount necessary to satisfy the financial
hardship. The amount of any such immediate and heavy financial need may include
any amounts necessary to pay Federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution. Such distribution shall
be made in accordance with nondiscriminatory and objective standards
consistently applied by the Administrator. Hardship distributions under this
Section shall be deemed to be the result of an immediate and heavy financial
need if such distribution is to (a) pay expenses for medical care (as described
in Section 213(d) of the Code) previously incurred by the Participant, the
Participant's spouse, or any dependents of the Participant (as defined in
Section 152 of the Code), or to permit the Participant, the Participant's
spouse, or any dependents of the Participant to obtain such medical care, (b)
purchase the principal residence of the Participant (excluding mortgage
payments), (c) pay tuition and related educational fees for the next twelve (12)
months of post-secondary education for the Participant, Participant's spouse, or
any of the Participant's dependents or (d) prevent the eviction of the
Participant from his principal residence or foreclosure on the Participant's
principal residence. In addition, any hardship distribution hereunder shall only
be made provided that the funds for such hardship are not available from other
financial resources of the Participant, the Participant's spouse or the
Participant's children. Distributions paid pursuant to this Section shall be
deemed to be made as of the Valuation Date immediately preceding the hardship
distribution, and the Participant's Account shall be reduced accordingly.
The provisions of this Section (relating to hardship distributions) are intended
to comply with Treasury Regulations issued under Section 401(k) of the Code, and
shall be so interpreted.
8.3 WITHDRAWALS OF ROLLOVER CONTRIBUTIONS. A Participant, by giving written
notice to the Administrator, may withdraw from the Plan a sum (a) not in excess
of the credit balance of his Account attributable to any rollover contributions
made pursuant to Section 4.3, including earnings thereon, and (b) not less than
such minimum amount as the Administrator may establish from time to time to
facilitate administration of the Plan. Any such withdrawals shall be made in
accordance with nondiscriminatory and objective standards consistently applied
by the Administrator.
8.4 WITHDRAWALS AFTER AGE 59-1/2. After attaining age fifty-nine and one-half
(59-1/2), a Participant, by giving written notice to the Administrator, may
withdraw from the Plan a sum (a) not in excess of the credit balance of his
vested Account and (b) not less than such minimum amount as the Administrator
may establish from time to time to facilitate administration of the Plan. Any
such withdrawals shall be made in accordance with nondiscriminatory and
objective standards consistently applied by the Administrator.
<PAGE>
ARTICLE NINE --ADMINISTRATION OF THE PLAN
9.1 PLAN ADMINISTRATION. The Employer shall be the Plan Administrator,
hereinbefore and hereinafter called the Administrator, and "named fiduciary"
(for purposes of Section 402(a)(1) of the Employee Retirement Income Security
Act of 1974, as amended from time to time) of the Plan, unless the Employer, by
action of its board of directors, shall designate a person or committee of
persons to be the Administrator and named fiduciary. The administration of the
Plan, as provided herein, including a determination of the payment of benefits
to Participants and their Beneficiaries, shall be the responsibility of the
Administrator; provided, however, that the Administrator may delegate any of its
powers, authority, duties or responsibilities to any person or committee of
persons. In the event more than one party shall act as Administrator, all
actions shall be made by majority decisions. In the administration of the Plan,
the Administrator may (a) employ agents to carry out nonfiduciary
responsibilities (other than Trustee responsibilities), (b) consult with
counsel, who may be counsel to the Employer, and (c) provide for the allocation
of fiduciary responsibilities (other than Trustee responsibilities) among its
members. Actions dealing with fiduciary responsibilities shall be taken in
writing and the performance of agents, counsel and fiduciaries to whom fiduciary
responsibilities have been delegated shall be reviewed periodically.
The expenses of administering the Plan and the compensation of all employees,
agents, or counsel of the Administrator, including accounting fees,
recordkeeper's fees, and the fees of any benefit consulting firm, shall be paid
by the Plan, or shall be paid by the Employer if the Employer so elects. To the
extent required by applicable law, compensation may not be paid by the Plan to
full-time Employees of the Employer.
In the event the Employer pays the expenses of administering the Plan, the
Employer may seek reimbursement from the Plan for the payment of such expenses.
Reimbursement shall be permitted only for Plan expenses paid by the Employer
within the last twelve (12)-month period.
The Administrator shall obtain from the Trustee, not less often than annually, a
report with respect to the value of the assets held in the Trust Fund, in such
form as may be required by the Administrator.
The Administrator shall administer the Plan and adopt such rules and regulations
as, in the opinion of the Administrator, are necessary or advisable to implement
and administer the Plan and to transact its business.
9.2 CLAIMS PROCEDURE. Pursuant to procedures established by the Administrator,
adequate notice in writing shall be provided to any Participant or Beneficiary
whose claim for benefits under the Plan has been denied within ninety (90) days
of receipt of such claim. Such notice shall be written in a manner calculated to
be understood by the claimant, shall advise the claimant the right to
administrative review, and shall set forth the specific reason for such denial,
the specific references to the pertinent Plan provisions on which the denial is
based, and a description of any additional material or information necessary to
perfect the claim, and an explanation of why such material or information is
necessary. If such review is requested by the claimant or his authorized
representative within ninety (90) days after receipt by the claimant of written
notification of denial of his claim, the Administrator shall afford a reasonable
opportunity for a full and fair review by the Administrator of the decision
denying the claim. The review shall focus on the additional facts, legal
interpretations or material, if any, presented by the claimant. The
Administrator shall, within sixty (60) days (or if special circumstances apply,
one hundred twenty (120) days) of a request for review, render a written
decision on its review setting forth the specific reasons for such decision,
written in a manner calculated to be understood by the claimant.
9.3 TRUST AGREEMENT. The Trust Agreement entered into by and between the
Employer and the Trustee, including any supplements or amendments thereto, or
any successor Trust Agreement, is incorporated by reference herein.
<PAGE>
ARTICLE TEN--SPECIAL COMPLIANCE PROVISIONS
10.1 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS. If the amount of any elective
deferrals made by a Participant exceeds the dollar limitation of Section 4.1(c),
then the excess amount, and any income allocable thereto, shall be distributed
to such Participant subject to the requirements of applicable law.
10.2 LIMITATIONS ON 401(k) CONTRIBUTIONS.
(a) Average Actual Deferral Percentage Test. Amounts contributed as elective
deferrals under Section 4.1(a), and any "fail-safe" contributions made
under this Section, are considered to be amounts deferred pursuant to
Section 401(k) of the Code. For purposes of this Article, these amounts are
referred to as the "deferred amounts." For purposes of the "average actual
deferral percentage test" described below, such deferred amounts must be
made before the last day of the twelve (12)-month period immediately
following the Plan Year to which the contributions relate. The Employer
shall maintain records sufficient to demonstrate satisfaction of the
average actual deferral percentage test and the deferred amounts used in
such test. As of the last day of each Plan Year, the deferred amounts for
the Plan Year for the Participants who are Highly-Compensated Employees
shall satisfy either of the following tests:
(1) The average actual deferral percentage for the eligible
Participants who are Highly-Compensated Employees shall not
exceed the average actual deferral percentage for eligible
Participants who are Nonhighly-Compensated Employees
multiplied by 1.25; or
(2) The average actual deferral percentage for eligible
Participants who are Highly-Compensated Employees shall not
exceed the average actual deferral percentage of eligible
Participants who are Nonhighly-Compensated Employees
multiplied by two (2), provided that the average actual
deferral percentage for eligible Participants who are
Highly-Compensated Employees does not exceed the average
actual deferral percentage for eligible Participants who
are Nonhighly-Compensated Employees by more than two (2)
percentage points, or such lesser amount as the Secretary
of the Treasury shall prescribe to prevent the multiple use
of this alternative limitation with respect to any
Highly-Compensated Employee.
For purposes of the above tests, the "actual deferral percentage" shall mean the
ratio (expressed as a percentage) that the deferred amounts, which are allocated
to the Participant's Account as of any day in the Plan Year, on behalf of each
eligible Participant for the Plan Year bears to the eligible Participant's
compensation, as defined in Code Section 414(s) and the regulations promulgated
thereunder. The "average actual deferral percentage" shall mean the average
(expressed as a percentage) of the actual deferral percentages of the eligible
Participants in each group. "Eligible Participant" shall mean each Employee who
is eligible to participate in the Plan under Section 3.1.
For purposes of this Section 10.2, the actual deferral percentage for any
eligible Participant who is a Highly-Compensated Employee for the Plan Year and
who is eligible to have elective deferrals allocated to his account under two
(2) or more plans or arrangements described in Code Section 401(k) that are
maintained by the Employer or any employer who is a related group member (within
the meaning of Section 2.5(b)) shall be determined as if all such deferrals were
made under a single arrangement. In the event that this Plan satisfies the
requirements of Code Section 410(b) only if aggregated with one (1) or more
other plans, or if one (1) or more other plans satisfy the requirements of Code
Section 410(b) only if aggregated with this Plan, then the provisions of this
Section 10.2 shall be applied by determining the actual deferral percentage of
eligible Participants as if all such plans were a single plan.
The determination and treatment of deferred amounts and the actual deferral
percentage of any Participant shall be subject to the prescribed requirements of
the Secretary of the Treasury.
In the event the average actual deferral percentage test is not satisfied for a
Plan Year, the Employer, in its discretion, may make a special "fail-safe"
contribution for eligible Participants who are Nonhighly Compensated Employees,
to be allocated among their Accounts in proportion to their Compensation for the
Plan Year.
(b) Distributions of Excess Contributions.
(1) In General. If the average actual deferral percentage test
of Section 10.2(a) is not satisfied for a Plan Year, then
the "excess contributions", and income allocable thereto,
shall be distributed, to the extent required under Treasury
regulations, no later than the last day of the Plan Year
following the Plan Year for which the excess contributions
were made. However, if such excess contributions are
distributed later than two and one-half (2-1/2) months
following the last day of the Plan Year in which such
excess contributions were made, a ten percent (10%) excise
tax shall be imposed upon the Employer with respect to such
excess contributions.
(2) Excess Contributions. For purposes of this Section, "excess
contributions" shall consist of the excess of the aggregate
amount of deferred amounts made by or on behalf of the
affected Highly-Compensated Employee over the maximum
amount of all such contributions permitted under the test
under Section 10.2(a). In reducing the excess contribution
hereunder, the reduction shall be first applied to the
Highly-Compensated Employee with the highest percentage
under Section 10.2(a). If reductions are further required
to comply with Section 10.2(a), such reductions shall be
applied to the Highly-Compensated Employee with the next
highest percentage, and so forth until the
nondiscrimination test of Section 10.2(a) is satisfied.
(3) Determination of Income. The income allocable to excess
contributions shall be determined by multiplying the income
allocable to the Participant's deferred amounts for the
Plan Year by a fraction, the numerator of which is the
excess contributions made on behalf of the Participant for
the Plan Year, and the denominator of which is the sum of
the Participant's Account balances attributable to the
Participant's deferred amounts on the last day of the Plan
Year.
(4) Maximum Distributable Amount. The excess contributions to
be distributed to a Participant shall be adjusted for
income and, if there is a loss allocable to the excess
contribution, shall in no event be less than the lesser of
the Participant's Account under the Plan or the
Participant's deferred amounts for the Plan Year. Excess
contributions shall be distributed from that portion of the
Participant's Account attributable to such deferred amounts
to the extent allowable under Treasury regulations.
10.3 NONDISCRIMINATION TEST FOR EMPLOYER MATCHING CONTRIBUTIONS.
(a) Average Contribution Percentage Test. The provisions of this Section shall
apply if Employer matching contributions are made in any Plan Year under
Section 4.2(a).
As of the last day of each Plan Year, the average contribution
percentage for Highly-Compensated Employees for the Plan Year
shall satisfy either of the following tests:
(1) The average contribution percentage for eligible
Participants who are Highly-Compensated Employees shall not
exceed the average contribution percentage for eligible
Participants who are Nonhighly-Compensated Employees for
the Plan Year multiplied by 1.25; or
(2) The average contribution percentage for eligible
Participants who are Highly-Compensated Employees shall not
exceed the average contribution percentage for eligible
Participants who are Nonhighly-Compensated Employees for
the Plan Year multiplied by two (2), provided that the
average contribution percentage for eligible Participants
who are Highly-Compensated Employees does not exceed the
average contribution percentage for eligible Participants
who are Nonhighly-Compensated Employees by more than two
(2) percentage points or such lesser amount as the
Secretary of the Treasury shall prescribe to prevent the
multiple use of this alternative limitation with respect to
any Highly-Compensated Employee.
For purposes of the above tests, the "average contribution percentage" shall
mean the average (expressed as a percentage) of the contribution percentages of
the "eligible Participants" in each group. The contribution percentage" shall
mean the ratio (expressed as a percentage) that the sum of Employer matching
contributions and elective deferrals (to the extent such elective deferrals are
not used to satisfy the average actual deferral percentage test of Section 10.2)
under the Plan on behalf of the eligible Participant for the Plan Year bears to
the eligible Participant's compensation (as defined in Code Section 414(s) and
the regulations promulgated thereunder) for the Plan Year. "Eligible
Participant" shall mean each Employee who is eligible to participate in the Plan
under Section 3.1.
For purposes of this Section 10.3, the contribution percentage for any eligible
Participant who is a Highly-Compensated Employee for the Plan Year and who is
eligible to have Employer matching contributions or elective deferrals allocated
to his account under two (2) or more plans described in Section 401(a) of the
Code or under arrangements described in Section 401(k) of the Code that are
maintained by the Employer or any member of the Employer's related group (within
the meaning of Section 2.5(b)), shall be determined as if all such contributions
and elective deferrals were made under a single plan.
In the event that this Plan satisfies the requirements of Section 410(b) of the
Code only if aggregated with one (1) or more other plans, or if one (1) or more
other plans satisfy the requirements of Section 410(b) of the Code only if
aggregated with this Plan, then the provisions of this Section 10.3 shall be
applied by determining the contribution percentages of eligible Participants as
if all such plans were a single plan.
The determination and treatment of the contribution percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
(b) Distribution of Excess Employer Matching Contributions.
(1) In General. If the nondiscrimination tests of Section
10.3(a) are not satisfied for a Plan Year, then the "excess
contributions", and any income allocable thereto, shall be
forfeited, if otherwise forfeitable, no later than the last
day of the Plan Year following the Plan Year for which the
nondiscrimination tests are not satisfied, and shall be
used to reduce Employer contributions under Section 4.2(a).
To the extent that such "excess contributions" are
nonforfeitable, such excess contributions shall be
distributed to the Participant on whose behalf the excess
contributions were made no later than the last day of the
Plan Year following the Plan Year for which such "excess
contributions" were made. However, if such excess
contributions are distributed later than two and one-half
(2-1/2) months following the last day of the Plan Year in
which such excess contributions were made, a ten percent
(10%) excise tax shall be imposed upon the Employer with
respect to such excess contributions. For purposes of the
limitations of Section 11.1(b)(1) of the Plan, excess
contributions shall be considered annual additions.
(2) Excess Contributions. For purposes of this Section, "excess
contributions" shall consist of the excess of the amount of
Employer matching contributions and elective deferrals (to
the extent not used to satisfy the average actual deferral
percentage test of Section 10.2) made on behalf of the
affected Highly-Compensated Employee over the maximum
amount of all such contributions permitted under the
nondiscrimination tests under Section 10.3(a). In reducing
the excess contribution hereunder, the reduction shall be
first applied to the Highly-Compensated Employee with the
highest percentage under Section 10.3(a). If reductions are
further required to comply with Section 10.3(a), such
reductions shall be applied to the Highly-Compensated
Employee with the next highest percentage, and so forth
until the nondiscrimination tests of Section 10.3(a) are
satisfied.
(3) Determination of Income. The income allocable to excess
contributions shall be determined by multiplying the income
allocable to the Employer matching contributions and such
elective deferrals, by a fraction, the numerator of which
is the excess contributions on behalf of the Participant
for the Plan Year, and the denominator of which is the sum
of the Participant's Account balances attributable to
Employer matching contributions and such elective deferrals
on the last day of the Plan Year.
Notwithstanding the foregoing, to the extent otherwise
required to comply with the requirements of Section
401(a)(4) of the Code and the regulations thereunder,
vested matching contributions may be forfeited.
10.4 LIMITATION ON THE MULTIPLE USE ALTERNATIVE. The sum of the average actual
deferral percentage of Highly-Compensated Employees under Section 10.2(a) and
the average contribution percentage of Highly-Compensated Employees under
Section 10.3(a) shall not exceed the "aggregate limit", as defined in Section
401(m)(9) of the Code and the regulations promulgated thereunder.
If the aggregate limit is exceeded, the average contribution percentage of the
Highly-Compensated Employees shall be reduced in accordance with the provisions
of Section 10.3(b). In lieu of reducing the average contribution percentage, the
Administrator may reduce the average actual deferral percentage of the
Highly-Compensated Employees in accordance with the provisions of Section
10.2(b). The reductions under this Section shall be made only to the extent
necessary to comply with the restrictions on the multiple use of the
"alternative limitation" within the meaning of Code Section 401(m)(9).
<PAGE>
ARTICLE ELEVEN--LIMITATION ON ANNUAL ADDITIONS
11.1 RULES AND DEFINITIONS.
(a) Rules. The following rules shall limit additions to Participants' Accounts:
(1) If the Participant does not participate, and has never
participated, in another qualified plan maintained by the
Employer, the amount of annual additions which may be
credited to the Participant's Account for any limitation
year shall not exceed the lesser of the "maximum
permissible" amount (as hereafter defined) or any other
limitation contained in this Plan. If the Employer
contribution that would otherwise be allocated to the
Participant's Account would cause the annual additions for
the limitation year to exceed the maximum permissible
amount, the amount allocated shall be reduced so that the
annual additions for the limitation year shall equal the
maximum permissible amount.
(2) Prior to determining the Participant's actual compensation
for the limitation year, the Employer may determine the
maximum permissible amount for a Participant on the basis
of a reasonable estimation of the Participant's
compensation for the limitation year, uniformly determined
for all Participants similarly situated.
(3) As soon as is administratively feasible after the end of
the limitation year, the maximum permissible amount for the
limitation year shall be determined on the basis of the
Participant's actual compensation for the limitation year.
(4) If there is an excess amount, the excess shall be disposed of
as follows:
(A) Any nondeductible voluntary Employee after-tax
contributions and, to the extent elected by the
Administrator pursuant to a nondiscriminatory
procedure, elective deferrals under Section 4.1(a),
and any earnings thereon, to the extent they would
reduce the excess amount, shall be returned to the
Participant.
(B) If an excess amount still exists after the
application of subparagraph (A), and the Participant
is covered by the Plan at the end of the limitation
year, the excess amount in the Participant's Account
shall be used to reduce Employer contributions
(including any allocation of forfeitures, if
applicable) for such Participant in the next
limitation year, and each succeeding limitation year
if necessary;
(C) If an excess amount still exists after the
application of subparagraphs (A) and (B), and the
Participant is not covered by the Plan at the end of
the limitation year, the excess amount shall be held
unallocated in a suspense account and applied to
reduce future Employer contributions (including
allocation of any forfeitures) for all remaining
Participants in the next limitation year, and each
succeeding limitation year if necessary.
(D) If a suspense account is in existence at any time
during the limitation year pursuant to this Section
11.1(a)(4), it shall not participate in the
allocation of the Trust's investment gains and
losses. In addition, all amounts held in the
suspense account shall be allocated and reallocated
to Participants' Accounts before any Employer or
Employee contributions may be made for the
limitation year.
(5) If, in addition to this Plan, the Participant is covered
under another defined contribution plan maintained by the
Employer, or a welfare benefit fund, as defined in Code
Section 419(e), maintained by the Employer, or an
individual medical account, as defined in Code Section
415(1)(2), maintained by the Employer which provides an
annual addition, the annual additions which may be credited
to a Participant's account under all such plans for any
such limitation year shall not exceed the maximum
permissible amount. Benefits shall be reduced under any
discretionary defined contribution plan before they are
reduced under any defined contribution pension plan. If
both plans are discretionary contribution plans, they shall
first be reduced under this Plan. Any excess amount
attributable to this Plan shall be disposed of in the
manner described in Section 11.1(a)(4).
(6) If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in
this Plan, the sum of the Participant's defined benefit
plan fraction and defined contribution plan fraction shall
not exceed 1.0 in any limitation year. The annual additions
which may be credited to the Participant's Account under
this Plan for any limitation year shall be limited so that
if the limitations of Code Section 415(e) become
applicable, benefits under a defined contribution plan
shall have first been provided before benefits under a
defined benefit plan are provided.
(7) In any Plan Year in which the Plan becomes a Super
Top-Heavy Plan (as defined in Section 13.2(b)), the
denominators of the defined benefit fraction and defined
contribution fraction shall be computed using one hundred
percent (100%) of the maximum dollar limitation instead of
one hundred and twenty-five percent (125%).
(8) In any year in which the Plan is a Top-Heavy Plan (as
defined in Section 13.2(c)) (but not a Super Top-Heavy
Plan), the limitations shall be similarly reduced, subject
to the special provisions of Section 13.3, which provide
for the use of the one hundred and twenty-five percent
(125%) limitation subject to the added minimum allocations.
(b) Definitions.
(1) Annual additions: The following amounts credited to a
Participant's Account for the limitation year shall be
treated as annual additions:
(A) Employer contributions;
(B) Elective deferrals;
(C) Employee after-tax contributions, if any;
(D) Forfeitures, if any; and
(E) Amounts allocated after March 31, 1984 to an
individual medical account, as defined in Section
415(l)(2) of the Code, which is part of a defined
benefit plan maintained by the Employer. Also,
amounts derived from contributions paid or accrued
after December 31, 1985 in taxable years ending
after such date which are attributable to
post-retirement medical benefits allocated to the
separate account of a Key Employee, as defined in
Section 419A(d)(3), and amounts under a welfare
benefit fund, as defined in Section 419(e),
maintained by the Employer, shall be treated as
annual additions to a defined contribution plan.
For this purpose, any excess amount applied under Section
11.1(a)(4) in the limitation year to reduce Employer
contributions shall be considered annual additions for such
limitation year.
(2) Compensation: For purposes of determining maximum permitted
benefits under this Section, compensation shall include all
of a Participant's earned income, wages, salaries, and fees
for professional services, and other amounts received for
personal services actually rendered in the course of
employment with the Employer, including, but not limited
to, commissions paid to salesmen, compensation for services
on the basis of a percentage of profits, commissions on
insurance premiums, tips and bonuses, and excluding the
following:
(A) Employer contributions to a plan of deferred
compensation which are not included in the
Employee's gross income for the taxable year in
which contributed, or Employer contributions under a
simplified employee pension plan (funded with
individual retirement accounts or annuities) to the
extent such contributions are deductible by the
Employee, or any distributions from a plan of
deferred compensation;
(B) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely
transferable or is no longer subject to a
substantial risk of forfeiture;
(C) Amounts realized from the sale, exchange, or other
disposition of stock acquired under a qualified
stock option; and
(D) Other amounts which received special tax benefits,
or contributions made by the Employer (whether or
not under a salary reduction agreement) toward the
purchase of an annuity described in Section 403(b)
of the Code (whether or not the amounts are actually
excludable from the gross income of the Employee).
Compensation shall be measured on the basis of compensation
paid in the limitation year.
(3) Defined benefit fraction: This shall mean a fraction, the
numerator of which is the sum of the Participant's
projected annual benefits under all the defined benefit
plans maintained or previously maintained by the Employer,
and the denominator of which is the lesser of one hundred
and twenty-five percent (125%) of the dollar limitation in
effect for the limitation year under Section 415(b)(1)(A)
of the Code or one hundred and forty percent (140%) of the
highest average compensation including any adjustment under
Code Section 415(b).
(4) Defined contribution fraction: This shall mean a fraction,
the numerator of which is the sum of the annual additions
to the Participant's account under all the defined
contribution plans (whether or not terminated), welfare
benefit funds, and individual medical accounts maintained
by the Employer for the current and all prior limitation
years, and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior
limitation years of Service with the Employer, regardless
of whether a defined contribution plan was maintained by
the Employer.
The maximum aggregate amount in any limitation year is the
lesser of one hundred and twenty-five percent (125%) of the
dollar limitation then in effect under Section 415(c)(1)(A)
of the Code or thirty-five (35%) of the Participant's
compensation for such year.
If the Employee, as of the end of the first day of the
first limitation year beginning after December 31, 1986,
was a participant in one (1) or more defined contribution
plans maintained by the Employer which were in existence on
May 5, 1986, the numerator of this fraction shall be
adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the
product of (i) the excess of the sum of the fractions over
1.0 and (ii) the denominator of this fraction, will be
permanently subtracted from the numerator of this fraction.
The adjustment is calculated using the fractions as they
would be computed as of the end of the last limitation year
beginning before January 1, 1987, and disregarding any
changes in the terms and conditions of the Plan made after
May 5, 1986, but using the Code Section 415 limitation
applicable to the first limitation year beginning on or
after January 1, 1987.
The annual addition for any limitation year beginning
before January 1, 1987, shall not be recomputed to treat
all Employee contributions as annual additions.
(5) Defined contribution dollar limitation: This shall mean the
greater of $30,000 or one-fourth (1/4) of the defined
benefit dollar limitation of Section 415(b)(1) of the Code
in effect for the limitation year.
(6) Employer: This term refers to the Employer that adopts this
Plan, and all members of a controlled group of corporations
(as defined in Section 414(b) of the Code, as modified by
Section 415(h)), commonly-controlled trades or businesses
(as defined in Section 414(c), as modified by Section
415(h)), or affiliated service groups (as defined in
Section 414(m)) of which the Employer is a part, or any
other entity required to be aggregated with the Employer
under Code Section 414(o).
(7) Highest average compensation: This means the average
compensation for the three (3) consecutive limitation years
with the Employer that produces the highest average.
(8) Limitation year: This shall mean the Plan Year.
(9) Maximum permissible amount: This shall mean an amount equal
to the lesser of the defined contribution dollar limitation
or twenty-five percent (25%) of the Participant's
compensation for the limitation year. If a short limitation
year is created because of an amendment changing the
limitation year to a different twelve (12)-consecutive
month period, the maximum permissible amount shall not
exceed the defined contribution dollar limitation
multiplied by the following fraction:
Number of months in the short limitation year
12
(10) Projected annual benefit: This is the annual retirement
benefit (adjusted to an actuarially equivalent straight
life annuity if such benefit is expressed in a form other
than a straight life annuity or qualified joint and
survivor annuity) to which the Participant would be
entitled under the terms of the plan, assuming:
(A) the Participant will continue employment until
normal retirement age under the plan (or current
age, if later), and
(B) the Participant's compensation for the current
limitation year and all other relevant factors used
to determine benefits under the plan will remain
constant for all future limitation years.
<PAGE>
ARTICLE TWELVE--AMENDMENT AND TERMINATION
12.1 AMENDMENT. The Employer, by resolution of its board of directors, (or, to
the extent permitted by resolution of such board of directors, by action of a
duly authorized officer of the Employer) shall have the right to amend, alter or
modify the Plan at any time, or from time to time, in whole or in part. Any such
amendment shall become effective under its terms upon adoption by the Employer.
However, no amendment affecting the duties, powers or responsibilities of the
Trustee may be made without the written consent of the Trustee. No amendment
shall be made to the Plan which shall:
(a) make it possible (other than as provided in Section 14.3) for any part of
the corpus or income of the Trust Fund (other than such part as may be
required to pay taxes and administrative expenses) to be used for or
diverted to purposes other than the exclusive benefit of the Participants
or their Beneficiaries;
(b) decrease a Participant's account balance or eliminate an optional form of
payment with respect to benefits accrued as of the later of (i) the date
such amendment is adopted, or (ii) the date the amendment becomes
effective; or
(c) alter the schedule for vesting in a Participant's Account with respect to
any Participant with three (3) or more Years of Service without his consent
or deprive any Participant of any nonforfeitable portion of his Account.
Notwithstanding the other provisions of this Section or any other provisions of
the Plan, any amendment or modification of the Plan may be made retroactively if
necessary or appropriate to conform to or to satisfy the conditions of any law,
governmental regulation, or ruling, and to meet the requirements of the Employee
Retirement Income Security Act of 1974, as it may be amended.
12.2 TERMINATION OF THE PLAN. The Employer, by resolution of its board of
directors, reserves the right at any time and in its sole discretion to
discontinue payments under the Plan and to terminate the Plan. In the event the
Plan is terminated, or upon complete discontinuance of contributions under the
Plan by the Employer, the rights of each Participant to his Account on the date
of such termination or discontinuance of contributions, to the extent of the
fair market value under the Trust Fund, shall become fully vested and
nonforfeitable. The Employer shall direct the Trustee to distribute the Trust
Fund in accordance with the Plan's distribution provisions to the Participants
and their Beneficiaries, each Participant or Beneficiary receiving a portion of
the Trust Fund equal to the value of his Account as of the date of distribution.
These distributions may be implemented by the continuance of the Trust and the
distribution of the Participants' Account shall be made at such time and in such
manner as though the Plan had not terminated, or by any other appropriate
method, including rollover into Individual Retirement Accounts. Upon
distribution of the Trust Fund, the Trustee shall be discharged from all
obligations under the Trust and no Participant or Beneficiary shall have any
further right or claim therein. If a partial termination of the Plan is deemed
to have occurred, this Section shall apply only to those Participant's affected
by such partial termination.
<PAGE>
ARTICLE THIRTEEN--TOP-HEAVY PROVISIONS
13.1 APPLICABILITY. The provisions of this Article shall become applicable only
for any Plan Year in which the Plan is a Top-Heavy Plan (as defined in Section
13.2(c)). The determination of whether the Plan is a Top-Heavy Plan shall be
made each Plan Year by the Administrator.
13.2 DEFINITIONS. For purposes of this Article, the following definitions shall
apply:
(a) "Key Employee": "Key Employee" shall mean any Employee or former Employee
(and the Beneficiaries of such Employee) who, at any time during the
determination period, was (1) an officer of the Employer earning
compensation (as defined in Section 416(i) of the Code) in excess of fifty
percent (50%) of the dollar limitation under Section 415(b)(1)(A) of the
Code, (2) an owner (or considered an owner under Section 318 of the Code)
of both more than a one-half percent (1/2%) interest in the Employer and
one of the ten (10) largest interests in the Employer if such individual's
compensation exceeds the dollar limitation under Section 415(c)(1)(A) of
the Code, (3) a five percent (5%) owner of the Employer, or (4) a one
percent (1%) owner of the Employer who has an annual compensation of more
than $150,000. For purposes of this Section, annual compensation shall mean
compensation as defined in Code Section 415(c)(3), but including amounts
contributed by the Employer pursuant to a salary reduction agreement which
are excludable from the Employee's income under Code Sections 125, 402(g),
402(h) or 403(b). The determination period of the Plan is the Plan Year
containing the "determination date" as defined in Section 13.2(c)(4) and
the four (4) preceding Plan Years.
The determination of who is a Key Employee (including the terms "5% owner"
and "1% owner") shall be made in accordance with Section 416(i)(1) of the Code
and the regulations thereunder.
(b) "Super Top-Heavy Plan": The Plan shall constitute a "Super Top-Heavy Plan"
if it meets the test for status as a Top-Heavy Plan, where "90%" is
substituted for "60%" at each place in Section 13.2(c).
(c) "Top-Heavy Plan":
(1) The Plan shall constitute a "Top-Heavy Plan" if any of the
following conditions exist:
(A) The top-heavy ratio for the Plan exceeds sixty
percent (60%) and the Plan is not part of any
required aggregation group or permissive aggregation
group of plans; or
(B) The Plan is part of a required aggregation group of
plans (but is not part of a permissive aggregation
group) and the top-heavy ratio for the group of
plans exceeds sixty percent (60%); or
(C) The Plan is a part of a required aggregation group
of plans and part of a permissive aggregation group
and the top-heavy ratio for the permissive
aggregation group exceeds sixty percent (60%).
(2) If the Employer maintains one (1) or more defined
contribution plans (including any simplified employee
pension plan funded with individual retirement accounts or
annuities) and the Employer maintains or has maintained one
(1) or more defined benefit plans which have covered or
could cover a Participant in this Plan, the top-heavy ratio
is a fraction, the numerator of which is the sum of account
balances under the defined contribution plans for all Key
Employees and the actuarial equivalents of accrued benefits
under the defined benefit plans for all Key Employees, and
the denominator of which is the sum of the account balances
under the defined contribution plans for all Participants
and the actuarial equivalents of accrued benefits under the
defined benefit plans for all Participants. Both the
numerator and denominator of the top-heavy ratio shall
include any distribution of an account balance or an
accrued benefit made in the five (5)-year period ending on
the determination date and any contribution due to a
defined contribution pension plan but unpaid as of the
determination date. In determining the accrued benefit of a
non-Key Employee who is participating in a plan that is
part of a required aggregation group, the method of
determining such benefit shall be either (i) in accordance
with the method, if any, that uniformly applies for accrual
purposes under all plans maintained by the Employer or any
member of the Employer's related group (within the meaning
of Section 2.5(b)), or (ii) if there is no such method, as
if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional accrual rate of
Code Section 411(b)(1)(C).
(3) For purposes of (1) and (2) above, the value of account
balances and the actuarial equivalents of accrued benefits
shall be determined as of the most recent Valuation Date
that falls within or ends with the twelve (12)-month period
ending on the determination date. The account balances and
accrued benefits of a Participant who is not a Key Employee
but who was a Key Employee in a prior year shall be
disregarded. The accrued benefits and account balances of
Participants who have performed no Hours of Service with
any Employer maintaining the plan for the five (5)-year
period ending on the determination date shall be
disregarded. The calculations of the top-heavy ratio, and
the extent to which distributions, rollovers, and transfers
are taken into account shall be made under Section 416 of
the Code and regulations issued thereunder. Deductible
Employee contributions shall not be taken into account for
purposes of computing the top-heavy ratio. When aggregating
plans, the value of account balances and accrued benefits
shall be calculated with reference to the determination
dates that fall within the same calendar year.
(4) Definition of terms for Top-Heavy status:
(A) "Top-heavy ratio" shall mean the following:
(1) If the Employer maintains one or more defined
contribution plans (including any simplified
employee pension plan funded with individual
retirement accounts or annuities) and the
Employer has never maintained any defined
benefit plans which have covered or could
cover a Participant in this Plan, the
top-heavy ratio is a fraction, the numerator
of which is the sum of the account balances
of all Key Employees as of the determination
date (including any part of any account
balance distributed in the five (5)-year
period ending on the determination date), and
the denominator of which is the sum of the
account balances (including any part of any
account balance distributed in the five
(5)-year period ending on the determination
date) of all Participants as of the
determination date. Both the numerator and
the denominator shall be increased by any
contributions due but unpaid to a defined
contribution pension plan as of the
determination date.
(B) "Permissive aggregation group" shall mean the
required aggregation group of plans plus any other
plan or plans of the Employer which, when considered
as a group with the required aggregation group,
would continue to satisfy the requirements of
Section 401(a)(4) and/or 410 of the Code.
(C) "Required aggregation group" shall mean (i) each
qualified plan of the Employer (including any
terminated plan) in which at least one Key Employee
participates, and (ii) any other qualified plan of
the Employer which enables a plan described in (i)
to meet the requirements of Section 401(a)(4) and/or
410 of the Code.
(D) "Determination date" shall mean, for any Plan Year
subsequent to the first Plan Year, the last day of
the preceding Plan Year. For the first Plan Year of
the Plan, "determination date" shall mean the last
day of that Plan Year.
(E) "Valuation Date" shall mean the last day of the Plan
Year.
(F) Actuarial equivalence shall be based on the interest
and mortality rates utilized to determine actuarial
equivalence when benefits are paid from any defined
benefit plan. If no rates are specified in said
plan, the following shall be utilized: pre- and
post-retirement interest -five percent (5%);
post-retirement mortality based on the Unisex
Pension (1984) Table as used by the Pension Benefit
Guaranty Corporation on the date of execution
hereof.
13.3 ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES FOR A TOP-HEAVY PLAN
YEAR.
(a) Except as otherwise provided below, in any Plan Year in which the Plan is a
Top-Heavy Plan, the Employer contributions and forfeitures allocated on
behalf of any Participant who is a non-Key Employee shall not be less than
the lesser of three percent (3%) of such Participant's compensation (as
defined in Section 11.1(b)(2)) or the largest percentage of Employer
contributions and forfeitures as a percentage of the Key Employee's
Compensation, allocated on behalf of any Key Employee for that Plan Year.
This minimum allocation shall be made even though, under other Plan
provisions, the Participant would not otherwise be entitled to receive an
allocation or would have received a lesser allocation for the Plan Year
because of insufficient Employer contributions under Section 4.2, the
Participant's failure to complete one thousand (1,000) Hours of Service or
the Participant's failure to make elective deferrals under Section 4.1.
(b) The minimum allocation under this Section shall not apply to any
Participant who was not employed by the Employer on the last day of the
Plan Year.
(c) The minimum allocation under this Section shall be offset and reduced by
any allocation of contributions and forfeitures under Section 4.2, and
under any other defined contribution plan (if such contributions are not
matching contributions under Code Section 401(m)) with a Plan Year ending
in the same calendar year as the Valuation Date.
(d) For purposes of the Plan, a non-Key Employee shall be any Employee or
Beneficiary of such Employee, any former Employee, or Beneficiary of such
former Employee, who is not or was not a Key Employee during the Plan Year
ending on the determination date, nor during the four (4) preceding Plan
Years.
(e) If no defined benefit plan has ever been part of a permissive or required
aggregation group of plans of the Employer, the contributions and
forfeitures under this step shall be offset by any allocation of
contributions and forfeitures under any other defined contribution plan of
the Employer with a Plan Year ending in the same calendar year as this
Plan's Valuation Date.
(f) There shall be no duplication of the minimum benefits required under Code
Section 416. Benefits shall be provided under defined contribution plans
before under defined benefit plans. If a defined benefit plan (active or
terminated) is part of the permissive or required aggregation group of
plans, the allocation method of subparagraph (a) above shall apply, except
that "3%" shall be increased to "5%."
(g) There shall be no duplication of the minimum benefits required under Code
Section 416. Benefits shall be provided under defined contribution plans
before defined benefit plans. If a defined benefit plan (active or
terminated) is part of the permissive or required aggregation group of
plans, and if any Participant in the Plan would have his benefits limited
due to the application of the Code limitation rule in Section 11.1 in a
Plan Year in which the Plan is a Top-Heavy Plan but not a Super Top-Heavy
Plan, the allocation method of subparagraph (f) above shall apply, except
that "5%" shall be increased to "7.5%."
13.4 VESTING. The provisions contained in Section 6.1 relating to vesting shall
continue to apply in any Plan Year in which the Plan is a Top-Heavy Plan, and
apply to all benefits within the meaning of Section 411(a)(7) of the Code except
those attributable to Employee contributions and elective deferrals under
Section 4.1, including benefits accrued before the effective date of Section 416
and benefits accrued before the Plan became a Top-Heavy Plan. Further, no
reduction in vested benefits may occur in the event the Plan's status as a
Top-Heavy Plan changes for any Plan Year and the vesting schedule is amended. In
addition, if a Plan's status changes from a Top-Heavy Plan to that of a
non-Top-Heavy Plan, a Participant with three (3) Years of Service shall continue
to have his vested rights determined under the schedule which he selects, in the
event the vesting schedule is subsequently amended.
Payment of a Participant's vested Account balance under this Section shall be
made in accordance with the provisions of Article Seven.
<PAGE>
ARTICLE FOURTEEN--MISCELLANEOUS PROVISIONS
14.1 PLAN DOES NOT AFFECT EMPLOYMENT. Neither the creation of this Plan, any
amendment thereto, the creation of any fund nor the payment of benefits
hereunder shall be construed as giving any legal or equitable right to any
Employee or Participant against the Employer, its officers or Employees, or
against the Trustee. All liabilities under this Plan shall be satisfied, if at
all, only out of the Trust Fund held by the Trustee. Participation in the Plan
shall not give any Participant any right to be retained in the employ of the
Employer, and the Employer hereby expressly retains the right to hire and
discharge any Employee at any time with or without cause, as if the Plan had not
been adopted, and any such discharged Participant shall have only such rights or
interests in the Trust Fund as may be specified herein.
14.2 SUCCESSOR TO THE EMPLOYER. In the event of the merger, consolidation,
reorganization or sale of assets of the Employer, under circumstances in which a
successor person, firm, or corporation shall carry on all or a substantial part
of the business of the Employer, and such successor shall employ a substantial
number of Employees of the Employer and shall elect to carry on the provisions
of the Plan, such successor shall be substituted for the Employer under the
terms and provisions of the Plan upon the filing in writing with the Trustee of
its election to do so.
14.3 REPAYMENTS TO THE EMPLOYER. Notwithstanding any provisions of this Plan
to the contrary:
(a) Any monies or other Plan assets attributable to any contribution made to
this Plan by the Employer because of a mistake of fact shall be returned to
the Employer within one (1) year after the date of contribution.
(b) Any monies or other Plan assets attributable to any contribution made to
this Plan by the Employer shall be refunded to the Employer, to the extent
such contribution is predicated on the deductibility thereof under the Code
and the income tax deduction for such contribution is disallowed. Such
amount shall be refunded within one (1) taxable year after the date of such
disallowance or within one (1) year of the resolution of any judicial or
administrative process with respect to the disallowance. All Employer
contributions hereunder are expressly contributed based upon such
contributions' deductibility under the Code.
However, the provisions of this Section shall not apply to elective deferrals
made by a Participant under Section 4.1.
14.4 BENEFITS NOT ASSIGNABLE. Except as provided in Section 414(p) of the Code
with respect to "qualified domestic relations orders," the rights of any
Participant or his Beneficiary to any benefit or payment hereunder shall not be
subject to voluntary or involuntary alienation or assignment.
With respect to any "qualified domestic relations order" relating to the Plan,
the Plan shall permit distribution to an alternate payee under such order at any
time, irrespective of whether the Participant has attained his "earliest
retirement age" (within the meaning of Section 414(p)(4)(B) of the Code) under
the Plan. A distribution to an alternate payee prior to the Participant's
attainment of his earliest retirement age shall, however, be available only if
the order specifies distribution at that time or permits an agreement between
the Plan and the alternate payee to authorize an earlier distribution. Nothing
in this paragraph shall, however, give a Participant a right to receive
distribution at a time otherwise not permitted under the Plan nor does it permit
the alternate payee to receive a form of payment not otherwise permitted under
the Plan or under said Section 414(p) of the Code.
14.5 MERGER OF PLANS. In the case of any merger or consolidation of this Plan
with, or transfer of the assets or liabilities of the Plan to, any other plan,
the terms of such merger, consolidation or transfer shall be such that each
Participant would receive (in the event of termination of this Plan or its
successor immediately thereafter) a benefit which is no less than what the
Participant would have received in the event of termination of this Plan
immediately before such merger, consolidation or transfer.
14.6 INVESTMENT EXPERIENCE NOT A FORFEITURE. The decrease in value of any
Account due to adverse investment experience shall not be considered an
impermissible "forfeiture" of any vested balance.
14.7 DISTRIBUTION TO LEGALLY INCAPACITATED. In the event any benefit is payable
to a minor or to a person deemed to be incompetent or to a person otherwise
under legal disability, or who is by sole reason of advanced age, illness, or
other physical or mental incapacity incapable of handling the disposition of his
property, the Administrator, may direct the Trustee to apply all or any portion
of such benefit directly to the care, comfort, maintenance, support, education
or use of such person or to pay or distribute the whole or any part of such
benefit to (a) the spouse of such person, (b) the parent of such person, (c) the
guardian, committee, or other legal representative, wherever appointed, of such
person, (d) the person with whom such person shall reside, (e) any other person
having the care and control of such person, or (f) such person. The receipt of
any such payment or distribution shall be a complete discharge of liability for
Plan obligations.
14.8 CONSTRUCTION. Wherever appropriate, the use of the masculine gender shall
be extended to include the feminine and/or neuter or vice versa; and the
singular form of words shall be extended to include the plural; and the plural
shall be restricted to mean the singular.
14.9 GOVERNING DOCUMENTS. A Participant's rights shall be determined under the
terms of the Plan as in effect at the Participant's date of separation from
Service.
14.10 GOVERNING LAW. The provisions of this Plan shall be construed under the
laws of the state of the situs of the Trust, except to the extent such laws are
preempted by Federal law.
14.11 HEADINGS. The Article headings and Section numbers are included solely for
ease of reference. If there is any conflict between such headings or numbers and
the text of the Plan, the text shall control.
14.12 COUNTERPARTS. This Plan may be executed in any number of counterparts,
each of which shall be deemed an original; said counterparts shall constitute
but one and the same instrument, which may be sufficiently evidenced by any one
counterpart.
14.13 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN. In the event that all or
any portion of the distribution payable to a Participant or to a Participant's
Beneficiary hereunder shall, at the expiration of five (5) years after it shall
become payable, remain unpaid solely by reason of the inability of the
Administrator to ascertain the whereabouts of such Participant or Beneficiary,
after sending a registered letter, return receipt requested, to the last known
address, and after further diligent effort, the amount so distributable shall be
handled in the same manner as a forfeiture under Section 6.2 pursuant to this
Plan. In the event a Participant or Beneficiary is located subsequent to the
forfeiture of his Account balance, such Account balance shall be restored in
accordance with the provisions of Section 6.2.
IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has caused
this Plan to be executed on the ________________ day of _________________,
199___.
DAY RUNNER, INC.
By ___________________________
Authorized Officer
DAY RUNNER, INC. 401(K) PLAN
TRUST AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE PAGE
I Establishment of Trust and Appointment and Acceptance of Trustee.........................................1
1.01 Establishment of Trust........................................................................1
1.02 Title of Trust................................................................................1
1.03 Appointment and Acceptance of Trustee.........................................................1
1.04 Effectiveness.................................................................................1
II Fiduciaries..............................................................................................1
2.01 Administrative and Investment Fiduciaries.....................................................1
2.02 Identification of Fiduciaries and Designees...................................................2
III Trust Fund 2
3.01 Receipts......................................................................................2
3.02 Trust ........................................................................................2
3.03 Another Trust.................................................................................3
IV Investments..............................................................................................3
4.01 Investment Management.........................................................................3
4.02 Investment Managers...........................................................................3
4.03 Participant Direction.........................................................................3
4.04 Selection of Investments......................................................................4
4.05 Funds Awaiting Investment.....................................................................4
4.06 Voting, Tendering and Other Rights............................................................4
4.07 Services Through Affiliated Organizations.....................................................4
4.08 Investment Directions.........................................................................5
4.09 Custody of Participant Loan Documentation.....................................................5
4.10 Common and Collective Trust Funds.............................................................5
4.11 Mutual and Other Investment Funds.............................................................5
V Disbursements, Administrative Directions and Expenses....................................................6
5.01 Disbursements ................................................................................6
5.02 Administrative Fiduciary's Directions.........................................................6
5.03 Disputed Payments.............................................................................6
5.04 Taxes.........................................................................................7
5.05 Expenses of Administration....................................................................7
<PAGE>
ARTICLE PAGE
VI Powers of Trustee........................................................................................7
6.01 Nondiscretionary Investment Powers............................................................7
6.02 Standard of Care.............................................................................10
6.03 Location and Indicia of Ownership............................................................10
VII Responsibilities, Agents, Indemnification and Bonding...................................................10
7.01 Relationship of Fiduciaries..................................................................10
7.02 Benefit of Participants......................................................................10
7.03 Agents of Administrative Fiduciary and
Investment Fiduciary.........................................................................10
7.04 Agents of Trustee............................................................................10
7.05 Protection of Designees......................................................................10
7.06 Bond.........................................................................................11
7.07 Indemnification..............................................................................11
7.08 Trustee's Reliance...........................................................................11
7.09 Survival of Provisions.......................................................................11
VIII Payments to Trustee and Agents..........................................................................11
8.01 Payments to the Trustee......................................................................11
8.02 Expenses and Compensation....................................................................12
IX Records, Accountings and Valuations.....................................................................12
9.01 Records......................................................................................12
9.02 Accountings..................................................................................12
9.03 Valuation....................................................................................13
X Amendment and Termination of Trust......................................................................13
10.01 Amendment....................................................................................13
10.02 Termination..................................................................................13
XI Resignation and Removal of Trustee......................................................................13
11.01 Resignation..................................................................................13
11.02 Removal......................................................................................14
11.03 Appointment of a Successor...................................................................14
11.04 Settlement of Account........................................................................14
11.05 Termination of Responsibility and Liability..................................................14
<PAGE>
ARTICLE PAGE
XII Miscellaneous...........................................................................................14
12.01 Exclusive Benefit Rule.......................................................................14
12.02 Conflict with Plan...........................................................................14
12.03 Failure to Maintain Qualification............................................................15
12.04 Appointment of a Successor...................................................................15
12.05 Restriction on Alienation....................................................................15
12.06 Payment on Court Order.......................................................................15
12.07 Arbitration..................................................................................15
12.08 Governing Law and Construction...............................................................16
12.09 Successors and Assigns.......................................................................16
12.10 Gender.......................................................................................16
12.11 Headings.....................................................................................16
12.12 Counterparts.................................................................................16
12.13 Special, Indirect or Consequential Damages...................................................16
12.14 Amendment, Modification or Waiver............................................................17
SCHEDULES
A Administrative and Investment Fiduciaries and Agents.........................................18
B Selection of Investments, Including Investment
for Funds Awaiting Investment and Default Investment.......................................19
C Voting of Employer Securities................................................................20
D Existing GICs/GACs...........................................................................21
E Trustee's Fees and Expenses and Allocation Method............................................22
</TABLE>
<PAGE>
DAY RUNNER, INC. 401(K) PLAN
TRUST AGREEMENT
This Trust Agreement is entered into as of July 1, 1998, by and between
the Day Runner, Inc. (the "Sponsor") and New York Life Trust Company, a
New York corporation (the "Trustee"), with respect to a trust ("Trust")
forming part of the Day Runner, Inc. 401(k) Plan (the "Plan") and shall
supersede any previous trust agreements.
The Sponsor and the Trustee hereby agree as follows:
ARTICLE I
ESTABLISHMENT OF TRUST AND APPOINTMENT
AND ACCEPTANCE OF TRUSTEE
1.01 Establishment of Trust. The Trust is intended to be a qualified trust
under section 401(a) of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), and exempt from taxation pursuant to
section 501(a) of the Code. If this Trust is established as a successor
trust, the Trustee shall have no duty to ascertain the qualified status
of any prior trust.
1.02 Title of Trust. The Trust shall be known as the Day Runner, Inc.
401(k) Trust.
1.03 Appointment and Acceptance of Trustee. The Sponsor hereby appoints New
York Life Trust Company as Trustee of the Trust and represents that
this Trust Agreement constitutes a legal, valid and binding obligation
of the Sponsor.
The Trustee accepts its appointment as Trustee hereunder.
1.04 Effectiveness. This Trust Agreement shall become effective as of July 1,
1998.
ARTICLE II
FIDUCIARIES
2.01 Administrative and Investment Fiduciaries. The Sponsor agrees that it
shall appoint, by resolution of its Board of Directors, or other
governing body, an Administrative Fiduciary and an Investment
Fiduciary. The Sponsor further agrees that it shall ensure that such
Administrative Fiduciary and Investment Fiduciary each adhere to their
respective responsibilities set forth in this Trust Agreement.
"Administrative Fiduciary" refers to the person(s) or entity which is
responsible for the administration and operation of the Plan.
"Investment Fiduciary" refers to the person(s) or entity which is
responsible for the investment and management of Plan assets. The
Administrative Fiduciary and the Investment Fiduciary may be the same
person(s) or entity. If the Administrative and/or Investment
Fiduciaries designated on Schedule A are not then serving, the Sponsor
shall be the Administrative Fiduciary or the Investment Fiduciary or
both, as the case may be. In no event shall the Trustee be either the
Administrative Fiduciary or the Investment Fiduciary.
2.02 Identification of Fiduciaries and Designees. The Administrative
Fiduciary and the Investment Fiduciary under the Plan shall each be
identified to the Trustee by the Sponsor on Schedule A attached hereto,
and specimen signatures of each member thereof, shall be provided to
the Trustee by the Sponsor in a form acceptable to the Trustee. The
Sponsor shall promptly give written notice to the Trustee of a change
in the identity of the Administrative Fiduciary or Investment
Fiduciary, or any member thereof, by submitting a revised Schedule A to
the Trustee, and until such revised Schedule A is received by the
Trustee, the Trustee shall be fully protected in assuming that the
identity on Schedule A of the Administrative Fiduciary or Investment
Fiduciary, and the members thereof, is unchanged. Each person
authorized in accordance with the Plan to give a direction to the
Trustee on behalf of the Administrative Fiduciary or the Investment
Fiduciary shall be identified to the Trustee and such Schedule A shall
contain a specimen of the signature of each such authorized person. The
Trustee shall be entitled to rely on Schedule A as evidence of the
identity and authority of the persons appointed until a revised
Schedule A setting forth the appointment of a successor is received by
the Trustee from the Sponsor, the Administrative Fiduciary, or
Investment Fiduciary, as the case may be. A revision to Schedule A
hereunder shall not require or constitute formal amendment of this
Trust Agreement.
ARTICLE III
TRUST FUND
3.01 Receipts. The Trustee shall receive in cash or other assets acceptable
to the Trustee, subject to any applicable minimum amount established by
the Trustee, all contributions paid or delivered to it which are
allocable under the Plan and to the Trust and all transfers paid or
delivered under the Plan to the Trust from a predecessor trustee or
another trust of a plan qualified under section 401(a) of the Code,
provided that the Trustee shall not be obligated to receive any such
contribution or transfer unless prior thereto, as the Trustee may
specify, the Trustee has received such reconciliation, allocation,
investment or other information concerning, or such direction,
contribution or representation with respect to, the contribution or
transfer or the source thereof as the Trustee, in its sole discretion,
may require. The Trustee shall have no duty or authority to (a) require
any contributions or transfers to be made under the Plan or to the
Trustee, (b) compute any amount to be contributed or transferred under
the Plan to the Trustee, or (c) determine whether amounts received by
the Trustee comply with the Plan. The Trustee shall not be responsible
for any assets until it receives such assets.
3.02 Trust. The Trust shall consist of all money and other property
acceptable to and received by the Trustee pursuant to Section 3.01
hereof, plus any income or gains on such assets and less any investment
loss or expense, benefit or disbursement paid pursuant to this Trust
Agreement or the Plan. The Trustee shall hold the Trust, without
distinction between principal and income, as a nondiscretionary trustee
pursuant to the terms of this Trust Agreement. The Trustee may use a
general disbursement account for distributions from the Trust, without
incurring any liability for payment of interest thereon,
notwithstanding the Trustee's receipt of credit or interest in respect
of funds held in such disbursement account.
3.03 Another Trust. If the Sponsor so elects, and the Trustee consents, the
Sponsor may appoint another trustee under the Plan with respect to
assets which the Sponsor desires to contribute or have transferred to
the Trustee, but which the Trustee does not choose to accept. The
Trustee shall discharge its duties and responsibilities solely with
respect to those assets of the Trust delivered into its possession and,
except pursuant to the Employee Retirement Income Security Act of 1974,
as amended from time to time ("ERISA"), shall have no duties or
responsibilities or obligations with respect to property of the other
trust nor any liability for the acts or omissions of the other trustee.
As a condition to the Trustee's consent to the appointment of another
trustee, the Sponsor shall assure that recordkeeping, distribution and
reporting procedures are established on a coordinated basis between the
Trustee and the other trustee as the Trustee considers necessary or
appropriate with respect to the Trust.
ARTICLE IV
INVESTMENTS
4.01 Investment Management. The Investment Fiduciary shall manage the
investment of the Trust except insofar as (a) a person (an "Investment
Manager") who meets the requirements of section 3(38) of ERISA has
authority to manage Trust assets as referred to in Section 4.02 hereof,
or (b) the Plan provides for participant or beneficiary direction of
the investment of assets allocable under the Plan to the accounts of
such participants and beneficiaries. Except as may otherwise be
required by ERISA, the Trustee shall invest the Trust as directed by
the Investment Fiduciary, an Investment Manager or a Plan participant
or beneficiary, as the case may be, and the Trustee shall have no
discretionary control over, nor any other discretion regarding, the
investment or reinvestment of any asset of the Trust.
4.02 Investment Managers. Notwithstanding any provision of the Plan to the
contrary, the Investment Fiduciary may appoint one or more Investment
Managers, who may be an affiliate of the Trustee, provided such
appointment does not violate any law or regulation, to direct the
Trustee in the investment of all or a specified portion of the assets
of the Trust. Any such Investment Manager shall be directed by the
Investment Fiduciary to act in accordance with the procedures referred
to in Section 4.08. The Investment Fiduciary shall notify the Trustee
in writing before the effectiveness of the appointment or removal of
any Investment Manager.
If there is more than one Investment Manager whose appointment is
effective under the Plan at any one time, the Trustee shall, upon
written instructions from the Investment Fiduciary, establish separate
funds for control by each such Investment Manager. The funds shall
consist of those Trust assets designated by the Investment Fiduciary.
4.03 Participant Direction. In the event the Plan provides for participant
or beneficiary direction of investment of assets allocable under the
Plan to the accounts of such participants and beneficiaries, such
information as the Trustee may specify shall be provided by the Sponsor
or the Administrative Fiduciary to the Trustee, and/or such other
person(s) as are necessary, for the implementation of the directions in
accordance with procedures established by the Trustee.
4.04 Selection of Investments. The Investment Fiduciary or any duly
appointed Investment Manager, as the case may be, shall set forth on
Schedule B attached hereto, those investments, from among the permitted
investments listed in Section 6.01 hereof and subject to the Trustee's
acceptance of such investments, in which the assets of the Trust shall
be invested. Schedule B may be revised from time to time in writing by
the Investment Fiduciary or any duly appointed Investment Manager, as
the case may be, and delivered to the Trustee, without formal amendment
of this Trust Agreement. Notwithstanding the permissible investments
listed in Section 6.01 hereof, the Trustee may limit the categories of
assets in which the Trust may be invested.
4.05 Funds Awaiting Investment. It is understood that the Trustee may, from
time to time, have on hand funds which are received as contributions or
transfers to the Trust, including IRA rollovers, which are awaiting
investment, or funds from the sale of Trust assets which are awaiting
reinvestment. Absent receipt by the Trustee of a direction from the
proper person for the investment or reinvestment of such funds or
otherwise prior to the application of funds in implementation of such a
direction, the Trustee shall cause such funds to be invested in the
MainStay Institutional Money Market Fund (Institutional Class). The
Investment Fiduciary or duly appointed Investment Manager, as the case
may be, hereby acknowledges that it has read or will have read the then
current prospectus (or similar disclosure document) for said fund.
4.06 Voting, Tendering and Other Rights. Unless directed otherwise in
writing by the Sponsor or the Investment Fiduciary, the Trustee shall
vote all proxy and other materials for all securities held by the
Trust, other than "employer securities" (within the meaning of Section
407(d)(1) of ERISA) in accordance with the recommendations made by the
common or collective trust's or mutual fund's board of trustees, board
of directors, or other governing body. If all or any part of the Trust
Fund consists of "employer securities" (within the meaning of Section
407(d)(1) of ERISA), the voting of such securities shall be made in
accordance with the provisions of Schedule C of this Trust Agreement.
Except as required under ERISA, the Trustee shall follow all directions
in this Section 4.06 and shall have no duty to exercise voting or other
rights relating to any such security or other asset.
4.07 Services Through Affiliated Organizations. The Trustee may enter into
agreements with New York Life Insurance Company ("NYLIFE"), NYLIFE
Securities Inc. ("Broker"), NYLIFE Distributors, Inc. ("Underwriter"),
and any of their affiliates and/or subsidiaries, successors and assigns
for the provision of services to the Trust. The Trustee is specifically
authorized to place securities orders, settle securities trades, hold
securities in custody and perform related activities on behalf of the
Trust through or by the Broker. The Broker shall perform such acts for
the participants' accounts only if the Investment Fiduciary has
designated the Broker as the brokerage firm for participants' accounts
under the Plan and the Investment Fiduciary and participants have
received disclosure as described in this Section 4.07.
Trades and related activities effected through the Broker shall be
subject to fees and commissions established by the Broker, which may be
paid from the Trust or netted from the proceeds of trades.
No trades shall be executed through the Broker or other services
provided unless the Sponsor or Investment Fiduciary has received
disclosure concerning the relationship of NYLIFE, Broker, Underwriter,
or their affiliates, as the case may be, to the Trustee, and notice of
the fees and commissions that may be paid to NYLIFE, the Broker, the
Underwriter, Trustee and/or their affiliates or subsidiaries.
4.08 Investment Directions. Directions for the investment or reinvestment of
Trust assets from the Investment Fiduciary, an Investment Manager or a
Plan participant or beneficiary, as the case may be, shall be
communicated to, and implemented by, the Trustee, the Trustee's
designee or, with the Trustee's consent, a broker/dealer designated for
the purpose by the Investment Fiduciary. Communication of any such
direction to the Trustee or to such a designee or broker/dealer shall
be in a manner acceptable to the Trustee and shall conclusively be
deemed an authorization to the Trustee, such designee or broker/dealer
to implement the direction. The Trustee shall have no liability for it
or any other person following such directions or failing to act in the
absence of any such directions. The Trustee shall have no liability for
the acts or omissions of any person directing the investment or
reinvestment of Trust assets or making or failing to make any direction
referred to in Section 4.06. Neither shall the Trustee have any duty or
obligation to review any such investment or other direction, act or
omission or, except upon receipt of a proper direction, to invest or
otherwise manage any asset of the Trust which is subject to the control
of any such person or to exercise any voting or other right referred to
in Section 4.06.
In the event no direction is received with respect to investment or
reinvestment of uninvested Trust assets, such assets shall be invested
by the Trustee in the investment specified on Schedule B attached
hereto.
4.09 Custody of Participant Loan Documentation. If participant loans are
permitted under the Plan, the Administrative Fiduciary or New York Life
Benefit Services, Inc. ("NYLBSI"), an affiliate of the Trustee, may act
as the Trustee's agent for the purpose of holding all participant loan
notes and related documentation and as such shall (a) hold physical
custody of and keep safe the notes and other loan documents, (b)
collect and remit all principal and interest payments to the Trustee,
(c) keep the proceeds of such loans separate from the other assets of
the Administrative Fiduciary and clearly identify such assets as Plan
assets, (d) advise the Trustee of the date, amount and payee of the
checks to be drawn representing loans, and (e) cancel and surrender the
notes and other loan documentation when a loan has been paid in full.
4.10 Common and Collective Trust Funds. The Investment Fiduciary may direct
the Trustee to invest the assets of the Trust in a common or collective
trust established for the investment of the assets of employee benefit
plans qualified under Section 401(a) of the Code, individual retirement
accounts under section 408(a) of the Code and plans of governmental
units described in section 818(a)(6) of the Code maintained by the
Trustee or its affiliates. The documents governing any such common or
collective trust fund in which Trust assets have been invested are
hereby incorporated into this Trust Agreement by reference.
4.11 Mutual and Other Investment Funds. The Investment Fiduciary may direct
the Trustee to purchase shares of a regulated investment company, or an
interest in another pooled investment fund (individually and
collectively referred to hereafter as "Investment Fund") advised,
managed or offered by NYLIFE, Broker, Underwriter or Trustee, or an
affiliate or subsidiary of any of them. If any such Investment Fund
held on behalf of the Trust or a participant account is terminated or
reorganized, or a new series or class of such Investment Fund is
issued, pursuant to the terms set forth in the prospectus, statement of
additional information or other documents governing such Investment
Fund, the Trustee shall be authorized to surrender any shares or
interests in such Investment Fund, and accept and hold shares or
interests of equivalent value issued in connection with such
termination, reorganization or issuance on behalf of the Trust and
participant accounts, as applicable.
The Sponsor acknowledges that the Investment Fiduciary and the
participants, if appropriate, have received a copy of the prospectus or
other similar disclosure document for each Investment Fund selected by
the Investment Fiduciary, any duly appointed Investment Manager, or the
participants, as the case may be.
Purchases and sales of units of Investment Funds (other than for
exchanges) shall be made on the date on which the Trustee receives from
the Sponsor or Investment Fiduciary, in good order, all information and
documentation necessary to accurately effect such purchases and sales
(or in the case of a purchase, the subsequent date on which the Trustee
has received the funds necessary to make such purchase).
ARTICLE V
DISBURSEMENTS, ADMINISTRATIVE DIRECTIONS AND EXPENSES
5.01 Disbursements. Disbursements of money or property from the Trust shall
be made by the Trustee upon direction from the Administrative Fiduciary
or its designee. Disbursements by the Trustee shall be transmitted to
the Administrative Fiduciary or its designee for delivery to the proper
payees or to payee addresses supplied by the Administrative Fiduciary
or its designee, and the Trustee's obligation to make such payments
shall be satisfied upon such transmittal. The Trustee shall have no
obligation to determine the identity of persons entitled to
disbursements under the Plan or their addresses furnished by the
Administrative Fiduciary, its designee or agent in accordance with the
terms of this Trust. The Trustee shall not be required to make any
disbursement in excess of the liquidated value of the Trust at the time
of the disbursement. The Trustee shall not be responsible for the
adequacy of the Trust to meet and discharge any and all disbursements
and liabilities under the Plan.
5.02 Administrative Fiduciary's Directions. Directions from or on behalf of
the Administrative Fiduciary or its designee shall be communicated to
the Trustee or the Trustee's designee only in a manner and in
accordance with procedures acceptable to the Trustee. The Trustee's
designee shall be empowered to implement any such directions, provided
they are in accordance with procedures acceptable to the Trustee. The
Trustee shall have no liability for following any such directions or
failing to act in the absence of any such directions. The Trustee shall
have no liability for the acts or omissions of any person making or
failing to make any directions under the Plan or this Trust Agreement
nor any duty or obligation to review any such direction, act or
omission.
5.03 Disputed Payments. If a dispute arises over the propriety of the
Trustee making any payment from the Trust, the Trustee may withhold the
payment until the dispute has been resolved by a court of competent
jurisdiction or settled by the parties to the dispute. The Trustee may
consult legal counsel and shall be fully protected in acting upon the
advice of counsel. The Sponsor hereby indemnifies the Trustee pursuant
to Section 7.07 of this Trust Agreement for any acts taken or failed to
be taken in good faith by the Trustee under this Section 5.03.
5.04 Taxes. The Trustee is authorized, with or without direction from the
Administrative Fiduciary or any other person, to deduct from and charge
against the Trust any taxes or assessments by any lawful taxing or
governmental authority, including interest and penalties with respect
thereto, which may be imposed upon the Trust or any account or the
income thereof, or which the Trustee is required to pay with respect to
the interest of any person therein, under existing or future laws. The
Trustee shall have full power to pay any such tax or assessment, in the
case of an individual account plan as defined in section 3(34) of
ERISA, only out of any money or other property in the account of the
person whose interest is liable therefor, provided that at least
fifteen (15) days prior to making such payment the Trustee shall give
notice to the Administrative Fiduciary of its intention to make such
payment. Until paid, such taxes shall be a lien against the Trust. The
Trustee shall not be personally liable for any such taxes, charges or
assessments.
5.05 Expenses of Administration. Expenses incurred by the Sponsor,
Administrative Fiduciary, Investment Fiduciary, any Investment Manager
designated pursuant to Section 4.02, or any other persons designated to
act on behalf of the Sponsor, Administrative Fiduciary or Investment
Fiduciary, including reimbursement for expenses incurred in the
performance of their respective duties shall be paid from the Trust
unless paid directly by the Sponsor.
ARTICLE VI
POWERS OF TRUSTEE
6.01 Nondiscretionary Investment Powers. At the direction of the person
authorized to direct such action as referred to in Article IV hereof,
but limited to those assets or categories of assets acceptable to the
Trustee as referred to in Sections 3.01 and 4.04, the Trustee, or the
Trustee's designee or a broker/dealer as referred to in Section 4.07
and 4.08, is authorized and empowered:
(a) To invest and reinvest the Trust Fund, together with the income
therefrom, in:
(i) Common stock, preferred stock, convertible preferred
stock, bonds, debentures, convertible debentures and
bonds, mortgages, notes, commercial paper and other
evidences of indebtedness;
(ii) Bank investment contracts;
(iii) Shares of regulated investment companies, including those
advised, managed or offered by the Trustee, or an
affiliate of the Trustee;
(iv) Common, pooled, group or commingled investment funds
established for the investment of the assets of employee
benefit plans qualified under section 401 of the Code,
individual retirement accounts under section 408(a) of the
Code and plans of governmental units described in section
818(a)(6) of the Code maintained by the Trustee or its
affiliates. The commingling of assets of this Trust with
assets of other qualified trusts in such funds is hereby
specifically authorized; provided, however, the
declaration of trust establishing any such fund, as
amended from time to time, will be a part of this Trust
Agreement;
(v) Options to buy or sell securities or other assets,
provided same are within regulated investment companies or
common, pooled, group or commingled investment funds;
(vi) Notes evidencing loans to participants in accordance with
the terms of the Plan;
(vii) Equity securities issued by the Sponsor or an affiliate
which are "qualifying employer securities" within the
meaning of Section 407(d)(5) of ERISA, as amended;
(viii)Stable value investments, whether or not issued by an
affiliate of the Trustee, including, without limitation,
separate account contracts, guaranteed investment
contracts ("GICs"), and synthetic guaranteed investment
contracts ("synthetic GICs");
(ix) Guaranteed investment and annuity contracts heretofore
entered into by the predecessor trustee and specifically
identified on Schedule D attached hereto ("Existing GICs")
provided, however, that the Investment Fiduciary hereby
directs the Trustee to continue to hold such Existing GICs
until the Investment Fiduciary directs otherwise, it being
expressly understood that such direction is given in
accordance with Section 403(a) of ERISA; and
(x) Other marketable securities traded on a national
securities exchange which are acceptable to the Trustee.
(b) To sell, exchange, convey, transfer, or otherwise dispose of any
property held in the Trust, by private contract or at public
auction. No person dealing with the Trustee shall be bound to
see to the application of the purchase money or other property
delivered to the Trustee or to inquire into the validity,
expediency, or propriety of any such sale or other disposition.
(c) To cause any securities or other property held as part of the
Trust to be registered in the Trustee's own name, in the name of
one or more of its nominees or to be held in bearer form, but
the books and records of the Trustee shall at all times show
that all such investments are part of the Trust.
(d) To keep that portion of the Trust in cash or cash balances as
the Investment Fiduciary may, from time to time, deem to be in
the best interest of the Trust.
(e) To make, execute, acknowledge, and deliver any and all documents
of transfer or conveyance and to carry out the powers herein
granted.
(f) To consent to or participate in any plans for the
reorganization, recapitalization, consolidation or merger, or
sale or lease of assets of any corporation, any security of
which is held in the Trust, and to pay any and all costs and
assessments imposed upon the owners of such securities as a
condition of their participation therein, and to consent to any
contract, lease, mortgage, purchase or sale of property, by or
between such corporation and any other corporation or person.
(g) To grant options to purchase any property.
(h) To foreclose any obligation by judicial proceedings or otherwise.
(i) To disclose any information concerning the existence, condition,
management and administration of the assets of the Trust as may
be required by law or as may be necessary to prepare any reports
required by law.
(j) To lend, through a common, collective, or Investment Fund, any
securities held in such fund to brokers, dealers or other
borrowers and to permit the loaned securities to be transferred
into the name and custody and be voted by the borrower or
others.
(k) To retain any assets in the Trust for such period of time as the
Trustee deems appropriate.
(l) To exercise or dispose of any conversion privilege or
subscription right which the Trustee may have as a holder of any
security or otherwise.
(m) To deposit any security in any voting trust or under any pooling
agreement or with any protective or reorganization committee, or
with depositories designated by such trust, agreement or
committee, and to delegate such power and authority with
relation thereto as the Trustee may deem proper, and to agree to
pay and to pay out of the Trust assets such portion of the
expenses and compensation of such trust, agreement or committee
as the Trustee may deem proper.
(n) To execute and deliver any general or specific proxies or powers
of attorney, with or without power of substitution, to such
person or persons as the Trustee may deem proper, granting to
such persons such power and authority with relation to any
property or securities at any time held by the Trust as the
Trustee may deem proper.
(o) To borrow money from any source other than a "party in interest"
(as such term is defined by Section 3(14) of ERISA) with or
without giving security, and to encumber the Trust assets by
mortgage, deed of trust, pledge or otherwise.
(p) To renew or extend the time of payments of any obligation due or
becoming due.
(q) To settle, compromise, or submit to arbitration any claims,
debts, or damages due to or arising from the Trust; to commence
or defend suits or legal or administrative proceedings; to
represent the Trust in all suits and legal and administrative
hearings; and to pay all reasonable expenses arising from any
such action, from the Trust if not paid by the Sponsor.
(r) To employ legal, accounting, clerical, and other assistance as
may be required in carrying out the provisions of this Trust
Agreement and to pay their reasonable expenses and compensation
from the Trust if not paid by the Sponsor.
(s) To do all other acts although not specifically mentioned herein,
as the Trustee may deem necessary to carry out any of the
foregoing powers and the purposes of this Trust Agreement.
<PAGE>
6.02 Standard of Care. The Trustee shall discharge its duties hereunder with
the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in like capacity and familiar with
such matters would use in the conduct of an enterprise of a like
character and with like aims. As a directed trustee, the Trustee
assumes no responsibility and shall not be liable for any losses
sustained by the Trust by reason of the purchase, retention, sale or
exchange of any investment in accordance with the provisions of this
Trust Agreement and in accordance with ERISA and the regulations
promulgated thereunder.
6.03 Location and Indicia of Ownership. Except as permitted by ERISA, the
Trustee shall not maintain the indicia of ownership of any assets of
the Trust outside the jurisdiction of the district courts of the United
States.
ARTICLE VII
RESPONSIBILITIES, AGENTS, INDEMNIFICATION AND BONDING
7.01 Relationship of Fiduciaries. Each fiduciary of the Plan and this Trust
shall be solely responsible for its own acts or omissions. The Trustee
shall have no duty to question any other Plan fiduciary's performance
of fiduciary duties allocated to such other fiduciary pursuant to the
Plan or this Trust Agreement. The Trustee shall not be responsible for
a breach of responsibility by any other Plan fiduciary except as
provided for in ERISA.
7.02 Benefit of Participants. Each fiduciary, within the meaning of the Code
and ERISA, shall discharge its duties with respect to the Trust solely
in the interest of participants in the Plan and their beneficiaries and
for the exclusive purpose of providing benefits to such participants
and beneficiaries and defraying reasonable expenses of administering
the Plan.
7.03 Agents of Administrative Fiduciary and Investment Fiduciary. The
Administrative Fiduciary and the Investment Fiduciary may use agents,
as identified in Schedule A attached hereto, for the purpose of
satisfying its responsibilities under the terms of the Plan and this
Trust Agreement. The direction of the Trustee by any such agent shall
have the same effect as if made directly by the Administrative
Fiduciary or Investment Fiduciary, as appropriate, under this Trust
Agreement. In connection herewith, the Sponsor hereby designates
NYLBSI, by its authorized individuals, as the party who may provide the
Trustee with directions from the Administrative Fiduciary and
Investment Fiduciary upon which the Trustee will be fully protected in
relying to the extent consistent with this Trust Agreement. The
signature of each authorized NYLBSI individual will be provided and
certified to the Trustee by NYLBSI.
7.04 Agents of Trustee. The Sponsor, Administrative Fiduciary and Investment
Fiduciary acknowledge and authorize the Trustee to use and employ
agents, including its affiliates, in the performance of its
responsibilities under this Agreement. The expenses and compensation
for the services of any such agent as specified in Schedule E attached
hereto, shall be paid from the Trust unless paid directly by the
Sponsor as set forth in Section 8.01 of this Trust Agreement.
7.05 Protection of Designees. To the extent that any designee of the Trustee
is performing a function of the Trustee under this Trust Agreement, the
designee shall have the benefit of all of the applicable limitations on
the scope of the Trustee's duties and liabilities, all applicable
rights of indemnification granted hereunder to the Trustee and all
other applicable protections of any nature afforded to the Trustee
provided the designation is pursuant to this Trust Agreement and
consistent with the requirements of ERISA.
7.06 Bond. The Trustee hereby warrants that it complies with the bonding
provisions of Section 412 of ERISA.
7.07 Indemnification. The Sponsor hereby indemnifies the Trustee against,
and shall hold the Trustee harmless from, any and all loss, claim,
liability, and expense, including reasonable attorneys fees, imposed
upon the Trustee or incurred by the Trustee as a result of any acts
taken, or any failure to act, in accordance with directions from the
Administrative Fiduciary, Investment Fiduciary, Investment Manager or
any other person specified in Article IV or V hereof, or any designee
of any such person, or by reason of the Trustee's good faith execution
of its duties with respect to the Trust, including, but not limited to,
its holding of assets of the Trust as provided for in Section 3.02, the
Sponsor's obligations in the foregoing regard to be satisfied promptly
on request by the Trustee, provided that in the event that the loss,
claim, liability or expense involved is determined by a no longer
appealable final judgment entered in a lawsuit or proceeding to have
resulted from the negligence or willful misconduct of the Trustee, the
Trustee shall promptly thereafter return to the Sponsor any amount
previously received by the Trustee under this Section with respect to
such loss, claim, liability or expense.
7.08 Trustee's Reliance. The Trustee shall have no duty to inquire whether
directions by the Sponsor, the Administrative Fiduciary, the Investment
Fiduciary or any other person conform to the Plan, and the Trustee
shall be fully protected in relying on such direction communicated in
accordance with procedures acceptable to the Trustee from any person
who the Trustee reasonably believes is a proper person to give the
direction. The Trustee shall have no liability to any participant, any
beneficiary or any other person for payments made, any failure to make
payments, or any discontinuance of payments, on direction of the
Administrative Fiduciary, the Investment Fiduciary or any designee of
either of them, or for any failure to make payments in the absence of
directions from the Administrative Fiduciary or any person responsible
for or purporting to be responsible for directing the investment of
Trust assets. The Trustee shall have no obligation to request proper
directions from any person. The Trustee may request instructions from
the Administrative Fiduciary or the Investment Fiduciary and shall have
no duty to act or liability for failure to act if such instructions are
not forthcoming.
7.09 Survival of Provisions.The provisions of this Article VII shall survive
the termination of this Trust Agreement.
ARTICLE VIII
PAYMENTS TO TRUSTEE AND AGENTS
8.01 Payments to the Trustee. The Sponsor understands and acknowledges that
the Trustee's fees would be higher if the Trustee did not receive
credit and/or interest on aggregate cash balances the Trustee has on
deposit with a third party bank in respect of the Trust either (i) with
respect to funds awaiting investment or reinvestment, where such funds
are received by the Trustee on any day after the close of the New York
Stock Exchange, or (ii) with respect to funds pending distribution from
the Trust. Except as otherwise provided by ERISA, regulations
promulgated thereunder, and interpretations by the Department of Labor,
the Sponsor hereby authorizes the Trust to pay the Trustee, as
compensation hereunder, the Trust's prorata portion of any such credit
or interest and such additional amount as is set forth on Schedule E
attached hereto, as amended from time to time in writing. In addition,
the Trustee shall be entitled to reimbursement for all reasonable
expenses incurred by it in the performance of its duties hereunder,
including reasonable fees for legal services rendered to the Trustee
(whether in connection with any litigation or otherwise), and all other
proper charges and disbursements.
At the election of the Sponsor, as set forth on Schedule E attached
hereto, the Sponsor shall pay such compensation and expenses within 60
days of presentation of the Trustee's statement. Alternatively, the
Sponsor may elect on Schedule E to have such compensation and expenses
withdrawn from the Trust by the Trustee. If the Sponsor elects to pay
such expenses and does not do so within 60 days of presentation of the
Trustee's statement, such compensation and expenses shall be a charge
upon the Trust and shall be withdrawn from the Trust by the Trustee,
without direction from the Administrative Fiduciary or any other
person. The Trustee is specifically authorized to sell such Trust
assets as are necessary to pay all amounts due under this Article VIII.
8.02 Expenses and Compensation. The Trustee shall not be obligated to
transfer Trust assets until the Trustee is provided assurance by the
Sponsor satisfactory to the Trustee that all fees and expenses
reasonably anticipated will be paid.
ARTICLE IX
RECORDS, ACCOUNTINGS AND VALUATIONS
9.01 Records. The Trustee shall maintain or cause to be maintained records
generated by the Trustee and accounts of all Trust transactions and
assets. The records and accounts of all Trust transactions and assets
shall be available at reasonable times during normal business hours for
inspection or audit by the Administrative Fiduciary and the Investment
Fiduciary or any person designated for the purpose by either of them.
9.02 Accountings. The Trustee shall, not less than quarterly, and within 90
days following the close of each fiscal year of the Plan or the
effective date of the removal or resignation of the Trustee, file with
the Administrative Fiduciary a written accounting setting forth all
transactions since the end of the period covered by the last previous
accounting. The accounting shall include a listing of the assets of the
Trust showing the value of such assets at the close of the period
covered by the accounting. On direction of the Administrative
Fiduciary, and if previously agreed to by the Trustee in writing, the
Trustee shall submit to the Administrative Fiduciary interim
valuations, reports or other information pertaining to the Trust.
The Administrative Fiduciary may approve the accounting by written
approval delivered to the Trustee or by failure to deliver written
objections to the Trustee within 60 days after receipt of the
accounting. Any such approval shall be binding on the Sponsor, the
Administrative Fiduciary, the Investment Fiduciary and, to the extent
permitted by ERISA, all other persons.
9.03 Valuation. The assets of the Trust shall be valued as of each valuation
date as specified under the Plan at fair market value as determined by
the Trustee based upon such sources of information as it may deem
reliable. The reasonable costs incurred in establishing values of the
Trust shall be a charge against the Trust, unless paid by the Sponsor
pursuant to Section 8.01 hereof.
Except as otherwise provided by ERISA and regulations promulgated
thereunder, the Trustee, may, when unable to arrive at a value based
upon information from independent sources, rely upon information from
the Sponsor, Administrative Fiduciary, Investment Fiduciary,
appraisers, or other sources, and shall not incur any liability for
inaccurate valuation based in good faith upon such information.
ARTICLE X
AMENDMENT AND TERMINATION OF TRUST
10.01 Amendment. This Trust Agreement may be amended by agreement between the
Trustee and the Sponsor, provided that no amendment of this Trust
Agreement or the Plan shall be effective which would (a) cause any
assets of the Trust to be used for, or diverted to, purposes other than
the exclusive benefit of Plan participants or their beneficiaries other
than an amendment permissible under the Code and ERISA, or (b) affect
the rights, duties, responsibilities, obligations or liabilities of the
Trustee without the Trustee's written consent. The Sponsor shall amend
this Trust Agreement as requested by the Trustee to reflect changes in
law which counsel for the Trustee advises the Trustee require such
changes. Any proposed amendment under consideration by the Sponsor
shall be communicated to the Trustee in writing to permit the Trustee
to review and comment thereon in due course before the Sponsor acts on
the proposed amendment. Final amendments to the Trust Agreement or a
certified copy thereof shall be delivered to the Trustee promptly after
adoption by the Sponsor.
NYLBSI is authorized to act as the Trustee's agent for the purpose of
holding an original executed copy of the Plan and all amendments of the
Plan. The Sponsor, prior to the execution of this Trust Agreement by
both parties, has delivered to NYLBSI the text of the Plan and all
amendments of the Plan as in effect as of the date of this Trust
Agreement. The Sponsor shall deliver to NYLBSI promptly after adoption
thereof a certified copy of each other amendment of the Plan.
10.02 Termination. The Trust may be terminated by the Sponsor upon at least
60 days written notice to the Trustee. Upon such termination, and
subject to Section 12.01 hereof, the Trust shall be distributed as
directed by the Administrative Fiduciary.
ARTICLE XI
RESIGNATION AND REMOVAL OF TRUSTEE
11.01 Resignation. The Trustee may resign at any time upon at least 60 days
written notice to the Sponsor, unless the parties agree to a shorter
period.
11.02 Removal The Sponsor may remove the Trustee upon at least 60 days
written notice to the Trustee, unless the parties agree to a shorter
period.
11.03 Appointment of a Successor. Upon resignation or removal of the Trustee,
the Sponsor shall appoint a successor trustee. Upon failure of the
Sponsor to appoint, or the failure of the effectiveness of the
appointment by the Sponsor of, a successor trustee by the effective
date of the resignation or removal, the Trustee may apply to any court
of competent jurisdiction for the appointment of a successor.
Promptly after receipt by the Trustee of notice of the effectiveness of
the appointment of the successor trustee, the Trustee shall deliver to
the successor trustee such records as may be reasonably requested to
enable the successor trustee to properly administer the Trust and all
property of the Trust after deducting therefrom such amounts as the
Trustee deems necessary to provide for expenses, taxes, compensation or
other amounts due to or by the Trustee pursuant to Sections 4.06, 5.04,
5.05 and 8.01 hereof not paid by the Sponsor prior to the delivery,
provided such expenses, taxes, compensation or other amounts are
reasonable and such deduction is consistent with the requirements of
ERISA.
11.04 Settlement of Account. Upon resignation or removal of the Trustee, the
Trustee shall have the right to a settlement of its account, which
settlement shall be made by a settlement agreement between the Trustee
and the Sponsor or, if no settlement is reached within 60 days, by a
judicial settlement in an action instituted by the Trustee. The Sponsor
shall bear their costs of any such judicial settlement. The parties
shall bear the fees of their own attorneys.
11.05 Termination of Responsibility and Liability. Upon settlement of the
account and transfer of the Trust to the successor trustee, all rights
and privileges under this Trust Agreement shall vest in the successor
trustee and all responsibility and liability of the Trustee with
respect to the Trust and assets thereof shall, except as otherwise
required by ERISA, terminate subject only to the requirement that the
Trustee execute all necessary documents to transfer the Trust assets to
the successor trustee.
ARTICLE XII
MISCELLANEOUS
12.01 Exclusive Benefit Rule. Except as otherwise provided in this Trust
Agreement or permitted or required by ERISA or the Code, no asset of
this Trust shall be used for, or diverted to, purposes other than the
exclusive benefit of Plan participants or their beneficiaries or for
the reasonable expenses of administering the Plan and Trust until all
liabilities for benefits due Plan participants or their beneficiaries
have been satisfied.
Notwithstanding the foregoing, the Trustee shall, upon the written
direction of the Administrative Fiduciary which shall include a
certification that such action is proper under the Plan, ERISA and the
Code specifying any relevant sections thereof, return to the Sponsor
any amount referred to in section 403(c)(2) of ERISA or excess sums
contributed to the Trust as a result of a mistake of fact.
12.02 Conflict with Plan. The rights, duties, responsibilities, obligations
and liabilities of the Trustee are as set forth in this Trust
Agreement, and no provision of the Plan or any other document shall be
deemed to affect such rights, duties, responsibilities, obligations and
liabilities. If there is a conflict between provisions of the Plan and
this Trust Agreement with respect to any subject involving the Trustee,
including but not limited to the responsibility, authority or powers of
the Trustee, the provisions of this Trust Agreement shall be
controlling.
12.03 Failure to Maintain Qualification. If the Plan fails to qualify as a
qualified plan under section 401(a) of the Code, or loses its status as
such a qualified plan, the Sponsor shall immediately so notify the
Trustee, and the Trustee shall, without further notice or direction,
remove the Trust assets from any common or collective trust fund for
investments by qualified trusts. Absent receipt by the Trustee of a
direction from the proper person(s) for the investment of such removed
assets, the Trustee shall cause such removed assets to be invested in
accordance with Section 4.05.
12.04 Appointment of a Successor. Any action to be taken under this Trust
Agreement by a Sponsor or other person which is: (a) a corporation
shall be taken by the board of directors of the corporation or any
person or persons duly empowered by the board of directors to take the
action involved, (b) a partnership shall be taken by an authorized
general partner of the partnership, (c) a sole proprietorship by the
sole proprietor, and (d) a committee shall be taken (i) at a meeting at
which a quorum is present by the vote or concurrence of a majority of
the members present or (ii) without a meeting by unanimous written
consent of the members.
12.05 Restriction on Alienation. Except as provided in Section 12.06 hereof,
under section 401(a)(13) of the Code or other provision of ERISA, the
interest of any Plan participant or beneficiary in the Trust shall not
be subject to the claims of such person's creditors and may not be
assigned, sold, transferred, alienated or encumbered. Any attempt to do
so shall be void; and the Trustee shall disregard any attempt. Trust
assets shall not in any manner be liable for or subject to debts,
contracts, liabilities, engagement or torts of any Plan participant or
beneficiary, and benefits shall not be considered an asset of any such
a person in the event of the person's insolvency or bankruptcy.
12.06 Payment on Court Order. The Trustee is authorized to make any payments
directed by court order in any action in which the Trustee is a party
or pursuant to a domestic relations order that has been determined by
the administrator of the Plan to constitute a "qualified domestic
relations order" under section 414(p) of the Code; provided that the
Trustee shall not make such payment if the Trustee is indemnified and
held harmless by the Sponsor in a manner satisfactory to the Trustee
against all consequences of such failure to pay. The Trustee is not
obligated to defend actions in which the Trustee is named but shall
notify the Sponsor or Administrative Fiduciary of any such action and
may tender defense of the action to the Sponsor, Administrative
Fiduciary or the participant or beneficiary whose interest is affected.
The Trustee may in its discretion defend any action in which the
Trustee is named and any expenses, including reasonable attorneys fees,
incurred by the Trustee in that connection shall be paid or reimbursed
in accordance with Section 8.01 hereof.
12.07 Arbitration. The Sponsor hereby agrees that all controversies or claims
that may arise between the Sponsor and the Trustee and its affiliates
in connection with the Trust shall be settled by arbitration. The
Sponsor further agrees that the arbitration shall be held in the State,
City and County of New York and administered by the American
Arbitration Association under its Commercial Arbitration Rules,
applying New York law.
The arbitration shall be submitted to a panel (the "Panel") consisting
of one arbitrator appointed by the claimant(s), one arbitrator
appointed by the respondent(s) and a third arbitrator (the "neutral
arbitrator") chosen by the party-appointed arbitrators. The Panel shall
be impartial and disinterested. The arbitrators shall be persons who
are experienced and knowledgeable in securities and trust or pension
law and shall be attorneys duly licensed to practice law in one or more
states.
The Panel shall not have the authority to grant any remedy which
contravenes or changes any term of this Trust Agreement and shall not
have the authority to award punitive, exemplary or extracontractual
damages under any circumstances. Each party shall bear the expense of
the arbitrator selected by it and shall jointly and equally bear the
expenses of the neutral arbitrator and of any stenographer present at
the arbitration. The remaining costs of the arbitration shall be
finally allocated by the Panel, except that the Panel shall not have
the power to award attorney's fees.
The Panel shall render its decision within 30 days after termination of
the arbitration proceeding, which decision shall be in writing, stating
the reasons therefor and including a brief description of each element
of any damages awarded. The decision of the majority shall be final and
binding. Judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
12.08 Governing Law and Construction. This Trust Agreement and the Trust
shall by construed, administered and governed under ERISA and other
pertinent federal law, and to the extent that federal law is
inapplicable, under the laws of the State of New York. If any provision
of this Trust Agreement is susceptible to more than one interpretation,
the interpretation to be given is that which is consistent with the
Trust being a qualified trust under section 401(a) of the Code. If any
provision of this Trust Agreement is held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions
shall continue to be fully effective to the extent possible under the
circumstances.
12.09 Successors and Assigns. This Trust Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective
successors and assigns.
12.10 Gender. As used in this Trust Agreement, the masculine gender shall
include the feminine and the neuter genders and the singular shall
include the plural and the plural the singular as the context requires.
12.11 Headings. Headings and subheadings in this Trust Agreement are for
convenience of reference only and are not to be considered in the
construction of the provisions of the Trust Agreement.
12.12 Counterparts. This Trust Agreement may be executed in several
counterparts, each of which shall be deemed an original, and these
counterparts shall constitute one and the same instrument which may be
sufficiently evidenced by any one counterpart.
12.13 Special, Indirect or Consequential Damages. No party to this Trust
Agreement shall be liable to any other party for special, indirect or
consequential damages under any provision of this Trust Agreement or
for any special, indirect or consequential damages arising out of any
act or failure to act hereunder.
12.14 Amendment, Modification or Waiver. This Trust Agreement may be amended
or modified at any time and from time to time, and any term or
condition of this Trust Agreement may be amended, modified or waived
only by a written agreement executed by an authorized representative of
each party. Any waiver by either party of any requirement hereunder
shall not be deemed to be a continuing waiver nor waiver of any other
term or condition of this Trust Agreement.
IN WITNESS WHEREOF, the Sponsor and the Trustee have executed this Trust
Agreement each by action of a duly authorized person.
DAY RUNNER, INC.
By: __________________________________________
Name:
Title: __________________________________________
NEW YORK LIFE TRUST COMPANY
NEW YORK, NY
By: __________________________________________
William V. Zaleski, President & C.E.O.
New York Life Trust Company
<PAGE>
22
Effective as of: July 1, 1998
SCHEDULE A
ADMINISTRATIVE AND INVESTMENT FIDUCIARIES AND AGENTS
In accordance with Sections 2.02 and 7.03 of the Trust Agreement, the following
persons are hereby designated to act singly and/or jointly, on behalf of the
Plan:
ADMINISTRATIVE FIDUCIARY:
Name: Cyndi Mikkelson Signature: _______________________________________
Name: Dennis Marquardt Signature: _______________________________________
Name: Charles Miller Signature: _______________________________________
Name: Harold Pierce Signature: _______________________________________
AGENT OF ADMINISTRATIVE FIDUCIARY:
New York Life Benefit Services, Inc., by its authorized individuals, signatures
of such individuals being on file with New York Life Trust Company.
INVESTMENT FIDUCIARY:
Name: Dennis Marquardt Signature: _______________________________________
Name: Charles Miller Signature: _______________________________________
Name: Harold Pierce Signature: _______________________________________
AGENT OF INVESTMENT FIDUCIARY:
New York Life Benefit Services, Inc., by its authorized individuals, signatures
of such individuals being on file with New York Life Trust Company.
INVESTMENT MANAGER(S): - N/A
BROKER: - N/A_____
OTHER: - N/A
<PAGE>
SCHEDULE B
SELECTION OF INVESTMENTS, INCLUDING INVESTMENT FOR FUNDS
AWAITING INVESTMENT AND DEFAULT INVESTMENT
In accordance with Section 4.04 of the Trust Agreement, the Investment Fiduciary
hereby directs that the assets of the Trust shall be invested in the following
investments*:
____________MainStay Money Market Fund (Class A)
____________MainStay High Yield Corporate Bond Fund (Class A)
____________PIMCO Total Return Fund (Administrative Class)
____________Franklin Balance Sheet Investment Fund
____________Janus Balanced Fund
____________MainStay Equity Index Fund (Class A)
____________Baron Asset Fund
____________Fidelity Advisors Growth Opportunities Fund (Class T)
____________Janus Worldwide Fund
* The direction by the Investment Fiduciary to direct the assets of the
Trust in the above-enumerated funds shall continue to apply
notwithstanding any subsequent changes to names of such funds.
In accordance with Section 4.08 of the Trust Agreement, absent receipt by the
Trustee of a direction from the proper person(s) for the investment or
reinvestment of Trust assets, the Trustee shall cause such assets to be invested
in the MainStay Money Market Fund (Class A).
<PAGE>
SCHEDULE C
VOTING OF EMPLOYER SECURITIES
N/A
<PAGE>
SCHEDULE D
EXISTING GICs/GACs
In accordance with Section 6.01(a) of the Trust Agreement, the Trustee is hereby
directed to continue to hold the following guaranteed insurance contracts and/or
guaranteed annuity contracts until such time as the Trustee is directed
otherwise by the person(s) authorized to direct such action under Article IV of
the Trust Agreement: N/A
<PAGE>
SCHEDULE E
TRUSTEE'S FEES AND EXPENSES
AND ALLOCATION METHOD
In accordance with Section 8.01 of the Trust Agreement, the Sponsor agrees to
pay the Trustee, as compensation, the Trust's prorata portion of any credit
and/or interest on aggregate cash balances the Trustee has on deposit with a
third party bank with respect to funds awaiting investment or reinvestment in
the case where such funds are received by the Trustee on any day after the close
of the New York Stock Exchange or with respect to funds pending distribution
from the Trust, and the following additional amounts:
Trustee Fees: $3,000 per annum (included in NYLBSI's fees)
Other Fees and Expenses of the Trustee: None
Fees and Expenses of the Trustee's Agent(s): None
<TABLE>
<CAPTION>
DAY RUNNER, INC.
Fiscal Year 1999 Officer Bonus Schedule(3)
---------------------------------------------------
Group I - Bonus Factor 2.43%
---------------------------------------------------
----------------------- ----------------------
Chairman of the Board Chief Executive Officer
----------------------- ----------------------
----------------------- ----------------------
Base Salary Base Salary
---------------------------
1998 N/I (1) (2) = $ 15,908 $330,000 $300,000 Total (Group I)
---------------------------- ----------------------- ---------------------- ---------------------
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Percent Percent Percent
Net Income Net Income of of of
Growth Rate Target Salary Bonus Amount Salary Bonus Amount Salary Bonus Amount
-----------------------------------------------------------------------------------------------------
15.00% $ 18,294 15.00% $ 49,500 15.00% $ 45,000 15.00 $ 94,500
16.00% $ 18,453 17.43% $ 57,514 17.43% $ 52,286 17.43% $109,800
17.00% $ 18,612 19.86% $ 65,529 19.86% $ 59,571 19.87% $125,100
18.00% $ 18,771 22.29% $ 73,543 22.29% $ 66,857 22.29% $140,400
19.00% $ 18,931 24.71% $ 81,557 24.71% $ 74,143 24.71% $155,700
---------------------------- ----------------------- ---------------------- ---------------------
20.00% $ 19,090 27.14% $ 89,571 27.14% $ 81,429 27.14% $171,000
21.00% $ 19,249 29.57% $ 97,586 29.57% $ 88,714 29.57% $186,300
22.00% $ 19,408 32.00% $105,600 32.00% $ 96,000 32.00% $201,600
23.00% $ 19,567 34.43% $113,614 34.43% $103,286 34.43% $216,900
24.00% $ 19,726 36.86% $121,629 36.86% $110,571 36.86% $232,200
---------------------------- ----------------------- ---------------------- ---------------------
25.00% $ 19,885 39.29% $129,643 39.29% $117,857 39.29% $247,500
26.00% $ 20,044 41.71% $137,657 41.71% $125,143 41.71% $262,800
27.00% $ 20,203 44.14% $145,671 44.14% $132,429 44.14% $278,100
28.00% $ 20,362 46.57% $153,686 46.57% $139,714 46.57% $293,400
29.00% $ 20,521 49.00% $161,700 49.00% $147,000 49.00% $308,700
---------------------------- ----------------------- ---------------------- ---------------------
30.00% $ 20,680 51.43% $169,714 51.43% $154,286 51.43% $324,000
31.00% $ 20,839 53.86% $177,729 53.86% $161,571 53.86% $339,300
32.00% $ 20,999 56.29% $185,743 56.29% $168,857 56.29% $354,600
33.00% $ 21,158 58.71% $193,757 58.71% $176,143 58.71% $369,900
34.00% $ 21,317 61.14% $201,771 61.14% $183,429 61.14% $385,200
---------------------------- ----------------------- ---------------------- ---------------------
35.00% $ 21,476 63.57% $209,786 63.57% $190,714 63.57% $400,500
36.00% $ 21,635 66.00% $217,800 66.00% $198,000 66.00% $415,800
37.00% $ 21,794 68.43% $225,814 68.43% $205,286 68.43% $431,100
38.00% $ 21,953 70.86% $233,829 70.86% $212,571 70.86% $446,400
39.00% $ 22,112 73.29% $241,843 73.29% $219,857 73.29% $461,700
---------------------------- ----------------------- ---------------------- ---------------------
40.00% $ 22,271 75.71% $249,857 75.71% $227,143 75.71% $477,000
41.00% $ 22,430 78.14% $257,871 78.14% $234,429 78.14% $492,300
42.00% $ 22,589 80.57% $265,886 80.57% $241,714 80.57% $507,600
43.00% $ 22,748 83.00% $273,900 83.00% $249,000 83.00% $522,900
44.00% $ 22,908 85.43% $281,914 85.43% $256,286 85.43% $538,200
---------------------------- ----------------------- ---------------------- ---------------------
45.00% $ 23,067 87.86% $289,929 87.86% $263,571 87.86% $553,500
46.00% $ 23,226 90.29% $297,943 90.29% $270,857 90.29% $568,800
47.00% $ 23,385 92.71% $305,957 92.71% $278,143 92.71% $584,100
48.00% $ 23,544 95.14% $313,971 95.14% $285,429 95.14% $599,400
49.00% $ 23,703 97.57% $321,986 97.57% $292,714 97.57% $614,700
---------------------------- ----------------------- ---------------------- ---------------------
50.00% $ 23,862 100.00% $330,000 100.00% $300,000 100.00% $630,000
---------------------------- ----------------------- ---------------------- ---------------------
--------------------------------------------------------------------------------------------------
Group II - Bonus Factor 2.14%
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chief Financial Officer Chief Operating
Officer EVP - Product Devel. Vice President - Sales
----------------------- ---------------------- ---------------------- ----------------------------
Base Salary Base Salary Base Salary Base Salary
1998 N/I (1) (2) = $ 15,908 $180,000 $165,000 $160,000 $155,000
--------------------------- ---------------------- ---------------------- ----------------------- --------------------------
Percent Percent Percent Percent
Net Income Net Income of of of of
Growth Rate Target Salary Bonus Amount Salary Bonus Amount Salary Bonus Amount Salary Bonus Amount
------------------------ ------------------------- ---------------------- -------------------- -------------------------
15.00% $ 18,294 15.00% $ 27,000 15.00% $ 24,750 15.00% $ 24,000 15.00% $ 23,250
16.00% $ 18,453 17.14% $ 30,857 17.14% $ 28,286 17.14% $ 27,429 17.14% $ 26,571
17.00% $ 18,612 19.29% $ 34,714 19.29% $ 31,821 19.29% $ 30,857 19.29% $ 29,893
18.00% $ 18,771 21.43% $ 38,571 21.43% $ 35,357 21.43% $ 34,286 21.43% $ 33,214
19.00% $ 18,931 23.57% $ 42,429 23.57% $ 38,893 23.57% $ 37,714 23.57% $ 36,536
-----------------------------------------------------------------------------------------------------------------------------------
20.00% $ 19,090 25.71% $ 46,286 25.71% $ 42,429 25.71% $ 41,143 25.71% $ 39,857
21.00% $ 19,249 27.86% $ 50,143 27.86% $ 45,964 27.86% $ 44,571 27.86% $ 43,179
22.00% $ 19,408 30.00% $ 54,000 30.00% $ 49,500 30.00% $ 48,000 30.00% $ 46,500
23.00% $ 19,567 32.14% $ 57,857 32.14% $ 53,036 32.14% $ 51,429 32.14% $ 49,821
24.00% $ 19,726 34.29% $ 61,714 34.29% $ 56,571 34.29% $ 54,857 34.29% $ 53,143
-----------------------------------------------------------------------------------------------------------------------------------
25.00% $ 19,885 36.43% $ 65,571 36.43% $ 60,107 36.43% $ 58,286 36.43 $ 56,464
26.00% $ 20,044 38.57% $ 69,429 38.57% $ 63,643 38.57% $ 61,714 38.57 $ 59,786
27.00% $ 20,203 40.71% $ 73,286 40.71% $ 67,179 40.71% $ 65,143 40.71 $ 63,107
28.00% $ 20,362 42.86% $ 77,143 42.86% $ 70,714 42.86% $ 68,571 42.86 $ 66,429
29.00% $ 20,521 45.00% $ 81,000 45.00% $ 74,250 45.00% $ 72,000 45.00 $ 69,750
-----------------------------------------------------------------------------------------------------------------------------------
30.00% $ 20,680 47.14% $ 84,857 47.14% $ 77,786 47.14% $ 75,429 47.14 $ 73,071
31.00% $ 20,839 49.29% $ 88,714 49.29% $ 81,321 49.29% $ 78,857 49.29 $ 76,393
32.00% $ 20,999 51.43% $ 92,571 51.43% $ 84,857 51.43% $ 82,286 51.43 $ 79,714
33.00% $ 21,158 53.57% $ 96,429 53.57% $ 88,393 53.57% $ 85,714 53.57 $ 83,036
34.00% $ 21,317 55.71% $100,286 55.71% $ 91,929 55.71% $ 89,143 55.71 $ 86,357
-----------------------------------------------------------------------------------------------------------------------------------
35.00% $ 21,476 57.86% $104,143 57.86% $ 95,464 57.86% $ 92,571 57.86 $ 89,679
36.00% $ 21,635 60.00% $108,000 60.00% $ 99,000 60.00% $ 96,000 60.00 $ 93,000
37.00% $ 21,794 62.14% $111,857 62.14% $102,536 62.14% $ 99,429 62.14 $ 96,321
38.00% $ 21,953 64.29% $115,714 64.29% $106,071 64.29% $102,857 64.29% $ 99,643
39.00% $ 22,112 66.43% $119,571 66.43% $109,607 66.43% $106,286 66.4% $102,964
-----------------------------------------------------------------------------------------------------------------------------------
40.00% $ 22,271 68.57% $123,429 68.57% $113,143 68.57% $109,714 68.57% $106,286
41.00% $ 22,430 70.71% $127,286 70.71% $116,679 70.71% $113,143 70.71% $109,607
42.00% $ 22,589 72.86% $131,143 72.86% $120,214 72.86% $116,571 72.86% $112,929
43.00% $ 22,748 75.00% $135,000 75.00% $123,750 75.00% $120,000 75.00% $116,250
44.00% $ 22,908 77.14% $138,857 77.14% $127,286 77.14% $123,429 77.14% $119,571
-----------------------------------------------------------------------------------------------------------------------------------
45.00% $ 23,067 79.29% $142,714 79.29% $130,821 79.29% $126,857 79.29% $122,893
46.00% $ 23,226 81.43% $146,571 81.43% $134,357 81.43% $130,286 81.43% $126,214
47.00% $ 23,385 83.57% $150,429 83.57% $137,893 83.57% $133,714 83.57% $129,536
48.00% $ 23,544 85.71% $154,286 85.71% $141,429 85.71% $137,143 85.71% $132,857
49.00% $ 23,703 87.86% $158,143 87.86% $144,964 87.86% $140,571 87.86% $136,179
-----------------------------------------------------------------------------------------------------------------------------------
50.00% $ 23,862 90.00% $162,000 90.00% $148,500 90.00% $144,000 90.00% $139,500
-----------------------------------------------------------------------------------------------------------------------------------
--------------------
Percent
of
Salary Bonus Amount
-----------------------
15.00% $ 99,000
17.14% $113,143
19.29% $127,286
21.43% $141,429
23.57% $155,571
------------------------
25.71% $169,714
27.86% $183,857
30.00% $198,000
32.14% $212,143
34.29% $226,286
------------------------
36.43% $240,429
38.57% $254,571
40.71% $268,714
42.86% $282,857
45.00% $297,000
------------------------
47.14% $311,143
49.29% $325,286
51.43% $339,429
53.57% $353,571
55.71% $367,714
------------------------
57.86 $381,857
60.00 $396,000
62.14 $410,143
64.29 $424,286
66.43 $438,429
------------------------
68.57 $452,571
70.71 $466,714
72.86 $480,857
75.00 $495,000
77.14 $509,143
------------------------
79.29 $523,286
81.43 $537,429
83.57 $551,571
85.71 $565,714
87.86 $579,857
------------------------
90.00 $594,000
------------------------
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
V.P. Information V.P. International V.P. Business Vice President,
Services Sales Development General Counsel
----------------------- ---------------------- ---------------------- ---------------------------
Base Salary Base Salary Base Salary Base Salary
1998 N/I (1) (2) = $ 15,908 $135,000 $125,000 $125,000 $125,000
---------------------- ---------------------- ----------------------- ---------------------------
Percent Percent Percent Percent
Net Income Net Income of of of of
Growth Rate Target Salary Bonus Amount Salary Bonus Amount Salary Bonus Amount Salary Bonus Amount
--------------------------- ------------------------------------------------------------------------------------------------------
15.00% $ 18,294 15.00% $ 20,250 15.00% $18,750 15.00% $18,750 15.00% $18,750
16.00% $ 18,453 16.29% $ 21,986 16.29% $20,357 16.29% $20,357 16.29% $20,357
17.00% $ 18,612 17.57% $ 23,721 17.57% $21,964 17.57% $21,964 17.57% $21,964
18.00% $ 18,771 18.86% $ 25,457 18.86% $23,571 18.86% $23,571 18.86% $23,571
19.00% $ 18,931 20.14% $ 27,193 20.14% $25,179 20.14% $25,179 20.14% $25,179
------------------------------------------------------------------------------- ---------------------------------------------------
20.00% $ 19,090 21.43% $ 28,929 15.00% $18,750 21.43% $26,786 21.43% $26,786
21.00% $ 19,249 22.71% $ 30,664 16.29% $20,357 22.71% $28,393 22.71% $28,393
22.00% $ 19,408 24.00% $ 32,400 17.57% $21,964 24.00% $30,000 24.00% $30,000
23.00% $ 19,567 25.29% $ 34,136 18.86% $23,571 25.29% $31,607 25.29% $31,607
24.00% $ 19,726 26.57% $ 35,871 20.14% $25,179 26.57% $33,214 26.57% $33,214
------------------------------------------------------------------------------- ---------------------------------------------------
25.00% $ 19,885 27.86% $ 37,607 21.43% $26,786 27.86% $34,821 27.86% $34,821
26.00% $ 20,044 29.14% $ 39,343 22.71% $28,393 29.14% $36,429 29.14% $36,429
27.00% $ 20,203 30.43% $ 41,079 24.00% $30,000 30.43% $38,036 30.43% $38,036
28.00% $ 20,362 31.71% $ 42,814 25.29% $31,607 31.71% $39,643 31.71% $39,643
29.00% $ 20,521 33.00% $ 44,550 26.57% $33,214 33.00% $41,250 33.00% $41,250
-----------------------------------------------------------------------------------------------------------------------------------
30.00% $ 20,680 34.29% $ 46,286 15.00% $18,750 34.29% $42,857 34.29% $42,857
31.00% $ 20,839 35.57% $ 48,021 16.29% $20,357 35.57% $44,464 35.57% $44,464
32.00% $ 20,999 36.86% $ 49,757 17.57% $21,964 36.86% $46,071 36.86% $46,071
33.00% $ 21,158 38.14% $ 51,493 18.86% 23,571 38.14% $47,679 38.14% $47,679
34.00% $ 21,317 39.43% $ 53,229 20.14% $25,179 39.43% $49,286 39.43% $49,286
-----------------------------------------------------------------------------------------------------------------------------------
35.00% $ 21,476 40.71% $ 54,964 21.43% $26,786 40.71% $50,893 40.71% $50,893
36.00% $ 21,635 42.00% $ 56,700 22.71% $28,393 42.00% $52,500 42.00% $52,500
37.00% $ 21,794 43.29% $ 58,436 24.00% $30,000 43.29% $54,107 43.29% $54,107
38.00% $ 21,953 44.57% $ 60,171 25.29% $31,607 44.57% $55,714 44.57% $55,714
39.00% $ 22,112 45.86% $ 61,907 26.57% $33,214 45.86% $57,321 45.86% $57,321
------------------------------------------------------------------------------- ---------------------------------------------------
40.00% $ 22,271 47.14% $ 63,643 27.86% $34,821 47.14% $58,929 47.14% $58,929
41.00% $ 22,430 48.43% $ 65,379 29.14% $36,429 48.43% $60,536 48.43% $60,536
42.00% $ 22,589 49.71% $ 67,114 30.43% $38,036 49.71% $62,143 49.71% $62,143
43.00% $ 22,748 51.00% $ 68,850 31.71% $39,643 51.00% $63,750 51.00% $63,750
44.00% $ 22,908 52.29% $ 70,586 33.00% $41,250 52.29% $65,357 52.29% $65,357
-----------------------------------------------------------------------------------------------------------------------------------
45.00% $ 23,067 53.57% $ 72,321 53.57% $66,964 53.57% $66,964 53.57% $66,964
46.00% $ 23,226 54.86% $ 74,057 54.86% $68,571 54.86% $68,571 54.86% $68,571
47.00% $ 23,385 56.14% $ 75,793 56.14% $70,179 56.14% $70,179 56.14% $70,179
48.00% $ 23,544 57.43% $ 77,529 57.43% $71,786 57.43% $71,786 57.43% $71,786
49.00% $ 23,703 58.71% $ 79,264 58.71% $73,393 58.71% $73,393 58.71% $73,393
------------------------------------------------------------------------------- ---------------------------------------------------
50.00% $ 23,862 60.00% $ 81,000 60.00% $75,000 60.00% $75,000 60.00% $75,000
-----------------------------------------------------------------------------------------------------------------------------------
V.P. Strategic V.P. Human Resources
Operational Projects
----------------------- ---------------------- -----------------------
Base Salary Base Salary
$125,000 $110,000 Total (Group III)
---------------------- ---------------------- -----------------------
Percent Percent Percent
of of of
------------------------------------------------------------------------
15.00% $18,750 15.00% $16,500 15.00% $111,750
16.29 $20,357 16.29% $17,914 16.29% $121,329
17.57% $21,964 17.57% $19,329 17.57% $130,907
18.86% $23,571 18.86% $20,743 18.86% $140,486
20.14% $25,179 20.14% $22,157 20.14% $150,064
------------------------------------------------------------------------
21.43% $26,786 21.43% $23,571 21.43% $159,643
22.71% $28,393 22.71% $24,986 22.71% $169,221
24.00% $30,000 24.00% $26,400 24.00% $178,800
25.29% $31,607 25.29% $27,814 25.29% $188,379
26.57% $33,214 26.57% $29,229 26.57% $197,957
------------------------------------------------------------------------
27.86% $34,821 27.86% $30,643 27.86% $207,536
29.14% $36,429 29.14% $32,057 29.14% $217,114
30.43% $38,036 30.43% $33,471 30.43% $226,693
31.71% $39,643 31.71% $34,886 31.71% $236,271
33.00% $41,250 33.00% $36,300 33.00% $245,850
-------------------------------------------------------------------------
34.29% $42,857 34.29% $37,714 34.29% $255,429
35.57% $44,464 35.57% $39,129 35.57% $265,007
36.86% $46,071 36.86% $40,543 36.86% $274,586
38.14% $47,679 38.14% $41,957 38.14% $284,164
39.43% $49,286 39.43% $43,371 39.43% $293,743
-------------------------------------------------------------------------
40.71% $50,893 40.71% $44,786 40.71% $303,321
42.00% $52,500 42.00% $46,200 42.00% $312,900
43.29% $54,107 43.29% $47,614 43.29% $322,479
44.57% $55,714 44.57% $49,029 44.57% $332,057
45.86% $57,321 45.86% $50,443 45.86% $341,636
-------------------------------------------------------------------------
47.14% $58,929 47.14% $51,857 47.14% $351,214
48.43% $60,536 48.43% $53,271 48.43% $360,793
49.71% $62,143 49.71% $54,686 49.71% $370,371
51.00% $63,750 51.00% $56,100 51.00% $379,950
52.29% $65,357 52.29% $57,514 52.29% $389,529
-------------------------------------------------------------------------
53.57% $66,964 53.57% $58,929 53.57% $399,107
54.86% $68,571 54.86% $60,343 54.86% $408,686
56.14% $70,179 56.14% $61,757 56.14% $418,264
57.43% $71,786 57.43% $63,171 57.43% $427,843
58.71% $73,393 58.71% $64,586 58.71% $437,421
-------------------------------------------------------------------------
60.00% $75,000 60.00% $66,000 60.00% $447,000
-------------------------------------------------------------------------
(1) Net income amounts are in thousands.
(2) Net income amount is estimated.
(3) The officer's bonus amount is calculated by multiplying the officer's
base salary times a percent of salary at various targeted net income
levels. Additionally, this is only a partial schedule.
</TABLE>
FIRST AMENDMENT
TO OFFICER SEVERANCE PLAN
THIS FIRST AMENDMENT is effective as of August 17, 1998 (the "Effective
Date"). In accordance with the terms of Section 9(g) of the Officer Severance
Plan and pursuant to the action of the Board of Directors of Day Runner, Inc.,
on August 17, 1998, the Officer Severance Plan is hereby amended as follows:
1. Section 2(f) is amended to read in its entirety as follows:
"Employment Period" means the aggregate period of time during which an
individual has been employed as a duly elected or appointed officer
(other than solely as Secretary and/or Assistant Secretary) by the
Company prior to the Termination Date."
2. Section 3(b)(iii) is amended to read in its entirety as follows:
the result of such officer having submitted to the Company his
or her written resignation (even if such indicates that such
resignation is "voluntary") upon and in accordance with (A) the
request by the Board in writing or pursuant to a duly adopted
resolution of the Board or (B) with respect to all Eligible
Officers other than the Chairman of the Board or the Chief
Executive Officer of the Company, the written request of the
Chief Executive Officer of the Company;
3. Section 4(b) is amended to read in its entirety as follows:
Severance Bonus. The amount of severance bonus shall be based on the
highest office of the Company attained by the Eligible Officer at or prior to
the Termination Date and shall be determined in accordance with the following
schedule:
HIGHEST OFFICE ATTAINED
-----------------------
ASST. VP/VP SVP/EVP/COO CHR/PRES/CEO
----------- ----------- ------------
Number of months of
severance bonus 3 months 4 months 5 months
4. The Officer Severance Plan, except as expressly amended by this Amendment,
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this First Amendment to the
Officer Severance Plan as of the date first written above.
DAY RUNNER, INC.
-----------------------------
Mark Vidovich,
Chairman of the Board
LEASE AGREEMENT
THIS AGREEMENT made and entered into by and between RDC Sales, Inc., an
Arkansas corporation (herein called "Landlord"), and Day Runner, Inc., a
Delaware corporation (herein called "Tenant").
WITNESSETH:
For and in consideration of the covenants and agreements hereinafter
contained, Landlord does hereby let, lease, and demise unto Tenant, and Tenant
does hereby lease from Landlord 84,000 square foot of a 114,000 square foot
warehouse and office facility (the "Leased Premises"), which is depicted on
Exhibit "A", affixed hereto, located on Lot 1, Phase I, North Little Rock I-440
Industrial Park Addition to the City of North Little Rock, Pulaski County,
Arkansas (the "RDC Tract").
TO HAVE AND TO HOLD the same unto the said Tenant and unto the said
Tenant's heirs, successors and assigns, together with all privileges and
appurtenances thereunto belonging, for the term and under the conditions
hereinafter set forth.
1. Term. The term (the "Term") of this Lease shall be for a period of
five (5) years, beginning on the 1st day of October, 1997 ("Commencement Date"),
and ending on the 1st day of October, 2002. Provided that no event of default
(as defined in Section 15) has occurred and is then continuing, Tenant shall
have the right and option to extend the Term of the Lease for one (1)
successive, additional period of five (5) years(the "Renewal Term") in
accordance with the provisions of this Section 1. The option for the Renewal
Term may be exercised by Tenant by written notice given to Landlord not less
than six (6) months prior to the end of the initial Term. All of the terms and
provisions of this Lease shall govern and be applicable to the Renewal Term,
except that the rent due during such Renewal Term shall be the amount determined
pursuant to Section 3 hereof.
2. Rental. As rental for said Leased Premises during the Term, Tenant
shall pay to Landlord rental in the amount of Twenty Thousand Dollars
($20,000.00) per month payable monthly in advance on or before the 1st day of
each month during the Term of this Lease.
3. (a) Renewal Rent. If the Tenant exercises its option to extend the
Term of this Lease, its fixed rent during the Renewal Term shall be Twenty
Thousand and 00/100 Dollars ($20,000.00) per month, plus any increase as
determined in accordance with the provisions of subdivision (B) below; provided,
however, that in no event shall such increase exceed eight percent (8%).
(b) Rent Adjustment.
(1) As promptly as practicable after the end of the initial
five-year Term of this Lease, the Landlord shall compute any increase in the
cost of living for the preceding five-year period based upon the "Revised
Consumers Price Index--Cities (1967 = 100)" (the "Index"), published by the
Bureau of Labor Statistics of the United States Department of Labor.
(2) The "base index number" shall be the Index number
indicated for the City of Little Rock, Arkansas, entitled "all items", for the
month of September, 1997. The "current index number" shall be the corresponding
Index number for the month of September, 2002.
(3) The current Index number shall be divided by the base
Index number, and the integer 1 shall be subtracted from such quotient. Any
resulting positive number shall be deemed to be the percentage of increase in
the cost of living.
(4) The increase referred to in subdivision (A) above shall be
determined by multiplying the percentage of increase by Twenty Thousand and
00/100 Dollars ($20,000.00).
(5) Landlord shall give Tenant notice of any such increase
within a reasonable time after obtaining the necessary data for computing it.
Landlord's computation shall be conclusive and binding, but shall not preclude
any adjustment that may be required by a published amendment of the index
figures upon which such computation was based unless Tenant notifies Landlord of
any claimed error therein within 60 days after such notice is given.
(C) Rent Payment. The fixed rent, as determined above (i.e., $20,000.00
plus the "increase" calculated in accordance with paragraphs (1) through (4) of
subdivision (B)), shall be due and payable monthly to Landlord, commencing with
the first month of the extended Term of this Lease. Any retroactive payments
then due shall be payable within five days after the above provided notice is
given. If there is any subsequent redetermination of such amount, the parties
shall promptly make the indicated adjustment.
(D) Substituted Index. If publication of the Consumers Price Index is
discontinued, the parties shall accept comparable statistics on the cost of
living for the City of Little Rock, Arkansas, as such statistics are computed
and published by a federal agency or by a recognized financial periodical
selected by the parties or by arbitration. If comparable statistics are used in
place of the Consumers Price Index, or if the Index figure is published at
non-monthly intervals, the method of computation shall include all revisions
required to carry out the intent of this Article.
4. Utilities. Tenant shall be responsible for the prompt and full
payment, as and when due, of all charges for water (including sewer taxes),
electricity, gas, telephone and other utilities consumed on the Leased Premises.
5. Taxes. Tenant shall pay in each Tax Year during the Term, as
Additional Rental, a proportionate share of all real estate taxes, ad valorem
taxes and assessments, general and special assessments, or any other tax imposed
upon or levied against real estate or upon owners of real estate as such rather
than persons generally, including taxes imposed on leasehold improvements which
are assessed against Landlord, payable with respect to allocable to the RDC
Tract, including all land, the Leased Premises and all other building
improvements situated thereon, together with the reasonable cost (including fees
of attorneys, consultants and appraisers) of any negotiation, contest or appeal
pursued by Landlord in an effort to reduce any such tax, assessment or charge,
but only to the extent of the actual reduction realized as a result of such
negotiation, contest or appeal, all the foregoing being collectively referred to
herein as "Taxes". Tenant's proportionate share of Taxes for any Tax Year shall
be computed by multiplying the amount of such Taxes by a fraction, the numerator
of which shall be Tenant's floor area of 84,000 square feet and the denominator
of which shall be the floor area for all buildings located on the RDC Tract
(currently totaling 114,000 square feet). For the Tax Year in which the term of
this Lease commences or terminates, the provisions of this Section shall apply,
but Tenant's liability for its proportionate share of any taxes for such year
shall be subject to a pro-rata adjustment based upon the number of days of such
Tax Year falling with the term of this Lease.
Tenant's proportionate share of Taxes shall be paid by Tenant annually
in such amounts as are estimated and billed for each Tax Year by Landlord during
the term, each such payment being due on October 1 of each Tax Year. If at any
time during a Tax Year it shall appear that Landlord has underestimated Tenant's
proportionate share of Taxes for such Tax Year, Landlord may re-estimate
Tenant's proportionate share of Taxes and may bill Landlord for any deficiency
which may have accrued during such Tax Year. Within one hundred twenty (120)
days after Landlord's receipt of tax bills for each Tax Year, or such reasonable
(in Landlord's determination) time thereafter, Landlord will notify Tenant of
the amount of Taxes for the Tax Year in question and the amount of Tenant's
proportionate share thereof. Any overpayment or deficiency in Tenant's payment
of its proportionate share of Taxes for each Tax year shall be adjusted between
Landlord and Tenant, and Landlord and Tenant hereby agree that Tenant shall pay
Landlord or Landlord shall credit to Tenant's account (or, if such adjustment is
at the end of the Term, pay Tenant), as the case may be, within thirty (30) days
of the aforesaid notification to Tenant, such amount necessary to effect such
adjustment. The failure of Landlord to provide such notification within the time
prescribed above shall not relieve Tenant of its obligations hereunder.
Tenant will be entitled from time to time to audit the books and
records of Landlord regarding Taxes on the RDC Tract to assure that the
prorations of Taxes from time to time reported by Landlord are in keeping with
the provisions of the Lease. In the event such audit discloses any error,
Landlord shall make a correcting payment in full to Tenant within 30 days after
the determination of the amount of such error.
The term "Tax Year" means each twelve (12) month period (deemed, for
the purpose of this Section, to have 365 days) established as the real estate
tax year by the taxing authorities having lawful jurisdiction over the RDC
Tract.
Landlord agrees to cooperate with Tenant in any action initiated by
Tenant to protest, reduce or minimize real property taxes affecting the RDC
Tract.
6. Repairs. Landlord agrees that it will keep and maintain in good
condition and repair, at its sole cost and expense, the exterior walls, exterior
plumbing, roof, roof membrane and points of entry to the Leased Premises,
including, without limitation, the plate glass portions thereof (collectively,
the "Structural Elements"); provided, however, if Tenant's operations or
construction activities at the Leased Premises cause a penetration of the roof
membrane, Tenant and not Landlord shall be responsible for the cost of repairs
thereto. Landlord further agrees that if any portion of the Structural Elements
shall become defective or damaged at any time during the Term, Landlord will
immediately cause repairs to be made and restore the defective portions to good
condition. Should Landlord fail or refuse to commence repair of any defective
condition of the Structural Elements within ten (10) days from receipt of notice
of the condition requiring repair, Tenant may cause such defect to be remedied
and restored to good condition and may charge the reasonable cost thereof to
Landlord.
Tenant agrees to be responsible for the maintenance and normal
operating condition of all heating, electrical and air conditioning equipment
and interior plumbing on the Leased Premises. Tenant at its own cost and expense
shall maintain and keep the interior and the plate glass portions of the Leased
Premises in as good repair as when the premises were received, ordinary wear and
tear and casualties beyond Tenant's control alone excepted, and Tenant shall
return the Leased Premises at the expiration or termination of this Lease in
good order and condition, excepting only ordinary wear and tear and casualties
beyond Tenant's control.
7. Alterations. Tenant shall have the right and privilege to make, at
Tenant's expense, ordinary repairs and alterations to the Leased Premises
without Landlord's prior consent; provided, however, no alterations or changes
of a structural nature shall be made without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed.
8. Fixtures. All trade fixtures installed by Tenant or acquired by
Tenant independently of this Lease shall remain Tenant's property and may be
removed by Tenant at the expiration of this Lease; provided, however, Tenant
shall restore the Leased Premises and repair any damage thereto caused by such
removal.
9. Acceptance of Premises. Subject to the following representations and
warranties of Landlord, it is expressly understood and agreed by the Tenant that
it is leasing the demised premises in its current condition. Landlord represents
and warrants that the Leased Premises (including, without limitation, any Tenant
improvements contemplated to be made by Landlord), at the time of execution of
the Lease is and shall be in compliance with any and all applicable federal,
state or local laws, ordinances and regulations ("Legal Requirements"),
including, without limitation, those relating to (a) the environment (including,
without limitation, those relating to hazardous materials, hazardous substances,
hazardous waste, infectious waste, toxic materials, regulated materials and
substances and the like), health and/or safety, (b) the Americans with
Disabilities Act ("ADA"), and (c) zoning and building codes, occupancy and
permit requirements required for Tenant's intended use, and (d) laws or
regulations pertaining to "CFCs". Notwithstanding anything to the contrary.
Tenant shall not be responsible for compliance with items (a) through (d) above
or any other Legal Requirements not relating to the Leased Premises and
occasioned by Tenant's particular use of the Leased Premises. Landlord further
represents and warrants to Tenant that as of the Commencement Date (i) the
existing electrical, plumbing, lighting, heating, ventilating and air
conditioning systems, and loading doors (if any) and all other such elements of
the building, in the Leased Premises, other than those constructed by Tenant,
shall be in good operating condition, (ii) the surface and structural elements
of the roof, bearing walls and foundation of the building on the Leased Premises
shall be free of material defects, and (iii) there shall exist separate secured
entrances to each of the Leased Premises and the premises of the other tenant of
the Property. In the event that it s determined that this warranty has been
violated, then it shall be the obligation of Landlord, after receipt of written
notice from Tenant setting forth with specificity the nature of the violation,
to promptly, at Landlord's sole cost, rectify such violation; provided, however,
that Landlord shall not be obligated to rectify such violation if Tenant fails
to give such written notice to Landlord within one hundred twenty (120) days
after the commencement of this Lease.
10. Untenantability. Should the improvements on the Leased Premises, or
any part thereof, be rendered unfit for occupancy for the purposes for which
they are hereby let, by reason of fire, windstorm, or other act of nature or
unavoidable casualty, the rentals hereinabove stipulated to be paid by the
Tenant, or such proportion thereof as is related to that portion of the
improvements on the premises rendered untenantable by reason of such damage,
shall be remitted and abated by Landlord while the same remains unfit for
occupancy and until the premises involved shall have been repaired or returned
to tenantable condition by Landlord. Provided, however, during the last twelve
(12) months of the Term, Landlord may, upon the occurrence of any such casualty,
elect to terminate this Lease if the cost of replacing or repairing the
improvements so damaged upon the premises equals or exceeds Fifty Percent (50%)
of the property damage insurance coverage maintained by Landlord thereon. As
used in this Section 10, the term "untenantable" includes, without limitation,
the following conditions: (i) inadequate waterproofing and weather protection of
roof and exterior walls, such as broken windows and doors, (ii) non-operational
plumbing, water or electrical systems, or (iii) non-operational gas facilities.
Landlord shall in no way be liable or responsible for any damage to any property
of the Tenant in or about the Leased Premises by reason of flood, water, fire,
windstorm or other casualty or act of nature.
11. Warranties of Title. Landlord hereby warrants and covenants with
and unto Tenant that he has an absolute and indefeasible title to the Leased
Premises, and that Landlord will, during the term hereof and the full
performance by Tenant of Tenant's obligations and covenants hereunder, defend
the same and hold harmless the Tenant against the lawful claims of any and all
persons whomsoever.
12. Conduct of Business and Uses. The Leased Premises are leased to
Tenant for the purpose of carrying on the business of manufacturing and
distributing marker boards, cork boards, markers, and organizers, planners and
other similar products, and related uses, and Tenant covenants and agrees with
and unto Landlord that the premises will be used for those purposes and those
related to them and no other, except with the prior written consent of Landlord.
Tenant covenants and agrees that Tenant will not do or permit to be done
anything in, upon, or about the Leased Premises that increases the hazard of
fire beyond that which exists by reason of the uses and occupancy of the
premises for the purposes mentioned. Tenant agrees to pay fire insurance
premiums on the improvements and building which Landlord shall maintain on the
Leased Premises, and Tenant will not do or permit to be done anything within
Tenant's control which would make the Leased Premises, or the
improvements thereon, uninsurable in whole or in part. Tenant agrees that Tenant
will not commit waste nor permit waste to be committed or done upon the Leased
Premises.
13. Signs and Advertising. No sign, picture, advertisement, or notice
(collectively, "Signs") except on the glass of the doors or windows shall be
displayed on any part of the outside of said building or on or about the
premises hereby demised without the prior consent, in writing, of the Landlord,
which consent shall not be unreasonably withheld or delayed, and the Landlord
may remove any Signs that have not received Landlord's prior consent without
notice to the Tenant and at the Tenant's expense. Upon termination of this
Lease, Tenant will remove any sign, advertisement or notice painted on or
affixed to the Leased Premises, and restore the place it occupied to the
condition which existed as of the date this Lease takes effect.
14. Indemnity Against Damage or Injury. Tenant agrees to defend,
indemnify, and hold harmless the Landlord against any claim, expense, loss or
liability as a result of any breach by Tenant, Tenant's agents, servants,
employees, customers, visitors, or licensees, of any covenant or condition of
this Lease, or as a result of Tenant's use or occupancy of the Leased Premises,
or as a result of the carelessness, negligence, or improper conduct of Tenant,
Tenant's agents, servants, employees, customers, visitors, or licensees. Tenant
agrees to keep and maintain at all times during the term hereof, in full force
and effect, with a company or companies acceptable to Landlord, insurance
against third party liability by reason of Tenant's occupancy of the Leased
Premises with limits of liability thereunder of not less than $1,000,000.00 per
person, $1,000,000.00 per accident, and $250,000.00 coverage for property
damage, and Landlord shall be a named an additional insured in such policies.
15. Default. Tenant shall be in default under the provisions of this
Lease agreement upon the happening of any of the following events or conditions:
(a) Failure to pay the rentals provided herein at the times,
in the amounts and in the manner set forth or within ten days after the
date the same become due;
(b) Failure to keep or perform any of the covenants on the
part of the Tenant herein to be kept or performed and such failure
shall continue for more than thirty (30) days after Landlord gives
Tenant notice of such failure;
(c) Should the Tenant become insolvent, or become bankrupt,
either voluntary or involuntary, or make any assignment for the benefit
of creditors, or if a receiver be appointed for the benefit of Tenant's
creditors, or if a receiver be appointed for Tenant to take charge of
and manage Tenant's affairs, or if any levee of execution against the
Tenant remains unsatisfied for a period of ten days from and after the
levy of the same.
16. Remedies in the Event of Default. In the event of a default by
Tenant, during the term hereof, Landlord may, at Landlord's option, declare this
Lease thereupon terminated, and Landlord shall have the right to enter upon and
take possession of the Leased Premises, either with or without notice, and to
evict and expel Tenant and any or all of Tenant's property, belongings, and
effects therefrom, without legal process and without thereby being guilty of any
manner of trespass either at law or in equity which remedy is in addition to any
other remedies of Landlord either at law or in equity, including, without
limitation, the collection of delinquent rents, possession of the Leased
Premises, damages for breach of this agreement by Tenant, or otherwise. No delay
in or failure to exercise any of the options herein granted to Landlord by
reason of a default shall be a waiver thereof, and the waiver on one occasion of
a default shall not be deemed a waiver of Landlord's right to exercise its
remedies by reason of the same or a similar default at any later occasion.
Notwithstanding the foregoing, Landlord shall not be entitled to use force in
the exercise of any of its rights and remedies under this Lease. Notwithstanding
anything to the contrary in this Lease, Landlord shall have the duty to mitigate
damages in the event of Tenant's default, inter alia, by using reasonable
efforts to re-let the Leased Premises.
17. Waiver of Subrogation. Landlord and Tenant and all parties claiming
under them hereby mutually release and discharge each other from all claims and
liabilities arising from or caused by any hazard covered by insurance on the
Leased Premises, or covered by insurance in connection with the property or
activities conducted on the Leased Premises, regardless of the cause of the
damage or loss.
18. Assignment and Subletting. Tenant shall not assign this Lease, nor
sublet the Leased Premises or any part thereof, without the prior consent in
writing of Landlord, which consent shall not be unreasonably withheld or
delayed. The consent by Landlord to a particular assignment of subletting shall
not be construed to relieve Tenant from the obligation to obtain the consent in
writing of Landlord on any other or future assignment or subletting.
Notwithstanding anything to the contrary in this Lease, Landlord's prior consent
shall not be required for any assignment of the Lease or any subletting of all
or any portion of the Leased Premises to any affiliate of Tenant. As used in
this Section 18, the term "affiliate" means any entity which controls, is
controlled by, or which is under common control with Tenant.
19. Condemnation. In the event all or any part of the Leased Premises
should be subjected to eminent domain proceedings, and if pursuant thereto a
portion of the Leased Premises shall be condemned so as to render the residue
inadequate for Tenant's purposes as herein set forth, Tenant shall have the
option to terminate and cancel this Lease by giving written notice of such
intention to Landlord. If any such taking shall not render the residue of the
Leased Premises wholly inadequate for Tenant's purposes as herein set forth,
Tenant's rentals hereunder shall be reduced in the proportion which the value of
the property taken bears to the whole value of the Leased Premises with
improvements. In any such condemnation proceedings, all damages allocable to
full fee simple ownership of the Leased Premises shall be payable to Landlord,
and any damages for loss of leasehold interest, including the unamortized
portion of the value involved in such condemnation of any non-removable fixture
placed on the Leased Premises by Tenant with Landlord's approval shall be
payable to Tenant.
20. Surrender of Possession. At the end of the term of this Lease, or
upon earlier termination by Landlord in accordance with the options herein
reserved, Tenant agrees to surrender possession of the Leased Premises without
demand. Should Tenant fail so to do, Tenant shall be responsible in addition to
the damages generally recoverable by Landlord by reason of any breach by Tenant,
for all damages Landlord may sustain, including claims made by any succeeding
tenant against Landlord which are founded upon delay or failure in delivering
possession of the Leased Premises to such succeeding tenants.
21. Binding Effect. This agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective successors, legal
representatives, heirs and assigns, except as expressly limited otherwise
herein.
22. Time of Essence. The time of the making of the payments and of the
keeping of the covenants herein are of the essence of this agreement and the
parties hereto so agree.
23. Notices. Any notice called for or permitted under the terms hereof
may be given in writing and sent by ordinary mail to the last address of the
party to whom the notice is to be given as designated by such party in writing.
Landlord designates its address as 1805 East 22nd Street, Little Rock, Arkansas
72206. Tenant hereby designates its address as 15295 Alton Parkway, Irvine,
California 92718, Attention: Chief Executive Officer. Any notice so given shall
be deemed given when posted. Designations of address may be changed by written
notice given by ordinary mail from either party to the other.
24. Non-Disturbance Agreement. This Lease shall not be subordinate to
any mortgage, deed of trust or similar interest unless Tenant is provided with a
non-disturbance agreement in form reasonably acceptance to Tenant, executed by
the mortgagee, trustee, or beneficiary, as the case may be. Landlord agrees to
secure a non-disturbance agreement inform reasonably acceptable to Tenant for
all such interest holders in existence on the date of execution of the Lease.
25. Use of Common Areas. Landlord grants to Lssee and its agents,
employees and customers a non-exclusive license to use the parking areas,
sidewalks, driveways and open land areas (the "Common Areas") in common with
others during the Term hereof, subject to the exclusive control and management
thereof at all times by Landlord and subject, further, to the rights of Landlord
set forth herein.
Landlord will operate and maintain or will cause to be operated and
maintained the Common Areas in a manner deemed by Landlord to be reasonable and
appropriate. Landlord will have the right (i) to establish, modify and enforce
reasonable rules and regulations with respect to the Common Areas; (ii) to enter
into, modify and terminate easement and other agreements pertaining to the use
and maintenance of the parking areas and other Common Areas; (iii) to close all
or any portion of said parking areas or other Common Areas to such extent as
may, in the opinion of Landlord, be necessary to prevent a dedication thereof or
the accrual) of any rights to any person or to the public therein; (iv) to close
temporarily any or all portions of the Common Areas; (v) to discourage
non-customer parking; and (vi) to do and perform such other acts in and to said
areas and improvements as, in the exercise of good business judgment, Landlord
shall determine to be advisable; provided, however, if Landlord causes a
reduction in the parking areas available for Tenant and if the remaining
unclosed parking areas do not provide adequate parking for Tenant, its employees
and invitees, Landlord shall provide comparable replacement parking, within
reasonable walking distance to the Leased Premises, at no additional cost to
Tenant, its employees or invitees.
Tenant and its employees shall park their cars only in such areas
designated for that purpose by Landlord. Tenant shall furnish Landlord with
state automobile license numbers assigned to Tenant's car or cars and cars used
by its employees within five (5) days after taking possession of the Leased
Premises and shall thereafter notify Landlord of any changes in such information
within five (5) days after such changes occur.
26. Landlord's Indemnity. Landlord, on behalf of itself and any party
claiming by, through or under Landlord, hereby agrees to indemnify, defend and
hold Tenant, its agents and employees, harmless from claims for personal injury,
death, or property damage to the extent arising from incidents occurring in or
about the Leased Premises caused by any negligent action or omission of
Landlord, its agents, employees, contractors, licensees or invitees. If Tenant
is made a party to any action commenced by or against Landlord and any such
action arises out of matters for which Landlord has provided indemnification for
Tenant as hereinbefore provided, Landlord agrees to indemnify and hold Tenant
harmless therefrom and to pay all judgments, settlements, losses, expenses and
costs (including attorneys' fees and expert witness and consultant fees) which
may be incurred by Tenant in connection therewith.
27. Landlord's Default. Landlord shall not be in default under this
Lease unless Landlord fails to perform its obligations required hereunder within
a reasonable time, but in no event later than thirty (30) days after written
notice by Tenant to Landlord, specifying the obligations that Landlord has
failed to perform.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto set their hands
effective the 1st day of October, 1997.
LANDLORD:
RDC SALES, INC.
BY:/s/ Charles D. Robertson, Jr.
-------------------------------------
CHARLES D. ROBERTSON, JR.,
PRESIDENT
TENANT:
DAY RUNNER, INC.
BY: /s/ Mark A. Vidovich
NAME: MARK A. VIDOVICH
-----------------------------------
TITLE: Chief Executive Officer
STATE OF CALIFORNIA
COUNTY OF ORANGE
ACKNOWLEDGEMENT
On this 1st day of October, 1997, before me, a Notary Public, duly
commissioned, qualified and acting, within and for said County and State,
appeared in person the within named Charles D. Robertson, Jr., being the person
authorized by said corporation to execute such instrument, to me personally well
known, who stated that he was the President of RDC Sales, Inc., executed and
delivered said foregoing instrument for the consideration, uses and purposes
therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal
this 1st day of October, 1997.
/s/ MICHELE T. LEE
----------------------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES: Michele T. Lee
9/12/2001 Commisison #1155155
- -------------------------- Notary Public - California
Orange County
My Comm. Expires Sept 12, 2001
<PAGE>
STATE OF CALIFORNIA
COUNTY OF ORANGE
ACKNOWLEDGEMENT
On this 1st day of October, 1997, before me, a Notary Public, duly
commissioned, qualified and acting, within and for said County and State,
appeared in person the within named Mark A. Vidovich, being the person
authorized by said corporation to execute such instrument, to me personally well
known, who stated that he/she was the Chief Executive Officer of Day Runner,
Inc., executed and delivered said foregoing instrument for the consideration,
uses and purposes therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal
this 1st day of October, 1997.
/s/ MICHELE T. LEE
----------------------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES: Michele T. Lee
9/12/2001 Commisison #1155155
- -------------------------- Notary Public - California
Orange County
My Comm. Expires Sept 12, 2001
Single Tenant Net Industrial Lease 2690 Plymouth Drive, Oakville, Ontario
THIS LEASE AGREEMENT made this 11th day of May , 1998 :
BETWEEN:
GPM REAL PREPERTY (7) LTD. and
ENDOW (7) INC.
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
ULTIMA DISTRIBUTION INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
WITNESSETH THAT:
WHEREAS the Landlord is the owner of the Lands and Building known
municipally as 2690 PLYMOUTH DRIVE , OAKVILLE , Province of ONTARIO and has
agreed to lease those Lands and the Building to the Tenant on the terms herein
contained;
NOW, THEREFORE, in consideration of the rents, covenants and agreements
hereinafter contained on the part of the Tenant to be paid, observed and
performed, and in consideration of the covenants and agreements hereinafter
contained on the part of the Landlord to be observed and performed, the Tenant
and Landlord covenant and agree with each other as follows:
ARTICLE ONE
DEMISE
Section 1.01 Demise: The Landlord hereby demises and leases unto the Tenant the
Leased Premises upon the terms and conditions set forth herein.
ARTICLE TWO
TERM
Section 2.01 Term: The Tenant shall have and hold the Leased Premises for and
during the term of ten (10) years and zero (0) months ("Term"), commencing on
the date (the "Commencement Date") which is the later of the 1st day of June ,
1998 , and the day of substantial completion of the Landlord Work as determined
in Paragraph 3 of Schedule "B" hereof and fully to be completed and ended on the
day prior to the tenth (10th) anniversary of the Commencement Date. In the event
that the Tenant refuses or fails to provide required input or make any decisions
as reasonably requested by the Landlord during the planning, design and
construction of the Landlord work, the Landlord's architect shall in its sole
and unfettered discretion determine the number of days of delay in planning,
design and construction as a result of such delay caused by the Tenant and the
Commencement Date of the Lease shall be the day of substantial completion as
herein before stated less the number of days of delay of planning, design and
construction as caused by the Tenant.
ARTICLE THREE
RENT
Section 3.01 Minimum Rent: See Schedule "B" attached hereto and forming part of
this agreement.
Section 3.02 Additional Rent: The Tenant shall further pay to the Landlord,
yearly and every year during the Term, as additional rent ("Additional Rent")
any and all costs and expenses incurred by the Landlord in owning, maintaining,
operating, repairing, insuring and managing the Leased Premises, including,
without any limitation, insurance arranged by the Landlord, any Leased Premises
Taxes, Tenants' Taxes and Rental Taxes payable to the relevant taxing
authorities, property administration fees, cost of utilities and utility
connections and services, cost of access facilities including rail siding
facilities and cost of repairs (except for the exceptions mentioned in Section
8.01).
Additional Rent shall be paid within ten (10) days after delivery of
Landlord's invoices. If the Landlord so elects, instalments on account of
Additional Rent shall be paid to the Landlord monthly and every month, or as
otherwise specified by the Landlord, in advance at the same time as payment of
Basic Rent is required hereunder, such instalments to be in the amounts
estimated from time to time by the Landlord, acting reasonably, as being payable
by the Tenant. If required by the Landlord the Tenant shall execute and deliver
to the Landlord all documentation required by the Landlord to permit it to
withdraw payments on account of the monthly instalments of Basic Rent provided
for herein and, if required, the monthly instalments on account of Additional
Rent, from the Tenant's bank account by automatic debits; provided that the
Tenant shall deliver such further documentation as may be required by the
Landlord from time to time or as may be necessitated by any change in the
Tenant's bank accounts.
Within ninety (90) days of the end of each fiscal year of the Landlord
(or with respect to any component of Additional Rent which cannot be calculated
within such ninety (90) day period, within ninety (90) days after the Landlord
shall have received the information necessary to compute such component of
Additional Rent), a final accounting and adjustment of Additional Rent for the
preceding fiscal year of the Landlord shall be made, with the aggregate amount
of monthly or other instalments paid on account of Additional Rent for such
fiscal year being credited to the amount of Additional Rent payable by the
Tenant for such year and at such time the Tenant shall pay to the Landlord the
amount, if any, by which the Additional Rent payable by the Tenant for such
fiscal year exceeds the instalments paid on account thereof by the Tenant, or
the Landlord shall credit to future instalments of Rent payable by the Tenant
the amount by which the aggregate instalments paid by the Tenant on account of
Additional Rent for such fiscal year exceed the Additional Rent payable by the
Tenant for such fiscal year.
Section 3.03 Accrual of Rent: Rent shall be considered as accruing from day to
day hereunder, and where it becomes necessary for any reason to calculate such
Rent for an irregular period of less than one year or less than one calendar
month, an appropriate apportionment and adjustment shall be made, including an
apportionment and adjustment of Additional Rent for the fiscal years of the
Landlord in which the tenancy created hereby commences and expires.
Notwithstanding the termination of this Lease, the obligation of the Tenant to
pay such Additional Rent shall survive the termination hereof, and such amount
shall be adjusted by the parties as soon as possible following such termination.
Section 3.04 No Set Off: The Tenant waives the benefits of provisions in present
or future statutes permitting the Tenant to claim a set off against Rent or
abatement of or deduction from Rent for any cause whatsoever.
Section 3.05 Payment of Rent: All Rent hereunder shall be payable in lawful
money of Canada and shall be paid to the Landlord or to such party as it may
from time to time direct, without notice or demand.
Section 3.06 Premises not Available: Should the Leased Premises not be available
for possession by the Tenant at the time of commencement of the Term, Rent shall
abate until the day the Landlord shall have delivered to the Tenant written
notice that the Leased Premises are available, or the date when the Tenant
commences to carry on business in the Leased Premises, whichever is earlier, it
being understood and agreed that this Lease shall otherwise remain in full force
and effect and the abatement of Rent hereby specified shall be accepted by the
Tenant in full settlement of all claims which the Tenant might otherwise have by
reason of the Leased Premises not being available on the commencement date of
the Term.
Section 3.07 Net Net Lease: It is the intention of the parties that the Tenant
shall be solely responsible for all the costs of operation, use, replacement,
repair and maintenance of the Leased Premises, and that the Basic Rent hereunder
be absolutely net to the Landlord, and accordingly, that the entire cost of
owning, operating, repairing, maintaining, insuring, administering and managing
the Leased Premises, whether or not specifically provided for herein, shall be
borne by the Tenant as if it were owner of the Leased Premises, except to the
extent of any expenses expressly stated herein to be the responsibility of the
Landlord, and the Tenant covenants with the Landlord accordingly.
Section 3.08 Deposit: The Landlord acknowledges that it has received the sum of
SIXTY ONE THOUSAND EIGHT HUNDRED SIX DOLLARS FORTY SEVEN CENTS ($61,806.47)
inclusive of GST at 7%, to be applied against basic rent due under this
agreement for the first (1st) month of the term and the balance as security as
security for the performance by the Tenant of its obligations set out in this
Lease. Upon any breach by the Tenant of its obligations hereunder the Landlord
may at its option apply all or part of the deposit to compensate it for losses
sustained by reason of such breach. The Tenant thereafter, on demand, shall
restore the deposit to the original amount. After the termination of this Lease
and the performance by the Tenant of all its obligations hereunder the Landlord
shall return the deposit or so much of it as may then remain unapplied and be in
the Landlord's hands.
ARTICLE FOUR
DEFINITIONS
Section 4.01 Additional Rent: "Additional Rent" is defined in Section 3.02.
Section 4.02 Basic Rent: "Basic Rent" is defined in Section 3.01.
Section 4.03 Building: "Building" means the building standing on the Lands, and
includes all fixtures and improvements therein except fixtures and improvements
installed or made by or for or at the expense of the Tenant or any subtenant.
Section 4.04 Hazardous Substances: "Hazardous Substances" as used in this Lease
shall include, without limitation, flammables, explosives, radio-active
materials, hazardous chemicals and wastes or substances, petroleum and petroleum
products and all substances, materials, goods or gases declared or listed to be
hazardous or toxic under laws or regulations now or hereafter in force.
Section 4.05 Landlord: "Landlord" means the Landlord named herein, and its
successors and assigns subject, however, to the provisions of this Lease.
Section 4.06 Lands: "Lands" mean the lands shown outlined in red on Schedule "A"
attached hereto and legally described as follows:
Parcel Block 2-5, Section 20M-515, being
part of Block 2, Plan 20M-515, designated as
parts 2 and 3 on Plan 20R-9559, Oakville
and include all roads, fences, sidewalks, utility facilities, parking areas, and
other access or service facilities located thereon or appurtenant thereto.
Section 4.07 Leased Premises: "Leased Premises" mean the Lands and all
improvements, structures, fixtures, building services, machinery, equipment,
fences, walkways, paving, utility and sewage facilities and systems from time to
time thereon, including without limitation the Building, and facilities upon or
in the Leased Premises leased or licensed to the Landlord.
<PAGE>
Section 4.08 Leased Premises Taxes: "Leased Premises Taxes" mean the aggregate
of all Taxes payable in respect of the Leased Premises or any part thereof and
all fixtures and improvements therein, including without any limitations federal
or provincial paid-up capital taxes levied upon the deemed capital employed by
the Landlord in the Leased Premises, and Taxes upon Tenant's Work, in every case
whether payable by the Landlord, the Tenant, or any other person, firm or
corporation, but excluding income taxes.
Section 4.09 Rent: "Rent" means Basic Rent, Additional Rent, and all other costs
payable by the Tenant hereunder, whether to the Landlord or otherwise.
Section 4.10 Rental Taxes: "Rental Taxes" means any tax, duty, levy, assessment,
rate or charge imposed upon the Landlord or Tenant which is computed having
regard to or based in whole or in part directly or indirectly upon the Rent,
whether existing at the date hereof or hereinafter imposed by any governmental
authority, including without limitation, any tax, duty, levy, assessment, rate
or charge in the nature of or similar to a value tax, business transfer tax,
sales tax or goods and services tax.
Section 4.11 Taxes: "Taxes" means all taxes, rates, duties, charges,
assessments, impositions, levies, charges for local improvements and/or licence
fees imposed by any federal, provincial, metropolitan or municipal government,
board, agency, or commission, including, without any limitations, school boards
and utility commissions, whether payable by the Landlord, the Tenant or any
other person, but excluding income taxes.
Section 4.12 Tenant: "Tenant" means the Tenant named herein, its successors and
permitted assigns.
Section 4.13 Tenant's Taxes: "Tenant's Taxes" mean all Taxes (whether imposed
upon the Landlord or the Tenant) attributable to the personal property, rental,
business, income, sales or occupancy of the Tenant or any other occupant of the
Leased Premises.
Section 4.14 Tenant's Work: "Tenant's Work" is defined in Section 6.04.
Section 4.15 Term: "Term" is defined in Article Two.
ARTICLE FIVE
GENERAL COVENANTS
Section 5.01 Quiet Possession: The Landlord covenants with the Tenant that upon
the Tenant paying the Rent and punctually observing, performing and keeping the
covenants and agreements herein contained the Tenant may, subject to the terms
of this Lease, peacefully possess and enjoy the Leased Premises during the Term.
Section 5.02 Tenant's General Covenants: The Tenant covenants with the Landlord:
(a) to pay Rent; and
(b) to observe and perform all the covenants and obligations of the
Tenant herein.
ARTICLE SIX
USE AND OCCUPANCY OF LEASED PREMISES
Section 6.01 Use of Leased Premises: The Tenant covenants that the Leased
Premises shall not be used for any purpose other than that of THE WAREHOUSING
AND DISTRIBUTION AND LIGHT MANUFACTURING OF OFFICE PRODUCTS PLUS ANCILLARY
OFFICES . The Tenant specifically covenants that the Leased Premises shall not
be used or permitted to be used for any illegal or immoral purpose, nor any
business or use which violates applicable laws or which in the opinion of the
Landlord, acting reasonably, would tend to lower the character of the Leased
Premises. The Tenant further covenants not to use the Leased Premises in such a
way as to permit unreasonable noise, vibration, smoke, dust, debris, garbage or
other potential nuisance or Hazardous Substance to emanate from the Leased
Premises.
Section 6.02 Compliance with Law and Safety Standards: The Tenant covenants that
it will promptly comply with, and in its use of the Leased Premises and the
carrying out of any acts permitted therein by this Lease, conform to the
requirements of every applicable statute, law, by-law, regulation, ordinance,
order and safety standard at any time or from time to time in force or
recommended to the Landlord or the Tenant during the Term affecting the Leased
Premises, the Tenant's operations therein or any part thereof and/or the
machinery, equipment and other facilities used in connection therewith. The
Tenant will make no use of the Leased Premises, whether within the use
hereinbefore permitted or not, or conduct operations upon the Leased Premises
which imposes upon the Landlord any obligation to modify, extend or alter the
Leased Premises or to remove or remediate Hazardous Substances or replace any
part of the Leased Premises. If the Tenant shall at any time during the Term, do
or permit to be done or omit to do any act or thing which shall or may result in
any such obligation being imposed upon the Landlord, the Landlord may, at its
option, either do or cause to be done the necessary work in order to comply with
such obligation at the expense of the Tenant, or forthwith by notice in writing
to the Tenant, terminate this Lease. If the Landlord shall undertake any such
work to be done at the expense of the Tenant, the costs thereof, together with
the Landlord's related expenses and reasonable overhead and supervision charges
in respect of such work, shall be payable by the Tenant to the Landlord
forthwith upon demand. In case of termination of this Lease pursuant to the
provisions of this Section, the Tenant shall pay Rent to the date of surrender
of possession, and in addition, shall reimburse the Landlord for any income lost
to the Landlord by reason of such termination and for any costs which it incurs
under any such statute, law, by-law, regulation, ordinance, order, safety
standard or requirement. All costs and related expenses incurred by the Landlord
under this Section and all Landlord overhead and supervision charges shall be
paid by the Tenant as Additional Rent, and the obligation of the Tenant
hereunder shall survive the expiry of this Lease.
<PAGE>
Section 6.03 Fixtures, Signs:
(a) The Tenant shall not affix, install or place any signs, boardings, or
posters upon the Lands or the exterior of the Building, without the prior
written consent of the Landlord such consent not to be unreasonably
withheld. All signs, boardings and posters of the Tenant shall only be
permitted as approved by the Landlord, such consent not to be unreasonably
withheld, and subject to such reasonable terms and conditions as the
Landlord may determine from time to time. The Tenant covenants to remove
all such signs at or before the expiry of the Term, and to make good all
damage caused by those signs and their removal and to restore the Leased
Premises to their original condition before the installation of such signs.
The Landlord reserves the right at all times during the Term to place upon
the Lands at its sole cost outdoor advertising signs.
(b) The Tenant will not bring into the Building any articles or fixtures that
by reason of their weight or size might damage or endanger the structure or
systems of the Building, or, any inflammable liquid or dangerous or
explosive materials.
(c) All installations of fixtures made by the Tenant hereunder shall be subject
to the provisions of Section 6.04 hereof.
(d) Upon the expiry of the Term, provided that the Tenant is not then in
default hereunder, the Tenant may remove its trade fixtures and shall make
good any damage incurred in such removal and restore the Leased Premises to
the condition in which they were before the installation of such trade
fixtures.
Section 6.04 Alterations, Fixtures and Improvements: The Tenant covenants that
it will not make, erect or install or permit to be made, erected or installed
any partitions, fixtures, leasehold improvements or alterations ("Tenant Work")
in or about the Leased Premises except in accordance with all applicable
statutes, by-laws, regulations and governmental and municipal requirements, and
except with the prior written consent of the Landlord, such consent not to be
unreasonably withheld. If the Tenant desires to make, erect or install any
Tenant's Work, it shall, at the time of its application for the Landlord's
consent, provide the Landlord with reasonable details of the proposed Tenant's
Work and, upon the Landlord's request, shall furnish such plans, specifications
and designs as shall be necessary therefore and if the Landlord gives its
consent, it shall have the right, acting reasonably, to specify such terms and
conditions and requirements with respect thereto as it deems reasonable and
prudent including those necessary to protect the integrity of the Building and
the Lands and to supervise the work and approve of the contractors,
subcontractors and tradesmen employed by the Tenant. The Landlord may, by
written notice to the Tenant prior to or after the termination hereof, require
the removal at the expense of the Tenant, of any or all Tenant's Work and the
restoration of the Leased Premises to the same condition that they were in
before any such Tenant's Work was made, erected or installed, such work to be
done by or at the direction of the Landlord as aforesaid. Provided that the
Landlord does not require the removal of same all Tenant's Work shall become the
property of the Landlord upon the termination of this lease. All costs incurred
by the Landlord under this Section and all Landlord overhead and supervision
charges shall be paid by the Tenant as Additional Rent.
Section 6.05 Loading and Unloading: The Tenant covenants that all loading and
unloading of merchandise, supplies, materials, garbage, refuse and other
chattels shall be made only through or by means of such doorways or routes as
the Landlord shall designate.
Section 6.06 Cleaning and Redecorating of Building: The Tenant covenants to
clean and keep tidy and presentable the interior and exterior of the Building
including, without any limitations the cleaning of all windows and glass, the
periodic repainting of interior and exterior surfaces where reasonably necessary
or required by the Landlord, and the cleaning of the floors and walls of the
Building, including janitorial services.
Section 6.07 Exterior Maintenance: The Tenant covenants to maintain the Lands
and the exterior of the Building in a clean, neat and tidy condition, and to
keep the Lands and the exterior of the Building free of rubbish, refuse, litter,
hazardous substances and flying debris. The Tenant covenants to keep the parking
areas, driveways, sidewalks, and other means of access or delivery within or to
the Leased Premises (and adjacent public sidewalks to the extent required by
law) free of ice and snow, and sanded where necessary, and to provide reasonable
landscaping maintenance, including without limitation, periodic cutting of
grass, tending of flower beds and other landscaped areas. The Tenant further
covenants to provide or make all necessary maintenance and repairs to driveways,
stairs, sidewalks, ditches, culverts, fences, parking areas and other access,
loading and delivery and service facilities so as to keep them in a safe, clean,
and proper condition for their intended purposes and not to commit or suffer any
waste on the Leased Premises and not to store any materials, equipment or other
articles outside the Building without the prior consent in writing of the
Landlord.
Section 6.08 Heating Equipment, Etc.: The Tenant shall continuously throughout
the Term, as and when reasonably necessary and in any case so as to prevent any
damage to the Leased Premises, heat the Leased Premises and maintain, operate,
repair, replace where necessary and pay all costs in connection with the climate
control equipment and other systems forming part of the Leased Premises,
including without limitation any lighting, sprinkler, security, heating,
ventilating and air-conditioning equipment and systems. The Tenant shall take
out and maintain contracts with contractors approved by the Landlord for the
regular maintenance, repair and service of such equipment and systems, and
provide the Landlord, upon request, with copies thereof and reports thereon.
Section 6.09 Utilities: The Tenant shall be entitled to use the utility services
(which may include electricity, telephone, water, gas and sewer) available to
the Leased Premises, and covenants to pay all costs and expenses therefore,
including, without limitation, the cost of utilities consumed and the cost of
maintenance, repair and replacement of any equipment, ducts, pipes and other
facilities used in the supply or provision of such utilities. The Tenant shall
further be responsible for the replacement and lawful disposal of, at its own
expense, all electric light bulbs, tubes or ballasts serving or forming part of
the said equipment.
<PAGE>
Section 6.10 Hazardous Substances: The Tenant shall at its own cost comply with
all laws, regulations and government orders or directions relating to the use,
generation, manufacture, production, processing, storage, transportation,
handling, release, disposal, removal or cleanup of Hazardous Substances and the
protection of the environment on, under or about the Leased Premises. The Tenant
shall not use or cause or permit to occur the generation, manufacture,
production, processing, storage, handling, release, presence, introduction or
disposal of any Hazardous Substance on, under or about the Leased Premises or
the transportation to or from the Leased Premises of any Hazardous Substance
except as specifically disclosed to the Landlord and permitted in this Lease.
Upon the request of the Landlord during the Term, and in any event four months
preceding the calendar month in which the Term expires, the Tenant shall provide
to the Landlord an independent audit report, in form and substance and from
qualified experts approved by the Landlord acting reasonably, regarding
Hazardous Substances on, under or about the Leased Premises during the Term.
Upon the demand by any governmental authority or the Landlord that removal or a
cleanup be undertaken because of the presence, introduction, deposit, emission,
leak, spill, discharge of Hazardous Substances at the Leased Premises during the
Term the Tenant shall promptly at its own expense take all remedial action
necessary to carry out a full and complete removal, cleanup and remediation in
accordance with the law. No action by the Landlord and no attempt by the
Landlord to mitigate damages under any law shall constitute a waiver or release
of the Tenant's obligations hereunder and the Tenant shall indemnify and save
harmless the Landlord from all costs and expenses incurred by the Landlord
pursuant to this Lease and in respect of the Hazardous Substances and from all
other damages suffered by the Landlord by reason of the Tenant's actions or
default hereunder. The Tenant's obligations and liabilities hereunder shall
survive the expiration of this Lease. Without having made any due inquiries, as
of the execution of this Lease the Landlord is not aware of any concerns or
violations with respect to environmental matters related to the Leased Premises.
Upon commencement of the Term, the Landlord shall provide the Tenant with any
reports with respect to the environmental condition of the Leased Premises which
it may have in its possession at that time.
ARTICLE SEVEN
INSURANCE
Section 7.01 Tenant's Insurance: The Tenant covenants that it will take out and
maintain throughout the Term, in the joint names of the Landlord and the Tenant,
(protecting the Landlord in respect of claims by the Tenant as if the Landlord
were separately insured and containing a waiver of subrogation against the
Landlord and its agents):
(a) comprehensive general liability insurance (including bodily
injury, death and property damage) on an occurrence basis with
respect to the Leased Premises and the Tenant's or others' use
and occupancy thereof, and with respect to any substances
escaping from the Leased Premises, in the minimum amount of
$3,000,000 or such other amount as the Landlord may determine
from time to time, acting reasonably; and
(b) insurance in respect of all risks of direct physical loss or
damage to tenant partitions and improvements, Tenant's Work,
stock-in-trade, chattels, equipment and furniture in an amount of
not less than the replacement cost thereof; and
(c) such other insurance in amounts and upon terms reasonable for a
prudent tenant to provide, as determined by the Landlord or its
insurance advisers or mortgagees.
Such policies shall not be cancellable or renewal refused unless the Landlord is
first given thirty (30) days notice thereof and further be with insurers and in
such form, and contain such other terms, as may be approved by Landlord, acting
reasonably. Copies of such policies will be delivered to Landlord at the
commencement of the Term and thereafter at least 30 days prior to commencement
of each insuring term. If the Tenant does not provide or maintain in force such
insurance the Landlord may take out the necessary insurance and pay the premium
therefore, and the Tenant shall pay such premium, together with the Landlord's
service fee as Additional Rent on demand.
Section 7.02 Landlord's Insurance: The Landlord may provide for, take out and
maintain, throughout the Term:
(a) insurance in respect of risks of destruction or damage to the Building to
the extent of the replacement cost thereof;
(b) general liability insurance providing insurance for damage, loss of
property and death or injury to persons;
(c) if the Building contains pressure vessel apparatus, boiler and machinery
insurance in a reasonable amount having regard to the nature of the
apparatus and the replacement cost of the Building; the Tenant covenants to
advise promptly the Landlord of the existence of any pressure vessel
apparatus placed or installed by it in the Leased Premises; and
(d) rental insurance against loss of Rent.
The property and boiler insurance shall, if requested by the Tenant, and if
available, include waivers of subrogation by the insurer against the Tenant. The
Tenant shall pay the cost of all insurance maintained by the Landlord hereunder,
as well as any other insurance or insurance program provided for or arranged by
the Landlord for the Leased Premises, as Additional Rent.
Section 7.03 Insurance Increase or Cancellation: The Tenant will not permit to
be carried on upon the Leased Premises any activity or bring or keep anything
upon the Leased Premises which will in any way increase the premium rates for
Landlord's insurance or conflict with any laws, by-laws, rules or regulations
applicable to the Leased Premises or with any insurance policy on the Leased
Premises or any part thereof. If the rates for Landlord's insurance shall be
increased as a result of any use made by the Tenant of the Leased Premises or if
such insurance shall be cancelled or cancellation threatened by reason of the
use made of the Leased Premises or by reason of anything done, omitted to be
done, or permitted to be done within the Leased Premises, the Tenant shall pay
to the Landlord the amount of such increase in insurance premiums, or, at the
option of the Landlord, the Term hereby granted shall immediately terminate upon
the service of notice in writing to that effect upon the Tenant. The Tenant
shall promptly comply with the requirements of any insurer under any policy of
insurance relating to the Leased Premises.
<PAGE>
ARTICLE EIGHT
REPAIRS
Section 8.01 Tenant's Repairs: The Tenant covenants to maintain and repair the
Leased Premises so often as is reasonably necessary and as would a careful,
prudent owner (including, without limiting the generality of the foregoing,
structural and capital repairs and replacements to and of all glass, roofs,
doors, floors, walls, drains, hardware, plumbing, sewage, climate control and
utility systems), but excluding reasonable wear and tear caused by the elements,
damage caused by perils against which Landlord is required to be insured
pursuant to Sections 7.02(a) and (c).
Section 8.02 Inspection: The Tenant covenants that the Landlord or its agents at
all reasonable times may enter and view the state of repair and condition of the
Leased Premises; and that the Tenant will repair according to notice in writing.
Section 8.03 Leave in Repair: The Tenant covenants to leave the Leased Premises
and every part thereof well painted and in good repair and good cleanliness all
as otherwise provided in this Lease, and free of all refuse, grease, oil, and
Hazardous Substances.
Section 8.04 Repair of Tenant's Work: The Tenant covenants to maintain and
repair all Tenant's Work, including cost of repairs or replacements occasioned
by perils against which the Tenant is required to insure.
Section 8.05 Notice of Accidents, Defects: The Tenant shall give to the Landlord
prompt written notice of any spill, release or presence of Hazardous Substances
at the Leased Premises, or of any accident to or defect in the plumbing, water
pipes, heating and/or air-conditioning apparatus, electrical equipment, any fire
extinguishing or sprinkler systems, and conduits or wires, or of any damage or
injury to the Leased Premises or any part thereof howsoever caused. Nothing
herein shall be construed, however, so as to require repairs or remediation to
be made by the Landlord except as expressly provided in this Lease.
Section 8.06 Repair Where Tenant Necessitates: If the Leased Premises, or any
part thereof, becomes out of repair or damaged or destroyed through the
negligence, carelessness, lack of attention, repair, replacement or misuse of or
by the Tenant, its subtenants, or those for whom it is in law responsible, the
expense of the necessary repairs, replacements, or alterations, to the extent
not recoverable from Landlord's insurance hereunder, shall be borne by the
Tenant who shall pay the same to the Landlord forthwith on demand.
Section 8.07 Fire or Other Destruction: In the event of the partial or total
damage or destruction of the Building or any part thereof occasioned by a peril
against which the Landlord is fully insured hereunder, such that, in the opinion
of the Landlord, acting reasonably, the Leased Premises are rendered
untenantable, Rent shall at once cease to accrue until the Building (excluding
Tenant's Work), shall be rebuilt or repaired in a manner sufficient to again
render the Leased Premises tenantable in the opinion of the Landlord, acting
reasonably, but the Tenant shall forthwith pay to the Landlord the proportionate
part of the then current Rent accruing up to the time of such partial or total
damage or destruction. If the Building is partially damaged but, in the opinion
of the Landlord, acting reasonably, the Tenant can use and occupy and obtain
access to the remaining part, Rent shall abate proportionately (as designated by
the Landlord, acting reasonably) to the extent of the unusable portion, from the
date of the damage until the date of restoration excluding Tenant's Work. In
case of total destruction of or any substantial damage to the Building by any
cause whatsoever, which, in the opinion of the Landlord, reasonably arrived at,
cannot be repaired within one hundred and eighty (180) days of the occurrence of
such damage or destruction (or within one hundred (100) days if the damage or
destruction occurs within the last two years of the Term) the Landlord may,
within sixty (60) days after the occurrence of such damage or destruction,
terminate this Lease by written notice to the Tenant, but in the absence of such
notice, this Lease shall continue in full force and effect. Unless this Lease is
terminated as aforesaid the Landlord will proceed with all reasonable diligence,
to repair or restore damage or destruction referred to in this Section provided
that Tenant shall proceed to repair, restore or replace Tenant Work. In doing
so, the Landlord shall be entitled to make such changes to the Leased Premises
as are required by relevant legislation or by-laws, and such other changes as
the Landlord wishes provided they will not unreasonably and adversely affect
Tenants' use and enjoyment of the Leased Premises.
ARTICLE NINE
TAXES
Section 9.01 Payment of Rental Taxes and Tenant's Taxes: The Tenant covenants to
pay all Rental Taxes and Tenant's Taxes, as and when the same become due and
payable. Where any Rental Taxes or Tenant's Taxes are payable by the Landlord to
the relevant taxing authorities, the Tenant covenants to pay the amount thereof
to the Landlord within five (5) business days after written demand, or as
otherwise required by the Landlord.
Section 9.02 Leased Premises Taxes: The Tenant covenants to pay to the relevant
taxing authorities the full amount of the Leased Premises Taxes, as and when the
same become due and payable. If the Tenant wishes to contest the Leased Premises
Taxes, it may do so provided that it either pays the contested taxes under
protest, or deposits with the Landlord such security as the Landlord or its
mortgagees may require to prevent default or jeopardy for penalty or loss. Where
any of the Leased Premises Taxes are payable by the Landlord to the relevant
taxing authorities, the Tenant covenants to pay the amount thereof to the
Landlord within five (5) business days after written demand, or as otherwise
required by the Landlord.
Section 9.03 Evidence of Tax Payment: The Tenant shall furnish to the Landlord
within five (5) days after written request by the Landlord from time to time,
evidence reasonably required by the Landlord confirming payment of Tenant's
Taxes, Leased Premises Taxes and Rental Taxes.
Section 9.04 Payment by Landlord: The Landlord, may at its option, require the
Tenant to pay Leased Premises Taxes and Rental Taxes to the Landlord as
Additional Rent in accordance with the terms of this Lease, for repayment by the
Landlord to the relevant taxing authorities.
ARTICLE TEN
LICENCES, ASSIGNMENTS AND SUBLETTINGS
Section 10.01 Occupancy of Premises: The Tenant shall not permit any part of the
Leased Premises to be used or occupied by any persons other than the Tenant, any
subtenants permitted under this Lease, and the employees of the Tenant and any
such permitted subtenant, or permit any part of the Leased Premises to be used
or occupied by any licensee or concessionaire, or permit any persons to be upon
the Leased Premises other than the Tenant, such permitted sub-tenants and their
respective employees, customers and others having lawful business with them.
Section 10.02 Assignments and Sub-lettings: The Tenant shall not assign,
mortgage or charge this Lease or sublet the whole or any part of the Leased
Premises unless: (1) it shall have procured a bona fide written offer therefore
to take an assignment or sublease which is not inconsistent with, and the
acceptance of which would not breach any provision of this Lease if this Section
is complied with, and which the Tenant has determined to accept subject to this
Section being complied with, and (2) it shall have first requested and obtained
the consent in writing of the Landlord thereto. Any request for such consent
shall be in writing and accompanied by a true copy of such offer and the Tenant
shall furnish to the Landlord all information available to the Tenant and
requested by the Landlord as to the responsibility, reputation, financial
standing and business and use of the proposed assignee or subtenant. Within
fifteen (15) days after the receipt by the Landlord of such request for consent
and of all information which the Landlord shall have requested hereunder (and if
no such information has been requested, within fifteen (15) days after receipt
of such request for consent) the Landlord shall have the right upon written
notice to the Tenant, if the request is to assign this Lease or sublet the whole
of the Leased Premises, to cancel and terminate this Lease or if the request is
to assign or sublet a part of the Leased Premises only, to cancel and terminate
this Lease with respect to such part, in each case as of a termination date
sixty (60) days following the giving of such notice, and in such event the
Tenant shall surrender the whole or part, as the case may be, of the Leased
Premises in accordance with such notice and Rent shall be apportioned and paid
to the date of surrender and, if a part only of the Leased Premises is
surrendered, Basic Rent shall thereafter abate proportionately. If the Landlord
shall not exercise the foregoing right of cancellation then the Landlord's
consent to the Tenant's request for consent to assign or sublet shall not be
unreasonably withheld. The Tenant shall pay all reasonable costs and fees
incurred by and administration fees of the Landlord in connection with the
request for consent, including legal costs. The Tenant may assign or sublet, as
the case may be, only upon the terms set out in the offer submitted to the
Landlord as aforesaid and not otherwise and not later than three (3) months
after the Landlord's consent, and in the case of an assignment, only if the
assignee covenants directly with the Landlord to assume and perform each of the
covenants, obligations and agreements of the Tenant in this Lease without
releasing the assignor from liability therefore and only upon execution by any
or all parties hereto, including the assignee, of such other documents as may be
required by the Landlord's solicitors. In the event of such assignment or
subletting all monies payable by the assignee, subtenant or transferee shall, at
the option of the Landlord, be paid directly to the Landlord, who shall credit
the same as and when received to payments required and reserved hereunder. The
Landlord shall in addition thereto be entitled to receive any excess of such
monies above those monies payable and reserved hereunder. No assignment or
subletting hereunder shall relieve the Tenant from its obligations and
agreements hereunder.
Section 10.03 Sale of Shares: An assignment of lease shall be construed to
include an amalgamation by the Tenant and the transfer of shares of the Tenant
(in the event that it is a limited company) which transfer effectively transfers
shareholder control of the Tenant.
ARTICLE ELEVEN
TITLE
Section 11.01 Subordination:
(a) The Tenant covenants that this Lease and everything herein contained shall
be subordinate to any charge or charges from time to time created by the
Landlord in respect of the Leased Premises or any part thereof by way of
mortgage, including deeds of trust and instruments supplemental thereto.
The Tenant hereby covenants and agrees that it will at any time from time
to time, as required by the Landlord during the Term and any extension or
renewal, give all such further assurances as may be reasonably required to
evidence and effectuate this subordination of its rights and privileges
hereunder to the holder or holders of any such charge or charges, provided
however, that any such written subordination to any such charge created
after the commencement of the Term shall be subject to the chargee agreeing
to permit the Tenant to remain in possession of the Leased Premises during
the Term, provided that it is not in default hereunder and further provided
that the Tenant agrees to attorn to such chargee in possession of the
Leased Premises, if and when required by such chargee.
(b) Without limiting the general rights of the Landlord to assign this Lease,
the Landlord shall be entitled to assign this Lease and/or the Rent as
security for any charge upon the Leased Premises or any part thereof, and
the Tenant covenants, if requested to do so, to acknowledge in writing any
notice of such assignment by the Landlord.
Section 11.02 Tenant Acknowledgements: The Tenant agrees that it will from time
to time within five (5) days after written request, execute and deliver to the
Landlord (and, if required by the Landlord, to any prospective or actual chargee
or purchaser) a certificate in writing as to the status at that time of this
Lease, including as to whether this Lease is unmodified and in full force and
effect (or, if modified, stating the modification and that the same is in full
force and effect as modified), the amount of the Rent then being paid hereunder,
the dates to which the same, by instalments or otherwise, and other charges
hereunder have been paid, whether there is any existing default on the part of
the Landlord of which the Tenant has notice, whether there are any deposits or
prepaid Rent, and any other matters pertaining to this Lease as to which the
Landlord shall request a statement. Any statement delivered pursuant hereto may
be conclusively relied upon by any prospective or actual purchaser or chargee
except as to any default of the Landlord as to which the Tenant does not then
have notice.
<PAGE>
Section 11.03 Charges Against Leasehold: The Tenant covenants not to permit any
builders' or other liens, mortgages or conditional sales contracts to attach to
this Lease, the Leased Premises or any Tenant's Work, and that whenever and so
often as any such liens, mortgages or contracts shall attach or claims or
notices of lien shall be filed, the Tenant shall, within fifteen (15) days after
the Tenant has notice of the claim for lien, mortgage or contract, procure the
discharge or withdrawal thereof by payment or by giving security or in such
other manner as is or may be required or permitted by law.
Section 11.04 No Registration: The Tenant covenants and agrees with the Landlord
that it will not register a copy of this Lease. If the Tenant desires to make a
registration for the purposes only of giving notice of this Lease, then the
Tenant may at its cost register a caveat or notice only relating to this Lease.
Section 11.05 Sale: If the Leased Premises are sold by the Landlord the
purchaser shall assume, during its period of ownership, the Landlord's covenants
and agreements hereunder and the Landlord shall following such sale be released
from all its covenants, obligations and agreements under this Lease.
ARTICLE TWELVE
LIABILITIES
Section 12.01 Responsibility of Landlord: The Tenant agrees that the Landlord
shall have no obligation hereunder in respect of the supply or provision of any
service or utility and the Tenant shall not be entitled to any compensation for
any inconvenience, nuisance or discomfort occasioned by lack of any service or
utility, or any defect in the Leased Premises.
Section 12.02 Claims for Compensation: No claim for compensation shall be made
by the Tenant by reason of inconvenience, damage or annoyance arising from the
necessity of repairing or remediating any portion of the Leased Premises,
howsoever the necessity may arise.
Section 12.03 Theft: The Landlord shall not be liable for the theft of any
property at any time in or about the Leased Premises.
Section 12.04 Damage by Wind and Other Causes: The Landlord shall not be liable
for any damage to any property, fixtures or improvements at any time in, on or
about the Leased Premises nor injury to persons caused by wind, escape or
leakage or presence of smoke, gas, water, (including water from sprinkler
systems) rain, snow, steam, chemical substances, electrical or nuclear energy,
the breaking of any drain, water pipe, gas pipe, electric wire, lamp, combustion
chamber, nuclear conductor or reactor, nor for any accident to goods or property
of the Tenant, nor for any injury to any person or persons in, on or about the
Leased Premises, however any of the above may be caused.
Section 12.05 Indemnification: Notwithstanding any other provisions of this
Lease to the contrary, the Tenant shall:
(a) be liable to the Landlord for;
(b) indemnify and hold harmless the Landlord, and its respective officers,
directors, shareholders, partners, agents, advisors and employees
("Others") from and against;
any and all liabilities, claims, suits or actions costs, damages and expenses
(and without limiting the generality of the foregoing, any direct losses, costs,
damages and expenses of the Landlord including costs as between a solicitor and
his own client) which may be brought or made against the Landlord or Others, or
which the Landlord or Others may pay or incur as a result of or in connection
with:
(c) any breach, violation or non-performance of any covenant, condition or
agreement in this Lease set forth and contained on the part of the Tenant
to be fulfilled, kept, observed and performed;
(d) any damage to property, including property of the Landlord, occasioned by
the operations of the Tenant's business on, or the Tenant's occupation of,
the Leased Premises;
(e) any injury to person or persons, including death resulting at any time
therefrom, occasioned by the operation of the Tenant's business on, or the
Tenant's occupation of, the Leased Premises;
(f) any costs or liability related to Hazardous Substances used,
deposited, released, spilled, discharged, present on or left at
the Leased Premises during the Term or any renewal or extension
thereof;
unless caused by the gross negligence of the Landlord or for whom the Landlord
is at law responsible, such indemnity and hold harmless to survive the
expiration of the Term.
ARTICLE THIRTEEN
ACCESS
Section 13.01 Access by Landlord: The Landlord and parties authorized by the
Landlord shall be permitted at any time and from time to time, to enter and to
have their authorized agents, employees and contractors enter the Leased
Premises for the purpose of inspection or making repairs, alterations, removals
or improvement to the Leased Premises or to have access to utilities and service
facilities therein contained, and the Tenant shall provide free and unhampered
access for the purpose and shall not be entitled to compensation for any
inconvenience, nuisance or discomfort caused thereby, but the Landlord or
parties authorized by the Landlord in exercising their rights hereunder shall
proceed to the extent reasonably possible so as to minimize interference with
the Tenant's use and enjoyment of the Leased Premises. In the event of an
emergency, the Landlord may, if the Leased Premises are unattended, enter by way
of master key or forcibly, without rendering the Landlord or its agents liable
therefore.
<PAGE>
Section 13.02 Exhibit: The Tenant will permit the Landlord or its
representatives to exhibit the Leased Premises at all reasonable times during
the Term to prospective purchasers or mortgagees and all other persons having
written authority from the Landlord. The Landlord and agents of the Landlord
shall also be permitted to view or conduct tests on the Leased Premises. The
Landlord shall be entitled from time to time during the Term to place a notice
or sign of reasonable dimensions, reasonably placed so as not to interfere with
the Tenant's business, stating that the Leased Premises are for sale or, during
the last Twelve (12) months of the Term, for rent.
ARTICLE FOURTEEN
OVERHOLDING
Section 14.01 Tenancy after Expiration: If, at the expiration of the Term or
sooner termination hereof, the Tenant shall remain in possession without any
further written agreement but with the express or implied consent of the
Landlord, and in circumstances where a tenancy would thereby be implied by law,
a tenancy from year to year shall not be created by implication of law or
otherwise, but the Tenant shall be deemed to be a monthly tenant only at a
monthly Basic Rent equal to one-ninth of double the Basic Rent payable in the
year immediately preceding the termination hereof, and otherwise upon and
subject to the same terms and conditions contained in this Lease, excepting
provisions for any options or renewal, if any are contained herein, and nothing,
including the acceptance of any Rent by the Landlord, shall extend to the
contrary except a specific agreement in writing between the Landlord and the
Tenant and the Tenant hereby authorizes the Landlord to apply any monies
received from the Tenant in payment of Rent.
ARTICLE FIFTEEN
LANDLORD'S RIGHTS AND REMEDIES
Section 15.01 Default: If and whenever:
(a) the Rent hereby reserved, or any part thereof, is not paid when due, or
there is non-payment of any other sum which the Tenant is obligated to pay
under any provision of this Lease, and such default in either case shall
continue for two (2) days after notice by the Landlord requiring the Tenant
to rectify same; or
(b) the Term or any goods, chattels, equipment or other personal property of
the Tenant, shall be taken or be exigible in execution or attachment, or if
a writ of execution shall issue against the Tenant; or
(c) the Tenant shall become insolvent or commit an act of bankruptcy or become
bankrupt or take the benefit of any statute that may be in force for
bankrupt or insolvent debtors, or become involved in a winding-up
proceeding, voluntary or otherwise, or if a receiver shall be appointed for
the business, property, affairs or revenues of the Tenant, or if any
governmental authority should take possession of the business or property
of the Tenant; or
(d) the Tenant shall fail to commence business actively and diligently from and
on the Leased Premises within sixty (60) days after commencement of the
Term; or
(e) the Tenant shall make a bulk sale of its goods or move or commence, attempt
or threaten to move its goods, chattels and equipment out of the Leased
Premises (other than in the routine course of business); or
(f) the Tenant shall vacate or abandon the Leased Premises in whole or in part;
or
(g) the Tenant shall transfer or purport to transfer any portion or all of the
Term or the Leased Premises without the written consent of the Landlord, in
accordance with the terms of this Lease; or
(h) the Tenant shall fail to remedy any condition giving rise to cancellation,
threatened cancellation, reduction or threatened reduction of coverage
under any insurance policy on the Leased Premises or any part thereof
within twenty four (24) hours after notice thereof by the Landlord; or
(i) the Tenant shall not observe, perform and keep any other of the covenants,
agreements, provisions, stipulations and conditions herein to be observed,
performed and kept by the Tenant and shall persist in such failure for ten
(10) days after notice by the Landlord requiring that the Tenant remedy,
correct, desist or comply (or in the case of any such breach which
reasonably would require more than ten (10) days to rectify unless the
Tenant shall commence rectification within the said ten (10) day period and
thereafter promptly and diligently and continuously proceed with the
rectification of the breach); (each of the foregoing subsections being an
"Event of Default")
then and in any of such cases at the option of the Landlord, the full amount of
the current month's and the next ensuing three (3) month's Rent shall
immediately become due and payable and the Landlord may immediately distrain for
the same, together with any arrears then unpaid; and the Landlord may without
notice or any form of legal process forthwith take possession of the Leased
Premises or any part thereof in the name of the whole and remove and sell the
Tenant's goods, chattels, equipment and any other property therefrom, any rule
of law or equity to the contrary notwithstanding; and the Landlord may seize and
sell such goods, chattels, equipment and other property of the Tenant as are in
the Leased Premises or at any place to which the Tenant or any other person may
have removed them in the same manner as if they had remained and been distrained
upon the Leased Premises; and such sale may be effected in the discretion of the
Landlord either by public auction or by private treaty, and either in bulk or by
individual item, or partly by one means and partly by another, all as the
Landlord in its entire discretion may decide, and the Tenant waives and
renounces the benefit of any present or future Statute or amendments thereto
taking away or limiting the Landlord's right of distress.
Section 15.02 Consequences of Default: While any Event of Default under Section
15.01 remains unremedied the Landlord may terminate this Lease and the Term by
giving written notice of termination to the Tenant or by posting notice of
termination at the Leased Premises, and in such event the Tenant will forthwith
vacate and surrender the Leased Premises. Alternatively, the Landlord may from
time to time without terminating the Tenant's obligations under this Lease, make
alterations and repairs considered by the Landlord necessary to facilitate a
sub-letting and sub-let the Leased Premises or any part thereof as agent of the
Tenant for such term or terms and at such rent or rents and upon such other
terms and conditions as the Landlord in its sole discretion considers advisable.
Upon each sub-letting all rent and other monies received by the Landlord from
the sub-letting shall be applied first to the payment of indebtedness other than
Rent due hereunder from the Tenant to the Landlord, second to the payment of
costs and expenses of the sub-letting including brokerage fees and solicitors
fees and the cost of alterations and repairs, and third to the payment of Rent
due and unpaid hereunder. The residue, if any, shall be held by the Landlord and
applied in payment of future Rent as it becomes due and payable. If the Rent
received from the sub-letting during a month and any surplus then held by the
Landlord to the credit of the Tenant is less than the Rent to be paid during
that month by the Tenant, the Tenant will pay the deficiency to the Landlord.
The deficiency will be calculated and paid monthly. No taking of possession by
the Landlord will be construed as an election on its part to terminate this
Lease unless a written notice of that termination is given to the Tenant or
posted as aforesaid. Despite a sub-letting without termination, the Landlord may
elect at any time to terminate this Lease for a previous breach. If the Landlord
so terminates this Lease, the Tenant shall pay to the Landlord on demand
therefore:
(a) Basic Rent and Additional Rent accrued due up to the time of possession or
termination, whichever is later, plus accelerated Rent as provided in
Section 15.01;
(b) all costs payable by the Tenant pursuant to the provisions of this Lease up
until the date of possession or termination, whichever is later;
(c) such expenses as the Landlord may incur or has incurred in connection with
taking possession or terminating and re-letting, or collecting sums due or
payable by the Tenant or realizing upon assets seized including without
limitation brokerage expenses, legal fees and disbursements determined as
between a solicitor and his own client, and including the expense of
keeping the Leased Premises in good order and repairing or maintaining the
same or preparing the Leased Premises for re-letting; and
(d) as liquidated damages for the loss of Rent and other income of the Landlord
expected to be derived from this Lease during the period which would have
constituted the unexpired portion of the Term had the Lease not been so
terminated, the amount, if any, by which the rental value of the Leased
Premises for such period established by reference to the terms and
provisions of this Lease, exceeds the rental value of the Leased Premises
for such period established by reference to the terms and provisions upon
which the Landlord re-lets them, if such re-letting is accomplished within
a reasonable time after termination of this Lease, and otherwise with
reference to all market and other relevant circumstances. Rental value is
to be computed in each case by reducing to their present worth, at an
assumed interest rate of ten (10%) per cent per annum, all Rent and other
amounts to become payable for such period and where the ascertainment of
amounts to become payable requires the same, the Landlord may make
estimates and assumptions of fact which will govern unless shown to be
unreasonable or erroneous; such obligations of the Tenant to survive the
termination of this Lease.
Section 15.03 Alternative Remedies: The Landlord may from time to time resort to
any or all of the rights and remedies available to it in the event of any
default hereunder by the Tenant, either by any provision of this Lease or by
statute or the general law, all of which rights and remedies are intended to be
cumulative and not alternative, and the express provisions hereof as to certain
rights and remedies are not to be interpreted as excluding any other or
additional rights and remedies available to the Landlord by statute or the
general law. No waiver by the Landlord of any of its rights with respect to a
default by the Tenant shall constitute a waiver of other rights with respect to
that default or a waiver of any subsequent breach of that obligation.
Section 15.04 Landlord's Right to Perform: In addition to all other remedies the
Landlord may have by this Lease or by law, if the Tenant shall make default in
any of its obligations hereunder, the Landlord may, at its option, perform any
such obligation after five (5) days' written notice to the Tenant (or without
notice in case of an emergency), and in such event the costs of performing such
obligation and all reasonable Landlord overhead and related supervision charges
shall be payable by the Tenant to the Landlord on demand, together with interest
at the rate of six (6%) per cent per annum in excess of the minimum lending rate
to prime commercial borrowers from time to time current at any Canadian bank
designated by the Landlord from the date of the performance of such obligation
by the Landlord until the date of payment to the Landlord.
Section 15.05 Interest on Arrears of Rent: The Tenant covenants to pay interest
computed at the rate specified in Section 15.04 upon all arrears of Rent. Such
interest shall be computed from the due date(s) of such Rent until the date of
payment to the Landlord.
ARTICLE SIXTEEN
GENERAL PROVISIONS
Section 16.01 Lease Entire Agreement: It is hereby understood and agreed by and
between the parties that the terms and conditions set forth herein, together
with the terms and conditions set forth in any rules and regulations and
exhibits, schedules and/or plans annexed hereto embrace the whole terms and
conditions of the agreement entered into by the Landlord and Tenant with respect
to the Leased Premises and supersede and take the place of any and all previous
agreements or representations of any kind, written or verbal, heretofore made by
anyone in reference to the Leased Premises or in any way affecting the Leased
Premises and that any such rules and regulations and any exhibits, schedules
and/or plans shall and do form a part of this Lease as fully as if the same were
included in the main body hereof above the execution hereof by the parties. Each
and every provision of this Lease shall be construed as a covenant and
agreement. If any provision of this Lease is illegal or unenforceable, it shall
be considered separate and severable from the remaining provisions of this
Lease, which shall remain in force and be binding as though the said provision
had never been included. This Lease may not be amended or altered except by
instrument in writing formally executed by both parties, provided, however, that
the Landlord shall be entitled to make and amend, and the Tenant covenants to
abide by, such reasonable rules and regulations governing this Lease and the
Leased Premises as are communicated to the Tenant.
<PAGE>
Section 16.02 Notices: Any notice, statement or request herein required or
permitted to be given by either party to the other shall be in writing and shall
be deemed to have been sufficiently and effectually given if signed by or on
behalf of the party giving the notice and delivered or mailed by registered
prepaid post (return receipt requested), in the case of notice to the Landlord,
to it at the following address:
c/o Greiner-Pacaud Management Associates
310 Front Street West, Suite 400
Toronto, Ontario
M5V 3B5
as well as to Landlord's agents at the address at which Rent payments due
hereunder are then being made, and in the case of notice to the Tenant, to it
addressed to the Leased Premises or left at the Leased Premises or served
personally on the Tenant or on one of the partners, officers, or employees of
the Tenant. Any such notice given as aforesaid shall be conclusively deemed to
have been given and received, if delivered, on the date of such delivery or, if
mailed, on the third business day following the day upon which such notice is
mailed. During periods of mail strike or stoppage all notices shall be delivered
and not mailed. The Landlord may from time to time by notice to the Tenant
change the address to which notices are to be mailed or delivered.
Section 16.03 Headings: The headings in this Lease are for convenience only and
are not to be considered a part of it and do not in any way limit or amplify its
terms and provisions.
Section 16.04 Agency: The Landlord may perform all or any of its obligations
hereunder by or through such managing or other agency or agencies as it may from
time to time determine and the Tenant shall, as from time to time directed by
the Landlord, pay to any such agent any monies payable hereunder to the
Landlord.
Section 16.05 Tenants' Acceptance: The taking of possession of the Leased
Premises by the Tenant shall be deemed to be conclusive evidence that any
improvements or work required to be undertaken by the Landlord has been
completed to the satisfaction of the Tenant and that the Tenant has inspected
and accepts the Leased Premises.
Section 16.06 Time of Essence: Time shall be of the essence of this Lease.
Section 16.07 Applicable Law: This Lease shall be governed by and construed in
accordance with the laws in force in the Province in which the Leased Premises
are situate.
Section 16.08 Joint and Several: Where the Tenant is comprised of more than one
person the obligations of the Tenant shall be joint and several.
Section 16.09 Railway Siding: Upon notification by the Landlord, the Tenant, in
common with others entitled thereto, shall be entitled to the use and benefit of
any industrial rail siding installed upon or serving the Leased Premises
pursuant to a current rail siding agreement. The Tenant shall indemnify and save
harmless the Landlord from any and all costs, liabilities, damages, claims,
suits or actions arising out of such siding agreement or the use of such
facility. The Tenant agrees to abide by the terms of the applicable rail siding
agreement and to promptly pay all rental or other amounts required thereunder.
Section 16.10 Schedules: The Schedule(s) which is/are attached hereto and which
is/are incorporated into and form a part of this Lease is/are as follows:
Schedule "A" - Sketch of Lands
Schedule "B" - Lease Renewal Option
Schedule "C" - Office Layout
IN WITNESS WHEREOF the parties hereto have executed this Lease Agreement
as of the day, month and year first above written.
GPM REAL PROPERTY (7) LTD.
Per:
Per: (c/s)
ENDOW (7) INC.
Per:
Per: (c/s)
ULTIMA DISTRIBUION INC.
Per:
Per: (c/s)
<PAGE>
SCHEDULE "A"
SKETCH OF LANDS
<PAGE>
SCHEDULE "B"
SPECIAL CONDITIONS
1. BASIC RENT
The Tenant shall pay to the Landlord for each and every year during the
first three (3) years of the term a basic rent ("Basic Rent") in the
sum of TWO HUNDRED ONE THOUSAND NINETY NINE DOLLARS AND NINETY SIX
CENTS ($201,099.96) per annum, which has been calculated based on a
rate of FIVE DOLLARS AND ZERO CENTS ($5.00) per square foot per annum
of gross rentable area of the building, payable by equal consecutive
monthly instalments in the sum of SIXTEEN THOUSAND SEVEN HUNDRED FIFTY
EIGHT DOLLARS THIRTY THREE CENTS ($16,758.33) in advance on the first
day of each and every month in each and every year during the first
three (3) years of the term, the first of such monthly instalments to
be paid on the Commencement Date; and
The Tenant shall pay to the Landlord for each and every year during the
fourth (4th) and fifth (5th) years of the term a Basic Rent in the sum
of TWO HUNDRED ELEVEN THOUSAND ONE HUNDRED FIFTY FIVE DOLLARS AND ZERO
CENTS ($211,155.00) per annum, which has been calculated based on a
rate of FIVE DOLLARS AND TWENTY FIVE CENTS ($5.25) per square foot per
annum of gross rentable area of the building, payable by equal
consecutive monthly instalments in the sum of SEVENTEEN THOUSAND FIVE
HUNDRED NINETY SIX DOLLARS AND TWENTY FIVE CENTS ($17,596.25) in
advance on the first day of each and every month in each and every
during the fourth (4th) and fifth (5th) years of the term, the first of
such monthly instalments to be paid on the first day following expiry
of the third (3rd) year of the term; and
The Tenant shall pay to the Landlord for each and every year during the
sixth (6th) and seventh (7th) years of the term a Basic Rent in the sum
of TWO HUNDRED THIRTY ONE THOUSAND TWO HUNDRED SIXTY FOUR DOLLARS AND
NINETY SIX CENTS ($231,264.96) per annum, which has been calculated
based on a rate of FIVE DOLLARS AND WEVENTY FIVE CENTS ($5.75) per
square foot per annum of gross rentable area of the building, payable
by equal consecutive monthly instalments in the sum of NINETEEN
THOUSAND TWO HUNDRED SEVENTY TWO DOLLARS AND EIGHT CENTS ($19,272.08)
in advance on the first day of each and every month in each and every
during the sixth (6th) and seventh (7th) years of the term, the first
of such monthly instalments to be paid on the first day following
expiry of the fifth (5th) year of the term; and
The Tenant shall pay to the Landlord for each and every year during the
last three (3) years of the term a Basic Rent in the sum of TWO HUNDRED
FORTY ONE THOUSAND THREE HUNDRED TWENTY DOLLARS AND ZERO CENTS
($241,320.00) per annum, which has been calculated based on a rate of
SIX DOLLARS AND ZERO CENTS ($6.00) per square foot per annum of gross
rentable area of the building, payable by equal consecutive monthly
instalments in the sum of TWENTY THOUSAND ONE HUNDRED TEN DOLLARS AND
ZERO CENTS ($20,110.00) in advance on the first day of each and every
month in each and every during the last three (3) years of the term,
the first of such monthly instalments to be paid on the first day
following expiry of the seventh (7th) year of the term; and
2. AREA REMEASUREMENT
Unless otherwise determined from time to time at the initiative of the
Landlord by an architect selected by the Landlord, for all purposes of
this lease the Building shall contain a gross area of approximately
40,220 square feet. The Basic Rent stipulated in Section 3.01 shall be
calculated using the area of the Building as determined pursuant to
this paragraph. In the event that the area of the Building as
determined by an architect selected by the Landlord is more or less
than that set forth in this paragraph, the Basic Rent shall be
increased or decreased accordingly.
3. CONFIMATORY NOTICE
Upon substantial completion of the Landlord Work, the Landlord shall
provide notice to the Tenant which shall include an Architect's
Certificate determining and certifying the gross square footage area of
the Building which measurement shall be determined in accordance with
SIOR standards and shall include a copy of the notice publishing
substantial completion of the Landlord Work which shall determine the
date of substantial completion of such work. Such notice will be final
and binding, except as otherwise determined herein, on the Landlord and
Tenant.
4. PRIOR ENTRY
The Tenant shall be permitted to enter upon the Leased Premises, at its
own risk and peril, upon the later of the Tenant's execution of the
Lease and the receipt of notice from the Landlord that floor area of
the Building designated as warehouse has been prepared and is ready for
the Tenant's intended use. Such entry shall be limited to exterior
areas of the Building and that floor area of the Building interior
designated as warehouse and shall solely be for the Tenant's
preparation for moving in, including the installation of warehouse
racking. The Tenant shall not be required to pay any Basic Rent or
Additional rent, with the exception of utilities which the Landlord
shall reasonably allocate to the Tenant, if any, from the date of such
permitted entry upon the Leased Premises to the Commencement Date.
5. LANDLORD WORK
Subject to force majeure, the Landlord shall at its own expense use
reasonable efforts to complete the following improvements to the
premises (the "Landlord Work") prior to July 31, 1998, provided
however, that the Landlord shall not be obligated to commence the
Landlord Work prior to execution of the Lease by the Tenant and the
Landlord shall not be held liable for any costs, damages or other
liabilities incurred by the Tenant due to a delay in the commencement
of the Landlord Work by virtue of the Tenant's non execution of the
Lease;
a) Ensure that the premises at time of occupancy are free of any
material structural defect and the roof, plumbing, heating,
air-conditioning, electrical, drainage, sprinkler, lighting
and in general all systems contained herein are in good
working condition and fully operational;
b) Install slab on grade 6" thick 25 Mpa concrete floor with
polypropylene fibre reinforcing in warehouse area and install
slab on grade 4" concrete floor with polypropylene fibre
reinforcing in office area. Finished slab to be saw cut and
filled with Loadflex or equal. Seal warehouse floor using
standard industrial urethane concrete floor sealer.
c) Install electrical service of no less than 600 volts @ 600
amps;
d) Install metal halide lights in the warehouse to provide a
minimum of 35 foot candle illumination at 30" working plane
above floor based on minimum standard ceiling/wall/floor
reflectance values for warehouse empty space of 30/30/20;
e) Build out new offices of approximately 4,000 sq.ft. using the
following criteria, as per the layout shown outlined in red on
Schedule "C" attached hereto and forming part of this
agreement:
i) Suspended 2' x 4' ceiling tiles and T-Bar ceiling
with recessed fluorescent lighting throughout, and
heated and cooled by roof-mounted heating,
ventilating and air-conditioning equipment;
ii) Floor covering to be 28 oz. carpet, colour to be
chosen by Tenant based on Landlord's samples;
iii) Standard drywall finish complete with professional
painting, color to be chosen by Tenant based on
Landlord's samples;
iv) Install eight (8) private offices;
v) One boardroom approximately 300 sq.ft;
vi) Men's and Women's washrooms in compliance with
applicable building codes;
vii) Quality of construction and finish shall
be consistent with Landlord's standard
office finish and shall meet all applicable fire and
building codes;
viii) Construct block (or block and drywall) demising wall
between office areas and warehouse area as shown
marked in blue on Schedule "C".
f) Truck level docks to be equipped with Pentalift or equal
hinged lip manual ramp boxed model 6'6" x 7'9" with lip
extended, 25,000 lbs. capacity, and to be equipped with dock
seals and dock bumpers.
The Tenant shall be solely responsible for the cost of all alterations,
improvements and upgrades to the Leased Premises in excess of the
Landlord work, inclusive, but not limited to, the interior office
demising wall and new exterior windows as shown marked in green on
Schedule "C", and the Tenant shall contract directly with the general
contractor or the sub-contractor for the completion of such work.
6. GUARANTEES AND WARRANTEES
The Tenant shall have the right to the benefits of any warranty or
guarantee, if any, granted by the General Contractor or its Sub-trades
in connection with the construction of the Leased Premises.
7. LEASE RENEWAL OPTION
(a) If the Tenant pays the Rent and other sums payable hereunder and
performs each and every one of the covenants, provisos and agreements
herein contained and on the part of the Tenant to be paid and
performed, punctually and in accordance with the provisions of this
Lease, then the Tenant shall have the option of renewing this Lease by
notice in writing given to the Landlord at least one hundred and eighty
(180) days prior to the expiry of the Term for an additional term of
five (5) years on the same terms and conditions as set forth in the
Lease save and except that there shall be no further right of renewal
and save and except that the yearly Basic Rent during the renewal term
shall be the greater of the yearly Basic Rent in effect during the last
year of the Term of this Lease, and the "Market Rent" for the Leased
Premises determined as of a date which is sixty (60) days prior to the
commencement of the renewal term. If the parties are unable to agree
upon such Market Rent, the dispute will be resolved in the manner set
out in Section (b) hereof.
(b) In this Lease "Market Rent" shall mean the yearly fair market net
rental of the Leased Premises, at the date required for determination
of same, having regard to annual net rents then normally being asked
for and received for land, buildings and improvements of similar value,
extent and quality in the general area of the Leased Premises under net
leases having a similar term as the term for which Market Rent is being
determined. If the Landlord and the Tenant have not agreed to Market
Rent on or before the date required for determination of same, then
Market Rent shall be determined in accordance with the following
provisions:
(i) a party wishing to have such determination shall designate
a person to act as a valuer, who shall be an accredited member
of the Appraisal Institute of Canada, and notify the other
party of such nominee;
(ii) within ten (10) business days after notification of the
appointment of a person under Subsection (i) hereof, the other
party shall appoint a similarly qualified person to act as a
valuer; if it fails to do so, the first party shall be entitled
to appoint the second valuer;
(iii) the two valuers so appointed shall, within ten (10)
business days thereafter, appoint a third similarly qualified
person to act as a valuer, failing which either party shall be
entitled to have such valuer appointed by a Judge of the
appropriate court of the Province in which the Leased Premises
are situated pursuant to the laws applicable in said Province;
(iv) each valuer shall make such investigations as he or she
deems fit, acting as a valuer and not an arbitrator, and within
fifteen (15) business days after the appointment of the third
valuer, each valuer shall submit in writing to the parties
simultaneously his or her best estimate of the Market Rent as
of the date it is to be determined;
(v) the Market Rent shall be deemed to be the average of the
two valuations which are numerically closest to one another;
for example, assume Valuation A is $85,000.00 per annum,
Valuation B is $88,000.00 per annum, and Valuation C is
$87,000.00 per annum, the Market Rent shall be $87,500.00 per
annum; provided however that, in the event two of the
valuations are equidistant above and below the middle
valuation, the middle valuation shall be the Market Rent; and
(vi) each party shall pay the cost of the valuer or valuers
appointed by it, and the parties shall share equally the cost
of the third valuer.
Pending the determination of Market Rent, the Tenant shall continue to
pay an amount equivalent to the previous yearly Basic Rent and the
parties shall readjust from the date when Market Rent becomes
applicable upon such determination being made.
<PAGE>
SCHEDULE "C"
OFFICE LAYOUT
<TABLE>
<CAPTION>
Exhibit 10.13
DAY RUNNER, INC
Schedule of Warrants
No. of Exercise Date Date of
Holder Shares Price of Issue Expiration Vesting Schedule
- ------ ------ -------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Higgins, James 50,000 $11.78125 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/971
Higgins, Jill 50,000 $11.78125 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/971
Miller, Charles 38,000(2) $11.78125 12/04/96 12/03/03 Original warrant covered 50,000 shares
and vested in 60 equal monthly
installments commencing 01/01/971
Rachlin, Alan 50,000 $6.00 03/09/93 01/22/03 4,166 on 03/09/93; 45,834 in 11 equal
monthly installments commencing
03/20/93
Rachlin, Alan 50,000 $6.25 01/16/94 01/16/04 12 equal monthly installments
commencing 02/14/94
Rachlin, Alan 50,000 $9.50 08/15/94 08/15/04 12 equal monthly installments
commencing 08/29/94
Rachlin, Alan 50,000 $9.50 07/28/95 07/28/05 24 equal monthly installments
commencing 08/28/95
Rachlin, Alan 50,000 $11.78125 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/971
Rachlin, Alan 50,000 $12.8125 04/22/97 04/22/07 24 equal monthly installments
commencing 05/22/97
Willat, Boyd 50,000 $11.78125 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/971
(1)The Warrant also contains the following provision with respect to the
right to exercise the Warrant: "Notwithstanding the foregoing, if [the Holder]
shall cease to be a director of the Company for any reason or no reason
("Termination"), whether such Termination is permanent or temporary, then after
the effective date of such Termination and through the end of the Warrant Term
the Holder may exercise the Warrant to purchase only such number of Shares that
the Holder would have been entitled to purchase on the effective date of such
Termination in accordance with the foregoing. To the extent that the Holder
shall not have been entitled to exercise any portion of the Warrant on the
effective date of such Termination, such portion shall be deemed to have expired
unexercised on such effective date."
(2) The original warrant covered 50,000 shares and has been exercised with
respect to 12,000 of such shares.
</TABLE>
DAY RUNNER, INC.
Exhibit 10.16
WARRANT 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.
Warrant to Purchase
5,000 Shares of Common Stock
DAY RUNNER, INC.
INCORPORATED UNDER THE LAWS OF THE STATE
OF DELAWARE
Void after April 20, 2008
THE WARRANT evidenced by this Certificate has been issued for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
THIS CERTIFICATE evidences the right of [name of director] (the
"Holder") to purchase 5,000 shares of Common Stock, par value $0.001 per share
(the "Shares"), of Day Runner, Inc., a Delaware corporation (the "Company"), at
a price of $20.625 per Share, subject, however, to the terms and conditions
hereinafter set forth.
1. Definitions. As used in this Certificate:
(a) "Warrant" shall mean the rights evidenced by this
Certificate.
(b) "Warrant Price" shall mean $20.625, as adjusted in
accordance with Section 5 hereof.
2. Term of Warrant. The Warrant may be exercised only during the period
commencing on April 20, 1998 through the close of business on April 20, 2008
(the "Warrant Term") and may be exercised only in accordance with the terms and
conditions hereinafter set forth.
3. Exercise of Warrant. The Warrant shall be exercisable as follows:
(a) Right to Exercise. The Warrant shall vest and become
exercisable cumulatively in four quarterly installments with the first
installment vesting on July 1, 1998 and one additional installment vesting on
the first day of each quarter thereafter so long as [name of director] remains a
member of the Company's Board of Directors.
Notwithstanding the foregoing, if [name of director] shall cease to be a
director of the Company for any reason or no reason ("Termination"), whether
such Termination is permanent or temporary, then after the effective date of
such Termination and through the end of the Warrant Term the Holder may exercise
the Warrant to purchase only such number of Shares that the Holder would have
been entitled to purchase on the effective date of such Termination as
determined in accordance with the immediately preceding sentence. To the extent
that the Holder shall not have been entitled to exercise any portion of the
Warrant on the effective date of such Termination, such portion shall be deemed
to have expired unexercised on such effective date.
(b) Method of Exercise; Payment; Issuance of New Warrant;
Transfer and Exchange. The Warrant may be exercised by the Holder, in whole or
in part, by the surrender of this Certificate, properly endorsed, with the form
of subscription attached to this Certificate duly executed by the Holder, 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 Warrant, certificates for the Shares so purchased shall be
delivered to the Holder within a reasonable time after the Warrant has been so
exercised and, unless the Warrant has expired, a new certificate representing
the right to purchase the number of Shares, if any, with respect to which this
Warrant 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 to this Certificate except as to the number of Shares
issuable pursuant thereto.
(c) Restrictions on Exercise. The Warrant 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 Warrant, the Company may require the Holder
to make such representations and warranties to the Company as may be required by
applicable law or regulation.
4. Shares Fully Paid; Reservation 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 issue upon exercise of the Warrant at
least the maximum number of Shares as are issuable upon the exercise of the
Warrant.
5. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Dissolution, Sale of Assets, Consolidation, Etc. In the
event of the proposed dissolution or liquidation of the Company, or in the event
of a proposed sale of all or substantially all of the assets or stock of the
Company (other than in the ordinary course of business) or the merger or
consolidation of the Company with or into another corporation (any of which
shall constitute a "Reorganization"), as a result of which the Company is not
the surviving and controlling corporation and in each case while the Warrant
remains outstanding and unexpired, the Board of Directors of the Company shall
(i) make provision for the assumption of the Warrant by the successor
corporation 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 or would have become
purchasable under the Warrant immediately prior to such Reorganization or (ii)
declare that the Warrant shall terminate as of a date fixed by the Board of
Directors which is at least 30 days after the notice thereof to the Holder and
shall give the Holder the right to exercise the Warrant as to all or any part of
the Shares, including Shares covered by the Warrant as to which the Warrant
would not otherwise be exercisable, provided such exercise does not violate
Section 2 hereof. If the Company at any time while the Warrant remains
outstanding and unexpired shall reclassify or in any manner change the
securities then purchasable upon the exercise of the Warrant, 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
reclassification upon or with respect to the securities which were purchasable
or would have become purchasable under the Warrant immediately prior to such
reclassification.
(b) Subdivision or Combination of Shares. If the Company at
any time while the Warrant remains 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 Warrant is 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 other than
in its Common Stock, the Holder shall, upon the exercise
hereof, be entitled to receive, in addition to the number of
Shares receivable upon such exercise, and without payment of
any additional consideration therefor, such assets or
securities as would have been payable to the Holder as owner
of that number of Shares receivable by exercise of the Warrant
had the Holder 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 5, 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 Warrant 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 during the Warrant Term:
(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 at
least ten days' prior written notice (or, in the event of notice pursuant to
Section 5(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 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
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 personally or by first-class, registered or certified mail
or similar delivery service, postage prepaid, addressed to the Holder 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 upon exercise of any or all of the Warrant. 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.
6. Fractional Shares. No fractional Shares will be issued in connection
with any exercise of the Warrant, rather, 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 at the time of such exercise, as determined in good faith by
the Company's Board of Directors.
7. Transfer and Exchange of Warrant. Subject to the terms hereof,
including, without limitation, Section 8, the Warrant 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 Warrant 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 Warrant, by taking or holding the same, consents and agrees that the
Warrant when endorsed in blank shall be deemed negotiable and that when the
Warrant shall have been so endorsed, the holder hereof may be treated by the
Company and all other persons dealing with the Warrant, 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 Warrant is exchangeable at such office for a Warrant or
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.
8. Restrictions on Transfer of Warrant. The Holder of the Warrant, 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 Warrant or Common Stock issued, or
issuable upon exercise hereof, such Holder will not sell, transfer, pledge or
hypothecate any or all of such Warrant 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 Warrant or
such Common Stock in order to implement such restriction on transferability.
9. No Rights as Stockholder. The holder of the Warrant, 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 the Warrant 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.
10. Miscellaneous Provisions.
(a) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of the
Warrant, the Company at its expense will execute and deliver, in lieu of the
Warrant, a new Warrant of like tenor.
(b) Governing Law. The Warrant shall be governed by and
construed and enforced in accordance with the internal laws, and not the laws
pertaining to choice or conflicts of laws, of the State of Delaware.
Dated as of April 20, 1998.
DAY RUNNER, INC.
By:
Mark A. Vidovich, Chief Executive Officer
ATTEST:
Catherine F. Ratcliffe, Secretary
<PAGE>
SM01.303537.1
DAY RUNNER, INC.
SUBSCRIPTION FORM
(To be completed and signed only upon exercise of the Warrant)
TO: Day Runner, Inc.
15295 Alton Parkway
Irvine, CA 92618
Attention: Secretary
The undersigned, the holder of the attached Warrant, hereby irrevocably
elects to exercise the right of purchase represented by such Warrant for, and to
purchase thereunder, _______* shares of Day Runner, Inc. Common Stock and
herewith makes payment of $___________ for those shares, and requests that the
certificate(s) for those shares be issued in the name of and delivered to:
(Please print name and address)
Dated:
Signature
Print Name
Schedule of Warrantholders
James P. Higgins
Jill Tate Higgins
Charles Miller
Alan R. Rachlin
Boyd I. Willat
- --------
* Insert here the number of shares called for on the face of the Warrant (or
in the case of partial exercise, that portion as to which the Warrant is
being exercised), without making any adjustment for additional Common
Stock or any other securities or property which, under the adjustment
provisions of the Warrant, may be deliverable upon exercise.
>
DAY RUNNER, INC. SUBSIDIARIES
================================================= ==============================
Subsidiary Jurisdiction
================================================= ==============================
Day Runner Direct, Inc. Delaware
================================================= ==============================
DRI International Holdings, Inc. Delaware
================================================= ==============================
Day Runner International Limited United Kingdom
================================================= ==============================
Day Runner Hong Kong Limited Hong Kong
================================================= ==============================
Day Runner de Mexico, S.A. de C.V. Mexico
================================================= ==============================
DR UK Holdings Limited United Kingdom
- ------------------------------------------------- ==============================
Day Runner UK plc United Kingdom
- ------------------------------------------------- ==============================
- ------------------------------------------------- ==============================
Ultima Distribution Inc. Ontario, Canada
Ontario Corp. # 1292456
- ------------------------------------------------- ==============================
================================================= ==============================
Day Runner Australia PTY Ltd. New South Wales, Australia
ACN 081 980 627
================================================= ==============================
<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 Annual Report on Form 10-K and is qualified in its entirety by
reference to such report on Form 10-K.
</LEGEND>
<CIK> 0000853102
<NAME> Day Runner, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-START> Jun-30-1997
<PERIOD-END> Jun-30-1998
<CASH> 2,923
<SECURITIES> 0
<RECEIVABLES> 42,484
<ALLOWANCES> 9,942
<INVENTORY> 37,610
<CURRENT-ASSETS> 84,569
<PP&E> 26,972
<DEPRECIATION> 15,084
<TOTAL-ASSETS> 101,179
<CURRENT-LIABILITIES> 26,594
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 74,518
<TOTAL-LIABILITY-AND-EQUITY> 101,179
<SALES> 167,841
<TOTAL-REVENUES> 167,841
<CGS> 80,663
<TOTAL-COSTS> 80,663
<OTHER-EXPENSES> 61,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (172)
<INCOME-PRETAX> 25,741
<INCOME-TAX> 9,833
<INCOME-CONTINUING> 15,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,908
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.27
</TABLE>
INDEPENDENT AUDITORS' REPORT
-----------------------------
We consent to the incorporation by reference in Post-Effective Amendment
No. 1 to Registration Statement Nos. 33-46969 and 33-53422 of Day Runner, Inc.
on Form S-8, in Registration Statement No. 33-670792 of Day Runner, Inc. on Form
S-8, in Post-Effective Amendment No.1 to Registration Statement No. 33-61186 of
Day Runner, Inc. on Form S-3, and in Registration Statement Nos. 33-84036,
80819, 333-20247 and 333-34887 of Day Runner, Inc. on Form S-8 of our reports
dated August 17, 1998 (September 25, 1998 as to Note 20), appearing in the
Annual Report on Form 10-K of Day Runner, Inc. for the year ended June 30, 1998.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
September 30, 1998
