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, 1999
|_| 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 October
1, 1999 as reported on The Nasdaq Stock Market, was approximately $77,000,000.
The number of shares outstanding of the registrant's Common Stock on
October 1, 1999 was 11,900,736.
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 December 9, 1999 are incorporated by reference into Part III of this
Annual Report.
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TABLE OF CONTENTS
PART I PAGE
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Item 1. Business 3
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II.
Item 5. Market for Registrant's Common Equity and Related 19
Stockholder Matters
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation 22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 30
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 31
PART III.
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management 31
Item 13. Certain Transactions 31
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 32
Signatures 36
Exhibit Index
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PART I
FORWARD LOOKING STATEMENTS
With the exception of actual reported financial results and other
historical information, the statements contained in this Annual Report on Form
10-K ("Annual Report") including, but not limited to, statements found in Item
1. "Business," Item 3. "Legal Proceedings," Item 7. "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and Item 7A.
"Quantitative and Qualitative Disclosures about Market Risk" constitute
"forward-looking statements" within the meaning of the federal securities laws
and involve a number of risks and uncertainties. Such statements are based on
current expectations and involve known and unknown risk and uncertainties and
certain assumptions, referred to below, and are indicated by words or phrases
such as "anticipate," "estimate," "project," "expect," "believes," "intends" and
similar words or phrases. These forward looking statements are based on
management's expectations as of the date set forth on the signature page of this
document, and the Company does not undertake any obligation to update any of
these statements.
There can be no assurance that the Company's actual future
performance will meet its expectations. The Company is subject to a number of
risks, and its future operating results are difficult to predict and subject to
significant fluctuations.
Factors that may cause future results to differ materially from the
Company's current expectations include, among others: the timing and size of
orders from large customers; timing and size of orders for new products; large
customers' inventory management; competition, especially for retail shelf space;
general economic conditions, especially the sustainability of the current
economic expansion; the health of the retail environment; foreign exchange rate
fluctuations; supply and manufacturing constraints; supplier performance; and
the Company's ability to meet its cash requirements to finance its operations
and growth. Among the effects of these factors may be: lower than anticipated
sales; higher than anticipated product returns and/or excess inventory; negative
effects on consumer purchases; lower than anticipated gross profit; and higher
than anticipated operating expenses.
Discussions of certain of these factors and other factors that may
cause future results to differ materially from the Company's current
expectations are contained in this document in "Risk Factors," under Item 1, in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 and in "Quantitative and Qualitative Disclosures about
Market Risk" under Item 7A.
ITEM 1. BUSINESS
THE COMPANY
Day Runner(R) develops, manufactures and markets organizing products to
broad-based consumer audiences through retail channels. The Company is the
leading developer, manufacturer, and marketer of paper-based organizers for the
retail market. Day Runner also develops, manufacturers and markets related
organizing products.
Day Runner markets its products under two major brands, Day Runner and
Filofax(R), and a number of sub-brands. The Company estimates its products
occupy an aggregate of more than 900,000 linear feet of shelf space in more than
22,000 retail stores across the U.S. and approximately 8,000 retail stores in
other markets around the world.
The vast majority of the Company's sales are to resellers, with direct
sales to organizations and to individuals accounting for a very small portion of
sales. The Company markets its products to its customers in the U.S. through its
own sales force and also makes selective use of manufacturers' representatives
and the Internet. The Company markets its products outside the U.S. primarily
through its subsidiaries and secondarily through independent distributors. The
Company's domestic sales are primarily to the office products and mass market
channels of distribution and are concentrated among relatively few major
customers, including office products superstores Office Depot, Inc., OfficeMax,
Inc. and Staples, Inc. and mass market retailers Wal-Mart and Kmart. Sales to
the U.S. office products and mass market channels accounted for approximately
35% and 36%, respectively, of fiscal 1999 sales. With its October 1998
acquisition of Filofax Group plc, the Company substantially increased its focus
on international markets. Sales to foreign customers accounted for approximately
23% of fiscal 1999 sales.
The Company groups its products into three categories: organizers and
planners; their refills, which include calendars, other pages and accessories;
and related organizing products.
The Company's organizers and planners are loose-leaf and spiral-bound
time and information management systems that range from simple to sophisticated.
The Company offers multiple product lines aimed at market segments ranging from
students to women managing a home to business and professional people.
Organizers and planners accounted for approximately 41% of Day Runner's fiscal
1999 sales.
The great majority of the Company's organizers and planners are
refillable. Refills, which include calendars, other pages and accessories,
accounted for approximately 32% of sales in fiscal 1999.
The Company's related organizing products include, among others:
telephone/address books, business accessories, products for students from
elementary school through college and organizing and other wall boards. Related
organizing products accounted for approximately 27% of fiscal 1999 sales.
All of the Company's current major product lines have been developed
internally by the parent company or one of the companies Day Runner has
acquired. The Company manufactures and assembles a portion of its products at
its facilities in the U.S. and abroad and also uses foreign and domestic
contractors to supply both product components and finished goods.
Day Runner, Inc. was incorporated in California in 1980 and
reincorporated in Delaware in 1993. Unless the context requires otherwise, all
references to the "Company" or to "Day Runner" herein refer to Day Runner, Inc.
and its consolidated subsidiaries. The Company's corporate headquarters are
located at 15295 Alton Parkway, Irvine, California 92618 (phone number
714/680-3500).
Day Runner, Filofax, PRO Business System, Timeposters and Wipe-Out are
registered trademarks of Day Runner, Inc. Business Manager, Cubicle Manager,
Everything in One Place, FactCentre, 4-1-1, Home Manager, Message Manager,
Microfile, org.board, Perennials and Phone Manager are trademarks of Day Runner,
Inc. DILBERT is a trademark of United Feature Syndicate, Inc. THE FAR SIDE is a
registered trademark of FarWorks, Inc. LOONEY TUNES characters, names and all
related indicia are trademarks of Warner Bros. Star Wars is a trademark of
Lucasfilm Ltd. All other trademarks remain the property of their respective
companies.
BUSINESS STRATEGY
Day Runner sells broad-based organizing products through retail
distribution channels.
North America. Key elements of the Company's strategy for North America
include: leveraging its brand names and distribution strength to maximize sales
of existing products, to extend those product lines and to introduce new lines;
conducting major marketing initiatives; and building distribution in additional
channels, including the Web sites of brick-and-mortar retailers and
cyber-retailers.
Outside North America. Key elements of the Company's strategy for
markets outside North America include: further segmenting the market for
organizers and planners; entering related organizing product categories;
building sales through the emerging mass market channel of distribution; and
building a second busy season in the back-to-school time frame in markets where
such an opportunity exists.
E-Commerce. The Company believes many of its products are well suited
for online sale via the Company's own Web site, those of its current retailers
and, ultimately, those of cyber-retailers.
ACQUISITIONS
Fiscal 1999. In October 1998, Day Runner acquired Filofax Group plc
("Filofax"), a UK-based company traded on the London Stock Exchange. Filofax is
a manufacturer and supplier of stationery products, including Filofax, Lefax and
Microfile brand organizers, with sales primarily through retail channels. For a
number of years, Filofax has been the leader in developing, manufacturing and
marketing paper-based organizers for the UK retail market and has had a solid
presence in a number of other key international markets. In addition to its core
organizer business, Filofax markets business forms and high-end pens.
With the Filofax acquisition, Day Runner substantially increased its
presence in international markets. Filofax's sales for its fiscal year ended
March 31, 1998 were approximately $63.3 million, with 86%, or approximately
$54.6 million, to markets outside the U.S. At the time of the acquisition,
Filofax had wholly owned sales subsidiaries in France, Germany, Hong Kong,
Scandinavia, the UK and the U.S.
Fiscal 1998. Day Runner acquired Ultima Distribution, Inc., its
Toronto-based Canadian distributor based in Toronto; Ram Manufacturing, Inc., a
developer, manufacturer and marketer of wall boards, headquartered in Little
Rock, Arkansas; and Timeposters(R), Inc., a Toronto-based developer,
manufacturer and marketer of planning and presentation products, including
laminated wall planners. These three small companies were acquired in July 1997,
October 1997 and February 1998, respectively. The Company has since combined
Timeposters' manufacturing and distribution with Ultima's operations and renamed
that subsidiary Day Runner Canada Inc.
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SEEKING STRATEGIC ALTERNATIVES
In July 1999, Day Runner announced that its Board of Directors had
decided unanimously to seek possible strategic alternatives, which may include
new equity partners, joint ventures, asset sales, additional financing and/or a
potential sale of the Company. Day Runner has retained the investment banking
firm Wasserstein Perella & Co. to act as advisers in this process. The Company
has not made a decision as to any specific strategic alternatives, and there
cannot be any assurance that a transaction will result from this process.
INDUSTRY OVERVIEW
The Company's roots are in paper-based organizers and planners and
their refills, and approximately 73% of the Company's fiscal 1999 sales were
generated by this core business. In the past five years, however, the Company
has diversified its product lines and now markets a number of related organizing
products that help people become better organized in a variety of ways.
Paper-based Organizers. Awareness of the organizer product
category is widespread, and the usefulness of organizers is
well recognized. (Because the distinctions between organizers
and planners have become blurred, except where otherwise
specified, the terms "organizer" and "planner" are used
interchangeably in this report.) Paper-based organizers and
their refills are sold both through a wide variety of retail
channels and directly to organizations and individuals.
Retailers selling organizers include: office products
superstores, wholesalers and dealers; mass retailers; book,
department, gift, leather and luggage and stationery stores;
and other specialty retailers.
Related Organizing Products. Product categories Day Runner has
entered include, among others: telephone/address books;
appointment books; assignment books; business accessories;
organizing and other wall boards; laminated wall planners; and
other planning and presentation products.
The Company groups all these products under the umbrella term
"related organizing products." 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.
Market Potential. The Company believes that the appeal of organizers
and other organizing products is attributable to a number of economic and
cultural trends that have substantially affected the United States and that are
having an increasing impact on a number of other markets around the world. These
trends include: the increased percentage of women in the work force and the
resulting prevalence of two-income families; the increased percentage of single
parent 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 toward global competition. Many of these trends
contribute to widespread concerns with saving and better using time and
increasing personal productivity.
The Company's products address these concerns. The Company targets both
potential first-time organizer users and existing users who may need refills or
replacements for their organizers. The Company's expansion into related,
non-organizer products that provide other ways for people to become better
organized offers the Company an opportunity to reach consumers that do not use
an organizer and to market additional products to consumers who do. The
Company's goal is to offer one or more products that appeal to and meet the
organizing needs of virtually every consumer, no matter what that individual's
income, occupation or age, in the U.S. and in key markets around the world.
Industries Marketing Similar or Substitute Products. Day Runner's
products have features, functions or components in common with products in a
number of other industries. The Company's market overlaps to a limited extent
that of companies marketing products and services designed to improve group and
individual productivity and to upgrade management skills. In addition,
electronic organizers, PIM software and Internet-resident 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 the
Company's organizers. (See Item 1. "Business - Competition.")
Supply Chain Management. The Company's primary channels of
distribution are office products and the mass market. As part of their supply
chain management, retailers in these channels have been substantially tightening
their inventories, with the goals of reducing on-hand inventories and increasing
inventory turns. Retailers' methods of accomplishing these goals vary but
generally can include the following, among others: selling down inventory until
they reach their new, lower target levels; giving promotions a shorter time on
the shelf to sell through to consumers and returning other merchandise they
might otherwise have ultimately sold. This inventory tightening may manifest
itself in a number of ways that can reduce the Company's sales and increase its
costs, including but not limited to, retailers' reductions of on-hand supplies
of the Company's products; retailers' reduction of everyday selection of the
Company's products; accelerated and increased product returns; unexpected
cancellations of commitment for product; and reductions in minimum and average
order quantities, with potentially related increases in the frequency of orders
and the Company's associated costs of distribution.
PRODUCTS
Day Runner's products are designed to help people of all ages and in
all walks of life become better organized. The Company aims its products at
various segments of a broad-based consumer audience. The goal is to offer
consumers in each target market the perception of broad choice and good value
for the money and a variety of organizing products that meet their needs.
The Company's products include:
o Multiple lines of paper-based organizers and planners.
o Refills, which include calendars, other pages and accessories.
o Related organizing products.
Organizers and planners. The Company's organizers and planners are
available in varying systems, sizes, styles, cover materials and colors and at a
wide range of prices. These loose-leaf and spiral-bound "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. Certain of the Company's organizers and planners are
available in a number of languages in addition to English, including: Danish,
French, German, Italian and Swedish.
Refills. The great majority of the Company's organizers, planners and
telephone/address books and certain of its related organizing products are
refillable. Users may customize their loose-leaf organizers and planners by
choosing from a variety of additional pages and accessories. Day Runner brand
refills range from Mileage Record, Strategy and Things To Do pages to
Currency/Checkbook Insert and a solar powered Calculator/Ruler. Filofax brand
refills include such pages as Shopping List and Meetings Planner and such
accessories as Diskette Holders and a variety of maps.
Related Organizing Products. The Company's related organizing products
include, among others: telephone/address books; appointment books; products for
students ranging from elementary school through college; business accessories
such as travel document holders and business card files; organizing and other
wall boards, such as the patented Home Manager(TM), Business Manager(TM),
org.board(TM) and a variety of bulletin boards, combination white
boards/bulletin boards and laminated wall planners; and PC software designed to
complement the Company's paper-based organizers and planners.
The following table sets forth, for the periods indicated, approximate
Day Runner sales by product category and as a percentage of total sales.
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FISCAL FISCAL FISCAL
PRODUCTS 1999 1998 1997
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(Unaudited; dollars in thousands)
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Organizers and planners ... $ 80,092 40.8% $ 83,069 49.5% $ 73,858 58.0%
Refills ................... 63,596 32.4 51,876 30.9 43,264 34.0
Related organizing products 52,524 26.8 32,896 19.6 10,254 8.0
------ ---- ------ ---- ------ ---
Total....... $196,212 100.0% $167,841 100.0% $127,376 100.0%
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PRODUCT DEVELOPMENT
Day Runner's product development programs emphasize (i) identifying
unmet consumer needs and developing organizing products to meet those needs and
(ii) extending the Company's existing product lines. All the Company's current
major product lines have been developed internally by the parent company or by
one of the companies Day Runner has acquired.
The Company monitors its existing products for continued viability,
needed enhancements, improvements in quality and potential reductions in cost.
In fiscal 1999, the Company made the decision to discontinue non-licensed
appointment books, a seasonal product line that proved unprofitable, and Day
Runner will therefore not be offering this product line in fiscal 2000.
The Company's product lines reflect its focus on market segmentation
and consumer needs. Here are examples:
Expansion of Day Runner System Organizer Line. Since the introduction
of the first Day Runner System organizer in 1982, the Company has transformed
this single product into a broad line and has introduced multiple additional
organizer lines. The Company's organizers are now available in a variety of
sizes, styles and materials, designed to appeal to a broad spectrum of consumers
and at a wide range of prices.
Products for Cost-conscious Consumers. In 1991, as part of its strategy
of offering products aimed at cost-conscious consumers, the Company introduced
the FactCentre(TM) line, which now includes organizers, planners and
telephone/address books.
Products for Business and Professional People. In 1993, the Company
introduced the PRO Business System(R) organizer, aimed at people seeking a
sophisticated but easy-to-use organizing system designed specifically for
business and professional use. In fiscal 1997, Day Runner launched a line of
business accessories, including travel document holders, business card cases,
business card files and pad holders.
Products for Students. In 1994, Day Runner began shipping 4-1-1(TM)
Student Planners, a line aimed at middle school, high school and college
students and marketed primarily for sales during the back-to-school consumer
buying season. The 4-1-1 line is updated and refreshed each year to keep pace
with the changing tastes of its target market and became the first in the
Company's range of organizing products designed especially for young people.
Simple Organizing Tools. In fiscal 1995, the Company began to expand
into related organizing product categories, adding telephone/address books to
its Day Runner and FactCentre lines.
Products for Women. In fiscal 1995, the Company launched
Perennials(TM), a line of organizers, planners and telephone/address books aimed
primarily at young women shopping at mass merchants. In fiscal 1997, the Company
introduced the patented 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,
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.
Licensed Products. The Company develops, manufactures and markets
products under licenses from United Feature Syndicate, Inc. (DILBERT(TM)),
FarWorks, Inc. (THE FAR SIDE(R)), Warner Bros. (LOONEY TUNES(TM) and
X-Toons(TM)) and Lucasfilm Ltd. (Star Wars(TM)). In fiscal 1996, Day Runner
launched a line of planners and telephone/address books featuring Warner Bros.
Looney Tunes cartoon characters. In fiscal 1997, the Company introduced THE FAR
SIDE organizers featuring the classic cartoons created by Gary Larson. In fiscal
1998, the Company launched X-Toons, student products featuring Warner Bros.
characters engaged in extreme sports and designed to appeal to middle-school
boys and a line of DILBERT organizers, refills, telephone/address books and
pocket calendars. In fiscal 1999, the Company introduced a line of Star Wars
student planners, assignment books, telephone/address books and wall boards.
Acquired Products. Since acquiring Ram Manufacturing and Timeposters in
fiscal 1998, the Company has refined and further developed the wall board and
laminated wall planner product lines it gained through the purchase of these
companies. These lines are marketed under the Day Runner brand and the
Wipe-Out(R) and Timeposters sub-brands. Since acquiring Filofax in October 1998,
the Company has expanded product development activities for Filofax brand
products and for Day Runner brand products intended for foreign markets.
Continuing Product Innovation. Ongoing development of new products and
line extensions continues to be an important element of the Company's strategy.
Since its introduction in fiscal 1997, Day Runner has expanded Home Manager into
a broad line of organizing wall boards that includes Business Manager, Cubicle
Manager(TM), Message Manager(TM), a Looney Tunes organizing wall board for
children and Phone Manager(TM). The Company has augmented its product lines
aimed specifically at women with the fiscal 1999 introduction of Regency
organizers, planners and telephone/address books. Recently, the Company has
launched a new, higher-end line of Filofax refills.
SALES AND DISTRIBUTION
The vast majority of Day Runner's sales are to resellers, with direct
sales to organizations and to individuals accounting for a very small portion of
sales. The Company markets its products to its customers in the U.S. primarily
through its own sales force and makes selective use of manufacturers'
representatives and the Internet. The Company markets its products outside the
U.S. primarily through its subsidiaries and secondarily through independent
distributors.
During fiscal 1998 and 1999, the Company sold products to approximately
700 and 6,000 different customers, respectively, with the increase from fiscal
1998 to 1999 attributable primarily to the Filofax acquisition and the
non-consolidated nature of Filofax's distribution channels. The only customers
accounting for 10% or more of the Company's fiscal 1999 sales were Wal-Mart
Stores, Inc., including Sam's Clubs; OfficeMax, Inc.; Office Depot, Inc.; and
Staples, Inc., including their affiliates. These customers accounted for
approximately 25%, 13%, 11% and 11%, respectively, of fiscal 1999 sales.
Including their affiliates, the top five customers of the Company accounted for
an aggregate of approximately 64% of fiscal 1999 sales.
The following table sets forth, for the periods indicated, approximate
Day Runner sales by distribution channel and as a percentage of total sales.
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FISCAL FISCAL FISCAL
DISTRIBUTION CHANNEL 1999 1998 1997
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(Unaudited; dollars in thousands)
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Office products channel. $ 68,839 35.1% $ 79,303 47.2% $ 59,416 46.7%
Mass market............. 69,899 35.6 65,752 39.2 53,785 42.2
Foreign customers....... 45,987 23.4 12,182 7.3 5,583 4.4
Other channels.......... 11,487 5.9 10,604 6.3 8,592 6.7
------ --- ------ --- ----- ---
Total............. $196,212 100.0% $167,841 100.0% $ 127,376 100.0%
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U.S. Sales and Distribution. The Company's primary channels of
domestic distribution are office products and the mass market, and the Company's
products are carried by more than 22,000 retail outlets across the country. In
fiscal 1999, the Company shipped directly to approximately 7,700 retail
locations, to distribution centers serving approximately 14,400 retail locations
and to approximately 100 wholesalers, each of which serves a number of dealers.
Office Products Channel. Since 1987, Day Runner brand products have been
broadly distributed through the office products channel.
Office Products Superstores. Since their emergence in
1986, office products superstores offering discount
prices in a warehouse atmosphere have become a major
force in office products distribution. The Company's
products are carried by all the leading superstores,
including Office Depot, Inc., OfficeMax, Inc. and
Staples, and sales to these customers account for the
bulk of the Company's sales in the U.S. office
products channel.
Office Products Wholesalers. The Company's products
are distributed by a number of office products
wholesalers, including national wholesaler S.P.
Richards Company and all three regional wholesaler
groups, MMA, NAMD and AMW.
Office Products Dealers. The Company's 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. The Company's products are
distributed through a number of mass market retailers,
including: Wal-Mart and Kmart; the major wholesale clubs,
Sam's Clubs and Costco Companies, Inc.; a number of discount
drug chains, including Rite Aid Corp., Eckerd Drug and
American Drug; and a variety of other mass market resellers.
Other. The Company also distributes its products through
a number of additional channels, including book, department,
gift,leather and luggage stores and other specialty retailers,
to the U.S. Government and via the Internet. The Company's
U.S. sales of its Filofax brand products are concentrated
in these distribution channels.
Foreign. The Company's products are marketed internationally primarily
through its foreign subsidiaries and secondarily through independent
distributors. The Company has sales and marketing operations in Australia,
Canada, Denmark, France, Germany, Hong Kong, Italy, Sweden and the United
Kingdom.
Foreign retailers carrying the company's products include both
traditional, full-price retailers and emerging mass marketers. Prior to the
acquisition of Filofax Group plc, which had built strong distribution in a
variety of channels in its home UK market and through high-end specialty shops
and department stores in a number of other markets, Day Runner focused its sales
and distribution efforts outside North America primarily on developing
distribution through emerging mass merchants in key markets. The Company expects
to continue to serve this broad spectrum of distribution.
MARKETING
Day Runner believes that for a number of years its product and
merchandising innovations have been instrumental in driving the growth of the
organizer product category at retail. More recently, the Company has also been
working to increase the visibility of and expand demand for its related
organizing products.
Day Runner markets its products to consumers to increase awareness of
its brand names and of specific products, to communicate the benefits of its
products, and to create and reinforce an image that its products enable the user
to manage time and personal resources more effectively. Packaging,
merchandising, and promotions are designed to appeal to the consumer shopping in
the retail store. The Company positions itself to retailers as the leader in the
retail organizer market, the primary innovator in the category, and the logical
source for well designed, good quality organizers, planners, and related
organizing products at a wide range of price points and appropriate for both
broad-based consumer target markets (Day Runner brand) and consumers looking for
a prestige brand (Filofax brand).
The Company works to protect and strengthen its Day Runner and Filofax
brand names through consistent positioning, careful placement of new products in
the Company's price matrix, well thought out packaging, and the effective use of
secondary and heritage brands.
Promotional Programs. The Company offers promotional and incentive
programs (1) as part of its introduction of new products, (2) to build sales at
specific times of year, and (3) to build awareness, expand distribution, and
increase sales of specific products.
Advertising and Public Relations. Day Runner participates with
retailers in co-op advertising and periodically advertises in certain wholesale
flyers and in trade publications. Public relations campaigns are another
important element in the Company's marketing strategy. The Company has from time
to time conducted consumer advertising campaigns, primarily in business and
lifestyle magazines, but generally does very little consumer advertising.
Sales Support. The Company supports its retailers with point-of-sale
materials intended to build brand name awareness and increase sales. The
Company's displays are designed to be easy for consumers to shop and for store
personnel to refill. The Company supplements its everyday display space of Day
Runner brand products with colorful, pre-packed corrugated displays designed to
act as marketing vehicles. Packaging is intended to help consumers choose the
right product and make the decision to buy.
Trade Shows. The Company exhibits or is represented in a number of
international, national and regional trade shows.
Market Research. The Company regularly conducts market research and
tests product concepts and prototypes through the use of focus groups and other
consumer research. In addition, the Company maintains a database containing
information on users who have mailed in the Welcome Cards included in many of
its Day Runner brand products.
User Support. To encourage its current users to continue to purchase
and recommend its products and their refills, the Company provides a toll-free
consumer hotline in the U.S. 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 the Company.
Although Day Runner's products are designed to be intuitive and easy to
use, the Company provides a free user's guide in each Day Runner System and PRO
Business System organizer. Each of these booklets illustrates effective use of
the system and includes tips on time management, project management and
organization.
dayrunner.com. In June 1999, the Company launched its substantially
redesigned Internet site, dayrunner.com. Users may purchase certain of the
Company's products online via this web site. The Company makes direct sales
primarily as a service to its users and, except in certain cases, charges full
suggested retail price plus shipping and handling.
<PAGE>
COMPETITION
The product categories in which the Company participates are
competitive and subject to rapid change.
The Company competes directly with other companies marketing
paper-based organizers and planners, appointment books, assignment books,
business accessories, calendars, wall boards, laminated wall planners and
similar organizing products to consumers through retail channels and on the
Internet and indirectly with companies marketing such products through mail
order or via other means.
The Company's competitors also include companies marketing substitutes
for paper-based organizer and planner products, such as electronic organizers,
including Palm Pilot and Windows CE products, among others, PIM software and
Internet-resident organizers.
In addition, the Company competes indirectly in the U.S. and directly
in certain foreign markets 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
and geography. Each product category is competitive and subject to rapid change,
and none of the lists of competitors provided here is intended to be all
inclusive. The Company's competitors in paper-based organizers in North America
include At-A-Glance(R), Day-Timer(R), FranklinCovey(R), Mead School and Office
Products division of The Mead Corporation and many leather goods manufacturers
and companies manufacturing inexpensive, non-branded organizers overseas for
sale in North America. In September 1999, Mead announced that it had agreed to
acquire the At-A-Glance Group from Cullman Ventures. Paper-based organizer
competitors outside the U.S. vary from market to market, with none holding a
dominant position in retail channels in multiple markets.
The Company's North American competitors in telephone/address books
include At-A-Glance, Mead and a number of companies marketing inexpensive
imported products. The primary company marketing appointment books and calendars
through retail channels in North America is At-A-Glance. A number of U.S.
calendar companies also produce laminated wall planners. Business accessories
are marketed in North America by Day-Timer, Hazel(R) and many leather goods
manufacturers, and wall board manufacturers include Boone(R) Boards and Quartet
Manufacturing Company.
Day Runner believes that the current principal competitive factors in
the product categories in which its 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. In the organizer/planner category,
the size and loyalty of a company's user base is also a key factor. Although a
number of its competitors have greater financial resources than Day Runner, the
Company believes that it competes well against its direct competition on most of
the other principal competitive factors.
The Company believes that it has a number of competitive advantages.
Its products occupy significant retail shelf space. Its leadership position in
the retail organizer/planner market, leading brand names, ability to develop new
products, broad product lines, marketing expertise, manufacturing/sourcing
skill, large user base and the appeal of its products to consumers constitute
additional competitive advantages. There can be no assurance, however, that the
Company will be able to maintain or continue to benefit from its competitive
advantages or that the competitive environment will not change to the Company's
detriment.
<PAGE>
MANUFACTURING
Day Runner's manufacturing strategy combines limited internal
manufacturing with the domestic and foreign subcontracting of product components
and finished products. The Company's policy is to develop and maintain multiple
sources for key raw materials, product components and the finished products it
subcontracts. The Company has the ability to act as its own second or third
source for the manufacture of loose-leaf binders, for those of its wall boards
that it subcontracts and for the final assembly of many of its products. This
provides a degree of protection against vendor problems and, under certain
conditions, allows the Company to respond to higher than anticipated demand and
improve turn-around time. The Company's manufacturing activities are not
capital-intensive, and the manufacture of most of its products can be only
partially automated. The Company subcontracts all printing.
Purchased Components. In addition to vinyl and leather raw materials,
the Company purchases from suppliers certain major product components, including
printed pages, loose-leaf rings, pens, software disks containing its PIM
software, electronic components and certain accessories. With few exceptions,
these items are manufactured by a variety of outside contractors and are widely
available.
Day Runner Brand Products.
Asian Suppliers. The Company's Asian subcontractors
manufacture and assemble a portion of its finished Day Runner
brand products, including the great majority of its lower
priced organizers, planners and related organizing products.
Day Runner's Hong Kong subsidiary acts as liaison with the
Asian suppliers of the Company's Day Runner brand products.
North American Manufacturing. The flexibility of internal and
subcontracted North American manufacturing helps Day Runner
meet unexpected demand and produce "fill-ins" near the end of
a season. In addition, North American manufacturing is
cost-effective for certain bulky products, where freight costs
are a key concern.
Internal Manufacturing. Day Runner manufactures a portion of
its binders, assembles a portion of its finished products and
does refill packaging at Day Runner de Mexico, S.A. de C.V.,
its wholly owned manufacturing subsidiary located in Tijuana.
The Company manufactures wall boards and laminated wall
planners at its facilities in Little Rock, Arkansas and
Toronto, Canada.
Filofax Brand Products. The Company's Filofax operations also balance
internal manufacturing with subcontracting and subcontract the production of
certain product components and finished goods to Asian suppliers. Manufacturing
in the UK is limited in scope, consisting primarily of binder manufacture, book
assembly and refill packaging, and the Company also outsources some assembly
there.
CUSTOMER SERVICE
Large U.S. retailers' focus on lowering inventory and increasing
inventory turns requires ever improving product replenishment through-put time
as measured at the retail shelf. Day Runner recognizes that customer service is
an ever-more vital link between itself and its key customers. (Note: This
discussion does not include distribution in the U.S. of the Company's Filofax
products, which is outsourced.)
Sophisticated, Flexible Distribution Capabilities. Day Runner has
developed sophisticated distribution and customer service capabilities in the
U.S. The Company's facilities have the ability to ship in whatever form the
customer's logistics require. Day Runner ships directly to the individual retail
locations of a number of its customers and to the distribution centers of others
and participates in cross-docking programs.
EDI. Day Runner receives more than 90% of domestic orders representing
approximately 85% of domestic purchase order dollars via EDI (Electronic Data
Interchange). Transaction sets handled via EDI include purchase orders,
acknowledgments, invoices, ASNs (advance ship notices), and debit/credit
adjustments.
WMS. Recently, the Company has implemented WMS (Warehouse Management
System) software in its Nashville, Tennessee and Fullerton, California
distribution centers. WMS controls a multitude of warehouse functions,
including, among others: receiving; quality inspection; package labeling; cross
docking; material storage; order picking; automated replenishment; trailer
loading; routing; and inventory control. The Company believes WMS will offer
significant longer term benefits, including higher productivity, increased
inventory and shipping accuracy and more efficient facility utilization.
RISK FACTORS
The Company believes that risk factors that may cause future results
to differ materially from the Company's expectations and should be considered
carefully in evaluating the Company and its business include, but are not
limited to, the following (which, with the exception of "Other Risk Factors,"
are listed in alphabetical order). These risk factors are in addition to those
mentioned elsewhere in this report and in documents incorporated by reference
into this report.
Competition. The paper-based organizer industry and the various
related organizing products industries in which the Company participates are
intensely competitive and subject to rapid change, with competition for retail
shelf space of particular concern. The Company competes primarily with a number
of companies that manufacture and market paper-based organizers and/or related
organizing products through retail, mail order or other direct sales channels.
The Company also competes to a lesser extent with companies that manufacture and
market substitutes for paper-based organizers (e.g., handheld electronic
organizers such as Palm Pilot, Windows CE products, personal information
management ("PIM") software and Internet-resident organizers). Certain of the
Company's competitors have substantially greater financial, product development,
technical, manufacturing and marketing resources than the Company. There can be
no assurance that the Company will be able to compete successfully in the future
or that competitive pressures will not adversely affect the Company's sales
growth or gross or operating margins. (See Item 1. "Business Competition.")
Customer Concentration. The Company's sales have been, and very likely
will continue to be, concentrated among a small number of customers. In fiscal
1999, sales to the Company's top five customers represented approximately 64% of
sales, with sales to Wal-Mart Stores, Inc., OfficeMax, Inc., Office Depot, Inc.
and Staples, Inc., including their affiliates, representing approximately 25%,
13%, 11% and 11%, of sales, respectively. As a result, the Company's financial
results can be adversely affected by the business practices and actions of its
large customers in a number of ways, including timing and size of orders and
supply chain management. The loss of one or more of these customers or a shift
in the demand by, distribution methods of or pricing to or terms of sale to one
or more of these customers could materially adversely affect the Company. The
Company has no written agreement or other enforceable understanding with any of
these customers that relates to future purchases by such customers, and thus
such purchases could be delayed, reduced or discontinued at any time. A
termination or other adverse change in the Company's relationship with, an
adverse change in the financial condition of, or a significant reduction in
sales to one or more of its top customers could have a materially adverse effect
on the Company. The write-off of any significant receivable due from, delays in
payment by or return of product by these customers could also adversely impact
the Company. (See Item 1. "Business -- Sales and Distribution.")
Dependence on Continued Demand for Paper-based and other Low Technology
Organizing Products. The Company's future results depend upon ongoing consumer
demand for paper-based organizing products in general and the Company's products
in particular. In recent years, technological advances have led to the
proliferation of increasingly powerful portable laptop and "palmtop" computers
and handheld electronic organizers, such as Palm Pilot. Although many of these
products are currently significantly more expensive and difficult to use than
the Company's comparable paper-based products, technological advances are likely
to improve the ease of use and functionality and to continue to reduce the cost
of portable electronic products that contain features directly competitive with
paper-based organizers and planners and with certain related organizing
products. There can be no assurance that consumer demand for paper-based and
other low technology products will not decline or that the Company, alone or
jointly with technology companies, will be able to successfully develop in a
timely manner and market new paper-based or electronic products that will
achieve market acceptance.
Dependence on Loans. Under the Amended and Restated Loan Agreement, the
Company may borrow, subject to certain conditions, a maximum aggregate of
approximately $120 million in bank loans. The Company's liquidity is
significantly dependent upon its continued compliance with this loan agreement's
terms, including, among others, payment of interest and principal when due and
maintenance of certain financial ratios. The Company believes that it will be
able to comply with the terms of the loan agreement at least through fiscal
2000, but there can be no assurance that it will be able to do so. (See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources - Bank Loans.")
Dependence on Key Personnel. The Company's success depends to a
significant extent upon certain of its officers, the loss of the services of any
of whom could materially adversely affect the Company. The Company has no
employment agreements with such persons. (See Item 10. "Directors and Executive
Officers of the Registrant.")
Litigation. The Company is a defendant in purported securities class
action lawsuits related to allegations concerning the Company's alleged
misstatement of its financial results of operations for the first through third
quarters of fiscal 1999. The Company believes it has meritorious defenses to the
actions and intends to defend them vigorously, but there can be no assurance as
to the outcome. (See Item 3. "Legal Proceedings.")
New Products. In order to maintain and improve its competitive
position, the Company must continue to enhance its existing product lines and to
develop and introduce innovative new products and line extensions that meet the
requirements of its existing and potential users. There can be no assurance that
such products will be developed and introduced in a timely fashion, or that they
will achieve market acceptance or that the timing and size of orders for new
products will not materially adversely affect the Company's financial results.
Product Supply and Manufacturing Risks. The Company depends on outside
foreign and domestic sources for the manufacture of a portion of its product
components and finished products and subcontracts the production of all its
printed materials. The Company's partial reliance on outside vendors subjects it
to the risks of potential delays in the receipt, or shortfalls in the levels or
quality, of products or components and of possible increases in its costs of
goods sold caused by, among other things, increases in vendors' prices, trade
tariffs or duties. In addition, due to the large number of sizes, materials and
styles of the Company's products and the inherent uncertainty of predicting
customer demand levels, timing and mix, there is a risk that the Company may not
be able to fulfill certain orders in a timely fashion, which may result in
delayed shipments and/or lost business. Day Runner seeks to reduce certain of
these risks by setting what it believes are appropriate safety stock inventory
levels of its most popular products and most frequently used product components,
having multiple or alternative supply sources for key product components and
possessing the internal capability to manufacture and/or assemble many of its
core products. Nonetheless, external or internal product or component supply or
manufacturing delays, shortfalls or other problems or cost increases could
adversely affect the Company's financial results. (See Item 1. "Business --
Manufacturing.")
Retailers' Supply Chain Management. As publicly announced by a number
of the retailers themselves and many of their suppliers, certain large U.S.
retailers, including a number of the Company's largest customers, have
intensified their focus on supply chain management, working to shift a greater
portion of the inventory burden to suppliers. This trend increases the
unpredictability of the Company's financial results.
As part of their supply chain management, retailers have been
substantially tightening their inventories, with the goals of reducing on-hand
inventories and increasing inventory turns. Retailers' methods of accomplishing
these goals vary but generally can include the following, among others: selling
down inventory until they reach their new, lower target levels; giving
promotions a shorter time on the shelf to sell through to consumers and
returning other merchandise they might otherwise have ultimately sold. This
inventory tightening may manifest itself in a number of ways that can reduce the
Company's sales and increase its costs, including but not limited to, retailers'
reductions of on-hand supplies of the Company's products; retailers' reduction
of everyday selection of the Company's products; accelerated and increased
product returns; unexpected cancellations of commitments for product; and
reductions in minimum and average order quantities, with potentially related
increases in the frequency of orders and the Company's associated costs of
distribution.
In addition, the stress on minimizing on-hand inventories in retail
stores can result in spotty stock outages, particularly of popular products,
which can result in lost or delayed sales to consumers. The Company believes the
trend toward shifting the inventory burden farther back in the supply chain is
likely to eventually include the vast majority of retail chains both in the U.S.
and abroad.
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 parent Company's
products in the third quarter and for Filofax's products in the third and fourth
quarters 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. (See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quarterly Results.")
Small Size. The Company believes that the retail environment,
particularly in the U.S. and Canada, is increasingly comprised of very large
retailers and suppliers and that the Company's relatively small size magnifies
the effects upon it of shifts in this environment. Through its exploration of
strategic alternatives, the Company is seeking ways in which to become less
vulnerable, whether through a financial partner, some form of additional
financing, or in alliance with or as part of a larger corporate entity. The
Company believes that the risks associated with its small size will persist
until and unless it succeeds in reducing this vulnerability. The Company has not
made a decision as to any specific strategic alternative, and there cannot be
any assurance that a transaction will result from the Company's process of
seeking strategic alternatives. (See Item 1.
"Business -- Seeking Strategic Alternatives.")
Year 2000 Readiness. The Company is surveying its vendors, customers
and others on whom it relies to assess their state of Year 2000 readiness.
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 will not have an adverse effect on the
Company's systems. Furthermore, although the Company believes its internal
systems are Year 2000 compliant, there can be no guarantee 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 in this report or that the impact of any failure to achieve
substantial Year 2000 compliance will not have a materially adverse effect on
the Company's financial condition. (See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations Year 2000.")
Other Risk Factors. Other factors that may cause the Company's future
performance to differ materially from its current expectations include: general
economic conditions, especially the sustainability of the current economic
expansion; the health of the retail environment; and foreign exchange rate
fluctuations.
<PAGE>
PATENTS, COPYRIGHTS AND TRADEMARKS
Day Runner relies upon, among other things, a combination of
copyright, patent and trademark laws to protect its rights to certain aspects of
its products. There can be no assurance, however, that the steps taken by Day
Runner to protect its proprietary rights will be adequate to prevent imitation
of its products or independent development by others of similar products.
Day Runner holds numerous patents in the United States and certain
foreign countries. The Company also has several United States and foreign
patents pending. The patents the Company holds are related to improvements in
the structure of and devices associated with its loose-leaf binders and its
related organizing products. We have also been issued United States copyright
registrations covering the text and the compilation and editing of data in
certain of our products. Day Runner holds United States and foreign trademark
registrations for a number of trademarks including "Day Runner" and "Filofax"
and various logos.
EMPLOYEES
At October 1, 1999, Day Runner had 1,620 full-time employees,
including 178 in sales; 42 in marketing; 210 in executive, finance and
administration; 37 in product development; and 1,153 in manufacturing operations
and distribution. None of the Company's employees is represented by a labor
union, and the Company has experienced no labor-related work stoppages.
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 2001. The Company's LaVergne,
Tennessee distribution facility occupies an approximately 100,200 square-foot
facility under a lease expiring in 2004. The lease includes multiple, successive
renewal options that, if exercised in full, would extend the lease terms to
expire in 2014. The Company's Little Rock, Arkansas manufacturing facility
occupies an approximately 84,000 square-foot facility under a lease expiring in
2002. This lease includes a renewal option that, if exercised, would extend the
lease term to expire in 2007. The Company's Canadian subsidiary occupies an
approximately 40,220 square-foot facility under a lease expiring in 2008 that
includes an option to extend the terms through 2013. The Company's Mexican
subsidiary occupies an approximately 70,000 square-foot facility under a lease
expiring in 2006 that includes options to extend the terms through 2016. The
Company's U.K. subsidiary's principal manufacturing facility is located in an
approximately 23,300 square-foot building in Burgess Hill, England, which is
owned by the Company's U.K. subsidiary. Additionally, the Company's U.K.
subsidiary's corporate headquarters occupy approximately 5,700 square feet in
London, England under a lease expiring in 2003. 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.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In September 1999, two purported securities class action lawsuits were
filed in the United States District Court for the Central District California
against the Company and certain of its officers and directors. The complaints
allege that the Company violated Section 10(b) of the Securities Exchange Act
and Rule 10b-5 thereunder through the misstatement of the Company's financial
results of operations for the first through third quarters of fiscal 1999. These
alleged misstatements purportedly consisted of improper accounting for
manufacturing variances and other costs. The plaintiffs in both actions purport
to represent a class consisting of all purchasers of the Company's Common Stock
between October 20, 1998 and August 31, 1999. The plaintiffs are seeking
unspecified compensatory damages.
The Company expects that these actions will be consolidated into a
single action, that a lead plaintiff will be appointed, and that a consolidated
amended complaint will be filed. None of these events has yet taken place. There
has been no discovery in any of the actions. Based on the allegations and the
issues raised by the current complaint, the Company believes it has meritorious
defenses to the actions and intends to defend them vigorously.
The Company is not a party to any other litigation that, in the opinion
of management, would reasonably be expected to have a materially adverse effect
on the Company.
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, 1999 and 1998. As of October 1, 1999, there
were 208 recordholders of the Company's Common Stock based on information
provided by the Company's transfer agent.
FISCAL YEAR FISCAL YEAR
1999 1998
---------------- -----------------
QUARTER HIGH LOW HIGH LOW
First $25-6/16 $16-14/16 $19-1/2 $16-1/4
Second 22-1/2 11-14/16 21-1/16 18
Third 14-1/16 10-3/8 23-1/16 18-7/16
Fourth 13-3/16 9-5/8 25-1/4 18-1/8
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.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated statement of operations data for the fiscal
years ended June 30, 1999, 1998 and 1997 and the consolidated balance sheet data
at June 30, 1999 and 1998 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. The selected consolidated
statement of operations data for the fiscal years ended June 30, 1996 and 1995
and the consolidated balance sheet data at June 30, 1997, 1996 and 1995 are
derived from audited consolidated financial statements of the Company that are
not included herein.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL
1999 1998 1997 1996 1995
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 196,212 $ 167,841 $ 127,376 $ 125,126 $ 121,801
Cost of goods sold............. 108,087 80,663 60,452 59,920 62,175
--------- ---------- --------- ---------- ----------
Gross profit................... 88,125 87,178 66,924 65,206 59,626
--------- ---------- --------- ---------- ----------
Operating expenses:
Selling, marketing and
distribution............... 62,180 43,193 31,673 29,878 32,154
General and administrative..... 26,445 18,416 14,451 16,376 13,792
Costs related to activities
associated with the Filofax
acquisition............... 1,072
Costs incurred in pursuing
acquisitions.............. 1,451
--------- ---------- --------- ---------- ----------
Total operating expenses.... 89,697 61,609 47,575 46,254 45,946
--------- ---------- --------- ---------- ----------
(Loss) income from
operations................. (1,572) 25,569 19,349 18,952 13,680
Net interest expense (income).. 5,215 (172) (1,301) (706) (161)
--------- ---------- --------- ---------- ----------
(Loss) income before (benefit).
provision for income taxes. (6,787) 25,741 20,650 19,658 13,841
(Benefit) provision for
income taxes............... (2,789) 9,833 8,102 7,840 5,863
--------- ---------- --------- ---------- ----------
Net (loss) income.............. $ (3,998) $ 15,908 $ 12,548 $ 11,818 $ 7,978
========= ========== ========= ========== ========
(Loss) earnings per common share:
Basic....................... $ (0.34) $ 1.38 $ 1.01 $ 0.95 $ 0.66
========== ========== ========= ========== =======
Diluted $ (0.34) $ 1.27 $ 0.95 $ 0.89 $ 0.63
========== ========== ========= ========== =======
Weighted average number of
common shares outstanding:
Basic....................... 11,896 11,533 12,432 12,468 12,176
========= ========== ========= ========== ==========
Diluted........................ 11,896 12,523 13,182 13,252 12,748
========= ========== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA:
(IN THOUSANDS)
JUNE 30,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Working capital............. $ 70,491 $ 57,922 $ 50,710 $ 51,653 38,260
Total assets................ 216,311 101,179 78,880 77,931 63,650
Short-term debt............. 2,077 2,716 452 152
Long-term liabilities....... 105,568 12
Stockholders' equity........ 70,397 74,532 59,484 59,498 44,787
</TABLE>
<PAGE>
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. For a number of years, the Company focused the great majority of its
product development, sales and marketing efforts on the U.S. office products
channel and the U.S. mass market channel. With the October 30, 1998 acquisition
of Filofax, the Company substantially increased its emphasis on markets outside
the U.S. The office products channel, the mass market channel and sales to
foreign customers accounted for 35.1%, 35.6% and 23.4%, respectively, of fiscal
1999 net sales.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the
percentages that selected statement of operations items bear to sales and the
percentage change in the dollar amounts of such items.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
YEARS ENDED JUNE 30,
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0%
Cost of goods sold........................... 55.1 48.1 47.5
------ ----- -----
Gross profit................................. 44.9 51.9 52.5
------ ----- -----
Operating expenses:
Selling, marketing and distribution....... 31.7 25.7 24.9
General and administrative................ 13.5 11.0 11.3
Costs related to activities associated with the
Filofax acquisition...................... 0.5
Costs incurred in pursuing acquisitions...
1.1
Total operating expenses................. 45.7 36.7 37.3
------ ----- -----
(Loss) income from operations................ (0.8) 15.2 15.2
Net interest expense (income)................ 2.6 (0.1) (1.0)
------ ----- -----
(Loss) income before (benefit) provision
for income taxes......................... (3.4) 15.3 16.2
(Benefit) provision for income taxes......... (1.4) 5.8 6.3
------ ----- -----
Net (loss) income............................ (2.0)% 9.5 % 9.9%
====== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
FISCAL 1998 FISCAL 1997
TO TO
FISCAL 1999 FISCAL 1998
-------------------- --------------------
<S> <C> <C>
Net sales......................................... 16.9% 31.8%
Cost of goods sold................................ 34.0 33.4
Gross profit...................................... 1.1 30.3
Operating expenses:
Selling, marketing and distribution............ 44.0 36.4
General and administrative..................... 43.6 27.4
Costs related to activities associated with the
Filofax acquisition........................... 100.0
Costs incurred in pursuing acquisitions........ (100.0)
Total operating expenses...................... 45.6 29.5
(Loss) income from operations..................... (106.1) 32.1
Net interest expense (income)..................... 3132.0 (86.8)
(Loss) income before (benefit)
provision for income taxes....................... (126.4) 24.7
(Benefit) provision for income taxes.............. (128.4) 21.4
Net (loss) income................................. (125.1) 26.8
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1998
Net Sales. Net sales ("sales") consist of revenues from gross product
shipments net of allowances for returns, rebates and credits. In fiscal 1999,
sales increased by $28,371,000, or 16.9%, compared with fiscal 1998 primarily
because of the Filofax acquisition but were lower than anticipated primarily
because inventory tightening on the part of a number of the Company's large U.S.
customers constrained the Company's sales and increased product returns. Sales
were primarily to mass market customers and secondarily to the office products
channel. Sales to the office products channel decreased by $10,464,000, or
13.2%; sales to foreign customers grew by $33,805,000 or 277.5%; sales to mass
market customers grew by $4,147,000, or 6.3%; and sales to miscellaneous
customers grouped together as "other," grew by $883,000, or 8.3%. Sales of
related organizing products increased by $19,628,000 or 59.7%; sales of refills
increased by $11,720,000, or 22.6%; and sales of organizers and planners
decreased during the year by $2,977,000, or 3.6%.
Gross Profit. Gross profit is sales less cost of goods sold, which is
comprised of materials, labor, and manufacturing overhead. Gross profit may be
affected by, among other things, product mix, production levels, changes in
vendor and customer prices and discounts, sales volume and growth rate, sales
returns and other allowances, purchasing and manufacturing efficiencies,
tariffs, duties, and inventory carrying costs. Gross profit as a percentage of
sales decreased from 51.9% of sales in fiscal 1998 to 44.9% of sales in fiscal
1999 primarily because of a shift in the Company's Day Runner brand product mix
(including sub-brands) to lower margin products and an increase in the provision
for sales returns based upon recent higher sales returns experience (which, in
addition to lowering net sales, adversely impacted manufacturing costs and
variances), both of which the Company believes were largely related to inventory
tightening.
Operating Expenses. Total operating expenses increased as a percentage
of sales from 36.7% for fiscal 1998 to 45.7% for fiscal 1999 because of the
Company's decreased ability to absorb costs as a result of the lower sales of
the parent company operation and because of Filofax's seasonality. (The Company
had the benefit of only two months of Filofax's four-month busy season, but had
the expenses associated with six months of its eight-month slower period.)
Excluding the $1,072,000 costs related to activities associated with the Filofax
acquisition, fiscal 1999 operating expenses would have been 45.2% of sales.
Selling, marketing and distribution expenses increased by $18,987,000
primarily because of expenses associated with recently introduced products and
secondarily because of the addition of Filofax's expenses and increased as a
percentage of sales from 25.7% to 31.7% due to the expenses associated with the
recently introduced products. General and administrative expenses increased by
$8,029,000 and from 11.0% to 13.5% as a percentage of sales primarily because of
the addition of Filofax's expenses and secondarily because of the Company's
inability to absorb higher costs as a result of lower than anticipated sales.
Net Interest Expense. Because of the increase in the Company's
long-term debt, which was incurred primarily to finance the Filofax acquisition,
net interest expense for fiscal 1999 was $5,215,000 compared with net interest
income of $172,000 for fiscal 1998.
Income Taxes. The Company's fiscal 1999 effective tax rate was 41.0%
compared with an effective tax rate of 38.2% for fiscal 1998.
Net (Loss) Income. The Company realized a net loss of $3,998,000 in
fiscal 1999 compared with a net income of $15,908,000 in fiscal 1998. Excluding
costs related to activities associated with the Filofax acquisition, fiscal 1999
net loss would have been $2,926,000.
Earnings Per Share. In fiscal 1999, the Company repurchased an
aggregate of 96,000 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 (see Note 17 to Consolidated
Financial Statements).
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1997
Net Sales. 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 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 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 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 sales. General and
administrative expenses increased by $3,965,000, but declined from 11.3% to
11.0% as a percentage of 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. (See Note 13 to Consolidated Financial Statements).
QUARTERLY RESULTS
The following tables set forth selected unaudited quarterly
consolidated financial data and the percentages such items represent of net
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.
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1999 1999 1998 1998
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 47,700 100.0% $ 36,216 100.0% $ 64,565 100.0% $ 47,731 100.0%
Gross profit........................ 17,700 37.1 16,495 45.5 31,059 48.1 22,871 47.9
Total operating expenses............ 24,535 51.4 21,811 60.2 26,429 40.9 16,922 35.4
(Loss) income from operations....... (6,835) (14.3) (5,316) (14.7) 4,630 7.2 5,949 12.5
Net interest expense ............... 2,056 4.3 1,770 4.9 1,356 2.1 33 0.1
(Loss) income before (benefit)
provision for income taxes...... (8,891) (18.6) (7,086) (19.6) 3,274 5.2 5,916 12.4
Net (loss) income................... $ (5,249) (11.0)% $ (4,448) (12.3)% $ 2,030 3.1% $ 3,669 7.7%
(Loss) earnings per common share:
Basic.......................... $ (0.44) $ (0.37) $ 0.17 $ 0.31
Diluted........................ $ (0.44) $ (0.37) $ 0.16 $ 0.29
Weighted average number of
common shares outstanding:
Basic.......................... 11,886 11,900 11,883 11,931
Diluted........................ 11,886 11,900 12,564 12,656
</TABLE>
<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>
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 parent company's products in the
third quarter and for Filofax's products in the third and fourth quarters 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
General. The Company's cash and cash equivalents at June 30, 1999
increased to $9,132,000 from $2,923,000 at June 30, 1998. In fiscal 1999, net
cash of $16,580,000 provided by operating activities and $87,640,000 provided by
financing activities were partially offset by net cash of $98,513,000 used in
investing activities.
Of the $16,580,000 net amount provided by the Company's operating
activities, $19,039,000 was provided by the provision for doubtful accounts and
sales returns and other allowances, $10,240,000 was provided by depreciation and
amortization, $7,432,000 was provided by a decrease in inventories and
$4,508,000 was provided by an increase in accounts payable. These amounts were
partially offset by an increase of $15,268,000 in accounts receivable, a net
loss of $3,998,000, an increase of $3,971,000 in deferred income tax benefit,
and a decrease of $1,831,000 in accrued expenses.
Accounts receivable (net) at June 30, 1999 increased by $10,673,000, or
32.8%, from the amount at June 30, 1998 primarily due to the acquisition of
Filofax.
Inventories increased by $4,751,000, or 12.6%, from the June 30, 1998
amount primarily because of the inventories of Filofax, which the Company
acquired during fiscal 1999, which amount was partially offset by a decrease in
inventories at the parent company.
Of the $98,513,000 net amount used in the Company's investing
activities, $88,017,000 was used to acquire Filofax and $10,495,000 was used to
acquire primarily machinery and equipment and secondarily computer equipment and
software.
Of the $87,640,000 net amount provided by the Company's financing
activities, $89,924,000 was due to an increase in net borrowings on the line of
credit. This amount was partially offset by $1,490,000 that was used to
repurchase 96,000 shares of the Company's Common Stock and $1,200,000 that was
used for the payment of financing fees in connection with the line of credit.
Bank Loans. On September 23, 1998, the Company entered into a
$160,000,000 Revolving Loan Agreement (the "Loan Agreement") with Wells Fargo
Bank, National Association ("Wells Fargo"). Effective November 24, 1998, this
amount was voluntarily reduced to $145,000,000, and unamortized financing fees
of approximately $84,000 were charged to interest expense. The loan facility was
syndicated with a group of banks in December 1998. Borrowings bore interest
either at floating rates based on the higher of Wells Fargo's prime rate and the
Federal Funds Rate published by the Federal Reserve Bank of New York or at fixed
rates calculated by reference to the interest rates at which Wells Fargo 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 remains outstanding, together with a margin. During the year ended
June 30, 1999, the weighted-average interest rate was 6.33%. During the year
ended June 30, 1999, under the terms of the Loan Agreement, the Company paid
Wells Fargo a financing fee of $1,200,000, $205,000 of which was expensed in the
fiscal year ended June 30, 1999. At June 30, 1999, the Company had $105,317,000
outstanding under this Loan Agreement and had outstanding letters of credit
totaling approximately $218,000.
On June 29, 1999, the Company obtained from the banks a waiver of the
fixed charge coverage ratio and the funded debt ratio covenants for the quarter
ended June 30, 1999. The waiver was subsequently extended through October 15,
1999. On October 12, 1999, the Company and the banks amended the Loan Agreement
(the "Amended and Restated Loan Agreement"). The Amended and Restated Loan
Agreement converts the entire outstanding revolving loan balance into a term
loan portion of $90,400,000 and a revolving credit loan portion of $29,600,000.
The term loan matures on September 30, 2001, and the revolving credit loan
facility matures on October 9, 2000. The maturity date of the revolving credit
loan facility will be automatically extended through September 30, 2001,
provided that the Company achieves on September 30, 2000 a minimum EBITDA, a
minimum fixed charge coverage ratio and a maximum senior funded debt ratio, as
defined in the amended agreement. As a result, unamortized financing fees on the
Loan Agreement of approximately $955,000 will be charged to interest expense in
October 1999.
The Amended and Restated Loan Agreement is secured by the Company's
assets and includes, among other things, financial covenants requiring the
maintenance of a minimum fixed charge coverage ratio, EBITDA, stockholders'
equity and current ratio, and a maximum senior funded debt coverage ratio and
operating expenses to net sales ratio, as defined in the amended agreement. The
Amended and Restated Loan Agreement also limits, among other things, the
incurrence of liens and other indebtedness, mergers, consolidations, the sale of
assets, annual capital expenditures, advances, investments and loans by the
Company and its subsidiaries, dividends, stock repurchases and certain
transactions with affiliates. It permits up to $10,000,000 of secured debt for
currency hedging purposes and up to $1,500,000 of unsecured overdraft borrowings
for foreign subsidiaries.
The outstanding balances bear interest at the Company's election at
either (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate
plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to
200.00 basis points, or (ii) the applicable eurodollar rate plus an interest
rate margin ranging from 112.50 to 300.00 basis points, depending on the level
of the funded debt ratio at the end of each fiscal quarter.
Under the Amended and Restated Loan Agreement, the Company is obligated
to pay certain fees including an unused revolving loan commitment fee ranging
from 37.50 to 67.50 basis points which varies with the level of the funded debt
ratio at the end of each fiscal quarter, payable quarterly in arrears; letter of
credit fees ranging from 112.50 to 300.00 basis points which vary with the level
of the funded debt ratio at the time the letter of credit is issued; and
amendment and other standard fees which are currently estimated at approximately
$1,500,000.
Foreign Currency. The Company has not incurred significant gains or
losses 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 has increased as a result of its acquisition of Filofax
because the acquisition has significantly expanded the Company's international
operations and because a portion of the debt incurred to fund the acquisition is
in pounds Sterling. The Company entered into a call option with respect to the
purchase of Filofax shares in the tender offer to limit the effect of exchange
rate fluctuations. The Company does not trade in financial instruments nor does
it enter into such contracts for speculative purposes.
A single currency called the euro was introduced in certain countries
in Europe on January 1, 1999, but will not, at least for the foreseeable future,
be introduced in the United Kingdom. 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 is evaluating the impact of the single
currency in these markets.
Adequacy of Capital. The Company believes that cash flow from
operations, vendor credit, its existing working capital and its term and
revolving credit loans will be sufficient to satisfy the Company's anticipated
cash requirements at least through fiscal 2000. 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.
YEAR 2000
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 accurately dates commencing on or after January 1, 2000, and
even possibly certain dates in 1999. This has the potential to affect the
operation of these systems adversely and materially. The Company has identified
four phases in its year 2000 compliance efforts: discovery; assessment;
remediation; and applicable testing and verification. The Company has completed
the discovery and assessment phases for its own systems and applications and has
substantially completed the remediation phase for all its major business
systems. The Company expects the remediation, applicable testing and
verification phases to be complete by November 30, 1999. The Company believes
that its modification of existing software and conversions to new software for
certain tasks will prevent the year 2000 transition from posing significant
internal operational problems.
The Company currently estimates that total costs related to the year
2000 issue will be approximately $2,000,000 to $2,500,000, of which
approximately $1,945,000 had been incurred as of June 30, 1999. The Company does
not anticipate that the costs of these modifications and conversions will be
material to its financial position or results of operations. Expenditures will
be expensed or capitalized as appropriate. Although the Company believes its
internal systems are year 2000 compliant, there can be no guarantee 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 materially adverse effect on
the Company's financial condition.
The Company has been surveying its vendors, customers and others on
whom it relies to assess their state of year 2000 readiness. As of October 1,
1999, the Company has: defined Day Runner's year 2000 compliance definition;
sent year 2000 questionnaires; advised critical suppliers and customers as to
Day Runner's year 2000 readiness; and received responses from a large portion of
these parties. There can be no assurance, however, that the systems of any
outside party on which the Company's systems rely will also be compliant or that
any failure to be compliant in this area by one or more of these parties will
not have an adverse effect on the Company's systems.
Suppliers of Raw Materials, Product Components and Finished Goods. The
Company has been assessing the year 2000 readiness of its significant suppliers.
A large portion have responded that their year 2000 readiness plans are complete
or that they plan to be year 2000 compliant prior to December 31, 1999.
Potential Materially Adverse Impact and Contingency Plans. The
` failure of multiple significant suppliers to supply raw materials,
product components, finished goods and ancillary goods for a
prolonged period could substantially impair the Company's ability to
ship product to its customers in a timely and reliable manner and
could, thus, have a materially adverse effect on the Company's
business. The Company does not have a basis at this time to determine
whether such a scenario is likely to occur.
The Company is therefore continuing to develop contingency plans to
cope with potential year 2000 failure on the part of its significant suppliers.
The contingency plans include, where appropriate, (1) placing orders for the
receipt of products prior to potential business disruptions; (2) defining
alternate sources for suppliers who are determined to be at a high risk of
noncompliance or business disruption; and (3) defining manual work processes.
Suppliers of Other Goods and Services. In addition, the Company has
identified and has been contacting its suppliers of business-critical goods and
services and has received responses from a large portion of these parties.
Potential Materially Adverse Impact and Contingency Plans. The failure
in one or more geographic regions of third-party systems over which
the Company has no control and for which the Company has no ready
substitute, such as, but not limited to, power and telecommunications
service could make it necessary for the Company to temporarily close
facilities in the affected geographic areas and have additional
materially adverse effects on the Company's business. The Company
is developing appropriate contingency plans for any business-critical
supplier that does not provide an adequate response to the Company
concerning its year 2000 readiness on a timely basis and has in place
a business resumption plan that addresses recovery from various
types of disasters, including significant interruptions to data flows
and to distribution capabilities at the Company's major U.S.
distribution centers.
The Company has made the necessary preparations for the execution of
this contingency plan. However, there can be no assurance that the
Company will be able to complete its contingency preparations on that
schedule.
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.
The primary risk inherent in the Company's market sensitive
instruments is the risk of loss resulting from interest rate fluctuations. The
Company's term and revolving credit loans bear interest either at the Company's
election at (i) the higher of the Agent Bank's prime rate or the Federal Funds
Rate plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to
200.00 basis points, or (ii) the applicable euro dollar rate plus an interest
rate margin ranging from 112.50 to 300.00 basis points, depending on the level
of the funded debt ratio at the end of each fiscal quarter. The table below
provides information as of June 30, 1999 about the Company's long-term liability
obligations that are sensitive to changes in interest rates, including principal
cash flows by scheduled maturity, weighted-average interest rate and estimated
fair value. The weighted-average interest rates presented are the rates as of
June 30, 1999 as calculated under the Amended and Restated Loan Agremeent.
<TABLE>
<CAPTION>
PRINCIPAL MATURING IN
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C>
Term and revolving
credit loans $105,317 $105,317 $105,317
Average interest rate 9.30%
Other debt:
Loan notes $ 2,077 $251 $ 2,328 $ 2,328
Average interest rate 4.80%
</TABLE>
The Company's future earnings and cash flows relating to market
sensitive instruments are primarily dependent upon prevailing market interest
rate. Based upon the Company's borrowing mix as of June 30, 1999, a 1% increase
or decrease in the interest rates would increase or decrease pretax earnings and
cash flow by approximately $1,100,000.
FOREIGN CURRENCY EXPOSURE
The Company's reporting currency is the U.S. dollar, and interest and
principal payments on its long-term debts will be in U.S. dollars and pounds
Sterling. A portion of revenues and operating costs are derived from sales and
operations outside the United States and are incurred in a number of different
currencies. Accordingly, fluctuations in currency exchange rates may have a
significant effect on the Company's results of operations and balance sheet
data. The Company has no significant exposure from financial instruments which
would require quantitative disclosure.
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 December 9, 1999, 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 December 9, 1999, 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 December 9, 1999, 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 December 9, 1999, 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.
<S> <C> <C>
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. CONSOLIDATED FINANCIAL STATEMENTS PAGE
Independent Auditors' Report F-1
Consolidated Balance Sheets at June 30, 1999 and
1998 F-2
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended June 30, 1999 F-3
Consolidated Statements of Stockholders' Equity for Each
of the Three Years in the Period Ended June 30, 1999 F-4
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended June 30, 1999 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.
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)
<PAGE>
10.2 1995 Stock Option Plan, including forms of Stock Option Agreements(8)
and Amendment Nos. 1(9), 2(10) and 3(11) thereto dated
October 21, 1996, September 19, 1997 and September 15,
1998, respectively(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)(12)
10.5 Non-Employee Director Stock Option Plan, including form of Stock
Option Agreement(7)(11)
10.6 Fiscal 1999 Officer Bonus Plan(7)(12)
10.7 Officer Severance Plan effective as of
February 28, 1993, including form of
Employment Separation Agreement(13) and
First Amendment thereto effective as of
August 17, 1998(7)(12)
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(14)
10.9 Triple Net Lease, as amended, effective as of
March 22, 1991 between Catellus Development
Corporation and the Registrant and as amended
by Lease Amendment dated June 29, 1992(15)
10.10 Triple Net Lease dated July 28, 1992 between
Catellus Development Corporation and the
Registrant(13)
10.11 Koll Business Center Lease dated September 7, 1994 between the
Registrant and Koll Alton Plaza and Aetna Life Insurance Co.(16)
10.12 Standard Commercial Lease Agreement dated as of July 31, 1996
between System Realty Nine, Inc. and the Registrant(16)
10.13 Standard Commercial Lease Agreement dated
as of October 1, 1997 between RDC Sales and
the Registrant(12)
10.14 Standard Commercial Lease Agreement dated as of May 11, 1998
between GPM Real Property Ltd. And Endow Inc. and the
Registrant(12)
<PAGE>
10.15 Lease Agreement dated as of April 2, 1999 between Mrs. Refugio Victoria
Geffroy De Flourie and Mr. David Bramzon Stengel and the
Registrant
10.16 Form of Warrant dated April 20, 1998 to purchase
shares of the Registrant's Common Stock issued to
certain directors and officers of the Registrant(3)
and Schedule of Warrants(7)(12)
10.17 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)(18)
10.18 Form of Stock Purchase Agreement dated August 27, 1997
and Schedule of Sellers(18)
10.19 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)(12)
10.20 First Amendment to Consulting Agreement effective April 22, 1999
between the Registrant and Alan R. Rachlin(7)
10.21 Consulting Agreement effective May 22, 1999 between the Registrant
and Mr. Alan R. Rachlin(7)
10.22 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(20)
10.23 Amended and Restated Loan Agreement dated as of
September 30, 1999 among the Registrant, Day Runner UK plc,
Filofax Limited, the Lenders named therein and Wells Fargo Bank,
National Association, including Revolving and Term Loan Notes.
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
</TABLE>
(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,
1999.
(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 (File 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 Registration Statement on
Form S-8 (Registration No. 333-69023) filed with the Commission on
December 16, 1998.
(12) Incorporated by reference to Registrant's Annual Report on Form 10-K
(File No. 0-19835) filed with the Commission on October 1, 1998.
(13) 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.
(14) 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.
(15) Incorporated by reference to the Registrant's Annual Report on Form
10-K (File No. 0-19835) filed with the Commission on March 21, 1993.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) 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: October 13, 1999
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>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Mark A. Vidovich Chairman of the Board October 13, 1999
-------------------------------
Mark A. Vidovich
/s/ James E. Freeman, Jr. Chief Executive Officer October 13, 1999
------------------------------- (Principal Executive Officer)
James E. Freeman, Jr.
/s/ Dennis K. Marquardt Executive Vice President, October 13, 1999
-------------------------------- Finance & Administration and
Dennis K. Marquardt Chief Financial Officer
(Principal Financial Officer
and Accounting Officer)
/s/ James P. Higgins Director October 13, 1999
---------------------------------
James P. Higgins
/s/ Jill Tate Higgins Director October 13, 1999
----------------------------------
Jill Tate Higgins
/s/ Charles Miller Director October 13, 1999
-----------------------------------
Charles Miller
/s/ Alan R. Rachlin Director October 13, 1999
-----------------------------------
Alan R. Rachlin
/s/ Boyd I. Willat Director October 13, 1999
------------------------------------
Boyd I. Willat
/s/ Felice Willat Director October 13, 1999
-------------------------------------
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, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1999. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1999 in
conformity with generally accepted accounting principles.
Los Angeles, CA
October 12, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
JUNE 30,
1999 1998
--------- ---------
Current assets:
<S> <C> <C>
Cash and cash equivalents...................................................... $ 9,132 $ 2,923
Accounts receivable (less allowance for doubtful accounts and sales returns
and other allowances of $11,481 and $9,942 at
June 30, 1999 and 1998, respectively)....................................... 43,215 32,542
Inventories.................................................................... 42,361 37,610
Prepaid expenses and other current assets...................................... 4,506 1,670
Income taxes receivable........................................................ 434 2,606
Deferred income taxes.......................................................... 11,189 7,218
--------- --------
Total current assets........................................................ 110,837 84,569
Property and equipment, net ....................................................... 17,851 11,888
Goodwill and other intangible assets (net of accumulated amortization of $1,934
and $108 at June 30, 1999 and 1998, respectively).............................. 85,830 3,564
Other assets (net of accumulated amortization of $410 and $60 at June 30, 1999
and 1998, respectively)....................................................... 1,793 1,158
--------- --------
TOTAL ............................................................................ $216,311 $101,179
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit................................................................ $ 2,716
Accounts payable............................................................... $ 18,722 9,969
Accrued expenses............................................................... 19,547 13,962
Loan notes..................................................................... 2,077
--------- --------
Total current liabilities................................................... 40,346 26,647
--------- --------
Long-term liabilities:
Line of credit................................................................. 105,317
Loan notes..................................................................... 251
---------
Total long-term liabilities................................................. 105,568
---------
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; 13,718,524
shares issued and 11,900,736 shares outstanding at June 30, 1999;
13,677,386
shares issued and 11,955,598 shares outstanding at June 30, 1998)............ 14 14
Additional paid-in capital..................................................... 21,709 21,813
Retained earnings.............................................................. 61,078 65,076
Cumulative translation adjustment.............................................. 954 102
Treasury stock - At cost (787,858 and 732,996 shares at June 30, 1999 and
1998, respectively).......................................................... (13,358) (12,473)
--------- --------
Total stockholders' equity.................................................. 70,397 74,532
--------- --------
TOTAL ............................................................................ $216,311 $101,179
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED JUNE 30,
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Net sales................................................... $ 196,212 $ 167,841 $ 127,376
Cost of goods sold.......................................... 108,087 80,663 60,452
--------- --------- ---------
Gross profit................................................ 88,125 87,178 66,924
--------- --------- ---------
Operating expenses:
Selling, marketing and distribution..................... 62,180 43,193 31,673
General and administrative.............................. 26,445 18,416 14,451
Costs related to activities associated with the
Filofax acquisition.................................. 1,072
Costs incurred in pursuing acquisitions................. 1,451
--------- --------- ---------
Total operating expenses.................................... 89,697 61,609 47,575
--------- --------- ---------
(Loss) income from operations............................... (1,572) 25,569 19,349
--------- --------- ---------
Interest expense (income):
Interest income......................................... (340) (390) (1,431)
Interest expense........................................ 5,555 218 130
--------- --------- ---------
Net interest expense (income)............................... 5,215 (172) (1,301)
--------- --------- ---------
(Loss) income before (benefit) provision for income taxes... (6,787) 25,741 20,650
(Benefit) provision for income taxes........................ (2,789) 9,833 8,102
--------- --------- ---------
Net (loss) income........................................... $ (3,998) $ 15,908 $ 12,548
========= ========= =========
(Loss) earnings per common share:
Basic................................................ $ (0.34) $ 1.38 $ 1.01
======== ========= ========
Diluted.............................................. $ (0.34) $ 1.27 $ 0.95
======== ========= ========
Weighted-average number of common shares outstanding:
Basic................................................ 11,896 11,533 12,432
========= ========= =========
Diluted.............................................. 11,896 12,523 13,182
========= ========= =========
See accompanying notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
----------- --------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996....................... 12,609,542 $ 12 $ 22,863 $ 36,620
Treasury stock.............................. (1,026,200)
Exercis of warrants........................ 11,000 22
Exercise of options......................... 108,316 1 139
Tax benefit of options...................... 157
Compensation cost associated with
warrant grant........................... 50
Comprehensive income:
Net income............................... 12,548
Other comprehensive income -
foreign currency translation adjustments
Comprehensive income........................
----------- -------- --------- ----------
Balance, June 30, 1997...................... 11,702,658 13 23,231 49,168
Treasury stock.............................. (695,588)
Exercise of warrants........................ 278,000 (2,932)
Exercise of options......................... 670,528 1 (3,927)
Tax benefit of options...................... 5,208
Compensation cost associated with
warrant grant........................... 233
Comprehensive income:
Net income............................... 15,908
Other comprehensive income -
foreign currency translation adjustments
Comprehensive income........................
------------ -------- --------- ----------
Balance, June 30, 1998...................... 11,955,598 14 21,813 65,076
Treasury stock.............................. (96,000)
Exercise of options......................... 41,138 (199)
Tax benefit of options...................... 20
Compensation cost associated with
warrant grant........................... 75
Comprehensive income:
Net loss................................. (3,998)
Other comprehensive income -
foreign currency translation adjustments
Comprehensive income........................
------------ -------- --------- ----------
Balance, June 30, 1999...................... 11,900,736 $ 14 $ 21,709 $ 61,078
========== ======== ========= ==========
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TREASURY STOCK
INCOME INCOME SHARES AMOUNT
----------------- -------------- -------- ---------
<S> <C> <C> <C> <C>
Balance, July 1, 1996....................... $ 3
Treasury stock.............................. (1,026,200) $(13,541)
Exercise of warrants........................
Exercise of options......................... 40,264 521
Tax benefit of options......................
Compensation cost associated with
warrant grant...........................
Comprehensive income:
Net income............................... $12,548
Other comprehensive income - 89 89
foreign currency translation adjustments -------
Comprehensive income........................ $12,637
=======
Balance, June 30, 1997...................... 92 (985,936) (13,020)
Treasury stock.............................. (695,588) (11,564)
Exercise of warrants........................ 278,000 3,605
Exercise of options......................... 670,528 8,506
Tax benefit of options......................
Compensation cost associated with
warrant grant...........................
Comprehensive income:
Net income............................... $15,908
Other comprehensive income -
foreign currency translation adjustments 10 10
--- ---
Comprehensive income........................ $15,918
=======
Balance, June 30, 1998...................... 102 (732,996) (12,473)
Treasury stock.............................. (96,000) (1,490)
Exercise of options......................... 41,138 605
Tax benefit of options......................
Compensation cost associated with
warrant grant...........................
Comprehensive income:
Net loss................................. $ (3,998)
Other comprehensive income -
foreign currency translation adjustments 852 852
--- ---
Comprehensive income........................ $ (3,146)
========
-------- --------
Balance, June 30, 1999...................... $954 (787,858) $(13,358)
==== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30,
1999 1998 1997
--------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income....................................... $ (3,998) $ 15,908 $12,548
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:.......
Depreciation and amortization......................... 10,240 5,517 3,869
Provision for doubtful accounts and sales returns
and other allowances................................. 19,039 9,799 14,264
Loss on disposal of property and equipment.................. 199
Write-off of barter credits............................. 200
Utilization of barter credits........................... 100
Compensation expense related to issuance of warrants........ 75 233 50
Deferred income tax benefit............................. (3,971) (832) (1,186)
Changes in operating assets and liabilities, net of
acquisition of businesses:
Accounts receivable................................. (15,268) (17,899) (15,103)
Inventories ............................................... 7,432 (11,050) (3,294)
Prepaid expenses and other current assets................... (813) 595 (689)
Income taxes receivable..................................... 968 2,087 1,930
Accounts payable.................................... 4,508 (725) 225
Accrued expenses............................................ (1,831) 3,755 (872)
Income taxes payable........................................ (453) 1,206
-------- --------- -------
Net cash provided by operating activities......... 16,580 7,035 13,148
-------- -------- -------
Cash flows from investing activities:
Acquisition of businesses............................... (88,017) (4,626)
Acquisition of property and equipment....................... (10,495) (7,175) (4,972)
Other assets............................................ (1) (110) 5
-------- -------- --------
Net cash used in investing activities............... (98,513) (11,911) (4,967)
-------- -------- -------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit....... 89,924 (338) 452
Financing fees.......................................... (1,200)
Repayment under long-term liabilities................... (990)
Repayment under capital lease obligations............... (58) (13)
Exercise of warrants.................................... 673 22
Exercise of options......................................... 406 4,580 661
Repurchase of common stock.............................. (1,490) (11,564) (13,541)
-------- -------- -------
Net cash provided by (used in) financing activities. 87,640 (7,697) (12,419)
-------- -------- -------
Effect of exchange rate changes on cash and cash equivalents 502 (54) 23
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 6,209 (12,627) (4,215)
Cash and cash equivalents, beginning of year................ 2,923 15,550 19,765
-------- -------- -------
Cash and cash equivalents, end of year...................... $ 9,132 $ 2,923 $15,550
======== ======== =======
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") develop, manufacture,
and market paper-based organizers for the retail market. The Company also
develops, manufactures and markets a number of related organizing products,
including telephone/address books, business accessories, products for students
and organizing and other wallboards. A substantial portion of the Company's
sales is to office products and mass market retailers throughout the United
States and to a variety of retailers abroad. The Company grants credit to
substantially all of its customers.
CONSOLIDATION - The consolidated financial statements include the
accounts of the Company 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 the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentration of credit risk consist principally of cash
equivalents and accounts receivable.
The Company places its cash equivalents with various financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution. The Company believes that no significant credit risk
exists, as these investments are made with high quality financial institutions.
In fiscal 1999, sales to four customers accounted for 25%, 13%, 11% and
11% of the Company's net sales. In fiscal 1998, sales to four customers
accounted for 28%, 16%, 15% and 14% of the Company's net sales. In fiscal 1997,
sales to four customers accounted for 25%, 15%, 14% and 11% of the Company's net
sales.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value due to the short-term nature of these instruments.
The carrying value of the Company's line of credit at June 30, 1999
approximates fair value. The fair values were estimated by discounting the
future cash flows using rates currently available to the Company for debt
instruments with similar terms and remaining maturities.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
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. 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.
GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill represents the excess
of the purchase price over the fair value of net assets acquired in business
combinations and is amortized using the straight-line method over periods
ranging from 20 to 35 years. Other intangible assets consist of trade names
acquired in business combinations and are amortized using the straight-line
method over periods ranging from 15 to 40 years.
OTHER ASSETS - Other assets consist of financing fees and a
non-competition agreement. Financing fees represent fees in connection with a
loan agreement and are amortized using the straight-line method over the
remaining term of the loan agreement (see Note 7). The non-competition agreement
is amortized using the straight-line method over five years.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. If the estimated future
cash flows (undiscounted and without interest charges) are less than the
carrying value, a write-down would be recorded to reduce the related carrying
value of the asset to its estimated fair value.
INCOME TAXES - Income taxes are recognized for (a) the amount of income
taxes payable or refundable for the current period and (b) deferred income tax
assets and liabilities for the future tax consequences of events that have been
recognized in the Company's financial statements or income tax returns. The
effects of income taxes are measured based on enacted tax laws and rates. A
valuation allowance is established, when necessary, to reduce deferred income
tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION - Balance sheet accounts for foreign
operations are translated at the exchange rate at the balance sheet date, and
statement of operations accounts are translated at the weighted-average exchange
rate for the year. Resulting translation adjustments are included in accumulated
other comprehensive income. Transaction gains and losses included in (loss)
income were not significant during the years ended June 30, 1999, 1998 and 1997.
NET SALES - Revenue is recognized upon shipment of product to the
customer, with allowances for estimated returns, rebates and other allowances.
NEW ACCOUNTING PRONOUNCEMENT - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000, which will be September 30, 2000 for the Company. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
collectively referred to as derivatives, and for hedging activities. SFAS No.
133 requires the recognition of all derivatives as either assets or liabilities
in the statement of financial position and the measurement of those instruments
at fair value. The Company expects that the adoption of SFAS No. 133 will not
have a material impact on the Company's financial position or results of
operations.
RECLASSIFICATIONS - Certain reclassifications were made to the prior
year financial statements to conform to the current year presentation.
2. ACQUISITIONS
On October 30, 1998, the Company announced that it had control of a
majority of the outstanding shares of Filofax Group plc ("Filofax") as a result
of its previously announced cash tender offer for Filofax stock. The Company
acquired all the remaining outstanding shares of Filofax on December 26, 1998.
This acquisition was accounted for under the purchase method of accounting.
The total purchase price of $92,803,000, which includes costs of the
transaction, was paid in cash and Loan Notes (see Note 8). The Company borrowed
the cash portion of this amount under a loan agreement with a group of banks
(see Note 7).
The following table sets forth the unaudited proforma condensed
combined statements of operations data for the years ended June 30, 1999 and
1998 as if the acquisition had occurred on July 1, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998
------------ -----------
<S> <C> <C>
Net sales $220,904 $231,190
(Loss) income before (benefit) provision for income taxes $ (4,413) $ 27,040
Net (loss) income $ (2,603) $ 16,495
(Loss) earnings per common share:
Basic $ (0.22) $ 1.43
Diluted $ (0.22) $ 1.32
Weighted average number of common shares outstanding:
Basic 11,896 11,533
Diluted 11,896 12,523
</TABLE>
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.
On October 1, 1997, the Company purchased substantially all of the
operating assets of Ram Manufacturing, Inc. ("Ram"), an Arkansas-based
developer, manufacturer and marketer of wallboards. The purchase price was
approximately $2,400,000. The Company also assumed certain liabilities totaling
approximately $3,000,000. In addition, contingent payments may be paid through
December 31, 2000, 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 the Company. The purchase
price was approximately $2,546,000. In addition, contingent payments may be paid
through December 31, 1999, based on Timeposters' operating performance during
that period.
3. 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,
1999 1998
---------- ---------
Raw materials................... $ 12,026 $ 14,087
Work in process................. 2,138 831
Finished goods.................. 28,197 22,692
---------- ---------
Total....... $ 42,361 $ 37,610
========== =========
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following (in thousands):
JUNE 30,
1999 1998
---------- ---------
<S> <C> <C>
Displays............................................ $ 11,653 $ 9,003
Data processing equipment and software.............. 14,697 8,785
Machinery and equipment............................. 11,915 6,705
Leasehold improvements.............................. 5,106 2,229
Vehicles............................................ 715 250
---------- ---------
Total........................... 44,086 26,972
Accumulated depreciation and amortization........... (26,235) (15,084)
---------- ---------
Property and equipment - net........................ $ 17,851 $ 11,888
========== =========
</TABLE>
5. FINANCIAL INSTRUMENTS
On September 29, 1998, the Company entered into a call option in order
to limit its foreign exchange risk on the purchase of Filofax shares,
which were paid for in pounds Sterling. The Company's objective was to
protect itself from the risk that the purchase price of the Filofax
shares would be adversely affected by changes in exchange rates. During
the year ended June 30, 1999, the Company expensed $765,000 to operating
expenses for the call option. At June 30, 1999, the Company had not
entered into any additional foreign currency instruments. The Company
does not trade in financial instruments nor does it enter into such
contracts for speculative purposes.
6. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
-------- ---------
<S> <C> <C>
Accrued sales and promotion costs.................... $ 9,576 $ 7,473
Accrued payroll and related costs.................... 5,366 2,955
Other................................................ 4,605 3,534
-------- ---------
Total............................ $ 19,547 $ 13,962
======== =========
</TABLE>
7. LINES OF CREDIT
On September 23, 1998, the Company entered into a $160,000,000
Revolving Loan Agreement (the "Loan Agreement") with Wells Fargo Bank, National
Association ("Wells Fargo"). Effective November 24, 1998, this amount was
voluntarily reduced to $145,000,000, and unamortized financing fees of
approximately $84,000 were charged to interest expense. The loan facility was
syndicated with a group of banks in December 1998. Borrowings bore interest
either at floating rates based on the higher of Wells Fargo's prime rate and the
Federal Funds Rate published by the Federal Reserve Bank of New York or at fixed
rates calculated by reference to the interest rates at which Wells Fargo 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 remains outstanding, together with a margin. During the year ended
June 30, 1999, the weighted-average interest rate was 6.33%. During the year
ended June 30, 1999, under the terms of the Loan Agreement, the Company paid
Wells Fargo a financing fee of $1,200,000, $205,000 of which was expensed in the
fiscal year ended June 30, 1999. At June 30, 1999, the Company had $105,317,000
outstanding under this Loan Agreement and had outstanding letters of credit
totaling approximately $218,000.
On June 29, 1999, the Company obtained from the banks a waiver of the
fixed charge coverage ratio and the funded debt ratio covenants for the quarter
ended June 30, 1999. The waiver was subsequently extended through October 15,
1999. On October 12, 1999, the Company and the banks amended the Loan Agreement
(the "Amended and Restated Loan Agreement"). The Amended and Restated Loan
Agreement converts the entire outstanding revolving loan balance into a term
loan portion of $90,400,000 and a revolving credit loan portion of $29,600,000.
The term loan matures on September 30, 2001, and the revolving credit loan
facility matures on October 9, 2000. The maturity date of the revolving credit
loan facility will be automatically extended through September 30, 2001,
provided that the Company achieves on September 30, 2000 a minimum EBITDA, a
minimum fixed charge coverage ratio and a maximum senior funded debt ratio, as
defined in the amended agreement. As a result, unamortized financing fees on the
Loan Agreement of approximately $955,000 will be charged to interest expense in
October 1999.
The Amended and Restated Loan Agreement is secured by the Company's
assets and includes, among other things, financial covenants requiring the
maintenance of a minimum fixed charge coverage ratio, EBITDA, stockholders'
equity and current ratio, and a maximum senior funded debt coverage ratio and
operating expenses to net sales ratio, as defined in the amended agreement. The
Amended and Restated Loan Agreement also limits, among other things, the
incurrence of liens and other indebtedness, mergers, consolidations, the sale of
assets, annual capital expenditures, advances, investments and loans by the
Company and its subsidiaries, dividends, stock repurchases and certain
transactions with affiliates. It permits up to $10,000,000 of secured debt for
currency hedging purposes and up to $1,500,000 unsecured overdraft borrowings
for foreign subsidiaries.
The outstanding balances bear interest at the Company's election at
either (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate
plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to
200.00 basis points, or (ii) the applicable eurodollar rate plus an interest
rate margin ranging from 112.50 to 300.00 basis points, depending on the level
of the funded debt ratio at the end of each fiscal quarter.
Under the Amended and Restated Loan Agreement, the Company is obligated
to pay certain fees including an unused revolving loan commitment fee ranging
from 37.50 to 67.50 basis points which varies with the level of the funded debt
ratio at the end of each fiscal quarter, payable quarterly in arrears; letter of
credit fees ranging from 112.50 to 300.00 basis points which vary with the level
of the funded debt ratio at the time the letter of credit is issued; and
amendment and other standard fees which are currently estimated at approximately
$1,500,000.
The Company's Canadian subsidiary had a credit agreement with a
Canadian bank which allowed for borrowings up to Canadian $3,000,000, bore
interest at the bank's prime rate and was due and payable on demand. The
borrowings under this credit agreement were repaid in full on October 22, 1998,
and the Canadian subsidiary now borrows funds as a co-borrower under the Loan
Agreement.
8. LOAN NOTES
Loan Notes in the amount of (pound)1,477,000 (US $2,328,000) were
issued in connection with the Filofax acquisition, are unsecured obligations of
the Company's U.K. subsidiary and bear interest at LIBOR (5.90% at June 30,
1999) less 1%. Interest on the Loan Notes is paid annually in arrears beginning
September 30, 1999. The Loan Notes are redeemable, in whole or in part, at the
holder's option on each interest payment date. Unless they have previously been
redeemed, all Loan Notes will be redeemed on September 30, 2003. As of September
30, 1999, (pound)1,318,000 (US $2,077,000) of the Loan Notes had been redeemed.
9. LEASES
The Company has five noncancelable operating leases for its principal
operating facilities and its corporate headquarters. The leases expire through
2006. 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 May 2003.
<PAGE>
Future minimum lease payments under the operating leases at June 30,
1999 are summarized as follows (in thousands):
YEARS ENDING JUNE 30,
2000.................................................... $ 5,396
2001.................................................... 4,872
2002.................................................... 2,781
2003.................................................... 1,712
2004.................................................... 868
Thereafter.............................................. 1,634
----------
Total future minimum lease payments..................... $ 17,263
==========
Rent expense was $5,626,000, $4,025,000 and $3,841,000 for the years
ended June 30, 1999, 1998 and 1997, respectively.
10. INCOME TAXES
The components of (loss) income before (benefit) provision for income
taxes are as follows (in thousands):
YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- -----------
<S> <C> <C> <C>
United States......................... $ (9,704) $ 22,856 $ 18,765
Other................................. 2,917 2,885 1,885
---------- ---------- ----------
Total.............................. $ (6,787) $ 25,741 $ 20,650
=========== ========== ==========
The (benefit) provision for income taxes consists of the following (in
thousands):
YEARS ENDED JUNE 30,
1999 1998 1997
---------- --------- ---------
Current:
Federal............................... $ (310) $ 8,565 $ 7,076
State................................. (8) 1,477 1,825
Foreign............................... 1,500 623 387
--------- --------- ---------
Total current........................... 1,182 10,665 9,288
--------- --------- ---------
Deferred:
Federal............................... (3,821) (920) (961)
State................................. (150) 88 (225)
---------- --------- ---------
Total deferred.......................... (3,971) (832) (1,186)
---------- --------- ---------
Total (benefit) provision
for income taxes...................... $ (2,789) $ 9,833 $ 8,102
========== ========= =========
</TABLE>
Differences between the total income tax (benefit) provision and the
amount computed by applying the statutory federal income tax rate to (loss)
income before (benefit) provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>>
Computed tax expense using the
statutory federal income tax rate..... $ (2,375) $ 9,009 $ 7,228
(Decrease) increase in taxes arising
from:
State taxes, net of
federal benefit.................... (102) 769 1,000
Foreign earnings taxed at other
than federal statutory rate......... (79) (387) (273)
Foreign tax credit.................... (347)
Other................................. 114 442 147
---------- ---------- ---------
Total................................. $ (2,789) $ 9,833 $ 8,102
========== ========== =========
Effective income tax rate............... 41% 38% 39%
========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Total deferred income tax assets and liabilities consist of the
following (in thousands):
JUNE 30,
1999 1998
---------------- ----------------
<S> <C> <C>
Net operating loss carryback/carryforward $ 3,384
Allowance for sales returns 2,433 $ 2,918
Inventory obsolescence reserve 1,988 1,220
Allowance for doubtful accounts 1,041 1,074
State taxes 615
Sales programs 827 608
Other 1,975 1,368
--------- -------
Total deferred income tax assets 11,648 7,803
Deferred income tax liabilities (459) (585)
--------- -------
Total $ 11,189 $ 7,218
========= =========
</TABLE>
Cumulative undistributed earnings of foreign subsidiaries for which no
deferred income taxes have been provided approximated $6,942,000 and $4,153,000
at June 30, 1999 and 1998, respectively. The additional income taxes payable on
the earnings of foreign subsidiaries, if remitted, would be offset by U.S.
income tax credits for foreign taxes paid.
11. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the
weighted-average number of common shares outstanding for the year. Diluted
earnings per share are 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 (loss) income (in thousands, except per share amounts):
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
NET (LOSS) INCOME $ (3,998) $ 15,908 $ 12,548
=========== ========= ========
BASIC WEIGHTED-AVERAGE SHARES
Weighted-average number of
common shares outstanding 11,896 11,533 12,432
Effect of dilutive securities
Additional shares from the
Assumed exercise of
options and warrants 3,093 2,757
Shares assumed to be repurchased
under the treasury stock method (2,103) (2,007)
--------- --------- ------
DILUTED WEIGHTED-AVERAGE SHARES
Weighted-average number of
common shares outstanding and
common share equivalents 11,896 12,523 13,182
========= ========= ======
(LOSS) EARNINGS PER SHARE:
Basic $ (0.34) $ 1.38 $ 1.01
======== ======== =======
Diluted $ (0.34) $ 1.27 $ 0.95
======== ======== =======
</TABLE>
For the year ended June 30, 1999, dilutive securities equivalent to
1,160,000 shares are not included as potential common shares because they are
antidilutive. During the years ended June 30, 1998 and 1997, there were no
antidilutive common share equivalents.
12. STOCK OPTION PLANS
Under the Company's 1995 Stock Option Plan (the "Plan"), an aggregate
of 1,925,000 shares of common stock is reserved for issuance to key employees,
including officers and directors 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, 1999, options covering 2,422,104 shares have been exercised and options
covering 1,002,646 shares remain outstanding. No additional options will be
granted under this plan.
During the years ended June 30, 1999, 1998 and 1997, certain officers
and employees exercised options to purchase an additional 17,040, 651,414 and
74,300 shares, respectively, of the Company's common stock for an aggregate of
$129,000, $4,278,000 and $381,000, respectively (see Note 15).
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, 1999, 1998 and 1997. This reduction totaled $20,000, $5,208,000 and
$157,000, respectively, and was credited to additional paid-in capital.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE OPTIONS EXERCISE
OPTIONS PRICE EXERCISABLE PRICE
------- ----- ----------- -----
<S> <C> <C> <C> <C>
Outstanding, July 1, 1996........... 1,732,150 $ 6.85
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
Granted.......................... 444,000 18.94
Exercised........................ (17,040) 7.55
Cancelled........................ (116,500) 16.41
------------
Outstanding, June 30, 1999.......... 2,315,646 12.48 1,343,933 9.94
============
</TABLE>
At June 30, 1999, 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- WEIGHTED- WEIGHTED-
NUMBER OF EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE OF OPTION EXERCISE PRICE OPTIONS PRICE LIFE EXERCISABLE PRICE
------------------------------ ------------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 5.13 - $8.38 799,596 $ 6.68 4.84 720,408 $ 6.50
9.75 - 13.00 594,050 11.89 6.41 376,500 11.53
16.88 - 20.63 922,000 17.89 8.59 247,025 17.54
</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 (loss)
income and (loss) earnings per common and common equivalent shares would have
been reduced to the pro forma amounts indicated below:
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Net (loss) income:
As reported $ (3,998) $ 15,908 $ 12,548
Pro forma $ (6,694) $ 12,617 $ 11,094
(Loss) earnings per common and common equivalent shares:
As reported:
Basic $ (0.34) $ 1.38 $ 1.01
Diluted $ (0.34) $ 1.27 $ 0.95
Pro forma:
Basic $ (0.56) $ 1.09 $ 0.89
Diluted $ (0.56) $ 1.01 $ 0.84
</TABLE>
The fair values of the options granted under the plans during fiscal
1999, 1998 and 1997 were estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted-average fair values of the options at the
date of grant were $10.38, $9.03 and $14.53 during fiscal 1999, 1998 and 1997,
respectively. The following weighted-average assumptions for fiscal 1999, 1998
and 1997, respectively, were used: no dividend yield; volatility of 60.00%,
57.21% and 53.28%; risk-free interest rates of 5.245%, 5.877% and 6.246%; and
expected option lives of 4.85, 4.74 and 6.05 years. Pro forma compensation cost
of options granted under the Employee Stock Purchase Plan is measured based on
the discount from market value (see Note 14).
On September 7, 1999, the Company issued options to key employees to
purchase 417,500 shares of the Company's common stock at $9.0625 per share. The
options vest over a period of five years and expire in 2009.
13. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In November 1998, the Company authorized a non-employee director stock
option plan. The terms of the options are determined at the time of grant. No
options may be granted after November 22, 2008. Options typically become
exercisable one year from the date of issuance and have terms up to 10 years.
During the year ended June 30, 1999, the Board of Directors and
stockholders approved the issuance of options to purchase 50,000 shares of the
Company's common stock. Such options were granted at a price of $22.125 per
share, vest over a period of one year and expire in November 2008.
<PAGE>
<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>
Granted............................. 50,000 $22.125
------------
Outstanding, June 30, 1999.......... 50,000 22.125 25,000 $22.125
============
</TABLE>
14. 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,
1999, 1998 and 1997, employees purchased an aggregate of 24,098, 19,114 and
34,016 shares of common stock for $277,000, $302,000 and $280,000, 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 13).
15. WARRANTS
During the years ended June 30, 1998 and 1997, the Board of Directors
approved the issuance of warrants to purchase an aggregate of 515,000 shares of
the Company's common stock. Such warrants are exercisable at prices ranging from
$11.781 to $20.625 per share, vest over periods up to 48 months, and expire at
various times through April 2008. No warrants were granted during the year ended
June 30, 1999.
During the years ended June 30, 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, 1999.
Included in the issuance of warrants to purchase 515,000 aggregate
shares of the Company's common stock is a warrant to purchase 50,000 shares that
was issued during fiscal 1997 to a director under the terms of a consulting
agreement. Such issuance was accounted for under SFAS No. 123 using the
Black-Scholes option pricing model, which resulted in the recording of $75,000,
$233,000 and $50,000 in compensation cost during the years ended June 30, 1999,
1998 and 1997, respectively.
<PAGE>
<TABLE>
<CAPTION>
A summary of warrant activity is as follows:
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE OPTIONS EXERCISE
WARRANTS PRICE EXERCISABLE PRICE
-------- ----- ----------- -----
<S> <C> <C> <C> <C>
Outstanding, July 1, 1996........... 477,000 $ 4.44
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
Cancelled........................ (30,000) 16.88
------------ ----- ------- -----
Outstanding, June 30, 1999.......... 673,000 12.22 548,000 12.32
============ ===== ======= =====
</TABLE>
At June 30, 1999, 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- WEIGHTED-
AVERAGE AVERAGE 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 4.83 200,000 $ 7.81
11.78 - 12.81 288,000 11.96 5.02 163,000 12.10
16.88 - 20.63 185,000 17.38 8.23 185,000 17.38
</TABLE>
16. 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.
17. 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 1999, 1998 and 1997, the Company
repurchased 96,000, 695,588 and 1,026,200 shares, at an average per share cost
of $15.53, $16.63 and $13.20, respectively. The 695,588 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. In fiscal 1999, 1998
and 1997, 41,138, 948,528 and 40,264, respectively, treasury shares were
reissued upon the exercise of stock options and warrants and the issuance of
common stock under the Employee Stock Purchase Plan.
18. OTHER TRANSACTIONS
During fiscal 1995 and 1993, the Company entered into barter agreements
whereby it delivered inventory in exchange for future advertising credits and
other items. The Company had recorded barter credits of $15,000 in prepaid
expenses and other current assets at June 30, 1998. During the years ended June
30, 1999 and 1998, approximately $15,000 and $100,000, respectively, was charged
to expense for barter credits used. No amounts were charged to expense for
barter credits used during the year ended June 30, 1997. During the year ended
June 30, 1997, the Company charged $200,000 to operations for impairment of
these credits. No such impairment losses were charged to operations during the
years ended June 30, 1999 and 1998.
19. 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, 1999,
1998 and 1997, 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, 1999, 1998 and 1997, the Company's
matching contributions were $181,000, $156,000 and $133,000, 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 during the year ended June 30,
1998. No amounts were recorded under these plans during the years ended June 30,
1999 and 1997.
20. SEGMENT INFORMATION
The Company's operating segments have similar economic characteristics
and, as such, the Company has aggregated six operating segments into a single
reportable segment in conformity with SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. The business activities of the
Company's operating segment are the development, manufacturing and marketing of
paper-based organizers for the retail market. In addition, the Company also
develops, manufactures and markets a number of related organizing products
including telephone/address books, business accessories, products for students
and organizing and other wallboards.
<PAGE>
The Company groups its products into three categories: organizers and
planners; their refills, which include calendars, other pages and accessories;
and related organizing products. The following table sets forth, for the periods
indicated, approximate Day Runner sales by product category and as a percentage
of total net sales.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
PRODUCTS 1999 1998 1997
-------- ----------------- ------------------- ------------------
(Unaudited; dollars in thousands)
<S> <C> <C> <C>
Organizers and planners. $ 80,092 $ 83,069 $ 73,858
Refills................. 63,596 51,876 43,264
Related organizing products 52,524 32,896 10,254
--------- -------- --------
Total............. $ 196,212 $167,841 $127,376
========= ======== ========
</TABLE>
21. 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, 1999
UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL
------------- ------ ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated entities $ 136,603 $ 39,173 $ 20,436 $ 196,212
Transfers between geographic areas 2,396 1,670 $ (4,066)
---------- --------- ---------- ---------- ----------
Net sales $ 138,999 $ 39,173 $ 22,106 $ (4,066) $ 196,212
========== ========= ========== ========= ==========
Income (loss) from operations $ 651 $ 3,797 $ 852 $ (6,872) $ (1,572)
========== ========= ========= ========= ==========
Long-lived assets $ 87,144 $ 171,167 $ 6,626 $(159,463) $ 105,474
========== ========= ========= ========= ==========
YEAR ENDED JUNE 30, 1998
UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL
------------- ------ ----- ------------ -----
Net sales to unaffiliated entities $ 152,939 $ 2,745 $ 12,157 $ 167,841
Transfers between geographic areas 2,347 2,169 $ (4,516)
---------- -------- ---------- ------------ ----------
Net sales $ 155,286 $ 2,745 $ 14,326 $ (4,516) $ 167,841
========== ======== =========== ============ ==========
Income from operations $ 31,883 $ 23 $ 2,648 $ (8,985) $ 25,569
========== ======== ========== ========== ==========
Long-lived assets $ 16,267 $ 95 $ 3,364 $ (3,117) $ 16,609
========== ======== ========== ========== ==========
YEAR ENDED JUNE 30, 1997
UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL
------------- ------ ----- ------------ -----
Net sales to unaffiliated entities $ 122,618 $ 2,086 $ 2,672 $ 127,376
Transfers between geographic areas 490 1,621 $ (2,111)
---------- -------- ---------- ---------- ---------
Net sales $ 123,108 $ 2,086 $ 4,293 $ (2,111) $ 127,376
========== ======== ========== ========== =========
Income from operations $ 23,927 $ 24 $ 1,810 $ (6,412) $ 19,349
========== ======== ========== ========== =========
Long-lived assets $ 8,688 $ 157 $ 4 $ (61) $ 8,826
========== ======== ========= ========== =========
</TABLE>
22. CONTINGENCIES
In September 1999, two purported securities class action lawsuits were
filed in the United States District Court for the Central District California
against the Company and certain of its officers and directors. The complaints
allege that the Company violated Section 10(b) of the Securities Exchange Act
and Rule 10b-5 thereunder through the misstatement of the Company's financial
results of operations for the first through third quarters of fiscal 1999. These
alleged misstatements purportetdly consisted of improper accounting for
manufacturing variances and other costs. The plaintiffs in both actions purport
to represent a class consisting of all purchasers of the Company's Common Stock
between October 20, 1998 and August 31, 1999. The plaintiffs are seeking
unspecified compensatory damages.
The Company expects that these actions will be consolidated into a
single action, that a lead plaintiff will be appointed, and that a consolidated
amended complaint will be filed. None of these events has yet taken place. There
has been no discovery in any of the actions. Based on the allegations and the
issues raised by the current complaint, the Company believes it has meritorious
defenses to the actions and intends to defend them vigorously.
The Company is not a party to any other litigation that, in the opinion
of management, would reasonably be expected to have a materially adverse effect
on the consolidated financial statements.
23. SUPPLEMENTAL CASH FLOW INFORMATION
DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1999 1998 1997
------------ ----------- -------------
Cash paid for:
<S> <C> <C> <C>
Interest....................... $ 4,944 $ 91 $ 130
Income taxes $ 1,488 $ 8,862 $ 6,026
</TABLE>
During the year ended June 30, 1999, the net cash expended by the
Company in its acquisition of Filofax was used as follows (in thousands) (See
Note 2):
Fair value of assets acquired $ (117,203)
Liabilities assumed 29,186
-----------
Cash paid $ (88,017)
===========
During the year ended June 30, 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 2):
Fair value of assets acquired $ (11,809)
Liabilities assumed 7,183
-----------
Cash paid $ (4,626)
===========
During the year ended June 30, 1999, the Company purchased 703,308
shares of Filofax's outstanding common stock by issuing (pound)1,477,000 (US
$2,328,000) in Loan Notes (see Note 8) to former shareholders of Filofax.
The Company realized a reduction in its current income tax liability
during fiscal 1999, 1998 and 1997 in the amount of $20,000, $5,208,000 and
$157,000, respectively. Such amounts were credited to additional paid-in capital
(see Note 12).
<PAGE>
INDEPENDENT AUDITORS' REPORT
Day Runner, Inc.:
We have audited the consolidated financial statements of Day Runner, Inc. and
its subsidiaries as of June 30, 1999 and 1998, and for each of the three years
in the period ended June 30, 1999, and have issued our report thereon dated
October 12, 1999; 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
October 12, 1999
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, FILOFAX CHARGED TO JUNE 30,
CLASSIFICATION 1998 ACQUISITION OPERATIONS DEDUCTIONS 1999
- -------------- ---------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and
sales returns and other allowances...... $ 9,942 $ 1,580 $ 19,039 $(19,080) $ 11,481
Reserve for obsolete inventories........... 3,052 4,782 4,286 (2,385) 9,735
BALANCE AT BALANCE AT
JUNE 30, CHARGED TO JUNE 30,
CLASSIFICATION 1997 OPERATIONS DEDUCTIONS 1998
- -------------- ---------------- ---------- ---------- ---------
Allowance for doubtful accounts and
sales returns and other allowances...... $ 8,664 $ 9,799 $( 8,521) $ 9,942
Reserve for obsolete inventories........... 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 and
sales returns and other allowances...... $ 7,374 $ 14,264 $( 12,974) $ 8,664
Reserve for obsolete inventories........... 3,473 1,267 (1,481) 3,259
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.15 Lease Agreement dated as of April 2, 1999 between Mrs.
Refugio Victoria Geffroy De Flourie and Mr. David
Bramzon Stengel and the Registrant(7)
10.20 First Amendment to Consulting Agreement effective April 22,
1999 between the Registrant and Alan R. Rachlin(7)
10.21 Consulting Agreement effective May 22, 1999 between the
Registrant and Mr. Alan R. Rachlin(17)
10.23 Amended and Restated Loan Agreement dated as of September
30, 1999 among the Registrant, Day Runner UK plc, Filofax
Limited, the Lenders named therein and Wells Fargo Bank
National Association, including Revolving and Term
Loan Notes.
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
LEASE AGREEMENT ENTERED INTO BY AND BETWEEN MRS. REFUGIO VICTORIA GEFFROY
DE FLOURIE IN HER PERSONAL CAPACITY AS ATHE COMMON REPRESENTATIVE FOR HERSELF
AND FOR MR. DAVID BRAMZON STENGEL AND ARE (HEREINAFTER REFERRED TO AS THE
LESSOR), AND BOTH DAYRUNNER, INC. AND DAYRUNNER DE MEXICO, S.A. DE C.V.
(HEREINAFTER REFEREED TO AS THE LESSEES), REPRESENTED RESPECTIVELY BY MESSRS.
JOHN KIRKLAND AND JOSE ANGEL AGUAYO RAMIREZ PURSUANT TO THE FOLLOWING RECITALS
AND CLAUSES.
R E C I T A L S
I. LESSORS COMMON REPRESENTATIVE hereby states that:
B. That she and her co-owner are the owners and can freely dispose of a
plot of land identified as lot 9-A of block 352, in Parque Industrial La Joya,
in Tijuana, Baja California, as evidence with public Instrument number 7826,
dated March 18th., 1999, which was granted before Notary Public No. 12 for the
City of Tijuana, and which document is in the process of being recorded before
the Tijuana offices of the Public Registry of the Property and Commerce, with an
area of approximately 21,019.03 square meters (hereinafter referred to as the
Real Property). A drawing which shows the exact location as well as a
description of the referred piece of Real Property is attached hereto as Exhibit
B and shall henceforth be an integral part of this Agreement.
C. She and her co-owner have obtained official documentation from the
competent authorities to define the industrial use of the Leased Premises.
D. The Real Property has access to water, sewer, electric, public lighting,
and telephone capacity to support the requirements of LESSEES.
E. For purposes of this Agreement, her principal address is Boulevard
Pacifico #14533, Parque Industrial Pacifico, Tijuana, Baja California
F. She and her co-owner are willing to perform on the Real Property,
certain improvements as hereinafter defined in Section 2 below, and lease such
Real Property and Improvements (collectively the LEASED PREMISES).
G. The Leased Premises is free and clear of any liens, encumbrances, and
any other limitations of domain, except for easements, covenants and other
restrictions or utility easements, as may be defined in the final official
version of the subdivision map, and as shown on Exhibit B.
H. She has the authority to enter into this Agreement in her capacity as
Lessors Common Representative as evidenced in the Public Instrument referred to
in Item b) above, which authority has not been revoked or limited.
I. She and her co-owner are willing to lease the LEASED PREMISES to the
LESSEES, pursuant to the terms and conditions of this Agreement.
655352 LESSEES hereby state that:
A. DAYRUNNER DE MEXICO, S.A. DE C.V. is a corporation duly organized and
existing according to the Laws of the Mexican Republic. As evidenced by Deed No.
1459, dated May 2, 1991, granted before Mr. Lic. Marco Antonio Mayo Barron,
Notary Public No. 11 for the City of Tijuana. A copy of which is attached as
Exhibit C.
B. Mr. Jose Angel Aguayo Ramirez ,evidences to by duly authorized to
execute this agreement through the public deed which is referred to in the
preceding paragraph, and further states that such authority has not been limited
or revoked in any manner whatsoever.
C. DAYRUNNER, INC., is a corporation duly organized and existing pursuant
to the Laws of the State of Delaware, U.S.A.
D. Mr. John Kirkland, evidences to be duly authorized to execute this
agreement in his capacity as a Vice President, a corporate officer, and further
states that such authority has not been limited or revoked in any manner
whatsoever.
E. Said parties wish to lease from the LESSOR the LEASED PREMISES pursuant
to the terms and conditions hereunder.
IN VIEW OF THE FOREGOING, the parties hereto agree as follows:
C L A U S E S
FIRST. LEASE AND DELIVERY.
The LESSOR hereby leases to the LESSEES and the LESSEES hereby lease from LESSOR
the LEASED PREMISES referred to in I.A. above, which are located at Boulevard La
Joya # 35208, Parque Industrial La Joya, Tijuana, B.C., Mexico, and described in
Exhibit B hereto.
SECOND. IMPROVEMENTS.
2.1 LESSOR, at LESSORS own cost and expense shall perform all work, provide
all labor, furnish all new materials, and obtain all certificates and
permits necessary to construct an industrial facility with an area of
approximately 70,000 square feet on the LEASED PREMISES (hereinafter
LESSORS Improvements or Improvements) in accordance with the
preliminary drawings, specifications, schedule of work and construction
terms, (collectively the Drawings and Specifications) set forth by the
parties and attached hereto as Exhibit D. The parties agree that within
a term of 30 days as of the date hereof, a final set of drawings and
specifications shall be submitted by LESSOR to LESSEES for final
approval and to be ultimately attached here as Exhibit D.
2.2 By approval of the Drawings and Specifications, LESSEES shall not be
liable for the technical compliance of any of the terms and
specifications set forth in Exhibit D hereto. The approval by LESSEES
is for general arrangement only, unless otherwise noted, and does no
relieve LESSOR of full responsibility for the proper and correct
design, construction and erection of the improvements as required.
2.3 LESSOR will perform all construction with respect to LESSORS
improvements in accordance with all laws, ordinances, regulations, and
orders of government authorities, and Park regulations which are
attached hereto as Exhibit E. LESSOR shall indemnify and hold harmless
LESSEES from any and all claims, assessments by government authorities,
including but not limited, to Social Security Institute Workers,
Housing Institute and Tax Authorities, as well as from damages and cost
resulting from or arising out the LESSORs lack of performance of any of
its obligations for construction improvements, fixtures, machinery and
equipment to the Leased Premises required hereunder.
2.4 LESSOR acknowledges and agrees that LESSEES may request changes in the
design and specifications of the Improvements, provided such changes do
not affect the cost thereof or the work schedule for construction of
same. In the event such changes affect the cost of the Improvements or
the work schedule, LESSOR and LESSEES shall jointly determine the
effects of the change in cost and any extension to such schedule.
2.5 LESSOR shall diligently complete the Improvements on the Leased
Premises, in accordance with the Drawings and Specifications, in order
that LESSEES may use and occupy such Improvements pursuant to the
following schedule:
21 Beneficial Occupancy of Leased Premises: March 31, 1999
22 Final Occupancy of the Leased Premises: April 7, 1999
For the purposes hereof, Beneficial and Financial Occupancy shall be
defined as follows:
Beneficial Occupancy.- Shall be defined as the delivery to LESSEE of
the manufacturing portion of the Improvements including walls, roof, doors,
floor, slabs, docks and interior paint, in order that LESSEES may move their
equipment into the Leased Premises and begin construction of certain
Improvements, and that such equipment and any of LESSEES Improvements that may
be installed, be secured and not be damaged by weather or the process of
construction.
Final Occupancy.- Shall be defined as the substantial completion of all
works and interior finishing of the industrial and office areas of the
Improvements and all exterior and infrastructure Improvements to permit LESSEES
to commence utilization of the Leased Premises and all Improvements of the
unencumbered conduct of its business, excluding non functional minor cosmetic
items, or a punch list of items not to exceed a total construction cost of US
$50,000.00Dollars of the Improvements established pursuant to
Exhibit D. In the event cost of construction of punch list items exceed the
amount of US$50,000.00 Dollars, final occupancy date shall be deferred in
accordance with following Section 2.8.
2.6 At all times following the execution of this Lease Agreement, LESSEES
and/or its representative shall have the right to enter the Leased
Premises to inspect the progress of construction of the Improvements,
and LESSOR shall place the construction log and any construction
reports available at the disposal of LESSEES and/or its representative,
in order that LESSEES and/or its representatives may be continuously
appraised of construction of the Improvements.
2.7 Should LESSOR fail to conclude construction of the initial Improvements
in order that LESSEES may occupy the Leased Premises on the date of
Beneficial Occupancy set forth herein above LESSEES shall be entitled
to receive as liquidated damages the abatement of one day of rent for
each calendar day (one to one) the initial Improvements are not
concluded pursuant to Exhibit D and 2.5B hereof, which define the
Improvements to be completed as date. This abatement shall apply
towards the first, and if applicable, following months of which LESSEES
commences to effect rental payments as set forth herein.
2.8 Furthermore, should LESSOR fail to complete construction of the
Improvements pursuant to Exhibit D on or before the date of Final
Occupancy of the Leased Premises, LESSEES shall jointly be entitled to
receive as liquidated damages the amount corresponding to two days rent
for each calendar day (two to one) of delay following the projected
date of Final Occupancy. Provided, however should construction of the
improvements be stopped or suspended for any reason included but not
limited to the lack of permits and/or authorization from the competent
authorities, for a term of thirty or more cumulative calendar days,
then, LESSEES, at their joint option, may either terminate this
agreement and LESSOR agrees to immediately reimburse LESSEES all
security deposits and/ or advanced rent that LESSEES might have
delivered to LESSOR to such date under the terms of this Agreement,
such amount shall generate interest at the yearly rate of 18%, until
total and complete reimbursement to LESSEES, or defer occupancy. Any
abatement hereunder shall apply towards the first, and if applicable,
following months on which LESSEES commence to effect rental payments as
set forth herein. The parties acknowledge and agree that the date of
Final Occupancy shall be extended for a term equivalent to delays
solely attributable to LESSEES or LESSEES contractors or
subcontractors, acts of God, inclement weather or force majeure.
THIRD. OCCUPANCY BY LESSEES.
LESSEES shall use the LEASED PREMISES for industrial purposes in accordance with
its corporate purposes, subject to the provisions that regulate the land use and
the ecology.
In view of the foregoing.
3.1 LESSEES may, at their respective risk and expense, install in the
LEASED PREMISES such fixtures, equipment and furniture as they may deem
necessary, provided, that such items are installed and are removed
without damage to the LEASED PREMISES.
3.2 LESSEES shall repair all damages caused to the LEASED PREMISES during
the installation or removal of the fixtures, equipment and furniture
mentioned in the preceding paragraph.
3.3 LESSEES shall perform the installation or removal of their equipment
and furniture in accordance with all applicable laws, ordinances, and
regulations, being liable for any violations thereto.
3.4 The LESSEES agree to retrieve such fixtures, equipment and/or furniture
they may have installed in the LEASED PREMISES on or before the date of
termination of this lease. Should the LESSEES fail to retrieve such
fixtures, equipment and/or furniture form the LEASED PREMISES as
provided above, the LESSOR shall be entitled to either retrieve such
fixtures, equipment, furniture and/or improvements from the LEASED
PREMISES at the LESSEES risk and expense, or deem that said fixtures,
equipment and/or furniture have been left in the LEASED PREMISES by the
LESSEES to gratuitously inure in favor of the LESSOR. For purposes
hereof, the LESSEES acknowledge that none of such fixtures, equipment
and or furniture are to be construed as useful improvements to the
LEASED PREMISES.
3.5 LESSEES may not modify the basic structure, facade or basic public
services of the LEASED PREMISES, nor may they perform any improvements
or make alterations to the base structure without the LESSORs prior
written consent.
FOURTH.- TERM OF THE LEASE AND DELIVERY OF THE LEASED PREMISES.
4.1 The term of this lease shall be for a period of seven (7) years binding
for LESSEES and LESSOR, unless extended pursuant to the provisions
hereof, (hereinafter the Initial Lease Term or the Initial Term of this
Lease). The term of this Lease shall commence as of thirty (30) days
after the date (hereinafter) the Lease Commencement Date) of Final
Occupancy, which shall be the date of acceptance of the Improvements by
LESSEES. It is contemplated that such Final Occupancy shall occur on
April 7, 1999 or afterwards as the case may be under the terms of
Section 2.8. above.
4.2 Rent Commencement Date: The first months rent shall be due thirty (30)
days after Final Occupancy. All adjustments to the rent as per Sections
5.4 and 5.5 below shall occur on the anniversary of the Lease
Commencement Date.
4.3 LESSEES shall have access to the Leased Premises as of March 31, 1999.
4.4 Notwithstanding the provision of paragraph 2.5 above, LESSOR expressly
acknowledges and agrees that LESSEES may enter into the Leased Premises
at any time during construction of the Improvements with the purpose of
making initial installation of LESSEES Improvements, in accordance with
the schedule of work and provided it does not thereby unreasonably
interfere with LESSOR construction of the Improvements. It is further
understood that LESSEES entrance into the Leased Premises at any time
prior to LESSEES issuance of a certification of Final Occupancy
pursuant to Section 2.5B, shall at no time to be construed as LESSEES
acceptance of all or any part of the Improvements.
4.5 This lease shall be automatically extended for two (2) additional five
(5) year term, unless either of the LESSEES informs the LESSOR
otherwise, in writing and at least 180 (One hundred and Eighty) days
before the end of the original term or of any of its extensions, of
their intent of terminating this agreement on such original date of
termination or on the date of termination of any such extension.
FIFTH. RENT.
5.1 From the RENT COMMENCEMENT DATE, and payable in advance during the
first 5 (five) days of each month the LESSEES shall pay to the LESSORs
designated COMMON REPRESENTATIVE, as monthly rent, at its address or
any other address as instructed by the LESSOR or its assignee, as the
case may be the amount of $30,800.00 Dollars (Thirty Thousand Eight
Hundred Dollars and 00/100 U.S. Cy.) or its equivalent in Mexican
Currency.
Prior to the RENT COMMENCEMENT DATE, LESSOR shall provide either of
LESSEES with unanimous written instructions by all parties representing
said LESSOR, attesting to their willingness to have their COMMON
REPRESENTATIVE 1.- collect any and all rental proceeds, specifically to
include Added Value Taxes, and to 2.- issue the corresponding Mexican
tax deductible receipt for all proceeds received of LESSEES. Should
LESSORS wish to implement different payment instructions than the
foregoing, they shall so advise LESSEES in writing, whereupon no change
shall take force until duly confirmed in writing by either of LESSEES,
it being further understood that the absence of LESSORs written
instructions in such regard shall result in LESSEES deposit of rental
proceeds before the Tijuana Civil Courts, as allowed under Law.
5.2 If the RENT COMMENCEMENT DATE of this Lease is a day other than the
first day of a calender month, the amount of this first monthly rental
payment which is equal to the pro rata portion of the first calendar
month that the Leased Premises will have been occupied by LESSEES; and
the amount of the final rental payment hereunder shall be that pro rata
portion of the usual monthly rental payment which is equal to the pro
rata portion of the last calendar month during which this Lease shall
be in effect.
5.3 For purposes of calculating the monthly rent, the parties shall use the
highest rate of exchange for sale quoted by Banco Nacional de Mexico,
Bancomer, and Banca Serfin, on the day of payment or on the immediately
preceding business day in case the day of payment is a holiday for the
banking institutions of Mexico.
5.4 As of the second year of this lease, the monthly rent shall be
$31,724.00 (Thirty One Thousand Seven Hundred Four Dollars and 00/100
U.S. Cy.). As of the third year of the lease, the monthly rent shall be
$32,675.75 (Thirty Two Thousand Six Hundred Seventy Five Dollars and
75/100 U.S. Cy.). As the fourth year of the lease, the monthly rent
shall be $33,656.00 (Thirty Three Thousand Six Hundred Fifty Six
Dollars and 00/100 U.S. Cy.). As of the fifth year of the lease, the
monthly rent shall be $34,665.68 (Thirty Four Thousand Six Hundred
Sixty Five Dollars and 68/100 U.S Cy.). As of the sixth year of the
lease, the monthly rent shall be $35,705/65 (Thirty Five Thousand Seven
Hundred Five Dollars and 65/100 U.S. Cy). As of the seventh year of the
lease, the monthly rent shall be $36,776.82 (Thirty Six Thousand Seven
Hundred Seventy Six Dollars and 82/100 U.S. Cy).
5.5 As of year eight, the then monthly rent shall revert to $34,665.68
(Thirty Four Thousand Six Hundred Sixty Five Dollars and 68/100 U.S.
Cy.). In years nine through twelve there will be a 3% annual increase
in the rental rate.
5.6 As of year thirteen, the then monthly rent shall revert to $34,665.68
(Thirty Four Thousand Six Hundred Sixty Five Dollars and 68/100 U.C.
Cy.), and for each subsequent year there will be a 3% annual increase
in the rent rate.
5.7 In case of late payment, the LESSEES agree to pay the LESSOR liquidated
damages at a rate of 1.5% (One point five percent) per month.
SIXTH. INSURANCE.
6.1 During the life of this agreement, the LESSEES, shall obtain and
maintain in full force and effect, the following insurance policies:
6.1.1. Insurance to cover the LESSEES and the LESSOR against any
civil liability claims, demands, lawsuits or actions, or
against the accidents or death of any person, or from any
damages to the goods of any third party in connection with the
use by the LESSEES of the LEASED PREMISES. The corresponding
insurance policy shall cover an insurable value of at least
$100,000.00 dollars (One Hundred Thousand Dollars and 00/100
U.S. Cy.).
6.1.2 Insurance in favor of the LESSOR which shall cover the
LEASED PREMISES against fire, lightning, explosion, falling
aircraft collision, smoke, storms, hail, vehicle damage,
earthquakes, volcanic eruption, strikes, riots,civil commotion,
vandalism, flood, and/or any others risks covered under the so
called extended coverage (including windows and gas tanks).
In view of the foregoing, LESSEES hereby waive any right to
demand payment from the LESSOR for damages caused by fire,
explosion and other unforeseen events,save for LESSOR-generated
or LESSOR-caused acts of negligence or wilful misconduct. The
corresponding insurance policy shall cover an insurable value
of $1,400,000.00 Dollars (One Million Four Hundred Thousand
Dollars 00/100 U.S. Cy.).
6.2 The insurance policies referred to in paragraph 6.1. above shall be
obtained with any insurance company authorized to do business in Mexico
acceptable to the LESSOR. Likewise, the policies shall provide that the
same may not be amended without the prior written authorization of the
LESSOR. Additionally, said insurance policies shall provide that they
shall not be subject to cancellation or change, except after at least
30 (thirty) days written notice to the LESSOR.
6.3 The minimum coverages mentioned in paragraph 6.1.1 and 6.1.2 above
shall be annually increased at a rate of 3% per annum.
SEVENTH. TAXES AND COSTS.
7.1 The LESSOR shall be responsible of payment of the income and assets
taxes to which it is obligated. On its part, the LESSEES shall be
responsible for the payment of the property taxes, the I.V.A. tax and
any other taxes which may be levied upon the LEASED PREMISES, or which
may derive from this agreement or from the use of the same by the
LESSEES. LESSEES shall submit to the LESSOR a copy of the corresponding
tax receipts at least 10 (ten) days before said taxes become due. The
property taxes shall have a cap of 5% per year of increase for which
the LESSEES are liable, any increase above this amount shall be
responsibility of the LESSOR.
EIGHTH.- REPAIRS AND MAINTENANCE.
8.1. LESSOR
8.1.1. After written notice from the LESSEES, the LESSOR shall repair
the structural defects of the exterior walls, roof, hidden
plumbing, main sewer line, floor and any roof leaks not caused
by LESSEES and other structural items of the LEASED PREMISES
caused as a consequence of the normal use of the same. The
parties further agree that: 1.- the repair of such structural
defects, and 2.- repairs covered through LESSEE-financed
or generated insurance proceeds pursuant to Section 6.1.2.
above, shall be deemed as the only necessary repairs for which
the LESSOR shall be responsible hereunder. Notwithstanding
the foregoing, the LESSOR shall not be responsible for repairs
of the LEASED PREMISES, unless the LESSEES so inform said
LESSOR in writing within three (3) business days after the
LESSEES notice the damage. LESSOR shall proceed diligently
to make such repairs as soon as practically possible and shall
continue to do so until the same are completed.
8.1.2 The LESSOR shall not be responsible, nor have the obligation
to repair the damages caused by the LESSEES negligence, or
that of LESSEES workers, clients, contractors, or guests
shall not be responsible, nor have the obligation to repair
the damages caused by the LESSEES negligence, or that of
LESSEES workers, clients, contractors, or guests.
8.2. LESSEES
8.2.1. LESSEES shall be responsible for repairs to damages sustained
to the LEASED PREMISES, other than: those described in clause
8.1.1. herein above. The damages referred to in this paragraph
include but are not limited to, the damages to and maintenance
of plumbing systems, sewage, telephone, gas as well as for the
equipment, interior walls, interior and exterior painting,
floor slab, ceilings, air conditioning and ventilation systems
and appliances, heaters, doors and windows, glass,docks, docks
levels, landscaping, lighting, electrical, etc., of the LEASED
PREMISES, and in general, everything not considered a
structural repair under clause 8.1.1. above. Likewise LESSEES
shall repair all kinds of leaks and gutter malfunctions if
caused by LESSEES. All repairs made by LESSEES must be equal
in quality and kind to the original work. All expenses
resulting out of disregarding or negligence to the LEASED
PREMISES solely by LESSEES, their employees, agents or guests,
or a violation of LESSEES obligations hereunder, shall be
borne by said LESSEES.
8.2.2 The LESSEES shall maintain the LEASED PREMISES and its
improvements free from any liens. LESSEES shall maintain all
parts of the Leased Premises in a neat, clean and orderly
condition, free of garbage, debris and illegal materials.
NINTH.- LIMITATION OF LIABILITY AND INDEMNIFICATION.
9.1 Except for intentional or negligent acts or omissions of LESSOR, or
that of LESSORs agents or employees, the LESSOR shall not be liable to
LESSEES or to any other person whatsoever for any loss or damage of any
kind of nature caused by LESSEES intentional or negligent acts or
omissions, or that of other occupants of the Industrial Park or of
adjacent property, or the public, or other causes beyond the control of
the LESSOR, including, but no limited to failure to furnish or any
interruption of any utility or other services in or about the LEASED
PREMISES.
LESSEES recognize that additions, replacements and repair to the
Industrial Park may be made from time to time. Accordingly, LESSOR
shall make its best efforts to keep interferences at a minimum, and,
where same comprise or require efforts over a period anticipated to
exceed forty eight (48) hours, shall require prior notice to LESSEES
and reasonable accommodation by LESSOR to provide alternative vehicle
access to the Leased Premises for such period.
9.2. If the LESSOR or LESSEES are held responsible for any obligation
undertaken by the other, both parties agree to indemnify and hold the
other harmless from any and all claims for damages or losses of any
kind, arising from negligent acts or omission of either party or its
contractors, licensees, agents, invitees, or employees, or arising from
any accident, injury or damages whatsoever caused to any person or
property occurring in or about the LEASED PREMISES, or the areas
adjoining said LEASED PREMISES and against all cost and expense,
including attorneys fees, incurred thereby, and to restore or reimburse
any all such cost and expenses to the other party.
TENTH.- UTILITY SERVICES.
LESSEES agrees to request directly from the corresponding utility companies that
the public services that said LESSEES may need be rendered by such companies,
and shall promptly pay for any and all utilities, capacity charges and related
services furnished on LESSEES behalf in the LEASED PREMISES, including but not
limited to water, gas, electricity, and telephone charges. A complete list of
utility services available in the Industrial Park and those utilities and
improvements being supplied by the LESSOR to LESSEES to the Leased Premises are
hereby attached as Exhibit G.
ELEVENTH.- ASSIGNMENT AND SUBLETTING.
11.1 The LESSEES may not assign their joint rights and obligations under
this agreement, nor may they sublet the LEASED PREMISES unless they
obtain LESSORS prior written authorization; which authorization shall
not be unreasonably withheld.
11.2 The LESSOR shall be entitled to assign, in whole or in part, its,
rights and obligations under this agreement. Consequently, the LESSEES
hereby grants authorization to the LESSOR so that the latter may
formalize the assignments which it may deem appropriate. Likewise,
LESSOR shall be expressly entitled to guarantee any of its present or
future obligations with its rights under this agreement.
TWELFTH.- RENT WITHHOLDING.
The LESSEES hereby waive any right to withhold any rental payments. Accordingly,
the LESSEES shall deliver in a timely fashion, and under the terms hereunder,
any and all amounts to which the LESSOR may be entitled to, thus agreeing to
assert any claim, demand, or other right against the LESSOR only by an
independent proceeding.
THIRTEENTH.- ACCESS TO THE LEASED PREMISES.
13.1 The LESSOR or its authorized representatives shall have the right to
enter the LEASED PREMISES during all of LESSEES business hours, and in
emergencies at all times, to make repairs, additions, or alterations to
the LEASED PREMISES which it may be authorized or obligated to do under
this agreement, but only after proper written notice from LESSEES of
such emergency or situation.
13.2 LESSOR shall have the right to show the LEASED PREMISES to any
prospective clients. Likewise LESSOR shall have the right to post those
signs which it may deem appropriate on the facade of the LEASED
PREMISES in order to promote its future rental, only upon written
notification from LESSEES of said parties intent to terminate the Lease
Agreement.
13.3 Except in case of emergency, the LESSOR shall give notice to the
LESSEES before entering the LEASED PREMISES, and the LESSEES shall have
the ongoing right to escort any representative of the LESSOR and
prospective clients.
FOURTEENTH.- DAMAGE OR DESTRUCTION.
14.1 TOTAL
In the event the whole or substantial part of the LEASED PREMISES are
damaged or destroyed so as to impede the LESSEES operations for the
purposes for which the same where leased, LESSOR shall, within 10 (ten)
days from such destruction, determine whether the LEASED PREMISES can
be restored within the following 4 (four) months and notify the LESSEES
of such determination. If the LESSOR determines that the LEASED
PREMISES cannot be restored within the following 4 (four) months,
either the LESSOR or the LESSEES shall have the right and option to
immediately terminate this Lease Agreement by means of a written notice
to the other party. If the LESSOR determines that the LEASED PREMISES
can be restored within said 4 (four) month period, the LESSOR shall, at
its own expense, proceed diligently to rebuild the LEASED PREMISES,
waiving any right to receive rental payments while the LEASED PREMISES
are being rebuilt.
14.2 PARTIAL.
In the event the referred damages do not prevent the LESSEES, in a
substantial way from continuing the normal operation of its business on
the LEASED PREMISES, the LESSOR or the LESSEES, as the case may be,
shall repair said damages under the terms of clause SEVENTH above. In
said case the rent hereunder shall be abated according to the actual
square footage occupied by the LESSEES during the reconstruction phase.
Should there be any dispute as to the actual space occupied by the
LESSEES the parties agree to submit the same before a licensed civil
engineer, to be jointly determined by LESSOR and LESSEES, and in lieu
of an agreement thereof, before a civil engineer selected by the citys
private Civil Engineers Board (Colegio de Ingenieros Civiles).
14.3 If the damage in question is caused by a negligent or willful act of
the LESSEES or their employees, the LESSEES agree to punctually pay the
rent hereunder (provided that all LESSEE-generated insurance proceeds
are fully applied pursuant to sections 6.1.2, and 14.1 above).
FIFTEENTH.- CONDEMNATION.
15.1 In the event the whole or a portion of the LEASED PREMISES is taken by
expropriation, for any public or quasi-public use or purposes, this
Lease shall terminate and conclude on the date that the possession is
taken by the condemnor.
15.2 Taking by condemnation or eminent domain shall include: the exercise of
any similar government power and sale and purchase or other disposition
of the LEASED PREMISES in Mexican Law, regulation or governmental order
which physically prevents LESSEES from using all or part of the LEASED
PREMISES.
SIXTEENTH.- CERTIFICATES.
The parties shall, within (10) days of receipt of a written request made by
eachother, deliver a statement in writing, certifying that this Lease Agreement
is unmodified and in full force and effect, (or if there have been modifications
that the same are in full force and effect, as modified); the dates to which the
rent and any other charges have been paid in advance and that LESSOR-built or
LESSEE-built Improvements have been satisfactorily completed. It is intended
that any such statement may be relied upon by any person, prospective purchaser
or lending institution interested in either the LEASED PREMISES, or in the
parties respective interests or assets.
SEVENTEENTH.- COVENANTS AND PARK RESTRICITONS.
17.1 The LESSEES agree to be bound by the terms and conditions of the
covenants and restrictions of Parque Industrial La Joya, which are
attached hereto as Exhibit E and form an integral part of this
agreement. The parties agree that any subsequent changes will not apply
to LESSEES or to this agreement, unless accepted by the latter in
writing. In addition LESSOR and LESSEES agree that a variance has been
granted in regards to sections 4, 5 and 6, of the above mentioned CC&Rs
to enable the building, subject of this lease agreement to be
constructed as per the attached plans and specifications.
17.2 Accordingly, the LESSEES agree to pay in advance to the LESSOR in a
semiannual basis the maintenance fee provided for in the covenants and
restrictions of Parque Industrial La Joya, according to the total area
of the land (Phase I) where the LEASED PREMISES are built at a maximum
rate of $0.50 (Fifty cents U.S.
Cy.) Per square meter per year.
17.3 LESSEES shall not pay the aforementioned maintenance fees for one (1)
year as of the date of Final Occupancy. The maintenance fee shall then
be charged on the first phase of land expansion approximately 18,336
square meters.
EIGHTEENTH. DEPOSITS.
18.1 LESSOR hereby acknowledges to have received from LESSEES, as deposit,
the amount of $123,200.00 Dollars (One Hundred Twenty Three Thousand
Two Hundred Dollars 00/100 U.S. Cy.), in order to guarantee its
obligations hereunder. Said deposit shall be retained as follows: Two
(2) months rent or $61,600.00 Dollars (Sixty One Thousand Six Hundred
Dollars 00/100 U.S. Cy.), to be held as a refundable security deposit
and to be reimbursed to the LESSEES, without interest after the LESSOR
carries out an inspection of the conditions under which the LEASED
PREMISES are returned, normal wear and tear excluded. The remaining two
(2) months rent to be credited equally through the first twelve (12)
months of rental payments.
18.2 In case of early termination for any cause attributable to the LESSEES
default, the LESSOR shall be entitled to keep any amounts delivered to
said LESSOR as prepaid rent or deposit, regardless of any other rights
to which the LESSOR may be entitled to.
NINETEENTH. NOTICES.
19.1 Any notice to be given to the LESSOR under this agreement shall be sent
to the address mentioned in recital I.C. or to such other addresses
which may from time to time be notified by the LESSOR to the LESSEES.
19.2 Any notice to be given to the LESSEES under this agreement shall be
addressed to the LEASED PREMISES.
19.3 Said notice shall be in writing, and shall be delivered personally to
the legal representative of the party in question, or sent by certified
mail, postage prepaid to the addressed mentioned above, in which case
the corresponding notice shall be deemed delivered 14 (fourteen) days
after the date of mailing thereof.
TWENTIETH.- LESSEES=S DEFAULT.
20.1 Each of the following shall be a default of the LESSEES and LESSOR
shall provide written notice to LESSEES informing them of said default.
Upon written notification from LESSOR, LESSEES shall have 30 days to
cure the default:
20.1.1 In case the LESSEES fail to surrender the LEASED
PREMISES upon the expiration of the term indicated in
clause THIRD above.
20.1.2 The LESSEES failure to pay any monthly rent due and
payable hereunder.
20.1.3 Default in the performance of any of the LESSEES
covenants, agreements or obligations hereunder.
20.1.4 The filing of a petition of bankruptcy against the
LESSEES, said petition remaining undischarged for a
period of 90 (ninety) days.
20.1.5 In case of an attachment, execution or other judicial
seizure of substantial part of LESSEES assets, with a
minimum dollar value of Five Hundred Thousand Dollars
($500,000), such attachment, execution or other
seizure remaining undismissed or undischarged for a
period of 30 (thirty) days after the levy thereof.
20.1.6 In case of the appointment of a trustee or receiver
to take possession of all or substantially all of
LESSEES assets.
20.2 Upon occurrence of any one of the foregoing LESSEES defaults, LESSOR
shall have the right, at its option and in addition to other rights or
remedies granted by law, including the right to claim damage, to do
either of the following:
20.2.1. Immediately rescind this Lease Agreement and eject
LESSEES from the LEASED PREMISES. Should LESSOR
initiate any action to terminate this agreement,
LESSEES shall reimburse the LESSOR any costs related
to the LESSEES vacancy of the LEASED PREMISES in
the understanding that if the LESSEES fail to vacate
the LEASED PREMISES, and starting on the date on
which the corresponding action is filed, the LESSEES
shall pay to the LESSOR, as liquidated damages, a
monthly amount equal to 150% (One Hundred Fifty
percent) of the monthly rent in force on the
date on which said action may be initiated or that
in force prior to the termination of the agreement.
The LESSEES acknowledges that this provision shall
not be construed as an authorization to occupy the
LEASED PREMISES beyond the term set forth herein.
20.2.2 Claim specific performance after sixty (60) days
of continuing default. In the case of default as
specified above exceeding sixty (60) days of LESSORs
written notification, LESSOR shall, in addition to
all other remedies, have the right to declare and
collect the entire unpaid balance of rent to the end
of the last year of the existing Lease Term or
extension thereof then in effect and also declare all
other sums due to LESSOR, immediately due and
payable, plus interest at the rate of eighteen
percent (18%) per annum on said sums form the date of
such declaration until paid in full.
In the event that the LEASED PREMISES covered under
this Lease Agreement are leased to another tenant
during the remainder of the initial term or extension
thereof, and the LESSEES prepays the rental unpaid
balance as a result of this clause, LESSOR shall
promptly refund to LESSEES, in monthly installments
that portion of rent paid by LESSEES pursuant to this
paragraph which is allocable to the period of the
Lease Term during which the LEASED PREMISES was
leased to another tenant of otherwise used in a
beneficial manner as well as any other allocable sums
paid by LESSEES to LESSOR, less any loss o damage
incurred by LESSOR as a result of LESSEES default.
TWENTY FIRST.- MISCELLANEOUS.
21.1 In case any party fails to execute any action against the other as to
protect a certain right under this agreement, said failure shall not be
construed as a waiver of any other rights derived herefrom.
21.2 This agreement may only be modified by written agreement signed by the
authorized representatives of the parties hereto. Furthermore, the
parties agree that the LESSOR shall not have the power to amend this
Lease Agreement so as to reduce the rent, decrease the terms or modify
or negate any substantial obligation without the written consent of
LESSEES. Such obligation shall continue until the LESSEES notify in
writing that the LESSOR has complied with all of LESSORS obligations or
has paid all amounts owed to the abovementioned party, in the
understanding that if the LESSOR fails to obtain the LESSEES approval
to carry out the foregoing, the amendment of the terms and conditions
above mentioned shall have no effect whatsoever against said LESSEES.
21.3 In case any party hereto exercises an action against the other in order
to demand the performance of this agreement, the prevailing party shall
be entitled to reasonable attorneys fees.
21.4 Each party shall execute such further documents as shall be requested
by the other party, but only to the extent that the effect of said
documents is to give legal effect to rights and obligations stated
forth in this Lease Agreement.
21.5 In case any competent court declares that any provision hereunder is
null and void, the remaining clauses shall continue in full effect.
21.6 The parties agree that this Lease Agreement shall governed by the laws
of State of Baja California. For everything pertaining to the
interpretation and compliance of this Lease Agreement the parties
hereby expressly submit to the jurisdiction of the Civil Courts of the
City of Tijuana, Baja California, waiving any other jurisdiction which
might be applicable by reason of their present or future domiciles or
otherwise.
21.7 The parties agree that this Lease Agreement shall be executed in both
Spanish and English versions, whereupon both versions shall constitute
the full agreement between same, to the exclusion of any other
translation or interpretation.
TWENTY SECOND - EXPANSION & IMPROVEMENT OPTIONS.
22.1 The parties agree that there is an area of land directly adjacent (to
the north) of the first phase land expansion. This area is
approximately 5,416 square meters. The LESSEES shall have full use and
enjoyment of this expansion land, free of charge, for the first 24
(twenty four) months of the lease agreement.
22.2 If the LESSEES wish to continue using the aforementioned expansion land
after the free 24 (twenty four) month period, from years 3 through 5,
the LESSEES shall pay rent of $1,800.00 (One Thousand Eight Hundred
Dollars and 00/100) per month. After year 5, the LESSEES can continue
to pay the ground rent herein above mentioned or relinquish the
expansion land to the LESSOR at no penalty or cost.
22.3 The parties agree that upon termination of the initial lease term,
LESSOR shall repaint the exterior of the facility the color of LESSEES
choice.
22.4 The parties agree that upon written notice and approval by LESSEES,
LESSOR shall construct an expansion of the lease premises of
approximately 30,000 square feet of the expansion land. The rent for
the shell facility shall not exceed $0.30 (Thirty Cents) per square
foot per month. There will be additional costs if the LESSEES choose to
add tenant improvements to the facility expansion such as but not
limited to offices, restrooms and cafeteria installations.
22.5 The parties agree that there is a $20,000.00 (Twenty Thousand Dollar)
landscape allowance included in the lease agreement. This allowance is
reserved for landscape improvements within the fenced perimeter of the
facility land area and does not include exterior banks or common areas
which shall be landscaped and maintained by LESSOR.
IN WITNESS WHEREOF, the parties have executed this agreement in the places and
on the dates stared hereinbelow.
LESSORS LESSEE
/s/ Refugio V. Geffroy de Flourie /s/ Jose Angel Aguayo Ramirez
- ------------------------------ -------------------------------
By Common Representative DAYRUNNER DE MEXICO, S.A. DE C.V.
Refugio V. Geffroy de Flourie By: Jose Angel Aguayo Ramirez
Date: 4/2/99 Date: 3/31/99
Place:Tijuana, B.C.
Place: Tijuana, B.C.
LESSEE
/s/ John Kirkland
--------------------
DAYRUNNER, INC,
By Mr. John Kirkland
Date: 4/5/99
Place: Tijuana, B.C.
WITNESS WITNESS
- ----------------------- ---------------------
Exhibits
A: Land Ownership documentation
B: Drawing and description of plot of land
C: Acta Constitutiva of Dayrunner de Mexico
D: Building drawings and specifications
E: Parque Industria La Jollas,-CC&Rs
G: Utilities and tenant improvements list
EXHIBIT 10.20
FIRST AMENDMENT TO
CONSULTING AGREEMENT
THIS FIRST AMENDMENT is entered into by and between Day Runner, Inc., a Delaware
corporation (the "Company"), and Alan R. Rachlin, a resident of Virginia who is
operating a consulting business as a sole proprietorship ("Consultant"), and
shall be effective as of April 21, 1999 (the "Effective Date").
A. The Company and Consultant entered into a consulting agreement
effective as of April 22, 1997 (the "Consulting Agreement"). All capitalized
terms not otherwise defined shall have the meaning set forth in the Consulting
Agreement.
B. The Company and Consultant desire to amend the Consulting Agreement
as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the receipt of which are hereby acknowledged, the Company and
Consultant agree as follows:
1. The Term shall continue through and including May 21, 1999.
2. All other terms and conditions of the Consulting Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Consulting Agreement as of the effective date.
DAY RUNNER, INC. ALAN R. RACHLIN
By: /s/ Mark Vidovich /s/ Alan R. Rachlin
--------------------------- -------------------
Mark Vidovich, Chairman Alan R. Rachlin
EXHIBIT 10.21
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), which includes Exhibit A hereto
which is incorporated herein by this reference, is entered into by and between
DAY RUNNER, INC., a Delaware corporation (the "Company"), and ALAN R. RACHLIN, a
resident of Virginia who is operating a consulting business as a sole
proprietorship ("Consultant"), and shall be effective as of May 22, 1999 (the
"Effective Date").
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the receipt and sufficiency of which are hereby acknowledged, the
Company and Consultant agree as follows:
1. CONSULTANCY. The Company hereby retains Consultant, and Consultant
hereby accepts such retention, upon the terms and subject to the conditions set
forth herein, commencing as of May 22, 1999 and continuing through and including
November 21, 1999 (the "Term"). Consultant shall render such services to the
Company as an independent contractor, and not as an employee, agent, joint
venturer or otherwise. Although Consultant is an attorney, it is understood that
such services shall be rendered as a consultant to, and not as an attorney for,
the Company. By executing this Agreement, the parties hereto acknowledge and
agree that the First Amendment to Consulting Agreement between the Company and
Consultant effective as of April 21, 1999 has terminated effective as of May 21,
1999.
2. DUTIES. Consultant shall make himself available during the Term to
advise the Chairman and such Company employees as he designates with regard to
such strategic business issues and projects as he shall select, including,
without limitation, those relating to new or existing business development,
strategic and tactical planning, corporate finance or business aspects of
potential securities or other legal matters. Time devoted to Consultant's duties
as a member of the Company's Board of Directors and committees thereof shall not
be considered as consulting services under this Agreement. The Company shall be
entitled to require Consultant to make himself available up to 60 days during
the Term (but not more than 10 days in any single month) for the performance of
consulting services hereunder at such times and places as are mutually
satisfactory to the Company and Consultant. Consultant will travel to the
Company's principal offices as necessary to meet with management but will not
otherwise be required to perform any of his duties outside of Virginia.
3. COMPENSATION. In consideration for his agreement herein to render
consulting services to the Company, the Company agrees to compensate Consultant
in cash at the rate of $2,500 per day.
4. EXPENSES. Any and all expenses incurred by Consultant in rendering
consulting services hereunder shall be borne by Consultant, such expenses to
include travel within the Virginia-Washington D.C.-area, secretarial support
(unless provided with the Chairman's permission by an employee of the Company),
office supplies, telephone (unless long distance), overhead, meals, market
research, seminars, textbooks and computer time. The Company shall pay all its
own expenses incurred by it in connection with such consulting and shall
reimburse Consultant for all long distance telephone charges and expenses for
travel (including transportation, hotel, meals and other reasonable charges
resulting from such travel) outside of the Virginia-Washington D.C.-area and for
such other expenses as are authorized by the Chairman as appropriate for
reimbursement.
5. TERMINATION. Consultant's retention hereunder shall continue during
the Term unless earlier terminated by Consultant's death or by lawful
termination of this Agreement after breach hereof by Consultant. Neither party
may terminate this Agreement for breach except after providing written notice to
the other of the alleged breach (specifically describing therein in full detail
the basis for such alleged breach) and allowing 30 days after such notice for
the other party to cure such breach or cease breaching the Agreement.
6. CONFIDENTIALITY. Consultant shall execute on the date hereof and
send to the Company the Confidentiality Agreement attached hereto as Exhibit A
(the "Confidentiality Agreement").
7. MISCELLANEOUS.
7.1 Notices. Except as otherwise noted herein, all notices
pursuant to this Agreement shall be in writing, shall specifically reference
this Agreement and shall be deemed duly sent and given upon actual delivery to
and receipt by the relevant party (which in the case of the Company, shall be
the Chairman).
7.2 Legal Advice and Construction of Agreement. Both parties
hereto have received independent legal advice with respect to, and neither has
relied upon the other (or his or its advisors) in, entering into this Agreement.
7.3 Entire Agreement. This Agreement, the Confidentiality
Agreement and the Warrants constitute a single integrated contract expressing
the entire agreement of the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof.
7.4 Amendment and Waiver. This Agreement and each provision
hereof may be amended, modified, supplemented or waived only by a written
document specifically identifying this Agreement and signed by both parties
hereto.
7.5 Specific Performance. Each party hereto may obtain
specific performance to enforce its/his rights hereunder and each party
acknowledges that failure to fulfill its/his obligations to the other party
hereto would result in irreparable harm.
7.6 Virginia Law. This Agreement was negotiated and delivered
within the Commonwealth of Virginia and the rights and obligations of the
parties hereto shall be construed and enforced in accordance with and governed
by the internal (and not the conflict of laws) laws of Virginia applicable to
the construction and enforcement of contracts between parties resident in
Virginia which are entered into and fully performed in Virginia. Any action or
proceeding arising out of, relating to or concerning this Agreement shall be
filed in the state courts of the County of Fairfax, Commonwealth of Virginia or
in a U.S. District Court in the Eastern District of Virginia. The parties hereby
waive the right to object to such location on the basis of venue.
7.7 Attorney's Fees. In the event a lawsuit is instituted by
either party concerning a dispute under this Agreement, the prevailing party in
such lawsuit shall be entitled to recover from the losing party all reasonable
attorneys' fees, costs of suit and expenses (including the reasonable fees,
costs and expenses of appeals), in addition to whatever damages or other relief
the injured party is otherwise entitled to under law or equity.
7.8 Force Majeure. Neither party hereto shall be deemed in
default if its/his performance of obligations hereunder is delayed or becomes
impossible or impracticable by reason of any act of God, war, fire, earthquake,
strike, civil commotion, epidemic, or any other cause beyond such party's
reasonable control.
7.9 Successors and Assigns. Neither party may assign this
Agreement or any of its/his rights or obligations hereunder to any third party
or entity, and this Agreement may not be involuntarily assigned by operation of
law, without the prior written consent of the nonassigning party, which consent
may be given or withheld by such nonassigning party in the sole exercise of
its/his discretion, except that the Company may assign this Agreement to a
corporation acquiring: (1) 50% or more of the Company's capital stock in a
merger or acquisition; or (2) all or substantially all of the assets of the
Company in a single transaction; and except that Consultant may transfer or
assign his rights under this Agreement voluntarily, involuntarily or by
operation of law upon or as a result of his death to his heirs, estate and/or
personal representative(s). Any prohibited assignment or attempted assignment
shall be null and void. This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective lawful successors and
permitted assigns.
7.10 Limitation of Damages. Except as expressly set forth
herein, in any action or proceeding arising out of, relating to or concerning
this Agreement, including any claim of breach of contract, liability shall be
limited to compensatory damages, proximately caused by the breach and neither
party shall, under any circumstances, be liable to the other party for
consequential, incidental, indirect or special damages, including but not
limited to lost profits or income, even if such party has been apprised of the
likelihood of such damages occurring.
7.11 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and which together shall
constitute one and the same instrument.
DAY RUNNER, INC. ALAN R. RACHLIN
------------------
By:___________________________ /s/ ALAN R. RACHLIN
Mark Vidovich
Chairman
EXHIBIT A
CONFIDENTIALITY AGREEMENT
AGREEMENT, dated and made effective as of this 21st day of May, 1999, by and
between Day Runner, Inc., a Delaware corporation ("Discloser"), and Alan R.
Rachlin, a Virginia resident ("Disclosee");
WHEREAS, Discloser intends to provide Disclosee with certain data and other
information possibly of a confidential or proprietary nature to Discloser; and
WHEREAS, Discloser considers certain of this information confidential but is
willing to provide such information to Disclosee on a confidential basis;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. For purposes of this Agreement, the term "Confidential Information"
shall mean that information of Discloser which is disclosed to Disclosee under
the Consulting Agreement, effective as of the date hereof by and between the
Discloser and Disclosee and which is in written graphic, recorded, photographic
or any machine readable form, and which is conspicuously marked as confidential.
2. (a) Disclosee will use such Confidential Information for his own use
only and shall use the same degree of care he uses to protect and safeguard the
confidentiality of his own proprietary information to not disclose such
Confidential Information to any person or persons other than his attorneys or
accountants. Disclosee covenants that such degree of care is reasonably designed
to protect the confidentiality of Disclosee's proprietary and confidential
information.
(b) Disclosee shall not be liable for disclosure of any such Confidential
Information if the same:
(i) was in the public domain at the time it was disclosed;
(ii) was known to Disclosee prior to the time of disclosure;
(iii) is disclosed with the prior written approval of Discloser;
(iv) is or becomes publicly known through no wrongful act of Disclosee;
(v) is disclosed after two years from the date of this Agreement;
(vi) was or is independently developed by Disclosee without any use of the
Confidential Information;
(vii) becomes known to Disclosee from a source other than Discloser without
breach of this Agreement by Disclosee;
(viii) is or has been furnished by Discloser to others not in a
Confidential relationship with Discloser without restrictions similar to or
stricter than those herein on the right of the Receiving party to use or
disclose;
(ix) is received by Disclosee after written notification to Discloser that
Disclosee will not accept any further information;
(x) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; or
(xi) is disclosed pursuant to litigation involving Disclosee and relating
to the information disclosed hereunder.
(c) In the event of a disclosure under subsection (b)(x) above, Disclosee
shall give Disclosure written notice of such order or requirement as soon as
practicable prior to disclosure of the Confidential Information.
3. The provisions of this Agreement shall supersede the provisions of
any legends which may be affixed to any Confidential Information provided by
Discloser to Disclosee.
4. This document contains the entire agreement between the parties as
to the subject matter hereof and supersedes any previous or contemporaneous
understandings, commitments or agreements, oral or written, as to such subject
matter. This Agreement can only be amended by a written document executed by the
parties hereto.
5. This Agreement shall be governed by the laws of the Commonwealth of
Virginia.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first
above-written.
Understood and Agreed:
"Discloser" "Disclosee"
DAY RUNNER, INC. ALAN R. RACHLIN
By:/s/ Mark Vidovich Signature: /s/ Alan R. Rachlin
----------------------- -----------------------------
Mark Vidovich
Chairman
================================================================================
Execution Copy
================================================================================
EXHIBIT 10.23
LC992590047
AMENDED AND RESTATED LOAN AGREEMENT
dated as of September 30, 1999
among
DAY RUNNER, INC.
DAY RUNNER UK plc
and
FILOFAX LIMITED
as Borrowers
THE LENDERS HEREIN NAMED
as Lenders
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent
<PAGE>
LC992590047 vi
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS.......................................................................2
<S> <C>
1.1. Defined Terms..............................................................................2
1.2. Use of Defined Terms......................................................................29
1.3. Accounting Terms..........................................................................29
1.4. Rounding..................................................................................29
1.5. Exhibits and Schedules....................................................................29
1.6. Miscellaneous Terms.......................................................................29
ARTICLE 2 LOANS AND LETTERS OF CREDIT............................................................................30
2.1. Loans.....................................................................................30
2.2. Conversion/Continuation of Loans..........................................................31
2.3. Foreign Currency Loans....................................................................32
2.4. Type of Loans.............................................................................33
2.5. Funding of Loans..........................................................................33
2.6. Notes.....................................................................................34
2.7. Letters of Credit.........................................................................35
2.8. Voluntary Reduction of Revolving Commitment...............................................38
2.9. Swing Line Loans..........................................................................39
2.10. Guaranty.................................................................................40
2.11. Extension of Revolving Loan Maturity Date................................................40
ARTICLE 3 PAYMENTS AND FEES......................................................................................41
3.1. Interest..................................................................................41
3.2. Principal.................................................................................42
3.3. Commitment Fee............................................................................44
3.4. Amendment Fee and Administrative Agent's Fee..............................................44
3.5. Letter of Credit Fees.....................................................................44
3.6. Increased Commitment Costs................................................................45
3.7. Eurodollar Costs and Related Matters......................................................46
3.8. Foreign Currency Costs and Related Matters................................................49
3.9. Intentionally Omitted.....................................................................51
3.10. Computation of Interest and Fees.........................................................51
3.11. Non-Banking Days.........................................................................52
3.12. Manner and Treatment of Payments.........................................................52
3.13. Funding Sources..........................................................................53
3.14. Failure to Charge Not Subsequent Waiver..................................................53
3.15. Administrative Agent's Right to Assume Payments Will be Made.............................53
3.16. Fee Determination Detail.................................................................54
3.17. Survivability............................................................................54
3.18. Application of Payments..................................................................54
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.........................................................................55
4.1. Existence and Qualification; Power; Compliance With Laws..................................55
4.2. Authority; Compliance With Other Agreements and Instruments
and Government Regulations............................................................56
4.3. No Governmental Approvals Required........................................................56
4.4. Subsidiaries..............................................................................56
4.5. Financial Statements......................................................................57
4.6. No Other Liabilities; No Material Adverse Changes.........................................57
4.7. Title to Property.........................................................................58
4.8. Intangible Assets.........................................................................58
4.9. Public Utility Holding Company Act........................................................58
4.10. Litigation...............................................................................58
4.11. Binding Obligations......................................................................58
4.12. No Default...............................................................................58
4.13. ERISA....................................................................................58
4.14. Regulations U and X; Investment Company Act..............................................59
4.15. Disclosure...............................................................................59
4.16. Tax Liability............................................................................59
4.17. Projections..............................................................................60
4.18. Environmental Matters....................................................................60
4.19. Solvency.................................................................................60
4.20. Year 2000 Matters........................................................................60
ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)..............................61
5.1. Payment of Taxes and Other Potential Liens................................................61
5.2. Preservation of Existence.................................................................61
5.3. Maintenance of Properties.................................................................61
5.4. Maintenance of Insurance..................................................................62
5.5. Compliance With Laws......................................................................62
5.6. Inspection Rights.........................................................................62
5.7. Keeping of Records and Books of Account...................................................62
5.8. Compliance With Agreements................................................................62
5.9. Use of Proceeds...........................................................................62
5.10. Hazardous Materials Laws.................................................................62
5.11. Additional Material Subsidiaries.........................................................63
5.12. Intentionally Omitted....................................................................63
5.13. Further Assurances.......................................................................63
5.14. Deposit Accounts and Cash Concentration..................................................64
ARTICLE 6 NEGATIVE COVENANTS.....................................................................................65
6.1. Payment of Subordinated Obligations.......................................................65
6.2. Disposition of Property...................................................................65
6.3. Mergers...................................................................................66
6.4. Intentionally Omitted.....................................................................66
6.5. Intentionally Omitted.....................................................................66
6.6. Distributions.............................................................................66
6.7. ERISA.....................................................................................66
6.8. Change in Nature of Business..............................................................66
6.9. Liens.....................................................................................66
6.10. Indebtedness and Guaranty Obligations....................................................67
6.11. Transactions with Affiliates.............................................................68
6.12. Funded Senior Debt Ratio.................................................................68
6.13. Fixed Charge Coverage Ratio..............................................................68
6.14. Stockholders' Equity.....................................................................68
6.15. Investments..............................................................................69
6.16. Capital Expenditures.....................................................................70
6.17. Payment Restrictions Affecting Subsidiaries..............................................70
6.18. Lease Obligations........................................................................70
6.19. Minimum EBITDA...........................................................................71
6.20. Current Ratio............................................................................71
6.21. Operating Expenses.......................................................................71
ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS.................................................................72
7.1. Financial and Business Information........................................................72
7.2. Compliance Certificates...................................................................75
ARTICLE 8 CONDITIONS 76
8.1. Effective Date............................................................................76
8.2. Revolving Loans...........................................................................79
ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT...................................................79
9.1. Events of Default.........................................................................79
9.2. Remedies Upon Event of Default............................................................81
ARTICLE 10 THE ADMINISTRATIVE AGENT..............................................................................82
10.1. Appointment and Authorization............................................................82
10.2. Administrative Agent and Affiliates......................................................83
10.3. Lenders' Credit Decisions................................................................83
10.4. Action by Administrative Agent...........................................................83
10.5. Liability of Administrative Agent........................................................84
10.6. Indemnification..........................................................................85
10.7. Successor Administrative Agent...........................................................86
10.8. No Obligations of Borrowers..............................................................86
ARTICLE 11 MISCELLANEOUS.........................................................................................87
11.1. Cumulative Remedies; No Waiver...........................................................87
11.2. Amendments; Consents.....................................................................87
11.3. Costs, Expenses and Taxes................................................................88
11.4. Nature of Lenders' Obligations...........................................................89
11.5. Survival of Representations and Warranties...............................................89
11.6. Notices..................................................................................89
11.7. Execution of Loan Documents..............................................................89
11.8. Binding Effect; Assignment...............................................................90
11.9. Right of Setoff..........................................................................92
11.10. Sharing of Setoffs......................................................................92
11.11. Indemnity by Borrowers..................................................................93
11.12. Nonliability of the Lenders.............................................................94
11.13. No Third Parties Benefited..............................................................95
11.14. Confidentiality.........................................................................95
11.15. Further Assurances......................................................................95
11.16. Integration.............................................................................96
11.17. Governing Law...........................................................................96
11.18. Severability of Provisions..............................................................96
11.19. Headings................................................................................96
11.20. Time of the Essence.....................................................................96
11.21. Foreign Lenders and Participants........................................................96
11.22. Joint and Several Liability.............................................................97
11.23. Removal of a Lender.....................................................................98
11.24. Waiver of Right to Trial by Jury........................................................98
11.25. Purported Oral Amendments...............................................................99
11.26. Acknowledgment of Lenders...............................................................99
<PAGE>
</TABLE>
EXHIBITS
Exhibit Number Exhibit Name
Exhibit A Form of Borrower Guaranty
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Revolving Loan Note
Exhibit D-2 Form of Term Loan Note
Exhibit E Form of Pricing Certificate
Exhibit F Form of Request for Letter of Credit
Exhibit G Form of Subsidiary Guaranty
Exhibit H Notice of Borrowing
Exhibit I Notice of Swing Line Loan
Exhibit J Form of Pledge Agreement
Exhibit K Form of Mortgage of Shares
Exhibit L Form of Security Agreement
Exhibit M Form of Security Document
Exhibit N Form of Borrower Guaranty of Revolving Loans
Exhibit O Form of Borrower Guaranty of Term Loans
Exhibit P Form of Subsidiary Guaranty of Revolving Loans
Exhibit Q Form of Subsidiary Guaranty of Term Loans
Exhibit R Form of Subordinated Promissory Note
<PAGE>
SCHEDULES
Schedule Number Schedule Name
Schedule 1.1 Lender Pro Rata Shares
Schedule 1.2 Subsidiary Overdraft Indebtedness
Schedule 2.1 Term Loans on Effective Date
Schedule 4.1 Borrowers
Schedule 4.4 Subsidiaries
Schedule 4.6 Funded Debt
Schedule 4.7 Liens
Schedule 5.14(a) Foreign Subsidiary Deposit Accounts
Schedule 5.14(b) Foreign Subsidiary Deposit Account Balances
Schedule 6.10 Existing Indebtedness
Schedule 6.15 Existing Investments
<PAGE>
LC992590047
AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 30, 1999
This AMENDED AND RESTATED LOAN AGREEMENT dated as of September 30, 1999
is entered into by and among Day Runner, Inc., a Delaware corporation ("Day
Runner"), Day Runner UK plc, a company incorporated with limited liability under
the laws of England and Wales and a wholly-owned indirect subsidiary of Day
Runner ("Bidco"), Filofax Limited, a company incorporated with limited liability
under the laws of England and Wales and a wholly-owned indirect subsidiary of
Bidco ("Filofax"; Day Runner, Bidco and Filofax being referred to herein
collectively as the "Borrowers", and individually as a "Borrower"), each lender
whose name is set forth on the signature pages of this Agreement and each lender
which may hereafter become a party to this Agreement pursuant to Section 11.8
(collectively, the "Lenders," and individually, a "Lender"), and Wells Fargo
Bank, National Association, as Administrative Agent and Issuing Lender.
WHEREAS, certain of the Borrowers, Day Runner Canada Inc., an Ontario
corporation formerly known as Ultima Distribution Inc. and a wholly-owned
subsidiary of Day Runner ("DRC"), the Lenders and Wells Fargo Bank, National
Association, as Administrative Agent and Issuing Lender, entered into that
certain Revolving Loan Agreement dated as of September 23, 1998 (the "Existing
Credit Agreement");
WHEREAS, the Borrowers, DRC, the Lenders, the Administrative Agent and
the Issuing Lender desire to amend and restate the Existing Credit Agreement in
its entirety to give effect to the terms and provisions set forth in this
Agreement (the Existing Credit Agreement as amended and restated by this Amended
and Restated Loan Agreement, as the same may be further amended, supplemented or
otherwise modified from time to time, this "Agreement");
WHEREAS, on the date hereof, Syndicated Loans (as defined in the
Existing Credit Agreement) are outstanding in the aggregate principal amount
equal to the Foreign Currency Equivalent of $109,688,128.48;
WHEREAS, pursuant to the Existing Credit Agreement, the Lenders made
(a) Tender Offer Loans (as defined herein) to Bidco in an aggregate principal
amount equal to the Foreign Currency Equivalent of $20,443,666.20 and Tender
Offer Loans to Day Runner in an aggregate principal amount of $70,000,000, all
of which are deemed to be outstanding on the date hereof and (b) other
Syndicated Loans (as defined in the Existing Credit Agreement) to the Borrowers,
in an aggregate principal amount outstanding on the date hereof of
$19,244,462.28;
WHEREAS, the Borrowers have requested, that (a) the Tender Offer Loans
made to Day Runner and Bidco under the Existing Credit Agreement be reclassified
as Term Loans under this Agreement, (b) the Syndicated Loans (other than the
Tender Offer Loans) made to the Borrowers under the Existing Credit Agreement be
continued as Revolving Loans under this Agreement, (c) the Letters of Credit
issued under the Existing Credit Agreement be continued as Letters of Credit
under this Agreement, (d) Syndicated Loans made to DRC, as Borrower, under the
Existing Credit Agreement (such Syndicated Loans, the "DRC Loans") be assumed by
Day Runner and continued as Revolving Loans to Day Runner (and as Foreign
Currency Loans denominated in Canadian dollars until no later than the
expiration of the current Foreign Currency Period with respect to each such Loan
and on or before such time each such Loan will be converted into a Loan in
Dollars or another permitted denomination), under this Agreement and that Day
Runner be deemed to make an intercompany loan to DRC in an amount equal to the
principal amount of such DRC Loans outstanding on the Effective Date, and (e)
the Lenders, from time to time, upon the terms and subject to the conditions set
forth herein, make Revolving Loans to the Revolving Loan Borrowers, and the
Lenders have agreed to such requests;
WHEREAS, DRC is signatory to this Agreement solely for the purposes of
effecting the amendment and restatement of the Existing Credit Agreement as
contemplated by this Agreement and upon the effectiveness of the this Agreement,
DRC shall not be a "Borrower" under this Agreement and shall not have any
obligations or liabilities hereunder.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto covenant and agree as follows:
Article 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the meanings set forth below:
"Adjusted Eurodollar Rate" applicable to any Interest Period means a
rate per annum equal to the quotient obtained (rounded upward, if necessary, to
the next higher 1/100 of 1%) by dividing (i) the applicable Eurodollar Rate by
(ii) 1.00 minus the Eurodollar Reserve Percentage.
"Administrative Agent" means Wells Fargo Bank, National Association,
when acting in its capacity as the Administrative Agent under any of the Loan
Documents, or any successor Administrative Agent.
"Administrative Agent's Fee" means the annual administration fee to be
paid by Day Runner to the Administrative Agent described in the fee letter dated
as of October 12, 1999 from the Administrative Agent to, and acknowledged and
accepted by, Day Runner.
"Administrative Agent's Office" means the Administrative Agent's
address as set forth on the signature pages of this Agreement, or such other
address as the Administrative Agent hereafter may designate by written notice to
the Borrowers and the Lenders.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (and the correlative terms,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise); provided that, in any event, any
Person that owns, directly or indirectly, 20% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation that has more than 100 record holders of such securities, or 20% or
more of the partnership or other ownership interests of any other Person that
has more than 100 record holders of such interests, will be deemed to be an
Affiliate of such corporation, partnership or other Person.
"Aggregate Exposure Amount" means as of any date of determination and
with respect to all Letters of Credit then outstanding, the sum of (a) the
aggregate effective face amounts of all such Letters of Credit not then paid by
the Issuing Lender plus (b) the aggregate amounts paid by the Issuing Lender
under such Letters of Credit not then reimbursed to the Issuing Lender by
Borrowers.
"Agreement" means this Amended and Restated Loan Agreement as it may
from time to time be supplemented, modified, amended, restated or extended.
"Alternate Base Rate" means, as of any date of determination, the rate
per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the
higher of (a) the Prime Rate in effect on such date or (b) the Federal Funds
Rate in effect on such date plus 1/2 of 1% (50 basis points).
"Alternate Base Rate Loan" means a Loan made hereunder and specified to
be an Alternate Base Rate Loan in accordance with Article 2.
"Applicable Base Rate Margin" means (a) for the Initial Pricing Period,
200 basis points per annum and (b) for each Pricing Period thereafter, the
interest rate margin set forth below (expressed in basis points per annum)
opposite the Applicable Pricing Level for the Fiscal Quarter ending 55 days
prior to the commencement of such Pricing Period:
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Applicable Pricing Level Margin
---------------------------------- ---------------------------
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I 12.50
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II 25.00
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III 62.50
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IV 87.50
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V 112.50
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VI 137.50
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VII 162.50
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VIII 200.00
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Any change in the Applicable Base Rate Margin based on a change in the
Applicable Pricing Level shall be effective immediately after the receipt by the
Administrative Agent of the Pricing Certificate relating to the Fiscal Quarter
ending 55 days prior to the commencement of such Pricing Period; provided that
(i) in the event that the Borrowers do not deliver a Pricing Certificate with
respect to any Fiscal Quarter within the time set forth in Section 7.1(b), then
until (but only until) such Pricing Certificate is delivered the Applicable
Pricing Level shall be Pricing Level VIII and (ii) if any Pricing Certificate is
subsequently determined to be in error, then any resulting change in the
Applicable Pricing Level shall be made retroactively to the beginning of the
relevant Pricing Period.
"Applicable Commitment Fee Rate" means (a) for the Initial Pricing
Period, 67.5 basis points per annum and (b) for each Pricing Period thereafter,
the rate set forth below (expressed in basis points per annum) opposite the
Applicable Pricing Level for the Fiscal Quarter ending 55 days prior to the
commencement of such Pricing Period:
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Applicable Pricing Level Commitment Fee Rate
---------------------------------- ---------------------------
---------------------------------- ---------------------------
I 37.50
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II 37.50
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III 37.50
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IV 37.50
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V 50.00
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VI 50.00
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VII 50.00
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VIII 67.50
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Any change in the Applicable Commitment Fee Rate based on a change in
the Applicable Pricing Level shall be effective immediately after the receipt by
the Administrative Agent of the Pricing Certificate relating to the Fiscal
Quarter ending 55 days prior to the commencement of such Pricing Period;
provided that (i) in the event that the Borrowers do not deliver a Pricing
Certificate with respect to any Fiscal Quarter within the time set forth in
Section 7.1(b), then until (but only until) such Pricing Certificate is
delivered the Applicable Pricing Level shall be Pricing Level VIII and (ii) if
any Pricing Certificate is subsequently determined to be in error, then any
resulting change in the Applicable Pricing Level shall be made retroactively to
the beginning of the relevant Pricing Period.
"Applicable Eurodollar Rate Margin" means (a) for the Initial Pricing
Period, 300 basis points per annum and (b) for each Pricing Period thereafter,
the interest rate margin set forth below (expressed in basis points per annum)
opposite the Applicable Pricing Level for the Fiscal Quarter ending 55 days
prior to the commencement of such Pricing Period:
---------------------------------- ---------------------------
Applicable Pricing Level Margin
---------------------------------- ---------------------------
---------------------------------- ---------------------------
I 112.50
---------------------------------- ---------------------------
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II 125.00
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III 162.50
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IV 187.50
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V 212.50
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VI 237.50
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VII 262.50
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VIII 300.00
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Any change in the Applicable Eurodollar Rate Margin based on a change
in the Applicable Pricing Level shall be effective immediately after the receipt
by the Administrative Agent of the Pricing Certificate relating to the Fiscal
Quarter ending 55 days prior to the commencement of such Pricing Period;
provided that (i) in the event that the Borrowers do not deliver a Pricing
Certificate with respect to any Fiscal Quarter within the time set forth in
Section 7.1(b), then until (but only until) such Pricing Certificate is
delivered the Applicable Pricing Level shall be Pricing Level VIII and (ii) if
any Pricing Certificate is subsequently determined to be in error, then any
resulting change in the Applicable Pricing Level shall be made retroactively to
the beginning of the relevant Pricing Period.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of an Alternate Base Rate Loan and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Loan.
"Applicable Pricing Level" means, on any day, the pricing level set
forth below opposite the Funded Debt Ratio as of the last day of the Fiscal
Quarter most recently ended prior to such day:
<TABLE>
<CAPTION>
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<S> <C>
Pricing Level Funded Debt Ratio
----------------------- ----------------------------------------------------------------------------
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I Less than or equal to 2.00 to 1.00
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II Greater than 2.00 to 1.00, but less than or equal to 2.50 to 1.00
----------------------- ----------------------------------------------------------------------------
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III Greater than 2.50 to 1.00, but less than or equal to 3.00 to 1.00
----------------------- ----------------------------------------------------------------------------
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IV Greater than 3.00 to 1.00, but less than or equal to 3.50 to 1.00
----------------------- ----------------------------------------------------------------------------
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V Greater than 3.50 to 1.00, but less than or equal to 4.00 to 1.00
----------------------- ----------------------------------------------------------------------------
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VI Greater than 4.00 to 1.00, but less than or equal to 4.50 to 1.00
----------------------- ----------------------------------------------------------------------------
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VII Greater than 4.50 to 1.00, but less than or equal to 5.00 to 1.00
----------------------- ----------------------------------------------------------------------------
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VIII Greater than 5.00 to 1.00
----------------------- ----------------------------------------------------------------------------
</TABLE>
provided that (i) in the event that the Borrowers do not deliver a Pricing
Certificate with respect to any Fiscal Quarter within the time set forth in
Section 7.1(b), then until (but only until) such Pricing Certificate is
delivered the Applicable Pricing Level shall be Pricing Level VIII and (ii) if
any Pricing Certificate is subsequently determined to be in error, then any
resulting change in the Applicable Pricing Level shall be made retroactively to
the beginning of the relevant Fiscal Quarter.
"Applicable Standby Letter of Credit Fee Rate" means, as of any date of
determination, the then effective Applicable Eurodollar Rate Margin.
"Assignment and Acceptance" means an assignment and acceptance
substantially in the form of Exhibit B.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday or Friday,
other than a day on which banks are authorized or required to be closed in
California or New York.
"Borrower" means each of Day Runner, Bidco and Filofax, and "Borrowers"
is a collective reference to all of them.
"Borrower Guaranties" means the collective reference to (a) each
Borrower Guaranty, in substantially the form of Exhibit A, executed by the
Borrowers (other than Filofax), (b) the Borrower Guaranty of Revolving Loans, in
substantially the form of Exhibit N, executed by Filofax and (c) the Borrower
Guaranty of Term Loans, in substantially the form of Exhibit O, executed by
Filofax, in each case delivered pursuant to Article 8, as the same may be
amended, supplemented or otherwise modified from time to time; and each of them
is a "Borrower Guaranty".
"Capital Expenditure" means any expenditure by any Borrower or any of
its Subsidiaries for or related to fixed assets or purchased intangibles that is
treated as a capital expenditure under GAAP, including any amount which is
required to be treated as an asset subject to a Capital Lease Obligation.
"Capital Lease" means any leasing or similar arrangement which, in
accordance with GAAP, is classified as a capital lease.
"Capital Lease Obligations" means all monetary obligations of a Person
under any Capital Lease.
"Cash" means, when used in connection with any Person, all monetary and
non-monetary items owned by that Person that are treated as cash in accordance
with GAAP, consistently applied.
"Cash Equivalents" means, when used in connection with any Person, that
Person's Investments in:
(a) Government Securities due within one year after the date of the
making of the Investment;
(b) readily marketable direct obligations of any State of the United
States of America or any political subdivision of any such State or any
public agency or instrumentality thereof given on the date of such
Investment a credit rating of at least Aa by Moody's Investors Service,
Inc. or AA by Standard & Poor's Rating Group (a division of McGraw-Hill,
Inc.), in each case due within one year from the making of the Investment;
(c) certificates of deposit issued by, bank deposits in, eurodollar
deposits through, bankers' acceptances of, and repurchase agreements
covering Government Securities executed by any Lender or any bank
incorporated under the Laws of the United States of America, any State
thereof or the District of Columbia and having on the date of such
Investment combined capital, surplus and undivided profits of at least
$250,000,000, or total assets of at least $5,000,000,000, in each case due
within one year after the date of the making of the Investment;
(d) certificates of deposit issued by, bank deposits in, eurodollar
deposits through, bankers' acceptances of, and repurchase agreements
covering Government Securities executed by any Lender or any branch or
office located in the United States of America of a bank incorporated under
the Laws of any jurisdiction outside the United States of America having on
the date of such Investment combined capital, surplus and undivided profits
of at least $500,000,000, or total assets of at least $15,000,000,000, in
each case due within one year after the date of the making of the
Investment;
(e) readily marketable commercial paper or other debt securities
issued by corporations doing business in and incorporated under the Laws of
the United States of America or any State thereof or of any corporation
that is the holding company for a bank described in clause (c) or (d) above
given on the date of such Investment a credit rating of at least P-1 by
Moody's Investors Service, Inc. or A-1 by Standard & Poor's Rating Group (a
division of McGraw-Hill, Inc.), in each case due within one year after the
date of the making of the Investment;
(f) a readily redeemable "money market mutual fund" sponsored by a
bank described in clause (c) or (d) hereof, or a broker or dealer
registered under Section 15(b) of the Securities Exchange Act of 1934, as
amended, having on the date of the Investment capital of at least
$50,000,000, that has and maintains an investment policy limiting its
investments primarily to instruments of the types described in clauses (a)
through (e) hereof and given on the date of such Investment a credit rating
of at least Aa by Moody's Investors Service, Inc. and AA by Standard &
Poor's Rating Group (a division of McGraw-Hill, Inc.);
(g) corporate notes or bonds having an original term to maturity of
not more than one year issued by a corporation incorporated under the Laws
of the United States of America, or a participation interest therein;
provided that (i) commercial paper issued by such corporation is given on
the date of such Investment a credit rating of at least Aa by Moody's
Investors Service, Inc. and AA by Standard & Poor's Rating Group (a
division of McGraw-Hill, Inc.), (ii) the amount of all such Investments
issued by the same issuer does not exceed $5,000,000 and (iii) the
aggregate amount of all such Investments does not exceed $15,000,000; and
(h) any security denominated in pounds sterling issued by or on behalf
of the government of the United Kingdom or any other unsubordinated
security, investment or instrument which is denominated in pounds sterling,
has a maturity of less than one year, and is given on the date of such
Investment a credit rating of at least P-1 by Moody's Investor's Service,
Inc. or A-1 by Standard & Poor's Ratings Services (a division of
McGraw-Hill, Inc.).
"Certificate" means a certificate signed by a Senior Officer or Responsible
Official (as applicable) of the Person providing the certificate.
"Change in Control" means (a) any transaction or series of related
transactions in which any Person or two or more Persons acting in concert (other
than a Permitted Stockholder) acquire beneficial ownership (within the meaning
of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended),
directly or indirectly, of 25% or more of the outstanding Day Runner Common
Stock, (b) Day Runner consolidates with or merges into another Person or
conveys, transfers or leases its properties and assets substantially as an
entirety to any Person, or any Person consolidates with or merges into Day
Runner in a transaction in which the outstanding Day Runner Common Stock is
changed into or exchanged for cash, securities or other property and with the
effect that any Person becomes the beneficial owner, directly or indirectly, of
25% or more of Day Runner Common Stock or that the Persons who were the holders
of Day Runner Common Stock immediately prior to the transaction hold less than
75% of the common stock of the surviving corporation after the transaction, or
(c) during any period of 24 consecutive months, individuals who at the beginning
of such period constituted the board of directors of Day Runner (together with
any new or replacement directors whose election by the board of directors, or
whose nomination for election, was approved by a vote of at least a majority of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for reelection was previously so
approved) cease for any reason to constitute a majority of the directors then in
office.
"Closing Date" means September 23, 1998.
"Code" means the Internal Revenue Code of 1986, as amended or replaced and
as in effect from time to time.
"Collateral" means all Property and interests in Property now owned or
hereafter acquired by a Borrower or any of its Subsidiaries upon which a Lien is
granted to the Administrative Agent, for the benefit of the Lenders, under any
of the Loan Documents.
"Collateral Documents" means each of the Pledge Agreements and Security
Agreements.
"Commercial Letter of Credit" means each Letter of Credit issued to support
the purchase of goods by a Borrower which is determined to be a commercial
letter of credit by the Issuing Lender.
"Common Stock" means the common stock of any Borrower or its successor.
"Companies Act" means the Companies Act 1985 of Great Britain.
"Compliance Certificate" means a certificate in the form of Exhibit C,
properly completed and signed by a Senior Officer of Day Runner.
"Concentration Account" has the meaning set forth in Section 5.14.
"Contractual Obligation" means, as to any Person, any provision of any
outstanding security issued by that Person or of any material agreement,
instrument or undertaking to which that Person is a party or by which it or any
of its Property is bound.
"Current Assets" means, as of any date of determination, all assets that
would, in accordance with GAAP, be classified on a consolidated balance sheet of
Day Runner and its Subsidiaries as current assets as at such date of
determination.
"Current Liabilities" means, as of any date of determination, all
liabilities that would, in accordance with GAAP, be classified on a consolidated
balance sheet of Day Runner and its Subsidiaries as current liabilities as at
such date of determination.
"Current Ratio" means, as of any date of determination, the ratio of (a)
Current Assets to (b) the sum of (i) Current Liabilities plus (ii) the aggregate
principal amount of Revolving Loans outstanding as of such date.
"Day Runner Common Stock" means the Common Stock of Day Runner or its
successor.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
America, as amended from time to time, and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, or similar debtor relief Laws from time to time in
effect affecting the rights of creditors generally.
"Default" means any event that, with the giving of any applicable notice or
passage of time specified in Section 9.1, or both, would be an Event of Default.
"Default Rate" means the interest rate prescribed in Section 3.9.
"Designated Capital Expenditures" means Capital Expenditures that are
either (i) financed directly or indirectly with the proceeds of a Loan or (ii)
not financed by the relevant Borrower by any third party financing source.
"Designated Eurodollar Market" means, with respect to any Eurodollar Rate
Loan, the London Eurodollar Market.
"Designated Foreign Currency Market" means, with respect to any Foreign
Currency Loan, the Foreign Currency Market designated by the Administrative
Agent as appropriate for that Foreign Currency Loan.
"Disqualified Stock" means any capital stock, warrants, options or other
rights to acquire capital stock (but excluding any debt security which is
convertible, or exchangeable, for capital stock), which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Term Loan Maturity Date.
"Disposition" means the sale, transfer or other disposition in any single
transaction or series of related transactions of any asset, or group of related
assets, of any Borrower or any of its Subsidiaries other than (i) inventory or
Cash Equivalents sold or otherwise disposed of in the ordinary course of
business of such Borrower or such Subsidiary and (ii) equipment sold or
otherwise disposed of where such equipment is obsolete or no longer useful in
the ordinary course of business of such Borrower or such Subsidiary, and the
aggregate value of assets so disposed does not exceed $100,000 in any Fiscal
Year.
"Distribution" means, with respect to any shares of capital stock or any
warrant or option to purchase an equity security or other equity security issued
by a Person, (a) any Stock Repurchase by such Person and (b) the declaration or
(without duplication) payment by such Person of any dividend or other
distribution in Cash or in Property (except for Property constituting capital
stock of such Person that is not Disqualified Stock) on or with respect to any
such security.
"Dollars" or "$" means United States of America dollars.
"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" next to its signature
hereto, or such other office of such Lender as such Lender may from time to time
specify to the Borrowers and to the Administrative Agent.
"DRC" means Day Runner Canada Inc., an Ontario corporation formerly known
as Ultima Distribution Inc. and a wholly-owned subsidiary of Day Runner.
"DRC Loans" has the meaning set forth in the preamble to this Agreement.
"DRI International" means DRI International Holdings, Inc., a Delaware
corporation and a wholly-owned Subsidiary of Day Runner.
"DR-UK Holdings" means DR UK Holdings Limited, a company incorporated with
limited liability under the laws of England and Wales and a Subsidiary of DRI
International.
"EBITDA" means, with respect to any period, the sum of (a) Net Income for
that period, plus (b) any extraordinary loss included in such Net Income, minus
(c) any extraordinary gain included in such Net Income, plus (d) Interest
Expense of Day Runner and its Subsidiaries for that period, plus (e) the
aggregate amount of taxes on or measured by income of Day Runner and its
Subsidiaries for that period (whether or not payable during that period), plus
(f) depreciation, amortization and all other non-cash expenses of Day Runner and
its Subsidiaries for that period, plus (g) to the extent deducted in determining
such Net Income, for any period including Day Runner's Fiscal Quarter ended
March 31, 1999, the amount of Tender Offer Transaction Expenses in such period,
plus (h) for any period that includes fiscal periods ended on or prior to June
30, 1999, to the extent deducted in determining such Net Income, the aggregate
amount of asset write downs with respect to Filofax Group recorded in any of
such fiscal periods, in each case as determined in accordance with GAAP,
consistently applied plus (i) to the extent deducted in determining such Net
Income, the amount of expenses incurred in connection with Day Runner's efforts
to be acquired by another Person or restructure Day Runner or any of its
Subsidiaries incurred during such period; provided that, for any period that
includes Day Runner's Fiscal Quarter ended December 31, 1998, the acquisition of
Filofax Group by Bidco shall be deemed to have occurred as of the first day of
such period.
"Effective Date" means the first Banking Day on which the conditions set
forth in Section 8.1 are satisfied or waived, but in any event not later than
October 15, 1999.
"EMU" means the Economic and Monetary Union as contemplated in the treaty
on European unity effected pursuant to the Treaty of Rome of March 25, 1957, as
amended by the Single European Act 1986 and the Maastricht Treaty, as amended
from time to time.
"EMU Legislation" means legislative measures of the European Council
(including, without limitation, European Council regulations) for the
introduction of, changeover to or operation of a single or unified European
currency (whether known as the euro or otherwise), being in part the
implementation of the third stage of EMU.
"ERISA" means the Employee Retirement Income Security Act of 1974, and any
regulations issued pursuant thereto, as amended or replaced and as in effect
from time to time.
"ERISA Affiliate" means each Person (whether or not incorporated) which is
required to be aggregated with Borrower pursuant to Section 414 of the Code.
"Eurodollar Banking Day" means any Banking Day on which dealings in Dollar
deposits are conducted by and among banks in the Designated Eurodollar Market.
"Eurodollar Lending Office" means, as to each Lender, its office or branch
so designated by written notice to the Borrowers and the Administrative Agent as
its Eurodollar Lending Office. If no Eurodollar Lending Office is designated by
a Lender, its Eurodollar Lending Office shall be its office at its address for
purposes of notices hereunder.
"Eurodollar Market" means a regular established market located outside the
United States of America by and among banks for the solicitation, offer and
acceptance of Dollar deposits in such banks.
"Eurodollar Obligations" means eurocurrency liabilities, as defined in
Regulation D or any comparable regulation of any Governmental Agency having
jurisdiction over any Lender.
"Eurodollar Rate" means, with respect to any Eurodollar Rate Loan, the
average of the interest rates per annum (rounded upward, if necessary, to the
next 1/16 of 1%) at which deposits in Dollars are offered to Wells Fargo Bank,
National Association in the Designated Eurodollar Market at or about 11:00 A.M.
local time in the Designated Eurodollar Market, two (2) Eurodollar Banking Days
before the first day of the applicable Eurodollar Period in an aggregate amount
approximately equal to the amount of the Loan to be made by Wells Fargo Bank,
National Association with respect to such Eurodollar Rate Loan and for a period
of time comparable to the number of days in the applicable Eurodollar Period.
"Eurodollar Rate Loan" means a Loan made hereunder and specified to be a
Eurodollar Rate Loan in accordance with Article 2.
"Eurodollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (as defined in Regulation D)) or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Eurodollar Loans is determined.
"Euros" means the single currency of the countries described as
"Participating Member States of the European Union" within any EMU Legislation.
"Event of Default" has the meaning set forth in Section 9.1.
"Existing Credit Agreement" has the meaning set forth in the preamble to
this Agreement.
"Extension Determination Date" has the meaning set forth in Section 2.11.
"Federal Funds Rate" means, as of any date of determination, the rate set
forth in the daily statistical release designated as the Composite 3:30 P.M.
Quotations for U.S. Government Securities, or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor,
the "Composite 3:30 P.M. Quotation") for such date under the caption "Federal
Funds Effective Rate". If on any relevant date the appropriate rate for such
date is not yet published in the Composite 3:30 P.M. Quotations, the rate for
such date will be the arithmetic mean of the rates for the last transaction in
overnight Federal funds arranged prior to 9:00 A.M. (New York City time) on that
date by each of three leading brokers of Federal funds transactions in New York
City selected by the Administrative Agent. For purposes of this Agreement, any
change in the Alternate Base Rate due to a change in the Federal Funds Rate
shall be effective as of the opening of business on the effective date of such
change.
"Filofax Group" means Filofax Group Limited, a company incorporated with
limited liability under the laws of England and Wales and a wholly-owned direct
subsidiary of Bidco.
"Filofax Overdraft Account" means one or more cash collateral accounts
maintained with a Lender in England by Filofax which are subject to Liens which
secure Filofax Overdraft Indebtedness described in clause (i) of the definition
thereof.
"Filofax Overdraft Indebtedness" means Indebtedness of (i) Filofax to a
Lender that is outstanding from time to time in amounts and in currencies
determined by reference to Filofax's accounts receivable in foreign currencies
and (ii) the Subsidiaries of Filofax Group (other than Filofax) to one or more
financial institutions as set forth in Schedule 1.2 hereto, as the same may be
renewed, extended or refinanced from time to time, provided that with respect to
Indebtedness described in clause (ii) above, the aggregate principal amount of
such Indebtedness outstanding at any time does not exceed $1,500,000 (or the
Foreign Currency Equivalent thereof).
"Filofax Working Capital Guaranties" means the collective reference to (a)
the Borrower Guaranty of Revolving Loans, in substantially the form of Exhibit
N, executed by Filofax and (b) the Subsidiary Guaranty of Revolving Loans, in
substantially the form of Exhibit P, executed by Filofax Group.
"Fiscal Quarter" means the fiscal quarter of Borrowers ending on each March
31, June 30, September 30 and December 31.
"Fiscal Year" means the fiscal year of Borrowers ending on each June 30.
"Fixed Charge Coverage Ratio" means, as of the last day of any Fiscal
Quarter, the ratio of (a) EBITDA for the fiscal period consisting of the four
(4) Fiscal Quarters ended on that date, minus Designated Capital Expenditures
made by Day Runner and its Subsidiaries during such fiscal period, minus cash
payments for federal, state, local and foreign taxes actually paid during such
period by Day Runner and its Subsidiaries, plus tax refunds received in cash
during such period with respect to any federal, state, local, or foreign taxes,
minus cash dividends paid during such period by Day Runner and its Subsidiaries,
minus the fair market value of any Stock Repurchases during such period to (b)
the sum of (i)(A) Interest Expense of Day Runner and its Subsidiaries for such
fiscal period minus (B) Interest Income of Day Runner and its Subsidiaries for
such fiscal period plus (ii) the principal portion of Capital Lease Obligations
of Day Runner and its Subsidiaries during such fiscal period actually paid or
required to be paid (without duplication) during such fiscal period plus (iii)
any required principal repayments of Indebtedness of Day Runner and its
Subsidiaries during such fiscal period (except respect to Intercompany
Indebtedness), including without limitation required principal repayments with
respect to the Obligations, minus (iv) the principal amount of any Indebtedness
incurred by Day Runner and its Subsidiaries during such fiscal period (excluding
any Intercompany Indebtedness) the proceeds of which is used during such period
to refinance existing Indebtedness of Day Runner and its Subsidiaries during
such period.
"Foreign Currency" means, with respect to a Foreign Currency Loan or
Foreign Currency Letter of Credit, the foreign currency applicable to that
Foreign Currency Loan or Foreign Currency Letter of Credit.
"Foreign Currency Banking Day" means any Banking Day on which dealings in
deposits in the applicable Foreign Currency are conducted by and among banks in
the Designated Foreign Currency Market.
"Foreign Currency Equivalent" means, as of any date of determination, the
equivalent amount in Dollars of a Foreign Currency Loan or a Foreign Currency
Letter of Credit, as the case may be, using the currency exchange rate for such
date for the applicable Foreign Currency in the New York City wholesale foreign
currency exchange market in trading among banks in amounts of $1,000,000 or
more, set at 11:00 A.M. London Time two (2) Foreign Currency Banking Days prior
to the date of determination, or, if not so set for such date, as otherwise
reasonably determined by the Administrative Agent.
"Foreign Currency Letter of Credit" means a Letter of Credit issued or to
be issued in (a) British pounds, (b) Canadian dollars, (c) Euros or (d) such
other currency (other than Dollars) as may be acceptable to all of the Lenders
in their sole and absolute discretion.
"Foreign Currency Limitation" means, at any time, sixty percent (60%) of
the Revolving Commitment in effect at such time.
"Foreign Currency Loan" means a Revolving Loan made or to be made in (a)
pounds sterling, (b) Euros or (c) such other currency (other than Dollars) as
may be acceptable to all of the Lenders in their sole and absolute discretion.
"Foreign Currency Market" means a regular established market located
outside the United States of America by and among banks for the solicitation,
offer and acceptance of Foreign Currency deposits in such banks.
"Foreign Currency Period" means, as to each Foreign Currency Loan, the
period commencing on the date specified by the applicable Borrower pursuant to
Section 2.2 or 2.3, as applicable, and ending 1, 2, 3 or 6 months (or, with the
written consent of all of the Lenders, any other period) thereafter, as
specified by the applicable Borrower in (1) the applicable Notice of Borrowing
with respect to a Revolving Loan or (2) the applicable Notice of
Conversion/Continuation with respect to a Loan; provided that:
(a) The first day of any Foreign Currency Period shall be a Foreign
Currency Banking Day;
(b) Any Foreign Currency Period that would otherwise end on a day that
is not a Foreign Currency Banking Day shall be extended to the immediately
succeeding Foreign Currency Banking Day unless such Foreign Currency
Banking Day falls in another calendar month, in which case such Foreign
Currency Period shall end on the immediately preceding Foreign Currency
Banking Day; and
(c) No Foreign Currency Period shall extend beyond (i) with respect to
any Term Loan, the Term Loan Maturity Date and (ii) with respect to any
Revolving Loan, the Revolving Loan Maturity Date.
"Foreign Currency Rate" means, with respect to any Foreign Currency Rate
Loan, the interest rate per annum at which deposits in that Foreign Currency are
offered to the Administrative Agent in the Designated Foreign Currency Market at
11:00 A.M. (London time) two (2) Foreign Currency Banking Days before the first
day of the applicable Foreign Currency Period in an aggregate amount
approximately equal to the amount of the Loan to be made with respect to such
Foreign Currency Rate Loan and for a period of time comparable to the number of
days in the applicable Foreign Currency Period.
"Foreign Subsidiary" means a Subsidiary of any Borrower that (a) is
organized under the Laws of a jurisdiction other than the United States of
America, any State thereof or the District of Columbia and (b) conducts all or
substantially all of its business outside the United States of America.
"Funded Debt" means, as to any Person (without duplication), (a)
indebtedness of such Person for borrowed money or for the deferred purchase
price of Property (excluding trade and other accounts payable in the ordinary
course of business in accordance with ordinary trade terms), including any
Guaranty Obligation for any such indebtedness, (b) all indebtedness of such
Person evidenced by notes, bonds, debentures, debentures or other similar
instruments, (c) indebtedness of such Person that is non-recourse to such Person
but is secured by assets of such Person, to the extent of the fair market value
of such assets as determined in good faith by such Person, (d) the principal
portion of Capital Lease Obligations of such Person required under GAAP to be
shown on the balance sheet of such Person, (e) indebtedness of such Person
arising under bankers' acceptance facilities or under facilities for the
discount of accounts receivable of such Person, and (f) any direct or contingent
obligations of such Person under letters of credit issued for the account of
such Person.
"Funded Debt Ratio" means, as of the last day of any Fiscal Quarter, the
ratio of (a) the outstanding principal amount of all Funded Debt of Day Runner
and its Subsidiaries (limited in the case of Filofax Overdraft Indebtedness to
that portion thereof in excess of the amount of cash on deposit in the Filofax
Overdraft Account as of such date) to (b) EBITDA for the fiscal period
consisting of the four (4) Fiscal Quarters ended on that date.
"Funded Senior Debt Ratio" means, as of the last day of any Fiscal Quarter,
the ratio of (a) the outstanding principal amount of all Funded Debt (other than
Subordinated Obligations and limited in the case of Filofax Overdraft
Indebtedness to that portion thereof in excess of the amount of cash on deposit
in the Filofax Overdraft Account as of such date) of Day Runner and its
Subsidiaries on that date to (b) EBITDA for the fiscal period consisting of the
four (4) Fiscal Quarters ended on that date.
"GAAP" means, as of any date of determination, accounting principles (a)
set forth as generally accepted in then currently effective Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (b) set forth as generally accepted in then currently effective
Statements of the Financial Accounting Standards Board or (c) that are then
approved by such other entity as may be approved by a significant segment of the
accounting profession in the United States of America. The term "consistently
applied," as used in connection therewith, means that the accounting principles
applied are consistent in all material respects with those applied at prior
dates or for prior periods.
"Government Securities" means readily marketable (a) direct full faith and
credit obligations of the United States of America or obligations guaranteed by
the full faith and credit of the United States of America and (b) obligations of
an agency or instrumentality of, or corporation owned, controlled or sponsored
by, the United States of America that are generally considered in the securities
industry to be implicit obligations of the United States of America.
"Governmental Agency" means (a) any international, foreign, federal, state,
county or municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, central
bank, commission, department, instrumentality or public body or (c) any court or
administrative tribunal of competent jurisdiction.
"Guaranty Obligation" means, as to any Person, any (a) guarantee by that
Person of Indebtedness of, or other obligation performable by, any other Person
or (b) assurance given by that Person to an obligee of any other Person with
respect to the performance of an obligation by, or the financial condition of,
such other Person, whether direct, indirect or contingent, including any
purchase or repurchase agreement covering such obligation or any collateral
security therefor, any agreement to provide funds (by means of loans, capital
contributions or otherwise) to such other Person, any agreement to support the
solvency or level of any balance sheet item of such other Person or any
"keep-well" or other arrangement of whatever nature given for the purpose of
assuring or holding harmless such obligee against loss with respect to any
obligation of such other Person; provided, however, that the term Guaranty
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guaranty
Obligation in respect of Indebtedness shall be deemed to be an amount equal to
the maximum reasonably anticipated liability in respect thereof as determined by
the Person in good faith. The amount of any other Guaranty Obligation shall be
deemed to be zero unless and until the amount thereof has been (or in accordance
with Financial Accounting Standards Board Statement No. 5 should be) quantified
and reflected or disclosed in the consolidated financial statements (or notes
thereto) of the applicable Borrower or Subsidiary of any Borrower.
"Hazardous Materials" means substances defined as "hazardous substances"
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. (S) 9601 et seq., or as "hazardous", "toxic" or
"pollutant" substances or as "solid waste" pursuant to the Hazardous Materials
Transportation Act, 49 U.S.C. (S) 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. (S) 6901, et seq., or as "friable asbestos" pursuant to
the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq. or any other
applicable Hazardous Materials Law, in each case as such Laws are amended from
time to time.
"Hazardous Materials Laws" means all Laws governing the treatment,
transportation or disposal of Hazardous Materials applicable to any of the Real
Property.
"Indebtedness" means, as to any Person (without duplication), (a) any
Funded Debt of such Person, (b) all obligations of such Person to purchase,
redeem, retire, defease or otherwise make any payment in respect of any capital
stock of or other ownership or profit interest in such Person or any other
Person or any warrants, rights or options to acquire such capital stock, (c) all
Indebtedness of others referred to in clauses (a) and (b) above guaranteed
directly or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (i) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the holder of such
Indebtedness against loss, (iii) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are rendered)
or (iv) otherwise to assure a creditor against loss, and (d) all Indebtedness
referred to in clauses (a) through (c) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.
"Initial Pricing Period" means the period from the Effective Date through
the date upon which the Borrowers deliver the Pricing Certificate to the
Administrative Agent with respect to the Fiscal Quarter ending September 30,
1999.
"Intangible Assets" means assets that are considered intangible assets
under GAAP, including customer lists, goodwill, covenants not to compete,
copyrights, trade names, trademarks and patents.
"Intercompany Indebtedness" means any Indebtedness owed (i) by Day Runner
to any of its Subsidiaries, (ii) by any Subsidiary of Day Runner to Day Runner,
or (iii) by any Subsidiary of Day Runner to any other Subsidiary of Day Runner.
"Interest Expense" means, with respect to Day Runner and its Subsidiaries
as of the last day of any fiscal period, determined on a consolidated basis, the
sum of (a) all interest, fees, charges and related expenses for that fiscal
period in connection with borrowed money (including any obligations for fees,
charges and related expenses payable to the issuer of any letter of credit, but
excluding (x) Fees (other than the Administrative Agent's Fee) required to be
paid by the Borrowers to the Lenders or the Administrative Agent in connection
with this Agreement and (y) amortization or write-off of capitalized fees paid
in connection with the execution and delivery of the Existing Credit Agreement)
or the deferred purchase price of assets that in each case are considered
"interest expense" under GAAP plus (b) the portion of rent paid or payable
(without duplication) for that fiscal period by that Person under Capital Lease
Obligations that should be treated as interest in accordance with Financial
Accounting Standards Board Statement No. 13.
"Interest Period" means, with respect to each Eurodollar Rate Loan, the
period commencing on the date specified by the applicable Borrower pursuant to
Section 2.1(a), 2.1(d) or 2.2(b), as the case may be, and ending 1, 2, 3 or 6
months thereafter, as specified by the applicable Borrower in the applicable
Notice of Borrowing or Notice of Conversion/Continuation, as applicable;
provided that:
(a) The first day of any Interest Period shall be a Eurodollar Banking
Day;
(b) Any Interest Period that would otherwise end on a day that is not
a Eurodollar Banking Day shall be extended to the immediately succeeding
Eurodollar Banking Day unless such Eurodollar Banking Day falls in another
calendar month, in which case such Eurodollar Period shall end on the
immediately preceding Eurodollar Banking Day; and
(c) No Interest Period shall extend beyond (i) with respect to any
Term Loan, the Term Loan Maturity Date and (ii) with respect to any
Revolving Loan, the Revolving Loan Maturity Date.
"Interest Rate Protection Agreement" means a written agreement between any
Borrower and one or more financial institutions providing for "swap", "cap",
"collar" or other interest rate protection with respect to any Indebtedness.
"Investment" means, when used in connection with any Person, any investment
by or of that Person, whether by means of purchase or other acquisition of stock
or other securities of, or all or any substantial portion of the assets of (or
comprising a division or business unit of), any other Person or by means of a
loan, advance creating a debt, capital contribution, guaranty or other debt or
equity participation or interest in any other Person, including any partnership
and joint venture interests of such Person. The amount of any Investment shall
be the amount actually invested (minus any return of capital with respect to
such Investment which has actually been received in Cash or has been converted
into Cash or a Cash Equivalent), without adjustment for subsequent increases or
decreases in the value of such Investment.
"Issuing Lender" means Wells Fargo Bank, National Association.
"Laws" means, collectively, all international, foreign, federal, state and
local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.
"Lender" means each lender whose name is set forth in the signature pages
of this Agreement and each lender which may hereafter become a party to this
Agreement pursuant to Section 11.8.
"Letters of Credit" means any of the Commercial Letters of Credit or
Standby Letters of Credit issued by the Issuing Lender under the Revolving
Commitment pursuant to Section 2.7, as the same may be supplemented, modified,
amended, renewed, extended or supplanted.
"Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment
for security, security interest, encumbrance, lien or charge of any kind,
whether voluntarily incurred or arising by operation of Law or otherwise,
affecting any Property, including any conditional sale or other title retention
agreement, any lease in the nature of a security interest.
"Loan" means a Revolving Loan, a Swing Line Loan or a Term Loan (including
without limitation any such Revolving Loan or Term Loan that is also a Foreign
Currency Loan) and "Loans" includes all of the foregoing.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Borrower Guaranties, the Subsidiary Guaranties, the Collateral Documents and any
other agreements of any type or nature hereafter executed and delivered by any
Borrower or any of their respective Subsidiaries to the Administrative Agent or
to any Lender in any way relating to or in furtherance of this Agreement, in
each case either as originally executed or as the same may from time to time be
supplemented, modified, amended, restated, extended or supplanted.
"Lockbox" has the meaning set forth in Section 5.14.
"Margin Stock" means "margin stock" as such term is defined in Regulation
U.
"Material Adverse Effect" means any circumstance or event, or series of
circumstances or events which (a) has had or could reasonably be expected to
have any material adverse effect whatsoever upon the validity or enforceability
of any Loan Document, (b) has been or could reasonably be expected to be
material and adverse to the business, condition (financial or otherwise),
operations, performance, Properties or prospects of Day Runner or Day Runner and
its Subsidiaries, taken as a whole or (c) has materially impaired or could
reasonably be expected to materially impair the ability of any Borrower to
perform the Obligations.
"Material Subsidiary" means a Subsidiary of Day Runner either (x) owning at
least five percent (5%) of the consolidated assets of Day Runner and its
Subsidiaries as of the end of the immediately prior Fiscal Quarter or (y) as of
the last day of any Fiscal Quarter, generating at least five percent (5%) of the
consolidated net sales of Day Runner and its Subsidiaries for the fiscal period
consisting of the four (4) Fiscal Quarters ended on that date.
"Monthly Payment Date" means the last Banking Day of each month.
"Multiemployer Plan" means any employee benefit plan of the type described
in Section 4001(a)(3) of ERISA to which any Borrower or any of its ERISA
Affiliates contributes or is obligated to contribute.
"Net Cash Issuance Proceeds" means, with respect to the issuance of any
debt security or equity security by a Borrower or any of its Subsidiaries, the
Cash proceeds received by or for the account of a Borrower or such Subsidiary in
consideration of such issuance net of (a) underwriting discounts and commissions
actually paid to any Person not an Affiliate of any Borrower and (b) reasonable
professional fees and disbursements actually paid in connection therewith.
"Net Cash Sales Proceeds" means, with respect to any Disposition, the
sum of (a) the Cash proceeds received by or for the account of the Borrowers and
their respective Subsidiaries from such Disposition plus (b) the amount of Cash
received by or for the account of the Borrowers and their respective
Subsidiaries upon the sale, collection or other liquidation of any proceeds that
are not Cash from such Disposition, in each case net of (i) any amount required
to be paid to any Person owning an interest in the assets disposed of, (ii) any
amount applied to the repayment of Indebtedness secured by a Lien permitted
under Section 6.9 on the asset disposed of, (iii) any transfer, income or other
taxes payable as a result of such Disposition, (iv) reasonable professional fees
and expenses, fees due to any Governmental Agency, broker's commissions and
other out-of-pocket costs of sale actually paid to any Person that is not an
Affiliate of any Borrower attributable to such Disposition and (v) any reserves
established in accordance with GAAP in connection with such Disposition.
"Net Income" means, with respect to any period, the consolidated net income
of Day Runner and its Subsidiaries for that period, determined in accordance
with GAAP, consistently applied.
"Note" and "Notes" have the meanings set forth in Section 2.6(a).
"Notice of Borrowing" has the meaning set forth in Section 2.1(b).
"Obligations" means all present and future obligations of every kind or
nature of the Borrowers or any of their respective Subsidiaries at any time and
from time to time owed to the Administrative Agent or the Lenders or any one or
more of them, under any one or more of the Loan Documents, whether due or to
become due, matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, including obligations of performance as well as obligations of
payment, and including interest that accrues after the commencement of any
proceeding under any Debtor Relief Law by or against any Borrower or any of its
Subsidiaries.
"Party" means any Person other than the Administrative Agent and the
Lenders, which now or hereafter is a party to any of the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereof established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, which is
subject to Title IV of ERISA and is maintained by any Borrower or to which any
Borrower contributes or has an obligation to contribute.
"Permitted Encumbrances" means:
(a) Inchoate Liens incident to construction on or maintenance of
Property; or Liens incident to construction on or maintenance of Property
now or hereafter filed of record for which adequate reserves have been set
aside (or deposits made pursuant to applicable Law) and which are being
contested in good faith by appropriate proceedings and have not proceeded
to judgment, provided that, by reason of nonpayment of the obligations
secured by such Liens, no such Property is subject to a material impending
risk of loss or forfeiture;
(b) Liens for taxes and assessments on Property which are not yet
delinquent; or Liens for taxes and assessments on Property for which
adequate reserves have been set aside and are being contested in good faith
by appropriate proceedings, provided that, by reason of nonpayment of the
obligations secured by such Liens, no such Property is subject to a
material impending risk of loss or forfeiture;
(c) defects and irregularities in title to any Property which in the
aggregate do not materially impair the fair market value or use of the
Property for the purposes for which it is or may reasonably be expected to
be held;
(d) easements, exceptions, reservations, or other agreements for the
purpose of pipelines, conduits, cables, wire communication lines, power
lines and substations, streets, trails, walkways, drainage, irrigation,
water, and sewerage purposes, dikes, canals, ditches, the removal of oil,
gas, coal, or other minerals, and other like purposes affecting Property
which in the aggregate do not materially burden or impair the fair market
value or use of such Property for the purposes for which it is or may
reasonably be expected to be held;
(e) easements, exceptions, reservations, or other agreements for the
purpose of facilitating the joint or common use of Property in or adjacent
to a shopping center or similar project affecting Property which in the
aggregate do not materially burden or impair the fair market value or use
of such Property for the purposes for which it is or may reasonably be
expected to be held;
(f) rights reserved to or vested in any Governmental Agency to control
or regulate, or obligations or duties to any Governmental Agency with
respect to, the use of any Property;
(g) rights reserved to or vested in any Governmental Agency to control
or regulate, or obligations or duties to any Governmental Agency with
respect to, any right, power, franchise, grant, license, or permit;
(h) present or future zoning laws and ordinances or other laws and
ordinances restricting the occupancy, use, or enjoyment of Property;
(i) statutory Liens, other than those described in clauses (a) or (b)
above, arising in the ordinary course of business with respect to
obligations which are not delinquent or are being contested in good faith,
provided that, if delinquent, adequate reserves have been set aside with
respect thereto and, by reason of nonpayment, no Property is subject to a
material impending risk of loss or forfeiture;
(j) covenants, conditions, and restrictions affecting the use of
Property which in the aggregate do not materially impair the fair market
value or use of the Property for the purposes for which it is or may
reasonably be expected to be held;
(k) rights of tenants under leases and rental agreements covering
Property entered into in the ordinary course of business of the Person
owning such Property;
(l) Liens consisting of pledges or deposits to secure obligations
under workers' compensation laws or similar legislation, including Liens of
judgments thereunder which are not currently dischargeable;
(m) Liens consisting of pledges or deposits of Property to secure
performance in connection with operating leases made in the ordinary course
of business, provided the aggregate value of all such pledges and deposits
in connection with any such lease does not at any time exceed 20% of the
annual fixed rentals payable under such lease;
(n) Liens consisting of deposits of Property to secure bids made with
respect to, or performance of, contracts (other than contracts creating or
evidencing an extension of credit to the depositor);
(o) Liens consisting of any right of offset, or statutory bankers'
lien, on bank deposit accounts maintained in the ordinary course of
business so long as such bank deposit accounts are not established or
maintained for the purpose of providing such right of offset or bankers'
lien;
(p) Liens consisting of deposits of Property to secure statutory
obligations of a Borrower; and
(q) Liens consisting of deposits of Property to secure (or in lieu of)
surety, appeal or customs bonds.
"Permitted Stockholder" means Jill Tate Higgins and her heirs, devisees and
legatees, and trusts for the sole benefit of such Persons, and Persons
wholly-owned by such Persons.
"Person" means any individual or entity, including a trustee, corporation,
limited liability company, general partnership, limited partnership, joint stock
company, trust, estate, unincorporated organization, business association, firm,
joint venture, Governmental Agency, or other entity.
"Pledge Agreements" means the collective reference to (a) the Pledge
Agreement, in substantially the form of Exhibit J, executed and delivered on or
prior to the Effective Date by Day Runner, or by any Subsidiary, as the same may
be amended, supplemented or otherwise modified from time to time and (b) each
Mortgage of Shares, in substantially the form of Exhibit K, executed and
delivered on or prior to the Effective Date by each of DRI International, DR-UK
Holdings, Bidco, Filofax Group and Filofax, and (c) each Pledge Agreement or
Mortgage of Shares, in substantially the form of Exhibit J or K, as the case may
be, executed and delivered by any Subsidiary pursuant to Section 5.13, in any
case as the same may be amended, supplemented or otherwise modified from time to
time, and each of them is a "Pledge Agreement".
"Pricing Certificate" means a certificate in the form of Exhibit E,
properly completed and signed by a Senior Officer of Day Runner.
"Pricing Period" means the period beginning 55 days after the end of each
Fiscal Quarter and ending 55 days after the end of the subsequent Fiscal
Quarter.
"Prime Rate" means the rate of interest announced from time to time by the
Administrative Agent in San Francisco, California (or other headquarters city of
the Administrative Agent), as its "prime rate." The "prime rate" is one of
several base rates used by the Administrative Agent and serves as the basis upon
which effective rates of interest are calculated for loans and other credits
making reference thereto. The "prime rate" is evidenced by the recording thereof
after its announcement in such internal publication or publications as the
Administrative Agent may designate. Any change in the Prime Rate shall take
effect at the opening of business on the day such change is internally announced
within the offices of the Administrative Agent.
"Projections" means (i) the projected financial information dated August
27, 1999 prepared by Day Runner and (ii) any budget and projection delivered by
Day Runner pursuant to Section 7.1(d).
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Pro Rata Share" means, with respect to each Lender, (a) with respect to
Revolving Loans and Letters of Credit, the percentage of the Revolving
Commitment set forth opposite the name of that Lender on Schedule 1.1, as such
percentage may be increased or decreased pursuant to an Assignment and
Acceptance executed in accordance with Section 11.8 and (b) with respect to Term
Loans, the percentage of the Term Loans set forth opposite the name of that
Lender on Schedule 1.1, as such percentage may be increased or decreased
pursuant to an Assignment and Acceptance executed in accordance with Section
11.8.
"Quarterly Payment Date" means the last Banking Day of each March, June,
September and December.
"Real Property" means, as of any date of determination, all real property
then or theretofore owned, leased or occupied by any of the Borrowers or their
respective Subsidiaries.
"Regulation D" means Regulation D, as at any time amended, of the Board of
Governors of the Federal Reserve System, or any other regulation in substance
substituted therefor.
"Regulation U" means Regulation U, as at any time amended, of the Board of
Governors of the Federal Reserve System, or any other regulations in substance
substituted therefor.
"Request for Letter of Credit" means a written request for a Letter of
Credit in substantially the form of Exhibit F, signed by a Responsible Official
of Day Runner and properly completed to provide all information required to be
included therein, and delivered to the Issuing Bank and the Administrative
Agent.
"Requirement of Law" means, as to any Person, the articles or certificate
of incorporation and by-laws or other organizational or governing documents of
such Person, and any Law, or judgment, award, decree, writ or determination of a
Governmental Agency, in each case applicable to or binding upon such Person or
any of its Property or to which such Person or any of its Property is subject.
"Requisite Lenders" means (a) as of any date of determination if the
Revolving Commitment is then in effect, Lenders constituting 50% or more in
number and having in the aggregate more than 50% of the sum of (i) the Revolving
Commitment then in effect and (ii) the aggregate principal amount of the Term
Loans outstanding on such date and (b) as of any date of determination if the
Revolving Commitment has then been suspended or terminated and there is then any
principal amount of any Loan outstanding on such date, Lenders constituting 50%
or more in number and having Loans representing more than 50% of the sum of (i)
the aggregate principal amount of the Revolving Loans outstanding on such date
and (ii) the aggregate principal amount of the Term Loans outstanding on such
date.
"Responsible Official" means (a) any Senior Officer of Day Runner and (b)
any other responsible official of any Borrower so designated in a written notice
thereof from a Senior Officer to the Administrative Agent. The Lenders shall be
entitled to conclusively rely upon any document or certificate that is signed or
executed by a Responsible Official of a Borrower or any of its Subsidiaries as
having been authorized by all necessary corporate, partnership and/or other
action on the part of such Borrower or such Subsidiary.
"Revolving Commitment" means, subject to Section 2.8, $120,000,000 minus
the Term Loan Amount.
"Revolving Loan" means any Loan made pursuant to Section 2.1(a) or Section
2.9(d). "Revolving Loan" shall not include any Swing Line Loan or any Term Loan.
"Revolving Loan Borrower" means a Borrower other than Bidco.
"Revolving Loan Maturity Date" means October 31, 2000, as such date may be
extended pursuant to Section 2.11.
"Revolving Loan Sublimit" means, with respect to any Revolving Loan
Borrower, the amount set forth below opposite the name of such Borrower, which
amount is the maximum amount of Revolving Loans available to be extended to such
Borrower (it being understood that no Revolving Loans shall be made to Bidco, as
Borrower):
--------------------------------------------- ------------------------------
Borrower Sublimit
--------------------------------------------- ------------------------------
--------------------------------------------- ------------------------------
Day Runner 100% of the Revolving
Commitment then in effect
--------------------------------------------- ------------------------------
--------------------------------------------- ------------------------------
Filofax $20,000,000
--------------------------------------------- ------------------------------
"SEC Document" means any document, exhibit, report, form or other document
filed by any Borrower or required to be filed by any Borrower with the
Securities and Exchange Commission, including without limitation annual reports
on Form 10-K and quarterly reports on Form 10-Q.
"Security Agreements" means the collective reference to (a) each Security
Agreement, in substantially the form of Exhibit L, executed and delivered by Day
Runner or a domestic Subsidiary of Day Runner on or prior to the Effective Date,
or pursuant to Section 5.13, as the same may be amended, supplemented or
otherwise modified from time to time and (b) the Security Document, in
substantially the form of Exhibit M, executed and delivered by Filofax or Topps
on or prior to the Effective Date, as the same may be amended, supplemented or
otherwise modified from time to time, and each of them is a "Security
Agreement".
"Senior Officer" means (a) with respect to any Person, if, at any relevant
time, such office exists and any person is then incumbent in such office, (i)
the chairman, (ii) the chief executive officer, (iii) the president, (iv) any
executive vice president, (v) the chief operating officer, (vi) the general
counsel, (vii) the chief financial officer, (viii) the treasurer, or (ix) the
controller of such Person and, in each case, if such office does not exist or no
person is then incumbent in such office, any individual with comparable
executive, management or financial responsibilities or functions and (b) with
respect to each Subsidiary of Day Runner not organized under the laws of the
United States of America, any other senior executive officer.
"Solvent", when used with respect to any Person, means that at the time of
determination:
(i) the fair market value of its assets (including any rights of
reimbursement and contribution) is in excess of the total amount of its
liabilities (including, without limitation, contingent liabilities); and
(ii) the present fair saleable value of its assets is greater than its
probable liability on its existing debts as such debts become absolute and
matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments) as
they mature; and
(iv) it has capital sufficient to carry on its business as conducted
and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Special Eurodollar Circumstance" means the application or adoption after
the Effective Date of any Law or interpretation, or any change therein or
thereof, or any change in the interpretation or administration thereof by any
Governmental Agency, central bank or comparable authority charged with the
interpretation or administration thereof, or compliance by any Lender or its
Eurodollar Lending Office with any request or directive (whether or not having
the force of Law) of any such Governmental Agency, central bank or comparable
authority.
"Standby Letter of Credit" means each Letter of Credit that is not a
Commercial Letter of Credit.
"Stock Repurchase" means, with respect to any Person, the retirement,
redemption, purchase or other acquisition for Cash or for Property (except for
Property constituting capital stock of such Person that is not Disqualified
Stock) by such Person of any shares of capital stock or any warrant or option to
purchase an equity security or other equity security issued by such Person.
"Stockholders' Equity" means, as of any date of determination and with
respect to any Person, the consolidated stockholders' equity of the Person as of
that date determined in accordance with GAAP; provided that there shall be
excluded from Stockholders' Equity any amount attributable to Disqualified
Stock.
"Subordinated Obligations" means any Indebtedness of Day Runner that (i)
does not have any scheduled principal payment, mandatory principal prepayment or
sinking fund payment due prior to September 30, 2002, (ii) is not secured by any
Lien on any Property of Day Runner or any of its Subsidiaries, (iii) is not
guarantied by any Subsidiary of Day Runner, (iv) is subordinated by its terms in
right of payment to the Obligations on terms, and in form and substance,
satisfactory to the Administrative Agent and the Requisite Lenders, (v) is
subject to financial performance and other covenants and events of default and
other default provisions satisfactory to the Administrative Agent and the
Requisite Lenders, (vi) is subject to payment blockage and delayed acceleration
provisions satisfactory to the Administrative Agent and the Requisite Lenders,
and (vii) has other terms, and is otherwise in form and substance, satisfactory
to the Administrative Agent and the Requisite Lenders, in each case in their
sole and absolute discretion.
"Subsidiary" means, as of any date of determination and with respect to any
Person, any corporation, limited liability company or partnership (whether or
not, in any case, characterized as such or as a "joint venture"), whether now
existing or hereafter organized or acquired: (a) any Person which is required to
be treated as a "consolidated subsidiary" under GAAP, or (b) any Person (i) in
the case of a corporation or limited liability company, of which a majority of
the securities having ordinary voting power for the election of directors or
other governing body (other than securities having such power only by reason of
the happening of a contingency) are at the time beneficially owned by such
Person and/or one or more Subsidiaries of such Person, or (ii) in the case of a
partnership, of which a majority of the partnership or other ownership interests
are at the time beneficially owned by such Person and/or one or more of its
Subsidiaries.
"Subsidiary Guarantors" means all Subsidiaries of any Borrower that are or
become parties to the Subsidiary Guaranty.
"Subsidiary Guaranties" means the collective reference to (a) the
Subsidiary Guaranty, in substantially the form of Exhibit G, executed and
delivered on or prior to the Effective Date by each of DRI International and
DR-UK Holdings, and each other Subsidiary Guarantor, as it may from time to time
be supplemented, modified, amended, extended or supplanted, (b) the Subsidiary
Guaranty of Revolving Loans, in substantially the form of Exhibit P, executed
and delivered on or prior to the Effective Date by Filofax Group, as it may from
time to time be supplemented, modified, amended, extended or supplanted, and (c)
the Subsidiary Guaranty of Term Loans, in substantially the form of Exhibit Q,
executed and delivered on or prior to the Effective Date by Filofax Group, as it
may from time to time be supplemented, modified, amended, extended or
supplanted; and each of them is a "Subsidiary Guaranty".
"Swing Line" means the revolving line of credit established by the Swing
Line Lender in favor of the Borrowers pursuant to Section 2.9.
"Swing Line Lender" means Wells Fargo Bank, National Association.
"Swing Line Loans" means loans made by the Swing Line Lender to the
Borrowers pursuant to Section 2.9.
"Swing Line Outstandings" means, as of any date of determination, the
aggregate principal amount of all Swing Line Loans then outstanding.
"Syndicated Loans" has the meaning set forth in the Existing Credit
Agreement.
"Tender Offer" means the offer made on September 24, 1998 by Wasserstein
Perella & Co. Limited on behalf of Bidco to acquire the entire issued and to be
issued share capital of Filofax Group.
"Tender Offer Loans" means the Loans (as defined in the Existing Credit
Agreement) made to Day Runner and to Bidco under the Existing Credit Agreement
in an aggregate principal amount equal to the Foreign Currency Equivalent of
$90,443,666.20, all of which continues to be outstanding on the Effective Date,
the proceeds of which were used directly or indirectly (i) to purchase shares of
capital stock of Filofax Group pursuant to the Tender Offer, (ii) to acquire
shares of capital stock of Filofax Group in accordance with the provisions of
Sections 428-430F of the Companies Act or (iii) to pay stamp duties and stamp
duty reserve taxes in connection with the shares of capital stock of Filofax
Group purchased by Bidco pursuant to the Tender Offer.
"Tender Offer Notes" means unsecured promissory notes made by Bidco and
guaranteed, by unsecured guaranty, by Day Runner, issued to the former holders
of the share capital of Filofax Group who elected to receive such notes instead
of all or part of the cash consideration to which such holders otherwise were
entitled under the Tender Offer.
"Tender Offer Transaction Expenses" means the reasonable out-of-pocket
costs and expenses of Day Runner and its Subsidiaries incurred in connection
with the Tender Offer, including, without limitation, such reasonable and
out-of-pocket fees and expenses of attorneys, accountants and other professional
advisors to Day Runner and its Subsidiaries, and of attorneys to Wasserstein
Perella & Co. Limited, for services rendered in connection with the Tender
Offer.
"Term Loan" means the Loan outstanding hereunder pursuant to Section
2.1(e).
"Term Loan Amount" has the meaning set forth in Section 2.1(e).
"Term Loan Interest Reserve Account" has the meaning set forth in Section
5.14.
"Term Loan Maturity Date" means September 30, 2001.
"to the best knowledge of" means, when modifying a representation, warranty
or other statement of any Person, that the fact or situation described therein
is known by the Person (or, in the case of a Person other than a natural Person,
known by any Senior Officer of that Person) making the representation, warranty
or other statement, or with the exercise of reasonable due diligence under the
circumstances (in accordance with the standard of what a reasonable Person in
similar circumstances would have done) would have been known by the Person (or,
in the case of a Person other than a natural Person, would have been known by a
Senior Officer of that Person).
"Topps" means Topps of England Limited, a company incorporated with limited
liability under the laws of England and Wales and a Subsidiary of Filofax Group.
"type", when used with respect to any Loan, means the designation of
whether such Loan is an Alternate Base Rate Loan or a Eurodollar Rate Loan.
"Wholly-Owned Subsidiary" means a Subsidiary of any Borrower, 100% of the
capital stock or other equity interest of which is owned, directly or
indirectly, by any Borrower, except for director's qualifying shares required by
applicable Laws.
1.2 Use of Defined Terms. Any defined term used in the plural shall refer
to all members of the relevant class, and any defined term used in the singular
shall refer to any one or more of the members of the relevant class.
1.3 Accounting Terms. All accounting terms not specifically defined in this
Agreement shall be construed in conformity with, and all financial data required
by this Agreement to be submitted by the Borrowers, or any of them, to the
Administrative Agent or the Lenders, shall be prepared in conformity with, GAAP
applied on a consistent basis, except as otherwise specifically prescribed
herein. In the event that GAAP changes during the term of this Agreement such
that the covenants contained in Sections 6.12 through 6.15, inclusive, would
then be calculated in a different manner, (a) the Borrowers and the Lenders
agree to negotiate in good faith to amend this Agreement in such respects as are
necessary to conform those covenants as criteria for evaluating the Borrowers'
financial condition to substantially the same criteria as were effective prior
to such change in GAAP and (b) the Borrowers shall be deemed to be in compliance
with the covenants contained in the aforesaid Sections if and to the extent that
the Borrowers would have been in compliance therewith under GAAP as in effect
immediately prior to such change, but shall have the obligation to deliver each
officer's certificate set forth in Section 7.1 to the Administrative Agent and
the Lenders, on the dates therein specified, with an attached detailed
reconciliation demonstrating such compliance and setting forth the differences
in calculation of such covenants under GAAP as amended as compared with GAAP as
in effect immediately prior to such change.
1.4 Rounding. Any financial ratios required to be maintained by the
Borrowers pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
1.5 Exhibits and Schedules. All Exhibits and Schedules to this Agreement,
either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.
1.6 Miscellaneous Terms. The term "or" is disjunctive; the term "and" is
conjunctive. The term "shall" is mandatory; the term "may" is permissive.
Masculine terms also apply to females; feminine terms also apply to males. The
term "including" is by way of example and not limitation.
Article 2
LOANS AND LETTERS OF CREDIT
2.1 Loans
(a) Revolving Loans. Subject to the terms and conditions set forth in
this Agreement, at any time and from time to time from the Effective Date
through the Banking Day prior to the Revolving Loan Maturity Date, each
Lender shall, pro rata according to and limited by that Lender's Pro Rata
Share of the Revolving Commitment as then in effect, make Revolving Loans
to each Revolving Loan Borrower in such amounts as such Revolving Loan
Borrower may request such that, after giving effect to any repayments of
Revolving Loans and Letter of Credit reimbursement obligations and Tender
Offer Notes made on the same Banking Day (or for which provision has been
made for payment on the same Banking Day that is satisfactory to the
Administrative Agent in its sole and absolute discretion) do not cause the
sum of (i) the aggregate outstanding principal amount of the Revolving
Loans plus (ii) the Aggregate Exposure Amount of all outstanding Letters of
Credit plus (iii) the Swing Line Outstandings to exceed the Revolving
Commitment; provided, however, that at no time shall the sum with respect
to a single Revolving Loan Borrower of (i) the aggregate outstanding
principal amount of the Revolving Loans to such Revolving Loan Borrower
plus (ii) the Aggregate Exposure Amount of all Letters of Credit issued for
the account of such Revolving Loan Borrower plus (iii) in the case of Day
Runner, the Swing Line Outstandings, exceed such Revolving Loan Borrower's
Revolving Loan Sublimit. Syndicated Loans outstanding under the Existing
Credit Agreement on the Effective Date (other than the Tender Offer Loans
made to Day Runner and Bidco under the Existing Credit Agreement) shall
automatically, without further action, continue as Revolving Loans
outstanding under this Agreement. Subject to the limitations set forth
herein, each Revolving Loan Borrower may borrow, repay and reborrow under
the Revolving Commitment without premium or penalty.
(b) Intentionally Omitted.
(c) Notice of Borrowing in Respect of Revolving Loans. The applicable
Borrower shall give the Administrative Agent a notice in the form set forth
hereto as Exhibit H (a "Notice of Borrowing") not later than (x) 8:00 A.M.
(California time) on the date (which must be a Banking Day) of any
Revolving Loan requested as an Alternate Base Rate Loan, (y) 9:00 A.M.
(California time) at least three Eurodollar Banking Days before the first
day of the applicable Interest Period with respect to any Revolving Loan
requested as a Eurodollar Rate Loan and (z) 9:00 A.M. (California time) not
later than four Foreign Currency Banking Days before the first day of the
applicable Foreign Currency Period with respect to any Revolving Loan
requested as a Foreign Currency Loan. Such Notice of Borrowing shall
specify (i) the requested date of such Revolving Loan, which shall be a
Banking Day in the case of an Alternate Base Rate Loan or a Eurodollar
Banking Day in the case of a Eurodollar Rate Loan, (ii) the type of Loan,
(iii) the amount of such Loan, (iv) in the case of a Eurodollar Rate Loan,
the Interest Period for such Loan, (v) in the case of a Foreign Currency
Loan, the Foreign Currency and the Foreign Currency Period for such Loan,
and (vi) in reasonable detail satisfactory to the Administrative Agent, the
anticipated use of proceeds of such Revolving Loan. A Notice of Borrowing
shall be irrevocable upon the Administrative Agent's receipt thereof.
(d) Minimum Amounts with respect to Revolving Loans. Each Revolving
Loan that is requested as an Alternate Base Rate Loan (other than a Swing
Line Loan) shall be in a principal amount not less than $500,000 and in a
multiple of $100,000. Each Revolving Loan that is requested as a Eurodollar
Rate Loan shall be in a principal amount not less than $3,000,000 and in a
multiple of $1,000,000. Each Revolving Loan that is requested as a Foreign
Currency Loan shall be in a principal amount not less than the Foreign
Currency Equivalent of $3,000,000 and in a multiple of $1,000,000.
(e) Term Loans. Prior to the Effective Date, the Lenders, on one or
more occasions, made Tender Offer Loans to Day Runner and to Bidco pursuant
to the Existing Credit Agreement, in the aggregate principal amount equal
to the Foreign Currency Equivalent of $90,443,666.20, all of which
continues to be outstanding on the date hereof (the "Term Loan Amount").
The Tender Offer Loans outstanding under the Existing Credit Agreement are
hereby reclassified as Term Loans made to Day Runner or Bidco, as the case
may be, and shall continue to be outstanding under this Agreement. The
principal amount of the Term Loans owing to each Lender is set forth on
Schedule 2.1 hereto. The Borrowers may repay or prepay Term Loans without
premium or penalty (except as provided in Section 3.7 or 3.8), and amounts
so repaid or prepaid may not be reborrowed.
2.2 Conversion/Continuation of Loans.
(a) Subject to Section 3.7 (and with respect to Foreign Currency
Loans, Sections 2.3 and 3.8), the Borrowers shall have the option (i) to
convert at any time all or any part of outstanding any Loan that is an
Alternate Base Rate Loan (other than Swing Line Loans) to a Eurodollar Rate
Loan or a Foreign Currency Loan; (ii) to convert all or any part of any
outstanding Loan that is a Eurodollar Rate Loan having an Interest Period
which expires on the same date to an Alternate Base Rate Loan or a Foreign
Currency Loan on such expiration date; (iii) to continue all or any part of
any outstanding Eurodollar Rate Loan having an Interest Period which
expires on the same date as a Eurodollar Rate Loan, and the succeeding
Interest Period of such continued Loan shall commence on such expiration
date; (iv) to convert all or any part of any outstanding Loan that is a
Foreign Currency Loan having an Interest Period which expires on the same
date to an Alternate Base Rate Loan or a Eurodollar Rate Loan on such
expiration date; or (v) to continue all or any part of any outstanding
Foreign Currency Loan having an Interest Period which expires on the same
date as a Foreign Currency Loan, and the succeeding Interest Period of such
continued Loan shall commence on such expiration date; provided, however,
no such outstanding Loan may be continued as, or be converted into, a
Eurodollar Rate Loan or a Foreign Currency Loan if an Event of Default or
Default has occurred and is continuing; provided further that Day Runner
shall convert each DRC Loan into a Loan denominated in Dollars by no later
than the expiration of the Foreign Currency Period in effect with respect
to such Loan as of the Effective Date. Any conversion or continuation of
Loans under this Section 2.2(a) (other than a Loan to be converted into an
Alternate Base Rate Loan or a DRC Loan) shall be in a minimum amount of
$3,000,000 and in integral multiples of $1,000,000 in excess of that
amount.
(b) To convert or continue a Loan under Section 2.2(a), the Borrowers
shall deliver a Notice of Conversion/Continuation to the Administrative
Agent no later than 9:00 A.M. (California time) at least three (3) Banking
Days in advance of the proposed conversion/continuation date. A Notice of
Conversion/Continuation shall specify (i) the proposed
conversion/continuation date (which shall be a Banking Day), (ii) the
principal amount of the Loan to be converted/continued, (iii) whether such
Loan shall be converted and/or continued, and (iv) in the case of a
conversion to, or continuation of, a Eurodollar Rate Loan or a Foreign
Currency Loan, the requested Interest Period. Promptly after receipt of a
Notice of Conversion/Continuation under this Section 2.2(b), the
Administrative Agent shall notify each Lender by telex or telecopy, or
other similar form of transmission, of the proposed
conversion/continuation. Any Notice of Conversion/Continuation for
conversion to, or continuation of, a Loan shall be irrevocable, and the
Borrowers shall be bound to convert or continue in accordance therewith.
2.3 Foreign Currency Loans.
Subject to the limitations contained in Sections 2.1 and 2.2 above, (x) the
Term Loans in respect of which Bidco is the Borrower may be Foreign Currency
Loans denominated in Euros or British pounds sterling and (y) Revolving Loans in
an aggregate principal amount up to the Foreign Currency Equivalent of the
Foreign Currency Limitation may, at the election of the Borrowers, be one or
more Foreign Currency Loans. With respect to Foreign Currency Loans:
(a) All principal of, and interest on, any Foreign Currency Loan shall
be payable in the same currency as that Foreign Currency Loan;
(b) Each Foreign Currency Loan shall be due and payable on the earlier
of (A) the last day of the related Foreign Currency Period or (B) the
Revolving Loan Maturity Date or the Term Loan Maturity Date, as applicable;
(c) Determination of credit availability under Section 2.1(a) and
2.1(b), as of any date, if there are then any outstanding Foreign Currency
Loans or Foreign Currency Letters of Credit, shall be based on the Foreign
Currency Equivalent thereof as of such date;
(d) The Requisite Lenders may suspend the obligation of the Lenders to
make Foreign Currency Loans with respect to a particular Foreign Currency
if the Requisite Lenders determine that current or reasonably expected
market conditions for that Foreign Currency are unusually unstable or make
it unlawful, impossible or impracticable for the Lenders to fund or hedge
their obligations with respect to a Foreign Currency Loan;
(e) Concurrently with (i) any Notice of Borrowing with respect to a
Revolving Loan requested to be made as a Foreign Currency Loan or (ii) any
Notice of Conversion/Continuation with respect to any Loan requested to be
continued as or converted into a Foreign Currency Loan, the requesting
Borrower shall pay to the Administrative Agent, for the account of the
Lenders pro rata in accordance with their Pro Rata Share of the Revolving
Commitment or the Term Loans, as applicable, a processing fee of $2,500;
(f) Unless the Administrative Agent and the Requisite Lenders
otherwise consent, no more than ten (10) Foreign Currency Periods and
Interest Periods with respect to Eurodollar Loans shall exist at any one
time; and
(g) the applicable Borrower shall execute and deliver, to any Lender
requesting it, a promissory note payable in the applicable Foreign Currency
in a form consistent with this Agreement covering that Lender's Pro Rata
Share of any Foreign Currency Loan.
2.4 Type of Loans.
(a) If no Notice of Conversion/Continuation has been made with respect
to any Loan within the requisite notice period set forth in Section 2.2,
prior to the end of the Interest Period for any outstanding Eurodollar Rate
Loan, then on the last day of such Interest Period, such Loan shall be
automatically converted into an Alternate Base Rate Loan in the same
amount.
(b) Each Loan (other than a Foreign Currency Loan) shall constitute an
Alternate Base Rate Loan unless properly designated as a Eurodollar Rate
Loan pursuant to the provisions of Section 2.2.
(c) With respect to any Eurodollar Rate Loan, on the date which is two
(2) Eurodollar Banking Days before the first day of the applicable Interest
Period, the Administrative Agent shall confirm its determination of the
applicable Eurodollar Rate (which determination shall be conclusive in the
absence of manifest error) and promptly shall give notice of the same to
the applicable Borrower and the Lenders by telephone or telecopier (and if
by telephone, promptly confirmed by telecopier).
(d) Nothing contained herein shall require any Lender to fund any Loan
in the Designated Eurodollar Market.
2.5 Funding of Loans.
(a) Promptly following receipt of a Notice of Borrowing, the
Administrative Agent shall notify each Lender participating in such Loan by
telephone or telecopier (and if by telephone, promptly confirmed by
telecopier) of the date and type of the Revolving Loan, the applicable
Foreign Currency, the applicable Interest Period or Foreign Currency
Period, and that Lender's share of the Revolving Loan.
(b) Not later than 11:00 A.M., California time, on the date specified
for any Loan (which must be a Banking Day), each Lender participating
therein shall make available its share of such Revolving Loan, in
immediately available funds (if a Foreign Currency Loan, in the applicable
Foreign Currency) available to the Administrative Agent at the
Administrative Agent's Office. Upon satisfaction or waiver of the
applicable conditions set forth in Article 8, the Administrative Agent
shall (i) apply the funds so received from the Lenders to repay all Swing
Line Loans (if any) then outstanding, together with interest accrued
thereon, and (ii) credit the remainder of such funds to the Concentration
Account or disburse such remainder as may be directed by the applicable
Borrower.
(c) Unless the Administrative Agent shall have been notified by any
Lender no later than 11:00 A.M. on the Banking Day of the proposed funding
by the Administrative Agent of any Revolving Loan that such Lender does not
intend to make available to the Administrative Agent such Lender's portion
of the total amount of such Loan, the Administrative Agent may assume that
such Lender has made such amount available to the Administrative Agent on
the date of the Loan and the Administrative Agent may, in reliance upon
such assumption, make available to the applicable Borrower a corresponding
amount. If the Administrative Agent has made funds available to the
applicable Borrower based on such assumption and such corresponding amount
is not in fact made available to the Administrative Agent by such Lender,
the Administrative Agent shall be entitled to recover such corresponding
amount on demand from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Administrative Agent's demand
therefor, the Administrative Agent promptly shall notify the applicable
Borrower and the applicable Borrower shall pay such corresponding amount to
the Administrative Agent. The Administrative Agent also shall be entitled
to recover from such Lender interest on such corresponding amount in
respect of each day from the date such corresponding amount was made
available by the Administrative Agent to such Borrower to the date such
corresponding amount is recovered by the Administrative Agent, at a rate
per annum equal to the daily Federal Funds Rate. Nothing herein shall be
deemed to relieve any Lender from its obligation to fulfill its share of
the Revolving Commitment or to prejudice any rights which the
Administrative Agent or the applicable Borrower may have against any Lender
as a result of any default by such Lender hereunder.
2.6 Notes.
(a) Each Borrower's obligation to repay (i) the Revolving Loans of
each Lender shall be evidenced by a single note, in substantially the form
of Exhibit D-1 hereto, payable to the order of such Lender (each such Note,
a "Revolving Loan Note"), and each Borrower's obligation to repay the Term
Loan of each Lender shall be evidenced by a single note, in substantially
the form of Exhibit D-2 hereto, payable to the order of such Lender (each
such note, a "Term Loan Note"). Each reference in this Agreement to a
"Note" or the "Notes" of such Lender shall be deemed to refer to and
include any or all of such Revolving Loan Notes and Term Loan Notes, as the
context may require.
(b) Each Lender may, by notice to the applicable Borrower and the
Administrative Agent, request that its Alternate Base Rate Loans, its
Eurodollar Rate Loans and/or its Foreign Currency Loans be evidenced by
separate Notes. Each such Note shall be in substantially the form of
Exhibit D-1 or D-2 hereto, as applicable, with appropriate modifications to
reflect the fact that it evidences solely the relevant kind of Loans.
Unless a Lender has received a separate promissory note evidencing its
share of a Foreign Currency Loan pursuant to Section 2.3 and this Section
2.6(b), the Loans made by each Lender as part of a Foreign Currency Loan
shall be evidenced by that Lender's Revolving Loan Note or Term Loan Note,
as the case may be, with the references therein to "Dollars" being deemed
references to the Foreign Currency which is the subject of such Foreign
Currency Loan. Each reference in this Agreement to a "Note" or the "Notes"
of such Lender shall be deemed to refer to and include any or all of such
Notes, as the context may require.
2.7 Letters of Credit.
(a) Subject to the terms and conditions hereof, at any time and from
time to time from the Effective Date through the Banking Date that is 30
days prior to the Revolving Loan Maturity Date, the Issuing Lender shall
issue such Letters of Credit under the Revolving Commitment as each
Borrower may request by a Request for Letter of Credit; provided that (i)
after giving effect to such Letter of Credit and any repayments of Loans
made, or satisfaction of Obligations in respect of Letters of Credit made,
on the same Banking Day, (A) the sum of (1) the aggregate principal amount
of Revolving Loans outstanding, plus (2) the Aggregate Exposure Amount of
all outstanding Letters of Credit, plus (3) the Swing Loan Outstandings do
not exceed the Revolving Commitment and (B) with respect to any single
Borrower, the sum of (1) the aggregate principal amount of the Revolving
Loans to such Borrower plus (2) the Aggregate Exposure Amount of all
outstanding Letters of Credit issued for the account of such Borrower plus
(3) as applicable, the Swing Loan Outstandings to such Borrower do not
exceed such Borrower's Loan Sublimit, (ii) the Aggregate Exposure Amount
under all outstanding Letters of Credit shall not exceed $15,000,000; and
(iii) with respect to a Request for Letter of Credit with respect to a
Foreign Currency Letter of Credit, the Issuing Lender shall not be
obligated to issue the Foreign Currency Letter of Credit with respect to a
particular Foreign Currency if and so long as the Issuing Lender determines
that current or reasonably expected market conditions for that Foreign
Currency are unusually unstable or would make it unlawful, impossible or
impracticable for the Issuing Lender to fund or hedge its obligations under
the Foreign Currency Letter of Credit. For purposes of the foregoing, the
aggregate principal amount of Loans outstanding and the Aggregate Exposure
Amount of outstanding Letters of Credit, to the extent consisting of
Foreign Currency Loans and Foreign Currency Letters of Credit,
respectively, shall be based on the Foreign Currency Equivalents thereof as
of the Banking Day immediately preceding the date of the Request for Letter
of Credit. Each Letter of Credit shall be in a form acceptable to the
Issuing Lender. Unless all the Lenders otherwise consent in a writing
delivered to the Administrative Agent, the term of any Letter of Credit
shall not exceed one (1) year (subject to extension in accordance with the
terms thereof; provided that all conditions precedent to issuance of a
Letter of Credit are satisfied in connection with any such extension) or
extend beyond the Revolving Loan Maturity Date. The Letters of Credit
outstanding under the Existing Credit Agreement on the Effective Date shall
automatically, without further action, continue as Letters of Credit
outstanding under this Agreement. (b) Each Request for Letter of Credit
shall be submitted to the Issuing Lender, with a copy to the Administrative
Agent, at least two (2) Banking Days prior to the date upon which the
related Letter of Credit is proposed to be issued. The Administrative Agent
shall promptly notify the Issuing Lender whether such Request for Letter of
Credit, and the issuance of a Letter of Credit pursuant thereto, conforms
to the requirements of this Agreement. Upon issuance of a Letter of Credit,
the Issuing Lender shall promptly notify the Administrative Agent, and the
Administrative Agent shall promptly notify the Lenders, of the amount and
terms thereof.
(c) Upon the issuance of a Letter of Credit, each Lender shall be
deemed to have purchased a pro rata participation in such Letter of Credit
from the Issuing Lender in an amount equal to that Lender's Pro Rata Share
of the maximum amount available for drawing thereunder. Without limiting
the scope and nature of each Lender's participation in any Letter of
Credit, to the extent that the Issuing Lender has not been reimbursed by
Borrowers for any payment required to be made by the Issuing Lender under
any Letter of Credit, each Lender shall, pro rata according to its Pro Rata
Share, reimburse the Issuing Lender through the Administrative Agent
promptly upon demand for the amount of such payment. The obligation of each
Lender to so reimburse the Issuing Lender shall be absolute and
unconditional and shall not be affected by the occurrence of an Event of
Default or any other occurrence or event. Any such reimbursement shall not
relieve or otherwise impair the obligation of the applicable Borrower to
reimburse the Issuing Lender for the amount of any payment made by the
Issuing Lender under any Letter of Credit together with interest as
hereinafter provided.
(d) Each Borrower agrees to pay to the Issuing Lender through the
Administrative Agent an amount equal to any payment made by the Issuing
Lender with respect to each Letter of Credit with respect to such Borrower
within one (1) Banking Day after demand made by the Issuing Lender
therefor, together with interest on such amount from the date of any
payment made by the Issuing Lender at the rate applicable to Alternate Base
Rate Loans for two (2) Banking Days after demand and thereafter at the
Default Rate. The principal amount of any such payment shall be used to
reimburse the Issuing Lender for the payment made by it under the Letter of
Credit and, to the extent that the Lenders have not reimbursed the Issuing
Lender pursuant to Section 2.7(c), the interest amount of any such payment
shall be for the account of the Issuing Lender. Each Lender that has
reimbursed the Issuing Lender pursuant to Section 2.7(c) for its Pro Rata
Share of any payment made by the Issuing Lender under a Letter of Credit
shall thereupon acquire a pro rata participation, to the extent of such
reimbursement, in the claim of the Issuing Lender against the applicable
Borrower for reimbursement of principal and interest under this Section
2.7(d) and shall share, in accordance with that pro rata participation, in
any principal payment made by the applicable Borrower with respect to such
claim and in any interest payment made by the applicable Borrower (but only
with respect to periods subsequent to the date such Lender reimbursed the
Issuing Lender) with respect to such claim.
(e) Each Borrower may, pursuant to a Notice of Borrowing, request that
Revolving Loans be made pursuant to Section 2.1(a) to provide funds for the
payment required by Section 2.7(d) and, for this purpose, the conditions
precedent set forth in Article 8 shall not apply. The proceeds of such
Revolving Loans shall be paid directly to the Issuing Lender to reimburse
it for the payment made by it under the Letter of Credit.
(f) If a Borrower fails to make the payment required by Section 2.7(d)
within the time period therein set forth, in lieu of the reimbursement to
the Issuing Lender under Section 2.7(c) the Issuing Lender may (but is not
required to), without notice to or the consent of such Borrower, instruct
the Administrative Agent to cause Loans to be made by the Lenders under the
Revolving Commitment in an aggregate amount equal to the amount paid by the
Issuing Lender with respect to that Letter of Credit and, for this purpose,
the conditions precedent set forth in Article 8 shall not apply. The
proceeds of such Loans shall be paid directly to the Issuing Lender to
reimburse it for the payment made by it under the Letter of Credit.
(g) The issuance of any supplement, modification, amendment, renewal,
or extension to or of any Letter of Credit shall be treated in all respects
the same as the issuance of a new Letter of Credit.
(h) The obligation of each Borrower to reimburse to the Issuing Lender
the amount of any payment made by the Issuing Lender under any Letter of
Credit shall be absolute, unconditional, and irrevocable. Without limiting
the foregoing, each Borrower's obligations shall not be affected by any of
the following circumstances:
(i) any lack of validity or enforceability prior to its stated
expiration date of the Letter of Credit, this Agreement, or any other
agreement or instrument relating thereto;
(ii) any amendment or waiver of or any consent to departure
from the Letter of Credit, this Agreement, or any other agreement or instrument
relating thereto, with or without the consent of such Borrower;
(iii) the existence of any claim, setoff, defense, or other rights
which such Borrower may have at any time against the Issuing Lender, the
Administrative Agent or any Lender, any beneficiary of the Letter of Credit (or
any persons or entities for whom any such beneficiary may be acting) or any
other Person, whether in connection with the Letter of Credit, this Agreement,
or any other agreement or instrument relating thereto, or any unrelated
transactions;
(iv) any demand, statement, or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(v) the existence, character, quality, quantity, condition,
value or delivery of any Property purported to be represented by documents
presented in connection with any Letter of Credit or any difference between any
such Property and the character, quality, quantity, condition, or value of such
Property as described in such documents;
(vi) the time, place, manner, order or contents of shipments
or deliveries of Property as described in documents presented in connection with
any Letter of Credit or the existence, nature and extent of any insurance
relative thereto;
(vii) the solvency or financial responsibility of any party
issuing any documents in connection with a Letter of Credit;
(viii)any failure or delay in notice of shipments or arrival of any
Property;
(ix) any error in the transmission of any message relating to
a Letter of Credit, or any delay or interruption in any such message;
(x) any error, neglect or default of any correspondent of
the Issuing Lender in connection with a Letter of Credit;
(xi) any consequence arising from acts of God, war,
insurrection, civil unrest, disturbances, labor disputes, emergency conditions
or other causes beyond the control of the Issuing Lender;
(xii) the form, accuracy, genuineness or legal effect of any
contract or document referred to in any document submitted to the Issuing
Lender in connection with a Letter of Credit; and
(xiii) where the Issuing Lender has acted in good faith and
observed general banking usage, any other circumstances whatsoever.
(i) The Issuing Lender shall be entitled to the protection accorded to
the Administrative Agent pursuant to Section 10.6.
(j) The Uniform Customs and Practice for Documentary Credits, as
published in its most current version by the International Chamber of
Commerce, shall be deemed a part of this Section and shall apply to all
Letters of Credit to the extent not inconsistent with applicable Law.
(k) No action taken or omitted in good faith by the Issuing Lender
under or in connection with any Letter of Credit, if taken or omitted in
the absence of gross negligence or willful misconduct, shall put such
Issuing Bank under any resulting liability to any Lender, any Borrower, any
of the Borrowers' Subsidiaries or, so long as it is not issued in violation
of Section 2.7(a), relieve any Lender of its obligations hereunder to such
Issuing Lender. Solely as between the Issuing Lender and the Lenders, in
determining whether to pay under any Letter of Credit, the Issuing Lender
shall have no obligation to the Lenders other than to confirm that any
documents required to be delivered under a Letter of Credit appear to have
been delivered and that they appear on their face to comply with the
requirements of such Letter of Credit.
2.8 Voluntary Reduction of Revolving Commitment.
Day Runner shall have the right, at any time and from time to time, without
premium or penalty, upon at least five (5) Banking Days' prior written notice by
a Responsible Official of Day Runner to the Administrative Agent, voluntarily to
reduce, permanently and irrevocably, in aggregate principal amounts in an
integral multiple of $1,000,000 but not less than $5,000,000, a portion of the
then undisbursed portion of the Revolving Commitment, or to terminate the
Revolving Commitment, provided that the Revolving Commitment shall not be
terminated while any Revolving Loans or Swing Line Loans remain outstanding. The
Administrative Agent shall promptly notify the Lenders of any reduction or
termination of the Revolving Commitment under this Section.
2.9 Swing Line Loans.
(a) The Swing Line Lender shall from time to time from the Effective
Date through the day prior to the Revolving Loan Maturity Date make Swing
Line Loans to Day Runner (i) in such amounts as Day Runner may request or
(ii) in connection with the Administrative Agent's "Credit Sweep" program
(or other program having comparable features and procedures) pursuant to
which, at the close of business on each Banking Day, if there then would be
a debit balance in the Concentration Account, the Swing Line Lender will
credit the Concentration Account in an amount such that, after giving
effect to such credit, the Concentration Account reflects a positive credit
balance of $1.00 (and each such credit shall constitute a Swing Line Loan
for all purposes of this Agreement), provided that (A) after giving effect
to such Swing Line Loan, the Swing Line Outstandings do not exceed
$10,000,000, and (B) without the consent of all of the Lenders, no Swing
Line Loan may be made during the continuation of a Default or an Event of
Default of which the Swing Line Lender has knowledge. Day Runner hereby
requests and authorizes the Swing Line Lender to make from time to time
Swing Line Loans in the manner set forth in clause (ii) above. Day Runner
may borrow, repay and reborrow Swing Line Loans under this Section 2.9.
Unless notified to the contrary by the Swing Line Lender, borrowings under
the Swing Line (other than pursuant to clause (ii) above) may be made in
amounts which are integral multiples of $100,000 upon telephonic request by
a Responsible Official of Day Runner made to the Administrative Agent not
later than 1:00 P.M., California time, on the Banking Day of the requested
borrowing (which telephonic request shall be promptly confirmed in writing
by telecopier by transmission of a Notice of Swing Line Loan in the form
attached hereto as Exhibit I). Promptly after receipt of such a request for
borrowing, the Administrative Agent shall provide telephonic verification
to the Swing Line Lender that, after giving effect to such request,
availability for Loans will exist under Section 2.1(a) (and such
verification shall be promptly confirmed in writing by telecopier). If Day
Runner instructs the Swing Line Lender to debit its demand deposit account
at the Swing Line Lender in the amount of any payment with respect to a
Swing Line Loan, or the Swing Line Lender otherwise receives repayment,
after 1:00 P.M., California time, on a Banking Day, such payment shall be
deemed received on the next Banking Day. The Swing Line Lender shall
promptly notify the Administrative Agent of the Swing Loan Outstandings
each time there is a change therein.
(b) Swing Line Loans shall bear interest at a fluctuating rate per
annum equal to the Alternate Base Rate plus the Applicable Base Rate Margin
in effect from time to time. Interest shall be payable on each Monthly
Payment Date or otherwise as may be specified by the Swing Line Lender and
in any event on the Revolving Loan Maturity Date. The Swing Line Lender
shall be responsible for invoicing Day Runner for such interest. The
interest payable on Swing Line Loans is solely for the account of the Swing
Line Lender (subject to clauses (d) and (e) below).
(c) Each Swing Line Loan shall be repayable on the earlier of (i)
demand therefor made by the Swing Line Lender and (ii) the Revolving Loan
Maturity Date.
(d) Upon the making of a Swing Line Loan, each Lender shall be deemed
to have purchased from the Swing Line Lender a participation therein in an
amount equal to that Lender's Pro Rata Share of the Revolving Commitment
times the amount of the Swing Line Loan. Within one (1) Banking Day after
demand made by the Swing Line Lender, each Lender shall, according to its
Pro Rata Share of the Revolving Commitment, promptly provide to the Swing
Line Lender its purchase price therefor in an amount equal to its
participation therein. The obligation of each Lender to so provide its
purchase price to the Swing Line Lender shall be absolute and unconditional
and shall not be affected by the occurrence of a Default or Event of
Default; provided that no Lender shall be obligated to purchase its Pro
Rata Share of (i) Swing Line Loans to the extent that Swing Line
Outstandings are in excess of $10,000,000 and (ii) any Swing Line Loan made
(without the consent of all of the Lenders) during the continuation of a
Default or an Event of Default of which the Swing Line Lender had knowledge
at the time such Swing Line Loan was made. Each Lender that has provided to
the Swing Line Lender the purchase price due for its participation in Swing
Line Loans shall thereupon acquire a pro rata participation, to the extent
of such payment, in the claim of the Swing Line Lender against Day Runner
for principal and interest and shall share, in accordance with that pro
rata participation, in any principal payment made by Day Runner with
respect to such claim and in any interest payment made by Day Runner (but
only with respect to periods subsequent to the date such Lender paid the
Swing Line Lender its purchase price) with respect to such claim.
(e) Upon any demand for payment of the Swing Line Outstandings by the
Swing Line Lender (unless Day Runner has made other arrangements reasonably
acceptable to the Swing Line Lender to repay in full the Swing Line
Outstandings), Day Runner shall request a Revolving Loan pursuant to
Section 2.1 sufficient to repay all Swing Line Outstandings (and, for this
purpose, Section 2.1(d) shall not apply). In the event that Day Runner
fails to request a Revolving Loan within the time specified by Section 2.1
on any such date, the Administrative Agent may, but is not required to,
without notice to or the consent of any Borrower, cause Revolving Loans to
be made by the Lenders under the Revolving Commitment, pro rata in
accordance with their respective Pro Rata Share of the Revolving
Commitment, in an aggregate amount sufficient to repay in full the Swing
Line Outstandings. The conditions precedent set forth in Article 8 shall
not apply to Revolving Loans to be made by the Lenders pursuant to this
Section 2.9(e). The proceeds of such Revolving Loans shall be paid directly
to the Swing Line Lender for application to the Swing Line Outstandings.
2.10 Guaranty.
The Obligations shall be guaranteed pursuant to the Subsidiary Guaranties
and the Borrower Guaranties.
2.11 Extension of Revolving Loan Maturity Date.
In the event that the Revolving Commitment has not been terminated on or
before October 9, 2000 (such date, the "Extension Determination Date"), the
Revolving Loan Maturity Date shall be extended, automatically and without any
further action by the Borrowers or the Lenders, to September 30, 2001, if and
only if:
(a) the Funded Senior Debt Ratio as of the last day of the Fiscal
Quarter ended June 30, 2000, as reflected in the financial statements
delivered by Day Runner on or before the Extension Determination Date, and
certified by the chief financial officer of Day Runner, is not greater than
5.50 to 1.00;
(b) the Fixed Charge Coverage Ratio as of the last day of the Fiscal
Quarter ended June 30, 2000, as reflected in the financial statements
delivered by Day Runner on or before the Extension Determination Date, and
certified by the chief financial officer of Day Runner, is not less than
1.10 to 1.00;
(c) EBITDA for the period of four consecutive Fiscal Quarters ending
on June 30, 2000, as reflected in the financial statements delivered by Day
Runner on or before the Extension Determination Date, and certified by the
chief financial officer of Day Runner, is not less than $18,000,000;
(d) no Default or Event of Default shall have occurred and be
continuing on the Extension Determination Date; and
(e) each of the representations and warranties of the Borrowers and
Subsidiary Guarantors set forth in the Loan Documents shall be true and
complete on and as of the Extension Determination Date with the same force
and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date).
Article 3
PAYMENTS AND FEES
3.1 Interest.
(a) (i) Interest will accrue on each Alternate Base Rate Loan (and
each other Obligation (other than Eurodollar Rate Loans and Foreign
Currency Loans) not paid when due) at the Alternate Base Rate in effect
from time to time plus Applicable Base Rate Margin;
(ii) Interest will accrue on each Eurodollar Rate Loan during each
Interest Period applicable thereto at the Adjusted Eurodollar Rate
applicable during such Interest Period plus the Applicable Eurodollar Rate
Margin in effect from time to time; and
(iii) Interest will accrue on each Foreign Currency Loan during each
Foreign Currency Period applicable thereto at the Foreign Currency Rate
applicable for such Foreign Currency Loan plus the Applicable Eurodollar
Rate Margin in effect from time to time.
(b) Interest shall be payable on the outstanding principal amount of
each Loan or other Obligation from the date such Loan is made or such other
Obligation is due and payable, as the case may be, until payment in full is
made, and shall accrue and be payable at the rates set forth or provided
for herein before and after Default, before and after maturity, before and
after judgment, and before and after the commencement of any proceeding
under any Debtor Relief Law.
(c) Interest accrued on each Alternate Base Rate Loan shall be due and
payable on (i) each Monthly Payment Date and (ii) the Revolving Loan
Maturity Date or the Term Loan Maturity Date, as applicable. Each change in
the interest rate under this Section 3.1 due to a change in the Alternate
Base Rate shall take effect simultaneously with the corresponding change in
the Alternate Base Rate. Each change in the interest rate under this
Section 3.1 due to a change in the Applicable Base Rate Margin shall take
effect simultaneously with the corresponding change in the Applicable Base
Rate Margin.
(d) Interest accrued on each Eurodollar Rate Loan which is for a term
of three months or less shall be due and payable on the last day of the
related Interest Period. Interest on each other Eurodollar Rate Loan shall
be due and payable on the date which is three months after the date such
Eurodollar Rate Loan was made (and, in the event that the applicable
Interest Period is longer than six months, every three months thereafter
through the last day of the Interest Period). Each change in the interest
rate under this Section 3.1 due to a change in the Eurodollar Reserve
Percentage shall take effect simultaneously with the corresponding change
in the Eurodollar Reserve Percentage. Each change in the interest rate
under this Section 3.1 due to a change in the Applicable Eurodollar Rate
Margin shall take effect simultaneously with the corresponding change in
the Applicable Eurodollar Rate Margin.
(e) Interest accrued on each Foreign Currency Loan which is for a term
of three months or less shall be due and payable on the last day of the
related Foreign Currency Period. Interest on each other Foreign Currency
Loan shall be due and payable on the date which is three months after the
date such Foreign Currency Loan was made. Each change in the interest rate
under this Section 3.1 due to a change in the Applicable Eurodollar Rate
Margin shall take effect simultaneously with the corresponding change in
the Applicable Eurodollar Rate Margin.
(f) Default Interest. Notwithstanding the rates of interest specified
in Section 3.1(a), effective immediately upon the occurrence of an Event of
Default, and for as long thereafter as such Event of Default shall be
continuing, the principal balance or all Loans, and the amount of all other
Obligations, shall bear interest at a rate which is two percent (2%) per
annum in excess of the rate of interest otherwise applicable hereunder to
such Loans or other Obligations from time to time, to the fullest extent
permitted by applicable Laws. Accrued and unpaid interest on past due
amounts (including, without limitation, interest on past due interest)
shall be compounded monthly, on the last day of each calendar month, to the
fullest extent permitted by applicable Laws, and shall be payable upon
demand.
3.2 Principal.
(a) If not sooner paid, the principal amount of the Revolving Loans
shall be payable as follows:
(i) the amount, if any, by which the sum of (A) the Revolving
Loans plus(B) the Aggregate Exposure Amount of all outstanding Letters of
Credit plus (C) the Swing Line Outstandings at any time exceeds the
then applicable Revolving Commitment shall be payable immediately (with
the aggregate principal amount of the Revolving Loans and Aggregate
Exposure Amount of outstanding Letters of Credit, to the extent consisting
of Foreign Currency Loans and Foreign Currency Letters of Credit,
respectively, being based on the Foreign Currency Equivalents thereof as of
the last Banking Day in each calendar month);
(ii) in the event and on each occasion that any Borrower or
any Subsidiary of a Borrower issues any equity security or incurs any
Indebtedness after the date hereof (other than Indebtedness permitted
pursuant to Section 6.10(a)(as to refinancings), (b), (c), (d), (e),
(h) or (i)), including without limitation any Subordinated Obligations, the
Borrowers shall substantially concurrently with (in any event not later
than the third Banking Day next following) the issuance of such securities
or the incurrence of such Indebtedness, prepay the Loans in an aggregate
amount equal to 100% of the Net Cash Issuance Proceeds therefrom to prepay
the outstanding Loans in accordance with Section 3.2(c);
(iii) at the end of each Banking Day, all funds on deposit in
the Concentration Account (after giving effect to the transfer to the Term
Loan Interest Reserve Account required pursuant to Section 5.14(c)) shall
be applied first to reduce the Swing Line Outstandings, and then, after
the principal balance of the Swing Line Outstandings is reduced to zero, to
prepay Revolving Loans, and then, after the principal balance of the
Revolving Loans Outstandings is reduced to zero, to prepay Term Loans;
(iv) not later than the third Banking Day following the
completion of any Disposition (other than any Disposition permitted
under Section 6.2 (other than under Section 6.2(c)), the Borrowers
shall make a prepayment of the Loans in an amount equal to 100% of the Net
Cash Sale Proceeds of such Disposition in accordance with Section 3.2(c);
and
(v) the principal of the Loans then outstanding shall in any
event be payable on the Revolving Loan Maturity Date or the Term Loan
Maturity Date, as applicable, and the Revolving Commitment shall
terminate on the Revolving Loan Maturity Date.
(b) The principal of the Loans, or any of them, may, at any time and
from time to time, voluntarily be paid or prepaid, in whole or in part,
without premium or penalty, except that any payment or prepayment of all or
any part of any Eurodollar Rate Loan or Foreign Currency Loan on a day
other than the last day of the applicable Interest Period shall be subject
to Sections 3.7 and 3.8. Each prepayment of principal on any Eurodollar
Rate Loan or any Foreign Currency Loan shall be accompanied by payment of
interest accrued to the date of payment on the amount of principal paid.
With respect to each prepayment of Loans pursuant to this Section 3.2(b),
such prepayments shall be applied first to prepay outstanding Revolving
Loans, and then, after the principal balance of the Revolving Loans is
reduced to zero, to prepay outstanding Term Loans, and in each such case in
accordance with Section 3.2(d).
(c) Prepayments of Loans made pursuant to Section 3.2(a)(ii) shall be
applied first to prepay the outstanding principal amount of the Term Loans
and then, after the principal balance of the Term Loans is reduced to zero,
to reduce the Revolving Commitment (and, to the extent applicable, to
prepay the Revolving Loans pursuant to Section 3.2(a)(i)), in each case in
accordance with Section 3.2(d). The Revolving Commitment shall be reduced
in an amount equal to the prepayment required pursuant to Section
3.2(a)(iv) (or, if the Revolving Commitment then is less than the amount of
the required prepayment, to zero), and such prepayment shall be applied
first to make any prepayment of Revolving Loans required under Section
3.2(a)(i) as a result of such reduction and then to the principal balance
of the Term Loans.
(d) Subject to Section 3.2(b), amounts applied pursuant to this
Section 3.2 to prepay Loans shall be applied first to reduce outstanding
Alternate Base Rate Loans. Any amounts remaining after each such
application shall be applied to first to reduce Eurodollar Rate Loans and
then to reduce Foreign Currency Loans, in each case subject to Sections 3.7
and 3.8.
3.3 Commitment Fee.
From the Effective Date through the Revolving Loan Maturity Date, the
Borrowers shall pay to the Administrative Agent, for the ratable accounts of the
Lenders pro rata according to their Pro Rata Share of the Revolving Commitment,
a commitment fee equal to the sum of (a) the daily Applicable Commitment Fee
Rate per annum times the average daily amount by which the Revolving Commitment
exceeds the sum of (i) the average daily principal amount of outstanding
Revolving Loans (but excluding the principal amount of any Swing Line Loans)
plus (ii) the average daily Aggregate Exposure Amount of all outstanding Letters
of Credit. The average daily principal amount of outstanding Revolving Loans, in
the case of Foreign Currency Loans, and the average daily Aggregate Exposure
Amount of outstanding Letters of Credit, in the case of Foreign Currency Letters
of Credit, shall be determined for this purpose for each calendar month of each
Fiscal Quarter based on the Foreign Currency Equivalents thereof as of the last
Banking Day in each such calendar month. The commitment fee shall be payable
quarterly in arrears on each Quarterly Payment Date and on the Revolving Loan
Maturity Date.
3.4 Amendment Fee and Administrative Agent's Fee.
In consideration of the agreements of the Lenders contained in this
Agreement, Day Runner agrees to pay to the Administrative Agent, for the account
of each Lender executing this Agreement, on the Effective Date, an amendment fee
(the "Amendment Fee") in an amount equal to 0.50% of the sum of (x) such
Lender's Term Loan and (y) such Lender's Pro Rata Share of the Revolving
Commitment as in effect on the Effective Date, after giving effect to this
Agreement. In addition, Day Runner agrees to pay to the Administrative Agent on
the Effective Date the Administrative Agent's Fee and other advisory fees
described in the fee letter dated as of October 12, 1999 from the Administrative
Agent to, and acknowledged and accepted by, Day Runner (such fees, together with
the Amendment Fees and the Administrative Agent's Fee, the "Fees"). The Fees
shall be payable in immediately available funds and, once paid, shall not be
refundable.
3.5 Letter of Credit Fees.
With respect to each Letter of Credit, each Borrower shall pay the
following fees:
(a) to the Administrative Agent for the ratable account of the Lenders
in accordance with their Pro Rata Share of the Revolving Commitment, a
standby letter of credit fee in an amount equal to the Applicable Standby
Letter of Credit Fee Rate as of the date of the issuance of such Letter of
Credit times the face amount of such Standby Letter of Credit through the
termination or expiration of such Standby Letter of Credit, payable
quarterly in advance, which the Administrative Agent shall promptly pay to
the Lenders; and
(b) concurrently with each issuance, negotiation, drawing or amendment
of each Letter of Credit, to the Issuing Lender for the sole account of the
Issuing Lender, issuance, negotiation, drawing and amendment fees in the
amounts set forth from time to time as the Issuing Lender's published
scheduled fees for such services.
All fees with respect to a Foreign Currency Letter of Credit shall be
payable in Dollars based on the Foreign Currency Equivalent as of the Banking
Day immediately preceding the date of the Request for Letter of Credit. Each of
the fees payable with respect to Letters of Credit under this Section is earned
when due and is nonrefundable.
3.6 Increased Commitment Costs.
If any Lender shall determine in good faith that the introduction after the
Closing Date of any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein or any change in the interpretation or
administration thereof by any central bank or other Governmental Agency charged
with the interpretation or administration thereof, or compliance by such Lender
(or its Eurodollar Lending Office) or any corporation controlling such Lender,
with any request, guideline or directive regarding capital adequacy (whether or
not having the force of Law) of any such central bank or other authority not
imposed as a result of such Lender's or such corporation's failure to comply
with any other Laws, affects or would affect the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender and (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy and such Lender's desired return on
capital) determines in good faith that the amount of such capital is increased,
or the rate of return on capital is reduced, in an amount deemed material by
such Lender in its sole discretion, as a consequence of its obligations under
this Agreement, then, within five (5) Banking Days after demand of such Lender,
the Borrowers shall pay to such Lender, from time to time as specified in good
faith by such Lender, additional amounts sufficient to compensate such Lender in
light of such circumstances, to the extent reasonably allocable to such
obligations under this Agreement; provided that, before making any such demand,
each Lender agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to designate a different
Applicable Lending Office if the making of such designation would avoid the need
for, or materially reduce the amount of, such increased cost and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender, provided that such Borrower shall not be obligated to pay any such
amount which arose prior to the date which is one hundred and eighty (180) days
preceding the date of such demand or is attributable to periods prior to the
date which is one hundred and eighty (180) days preceding the date of such
demand. Each Lender's determination of such amounts shall be conclusive in the
absence of manifest error.
3.7 Eurodollar Costs and Related Matters.
(a) In the event that any Governmental Agency imposes on any Lender
any reserve or comparable requirement (including any emergency,
supplemental or other reserve) with respect to the Eurodollar Obligations
hereunder of that Lender, the Borrowers shall pay that Lender within five
(5) Banking Days after demand all amounts necessary to compensate such
Lender (determined as though such Lender's Eurodollar Lending Office had
funded 100% of its Eurodollar Rate Loan in the Designated Eurodollar
Market) in respect of the imposition of such reserve requirements. The
Lender's determination of such amount shall be conclusive in the absence of
manifest error.
(b) If, after the date hereof, the existence or occurrence of any
Special Eurodollar Circumstance:
(1) shall subject any Lender or its Eurodollar Lending Office to
any tax, duty or other charge or cost with respect to any Eurodollar
Rate Loan, any of its Notes evidencing Eurodollar Rate Loans or its
obligation to make Eurodollar Rate Loans, or shall change the basis of
taxation of payments to any Lender attributable to the principal of or
interest on any Eurodollar Rate Loan or any other amounts due under
this Agreement in respect of any Eurodollar Rate Loan, any of its
Notes evidencing Eurodollar Rate Loans or its obligation to make
Eurodollar Rate Loans, excluding (i) taxes imposed on or measured
in whole or in part by its overall net income or net worth by any
jurisdiction (or political subdivision thereof) in which it is
organized or maintains its principal office or Eurodollar Lending
Office and (ii) any withholding taxes imposed by the United States of
America for any period with respect to which it has failed to provide
the Borrowers with the appropriate form or forms required by Section
11.21, to the extent such forms are then required by applicable Laws;
(2) shall impose, modify or deem applicable any reserve not
applicable or deemed applicable on the date hereof (including any
reserve imposed by the Board of Governors of the Federal Reserve
System, special deposit,capital or similar requirements against assets
of, deposits with or for the account of, or credit extended by, any
Lender or its Eurodollar Lending Office); or
(3) shall impose on any Lender or its Eurodollar Lending
Office or the Designated Eurodollar Market any other condition
affecting any Eurodollar Rate Loan, any of its Notes evidencing
Eurodollar Rate Loans, its obligation to make Eurodollar Rate Loans or
this Agreement, or shall otherwise affect any of the same;
and the result of any of the foregoing, as determined in good faith by such
Lender, increases the cost in a material amount to such Lender or its Eurodollar
Lending Office of making or maintaining any Eurodollar Rate Loan or in respect
of any Eurodollar Rate Loan, any of its Notes evidencing Eurodollar Rate Loans
or its obligation to make Eurodollar Rate Loans or reduces the amount of any sum
received or receivable by such Lender or its Eurodollar Lending Office with
respect to any Eurodollar Rate Loan, any of its Notes evidencing Eurodollar Rate
Loans or its obligation to make Eurodollar Rate Loans (assuming such Lender's
Eurodollar Lending Office had funded 100% of its Eurodollar Rate Loan in the
Designated Eurodollar Market), then, within five (5) Banking Days after demand
by such Lender (with a copy to the Administrative Agent), the applicable
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction (determined as
though such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar
Rate Loans in the Designated Eurodollar Market); provided that the applicable
Borrower shall not be obligated to pay any such amount which arose prior to the
date which is one hundred and eighty (180) days preceding the date of such
demand or is attributable to periods prior to the date which is one hundred and
eighty (180) days preceding the date of such demand. A statement of any Lender
claiming compensation under this subsection shall be conclusive in the absence
of manifest error.
(c) If, after the date hereof, the existence or occurrence of any
Special Eurodollar Circumstance shall, in the good faith opinion of any
Lender, make it unlawful or impossible for such Lender or its Eurodollar
Lending Office to make, maintain or fund its portion of any Eurodollar Rate
Loan, or materially restrict the authority of such Lender to purchase or
sell, or to take deposits of, Dollars in the Designated Eurodollar Market,
or to determine or charge interest rates based upon the Eurodollar Rate,
and such Lender shall so notify the Administrative Agent, then such
Lender's obligation to make Eurodollar Rate Loans shall be suspended for
the duration of such illegality or impossibility and the Administrative
Agent forthwith shall give notice thereof to the other Lenders and the
Borrowers. Upon receipt of such notice, the outstanding principal amount of
such Lender's Eurodollar Rate Loans, together with accrued interest
thereon, automatically shall be converted to Alternate Base Rate Loans on
either (1) the last day of the Eurodollar Period(s) applicable to such
Loans if such Lender may lawfully continue to maintain and fund such Loans
to such day(s) or (2) immediately if such Lender may not lawfully continue
to fund and maintain such Loans to such day(s), provided that in such event
the conversion shall not be subject to payment of a prepayment fee under
Section 3.7(e). Each Lender agrees to endeavor promptly to notify the
applicable Borrower of any event of which it has actual knowledge,
occurring after the Closing Date, which will cause that Lender to notify
the Administrative Agent under this Section, and agrees to designate a
different Eurodollar Lending Office if such designation will avoid the need
for such notice and will not, in the good faith judgment of such Lender,
otherwise be disadvantageous to such Lender. In the event that any Lender
is unable, for the reasons set forth above, to make, maintain or fund its
portion of any Eurodollar Rate Loan, such Lender shall fund such amount as
an Alternate Base Rate Loan for the same period of time, and such amount
shall be treated in all respects as an Alternate Base Rate Loan. Any Lender
whose obligation to make Eurodollar Rate Loans has been suspended under
this Section shall promptly notify the Administrative Agent and the
Borrowers of the cessation of the Special Eurodollar Circumstance which
gave rise to such suspension.
(d) If, with respect to any proposed Eurodollar Rate Loan:
(1) the Administrative Agent reasonably determines that, by
reason of circumstances affecting the Designated Eurodollar Market
generally that are beyond the reasonable control of the Lenders,
deposits in Dollars (in the applicable amounts) are not being offered
to any Lender in the Designated Eurodollar Market for the applicable
Interest Period; or
(2) the Requisite Lenders advise the Administrative Agent
that the Eurodollar Rate as determined by the Administrative Agent
(i) does not represent the effective pricing to such Lenders for
deposits in Dollars in the Designated Eurodollar Market in the
relevant amount for the applicable Interest Period, or (ii) will not
adequately and fairly reflect the cost to such Lenders of making the
applicable Eurodollar Rate Loans; then the Administrative Agent
forthwith shall give notice thereof to the Borrowers and the Lenders,
whereupon until the Administrative Agent notifies the Borrowers that
the circumstances giving rise to such suspension no longer exist, the
obligation of the Lenders to make any future Eurodollar Rate Loans
shall be suspended.
(e) Upon payment of any Eurodollar Rate Loan (including as
the result of a conversion required under Section 3.7(c)) on a day
other than the last day in the applicable Interest Period (whether
voluntarily, involuntarily, by reason of acceleration, or otherwise),
or upon the failure of a Borrower to borrow on the date or in the
amount specified for a Eurodollar Rate Loan in any Notice of
Borrowing, such Borrower shall pay to the appropriate Lender within
five (5) Banking Days after demand a fee (determined as though 100%
of the Eurodollar Rate Loan, as the case may be, had been funded in
the Designated Eurodollar Market) equal to the sum of:
(1) the present value of the excess, if any, of (i)
the additional interest that would have accrued on the amount
prepaid or not borrowed at the applicable Eurodollar Rate if that
amount had remained or been outstanding through the last day of the
applicable Interest Period over (ii) the interest that the Lender
could recover by placing such amount on deposit in the Designated
Eurodollar Market for a period beginning on the date of the prepayment
or failure to borrow and ending on the last day of the applicable
Interest Period (or, if no deposit rate quotation is available for
such period, for the most comparable period for which a deposit
rate quotation may be obtained), discounted at the Federal Funds
Rate; plus
(2) all out-of-pocket expenses incurred by the Lender
reasonably attributable to such payment, prepayment or failure to
borrow.
Each Lender's determination of the amount of any prepayment fee
payable under this Section shall be conclusive in the absence of manifest
error.
(f) Each Lender agrees to endeavor promptly to notify the Borrowers of
any event of which it has actual knowledge, occurring after the Closing
Date, which will entitle such Lender to compensation pursuant to clause (a)
or clause (b) of this Section, and agrees to designate a different
Eurodollar Lending Office if such designation will avoid the need for or
reduce the amount of such compensation and will not, in the good faith
judgment of such Lender, otherwise be disadvantageous to such Lender. Any
request for compensation by a Lender under this Section shall set forth the
basis upon which it has been determined that such an amount is due from the
applicable Borrower, a calculation of the amount due, and a certification
that the corresponding costs have been incurred by the Lender.
3.8 Foreign Currency Costs and Related Matters.
(a) In the event that any Governmental Agency imposes on any Lender
any reserve or comparable requirement with respect to the Foreign Currency
Loans hereunder of that Lender, the Borrowers shall pay that Lender within
five (5) Banking Days after demand all amounts necessary to compensate such
Lender in respect of the imposition of such requirements. The Lender's
determination of such amount shall be conclusive in the absence of manifest
error.
(b) If, after the date hereof, the adoption of any Law or any change
in the interpretation of administration of any Law (including, without
limitation, the imposition of any currency exchange control or
restriction):
(1) shall subject any Lender or its Applicable Lending Office to
any tax, duty or other charge or cost with respect to any Foreign Currency
Loan,any of its Notes evidencing Foreign Currency Loans or its obligation
to make Foreign Currency Loans, or shall change the basis of taxation of
payments to any Lender attributable to the principal of or interest on any
Foreign Currency Loan or any other amounts due under this Agreement in
respect of any Foreign Currency Loan, any of its Notes evidencing Foreign
Currency Loans or its obligation to make Foreign Currency Loans;
(2) shall impose on any Lender or its Applicable Lending
Office or the Designated Foreign Currency Market any other condition
affecting any Foreign Currency Loan, any of its Notes evidencing Foreign
Currency Loans, or its obligation to make Foreign Currency Loans or this
Agreement, or shall otherwise affect any of the same;
and the result of any of the foregoing, as determined in good faith by such
Lender, increases the cost to such Lender or its Applicable Lending Office, in
an amount deemed by it to be material, of making or maintaining any Foreign
Currency Loan or in respect of any Foreign Currency Loan, any of its Notes
evidencing Foreign Currency Loans or its obligation to make Foreign Currency
Loans or reduces the amount of any sum received or receivable by such Lender or
its Applicable Lending Office with respect to any Foreign Currency Loan, any of
its Notes evidencing Foreign Currency Loans or its obligation to make Foreign
Currency Loans, then, within five (5) Banking Days after demand by such Lender
(with a copy to the Administrative Agent), the applicable Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender for
such increased cost or reduction; provided that the applicable Borrower shall
not be obligated to pay any such amount which arose prior to the date which is
one hundred and eighty (180) days preceding the date of such demand or is
attributable to periods prior to the date which is one hundred and eighty (180)
days preceding the date of such demand. A statement of any Lender claiming
compensation under this subsection shall be conclusive in the absence of
manifest error.
(c) If, after the date hereof, the adoption of any Law or any change
in the interpretation of administration of any Law (including, without
limitation, the imposition of any currency exchange control or restriction)
shall, in the good faith opinion of any Lender, make it unlawful or
impracticable for such Lender or its Applicable Lending Office to make,
maintain or fund its portion of any Foreign Currency Loan, or materially
restrict the authority of such Lender to purchase or sell, or to take
deposits of, the relevant Foreign Currency in the Designated Foreign
Currency Market, or to determine or charge interest rates based upon the
Foreign Currency Rate, and such Lender shall so notify the Administrative
Agent, then such Lender's obligation to make Foreign Currency Rate Loans
shall be suspended for the duration of such illegality or impracticability
and the Administrative Agent forthwith shall give notice thereof to the
other Lenders and the Borrowers. Upon receipt of such notice, the
outstanding principal amount of such Lender's Foreign Currency Loans shall
be repaid, together with accrued interest thereon, on either (1) the last
day of the Foreign Currency Period(s) applicable to such Loans if such
Lender may lawfully continue to maintain and fund such Loans to such day(s)
or (2) immediately if such Lender may not lawfully continue to fund and
maintain such Loans to such day(s), provided that in such event the
conversion shall not be subject to payment of a prepayment fee under
Section 3.7(f). Each Lender agrees to endeavor promptly to notify the
applicable Borrower of any event of which it has actual knowledge,
occurring after the Closing Date, which will cause that Lender to notify
the Administrative Agent under this Section, and agrees to designate a
different Applicable Lending Office if such designation will avoid the need
for such notice and will not, in the good faith judgment of such Lender,
otherwise be disadvantageous to such Lender. In the event that any Lender
is unable, for the reasons set forth above, to make, maintain or fund its
portion of any Foreign Currency Rate Loan, such Lender shall fund such
amount as an Alternate Base Rate Loan for the same period of time, and such
amount shall be treated in all respects as an Alternate Base Rate Loan. Any
Lender whose obligation to make Foreign Currency Rate Loans has been
suspended under this Section shall promptly notify the Administrative Agent
and the Borrowers of the cessation of the Special Foreign Currency
Circumstance which gave rise to such suspension.
(d) If, with respect to any proposed Foreign Currency Loan:
(1) the Administrative Agent reasonably determines that, by
reason of circumstances affecting the Designated Foreign Currency
Market generally that are beyond the reasonable control of the Lenders,
deposits in the applicable Foreign Currency (in the applicable amount and
for the applicable periods) are not being offered to any Lender in the
Designated Foreign Currency Market for the applicable Interest Period; or
(2) the Requisite Lenders advise the Administrative Agent
that the Foreign Currency Rate as determined by the Administrative Agent
(i)does not represent the effective pricing to such Lenders for deposits
in the applicable Foreign Currency in the Designated Foreign Currency
Market in the relevant amount for the applicable Interest Period, or (ii)
will not adequately and fairly reflect the cost to such Lenders of making
the applicable Foreign Currency Loans; then the Administrative Agent
forthwith shall give notice thereof to the Borrowers and the Lenders,
whereupon until the Administrative Agent notifies the Borrowers that
the circumstances giving rise to such suspension no longer exist, the
obligation of the Lenders to make any future Foreign Currency Loans shall
be suspended.
(e) Upon payment of any Foreign Currency Loan (including as the result
of a conversion required under Section 3.8(c)) on a day other than the last
day in the applicable Interest Period (whether voluntarily, involuntarily,
by reason of acceleration, or otherwise), or upon the failure of a Borrower
to borrow on the date or in the amount specified for a Foreign Currency
Rate Loan in any Notice of Borrowing, such Borrower shall pay to the
appropriate Lender within five (5) Banking Days after demand a fee equal to
the sum of:
(1) the present value of the excess, if any, of (i)the additional
interest that would have accrued on the amount prepaid or not borrowed at
the applicable Foreign Currency Rate if that amount had remained or been
outstanding through the last day of the applicable Interest Period over
(ii) the interest that the Lender could recover by placing such amount on
deposit in the Designated Foreign Currency Market for a period beginning on
the date of the prepayment or failure to borrow and ending on the last day
of the applicable Interest Period (or, if no deposit rate quotation is
available for such period, for the most comparable period for which a
deposit rate quotation may be obtained), discounted at the Federal Funds
Rate; plus
(2) all out-of-pocket expenses incurred by the Lender
reasonably attributable to such payment, prepayment or failure to borrow.
Each Lender's determination of the amount of any prepayment
fee payable under this Section shall be conclusive in the absence of
manifest error.
(f) Each Lender agrees to endeavor promptly to notify the
Borrowers of any event of which it has actual knowledge, occurring
after the Closing Date, which will entitle such Lender to compensation
pursuant to clause (a) or clause (b) of this Section, and agrees to
designate a different Applicable Lending Office if such designation
will avoid the need for or reduce the amount of such compensation and
will not, in the good faith judgment of such Lender, otherwise be
disadvantageous to such Lender. Any request for compensation by a
Lender under this Section shall set forth the basis upon which it has
been determined that such an amount is due from the applicable
Borrower, a calculation of the amount due, and a certification that
the corresponding costs have been incurred by the Lender.
3.9 Intentionally Omitted.
3.10 Computation of Interest and Fees.
(a) Interest based on the Alternate Base Rate hereunder shall be
computed on the basis of a year of 365 days (or 366 days in a leap
year) and paid for the actual number of days elapsed, unless the
Alternate Base Rate is determined by reference to the Federal Funds
Rate, in which case the Alternate Base Rate shall be computed on the
basis of a year of 360 days. All other interest and fees shall be
computed on the basis of a year of 360 days and paid for the actual
number of days elapsed. Interest shall accrue on each Loan for the day
on which the Loan is made; interest shall not accrue on a Loan, or any
portion thereof, for the day on which the Loan or such portion is
paid. Any Loan that is repaid on the same day on which it is made
shall bear interest for one day. Notwithstanding anything in this
Agreement to the contrary, interest in excess of the maximum amount
permitted by applicable laws shall not accrue or be payable hereunder
or under the Notes, and any amount paid as interest hereunder or under
the Notes which would otherwise be in excess of such maximum permitted
amount shall instead be treated as a payment of principal.
(b) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder and each Commitment Fee Rate and
Applicable Standby Letter of Credit Fee applicable hereunder. The
Administrative Agent shall give prompt notice to Day Runner and the
relevant Lenders of each interest rate, Commitment Fee Rate and
Applicable Standby Letter of Credit Fee so determined, and its
determination thereof shall be conclusive in the absence of manifest
error.
3.11 Non-Banking Days.
If any payment to be made by a Borrower or any other Party under any Loan
Document shall come due on a day other than a Banking Day, payment shall instead
be considered due on the next succeeding Banking Day and the extension of time
shall be reflected in computing interest and fees.
3.12 Manner and Treatment of Payments.
(a) Each payment hereunder (except payments pursuant to Sections
3.6, 3.7, 3.8, 11.3, 11.11 and 11.22) or on the Notes or under any
other Loan Document shall be made to the Administrative Agent at the
Administrative Agent's Office for the account of each of the Lenders
or the Administrative Agent, as the case may be, in immediately
available funds not later than 11:00 A.M. California time, on the day
of payment (which must be a Banking Day). All payments received after
such time, on any Banking Day, shall be deemed received on the next
succeeding Banking Day. The amount of all payments received by the
Administrative Agent for the account of each Lender shall be
immediately paid by the Administrative Agent to the applicable Lender
in immediately available funds and, if such payment was received by
the Administrative Agent by 11:00 A.M., California time, on a Banking
Day and not so made available to the account of a Lender on that
Banking Day, the Administrative Agent shall reimburse that Lender for
the cost to such Lender of funding the amount of such payment at the
Federal Funds Rate. All payments shall be made in lawful money of the
United States of America, except that payments of principal and
interest on Foreign Currency Loans, and reimbursement payments in
respect of Foreign Currency Letters of Credit, shall be made in the
Foreign Currency of that Foreign Currency Loan or Foreign Currency
Letter of Credit.
(b) Day Runner hereby authorizes the Administrative Agent to
debit (i) the Concentration Account as of the date any payment of (A)
principal or interest with respect to the Revolving Loans, (B)
commitment fee or (C) other amount payable by Day Runner under this
Agreement is due in an amount equal to such payment and/or (ii) the
Term Loan Interest Reserve Account as of the date of any payment of
principal or interest or other amount payable with respect to the Term
Loans is due in an amount equal to such payment. Day Runner hereby
agrees to take such steps as are necessary to assure that the
Concentration Account and/or the Term Loan Interest Reserve Account,
as the case may be, will, on each such date, have a credit balance in
immediately available funds at least equal to the amount of such
payment.
(c) Each payment or prepayment on account of any Loan shall be
applied pro rata according to the outstanding Loans made by each
Lender comprising such Loan.
(d) Each Lender shall use its best efforts to keep a record
(in writing or by an electronic data entry system) of Loans made by it and
payments received by it with respect to each of its Notes and such record shall,
as against the Borrowers, be presumptive evidence of the amounts owing.
Notwithstanding the foregoing sentence, the failure by any Lender to keep such a
record shall not affect Borrower's obligation to pay the Obligations.
(e) Each payment of any amount payable by any Borrower or any
other Party under this Agreement or any other Loan Document shall be
made free and clear of, and without reduction by reason of, any taxes,
assessments or other charges imposed by any Governmental Agency,
central bank or comparable authority, excluding (i) taxes imposed on
or measured in whole or in part by its overall net income, net worth
or the like by any jurisdiction (or political subdivision thereof) in
which it is organized or maintains its principal office or Eurodollar
Lending Office and (ii) any withholding taxes imposed by the United
States of America for any period with respect to which it has failed
to provide the Borrowers with the appropriate form or forms required
by Section 11.21, to the extent such forms are then required by
applicable Laws (all such non-excluded taxes, assessments or other
charges being hereinafter referred to as "Taxes"). To the extent that
a Borrower is obligated by applicable Laws to make any deduction or
withholding on account of Taxes from any amount payable to any Lender
under this Agreement, such Borrower shall (i) make such deduction or
withholding and pay the same to the relevant Governmental Agency and
(ii) pay such additional amount to that Lender as is necessary to
result in that Lender's receiving a net after-Tax amount equal to the
amount to which that Lender would have been entitled under this
Agreement absent such deduction or withholding. If and when receipt of
such payment results in an excess payment or credit to that Lender on
account of such Taxes, that Lender shall promptly refund such excess
to the applicable Borrower.
3.13 Funding Sources.
Nothing in this Agreement shall be deemed to obligate any Lender to obtain
the funds for any Loan in any particular place or manner or to constitute a
representation by any Lender that it has obtained or will obtain the funds for
any Loan in any particular place or manner.
3.14 Failure to Charge Not Subsequent Waiver.
Any decision by the Administrative Agent or any Lender not to require
payment of any interest (including interest arising under Section 3.9), fee,
cost or other amount payable under any Loan Document, or to calculate any amount
payable by a particular method, on any occasion shall in no way limit or be
deemed a waiver of the Administrative Agent's or such Lender's right to require
full payment of any interest (including interest arising under Section 3.9),
fee, cost or other amount payable under any Loan Document, or to calculate an
amount payable by another method that is not inconsistent with this Agreement,
on any other or subsequent occasion.
3.15 Administrative Agent's Right to Assume Payments Will be Made.
Unless the Administrative Agent shall have been notified by a Borrower
prior to the date on which any payment to be made by such Borrower hereunder is
due that such Borrower does not intend to remit such payment, the Administrative
Agent may, in its discretion, assume that each Borrower has remitted such
payment when so due and the Administrative Agent may, in its discretion and in
reliance upon such assumption, make available to each Lender on such payment
date an amount equal to such Lender's share of such assumed payment. If a
Borrower has not in fact remitted such payment to the Administrative Agent, each
Lender shall forthwith on demand repay to the Administrative Agent the amount of
such assumed payment made available to such Lender, together with interest
thereon in respect of each day from and including the date such amount was made
available by the Administrative Agent to such Lender to the date such amount is
repaid to the Administrative Agent at the Federal Funds Rate.
3.16 Fee Determination Detail.
The Administrative Agent, and any Lender, shall provide reasonable detail
to each Borrower regarding the manner in which the amount of any payment to the
Administrative Agent and the Lenders, or that Lender, under Article 3 has been
determined, concurrently with demand for such payment.
3.17 Survivability.
All of each Borrower's obligations under Sections 3.6, 3.7 and 3.8 shall
survive for the ninety (90) day period following the date on which the Revolving
Commitment are terminated and all Loans hereunder are fully paid, and each
Borrower shall remain obligated thereunder for all claims under such Sections
made by any Lender to such Borrower prior to the expiration of such period.
3.18 Application of Payments.
(a) If an Event of Default occurs, and the Revolving Commitment
is terminated and the maturity of the Obligations is accelerated
pursuant to Section 9.2, the Administrative Agent shall, so long as
either of the Filofax Working Capital Guaranties is in effect, apply
all payments in respect of any Obligations and all proceeds of
Collateral in the following order:
(i) first, to pay interest on and then principal of any
portion of any Revolving Loans which the Administrative Agent may have
advanced on behalf of any Lender for which the Administrative Agent has
not been reimbursed by such Lender or the Borrowers;
(ii) second, to pay Obligations in respect of any expense
reimbursements (including attorneys' fees and disbursements),
indemnities and other similar amounts then due to the Administrative
Agent or any Lender,
(iii) third, to pay, pro rata, any amounts owing to the
Administrative Agent or any Lender in respect of overdrafts and related
liabilities arising from treasury, depository or cash management
services provided to any of the Borrowers or any of their respective
Subsidiaries or in connection with any automated clearing house
transfer of funds;
(iv) fourth, to pay Obligations in respect of any fees then
due to the Administrative Agent, the Lenders and the Issuing Bank;
(v) fifth, to pay accrued and unpaid interest due in respect
of the Loans;
(vi)sixth, to repay the outstanding principal amount of the
Revolving Loans;
(vii) seventh, to repay the outstanding principal amount of
the Term Loans; and
(viii) eighth, to the ratable payment of all other
Obligations;
provided, however, if sufficient funds are not available to fund
all payments to be made in respect of any of the Obligations described
in any of the foregoing clauses (i) through (viii), the available
funds being applied with respect to any such Obligation (unless
otherwise specified in such clause) shall be allocated to the payment
of such Obligations ratably, based on the proportion of the
Administrative Agent's and each Lender's or the Issuing Bank's
interest in the aggregate outstanding Obligations described in such
clauses; and provided, further, that, at any time that the Filofax
Working Capital Guaranties are not in effect, the Administrative Agent
shall apply all payments in respect of any Obligations and all
proceeds of Collateral in such order as the Administrative Agent may
determine in its sole and absolute discretion.
(b) Each of the Borrowers hereby waives any right that such
Borrower may have under Section 2822(a) of the California Civil Code
to designate how any payment received by the Administrative Agent or
any Lender (whether made by a Borrower or any Subsidiary Guarantor)
with respect to the Obligations are applied and/or which portion of
the Obligations are reduced by such payment.
Article 4
REPRESENTATIONS AND WARRANTIES
The Borrowers, jointly and severally, represent and warrant to the Lenders
that:
4.1 Existence and Qualification; Power; Compliance With Laws.
Each Borrower is a corporation duly formed and validly existing under the
Laws of its jurisdiction of incorporation. Each Borrower incorporated under the
Laws of a jurisdiction within the United States is in good standing under the
Laws of such jurisdiction of incorporation. Schedule 4.1 hereto correctly sets
forth the names, form of legal entity, number of shares of capital stock (or
other applicable unit of equity interest) issued and outstanding, and the record
owner thereof and jurisdictions of organization of all Borrowers. Each Borrower
is duly qualified or registered to transact business and is in good standing in
each other jurisdiction in which the conduct of its business or the ownership or
leasing of its Properties makes such qualification or registration necessary,
except where the failure so to qualify or register and to be in good standing
would not constitute a Material Adverse Effect. Each Borrower has all requisite
power and authority to conduct its business, to own and lease its Properties and
to execute and deliver each Loan Document to which it is a Party and to perform
its Obligations. All outstanding shares of capital stock of each Borrower are
duly authorized, validly issued, fully paid and non-assessable, and no holder
thereof has any enforceable right of rescission under any applicable state or
federal securities Laws. Each Borrower is in compliance with all Laws and other
legal requirements applicable to its business, has obtained all authorizations,
consents, approvals, orders, licenses and permits from, and has accomplished all
filings, registrations and qualifications with, or obtained exemptions from any
of the foregoing from, any Governmental Agency that are necessary for the
transaction of its business, except where the failure so to comply, obtain
authorizations, etc., file, register, qualify or obtain exemptions does not
constitute a Material Adverse Effect.
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations.
The execution, delivery and performance by each Borrower and the Subsidiary
Guarantors of the Loan Documents to which each is a Party have been duly
authorized by all necessary corporate action, and do not and will not:
(a) Require any consent or approval not heretofore obtained of
any partner, director, stockholder, security holder or creditor of
such Party;
(b) Violate or conflict with any provision of such Party's
charter, articles of incorporation or bylaws, as applicable;
(c) Result in or require the creation or imposition of any Lien
(other than pursuant to the Loan Documents) upon or with respect to
any Property now owned or leased or hereafter acquired by such Party;
(d) Violate any Requirement of Law applicable to such Party;
(e) Result in a breach of or constitute a default under, or cause
or permit the acceleration of any obligation owed under, any indenture
or loan or credit agreement or any other Contractual Obligation to
which such Party is a party or by which such Party or any of its
Property is bound or affected; and such Party is not in violation of,
or default under, any Requirement of Law or Contractual Obligation,
including without limitation the provisions of any indenture, loan or
credit agreement described in Section 4.2(e).
4.3 No Governmental Approvals Required.
Except as previously obtained or made, no authorization, consent, approval,
order, license or permit from, or filing, registration or qualification with,
any Governmental Agency is or will be required to authorize or permit under
applicable Laws the execution, delivery and performance by each Borrower or any
Subsidiary Guarantor of the Loan Documents to which it is a Party.
4.4 Subsidiaries.
(a) Schedule 4.4 hereto correctly sets forth the names, form of
legal entity, number of shares of capital stock (or other applicable
unit of equity interest) issued and outstanding, and the record owner
thereof and jurisdictions of organization of all Subsidiaries of each
Borrower as of the date hereof. Unless otherwise indicated in Schedule
4.4, all of the outstanding shares of capital stock, or all of the
units of equity interest, as the case may be, of each such Subsidiary
are owned of record and beneficially by a Borrower, there are no
outstanding options, warrants or other rights to purchase capital
stock of any such Subsidiary, and all such shares or equity interests
so owned are duly authorized, validly issued, fully paid and non-
assessable, and were issued in compliance with all applicable state
and federal securities and other Laws, and are free and clear of all
Liens and Rights of Others, except for Permitted Encumbrances.
(b) Each Subsidiary is a corporation duly formed and validly
existing under the Laws of its jurisdiction of organization. Each
Subsidiary incorporated under the Laws of a jurisdiction within the
United States is in good standing under the Laws of such jurisdiction
of incorporation. Each Subsidiary is duly qualified to do business as
a foreign organization and is in good standing as such in each
jurisdiction in which the conduct of its business or the ownership or
leasing of its Properties makes such qualification necessary (except
where the failure to be so duly qualified and in good standing does
not constitute a Material Adverse Effect), and has all requisite power
and authority to conduct its business and to own and lease its
Properties.
(c) Each Subsidiary is in compliance with all Laws and other
requirements applicable to its business and has obtained all
authorizations, consents, approvals, orders, licenses, and permits
from, and each such Subsidiary has accomplished all filings,
registrations, and qualifications with, or obtained exemptions from
any of the foregoing from, any Governmental Agency that are necessary
for the transaction of its business, except where the failure to be in
such compliance, obtain such authorizations, consents, approvals,
orders, licenses, and permits, accomplish such filings, registrations,
and qualifications, or obtain such exemptions, does not constitute a
Material Adverse Effect.
4.5 Financial Statements.
Day Runner has furnished to the Administrative Agent (a) the audited
consolidated financial statements of Day Runner and its Subsidiaries for the
Fiscal Year ended June 30, 1998, (b) the unaudited consolidated balance sheet
and statement of operations of Day Runner and its Subsidiaries for the Fiscal
Year ended June 30, 1999 and (c) the unaudited consolidated balance sheet and
statement of operations of Day Runner and its Subsidiaries for the months and
portion of the Fiscal Year ended July 31, 1999 and August 31, 1999. The
financial statements described in clause (a) fairly present in all material
respects the financial condition, statement of cash flows and changes in
financial position, and the balance sheet and statement of operations described
in clause (b) fairly present in all material respects the financial condition
and results of operations of Day Runner and its Subsidiaries as of such dates
and for such periods in conformity with GAAP consistently applied, subject only,
in the case of clause (b), to normal year-end accruals and audit adjustments and
footnotes.
4.6 No Other Liabilities; No Material Adverse Changes.
Each Borrower and its Subsidiaries do not have any material liability or
material contingent liability required under GAAP to be reflected or disclosed,
and not reflected or disclosed, in the balance sheet described in Section
4.5(a), other than liabilities and contingent liabilities arising in the
ordinary course of business since the date of such financial statements.
Schedule 4.6 sets forth all Funded Debt of Day Runner and its Subsidiaries as of
the Effective Date. As of the Effective Date, no circumstance or event has
occurred that constitutes a Material Adverse Effect since June 30, 1999.
4.7 Title to Property.
Each Borrower and its Subsidiaries have valid title to the Property (other
than assets which are the subject of a Capital Lease Obligation) reflected in
the balance sheet described in Section 4.5(a), other than items of Property or
exceptions to title which are in each case immaterial and Property subsequently
sold or disposed of in the ordinary course of business. Such Property is free
and clear of all Liens, other than Liens described in Schedule 4.7 and Permitted
Encumbrances.
4.8 Intangible Assets.
Each Borrower and its Subsidiaries own, or possess the right to use to the
extent necessary in their respective businesses, all material trademarks, trade
names, copyrights, patents, patent rights, computer software, licenses and other
Intangible Assets that are used in the conduct of their businesses as now
operated, and no such Intangible Asset, conflicts with the valid trademark,
trade name, copyright, patent, patent right or Intangible Asset of any other
Person to the extent that such conflict constitutes a Material Adverse Effect.
4.9 Public Utility Holding Company Act.
No Borrower nor any Subsidiary of any Borrower is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
4.10 Litigation.
There are no actions, suits, proceedings or investigations pending as to
which any Borrower or any of its Subsidiaries have been served or have received
notice or, to the best knowledge of any Borrower, threatened against or
affecting any Borrower or any of its Subsidiaries or any Property of any of them
before any Governmental Agency, which such actions, suits, proceedings or
investigations, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
4.11 Binding Obligations.
Each of the Loan Documents to which any Borrower or any of the Subsidiary
Guarantors is a Party will, when executed and delivered by such Borrower or such
Subsidiary Guarantor, constitute the legal, valid and binding obligation of such
Borrower or such Subsidiary Guarantor, enforceable against such Borrower or such
Subsidiary Guarantor in accordance with its terms, except as enforcement may be
limited by Debtor Relief Laws or equitable principles relating to the granting
of specific performance and other equitable remedies as a matter of judicial
discretion.
4.12 No Default. No event has occurred and is continuing that is
-----------
an Event of Default.
4.13 ERISA.
(a) With respect to each Pension Plan:
(i) Pension Plan complies in all material respects with ERISA
and any other applicable Laws to the extent that noncompliance could
reasonably be expected to have a Material Adverse Effect;
(ii) such Pension Plan has not incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA) that could
reasonably be expected to have a Material Adverse Effect;
(iii) no "reportable event" (as defined in Section 4043 of
ERISA, but excluding such events as to which the PBGC has by
regulation waived the requirement therein contained that it be
notified within thirty days of the occurrence of such event) has
occurred that could reasonably be expected to have a Material Adverse
Effect; and
(iv) none of the Borrowers nor any of their respective
Subsidiaries has engaged in any non-exempt "prohibited transaction"
(as defined in Section 4975 of the Code) that could reasonably be
expected to have a Material Adverse Effect.
(b) None of the Borrowers nor any of their respective
Subsidiaries has incurred or expects to incur any withdrawal liability
to any Multiemployer Plan that could reasonably be expected to have a
Material Adverse Effect.
4.14 Regulations U and X; Investment Company Act.
No part of the proceeds of any Loan hereunder will be used to purchase or
carry, or to extend credit to others for the purpose of purchasing or carrying,
any Margin Stock in violation of Regulations U and X. None of the Borrowers nor
any of their respective Subsidiaries is or is required to be registered as an
"investment company" under the Investment Company Act of 1940.
4.15 Disclosure.
No information, exhibit or report furnished by any Borrower or any
Subsidiary Guarantor in connection with the negotiation of the Loan Documents,
pursuant to the terms of the Loan Documents, or in connection with any Loan as
of the date thereof contained any untrue statement of a material fact or omitted
a material fact necessary to make the statement made not misleading in light of
all the circumstances existing at the date the statement was made. No SEC
Document filed by any Borrower since December 1, 1997 contained any untrue
statement of a material fact or omitted a material fact necessary to make the
statement made not misleading in light of all the circumstances existing at the
date the statement was made.
4.16 Tax Liability.
Each Borrower and its Subsidiaries have filed all tax returns which are
required to be filed, and have paid, or made provision for the payment of, all
taxes with respect to the periods, Property or transactions covered by said
returns, or pursuant to any assessment received by any Borrower or any of its
Subsidiaries, except such taxes, if any, as are being contested in good faith by
appropriate proceedings and as to which adequate reserves have been established
and maintained.
4.17 Projections.
The assumptions set forth in the Projections are reasonable and consistent
with each other and with all facts known to the Borrowers and the Subsidiaries
of the Borrowers, and the Projections are reasonably based on such assumptions.
The Projections were prepared in good faith and represent management's opinion
of the projected financial performance of the Borrowers and their respective
Subsidiaries based upon the information available to the Borrowers at the time
so furnished.
4.18 Environmental Matters.
(a) Except as described in Schedule 4.18, to the knowledge of the
Borrowers and each Subsidiary of each Borrower, (i) each Borrower and
each Subsidiary of each Borrower is in compliance with all applicable
federal or state environmental, hazardous waste, health and safety
statutes, and any rules or regulations adopted pursuant thereto, which
govern or affect any of any Borrower's or any such Subsidiary's
operations and/or properties, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Resource Conservation and Recovery Act of 1976, and the
Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time, (ii) none of the
operations of any Borrower or any of its Subsidiaries is the subject
of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release of any Hazardous Material and
(iii) none of the Borrowers and none of their respective Subsidiaries
have any contingent liability in connection with any release of any
Hazardous Materials, in each case, where such lack of compliance,
investigation or contingent liability could reasonably be expected to
have a Material Adverse Effect.
(b) As of the Effective Date (a) neither Borrower nor any of its
Subsidiaries at any time has disposed of, discharged, released or
threatened the release of any Hazardous Materials on, from or under
the Real Property in violation of any Hazardous Materials Law that
would individually or in the aggregate constitute a Material Adverse
Effect, (b) to the best knowledge of the Borrowers, no condition
exists that violates any Hazardous Material Law affecting any Real
Property except for such violations that would not individually or in
the aggregate constitute a Material Adverse Effect, (c) no Real
Property or any portion thereof is or has been utilized by any
Borrower or any of its Subsidiaries as a site for the manufacture of
any Hazardous Materials and (d) to the extent that any Hazardous
Materials are used, generated or stored by any Borrower or any of its
Subsidiaries on any Real Property, or transported to or from such Real
Property by any Borrower or any of its Subsidiaries, such use,
generation, storage and transportation are in compliance with all
Hazardous Materials Laws except for such non-compliance that would not
constitute a Material Adverse Effect or be materially adverse to the
interests of the Lenders.
4.19 Solvency.
Day Runner and its Subsidiaries, taken as a whole, are Solvent.
4.20 Year 2000 Matters.
Each Borrower will perform all acts reasonably necessary to ensure that (a)
each Borrower and any business in which such Borrower holds a substantial
interest (including without limitation any Subsidiary of such Borrower), and (b)
to the extent reasonably practicable, all customers, suppliers and vendors that
are material to the business of such Borrower, become Year 2000 Compliant in a
timely manner. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all of such Borrower's systems and
adopting a detailed plan, with an itemized budget, for the remediation,
monitoring and testing of such systems. As used herein, "Year 2000 Compliant"
shall mean, in regard to any entity, that all material software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity will properly perform date
sensitive functions before, during and after the year 2000. Each Borrower shall,
immediately upon request, provide to the Administrative Agent such
certifications or other evidence of such Borrower's compliance with the terms
hereof as the Administrative Agent may from time to time require.
Article 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Loan remains unpaid, or any other Obligation remains unpaid,
or any portion of the Revolving Commitment remains in force, each Borrower
shall, and shall cause its Subsidiaries to, unless the Administrative Agent
(with the written approval of the Requisite Lenders) otherwise consents:
5.1 Payment of Taxes and Other Potential Liens.
Pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed upon any of them, upon their respective Property or any part
thereof and upon their respective income or profits or any part thereof, except
that each Borrower and its Subsidiaries shall not be required to pay or cause to
be paid any tax, assessment, charge or levy that is not yet delinquent, or is
being contested in good faith by appropriate proceedings so long as the relevant
entity has established and maintains adequate reserves for the payment of the
same.
5.2 Preservation of Existence.
Preserve and maintain their respective existences in the jurisdiction of
their formation and all material authorizations, rights, franchises, privileges,
consents, approvals, orders, licenses, permits, or registrations from any
Governmental Agency that are necessary for the transaction of their respective
business and qualify and remain qualified to transact business in each
jurisdiction in which such qualification is necessary in view of their
respective business or the ownership or leasing of their respective Properties
except (a) a merger permitted by Section 6.3 or (b) where the failure to so
preserve, maintain, qualify or remain qualified would not constitute a Material
Adverse Effect.
5.3 Maintenance of Properties.
Maintain, preserve and protect all of their respective Properties in good
order and condition, subject to wear and tear in the ordinary course of
business, and not permit any waste of their respective Properties, provided that
the failure to so maintain, preserve or protect a particular item or items of
Property shall not constitute a violation of this covenant if such failure is
not reasonably likely to cause a Material Adverse Effect.
5.4 Maintenance of Insurance.
Maintain liability, casualty and other insurance (subject to customary
deductibles and retentions) with responsible insurance companies in such amounts
and against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets in the general areas in which each Borrower
and its Subsidiaries operate.
5.5 Compliance With Laws.
Comply with all Requirements of Law, noncompliance with which could
constitute a Material Adverse Effect.
5.6 Inspection Rights.
Upon reasonable notice, at any time during regular business hours and as
often as reasonably requested (but not so as to materially interfere with the
business of any Borrower or any of its Subsidiaries) permit the Administrative
Agent or any Lender, or any authorized employee, agent or representative thereof
(including, without limitation, any auditors, accountants or other financial
consultants engaged by the Administrative Agent to review the financial
condition of Day Runner and its Subsidiaries), to examine, audit and make copies
and abstracts from the records and books of account of, and to visit and inspect
the Properties of, any Borrower and its Subsidiaries and to discuss the affairs,
finances and accounts of any Borrower and its Subsidiaries with any of their
officers, key employees or (with prior coordination through such Borrower)
independent accountants.
5.7 Keeping of Records and Books of Account.
Keep adequate records and books of account reflecting all financial
transactions in conformity with GAAP, consistently applied (provided that the
records and books of account of any Foreign Subsidiary shall be kept in
accordance with generally accepted accounting principles as in effect in the
United Kingdom or in the jurisdiction in which such Foreign Subsidiary is
formed), and in material conformity with all applicable requirements of any
Governmental Agency having regulatory jurisdiction over each Borrower and its
Subsidiaries.
5.8 Compliance With Agreements.
Promptly and fully comply with all Contractual Obligations to which any one
or more of them is a party, except for any such Contractual Obligations the
non-performance of which would cause either (a) a Default or (b) a Material
Adverse Effect.
5.9 Use of Proceeds.
Use the proceeds of all Revolving Loans for working capital purposes and to
make Capital Expenditures permitted under Section 6.16, provided that in no
event shall the proceeds of any Revolving Loan be used to pay interest on, or
repay principal of, any Term Loan or any Tender Offer Note.
5.10 Hazardous Materials Laws.
Keep and maintain all Real Property and each portion thereof in compliance
in all material respects with all applicable Hazardous Materials Laws and
promptly notify the Administrative Agent in writing (attaching a copy of any
pertinent written material) of (a) any and all material enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed or
threatened in writing by a Governmental Agency pursuant to any applicable
Hazardous Materials Laws, (b) any and all material claims made or threatened in
writing by any Person against any Borrower relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any Hazardous
Materials and (c) discovery by any Responsible Official of any Borrower of any
material occurrence or condition on any real Property adjoining or in the
vicinity of such Real Property that could reasonably be expected to cause such
Real Property or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of such Real Property under any
applicable Hazardous Materials Laws.
5.11 Additional Material Subsidiaries.
(a) Each Borrower shall cause each of its Material Subsidiaries
(other than DRC), and Day Runner shall cause each of its Subsidiaries
of which Filofax is a direct or indirect Subsidiary, existing on the
Effective Date to become a Subsidiary Guarantor as of the Effective
Date. Each such Subsidiary Guarantor shall provide to the
Administrative Agent and its counsel on the Effective Date such legal
opinions, certificates and other documents as are reasonably required
by the Administrative Agent.
(b) Subject to any applicable Requirement of Law, each Borrower
shall cause each Subsidiary of such Borrower, whether now existing or
hereafter acquired, that becomes a Material Subsidiary, or a
Subsidiary of which Filofax is a direct or indirect Subsidiary, after
the Effective Date to (i) become a Subsidiary Guarantor by executing
and delivering (A) with respect to any Material Subsidiary (other than
a Subsidiary of Filofax), a Subsidiary Guaranty, in substantially the
form of Exhibit G, or (B) with respect to any Subsidiary of Filofax,
Subsidiary Guaranties, in substantially the forms of Exhibits P and Q,
and (ii) provide to the Administrative Agent in connection therewith
such legal opinions, certificates and other documents as shall be
satisfactory to the Administrative Agent, in each case within fifteen
(15) Banking Days of the date such Subsidiary becomes a Material
Subsidiary.
5.12 Intentionally Omitted.
5.13. Further Assurances.
(a) If, after the Effective Date, Day Runner or any of its
Subsidiaries forms or acquires a new Subsidiary, Day Runner or such
Subsidiary shall pledge to the Administrative Agent, for the benefit
of the Lenders, all the capital stock of each such Subsidiary, in each
case pursuant to a supplement to a Pledge Agreement in form and
substance reasonably satisfactory to the Administrative Agent. In
addition, at the request of the Administrative Agent (which request
may be made at any time and from time to time at its sole and absolute
discretion), Day Runner shall, within 30 days after the Administrative
Agent's request, pledge, or cause each relevant Subsidiary to pledge,
to the Administrative Agent, for the benefit of the Lenders, all of
the capital stock of any Subsidiary that is not then pledged to the
Administrative Agent for the benefit of the Lenders, in each case
pursuant to a supplement to a Pledge Agreement in form and substance
reasonably satisfactory to the Administrative Agent.
(b) Day Runner shall, and shall cause each Subsidiary to, at the
Day Runner's cost and expense, execute and deliver any and all further
documents, financing statements, agreements and instruments, and take
all further action (including filing Uniform Commercial Code and other
financing statements), that may be required under applicable law, or
that the Administrative Agent may reasonably request, in order to
effectuate the transactions contemplated by the Loan Documents and in
order to grant, preserve, protect and perfect the validity and first
priority (with such exceptions expressly permitted by the Loan
Documents) of the security interests created or intended to be created
by the Collateral Documents. Day Runner will cause (i) any Subsidiary
that is formed, organized or acquired after the Effective Date or (ii)
at the request of the Administrative Agent (which request may be made
at any time and from time to time at its sole and absolute
discretion), any Subsidiary that has not previously executed a
Subsidiary Guaranty, Security Agreement and/or other applicable
Collateral Document, to execute a Subsidiary Guaranty, Security
Agreement and/or each other applicable Collateral Document (in each
case with such changes in the form as may be required to accommodate
local law of the jurisdiction of formation or organization of such
Subsidiary) in favor of the Administrative Agent (x) with respect to
any Subsidiary described in clause (i) above, within 30 days after
such Subsidiary is formed, organized or acquired or (y) with respect
to any Subsidiary described in clause (ii) above, within 30 days after
the Administrative Agent's request.
5.14. Deposit Accounts and Cash Concentration.
(a) Day Runner agrees that (i) it will maintain, and cause each
of its domestic Subsidiaries to maintain, all of its Cash and Cash
Equivalents in deposit accounts or securities accounts maintained by
the Administrative Agent, (ii) it will cause each of its Foreign
Subsidiaries that is a Material Subsidiary (including, without
limitation, Filofax and Filofax Group) (and each other Subsidiary
requested by the Administrative Agent) to maintain all of its Cash and
Cash Equivalents in deposit accounts or securities accounts maintained
by a Lender, and (iii) neither Day Runner nor any of its Subsidiaries
shall establish or maintain any deposit account or securities account
(other than accounts listed on Schedule 5.14(a)) with any other Person
without the prior written consent of the Administrative Agent.
(b) Day Runner will maintain with the Administrative Agent, in
addition to any other accounts maintained with the Administrative
Agent, (i) a deposit account to be denominated as the "Concentration
Account", (ii) an interest bearing deposit account to be denominated
as the "Term Loan Interest Reserve Account" and (iii) a "Lockbox"
deposit service as to which Day Runner has instructed its account
debtors with respect to domestic accounts receivable to direct
payments with respect to such accounts receiveable (the "Lockbox").
Prior to the end of each Banking Day, Day Runner shall pay, or cause
to be paid, to the Administrative Agent (x) for deposit in the Term
Loan Interest Reserve Account, all Cash and Cash Equivalents then held
in the Lockbox and (y) for deposit in the Concentration Account, all
Cash and Cash Equivalents held by Day Runner or any of its domestic
Subsidiaries (other than such Cash and Cash Equivalents held in the
Lockbox). In addition, Day Runner shall cause each Foreign Subsidiary
(including, without limitation, Filofax and Filofax Group), unless the
Administrative Agent otherwise consents in writing, to pay, or cause
to be paid, to the Administrative Agent for deposit in the
Concentration Account, as frequently as practicable and no less than
twice per calendar month (subject to the proviso below), all Cash and
Cash Equivalents (including all proceeds of Collateral) of such
Subsidiary in excess of "Minimum Amount" set forth on Schedule 5.14(b)
opposite the name of such Subsidiary (or the Foreign Currency
Equivalent thereof), provided that no such payment to the
Concentration Account shall be required by any Foreign Subsidiary
pursuant this Section 5.14(b) unless the amount of all Cash and Cash
Equivalents then held by such Foreign Subsidiary exceeds the "Maximum
Amount" set forth on Schedule 5.14(b) opposite the name of such
Subsidiary (or the Foreign Currency Equivalent thereof) for a period
of five (5) consecutive Banking Days.
(c) Day Runner shall maintain on deposit in the Term Loan
Interest Reserve Account, as of the end of each Banking Day, an amount
at least equal to the sum of (i) the amount of the accrued and unpaid
interest on the outstanding Term Loans as of the end of such Banking
Day and (ii) an amount that Day Runner in its good faith judgment
determines (and periodically reports to the Administrative Agent no
less than monthly) is necessary to reserve in order to have sufficient
funds on hand to make any payments with respect to any scheduled
redemption of the Tender Offer Notes occurring after the Effective
Date (such amount, the "Required Balance"), provided that if, at end
of any Banking Day, the amount on deposit in the Term Loan Interest
Reserve Account is not at least equal to the Required Balance, then
all Cash and Cash Equivalents deposited in the Term Loan Interest
Reserve Account shall be retained on deposit therein until the end of
the first Banking Day on which the amount on deposit in the Term Loan
Interest Reserve Account is at least equal to the Required Balance for
such Banking Day.
Article 6
NEGATIVE COVENANTS
So long as any Loan remains unpaid, or any other Obligation remains unpaid,
or any portion of the Revolving Commitment remains in force, each Borrower shall
not, and shall not permit any of its Subsidiaries to:
6.1 Payment of Subordinated Obligations.
Pay any principal (including sinking fund payments) with respect to any
Subordinated Obligation, or purchase or redeem (or offer to purchase or redeem)
any Subordinated Obligation, or deposit any monies, securities or other Property
with any trustee or other Person to provide assurance that the principal or any
portion thereof of any Subordinated Obligation will be paid when due or
otherwise to provide for the defeasance of any Subordinated Obligation.
6.2 Disposition of Property.
Make any Disposition of its Property, whether now owned or hereafter
acquired, except (a) a Disposition by a Borrower to another Borrower that is not
a Foreign Subsidiary, (b) a Disposition by a Subsidiary of a Borrower to such
Borrower, (c) so long as the Net Cash Sale Proceeds of such Disposition are
applied in accordance with Section 3.2(a)(iv), a Disposition of the Property of
Day Runner Australia PTY, Ltd. substantially as an entirety (or a Disposition of
the capital stock thereof) in connection with a discontinuation of the
operations of such Subsidiary and (d) a Disposition by any Borrower to any
Subsidiary of inventory in a manner consistent with past practice, provided that
the Lien granted in the Security Agreement by such Borrower to the
Administrative Agent, for the benefit of the Lenders, on such inventory shall
continue and remain in full force and effect.
6.3 Mergers. Merge or consolidate with or into any Person.
6.4 Intentionally Omitted.
6.5 Intentionally Omitted.
6.6 Distributions.
Make any Distribution, whether from capital, income or otherwise, and
whether in Cash or other Property, except Distributions by any Subsidiary of a
Borrower to such Borrower.
6.7 ERISA.
At any time, permit any Pension Plan to: (i) engage in any non-exempt
"prohibited transaction" (as defined in Section 4975 of the Code); (ii) fail to
comply with ERISA or any other applicable Laws; (iii) incur any material
"accumulated funding deficiency" (as defined in Section 302 of ERISA); or (iv)
terminate in any manner, which, with respect to each event listed above, could
reasonably be expected to result in a Material Adverse Effect or (b) withdraw,
completely or partially, from any Multiemployer Plan if to do so could
reasonably be expected to result in a Material Adverse Effect.
6.8 Change in Nature of Business.
Make any material change in the nature of the business of Day Runner and
its Subsidiaries, taken as a whole.
6.9 Liens.
Create, incur, assume or suffer to exist any Lien of any nature upon or
with respect to any of their respective Properties, or sell or factor any
accounts receivable or engage in any sale and leaseback transaction with respect
to any of their respective Properties, whether now owned or hereafter acquired,
except:
(a) Liens existing on the Effective Date and disclosed in
Schedule 4.7 and any renewals/extensions or amendments thereof,
provided that the obligations secured or benefited thereby are not
increased;
(b) Liens granted to the Administrative Agent, for the benefit of
the Lenders, pursuant to any Loan Document;
(c) Permitted Encumbrances;
(d) Liens on Property acquired by any Borrower or any of its
Subsidiaries, provided that such Liens were in existence at the time
of the acquisition of such Property and were not created in
contemplation of such acquisition, and Liens on Property that secure
Indebtedness permitted pursuant to Section 6.10(d); provided that the
aggregate Indebtedness secured by Liens pursuant to this Section is
not in excess of $500,000 in principal amount; and
(e) Liens on the Filofax Overdraft Account and amounts deposited
therein granted by Filofax in order to secure Filofax Overdraft
Indebtedness to the extent such Indebtedness is permitted pursuant to
Section 6.10(i) below, provided that the aggregate amount on deposit
at any time in the Filofax Overdraft Account shall not exceed the
Foreign Currency Equivalent of $10,000,000; provided, further, that
Filofax has granted to the Administrative Agent, for the benefit of
the Lenders, a Lien on such the Filofax Overdraft Account and the
amounts deposited therein, which Lien, if subordinated to the
aforementioned Liens, is subordinated on terms satisfactory to the
Administrative Agent.
6.10 Indebtedness and Guaranty Obligations.
Create, incur or assume any Indebtedness or Guaranty Obligation except:
(a) Indebtedness and Guaranty Obligations existing on the
Effective Date and disclosed in Schedule 6.10, and refinancings,
renewals, extensions or amendments that do not increase the amount
thereof;
(b) Indebtedness and Guaranty Obligations under the Loan
Documents;
(c) Indebtedness and Guaranty Obligations owed to any Borrower or
any of the Subsidiary Guarantors; provided that any such Indebtedness
is evidenced by a promissory note, in substantially the form of
Exhibit R, that is pledged to the Administrative Agent, for the
benefit of the Lenders, and is subordinated in right of payment to the
Loans on terms and in form satisfactory to the Administrative Agent;
(d) Indebtedness consisting of Capital Lease Obligations, or
otherwise incurred to finance the purchase or construction of capital
assets (which shall be deemed to exist if the Indebtedness is incurred
at or within 180 days before or after the purchase or construction of
the capital asset), or to refinance any such Indebtedness, provided
that the aggregate principal amount of such Indebtedness outstanding
at any time does not exceed $500,000;
(e) Indebtedness consisting of Interest Rate Protection
Agreements entered into in order to manage existing or anticipated
interest rate risks and not for speculative purposes;
(f) Indebtedness constituting Subordinated Obligations;
(g) the Tender Offer Notes;
(h) other Indebtedness that is not secured by a Lien on any
Property of any Borrower or any of the Subsidiaries of any Borrower;
provided that the aggregate principal amount thereof does not exceed
$250,000 at any time; and
(i) the Filofax Overdraft Indebtedness to the extent that such
Indebtedness (net of the amount of cash then on deposit in the Filofax
Overdraft Account) does not exceed the Foreign Currency Equivalent of
$1,500,000 at any time outstanding.
6.11 Transactions with Affiliates.
Enter into any transaction of any kind with any Affiliate of any Borrower
or any Affiliate of any Subsidiary of any Borrower other than (a) salary, bonus,
employee stock option and other compensation arrangements with directors or
officers in the ordinary course of business; and (b) transactions on overall
terms at least as favorable to the applicable Borrower or its Subsidiary as
would be the case in an arm's-length transaction between unrelated parties of
equal bargaining power.
6.12 Funded Senior Debt Ratio.
Permit the Funded Senior Debt Ratio, as of the last day of any Fiscal
Quarter, to be greater than the ratio set forth below opposite the period during
which such Fiscal Quarter ends:
--------------------------------------------------------- -------------------
Period Ratio
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
July 1, 2000 through September 30, 2000 12.40 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 2000 through December 31, 2000 4.50 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2001 through March 31, 2001 3.25 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2001 and thereafter 3.00 to 1.00
--------------------------------------------------------- -------------------
6.13 Fixed Charge Coverage Ratio.
Permit the Fixed Charge Coverage Ratio, as of the last day of any Fiscal
Quarter, to be less than the ratio set forth below opposite the period during
which such Fiscal Quarter ends:
--------------------------------------------------------- -------------------
Period Ratio
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
July 1, 2000 through September 30, 2000 0.25 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 2000 through December 31, 2000 1.50 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2001 through March 31, 2001 1.75 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2001 and thereafter 2.00 to 1.00
--------------------------------------------------------- -------------------
6.14 Stockholders' Equity.
Permit Stockholders' Equity of Day Runner, at any time during any period
set forth below, to be less than the amount set forth below opposite such
period:
--------------------------------------------------------- -------------------
Period Amount
--------------------------------------------------------- ------ -------------
--------------------------------------------------------- -------------------
July 1, 1999 through September 30, 1999 $61,700,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 1999 through December 31, 1999 $63,000,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2000 through March 31, 2000 $58,750,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2000 through June 30, 2000 $56,900,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
July 1, 2000 through September 30, 2000 $55,950,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 2000 through December 31, 2000 $64,000,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2001 through March 31, 2001 $67,000,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2001 and thereafter $70,000,000
--------------------------------------------------------- -------------------
6.15 Investments. Make or suffer to exist any Investment, other than:
(a) Investments in existence on the Effective Date and disclosed
on Schedule 6.15;
(b) Investments consisting of Cash Equivalents;
(c) Investments consisting of advances to officers, directors and
employees of Borrowers and their Subsidiaries in the ordinary course
of business not to exceed $50,000 at any time outstanding;
(d) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of
disputes with customers and suppliers arising in the ordinary course
of business;
(e) Investments of any Borrower in any Borrower or any Subsidiary
Guarantor;
(f) Investments of a Borrower in any Subsidiary of such
Borrower that is not a Subsidiary Guarantor (other than DRC); provided that the
aggregate amount of all such Investments shall not exceed $1,500,000; and
(g) Investments by Day Runner in DRC (i) in existence on the
Effective Date (other than as described in clause (ii) below) and (ii)
consisting of Intercompany Indebtedness owed by DRC to Day Runner (A)
arising in connection with the reclassification of the DRC Loans as
Revolving Loans to Day Runner pursuant to this Agreement or (B)
incurred by DRC from time to time after the Effective Date, provided
that (x) the aggregate principal amount of Intercompany Indebtedness
owed by DRC to Day Runner outstanding at any time shall not exceed
$3,000,000 and (y) all such Intercompany Indebtedness shall be
evidenced by a promissory note, in form and substance satisfactory to
the Administrative Agent, that is pledged to the Administrative Agent,
for the benefit of the Lenders.
6.16 Capital Expenditures.
The Borrowers shall not, and shall not permit any of their
respective Subsidiaries to, make any Capital Expenditures in any
Fiscal Year, if, after giving effect thereto, the aggregate amount of
all Capital Expenditures made by the Borrowers and their Subsidiaries
in such Fiscal Year would exceed $5,000,000.
6.17 Payment Restrictions Affecting Subsidiaries.
Enter into, or permit any of its Subsidiaries to enter into, any agreement,
instrument or other document (other than any Loan Document) which directly or
indirectly prohibits or restricts in any manner, or would have the effect of
prohibiting or restricting in any material manner, the ability of any of the
Borrower's Subsidiaries to (i) pay dividends or make any other distributions in
respect of its capital stock or any other equity interest or participation in
its profits owned by the Borrower or any of its Subsidiaries, or pay or repay
any Indebtedness owed to the Borrower or any of its Subsidiaries, (ii) make
loans or advances to any of the Borrowers or any of their Subsidiaries, or (iii)
transfer any of its properties or assets to the Borrowers or any of their
Subsidiaries.
6.18 Lease Obligations.
The Borrowers shall not, and shall not permit any of their respective
Subsidiaries to, incur any obligations with respect to any lease that is not a
Capital Lease in any Fiscal Year, if, after giving effect thereto, the aggregate
amount of all obligations of the Borrowers and their Subsidiaries with respect
to leases that are not Capital Leases would exceed $7,500,000 in any Fiscal
Year.
6.19 Minimum EBITDA.
As of the last day of each Fiscal Quarter ending on or after September 30,
2000, permit EBITDA for the period of four consecutive Fiscal Quarters ending on
such date, to be less than the amount set forth below opposite the period during
which such Fiscal Quarter ends:
--------------------------------------------------------- -------------------
Period Amount
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
July 1, 2000 through September 30, 2000 $8,400,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 2000 through December 31, 2000 $23,000,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2001 through March 31, 2001 $26,000,000
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2001 and thereafter $30,000,000
--------------------------------------------------------- -------------------
6.20 Current Ratio. Permit the Current Ratio, as of the last day of
each Fiscal Quarter, to be less than the ratio set forth below opposite the
period during which such Fiscal Quarter ends:
--------------------------------------------------------- -------------------
Period Ratio
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
July 1, 1999 through September 30, 1999 1.90 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 1999 through December 31, 1999 2.00 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2000 through March 31, 2000 2.00 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2000 through June 30, 2000 2.00 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
July 1, 2000 through September 30, 2000 2.00 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 2000 through December 31, 2000 2.75 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2001 through March 31, 2001 3.00 to 1.00
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2001 and thereafter 3.00 to 1.00
--------------------------------------------------------- -------------------
6.21 Operating Expenses.
Permit operating expenses in any Fiscal Quarter (determined in a manner
consistent with the consolidated financial statements of Day Runner for its
Fiscal Year ended June 30, 1999 delivered to the Administrative Agent and the
Lenders prior to the Effective Date) to exceed the percentage of net sales for
such Fiscal Quarter set forth below opposite the period during which such Fiscal
Quarter ends, for any two consecutive Fiscal Quarters:
--------------------------------------------------------- -------------------
Percentage of Net
Period Sales
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
October 1, 2000 through December 31, 2000 41%
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
January 1, 2001 through March 31, 2001 60%
--------------------------------------------------------- -------------------
--------------------------------------------------------- -------------------
April 1, 2001 and thereafter 47%
--------------------------------------------------------- -------------------
Article 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information.
So long as any Loan remains unpaid, or any other Obligation remains unpaid,
or any portion of the Revolving Commitment remains in force, Day Runner shall,
unless the Administrative Agent (with the written approval of the Requisite
Lenders) otherwise consents, at Day Runner's sole expense, deliver to each
Lender:
(a) As soon as practicable, and in any event within 55 days after
the end of each Fiscal Quarter (other than the fourth Fiscal Quarter
in any Fiscal Year), the consolidated balance sheet of Day Runner and
its Subsidiaries as at the end of such Fiscal Quarter and the
consolidated statements of operations and cash flows for such Fiscal
Quarter, and the portion of the Fiscal Year ended with such Fiscal
Quarter, all in reasonable detail. Such financial statements shall be
certified by the chief financial officer of Day Runner as fairly
presenting in all material respects the financial condition, results
of operations and cash flows of Day Runner and its Subsidiaries in
accordance with GAAP (other than footnote disclosures), consistently
applied, as at such date and for such periods, subject only to normal
year-end accruals and audit adjustments;
(b) As soon as practicable, and in any event within 55 days after
the end of each Fiscal Quarter (i) a Pricing Certificate setting forth
a calculation of the Funded Debt Ratio as of the last day of such
Fiscal Quarter, and providing reasonable detail as to the calculation
thereof, which calculations in the case of the fourth Fiscal Quarter
in any Fiscal Year shall be based on the preliminary unaudited
financial statements of such Borrower and its Subsidiaries for such
Fiscal Quarter, and as soon as practicable thereafter, in the event of
any material variance in the actual calculation of the Funded Debt
Ratio from such preliminary calculation, a revised Pricing Certificate
setting forth the actual calculation thereof and (ii) a certificate of
a Senior Officer of Day Runner stating that the representations and
warranties in Article 4 hereof are true and correct in all material
respects as of the date of such certificate and that no Event of
Default has occurred and is continuing or, if an Event of Default has
occurred and is continuing, a statement as to the nature thereof and
the action that Day Runner has taken and proposes to take with respect
thereto;
(c) As soon as practicable, and in any event within 100 days
after the end of each Fiscal Year, the consolidated balance sheet of
Day Runner and its Subsidiaries as at the end of such Fiscal Year and
the consolidated statements of operations, stockholders' equity and
cash flows, in each case of Day Runner and its Subsidiaries for such
Fiscal Year, with all related consolidating financial statements
prepared by Day Runner, all in reasonable detail. Such consolidated
financial statements shall be prepared in accordance with GAAP,
consistently applied, and shall be accompanied by a report of Deloitte
& Touche LLP or other independent public accountants of recognized
standing selected by Day Runner and reasonably satisfactory to the
Requisite Lenders, which report shall be prepared in accordance with
generally accepted auditing standards as at such date, and shall not
be subject to any qualifications or exceptions. Such accountants'
report shall be accompanied by a certificate stating that, in making
the examination pursuant to generally accepted auditing standards
necessary for the certification of such financial statements and such
report, such accountants have obtained no knowledge of any Event of
Default then existing relating to the breach by any Borrower of any of
Sections 6.1, 6.2, 6.6, 6.9, 6.10, 6.12, 6.13, 6.14, 6.16, 6.19, 6.20
and 6.21 of this Agreement or, if, in the opinion of such accountants,
any such Event of Default shall exist, stating the nature and status
of such Event of Default;
(d) As soon as practicable, and in any event within thirty (30)
days after the end of each month, the consolidated and consolidating
balance sheet of Day Runner and its Subsidiaries as at the end of such
month and the consolidated statements of operations and cash flows for
such month, all in reasonable detail and prepared in comparison with
the projections delivered to the Administrative Agent with respect to
such month and the corresponding month in the preceding Fiscal Year.
Such financial statements shall be certified by the chief financial
officer of Day Runner as fairly presenting in all material respects
the financial condition, results of operations and cash flows of Day
Runner and its Subsidiaries in accordance with GAAP (other than
footnote disclosures), consistently applied, as at such date and for
such periods, subject only to normal year-end accruals and audit
adjustments;
(e) As soon as practicable, and in any event within thirty (30)
days after the commencement of each Fiscal Year, a budget and
projection by month and Fiscal Quarter for that Fiscal Year, and for
the next succeeding Fiscal Year, including for the first such Fiscal
Year, projected consolidated balance sheets, statements of operations
and statements of cash flow, in each case by Fiscal Quarter and, for
succeeding Fiscal Years, projected consolidated condensed balance
sheets and statements of operations and cash flows of each Borrower
and its Subsidiaries, all in reasonable detail (it being understood
that any projections provided hereunder shall be were prepared in good
faith and will represent management's opinion of the projected
financial performance of the Borrowers and their respective
Subsidiaries based upon the information available to the Borrowers at
the time so furnished);
(f) As soon as practicable, and in any event within fifteen (15)
days after the end of each month, a report, in form and substance
reasonably satisfactory to the Administrative Agent, from the
management of Filofax Group with respect to the results from
operations of Filofax Limited and certain of its other Subsidiaries
for the preceding month;
(g) As soon as practicable, and in any event within ten (10)
days after the end of each month, a report, in form and substance reasonably
satisfactory to the Administrative Agent, from Wasserstein Perella & Co. Limited
with respect to the status of the strategic alternatives being pursued by it on
behalf of Day Runner and its Subsidiaries;
(h) Promptly after request by the Administrative Agent or the
Requisite Lenders, copies of any detailed audit reports, management letters or
recommendations submitted to the board of directors (or the audit committee of
the board of directors) of any Borrower by independent accountants in connection
with the accounts or books of such Borrower or any of its Subsidiaries, or any
audit of any of them and/or any tax returns filed by any Borrower or any of its
Subsidiaries with the federal governments of the United States or the United
Kingdom;
(i) (i) As soon as practicable, and in any event within 55 days
after the end of each Fiscal Quarter, a copy of the Form 10-Q for such
Fiscal Quarter filed with the Securities and Exchange Commission by
any Borrower; (ii) as soon as practicable, and in any event within 100
days after the end of each Fiscal Year a copy of the Form 10-K for
such Fiscal Year filed with the Securities and Exchange Commission by
any Borrower; and (iii) promptly after the same are available, and in
any event within two (2) Banking Days after filing with the Securities
and Exchange Commission, copies of each annual report, proxy or
financial statement or other report or communication sent to the
stockholders of any Borrower, and copies of all annual, regular,
periodic and special reports and registration statements which any
Borrower may file or be required to file with the Securities and
Exchange Commission under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, and not otherwise required to be
delivered to the Lenders pursuant to the other provisions of this
Section 7.1;
(j) Promptly after request by the Administrative Agent or any
Lender, copies of any other report or other document that was filed by
any Borrower with any Governmental Agency;
(k) Promptly upon a Senior Officer of any Borrower becoming
aware, and in any event within five (5) Banking Days after becoming
aware, of the occurrence of any (i) "reportable event" (as such term
is defined in Section 4043 of ERISA, but excluding such events as to
which the PBGC has by regulation waived the requirement therein
contained that it be notified within thirty days of the occurrence of
such event) or (ii) non-exempt "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Pension Plan or any trust created thereunder, telephonic
notice specifying the nature thereof, and, no more than two (2)
Banking Days after such telephonic notice, written notice again
specifying the nature thereof and specifying what action the
applicable Borrower is taking or proposes to take with respect
thereto, and, when known, any action taken by the Internal Revenue
Service with respect thereto;
(l) As soon as practicable, and in any event within two (2)
Banking Days after a Senior Officer becomes aware of the existence of
any condition or event which constitutes a Default or Event of
Default, telephonic notice specifying the nature and period of
existence thereof, and, no more than two (2) Banking Days after such
telephonic notice, written notice again specifying the nature and
period of existence thereof and specifying what action the Borrowers
are taking or propose to take with respect thereto;
(m) Promptly upon a Senior Officer of any Borrower becoming aware
that (i) any Person has commenced a legal proceeding with respect to a
claim against any Borrower that such Borrower reasonably believes is
$500,000 or more in excess of the amount thereof that is fully covered
by insurance or indemnification agreement of a financially responsible
Person, (ii) any creditor under a credit agreement involving
Indebtedness of $100,000 or more or any lessor under a material lease
involving aggregate rent of $200,000 per year or more has asserted a
material default thereunder on the part of any Borrower or, (iii) any
Person has commenced a legal proceeding with respect to a claim
against any Borrower under a contract that is not a credit agreement
or material lease with respect to a claim of in excess of $200,000 or
which otherwise may reasonably be expected to result in a Material
Adverse Effect, a written notice describing the pertinent facts
relating thereto and what action the applicable Borrower is taking or
proposes to take with respect thereto;
(n) As promptly as practicable, and in any event no later than
the first Banking Day of any calendar week, a sales flash report with
respect to Day Runner and its Subsidiaries for the preceding calendar
week and within two (2) Banking Days of the end of each calendar
month, a summary of the sales flash report for such month;
(o) As promptly as practicable, and in any event by no later than
November 30, 1999, a revised operating plan of Day Runner and its
Subsidiaries which shall include a revised budget and projections for
Day Runner and its Subsidiaries prepared by calendar month for Fiscal
Year 2000 and by Fiscal Quarter for Fiscal Year 2001;
(p) As promptly as practicable, and in any event within five (5)
Banking Days after the end of each calendar month, a rolling thirteen
(13) week cash forecast for Day Runner and its Subsidiaries which
shall include a cash forecast by Fiscal Quarter for the remainder of
the Fiscal Year;
(q) As promptly as practicable, and in any event within five (5)
Banking Days of the end of each calendar month, a sales report with
respect to Day Runner and its Subsidiaries for the preceding calendar
month setting forth sales data with respect to each customer of Day
Runner or any of its Subsidiaries that accounts for more than 10% of
the aggregate sales of Day Runner and its Subsidiaries (on a
consolidated basis) (such a customer, a "Significant Customer") with a
comparison of such sales data to (i) the sales data with respect to
each Significant Customer for the corresponding month in the prior
Fiscal Year and (ii) the projected sales to each Significant Customer
set forth in the revised operating plan and projections delivered
pursuant to Section 7.1(o);
(r) As promptly as practicable, and in any event within fifteen
(15) days of the end of each month, a report setting forth with
respect to each Significant Customer, point-of-sale and inventory
on-hand data by product category for the preceding calendar month,
together with a comparison of such data with the results for the
corresponding month in the prior Fiscal Year; and
(s) Such other data and information as from time to time may be
reasonably requested by the Administrative Agent, any Lender (through
the Administrative Agent) or the Requisite Lenders.
7.2 Compliance Certificates.
So long as any Loan remains unpaid, or any other Obligation remains unpaid
or unperformed, or any portion of the Revolving Commitment remains outstanding,
Day Runner shall, at Day Runner's sole expense, deliver to each Lender
concurrently with the financial statements required pursuant to Sections 7.1(a)
and 7.1(c), a Compliance Certificate signed by a Senior Officer of Day Runner.
Article 8
CONDITIONS
8.1 Effective Date.
The occurrence of the Effective Date, and the obligations of each Lender
pursuant to the Revolving Commitment, are subject to the following conditions
precedent, each of which shall be satisfied on or prior to the Effective Date:
(a) The Administrative Agent shall have received all of the
following, each of which shall be originals unless otherwise
specified, each properly executed by a Responsible Official of each
party thereto, each dated as of the Effective Date and each in form
and substance reasonably satisfactory to the Administrative Agent and
its legal counsel (unless otherwise specified or, in the case of the
date of any of the following, unless the Administrative Agent
otherwise agrees or directs):
(1)at least one (1) executed counterpart of this Agreement,
together with arrangements satisfactory to the Administrative Agent
for additional executed counterparts, sufficient in number for
distribution to the Lenders and Borrowers;
(2) an original Revolving Loan Note executed by each
Borrower in favor of each Lender, in a principal amount equal to that
Lender's Pro Rata Share of the Revolving Commitment;
(3)an original Term Loan Note executed by each Borrower in
favor of each Lender and in a principal amount equal to such Lender's
Pro Rate Share of the Term Loan Amount;
(4) each Subsidiary Guaranty executed by each Subsidiary
Guarantor party thereto;
(5) each Borrower Guaranty executed by each Borrower party
thereto;
(6) executed counterparts of the Pledge Agreements
executed by each of Day Runner, DRI International, DR-UK Holdings,
Bidco, Filofax Group and Filofax together with all documents and
instruments (including, without limitation, stock certificates and
stock powers with respect to the stock pledged thereunder) required to
be delivered pursuant thereto;
(7) executed counterparts of the Security Agreements
executed by each of Day Runner, Filofax and each of Day Runner's
domestic Subsidiaries, together with all documents and instruments
(including, without limitation, Uniform Commercial Code financing
statements) required to be delivered pursuant thereto or as
reasonably requested by the Administrative Agent to be filed,
registered or recorded to create or perfect the Liens intended
to be created thereunder;
(8) with respect to each Borrower and any of their
respective Subsidiaries that is a Party to any Loan Document, such
documentation as the Administrative Agent may reasonably require
to establish the due organization, valid existence and good standing
of such Person, qualification to engage in business in each material
jurisdiction in which it is engaged in business or required to be so
qualified, such Person's authority to execute, deliver and perform
the Loan Documents to which it is a Party, the identity, authority
and capacity of each Responsible Official thereof authorized to act on
its behalf, including certified copies of articles of incorporation
and amendments thereto, bylaws and amendments thereto, certificates
of good standing, certificates of corporate resolutions, incumbency
certificates,Certificates of Responsible Officials, and the like, in
each case to the extent applicable in the relevant jurisdiction;
(9) the written opinion of Orrick, Herrington & Sutcliffe
LLP, in form and substance reasonably satisfactory to Administrative
Agent, in regard to the enforceability of this Agreement, each of the
Borrower Guaranties, each of the Subsidiary Guaranties, the Pledge
Agreement executed by Day Runner, the Security Agreement executed by
Day Runner, the perfection of the Liens on the personal property
collateral of Day Runner granted pursuant to such Security Agreement,
the perfection and priority under California law of the Liens on the
shares of capital stock pledged pursuant to such Pledge Agreement and
covering such other matters relating to this Agreement and the other
Loan Documents as the Administrative Agent shall request, in each
case, subject to customary qualifications and exceptions (and Day
Runner hereby requests such counsel to deliver such opinion);
(10) the written opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, in form and substance reasonably satisfactory to
Administrative Agent, in regard to the enforceability of this
Agreement, each of the Borrower Guaranties, each of the Subsidiary
Guaranties, each of the Pledge Agreements executed by DRI
International, DR-UK Holdings, Filofax Group and Filofax, the
Security Agreement executed by Filofax, the perfection of the
Liens on the personal property collateral of Filofax granted
pursuant to such Security Agreement, the perfection and priority
under English law of the Liens on the shares of capital stock pledged
pursuant to such Pledge Agreements and covering such other matters
relating to this Agreement and the other Loan Documents as the
Administrative Agent shall request, in each case, subject to customary
qualifications and exceptions (and Day Runner hereby requests such
counsel to deliver such opinion);
(11) the written opinion of Gowling, Strathy & Henderson,
in form and substance reasonably satisfactory to Administrative Agent,
in regard to the pledge of the capital stock of DRC pursuant to a
Pledge Agreement and covering such other matters relating to this
Agreement and the other Loan Documents as the Administrative Agent
shall request, in each case, subject to customary qualifications and
exceptions (and Day Runner hereby requests such counsel to deliver
such opinion);
(12) a Certificate of the chief financial officer of each
of the Borrowers, certifying that the representations contained in
Article 4 are true and correct in all material respects; and
(13) such other assurances, certificates, documents,
consents or opinions as the Administrative Agent or the Requisite
Lenders reasonably may require.
(b) The Fees payable pursuant to Section 3.4 shall have been
paid.
(c) No material action, suit, proceeding or investigation shall
be pending against any Borrower; no law, regulation, judgment or court
order shall be applicable that restrains, prevents or imposes
materially adverse conditions upon the making of the Loans; and each
Borrower and Subsidiary Guarantor shall have received all governmental
and material third party approvals necessary for such Party's
execution of the Loan Documents to which it is a party;
(d) No circumstance or event shall have occurred that constitutes
a Material Adverse Effect since June 30, 1999.
(e) The reasonable costs and expenses of the Administrative Agent
in connection with the preparation of the Loan Documents payable
pursuant to Section 11.3, and invoiced with supporting detail to the
Borrowers prior to the Effective Date, shall have been paid.
(f) The representations and warranties of each Borrower contained
in Article 4 of this Agreement and in each other Loan Document to
which such Borrower is a party shall be true and correct in all
material respects.
(g) Borrowers and any other Parties shall be in compliance with
all the terms and provisions of the Loan Documents, and after giving
effect to the initial Loan, no Default or Event of Default shall have
occurred and be continuing.
(h) Day Runner, as agent for each of the directors of Filofax and
Filofax Group, shall have received a letter reasonably satisfactory to
it from each of the Administrative Agent, the Issuing Lender and the
Lenders agreeing not to rely on, or to take any action against any
such director, in his or her capacity as such, in connection with, any
statement made or other action taken under Sections 151 through 158 of
the Companies Act in connection with the guaranties of, and granting
of Liens to secure, the Obligations made by Filofax and Filofax Group.
(i) On or prior to the Effective Date, Topps shall (i) execute
and deliver to the Administrative Agent a Security Agreement and any
and all other documents or instruments as the Administrative Agent may
request in order to create a Lien in favor of the Administrative
Agent, for the benefit of the Lenders, on any real property owned by
Topps, (ii) take, or cause to be taken, any other actions, including
filings with any appropriate governmental agencies, in order to cause
such Lien to be valid and enforceable under applicable law, and (iii)
provide to the Administrative Agent in connection therewith such legal
opinions, certificates and other documents as are reasonably requested
by the Administrative Agent.
(j) All legal matters relating to the Loan Documents shall be
reasonably satisfactory to the Administrative Agent.
8.2 Revolving Loans.
The obligation of each Lender to make any Revolving Loan, and the
obligation of the Issuing Lender to issue any Letter of Credit, is subject to
the Effective Date having occurred, and to the following conditions precedent
(unless the Requisite Lenders or, in any case where the approval of all of the
Lenders is required pursuant to Section 11.2, all of the Lenders, in their sole
and absolute discretion, shall agree otherwise):
(a) Except for representations and warranties which expressly
speak as of a particular date, the representations and warranties
contained in Article 4 shall be true and correct in all material
respects on and as of the date of the Loan as though made on that
date;
(b) No Default or Event of Default shall have occurred and be
continuing;
(c) No circumstance or event shall have occurred that constitutes
a Material Adverse Effect since June 30, 1999.
Article 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default.
The existence or occurrence and continuation of any one or more of the
following events, whatever the reason therefor and under any circumstances
whatsoever, shall constitute an Event of Default:
(a) A Borrower fails to pay any principal on any of the Loans, or
any portion thereof, on the date when due; or
(b) A Borrower fails to pay any interest on any of the Loans, or
any fees under Sections 3.3, 3.4 or 3.5, or any portion thereof,
within three (3) Banking Days after the date when due; or fails to pay
any other fee or amount payable to the Lenders under any Loan
Document, or any portion thereof, within ten (10) Banking Days after
demand therefor; or
(c) A Borrower fails to comply with any of the covenants
contained in Article 6 or with Sections 5.2, 5.5, 5.6, 5.9, 5.13, 5.14
(other than Section 5.14(c)) or 7.1; or
(d) A Borrower or any other Party fails to perform or observe any
other covenant or agreement (not specified in clause (a), (b), (c) or
(d) above) contained in any Loan Document on its part to be performed
or observed within thirty (30) days after the occurrence thereof; or
(e) Any representation or warranty of any Borrower or any
Subsidiary Guarantor made in any Loan Document, or in any certificate
or other writing delivered by any Borrower or any Subsidiary Guarantor
pursuant to any Loan Document, proves to have been incorrect when made
or reaffirmed in any material respect; or
(f) A Borrower (i) fails to pay the principal, or any principal
installment, of any present or future Indebtedness of $50,000 or more,
or any guaranty of present or future Indebtedness of $50,000 or more,
on its part to be paid, when due (or within any stated grace period),
whether at the stated maturity, upon acceleration, by reason of
required prepayment or otherwise or (ii) fails to perform or observe
any other term, covenant or agreement on its part to be performed or
observed, or suffers any event of default to occur, in connection with
any present or future Indebtedness of $50,000 or more, or of any
guaranty of present or future Indebtedness of $50,000 or more, if as a
result of such failure or sufferance any holder or holders thereof (or
an agent or trustee on its or their behalf) has the right to declare
such Indebtedness due before the date on which it otherwise would
become due or the right to require a Borrower to redeem or purchase,
or offer to redeem or purchase, all or any portion of such
Indebtedness; or
(g) Any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement or action (or
omission to act) of the Administrative Agent or the Lenders or
satisfaction in full of all the Obligations, ceases to be in full
force and effect or is declared by a court of competent jurisdiction
to be null and void, invalid or unenforceable in any respect which is
materially adverse to the interests of the Lenders; or any Party
thereto denies in writing that it has any or further liability or
obligation under any Loan Document, or purports to revoke, terminate
or rescind same; or
(h) Any Change in Control occurs; or
(i) A final judgment against any Borrower or any Subsidiary
Guarantor is entered for the payment of money in excess of $500,000
(not covered by insurance or for which an insurer has reserved its
rights) and, absent procurement of a stay of execution, such judgment
remains unsatisfied for thirty (30) calendar days after the date of
entry of judgment, or in any event later than five (5) days prior to
the date of any proposed sale thereunder; or any writ or warrant of
attachment or execution or similar process is issued or levied against
the Property of any such Person and is not released, vacated or fully
bonded within thirty (30) calendar days after its issue or levy; or
(j) A Borrower or any Subsidiary Guarantor institutes or consents
to the institution of any proceeding under a Debtor Relief Law
relating to it or to all or any material part of its Property, or is
unable or admits in writing its inability to pay its debts as they
mature, or makes an assignment for the benefit of creditors; or
applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer
for it or for all or any material part of its Property; or any
receiver, trustee, custodian, conservator, liquidator, rehabilitator
or similar officer is appointed without the application or consent of
that Person and the appointment continues undischarged or unstayed for
sixty (60) calendar days; or any proceeding under a Debtor Relief Law
relating to any such Person or to all or any part of its Property is
instituted without the consent of that Person and continues
undismissed or unstayed for sixty (60) calendar days; or
(k) The occurrence of an Event of Default (as such term is or may
hereafter be specifically defined in any other Loan Document) under
any other Loan Document; or
(l) Any Pension Plan maintained by any Borrower is finally
determined by the PBGC to have a material "accumulated funding
deficiency" as that term is defined in Section 302 of ERISA in excess
of an amount equal to 5% of the consolidated total assets of such
Borrower as of the most-recently ended Fiscal Quarter; or
(m) Any Lien purported to be created under any Collateral
Document shall cease to be, or shall be asserted by any Borrower or
any of its Subsidiaries not to be, a valid and perfected Lien on any
Collateral, with the priority required by the applicable Collateral
Document, except as a result of the sale or other disposition of the
applicable Collateral in a transaction permitted under the Loan
Documents.
9.2 Remedies Upon Event of Default.
Without limiting any other rights or remedies of the Administrative Agent
or the Lenders provided for elsewhere in this Agreement, or the other Loan
Documents, or by applicable Law, or in equity, or otherwise:
(a) Upon the occurrence, and during the continuance, of any Event
of Default other than an Event of Default described in Section 9.1(j):
(1) the Administrative Agent may, and at the request of the
Requisite Lenders shall, by written notice to the Borrowers, declare
that all or any portion of the Revolving Commitment and all other
obligations of the Lenders and the Issuing Bank under the Revolving
Commitment are terminated; and
(2) the Administrative Agent may, and at the request of the
Requisite Lenders shall, declare all or any part of the unpaid
principal of all Loans, all interest accrued and unpaid thereon and
all other amounts payable under the Loan Documents to be forthwith
due and payable, and shall notify each Borrower thereof, whereupon
the same shall become and be forthwith due and payable, without
protest, presentment, notice of dishonor, demand or further notice
of any kind, all of which are expressly waived by each Borrower, and
the Borrowers shall,in connection therewith, pay to the Administrative
Agent an amount in cash equal to the aggregate amount of all
outstanding Letters of Credit to be held as cash collateral hereunder.
(b) Upon the occurrence of any Event of Default described in
Section 9.1(j):
(1) the Revolving Commitment and all other
obligations of the Lenders shall terminate without notice to or demand
upon any Borrower, which are expressly waived by each Borrower;
(2) an amount equal to the aggregate amount of all
outstanding Letters of Credit shall be immediately due and payable
to the Issuing Lender without notice to or demand upon any Borrower,
which are expressly waived by each Borrower, to be held by the
Issuing Lender in an interest-bearing cash collateral account as
collateral hereunder; and
(3) the unpaid principal of all Loans, all interest
accrued and unpaid thereon and all other amounts payable under the
Loan Documents shall be forthwith due and payable, without protest,
presentment, notice of dishonor, demand or further notice of any kind,
all of which are expressly waived by each Borrower.
(c) Upon the occurrence and during the continuation of any Event
of Default, the Lenders and the Administrative Agent, or any of them,
without notice to (except as expressly provided for in any Loan
Document) or demand upon any Borrower, which are expressly waived by
each Borrower, may proceed (but only with the consent of the Requisite
Lenders) to protect, exercise and enforce their rights and remedies
under the Loan Documents against each Borrower and any other Party and
such other rights and remedies as are provided by Law or equity.
(d) The order and manner in which the Lenders' rights and
remedies are to be exercised shall be determined by the Administrative
Agent in its sole discretion, unless instructed by the Requisite
Lenders, in which case, by the Requisite Lenders in their sole
discretion, and all payments received by the Administrative Agent and
the Lenders, or any of them, during the continuation of an Event of
Default, shall, subject to Section 3.18, be applied first to the costs
and expenses (including reasonable attorneys' fees and disbursements
and the reasonably allocated costs of attorneys employed by the
Administrative Agent or by any Lender) of the Administrative Agent and
of the Lenders, and thereafter paid pro rata to the Lenders in the
same proportions that the aggregate Obligations owed to each Lender
under the Loan Documents bear to the aggregate Obligations owed under
the Loan Documents to all the Lenders, without priority or preference
among the Lenders. Regardless of how each Lender may treat payments
for the purpose of its own accounting, for the purpose of computing
Borrower's Obligations hereunder and under the Notes, payments during
the continuation of an Event of Default shall be applied first, to the
costs and expenses of the Administrative Agent and the Lenders, as set
forth above, second, to the payment of accrued and unpaid interest due
under any Loan Documents to and including the date of such application
(ratably, and without duplication, according to the accrued and unpaid
interest due under each of the Loan Documents), and third, to the
payment of all other amounts (including principal and fees) then owing
to the Administrative Agent or the Lenders under the Loan Documents.
No application of payments will cure any Event of Default, or prevent
acceleration, or continued acceleration, of amounts payable under the
Loan Documents, or prevent the exercise, or continued exercise, of
rights or remedies of the Lenders hereunder or thereunder or at Law or
in equity.
Article 10
THE ADMINISTRATIVE AGENT
10.1 Appointment and Authorization.
Subject to Section 10.8, each Lender hereby irrevocably appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof or are reasonably incidental, as
determined by the Administrative Agent, thereto. This appointment and
authorization is intended solely for the purpose of facilitating the servicing
of the Loans and does not constitute appointment of the Administrative Agent as
trustee for any Lender or as representative of any Lender for any other purpose
and, except as specifically set forth in the Loan Documents to the contrary, the
Administrative Agent shall take such action and exercise such powers only in an
administrative and ministerial capacity.
10.2 Administrative Agent and Affiliates.
Wells Fargo Bank, National Association (and each successor Administrative
Agent) has the same rights and powers under the Loan Documents as any other
Lender and may exercise the same as though it were not the Administrative Agent,
and the term "Lender" or "Lenders" includes Wells Fargo Bank, National
Association in its individual capacity. Wells Fargo Bank, National Association
(and each successor Administrative Agent) and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of banking, trust or other
business with any Borrower, any Subsidiary thereof, or any Affiliate of any
Borrower or any Subsidiary thereof, as if it were not the Administrative Agent
and without any duty to account therefor to the Lenders. Wells Fargo Bank,
National Association (and each successor Administrative Agent) need not account
to any other Lender for any monies received by it for reimbursement of its costs
and expenses as Administrative Agent hereunder, or (subject to Section 11.10)
for any monies received by it in its capacity as a Lender hereunder. The
Administrative Agent shall not be deemed to hold a fiduciary relationship with
any Lender and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Administrative Agent.
10.3 Lenders' Credit Decisions.
Each Lender agrees that it has, independently and without reliance upon the
Administrative Agent, any other Lender or the directors, officers, agents,
employees or attorneys of the Administrative Agent or of any other Lender, and
instead in reliance upon information supplied to it by or on behalf of the
Borrowers and upon such other information as it has deemed appropriate, made its
own independent credit analysis and decision to enter into this Agreement. Each
Lender also agrees that it shall, independently and without reliance upon the
Administrative Agent, any other Lender or the directors, officers, agents,
employees or attorneys of the Administrative Agent or of any other Lender,
continue to make its own independent credit analyses and decisions in acting or
not acting under the Loan Documents.
10.4 Action by Administrative Agent.
(a) Absent actual knowledge of the Administrative Agent of the
existence of a Default, the Administrative Agent may assume that no
Default has occurred and is continuing, unless the Administrative
Agent (or the Lender that is then the Administrative Agent) has
received notice from a Borrower stating the nature of the Default or
has received notice from a Lender stating the nature of the Default
and that such Lender considers the Default to have occurred and to be
continuing.
(b) The Administrative Agent has only those obligations under the
Loan Documents as are expressly set forth therein.
(c) Except for any obligation expressly set forth in the Loan
Documents and as long as the Administrative Agent may assume that no
Event of Default has occurred and is continuing, the Administrative
Agent may, but shall not be required to, exercise its discretion to
act or not act, except that the Administrative Agent shall be required
to act or not act upon the instructions of the Requisite Lenders (or
of all the Lenders, to the extent required by Section 11.2) and those
instructions shall be binding upon the Administrative Agent and all
the Lenders, provided that the Administrative Agent shall not be
required to act or not act if to do so would be contrary to any Loan
Document or to applicable Law or would result, in the reasonable
judgment of the Administrative Agent, in substantial risk of liability
to the Administrative Agent.
(d) If the Administrative Agent has received a notice specified
in clause (a), the Administrative Agent shall immediately give notice
thereof to the Lenders and shall act or not act upon the instructions
of the Requisite Lenders (or of all the Lenders, to the extent
required by Section 11.2), provided that the Administrative Agent
shall not be required to act or not act if to do so would be contrary
to any Loan Document or to applicable Law or would result, in the
reasonable judgment of the Administrative Agent, in substantial risk
of liability to the Administrative Agent, and except that if the
Requisite Lenders (or all the Lenders, if required under Section 11.2)
fail, for five (5) Banking Days after the receipt of notice from the
Administrative Agent, to instruct the Administrative Agent, then the
Administrative Agent, in its sole discretion, may act or not act as it
deems advisable for the protection of the interests of the Lenders.
(e) The Administrative Agent shall have no liability to any
Lender for acting, or not acting, as instructed by the Requisite
Lenders (or all the Lenders, if required under Section 11.2),
notwithstanding any other provision hereof.
10.5 Liability of Administrative Agent.
Neither the Administrative Agent nor any of its directors, officers,
agents, employees or attorneys shall be liable for any action taken or not taken
by them under or in connection with the Loan Documents, except for their own
gross negligence or willful misconduct. Without limitation on the foregoing, the
Administrative Agent and its directors, officers, agents, employees and
attorneys:
(a) May treat the payee of any Note as the holder thereof until
the Administrative Agent receives notice of the assignment or transfer
thereof, in form satisfactory to the Administrative Agent, signed by
the payee, and may treat each Lender as the owner of that Lender's
interest in the Obligations for all purposes of this Agreement until
the Administrative Agent receives notice of the assignment or transfer
thereof, in form satisfactory to the Administrative Agent, signed by
that Lender;
(b) May consult with legal counsel (including in-house legal
counsel), accountants (including in-house accountants) and other
professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for Borrowers and/or
their Subsidiaries or the Lenders, and shall not be liable for any
action taken or not taken by it in good faith in accordance with any
advice of such legal counsel, accountants or other professionals or
experts;
(c) Shall not be responsible to any Lender for any statement,
warranty or representation made in any of the Loan Documents or in any
notice, certificate, report, request or other statement (written or
oral) given or made in connection with any of the Loan Documents;
(d) Except to the extent expressly set forth in the Loan
Documents, shall have no duty to ask or inquire as to the performance
or observance by the Borrowers or their respective Subsidiaries of any
of the terms, conditions or covenants of any of the Loan Documents or
to inspect any collateral or any Property, books or records of the
Borrowers or their Subsidiaries;
(e) Will not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document, any other instrument or
writing furnished pursuant thereto or in connection therewith, or any
Collateral or the perfection of any Lien thereon;
(f) Will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate,
statement, request or other instrument or writing believed in good
faith by it to be genuine and signed or sent by the proper party or
parties; and
(g) Will not incur any liability for any arithmetical error in
computing any amount paid or payable by any Borrower or any Subsidiary or
Affiliate thereof or paid or payable to or received or receivable from any
Lender under any Loan Document, including, without limitation, principal,
interest, commitment fees, Loans and other amounts; provided that, promptly upon
discovery of such an error in computation, the Administrative Agent, the Lenders
and (to the extent applicable) any Borrower and/or its Subsidiaries or
Affiliates shall make such adjustments as are necessary to correct such error
and to restore the parties to the position that they would have occupied had the
error not occurred.
10.6 Indemnification.
Each Lender shall, ratably in accordance with its proportion of the
aggregate principal amount of the Loans outstanding, indemnify and hold the
Administrative Agent and its directors, officers, agents, employees and
attorneys harmless against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever (including reasonable attorneys' fees and
disbursements and allocated costs of attorneys employed by the Administrative
Agent) that may be imposed on, incurred by or asserted against it or them in any
way relating to or arising out of the Loan Documents (other than losses incurred
by reason of the failure of any Borrower to pay the Indebtedness represented by
the Notes) or any action taken or not taken by it as Administrative Agent
thereunder, except such as result from its own gross negligence or willful
misconduct. Without limitation on the foregoing, each Lender shall reimburse the
Administrative Agent upon demand for that Lender's Pro Rata Share of any
out-of-pocket cost or expense incurred by the Administrative Agent in connection
with the negotiation, preparation, execution, delivery, amendment, waiver,
restructuring, reorganization (including a bankruptcy reorganization),
enforcement or attempted enforcement of the Loan Documents, to the extent that
any Borrower or any other Party is required by Section 11.3 to pay that cost or
expense but fails to do so upon demand. Nothing in this Section 10.6 shall
entitle the Administrative Agent or any indemnitee referred to above to recover
any amount from the Lenders if and to the extent that such amount has
theretofore been recovered from a Borrower or any of its Subsidiaries. To the
extent that the Administrative Agent or any indemnitee referred to above is
later reimbursed such amount by a Borrower or any of its Subsidiaries, it shall
return the amounts paid to it by the Lenders in respect of such amount.
10.7 Successor Administrative Agent.
The Administrative Agent may, and at the request of the Requisite Lenders
shall, resign as Administrative Agent upon reasonable notice to the Lenders and
each Borrower effective upon acceptance of appointment by a successor
Administrative Agent. If the Administrative Agent shall resign as Administrative
Agent under this Agreement, the Requisite Lenders shall appoint from among the
Lenders a successor Administrative Agent for the Lenders, which successor
Administrative Agent shall be approved by each Borrower (and such approval shall
not be unreasonably withheld or delayed). If no successor Administrative Agent
is appointed prior to the effective date of the resignation of the
Administrative Agent, the Administrative Agent may appoint, after consulting
with the Lenders and each Borrower, a successor Administrative Agent from among
the Lenders. Upon the acceptance of its appointment as successor Administrative
Agent hereunder, such successor Administrative Agent shall succeed to all the
rights, powers and duties of the retiring Administrative Agent and the term
"Administrative Agent" shall mean such successor Administrative Agent and the
retiring Administrative Agent's appointment, powers and duties as Administrative
Agent shall be terminated. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Article 10, and
Sections 11.3, 11.11 and 11.22, shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement. Notwithstanding the foregoing, if (a) the Administrative Agent has
not been paid its agency fees under Section 3.5 or has not been reimbursed for
any expense reimbursable to it under Section 11.3, in either case for a period
of at least one (1) year and (b) no successor Administrative Agent has accepted
appointment as Administrative Agent by the date which is thirty (30) days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Requisite Lenders appoint a successor
Administrative Agent as provided for above.
10.8 No Obligations of Borrowers.
Nothing contained in this Article 10 shall be deemed to impose upon any
Borrower any obligation in respect of the due and punctual performance by the
Administrative Agent of its obligations to the Lenders under any provision of
this Agreement, and no Borrower shall have liability to the Administrative Agent
or any of the Lenders in respect of any failure by the Administrative Agent or
any Lender to perform any of its obligations to the Administrative Agent or the
Lenders under this Agreement. Without limiting the generality of the foregoing,
where any provision of this Agreement relating to the payment of any amounts due
and owing under the Loan Documents provides that such payments shall be made by
a Borrower to the Administrative Agent for the account of the Lenders, such
Borrower's obligations to the Lenders in respect of such payments shall be
deemed to be satisfied upon the making of such payments to the Administrative
Agent in the manner provided by this Agreement.
Article 11
MISCELLANEOUS
11.1 Cumulative Remedies; No Waiver.
The rights, powers, privileges and remedies of the Administrative Agent and
the Lenders provided herein or in any Note or other Loan Document are cumulative
and not exclusive of any right, power, privilege or remedy provided by Law or
equity. No failure or delay on the part of the Administrative Agent or any
Lender in exercising any right, power, privilege or remedy may be, or may be
deemed to be, a waiver thereof; nor may any single or partial exercise of any
right, power, privilege or remedy preclude any other or further exercise of the
same or any other right, power, privilege or remedy. The terms and conditions of
Article 10 (other than Section 10.8) hereof are inserted for the sole benefit of
the Administrative Agent and the Lenders; the same may be waived in whole or in
part, with or without terms or conditions, in respect of any Loan without
prejudicing the Administrative Agent's or the Lenders' rights to assert them in
whole or in part in respect of any other Loan.
11.2 Amendments; Consents.
No amendment, modification, supplement, extension, termination or waiver of
any provision of this Agreement or any other Loan Document, no approval or
consent thereunder (other than a consent relating to a matter expressly stated
by this Agreement to require only the Administrative Agent's consent), and no
consent to any departure by any Borrower or any other Party therefrom, may in
any event be effective unless in writing signed by the Administrative Agent with
the written approval of the Requisite Lenders (and, in the case of any
amendment, modification or supplement of or to any Loan Document to which a
Borrower is a Party, signed by such Borrower, and, in the case of any amendment,
modification or supplement to Article 10, signed by the Administrative Agent),
and then only in the specific instance and for the specific purpose given; and,
without the approval in writing of all the Lenders, no amendment, modification,
supplement, termination, waiver or consent (other than a consent relating to a
matter expressly stated by this Agreement to require only the Administrative
Agent's consent) may be effective:
(a) To amend or modify the principal of, or the amount of
principal, principal prepayments or the rate of interest payable on,
any Loan or Note, or the amount of the Revolving Commitment or the Pro
Rata Share of any Lender or the amount of any commitment fee payable
to any Lender, or any other fee or amount payable to any Lender under
the Loan Documents or to waive an Event of Default consisting of the
failure of any Borrower to pay when due principal, interest or any fee
due to the Lenders or the Issuing Bank;
(b) To postpone any date fixed for any payment of principal of,
prepayment of principal of or any installment of interest on, any Loan
or Note or any installment of any fee due to the Lenders or the
Issuing Bank, or to extend the term of the Revolving Commitment;
(c) To amend the provisions of the definition of "Requisite
Lenders", "Revolving Loan Maturity Date" or "Term Loan Maturity Date";
or
(d) To release any Subsidiary Guarantor from its obligations
under the Subsidiary Guaranty; or
(e) To amend or waive any provision of Article 8 or this Section
11.2; or
(f) To amend any provision of this Agreement that expressly
requires the consent or approval of all the Lenders; or
(g) To release any Collateral (other than in connection with any
sale or other disposition permitted under the Loan Documents) that,
individually or in the aggregate, constitutes more than one-half of
one percent (0.05%) of the net book value of the consolidated assets
of Day Runner and its Subsidiaries as set forth in financial
statements delivered to the Administrative Agent and the Lenders
pursuant to Section 7.1 for the Fiscal Year ended June 30, 1999.
Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 11.2 shall apply equally to, and shall be binding upon, all the
Lenders and the Administrative Agent.
11.3 Costs, Expenses and Taxes.
Borrowers, jointly and severally, shall pay within ten (10) Banking Days
after demand, accompanied by an invoice therefor, the reasonable costs and
expenses of the Administrative Agent in connection with the negotiation,
preparation, syndication, execution and delivery of the Loan Documents and any
amendment thereto or waiver thereof. Borrowers, jointly and severally, shall
also pay on demand, accompanied by an invoice therefor, the reasonable costs and
expenses of the Administrative Agent and the Lenders in connection with the
restructuring, reorganization (including a bankruptcy reorganization of any
Borrower or any of their respective Subsidiaries) and enforcement or attempted
enforcement of the Loan Documents, and any matter related thereto. The foregoing
costs and expenses shall include any applicable filing fees, recording fees,
search fees, and other out-of-pocket expenses and the reasonable fees and
out-of-pocket expenses of any legal counsel (including reasonably allocated
costs of any in-house legal counsel of the Administrative Agent or any Lender),
independent public accountants and other outside experts retained by the
Administrative Agent or any Lender, whether or not such costs and expenses are
incurred or suffered by the Administrative Agent or any Lender in connection
with or during the course of any bankruptcy or insolvency proceedings of any
Borrower or any Subsidiary thereof. Borrowers, jointly and severally, shall pay
any and all documentary and other taxes, excluding (i) taxes imposed on or
measured in whole or in part by a Lender's overall net income or net worth
imposed on it by (A) any jurisdiction (or political subdivision thereof) in
which it is organized or maintains its principal office or Eurodollar Lending
Office or (B) any jurisdiction (or political subdivision thereof) in which it is
"doing business" or (ii) any withholding taxes or other taxes based on gross
income imposed by the United States of America for any period with respect to
which it has failed to provide Borrowers with the appropriate form or forms
required by Section 11.21, to the extent such forms are then required by
applicable Laws, and all costs, expenses, fees and charges payable or determined
to be payable in connection with the filing or recording of this Agreement, any
other Loan Document or any other instrument or writing to be delivered hereunder
or thereunder, or in connection with any transaction pursuant hereto or thereto,
and shall reimburse, hold harmless and indemnify on the terms set forth in 11.11
the Administrative Agent and the Lenders from and against any and all loss,
liability or legal or other expense with respect to or resulting from any delay
in paying or failure to pay any such tax, cost, expense, fee or charge or that
any of them may suffer or incur by reason of the failure of any Party to perform
any of its Obligations.
11.4 Nature of Lenders' Obligations.
The obligations of the Lenders hereunder are several and not joint or joint
and several. Nothing contained in this Agreement or any other Loan Document and
no action taken by the Administrative Agent or the Lenders or any of them
pursuant hereto or thereto may, or may be deemed to, make the Lenders a
partnership, an association, a joint venture or other entity, either among
themselves or with the Borrowers or any Affiliate of any of the Borrowers. A
default by any Lender will not increase the Pro Rata Share of the Revolving
Commitment attributable to any other Lender. Any Lender not in default may, if
it desires, assume in such proportion as the nondefaulting Lenders agree the
obligations of any Lender in default, but is not obligated to do so. The
Administrative Agent agrees that it will use its best efforts either to induce
promptly the other Lenders to assume the obligations of a Lender in default or
to obtain promptly another Lender, reasonably satisfactory to the Borrowers, to
replace such a Lender in default.
11.5 Survival of Representations and Warranties.
All representations and warranties contained herein or in any other Loan
Document, or in any certificate or other writing delivered by or on behalf of
any one or more of the Parties to any Loan Document, will survive the making of
the Loans hereunder and the execution and delivery of the Notes, and have been
or will be relied upon by the Administrative Agent and each Lender,
notwithstanding any investigation made by the Administrative Agent or any Lender
or on their behalf.
11.6 Notices.
Except as otherwise expressly provided in the Loan Documents, all notices,
requests, demands, directions and other communications provided for hereunder or
under any other Loan Document must be in writing and must be mailed,
telegraphed, telecopied, dispatched by commercial courier or delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section.
Except as otherwise expressly provided in any Loan Document, if any notice,
request, demand, direction or other communication required or permitted by any
Loan Document is given by mail it will be effective on the earlier of receipt or
the fourth Banking Day after deposit in the United States mail with first class
or airmail postage prepaid; if given by telegraph or cable, when delivered to
the telegraph company with charges prepaid; if given by telecopier, when sent;
if dispatched by commercial courier, on the scheduled delivery date; or if given
by personal delivery, when delivered.
11.7 Execution of Loan Documents.
Unless the Administrative Agent otherwise specifies with respect to any
Loan Document, (a) this Agreement and any other Loan Document may be executed in
any number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Agreement or any other Loan
Document, as the case may be, when taken together will be deemed to be but one
and the same instrument and (b) execution of any such counterpart may be
evidenced by a telecopier transmission of the signature of such party. The
execution of this Agreement or any other Loan Document by any party hereto or
thereto will not become effective until counterparts hereof or thereof, as the
case may be, have been executed by all the parties hereto or thereto.
11.8 Binding Effect; Assignment.
(a) This Agreement and the other Loan Documents to which each
Borrower is a Party will be binding upon and inure to the benefit of
Borrowers, the Administrative Agent, each of the Lenders, and their
respective successors and assigns, except that no Borrower may assign
its rights hereunder or thereunder or any interest herein or therein
without the prior written consent of all the Lenders. Any Lender may
at any time pledge any of its Notes or any other instrument evidencing
its rights as a Lender under this Agreement to a Federal Reserve Bank,
but no such pledge shall release that Lender from its obligations
hereunder or grant to such Federal Reserve Bank the rights of a Lender
hereunder absent foreclosure of such pledge.
(b) From time to time following the Effective Date, each Lender
may assign to one or more Persons all or any portion of its Pro Rata
Share of the Revolving Commitment and/or Term Loans; provided that (i)
such Person, if not then a Lender or an Affiliate of the assigning
Lender, shall be approved by the Administrative Agent and (if no Event
of Default then exists) the Borrowers (neither of which approvals
shall be unreasonably withheld or delayed), (ii) such assignment shall
be evidenced by an Assignment and Acceptance, a copy of which shall be
furnished to the Administrative Agent as hereinbelow provided, (iii)
except in the case of an assignment to an Affiliate of the assigning
Lender, to another Lender or of the entire remaining Revolving
Commitment of the assigning Lender or all of the outstanding Term
Loans of such Lender, the assignment shall assign the same percentage
of the assigning Lender's Pro Rata Share of the Revolving Commitment
and of the Term Loans owing to such assigning Lender, and shall not
assign a Pro Rata Share of the Revolving Commitment and the Term Loans
that, in the aggregate, is equivalent to less than $5,000,000 and (iv)
the effective date of any such assignment shall be as specified in the
Assignment and Acceptance, but not earlier than the date which is five
(5) Banking Days after the date the Administrative Agent has received
the Assignment and Acceptance. Upon the effective date of such
Assignment and Acceptance, the Person named therein shall be a Lender
for all purposes of this Agreement, with the Pro Rata Share of the
Revolving Commitment and Term Loans therein set forth and, to the
extent of such Pro Rata Share, the assigning Lender shall be released
from its further obligations under this Agreement. Each Borrower
agrees that it shall execute and deliver (against delivery by the
assigning Lender to each Borrower of its Revolving Loan Notes and Term
Loan Note) to such assignee Lender, Revolving Loan Notes and Term Loan
Notes evidencing that assignee Lender's Pro Rata Share of the
Revolving Commitment and Term Loans and to the assigning Lender,
Revolving Loan Notes and Term Loan Notes evidencing the remaining
balance Pro Rata Share retained by the assigning Lender.
(c) By executing and delivering an Assignment and Acceptance, the
Person constituting the assignee thereunder acknowledges and agrees
that: (i) other than the representation and warranty that it is the
legal and beneficial owner of the Pro Rata Share of the Revolving
Commitment and Term Loans being assigned thereby free and clear of any
adverse claim, the assigning Lender has made no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability,
genuineness or sufficiency of this Agreement or any other Loan
Document; (ii) the assigning Lender has made no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrowers or the performance by the Borrowers of the
Obligations; (iii) it has received a copy of this Agreement, together
with copies of the most recent financial statements delivered pursuant
to Section 7.1 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) it will, independently
and without reliance upon the Administrative Agent or any Lender and
based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) it appoints and authorizes
the Administrative Agent to take such action and to exercise such
powers under this Agreement as are delegated to the Administrative
Agent by this Agreement; and (vi) it will perform in accordance with
their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at the Administrative
Agent's Office a copy of each Assignment and Acceptance delivered to
it and a register (the "Register") of the name and address of each of
the Lenders and the Pro Rata Share of the Revolving Commitment and
Term Loans held by each Lender, giving effect to each Assignment and
Acceptance. The Register shall be available during normal business
hours for inspection by any Borrower or any Lender upon reasonable
prior notice to the Administrative Agent. After receipt of a completed
Assignment and Acceptance executed by any Lender and an assignee, and
receipt of an assignment fee of $3,500 from such Lender or assignee,
the Administrative Agent shall, promptly following the effective date
thereof, provide to the Borrowers and the Lenders a revised Schedule
1.1 giving effect thereto. Each Borrower, the Administrative Agent and
the Lenders shall deem and treat the Persons listed as Lenders in the
Register as the holders and owners of the Pro Rata Share of the
Revolving Commitment and Term Loans listed therein for all purposes
hereof, and no assignment or transfer of any such Pro Rata Share of
the Revolving Commitment and Term Loans shall be effective, in each
case unless and until an Assignment and Acceptance effecting the
assignment or transfer thereof shall have been accepted by the
Administrative Agent and recorded in the Register as provided above.
Prior to such recordation, all amounts owed with respect to the
applicable Pro Rata Share of the Revolving Commitment and Term Loans
shall be owed to the Lender listed in the Register as the owner
thereof, and any request, authority or consent of any Person who, at
the time of making such request or giving such authority or consent,
is listed in the Register as a Lender shall be conclusive and binding
on any subsequent holder, assignee or transferee of the corresponding
Pro Rata Share of the Revolving Commitment and Term Loans.
(e) Each Lender may from time to time grant participations to one
or more banks or other financial institutions in a portion of its Pro
Rata Share of the Revolving Commitment and Term Loans; provided,
however, that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations,
(iii) the participating banks or other financial institutions shall
not be a Lender hereunder for any purpose except, if the participation
agreement so provides, for the purposes of Sections 3.6, 3.7, 3.8,
11.11 and 11.22 but only to the extent that the cost to the Borrowers
does not exceed the cost which the Borrowers would have incurred in
respect of such Lender absent the participation, (iv) the Borrowers,
the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement, (v) the participation
interest shall be expressed as a percentage of the granting Lender's
Pro Rata Share of the Revolving Commitment and Term Loans,
respectively, as they then exist and shall not restrict an increase in
the Revolving Commitment, or in the granting Lender's Pro Rata Share
of the Revolving Commitment, so long as the amount of the
participation interest is not affected thereby and (vi) the consent of
the holder of such participation interest shall not be required for
amendments or waivers of provisions of the Loan Documents other than
those which (A) extend the Revolving Loan Maturity Date or Term Loan
Maturity Date or any other date upon which any payment of money is due
to the Lenders, (B) reduce the rate of interest on any Loan, any fee
or any other monetary amount payable to the Lenders, (C) reduce the
amount of any installment of principal due with respect to any Loan or
(D) release any Subsidiary Guarantor from its obligations under the
Subsidiary Guaranty.
11.9 Right of Setoff.
If an Event of Default has occurred and is continuing, the Administrative
Agent or any Lender may exercise its rights under applicable Laws and, to the
extent permitted by applicable Laws, apply any funds in any deposit account
maintained with it by any Borrower and/or any Property of any Borrower in its
possession against the Obligations.
11.10 Sharing of Setoffs.
Each Lender severally agrees that if it, through the exercise of any right
of setoff, banker's lien or counterclaim against any Borrower, or otherwise,
receives payment of the Obligations held by it that is ratably more than any
other Lender, through any means, receives in payment of the Obligations held by
that Lender, then, subject to applicable Laws: (a) the Lender exercising the
right of setoff, banker's lien or counterclaim or otherwise receiving such
payment shall purchase, and shall be deemed to have simultaneously purchased,
from each of the other Lenders a participation in the Obligations held by the
other Lenders and shall pay to the other Lenders a purchase price in an amount
so that the share of the Obligations held by each Lender after the exercise of
the right of setoff, banker's lien or counterclaim or receipt of payment shall
be in the same proportion that existed prior to the exercise of the right of
setoff, banker's lien or counterclaim or receipt of payment; and (b) such other
adjustments and purchases of participations shall be made from time to time as
shall be equitable to ensure that all of the Lenders share any payment obtained
in respect of the Obligations ratably in accordance with each Lender's share of
the Obligations immediately prior to, and without taking into account, the
payment; provided that, if all or any portion of a disproportionate payment
obtained as a result of the exercise of the right of setoff, banker's lien,
counterclaim or otherwise is thereafter recovered from the purchasing Lender by
any Borrower or any Person claiming through or succeeding to the rights of such
Borrower, the purchase of a participation shall be rescinded and the purchase
price thereof shall be restored to the extent of the recovery, but without
interest. Each Lender that purchases a participation in the Obligations pursuant
to this Section 11.10 shall from and after the purchase have the right to give
all notices, requests, demands, directions and other communications under this
Agreement with respect to the portion of the Obligations purchased to the same
extent as though the purchasing Lender were the original owner of the
Obligations purchased. Each Borrower expressly consents to the foregoing
arrangements and agrees that any Lender holding a participation in an Obligation
so purchased pursuant to this Section 11.10 may exercise any and all rights of
setoff, banker's lien or counterclaim with respect to the participation as fully
as if the Lender were the original owner of the Obligation purchased.
11.11 Indemnity by Borrowers.
Borrowers jointly and severally agree to indemnify, save and hold harmless
the Administrative Agent and each Lender and their respective directors,
officers, agents, attorneys and employees (collectively the "Indemnitees") from
and against: (a) any and all claims, demands, actions or causes of action if the
claim, demand, action or cause of action arises out of or relates to any act or
omission (or alleged act or omission) of any Borrower, its Affiliates or any of
its officers, directors or stockholders relating to the Revolving Commitment or
the Term Loans, the use or contemplated use of proceeds of any Loan, or the
relationship of the Borrowers and the Lenders under this Agreement; (b) any
administrative or investigative proceeding by any Governmental Agency arising
out of or related to a claim, demand, action or cause of action described in
clause (a) above; and (c) any and all liabilities, losses, costs or expenses
(including reasonable attorneys' fees and the reasonably allocated costs of
attorneys employed by any Indemnitee and disbursements of such attorneys and
other professional services) that any Indemnitee suffers or incurs as a result
of the assertion of any foregoing claim, demand, action or cause of action;
provided that no Indemnitee shall be entitled to indemnification for any loss
caused by its own gross negligence or willful misconduct. If any claim, demand,
action or cause of action is asserted against any Indemnitee, such Indemnitee
shall promptly notify the Borrowers, but the failure to so promptly notify the
Borrowers shall not affect the Borrowers' obligations under this Section unless
such failure materially prejudices the Borrowers' right to participate in the
contest of such claim, demand, action or cause of action, as hereinafter
provided. Such Indemnitee may (and shall, if requested by the Borrowers in
writing) contest the validity, applicability and amount of such claim, demand,
action or cause of action and shall permit the Borrowers to participate in such
contest. Any Indemnitee that proposes to settle or compromise any claim or
proceeding for which the Borrowers may be liable for payment of indemnity
hereunder shall give the Borrowers written notice of the terms of such proposed
settlement or compromise reasonably in advance of settling or compromising such
claim or proceeding and, so long as no Event of Default has occurred and is
continuing, shall obtain the Borrowers' prior written consent (which shall not
be unreasonably withheld or delayed). In connection with any claim, demand,
action or cause of action covered by this Section 11.11 against more than one
Indemnitee, all such Indemnitees shall be represented by the same legal counsel
(which may be a law firm engaged by the Indemnitees or attorneys employed by an
Indemnitee or a combination of the foregoing) selected by the Indemnitees and,
so long as no Event of Default has occurred and is continuing, reasonably
acceptable to the Borrowers; provided that if such legal counsel determines in
good faith that representing all such Indemnitees would or is reasonably likely
to result in a conflict of interest under Laws or ethical principles applicable
to such legal counsel, then to the extent reasonably necessary to avoid such a
conflict of interest or to permit unqualified assertion of such a defense or
counterclaim, each affected Indemnitee shall be entitled to separate
representation by legal counsel selected by that Indemnitee and, so long as no
Event of Default has occurred and is continuing, reasonably acceptable to the
Borrowers, with all such legal counsel using reasonable efforts to avoid
unnecessary duplication of effort by counsel for all Indemnitees; and further
provided that the Administrative Agent (as an Indemnitee) shall at all times be
entitled to representation by separate legal counsel (which may be a law firm or
attorneys employed by the Administrative Agent or a combination of the
foregoing). Any obligation or liability of the Borrowers to any Indemnitee under
this Section 11.11 shall survive the expiration or termination of this Agreement
and the repayment of all Loans and the payment and performance of all other
Obligations owed to the Lenders.
11.12 Nonliability of the Lenders.
Each Borrower acknowledges and agrees that:
(a) Any inspections of any Property of any Borrower made by or
through the Administrative Agent or the Lenders are for purposes of
administration of the Loan only and such Borrower is not entitled to
rely upon the same (whether or not such inspections are at the expense
of such Borrower);
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to the Administrative Agent or the
Lenders pursuant to the Loan Documents, neither the Administrative
Agent nor the Lenders shall be deemed to have warranted or represented
the sufficiency, legality, effectiveness or legal effect of the same,
or of any term, provision or condition thereof, and such acceptance or
approval thereof shall not constitute a warranty or representation to
anyone with respect thereto by the Administrative Agent or the
Lenders;
(c) The relationship between the Borrowers and the Administrative
Agent and the Lenders is, and shall at all times remain, solely that
of borrowers and lenders; neither the Administrative Agent nor the
Lenders shall under any circumstance be construed to be partners or
joint venturers of the Borrowers or their Affiliates; neither the
Administrative Agent nor the Lenders shall under any circumstance be
deemed to be in a relationship of confidence or trust or a fiduciary
relationship with the Borrowers or their Affiliates, or to owe any
fiduciary duty to the Borrowers or their Affiliates; neither the
Administrative Agent nor the Lenders undertake or assume any
responsibility or duty to the Borrowers or their Affiliates to select,
review, inspect, supervise, pass judgment upon or inform the Borrowers
or their Affiliates of any matter in connection with their Property or
the operations of the Borrowers or their Affiliates; the Borrowers and
their Affiliates shall rely entirely upon their own judgment with
respect to such matters; and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by
the Administrative Agent or the Lenders in connection with such
matters is solely for the protection of the Administrative Agent and
the Lenders and neither the Borrowers nor any other Person is entitled
to rely thereon; and
(d) The Administrative Agent and the Lenders shall not be
responsible or liable to any Person for any loss, damage, liability or
claim of any kind relating to injury or death to Persons or damage to
Property caused by the actions, inaction or negligence of any Borrower
and/or its Affiliates and each Borrower hereby indemnifies and holds
the Administrative Agent and the Lenders harmless on the terms set
forth in Section 11.11 from any such loss, damage, liability or claim.
11.13 No Third Parties Benefited.
This Agreement is made for the purpose of defining and setting forth
certain obligations, rights and duties of the Borrowers, the Administrative
Agent and the Lenders in connection with the Loans, and is made for the sole
benefit of the Borrowers, the Administrative Agent and the Lenders, and the
Administrative Agent's and the Lenders' successors and assigns. Except as
provided in Sections 11.8 and 11.11, no other Person shall have any rights of
any nature hereunder or by reason hereof.
11.14 Confidentiality.
Each Lender agrees to hold any confidential information that it may receive
from the Borrowers pursuant to this Agreement in confidence, except for
disclosure: (a) to other Lenders or Affiliates of a Lender; (b) to legal counsel
and accountants for the Borrowers or any Lender; (c) to other professional
advisors to the Borrowers or any Lender, provided that the recipient has
accepted such information subject to a confidentiality agreement substantially
similar to this Section 11.14; (d) to regulatory officials having jurisdiction
over that Lender; (e) as required by Law or legal process, provided that each
Lender agrees to notify the Borrowers of any such disclosures unless prohibited
by applicable Laws, or in connection with any legal proceeding to which that
Lender and the Borrowers are adverse parties; and (f) to another Person in
connection with a disposition or proposed disposition to that Person of all or
part of that Lender's interests hereunder or a participation interest in its
Notes. For purposes of the foregoing, "confidential information" shall mean all
Projections, information relating to acquisitions, information relating to the
Borrowers' businesses and any other information respecting the Borrowers or
their Subsidiaries reasonably considered by the Borrowers to be confidential,
other than (i) information previously filed with any Governmental Agency and
available to the public, (ii) information previously published in any public
medium from a source other than, directly or indirectly, that Lender, and (iii)
information previously disclosed by the Borrowers to any Person not associated
with the Borrowers which does not owe a professional duty of confidentiality to
the Borrowers or which has not executed an appropriate confidentiality agreement
with the Borrowers. Nothing in this Section shall be construed to create or give
rise to any fiduciary duty on the part of the Administrative Agent or the
Lenders to the Borrowers.
11.15 Further Assurances.
The Borrowers shall, at their expense and without expense to the Lenders or
the Administrative Agent, do, execute and deliver such further acts and
documents as the Requisite Lenders or the Administrative Agent from time to time
reasonably require for the assuring and confirming unto the Lenders or the
Administrative Agent of the rights hereby created or intended now or hereafter
so to be, or for carrying out the intention or facilitating the performance of
the terms of any Loan Document.
11.16 Integration.
This Agreement, together with the other Loan Documents and the letter
agreement referred to in Section 3.4, comprises the complete and integrated
agreement of the parties on the subject matter hereof and supersedes all prior
agreements, written or oral, on the subject matter hereof. In the event of any
conflict between the provisions of this Agreement and those of any other Loan
Document, the provisions of this Agreement shall control and govern; provided
that the inclusion of supplemental rights or remedies in favor of the
Administrative Agent or the Lenders in any other Loan Document shall not be
deemed a conflict with this Agreement. Each Loan Document was drafted with the
joint participation of the respective parties thereto and shall be construed
neither against nor in favor of any party, but rather in accordance with the
fair meaning thereof.
11.17 Governing Law.
Except to the extent otherwise provided therein, each Loan Document shall
be governed by, and construed and enforced in accordance with, the Laws of
California applicable to contracts made and performed in California.
11.18 Severability of Provisions.
Any provision in any Loan Document that is held to be inoperative,
unenforceable or invalid as to any party or in any jurisdiction shall, as to
that party or jurisdiction, be inoperative, unenforceable or invalid without
affecting the remaining provisions or the operation, enforceability or validity
of that provision as to any other party or in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
11.19 Headings.
Article and Section headings in this Agreement and the other Loan Documents
are included for convenience of reference only and are not part of this
Agreement or the other Loan Documents for any other purpose.
11.20 Time of the Essence.
Time is of the essence of the Loan Documents.
11.21 Foreign Lenders and Participants.
Each Lender that is incorporated or otherwise organized under the Laws of a
jurisdiction other than the United States of America or any State thereof or the
District of Columbia shall deliver to the Borrowers (with a copy to the
Administrative Agent), on or before the Effective Date (or on or before
accepting an assignment or receiving a participation interest herein pursuant to
Section 11.8, if applicable) two duly completed copies, signed by a Responsible
Official, of either Form 1001 (relating to such Lender and entitling it to a
complete exemption from withholding on all payments to be made to such Lender by
the Borrowers pursuant to this Agreement) or Form 4224 (relating to all payments
to be made to such Lender by the Borrowers pursuant to this Agreement) of the
United States Internal Revenue Service or such other evidence (including, if
reasonably necessary, Form W-9) satisfactory to the Borrowers and the
Administrative Agent that no withholding under the federal income tax laws is
required with respect to such Lender. Thereafter and from time to time, each
such Lender shall (a) promptly submit to the Borrowers (with a copy to the
Administrative Agent), such additional duly completed and signed copies of one
of such forms (or such successor forms as shall be adopted from time to time by
the relevant United States taxing authorities) as may then be available under
then current United States laws and regulations to avoid, or such evidence as is
satisfactory to the Borrowers and the Administrative Agent of any available
exemption from, United States withholding taxes in respect of all payments to be
made to such Lender by the Borrowers pursuant to this Agreement and (b) take
such steps as shall not be disadvantageous to it, in the reasonable judgment of
such Lender, and as may be reasonably necessary (including the re-designation of
its Eurodollar Lending Office, if any) to avoid any requirement of applicable
Laws that any Borrower make any deduction or withholding for taxes from amounts
payable to such Lender.
11.22 Joint and Several Liability.
(a) Each Borrower shall be jointly and severally liable for all
of the Obligations, provided that, notwithstanding anything to the
contrary herein (including, without limitation, the representations
and warranties set forth in Article 4), (i) Filofax Group shall be
liable with respect to the Term Loans only to the extent of the
greater of (x) 13,533,000 pounds sterling and (y) its "distributable
profits" (within the meaning of Section 152(1)(b) the Companies Act
and which, for the avoidance of doubt, shall include both revenue
reserves and reserves related to premiums on shares issued, in each
case, as reflected in Filofax Group's accounts) as of any date or
dates upon which payment is demanded under the Subsidiary Guaranty of
Term Loans executed by Filofax Group and (ii) and Filofax shall be
liable with respect to the Term Loans only to the extent of the
greater of (x) 1,960,000 pounds sterling and (y) its "distributable
profits" (within the meaning of Section 152(1)(b) the Companies Act
and which, for the avoidance of doubt, shall include both revenue
reserves and reserves related to premiums on shares issued, in each
case, as reflected in Filofax's accounts) as of any date or dates upon
which payment is demanded under the Borrower Guaranty of Term Loans
executed by Filofax, it being understood and agreed that neither the
Administrative Agent nor the Lenders shall demand payment by Filofax
of principal of or interest on the Term Loans, under the Borrower
Guaranty of Term Loans or on account of its joint and several
liability therefor arising hereunder, prior to October 15, 2000,
provided that it is further understood and agreed that nothing in this
Agreement or any other Loan Document shall preclude the Administrative
Agent or the Lenders, in the event that the Term Loans shall become
due and payable prior to October 15, 2000, from making demand upon
Filofax for payment thereof, subject to the limitations set forth
herein and in the Borrower Guaranty of Term Loans, at any time on or
after October 15, 2000.
(b) Each Borrower hereby agrees that its Obligations hereunder
shall not be discharged or otherwise affected as a result of (a) the
invalidity or unenforceability of any of the other Borrowers'
obligations under this Agreement or any other Loan Document or any
other agreement or instrument relating thereto, or any guaranty of the
Obligations, (b) the absence of any attempt to collect the Obligations
from any of the other Borrowers or other action to enforce the same;
(c) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced
by or against any of the other Borrowers (other than such Borrower),
including without limitation, any discharge of, or bar or stay against
collecting, all or any of the Obligations (or any interest thereon) in
or as a result of any such proceeding; (d) failure by the
Administrative Agent, any Lender, or the Issuing Lender to file or
enforce a claim against any other Borrower or its estate in any
bankruptcy or insolvency case or proceeding; (e) any action taken by
the Administrative Agent, any Lender, or the Issuing Lender that is
authorized hereby; or (f) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor or any other third party obligor on any Obligations, other
than the payment in full of the Obligations. Each Borrower hereby
waives (a) diligence, presentment, demand of payment (except as
expressly required hereunder), filing of claims with a court in the
event of receivership or bankruptcy of the other Borrowers, protest or
notice with respect to the Obligations, and all presentments, demands
for performance, notices of nonperformance (except to the extent
expressly required hereunder), protests, notices of protest, notices
of dishonor and notices of acceptance of this Agreement and the
Obligations, the benefits of all statutes of limitation, and all other
demands (except as expressly required hereunder) whatsoever (and shall
not require that the same be made on the other Borrowers as a
condition precedent to its Obligations hereunder), (b) all notices of
the existence, creation or incurring of new or additional
indebtedness, arising either from additional loans extended to the
other Borrowers or otherwise, (c) all notices that the principal
amount, or any portion thereof, and/or any interest on any instrument
or document evidencing all or any part of the Obligations is due
(except as expressly required hereunder), (d) notices of any and all
proceedings to collect from the maker, any endorser or any other
guarantor of all or any part of the Obligations, or from any other
Person, (e) any requirement of marshalling or any other principle of
election of remedies and all rights and defenses arising out of an
election of remedies by any Lender, (f) any defense based upon any
Requirement of Law which provides that the obligation of a surety must
be neither larger in amount nor in other respects more burdensome than
that of the principal and (g) without limiting the generality of the
foregoing or any other provision hereof, all rights and benefits under
California Civil Code Sections 2808, 2809, 810, 2811, 2819, 2839,
2845, 2849, 2850 and 3433.
11.23 Removal of a Lender.
Borrowers shall have the right to remove a Lender as a party to this
Agreement if such Lender is paid a material amount by Borrowers pursuant to
Section 3.6 or Section 3.7. Upon notice from Borrowers, such Lender shall
execute and deliver an Assignment and Acceptance covering that Lender's Pro Rata
Share of the Revolving Commitment and Term Loans, as the case may be, in favor
of such Person as Borrowers may designate (subject to the approval of the
Administrative Agent in its sole discretion), subject to payment in full by such
Person of all principal, interest and fees owing to such Lender through the date
of assignment and the agreement of such Person to indemnify such Lender with
respect to all then outstanding Letters of Credit. The Administrative Agent
shall, if requested by the Borrowers, use reasonable efforts to identify Persons
willing to accept such an assignment from such Lender.
11.24 Waiver of Right to Trial by Jury.
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN
DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE PARTY HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE
TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
11.25 Purported Oral Amendments.
EACH BORROWER EXPRESSLY ACKNOWLEDGES THAT THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF
WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION
11.2. EACH BORROWER AGREES THAT IT WILL NOT RELY ON ANY COURSE OF DEALING,
COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF
THE ADMINISTRATIVE AGENT OR ANY LENDER THAT DOES NOT COMPLY WITH SECTION 11.2 TO
EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS.
11.25 Acknowledgment of Lenders.
Each of the Lenders and the Administrative Agent hereby acknowledges and
agrees that as of the Effective Date, after giving effect to this Agreement, no
Default or Event of Default shall have occurred and be continuing with respect
to the covenants set forth in Sections 6.12 and 6.13 of this Agreement for the
period of four consecutive Fiscal Quarters ended on June 30, 1999.
[signatures on following pages]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
DAY RUNNER, INC.
By:/s/ James E. Freeman, Jr.
----------------------------
Name: James E. Freeman, Jr.
Chief Executive Officer
Address:
15295 Alton Parkway
Irvine, California 92618
Facsimile: 714-441-4848
DAY RUNNER UK plc
By:/s/ James E. Freeman, Jr.
----------------------------
Name: James E. Freeman, Jr.
Director
Address:
Day Runner UK plc
30-32 Gildredge Road
Eastbourne East Sussex
BN21 45H
DAY RUNNER CANADA INC.
By:/s/ Catherine F. Ratcliffe
-----------------------------
Name: Catherine F. Ratcliffe
Director
FILOFAX LIMITED
By: /s/ Christopher Brace
--------------------------
Name: Christopher Brace
Director
Address:
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent and Issuing
Lender
By:/s/ Greg Richardson
----------------------------
Address:
WELLS FARGO BANK, N.A., as Agent
Commercial Bank Loan Center
Agency Dept., 2840
201 3rd Street, 8th Floor
San Francisco, CA 94103
Attn: Manager
Telephone: 415-477-5319
Facsimile: 415-512-9408
and
WELLS FARGO BANK, N.A., as Agent
333 South Grand Avenue
3rd Floor
Los Angeles, CA 90071
Attn: Greg Richardson
Telephone: 213-253-6848
Facsimile: 213-253-5913
Payment Instructions:
WELLS FARGO, N.A.
San Francisco, CA
ABA # 1210-00248
For Acct.: 4081656654
Acct. Name:
SYNDIC/WFBCORP/DAY RUNNER
Ref.: Day Runner
<PAGE>
Lenders:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Greg Richardson
--------------------------------------
Name: Greg Richardson
Title: Vice President
BANK OF SCOTLAND
By: /s/ Ronnie Allan
-------------------------------------
Name: Ronnie Allan
Title: Corporate Banking Manager
CREDIT AGRICOLE INDOSUEZ
By: /s/ Richard Mand
-------------------------------------
Name: Richard Mand
Title: 1st Vice President
<PAGE>
BANK ONE, NA
By: /s/ Dennis Warren
-------------------------------------
Name: Dennis Warren
Title: Vice President
MELLON BANK, N.A.
By:/s/ Richard M. McNiven
------------------------------------
Name: Richard M. McNiven
Title: Assistant Vice President
NATIONAL WESTMINSTER BANK plc
By: /s/ Paul Sullivan
-----------------------------------
Name: Paul Sullivan
Title: Manager
<TABLE>
<CAPTION>
EXHIBIT 21.1
DAY RUNNER, INC. SUBSIDIARIES
<S> <C>
================================================= =================================================
SUBSIDIARY JURISDICTION
================================================= =================================================
DRI International Holdings Inc. Delaware
================================================= =================================================
DR UK Holdings Limited United Kingdom
================================================= =================================================
Day Runner UK plc United Kingdom
================================================= =================================================
Filofax Group Limited United Kingdom
================================================= =================================================
Filofax Limited United Kingdom
================================================= =================================================
Filofax France s.a.r.l France
- ------------------------------------------------- =================================================
Filofax GmbH Germany
- ------------------------------------------------- =================================================
- ------------------------------------------------- =================================================
Filofax A/s Denmark
- ------------------------------------------------- =================================================
- ------------------------------------------------- =================================================
Filofax AB Sweden
- ------------------------------------------------- =================================================
- ------------------------------------------------- =================================================
Filofax Inc. Connecticut
- ------------------------------------------------- =================================================
================================================= =================================================
Day Runner Canada Inc. Canada
================================================= =================================================
</TABLE>
EXHIBIT 23.1
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. 33-67092 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, 33-80819, 333-20247, 333-34887, 333-44627, and 333-69023 of Day
Runner, Inc. on Form S-8 of our report dated October 12, 1999, appearing in this
Annual Report on Form 10-K of Day Runner, Inc. for the year ended June 30, 1999.
DELOITTE & TOUCHE LLP Los Angeles, California October 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations 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> 12-mos
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> Jul-01-1998
<PERIOD-END> Jun-30-1999
<CASH> 9,132
<SECURITIES> 0
<RECEIVABLES> 54,696
<ALLOWANCES> 11,481
<INVENTORY> 42,361
<CURRENT-ASSETS> 110,837
<PP&E> 44,086
<DEPRECIATION> 26,235
<TOTAL-ASSETS> 216,311
<CURRENT-LIABILITIES> 40,346
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 70,383
<TOTAL-LIABILITY-AND-EQUITY> 216,311
<SALES> 196,212
<TOTAL-REVENUES> 196,212
<CGS> 108,087
<TOTAL-COSTS> 108,087
<OTHER-EXPENSES> 89,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,215
<INCOME-PRETAX> (6,787)
<INCOME-TAX> (2,789)
<INCOME-CONTINUING> (3,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,998)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
