-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EP+c6btSjSqdcqV0Ep73PtKqy2DUAbRDL0bW5pOHPOdKcKUid2l/1EloVKEddbu+ haniZGTbQW1DbCBhYMGK7w== 0000853102-97-000011.txt : 19970930 0000853102-97-000011.hdr.sgml : 19970930 ACCESSION NUMBER: 0000853102-97-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAY RUNNER INC CENTRAL INDEX KEY: 0000853102 STANDARD INDUSTRIAL CLASSIFICATION: BLANKBOOKS, LOOSELEAF BINDERS & BOOKBINDING & RELATED WORK [2780] IRS NUMBER: 953624280 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19835 FILM NUMBER: 97687892 BUSINESS ADDRESS: STREET 1: 15295 ALTON PARKWAY CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 714/680-3500 MAIL ADDRESS: STREET 1: 15295 ALTON PARKWAY CITY: IRVINE STATE: CA ZIP: 92718 10-K 1 ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 1997 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, 1997 |_| 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.|X| The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock on September 16, 1997 as reported on The Nasdaq Stock Market, was approximately $207,000,000. The number of shares outstanding of the registrant's Common Stock on September 16, 1997 was 5,598,084. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement to be delivered to stockholders in connection with their Annual Meeting of Stockholders to be held on November 25, 1997 are incorporated by reference into Part III of this Annual Report. PART I ITEM 1. BUSINESS THE COMPANY Day Runner", Inc. ("Day Runner") is the leading developer, manufacturer and marketer of paper-based organizers for the retail market. We also develop, manufacture and market related organizing products. Day Runner's products are carried by more than 20,000 retail stores across the U.S. We market our products to customers through our own sales force, through manufacturers' representatives and, in certain markets outside the U.S., through independent distributors. Our major customers in each of our primary domestic channels include: office products superstores Office Depot, Inc., OfficeMax, Inc. and Staples, Inc.; office products national wholesalers United Stationers Supply Co. and S.P. Richards Company; office products dealer McWhorter Stationers Company, Inc.; and mass market retailers Wal-Mart, Kmart and PriceCostco. Sales to the office products and mass market channels accounted for approximately 47% and 42%, respectively, of fiscal 1997 sales. Our organizers and planners are loose-leaf and spiral-bound time and information management systems that range from simple to sophisticated. For example, our flagship Day Runner System organizers include not only the traditional planner components of appointment calendar, telephone/address section and note pad but also interrelated pages for managing time and information, tracking expenses, establishing goals and planning projects. Segmenting the market for organizers and planners is a key element of our strategy. We aim our product lines at market segments ranging from students to women shopping in the mass market to business and professional people and offer many of our organizers and planners in a choice of sizes, styles, cover materials and colors. Suggested retail prices for our organizers and planners range from $5 to $150. Organizers and planners accounted for approximately 58% of our fiscal 1997 sales. Most of our organizers and planners are refillable. Refills, which include calendars and accessories, accounted for approximately 34% of our sales in fiscal 1997. Suggested retail prices for refills, which include calendars, other pages and accessories, range from $0.75 to $40. Our related organizing products include telephone/address books, traditional spiral dated goods, products for students from elementary school through college, personal information management (PIM) software intended to complement our paper-based organizers and our new Home Manager on-refrigerator organizer. This category accounted for approximately 8% of fiscal 1997 sales. With the exception of our software product and the calculators we include in certain of our products and sell as accessories, all of our current products have been developed internally. We manufacture and assemble a portion of our products at our Fullerton, California facility and our Mexican subsidiary and also use foreign and domestic contractors to supply both product components and finished goods. BUSINESS STRATEGY Day Runner sells broad-based personal organizing products through retail distribution channels. Our strategy is to leverage our brand name awareness and distribution strength to maximize sales of our existing products, extend those product lines and introduce new product lines. Key elements of our strategy include: o Segmenting the market for organizers and planners. o Entering related organizing product categories. o Building sales through major customers. o Marketing to increase sales. o Expanding foreign sales. o Providing excellent customer service. SEGMENTING THE MARKET FOR ORGANIZERS AND PLANNERS. In order to expand and segment our market, we offer our organizers and planners in a broad range of systems, sizes, styles and cover materials and at suggested retail prices ranging from $5 to $150. As a result, our products appeal to a large consumer market comprised of users with differing needs, tastes and budgets and are appropriate for sale through a broad range of retailers. Versatile Day Runner System organizers and planners are suitable for use by adults in virtually all walks of life. Specific target markets addressed by other Day Runner organizers and planners include business and professional people, cost-conscious consumers, young women shopping in the mass market and students from elementary school through college, among others. ENTERING RELATED ORGANIZING PRODUCT CATEGORIES. Day Runner believes that related personal organizing products offer us an opportunity to leverage our brand name and distribution and build upon our heritage in the area of personal organization. Our strategy is to: o Redefine existing product categories as value-added and offer a superior price/value relationship to the consumer. o Create new categories of personal organizing products. o Gain initial distribution through our existing customers. o Produce sales results we can build upon. BUILDING SALES THROUGH MAJOR CUSTOMERS. To reach consumers with differing needs and varying retail shopping habits, we distribute our products in the U.S. through multiple channels, including: o Office products superstores, wholesalers and dealers. o Mass market retailers, including discount department stores, wholesale clubs, drug chains, chain groceries and other mass market retailers. o A wide variety of other customers, including book, department, gift, leather and luggage, stationery and other specialty stores and the U.S. Government. Day Runner's products are carried by more than 20,000 retail outlets in the U.S., including the leaders in our key office products and mass market channels of distribution. Our strategy is to grow our sales through our major customers by increasing our everyday shelf space where appropriate, continuing to expand our product selection, serving the back-to-school market and creating other seasonal, promotional and product opportunities. MARKETING TO INCREASE SALES. We market our products to customers to inform them of the benefits of selling Day Runner's products and to consumers to further build brand name awareness and to maximize the productivity of the retail shelf space our products occupy. EXPANDING FOREIGN SALES. We are working to build our sales outside the United States by focusing on key markets and offering products with features, aesthetics and price points appropriate for those markets. We offer some of our products in French, German and Spanish versions. We are currently launching product lines designed especially for Europe and for Asia. PROVIDING EXCELLENT CUSTOMER SERVICE. Day Runner believes that excellent customer service can provide us with additional competitive advantage. We serve customers from both our Fullerton plant and our Nashville, Tennessee-area distribution center and ship directly to the individual retail locations of a number of our large customers. We conduct business via EDI (Electronic Data Interchange) with virtually all our key customers and recognize the importance of continuing to implement applicable customer service/distribution technology. INDUSTRY OVERVIEW ORGANIZER INDUSTRY. Day Runner has been instrumental in creating and defining paper-based "organizers" as a product category in the United States. Although time management products that included some "organizer" features had been on the market for some time, the product category, as such, did not emerge until the 1980s. We believe that the introduction of the Day Runner System in 1982 helped define the product category and, ultimately, led to the growth of the organizer industry. By the late 1980s, organizers had become accepted tools for improving individual and group productivity. (Because the distinctions between organizers and planners have become blurred, except where otherwise specified, we are using the terms "organizer" and "planner" interchangeably in this report.) Today, awareness of the organizer product category is widespread; organizers are broadly accepted as substitutes for traditional dated goods; and the usefulness of time management techniques is well recognized. Organizers are sold through a wide variety of channels, including: office products superstores, wholesalers and dealers; mass market retailers; book, department, gift, leather and luggage, stationery and other specialty stores; and are sold direct to organizations, the U.S. Government and individuals. Day Runner believes the current principal competitive factors in the paper-based retail organizer industry are distribution breadth, depth and strength; brand name recognition; size and loyalty of user base; product function, design, perceived quality and value; marketing capability; breadth of product lines; financial resources; customer service; product development capability; manufacturing/sourcing expertise; and price. MARKET POTENTIAL. Day Runner believes that the growth in demand for organizers and other personal organizing products in the United States is attributable to a number of economic and cultural trends, including: the increased percentage of women in the work force and the resulting prevalence of two-income families; the continuing trend toward corporate downsizing; the growth of the small business sector; the rising percentage of business done away from the office; the greater emphasis on productivity; and the ongoing shift to a service economy. Many of these trends contribute to widespread concerns with saving and better using time and increasing personal productivity. Day Runner's products address these concerns. We target both potential first-time organizer users and existing users who may need refills or replacements for their organizers. In addition, we believe that expansion into related, non-organizer/planner products that provide other ways for people to become better organized offers Day Runner an opportunity to reach consumers who are not ready for an organizer or planner and to market additional Day Runner branded products to consumers who already use a Day Runner organizer or planner. Our goal is to offer one or more products that appeal to and meet the organizing needs of virtually every American consumer, no matter what that individual's income, occupation or age. INDUSTRIES MARKETING SIMILAR OR SUBSTITUTE PRODUCTS. Day Runner's products have features, functions or components in common with products in several other industries. Our market overlaps to a limited extent that of companies marketing: calendars, appointment books, agendas and diaries; dry-erase boards; bulletin boards; small leather goods, which include briefcases, folios, business card cases, etc.; and training products and services designed to improve group and individual productivity and to upgrade management skills. In addition, both PIM software and electronic organizers are designed to fill many of the same needs addressed by paper-based organizers, although virtually all PIM software products provide for paper-based output and a number of such products allow users to print out pages in sizes that fit the Company's organizers. PRODUCTS Day Runner's products are designed to help people become better organized. We aim our products at various segments of a broad-based consumer audience. Our goal is to provide "something for everyone" and to offer consumers in each target segment the perception of broad choice and good value for their money. Our products include: o Multiple lines of paper-based organizers and planners. o Refills, which include calendars and accessories. o Related organizing products. ORGANIZERS AND PLANNERS. Our organizers and planners are available in varying systems, sizes, styles, cover materials and colors and at a broad range of price points. These loose-leaf and spiral-bound portable "books" help users keep "Everything in One Place(TM)." For example, in addition to the traditional planner components of appointment calendar, telephone/address section and note pad, Day Runner System organizers include, among other things, interrelated pages for managing time and information, tracking expenses, establishing goals and planning projects. REFILLS. The great majority of our organizers, planners and telephone/address books are refillable. Users may customize their loose-leaf organizers and planners by choosing from a variety of additional pages and accessories, ranging from Mileage Record, Strategy and Things To Do pages to Currency/Checkbook Insert, Diskette Holders and a solar powered Calculator/Ruler. RELATED ORGANIZING PRODUCTS. Our related organizing products include telephone/address books, traditional spiral dated goods, products for students from elementary school through college, PIM software designed to complement our paper-based organizers and our new Home Manager on-refrigerator organizer. The following table sets forth, for the periods indicated, approximate Day Runner sales by product category and as a percentage of total sales.
Fiscal Fiscal Fiscal Products 1997 1996 1995 -------- ------------------ ---------------- --------------- (Unaudited; dollars in thousands) Organizers and planners ... $ 73,858 58.0% $ 77,293 61.8% $ 84,473 69.4% Refills ................... 43,264 34.0 43,473 34.7 35,240 28.9 Related organizing products 10,254 8.0 4,360 3.5 2,088 1.7 ----- -------- ------ -------- ------ Total ............... $127,376 100.0% $125,126 100.0% $121,801 100.0% ======== ===== ======== ====== ======== ======
Covers for Day Runner's organizers, planners and paper-based related organizing products are made of leathers, vinyls and a variety of other natural and man-made materials. In addition to holding loose-leaf or spiral-bound pages, the covers of most of our organizers and loose-leaf planners are also designed to hold note pads and many have additional features, such as places to store pens, business and credit cards, calculators, loose papers and spare keys. The following table sets forth basic price and other information concerning our domestic product lines. Current Suggested Current Products Retail Price(s) -------------------- --------------- Organizers and planners: ..................................... $5-150 Day Runner DILBERT(TM) FactCentre(TM) THE FAR SIDE(R) 4-1-1 Student Planners(TM) Looney Tunes(TM) Mickey Unlimited(C) Perennials(TM) PRO Business System(R) Refills (which include calendars, other pages and accessories) $0.75-40 Related organizing products: Assignment books: .................................... $6-9.50 4-1-1 Mickey Unlimited Executive accessories ................................ $4-50 Telephone/address books: ............................. $6-24 Day Runner DILBERT FactCentre Looney Tunes Perennials Traditional spiral telephone/address books Traditional spiral dated goods ....................... $4.30-35.75 Software: Day Runner Planner for Windows(R) ................ $75 Other: DILBERT Pocket Calendar .......................... $6-7 Home Manager(TM) ................................. $33.50-40 Mickey Unlimited Sticker Books ................... $6.50-10.50 Mickey Unlimited Sticker Diaries ................. $10-13.50 Day Runner and PRO Business System are registered trademarks, and Entrepreneur, Everything in One Place, FactCentre, 4-1-1, Home Manager and Perennials are trademarks, of Day Runner, Inc. DILBERT(C) is a trademark of United Feature Syndicate, Inc. (C)Disney. THE FAR SIDE is a registered trademark of FarWorks, Inc. LOONEY TUNES characters, names and all related indicia are trademarks of Warner Bros. Post-it(R) is a registered trademark of 3M. VELCRO is a registered trademark of VELCRO, USA, Inc. Windows is a registered trademark of Microsoft Corporation. PRODUCT DEVELOPMENT Day Runner's product development programs emphasize (i) identifying unmet consumer needs and developing organizers, planners and related organizing products to meet those needs; (ii) extending our existing product lines through additional sizes, styles and materials; and (iii) augmenting the selection of refills and accessories available for our product lines. In addition, we monitor our existing products for continued viability, needed enhancements, improvements in quality and potential reductions in cost. With the exception of our software product and the calculators we include in certain of our products and sell as accessories, all of our current products have been developed internally, and products developed internally accounted for substantially all of Day Runner's fiscal 1997 sales. Since the introduction of the first Day Runner System organizer in 1982, we have transformed this single product into a broad line, which currently includes three sizes and seventeen styles, each of which is available in up to six different cover materials. The Entrepreneur Edition of the Day Runner System, for example, has 8 1/2" x 11" pages and is available in three styles: "notebook" with a snap closure; "notebook" with a VELCRO(R) flap closure; and "attache" with a full-zippered closure and slide up handles. In 1991, as part of our strategy of offering products aimed at more cost-conscious consumers, we introduced the FactCentre line, which now includes organizers, planners and telephone/address books. In 1993, we introduced the first products in our PRO line. PRO Business System organizers are aimed at people seeking a sophisticated but easy-to-use organizing system that is designed specifically for business and professional use. In short fiscal 1994, we began shipping 4-1-1 Student Planners, a line aimed at middle school, high school and college students and marketed primarily for sale during the back-to-school consumer buying season. In fiscal 1995, we added telephone/address books to our Day Runner and FactCentre lines and launched Perennials, a line of organizers, planners and telephone/address books aimed primarily at young women shopping in mass market outlets. In fiscal 1996, we launched our first licensed products: a line of planners and telephone/address books featuring Warner Bros. Looney Tunes cartoon characters and a line of "sticker books" and "sticker diaries" developed and marketed under the Mickey Unlimited brand of Disney Enterprises. The Mickey Unlimited Sticker Books and Diaries incorporate colorful stickers to make planning and diary-keeping fun. In fiscal 1996, we also introduced a line of spiral dated goods designed for consumers who prefer traditional planning tools. In fiscal 1997, we introduced THE FAR SIDE organizers featuring the classic cartoons created by Gary Larson, a line of executive accessories, including travel document holders, business card cases, business card files and pad holders, and the Home Manager, a unique product that builds upon the American family's habit of using the refrigerator door as a communication center. The Home Manager combines a dry-erase board, bulletin board strip or storage pocket, Post-it(R) notes in holder and dated monthly calendar and mounts on a refrigerator via heavy-duty magnetic backing or on a wall with hooks. Early in fiscal 1998, we began shipping a line of DILBERT organizers, refills, telephone/address books and pocket calendars. Developed under our direction, Day Runner Planner for Windows software complements Day Runner's paper-based system. Our computer paper refills allow users of Day Runner Planner for Windows and a number of other software programs to print their computerized information on paper that looks like Day Runner System or PRO Business System pages and carry it with them in their organizers. Day Runner plans to introduce a version of this product designed for Windows 95 during fiscal 1998. SALES AND DISTRIBUTION We market our products to customers through our own sales force, through manufacturers' representatives and, in certain markets outside the U.S., through independent distributors. Our primary channels of distribution are office products and the mass market. Day Runner's products are carried by more than 20,000 retail stores across the U.S. Our sales policies encourage smaller customers to purchase through wholesalers. In fiscal 1997, we shipped directly to approximately 9,050 retail locations, to distribution centers serving approximately 9,650 retail locations and to approximately 200 wholesalers, each of which serves a number of dealers. During fiscal 1997, Day Runner sold products to approximately 700 different customers, compared with approximately 730 in fiscal 1996. Our major customers in each of our primary domestic channels include: office products superstores Office Depot, Inc., OfficeMax, Inc. and Staples, Inc.; office products national wholesalers United Stationers Supply Co. and S.P. Richards Company; office products dealer McWhorter Stationers Company, Inc.; and mass market retailers Wal-Mart, Kmart and PriceCostco. The only customers accounting for 10% or more of the Company's fiscal 1997 sales were Wal-Mart Stores, Inc. and its affiliates, including SAM'S Clubs; Office Depot, Inc. and its affiliates; OfficeMax, Inc. and its affiliates; and Staples, Inc. and its affiliates. These customers accounted for approximately 25%, 15%, 14% and 11%, respectively, of fiscal 1997 sales. Including their affiliates, the top five customers of the Company accounted for an aggregate of approximately 73% of fiscal 1997 sales. The following table sets forth, for the periods indicated, approximate Day Runner sales by distribution channel and as a percentage of total sales.
Fiscal Fiscal Fiscal Distribution Channel 1997 1996 1995 -------------------- ------------------ ------------------- --------------------- (Unaudited; dollars in thousands) Office products channel. $ 59,416 46.7% $ 62,381 49.8% $ 56,717 46.6% Mass market............. 53,785 42.2 46,804 37.4 50,699 41.6 Foreign customers....... 5,583 4.4 6,346 5.1 4,170 3.4 Other channels.......... 8,592 6.7 9,595 7.7 10,215 8.4 -------- ----- -------- ----- -------- ----- Total............. $127,376 100.0% $125,126 100.0% $121,801 100.0% ======== ===== ======== ===== ======== =====
OFFICE PRODUCTS CHANNEL. Since 1987, Day Runner 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 factor in office products distribution. Our products are carried by all the leading superstores, including Office Depot, Inc., OfficeMax, Inc. and Staples, Inc. OFFICE PRODUCTS WHOLESALERS. Day Runner products are currently distributed by local and regional office products wholesalers and by both national wholesalers, S.P. Richards Company and United Stationers Supply Co., which reach office products consumers through dealers nationwide. OFFICE PRODUCTS DEALERS. Our products are also distributed through traditional office products dealers, which buy directly from manufacturers and indirectly through wholesalers. These customers include both storefront dealers and contract stationers (also known as commercial dealers) that specialize in selling to larger businesses through catalogs and their direct sales forces. MASS MARKET. Discount chains addressing the mass market have become an increasingly important factor in the distribution of a wide variety of consumer goods. Day Runner products are distributed through a number of mass market retailers, including: Kmart, Target and Wal-Mart; the major wholesale clubs, PriceCostco and SAM'S Clubs; a number of discount drug chains; and a variety of other mass market resellers. FOREIGN CUSTOMERS. Day Runner products are marketed internationally through Day Runner Hong Kong Limited, Day Runner International Limited and Ultima Distribution, Inc. (the Company's wholly owned Hong Kong, United Kingdom and Canadian subsidiaries), independent foreign distributors and its own sales force. The United Kingdom and key markets on the European continent are served by Day Runner International; Asian and Pacific Rim markets are served by Day Runner Hong Kong Limited; Canada is served by Ultima; and Mexico is served by Day Runner's U.S.-based sales force. OTHER CHANNELS. The Company also distributes its products through a number of additional channels, including book, department, gift, leather and luggage and stationery stores and other specialty retailers. Since March 1989, Day Runner has held a General Services Administration ("GSA") contract, which extends through February 2000 and which allows the Company to market certain of its products to the executive branch of the U.S. Government. MARKETING We market our products to consumers to increase awareness of the Day Runner brand names and of specific products, to communicate the benefits of our products and to create and reinforce an image that our products enable the user to manage time and personal resources more effectively. We position Day Runner to our distribution channels as the leader in the retail organizer market and the logical source for organizers, planners and related organizing products at a wide range of price points and appropriate for a wide range of broad consumer markets. ADVERTISING. Day Runner participates with customers in co-op advertising and advertises from time to time in certain wholesale flyers and in trade publications. In addition, from time to time, we conduct consumer advertising campaigns. Media used in such campaigns have included cable and broadcast television, business and lifestyle magazines and national and regional newspapers. PROMOTIONAL PROGRAMS. Day Runner offers special promotional and incentive programs as part of our introduction of new products and to build sales at specific times of the year; conducts promotions designed to build awareness, expand distribution and increase sales of specific products; and conducts sales incentive programs for wholesalers, dealers and manufacturers' representatives. SALES SUPPORT. We support our sales force and manufacturers' representatives with a variety of sales tools, including catalogs and presentation materials. We support our dealers with point-of-sale materials developed based upon research and intended to build brand name awareness and increase sales. Day Runner displays are designed to be easy for consumers to shop and for store personnel to refill. Our packaging is designed to help consumers choose the right product and make the decision to buy. TRADE SHOWS. Day Runner exhibits or is represented by manufacturers' representatives in a number of national and regional trade shows aimed at office products, mass market and other customers. MARKET RESEARCH. We regularly conduct market research and test product concepts and prototypes through the use of focus groups and other consumer research. In addition, we maintain a database containing information on users who have mailed in the Welcome Cards included in many of our products. USER SUPPORT. We estimate that we have sold approximately 32 million organizers and planners since our inception. To encourage our current users to continue to purchase and recommend our products and their refills, we provide a toll-free consumer hotline that consumers may call for referral to conveniently located dealers or dealers that carry specific refills or accessories, for customer service, to contribute suggestions and to purchase products directly from Day Runner. We make such sales primarily as a service to our users and charge consumers full suggested retail price plus handling and shipping. Although Day Runner products require no special training, we provide a free user's guide in each of our two most sophisticated organizers. Each Day Runner System and PRO Business System organizer includes an "Owner's Manual." Each of these booklets includes illustrations showing effective use of the system and of specific pages as well as tips on time management, project management and organization. MANUFACTURING Day Runner's manufacturing strategy combines limited internal manufacturing, consisting of heat-sealing binders, sewing binders and the assembly of finished products, with the domestic and foreign subcontracting of product components and finished goods. Our policy is to develop and maintain at least two sources for key raw materials, product components and the finished products we subcontract. Although we rely on foreign subcontractors for adequate capacity, we have the ability to act as our own second or third source for the manufacture of our loose-leaf binders and for the final assembly of many of our products. This provides a degree of protection against vendor problems and, under certain conditions, allows us to respond to higher than anticipated demand and improve turn-around time. INTERNAL MANUFACTURING. We manufacture a portion of our binders and assemble a portion of our finished products in our Fullerton, California facility and at Day Runner de Mexico, S.A. de C.V., our wholly owned manufacturing subsidiary located in Tijuana. PURCHASED COMPONENTS. In addition to vinyl and leather raw materials, we purchase from suppliers certain major product components, including printed pages, loose-leaf rings, pens, software disks containing our PIM software, electronic components and certain accessories. With few exceptions, these items are manufactured by a variety of outside contractors and are available both domestically and overseas. SUBCONTRACTED FINISHED GOODS. We subcontract the manufacture and assembly of a portion of our finished products, including the great majority of our lower priced organizers, planners and related products. Day Runner Hong Kong Limited acts as our liaison with our Asian suppliers. Competition The paper-based organizer industry is becoming increasingly competitive and is subject to rapid change. Day Runner competes directly with other companies marketing paper-based organizers and related organizing products to consumers through retail channels. We also compete for the same target market with companies marketing organizers and/or organizers coupled with time management training via direct sales to individuals and to organizations. Our competitors also include companies marketing substitutes for paper-based organizer and planner products, such as electronic organizers, PIM software and traditional dated goods. Certain of our competitors have greater name recognition and/or financial, product development, technical, manufacturing and/or marketing resources than Day Runner. Day Runner believes the current principal competitive factors in the paper-based retail organizer industry are distribution breadth, depth and strength; brand name recognition; size and loyalty of user base; product function, design, perceived quality and value; marketing capability; breadth of product lines; financial resources; customer service; product development capability; manufacturing/sourcing expertise; and price. We believe that the principal competitive factors in the related product categories we have entered to date are similar to those in the paper-based organizer industry. Although a number of our competitors have greater financial resources than Day Runner, we believe that we compete well against our direct competition on each of the other principal competitive factors and against certain of our direct competition with respect to our financial strength. Day Runner believes that we have a number of advantages over certain of our competitors. Our products occupy significant shelf space in the office products and mass market channels. Our leadership position in the retail market, brand name recognition, broad product lines, marketing expertise, manufacturing/sourcing skill, large user base and the appeal of our products to consumers have been competitive advantages for us in these channels and in certain other channels. There can be no assurance, however, that we will be able to maintain or continue to benefit from our competitive advantages or that the competitive environment will not change to our detriment. EMPLOYEES At September 16, 1997, Day Runner had 1,146 full-time employees, including 61 in sales; 31 in marketing; 112 in executive, finance and administration; 29 in product development; and 913 in manufacturing operations and distribution. None of our employees is represented by a labor union, and we have experienced no labor-related work stoppages. PATENTS, COPYRIGHTS AND TRADEMARKS Day Runner relies upon, among other things, a combination of copyright, patent and trademark laws to protect our rights to certain aspects of our products. There can be no assurance, however, that the steps taken by Day Runner to protect our proprietary rights will be adequate to prevent imitation of our products or independent development by others of similar products. Day Runner holds seven United States patents and four foreign patents. The Company also has several United States and foreign patents pending. The patents we hold are related to improvements in the structure of and devices associated with our loose-leaf binders, and we do not believe that any of these patents is material to our business. We have also been issued United States copyright registrations covering the text and the compilation and editing of data in certain of our material products. Day Runner holds United States trademark registrations for "Day Runner," "MEMO-RY," "PRO Business System," "Running Mate," and the Day Runner logo and we have obtained certain state and foreign registrations for certain of our trademarks. ITEM 2. PROPERTIES. Day Runner's principal operating facility is located in an approximately 221,000-square foot building in Fullerton, California, under leases expiring in 2001. The leases include multiple, successive renewal options that, if exercised in full, would extend the lease terms to expire in 2011. The Company's corporate headquarters occupy approximately 21,300-square feet in Irvine, California under a lease that expires in August 2001. The Company's LaVergne, Tennessee distribution facility occupies an approximately 101,200-square foot facility under a lease expiring in 2005. The lease includes multiple, successive renewal options that, if exercised in full, would extend the lease terms to expire in 2011. The Company's Mexican subsidiary is located in approximately 46,900 square feet, of which 22,450-square feet are occupied under a month-to-month lease and the remaining 24,450 are occupied under two leases expiring in 1998; the Company's United Kingdom subsidiary occupies an approximately 2,400-square foot facility under a lease expiring in January 2002; the Company's Hong Kong subsidiary occupies an approximately 1,200-square foot facility under a lease expiring in June 1998; and the Company's Canadian subsidiary, which was acquired in July 1997, occupies an approximately 15,000-square foot facility under a lease expiring in June 2000. The Company believes it has sufficient space in its facilities or will be able to lease additional space on acceptable terms to meet its needs for the foreseeable future. Item 3. LEGAL PROCEEDINGS. Inapplicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Day Runner's Common Stock is traded over-the-counter on The Nasdaq Stock Market under the symbol "DAYR." The table below shows the high and low closing sales prices for the Common Stock as reported on The Nasdaq Stock Market for the fiscal years ended June 30, 1997 and 1996. As of September 16, 1997, there were 183 recordholders of the Company's Common Stock based on information provided by the Company's transfer agent. Fiscal Year Fiscal Year 1997 1996 ---------------- ----------------- Quarter High Low High Low First $30 $25-1/2 $20 $16-3/8 Second 31 18-3/4 34-1/2 19-1/4 Third 26 17-7/8 33-1/2 23-5/8 Fourth 33-1/2 25-1/8 31-1/4 24-3/4 The Company has never paid cash dividends. It is the present policy of the Company to retain earnings to finance the growth and development of its business, and therefore the Company does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Certain financial covenants in the Company's bank line of credit agreement restrict the Company's ability to pay cash dividends in excess of $200,000. Item 6. SELECTED FINANCIAL DATA. The selected consolidated income statement data for the fiscal year ended June 30, 1997, 1996 and 1995 and the consolidated balance sheet data at June 30, 1997 and 1996 are derived from, and are qualified in their entirety by reference to, the Company's audited consolidated financial statements and notes thereto included elsewhere in this Annual Report that have been audited by Deloitte & Touche LLP, independent auditors, as indicated in their report, which is also included elsewhere in this Annual Report. Information for the twelve months ended June 30, 1994 is unaudited, and in the opinion of the Company's management, the accounting principles used to prepare the unaudited financial information are consistent with those used to prepare the audited financial statements. The selected consolidated income statement data for the short fiscal year ended June 30, 1994 and the years ended December 31, 1993 and 1992 and the consolidated balance sheet data at June 30, 1995 and 1994 and December 31, 1993 are derived from audited consolidated financial statements of the Company that are not included herein. Effective January 1, 1994, the Company changed its fiscal year end from December 31 to June 30. The six-month period ended June 30, 1994 is therefore referred to as "short fiscal year 1994."
Consolidated Income Statement Data: (In thousands, except per share data) Twelve Months Short Years Ended Fiscal Fiscal Fiscal Ended Fiscal Year December 31, 1997 1996 1995 June 30, 1994(1) 1994 1993 1992 ---- ---- ---- ---------------- ---- ---- ---- Sales........................... $127,376 $125,126 $121,801 $ 97,027 $ 43,160 $81,892 $71,241 Cost of goods sold.............. 60,452 59,920 62,175 50,405 22,981 41,699 35,512 ------- ------ -------- -------- -------- ------- -------- Gross profit.................... 66,924 65,206 59,626 46,622 20,179 40,193 35,729 ------- ------ -------- -------- -------- ------- -------- Operating expenses: Selling, marketing and distribution................ 31,673 29,878 32,154 25,180 12,156 21,786 20,125 General and administrative... 14,451 16,376 13,792 11,400 5,686 9,479 7,826 Costs incurred in pursuing acquisitions 1,451 Total operating expenses..... 47,575 46,254 45,946 36,580 17,842 31,265 27,951 ------- ------ -------- -------- -------- ------- ------- Income from operations.......... 19,349 18,952 13,680 10,042 2,337 8,928 7,778 Net interest (income) expense... (1,301) (706) (161) (88) (91) 229 ------- ------ -------- -------- --------- ------- ------- Income before provision for income taxes, extraordinary item and cumulative effect of accounting change............ 20,650 19,658 13,841 10,130 2,428 8,928 7,549 Provision for income taxes...... 8,102 7,840 5,863 4,196 1,061 3,638 3,096 ------- ------ -------- -------- -------- ------- ------- Income before extraordinary item and cumulative effect of accounting change............ 12,548 11,818 7,978 5,934 1,367 5,290 4,453 Extraordinary item litigation settlement - net............ 718 718 Cumulative effect of change in accounting for income taxes.. 350 ------- ------- -------- -------- -------- ------- ------- Net income...................... $12,548 $11,818 $ 7,978 $ 6,652 $ 2,085 $ 5,640 $ 4,453 ======= ======= ======== ======== ======== ======= ======= Earnings per common and common equivalent share: Income before extraordinary item and cumulative effect of accounting change............ $ 1.90 $ 1.79 $ 1.25 $ 0.96 $ 0.22 $ 0.87 $ 0.77 Extraordinary item........... 0.12 0.11 Cumulative effect of change in accounting for income taxes.. 0.06 ------- ------- -------- --------- --------- ------- -------- Net earnings per share........... $ 1.90 $ 1.79 $ 1.25 $ 1.08 $ 0.33 $ 0.93 % 0.77 ======= ======= ======== ========= ========= ======= ======== Weighted average number of common and common equivalent shares............. 6,591 6,602 6,374 6,185 6,308 6,065 5,799 ======= ======= ======== ======== ======== ======= ======== (1) Information for the twelve months ended June 30, 1994 is provided on an unaudited basis for comparison purposes only.
Consolidated Balance Sheet Data: (In thousands) June 30, December 31, -------------------------------------- ------------ 1997 1996 1995 1994 1993 --------- ------- -------- ------- ------------ Working capital ..... $50,710 $51,653 $38,260 $30,581 $28,190 Total assets ........ 78,880 77,931 63,650 50,769 49,103 Short-term debt ..... 475 152 200 224 Long-term liabilities 52 12 141 223 Stockholders' equity 59,484 59,498 44,787 35,786 32,712 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. Sales increases have resulted from higher sales of existing products, new products and product line extensions. The Company focuses the great majority of its product development, sales and marketing efforts on the office products and the mass market channels. The office products channel and the mass market channel accounted for 46.7% and 42.2%, respectively, of fiscal 1997 sales. Results of Operations The following tables set forth, for the periods indicated, the percentages that selected income statement items bear to sales and the percentage change in the dollar amounts of such items.
Percentage of Sales Years Ended June 30, 1997 1996 1995 --------- -------- -------- Sales........................................ 100.0% 100.0% 100.0% Cost of goods sold........................... 47.5 47.9 51.0 ----- ----- ----- Gross profit................................. 52.5 52.1 49.0 ----- ----- ----- Operating expenses: Selling, marketing and distribution....... 24.9 23.9 26.4 General and administrative................ 11.3 13.1 11.3 Costs incurred in pursuing acquisitions... 1.1 ----- Total operating expenses................. 37.3 37.0 37.7 ----- ----- ----- Income from operations....................... 15.2 15.1 11.3 Net interest income.......................... 1.0 0.6 0.1 ----- ----- ----- Income before provision for income taxes..... 16.2 15.7 11.4 Provision for income taxes................... 6.3 6.3 4.8 ----- ----- ----- Net income................................... 9.9% 9.4 % 6.6% ===== ===== =====
Percentage Change Fiscal 1996 Fiscal 1995 to to Fiscal 1997 Fiscal 1996 -------------------- ------------------- Sales............................................. 1.8% 2.7% Cost of goods sold................................ 0.9 (3.6) Gross profit...................................... 2.6 9.4 Operating expenses: Selling, marketing and distribution............ 6.0 7.1 General and administrative..................... (11.8) 18.7 Costs incurred in pursuing acquisitions........ NM Total operating expenses...................... 2.9 (0.7) Income from operations............................ 2.1 38.5 Net interest income............................... 84.3 338.5 Income before provision for income taxes.......... 5.0 42.0 Provision for income taxes........................ 3.3 33.7 Net income........................................ 6.2 48.1
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1996 SALES. Sales consist of revenues from gross product shipments net of allowances for returns, rebates and credits. In fiscal 1997, sales increased by $2,250,000, or 1.8%, compared with fiscal 1996 primarily because of higher unit sales of related organizing products. Product sales were primarily to the office products channel and secondarily to mass market customers. Sales to mass market customers grew by $6,981,000, or 14.9%, primarily due to higher sales to Wal-Mart. Sales to the office products channel decreased by $2,965,000, or 4.8%. Sales to foreign customers declined by $763,000, or 12.0%, and sales to miscellaneous customers grouped together as "other," decreased by $1,003,000, or 10.5%. Sales of related organizing products increased by $5,894,000, or 135.2%. Sales of organizers and planners decreased during the year by $3,435,000, or 4.4%, and sales of refills decreased by $209,000, or 0.5%. GROSS PROFIT. Gross profit is sales less cost of goods sold, which is comprised of materials, labor and manufacturing overhead. Gross profit may be affected by, among other things, product mix, production levels, changes in vendor and customer prices and discounts, sales volume and growth rate, sales returns, purchasing and manufacturing efficiencies, tariffs, duties and inventory carrying costs. Primarily because of improved purchasing efficiencies, gross profit as a percentage of sales increased to 52.5% for fiscal 1997 from 52.1% for fiscal 1996. OPERATING EXPENSES. Total operating expenses increased by $1,321,000, or 2.9%, for fiscal 1997 compared with fiscal 1996 and increased as a percentage of sales from 37.0% to 37.3% primarily because of $1,451,000 of costs incurred in pursuing two significant acquisitions that did not come to fruition. These costs included legal and accounting fees and miscellaneous expenses. Without such costs, operating expenses for fiscal 1997 compared with fiscal 1996 would have declined by $130,000 and would have decreased as a percentage of sales from 37.0% to 36.2%. Selling, marketing and distribution expenses as a percentage of sales increased from 23.9% to 24.9% primarily because of increased display costs. General and administrative expenses as a percentage of sales decreased from 13.1% to 11.3% primarily because of lower personnel costs. NET INTEREST INCOME. Primarily because of the Company's higher levels of cash available for short-term investment during the year, net interest income in fiscal 1997 compared with fiscal 1996 increased by $595,000 and by 0.4% as a percentage of sales. INCOME TAXES. Primarily as a result of the improved financial results of the Company's Hong Kong subsidiary, the Company's fiscal 1997 effective tax rate was 39.2%, compared with 39.9% for fiscal 1996. Prior to fiscal 1996, the operating losses incurred by the Company's United Kingdom and Hong Kong subsidiaries, which were formed in 1993 and 1994, respectively, and the tax treatment required for these losses had increased the Company's effective tax rate above what it otherwise would have been. NET INCOME. Compared with fiscal 1996, net income for fiscal 1997 increased by $730,000, or 6.2%. Without the costs of pursuing acquisitions, fiscal 1997 net income would have grown $1,619,000 or 13.7%, compared with fiscal 1996. During fiscal 1997, the Company repurchased 513,100 shares of Common Stock of the 600,000 shares authorized for repurchase in February 1997 under the Company's stock repurchase program (see Note 9 to Consolidated Financial Statements). The effect of such repurchases is to reduce the number of shares that would otherwise be used to calculate earnings per share for the 1997 fiscal year and subsequent fiscal years. In August 1997, the Company's Board of Directors increased the number of shares authorized for repurchase under its stock repurchase program by 100,000 shares, bringing to 186,900 the number of shares remaining for repurchase under such program. Separately, in August 1997, the Company also repurchased an aggregate of 347,794 shares from certain officers and directors of the Company. The effect of the repurchases from such officers and directors and any future repurchases effected under the stock repurchase program will be to reduce the number of shares that would otherwise be used to calculate earnings per share for the 1998 fiscal year and subsequent fiscal years. FISCAL YEAR ENDED JUNE 30, 1996 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1995 Sales. In fiscal 1996, sales increased by $3,325,000, or 2.7%, compared with fiscal 1995 primarily because of higher average selling prices of refills and secondarily because of increased unit sales of refills. Product sales were primarily to the office products channel and secondarily to mass market customers. Sales to the office products channel grew by $5,664,000, or 10.0%. Sales to mass market customers decreased by $3,895,000, or 7.7%, primarily due to lower sales to Wal-Mart. Sales to foreign customers grew by $2,176,000, or 52.2%, and sales to miscellaneous customers grouped together as "other," decreased by $620,000, or 6.1%. Sales of refills grew by $8,233,000, or 23.4%; sales of related organizing products increased by $2,272,000, or 108.8%; and sales of organizers and planners decreased during the year by $7,180,000, or 8.5%. GROSS PROFIT. Gross profit as a percentage of sales increased to 52.1% for fiscal 1996 from 49.0% for fiscal 1995 primarily because of increased purchasing and manufacturing efficiencies. OPERATING EXPENSES. Total operating expenses increased by $308,000, or 0.7%, for fiscal 1996 compared with fiscal 1995, but decreased as a percentage of sales from 37.7% to 37.0%. Selling, marketing and distribution expenses as a percentage of sales decreased from 26.4% to 23.9% primarily because of lower advertising and promotion expenses and secondarily because of lower commissions. General and administrative expenses as a percentage of sales increased from 11.3% to 13.1% primarily because of higher personnel costs. NET INTEREST INCOME. Primarily because of the Company's higher levels of cash available for short-term investment during the year, net interest income in fiscal 1996 compared with fiscal 1995 increased by $545,000 and by 0.4% as a percentage of sales. INCOME TAXES. Primarily as a result of the improved financial results of the Company's Hong Kong subsidiary, the Company's fiscal 1996 effective tax rate was 39.9%, compared with 42.4% for fiscal 1995. NET INCOME. Compared with fiscal 1995, net income for fiscal 1996 increased by $3,840,000, or 48.1%. QUARTERLY RESULTS The following tables set forth selected unaudited quarterly consolidated financial data and the percentages such items represent of sales. The quarterly consolidated financial data reflect, in the opinion of Management of the Company, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for such periods. Results of any one or more quarters are not necessarily indicative of annual results or continuing trends. Quarters Ended -------------- June 30, March 31, December 31, September 30, 1997 1997 1996 1996 ---- ---- ---- ---- (In thousands, except per share amounts) Sales............................... $ 37,793 100.0% $ 21,020 100.0% $ 35,014 100.0% $ 33,549 100.0% Gross profit........................ 19,803 52.4 11,024 52.4 18,512 52.9 17,585 52.4 Total operating expenses............ 13,613 36.0 11,272 53.6 11,308 32.3 11,382 33.9 Income (loss) from operations....... 6,190 16.4 (248) (1.2) 7,204 20.6 6,203 18.5 Net interest income................. 443 1.1 345 1.7 303 0.9 210 0.6 Income before provision for income taxes..................... 6,633 17.5 97 0.5 7,507 21.5 6,413 19.1 Net income.......................... $ 4,138 10.9 $ 58 0.3 $ 4,504 12.9 $ 3,848 11.5 Earnings per common and common equivalent share.......... $ 0.65 $ 0.01 $ 0.67 $ 0.57 Weighted average number of common and common equivalent shares........................... 6,334 6,532 6,678 6,710
Quarters Ended -------------- June 30, March 31, December 31, September 30, 1996 1996 1995 1995 ---- ---- ---- ---- (In thousands, except per share amounts) Sales............................... $ 34,156 100.0% $ 18,106 100.0% $ 40,058 100.0% $ 32,806 100.0% Gross profit........................ 18,279 53.5 9,506 52.5 20,764 51.8 16,657 50.8 Total operating expenses............ 14,028 41.1 8,485 46.9 12,549 31.3 11,192 34.1 Income from operations.............. 4,251 12.5 1,021 5.6 8,215 20.5 5,465 16.7 Net interest income................. 296 0.8 252 1.4 104 0.3 54 0.1 Income before provision for income taxes..................... 4,547 13.3 1,273 7.0 8,319 20.8 5,519 16.8 Net income.......................... $ 2,978 8.7 $ 745 4.1 $ 4,922 12.3 $ 3,173 9.7 Earnings per common and common equivalent share.......... $ 0.45 $ 0.11 $ 0.75 $ 0.49 Weighted average number of common and common equivalent shares........................... 6,686 6,657 6,584 6,445
SEASONAL FLUCTUATIONS The Company has historically experienced and expects to continue to experience significant seasonal fluctuations in its sales and other financial results that it believes have resulted and will continue to result primarily from its customers' and users' buying patterns. These buying patterns have typically adversely affected orders for the Company's products in the third quarter of each fiscal year. Although it is difficult to predict the future seasonality of sales, the Company believes that future seasonality should be influenced at least in part by customer and user buying patterns similar to those that have historically affected the Company. Quarterly financial results are also affected by new product introductions and line extensions, the timing of large orders, changes in product sales or customer mix, vendor and customer pricing, production levels, supply and manufacturing delays, large customers' inventory management and general industry and economic conditions. The seasonality of the Company's financial results and the unpredictability of the factors affecting such seasonality make the Company's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. LIQUIDITY AND CAPITAL RESOURCES During fiscal 1997, the Company financed its operating cash needs primarily from internally generated funds. The Company's cash and cash equivalents at June 30, 1997 decreased to $15,550,000 from $19,765,000 at June 30, 1996. In fiscal 1997, net cash of $13,148,000 provided by operating activities offset net cash of $4,967,000 and $12,419,000 used in investing and financing activities, respectively. Of the $13,148,000 net amount provided by the Company's operating activities, $12,548,000 was provided by net income, $3,869,000 was provided by depreciation and amortization and $1,930,000 was provided by a decrease in income taxes receivable, which amounts were partially offset by an increase of $3,294,000 and $1,220,000 in inventories and accounts receivable, respectively. Of the $4,967,000 net amount used in the Company's investing activities, $4,972,000 was used to acquire primarily machinery and equipment and secondarily computer equipment and software. Of the $12,419,000 net amount used in the Company's financing activities, $13,541,000 was used to repurchase 513,100 shares of Common Stock. In August 1997, the Board of Directors increased the number of shares of common stock that the Company is authorized to repurchase under its existing stock repurchase program by 100,000 shares, with funds to pay for any such repurchases to come from Day Runner's available cash resources. As of September 24, 1997, 186,900 shares remained for repurchase under this program. In August 1997, the Company used approximately $11,600,000 of its available cash resources to repurchase 347,794 shares from certain of its officers and directors. Accounts receivable (net) at June 30, 1997 increased by $862,000, or 4.0%, from the amount at June 30, 1996 primarily due to the growth in sales and secondarily due to a change in the payment terms extended to a large customer. Primarily because of this change in payment terms, the average collection period of accounts receivable at June 30, 1997 increased to 47 days from 43 days at June 30, 1996. Inventories increased by $3,366,000, or 16.8%, from the June 30, 1996 amount primarily because of a planned inventory build-up done in preparation for the Company's end of calendar year selling period. At June 30, 1997, Day Runner had $452,000 outstanding under its $5,000,000 bank line of credit and had also used the line of credit to secure outstanding letters of credit of approximately $1,000,000, which reduced the availability under the line of credit to approximately $3,548,000. Effective September 1, 1997, the Company increased its line of credit from $5,000,000 to $15,000,000. Borrowings under the line of credit bear interest at either the bank's prime rate or LIBOR plus 1.75%, at the Company's election, and are due and payable on November 1, 1997. (see Note 3 to Consolidated Financial Statements.) The Company is currently negotiating its line of credit and expects that it will be able to renew it for one year on terms generally no less favorable than those of its current credit line. The Company has not incurred significant losses or gains from foreign currency exchange rate fluctuations. The continuing expansion of the Company's international operations could, however, result in larger gains or losses as a result of fluctuations in foreign currency exchange rates as those subsidiaries conduct business in whole or in part in foreign currencies. The Company believes that cash flow from operations, vendor credit, its existing working capital and its bank line of credit will be sufficient to satisfy the Company's anticipated cash requirements at least through fiscal 1998. 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. FORWARD LOOKING STATEMENTS With the exception of the actual reported financial results and other historical information, the statements made in the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this annual report are forward looking statements that involve risks and uncertainties that could affect actual future results. Such risks and uncertainties include, but are not limited to: timing and size of orders from large customers, timing and size of orders for new products, competition, large customers' inventory management, general economic conditions, the health of the retail environment, supply constraints, supplier performance and other risks indicated in the Company's filings with the Securities and Exchange Commission. EFFECTS OF INFLATION The Company believes that inflation has not had a material effect on its operations. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Inapplicable Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Consolidated Financial Statements of the Company and its subsidiaries included herein and listed in Item 14(a) of this Annual Report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Inapplicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated by reference to the sections of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 25, 1997, entitled "Election of Directors" and "Executive Officers," to be filed with the Commission. Item 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the sections of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 25, 1997, entitled "Election of Directors - -- Compensation of Directors," "Executive Compensation and Other Information," "Compensation Committee Report on Executive Compensation" and "Performance Graph," to be filed with the Commission. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference to the section of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 25, 1997, entitled "Common Stock Ownership of Principal Stockholders and Management," to be filed with the Commission. Item 13. CERTAIN TRANSACTIONS. The information required by this Item is incorporated by reference to the sections of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 25, 1997, entitled "Election of Directors - -- Compensation of Directors" and "Certain Relationships and Related Transactions," to be filed with the Commission. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this Report: 1. Consolidated Financial Statements Page Independent Auditors' Report ........................... F-1 Consolidated Balance Sheets at June 30, 1997 and 1996 F-2 Consolidated Statements of Income for Each of the Three Years in the Period Ended June 30, 1997 ................ F-3 Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended June 30, 1997 ... F-4 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 1997 .......... 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) 10.2 1995 Stock Option Plan, including forms of Stock Option Agreements(8)and Amendment No. 1 (9) thereto dated October 21, 1996(7) 10.3 Employee Stock Purchase Plan(3) and Amendment No. 1 thereto dated July 17, 1992(4)(7) 10.4 Day Runner 401(k) Plan and Trust Agreement(3) effective as of January 1, 1991 and Amendment Nos. 1(10), 2(1) and 3(11) thereto effective January 1, 1992, January 1, 1991 and January 1, 1991, respectively(7) 10.5 1997 Officer Bonus Plan(7) 10.6 Officer Severance Plan effective as of February 28, 1993, including form of Employment Separation Agreement(7)(10) 10.7 Credit Agreement dated as of May 1, 1993 between the Registrant and Wells Fargo Bank, National Association, including Line of Credit Note(5), Assumption and Consent to Merger Agreement dated as of June 30, 1993(13), First Amendment to Credit Agreement dated as of December 15, 1993(13), Second Amendment to Credit Agreement dated as of May 1, 1994, including Line of Credit Note(14), Third Amendment to Credit Agreement dated as of October 1, 1994, including Line of Credit Note(15), Fourth Amendment to Credit Agreement dated as of October 2, 1995, including Revolving Line of Credit Note(16) , Fifth Amendment to Credit Agreement dated as of November 1, 1996, including Revolving Line of Credit Note (17) and Sixth Amendment to Credit Agreement dated as of September 1, 1997, including Revolving Line of Credit Note 10.8 Triple Net Lease, as amended, effective as of March 22, 1991 between Catellus Development Corporation and the Registrant(3) and as amended by Lease Amendment dated June 29, 1992(10) 10.9 Triple Net Lease dated July 28, 1992 between Catellus Development Corporation and the Registrant(10) 10.10 Koll Business Center Lease dated September 7, 1994 between the Registrant and Koll Alton Plaza and Aetna Life Insurance Co.(1) 10.11 Standard Commercial Lease Agreement dated as of July 31,1996 between System Realty Nine, Inc. and the Registrant(18) 10.12 Form of Warrant to purchase shares of the Registrant's Common Stock issued to certain directors and officers of the Registrant(3) and Schedule of Warrants(7) 10.13 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) 10.14 Consulting Agreement effective April 22, 1997 between the Registrant and Alan R. Rachlin(7)(19) 11.1 Statement of Computation of Earnings Per Share 21.1 Subsidiaries of the Registrant(14) 23.1 Consent of Deloitte & Touche LLP 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed or required to be filed by the Registrant during the fourth quarter of the fiscal year ended June 30, 1997. (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 Transition Report on Form 10-K (File No. 0-19835) filed with the Commission on September 27, 1994. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 0-19835) filed with the Commission on August 5, 1993. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45391) filed with the Commission on January 30, 1992. (4) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 33-53422) filed with the Commission on October 15, 1992. (5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (Registration No. 0-19835) filed with the Commission on August 16, 1993. (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 33-84036) filed with the Commission on September 15, 1994. (7) Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Annual Report on Form 10-K. (8) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 33-80819) filed with the Commission on December 22, 1995. (9) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 333-20247) filed with the Commission on January 23, 1997. (10) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on March 31, 1993. (11) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on September 27, 1995. (12) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on February 13, 1996. (13) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on March 30, 1994. (14) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on May 16, 1994. (15) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on November 14, 1994. (16) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on November 13, 1995. (17) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on November 13, 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 27, 1996. (19) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on May 15, 1997. 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/ Mark A. Vidovich ------------------------------- Chairman of the Board, Director and Chief Executive Officer Dated: September 29, 1997 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.
Signature Title Date --------- ----- ---- /s/ Mark A. Vidovich ------------------------ Chairman of the Board, September 29, 1997 Mark A. Vidovich Director and Chief Executive Officer (Principal Executive Officer) /s/ James E. Freeman, Jr. ------------------------- President, Chief Operating September 29, 1997 James E. Freeman, Jr. Officer and Director /s/ Dennis K. Marquardt -------------------------- Executive Vice President, September 29, 1997 Dennis K. Marquardt Finance & Administration and Chief Financial Officer (Principal Financial Officer and Accounting Officer) /s/ James P. Higgins -------------------------- Director September 29, 1997 James P. Higgins /s/ Jill Tate Higgins -------------------------- Director September 29, 1997 Jill Tate Higgins /s/ Charles Miller -------------------------- Director September 29, 1997 Charles Miller /s/ Alan R. Rachlin ------------------------- Director September 29, 1997 Alan R. Rachlin /s/ Boyd I. Willat ------------------------ Director September 29, 1997 Boyd I. Willat /s/ Felice Willat ------------------------ Director September 29, 1997 Felice Willat
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, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Day Runner, Inc. and subsidiaries as of June 30, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP /s/ DELOITTE & TOUCHE LLP Long Beach, California August 15, 1997 F-1
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS June 30, 1997 1996 --------- ------ Current assets: Cash and cash equivalents (Note 1)............................................. $ 15,550 $19,765 Accounts receivable (less allowance for doubtful accounts and sales returns and other allowances of $8,664 and $7,374 at June 30, 1997 and 1996, respectively) (Notes 1 & 3)......................... 22,303 21,441 Inventories (Notes 1 & 3)...................................................... 23,406 20,040 Prepaid expenses and other current assets (Note 10)............................ 2,409 1,710 Income taxes receivable (Notes 1, 5 & 6)....................................... 1,930 Deferred income taxes (Notes 1 & 5)............................................ 6,386 5,200 -------- ------- Total current assets........................................................ 70,054 70,086 -------- ------- Property and equipment - At cost (Notes 1 & 4) Machinery and equipment........................................................ 10,316 6,942 Data processing equipment and software......................................... 5,863 4,707 Leasehold improvements......................................................... 1,838 1,514 Vehicles....................................................................... 214 202 -------- ------- Total ............................................................................ 18,231 13,365 Accumulated depreciation and amortization...................................... (9,543) (5,864) -------- ------- Property and equipment - net................................................... 8,688 7,501 -------- ------- Other assets (Note 10)............................................................. 138 344 -------- ------- Total assets....................................................................... $ 78,880 $77,931 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit (Note 3)........................................................ $ 452 Accounts payable (Note 1)...................................................... 8,320 $ 8,063 Accrued expenses (Note 2)...................................................... 9,500 10,370 Income taxes payable (Notes 1, 5 & 6).......................................... 1,049 Current portion of capital lease obligations (Notes 1 & 4)..................... 23 -------- Total current liabilities................................................... 19,344 18,433 -------- ------- Long-term liabilities: Capital lease obligations (Notes 1 and 4)...................................... 52 -------- Commitments and contingencies (Notes 4 & 11) Stockholders' equity (Notes 6, 7 & 8): Preferred stock (1,000,000 shares authorized; $0.001 par value, no shares issued or outstanding) Common stock (14,000,000 shares authorized; $0.001 par value; 6,364,429 shares issued and 5,851,329 outstanding at June 30, 1997; 6,304,771 issued and outstanding at June 30, 1996).......................... 6 6 Additional paid-in capital..................................................... 23,759 22,869 Retained earnings.............................................................. 49,168 36,620 Cumulative translation adjustment (Note 1)..................................... 92 3 Treasury stock (513,100 shares, at cost)(Note 9)............................... (13,541) -------- Total stockholders' equity.................................................. 59,484 59,498 -------- ------- Total liabilities and stockholders' equity......................................... $ 78,880 $77,931 ======== ======= See accompanying notes to consolidated financial statements.
F-2
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Years Ended June 30, 1997 1996 1995 --------- ---------- --------- Sales (Note 1).............................................. $ 127,376 $ 125,126 $ 121,801 Cost of goods sold.......................................... 60,452 59,920 62,175 --------- --------- --------- Gross profit................................................ 66,924 65,206 59,626 --------- --------- --------- Operating expenses (Notes 4, 10 & 11):...................... Selling, marketing and distribution..................... 31,673 29,878 32,154 General and administrative.............................. 14,451 16,376 13,792 Costs incurred in pursuing acquisitions................. 1,451 --------- Total operating expenses............................. 47,575 46,254 45,946 --------- --------- --------- Income from operations...................................... 19,349 18,952 13,680 --------- --------- --------- Interest (income) expense: Interest income......................................... (1,431) (823) (428) Interest expense........................................ 130 117 267 --------- --------- --------- Net interest income.................................. (1,301) (706) (161) --------- --------- --------- Income before provision for income taxes.................... 20,650 19,658 13,841 Provision for income taxes (Notes 1 & 5).................... 8,102 7,840 5,863 --------- --------- --------- Net income.................................................. $ 12,548 $ 11,818 $ 7,978 ========= ========= ========= Earnings per common and common equivalent share (Note 1)............................................... $ 1.90 $ 1.79 $ 1.25 ======== ========= ======== Weighted average number of common and common equivalent shares....................................... 6,591 6,602 6,374 ========= ========= ========= See accompanying notes to consolidated financial statements.
F-3
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands) Number Additional Cumulative of Shares Common Paid-In Retained Translation Treasury Outstanding Stock Capital Earnings Adjustment Stock Total ----------- -------------- ------------- -------- ---------- ------------ ------ Balance at July 1, 1994.......... 6,032,317 $ 6 $ 18,964 $ 16,824 $ (8) $35,786 Exercise of warrants (Note 8).... 31,500 126 126 Exercise of options (Notes 6 & 7) 61,980 568 568 Tax benefit of options (Note 6).. 284 284 Cumulative translation adjustment (Note 1)..................... 45 45 Net income....................... 7,978 7,978 --------- -------- --------- -------- ------ ---------- ------- Balance at June 30, 1995......... 6,125,797 6 19,942 24,802 37 44,787 Exercise of options (Notes 6 & 7) 178,974 1,475 1,475 Tax benefit of options (Note 6).. 1,452 1,452 Cumulative translation adjustment (Note 1)..................... (34) (34) Net income....................... 11,818 11,818 --------- -------- --------- -------- ------ ---------- ------- Balance at June 30, 1996......... 6,304,771 6 22,869 36,620 3 59,498 Exercise of warrants (Note 8).... 5,500 22 22 Exercise of options (Notes 6 & 7) 54,158 661 661 Tax benefit of options (Note 6).. 157 157 Compensation cost associated with warrant grant (Note 8)....... 50 50 Cumulative translation adjustment (Note 1)..................... 89 89 Treasury stock (Note 9).......... (513,100) (13,541) (13,541) Net income....................... 12,548 12,548 --------- -------- --------- -------- ------ -------- ------- Balance at June 30, 1997......... 5,851,329 $ 6 $ 23,759 $ 49,168 $ 92 ($ 13,541) $59,484 ========= ======== ========= ======== ====== ========= ======= See accompanying notes to consolidated financial statements. F-4
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Years Ended June 30, 1997 1996 1995 --------- ---------- ----------- Cash flows from operating activities: Net income.............................................. $ 12,548 $ 11,818 $ 7,978 Adjustments to reconcile net income to net cash provided by(used in) operating activities: Depreciation and amortization......................... 3,869 2,548 1,259 Provision for losses on accounts receivable........... 381 810 452 Write-off of barter credits (Note 10)....................... 200 520 210 Utilization of barter credits......................... 56 Compensation expense related to issuance of warrants........ 50 Deferred income tax provision......................... (1,186) (26) (2,690) Changes in operating assets and liabilities: Accounts receivable................................. (1,220) (2,884) (2,475) Inventories ............................................... (3,294) 6,543 (8,182) Prepaid expenses and other current assets................... (689) (87) 224 Income taxes receivable..................................... 1,930 (1,930) Accounts payable.................................... 225 (1,028) (101) Accrued expenses............................................ (872) 3,606 3,209 Income taxes payable........................................ 1,206 (1,247) 1,308 -------- -------- ------- Net cash provided by operating activities........... 13,148 18,643 1,248 -------- -------- ------- Cash flows from investing activities: Acquisition of property and equipment................... (4,972) (4,393) (2,592) Other assets ............................................... 5 (8) (146) Sale of marketable securities........................... 3,843 -------- -------- ------- Net cash (used in) provided by investing activities..... (4,967) (4,401) 1,105 -------- -------- ------- Cash flows from financing activities: Net borrowings under line of credit..................... 452 Payment of long-term debt............................... (141) (154) Payment of capital lease obligations.................... (13) (23) (23) Exercise of warrants.................................... 22 126 Exercise of options......................................... 661 1,475 568 Repurchase of common stock.............................. (13,541) -------- -------- ------- Net cash (used in) provided by financing activities..... (12,419) 1,311 517 -------- -------- ------- Effect of exchange rate changes on cash and cash equivalents....................................... 23 (57) (73) -------- -------- ------- Net (decrease) increase in cash and cash equivalents........ (4,215) 15,496 2,797 Cash and cash equivalents at beginning of year.............. 19,765 4,269 1,472 -------- -------- ------- Cash and cash equivalents at end of year.................... $ 15,550 $ 19,765 $ 4,269 ======== ======== ======= See accompanying notes to consolidated financial statements. F-5
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") design and manufacture personal organizer systems, refills and related products, marketing them domestically and internationally. A substantial portion of the Company's sales is to office products superstores, wholesalers and dealers and to mass market retailers throughout the United States. The Company grants credit to substantially all of its customers. CONSOLIDATION. The consolidated financial statements include the accounts of Day Runner, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. FOREIGN CURRENCY TRANSLATION. Assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at the exchange rate prevailing at the balance sheet date and, where appropriate, at historical rates of exchange. Income and expense accounts are translated at the weighted average rate in effect during the year. The aggregate effect of translating the financial statements of the foreign subsidiaries is included as a separate component of stockholders' equity. Foreign exchange gains (losses) were not significant during the years ended June 30, 1997, 1996 and 1995. CASH EQUIVALENTS. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. 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, 1997 1996 ------- -------- Raw materials ........ $10,204 $ 8,212 Work in process ...... 426 327 Finished goods ....... 12,776 11,501 ------- ------- Total .............. $23,406 $20,040 ======= ======= SALES. Revenue is recognized upon shipment of product to the customer, with appropriate allowances for estimated returns, rebates and other allowances. SIGNIFICANT CUSTOMERS. In 1997, sales to four customers accounted for 25%, 15%, 14% and 11% of the Company's sales. In 1996 and 1995, sales to three customers accounted for 17%, 15% and 12% and 25%, 14% and 12%, respectively, of the Company's sales. DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets, using the straight-line method. Estimated useful lives range from three to five 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. F-6 INCOME TAXES. The Company uses the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on temporary differences between the financial reporting and income tax bases of assets and liabilities at the balance sheet date multiplied by the applicable tax rates. FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments consist primarily of cash, accounts receivable and payable, and debt instruments. The book values of financial instruments, other than the debt instruments, are representative of their fair values due to their short-term maturity. The book values of the Company's debt instruments are considered to approximate its fair value because the interest rate of these instruments is based on current rates offered to the Company. EARNINGS PER SHARE. Earnings per share information is computed using the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from stock options and warrants using the treasury stock method. Fully diluted amounts for each period do not differ materially from the amounts presented. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING STANDARDS. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings per Share, which will be effective for the Company beginning with the interim period ending December 31, 1997. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share based upon the weighted average number of common shares for the period. It also requires dual presentation of basic and diluted earnings per share of companies with complex capital structures. Had earnings per share been determined consistent with SFAS No. 128, basic and diluted earnings per share would have been:
Years Ended June 30, 1997 1996 1995 ------------------------------------ -------------------------------- -------------------------------- Weighted Weighted Weighted Average Shares Earnings Per Average Shares Earnings Per Average Shares Earnings Per (in thousands) Share (in thousands) Share (in thousands) Share -------------- ----- -------------- ----- -------------- ----- Basic 6,216 $2.02 6,234 $1.90 6,088 $1.31 Diluted 6,591 $1.90 6,602 $1.79 6,374 $1.25
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting for Comprehensive Income, and No. 131 ("SFAS No. 131"), Disclosures about Segments of an Enterprise and Related Information. These statements are effective for financial statements issued for periods beginning after December 15, 1997. The Company is evaluating what, if any, additional disclosures may be required upon implementation of SFAS Nos. 130 and 131. RECLASSIFICATIONS. Certain reclassifications were made to the 1996 financial statements to conform to the current year presentation. F-7 2. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
June 30, 1997 1996 --------- ------- Accrued sales and promotion costs........ $ 5,223 $ 4,027 Accrued payroll and related costs........ 2,128 3,923 Other.................................... 2,149 2,420 --------- -------- Total............................ $ 9,500 $ 10,370 ========= ========
3. BANK BORROWINGS The Company has a credit agreement with a bank, the terms of which provide for borrowings under a line of credit of up to an aggregate of $5,000,000 through November 1, 1997. Under the line of credit, the Company may either borrow funds, open commercial letters of credit or open standby letters of credit up to $5,000,000. However, in no event may the aggregate of borrowings and letters of credit exceed $5,000,000. Commercial letters of credit and standby letters of credit may be issued for a term not to exceed 180 days and may not expire subsequent to February 1, 1998 and May 1, 1998, respectively. At June 30, 1997, the Company had $452,000 outstanding under its line of credit and had used the line of credit to secure outstanding letters of credit of approximately $1,000,000, which reduced the availability under the line of credit to approximately $3,548,000. Effective September 1, 1997, the Company increased its line of credit from $5,000,000 to $15,000,000. Borrowings are collateralized by accounts receivable, inventories and certain other assets. Borrowings under the line of credit bear interest either at the bank's prime rate (8.5% at June 30, 1997) or at LIBOR (5.6875% at June 30, 1997) plus 1.75%, at the Company's election. The credit agreement requires the Company to maintain total debt to tangible net worth of not more than 1.5 to 1 and to maintain certain specified operating ratios. The agreement also requires that the Company obtain the bank's approval to declare or pay dividends in excess of $200,000. 4. LEASES The Company has four noncancelable operating leases for its principal operating facilities and its corporate headquarters. The leases expire through 2005. The leases include renewal options that, if exercised, would extend the lease terms through 2011, and the leases provide for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index, subject to certain minimum increases. The Company also has entered into leases for certain production, warehouse, computer and office equipment under noncancelable operating leases that expire through September 2004. The Company also leases certain vehicles under agreements that meet the criteria for classification as capital leases. Future minimum lease payments under these capital leases, and the future minimum lease payments under the operating leases at June 30, 1997, are summarized as follows (in thousands):
Capital Operating Year Leases Leases ---- --------- --------- 1998.................................................... $ 23 $ 2,939 1999.................................................... 23 2,497 2000.................................................... 15 2,015 2001.................................................... 5 1,891 2002.................................................... 5 814 Thereafter.............................................. 4 896 --------- -------- Total minimum lease payments............................ 75 $ 11,052 ======== Less current portion of capital lease obligations....... 23 --------- Portion of capital lease obligation due after one year.. $ 52 =========
F-8 Included in property and equipment at June 30, 1997 are capitalized leased vehicles with a cost of $88,000 and accumulated amortization of $43,000. Rent expense was $3,841,000, $3,927,000 and $3,128,000 for the years ended June 30, 1997, 1996 and 1995, respectively. 5. INCOME TAXES The income tax provision consists of the following (in thousands):
Years Ended June 30, 1997 1996 1995 ---------- --------- -------- Current: Federal............................... $ 7,076 $ 6,051 $ 6,998 State................................. 1,825 1,473 1,400 Foreign............................... 387 342 155 -------- -------- -------- Total current........................... 9,288 7,866 8,553 -------- -------- -------- Deferred provision (benefit):........... Federal............................... (961) (37) (2,363) State................................. (225) 11 (327) -------- -------- -------- Total deferred.......................... (1,186) (26) (2,690) -------- -------- -------- Total income tax provision.............. $ 8,102 $ 7,840 $ 5,863 ======== ======== ========
Differences between the total income tax provision and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows (in thousands):
Years Ended June 30, 1997 1996 1995 ---------- --------- -------- Computed tax expense using the statutory federal income tax rate..... $ 7,228 $ 6,880 $ 4,946 Increase (decrease) in taxes arising from: State taxes, net of federal benefit... 1,000 980 698 Foreign subsidiary operating losses... 46 35 281 Other................................. (172) (55) (62) -------- -------- --------- Total................................. $ 8,102 $ 7,840 $ 5,863 ======== ======== ========= Effective income tax rate............... 39% 40% 42% ========= ========= ==========
F-9
Total deferred tax assets and deferred tax liabilities consist of the following at June 30, 1997 and 1996 (in thousands): June 30, 1997 1996 ------------- -------------- Allowance for sales returns............................ $2,490 $ 2,072 Inventory obsolescence reserve......................... 1,394 1,479 Allowance for doubtful accounts........................ 1,147 1,005 State taxes............................................ 615 523 Other deferred tax assets.............................. 1,491 706 ------ -------- Total deferred tax assets.............................. 7,137 5,785 Less deferred tax liabilities.......................... 751 585 ------ -------- Total.................................................. $6,386 $ 5,200 ====== ========
6. STOCK OPTION PLANS Under the Company's 1995 Stock Option Plan (the "Plan"), an aggregate of 500,000 shares of common stock is reserved for issuance to key employees, including officers and directors, and consultants of the Company. Both incentive stock options and nonstatutory stock options are authorized for issuance under the Plan. The terms of the options are determined at the time of grant. Pursuant to the Plan, the per share option price of 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 1,725,000 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, 1997, options covering 890,325 shares have been exercised and options covering 826,550 shares remain outstanding. No additional options will be granted under this plan. During the years ended June 30, 1997, 1996 and 1995, certain officers and employees exercised options to purchase an additional 37,150, 164,025 and 45,750 shares, respectively, of the Company's common stock for an aggregate of $381,000, $1,214,000 and $362,000, respectively (see Note 7). 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, 1997, 1996 and 1995. This reduction totaled $157,000, $1,452,000 and $284,000, respectively, and was credited to additional paid-in capital. F-10
A summary of stock option activity is as follows: Number of Options Per Share ------- --------- Outstanding, July 1, 1994............. 797,475 $ 2.26 - $18.625 Granted............................ 148,000 16.75 - 19.50 Exercised.......................... (45,750) 2.26 - 12.50 Cancelled.......................... (33,000) 2.26 - 18.625 --------- Outstanding, June 30, 1995............ 866,725 2.26 - 19.50 Granted............................ 168,375 16.75 Exercised.......................... (164,025) 2.26 - 19.50 Cancelled.......................... (5,000) 12.50 - 19.50 --------- Outstanding, June 30, 1996............ 866,075 8.75 - 19.50 Granted............................ 232,500 26.00 Exercised.......................... (37,150) 8.75 - 26.00 Cancelled.......................... (15,625) 26.00 --------- Outstanding, June 30, 1997............ 1,045,800 10.25 - 26.00 =========
At June 30, 1997, options to purchase 551,157 shares at prices ranging from $10.25 to $26.00 were exercisable. 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 consistent with the method of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock Based Compensation, the Company's net income and earnings per common and common equivalent shares would have been reduced to the pro forma amounts indicated below: Years Ended June 30, 1997 1996 -------- ------- Net income: As reported ......................... $12,548 $11,818 Pro forma ........................... $11,094 $11,294 Earnings per common and common equivalent shares: As reported ......................... $ 1.90 $ 1.79 Pro forma ........................... $ 1.68 $ 1.71 The fair value of the options granted under the plans during 1997 and 1996 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for 1997 and 1996, respectively: no dividend yield, volatility of 53.28% and 56.26%, risk-free interest rates of 5.41% to 6.95% and 5.69% to 6.40%, and expected option lives of 1.4 to 4 years for both periods. Pro forma compensation cost of options granted under the Employee Stock Purchase Plan is measured based on the discount from market value. On August 19, 1997, the Company issued options to key employees to purchase 257,500 shares of the Company's common stock at $33.75 per share. The options vest over a period of five years and expire in 2007. F-11 7. EMPLOYEE STOCK PURCHASE PLAN During 1992, the Company adopted an Employee Stock Purchase Plan under which 100,000 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, 1997, 1996 and 1995, employees purchased an aggregate of 17,008, 14,949 and 16,230 shares of common stock for $280,000, $261,000 and, $206,000, respectively, under this plan. These amounts are included in the amounts shown for exercise of options on the accompanying consolidated statements of stockholders' equity (see Note 6). 8. WARRANTS During the years ended June 30, 1997, 1996 and 1995, the Board of Directors approved the issuance of warrants to purchase an aggregate of 200,000 shares of the Company's common stock. Such warrants were issued at prices ranging from $19.00 to $25.625 per share, vest over periods up to 48 months and expire at various times through April 2007. During 1997 and 1995, certain directors exercised warrants to purchase 5,500 and 31,500 shares, respectively, of the Company's common stock for an aggregate of $22,000 and $126,000, respectively. No warrants were exercised during the year ended June 30, 1996. Included in the issuance of warrants to purchase 200,000 shares of the Company's common stock is a warrant to purchase 25,000 shares that was issued to a director under the terms of a consulting agreement during fiscal 1997. Such issuance was accounted for under SFAS No. 123, which resulted in the recording of $50,000 in compensation cost.
A summary of warrant activity is as follows: Number of Warrants Per Share -------- ------------- Outstanding, July 1, 1994............. 220,000 $4.00 - $12.50 Granted............................ 25,000 19.00 Exercised.......................... (31,500) 4.00 ----------- Outstanding, June 30, 1995............ 213,500 4.00 - 19.00 Granted............................ 25,000 19.00 ----------- Outstanding, June 30, 1996............ 238,500 4.00 - 19.00 Granted ................................... 150,000 23.5625 - 25.625 Exercised.......................... (5,500) 4.00 ----------- Outstanding, June 30, 1997............ 383,000 4.00 - 25.625 ===========
At June 30, 1997, warrants to purchase 244,456 shares at prices ranging from $4.00 to $25.625 were exercisable. On August 19, 1997, the Company issued warrants to key employees to purchase 95,000 shares of the Company's common stock at $33.75 per share. The warrants vest immediately and expire in 2007. 9. TREASURY STOCK In 1997, the Board of Directors authorized a stock repurchase program under which the Company may repurchase up to 600,000 shares of its common stock. Such stock may be used to meet the Company's common stock requirements for its stock benefit plans. During fiscal 1997, the Company repurchased 513,100 shares at an average per share cost of $26.39. F-12 On August 27, 1997, the Board of Directors authorized the purchase of up to 360,000 shares of the Company's common stock from officers and directors and increased the number of shares of common stock that the Company is authorized to repurchase under its existing stock repurchase program by 100,000 shares. In addition, on that date, the Company repurchased 347,794 shares from certain officers and directors at a cost of $33.25 per share. 10. OTHER TRANSACTIONS During 1995 and 1993, the Company entered into barter agreements whereby it delivered $132,000 and $1,098,000, respectively, of its inventory in exchange for future advertising credits and other items. The credits, which expire in October 1998, are valued at the lower of the Company's cost or market value of the inventory transferred. The Company has recorded barter credits of $36,000 in prepaid expenses and other current assets at June 30, 1997 and 1996. At June 30, 1997 and 1996, other assets include $79,000 and $279,000, respectively, of such credits. Under the terms of the agreement, the Company is required to pay cash equal to a negotiated amount of the bartered advertising, or other items, and use the barter credits to pay the balance. These credits are charged to expense as they are used. During the years ended June 30, 1997 and 1996, no amounts were charged to expense for barter credits used. The Company assesses the recoverability of barter credits periodically. Factors considered in evaluating the recoverability include management's plans with respect to advertising and other expenditures for which barter credits can be used. Any impairment losses are charged to operations as they are determinable. During the year ended June 30, 1997, 1996 and 1995, the Company charged $200,000, $520,000 and $210,000, respectively, to operations for such impairment losses. 11. 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, 1997, 1996 and 1995, 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, 1997, 1996 and 1995, the Company's matching contributions were $133,000, $128,000 and, $120,000, 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 $1,120,000 and $550,000 during the years ended June 30, 1996 and 1995, respectively. No amounts were recorded under these plans during the year ended June 30, 1997. 12. STATEMENTS OF CASH FLOWS Capital lease obligations totaling $88,000 were incurred in 1997 when the Company entered into leases to acquire certain vehicles. In a barter transaction entered in 1995, the Company exchanged $132,000, respectively, of inventory for an equal amount of barter credits (see Note 10). The Company realized a reduction in its current tax liability during 1997, 1996 and 1995 in the amount of $157,000, $1,452,000 and $284,000, respectively. Such amounts were credited to additional paid-in capital (see Note 6). Years Ended June 30, 1997 1996 1995 --------- --------- --------- Supplemental disclosure of cash flow information (in thousands) - Cash paid during the period for: Interest ...................... $ 130 $ 24 $ 80 Income taxes .................. $6,026 $9,988 $6,610 F-13 INDEPENDENT AUDITORS' REPORT Day Runner, Inc.: We have audited the consolidated financial statements of Day Runner, Inc. and its subsidiaries as of June 30, 1997 and 1996, and for each of the three years in the period ended June 30, 1997, and have issued our report thereon dated August 15, 1997; 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 Long Beach, California August 15, 1997 S-1
DAY RUNNER, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands) Balance at Balance at June 30, Charged to June 30, Classification 1996 Operations Deductions 1997 - -------------- ---------------- ---------- ---------- --------- Allowance for doubtful accounts............ $2,358 $ 381 $ 57 $ 2,682 Allowance for sales returns................ 5,016 13,883 12,917 5,982 Reserve for obsolete inventory............. 3,473 1,267 1,481 3,259 Balance at Balance at June 30, Charged to June 30, Classification 1995 Operations Deductions 1996 - -------------- ---------------- ---------- ---------- ---------- Allowance for doubtful accounts............ $1,671 $ 810 $ 123 $ 2,358 Allowance for sales returns................ 5,461 8,221 8,666 5,016 Reserve for obsolete inventory............. 3,214 2,754 2,495 3,473 Balance at Balance at June 30, Charged to June 30, Classification 1994 Operations Deductions 1995 - -------------- ---------------- ---------- ---------- ---------- Allowance for doubtful accounts............ $1,368 $ 452 $ 149 $ 1,671 Allowance for sales returns................ 2,883 10,451 7,873 5,461 Reserve for obsolete inventory............. 1,800 3,508 2,094 3,214 Balance at Balance at December 31, Charged to June 30, Classification 1993 Operations Deductions 1994 - -------------- ---------------- ---------- ---------- ---------- Allowance for doubtful accounts............ $1,362 $ 124 $ 118 $ 1,368 Allowance for sales returns................ 3,092 3,839 4,048 2,883 Reserve for obsolete inventory............. 1,529 924 653 1,800
S-2 EXHIBIT INDEX Exhibit Number Description - ---------- ------------- 10.6 1997 Officer Bonus Plan 10.8 Sixth Amendment to Credit Agreement dated as of September 1, 1997 between the Registrant and Wells Fargo Bank, National Association, including revolving Line of Credit Note 10.12 Schedule of Warrants 10.13 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 11.1 Statement of Computation of Earnings Per Share 23.1 Consent of Deloitte & Touche LLP 27.1 Financial Data Schedule EX-99 2 OFFICER BONUS SCHEDULE DAY RUNNER, INC. EXHIBIT 10.6 DAY RUNNER, INC. OFFICER BONUS PLAN FOR THE FISCAL YEAR ENDING JUNE 30, 1997 The Officer Bonus Plan (the "Bonus Plan") for the fiscal year ending June 30, 1997, will be paid based on the Company's fiscal year ending June 30, 1997 financial performance as measured by the degree of attainment of a pre-set, Board-approved, net income goal. The established fiscal 1997 net income goal for the period ending June 30, 1997 to be used for calculation of the 1997 bonuses is after bonuses net income (after taxes and all other expense items) of $11,818,000. The percentage attainment of the net income goal will be applied to the matrix on the following pages to determine the bonus. (For the purposes of these attachments, only a partial matrix is shown.) Percentage calculations for net income and bonus percentages will be calculated to two decimal places and will be rounded up. A minimum of 120% of the after-bonuses net income goal must be achieved to receive any bonus. Bonus payments, if any, will be made in one lump sum payment all at one time within 30 days after the June 30, 1997 net income results have been finalized and any review and audit by the Company's outside accountants has been completed (as evidenced by the Company's auditors executing its financial report and delivering copies to the Compensation Committee.) In the event any officer included in the Bonus Plan is an officer of the Company for only a portion of the 12-month period ending June 30,1997 (or changes his/her officer position during this period), then his/her participation in the Bonus plan will be pro-rata based on the number of days as a Company officer (or as he/she held each respective office) in the fiscal year ending June 30, 1997 divided by 365, without regard to the actual net income earned by the Company during the period he/she was an officer; provided, however, that an officer must be an officer for at least six months of this fiscal year and must not voluntarily resign as an officer of the Company on or prior to June 30, 1997 to be eligible for participation in the Bonus Plan. Unless additional officers are explicitly included in the Bonus Plan pursuant to a subsequent, duly adopted Board resolution, only the following officers shall be included in the Bonus Plan: Chief Executive Officer; President and Chief Operating Officer; Chief Financial Officer & Executive Vice President, Finance & Administration; Vice President, Operations, North America; Vice President, Sales; Vice President, Product Development; Vice President, International Sales; Vice President, Chief Information Officer; Vice President, Corporate Development; and Vice President, Human Resources. Bonuses will be paid according to the partial table on the following page which is to be used by applying the appropriate bonus percentage to the base salary for each respective executive.
DAY RUNNER, INC. Officer Bonus Calculation for Fiscal 1997 Base period = 12 months ended June 30, 1996 Bonus calculated using bonus factor - ---------------------------------------------------------------------------------------------------------------------------------- Net Income(in $000's) Chief Executive President & Chief Chief Financial VP - Sales VP - Product Goal = $11,818 Officer Operating Officer Officer Development - ---------------------------------------------------------------------------------------------------------------------------------- Annual Salary $300,000 $250,000 $150,000 $132,000 $132,000 Bonus Factor 2.44% 2.36% 2.24% 2.16% 2.16% - ---------------------------------------------------------------------------------------------------------------------------------- Percent After Bonus of 12 Months Fiscal 1997 Percent Percent Percent Percent Percent Ended 6/30/97 Net Income of Annual of Annual of Annual of Annual of Annual Net Income ($000) Salary Bonus Salary Bonus Salary Bonus Salary Bonus Salary Bonus - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 120.0 $14,182 2.44% $7,320 2.36 $5,900 2.24 $3,360 2.16 $2,851 2.1 $2,851 120.0 $14,241 4.88 14,640 4.72 11,800 4.48 6,720 4.32 5,702 4.32 5,702 121.0 $14,300 7.32 21,960 7.08 17,700 6.72 10,080 6.48 8,554 6.48 8,554 121.5 $14,359 9.76 29,280 9.44 23,600 8.96 13,440 8.64 11,405 8.6 11,405 122.0 $14,418 12.20 36,600 11.80 29,500 11.20 16,800 10.80 14,256 10.8 14,256 122.5 $14,477 14.64 43,920 14.16 35,400 13.44 20,160 12.96 17,107 12.9 17,107 123.0 $14,536 17.08 51,240 16.52 41,300 15.68 23,520 15.12 19,958 15.1 19,958 123.5 $14,595 19.52 58,560 18.88 47,200 17.92 26,880 17.28 22,810 17.2 22,810 124.0 $14,654 21.96 65,880 21.24 53,100 20.16 30,240 19.44 25,661 19.4 25,661 124.5 $14,713 24.40 73,200 23.60 59,000 22.40 33,600 21.60 28,512 21.6 28,512 125.0 $14,773 26.84 80,520 25.96 64,900 24.64 36,960 23.76 31,363 23.76 31,363 125.5 $14,832 29.28 87,840 28.32 70,800 26.88 40,320 25.92 34,214 25.9 34,214 126.0 $14,891 31.72 95,160 30.68 76,700 29.12 43,680 28.08 37,066 28.0 37,066 126.5 $14,950 34.16 102,480 33.04 82,600 31.36 47,040 30.24 39,917 30.2 39,917 127.0 $15,009 36.60 109,800 35.40 88,500 33.60 50,400 32.40 42,768 32.4 42,768 127.5 $15,068 39.04 117,120 37.76 94,400 35.84 53,760 34.56 45,619 34.5 45,619 128.0 $15,127 41.48 124,440 40.12 100,300 38.08 57,120 36.72 48,470 36.7 48,470 128.5 $15,186 43.92 131,760 42.48 106,200 40.32 60,480 38.88 51,322 38.8 51,322 129.0 $15,245 46.36 139,080 44.84 112,100 42.56 63,840 41.04 54,173 41.0 54,173 130.0 $15,363 48.80 146,400 47.20 118,000 44.80 67,200 43.20 57,024 43.2 57,024 131.0 $15,482 51.24 153,720 49.56 123,900 47.04 70,560 45.36 59,875 45.3 59,875 132.0 $15,600 53.68 161,040 51.92 129,800 49.28 73,920 47.52 62,726 47.5 62,726 133.0 $15,718 56.12 168,360 54.28 135,700 51.52 77,280 49.68 65,578 49.6 65,578 134.0 $15,836 58.56 175,680 56.64 141,600 53.76 80,640 51.84 68,429 51.8 68,429 135.0 $15,954 61.00 183,000 59.00 147,500 56.00 84,000 54.00 71,280 54.0 71,280 136.0 $16,072 63.44 190,320 61.36 153,400 58.24 87,360 56.16 74,131 56.1 74,131 137.0 $16,191 65.88 197,640 63.72 159,300 60.48 90,720 58.32 76,982 58.3 76,982 138.0 $16,309 68.32 204,960 66.08 165,200 62.72 94,080 60.48 79,834 60.4 79,834 139.0 $16,427 70.76 212,280 68.44 171,100 64.96 97,440 62.64 82,685 62.64 82,685 140.0 $16,545 73.20 219,600 70.80 177,000 67.20 100,800 64.80 85,536 64.80 85,536 141.0 $16,663 75.64 226,920 73.16 182,900 69.44 104,160 66.96 88,387 66.96 88,387 142.0 $16,782 78.08 234,240 75.52 188,800 71.68 107,520 69.12 91,238 69.12 91,238 143.0 $16,900 80.52 241,560 77.88 194,700 73.92 110,880 71.28 94,090 71.28 94,090 144.0 $17,018 82.96 248,880 80.24 200,600 76.16 114,240 73.44 96,941 73.44 96,941 145.0 $17,136 85.40 256,200 82.60 206,500 78.40 117,600 75.60 99,792 75.60 99,792 146.0 $17,254 87.84 263,520 84.96 212,400 80.64 120,960 77.76 102,643 77.76 102,643 147.0 $17,372 90.28 270,840 87.32 218,300 82.88 124,320 79.92 105,494 79.92 105,494 148.0 $17,491 92.72 278,160 89.68 224,200 85.12 127,680 82.08 108,346 82.08 108,346 149.0 $17,609 95.16 285,480 92.04 230,100 87.36 131,040 84.24 111,197 84.24 111,197 150.0 $17,727 97.60 292,800 94.40 236,000 89.60 134,400 86.40 114,048 86.40 114,048 151.0 $17,845 100.04 300,120 96.76 241,900 91.84 137,760 88.56 116,899 88.56 116,899 152.0 $17,963 102.48 307,440 99.12 247,800 94.08 141,120 90.72 119,750 90.72 119,750 153.0 $18,082 104.92 314,760 101.48 253,700 96.32 144,480 92.88 122,602 92.99 122,602 154.0 $18,200 107.36 322,080 103.84 259,600 98.56 147,840 95.04 125,453 95.04 125,453 155.0 $18,318 109.80 329,400 106.20 265,500 100.80 151,200 97.20 128,304 97.20 128,304 156.0 $18,436 112.24 336,720 108.56 271,400 103.04 154,560 99.36 131,155 99.36 131,155 157.0 $18,554 114.68 344,040 110.92 277,300 105.28 157,920 101.52 134,006 101.52 134,006 158.0 $18,672 117.12 351,360 113.28 283,200 107.52 161,280 103.68 136,858 103.68 136,858 159.0 $18,791 119.56 358,680 115.64 289,100 109.76 164,640 105.84 139,709 105.84 139,709 160.0 $18,909 122.00 366,000 118.00 295,000 112.00 168,000 108.00 142,560 108.00 142,560 161.0 $19,027 124.44 373,320 120.36 300,900 114.24 171,360 110.16 145,411 110.16 145,411 162.0 $19,145 126.88 380,640 122.72 306,800 116.48 174,720 112.32 148,262 112.32 148,262 163.0 $19,263 129.32 387,960 125.08 312,700 118.72 178,080 114.48 151,114 114.48 151,114 164.0 $19,382 131.76 395,280 127.44 318,600 120.96 181,440 116.64 153,965 116.64 153,965 165.0 $19,500 134.20 402,600 129.80 324,500 123.20 184,800 118.80 156,816 118.80 156,816 166.0 $19,618 136.64 409,920 132.16 330,400 125.44 188,160 120.96 159,667 120.96 159,667 167.0 $19,736 139.08 417,240 134.52 336,300 127.68 191,520 123.12 162,518 123.12 162,518 168.0 $19,854 141.52 424,560 136.88 342,200 129.92 194,880 125.28 165,370 125.28 165,370 169.0 $19,972 143.96 431,880 139.24 348,100 132.16 198,240 127.44 168,221 127.44 168,221 170.0 $20,091 146.40 439,200 141.60 354,000 134.40 201,600 129.60 171,072 129.60 171,072 171.0 $20,209 148.84 446,520 143.96 359,900 136.64 204,960 131.76 173,923 131.76 173,923 172.0 $20,327 151.28 453,840 146.32 365,800 138.88 208,320 133.92 176,774 133.92 176,774 173.0 $20,445 153.72 461,160 148.68 371,700 141.12 211,680 136.08 179,626 136.08 179,626 174.0 $20,563 156.16 468,480 151.04 377,600 143.36 215,040 138.24 182,477 138.24 182,477 175.0 $20,682 158.60 475,800 153.40 383,500 145.60 218,400 140.40 185,328 140.40 185,328 176.0 $20,800 161.04 483,120 155.76 389,400 147.84 221,760 142.56 188,179 142.56 188,179 177.0 $20,918 163.48 490,440 158.12 395,300 150.08 225,120 144.72 191,030 144.72 191,030 178.0 $21,036 165.92 497,760 160.48 401,200 152.32 228,480 146.88 193,882 146.88 193,882 179.0 $21,154 168.36 505,080 162.84 407,100 154.56 231,840 149.04 196,733 149.04 196,733 180.0 $21,272 170.80 512,400 165.20 413,000 156.80 235,200 151.20 199,584 151.20 199,584 181.0 $21,391 173.24 519,720 167.56 418,900 159.04 238,560 153.36 202,435 153.36 202,435 182.0 $21,509 175.68 527,040 169.92 424,800 161.28 241,920 155.52 205,286 155.52 205,286 183.0 $21,627 178.12 534,360 172.28 430,700 163.52 245,280 157.68 208,138 157.68 208,138 184.0 $21,745 180.56 541,680 174.64 436,600 165.76 248,640 159.84 210,989 159.84 210,989 185.0 $21,863 183.00 549,000 177.00 442,500 168.00 252,000 162.00 213,840 162.00 213,840 186.0 $21,981 185.44 556,320 179.36 448,400 170.24 255,360 164.16 216,691 164.16 216,691 187.0 $22,100 187.88 563,640 181.72 454,300 172.48 258,720 166.32 219,542 166.32 219,542 188.0 $22,218 190.32 570,960 184.08 460,200 174.72 262,080 168.48 222,394 168.48 222,394 189.0 $22,336 192.76 578,280 186.44 466,100 176.96 265,440 170.64 225,245 170.64 225,245 190.0 $22,454 195.20 585,600 188.80 472,000 179.20 268,800 172.80 228,096 172.80 228,096 191.0 $22,572 197.64 592,920 191.16 477,900 181.44 272,160 174.96 230,947 174.96 230,947 192.0 $22,691 200.08 600,240 193.52 483,800 183.68 275,520 177.12 233,798 177.12 233,798 193.0 $22,809 202.52 607,560 195.88 489,700 185.92 278,880 179.28 236,650 179.28 236,650 194.0 $22,927 204.96 614,880 198.24 495,600 188.16 282,240 181.44 239,501 181.44 239,501 195.0 $23,045 207.40 622,200 200.60 501,500 190.40 285,600 183.60 242,352 183.60 242,352 196.0 $23,163 209.84 629,520 202.96 507,400 192.64 288,960 185.76 245,203 185.76 245,203 197.0 $23,281 212.28 636,840 205.32 513,300 194.88 292,320 187.92 248,054 187.92 248,054 198.0 $23,400 214.72 644,160 207.68 519,200 197.12 295,680 190.08 250,906 190.08 250,906 199.0 $23,518 217.16 651,480 210.04 525,100 199.36 299,040 192.24 253,757 192.24 253,757 200.0 $23,636 219.60 658,800 212.40 531,000 201.60 302,400 194.40 256,608 194.40 256,608 201.0 $23,754 222.04 666,120 214.76 536,900 203.84 305,760 196.56 259,459 196.56 259,459
Table continued below - ---------------------------------------------------------------------------------------------------------------------------------- VP - Operations, VP - International VP - Information VP-Corporate VP - Human North America Sales Services Development Resources - ---------------------------------------------------------------------------------------------------------------------------------- $125,000 110,000 $110,000 $90,000 $90,000 1.80 1.40% 1.40% 1.40% 1.40% - ------------------------------------------------------------------------------------------------------------------------------------ Percent Percent Percent Percent Percent Bonus of Annual of Annual of Annual of Annual of Annual Grand Salary Bonus Salary Bonus Salary Bonus Salary Bonus Salary Bonus Total - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 1.80% $2,250 1.40 $1,540 1.40 $1,540 1.40 $1,260 1.40 $1,260 $30,132 3.60 4,500 2.80 3,080 2.80 3,080 2.80 2,520 2.80 2,520 $60,264 5.40 6,750 4.20 4,620 4.20 4,620 4.20 3,780 4.20 3,780 $90,398 7.20 9,000 5.60 6,160 5.60 6,160 5.60 5,040 5.60 5,040 $120,530 9.00 11,250 7.00 7,700 7.00 7,700 7.00 6,300 7.00 6,300 $150,662 10.80 13,500 8.40 9,240 8.40 9,240 8.40 7,560 8.40 7,560 $180,794 12.60 15,750 9.80 10,780 9.80 10,780 9.80 8,820 9.80 8,820 $210,926 14.40 18,000 11.20 12,320 11.20 12,320 11.20 10,080 11.20 10,080 $241,060 16.20 20,250 12.60 13,860 12.60 13,860 12.60 11,340 12.60 11,340 $271,192 18.00 22,500 14.00 15,400 14.00 15,400 14.00 12,600 14.00 12,600 $301,324 19.80 24,750 15.40 16,940 15.40 16,940 15.40 13,860 15.40 13,860 $331,456 21.60 27,000 16.80 18,480 16.80 18,480 16.80 15,120 16.80 15,120 $361,588 23.40 29,250 18.20 20,020 18.20 20,020 18.20 16,380 18.20 16,380 $391,722 25.20 31,500 19.60 21,560 19.60 21,560 19.60 17,640 19.60 17,640 $421,854 27.00 33,750 21.00 23,100 21.00 23,100 21.00 18,900 21.00 18,900 $451,986 28.80 36,000 22.40 24,640 22.40 24,640 22.40 20,160 22.40 20,160 $482,118 30.60 38,250 23.80 26,180 23.80 26,180 23.80 21,420 23.80 21,420 $512,250 32.40 40,500 25.20 27,720 25.20 27,720 25.20 22,680 25.20 22,680 $542,384 34.20 42,750 26.60 29,260 26.60 29,260 26.60 23,940 26.60 23,940 $572,516 36.00 45,000 28.00 30,800 28.00 30,800 28.00 25,200 28.00 25,200 $602,648 37.80 47,250 29.40 32,340 29.40 32,340 29.40 26,460 29.40 26,460 $632,780 39.60 49,500 30.80 33,880 30.80 33,880 30.80 27,720 30.80 27,720 $662,912 41.40 51,750 32.20 35,420 32.20 35,420 32.20 28,980 32.20 28,980 $693,046 43.20 54,000 33.60 36,960 33.60 36,960 33.60 30,240 33.60 30,240 $723,178 45.00 56,250 35.00 38,500 35.00 38,500 35.00 31,500 35.00 31,500 $753,310 46.80 58,500 36.40 40,040 36.40 40,040 36.40 32,760 36.40 32,760 $783,442 48.60 60,750 37.80 41,580 37.80 41,580 37.80 34,020 37.80 34,020 $813,574 50.40 63,000 39.20 43,120 39.20 43,120 39.20 35,280 39.20 35,280 $843,708 52.20 65,250 40.60 44,660 40.60 44,660 40.60 36,540 40.60 36,540 $873,840 54.00 67,500 42.00 46,200 42.00 46,200 42.00 37,800 42.00 37,800 $903,972 55.80 69,750 43.40 47,740 43.40 47,740 43.40 39,060 43.40 39,060 $934,104 57.60 72,000 44.80 49,280 44.80 49,280 44.80 40,320 44.80 40,320 $964,236 59.40 74,250 46.20 50,820 46.20 50,820 46.20 41,580 46.20 41,580 $994,370 61.20 76,500 47.60 52,360 47.60 52,360 47.60 42,840 47.60 42,840 $1,024,502 63.00 78,750 49.00 53,900 49.00 53,900 49.00 44,100 49.00 44,100 $1,054,634 64.80 81,000 50.40 55,440 50.40 55,440 50.40 45,360 50.40 45,360 $1,084,766 66.60 83,250 51.80 56,980 51.80 56,980 51.80 46,620 51.80 46,620 $1,114,898 68.40 85,500 53.20 58,520 53.20 58,520 53.20 47,880 53.20 47,880 $1,145,032 70.20 87,750 54.6 60,060 54.60 60,060 54.60 49,140 54.60 49,140 $1,175,164 72.00 90,000 56.00 61,600 56.00 61,600 56.00 50,400 56.00 50,400 $1,205,296 73.80 92,250 57.40 63,140 57.40 63,140 57.40 51,660 57.40 51,660 $1,235,428 75.60 94,500 58.80 64,680 58.80 64,680 58.80 52,920 58.80 52,920 $1,265,560 77.40 96,750 60.20 66,220 60.20 66,220 60.20 54,180 60.20 54,180 $1,295,694 79.20 99,000 61.60 67,760 61.60 67,760 61.60 55,440 61.60 55,440 $1,325,826 81.00 101,250 63.00 69,300 63.00 69,300 63.00 56,700 63.00 56,700 $1,355,958 82.80 103,500 64.40 70,840 64.40 70,840 64.40 57,960 64.40 57,960 $1,386,090 84.60 105,750 65.80 72,380 65.80 72,380 65.80 59,220 65.80 59,220 $1,416,222 86.40 108,000 67.20 73,920 67.20 73,920 67.20 60,480 67.20 60,480 $1,446,356 88.20 110,250 68.60 75,460 68.60 75,460 68.60 61,740 68.60 61,740 $1,476,488 90.00 112,500 70.00 77,000 70.00 77,000 70.00 63,000 70.00 63,000 $1,506,620 91.80 114,750 71.40 78,540 71.40 78,540 71.40 64,260 71.40 64,260 $1,536,752 93.60 117,000 72.80 80,080 72.80 80,080 72.80 65,520 72.80 65,520 $1,566,884 95.40 119,250 74.20 81,620 74.20 81,620 74.20 66,780 74.20 66,780 $1,597,018 97.20 121,500 75.60 83,160 75.60 83,160 75.60 68,040 75.60 68,040 $1,627,150 99.00 123,750 77.00 84,700 77.00 84,700 77.00 69,300 77.00 69,300 $1,657,282 100.80 126,000 78.40 86,240 78.40 86,240 78.40 70,560 78.40 70,560 $1,687,414 102.60 128,250 79.80 87,780 79.80 87,780 79.80 71,820 79.80 71,820 $1,717,546 104.40 130,500 81.20 89,320 81.20 89,320 81.20 73,080 81.20 73,080 $1,747,680 106.20 132,750 82.60 90,860 82.60 90,860 82.60 74,340 82.60 74,340 $1,777,812 108.00 135,000 84.00 92,400 84.00 92,400 84.00 75,600 84.00 75,600 $1,807,944 109.80 137,250 85.40 93,940 85.40 93,940 85.40 76,860 85.40 76,860 $1,838,076 111.60 139,500 86.80 95,480 86.80 95,480 86.80 78,120 86.80 78,120 $1,868,208 113.40 141,750 88.20 97,020 88.20 97,020 88.20 79,380 88.20 79,380 $1,898,342 115.20 144,000 89.60 98,560 89.60 98,560 89.60 80,640 89.60 80,640 $1,928,474 117.00 146,250 91.00 100,100 91.00 100,100 91.00 81,900 91.00 81,900 $1,958,606 118.80 148,500 92.40 101,640 92.40 101,640 92.40 83,160 92.40 83,160 $1,988,738 120.60 150,750 93.80 103,180 93.80 103,180 93.80 84,420 93.80 84,420 $2,018,870 122.40 153,000 95.20 104,720 95.20 104,720 95.20 85,680 95.20 85,680 $2,049,004 124.20 155,250 96.60 106,260 96.60 106,260 96.60 86,940 96.60 86,940 $2,079,136 126.00 157,500 98.00 107,800 98.00 107,800 98.00 88,200 98.00 88,200 $2,109,268 127.80 159,750 99.40 109,340 99.40 109,340 99.40 89,460 99.40 89,460 $2,139,400 129.60 162,000 100.80 110,880 100.80 110,880 100.80 90,720 100.80 90,720 $2,169,532 131.40 164,250 102.20 112,420 102.20 112,420 102.20 91,980 102.20 91,980 $2,199,666 133.20 166,500 103.60 113,960 103.60 113,960 103.60 93,240 103.60 93,240 $2,229,798 135.00 168,750 105.00 115,500 105.00 115,500 105.00 94,500 105.00 94,500 $2,259,930 136.80 171,000 106.40 117,040 106.40 117,040 106.40 95,760 106.40 95,760 $2,290,062 138.60 173,250 107.80 118,580 107.80 118,580 107.80 97,020 107.80 97,020 $2,320,194 140.40 175,500 109.20 120,120 109.20 120,120 109.20 98,280 109.20 98,280 $2,350,328 142.20 177,750 110.60 121,660 110.60 121,660 110.60 99,540 110.60 99,540 $2,380,460 144.00 180,000 112.00 123,200 112.00 123,200 112.00 100,800 112.00 100,800 $2,410,592 145.80 182,250 113.40 124,740 113.40 124,740 113.40 102,060 113.40 102,060 $2,440,724 147.60 184,500 114.80 126,280 114.80 126,280 114.80 103,320 114.80 103,320 $2,470,856 149.40 186,750 116.20 127,820 116.20 127,820 116.20 104,580 116.20 104,580 $2,500,990 151.20 189,000 117.60 129,360 117.60 129,360 117.60 105,840 117.60 105,840 $2,531,122 153.00 191,250 119.00 130,900 119.00 130,900 119.00 107,100 119.00 107,100 $2,561,254 154.80 193,500 120.40 132,440 120.40 132,440 120.40 108,360 120.40 108,360 $2,591,386 156.60 195,750 121.80 133,980 121.80 133,980 121.80 109,620 121.80 109,620 $2,621,518 158.40 198,000 123.20 135,520 123.20 135,520 123.20 110,880 123.20 110,880 $2,651,652 160.20 200,250 124.60 137,060 124.60 137,060 124.60 112,140 124.60 112,140 $2,681,784 162.00 202,500 126.00 138,600 126.00 138,600 126.00 113,400 126.00 113,400 $2,711,916 163.80 204,750 127.40 140,140 127.40 140,140 127.40 114,660 127.40 114,660 $2,742,048
EX-99 3 AMENDMENT TO BANK AGREEMENT DAY RUNNER, INC. EXHIBIT 10.8 SIXTH AMENDMENT TO CREDIT AGREEMENT THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of September 1, 1997, by and between DAY RUNNER, INC., a Delaware corporation("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of Nay 1, 1993, as amended from time to time ("Credit Agreement"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows: 1. Section 1.1(a) is hereby amended by deleting "Five Million Dollars ($5,000,000.00)" as the maximum principal amount available under the Line of Credit, and by substituting for said amount "Fifteen Million Dollars ($15,000,000.00)," with such change to be effective upon the execution and delivery to Bank of a promissory note substantially in the form of Exhibit A attached hereto (which promissory note shall replace and be deemed the Line of Credit Note defined in and made pursuant to the Credit Agreement) and all other contracts, instruments and documents required by Bank to evidence such change. 2. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 3. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. DAY RUNNER, INC WELLS FARGO BANK, . NATIONAL ASSOCIATION By: /s/ Dennis Marquardt /s/Clare Gurbach Title: Executive Vice President Vice President - 2- TO: WELLS FARGO BANK, NATIONAL ASSOCIATION Authorization to Increase Borrowing Limit RESOLVED, that Mark A. Vidovich, Chief Executive Officer of the Company and Dennis K. Marquardt, Chief Financial Officer of the Company, or either of them, be, and they hereby are, authorized to increase the maximum amount which the Company may borrow pursuant to that certain Credit Agreement dated as of May 1, 1993 and the collateral agreements thereto between Wells Fargo Bank, National Association ("Wells Fargo"), and the Company, each as amended to date (collectively, as amended to date, the "Credit Agreement"), from $5,000,000 to an amount not in excess of $15,000,000; RESOLVED FURTHER, that the Chief Executive Officer of the Company and Chief Financial Officer of the Company, or either of them, be, and they hereby are, authorized and directed, for and on behalf of the Company, to take all actions necessary to secure and effectuate the increase in amount which the Company may borrow from Wells Fargo pursuant to the Credit Agreement, including the negotiation, execution and delivery to Wells Fargo of such documents, certificates, and other instruments as may be required by Wells Fargo CERTIFICATION I, Dennis K. Marquardt, Corporate Secretary of DAY RUNNER, INC., a corporation created and existing under the laws of the state of DELAWARE, do hereby certify and declare that the foregoing is a full, true and correct copy of the resolutions duly passed and adopted by the Board of Directors of said corporation, by written consent of all Directors of said corporation or at a meeting of said Board duly and regularly called, noticed and held on August 19, 1997, at which meeting a quorum of the Board of Directors was present and voted in favor of said resolutions; that said resolutions are now in full force and effect; that there is no provision in the Articles of Incorporation or Bylaws of said corporation, or any shareholder agreement, limiting the power of the Board of Directors of said corporation to pass the foregoing resolutions and that such resolutions are in conformity with the provisions of such Articles of Incorporation and Bylaws; and that no approval by the shareholders of, or of the outstanding shares of, said corporation is required with respect to the matters which are the subject of the foregoing resolutions. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the corporate seal of said corporation as of September 19, 1997. /s/ Dennis K. Marquardt Corporate Secretary (SEAL) REVOLVING LINE OF CREDIT NOTE $15,000,000.00 Los Angeles, California September 1, 1997 FOR VALVE RECEIVED, the undersigned DAY RUNNER, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Los Angeles RCBO, 333 South Grand Avenue, Third Floor, Los Angeles, California, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Fifteen Million Dollars ($15,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close. (b) "Fixed Rate Term" means a period commencing on a Business Day and continuing for one (1) or two (2) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than Five Hundred Thousand Dollars ($500,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. (c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR 100% - LIBOR Reserve Percentage (i) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (d) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be one and three quarters percent (1.75%) above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone so long as, with respect to each LIBOR selection, (A) Bank receives written confirmation from Borrower not later than three (3) Business Days after such telephone notice is given, and (B) such notice is given to Bank prior to 10:00 a.m., California time, on the first day of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will quote the applicable fixed rate to Borrower at approximately 10:00 a.m., California time, on the first day of the Fixed Rate Term. If Borrower does not immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject to a redetermination by Bank of the applicable fixed rate; provided however, that if Borrower fails to accept any such rate by 11:00 a.m., California time, on the Business Day such quotation is given, then the quoted rate shall expire and Bank shall have no obligation to permit a LIBOR option to be selected on such day. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied. (c) Additional LIBOR Provisions. (i) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected by Borrower, and (B) any portion of the outstanding principal balance hereof which bears interest determined in relation to LIBOR, subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (ii) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (A) to make LIBOR options available hereunder, or (B) to maintain interest rates based on LIBOR, then in the former event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be --3-- cancelled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be certified to Borrower by Bank in writing as necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank such amounts as may be certified to Borrower by Bank in writing as necessary, immediately upon receipt of such certification, to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. --4-- (d) Payment of Interest. Interest accrued on this Note shall be payable in arrears on the first day of each month, commencing October 1, 1997. (e) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to two percent (2%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding principal amount of borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on November 1, 1997. (b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) Dennis K. Marquardt or James Freeman, Jr. or Kevin Marquez or Mark Vidovich or Ravi Shan, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the --5-- outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this-Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (a) Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. (b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of One Hundred Thousand Dollars ($100,000.00); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii)If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. . Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, -6-- expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid-at a rate per annum two percent (2%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of May 1, 1993, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity. (b) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. - --7-- IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. DAY RUNNER, INC. /s/ Dennis Marquardt Title: Executive Vice President EX-99 4 SCHEDULE OF WARRANTS
DAY RUNNER,INC. Exhibit 10.12 Schedule of Warrants -------------------- No. of Exercise Date Date of Holder Shares Price of Issue Expiration Vesting Schedule - --------------- --------------- -------- ---------- ---------------- --------------------------------- Higgins, James 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments commencing 01/01/97(1) Higgins, Jill 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments commencing 01/01/97(1) Miller, Charles 4,733(2) $ 4.00 03/12/91 03/11/98 Original warrant covered 25,000 shares and vested in 60 equal monthly installments commencing 04/01/91 Miller, Charles 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments commencing 01/01/97(1) Rachlin, Alan 25,000 $ 4.00 03/12/91 03/11/98 60 equal monthly installments commencing 04/01/91 Rachlin, Alan 25,000(3) $ 4.00 03/12/91 03/11/98 60 equal monthly installments commencing 04/01/91 Rachlin, Alan 50,000 $ 4.00 03/18/92 03/12/98 10,000 commencing 03/18/92; 40,000 in 48 equal monthly installments commencing 04/01/92 Rachlin, Alan 25,000 $ 12.00 03/09/93 01/22/03 2,083 on 03/09/93; 22,917 in 11 equal monthly installments commencing 03/20/93 Rachlin, Alan 25,000 $ 12.50 01/16/94 01/16/04 12 equal monthly installments commencing 02/14/94 Rachlin, Alan 25,000 $19.00 08/15/94 08/15/04 12 equal monthly installments commencing 08/29/94 Rachlin, Alan 25,000 $19.00 07/28/95 07/28/05 24 equal monthly installments commencing 08/28/95 Rachlin, Alan 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments commencing 01/01/97(1) Willat, Boyd 25,000 $ 4.00 03/12/91 03/11/98 60 equal monthly installments commencing 04/01/91 Willat, Boyd 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments commencing 01/01/97(1) (1) The Warrant also contains the following provision with respect to the right to exercise the Warrant: "Notwithstanding the foregoing, if [the Holder] shall cease to be a director of the Company for any reason or no reason ("Termination"), whether such Termination is permanent or temporary, then after the effective date of such Termination and through the end of the Warrant Term the Holder may exercise the Warrant to purchase only such number of Shares that the Holder would have been entitled to purchase on the effective date of such Termination in accordance with the foregoing. To the extent that the Holder shall not have been entitled to exercise any portion of the Warrant on the effective date of such Termination, such portion shall be deemed to have expired unexercised on such effective date." (2) The original warrant covered 25,000 shares and has been exercised with respect to 20,267 of such shares. (3) The subject warrant was assigned to Mr. Rachlin by Jill Tate Higgins on March 12, 1991.
EX-99 5 FORM OF WARRANT AND SCHEDULE OF WARRANTS Exhibit 10.13 WARRANT TO PURCHASE COMMON STOCK OF DAY RUNNER, INC. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. Warrant to Purchase ____________ Shares of Common Stock DAY RUNNER, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE Void after August 19, 2007 THE WARRANT evidenced by this Certificate has been issued for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. THIS CERTIFICATE evidences the right of ____________________ (the "Holder") to purchase ____________ shares of Common Stock, par value $0.001 per share (the "Shares"), of Day Runner, Inc., a Delaware corporation (the "Company"), at a price of $33.75 per Share, subject, however, to the terms and conditions hereinafter set forth. 1. Definitions. As used in this Certificate: (a) "Warrant" shall mean the rights evidenced by this Certificate. (b) "Warrant Price" shall mean $33.75, as adjusted in accordance with Section 5 hereof. 2. Term of Warrant. The Warrant may be exercised only during the period commencing on August 19, 1997 through the close of business on August 19, 2007 (the "Warrant Term") and may be exercised only in accordance with the terms and conditions hereinafter set forth. 3. Exercise of Warrant. The Warrant shall be exercisable as follows: (a) Right to Exercise. The Warrant shall immediately vest and become exercisable in full. (b) Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange. The Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Certificate, properly endorsed, with the form of subscription attached to this Certificate duly executed by the Holder, at the principal office of the Company, and by the payment to the Company by certified or cashier's check of the then applicable Warrant Price. In the event of any exercise of the Warrant, certificates for the Shares so purchased shall be delivered to the Holder within a reasonable time after the Warrant has been so exercised and, unless the Warrant has expired, a new certificate representing the right to purchase the number of Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such time. All such new certificates shall be dated the date hereof and shall be identical to this Certificate except as to the number of Shares issuable pursuant thereto. (c) Restrictions on Exercise. The Warrant may not be exercised if the issuance of the Shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. As a condition to the exercise of the Warrant, the Company may require the Holder to make such representations and warranties to the Company as may be required by applicable law or regulation. 4. Shares Fully Paid; Reservation of Shares. The Company covenants and agrees that all Shares will, upon issuance and payment in accordance herewith, be fully paid, validly issued and nonassessable. The Company further covenants and agrees that during the Warrant Term the Company will at all times have authorized and reserved for the purpose of issue upon exercise of the Warrant at least the maximum number of Shares as are issuable upon the exercise of the Warrant. 5. Adjustment of Purchase Price and Number of Shares. The number and kind of securities purchasable upon the exercise of the Warrant and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) Consolidation, Merger or Reclassification. If the Company at any time while the Warrant remains outstanding and unexpired shall consolidate with or merge into any other corporation, or sell all or substantially all of its assets to another corporation, or reclassify or in any manner change the securities then purchasable upon the exercise of the Warrant (any of which shall constitute a "Reorganization"), then lawful and adequate provision shall be made whereby this Certificate shall thereafter evidence the right to purchase such number and kind of securities and other property as would have been issuable or distributable on account of such Reorganization upon or with respect to the securities which were purchasable or would have become purchasable under the Warrant immediately prior to such Reorganization. The Company shall not effect any such Reorganization unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such Reorganization shall assume by written instrument executed and mailed or delivered to the Holder, at the last address of the Holder appearing on the books of the Company, the obligation to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase. Notwithstanding anything in this Section 5(a) to the contrary, the prior two sentences shall be inoperative and of no force and effect if upon the completion of any such Reorganization the stockholders of the Company immediately prior to such event do not own at least 50% of the equity interest of the corporation resulting from such Reorganization, in which case the Warrant or any unexercised portion thereof shall expire upon the completion of such Reorganization if the notice required by Section 5(e) hereof has been duly given. (b) Subdivision or Combination of Shares. If the Company at any time while the Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the Warrant Price shall be adjusted to that price determined by multiplying the Warrant Price in effect immediately prior to such subdivision or combination by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such subdivision or combination and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such subdivision or combination. (c) Certain Dividends and Distributions. If the Company at any time while the Warrant is outstanding and unexpired shall take a record of the holders of its Common Stock for the purpose of: (i) Stock Dividends. Entitling them to receive a dividend payable in, or other distribution without consideration of, Common Stock, then the Warrant Price shall be adjusted to that price determined by multiplying the Warrant Price in effect immediately prior to each dividend or distribution by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution; or (ii) Distribution of Assets, Securities, etc. Making any distribution without consideration with respect to its Common Stock (other than a cash dividend) payable other than in its Common Stock, the Holder shall, upon the exercise hereof, be entitled to receive, in addition to the number of Shares receivable upon such exercise, and without payment of any additional consideration therefor, such assets or securities as would have been payable to the Holder as owner of that number of Shares receivable by exercise of the Warrant had the Holder been the holder of record of such Shares on the record date for such distribution, and an appropriate provision therefor shall be made a part of any such distribution. (d) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price pursuant to Subsections (b) or (c)(i) of this Section 5, the number of Shares purchasable hereunder shall be adjusted to that number determined by multiplying the number of Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately following such adjustment. (e) Notice. In case at any time during the Warrant Term: (i) The Company shall pay any dividend payable in stock upon its Common Stock or make any distribution, excluding a cash dividend, to the holders of its Common Stock; (ii) The Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (iii) There shall be any reclassification of the Common Stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (iv) There shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to the Holder at least ten days' prior written notice (or, in the event of notice pursuant to Section 5(e)(iii), at least 30 days' prior written notice) of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect to any such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up. Such notice shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Each such written notice shall be given personally or by first-class, registered or certified mail or similar delivery service, postage prepaid, addressed to the Holder at the address of the Holder as shown on the books of the Company. (f) No Change in Certificate. The form of this Certificate need not be changed because of any adjustment in the Warrant Price or in the number of Shares purchasable upon exercise of any or all of the Warrant. The Warrant Price or the number of Shares shall be considered to have been so changed as of the close of business on the date of adjustment. 6. Fractional Shares. No fractional Shares will be issued in connection with any exercise of the Warrant, rather, in lieu of such fractional Shares, the Company shall make a cash payment therefor upon the basis of the fair market value of the Shares at the time of such exercise, as determined in good faith by the Company's Board of Directors. 7. Nontransferability of Warrant. The Warrant may not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined by the Internal Revenue Code of 1986, as amended, or the rules thereunder, and may be exercised during the lifetime of the Holder only by the Holder. Subject to the foregoing, the terms of the Warrant shall be binding upon the executors, administrators, heirs, successors and assigns of the Holder. 8. No Rights as Stockholder. The holder of the Warrant, as such, shall not be entitled to vote or receive dividends or be considered a stockholder of the Company for any purpose, nor shall anything in the Warrant be construed to confer on such holder, as such, any rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action, to receive notice of meetings of stockholders, to receive dividends or subscription rights or otherwise. 9. Miscellaneous Provisions. (a) Replacement. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the Warrant and, in the case of loss, theft or destruction, on delivery of any indemnity agreement or bond reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of the Warrant, the Company at its expense will execute and deliver, in lieu of the Warrant, a new Warrant of like tenor. (b) Governing Law. The Warrant shall be governed by and construed and enforced in accordance with the internal laws, and not the laws pertaining to choice or conflicts of laws, of the State of Delaware. Dated as of August 19, 1997. DAY RUNNER, INC. By: /s/ Mark A. Vidovich --------------------------------- Mark A. Vidovich, Chief Executive Officer ATTEST: /s/ Dennis K. Marquardt --------------------------- Dennis K. Marquardt, Secretary DAY RUNNER, INC. SUBSCRIPTION FORM (To be completed and signed only upon exercise of the Warrant) TO: Day Runner, Inc. 15295 Alton Parkway Irvine, CA 92718 Attention: Secretary The undersigned, the holder of the attached Warrant, hereby irrevocably elects to exercise the right of purchase represented by such Warrant for, and to purchase thereunder, _______* shares of Day Runner, Inc. Common Stock and herewith makes payment of $___________ for those shares, and requests that the certificate(s) for those shares be issued in the name of and delivered to: (Please print name and address) ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- Dated: Signature Print Name SCHEDULE OF WARRANTHOLDERS No. of Shares Name of Officer Subject to Warrant - --------------- ------------------ Mark Vidovich .................................................. 15,000 Dennis Marquardt ............................................... 15,000 Dennis Baglama ................................................. 15,000 Ron Bianco ..................................................... 15,000 Stan Littley ................................................... 15,000 Judy Tucker .................................................... 15,000 John Kirkland .................................................. 5,000 ------ TOTAL ...................... 95,000 ====== - -------- * Insert here the number of shares called for on the face of the Warrant (or in the case of partial exercise, that portion as to which the Warrant is being exercised), without making any adjustment for additional Common Stock or any other securities or property which, under the adjustment provisions of the Warrant, may be deliverable upon exercise. EX-11 6 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
DAY RUNNER, INC. EXHIBIT 11.1 DAY RUNNER, INC. COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES Years Ended June 30, --------------------------------------------------- 1997 1996 1995 --------------------------------------------------- Net Income $ 12,548,000 $ 11,818,000 $ 7,978,000 --------------------------------------------------- PRIMARY: Weighted average shares outstanding 6,216,000 6,234,000 6,088,000 Additional shares from assumed exercise of options and warrants 1,379,000 1,147,000 939,000 Shares assumed to be repurchased under the treasury stock method (825,000) (596,000) (534,000) NQ tax benefit (179,000) (183,000) (119,000) --------------------------------------------------- Total 6,591,000 6,602,000 6,374,000 --------------------------------------------------- FULLY DILUTED: Weighted average shares outstanding 6,216,000 6,234,000 6,088,000 Additional shares from assumed exercise of options and warrants 1,379,000 1,147,000 953,000 Shares assumed to be repurchased under the treasury stock method (669,000) (543,000) (527,000) NQ tax benefit (240,000) (201,000) (128,000) --------------------------------------------------- Total 6,686,000 6,637,000 6,386,000 --------------------------------------------------- EARNINGS PER SHARE: Primary $ 1.90 $ 1.79 $ 1.25 --------------------------------------------------- Fully diluted $ 1.88 $ 1.78 $ 1.25 ---------------------------------------------------
EX-23 7 CONSENT OF DELOITTE & TOUCHE DAY RUNNER, INC. EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement Nos. 33-46969 and 33-53422 of Day Runner, Inc. on Form S-8, in Registration Statement No. 33-670792 of Day Runner, Inc. on form S-8, in Post- Effective Amendment No. 1 to Registration Statement No. 33-61186 of Day Runner, Inc. on Form S-3, and in Registration Statement Nos. 33-84036, 80819, 333-20247 and 333-34887 of Day Runner, Inc. on Form S-8 of our reports dated August 15, 1997 appearing in the Annual Report on Form 10-K of Day Runner, Inc. for the year ended June 30, 1997. DELOITTE & TOUCHE LLP /s/ DELOITTE & TOUCHE LLP Long Beach, California September 26, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheet and the consolidated statement of income filed as part of the annual report on Form 10-K and is qualified in its entirety by reference to such annual report on Form 10-K. 0000853102 Day Runner, Inc. 1000 Year Jun-30-1997 Jun-30-1997 15,550 0 30,967 8,664 23,406 70,054 18,231 9,543 78,880 19,344 0 0 0 6 59,478 78,880 127,376 127,376 60,452 60,452 47,575 0 (1,301) 20,650 8,102 12,548 0 0 0 12,548 1.90 1.90
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