-----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, Pu4cWag44GjD6+PpW2/iPrjePsj7UJ2e5Pnkr/WkHKJkWfTd18nHcUWrLu3fEnmI ZlzqgfgGBBnzyFACMt2ESQ== 0000950150-01-500509.txt : 20010814 0000950150-01-500509.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950150-01-500509 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010813 GROUP MEMBERS: DAY HOLDINGS LLC GROUP MEMBERS: KAYSUN HOLDINGS LLC GROUP MEMBERS: OSMOND ACQUISITION COMPANY LLC FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KAYSUN INC CENTRAL INDEX KEY: 0001157267 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 1800 AVENUE OF THE STARS CITY: NEW YORK STATE: NY ZIP: 90067 MAIL ADDRESS: STREET 1: 1800 AVENUE OF THE STARS CITY: LOS ANGELES STATE: CA ZIP: 90067 SUBJECT COMPANY: 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: SC 13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-45607 FILM NUMBER: 1706435 BUSINESS ADDRESS: STREET 1: 2750 W. MOORE AVENUE CITY: FULLERTON STATE: CA ZIP: 92833 BUSINESS PHONE: 7146803500 MAIL ADDRESS: STREET 1: 15295 ALTON PARKWAY CITY: IRVINE STATE: CA ZIP: 92718 SC 13E3 1 a74727sc13e3.txt SCHEDULE 13E-3 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Schedule 13E-3 Transaction Statement under Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 Thereunder Day Runner, Inc. (Name of Issuer) KAYSUN Inc. KAYSUN Holdings LLC Day Holdings LLC Osmond Acquisition Company LLC (Name of Person(s) Filing Statement) Common Stock, Par Value $0.001 Per Share (Title of Class of Securities) 23945205 (Cusip Number of Class of Securities) David J. Shladovsky Lawrence S. Coben Day Holdings LLC Osmond Acquisition Company LLC 1800 Avenue of the Stars 685 Third Avenue Los Angeles, California 90067 New York, New York 10017 310-284-6438 212-582-3015 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) with Copies to: Howard F. Hart Jay M. Goffman Hughes Hubbard & Reed LLP Skadden, Arps, Slate, Meagher & Flom LLP 350 South Grand Avenue Four Times Square Los Angeles, California 90071-3442 New York, New York 10036 213-613-2800 212-735-3000 2 NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE MERITS OR THE FAIRNESS OF THE TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This statement is filed in connection with (check the appropriate box): a. [ ] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [ ] The filing of a registration statement under the Securities Act of 1933. c. [ ] A tender offer. d. [x] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. [ ] Check the following box if this is a final amendment reporting the results of the transaction. [ ] Calculation of Filing Fee
Transaction Valuation* Amount of Filing Fee - ---------------------- --------------------- $ 240,879.60 $ 48.18
............... * Calculated, for the purposes of determining the filing fee only, in accordance with Rule 0-11(b)(2) under the Securities Exchange Act of 1934, as amended. Assumes the purchase of 2,408,796 shares of Common Stock, par value $0.001 per share, of Day Runner, Inc. at $0.10 per share. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount previously paid: N/A Form or registration no.: N/A Filing party: N/A Date filed: N/A 3 SUMMARY TERM SHEET This summary and the remainder of this Transaction Statement on Schedule 13E-3 include information describing the "going private" merger involving Day Runner, Inc., referred to herein as Day Runner, how it affects you, what your rights are with respect to the merger as a stockholder of Day Runner and the position of KAYSUN, Inc., KAYSUN Holdings LLC, Day Holdings LLC, and Osmond Acquisition Company LLC on the fairness of the merger to the unaffiliated stockholders of Day Runner (that is, the stockholders other than KAYSUN Holdings LLC and its affiliates). PURPOSE OF THE MERGER (PAGE 10). - - KAYSUN Inc., a Delaware corporation and a wholly-owned subsidiary of KAYSUN Holdings, will own approximately 90.6% (or more, if shares are separately purchased) of the outstanding shares of Day Runner common stock immediately following conversion by KAYSUN Holdings of approximately $27 million principal amount of Day Runner senior secured convertible debt, which the owners of KAYSUN Holdings acquired from unaffiliated lenders in a series of transactions between August 7, 2000 and June 1, 2001 and then assigned to KAYSUN Holdings on August 8, 2001. KAYSUN Holdings is a Delaware limited liability company, the equity interests of which are held 50% by Day Holdings and 50% by Osmond Acquisition Company, KAYSUN Holdings is now proposing to cause KAYSUN Inc. to merge with Day Runner as a means of acquiring all of the other shares of Day Runner common stock and to provide a source of liquidity to holders of those shares. PRINCIPAL TERMS OF THE MERGER. - - THE MERGER (PAGE 24). KAYSUN Holdings holds senior secured convertible debt of Day Runner which is currently convertible into a maximum of 23,200,000 shares of Day Runner common stock, or approximately 90.6% of the outstanding common stock of Day Runner after conversion. KAYSUN Holdings intends to convert that debt into the maximum number of shares of Day Runner common stock. It then intends to contribute those shares to KAYSUN Inc. and to cause KAYSUN Inc. to merge into Day Runner on September 14, 2001 (or as soon thereafter as possible) pursuant to a "short-form" merger. As a result of the "short-form" merger, each share of Day Runner common stock not owned by KAYSUN Inc. will be converted into the right to receive $0.10 in cash. Day Runner will not be required to enter into a merger agreement with KAYSUN Inc., and KAYSUN Inc. does not intend to seek the approval of the directors of Day Runner for the merger. Stockholders of Day Runner will not be entitled to vote their shares with respect to the merger. - - MERGER CONSIDERATION (PAGE 8). The consideration in the merger will be $0.10 per share in cash. - - DAY RUNNER SHARES OUTSTANDING; OWNERSHIP BY KAYSUN HOLDINGS LLC AND KAYSUN INC. (PAGES 8 AND 19). As of July 31, 2001, a total of 2,408,796 shares of Day Runner common stock were outstanding. In addition, as of July 31, 2001, options and warrants to purchase an additional 462,583 shares of Day Runner common stock were outstanding. However, each of the options and warrants is exercisable at a price -3- 4 well in excess of $0.10 per share. As of July 31, 2001, a total of 23,200,000 shares of Day Runner common stock were issuable upon the exercise of conversion rights under $26,680,000 principal amount of Day Runner's outstanding senior secured convertible debt, all of which is held by KAYSUN Holdings. Accordingly, KAYSUN Holdings has the right to acquire up to 23,200,000 shares of Day Runner common stock, or approximately 90.6% of the outstanding shares of Day Runner common stock that would have been outstanding as of July 31, 2001 if the debt had been converted on that date. - - PAYMENT FOR SHARES (PAGE 24). We will pay you for your shares of Day Runner common stock promptly after the effective date of the merger. Instructions for surrendering your stock certificates will be set forth in a Notice of Merger and Appraisal Rights and a Letter of Transmittal, which will be mailed to stockholders of record of Day Runner within 10 calendar days following the date the merger becomes effective and should be read carefully. Please do not submit your stock certificates before you have received these documents. Sending us your stock certificates with a properly signed Letter of Transmittal will waive your appraisal rights described below. See Item 4, "Terms of the Transaction," in this Schedule 13E-3. - - OTHER POSSIBLE PURCHASES OF DAY RUNNER COMMON STOCK (PAGE 9). If, before the merger is effective, the aggregate ownership by KAYSUN Holdings and KAYSUN Inc. of the outstanding shares of Day Runner common stock should fall below 90% because of the exercise of outstanding options or for any other reason, KAYSUN Inc. intends to acquire additional shares of Day Runner common stock on the open market or in privately negotiated transactions to the extent required for the aggregate ownership of Day Runner common stock by KAYSUN Holdings and KAYSUN Inc. to equal or exceed 90%. These purchases would be made at market prices or privately negotiated prices at the time of purchase, which may be higher or lower than the $0.10 per share price offered in the merger. An aggregate of 358,723 shares of Day Runner common stock are held by two individual members of Day Holdings, with whom KAYSUN Holdings has an informal understanding that it may acquire such shares at a price not to exceed $0.10 per share. Their shares represent approximately 1.4% of the Day Runner shares outstanding assuming conversion of the convertible debt as described above. - - SOURCE AND AMOUNT OF FUNDS (PAGE 33). The total amount of funds expected to be required by KAYSUN Inc. to pay the merger consideration for Day Runner common stock in the merger, and to pay related fees and expenses, is estimated to be approximately $350,000, assuming no outstanding options or warrants to acquire Day Runner common stock are exercised prior to the merger. KAYSUN Holdings will obtain the funds from Day Holdings and Osmond Acquisition as a capital contribution. THE FILING PERSONS' POSITION ON THE FAIRNESS OF THE MERGER (PAGE 13). The Filing Persons have concluded that the merger is both substantively and procedurally fair to the unaffiliated stockholders of Day Runner, based primarily on the following factors: - - Day Runner has defaulted on its obligations under approximately $65.1 million of senior secured debt held by KAYSUN Holdings, which debt is secured by substantially all of -4- 5 the assets of Day Runner, entitling KAYSUN Holdings to foreclose on all of such Day Runner assets, in which event Day Runner would have no material net assets and the Day Runner common stock would have no value; - - in light of Day Runner's current financial condition, the Filing Persons believe the merger to be the only viable alternative to causing Day Runner to file for reorganization relief under Chapter 11 of the United States Bankruptcy Code and to propose and confirm a reorganization plan pursuant to which the outstanding shares of Day Runner common stock could be cancelled for no consideration and KAYSUN Holdings would receive 100% of the equity of Day Runner; - - although the Filing Persons could have caused KAYSUN Holdings to foreclose on Day Runner's assets or caused Day Runner to file for reorganization relief, the Filing Persons chose instead to cause the merger because they believe that the merger will be less disruptive to Day Runner's business, less distracting to management, and more favorable to the unaffiliated stockholders; - - the Filing Persons believe that the amount of Day Runner's total liabilities far exceed the fair market value of Day Runner's assets, as supported by the fact that unaffiliated lenders, each a sophisticated financial institution, sold approximately $57.4 million principal amount of outstanding senior secured debt of Day Runner on a negotiated, arms length basis to Day Holdings and Osmond Acquisition in May and June of 2001 for approximately $12.1 million (or 21.1% of its principal amount). The Filing Persons believe that these transactions involving the purchase of Day Runner's debt provide the most recent and relevant fair market valuation indications for the entire company. As of July 31, 2001, any transaction or valuation of Day Runner would have to provide for at least approximately $65.1 million of value to KAYSUN Holdings because of their 100% ownership of the senior secured debt of Day Runner and also satisfy approximately $13.4 million of other liabilities of Day Runner as of March 31, 2001 before any value would be available to the common shareholders of Day Runner; - - based on the most recently available audited and unaudited balance sheets of Day Runner, each share of Day Runner's common stock has a negative book value; - - the merger represents an opportunity for the unaffiliated stockholders of Day Runner to realize cash for their shares, which would otherwise be extremely difficult or impossible given the illiquidity of the market for shares of Day Runner common stock; - - the merger will provide consideration to the Company's unaffiliated stockholders entirely in cash and is not subject to any financing condition; - - the unaffiliated stockholders of Day Runner are entitled to exercise appraisal rights and demand "fair value" for their shares as determined by the Delaware Court of Chancery, which may be determined to be more or less than the cash consideration offered in the merger; -5- 6 - - the likely inability of Day Runner to be able to continue to operate as a going concern, given general economic, business and industry conditions, the historical financial performance of Day Runner and Day Runner's inability to satisfy its debt obligations; and - - to the knowledge of the Filing Persons, there have been no firm offers for the acquisition or control of Day Runner or its assets during the last two years; however, the Filing Persons are aware of a non-binding letter of intent and an expression of interest provided by two different parties within the last six months to acquire the assets of Day Runner from Day Runner's lenders at prices that were significantly below the face value of the senior secured debt of Day Runner and also below the price paid for such debt by Day Holdings and Osmond Acquisition in May and June of 2001. See "Special Factors -- Fairness of the Merger - Factors Considered in Determining Fairness." - - POTENTIAL CONFLICTS OF INTEREST. KAYSUN Holdings may be deemed to be in control of Day Runner because it has the right to acquire approximately 90.6% of Day Runner's common stock upon conversion of a portion of its Day Runner debt. Each of Day Holdings and Osmond Acquisition Company has a 50% ownership interest in KAYSUN Holdings. Mark Majeske, the chief executive officer of Day Runner is a member of Day Holdings and was appointed to his position at Day Runner after having been introduced to Day Runner as a consultant by one of the members of KAYSUN Holdings. Accordingly, there are various actual or potential conflicts of interest in connection with the merger. CONSEQUENCES OF THE MERGER (PAGE 12). Completion of the merger will have the following consequences: - - Day Runner will be a privately held corporation, with KAYSUN Holdings owning 100% of the equity interest in Day Runner and its business. - - Only the Filing Persons will have the opportunity to participate in the future earnings and growth, if any, of Day Runner. Similarly, only the Filing Persons will face the risk of losses generated by Day Runner's operations or the decline in value of Day Runner after the merger. - - The shares of Day Runner common stock will no longer be publicly traded. In addition, Day Runner will no longer be subject to the reporting and other disclosure requirements of the Securities Exchange Act of 1934, including requirements to file annual and other periodic reports or to provide the type of going-private disclosure contained in this Schedule 13E-3. - - Subject to the exercise of statutory appraisal rights, each of your shares will be converted into the right to receive $0.10 in cash, without interest. -6- 7 APPRAISAL RIGHTS (PAGE 25). - - You have a statutory right to dissent from the merger and demand payment of the fair value of your Day Runner shares as determined in a judicial appraisal proceeding in accordance with Section 262 of the Delaware General Corporation Law, plus a fair rate of interest, if any, from the date of the merger. This value may be more or less than the $0.10 per share in cash consideration offered in the merger. In order to qualify for these rights, you must make a written demand for appraisal within 20 days after the date of mailing of the Notice of Merger and Appraisal Rights and otherwise comply with the procedures for exercising appraisal rights set forth in the Delaware General Corporation Law. The statutory right of dissent is set out in Section 262 of the Delaware General Corporation Law and is complicated. Any failure to comply with its terms will result in an irrevocable loss of such right. Stockholders seeking to exercise their statutory right of dissent are encouraged to seek advice from legal counsel. See Item 4(d), "Terms of the Transaction - Appraisal Rights," in this Schedule 13E-3. FOR MORE INFORMATION (PAGE 19). - - More information regarding Day Runner is available from its public filings with the Securities and Exchange Commission. See Item 2, "Subject Company Information," and Item 3, "Identity and Background of Filing Persons," in this Schedule 13E-3. - - If you have any questions about the merger, please contact David J. Shladovsky at 310-284-6438. -7- 8 INTRODUCTION This Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") is being filed by (i) KAYSUN Holdings LLC, a Delaware limited liability company ("KAYSUN Holdings"), (ii) KAYSUN Inc., a Delaware corporation and a wholly-owned subsidiary of KAYSUN Holdings ("KAYSUN Inc."), (iii) Day Holdings LLC, a Delaware limited liability company ("Day Holdings"), and (iv) Osmond Acquisition Company LLC, a Delaware limited liability company ("Osmond Acquisition" and, together with KAYSUN Holdings, KAYSUN Inc., and Day Holdings, the "Filing Persons"), pursuant to Section 13(e) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 13e-3 thereunder. Day Holdings and Osmond Acquisition each hold fifty percent (50%) of the membership interests of Kaysun Holdings. This Schedule 13E-3 is being filed in connection with a short-form merger (the "Merger") of KAYSUN Inc. with and into Day Runner, Inc., a Delaware corporation (the "Company" or "Day Runner"), pursuant to Section 253 of the Delaware General Corporation Law ("DGCL"). The effective date (the "Effective Date") of the Merger is expected to be September 14, 2001 or as soon thereafter as possible. As of July 31, 2001, there were issued and outstanding 2,408,796 shares of common stock, $0.001 par value per share (the "Shares"), of the Company. As of July 31, 2001, KAYSUN Holdings held approximately $29 million principal amount of the senior secured convertible debt (the "Convertible Debt") of the Company (not including approximately $750,000 in accrued but unpaid interest on such Convertible Debt which may be paid in kind at the Company's election and added to principal). KAYSUN Holdings intends to convert $26,680,000 principal amount of the Convertible Debt into 23,200,000 Shares, or approximately 90.6% of the total Shares outstanding after conversion, and to contribute such Shares to KAYSUN Inc. immediately before the Effective Date. On the Effective Date, KAYSUN Holdings intends to acquire through the Merger the Shares that KAYSUN Inc. does not then own. Upon the consummation of the Merger, each outstanding Share will be cancelled and each outstanding Share not held by KAYSUN Inc., the Company and stockholders of the Company who properly exercise statutory appraisal rights under the DGCL, will be automatically converted into the right to receive $0.10 per Share in cash (the "Merger Price"), without interest, upon surrender of the certificate for such Share to U.S. Stock Transfer Corporation (the "Paying Agent"). Instructions with regard to the surrender of stock certificates, together with a description of statutory appraisal rights, will be set forth in a Notice of Merger and Appraisal Rights and a Letter of Transmittal, which documents will be mailed to stockholders of record of the Company on the Effective Date and should be read carefully. Under the DGCL, no action is required by the Board of Directors or the stockholders of the Company, other than KAYSUN Inc., for the Merger to become effective. The Company will be the surviving corporation in the Merger. As a result of the Merger, KAYSUN Holdings will be the only stockholder of the Company. As of July 31, 2001, options to purchase a total of 338,485 Shares (the "Options") were outstanding under the Company's 1986 Stock Option Plan, 1995 Stock Option Plan and Non-Employee Director Stock Option Plan, and warrants (the "Warrants") to purchase a total of -8- 9 124,098 shares were also outstanding. The exercise prices of the outstanding Options and Warrants range from $0.42 to $110.63. Although unlikely, it is possible that some of the Options or Warrants will be exercised before the Effective Date. If, before the Effective Date, the aggregate ownership by KAYSUN Holdings and KAYSUN Inc. of the outstanding Shares should fall below 90% because of the exercise of outstanding options or for any other reason, KAYSUN Inc. intends to acquire additional Shares on the open market or in privately negotiated transactions to the extent required for the aggregate ownership of Day Runner common stock by KAYSUN Holdings and KAYSUN Inc. to equal or exceed 90%. These purchases would be made at market prices or privately negotiated prices at the time of purchase, which may be higher or lower than the Merger Price. An aggregate of 358,723 Shares are held by two individual members of Day Holdings, with whom KAYSUN Holdings has an informal understanding that it may acquire such Shares at a price not to exceed $0.10 per share. Their shares represent approximately 1.4% of the outstanding Shares, assuming conversion of the Convertible Debt as described above. This Schedule 13E-3 and the documents incorporated by reference in this Schedule 13E-3 include certain forward-looking statements. These statements appear throughout this Schedule 13E-3 and include statements regarding the intent, belief or current expectations of the Filing Persons, including statements concerning the Filing Persons' strategies following completion of the Merger. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. -9- 10 SPECIAL FACTORS PURPOSES, ALTERNATIVES, REASONS AND EFFECTS OF THE MERGER PURPOSES KAYSUN Inc. will own approximately 90.6% (or more, if shares are separately purchased) of the outstanding Shares upon conversion by KAYSUN Holdings of $26,680,000 principal amount of the Company's senior secured convertible debt and the contribution of such Shares to KAYSUN Inc. The owners of KAYSUN Holdings acquired all of the Company's senior secured debt (the "Debt") in a series of transactions between August 7, 2000 and June 1, 2001, and assigned the Debt to KAYSUN Holdings on August 8, 2001. The principal amount of the Company's Debt (including unpaid accrued interest which may be paid in kind at the Company's election and added to principal) is currently approximately $65.1 million. After conversion, there will remain approximately $38.4 million of Debt held by KAYSUN Holdings. The purpose of the Merger is to enable KAYSUN Holdings to acquire all of the outstanding equity interest in the Company and to provide a source of liquidity to the stockholders of the Company other than KAYSUN Inc. and the Company (the "Public Stockholders"). ALTERNATIVES The Filing Persons believe that effecting the transaction by way of a short-form merger with KAYSUN Inc. under Section 253 of the DGCL is the quickest and most cost-effective way for KAYSUN Holdings to acquire the outstanding public minority equity interest in the Company and to provide value and liquidity to the Public Stockholders. The Filing Persons considered and rejected the alternative of causing the Company to file a petition for relief under Chapter 11 of the United States Bankruptcy Code and propose a plan of reorganization because of its potential adverse impact on the business of the Company and the cost, delay and uncertainty associated with bankruptcy proceedings. Similarly, the Filing Persons considered and rejected the foreclosing of the Company's assets because of its potential adverse impact on the business of the Company and the cost, delay and uncertainty associated with foreclosure. The Filing Persons did not consider a long-form merger to be a viable alternative because the approvals of the Company's Board of Directors and of the Public Stockholders would be required under applicable law and would unnecessarily cause delay and cause Day Runner to incur additional costs and expenses associated with such a process. Similarly, the Filing Persons did not consider a tender offer to be a viable alternative as it would entail additional costs, and a subsequent short-form merger could still be required. REASONS In determining whether to acquire the outstanding public minority equity interest in the Company and to effect the Merger, the Filing Persons considered the following factors to be the principal benefits of taking the Company private: - - the reduction in the amount of public information available to competitors about the Company's businesses that would result from the termination of the -10- 11 Company's obligations under the reporting requirements of the Securities and Exchange Commission (the "Commission"); - - the elimination of additional burdens on management associated with public reporting and other tasks resulting from the Company's public company status, including, for example, the dedication of time by and resources of the Company's management and Board of Directors to stockholder and analyst inquiries and investor and public relations; - - the decrease in costs, particularly those associated with being a public company (for example, as a privately-held entity, the Company would no longer be required to file quarterly, annual or other periodic reports with the Commission or publish and distribute to its stockholders annual reports and proxy statements), that the Filing Persons anticipate could result in savings of approximately $500,000 per year, including audit and legal fees; - - the greater flexibility that the Company's management would have to focus on long-term business goals, as opposed to quarterly earnings, as a non-reporting company, particularly in light of the potential volatility in the Company's quarterly earnings; and - - recent public capital market trends affecting small-cap companies, including perceived lack of interest by institutional investors in companies with a limited public float. The Filing Persons also considered the advantages and disadvantages of certain alternatives to acquiring the minority stockholder interest in the Company, including leaving the Company as a majority-owned, public subsidiary. In the view of the Filing Persons, the principal advantage of leaving the Company as a majority-owned, public subsidiary would be the ability of the Filing Persons to invest for other purposes the cash that would otherwise be required to buy the minority stockholder interest in the Company. The disadvantages of leaving the Company as a majority-owned, public subsidiary which were considered by the Filing Persons included the inability to achieve many of the benefits discussed above. The Filing Persons concluded that the advantages of leaving the Company as a majority-owned, public subsidiary were significantly outweighed by the disadvantages of doing so, and accordingly that alternative was rejected. The Filing Persons also considered the low volume of trading in the Shares and considered that the Merger would result in immediate, enhanced liquidity for the Public Stockholders. In addition, the Filing Persons considered trends in the price of the Shares in the past twelve months. The Filing Persons have determined to effect the Merger at this time because they wish to immediately realize the benefits of taking the Company private, as discussed above. The Company's stock price was not a significant factor in the timing of the Filing Persons' decision to propose the Merger. -11- 12 This Rule 13e-3 transaction is structured as a short-form merger under Section 253 of the DGCL. This form of merger allows the Public Stockholders to receive cash for their Shares quickly and allows the Company to become a wholly-owned subsidiary of KAYSUN Holdings without any action by the Board of Directors of the Company or the Public Stockholders. EFFECTS General. Upon completion of the Merger, the Filing Persons will have complete control over the conduct of the Company's business and will have a 100% interest in the net assets, the net book value and the net earnings of the Company. In addition, the Filing Persons will receive the benefit of the right to participate in any future increases in the value of the Company and will bear the complete risk of any losses incurred in the operation of the Company and any decrease in the value of the Company. The Filing Persons' beneficial ownership of the Company immediately prior to the Merger in the aggregate will amount to approximately 90.6%. Upon completion of the Merger, the Filing Persons' interest in the Company's negative book value ($9.5 million on June 30, 2000, assuming conversion of the Convertible Debt) and net loss ($104.8 million for the fiscal year ended June 30, 2000, assuming conversion of the Convertible Debt) will increase from approximately 90.6% to 100% of those amounts. Stockholders. Upon completion of the Merger, the Public Stockholders will no longer have any interest in, and will not be stockholders of, the Company and therefore will not participate in the Company's future earnings and potential growth and will no longer bear the risk of any decreases in the value of the Company. In addition, the Public Stockholders will not share in any distribution of proceeds after any sales of businesses of the Company, whether contemplated at the time of the Merger or thereafter. See Item 6(c), "Purposes of the Transaction and Plans or Proposals - Plans." All of the Public Stockholders' other incidents of stock ownership, such as the rights to vote on certain corporate decisions, to elect directors, to receive distributions upon the liquidation of the Company and to receive appraisal rights upon certain mergers or consolidations of the Company (unless such appraisal rights are perfected in connection with the Merger), as well as the benefit of potential increases in the value of a Public Stockholder's holdings in the Company based on any improvements in the Company's future performance, will be extinguished upon completion of the Merger. Upon completion of the Merger, the Public Stockholders also will not bear the risks of potential decreases in the value of their holdings in the Company based on any downturns in the Company's future performance. Instead, the Public Stockholders will have liquidity, in the form of the Merger Price, in place of an ongoing equity interest in the Company, in the form of the Shares. In summary, if the Merger is completed, the Public Stockholders will have no ongoing rights as stockholders of the Company (other than statutory appraisal rights in the case of Public Stockholders who are entitled to and perfect such rights under Delaware law). The Shares. Once the Merger is consummated, public trading of the Shares will cease. The Filing Persons intend to deregister the Shares under the Exchange Act. As a result, the Company will no longer be required under the federal securities laws to file reports with the Commission and will no longer be subject to the proxy rules under the Exchange Act. -12- 13 Treatment of Options and Warrants. The Company has outstanding Options and Warrants to purchase 462,583 Shares. On the Effective Date, each outstanding Option and Warrant not yet vested will become immediately exercisable. If an Option or Warrant is exercised prior to the Merger, each share received upon such exercise will become the right to receive the Merger Price. Because the exercise price of the Options and Warrants in each case well exceeds the Merger Price, the Options and Warrants have no apparent value and it is unlikely that they will be exercised. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. The following is a general summary of the material U.S. federal income tax consequences of the Merger to beneficial owners of Shares. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable treasury regulations thereunder, judicial decisions and current administrative rulings as in effect on the date of this Schedule 13E-3. The discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular taxpayers in light of their personal circumstances or to taxpayers subject to special treatment under the Code (for example, life insurance companies, dealers in securities and other taxpayers subject to the mark-to-market rules, foreign persons and beneficial owners whose Shares were acquired pursuant to the exercise of warrants, employee stock options or otherwise as compensation) and does not address any aspect of state, local, foreign or other taxation. The receipt of cash by a stockholder, pursuant to the Merger or pursuant to the exercise of the stockholder's statutory appraisal rights, will be a taxable transaction for U.S. federal income tax purposes and may also be taxable for state and local income tax purposes as well. Accordingly, a stockholder will recognize gain or loss equal to the difference between (i) the amount of cash that such stockholder receives in the Merger and (ii) such stockholder's adjusted tax basis in its Shares. Such gain or loss will be capital gain or loss if the stockholder holds the Shares as a capital asset, and generally will be long-term capital gain or loss if, at the effective date of the Merger, the stockholder has held the Shares for more than one year. The cash payments made to a stockholder pursuant to the Merger will be subject to U.S. federal backup withholding unless the stockholder provides the Paying Agent with his, her or its tax identification number (social security number or employer identification number) and certifies that such number is correct, or unless an exemption from backup withholding applies. EACH BENEFICIAL OWNER OF SHARES IS URGED TO CONSULT SUCH BENEFICIAL OWNER'S TAX ADVISER AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH BENEFICIAL OWNER OF THE MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. FAIRNESS OF THE MERGER POSITION OF THE FILING PERSONS AS TO THE FAIRNESS OF THE MERGER Because KAYSUN Holdings currently beneficially owns a majority of the Shares (since it has the right to acquire such Shares at any time upon conversion of the Convertible Debt), the Filing Persons may be deemed "affiliates" of the Company within the meaning of Rule 12b-2 -13- 14 under the Exchange Act. Accordingly, the rules of the Commission require the Filing Persons, as affiliates of the Company, to express their belief as to the substantive and procedural fairness of the Merger to the Company's unaffiliated stockholders (i.e., the Public Stockholders). Each of the Filing Persons has determined that the Merger is both substantively and procedurally fair to the Public Stockholders. This belief is based on the following factors: - - Day Runner has defaulted on its obligations under approximately $65.1 million of the senior secured debt held by KAYSUN Holdings, which debt is secured by substantially all of the assets of Day Runner, entitling KAYSUN Holdings to foreclose on all of such Day Runner assets in which event Day Runner would have no material net assets and the Day Runner Common Stock would have no value; - - in light of Day Runner's current financial condition, the Filing Persons believe the Merger to be the only viable alternative to causing Day Runner to file for reorganization relief under Chapter 11 of the United States Bankruptcy Code and to propose and confirm a reorganization plan pursuant to which the outstanding shares of Day Runner common stock could be cancelled for no consideration and KAYSUN Holdings would receive 100% of the equity of Day Runner; - - although the Filing Persons could have caused KAYSUN Holdings to foreclose on Day Runner's assets or caused Day Runner to file for reorganization relief, the Filing Persons chose instead to cause the merger because they believe that the merger will be less disruptive to Day Runner's business, less distracting to management, and more favorable to the unaffiliated stockholders; - - the Filing Persons believe that the amount of Day Runner's total liabilities far exceed the fair market value of Day Runner's assets, as supported by the fact that unaffiliated lenders, each a sophisticated financial institution, sold approximately $57.4 million principal amount of Debt on a negotiated, arms-length basis to Day Holdings and Osmond Acquisition in May and June of 2001 for approximately $12.1 million (or 21.1% of its principal amount). The Filing Persons believe that these transactions involving the purchase of Day Runner's Debt provide the most recent and relevant fair market valuation indications for the entire company. As of July 31, 2001, any transaction or valuation of Day Runner would have to provide for at least approximately $65.1 million of value to KAYSUN Holdings because of their 100% ownership of the Debt and also satisfy approximately $13.4 million of other liabilities of Day Runner as of March 31, 2001 before any value would be available to the common shareholders of Day Runner; - - based on the most recently available audited and unaudited balance sheets of Day Runner, each share of Day Runner's common stock has a negative book value; - - the merger represents an opportunity for the unaffiliated stockholders of Day Runner to realize cash for their shares, which would otherwise be extremely difficult or impossible given the illiquidity of the market for shares of Day Runner common stock; -14- 15 - - the merger will provide consideration to the Company's unaffiliated stockholders entirely in cash and is not subject to any financing condition; - - the unaffiliated stockholders of Day Runner are entitled to exercise appraisal rights and demand "fair value" for their shares as determined by the Delaware Court of Chancery, which may be determined to be more or less than the cash consideration offered in the merger; - - the likely inability of Day Runner to be able to continue to operate as a going concern, given general economic, business and industry conditions, the historical financial performance of Day Runner and Day Runner's inability to satisfy its debt obligations; and - - to the knowledge of the Filing Persons, there have been no firm offers for the acquisition or control of Day Runner or its assets during the last two years; however, the Filing Persons are aware of a non-binding letter of intent and an expression of interest provided by two different parties within the last six months to acquire the assets of Day Runner from Day Runner's lenders at prices that were significantly below the face value of the Debt and also below the price paid for the Debt by Day Holdings and Osmond Acquisition in May and June of 2001. In order to evaluate and reach conclusions in connection with the above factors, the Filing Persons conducted various analyses which are described as follows: Insolvency Analysis. The Filing Persons considered the inability of the Company to make scheduled payments of principal and interest on, and generally remain in compliance with respect to agreements governing, its secured indebtedness. Because the Filing Persons are the holders of the Debt, the Filing Persons could elect to cause the Company to file for reorganization under Chapter 11 of the United States Bankruptcy Code and to propose and confirm a reorganization plan pursuant to which, under the Company's current financial condition, as discussed below, the outstanding Shares would be cancelled for no consideration and KAYSUN Holdings would receive 100% of the equity of the Company in exchange for forgiveness of some or all of the Company's secured indebtedness. Foreclosure Analysis. KAYSUN Holdings holds senior debt of the Company that is secured by substantially all of the Company's assets. The Company is currently in default with respect to such indebtedness; accordingly, KAYSUN Holdings could at any time elect to foreclose on the Company's assets to partially satisfy the Company's obligations with respect to the indebtedness. Because the value of the Company's assets is less than the principal amount of the debt, as discussed below, such a foreclosure would leave the Company with no assets with which to conduct any business. If the Company were not able to conduct any business, the Shares would have no value. Book Value Analysis. Based on the Company's (i) audited balance sheet at June 30, 2000 and (ii) unaudited balance sheet at March 30, 2001, the Company had total stockholder deficiencies, or negative book values, of $9.6 million and $32.5 million, at such respective balance sheet dates, resulting in book values -15- 16 per Share, assuming conversion of the Convertible Debt into 23,200,000 Shares and excluding Shares held in treasury and Shares issuable upon exercise options and warrants with respect to which the exercise price exceeds the Merger Price, of -$0.38 and -$1.27, respectively. Fair Value Analysis. The Filing Persons believe that the best independent indication of the fair value of the Company's assets is the price at which the former holders of the Debt, which holders included financial institutions, were willing to sell the Debt to Day Holdings and Osmond Acquisition in May and June 2001. Day Holdings and Osmond Acquisition purchased an aggregate principal amount of $57.4 million of the Debt from such holders for total consideration of approximately $12.1 million. By agreeing to sell such portion of the Debt, which is secured by substantially all of the Company's assets, for approximately 21.1% of the aggregate principal amount thereof, the Company's former secured lenders acted in a manner consistent with a belief that the fair value of the Company's assets is significantly less than the amount of its liabilities. See Item 5(e), "Past Contacts, Transactions, Negotiations and Agreements - Agreements Involving the Subject Company's Securities". Liquidity Analysis. The Merger Price is lower than the price at which Shares have recently traded in the over-the-counter market, but the Filing Persons do not believe that the trading prices reflect the actual value of the Shares or that a significant number of Shares could be sold for such recent trading prices. The Filing Persons believe that the liquidity that will result from the Merger would be beneficial to the Public Stockholders because the Filing Persons' significant ownership of Shares results in a relatively small public float that necessarily limits the amount of trading in the Shares and eliminates the possibility that a proposal to acquire the Shares would be made by an independent entity without the consent of the Filing Persons. The Filing Persons intend to retain their majority holdings in the Company, which forecloses the opportunity to consider an alternative transaction with a third party purchaser of the Company or otherwise provide liquidity to the Public Stockholders. Accordingly, finding a third party buyer for the Company is not a realistic option for the Public Stockholders. None of the Filing Persons has solicited or received an offer for the Company from a third party in the prior two years. The Filing Persons have considered all of the foregoing factors and related analyses as a whole to support their belief that the Merger is substantively and procedurally fair to the Public Stockholders. In addition to the foregoing factors and analyses that support the Filing Persons' belief that the Merger is procedurally and substantively fair to the Public Stockholders, the Filing Person have considered the following four factors: - following the consummation of the Merger, the Public Stockholders will cease to participate in the future earning or growth, if any, of the Company, or benefit from an increase, if any, in the value of their holdings in the Company; - the interests of the Filing Persons in determining the Merger Price are adverse to the interests of the Public Stockholders and the fact that certain officers and directors of the Company may have actual or potential conflicts of interest in connection with the Merger as disclosed herein; -16- 17 - because the Merger is being effected pursuant to a short-form merger under Section 253 of the GDCL and consequently does not require approval by the Company's board of directors or the Company's stockholders (other than the Filing Person), neither the Company's board of directors nor the Public Stockholders will have the opportunity to vote on the Merger; and - the Company's board of directors did not establish a special committee consisting of non-management, independent directors for the purpose of representing solely the interests of the Public Stockholders and retaining independent advisers to assist with the evaluation of strategic alternatives, including the Merger. After having given these additional four factors due consideration, the Filing Persons have concluded that none of these factors, alone or in the aggregate, is significant enough to outweigh the factors and analyses that the Filing Persons have considered to support their belief that the Merger is substantively and procedurally fair to the Public Stockholders. In view of the number and wide variety of factors considered in connection with making a determination as to the fairness of the Merger to the Public Stockholders, and the complexity of these matters, the Filing Persons did not find it practicable to, nor did they attempt to, quantify, rank or otherwise assign relative weights to the specific factors they considered. Moreover, the Filing Persons have not undertaken to make any specific determination or assign any particular weight to any single factor, but have conducted an overall analysis of the factors described above. The Filing Persons have not considered any factors, other than as stated above, regarding the fairness of the Merger to the Public Stockholders, as it is their view that the factors they considered provided a reasonable basis to form their belief. Specifically, in forming their belief as to the fairness of the Merger to the Public Stockholders, the Filing Persons did not consider the purchase prices paid by them for past purchases of Shares or the fact that they did not attempt to "shop" the Company to prospective buyers as an alternative to the Merger because the Company's financial condition has materially worsened since such purchases were made. The Filing Persons did not consider the purchase prices paid by the Filing Persons for past purchases of Shares to be material to their conclusion regarding the fairness of the Merger because the prices paid or deemed to have been paid for such Shares may not reflect the current value of the Company, considering its current level of indebtedness. The Filing Persons believe that "shopping" the Company would not only entail substantial time delays and detract from the amount of management's time and energy focused on the Company's business, but would also disrupt and discourage the Company's employees and create extreme uncertainty among the Company's customers and suppliers. The Filing Persons also have knowledge that the prior holders of the Debt unsuccessfully "shopped" the Company between the second quarter of 2000 and the second quarter of 2001, and the Filing Persons have considered the apparent results of those efforts in their determination that the Merger is fair to the Public Stockholders. -17- 18 REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS The Filing Persons have not engaged any third parties to perform any financial analysis of, or prepare any reports, opinions or appraisals concerning, the Merger or value of the Shares and, accordingly, the Filing Persons have not received any report, opinion or appraisal from an outside party relating to the fairness of the Merger Price being offered to the Public Stockholders or the fairness of the Merger to the Filing Persons or to the Public Stockholders. -18- 19 TRANSACTION STATEMENT ITEM 1. SUMMARY TERM SHEET See the section above captioned "Summary Term Sheet." ITEM 2. SUBJECT COMPANY INFORMATION (a) NAME AND ADDRESS. The name of the Company is Day Runner, Inc. The principal executive offices of the Company are located at 2750 West Moore Avenue, Fullerton, California 92833, and its telephone number is 714-680-3500. The Company is subject to the informational reporting requirements of the Exchange Act and in accordance therewith is required to file reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Such reports, proxy statements and other information are available for inspection and copying at the Commission's public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may be obtained at prescribed rates from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a web site that contains reports, proxy and information statements and other information regarding registrations that file electronically with the Commission at http://www.sec.gov. (b) SECURITIES. The exact title of the class of equity securities subject to the Merger is: Common Stock, par value $0.001 per share, of the Company. As of June 30, 2001, there were 2,408,796 Shares outstanding, and Options and Warrants to purchase an additional 462,583 Shares were outstanding. As of July 31, 2001, the Company also had outstanding approximately $29.5 million principal amount of and accrued interest on Convertible Debt, which in the aggregate is currently convertible into a maximum of 23,200,000 Shares at a conversion ratio of one Share for each $1.15 principal amount of Convertible Debt. (c) TRADING MARKET AND PRICE. Effective June 30, 2000, the Shares have been trading over-the-counter on the OTC Bulletin Board under the symbol "DAYR"; prior to that date, they were traded in the Nasdaq National Market System. The following table sets forth the high and low closing sales prices per Share for each of the periods indicated, as reported in publicly available sources.
High Low ---- --- Fiscal Year Ended June 30, 2000 First Quarter.............................. $ 63 1/8 $ 41 7/8 Second Quarter............................. 44 3/8 18 3/4 Third Quarter.............................. 19 1/16 6 1/4 Fourth Quarter............................. 9 1/16 1
-19- 20
High Low ---- --- Fiscal Year Ended June 30, 2001 First Quarter................................... $ 1 3/4 $ 19/32 Second Quarter.................................. 23/32 5/16 Third Quarter................................... 11/32 5/32 Fourth Quarter.................................. 0.30 0.13 Fiscal Year Ending June 30, 2002 First Quarter (through August 7, 2001).......... 0.35 0.26
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THEIR SHARES. (d) DIVIDENDS. To the knowledge of the Filing Persons, the Company has never declared or paid any dividends in respect of the Shares. (e) PRIOR PUBLIC OFFERINGS. Neither any of the Filing Persons nor, to the knowledge of the Filing Persons, the Company, has made an underwritten public offering of the Shares for cash during the past three years that was registered under the Securities Act of 1933 or exempt from registration thereunder pursuant to Regulation A. (f) PRIOR STOCK PURCHASES. None of the Filing Persons nor any affiliate of any of the Filing Persons has purchased any Shares during the past two years, except as described under Item 5(e). ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSONS KAYSUN INC. (a) NAME AND ADDRESS. The principal business address of KAYSUN Inc., which also serves as its principal office, is 1800 Avenue of the Stars, Second Floor, Los Angeles, CA 90067, and its telephone number is 310-556-2721. KAYSUN Inc. is wholly owned by KAYSUN Holdings, which beneficially owns 90.6% of the Shares. (b) BUSINESS BACKGROUND OF ENTITY. KAYSUN Inc., a newly organized corporation wholly owned by KAYSUN Holdings, was formed for the sole purpose of merging with and into the Company. KAYSUN Inc. is organized under the laws of the State of Delaware. (c) BUSINESS AND BACKGROUND OF NATURAL PERSONS. The name, business address, position with KAYSUN Inc., principal occupation, five-year employment history and citizenship of each of the directors and executive officers of KAYSUN Inc., together with the names, principal businesses and addresses of any corporations or other organizations in which such principal occupations are conducted, are set forth on Schedule I hereto. During the last five years, none of KAYSUN Inc. or, to the best knowledge of KAYSUN Inc., any of the persons listed in Schedule I to this Schedule 13E-3 has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five years, none of KAYSUN Inc. or, to the best knowledge of KAYSUN Inc., any of the persons listed in Schedule -20- 21 I to this Schedule 13E-3 was a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. KAYSUN HOLDINGS LLC (a) NAME AND ADDRESS. The principal business address of KAYSUN Holdings LLC, which also serves as its principal office, is 1800 Avenue of the Stars, Second Floor, Los Angeles, California 90067, and its telephone number is 310-556-2721. KAYSUN Holdings beneficially owns 90.6% of the Shares. (b) BUSINESS BACKGROUND OF ENTITY. KAYSUN Holdings, a Delaware limited liability company, owns the Convertible Debt. KAYSUN Holdings is managed by Kayne Anderson Capital Advisors, L.P. ("KACALP") and Sunrise Capital Partners, L.P. ("Sunrise") and has been formed for the purpose of holding the Debt and serving as the vehicle with respect to any further transactions involving the Company. During the last five years, KAYSUN Holdings has been neither (i) convicted in a criminal proceeding nor (ii) a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. DAY HOLDINGS LLC (a) NAME AND ADDRESS. The principal business address of Day Holdings LLC, which also serves as its principal office, is 1800 Avenue of the Stars, Second Floor, Los Angeles, California 90067, and its telephone number is 310-556-2721. Day Holdings owns 50% of the equity membership interests in KAYSUN Holdings, which beneficially owns 90.6% of the Shares. (b) BUSINESS BACKGROUND OF ENTITY. Day Holdings, a Delaware limited liability company, was formed for the purpose of acquiring certain debt interests of the Company, as further described in the section above captioned "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger." The managing member of Day Holdings is KACALP. During the last five years, Day Holdings has been neither (i) convicted in a criminal proceeding nor (ii) a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. -21- 22 OSMOND ACQUISITION COMPANY LLC (a) NAME AND ADDRESS. The principal business address of Osmond Acquisition Company LLC, which also serves as its principal office, is 685 Third Avenue, 15th Floor, New York, New York 10017, and its telephone number is 212-582-3015. Osmond Acquisition owns 50% of the equity membership interests in KAYSUN Holdings, which beneficially owns 90.6% of the Shares. (b) BUSINESS BACKGROUND OF ENTITY. Osmond Acquisition, a Delaware limited liability company, was formed for the purpose of acquiring certain debt interests of the Company, as further described in the section above captioned "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger." Osmond Acquisition is managed by Sunrise. During the last five years, Osmond Acquisition has been neither (i) convicted in a criminal proceeding nor (ii) a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. KAYNE ANDERSON CAPITAL ADVISORS, L.P. (a) NAME AND ADDRESS. The principal business address of Kayne Anderson Capital Advisors, L.P., which also serves as its principal office, is 1800 Avenue of the Stars, Second Floor, Los Angeles, California 90067, and its telephone number is 310-556-2721. KACALP is the Manager of Day Holdings and is one of two Managers of KAYSUN Holdings. (b) BUSINESS BACKGROUND OF ENTITY. KACALP is a limited liability partnership organized under the laws of California and an investment adviser registered under the Investment Advisors Act of 1940, as amended. KACALP is managed by Kayne Anderson Investment Management, Inc. ("KAIM"), its general partner. During the last five years, KACALP has been neither (i) convicted in a criminal proceeding nor (ii) a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. KAYNE ANDERSON INVESTMENT MANAGEMENT, INC. (a) NAME AND ADDRESS. The principal business address of Kayne Anderson Investment Management, Inc., which also serves as its principal office, is 1800 Avenue of the Stars, Second Floor, Los Angeles, California 90067, and its telephone number is 310-556-2721. (b) BUSINESS BACKGROUND OF ENTITY. KAIM is a Nevada corporation, the principal business of which is serving as the general partner of KACALP. (c) BUSINESS AND BACKGROUND OF NATURAL PERSONS. The name, business address, position with KAIM, principal occupation, five-year employment history and citizenship of each of the directors and executive officers of KAIM, together with the names, principal businesses and addresses of any corporations or other organizations in which such -22- 23 principal occupations are conducted, are set forth in Schedule I hereto. During the last five years, none of KAIM or, to the best knowledge of KAIM, any of the persons listed in Schedule I to this Schedule 13E-3 has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five years, none of KAIM or, to the best knowledge of KAIM, any of the persons listed in Schedule I to this Schedule 13E-3 was a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. SUNRISE CAPITAL PARTNERS, L.P. (a) NAME AND ADDRESS. The principal business address of Sunrise Capital Partners, L.P., which also serves as its principal office, is 685 Third Avenue, 15th Floor, New York, New York 10017, and its telephone number is 212-582-3015. Sunrise is the Manager of Osmond Acquisition and is one of two Managers of KAYSUN Holdings. (b) BUSINESS BACKGROUND OF ENTITY. Sunrise is a limited partnership organized under the laws of Delaware and the manager of Osmond Acquisition. Sunrise is a private investment fund and is managed by Sunrise Advisors, LLC, its general partner. During the last five years, Sunrise has been neither (i) convicted in a criminal proceeding nor (ii) a party to any civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. SUNRISE ADVISORS, LLC (a) NAME AND ADDRESS. The principal business address of Sunrise Advisors, LLC, which also serves as its principal office, is 685 Third Avenue, 15th Floor, New York, New York 10017, and its telephone number is 212-582-3015. (b) BUSINESS BACKGROUND OF ENTITY. Sunrise Advisors, LLC is a Delaware limited liability company, the principal business of which is serving as the general partner of Sunrise. (c) BUSINESS AND BACKGROUND OF NATURAL PERSONS. The name, business address, position with Sunrise Advisors, principal occupation, five-year employment history and citizenship of each of the directors and executive officers of Sunrise Advisors, together with the names, principal businesses and addresses of any corporations or other organizations in which such principal occupations are conducted, are set forth in Schedule I hereto. During the last five years, none of Sunrise Advisors or, to the best knowledge of the Filing Persons, any of the Sunrise Advisors' Principals listed in Schedule I to this Schedule 13E-3 has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five years, none of Sunrise Advisors or, to the best knowledge of the Filing Persons, any of the Sunrise Advisors' Principals listed in Schedule I to this Schedule 13E-3 was a party to any civil proceeding of a judicial or administrative body of -23- 24 competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 4. TERMS OF THE TRANSACTION (a) MATERIAL TERMS. Prior to the Effective Date, KAYSUN Holdings plans to contribute up to 23,200,000 Shares to KAYSUN Inc., representing in the aggregate approximately 90.6% of the Shares that would have been outstanding on July 31, 2001 if the Convertible Debt had been converted as of such date. On the Effective Date, KAYSUN Inc. will merge with and into the Company pursuant to Section 253 of the DGCL, with the Company to be the surviving corporation. To so merge, the Board of Directors and the stockholder of KAYSUN Inc. will approve the Merger and KAYSUN Inc. will file a Certificate of Ownership and Merger with the Secretary of State of Delaware. On the Effective Date: - - each Share issued and outstanding immediately prior to the Effective Date (other than Shares owned by KAYSUN Inc. or the Company and Shares held by Public Stockholders, if any, who properly exercise their dissenters' statutory appraisal rights under the DGCL) will be cancelled and extinguished and be converted into and become a right to receive the Merger Price; and - - each share of KAYSUN Inc.'s capital stock issued and outstanding immediately prior to the Effective Date shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Company as the surviving corporation of the Merger. As a result of the Merger, KAYSUN Holdings will own all of the outstanding equity interests in the Company. Under the DGCL, because KAYSUN Inc. will hold at least 90% of the outstanding Shares, KAYSUN Inc. will have the power to effect the Merger without a vote of the Company's Board of Directors or Public Stockholders. KAYSUN Inc. intends to take all necessary and appropriate action to cause the Merger to become effective on the Effective Date, without a meeting or consent of the Company's Board of Directors or Public Stockholders. The Merger Price payable to Public Stockholders is $0.10 in cash per Share. The reasons for the Merger are set out in "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger - Reasons". Certain federal income tax consequences of the Merger are set out in "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger - Effects - Certain Federal Income Tax Consequences of the Merger." Upon completion of the Merger, in order to receive the cash Merger Price of $0.10 per Share, each stockholder or a duly authorized representative must (1) deliver a Letter of Transmittal, appropriately completed and executed, to the Shareholder Services Department of the Paying Agent at 1745 Gardena Avenue, Glendale, California 91204, and (2) surrender such Shares by delivering the stock certificate or certificates that, prior to the Merger, had evidenced such Shares to the Paying Agent, as set forth in a Notice of Merger and Appraisal Rights and Letter of -24- 25 Transmittal, which will be mailed to stockholders of record on the Effective Date. Stockholders are encouraged to read the Notice of Merger and Appraisal Rights and Letter of Transmittal carefully when received. Delivery of an executed Letter of Transmittal shall constitute a waiver of statutory appraisal rights. The Merger will be accounted for as the acquisition of a minority interest by KAYSUN Holdings, using the purchase method of accounting. For federal income tax purposes, the receipt of the cash consideration by holders of the Shares pursuant to the Merger will be a taxable sale of the holders' Shares. See "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger - Effects - Certain Federal Income Tax Consequences of the Merger." (c) DIFFERENT TERMS. Stockholders of the Company will be treated as described in Item 4(a), "Terms of the Transaction - Material Terms." (d) APPRAISAL RIGHTS. Under the DGCL, record holders of Shares who follow the procedures set forth in Section 262 will be entitled to have their Shares appraised by the Court of Chancery of the State of Delaware and to receive payment of the fair value of the Shares, together with a fair rate of interest, if any, as determined by such court. The fair value as determined by the Delaware court is exclusive of any element of value arising from the accomplishment or expectation of the Merger. The following is a summary of certain of the provisions of Section 262 of the DGCL and is qualified in its entirety by reference to the full text of Section 262, a copy of which is attached to this Schedule 13E-3 as Exhibit (f). Notice of the Effective Date and the availability of appraisal rights under Section 262 (the "Merger Notice") will be mailed to record holders of the Shares by the Company, as the surviving corporation in the Merger, within 10 calendar days of the Effective Date and should be reviewed. Any Public Stockholder entitled to appraisal rights will have the right, within 20 days after the date of mailing of the Merger Notice, to demand in writing from the Company an appraisal of his or her Shares. Such demand will be sufficient if it reasonably informs the Company of the identity of the stockholder and that the stockholder intends to demand an appraisal of the fair value of his or her Shares. Failure to make such a timely demand would foreclose a stockholder's right to appraisal. Only a holder of record of Shares is entitled to assert appraisal rights for the Shares registered in that holder's name. A demand for appraisal should be executed by or on behalf of the holder of record fully and correctly, as the holder's name appears on the stock certificates. Holders of Shares who hold their shares in brokerage accounts or other nominee forms and wish to exercise appraisal rights should consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such nominee. All written demands for appraisal of Shares should be sent or delivered to Catherine Ratcliffe, Vice President and General Counsel of the Company, at the Company's offices at 2750 West Moore Avenue, Fullerton, CA 92633-2565. If the Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if the Shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including one or -25- 26 more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is agent for such owner or owners. A record holder such as a broker holding Shares as nominee for several beneficial owners may exercise appraisal rights with respect to the Shares held for one or more beneficial owners while not exercising such rights with respect to the Shares held for other beneficial owners; in such case, the written demand should set forth the number of shares as to which appraisal is sought and where no number of shares is expressly mentioned the demand will be presumed to cover all Shares held in the name of the record owner. Within 120 calendar days after the Effective Date, the Company, or any stockholder entitled to appraisal rights under Section 262 and who has complied with the foregoing procedures, may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the Shares of all such stockholders. The Company is not under any obligation, and has no present intention, to file a petition with respect to the appraisal of the fair value of the Shares. Accordingly, it is the obligation of the stockholders to initiate all necessary action to perfect their appraisal rights within the time prescribed in Section 262. If a stockholder files a petition, a copy of such petition must be served on the Company. Within 120 calendar days after the Effective Date, any stockholder of record who has complied with the requirements for exercise of appraisal rights and, if appraisal rights are available, will be entitled, upon written request, to receive from the Company a statement setting forth the aggregate number of Shares with respect to which demands for appraisal have been received and the aggregate number of holders of such Shares. Such statement must be mailed within 10 calendar days after a written request therefor has been received by the Company or within 10 calendar days after the expiration of the period for the delivery of demands for appraisal, whichever is later. If a petition for an appraisal is timely filed and a copy is served upon the Company, the Company will then be obligated within 20 days to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their Shares and with whom agreements as to the value of such Shares have not been reached. After notice to those stockholders as required by the Court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights. After a hearing on such petition, the Delaware Court of Chancery will determine the stockholders entitled to appraisal rights and will appraise the fair value of the Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. Holders considering seeking appraisal should be aware that the fair value of their Shares as determined under Section 262 could be more than, the same as or less than the amount per Share that they would otherwise receive if they did not seek appraisal of their Shares. The Delaware Supreme Court has stated that "proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in the appraisal proceedings. In addition, Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenter's exclusive -26- 27 remedy. The Court will also determine the amount of interest, if any, to be paid upon the amounts to be received by persons whose Shares have been appraised. The costs of the action may be determined by the Court and taxed upon the parties as the Court deems equitable. The Court may also order that all or a portion of the expenses incurred by any holder of Shares in connection with an appraisal, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts used in the appraisal proceeding, be charged pro rata against the value of all the Shares entitled to appraisal. The Court may require stockholders who have demanded an appraisal and who hold Shares represented by certificates to submit their certificates to the Court for notation thereon of the pendency of the appraisal proceedings. If any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. Any stockholder who has duly demanded an appraisal in compliance with Section 262 will not, after the Effective Date, be entitled to vote the Shares subject to such demand for any purpose or be entitled to the payment of dividends or other distributions on those shares (except dividends or other distributions payable to holders of record of Shares as of a date prior to the Effective Date). If any stockholder who demands appraisal of Shares under Section 262 fails to perfect, or effectively withdraws or loses, the right to appraisal, as provided in the DGCL, the Shares of such holder will be converted into the right to receive the Merger Price per Share, without interest. A stockholder will fail to perfect, or effectively lose, the right to appraisal if no petition is filed within 120 calendar days after the Effective Date. A stockholder may withdraw a demand for appraisal by delivering to the Company a written withdrawal of the demand for appraisal and acceptance of the Merger Price, except that any such attempt to withdraw made more than 60 calendar days after the Effective Date will require the written approval of the Company. Once a petition for appraisal has been filed, such appraisal proceeding may not be dismissed as to any stockholder without the approval of the Court. For federal income tax purposes, stockholders who receive cash for their Shares upon exercise of their statutory right of dissent will realize taxable gain or loss. See "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger - Effects - Certain Federal Income Tax Consequences of the Merger." The foregoing summary does not purport to be a complete statement of the procedures to be followed by stockholders desiring to exercise their appraisal rights and is qualified in its entirety by express reference to the Delaware Appraisal Statute, the full text of which is attached hereto as Exhibit (f). STOCKHOLDERS ARE URGED TO READ EXHIBIT (F) IN ITS ENTIRETY SINCE FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS. (e) PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS. None of the Filing Persons intends to grant unaffiliated stockholders special access to the Company's records in connection with the Merger. None of the Filing Persons intends to obtain counsel to or appraisal services for unaffiliated stockholders of the Company. -27- 28 (f) ELIGIBILITY FOR LISTING OR TRADING. Not applicable. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS (a)(1) TRANSACTIONS. There have been no transactions that occurred during the past two years between (i) any of the Filing Persons or, to the best knowledge of any of the Filing Persons, any of the persons listed on Schedule I and (ii) the Company or any of its affiliates that are not natural persons where the aggregate value of such transactions is more than one percent of the Company's consolidated revenues for (1) the fiscal year in which the transaction occurred or (2), with respect to the current year, the past portion of the current fiscal year. (2) There have been no transactions that occurred during the past two years between (i) any of the Filing Persons or, to the best knowledge of any of the Filing Persons, any of the persons listed on Schedule I hereto and (ii) any executive officer, director or affiliate of Company that is a natural person where the aggregate value of the transaction or series of similar transactions with such person exceeded $60,000. (b) SIGNIFICANT CORPORATE EVENTS. Other than as described in this Schedule 13E-3, there have been no negotiations, transactions or material contacts that occurred during the past two years between (i) any of the Filing Persons or, to the best knowledge of any of the Filing Persons, any of the persons listed on the Schedule I hereto and (ii) the Company or its affiliates concerning any merger, consolidation, acquisition, tender offer for or other acquisition of any class of the Company's securities, election of the Company's directors or sale or other transfer of a material amount of assets of the Company. (c) NEGOTIATIONS OR CONTACTS. Other than as described in this Schedule 13E-3, there have been no negotiations or material contacts that occurred during the past two years concerning the matters referred to in paragraph (b) of this Item between (i) any affiliates of the Company or (ii) the Company or any of its affiliates and any person not affiliated with the Company who would have a direct interest in such matters. (d) [Intentionally omitted.] (e) AGREEMENTS INVOLVING THE SUBJECT COMPANY'S SECURITIES. The following are all the agreements, arrangements or understandings, whether or not legally enforceable, between any of the Filing Persons or, to the best knowledge of any of the Filing Persons, any of the persons on Schedule I hereto and any other person with respect to any securities of the Company. The Company, Day Runner UK plc (now known as Day Runner UK Limited), a company incorporated with limited liability under the laws of England and Wales and formerly a wholly-owned indirect subsidiary of the Company, Filofax Limited, a company incorporated with limited liability under the laws of England and Wales and formerly a wholly-owned indirect subsidiary of the Company, and certain financial institutions identified on the signature pages thereto (the "Lenders"), and Wells Fargo Bank, National Association ("Wells Fargo") as Administrative Agent entered into that certain Second Amended and Restated Loan Agreement, dated as of November 1, 2000, which became effective on December 8, 2000, as amended by that certain First Waiver and Amendment to Loan Agreement dated as of January 21, 2001 (the -28- 29 "First Waiver and Amendment"), and that certain Debt Affirmation and Release Agreement dated as of April 25, 2001 (the "Debt Affirmation Agreement," together with the First Waiver and Amendment and the Second Restatement, the "Loan Agreement"), with respect to certain loans made to the Company, Day Runner UK plc and Filofax Limited under the Loan Agreement. On April 25, 2001, the Company sold its Filofax operations (including Day Runner UK plc and Filofax Limited) for $30,000,000 in debt reduction to entities affiliated with the Lenders. As a result of these transactions and the Debt Affirmation Agreement, the Company was released from all obligations with respect to the Foreign Currency Loans (as defined in the Loan Agreement) in the amount of Pound Sterling12,420,210 (US$17,636,699) and the balance of Term Loan B debt was reduced by US$12,363,301. On May 10, 2001, Osmond Acquisition acquired that portion of the Debt owned by Mellon Bank, N.A., pursuant to an Assignment Agreement, dated as of May 10, 2001 between Osmond Acquisition and Mellon Bank, N.A. On May 11, 2001, Osmond Acquisition acquired that portion of the Debt owned by Credit Agricole Indosuez, pursuant to an Assignment and Acceptance, dated as of May 4, 2001, between Osmond Acquisition and Credit Agricole Indosuez. On May 23, 2001, Osmond Acquisition acquired that portion of the Debt owned by National Westminster Bank plc, pursuant to an Assignment Agreement, dated as of May 23, 2001, between Osmond Acquisition and National Westminster Bank plc. On May 30, 2001, Osmond Acquisition acquired that portion of the Debt owned by Bank of Scotland, pursuant to an Assignment Agreement, dated as of May 30, 2001, between Osmond Acquisition and Bank of Scotland. As a result of the Debt Affirmation Agreement, and subsequent releases dated May 22, 2001 and May 24, 2001, Day Runner UK plc, Filofax Limited and certain related entities were released from all obligations under the Loan Agreement except with respect to the Foreign Currency Loan. On August 7, 2000, certain entities that are now members of Day Holdings, acquired a participation interest in a portion of the Debt held by Oaktree Capital Management, LLC, pursuant to a Purchase and Sale Agreement (Secondary Assignment; Borrower Not in Bankruptcy), dated as of August 7, 2000, between Oaktree Capital Management, LLC and KACALP. This participation interest was later elevated to a direct ownership interest in such portion of the Debt and then contributed to Day Holdings by the holders in exchange for membership interests in Day Holdings. On May 24, 2001, Day Holdings acquired that portion of the Debt owned by Wells Fargo, pursuant to an Assignment Agreement, dated as of May 24, 2001, between Day Holdings and Wells Fargo. On June 1, 2001, Day Holdings acquired that portion of the Debt owned by Oaktree Capital Management, LLC, pursuant to an Assignment Agreement, dated as of May 31, 2001, between Day Holdings and Oaktree Capital Management, LLC. As a result of the foregoing transactions, all rights and interests of the Lenders under the Loan Agreement, except with respect to the Foreign Currency Loans, were assigned to Osmond Acquisition and Day Holdings. -29- 30 On May 29, 2001, KACALP and Sunrise entered into an Investment Agreement (the "Investment Agreement"), pursuant to which they agreed, through Osmond Acquisition and Day Holdings, to acquire all of the outstanding Debt owned by the Lenders and that each would own an equal share of the Debt. Subsequently, pursuant to Assignment and Acceptances dated as of June 27, 2001, Osmond Acquisition and Day Holdings, respectively, assigned portions of the Debt to each other with the result that each owned half of the Debt. Under the Investment Agreement, KACALP and Sunrise agreed to cause the Debt to be contributed by Day Holdings and Osmond Acquisition, respectively, to KAYSUN Holdings, which was formed for the purposes of holding the Debt and serving as the vehicle with respect to any further transactions involving the Company. Pursuant to Assignment and Acceptances dated as of August 8, 2001, Osmond Acquisition and Day Holdings, respectively, assigned all of the Debt to KAYSUN Holdings. KACALP and Sunrise intend, upon completion of the Merger, that KAYSUN Holdings shall, if and to the extent possible, cause the board of directors of the Company to be constituted in such a manner as to afford Day Holdings and Osmond Acquisition equal representation thereon. Under the Loan Agreement, a portion of the term loans previously outstanding under a prior agreement, in the total amount of $27,163,875.13, was reclassified as loans convertible into Shares (defined elsewhere herein as the "Convertible Debt"), which Convertible Debt was evidenced by notes in favor of each of the Lenders (the "Convertible Notes"), maturing on July 31, 2002 (the "Maturity Date"), which Convertible Notes were assigned to Osmond Acquisition and Day Holdings as part of the Debt acquired by them from the Lenders, and subsequently assigned to KAYSUN Holdings. The Loan Agreement permits the Company to make payments of interest accrued on the Convertible Loans through the Maturity Date in the form of payment-in-kind ("PIK") notes (the "PIK Interest Notes (CL)"). On August 8, 2001, as part of the assignment of the Debt to KAYSUN Holdings, Osmond Acquisition and Day Holdings transferred the Convertible Notes and the PIK Interest Notes (CL) to KAYSUN Holdings. KAYSUN Holdings now has the right to convert some or all of the principal amount under the Convertible Notes and/or PIK Interest Notes (CL) into a number of fully paid and non-assessable shares of Common Stock obtained by dividing the aggregate amount of the Convertible Notes and PIK Interest Notes (CL) to be converted by $1.15, not to exceed a maximum of 23,200,000 total Shares converted (the "Conversion Stock"). In connection with the assignment of the Debt to KAYSUN Holdings, Osmond Acquisition and Day Holdings transferred, and KAYSUN Holdings assumed, the right and obligations under the Registration Rights Agreement and the Shareholders Agreement as those terms are defined below. The Loan Agreement prohibits the Company from issuing additional Shares beyond the 3,122,154 Shares already issued and outstanding or reserved for issuance pursuant to certain options and rights previously granted or authorized, or any shares of preferred stock or any other equity interest without the written consent of KAYSUN Holdings. The Loan Agreement does permit the issuance of up to 2,677,846 options to directors, officers and employees of the Company subject to certain limitations set forth in the Loan Agreement, which limitations cannot be waived or modified without the written consent of KAYSUN Holdings. The Loan Agreement also prohibits the Company from authorizing, permitting, or carrying out any stock split, reverse stock split, reclassification, recapitalization, payment of stock dividends or any other transaction which either dilutes or increases the number of Shares or the share of the Company's capital structure represented by one share of Common Stock. -30- 31 In connection with the Loan Agreement, the Company and the Lenders entered into that certain Registration Rights Agreement (the "Registration Rights Agreement") dated as of November 1, 2000 which became effective on December 8, 2000. Also in connection with the Loan Agreement, the Lenders entered into that certain Shareholders Agreement (the "Shareholders Agreement"), dated as of November 1, 2000, which became effective on December 8, 2000. In connection with the assignment of the Debt by Osmond Acquisition and Day Holdings to KAYSUN Holdings, all rights and interests of the Lenders under the Registration Rights Agreement and the Shareholders Agreement were assigned by Osmond Acquisition and Day Holdings to KAYSUN Holdings. Under the Registration Rights Agreement, KAYSUN Holdings has the right to demand that the Company effect three registrations of the Conversion Stock. In addition, KAYSUN Holdings also has the right to participate in any registrations by the Company of Shares not otherwise consisting of Conversion Stock. In addition to the anti-dilution provisions contained in the Loan Agreement, the Registration Rights Agreement also prohibits the Company from issuing any securities, preferred or common stock, debt convertible into common stock, options, warrants, rights (including conversion or preemptive rights or enter into any agreements for the purchase or acquisition from the Company of any shares of its capital stock) to any person or entity except as permitted by the Loan Agreement. The Company is also prohibited from permitting the increase in the number of its authorized shares of Common Stock beyond the 29,000,000 Shares already authorized, except as permitted by the Loan Agreement. The anti-dilution provisions contained in the Registration Rights Agreement may be waived or modified only by express written consent of KAYSUN Holdings. Under the Shareholders Agreement, KAYSUN Holdings is obligated to cast its votes held by virtue of its ownership interests in Conversion Stock as a unit for the election of persons as directors of the Company. KAYSUN Holdings also is obligated to cast its votes held by virtue of its ownership interests in Conversion Stock as a unit with respect to any other matters which, by law or the Company's certificate of incorporation or bylaws, require the action of the Company's shareholders, or any other matters which may be submitted for a vote to the shareholders of the Company. The Shareholders Agreement prohibits KAYSUN Holdings from selling, transferring, assigning or otherwise disposing of, or encumbering mortgaging, pledging or creating a security interest in, whether voluntarily or involuntarily, any shares of Conversion Stock, except as permitted by the Loan Agreement. Notwithstanding those restrictions, the Shareholders Agreement does permit KAYSUN Holdings to transfer Conversion Stock to: any wholly-owned corporation or affiliate of KAYSUN Holdings, an investment partnership, provided that each partner is subject to the prior approval of each of Osmond Acquisition and Day Holdings and that KAYSUN Holdings establishes and maintains effective control over the affairs of the investment partnership, and to any other transferee which Osmond Acquisition and Day Holdings may agree to in writing. References to and description of the Loan Agreement, the Investment Agreement, the Shareholders Agreement and the Registration Rights Agreement as set forth herein are qualified in their entirety by the full text of such agreements, which are filed as exhibits to Osmond Acquisition and Day Holdings and their affiliated persons' report on Schedule 13D relating to -31- 32 the Company filed on June 4, 2001, and which are incorporated herein in their entirety where such references and descriptions appear. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS (a) [Intentionally omitted.] (b) USE OF SECURITIES ACQUIRED. The Shares acquired in the Merger from the Public Stockholders will be cancelled. (c) PLANS. It is currently expected that, following the consummation of the Merger, the business and operations of the Company will, except as set forth in this Schedule 13E-3, be conducted by the Company substantially as they are currently being conducted. KAYSUN Holdings intends to continue to evaluate the business and operations of the Company with a view to maximizing the Company's potential, and it will take such actions as it deems appropriate under the circumstances and market conditions then existing. KAYSUN Holdings intends to cause the Company to terminate the registration of the Shares under Section 12(g)(4) of the Exchange Act following the Merger, which would result in the suspension of the Company's duty to file reports pursuant to the Exchange Act. For additional information see Item 4, "Terms of the Transaction" and "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger - Effects." The Filing Persons do not currently have any commitment or agreement and are not currently negotiating for the sales of any of the Company's businesses. Additionally, the Filing Persons do not currently contemplate any material change in the composition of the Company's current management, except that KAYSUN Holdings intends to appoint a Board of Directors, a majority of the members of which will be representatives of the Filing Persons. Except as otherwise described in this Schedule 13E-3, the Company has not, and the Filing Persons have not, as of the date of this Schedule 13E-3, approved any specific plans or proposals for: - - any extraordinary corporate transaction involving the Company after the completion of the Merger; - - any sale or transfer of a material amount of assets currently held by the Company after the completion of the Merger; - - any change in the Board of Directors or management of the Company; - - any material change in the Company's dividend rate or policy, or indebtedness or capitalization; or - - any other material change in the Company's corporate structure or business. ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS OF THE MERGER See "Special Factors - Purposes, Alternatives, Reasons and Effects of the Merger." -32- 33 ITEM 8. FAIRNESS OF THE TRANSACTION See "Special Factors - Fairness of the Merger." ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS See "Special Factors - Reports, Opinions, Appraisals and Negotiations." ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION (a) SOURCE OF FUNDS. The total amount of funds required by KAYSUN Inc. to pay the Merger Price to all Public Stockholders, and to pay related fees and expenses, is estimated to be approximately $350,000. KAYSUN Holdings will obtain the funds from Day Holdings and Osmond Acquisition as capital contribution. (b) CONDITIONS. There are no conditions to the Merger. (c) EXPENSES. The Paying Agent will receive reasonable and customary compensation for its services and will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection with the Merger, including certain liabilities under U.S. federal securities laws. None of the Filing Persons will pay any fees or commissions to any broker or dealer in connection with the Merger. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by the Filing Persons for customary mailing and handling expenses incurred by them in forwarding materials to their customers. The following is an estimate of fees and expenses to be incurred by the Filing Persons in connection with the Merger: Legal.................................. $ 78,072 Printing............................... 25,000 Filing................................. 48 Paying Agent (including mailing)....... 6,000 ========
The Company will not pay any of the fees and expenses to be incurred by the Filing Persons in connection with the Merger. (d) BORROWED FUNDS. See Item 10(a), "Source of Funds." ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY (a) SECURITIES OWNERSHIP. On the Effective Date, immediately prior to the Merger, KAYSUN Inc. is expected to be the owner of 23,200,000 Shares, representing 90.6% of the outstanding Shares. Because KAYSUN Holdings owns 100% of the equity interest in KAYSUN Inc., and because each of Osmond Acquisition and Day Holdings has a 50% equity -33- 34 interest in KAYSUN Holdings, each may also be deemed to be the beneficial owners of these Shares. Details regarding the ownership of Shares by the persons named on Schedule I to this Schedule 13E-3 are set out thereon. (b) SECURITIES TRANSACTIONS. After converting the Convertible Debt into Shares, KAYSUN Holdings will contribute such Shares to KAYSUN Inc. prior to the Effective Date. The Convertible Debt was acquired in May and June 2001. Other than the purchases described in Item 5(e), there were no transactions in the Shares effected during the past 60 days by the Filing Persons or, to the best knowledge of the Filing Persons, the directors and executive officers of any of the Filing Persons. ITEM 12. THE SOLICITATION OR RECOMMENDATION Not applicable. ITEM 13. FINANCIAL STATEMENTS (a) FINANCIAL INFORMATION. The audited consolidated financial statements of the Company as of and for the fiscal years ended June 30, 2000 and June 30, 1999 are incorporated herein by reference to the Consolidated Financial Statements of the Company included as Exhibit 14(a) to the Company's Annual Report on Form 10-K for its fiscal year ended June 30, 2000 (the "Form 10-K"). The unaudited consolidated financial statements of the Company for the three and nine month fiscal periods ended March 31, 2001 and March 31, 2000 and as of March 31, 2001 are incorporated herein by reference to Item 1 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 (the "Form 10-Q"). An unaudited pro forma condensed consolidated balance sheet of the Company as of March 31, 2001 and unaudited pro forma condensed consolidated statements of operations for the fiscal year ended June 30, 2000 and the nine months ended March 31, 2001, in each case reflecting the sale of the Company's Filofax operations on a pro-forma basis, are incorporated herein by reference to the Company's Current Report on Form 8-K dated May 15, 2001 (the "Form 8-K"). The Form 10-K, the Form 10-Q and the Form 8-K are referred to as the "Company Reports". The Company Reports are available for inspection and copying at the Commission's public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may be obtained at prescribed rates from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. (b) PRO FORMA INFORMATION. Not applicable. (c) SUMMARY INFORMATION. Set forth below is certain selected consolidated financial information with respect to the Company and its subsidiaries excerpted or derived by the Filing Persons from the audited consolidated financial statements of the Company contained in the Form 10-K and the unaudited financial statements of the Company contained in the Form 10-Q. The information as of March 31, 2000 is derived from the Company's Quarterly Report on -34- 35 Form 10-Q for the quarter ended March 31, 2000. More comprehensive financial information is included in the Company Reports and in other documents filed by the Company with the Commission, and the following financial information is qualified in its entirety by reference to the Company Reports and other documents and all of the financial information (including any related notes) contained therein or incorporated therein by reference. The selected financial information presented below as of and for the fiscal years ended June 30, 2000, June 30, 1999, June 30, 1998, June 30, 1997, and June 30, 1996 has been derived from the Company's Consolidated Financial Statements, which have been audited by Deloitte & Touche LLP. The selected financial information as of and for the nine months ended March 31, 2001 and March 31, 2000 has not been audited. The results of operations for the nine months ended March 31, 2001 are not necessarily indicative of results for the entire year. The pro forma financial information reflects, on a pro forma basis, the sale of the Company's Filofax operations as if it had occurred on March 31, 2001 (in the case of the balance sheet data) or on the first day of the period presented (in the case of statement of operations data). -35- 36 SELECTED CONSOLIDATED FINANCIAL INFORMATION
NINE MONTHS ENDED MARCH 31, FISCAL YEAR ENDED JUNE 30, ------------------------------ ---------------------------------------------------------------- PRO PRO FORMA ACTUAL FORMA ACTUAL -------- ------------------- -------- ----------------------------------------------------- CONSOLIDATED STATEMENT OF 2001 2001 2000 2000 2000 1999 1998 1997 1996 OPERATIONS DATA: -------- -------- -------- -------- --------- -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net sales..................... $ 75,249 $110,680 $139,312 $111,154 $ 171,487 $196,212 $167,841 $127,376 $125,126 Cost of goods sold............ 40,436 55,670 75,633 73,550 103,274 108,087 80,663 60,452 59,920 -------- -------- -------- -------- --------- -------- -------- -------- -------- Gross profit.................. 34,813 55,010 63,679 37,604 68,213 88,125 87,178 66,924 65,206 -------- -------- -------- -------- --------- -------- -------- -------- -------- Operating expenses: Selling, marketing and distribution.............. 30,739 46,328 61,213 62,180 43,193 31,673 29,878 General and administrative............ 20,354 22,770 31,166 26,445 18,416 14,451 16,376 Restructuring and impairment charges................... 15,005 3,030 66,214 Costs related to activities associated with the Filofax acquisition....... 1,072 Costs incurred in pursuing acquisitions.............. 1,451 -------- -------- -------- -------- --------- -------- -------- -------- -------- Total operating expenses.... 34,719 66,098 72,128 69,106 158,593 89,697 61,609 47,575 46,254 -------- -------- -------- -------- --------- -------- -------- -------- -------- (Loss) income from operations.................. 94 (11,088) (8,449) (31,502) (90,380) (1,572) 25,569 19,349 18,952 (Loss) income from operations per share: Basic....................... $ 0.04 $ (4.62) $ (3.55) $ (13.23) $ (37.96) $ (0.66) $ 11.08 $ 7.78 $ 7.60 Diluted..................... $ 0.04 $ (4.62) $ (3.55) $ (13.23) $ (37.96) $ (0.66) $ 10.21 $ 7.34 $ 7.15 Net interest expense (income).................... 5,594 10,014 8,693 6,016 11,213 5,215 (172) (1,301) (706) -------- -------- -------- -------- --------- -------- -------- -------- -------- (Loss) income before provisions (benefit) for income taxes................ (5,500) (21,102) (17,142) (37,518) (101,593) (6,787) 25,741 20,650 19,658 Provision (benefit) for income taxes....................... 58 1,756 (2,674) 4,325 5,044 (2,789) 9,833 8,102 7,840 -------- -------- -------- -------- --------- -------- -------- -------- -------- Net (loss) income............. $ (5,558) $(22,858) $(14,468) $(41,843) $(106,637) $ (3,998) $ 15,908 $ 12,548 $ 11,818 ======== ======== ======== ======== ========= ======== ======== ======== ======== (Loss) earnings per common share: Basic....................... $ (2.32) $ (9.53) $ (6.08) $ (17.57) $ (44.79) $ (1.68) $ 6.90 $ 5.05 $ 4.74 ======== ======== ======== ======== ========= ======== ======== ======== ======== Diluted..................... $ (2.32) $ (9.53) $ (6.08) $ (17.57) $ (44.79) $ (1.68) $ 6.35 $ 4.76 $ 4.46 ======== ======== ======== ======== ========= ======== ======== ======== ======== Weighted average number of common shares outstanding: Basic....................... 2,393 2,398 2,381 2,381 2,381 2,379 2,307 2,486 2,494 ======== ======== ======== ======== ========= ======== ======== ======== ======== Diluted..................... 2,393 2,398 2,381 2,381 2,381 2,379 2,505 2,636 2,650 ======== ======== ======== ======== ========= ======== ======== ======== ========
NINE MONTHS ENDED MARCH 31, FISCAL YEAR ENDED JUNE 30, ------------------------------ ---------------------------------------------------------------- PRO PRO FORMA ACTUAL FORMA ACTUAL CONSOLIDATED -------- ------------------- -------- ----------------------------------------------------- BALANCE SHEET DATA: 2001 2001 2000 2000 2000 1999 1998 1997 1996 (IN THOUSANDS) -------- -------- -------- -------- --------- -------- -------- -------- -------- Working capital (deficiency)................ (71,937) (44,671) $ (68,879) $ 70,491 $ 57,922 $ 50,710 $ 51,653 Total assets.................. 55,694 181,888 97,094 216,311 101,179 78,880 77,931 Short-term debt............... 91,498 92,993 99,271 2,077 2,716 452 Long-term liabilities......... 43 254 45 105,568 Stockholders' equity (deficiency)................ (60,677) (59,204) 55,493 (36,320) 70,397 74,532 59,484 59,498 Book value per share: Basic....................... $ (25.36) $ (24.69) $ 23.31 $ (15.25) $ 29.59 $ 32.31 $ 23.93 $ 23.86 Diluted..................... $ (25.36) $ (24.69) $ 23.31 $ (15.25) $ 29.59 $ 29.75 $ 22.57 $ 22.45
37 RECENT FINANCIAL PERFORMANCE. The Company's unaudited, internally prepared financial statements for the eleven-month period ended May 31, 2001, which have been provided to the Filing Persons, indicated that the Company had sales, loss from operations and net loss of $85.9 million, $1.1 million and $10.9 million, respectively, compared to $100.3 million, $15.9 million and $20.1 million, respectively, for the eleven-month period ended May 31, 2000, in each case adjusted to exclude the Company's Filofax operations. The Company's total stockholders deficiency was $63.5 million at May 31, 2001, compared to total stockholders' equity of $47.9 million at May 31, 2000. ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED (A) SOLICITATIONS OR RECOMMENDATIONS. There are no persons or classes of persons who are directly or indirectly employed, retained, or to be compensated to make solicitations or recommendations in connection with the Merger. (B) EMPLOYEES AND CORPORATE ASSETS. No employees or corporate assets of the Company will be used by the Filing Persons in connection with the Merger. ITEM 15. ADDITIONAL INFORMATION None. -37- 38 ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION -------------- ----------- (a)(1) Letter from KAYSUN Holdings LLC. (d)(1) Investment Agreement, dated as of May 29, 2001, between Sunrise Capital Partners, L.P. and Kayne Anderson Capital Advisors, L.P. (incorporated herein by reference to Exhibit (9) of Osmond Acquisition, Day Holdings LLC, ArbcoAssociates, L.P., Kayne Anderson Diversified Capital Partners, L.P.'s Schedule 13D filed on June 4, 2001) (d)(2) Registration Rights Agreement dated as of November 1, 2000 by and among Day Runner, Inc., Wells Fargo Bank, National Association, Bank of Scotland, Credit Agricole Indosuez, Mellon Bank, N.A., National Westminster Bank plc and Oaktree Capital Management, LLC, as agent and on behalf of certain funds and accounts (incorporated herein by reference to Exhibit (10) of Osmond Acquisition, Day Holdings LLC, ArbcoAssociates, L.P., Kayne Anderson Diversified Capital Partners, L.P.'s Schedule 13D filed on June 4, 2001) (d)(3) Shareholders Agreement dated as of November 1, 2000 by and among Wells Fargo Bank, National Association, Bank of Scotland, Credit Agricole Indosuez, Mellon Bank, N.A., National Westminster Bank plc and Oaktree Capital Management, LLC, as agent and on behalf of certain funds and accounts (incorporated herein by reference to Exhibit (11) of Osmond Acquisition, Day Holdings LLC, ArbcoAssociates, L.P., Kayne Anderson Diversified Capital Partners, L.P.'s Schedule 13D filed on June 4, 2001) (d)(4) Limited Liability Company Agreement of KAYSUN Holdings, dated as of August 8, 2001 (d)(5) Purchase and Sale Agreement (Secondary Assignment; Borrower Not in Bankruptcy) dated as of August 7, 2000 by and between Oaktree Capital Management LLC, as agent and on behalf of certain funds and accounts, and Kayne Anderson Capital Advisors, L.P. (f) Delaware General Corporation Law Section 262
-38- 39 SIGNATURES After due inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this Statement is true, complete and correct. Dated: August 10, 2001 KAYSUN, INC. By: /s/ David J. Shladovsky ------------------------ Name: David J. Shladovsky Title: Secretary and Chief Financial Officer KAYSUN HOLDINGS LLC By: Kayne Anderson Capital Advisors, Ltd., its Manager By: Kayne Anderson Investment Management, Inc., its General Partner By: /s/ David J. Shladovsky ----------------------- Name: David J. Shladovsky Title: General Counsel and Secretary By: Sunrise Capital Partners, L.P., its Manager By: Sunrise Advisors, LLC, its General Partner By: /s/ Michael D. Stewart ---------------------- Name: Michael D. Stewart Title: Principal DAY HOLDINGS LLC By: Kayne Anderson Capital Advisors, Ltd., its Manager By: Kayne Anderson Investment Management, Inc., its General Partner By: /s/ David J. Shladovsky ----------------------- Name: David J. Shladovsky Title: General Counsel and Secretary -39- 40 OSMOND ACQUISITION COMPANY LLC By: Sunrise Capital Partners, L.P., its Manager By: Sunrise Advisors, LLC, its General Partner By: /s/ Michael D. Stewart ---------------------- Name: Michael D. Stewart Title: Principal -40- 41 SCHEDULE I MEMBERS OF THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE FILING PERSONS KAYSUN INC. Directors and Executive Officers. The name, business address, position with KAYSUN Inc., present principal occupation or employment and five-year employment history of the directors and executive officers of KAYSUN Inc., together with the names, principal businesses and addresses of any corporations or other organizations in which such principal occupation is conducted, are set forth below. Except as otherwise indicated, each occupation set forth refers to KAYSUN Inc. Each of the directors and executive officers of KAYSUN Inc. is a United States citizen. To the knowledge of the Filing Persons, no director or executive officer of KAYSUN Inc. has been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and no director or executive officer of KAYSUN Inc. has been a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining him from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME AND ADDRESS EMPLOYMENT HISTORY - ---------------- ------------------------------------------------- Lawrence S. Coben Mr. Coben is currently a Principal of Sunrise Advisors, 685 Third Avenue LLC and has held this position since January 2001. Mr. New York, New York 10017 Coben is also a Director of Houlihan Lokey and has worked for Houlihan Lokey since January 2001. Mr. Coben previously served as Chief Executive of Bolivian Power Company, Ltd., located at Avenida Hernado Siles 5635, Obrajes, La Paz-Bolivia, from 1994 to 1996. David J. Shladovsky Mr. Shladovsky currently serves as General Counsel and 1800 Avenue of the Stars Secretary of KAIM, KARIM, and KACALP and has held such Los Angeles, California positions since January 1997. Mr. Shladovsky served as 90067 an attorney with the law firm Hughes Hubbard & Reed LLP, located at 350 South Grand Avenue, Los Angeles, California 90071 from 1985 to January 1997.
STOCK OWNERSHIP. To the knowledge of the Filing Persons, neither KAYSUN Inc. nor any director or executive officer of KAYSUN Inc. beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings. 42 KAYSUN HOLDINGS LLC DIRECTORS AND EXECUTIVE OFFICERS. KAYSUN Holdings is managed by KACALP and Sunrise. The principal business, jurisdiction of organization and business address of the managers of KAYSUN Holdings are set forth below under "KAYNE ANDERSON CAPITAL ADVISORS, L.P." and "SUNRISE CAPITAL PARTNERS, L.P." respectively. To the knowledge of the Filing Persons, no manager of KAYSUN Holdings has been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and no managing member of KAYSUN Holdings was a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. STOCK OWNERSHIP. KAYSUN Holdings beneficially owns 23,200,000 Shares, or 90.6% of the total outstanding Shares. To the knowledge of the Filing Persons, no managing member of KAYSUN Holdings beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings. DAY HOLDINGS LLC DIRECTORS AND EXECUTIVE OFFICERS. Day Holdings is managed by KACALP, its managing member. The principal business, jurisdiction of organization and business address of KACALP are set forth below under "KAYNE ANDERSON CAPITAL ADVISORS, L.P." To the knowledge of the Filing Persons, the managing member of Day Holdings has not been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and has not been a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. -2- 43 STOCK OWNERSHIP. To the knowledge of the Filing Persons, neither Day Holdings nor its managing member beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings or by members of Day Holdings in their individual capacities. OSMOND ACQUISITION COMPANY LLC Osmond Acquisition is managed by Sunrise, its managing member. The principal business, jurisdiction of organization and business address of Sunrise are set forth below under "SUNRISE CAPITAL PARTNERS, L.P.". To the knowledge of the Filing Persons, the managing member of Osmond Acquisition has not been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and has not been a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. STOCK OWNERSHIP. To the knowledge of the Filing Persons, neither Osmond Acquisition nor its managing member beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings. KAYNE ANDERSON CAPITAL ADVISORS, L.P. KACALP is an investment adviser registered under the Investment Advisors Act of 1940, as amended. KACALP is a limited liability partnership organized under the laws of California. The principal business address of KACALP, which also serves as its principal office, is 1800 Avenue of the Stars, Second Floor, Los Angeles, California 90067. Directors and Executive Officers. KACALP is managed by KAIM, its general partner. The principal business, jurisdiction of organization and business address of KAIM are set forth below under "KAYNE ANDERSON INVESTMENT MANAGEMENT, INC.". To the knowledge of the Filing Persons, the general partner of KACALP has not been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and has not been a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. STOCK OWNERSHIP. To the knowledge of the Filing Persons, neither KACALP nor its general partner beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person -3- 44 may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings or by members of KACALP in their individual capacities. KAYNE ANDERSON INVESTMENT MANAGEMENT, INC. KAIM is a Nevada corporation, the principal business of which is serving as the general partner of KACALP. The principal business address of KAIM, which also serves as its principal office, is 1800 Avenue of the Stars, Second Floor, Los Angeles, California 90067. DIRECTORS AND EXECUTIVE OFFICERS. The name, business address, position with KAIM, present principal occupation or employment and five-year employment history of the directors and executive officers of KAIM, together with the names, principal businesses and addresses of any corporations or other organizations in which such principal occupation is conducted, are set forth below. Except as otherwise indicated, each occupation set forth refers to KAIM. Each of the directors and executive officers of KAIM is a United States citizen whose business address, including the business address of any organization mentioned below unless otherwise indicated, is 1800 Avenue of the Stars, Los Angeles, California 90067. To the knowledge of the Filing Persons, no director or executive officer of KAIM has been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and no director or executive officer of KAIM has been a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining him from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME EMPLOYMENT HISTORY - ---- ------------------------------------------------ Richard A. Kayne Mr. Kayne currently serves as Director, President, and Chief Executive Officer of KAIM and has held those positions for at least five years. He currently serves as Chief Executive Officer and Director of KA Associates, Inc., an NASD-member broker/dealer ("KA"), and has held those positions for at least five years. Mr. Kayne also serves as a managing member of Kayne Anderson Rudnick Investment Management, LLC, a registered investment adviser ("KARIM"), and has held that position for at least five years. KA and KARIM are each affiliated with KAIM.
-4- 45 John E. Anderson Mr. Anderson currently serves as Director and Chairman of KAIM and has held those positions for at least five years. Mr. Anderson is also a Director of KA and has held that position for at least five years. Mr. Anderson has served as President of Topa Equities, Ltd., a holding company for numerous private companies, and as Chairman of Topa Insurance Company, in each case for at least five years. Robert V. Sinnott Mr. Sinnott currently serves as Vice President of KAIM and Managing Director of KACALP and has held those positions for at least five years. Howard M. Zelikow Mr. Zelikow currently serves as Director and Vice President of KAIM and has held those positions for at least five years. He also serves as a Managing Director of KACALP and has held that position for at least five years. Ralph C. Walter Mr. Walter currently serves as Chief Financial Officer of KAIM and Chief Operating Officer of KARIM and has held those positions for at least five years. From 1986 to 2000, Mr. Walter served as Chief Administrative Officer of ABN AMRO Incorporated, a bank located at Foppingadreef 22 1102 BS Amsterdam. David Shladovsky Mr. Shladovsky currently serves as General Counsel and Secretary of KAIM, KARIM, and KACALP and has held such positions since January 1997. Mr. Shladovsky served as an attorney with the law firm Hughes Hubbard & Reed LLP, located at 350 South Grand Avenue, Los Angeles, California 90071 from 1985 to January 1997.
STOCK OWNERSHIP. To the knowledge of the Filing Persons, neither KAIM nor any director or executive officer of KAIM beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings. SUNRISE CAPITAL PARTNERS, L.P. Sunrise is a limited partnership organized under the laws of Delaware. Sunrise is a private investment fund. The principal business address of Sunrise, which also serves as its principal office, is 685 Third Avenue, 15th Floor, New York, NY 10017. DIRECTORS AND EXECUTIVE OFFICERS. Sunrise is managed by Sunrise Advisors, LLC, its general partner. The principal business, jurisdiction of organization and business address of the general partner of Sunrise are set forth below under "SUNRISE ADVISORS, LLC". To the knowledge of the Filing Persons, the general partner of Sunrise has not been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and has not been a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. -5- 46 STOCK OWNERSHIP. To the knowledge of the Filing Persons, neither Sunrise nor its general partner beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings. SUNRISE ADVISORS, LLC Sunrise Advisors, LLC ("Sunrise Advisors") is a Delaware limited liability company, the principal business of which is serving as the general partner of Sunrise. The principal business address of Sunrise Advisors, LLC, which also serves as its principal office, is 685 Third Avenue, 15th Floor, New York, NY 10017. Directors and Executive Officers. The name, business address, position with Sunrise Advisors, present principal occupation or employment and five-year employment history of the directors and executive officers of Sunrise Advisors, together with the names, principal businesses and addresses of any corporations or other organizations in which such principal occupation is conducted, are set forth below. Except as otherwise indicated, each occupation set forth refers to Sunrise Advisors. Each of the directors and executive officers of Sunrise Advisors is a United States citizen whose business address is 685 Third Avenue, 15th Floor, New York, NY 10017. To the knowledge of the Filing Persons, no director or executive officer of Sunrise Advisors has been convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) and no director or executive officer of Sunrise Advisors has been a party to any judicial or administrative proceeding during the last five years (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. -6- 47
PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR NAME EMPLOYMENT HISTORY - ---- ------------------------------------------------- David A. Preiser Mr. Preiser is currently the Managing Member of Sunrise Advisors, LLC and has held this position since 1998. Mr. Preiser is also a Managing Director of Houlihan Lokey Howard & Zukin ("Houlihan Lokey") and has worked for Houlihan Lokey for at least five years. Lawrence S. Coben Mr. Coben is currently a Principal of Sunrise Advisors, LLC and has held this position since January 2001. Mr. Coben is also a Director of Houlihan Lokey and has worked for Houlihan Lokey since January 2001. Mr. Coben previously served as Chief Executive of Bolivian Power Company, Ltd., located at Avenida Hernado Siles 5635, Obrajes, La Paz-Bolivia, from 1994 to 1996. Michael D. Stewart Mr. Stewart is currently a Principal of Sunrise Advisors, LLC and has held this position since 1998. Mr. Stewart is also a Director of Houlihan Lokey and has worked for Houlihan Lokey for at least five years. Joseph A. Julian Mr. Julian is currently a Principal of Sunrise Advisors, LLC and has held this position since 1998. Mr. Julian is also a Director of Houlihan Lokey and has worked for Houlihan Lokey for at least five years. Irwin N. Gold Mr. Gold is currently a Principal of Sunrise Advisors, LLC and has held this position since 1998. Mr. Gold is also a Senior Managing Director of Houlihan Lokey and has worked for Houlihan Lokey for at least five years. Jeffrey I. Werbalowsky Mr. Werbalowsky is currently a Principal of Sunrise Advisors, LLC and has held this position since 1998. Mr. Werbalowsky is also a Senior Managing Director of Houlihan Lokey and has worked for Houlihan Lokey for at least five years.
STOCK OWNERSHIP. To the knowledge of the Filing Persons, neither Sunrise Advisors nor any director or executive officer of Sunrise Advisors beneficially owns any Shares (or rights to acquire Shares), except to the extent any such person may be deemed to beneficially own Shares beneficially owned by KAYSUN Holdings. -7- EX-99.(A)(1) 3 a74727ex99-a1.txt EXHIBIT 99.(A)(1) 1 EXHIBIT (a)(1) [LETTER FROM KAYSUN HOLDINGS LLC] Dear Day Runner Inc. Stockholder: On September 14, 2001, KAYSUN Holdings LLC intends to take Day Runner, Inc. (the "Company") private through a "short-form" merger. The purposes of this letter and the Schedule 13e-3 Transaction Statement that accompanies this letter are to: - tell you more about the merger, - explain why we think that the $0.10 per share that you will receive in the merger is fair consideration for your shares and - let you know about your rights for an appraisal hearing under Delaware law. Neither you nor the Company's Board of Directors is being asked to approve the merger. Under Delaware law, KAYSUN Holdings LLC beneficially owns a sufficient number of shares to cause the merger to occur. After the merger, KAYSUN Holdings LLC will be the only shareholder of the Company. In the merger, which we hope will occur on September 14, 2001 or as soon thereafter as possible, you will receive $0.10 in cash for each share of Day Runner stock that you own as of that date. If you do not believe that $0.10 is a fair price for your shares, you can follow the procedures described in the Schedule 13E-3 Transaction Statement and exercise appraisal rights under Delaware law. YOU SHOULD READ THE SCHEDULE 13E-3 TRANSACTION STATEMENT CAREFULLY BEFORE DECIDING WHETHER TO ACCEPT $0.10 PER SHARE OR TO HAVE A DELAWARE COURT DETERMINE THE FAIR VALUE OF YOUR SHARES. The amount determined by such court may be higher or lower than $0.10 per share. Stockholders of record on the date the merger becomes effective will be mailed a Notice of Merger and Appraisal Rights and a Letter of Transmittal. Stockholders receiving such documents should carefully read them. Detailed instructions for surrendering your stock certificates, together with a detailed description of statutory appraisal rights, will be set forth in the Notice of Merger and Appraisal Rights and the Letter of Transmittal. Please do not submit your stock certificates before you have received these documents. After the merger, the common stock of the Company will not be publicly traded. The Company also will not be required to file reports with the Securities and Exchange Commission. In addition, the merger will have federal income tax consequences for you, and you should consult with your tax adviser in order to understand fully how the merger will affect you. Sincerely yours, KAYSUN Holdings LLC EX-99.(D)(4) 4 a74727ex99-d4.txt EXHIBIT 99.(D)(4) 1 EXHIBIT (d)(4) LIMITED LIABILITY COMPANY AGREEMENT OF KAYSUN HOLDINGS LLC LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement"), dated as of August 8, 2001, by and among the parties whose names and addresses are listed on Exhibit A hereto (collectively referred to as the "Members" or individually as a "Member"). The Members desire to form a limited liability company pursuant to and in accordance with the Delaware Limited Liability Company Act, as amended from time to time (the "Act"). KAYSUN Holdings LLC (the "Company") was formed on June 27, 2001 pursuant to the Act and the parties hereto desire to enter into a written agreement pursuant to the Act governing the affairs of the Company and the conduct of its business. The Members, by this Agreement, set forth the operating agreement for the Company upon the terms and subject to the conditions of this Agreement. 1. ORGANIZATION. 1.1 FORMATION. A Certificate of Formation (the "Certificate") of the Company was filed with the Secretary of State of the State of Delaware on June 27, 2001. The Company and, if required, each of the Members shall execute or cause to be executed from time to time all other instruments, certificates, notices and documents and shall do or cause to be done all such acts and things as may now or hereafter be required for the formation, valid existence and, when appropriate, termination of the Company as a limited liability company under the Act. 1.2 NAME. The name of the limited liability company formed hereby is "KAYSUN Holdings LLC." The Company may conduct business under that name or any other name approved by the Members. 1.3 PURPOSE. The Company is organized to acquire and to hold, directly or indirectly, debt or equity interests in or assets of Day Runner, Inc., a Delaware corporation (collectively, "Day Runner Interests"), and to take such actions and enter into such transactions as are necessary, convenient or appropriate in connection therewith. The Company shall have all the powers necessary or convenient to effect any purpose for which it is formed, including all powers granted by the Act. The Members intend that the Company will be a limited liability company under the Act and will be classified as a partnership for federal and state income tax purposes. No Member shall take any action inconsistent with the express intent of the parties as set forth in this Section. 1.4 NO STATE-LAW PARTNERSHIP. The Members intend that the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, and that no Member be an agent, partner or joint venturer of any other Member, for any purposes other than federal, state and local tax purposes, and this Agreement shall not be construed to suggest otherwise. 2 1.5 REGISTERED OFFICE AND AGENT. The location of the registered office of the Company shall be National Corporate Research, Ltd. The Company's Registered Agent at such address shall be 615 South DuPont Highway, Dover, Delaware 19901. 1.6 TITLE TO COMPANY PROPERTY. Legal title to all property of the Company shall be held and vested and conveyed in the name of the Company and no real or other property of the Company shall be deemed to be owned by a Member individually. The Company Interests (as hereinafter defined) of a Member shall constitute personal property. 1.7 FISCAL YEAR. The fiscal year of the Company (the "Fiscal Year") shall end on December 31 of each year. The Company shall have the same fiscal year for income tax and for financial and accounting purposes. 1.8 TERM. The term of the Company began on June 27, 2001, the date of the filing of the Certificate with the Secretary of State of the State of Delaware, and shall be perpetual unless terminated as provided herein or under the Act. 2. MEMBERS. 2.1 IDENTITY AND ADDRESS OF MEMBERS. The names and addresses of the Members are as set forth on Exhibit A attached hereto, subject to amendment as provided herein. 2.2 LIMITED LIABILITY. Except as expressly set forth in this Agreement or required by law, no Member shall be personally liable for any debt, obligation or liability of the Company, whether that liability or obligation arises in contract, tort or otherwise. 2.3 MEMBER MEETINGS AND APPROVALS. No annual or regular meetings of the Members are required to be held. However, if such meetings are held, such meetings shall be noticed, held and conducted pursuant to the Act. In any instance in which the approval of the Members is required under this Agreement, such approval may be obtained in any manner permitted by the Act. Unless otherwise provided in this Agreement, approval of the Members shall mean the approval of Members who hold a majority of the Company Interests. 2.4 WITHDRAWALS OR RESIGNATIONS. No Member may resign from the Company without the prior written consent of the other Member except in connection with a transfer permitted pursuant to Section 9 hereof. 2.5 ADMISSION OF NEW MEMBERS. No person shall be admitted as a Member of the Company without the unanimous approval of the Members. 2.6 COMPETING ACTIVITIES. The Members and their affiliates may engage or invest in any activity, including those that might be in direct or indirect competition with the Company. Neither the Company nor either Member shall have any right in or to such other activities or to the income or proceeds derived therefrom. No Member shall be obligated to present any investment opportunity to the Company, even if the opportunity is of the character that, if presented to the Company, could be taken by the Company. Each Member shall have the right to hold any investment opportunity for that Member's own account or to recommend such opportunity to persons other than the Company. The Members acknowledge that the Members 2 3 and their affiliates own and/or manage other businesses, including businesses that may compete with the Company and for the Members' time. Each Member hereby waives any and all rights and claims which that Member may otherwise have against the other Member and its affiliates as a result of any of such activities. 2.7 TRANSACTIONS BETWEEN COMPANY AND MEMBERS. Notwithstanding that it may constitute a conflict of interest, either Member and its affiliates may engage in any transaction with the Company, including the payment of professional fees to employees of a Member or an affiliates thereof and the reimbursement of expenses for services performed for the Company, but only so long as such transaction is not expressly prohibited by this Agreement and so long as the terms and conditions of such transaction, on an overall basis, are fair and reasonable to the Company and if the other Member approves the transaction in writing. 2.8 MEMBERS ARE NOT AGENTS. Pursuant to Section 3.1 and the Certificate, the management of the Company is vested in the Managers. The Members shall have no power to participate in the management of the Company except as expressly authorized by this Agreement or as expressly required by the Act. No Member, acting solely in the capacity of a Member, is an agent of the Company, nor does either Member, unless expressly and duly authorized in writing to do so by the Managers, have any power or authority to bind or act on behalf of the Company in any way, to pledge its credit, to execute any instrument on its behalf or to render it liable for any purpose. 2.9 LIABILITY TO THIRD PARTIES. No Member shall be liable for the debts, obligations or liabilities of the Company, including any such debts, obligations or liabilities arising under a judgment decree or order of a court. 2.10 CERTIFICATES OF COMPANY INTERESTS. Unless the Managers determine that Company Interests will be represented by Certificates of Company Interest, no certificate is required to evidence a Company Interest. The exact contents of a Certificate of Company Interest, if any, shall be determined by action of the Members substantially in conformity with the requirements of the Act. 2.11 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and warrants to the Company and each other Member as follows: (a) Such Member is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All requisite actions necessary for the due authorization, execution, delivery and performance of this Agreement by such Member have been duly taken. (b) Such Member's authorization, execution, delivery and performance of this Agreement does not and will not (i) conflict with, or result in a breach, default or violation of (A) any non-competition or non-solicitation agreement of any kind, (B) any material contract or agreement to which that Member is a party or is otherwise subject, or (C) any law, order, judgment, decree, writ, injunction, or arbitration award to which that Member is subject; or (ii) require any consent, approval, or authorization from filing, or 3 4 registration with, or notice to, any governmental authority or other person, other than those that have already been obtained. (c) Such Member is familiar with the proposed business, financial condition, properties, operations, and prospects of the Company; has asked such questions and conducted such due diligence concerning such matters and concerning its acquisition of Company Interests as it has desired to ask and conduct, and all such questions have been answered to its full satisfaction. Such Member has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Company. Such Member understands that owning Company Interests involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for Company Interests, the risk of owning its Company Interests for an indefinite period of time, and the risk of losing its entire investment in the Company. Such Member is able to bear the economic risk of such investment; is acquiring its Company Interests for investment and solely for its own beneficial account and not with a view to or any present intention of directly or indirectly selling, transferring, offering to sell or transfer, participating in any distribution, or otherwise disposing of all or a portion of its Company Interests; and such Member acknowledges that the Company Interests have not been registered under the Securities Act of 1933, as amended (the "1933 Act") or any other applicable federal or state securities laws, and that the Company has no intention, and shall not have any obligation, to register or to obtain an exemption from registration for the Company Interests or to take action so as to permit sales pursuant to the 1933 Act (including Rules 144 and 144A thereunder). 3. MANAGEMENT. 3.1 MANAGERS. The business and affairs of the Company shall be managed by Kayne Anderson Capital Advisors, L.P., a California limited partnership ("Kayne"), and Sunrise Capital Partners, L.P., a Delaware limited partnership ("Sunrise" and, collectively with Kayne, the "Managers"). 3.2 POWERS AND AUTHORITY. Except for situations in which the approval of the Members is expressly required by this Agreement or by nonwaivable provisions of applicable law, the Managers shall have full, complete, and exclusive authority to manage and control the business, affairs, and properties of the Company, to make all decisions regarding those matters, and to perform any and all other acts or activities customary or incident to the management of the Company's business. The Managers, however, shall take no action unless both Managers agree, except that, in the event they are unable to agree, they may refer their decision to a third party jointly appointed by them or by both Members to resolve disputes, and a Manager may thereafter take action if such Manager and such third party so agree. The Members hereby appoint Robert Muh as such third party until another person may be so appointed. 3.3 DEVOTION OF TIME. No Manager is obligated to devote all or any specific amount of time or business efforts to the affairs of the Company. Each Manager shall devote whatever time, effort, and skill as it deems appropriate for the operation of the Company. 4 5 3.4 LIABILITY. No Manager shall be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member, unless the loss or damage shall have been the result of fraud, deceit, gross negligence, reckless or intentional misconduct, or a knowing violation of law by such Manager. 3.5 COMPETING ACTIVITIES. Each Manager and its affiliates may engage or invest in, independently or with others, any business activity of any type or description, including those that might be the same as or similar to the Company's business and that might be in direct or indirect competition with the Company. Neither the Company nor any Member shall have any right in or to such other ventures or activities or to the income or proceeds derived therefrom. No Manager shall be obligated to present any investment opportunity or prospective economic advantage to the Company, even if the opportunity is of the character that, if presented to the Company, could be taken by the Company. Each Manager shall have the right to hold any investment opportunity or prospective economic advantage for its own account or to recommend such opportunity to persons other than the Company. The Members acknowledge that the Managers and their affiliates own and/or manage other businesses, including businesses that may compete with the Company and for the Managers' time. The Members hereby waive any and all rights and claims which they may otherwise have against the Managers and their affiliates as a result of any of such activities. 3.6 TRANSACTIONS BETWEEN COMPANY AND MANAGERS. Notwithstanding that it may constitute a conflict of interest, any Manager may, and may cause its affiliates to, engage in any transaction (including the purchase, sale, lease, or exchange of any property or the rendering of any service) with the Company, including the payment of professional fees to such Manager or any of its affiliates and the reimbursement of expenses for services performed for the Company, but only so long as such transaction is not expressly prohibited by this Agreement and so long as the terms and conditions of such transaction, on an overall basis, are fair and reasonable to the Company. A transaction between a Manager and/or its affiliates, on the one hand, and the Company, on the other hand, shall be conclusively determined to constitute a transaction on terms and conditions, on an overall basis, fair and reasonable to the Company if both Members affirmatively consent in writing to approve the transaction. Notwithstanding the foregoing, no Manager shall have any obligation, in connection with any such transaction between the Company and such Manager or an affiliates of such Manager, to seek the consent of the Members. 4. CAPITAL CONTRIBUTIONS; LOANS FROM MEMBERS. 4.1 DEFINITIONS. As used herein, the following terms have the respective meanings set forth below: "Distributions" shall mean any cash or property distributed to the Members in respect of their Company Interests and shall not mean payments to Members for services rendered. "Net Profits" and "Net Losses" shall mean the income, gain, loss, deductions, and credits of the Company in the aggregate or separately stated, as appropriate, determined in accordance with the method of accounting at the close of each Fiscal Year employed on the Company's information tax return filed for federal income tax purposes. 5 6 "Treasury Regulations" shall mean the final or temporary regulations that have been issued by the U.S. Department of Treasury pursuant to its authority under the Internal Revenue Code of 1986, as amended (the "Code"), and any successor regulations. 4.2 TOTAL CONTRIBUTION. Upon execution of this Agreement, each Member shall make the contribution of Day Runner Interests to the Company shown opposite the Member's name on Exhibit A. Exhibit A shall be amended as necessary to reflect any additional contributions by any Member. The initial contribution of a Member is called the "Initial Contribution", and the amount of Initial Contribution, together with any additional contributions subsequently made by that Member in accordance with this Agreement, is called the "Total Contribution". 4.3 COMPANY INTERESTS. Upon making the Initial Contribution, each Member shall have an interest in the Net Profits, Net Losses and Distributions of the Company ("Company Interest") which is set forth in Exhibit A. The Company Interest of each Member shall reflect the relative Capital Accounts of the Members and be subject to adjustment as provided in this Agreement. 4.4 CAPITAL ACCOUNTS. The Company shall establish on its books for each Member an individual capital account ("Capital Account") which shall begin with a zero balance and thereafter be increased by the amounts of that Member's Total Contribution and the amounts of Net Profits allocated to that Member, decreased by the amounts of Net Losses and Distributions allocated to that Member, and otherwise increased or decreased by such other amounts as may be required to conform such capital account to the rules for the maintenance of capital accounts with Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. Upon a valid transfer of a Member's Company Interest in accordance with Section 9, such Member's Capital Account shall carry over to the new owner. 4.5 WITHDRAWAL AND RETURN OF CAPITAL. Except upon dissolution and liquidation of the Company pursuant to Section 12, no Member shall have the right to withdraw all or any portion of that Member's capital contributions, without the consent of all of the other Members, such consent to be granted or refused in a Member's sole discretion. 4.6 ADDITIONAL CAPITAL CONTRIBUTIONS. (a) No Member may make a voluntary contribution of capital to the Company without the consent of the other Member, other than in response to a solicitation pursuant to the following sentence. If the Managers determine to seek any contributions of additional capital from the Members ("Additional Capital Contributions"), the Managers shall solicit Additional Capital Contributions from both Members, and the Members shall contribute to the Company the requested capital amount in proportion to the Members' respective Company Interests, or as otherwise agreed upon by the Members. (b) If any Member fails to comply with the request by the Managers for Additional Capital Contributions in any manner, and any such failure continues for ten business days after receipt of written notice thereof from the Company, then such 6 7 Member (a "Defaulting Member") may be designated by the Company as in default and shall thereafter be subject to the provisions of this Section. The Company may choose not to designate any Member as a Defaulting Member and may agree to waive or permit the cure of any default by a Member, subject to such conditions as the Managers and the Defaulting Member may agree upon. The Managers shall promptly notify the non-defaulting Member of each default. A Member shall cease to be a Defaulting Member when the Defaulting Member complies with the request for Additional Capital Contributions within 30 days from its receipt of the Company's written notice. (c) Notwithstanding any other provision of this Agreement, no Defaulting Member shall receive any distribution except pursuant to Section 12. All distributions to which a Defaulting Member would have received were it not for its status as a Defaulting Member shall be held in a segregated account for the benefit of the Defaulting Member. If a Defaulting Member shall not cease to be a Defaulting Member as described in the last sentence of Section 4.6(b) within 30 days from its receipt of the Company's written notice of a request for Additional Capital Contributions, then all amounts held in such segregated account shall be distributed only to the non-defaulting Member until the amounts distributed to the non-defaulting Member equal the amount of Additional Capital Contribution that the Defaulting Member failed to provide. The final distribution of Company assets pursuant to Section 12 shall be made on the basis of the actual positive balance of the Defaulting Member's Capital Account. (d) Notwithstanding any other provision of this Agreement, the Company, upon demand, shall have the right to receive from a Defaulting Member the following amounts: (i) the unpaid amounts of all Additional Capital Contributions requested by the Managers or any other payment due hereunder, (ii) interest thereon at the lesser of the maximum rate permitted by law or at a floating rate equivalent to the prime rate published from time to time in The Wall Street Journal plus 5 percentage points from the date of default to the date on which the defaulted amount is paid and (iii) the Company's reasonable out-of-pocket legal and collection costs and expenses. The Company may, in its sole discretion, bring suit against a Defaulting Member and exercise any and all remedies in respect of the foregoing amounts. Upon the collection of any such amount, the Company shall make such adjustments in the Capital Accounts of the non-defaulting Members as may be necessary or appropriate to reflect such collection and to carry out the intent of the other provisions of this Section. (e) No right, power or remedy conferred upon the Company in this Section shall be exclusive, and each such right, power or remedy shall be cumulative and in addition to every other right, power or remedy whether conferred in this Section or now or hereafter available at law or in equity or by statute or otherwise. No course of dealing between the Company and any Defaulting Member and no delay in exercising any right, power or remedy conferred in this Section or now or hereafter available at law or in equity or by statute or otherwise shall operate as a waiver or otherwise prejudice any such right, power or remedy. Notwithstanding any other provision of this Agreement, the Company may, in its sole discretion, determine not to exercise any such right, power or remedy in the case of a default by any Defaulting Member. 7 8 4.7 LOANS FROM MEMBERS. The Company may borrow money from any Member or an affiliates thereof on such terms as the Managers shall determine to be fair and reasonable to the Company or as may be approved by both Members. 5. ALLOCATION OF PROFITS AND LOSSES. The Company's Net Profits and Net Losses shall be allocated in proportion to the Company Interests of the Members, except as otherwise provided under Treasury Regulations issued under Section 704(b) of the Code. 5.1 SPECIAL REGULATORY ALLOCATIONS; RESTORATIVE ALLOCATIONS. (a) The allocation of Net Profit and Net Loss pursuant to this Agreement is intended to comply with the Treasury Regulations issued under Section 704(b) of the Code and shall be interpreted consistent therewith. In addition, the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) that constitute a "qualified income offset" under such Section and the "minimum gain chargeback" provisions contemplated by Treasury Regulations Sections 1.704-2(f) and 1.704-2(i) are hereby incorporated by reference. All "nonrecourse deductions" (within the meaning of Section 1.704-2(b)(1) of the Treasury Regulations) shall be allocated to the Members in accordance with their Company Interests. Any "partner nonrecourse deductions" (within the meaning of Section 1.704-2(i)(1) of the Treasury Regulations) shall be allocated to the Member who bears the economic risk of loss with respect to the "partner nonrecourse debt" (within the meaning of Section 1.704-2(b)(4) of the Treasury Regulations) to which such partner nonrecourse deductions are attributable. (b) Any special allocations of items of income or gain pursuant to Section 5.1(a) shall be taken into account in computing subsequent allocations pursuant to this Agreement, so that the net amount for any item so allocated and all other items allocated to each Member pursuant to this Agreement shall be equal, to the extent possible, to the net amount that would have been allocated to each Member pursuant to the provisions of this Agreement if such special allocations had not occurred. 6. DISTRIBUTIONS. All available cash, less such reserves as the Managers shall reasonably determine to be appropriate, shall be distributed to the Members in accordance with their respective Company Interests. 7. CERTAIN TAX MATTERS. Except as otherwise provided herein, the income, gains, losses, credits and deductions recognized by the Company shall be allocated among the Members, for U.S. federal, state and local income tax purposes, to the extent permitted under the Code and the Treasury Regulations, in the same manner that each such item is allocated to the Members' Capital Accounts. 7.1 ALLOCATION. In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for U.S. federal income tax purposes and its fair market value at the time of contribution. 8 9 7.2 ALLOCATION ADJUSTMENT. Notwithstanding the foregoing, the Company shall have the power to adjust allocations made pursuant to this Section 7.2 as may be necessary to maintain substantial economic effect, or to ensure that such allocations are in accordance with the Company Interests of the Members in the Company, in each case within the meaning of the Code and the Treasury Regulations. 7.3 TAX ELECTIONS. No election shall be made by the Managers or any Member for the Company to be excluded from the application of the provisions of Subchapter K of the Code. All elections required or permitted to be made by the Company under the Code shall be made by the Managers in such manner as in the Managers' reasonable judgment shall be most advantageous to the Members. Each of the Members shall upon request supply the information necessary to properly give effect to any such election. 7.4 TAX MATTERS PARTNER. (a) Subject to the provisions of this Section, Day Holdings LLC ("Day Holdings") is hereby designated as the "tax matters partner" (as defined in Section 6231(a)(7) of the Code) of the Company (the "TMP"). The TMP is authorized and required to represent the Company (at the Company's expense) in connection with all examinations of the Company's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. Each Member agrees to cooperate with the TMP and to do or refrain from doing any or all things reasonably required by the TMP to conduct such proceedings. (b) As the tax matters partner, the TMP will give notice to all the Members, within 30 days or in advance (unless impracticable), of the receipt by the Company of notification from the Internal Revenue Service of its intent to conduct an audit of the Company, the receipt of final Company administrative adjustments pursuant to Section 6223 of the Code, and any other information required by Section 6223(g) of the Code. (c) Promptly following written request of the TMP, the Company shall, to the fullest extent possible, reimburse and indemnify the TMP for all reasonable out-of-pocket expenses incurred by it in connection with any administrative or judicial proceeding with respect to the tax liabilities of the Company or the Members. (d) The TMP shall not have any of the powers, and shall not be authorized to act on behalf of the Company in any of the matters, that are delegated to the Managers pursuant to Section 3.2 hereof. 7.5 CLASSIFICATION AS A PARTNERSHIP FOR TAX PURPOSES. Each Member agrees that the Company will be treated as a partnership for federal, state and local income tax purposes (except to the extent prohibited by law) and shall take no action inconsistent with such treatment on any tax return or in any tax audit or judicial or administrative proceeding, or otherwise. Each Member consents to any election by the Company, if applicable, to be treated as a partnership for federal, state and local income tax purposes. 9 10 8. BOOKS AND RECORDS; BANK ACCOUNTS. 8.1 BOOKS AND RECORDS. The books and records of the Company shall, at the cost and expense of the Company, be kept or caused to be kept by the Company at the principal place of business of the Company, which shall be the principal place of business of the TMP. Such books and records will be kept on the basis of the Fiscal Year, and will reflect all Company transactions and be appropriate and adequate for conducting the Company's business. Such books and records will be kept on the accrual method of accounting for financial and federal income tax purposes or such other method permitted under the Code and selected by the Managers. At the cost and expense of the Company, the Company will furnish to each Member a balance sheet, an income statement, and an annual statement of source and application of funds of the Company and will make reasonable efforts to cause to be delivered to each Member, as promptly as practicable on or before March 15 of each year, at the cost and expense of the Company, such financial statements for the immediately preceding Fiscal Year. In addition, the Company will make best efforts to prepare and furnish to each Member by January 31 of each year all information necessary for Members to prepare required tax returns. Each Member, at its own expense, will have the right upon reasonable notice to inspect the books and records of the Company during business hours at the principal place of business of the Company. 8.2 BANK ACCOUNTS. All funds of the Company will be deposited in its name in an account or accounts maintained with such bank or banks or brokerage firm or firms selected by the Company. The funds of the Company will not be commingled with the funds of any other person. Checks will be drawn upon the Company account or accounts only for the purposes of the Company and shall be signed by authorized officers of the Company. 8.3 OTHER INFORMATION. The Managers may release such information concerning the operations of the Company to such sources as is customary in the industry or required by law or regulation or by order of any court or regulatory body or by generally accepted accounting practices. For the term of the Company and for a period of four years thereafter, the Managers shall cause to be maintained and preserved all books of account and other relevant documents, except for tax information which shall be maintained for a period of seven years. 9. TRANSFERS AND ASSIGNMENTS. 9.1 GENERAL RESTRICTION ON TRANSFERS. Subject to the provisions of Section 9.2 hereof no Member may directly or indirectly through the transfer of interest in controlled affiliates or otherwise, sell, convey, assign, transfer, pledge, grant a security interest in or otherwise dispose of in whole or in part (each, a "Transfer") its Company Interest without the express written consent of the other Member; provided, however, that a Member may assign its Company Interest to an affiliate (a "Permitted Transferee") without the consent of the other Member if such Permitted Transferee agrees to be bound by all of the provisions of this Agreement. Any Transfer or purported Transfer in violation of this Agreement shall be null and void. 9.2 RIGHT TO INITIATE SALE OF COMPANY INTEREST. At any time from the period commencing the day after the third anniversary of the date hereof: 10 11 (a) Either Member (the "Initiating Member") may furnish, in writing, to the other Member the cash price and terms on which it desires to sell its Company Interest (the "Initiating Member Sale Notice"). For a period of ten business days following receipt of the Initiating Member Sale Notice, the other Member shall be entitled by written notice to the Initiating Member to make an irrevocable offer (a "Member Offer") to purchase the Initiating Member's Company Interest in cash at a price equal to at least 90% of the price, and on the same terms, set forth in the Initiating Member Sale Notice (a "Member Sale"). In the event the other Member makes a Member Offer within the aforementioned ten-business-day period, both Members shall use reasonable best efforts to consummate the Member Sale as soon as practicable. To the extent that the other Member declines to make a Member Offer within such ten-business-day period, the other Member's right to purchase the Initiating Member's Company Interest shall terminate, and the Initiating Member shall be entitled to authorize the Company to retain a nationally or regionally recognized investment banking firm of good general reputation to explore the sale of all of the Day Runner Interests held by the Company or the Company Interests held by the Members to a non-affiliated third party. (b) In the event that within a period of 100 days of engaging an investment banking firm as described in paragraph (a) above (the "Third Party Offer Period"), the Company receives an offer (the "Third Party Offer") from a non-affiliated party solicited by the investment banking firm to purchase either all of the Day Runner Interests or the Company Interests ("Third Party Sale"), at a price that is equal to or in excess of, on a pro rata basis, the price requested in the Initiating Member Sale Notice for the Company Interest of the Initiating Member, the Initiating Member may as soon as practicable provide written notice of its intent to pursue such transaction to the other Member. If the Initiating Member does so, such other Member will be required to sell its Company Interest to the non-affiliated third party at the same time and price and on the same terms as the Initiating Member, or, to the extent applicable, agree to the sale of all of the Day Runner Interests in accordance with the terms set forth in the Third Party Offer. If a Third Party Offer is not received within the Third Party Offer Period or if a Third Party Offer is so received but a Third Party Sale is not consummated within 120 days of the engaging of an investment banking firm as described in paragraph (a) above, no Member shall effect a Transfer of its Company Interest without commencing de novo the procedures set forth in this Section 9.2. -- ---- (c) In the event the efforts of an investment banking firm engaged by the Company as described in paragraph (a) above do not result in the consummation of a Third Party Sale pursuant to the terms set forth in this Section 9.2, the Initiating Member shall bear all fees and expenses of such investment banking firm and all legal or other professional fees and expenses incurred by the Company in connection with the sale process contemplated by this Section 9.2. 10. EMPLOYEES OF THE COMPANY. The Members intend that the Company shall not have any employees of its own. The Managers and their affiliates shall furnish to the Company from time to time such qualified personnel as are needed to fill all work assignments and job positions that the Managers deem necessary in connection with the conduct of the 11 12 Company's business, and they shall be reimbursed for the allocated costs of such personnel in accordance with Section 2.7. 11. AMENDMENT. Except as expressly provided herein, this Agreement may be amended only by the written consent of both Members. An amendment shall become effective as of the date specified in the approval of the Members, or, if none is specified, as of the date of such approval or as otherwise provided in the Act. 12. DISSOLUTION. 12.1 LIQUIDATION. The Company shall dissolve upon the earliest to occur of (a) the unanimous determination to do so by the Members or (b) the entry of a decree of judicial dissolution against the Company in accordance with the Act. Any such dissolution shall be in accordance with the Act. All proceeds from such liquidation shall be distributed in accordance with the provisions of Section 18-804 of the Act, and all Company Interests shall be cancelled. No other event, including the retirement, insolvency, liquidation, dissolution, insanity, expulsion, bankruptcy, death, incapacity or adjudication of incompetency of a Member, shall cause the existence of the Company to terminate. 12.2 FINAL ACCOUNTING. In the event of the dissolution of the Company, prior to any liquidation, a proper accounting shall be made to the Member from the date of the last previous accounting to the date of dissolution. 12.3 DISTRIBUTION IN KIND. All or any portion of the Company's assets may be distributed in kind to the Member in the event the Managers determine that it is in the interest of the Company. 12.4 CANCELLATION OF CERTIFICATE. Upon the completion of the winding up of the Company and the distribution of the Company's assets, the Company shall be terminated and the Member shall cause the Company to execute and file a Certificate of Cancellation in accordance with Section 18-203 of the Act. 13. EXCULPATION AND INDEMNIFICATION. Notwithstanding any other provisions of this Agreement, whether express or implied, or obligation or duty at law or in equity, none of the Members, or any of their members, officers, directors, stockholders, employees, representatives, agents, successors and assigns, nor any officer, employee, representative or agent of the Company (individually, a "Covered Person" and, collectively, the "Covered Persons") shall be liable to the Company or any other person for any act or omission (in relation to the Company, this Agreement, any related document or any transaction or investment contemplated hereby or thereby) taken or omitted by a Covered Person, provided such act or omission does not constitute gross negligence, fraud, willful misconduct, bad faith or material breach of this Agreement. To the fullest extent permitted by law, the Company shall indemnify and hold harmless the Covered Persons and hold them harmless from and against any losses, costs, liabilities, damages, and expenses (including, without limitation, costs of suit and attorney's fees) any of them may incur as, or acting on behalf of, a Member of the Company or in performing their obligations under this Agreement; provided, however, that no person shall be indemnified and held harmless in the 12 13 case of gross negligence, fraud, willful misconduct, bad faith or material breach of this Agreement. 14. GOVERNING LAW. This Agreement shall be governed by, and construed under, the laws of the State of Delaware, without regard to the conflicts of law principles thereof. 15. NOTICES. Unless otherwise specified herein, any notice, consent or waiver required by this Agreement shall be made in a writing and shall be delivered by hand (including special delivery service such as FedEx) or sent by prepaid registered or certified mail or any means of electronic communications (including telefax) with a confirmation copy sent by registered or certified mail or by hand, to the address(es) set forth on Exhibit A as may be amended to reflect any changes in address established by notice given in the manner provided in this Section. All notices, consents, and waivers shall be effective from the earlier of (i) the date of delivery or receipt thereof, as shown by a written receipt or by a machine generated answerback which identifies the receiving party and date of receipt, or (ii) the third day after the mailing or sending thereof. 16. MISCELLANEOUS. 16.1 DEFINITIONS. The word "person" shall include a corporation, partnership, company, firm or other form of association or entity as well as a natural person. The definitions of terms contained in the recitals shall be part of the agreement of the parties and shall apply throughout the Agreement. 16.2 WAIVERS. No party hereto shall be deemed to have waived by its act or omission any provision herein or right hereunder unless that party has executed a writing setting forth the item waived and notified the other parties thereof in the manner provided in Section 15. 16.3 SEVERABILITY. If any provision of this Agreement shall be found to be unenforceable by a court or other competent body, this Agreement shall be interpreted as though that provision, to the extent that it is found to be unenforceable, were not contained herein. 16.4 SUCCESSORS, ASSIGNMENT. Subject to the provisions of this Agreement relating to transferability, this Agreement will be binding upon and inure to the benefit of the Members and their respective heirs, successors and assigns. 16.5 REMEDIES. The rights and remedies of the parties under this Agreement are not exclusive but shall be in addition to all the rights and remedies under the law governing this Agreement. 16.6 NO THIRD-PARTY BENEFICIARY. This Agreement is made solely for the benefit of the Member and no other person shall have any rights, interest, or claims hereunder or otherwise be entitled to any benefits under or on account of this Agreement as a third-party beneficiary or otherwise. 16.7 INTERPRETATION. "Including" means "including without limitation"; the word "or" is inclusive and includes "and"; the singular shall include the plural and vice versa; each word of gender shall include each other word of gender as the context may require; and 13 14 references to "Sections" or "Articles" or "Exhibits" shall mean Sections or Articles of this Agreement or Exhibits attached to this Agreement, unless expressly indicated otherwise. All Exhibits are made a part of and incorporated into this Agreement. No party shall be deemed the drafter of this Agreement, and neither this Agreement nor any provision hereof shall be construed against any party as a drafter. The titles and subtitles of the Articles and Sections used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 16.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall constitute an original of this Agreement, and all of which together shall constitute one and the same Agreement; provided, however that this Agreement will not be effective until each and every party has executed and delivered to each other party at least one counterpart of this Agreement signed by that party. The delivery of a signed counterpart of this Agreement by telefax or facsimile shall be deemed to have the same effect as the delivery of a signature original of that counterpart. 16.9 WAIVER OF PARTITION. Except as may otherwise be provided by law in connection with the winding-up, liquidation and dissolution of the Company, each Member hereby irrevocably waives any and all rights that it may have to maintain an action for partition of any of the Company's property. 16.10 INDEMNIFICATION. The Members shall cause the Company to indemnify and hold harmless Day Holdings from and against any obligation Day Holdings may have to Wells Fargo Bank, N.A. ("Wells Fargo") with respect to Proceeds (as such term is defined in that certain Assignment Agreement dated as of May 24, 2001, between Wells Fargo and Day Holdings) received by the Company, Osmond or any affiliate of either thereof. 14 15 IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first written above. DAY HOLDINGS LLC, a Delaware limited liability company By: KAYNE ANDERSON CAPITAL ADVISORS, L.P., its Manager By: KAYNE ANDERSON INVESTMENT MANAGEMENT, INC., its General Partner By: ------------------------------------ Name: Title: OSMOND ACQUISITION COMPANY, LLC, a Delaware limited liability company By: SUNRISE CAPITAL PARTNERS, L.P., its Manager By: SUNRISE ADVISORS, LLC, its General Partner By: ------------------------------------ Name: Title: 15 16 EXHIBIT A INITIAL CONTRIBUTIONS AND ADDRESSES OF MEMBERS OF KAYSUN HOLDINGS LLC as of August 8, 2001
COMPANY NAME ADDRESS INITIAL CONTRIBUTION INTEREST - ---------------------- ------------------------------- --------------------------- ----------- Day Holdings LLC 1800 Avenue of the Stars 50% interest in the loans 50% 2nd Floor and other interests under Los Angeles, CA 90067 the Second Amended and Attention: David Shladovsky Restated Loan Agreement and Robert Sinnott dated as of November 1, 2000 among Day Runner, the Telephone: 310-284-6438 other Borrowers named Facsimile: 310-284-6444 therein, the Lenders named therein and Wells Fargo Bank, N.A., as Administrative Agent, as heretofore amended or otherwise modified - --------------------------------------------------------------------------------------------------- Osmond Acquisition 685 Third Avenue 50% interest in the loans 50% Company LLC 15th Floor and other interests under New York, NY 10017 the Second Amended and Attention: Lawrence Coben and Restated Loan Agreement Michael Stewart dated as of November 1, 2000 Telephone: 212-582-3015 among Day Runner, the other Facsimile: 212-582-3016 Borrowers named therein, the Lenders named therein and Wells Fargo Bank, N.A., as Administrative Agent, as heretofore amended or otherwise modified
EX-99.(D)(5) 5 a74727ex99-d5.txt EXHIBIT 99.(D)(5) 1 EXHIBIT (d)(5) PURCHASE AND SALE AGREEMENT (SECONDARY ASSIGNMENT; BORROWER NOT IN BANKRUPTCY) This Purchase and Sale Agreement (Secondary Assignment) ("Agreement") is made by and between OAKTREE CAPITAL MANAGEMENT LLC, as general partner of or investment manager for each of the entities set forth on Schedule A hereto (collectively, "Seller" and each an "Individual Seller") and KAYNE ANDERSON CAPITAL ADVISORS, L.P. ("Buyer") as of August 7, 2000 ("Agreement Date"). 1. DEFINITIONS 1.1 In this Agreement: "AFFILIATE" means "affiliate" as defined in either (a) Bankruptcy Code Section 101(2) or (b) Rule 144 of the Securities Act. "AGENT" has the meaning given to it in Schedule 1. "AGENT EXPENSES" means any costs, liabilities, losses, claims, damages, and expenses incurred by, and any indemnification claims of, the Agent, for which the Agent has recourse under the Credit Documents to Seller, but only to the extent attributable or allocable to the Transferred Rights. "ASSIGNMENT" means the document (if any) in the form specified in the Credit Agreement for an assignment of the Loans. "ASSUMED OBLIGATIONS" means Seller's obligations and liabilities with respect to, or in connection with, the Transferred Rights resulting from facts, events or circumstances arising or occurring on and after the Effective Date; excluding, however, the Retained Obligations. "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, 11 U.S.C Sections 101 et seq., as amended. "BENEFIT PLAN" means an "employee benefit plan" subject to Title I of ERISA, a "plan" subject to Section 4975 of the Code or any Entity whose assets include the assets of any such employee benefit plan or plan. "BORROWER" means the Borrower under the Credit Agreement; as defined in Schedule l. "BUSINESS DAY" means any day that is not (a) a Saturday, (b) a Sunday, or (c) any other day on which commercial banks are authorized or required by law to be closed in the City of New York. "CODE" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated under it. 2 "COLLATERAL" means any property, whether real or personal, tangible or intangible, of whatever kind and wherever located, whether now owned or hereafter acquired or created, in or over which an Encumbrance has been, or is purported to have been, granted to or for the benefit of the Lenders under the Credit Documents. "COMMITMENTS" has the meaning given to it in Schedule 1. "CREDIT AGREEMENT" has the meaning given to it in Schedule 1. "CREDIT DOCUMENTS" means the Credit Agreement and all guarantees, security agreements, mortgages, deeds of trust, letters of credit, reimbursement agreements, waivers and amendments and all other documents and agreements executed and delivered in connection therewith. "DISTRIBUTION" means any payment or other distribution of cash (including interest), notes, securities, or other property (including Collateral) or proceeds under or in respect of the Transferred Rights. "EFFECTIVE DATE" means the date on which Seller receives the Purchase Price. "ENCUMBRANCE" means any (a) mortgage, pledge, lien, security interest, charge, hypothecation, or other encumbrance, security agreement, security arrangement or adverse claim against title of any kind; (b) purchase or option agreement or put arrangement; (c) subordination agreement or arrangement other than as specified in the Credit Documents; or (d) agreement to create or effect any of the foregoing. "ENTITY" includes any individual, partnership, corporation, limited liability company, association, estate, trust, business trust, and Governmental Authority. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the roles and regulations promulgated under it. "FEDERAL FUNDS RATE" means, for any date, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates set by the Federal Reserve Bank of New York on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day in The Wall Street Journal (Eastern Edition), or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Parties from three federal funds brokers of recognized standing selected by the Parties. For a day that is not a Business Day, the Federal Funds Rate shall be the rate applicable to federal funds transactions on the immediately preceding day for which such rate is reported. "GOVERNMENTAL AUTHORITY" means any federal, state, or other governmental department, agency, institution, authority, regulatory body, court or tribunal, foreign or domestic, and includes arbitration bodies, whether governmental, private or otherwise. 3 "GUARANTY" means a guaranty of any of Borrower's obligations under the Credit Documents, including Borrower's obligations in connection with the Loan. "IMMEDIATE PRIOR SELLERS" means the Entity or Entities from which Seller acquired the Transferred Rights. "IMPAIRMENT" means any claim, counterclaim, setoff, defense, action, demand, litigation (including administrative proceedings or derivative actions), Encumbrance, fight (including expungement, avoidance, reduction, contractual or equitable subordination, or otherwise) or defect, other than those created pursuant to the Credit Documents, the effect of which is, or would be, materially and adversely to affect the Transferred Rights, in whole or in part. "LENDER" means a lender under the Credit Agreement and its successors, transferees, and assigns. "LOANS" means the Loan(s) in the amount(s) specified in Schedule 1, and includes the note(s) (if any) evidencing such Loan(s) issued under the Credit Agreement. "OBLIGOR" means any Entity other than the Borrower and the Lenders that is obligated under the Credit Documents. "OPERATIVE DOCUMENTS" means (a) this Agreement, (b) the Assignment and (c) the Purchase Price Letter. "PARTY" means Buyer or Seller, as applicable. "PRE-CLOSING DATE ACCRUALS" means all interest and commitment, facility, letter of credit and other similar ordinary course fees (other than amendment, consent, waiver and other similar non-ordinary course fees) payable under the Credit Documents in respect of the Loans and the Commitments, if any, that accrue during the period before (but excluding) the Effective Date. "PREDECESSOR TRANSFER AGREEMENTS" means the transfer agreements under which (a) the Seller and (b) the Prior Sellers acquired the rights and obligations underlying the Transferred Rights, which transfer agreements are identified on Schedule 2. "PRIOR SELLERS" means, collectively, (a) the Immediate Prior Sellers, and (b) any predecessor Entity or Entities that transferred the Transferred Rights, which Entities are identified on Schedule 2. "PURCHASE PRICE" has the meaning given to it in the Purchase Price Letter. "PURCHASE PRICE LETTER" means the letter agreement between Buyer and Seller, dated as of the Agreement Date that specifies the calculations for determining the Purchase Price. "PURCHASE RATE" means the purchase rate stated in the Purchase Price Letter. 4 "REQUIRED CONSENTS" means the consents required pursuant to the Transaction Documents to transfer the Transferred Rights from Seller to Buyer, which Required Consents are specified in Schedule 1. "RETAINED INTEREST" means the right (if any) retained by Seller to receive, in accordance with Section 8.3, payments or other property (including Collateral) paid or delivered in respect of the Pre-Closing Date Accruals, provided that such payment or distribution by Borrower is made (A) on or before the due date thereof or the expiration of any applicable grace period, each as specified in the Credit Documents as in effect on the Effective Date (or, if no such grace period exists, the expiration of 30 days from such due date), and (B) before a default by Borrower in connection with other payment obligations of Borrower under the Credit Documents; otherwise such accrued amounts (if and when paid by Borrower) and any other accrued amounts due thereafter shall be for the account of Buyer, and Seller shall not be entitled to any part thereof. "RETAINED INTEREST DISTRIBUTION" means a payment or other distribution of property payable or deliverable to Seller in respect of a Retained Interest. "RETAINED OBLIGATIONS" means all obligations and liabilities of Seller relating to the Transferred Rights that (a) result from facts, events or circumstances arising or occurring prior to the Effective Date, (b) result from Seller's breach of its representations, warranties, covenants, or agreements under this Agreement, the Credit Documents or the Predecessor Transfer Agreements, (c) result from Seller's bad faith, gross negligence, or willful misconduct or (d) are attributable to Seller's actions or obligations in any capacity other than as a Lender under the Credit Documents. "SCHEDULE 1" means the document titled "Schedule 1 to Purchase and Sale Agreement (Secondary Assignment; Borrower Not in Bankruptcy)". "SCHEDULE 2" means the document titled "Schedule 2 to Purchase and Sale Agreement (Secondary Assignment; Borrower Not in Bankruptcy)". "SECURITIES ACT" means the Securities Act of 1933, 15 U.S.C. Sections 77a et seq., as amended, and the rules and regulations promulgated under it. "TRANSACTION DOCUMENTS" means the Credit Documents, the Operative Documents and the Predecessor Transfer Agreements. "TRANSFER FEE" has the meaning given to it in Schedule 1. "TRANSFERRED RIGHTS" means any and all of Seller's right, title, and interest in, to and under the Loans and the Commitments (if any) and to the extent related thereto, the following (excluding, however, the Retained Interest, if any): (a) all other amounts funded by or payable to Seller under the Credit Documents, and all obligations owed to Seller in connection with the Loans and the Commitments; 5 (b) the Credit Documents; (c) the Predecessor Transfer Agreements (but only to the extent related to the Loans and the Commitments, as specified on Schedule 2); (d) all claims (including "claims" as defined in Bankruptcy Code Section 101 (5)), suits, causes of action, and any other right of Seller or Prior Sellers, whether known or unknown, against Borrower, Obligor, or any of their respective Affiliates, agents, representatives, contractors, advisors, or any other Entity that in any way is based upon, arises out of or is related to any of the foregoing, including, to the extent permitted to be assigned under applicable law, all claims (including contract claims, tort claims, malpractice claims, and claims under any law governing the purchase and sale of, or indentures for, securities), suits, causes of action, and any other right of Seller or Prior Sellers against any attorney, accountant, financial advisor, or other Entity arising under or in connection with the Credit Documents; (e) all Guarantees and all Collateral and security of any kind for or in respect of the foregoing; (f) all cash, securities, or other property, and all setoffs and recoupments, received, applied, or effected by or for the account of Seller or Prior Sellers under the Loans and the Commitments, if any, and other extensions of credit under the Credit Documents (whether for principal, interest, fees, reimbursement obligations, or otherwise) after the Effective Date, including all distributions obtained by or through redemption, consummation of a plan of reorganization, restructuring, liquidation, or otherwise of Borrower, any Obligor or the Credit Documents, and all cash, securities, interest, dividends, and other property that may be exchanged for, or distributed or collected with respect to, any of the foregoing; (g) all proceeds of the foregoing. "UNFUNDED COMMITMENTS" has the meaning given to it in Schedule 1. 1.2 Terms that are defined in other provisions of this Agreement have the meanings given to them in those provisions. 1.3 Terms defined in the Credit Agreement and not otherwise defined in this Agreement shall have the same meaning in this Agreement as in the Credit Agreement. 2. ASSIGNMENT AND ASSUMPTION In consideration of the mutual covenants and agreements in, and subject to the terms and conditions of, this Agreement: 6 (a) subject to the satisfaction of the conditions in Section 3.2, Seller irrevocably sells, transfers, assigns, grants, and conveys the Transferred Rights to Buyer with effect on and after the Effective Date; (b) subject to the satisfaction of the conditions in Section 3.1, Buyer acquires the Transferred Rights, and assumes and agrees to perform and comply with the Assumed Obligations, with effect on and after the Effective Date; and (c) notwithstanding the foregoing, (i) Seller agrees to remain responsible for, and assumes and agrees to perform and comply with the Retained Obligations, and (ii) Buyer assumes no obligations other than the Assumed Obligations. This Agreement is intended to, and upon execution hereof and satisfaction or waiver of the conditions precedent set forth in Section 3 shall, effect a true sale of the Transferred Rights. 3. CONDITIONS PRECEDENT 3.1 Buyer's obligations to pay the Purchase Price to Seller, to acquire the Transferred Rights and to assume the Assumed Obligations shall be subject to the conditions that (a) Seller's representations and warranties in this Agreement shall have been true and correct on the Agreement Date and the Effective Date, (b) Seller shall have complied in all material respects with all covenants required by this Agreement to be complied with by it on or before the Effective Date and (e) Buyer shall have received (i) this Agreement and the Purchase Price Letter duly executed on behalf of Seller, (ii) the note or notes (if any) evidencing the Loans duly endorsed to Buyer or evidence reasonably satisfactory to Buyer that the note or notes have been surrendered to the Agent for reissuance to Buyer and (iii) the Assignment duly executed on behalf of Seller, Borrower (if required), the Agent and any other Entity whose consent is required by the terms of the Assignment. 3.2 Seller's obligation to sell, transfer, assign, grant, and convey the Transferred Rights to Buyer on the Effective Date shall be subject to the conditions that (a) Buyer's representations and warranties in this Agreement shall have been true and correct on the Agreement Date and the Effective Date, (b) Buyer shall have complied in all material respects with all covenants required by this Agreement to be complied with by it on or before the Effective Date, (c) Seller shall have received (i) this Agreement and the Purchase Price Letter duly executed on behalf of Buyer and (ii) the Assignment duly executed on behalf of Buyer, Borrower (if required), the Agent and any other Entity whose consent is required by the terms of the Assignment and (d) Seller shall have received payment of the Purchase Price from Buyer. 3.3 Notwithstanding the requirements of Section 3.1 and 3.2 above, Buyer shall until the Agent recognizes the direct assignment to Buyer as contemplated in this Agreement, automatically and without further action by either party acquire and hold an undivided 100% participation interest (the "Participation") in the Transferred Rights, and Seller shall hold all proceeds, payments and distributions received by Seller in respect thereof for the benefit of Buyer. The parties thereafter shall use reasonable best efforts to convert the Participation to an outright assignment as contemplated by this Agreement. For so long as the transfer hereunder remains a Participation, Seller shall, subject to any restrictions contained in the Credit Documents, the 7 Predecessor Transfer Agreement or this Agreement, act or refrain from acting in respect of any request, act, decision or vote to be made under in respect of the Credit Documents or the Participation (i) in strict accordance with prior written instructions received from Buyer or (ii) if such request, act, decision or vote is not divisible with respect to the Participation, in accordance with the prior written instructions of the holders of a majority of interests (including Seller, if applicable) with respect to all Loans (under and as defined in the Credit Agreement) held by Seller under the Credit Agreement involved in exercising such rights and, in either event except as prohibited under any applicable law, rule or order; provided, that (i) if after notice to Buyer from Seller of any of the foregoing Buyer does not so instruct Seller, then Seller may act or not in its reasonable discretion and (ii) Seller shall not be required to act if Seller reasonably determines that such action (A) would violate applicable law or the Credit Documents or (B) could result in Seller incurring any material cost, expense, obligation or liability unless Buyer has provided an indemnity acceptable to Seller. Seller shall not be held to the standard of care of a fiduciary and shall not be an agent for the Buyer, but shall exercise only the same standard of care in the administration of the Participation as if it had retained the Participation beneficially for its own account. From and after the Closing Date, the Seller and Buyer shall use all reasonable efforts to obtain the Agent's and Borrower's execution of the Assignment and Assumption. On the date that the Agent and Borrower execute the Assignment and Assumption, without any further action by the Seller, Buyer or any other party, the Participation shall terminate and shall be of no further force and effect (except that each Party shall remain liable to each other for their respective liabilities and obligations under this Section 3.3 which arose before the on the date that the Agent and Borrower execute the Assignment and Assumption) and the assignment of the Transferred Rights hereunder shall be deemed to be effective immediately without further action by any Party. Nothing contained herein shall be deemed to affect or limit in any way the Seller's or the Buyer's representations, warranties, covenants or agreements made herein, or their respective indemnity obligations with respect thereto upon the termination of the Participation. 4. SELLER'S REPRESENTATIONS AND WARRANTIES 4.1 Each Individual Seller (as to itself only and severally and not jointly and severally) represents and warrants to Buyer (as of the Agreement Date and as of the Effective Date) that: (a) Seller (i) is duly organized and validly existing under the laws of its jurisdiction of organization or incorporation, (ii) is in good standing under such laws and (iii) has full power and authority to execute, deliver and perform its obligations under the Transaction Documents to which it is or will become a party. (b) Seller's execution, delivery, and performance of the Transaction Documents to which it is or will become a party has not resulted and will not result in a breach of any provision of (i) Seller's organizational documents, (ii) any statute, law, writ, order, rule or regulation of any Governmental Authority applicable to Seller, (iii) any judgment, injunction, decree or determination applicable to Seller or (iv) any contract, indenture, mortgage, loan agreement, note, lease or other instrument by which Seller may be bound or to which any of the assets of Seller are subject. 8 (c) (i) The Transaction Documents to which Seller is a party (A) have been duly and validly authorized, executed, and delivered by Seller and (B) are the legal, valid, and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except that such enforceability against Seller may be limited by bankruptcy, insolvency, or other similar laws of general applicability affecting the enforcement of creditors' rights generally and by the court's discretion in relation to equitable remedies; and (ii) No notice to, registration with, consent or approval of, or any other action by, any relevant Governmental Authority or other Entity (other than the Required Consents) is or will be required for Seller to execute, deliver, and perform its obligations under, the Transaction Documents to which Seller is or will become a party. (d) To the same extent that Seller received such ownership and title from the Immediate Prior Sellers, Seller is the sole legal and beneficial owner of and has good title to the Transferred Rights, free and clear of any Encumbrance. The Transferred Rights are not subject to any prior sale, transfer, assignment or participation by Seller or any agreement by Seller to assign, convey, transfer or participate, in whole or in part. (e) No proceedings are (i) pending against Seller or (ii) to the best of Seller's knowledge, threatened against Seller before any relevant Governmental Authority that, in the aggregate, will materially and adversely affect (A) the Transferred Rights or (B) any action taken or to be taken by Seller under this Agreement. (f) Based solely on the representations and warranties made to Seller by the Immediate Prior Seller in the Predecessor Transfer Agreements, the principal amounts of the Loans outstanding and the Commitments, as of the Agreement Date, and all permanent commitment reductions, permanent repayments of principal and all amendment, consent, waiver and other similar non-ordinary course fees received by Seller in connection with the Transferred Rights, are accurately stated in Schedule 1. (g) Based solely on the representations and warranties made to Seller by the Immediate Prior Sellers in the Predecessor Transfer Agreements, except for the Commitments, if any, there is no funding obligation of any kind (whether fixed, contingent, conditional, or otherwise) in respect of the Transferred Rights or the Assumed Obligations (including any obligation to make advances or to purchase participations in letters of credit under any Credit Documents or any obligation relating to any currency or interest rate swap, hedge, or similar arrangement) that Seller or Buyer is or shall be required to pay or otherwise perform that Seller has not paid or otherwise performed in full. Based solely on the representations and warranties made to Seller by the Immediate Prior Sellers in the Predecessor Transfer Agreements, the Unfunded Commitments, if any, as of the Effective Date are accurately stated in Schedule 1. 9 (h) Seller has not engaged in any acts or conduct or made any omissions with respect to Borrower or any Obligor that will result in Buyer receiving proportionately less in payments or distributions under, or less favorable treatment (including the timing of payments or distributions) for, the Transferred Rights than is received by other Lenders holding loans or commitments of the same tranche as the Loans and Commitments. (i) Seller has performed, and has complied with, all obligations required to be performed or complied with by it under the Credit Documents and is not in breach of any provisions of the Credit Documents. (j) No broker, finder or other Entity acting under Seller's authority is entitled to any broker's commission or other fee in connection with the transactions contemplated by this Agreement for which Buyer could be responsible. (k) Seller has not breached any of its representations, warranties, obligations, agreements, or covenants under the Predecessor Transfer Agreements. (l) Except as set forth in Schedule 1, Seller (i) is not and has never been (A) an "insider" of Borrower or any Obligor (as "insider" is defined in Bankruptcy Code Section 101(31)) or (B) an Affiliate of Borrower or any Obligor, and (ii) is not, and has not been, a member of any official or unofficial committee relating to any Obligor. (m) Seller does not hold any funds or property of or owe any amounts or property to the Borrower or any Obligor and has not effected or received the benefit of any setoff against the Borrower or any Obligor on account of the Transferred Rights. (n) Except as set forth in Schedule 1, Seller has not received any written notice other than those publicly available that (i) any payment or other transfer made to or for the account of Seller from or on account of Borrower or any Obligor under the Transferred Rights is or may be void or voidable as an actual or constructive fraudulent transfer or as a preferential transfer or (ii) the Transferred Rights, or any portion of them, are void, voidable, unenforceable or subject to any Impairment. (o) Seller acknowledges that the consideration paid under this Agreement for the purchase of the Transferred Rights and the assumption of the Assumed Obligations may differ both in kind and amount from any Distribution. (p) Seller (i) is a sophisticated seller with respect to the sale of the Transferred Rights and the retention of the Retained Obligations, (ii) has adequate information concerning the business and financial condition of Borrower or any Obligor to make an informed decision regarding the sale of the Transferred Rights and the retention of the Retained Obligations and (iii) has independently and without reliance upon Buyer, and based on such information as Seller has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Seller has relied upon Buyer's express representations, 10 warranties, covenants, and indemnities in this Agreement. Seller acknowledges that Buyer has not given Seller any investment advice, credit information, or opinion on whether the sale of the Transferred Rights or the retention of the Retained Obligations is prudent. (q) Seller acknowledges that (i) Buyer currently may have, and later may come into possession of, information with respect to the Transferred Rights, Borrower, any Obligor or any of their Affiliates that is not known to Seller and that may be material to a decision to sell the Transferred Rights and to retain the Retained Obligations ("Seller Excluded Information"), (ii) Seller has determined to sell the Transferred Rights and to retain the Retained Obligations notwithstanding its lack of knowledge of the Seller Excluded Information and (iii) Buyer shall have no liability to Seller, and Seller waives and releases any claims that it might have against Buyer or any Buyer Indemnitee whether under applicable securities laws or otherwise, with respect to the nondisclosure of the Seller Excluded Information in connection with the transactions contemplated hereby; provided, however, that the Seller Excluded Information shall not and does not affect the truth or accuracy of Buyer's representations or warranties in this Agreement. (r) Seller is an "accredited investor" as defined in Rule 501 under the Securities Act. Without characterizing the Transferred Rights as a "security" within the meaning of applicable securities laws, Seller has not made any offers to sell, or solicitations of offers to buy, any portion of the Transferred Rights in violation of any applicable securities laws. (s) Seller has provided to Buyer (i) true, correct and complete copies of each Predecessor Transfer Agreement to which Seller is a party and (ii) to the extent and in the form received by Seller from Immediate Prior Sellers, (a) the Credit Documents and (b) the other Predecessor Transfer Agreements. A true and complete list of such Credit Documents and Predecessor Transfer Agreements is set forth on Schedule 2. (t) Other than as set forth on Schedule 1, Seller has not received (by set-off or otherwise) or directed to others any payments or other Transfers from or on account of Borrower or any Obligor in respect of the Transferred Rights on or after the 95th day preceding the Agreement Date. (u) Except for consents and waivers given by Lenders generally pursuant to and in accordance with the Credit Agreement, Seller has not given its consent to change, nor has it waived, any term or provision of any Credit Document or the Predecessor Transfer Agreements, including, without limitation, with respect to the amount or time of any payment of principal or the rate or time of any payment of interest. (v) Seller is not a party to any document, instrument or agreement (other than any Predecessor Transfer Agreements and the Credit Documents specified in Schedule 2) that could 11 materially and adversely affect the Transferred Rights or Buyer's rights and remedies under this Agreement. 4.2 Except as expressly stated in this Agreement and the Assignment, Seller makes no representations or warranties, express or implied, with respect to the transactions contemplated herein and therein. 4.3 Seller acknowledges that (a) its sale of the Transferred Rights to Buyer is irrevocable; (b) Seller shall have no recourse to the Transferred Rights; and (c) Seller shall have no recourse to Buyer, except for (i) Buyer's breaches of its representations, warranties, or covenants, and (ii) Buyer's indemnities, in each case as expressly stated in this Agreement. 5. BUYER'S REPRESENTATIONS AND WARRANTIES 5.1 Buyer represents and warrants to Seller (as of the Agreement Date and as of the Effective Date) that: (a) Buyer (i) is duly organized and validly existing under the laws of its jurisdiction of organization or incorporation, (ii) is in good standing under such laws and (iii) has full power and authority to execute, deliver and perform its obligations under, the Transaction Documents to which it is or will become a party. (b) Buyer's execution, delivery, and performance of the Transaction Documents to which it is or will become a party has not resulted, and will not result, in a breach of any provision of (i) Buyer's organizational documents, (ii) any statute, law, writ, order, rule, or regulation of any Governmental Authority applicable to Buyer, (iii) any judgment, injunction, decree or determination applicable to Buyer, or (iv) any contract, indenture, mortgage, loan agreement, note, lease, or other instrument by which Buyer may be bound or to which any of the assets of Buyer are subject. (c) (i) The Transaction Documents to which Buyer is a party (A) have been duly and validly authorized, executed, and delivered by Buyer, and (B) are the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except that such enforceability may be limited by bankruptcy, insolvency, or other similar laws of general applicability affecting the enforcement of creditors' rights generally and by the court's discretion in relation to equitable remedies; and (ii) except as provided in the Credit Documents, no notice to, registration with, consent or approval of, or any other action by, any relevant Governmental Authority or other Entity is or will be required for Buyer to execute, deliver, and perform its obligations under the Transaction Documents to which Buyer is or will become a party. (d) Without characterizing the Transferred Rights as a "security" within the meaning of applicable securities laws, Buyer is not purchasing the Transferred Rights with a view towards the sale or distribution thereof in violation of the Securities Act; 12 provided, however, that Buyer may resell the Transferred Rights if such resale is in accordance with the Securities Act and in compliance with Section 10 hereof. (e) Buyer acknowledges that the consideration paid under this Agreement for the purchase of the Transferred Rights and the assumption of the Assumed Obligations may differ both in kind and amount from any Distribution. (f) Buyer (i) is a sophisticated Entity with respect to the purchase of the Transferred Rights and the assumption of the Assumed Obligations, (ii) is able to bear the economic risk associated with the purchase of the Transferred Rights and the assumption of the Assumed Obligations, (iii) has adequate information concerning the business and financial condition of Borrower or any Obligor to make an informed decision regarding the purchase of the Transferred Rights and the assumption of the Assumed Obligations, (iv) has such knowledge and experience, and has made investments of a similar nature, so as to be aware of the risks and uncertainties inherent in the purchase of rights and assumption of liabilities of the type contemplated in this Agreement and (v) has independently and without reliance upon Seller, and based on such information as Buyer has deemed appropriate, made its own analysis and decision to enter into this Agreement, except that Buyer has relied upon Seller's express representations, warranties, covenants, and indemnities in this Agreement. Buyer acknowledges that Seller has not given Buyer any investment advice, credit information or opinion on whether the purchase of the Transferred Rights or the assumption of the Assumed Obligations is prudent. (g) Except as otherwise provided in this Agreement, Buyer has not relied and will not rely on Seller to furnish or make available any documents or other information regarding the credit, affairs, financial condition or business of Borrower or any Obligor, or any other matter concerning Borrower or any Obligor. (h) Buyer acknowledges that (i) Seller currently may have, and later may come into possession of, information with respect to the Transferred Rights, Borrower, any Obligor or any of their Affiliates that is not known to Buyer and that may be material to a decision to acquire the Transferred Rights and assume the Assumed Obligations ("Buyer Excluded Information"), (ii) Buyer has determined to purchase the Transferred Rights and assume the Assumed Obligations notwithstanding its lack of knowledge of the Buyer Excluded Information, and (iii) Seller shall have no liability to Buyer, and Buyer waives and releases any claims that it might have against Seller or any Seller Indemnitee, whether under applicable securities laws or otherwise, with respect to the nondisclosure of the Buyer Excluded Information in connection with the transactions contemplated hereby; provided, however, that the Buyer Excluded Information shall not and does not affect the truth or accuracy of Seller's representations or warranties in this Agreement. 13 (i) No broker, finder, or other Entity acting under Buyer's authority is entitled to any broker's commission or other fee in connection with the transactions contemplated by this Agreement for which Seller could be responsible. (j) Immediately prior to the sale of the Transferred Rights, either (a) no interest in the Transferred Rights is being sold by or on behalf of one or more Benefit Plans, or (b) the transaction exemption set forth in one or more prohibited transaction class exemptions ("PTEs") issued by the U.S. Department of Labor, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds), and PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers) is available with respect to the sale of the Transferred Rights. (k) Buyer acknowledges that (i) it has received copies of the Credit Documents and the Predecessor Transfer Agreements specified in Schedule 2, and (ii) without in any way limiting the representations and warranties of the Seller contained in this Agreement, it is assuming all risk with respect to the accuracy or sufficiency of such documents and information other than any representations, warranties or covenants made by Seller in any Predecessor Transfer Agreements to which Seller is a party. (l) Buyer is an "accredited investor" as defined in Rule 501 under the Securities Act. (m) No proceedings are (i) pending against Buyer or (ii) to the best of Buyer's knowledge, threatened against Buyer before any relevant Governmental Authority that, in the aggregate, will materially and adversely affect any action taken or to be taken by Buyer under this Agreement. 5.2 Except as expressly stated in this Agreement and the Assignment, Buyer makes no representations or warranties, express or implied, with respect to the transactions contemplated herein or therein. 5.3 Buyer acknowledges that (a) Seller's sale of the Transferred Rights to Buyer, and Buyer's assumption of the Assumed Obligations, are irrevocable, and (b) Buyer shall have no recourse to Seller except for (i) Seller's breaches of its representations, warranties, or covenants, and (ii) Seller's indemnities, in each case as expressly stated in this Agreement. 6. INDEMNIFICATION 6.1 Individual Seller (as to itself only and severally not jointly and severally) shall indemnify, defend, and hold Buyer and its officers, directors, agents, partners, members, controlling Entities and employees (collectively, "Buyer Indemnitees") harmless from and against any liability, claim, cost, loss, judgment, damage or expense (including reasonable attorneys' fees and expenses) that Buyer Indemnitees incur or suffer as a result of, or arising out of (a) Seller's breach of any of 14 Seller's representations, warranties, covenants, or agreements in this Agreement, or (b) any obligation of Buyer or Seller to disgorge, in whole or in part, or otherwise reimburse (by setoff or otherwise) Borrower, Agent or any other Entity for any payments, property (including Collateral), setoffs or recoupments received, applied or effected by or for the account of Seller under or in connection with the Transferred Rights or otherwise from, against or on account of Borrower. 6.2 Buyer shall indemnify, defend, and hold Seller and their officers, directors, agents, partners, members, controlling Entities, and employees (collectively, "Seller Indemnitees") harmless from and against any liability, claim, cost, loss, judgment, damage or expense (including reasonable attorneys' fees and expenses) that Seller Indemnitees incur or suffer as a result of or arising out of (a) Buyer's breach of any of it's representations, warranties, covenants, or agreements in this Agreement or (b) Seller acting or refraining to act, pursuant to any direction of (i) Buyer, or (ii) the Majority Holders (as defined in Section 11); provided, however, that Buyer's share of the indemnity under clause (b)(ii) shall be limited to a fraction, the numerator of which is (A) its percentage share of the outstanding principal amount of the Transferred Rights as set forth in Schedule A attached hereto or (B) if Seller has consented to transfers of the Transferred Rights (or a portion thereof) pursuant to Section 10.1(b), the then outstanding principal amount of the claims beneficially held by Individual Buyer in respect of which the action involved is taken by Seller, and the denominator of which is the then aggregate outstanding principal amount of all claims in respect of which the action involved is taken by Seller. 6.3 If a third party commences any action or makes any demand against either Party for which such Party ("Indemnified Party") is entitled to indemnification under this Agreement, such Indemnified Party will promptly notify the other Party ("Indemnifying Party") in writing of such action or demand; provided, however, that if the Indemnified Party assumes the defense of the action and fails to provide prompt notice to the Indemnifying Party, such failure shall not limit in any way the Indemnifying Party's obligation to indemnify the Indemnified Party except to the extent that such failure materially prejudices the Indemnifying Party's ability to defend the action. The Indemnifying Party may, at its own expense and without limiting its obligation to indemnify the Indemnified Party, participate in the defense of such action with counsel reasonably satisfactory to the Indemnified Party, or the Indemnifying Party may, at its own expense and without limiting its obligation to indemnify the Indemnified Party, assume the defense of such action with counsel reasonably acceptable to the Indemnified Party. In any event, the Party that has assumed the defense of such action shall provide the other Party with copies of all notices, pleadings, and other papers filed or served in such action. Neither Party shall make any settlement or adjustment without the other Party's prior written consent, which consent (a) in the case of the Indemnifying Party will not be unreasonably withheld if the settlement or adjustment involves only the payment of money damages by the Indemnifying Party and (b) in the case of the Indemnified Party may be withheld for any reason if the settlement or adjustment involves performance or admission by the Indemnified Party. 6.4 Each indemnity in this Agreement is a continuing obligation, separate and independent from the other obligations of the Parties and survives termination of this Agreement, and it is not necessary for a Party to incur expense or make payment before enforcing a right of indemnity conferred by this Agreement. 15 7. COSTS AND EXPENSES 7.1 Seller shall pay all bills for Agent Expenses incurred, arising, or otherwise chargeable to the period prior to but excluding the Effective Date and chargeable to Seller as a Lender under the Credit Documents. Buyer shall pay all other Agent Expenses. If either Seller or Buyer receives a bill for Agent Expenses, Seller shall pay to the Agent that portion of the bill for Agent Expenses incurred, arising, or otherwise chargeable to the period prior to but excluding the Effective Date and Buyer shall pay to the Agent the balance. If a Party pays any Agent Expenses for which the other Party is responsible pursuant to this Section 7.1, the other Party shall, promptly upon the written request of the Party paying such amounts, reimburse such paying Party for the full amount paid on such other Party's behalf. 7.2 The Parties agree to bear their own respective legal and other costs and expenses for preparing, negotiating, executing, and implementing this Agreement and any related documents and consummating the transactions contemplated under this Agreement. 7.3 The Transfer Fee shall be paid on or before the Effective Date as provided in Schedule 1. 8. DISTRIBUTIONS; INTEREST AND FEES; PAYMENTS 8.1 (a)If at any time after the Effective Date, Seller receives a Distribution (excluding, for the avoidance of doubt, a Retained Interest Distribution), Seller shall (i) accept and hold the Distribution for the account and sole benefit of Buyer, (ii) have no equitable or beneficial interest in the Distribution, and (iii) deliver the Distribution (free of any withholding, setoff, recoupment, or deduction of any kind except as required by law) promptly (but in the case of a cash Distribution, in no event later than two (2) Business Days after the date on which Seller receives it) to Buyer in the same form received and, when necessary or appropriate, with Seller's endorsement (without recourse, representation, or warranty), except to the extent prohibited under any applicable law, rule, or order. If Seller fails to pay any cash Distribution to Buyer within two (2) Business Days after receiving it, then Seller will pay interest on such payment for the period from the day on which such payment is actually received by Seller to (but excluding) the day such payment is actually paid to Buyer, in accordance with Section 8.5 hereof. (b) If a Distribution includes securities, Seller shall, to the extent permissible by law, endorse (without recourse) or use reasonable efforts to assist Buyer to cause to be registered in Buyer's name, or such name as Buyer may direct (at Buyer's sole expense) in writing and deliver such securities to Buyer or to such Entity as Buyer may direct as soon as practicable. Pending such transfer, Seller shall hold the same on behalf and for the sole benefit of Buyer and Seller shall have no legal, equitable or beneficial interest in any such Distribution. Subject to applicable law, Buyer is entitled to receive any Distribution to be remitted by Seller under this Agreement without the withholding of any tax. If Seller receives a Distribution which it is required to remit to Buyer, Buyer will furnish to Seller such forms, certifications, statements and other documents as Seller may reasonably request in writing to evidence Buyer's exemption from the withholding of any tax imposed by the United States of America or any other jurisdiction, whether domestic or foreign, or to enable Seller to comply with any applicable laws or regulations 16 relating thereto, and Seller may refrain from remitting such Distribution until such forms, certifications, statements, and other documents have been so furnished. (c) If a Distribution received by Seller and transferred to Buyer pursuant to this Section 8.1 has been made to Seller wrongfully or in error, and is required to be returned or disgorged by Seller, Buyer shall promptly return such Distribution to Seller together with all related interest and charges payable by Seller. 8.2 (a) If at any time after the Effective Date, Buyer receives from Borrower a Retained Interest Distribution, Buyer shall (i) accept and hold such Retained Interest Distribution for the account and sole benefit of Seller, (ii) have no equitable or beneficial interest in such Retained Interest Distribution and (iii) deliver such Retained Interest Distribution (free of any withholding, setoff, recoupment, or deduction of any kind except as required by law) promptly (but in the case of a cash Retained Interest Distribution in no event later than two (2) Business Days after the date on which Buyer receives it) to Seller in the same form received and, when necessary or appropriate, with Buyer's endorsement (without recourse, representation, or warranty), except to the extent prohibited under any applicable law, rule, or order. If Buyer fails to pay any cash Retained Interest Distribution to Seller within two (2) Business Days of receipt thereof, then Buyer will pay interest on such Retained Interest Distribution for the period from the day on which such Retained Interest Distribution is actually received by Buyer to (but excluding) the day such Retained Interest Distribution is actually paid to Seller, in accordance with Section 8.5 hereof. (b) If a Retained Interest Distribution includes securities, Buyer shall, to the extent permissible by law, endorse (without recourse), or use reasonable efforts to assist Seller to cause to be registered in Seller's name, or such name as Seller may direct (at Seller's sole expense) in writing, and deliver such securities to Seller or to such Entity as Seller may direct as soon as practicable. Pending such transfer, Buyer shall hold the same on behalf and for the sole benefit of Seller and Buyer shall have no legal, equitable or beneficial interest in any such Retained Interest Distribution. Subject to applicable law, Seller is entitled to receive any Retained Interest Distribution to be remitted by Buyer under this Agreement without the withholding of any tax. If Buyer receives a Retained Interest Distribution which it is required to remit to Seller, Seller will furnish to Buyer such forms, certifications, statements and other documents as Buyer may reasonably request in writing to evidence Seller's exemption from the withholding of any tax imposed by the United States of America or any other jurisdiction, whether domestic or foreign, or to enable Buyer to comply with any applicable laws or regulations relating thereto, and Buyer may refrain from remitting such Retained Interest Distribution until such forms, certifications, statements, and other documents have been so furnished. (c) If a Retained Interest Distribution received by Buyer and transferred to Seller pursuant to this Section 8.2 has been made to Buyer wrongfully or in error, and is required to be returned or disgorged by Buyer, Seller shall promptly return such Retained Interest Distribution to Buyer together with all related interest and charges payable by Buyer. 17 8.3 The treatment of Pre-Closing Date Accruals is set forth on Schedule 1. "Settled Without Accrued Interest" is specified, and all the Retained Interest shall be for the account of Seller. 8.4 Except as provided in Section 8.1 or 8.2, all payments made by Buyer to Seller or by Seller to Buyer under this Agreement shall be made in the lawful currency of the United States by wire transfer of immediately available funds to Seller or Buyer, as applicable, in accordance with the wire instructions specified in Schedule 1. 8.5 With respect to the payment of any funds or other property under this Agreement (including the delivery of Distributions under Section 8.1 and Retained Interest Distributions under Section 8.2), whether from Seller to Buyer or from Buyer to Seller, (a) the Party required to deliver a Distribution or a Retained Interest Distribution may withhold therefrom any tax required by law to be withheld, and (b) the Party failing to make full payment of any amount when due shall, upon demand by the other Party, pay such defaulted amount together with interest on it (for each day from (and including) the date when due to (but excluding) the date when actually paid) at a rate equal to the Federal Funds Rate. 9. NOTICES 9.1 All communications between the Parties or notices or other information sent under this Agreement shall be in writing, hand delivered or sent by overnight courier or telecopier, addressed to the relevant Party at its address or facsimile number specified on Schedule 1 or at such other address or facsimile number as such Party may request in writing. All such communications and notices shall be effective upon receipt. 9.2 From the Effective Date through the 45th day after the Effective Date, if Seller receives any notices, correspondence or other documents in respect of the Transferred Rights or any Credit Document that, to the best of Seller's knowledge, were not sent to the Lenders generally, Seller shall promptly forward them to Buyer. 10. FURTHER TRANSFERS 10.1 Buyer may sell, assign, grant a participation in, or otherwise transfer all or any portion of the Transferred Rights, this Agreement, its rights under this Agreement and the Predecessor Transfer Agreements, or any interest in the Transferred Rights without Seller's prior consent; provided, however, that (a) such sale, assignment, participation, or transfer shall comply with any applicable requirements in the Transaction Documents and shall not violate any applicable laws, rules or regulations, including, without limitation, any applicable securities laws, rules or regulations, and (b) notwithstanding any such sale, assignment, participation or transfer, unless Seller otherwise consents in writing (which consent Seller shall not unreasonably withhold or delay), (i) Buyer's obligations to Seller under this Agreement shall remain in full force and effect until fully paid, performed, and satisfied and (ii) Seller shall continue to deal solely and directly with Buyer in connection with Buyer's obligations under this Agreement. 10.2 Seller may assign its rights under this Agreement without the prior written consent of Buyer; provided, however, that Seller may not delegate its obligations under this Agreement without the prior written consent of Buyer. 18 11. VOTING On and after the Effective Date, (a) Buyer shall have sole authority to exercise all voting and other rights and remedies with respect to the Transferred Rights and (b) if for any reason Seller is entitled to exercise any such rights (including the right to vote) after the Effective Date, Seller (i) shall not take any action with respect to the Transferred Rights other than in accordance with the prior written instructions of Buyer and (ii) shall take (or refrain from taking) any action with respect to the Transferred Rights in accordance with the prior written instructions of Buyer except (A) as prohibited under applicable law, rule, order or the Credit Documents, or (B) if following such instructions might (in Seller's reasonable determination) expose Seller to any obligation, liability, or expense that in Seller's reasonable judgment is material and for which Seller has not been provided adequate indemnity; provided, however, that if the vote or other action involved is not divisible or may not be cast or taken separately in respect of the Transferred Rights (or the relevant portion thereof) and any other claim against the Borrower or any other Entity (whether or not included in the Transferred Rights), then Seller shall take or refrain from taking such action in accordance with instructions received by Seller and believed by Seller in good faith to have been given by the then current holders (including, as the case may be, Seller) of more than 50% of the aggregate principal amount of the claims then outstanding in respect of which such action is to be taken by Seller (the "Majority Holders"). For purposes of determining the Majority Holders pursuant to the preceding sentence, Seller shall only be required to obtain instructions relating to any action to be taken in respect of the Transferred Rights from (x) the Buyer or (y) if Seller has consented to transfers of the Transferred Rights (or a portion thereof pursuant to Section 10.1(b), the then current holders of the aggregate principal amount of the claims outstanding in respect of which such action is to be taken by Seller. 12. EXERCISE OF RIGHTS 12.1 No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Parties and no waiver of any provision of this Agreement, nor consent to any departure by either Party from it, shall be effective unless it is in writing and signed by the affected Party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 12.2 No failure on the part of a Party to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver hereof by such Party, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of each Party provided herein (a) are cumulative and are in addition to, and are not exclusive of, any rights or remedies provided by law (except as otherwise expressly set forth in this Agreement) and (b) are not conditional or contingent on any attempt by such Party to exercise any of its rights under any other related document against the other Party or any other Entity. 13. SURVIVAL; SUCCESSORS AND ASSIGNS 13.1 All representations, warranties, covenants, indemnities and other provisions made by the Parties shall be considered to have been relied upon by the Parties, shall he true and correct as 19 of the Agreement Date and the Effective Date, and shall survive the execution, delivery, and performance of this Agreement and the other Operative Documents. 13.2 This Agreement, including the representations, warranties, covenants and indemnities contained in this Agreement, shall inure to the benefit of, be binding upon and be enforceable by and against the Parties and their respective successors and permitted assigns. 14. FURTHER ASSURANCES Each Party agrees (i) to execute and deliver, or to cause to be executed and delivered, all such instruments and (ii) to take all such actions as the other Party may reasonably request to effectuate the intent and purposes, and to carry out the terms, of this Agreement, including the procurement of any third-party consents. 15. DISCLOSURE 15.1 Each Party agrees that, without the prior consent of the other Party, it shall not disclose the contents of this Agreement or the Purchase Price Letter (including the Purchase Price and the Purchase Rate) to any Entity, except that any Party may make any such disclosure (a) as required to implement or enforce this Agreement, (b) if required to do so by any law, court, or regulation, (c) to any Governmental Authority or self-regulatory Entity having or asserting jurisdiction over it, (d) if its attorneys advise it that it has a legal obligation to do so or that failure to do so may resort in it incurring a liability to any other Entity, (e) to its professional advisors and auditors or (f) as set forth in Section 15.2. 15.2 Buyer may disclose the contents of this Agreement (but not the contents of the Purchase Price Letter (including the Purchase Price and the Purchase Rate)) to any proposed transferee, assignee, participant, or other Entity proposing to enter into contractual relations with Buyer in respect of the Transferred Rights or any part of them. 15.3 Buyer agrees to comply with the requirements of the Credit Documents regarding confidentiality. 16. PARTIES' OTHER RELATIONSHIPS Each Party and any of its Affiliates may engage in any kind of lawful business or relationship with Borrower, any Obligor or any of their Affiliates without liability to the other Party, or any obligation to disclose such business or relationship to the other Party. 17. ENTIRE AGREEMENT; CONFLICT 17.1 This Agreement and the other Operative Documents constitute the entire agreement of the Parties with respect to the respective subject matters thereof, and supersede all previous and contemporaneous negotiations, promises, covenants, agreements, understandings, and representations on such subjects, all of which have become merged and finally integrated into this Agreement and the other Operative Documents. 20 17.2 This Agreement supplements the Assignment. As between Seller and Buyer, if there is any inconsistency or conflict between this Agreement and any of the other Operative Documents, the provisions of this Agreement shall govern and control. 18. COUNTERPARTS; TELECOPIES This Agreement and the other Operative Documents may be executed by telecopy in multiple counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Transmission by telecopier of an executed counterpart of any Operative Document shall be deemed to constitute due and sufficient delivery of such counterpart. Each fully executed counterpart of this Agreement and any other operative Document shall be deemed to be a duplicate original. 19. RELATIONSHIP BETWEEN BUYER AND SELLER The relationship between Seller and Buyer shall be that of seller and buyer. Neither is a trustee or agent for the other, nor does either have fiduciary obligations to the other. This Agreement shall not be construed to create a partnership or joint venture between the Parties. 20. SEVERABILITY The illegality, invalidity, or unenforceability of any provision of this Agreement under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 21. GOVERNING LAW THIS AGREEMENT, THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT, AND ANY CLAIM OR CONTROVERSY DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, SHALL IN ALL RESPECTS BE GOVERNED BY AND INTERPRETED, CONSTRUED, AND DETERMINED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICTS OF LAW PROVISION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION). 22. WAIVER OF TRIAL BY JURY THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT THAT THEY MAY HAVE TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION, OR IN ANY LEGAL PROCEEDING, DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY). EACH PARTY 21 (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 23. JURISDICTION 23.1 The Parties irrevocably and unconditionally submit to and accept the exclusive jurisdiction of the United States District Court for the Southern District of New York located in the Borough of Manhattan or the courts of the State of New York located in the County of New York for any action, suit, or proceeding arising out of or based upon this Agreement or any matter relating to it, and waives any objection it may have to the laying of venue in any such court or that such court is an inconvenient forum or does not have personal jurisdiction over it. 23.2 The Parties irrevocably agree that, should either Party institute any legal action or proceeding in any jurisdiction (whether for an injunction, specific performance, damages or otherwise) in relation to this Agreement, no immunity (to the extent that it may at any time exist, whether on the grounds of sovereignty or otherwise) from such action or proceeding shall be claimed by it or on its behalf, any such immunity being hereby irrevocably waived, and each Party irrevocably agrees that it and its assets are, and shall be, subject to such legal action or proceeding in respect of its obligations under this Agreement. 24. SUBROGATION To the extent that Buyer enforces any claim for indemnification or other claim or remedy against Seller under this Agreement and receives payment or another remedy from Seller in respect of such claim or remedy, the Parties agree that to the extent permitted by law, the Credit Documents and the Predecessor Transfer Agreements, without the need for further action on the part of either Party, Seller shall be subrogated to the rights of Buyer against any other Entity, including any Prior Sellers, with respect to such claim or remedy to the extent of such payment or other remedy. 25. INTERPRETATION 25.1 This Agreement includes the Schedules and any documents attached as exhibits to the Agreement. 25.2 The Schedules may supplement, change, or supersede other provisions of this Agreement. If there is any inconsistency between the provisions of the Schedules and the other provisions of this Agreement, the Schedules will prevail. 25.3 Terms used in the singular or the plural include the plural and the singular, respectively; "includes" and "including" are not limiting; and "or" is not exclusive 25.4 Any reference to a Party includes the Party's successors and permitted assigns. 25.5 Unless otherwise indicated, any reference to: 22 (a) this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may at any time before the Effective Date be, in effect as modified, amended, or supplemented as of the Effective Date; and (b) a statute, law, order, rule, or regulation shall be construed as a reference to such statute, law, order, rule, or regulation as it may have been, or may at any time before the Effective Date, in effect as modified, amended, or supplemented as of the Effective Date. 25.6 Section, Schedule, and other headings and captions are included solely for convenience of reference and are not intended to affect the interpretation of any provisions of this Agreement. 25.7 This Agreement shall be deemed to have been jointly drafted, and no provision of it shall be interpreted or construed for or against any Party because such Party purportedly prepared or requested such provision, any other provision, or the Agreement as a whole. 26. LIMITATIONS OF LIABILITY Neither Oaktree (except for a breach by Oaktree of the representation and warranty of Oaktree contained in the final sentence of this Section) nor any of its members shall have any personal obligations or liability to Buyer under or in connection with this Agreement, and Oaktree is acting hereunder solely as agent or general partner for and on behalf of each Individual Seller. With respect to obligations of each Individual Seller arising out of this Agreement, Buyer shall look for payment or satisfaction of any claim solely to the assets and property of such Individual Seller and not Oaktree or its members. The obligations of each Individual Seller under this Agreement are several (and not joint and several) in accordance with each Individual Seller's respective percentages specified on Schedule A hereto. Oaktree hereby represents and warrants that it is duly authorized to execute and deliver this Agreement, the Assignment and the Purchase Price Letter on behalf of each Individual Seller. (Signatures on following page) 23 IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement by their duly authorized officers as of the date first set forth above. KAYNE ANDERSON CAPITAL ADVISORS, L.P. BY: KAYNE ANDERSON INVESTMENT MANAGEMENT, INC., ITS GENERAL PARTNER By: ------------------------------------ Name: Title: OAKTREE CAPITAL MANAGEMENT, LLC, as general partner for and investment manager of the entities set forth on Schedule A By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: 24 SCHEDULES SCHEDULE 1 SCHEDULE 2 25 SCHEDULE 1 TO PURCHASE AND SALE AGREEMENT (SECONDARY ASSIGNMENT; BORROWER NOT IN BANKRUPTCY) SECTION 1 (DEFINITIONS) "Agent" means Wells Fargo Bank, National Association. "Borrower" means collectively, Day Runner Inc., Day Runner UK plc and Filofax Limited. "Commitments" means Term Loan in the principal amount of $7,070,846.54 and Revolving Commitment in the amount of $1,568,965.52 consisting of $1,533,986.81 Revolving Loans, $34,978.71 Unfunded Commitments. "Credit Agreement" (including all waivers and amendments thereto) means that certain Amended and Restated Credit Agreement dated as of September 30, 1999 among the Borrowers, the Agent and the Lenders party thereto; the Waiver dated as of March 31, 2000; the Second Waiver dated as of June 1, 2000; the Third Waiver dated June 6, 2000; the Fourth Waiver dated as of June 13, 2000 and the Amendment thereto dated as of June 19, 2000, the Fifth Waiver dated as of July 13, 2000 and the Sixth Waiver dated as of July 8, 2000. "Loans" means $7,070,846.54 Term Loans and $1,533,986.81 Revolving Loans. "Required Consents" means the consents of the Agent and the Borrower (not to be unreasonably withheld). "Transfer Fee" means the $3,500.00 transfer fee payable to the Agent in connection with the transfer by Seller to Buyer of the Assigned Rights. "Unfunded Commitments" means $34,978.71. SECTIONS 4 (SELLER'S REPRESENTATIONS AND WARRANTIES) Section 4.1(f). The principal amount of each of the Loans outstanding, the Commitments and the Unfunded Commitments as of the Effective Date, specified in Sections 4.1(f) and 4,1(g) is: Term Loan in the principal amount of $7,070,846.54 and Revolving Commitment in the amount of $1,568,965.52, consisting of $1,533,986.81 Revolving Loans, $34,978.71 Unfunded Commitments. 26 The following are (i) all permanent commitment reductions, permanent repayments of principal and all amendment, consent, waiver and other similar non-ordinary course fees received by Seller in connection with the Transferred Rights from and after the Effective Date, and (ii) all payments or other transfers received by Seller (by set-off or otherwise) or directed to others from or on account of Borrower or any Obligor in respect of the Transferred Rights on or after the 95th day preceding the Agreement Date: None Section 4.1(l) (Affiliate status; committee membership): None Section 4.1(n) (Notice of Impairment): None SECTION 7 (COSTS AND EXPENSES) The Transfer Fee shall be paid by Seller to the Agent and Buyer shall reimburse Seller for one-half thereof via an increase to the Purchase Price. SECTION 8 (DISTRIBUTIONS; INTEREST AND FEES; PAYMENTS) The treatment of Pre-Closing Date Accruals is Settled Without Accrued Interest. SECTION 9 (NOTICES) Seller's Address for Notices and Delivery 333 South Grand Avenue, 28th Floor Los Angeles, California 90071 Attention: Kenneth Liang Telephone: (213) 830-6422 Facsimile: (213) 830-8522 Seller's Wire Instructions: Bank of New York ABA No.: 021-000-018 BNF: IOC 565 Account: OCM Opportunities Escrow A/C For Account No.: 275370 Ref.: Day Runner Buyer's Address for Notices and Delivery: 1800 Avenue of the Stars 2nd Floor Los Angeles, CA 90067 Buyer's Wire Instructions: 27 SCHEDULE 2 TO PURCHASE AND SALE AGREEMENT (SECONDARY ASSIGNMENT; BORROWER NOT IN BANKRUPTCY) 1. List of Predecessor Transfer Agreements and principal amount of Loans and Commitments thereunder assigned hereby: (i) Purchase and Sale Agreement dated as of July 28, 2000 between Bank One, N.A. and Lazard Freres and the related Assignment and Acceptance and (ii) Purchase and Sale Agreement dated as of July 28, 2000 between Seller and Lazard. 2. List of Credit Documents provided to Buyer: The Credit Agreement and all schedules and exhibits thereto, the waivers listed in 3 below. 3. List of waivers, supplements, forbearances and amendments to the Credit Agreement to which Seller is a party that were executed from and after the time that Seller acquired the Transferred Rights from the Immediate Prior Sellers: the First Waiver, the Second Waiver, the Third Waiver, the Fourth Waiver and the Amendment thereto, the Fifth Waiver and the Sixth Waiver. EX-99.(F) 6 a74727ex99-f.txt EXHIBIT 99.(F) 1 EXHIBIT (f) DELAWARE GENERAL CORPORATION LAW SECTION 262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to sec. 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec. 251 (other than a merger effected pursuant to sec. 251 (g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec. 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of sec. 251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; 2 b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec. 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do 3 so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to sec. 228 or sec. 253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the 4 record date shall be the close of business on the day next preceding the day on which the notice is given. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger `or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed, by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by or more publications at least week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of 5 interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (Last amended by Ch. 339, L. `98, eff. 7-1-98.) -----END PRIVACY-ENHANCED MESSAGE-----