UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 14, 2006
Russ Berrie and Company, Inc.
(Exact Name of Registrant as Specified in Charter)
New Jersey 1-8681 22-1815337
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
111 Bauer Drive, Oakland, New Jersey 07436
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (201) 337-9000
________________________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
Reference is made to the Credit Agreement dated as of June 28, 2005, as amended
(the "LaSalle Credit Agreement") among Russ Berrie and Company, Inc. (the
"Company"), certain of its domestic wholly-owned subsidiaries party thereto, the
financial institutions parties thereto, LaSalle Bank National Association, as
"Issuing Bank" thereunder and LaSalle Business Credit, LLC as administrative
agent for the lenders and the Issuing Bank. A detailed description of the
LaSalle Credit Agreement and related documents can be found in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
In order to reduce overall interest expense and gain increased flexibility with
respect to the financial covenant structure of the Company's senior financing,
on March 14, 2006, the LaSalle Credit Agreement and all loan documents related
thereto were terminated and the obligations thereunder were refinanced as
described herein (the "LaSalle Refinancing"). The Company had not been in
compliance with the "Total Debt to EBITDA Ratio" covenant in the LaSalle Credit
Agreement for the quarter ended December 31, 2005. In connection with the
LaSalle Refinancing, all outstanding obligations under the LaSalle Credit
Agreement (approximately $76.3 million) were repaid using proceeds from the
Infantline Credit Agreement (defined below). The Company paid a fee of
approximately $1.3 million in connection with the early termination of the
LaSalle Credit Agreement, which was scheduled to mature on June 28, 2010. In
addition, the Company will write-off, in the first quarter of 2006,
approximately $2.5 million in deferred financing costs in connection with the
LaSalle Refinancing.
As part of the LaSalle Refinancing, the Company formed a wholly-owned Delaware
subsidiary, Russ Berrie U.S. Gift, Inc. ("Newco"), to which it assigned (the
"Assignment") substantially all of its assets and liabilities which pertain
primarily to its gift business, such that separate loan facilities could be made
directly available to each of the Company's domestic gift business and infant
and juvenile business, respectively, as described below.
A. The Infantline Credit Agreement
On March 14, 2006, Kids Line, LLC ("KL") and Sassy, Inc. ("Sassy", and together
with KL, the "Infantline Borrowers"), each wholly-owned subsidiaries of the
Company, entered into a credit agreement as borrowers, on a joint and several
basis, with LaSalle Bank National Association as administrative agent and
arranger (the "Agent"), the lenders from time to time party thereto, the Company
as loan party representative, Sovereign Bank as syndication agent, and Bank of
America, N.A. as documentation agent (the "Infantline Credit Agreement"). Unless
otherwise specified herein, capitalized terms used but undefined in this Section
A shall have the meanings ascribed to them in the Infantline Credit Agreement.
The commitments under the Infantline Credit Agreement (the "Infantline
Commitments") consist of (a) a $35.0 million revolving credit facility (the
"Revolving Loan"), with a subfacility for letters of credit in an amount not to
exceed $5.0 million, and (b) a $60.0 million term loan facility (the "Term
Loan"). The Infantline Borrowers drew down approximately $79.7 million on the
Revolving Loan
on the Closing Date, which reflects the payoff of all amounts outstanding under
the LaSalle Credit Agreement and certain fees and expenses associated with the
LaSalle Refinancing.
The principal of the Term Loan will be repaid in installments as follows: (a)
$750,000 on the last day of each calendar month for the period commencing March,
2006 through and including February, 2008, (b) $1,000,000 on the last day of
each calendar month for the period commencing March, 2008 through and including
February, 2009, (c) $1,250,000 on the last day of each calendar month for the
period commencing March, 2009 through and including February 2011. A final
installment in the aggregate amount of the unpaid principal balance of the Term
Loan (in addition to all outstanding amounts under the Revolving Loan) is due
and payable on March 14, 2011, in each case subject to earlier termination in
accordance with the terms of the Infantline Credit Agreement.
The Infantline Commitments will bear interest at a rate per annum equal to the
Base Rate (for Base Rate Loans) or the LIBOR Rate (for LIBOR Loans) plus an
applicable margin, in accordance with a pricing grid based on the most recent
quarter-end Total Debt to EBITDA Ratio, which applicable margin shall range from
1.75% - 2.50% for LIBOR Loans and from 0.25% - 1.00% for Base Rate Loans;
provided, however, that from the closing date under the Infantline Credit
Agreement until delivery of the financial statements and compliance certificate
with respect to each of the fiscal year ended December 31, 2005 and the fiscal
quarter ending March 31, 2006 (the "Initial Period"), the applicable interest
rate margins shall be as follows: 2.25% for LIBOR Loans and 0.75% for Base Rate
Loans. Interest rates shall increase to the highest level in the grid if
required financial statements and compliance certificates are not delivered when
due until the first business day after such items are delivered.
Interest will be due and payable (i) with respect to Base Rate Loans, monthly in
arrears on the last day of each calendar month, upon a prepayment and at
maturity and (ii) with respect to LIBOR Loans, on the last day of each Interest
Period, upon a prepayment (and if the Interest Period is in excess of three
months, on the three-month anniversary of the first day of such Interest
Period), and at maturity.
In connection with the execution of the Infantline Credit Agreement, the
Infantline Borrowers paid aggregate closing fees of $1,425,000 and an aggregate
agency fee of $25,000. An aggregate agency fee of $25,000 will be payable on
each anniversary of the Closing Date. The Revolving Loan shall be subject to an
annual non-use fee (payable monthly, in arrears, and upon termination of the
relevant obligations) of 0.50% for unused amounts under the Revolving Loan, an
annual letter of credit fee (payable monthly, in arrears, and upon termination
of the relevant obligations) for undrawn amounts with respect to each letter of
credit based on the most recent quarter-end Total Debt to EBITDA Ratio ranging
from 1.75% - 2.50%, customary letter of credit administration fees and a letter
of credit fronting fee in amounts agreed to by the Infantline Borrowers and the
Issuing Lender. Notwithstanding the foregoing, during the Initial Period, the
letter of credit fee shall equal 1.75%. In addition, if the Termination Date
occurs prior to the first anniversary of the Closing Date, the Infantline
Borrowers shall pay an aggregate early termination fee of $950,000.
The Infantline Borrowers are required to make prepayments of the Term Loan until
paid in full upon (i) the receipt of any Net Cash Proceeds from (i) any Asset
Disposition, (ii) any issuance of Capital Securities of any Loan Party
(excluding specified
issuances) or the issuance of any Debt of any Loan Party (excluding specified
Debt), and (iii) receipt of any contribution by the Company funded from Net Cash
Proceeds of any issuance of Capital Securities by any Loan Party) to the
Company, in each case in an amount equal to 100% of such Net Cash Proceeds or
contribution, as applicable, which amounts shall be applied as set forth in the
Infantline Credit Agreement. In addition, commencing with fiscal year 2007,
annual mandatory prepayments of the Term Loan shall be required until paid in
full upon achievement of Excess Cash Flow for each fiscal year, in an amount
equal to 50% of such Excess Cash Flow unless the Total Debt to EBITDA Ratio for
the prior fiscal year was equal to or less than 2.00:1.00.
The Infantline Credit Agreement contains affirmative and negative covenants,
including, without limitation, financial reporting (including commencing with
fiscal year 2007, annual delivery of projections), notice requirements with
respect to specified events, required compliance certificates, required
borrowing base certificates, limitations on the issuance of equity, limitations
on liens, limitations on the incurrence of further indebtedness, limitations on
mergers, consolidations, sales of assets and other transactions outside of the
ordinary course of business, limitations on making distributions to the Company
(some of which are described below), limitations on stock redemptions or
repurchases and/or the prepayment or redemption of other debt (including the
Earnout Consideration, as described below), limitations on investments,
limitations on transactions with affiliates, and prohibitions on the commingling
of cash of the Infantline Borrowers with cash of affiliates of the Infantline
Borrowers. Notwithstanding the foregoing, certain acquisitions are permitted
under the Infantline Credit Agreement. In addition, the Infantline Credit
Agreement contains the following financial covenants (the "Infantline Financial
Covenants"): (i) a minimum EBITDA test, (ii) a minimum Fixed Charge Coverage
Ratio, (iii) a maximum Total Debt to EBITDA Ratio and (iv) an annual capital
expenditure limitation.
The Infantline Borrowers are not permitted to distribute cash to the Company to
pay dividends to the shareholders of the Company unless (i) the Earnout
Consideration is paid in full, (ii) before and after giving effect to such
distribution, no Event of Default or Unmatured Event of Default would exist,
(iii) before and after giving effect to such distribution, Excess Revolving Loan
Availability will equal or exceed $4.0 million and (iv) no violation of the
Infantline Financial Covenants would then exist, or would, on a pro forma basis,
result therefrom. Any such dividends by the Company may be declared no more
frequently than quarterly and must take the form of regular cash dividends from
legally available funds.
In addition, the Infantline Borrowers are not permitted (except in specified
situations described in the Infantline Credit Agreement) to distribute cash to
the Company to pay the Company's overhead expenses unless (i) before and after
giving effect to such distribution, no Event of Default would exist and (ii)
before and after giving effect to such distribution, Excess Revolving Loan
Availability will equal or exceed $4.0 million; provided that the aggregate
amount of such distributions shall not exceed $2.0 million per year.
The Infantline Borrowers are not permitted to distribute cash to the Company to
repurchase or redeem securities of the Company held by employees, officers or
directors unless (i) subject to specified exceptions, the Earnout Consideration
is paid in full, (ii) before and after giving effect to
such distribution, no Event of Default or Unmatured Event of Default would
exist, (iii) before and after giving effect to such distribution, Excess
Revolving Loan Availability will equal or exceed $5.0 million and (iv) no
violation of the Infantline Financial Covenants would then exist, or would, on a
pro forma basis, result therefrom.
As is described below, as a result of the LaSalle Refinancing, the obligation to
pay the Earnout Consideration is no longer the obligation of the Company, but
the joint and several obligation of the Infantline Borrowers. With respect to
the Earnout Consideration, the Infantline Borrowers will be permitted to pay all
or a portion of the Earnout Consideration to the extent that, before and after
giving effect to such payment, (i) Excess Revolving Loan Availability will equal
or exceed $3.0 million and (ii) no violation of the Infantline Financial
Covenants would then exist, or would, on a pro forma basis, result therefrom.
The Infantline Credit Agreement contains certain events of default, including,
among others, non-payment of principal, interest, fees, reimbursement
obligations with respect to any letter of credit or other amounts, breach of
representations and warranties in any material respect, violation of covenants,
specified cross defaults (which do not include defaults under the Giftline
Credit Agreement described below), bankruptcy events, judgments, ERISA or other
pension plan violations, specified losses of collateral, the occurrence of a
change of control of the Company (as defined in the Infantline Credit
Agreement), and/or a continuing default under the Infantline Pledge Agreement
(defined below). If an event of default occurs and is continuing: (i) the Agent
is entitled to, and under specified circumstances is required to, declare the
Infantline Commitments to be terminated in whole or in part and/or declare all
or any part thereof to be due and payable and/or demand that the Infantline
Borrowers immediately cash collateralize all or any letters of credit, (provided
that upon events of bankruptcy, the Infantline Commitments will be immediately
due and payable, and the Infantline Borrowers will be required to immediately
cash collateralize all or any letters of credit), and (ii) a default interest
rate may, and in the event of specified payment defaults or bankruptcy events
will, become applicable to the Infantline Commitments at a rate per annum equal
to the rate of interest otherwise in effect plus 2%.
The Infantline Credit Agreement requires that the board of directors of each of
the Infantline Borrowers have at least one Independent Director. The Infantline
Credit Agreement contains various conditions to lending, including that no Event
of Default or Unmatured Event of Default shall have occurred and be continuing.
In order to secure the obligations of the Infantline Borrowers, the Infantline
Borrowers have pledged and have granted security interests to the Agent in
substantially all of their existing and future personal property, all pursuant
to the terms of a Guaranty and Collateral Agreement made on March 14, 2006 among
the Infantline Borrowers and the Agent (the "Infantline Security Agreement").
Pursuant to the Infantline Security Agreement, each Infantline Borrower also
guarantees the performance of the other Infantline Borrower under the Infantline
Credit Agreement. As additional security for the Infantline Borrower's
obligations under the Infantline Credit Agreement, the Infantline Borrower's
granted a mortgage for the benefit of the Agent and the lenders on its real
property located at 2305 Breton Industrial Park Drive, S.E., Kentwood, Michigan.
In addition, in order to secure the obligations of the Infantline Borrowers
under the Infantline Credit Agreement, the Company executed a pledge agreement
with the Agent on behalf of itself and the lenders party to the Infantline
Credit Agreement, dated as of March 14, 2006 (the "Infantline Pledge
Agreement"), pursuant to which the Company pledged 100% of the equity interests
of each of the Infantline Borrowers to the Agent. Pursuant to the Infantline
Pledge Agreement, the Company has agreed that it will function solely as a
holding company and will not, without the prior written consent of the Agent,
engage in any business or activity except for specified activities, including
those relating to its investments in its subsidiaries existing on the Closing
Date, the maintenance of its existence and compliance with law, the performance
of obligations under specified contracts and other specified ordinary course
activities.
B. The Giftline Credit Agreement
On March 14, 2006, Newco and other specified wholly-owned domestic subsidiaries
of the Company (collectively, the Giftline Borrowers"), entered into a credit
agreement as borrowers, on a joint and several basis, with LaSalle Bank National
Association, as issuing bank (the "Issuing Bank"), LaSalle Business Credit, LLC
as administrative agent (the "Administrative Agent"), the lenders from time to
time party thereto, and the Company, as loan party representative (the "Giftline
Credit Agreement"). Unless otherwise specified herein, capitalized terms used
but undefined in this Section B shall have the meanings ascribed to them in the
Giftline Credit Agreement.
The commitments under the Giftline Credit Agreement consist of (a) before such
commitment is increased (at any time if no Event of Default or Default is
existing with the consent of the Administrative Agent and the Issuing Bank), a
revolving credit facility in an amount equal to the Borrowing Base minus amounts
outstanding under the Canadian Credit Agreement (as defined below) and (b) after
such commitment is increased, the lesser of (i) $25.0 million and (ii) the
then-current Borrowing Base, in each case minus amounts outstanding under the
Canadian Credit Agreement (the "Giftline Revolver"), with a subfacility for
letters of credit to be issued by the Issuing Bank in an amount not to exceed
$8.0 million. The Giftline Borrowers did not draw down on the Giftline Revolver
on the Closing Date.
All outstanding amounts under the Giftline Revolver are due and payable on March
14, 2011, subject to earlier termination in accordance with the terms of the
Giftline Credit Agreement.
The Giftline Revolver will bear interest at a rate per annum equal to the sum of
the Base Rate (for Base Rate Loans) or the LIBOR Rate (for LIBOR Loans) plus a
margin of 2.75% for LIBOR Loans and 1.25% for Base Rate Loans.
Interest will be due and payable in the same manner as with respect to the
Infantline Commitments.
In connection with the execution of the Giftline Credit Agreement, the
Infantline Borrowers paid (on behalf of the Giftline Borrowers) aggregate
closing fees of $150,000 and an aggregate agency fee of $20,000. Aggregate
agency fees of $20,000 will be payable by the Giftline Borrowers on each
anniversary of the Closing Date. The Giftline Revolver shall be subject to an
annual non-use fee (payable monthly, in arrears, and upon termination of the
relevant obligations) of 0.50% for unused amounts under the Giftline Revolver,
and other fees as described with respect to the Giftline Revolver. If the
commitment under the Giftline Credit Agreement is increased, an additional fee
equal to 1% of the increase will be required. In addition, if the Termination
Date occurs prior to the first anniversary of the Closing Date, the Giftline
Borrowers shall pay a termination fee equal to 1% of the highest Maximum
Revolving Commitment that had been in effect at any time prior to such
termination.
Mandatory prepayments of amounts outstanding under the Giftline Revolver shall
be required until paid in full upon the receipt of any Net Cash Proceeds from
(i) any Asset Disposition (or financing or refinancing any Obligations with
specified debt), and (ii) any issuance of Capital Securities of any Loan Party
(excluding specified issuances) or the issuance of any Debt of any Loan Party
(excluding specified Debt), in each case in an amount equal to 100% of such Net
Cash Proceeds, which amounts shall be applied as set forth in the Giftline
Credit Agreement.
All accounts of the Giftline Borrowers are required to be with the
Administrative Agent or its affiliates, and cash will be swept on a daily basis
to pay down outstanding amounts under the Giftline Revolver.
The Giftline Credit Agreement contains affirmative and negative covenants
substantially similar to those applicable to the Infantline Credit Agreement. In
addition, the Giftline Credit Agreement contains the following financial
covenants (the "Giftline Financial Covenants"): (i) a minimum EBITDA test, (ii)
a minimum Excess Revolving Loan Availability requirement of $5.0 million, (iii)
an annual capital expenditure limitation and (iv) a minimum Fixed Charge
Coverage Ratio (for quarters commencing with the quarter ended March 31, 2008).
In addition, at any time after December 31, 2007 in respect of which the Fixed
Charge Coverage Ratio for the Computation Period ending as of the Fiscal Quarter
end most recently preceding such date was less than 1.00 to 1.00, Revolving
Outstandings plus the sum of the aggregate principal amount of all Loans, all
Specified Hedging Obligations and the Stated Amount of all Letters of Credit
outstanding under (and, in each case, as such terms are defined in) the Canadian
Loan Agreement, may not exceed $10,000,000.
The Giftline Borrowers are not permitted to distribute cash to the Company to
pay dividends to the shareholders of the Company unless (i) the Earnout
Consideration is paid in full, (ii) before and after giving effect to such
distribution, no Event of Default or Unmatured Event of Default would exist,
(iii) before and after giving effect to such distribution, Excess Revolving Loan
Availability will equal or exceed $8.0 million, (iv) no violation of the
Giftline Financial Covenants would then exist, or would, on a pro forma basis,
result therefrom and (v) the Fixed Charge Coverage Ratio equals or exceeds
1.25:1.00.
In addition, the Giftline Borrowers are not permitted (except in specified
situations described in the Giftline Credit Agreement) to distribute cash to the
Company to pay the Company's overhead expenses unless (i) before and after
giving effect to such distribution, no Event of Default or Unmatured Event of
Default would exist, (ii) no violation of the Giftline Financial Covenants would
then exist, or would, on a pro forma basis, result therefrom, and (iii) the
aggregate of such distributions do not exceed $4.5 million per year for each of
fiscal years 2006 and 2007, and $5.0 million for each fiscal year thereafter
(other than with respect to costs paid by the Company that should have been
incurred by the Giftline Borrowers).
The Giftline Credit Agreement contains events of default and consequences
therefrom substantially similar to those set forth in the Infantline Credit
Agreement. In addition, Events of Default under the Giftline Credit Agreement
include (i) specified events with respect to the EDA Standby L/C and the EDA
Bonds (described below) and (ii) the occurrence of a Triggering Event
(generally, the invalidation of the Assignment and/or security interests granted
by Newco in connection therewith pursuant to applicable law relating to
bankruptcy, insolvency or creditors' rights).
The Giftline Credit Agreement contains various conditions to lending, including
that no Event of Default or Unmatured Event of Default shall have occurred and
be continuing.
In order to secure the obligations of the Giftline Borrowers, the Giftline
Borrowers have pledged and have granted security interests to the Administrative
Agent in substantially all of their existing and future personal property, all
pursuant to the terms of a Guaranty and Collateral Agreement made on March 14,
2006 among the Giftline Borrowers and the Administrative Agent, on behalf of
itself and the lenders (the "Giftline Security Agreement"). Pursuant to the
terms of the Giftline Security Agreement, each Giftline Borrower also guarantees
the performance of the other Giftline Borrowers under the Giftline Credit
Agreement.
In accordance with the terms of the Limited Recourse Guaranty and Collateral
Agreement between the Company and the Administrative Agent, dated as of March
14, 2006 (the "Parent Guaranty"), the Company agreed to guaranty the obligations
of the Giftline Borrowers under the Giftline Credit Agreement. This guarantee is
secured by a lien on the assets intended to be assigned to Newco pursuant to the
Assignment.
In addition, in order to secure the obligations of the Giftline Borrowers under
the Giftline Credit Agreement, the Company executed a pledge agreement with the
Administrative Agent, on behalf of itself and the lenders party to the Giftline
Credit Agreement, dated as of March 14, 2006 (the "Giftline Pledge Agreement"),
pursuant to which the Company pledged 100% of the equity interests of each of
the Giftline Borrowers and 65% of its equity interests in certain of its First
Tier Foreign Subsidiaries to the Administrative Agent. The Giftline Pledge
Agreement contains substantially similar limitations on the activities of the
Company as is set forth in the Infantline Pledge Agreement.
The LaSalle Credit Agreement and all other loan and/or security agreements
executed in connection with the LaSalle Credit Agreement, were terminated
concurrently with the consummation of the LaSalle Refinancing.
C. Related Matters
Canadian Credit Agreement
As contemplated by the LaSalle Credit Agreement, the Company's Canadian
subsidiary, Amram's Distributing Ltd. ("Amrams"), executed on June 30, 2005, as
of June 28, 2005, as amended, a separate Credit Agreement (acknowledged by the
Company) with the financial institutions party thereto and LaSalle Business
Credit, a division of ABN AMRO Bank, N.V., Canada Branch, a
Canadian branch of a Netherlands bank, as issuing bank and administrative agent
(the "Canadian Credit Agreement"), and related loan documents with respect to a
maximum U.S. $10.0 million revolving loan (the "Canadian Revolving Loan"). The
Company executed an unsecured Guarantee (the "Canadian Guarantee") to guarantee
the obligations of Amrams under the Canadian Credit Agreement. In connection
with the LaSalle Refinancing, the Canadian Credit Agreement was amended to (i)
replace references to the LaSalle Credit Agreement with the Giftline Credit
Agreement (such that, among other conforming changes, a default under the
Giftline Credit Agreement will be a default under the Canadian Credit
Agreement), (ii) release the Company from the Canadian Guaranty and (iii)
provide for a maximum U.S. $5 million revolving loan. In connection with the
release of the Company from the Canadian Guaranty, Newco executed an unsecured
Guarantee (the "Newco Guarantee") to guarantee the obligations of Amrams under
the Canadian Credit Agreement. A default under the Infantline Credit Agreement
will not constitute a default under the Canadian Credit Agreement.
EDA
All capitalized terms used but undefined in this "EDA" Section shall have the
meanings ascribed to them in the Giftline Credit Agreement.
Since 1983, the Company has been a guarantor of the EDA Loan Agreement, which
was entered into December 1, 1983 by Mr. Russell Berrie and the EDA to finance
the construction of one of the properties the Company now leases from the Estate
of Mr. Russell Berrie (the "Estate"). The Estate is the primary obligor of the
mortgage securing such loan. Such mortgage has a principal amount outstanding of
$7,000,000. In connection therewith, the Company, in 1983, caused the issuance
of the EDA Standby L/C in an amount of approximately $7.4 million to secure the
payment obligations of the EDA Bonds and has granted a security interest on
accounts receivable and inventory of the Company up to $2.0 million to secure
its obligations under its guarantee and the Amended and Restated Letter of
Credit Reimbursement Agreement (the "L/C RA") executed in connection therewith.
Ms. Angelica Berrie, a beneficiary under the Estate, has agreed to deposit in
escrow the funds necessary to redeem the EDA Bonds. Once the EDA Bonds have been
redeemed, the Company's obligations under the guarantee discussed above (as well
as the EDA Standby L/C and related security interests) will be terminated.
Consummation of the Assignment, however, resulted in a covenant default under
the documents governing the EDA Bonds and a default under the L/C RA and, as a
result thereof, among other things, permits the EDA Standby L/C Issuer to demand
cash collateral in respect of the EDA Standby L/C. In consideration for the
agreement of the EDA Standby L/C Issuer to refrain for a specified time period
from demanding such cash collateral or additional collateral, the Administrative
Agent has agreed to issue, on behalf of the Giftline Borrowers, a letter of
credit in an approximate amount of $7.4 million (the "Back-Stop L/C") that can
be drawn upon by the EDA Standby L/C Issuer under specified circumstances,
including any draw on the EDA Standby L/C or the failure of the EDA Bonds to be
redeemed by August 15, 2006. In consideration for the establishment of the
Back-Stop L/C, the EDA Standby L/C Issuer has agreed to grant to the
Administrative Agent a 100% participation in all rights of the EDA Standby L/C
Issuer under the L/CRA, including the EDA Standby L/C.
In connection with the EDA Bonds, the following, among other events, shall
constitute Events of Default under the Giftline Credit Agreement: (i) any
drawing is made under the EDA Standby L/C,
other than any such drawing for regularly scheduled monthly payments of interest
due and owing under the EDA Bonds, which drawing is reimbursed within the time
set forth therefor pursuant to the EDA Bond Indenture; any drawing is made on
the Back-Stop L/C, or the Standby L/C Issuer demands additional collateral for
the obligations under the L/C RA, (ii) Angelica Berrie shall fail to deposit in
escrow with the EDA Bond Trustee the full amount of available monies required to
effect the EDA Bond Redemption on or prior to March 20, 2006, (iii) Angelica
Berrie shall fail to initiate the EDA Bond Redemption by May 5, 2006 (such date
to be deferred under specified circumstances until August 5, 2006) or (iv) the
EDA Release Date shall not have occurred prior to August 15, 2006.
Earnout Security Documents
All capitalized terms used but undefined in this "Earnout Security Documents"
Section shall have the meanings ascribed to them in the Giftline Credit
Agreement.
As has been previously reported, the Company executed the Earnout Security
Documents in order to secure the Company's obligation to pay the Earnout
Consideration under the Kids Line Purchase Agreement. Pursuant to the Letter
Agreement between the Infantline Borrowers and California KL Holdings, Inc., and
the other parties thereto (the "Letter Agreement"), the Infantline Borrowers
have agreed, on a joint and several basis, to assume sole responsibility to pay
the Earnout Consideration in the place of the Company. In connection therewith,
the Earnout Security Documents have been amended to effect the partial release
of the Company as obligor and the full release of the security interests granted
thereunder by any Giftline Borrowers. To secure the obligations of the
Infantline Borrowers to pay the Earnout Consideration, the Infantline Borrowers
have granted a subordinated lien on substantially all of their assets, on a
joint and several basis, and the Company has granted a subordinated lien on the
equity interests of each of the Infantline Borrowers to the Earnout Sellers
Agent. All such security interests and liens are subordinated to the senior
indebtedness of the Infantline Borrowers arising under the Infantline Credit
Agreement. The Earnout Consideration is not secured by the Giftline Borrowers or
their assets or equity interests.
ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT
The disclosures required by this Item are set forth in Item 1.01 above, which is
incorporated herein by reference thereto.
SECTION 2 -- FINANCIAL INFORMATION
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
The disclosures required by this Item are set forth in Item 1.01 above, which is
incorporated herein by reference thereto.
SECTION 8 -- OTHER EVENTS
On March 16, 2006, the Company issued a press release announcing consummation of
the LaSalle Refinancing. The press release has been filed as Exhibit 99.1 to
this Current Report on Form 8-K and is incorporated by reference herein.
SECTION 9 -- FINANCIAL STATEMENTS AND EXHIBITS
(C) EXHIBITS
The following exhibits are filed with this report:
Exhibit 99.1 Press Release dated March 16, 2006, announcing the consummation
of the LaSalle Refinancing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 16, 2006 RUSS BERRIE AND COMPANY, INC.
By: /s/ John D. Wille
------------------------------------
John D. Wille
Vice President and
Chief Financial Officer
Exhibit Index
Exhibit 99.1 Press Release dated March 16, 2006, announcing the consummation
of the LaSalle Refinancing.