-----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, LPSeguXp4EVUWSB2Q420tG22iPFtiuP1QD5iLRQ6DjWlR8jyPewvgty158yLKmug 2sPzDwkU+38whVygYGJCmg== 0000853102-99-000083.txt : 19991018 0000853102-99-000083.hdr.sgml : 19991018 ACCESSION NUMBER: 0000853102-99-000083 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAY RUNNER INC CENTRAL INDEX KEY: 0000853102 STANDARD INDUSTRIAL CLASSIFICATION: BLANKBOOKS, LOOSELEAF BINDERS & BOOKBINDING & RELATED WORK [2780] IRS NUMBER: 953624280 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19835 FILM NUMBER: 99727864 BUSINESS ADDRESS: STREET 1: 15295 ALTON PARKWAY CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7146803500 MAIL ADDRESS: STREET 1: 15295 ALTON PARKWAY CITY: IRVINE STATE: CA ZIP: 92718 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED 6/30/99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 COMMISSION FILE NUMBER 0-19835 DAY RUNNER, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-3624280 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 15295 ALTON PARKWAY, IRVINE, CALIFORNIA 92618 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number including Area Code: (714) 680-3500 Securities Registered Pursuant To Section 12(B) Of The Act: NONE Securities Registered Pursuant To Section 12(G) Of The Act: COMMON STOCK, $0.001 PAR VALUE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock on October 1, 1999 as reported on The Nasdaq Stock Market, was approximately $77,000,000. The number of shares outstanding of the registrant's Common Stock on October 1, 1999 was 11,900,736. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement to be delivered to stockholders in connection with their Annual Meeting of Stockholders to be held on December 9, 1999 are incorporated by reference into Part III of this Annual Report.
TABLE OF CONTENTS PART I PAGE Item 1. Business 3 Item 2. Properties 18 Item 3. Legal Proceedings 19 Item 4. Submission of Matters to a Vote of Security Holders 19 PART II. Item 5. Market for Registrant's Common Equity and Related 19 Stockholder Matters Item 6. Selected Financial Data 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 22 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 30 Item 8. Financial Statements and Supplementary Data 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31 PART III. Item 10. Directors and Executive Officers of the Registrant 31 Item 11. Executive Compensation 31 Item 12. Security Ownership of Certain Beneficial Owners and Management 31 Item 13. Certain Transactions 31 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32 Signatures 36 Exhibit Index
PART I FORWARD LOOKING STATEMENTS With the exception of actual reported financial results and other historical information, the statements contained in this Annual Report on Form 10-K ("Annual Report") including, but not limited to, statements found in Item 1. "Business," Item 3. "Legal Proceedings," Item 7. "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" constitute "forward-looking statements" within the meaning of the federal securities laws and involve a number of risks and uncertainties. Such statements are based on current expectations and involve known and unknown risk and uncertainties and certain assumptions, referred to below, and are indicated by words or phrases such as "anticipate," "estimate," "project," "expect," "believes," "intends" and similar words or phrases. These forward looking statements are based on management's expectations as of the date set forth on the signature page of this document, and the Company does not undertake any obligation to update any of these statements. There can be no assurance that the Company's actual future performance will meet its expectations. The Company is subject to a number of risks, and its future operating results are difficult to predict and subject to significant fluctuations. Factors that may cause future results to differ materially from the Company's current expectations include, among others: the timing and size of orders from large customers; timing and size of orders for new products; large customers' inventory management; competition, especially for retail shelf space; general economic conditions, especially the sustainability of the current economic expansion; the health of the retail environment; foreign exchange rate fluctuations; supply and manufacturing constraints; supplier performance; and the Company's ability to meet its cash requirements to finance its operations and growth. Among the effects of these factors may be: lower than anticipated sales; higher than anticipated product returns and/or excess inventory; negative effects on consumer purchases; lower than anticipated gross profit; and higher than anticipated operating expenses. Discussions of certain of these factors and other factors that may cause future results to differ materially from the Company's current expectations are contained in this document in "Risk Factors," under Item 1, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Item 7 and in "Quantitative and Qualitative Disclosures about Market Risk" under Item 7A. ITEM 1. BUSINESS THE COMPANY Day Runner(R) develops, manufactures and markets organizing products to broad-based consumer audiences through retail channels. The Company is the leading developer, manufacturer, and marketer of paper-based organizers for the retail market. Day Runner also develops, manufacturers and markets related organizing products. Day Runner markets its products under two major brands, Day Runner and Filofax(R), and a number of sub-brands. The Company estimates its products occupy an aggregate of more than 900,000 linear feet of shelf space in more than 22,000 retail stores across the U.S. and approximately 8,000 retail stores in other markets around the world. The vast majority of the Company's sales are to resellers, with direct sales to organizations and to individuals accounting for a very small portion of sales. The Company markets its products to its customers in the U.S. through its own sales force and also makes selective use of manufacturers' representatives and the Internet. The Company markets its products outside the U.S. primarily through its subsidiaries and secondarily through independent distributors. The Company's domestic sales are primarily to the office products and mass market channels of distribution and are concentrated among relatively few major customers, including office products superstores Office Depot, Inc., OfficeMax, Inc. and Staples, Inc. and mass market retailers Wal-Mart and Kmart. Sales to the U.S. office products and mass market channels accounted for approximately 35% and 36%, respectively, of fiscal 1999 sales. With its October 1998 acquisition of Filofax Group plc, the Company substantially increased its focus on international markets. Sales to foreign customers accounted for approximately 23% of fiscal 1999 sales. The Company groups its products into three categories: organizers and planners; their refills, which include calendars, other pages and accessories; and related organizing products. The Company's organizers and planners are loose-leaf and spiral-bound time and information management systems that range from simple to sophisticated. The Company offers multiple product lines aimed at market segments ranging from students to women managing a home to business and professional people. Organizers and planners accounted for approximately 41% of Day Runner's fiscal 1999 sales. The great majority of the Company's organizers and planners are refillable. Refills, which include calendars, other pages and accessories, accounted for approximately 32% of sales in fiscal 1999. The Company's related organizing products include, among others: telephone/address books, business accessories, products for students from elementary school through college and organizing and other wall boards. Related organizing products accounted for approximately 27% of fiscal 1999 sales. All of the Company's current major product lines have been developed internally by the parent company or one of the companies Day Runner has acquired. The Company manufactures and assembles a portion of its products at its facilities in the U.S. and abroad and also uses foreign and domestic contractors to supply both product components and finished goods. Day Runner, Inc. was incorporated in California in 1980 and reincorporated in Delaware in 1993. Unless the context requires otherwise, all references to the "Company" or to "Day Runner" herein refer to Day Runner, Inc. and its consolidated subsidiaries. The Company's corporate headquarters are located at 15295 Alton Parkway, Irvine, California 92618 (phone number 714/680-3500). Day Runner, Filofax, PRO Business System, Timeposters and Wipe-Out are registered trademarks of Day Runner, Inc. Business Manager, Cubicle Manager, Everything in One Place, FactCentre, 4-1-1, Home Manager, Message Manager, Microfile, org.board, Perennials and Phone Manager are trademarks of Day Runner, Inc. DILBERT is a trademark of United Feature Syndicate, Inc. THE FAR SIDE is a registered trademark of FarWorks, Inc. LOONEY TUNES characters, names and all related indicia are trademarks of Warner Bros. Star Wars is a trademark of Lucasfilm Ltd. All other trademarks remain the property of their respective companies. BUSINESS STRATEGY Day Runner sells broad-based organizing products through retail distribution channels. North America. Key elements of the Company's strategy for North America include: leveraging its brand names and distribution strength to maximize sales of existing products, to extend those product lines and to introduce new lines; conducting major marketing initiatives; and building distribution in additional channels, including the Web sites of brick-and-mortar retailers and cyber-retailers. Outside North America. Key elements of the Company's strategy for markets outside North America include: further segmenting the market for organizers and planners; entering related organizing product categories; building sales through the emerging mass market channel of distribution; and building a second busy season in the back-to-school time frame in markets where such an opportunity exists. E-Commerce. The Company believes many of its products are well suited for online sale via the Company's own Web site, those of its current retailers and, ultimately, those of cyber-retailers. ACQUISITIONS Fiscal 1999. In October 1998, Day Runner acquired Filofax Group plc ("Filofax"), a UK-based company traded on the London Stock Exchange. Filofax is a manufacturer and supplier of stationery products, including Filofax, Lefax and Microfile brand organizers, with sales primarily through retail channels. For a number of years, Filofax has been the leader in developing, manufacturing and marketing paper-based organizers for the UK retail market and has had a solid presence in a number of other key international markets. In addition to its core organizer business, Filofax markets business forms and high-end pens. With the Filofax acquisition, Day Runner substantially increased its presence in international markets. Filofax's sales for its fiscal year ended March 31, 1998 were approximately $63.3 million, with 86%, or approximately $54.6 million, to markets outside the U.S. At the time of the acquisition, Filofax had wholly owned sales subsidiaries in France, Germany, Hong Kong, Scandinavia, the UK and the U.S. Fiscal 1998. Day Runner acquired Ultima Distribution, Inc., its Toronto-based Canadian distributor based in Toronto; Ram Manufacturing, Inc., a developer, manufacturer and marketer of wall boards, headquartered in Little Rock, Arkansas; and Timeposters(R), Inc., a Toronto-based developer, manufacturer and marketer of planning and presentation products, including laminated wall planners. These three small companies were acquired in July 1997, October 1997 and February 1998, respectively. The Company has since combined Timeposters' manufacturing and distribution with Ultima's operations and renamed that subsidiary Day Runner Canada Inc. SEEKING STRATEGIC ALTERNATIVES In July 1999, Day Runner announced that its Board of Directors had decided unanimously to seek possible strategic alternatives, which may include new equity partners, joint ventures, asset sales, additional financing and/or a potential sale of the Company. Day Runner has retained the investment banking firm Wasserstein Perella & Co. to act as advisers in this process. The Company has not made a decision as to any specific strategic alternatives, and there cannot be any assurance that a transaction will result from this process. INDUSTRY OVERVIEW The Company's roots are in paper-based organizers and planners and their refills, and approximately 73% of the Company's fiscal 1999 sales were generated by this core business. In the past five years, however, the Company has diversified its product lines and now markets a number of related organizing products that help people become better organized in a variety of ways. Paper-based Organizers. Awareness of the organizer product category is widespread, and the usefulness of organizers is well recognized. (Because the distinctions between organizers and planners have become blurred, except where otherwise specified, the terms "organizer" and "planner" are used interchangeably in this report.) Paper-based organizers and their refills are sold both through a wide variety of retail channels and directly to organizations and individuals. Retailers selling organizers include: office products superstores, wholesalers and dealers; mass retailers; book, department, gift, leather and luggage and stationery stores; and other specialty retailers. Related Organizing Products. Product categories Day Runner has entered include, among others: telephone/address books; appointment books; assignment books; business accessories; organizing and other wall boards; laminated wall planners; and other planning and presentation products. The Company groups all these products under the umbrella term "related organizing products." Some of these products are office supplies, and some are school supplies. Others share features and functions with office and/or school supplies but are intended for use in the home. These products are generally marketed through the same channels as organizers. Market Potential. The Company believes that the appeal of organizers and other organizing products is attributable to a number of economic and cultural trends that have substantially affected the United States and that are having an increasing impact on a number of other markets around the world. These trends include: the increased percentage of women in the work force and the resulting prevalence of two-income families; the increased percentage of single parent families; the continuing trend toward corporate downsizing; the growth of the small business sector; the rising percentage of business done away from the office; the greater emphasis on productivity; the ongoing shift to a service economy; and the trend toward global competition. Many of these trends contribute to widespread concerns with saving and better using time and increasing personal productivity. The Company's products address these concerns. The Company targets both potential first-time organizer users and existing users who may need refills or replacements for their organizers. The Company's expansion into related, non-organizer products that provide other ways for people to become better organized offers the Company an opportunity to reach consumers that do not use an organizer and to market additional products to consumers who do. The Company's goal is to offer one or more products that appeal to and meet the organizing needs of virtually every consumer, no matter what that individual's income, occupation or age, in the U.S. and in key markets around the world. Industries Marketing Similar or Substitute Products. Day Runner's products have features, functions or components in common with products in a number of other industries. The Company's market overlaps to a limited extent that of companies marketing products and services designed to improve group and individual productivity and to upgrade management skills. In addition, electronic organizers, PIM software and Internet-resident organizers are designed to fill many of the same needs addressed by paper-based organizers, although virtually all PIM software products provide for paper-based output, and a number of such products allow users to print out pages in sizes that fit the Company's organizers. (See Item 1. "Business - Competition.") Supply Chain Management. The Company's primary channels of distribution are office products and the mass market. As part of their supply chain management, retailers in these channels have been substantially tightening their inventories, with the goals of reducing on-hand inventories and increasing inventory turns. Retailers' methods of accomplishing these goals vary but generally can include the following, among others: selling down inventory until they reach their new, lower target levels; giving promotions a shorter time on the shelf to sell through to consumers and returning other merchandise they might otherwise have ultimately sold. This inventory tightening may manifest itself in a number of ways that can reduce the Company's sales and increase its costs, including but not limited to, retailers' reductions of on-hand supplies of the Company's products; retailers' reduction of everyday selection of the Company's products; accelerated and increased product returns; unexpected cancellations of commitment for product; and reductions in minimum and average order quantities, with potentially related increases in the frequency of orders and the Company's associated costs of distribution. PRODUCTS Day Runner's products are designed to help people of all ages and in all walks of life become better organized. The Company aims its products at various segments of a broad-based consumer audience. The goal is to offer consumers in each target market the perception of broad choice and good value for the money and a variety of organizing products that meet their needs. The Company's products include: o Multiple lines of paper-based organizers and planners. o Refills, which include calendars, other pages and accessories. o Related organizing products. Organizers and planners. The Company's organizers and planners are available in varying systems, sizes, styles, cover materials and colors and at a wide range of prices. These loose-leaf and spiral-bound "books" help users keep "Everything in One Place(TM)." For example, in addition to the traditional planner components of appointment calendar, telephone/address section and note pad, Day Runner System organizers include, among other things, interrelated pages for managing time and information, tracking expenses, establishing goals and planning projects. Certain of the Company's organizers and planners are available in a number of languages in addition to English, including: Danish, French, German, Italian and Swedish. Refills. The great majority of the Company's organizers, planners and telephone/address books and certain of its related organizing products are refillable. Users may customize their loose-leaf organizers and planners by choosing from a variety of additional pages and accessories. Day Runner brand refills range from Mileage Record, Strategy and Things To Do pages to Currency/Checkbook Insert and a solar powered Calculator/Ruler. Filofax brand refills include such pages as Shopping List and Meetings Planner and such accessories as Diskette Holders and a variety of maps. Related Organizing Products. The Company's related organizing products include, among others: telephone/address books; appointment books; products for students ranging from elementary school through college; business accessories such as travel document holders and business card files; organizing and other wall boards, such as the patented Home Manager(TM), Business Manager(TM), org.board(TM) and a variety of bulletin boards, combination white boards/bulletin boards and laminated wall planners; and PC software designed to complement the Company's paper-based organizers and planners. The following table sets forth, for the periods indicated, approximate Day Runner sales by product category and as a percentage of total sales.
FISCAL FISCAL FISCAL PRODUCTS 1999 1998 1997 -------- ----------------- ------------------- ------------------ (Unaudited; dollars in thousands) Organizers and planners ... $ 80,092 40.8% $ 83,069 49.5% $ 73,858 58.0% Refills ................... 63,596 32.4 51,876 30.9 43,264 34.0 Related organizing products 52,524 26.8 32,896 19.6 10,254 8.0 ------ ---- ------ ---- ------ --- Total....... $196,212 100.0% $167,841 100.0% $127,376 100.0% ======== ===== ======== ===== ======== =====
PRODUCT DEVELOPMENT Day Runner's product development programs emphasize (i) identifying unmet consumer needs and developing organizing products to meet those needs and (ii) extending the Company's existing product lines. All the Company's current major product lines have been developed internally by the parent company or by one of the companies Day Runner has acquired. The Company monitors its existing products for continued viability, needed enhancements, improvements in quality and potential reductions in cost. In fiscal 1999, the Company made the decision to discontinue non-licensed appointment books, a seasonal product line that proved unprofitable, and Day Runner will therefore not be offering this product line in fiscal 2000. The Company's product lines reflect its focus on market segmentation and consumer needs. Here are examples: Expansion of Day Runner System Organizer Line. Since the introduction of the first Day Runner System organizer in 1982, the Company has transformed this single product into a broad line and has introduced multiple additional organizer lines. The Company's organizers are now available in a variety of sizes, styles and materials, designed to appeal to a broad spectrum of consumers and at a wide range of prices. Products for Cost-conscious Consumers. In 1991, as part of its strategy of offering products aimed at cost-conscious consumers, the Company introduced the FactCentre(TM) line, which now includes organizers, planners and telephone/address books. Products for Business and Professional People. In 1993, the Company introduced the PRO Business System(R) organizer, aimed at people seeking a sophisticated but easy-to-use organizing system designed specifically for business and professional use. In fiscal 1997, Day Runner launched a line of business accessories, including travel document holders, business card cases, business card files and pad holders. Products for Students. In 1994, Day Runner began shipping 4-1-1(TM) Student Planners, a line aimed at middle school, high school and college students and marketed primarily for sales during the back-to-school consumer buying season. The 4-1-1 line is updated and refreshed each year to keep pace with the changing tastes of its target market and became the first in the Company's range of organizing products designed especially for young people. Simple Organizing Tools. In fiscal 1995, the Company began to expand into related organizing product categories, adding telephone/address books to its Day Runner and FactCentre lines. Products for Women. In fiscal 1995, the Company launched Perennials(TM), a line of organizers, planners and telephone/address books aimed primarily at young women shopping at mass merchants. In fiscal 1997, the Company introduced the patented Home Manager, a unique product that builds upon the American family's habit of using the refrigerator door as a communication center. The Home Manager combines a dry-erase board, bulletin board strip, Post-it(R) notes in a holder and a dated, monthly calendar and mounts on a refrigerator via heavy-duty magnetic backing or on a wall with hooks. Licensed Products. The Company develops, manufactures and markets products under licenses from United Feature Syndicate, Inc. (DILBERT(TM)), FarWorks, Inc. (THE FAR SIDE(R)), Warner Bros. (LOONEY TUNES(TM) and X-Toons(TM)) and Lucasfilm Ltd. (Star Wars(TM)). In fiscal 1996, Day Runner launched a line of planners and telephone/address books featuring Warner Bros. Looney Tunes cartoon characters. In fiscal 1997, the Company introduced THE FAR SIDE organizers featuring the classic cartoons created by Gary Larson. In fiscal 1998, the Company launched X-Toons, student products featuring Warner Bros. characters engaged in extreme sports and designed to appeal to middle-school boys and a line of DILBERT organizers, refills, telephone/address books and pocket calendars. In fiscal 1999, the Company introduced a line of Star Wars student planners, assignment books, telephone/address books and wall boards. Acquired Products. Since acquiring Ram Manufacturing and Timeposters in fiscal 1998, the Company has refined and further developed the wall board and laminated wall planner product lines it gained through the purchase of these companies. These lines are marketed under the Day Runner brand and the Wipe-Out(R) and Timeposters sub-brands. Since acquiring Filofax in October 1998, the Company has expanded product development activities for Filofax brand products and for Day Runner brand products intended for foreign markets. Continuing Product Innovation. Ongoing development of new products and line extensions continues to be an important element of the Company's strategy. Since its introduction in fiscal 1997, Day Runner has expanded Home Manager into a broad line of organizing wall boards that includes Business Manager, Cubicle Manager(TM), Message Manager(TM), a Looney Tunes organizing wall board for children and Phone Manager(TM). The Company has augmented its product lines aimed specifically at women with the fiscal 1999 introduction of Regency organizers, planners and telephone/address books. Recently, the Company has launched a new, higher-end line of Filofax refills. SALES AND DISTRIBUTION The vast majority of Day Runner's sales are to resellers, with direct sales to organizations and to individuals accounting for a very small portion of sales. The Company markets its products to its customers in the U.S. primarily through its own sales force and makes selective use of manufacturers' representatives and the Internet. The Company markets its products outside the U.S. primarily through its subsidiaries and secondarily through independent distributors. During fiscal 1998 and 1999, the Company sold products to approximately 700 and 6,000 different customers, respectively, with the increase from fiscal 1998 to 1999 attributable primarily to the Filofax acquisition and the non-consolidated nature of Filofax's distribution channels. The only customers accounting for 10% or more of the Company's fiscal 1999 sales were Wal-Mart Stores, Inc., including Sam's Clubs; OfficeMax, Inc.; Office Depot, Inc.; and Staples, Inc., including their affiliates. These customers accounted for approximately 25%, 13%, 11% and 11%, respectively, of fiscal 1999 sales. Including their affiliates, the top five customers of the Company accounted for an aggregate of approximately 64% of fiscal 1999 sales. The following table sets forth, for the periods indicated, approximate Day Runner sales by distribution channel and as a percentage of total sales.
FISCAL FISCAL FISCAL DISTRIBUTION CHANNEL 1999 1998 1997 -------------------- ------------------ ------------------- -------------------- (Unaudited; dollars in thousands) Office products channel. $ 68,839 35.1% $ 79,303 47.2% $ 59,416 46.7% Mass market............. 69,899 35.6 65,752 39.2 53,785 42.2 Foreign customers....... 45,987 23.4 12,182 7.3 5,583 4.4 Other channels.......... 11,487 5.9 10,604 6.3 8,592 6.7 ------ --- ------ --- ----- --- Total............. $196,212 100.0% $167,841 100.0% $ 127,376 100.0% ======== ===== ======== ===== ========= =====
U.S. Sales and Distribution. The Company's primary channels of domestic distribution are office products and the mass market, and the Company's products are carried by more than 22,000 retail outlets across the country. In fiscal 1999, the Company shipped directly to approximately 7,700 retail locations, to distribution centers serving approximately 14,400 retail locations and to approximately 100 wholesalers, each of which serves a number of dealers. Office Products Channel. Since 1987, Day Runner brand products have been broadly distributed through the office products channel. Office Products Superstores. Since their emergence in 1986, office products superstores offering discount prices in a warehouse atmosphere have become a major force in office products distribution. The Company's products are carried by all the leading superstores, including Office Depot, Inc., OfficeMax, Inc. and Staples, and sales to these customers account for the bulk of the Company's sales in the U.S. office products channel. Office Products Wholesalers. The Company's products are distributed by a number of office products wholesalers, including national wholesaler S.P. Richards Company and all three regional wholesaler groups, MMA, NAMD and AMW. Office Products Dealers. The Company's products are also distributed through traditional office products dealers, which buy directly from manufacturers and indirectly through wholesalers. These customers include both storefront dealers and contract stationers (also known as commercial dealers) that specialize in selling to larger businesses through catalogs and their direct sales forces. Mass Market. Discount chains addressing the mass market have become an increasingly important factor in the distribution of a wide variety of consumer goods. The Company's products are distributed through a number of mass market retailers, including: Wal-Mart and Kmart; the major wholesale clubs, Sam's Clubs and Costco Companies, Inc.; a number of discount drug chains, including Rite Aid Corp., Eckerd Drug and American Drug; and a variety of other mass market resellers. Other. The Company also distributes its products through a number of additional channels, including book, department, gift,leather and luggage stores and other specialty retailers, to the U.S. Government and via the Internet. The Company's U.S. sales of its Filofax brand products are concentrated in these distribution channels. Foreign. The Company's products are marketed internationally primarily through its foreign subsidiaries and secondarily through independent distributors. The Company has sales and marketing operations in Australia, Canada, Denmark, France, Germany, Hong Kong, Italy, Sweden and the United Kingdom. Foreign retailers carrying the company's products include both traditional, full-price retailers and emerging mass marketers. Prior to the acquisition of Filofax Group plc, which had built strong distribution in a variety of channels in its home UK market and through high-end specialty shops and department stores in a number of other markets, Day Runner focused its sales and distribution efforts outside North America primarily on developing distribution through emerging mass merchants in key markets. The Company expects to continue to serve this broad spectrum of distribution. MARKETING Day Runner believes that for a number of years its product and merchandising innovations have been instrumental in driving the growth of the organizer product category at retail. More recently, the Company has also been working to increase the visibility of and expand demand for its related organizing products. Day Runner markets its products to consumers to increase awareness of its brand names and of specific products, to communicate the benefits of its products, and to create and reinforce an image that its products enable the user to manage time and personal resources more effectively. Packaging, merchandising, and promotions are designed to appeal to the consumer shopping in the retail store. The Company positions itself to retailers as the leader in the retail organizer market, the primary innovator in the category, and the logical source for well designed, good quality organizers, planners, and related organizing products at a wide range of price points and appropriate for both broad-based consumer target markets (Day Runner brand) and consumers looking for a prestige brand (Filofax brand). The Company works to protect and strengthen its Day Runner and Filofax brand names through consistent positioning, careful placement of new products in the Company's price matrix, well thought out packaging, and the effective use of secondary and heritage brands. Promotional Programs. The Company offers promotional and incentive programs (1) as part of its introduction of new products, (2) to build sales at specific times of year, and (3) to build awareness, expand distribution, and increase sales of specific products. Advertising and Public Relations. Day Runner participates with retailers in co-op advertising and periodically advertises in certain wholesale flyers and in trade publications. Public relations campaigns are another important element in the Company's marketing strategy. The Company has from time to time conducted consumer advertising campaigns, primarily in business and lifestyle magazines, but generally does very little consumer advertising. Sales Support. The Company supports its retailers with point-of-sale materials intended to build brand name awareness and increase sales. The Company's displays are designed to be easy for consumers to shop and for store personnel to refill. The Company supplements its everyday display space of Day Runner brand products with colorful, pre-packed corrugated displays designed to act as marketing vehicles. Packaging is intended to help consumers choose the right product and make the decision to buy. Trade Shows. The Company exhibits or is represented in a number of international, national and regional trade shows. Market Research. The Company regularly conducts market research and tests product concepts and prototypes through the use of focus groups and other consumer research. In addition, the Company maintains a database containing information on users who have mailed in the Welcome Cards included in many of its Day Runner brand products. User Support. To encourage its current users to continue to purchase and recommend its products and their refills, the Company provides a toll-free consumer hotline in the U.S. that consumers may call for referral to conveniently located dealers or dealers that carry specific refills or accessories, for customer service, to contribute suggestions and to purchase products directly from the Company. Although Day Runner's products are designed to be intuitive and easy to use, the Company provides a free user's guide in each Day Runner System and PRO Business System organizer. Each of these booklets illustrates effective use of the system and includes tips on time management, project management and organization. dayrunner.com. In June 1999, the Company launched its substantially redesigned Internet site, dayrunner.com. Users may purchase certain of the Company's products online via this web site. The Company makes direct sales primarily as a service to its users and, except in certain cases, charges full suggested retail price plus shipping and handling. COMPETITION The product categories in which the Company participates are competitive and subject to rapid change. The Company competes directly with other companies marketing paper-based organizers and planners, appointment books, assignment books, business accessories, calendars, wall boards, laminated wall planners and similar organizing products to consumers through retail channels and on the Internet and indirectly with companies marketing such products through mail order or via other means. The Company's competitors also include companies marketing substitutes for paper-based organizer and planner products, such as electronic organizers, including Palm Pilot and Windows CE products, among others, PIM software and Internet-resident organizers. In addition, the Company competes indirectly in the U.S. and directly in certain foreign markets with companies marketing organizers and/or organizers coupled with time management training via direct sales to individuals and to organizations. The companies with which Day Runner competes vary by product category and geography. Each product category is competitive and subject to rapid change, and none of the lists of competitors provided here is intended to be all inclusive. The Company's competitors in paper-based organizers in North America include At-A-Glance(R), Day-Timer(R), FranklinCovey(R), Mead School and Office Products division of The Mead Corporation and many leather goods manufacturers and companies manufacturing inexpensive, non-branded organizers overseas for sale in North America. In September 1999, Mead announced that it had agreed to acquire the At-A-Glance Group from Cullman Ventures. Paper-based organizer competitors outside the U.S. vary from market to market, with none holding a dominant position in retail channels in multiple markets. The Company's North American competitors in telephone/address books include At-A-Glance, Mead and a number of companies marketing inexpensive imported products. The primary company marketing appointment books and calendars through retail channels in North America is At-A-Glance. A number of U.S. calendar companies also produce laminated wall planners. Business accessories are marketed in North America by Day-Timer, Hazel(R) and many leather goods manufacturers, and wall board manufacturers include Boone(R) Boards and Quartet Manufacturing Company. Day Runner believes that the current principal competitive factors in the product categories in which its participates are: distribution breadth, depth and strength; brand name recognition; product development capability; product function, design, perceived quality and value; marketing capability; breadth of product lines; financial resources; customer service; manufacturing/sourcing expertise; and price. In the organizer/planner category, the size and loyalty of a company's user base is also a key factor. Although a number of its competitors have greater financial resources than Day Runner, the Company believes that it competes well against its direct competition on most of the other principal competitive factors. The Company believes that it has a number of competitive advantages. Its products occupy significant retail shelf space. Its leadership position in the retail organizer/planner market, leading brand names, ability to develop new products, broad product lines, marketing expertise, manufacturing/sourcing skill, large user base and the appeal of its products to consumers constitute additional competitive advantages. There can be no assurance, however, that the Company will be able to maintain or continue to benefit from its competitive advantages or that the competitive environment will not change to the Company's detriment. MANUFACTURING Day Runner's manufacturing strategy combines limited internal manufacturing with the domestic and foreign subcontracting of product components and finished products. The Company's policy is to develop and maintain multiple sources for key raw materials, product components and the finished products it subcontracts. The Company has the ability to act as its own second or third source for the manufacture of loose-leaf binders, for those of its wall boards that it subcontracts and for the final assembly of many of its products. This provides a degree of protection against vendor problems and, under certain conditions, allows the Company to respond to higher than anticipated demand and improve turn-around time. The Company's manufacturing activities are not capital-intensive, and the manufacture of most of its products can be only partially automated. The Company subcontracts all printing. Purchased Components. In addition to vinyl and leather raw materials, the Company purchases from suppliers certain major product components, including printed pages, loose-leaf rings, pens, software disks containing its PIM software, electronic components and certain accessories. With few exceptions, these items are manufactured by a variety of outside contractors and are widely available. Day Runner Brand Products. Asian Suppliers. The Company's Asian subcontractors manufacture and assemble a portion of its finished Day Runner brand products, including the great majority of its lower priced organizers, planners and related organizing products. Day Runner's Hong Kong subsidiary acts as liaison with the Asian suppliers of the Company's Day Runner brand products. North American Manufacturing. The flexibility of internal and subcontracted North American manufacturing helps Day Runner meet unexpected demand and produce "fill-ins" near the end of a season. In addition, North American manufacturing is cost-effective for certain bulky products, where freight costs are a key concern. Internal Manufacturing. Day Runner manufactures a portion of its binders, assembles a portion of its finished products and does refill packaging at Day Runner de Mexico, S.A. de C.V., its wholly owned manufacturing subsidiary located in Tijuana. The Company manufactures wall boards and laminated wall planners at its facilities in Little Rock, Arkansas and Toronto, Canada. Filofax Brand Products. The Company's Filofax operations also balance internal manufacturing with subcontracting and subcontract the production of certain product components and finished goods to Asian suppliers. Manufacturing in the UK is limited in scope, consisting primarily of binder manufacture, book assembly and refill packaging, and the Company also outsources some assembly there. CUSTOMER SERVICE Large U.S. retailers' focus on lowering inventory and increasing inventory turns requires ever improving product replenishment through-put time as measured at the retail shelf. Day Runner recognizes that customer service is an ever-more vital link between itself and its key customers. (Note: This discussion does not include distribution in the U.S. of the Company's Filofax products, which is outsourced.) Sophisticated, Flexible Distribution Capabilities. Day Runner has developed sophisticated distribution and customer service capabilities in the U.S. The Company's facilities have the ability to ship in whatever form the customer's logistics require. Day Runner ships directly to the individual retail locations of a number of its customers and to the distribution centers of others and participates in cross-docking programs. EDI. Day Runner receives more than 90% of domestic orders representing approximately 85% of domestic purchase order dollars via EDI (Electronic Data Interchange). Transaction sets handled via EDI include purchase orders, acknowledgments, invoices, ASNs (advance ship notices), and debit/credit adjustments. WMS. Recently, the Company has implemented WMS (Warehouse Management System) software in its Nashville, Tennessee and Fullerton, California distribution centers. WMS controls a multitude of warehouse functions, including, among others: receiving; quality inspection; package labeling; cross docking; material storage; order picking; automated replenishment; trailer loading; routing; and inventory control. The Company believes WMS will offer significant longer term benefits, including higher productivity, increased inventory and shipping accuracy and more efficient facility utilization. RISK FACTORS The Company believes that risk factors that may cause future results to differ materially from the Company's expectations and should be considered carefully in evaluating the Company and its business include, but are not limited to, the following (which, with the exception of "Other Risk Factors," are listed in alphabetical order). These risk factors are in addition to those mentioned elsewhere in this report and in documents incorporated by reference into this report. Competition. The paper-based organizer industry and the various related organizing products industries in which the Company participates are intensely competitive and subject to rapid change, with competition for retail shelf space of particular concern. The Company competes primarily with a number of companies that manufacture and market paper-based organizers and/or related organizing products through retail, mail order or other direct sales channels. The Company also competes to a lesser extent with companies that manufacture and market substitutes for paper-based organizers (e.g., handheld electronic organizers such as Palm Pilot, Windows CE products, personal information management ("PIM") software and Internet-resident organizers). Certain of the Company's competitors have substantially greater financial, product development, technical, manufacturing and marketing resources than the Company. There can be no assurance that the Company will be able to compete successfully in the future or that competitive pressures will not adversely affect the Company's sales growth or gross or operating margins. (See Item 1. "Business Competition.") Customer Concentration. The Company's sales have been, and very likely will continue to be, concentrated among a small number of customers. In fiscal 1999, sales to the Company's top five customers represented approximately 64% of sales, with sales to Wal-Mart Stores, Inc., OfficeMax, Inc., Office Depot, Inc. and Staples, Inc., including their affiliates, representing approximately 25%, 13%, 11% and 11%, of sales, respectively. As a result, the Company's financial results can be adversely affected by the business practices and actions of its large customers in a number of ways, including timing and size of orders and supply chain management. The loss of one or more of these customers or a shift in the demand by, distribution methods of or pricing to or terms of sale to one or more of these customers could materially adversely affect the Company. The Company has no written agreement or other enforceable understanding with any of these customers that relates to future purchases by such customers, and thus such purchases could be delayed, reduced or discontinued at any time. A termination or other adverse change in the Company's relationship with, an adverse change in the financial condition of, or a significant reduction in sales to one or more of its top customers could have a materially adverse effect on the Company. The write-off of any significant receivable due from, delays in payment by or return of product by these customers could also adversely impact the Company. (See Item 1. "Business -- Sales and Distribution.") Dependence on Continued Demand for Paper-based and other Low Technology Organizing Products. The Company's future results depend upon ongoing consumer demand for paper-based organizing products in general and the Company's products in particular. In recent years, technological advances have led to the proliferation of increasingly powerful portable laptop and "palmtop" computers and handheld electronic organizers, such as Palm Pilot. Although many of these products are currently significantly more expensive and difficult to use than the Company's comparable paper-based products, technological advances are likely to improve the ease of use and functionality and to continue to reduce the cost of portable electronic products that contain features directly competitive with paper-based organizers and planners and with certain related organizing products. There can be no assurance that consumer demand for paper-based and other low technology products will not decline or that the Company, alone or jointly with technology companies, will be able to successfully develop in a timely manner and market new paper-based or electronic products that will achieve market acceptance. Dependence on Loans. Under the Amended and Restated Loan Agreement, the Company may borrow, subject to certain conditions, a maximum aggregate of approximately $120 million in bank loans. The Company's liquidity is significantly dependent upon its continued compliance with this loan agreement's terms, including, among others, payment of interest and principal when due and maintenance of certain financial ratios. The Company believes that it will be able to comply with the terms of the loan agreement at least through fiscal 2000, but there can be no assurance that it will be able to do so. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources - Bank Loans.") Dependence on Key Personnel. The Company's success depends to a significant extent upon certain of its officers, the loss of the services of any of whom could materially adversely affect the Company. The Company has no employment agreements with such persons. (See Item 10. "Directors and Executive Officers of the Registrant.") Litigation. The Company is a defendant in purported securities class action lawsuits related to allegations concerning the Company's alleged misstatement of its financial results of operations for the first through third quarters of fiscal 1999. The Company believes it has meritorious defenses to the actions and intends to defend them vigorously, but there can be no assurance as to the outcome. (See Item 3. "Legal Proceedings.") New Products. In order to maintain and improve its competitive position, the Company must continue to enhance its existing product lines and to develop and introduce innovative new products and line extensions that meet the requirements of its existing and potential users. There can be no assurance that such products will be developed and introduced in a timely fashion, or that they will achieve market acceptance or that the timing and size of orders for new products will not materially adversely affect the Company's financial results. Product Supply and Manufacturing Risks. The Company depends on outside foreign and domestic sources for the manufacture of a portion of its product components and finished products and subcontracts the production of all its printed materials. The Company's partial reliance on outside vendors subjects it to the risks of potential delays in the receipt, or shortfalls in the levels or quality, of products or components and of possible increases in its costs of goods sold caused by, among other things, increases in vendors' prices, trade tariffs or duties. In addition, due to the large number of sizes, materials and styles of the Company's products and the inherent uncertainty of predicting customer demand levels, timing and mix, there is a risk that the Company may not be able to fulfill certain orders in a timely fashion, which may result in delayed shipments and/or lost business. Day Runner seeks to reduce certain of these risks by setting what it believes are appropriate safety stock inventory levels of its most popular products and most frequently used product components, having multiple or alternative supply sources for key product components and possessing the internal capability to manufacture and/or assemble many of its core products. Nonetheless, external or internal product or component supply or manufacturing delays, shortfalls or other problems or cost increases could adversely affect the Company's financial results. (See Item 1. "Business -- Manufacturing.") Retailers' Supply Chain Management. As publicly announced by a number of the retailers themselves and many of their suppliers, certain large U.S. retailers, including a number of the Company's largest customers, have intensified their focus on supply chain management, working to shift a greater portion of the inventory burden to suppliers. This trend increases the unpredictability of the Company's financial results. As part of their supply chain management, retailers have been substantially tightening their inventories, with the goals of reducing on-hand inventories and increasing inventory turns. Retailers' methods of accomplishing these goals vary but generally can include the following, among others: selling down inventory until they reach their new, lower target levels; giving promotions a shorter time on the shelf to sell through to consumers and returning other merchandise they might otherwise have ultimately sold. This inventory tightening may manifest itself in a number of ways that can reduce the Company's sales and increase its costs, including but not limited to, retailers' reductions of on-hand supplies of the Company's products; retailers' reduction of everyday selection of the Company's products; accelerated and increased product returns; unexpected cancellations of commitments for product; and reductions in minimum and average order quantities, with potentially related increases in the frequency of orders and the Company's associated costs of distribution. In addition, the stress on minimizing on-hand inventories in retail stores can result in spotty stock outages, particularly of popular products, which can result in lost or delayed sales to consumers. The Company believes the trend toward shifting the inventory burden farther back in the supply chain is likely to eventually include the vast majority of retail chains both in the U.S. and abroad. Seasonal Fluctuations. The Company has historically experienced and expects to continue to experience significant seasonal fluctuations in its sales and other financial results that it believes have resulted and will continue to result primarily from its customers' and users' buying patterns. These buying patterns have typically adversely affected orders for the parent Company's products in the third quarter and for Filofax's products in the third and fourth quarters of each fiscal year. Although it is difficult to predict the future seasonality of sales, the Company believes that future seasonality should be influenced at least in part by customer and user buying patterns similar to those that have historically affected the Company. Quarterly financial results are also affected by new product introductions and line extensions, the timing of large orders, changes in product sales or customer mix, vendor and customer pricing, production levels, supply and manufacturing delays, large customers' inventory management and general industry and economic conditions. The seasonality of the Company's financial results and the unpredictability of the factors affecting such seasonality make the Company's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Quarterly Results.") Small Size. The Company believes that the retail environment, particularly in the U.S. and Canada, is increasingly comprised of very large retailers and suppliers and that the Company's relatively small size magnifies the effects upon it of shifts in this environment. Through its exploration of strategic alternatives, the Company is seeking ways in which to become less vulnerable, whether through a financial partner, some form of additional financing, or in alliance with or as part of a larger corporate entity. The Company believes that the risks associated with its small size will persist until and unless it succeeds in reducing this vulnerability. The Company has not made a decision as to any specific strategic alternative, and there cannot be any assurance that a transaction will result from the Company's process of seeking strategic alternatives. (See Item 1. "Business -- Seeking Strategic Alternatives.") Year 2000 Readiness. The Company is surveying its vendors, customers and others on whom it relies to assess their state of Year 2000 readiness. However, there can be no assurance that the systems of other parties on which the Company's systems rely will also be compliant or that any failure to be compliant in this area by another party will not have an adverse effect on the Company's systems. Furthermore, although the Company believes its internal systems are Year 2000 compliant, there can be no guarantee that any or all of the Company's systems are or will be Year 2000 compliant, that the ultimate costs required to address the Year 2000 issue will not exceed the amounts indicated in this report or that the impact of any failure to achieve substantial Year 2000 compliance will not have a materially adverse effect on the Company's financial condition. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations Year 2000.") Other Risk Factors. Other factors that may cause the Company's future performance to differ materially from its current expectations include: general economic conditions, especially the sustainability of the current economic expansion; the health of the retail environment; and foreign exchange rate fluctuations. PATENTS, COPYRIGHTS AND TRADEMARKS Day Runner relies upon, among other things, a combination of copyright, patent and trademark laws to protect its rights to certain aspects of its products. There can be no assurance, however, that the steps taken by Day Runner to protect its proprietary rights will be adequate to prevent imitation of its products or independent development by others of similar products. Day Runner holds numerous patents in the United States and certain foreign countries. The Company also has several United States and foreign patents pending. The patents the Company holds are related to improvements in the structure of and devices associated with its loose-leaf binders and its related organizing products. We have also been issued United States copyright registrations covering the text and the compilation and editing of data in certain of our products. Day Runner holds United States and foreign trademark registrations for a number of trademarks including "Day Runner" and "Filofax" and various logos. EMPLOYEES At October 1, 1999, Day Runner had 1,620 full-time employees, including 178 in sales; 42 in marketing; 210 in executive, finance and administration; 37 in product development; and 1,153 in manufacturing operations and distribution. None of the Company's employees is represented by a labor union, and the Company has experienced no labor-related work stoppages. ITEM 2. PROPERTIES. Day Runner's principal operating facility is located in an approximately 221,000 square-foot building in Fullerton, California, under leases expiring in 2001. The leases include multiple, successive renewal options that, if exercised in full, would extend the lease terms to expire in 2011. The Company's corporate headquarters occupy approximately 21,300 square feet in Irvine, California under a lease that expires in 2001. The Company's LaVergne, Tennessee distribution facility occupies an approximately 100,200 square-foot facility under a lease expiring in 2004. The lease includes multiple, successive renewal options that, if exercised in full, would extend the lease terms to expire in 2014. The Company's Little Rock, Arkansas manufacturing facility occupies an approximately 84,000 square-foot facility under a lease expiring in 2002. This lease includes a renewal option that, if exercised, would extend the lease term to expire in 2007. The Company's Canadian subsidiary occupies an approximately 40,220 square-foot facility under a lease expiring in 2008 that includes an option to extend the terms through 2013. The Company's Mexican subsidiary occupies an approximately 70,000 square-foot facility under a lease expiring in 2006 that includes options to extend the terms through 2016. The Company's U.K. subsidiary's principal manufacturing facility is located in an approximately 23,300 square-foot building in Burgess Hill, England, which is owned by the Company's U.K. subsidiary. Additionally, the Company's U.K. subsidiary's corporate headquarters occupy approximately 5,700 square feet in London, England under a lease expiring in 2003. The Company believes it has sufficient space in its facilities or will be able to lease additional space on acceptable terms to meet its needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS. In September 1999, two purported securities class action lawsuits were filed in the United States District Court for the Central District California against the Company and certain of its officers and directors. The complaints allege that the Company violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder through the misstatement of the Company's financial results of operations for the first through third quarters of fiscal 1999. These alleged misstatements purportedly consisted of improper accounting for manufacturing variances and other costs. The plaintiffs in both actions purport to represent a class consisting of all purchasers of the Company's Common Stock between October 20, 1998 and August 31, 1999. The plaintiffs are seeking unspecified compensatory damages. The Company expects that these actions will be consolidated into a single action, that a lead plaintiff will be appointed, and that a consolidated amended complaint will be filed. None of these events has yet taken place. There has been no discovery in any of the actions. Based on the allegations and the issues raised by the current complaint, the Company believes it has meritorious defenses to the actions and intends to defend them vigorously. The Company is not a party to any other litigation that, in the opinion of management, would reasonably be expected to have a materially adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Day Runner's Common Stock is traded over-the-counter on The Nasdaq Stock Market under the symbol "DAYR." The table below shows the high and low closing sales prices for the Common Stock as reported on The Nasdaq Stock Market for the fiscal years ended June 30, 1999 and 1998. As of October 1, 1999, there were 208 recordholders of the Company's Common Stock based on information provided by the Company's transfer agent. FISCAL YEAR FISCAL YEAR 1999 1998 ---------------- ----------------- QUARTER HIGH LOW HIGH LOW First $25-6/16 $16-14/16 $19-1/2 $16-1/4 Second 22-1/2 11-14/16 21-1/16 18 Third 14-1/16 10-3/8 23-1/16 18-7/16 Fourth 13-3/16 9-5/8 25-1/4 18-1/8 The Company has never paid cash dividends. It is the present policy of the Company to retain earnings to finance the growth and development of its business, and therefore the Company does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Certain financial covenants in the Company's bank line of credit agreement restrict the Company's ability to pay cash dividends. ITEM 6. SELECTED FINANCIAL DATA. The selected consolidated statement of operations data for the fiscal years ended June 30, 1999, 1998 and 1997 and the consolidated balance sheet data at June 30, 1999 and 1998 are derived from, and are qualified in their entirety by reference to, the Company's audited consolidated financial statements and notes thereto included elsewhere in this Annual Report that have been audited by Deloitte & Touche LLP, independent auditors, as indicated in their report, which is also included elsewhere in this Annual Report. The selected consolidated statement of operations data for the fiscal years ended June 30, 1996 and 1995 and the consolidated balance sheet data at June 30, 1997, 1996 and 1995 are derived from audited consolidated financial statements of the Company that are not included herein.
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL 1999 1998 1997 1996 1995 ------------ ------------- ------------- ------------- ------------ Net sales...................... $ 196,212 $ 167,841 $ 127,376 $ 125,126 $ 121,801 Cost of goods sold............. 108,087 80,663 60,452 59,920 62,175 --------- ---------- --------- ---------- ---------- Gross profit................... 88,125 87,178 66,924 65,206 59,626 --------- ---------- --------- ---------- ---------- Operating expenses: Selling, marketing and distribution............... 62,180 43,193 31,673 29,878 32,154 General and administrative..... 26,445 18,416 14,451 16,376 13,792 Costs related to activities associated with the Filofax acquisition............... 1,072 Costs incurred in pursuing acquisitions.............. 1,451 --------- ---------- --------- ---------- ---------- Total operating expenses.... 89,697 61,609 47,575 46,254 45,946 --------- ---------- --------- ---------- ---------- (Loss) income from operations................. (1,572) 25,569 19,349 18,952 13,680 Net interest expense (income).. 5,215 (172) (1,301) (706) (161) --------- ---------- --------- ---------- ---------- (Loss) income before (benefit). provision for income taxes. (6,787) 25,741 20,650 19,658 13,841 (Benefit) provision for income taxes............... (2,789) 9,833 8,102 7,840 5,863 --------- ---------- --------- ---------- ---------- Net (loss) income.............. $ (3,998) $ 15,908 $ 12,548 $ 11,818 $ 7,978 ========= ========== ========= ========== ======== (Loss) earnings per common share: Basic....................... $ (0.34) $ 1.38 $ 1.01 $ 0.95 $ 0.66 ========== ========== ========= ========== ======= Diluted $ (0.34) $ 1.27 $ 0.95 $ 0.89 $ 0.63 ========== ========== ========= ========== ======= Weighted average number of common shares outstanding: Basic....................... 11,896 11,533 12,432 12,468 12,176 ========= ========== ========= ========== ========== Diluted........................ 11,896 12,523 13,182 13,252 12,748 ========= ========== ========= ========== =========
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS) JUNE 30, 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------- ------------- Working capital............. $ 70,491 $ 57,922 $ 50,710 $ 51,653 38,260 Total assets................ 216,311 101,179 78,880 77,931 63,650 Short-term debt............. 2,077 2,716 452 152 Long-term liabilities....... 105,568 12 Stockholders' equity........ 70,397 74,532 59,484 59,498 44,787
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report. Historical results and percentage relationships among any amounts included in the Consolidated Financial Statements are not necessarily indicative of trends in operating results for any future period. OVERVIEW Since the Company's introduction of the first Day Runner System organizer in 1982, the Company's revenues have been generated by sales primarily of organizers and planners and secondarily of refills. Since fiscal 1995, a majority of the Company's growth has resulted from sales of related organizing products. For a number of years, the Company focused the great majority of its product development, sales and marketing efforts on the U.S. office products channel and the U.S. mass market channel. With the October 30, 1998 acquisition of Filofax, the Company substantially increased its emphasis on markets outside the U.S. The office products channel, the mass market channel and sales to foreign customers accounted for 35.1%, 35.6% and 23.4%, respectively, of fiscal 1999 net sales. RESULTS OF OPERATIONS The following tables set forth, for the periods indicated, the percentages that selected statement of operations items bear to sales and the percentage change in the dollar amounts of such items.
PERCENTAGE OF NET SALES YEARS ENDED JUNE 30, 1999 1998 1997 --------- -------- --------- Net sales.................................... 100.0% 100.0% 100.0% Cost of goods sold........................... 55.1 48.1 47.5 ------ ----- ----- Gross profit................................. 44.9 51.9 52.5 ------ ----- ----- Operating expenses: Selling, marketing and distribution....... 31.7 25.7 24.9 General and administrative................ 13.5 11.0 11.3 Costs related to activities associated with the Filofax acquisition...................... 0.5 Costs incurred in pursuing acquisitions... 1.1 Total operating expenses................. 45.7 36.7 37.3 ------ ----- ----- (Loss) income from operations................ (0.8) 15.2 15.2 Net interest expense (income)................ 2.6 (0.1) (1.0) ------ ----- ----- (Loss) income before (benefit) provision for income taxes......................... (3.4) 15.3 16.2 (Benefit) provision for income taxes......... (1.4) 5.8 6.3 ------ ----- ----- Net (loss) income............................ (2.0)% 9.5 % 9.9% ====== ===== =====
PERCENTAGE CHANGE FISCAL 1998 FISCAL 1997 TO TO FISCAL 1999 FISCAL 1998 -------------------- -------------------- Net sales......................................... 16.9% 31.8% Cost of goods sold................................ 34.0 33.4 Gross profit...................................... 1.1 30.3 Operating expenses: Selling, marketing and distribution............ 44.0 36.4 General and administrative..................... 43.6 27.4 Costs related to activities associated with the Filofax acquisition........................... 100.0 Costs incurred in pursuing acquisitions........ (100.0) Total operating expenses...................... 45.6 29.5 (Loss) income from operations..................... (106.1) 32.1 Net interest expense (income)..................... 3132.0 (86.8) (Loss) income before (benefit) provision for income taxes....................... (126.4) 24.7 (Benefit) provision for income taxes.............. (128.4) 21.4 Net (loss) income................................. (125.1) 26.8
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1998 Net Sales. Net sales ("sales") consist of revenues from gross product shipments net of allowances for returns, rebates and credits. In fiscal 1999, sales increased by $28,371,000, or 16.9%, compared with fiscal 1998 primarily because of the Filofax acquisition but were lower than anticipated primarily because inventory tightening on the part of a number of the Company's large U.S. customers constrained the Company's sales and increased product returns. Sales were primarily to mass market customers and secondarily to the office products channel. Sales to the office products channel decreased by $10,464,000, or 13.2%; sales to foreign customers grew by $33,805,000 or 277.5%; sales to mass market customers grew by $4,147,000, or 6.3%; and sales to miscellaneous customers grouped together as "other," grew by $883,000, or 8.3%. Sales of related organizing products increased by $19,628,000 or 59.7%; sales of refills increased by $11,720,000, or 22.6%; and sales of organizers and planners decreased during the year by $2,977,000, or 3.6%. Gross Profit. Gross profit is sales less cost of goods sold, which is comprised of materials, labor, and manufacturing overhead. Gross profit may be affected by, among other things, product mix, production levels, changes in vendor and customer prices and discounts, sales volume and growth rate, sales returns and other allowances, purchasing and manufacturing efficiencies, tariffs, duties, and inventory carrying costs. Gross profit as a percentage of sales decreased from 51.9% of sales in fiscal 1998 to 44.9% of sales in fiscal 1999 primarily because of a shift in the Company's Day Runner brand product mix (including sub-brands) to lower margin products and an increase in the provision for sales returns based upon recent higher sales returns experience (which, in addition to lowering net sales, adversely impacted manufacturing costs and variances), both of which the Company believes were largely related to inventory tightening. Operating Expenses. Total operating expenses increased as a percentage of sales from 36.7% for fiscal 1998 to 45.7% for fiscal 1999 because of the Company's decreased ability to absorb costs as a result of the lower sales of the parent company operation and because of Filofax's seasonality. (The Company had the benefit of only two months of Filofax's four-month busy season, but had the expenses associated with six months of its eight-month slower period.) Excluding the $1,072,000 costs related to activities associated with the Filofax acquisition, fiscal 1999 operating expenses would have been 45.2% of sales. Selling, marketing and distribution expenses increased by $18,987,000 primarily because of expenses associated with recently introduced products and secondarily because of the addition of Filofax's expenses and increased as a percentage of sales from 25.7% to 31.7% due to the expenses associated with the recently introduced products. General and administrative expenses increased by $8,029,000 and from 11.0% to 13.5% as a percentage of sales primarily because of the addition of Filofax's expenses and secondarily because of the Company's inability to absorb higher costs as a result of lower than anticipated sales. Net Interest Expense. Because of the increase in the Company's long-term debt, which was incurred primarily to finance the Filofax acquisition, net interest expense for fiscal 1999 was $5,215,000 compared with net interest income of $172,000 for fiscal 1998. Income Taxes. The Company's fiscal 1999 effective tax rate was 41.0% compared with an effective tax rate of 38.2% for fiscal 1998. Net (Loss) Income. The Company realized a net loss of $3,998,000 in fiscal 1999 compared with a net income of $15,908,000 in fiscal 1998. Excluding costs related to activities associated with the Filofax acquisition, fiscal 1999 net loss would have been $2,926,000. Earnings Per Share. In fiscal 1999, the Company repurchased an aggregate of 96,000 shares of Common Stock under the Company's stock repurchase program. These repurchases reduced the number of shares that would otherwise have been used to calculate earnings per share (see Note 17 to Consolidated Financial Statements). FISCAL YEAR ENDED JUNE 30, 1998 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1997 Net Sales. In fiscal 1998, sales increased by $40,465,000, or 31.8%, compared with fiscal 1997 primarily because of higher unit sales of related organizing products. Product sales were primarily to the office products channel and secondarily to mass market customers. Sales to the office products channel increased by $19,887,000, or 33.5%; sales to mass market customers grew by $11,967,000, or 22.2%; sales to foreign customers grew by $6,599,000, or 118.2%; and sales to miscellaneous customers grouped together as "other," grew by $2,012,000, or 23.4%. Sales of related organizing products increased by $22,642,000, or 220.8%; sales of organizers and planners increased during the year by $9,211,000, or 12.5%; and sales of refills increased by $8,612,000, or 19.9%. Gross Profit. Gross profit as a percentage of sales decreased from 52.5% in fiscal 1997 to 51.9% in fiscal 1998 primarily because the gross profit levels of certain of the Company's smaller operations are lower as a percentage of sales than those of the parent company. Operating Expenses. Total operating expenses increased by $14,034,000, or 29.5%, for fiscal 1998 compared with fiscal 1997 but decreased as a percentage of sales from 37.3% to 36.7% primarily because operating expenses for fiscal 1997 included $1,451,000 of costs incurred in pursuing acquisitions that did not come to fruition. No such costs were incurred in fiscal 1998. Excluding the fiscal 1997 costs of pursuing acquisitions, total operating expenses would have grown by $15,485,000, or 33.6%, and increased as a percentage of sales from 36.2% to 36.7%. Primarily because of expenses associated with new and recently introduced products, selling, marketing and distribution expenses increased by $11,520,000 and from 24.9% to 25.7% as a percentage of sales. General and administrative expenses increased by $3,965,000, but declined from 11.3% to 11.0% as a percentage of sales primarily because of the Company's increased ability to absorb fixed costs as a result of higher sales. Net Interest Income. Primarily because of a decrease in the Company's cash available for short-term investment resulting from the Company's repurchase of Common Stock, net interest income in fiscal 1998 compared with fiscal 1997 decreased by $1,129,000 and by 0.9% as a percentage of net sales. Income Taxes. Primarily as a result of state tax planning and secondarily the continued growth of the Company's Hong Kong subsidiary, the Company's fiscal 1998 effective tax rate was 38.2%, compared with 39.2% for fiscal 1997. Net Income. Compared with fiscal 1997, net income for fiscal 1998 increased by $3,360,000, or 26.8%. Excluding the fiscal 1997 costs incurred in pursuing acquisitions, fiscal 1998 net income would have grown $2,471,000, or 18.4%, compared with fiscal 1997. Earnings Per Share. In fiscal 1998, the Company repurchased an aggregate of 695,588 shares from certain officers and directors of the Company. Separately, during fiscal 1997, the Company repurchased 1,026,200 shares of Common Stock under the Company's stock repurchase program. These repurchases reduced the number of shares that would otherwise have been used to calculate earnings per share. (See Note 13 to Consolidated Financial Statements). QUARTERLY RESULTS The following tables set forth selected unaudited quarterly consolidated financial data and the percentages such items represent of net sales. The quarterly consolidated financial data reflect, in the opinion of management of the Company, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for such periods. Results of any one or more quarters are not necessarily indicative of annual results or continuing trends.
QUARTERS ENDED JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, 1999 1999 1998 1998 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales........................... $ 47,700 100.0% $ 36,216 100.0% $ 64,565 100.0% $ 47,731 100.0% Gross profit........................ 17,700 37.1 16,495 45.5 31,059 48.1 22,871 47.9 Total operating expenses............ 24,535 51.4 21,811 60.2 26,429 40.9 16,922 35.4 (Loss) income from operations....... (6,835) (14.3) (5,316) (14.7) 4,630 7.2 5,949 12.5 Net interest expense ............... 2,056 4.3 1,770 4.9 1,356 2.1 33 0.1 (Loss) income before (benefit) provision for income taxes...... (8,891) (18.6) (7,086) (19.6) 3,274 5.2 5,916 12.4 Net (loss) income................... $ (5,249) (11.0)% $ (4,448) (12.3)% $ 2,030 3.1% $ 3,669 7.7% (Loss) earnings per common share: Basic.......................... $ (0.44) $ (0.37) $ 0.17 $ 0.31 Diluted........................ $ (0.44) $ (0.37) $ 0.16 $ 0.29 Weighted average number of common shares outstanding: Basic.......................... 11,886 11,900 11,883 11,931 Diluted........................ 11,886 11,900 12,564 12,656
QUARTERS ENDED JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, 1998 1998 1997 1997 ---- ---- ---- ---- (In thousands, except per share amounts) Net sales........................... $ 50,927 100.0% $ 29,388 100.0% $ 49,388 100.0% $ 38,138 100.0% Gross profit........................ 26,057 51.2 15,253 51.9 25,762 52.2 20,106 52.7 Total operating expenses............ 18,392 36.1 13,474 45.8 16,677 33.8 13,066 34.3 Income from operations.............. 7,665 15.1 1,779 6.1 9,085 18.4 7,040 18.4 Net interest (income) expense....... (123) (0.2) 16 0.1 30 0.1 (95) (0.3) Income before provision for income taxes..................... 7,788 15.3 1,763 6.0 9,055 18.3 7,135 18.7 Net income.......................... $ 4,957 9.7% $ 1,075 3.7% $ 5,524 11.2% $ 4,352 11.4% Earnings per common share: Basic.......................... $ 0.42 $ 0.09 $ 0.49 $ 0.38 Diluted........................ $ 0.39 $ 0.09 $ 0.45 $ 0.35 Weighted average number of common shares outstanding: Basic.......................... 11,776 11,571 11,273 11,513 Diluted........................ 12,695 12,520 12,323 12,511
SEASONAL FLUCTUATIONS The Company has historically experienced and expects to continue to experience significant seasonal fluctuations in its sales and other financial results that it believes have resulted and will continue to result primarily from its customers' and users' buying patterns. These buying patterns have typically adversely affected orders for the parent company's products in the third quarter and for Filofax's products in the third and fourth quarters of each fiscal year. Although it is difficult to predict the future seasonality of sales, the Company believes that future seasonality should be influenced at least in part by customer and user buying patterns similar to those that have historically affected the Company. Quarterly financial results are also affected by new product introductions and line extensions, the timing of large orders, changes in product sales or customer mix, vendor and customer pricing, production levels, supply and manufacturing delays, large customers' inventory management and general industry and economic conditions. The seasonality of the Company's financial results and the unpredictability of the factors affecting such seasonality make the Company's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. LIQUIDITY AND CAPITAL RESOURCES General. The Company's cash and cash equivalents at June 30, 1999 increased to $9,132,000 from $2,923,000 at June 30, 1998. In fiscal 1999, net cash of $16,580,000 provided by operating activities and $87,640,000 provided by financing activities were partially offset by net cash of $98,513,000 used in investing activities. Of the $16,580,000 net amount provided by the Company's operating activities, $19,039,000 was provided by the provision for doubtful accounts and sales returns and other allowances, $10,240,000 was provided by depreciation and amortization, $7,432,000 was provided by a decrease in inventories and $4,508,000 was provided by an increase in accounts payable. These amounts were partially offset by an increase of $15,268,000 in accounts receivable, a net loss of $3,998,000, an increase of $3,971,000 in deferred income tax benefit, and a decrease of $1,831,000 in accrued expenses. Accounts receivable (net) at June 30, 1999 increased by $10,673,000, or 32.8%, from the amount at June 30, 1998 primarily due to the acquisition of Filofax. Inventories increased by $4,751,000, or 12.6%, from the June 30, 1998 amount primarily because of the inventories of Filofax, which the Company acquired during fiscal 1999, which amount was partially offset by a decrease in inventories at the parent company. Of the $98,513,000 net amount used in the Company's investing activities, $88,017,000 was used to acquire Filofax and $10,495,000 was used to acquire primarily machinery and equipment and secondarily computer equipment and software. Of the $87,640,000 net amount provided by the Company's financing activities, $89,924,000 was due to an increase in net borrowings on the line of credit. This amount was partially offset by $1,490,000 that was used to repurchase 96,000 shares of the Company's Common Stock and $1,200,000 that was used for the payment of financing fees in connection with the line of credit. Bank Loans. On September 23, 1998, the Company entered into a $160,000,000 Revolving Loan Agreement (the "Loan Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"). Effective November 24, 1998, this amount was voluntarily reduced to $145,000,000, and unamortized financing fees of approximately $84,000 were charged to interest expense. The loan facility was syndicated with a group of banks in December 1998. Borrowings bore interest either at floating rates based on the higher of Wells Fargo's prime rate and the Federal Funds Rate published by the Federal Reserve Bank of New York or at fixed rates calculated by reference to the interest rates at which Wells Fargo offers deposits in U.S. dollars in amounts approximately equal to the amount of the relevant loan and for a period of time comparable to the number of days the relevant loan remains outstanding, together with a margin. During the year ended June 30, 1999, the weighted-average interest rate was 6.33%. During the year ended June 30, 1999, under the terms of the Loan Agreement, the Company paid Wells Fargo a financing fee of $1,200,000, $205,000 of which was expensed in the fiscal year ended June 30, 1999. At June 30, 1999, the Company had $105,317,000 outstanding under this Loan Agreement and had outstanding letters of credit totaling approximately $218,000. On June 29, 1999, the Company obtained from the banks a waiver of the fixed charge coverage ratio and the funded debt ratio covenants for the quarter ended June 30, 1999. The waiver was subsequently extended through October 15, 1999. On October 12, 1999, the Company and the banks amended the Loan Agreement (the "Amended and Restated Loan Agreement"). The Amended and Restated Loan Agreement converts the entire outstanding revolving loan balance into a term loan portion of $90,400,000 and a revolving credit loan portion of $29,600,000. The term loan matures on September 30, 2001, and the revolving credit loan facility matures on October 9, 2000. The maturity date of the revolving credit loan facility will be automatically extended through September 30, 2001, provided that the Company achieves on September 30, 2000 a minimum EBITDA, a minimum fixed charge coverage ratio and a maximum senior funded debt ratio, as defined in the amended agreement. As a result, unamortized financing fees on the Loan Agreement of approximately $955,000 will be charged to interest expense in October 1999. The Amended and Restated Loan Agreement is secured by the Company's assets and includes, among other things, financial covenants requiring the maintenance of a minimum fixed charge coverage ratio, EBITDA, stockholders' equity and current ratio, and a maximum senior funded debt coverage ratio and operating expenses to net sales ratio, as defined in the amended agreement. The Amended and Restated Loan Agreement also limits, among other things, the incurrence of liens and other indebtedness, mergers, consolidations, the sale of assets, annual capital expenditures, advances, investments and loans by the Company and its subsidiaries, dividends, stock repurchases and certain transactions with affiliates. It permits up to $10,000,000 of secured debt for currency hedging purposes and up to $1,500,000 of unsecured overdraft borrowings for foreign subsidiaries. The outstanding balances bear interest at the Company's election at either (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to 200.00 basis points, or (ii) the applicable eurodollar rate plus an interest rate margin ranging from 112.50 to 300.00 basis points, depending on the level of the funded debt ratio at the end of each fiscal quarter. Under the Amended and Restated Loan Agreement, the Company is obligated to pay certain fees including an unused revolving loan commitment fee ranging from 37.50 to 67.50 basis points which varies with the level of the funded debt ratio at the end of each fiscal quarter, payable quarterly in arrears; letter of credit fees ranging from 112.50 to 300.00 basis points which vary with the level of the funded debt ratio at the time the letter of credit is issued; and amendment and other standard fees which are currently estimated at approximately $1,500,000. Foreign Currency. The Company has not incurred significant gains or losses from foreign currency exchange rate fluctuations. The continuing expansion of the Company's international operations could, however, result in larger gains or losses as a result of fluctuations in foreign currency exchange rates as those subsidiaries conduct business in whole or in part in foreign currencies. The Company's exposure to the impact of interest changes and foreign currency fluctuations has increased as a result of its acquisition of Filofax because the acquisition has significantly expanded the Company's international operations and because a portion of the debt incurred to fund the acquisition is in pounds Sterling. The Company entered into a call option with respect to the purchase of Filofax shares in the tender offer to limit the effect of exchange rate fluctuations. The Company does not trade in financial instruments nor does it enter into such contracts for speculative purposes. A single currency called the euro was introduced in certain countries in Europe on January 1, 1999, but will not, at least for the foreseeable future, be introduced in the United Kingdom. The use of a single currency may affect the ability of Day Runner and other companies to price their products differently in various European markets. The Company is evaluating the impact of the single currency in these markets. Adequacy of Capital. The Company believes that cash flow from operations, vendor credit, its existing working capital and its term and revolving credit loans will be sufficient to satisfy the Company's anticipated cash requirements at least through fiscal 2000. Nonetheless, the Company may seek additional sources of capital as necessary or appropriate to finance acquisitions or to otherwise finance the Company's growth or operations; however, there can be no assurance that such funds if needed will be available on favorable terms, if at all. YEAR 2000 The year 2000 issue refers to the inability of certain computer systems, as well as certain hardware and equipment containing date-sensitive data, to recognize accurately dates commencing on or after January 1, 2000, and even possibly certain dates in 1999. This has the potential to affect the operation of these systems adversely and materially. The Company has identified four phases in its year 2000 compliance efforts: discovery; assessment; remediation; and applicable testing and verification. The Company has completed the discovery and assessment phases for its own systems and applications and has substantially completed the remediation phase for all its major business systems. The Company expects the remediation, applicable testing and verification phases to be complete by November 30, 1999. The Company believes that its modification of existing software and conversions to new software for certain tasks will prevent the year 2000 transition from posing significant internal operational problems. The Company currently estimates that total costs related to the year 2000 issue will be approximately $2,000,000 to $2,500,000, of which approximately $1,945,000 had been incurred as of June 30, 1999. The Company does not anticipate that the costs of these modifications and conversions will be material to its financial position or results of operations. Expenditures will be expensed or capitalized as appropriate. Although the Company believes its internal systems are year 2000 compliant, there can be no guarantee that any or all of the Company's systems are or will be year 2000 compliant, that the ultimate costs required to address the year 2000 issue will not exceed the amounts indicated above, or that the impact of any failure to achieve substantial year 2000 compliance will not have a materially adverse effect on the Company's financial condition. The Company has been surveying its vendors, customers and others on whom it relies to assess their state of year 2000 readiness. As of October 1, 1999, the Company has: defined Day Runner's year 2000 compliance definition; sent year 2000 questionnaires; advised critical suppliers and customers as to Day Runner's year 2000 readiness; and received responses from a large portion of these parties. There can be no assurance, however, that the systems of any outside party on which the Company's systems rely will also be compliant or that any failure to be compliant in this area by one or more of these parties will not have an adverse effect on the Company's systems. Suppliers of Raw Materials, Product Components and Finished Goods. The Company has been assessing the year 2000 readiness of its significant suppliers. A large portion have responded that their year 2000 readiness plans are complete or that they plan to be year 2000 compliant prior to December 31, 1999. Potential Materially Adverse Impact and Contingency Plans. The ` failure of multiple significant suppliers to supply raw materials, product components, finished goods and ancillary goods for a prolonged period could substantially impair the Company's ability to ship product to its customers in a timely and reliable manner and could, thus, have a materially adverse effect on the Company's business. The Company does not have a basis at this time to determine whether such a scenario is likely to occur. The Company is therefore continuing to develop contingency plans to cope with potential year 2000 failure on the part of its significant suppliers. The contingency plans include, where appropriate, (1) placing orders for the receipt of products prior to potential business disruptions; (2) defining alternate sources for suppliers who are determined to be at a high risk of noncompliance or business disruption; and (3) defining manual work processes. Suppliers of Other Goods and Services. In addition, the Company has identified and has been contacting its suppliers of business-critical goods and services and has received responses from a large portion of these parties. Potential Materially Adverse Impact and Contingency Plans. The failure in one or more geographic regions of third-party systems over which the Company has no control and for which the Company has no ready substitute, such as, but not limited to, power and telecommunications service could make it necessary for the Company to temporarily close facilities in the affected geographic areas and have additional materially adverse effects on the Company's business. The Company is developing appropriate contingency plans for any business-critical supplier that does not provide an adequate response to the Company concerning its year 2000 readiness on a timely basis and has in place a business resumption plan that addresses recovery from various types of disasters, including significant interruptions to data flows and to distribution capabilities at the Company's major U.S. distribution centers. The Company has made the necessary preparations for the execution of this contingency plan. However, there can be no assurance that the Company will be able to complete its contingency preparations on that schedule. EFFECTS OF INFLATION The Company believes that inflation has not had a material effect on its operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The primary risk inherent in the Company's market sensitive instruments is the risk of loss resulting from interest rate fluctuations. The Company's term and revolving credit loans bear interest either at the Company's election at (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to 200.00 basis points, or (ii) the applicable euro dollar rate plus an interest rate margin ranging from 112.50 to 300.00 basis points, depending on the level of the funded debt ratio at the end of each fiscal quarter. The table below provides information as of June 30, 1999 about the Company's long-term liability obligations that are sensitive to changes in interest rates, including principal cash flows by scheduled maturity, weighted-average interest rate and estimated fair value. The weighted-average interest rates presented are the rates as of June 30, 1999 as calculated under the Amended and Restated Loan Agremeent.
PRINCIPAL MATURING IN FAIR 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE ---- ---- ---- ---- ---- ---------- ----- ----- (Dollars in thousands) Term and revolving credit loans $105,317 $105,317 $105,317 Average interest rate 9.30% Other debt: Loan notes $ 2,077 $251 $ 2,328 $ 2,328 Average interest rate 4.80%
The Company's future earnings and cash flows relating to market sensitive instruments are primarily dependent upon prevailing market interest rate. Based upon the Company's borrowing mix as of June 30, 1999, a 1% increase or decrease in the interest rates would increase or decrease pretax earnings and cash flow by approximately $1,100,000. FOREIGN CURRENCY EXPOSURE The Company's reporting currency is the U.S. dollar, and interest and principal payments on its long-term debts will be in U.S. dollars and pounds Sterling. A portion of revenues and operating costs are derived from sales and operations outside the United States and are incurred in a number of different currencies. Accordingly, fluctuations in currency exchange rates may have a significant effect on the Company's results of operations and balance sheet data. The Company has no significant exposure from financial instruments which would require quantitative disclosure. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Consolidated Financial Statements of the Company and its subsidiaries included herein and listed in Item 14(a) of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Inapplicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated by reference to the sections of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on December 9, 1999, entitled "Election of Directors" and "Executive Officers," to be filed with the Commission. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the sections of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on December 9, 1999, entitled "Election of Directors - -- Compensation of Directors," "Executive Compensation and Other Information," "Compensation Committee Report on Executive Compensation" and "Performance Graph," to be filed with the Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference to the section of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on December 9, 1999, entitled "Common Stock Ownership of Principal Stockholders and Management," to be filed with the Commission. ITEM 13. CERTAIN TRANSACTIONS. The information required by this Item is incorporated by reference to the sections of the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on December 9, 1999, entitled "Election of Directors - -- Compensation of Directors" and "Certain Relationships and Related Transactions," to be filed with the Commission.
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT: 1. CONSOLIDATED FINANCIAL STATEMENTS PAGE Independent Auditors' Report F-1 Consolidated Balance Sheets at June 30, 1999 and 1998 F-2 Consolidated Statements of Operations for Each of the Three Years in the Period Ended June 30, 1999 F-3 Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended June 30, 1999 F-4 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 1999 F-5 Notes to Consolidated Financial Statements F-6 2. FINANCIAL STATEMENT SCHEDULES Independent Auditors' Report S-1 Schedule II - Valuation and Qualifying Accounts S-2 Schedules which are not listed above have been omitted because they are not applicable or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto. 3. LIST OF EXHIBITS 3.1 Certificate of Incorporation of the Registrant, as amended(1) 3.2 Bylaws of the Registrant(2) 10.1 Amended and Restated 1986 Stock Option Plan, including forms of Stock Option Agreements and Stock Purchase Agreement(3) and Amendment Nos. 1(4), 2(5), 3(5) and 4(6) thereto dated July 17, 1992, February 28, 1993, May 10, 1993 and May 12, 1994, respectively(7) 10.2 1995 Stock Option Plan, including forms of Stock Option Agreements(8) and Amendment Nos. 1(9), 2(10) and 3(11) thereto dated October 21, 1996, September 19, 1997 and September 15, 1998, respectively(7) 10.3 Employee Stock Purchase Plan(3) and Amendment No. 1 thereto dated July 17, 1992(4)(7) 10.4 Day Runner Restated 401(k) Plan effective as of July 1, 1998 and Trust Agreement effective as of July 1, 1998 between the Registrant and New York Life Trust Company(7)(12) 10.5 Non-Employee Director Stock Option Plan, including form of Stock Option Agreement(7)(11) 10.6 Fiscal 1999 Officer Bonus Plan(7)(12) 10.7 Officer Severance Plan effective as of February 28, 1993, including form of Employment Separation Agreement(13) and First Amendment thereto effective as of August 17, 1998(7)(12) 10.8 Credit Agreement dated as of February 1, 1998 between the Registrant and Wells Fargo Bank, National Association, including Revolving Line of Credit Note(14) 10.9 Triple Net Lease, as amended, effective as of March 22, 1991 between Catellus Development Corporation and the Registrant and as amended by Lease Amendment dated June 29, 1992(15) 10.10 Triple Net Lease dated July 28, 1992 between Catellus Development Corporation and the Registrant(13) 10.11 Koll Business Center Lease dated September 7, 1994 between the Registrant and Koll Alton Plaza and Aetna Life Insurance Co.(16) 10.12 Standard Commercial Lease Agreement dated as of July 31, 1996 between System Realty Nine, Inc. and the Registrant(16) 10.13 Standard Commercial Lease Agreement dated as of October 1, 1997 between RDC Sales and the Registrant(12) 10.14 Standard Commercial Lease Agreement dated as of May 11, 1998 between GPM Real Property Ltd. And Endow Inc. and the Registrant(12) 10.15 Lease Agreement dated as of April 2, 1999 between Mrs. Refugio Victoria Geffroy De Flourie and Mr. David Bramzon Stengel and the Registrant 10.16 Form of Warrant dated April 20, 1998 to purchase shares of the Registrant's Common Stock issued to certain directors and officers of the Registrant(3) and Schedule of Warrants(7)(12) 10.17 Form of Warrant dated August 19, 1997 to purchase shares of the Registrant's Common Stock issued to certain officers of the Company and Schedule of Warrants(7)(18) 10.18 Form of Stock Purchase Agreement dated August 27, 1997 and Schedule of Sellers(18) 10.19 Form of Warrant dated April 20, 1998 to purchase shares of the Registrant's Common Stock issued to the non-employee directors of the Company and Schedule of Warrants(7)(12) 10.20 First Amendment to Consulting Agreement effective April 22, 1999 between the Registrant and Alan R. Rachlin(7) 10.21 Consulting Agreement effective May 22, 1999 between the Registrant and Mr. Alan R. Rachlin(7) 10.22 Revolving Loan Agreement dated September 23, 1998 between the Registrant, Day Runner UK plc, Ultima Distribution Inc. and Wells Fargo Bank, National Association, including Revolving Line of Credit Note(20) 10.23 Amended and Restated Loan Agreement dated as of September 30, 1999 among the Registrant, Day Runner UK plc, Filofax Limited, the Lenders named therein and Wells Fargo Bank, National Association, including Revolving and Term Loan Notes. 21.1 Subsidiaries of the Registrant 23.1 Consent of Deloitte & Touche LLP 27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K No reports on Form 8-K were filed or required to be filed by the Registrant during the fourth quarter of the fiscal year ended June 30, 1999. (C) EXHIBITS See the list of Exhibits under Item 14(a)3 of this Annual Report on Form 10-K. (D) FINANCIAL STATEMENT SCHEDULES See the list of Schedules under Item 14(a)2 of this Annual Report on Form 10-K. - ------------------------ (1) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on May 15, 1998. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 0-19835) filed with the Commission on August 5, 1993. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Registration No. 33-45391) filed with the Commission on January 30, 1992. (4) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 33-53422) filed with the Commission on October 15, 1992. (5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on August 16, 1993. (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 33-84036) filed with the Commission on September 15, 1994. (7) Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of this Annual Report on Form 10-K. (8) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 33-80819) filed with the Commission on December 22, 1995. (9) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 333-20247) filed with the Commission on January 23, 1997. (10) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 333-44627) filed with the Commission on January 21, 1998. (11) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 333-69023) filed with the Commission on December 16, 1998. (12) Incorporated by reference to Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on October 1, 1998. (13) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on March 31, 1993. (14) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on February 17, 1998. (15) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on March 21, 1993. (16) Incorporated by reference to the Registrant's Transition Report on Form 10-K (File No. 0-19835) filed with the Commission on September 27, 1994. (17) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on September 27, 1996. (18) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on September 29, 1997. (19) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on November 13, 1997. (20) Incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 0-19835) filed with the Commission on September 24, 1998. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, California. DAY RUNNER, INC. By: /s/ James E. Freeman, Jr. ------------------------------- James E. Freeman, Jr. Chief Executive Officer Dated: October 13, 1999 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Mark A. Vidovich Chairman of the Board October 13, 1999 ------------------------------- Mark A. Vidovich /s/ James E. Freeman, Jr. Chief Executive Officer October 13, 1999 ------------------------------- (Principal Executive Officer) James E. Freeman, Jr. /s/ Dennis K. Marquardt Executive Vice President, October 13, 1999 -------------------------------- Finance & Administration and Dennis K. Marquardt Chief Financial Officer (Principal Financial Officer and Accounting Officer) /s/ James P. Higgins Director October 13, 1999 --------------------------------- James P. Higgins /s/ Jill Tate Higgins Director October 13, 1999 ---------------------------------- Jill Tate Higgins /s/ Charles Miller Director October 13, 1999 ----------------------------------- Charles Miller /s/ Alan R. Rachlin Director October 13, 1999 ----------------------------------- Alan R. Rachlin /s/ Boyd I. Willat Director October 13, 1999 ------------------------------------ Boyd I. Willat /s/ Felice Willat Director October 13, 1999 ------------------------------------- Felice Willat
INDEPENDENT AUDITORS' REPORT Day Runner, Inc.: We have audited the accompanying consolidated balance sheets of Day Runner, Inc. and subsidiaries (the "Company") as of June 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Day Runner, Inc. and subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999 in conformity with generally accepted accounting principles. Los Angeles, CA October 12, 1999 F-1
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS JUNE 30, 1999 1998 --------- --------- Current assets: Cash and cash equivalents...................................................... $ 9,132 $ 2,923 Accounts receivable (less allowance for doubtful accounts and sales returns and other allowances of $11,481 and $9,942 at June 30, 1999 and 1998, respectively)....................................... 43,215 32,542 Inventories.................................................................... 42,361 37,610 Prepaid expenses and other current assets...................................... 4,506 1,670 Income taxes receivable........................................................ 434 2,606 Deferred income taxes.......................................................... 11,189 7,218 --------- -------- Total current assets........................................................ 110,837 84,569 Property and equipment, net ....................................................... 17,851 11,888 Goodwill and other intangible assets (net of accumulated amortization of $1,934 and $108 at June 30, 1999 and 1998, respectively).............................. 85,830 3,564 Other assets (net of accumulated amortization of $410 and $60 at June 30, 1999 and 1998, respectively)....................................................... 1,793 1,158 --------- -------- TOTAL ............................................................................ $216,311 $101,179 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Lines of credit................................................................ $ 2,716 Accounts payable............................................................... $ 18,722 9,969 Accrued expenses............................................................... 19,547 13,962 Loan notes..................................................................... 2,077 --------- -------- Total current liabilities................................................... 40,346 26,647 --------- -------- Long-term liabilities: Line of credit................................................................. 105,317 Loan notes..................................................................... 251 --------- Total long-term liabilities................................................. 105,568 --------- Commitments and contingencies Stockholders' equity: Preferred stock (1,000,000 shares authorized; $0.001 par value; no shares issued or outstanding) Common stock (29,000,000 shares authorized; $0.001 par value; 13,718,524 shares issued and 11,900,736 shares outstanding at June 30, 1999; 13,677,386 shares issued and 11,955,598 shares outstanding at June 30, 1998)............ 14 14 Additional paid-in capital..................................................... 21,709 21,813 Retained earnings.............................................................. 61,078 65,076 Cumulative translation adjustment.............................................. 954 102 Treasury stock - At cost (787,858 and 732,996 shares at June 30, 1999 and 1998, respectively).......................................................... (13,358) (12,473) --------- -------- Total stockholders' equity.................................................. 70,397 74,532 --------- -------- TOTAL ............................................................................ $216,311 $101,179 ======== ======== See accompanying notes to consolidated financial statements.
F-2
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEARS ENDED JUNE 30, 1999 1998 1997 --------- ---------- --------- Net sales................................................... $ 196,212 $ 167,841 $ 127,376 Cost of goods sold.......................................... 108,087 80,663 60,452 --------- --------- --------- Gross profit................................................ 88,125 87,178 66,924 --------- --------- --------- Operating expenses: Selling, marketing and distribution..................... 62,180 43,193 31,673 General and administrative.............................. 26,445 18,416 14,451 Costs related to activities associated with the Filofax acquisition.................................. 1,072 Costs incurred in pursuing acquisitions................. 1,451 --------- --------- --------- Total operating expenses.................................... 89,697 61,609 47,575 --------- --------- --------- (Loss) income from operations............................... (1,572) 25,569 19,349 --------- --------- --------- Interest expense (income): Interest income......................................... (340) (390) (1,431) Interest expense........................................ 5,555 218 130 --------- --------- --------- Net interest expense (income)............................... 5,215 (172) (1,301) --------- --------- --------- (Loss) income before (benefit) provision for income taxes... (6,787) 25,741 20,650 (Benefit) provision for income taxes........................ (2,789) 9,833 8,102 --------- --------- --------- Net (loss) income........................................... $ (3,998) $ 15,908 $ 12,548 ========= ========= ========= (Loss) earnings per common share: Basic................................................ $ (0.34) $ 1.38 $ 1.01 ======== ========= ======== Diluted.............................................. $ (0.34) $ 1.27 $ 0.95 ======== ========= ======== Weighted-average number of common shares outstanding: Basic................................................ 11,896 11,533 12,432 ========= ========= ========= Diluted.............................................. 11,896 12,523 13,182 ========= ========= ========= See accompanying notes to consolidated financial statements. F-3
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS) ADDITIONAL COMMON STOCK PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS ----------- --------------- ---------------- -------- Balance, July 1, 1996....................... 12,609,542 $ 12 $ 22,863 $ 36,620 Treasury stock.............................. (1,026,200) Exercis of warrants........................ 11,000 22 Exercise of options......................... 108,316 1 139 Tax benefit of options...................... 157 Compensation cost associated with warrant grant........................... 50 Comprehensive income: Net income............................... 12,548 Other comprehensive income - foreign currency translation adjustments Comprehensive income........................ ----------- -------- --------- ---------- Balance, June 30, 1997...................... 11,702,658 13 23,231 49,168 Treasury stock.............................. (695,588) Exercise of warrants........................ 278,000 (2,932) Exercise of options......................... 670,528 1 (3,927) Tax benefit of options...................... 5,208 Compensation cost associated with warrant grant........................... 233 Comprehensive income: Net income............................... 15,908 Other comprehensive income - foreign currency translation adjustments Comprehensive income........................ ------------ -------- --------- ---------- Balance, June 30, 1998...................... 11,955,598 14 21,813 65,076 Treasury stock.............................. (96,000) Exercise of options......................... 41,138 (199) Tax benefit of options...................... 20 Compensation cost associated with warrant grant........................... 75 Comprehensive income: Net loss................................. (3,998) Other comprehensive income - foreign currency translation adjustments Comprehensive income........................ ------------ -------- --------- ---------- Balance, June 30, 1999...................... 11,900,736 $ 14 $ 21,709 $ 61,078 ========== ======== ========= ==========
1
ACCUMULATED OTHER TREASURY STOCK INCOME INCOME SHARES AMOUNT ----------------- -------------- -------- --------- Balance, July 1, 1996....................... $ 3 Treasury stock.............................. (1,026,200) $(13,541) Exercise of warrants........................ Exercise of options......................... 40,264 521 Tax benefit of options...................... Compensation cost associated with warrant grant........................... Comprehensive income: Net income............................... $12,548 Other comprehensive income - 89 89 foreign currency translation adjustments ------- Comprehensive income........................ $12,637 ======= Balance, June 30, 1997...................... 92 (985,936) (13,020) Treasury stock.............................. (695,588) (11,564) Exercise of warrants........................ 278,000 3,605 Exercise of options......................... 670,528 8,506 Tax benefit of options...................... Compensation cost associated with warrant grant........................... Comprehensive income: Net income............................... $15,908 Other comprehensive income - foreign currency translation adjustments 10 10 --- --- Comprehensive income........................ $15,918 ======= Balance, June 30, 1998...................... 102 (732,996) (12,473) Treasury stock.............................. (96,000) (1,490) Exercise of options......................... 41,138 605 Tax benefit of options...................... Compensation cost associated with warrant grant........................... Comprehensive income: Net loss................................. $ (3,998) Other comprehensive income - foreign currency translation adjustments 852 852 --- --- Comprehensive income........................ $ (3,146) ======== -------- -------- Balance, June 30, 1999...................... $954 (787,858) $(13,358) ==== ======== ========
See accompanying notes to consolidated financial statements. F-4
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) YEARS ENDED JUNE 30, 1999 1998 1997 --------- ---------- ---------- Cash flows from operating activities: Net (loss) income....................................... $ (3,998) $ 15,908 $12,548 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:....... Depreciation and amortization......................... 10,240 5,517 3,869 Provision for doubtful accounts and sales returns and other allowances................................. 19,039 9,799 14,264 Loss on disposal of property and equipment.................. 199 Write-off of barter credits............................. 200 Utilization of barter credits........................... 100 Compensation expense related to issuance of warrants........ 75 233 50 Deferred income tax benefit............................. (3,971) (832) (1,186) Changes in operating assets and liabilities, net of acquisition of businesses: Accounts receivable................................. (15,268) (17,899) (15,103) Inventories ............................................... 7,432 (11,050) (3,294) Prepaid expenses and other current assets................... (813) 595 (689) Income taxes receivable..................................... 968 2,087 1,930 Accounts payable.................................... 4,508 (725) 225 Accrued expenses............................................ (1,831) 3,755 (872) Income taxes payable........................................ (453) 1,206 -------- --------- ------- Net cash provided by operating activities......... 16,580 7,035 13,148 -------- -------- ------- Cash flows from investing activities: Acquisition of businesses............................... (88,017) (4,626) Acquisition of property and equipment....................... (10,495) (7,175) (4,972) Other assets............................................ (1) (110) 5 -------- -------- -------- Net cash used in investing activities............... (98,513) (11,911) (4,967) -------- -------- ------- Cash flows from financing activities: Net borrowings (repayments) under lines of credit....... 89,924 (338) 452 Financing fees.......................................... (1,200) Repayment under long-term liabilities................... (990) Repayment under capital lease obligations............... (58) (13) Exercise of warrants.................................... 673 22 Exercise of options......................................... 406 4,580 661 Repurchase of common stock.............................. (1,490) (11,564) (13,541) -------- -------- ------- Net cash provided by (used in) financing activities. 87,640 (7,697) (12,419) -------- -------- ------- Effect of exchange rate changes on cash and cash equivalents 502 (54) 23 -------- ------- ------- Net increase (decrease) in cash and cash equivalents........ 6,209 (12,627) (4,215) Cash and cash equivalents, beginning of year................ 2,923 15,550 19,765 -------- -------- ------- Cash and cash equivalents, end of year...................... $ 9,132 $ 2,923 $15,550 ======== ======== ======= See accompanying notes to consolidated financial statements.
F-5 DAY RUNNER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Day Runner, Inc. and subsidiaries (the "Company") develop, manufacture, and market paper-based organizers for the retail market. The Company also develops, manufactures and markets a number of related organizing products, including telephone/address books, business accessories, products for students and organizing and other wallboards. A substantial portion of the Company's sales is to office products and mass market retailers throughout the United States and to a variety of retailers abroad. The Company grants credit to substantially all of its customers. CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS - The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash equivalents and accounts receivable. The Company places its cash equivalents with various financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Company believes that no significant credit risk exists, as these investments are made with high quality financial institutions. In fiscal 1999, sales to four customers accounted for 25%, 13%, 11% and 11% of the Company's net sales. In fiscal 1998, sales to four customers accounted for 28%, 16%, 15% and 14% of the Company's net sales. In fiscal 1997, sales to four customers accounted for 25%, 15%, 14% and 11% of the Company's net sales. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. The carrying value of the Company's line of credit at June 30, 1999 approximates fair value. The fair values were estimated by discounting the future cash flows using rates currently available to the Company for debt instruments with similar terms and remaining maturities. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation is provided for over the estimated useful lives of the respective assets, using the straight-line method. Estimated useful lives range from three to seven years. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful life of the asset or the life of the lease. GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations and is amortized using the straight-line method over periods ranging from 20 to 35 years. Other intangible assets consist of trade names acquired in business combinations and are amortized using the straight-line method over periods ranging from 15 to 40 years. OTHER ASSETS - Other assets consist of financing fees and a non-competition agreement. Financing fees represent fees in connection with a loan agreement and are amortized using the straight-line method over the remaining term of the loan agreement (see Note 7). The non-competition agreement is amortized using the straight-line method over five years. IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the related carrying value of the asset to its estimated fair value. INCOME TAXES - Income taxes are recognized for (a) the amount of income taxes payable or refundable for the current period and (b) deferred income tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or income tax returns. The effects of income taxes are measured based on enacted tax laws and rates. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. FOREIGN CURRENCY TRANSLATION - Balance sheet accounts for foreign operations are translated at the exchange rate at the balance sheet date, and statement of operations accounts are translated at the weighted-average exchange rate for the year. Resulting translation adjustments are included in accumulated other comprehensive income. Transaction gains and losses included in (loss) income were not significant during the years ended June 30, 1999, 1998 and 1997. NET SALES - Revenue is recognized upon shipment of product to the customer, with allowances for estimated returns, rebates and other allowances. NEW ACCOUNTING PRONOUNCEMENT - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000, which will be September 30, 2000 for the Company. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, collectively referred to as derivatives, and for hedging activities. SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the statement of financial position and the measurement of those instruments at fair value. The Company expects that the adoption of SFAS No. 133 will not have a material impact on the Company's financial position or results of operations. RECLASSIFICATIONS - Certain reclassifications were made to the prior year financial statements to conform to the current year presentation. 2. ACQUISITIONS On October 30, 1998, the Company announced that it had control of a majority of the outstanding shares of Filofax Group plc ("Filofax") as a result of its previously announced cash tender offer for Filofax stock. The Company acquired all the remaining outstanding shares of Filofax on December 26, 1998. This acquisition was accounted for under the purchase method of accounting. The total purchase price of $92,803,000, which includes costs of the transaction, was paid in cash and Loan Notes (see Note 8). The Company borrowed the cash portion of this amount under a loan agreement with a group of banks (see Note 7). The following table sets forth the unaudited proforma condensed combined statements of operations data for the years ended June 30, 1999 and 1998 as if the acquisition had occurred on July 1, 1997 (dollars in thousands):
YEARS ENDED JUNE 30, 1999 1998 ------------ ----------- Net sales $220,904 $231,190 (Loss) income before (benefit) provision for income taxes $ (4,413) $ 27,040 Net (loss) income $ (2,603) $ 16,495 (Loss) earnings per common share: Basic $ (0.22) $ 1.43 Diluted $ (0.22) $ 1.32 Weighted average number of common shares outstanding: Basic 11,896 11,533 Diluted 11,896 12,523
On July 29, 1997, the Company purchased the stock of Ultima Distribution, Inc. ("Ultima"), which was the distributor of the Company's products in Canada, for approximately $130,000. The Company also entered into non-competition agreements with certain of Ultima's former stockholders. On October 1, 1997, the Company purchased substantially all of the operating assets of Ram Manufacturing, Inc. ("Ram"), an Arkansas-based developer, manufacturer and marketer of wallboards. The purchase price was approximately $2,400,000. The Company also assumed certain liabilities totaling approximately $3,000,000. In addition, contingent payments may be paid through December 31, 2000, based upon Ram's operating performance during that period. The owner of Ram, who now works for the Company, entered into a non-competition agreement with the Company. On February 1, 1998, the Company purchased the stock of Timeposters, Inc. ("Timeposters"), a Canadian developer, manufacturer and marketer of planning and presentation products, including flexible planners, planning boards, other wall boards and easels, and entered into certain non-competition agreements with the founders, who continue to work for the Company. The purchase price was approximately $2,546,000. In addition, contingent payments may be paid through December 31, 1999, based on Timeposters' operating performance during that period. 3. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. Inventories consist of the following (in thousands): JUNE 30, 1999 1998 ---------- --------- Raw materials................... $ 12,026 $ 14,087 Work in process................. 2,138 831 Finished goods.................. 28,197 22,692 ---------- --------- Total....... $ 42,361 $ 37,610 ========== ========= 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands): JUNE 30, 1999 1998 ---------- --------- Displays............................................ $ 11,653 $ 9,003 Data processing equipment and software.............. 14,697 8,785 Machinery and equipment............................. 11,915 6,705 Leasehold improvements.............................. 5,106 2,229 Vehicles............................................ 715 250 ---------- --------- Total........................... 44,086 26,972 Accumulated depreciation and amortization........... (26,235) (15,084) ---------- --------- Property and equipment - net........................ $ 17,851 $ 11,888 ========== =========
5. FINANCIAL INSTRUMENTS On September 29, 1998, the Company entered into a call option in order to limit its foreign exchange risk on the purchase of Filofax shares, which were paid for in pounds Sterling. The Company's objective was to protect itself from the risk that the purchase price of the Filofax shares would be adversely affected by changes in exchange rates. During the year ended June 30, 1999, the Company expensed $765,000 to operating expenses for the call option. At June 30, 1999, the Company had not entered into any additional foreign currency instruments. The Company does not trade in financial instruments nor does it enter into such contracts for speculative purposes. 6. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
JUNE 30, 1999 1998 -------- --------- Accrued sales and promotion costs.................... $ 9,576 $ 7,473 Accrued payroll and related costs.................... 5,366 2,955 Other................................................ 4,605 3,534 -------- --------- Total............................ $ 19,547 $ 13,962 ======== =========
7. LINES OF CREDIT On September 23, 1998, the Company entered into a $160,000,000 Revolving Loan Agreement (the "Loan Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"). Effective November 24, 1998, this amount was voluntarily reduced to $145,000,000, and unamortized financing fees of approximately $84,000 were charged to interest expense. The loan facility was syndicated with a group of banks in December 1998. Borrowings bore interest either at floating rates based on the higher of Wells Fargo's prime rate and the Federal Funds Rate published by the Federal Reserve Bank of New York or at fixed rates calculated by reference to the interest rates at which Wells Fargo offers deposits in U.S. dollars in amounts approximately equal to the amount of the relevant loan and for a period of time comparable to the number of days the relevant loan remains outstanding, together with a margin. During the year ended June 30, 1999, the weighted-average interest rate was 6.33%. During the year ended June 30, 1999, under the terms of the Loan Agreement, the Company paid Wells Fargo a financing fee of $1,200,000, $205,000 of which was expensed in the fiscal year ended June 30, 1999. At June 30, 1999, the Company had $105,317,000 outstanding under this Loan Agreement and had outstanding letters of credit totaling approximately $218,000. On June 29, 1999, the Company obtained from the banks a waiver of the fixed charge coverage ratio and the funded debt ratio covenants for the quarter ended June 30, 1999. The waiver was subsequently extended through October 15, 1999. On October 12, 1999, the Company and the banks amended the Loan Agreement (the "Amended and Restated Loan Agreement"). The Amended and Restated Loan Agreement converts the entire outstanding revolving loan balance into a term loan portion of $90,400,000 and a revolving credit loan portion of $29,600,000. The term loan matures on September 30, 2001, and the revolving credit loan facility matures on October 9, 2000. The maturity date of the revolving credit loan facility will be automatically extended through September 30, 2001, provided that the Company achieves on September 30, 2000 a minimum EBITDA, a minimum fixed charge coverage ratio and a maximum senior funded debt ratio, as defined in the amended agreement. As a result, unamortized financing fees on the Loan Agreement of approximately $955,000 will be charged to interest expense in October 1999. The Amended and Restated Loan Agreement is secured by the Company's assets and includes, among other things, financial covenants requiring the maintenance of a minimum fixed charge coverage ratio, EBITDA, stockholders' equity and current ratio, and a maximum senior funded debt coverage ratio and operating expenses to net sales ratio, as defined in the amended agreement. The Amended and Restated Loan Agreement also limits, among other things, the incurrence of liens and other indebtedness, mergers, consolidations, the sale of assets, annual capital expenditures, advances, investments and loans by the Company and its subsidiaries, dividends, stock repurchases and certain transactions with affiliates. It permits up to $10,000,000 of secured debt for currency hedging purposes and up to $1,500,000 unsecured overdraft borrowings for foreign subsidiaries. The outstanding balances bear interest at the Company's election at either (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to 200.00 basis points, or (ii) the applicable eurodollar rate plus an interest rate margin ranging from 112.50 to 300.00 basis points, depending on the level of the funded debt ratio at the end of each fiscal quarter. Under the Amended and Restated Loan Agreement, the Company is obligated to pay certain fees including an unused revolving loan commitment fee ranging from 37.50 to 67.50 basis points which varies with the level of the funded debt ratio at the end of each fiscal quarter, payable quarterly in arrears; letter of credit fees ranging from 112.50 to 300.00 basis points which vary with the level of the funded debt ratio at the time the letter of credit is issued; and amendment and other standard fees which are currently estimated at approximately $1,500,000. The Company's Canadian subsidiary had a credit agreement with a Canadian bank which allowed for borrowings up to Canadian $3,000,000, bore interest at the bank's prime rate and was due and payable on demand. The borrowings under this credit agreement were repaid in full on October 22, 1998, and the Canadian subsidiary now borrows funds as a co-borrower under the Loan Agreement. 8. LOAN NOTES Loan Notes in the amount of (pound)1,477,000 (US $2,328,000) were issued in connection with the Filofax acquisition, are unsecured obligations of the Company's U.K. subsidiary and bear interest at LIBOR (5.90% at June 30, 1999) less 1%. Interest on the Loan Notes is paid annually in arrears beginning September 30, 1999. The Loan Notes are redeemable, in whole or in part, at the holder's option on each interest payment date. Unless they have previously been redeemed, all Loan Notes will be redeemed on September 30, 2003. As of September 30, 1999, (pound)1,318,000 (US $2,077,000) of the Loan Notes had been redeemed. 9. LEASES The Company has five noncancelable operating leases for its principal operating facilities and its corporate headquarters. The leases expire through 2006. The leases include renewal options that, if exercised, would extend the lease terms through 2011, and the leases provide for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index, subject to certain minimum increases. The Company also has entered into leases for certain production, warehouse, computer, and office equipment under noncancelable operating leases that expire through May 2003. Future minimum lease payments under the operating leases at June 30, 1999 are summarized as follows (in thousands): YEARS ENDING JUNE 30, 2000.................................................... $ 5,396 2001.................................................... 4,872 2002.................................................... 2,781 2003.................................................... 1,712 2004.................................................... 868 Thereafter.............................................. 1,634 ---------- Total future minimum lease payments..................... $ 17,263 ========== Rent expense was $5,626,000, $4,025,000 and $3,841,000 for the years ended June 30, 1999, 1998 and 1997, respectively. 10. INCOME TAXES The components of (loss) income before (benefit) provision for income taxes are as follows (in thousands): YEARS ENDED JUNE 30,
1999 1998 1997 ---------- --------- ----------- United States......................... $ (9,704) $ 22,856 $ 18,765 Other................................. 2,917 2,885 1,885 ---------- ---------- ---------- Total.............................. $ (6,787) $ 25,741 $ 20,650 =========== ========== ========== The (benefit) provision for income taxes consists of the following (in thousands): YEARS ENDED JUNE 30, 1999 1998 1997 ---------- --------- --------- Current: Federal............................... $ (310) $ 8,565 $ 7,076 State................................. (8) 1,477 1,825 Foreign............................... 1,500 623 387 --------- --------- --------- Total current........................... 1,182 10,665 9,288 --------- --------- --------- Deferred: Federal............................... (3,821) (920) (961) State................................. (150) 88 (225) ---------- --------- --------- Total deferred.......................... (3,971) (832) (1,186) ---------- --------- --------- Total (benefit) provision for income taxes...................... $ (2,789) $ 9,833 $ 8,102 ========== ========= =========
Differences between the total income tax (benefit) provision and the amount computed by applying the statutory federal income tax rate to (loss) income before (benefit) provision for income taxes are as follows (in thousands):
YEARS ENDED JUNE 30, 1999 1998 1997 ----------- ----------- ----------- > Computed tax expense using the statutory federal income tax rate..... $ (2,375) $ 9,009 $ 7,228 (Decrease) increase in taxes arising from: State taxes, net of federal benefit.................... (102) 769 1,000 Foreign earnings taxed at other than federal statutory rate......... (79) (387) (273) Foreign tax credit.................... (347) Other................................. 114 442 147 ---------- ---------- --------- Total................................. $ (2,789) $ 9,833 $ 8,102 ========== ========== ========= Effective income tax rate............... 41% 38% 39% ========== ========== =========
Total deferred income tax assets and liabilities consist of the following (in thousands): JUNE 30, 1999 1998 ---------------- ---------------- Net operating loss carryback/carryforward $ 3,384 Allowance for sales returns 2,433 $ 2,918 Inventory obsolescence reserve 1,988 1,220 Allowance for doubtful accounts 1,041 1,074 State taxes 615 Sales programs 827 608 Other 1,975 1,368 --------- ------- Total deferred income tax assets 11,648 7,803 Deferred income tax liabilities (459) (585) --------- ------- Total $ 11,189 $ 7,218 ========= =========
Cumulative undistributed earnings of foreign subsidiaries for which no deferred income taxes have been provided approximated $6,942,000 and $4,153,000 at June 30, 1999 and 1998, respectively. The additional income taxes payable on the earnings of foreign subsidiaries, if remitted, would be offset by U.S. income tax credits for foreign taxes paid. 11. EARNINGS PER SHARE Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding for the year. Diluted earnings per share are computed by dividing net income by the sum of the weighted-average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities. The following reconciles the numerator and denominator of the basic and diluted per share computations for net (loss) income (in thousands, except per share amounts):
YEARS ENDED JUNE 30, 1999 1998 1997 ------------ ------------- ------------- NET (LOSS) INCOME $ (3,998) $ 15,908 $ 12,548 =========== ========= ======== BASIC WEIGHTED-AVERAGE SHARES Weighted-average number of common shares outstanding 11,896 11,533 12,432 Effect of dilutive securities Additional shares from the Assumed exercise of options and warrants 3,093 2,757 Shares assumed to be repurchased under the treasury stock method (2,103) (2,007) --------- --------- ------ DILUTED WEIGHTED-AVERAGE SHARES Weighted-average number of common shares outstanding and common share equivalents 11,896 12,523 13,182 ========= ========= ====== (LOSS) EARNINGS PER SHARE: Basic $ (0.34) $ 1.38 $ 1.01 ======== ======== ======= Diluted $ (0.34) $ 1.27 $ 0.95 ======== ======== =======
For the year ended June 30, 1999, dilutive securities equivalent to 1,160,000 shares are not included as potential common shares because they are antidilutive. During the years ended June 30, 1998 and 1997, there were no antidilutive common share equivalents. 12. STOCK OPTION PLANS Under the Company's 1995 Stock Option Plan (the "Plan"), an aggregate of 1,925,000 shares of common stock is reserved for issuance to key employees, including officers and directors of the Company. Both incentive stock options and nonstatutory stock options are authorized for issuance under the Plan. The terms of the options are determined at the time of grant. Pursuant to the Plan, the per share option price of incentive stock options may not be less than the fair market value of a share of common stock at the date of grant, and no options may be granted after December 2005. The outstanding options typically become exercisable over a period of five years from the date of issuance and have terms of up to ten years. The Company also authorized the issuance of up to 3,450,000 shares of the Company's common stock under its Amended and Restated 1986 Stock Option Plan. Such options typically become exercisable ratably over a period of five years from the date of issuance and have terms of six to ten years. As of June 30, 1999, options covering 2,422,104 shares have been exercised and options covering 1,002,646 shares remain outstanding. No additional options will be granted under this plan. During the years ended June 30, 1999, 1998 and 1997, certain officers and employees exercised options to purchase an additional 17,040, 651,414 and 74,300 shares, respectively, of the Company's common stock for an aggregate of $129,000, $4,278,000 and $381,000, respectively (see Note 15). In connection with the exercise of nonstatutory stock options and the sale of shares purchased pursuant to incentive stock options, the Company realized a reduction in its current tax liability during the years ended June 30, 1999, 1998 and 1997. This reduction totaled $20,000, $5,208,000 and $157,000, respectively, and was credited to additional paid-in capital. A summary of option activity is as follows:
WEIGHTED- WEIGHTED- AVERAGE AVERAGE NUMBER OF EXERCISE OPTIONS EXERCISE OPTIONS PRICE EXERCISABLE PRICE ------- ----- ----------- ----- Outstanding, July 1, 1996........... 1,732,150 $ 6.85 Granted.......................... 465,000 13.00 Exercised........................ (74,300) 5.13 Cancelled........................ (31,250) 11.96 ------------ Outstanding, June 30, 1997.......... 2,091,600 8.20 1,102,314 $ 6.90 Granted.......................... 565,000 17.10 Exercised........................ (651,414) 6.57 ------------ Outstanding, June 30, 1998.......... 2,005,186 11.24 933,648 8.61 Granted.......................... 444,000 18.94 Exercised........................ (17,040) 7.55 Cancelled........................ (116,500) 16.41 ------------ Outstanding, June 30, 1999.......... 2,315,646 12.48 1,343,933 9.94 ============
At June 30, 1999, the range of option prices for shares under options and the weighted average remaining contractual life is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- NUMBER OF EXERCISE CONTRACTUAL NUMBER EXERCISE RANGE OF OPTION EXERCISE PRICE OPTIONS PRICE LIFE EXERCISABLE PRICE ------------------------------ ------------ -------- ------------ ----------- --------- $ 5.13 - $8.38 799,596 $ 6.68 4.84 720,408 $ 6.50 9.75 - 13.00 594,050 11.89 6.41 376,500 11.53 16.88 - 20.63 922,000 17.89 8.59 247,025 17.54
The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for stock option awards. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans as required by SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net (loss) income and (loss) earnings per common and common equivalent shares would have been reduced to the pro forma amounts indicated below:
YEARS ENDED JUNE 30, 1999 1998 1997 ---------- ---------- ----------- Net (loss) income: As reported $ (3,998) $ 15,908 $ 12,548 Pro forma $ (6,694) $ 12,617 $ 11,094 (Loss) earnings per common and common equivalent shares: As reported: Basic $ (0.34) $ 1.38 $ 1.01 Diluted $ (0.34) $ 1.27 $ 0.95 Pro forma: Basic $ (0.56) $ 1.09 $ 0.89 Diluted $ (0.56) $ 1.01 $ 0.84
The fair values of the options granted under the plans during fiscal 1999, 1998 and 1997 were estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average fair values of the options at the date of grant were $10.38, $9.03 and $14.53 during fiscal 1999, 1998 and 1997, respectively. The following weighted-average assumptions for fiscal 1999, 1998 and 1997, respectively, were used: no dividend yield; volatility of 60.00%, 57.21% and 53.28%; risk-free interest rates of 5.245%, 5.877% and 6.246%; and expected option lives of 4.85, 4.74 and 6.05 years. Pro forma compensation cost of options granted under the Employee Stock Purchase Plan is measured based on the discount from market value (see Note 14). On September 7, 1999, the Company issued options to key employees to purchase 417,500 shares of the Company's common stock at $9.0625 per share. The options vest over a period of five years and expire in 2009. 13. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN In November 1998, the Company authorized a non-employee director stock option plan. The terms of the options are determined at the time of grant. No options may be granted after November 22, 2008. Options typically become exercisable one year from the date of issuance and have terms up to 10 years. During the year ended June 30, 1999, the Board of Directors and stockholders approved the issuance of options to purchase 50,000 shares of the Company's common stock. Such options were granted at a price of $22.125 per share, vest over a period of one year and expire in November 2008.
A summary of option activity is as follows: WEIGHTED- WEIGHTED- AVERAGE AVERAGE NUMBER OF EXERCISE OPTIONS EXERCISE OPTIONS PRICE EXERCISABLE PRICE ------- ----- ----------- ----- Granted............................. 50,000 $22.125 ------------ Outstanding, June 30, 1999.......... 50,000 22.125 25,000 $22.125 ============
14. EMPLOYEE STOCK PURCHASE PLAN During 1992, the Company adopted an Employee Stock Purchase Plan under which 350,000 shares of common stock were authorized for issuance to employees. Under the plan, eligible employees may purchase, through payroll deductions withheld during an offering period, an amount of common stock not to exceed approximately 5% of the employee's annual compensation. The purchase price per share is the lower of 85% of the fair market value of a share of common stock on the first day of the offering period or on the last day of the offering period. There are two offering periods during each year. During the years ended June 30, 1999, 1998 and 1997, employees purchased an aggregate of 24,098, 19,114 and 34,016 shares of common stock for $277,000, $302,000 and $280,000, respectively, under this plan. These amounts are included in the amounts shown for exercise of options on the consolidated statements of stockholders' equity (see Note 13). 15. WARRANTS During the years ended June 30, 1998 and 1997, the Board of Directors approved the issuance of warrants to purchase an aggregate of 515,000 shares of the Company's common stock. Such warrants are exercisable at prices ranging from $11.781 to $20.625 per share, vest over periods up to 48 months, and expire at various times through April 2008. No warrants were granted during the year ended June 30, 1999. During the years ended June 30, 1998 and 1997, certain directors exercised warrants to purchase 278,000 and 11,000 shares, respectively, of the Company's common stock for an aggregate of $673,000 and $22,000, respectively. No warrants were exercised during the year ended June 30, 1999. Included in the issuance of warrants to purchase 515,000 aggregate shares of the Company's common stock is a warrant to purchase 50,000 shares that was issued during fiscal 1997 to a director under the terms of a consulting agreement. Such issuance was accounted for under SFAS No. 123 using the Black-Scholes option pricing model, which resulted in the recording of $75,000, $233,000 and $50,000 in compensation cost during the years ended June 30, 1999, 1998 and 1997, respectively.
A summary of warrant activity is as follows: WEIGHTED- WEIGHTED- AVERAGE AVERAGE NUMBER OF EXERCISE OPTIONS EXERCISE WARRANTS PRICE EXERCISABLE PRICE -------- ----- ----------- ----- Outstanding, July 1, 1996........... 477,000 $ 4.44 Granted.......................... 300,000 11.95 Exercised........................ (11,000) 2.00 ------------ Outstanding, June 30, 1997.......... 766,000 7.42 493,082 $ 4.91 Granted.......................... 215,000 17.31 Exercised........................ (278,000) 2.42 ------------ Outstanding, June 30, 1998.......... 703,000 12.42 482,166 12.20 Cancelled........................ (30,000) 16.88 ------------ ----- ------- ----- Outstanding, June 30, 1999.......... 673,000 12.22 548,000 12.32 ============ ===== ======= =====
At June 30, 1999, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:
WARRANTS OUTSTANDING WARRANTS EXERCISABLE WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER OF EXERCISE CONTRACTUAL NUMBER EXERCISE RANGE OF WARRANT EXERCISE PRICE WARRANTS PRICE LIFE EXERCISABLE PRICE ------------------------------- -------- ----- ---- ----------- ----- $6.00 - $9.50 200,000 $ 7.81 4.83 200,000 $ 7.81 11.78 - 12.81 288,000 11.96 5.02 163,000 12.10 16.88 - 20.63 185,000 17.38 8.23 185,000 17.38
16. STOCK SPLIT At a Special Meeting of the Company's stockholders held on March 17, 1998, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to (i) effect a two-for-one split of each of the outstanding shares of common stock of the Company and (ii) increase the number of authorized shares of all classes of stock of the Company from 15,000,000 to 30,000,000, consisting of 29,000,000 shares of common stock, $0.001 par value per share, and 1,000,000 shares of preferred stock, $0.001 par value per share. Both actions were effective March 18, 1998. All share and per share data has been retroactively restated to reflect the two-for-one stock split. 17. TREASURY STOCK In fiscal 1997, the Board of Directors authorized the purchase of up to 1,200,000 shares of the Company's common stock, which may be used to meet the Company's common stock requirements for its stock benefit plans. In fiscal 1998, the Board of Directors increased the number of shares of common stock that the Company is authorized to repurchase under this plan by 200,000 shares and authorized the purchase of up to 720,000 shares of the Company's common stock from officers and directors. During fiscal 1999, 1998 and 1997, the Company repurchased 96,000, 695,588 and 1,026,200 shares, at an average per share cost of $15.53, $16.63 and $13.20, respectively. The 695,588 shares repurchased in fiscal 1998 were from officers and directors at a per share cost equal to the closing price of the stock on the day of the repurchase. In fiscal 1999, 1998 and 1997, 41,138, 948,528 and 40,264, respectively, treasury shares were reissued upon the exercise of stock options and warrants and the issuance of common stock under the Employee Stock Purchase Plan. 18. OTHER TRANSACTIONS During fiscal 1995 and 1993, the Company entered into barter agreements whereby it delivered inventory in exchange for future advertising credits and other items. The Company had recorded barter credits of $15,000 in prepaid expenses and other current assets at June 30, 1998. During the years ended June 30, 1999 and 1998, approximately $15,000 and $100,000, respectively, was charged to expense for barter credits used. No amounts were charged to expense for barter credits used during the year ended June 30, 1997. During the year ended June 30, 1997, the Company charged $200,000 to operations for impairment of these credits. No such impairment losses were charged to operations during the years ended June 30, 1999 and 1998. 19. PROFIT-SHARING AND BONUS PLANS In January 1991, the Company established a 401(k) profit-sharing plan in which eligible employees may contribute up to 15% of their eligible earnings. The Company may contribute to the plan at the discretion of the Board of Directors, subject to applicable regulations. In the years ended June 30, 1999, 1998 and 1997, the Board elected to contribute an amount equal to 25% of the first 6% of eligible earnings. Participants vest in the Company's contributions at a rate of 20% after two years of plan participation and 20% each year thereafter until fully vested. During the years ended June 30, 1999, 1998 and 1997, the Company's matching contributions were $181,000, $156,000 and $133,000, respectively. The Company has an executive bonus plan and incentive compensation arrangements for key employees based on an earnings formula. Compensation expense recorded under these plans was $628,000 during the year ended June 30, 1998. No amounts were recorded under these plans during the years ended June 30, 1999 and 1997. 20. SEGMENT INFORMATION The Company's operating segments have similar economic characteristics and, as such, the Company has aggregated six operating segments into a single reportable segment in conformity with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The business activities of the Company's operating segment are the development, manufacturing and marketing of paper-based organizers for the retail market. In addition, the Company also develops, manufactures and markets a number of related organizing products including telephone/address books, business accessories, products for students and organizing and other wallboards. The Company groups its products into three categories: organizers and planners; their refills, which include calendars, other pages and accessories; and related organizing products. The following table sets forth, for the periods indicated, approximate Day Runner sales by product category and as a percentage of total net sales.
FISCAL FISCAL FISCAL PRODUCTS 1999 1998 1997 -------- ----------------- ------------------- ------------------ (Unaudited; dollars in thousands) Organizers and planners. $ 80,092 $ 83,069 $ 73,858 Refills................. 63,596 51,876 43,264 Related organizing products 52,524 32,896 10,254 --------- -------- -------- Total............. $ 196,212 $167,841 $127,376 ========= ======== ========
21. OPERATIONS IN FOREIGN COUNTRIES The following is a summary of the financial activity of the Company by geographical area (in thousands):
YEAR ENDED JUNE 30, 1999 UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL ------------- ------ ----- ------------ ----- Net sales to unaffiliated entities $ 136,603 $ 39,173 $ 20,436 $ 196,212 Transfers between geographic areas 2,396 1,670 $ (4,066) ---------- --------- ---------- ---------- ---------- Net sales $ 138,999 $ 39,173 $ 22,106 $ (4,066) $ 196,212 ========== ========= ========== ========= ========== Income (loss) from operations $ 651 $ 3,797 $ 852 $ (6,872) $ (1,572) ========== ========= ========= ========= ========== Long-lived assets $ 87,144 $ 171,167 $ 6,626 $(159,463) $ 105,474 ========== ========= ========= ========= ========== YEAR ENDED JUNE 30, 1998 UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL ------------- ------ ----- ------------ ----- Net sales to unaffiliated entities $ 152,939 $ 2,745 $ 12,157 $ 167,841 Transfers between geographic areas 2,347 2,169 $ (4,516) ---------- -------- ---------- ------------ ---------- Net sales $ 155,286 $ 2,745 $ 14,326 $ (4,516) $ 167,841 ========== ======== =========== ============ ========== Income from operations $ 31,883 $ 23 $ 2,648 $ (8,985) $ 25,569 ========== ======== ========== ========== ========== Long-lived assets $ 16,267 $ 95 $ 3,364 $ (3,117) $ 16,609 ========== ======== ========== ========== ========== YEAR ENDED JUNE 30, 1997 UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL ------------- ------ ----- ------------ ----- Net sales to unaffiliated entities $ 122,618 $ 2,086 $ 2,672 $ 127,376 Transfers between geographic areas 490 1,621 $ (2,111) ---------- -------- ---------- ---------- --------- Net sales $ 123,108 $ 2,086 $ 4,293 $ (2,111) $ 127,376 ========== ======== ========== ========== ========= Income from operations $ 23,927 $ 24 $ 1,810 $ (6,412) $ 19,349 ========== ======== ========== ========== ========= Long-lived assets $ 8,688 $ 157 $ 4 $ (61) $ 8,826 ========== ======== ========= ========== =========
22. CONTINGENCIES In September 1999, two purported securities class action lawsuits were filed in the United States District Court for the Central District California against the Company and certain of its officers and directors. The complaints allege that the Company violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder through the misstatement of the Company's financial results of operations for the first through third quarters of fiscal 1999. These alleged misstatements purportetdly consisted of improper accounting for manufacturing variances and other costs. The plaintiffs in both actions purport to represent a class consisting of all purchasers of the Company's Common Stock between October 20, 1998 and August 31, 1999. The plaintiffs are seeking unspecified compensatory damages. The Company expects that these actions will be consolidated into a single action, that a lead plaintiff will be appointed, and that a consolidated amended complaint will be filed. None of these events has yet taken place. There has been no discovery in any of the actions. Based on the allegations and the issues raised by the current complaint, the Company believes it has meritorious defenses to the actions and intends to defend them vigorously. The Company is not a party to any other litigation that, in the opinion of management, would reasonably be expected to have a materially adverse effect on the consolidated financial statements. 23. SUPPLEMENTAL CASH FLOW INFORMATION DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS):
YEARS ENDED JUNE 30, 1999 1998 1997 ------------ ----------- ------------- Cash paid for: Interest....................... $ 4,944 $ 91 $ 130 Income taxes $ 1,488 $ 8,862 $ 6,026
During the year ended June 30, 1999, the net cash expended by the Company in its acquisition of Filofax was used as follows (in thousands) (See Note 2): Fair value of assets acquired $ (117,203) Liabilities assumed 29,186 ----------- Cash paid $ (88,017) =========== During the year ended June 30, 1998, the Company purchased all of the capital stock of Ultima Distribution, Inc. and Timeposters, Inc. The Company also purchased certain of the assets of Ram Manufacturing, Inc. In conjunction with these acquisitions, net cash expended was as follows (in thousands) (see Note 2): Fair value of assets acquired $ (11,809) Liabilities assumed 7,183 ----------- Cash paid $ (4,626) =========== During the year ended June 30, 1999, the Company purchased 703,308 shares of Filofax's outstanding common stock by issuing (pound)1,477,000 (US $2,328,000) in Loan Notes (see Note 8) to former shareholders of Filofax. The Company realized a reduction in its current income tax liability during fiscal 1999, 1998 and 1997 in the amount of $20,000, $5,208,000 and $157,000, respectively. Such amounts were credited to additional paid-in capital (see Note 12). INDEPENDENT AUDITORS' REPORT Day Runner, Inc.: We have audited the consolidated financial statements of Day Runner, Inc. and its subsidiaries as of June 30, 1999 and 1998, and for each of the three years in the period ended June 30, 1999, and have issued our report thereon dated October 12, 1999; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Day Runner, Inc. and its subsidiaries, listed in Item 14(a)2. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP /s/ DELOITTE & TOUCHE LLP Los Angeles, California October 12, 1999 S-1
DAY RUNNER, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS) BALANCE AT BALANCE AT JUNE 30, FILOFAX CHARGED TO JUNE 30, CLASSIFICATION 1998 ACQUISITION OPERATIONS DEDUCTIONS 1999 - -------------- ---------------- ----------- ---------- ---------- --------- Allowance for doubtful accounts and sales returns and other allowances...... $ 9,942 $ 1,580 $ 19,039 $(19,080) $ 11,481 Reserve for obsolete inventories........... 3,052 4,782 4,286 (2,385) 9,735 BALANCE AT BALANCE AT JUNE 30, CHARGED TO JUNE 30, CLASSIFICATION 1997 OPERATIONS DEDUCTIONS 1998 - -------------- ---------------- ---------- ---------- --------- Allowance for doubtful accounts and sales returns and other allowances...... $ 8,664 $ 9,799 $( 8,521) $ 9,942 Reserve for obsolete inventories........... 3,259 898 (1,105) 3,052 BALANCE AT BALANCE AT JUNE 30, CHARGED TO JUNE 30, CLASSIFICATION 1996 OPERATIONS DEDUCTIONS 1997 - -------------- ---------------- ---------- ---------- --------- Allowance for doubtful accounts and sales returns and other allowances...... $ 7,374 $ 14,264 $( 12,974) $ 8,664 Reserve for obsolete inventories........... 3,473 1,267 (1,481) 3,259
S-2 EXHIBIT INDEX Exhibit Number Description 10.15 Lease Agreement dated as of April 2, 1999 between Mrs. Refugio Victoria Geffroy De Flourie and Mr. David Bramzon Stengel and the Registrant(7) 10.20 First Amendment to Consulting Agreement effective April 22, 1999 between the Registrant and Alan R. Rachlin(7) 10.21 Consulting Agreement effective May 22, 1999 between the Registrant and Mr. Alan R. Rachlin(17) 10.23 Amended and Restated Loan Agreement dated as of September 30, 1999 among the Registrant, Day Runner UK plc, Filofax Limited, the Lenders named therein and Wells Fargo Bank National Association, including Revolving and Term Loan Notes. 21.1 Subsidiaries of the Registrant 23.1 Consent of Deloitte & Touche LLP 27.1 Financial Data Schedule EX-10 2 MEXICO LEASE LEASE AGREEMENT ENTERED INTO BY AND BETWEEN MRS. REFUGIO VICTORIA GEFFROY DE FLOURIE IN HER PERSONAL CAPACITY AS ATHE COMMON REPRESENTATIVE FOR HERSELF AND FOR MR. DAVID BRAMZON STENGEL AND ARE (HEREINAFTER REFERRED TO AS THE LESSOR), AND BOTH DAYRUNNER, INC. AND DAYRUNNER DE MEXICO, S.A. DE C.V. (HEREINAFTER REFEREED TO AS THE LESSEES), REPRESENTED RESPECTIVELY BY MESSRS. JOHN KIRKLAND AND JOSE ANGEL AGUAYO RAMIREZ PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES. R E C I T A L S I. LESSORS COMMON REPRESENTATIVE hereby states that: B. That she and her co-owner are the owners and can freely dispose of a plot of land identified as lot 9-A of block 352, in Parque Industrial La Joya, in Tijuana, Baja California, as evidence with public Instrument number 7826, dated March 18th., 1999, which was granted before Notary Public No. 12 for the City of Tijuana, and which document is in the process of being recorded before the Tijuana offices of the Public Registry of the Property and Commerce, with an area of approximately 21,019.03 square meters (hereinafter referred to as the Real Property). A drawing which shows the exact location as well as a description of the referred piece of Real Property is attached hereto as Exhibit B and shall henceforth be an integral part of this Agreement. C. She and her co-owner have obtained official documentation from the competent authorities to define the industrial use of the Leased Premises. D. The Real Property has access to water, sewer, electric, public lighting, and telephone capacity to support the requirements of LESSEES. E. For purposes of this Agreement, her principal address is Boulevard Pacifico #14533, Parque Industrial Pacifico, Tijuana, Baja California F. She and her co-owner are willing to perform on the Real Property, certain improvements as hereinafter defined in Section 2 below, and lease such Real Property and Improvements (collectively the LEASED PREMISES). G. The Leased Premises is free and clear of any liens, encumbrances, and any other limitations of domain, except for easements, covenants and other restrictions or utility easements, as may be defined in the final official version of the subdivision map, and as shown on Exhibit B. H. She has the authority to enter into this Agreement in her capacity as Lessors Common Representative as evidenced in the Public Instrument referred to in Item b) above, which authority has not been revoked or limited. I. She and her co-owner are willing to lease the LEASED PREMISES to the LESSEES, pursuant to the terms and conditions of this Agreement. 655352 LESSEES hereby state that: A. DAYRUNNER DE MEXICO, S.A. DE C.V. is a corporation duly organized and existing according to the Laws of the Mexican Republic. As evidenced by Deed No. 1459, dated May 2, 1991, granted before Mr. Lic. Marco Antonio Mayo Barron, Notary Public No. 11 for the City of Tijuana. A copy of which is attached as Exhibit C. B. Mr. Jose Angel Aguayo Ramirez ,evidences to by duly authorized to execute this agreement through the public deed which is referred to in the preceding paragraph, and further states that such authority has not been limited or revoked in any manner whatsoever. C. DAYRUNNER, INC., is a corporation duly organized and existing pursuant to the Laws of the State of Delaware, U.S.A. D. Mr. John Kirkland, evidences to be duly authorized to execute this agreement in his capacity as a Vice President, a corporate officer, and further states that such authority has not been limited or revoked in any manner whatsoever. E. Said parties wish to lease from the LESSOR the LEASED PREMISES pursuant to the terms and conditions hereunder. IN VIEW OF THE FOREGOING, the parties hereto agree as follows: C L A U S E S FIRST. LEASE AND DELIVERY. The LESSOR hereby leases to the LESSEES and the LESSEES hereby lease from LESSOR the LEASED PREMISES referred to in I.A. above, which are located at Boulevard La Joya # 35208, Parque Industrial La Joya, Tijuana, B.C., Mexico, and described in Exhibit B hereto. SECOND. IMPROVEMENTS. 2.1 LESSOR, at LESSORS own cost and expense shall perform all work, provide all labor, furnish all new materials, and obtain all certificates and permits necessary to construct an industrial facility with an area of approximately 70,000 square feet on the LEASED PREMISES (hereinafter LESSORS Improvements or Improvements) in accordance with the preliminary drawings, specifications, schedule of work and construction terms, (collectively the Drawings and Specifications) set forth by the parties and attached hereto as Exhibit D. The parties agree that within a term of 30 days as of the date hereof, a final set of drawings and specifications shall be submitted by LESSOR to LESSEES for final approval and to be ultimately attached here as Exhibit D. 2.2 By approval of the Drawings and Specifications, LESSEES shall not be liable for the technical compliance of any of the terms and specifications set forth in Exhibit D hereto. The approval by LESSEES is for general arrangement only, unless otherwise noted, and does no relieve LESSOR of full responsibility for the proper and correct design, construction and erection of the improvements as required. 2.3 LESSOR will perform all construction with respect to LESSORS improvements in accordance with all laws, ordinances, regulations, and orders of government authorities, and Park regulations which are attached hereto as Exhibit E. LESSOR shall indemnify and hold harmless LESSEES from any and all claims, assessments by government authorities, including but not limited, to Social Security Institute Workers, Housing Institute and Tax Authorities, as well as from damages and cost resulting from or arising out the LESSORs lack of performance of any of its obligations for construction improvements, fixtures, machinery and equipment to the Leased Premises required hereunder. 2.4 LESSOR acknowledges and agrees that LESSEES may request changes in the design and specifications of the Improvements, provided such changes do not affect the cost thereof or the work schedule for construction of same. In the event such changes affect the cost of the Improvements or the work schedule, LESSOR and LESSEES shall jointly determine the effects of the change in cost and any extension to such schedule. 2.5 LESSOR shall diligently complete the Improvements on the Leased Premises, in accordance with the Drawings and Specifications, in order that LESSEES may use and occupy such Improvements pursuant to the following schedule: 21 Beneficial Occupancy of Leased Premises: March 31, 1999 22 Final Occupancy of the Leased Premises: April 7, 1999 For the purposes hereof, Beneficial and Financial Occupancy shall be defined as follows: Beneficial Occupancy.- Shall be defined as the delivery to LESSEE of the manufacturing portion of the Improvements including walls, roof, doors, floor, slabs, docks and interior paint, in order that LESSEES may move their equipment into the Leased Premises and begin construction of certain Improvements, and that such equipment and any of LESSEES Improvements that may be installed, be secured and not be damaged by weather or the process of construction. Final Occupancy.- Shall be defined as the substantial completion of all works and interior finishing of the industrial and office areas of the Improvements and all exterior and infrastructure Improvements to permit LESSEES to commence utilization of the Leased Premises and all Improvements of the unencumbered conduct of its business, excluding non functional minor cosmetic items, or a punch list of items not to exceed a total construction cost of US $50,000.00Dollars of the Improvements established pursuant to Exhibit D. In the event cost of construction of punch list items exceed the amount of US$50,000.00 Dollars, final occupancy date shall be deferred in accordance with following Section 2.8. 2.6 At all times following the execution of this Lease Agreement, LESSEES and/or its representative shall have the right to enter the Leased Premises to inspect the progress of construction of the Improvements, and LESSOR shall place the construction log and any construction reports available at the disposal of LESSEES and/or its representative, in order that LESSEES and/or its representatives may be continuously appraised of construction of the Improvements. 2.7 Should LESSOR fail to conclude construction of the initial Improvements in order that LESSEES may occupy the Leased Premises on the date of Beneficial Occupancy set forth herein above LESSEES shall be entitled to receive as liquidated damages the abatement of one day of rent for each calendar day (one to one) the initial Improvements are not concluded pursuant to Exhibit D and 2.5B hereof, which define the Improvements to be completed as date. This abatement shall apply towards the first, and if applicable, following months of which LESSEES commences to effect rental payments as set forth herein. 2.8 Furthermore, should LESSOR fail to complete construction of the Improvements pursuant to Exhibit D on or before the date of Final Occupancy of the Leased Premises, LESSEES shall jointly be entitled to receive as liquidated damages the amount corresponding to two days rent for each calendar day (two to one) of delay following the projected date of Final Occupancy. Provided, however should construction of the improvements be stopped or suspended for any reason included but not limited to the lack of permits and/or authorization from the competent authorities, for a term of thirty or more cumulative calendar days, then, LESSEES, at their joint option, may either terminate this agreement and LESSOR agrees to immediately reimburse LESSEES all security deposits and/ or advanced rent that LESSEES might have delivered to LESSOR to such date under the terms of this Agreement, such amount shall generate interest at the yearly rate of 18%, until total and complete reimbursement to LESSEES, or defer occupancy. Any abatement hereunder shall apply towards the first, and if applicable, following months on which LESSEES commence to effect rental payments as set forth herein. The parties acknowledge and agree that the date of Final Occupancy shall be extended for a term equivalent to delays solely attributable to LESSEES or LESSEES contractors or subcontractors, acts of God, inclement weather or force majeure. THIRD. OCCUPANCY BY LESSEES. LESSEES shall use the LEASED PREMISES for industrial purposes in accordance with its corporate purposes, subject to the provisions that regulate the land use and the ecology. In view of the foregoing. 3.1 LESSEES may, at their respective risk and expense, install in the LEASED PREMISES such fixtures, equipment and furniture as they may deem necessary, provided, that such items are installed and are removed without damage to the LEASED PREMISES. 3.2 LESSEES shall repair all damages caused to the LEASED PREMISES during the installation or removal of the fixtures, equipment and furniture mentioned in the preceding paragraph. 3.3 LESSEES shall perform the installation or removal of their equipment and furniture in accordance with all applicable laws, ordinances, and regulations, being liable for any violations thereto. 3.4 The LESSEES agree to retrieve such fixtures, equipment and/or furniture they may have installed in the LEASED PREMISES on or before the date of termination of this lease. Should the LESSEES fail to retrieve such fixtures, equipment and/or furniture form the LEASED PREMISES as provided above, the LESSOR shall be entitled to either retrieve such fixtures, equipment, furniture and/or improvements from the LEASED PREMISES at the LESSEES risk and expense, or deem that said fixtures, equipment and/or furniture have been left in the LEASED PREMISES by the LESSEES to gratuitously inure in favor of the LESSOR. For purposes hereof, the LESSEES acknowledge that none of such fixtures, equipment and or furniture are to be construed as useful improvements to the LEASED PREMISES. 3.5 LESSEES may not modify the basic structure, facade or basic public services of the LEASED PREMISES, nor may they perform any improvements or make alterations to the base structure without the LESSORs prior written consent. FOURTH.- TERM OF THE LEASE AND DELIVERY OF THE LEASED PREMISES. 4.1 The term of this lease shall be for a period of seven (7) years binding for LESSEES and LESSOR, unless extended pursuant to the provisions hereof, (hereinafter the Initial Lease Term or the Initial Term of this Lease). The term of this Lease shall commence as of thirty (30) days after the date (hereinafter) the Lease Commencement Date) of Final Occupancy, which shall be the date of acceptance of the Improvements by LESSEES. It is contemplated that such Final Occupancy shall occur on April 7, 1999 or afterwards as the case may be under the terms of Section 2.8. above. 4.2 Rent Commencement Date: The first months rent shall be due thirty (30) days after Final Occupancy. All adjustments to the rent as per Sections 5.4 and 5.5 below shall occur on the anniversary of the Lease Commencement Date. 4.3 LESSEES shall have access to the Leased Premises as of March 31, 1999. 4.4 Notwithstanding the provision of paragraph 2.5 above, LESSOR expressly acknowledges and agrees that LESSEES may enter into the Leased Premises at any time during construction of the Improvements with the purpose of making initial installation of LESSEES Improvements, in accordance with the schedule of work and provided it does not thereby unreasonably interfere with LESSOR construction of the Improvements. It is further understood that LESSEES entrance into the Leased Premises at any time prior to LESSEES issuance of a certification of Final Occupancy pursuant to Section 2.5B, shall at no time to be construed as LESSEES acceptance of all or any part of the Improvements. 4.5 This lease shall be automatically extended for two (2) additional five (5) year term, unless either of the LESSEES informs the LESSOR otherwise, in writing and at least 180 (One hundred and Eighty) days before the end of the original term or of any of its extensions, of their intent of terminating this agreement on such original date of termination or on the date of termination of any such extension. FIFTH. RENT. 5.1 From the RENT COMMENCEMENT DATE, and payable in advance during the first 5 (five) days of each month the LESSEES shall pay to the LESSORs designated COMMON REPRESENTATIVE, as monthly rent, at its address or any other address as instructed by the LESSOR or its assignee, as the case may be the amount of $30,800.00 Dollars (Thirty Thousand Eight Hundred Dollars and 00/100 U.S. Cy.) or its equivalent in Mexican Currency. Prior to the RENT COMMENCEMENT DATE, LESSOR shall provide either of LESSEES with unanimous written instructions by all parties representing said LESSOR, attesting to their willingness to have their COMMON REPRESENTATIVE 1.- collect any and all rental proceeds, specifically to include Added Value Taxes, and to 2.- issue the corresponding Mexican tax deductible receipt for all proceeds received of LESSEES. Should LESSORS wish to implement different payment instructions than the foregoing, they shall so advise LESSEES in writing, whereupon no change shall take force until duly confirmed in writing by either of LESSEES, it being further understood that the absence of LESSORs written instructions in such regard shall result in LESSEES deposit of rental proceeds before the Tijuana Civil Courts, as allowed under Law. 5.2 If the RENT COMMENCEMENT DATE of this Lease is a day other than the first day of a calender month, the amount of this first monthly rental payment which is equal to the pro rata portion of the first calendar month that the Leased Premises will have been occupied by LESSEES; and the amount of the final rental payment hereunder shall be that pro rata portion of the usual monthly rental payment which is equal to the pro rata portion of the last calendar month during which this Lease shall be in effect. 5.3 For purposes of calculating the monthly rent, the parties shall use the highest rate of exchange for sale quoted by Banco Nacional de Mexico, Bancomer, and Banca Serfin, on the day of payment or on the immediately preceding business day in case the day of payment is a holiday for the banking institutions of Mexico. 5.4 As of the second year of this lease, the monthly rent shall be $31,724.00 (Thirty One Thousand Seven Hundred Four Dollars and 00/100 U.S. Cy.). As of the third year of the lease, the monthly rent shall be $32,675.75 (Thirty Two Thousand Six Hundred Seventy Five Dollars and 75/100 U.S. Cy.). As the fourth year of the lease, the monthly rent shall be $33,656.00 (Thirty Three Thousand Six Hundred Fifty Six Dollars and 00/100 U.S. Cy.). As of the fifth year of the lease, the monthly rent shall be $34,665.68 (Thirty Four Thousand Six Hundred Sixty Five Dollars and 68/100 U.S Cy.). As of the sixth year of the lease, the monthly rent shall be $35,705/65 (Thirty Five Thousand Seven Hundred Five Dollars and 65/100 U.S. Cy). As of the seventh year of the lease, the monthly rent shall be $36,776.82 (Thirty Six Thousand Seven Hundred Seventy Six Dollars and 82/100 U.S. Cy). 5.5 As of year eight, the then monthly rent shall revert to $34,665.68 (Thirty Four Thousand Six Hundred Sixty Five Dollars and 68/100 U.S. Cy.). In years nine through twelve there will be a 3% annual increase in the rental rate. 5.6 As of year thirteen, the then monthly rent shall revert to $34,665.68 (Thirty Four Thousand Six Hundred Sixty Five Dollars and 68/100 U.C. Cy.), and for each subsequent year there will be a 3% annual increase in the rent rate. 5.7 In case of late payment, the LESSEES agree to pay the LESSOR liquidated damages at a rate of 1.5% (One point five percent) per month. SIXTH. INSURANCE. 6.1 During the life of this agreement, the LESSEES, shall obtain and maintain in full force and effect, the following insurance policies: 6.1.1. Insurance to cover the LESSEES and the LESSOR against any civil liability claims, demands, lawsuits or actions, or against the accidents or death of any person, or from any damages to the goods of any third party in connection with the use by the LESSEES of the LEASED PREMISES. The corresponding insurance policy shall cover an insurable value of at least $100,000.00 dollars (One Hundred Thousand Dollars and 00/100 U.S. Cy.). 6.1.2 Insurance in favor of the LESSOR which shall cover the LEASED PREMISES against fire, lightning, explosion, falling aircraft collision, smoke, storms, hail, vehicle damage, earthquakes, volcanic eruption, strikes, riots,civil commotion, vandalism, flood, and/or any others risks covered under the so called extended coverage (including windows and gas tanks). In view of the foregoing, LESSEES hereby waive any right to demand payment from the LESSOR for damages caused by fire, explosion and other unforeseen events,save for LESSOR-generated or LESSOR-caused acts of negligence or wilful misconduct. The corresponding insurance policy shall cover an insurable value of $1,400,000.00 Dollars (One Million Four Hundred Thousand Dollars 00/100 U.S. Cy.). 6.2 The insurance policies referred to in paragraph 6.1. above shall be obtained with any insurance company authorized to do business in Mexico acceptable to the LESSOR. Likewise, the policies shall provide that the same may not be amended without the prior written authorization of the LESSOR. Additionally, said insurance policies shall provide that they shall not be subject to cancellation or change, except after at least 30 (thirty) days written notice to the LESSOR. 6.3 The minimum coverages mentioned in paragraph 6.1.1 and 6.1.2 above shall be annually increased at a rate of 3% per annum. SEVENTH. TAXES AND COSTS. 7.1 The LESSOR shall be responsible of payment of the income and assets taxes to which it is obligated. On its part, the LESSEES shall be responsible for the payment of the property taxes, the I.V.A. tax and any other taxes which may be levied upon the LEASED PREMISES, or which may derive from this agreement or from the use of the same by the LESSEES. LESSEES shall submit to the LESSOR a copy of the corresponding tax receipts at least 10 (ten) days before said taxes become due. The property taxes shall have a cap of 5% per year of increase for which the LESSEES are liable, any increase above this amount shall be responsibility of the LESSOR. EIGHTH.- REPAIRS AND MAINTENANCE. 8.1. LESSOR 8.1.1. After written notice from the LESSEES, the LESSOR shall repair the structural defects of the exterior walls, roof, hidden plumbing, main sewer line, floor and any roof leaks not caused by LESSEES and other structural items of the LEASED PREMISES caused as a consequence of the normal use of the same. The parties further agree that: 1.- the repair of such structural defects, and 2.- repairs covered through LESSEE-financed or generated insurance proceeds pursuant to Section 6.1.2. above, shall be deemed as the only necessary repairs for which the LESSOR shall be responsible hereunder. Notwithstanding the foregoing, the LESSOR shall not be responsible for repairs of the LEASED PREMISES, unless the LESSEES so inform said LESSOR in writing within three (3) business days after the LESSEES notice the damage. LESSOR shall proceed diligently to make such repairs as soon as practically possible and shall continue to do so until the same are completed. 8.1.2 The LESSOR shall not be responsible, nor have the obligation to repair the damages caused by the LESSEES negligence, or that of LESSEES workers, clients, contractors, or guests shall not be responsible, nor have the obligation to repair the damages caused by the LESSEES negligence, or that of LESSEES workers, clients, contractors, or guests. 8.2. LESSEES 8.2.1. LESSEES shall be responsible for repairs to damages sustained to the LEASED PREMISES, other than: those described in clause 8.1.1. herein above. The damages referred to in this paragraph include but are not limited to, the damages to and maintenance of plumbing systems, sewage, telephone, gas as well as for the equipment, interior walls, interior and exterior painting, floor slab, ceilings, air conditioning and ventilation systems and appliances, heaters, doors and windows, glass,docks, docks levels, landscaping, lighting, electrical, etc., of the LEASED PREMISES, and in general, everything not considered a structural repair under clause 8.1.1. above. Likewise LESSEES shall repair all kinds of leaks and gutter malfunctions if caused by LESSEES. All repairs made by LESSEES must be equal in quality and kind to the original work. All expenses resulting out of disregarding or negligence to the LEASED PREMISES solely by LESSEES, their employees, agents or guests, or a violation of LESSEES obligations hereunder, shall be borne by said LESSEES. 8.2.2 The LESSEES shall maintain the LEASED PREMISES and its improvements free from any liens. LESSEES shall maintain all parts of the Leased Premises in a neat, clean and orderly condition, free of garbage, debris and illegal materials. NINTH.- LIMITATION OF LIABILITY AND INDEMNIFICATION. 9.1 Except for intentional or negligent acts or omissions of LESSOR, or that of LESSORs agents or employees, the LESSOR shall not be liable to LESSEES or to any other person whatsoever for any loss or damage of any kind of nature caused by LESSEES intentional or negligent acts or omissions, or that of other occupants of the Industrial Park or of adjacent property, or the public, or other causes beyond the control of the LESSOR, including, but no limited to failure to furnish or any interruption of any utility or other services in or about the LEASED PREMISES. LESSEES recognize that additions, replacements and repair to the Industrial Park may be made from time to time. Accordingly, LESSOR shall make its best efforts to keep interferences at a minimum, and, where same comprise or require efforts over a period anticipated to exceed forty eight (48) hours, shall require prior notice to LESSEES and reasonable accommodation by LESSOR to provide alternative vehicle access to the Leased Premises for such period. 9.2. If the LESSOR or LESSEES are held responsible for any obligation undertaken by the other, both parties agree to indemnify and hold the other harmless from any and all claims for damages or losses of any kind, arising from negligent acts or omission of either party or its contractors, licensees, agents, invitees, or employees, or arising from any accident, injury or damages whatsoever caused to any person or property occurring in or about the LEASED PREMISES, or the areas adjoining said LEASED PREMISES and against all cost and expense, including attorneys fees, incurred thereby, and to restore or reimburse any all such cost and expenses to the other party. TENTH.- UTILITY SERVICES. LESSEES agrees to request directly from the corresponding utility companies that the public services that said LESSEES may need be rendered by such companies, and shall promptly pay for any and all utilities, capacity charges and related services furnished on LESSEES behalf in the LEASED PREMISES, including but not limited to water, gas, electricity, and telephone charges. A complete list of utility services available in the Industrial Park and those utilities and improvements being supplied by the LESSOR to LESSEES to the Leased Premises are hereby attached as Exhibit G. ELEVENTH.- ASSIGNMENT AND SUBLETTING. 11.1 The LESSEES may not assign their joint rights and obligations under this agreement, nor may they sublet the LEASED PREMISES unless they obtain LESSORS prior written authorization; which authorization shall not be unreasonably withheld. 11.2 The LESSOR shall be entitled to assign, in whole or in part, its, rights and obligations under this agreement. Consequently, the LESSEES hereby grants authorization to the LESSOR so that the latter may formalize the assignments which it may deem appropriate. Likewise, LESSOR shall be expressly entitled to guarantee any of its present or future obligations with its rights under this agreement. TWELFTH.- RENT WITHHOLDING. The LESSEES hereby waive any right to withhold any rental payments. Accordingly, the LESSEES shall deliver in a timely fashion, and under the terms hereunder, any and all amounts to which the LESSOR may be entitled to, thus agreeing to assert any claim, demand, or other right against the LESSOR only by an independent proceeding. THIRTEENTH.- ACCESS TO THE LEASED PREMISES. 13.1 The LESSOR or its authorized representatives shall have the right to enter the LEASED PREMISES during all of LESSEES business hours, and in emergencies at all times, to make repairs, additions, or alterations to the LEASED PREMISES which it may be authorized or obligated to do under this agreement, but only after proper written notice from LESSEES of such emergency or situation. 13.2 LESSOR shall have the right to show the LEASED PREMISES to any prospective clients. Likewise LESSOR shall have the right to post those signs which it may deem appropriate on the facade of the LEASED PREMISES in order to promote its future rental, only upon written notification from LESSEES of said parties intent to terminate the Lease Agreement. 13.3 Except in case of emergency, the LESSOR shall give notice to the LESSEES before entering the LEASED PREMISES, and the LESSEES shall have the ongoing right to escort any representative of the LESSOR and prospective clients. FOURTEENTH.- DAMAGE OR DESTRUCTION. 14.1 TOTAL In the event the whole or substantial part of the LEASED PREMISES are damaged or destroyed so as to impede the LESSEES operations for the purposes for which the same where leased, LESSOR shall, within 10 (ten) days from such destruction, determine whether the LEASED PREMISES can be restored within the following 4 (four) months and notify the LESSEES of such determination. If the LESSOR determines that the LEASED PREMISES cannot be restored within the following 4 (four) months, either the LESSOR or the LESSEES shall have the right and option to immediately terminate this Lease Agreement by means of a written notice to the other party. If the LESSOR determines that the LEASED PREMISES can be restored within said 4 (four) month period, the LESSOR shall, at its own expense, proceed diligently to rebuild the LEASED PREMISES, waiving any right to receive rental payments while the LEASED PREMISES are being rebuilt. 14.2 PARTIAL. In the event the referred damages do not prevent the LESSEES, in a substantial way from continuing the normal operation of its business on the LEASED PREMISES, the LESSOR or the LESSEES, as the case may be, shall repair said damages under the terms of clause SEVENTH above. In said case the rent hereunder shall be abated according to the actual square footage occupied by the LESSEES during the reconstruction phase. Should there be any dispute as to the actual space occupied by the LESSEES the parties agree to submit the same before a licensed civil engineer, to be jointly determined by LESSOR and LESSEES, and in lieu of an agreement thereof, before a civil engineer selected by the citys private Civil Engineers Board (Colegio de Ingenieros Civiles). 14.3 If the damage in question is caused by a negligent or willful act of the LESSEES or their employees, the LESSEES agree to punctually pay the rent hereunder (provided that all LESSEE-generated insurance proceeds are fully applied pursuant to sections 6.1.2, and 14.1 above). FIFTEENTH.- CONDEMNATION. 15.1 In the event the whole or a portion of the LEASED PREMISES is taken by expropriation, for any public or quasi-public use or purposes, this Lease shall terminate and conclude on the date that the possession is taken by the condemnor. 15.2 Taking by condemnation or eminent domain shall include: the exercise of any similar government power and sale and purchase or other disposition of the LEASED PREMISES in Mexican Law, regulation or governmental order which physically prevents LESSEES from using all or part of the LEASED PREMISES. SIXTEENTH.- CERTIFICATES. The parties shall, within (10) days of receipt of a written request made by eachother, deliver a statement in writing, certifying that this Lease Agreement is unmodified and in full force and effect, (or if there have been modifications that the same are in full force and effect, as modified); the dates to which the rent and any other charges have been paid in advance and that LESSOR-built or LESSEE-built Improvements have been satisfactorily completed. It is intended that any such statement may be relied upon by any person, prospective purchaser or lending institution interested in either the LEASED PREMISES, or in the parties respective interests or assets. SEVENTEENTH.- COVENANTS AND PARK RESTRICITONS. 17.1 The LESSEES agree to be bound by the terms and conditions of the covenants and restrictions of Parque Industrial La Joya, which are attached hereto as Exhibit E and form an integral part of this agreement. The parties agree that any subsequent changes will not apply to LESSEES or to this agreement, unless accepted by the latter in writing. In addition LESSOR and LESSEES agree that a variance has been granted in regards to sections 4, 5 and 6, of the above mentioned CC&Rs to enable the building, subject of this lease agreement to be constructed as per the attached plans and specifications. 17.2 Accordingly, the LESSEES agree to pay in advance to the LESSOR in a semiannual basis the maintenance fee provided for in the covenants and restrictions of Parque Industrial La Joya, according to the total area of the land (Phase I) where the LEASED PREMISES are built at a maximum rate of $0.50 (Fifty cents U.S. Cy.) Per square meter per year. 17.3 LESSEES shall not pay the aforementioned maintenance fees for one (1) year as of the date of Final Occupancy. The maintenance fee shall then be charged on the first phase of land expansion approximately 18,336 square meters. EIGHTEENTH. DEPOSITS. 18.1 LESSOR hereby acknowledges to have received from LESSEES, as deposit, the amount of $123,200.00 Dollars (One Hundred Twenty Three Thousand Two Hundred Dollars 00/100 U.S. Cy.), in order to guarantee its obligations hereunder. Said deposit shall be retained as follows: Two (2) months rent or $61,600.00 Dollars (Sixty One Thousand Six Hundred Dollars 00/100 U.S. Cy.), to be held as a refundable security deposit and to be reimbursed to the LESSEES, without interest after the LESSOR carries out an inspection of the conditions under which the LEASED PREMISES are returned, normal wear and tear excluded. The remaining two (2) months rent to be credited equally through the first twelve (12) months of rental payments. 18.2 In case of early termination for any cause attributable to the LESSEES default, the LESSOR shall be entitled to keep any amounts delivered to said LESSOR as prepaid rent or deposit, regardless of any other rights to which the LESSOR may be entitled to. NINETEENTH. NOTICES. 19.1 Any notice to be given to the LESSOR under this agreement shall be sent to the address mentioned in recital I.C. or to such other addresses which may from time to time be notified by the LESSOR to the LESSEES. 19.2 Any notice to be given to the LESSEES under this agreement shall be addressed to the LEASED PREMISES. 19.3 Said notice shall be in writing, and shall be delivered personally to the legal representative of the party in question, or sent by certified mail, postage prepaid to the addressed mentioned above, in which case the corresponding notice shall be deemed delivered 14 (fourteen) days after the date of mailing thereof. TWENTIETH.- LESSEES=S DEFAULT. 20.1 Each of the following shall be a default of the LESSEES and LESSOR shall provide written notice to LESSEES informing them of said default. Upon written notification from LESSOR, LESSEES shall have 30 days to cure the default: 20.1.1 In case the LESSEES fail to surrender the LEASED PREMISES upon the expiration of the term indicated in clause THIRD above. 20.1.2 The LESSEES failure to pay any monthly rent due and payable hereunder. 20.1.3 Default in the performance of any of the LESSEES covenants, agreements or obligations hereunder. 20.1.4 The filing of a petition of bankruptcy against the LESSEES, said petition remaining undischarged for a period of 90 (ninety) days. 20.1.5 In case of an attachment, execution or other judicial seizure of substantial part of LESSEES assets, with a minimum dollar value of Five Hundred Thousand Dollars ($500,000), such attachment, execution or other seizure remaining undismissed or undischarged for a period of 30 (thirty) days after the levy thereof. 20.1.6 In case of the appointment of a trustee or receiver to take possession of all or substantially all of LESSEES assets. 20.2 Upon occurrence of any one of the foregoing LESSEES defaults, LESSOR shall have the right, at its option and in addition to other rights or remedies granted by law, including the right to claim damage, to do either of the following: 20.2.1. Immediately rescind this Lease Agreement and eject LESSEES from the LEASED PREMISES. Should LESSOR initiate any action to terminate this agreement, LESSEES shall reimburse the LESSOR any costs related to the LESSEES vacancy of the LEASED PREMISES in the understanding that if the LESSEES fail to vacate the LEASED PREMISES, and starting on the date on which the corresponding action is filed, the LESSEES shall pay to the LESSOR, as liquidated damages, a monthly amount equal to 150% (One Hundred Fifty percent) of the monthly rent in force on the date on which said action may be initiated or that in force prior to the termination of the agreement. The LESSEES acknowledges that this provision shall not be construed as an authorization to occupy the LEASED PREMISES beyond the term set forth herein. 20.2.2 Claim specific performance after sixty (60) days of continuing default. In the case of default as specified above exceeding sixty (60) days of LESSORs written notification, LESSOR shall, in addition to all other remedies, have the right to declare and collect the entire unpaid balance of rent to the end of the last year of the existing Lease Term or extension thereof then in effect and also declare all other sums due to LESSOR, immediately due and payable, plus interest at the rate of eighteen percent (18%) per annum on said sums form the date of such declaration until paid in full. In the event that the LEASED PREMISES covered under this Lease Agreement are leased to another tenant during the remainder of the initial term or extension thereof, and the LESSEES prepays the rental unpaid balance as a result of this clause, LESSOR shall promptly refund to LESSEES, in monthly installments that portion of rent paid by LESSEES pursuant to this paragraph which is allocable to the period of the Lease Term during which the LEASED PREMISES was leased to another tenant of otherwise used in a beneficial manner as well as any other allocable sums paid by LESSEES to LESSOR, less any loss o damage incurred by LESSOR as a result of LESSEES default. TWENTY FIRST.- MISCELLANEOUS. 21.1 In case any party fails to execute any action against the other as to protect a certain right under this agreement, said failure shall not be construed as a waiver of any other rights derived herefrom. 21.2 This agreement may only be modified by written agreement signed by the authorized representatives of the parties hereto. Furthermore, the parties agree that the LESSOR shall not have the power to amend this Lease Agreement so as to reduce the rent, decrease the terms or modify or negate any substantial obligation without the written consent of LESSEES. Such obligation shall continue until the LESSEES notify in writing that the LESSOR has complied with all of LESSORS obligations or has paid all amounts owed to the abovementioned party, in the understanding that if the LESSOR fails to obtain the LESSEES approval to carry out the foregoing, the amendment of the terms and conditions above mentioned shall have no effect whatsoever against said LESSEES. 21.3 In case any party hereto exercises an action against the other in order to demand the performance of this agreement, the prevailing party shall be entitled to reasonable attorneys fees. 21.4 Each party shall execute such further documents as shall be requested by the other party, but only to the extent that the effect of said documents is to give legal effect to rights and obligations stated forth in this Lease Agreement. 21.5 In case any competent court declares that any provision hereunder is null and void, the remaining clauses shall continue in full effect. 21.6 The parties agree that this Lease Agreement shall governed by the laws of State of Baja California. For everything pertaining to the interpretation and compliance of this Lease Agreement the parties hereby expressly submit to the jurisdiction of the Civil Courts of the City of Tijuana, Baja California, waiving any other jurisdiction which might be applicable by reason of their present or future domiciles or otherwise. 21.7 The parties agree that this Lease Agreement shall be executed in both Spanish and English versions, whereupon both versions shall constitute the full agreement between same, to the exclusion of any other translation or interpretation. TWENTY SECOND - EXPANSION & IMPROVEMENT OPTIONS. 22.1 The parties agree that there is an area of land directly adjacent (to the north) of the first phase land expansion. This area is approximately 5,416 square meters. The LESSEES shall have full use and enjoyment of this expansion land, free of charge, for the first 24 (twenty four) months of the lease agreement. 22.2 If the LESSEES wish to continue using the aforementioned expansion land after the free 24 (twenty four) month period, from years 3 through 5, the LESSEES shall pay rent of $1,800.00 (One Thousand Eight Hundred Dollars and 00/100) per month. After year 5, the LESSEES can continue to pay the ground rent herein above mentioned or relinquish the expansion land to the LESSOR at no penalty or cost. 22.3 The parties agree that upon termination of the initial lease term, LESSOR shall repaint the exterior of the facility the color of LESSEES choice. 22.4 The parties agree that upon written notice and approval by LESSEES, LESSOR shall construct an expansion of the lease premises of approximately 30,000 square feet of the expansion land. The rent for the shell facility shall not exceed $0.30 (Thirty Cents) per square foot per month. There will be additional costs if the LESSEES choose to add tenant improvements to the facility expansion such as but not limited to offices, restrooms and cafeteria installations. 22.5 The parties agree that there is a $20,000.00 (Twenty Thousand Dollar) landscape allowance included in the lease agreement. This allowance is reserved for landscape improvements within the fenced perimeter of the facility land area and does not include exterior banks or common areas which shall be landscaped and maintained by LESSOR. IN WITNESS WHEREOF, the parties have executed this agreement in the places and on the dates stared hereinbelow. LESSORS LESSEE /s/ Refugio V. Geffroy de Flourie /s/ Jose Angel Aguayo Ramirez - ------------------------------ ------------------------------- By Common Representative DAYRUNNER DE MEXICO, S.A. DE C.V. Refugio V. Geffroy de Flourie By: Jose Angel Aguayo Ramirez Date: 4/2/99 Date: 3/31/99 Place:Tijuana, B.C. Place: Tijuana, B.C. LESSEE /s/ John Kirkland -------------------- DAYRUNNER, INC, By Mr. John Kirkland Date: 4/5/99 Place: Tijuana, B.C. WITNESS WITNESS - ----------------------- --------------------- Exhibits A: Land Ownership documentation B: Drawing and description of plot of land C: Acta Constitutiva of Dayrunner de Mexico D: Building drawings and specifications E: Parque Industria La Jollas,-CC&Rs G: Utilities and tenant improvements list EX-10 3 AMENDMENT TO CONSULTING AGREEMENT EXHIBIT 10.20 FIRST AMENDMENT TO CONSULTING AGREEMENT THIS FIRST AMENDMENT is entered into by and between Day Runner, Inc., a Delaware corporation (the "Company"), and Alan R. Rachlin, a resident of Virginia who is operating a consulting business as a sole proprietorship ("Consultant"), and shall be effective as of April 21, 1999 (the "Effective Date"). A. The Company and Consultant entered into a consulting agreement effective as of April 22, 1997 (the "Consulting Agreement"). All capitalized terms not otherwise defined shall have the meaning set forth in the Consulting Agreement. B. The Company and Consultant desire to amend the Consulting Agreement as set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt of which are hereby acknowledged, the Company and Consultant agree as follows: 1. The Term shall continue through and including May 21, 1999. 2. All other terms and conditions of the Consulting Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Consulting Agreement as of the effective date. DAY RUNNER, INC. ALAN R. RACHLIN By: /s/ Mark Vidovich /s/ Alan R. Rachlin --------------------------- ------------------- Mark Vidovich, Chairman Alan R. Rachlin EX-10 4 CONSULTING AGREEMENT EXHIBIT 10.21 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (this "Agreement"), which includes Exhibit A hereto which is incorporated herein by this reference, is entered into by and between DAY RUNNER, INC., a Delaware corporation (the "Company"), and ALAN R. RACHLIN, a resident of Virginia who is operating a consulting business as a sole proprietorship ("Consultant"), and shall be effective as of May 22, 1999 (the "Effective Date"). NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, the Company and Consultant agree as follows: 1. CONSULTANCY. The Company hereby retains Consultant, and Consultant hereby accepts such retention, upon the terms and subject to the conditions set forth herein, commencing as of May 22, 1999 and continuing through and including November 21, 1999 (the "Term"). Consultant shall render such services to the Company as an independent contractor, and not as an employee, agent, joint venturer or otherwise. Although Consultant is an attorney, it is understood that such services shall be rendered as a consultant to, and not as an attorney for, the Company. By executing this Agreement, the parties hereto acknowledge and agree that the First Amendment to Consulting Agreement between the Company and Consultant effective as of April 21, 1999 has terminated effective as of May 21, 1999. 2. DUTIES. Consultant shall make himself available during the Term to advise the Chairman and such Company employees as he designates with regard to such strategic business issues and projects as he shall select, including, without limitation, those relating to new or existing business development, strategic and tactical planning, corporate finance or business aspects of potential securities or other legal matters. Time devoted to Consultant's duties as a member of the Company's Board of Directors and committees thereof shall not be considered as consulting services under this Agreement. The Company shall be entitled to require Consultant to make himself available up to 60 days during the Term (but not more than 10 days in any single month) for the performance of consulting services hereunder at such times and places as are mutually satisfactory to the Company and Consultant. Consultant will travel to the Company's principal offices as necessary to meet with management but will not otherwise be required to perform any of his duties outside of Virginia. 3. COMPENSATION. In consideration for his agreement herein to render consulting services to the Company, the Company agrees to compensate Consultant in cash at the rate of $2,500 per day. 4. EXPENSES. Any and all expenses incurred by Consultant in rendering consulting services hereunder shall be borne by Consultant, such expenses to include travel within the Virginia-Washington D.C.-area, secretarial support (unless provided with the Chairman's permission by an employee of the Company), office supplies, telephone (unless long distance), overhead, meals, market research, seminars, textbooks and computer time. The Company shall pay all its own expenses incurred by it in connection with such consulting and shall reimburse Consultant for all long distance telephone charges and expenses for travel (including transportation, hotel, meals and other reasonable charges resulting from such travel) outside of the Virginia-Washington D.C.-area and for such other expenses as are authorized by the Chairman as appropriate for reimbursement. 5. TERMINATION. Consultant's retention hereunder shall continue during the Term unless earlier terminated by Consultant's death or by lawful termination of this Agreement after breach hereof by Consultant. Neither party may terminate this Agreement for breach except after providing written notice to the other of the alleged breach (specifically describing therein in full detail the basis for such alleged breach) and allowing 30 days after such notice for the other party to cure such breach or cease breaching the Agreement. 6. CONFIDENTIALITY. Consultant shall execute on the date hereof and send to the Company the Confidentiality Agreement attached hereto as Exhibit A (the "Confidentiality Agreement"). 7. MISCELLANEOUS. 7.1 Notices. Except as otherwise noted herein, all notices pursuant to this Agreement shall be in writing, shall specifically reference this Agreement and shall be deemed duly sent and given upon actual delivery to and receipt by the relevant party (which in the case of the Company, shall be the Chairman). 7.2 Legal Advice and Construction of Agreement. Both parties hereto have received independent legal advice with respect to, and neither has relied upon the other (or his or its advisors) in, entering into this Agreement. 7.3 Entire Agreement. This Agreement, the Confidentiality Agreement and the Warrants constitute a single integrated contract expressing the entire agreement of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter hereof. 7.4 Amendment and Waiver. This Agreement and each provision hereof may be amended, modified, supplemented or waived only by a written document specifically identifying this Agreement and signed by both parties hereto. 7.5 Specific Performance. Each party hereto may obtain specific performance to enforce its/his rights hereunder and each party acknowledges that failure to fulfill its/his obligations to the other party hereto would result in irreparable harm. 7.6 Virginia Law. This Agreement was negotiated and delivered within the Commonwealth of Virginia and the rights and obligations of the parties hereto shall be construed and enforced in accordance with and governed by the internal (and not the conflict of laws) laws of Virginia applicable to the construction and enforcement of contracts between parties resident in Virginia which are entered into and fully performed in Virginia. Any action or proceeding arising out of, relating to or concerning this Agreement shall be filed in the state courts of the County of Fairfax, Commonwealth of Virginia or in a U.S. District Court in the Eastern District of Virginia. The parties hereby waive the right to object to such location on the basis of venue. 7.7 Attorney's Fees. In the event a lawsuit is instituted by either party concerning a dispute under this Agreement, the prevailing party in such lawsuit shall be entitled to recover from the losing party all reasonable attorneys' fees, costs of suit and expenses (including the reasonable fees, costs and expenses of appeals), in addition to whatever damages or other relief the injured party is otherwise entitled to under law or equity. 7.8 Force Majeure. Neither party hereto shall be deemed in default if its/his performance of obligations hereunder is delayed or becomes impossible or impracticable by reason of any act of God, war, fire, earthquake, strike, civil commotion, epidemic, or any other cause beyond such party's reasonable control. 7.9 Successors and Assigns. Neither party may assign this Agreement or any of its/his rights or obligations hereunder to any third party or entity, and this Agreement may not be involuntarily assigned by operation of law, without the prior written consent of the nonassigning party, which consent may be given or withheld by such nonassigning party in the sole exercise of its/his discretion, except that the Company may assign this Agreement to a corporation acquiring: (1) 50% or more of the Company's capital stock in a merger or acquisition; or (2) all or substantially all of the assets of the Company in a single transaction; and except that Consultant may transfer or assign his rights under this Agreement voluntarily, involuntarily or by operation of law upon or as a result of his death to his heirs, estate and/or personal representative(s). Any prohibited assignment or attempted assignment shall be null and void. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective lawful successors and permitted assigns. 7.10 Limitation of Damages. Except as expressly set forth herein, in any action or proceeding arising out of, relating to or concerning this Agreement, including any claim of breach of contract, liability shall be limited to compensatory damages, proximately caused by the breach and neither party shall, under any circumstances, be liable to the other party for consequential, incidental, indirect or special damages, including but not limited to lost profits or income, even if such party has been apprised of the likelihood of such damages occurring. 7.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and which together shall constitute one and the same instrument. DAY RUNNER, INC. ALAN R. RACHLIN ------------------ By:___________________________ /s/ ALAN R. RACHLIN Mark Vidovich Chairman EXHIBIT A CONFIDENTIALITY AGREEMENT AGREEMENT, dated and made effective as of this 21st day of May, 1999, by and between Day Runner, Inc., a Delaware corporation ("Discloser"), and Alan R. Rachlin, a Virginia resident ("Disclosee"); WHEREAS, Discloser intends to provide Disclosee with certain data and other information possibly of a confidential or proprietary nature to Discloser; and WHEREAS, Discloser considers certain of this information confidential but is willing to provide such information to Disclosee on a confidential basis; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. For purposes of this Agreement, the term "Confidential Information" shall mean that information of Discloser which is disclosed to Disclosee under the Consulting Agreement, effective as of the date hereof by and between the Discloser and Disclosee and which is in written graphic, recorded, photographic or any machine readable form, and which is conspicuously marked as confidential. 2. (a) Disclosee will use such Confidential Information for his own use only and shall use the same degree of care he uses to protect and safeguard the confidentiality of his own proprietary information to not disclose such Confidential Information to any person or persons other than his attorneys or accountants. Disclosee covenants that such degree of care is reasonably designed to protect the confidentiality of Disclosee's proprietary and confidential information. (b) Disclosee shall not be liable for disclosure of any such Confidential Information if the same: (i) was in the public domain at the time it was disclosed; (ii) was known to Disclosee prior to the time of disclosure; (iii) is disclosed with the prior written approval of Discloser; (iv) is or becomes publicly known through no wrongful act of Disclosee; (v) is disclosed after two years from the date of this Agreement; (vi) was or is independently developed by Disclosee without any use of the Confidential Information; (vii) becomes known to Disclosee from a source other than Discloser without breach of this Agreement by Disclosee; (viii) is or has been furnished by Discloser to others not in a Confidential relationship with Discloser without restrictions similar to or stricter than those herein on the right of the Receiving party to use or disclose; (ix) is received by Disclosee after written notification to Discloser that Disclosee will not accept any further information; (x) is disclosed pursuant to the order or requirement of a court, administrative agency, or other governmental body; or (xi) is disclosed pursuant to litigation involving Disclosee and relating to the information disclosed hereunder. (c) In the event of a disclosure under subsection (b)(x) above, Disclosee shall give Disclosure written notice of such order or requirement as soon as practicable prior to disclosure of the Confidential Information. 3. The provisions of this Agreement shall supersede the provisions of any legends which may be affixed to any Confidential Information provided by Discloser to Disclosee. 4. This document contains the entire agreement between the parties as to the subject matter hereof and supersedes any previous or contemporaneous understandings, commitments or agreements, oral or written, as to such subject matter. This Agreement can only be amended by a written document executed by the parties hereto. 5. This Agreement shall be governed by the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above-written. Understood and Agreed: "Discloser" "Disclosee" DAY RUNNER, INC. ALAN R. RACHLIN By:/s/ Mark Vidovich Signature: /s/ Alan R. Rachlin ----------------------- ----------------------------- Mark Vidovich Chairman EX-10 5 LOAN AGREEMENT ================================================================================ Execution Copy ================================================================================ EXHIBIT 10.23 LC992590047 AMENDED AND RESTATED LOAN AGREEMENT dated as of September 30, 1999 among DAY RUNNER, INC. DAY RUNNER UK plc and FILOFAX LIMITED as Borrowers THE LENDERS HEREIN NAMED as Lenders and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent LC992590047 vi
TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS.......................................................................2 1.1. Defined Terms..............................................................................2 1.2. Use of Defined Terms......................................................................29 1.3. Accounting Terms..........................................................................29 1.4. Rounding..................................................................................29 1.5. Exhibits and Schedules....................................................................29 1.6. Miscellaneous Terms.......................................................................29 ARTICLE 2 LOANS AND LETTERS OF CREDIT............................................................................30 2.1. Loans.....................................................................................30 2.2. Conversion/Continuation of Loans..........................................................31 2.3. Foreign Currency Loans....................................................................32 2.4. Type of Loans.............................................................................33 2.5. Funding of Loans..........................................................................33 2.6. Notes.....................................................................................34 2.7. Letters of Credit.........................................................................35 2.8. Voluntary Reduction of Revolving Commitment...............................................38 2.9. Swing Line Loans..........................................................................39 2.10. Guaranty.................................................................................40 2.11. Extension of Revolving Loan Maturity Date................................................40 ARTICLE 3 PAYMENTS AND FEES......................................................................................41 3.1. Interest..................................................................................41 3.2. Principal.................................................................................42 3.3. Commitment Fee............................................................................44 3.4. Amendment Fee and Administrative Agent's Fee..............................................44 3.5. Letter of Credit Fees.....................................................................44 3.6. Increased Commitment Costs................................................................45 3.7. Eurodollar Costs and Related Matters......................................................46 3.8. Foreign Currency Costs and Related Matters................................................49 3.9. Intentionally Omitted.....................................................................51 3.10. Computation of Interest and Fees.........................................................51 3.11. Non-Banking Days.........................................................................52 3.12. Manner and Treatment of Payments.........................................................52 3.13. Funding Sources..........................................................................53 3.14. Failure to Charge Not Subsequent Waiver..................................................53 3.15. Administrative Agent's Right to Assume Payments Will be Made.............................53 3.16. Fee Determination Detail.................................................................54 3.17. Survivability............................................................................54 3.18. Application of Payments..................................................................54 ARTICLE 4 REPRESENTATIONS AND WARRANTIES.........................................................................55 4.1. Existence and Qualification; Power; Compliance With Laws..................................55 4.2. Authority; Compliance With Other Agreements and Instruments and Government Regulations............................................................56 4.3. No Governmental Approvals Required........................................................56 4.4. Subsidiaries..............................................................................56 4.5. Financial Statements......................................................................57 4.6. No Other Liabilities; No Material Adverse Changes.........................................57 4.7. Title to Property.........................................................................58 4.8. Intangible Assets.........................................................................58 4.9. Public Utility Holding Company Act........................................................58 4.10. Litigation...............................................................................58 4.11. Binding Obligations......................................................................58 4.12. No Default...............................................................................58 4.13. ERISA....................................................................................58 4.14. Regulations U and X; Investment Company Act..............................................59 4.15. Disclosure...............................................................................59 4.16. Tax Liability............................................................................59 4.17. Projections..............................................................................60 4.18. Environmental Matters....................................................................60 4.19. Solvency.................................................................................60 4.20. Year 2000 Matters........................................................................60 ARTICLE 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)..............................61 5.1. Payment of Taxes and Other Potential Liens................................................61 5.2. Preservation of Existence.................................................................61 5.3. Maintenance of Properties.................................................................61 5.4. Maintenance of Insurance..................................................................62 5.5. Compliance With Laws......................................................................62 5.6. Inspection Rights.........................................................................62 5.7. Keeping of Records and Books of Account...................................................62 5.8. Compliance With Agreements................................................................62 5.9. Use of Proceeds...........................................................................62 5.10. Hazardous Materials Laws.................................................................62 5.11. Additional Material Subsidiaries.........................................................63 5.12. Intentionally Omitted....................................................................63 5.13. Further Assurances.......................................................................63 5.14. Deposit Accounts and Cash Concentration..................................................64 ARTICLE 6 NEGATIVE COVENANTS.....................................................................................65 6.1. Payment of Subordinated Obligations.......................................................65 6.2. Disposition of Property...................................................................65 6.3. Mergers...................................................................................66 6.4. Intentionally Omitted.....................................................................66 6.5. Intentionally Omitted.....................................................................66 6.6. Distributions.............................................................................66 6.7. ERISA.....................................................................................66 6.8. Change in Nature of Business..............................................................66 6.9. Liens.....................................................................................66 6.10. Indebtedness and Guaranty Obligations....................................................67 6.11. Transactions with Affiliates.............................................................68 6.12. Funded Senior Debt Ratio.................................................................68 6.13. Fixed Charge Coverage Ratio..............................................................68 6.14. Stockholders' Equity.....................................................................68 6.15. Investments..............................................................................69 6.16. Capital Expenditures.....................................................................70 6.17. Payment Restrictions Affecting Subsidiaries..............................................70 6.18. Lease Obligations........................................................................70 6.19. Minimum EBITDA...........................................................................71 6.20. Current Ratio............................................................................71 6.21. Operating Expenses.......................................................................71 ARTICLE 7 INFORMATION AND REPORTING REQUIREMENTS.................................................................72 7.1. Financial and Business Information........................................................72 7.2. Compliance Certificates...................................................................75 ARTICLE 8 CONDITIONS 76 8.1. Effective Date............................................................................76 8.2. Revolving Loans...........................................................................79 ARTICLE 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT...................................................79 9.1. Events of Default.........................................................................79 9.2. Remedies Upon Event of Default............................................................81 ARTICLE 10 THE ADMINISTRATIVE AGENT..............................................................................82 10.1. Appointment and Authorization............................................................82 10.2. Administrative Agent and Affiliates......................................................83 10.3. Lenders' Credit Decisions................................................................83 10.4. Action by Administrative Agent...........................................................83 10.5. Liability of Administrative Agent........................................................84 10.6. Indemnification..........................................................................85 10.7. Successor Administrative Agent...........................................................86 10.8. No Obligations of Borrowers..............................................................86 ARTICLE 11 MISCELLANEOUS.........................................................................................87 11.1. Cumulative Remedies; No Waiver...........................................................87 11.2. Amendments; Consents.....................................................................87 11.3. Costs, Expenses and Taxes................................................................88 11.4. Nature of Lenders' Obligations...........................................................89 11.5. Survival of Representations and Warranties...............................................89 11.6. Notices..................................................................................89 11.7. Execution of Loan Documents..............................................................89 11.8. Binding Effect; Assignment...............................................................90 11.9. Right of Setoff..........................................................................92 11.10. Sharing of Setoffs......................................................................92 11.11. Indemnity by Borrowers..................................................................93 11.12. Nonliability of the Lenders.............................................................94 11.13. No Third Parties Benefited..............................................................95 11.14. Confidentiality.........................................................................95 11.15. Further Assurances......................................................................95 11.16. Integration.............................................................................96 11.17. Governing Law...........................................................................96 11.18. Severability of Provisions..............................................................96 11.19. Headings................................................................................96 11.20. Time of the Essence.....................................................................96 11.21. Foreign Lenders and Participants........................................................96 11.22. Joint and Several Liability.............................................................97 11.23. Removal of a Lender.....................................................................98 11.24. Waiver of Right to Trial by Jury........................................................98 11.25. Purported Oral Amendments...............................................................99 11.26. Acknowledgment of Lenders...............................................................99
EXHIBITS Exhibit Number Exhibit Name Exhibit A Form of Borrower Guaranty Exhibit B Form of Assignment and Acceptance Exhibit C Form of Compliance Certificate Exhibit D-1 Form of Revolving Loan Note Exhibit D-2 Form of Term Loan Note Exhibit E Form of Pricing Certificate Exhibit F Form of Request for Letter of Credit Exhibit G Form of Subsidiary Guaranty Exhibit H Notice of Borrowing Exhibit I Notice of Swing Line Loan Exhibit J Form of Pledge Agreement Exhibit K Form of Mortgage of Shares Exhibit L Form of Security Agreement Exhibit M Form of Security Document Exhibit N Form of Borrower Guaranty of Revolving Loans Exhibit O Form of Borrower Guaranty of Term Loans Exhibit P Form of Subsidiary Guaranty of Revolving Loans Exhibit Q Form of Subsidiary Guaranty of Term Loans Exhibit R Form of Subordinated Promissory Note SCHEDULES Schedule Number Schedule Name Schedule 1.1 Lender Pro Rata Shares Schedule 1.2 Subsidiary Overdraft Indebtedness Schedule 2.1 Term Loans on Effective Date Schedule 4.1 Borrowers Schedule 4.4 Subsidiaries Schedule 4.6 Funded Debt Schedule 4.7 Liens Schedule 5.14(a) Foreign Subsidiary Deposit Accounts Schedule 5.14(b) Foreign Subsidiary Deposit Account Balances Schedule 6.10 Existing Indebtedness Schedule 6.15 Existing Investments LC992590047 AMENDED AND RESTATED LOAN AGREEMENT Dated as of September 30, 1999 This AMENDED AND RESTATED LOAN AGREEMENT dated as of September 30, 1999 is entered into by and among Day Runner, Inc., a Delaware corporation ("Day Runner"), Day Runner UK plc, a company incorporated with limited liability under the laws of England and Wales and a wholly-owned indirect subsidiary of Day Runner ("Bidco"), Filofax Limited, a company incorporated with limited liability under the laws of England and Wales and a wholly-owned indirect subsidiary of Bidco ("Filofax"; Day Runner, Bidco and Filofax being referred to herein collectively as the "Borrowers", and individually as a "Borrower"), each lender whose name is set forth on the signature pages of this Agreement and each lender which may hereafter become a party to this Agreement pursuant to Section 11.8 (collectively, the "Lenders," and individually, a "Lender"), and Wells Fargo Bank, National Association, as Administrative Agent and Issuing Lender. WHEREAS, certain of the Borrowers, Day Runner Canada Inc., an Ontario corporation formerly known as Ultima Distribution Inc. and a wholly-owned subsidiary of Day Runner ("DRC"), the Lenders and Wells Fargo Bank, National Association, as Administrative Agent and Issuing Lender, entered into that certain Revolving Loan Agreement dated as of September 23, 1998 (the "Existing Credit Agreement"); WHEREAS, the Borrowers, DRC, the Lenders, the Administrative Agent and the Issuing Lender desire to amend and restate the Existing Credit Agreement in its entirety to give effect to the terms and provisions set forth in this Agreement (the Existing Credit Agreement as amended and restated by this Amended and Restated Loan Agreement, as the same may be further amended, supplemented or otherwise modified from time to time, this "Agreement"); WHEREAS, on the date hereof, Syndicated Loans (as defined in the Existing Credit Agreement) are outstanding in the aggregate principal amount equal to the Foreign Currency Equivalent of $109,688,128.48; WHEREAS, pursuant to the Existing Credit Agreement, the Lenders made (a) Tender Offer Loans (as defined herein) to Bidco in an aggregate principal amount equal to the Foreign Currency Equivalent of $20,443,666.20 and Tender Offer Loans to Day Runner in an aggregate principal amount of $70,000,000, all of which are deemed to be outstanding on the date hereof and (b) other Syndicated Loans (as defined in the Existing Credit Agreement) to the Borrowers, in an aggregate principal amount outstanding on the date hereof of $19,244,462.28; WHEREAS, the Borrowers have requested, that (a) the Tender Offer Loans made to Day Runner and Bidco under the Existing Credit Agreement be reclassified as Term Loans under this Agreement, (b) the Syndicated Loans (other than the Tender Offer Loans) made to the Borrowers under the Existing Credit Agreement be continued as Revolving Loans under this Agreement, (c) the Letters of Credit issued under the Existing Credit Agreement be continued as Letters of Credit under this Agreement, (d) Syndicated Loans made to DRC, as Borrower, under the Existing Credit Agreement (such Syndicated Loans, the "DRC Loans") be assumed by Day Runner and continued as Revolving Loans to Day Runner (and as Foreign Currency Loans denominated in Canadian dollars until no later than the expiration of the current Foreign Currency Period with respect to each such Loan and on or before such time each such Loan will be converted into a Loan in Dollars or another permitted denomination), under this Agreement and that Day Runner be deemed to make an intercompany loan to DRC in an amount equal to the principal amount of such DRC Loans outstanding on the Effective Date, and (e) the Lenders, from time to time, upon the terms and subject to the conditions set forth herein, make Revolving Loans to the Revolving Loan Borrowers, and the Lenders have agreed to such requests; WHEREAS, DRC is signatory to this Agreement solely for the purposes of effecting the amendment and restatement of the Existing Credit Agreement as contemplated by this Agreement and upon the effectiveness of the this Agreement, DRC shall not be a "Borrower" under this Agreement and shall not have any obligations or liabilities hereunder. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: Article 1 DEFINITIONS AND ACCOUNTING TERMS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below: "Adjusted Eurodollar Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable Eurodollar Rate by (ii) 1.00 minus the Eurodollar Reserve Percentage. "Administrative Agent" means Wells Fargo Bank, National Association, when acting in its capacity as the Administrative Agent under any of the Loan Documents, or any successor Administrative Agent. "Administrative Agent's Fee" means the annual administration fee to be paid by Day Runner to the Administrative Agent described in the fee letter dated as of October 12, 1999 from the Administrative Agent to, and acknowledged and accepted by, Day Runner. "Administrative Agent's Office" means the Administrative Agent's address as set forth on the signature pages of this Agreement, or such other address as the Administrative Agent hereafter may designate by written notice to the Borrowers and the Lenders. "Affiliate" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (and the correlative terms, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided that, in any event, any Person that owns, directly or indirectly, 20% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation that has more than 100 record holders of such securities, or 20% or more of the partnership or other ownership interests of any other Person that has more than 100 record holders of such interests, will be deemed to be an Affiliate of such corporation, partnership or other Person. "Aggregate Exposure Amount" means as of any date of determination and with respect to all Letters of Credit then outstanding, the sum of (a) the aggregate effective face amounts of all such Letters of Credit not then paid by the Issuing Lender plus (b) the aggregate amounts paid by the Issuing Lender under such Letters of Credit not then reimbursed to the Issuing Lender by Borrowers. "Agreement" means this Amended and Restated Loan Agreement as it may from time to time be supplemented, modified, amended, restated or extended. "Alternate Base Rate" means, as of any date of determination, the rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the higher of (a) the Prime Rate in effect on such date or (b) the Federal Funds Rate in effect on such date plus 1/2 of 1% (50 basis points). "Alternate Base Rate Loan" means a Loan made hereunder and specified to be an Alternate Base Rate Loan in accordance with Article 2. "Applicable Base Rate Margin" means (a) for the Initial Pricing Period, 200 basis points per annum and (b) for each Pricing Period thereafter, the interest rate margin set forth below (expressed in basis points per annum) opposite the Applicable Pricing Level for the Fiscal Quarter ending 55 days prior to the commencement of such Pricing Period: ---------------------------------- --------------------------- Applicable Pricing Level Margin ---------------------------------- --------------------------- ---------------------------------- --------------------------- I 12.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- II 25.00 ---------------------------------- --------------------------- ---------------------------------- --------------------------- III 62.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- IV 87.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- V 112.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VI 137.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VII 162.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VIII 200.00 ---------------------------------- --------------------------- Any change in the Applicable Base Rate Margin based on a change in the Applicable Pricing Level shall be effective immediately after the receipt by the Administrative Agent of the Pricing Certificate relating to the Fiscal Quarter ending 55 days prior to the commencement of such Pricing Period; provided that (i) in the event that the Borrowers do not deliver a Pricing Certificate with respect to any Fiscal Quarter within the time set forth in Section 7.1(b), then until (but only until) such Pricing Certificate is delivered the Applicable Pricing Level shall be Pricing Level VIII and (ii) if any Pricing Certificate is subsequently determined to be in error, then any resulting change in the Applicable Pricing Level shall be made retroactively to the beginning of the relevant Pricing Period. "Applicable Commitment Fee Rate" means (a) for the Initial Pricing Period, 67.5 basis points per annum and (b) for each Pricing Period thereafter, the rate set forth below (expressed in basis points per annum) opposite the Applicable Pricing Level for the Fiscal Quarter ending 55 days prior to the commencement of such Pricing Period: ---------------------------------- --------------------------- Applicable Pricing Level Commitment Fee Rate ---------------------------------- --------------------------- ---------------------------------- --------------------------- I 37.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- II 37.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- III 37.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- IV 37.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- V 50.00 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VI 50.00 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VII 50.00 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VIII 67.50 ---------------------------------- --------------------------- Any change in the Applicable Commitment Fee Rate based on a change in the Applicable Pricing Level shall be effective immediately after the receipt by the Administrative Agent of the Pricing Certificate relating to the Fiscal Quarter ending 55 days prior to the commencement of such Pricing Period; provided that (i) in the event that the Borrowers do not deliver a Pricing Certificate with respect to any Fiscal Quarter within the time set forth in Section 7.1(b), then until (but only until) such Pricing Certificate is delivered the Applicable Pricing Level shall be Pricing Level VIII and (ii) if any Pricing Certificate is subsequently determined to be in error, then any resulting change in the Applicable Pricing Level shall be made retroactively to the beginning of the relevant Pricing Period. "Applicable Eurodollar Rate Margin" means (a) for the Initial Pricing Period, 300 basis points per annum and (b) for each Pricing Period thereafter, the interest rate margin set forth below (expressed in basis points per annum) opposite the Applicable Pricing Level for the Fiscal Quarter ending 55 days prior to the commencement of such Pricing Period: ---------------------------------- --------------------------- Applicable Pricing Level Margin ---------------------------------- --------------------------- ---------------------------------- --------------------------- I 112.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- II 125.00 ---------------------------------- --------------------------- ---------------------------------- --------------------------- III 162.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- IV 187.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- V 212.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VI 237.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VII 262.50 ---------------------------------- --------------------------- ---------------------------------- --------------------------- VIII 300.00 ---------------------------------- --------------------------- Any change in the Applicable Eurodollar Rate Margin based on a change in the Applicable Pricing Level shall be effective immediately after the receipt by the Administrative Agent of the Pricing Certificate relating to the Fiscal Quarter ending 55 days prior to the commencement of such Pricing Period; provided that (i) in the event that the Borrowers do not deliver a Pricing Certificate with respect to any Fiscal Quarter within the time set forth in Section 7.1(b), then until (but only until) such Pricing Certificate is delivered the Applicable Pricing Level shall be Pricing Level VIII and (ii) if any Pricing Certificate is subsequently determined to be in error, then any resulting change in the Applicable Pricing Level shall be made retroactively to the beginning of the relevant Pricing Period. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of an Alternate Base Rate Loan and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Pricing Level" means, on any day, the pricing level set forth below opposite the Funded Debt Ratio as of the last day of the Fiscal Quarter most recently ended prior to such day:
----------------------- ---------------------------------------------------------------------------- Pricing Level Funded Debt Ratio ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- I Less than or equal to 2.00 to 1.00 ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- II Greater than 2.00 to 1.00, but less than or equal to 2.50 to 1.00 ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- III Greater than 2.50 to 1.00, but less than or equal to 3.00 to 1.00 ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- IV Greater than 3.00 to 1.00, but less than or equal to 3.50 to 1.00 ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- V Greater than 3.50 to 1.00, but less than or equal to 4.00 to 1.00 ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- VI Greater than 4.00 to 1.00, but less than or equal to 4.50 to 1.00 ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- VII Greater than 4.50 to 1.00, but less than or equal to 5.00 to 1.00 ----------------------- ---------------------------------------------------------------------------- ----------------------- ---------------------------------------------------------------------------- VIII Greater than 5.00 to 1.00 ----------------------- ----------------------------------------------------------------------------
provided that (i) in the event that the Borrowers do not deliver a Pricing Certificate with respect to any Fiscal Quarter within the time set forth in Section 7.1(b), then until (but only until) such Pricing Certificate is delivered the Applicable Pricing Level shall be Pricing Level VIII and (ii) if any Pricing Certificate is subsequently determined to be in error, then any resulting change in the Applicable Pricing Level shall be made retroactively to the beginning of the relevant Fiscal Quarter. "Applicable Standby Letter of Credit Fee Rate" means, as of any date of determination, the then effective Applicable Eurodollar Rate Margin. "Assignment and Acceptance" means an assignment and acceptance substantially in the form of Exhibit B. "Banking Day" means any Monday, Tuesday, Wednesday, Thursday or Friday, other than a day on which banks are authorized or required to be closed in California or New York. "Borrower" means each of Day Runner, Bidco and Filofax, and "Borrowers" is a collective reference to all of them. "Borrower Guaranties" means the collective reference to (a) each Borrower Guaranty, in substantially the form of Exhibit A, executed by the Borrowers (other than Filofax), (b) the Borrower Guaranty of Revolving Loans, in substantially the form of Exhibit N, executed by Filofax and (c) the Borrower Guaranty of Term Loans, in substantially the form of Exhibit O, executed by Filofax, in each case delivered pursuant to Article 8, as the same may be amended, supplemented or otherwise modified from time to time; and each of them is a "Borrower Guaranty". "Capital Expenditure" means any expenditure by any Borrower or any of its Subsidiaries for or related to fixed assets or purchased intangibles that is treated as a capital expenditure under GAAP, including any amount which is required to be treated as an asset subject to a Capital Lease Obligation. "Capital Lease" means any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease. "Capital Lease Obligations" means all monetary obligations of a Person under any Capital Lease. "Cash" means, when used in connection with any Person, all monetary and non-monetary items owned by that Person that are treated as cash in accordance with GAAP, consistently applied. "Cash Equivalents" means, when used in connection with any Person, that Person's Investments in: (a) Government Securities due within one year after the date of the making of the Investment; (b) readily marketable direct obligations of any State of the United States of America or any political subdivision of any such State or any public agency or instrumentality thereof given on the date of such Investment a credit rating of at least Aa by Moody's Investors Service, Inc. or AA by Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.), in each case due within one year from the making of the Investment; (c) certificates of deposit issued by, bank deposits in, eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by any Lender or any bank incorporated under the Laws of the United States of America, any State thereof or the District of Columbia and having on the date of such Investment combined capital, surplus and undivided profits of at least $250,000,000, or total assets of at least $5,000,000,000, in each case due within one year after the date of the making of the Investment; (d) certificates of deposit issued by, bank deposits in, eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by any Lender or any branch or office located in the United States of America of a bank incorporated under the Laws of any jurisdiction outside the United States of America having on the date of such Investment combined capital, surplus and undivided profits of at least $500,000,000, or total assets of at least $15,000,000,000, in each case due within one year after the date of the making of the Investment; (e) readily marketable commercial paper or other debt securities issued by corporations doing business in and incorporated under the Laws of the United States of America or any State thereof or of any corporation that is the holding company for a bank described in clause (c) or (d) above given on the date of such Investment a credit rating of at least P-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.), in each case due within one year after the date of the making of the Investment; (f) a readily redeemable "money market mutual fund" sponsored by a bank described in clause (c) or (d) hereof, or a broker or dealer registered under Section 15(b) of the Securities Exchange Act of 1934, as amended, having on the date of the Investment capital of at least $50,000,000, that has and maintains an investment policy limiting its investments primarily to instruments of the types described in clauses (a) through (e) hereof and given on the date of such Investment a credit rating of at least Aa by Moody's Investors Service, Inc. and AA by Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.); (g) corporate notes or bonds having an original term to maturity of not more than one year issued by a corporation incorporated under the Laws of the United States of America, or a participation interest therein; provided that (i) commercial paper issued by such corporation is given on the date of such Investment a credit rating of at least Aa by Moody's Investors Service, Inc. and AA by Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.), (ii) the amount of all such Investments issued by the same issuer does not exceed $5,000,000 and (iii) the aggregate amount of all such Investments does not exceed $15,000,000; and (h) any security denominated in pounds sterling issued by or on behalf of the government of the United Kingdom or any other unsubordinated security, investment or instrument which is denominated in pounds sterling, has a maturity of less than one year, and is given on the date of such Investment a credit rating of at least P-1 by Moody's Investor's Service, Inc. or A-1 by Standard & Poor's Ratings Services (a division of McGraw-Hill, Inc.). "Certificate" means a certificate signed by a Senior Officer or Responsible Official (as applicable) of the Person providing the certificate. "Change in Control" means (a) any transaction or series of related transactions in which any Person or two or more Persons acting in concert (other than a Permitted Stockholder) acquire beneficial ownership (within the meaning of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended), directly or indirectly, of 25% or more of the outstanding Day Runner Common Stock, (b) Day Runner consolidates with or merges into another Person or conveys, transfers or leases its properties and assets substantially as an entirety to any Person, or any Person consolidates with or merges into Day Runner in a transaction in which the outstanding Day Runner Common Stock is changed into or exchanged for cash, securities or other property and with the effect that any Person becomes the beneficial owner, directly or indirectly, of 25% or more of Day Runner Common Stock or that the Persons who were the holders of Day Runner Common Stock immediately prior to the transaction hold less than 75% of the common stock of the surviving corporation after the transaction, or (c) during any period of 24 consecutive months, individuals who at the beginning of such period constituted the board of directors of Day Runner (together with any new or replacement directors whose election by the board of directors, or whose nomination for election, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for reelection was previously so approved) cease for any reason to constitute a majority of the directors then in office. "Closing Date" means September 23, 1998. "Code" means the Internal Revenue Code of 1986, as amended or replaced and as in effect from time to time. "Collateral" means all Property and interests in Property now owned or hereafter acquired by a Borrower or any of its Subsidiaries upon which a Lien is granted to the Administrative Agent, for the benefit of the Lenders, under any of the Loan Documents. "Collateral Documents" means each of the Pledge Agreements and Security Agreements. "Commercial Letter of Credit" means each Letter of Credit issued to support the purchase of goods by a Borrower which is determined to be a commercial letter of credit by the Issuing Lender. "Common Stock" means the common stock of any Borrower or its successor. "Companies Act" means the Companies Act 1985 of Great Britain. "Compliance Certificate" means a certificate in the form of Exhibit C, properly completed and signed by a Senior Officer of Day Runner. "Concentration Account" has the meaning set forth in Section 5.14. "Contractual Obligation" means, as to any Person, any provision of any outstanding security issued by that Person or of any material agreement, instrument or undertaking to which that Person is a party or by which it or any of its Property is bound. "Current Assets" means, as of any date of determination, all assets that would, in accordance with GAAP, be classified on a consolidated balance sheet of Day Runner and its Subsidiaries as current assets as at such date of determination. "Current Liabilities" means, as of any date of determination, all liabilities that would, in accordance with GAAP, be classified on a consolidated balance sheet of Day Runner and its Subsidiaries as current liabilities as at such date of determination. "Current Ratio" means, as of any date of determination, the ratio of (a) Current Assets to (b) the sum of (i) Current Liabilities plus (ii) the aggregate principal amount of Revolving Loans outstanding as of such date. "Day Runner Common Stock" means the Common Stock of Day Runner or its successor. "Debtor Relief Laws" means the Bankruptcy Code of the United States of America, as amended from time to time, and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws from time to time in effect affecting the rights of creditors generally. "Default" means any event that, with the giving of any applicable notice or passage of time specified in Section 9.1, or both, would be an Event of Default. "Default Rate" means the interest rate prescribed in Section 3.9. "Designated Capital Expenditures" means Capital Expenditures that are either (i) financed directly or indirectly with the proceeds of a Loan or (ii) not financed by the relevant Borrower by any third party financing source. "Designated Eurodollar Market" means, with respect to any Eurodollar Rate Loan, the London Eurodollar Market. "Designated Foreign Currency Market" means, with respect to any Foreign Currency Loan, the Foreign Currency Market designated by the Administrative Agent as appropriate for that Foreign Currency Loan. "Disqualified Stock" means any capital stock, warrants, options or other rights to acquire capital stock (but excluding any debt security which is convertible, or exchangeable, for capital stock), which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Term Loan Maturity Date. "Disposition" means the sale, transfer or other disposition in any single transaction or series of related transactions of any asset, or group of related assets, of any Borrower or any of its Subsidiaries other than (i) inventory or Cash Equivalents sold or otherwise disposed of in the ordinary course of business of such Borrower or such Subsidiary and (ii) equipment sold or otherwise disposed of where such equipment is obsolete or no longer useful in the ordinary course of business of such Borrower or such Subsidiary, and the aggregate value of assets so disposed does not exceed $100,000 in any Fiscal Year. "Distribution" means, with respect to any shares of capital stock or any warrant or option to purchase an equity security or other equity security issued by a Person, (a) any Stock Repurchase by such Person and (b) the declaration or (without duplication) payment by such Person of any dividend or other distribution in Cash or in Property (except for Property constituting capital stock of such Person that is not Disqualified Stock) on or with respect to any such security. "Dollars" or "$" means United States of America dollars. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" next to its signature hereto, or such other office of such Lender as such Lender may from time to time specify to the Borrowers and to the Administrative Agent. "DRC" means Day Runner Canada Inc., an Ontario corporation formerly known as Ultima Distribution Inc. and a wholly-owned subsidiary of Day Runner. "DRC Loans" has the meaning set forth in the preamble to this Agreement. "DRI International" means DRI International Holdings, Inc., a Delaware corporation and a wholly-owned Subsidiary of Day Runner. "DR-UK Holdings" means DR UK Holdings Limited, a company incorporated with limited liability under the laws of England and Wales and a Subsidiary of DRI International. "EBITDA" means, with respect to any period, the sum of (a) Net Income for that period, plus (b) any extraordinary loss included in such Net Income, minus (c) any extraordinary gain included in such Net Income, plus (d) Interest Expense of Day Runner and its Subsidiaries for that period, plus (e) the aggregate amount of taxes on or measured by income of Day Runner and its Subsidiaries for that period (whether or not payable during that period), plus (f) depreciation, amortization and all other non-cash expenses of Day Runner and its Subsidiaries for that period, plus (g) to the extent deducted in determining such Net Income, for any period including Day Runner's Fiscal Quarter ended March 31, 1999, the amount of Tender Offer Transaction Expenses in such period, plus (h) for any period that includes fiscal periods ended on or prior to June 30, 1999, to the extent deducted in determining such Net Income, the aggregate amount of asset write downs with respect to Filofax Group recorded in any of such fiscal periods, in each case as determined in accordance with GAAP, consistently applied plus (i) to the extent deducted in determining such Net Income, the amount of expenses incurred in connection with Day Runner's efforts to be acquired by another Person or restructure Day Runner or any of its Subsidiaries incurred during such period; provided that, for any period that includes Day Runner's Fiscal Quarter ended December 31, 1998, the acquisition of Filofax Group by Bidco shall be deemed to have occurred as of the first day of such period. "Effective Date" means the first Banking Day on which the conditions set forth in Section 8.1 are satisfied or waived, but in any event not later than October 15, 1999. "EMU" means the Economic and Monetary Union as contemplated in the treaty on European unity effected pursuant to the Treaty of Rome of March 25, 1957, as amended by the Single European Act 1986 and the Maastricht Treaty, as amended from time to time. "EMU Legislation" means legislative measures of the European Council (including, without limitation, European Council regulations) for the introduction of, changeover to or operation of a single or unified European currency (whether known as the euro or otherwise), being in part the implementation of the third stage of EMU. "ERISA" means the Employee Retirement Income Security Act of 1974, and any regulations issued pursuant thereto, as amended or replaced and as in effect from time to time. "ERISA Affiliate" means each Person (whether or not incorporated) which is required to be aggregated with Borrower pursuant to Section 414 of the Code. "Eurodollar Banking Day" means any Banking Day on which dealings in Dollar deposits are conducted by and among banks in the Designated Eurodollar Market. "Eurodollar Lending Office" means, as to each Lender, its office or branch so designated by written notice to the Borrowers and the Administrative Agent as its Eurodollar Lending Office. If no Eurodollar Lending Office is designated by a Lender, its Eurodollar Lending Office shall be its office at its address for purposes of notices hereunder. "Eurodollar Market" means a regular established market located outside the United States of America by and among banks for the solicitation, offer and acceptance of Dollar deposits in such banks. "Eurodollar Obligations" means eurocurrency liabilities, as defined in Regulation D or any comparable regulation of any Governmental Agency having jurisdiction over any Lender. "Eurodollar Rate" means, with respect to any Eurodollar Rate Loan, the average of the interest rates per annum (rounded upward, if necessary, to the next 1/16 of 1%) at which deposits in Dollars are offered to Wells Fargo Bank, National Association in the Designated Eurodollar Market at or about 11:00 A.M. local time in the Designated Eurodollar Market, two (2) Eurodollar Banking Days before the first day of the applicable Eurodollar Period in an aggregate amount approximately equal to the amount of the Loan to be made by Wells Fargo Bank, National Association with respect to such Eurodollar Rate Loan and for a period of time comparable to the number of days in the applicable Eurodollar Period. "Eurodollar Rate Loan" means a Loan made hereunder and specified to be a Eurodollar Rate Loan in accordance with Article 2. "Eurodollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (as defined in Regulation D)) or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined. "Euros" means the single currency of the countries described as "Participating Member States of the European Union" within any EMU Legislation. "Event of Default" has the meaning set forth in Section 9.1. "Existing Credit Agreement" has the meaning set forth in the preamble to this Agreement. "Extension Determination Date" has the meaning set forth in Section 2.11. "Federal Funds Rate" means, as of any date of determination, the rate set forth in the daily statistical release designated as the Composite 3:30 P.M. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 P.M. Quotation") for such date under the caption "Federal Funds Effective Rate". If on any relevant date the appropriate rate for such date is not yet published in the Composite 3:30 P.M. Quotations, the rate for such date will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 A.M. (New York City time) on that date by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. For purposes of this Agreement, any change in the Alternate Base Rate due to a change in the Federal Funds Rate shall be effective as of the opening of business on the effective date of such change. "Filofax Group" means Filofax Group Limited, a company incorporated with limited liability under the laws of England and Wales and a wholly-owned direct subsidiary of Bidco. "Filofax Overdraft Account" means one or more cash collateral accounts maintained with a Lender in England by Filofax which are subject to Liens which secure Filofax Overdraft Indebtedness described in clause (i) of the definition thereof. "Filofax Overdraft Indebtedness" means Indebtedness of (i) Filofax to a Lender that is outstanding from time to time in amounts and in currencies determined by reference to Filofax's accounts receivable in foreign currencies and (ii) the Subsidiaries of Filofax Group (other than Filofax) to one or more financial institutions as set forth in Schedule 1.2 hereto, as the same may be renewed, extended or refinanced from time to time, provided that with respect to Indebtedness described in clause (ii) above, the aggregate principal amount of such Indebtedness outstanding at any time does not exceed $1,500,000 (or the Foreign Currency Equivalent thereof). "Filofax Working Capital Guaranties" means the collective reference to (a) the Borrower Guaranty of Revolving Loans, in substantially the form of Exhibit N, executed by Filofax and (b) the Subsidiary Guaranty of Revolving Loans, in substantially the form of Exhibit P, executed by Filofax Group. "Fiscal Quarter" means the fiscal quarter of Borrowers ending on each March 31, June 30, September 30 and December 31. "Fiscal Year" means the fiscal year of Borrowers ending on each June 30. "Fixed Charge Coverage Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (a) EBITDA for the fiscal period consisting of the four (4) Fiscal Quarters ended on that date, minus Designated Capital Expenditures made by Day Runner and its Subsidiaries during such fiscal period, minus cash payments for federal, state, local and foreign taxes actually paid during such period by Day Runner and its Subsidiaries, plus tax refunds received in cash during such period with respect to any federal, state, local, or foreign taxes, minus cash dividends paid during such period by Day Runner and its Subsidiaries, minus the fair market value of any Stock Repurchases during such period to (b) the sum of (i)(A) Interest Expense of Day Runner and its Subsidiaries for such fiscal period minus (B) Interest Income of Day Runner and its Subsidiaries for such fiscal period plus (ii) the principal portion of Capital Lease Obligations of Day Runner and its Subsidiaries during such fiscal period actually paid or required to be paid (without duplication) during such fiscal period plus (iii) any required principal repayments of Indebtedness of Day Runner and its Subsidiaries during such fiscal period (except respect to Intercompany Indebtedness), including without limitation required principal repayments with respect to the Obligations, minus (iv) the principal amount of any Indebtedness incurred by Day Runner and its Subsidiaries during such fiscal period (excluding any Intercompany Indebtedness) the proceeds of which is used during such period to refinance existing Indebtedness of Day Runner and its Subsidiaries during such period. "Foreign Currency" means, with respect to a Foreign Currency Loan or Foreign Currency Letter of Credit, the foreign currency applicable to that Foreign Currency Loan or Foreign Currency Letter of Credit. "Foreign Currency Banking Day" means any Banking Day on which dealings in deposits in the applicable Foreign Currency are conducted by and among banks in the Designated Foreign Currency Market. "Foreign Currency Equivalent" means, as of any date of determination, the equivalent amount in Dollars of a Foreign Currency Loan or a Foreign Currency Letter of Credit, as the case may be, using the currency exchange rate for such date for the applicable Foreign Currency in the New York City wholesale foreign currency exchange market in trading among banks in amounts of $1,000,000 or more, set at 11:00 A.M. London Time two (2) Foreign Currency Banking Days prior to the date of determination, or, if not so set for such date, as otherwise reasonably determined by the Administrative Agent. "Foreign Currency Letter of Credit" means a Letter of Credit issued or to be issued in (a) British pounds, (b) Canadian dollars, (c) Euros or (d) such other currency (other than Dollars) as may be acceptable to all of the Lenders in their sole and absolute discretion. "Foreign Currency Limitation" means, at any time, sixty percent (60%) of the Revolving Commitment in effect at such time. "Foreign Currency Loan" means a Revolving Loan made or to be made in (a) pounds sterling, (b) Euros or (c) such other currency (other than Dollars) as may be acceptable to all of the Lenders in their sole and absolute discretion. "Foreign Currency Market" means a regular established market located outside the United States of America by and among banks for the solicitation, offer and acceptance of Foreign Currency deposits in such banks. "Foreign Currency Period" means, as to each Foreign Currency Loan, the period commencing on the date specified by the applicable Borrower pursuant to Section 2.2 or 2.3, as applicable, and ending 1, 2, 3 or 6 months (or, with the written consent of all of the Lenders, any other period) thereafter, as specified by the applicable Borrower in (1) the applicable Notice of Borrowing with respect to a Revolving Loan or (2) the applicable Notice of Conversion/Continuation with respect to a Loan; provided that: (a) The first day of any Foreign Currency Period shall be a Foreign Currency Banking Day; (b) Any Foreign Currency Period that would otherwise end on a day that is not a Foreign Currency Banking Day shall be extended to the immediately succeeding Foreign Currency Banking Day unless such Foreign Currency Banking Day falls in another calendar month, in which case such Foreign Currency Period shall end on the immediately preceding Foreign Currency Banking Day; and (c) No Foreign Currency Period shall extend beyond (i) with respect to any Term Loan, the Term Loan Maturity Date and (ii) with respect to any Revolving Loan, the Revolving Loan Maturity Date. "Foreign Currency Rate" means, with respect to any Foreign Currency Rate Loan, the interest rate per annum at which deposits in that Foreign Currency are offered to the Administrative Agent in the Designated Foreign Currency Market at 11:00 A.M. (London time) two (2) Foreign Currency Banking Days before the first day of the applicable Foreign Currency Period in an aggregate amount approximately equal to the amount of the Loan to be made with respect to such Foreign Currency Rate Loan and for a period of time comparable to the number of days in the applicable Foreign Currency Period. "Foreign Subsidiary" means a Subsidiary of any Borrower that (a) is organized under the Laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia and (b) conducts all or substantially all of its business outside the United States of America. "Funded Debt" means, as to any Person (without duplication), (a) indebtedness of such Person for borrowed money or for the deferred purchase price of Property (excluding trade and other accounts payable in the ordinary course of business in accordance with ordinary trade terms), including any Guaranty Obligation for any such indebtedness, (b) all indebtedness of such Person evidenced by notes, bonds, debentures, debentures or other similar instruments, (c) indebtedness of such Person that is non-recourse to such Person but is secured by assets of such Person, to the extent of the fair market value of such assets as determined in good faith by such Person, (d) the principal portion of Capital Lease Obligations of such Person required under GAAP to be shown on the balance sheet of such Person, (e) indebtedness of such Person arising under bankers' acceptance facilities or under facilities for the discount of accounts receivable of such Person, and (f) any direct or contingent obligations of such Person under letters of credit issued for the account of such Person. "Funded Debt Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (a) the outstanding principal amount of all Funded Debt of Day Runner and its Subsidiaries (limited in the case of Filofax Overdraft Indebtedness to that portion thereof in excess of the amount of cash on deposit in the Filofax Overdraft Account as of such date) to (b) EBITDA for the fiscal period consisting of the four (4) Fiscal Quarters ended on that date. "Funded Senior Debt Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (a) the outstanding principal amount of all Funded Debt (other than Subordinated Obligations and limited in the case of Filofax Overdraft Indebtedness to that portion thereof in excess of the amount of cash on deposit in the Filofax Overdraft Account as of such date) of Day Runner and its Subsidiaries on that date to (b) EBITDA for the fiscal period consisting of the four (4) Fiscal Quarters ended on that date. "GAAP" means, as of any date of determination, accounting principles (a) set forth as generally accepted in then currently effective Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants, (b) set forth as generally accepted in then currently effective Statements of the Financial Accounting Standards Board or (c) that are then approved by such other entity as may be approved by a significant segment of the accounting profession in the United States of America. The term "consistently applied," as used in connection therewith, means that the accounting principles applied are consistent in all material respects with those applied at prior dates or for prior periods. "Government Securities" means readily marketable (a) direct full faith and credit obligations of the United States of America or obligations guaranteed by the full faith and credit of the United States of America and (b) obligations of an agency or instrumentality of, or corporation owned, controlled or sponsored by, the United States of America that are generally considered in the securities industry to be implicit obligations of the United States of America. "Governmental Agency" means (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, central bank, commission, department, instrumentality or public body or (c) any court or administrative tribunal of competent jurisdiction. "Guaranty Obligation" means, as to any Person, any (a) guarantee by that Person of Indebtedness of, or other obligation performable by, any other Person or (b) assurance given by that Person to an obligee of any other Person with respect to the performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided, however, that the term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation in respect of Indebtedness shall be deemed to be an amount equal to the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. The amount of any other Guaranty Obligation shall be deemed to be zero unless and until the amount thereof has been (or in accordance with Financial Accounting Standards Board Statement No. 5 should be) quantified and reflected or disclosed in the consolidated financial statements (or notes thereto) of the applicable Borrower or Subsidiary of any Borrower. "Hazardous Materials" means substances defined as "hazardous substances" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., or as "hazardous", "toxic" or "pollutant" substances or as "solid waste" pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901, et seq., or as "friable asbestos" pursuant to the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq. or any other applicable Hazardous Materials Law, in each case as such Laws are amended from time to time. "Hazardous Materials Laws" means all Laws governing the treatment, transportation or disposal of Hazardous Materials applicable to any of the Real Property. "Indebtedness" means, as to any Person (without duplication), (a) any Funded Debt of such Person, (b) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, (c) all Indebtedness of others referred to in clauses (a) and (b) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (d) all Indebtedness referred to in clauses (a) through (c) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. "Initial Pricing Period" means the period from the Effective Date through the date upon which the Borrowers deliver the Pricing Certificate to the Administrative Agent with respect to the Fiscal Quarter ending September 30, 1999. "Intangible Assets" means assets that are considered intangible assets under GAAP, including customer lists, goodwill, covenants not to compete, copyrights, trade names, trademarks and patents. "Intercompany Indebtedness" means any Indebtedness owed (i) by Day Runner to any of its Subsidiaries, (ii) by any Subsidiary of Day Runner to Day Runner, or (iii) by any Subsidiary of Day Runner to any other Subsidiary of Day Runner. "Interest Expense" means, with respect to Day Runner and its Subsidiaries as of the last day of any fiscal period, determined on a consolidated basis, the sum of (a) all interest, fees, charges and related expenses for that fiscal period in connection with borrowed money (including any obligations for fees, charges and related expenses payable to the issuer of any letter of credit, but excluding (x) Fees (other than the Administrative Agent's Fee) required to be paid by the Borrowers to the Lenders or the Administrative Agent in connection with this Agreement and (y) amortization or write-off of capitalized fees paid in connection with the execution and delivery of the Existing Credit Agreement) or the deferred purchase price of assets that in each case are considered "interest expense" under GAAP plus (b) the portion of rent paid or payable (without duplication) for that fiscal period by that Person under Capital Lease Obligations that should be treated as interest in accordance with Financial Accounting Standards Board Statement No. 13. "Interest Period" means, with respect to each Eurodollar Rate Loan, the period commencing on the date specified by the applicable Borrower pursuant to Section 2.1(a), 2.1(d) or 2.2(b), as the case may be, and ending 1, 2, 3 or 6 months thereafter, as specified by the applicable Borrower in the applicable Notice of Borrowing or Notice of Conversion/Continuation, as applicable; provided that: (a) The first day of any Interest Period shall be a Eurodollar Banking Day; (b) Any Interest Period that would otherwise end on a day that is not a Eurodollar Banking Day shall be extended to the immediately succeeding Eurodollar Banking Day unless such Eurodollar Banking Day falls in another calendar month, in which case such Eurodollar Period shall end on the immediately preceding Eurodollar Banking Day; and (c) No Interest Period shall extend beyond (i) with respect to any Term Loan, the Term Loan Maturity Date and (ii) with respect to any Revolving Loan, the Revolving Loan Maturity Date. "Interest Rate Protection Agreement" means a written agreement between any Borrower and one or more financial institutions providing for "swap", "cap", "collar" or other interest rate protection with respect to any Indebtedness. "Investment" means, when used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of stock or other securities of, or all or any substantial portion of the assets of (or comprising a division or business unit of), any other Person or by means of a loan, advance creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person, including any partnership and joint venture interests of such Person. The amount of any Investment shall be the amount actually invested (minus any return of capital with respect to such Investment which has actually been received in Cash or has been converted into Cash or a Cash Equivalent), without adjustment for subsequent increases or decreases in the value of such Investment. "Issuing Lender" means Wells Fargo Bank, National Association. "Laws" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents. "Lender" means each lender whose name is set forth in the signature pages of this Agreement and each lender which may hereafter become a party to this Agreement pursuant to Section 11.8. "Letters of Credit" means any of the Commercial Letters of Credit or Standby Letters of Credit issued by the Issuing Lender under the Revolving Commitment pursuant to Section 2.7, as the same may be supplemented, modified, amended, renewed, extended or supplanted. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, lien or charge of any kind, whether voluntarily incurred or arising by operation of Law or otherwise, affecting any Property, including any conditional sale or other title retention agreement, any lease in the nature of a security interest. "Loan" means a Revolving Loan, a Swing Line Loan or a Term Loan (including without limitation any such Revolving Loan or Term Loan that is also a Foreign Currency Loan) and "Loans" includes all of the foregoing. "Loan Documents" means, collectively, this Agreement, the Notes, the Borrower Guaranties, the Subsidiary Guaranties, the Collateral Documents and any other agreements of any type or nature hereafter executed and delivered by any Borrower or any of their respective Subsidiaries to the Administrative Agent or to any Lender in any way relating to or in furtherance of this Agreement, in each case either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplanted. "Lockbox" has the meaning set forth in Section 5.14. "Margin Stock" means "margin stock" as such term is defined in Regulation U. "Material Adverse Effect" means any circumstance or event, or series of circumstances or events which (a) has had or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any Loan Document, (b) has been or could reasonably be expected to be material and adverse to the business, condition (financial or otherwise), operations, performance, Properties or prospects of Day Runner or Day Runner and its Subsidiaries, taken as a whole or (c) has materially impaired or could reasonably be expected to materially impair the ability of any Borrower to perform the Obligations. "Material Subsidiary" means a Subsidiary of Day Runner either (x) owning at least five percent (5%) of the consolidated assets of Day Runner and its Subsidiaries as of the end of the immediately prior Fiscal Quarter or (y) as of the last day of any Fiscal Quarter, generating at least five percent (5%) of the consolidated net sales of Day Runner and its Subsidiaries for the fiscal period consisting of the four (4) Fiscal Quarters ended on that date. "Monthly Payment Date" means the last Banking Day of each month. "Multiemployer Plan" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA to which any Borrower or any of its ERISA Affiliates contributes or is obligated to contribute. "Net Cash Issuance Proceeds" means, with respect to the issuance of any debt security or equity security by a Borrower or any of its Subsidiaries, the Cash proceeds received by or for the account of a Borrower or such Subsidiary in consideration of such issuance net of (a) underwriting discounts and commissions actually paid to any Person not an Affiliate of any Borrower and (b) reasonable professional fees and disbursements actually paid in connection therewith. "Net Cash Sales Proceeds" means, with respect to any Disposition, the sum of (a) the Cash proceeds received by or for the account of the Borrowers and their respective Subsidiaries from such Disposition plus (b) the amount of Cash received by or for the account of the Borrowers and their respective Subsidiaries upon the sale, collection or other liquidation of any proceeds that are not Cash from such Disposition, in each case net of (i) any amount required to be paid to any Person owning an interest in the assets disposed of, (ii) any amount applied to the repayment of Indebtedness secured by a Lien permitted under Section 6.9 on the asset disposed of, (iii) any transfer, income or other taxes payable as a result of such Disposition, (iv) reasonable professional fees and expenses, fees due to any Governmental Agency, broker's commissions and other out-of-pocket costs of sale actually paid to any Person that is not an Affiliate of any Borrower attributable to such Disposition and (v) any reserves established in accordance with GAAP in connection with such Disposition. "Net Income" means, with respect to any period, the consolidated net income of Day Runner and its Subsidiaries for that period, determined in accordance with GAAP, consistently applied. "Note" and "Notes" have the meanings set forth in Section 2.6(a). "Notice of Borrowing" has the meaning set forth in Section 2.1(b). "Obligations" means all present and future obligations of every kind or nature of the Borrowers or any of their respective Subsidiaries at any time and from time to time owed to the Administrative Agent or the Lenders or any one or more of them, under any one or more of the Loan Documents, whether due or to become due, matured or unmatured, liquidated or unliquidated, or contingent or noncontingent, including obligations of performance as well as obligations of payment, and including interest that accrues after the commencement of any proceeding under any Debtor Relief Law by or against any Borrower or any of its Subsidiaries. "Party" means any Person other than the Administrative Agent and the Lenders, which now or hereafter is a party to any of the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereof established under ERISA. "Pension Plan" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, which is subject to Title IV of ERISA and is maintained by any Borrower or to which any Borrower contributes or has an obligation to contribute. "Permitted Encumbrances" means: (a) Inchoate Liens incident to construction on or maintenance of Property; or Liens incident to construction on or maintenance of Property now or hereafter filed of record for which adequate reserves have been set aside (or deposits made pursuant to applicable Law) and which are being contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that, by reason of nonpayment of the obligations secured by such Liens, no such Property is subject to a material impending risk of loss or forfeiture; (b) Liens for taxes and assessments on Property which are not yet delinquent; or Liens for taxes and assessments on Property for which adequate reserves have been set aside and are being contested in good faith by appropriate proceedings, provided that, by reason of nonpayment of the obligations secured by such Liens, no such Property is subject to a material impending risk of loss or forfeiture; (c) defects and irregularities in title to any Property which in the aggregate do not materially impair the fair market value or use of the Property for the purposes for which it is or may reasonably be expected to be held; (d) easements, exceptions, reservations, or other agreements for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, drainage, irrigation, water, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting Property which in the aggregate do not materially burden or impair the fair market value or use of such Property for the purposes for which it is or may reasonably be expected to be held; (e) easements, exceptions, reservations, or other agreements for the purpose of facilitating the joint or common use of Property in or adjacent to a shopping center or similar project affecting Property which in the aggregate do not materially burden or impair the fair market value or use of such Property for the purposes for which it is or may reasonably be expected to be held; (f) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, the use of any Property; (g) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, any right, power, franchise, grant, license, or permit; (h) present or future zoning laws and ordinances or other laws and ordinances restricting the occupancy, use, or enjoyment of Property; (i) statutory Liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business with respect to obligations which are not delinquent or are being contested in good faith, provided that, if delinquent, adequate reserves have been set aside with respect thereto and, by reason of nonpayment, no Property is subject to a material impending risk of loss or forfeiture; (j) covenants, conditions, and restrictions affecting the use of Property which in the aggregate do not materially impair the fair market value or use of the Property for the purposes for which it is or may reasonably be expected to be held; (k) rights of tenants under leases and rental agreements covering Property entered into in the ordinary course of business of the Person owning such Property; (l) Liens consisting of pledges or deposits to secure obligations under workers' compensation laws or similar legislation, including Liens of judgments thereunder which are not currently dischargeable; (m) Liens consisting of pledges or deposits of Property to secure performance in connection with operating leases made in the ordinary course of business, provided the aggregate value of all such pledges and deposits in connection with any such lease does not at any time exceed 20% of the annual fixed rentals payable under such lease; (n) Liens consisting of deposits of Property to secure bids made with respect to, or performance of, contracts (other than contracts creating or evidencing an extension of credit to the depositor); (o) Liens consisting of any right of offset, or statutory bankers' lien, on bank deposit accounts maintained in the ordinary course of business so long as such bank deposit accounts are not established or maintained for the purpose of providing such right of offset or bankers' lien; (p) Liens consisting of deposits of Property to secure statutory obligations of a Borrower; and (q) Liens consisting of deposits of Property to secure (or in lieu of) surety, appeal or customs bonds. "Permitted Stockholder" means Jill Tate Higgins and her heirs, devisees and legatees, and trusts for the sole benefit of such Persons, and Persons wholly-owned by such Persons. "Person" means any individual or entity, including a trustee, corporation, limited liability company, general partnership, limited partnership, joint stock company, trust, estate, unincorporated organization, business association, firm, joint venture, Governmental Agency, or other entity. "Pledge Agreements" means the collective reference to (a) the Pledge Agreement, in substantially the form of Exhibit J, executed and delivered on or prior to the Effective Date by Day Runner, or by any Subsidiary, as the same may be amended, supplemented or otherwise modified from time to time and (b) each Mortgage of Shares, in substantially the form of Exhibit K, executed and delivered on or prior to the Effective Date by each of DRI International, DR-UK Holdings, Bidco, Filofax Group and Filofax, and (c) each Pledge Agreement or Mortgage of Shares, in substantially the form of Exhibit J or K, as the case may be, executed and delivered by any Subsidiary pursuant to Section 5.13, in any case as the same may be amended, supplemented or otherwise modified from time to time, and each of them is a "Pledge Agreement". "Pricing Certificate" means a certificate in the form of Exhibit E, properly completed and signed by a Senior Officer of Day Runner. "Pricing Period" means the period beginning 55 days after the end of each Fiscal Quarter and ending 55 days after the end of the subsequent Fiscal Quarter. "Prime Rate" means the rate of interest announced from time to time by the Administrative Agent in San Francisco, California (or other headquarters city of the Administrative Agent), as its "prime rate." The "prime rate" is one of several base rates used by the Administrative Agent and serves as the basis upon which effective rates of interest are calculated for loans and other credits making reference thereto. The "prime rate" is evidenced by the recording thereof after its announcement in such internal publication or publications as the Administrative Agent may designate. Any change in the Prime Rate shall take effect at the opening of business on the day such change is internally announced within the offices of the Administrative Agent. "Projections" means (i) the projected financial information dated August 27, 1999 prepared by Day Runner and (ii) any budget and projection delivered by Day Runner pursuant to Section 7.1(d). "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Pro Rata Share" means, with respect to each Lender, (a) with respect to Revolving Loans and Letters of Credit, the percentage of the Revolving Commitment set forth opposite the name of that Lender on Schedule 1.1, as such percentage may be increased or decreased pursuant to an Assignment and Acceptance executed in accordance with Section 11.8 and (b) with respect to Term Loans, the percentage of the Term Loans set forth opposite the name of that Lender on Schedule 1.1, as such percentage may be increased or decreased pursuant to an Assignment and Acceptance executed in accordance with Section 11.8. "Quarterly Payment Date" means the last Banking Day of each March, June, September and December. "Real Property" means, as of any date of determination, all real property then or theretofore owned, leased or occupied by any of the Borrowers or their respective Subsidiaries. "Regulation D" means Regulation D, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulation in substance substituted therefor. "Regulation U" means Regulation U, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulations in substance substituted therefor. "Request for Letter of Credit" means a written request for a Letter of Credit in substantially the form of Exhibit F, signed by a Responsible Official of Day Runner and properly completed to provide all information required to be included therein, and delivered to the Issuing Bank and the Administrative Agent. "Requirement of Law" means, as to any Person, the articles or certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any Law, or judgment, award, decree, writ or determination of a Governmental Agency, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Requisite Lenders" means (a) as of any date of determination if the Revolving Commitment is then in effect, Lenders constituting 50% or more in number and having in the aggregate more than 50% of the sum of (i) the Revolving Commitment then in effect and (ii) the aggregate principal amount of the Term Loans outstanding on such date and (b) as of any date of determination if the Revolving Commitment has then been suspended or terminated and there is then any principal amount of any Loan outstanding on such date, Lenders constituting 50% or more in number and having Loans representing more than 50% of the sum of (i) the aggregate principal amount of the Revolving Loans outstanding on such date and (ii) the aggregate principal amount of the Term Loans outstanding on such date. "Responsible Official" means (a) any Senior Officer of Day Runner and (b) any other responsible official of any Borrower so designated in a written notice thereof from a Senior Officer to the Administrative Agent. The Lenders shall be entitled to conclusively rely upon any document or certificate that is signed or executed by a Responsible Official of a Borrower or any of its Subsidiaries as having been authorized by all necessary corporate, partnership and/or other action on the part of such Borrower or such Subsidiary. "Revolving Commitment" means, subject to Section 2.8, $120,000,000 minus the Term Loan Amount. "Revolving Loan" means any Loan made pursuant to Section 2.1(a) or Section 2.9(d). "Revolving Loan" shall not include any Swing Line Loan or any Term Loan. "Revolving Loan Borrower" means a Borrower other than Bidco. "Revolving Loan Maturity Date" means October 31, 2000, as such date may be extended pursuant to Section 2.11. "Revolving Loan Sublimit" means, with respect to any Revolving Loan Borrower, the amount set forth below opposite the name of such Borrower, which amount is the maximum amount of Revolving Loans available to be extended to such Borrower (it being understood that no Revolving Loans shall be made to Bidco, as Borrower): --------------------------------------------- ------------------------------ Borrower Sublimit --------------------------------------------- ------------------------------ --------------------------------------------- ------------------------------ Day Runner 100% of the Revolving Commitment then in effect --------------------------------------------- ------------------------------ --------------------------------------------- ------------------------------ Filofax $20,000,000 --------------------------------------------- ------------------------------ "SEC Document" means any document, exhibit, report, form or other document filed by any Borrower or required to be filed by any Borrower with the Securities and Exchange Commission, including without limitation annual reports on Form 10-K and quarterly reports on Form 10-Q. "Security Agreements" means the collective reference to (a) each Security Agreement, in substantially the form of Exhibit L, executed and delivered by Day Runner or a domestic Subsidiary of Day Runner on or prior to the Effective Date, or pursuant to Section 5.13, as the same may be amended, supplemented or otherwise modified from time to time and (b) the Security Document, in substantially the form of Exhibit M, executed and delivered by Filofax or Topps on or prior to the Effective Date, as the same may be amended, supplemented or otherwise modified from time to time, and each of them is a "Security Agreement". "Senior Officer" means (a) with respect to any Person, if, at any relevant time, such office exists and any person is then incumbent in such office, (i) the chairman, (ii) the chief executive officer, (iii) the president, (iv) any executive vice president, (v) the chief operating officer, (vi) the general counsel, (vii) the chief financial officer, (viii) the treasurer, or (ix) the controller of such Person and, in each case, if such office does not exist or no person is then incumbent in such office, any individual with comparable executive, management or financial responsibilities or functions and (b) with respect to each Subsidiary of Day Runner not organized under the laws of the United States of America, any other senior executive officer. "Solvent", when used with respect to any Person, means that at the time of determination: (i) the fair market value of its assets (including any rights of reimbursement and contribution) is in excess of the total amount of its liabilities (including, without limitation, contingent liabilities); and (ii) the present fair saleable value of its assets is greater than its probable liability on its existing debts as such debts become absolute and matured; and (iii) it is then able and expects to be able to pay its debts (including, without limitation, contingent debts and other commitments) as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. For purposes of determining whether a Person is Solvent, the amount of any contingent liability shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Special Eurodollar Circumstance" means the application or adoption after the Effective Date of any Law or interpretation, or any change therein or thereof, or any change in the interpretation or administration thereof by any Governmental Agency, central bank or comparable authority charged with the interpretation or administration thereof, or compliance by any Lender or its Eurodollar Lending Office with any request or directive (whether or not having the force of Law) of any such Governmental Agency, central bank or comparable authority. "Standby Letter of Credit" means each Letter of Credit that is not a Commercial Letter of Credit. "Stock Repurchase" means, with respect to any Person, the retirement, redemption, purchase or other acquisition for Cash or for Property (except for Property constituting capital stock of such Person that is not Disqualified Stock) by such Person of any shares of capital stock or any warrant or option to purchase an equity security or other equity security issued by such Person. "Stockholders' Equity" means, as of any date of determination and with respect to any Person, the consolidated stockholders' equity of the Person as of that date determined in accordance with GAAP; provided that there shall be excluded from Stockholders' Equity any amount attributable to Disqualified Stock. "Subordinated Obligations" means any Indebtedness of Day Runner that (i) does not have any scheduled principal payment, mandatory principal prepayment or sinking fund payment due prior to September 30, 2002, (ii) is not secured by any Lien on any Property of Day Runner or any of its Subsidiaries, (iii) is not guarantied by any Subsidiary of Day Runner, (iv) is subordinated by its terms in right of payment to the Obligations on terms, and in form and substance, satisfactory to the Administrative Agent and the Requisite Lenders, (v) is subject to financial performance and other covenants and events of default and other default provisions satisfactory to the Administrative Agent and the Requisite Lenders, (vi) is subject to payment blockage and delayed acceleration provisions satisfactory to the Administrative Agent and the Requisite Lenders, and (vii) has other terms, and is otherwise in form and substance, satisfactory to the Administrative Agent and the Requisite Lenders, in each case in their sole and absolute discretion. "Subsidiary" means, as of any date of determination and with respect to any Person, any corporation, limited liability company or partnership (whether or not, in any case, characterized as such or as a "joint venture"), whether now existing or hereafter organized or acquired: (a) any Person which is required to be treated as a "consolidated subsidiary" under GAAP, or (b) any Person (i) in the case of a corporation or limited liability company, of which a majority of the securities having ordinary voting power for the election of directors or other governing body (other than securities having such power only by reason of the happening of a contingency) are at the time beneficially owned by such Person and/or one or more Subsidiaries of such Person, or (ii) in the case of a partnership, of which a majority of the partnership or other ownership interests are at the time beneficially owned by such Person and/or one or more of its Subsidiaries. "Subsidiary Guarantors" means all Subsidiaries of any Borrower that are or become parties to the Subsidiary Guaranty. "Subsidiary Guaranties" means the collective reference to (a) the Subsidiary Guaranty, in substantially the form of Exhibit G, executed and delivered on or prior to the Effective Date by each of DRI International and DR-UK Holdings, and each other Subsidiary Guarantor, as it may from time to time be supplemented, modified, amended, extended or supplanted, (b) the Subsidiary Guaranty of Revolving Loans, in substantially the form of Exhibit P, executed and delivered on or prior to the Effective Date by Filofax Group, as it may from time to time be supplemented, modified, amended, extended or supplanted, and (c) the Subsidiary Guaranty of Term Loans, in substantially the form of Exhibit Q, executed and delivered on or prior to the Effective Date by Filofax Group, as it may from time to time be supplemented, modified, amended, extended or supplanted; and each of them is a "Subsidiary Guaranty". "Swing Line" means the revolving line of credit established by the Swing Line Lender in favor of the Borrowers pursuant to Section 2.9. "Swing Line Lender" means Wells Fargo Bank, National Association. "Swing Line Loans" means loans made by the Swing Line Lender to the Borrowers pursuant to Section 2.9. "Swing Line Outstandings" means, as of any date of determination, the aggregate principal amount of all Swing Line Loans then outstanding. "Syndicated Loans" has the meaning set forth in the Existing Credit Agreement. "Tender Offer" means the offer made on September 24, 1998 by Wasserstein Perella & Co. Limited on behalf of Bidco to acquire the entire issued and to be issued share capital of Filofax Group. "Tender Offer Loans" means the Loans (as defined in the Existing Credit Agreement) made to Day Runner and to Bidco under the Existing Credit Agreement in an aggregate principal amount equal to the Foreign Currency Equivalent of $90,443,666.20, all of which continues to be outstanding on the Effective Date, the proceeds of which were used directly or indirectly (i) to purchase shares of capital stock of Filofax Group pursuant to the Tender Offer, (ii) to acquire shares of capital stock of Filofax Group in accordance with the provisions of Sections 428-430F of the Companies Act or (iii) to pay stamp duties and stamp duty reserve taxes in connection with the shares of capital stock of Filofax Group purchased by Bidco pursuant to the Tender Offer. "Tender Offer Notes" means unsecured promissory notes made by Bidco and guaranteed, by unsecured guaranty, by Day Runner, issued to the former holders of the share capital of Filofax Group who elected to receive such notes instead of all or part of the cash consideration to which such holders otherwise were entitled under the Tender Offer. "Tender Offer Transaction Expenses" means the reasonable out-of-pocket costs and expenses of Day Runner and its Subsidiaries incurred in connection with the Tender Offer, including, without limitation, such reasonable and out-of-pocket fees and expenses of attorneys, accountants and other professional advisors to Day Runner and its Subsidiaries, and of attorneys to Wasserstein Perella & Co. Limited, for services rendered in connection with the Tender Offer. "Term Loan" means the Loan outstanding hereunder pursuant to Section 2.1(e). "Term Loan Amount" has the meaning set forth in Section 2.1(e). "Term Loan Interest Reserve Account" has the meaning set forth in Section 5.14. "Term Loan Maturity Date" means September 30, 2001. "to the best knowledge of" means, when modifying a representation, warranty or other statement of any Person, that the fact or situation described therein is known by the Person (or, in the case of a Person other than a natural Person, known by any Senior Officer of that Person) making the representation, warranty or other statement, or with the exercise of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person in similar circumstances would have done) would have been known by the Person (or, in the case of a Person other than a natural Person, would have been known by a Senior Officer of that Person). "Topps" means Topps of England Limited, a company incorporated with limited liability under the laws of England and Wales and a Subsidiary of Filofax Group. "type", when used with respect to any Loan, means the designation of whether such Loan is an Alternate Base Rate Loan or a Eurodollar Rate Loan. "Wholly-Owned Subsidiary" means a Subsidiary of any Borrower, 100% of the capital stock or other equity interest of which is owned, directly or indirectly, by any Borrower, except for director's qualifying shares required by applicable Laws. 1.2 Use of Defined Terms. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. 1.3 Accounting Terms. All accounting terms not specifically defined in this Agreement shall be construed in conformity with, and all financial data required by this Agreement to be submitted by the Borrowers, or any of them, to the Administrative Agent or the Lenders, shall be prepared in conformity with, GAAP applied on a consistent basis, except as otherwise specifically prescribed herein. In the event that GAAP changes during the term of this Agreement such that the covenants contained in Sections 6.12 through 6.15, inclusive, would then be calculated in a different manner, (a) the Borrowers and the Lenders agree to negotiate in good faith to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating the Borrowers' financial condition to substantially the same criteria as were effective prior to such change in GAAP and (b) the Borrowers shall be deemed to be in compliance with the covenants contained in the aforesaid Sections if and to the extent that the Borrowers would have been in compliance therewith under GAAP as in effect immediately prior to such change, but shall have the obligation to deliver each officer's certificate set forth in Section 7.1 to the Administrative Agent and the Lenders, on the dates therein specified, with an attached detailed reconciliation demonstrating such compliance and setting forth the differences in calculation of such covenants under GAAP as amended as compared with GAAP as in effect immediately prior to such change. 1.4 Rounding. Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement. 1.5 Exhibits and Schedules. All Exhibits and Schedules to this Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. 1.6 Miscellaneous Terms. The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. Masculine terms also apply to females; feminine terms also apply to males. The term "including" is by way of example and not limitation. Article 2 LOANS AND LETTERS OF CREDIT 2.1 Loans (a) Revolving Loans. Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Effective Date through the Banking Day prior to the Revolving Loan Maturity Date, each Lender shall, pro rata according to and limited by that Lender's Pro Rata Share of the Revolving Commitment as then in effect, make Revolving Loans to each Revolving Loan Borrower in such amounts as such Revolving Loan Borrower may request such that, after giving effect to any repayments of Revolving Loans and Letter of Credit reimbursement obligations and Tender Offer Notes made on the same Banking Day (or for which provision has been made for payment on the same Banking Day that is satisfactory to the Administrative Agent in its sole and absolute discretion) do not cause the sum of (i) the aggregate outstanding principal amount of the Revolving Loans plus (ii) the Aggregate Exposure Amount of all outstanding Letters of Credit plus (iii) the Swing Line Outstandings to exceed the Revolving Commitment; provided, however, that at no time shall the sum with respect to a single Revolving Loan Borrower of (i) the aggregate outstanding principal amount of the Revolving Loans to such Revolving Loan Borrower plus (ii) the Aggregate Exposure Amount of all Letters of Credit issued for the account of such Revolving Loan Borrower plus (iii) in the case of Day Runner, the Swing Line Outstandings, exceed such Revolving Loan Borrower's Revolving Loan Sublimit. Syndicated Loans outstanding under the Existing Credit Agreement on the Effective Date (other than the Tender Offer Loans made to Day Runner and Bidco under the Existing Credit Agreement) shall automatically, without further action, continue as Revolving Loans outstanding under this Agreement. Subject to the limitations set forth herein, each Revolving Loan Borrower may borrow, repay and reborrow under the Revolving Commitment without premium or penalty. (b) Intentionally Omitted. (c) Notice of Borrowing in Respect of Revolving Loans. The applicable Borrower shall give the Administrative Agent a notice in the form set forth hereto as Exhibit H (a "Notice of Borrowing") not later than (x) 8:00 A.M. (California time) on the date (which must be a Banking Day) of any Revolving Loan requested as an Alternate Base Rate Loan, (y) 9:00 A.M. (California time) at least three Eurodollar Banking Days before the first day of the applicable Interest Period with respect to any Revolving Loan requested as a Eurodollar Rate Loan and (z) 9:00 A.M. (California time) not later than four Foreign Currency Banking Days before the first day of the applicable Foreign Currency Period with respect to any Revolving Loan requested as a Foreign Currency Loan. Such Notice of Borrowing shall specify (i) the requested date of such Revolving Loan, which shall be a Banking Day in the case of an Alternate Base Rate Loan or a Eurodollar Banking Day in the case of a Eurodollar Rate Loan, (ii) the type of Loan, (iii) the amount of such Loan, (iv) in the case of a Eurodollar Rate Loan, the Interest Period for such Loan, (v) in the case of a Foreign Currency Loan, the Foreign Currency and the Foreign Currency Period for such Loan, and (vi) in reasonable detail satisfactory to the Administrative Agent, the anticipated use of proceeds of such Revolving Loan. A Notice of Borrowing shall be irrevocable upon the Administrative Agent's receipt thereof. (d) Minimum Amounts with respect to Revolving Loans. Each Revolving Loan that is requested as an Alternate Base Rate Loan (other than a Swing Line Loan) shall be in a principal amount not less than $500,000 and in a multiple of $100,000. Each Revolving Loan that is requested as a Eurodollar Rate Loan shall be in a principal amount not less than $3,000,000 and in a multiple of $1,000,000. Each Revolving Loan that is requested as a Foreign Currency Loan shall be in a principal amount not less than the Foreign Currency Equivalent of $3,000,000 and in a multiple of $1,000,000. (e) Term Loans. Prior to the Effective Date, the Lenders, on one or more occasions, made Tender Offer Loans to Day Runner and to Bidco pursuant to the Existing Credit Agreement, in the aggregate principal amount equal to the Foreign Currency Equivalent of $90,443,666.20, all of which continues to be outstanding on the date hereof (the "Term Loan Amount"). The Tender Offer Loans outstanding under the Existing Credit Agreement are hereby reclassified as Term Loans made to Day Runner or Bidco, as the case may be, and shall continue to be outstanding under this Agreement. The principal amount of the Term Loans owing to each Lender is set forth on Schedule 2.1 hereto. The Borrowers may repay or prepay Term Loans without premium or penalty (except as provided in Section 3.7 or 3.8), and amounts so repaid or prepaid may not be reborrowed. 2.2 Conversion/Continuation of Loans. (a) Subject to Section 3.7 (and with respect to Foreign Currency Loans, Sections 2.3 and 3.8), the Borrowers shall have the option (i) to convert at any time all or any part of outstanding any Loan that is an Alternate Base Rate Loan (other than Swing Line Loans) to a Eurodollar Rate Loan or a Foreign Currency Loan; (ii) to convert all or any part of any outstanding Loan that is a Eurodollar Rate Loan having an Interest Period which expires on the same date to an Alternate Base Rate Loan or a Foreign Currency Loan on such expiration date; (iii) to continue all or any part of any outstanding Eurodollar Rate Loan having an Interest Period which expires on the same date as a Eurodollar Rate Loan, and the succeeding Interest Period of such continued Loan shall commence on such expiration date; (iv) to convert all or any part of any outstanding Loan that is a Foreign Currency Loan having an Interest Period which expires on the same date to an Alternate Base Rate Loan or a Eurodollar Rate Loan on such expiration date; or (v) to continue all or any part of any outstanding Foreign Currency Loan having an Interest Period which expires on the same date as a Foreign Currency Loan, and the succeeding Interest Period of such continued Loan shall commence on such expiration date; provided, however, no such outstanding Loan may be continued as, or be converted into, a Eurodollar Rate Loan or a Foreign Currency Loan if an Event of Default or Default has occurred and is continuing; provided further that Day Runner shall convert each DRC Loan into a Loan denominated in Dollars by no later than the expiration of the Foreign Currency Period in effect with respect to such Loan as of the Effective Date. Any conversion or continuation of Loans under this Section 2.2(a) (other than a Loan to be converted into an Alternate Base Rate Loan or a DRC Loan) shall be in a minimum amount of $3,000,000 and in integral multiples of $1,000,000 in excess of that amount. (b) To convert or continue a Loan under Section 2.2(a), the Borrowers shall deliver a Notice of Conversion/Continuation to the Administrative Agent no later than 9:00 A.M. (California time) at least three (3) Banking Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Banking Day), (ii) the principal amount of the Loan to be converted/continued, (iii) whether such Loan shall be converted and/or continued, and (iv) in the case of a conversion to, or continuation of, a Eurodollar Rate Loan or a Foreign Currency Loan, the requested Interest Period. Promptly after receipt of a Notice of Conversion/Continuation under this Section 2.2(b), the Administrative Agent shall notify each Lender by telex or telecopy, or other similar form of transmission, of the proposed conversion/continuation. Any Notice of Conversion/Continuation for conversion to, or continuation of, a Loan shall be irrevocable, and the Borrowers shall be bound to convert or continue in accordance therewith. 2.3 Foreign Currency Loans. Subject to the limitations contained in Sections 2.1 and 2.2 above, (x) the Term Loans in respect of which Bidco is the Borrower may be Foreign Currency Loans denominated in Euros or British pounds sterling and (y) Revolving Loans in an aggregate principal amount up to the Foreign Currency Equivalent of the Foreign Currency Limitation may, at the election of the Borrowers, be one or more Foreign Currency Loans. With respect to Foreign Currency Loans: (a) All principal of, and interest on, any Foreign Currency Loan shall be payable in the same currency as that Foreign Currency Loan; (b) Each Foreign Currency Loan shall be due and payable on the earlier of (A) the last day of the related Foreign Currency Period or (B) the Revolving Loan Maturity Date or the Term Loan Maturity Date, as applicable; (c) Determination of credit availability under Section 2.1(a) and 2.1(b), as of any date, if there are then any outstanding Foreign Currency Loans or Foreign Currency Letters of Credit, shall be based on the Foreign Currency Equivalent thereof as of such date; (d) The Requisite Lenders may suspend the obligation of the Lenders to make Foreign Currency Loans with respect to a particular Foreign Currency if the Requisite Lenders determine that current or reasonably expected market conditions for that Foreign Currency are unusually unstable or make it unlawful, impossible or impracticable for the Lenders to fund or hedge their obligations with respect to a Foreign Currency Loan; (e) Concurrently with (i) any Notice of Borrowing with respect to a Revolving Loan requested to be made as a Foreign Currency Loan or (ii) any Notice of Conversion/Continuation with respect to any Loan requested to be continued as or converted into a Foreign Currency Loan, the requesting Borrower shall pay to the Administrative Agent, for the account of the Lenders pro rata in accordance with their Pro Rata Share of the Revolving Commitment or the Term Loans, as applicable, a processing fee of $2,500; (f) Unless the Administrative Agent and the Requisite Lenders otherwise consent, no more than ten (10) Foreign Currency Periods and Interest Periods with respect to Eurodollar Loans shall exist at any one time; and (g) the applicable Borrower shall execute and deliver, to any Lender requesting it, a promissory note payable in the applicable Foreign Currency in a form consistent with this Agreement covering that Lender's Pro Rata Share of any Foreign Currency Loan. 2.4 Type of Loans. (a) If no Notice of Conversion/Continuation has been made with respect to any Loan within the requisite notice period set forth in Section 2.2, prior to the end of the Interest Period for any outstanding Eurodollar Rate Loan, then on the last day of such Interest Period, such Loan shall be automatically converted into an Alternate Base Rate Loan in the same amount. (b) Each Loan (other than a Foreign Currency Loan) shall constitute an Alternate Base Rate Loan unless properly designated as a Eurodollar Rate Loan pursuant to the provisions of Section 2.2. (c) With respect to any Eurodollar Rate Loan, on the date which is two (2) Eurodollar Banking Days before the first day of the applicable Interest Period, the Administrative Agent shall confirm its determination of the applicable Eurodollar Rate (which determination shall be conclusive in the absence of manifest error) and promptly shall give notice of the same to the applicable Borrower and the Lenders by telephone or telecopier (and if by telephone, promptly confirmed by telecopier). (d) Nothing contained herein shall require any Lender to fund any Loan in the Designated Eurodollar Market. 2.5 Funding of Loans. (a) Promptly following receipt of a Notice of Borrowing, the Administrative Agent shall notify each Lender participating in such Loan by telephone or telecopier (and if by telephone, promptly confirmed by telecopier) of the date and type of the Revolving Loan, the applicable Foreign Currency, the applicable Interest Period or Foreign Currency Period, and that Lender's share of the Revolving Loan. (b) Not later than 11:00 A.M., California time, on the date specified for any Loan (which must be a Banking Day), each Lender participating therein shall make available its share of such Revolving Loan, in immediately available funds (if a Foreign Currency Loan, in the applicable Foreign Currency) available to the Administrative Agent at the Administrative Agent's Office. Upon satisfaction or waiver of the applicable conditions set forth in Article 8, the Administrative Agent shall (i) apply the funds so received from the Lenders to repay all Swing Line Loans (if any) then outstanding, together with interest accrued thereon, and (ii) credit the remainder of such funds to the Concentration Account or disburse such remainder as may be directed by the applicable Borrower. (c) Unless the Administrative Agent shall have been notified by any Lender no later than 11:00 A.M. on the Banking Day of the proposed funding by the Administrative Agent of any Revolving Loan that such Lender does not intend to make available to the Administrative Agent such Lender's portion of the total amount of such Loan, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on the date of the Loan and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If the Administrative Agent has made funds available to the applicable Borrower based on such assumption and such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent promptly shall notify the applicable Borrower and the applicable Borrower shall pay such corresponding amount to the Administrative Agent. The Administrative Agent also shall be entitled to recover from such Lender interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to such Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to the daily Federal Funds Rate. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its share of the Revolving Commitment or to prejudice any rights which the Administrative Agent or the applicable Borrower may have against any Lender as a result of any default by such Lender hereunder. 2.6 Notes. (a) Each Borrower's obligation to repay (i) the Revolving Loans of each Lender shall be evidenced by a single note, in substantially the form of Exhibit D-1 hereto, payable to the order of such Lender (each such Note, a "Revolving Loan Note"), and each Borrower's obligation to repay the Term Loan of each Lender shall be evidenced by a single note, in substantially the form of Exhibit D-2 hereto, payable to the order of such Lender (each such note, a "Term Loan Note"). Each reference in this Agreement to a "Note" or the "Notes" of such Lender shall be deemed to refer to and include any or all of such Revolving Loan Notes and Term Loan Notes, as the context may require. (b) Each Lender may, by notice to the applicable Borrower and the Administrative Agent, request that its Alternate Base Rate Loans, its Eurodollar Rate Loans and/or its Foreign Currency Loans be evidenced by separate Notes. Each such Note shall be in substantially the form of Exhibit D-1 or D-2 hereto, as applicable, with appropriate modifications to reflect the fact that it evidences solely the relevant kind of Loans. Unless a Lender has received a separate promissory note evidencing its share of a Foreign Currency Loan pursuant to Section 2.3 and this Section 2.6(b), the Loans made by each Lender as part of a Foreign Currency Loan shall be evidenced by that Lender's Revolving Loan Note or Term Loan Note, as the case may be, with the references therein to "Dollars" being deemed references to the Foreign Currency which is the subject of such Foreign Currency Loan. Each reference in this Agreement to a "Note" or the "Notes" of such Lender shall be deemed to refer to and include any or all of such Notes, as the context may require. 2.7 Letters of Credit. (a) Subject to the terms and conditions hereof, at any time and from time to time from the Effective Date through the Banking Date that is 30 days prior to the Revolving Loan Maturity Date, the Issuing Lender shall issue such Letters of Credit under the Revolving Commitment as each Borrower may request by a Request for Letter of Credit; provided that (i) after giving effect to such Letter of Credit and any repayments of Loans made, or satisfaction of Obligations in respect of Letters of Credit made, on the same Banking Day, (A) the sum of (1) the aggregate principal amount of Revolving Loans outstanding, plus (2) the Aggregate Exposure Amount of all outstanding Letters of Credit, plus (3) the Swing Loan Outstandings do not exceed the Revolving Commitment and (B) with respect to any single Borrower, the sum of (1) the aggregate principal amount of the Revolving Loans to such Borrower plus (2) the Aggregate Exposure Amount of all outstanding Letters of Credit issued for the account of such Borrower plus (3) as applicable, the Swing Loan Outstandings to such Borrower do not exceed such Borrower's Loan Sublimit, (ii) the Aggregate Exposure Amount under all outstanding Letters of Credit shall not exceed $15,000,000; and (iii) with respect to a Request for Letter of Credit with respect to a Foreign Currency Letter of Credit, the Issuing Lender shall not be obligated to issue the Foreign Currency Letter of Credit with respect to a particular Foreign Currency if and so long as the Issuing Lender determines that current or reasonably expected market conditions for that Foreign Currency are unusually unstable or would make it unlawful, impossible or impracticable for the Issuing Lender to fund or hedge its obligations under the Foreign Currency Letter of Credit. For purposes of the foregoing, the aggregate principal amount of Loans outstanding and the Aggregate Exposure Amount of outstanding Letters of Credit, to the extent consisting of Foreign Currency Loans and Foreign Currency Letters of Credit, respectively, shall be based on the Foreign Currency Equivalents thereof as of the Banking Day immediately preceding the date of the Request for Letter of Credit. Each Letter of Credit shall be in a form acceptable to the Issuing Lender. Unless all the Lenders otherwise consent in a writing delivered to the Administrative Agent, the term of any Letter of Credit shall not exceed one (1) year (subject to extension in accordance with the terms thereof; provided that all conditions precedent to issuance of a Letter of Credit are satisfied in connection with any such extension) or extend beyond the Revolving Loan Maturity Date. The Letters of Credit outstanding under the Existing Credit Agreement on the Effective Date shall automatically, without further action, continue as Letters of Credit outstanding under this Agreement. (b) Each Request for Letter of Credit shall be submitted to the Issuing Lender, with a copy to the Administrative Agent, at least two (2) Banking Days prior to the date upon which the related Letter of Credit is proposed to be issued. The Administrative Agent shall promptly notify the Issuing Lender whether such Request for Letter of Credit, and the issuance of a Letter of Credit pursuant thereto, conforms to the requirements of this Agreement. Upon issuance of a Letter of Credit, the Issuing Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify the Lenders, of the amount and terms thereof. (c) Upon the issuance of a Letter of Credit, each Lender shall be deemed to have purchased a pro rata participation in such Letter of Credit from the Issuing Lender in an amount equal to that Lender's Pro Rata Share of the maximum amount available for drawing thereunder. Without limiting the scope and nature of each Lender's participation in any Letter of Credit, to the extent that the Issuing Lender has not been reimbursed by Borrowers for any payment required to be made by the Issuing Lender under any Letter of Credit, each Lender shall, pro rata according to its Pro Rata Share, reimburse the Issuing Lender through the Administrative Agent promptly upon demand for the amount of such payment. The obligation of each Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of the applicable Borrower to reimburse the Issuing Lender for the amount of any payment made by the Issuing Lender under any Letter of Credit together with interest as hereinafter provided. (d) Each Borrower agrees to pay to the Issuing Lender through the Administrative Agent an amount equal to any payment made by the Issuing Lender with respect to each Letter of Credit with respect to such Borrower within one (1) Banking Day after demand made by the Issuing Lender therefor, together with interest on such amount from the date of any payment made by the Issuing Lender at the rate applicable to Alternate Base Rate Loans for two (2) Banking Days after demand and thereafter at the Default Rate. The principal amount of any such payment shall be used to reimburse the Issuing Lender for the payment made by it under the Letter of Credit and, to the extent that the Lenders have not reimbursed the Issuing Lender pursuant to Section 2.7(c), the interest amount of any such payment shall be for the account of the Issuing Lender. Each Lender that has reimbursed the Issuing Lender pursuant to Section 2.7(c) for its Pro Rata Share of any payment made by the Issuing Lender under a Letter of Credit shall thereupon acquire a pro rata participation, to the extent of such reimbursement, in the claim of the Issuing Lender against the applicable Borrower for reimbursement of principal and interest under this Section 2.7(d) and shall share, in accordance with that pro rata participation, in any principal payment made by the applicable Borrower with respect to such claim and in any interest payment made by the applicable Borrower (but only with respect to periods subsequent to the date such Lender reimbursed the Issuing Lender) with respect to such claim. (e) Each Borrower may, pursuant to a Notice of Borrowing, request that Revolving Loans be made pursuant to Section 2.1(a) to provide funds for the payment required by Section 2.7(d) and, for this purpose, the conditions precedent set forth in Article 8 shall not apply. The proceeds of such Revolving Loans shall be paid directly to the Issuing Lender to reimburse it for the payment made by it under the Letter of Credit. (f) If a Borrower fails to make the payment required by Section 2.7(d) within the time period therein set forth, in lieu of the reimbursement to the Issuing Lender under Section 2.7(c) the Issuing Lender may (but is not required to), without notice to or the consent of such Borrower, instruct the Administrative Agent to cause Loans to be made by the Lenders under the Revolving Commitment in an aggregate amount equal to the amount paid by the Issuing Lender with respect to that Letter of Credit and, for this purpose, the conditions precedent set forth in Article 8 shall not apply. The proceeds of such Loans shall be paid directly to the Issuing Lender to reimburse it for the payment made by it under the Letter of Credit. (g) The issuance of any supplement, modification, amendment, renewal, or extension to or of any Letter of Credit shall be treated in all respects the same as the issuance of a new Letter of Credit. (h) The obligation of each Borrower to reimburse to the Issuing Lender the amount of any payment made by the Issuing Lender under any Letter of Credit shall be absolute, unconditional, and irrevocable. Without limiting the foregoing, each Borrower's obligations shall not be affected by any of the following circumstances: (i) any lack of validity or enforceability prior to its stated expiration date of the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto; (ii) any amendment or waiver of or any consent to departure from the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto, with or without the consent of such Borrower; (iii) the existence of any claim, setoff, defense, or other rights which such Borrower may have at any time against the Issuing Lender, the Administrative Agent or any Lender, any beneficiary of the Letter of Credit (or any persons or entities for whom any such beneficiary may be acting) or any other Person, whether in connection with the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto, or any unrelated transactions; (iv) any demand, statement, or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) the existence, character, quality, quantity, condition, value or delivery of any Property purported to be represented by documents presented in connection with any Letter of Credit or any difference between any such Property and the character, quality, quantity, condition, or value of such Property as described in such documents; (vi) the time, place, manner, order or contents of shipments or deliveries of Property as described in documents presented in connection with any Letter of Credit or the existence, nature and extent of any insurance relative thereto; (vii) the solvency or financial responsibility of any party issuing any documents in connection with a Letter of Credit; (viii)any failure or delay in notice of shipments or arrival of any Property; (ix) any error in the transmission of any message relating to a Letter of Credit, or any delay or interruption in any such message; (x) any error, neglect or default of any correspondent of the Issuing Lender in connection with a Letter of Credit; (xi) any consequence arising from acts of God, war, insurrection, civil unrest, disturbances, labor disputes, emergency conditions or other causes beyond the control of the Issuing Lender; (xii) the form, accuracy, genuineness or legal effect of any contract or document referred to in any document submitted to the Issuing Lender in connection with a Letter of Credit; and (xiii) where the Issuing Lender has acted in good faith and observed general banking usage, any other circumstances whatsoever. (i) The Issuing Lender shall be entitled to the protection accorded to the Administrative Agent pursuant to Section 10.6. (j) The Uniform Customs and Practice for Documentary Credits, as published in its most current version by the International Chamber of Commerce, shall be deemed a part of this Section and shall apply to all Letters of Credit to the extent not inconsistent with applicable Law. (k) No action taken or omitted in good faith by the Issuing Lender under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall put such Issuing Bank under any resulting liability to any Lender, any Borrower, any of the Borrowers' Subsidiaries or, so long as it is not issued in violation of Section 2.7(a), relieve any Lender of its obligations hereunder to such Issuing Lender. Solely as between the Issuing Lender and the Lenders, in determining whether to pay under any Letter of Credit, the Issuing Lender shall have no obligation to the Lenders other than to confirm that any documents required to be delivered under a Letter of Credit appear to have been delivered and that they appear on their face to comply with the requirements of such Letter of Credit. 2.8 Voluntary Reduction of Revolving Commitment. Day Runner shall have the right, at any time and from time to time, without premium or penalty, upon at least five (5) Banking Days' prior written notice by a Responsible Official of Day Runner to the Administrative Agent, voluntarily to reduce, permanently and irrevocably, in aggregate principal amounts in an integral multiple of $1,000,000 but not less than $5,000,000, a portion of the then undisbursed portion of the Revolving Commitment, or to terminate the Revolving Commitment, provided that the Revolving Commitment shall not be terminated while any Revolving Loans or Swing Line Loans remain outstanding. The Administrative Agent shall promptly notify the Lenders of any reduction or termination of the Revolving Commitment under this Section. 2.9 Swing Line Loans. (a) The Swing Line Lender shall from time to time from the Effective Date through the day prior to the Revolving Loan Maturity Date make Swing Line Loans to Day Runner (i) in such amounts as Day Runner may request or (ii) in connection with the Administrative Agent's "Credit Sweep" program (or other program having comparable features and procedures) pursuant to which, at the close of business on each Banking Day, if there then would be a debit balance in the Concentration Account, the Swing Line Lender will credit the Concentration Account in an amount such that, after giving effect to such credit, the Concentration Account reflects a positive credit balance of $1.00 (and each such credit shall constitute a Swing Line Loan for all purposes of this Agreement), provided that (A) after giving effect to such Swing Line Loan, the Swing Line Outstandings do not exceed $10,000,000, and (B) without the consent of all of the Lenders, no Swing Line Loan may be made during the continuation of a Default or an Event of Default of which the Swing Line Lender has knowledge. Day Runner hereby requests and authorizes the Swing Line Lender to make from time to time Swing Line Loans in the manner set forth in clause (ii) above. Day Runner may borrow, repay and reborrow Swing Line Loans under this Section 2.9. Unless notified to the contrary by the Swing Line Lender, borrowings under the Swing Line (other than pursuant to clause (ii) above) may be made in amounts which are integral multiples of $100,000 upon telephonic request by a Responsible Official of Day Runner made to the Administrative Agent not later than 1:00 P.M., California time, on the Banking Day of the requested borrowing (which telephonic request shall be promptly confirmed in writing by telecopier by transmission of a Notice of Swing Line Loan in the form attached hereto as Exhibit I). Promptly after receipt of such a request for borrowing, the Administrative Agent shall provide telephonic verification to the Swing Line Lender that, after giving effect to such request, availability for Loans will exist under Section 2.1(a) (and such verification shall be promptly confirmed in writing by telecopier). If Day Runner instructs the Swing Line Lender to debit its demand deposit account at the Swing Line Lender in the amount of any payment with respect to a Swing Line Loan, or the Swing Line Lender otherwise receives repayment, after 1:00 P.M., California time, on a Banking Day, such payment shall be deemed received on the next Banking Day. The Swing Line Lender shall promptly notify the Administrative Agent of the Swing Loan Outstandings each time there is a change therein. (b) Swing Line Loans shall bear interest at a fluctuating rate per annum equal to the Alternate Base Rate plus the Applicable Base Rate Margin in effect from time to time. Interest shall be payable on each Monthly Payment Date or otherwise as may be specified by the Swing Line Lender and in any event on the Revolving Loan Maturity Date. The Swing Line Lender shall be responsible for invoicing Day Runner for such interest. The interest payable on Swing Line Loans is solely for the account of the Swing Line Lender (subject to clauses (d) and (e) below). (c) Each Swing Line Loan shall be repayable on the earlier of (i) demand therefor made by the Swing Line Lender and (ii) the Revolving Loan Maturity Date. (d) Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from the Swing Line Lender a participation therein in an amount equal to that Lender's Pro Rata Share of the Revolving Commitment times the amount of the Swing Line Loan. Within one (1) Banking Day after demand made by the Swing Line Lender, each Lender shall, according to its Pro Rata Share of the Revolving Commitment, promptly provide to the Swing Line Lender its purchase price therefor in an amount equal to its participation therein. The obligation of each Lender to so provide its purchase price to the Swing Line Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default or Event of Default; provided that no Lender shall be obligated to purchase its Pro Rata Share of (i) Swing Line Loans to the extent that Swing Line Outstandings are in excess of $10,000,000 and (ii) any Swing Line Loan made (without the consent of all of the Lenders) during the continuation of a Default or an Event of Default of which the Swing Line Lender had knowledge at the time such Swing Line Loan was made. Each Lender that has provided to the Swing Line Lender the purchase price due for its participation in Swing Line Loans shall thereupon acquire a pro rata participation, to the extent of such payment, in the claim of the Swing Line Lender against Day Runner for principal and interest and shall share, in accordance with that pro rata participation, in any principal payment made by Day Runner with respect to such claim and in any interest payment made by Day Runner (but only with respect to periods subsequent to the date such Lender paid the Swing Line Lender its purchase price) with respect to such claim. (e) Upon any demand for payment of the Swing Line Outstandings by the Swing Line Lender (unless Day Runner has made other arrangements reasonably acceptable to the Swing Line Lender to repay in full the Swing Line Outstandings), Day Runner shall request a Revolving Loan pursuant to Section 2.1 sufficient to repay all Swing Line Outstandings (and, for this purpose, Section 2.1(d) shall not apply). In the event that Day Runner fails to request a Revolving Loan within the time specified by Section 2.1 on any such date, the Administrative Agent may, but is not required to, without notice to or the consent of any Borrower, cause Revolving Loans to be made by the Lenders under the Revolving Commitment, pro rata in accordance with their respective Pro Rata Share of the Revolving Commitment, in an aggregate amount sufficient to repay in full the Swing Line Outstandings. The conditions precedent set forth in Article 8 shall not apply to Revolving Loans to be made by the Lenders pursuant to this Section 2.9(e). The proceeds of such Revolving Loans shall be paid directly to the Swing Line Lender for application to the Swing Line Outstandings. 2.10 Guaranty. The Obligations shall be guaranteed pursuant to the Subsidiary Guaranties and the Borrower Guaranties. 2.11 Extension of Revolving Loan Maturity Date. In the event that the Revolving Commitment has not been terminated on or before October 9, 2000 (such date, the "Extension Determination Date"), the Revolving Loan Maturity Date shall be extended, automatically and without any further action by the Borrowers or the Lenders, to September 30, 2001, if and only if: (a) the Funded Senior Debt Ratio as of the last day of the Fiscal Quarter ended June 30, 2000, as reflected in the financial statements delivered by Day Runner on or before the Extension Determination Date, and certified by the chief financial officer of Day Runner, is not greater than 5.50 to 1.00; (b) the Fixed Charge Coverage Ratio as of the last day of the Fiscal Quarter ended June 30, 2000, as reflected in the financial statements delivered by Day Runner on or before the Extension Determination Date, and certified by the chief financial officer of Day Runner, is not less than 1.10 to 1.00; (c) EBITDA for the period of four consecutive Fiscal Quarters ending on June 30, 2000, as reflected in the financial statements delivered by Day Runner on or before the Extension Determination Date, and certified by the chief financial officer of Day Runner, is not less than $18,000,000; (d) no Default or Event of Default shall have occurred and be continuing on the Extension Determination Date; and (e) each of the representations and warranties of the Borrowers and Subsidiary Guarantors set forth in the Loan Documents shall be true and complete on and as of the Extension Determination Date with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). Article 3 PAYMENTS AND FEES 3.1 Interest. (a) (i) Interest will accrue on each Alternate Base Rate Loan (and each other Obligation (other than Eurodollar Rate Loans and Foreign Currency Loans) not paid when due) at the Alternate Base Rate in effect from time to time plus Applicable Base Rate Margin; (ii) Interest will accrue on each Eurodollar Rate Loan during each Interest Period applicable thereto at the Adjusted Eurodollar Rate applicable during such Interest Period plus the Applicable Eurodollar Rate Margin in effect from time to time; and (iii) Interest will accrue on each Foreign Currency Loan during each Foreign Currency Period applicable thereto at the Foreign Currency Rate applicable for such Foreign Currency Loan plus the Applicable Eurodollar Rate Margin in effect from time to time. (b) Interest shall be payable on the outstanding principal amount of each Loan or other Obligation from the date such Loan is made or such other Obligation is due and payable, as the case may be, until payment in full is made, and shall accrue and be payable at the rates set forth or provided for herein before and after Default, before and after maturity, before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law. (c) Interest accrued on each Alternate Base Rate Loan shall be due and payable on (i) each Monthly Payment Date and (ii) the Revolving Loan Maturity Date or the Term Loan Maturity Date, as applicable. Each change in the interest rate under this Section 3.1 due to a change in the Alternate Base Rate shall take effect simultaneously with the corresponding change in the Alternate Base Rate. Each change in the interest rate under this Section 3.1 due to a change in the Applicable Base Rate Margin shall take effect simultaneously with the corresponding change in the Applicable Base Rate Margin. (d) Interest accrued on each Eurodollar Rate Loan which is for a term of three months or less shall be due and payable on the last day of the related Interest Period. Interest on each other Eurodollar Rate Loan shall be due and payable on the date which is three months after the date such Eurodollar Rate Loan was made (and, in the event that the applicable Interest Period is longer than six months, every three months thereafter through the last day of the Interest Period). Each change in the interest rate under this Section 3.1 due to a change in the Eurodollar Reserve Percentage shall take effect simultaneously with the corresponding change in the Eurodollar Reserve Percentage. Each change in the interest rate under this Section 3.1 due to a change in the Applicable Eurodollar Rate Margin shall take effect simultaneously with the corresponding change in the Applicable Eurodollar Rate Margin. (e) Interest accrued on each Foreign Currency Loan which is for a term of three months or less shall be due and payable on the last day of the related Foreign Currency Period. Interest on each other Foreign Currency Loan shall be due and payable on the date which is three months after the date such Foreign Currency Loan was made. Each change in the interest rate under this Section 3.1 due to a change in the Applicable Eurodollar Rate Margin shall take effect simultaneously with the corresponding change in the Applicable Eurodollar Rate Margin. (f) Default Interest. Notwithstanding the rates of interest specified in Section 3.1(a), effective immediately upon the occurrence of an Event of Default, and for as long thereafter as such Event of Default shall be continuing, the principal balance or all Loans, and the amount of all other Obligations, shall bear interest at a rate which is two percent (2%) per annum in excess of the rate of interest otherwise applicable hereunder to such Loans or other Obligations from time to time, to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including, without limitation, interest on past due interest) shall be compounded monthly, on the last day of each calendar month, to the fullest extent permitted by applicable Laws, and shall be payable upon demand. 3.2 Principal. (a) If not sooner paid, the principal amount of the Revolving Loans shall be payable as follows: (i) the amount, if any, by which the sum of (A) the Revolving Loans plus(B) the Aggregate Exposure Amount of all outstanding Letters of Credit plus (C) the Swing Line Outstandings at any time exceeds the then applicable Revolving Commitment shall be payable immediately (with the aggregate principal amount of the Revolving Loans and Aggregate Exposure Amount of outstanding Letters of Credit, to the extent consisting of Foreign Currency Loans and Foreign Currency Letters of Credit, respectively, being based on the Foreign Currency Equivalents thereof as of the last Banking Day in each calendar month); (ii) in the event and on each occasion that any Borrower or any Subsidiary of a Borrower issues any equity security or incurs any Indebtedness after the date hereof (other than Indebtedness permitted pursuant to Section 6.10(a)(as to refinancings), (b), (c), (d), (e), (h) or (i)), including without limitation any Subordinated Obligations, the Borrowers shall substantially concurrently with (in any event not later than the third Banking Day next following) the issuance of such securities or the incurrence of such Indebtedness, prepay the Loans in an aggregate amount equal to 100% of the Net Cash Issuance Proceeds therefrom to prepay the outstanding Loans in accordance with Section 3.2(c); (iii) at the end of each Banking Day, all funds on deposit in the Concentration Account (after giving effect to the transfer to the Term Loan Interest Reserve Account required pursuant to Section 5.14(c)) shall be applied first to reduce the Swing Line Outstandings, and then, after the principal balance of the Swing Line Outstandings is reduced to zero, to prepay Revolving Loans, and then, after the principal balance of the Revolving Loans Outstandings is reduced to zero, to prepay Term Loans; (iv) not later than the third Banking Day following the completion of any Disposition (other than any Disposition permitted under Section 6.2 (other than under Section 6.2(c)), the Borrowers shall make a prepayment of the Loans in an amount equal to 100% of the Net Cash Sale Proceeds of such Disposition in accordance with Section 3.2(c); and (v) the principal of the Loans then outstanding shall in any event be payable on the Revolving Loan Maturity Date or the Term Loan Maturity Date, as applicable, and the Revolving Commitment shall terminate on the Revolving Loan Maturity Date. (b) The principal of the Loans, or any of them, may, at any time and from time to time, voluntarily be paid or prepaid, in whole or in part, without premium or penalty, except that any payment or prepayment of all or any part of any Eurodollar Rate Loan or Foreign Currency Loan on a day other than the last day of the applicable Interest Period shall be subject to Sections 3.7 and 3.8. Each prepayment of principal on any Eurodollar Rate Loan or any Foreign Currency Loan shall be accompanied by payment of interest accrued to the date of payment on the amount of principal paid. With respect to each prepayment of Loans pursuant to this Section 3.2(b), such prepayments shall be applied first to prepay outstanding Revolving Loans, and then, after the principal balance of the Revolving Loans is reduced to zero, to prepay outstanding Term Loans, and in each such case in accordance with Section 3.2(d). (c) Prepayments of Loans made pursuant to Section 3.2(a)(ii) shall be applied first to prepay the outstanding principal amount of the Term Loans and then, after the principal balance of the Term Loans is reduced to zero, to reduce the Revolving Commitment (and, to the extent applicable, to prepay the Revolving Loans pursuant to Section 3.2(a)(i)), in each case in accordance with Section 3.2(d). The Revolving Commitment shall be reduced in an amount equal to the prepayment required pursuant to Section 3.2(a)(iv) (or, if the Revolving Commitment then is less than the amount of the required prepayment, to zero), and such prepayment shall be applied first to make any prepayment of Revolving Loans required under Section 3.2(a)(i) as a result of such reduction and then to the principal balance of the Term Loans. (d) Subject to Section 3.2(b), amounts applied pursuant to this Section 3.2 to prepay Loans shall be applied first to reduce outstanding Alternate Base Rate Loans. Any amounts remaining after each such application shall be applied to first to reduce Eurodollar Rate Loans and then to reduce Foreign Currency Loans, in each case subject to Sections 3.7 and 3.8. 3.3 Commitment Fee. From the Effective Date through the Revolving Loan Maturity Date, the Borrowers shall pay to the Administrative Agent, for the ratable accounts of the Lenders pro rata according to their Pro Rata Share of the Revolving Commitment, a commitment fee equal to the sum of (a) the daily Applicable Commitment Fee Rate per annum times the average daily amount by which the Revolving Commitment exceeds the sum of (i) the average daily principal amount of outstanding Revolving Loans (but excluding the principal amount of any Swing Line Loans) plus (ii) the average daily Aggregate Exposure Amount of all outstanding Letters of Credit. The average daily principal amount of outstanding Revolving Loans, in the case of Foreign Currency Loans, and the average daily Aggregate Exposure Amount of outstanding Letters of Credit, in the case of Foreign Currency Letters of Credit, shall be determined for this purpose for each calendar month of each Fiscal Quarter based on the Foreign Currency Equivalents thereof as of the last Banking Day in each such calendar month. The commitment fee shall be payable quarterly in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity Date. 3.4 Amendment Fee and Administrative Agent's Fee. In consideration of the agreements of the Lenders contained in this Agreement, Day Runner agrees to pay to the Administrative Agent, for the account of each Lender executing this Agreement, on the Effective Date, an amendment fee (the "Amendment Fee") in an amount equal to 0.50% of the sum of (x) such Lender's Term Loan and (y) such Lender's Pro Rata Share of the Revolving Commitment as in effect on the Effective Date, after giving effect to this Agreement. In addition, Day Runner agrees to pay to the Administrative Agent on the Effective Date the Administrative Agent's Fee and other advisory fees described in the fee letter dated as of October 12, 1999 from the Administrative Agent to, and acknowledged and accepted by, Day Runner (such fees, together with the Amendment Fees and the Administrative Agent's Fee, the "Fees"). The Fees shall be payable in immediately available funds and, once paid, shall not be refundable. 3.5 Letter of Credit Fees. With respect to each Letter of Credit, each Borrower shall pay the following fees: (a) to the Administrative Agent for the ratable account of the Lenders in accordance with their Pro Rata Share of the Revolving Commitment, a standby letter of credit fee in an amount equal to the Applicable Standby Letter of Credit Fee Rate as of the date of the issuance of such Letter of Credit times the face amount of such Standby Letter of Credit through the termination or expiration of such Standby Letter of Credit, payable quarterly in advance, which the Administrative Agent shall promptly pay to the Lenders; and (b) concurrently with each issuance, negotiation, drawing or amendment of each Letter of Credit, to the Issuing Lender for the sole account of the Issuing Lender, issuance, negotiation, drawing and amendment fees in the amounts set forth from time to time as the Issuing Lender's published scheduled fees for such services. All fees with respect to a Foreign Currency Letter of Credit shall be payable in Dollars based on the Foreign Currency Equivalent as of the Banking Day immediately preceding the date of the Request for Letter of Credit. Each of the fees payable with respect to Letters of Credit under this Section is earned when due and is nonrefundable. 3.6 Increased Commitment Costs. If any Lender shall determine in good faith that the introduction after the Closing Date of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any central bank or other Governmental Agency charged with the interpretation or administration thereof, or compliance by such Lender (or its Eurodollar Lending Office) or any corporation controlling such Lender, with any request, guideline or directive regarding capital adequacy (whether or not having the force of Law) of any such central bank or other authority not imposed as a result of such Lender's or such corporation's failure to comply with any other Laws, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy and such Lender's desired return on capital) determines in good faith that the amount of such capital is increased, or the rate of return on capital is reduced, in an amount deemed material by such Lender in its sole discretion, as a consequence of its obligations under this Agreement, then, within five (5) Banking Days after demand of such Lender, the Borrowers shall pay to such Lender, from time to time as specified in good faith by such Lender, additional amounts sufficient to compensate such Lender in light of such circumstances, to the extent reasonably allocable to such obligations under this Agreement; provided that, before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the need for, or materially reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender, provided that such Borrower shall not be obligated to pay any such amount which arose prior to the date which is one hundred and eighty (180) days preceding the date of such demand or is attributable to periods prior to the date which is one hundred and eighty (180) days preceding the date of such demand. Each Lender's determination of such amounts shall be conclusive in the absence of manifest error. 3.7 Eurodollar Costs and Related Matters. (a) In the event that any Governmental Agency imposes on any Lender any reserve or comparable requirement (including any emergency, supplemental or other reserve) with respect to the Eurodollar Obligations hereunder of that Lender, the Borrowers shall pay that Lender within five (5) Banking Days after demand all amounts necessary to compensate such Lender (determined as though such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Loan in the Designated Eurodollar Market) in respect of the imposition of such reserve requirements. The Lender's determination of such amount shall be conclusive in the absence of manifest error. (b) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance: (1) shall subject any Lender or its Eurodollar Lending Office to any tax, duty or other charge or cost with respect to any Eurodollar Rate Loan, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans, or shall change the basis of taxation of payments to any Lender attributable to the principal of or interest on any Eurodollar Rate Loan or any other amounts due under this Agreement in respect of any Eurodollar Rate Loan, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans, excluding (i) taxes imposed on or measured in whole or in part by its overall net income or net worth by any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office and (ii) any withholding taxes imposed by the United States of America for any period with respect to which it has failed to provide the Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws; (2) shall impose, modify or deem applicable any reserve not applicable or deemed applicable on the date hereof (including any reserve imposed by the Board of Governors of the Federal Reserve System, special deposit,capital or similar requirements against assets of, deposits with or for the account of, or credit extended by, any Lender or its Eurodollar Lending Office); or (3) shall impose on any Lender or its Eurodollar Lending Office or the Designated Eurodollar Market any other condition affecting any Eurodollar Rate Loan, any of its Notes evidencing Eurodollar Rate Loans, its obligation to make Eurodollar Rate Loans or this Agreement, or shall otherwise affect any of the same; and the result of any of the foregoing, as determined in good faith by such Lender, increases the cost in a material amount to such Lender or its Eurodollar Lending Office of making or maintaining any Eurodollar Rate Loan or in respect of any Eurodollar Rate Loan, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans or reduces the amount of any sum received or receivable by such Lender or its Eurodollar Lending Office with respect to any Eurodollar Rate Loan, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans (assuming such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Loan in the Designated Eurodollar Market), then, within five (5) Banking Days after demand by such Lender (with a copy to the Administrative Agent), the applicable Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction (determined as though such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Loans in the Designated Eurodollar Market); provided that the applicable Borrower shall not be obligated to pay any such amount which arose prior to the date which is one hundred and eighty (180) days preceding the date of such demand or is attributable to periods prior to the date which is one hundred and eighty (180) days preceding the date of such demand. A statement of any Lender claiming compensation under this subsection shall be conclusive in the absence of manifest error. (c) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance shall, in the good faith opinion of any Lender, make it unlawful or impossible for such Lender or its Eurodollar Lending Office to make, maintain or fund its portion of any Eurodollar Rate Loan, or materially restrict the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the Designated Eurodollar Market, or to determine or charge interest rates based upon the Eurodollar Rate, and such Lender shall so notify the Administrative Agent, then such Lender's obligation to make Eurodollar Rate Loans shall be suspended for the duration of such illegality or impossibility and the Administrative Agent forthwith shall give notice thereof to the other Lenders and the Borrowers. Upon receipt of such notice, the outstanding principal amount of such Lender's Eurodollar Rate Loans, together with accrued interest thereon, automatically shall be converted to Alternate Base Rate Loans on either (1) the last day of the Eurodollar Period(s) applicable to such Loans if such Lender may lawfully continue to maintain and fund such Loans to such day(s) or (2) immediately if such Lender may not lawfully continue to fund and maintain such Loans to such day(s), provided that in such event the conversion shall not be subject to payment of a prepayment fee under Section 3.7(e). Each Lender agrees to endeavor promptly to notify the applicable Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will cause that Lender to notify the Administrative Agent under this Section, and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be disadvantageous to such Lender. In the event that any Lender is unable, for the reasons set forth above, to make, maintain or fund its portion of any Eurodollar Rate Loan, such Lender shall fund such amount as an Alternate Base Rate Loan for the same period of time, and such amount shall be treated in all respects as an Alternate Base Rate Loan. Any Lender whose obligation to make Eurodollar Rate Loans has been suspended under this Section shall promptly notify the Administrative Agent and the Borrowers of the cessation of the Special Eurodollar Circumstance which gave rise to such suspension. (d) If, with respect to any proposed Eurodollar Rate Loan: (1) the Administrative Agent reasonably determines that, by reason of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Lenders, deposits in Dollars (in the applicable amounts) are not being offered to any Lender in the Designated Eurodollar Market for the applicable Interest Period; or (2) the Requisite Lenders advise the Administrative Agent that the Eurodollar Rate as determined by the Administrative Agent (i) does not represent the effective pricing to such Lenders for deposits in Dollars in the Designated Eurodollar Market in the relevant amount for the applicable Interest Period, or (ii) will not adequately and fairly reflect the cost to such Lenders of making the applicable Eurodollar Rate Loans; then the Administrative Agent forthwith shall give notice thereof to the Borrowers and the Lenders, whereupon until the Administrative Agent notifies the Borrowers that the circumstances giving rise to such suspension no longer exist, the obligation of the Lenders to make any future Eurodollar Rate Loans shall be suspended. (e) Upon payment of any Eurodollar Rate Loan (including as the result of a conversion required under Section 3.7(c)) on a day other than the last day in the applicable Interest Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of a Borrower to borrow on the date or in the amount specified for a Eurodollar Rate Loan in any Notice of Borrowing, such Borrower shall pay to the appropriate Lender within five (5) Banking Days after demand a fee (determined as though 100% of the Eurodollar Rate Loan, as the case may be, had been funded in the Designated Eurodollar Market) equal to the sum of: (1) the present value of the excess, if any, of (i) the additional interest that would have accrued on the amount prepaid or not borrowed at the applicable Eurodollar Rate if that amount had remained or been outstanding through the last day of the applicable Interest Period over (ii) the interest that the Lender could recover by placing such amount on deposit in the Designated Eurodollar Market for a period beginning on the date of the prepayment or failure to borrow and ending on the last day of the applicable Interest Period (or, if no deposit rate quotation is available for such period, for the most comparable period for which a deposit rate quotation may be obtained), discounted at the Federal Funds Rate; plus (2) all out-of-pocket expenses incurred by the Lender reasonably attributable to such payment, prepayment or failure to borrow. Each Lender's determination of the amount of any prepayment fee payable under this Section shall be conclusive in the absence of manifest error. (f) Each Lender agrees to endeavor promptly to notify the Borrowers of any event of which it has actual knowledge, occurring after the Closing Date, which will entitle such Lender to compensation pursuant to clause (a) or clause (b) of this Section, and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for or reduce the amount of such compensation and will not, in the good faith judgment of such Lender, otherwise be disadvantageous to such Lender. Any request for compensation by a Lender under this Section shall set forth the basis upon which it has been determined that such an amount is due from the applicable Borrower, a calculation of the amount due, and a certification that the corresponding costs have been incurred by the Lender. 3.8 Foreign Currency Costs and Related Matters. (a) In the event that any Governmental Agency imposes on any Lender any reserve or comparable requirement with respect to the Foreign Currency Loans hereunder of that Lender, the Borrowers shall pay that Lender within five (5) Banking Days after demand all amounts necessary to compensate such Lender in respect of the imposition of such requirements. The Lender's determination of such amount shall be conclusive in the absence of manifest error. (b) If, after the date hereof, the adoption of any Law or any change in the interpretation of administration of any Law (including, without limitation, the imposition of any currency exchange control or restriction): (1) shall subject any Lender or its Applicable Lending Office to any tax, duty or other charge or cost with respect to any Foreign Currency Loan,any of its Notes evidencing Foreign Currency Loans or its obligation to make Foreign Currency Loans, or shall change the basis of taxation of payments to any Lender attributable to the principal of or interest on any Foreign Currency Loan or any other amounts due under this Agreement in respect of any Foreign Currency Loan, any of its Notes evidencing Foreign Currency Loans or its obligation to make Foreign Currency Loans; (2) shall impose on any Lender or its Applicable Lending Office or the Designated Foreign Currency Market any other condition affecting any Foreign Currency Loan, any of its Notes evidencing Foreign Currency Loans, or its obligation to make Foreign Currency Loans or this Agreement, or shall otherwise affect any of the same; and the result of any of the foregoing, as determined in good faith by such Lender, increases the cost to such Lender or its Applicable Lending Office, in an amount deemed by it to be material, of making or maintaining any Foreign Currency Loan or in respect of any Foreign Currency Loan, any of its Notes evidencing Foreign Currency Loans or its obligation to make Foreign Currency Loans or reduces the amount of any sum received or receivable by such Lender or its Applicable Lending Office with respect to any Foreign Currency Loan, any of its Notes evidencing Foreign Currency Loans or its obligation to make Foreign Currency Loans, then, within five (5) Banking Days after demand by such Lender (with a copy to the Administrative Agent), the applicable Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction; provided that the applicable Borrower shall not be obligated to pay any such amount which arose prior to the date which is one hundred and eighty (180) days preceding the date of such demand or is attributable to periods prior to the date which is one hundred and eighty (180) days preceding the date of such demand. A statement of any Lender claiming compensation under this subsection shall be conclusive in the absence of manifest error. (c) If, after the date hereof, the adoption of any Law or any change in the interpretation of administration of any Law (including, without limitation, the imposition of any currency exchange control or restriction) shall, in the good faith opinion of any Lender, make it unlawful or impracticable for such Lender or its Applicable Lending Office to make, maintain or fund its portion of any Foreign Currency Loan, or materially restrict the authority of such Lender to purchase or sell, or to take deposits of, the relevant Foreign Currency in the Designated Foreign Currency Market, or to determine or charge interest rates based upon the Foreign Currency Rate, and such Lender shall so notify the Administrative Agent, then such Lender's obligation to make Foreign Currency Rate Loans shall be suspended for the duration of such illegality or impracticability and the Administrative Agent forthwith shall give notice thereof to the other Lenders and the Borrowers. Upon receipt of such notice, the outstanding principal amount of such Lender's Foreign Currency Loans shall be repaid, together with accrued interest thereon, on either (1) the last day of the Foreign Currency Period(s) applicable to such Loans if such Lender may lawfully continue to maintain and fund such Loans to such day(s) or (2) immediately if such Lender may not lawfully continue to fund and maintain such Loans to such day(s), provided that in such event the conversion shall not be subject to payment of a prepayment fee under Section 3.7(f). Each Lender agrees to endeavor promptly to notify the applicable Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will cause that Lender to notify the Administrative Agent under this Section, and agrees to designate a different Applicable Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be disadvantageous to such Lender. In the event that any Lender is unable, for the reasons set forth above, to make, maintain or fund its portion of any Foreign Currency Rate Loan, such Lender shall fund such amount as an Alternate Base Rate Loan for the same period of time, and such amount shall be treated in all respects as an Alternate Base Rate Loan. Any Lender whose obligation to make Foreign Currency Rate Loans has been suspended under this Section shall promptly notify the Administrative Agent and the Borrowers of the cessation of the Special Foreign Currency Circumstance which gave rise to such suspension. (d) If, with respect to any proposed Foreign Currency Loan: (1) the Administrative Agent reasonably determines that, by reason of circumstances affecting the Designated Foreign Currency Market generally that are beyond the reasonable control of the Lenders, deposits in the applicable Foreign Currency (in the applicable amount and for the applicable periods) are not being offered to any Lender in the Designated Foreign Currency Market for the applicable Interest Period; or (2) the Requisite Lenders advise the Administrative Agent that the Foreign Currency Rate as determined by the Administrative Agent (i)does not represent the effective pricing to such Lenders for deposits in the applicable Foreign Currency in the Designated Foreign Currency Market in the relevant amount for the applicable Interest Period, or (ii) will not adequately and fairly reflect the cost to such Lenders of making the applicable Foreign Currency Loans; then the Administrative Agent forthwith shall give notice thereof to the Borrowers and the Lenders, whereupon until the Administrative Agent notifies the Borrowers that the circumstances giving rise to such suspension no longer exist, the obligation of the Lenders to make any future Foreign Currency Loans shall be suspended. (e) Upon payment of any Foreign Currency Loan (including as the result of a conversion required under Section 3.8(c)) on a day other than the last day in the applicable Interest Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of a Borrower to borrow on the date or in the amount specified for a Foreign Currency Rate Loan in any Notice of Borrowing, such Borrower shall pay to the appropriate Lender within five (5) Banking Days after demand a fee equal to the sum of: (1) the present value of the excess, if any, of (i)the additional interest that would have accrued on the amount prepaid or not borrowed at the applicable Foreign Currency Rate if that amount had remained or been outstanding through the last day of the applicable Interest Period over (ii) the interest that the Lender could recover by placing such amount on deposit in the Designated Foreign Currency Market for a period beginning on the date of the prepayment or failure to borrow and ending on the last day of the applicable Interest Period (or, if no deposit rate quotation is available for such period, for the most comparable period for which a deposit rate quotation may be obtained), discounted at the Federal Funds Rate; plus (2) all out-of-pocket expenses incurred by the Lender reasonably attributable to such payment, prepayment or failure to borrow. Each Lender's determination of the amount of any prepayment fee payable under this Section shall be conclusive in the absence of manifest error. (f) Each Lender agrees to endeavor promptly to notify the Borrowers of any event of which it has actual knowledge, occurring after the Closing Date, which will entitle such Lender to compensation pursuant to clause (a) or clause (b) of this Section, and agrees to designate a different Applicable Lending Office if such designation will avoid the need for or reduce the amount of such compensation and will not, in the good faith judgment of such Lender, otherwise be disadvantageous to such Lender. Any request for compensation by a Lender under this Section shall set forth the basis upon which it has been determined that such an amount is due from the applicable Borrower, a calculation of the amount due, and a certification that the corresponding costs have been incurred by the Lender. 3.9 Intentionally Omitted. 3.10 Computation of Interest and Fees. (a) Interest based on the Alternate Base Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed, unless the Alternate Base Rate is determined by reference to the Federal Funds Rate, in which case the Alternate Base Rate shall be computed on the basis of a year of 360 days. All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. Interest shall accrue on each Loan for the day on which the Loan is made; interest shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid. Any Loan that is repaid on the same day on which it is made shall bear interest for one day. Notwithstanding anything in this Agreement to the contrary, interest in excess of the maximum amount permitted by applicable laws shall not accrue or be payable hereunder or under the Notes, and any amount paid as interest hereunder or under the Notes which would otherwise be in excess of such maximum permitted amount shall instead be treated as a payment of principal. (b) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and each Commitment Fee Rate and Applicable Standby Letter of Credit Fee applicable hereunder. The Administrative Agent shall give prompt notice to Day Runner and the relevant Lenders of each interest rate, Commitment Fee Rate and Applicable Standby Letter of Credit Fee so determined, and its determination thereof shall be conclusive in the absence of manifest error. 3.11 Non-Banking Days. If any payment to be made by a Borrower or any other Party under any Loan Document shall come due on a day other than a Banking Day, payment shall instead be considered due on the next succeeding Banking Day and the extension of time shall be reflected in computing interest and fees. 3.12 Manner and Treatment of Payments. (a) Each payment hereunder (except payments pursuant to Sections 3.6, 3.7, 3.8, 11.3, 11.11 and 11.22) or on the Notes or under any other Loan Document shall be made to the Administrative Agent at the Administrative Agent's Office for the account of each of the Lenders or the Administrative Agent, as the case may be, in immediately available funds not later than 11:00 A.M. California time, on the day of payment (which must be a Banking Day). All payments received after such time, on any Banking Day, shall be deemed received on the next succeeding Banking Day. The amount of all payments received by the Administrative Agent for the account of each Lender shall be immediately paid by the Administrative Agent to the applicable Lender in immediately available funds and, if such payment was received by the Administrative Agent by 11:00 A.M., California time, on a Banking Day and not so made available to the account of a Lender on that Banking Day, the Administrative Agent shall reimburse that Lender for the cost to such Lender of funding the amount of such payment at the Federal Funds Rate. All payments shall be made in lawful money of the United States of America, except that payments of principal and interest on Foreign Currency Loans, and reimbursement payments in respect of Foreign Currency Letters of Credit, shall be made in the Foreign Currency of that Foreign Currency Loan or Foreign Currency Letter of Credit. (b) Day Runner hereby authorizes the Administrative Agent to debit (i) the Concentration Account as of the date any payment of (A) principal or interest with respect to the Revolving Loans, (B) commitment fee or (C) other amount payable by Day Runner under this Agreement is due in an amount equal to such payment and/or (ii) the Term Loan Interest Reserve Account as of the date of any payment of principal or interest or other amount payable with respect to the Term Loans is due in an amount equal to such payment. Day Runner hereby agrees to take such steps as are necessary to assure that the Concentration Account and/or the Term Loan Interest Reserve Account, as the case may be, will, on each such date, have a credit balance in immediately available funds at least equal to the amount of such payment. (c) Each payment or prepayment on account of any Loan shall be applied pro rata according to the outstanding Loans made by each Lender comprising such Loan. (d) Each Lender shall use its best efforts to keep a record (in writing or by an electronic data entry system) of Loans made by it and payments received by it with respect to each of its Notes and such record shall, as against the Borrowers, be presumptive evidence of the amounts owing. Notwithstanding the foregoing sentence, the failure by any Lender to keep such a record shall not affect Borrower's obligation to pay the Obligations. (e) Each payment of any amount payable by any Borrower or any other Party under this Agreement or any other Loan Document shall be made free and clear of, and without reduction by reason of, any taxes, assessments or other charges imposed by any Governmental Agency, central bank or comparable authority, excluding (i) taxes imposed on or measured in whole or in part by its overall net income, net worth or the like by any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office and (ii) any withholding taxes imposed by the United States of America for any period with respect to which it has failed to provide the Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws (all such non-excluded taxes, assessments or other charges being hereinafter referred to as "Taxes"). To the extent that a Borrower is obligated by applicable Laws to make any deduction or withholding on account of Taxes from any amount payable to any Lender under this Agreement, such Borrower shall (i) make such deduction or withholding and pay the same to the relevant Governmental Agency and (ii) pay such additional amount to that Lender as is necessary to result in that Lender's receiving a net after-Tax amount equal to the amount to which that Lender would have been entitled under this Agreement absent such deduction or withholding. If and when receipt of such payment results in an excess payment or credit to that Lender on account of such Taxes, that Lender shall promptly refund such excess to the applicable Borrower. 3.13 Funding Sources. Nothing in this Agreement shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner. 3.14 Failure to Charge Not Subsequent Waiver. Any decision by the Administrative Agent or any Lender not to require payment of any interest (including interest arising under Section 3.9), fee, cost or other amount payable under any Loan Document, or to calculate any amount payable by a particular method, on any occasion shall in no way limit or be deemed a waiver of the Administrative Agent's or such Lender's right to require full payment of any interest (including interest arising under Section 3.9), fee, cost or other amount payable under any Loan Document, or to calculate an amount payable by another method that is not inconsistent with this Agreement, on any other or subsequent occasion. 3.15 Administrative Agent's Right to Assume Payments Will be Made. Unless the Administrative Agent shall have been notified by a Borrower prior to the date on which any payment to be made by such Borrower hereunder is due that such Borrower does not intend to remit such payment, the Administrative Agent may, in its discretion, assume that each Borrower has remitted such payment when so due and the Administrative Agent may, in its discretion and in reliance upon such assumption, make available to each Lender on such payment date an amount equal to such Lender's share of such assumed payment. If a Borrower has not in fact remitted such payment to the Administrative Agent, each Lender shall forthwith on demand repay to the Administrative Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent at the Federal Funds Rate. 3.16 Fee Determination Detail. The Administrative Agent, and any Lender, shall provide reasonable detail to each Borrower regarding the manner in which the amount of any payment to the Administrative Agent and the Lenders, or that Lender, under Article 3 has been determined, concurrently with demand for such payment. 3.17 Survivability. All of each Borrower's obligations under Sections 3.6, 3.7 and 3.8 shall survive for the ninety (90) day period following the date on which the Revolving Commitment are terminated and all Loans hereunder are fully paid, and each Borrower shall remain obligated thereunder for all claims under such Sections made by any Lender to such Borrower prior to the expiration of such period. 3.18 Application of Payments. (a) If an Event of Default occurs, and the Revolving Commitment is terminated and the maturity of the Obligations is accelerated pursuant to Section 9.2, the Administrative Agent shall, so long as either of the Filofax Working Capital Guaranties is in effect, apply all payments in respect of any Obligations and all proceeds of Collateral in the following order: (i) first, to pay interest on and then principal of any portion of any Revolving Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not been reimbursed by such Lender or the Borrowers; (ii) second, to pay Obligations in respect of any expense reimbursements (including attorneys' fees and disbursements), indemnities and other similar amounts then due to the Administrative Agent or any Lender, (iii) third, to pay, pro rata, any amounts owing to the Administrative Agent or any Lender in respect of overdrafts and related liabilities arising from treasury, depository or cash management services provided to any of the Borrowers or any of their respective Subsidiaries or in connection with any automated clearing house transfer of funds; (iv) fourth, to pay Obligations in respect of any fees then due to the Administrative Agent, the Lenders and the Issuing Bank; (v) fifth, to pay accrued and unpaid interest due in respect of the Loans; (vi)sixth, to repay the outstanding principal amount of the Revolving Loans; (vii) seventh, to repay the outstanding principal amount of the Term Loans; and (viii) eighth, to the ratable payment of all other Obligations; provided, however, if sufficient funds are not available to fund all payments to be made in respect of any of the Obligations described in any of the foregoing clauses (i) through (viii), the available funds being applied with respect to any such Obligation (unless otherwise specified in such clause) shall be allocated to the payment of such Obligations ratably, based on the proportion of the Administrative Agent's and each Lender's or the Issuing Bank's interest in the aggregate outstanding Obligations described in such clauses; and provided, further, that, at any time that the Filofax Working Capital Guaranties are not in effect, the Administrative Agent shall apply all payments in respect of any Obligations and all proceeds of Collateral in such order as the Administrative Agent may determine in its sole and absolute discretion. (b) Each of the Borrowers hereby waives any right that such Borrower may have under Section 2822(a) of the California Civil Code to designate how any payment received by the Administrative Agent or any Lender (whether made by a Borrower or any Subsidiary Guarantor) with respect to the Obligations are applied and/or which portion of the Obligations are reduced by such payment. Article 4 REPRESENTATIONS AND WARRANTIES The Borrowers, jointly and severally, represent and warrant to the Lenders that: 4.1 Existence and Qualification; Power; Compliance With Laws. Each Borrower is a corporation duly formed and validly existing under the Laws of its jurisdiction of incorporation. Each Borrower incorporated under the Laws of a jurisdiction within the United States is in good standing under the Laws of such jurisdiction of incorporation. Schedule 4.1 hereto correctly sets forth the names, form of legal entity, number of shares of capital stock (or other applicable unit of equity interest) issued and outstanding, and the record owner thereof and jurisdictions of organization of all Borrowers. Each Borrower is duly qualified or registered to transact business and is in good standing in each other jurisdiction in which the conduct of its business or the ownership or leasing of its Properties makes such qualification or registration necessary, except where the failure so to qualify or register and to be in good standing would not constitute a Material Adverse Effect. Each Borrower has all requisite power and authority to conduct its business, to own and lease its Properties and to execute and deliver each Loan Document to which it is a Party and to perform its Obligations. All outstanding shares of capital stock of each Borrower are duly authorized, validly issued, fully paid and non-assessable, and no holder thereof has any enforceable right of rescission under any applicable state or federal securities Laws. Each Borrower is in compliance with all Laws and other legal requirements applicable to its business, has obtained all authorizations, consents, approvals, orders, licenses and permits from, and has accomplished all filings, registrations and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, except where the failure so to comply, obtain authorizations, etc., file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. 4.2 Authority; Compliance With Other Agreements and Instruments and Government Regulations. The execution, delivery and performance by each Borrower and the Subsidiary Guarantors of the Loan Documents to which each is a Party have been duly authorized by all necessary corporate action, and do not and will not: (a) Require any consent or approval not heretofore obtained of any partner, director, stockholder, security holder or creditor of such Party; (b) Violate or conflict with any provision of such Party's charter, articles of incorporation or bylaws, as applicable; (c) Result in or require the creation or imposition of any Lien (other than pursuant to the Loan Documents) upon or with respect to any Property now owned or leased or hereafter acquired by such Party; (d) Violate any Requirement of Law applicable to such Party; (e) Result in a breach of or constitute a default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other Contractual Obligation to which such Party is a party or by which such Party or any of its Property is bound or affected; and such Party is not in violation of, or default under, any Requirement of Law or Contractual Obligation, including without limitation the provisions of any indenture, loan or credit agreement described in Section 4.2(e). 4.3 No Governmental Approvals Required. Except as previously obtained or made, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, any Governmental Agency is or will be required to authorize or permit under applicable Laws the execution, delivery and performance by each Borrower or any Subsidiary Guarantor of the Loan Documents to which it is a Party. 4.4 Subsidiaries. (a) Schedule 4.4 hereto correctly sets forth the names, form of legal entity, number of shares of capital stock (or other applicable unit of equity interest) issued and outstanding, and the record owner thereof and jurisdictions of organization of all Subsidiaries of each Borrower as of the date hereof. Unless otherwise indicated in Schedule 4.4, all of the outstanding shares of capital stock, or all of the units of equity interest, as the case may be, of each such Subsidiary are owned of record and beneficially by a Borrower, there are no outstanding options, warrants or other rights to purchase capital stock of any such Subsidiary, and all such shares or equity interests so owned are duly authorized, validly issued, fully paid and non- assessable, and were issued in compliance with all applicable state and federal securities and other Laws, and are free and clear of all Liens and Rights of Others, except for Permitted Encumbrances. (b) Each Subsidiary is a corporation duly formed and validly existing under the Laws of its jurisdiction of organization. Each Subsidiary incorporated under the Laws of a jurisdiction within the United States is in good standing under the Laws of such jurisdiction of incorporation. Each Subsidiary is duly qualified to do business as a foreign organization and is in good standing as such in each jurisdiction in which the conduct of its business or the ownership or leasing of its Properties makes such qualification necessary (except where the failure to be so duly qualified and in good standing does not constitute a Material Adverse Effect), and has all requisite power and authority to conduct its business and to own and lease its Properties. (c) Each Subsidiary is in compliance with all Laws and other requirements applicable to its business and has obtained all authorizations, consents, approvals, orders, licenses, and permits from, and each such Subsidiary has accomplished all filings, registrations, and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, except where the failure to be in such compliance, obtain such authorizations, consents, approvals, orders, licenses, and permits, accomplish such filings, registrations, and qualifications, or obtain such exemptions, does not constitute a Material Adverse Effect. 4.5 Financial Statements. Day Runner has furnished to the Administrative Agent (a) the audited consolidated financial statements of Day Runner and its Subsidiaries for the Fiscal Year ended June 30, 1998, (b) the unaudited consolidated balance sheet and statement of operations of Day Runner and its Subsidiaries for the Fiscal Year ended June 30, 1999 and (c) the unaudited consolidated balance sheet and statement of operations of Day Runner and its Subsidiaries for the months and portion of the Fiscal Year ended July 31, 1999 and August 31, 1999. The financial statements described in clause (a) fairly present in all material respects the financial condition, statement of cash flows and changes in financial position, and the balance sheet and statement of operations described in clause (b) fairly present in all material respects the financial condition and results of operations of Day Runner and its Subsidiaries as of such dates and for such periods in conformity with GAAP consistently applied, subject only, in the case of clause (b), to normal year-end accruals and audit adjustments and footnotes. 4.6 No Other Liabilities; No Material Adverse Changes. Each Borrower and its Subsidiaries do not have any material liability or material contingent liability required under GAAP to be reflected or disclosed, and not reflected or disclosed, in the balance sheet described in Section 4.5(a), other than liabilities and contingent liabilities arising in the ordinary course of business since the date of such financial statements. Schedule 4.6 sets forth all Funded Debt of Day Runner and its Subsidiaries as of the Effective Date. As of the Effective Date, no circumstance or event has occurred that constitutes a Material Adverse Effect since June 30, 1999. 4.7 Title to Property. Each Borrower and its Subsidiaries have valid title to the Property (other than assets which are the subject of a Capital Lease Obligation) reflected in the balance sheet described in Section 4.5(a), other than items of Property or exceptions to title which are in each case immaterial and Property subsequently sold or disposed of in the ordinary course of business. Such Property is free and clear of all Liens, other than Liens described in Schedule 4.7 and Permitted Encumbrances. 4.8 Intangible Assets. Each Borrower and its Subsidiaries own, or possess the right to use to the extent necessary in their respective businesses, all material trademarks, trade names, copyrights, patents, patent rights, computer software, licenses and other Intangible Assets that are used in the conduct of their businesses as now operated, and no such Intangible Asset, conflicts with the valid trademark, trade name, copyright, patent, patent right or Intangible Asset of any other Person to the extent that such conflict constitutes a Material Adverse Effect. 4.9 Public Utility Holding Company Act. No Borrower nor any Subsidiary of any Borrower is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.10 Litigation. There are no actions, suits, proceedings or investigations pending as to which any Borrower or any of its Subsidiaries have been served or have received notice or, to the best knowledge of any Borrower, threatened against or affecting any Borrower or any of its Subsidiaries or any Property of any of them before any Governmental Agency, which such actions, suits, proceedings or investigations, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.11 Binding Obligations. Each of the Loan Documents to which any Borrower or any of the Subsidiary Guarantors is a Party will, when executed and delivered by such Borrower or such Subsidiary Guarantor, constitute the legal, valid and binding obligation of such Borrower or such Subsidiary Guarantor, enforceable against such Borrower or such Subsidiary Guarantor in accordance with its terms, except as enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.12 No Default. No event has occurred and is continuing that is ----------- an Event of Default. 4.13 ERISA. (a) With respect to each Pension Plan: (i) Pension Plan complies in all material respects with ERISA and any other applicable Laws to the extent that noncompliance could reasonably be expected to have a Material Adverse Effect; (ii) such Pension Plan has not incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA) that could reasonably be expected to have a Material Adverse Effect; (iii) no "reportable event" (as defined in Section 4043 of ERISA, but excluding such events as to which the PBGC has by regulation waived the requirement therein contained that it be notified within thirty days of the occurrence of such event) has occurred that could reasonably be expected to have a Material Adverse Effect; and (iv) none of the Borrowers nor any of their respective Subsidiaries has engaged in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code) that could reasonably be expected to have a Material Adverse Effect. (b) None of the Borrowers nor any of their respective Subsidiaries has incurred or expects to incur any withdrawal liability to any Multiemployer Plan that could reasonably be expected to have a Material Adverse Effect. 4.14 Regulations U and X; Investment Company Act. No part of the proceeds of any Loan hereunder will be used to purchase or carry, or to extend credit to others for the purpose of purchasing or carrying, any Margin Stock in violation of Regulations U and X. None of the Borrowers nor any of their respective Subsidiaries is or is required to be registered as an "investment company" under the Investment Company Act of 1940. 4.15 Disclosure. No information, exhibit or report furnished by any Borrower or any Subsidiary Guarantor in connection with the negotiation of the Loan Documents, pursuant to the terms of the Loan Documents, or in connection with any Loan as of the date thereof contained any untrue statement of a material fact or omitted a material fact necessary to make the statement made not misleading in light of all the circumstances existing at the date the statement was made. No SEC Document filed by any Borrower since December 1, 1997 contained any untrue statement of a material fact or omitted a material fact necessary to make the statement made not misleading in light of all the circumstances existing at the date the statement was made. 4.16 Tax Liability. Each Borrower and its Subsidiaries have filed all tax returns which are required to be filed, and have paid, or made provision for the payment of, all taxes with respect to the periods, Property or transactions covered by said returns, or pursuant to any assessment received by any Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained. 4.17 Projections. The assumptions set forth in the Projections are reasonable and consistent with each other and with all facts known to the Borrowers and the Subsidiaries of the Borrowers, and the Projections are reasonably based on such assumptions. The Projections were prepared in good faith and represent management's opinion of the projected financial performance of the Borrowers and their respective Subsidiaries based upon the information available to the Borrowers at the time so furnished. 4.18 Environmental Matters. (a) Except as described in Schedule 4.18, to the knowledge of the Borrowers and each Subsidiary of each Borrower, (i) each Borrower and each Subsidiary of each Borrower is in compliance with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of any Borrower's or any such Subsidiary's operations and/or properties, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time, (ii) none of the operations of any Borrower or any of its Subsidiaries is the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Material and (iii) none of the Borrowers and none of their respective Subsidiaries have any contingent liability in connection with any release of any Hazardous Materials, in each case, where such lack of compliance, investigation or contingent liability could reasonably be expected to have a Material Adverse Effect. (b) As of the Effective Date (a) neither Borrower nor any of its Subsidiaries at any time has disposed of, discharged, released or threatened the release of any Hazardous Materials on, from or under the Real Property in violation of any Hazardous Materials Law that would individually or in the aggregate constitute a Material Adverse Effect, (b) to the best knowledge of the Borrowers, no condition exists that violates any Hazardous Material Law affecting any Real Property except for such violations that would not individually or in the aggregate constitute a Material Adverse Effect, (c) no Real Property or any portion thereof is or has been utilized by any Borrower or any of its Subsidiaries as a site for the manufacture of any Hazardous Materials and (d) to the extent that any Hazardous Materials are used, generated or stored by any Borrower or any of its Subsidiaries on any Real Property, or transported to or from such Real Property by any Borrower or any of its Subsidiaries, such use, generation, storage and transportation are in compliance with all Hazardous Materials Laws except for such non-compliance that would not constitute a Material Adverse Effect or be materially adverse to the interests of the Lenders. 4.19 Solvency. Day Runner and its Subsidiaries, taken as a whole, are Solvent. 4.20 Year 2000 Matters. Each Borrower will perform all acts reasonably necessary to ensure that (a) each Borrower and any business in which such Borrower holds a substantial interest (including without limitation any Subsidiary of such Borrower), and (b) to the extent reasonably practicable, all customers, suppliers and vendors that are material to the business of such Borrower, become Year 2000 Compliant in a timely manner. Such acts shall include, without limitation, performing a comprehensive review and assessment of all of such Borrower's systems and adopting a detailed plan, with an itemized budget, for the remediation, monitoring and testing of such systems. As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all material software, hardware, firmware, equipment, goods or systems utilized by or material to the business operations or financial condition of such entity will properly perform date sensitive functions before, during and after the year 2000. Each Borrower shall, immediately upon request, provide to the Administrative Agent such certifications or other evidence of such Borrower's compliance with the terms hereof as the Administrative Agent may from time to time require. Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS) So long as any Loan remains unpaid, or any other Obligation remains unpaid, or any portion of the Revolving Commitment remains in force, each Borrower shall, and shall cause its Subsidiaries to, unless the Administrative Agent (with the written approval of the Requisite Lenders) otherwise consents: 5.1 Payment of Taxes and Other Potential Liens. Pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon any of them, upon their respective Property or any part thereof and upon their respective income or profits or any part thereof, except that each Borrower and its Subsidiaries shall not be required to pay or cause to be paid any tax, assessment, charge or levy that is not yet delinquent, or is being contested in good faith by appropriate proceedings so long as the relevant entity has established and maintains adequate reserves for the payment of the same. 5.2 Preservation of Existence. Preserve and maintain their respective existences in the jurisdiction of their formation and all material authorizations, rights, franchises, privileges, consents, approvals, orders, licenses, permits, or registrations from any Governmental Agency that are necessary for the transaction of their respective business and qualify and remain qualified to transact business in each jurisdiction in which such qualification is necessary in view of their respective business or the ownership or leasing of their respective Properties except (a) a merger permitted by Section 6.3 or (b) where the failure to so preserve, maintain, qualify or remain qualified would not constitute a Material Adverse Effect. 5.3 Maintenance of Properties. Maintain, preserve and protect all of their respective Properties in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of their respective Properties, provided that the failure to so maintain, preserve or protect a particular item or items of Property shall not constitute a violation of this covenant if such failure is not reasonably likely to cause a Material Adverse Effect. 5.4 Maintenance of Insurance. Maintain liability, casualty and other insurance (subject to customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as is carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which each Borrower and its Subsidiaries operate. 5.5 Compliance With Laws. Comply with all Requirements of Law, noncompliance with which could constitute a Material Adverse Effect. 5.6 Inspection Rights. Upon reasonable notice, at any time during regular business hours and as often as reasonably requested (but not so as to materially interfere with the business of any Borrower or any of its Subsidiaries) permit the Administrative Agent or any Lender, or any authorized employee, agent or representative thereof (including, without limitation, any auditors, accountants or other financial consultants engaged by the Administrative Agent to review the financial condition of Day Runner and its Subsidiaries), to examine, audit and make copies and abstracts from the records and books of account of, and to visit and inspect the Properties of, any Borrower and its Subsidiaries and to discuss the affairs, finances and accounts of any Borrower and its Subsidiaries with any of their officers, key employees or (with prior coordination through such Borrower) independent accountants. 5.7 Keeping of Records and Books of Account. Keep adequate records and books of account reflecting all financial transactions in conformity with GAAP, consistently applied (provided that the records and books of account of any Foreign Subsidiary shall be kept in accordance with generally accepted accounting principles as in effect in the United Kingdom or in the jurisdiction in which such Foreign Subsidiary is formed), and in material conformity with all applicable requirements of any Governmental Agency having regulatory jurisdiction over each Borrower and its Subsidiaries. 5.8 Compliance With Agreements. Promptly and fully comply with all Contractual Obligations to which any one or more of them is a party, except for any such Contractual Obligations the non-performance of which would cause either (a) a Default or (b) a Material Adverse Effect. 5.9 Use of Proceeds. Use the proceeds of all Revolving Loans for working capital purposes and to make Capital Expenditures permitted under Section 6.16, provided that in no event shall the proceeds of any Revolving Loan be used to pay interest on, or repay principal of, any Term Loan or any Tender Offer Note. 5.10 Hazardous Materials Laws. Keep and maintain all Real Property and each portion thereof in compliance in all material respects with all applicable Hazardous Materials Laws and promptly notify the Administrative Agent in writing (attaching a copy of any pertinent written material) of (a) any and all material enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened in writing by a Governmental Agency pursuant to any applicable Hazardous Materials Laws, (b) any and all material claims made or threatened in writing by any Person against any Borrower relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials and (c) discovery by any Responsible Official of any Borrower of any material occurrence or condition on any real Property adjoining or in the vicinity of such Real Property that could reasonably be expected to cause such Real Property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such Real Property under any applicable Hazardous Materials Laws. 5.11 Additional Material Subsidiaries. (a) Each Borrower shall cause each of its Material Subsidiaries (other than DRC), and Day Runner shall cause each of its Subsidiaries of which Filofax is a direct or indirect Subsidiary, existing on the Effective Date to become a Subsidiary Guarantor as of the Effective Date. Each such Subsidiary Guarantor shall provide to the Administrative Agent and its counsel on the Effective Date such legal opinions, certificates and other documents as are reasonably required by the Administrative Agent. (b) Subject to any applicable Requirement of Law, each Borrower shall cause each Subsidiary of such Borrower, whether now existing or hereafter acquired, that becomes a Material Subsidiary, or a Subsidiary of which Filofax is a direct or indirect Subsidiary, after the Effective Date to (i) become a Subsidiary Guarantor by executing and delivering (A) with respect to any Material Subsidiary (other than a Subsidiary of Filofax), a Subsidiary Guaranty, in substantially the form of Exhibit G, or (B) with respect to any Subsidiary of Filofax, Subsidiary Guaranties, in substantially the forms of Exhibits P and Q, and (ii) provide to the Administrative Agent in connection therewith such legal opinions, certificates and other documents as shall be satisfactory to the Administrative Agent, in each case within fifteen (15) Banking Days of the date such Subsidiary becomes a Material Subsidiary. 5.12 Intentionally Omitted. 5.13. Further Assurances. (a) If, after the Effective Date, Day Runner or any of its Subsidiaries forms or acquires a new Subsidiary, Day Runner or such Subsidiary shall pledge to the Administrative Agent, for the benefit of the Lenders, all the capital stock of each such Subsidiary, in each case pursuant to a supplement to a Pledge Agreement in form and substance reasonably satisfactory to the Administrative Agent. In addition, at the request of the Administrative Agent (which request may be made at any time and from time to time at its sole and absolute discretion), Day Runner shall, within 30 days after the Administrative Agent's request, pledge, or cause each relevant Subsidiary to pledge, to the Administrative Agent, for the benefit of the Lenders, all of the capital stock of any Subsidiary that is not then pledged to the Administrative Agent for the benefit of the Lenders, in each case pursuant to a supplement to a Pledge Agreement in form and substance reasonably satisfactory to the Administrative Agent. (b) Day Runner shall, and shall cause each Subsidiary to, at the Day Runner's cost and expense, execute and deliver any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements), that may be required under applicable law, or that the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority (with such exceptions expressly permitted by the Loan Documents) of the security interests created or intended to be created by the Collateral Documents. Day Runner will cause (i) any Subsidiary that is formed, organized or acquired after the Effective Date or (ii) at the request of the Administrative Agent (which request may be made at any time and from time to time at its sole and absolute discretion), any Subsidiary that has not previously executed a Subsidiary Guaranty, Security Agreement and/or other applicable Collateral Document, to execute a Subsidiary Guaranty, Security Agreement and/or each other applicable Collateral Document (in each case with such changes in the form as may be required to accommodate local law of the jurisdiction of formation or organization of such Subsidiary) in favor of the Administrative Agent (x) with respect to any Subsidiary described in clause (i) above, within 30 days after such Subsidiary is formed, organized or acquired or (y) with respect to any Subsidiary described in clause (ii) above, within 30 days after the Administrative Agent's request. 5.14. Deposit Accounts and Cash Concentration. (a) Day Runner agrees that (i) it will maintain, and cause each of its domestic Subsidiaries to maintain, all of its Cash and Cash Equivalents in deposit accounts or securities accounts maintained by the Administrative Agent, (ii) it will cause each of its Foreign Subsidiaries that is a Material Subsidiary (including, without limitation, Filofax and Filofax Group) (and each other Subsidiary requested by the Administrative Agent) to maintain all of its Cash and Cash Equivalents in deposit accounts or securities accounts maintained by a Lender, and (iii) neither Day Runner nor any of its Subsidiaries shall establish or maintain any deposit account or securities account (other than accounts listed on Schedule 5.14(a)) with any other Person without the prior written consent of the Administrative Agent. (b) Day Runner will maintain with the Administrative Agent, in addition to any other accounts maintained with the Administrative Agent, (i) a deposit account to be denominated as the "Concentration Account", (ii) an interest bearing deposit account to be denominated as the "Term Loan Interest Reserve Account" and (iii) a "Lockbox" deposit service as to which Day Runner has instructed its account debtors with respect to domestic accounts receivable to direct payments with respect to such accounts receiveable (the "Lockbox"). Prior to the end of each Banking Day, Day Runner shall pay, or cause to be paid, to the Administrative Agent (x) for deposit in the Term Loan Interest Reserve Account, all Cash and Cash Equivalents then held in the Lockbox and (y) for deposit in the Concentration Account, all Cash and Cash Equivalents held by Day Runner or any of its domestic Subsidiaries (other than such Cash and Cash Equivalents held in the Lockbox). In addition, Day Runner shall cause each Foreign Subsidiary (including, without limitation, Filofax and Filofax Group), unless the Administrative Agent otherwise consents in writing, to pay, or cause to be paid, to the Administrative Agent for deposit in the Concentration Account, as frequently as practicable and no less than twice per calendar month (subject to the proviso below), all Cash and Cash Equivalents (including all proceeds of Collateral) of such Subsidiary in excess of "Minimum Amount" set forth on Schedule 5.14(b) opposite the name of such Subsidiary (or the Foreign Currency Equivalent thereof), provided that no such payment to the Concentration Account shall be required by any Foreign Subsidiary pursuant this Section 5.14(b) unless the amount of all Cash and Cash Equivalents then held by such Foreign Subsidiary exceeds the "Maximum Amount" set forth on Schedule 5.14(b) opposite the name of such Subsidiary (or the Foreign Currency Equivalent thereof) for a period of five (5) consecutive Banking Days. (c) Day Runner shall maintain on deposit in the Term Loan Interest Reserve Account, as of the end of each Banking Day, an amount at least equal to the sum of (i) the amount of the accrued and unpaid interest on the outstanding Term Loans as of the end of such Banking Day and (ii) an amount that Day Runner in its good faith judgment determines (and periodically reports to the Administrative Agent no less than monthly) is necessary to reserve in order to have sufficient funds on hand to make any payments with respect to any scheduled redemption of the Tender Offer Notes occurring after the Effective Date (such amount, the "Required Balance"), provided that if, at end of any Banking Day, the amount on deposit in the Term Loan Interest Reserve Account is not at least equal to the Required Balance, then all Cash and Cash Equivalents deposited in the Term Loan Interest Reserve Account shall be retained on deposit therein until the end of the first Banking Day on which the amount on deposit in the Term Loan Interest Reserve Account is at least equal to the Required Balance for such Banking Day. Article 6 NEGATIVE COVENANTS So long as any Loan remains unpaid, or any other Obligation remains unpaid, or any portion of the Revolving Commitment remains in force, each Borrower shall not, and shall not permit any of its Subsidiaries to: 6.1 Payment of Subordinated Obligations. Pay any principal (including sinking fund payments) with respect to any Subordinated Obligation, or purchase or redeem (or offer to purchase or redeem) any Subordinated Obligation, or deposit any monies, securities or other Property with any trustee or other Person to provide assurance that the principal or any portion thereof of any Subordinated Obligation will be paid when due or otherwise to provide for the defeasance of any Subordinated Obligation. 6.2 Disposition of Property. Make any Disposition of its Property, whether now owned or hereafter acquired, except (a) a Disposition by a Borrower to another Borrower that is not a Foreign Subsidiary, (b) a Disposition by a Subsidiary of a Borrower to such Borrower, (c) so long as the Net Cash Sale Proceeds of such Disposition are applied in accordance with Section 3.2(a)(iv), a Disposition of the Property of Day Runner Australia PTY, Ltd. substantially as an entirety (or a Disposition of the capital stock thereof) in connection with a discontinuation of the operations of such Subsidiary and (d) a Disposition by any Borrower to any Subsidiary of inventory in a manner consistent with past practice, provided that the Lien granted in the Security Agreement by such Borrower to the Administrative Agent, for the benefit of the Lenders, on such inventory shall continue and remain in full force and effect. 6.3 Mergers. Merge or consolidate with or into any Person. 6.4 Intentionally Omitted. 6.5 Intentionally Omitted. 6.6 Distributions. Make any Distribution, whether from capital, income or otherwise, and whether in Cash or other Property, except Distributions by any Subsidiary of a Borrower to such Borrower. 6.7 ERISA. At any time, permit any Pension Plan to: (i) engage in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code); (ii) fail to comply with ERISA or any other applicable Laws; (iii) incur any material "accumulated funding deficiency" (as defined in Section 302 of ERISA); or (iv) terminate in any manner, which, with respect to each event listed above, could reasonably be expected to result in a Material Adverse Effect or (b) withdraw, completely or partially, from any Multiemployer Plan if to do so could reasonably be expected to result in a Material Adverse Effect. 6.8 Change in Nature of Business. Make any material change in the nature of the business of Day Runner and its Subsidiaries, taken as a whole. 6.9 Liens. Create, incur, assume or suffer to exist any Lien of any nature upon or with respect to any of their respective Properties, or sell or factor any accounts receivable or engage in any sale and leaseback transaction with respect to any of their respective Properties, whether now owned or hereafter acquired, except: (a) Liens existing on the Effective Date and disclosed in Schedule 4.7 and any renewals/extensions or amendments thereof, provided that the obligations secured or benefited thereby are not increased; (b) Liens granted to the Administrative Agent, for the benefit of the Lenders, pursuant to any Loan Document; (c) Permitted Encumbrances; (d) Liens on Property acquired by any Borrower or any of its Subsidiaries, provided that such Liens were in existence at the time of the acquisition of such Property and were not created in contemplation of such acquisition, and Liens on Property that secure Indebtedness permitted pursuant to Section 6.10(d); provided that the aggregate Indebtedness secured by Liens pursuant to this Section is not in excess of $500,000 in principal amount; and (e) Liens on the Filofax Overdraft Account and amounts deposited therein granted by Filofax in order to secure Filofax Overdraft Indebtedness to the extent such Indebtedness is permitted pursuant to Section 6.10(i) below, provided that the aggregate amount on deposit at any time in the Filofax Overdraft Account shall not exceed the Foreign Currency Equivalent of $10,000,000; provided, further, that Filofax has granted to the Administrative Agent, for the benefit of the Lenders, a Lien on such the Filofax Overdraft Account and the amounts deposited therein, which Lien, if subordinated to the aforementioned Liens, is subordinated on terms satisfactory to the Administrative Agent. 6.10 Indebtedness and Guaranty Obligations. Create, incur or assume any Indebtedness or Guaranty Obligation except: (a) Indebtedness and Guaranty Obligations existing on the Effective Date and disclosed in Schedule 6.10, and refinancings, renewals, extensions or amendments that do not increase the amount thereof; (b) Indebtedness and Guaranty Obligations under the Loan Documents; (c) Indebtedness and Guaranty Obligations owed to any Borrower or any of the Subsidiary Guarantors; provided that any such Indebtedness is evidenced by a promissory note, in substantially the form of Exhibit R, that is pledged to the Administrative Agent, for the benefit of the Lenders, and is subordinated in right of payment to the Loans on terms and in form satisfactory to the Administrative Agent; (d) Indebtedness consisting of Capital Lease Obligations, or otherwise incurred to finance the purchase or construction of capital assets (which shall be deemed to exist if the Indebtedness is incurred at or within 180 days before or after the purchase or construction of the capital asset), or to refinance any such Indebtedness, provided that the aggregate principal amount of such Indebtedness outstanding at any time does not exceed $500,000; (e) Indebtedness consisting of Interest Rate Protection Agreements entered into in order to manage existing or anticipated interest rate risks and not for speculative purposes; (f) Indebtedness constituting Subordinated Obligations; (g) the Tender Offer Notes; (h) other Indebtedness that is not secured by a Lien on any Property of any Borrower or any of the Subsidiaries of any Borrower; provided that the aggregate principal amount thereof does not exceed $250,000 at any time; and (i) the Filofax Overdraft Indebtedness to the extent that such Indebtedness (net of the amount of cash then on deposit in the Filofax Overdraft Account) does not exceed the Foreign Currency Equivalent of $1,500,000 at any time outstanding. 6.11 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of any Borrower or any Affiliate of any Subsidiary of any Borrower other than (a) salary, bonus, employee stock option and other compensation arrangements with directors or officers in the ordinary course of business; and (b) transactions on overall terms at least as favorable to the applicable Borrower or its Subsidiary as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power. 6.12 Funded Senior Debt Ratio. Permit the Funded Senior Debt Ratio, as of the last day of any Fiscal Quarter, to be greater than the ratio set forth below opposite the period during which such Fiscal Quarter ends: --------------------------------------------------------- ------------------- Period Ratio --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- July 1, 2000 through September 30, 2000 12.40 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 2000 through December 31, 2000 4.50 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2001 through March 31, 2001 3.25 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2001 and thereafter 3.00 to 1.00 --------------------------------------------------------- ------------------- 6.13 Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio, as of the last day of any Fiscal Quarter, to be less than the ratio set forth below opposite the period during which such Fiscal Quarter ends: --------------------------------------------------------- ------------------- Period Ratio --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- July 1, 2000 through September 30, 2000 0.25 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 2000 through December 31, 2000 1.50 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2001 through March 31, 2001 1.75 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2001 and thereafter 2.00 to 1.00 --------------------------------------------------------- ------------------- 6.14 Stockholders' Equity. Permit Stockholders' Equity of Day Runner, at any time during any period set forth below, to be less than the amount set forth below opposite such period: --------------------------------------------------------- ------------------- Period Amount --------------------------------------------------------- ------ ------------- --------------------------------------------------------- ------------------- July 1, 1999 through September 30, 1999 $61,700,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 1999 through December 31, 1999 $63,000,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2000 through March 31, 2000 $58,750,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2000 through June 30, 2000 $56,900,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- July 1, 2000 through September 30, 2000 $55,950,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 2000 through December 31, 2000 $64,000,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2001 through March 31, 2001 $67,000,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2001 and thereafter $70,000,000 --------------------------------------------------------- ------------------- 6.15 Investments. Make or suffer to exist any Investment, other than: (a) Investments in existence on the Effective Date and disclosed on Schedule 6.15; (b) Investments consisting of Cash Equivalents; (c) Investments consisting of advances to officers, directors and employees of Borrowers and their Subsidiaries in the ordinary course of business not to exceed $50,000 at any time outstanding; (d) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of disputes with customers and suppliers arising in the ordinary course of business; (e) Investments of any Borrower in any Borrower or any Subsidiary Guarantor; (f) Investments of a Borrower in any Subsidiary of such Borrower that is not a Subsidiary Guarantor (other than DRC); provided that the aggregate amount of all such Investments shall not exceed $1,500,000; and (g) Investments by Day Runner in DRC (i) in existence on the Effective Date (other than as described in clause (ii) below) and (ii) consisting of Intercompany Indebtedness owed by DRC to Day Runner (A) arising in connection with the reclassification of the DRC Loans as Revolving Loans to Day Runner pursuant to this Agreement or (B) incurred by DRC from time to time after the Effective Date, provided that (x) the aggregate principal amount of Intercompany Indebtedness owed by DRC to Day Runner outstanding at any time shall not exceed $3,000,000 and (y) all such Intercompany Indebtedness shall be evidenced by a promissory note, in form and substance satisfactory to the Administrative Agent, that is pledged to the Administrative Agent, for the benefit of the Lenders. 6.16 Capital Expenditures. The Borrowers shall not, and shall not permit any of their respective Subsidiaries to, make any Capital Expenditures in any Fiscal Year, if, after giving effect thereto, the aggregate amount of all Capital Expenditures made by the Borrowers and their Subsidiaries in such Fiscal Year would exceed $5,000,000. 6.17 Payment Restrictions Affecting Subsidiaries. Enter into, or permit any of its Subsidiaries to enter into, any agreement, instrument or other document (other than any Loan Document) which directly or indirectly prohibits or restricts in any manner, or would have the effect of prohibiting or restricting in any material manner, the ability of any of the Borrower's Subsidiaries to (i) pay dividends or make any other distributions in respect of its capital stock or any other equity interest or participation in its profits owned by the Borrower or any of its Subsidiaries, or pay or repay any Indebtedness owed to the Borrower or any of its Subsidiaries, (ii) make loans or advances to any of the Borrowers or any of their Subsidiaries, or (iii) transfer any of its properties or assets to the Borrowers or any of their Subsidiaries. 6.18 Lease Obligations. The Borrowers shall not, and shall not permit any of their respective Subsidiaries to, incur any obligations with respect to any lease that is not a Capital Lease in any Fiscal Year, if, after giving effect thereto, the aggregate amount of all obligations of the Borrowers and their Subsidiaries with respect to leases that are not Capital Leases would exceed $7,500,000 in any Fiscal Year. 6.19 Minimum EBITDA. As of the last day of each Fiscal Quarter ending on or after September 30, 2000, permit EBITDA for the period of four consecutive Fiscal Quarters ending on such date, to be less than the amount set forth below opposite the period during which such Fiscal Quarter ends: --------------------------------------------------------- ------------------- Period Amount --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- July 1, 2000 through September 30, 2000 $8,400,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 2000 through December 31, 2000 $23,000,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2001 through March 31, 2001 $26,000,000 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2001 and thereafter $30,000,000 --------------------------------------------------------- ------------------- 6.20 Current Ratio. Permit the Current Ratio, as of the last day of each Fiscal Quarter, to be less than the ratio set forth below opposite the period during which such Fiscal Quarter ends: --------------------------------------------------------- ------------------- Period Ratio --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- July 1, 1999 through September 30, 1999 1.90 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 1999 through December 31, 1999 2.00 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2000 through March 31, 2000 2.00 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2000 through June 30, 2000 2.00 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- July 1, 2000 through September 30, 2000 2.00 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 2000 through December 31, 2000 2.75 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2001 through March 31, 2001 3.00 to 1.00 --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2001 and thereafter 3.00 to 1.00 --------------------------------------------------------- ------------------- 6.21 Operating Expenses. Permit operating expenses in any Fiscal Quarter (determined in a manner consistent with the consolidated financial statements of Day Runner for its Fiscal Year ended June 30, 1999 delivered to the Administrative Agent and the Lenders prior to the Effective Date) to exceed the percentage of net sales for such Fiscal Quarter set forth below opposite the period during which such Fiscal Quarter ends, for any two consecutive Fiscal Quarters: --------------------------------------------------------- ------------------- Percentage of Net Period Sales --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- October 1, 2000 through December 31, 2000 41% --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- January 1, 2001 through March 31, 2001 60% --------------------------------------------------------- ------------------- --------------------------------------------------------- ------------------- April 1, 2001 and thereafter 47% --------------------------------------------------------- ------------------- Article 7 INFORMATION AND REPORTING REQUIREMENTS 7.1 Financial and Business Information. So long as any Loan remains unpaid, or any other Obligation remains unpaid, or any portion of the Revolving Commitment remains in force, Day Runner shall, unless the Administrative Agent (with the written approval of the Requisite Lenders) otherwise consents, at Day Runner's sole expense, deliver to each Lender: (a) As soon as practicable, and in any event within 55 days after the end of each Fiscal Quarter (other than the fourth Fiscal Quarter in any Fiscal Year), the consolidated balance sheet of Day Runner and its Subsidiaries as at the end of such Fiscal Quarter and the consolidated statements of operations and cash flows for such Fiscal Quarter, and the portion of the Fiscal Year ended with such Fiscal Quarter, all in reasonable detail. Such financial statements shall be certified by the chief financial officer of Day Runner as fairly presenting in all material respects the financial condition, results of operations and cash flows of Day Runner and its Subsidiaries in accordance with GAAP (other than footnote disclosures), consistently applied, as at such date and for such periods, subject only to normal year-end accruals and audit adjustments; (b) As soon as practicable, and in any event within 55 days after the end of each Fiscal Quarter (i) a Pricing Certificate setting forth a calculation of the Funded Debt Ratio as of the last day of such Fiscal Quarter, and providing reasonable detail as to the calculation thereof, which calculations in the case of the fourth Fiscal Quarter in any Fiscal Year shall be based on the preliminary unaudited financial statements of such Borrower and its Subsidiaries for such Fiscal Quarter, and as soon as practicable thereafter, in the event of any material variance in the actual calculation of the Funded Debt Ratio from such preliminary calculation, a revised Pricing Certificate setting forth the actual calculation thereof and (ii) a certificate of a Senior Officer of Day Runner stating that the representations and warranties in Article 4 hereof are true and correct in all material respects as of the date of such certificate and that no Event of Default has occurred and is continuing or, if an Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that Day Runner has taken and proposes to take with respect thereto; (c) As soon as practicable, and in any event within 100 days after the end of each Fiscal Year, the consolidated balance sheet of Day Runner and its Subsidiaries as at the end of such Fiscal Year and the consolidated statements of operations, stockholders' equity and cash flows, in each case of Day Runner and its Subsidiaries for such Fiscal Year, with all related consolidating financial statements prepared by Day Runner, all in reasonable detail. Such consolidated financial statements shall be prepared in accordance with GAAP, consistently applied, and shall be accompanied by a report of Deloitte & Touche LLP or other independent public accountants of recognized standing selected by Day Runner and reasonably satisfactory to the Requisite Lenders, which report shall be prepared in accordance with generally accepted auditing standards as at such date, and shall not be subject to any qualifications or exceptions. Such accountants' report shall be accompanied by a certificate stating that, in making the examination pursuant to generally accepted auditing standards necessary for the certification of such financial statements and such report, such accountants have obtained no knowledge of any Event of Default then existing relating to the breach by any Borrower of any of Sections 6.1, 6.2, 6.6, 6.9, 6.10, 6.12, 6.13, 6.14, 6.16, 6.19, 6.20 and 6.21 of this Agreement or, if, in the opinion of such accountants, any such Event of Default shall exist, stating the nature and status of such Event of Default; (d) As soon as practicable, and in any event within thirty (30) days after the end of each month, the consolidated and consolidating balance sheet of Day Runner and its Subsidiaries as at the end of such month and the consolidated statements of operations and cash flows for such month, all in reasonable detail and prepared in comparison with the projections delivered to the Administrative Agent with respect to such month and the corresponding month in the preceding Fiscal Year. Such financial statements shall be certified by the chief financial officer of Day Runner as fairly presenting in all material respects the financial condition, results of operations and cash flows of Day Runner and its Subsidiaries in accordance with GAAP (other than footnote disclosures), consistently applied, as at such date and for such periods, subject only to normal year-end accruals and audit adjustments; (e) As soon as practicable, and in any event within thirty (30) days after the commencement of each Fiscal Year, a budget and projection by month and Fiscal Quarter for that Fiscal Year, and for the next succeeding Fiscal Year, including for the first such Fiscal Year, projected consolidated balance sheets, statements of operations and statements of cash flow, in each case by Fiscal Quarter and, for succeeding Fiscal Years, projected consolidated condensed balance sheets and statements of operations and cash flows of each Borrower and its Subsidiaries, all in reasonable detail (it being understood that any projections provided hereunder shall be were prepared in good faith and will represent management's opinion of the projected financial performance of the Borrowers and their respective Subsidiaries based upon the information available to the Borrowers at the time so furnished); (f) As soon as practicable, and in any event within fifteen (15) days after the end of each month, a report, in form and substance reasonably satisfactory to the Administrative Agent, from the management of Filofax Group with respect to the results from operations of Filofax Limited and certain of its other Subsidiaries for the preceding month; (g) As soon as practicable, and in any event within ten (10) days after the end of each month, a report, in form and substance reasonably satisfactory to the Administrative Agent, from Wasserstein Perella & Co. Limited with respect to the status of the strategic alternatives being pursued by it on behalf of Day Runner and its Subsidiaries; (h) Promptly after request by the Administrative Agent or the Requisite Lenders, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Borrower by independent accountants in connection with the accounts or books of such Borrower or any of its Subsidiaries, or any audit of any of them and/or any tax returns filed by any Borrower or any of its Subsidiaries with the federal governments of the United States or the United Kingdom; (i) (i) As soon as practicable, and in any event within 55 days after the end of each Fiscal Quarter, a copy of the Form 10-Q for such Fiscal Quarter filed with the Securities and Exchange Commission by any Borrower; (ii) as soon as practicable, and in any event within 100 days after the end of each Fiscal Year a copy of the Form 10-K for such Fiscal Year filed with the Securities and Exchange Commission by any Borrower; and (iii) promptly after the same are available, and in any event within two (2) Banking Days after filing with the Securities and Exchange Commission, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of any Borrower, and copies of all annual, regular, periodic and special reports and registration statements which any Borrower may file or be required to file with the Securities and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and not otherwise required to be delivered to the Lenders pursuant to the other provisions of this Section 7.1; (j) Promptly after request by the Administrative Agent or any Lender, copies of any other report or other document that was filed by any Borrower with any Governmental Agency; (k) Promptly upon a Senior Officer of any Borrower becoming aware, and in any event within five (5) Banking Days after becoming aware, of the occurrence of any (i) "reportable event" (as such term is defined in Section 4043 of ERISA, but excluding such events as to which the PBGC has by regulation waived the requirement therein contained that it be notified within thirty days of the occurrence of such event) or (ii) non-exempt "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) involving any Pension Plan or any trust created thereunder, telephonic notice specifying the nature thereof, and, no more than two (2) Banking Days after such telephonic notice, written notice again specifying the nature thereof and specifying what action the applicable Borrower is taking or proposes to take with respect thereto, and, when known, any action taken by the Internal Revenue Service with respect thereto; (l) As soon as practicable, and in any event within two (2) Banking Days after a Senior Officer becomes aware of the existence of any condition or event which constitutes a Default or Event of Default, telephonic notice specifying the nature and period of existence thereof, and, no more than two (2) Banking Days after such telephonic notice, written notice again specifying the nature and period of existence thereof and specifying what action the Borrowers are taking or propose to take with respect thereto; (m) Promptly upon a Senior Officer of any Borrower becoming aware that (i) any Person has commenced a legal proceeding with respect to a claim against any Borrower that such Borrower reasonably believes is $500,000 or more in excess of the amount thereof that is fully covered by insurance or indemnification agreement of a financially responsible Person, (ii) any creditor under a credit agreement involving Indebtedness of $100,000 or more or any lessor under a material lease involving aggregate rent of $200,000 per year or more has asserted a material default thereunder on the part of any Borrower or, (iii) any Person has commenced a legal proceeding with respect to a claim against any Borrower under a contract that is not a credit agreement or material lease with respect to a claim of in excess of $200,000 or which otherwise may reasonably be expected to result in a Material Adverse Effect, a written notice describing the pertinent facts relating thereto and what action the applicable Borrower is taking or proposes to take with respect thereto; (n) As promptly as practicable, and in any event no later than the first Banking Day of any calendar week, a sales flash report with respect to Day Runner and its Subsidiaries for the preceding calendar week and within two (2) Banking Days of the end of each calendar month, a summary of the sales flash report for such month; (o) As promptly as practicable, and in any event by no later than November 30, 1999, a revised operating plan of Day Runner and its Subsidiaries which shall include a revised budget and projections for Day Runner and its Subsidiaries prepared by calendar month for Fiscal Year 2000 and by Fiscal Quarter for Fiscal Year 2001; (p) As promptly as practicable, and in any event within five (5) Banking Days after the end of each calendar month, a rolling thirteen (13) week cash forecast for Day Runner and its Subsidiaries which shall include a cash forecast by Fiscal Quarter for the remainder of the Fiscal Year; (q) As promptly as practicable, and in any event within five (5) Banking Days of the end of each calendar month, a sales report with respect to Day Runner and its Subsidiaries for the preceding calendar month setting forth sales data with respect to each customer of Day Runner or any of its Subsidiaries that accounts for more than 10% of the aggregate sales of Day Runner and its Subsidiaries (on a consolidated basis) (such a customer, a "Significant Customer") with a comparison of such sales data to (i) the sales data with respect to each Significant Customer for the corresponding month in the prior Fiscal Year and (ii) the projected sales to each Significant Customer set forth in the revised operating plan and projections delivered pursuant to Section 7.1(o); (r) As promptly as practicable, and in any event within fifteen (15) days of the end of each month, a report setting forth with respect to each Significant Customer, point-of-sale and inventory on-hand data by product category for the preceding calendar month, together with a comparison of such data with the results for the corresponding month in the prior Fiscal Year; and (s) Such other data and information as from time to time may be reasonably requested by the Administrative Agent, any Lender (through the Administrative Agent) or the Requisite Lenders. 7.2 Compliance Certificates. So long as any Loan remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Revolving Commitment remains outstanding, Day Runner shall, at Day Runner's sole expense, deliver to each Lender concurrently with the financial statements required pursuant to Sections 7.1(a) and 7.1(c), a Compliance Certificate signed by a Senior Officer of Day Runner. Article 8 CONDITIONS 8.1 Effective Date. The occurrence of the Effective Date, and the obligations of each Lender pursuant to the Revolving Commitment, are subject to the following conditions precedent, each of which shall be satisfied on or prior to the Effective Date: (a) The Administrative Agent shall have received all of the following, each of which shall be originals unless otherwise specified, each properly executed by a Responsible Official of each party thereto, each dated as of the Effective Date and each in form and substance reasonably satisfactory to the Administrative Agent and its legal counsel (unless otherwise specified or, in the case of the date of any of the following, unless the Administrative Agent otherwise agrees or directs): (1)at least one (1) executed counterpart of this Agreement, together with arrangements satisfactory to the Administrative Agent for additional executed counterparts, sufficient in number for distribution to the Lenders and Borrowers; (2) an original Revolving Loan Note executed by each Borrower in favor of each Lender, in a principal amount equal to that Lender's Pro Rata Share of the Revolving Commitment; (3)an original Term Loan Note executed by each Borrower in favor of each Lender and in a principal amount equal to such Lender's Pro Rate Share of the Term Loan Amount; (4) each Subsidiary Guaranty executed by each Subsidiary Guarantor party thereto; (5) each Borrower Guaranty executed by each Borrower party thereto; (6) executed counterparts of the Pledge Agreements executed by each of Day Runner, DRI International, DR-UK Holdings, Bidco, Filofax Group and Filofax together with all documents and instruments (including, without limitation, stock certificates and stock powers with respect to the stock pledged thereunder) required to be delivered pursuant thereto; (7) executed counterparts of the Security Agreements executed by each of Day Runner, Filofax and each of Day Runner's domestic Subsidiaries, together with all documents and instruments (including, without limitation, Uniform Commercial Code financing statements) required to be delivered pursuant thereto or as reasonably requested by the Administrative Agent to be filed, registered or recorded to create or perfect the Liens intended to be created thereunder; (8) with respect to each Borrower and any of their respective Subsidiaries that is a Party to any Loan Document, such documentation as the Administrative Agent may reasonably require to establish the due organization, valid existence and good standing of such Person, qualification to engage in business in each material jurisdiction in which it is engaged in business or required to be so qualified, such Person's authority to execute, deliver and perform the Loan Documents to which it is a Party, the identity, authority and capacity of each Responsible Official thereof authorized to act on its behalf, including certified copies of articles of incorporation and amendments thereto, bylaws and amendments thereto, certificates of good standing, certificates of corporate resolutions, incumbency certificates,Certificates of Responsible Officials, and the like, in each case to the extent applicable in the relevant jurisdiction; (9) the written opinion of Orrick, Herrington & Sutcliffe LLP, in form and substance reasonably satisfactory to Administrative Agent, in regard to the enforceability of this Agreement, each of the Borrower Guaranties, each of the Subsidiary Guaranties, the Pledge Agreement executed by Day Runner, the Security Agreement executed by Day Runner, the perfection of the Liens on the personal property collateral of Day Runner granted pursuant to such Security Agreement, the perfection and priority under California law of the Liens on the shares of capital stock pledged pursuant to such Pledge Agreement and covering such other matters relating to this Agreement and the other Loan Documents as the Administrative Agent shall request, in each case, subject to customary qualifications and exceptions (and Day Runner hereby requests such counsel to deliver such opinion); (10) the written opinion of Skadden, Arps, Slate, Meagher & Flom LLP, in form and substance reasonably satisfactory to Administrative Agent, in regard to the enforceability of this Agreement, each of the Borrower Guaranties, each of the Subsidiary Guaranties, each of the Pledge Agreements executed by DRI International, DR-UK Holdings, Filofax Group and Filofax, the Security Agreement executed by Filofax, the perfection of the Liens on the personal property collateral of Filofax granted pursuant to such Security Agreement, the perfection and priority under English law of the Liens on the shares of capital stock pledged pursuant to such Pledge Agreements and covering such other matters relating to this Agreement and the other Loan Documents as the Administrative Agent shall request, in each case, subject to customary qualifications and exceptions (and Day Runner hereby requests such counsel to deliver such opinion); (11) the written opinion of Gowling, Strathy & Henderson, in form and substance reasonably satisfactory to Administrative Agent, in regard to the pledge of the capital stock of DRC pursuant to a Pledge Agreement and covering such other matters relating to this Agreement and the other Loan Documents as the Administrative Agent shall request, in each case, subject to customary qualifications and exceptions (and Day Runner hereby requests such counsel to deliver such opinion); (12) a Certificate of the chief financial officer of each of the Borrowers, certifying that the representations contained in Article 4 are true and correct in all material respects; and (13) such other assurances, certificates, documents, consents or opinions as the Administrative Agent or the Requisite Lenders reasonably may require. (b) The Fees payable pursuant to Section 3.4 shall have been paid. (c) No material action, suit, proceeding or investigation shall be pending against any Borrower; no law, regulation, judgment or court order shall be applicable that restrains, prevents or imposes materially adverse conditions upon the making of the Loans; and each Borrower and Subsidiary Guarantor shall have received all governmental and material third party approvals necessary for such Party's execution of the Loan Documents to which it is a party; (d) No circumstance or event shall have occurred that constitutes a Material Adverse Effect since June 30, 1999. (e) The reasonable costs and expenses of the Administrative Agent in connection with the preparation of the Loan Documents payable pursuant to Section 11.3, and invoiced with supporting detail to the Borrowers prior to the Effective Date, shall have been paid. (f) The representations and warranties of each Borrower contained in Article 4 of this Agreement and in each other Loan Document to which such Borrower is a party shall be true and correct in all material respects. (g) Borrowers and any other Parties shall be in compliance with all the terms and provisions of the Loan Documents, and after giving effect to the initial Loan, no Default or Event of Default shall have occurred and be continuing. (h) Day Runner, as agent for each of the directors of Filofax and Filofax Group, shall have received a letter reasonably satisfactory to it from each of the Administrative Agent, the Issuing Lender and the Lenders agreeing not to rely on, or to take any action against any such director, in his or her capacity as such, in connection with, any statement made or other action taken under Sections 151 through 158 of the Companies Act in connection with the guaranties of, and granting of Liens to secure, the Obligations made by Filofax and Filofax Group. (i) On or prior to the Effective Date, Topps shall (i) execute and deliver to the Administrative Agent a Security Agreement and any and all other documents or instruments as the Administrative Agent may request in order to create a Lien in favor of the Administrative Agent, for the benefit of the Lenders, on any real property owned by Topps, (ii) take, or cause to be taken, any other actions, including filings with any appropriate governmental agencies, in order to cause such Lien to be valid and enforceable under applicable law, and (iii) provide to the Administrative Agent in connection therewith such legal opinions, certificates and other documents as are reasonably requested by the Administrative Agent. (j) All legal matters relating to the Loan Documents shall be reasonably satisfactory to the Administrative Agent. 8.2 Revolving Loans. The obligation of each Lender to make any Revolving Loan, and the obligation of the Issuing Lender to issue any Letter of Credit, is subject to the Effective Date having occurred, and to the following conditions precedent (unless the Requisite Lenders or, in any case where the approval of all of the Lenders is required pursuant to Section 11.2, all of the Lenders, in their sole and absolute discretion, shall agree otherwise): (a) Except for representations and warranties which expressly speak as of a particular date, the representations and warranties contained in Article 4 shall be true and correct in all material respects on and as of the date of the Loan as though made on that date; (b) No Default or Event of Default shall have occurred and be continuing; (c) No circumstance or event shall have occurred that constitutes a Material Adverse Effect since June 30, 1999. Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT 9.1 Events of Default. The existence or occurrence and continuation of any one or more of the following events, whatever the reason therefor and under any circumstances whatsoever, shall constitute an Event of Default: (a) A Borrower fails to pay any principal on any of the Loans, or any portion thereof, on the date when due; or (b) A Borrower fails to pay any interest on any of the Loans, or any fees under Sections 3.3, 3.4 or 3.5, or any portion thereof, within three (3) Banking Days after the date when due; or fails to pay any other fee or amount payable to the Lenders under any Loan Document, or any portion thereof, within ten (10) Banking Days after demand therefor; or (c) A Borrower fails to comply with any of the covenants contained in Article 6 or with Sections 5.2, 5.5, 5.6, 5.9, 5.13, 5.14 (other than Section 5.14(c)) or 7.1; or (d) A Borrower or any other Party fails to perform or observe any other covenant or agreement (not specified in clause (a), (b), (c) or (d) above) contained in any Loan Document on its part to be performed or observed within thirty (30) days after the occurrence thereof; or (e) Any representation or warranty of any Borrower or any Subsidiary Guarantor made in any Loan Document, or in any certificate or other writing delivered by any Borrower or any Subsidiary Guarantor pursuant to any Loan Document, proves to have been incorrect when made or reaffirmed in any material respect; or (f) A Borrower (i) fails to pay the principal, or any principal installment, of any present or future Indebtedness of $50,000 or more, or any guaranty of present or future Indebtedness of $50,000 or more, on its part to be paid, when due (or within any stated grace period), whether at the stated maturity, upon acceleration, by reason of required prepayment or otherwise or (ii) fails to perform or observe any other term, covenant or agreement on its part to be performed or observed, or suffers any event of default to occur, in connection with any present or future Indebtedness of $50,000 or more, or of any guaranty of present or future Indebtedness of $50,000 or more, if as a result of such failure or sufferance any holder or holders thereof (or an agent or trustee on its or their behalf) has the right to declare such Indebtedness due before the date on which it otherwise would become due or the right to require a Borrower to redeem or purchase, or offer to redeem or purchase, all or any portion of such Indebtedness; or (g) Any Loan Document, at any time after its execution and delivery and for any reason other than the agreement or action (or omission to act) of the Administrative Agent or the Lenders or satisfaction in full of all the Obligations, ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect which is materially adverse to the interests of the Lenders; or any Party thereto denies in writing that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind same; or (h) Any Change in Control occurs; or (i) A final judgment against any Borrower or any Subsidiary Guarantor is entered for the payment of money in excess of $500,000 (not covered by insurance or for which an insurer has reserved its rights) and, absent procurement of a stay of execution, such judgment remains unsatisfied for thirty (30) calendar days after the date of entry of judgment, or in any event later than five (5) days prior to the date of any proposed sale thereunder; or any writ or warrant of attachment or execution or similar process is issued or levied against the Property of any such Person and is not released, vacated or fully bonded within thirty (30) calendar days after its issue or levy; or (j) A Borrower or any Subsidiary Guarantor institutes or consents to the institution of any proceeding under a Debtor Relief Law relating to it or to all or any material part of its Property, or is unable or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its Property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under a Debtor Relief Law relating to any such Person or to all or any part of its Property is instituted without the consent of that Person and continues undismissed or unstayed for sixty (60) calendar days; or (k) The occurrence of an Event of Default (as such term is or may hereafter be specifically defined in any other Loan Document) under any other Loan Document; or (l) Any Pension Plan maintained by any Borrower is finally determined by the PBGC to have a material "accumulated funding deficiency" as that term is defined in Section 302 of ERISA in excess of an amount equal to 5% of the consolidated total assets of such Borrower as of the most-recently ended Fiscal Quarter; or (m) Any Lien purported to be created under any Collateral Document shall cease to be, or shall be asserted by any Borrower or any of its Subsidiaries not to be, a valid and perfected Lien on any Collateral, with the priority required by the applicable Collateral Document, except as a result of the sale or other disposition of the applicable Collateral in a transaction permitted under the Loan Documents. 9.2 Remedies Upon Event of Default. Without limiting any other rights or remedies of the Administrative Agent or the Lenders provided for elsewhere in this Agreement, or the other Loan Documents, or by applicable Law, or in equity, or otherwise: (a) Upon the occurrence, and during the continuance, of any Event of Default other than an Event of Default described in Section 9.1(j): (1) the Administrative Agent may, and at the request of the Requisite Lenders shall, by written notice to the Borrowers, declare that all or any portion of the Revolving Commitment and all other obligations of the Lenders and the Issuing Bank under the Revolving Commitment are terminated; and (2) the Administrative Agent may, and at the request of the Requisite Lenders shall, declare all or any part of the unpaid principal of all Loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be forthwith due and payable, and shall notify each Borrower thereof, whereupon the same shall become and be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by each Borrower, and the Borrowers shall,in connection therewith, pay to the Administrative Agent an amount in cash equal to the aggregate amount of all outstanding Letters of Credit to be held as cash collateral hereunder. (b) Upon the occurrence of any Event of Default described in Section 9.1(j): (1) the Revolving Commitment and all other obligations of the Lenders shall terminate without notice to or demand upon any Borrower, which are expressly waived by each Borrower; (2) an amount equal to the aggregate amount of all outstanding Letters of Credit shall be immediately due and payable to the Issuing Lender without notice to or demand upon any Borrower, which are expressly waived by each Borrower, to be held by the Issuing Lender in an interest-bearing cash collateral account as collateral hereunder; and (3) the unpaid principal of all Loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents shall be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by each Borrower. (c) Upon the occurrence and during the continuation of any Event of Default, the Lenders and the Administrative Agent, or any of them, without notice to (except as expressly provided for in any Loan Document) or demand upon any Borrower, which are expressly waived by each Borrower, may proceed (but only with the consent of the Requisite Lenders) to protect, exercise and enforce their rights and remedies under the Loan Documents against each Borrower and any other Party and such other rights and remedies as are provided by Law or equity. (d) The order and manner in which the Lenders' rights and remedies are to be exercised shall be determined by the Administrative Agent in its sole discretion, unless instructed by the Requisite Lenders, in which case, by the Requisite Lenders in their sole discretion, and all payments received by the Administrative Agent and the Lenders, or any of them, during the continuation of an Event of Default, shall, subject to Section 3.18, be applied first to the costs and expenses (including reasonable attorneys' fees and disbursements and the reasonably allocated costs of attorneys employed by the Administrative Agent or by any Lender) of the Administrative Agent and of the Lenders, and thereafter paid pro rata to the Lenders in the same proportions that the aggregate Obligations owed to each Lender under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Lenders, without priority or preference among the Lenders. Regardless of how each Lender may treat payments for the purpose of its own accounting, for the purpose of computing Borrower's Obligations hereunder and under the Notes, payments during the continuation of an Event of Default shall be applied first, to the costs and expenses of the Administrative Agent and the Lenders, as set forth above, second, to the payment of accrued and unpaid interest due under any Loan Documents to and including the date of such application (ratably, and without duplication, according to the accrued and unpaid interest due under each of the Loan Documents), and third, to the payment of all other amounts (including principal and fees) then owing to the Administrative Agent or the Lenders under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of the Lenders hereunder or thereunder or at Law or in equity. Article 10 THE ADMINISTRATIVE AGENT 10.1 Appointment and Authorization. Subject to Section 10.8, each Lender hereby irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof or are reasonably incidental, as determined by the Administrative Agent, thereto. This appointment and authorization is intended solely for the purpose of facilitating the servicing of the Loans and does not constitute appointment of the Administrative Agent as trustee for any Lender or as representative of any Lender for any other purpose and, except as specifically set forth in the Loan Documents to the contrary, the Administrative Agent shall take such action and exercise such powers only in an administrative and ministerial capacity. 10.2 Administrative Agent and Affiliates. Wells Fargo Bank, National Association (and each successor Administrative Agent) has the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" includes Wells Fargo Bank, National Association in its individual capacity. Wells Fargo Bank, National Association (and each successor Administrative Agent) and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with any Borrower, any Subsidiary thereof, or any Affiliate of any Borrower or any Subsidiary thereof, as if it were not the Administrative Agent and without any duty to account therefor to the Lenders. Wells Fargo Bank, National Association (and each successor Administrative Agent) need not account to any other Lender for any monies received by it for reimbursement of its costs and expenses as Administrative Agent hereunder, or (subject to Section 11.10) for any monies received by it in its capacity as a Lender hereunder. The Administrative Agent shall not be deemed to hold a fiduciary relationship with any Lender and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. 10.3 Lenders' Credit Decisions. Each Lender agrees that it has, independently and without reliance upon the Administrative Agent, any other Lender or the directors, officers, agents, employees or attorneys of the Administrative Agent or of any other Lender, and instead in reliance upon information supplied to it by or on behalf of the Borrowers and upon such other information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement. Each Lender also agrees that it shall, independently and without reliance upon the Administrative Agent, any other Lender or the directors, officers, agents, employees or attorneys of the Administrative Agent or of any other Lender, continue to make its own independent credit analyses and decisions in acting or not acting under the Loan Documents. 10.4 Action by Administrative Agent. (a) Absent actual knowledge of the Administrative Agent of the existence of a Default, the Administrative Agent may assume that no Default has occurred and is continuing, unless the Administrative Agent (or the Lender that is then the Administrative Agent) has received notice from a Borrower stating the nature of the Default or has received notice from a Lender stating the nature of the Default and that such Lender considers the Default to have occurred and to be continuing. (b) The Administrative Agent has only those obligations under the Loan Documents as are expressly set forth therein. (c) Except for any obligation expressly set forth in the Loan Documents and as long as the Administrative Agent may assume that no Event of Default has occurred and is continuing, the Administrative Agent may, but shall not be required to, exercise its discretion to act or not act, except that the Administrative Agent shall be required to act or not act upon the instructions of the Requisite Lenders (or of all the Lenders, to the extent required by Section 11.2) and those instructions shall be binding upon the Administrative Agent and all the Lenders, provided that the Administrative Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Administrative Agent, in substantial risk of liability to the Administrative Agent. (d) If the Administrative Agent has received a notice specified in clause (a), the Administrative Agent shall immediately give notice thereof to the Lenders and shall act or not act upon the instructions of the Requisite Lenders (or of all the Lenders, to the extent required by Section 11.2), provided that the Administrative Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Administrative Agent, in substantial risk of liability to the Administrative Agent, and except that if the Requisite Lenders (or all the Lenders, if required under Section 11.2) fail, for five (5) Banking Days after the receipt of notice from the Administrative Agent, to instruct the Administrative Agent, then the Administrative Agent, in its sole discretion, may act or not act as it deems advisable for the protection of the interests of the Lenders. (e) The Administrative Agent shall have no liability to any Lender for acting, or not acting, as instructed by the Requisite Lenders (or all the Lenders, if required under Section 11.2), notwithstanding any other provision hereof. 10.5 Liability of Administrative Agent. Neither the Administrative Agent nor any of its directors, officers, agents, employees or attorneys shall be liable for any action taken or not taken by them under or in connection with the Loan Documents, except for their own gross negligence or willful misconduct. Without limitation on the foregoing, the Administrative Agent and its directors, officers, agents, employees and attorneys: (a) May treat the payee of any Note as the holder thereof until the Administrative Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by the payee, and may treat each Lender as the owner of that Lender's interest in the Obligations for all purposes of this Agreement until the Administrative Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by that Lender; (b) May consult with legal counsel (including in-house legal counsel), accountants (including in-house accountants) and other professionals or experts selected by it, or with legal counsel, accountants or other professionals or experts for Borrowers and/or their Subsidiaries or the Lenders, and shall not be liable for any action taken or not taken by it in good faith in accordance with any advice of such legal counsel, accountants or other professionals or experts; (c) Shall not be responsible to any Lender for any statement, warranty or representation made in any of the Loan Documents or in any notice, certificate, report, request or other statement (written or oral) given or made in connection with any of the Loan Documents; (d) Except to the extent expressly set forth in the Loan Documents, shall have no duty to ask or inquire as to the performance or observance by the Borrowers or their respective Subsidiaries of any of the terms, conditions or covenants of any of the Loan Documents or to inspect any collateral or any Property, books or records of the Borrowers or their Subsidiaries; (e) Will not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency or value of any Loan Document, any other instrument or writing furnished pursuant thereto or in connection therewith, or any Collateral or the perfection of any Lien thereon; (f) Will not incur any liability by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, request or other instrument or writing believed in good faith by it to be genuine and signed or sent by the proper party or parties; and (g) Will not incur any liability for any arithmetical error in computing any amount paid or payable by any Borrower or any Subsidiary or Affiliate thereof or paid or payable to or received or receivable from any Lender under any Loan Document, including, without limitation, principal, interest, commitment fees, Loans and other amounts; provided that, promptly upon discovery of such an error in computation, the Administrative Agent, the Lenders and (to the extent applicable) any Borrower and/or its Subsidiaries or Affiliates shall make such adjustments as are necessary to correct such error and to restore the parties to the position that they would have occupied had the error not occurred. 10.6 Indemnification. Each Lender shall, ratably in accordance with its proportion of the aggregate principal amount of the Loans outstanding, indemnify and hold the Administrative Agent and its directors, officers, agents, employees and attorneys harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable attorneys' fees and disbursements and allocated costs of attorneys employed by the Administrative Agent) that may be imposed on, incurred by or asserted against it or them in any way relating to or arising out of the Loan Documents (other than losses incurred by reason of the failure of any Borrower to pay the Indebtedness represented by the Notes) or any action taken or not taken by it as Administrative Agent thereunder, except such as result from its own gross negligence or willful misconduct. Without limitation on the foregoing, each Lender shall reimburse the Administrative Agent upon demand for that Lender's Pro Rata Share of any out-of-pocket cost or expense incurred by the Administrative Agent in connection with the negotiation, preparation, execution, delivery, amendment, waiver, restructuring, reorganization (including a bankruptcy reorganization), enforcement or attempted enforcement of the Loan Documents, to the extent that any Borrower or any other Party is required by Section 11.3 to pay that cost or expense but fails to do so upon demand. Nothing in this Section 10.6 shall entitle the Administrative Agent or any indemnitee referred to above to recover any amount from the Lenders if and to the extent that such amount has theretofore been recovered from a Borrower or any of its Subsidiaries. To the extent that the Administrative Agent or any indemnitee referred to above is later reimbursed such amount by a Borrower or any of its Subsidiaries, it shall return the amounts paid to it by the Lenders in respect of such amount. 10.7 Successor Administrative Agent. The Administrative Agent may, and at the request of the Requisite Lenders shall, resign as Administrative Agent upon reasonable notice to the Lenders and each Borrower effective upon acceptance of appointment by a successor Administrative Agent. If the Administrative Agent shall resign as Administrative Agent under this Agreement, the Requisite Lenders shall appoint from among the Lenders a successor Administrative Agent for the Lenders, which successor Administrative Agent shall be approved by each Borrower (and such approval shall not be unreasonably withheld or delayed). If no successor Administrative Agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and each Borrower, a successor Administrative Agent from among the Lenders. Upon the acceptance of its appointment as successor Administrative Agent hereunder, such successor Administrative Agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor Administrative Agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article 10, and Sections 11.3, 11.11 and 11.22, shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. Notwithstanding the foregoing, if (a) the Administrative Agent has not been paid its agency fees under Section 3.5 or has not been reimbursed for any expense reimbursable to it under Section 11.3, in either case for a period of at least one (1) year and (b) no successor Administrative Agent has accepted appointment as Administrative Agent by the date which is thirty (30) days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Administrative Agent as provided for above. 10.8 No Obligations of Borrowers. Nothing contained in this Article 10 shall be deemed to impose upon any Borrower any obligation in respect of the due and punctual performance by the Administrative Agent of its obligations to the Lenders under any provision of this Agreement, and no Borrower shall have liability to the Administrative Agent or any of the Lenders in respect of any failure by the Administrative Agent or any Lender to perform any of its obligations to the Administrative Agent or the Lenders under this Agreement. Without limiting the generality of the foregoing, where any provision of this Agreement relating to the payment of any amounts due and owing under the Loan Documents provides that such payments shall be made by a Borrower to the Administrative Agent for the account of the Lenders, such Borrower's obligations to the Lenders in respect of such payments shall be deemed to be satisfied upon the making of such payments to the Administrative Agent in the manner provided by this Agreement. Article 11 MISCELLANEOUS 11.1 Cumulative Remedies; No Waiver. The rights, powers, privileges and remedies of the Administrative Agent and the Lenders provided herein or in any Note or other Loan Document are cumulative and not exclusive of any right, power, privilege or remedy provided by Law or equity. No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power, privilege or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power, privilege or remedy preclude any other or further exercise of the same or any other right, power, privilege or remedy. The terms and conditions of Article 10 (other than Section 10.8) hereof are inserted for the sole benefit of the Administrative Agent and the Lenders; the same may be waived in whole or in part, with or without terms or conditions, in respect of any Loan without prejudicing the Administrative Agent's or the Lenders' rights to assert them in whole or in part in respect of any other Loan. 11.2 Amendments; Consents. No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder (other than a consent relating to a matter expressly stated by this Agreement to require only the Administrative Agent's consent), and no consent to any departure by any Borrower or any other Party therefrom, may in any event be effective unless in writing signed by the Administrative Agent with the written approval of the Requisite Lenders (and, in the case of any amendment, modification or supplement of or to any Loan Document to which a Borrower is a Party, signed by such Borrower, and, in the case of any amendment, modification or supplement to Article 10, signed by the Administrative Agent), and then only in the specific instance and for the specific purpose given; and, without the approval in writing of all the Lenders, no amendment, modification, supplement, termination, waiver or consent (other than a consent relating to a matter expressly stated by this Agreement to require only the Administrative Agent's consent) may be effective: (a) To amend or modify the principal of, or the amount of principal, principal prepayments or the rate of interest payable on, any Loan or Note, or the amount of the Revolving Commitment or the Pro Rata Share of any Lender or the amount of any commitment fee payable to any Lender, or any other fee or amount payable to any Lender under the Loan Documents or to waive an Event of Default consisting of the failure of any Borrower to pay when due principal, interest or any fee due to the Lenders or the Issuing Bank; (b) To postpone any date fixed for any payment of principal of, prepayment of principal of or any installment of interest on, any Loan or Note or any installment of any fee due to the Lenders or the Issuing Bank, or to extend the term of the Revolving Commitment; (c) To amend the provisions of the definition of "Requisite Lenders", "Revolving Loan Maturity Date" or "Term Loan Maturity Date"; or (d) To release any Subsidiary Guarantor from its obligations under the Subsidiary Guaranty; or (e) To amend or waive any provision of Article 8 or this Section 11.2; or (f) To amend any provision of this Agreement that expressly requires the consent or approval of all the Lenders; or (g) To release any Collateral (other than in connection with any sale or other disposition permitted under the Loan Documents) that, individually or in the aggregate, constitutes more than one-half of one percent (0.05%) of the net book value of the consolidated assets of Day Runner and its Subsidiaries as set forth in financial statements delivered to the Administrative Agent and the Lenders pursuant to Section 7.1 for the Fiscal Year ended June 30, 1999. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section 11.2 shall apply equally to, and shall be binding upon, all the Lenders and the Administrative Agent. 11.3 Costs, Expenses and Taxes. Borrowers, jointly and severally, shall pay within ten (10) Banking Days after demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Administrative Agent in connection with the negotiation, preparation, syndication, execution and delivery of the Loan Documents and any amendment thereto or waiver thereof. Borrowers, jointly and severally, shall also pay on demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Administrative Agent and the Lenders in connection with the restructuring, reorganization (including a bankruptcy reorganization of any Borrower or any of their respective Subsidiaries) and enforcement or attempted enforcement of the Loan Documents, and any matter related thereto. The foregoing costs and expenses shall include any applicable filing fees, recording fees, search fees, and other out-of-pocket expenses and the reasonable fees and out-of-pocket expenses of any legal counsel (including reasonably allocated costs of any in-house legal counsel of the Administrative Agent or any Lender), independent public accountants and other outside experts retained by the Administrative Agent or any Lender, whether or not such costs and expenses are incurred or suffered by the Administrative Agent or any Lender in connection with or during the course of any bankruptcy or insolvency proceedings of any Borrower or any Subsidiary thereof. Borrowers, jointly and severally, shall pay any and all documentary and other taxes, excluding (i) taxes imposed on or measured in whole or in part by a Lender's overall net income or net worth imposed on it by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office or (B) any jurisdiction (or political subdivision thereof) in which it is "doing business" or (ii) any withholding taxes or other taxes based on gross income imposed by the United States of America for any period with respect to which it has failed to provide Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws, and all costs, expenses, fees and charges payable or determined to be payable in connection with the filing or recording of this Agreement, any other Loan Document or any other instrument or writing to be delivered hereunder or thereunder, or in connection with any transaction pursuant hereto or thereto, and shall reimburse, hold harmless and indemnify on the terms set forth in 11.11 the Administrative Agent and the Lenders from and against any and all loss, liability or legal or other expense with respect to or resulting from any delay in paying or failure to pay any such tax, cost, expense, fee or charge or that any of them may suffer or incur by reason of the failure of any Party to perform any of its Obligations. 11.4 Nature of Lenders' Obligations. The obligations of the Lenders hereunder are several and not joint or joint and several. Nothing contained in this Agreement or any other Loan Document and no action taken by the Administrative Agent or the Lenders or any of them pursuant hereto or thereto may, or may be deemed to, make the Lenders a partnership, an association, a joint venture or other entity, either among themselves or with the Borrowers or any Affiliate of any of the Borrowers. A default by any Lender will not increase the Pro Rata Share of the Revolving Commitment attributable to any other Lender. Any Lender not in default may, if it desires, assume in such proportion as the nondefaulting Lenders agree the obligations of any Lender in default, but is not obligated to do so. The Administrative Agent agrees that it will use its best efforts either to induce promptly the other Lenders to assume the obligations of a Lender in default or to obtain promptly another Lender, reasonably satisfactory to the Borrowers, to replace such a Lender in default. 11.5 Survival of Representations and Warranties. All representations and warranties contained herein or in any other Loan Document, or in any certificate or other writing delivered by or on behalf of any one or more of the Parties to any Loan Document, will survive the making of the Loans hereunder and the execution and delivery of the Notes, and have been or will be relied upon by the Administrative Agent and each Lender, notwithstanding any investigation made by the Administrative Agent or any Lender or on their behalf. 11.6 Notices. Except as otherwise expressly provided in the Loan Documents, all notices, requests, demands, directions and other communications provided for hereunder or under any other Loan Document must be in writing and must be mailed, telegraphed, telecopied, dispatched by commercial courier or delivered to the appropriate party at the address set forth on the signature pages of this Agreement or other applicable Loan Document or, as to any party to any Loan Document, at any other address as may be designated by it in a written notice sent to all other parties to such Loan Document in accordance with this Section. Except as otherwise expressly provided in any Loan Document, if any notice, request, demand, direction or other communication required or permitted by any Loan Document is given by mail it will be effective on the earlier of receipt or the fourth Banking Day after deposit in the United States mail with first class or airmail postage prepaid; if given by telegraph or cable, when delivered to the telegraph company with charges prepaid; if given by telecopier, when sent; if dispatched by commercial courier, on the scheduled delivery date; or if given by personal delivery, when delivered. 11.7 Execution of Loan Documents. Unless the Administrative Agent otherwise specifies with respect to any Loan Document, (a) this Agreement and any other Loan Document may be executed in any number of counterparts and any party hereto or thereto may execute any counterpart, each of which when executed and delivered will be deemed to be an original and all of which counterparts of this Agreement or any other Loan Document, as the case may be, when taken together will be deemed to be but one and the same instrument and (b) execution of any such counterpart may be evidenced by a telecopier transmission of the signature of such party. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. 11.8 Binding Effect; Assignment. (a) This Agreement and the other Loan Documents to which each Borrower is a Party will be binding upon and inure to the benefit of Borrowers, the Administrative Agent, each of the Lenders, and their respective successors and assigns, except that no Borrower may assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of all the Lenders. Any Lender may at any time pledge any of its Notes or any other instrument evidencing its rights as a Lender under this Agreement to a Federal Reserve Bank, but no such pledge shall release that Lender from its obligations hereunder or grant to such Federal Reserve Bank the rights of a Lender hereunder absent foreclosure of such pledge. (b) From time to time following the Effective Date, each Lender may assign to one or more Persons all or any portion of its Pro Rata Share of the Revolving Commitment and/or Term Loans; provided that (i) such Person, if not then a Lender or an Affiliate of the assigning Lender, shall be approved by the Administrative Agent and (if no Event of Default then exists) the Borrowers (neither of which approvals shall be unreasonably withheld or delayed), (ii) such assignment shall be evidenced by an Assignment and Acceptance, a copy of which shall be furnished to the Administrative Agent as hereinbelow provided, (iii) except in the case of an assignment to an Affiliate of the assigning Lender, to another Lender or of the entire remaining Revolving Commitment of the assigning Lender or all of the outstanding Term Loans of such Lender, the assignment shall assign the same percentage of the assigning Lender's Pro Rata Share of the Revolving Commitment and of the Term Loans owing to such assigning Lender, and shall not assign a Pro Rata Share of the Revolving Commitment and the Term Loans that, in the aggregate, is equivalent to less than $5,000,000 and (iv) the effective date of any such assignment shall be as specified in the Assignment and Acceptance, but not earlier than the date which is five (5) Banking Days after the date the Administrative Agent has received the Assignment and Acceptance. Upon the effective date of such Assignment and Acceptance, the Person named therein shall be a Lender for all purposes of this Agreement, with the Pro Rata Share of the Revolving Commitment and Term Loans therein set forth and, to the extent of such Pro Rata Share, the assigning Lender shall be released from its further obligations under this Agreement. Each Borrower agrees that it shall execute and deliver (against delivery by the assigning Lender to each Borrower of its Revolving Loan Notes and Term Loan Note) to such assignee Lender, Revolving Loan Notes and Term Loan Notes evidencing that assignee Lender's Pro Rata Share of the Revolving Commitment and Term Loans and to the assigning Lender, Revolving Loan Notes and Term Loan Notes evidencing the remaining balance Pro Rata Share retained by the assigning Lender. (c) By executing and delivering an Assignment and Acceptance, the Person constituting the assignee thereunder acknowledges and agrees that: (i) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Share of the Revolving Commitment and Term Loans being assigned thereby free and clear of any adverse claim, the assigning Lender has made no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of this Agreement or any other Loan Document; (ii) the assigning Lender has made no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance by the Borrowers of the Obligations; (iii) it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) it will, independently and without reliance upon the Administrative Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) it appoints and authorizes the Administrative Agent to take such action and to exercise such powers under this Agreement as are delegated to the Administrative Agent by this Agreement; and (vi) it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent shall maintain at the Administrative Agent's Office a copy of each Assignment and Acceptance delivered to it and a register (the "Register") of the name and address of each of the Lenders and the Pro Rata Share of the Revolving Commitment and Term Loans held by each Lender, giving effect to each Assignment and Acceptance. The Register shall be available during normal business hours for inspection by any Borrower or any Lender upon reasonable prior notice to the Administrative Agent. After receipt of a completed Assignment and Acceptance executed by any Lender and an assignee, and receipt of an assignment fee of $3,500 from such Lender or assignee, the Administrative Agent shall, promptly following the effective date thereof, provide to the Borrowers and the Lenders a revised Schedule 1.1 giving effect thereto. Each Borrower, the Administrative Agent and the Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the Pro Rata Share of the Revolving Commitment and Term Loans listed therein for all purposes hereof, and no assignment or transfer of any such Pro Rata Share of the Revolving Commitment and Term Loans shall be effective, in each case unless and until an Assignment and Acceptance effecting the assignment or transfer thereof shall have been accepted by the Administrative Agent and recorded in the Register as provided above. Prior to such recordation, all amounts owed with respect to the applicable Pro Rata Share of the Revolving Commitment and Term Loans shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Pro Rata Share of the Revolving Commitment and Term Loans. (e) Each Lender may from time to time grant participations to one or more banks or other financial institutions in a portion of its Pro Rata Share of the Revolving Commitment and Term Loans; provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other financial institutions shall not be a Lender hereunder for any purpose except, if the participation agreement so provides, for the purposes of Sections 3.6, 3.7, 3.8, 11.11 and 11.22 but only to the extent that the cost to the Borrowers does not exceed the cost which the Borrowers would have incurred in respect of such Lender absent the participation, (iv) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (v) the participation interest shall be expressed as a percentage of the granting Lender's Pro Rata Share of the Revolving Commitment and Term Loans, respectively, as they then exist and shall not restrict an increase in the Revolving Commitment, or in the granting Lender's Pro Rata Share of the Revolving Commitment, so long as the amount of the participation interest is not affected thereby and (vi) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than those which (A) extend the Revolving Loan Maturity Date or Term Loan Maturity Date or any other date upon which any payment of money is due to the Lenders, (B) reduce the rate of interest on any Loan, any fee or any other monetary amount payable to the Lenders, (C) reduce the amount of any installment of principal due with respect to any Loan or (D) release any Subsidiary Guarantor from its obligations under the Subsidiary Guaranty. 11.9 Right of Setoff. If an Event of Default has occurred and is continuing, the Administrative Agent or any Lender may exercise its rights under applicable Laws and, to the extent permitted by applicable Laws, apply any funds in any deposit account maintained with it by any Borrower and/or any Property of any Borrower in its possession against the Obligations. 11.10 Sharing of Setoffs. Each Lender severally agrees that if it, through the exercise of any right of setoff, banker's lien or counterclaim against any Borrower, or otherwise, receives payment of the Obligations held by it that is ratably more than any other Lender, through any means, receives in payment of the Obligations held by that Lender, then, subject to applicable Laws: (a) the Lender exercising the right of setoff, banker's lien or counterclaim or otherwise receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from each of the other Lenders a participation in the Obligations held by the other Lenders and shall pay to the other Lenders a purchase price in an amount so that the share of the Obligations held by each Lender after the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment shall be in the same proportion that existed prior to the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment; and (b) such other adjustments and purchases of participations shall be made from time to time as shall be equitable to ensure that all of the Lenders share any payment obtained in respect of the Obligations ratably in accordance with each Lender's share of the Obligations immediately prior to, and without taking into account, the payment; provided that, if all or any portion of a disproportionate payment obtained as a result of the exercise of the right of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from the purchasing Lender by any Borrower or any Person claiming through or succeeding to the rights of such Borrower, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest. Each Lender that purchases a participation in the Obligations pursuant to this Section 11.10 shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased. Each Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in an Obligation so purchased pursuant to this Section 11.10 may exercise any and all rights of setoff, banker's lien or counterclaim with respect to the participation as fully as if the Lender were the original owner of the Obligation purchased. 11.11 Indemnity by Borrowers. Borrowers jointly and severally agree to indemnify, save and hold harmless the Administrative Agent and each Lender and their respective directors, officers, agents, attorneys and employees (collectively the "Indemnitees") from and against: (a) any and all claims, demands, actions or causes of action if the claim, demand, action or cause of action arises out of or relates to any act or omission (or alleged act or omission) of any Borrower, its Affiliates or any of its officers, directors or stockholders relating to the Revolving Commitment or the Term Loans, the use or contemplated use of proceeds of any Loan, or the relationship of the Borrowers and the Lenders under this Agreement; (b) any administrative or investigative proceeding by any Governmental Agency arising out of or related to a claim, demand, action or cause of action described in clause (a) above; and (c) any and all liabilities, losses, costs or expenses (including reasonable attorneys' fees and the reasonably allocated costs of attorneys employed by any Indemnitee and disbursements of such attorneys and other professional services) that any Indemnitee suffers or incurs as a result of the assertion of any foregoing claim, demand, action or cause of action; provided that no Indemnitee shall be entitled to indemnification for any loss caused by its own gross negligence or willful misconduct. If any claim, demand, action or cause of action is asserted against any Indemnitee, such Indemnitee shall promptly notify the Borrowers, but the failure to so promptly notify the Borrowers shall not affect the Borrowers' obligations under this Section unless such failure materially prejudices the Borrowers' right to participate in the contest of such claim, demand, action or cause of action, as hereinafter provided. Such Indemnitee may (and shall, if requested by the Borrowers in writing) contest the validity, applicability and amount of such claim, demand, action or cause of action and shall permit the Borrowers to participate in such contest. Any Indemnitee that proposes to settle or compromise any claim or proceeding for which the Borrowers may be liable for payment of indemnity hereunder shall give the Borrowers written notice of the terms of such proposed settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and, so long as no Event of Default has occurred and is continuing, shall obtain the Borrowers' prior written consent (which shall not be unreasonably withheld or delayed). In connection with any claim, demand, action or cause of action covered by this Section 11.11 against more than one Indemnitee, all such Indemnitees shall be represented by the same legal counsel (which may be a law firm engaged by the Indemnitees or attorneys employed by an Indemnitee or a combination of the foregoing) selected by the Indemnitees and, so long as no Event of Default has occurred and is continuing, reasonably acceptable to the Borrowers; provided that if such legal counsel determines in good faith that representing all such Indemnitees would or is reasonably likely to result in a conflict of interest under Laws or ethical principles applicable to such legal counsel, then to the extent reasonably necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense or counterclaim, each affected Indemnitee shall be entitled to separate representation by legal counsel selected by that Indemnitee and, so long as no Event of Default has occurred and is continuing, reasonably acceptable to the Borrowers, with all such legal counsel using reasonable efforts to avoid unnecessary duplication of effort by counsel for all Indemnitees; and further provided that the Administrative Agent (as an Indemnitee) shall at all times be entitled to representation by separate legal counsel (which may be a law firm or attorneys employed by the Administrative Agent or a combination of the foregoing). Any obligation or liability of the Borrowers to any Indemnitee under this Section 11.11 shall survive the expiration or termination of this Agreement and the repayment of all Loans and the payment and performance of all other Obligations owed to the Lenders. 11.12 Nonliability of the Lenders. Each Borrower acknowledges and agrees that: (a) Any inspections of any Property of any Borrower made by or through the Administrative Agent or the Lenders are for purposes of administration of the Loan only and such Borrower is not entitled to rely upon the same (whether or not such inspections are at the expense of such Borrower); (b) By accepting or approving anything required to be observed, performed, fulfilled or given to the Administrative Agent or the Lenders pursuant to the Loan Documents, neither the Administrative Agent nor the Lenders shall be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by the Administrative Agent or the Lenders; (c) The relationship between the Borrowers and the Administrative Agent and the Lenders is, and shall at all times remain, solely that of borrowers and lenders; neither the Administrative Agent nor the Lenders shall under any circumstance be construed to be partners or joint venturers of the Borrowers or their Affiliates; neither the Administrative Agent nor the Lenders shall under any circumstance be deemed to be in a relationship of confidence or trust or a fiduciary relationship with the Borrowers or their Affiliates, or to owe any fiduciary duty to the Borrowers or their Affiliates; neither the Administrative Agent nor the Lenders undertake or assume any responsibility or duty to the Borrowers or their Affiliates to select, review, inspect, supervise, pass judgment upon or inform the Borrowers or their Affiliates of any matter in connection with their Property or the operations of the Borrowers or their Affiliates; the Borrowers and their Affiliates shall rely entirely upon their own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by the Administrative Agent or the Lenders in connection with such matters is solely for the protection of the Administrative Agent and the Lenders and neither the Borrowers nor any other Person is entitled to rely thereon; and (d) The Administrative Agent and the Lenders shall not be responsible or liable to any Person for any loss, damage, liability or claim of any kind relating to injury or death to Persons or damage to Property caused by the actions, inaction or negligence of any Borrower and/or its Affiliates and each Borrower hereby indemnifies and holds the Administrative Agent and the Lenders harmless on the terms set forth in Section 11.11 from any such loss, damage, liability or claim. 11.13 No Third Parties Benefited. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of the Borrowers, the Administrative Agent and the Lenders in connection with the Loans, and is made for the sole benefit of the Borrowers, the Administrative Agent and the Lenders, and the Administrative Agent's and the Lenders' successors and assigns. Except as provided in Sections 11.8 and 11.11, no other Person shall have any rights of any nature hereunder or by reason hereof. 11.14 Confidentiality. Each Lender agrees to hold any confidential information that it may receive from the Borrowers pursuant to this Agreement in confidence, except for disclosure: (a) to other Lenders or Affiliates of a Lender; (b) to legal counsel and accountants for the Borrowers or any Lender; (c) to other professional advisors to the Borrowers or any Lender, provided that the recipient has accepted such information subject to a confidentiality agreement substantially similar to this Section 11.14; (d) to regulatory officials having jurisdiction over that Lender; (e) as required by Law or legal process, provided that each Lender agrees to notify the Borrowers of any such disclosures unless prohibited by applicable Laws, or in connection with any legal proceeding to which that Lender and the Borrowers are adverse parties; and (f) to another Person in connection with a disposition or proposed disposition to that Person of all or part of that Lender's interests hereunder or a participation interest in its Notes. For purposes of the foregoing, "confidential information" shall mean all Projections, information relating to acquisitions, information relating to the Borrowers' businesses and any other information respecting the Borrowers or their Subsidiaries reasonably considered by the Borrowers to be confidential, other than (i) information previously filed with any Governmental Agency and available to the public, (ii) information previously published in any public medium from a source other than, directly or indirectly, that Lender, and (iii) information previously disclosed by the Borrowers to any Person not associated with the Borrowers which does not owe a professional duty of confidentiality to the Borrowers or which has not executed an appropriate confidentiality agreement with the Borrowers. Nothing in this Section shall be construed to create or give rise to any fiduciary duty on the part of the Administrative Agent or the Lenders to the Borrowers. 11.15 Further Assurances. The Borrowers shall, at their expense and without expense to the Lenders or the Administrative Agent, do, execute and deliver such further acts and documents as the Requisite Lenders or the Administrative Agent from time to time reasonably require for the assuring and confirming unto the Lenders or the Administrative Agent of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document. 11.16 Integration. This Agreement, together with the other Loan Documents and the letter agreement referred to in Section 3.4, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control and govern; provided that the inclusion of supplemental rights or remedies in favor of the Administrative Agent or the Lenders in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. 11.17 Governing Law. Except to the extent otherwise provided therein, each Loan Document shall be governed by, and construed and enforced in accordance with, the Laws of California applicable to contracts made and performed in California. 11.18 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable or invalid as to any party or in any jurisdiction shall, as to that party or jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions or the operation, enforceability or validity of that provision as to any other party or in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 11.19 Headings. Article and Section headings in this Agreement and the other Loan Documents are included for convenience of reference only and are not part of this Agreement or the other Loan Documents for any other purpose. 11.20 Time of the Essence. Time is of the essence of the Loan Documents. 11.21 Foreign Lenders and Participants. Each Lender that is incorporated or otherwise organized under the Laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia shall deliver to the Borrowers (with a copy to the Administrative Agent), on or before the Effective Date (or on or before accepting an assignment or receiving a participation interest herein pursuant to Section 11.8, if applicable) two duly completed copies, signed by a Responsible Official, of either Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all payments to be made to such Lender by the Borrowers pursuant to this Agreement) or Form 4224 (relating to all payments to be made to such Lender by the Borrowers pursuant to this Agreement) of the United States Internal Revenue Service or such other evidence (including, if reasonably necessary, Form W-9) satisfactory to the Borrowers and the Administrative Agent that no withholding under the federal income tax laws is required with respect to such Lender. Thereafter and from time to time, each such Lender shall (a) promptly submit to the Borrowers (with a copy to the Administrative Agent), such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to the Borrowers and the Administrative Agent of any available exemption from, United States withholding taxes in respect of all payments to be made to such Lender by the Borrowers pursuant to this Agreement and (b) take such steps as shall not be disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably necessary (including the re-designation of its Eurodollar Lending Office, if any) to avoid any requirement of applicable Laws that any Borrower make any deduction or withholding for taxes from amounts payable to such Lender. 11.22 Joint and Several Liability. (a) Each Borrower shall be jointly and severally liable for all of the Obligations, provided that, notwithstanding anything to the contrary herein (including, without limitation, the representations and warranties set forth in Article 4), (i) Filofax Group shall be liable with respect to the Term Loans only to the extent of the greater of (x) 13,533,000 pounds sterling and (y) its "distributable profits" (within the meaning of Section 152(1)(b) the Companies Act and which, for the avoidance of doubt, shall include both revenue reserves and reserves related to premiums on shares issued, in each case, as reflected in Filofax Group's accounts) as of any date or dates upon which payment is demanded under the Subsidiary Guaranty of Term Loans executed by Filofax Group and (ii) and Filofax shall be liable with respect to the Term Loans only to the extent of the greater of (x) 1,960,000 pounds sterling and (y) its "distributable profits" (within the meaning of Section 152(1)(b) the Companies Act and which, for the avoidance of doubt, shall include both revenue reserves and reserves related to premiums on shares issued, in each case, as reflected in Filofax's accounts) as of any date or dates upon which payment is demanded under the Borrower Guaranty of Term Loans executed by Filofax, it being understood and agreed that neither the Administrative Agent nor the Lenders shall demand payment by Filofax of principal of or interest on the Term Loans, under the Borrower Guaranty of Term Loans or on account of its joint and several liability therefor arising hereunder, prior to October 15, 2000, provided that it is further understood and agreed that nothing in this Agreement or any other Loan Document shall preclude the Administrative Agent or the Lenders, in the event that the Term Loans shall become due and payable prior to October 15, 2000, from making demand upon Filofax for payment thereof, subject to the limitations set forth herein and in the Borrower Guaranty of Term Loans, at any time on or after October 15, 2000. (b) Each Borrower hereby agrees that its Obligations hereunder shall not be discharged or otherwise affected as a result of (a) the invalidity or unenforceability of any of the other Borrowers' obligations under this Agreement or any other Loan Document or any other agreement or instrument relating thereto, or any guaranty of the Obligations, (b) the absence of any attempt to collect the Obligations from any of the other Borrowers or other action to enforce the same; (c) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any of the other Borrowers (other than such Borrower), including without limitation, any discharge of, or bar or stay against collecting, all or any of the Obligations (or any interest thereon) in or as a result of any such proceeding; (d) failure by the Administrative Agent, any Lender, or the Issuing Lender to file or enforce a claim against any other Borrower or its estate in any bankruptcy or insolvency case or proceeding; (e) any action taken by the Administrative Agent, any Lender, or the Issuing Lender that is authorized hereby; or (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor or any other third party obligor on any Obligations, other than the payment in full of the Obligations. Each Borrower hereby waives (a) diligence, presentment, demand of payment (except as expressly required hereunder), filing of claims with a court in the event of receivership or bankruptcy of the other Borrowers, protest or notice with respect to the Obligations, and all presentments, demands for performance, notices of nonperformance (except to the extent expressly required hereunder), protests, notices of protest, notices of dishonor and notices of acceptance of this Agreement and the Obligations, the benefits of all statutes of limitation, and all other demands (except as expressly required hereunder) whatsoever (and shall not require that the same be made on the other Borrowers as a condition precedent to its Obligations hereunder), (b) all notices of the existence, creation or incurring of new or additional indebtedness, arising either from additional loans extended to the other Borrowers or otherwise, (c) all notices that the principal amount, or any portion thereof, and/or any interest on any instrument or document evidencing all or any part of the Obligations is due (except as expressly required hereunder), (d) notices of any and all proceedings to collect from the maker, any endorser or any other guarantor of all or any part of the Obligations, or from any other Person, (e) any requirement of marshalling or any other principle of election of remedies and all rights and defenses arising out of an election of remedies by any Lender, (f) any defense based upon any Requirement of Law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal and (g) without limiting the generality of the foregoing or any other provision hereof, all rights and benefits under California Civil Code Sections 2808, 2809, 810, 2811, 2819, 2839, 2845, 2849, 2850 and 3433. 11.23 Removal of a Lender. Borrowers shall have the right to remove a Lender as a party to this Agreement if such Lender is paid a material amount by Borrowers pursuant to Section 3.6 or Section 3.7. Upon notice from Borrowers, such Lender shall execute and deliver an Assignment and Acceptance covering that Lender's Pro Rata Share of the Revolving Commitment and Term Loans, as the case may be, in favor of such Person as Borrowers may designate (subject to the approval of the Administrative Agent in its sole discretion), subject to payment in full by such Person of all principal, interest and fees owing to such Lender through the date of assignment and the agreement of such Person to indemnify such Lender with respect to all then outstanding Letters of Credit. The Administrative Agent shall, if requested by the Borrowers, use reasonable efforts to identify Persons willing to accept such an assignment from such Lender. 11.24 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTY HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 11.25 Purported Oral Amendments. EACH BORROWER EXPRESSLY ACKNOWLEDGES THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. EACH BORROWER AGREES THAT IT WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE ADMINISTRATIVE AGENT OR ANY LENDER THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. 11.25 Acknowledgment of Lenders. Each of the Lenders and the Administrative Agent hereby acknowledges and agrees that as of the Effective Date, after giving effect to this Agreement, no Default or Event of Default shall have occurred and be continuing with respect to the covenants set forth in Sections 6.12 and 6.13 of this Agreement for the period of four consecutive Fiscal Quarters ended on June 30, 1999. [signatures on following pages] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. DAY RUNNER, INC. By:/s/ James E. Freeman, Jr. ---------------------------- Name: James E. Freeman, Jr. Chief Executive Officer Address: 15295 Alton Parkway Irvine, California 92618 Facsimile: 714-441-4848 DAY RUNNER UK plc By:/s/ James E. Freeman, Jr. ---------------------------- Name: James E. Freeman, Jr. Director Address: Day Runner UK plc 30-32 Gildredge Road Eastbourne East Sussex BN21 45H DAY RUNNER CANADA INC. By:/s/ Catherine F. Ratcliffe ----------------------------- Name: Catherine F. Ratcliffe Director FILOFAX LIMITED By: /s/ Christopher Brace -------------------------- Name: Christopher Brace Director Address: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent and Issuing Lender By:/s/ Greg Richardson ---------------------------- Address: WELLS FARGO BANK, N.A., as Agent Commercial Bank Loan Center Agency Dept., 2840 201 3rd Street, 8th Floor San Francisco, CA 94103 Attn: Manager Telephone: 415-477-5319 Facsimile: 415-512-9408 and WELLS FARGO BANK, N.A., as Agent 333 South Grand Avenue 3rd Floor Los Angeles, CA 90071 Attn: Greg Richardson Telephone: 213-253-6848 Facsimile: 213-253-5913 Payment Instructions: WELLS FARGO, N.A. San Francisco, CA ABA # 1210-00248 For Acct.: 4081656654 Acct. Name: SYNDIC/WFBCORP/DAY RUNNER Ref.: Day Runner Lenders: WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Greg Richardson -------------------------------------- Name: Greg Richardson Title: Vice President BANK OF SCOTLAND By: /s/ Ronnie Allan ------------------------------------- Name: Ronnie Allan Title: Corporate Banking Manager CREDIT AGRICOLE INDOSUEZ By: /s/ Richard Mand ------------------------------------- Name: Richard Mand Title: 1st Vice President BANK ONE, NA By: /s/ Dennis Warren ------------------------------------- Name: Dennis Warren Title: Vice President MELLON BANK, N.A. By:/s/ Richard M. McNiven ------------------------------------ Name: Richard M. McNiven Title: Assistant Vice President NATIONAL WESTMINSTER BANK plc By: /s/ Paul Sullivan ----------------------------------- Name: Paul Sullivan Title: Manager EX-21 6 SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21.1 DAY RUNNER, INC. SUBSIDIARIES ================================================= ================================================= SUBSIDIARY JURISDICTION ================================================= ================================================= DRI International Holdings Inc. Delaware ================================================= ================================================= DR UK Holdings Limited United Kingdom ================================================= ================================================= Day Runner UK plc United Kingdom ================================================= ================================================= Filofax Group Limited United Kingdom ================================================= ================================================= Filofax Limited United Kingdom ================================================= ================================================= Filofax France s.a.r.l France - ------------------------------------------------- ================================================= Filofax GmbH Germany - ------------------------------------------------- ================================================= - ------------------------------------------------- ================================================= Filofax A/s Denmark - ------------------------------------------------- ================================================= - ------------------------------------------------- ================================================= Filofax AB Sweden - ------------------------------------------------- ================================================= - ------------------------------------------------- ================================================= Filofax Inc. Connecticut - ------------------------------------------------- ================================================= ================================================= ================================================= Day Runner Canada Inc. Canada ================================================= =================================================
EX-23 7 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 INDEPENDENT AUDITORS' REPORT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement Nos. 33-46969 and 33-53422 of Day Runner, Inc. on Form S-8, in Registration Statement No. 33-67092 of Day Runner, Inc. on Form S-8, in Post-Effective Amendment No. 1 to Registration Statement No. 33-61186 of Day Runner, Inc. on Form S-3, and in Registration Statement Nos. 33-84036, 33-80819, 333-20247, 333-34887, 333-44627, and 333-69023 of Day Runner, Inc. on Form S-8 of our report dated October 12, 1999, appearing in this Annual Report on Form 10-K of Day Runner, Inc. for the year ended June 30, 1999. DELOITTE & TOUCHE LLP Los Angeles, California October 12, 1999 EX-27 8 FDS --
5 This schedule contains summary financial information extracted from the consolidated balance sheet and the consolidated statement of operations filed as part of the Annual Report on Form 10-K and is qualified in its entirety by reference to such report on Form 10-K. 0000853102 Day Runner, Inc. 1,000 12-mos Jun-30-1999 Jul-01-1998 Jun-30-1999 9,132 0 54,696 11,481 42,361 110,837 44,086 26,235 216,311 40,346 0 0 0 14 70,383 216,311 196,212 196,212 108,087 108,087 89,697 0 5,215 (6,787) (2,789) (3,998) 0 0 0 (3,998) (0.34) (0.34)
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