CREDIT AGREEMENT

         THIS CREDIT  AGREEMENT  ("Agreement") is entered into as of February 1,
1998, by and between DAY RUNNER, INC., a Delaware corporation ("Borrower"),  and
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").


                                     RECITAL

         Borrower has  requested  from Bank the credit  accommodation  described
below,  and Bank has agreed to provide said credit  accommodation to Borrower on
the terms and conditions contained herein.

         NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:


                                    ARTICLE I
                                   THE CREDIT


         SECTION 1.1.      LINE OF CREDIT.

         (a)  Line of  Credit.  Subject  to the  terms  and  conditions  of this
Agreement,  Bank hereby agrees to make advances to Borrower from time to time up
to and  including  February  1,  2000,  not to exceed at any time the  aggregate
principal amount of Fifteen Million and No/100 Dollars  ($15,000,000.00)  ("Line
of Credit"), the proceeds of which shall be used for working capital and general
corporate  purposes.  Borrower's  obligation to repay advances under the Line of
Credit  shall be evidenced by a  promissory  note  substantially  in the form of
Exhibit  A  attached  hereto  ("Line of  Credit  Note"),  all terms of which are
incorporated herein by this reference.

         (b)  Letter of Credit  Subfeature.  As a  subfeature  under the Line of
Credit,  Bank  agrees  from  time to time  during  the  term  thereof  to  issue
commercial  or standby  letters of credit for the account of Borrower to finance
the importation of inventory,  to support  "Subsidiaries" (as defined below), to
finance  "Leveraged  Acquisitions"  (as defined below) and for general corporate
purposes  (each,  a "Letter of Credit" and  collectively,  "Letters of Credit");
provided however,  that the form and substance of each Letter of Credit shall be
subject to approval by Bank, in its sole discretion;  and provided further, that
the aggregate undrawn amount of all outstanding  Letters of Credit including all
Letters of Credit issued in connection with Leveraged  Acquisitions shall not at
any time exceed Ten Million and No/100 Dollars ($10,000,000.00). Each commercial
Letter of Credit  shall be issued  for a term not to exceed one  hundred  eighty
(180) days,  as  designated  by Borrower;  provided  however,  that no Letter of
Credit  shall have an  expiration  date more than  ninety  (90) days  beyond the
maturity  date of the Line of  Credit.  The  undrawn  amount of all  outstanding
Letters of Credit  shall be  reserved  under the Line of Credit and shall not be
available for borrowings  thereunder.  Each Letter of Credit shall be subject to
the  additional  terms and  conditions  of the  Letter of Credit  Agreement  and
related  documents,  if any,  required by Bank in  connection  with the issuance
thereof  (each,  a "Letter of Credit  Agreement"  and  collectively,  "Letter of
Credit  Agreements").  Each draft paid by Bank under a Letter of Credit shall be
deemed an advance  under the Line of Credit and shall be repaid by  Borrower  in
accordance  with the terms and conditions of this  Agreement  applicable to such
advances;  provided  however,  that if advances under the Line of Credit are not
available,  for any reason, at the time any draft is paid by Bank, then Borrower
shall



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immediately  pay to Bank the full amount of such draft,  together  with interest
thereon  from the date such  amount  is paid by Bank to the date such  amount is
fully repaid by Borrower,  at the rate of interest  applicable to advances under
the Line of  Credit.  In such  event  Borrower  agrees  that  Bank,  in its sole
discretion,  may debit any demand  deposit  account  maintained by Borrower with
Bank for the amount of any such draft.

         (c) Leveraged Acquisition Subfeature. As a subfeature under the Line of
Credit, Bank hereby agrees to make advances to, and issue Letters of Credit for,
Borrower from time to time for Leveraged Acquisitions, not to exceed at any time
the   aggregate   principal   amount  of  Five   Million   and  No/100   Dollars
($5,000,000.00).  For  purposes  hereof,  the  following  terms  shall  have the
meanings set forth below:

                (i)  "Leveraged  Acquisition"  shall  mean an  Acquisition  with
         respect to which (A) all or a portion of the  purchase  price  shall be
         paid with proceeds of one or more advances  under the Line of Credit or
         otherwise supported with the issuance of a Letter of Credit and (B) the
         following  conditions,  as applicable,  shall have been satisfied prior
         to,  or  concurrently  with,  the  making  of any such  advance  or the
         issuance of any such Letter of Credit, as the context may require:

                           (1)      The Target is engaged in the same or related
         business industry as Borrower;

                           (2) The  purchase  price of the  assets of the Target
         acquired in such Acquisition shall not exceed twenty-five percent (25%)
         of the value of the total  assets of Borrower and its  Subsidiaries  as
         reflected in Borrower's most recent consolidated  financial  statements
         delivered to Bank;

                           (3)  Borrower  shall have  delivered  to Bank  within
         thirty (30) days of the expected closing date of such Acquisition,  two
         (2) years of historical  financial  statements for the Target and a pro
         forma  consolidated  financial  statement of Borrower  giving effect to
         such Acquisition;

                           (4) No Event of  Default or act,  condition  or event
         which with the passage of time,  the giving of notice,  or both,  would
         constitute an Event of Default (a "Potential Event of Default"),  shall
         have occurred and be in effect as of the date of the Acquisition,  nor,
         after giving effect to such  Acquisition  shall any Event of Default or
         Potential Event of Default occur; and

                           (5) If the proposed Acquisition involves the purchase
         of an equity  interest in the Target  (rather than an asset  purchase),
         Borrower  shall have  provided to Bank  within  thirty (30) days of the
         expected  closing  date of such  Acquisition,  such  other  information
         regarding the Target's off-balance sheet liabilities (including without
         limitation  such  things  as  operating  leases,   ERISA   liabilities,
         litigation matters,  environmental  hazardous materials matters and the
         like) and Bank shall be reasonably satisfied, from the perspective of a
         secured lender, with the contents of such information.

               (ii) "Acquisition"  shall mean any transaction,  or any series of
         related  transactions,  by which Borrower or any Subsidiary directly or
         indirectly  (A) acquires any ongoing  business or all or  substantially
         all of the  assets of any firm,  partnership,  joint  venture,  limited
         liability  company,  or corporation (or division thereof) engaged in an
         ongoing  business,  whether  through  purchase  of  assets,  merger  or
         otherwise);  (B)  acquires  control  of at  least  a  majority  of  the
         securities  which  have  ordinary  voting  power  for the  election  of
         directors



<PAGE>



         of a  corporation  engaged  in an  ongoing  business,  or (C)  acquires
         control of a fifty  percent  (50%) or more  ownership  interest  in any
         limited liability  company,  partnership or joint venture engaged in an
         ongoing  business.  For purposes of the foregoing,  "Target" shall mean
         any such firm, partnership, joint venture, limited liability company or
         corporation (or division thereof).

              (iii) "Subsidiary" shall mean, as of any date of determination and
         with  respect to  Borrower,  any  corporation,  partnership  or limited
         liability  company (whether or not, in any such case,  characterized as
         such or as a  "joint  venture"),  whether  now  existing  or  hereafter
         organized or acquired:  (a) in the case of a corporation,  of which the
         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 happening of a contingency)  are at
         the time beneficially owned by Borrower and/or one or more Subsidiaries
         of Borrower,  or (b) in the case of a partnership or limited  liability
         company,  of which a majority  of the  partnership  or other  ownership
         interests are at the time beneficially  owned by Borrower and/or one or
         more Subsidiaries of Borrower.

         (d) Borrowing and Repayment.  Borrower may from time to time during the
term of the Line of Credit  borrow,  partially or wholly  repay its  outstanding
borrowings,  and  reborrow,  subject  to  all  of  the  limitations,  terms  and
conditions contained herein or in the Line of Credit Note.

         (e) Optional Termination of Line of Credit. Following the occurrence of
a "Change in Control"  (as  defined  below),  Bank may in its sole and  absolute
discretion elect, during the sixty (60) day period immediately subsequent to the
later of (i) such  occurrence  or (ii) the earlier of (A) receipt of  Borrower's
written  notice to Bank of such  occurrence,  or (B) if no such  notice has been
received  by Bank,  the date upon which Bank has actual  knowledge  thereof,  to
terminate  the  Line of  Credit  in  which  case  the  Line of  Credit  shall be
terminated effective on the date which is thirty (30) days subsequent to written
notice  from Bank to  Borrower  thereof.  Upon any such  termination  date,  all
amounts due under the Line of Credit shall be immediately  due and payable.  For
purposes hereof, "Change in Control" shall mean (x) any transaction or series of
related  transactions in which any "Unrelated  Person" (as defined below) or two
or more  Unrelated  Persons  acting in  concert  acquire  after the date  hereof
beneficial   ownership  (within  the  meaning  of  Rule  13d-3(a)(1)  under  the
Securities  Exchange Act of 1934, as amended) directly or indirectly,  of thirty
percent (30%) or more of the outstanding  voting stock of Borrower,  (y) two (2)
individuals  who, as of the date  hereof,  were members of  Borrower's  board of
directors, cease for any reason to continue to be members of Borrower's board of
directors;  or (z) any event or circumstance  constituting a "change in control"
or other  similar  occurrence  under  documentation  evidencing or governing any
indebtedness of Borrower of $5,000,000.00 or more which results in an obligation
of Borrower to repay,  purchase,  offer to purchase,  redeem or defease all or a
portion of such  indebtedness.  For purposes hereof, the term "Unrelated Person"
means any person or entity other than (1) an employee  stock  ownership  plan or
other employee benefit plan covering  employees of Borrower and its Subsidiaries
or (2) any person who is a member of the Board of  Directors  of  Borrower as of
the date of this Agreement or any affiliate of any such member.


         SECTION 1.2.      INTEREST/FEES.

         (a) Interest.  The outstanding  principal balance of the Line of Credit
shall  bear  interest  at the rate of  interest  set forth in the Line of Credit
Note.




<PAGE>



         (b) Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed.  Interest shall be payable at the times and
place set forth in the Line of Credit Note.

         (c)  Letter of Credit  Fees.  Borrower  shall pay to Bank fees upon the
issuance of each Letter of Credit,  upon the payment or  negotiation  by Bank of
each  draft  under any  Letter of Credit  and upon the  occurrence  of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer,  amendment  or  cancellation  of any Letter of Credit)  determined  in
accordance  with  Bank's  standard  fees and  charges  then in  effect  for such
activity.

         SECTION  1.3.  COLLECTION  OF  PAYMENTS.  Borrower  authorizes  Bank to
collect  all  principal,  interest  and fees due  under  the Line of  Credit  by
charging  Borrower's  demand deposit account number 4600171748 with Bank, or any
other demand  deposit  account  maintained by Borrower  with Bank,  for the full
amount thereof.  Should there be  insufficient  funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency  shall
be immediately due and payable by Borrower.


                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES


         Borrower  makes the following  representations  and warranties to Bank,
which  representations  and  warranties  shall  survive  the  execution  of this
Agreement  and shall  continue in full force and effect until the full and final
payment, and satisfaction and discharge,  of all obligations of Borrower to Bank
subject to this Agreement.

         SECTION 2.1. LEGAL STATUS.  Borrower is a  corporation,  duly organized
and existing and in good standing  under the laws of the state of Delaware,  and
is  qualified or licensed to do business  (and is in good  standing as a foreign
corporation,  if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.

         SECTION 2.2.  AUTHORIZATION AND VALIDITY.  This Agreement,  the Line of
Credit Note, and each other document, contract and instrument required hereby or
at any time hereafter  delivered to Bank in connection  herewith  (collectively,
the "Loan  Documents") have been duly  authorized,  and upon their execution and
delivery in accordance with the provisions hereof will constitute  legal,  valid
and binding  agreements and  obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.

         SECTION 2.3. NO VIOLATION.  The execution,  delivery and performance by
Borrower of each of the Loan  Documents do not violate any  provision of any law
or regulation,  or contravene any provision of the Certificate of  Incorporation
or  By-Laws  of  Borrower,  or result  in any  breach  of or  default  under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.

         SECTION  2.4.  LITIGATION.  Except as set forth in Schedule 2.4 to this
Agreement (as amended, modified or supplemented from time to time), there are no
pending, or to the best of Borrower's  knowledge  threatened,  actions,  claims,
investigations,  suits or proceedings by or before any  governmental  authority,
arbitrator,  court or administrative  agency which could have a material adverse
effect on the financial condition or operation of Borrower.



          SECTION  2.5.  CORRECTNESS  OF  FINANCIAL   STATEMENT.   The financial
statement  of Borrower  dated  December  31, 1997, a true copy of which has been
delivered  by Borrower  to Bank prior to the date  hereof,  (a) is complete  and
correct and presents fairly the financial  condition of Borrower,  (b) discloses
all  liabilities  of  Borrower  that are  required to be  reflected  or reserved
against under generally accepted  accounting  principles,  whether liquidated or
unliquidated,  fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such  financial  statement  there  has been no  material  adverse  change in the
financial  condition of Borrower,  nor,  except as disclosed in Schedule 2.5 (as
amended,  modified or  supplemented  from time to time) or as  permitted by this
Agreement  (including without  limitation Section 5.9), has Borrower  mortgaged,
pledged,  granted a security  interest  in or  otherwise  encumbered  any of its
assets or properties.

         SECTION 2.6.  INCOME TAX  RETURNS.  Except as disclosed in Schedule 2.6
(as  amended,  modified  or  supplemented  from time to time),  Borrower  has no
knowledge of any pending  assessments  or  adjustments of its income tax payable
with respect to any year.

         SECTION  2.7.  NO  SUBORDINATION.  There  is no  agreement,  indenture,
contract or instrument to which  Borrower is a party or by which Borrower may be
bound that requires the  subordination  in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower except
for such  matters  disclosed  by Borrower  to Bank in writing  prior to the date
hereof.

         SECTION  2.8.  PERMITS,   FRANCHISES.   Borrower  possesses,  and  will
hereafter  possess,  all material  permits,  memberships,  consents,  approvals,
franchises,  contracts and licenses required and all material  trademark rights,
trade names, trade name rights,  patents,  patent rights and material fictitious
name  rights,  necessary to enable it to conduct the business in which it is now
engaged without conflict with the rights of others.

         SECTION 2.9. ERISA.  Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or  recodified  from time to time  ("ERISA");  Borrower has not
violated any provision of any defined  employee pension benefit plan (as defined
in ERISA)  maintained  or  contributed  to by  Borrower  (each,  a  "Plan");  no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any  Plan  initiated  by  Borrower;  Borrower  has  met its  minimum  funding
requirements  under ERISA with respect to each Plan;  and each Plan will be able
to fulfill its benefit  obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.

         SECTION  2.10.  OTHER  OBLIGATIONS.  Borrower  is not in default on any
obligation for borrowed money or any purchase money  obligation that exceeds the
principal  amount of  $100,000.  Further,  Borrower is not in default  under any
other material lease, commitment,  contract, instrument or obligation where such
default would have a material adverse effect on Borrower's  financial  condition
or operations..

         SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank  in  writing  prior  to the  date  hereof,  Borrower,  to the  best  of its
knowledge, is in compliance in all material respects 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
Borrower'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



<PAGE>



supplemented from time to time. To the best of Borrower's knowledge, none of the
operations  of  Borrower  or its  Subsidiaries  is the subject of any federal or
state investigation  evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste or
substance into the  environment.  None of Borrower or its  Subsidiaries  has any
material  contingent  liability in  connection  with any release of any toxic or
hazardous waste or substance into the environment.


                                   ARTICLE III
                                   CONDITIONS


         SECTION 3.1.      CONDITIONS OF INITIAL EXTENSION OF CREDIT.  The
obligation of Bank to grant the initial extension of any credit  contemplated by
this Agreement is subject to the  fulfillment to Bank's  satisfaction  of all of
the following conditions:

         (a)  Approval of Bank  Counsel.  All legal  matters  incidental  to the
extension of credit by Bank shall be reasonably satisfactory to Bank's counsel.

         (b)  Documentation.  Bank shall have  received,  in form and  substance
reasonably satisfactory to Bank, each of the following, duly executed:

                (i)       This Agreement and the Line of Credit Note;

               (ii)      Letter of Credit Agreement and related Letter of Credit
         documentation;

              (iii)  Such  documentation  as  Bank  may  reasonably  require  to
         establish the due  organization,  valid  existence and good standing of
         Borrower,  its  qualifications  to engage in business in each  material
         jurisdiction  in which it is engaged in  business  or required to be so
         qualified,  its  authority  to  execute,  deliver  and perform any 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,   without   limitation,   copies  of  its   certificate   of
         incorporation   and  amendments   thereto  certified  by  the  Delaware
         Secretary  of State,  bylaws  and  amendments  thereto  certified  by a
         responsible  official  of such  party,  certificates  of good  standing
         and/or  qualification  to  engage  in  business,  certified  copies  of
         corporate  resolutions,   incumbency   certificates,   certificates  of
         responsible officials, and the like; and

               (iv) Such other  documents  as Bank may  require  under any other
         Section of this Agreement.

         (c)  Insurance.  Borrower  shall have  delivered  to Bank  evidence  of
insurance  coverage on all  Borrower's  property,  covering  risks,  in amounts,
issued by companies and in form and substance satisfactory to Bank.

         (d)  Financial  Condition.  There shall have been no  material  adverse
change,  as  determined  by Bank,  in the  financial  condition  or  business of
Borrower and its Subsidiaries taken as a whole.

         SECTION 3.2.  CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit  requested by Borrower  hereunder shall be
subject  to the  fulfillment  to Bank's  satisfaction  of each of the  following
conditions:




<PAGE>



         (a) Compliance. The representations and warranties contained herein and
in each of the other Loan  Documents  shall be true on and as of the date of the
signing of this  Agreement  and on the date of each  extension of credit by Bank
pursuant  hereto,  with the same  effect  as  though  such  representations  and
warranties  had been made on and as of each such date, and on each such date, no
Event of Default as defined  herein,  and no Potential  Event of Default,  shall
have occurred and be continuing or shall exist.

         (b)  Documentation.  Bank shall have received all additional  documents
which may be required in connection with such extension of credit.


                                   ARTICLE IV
                              AFFIRMATIVE COVENANTS


         Borrower  covenants  that so long as Bank  remains  committed to extend
credit to  Borrower  pursuant  hereto,  or any  liabilities  (whether  direct or
contingent,  liquidated  or  unliquidated)  of Borrower to Bank under any of the
Loan Documents remain outstanding,  and until payment in full of all obligations
of Borrower subject hereto,  Borrower shall,  unless Bank otherwise  consents in
writing:

         SECTION  4.1.  PUNCTUAL  PAYMENTS.  Punctually  pay  the  interest  and
principal on each of the Loan Documents requiring any such payments at the times
and place and in the manner specified therein, and any fees or other liabilities
due under  any of the Loan  Documents  at the times and place and in the  manner
specified herein.

         SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting  principles  consistently applied,
and permit,  and cause any Subsidiary of Borrower to permit,  any representative
of Bank, at any reasonable  time and upon three (3) days' prior notice (unless a
Potential  Event of  Default  or Event of Default  shall  have  occurred  and be
continuing,  in which case no such notice shall be required),  to inspect, audit
and examine its books and  records,  to make copies of the same,  and to inspect
the properties of Borrower and the properties of any Subsidiary of Borrower.

         SECTION 4.3.FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:

         (a) (i) not later than 120 days after and as of the end of each  fiscal
year,  (A) an audited  consolidated  financial  statement  of  Borrower  and its
Subsidiaries, prepared by a recognized independent accounting firm, to include a
consolidated  balance  sheet and  consolidated  statements  of income,  retained
earnings  and cash flow,  and (B)  copies of the  financial  statements  of each
Subsidiary  (prepared  by  such  Subsidiary)  provided  to the  accounting  firm
referenced  in clause (A) above for the purpose of  preparing  the  consolidated
financial  statement  described above, and (ii) within 10 days after filing, but
in no event  later than 120 days after the end of each  fiscal  year,  a copy of
Borrower's annual 10-K report for such year;

         (b)  not  later  than 55 days  after  and as of the end of each  fiscal
quarter,  a consolidated  financial  statement of Borrower and its Subsidiaries,
prepared by a senior  financial  officer of Borrower,  to include a consolidated
balance sheet and consolidated  statements of income, retained earnings and cash
flow; and within 10 days after filing,  but in no event later than 55 days after
the end of each fiscal quarter,  a copy of Borrower's  quarterly 10-Q report for
such quarter;




<PAGE>



         (c) not later than 90 days after the end of each fiscal year, an annual
projection for Borrower's  next  succeeding  fiscal year, to include  forecasted
balance  sheets and profit and loss  statements  for each fiscal quarter of such
fiscal year;

         (d)   contemporaneously   with  each  annual  and  quarterly  financial
statement of Borrower  required  hereby,  a  certificate  of a senior  financial
officer of Borrower that said financial statements are accurate and that, to the
best  knowledge  of such  officer,  there  exists  no Event of  Default  nor any
Potential Event of Default,  together with  calculations  confirming  Borrower's
compliance with all financial covenants contained in this Agreement; and

         (e) from time to time such  other  information  as Bank may  reasonably
request.

         SECTION  4.4.  COMPLIANCE.   Preserve  and  maintain,  and  cause  each
Subsidiary of Borrower to preserve and maintain, all material licenses, permits,
governmental  approvals,  rights,  privileges and  franchises  necessary for the
conduct of its  business;  conduct,  and cause each  Subsidiary  of  Borrower to
conduct,  its business in an orderly and regular manner;  and comply,  and cause
each  Subsidiary  of Borrower to comply,  with the  provisions  of all documents
pursuant to which Borrower or such  Subsidiary is organized  and/or which govern
Borrower's or such Subsidiary's  continued  existence and comply in all material
respects,  and cause  each  Subsidiary  of  Borrower  to comply in all  material
respects,  with the requirements of all laws,  rules,  regulations and orders of
any governmental authority applicable to Borrower or its business or to any such
Subsidiary or its business.

         SECTION  4.5.  INSURANCE.  Maintain  and keep in force,  and cause each
Subsidiary of Borrower to maintain and keep in force, insurance of the types and
in amounts  customarily carried in lines of business similar to that of Borrower
or any such Subsidiary,  including but not limited to fire,  extended  coverage,
public  liability,  property  damage and  workers'  compensation,  with all such
insurance  carried  with  companies  and in amounts  satisfactory  to Bank,  and
deliver to Bank from time to time at Bank's request  schedules setting forth all
insurance then in effect.

         SECTION 4.6. FACILITIES. Keep, and cause each Subsidiary of Borrower to
keep, all its properties  useful or necessary to its business in good repair and
condition,  and from time to time make, and cause each Subsidiary of Borrower to
make,  necessary repairs,  renewals and replacements  thereto so that Borrower's
properties  and the  properties  of any  such  Subsidiary  shall  be  fully  and
efficiently  preserved and maintained;  provided,  however,  that nothing herein
shall require Borrower or any such Subsidiary to maintain any property or assets
in good  working  order or  repair if such  property  or  assets  are  obsolete,
surplus,  or unfit for use, or cannot be used  advantageously  in the conduct of
its business.

         SECTION 4.7. TAXES AND OTHER  LIABILITIES.  Pay and discharge when due,
and cause such Subsidiary of Borrower to pay and discharge when due, any and all
indebtedness,  obligations,  assessments  and taxes,  both real or personal  and
including  federal and state income  taxes,  except such as Borrower or any such
Subsidiary  may in good  faith  contest or as to which a bona fide  dispute  may
arise, provided Borrower and/or such Subsidiary has established such reserves as
may be required by generally accepted accounting principles for eventual payment
thereof in the event that it is found that the same is an obligation of Borrower
or any such Subsidiary.

         SECTION 4.8.      LITIGATION.  Promptly give notice in writing to Bank
of any litigation pending or threatened against Borrower or any  Subsidiary  of 
Borrower with a claim in excess of $300,000.00.




<PAGE>



         SECTION  4.9.  FINANCIAL   CONDITION.   Maintain  Borrower's  financial
condition on a consolidated basis as follows using generally accepted accounting
principles  consistently  applied  and used  consistently  with prior  practices
(except to the extent  modified  by the  definitions  herein),  with  compliance
determined commencing with Borrower's financial statements for the period ending
December 31, 1997:

         (a) Current Ratio not at any time less than 1.50 to 1.00, with "Current
Ratio" defined as total current assets divided by total current liabilities. For
purposes of the foregoing,  the aggregate outstanding balance of advances on the
Line of Credit shall be deemed "current liabilities."

         (b) Tangible Net Worth not at any time less than $40,000,000,  from and
including the fiscal  quarter ended  September 30, 1997,  increasing to not less
than  $45,000,000 at any time from and including  June 30, 1998,  with "Tangible
Net  Worth"  defined  as  the  aggregate  of  total  stockholders'  equity  plus
subordinated  debt less the  aggregate of any  treasury  stock,  any  intangible
assets and any obligations due from stockholders, employees and/or affiliates.

         (c) Funded Debt to EBITDA  Ratio not at any time  greater  than 1.50 to
1.00, with "Funded Debt to EBITDA Ratio" calculated as of the end of each fiscal
quarter and defined as the ratio of "Funded Debt" (as defined  below) as of such
determination  date,  divided by "EBITDA" (as defined below) for the four fiscal
quarter  period  ending as of the date of  determination.  For purposes  hereof,
"Funded Debt" shall mean, as of any date of  determination,  (i) all obligations
of Borrower and its Subsidiaries for borrowed money or for the deferred purchase
price  of  property  or  services,  (ii) all  obligations  of  Borrower  and its
Subsidiaries  under  any  conditional  sale  agreements   relating  to  property
purchased  by  Borrower  or any of  its  Subsidiaries,  (iii)  all  capital  and
synthetic  lease  obligations  of  Borrower  and  its  Subsidiaries,   (iv)  all
obligations of Borrower and its Subsidiaries  under letters of credit issued and
outstanding for the account of Borrower or any such  Subsidiary,  whether or not
drawn,  (v) all  obligations  of Borrower and its  Subsidiaries  under direct or
indirect guaranties in respect of, and obligations  (contingent or otherwise) to
purchase or otherwise  acquire,  or otherwise  insure a creditor against loss in
respect of  indebtedness  or  obligations  of others of the kinds referred to in
clauses (i) through (iv) above,  and (vi) all current or past due liabilities of
Borrower and its Subsidiaries in respect of unfunded vested benefits under Plans
covered by Title IV of ERISA.  For purposes  hereof,  "EBITDA"  shall mean,  net
profit before tax plus interest expense (net of capitalized  interest  expense),
depreciation expense and amortization expense.

         SECTION 4.10. NOTICE TO BANK.  Promptly (but in no event more than five
(5) days after the  discovery of each such event or matter) give written  notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default,  or
any Potential Event of Default;  (b) any change in the name or the legal form of
organization of Borrower;  (c) the occurrence and nature of any Reportable Event
or Prohibited  Transaction,  each as defined in ERISA, or any funding deficiency
with  respect  to any  Plan;  or (d)  any  termination  or  cancellation  of any
insurance  policy which  Borrower is required to maintain,  or any  uninsured or
partially  uninsured loss through liability or property damage, or through fire,
theft or any other cause affecting Borrower's property in excess of an aggregate
of $5,000,000.00.

         SECTION 4.11. PLEDGE OF STOCK OF SUBSIDIARIES. In the event that at any
time the  aggregate net sales of  Borrower's  Subsidiaries  (as reflected in the
financial  statements described in Section 4.3(a)) shall equal or exceed fifteen
percent  (15%)  of  the   consolidated   gross  revenues  of  Borrower  and  its
Subsidiaries,  pledge and grant to Bank a security  interest  in and to all then
existing and thereafter  acquired "Pledged  Collateral" (as defined below).  For
purposes  of  the  foregoing,  "Pledged  Collateral"  means,  collectively,  the
certificates  evidencing  (i) all of the shares of capital stock or other equity
interest held by Borrower (or any Subsidiary of Borrower) in all



<PAGE>



Subsidiaries of Borrower that are not "Foreign  Subsidiaries" (as defined below)
and (b) to the  extent  owned  by  Borrower  (or any  Subsidiary  of  Borrower),
sixty-five percent (65%) of the shares of capital stock or other equity interest
in all Foreign Subsidiaries. For purposes of the foregoing, "Foreign Subsidiary"
means any  Subsidiary  of Borrower  organized  under the laws of a country other
than the United States of America.  All of the  foregoing  shall be evidenced by
and subject to the terms of such pledge agreements,  financing  statements,  and
other  documents as Bank shall  reasonably  require,  all in form and  substance
reasonably  satisfactory to Bank. Borrower shall reimburse Bank immediately upon
demand for all costs and expenses reasonably incurred by Bank in connection with
any of the foregoing security, including without limitation, filing fees.


                                    ARTICLE V
                               NEGATIVE COVENANTS


         Borrower  further  covenants that so long as Bank remains  committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent,  liquidated  or  unliquidated)  of Borrower to Bank under any of the
Loan Documents remain outstanding,  and until payment in full of all obligations
of Borrower subject hereto, Borrower, without Bank's prior written consent, will
not,  and  will  not  permit  or  cause  any  of  its  Subsidiaries  to  (either
individually, or on a consolidated basis, as the case may be):

         SECTION 5.1. USE OF FUNDS.  Use  any  of the  proceeds of  any credit
extended hereunder except for the purposes stated in Article I hereof.

         SECTION 5.2. CAPITAL  EXPENDITURES.  Make any additional  investment in
(a)  "Maintenance  Fixed Assets" (as defined below) in any fiscal year in excess
of an aggregate  principal  amount of $8,000,000  and (b)  "Acquisition  Related
Fixed Assets" in any fiscal year in excess of an aggregate  principal  amount of
$8,000,000,  with  "Maintenance  Fixed Assets"  defined as fixed assets that are
required to replace or upgrade  existing fixed assets and  "Acquisition  Related
Fixed Assets"  defined as fixed assets  required in completing a new Acquisition
that,  at the time  thereof,  were not included in the  purchase  price for such
Acquisition.

         SECTION 5.3. LEASE EXPENDITURES. Permit rentals and other scheduled
payment obligations due under leases of real or personal property to exceed
$5,000,000 in the aggregate for any one fiscal year.

         SECTION 5.4. OTHER  INDEBTEDNESS.  Create,  incur,  assume or permit to
exist any  indebtedness  or  liabilities  resulting  from  borrowings,  loans or
advances,  whether  secured or unsecured,  matured or  unmatured,  liquidated or
unliquidated,  joint or several, except (a) the liabilities of Borrower to Bank,
(b) any other  liabilities of Borrower  existing as of, and disclosed to Bank in
Schedule  5.4 prior to, the date  hereof,  (c) purchase  money  indebtedness  of
Borrower  incurred in connection with the acquisition of assets  permitted under
this Agreement in an aggregate  amount not to exceed  $10,000,000 from and after
the date of this Agreement and (d)  indebtedness of Subsidiaries in an aggregate
amount not to exceed $3,500,000 from and after the date of this Agreement.

         SECTION 5.5. MERGER,  CONSOLIDATION,  TRANSFER OF ASSETS. Merge into or
consolidate  with any other entity  (other than mergers of one  Subsidiary  into
another Subsidiary or of any Subsidiary into and with Borrower, with Borrower as
the  surviving  corporation);  make any  substantial  change  in the  nature  of
Borrower's business as conducted as of



<PAGE>



the date hereof;  nor sell,  lease,  transfer or  otherwise  dispose of all or a
substantial or material portion of Borrower's or any Subsidiary's  assets except
in the ordinary course of its business.

         SECTION  5.6.  GUARANTIES.  Guarantee  or  become  liable in any way as
surety,  endorser (other than as endorser of negotiable  instruments for deposit
or collection in the ordinary  course of  business),  accommodation  endorser or
otherwise  for,  nor  pledge  or  hypothecate  any  assets  of  Borrower  or any
Subsidiary  thereof as security for, any liabilities or obligations of any other
person  or  entity,  except  (a) any of the  foregoing  in favor  of  Bank,  (b)
unsecured  guaranties  by Borrower  of any  Subsidiary's  indebtedness  or lease
obligations so long as any such guarantied indebtedness or lease obligation,  as
the case may be, is permitted under Section 5.4(d) or Section 5.3, respectively.

         SECTION 5.7.      LOANS, ADVANCES, INVESTMENTS.  Make any loans or
advances to or  investments  in any person or entity,  except for (a) any of the
foregoing  existing as of, and disclosed to Bank prior to, the date hereof,  (b)
investments constituting capital expenditures permitted under Section 5.2 above,
(c) loans made to employees in respect of the payment of the exercise price upon
the exercise of options under  Borrower's  stock option plans and of any federal
and/or state income tax withholding  obligations  arising out of such exercises,
(d) other loans to employees  of Borrower  not to exceed an aggregate  principal
amount of $1,000,000,  (e) investments consisting of stock ownership by Borrower
of the  outstanding  capital  stock of Day  Runner  de  Mexico  not to exceed an
aggregate  principal amount of $1,000,000,  (f) investments in new Subsidiaries,
(g) loans or advances to from and among  Subsidiaries and Borrower  evidenced by
promissory  notes not to exceed an aggregate  principal  amount of $8,000,000 at
any time outstanding, (h) investments received in connection with the bankruptcy
or  reorganization  of suppliers  and  customers and in settlement of delinquent
obligations of, and other disputes with,  customers and suppliers arising in the
ordinary course of business,  and (i) investments in cash, cash  equivalents and
investment  grade  securities made for cash management  purposes in the ordinary
course of business.

         SECTION 5.8. DIVIDENDS,  DISTRIBUTIONS.  Declare or pay any dividend or
distribution  either in cash,  stock or any other  property on Borrower's or any
Subsidiary's stock now or hereafter outstanding,  nor redeem, retire, repurchase
or otherwise  acquire any shares of any class of Borrower's or any  Subsidiary's
stock now or hereafter  outstanding other than (a) dividends or distributions by
Borrower in cash in an aggregate amount not to exceed $200,000 during any fiscal
year, (b) dividends or  distributions  by any Subsidiary of Borrower to Borrower
or any other  Subsidiary of Borrower,  (c) dividends  payable  solely in capital
stock or rights to purchase  capital  stock and (d)  repurchases  by Borrower of
Borrower's common stock as described in that certain Consent and Waiver dated as
of August 26, 1997 executed by Bank. As used above, the term "acquire" shall not
apply to the original  acquisition by Borrower or any Subsidiary of the stock of
any Target in connection with any Acquisition permitted hereunder.

         SECTION 5.9.  PLEDGE OF ASSETS.  Mortgage,  pledge,  grant or permit to
exist a security interest in, or lien upon, all or any portion of its assets now
owned or hereafter  acquired,  except (a) any of the foregoing in favor of Bank,
(b) any other  pledges of assets which are existing as of, and disclosed to Bank
in writing  prior to the date hereof,  (c) any of the  foregoing  that relate to
indebtedness  described in Section 5.4(c) above, provided that such liens extend
only to the property  financed,  (d) any of the  foregoing by any  Subsidiary to
secure  indebtedness  of such  Subsidiary  permitted  by the  terms  of  Section
5.4(c),and (e) "Other  Permitted  Liens" (as defined  below).  "Other  Permitted
Liens"  means (i) liens for  taxes,  assessments  or  governmental  charges  the
payment  of  which  is not at the  time  delinquent;  (ii).  statutory  liens of
carriers,  warehousemen,  mechanics,  materialmen  and other similar persons and
other liens imposed by law incurred in the ordinary  course of business for sums
not yet delinquent or being contested in good faith, provided



<PAGE>



provision is made to the  satisfaction  of Bank for eventual  payment thereof in
the event it is found that the same is an  obligation  of Borrower;  (iii) liens
incurred or deposits made in the ordinary  course of business in connection with
workers'  compensation,   unemployment  insurance  and  other  types  of  social
security,  government  contracts,  and other similar obligations,  (exclusive of
obligations for the payment of borrowed money);  (iv) any attachment or judgment
lien,  unless the  judgment it secures  (A) shall not,  within 15 days after the
entry thereof,  have been discharged or execution thereof stayed pending appeal,
provided  provision is made to the  satisfaction  of Bank for  eventual  payment
thereof in the event it is found that the same is an obligation of Borrower,  or
(B) shall be in  effect  and a period  of 10 days or less  remains  prior to any
proposed sale thereunder; (v) easements,  rights of way, servitudes or zoning or
building restrictions and other minor encumbrances on real property which do not
in the  aggregate  materially  interfere  with or impair the  operation  of such
property for the purposes  for which it is or may  reasonably  be expected to be
used;  and (vi) any interest or title of a lessor  under any  existing  lease of
personal property where Borrower or any of its Subsidiaries is lessee (including
any  extensions and renewals  thereof) and any other lease of personal  property
permitted under Section 5.3 of this Agreement.

                                   ARTICLE VI
                                EVENTS OF DEFAULT


         SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:

         (a) Borrower shall fail to pay when due any principal,  interest,  fees
or other amounts payable under any of the Loan Documents.

         (b)  Any  financial  statement  or  certificate  furnished  to  Bank in
connection with, or any  representation  or warranty made by Borrower under this
Agreement  shall prove to be false,  incorrect  or  incomplete  in any  material
respect when furnished or made.

         (c)  Any  default  in  the   performance  of  or  compliance  with  any
obligation,  agreement or other  provision  contained  herein  (other than those
referred  to in  subsections  (a) and (b) above),  and with  respect to any such
default  which by its nature can be cured,  such  default  shall  continue for a
period of twenty (20) days from notice to Borrower from Bank of the same.

         (d) Any default in the payment or performance of any obligation, or any
defined event of default,  under the terms of any contract or instrument  (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other  liability  to any person or entity,  including  Bank,  in a  principal
amount  greater  than  $300,000.00,  which  default or defined  event of default
results in  acceleration  of such debt or permits the holder of such debt or the
obligee of such liability to accelerate the maturity  thereof or to exercise any
other remedy against Borrower in connection therewith.

         (e) Any default (subject to any applicable notice and grace periods) in
the payment or performance of any  obligation,  or any defined event of default,
under any of the Loan Documents other than this Agreement.

         (f) The filing of a notice of judgment  lien against  Borrower;  or the
recording  of any abstract of judgment  against  Borrower in any county in which
Borrower  has an interest in real  property;  or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process,  against the
assets of Borrower;  or the entry of a judgment against  Borrower,  in each case
which are not paid, fully bonded,  dismissed or stayed within 15 days;  provided
that the foregoing



<PAGE>



provisions  of this Section  6.1(f) shall not apply to  judgments,  attachments,
levies or claims involving less than $300,000.00.

         (g) Borrower shall become  insolvent,  or shall suffer or consent to or
apply for the  appointment  of a receiver,  trustee,  custodian or liquidator of
itself or any of its property,  or shall generally fail to pay its debts as they
become due,  or shall make a general  assignment  for the benefit of  creditors;
Borrower   shall  file  a   voluntary   petition  in   bankruptcy,   or  seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy  Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time  ("Bankruptcy  Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect;  or any  involuntary  petition or proceeding  pursuant to the Bankruptcy
Code or any other  applicable  state or  federal  law  relating  to  bankruptcy,
reorganization  or other  relief  for  debtors  is filed  or  commenced  against
Borrower,  or Borrower shall file an answer  admitting the  jurisdiction  of the
court and the material  allegations  of any  involuntary  petition;  or Borrower
shall be adjudicated a bankrupt,  or an order for relief shall be entered by any
court  of  competent  jurisdiction  under  the  Bankruptcy  Code  or  any  other
applicable state or federal law relating to bankruptcy,  reorganization or other
relief for debtors.

         (h)  The  dissolution  or  liquidation  of  Borrower;  or  any  of  its
directors,  stockholders  or members,  shall take  action  seeking to effect the
dissolution or liquidation of Borrower.

         SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents,  any term thereof
to the  contrary  notwithstanding,  shall at Bank's  option and  without  notice
become  immediately  due and payable  without  presentment,  demand,  protest or
notice of dishonor,  all of which are hereby expressly  waived by Borrower;  (b)
the  obligation,  if any, of Bank to extend any further  credit under any of the
Loan Documents shall  immediately  cease and terminate;  and (c) Bank shall have
all rights,  powers and remedies available under each of the Loan Documents,  or
accorded by law,  including without limitation the right to resort to any or all
security for any credit  accommodation  from Bank subject hereto and to exercise
any  or  all of the  rights  of a  beneficiary  or  secured  party  pursuant  to
applicable law. All rights,  powers and remedies of Bank in connection with each
of the Loan Documents may be exercised at any time by Bank and from time to time
after the  occurrence of an Event of Default,  are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.


                                   ARTICLE VII
                                  MISCELLANEOUS


         SECTION 7.1. NO WAIVER. No delay,  failure or discontinuance of Bank in
exercising  any right,  power or remedy  under any of the Loan  Documents  shall
affect or operate  as a waiver of such  right,  power or  remedy;  nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise  affect any other or further  exercise  thereof or the exercise of any
other right,  power or remedy.  Any waiver,  permit,  consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.

         SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:




<PAGE>




         BORROWER:         DAY RUNNER, INC.
                                    15295 Alton Parkway
                                    Irvine, California  92718
                                    Attn: Chief Financial Officer
                                    Telephone:  (714) 680-3500
                                    Facsimile: (714) 441-4848

         BANK:             WELLS FARGO BANK, NATIONAL ASSOCIATION
                                    Los Angeles Commercial Banking Group
                                    333 South Grand Avenue, Third Floor
                                    Los Angeles, California  90071
                                    Attn: Day Runner Account Officer
                                    Telephone: (213) 253-6208
                                    Facsimile: (213) 687-3501

or to such other  address as any party may  designate  by written  notice to all
other  parties.  Each such  notice,  request and demand shall be deemed given or
made as follows:  (a) if sent by hand delivery,  upon  delivery;  (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S.  mail,  first class and postage  prepaid;  and (c) if sent by telecopy,
upon receipt.

         SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank  immediately  upon  demand  the full  amount  of all  costs  and  expenses,
including  reasonable  attorneys'  fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel), incurred by Bank in connection with
(a) the negotiation and preparation of this Agreement and each other of the Loan
Documents,   Bank's  continued   administration  hereof  and  thereof,  and  the
preparation  of  any  amendments  and  waivers  hereto  and  thereto,   (b)  the
enforcement  of Bank's rights and/or the  collection of any amounts which become
due to Bank under any of the Loan Documents,  and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation,  any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy  proceeding  (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other  person)  relating to any  Borrower or any other  person or
entity.

         SECTION 7.4.   SUCCESSORS, ASSIGNMENT.  This Agreement shall be binding
upon and inure to the  benefit of the heirs,  executors,  administrators,  legal
representatives,  successors and assigns of the parties;  provided however, that
Borrower may not assign or transfer its interest  hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant  participations  in all or any part of, or any interest in,  Bank's rights
and benefits  under each of the Loan  Documents.  In connection  therewith,  but
subject to Section 7.11, Bank may disclose all documents and  information  which
Bank now has or may hereafter acquire relating to any credit extended by Bank to
Borrower,  Borrower or its  business,  any  Subsidiary  or the  business of such
Subsidiary, or if applicable, any collateral required hereunder.

         SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and each other
of the Loan Documents  constitute the entire agreement between Borrower and Bank
with respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations,  communications,  discussions and correspondence  concerning
the subject  matter  hereof.  This  Agreement may be amended or modified only in
writing signed by each party hereto.




<PAGE>



         SECTION 7.6. NO THIRD PARTY  BENEFICIARIES.  This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party  beneficiary of, or have any direct or indirect cause of action
or claim in connection  with,  this Agreement or any other of the Loan Documents
to which it is not a party.

         SECTION 7.7.TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.

         SECTION 7.8.      SEVERABILITY OF PROVISIONS.  If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be  ineffective  only to the  extent  of such  prohibition  or  invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.

         SECTION 7.9.      COUNTERPARTS.  This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be 
deemed to be an original, and all of which when taken together shall constitute
one and the same Agreement.

         SECTION 7.10.     GOVERNING LAW.  This Agreement shall be governed by 
and construed in accordance with the laws of the State of California.


         SECTION 7.11. CONFIDENTIALITY.  Bank agrees (and any assignee of all or
part of Bank's interests hereunder and any holder of a participation interest in
the Line of Credit Note shall be required) to hold any confidential  information
that it may receive from  Borrower  pursuant to this  Agreement  in  confidence,
except for  disclosure:  (a) to legal  counsel and  accountants  for Borrower or
Bank; (b) to other professional  advisors to Borrower or Bank; provided that the
recipient  has been  informed  in  advance  of the  confidential  nature of such
information;  (c) to regulatory  officials having jurisdiction over Bank; (d) as
required by law or legal process or in connection  with any legal  proceeding or
litigation involving Bank and Borrower or any affiliate of Borrower;  and (e) to
another  financial  institution  in connection  with a  disposition  or proposed
disposition  to that financial  institution  of all or part of Bank's  interests
hereunder or a participation  interest in the Line of Credit Note, provided that
the recipient has been  informed in advance of the  confidential  nature of such
information.  For purposes of the foregoing,  "confidential  information"  shall
mean  any  information  respecting  Borrower  or  its  Subsidiaries   reasonably
considered by Borrower to be confidential, other than (i) information previously
filed with any  governmental  agency or authority  and  available to the public,
(ii) information  previously  published in any public medium from a source other
than, directly or indirectly,  Bank, and (iii) information  previously disclosed
by  Borrower  to any person or entity not  associated  with  Borrower  without a
confidentiality  agreement or obligation  substantially  similar to this Section
7.11.  Nothing in this Section  shall be construed to create or give rise to any
fiduciary duty on the part of Bank to Borrower or its Subsidiaries.

         SECTION 7.12.     ARBITRATION.

         (a)  Arbitration.  Upon the demand of any party,  any Dispute  shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement.  A "Dispute"  shall mean any action,  dispute,
claim or  controversy  of any kind,  whether in contract or tort,  statutory  or
common law,  legal or equitable,  now existing or hereafter  arising under or in
connection with, or in any way pertaining to, any of the Loan Documents,  or any
past, present or future extensions of credit and other activities,  transactions
or  obligations  of any kind related  directly or  indirectly to any of the Loan
Documents, including without limitation, any of the



<PAGE>



foregoing arising in connection with the exercise of any self-help, ancillary or
other remedies  pursuant to any of the Loan Documents.  Any party may by summary
proceedings  bring an action in court to compel  arbitration  of a Dispute.  Any
party who fails or refuses to submit to arbitration following a lawful demand by
any other party shall bear all costs and  expenses  incurred by such other party
in compelling arbitration of any Dispute.

         (b) Governing Rules.  Arbitration  proceedings shall be administered by
the American Arbitration  Association ("AAA") or such other administrator as the
parties  shall  mutually  agree  upon in  accordance  with  the  AAA  Commercial
Arbitration  Rules. All Disputes  submitted to arbitration  shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding  any  conflicting  choice  of law  provision  in any of the Loan
Documents.  The  arbitration  shall be  conducted  at a location  in  California
selected  by the AAA or  other  administrator.  If  there  is any  inconsistency
between the terms hereof and any such rules,  the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being  arbitrated.  Judgment
upon any award  rendered in an  arbitration  may be entered in any court  having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections  afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.

         (c) No Waiver;  Provisional  Remedies,  Self-Help and  Foreclosure.  No
provision  hereof  shall  limit  the right of any  party to  exercise  self-help
remedies  such as setoff,  foreclosure  against or sale of any real or  personal
property collateral or security, or to obtain provisional or ancillary remedies,
including  without  limitation  injunctive  relief,  sequestration,  attachment,
garnishment  or the  appointment  of a  receiver,  from  a  court  of  competent
jurisdiction  before,  after or during the pendency of any  arbitration or other
proceeding.  The  exercise of any such  remedy  shall not waive the right of any
party to compel arbitration or reference hereunder.

         (d) Arbitrator  Qualifications and Powers; Awards.  Arbitrators must be
active  members of the  California  State Bar or retired  judges of the state or
federal  judiciary  of  California,  with  expertise  in  the  substantive  laws
applicable to the subject  matter of the Dispute.  Arbitrators  are empowered to
resolve  Disputes by summary  rulings in response to motions  filed prior to the
final  arbitration  hearing.  Arbitrators  (i) shall  resolve  all  Disputes  in
accordance with the  substantive law of the state of California,  (ii) may grant
any  remedy or relief  that a court of the state of  California  could  order or
grant within the scope hereof and such ancillary  relief as is necessary to make
effective  any award,  and (iii)  shall have the power to award  recovery of all
costs and fees, to impose  sanctions and to take such other actions as they deem
necessary  to the same  extent a judge could  pursuant  to the Federal  Rules of
Civil  Procedure,  the California  Rules of Civil Procedure or other  applicable
law. Any Dispute in which the amount in  controversy is $5,000,000 or less shall
be decided by a single  arbitrator who shall not render an award of greater than
$5,000,000  (including  damages,  costs, fees and expenses).  By submission to a
single  arbitrator,  each party  expressly  waives any right or claim to recover
more than  $5,000,000.  Any Dispute in which the amount in  controversy  exceeds
$5,000,000  shall be decided by majority  vote of a panel of three  arbitrators;
provided however,  that all three  arbitrators must actively  participate in all
hearings and deliberations.

         (e) Judicial Review.  Notwithstanding  anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds  $25,000,000,  the
arbitrators  shall be required to make  specific,  written  findings of fact and
conclusions of law. In such  arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial  evidence or which
is based on legal  error,  (ii) an award  shall not be binding  upon the parties
unless the  findings  of fact are  supported  by  substantial  evidence  and the
conclusions of law are not erroneous under the


                                                  

<PAGE>


substantive law of the state of California,  and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (A) whether the
findings of fact  rendered  by the  arbitrators  are  supported  by  substantial
evidence,  and (B)  whether  the  conclusions  of law are  erroneous  under  the
substantive law of the state of California. Judgment confirming an award in such
a proceeding may be entered only if a court determines the award is supported by
substantial  evidence and not based on legal error under the  substantive law of
the state of California.

         (f)  Real  Property  Collateral;  Judicial  Reference.  Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part,  by any real  property  unless  (i) the  holder of the  mortgage,  lien or
security   interest   specifically   elects  in  writing  to  proceed  with  the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that  might  accrue to them by virtue  of the  single  action  rule  statute  of
California,  thereby  agreeing  that all  indebtedness  and  obligations  of the
parties,  and  all  mortgages,   liens  and  security  interests  securing  such
indebtedness and obligations,  shall remain fully valid and enforceable.  If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with  California  Code of Civil  Procedure  Section 638 et
seq.,  and this  general  reference  agreement  is intended  to be  specifically
enforceable   in   accordance   with  said  Section  638.  A  referee  with  the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's  selection  procedures.  Judgment upon the decision  rendered by a referee
shall be  entered  in the  court in  which  such  proceeding  was  commenced  in
accordance with California Code of Civil Procedure Sections 644 and 645.

         (g)  Miscellaneous.  To the maximum  extent  practicable,  the AAA, the
arbitrators  and the parties  shall take all action  required  to  conclude  any
arbitration  proceeding  within 180 days of the filing of the  Dispute  with the
AAA. No arbitrator or other party to an arbitration  proceeding may disclose the
existence,  content or results thereof, except for disclosures of information by
a party  required in the ordinary  course of its business,  by applicable law or
regulation,  or to the extent  necessary to exercise any judicial  review rights
set forth herein.  If more than one agreement for  arbitration by or between the
parties  potentially  applies  to a  Dispute,  the  arbitration  provision  most
directly  related to the Loan  Documents  or the  subject  matter of the Dispute
shall control. This arbitration  provision shall survive termination,  amendment
or  expiration  of any of the Loan  Documents  or any  relationship  between the
parties.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.



                                                    WELLS FARGO BANK,
DAY RUNNER, INC.                                    NATIONAL ASSOCIATION


By: ______________________                          By: _______________________

Title: _____________________                      Title: ______________________




<PAGE>

                          REVOLVING LINE OF CREDIT NOTE


$15,000,000.00                                           Los Angeles, California
                                                                February 1, 1998


         FOR VALUE  RECEIVED,  the  undersigned,  DAY RUNNER,  INC.,  a Delaware
corporation  ("Borrower"),  promises  to pay to the order of WELLS  FARGO  BANK,
NATIONAL ASSOCIATION ("Bank") at its office at Los Angeles RCBO, 333 South Grand
Avenue,  Third Floor, Los Angeles,  California  90071, or at such other place as
the holder hereof may designate, in lawful money of the United States of America
and in immediately available funds, the principal sum of Fifteen Million Dollars
($15,000,000.00), or so much thereof as may be advanced and be outstanding, with
interest  thereon,  to be  computed  on  each  advance  from  the  date  of  its
disbursement as set forth herein.

DEFINITIONS:

         As used herein,  the following  terms shall have the meanings set forth
after each,  and any other term  defined in this Note shall have the meaning set
forth at the place defined:

         (a)  "Applicable  LIBOR Margin"  means,  for each Pricing  Period,  the
interest  rate  margin set forth  below  (expressed  in basis  points per annum)
opposite the Applicable Pricing Level for that Pricing Period:

                              

                              Applicable
                              Pricing Level           Margin
                              ----------------------- --------------

                              I                         75.00
                              ----------------------- --------------
                              
                              II                       100.00
                              ----------------------- --------------
                              

                              III                      125.00
                              ----------------------- --------------

         (b)  "Applicable  Pricing Level" means,  for each Pricing  Period,  the
pricing level set forth below opposite Borrower's Funded Debt to EBITDA Ratio as
of the  last  day  of the  fiscal  quarter  most  recently  ended  prior  to the
commencement  of that Pricing  Period,  as reported in the  quarterly  financial
statements of Borrower provided to Bank pursuant to Section 4.3(b) of the Credit
Agreement,  in each case subject to adjustment based on prior period adjustments
made pursuant to generally accepted accounting principles:

                              
           Pricing Level           Funded Debt To EBITDA Ratio
           ----------------------- ---------------------------
                              

           I                       Less than 0.75 to 1.00
           ----------------------- ---------------------------------------------
           II                      Greater than or equal to 0.75 to 1.00 but
                                   less than 1.25 to 1.00
           ----------------------- ---------------------------------------------

           III                     Greater than or equal to 1.25 to 1.00
           ----------------------- ---------------------------------------------

provided that if Borrower fails to deliver its financial  statements as required
by Section  4.3(b) of the Credit  Agreement  prior to the  commencement  of such
Pricing  Period,  then  until  such  financial  statements  are  delivered,  the
Applicable Pricing Level for that Pricing Period shall be Pricing Level III.

         (c) "Applicable Prime Rate Margin" means, for each Pricing Period,  the
interest  rate  margin set forth  below  (expressed  in basis  points per annum)
opposite the Applicable Pricing Level for that Pricing Period:

                              
                              Applicable
                              Pricing Level           Margin
                              ----------------------- --------------
                              I                       -1.00
                              ----------------------- --------------
                              
                              II                      -0.75
                              ----------------------- --------------
                              
                              III                     -0.50
                              ----------------------- --------------

         (d) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.

         (e) "Credit  Agreement" means that certain Credit Agreement dated as of
February 1, 1998 between Borrower and Bank, as amended, modified or supplemented
from time to time.

         (f) "Fixed Rate Term" means a period  commencing  on a Business Day and
continuing for one (1), two (2),  three (3) or six (6) months,  as designated by
Borrower,  during which all or a portion of the outstanding principal balance of
this Note bears interest determined in relation to LIBOR; provided however, that
no Fixed Rate Term may be selected for a principal  amount less than One Hundred
Thousand Dollars  ($100,000.00);  and provided further,  that no Fixed Rate Term
shall extend beyond the scheduled  maturity date hereof.  If any Fixed Rate Term
would end on a day which is not a Business  Day, then such Fixed Rate Term shall
be extended to the next succeeding Business Day.

         (g) "Funded Debt to EBITDA Ratio" shall have the meaning  specified for
such term in the Credit Agreement.

         (h) "LIBOR" means the rate per annum (rounded upward, if necessary,  to
the nearest whole 1/8 of l%) and determined pursuant to the following formula:

                  LIBOR =                       Base LIBOR
                                    ------------------------------------
                                    100% - LIBOR Reserve Percentage

                  (i) "Base  LIBOR"  means the rate per annum for United  States
         dollar deposits  quoted by Bank as the Inter-Bank  Market Offered Rate,
         with the understanding that such rate is quoted by Bank for the purpose
         of calculating  effective rates of interest for loans making  reference
         thereto, on the first day of a Fixed Rate Term for delivery of funds on
         said date for a period  of time  approximately  equal to the  number of
         days in such  Fixed Rate Term and in an amount  approximately  equal to
         the principal  amount to which such Fixed Rate Term  applies.  Borrower
         understands  and  agrees  that  Bank  may  base  its  quotation  of the
         Inter-Bank  Market  Offered  Rate  upon  such  offers  or other  market
         indicators of the  Inter-Bank  Market as Bank in its  discretion  deems
         appropriate,  including,  but not limited to, the rate offered for U.S.
         dollar deposits on the London Inter-Bank Market.

                  (ii) "LIBOR Reserve  Percentage" means the reserve  percentage
         prescribed by the Board of Governors of the Federal  Reserve System (or
         any successor) for "Eurocurrency Liabilities" (as defined in Regulation
         D of the  Federal  Reserve  Board,  as  amended),  adjusted by Bank for
         expected changes in such reserve percentage during the applicable Fixed
         Rate Term.

         (i) "Pricing Period" means, as applicable, (a) the period commencing on
the date of this Note and ending on February 15, 1998, (b) the period commencing
on each  February  16 and  ending on the next  following  May 15, (c) the period
commencing  on each May 16 and ending on the next  following  August 15, (d) the
period  commencing on each August 16 and ending on the next  following  November
15,  (e) the  period  commencing  on each  November  16 and  ending  on the next
following February 15.

         (j) "Prime Rate" means at any time the rate of interest  most  recently
announced  within  Bank at its  principal  office  as its Prime  Rate,  with the
understanding  that the Prime  Rate,  one of Bank's base rates and serves as the
basis upon which  effective  rates of interest  are  calculated  for those loans
making reference  thereto,  and is evidenced by the recording  thereof after its
announcement in such internal publication or publications as Bank may designate.

INTEREST:

         (a) Interest. The outstanding principal balance of this Note shall bear
interest  (computed on the basis of a 360-day year,  actual days elapsed) either
(i) at a fluctuating  rate per annum equal to the Prime Rate in effect from time
to time plus the Applicable Prime Rate Margin, or (ii) at a fixed rate per annum
determined  by Bank to be LIBOR in effect  on the  first  day of the  applicable
Fixed Rate Term plus the Applicable LIBOR Margin. When interest is determined in
relation to the Prime Rate, each change in the rate of interest  hereunder shall
become  effective on the date each Prime Rate change is  announced  within Bank.
With respect to each LIBOR  selection  hereunder,  Bank is hereby  authorized to
note the date,  principal  amount,  interest rate and Fixed Rate Term applicable
thereto  and any  payments  made  thereon on Bank's  books and  records  (either
manually or by electronic  entry) and/or on any schedule  attached to this Note,
which notations shall be prima facie evidence of the accuracy of the information
noted.

         (b) Selection of Interest Rate Options. At any time any portion of this
Note bears  interest  determined  in relation to LIBOR,  it may be  continued by
Borrower at the end of the Fixed Rate Term  applicable  thereto so that all or a
portion  thereof bears  interest  determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower.  At any time any portion
of this Note bears interest  determined in relation to the Prime Rate,  Borrower
may convert all or a portion  thereof so that it bears  interest  determined  in
relation to LIBOR for a Fixed Rate Term designated by Borrower.  At such time as
Borrower  requests an advance  hereunder  or wishes to select a LIBOR option for
all or a portion of the outstanding  principal balance hereof, and at the end of
each Fixed Rate  Term,  Borrower  shall  give Bank  notice  specifying:  (i) the
interest rate option  selected by Borrower;  (ii) the principal  amount  subject
thereto; and (iii) for each LIBOR selection,  the length of the applicable Fixed
Rate Term.  Any such notice may be given by telephone,  so long as, with respect
to each LIBOR selection,  (A) Bank receives written  confirmation  from Borrower
not later than three (3) Business Days after such telephone notice is given, and
(B) such notice is given to Bank prior to 10:00 a.m.,  California  time,  on the
first day of the Fixed Rate Term.  For each LIBOR  option  requested  hereunder,
Bank will quote the  applicable  fixed rate to Borrower at  approximately  10:00
a.m., California time, on the first day of the Fixed Rate Term. If Borrower does
not  immediately  accept the rate quoted by Bank, any  subsequent  acceptance by
Borrower shall be subject to a  redetermination  by Bank of the applicable fixed
rate; provided however,  that if Borrower fails to accept any such rate by 11:00
a.m.,  California  time, on the Business Day such  quotation is given,  then the
quoted  rate shall  expire and Bank shall have no  obligation  to permit a LIBOR
option to be selected on such day.  If no  specific  designation  of interest is
made at the time any advance is  requested  hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.

         (c)      Additional LIBOR Provisions.

                  (i) If Bank at any time  shall  determine  that for any reason
         adequate and reasonable means do not exist for ascertaining LIBOR, then
         Bank shall promptly give notice thereof to Borrower.  If such notice is
         given and until such notice has been withdrawn by Bank, then (A) no new
         LIBOR  option may be selected by  Borrower,  and (B) any portion of the
         outstanding principal balance hereof which bears interest determined in
         relation  to  LIBOR,  subsequent  to the  end of the  Fixed  Rate  Term
         applicable  thereto,  shall bear interest determined in relation to the
         Prime Rate.
                  (ii) If any law, treaty, rule,  regulation or determination of
         a court or  governmental  authority  or any  change  therein  or in the
         interpretation  or application  thereof (each, a "Change in Law") shall
         make  it  unlawful  for  Bank  (A)  to  make  LIBOR  options  available
         hereunder,  or (B) to maintain  interest rates based on LIBOR,  then in
         the  former  event,  any  obligation  of Bank to  make  available  such
         unlawful  LIBOR options  shall  immediately  be  cancelled,  and in the
         latter  event,  any  such  unlawful  LIBOR-based  interest  rates  then
         outstanding  shall be converted,  at Bank's option, so that interest on
         the portion of the  outstanding  principal  balance  subject thereto is
         determined in relation to the Prime Rate; provided however, that if any
         such  Change in Law shall  permit  any  LIBOR-based  interest  rates to
         remain in effect until the expiration of the Fixed Rate Term applicable
         thereto,  then such permitted LIBOR-based interest rates shall continue
         in effect  until the  expiration  of such  Fixed  Rate  Term.  Upon the
         occurrence of any of the foregoing  events,  Borrower shall pay to Bank
         immediately  upon demand such amounts as may be necessary to compensate
         Bank for any fines, fees, charges, penalties or other costs incurred or
         payable by Bank as a result thereof and which are  attributable  to any
         LIBOR options made available to Borrower hereunder,  and any reasonable
         allocation  made by Bank among its  operations  shall be conclusive and
         binding upon Borrower.

                  (iii) If any  Change  in Law or  compliance  by Bank  with any
         request or directive  (whether or not having the force of law) from any
         central bank or other governmental authority shall:

                  (A)      subject  Bank to any tax,  duty or other  charge with
                           respect to any LIBOR options,  or change the basis of
                           taxation of payments to Bank of principal,  interest,
                           fees or any other amount  payable  hereunder  (except
                           for  changes  in the rate of tax on the  overall  net
                           income of Bank); or

                  (B)      impose,   modify  or  hold  applicable  any  reserve,
                           special   deposit,   compulsory   loan   or   similar
                           requirement against assets held by, deposits or other
                           liabilities  in or for the  account  of,  advances or
                           loans by, or any  other  acquisition  of funds by any
                           office of Bank; or

                  (C)      impose on Bank any other condition;

and the  result  of any of the  foregoing  is to  increase  the  cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount  receivable  by Bank in  connection  therewith,  then in any  such  case,
Borrower  shall pay to Bank  immediately  upon  demand  such  amounts  as may be
necessary to compensate  Bank for any  additional  costs incurred by Bank and/or
reductions  in amounts  received  by Bank which are  attributable  to such LIBOR
options.  In  determining  which costs  incurred by Bank  and/or  reductions  in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder,  any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
         (d) Payment of Interest. Interest accrued on this Note shall be payable
on the 1st day of each month, commencing February 1, 1998.

         (e) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal  owing  hereunder  becomes due and payable by
acceleration or otherwise,  the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to two percent (2.00%) above
the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

         (a) Borrowing and Repayment.  Borrower may from time to time during the
term of this Note borrow,  partially or wholly repay its outstanding borrowings,
and reborrow,  subject to all of the  limitations,  terms and conditions of this
Note and of any document  executed in  connection  with or governing  this Note;
provided however,  that the total  outstanding  borrowings under this Note shall
not at any time exceed the principal  amount stated above.  The unpaid principal
balance  of this  obligation  at any time  shall be the total  amounts  advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for Borrower,  which  balance may be endorsed  hereon from time to time by
the  holder.  The  outstanding  principal  balance of this Note shall be due and
payable in full on February 1, 2000.

         (b) Advances.  Advances hereunder, to the total amount of the principal
sum stated  above,  may be made by the holder at the oral or written  request of
(i) Dennis K. Marquardt or James Freeman,  Jr. or Kevin Marquez or Mark Vidovich
or Ravi Shan, any one acting alone,  who are authorized to request  advances and
direct the disposition of any advances until written notice of the revocation of
such authority is received by the holder at the office designated above, or (ii)
any person,  with respect to advances  deposited to the credit of any account of
Borrower  with  the  holder,  which  advances,  when  so  deposited,   shall  be
conclusively  presumed  to have  been  made to or for the  benefit  of  Borrower
regardless  of the fact that  persons  other  than those  authorized  to request
advances may have authority to draw against such account.  The holder shall have
no  obligation to determine  whether any person  requesting an advance is or has
been authorized by Borrower.

         (c)  Application  of Payments.  Each payment made on this Note shall be
credited  first,  to any  interest  then  due  and  second,  to the  outstanding
principal  balance hereof.  All payments  credited to principal shall be applied
first,  to the outstanding  principal  balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal  balance of this Note which bears  interest  determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

         (a) Prime Rate.  Borrower  may prepay  principal on any portion of this
Note which bears interest  determined in relation to the Prime Rate at any time,
in any amount and without penalty.

         (b) LIBOR.  Borrower  may prepay  principal on any portion of this Note
which  bears  interest  determined  in  relation to LIBOR at any time and in the
minimum amount of One Hundred Thousand Dollars ($100,000.00);  provided however,
that if the outstanding  principal  balance of such portion of this Note is less
than said amount,  the minimum prepayment amount shall be the entire outstanding
principal  balance  thereof.  In consideration of Bank providing this prepayment
option to  Borrower,  or if any such  portion of this Note shall  become due and
payable  at any time  prior to the last day of the Fixed  Rate  Term  applicable
thereto by  acceleration  or otherwise,  Borrower shall pay to Bank  immediately
upon demand a fee which is the sum of the  discounted  monthly  differences  for
each month from the month of  prepayment  through  the month in which such Fixed
Rate Term matures, calculated as follows for each such month:

                  (i) Determine the amount of interest  which would have accrued
         each month on the amount  prepaid at the interest  rate  applicable  to
         such amount had it remained outstanding until the last day of the Fixed
         Rate Term applicable thereto.

                  (ii)  Subtract  from the  amount  determined  in (i) above the
         amount of interest  which would have  accrued for the same month on the
         amount  prepaid for the remaining term of such Fixed Rate Term at LIBOR
         in effect on the date of  prepayment  for new loans  made for such term
         and in a principal amount equal to the amount prepaid.

                  (iii) If the result  obtained in (ii) for any month is greater
         than zero, discount that difference by LIBOR used in (ii) above.

Borrower  acknowledges  that  prepayment  of  such  amount  may  result  in Bank
incurring  additional  costs,  expenses  and/or  liabilities,  and  that  it  is
difficult  to  ascertain  the  full  extent  of  such  costs,   expenses  and/or
liabilities.  Borrower,  therefore, agrees to pay the above-described prepayment
fee and  agrees  that  said  amount  represents  a  reasonable  estimate  of the
prepayment costs,  expenses and/or liabilities of Bank. If Borrower fails to pay
any prepayment fee when due, the amount of such prepayment fee shall  thereafter
bear interest until paid at a rate per annum two percent (2.00%) above the Prime
Rate in effect  from  time to time  (computed  on the  basis of a 360-day  year,
actual days  elapsed).  Each change in the rate of interest on any such past due
prepayment  fee shall  become  effective  on the date each Prime Rate  change is
announced within Bank.

EVENTS OF DEFAULT:

         This  Note  is  made  pursuant  to and is  subject  to  the  terms  and
conditions of the Credit Agreement. Any default in the payment or performance of
any obligation under this Note, or any defined event of default under the Credit
Agreement, shall constitute an "Event of Default" under this Note.

MISCELLANEOUS:

         (a) Remedies.  Upon the occurrence of any Event of Default,  the holder
of this Note,  at the holder's  option,  may declare all sums of  principal  and
interest  outstanding  hereunder  to be  immediately  due  and  payable  without
presentment,  demand,  notice of nonperformance,  notice of protest,  protest or
notice of  dishonor,  all of which are  expressly  waived by  Borrower,  and the
obligation,  if any, of the holder to extend any further credit  hereunder shall
immediately  cease and terminate.  Borrower shall pay to the holder  immediately
upon  demand  the full  amount of all  payments,  advances,  charges,  costs and
expenses,  including reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of the holder's in-house counsel),  expended or incurred
by the holder in connection  with the  enforcement of the holder's rights and/or
the  collection  of any amounts  which become due to the holder under this Note,
and the  prosecution  or defense of any action in any way  related to this Note,
including  without  limitation,  any  action  for  declaratory  relief,  whether
incurred  at the trial or  appellate  level,  in an  arbitration  proceeding  or
otherwise,  and including any of the foregoing  incurred in connection  with any
bankruptcy proceeding  (including without limitation,  any adversary proceeding,
contested  matter or motion  brought by Bank or any other  person)  relating  to
Borrower or any other person or entity.

         (b)  Governing  Law.  This Note shall be governed by and  construed  in
accordance with the laws of the State of California.

         IN WITNESS  WHEREOF,  the  undersigned has executed this Note as of the
date first written above.

DAY RUNNER, INC.,
 a Delaware corporation


By:_______________________

Title:______________________