-----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, UWy1y/HV1I0GciZuvsR6vTdPWDlcRx8W7QQlSPzJQ/acRY2wen2E7BsU8K65yxk/ kJhgaJ5E3qJVCL6czN4kCg== 0000006207-07-000005.txt : 20070119 0000006207-07-000005.hdr.sgml : 20070119 20070119135409 ACCESSION NUMBER: 0000006207-07-000005 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070116 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070119 DATE AS OF CHANGE: 20070119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMREP CORP. CENTRAL INDEX KEY: 0000006207 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 590936128 STATE OF INCORPORATION: OK FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04702 FILM NUMBER: 07540278 BUSINESS ADDRESS: STREET 1: 300 ALEXANDER PARK STREET 2: SUITE 204 CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: (609) 716-8200 MAIL ADDRESS: STREET 1: 300 ALEXANDER PARK STREET 2: SUITE 204 CITY: PRINCETON STATE: NJ ZIP: 08540 FORMER COMPANY: FORMER CONFORMED NAME: AMREP CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN REALTY & PETROLEUM CORP DATE OF NAME CHANGE: 19671019 8-K 1 axr8k011707.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): January 16, 2007 ---------------- AMREP CORPORATION ----------------- (Exact Name of Registrant as Specified in Charter) Oklahoma 1-4702 59-0936128 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission File (IRS Employer of Incorporation) Number) Identification Number) 300 Alexander Park, Suite 204, Princeton, New Jersey 08540 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (609) 716-8200 ---------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01 Entry into a Material Definitive Agreement. On January 16, 2007, in connection with the completion of the acquisition of Palm Coast Data Holdco, Inc. ("Holdings"), Kable Media Services, Inc. ("Kable"), a subsidiary of AMREP Corporation (the "Company"), and certain direct and indirect subsidiaries of Kable entered into a Second Amended and Restated Loan and Security Agreement (the "Loan Agreement") with Holdings, Palm Coast Data, LLC, a wholly-owned subsidiary of Holdings ("PCD"), and LaSalle Bank National Association (the "Lender"). The following description is qualified by reference to the Loan Agreement, which is attached hereto as Exhibit No. 10.1 and incorporated herein by reference. The Lender and certain of Kable's direct and indirect subsidiaries were previously parties to an Amended and Restated Loan and Security Agreement dated as of April 28, 2005, as amended by a First Amendment to Amended and Restated Loan and Security Agreement dated April 27, 2006 (as so amended, the "Existing Loan Agreement"). The Existing Loan Agreement consisted of several revolving credit facilities and capital expenditure lines of credit. The Loan Agreement amends the Existing Loan Agreement and cancels certain of the existing credit facilities, consolidates in part certain of the revolving credit facilities and existing term debt and adds Kable, Holdings and PCD as additional borrowers. The credit facilities from the Lender under the Loan Agreement consist of: (i) a revolving credit loan and letter of credit facility in an aggregate principal amount of up to $35.0 million ("Facility A"), a portion of which was used to fund part of the merger consideration for Kable's acquisition of Holdings (as described below in Item 2.01), and the remainder of which may be used for working capital purposes; (ii) a secured term loan of approximately $3.0 million ("Facility B"); (iii) a capital expenditure line of credit in an amount of up to $1.5 million to finance new equipment ("Facility C"); and (iv) a second revolving credit loan facility of $10.0 million ("Facility D") that may be used exclusively for the payment of accounts payable under a distribution agreement with a customer of Kable's Distribution Services business. The borrowers' obligations under the Loan Agreement are secured by substantially all of their assets other than real property and any borrower's interest in the capital securities of any other borrower or any subsidiary of any borrower. Subject to the Lender's right to accelerate the obligations under the Loan Agreement upon the occurrence of an Event of Default, as defined in the Loan Agreement, and subject to applicable cure periods, the maturity dates of Facility A, Facility C and Facility D are each May 1, 2010, and the maturity date for Facility B is December 31, 2009. The Loan Agreement includes customary Events of Default, including cross-default in respect of certain contracts and subordinated indebtedness of the borrowers, certain of the borrowers ceasing to be direct or indirect wholly-owned subsidiaries of Kable, and a Material Adverse Effect (as such term is defined in the Loan Agreement). The Facility A, C and D loans bear interest at fluctuating rates that, at the borrowers' option, may be either (i) reserve adjusted LIBOR rates plus a margin established quarterly of from 1.5% to 2.5% dependent on the borrowers' funded debt to EBITDA ratio, as defined in the Loan Agreement, or (ii) the Lender's prime rate. The Facility B interest rate is 6.4% per annum. In addition, the Loan Agreement requires the borrowers to maintain certain financial ratios and contains customary covenants and restrictions, the most significant of which limit the ability of the borrowers to declare or pay dividends or make other distributions to the Company unless certain conditions are satisfied, and that limit the annual amount of indebtedness the borrowers may incur for capital expenditures and other purposes. Item 2.01 Completion of Acquisition or Disposition of Assets. On January 16, 2007, Kable completed its previously announced acquisition of Holdings, a provider of fulfillment services for magazine publishers and - 2 - others, pursuant to the terms of that certain Agreement and Plan of Merger (the "Merger Agreement"), dated as of November 7, 2006, by and among the Company, Kable, Merger Sub, Holdings, PCD, Allied Capital Corporation ("Allied") and the other stockholders of Holdings as set forth in the Agreement (together with Allied, the "Sellers"). The Agreement provides for the acquisition to occur by the merger of Merger Sub with and into Holdings, with Holdings surviving the merger. As a result of the merger, Holdings and PCD are now direct and indirect wholly-owned subsidiaries of Kable. The merger consideration totaled approximately $92 million plus an additional amount for working capital and certain other adjustments preliminarily estimated at $3.7 million. The acquisition was financed with existing cash and borrowings. Subject to certain limitations and conditions, the Sellers have agreed to indemnify Kable for certain losses that may occur related to breaches of certain representations, warranties and covenants in the Merger Agreement and certain other matters specified in the Merger Agreement. The representations and warranties contained in the Merger Agreement were made only for the purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, and are subject to limitations and qualifications agreed to by the contracting parties, including being qualified by disclosures between the parties. These representations and warranties were made for the purpose of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and are, in certain instances, subject to standards of materiality applicable to the contracting parties that may differ from those applicable to investors. Accordingly, they should not be relied upon by investors as statements of factual information. On January 16, 2007, the Company issued a press release announcing the closing of the acquisition of Holdings, a copy of which is attached hereto as Exhibit No. 99.1. Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant. The information reported under Item 1.01 is incorporated herein by reference. Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers. In connection with the closing of the acquisition of Holdings described in Item 2.01, effective January 16, 2007, John Meneough was appointed as Executive Vice President, Fulfillment Services of Kable at an annual salary of $340,000. Mr. Meneough will also serve as president and chief operating officer of the combined Kable and PCD fulfillment operations. Mr. Meneough, 58, had been President and Chief Executive Officer of Holdings since 1996, and a member of Holdings' Board of Directors since April 2002. Item 9.01 Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired. The financial statements and additional information required pursuant to Item 9.01(a) of Form 8-K will be filed by amendment to this report on Form 8-K within 71 calendar days after the date on which this report on Form 8-K must be filed. (b) Pro Forma Financial Information. - 3 - The pro forma financial information required pursuant to Item 9.01(b) of Form 8-K will be filed by amendment to this report on Form 8-K within 71 calendar days after the date on which this report on Form 8-K must be filed. (d) Exhibits. Exhibit No. Description - ----------- ----------- 2.1* Agreement and Plan of Merger, dated as of November 7, 2006, by and among AMREP Corporation, Kable Media Services, Inc., Glen Garry Acquisition, Inc., Palm Coast Data Holdco, Inc., Palm Coast Data, LLC and the Sellers set forth therein. 10.1* Second Amended and Restated Loan and Security Agreement, dated as of January 16, 2007, by and among Kable Media Services, Inc., Kable News Company, Inc., Kable Distribution Services, Inc., Kable News Export, Ltd., Kable News International, Inc., Kable Fulfillment Services, Inc., Kable Fulfillment Services of Ohio, Inc., Palm Coast Data Holdco, Inc., Palm Coast Data, LLC, and LaSalle Bank National Association. 99.1 Press release dated January 16, 2007. - ---- * Certain schedules to this agreement have been omitted pursuant to Item 601(b) of Regulation S-K. The registrant will furnish a supplementary copy of any omitted schedule to the Securities and Exchange Commission upon request. - 4 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. January 19, 2007 AMREP CORPORATION (Registrant) By: /s/ Peter M. Pizza ------------------------ Peter M. Pizza Vice President and Chief Financial Officer - 5 - EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1* Agreement and Plan of Merger, dated as of November 7, 2006, by and among AMREP Corporation, Kable Media Services, Inc., Glen Garry Acquisition, Inc., Palm Coast Data Holdco, Inc., Palm Coast Data, LLC, and the Sellers set forth therein. 10.1* Second Amended and Restated Loan and Security Agreement, dated as of January 16, 2007, by and among Kable Media Services, Inc., Kable News Company, Inc., Kable Distribution Services, Inc., Kable News Export, Ltd., Kable News International, Inc., Kable Fulfillment Services, Inc., Kable Fulfillment Services of Ohio, Inc., Palm Coast Data Holdco, Inc., Palm Coast Data, LLC, and LaSalle Bank National Association. 99.1 Press release dated January 16, 2007. - ---- * Certain schedules to this agreement have been omitted pursuant to Item 601(b) of Regulation S-K. The registrant will furnish a supplementary copy of any omitted schedule to the Securities and Exchange Commission upon request. EX-2 2 axr8k011707exh21.txt Exhibit 2.1 - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER by and among AMREP CORPORATION KABLE MEDIA SERVICES, INC. GLEN GARRY ACQUISITION, INC. PALM COAST DATA HOLDCO, INC. PALM COAST DATA, LLC and THE SELLERS SET FORTH ON THE SIGNATURE PAGE HERETO Dated as of November 7, 2006 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I THE MERGER SECTION 1.1 The Merger....................................................2 SECTION 1.2 Closing Date and Effective Time...............................2 SECTION 1.3 Closing.......................................................3 ARTICLE II MERGER CONSIDERATION SECTION 2.1 Conversion of Shares..........................................6 SECTION 2.2 Stock Appreciation Rights; Options; Phantom Debt..............7 SECTION 2.3 Pre-Closing Adjustment........................................9 SECTION 2.4 Post-Closing Adjustment......................................10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS SECTION 3.1 Organization and Authority...................................12 SECTION 3.2 Capitalization...............................................13 SECTION 3.3 Consents and Approvals; No Violations........................14 SECTION 3.4 Financial Statements.........................................15 SECTION 3.5 Absence of Material Adverse Changes, etc.....................15 SECTION 3.6 No Undisclosed Liabilities...................................17 SECTION 3.7 Taxes........................................................17 SECTION 3.8 Employee Benefit Plans.......................................19 SECTION 3.9 Environmental Matters........................................21 SECTION 3.10 Legal Proceedings, etc.......................................22 SECTION 3.11 Compliance with Applicable Law...............................22 SECTION 3.12 Certain Contracts and Arrangements...........................23 SECTION 3.13 Real Property................................................25 SECTION 3.14 Employees; Labor Matters.....................................27 SECTION 3.15 Insurance....................................................27 SECTION 3.16 Intellectual Property........................................28 SECTION 3.17 Customers....................................................29 SECTION 3.18 Certain Fees.................................................29 SECTION 3.19 Title to Assets..............................................30 SECTION 3.20 Receivables..................................................30 SECTION 3.21 Suppliers....................................................30 SECTION 3.22 Geographic Limitations.......................................30 SECTION 3.23 Records......................................................30 SECTION 3.24 Bank Accounts................................................31 SECTION 3.25 Indebtedness.................................................31 SECTION 3.26 Absence of Certain Business Practices........................31 SECTION 3.27 Disclosure...................................................32 SECTION 3.28 Disclaimer of Warranties by Holdings.........................32 ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS SECTION 4.1 Organization and Authority...................................32 SECTION 4.2 Holdings Share Ownership.....................................33 SECTION 4.3 Consents and Approvals; No Violations........................33 SECTION 4.4 Certain Fees.................................................33 SECTION 4.5 Legal Proceedings, etc.......................................33 SECTION 4.6 Disclaimer of Warranties.....................................34 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB SECTION 5.1 Corporate Organization and Authority.........................34 SECTION 5.2 Consents and Approvals; No Violations........................35 SECTION 5.3 Legal Proceedings, etc.......................................36 SECTION 5.4 Certain Fees.................................................37 SECTION 5.5 Acquisition of Holdings Shares for Investment................37 SECTION 5.6 Financing....................................................37 SECTION 5.7 Investigation by Parent; Holdings' Liability.................37 SECTION 5.8 Disclaimer of Warranties.....................................38 ARTICLE VI COVENANTS SECTION 6.1 Conduct of the Business......................................38 SECTION 6.2 Access to Information and Real Property; Confidentiality.....40 SECTION 6.3 Delivery of Monthly Financial Statements.....................40 SECTION 6.4 Reasonable Best Efforts......................................41 SECTION 6.5 Governmental Authorizations..................................41 SECTION 6.6 Public Announcements.........................................42 SECTION 6.7 Employee Matters.............................................42 SECTION 6.8 Tax Matters..................................................43 SECTION 6.9 Audit; Cooperation...........................................44 SECTION 6.10 Return of Insurance Receivables..............................44 SECTION 6.11 Update.......................................................45 SECTION 6.12 Further Assurances...........................................45 SECTION 6.13 Restrictive Covenants........................................45 ARTICLE VII CONDITIONS TO PARENT'S OBLIGATION TO CLOSE SECTION 7.1 Representations and Warranties; Covenants....................48 SECTION 7.2 Absence of Legal Proceedings.................................49 SECTION 7.3 Consents and Terminations....................................49 SECTION 7.4 Additional Conditions........................................49 SECTION 7.5 HSR Act......................................................50 SECTION 7.6 Deliverables.................................................50 SECTION 7.7 Restructuring Transactions...................................50 - ii - ARTICLE VIII CONDITIONS TO HOLDINGS' OBLIGATIONS TO CLOSE SECTION 8.1 Representations and Warranties; Covenants....................50 SECTION 8.2 Absence of Legal Proceedings.................................50 SECTION 8.3 HSR Act......................................................50 SECTION 8.4 Deliverables.................................................51 ARTICLE IX TERMINATION SECTION 9.1 Termination..................................................51 SECTION 9.2 Procedure and Effect of Termination..........................51 ARTICLE X INDEMNIFICATION SECTION 10.1 Survival.....................................................52 SECTION 10.2 Indemnification Provisions for Benefit of Parent.............53 SECTION 10.3 Indemnification Provisions for Benefit of Sellers............55 SECTION 10.4 Special Indemnification Provisions for Benefit of Parent.....55 SECTION 10.5 Exclusive Remedy.............................................55 SECTION 10.6 Manner of Payment............................................56 ARTICLE XI MISCELLANEOUS SECTION 11.1 Certain Definitions..........................................56 SECTION 11.2 Notices......................................................56 SECTION 11.3 Interpretation...............................................57 SECTION 11.4 Amendments, Modification and Waiver..........................57 SECTION 11.5 Expenses.....................................................58 SECTION 11.6 Release......................................................58 SECTION 11.7 Successors and Assigns; Binding Effect.......................58 SECTION 11.8 Governing Law................................................59 SECTION 11.9 Jurisdiction; Forum..........................................59 SECTION 11.10 Severability.................................................59 SECTION 11.11 Third Party Beneficiaries....................................59 SECTION 11.12 Schedules; Materiality.......................................59 SECTION 11.13 Entire Agreement.............................................60 SECTION 11.14 Counterparts; Facsimile Delivery.............................60 SECTION 11.15 Specific Performance.........................................60 SECTION 11.16 Sellers' Representative......................................61 ARTICLE XII GUARANTEE SECTION 12.1 Publico Guarantee............................................62 - iii - INDEX OF DEFINED TERMS Action......................................................................22 Adverse Consequences........................................................55 Affected Employee...........................................................43 Affiliates..................................................................15 Aggregate Liquidation Preference.............................................7 Aggregate Option Amount......................................................8 Agreement....................................................................1 Annualized Adjusted EBITDA...................................................9 Annualized Adjusted Net Revenues............................................10 Applicable Option Amount.....................................................8 Applicable SAR Amount........................................................8 Audit.......................................................................45 Certificate of Merger........................................................2 Class A Common Stock.........................................................1 Class B Common Stock.........................................................1 Closing......................................................................3 Closing Date.................................................................2 Closing Notice..............................................................51 Closing Statement...........................................................10 Closing Working Capital.....................................................11 Code........................................................................20 Company......................................................................1 Company Common Interests....................................................14 Company Intellectual Property...............................................29 Confidential Information....................................................48 Confidentiality Agreement...................................................41 Current Assets..............................................................10 Current Liabilities.........................................................11 Debt Amount..................................................................4 DGCL.........................................................................2 Disclosure Schedule.........................................................12 Effective Time...............................................................2 Employee Benefit Plans......................................................19 Encumbrances................................................................15 Environmental Claim.........................................................21 Environmental Laws..........................................................21 ERISA.......................................................................19 ERISA Affiliate.............................................................19 Escrow Agent.................................................................5 Escrow Agreement.............................................................5 Escrow Amount................................................................5 Estimated Working Capital....................................................9 Extension Notice............................................................53 Final Statement.............................................................10 - iv - Financial Statements........................................................15 Fully Diluted Basis.........................................................12 GAAP.........................................................................9 Governmental Authority......................................................15 Hazardous Materials.........................................................21 Holdings.....................................................................1 Holdings Breach.............................................................55 Holdings Shares..............................................................1 HSR Act.....................................................................42 Indemnification Basket......................................................55 Indemnification Cap.........................................................55 Independent Accounting Firm.................................................11 Insurance Proceeds..........................................................46 Intellectual Property.......................................................28 June Balance Sheet..........................................................15 June Financial Statements...................................................15 Knowledge of Holdings.......................................................58 Law.........................................................................22 Leased Real Property........................................................26 Leases......................................................................26 Liability...................................................................16 MAE Change Date.............................................................51 Material Adverse Effect.....................................................58 Material Contracts..........................................................23 Material Customers..........................................................29 Material Maintenance Contracts..............................................23 Material Supplier...........................................................31 Merger.......................................................................1 Merger Consideration.........................................................9 Merger Consideration Decrease...............................................12 Merger Consideration Increase...............................................11 Merger Sub...................................................................1 Operating Leases............................................................10 Option Agreements............................................................8 Options......................................................................1 Owned Real Property.........................................................26 Parent.......................................................................1 Parent Breach...............................................................56 Per Escrow Amount............................................................7 Per Share Amount.............................................................7 Permits.....................................................................22 Permitted Encumbrances......................................................25 Person......................................................................13 Phantom Debt.................................................................1 Plan.........................................................................1 Post-Closing Tax Return.....................................................44 Predecessor.................................................................15 - v - Preferred Holder.............................................................4 Preferred Shares.............................................................1 Prior Agreements............................................................25 Prior Sellers...............................................................25 Publico......................................................................1 Real Property...............................................................26 Release.....................................................................21 Released Parties............................................................60 Representatives.............................................................41 Restructuring Transactions...................................................1 SARs.........................................................................1 Seller Claims...............................................................60 Seller Releasing Parties....................................................60 Sellers......................................................................1 Sellers' Representative.....................................................63 Subsidiary..................................................................13 Supplemental Disclosure.....................................................46 Surviving Company............................................................2 Target Working Capital.......................................................9 Tax.........................................................................19 Tax Return..................................................................19 Tax Returns.................................................................19 Taxes.......................................................................19 Termination Date............................................................53 Transfer Taxes..............................................................45 Working Capital.............................................................10 - vi - AGREEMENT AND PLAN OF MERGER, dated as of November 7, 2006 (this "Agreement"), by and among KABLE MEDIA SERVICES, INC., a Delaware corporation --------- ("Parent"), GLEN GARRY ACQUISITION, INC., a Delaware corporation and a ------ wholly-owned subsidiary of Parent ("Merger Sub"), PALM COAST DATA HOLDCO, INC., ---------- a Delaware corporation ("Holdings"), and the Persons (as defined in Section -------- 3.1(a) hereof) set forth on the signature page hereto and designated as sellers (the "Sellers") and, with respect to Section 12.1 only, AMREP CORPORATION, an ------- Oklahoma corporation ("Publico"). ------- WITNESSETH WHEREAS, the Board of Directors of Parent and the Board of Directors of Merger Sub have each approved this Agreement and the merger of Merger Sub with and into Holdings, whereby each outstanding share of Class A Common Stock, par value $0.01 per share (the "Class A Common Stock"), and Class B Common Stock, --------------------- par value $0.01 per share (the "Class B Common Stock"), of Holdings (the --------------------- "Holdings Shares") will be converted into the right to receive the Per Share ---------------- Amount (as defined in Section 2.1 hereof) in accordance with this Agreement, upon the terms and subject to the conditions and limitations set forth herein (the "Merger"); ------ WHEREAS, the Board of Directors and stockholders of Holdings have unanimously determined that the Merger is fair to, advisable and in the best interests of Holdings and its stockholders and have unanimously approved this Agreement, the Merger and the other transactions contemplated by this Agreement; WHEREAS, the members of the management of Palm Coast Data LLC, a Delaware limited liability company (the "Company") have each elected to settle for a cash ------- payment, pursuant to Section 2.2(c) of this Agreement, all of the issued and outstanding stock appreciation rights that have been allocated to phantom equity ("SARs"), all amounts allocated to phantom debt under the Incentive Agreements ---- set forth in Section 2.2(a) of the Disclosure Schedule (as defined herein) (the "Phantom Debt") and, pursuant to Section 2.2(b) of this Agreement, all of the ------------ issued and outstanding options to acquire Class B Common Stock (the "Options") ------- under Holdings' 2005 Stock Option Plan (the "Plan"); ---- WHEREAS, in connection with the Restructuring Transactions described in Section 1.1 of the Disclosure Schedule (the "Restructuring Transactions"), --------------------------- Holdings will issue shares of its Series A Redeemable Voting Preferred Stock, par value $0.01 per share (the "Preferred Shares"), which, as a result of the ----------------- Merger, will be converted into the right to receive the Aggregate Liquidation Preference (as defined in Section 2.1 hereof) in accordance with this Agreement, upon the terms and subject to the conditions and limitations set forth herein. NOW, THEREFORE, in consideration of the representations, warranties, covenants, agreements and conditions hereafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I THE MERGER SECTION 1.1 The Merger. ---------- (a) The Merger. Upon the terms and subject to the satisfaction or waiver, ---------- if permissible, of the conditions hereof, at the Effective Time, Merger Sub shall be merged with and into Holdings, whereupon the separate corporate existence of Merger Sub shall cease, and Holdings shall survive and continue to exist (Holdings, as the surviving corporation in the Merger, is sometimes referred to herein as the "Surviving Company"). (b) Name. The name of the Surviving Company shall be "Palm Coast Data ---- Holdco, Inc." (c) Certificate of Incorporation and Bylaws. As of the Effective Time, the ---------------------------------------- certificate of incorporation and bylaws of the Surviving Company shall be amended and restated in their entirety to read as the certificate of incorporation and bylaws, respectively, of Merger Sub as in effect immediately prior to the Merger, in each case until thereafter amended in accordance with applicable Law (as defined in Section 3.11 hereof), except as set forth in Section 1.1(b) hereof. (d) Directors and Officers of the Surviving Company. The directors of -------------------------------------------------- Merger Sub immediately before the Merger shall comprise all of the directors of the Surviving Company immediately after the Merger, each of whom shall serve until such time as their successors shall be duly elected. The officers of Merger Sub immediately before the Merger shall comprise all of the officers of the Surviving Company immediately after the Merger, each of whom shall serve until such time as their successors shall be duly elected. (e) Effect of the Merger. At the Effective Time, the effect of the Merger -------------------- shall be as provided in Section 259 of the Delaware General Corporation Law (the "DGCL"). At the Effective Time, all Holdings Shares held by Parent shall be cancelled and extinguished and no additional consideration shall be payable therefor. SECTION 1.2 Closing Date and Effective Time. Subject to the satisfaction or ------------------------------- waiver, if permissible, of the conditions set forth in Articles VII and VIII, other than those conditions that by their nature are to be satisfied at the consummation of the Merger, but subject to the fulfillment or waiver, if permissible, of those conditions, the parties shall cause a certificate of merger relating to the Merger (the "Certificate of Merger") to be filed with the --------------------- Secretary of State of the State of Delaware pursuant to the DGCL on (i) the later of (x) January 16, 2007 and (y) a date selected by Parent after such satisfaction or waiver that is no later than five (5) business days after such satisfaction or waiver, or (ii) such other date to which the parties may mutually agree (the "Closing Date"). The Merger shall become effective upon such ------------ filing of the Certificate of Merger (the "Effective Time"). -------------- - 2 - SECTION 1.3 Closing. ------- (a) The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of DLA Piper US LLP, 1200 Nineteenth ------- Street, NW, Washington, D.C. 20036 at 10:00 a.m., local time, or at such other place and time as the parties shall mutually agree, on the Closing Date. (b) At the Closing, Holdings shall deliver or cause to be delivered the following to Parent: (i) a certificate of an officer of Holdings in form and substance reasonably satisfactory to Parent, dated as of the Closing Date, to the effect that the conditions specified in Sections 7.1, 7.2 and 7.4 hereof have been fulfilled; (ii) the stockholder records and minute books of Holdings and the limited liability company member records and minute books of the Company; (iii) a certificate of an officer of Holdings in form and substance satisfactory to Parent, to be dated as of the Closing Date, attaching (A) a copy of the resolutions duly adopted by the Board of Directors of Holdings, authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby and any other documents or instruments contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (B) a copy of the resolutions duly adopted by the stockholders of Holdings, approving and adopting this Agreement and the transactions contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (C) a true, correct and complete copy of the certificate of incorporation and bylaws of Holdings, as amended to date, and certifying that such documents are in full force and effect as of the Closing, and (D) incumbency, authority and specimen signatures of each of the officers of Holdings executing this Agreement and any other document or instrument executed on behalf of Holdings in connection with the transactions contemplated hereby and certifying the authenticity of such signatures; (iv) a certificate from the Secretary of State of the State of Delaware as to (A) Holdings' incorporation, valid existence and good standing as a domestic corporation in the State of Delaware and (B) the Company's formation, valid existence and good standing as a domestic limited liability company in the State of Delaware, together with a certificate of good standing from the Secretary of State or other appropriate governmental official of each jurisdiction in which Holdings or the Company, as applicable, is qualified to conduct its business as a foreign entity, all dated no more than five days prior to the Closing Date; (v) the resignations of the members of the Board of Directors of Holdings and the Board of Managers of the Company; (vi) an executed counterpart to the Escrow Agreement (as defined in Section 1.3(c)(vi) hereof); - 3 - (vii) certificates representing all Company Common Interests (as defined in Section 3.2(b) hereof); (viii) all appropriate payoff letters or other documentation sufficient to evidence satisfaction and payment of the outstanding balances under all Indebtedness (as defined in Section 3.25 hereof) of the Company and Holdings, which Holdings and the Sellers have represented is the Indebtedness listed in Section 1.3(b)(viii) of the Disclosure Schedule (other than any Indebtedness which is specified in Section 1.1 of the Disclosure Schedule as not being repaid at the Closing), and any interest therein or thereon or other amounts payable with respect thereto (the "Debt ---- Amount"), and all applicable Encumbrance (as defined in Section 3.3(a) ------ hereof) releases, cancelled notes or other evidence of Indebtedness duly marked as cancelled; (ix) the third party consents and documents evidencing the termination of the agreements, in each case as specified in Section 1.3(b)(ix) of the Disclosure Schedule; (x) certificates from each of the Sellers substantially in the form set forth in Treasury Regulation Section 1.1445-2(b); (xi) an opinion from DLA Piper US LLP addressed to the Parent and dated as of the Closing Date in substantially the form attached hereto as Exhibit A; (xii) evidence of the payment of all bonuses accrued through the date of Closing under the Company's 2006 Incentive Compensation Plan; (xiii) evidence of the completion of the Restructuring Transactions immediately prior to the Closing; and (xiv) all other documents required to be delivered by Holdings on or prior to the Closing Date pursuant to this Agreement, or otherwise required from Holdings in connection herewith to consummate the transactions contemplated herein. (c) At the Closing, Parent shall deliver: (i) to each holder of Holdings Shares, the Per Share Amount in cash multiplied by the aggregate number of Holdings Shares next to the name of such holder in Section 4.2 of the Disclosure Schedule by wire transfer of immediately available funds to the bank accounts designated by such Holders not less than three business days prior to the Closing; (ii) to each holder of Preferred Shares (the "Preferred Holder"),, an ---------------- amount in cash equal to the Aggregate Liquidation Preference of such Preferred Shares by wire transfer of immediately available funds to the bank accounts designated by such Preferred Holder not less than three business days prior to the Closing; (iii) on behalf of Holdings or the Company, as applicable, the Debt Amount, by wire transfer of immediately available funds to the bank account(s) designated in the payoff letters described in Section 1.3(b)(viii), in the amounts and in the manner specified in such payoff letters; - 4 - (iv) on behalf of Holdings, to each holder of SARs, the portion of the Aggregate SAR Amount allocable to such holder, as calculated pursuant to Section 2.2(c) hereof, less any amounts required to be withheld under applicable Law, by wire transfer of immediately available funds to the bank accounts designated by such Holder prior to the Closing; (v) on behalf of Holdings, to each holder of Options, the portion of the Aggregate Option Amount allocable to such holder, as calculated pursuant to Section 2.2(b) hereof, less any amounts required to be withheld under applicable Law, by wire transfer of immediately available funds to the bank accounts designated by such Holder prior to the Closing; (vi) to an escrow agent (the "Escrow Agent"), mutually acceptable to ------------ Parent and Holdings, as part of the Merger Consideration, an amount equal to $3,500,000 (the "Escrow Amount") pursuant to an escrow agreement, -------------- substantially in the form attached hereto as Exhibit B (the "Escrow ------ Agreement"), in order to secure the indemnification obligations of the --------- Sellers pursuant to Section 10.2 hereof; (vii) to Holdings, a certificate of an officer of Parent in form and substance reasonably satisfactory to Holdings, dated as of the Closing Date, to the effect that the conditions specified in Sections 8.1 and 8.2 hereof have been fulfilled; (viii) to Holdings, a certificate of the Secretary or Assistant Secretary of Parent in form and substance satisfactory to Holdings, to be dated as of the Closing Date, attaching (A) a copy of the resolutions duly adopted by the Board of Directors of Parent, authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby and any other documents or instruments contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (B) a true, correct and complete copy of each of the certificate of incorporation and bylaws of Parent, as amended to date, and certifying that such documents are in full force and effect as of the Closing, and (C) incumbency, authority and specimen signatures of each of the officers of Parent executing this Agreement and any other document or instrument executed on behalf of Parent in connection with the transactions contemplated hereby and certifying the authenticity of such signatures; (ix) to Holdings, an executed counterpart to the Escrow Agreement; and (x) all other documents required to be delivered by Parent on or prior to the Closing Date pursuant to this Agreement or otherwise required from Parent in connection herewith to consummate the transactions contemplated herein. (d) At the Closing, Merger Sub shall deliver to Holdings: - 5 - (i) a certificate of an officer of Merger Sub in form and substance satisfactory to Holdings, to be dated as of the Closing Date, attaching (A) a copy of the resolutions duly adopted by the Board of Directors of Merger Sub, authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby and any other documents or instruments contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (B) a copy of the resolutions duly adopted by the Parent as the stockholder of Merger Sub, approving and adopting this Agreement and the transactions contemplated hereby, and certifying that such resolutions have not been rescinded, revoked, amended or modified and remain in full force and effect as of the Closing, (C) a true, correct and complete copy of the certificate of incorporation and bylaws of Merger Sub, as amended to date, and certifying that such documents are in full force and effect as of the Closing, and (D) incumbency, authority and specimen signatures of each of the officers of Merger Sub executing this Agreement and any other document or instrument executed on behalf of Merger Sub in connection with the transactions contemplated hereby and certifying the authenticity of such signatures; and (ii) to Holdings, all other documents required to be delivered by Merger Sub on or prior to the Closing Date pursuant to this Agreement or otherwise required from Merger Sub in connection herewith to consummate the transactions contemplated herein. (e) At the Closing, each Seller shall deliver to Parent: (i) a certificate of such Seller in form and substance reasonably satisfactory to Parent, dated as of the Closing Date, to the effect that the conditions specified in Sections 7.1, 7.2 and 7.4 hereof have been fulfilled; (ii) an executed counterpart to the Escrow Agreement; (iii) stock certificates representing all of the Holdings Shares and Preferred Shares owned by such Seller, if any; and (iv) evidence of the settlement of all of the SARs, Options and Phantom Debt held by such Seller, if any, in the manner specified in Section 2.3 of this Agreement. ARTICLE II MERGER CONSIDERATION SECTION 2.1 Conversion of Shares. -------------------- (a) Subject to the provisions of this Agreement, each Holdings Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, be cancelled and shall as of the Effective Time automatically be converted into and shall thereafter only represent (i) the right to receive - 6 - cash, without any interest, in the amount of the Per Share Amount and (ii) the right to receive in cash such Holdings Shares' pro rata share, on a Fully Diluted Basis (as defined in Section 2.4(c) hereof), of any amounts to be distributed or paid to the Sellers pursuant to the Escrow Agreement and any other amounts to be distributed or paid to the Sellers pursuant to the terms of this Agreement. For purposes of this Agreement, the "Per Share Amount" and the ---------------- "Per Share Escrow Amount" shall be calculated as set forth in Section 2.1(a) of ------------------------ the Disclosure Schedule. (b) Subject to the provisions of this Agreement, each Preferred Share issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, be cancelled and shall as of the Effective Time automatically be converted into and shall thereafter only represent the right to receive cash, without any interest, in the amount of the liquidation preference for such Preferred Share as provided in Holdings' Amended and Restated Certificate of Incorporation establishing the terms of the Preferred Shares (the "Aggregate --------- Liquidation Preference"). - ---------------------- (c) At the Effective Time, the transfer books of Holdings shall be closed as to holders of Holdings Shares and Preferred Shares immediately prior to the Effective Time and no transfer of Holdings Shares or Preferred Shares by any such holder shall thereafter be made or recognized. (d) At and after the Effective Time, each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock of the Surviving Company and the common stock so converted shall constitute the only outstanding capital stock of the Surviving Company. SECTION 2.2 Stock Appreciation Rights; Options; Phantom Debt. ------------------------------------------------ (a) Effective as of the date of this Agreement, each of the Amended and Restated Incentive Agreements (the "Incentive Agreements") between Holdings and the holders of phantom debt ("Phantom Debt") as set forth in Section 2.2(a) of ------------- the Disclosure Schedule shall be further amended to provide that the holder may elect to receive payment of such Phantom Debt that is otherwise payable in the future under Section 4 of the Incentive Agreements as of the later of (i) the Effective Time or (ii) January 2, 2007 (the "Payment Date"). By executing this ------------- Agreement, each such holder agrees to such amendment and elects under his or her Incentive Agreement, as amended by this Agreement, to receive payment of such Phantom Debt on the Payment Date. Thus, on the Payment Date, Parent shall settle, or cause to be settled, on behalf of Holdings and its Subsidiary, all amounts allocated to Phantom Debt under the Incentive Agreements, as amended by this Agreement, whether or not such Phantom Debt is then vested or exercisable (it being understood that any outstanding Phantom Debt shall vest in full upon the Closing), for a dollar amount applicable to such Phantom Debt as set forth in Section 2.2(a) of the Disclosure Schedule (the "Applicable Phantom Debt ------------------------ Amount"). Each Phantom Debt holder who is entitled to receive his or her portion - ------ of the Applicable Phantom Debt Amount, all of whom are Sellers, shall accept such amount (less payroll tax withholdings) in full settlement and discharge of all rights of the Phantom Debt holder as to all of the Phantom Debt that he or she holds under the applicable Incentive Agreement, as amended by this Agreement. In addition, any unpaid interest on such Phantom Debt provided for in Sections 4(a)(ii) and 4(a)(iii) of the Incentive Agreements, as accrued after - 7 - the last full calendar quarter ending immediately before the Closing Date through the Closing Date, shall be paid to the applicable holder on the Closing Date. (b) At the Effective Time, Parent shall settle, or cause to be settled, on behalf of Holdings and its Subsidiary, each outstanding Option granted under the 2005 Stock Option Plan between Holdings and the holders of Options and listed in Section 2.2(b) of the Disclosure Schedule (together, the "Option Agreements"), ------------------ whether or not such Options are then vested or exercisable (it being understood that any outstanding Options shall vest in full upon the Closing), for a dollar amount equal to the excess of the Per Share Amount over the Exercise Price as set forth in Section 2.2(b) of the Disclosure Schedule (such excess, if any, in respect of such Option, the "Applicable Option Amount"). Each Option holder who ------------------------ is entitled to receive the Applicable Option Amount, all of whom are Sellers, shall accept such amount (less applicable payroll tax withholdings) in full settlement and discharge of all rights of the Option holder for each Option that he or she holds under the applicable Option Agreement. The aggregate amount paid at Closing pursuant to this Section 2.2(b) (including applicable withholding taxes) shall be referred to in this Agreement as the "Aggregate Option Amount." ----------------------- (c) At the Effective Time, Parent shall settle, or cause to be settled, on behalf of Holdings and its Subsidiary, each outstanding SAR granted under the Incentive Agreements, whether or not such SARs are then vested or exercisable (it being understood that any outstanding SARs shall vest in full upon the Closing), for a dollar amount equal to the SAR Exercise Price in respect of the SAR (which for purposes of this Section 2.2(c) shall equal the Per Share Amount) (the "Applicable SAR Amount"). Such payment shall be made pursuant to Section ---------------------- 4(e) of the Incentive Agreements, and Parent agrees to amend such Section 4(e) by the end of 2007 (or by such later time as is permitted by the Internal Revenue Service) to provide that such payments may only be made in the event of a "change in control," as defined in the final regulations to be issued under Section 409A of the Code and to otherwise amend such Incentive Agreements to comply with Section 409A of the Code and the final regulations to be issued thereunder. Each SAR holder who is entitled to receive the Applicable SAR Amount, all of whom are Sellers, shall accept such amount (less applicable payroll tax withholdings) in full settlement and discharge of all rights of the SAR holder for each SAR that he or she holds under the applicable Incentive Agreement. The aggregate amount paid at the Effective Time (including applicable withholding taxes) shall be referred to in this Agreement as the "Aggregate SAR ------------- Amount". - ------ (d) Notwithstanding anything to the contrary in Sections 2.2(b) and 2.2(c), each holder of SARs and each holder of Options shall be entitled to receive their pro rata share, on a Fully Diluted Basis, of any amounts to be distributed or paid to Sellers pursuant to the Escrow Agreement and any other amounts to be distributed or paid to the Sellers pursuant to the terms of this Agreement (in each case, less applicable payroll tax withholdings). All amounts payable pursuant to Sections 2.2(b) and 2.2(c) shall be paid by wire transfer of immediately available funds to the bank accounts designated by the applicable Sellers prior to the Closing. (e) Notwithstanding anything to the contrary in Section 2.2(a) hereof, if the Closing occurs before January 2, 2007, Parent on the Closing Date, in lieu of making future payments of Phantom Debt under Section 4 of the Incentive - 8 - Agreements or making payments of Phantom Debt under Section 2.2(a) hereof, shall instead deposit an amount equal to the aggregate amount of such payments into a separate subaccount in the escrow account established pursuant to the Escrow Agreement, to be paid on January 2, 2007, as contemplated by Section 2.2(a) hereof. Such subaccount shall be subject to the creditors of Parent. No interest shall be added to the funds in such subaccount other than interest earned by the escrow subaccount itself. (f) The amendment and election described in Section 2.2(a) hereof are intended to comply with the IRS's transition rules under Section 409A of the Code, as set forth in the preamble to Section 1.409A-1, et seq. of the Proposed Treasury Regulations and in Notice 2006-79, and, therefore, to result in a permissible amendment and election as to timing and form of the payment of deferred compensation under Section 409A to the extent such amounts would not otherwise be payable in 2006 and to the extent such amendment and election would not cause an amount to be paid in 2006 that would not otherwise be payable in 2006, under a good faith interpretation of the Incentive Agreements, Section 409A of the Code and applicable guidance thereunder. The required amendment to Section 4(e) of the Incentive Agreements that is described in Section 2.2(c) hereof is intended to allow payment under Section 4(e) of the Incentive Agreements in good-faith compliance with Section 409A of the Code and the applicable guidance thereunder. SECTION 2.3 Pre-Closing Adjustment. ---------------------- (a) The "Target Working Capital" is $1,800,000. At least three (3) but not ---------------------- more than five (5) business days prior to Closing, Holdings shall deliver to Parent a statement that sets forth Holdings' good faith estimate of the Working Capital of Holdings estimated through and including the Closing Date (the "Estimated Working Capital"). The Estimated Working Capital shall be determined ------------------------- in accordance with generally accepted accounting principles ("GAAP"), except as ---- set forth in Section 3.4 of the Disclosure Schedule, using the same methodology (in terms of selection of GAAP accounting policies and principles) as was used to prepare Holding's unaudited consolidated balance sheet as of June 30, 2006. If Parent disputes Holdings' calculation of the Estimated Working Capital, Parent shall notify Holdings of such dispute at least one (1) business day prior to Closing and in such event the Estimated Working Capital for purposes of this Section 2.3 shall be deemed to equal the Working Capital reflected on Holdings' unaudited consolidated balance sheet as of June 30, 2006. The Merger Consideration shall be increased by the positive amount by which the Estimated --------- Working Capital exceeds Target Working Capital, or the Merger Consideration shall be decreased by the positive amount by which Target Working Capital exceeds the Estimated Working Capital. For the avoidance of doubt, the Estimated Working Capital shall exclude the Insurance Proceeds (as defined in Section 6.9 hereof). The "Merger Consideration" shall be $92,000,000, minus the Debt Amount, -------------------- ----- minus the Aggregate Liquidation Preference, minus the amount specified in - ----- ----- Section 2.3(b), plus the amount specified in Section 2.3(c), plus the amount ---- ---- specified in Section 2.3(d), plus or minus the amounts specified in Sections ---- ----- 2.3(a) and 2.4 (Working Capital). If the Annualized Adjusted EBITDA of Holdings derived from the Audit for the period from August 9, 2005 to June 30, 2006 is equal to or more than $7,847,000 but less than $8,500,000, then the Merger Consideration shall be reduced by an amount equal to 9.75 multiplied by the difference between (i) the Annualized Adjusted EBITDA derived from the Audit for the period from August 9, 2005 to June 30, 2006 and (ii) $8,500,000. For purposes of this Agreement, (A) "Annualized Adjusted EBITDA" means earnings ---------------------------- - 9 - before interest, taxes, depreciation and amortization multiplied by 1.123, after making the adjustments set forth on Schedule 3.4 and Schedule 2.3(a) and (B) "Annualized Adjusted Net Revenues" means net revenues multiplied by 1.123, after -------------------------------- making the adjustments set forth on Schedule 3.4 and Schedule 2.3(a). Under no circumstances shall Parent pay any amount pursuant to this Article II in excess of the Merger Consideration. (b) The Merger Consideration shall be reduced, dollar for dollar, by the net present value amount (using a discount rate of 10.25%) of any and all remaining lease obligations under the operating lease agreements listed on Section 2.3(b) of the Disclosure Schedule (the "Operating Leases"), such amount ---------------- of lease obligations under the Operating Leases being $196,415 as of and after giving effect to the payments due on October 1, 2006, the net present value amount of which equals $189,216, which amount will be reduced by any lease obligations paid by the Holdings or the Company in respect of lease obligations (or buy-out amounts) due after October 1, 2006. (c) The Merger Consideration shall be increased, dollar for dollar, by an amount equal to (i) 35% of the product of (A) the Per Share Amount plus the Per ---- Share Escrow Amount minus the Base Price (as defined in the Incentive Agreement ----- applicable to each SAR and set forth in Section 2.2(c) of the Disclosure Schedule) multiplied by (B) the number of SARs, plus (ii) $70,000. (d) The Merger Consideration shall be increased, dollar for dollar, by an amount equal to 35% of the product of (i) the Per Share Amount plus the Per ---- Share Escrow Amount minus the Exercise Price (as defined in the Option Agreement ----- applicable to each Option and set forth in Section 2.2(b) of the Disclosure Schedule) multiplied by (ii) the number of Options. SECTION 2.4 Post-Closing Adjustment ----------------------- (a) Within 60 days following the Closing Date, Parent shall prepare, or cause to be prepared, and deliver to the Sellers' Representative (as defined in Section 11.16) the statement (the "Closing Statement") that sets forth as of the ----------------- close of business on the Closing Date the Working Capital of Holdings. The Closing Statement shall be determined in accordance with GAAP, except as set forth in Section 3.4 of the Disclosure Schedule, using the same methodology (in terms of selection of GAAP accounting policies and principles) as was used to calculate the Estimated Working Capital. Sellers' Representative shall have 30 days after receipt by Sellers' Representative of the Closing Statement during which to notify Parent of any dispute of any item contained in the Closing Statement, which notice shall set forth in reasonable detail the basis for such dispute. If Sellers' Representative fails to notify Parent of any such dispute within such 30-day period, the Closing Statement shall be deemed to be the final statement ("Final Statement"), shall be binding and conclusive on the parties ---------------- and shall for all purposes be used to determine any adjustment to the Merger Consideration pursuant to Section 2.4(c). In the event that Sellers' Representative shall so notify Parent of any dispute, Parent and Sellers' Representative and their respective accountants shall cooperate in good faith to resolve such dispute as promptly as possible. "Working Capital" shall mean the ---------------- sum of Current Assets less Current Liabilities. "Current Assets" shall mean the -------------- current assets (including cash and cash equivalents and, for the sake of - 10 - clarity, excluding any deferred income Tax assets) of Holdings which would be set forth on a consolidated balance sheet of Holdings prepared in accordance with GAAP, except as set forth in Section 3.4 of the Disclosure Schedule. "Current Liabilities" shall mean the current liabilities of Holdings as set -------------------- forth on a consolidated balance sheet of Holdings prepared in accordance with GAAP (including all postal deposits and other customer deposits and advances and excluding any amounts reflected as "accrued interest" on such balance sheet), except as set forth in Section 3.4 of the Disclosure Schedule. Any liabilities relating to (i) SARs, (ii) Options, or (iii) the Debt Amount shall not be treated as Current Liabilities for the purposes of calculating Working Capital. (b) If Parent and Sellers' Representative and their respective accountants are unable to resolve any dispute within 30 days of Sellers' Representative's delivery of any notice of dispute provided pursuant to Section 2.4(a) hereof, such dispute shall be resolved by Deloitte & Touche USA LLP or another mutually agreed to nationally recognized accounting firm (the "Independent Accounting ----------------------- Firm"), which shall be retained to resolve any disputes between Parent and - ---- Sellers' Representative over any items contained in the Closing Statement and shall make its determination as promptly as practicable, and such determination shall be final and binding on the parties. The Independent Accounting Firm shall determine in accordance with GAAP (except as set forth in Section 3.4 of the Disclosure Schedule), whether and to what extent, if any, the Closing Statement requires adjustment; provided, however, that the amount of Working Capital as -------- ------- set forth on the Final Statement (the "Closing Working Capital") must fall ------------------------- within the bounds of Sellers' Representative's and Parent's calculations of the Working Capital as of the Closing Date. Each Seller shall bear, his, her or its pro rata share, on a Fully Diluted Basis, of the percentage of the expenses relating to the engagement of the Independent Accounting Firm that equals the absolute value of the difference between Sellers' Representative's calculation of the Working Capital as of the Closing Date and the Closing Working Capital divided by the absolute value of the difference between Sellers' Representative's and Parent's calculation of the Working Capital as of the Closing Date. Parent and Sellers' Representative shall deliver a written notice to the Escrow Agent setting forth the amount of such expenses and directing the Escrow Agent to pay such amount to the Independent Accounting Firm from the Escrow Amount; provided that if the Escrow Amount is not sufficient for payment -------- of the entire amount, each Seller shall pay its pro rata share on a Fully Diluted Basis of such expense payment in cash. The Surviving Company shall bear the percentage of the expenses relating to the engagement of the Independent Accounting Firm that equals the absolute value of the difference between Parent's calculation of the Working Capital as of the Closing Date and the Closing Working Capital divided by the absolute value of the difference between Sellers' Representative's and Parent's calculation of the Working Capital as of the Closing Date. The Independent Accounting Firm shall be instructed to use every reasonable effort to perform its services within fifteen (15) business days after submission of the Closing Statement to it and, in any case, as soon as practicable after submission. The Closing Statement, as modified by resolution of any disputes by Parent and Sellers' Representative or by the Independent Accounting Firm, shall be the Final Statement. (c) The Merger Consideration (after giving effect to the adjustment pursuant to Section 2.3 hereof) shall be increased by the positive amount by --------- which the Closing Working Capital exceeds the Estimated Working Capital (the "Merger Consideration Increase"), or the Merger Consideration (after giving ------------------------------- effect to the adjustment pursuant to Section 2.3 hereof) shall be decreased by --------- the positive amount by which the Estimated Working Capital exceeds the Closing - 11 - Working Capital (the "Merger Consideration Decrease"). To the extent there is a ------------------------------ Merger Consideration Increase, Parent shall within five (5) business days after the Closing Statement becomes the Final Statement deliver to each Seller by wire transfer of immediately available funds such Seller's pro rata share, on a Fully Diluted Basis, of the Merger Consideration Increase, together with interest thereon at a fixed rate equal to the prime rate per annum as quoted in the Wall Street Journal on the Closing Date according to the wiring instructions previously provided to Parent for the Closing unless Parent is otherwise notified in writing by the Sellers' Representative prior to the authorization of the wire transfer. To the extent that there is a Merger Consideration Decrease and such amount is not paid from the Escrow Amount, each Seller shall deliver to Parent within five (5) business days after the Closing Statement becomes the Final Statement, by wire transfer of immediately available funds, such Seller's pro rata share, on a Fully Diluted Basis, of the excess of such Merger Consideration Decrease, together with interest thereon at a fixed rate equal to the prime rate per annum as quoted in the Wall Street Journal on the Closing Date. For purposes of this Agreement, "Fully Diluted Basis" shall mean (A) all ------------------- Holdings Shares outstanding immediately prior to the Effective Time plus (B) a ---- number of Holdings Shares equal to the number of SARs outstanding immediately prior to the Effective Time, regardless of whether any such SAR is then vested or exercisable plus (C) a number of Holdings Shares equal to the number of ---- shares issuable upon exercise of the Options outstanding immediately prior to the Effective Time, regardless of whether any such Option is then vested or exercisable. (d) Amounts payable to Parent or the Independent Accounting Firm pursuant to this Section 2.4 (including expenses of the Independent Accounting Firm), up to $500,000 in the aggregate, may be paid from the Escrow Amount. Any amounts so payable in excess of $500,000 in the aggregate shall not be paid from the Escrow Amount except with the consent of Parent, in its sole discretion. ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS Except as set forth under the section heading referring to a specific section of this Agreement in the Disclosure Schedule of Holdings and the Company (the "Disclosure Schedule"), Holdings and Sellers (severally on a Fully Diluted ------------------- Basis and not jointly) represent and warrant that all of the statements contained in this Article III are true and correct (i) as of the date of this Agreement (or, if made as of a specified date, as of such date); and (ii) as of the Closing Date (or if made as of a specified date, as of such date) as though made then as follows: SECTION 3.1 Organization and Authority. -------------------------- (a) Holdings is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation, and has all requisite corporate power and authority to own, lease and operate the properties owned, leased and operated by it and to carry on the operations of its business as now being conducted by it. Holdings is duly qualified to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it with respect to its business or the nature of the business conducted by it makes such qualification necessary, except in such jurisdictions where the - 12 - failure to be so duly qualified or in good standing would not individually, or in the aggregate, be or reasonably be expected to be material to Holdings. Holdings is not qualified to do business as a foreign business entity in any jurisdiction. Other than the Company, Holdings does not have any Subsidiaries or other equity investments. For purposes of this Agreement, "Subsidiary" means ---------- with respect to any Person, any corporation or other legal entity of which such Person owns, directly or indirectly, more than 50% of the outstanding stock or other equity interests, the holders of which are entitled to vote for the election of the Board of Directors or other governing body of such corporation or other legal entity. For purposes of this Agreement, "Person" means an ------ individual, a corporation, a partnership, a limited liability company, an association, a joint-stock company, a trust, any unincorporated organization, a government or political subdivision thereof or any other entity. (b) The Company is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation, and has all requisite limited liability company power and authority to own, lease and operate the properties owned, leased and operated by it and to carry on the operations of its business as now being conducted by it. The Company is duly qualified to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it with respect to its business or the nature of the business conducted by it makes such qualification necessary, except in such jurisdictions where the failure to be so duly qualified or in good standing would not individually, or in the aggregate, be or reasonably be expected to be material to the Company. Section 3.1(b) of the Disclosure Schedule lists each jurisdiction in which the Company is qualified to do business as a foreign business entity. The Company does not have any Subsidiaries. (c) Holdings has the requisite corporate power and authority to execute and deliver this Agreement and the Escrow Agreement and each other agreement and instrument to be executed and delivered in connection herewith or therewith or pursuant hereto or thereto and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Escrow Agreement and the performance of its obligations hereunder and thereunder have been duly and validly unanimously authorized by the Board of Directors of Holdings and by the holders of Holdings Shares. No other corporate proceedings on the part of Holdings are necessary to authorize the execution, delivery and performance of this Agreement and the Escrow Agreement. This Agreement and the Escrow Agreement have been duly executed and delivered by Holdings, and this Agreement constitutes, and the Escrow Agreement and each other agreement and instrument to be executed and delivered in connection herewith or therewith or pursuant hereto or thereto will constitute, assuming due authorization, execution and delivery of this Agreement by Parent and Merger Sub and the Escrow Agreement by Parent, valid and binding obligations of Holdings, enforceable against Holdings in accordance with their terms, except that such enforcement may be subject to or limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium and similar Laws relating to or affecting the rights of creditors generally and (ii) the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). SECTION 3.2 Capitalization. -------------- (a) The authorized capital stock of Holdings consists of 3,030.90 shares of the Class A Common Stock and 23,663.90 shares of the Class B Common Stock. As of - 13 - the date of this Agreement, there are 1,311.13272 shares of Holdings' Class A Common Stock issued and outstanding and 21,742.507 shares of Holdings' Class B Common Stock issued and outstanding. Other than the warrant, dated July 30, 2005, issued to Allied Capital Corporation to purchase shares of Class A Common Stock (the "Allied Warrant"), the Holdings Shares, the SARs, the Options or as contemplated by the Restructuring Transactions, there are no other classes or series of authorized capital stock or any other equity interest in Holdings. As of the date hereof, 1,911.1 shares of Class B Common Stock are reserved for issuance upon exercise of Options under the Plan, of which Options exercisable for 1,790.30 shares of Class B Common Stock are outstanding, and stock appreciation rights with respect to 516.06680 shares of Class B Common Stock have been allocated to accounts under outstanding SARs. The outstanding Holdings Shares (i) have been duly authorized and validly issued, (ii) are fully paid and nonassessable, and (iii) were issued in compliance with all applicable state and federal Laws (as in effect on the date of issuance). Other than the SARs, the Options, the Allied Warrant or as contemplated by the Restructuring Transactions, there are no outstanding (A) securities of Holdings convertible into or exchangeable for Holdings Shares or (B) options or other rights to acquire from Holdings, or any obligation of Holdings to issue, sell, repurchase, redeem or otherwise acquire, any Holdings Shares or securities convertible into or exchangeable for Holdings Shares. The Sellers are all of the record and beneficial owners of all outstanding Holdings Shares, SARs and Options. There are no voting trusts or proxies or similar voting arrangements with respect to the Holdings Shares. (b) The authorized equity interests of the Company consist only of Member Units (the "Company Common Interests") and there are no other authorized equity ------------------------- interests of the Company. There is only one Company Common Interest, which is held by Holdings free and clear of all Encumbrances except those listed on Disclosure Schedule 3.2(b), issued and outstanding and there are no other equity interests of the Company issued or outstanding. The outstanding Company Common Interest (i) has been duly authorized and validly issued, (ii) is fully paid and nonassessable, and (iii) was issued in compliance with all applicable state and federal Laws (as in effect on the date of issuance). There are no outstanding (A) securities of the Company convertible into or exchangeable for Company Common Interests and (B) options or other rights to acquire from the Company, or any obligation of the Company to issue, sell, repurchase, redeem or otherwise acquire, any Company Common Interests or securities convertible into or exchangeable for Company Common Interests. There are no voting trusts or proxies or similar voting arrangements with respect to the Company Common Interest. SECTION 3.3 Consents and Approvals; No Violations. ------------------------------------- (a) Except as set forth in Section 3.3(a) of the Disclosure Schedule, neither the execution and delivery of this Agreement or the Escrow Agreement nor the performance by Holdings of its obligations hereunder and thereunder and will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Holdings or the certificate of formation or the limited liability company agreement of the Company; (ii) result in a violation or breach of or default under (or give rise to any penalty or any right of termination, modification, cancellation or acceleration), or result in the creation of any Encumbrance under any of, the terms, conditions or provisions of any Material Contract (as defined in Section 3.12 below); (iii) require the consent, approval, waiver, authorization or notification to or of any other Person; or (iv) assuming that the filings, registrations, notifications, authorizations, consents and approvals referred to in Section 3.3(b) hereof have - 14 - been obtained or made, as the case may be, violate any order, injunction, decree, statute, rule or regulation of any governmental agency or authority or court to which Holdings is subject, excluding from the foregoing clause (ii) such violations, defaults, breaches, or Encumbrances that would not, individually or in the aggregate, be material to Holdings. For purposes of this Agreement, "Encumbrances" shall mean any lien, encumbrance, claim, right, ------------ demand, charge, mortgage, option, pledge, security interest or similar interests, title defects, tenancies (and other possessory interests), easements, rights of way, covenants, encroachments, rights of first refusal, preemptive rights, judgments, conditional sale or other title retention agreements and other impositions or imperfections of title or restrictions on transfer of any nature whatsoever. (b) No filing or registration with, notification to, or authorization, consent or approval of, any local, state, federal or foreign court, legislative, executive, governmental or regulatory authority or agency (each, a "Governmental ------------ Authority") is required in connection with the execution and delivery of this - --------- Agreement and the Escrow Agreement by Holdings or the performance by Holdings of its obligations hereunder or thereunder, except (i) those that become applicable as a result of the matters specifically related to Parent or its affiliates (as such term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended) ("Affiliates") or (ii) in connection with the HSR Act as provided for ---------- in Section 6.5 hereof.. SECTION 3.4 Financial Statements. Holdings has delivered to Parent a true --------------------- and complete copy of (a) the unaudited consolidated balance sheet of Holdings as of June 30, 2006 (the "June Balance Sheet"), unaudited consolidated statements ------------------ of income and cash flows of Holdings for the period from August 9, 2005 to June 30, 2006 (together with the June Balance Sheet, the "June Financial ---------------- Statements"), (b) the unaudited consolidated balance sheet of the predecessor of - ---------- Holdings (the "Predecessor") as of August 9, 2005 and unaudited consolidated ----------- statements of income and cash flows of the Predecessor for the period from January 1, 2005 to August 9, 2005 and (c) the audited consolidated balance sheets of the Predecessor and audited consolidated statements of income and cash flows of the Predecessor as of and for the fiscal years ended December 31, 2004 and December 31, 2003 (including, in each case, any notes thereto) (collectively, the "Financial Statements"). The Financial Statements were --------------------- prepared in accordance with GAAP, applied on a basis consistent with past practice (except that the Financial Statements of Holdings apply purchase accounting with respect to Holdings' acquisition of the Predecessor) (subject, in the case of unaudited statements, to normal, recurring and year-end audit adjustments and the exclusion of footnotes), and are consistent with the books and records of Holdings or the Predecessor, as applicable. The Financial Statements fairly present, in all material respects, the consolidated financial condition of Holdings, the Company or the Predecessor, as applicable, as of the dates thereof and the results of operations and cash flows of Holdings, the Company or the Predecessor for the periods then ended (subject, in the case of unaudited statements, to normal, recurring and year-end audit adjustments and the exclusion of footnotes thereto). To the Knowledge of Holdings, except as set forth in Section 3.4 of the Disclosure Schedule, there are no material normal, recurring and year-end audit adjustments that would be required for the June Financial Statements to comply with GAAP. SECTION 3.5 Absence of Material Adverse Changes, etc. Except as set forth ------------------------------------------ in Section 3.5 of the Disclosure Schedule or as otherwise contemplated by this Agreement: (a) Since August 9, 2005, neither Holdings nor the Company has: - 15 - (i) suffered any Material Adverse Effect; (ii) suffered any damage, destruction or loss of physical property (whether or not covered by insurance) that could reasonably be expected to have a Material Adverse Effect; (iii) incurred any direct or indirect Indebtedness (as defined in Section 3.25 hereof), liability, assessment, expense, claim, loss, damage, deficiency, obligation or responsibility (including any liability under any guarantees, or letters of credit) whether absolute, accrued, contingent or otherwise (a "Liability"), except (A) current Liabilities for trade or --------- business obligations incurred in connection with the purchase of goods or services in the ordinary course of business consistent with prior practice, which Liabilities could not reasonably be expected to have a Material Adverse Effect and (B) Liabilities related to this Agreement or any of the transactions contemplated by this Agreement; (iv) instituted, settled or agreed to settle any litigation, action or proceeding before any court or Government Authority relating to the Company or its operations, which resulted (or could result) in net payments or obligations by the Company in excess of $100,000; (v) had any actual or threatened employee strikes, work stoppages, slowdowns or lockouts and, to the Knowledge of Holdings, none of the Company's or Holdings' employees were involved in any labor union organizing activity with respect to Holdings or the Company, as applicable; (vi) made any material change in its accounting methods, policies or practices with respect to its condition, operations, business, properties, assets or Liabilities; (vii) received any notices from any Governmental Authority or any insurance company which has issued a policy with respect to any portion of the Owned Real Property or the Leased Real Property of material zoning, building, fire or health code violations with respect to the Owned Real Property or the Leased Real Property, or material violations pertaining to the use and occupancy of the Owned Real Property or the Leased Real Property; and (viii) transferred or granted any rights or licenses under, or entered into any settlement regarding the breach or infringement of, any material Company Intellectual Property, or modified any material existing rights with respect thereto. (b) Since March 31, 2006, neither Holdings nor the Company has: (i) made or permitted any material amendment or termination of any Material Contract, other than in the ordinary course of business; (ii) paid or obligated itself to pay in excess of $100,000 in the aggregate for fixed assets; - 16 - (iii) sold, transferred, leased to others or otherwise disposed of, or agreed to sell, transfer, lease or otherwise dispose of any portion of the Owned Real Property or any assets having a fair market value at the time of sale, transfer or disposition of $100,000 or more in the aggregate, or forgiven, canceled or compromised, or agreed to forgive, cancel or compromise, any debts or claims or waived or released any material right, other than in the ordinary course of business consistent with past practice; (iv) had any resignation or termination of employment, or received any written notice of any threatened or impending resignation or termination of employment, of any of its officers or employees at the level of director, vice president or above; (v) made any change in the rate of compensation, commission, bonus or other direct or indirect remuneration payable, or paid or promised to pay, conditionally or otherwise, any bonus, incentive, retention or other compensation, retirement, welfare, fringe or severance benefit or vacation pay, or adopted or increased any benefit under any insurance, pension or other employee benefit plan, payment or arrangement made to or in respect of any of its officers or employees at the level of director, vice president or above or executive level consultants; (vi) made any prepayment of any accounts payable, delayed payment of any trade payables or other obligations other than in the ordinary course of business consistent with past practice, or made any other material cash payments other than in the ordinary course of business; and (vii) failed to maintain all of the tangible assets and all other tangible properties and assets owned, leased, occupied or used by the Company in good repair, working order and operating condition, subject only to ordinary wear and tear; and (viii) subjected to any Encumbrance, other than Permitted Encumbrances, the Owned Real Property or the Leased Real Property. SECTION 3.6 No Undisclosed Liabilities. Except as and to the extent set ------------------------ forth in Section 3.6 of the Disclosure Schedule or on the face of the June Balance Sheet, which does not account for any change in liability resulting solely from SARs or Options since August 9, 2005, neither Holdings nor the Company has any material undisclosed Liabilities required: (a) to be set forth on a balance sheet prepared in accordance with GAAP; or (b) to be disclosed in the footnotes to audited financial statements pursuant to the requirements of FAS 5. Neither Holdings nor the Company has any "off-balance sheet financing arrangements" (as defined in Item 303 of Regulation S-K under the Securities Act of 1933, as amended). SECTION 3.7 Taxes. ----- (a) Each of Holdings and the Company has duly filed (taking into account extensions) all Tax Returns (as defined in Section 3.7(f) hereof) required to be filed by either of them, and all such Tax Returns were true, correct and complete in all material respects. All Taxes (as defined in Section 3.7(f) hereof) owed by Holdings or the Company (whether or not reflected on any Tax Return) have been timely paid. Neither Holdings nor the Company currently is the - 17 - beneficiary of any extension of time within which to file any Tax Return or to pay any Tax. There are no Encumbrances on any of the assets of Holdings or the Company, other than liens for Taxes not yet due and payable, that arose in connection with the failure to pay any Tax. (b) Each of Holdings and the Company has timely withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (c) There are no pending or threatened in writing claims, actions, suits, proceedings, audits or investigations for the assessment or collection of Taxes of Holdings or the Company. Neither Holdings nor the Company has waived any statute of limitations in respect of any Taxes or has agreed to any extension of time with respect to a Tax assessment of deficiency. (d) Neither Holdings nor the Company is a party to any Tax allocation, sharing, or similar agreement or arrangement, nor does either have any Liability for the Taxes of any other Person (other than Holdings and the Company) as a transferee, successor, by contract, or otherwise. (e) The Company has, for all taxable periods of its existence, properly been disregarded as an entity separate from Holdings within the meaning of Treasury Regulation Section 301.7701-3 for all applicable federal, state, local and foreign Tax purposes, and Holdings has, for all taxable periods of its existence, properly been classified as a corporation, for all such purposes. (f) The Company (i) has not made any payments, is not obligated to make any payments, and is not a party to any agreement that would reasonably be expected to obligate the Company to make any payments that would reasonably be expected to result in a Tax under Section 409A(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"); (ii) is not a party to any agreement (including, but not limited to, the SARs and Options) or understanding under which the Company may become obligated to make a "parachute payment" within the meaning of Section 280G of the Code; (iii) is not a party to any joint venture, partnership, or other arrangement or contract that could be treated as a partnership for federal income tax purposes; (iv) has not engaged in operations or activities that are subject to reporting obligations under Section 999 of the Code; and (v) has not participated in any "reportable transaction" as defined in Section 1.6011-4(b)(1) of the Treasury Regulations. (g) No tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transfers contemplated by this Agreement. (h) The Company (1) is not currently subject to any adjustment under Section 481(a) of the Code with respect to a change in accounting method or otherwise, (2) does not own the stock of any "passive foreign investment company," within the meaning of Section 1297 of the Code, (3) has not made a transfer of any intangible assets that is subject to Section 367(d) or 482 of the Code, and (4) has not been either a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock to which Section 355 of the Code (or so much of - 18 - Section 356 of the Code as relates to Section 355 of the Code) applies and which occurred within two years of the date of this Agreement. (i) The Company has not been included in any other "consolidated," "unitary" or "combined" Tax Return provided for under the laws of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable year. The Company is not a party to any agreement providing (in whole or in part) for the allocation, sharing or indemnification of Taxes (or any such agreement shall be terminated on or before the Closing Date). (j) For purposes of this Agreement, "Tax" or "Taxes" shall mean any duty, --- ----- fee, assessment or other similar charge imposed by any Governmental Authority, and shall include income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, unemployment, workers' compensation, disability, severance, property, ad valorem, stamp, excise, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any Governmental Authority or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing, and "Tax Return" or "Tax Returns" shall mean all returns, reports and ----------- ------------ information statements (including all exhibits and schedules thereto, and including any amendments thereof) required to be filed with any Governmental Authority with respect to Taxes. SECTION 3.8 Employee Benefit Plans. ---------------------- (a) Section 3.8(a) of the Disclosure Schedule lists each deferred compensation and each bonus or other incentive compensation, stock option, stock appreciation right and other equity compensation plan, program or arrangement; each severance, medical, surgical, hospitalization, life insurance and other "welfare" plan, fund or program (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); each ----- profit-sharing, 401(k) savings or other "pension" plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, retention or severance agreement; and each other employee benefit plan, program, policy or agreement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by Holdings or the Company or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with Holdings or the ---------------- Company would be deemed a "single employer" within the meaning of Section 4001(b) of ERISA, for the benefit of any employee or former employee of Holdings or the Company (the "Employee Benefit Plans"). Accurate and complete copies of ----------------------- all such Employee Benefit Plans have been delivered to Parent. (b) (i) All contributions required to be made with respect to each Employee Benefit Plan on or prior to the Closing Date have been timely made or have been reflected on the Financial Statements; (ii) each Employee Benefit Plan has been operated in accordance with its terms and the requirements of applicable Law; (iii) neither Holdings nor the Company have incurred any direct or indirect Liability under, arising out of or by operation of Title IV of ERISA, in connection with the termination of, or withdrawal from, any Employee Benefit - 19 - Plan or other retirement plan or arrangement that Holdings, the Company or any ERISA Affiliate maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute, and, to the Knowledge of Holdings, no fact or event exists that could reasonably be expected to give rise to any such Liability; and (iv) none of Holdings, the Company, any Employee Benefit Plan, nor any trustee or administrator thereof has engaged in a transaction in connection with which Holdings, the Company, any Employee Benefit Plan, or any trustee or administrator thereof, could be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Internal Revenue Code of 1986, as amended (the "Code"). ---- (c) There is not now, and has not been, any material violation of the Code or ERISA with respect to the filing of applicable reports, documents, and notices regarding the Employee Benefit Plans with the Secretary of Labor and the Secretary of the Treasury or the furnishing of such documents to the participants or beneficiaries of the Employee Benefit Plans. The Company has filed all Form 5500 series forms required to be filed for any Employee Benefit Plan before the Closing Date, and all such forms were true and correct in all material respects at the time of filing. (d) No Employee Benefit Plan is subject to Title IV of ERISA or Section 302 of ERISA. None of Holdings, the Company nor any ERISA Affiliate has ever contributed to or been required to contribute to a "multiemployer pension plan," as defined in Section 3(37) of ERISA. (e) Neither the Company nor Holdings has any employees or employee benefit plans that are subject to the Laws of any jurisdiction outside the United States. (f) Except as required by applicable Law, none of the Employee Benefit Plans provide for medical or life insurance benefits to retired or former employees. (g) All taxes, penalties, interest charges and other financial obligations to federal, state and local governments and to participants or beneficiaries under the Employee Benefit Plans with respect to any period ending on or before the Closing Date have been or will be met in full on or before the Closing Date (or accrued on the Financial Statements) and to the extent not satisfied in full shall be taken into account in the calculation of Closing Working Capital. (h) There are no material proceedings, claims, or lawsuits which are pending or, to the Knowledge of Holdings, threatened by the IRS, the DOL, the PBGC, the Equal Employment Opportunity Commission, or any participant, beneficiary, or any other person or entity involving any aspect of any Employee Benefit Plan (other than routine benefit claims), nor are there any facts which could form the basis for any such claim or lawsuit. (i) The information set forth on Sections 2.2(a), 2.2(b) and 2.2(c) of the Disclosure Schedule is true, complete and correct and is the actual amount required to be paid pursuant to the applicable Phantom Debt, Option Agreements and SARs, respectively. Other than the SARs, Option Agreements, Phantom Debt and the 2006 Incentive Compensation Plan, the Company and Holdings do not have any deferred compensation bonus or incentive plans or other similar arrangements. Except as otherwise provided in Section 6.7 or for payments to be made prior to - 20 - the Closing, the Company has no obligation to pay severance or other similar amounts to any employee whose employment is terminated. SECTION 3.9 Environmental Matters. --------------------- (a) (i) "Environmental Claim" means any claim, action, cause of action, -------------------- investigation or notice (written or oral) by any Person alleging potential Liability arising out of, based on or resulting from (A) the presence, Release (as defined below) or threatened Release of any Hazardous Materials (as defined below) at any location, whether or not owned or operated by the Company or (B) any violation or alleged violation of any Environmental Law (as defined below). (ii) "Environmental Laws" means all federal, state, local and foreign ------------------ Laws and regulations, all common Law and all other provisions having the force or effect of Law relating to pollution or protection of human health or the environment, including, without limitation, those relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the generation, use, treatment, storage, transport, release, disposal or handling of Hazardous Materials. (iii) "Hazardous Materials" means all substances which are listed, -------------------- defined, controlled or regulated as hazardous substances, hazardous wastes, solid wastes, pollutants or contaminants or otherwise classified or regulated as hazardous or toxic in or pursuant to any Environmental Law, including but not limited to asbestos, radon, any polychlorinated biphenyl, urea formaldehyde foam insulation, radioactive material or any petroleum hydrocarbons. (iv) "Release" means any release, spill, emission, discharge, leaking, ------- pumping, pouring, dumping, injection, deposit, disposal, dispersal, leaching or migration of Hazardous Materials into the environment (including, without limitation, ambient air, surface water, groundwater and surface or subsurface strata). (b) (i) The Company is in material compliance with all applicable Environmental Laws and the Company has obtained, and is in material compliance with, all necessary permits, authorizations and licenses under all applicable Environmental Laws. The Company has not received since April 4, 2002 nor, to the Knowledge of Holdings, prior to April 4, 2002, any written communication, whether from a governmental authority, citizens' group, employee or any other Person, alleging that the Company is not in such compliance. (ii) Except as disclosed in the Phase 1 Environmental Studies previously provided to Parent, there is no material Environmental Claim pending or, to the Knowledge of Holdings, threatened against the Company or, to the Knowledge of Holdings, against any Person whose Liability for any Environmental Claim the Company has or may have retained or assumed either contractually or by operation of Law. (iii) To the Knowledge of Holdings, except as disclosed in the Phase 1 Environmental Studies previously provided to Parent, there neither are nor have been any actions, activities, circumstances, conditions, events or incidents, including, without limitation, the Release, threatened Release or presence of any Hazardous Material which could form the basis of any - 21 - material Environmental Claim against the Company or against any Person or entity whose Liability for any Environmental Claim the Company has or may have retained or assumed either contractually or by operation of Law. (iv) Holdings has delivered to Parent true, correct and complete copies of all material environmental reports, studies, investigations, inspection reports and other documents regarding any actual or threatened Environmental Claim, any liabilities of the Company under applicable Environmental Law, or any environmental conditions (including without limitation any Release of Hazardous Materials) at any currently or formerly Owned Real Property or Leased Real Property. SECTION 3.10 Legal Proceedings, etc. ---------------------- (a) As of the date of this Agreement, there are no suits, actions, claims, demands, hearings, indictments, proceedings or investigations (each, an "Action") pending against Holdings, or, to the Knowledge of Holdings, threatened against or involving Holdings, the equityholders of Holdings or the officers or directors of Holdings in connection with the business and affairs of Holdings before any court, arbitrator or administrative or governmental body, United States or foreign. Holdings is not subject to any judgment, decree, injunction or order of any court (other than routine wage garnishment and similar orders). (b) Except as set forth in Section 3.10(b) of the Disclosure Schedule, as of the date of this Agreement, there are no Actions pending, or, to the Knowledge of Holdings, threatened against or involving the Company, the equityholders of the Company or the officers or managers of the Company in connection with the business and affairs of the Company before any court, arbitrator or administrative or governmental body, United States or foreign. The Company is not subject to any judgment, decree, injunction or order of any court (other than routine wage garnishment and similar orders). SECTION 3.11 Compliance with Applicable Law. ------------------------------ (a) Except as set forth in Section 3.11 of the Disclosure Schedule, Holdings and the Company are and at all times since August 9, 2005 have been in material compliance with all applicable Laws (including, with respect to the Owned Real Property and the Leased Real Property, all applicable building, zoning, access and occupational health and safety Laws). Except as set forth in Section 3.11 of the Disclosure Schedule, all governmental approvals, permits, licenses and other governmental authorizations (collectively, "Permits") required to conduct the business of the Company are in the possession of the Company, are in full force and effect, are being complied with in all material respects and the Company has not received any notice that any Governmental Authority intends to cancel, terminate or not renew any such Permit. Section 3.11 of the Disclosure Schedule lists all of the Company's Permits, and Holdings has delivered or caused to be delivered or made available to Parent true, correct and complete copies of each Permit. For purposes of this Agreement, the term "Law" shall mean any constitution, treaty, statute, law, ordinance, regulation, rule, standard, code, rule of common Law or other requirement or rule enacted or promulgated by any Governmental Authority, including, without limitation Laws related to data protection and privacy. - 22 - (b) Neither Company nor Holdings has received written notice from any Governmental Authority that the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property is not in material compliance with or materially violates applicable building and zoning laws, rules or regulations or governmental rules or regulations currently in effect and applicable to such Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property. Neither the Company nor Holdings has requested, applied for, given its consent to or has knowledge of any pending zoning variances or change with respect to the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property. To the Knowledge of Holdings, there is no plan, study or effort by any Governmental Authority or agency or any nongovernmental Person which in any way affects or would affect, the use or value of the Real Property. To the Knowledge of Holdings, there is no existing, proposed or contemplated plan to widen, modify or realign any street or highway adjoining the Real Property which would affect access thereto. SECTION 3.12 Certain Contracts and Arrangements. Section 3.12 of the ------------------------------------- Disclosure Schedule sets forth a true, correct and complete list of the following written and oral contracts, agreements, arrangements or undertakings, to which Holdings or the Company is a party or by which any of their respective assets or properties are bound (collectively, the "Material Contracts"): ------------------ (a) the Leases (as defined in Section 3.13(a) hereof); (b) the Employee Benefit Plans and any other profit sharing, equity interest option, equity interest purchase, equity interest appreciation or other equity-incentive, deferred compensation, retirement contracts or commitments; (c) management, consulting, bonus, change in control, severance and employment contracts and other contracts or commitments to enter into the same involving annual payments in excess of $70,000; (d) contracts for service, supply, maintenance, management or the operation of the Real Property involving annual payments in excess of $75,000 individually or $75,000 as to any Person in the aggregate, which are not terminable upon thirty (30) days' notice, without payment of any penalty or premium ("Material -------- Maintenance Contracts"); - --------------------- (e) notes, mortgages, indentures, loan or credit agreements; equipment lease agreements having a noncancellable term of more than one year or annual rental payments of more than $75,000 individually or $75,000 as to any Person in the aggregate; security agreements which secure Indebtedness (as defined in Section 3.25 hereof) of more than $75,000 individually or $75,000 as to any Person in the aggregate; and other contracts and instruments reflecting obligations for borrowed money or other monetary Indebtedness or otherwise relating to the borrowing of money by, or the extension of credit to (other than ordinary course trade credits), Holdings or the Company, in each case creating an actual or potential obligation of Holdings or the Company of more than $75,000 individually or $75,000 as to any Person in the aggregate; or commitments to enter into any such agreements; - 23 - (f) personal property leases involving annual payments in excess of $75,000 individually or $75,000 as to any Person in the aggregate; (g) license agreements and other contracts involving Intellectual Property requiring annual payments in excess of $75,000 individually or $75,000 as to any Person in the aggregate (other than licenses for readily available commercial software); (h) contracts with Material Suppliers (as defined in Section 3.21 hereof); (i) any partnership, joint venture or other contracts involving the sharing of profits or losses; (j) contracts or arrangements with Holdings, the Company or any Seller or any of their respective Affiliates or any of Holdings' or the Company's directors, officers or employees; (k) outstanding powers of attorney empowering any Person to act on behalf of Holdings or the Company; (l) outstanding (i) guarantees of, or (ii) subordination agreements whether or not entered into in the ordinary course of business, under which Holdings or the Company is or may become liable for or obligated to discharge, or any asset of Holdings or the Company is or may become subject to the satisfaction of, any Indebtedness, obligation, performance or undertaking of any Person other than Holdings or the Company; (m) contracts which prohibit Holdings or the Company from freely engaging in business anywhere in the world; (n) contracts relating to the acquisition by Holdings or the Company of the outstanding capital stock or equity interest of any business enterprise, except such agreements or agreements as have already been fully performed; (o) other contracts requiring future annual payments by Holdings or the Company in excess of $75,000 per annum individually or $75,000 per annum as to any Person in the aggregate; and (p) contracts, whether oral or written, with the Material Customers (as defined in Section 3.17 hereof); (q) any other written or oral contract to which Holdings is a party or by which any of its assets or properties are bound; and (r) any other written or oral contract to which the Company is a party or by which any of its assets or properties are bound and which with respect to the Company is a "material contract" as defined by Item 601 of the Regulation S-K. Holdings has delivered to Parent true and complete copies of each written Material Contract set forth on Section 3.12 of the Disclosure Schedule (other - 24 - than those customer contracts set forth in Section 3.12(p) of the Disclosure Schedule), including all amendments, modifications, waivers and elections applicable thereto, and has disclosed to Parent in writing all terms of any oral Material Contract set forth on Section 3.12 of the Disclosure Schedule (other than those customer contracts set forth in Section 3.12(p) of the Disclosure Schedule). With respect to each Material Contract: (i) such Material Contract is legal, valid, binding, enforceable and in full force and effect; (ii) Holdings or the Company, as applicable, is not, and to the Knowledge of Holdings, no other party thereto is, in breach or default with respect to such Material Contract; and (iii) to the Knowledge of Holdings, no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under any such Material Contract. Holdings has delivered to Parent true and complete copies of each written agreement relating to the acquisition of Holdings by Allied Capital Corporation in 2005 (including that certain Agreement and Plan of Merger dated as of July 30, 2005 by and among Holdings, the Company, the Sellers named therein (the "Prior Sellers") and the other parties thereto), including all exhibits, -------------- schedules, amendments, modifications, waivers and elections applicable thereto, and has disclosed to Parent in writing all terms of any oral agreements, arrangements or understandings relating thereto (collectively the "Prior ----- Agreements "). Notwithstanding the foregoing, Holdings may, in the case of - ---------- customer contracts and data, redact certain confidential information which is not otherwise required to be disclosed pursuant to the terms hereof. Neither Holdings, Company nor any Seller has waived any rights pursuant to any of the Prior Agreements. SECTION 3.13 Real Property. ------------- (a) For purposes of this Agreement, "Permitted Encumbrances" means (i) ----------------------- customary Encumbrances for current Taxes, assessments and other governmental charges not yet due and payable, except as otherwise prohibited herein; (ii) Encumbrances, encroachments and any other matters reflected in the surveys of the Owned Real Property and the 6 Commerce Boulevard parcel of the Leased Real Property delivered by the Sellers, Holdings, or Company to Parent; (iii) any other Encumbrances or matter reflected in the title policies for the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property delivered by Holdings or Company to Parent and any other Encumbrances on the 6 Commerce Boulevard parcel of the Leased Real Property which were not Encumbrances created by the Company; (iv) applicable zoning Laws, building codes, land use restrictions, and other similar restrictions imposed by Law, statute, rule, regulation, ordinance, order or process promulgated by any Governmental Authority; (v) those Encumbrances listed in Section 3.13(a) of the Disclosure Schedule; and (vi) any other encumbrance which does not adversely affect the use or operation of any subject property as it is currently used or operated in connection with the business of the Company, or the value of the subject property as used or operated by the Company, in the reasonable discretion of Parent, provided, however, with respect to each of the foregoing, that Holdings shall be required to remove or cause the Company to remove prior to the Closing all liens and Encumbrances securing monetary obligations. "Leases" means the real property leases, subleases, licenses and use or ------ occupancy agreements pursuant to which the Company is the lessee, sublessee, licensee, user or occupant of real property, or interests therein. "Leased Real ----------- Property" means all interests in real property leased, subleased, licensed, used - -------- or occupied by the Company pursuant to the Leases. "Owned Real Property" means ------------------- all real property owned by the Company. "Real Property" means the Owned Real -------------- Property and the Leased Real Property. - 25 - (b) Section 3.13(b) of the Disclosure Schedule contains a complete and correct list of all Owned Real Property setting forth information sufficient to identify specifically such Owned Real Property. The Company has good and valid fee simple title to the Owned Real Property, free and clear of any Encumbrances other than Permitted Encumbrances. There are no agreements, including, without limitation, any leases, licenses, easements, rights of way, access agreements or occupancy agreements, written or oral, where the Company has granted to any Person the right to access, enter upon, use, occupy, lease or purchase any portion of the Real Property that are not otherwise Permitted Encumbrances. To the Knowledge of Holdings, no condemnation or eminent domain proceedings are pending or threatened in writing with respect to any Owned Real Property or the Leased Real Property. Each Owned Real Property, and to the Knowledge of Holdings, the Leased Real Property, has access to a dedicated, public street, either by reason of such Owned Real Property abutting a dedicated, public street or by way of good and insurable appurtenant easement(s), and such access is adequate for the present use and operation thereof. (c) Section 3.13(c) of the Disclosure Schedule sets forth a complete and correct list of all Leased Real Property as of the date hereof specifying information sufficient to identify all such Leased Real Property. The Company has delivered to Parent true, correct and complete copies of each of the Leases, including all amendments, modifications, supplements and renewals thereof. Each Lease grants the Company the right to use and occupy the applicable Leased Real Property in accordance with the terms thereof, subject to Permitted Encumbrances. The Leases are valid, binding, in full force and effect, and are enforceable against the lessor thereunder and the Company has quiet possession of the leasehold estate or other interest created by each such Lease. There are no existing defaults by the Company beyond any applicable grace periods under the Leases. The Company has not assigned or sublet any interest in any premises demised under the Leases. To the Knowledge of Holdings, there are no defaults by the landlord under any of the Leases which remain uncured. (d) The Real Property constitutes all the fee, leasehold and other interests in real property (i) held by the Company and (ii) necessary for the conduct of, or otherwise material to, the business of the Company as it is currently conducted. To the Knowledge of Holdings, there are no title defects or other matters of or relating to the title of the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property or touching or concerning the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property that are not otherwise shown as exceptions in the Company's current title policies for the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property provided or made available to Parent. (e) Condition of Improvements. As of the date hereof, and as of Closing, to ------------------------- the Knowledge of Holdings, the improvements (which term as used in this Agreement includes all buildings, sewer and water and all parts of the Real Property, including, without limitation, plumbing, heating, air conditioning, electric systems and the roof) are in good working order and repair in all material respects. (f) Structural Defects. To the Knowledge of Holdings there are no material ------------------- structural or other defects in any of the improvements. - 26 - (g) Assessments. Neither Holdings nor the Company has received any written ----------- notice of a threatened or pending increase of the assessments affecting the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property from any relevant Taxing or Governmental Authority. (h) Adequacy of Utilities. The water supply, the sewage and waste disposal --------------------- systems and all of the utility services now servicing the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property are, to the Knowledge of Holdings, sufficient for the operation of the Owned Real Property or the 6 Commerce Boulevard parcel of the Leased Real Property as currently operated as of the date hereof. (i) Holdings does not own or lease any Real Property. SECTION 3.14 Employees; Labor Matters. ------------------------ (a) (i) The Company is not a party to or bound by any collective bargaining agreement or other labor union contract applicable to persons employed by the Company, nor, to the Knowledge of Holdings are there any activities or proceedings on behalf of or by any labor union to organize any such employees; (ii) there are no unfair labor practice charges or complaints, or any current union representation questions, involving employees or former employees of the Company pending against the Company before the National Labor Relations Board; and (iii) there is no labor strike, lockout, organized slowdown or organized work stoppage in effect or, to the Knowledge of Holdings, threatened against the Company. Holdings has not had any employees since its inception. (b) Subject to the terms of the agreements specified on Section 3.14 of the Disclosure Schedule, all of the employees of the Company are "employees-at-will." Since April 30, 2006, the Company has not terminated the employment of more than 10 employees, other than terminations for cause. (c) Holdings has previously delivered to Parent the following information for each director, officer, employee who earned more than $70,000 in 2005 or who is expected to earn more than $70,000 in 2006 (including, in each case, bonuses), consultant and independent contractor of Holdings and the Company (including each such person on leave or layoff status): (i) name and title; (ii) current annual rate of compensation (identifying bonuses separately) and any change in compensation since August 9, 2005; and (iii) vacation accrued and service credited for purposes of vesting and eligibility to participate in applicable Employee Benefit Plans. Except as described in Section 3.14 of the Disclosure Schedule, to the Knowledge of Holdings but without inquiry, none of Holding's or the Company's employees required to be disclosed to Parent pursuant this Section 3.14(c) is a party to, or is otherwise bound by, any non-competition, non-solicitation or confidentiality provision of any contract or agreement with any Person other than Holdings or the Company that materially and adversely affects the performance of his or her duties or the ability of Holdings or the Company to conduct their respective businesses. SECTION 3.15 Insurance. --------- (a) Section 3.15 of the Disclosure Schedule sets forth all insurance - 27 - policies with respect to the property, assets, operation and business of the Company (the "Insurance Policies"). Holdings has delivered or caused to be ------------------- delivered or made available to Parent (i) true, correct and complete copies of all the Insurance Policies together with all riders and amendments thereto, (ii) true, correct and complete copies of all pending applications by the Company for policies of insurance and (iii) any statements by the auditors of the Company's financial statements or any consultant or risk management advisor with regard to the adequacy of the Company's coverage or the reserves for claims. All of the Insurance Policies are in full force and effect, all policy limits thereunder remain intact, and all premiums due thereon have been paid. No insurer under any Insurance Policy has cancelled or generally disclaimed liability under any Insurance Policy or indicated in writing any intent to do so or to materially increase the premiums payable under or not renew any such Insurance Policy. To the Knowledge of Holdings, the Company has complied in all material respects with the terms and provisions of such policies. Section 3.15 of the Disclosure Schedule sets out all claims made by the Company under any policy of insurance during the past two years. The Company has had no gaps in its insurance coverage since April 4, 2002, except that the Company did not maintain a NetProtect errors and omissions policy during the entire period. (b) Holdings does not carry any insurance policies with respect to the property, assets, operation and business of Holdings, although it may be a named insured under certain of the Company's policies. SECTION 3.16 Intellectual Property. --------------------- (a) As used herein: (i) "Intellectual Property" means all U.S. and foreign ---------------------- (A) trademarks, service marks, trade names and Internet domain names, together with goodwill, registrations and applications relating to the foregoing; (B) patents and pending patent applications, including divisions, continuations, continuations-in-part, reissues, reexaminations, and any extensions thereof; (C) copyrights and all registrations and applications to register the same; and (D) trade secrets and other confidential and proprietary information; and (ii) "Company Intellectual Property" means the Intellectual Property owned by the ------------------------------- Company or licensed to the Company from third parties. (b) Section 3.16 of the Disclosure Schedule sets forth, for the Company Intellectual Property owned by the Company, a complete list of all U.S. and foreign: (i) patents and patent applications; (ii) trademark registrations and applications (including Internet domain name registrations); and (iii) copyright registrations and applications. (c) (i) The Company owns or has the right to use all Company Intellectual Property necessary for the conduct of the business of the Company as currently conducted; (ii) There are no pending or, to the Knowledge of Holdings, threatened proceedings or litigation or other adverse claims by any Person against the Company or Holdings alleging that the conduct of the business of the Company or Holdings, including the products used by the Company or Holdings in the conduct of such business, as currently conducted infringes or may infringe upon or misappropriate any Intellectual Property of any third party; and - 28 - (iii) To the Knowledge of Holdings, (A) the conduct of the business of the Company and Holdings, including the products used by the Company or Holdings in the conduct of such business, as currently conducted do not infringe upon or misappropriate any Intellectual Property of any third party and (B) no third party is infringing any material Company Intellectual Property (other than shrink wrap licenses or licenses of off the shelf software). (d) Holdings does not own or license any Intellectual Property. SECTION 3.17 Customers. Section 3.17 of the Disclosure Schedule sets forth --------- separately, with respect to the 30 largest customers of the Company (based on the dollar volume of purchases during the period from August 9, 2005 to May 31, 2006) (without naming them), (i) the dollar volume of purchases made from the Company by such customer during the period from August 9, 2005 to May 31, 2006, and (ii) the earliest date on which such customer may terminate each contract, agreement, arrangement or undertaking that it has with the Company for any reason other than a failure by the Company to perform its obligations thereunder; provided that, with respect to the largest five customers, such termination date information shall not be specifically identified to any particular customer. Section 3.17 also sets forth the names and addresses of the 20 largest customers of the Company (based on the dollar volume of purchases during the period from August 9, 2005 to May 31, 2006) (the "Material -------- Customers"). Except as disclosed in Section 3.17 of the Disclosure Schedule or - --------- in a Supplemental Disclosure (as defined in Section 6.11), since August 9, 2005 the Company has not received any written notice that any Material Customer has (i) ceased, or will cease, to use the Company's products or services; (ii) substantially reduced, or will substantially reduce, the use of such products or services; or (iii) requested a reduced price for the Company's products or services. (b) If a written notice is received by the Company from a Material Customer between the date of this Agreement and the MAE Change Date (as defined in Section 7.4) of the type described in clause (i), (ii) or (iii) of Section 3.17(a) (a "Subsequent Notice"), and such notice is disclosed on a Supplemental ----------------- Disclosure, Parent's sole remedy shall be to terminate this Agreement for failure to satisfy a condition set forth in Article VII (if such remedy is available). If Parent waives such remedy and elects to proceed to Closing then Parent shall not be entitled to an indemnification claim with respect to such Subsequent Notice (whether pursuant to Section 10.2 or otherwise). If a Subsequent Notice is received after the MAE Change Date and such notice is disclosed on a Supplemental Disclosure, then Parent shall not be entitled to an indemnification claim with respect to such Subsequent Notice (whether pursuant to Section 10.2 or otherwise). If a Subsequent Notice is received but is not disclosed on a Supplemental Disclosure, Parent shall be entitled to whatever remedies are available to it pursuant to this Agreement resulting from a breach of this Section 3.17. Notwithstanding the foregoing, the provisions of this Section 3.17(b) shall not apply to any such notice received on or after the date of the Extension Notice (as defined in Section 9.1). SECTION 3.18 Certain Fees. Neither Holdings nor the Company has employed ------------- any financial advisor or finder and neither Holdings nor the Company has incurred any Liability for any financial advisory or finders' fees or similar compensation in connection with this Agreement or the transactions contemplated hereby. - 29 - SECTION 3.19 Title to Assets. (i) Except as set forth in Section 3.19 of --------------- the Disclosure Schedule, the Company now has and at the Closing will have, good and marketable title, or a valid leasehold interest in and to, the Owned Real Property, the 6 Commerce Boulevard parcel of the Leased Real Property and the assets shown on the June Balance Sheet or acquired after the date thereof, free and clear of all Encumbrances except for Permitted Encumbrances; and (ii) as of the Closing, the Company will have sufficient assets, whether pursuant to ownership, lease, license or other right, to permit Parent to carry on the business of the Company in substantially the same manner as presently conducted by Holdings and the Company. Holdings does not have any assets other than the outstanding Company Common Interest. SECTION 3.20 Receivables. The accounts receivable reflected in the June ----------- Balance Sheet or arising thereafter result from bona fide transactions with third parties in the ordinary course of business and are reflected on the June Balance Sheet or (in the case of receivables arising thereafter) in the books and records of Holdings, in each case consistent with past practice, and as of the date of such Balance Sheet none of such accounts receivable was subject to any counterclaim or set-off except to the extent of any established reserves. SECTION 3.21 Suppliers. Section 3.21 of the Disclosure Schedule sets forth --------- (a) the names of the Company's 20 largest suppliers (based on dollar volume of purchases during the period from August 9, 2005 to May 31, 2006) (each a "Material Supplier") and (b) the amount that each such supplier was paid by the ------------------ Company during such period. Except as set forth in a Supplemental Disclosure, the Company has not received any notice nor has any reason to believe that there has been any material increase in the price of such supplies, merchandise or other goods or services, or that any Material Supplier will not sell supplies, merchandise and other goods or services to Parent at any time after the Closing Date on terms and conditions similar to those used in its current sales to the Company, subject to general and customary price increases. To the Knowledge of Holdings, no Material Supplier has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement. SECTION 3.22 Geographic Limitations. The Company is not restricted by any ----------------------- written or oral agreement with any other Person from carrying on the Company's business anywhere in the world. SECTION 3.23 Records. The books of account of Holdings and the Company are ------- sufficient, in all material respects, to prepare the Financial Statements in accordance with GAAP. The books and records of Holdings and the Company accurately and fairly reflect, in all material respects, their respective income, expenses, assets and liabilities and each of Holdings and the Company maintains internal accounting controls which provide reasonable assurance that: (i) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and (ii) all intercompany transactions, charges and expenses among or between Holdings, the Company and/or their Affiliates (x) are (other than the transactions between Holdings or the Company and Allied Capital Corporation and the compensation arrangements between Holdings or the Company and the Sellers who are employees of the Company) at fair arms length value and (y) are accurately reflected in all Financial Statements. - 30 - SECTION 3.24 Bank Accounts. Section 3.24 of the Disclosure Schedule lists ------------- the names and addresses of all banks and other financial institutions with which Holdings or the Company have accounts (or to which deposits are made on behalf of Holdings or the Company), in each case listing the type of account maintained, the account number therefore, and the names of all Persons authorized to draw thereupon or who have access thereto, and the locations of all safe deposit boxes used by Holdings or the Company. SECTION 3.25 Indebtedness. Except as set forth on Section 3.25 of the ------------ Disclosure Schedule, neither Holdings nor the Company has any Indebtedness (as defined below) in excess of $50,000 in the aggregate. As used herein, "Indebtedness" of any Person means, without duplication (i) all indebtedness for ------------ borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person that owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above, if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto. SECTION 3.26 Absence of Certain Business Practices. To the Knowledge of --------------------------------------- Holdings, none of the Company, any officer, employee or agent of the Company, or any other Person acting on the Company's behalf, has, directly or indirectly, within the past three years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other Person who is or may be in a position to help or hinder the Company (or assist the Company in connection with any actual or proposed transaction relating to the Company) (i) which could reasonably be expected to subject the Company to any damage or penalty in any criminal or governmental Action, (ii) for any of the purposes described in Section 162(c) of the Code or (iii) for the purpose of establishing or maintaining any concealed fund or concealed bank account. Neither Holdings nor the Company conducts any business outside the United States. - 31 - SECTION 3.27 Disclosure. No representation or warranty made by Holdings or ---------- any Seller contained in this Agreement nor any statement in the Disclosure Schedule or any certificate furnished or to be furnished by or on behalf of Holdings, the Company or any Seller to Parent or its representatives pursuant hereto contains or will contain any untrue statement of a material fact or omit to state any material fact required to make the statements contained herein or therein, in light of the circumstances in which it was made, not misleading. SECTION 3.28 Disclaimer of Warranties by Holdings. EXCEPT AS EXPRESSLY SET ------------------------------------ FORTH IN THIS ARTICLE III, HOLDINGS DOES NOT MAKE AND HAS NOT MADE ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE COMPANY AND ITS BUSINESS, INCLUDING ANY REPRESENTATIONS OR WARRANTIES AS TO THE FUTURE SALES OR PROFITABILITY OF THE COMPANY OR ITS BUSINESS. ALL OTHER REPRESENTATIONS AND WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED BY HOLDINGS. ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS Except as set forth under the section heading referring to a specific section of this Agreement in the Disclosure Schedule, each Seller severally (as to himself or herself and not as to any other Seller) represents and warrants to Parent that all of the statements contained in this Article IV are true and correct (i) as of the date of this Agreement (or, if made as of a specified date, as of such date) and (ii) as of the Closing Date (or, if made as of a specified date, as of such date) as though made then, as follows: SECTION 4.1 Organization and Authority. -------------------------- Each Seller that is an entity is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. Each Seller has all requisite power to execute and deliver this Agreement and the Escrow Agreement and to perform his, her or its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Escrow Agreement and the performance of its obligations hereunder and thereunder have been duly and validly authorized by the Board of Directors of each Seller that is an entity and no other corporate, limited liability company or limited partnership proceedings on the part of such Sellers are necessary to authorize the execution, delivery and performance of this Agreement and the Escrow Agreement. This Agreement has been duly executed and delivered by each Seller, and this Agreement constitutes and the Escrow Agreement and each other agreement and instrument to be executed and delivered by such Seller in connection herewith or therewith or pursuant hereto or thereto will constitute, assuming the due execution of this Agreement by Parent and Merger Sub and the Escrow Agreement by Parent, valid and binding obligations of such Seller, enforceable against such Seller in accordance with their terms, except that such enforcement may be subject to or limited by (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws relating to or affecting the rights of creditors generally and (ii) the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). - 32 - SECTION 4.2 Holdings Share Ownership. Each Seller is the record and -------------------------- beneficial owner of the Holdings Shares, SARs and/or Options, free and clear of any Encumbrances, set forth opposite his, her or its respective names in Section 4.2 of the Disclosure Schedule. Except for this Agreement, the transactions contemplated hereby and the Restructuring Transactions, the SARs and the Options or as set forth in Section 4.2 of the Disclosure Schedule, there are no agreements, arrangements, warrants, options, puts, calls, rights or other commitments or understandings of any character to which any Seller is a party or by which any of his, her or its respective assets are bound and relating to the issuance, sale, purchase, redemption, conversion, exchange, registration, voting or transfer of Holdings Shares or Preferred Shares. SECTION 4.3 Consents and Approvals; No Violations. ------------------------------------- (a) Neither the execution and delivery by any Seller of this Agreement the Escrow Agreement and each other agreement and instrument to be executed and delivered by such Seller in connection herewith or therewith or pursuant hereto or thereto nor the performance by any Seller of his, her or its obligations hereunder or thereunder will (i) conflict with or result in any breach of any provision of the certificate of incorporation, certificate of formation, certificate of limited partnership, limited liability company agreement or limited partnership agreement of any Seller that is an entity; (ii) result in the creation or imposition of any Encumbrance upon such Seller's Holdings Shares; (iii) except as set forth in Section 4.3 of the Disclosure Schedule, result in a material violation or breach of or default under (or give rise to any right of termination, cancellation or acceleration), or result in the creation of any Encumbrance under, any of the terms, conditions or provisions of any note, mortgage, letter of credit, other evidence of indebtedness, guarantee, license, lease or agreement or similar instrument or obligation relating to such Seller or to which such Seller is a party or by which such Seller or any of his, her or its assets used or held for use by such Seller may be bound; (iv) require the consent, approval, wavier, authorization or notification to or of any other Person; or (v) assuming that the filings, registrations, notifications, authorizations, consents and approvals referred to in Section 4.3(b) hereof have been obtained or made, as the case may be, violate any order, injunction, decree, statute, rule or regulation of any Governmental Authority to which the Seller is subject, excluding from the foregoing clause (v) such violations that would not, individually or in the aggregate, be material to such Seller. (b) No filing or registration with, notification to, or authorization, consent or approval of any Governmental Authority is required in connection with the execution and delivery of this Agreement or the Escrow Agreement by any Seller or the performance by any Seller of their obligations hereunder or thereunder, except (i) those that become applicable as a result of matters specifically related to Parent or its Affiliates or (ii) in connection with the HSR Act as provided for in Section 6.5 hereof. SECTION 4.4 Certain Fees. No Seller has (a) employed any financial advisor ------------ or finder or (b) incurred any Liability for any financial advisory or finders' fees or similar compensation in connection with this Agreement or the transactions contemplated hereby. SECTION 4.5 Legal Proceedings, etc. There are no Actions pending against ------------------------ any Seller, or, to the knowledge of the Sellers, threatened against or involving - 33 - any Seller in connection with the business and affairs of such Seller or otherwise before any court, arbitrator or administrative or governmental body, United States or foreign which, if adversely determined, could, individually or in the aggregate, have or reasonably be expected to have any adverse effect on the ability of such Seller to consummate the transactions contemplated hereby. No Seller is subject to any judgment, decree, injunction or order of any court, which would, individually or in the aggregate, reasonably be expected to materially impact the ability of such Seller to perform his, her or its obligations under, or to consummate the transactions contemplated by, this Agreement. SECTION 4.6 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS ------------------------ ARTICLE IV OR IN ARTICLE III, THE SELLERS DO NOT MAKE AND HAVE NOT MADE ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE SELLERS, HOLDINGS OR THE COMPANY OR THE COMPANY'S BUSINESS, INCLUDING ANY REPRESENTATIONS OR WARRANTIES AS TO THE FUTURE SALES OR PROFITABILITY OF HOLDINGS OR THE COMPANY OR ITS BUSINESS. ALL OTHER REPRESENTATIONS AND WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED BY THE SELLERS. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB In order to induce the Sellers and Holdings to enter into this Agreement, Parent and Merger Sub hereby represent and warrant to the Sellers and Holdings that all of the statements contained in this Article V are true and correct (i) as of the date of this Agreement (or, if made as of a specified date, as of such date) and (ii) as of the Closing Date (or, if made as of a specified date, as of such date) as though made then, as follows: SECTION 5.1 Corporate Organization and Authority. ------------------------------------ (a) Each of Parent and Merger Sub is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation, as applicable. Other than Merger Sub, the Subsidiaries listed on Exhibit 21 of Publico's most recent Annual Report on Form 10-K, and the Subsidiaries listed on Schedule 5.1 hereto, Parent does not have any Subsidiaries. (b) Parent has the requisite power and authority to execute and deliver this Agreement and the Escrow Agreement and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Escrow Agreement and the performance of its obligations hereunder and thereunder have been duly and validly authorized by the Board of Directors of Parent and no other corporate proceedings on the part of Parent are necessary to authorize the execution, delivery and performance of this Agreement or the Escrow Agreement. This Agreement has been duly executed and delivered by Parent, and this Agreement constitutes and the Escrow Agreement will constitute, assuming due authorization, execution and delivery of this Agreement and the Escrow Agreement by the other parties hereto and thereto, valid and binding obligations of Parent, enforceable against Parent in accordance with its terms, except that such enforcement may be subject to or limited by (i) the effect of any - 34 - applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws relating to or affecting the rights of creditors generally and (ii) the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (c) Merger Sub has the requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the performance of its obligations hereunder have been duly and validly authorized by the Board of Directors and sole stockholder of Merger Sub and no other corporate proceedings on the part of Merger Sub are necessary to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly executed and delivered by Merger Sub, and this Agreement constitutes, assuming due authorization, execution and delivery of this Agreement by the other parties hereto, a valid and binding obligation of Merger Sub, enforceable against Merger Sub in accordance with its terms, except that such enforcement may be subject to or limited by (i) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws relating to or affecting the rights of creditors generally and (ii) the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). SECTION 5.2 Consents and Approvals; No Violations. ------------------------------------- (a) Neither the execution and delivery of this Agreement and the Escrow Agreement nor the performance by Parent of its obligations hereunder or thereunder will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws (or similar organizational documents) of Parent and its Subsidiaries; (ii) result in a material violation or breach of or default under (or give rise to any right of termination, cancellation or acceleration), or result in the creation of any Encumbrance under, any of the terms, conditions or provisions of any note, mortgage, letter of credit, other evidence of indebtedness, guarantee, license, lease or agreement or similar instrument or obligation relating to the business of Parent or to which Parent is a party or by which Parent or any of the assets used or held for use by Parent may be bound; (iii) require the consent, approval, waiver or authorization to or of any other Person; or (iv) assuming that the filings, registrations, notifications, authorizations, consents and approvals referred to in Section 5.2(c) below have been obtained or made, as the case may be, materially violate any order, injunction, decree, statute, rule or regulation of any Governmental Authority to which Parent is subject, excluding from the foregoing clause (iv) such violations that would not, individually or in the aggregate, be material to Parent. (b) Neither the execution and delivery of this Agreement nor the performance by Merger Sub of its obligations hereunder will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Merger Sub; (ii) result in a violation or breach of or default under (or give rise to any right of termination, cancellation or acceleration), or result in the creation of any Encumbrance under, any of the terms, conditions or provisions of any note, mortgage, letter of credit, other evidence of indebtedness, guarantee, license, lease or agreement or similar instrument or obligation relating to the business of Merger Sub or to which Merger Sub is a party or by which Merger Sub or any of the assets used or held for use by Merger Sub may be bound; (iii) require the consent, approval, waiver or authorization to or of any other Person; or (iv) assuming that the filings, registrations, notifications, authorizations, consents and approvals referred to in Section - 35 - 5.2(c) below have been obtained or made, as the case may be, violate any order, injunction, decree, statute, rule or regulation of any Governmental Authority to which Merger Sub is subject, excluding from the foregoing clause (iv) such violations that would not, individually or in the aggregate, be material to Merger Sub. (c) Except in connection with the HSR Act as provided for in Section 6.5 hereof, no filing or registration with, notification to, or authorization, consent or approval of, any Governmental Authority is required in connection with the execution and delivery of this Agreement or, in the case of Parent, the Escrow Agreement or the performance by Parent or Merger Sub of their obligations hereunder or thereunder. SECTION 5.3 Legal Proceedings, etc.. Except as set forth in Publico's ------------------------- current and periodic reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, as of the date of this Agreement, there are no Actions pending, or, to the knowledge of Parent, threatened against or involving Parent or Merger Sub or any of their officers, managers or directors in connection with the business or affairs of Parent or Merger Sub before any court, arbitrator or administrative or governmental body, United States or foreign which, if adversely determined, would, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on the ability of Parent or Merger Sub to consummate the transactions contemplated hereby. Neither Parent nor Merger Sub is subject to any judgment, decree, injunction or order of any court, which would, individually or in the aggregate, reasonably be expected to materially impact the ability of Parent or Merger Sub to perform its obligations under, and to consummate the transactions contemplated by, this Agreement, and in the case of Parent, the Escrow Agreement. - 36 - SECTION 5.4 Certain Fees. Parent has not employed any financial advisor or ------------ finder and Parent has not incurred any Liability for any financial advisory or finders' fees or similar compensation in connection with this Agreement or the transactions contemplated hereby. SECTION 5.5 Acquisition of Holdings Shares for Investment. Parent has such --------------------------------------------- knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its purchase of the Holdings Shares. Parent is acquiring the Holdings Shares for investment and not with a view toward or for sale in connection with any distribution thereof, or with any present intention of distributing or selling the Holdings Shares. Parent agrees that the Holdings Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act of 1933, as amended, or any applicable state securities Laws, except pursuant to an exemption from such registration available under the Securities Act of 1933, as amended, or any applicable state securities Laws. SECTION 5.6 Financing. Parent currently has (after taking into account the --------- Publico guarantee set forth in Section 12.1 of this Agreement) and as of the Closing will have all funds necessary to consummate the transactions contemplated by this Agreement, including the payment at Closing of the Merger Consideration and the payment of all expenses incurred by Parent in connection with the transactions contemplated by this Agreement and the Escrow Agreement. SECTION 5.7 Investigation by Parent; Holdings' Liability. Parent has ------------------------------------------------ conducted its own independent review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, software, technology and prospects of Holdings and the Company and acknowledges that Parent has been provided access to certain personnel, properties, premises and records of Holdings and the Company for such purpose. In entering into this Agreement, Parent has relied solely upon (x) its own investigation and analysis and (y) the representations and warranties of Holdings and the Sellers set forth in Article III and Article IV of this Agreement. Parent agrees, to the fullest extent permitted by Law, that except for claims arising under Article X of this Agreement or a claim of fraud or intentional misconduct, none of Holdings, the Company or any of their respective directors, officers, managers, equityholders, employees, Affiliates, controlling Persons, Sellers, agents, advisors or Representatives shall have any liability or responsibility whatsoever in respect of this Agreement to Parent or its directors, officers, employees, Affiliates, controlling Persons, agents, advisors or Representatives on any basis (including, without limitation, in contract or tort, under federal or state securities Laws or otherwise) based upon any information provided or made available, or statements made, to Parent or its directors, officers, employees, Affiliates, controlling Persons, advisors, agents or Representatives (or any omissions therefrom) other than the representations and warranties of Holdings and the Sellers set forth in Article III and Article IV of this Agreement, respectively, and the covenants set forth in Article VI hereof, but always subject to the limitations and restrictions contained therein. For avoidance of doubt, this Section 5.7 shall not be deemed to apply to any separate agreement between any member, officer or employee of Holdings or the Company and the Parent or the Surviving Company. Notwithstanding anything to the contrary in this Section 5.7, Parent's and Merger Sub's rights to rely on the representations and warranties of Holdings and the Sellers set forth in this Agreement, the Disclosure Schedule and any other agreement, instrument or certificate delivered in connection herewith or therewith or pursuant hereto or - 37 - thereto shall not be affected by any investigation with respect thereto conducted by Parent or Merger Sub. SECTION 5.8 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS ------------------------ ARTICLE V, NEITHER PARENT NOR MERGER SUB MAKES AND HAS NOT MADE ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, RELATING TO THE PARENT OR MERGER SUB. ALL OTHER REPRESENTATIONS AND WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED BY PARENT AND MERGER SUB. ARTICLE VI COVENANTS SECTION 6.1 Conduct of the Business. Holdings agrees that, during the ------------------------ period from the date hereof until the earlier of the Closing or the termination of this Agreement, except as (a) expressly provided by the Restructuring Transactions; (b) otherwise expressly contemplated hereby; (c) set forth in Section 6.1 of the Disclosure Schedule; or (d) consented to by Parent, in writing (which consent may be withheld in Parent's sole discretion), Holdings will, and will cause the Company to: (i) use its commercially reasonable efforts to (A) cause the Company's business operations to be conducted in the ordinary course of business; (B) preserve intact the Company's assets, Real Property and business organization in all material respects, including, but not limited to continuing to manage, operate and maintain the Real Property in materially the same manner as prior to the execution of this Agreement and (C) not enter into any lease or sublease with respect to the Real Property; (ii) maintain all assets of the Company in a state of repair and condition that materially complies with applicable Law and is consistent with the requirements and normal conduct of the Company's business; provided, however, that the Company may use and replace tangible personal -------- ------- property in the ordinary course of business; (iii) continue in full force and effect the insurance coverage under the policies set forth in Section 3.15 of the Disclosure Schedule or substantially equivalent policies; (iv) maintain all books and records of Holdings and the Company relating to Holdings' and the Company's business in the ordinary course of business. (v) not amend its certificate of formation or limited liability company agreement; (vi) not issue, deliver, sell, pledge, dispose of or encumber, or authorize or commit to the issuance, sale, pledge, disposition or encumbrance of any equity interest, or any other ownership interest, in Holdings or the Company, or any options, warrants, convertible securities or other rights of any kind to acquire any equity interest, or any other - 38 - ownership interest, in Holdings or the Company including, without limitation, any SARs or Options; (vii) not declare, set aside, make or pay any dividend or other distribution, payable in cash, shares, property or otherwise, with respect to the Holdings Shares or the Company Common Interest that would reduce the Estimated Working Capital at Closing below the Target Working Capital; (viii) not reclassify, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, the Holdings Shares or the Company Common Interest; (ix) other than in the ordinary course of business, not (A) incur any Indebtedness (except for short term Indebtedness incurred in the ordinary course of business in an amount not to exceed $50,000 in the aggregate); (B) commit to any new capital expenditures in excess of $25,000 individually or $100,000 in the aggregate; (C) sell or dispose of any of its properties or assets having a value individually or in the aggregate in excess of $25,000; or (D) make any loans, advances or capital contributions to, or investments in, any other Person on behalf of Holdings or the Company; (x) other than in the ordinary course of business, not enter into, amend or terminate any Material Contracts (including, without limitation, in connection with obtaining any consent thereunder to the transactions contemplated hereby); (xi) perform in all material respects all of Holdings' and the Company's obligations under all of the Material Contracts; (xii) other than in the ordinary course of business, not modify or amend the employment arrangements with its officers, enter into or amend any employment, senior management consultant, severance, termination or other similar agreement (except in connection with the hiring of any new employee earning less than $70,000 per year), adopt any new or amend any existing employee benefit plan, program, agreement or arrangement (except as may be required by applicable Law or as necessary or advisable to comply with Section 409A of the Code), or make any loans to any of its officers, directors, employees, agents or consultants; (xiii) not enter into any new unrelated line of business or acquire by merging or consolidating with, or by purchasing a material portion of the assets of, or by any other manner, any business or any corporation, partnership, joint stock company, limited liability company, association or other business organization or division thereof; (xiv) not enter into any joint venture, partnership or other similar arrangement; (xv) not knowingly waive any right of material value to Holdings or the Company or settle or compromise any claim in excess of $50,000 individually or $100,000 in the aggregate; - 39 - (xvi) not adopt a plan of complete or partial liquidation with respect to Holdings or the Company or resolutions providing for or authorizing such a liquidation or dissolution, merger, consolidation, restructuring, recapitalization or reorganization; (xvii) not recognize any labor union (unless legally required to do so) or enter into or amend any collective bargaining agreement; (xviii) not make or change any material Tax election, change any method of accounting (except as required by changes in GAAP), file any amended Tax Return, settle or compromise any Tax liability, enter into any closing agreement, surrender any claim for refund, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment, or take any other similar action in respect of Taxes; (xix) not delay or postpone the payment of accounts payable and not accelerate the collection of accounts receivable, in each case other than in the ordinary course of business consistent with past practice; (xx) materially comply with all Laws applicable to the operations of the business of the Company; provided, however, that the Company shall have no obligation to comply with any Laws that the Company challenges in good faith; (xxi) pay, when due, the required amounts of Taxes related to the business; and (xxii) not agree, commit, or adopt any plan or proposal to take any of the actions set forth in clauses (v) through (xix) above. SECTION 6.2 Access to Information and Real Property; Confidentiality. -------------------------------------------------------- (a) Upon reasonable advance notice, between the date hereof and the earlier of the Closing or the termination of this Agreement in accordance with its terms, Holdings shall give Parent and its Representatives full access during normal business hours to the offices, the Real Property, personnel, books, records, contracts, information and documents of Holdings and the Company to conduct such examinations and investigations of Holdings and the Company as Parent reasonably determines necessary. Holdings shall and shall cause the Company to cooperate in all reasonable respects with Parent's examinations and investigations. For purposes of this Agreement, "Representatives" means with --------------- respect to any Person, such Person's counsel, financial advisors, auditors and other authorized representatives, including, without limitation, any agents, contractors, engineers, architects and surveyors. (b) Parent will treat and hold any information and materials it receives in the course of the reviews contemplated by Section 6.2(a) in accordance with the confidentiality agreement between Publico and Holdings, dated May 18, 2006 (the "Confidentiality Agreement"). ------------------------- SECTION 6.3 Delivery of Monthly Financial Statements. Prior to the Closing, ---------------------------------------- Holdings shall cause to be prepared and delivered to Parent a consolidated - 40 - balance sheet, income statement and statement of cash flows for Holdings for each fiscal month ending after the date of this Agreement within 30 days of the last day of each such month. All such monthly financial statements delivered pursuant to this Section 6.3 shall be prepared in a manner consistent with the Company's past practice and consistent with GAAP, subject to the normal, recurring and year-end audit adjustments set forth in Section 3.4 of the Disclosure Schedule. SECTION 6.4 Reasonable Best Efforts. Upon the terms and subject to the ------------------------- conditions herein provided, each of the parties hereto, with respect to matters involving such party, agrees to use its reasonable best efforts to take or cause to be taken all action, to do or cause to be done, and to assist and cooperate with any party hereto in doing all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including, but not limited to, (i) the satisfaction of the conditions precedent to the obligations of any of the parties hereto; (ii) the obtaining of consents, waivers or approvals of third parties, including those set forth in Section 1.3(b)(ix) of the Disclosure Schedule; (iii) the defending of any Lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the performance of the obligations hereunder; and (iv) the execution and delivery of such instruments, and the taking of such other actions as the other parties hereto may reasonably require in order to carry out the intent of this Agreement; provided, that this Section 6.4 shall not apply with respect to the matters provided for under Section 6.5(a), which matters shall be exclusively governed by that section. Prior to the Closing, Sellers shall cause to be terminated in accordance with their terms the agreements specified on Section 1.3(b)(ix) as to be terminated, without obligation or liability to Company or Holdings. Sellers shall not and shall not permit Company to waive any rights under any such agreements. SECTION 6.5 Governmental Authorizations. --------------------------- (a) In connection with the transactions contemplated by this Agreement, Holdings, on the one hand, and Parent, on the other hand, shall, within one business day after the execution of this Agreement, comply with the notification and reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and shall request early termination of the ------- waiting period under the HSR Act. Holdings, on the one hand, and Parent, on the other hand, shall substantially comply with any additional request for information, including requests for production of documents and production of witnesses for interviews or depositions, by any antitrust authority. Parent shall pay the applicable HSR Act filing fee, but Parent and Holdings shall otherwise each be responsible for their own costs of HSR Act compliance. (b) Holdings, on the one hand, and Parent, on the other hand, shall promptly file all other necessary registrations and filings and submissions of information requested by any Governmental Authority (other than with respect to the HSR Act, which is the subject of Section 6.5(a) above but not of this Section 6.5(b)). Each of Parent and Holdings agrees to cooperate with and promptly to consult with, to provide any reasonably available information with respect to, and to provide, subject to appropriate confidentiality provisions, copies of all presentations and filings to or with any such Governmental Authority to Holdings or Parent, as the case may be, or the counsel of Holdings or Parent, as the case may be. Holdings and Parent shall each use its reasonable best efforts to ensure that any required consents, approvals, waivers or other - 41 - authorizations from such Governmental Authorities are obtained as promptly as practicable and that any conditions set forth in or established by any such Governmental Authorities are wholly satisfied. (c) The Company and Holdings will cooperate fully with Parent with respect to all actions necessary to transfer any permits, licenses, variances or authorizations as required by applicable Law. SECTION 6.6 Public Announcements. No press release or announcement --------------------- concerning the transactions contemplated hereby shall be issued by the Company, Parent or Holdings without the prior consent of the other parties; provided, -------- however, that, subject to the non-releasing parties' right to review and - ------- comment, (i) upon not less than 24 hours' prior written notice to Holdings, Parent may issue a press release announcing the transactions contemplated by this Agreement, (ii) nothing contained herein shall prohibit any party from making any public announcement required by Law or the rules or regulations of the New York Stock Exchange and (iii) nothing contained herein shall prohibit Parent from making public disclosures to its investors and analysts customary in the ordinary course of business. SECTION 6.7 Employee Matters. ---------------- (a) Each individual who is employed by the Company immediately prior to the Closing Date shall remain an employee of the Company following the Closing Date (each such employee, an "Affected Employee"); provided, however, that this ------------------ -------- ------- Section 6.7 shall not be construed to limit the ability of the Company to terminate the employment of any Affected Employee following the Closing Date in accordance with applicable Law. (b) Parent shall recognize each Affected Employee's service with, or recognized by, the Company prior to the Closing Date as service with Parent in connection with any pension plan, 401(k) savings plan and welfare benefit plan (including vacations and holidays) maintained by Parent that is made available by Parent, in its sole discretion and without any obligation to do so, to such employee following the Closing Date and in which such employee elects to participate for purposes of any waiting period, vesting, eligibility and benefit entitlements (but excluding benefit accruals other than vacation) and shall cause all applicable welfare benefit plans to waive any preexisting condition limitation, exclusion or waiting period for the Affected Employees and their dependents, to the same extent such limitations, exclusions or waiting periods were satisfied, covered or waived under similar Company plans. Parent shall credit the Affected Employees with any amounts paid prior to the Closing Date under any Company plan with respect to satisfaction of any applicable deductible amounts and co-payment minimums under any Parent plans established as of the Closing Date which provide similar benefits. (c) Parent shall cause the Company to provide any Affected Employee whose employment with the Company or Parent is terminated by the Company or Parent (other than for "cause") during the twelve (12) month period following the Closing, with severance pay in accordance with the past practice of the Company. - 42 - (d) During the 90-day period beginning on the Closing Date, Parent shall not terminate the employment of any Affected Employees so as to cause any "plant closing" or "mass layoff" (as those terms are defined in the WARN Act) such that Holdings has any obligation under the WARN Act that Holdings otherwise would not have had absent such terminations. In the event of any breach by Parent of this Section 6.7(d), Parent shall, if the representation set forth in Section 3.14(b) is fully accurate, indemnify Holdings for any such obligations. (e) Tax Benefits. Parent and Sellers acknowledge and agree that all tax ------------- benefits and deductions accruing as a result of the payments contemplated by this Agreement to holders of the SARs, Options and Phantom Debt shall belong to Holdings. Neither Parent nor Sellers shall take, nor allow any other Person to take, a tax reporting position on any Tax Return or claim that is inconsistent with this Section 6.7(e) unless otherwise required pursuant to the final determination of a Governmental Authority. SECTION 6.8 Tax Matters. ----------- (a) Tax Returns. Holdings shall, or shall cause the Company to, timely file ----------- all Tax Returns of or related to Holdings or the Company that are required to be filed (with extensions) on or prior to the Closing Date, and shall pay, or cause the Company to pay, any Taxes shown as due on such Tax Returns. Parent shall prepare and timely file or cause to be timely filed all Tax Returns of Holdings or the Company that include a taxable period (or portion thereof) ending on or prior to the Closing Date and that are required to be filed (with extensions) after the Closing Date (each such Tax Return, a "Post-Closing Tax Return"). ------------------------- Parent shall prepare any Post-Closing Tax Returns in a manner consistent with Holdings' prior Tax Returns, except as otherwise required by law, and shall provide Sellers' Representative (as defined below) with a copy of any Post-Closing Tax Return within a reasonable period prior to the filing thereof for review and comment. Without the consent of Parent, Holdings shall not file and Sellers shall not cause Holdings or the Company to file, any federal or state Tax Returns prior to Closing or make any Tax election prior to Closing. (b) Post-Closing Payments. In the case of a Post-Closing Tax Return, the ---------------------- Sellers shall be solely responsible for, and shall pay within five days of a request therefore by the Parent, Taxes shown as due on a Post-Closing Tax Return to the extent such Taxes are allocable under this Section 6.8(b) to a taxable period (or portion thereof) that ends on or prior to the Closing Date, but only if and to the extent such Taxes exceed the amount of Taxes included on the consolidated balance sheet of Holdings dated as of the Closing Date and were included in the calculation of Working Capital. For purposes of allocating Taxes to a pre-Closing period, such pre-Closing tax shall be: (i) in the case of a Tax that is not based on gross or net income or specific transactions, such as real property taxes, the total amount of such Tax for the period in question multiplied by a fraction, the numerator of which is the number of days in the relevant taxable period through and including the Closing Date, and the denominator of which is the total number of days in such taxable period, and (ii) in the case of any Tax that is based on gross or net income or specific transactions, the Tax that would be due with respect to the portion of the taxable period through and including the Closing Date, if such portion of the taxable period were a separate taxable period. - 43 - (c) Transfer Taxes. Parent and the Sellers shall each pay one half of all --------------- transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest), if any, incurred in connection with the transactions contemplated by this Agreement ("Transfer Taxes"). Parent shall -------------- be responsible for preparing and timely filing all necessary Tax Returns and other documentation with respect to all such Transfer Taxes. If required by applicable Law, the Sellers will join in the execution of any such Tax Returns and other documentation. (d) Cooperation. Parent and the Sellers shall cooperate fully, as and to ----------- the extent reasonably requested by the other party, in connection with the filing of any Tax Returns and any audit, litigation or other proceeding with respect to Taxes of or related to Holdings or the Company. Such cooperation shall include the retention and (upon the other party's reasonable request) the provision of records and information reasonably relevant to any such Tax Return, audit, litigation or other proceeding and making employees reasonably available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Each of Sellers' Representative and Parent agrees to (i) retain or cause to be retained all books and records in its possession on the Closing Date relating to Tax matters of or pertaining to Holdings or the Company for any taxable period beginning before the Closing Date until expiration of the statute of limitations (including any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any Taxing authority and (ii) give each other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, allow the requesting party to take possession of such books and records. SECTION 6.9 Audit; Cooperation. The Sellers have caused Holdings and the ------------------- Company to undertake and, as promptly as practicable, to complete an audit (the "Audit") of (a) the consolidated balance sheet of Holdings as of June 30, 2006 and consolidated statements of income and cash flows of Holdings for the period from August 9, 2005 to June 30, 2006 and (b) the consolidated balance sheet of the Predecessor of Holdings as of August 9, 2005 and consolidated statements of income and cash flows of the Predecessor for the period from January 1, 2005 to August 9, 2005. The Company's current auditing firm is conducting the Audit. Following the Closing, each Seller shall provide all cooperation reasonably requested by Publico and its Affiliates in connection with Publico's preparation of financial statements, and, if necessary, an audit of the financial performance of Holdings and the Company, for all periods required in connection with Publico's obligations under applicable Laws, including, without limitation, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Such cooperation shall include, but not be limited to, providing full access to any work papers generated in connection with the preparation of financial statements of Holdings and the Company before the Closing Date, and using reasonable efforts to obtain such accountants' consents, comfort letters and legal opinions as may be reasonably requested by Publico or its Affiliates (including, without limitation, by providing management representation letters in customary form). SECTION 6.10 Return of Insurance Receivables. Within two days of Holdings -------------------------------- or the Company receiving any amounts received by or reimbursed to Holdings or the Company with respect to the Chubb insurance policy held by the Company covering workers compensation claims for the period ending on or about April 4, 2006 (the "Insurance Proceeds"), Parent shall or shall cause the Surviving ------------------- - 44 - Company to, pay each Seller such Seller's pro rata share, on a Fully Diluted Basis, of such amount by wire transfer or check. Sellers shall be solely responsible for, and shall indemnify Holdings and the Company against any additional premium or similar payment that may be payable by Holdings or the Company with respect to such Chubb insurance policy, other than to the extent accrued on the Final Statement. SECTION 6.11 Update. Each party hereto will, not less than three (3) nor ------ more than five (5) business days prior to the anticipated Closing Date, disclose to the other in writing (in the case of Holdings or Sellers by delivering a supplement to or substitution for a Disclosure Schedule) (a "Supplemental ------------ Disclosure") any event, matter or claim occurring, arising, failing to occur or - ---------- arise, or being asserted by a third party after the date hereof, the occurrence or failure to occur of which would be reasonably likely to cause any representation or warranty made by such party in this Agreement or any Disclosure Schedule of such party to become untrue or inaccurate in any material respect as of the Closing Date. Such delivery of a Supplemental Disclosure shall not affect any rights of any party (i) to terminate for the other party's failure to satisfy the conditions to Closing set forth in Article VII or VIII, if and as applicable, (ii) for indemnification pursuant to Article X (except, with respect to a Supplemental Disclosure relating to (A) Section 3.17, subject to the limitation set forth in such Section, or (B) events occurring after the MAE Change Date and before the date of the Extension Notice (other than to the extent caused by the action or failure to act of the Company or Holdings that has resulted in a Material Adverse Effect (excluding actions taken at the direction or with the prior written consent of Parent), as to which no indemnification shall be available), or (iii) in respect of any claim or cause of action of any party to this Agreement against any other party to this Agreement for fraud for such Person's willful failure to disclose such information prior to the date of this Agreement to the extent that such Person actually knew of the event or circumstances giving rise to the Supplemental Disclosure. SECTION 6.12 Further Assurances. From and after the Closing Date, each of ------------------- the parties shall execute and deliver such documents and other papers and take such further actions as may reasonably be required to carry out the provisions of this Agreement and the Escrow Agreement and give effect to the transactions contemplated hereby and thereby. SECTION 6.13 Restrictive Covenants. --------------------- (a) As a material and significant inducement to Parent to enter into this Agreement, and for the consideration set forth in this Agreement, each of the Sellers (other than Allied Capital Corporation) agrees that, for the periods set forth opposite such Seller's name in Section 6.13 of the Disclosure Schedule from and after the Closing Date, such Seller shall not, singly, jointly or as a partner, member, employee, agent, officer, director, manager, stockholder (except as expressly provided below), investor, consultant, independent contractor, or joint venturer of any other person or entity, directly or indirectly: (i) own, manage, control, participate in, consult with, or render services for any competitor with respect to the businesses of the Company (including, without limitation, the magazine fulfillment business currently owned by Time Warner, Hearst Corporation, Strategic Fulfillment Group, Automated Resources Group, Inc., Advantage Computing Systems, or any of their respective successors or assigns, or any of their respective subsidiaries or affiliates); provided, however, any such Seller may seek employment with the fulfillment - -------- ------- departments of publishers who do not have fulfillment operations that service - 45 - third-party publishers and do not have plans to establish fulfillment operations that service third-party publishers; (ii) in any manner, engage in any business competing with the businesses of the Company or its subsidiaries or affiliates as such businesses exist or are in process on the date hereof or on the Closing Date. Notwithstanding anything herein to the contrary, nothing herein shall prohibit such any Seller from (x) being a passive owner of not more than 2% of the outstanding securities of a corporation that is publicly traded, so long as such Seller has no active participation in the business or management of such entity or (y) engaging in the activities set forth in Section 6.13 of the Disclosure Schedule. (b) As a material and significant inducement to Parent to enter into this Agreement, and for the consideration set forth in this Agreement, Allied Capital Corporation agrees that, for a period of three years from and after the Closing Date, it shall not, directly or indirectly , acquire or otherwise obtain control (whether by ownership of equity securities, through any voting or similar agreements or otherwise) of the subscription fulfillment or related business currently owned, directly or indirectly, by Hearst Corporation and Time Warner Inc. Nothing herein shall prevent Allied Capital Corporation from owning , as a passive investor, any class of equity security of the subscription fulfillment or related businesses currently owned, directly or indirectly, by Hearst Corporation and Time Warner Inc., or from entering into lending or other financial arrangements with such businesses that do not result in Allied Capital Corporation acquiring control of such businesses. (c) As a material and significant inducement to Parent to enter into this Agreement, and for the consideration set forth in this Agreement, each of the Sellers agrees that, for a period of three years from and after the Closing Date, such Seller shall not, directly or indirectly, either individually, collectively or in combination, for itself or on behalf of any other Person, (i) directly or indirectly solicit the employment of any employee of the Company who is so employed on the date of this Agreement, or (ii) hire any person who on the date of this Agreement is an officer of the Company, unless such officer ceased to be employed by the Company for a period of at least three months prior to such hiring; provided, however, that the foregoing shall not apply if (A) the -------- ------- contact is a result of an officer's or employee's response to an employment advertisement directed at the general public, (B) the officer or employee is contacted by an independent recruiter but without specific instructions to solicit one or more of such officers or employees, or (C) the officer or employee initiates the contact with the Seller or its Affiliates. For the avoidance of doubt, the Parties acknowledge and agree that Allied Capital Corporation's ownership of an equity or debt investment in a Person, either as of the date hereof or in the future, shall not, in and of itself, violate the provisions of this Section 6.13(c). (d) (i) Each Seller acknowledges that is has acquired and may continue to acquire, certain confidential information (including, without limitation, procedures, memoranda, notes, records and customer lists, whether such information has been or is made, developed or compiled by such Seller or otherwise has been or is made available to such Seller) regarding the business and operations of the Company, its subsidiaries or affiliates. Each Seller acknowledges that such information is unique, valuable and considered to be proprietary by the Company. Such information is referred to in this Agreement as "Confidential Information," except that the following shall not be considered ------------------------- Confidential Information: (A) information released from confidential treatment by written consent of the Company and Parent, (B) information disclosed and made available to the general public under operation of law or that is otherwise in - 46 - the public domain through no act or failure to act on the part of any Seller, (C) information that was, at the time of receipt, otherwise known to the Seller without restrictions as to use or disclosure, (D) information that becomes known to the Seller from a source other than the Company, which source has no duty of confidentiality with respect to the information, and (E) information that is independently developed by the Seller without reliance on or access to any of the Company's Confidential Information. (ii) Each Seller agrees that all Confidential Information is and will remain the property of the Company, and that, from and after the date of this Agreement, such Seller will hold in the strictest confidence all Confidential Information and will not, directly or indirectly, duplicate, sell, use, lease, commercialize, disclose or otherwise divulge or transfer to any Person any portion of the Confidential Information or use any Confidential Information for such Seller's own benefit or profit or allow any Person, other than the Company, its authorized affiliates and their authorized employees, to use or otherwise gain access to any Confidential Information. (iii) In the event that any Seller or any of its Representatives is requested or required (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any Confidential Information, such Seller shall provide the Company with prompt written notice of any such request or requirement so that the Company may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Section 6.13. If, in the absence of a protective order or other remedy or the receipt of a written waiver by the Company, such Seller or any of its Representatives is nonetheless in the opinion of its counsel legally compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt or suffer other censure or penalty, such Seller or such Representative may, without liability hereunder, disclose to such tribunal only that portion of the Confidential Information which counsel advises such Seller or its Representative that it is legally required to disclose, provided that such Seller and its Representative shall exercise best efforts to preserve the confidentiality by cooperating with the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information by such tribunal. (iv) Each Seller shall return all Confidential Information and all copies thereof, including, without limitation, written and electronic copies, as well as summaries, notes, memoranda, plans, records, reports, computer tapes, printouts and software or other documents, materials or things containing Confidential Information to the Company promptly upon the written request of the Company for any reason and at any time and, if such Seller is an employee of the Company or its subsidiaries or affiliates, upon the termination of such employment; provided that each Seller and its Representatives shall be permitted to retain copies of any Confidential Information that is reasonably required to be retained for applicable financial, tax, regulatory, legal or other purposes. (e) Each of the Sellers acknowledges that the restrictions contained in this Section 6.13 applicable to such Seller, in light of the nature of the business in which Holdings and the Company are engaged, are reasonable and necessary to protect the legitimate interests of the Holdings and the Company (and their Affiliates, including, following Closing, Parent), and that any violation of these restrictions would result in irreparable injury to the Holdings and the Company (and their Affiliates, including, following Closing, Parent). Each of the Sellers therefore agrees that, in the event of such - 47 - Seller's violation of any of the restrictions applicable to such Seller, Holdings and the Company (and their Affiliates, including, following Closing, Parent) shall be entitled to seek from any court of competent jurisdiction: (i) preliminary and permanent injunctive relief against such Seller; (ii) damages from such Seller (including reasonable legal fees and other costs and expenses); and (iii) an equitable accounting of all compensation, commissions, earnings, profits and other benefits to such Seller arising from such violation; all of which rights shall be cumulative and in addition to any other rights and remedies to which Holdings and the Company (and their Affiliates, including, following Closing, Parent) may be entitled as set forth herein or as a matter of law. (f) Each of the Sellers agrees that if any portion of the restrictions contained in this Section 6.13 applicable to such Seller, or the application thereof, is construed to be invalid or unenforceable, the remainder of such restrictions or the application thereof shall not be affected and the remaining restrictions will have full force and effect without regard to the invalid or unenforceable portions. If any restriction is held to be unenforceable because of the area covered, the duration thereof or the scope thereof, each of the Sellers agrees that the court making such determination shall have the power to reduce the area and/or the duration, and/or limit the scope thereof, and the restriction shall then be enforceable in its reduced form. (g) If any Seller violates any restriction set forth in this Section 6.13 applicable to such Seller, the period of such violation (from the commencement of any such violation until such time as such violation shall be cured by such Seller) shall not count toward or be included in the restrictive period applicable to such Seller. ARTICLE VII CONDITIONS TO PARENT'S OBLIGATION TO CLOSE Parent's obligation to consummate the transactions contemplated herein shall be subject to the satisfaction or written waiver by Parent on or prior to the Closing Date, of each of the following conditions: SECTION 7.1 Representations and Warranties; Covenants. The representations ------------------------------ and warranties of Holdings and the Sellers, without giving any effect to any materiality qualifications therein, shall be true and correct in all respects on and as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, which need be true and correct only as of the specified date), except for such failures to be true and correct which (i) in the aggregate would not have a Material Adverse Effect (but subject to Section 7.4(a)), and (ii) would not have any material adverse effect on the ability of Holdings or any Seller to consummate the transactions contemplated hereby; provided that the representations and warranties set forth in Sections 3.1(a), 3.1(b), 3.2, 3.4 (solely with respect to Holdings' or the Company's Annualized Adjusted Net Revenues and Annualized Adjusted EBITDA for the period from August 9, 2005 to June 30, 2006) and 3.8(i) shall be true and correct in all material respects. Holdings and the Sellers shall have, and Holdings shall have caused the Company to have, performed in all material respects each of its respective agreements and covenants contained in or contemplated by this Agreement that are required - 48 - to be performed by it at or prior to the Closing pursuant to the terms hereof. For purposes of this Section 7.1, if (i) the Annualized Adjusted Net Revenues reflected on the Audit for the period from August 9, 2005 to June 30, 2006 are less than $48,194,500 or (ii) if the Annualized Adjusted EBITDA derived from the Audit for the period from August 9, 2005 to June 30, 2006 is less than $7,847,000, then the representations and warranties set forth in Section 3.4 shall not be considered true and correct in all material respects for purposes of this Section 7.1. SECTION 7.2 Absence of Legal Proceedings. At the Closing Date, there shall ---------------------------- be no injunction, restraining order or decree of any nature of any court or governmental agency or body of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated herein, and no Action shall be instituted, pending or threatened in writing by any Governmental Authority that seeks or would seek to restrain, prohibit or materially change the terms of or obtain damages or other relief (which damages or relief if granted would result in a material adverse effect on Parent or Holdings) in connection with this Agreement or any of the transactions contemplated hereby. SECTION 7.3 Consents and Terminations. Holdings shall have procured the -------------------------- third party consents and terminated the agreements, in each case as set forth in Section 1.3(b)(ix) of the Disclosure Schedule. SECTION 7.4 Additional Conditions. --------------------- (a) There shall not have occurred any Material Adverse Effect; provided, however, that notwithstanding anything to the contrary set forth herein, no material adverse effect on the business, properties, assets, financial condition or results of operations of the Company, taken as a whole, arising due to events first occurring between the MAE Change Date (as defined below) and the date of the Extension Notice, if any, shall be considered a Material Adverse Effect for purposes of this Section 7.4(a) or Section 7.1, other than to the extent caused by the action or failure to act of Holdings or any Seller (excluding actions taken at the direction or with the prior written consent of Parent). For purposes of this Agreement, "MAE Change Date" means the later of (i) 31 days ----------------- after the date that Allied Capital Corporation completes its initial filing required pursuant to the HSR Act and (ii) five business days after Holdings' delivery of written notice to Parent (the "Closing Notice") certifying that (A) -------------- the conditions specified in Sections 7.1, 7.2, 7.3 and 7.4(a) and (b) hereof have been satisfied and (B) Holdings and Sellers are prepared, within five business days thereof, to satisfy the requirements of Sections 7.6 and 7.7 and take all other actions required in connection with the consummation of the transactions contemplated by this Agreement. (b) Holdings and Sellers shall not have taken any action, or failed to act, that shall have resulted, or could reasonably be expected to result, in a Material Adverse Effect (excluding actions taken at the direction or with the prior written consent of Parent). (c) A period of five business days shall have elapsed since Holdings shall have delivered the completed Audit to Parent. - 49 - SECTION 7.5 HSR Act. The applicable waiting periods, if any, under the HSR ------- Act (including any extension thereof) shall have expired or been terminated. SECTION 7.6 Deliverables. Pursuant to Sections 1.3(b) and 1.3(e) hereof, ------------ Holdings and each Seller, respectively, shall have delivered or caused to be delivered all of the deliverables required by Sections 1.3(b) and 1.3(e), as applicable. The Escrow Agent shall have delivered to Parent an executed counterpart to the Escrow Agreement. SECTION 7.7 Restructuring Transactions. The Restructuring Transactions --------------------------- shall have been consummated. ARTICLE VIII CONDITIONS TO HOLDINGS' OBLIGATIONS TO CLOSE Holdings' obligations to consummate the transactions contemplated herein shall be subject to the satisfaction or written waiver, by Holdings on or prior to the Closing Date, of each of the following conditions: SECTION 8.1 Representations and Warranties; Covenants. The representations ------------------------------------------ and warranties of Parent and Merger Sub, without giving any effect to any materiality qualifications or limitations therein shall be true and correct in all respects as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except for representations and warranties made as of a specified date, which need be true and correct only as of the specified date), except for such failures to be true and correct which would not have a material adverse effect on Parent's and Merger Sub's ability to consummate the transactions contemplated by this Agreement. Parent and Merger Sub shall have performed in all material respects each of their respective agreements and covenants contained in or contemplated by this Agreement that are required to be performed by it at or prior to the Closing pursuant to the terms hereof. SECTION 8.2 Absence of Legal Proceedings. At the Closing Date, there shall ---------------------------- be no injunction, restraining order or decree of any nature of any court or governmental agency or body of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated herein, and no Action which seeks or would seek to restrain, prohibit or change the terms of or obtain damages or other relief in connection with this Agreement or any of the transactions contemplated hereby, shall have been instituted or threatened in writing by any Person other than a holder of Holdings Shares, SARs or Options, which Action, to the extent determinable, is reasonably likely to succeed on its merits and would likely have a Material Adverse Effect. SECTION 8.3 HSR Act. The applicable waiting periods, if any, under the HSR ------- Act (including any extension thereof) shall have expired or been terminated. - 50 - SECTION 8.4 Deliverables. Parent and Merger Sub shall have, pursuant to ------------ Sections 1.3(c) and (d) hereof, delivered all the deliverables required by Section 1.3(c) and (d) hereof. The Escrow Agent shall have delivered to Holdings an executed counterpart to the Escrow Agreement. ARTICLE IX TERMINATION SECTION 9.1 Termination. Notwithstanding anything herein to the contrary, ----------- this Agreement may be terminated at any time prior to the Closing by: (a) the mutual written consent of Holdings and Parent; (b) Parent in the event that any condition set forth in Article VII hereof shall not be satisfied and shall not be reasonably capable of being satisfied by the Termination Date (as defined below in this Section 9.1). (c) Holdings in the event that any condition set forth in Article VIII hereof shall not be satisfied and shall not be reasonably capable of being satisfied by the Termination Date; (d) Holdings if at any time at least 61 days after the date hereof, it delivers at least 30 days' prior written notice of termination to Parent, if at the time of such notice (i) the condition set forth in Sections 7.5 and 8.3 has not been satisfied, (ii) Holdings shall have delivered a Closing Notice more than six business days prior to the delivery of such written notice (which Closing Notice remains true and correct) and (iii) the other conditions to closing set forth in Sections 7.1 to 7.4 shall have been satisfied; provided -------- that a termination pursuant to this Section 9.1(d) will be ineffective if the condition specified in Sections 7.5 and 8.3 hereof is subsequently satisfied and Parent proceeds to consummate the transactions contemplated by this Agreement prior to expiration of such 30-day notice period; provided, however, that no party may terminate this Agreement pursuant to clause - -------- ------- (b) or (c) above if the failure of the applicable condition in Article VII or VIII, as the case may be, to be satisfied results from the willful and material breach of any covenant in this Agreement (i) by Holdings in the case of a termination by Holdings or (ii) by Parent in the case of a termination by Parent. For purposes of this Agreement, "Termination Date" means (A) 135 days ----------------- after the date hereof or (B) if Holdings has delivered written notice to Parent prior to 135 days after the date hereof electing to extend the Termination Date until the date specified in such notice (but no later than 225 days after the date hereof) (an "Extension Notice") and, at the time of such Extension Notice, ----------------- (x) the condition set forth in Sections 7.5 and 8.3 has not been satisfied, (y) Holdings shall have delivered a Closing Notice (which Closing Notice remains true and correct), and (z) the other conditions set forth in Sections 7.1 to 7.4 shall have been satisfied, then the date specified in such Extension Notice. SECTION 9.2 Procedure and Effect of Termination. In the event of --------------------------------------- termination of this Agreement and abandonment of the transactions contemplated hereby by the parties hereto pursuant to Section 9.1 hereof, written notice thereof shall be given by the party so terminating to the other parties and this - 51 - Agreement shall forthwith terminate and shall become null and void and of no further effect, and the transactions contemplated hereby shall be abandoned without further action by Holdings and Parent. If this Agreement is terminated pursuant to Section 9.1 hereof: (a) each party shall redeliver all documents, work papers and other materials of the other parties relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same, and all confidential information received by any party hereto with respect to the other party shall be treated in accordance with the Confidentiality Agreement pursuant to Section 6.2(b) hereof; (b) all filings, applications and other submissions made pursuant hereto shall, at the option of Holdings, and to the extent practicable, be withdrawn from the agency or other Person to which made; and (c) there shall be no liability or obligation hereunder on the part of the Sellers, the Company, Holdings, Parent or Merger Sub or any of their respective officers, managers, directors, employees, partners, Affiliates, controlling Persons, agents, advisors or Representatives, except that (i) Holdings or Parent, as the case may be, may have liability to the other party if the basis of termination is a willful, material breach by Holdings or Parent, as the case may be, of one or more of the provisions of this Agreement, including but not limited to liability for the non-breaching party's expenses related to the transaction including fees and expenses of counsel, accountants or other professionals retained for the purpose of considering the transaction, (ii) Parent shall reimburse Holdings for the cost of conducting the Audit and (iii) that the obligations provided for in Section 6.2(b), Section 10.2 and, except as modified by clause (i), Section 11.5 hereof shall survive any such termination. ARTICLE X INDEMNIFICATION SECTION 10.1 Survival. -------- (a) Except as otherwise provided in Section 10.1(b) below, the representations and warranties made herein shall survive the Closing and continue in full force and effect for a period of eighteen months thereafter, it being the intention of the parties to shorten the statute of limitations with respect to any claim relating to a breach or inaccuracy of such representations and warranties. (b) The representations and warranties contained in Sections 3.1 (Corporate Organization and Authority), 3.2 (Capitalization), 3.7 (Taxes), 3.18 (Certain Fees), 4.1 (Authority), 4.2 (Holdings Share Ownership), 4.4 (Certain Fees), 5.1 (Corporate Organization and Authority) and 5.4 (Certain Fees) hereof shall survive the Closing and continue in full force and effect until thirty (30) days following the expiration of the applicable statute of limitations, or if no statute of limitation is applicable, indefinitely. The representations and warranties contained in Sections 3.9 (Environmental Matters) and Section 3.19(i) - 52 - (Title to Assets) shall survive the Closing and continue in full force and effect for a period of four (4) years following the Closing Date. (c) Notwithstanding any other provision of this Section 10.1 to the contrary, any representation or warranty in respect of which indemnification may be sought under Section 10.2 or Section 10.3 hereof and the indemnity with respect thereto, shall survive the time at which it would otherwise terminate pursuant to this Section 10.1 if notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity is sought prior to such time. Any agreements of the parties requiring performance under this Agreement prior to the Closing shall not survive beyond the Closing Date. SECTION 10.2 Indemnification Provisions for Benefit of Parent. ------------------------------------------------ (a) Other than in respect of Taxes and Sections 10.2(b)(ii) and 10.2(b)(iii), which shall be governed by Section 10.2(b) hereof, in the event that Holdings or the Sellers breach any of their representations or warranties under this Agreement or any other agreement or instrument executed or delivered in connection herewith or pursuant hereto or any such representation or warranty is inaccurate or breaches or defaults in the performance of any of their covenants under this Agreement or any other agreement or instrument executed or delivered in connection herewith or pursuant hereto (each, a "Holdings Breach") --------------- and Sellers' Representative (as defined in Section 11.16 hereof) receives a written claim for indemnification from Parent within the survival period set forth in Section 10.1 hereof, then each Seller, severally and not jointly, agrees to indemnify Parent from and against such Seller's pro rata share on Fully Diluted Basis of any Adverse Consequences (as defined below) caused by any Holdings Breach; provided, however, that the Sellers shall not have any -------- ------- obligation to indemnify Parent from and against any Adverse Consequences caused by a Holdings Breach (i) until Parent has suffered aggregate Adverse Consequences by reason of all such breaches in excess of $500,000 (such amount, the "Indemnification Basket") and until after such amount is reached; provided ----------------------- -------- that after such amount is reached, the Sellers shall indemnify Parent for $250,000 (or 50% of the Indemnification Basket) (except with respect to Indemnification for breaches of Sections 3.8(i), 3.18 or 4.4, for which the Sellers shall indemnify Parent from the "first dollar" of such breach without regard to the Indemnification Basket); provided that any Adverse Consequences -------- arising from or relating to fraud or willful misconduct shall not be subject to, or limited by the Indemnification Basket; or (ii) to the extent the Adverse Consequences Parent has suffered by reason of all such Holdings Breaches exceed $14,000,000 (such amount, the "Indemnification Cap") (after which point the -------------------- Sellers shall have no obligation to indemnify Parent from and against any further such Adverse Consequences resulting from any Holdings Breach); provided -------- that any Adverse Consequences arising from or relating to Section 3.8(i), Section 4.2 (Holdings Share Ownership) and fraud or willful misconduct shall not be subject to, or limited by the Indemnification Basket or the Indemnification Cap. For purposes of this Agreement, "Adverse Consequences" shall mean all --------------------- demands, charges, judgments, settlement payments, awards, orders, decrees, rulings, damages, dues, penalties, fines, costs, Liabilities, losses, fees and expenses, including, without limitation reasonable attorney's fees; provided -------- that, except as provided in Section 10.4, Adverse Consequences shall not include - ---- lost profits or consequential, punitive, treble or similar damages. - 53 - (b) Each Seller shall, severally but not jointly, be liable for, and hold Parent and the Surviving Company harmless from and against such Seller's pro rata share on a Fully Diluted Basis of (i) any Adverse Consequences relating to: (A) Taxes of Holdings or the Company, to the extent allocable (under the principles of Section 6.8(b) hereof) to a taxable period (or portion thereof) ending on or prior to the Closing Date except to the extent such Taxes are reflected as Current Liabilities on the Final Statement and used to calculate Working Capital; (B) any breach of the representations contained in Section 3.7 hereof; and (C) Taxes of any other Person for which Holdings, the Company or Parent may be held liable pursuant to any agreement or contract, whether written or unwritten, entered into by Holdings or the Company on or before the Closing Date, or as a transferee or successor, by contract or otherwise, (ii) any Adverse Consequences resulting from any termination that results from the Merger of either (A) the lease listed as Item 2 of Section 3.12 of the Disclosure Schedule or (B) the agreement with the client identified as "Client G" in Section 3.17 of the Disclosure Schedule and (iii) any fines, costs, fees and expenses arising out of the matter disclosed on Section 3.10(b) of the Disclosure Schedule. Furthermore, the Company shall not execute any Document (as defined in Section 3.10(b) of the Disclosure Schedule) that contains any material change from the Document previously presented to Parent without Parent's prior written consent, which consent shall not be unreasonably withheld. The obligations of each Seller under this Section 10.2(b) hereof shall not be subject to the Indemnification Basket or the Indemnification Cap. (c) Each Seller shall, severally but not jointly, be liable for and hold Parent and the Surviving Company harmless from and against such Seller's pro rata share on a Fully Diluted Basis of any Adverse Consequences relating to the termination of the agreements set forth in Section 1.3(b)(ix) of the Disclosure Schedule. (d) Any Adverse Consequences to which Parent is entitled to indemnification pursuant to this Section 10.2 shall be satisfied, to the extent possible, by release of funds held pursuant to the Escrow Agreement, a portion of which funds shall remain in escrow for 18 months following the Closing Date, subject to the terms of the Escrow Agreement. Any additional amounts to which Parent is entitled to indemnification pursuant to this Section 10.2 shall be satisfied by the Sellers, pro rata on a Fully Diluted Basis. (e) If Parent asserts a claim for indemnification under this Article X for all or part of which Holdings or the Company would be entitled to indemnification under the Prior Agreements, then the Parent will, promptly upon request of the Sellers' Representative, and will cause the Surviving Company and the Company to, assign to Sellers the rights of Holdings and the Company to such indemnification under the Prior Agreements and, subject to satisfaction in full of the claim asserted by Parent, any rights to receive amounts escrowed with respect thereto pursuant to the Prior Agreements, which rights Sellers shall be entitled to pursue at their sole risk and expense with respect to the costs and expenses (including attorney's fees) of pursuing such claim and claims and Adverse Consequences resulting from any counterclaims or demands by the parties to such litigation. If Holdings and the Company are not permitted to assign such claim then they will permit Sellers to proceed in the name of Holdings and the Company, at the same risk and expense to Sellers described above. Parent shall use its reasonable efforts to notify the Sellers' Representative in writing of any claim for indemnification for all or part of which the Surviving Company or the Company would be entitled to indemnification under the Prior Agreements. - 54 - SECTION 10.3 Indemnification Provisions for Benefit of Sellers. In the --------------------------------------------------- event Parent or Merger Sub breach any of their representations or warranties under this Agreement or any such representation or warranty is inaccurate or Parent or Merger Sub breaches or defaults in the performance of any of their covenants under this Agreement or any agreement or instrument executed in connection herewith (each, a "Parent Breach") and Parent receives a written -------------- claim for indemnification from Sellers' Representative (as defined in Section 11.16 hereof) within the survival period set forth in Section 10.1 hereof, then Parent agrees to indemnify each Seller, on a pro rata Fully Diluted Basis, against any Adverse Consequences caused by Parent Breach; provided, -------- however, that Parent shall not have any obligation to indemnify the Sellers from - ------- and against any Adverse Consequences caused by a Parent Breach (i) until the Sellers have suffered aggregate Adverse Consequences by reason of all such Parent Breaches in excess of the Indemnification Basket and until after such amount is reached; provided that after such amount is reached, Parent shall -------- indemnify Seller for $250,000 (or 50% of the Indemnification Basket); provided -------- further that any Adverse Consequences arising from or relating to fraud or - ------- willful misconduct shall not be subject to, or limited by the Indemnification Basket or (ii) to the extent the Adverse Consequences the Sellers have suffered by reason of all such Parent Breaches exceed the Indemnification Cap (after which point Parent shall have no obligation to indemnify Holdings from and against any further such Adverse Consequences resulting from any Parent Breach); provided that any Adverse Consequences arising from or relating to fraud or - -------- willful misconduct shall not be subject to, or limited by the Indemnification Cap. SECTION 10.4 Special Indemnification Provisions for Benefit of Parent. ----------------------------------------------------------- Sellers shall or shall cause Holdings to seek to obtain the consent to the transactions contemplated hereby of the landlord at the 6 Commerce Boulevard parcel of Leased Real Property (it being understood and agreed that in connection with seeking such consent, Parent shall, if requested, offer to guarantee the obligations under the lease); provided, however, that in the event -------- ------- that Sellers do not deliver such consent to Parent, each Seller severally agrees to indemnify and hold harmless Parent and the Surviving Company from and against such Seller's pro rata share on a Fully Diluted Basis of any and all Adverse Consequences caused by or arising from the failure to obtain such consent. By way of example and not limitation, Adverse Consequences shall include but not be limited to (a) costs, charges and expenses incurred by the Company as a result of the 6 Commerce Boulevard landlord's termination of the subject lease as a result of consummation of the transaction described in this Agreement; (b) costs, fees and expenses arising out of, resulting from or incurred in connection with any attempted termination or actual termination of the 6 Commerce Boulevard lease by the landlord thereunder as a result of consummation of the transaction set forth in this Agreement, and (c) any damages due the 6 Commerce Boulevard landlord arising out of, related to or resulting from said landlord's termination of the 6 Commerce Boulevard lease as a result of consummation of the transaction described in this Agreement. The indemnification obligations of each Seller under this Section 10.4 shall not be subject to the Indemnification Basket or the Indemnification Cap. SECTION 10.5 Exclusive Remedy. In the absence of fraud or intentional ----------------- misconduct, Parent, the Sellers and Holdings acknowledge and agree that following the Closing the foregoing indemnification provisions in this Article X shall be the exclusive remedy of Parent, the Sellers and Holdings with respect to the transactions contemplated by this Agreement. - 55 - SECTION 10.6 Manner of Payment. Any indemnification payments pursuant to ----------------- this Article X shall be effected by wire transfer of immediately available funds to an account designated by the indemnified Person within ten days after the final determination thereof. ARTICLE XI MISCELLANEOUS SECTION 11.1 Certain Definitions. For purposes of this Agreement: ------------------- (a) "Material Adverse Effect" shall mean a material adverse effect on the ------------------------ business, properties, assets, financial condition or results of operations of the Company, taken as a whole, except to the extent such adverse effect results from, (i) general economic, financial or market conditions in any of the geographic areas in which the Company operates; (ii) conditions caused by acts of terrorism or war (whether or not declared); (iii) conditions or circumstances generally affecting the businesses or industries, as a whole, in which the Company operates; (iv) the entering into of this Agreement with Parent; (v) any changes in applicable Laws, ordinances, rules and regulations of any federal, state, local or foreign governmental authority or the official interpretations thereof; or (vi) any changes in GAAP. (b) "Knowledge of Holdings" shall mean the actual knowledge of the ----------------------- individuals set forth in Section 11.1 of the Disclosure Schedule. SECTION 11.2 Notices. Any notices, demands, requests, consents or approvals ------- required or permitted by this Agreement must be in writing and addressed to the other party at the address set forth below, or at such other address as either party may designate from time to time in writing in accordance with this Section: If to Parent or Merger Sub, to: c/o Amrep Corporation 300 Alexander Park, Suite 204 Princeton, NJ 08540 Attn: Irving Needleman, Esq. Telecopy: (609) 716-8220 With copy to (which copy shall not constitute notice): Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103-6996 Attn: F. Douglas Raymond, III, Esq. Telecopy: (215) 988-2757 - 56 - If to Holdings, to: 11 Commerce Boulevard Palm Coast, FL 32164 Attn: John Meneough, CEO Telecopy: (386) 446-3635 If to the Sellers' Representative, to: Allied Capital Corporation 1919 Pennsylvania Avenue, NW Washington, D.C. 20006-3434 Attn: George Ferris Telecopy: (202) 721-6101 With copies, in the case of notice to Holdings or the Sellers' Representative, to (which copies shall not constitute notice): DLA Piper US LLP 1200 Nineteenth Street, NW Washington, D.C. 20036-2412 Attn: Anthony H. Rickert, Esq. Telecopy: (202) 223-2085 If to the Sellers, to the address for such Seller set forth in a written notice from the Sellers' Representative delivered to Parent on or prior to the date hereof. Notice is deemed given (a) when delivered personally to the recipient, (b) when sent by facsimile with a copy of such facsimile sent to the recipient by reputable overnight courier service (charges prepaid) on the same day, (c) five days after deposit in the U.S. mail, mailed by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after being sent to the recipient by reputable overnight courier service (charges prepaid). SECTION 11.3 Interpretation. When a reference is made to an Article, -------------- Section or Schedule, such reference shall be to an Article, Section or Schedule of or to this Agreement unless otherwise indicated. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. SECTION 11.4 Amendments, Modification and Waiver. ------------------------------------ (a) This Agreement, and the terms and provisions hereof, may not be modified, waived or amended except by an instrument or instruments in writing - 57 - signed by the party against whom enforcement of any such modification or amendment is sought (or, in the case of a waiver, by the intended beneficiary of the waived term or provision). (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Law. SECTION 11.5 Expenses. -------- (a) Except as otherwise provided herein, each party shall pay its own out-of-pocket costs and expenses incurred in connection with this Agreement; it being understood that all such expenses incurred by Holdings or the Company prior to the Closing Date which have not been paid as of the Closing and are not reflected in the Closing Statement shall be borne by the Sellers, pro rata on a Fully Diluted Basis. (b) Unless otherwise indicated, all dollar amounts stated in this Agreement are stated in U.S. currency, and all payments required under this Agreement shall be paid in U.S. currency in immediately available funds. SECTION 11.6 Release. Effective as of the Closing Date, each Seller, for ------- and on behalf of such Seller and its successors and assigns, as applicable (collectively, the "Seller Releasing Parties"), hereby irrevocably and --------------------------- unconditionally releases and forever discharges Holdings and the Company and each of their respective directors, officers, stockholders, agents, past or present employees, representatives, attorneys, predecessors, successors, parents, affiliates, insurers, heirs, executors, administrators and assigns, and all persons acting by, through, under or in concert with any of them, including, without limitation, Parent (collectively, the "Released Parties"), of and from ---------------- any and all actions, causes of action, suits, debts, charges and expenses (including attorneys' fees and costs), of any nature whatsoever, whether arising out of federal, state or local statute, rule or ordinance and any other claims in law or equity, whether asserted or unasserted, known or unknown, fixed or contingent, direct or indirect (collectively, the "Seller Claims"), which the ------------- Seller Releasing Parties ever had or now has, or hereafter may have against the Released Parties, or any of them, arising from any event or occurrence on or before the Closing Date, other than employment-related claims or claims arising with respect to this Agreement or any other agreement entered into by the Seller Releasing Parties upon or in connection with the Closing. For the sake of clarity, from and after the Closing, Sellers shall have no claims or rights to indemnity or contribution from Company or the Surviving Company with respect to any inaccuracy in or breach of any representation, warranty or covenant of Company or the Holdings made or to be performed prior to the Effective Time. SECTION 11.7 Successors and Assigns; Binding Effect. Neither this Agreement -------------------------------------- nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, including, without limitation, by operation of law, by any party hereto without the prior written consent of the other parties hereto. Subject to the preceding sentence and notwithstanding anything to the contrary, this Agreement and all of the provisions hereof shall be binding upon and shall - 58 - inure to the benefit of the parties hereto and their respective successors and permitted assigns. SECTION 11.8 Governing Law. This Agreement shall be governed by and -------------- construed in accordance with the Laws of the State of Delaware (regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof) as to all matters, including, but not limited to, matters of validity, construction, effect, performance and remedies. SECTION 11.9 Jurisdiction; Forum. ------------------- (a) By the execution and delivery of this Agreement, Parent, the Sellers, Holdings and the Company submit to the personal jurisdiction of any state or federal court in the State of Delaware in any suit or proceeding arising out of or relating to this Agreement. (b) The parties hereto agree that the appropriate and exclusive forum for any disputes between any of the parties hereto arising out of this Agreement or the transactions contemplated hereby shall be in any state or federal court in the State of Delaware. The parties hereto further agree that the parties will not bring suit with respect to any disputes arising out of this Agreement or the transactions contemplated hereby in any court or jurisdiction other than the above specified courts; provided, however, that the foregoing shall not limit -------- ------- the rights of the parties to obtain execution of judgment in any other jurisdiction. The parties hereto further agree, to the extent permitted by Law, that final and unappealable judgment against a party in any action or proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and amount of such judgment. SECTION 11.10 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provision of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated herein is not affected in any manner materially adverse to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced and so long as the effect of such determination does not affect the economic or legal substance of the transactions contemplated herein in any manner materially adverse to any party hereto, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner. SECTION 11.11 Third Party Beneficiaries. Nothing in this Agreement, express ------------------------- or implied, is intended or shall be construed to create any third party beneficiaries. SECTION 11.12 Schedules; Materiality. ---------------------- (a) Disclosure of any fact or item in any section of the Disclosure Schedule referenced by a particular paragraph or section in this Agreement, shall, should the existence of the fact or item or its contents be readily apparent to be relevant to and obviously related to any other paragraph or section, be deemed to be disclosed with respect to that other paragraph or section whether or not an explicit cross-reference appears. - 59 - (b) Certain of the representations and warranties set forth in this Agreement contemplate that there will be included in the Disclosure Schedule information that might be "material" or have a "material adverse effect." The Company, Holdings, the Sellers or Parent may elect to include in such schedules items that are not material or are not likely to have a "material adverse effect," and, in order to avoid any misunderstanding, any such inclusion shall not be deemed to be an acknowledgment or representation that such items are material or would have a "material adverse effect," to establish any standard of materiality or "material adverse effect," or to define further the meaning of such terms for purposes of this Agreement. (c) Any and all references in this Agreement to information or matters that might be "material" to or have a "material adverse effect" on Holdings shall be deemed to also refer to any information or matters that might be "material" to or have a "material adverse effect" on the Company. Any and all references in this Agreement to information or matters that might be "material" to or have a "material adverse effect" on the Company shall be deemed to also refer to any information or matters that might be "material" to or have a "material adverse effect" on Holdings. SECTION 11.13 Entire Agreement. This Agreement, the Escrow Agreement and ----------------- the Confidentiality Agreement, including any exhibits or schedules to such agreements, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all other prior agreements or understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof. The only representations and warranties made by the parties hereto with respect to the subject matter hereof are the representations and warranties contained in or made pursuant to this Agreement. SECTION 11.14 Counterparts; Facsimile Delivery. This Agreement may be ---------------------------------- signed in any number of counterparts, each of which shall be deemed an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. For purposes of this Agreement, a document (or signature page thereto) signed and transmitted by facsimile machine, telecopier or electronic mail is to be treated as an original document. The signature of any party thereon, for purposes hereof, is to be considered as an original signature, and the document transmitted is to be considered to have the same binding effect as an original signature on an original document. At the request of any party, any facsimile, telecopy or scanned document is to be re-executed in original form by the parties who executed the facsimile, telecopy or scanned document. No party may raise the use of a facsimile machine, telecopier or electronic mail or the fact that any signature was transmitted through the use of a facsimile, telecopier or electronic mail as a defense to the enforcement of this Agreement or any amendment or other document executed in compliance with this Agreement. SECTION 11.15 Specific Performance. -------------------- (a) Holdings acknowledges that the Company's business is unique and recognizes and affirms that in the event of a breach of this Agreement by Holdings, money damages may be inadequate and Parent may have no adequate remedy at law. Accordingly, Holdings agrees that Parent shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and Holdings' obligations hereunder not only by an action or actions for - 60 - damages but also by an action or actions for specific performance, injunctive and/or other equitable relief. (b) Parent acknowledges that the Company's business is unique and recognizes and affirms that in the event of a breach of this Agreement by Parent, money damages may be inadequate and Holdings may have no adequate remedy at law. Accordingly, Parent agrees that Holdings and the Company shall have the right, in addition to any other rights and remedies existing in their favor, to enforce their rights and Parent's obligations hereunder not only by an action or actions for damages but also by an action or actions for specific performance, injunctive and/or other equitable relief. SECTION 11.16 Sellers' Representative. Each Seller hereby authorizes, ------------------------ directs and appoints Allied Capital Corporation to act as sole and exclusive agent, attorney-in-fact and representative (the "Sellers' Representative") and ------------------------ authorizes and directs the Sellers' Representative to (i) take any and all actions (including, without limitation, executing and delivering any documents, and any amendments of waivers thereto, incurring any costs and expenses on behalf of the Sellers and making any and all determinations) which may be required or permitted by this Agreement or the Escrow Agreement to be taken by the Sellers, including, without limitation, any determinations with respect to the decision whether to dispute or settle upon the calculation of Working Capital as set forth on the Closing Statement pursuant to Section 2.4 hereof, any determination as to Tax matters, any claim for or settlement with respect to indemnification pursuant to Section 10.2 hereof or the release of any portion of the Escrow Amount pursuant to the Escrow Agreement; (ii) exercise such other rights, power and authority, as are authorized, delegated and granted to the Sellers' Representative pursuant to this Agreement or the Escrow Agreement; and (iii) exercise such rights, power and authority as are incidental to the foregoing. Any such actions taken, exercises of rights, power or authority, and any decision or determination made by the Sellers' Representative consistent therewith, shall be absolutely and irrevocably binding on each Seller as if such Seller personally had taken such action, exercised such rights, power or authority or made such decision or determination in such Seller's capacity. Each Seller agrees that the Sellers' Representative shall not be liable for any actions taken or omitted to be taken under or in connection with this Agreement, the Escrow Agreement or the transactions contemplated hereby or thereby, except for such actions taken or omitted to be taken resulting from the Sellers' Representative's willful misconduct or gross negligence. Each Seller hereby releases and forever discharges Sellers' Representative of and from any and all actions, other than actions resulting from Sellers' Representative's willful misconduct or gross negligence, and other obligations of whatever kind, known or unknown, arising from or related to actions taken by Sellers' Representative on behalf of such Seller pursuant to this Agreement or the Escrow Agreement. Notwithstanding anything to the contrary in this Section 11.16, nothing in this Section 11.16 shall obligate Allied Capital Corporation to act as sole and exclusive agent, attorney-in-fact and representative on behalf of the Sellers. In the event that Allied Capital Corporation chooses not to act as Sellers' Representative as to any issue relating to the transactions contemplated by this Agreement, Allied Capital Corporation shall provide written notice to all Sellers of such decision. Allied Capital Corporation's decision to refrain from acting as Sellers' Representative as to any issue shall in no way affect its authority to act as Sellers' Representative as to any other matter within the grant of authority set forth in this Section 11.16. If Allied Capital Corporation decides to refrain from acting as Seller's Representative in connection with any issue as set forth in this Section 11.16, any party hereto - 61 - that has received notice of such decision that is required to give any notice to or take any other action with respect to the Seller's Representative shall be deemed to have satisfied such obligation by giving such notice or taking such action with respect to each Seller at the last known address for each Seller provided to such party. ARTICLE XII GUARANTEE SECTION 12.1 Publico Guarantee. In consideration of the transactions ------------------ contemplated by this Agreement, Publico hereby unconditionally guarantees to Holdings that, in the event that Parent fails to fully pay the Merger Consideration when due in accordance with the terms of this Agreement, Publico will pay the portion of the Merger Consideration not paid by Parent. - 62 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized managers or officers, as the case may be, as of the date and year first above written. PALM COAST DATA HOLDCO, INC. By: /s/ John Meneough ----------------------------- Name: John Meneough Title: President and CEO PALM COAST DATA, LLC By: /s/ John Meneough ----------------------------- Name: John Meneough Title: President and CEO KABLE MEDIA SERVICES, INC. By: /s/ Michael P. Duloc ----------------------------- Name: Michael P. Duloc Title: President GLEN GARRY ACQUISITION, INC. By: /s/ Michael P. Duloc ----------------------------- Name: Michael P. Duloc Title: President Solely for the purposes of Section 12.1 of this Agreement: AMREP CORPORATION By: /s/ Peter M. Pizza ----------------------------- Name: Peter M. Pizza Title: Vice President SELLERS Each Seller hereby approves and adopts this Agreement and the Merger, as evidenced by his, her or its signature below: /s/ Brian Martin ----------------------------- Brian Martin /s/ Danielle Clymer ----------------------------- Danielle Clymer /s/ James Patterson ----------------------------- James Patterson /s/ Jill Garrison ----------------------------- Jill Garrison /s/ John Meneough ----------------------------- John Meneough /s/ Lawrence Pieart ----------------------------- Lawrence Pieart /s/ Lynn Lawson ----------------------------- Lynn Lawson /s/ Michael Speichinger ----------------------------- Michael Speichinger /s/ Mike Fox ----------------------------- Mike Fox /s/ Neil Gordon ----------------------------- Neil Gordon /s/ Peter Beaudet ----------------------------- Peter Beaudet /s/ Richard Hovey ----------------------------- Rich Hovey /s/ Robert Elkin ----------------------------- Robert Elkin /s/ Russell Sanders ----------------------------- Russell Sanders ALLIED CAPITAL CORPORATION By: /s/ George Ferris ----------------------------- Name: George Ferris Title: Principal EX-10 3 axr8k011707exh101.txt Exhibit 10.1 SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of January 16, 2007 (the "Agreement"), is executed by and among KABLE MEDIA SERVICES, INC., a Delaware corporation ("KMS"), KABLE NEWS COMPANY, INC., an Illinois corporation ("KNC"), KABLE DISTRIBUTION SERVICES, INC., a Delaware corporation ("KDS"), KABLE NEWS EXPORT, LTD., a Delaware corporation ("KEXP"), KABLE NEWS INTERNATIONAL, INC., a Delaware corporation ("KINT"), KABLE FULFILLMENT SERVICES, INC., a Delaware corporation ("KFS"), KABLE FULFILLMENT SERVICES OF OHIO, INC., a Delaware corporation ("KFSO"), PALM COAST DATA HOLDCO, INC., a Delaware corporation ("PCD"), and PALM COAST DATA, LLC a Delaware limited liability company ("PCD LLC") (collectively, the "Borrowers"), and LASALLE BANK NATIONAL ASSOCIATION, a national banking association (the "Lender"), whose address is 135 South LaSalle Street, Chicago, Illinois 60603. R E C I T A L S: - - - - - - - - A. The Lender and KNC, KDS, KEXP, KINT, KFS and KFSO are parties to Amended and Restated Loan and Security Agreement dated as of April 28, 2005, as amended by First Amendment to Amended and Restated Loan and Security Agreement dated April 27, 2006 and as amended, modified or supplemented from time to time (the "Existing Loan Agreement") and other agreements dated as of April 28, 2005. B. The Borrowers have applied for a joint and several (i) revolving credit facility from the Lender consisting of a revolving credit loan and letters of credit in an aggregate principal amount of up to $35,000,000.00 to be used, in part, to fund a portion of the acquisition by KMS of PCD and its subsidiary, PCD, LLC and for working capital needs, (ii) secured term loan of $3,036,000.00, (iii) a capital expenditure line of credit from the Lender in an amount of up to $1,500,000.00 to finance the cost of new Equipment and (iv) a revolving credit loan in an amount not to exceed the lesser of (A) $10,000,000.00 and (B) the Bauer Borrowing Base. C. The Borrowers have requested that the Lender amend and restate the Existing Loan Agreement to (i) cancel the existing credit facilities, (ii) consolidate, in part, the revolving credit facilities and certain existing term debt and (iii) add KMS, PCD and PCD, LLC as additional Borrowers. D. The Lender is willing to do the same on the terms and subject to the conditions contained herein and in the other agreements, documents and instruments contemplated under the terms of this Agreement. NOW THEREFORE, in consideration of the premises, and the mutual covenants and agreements set forth herein, the Borrowers and the Lender agree as follows: A G R E E M E N T S: Section 1. DEFINITIONS. ----------- 1.1 Defined Terms. For the purposes of this Agreement, the following -------------- capitalized words and phrases shall have the meanings set forth below. "Account Debtor" shall mean any Person who is and/or may become obligated --------------- to any of the Borrowers under or on account of any of the Accounts. "Accounts" shall mean trade accounts receivable of any of the Borrowers -------- arising out of the bona fide sale of goods and/or performance of services in the ordinary course of such Borrower's business which have been invoiced by such Borrower. "Acquisition" shall mean any transaction or series of related transactions ----------- for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of all or substantially all of any business or division of a Person, (b) the acquisition of in excess of 50% of the Capital Securities of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is already a Subsidiary). "Affiliate" of any Person shall mean (a) any other Person which, directly --------- or indirectly, controls or is controlled by or is under common control with such Person, (b) any officer or director of such Person, and (c) with respect to the Lender, any entity administered or managed by the Lender, or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing in commercial loans. A Person shall be deemed to be "controlled by" any other Person if such Person possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such Person whether by contract, ownership of voting securities, membership interests or otherwise. "Applicable Margin" shall mean, for any day, the rate per annum added to ------------------ LIBOR or Fixed LIBOR to determine the Facility A Interest Rate, Facility C Interest Rate and Facility D Interest Rate as determined by the ratio of average daily Senior Debt of the Borrowers for the prior fiscal quarter to EBITDA for the prior twelve months as set forth below opposite the level (the "Level") then in effect; it being understood that the Applicable Margin for (i) LIBOR Loans and Fixed LIBOR Loans shall be the percentage set forth under the column "LIBOR", (ii) Prime Rate Loans shall be the percentage set forth under the column "Prime", and (iii) the Non-Utilization Fee Rate shall be the percentage set forth under the column "Non-Use Fee": 2 - ------------- -------------------------------------- ----------------------- ---------------------- ------------------ Ratio of Average Daily Spread over: Spread over: Non-Use Fee ---------------------- Level Senior Debt/TTM EBITDA LIBOR Prime (Revolvers A - ----- ---------------------- ----- ----- ------------ and D) ------ - ------------- -------------------------------------- ----------------------- ---------------------- ------------------ I > 2.25 to 1 250 bps 0 bps 25 bps - ------------- -------------------------------------- ----------------------- ---------------------- ------------------ II > 1.50 to 1 and < 2.25 to 1 225 bps 0 bps 25 bps - ------------- -------------------------------------- ----------------------- ---------------------- ------------------ III > 1.00 to 1 and < 1.50 to 1 200 bps 0 bps 25 bps - ------------- -------------------------------------- ----------------------- ---------------------- ------------------ IV > .50 to 1 and < 1.00 to 1 175 bps 0 bps 25 bps - ------------- -------------------------------------- ----------------------- ---------------------- ------------------ V < .50 to 1 150 bps 0 bps 25 bps - ------------- -------------------------------------- ----------------------- ---------------------- ------------------
provided that until receipt of the January 31, 2007 financial statements and compliance certificate, the applicable interest rate margins shall be those corresponding to Level III. "Asset Disposition" shall mean the sale, lease, assignment or other ------------------ transfer for value (each a "Disposition") by the Borrowers to any Person (other than any other Borrower or any Subsidiary that becomes a Borrower) of any asset or right of the Borrowers (including, the loss, destruction or damage of any thereof or any actual or threatened (in writing to the Borrowers) condemnation, confiscation, requisition, seizure or taking thereof), other than (a) the Disposition of any asset which is to be replaced, and is in fact replaced, within one hundred eighty (180) days with another asset performing the same or a similar function unless Borrowers reasonably decide they no longer need it for the continued operation of their business, (b) the sale or lease of Inventory in the ordinary course of business, (c) leases and licenses in the ordinary course of business, (d) Investments permitted under this Agreement, (e) use of cash in the ordinary course of business, (f) Restricted Payments permitted under this Agreement and (g) other Dispositions in any fiscal year the net proceeds of which do not in the aggregate exceed One Million Dollars ($1,000,000) provided, that the Borrowers may exceed such limit upon prior receipt of written consent thereto from the Lender. "Bankruptcy Code" shall mean the United States Bankruptcy Code, as now ---------------- existing or hereafter amended. "Bauer" shall mean Heinrich Bauer Verlag Beteilgungs GMBH, a German ----- corporation authorized to do business in New Jersey. "Bauer Accounts" shall mean all accounts receivable of KDS from wholesalers -------------- or other direct customers of KDS representing a right to payment of a monetary obligation as shown on KDS' statements to such wholesalers or other customers arising solely from the distribution, sale or other disposition by KDS of magazines provided by Bauer in connection with the Bauer Distribution Agreement. 3 "Bauer Borrowing Base" shall mean 40% of the unpaid amount of all otherwise -------------------- eligible Bauer Accounts (subject to the Bauer Sublimit Amount). "Bauer Distribution Agreement" shall mean the Distribution Agreement dated ----------------------------- as of January 3, 2006 between Bauer and KDS, as the same may be amended, supplemented or otherwise modified from time to time. "Bauer Event of Default" shall mean a material default as defined in the ----------------------- Bauer Distribution Agreement or other default by KDS under the Bauer Distribution Agreement if it becomes the basis of an Act of Enforcement (as defined in the Intercreditor Agreement). "Bauer Sublimit Amount" means a maximum advance under the Facility D Loan ----------------------- for Bauer Accounts of $10,000,000. "Borrowing Base" shall mean an amount equal to the lesser of (i) --------------- $35,000,000 and (ii) the total of (a) 85% of the unpaid amount (net of such reserves and allowances as the Lender deems necessary in its reasonable discretion) of all Eligible Domestic Accounts plus (b) 60% of the unpaid amount (net of such reserves and allowances as the Lender deems necessary in its reasonable discretion) of all Eligible Foreign Accounts (subject to a maximum advance of US$3,000,000). Lender reserves the right to amend the initial advance rate of the Borrowing Base for PCD, LLC Accounts within thirty (30) days of the completion of the field audit examination of PCD, LLC. "Borrowing Base Certificate" shall mean a certificate to be signed by the --------------------------- Borrowers certifying to the accuracy of the Borrowing Base amount and the Bauer Borrowing Base, in form reasonably satisfactory to the Lender. "Business Day" shall mean any day other than a Saturday, Sunday or a legal ------------ holiday on which banks are authorized or required to be closed for the conduct of commercial banking business in Chicago, Illinois or solely to establish LIBOR, in London, England. "Canadian Subsidiary" shall mean Kable News Company of Canada, Ltd., a -------------------- corporation organized under the laws of the Province of Ontario, Canada. "Capital Expenditures" shall mean all expenditures (including Capitalized --------------------- Lease Obligations) which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of the Borrowers, but excluding expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed (i) from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or (ii) with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced. "Capital Lease" shall mean, as to any Person, a lease of any interest in -------------- any kind of property or asset, whether real, personal or mixed, or tangible or intangible, by such Person, as lessee, that is, or should be, in accordance with Financial Accounting Standards Board Statement No. 13, as amended from time to 4 time, or, if such statement is not then in effect, such statement of GAAP as may be applicable, recorded as a "capital lease" on the balance sheet of such Person prepared in accordance with GAAP. "Capital Securities" shall mean, with respect to any Person, all shares, ------------------- interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital, whether now outstanding or issued or acquired after the date hereof, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership or any other equivalent of such ownership interest. "Capitalized Lease Obligations" shall mean, as to any Person, all rental ------------------------------- obligations of such Person, as lessee under a Capital Lease which are or will be required to be capitalized on the balance sheet of such Person. "Cash Collateralize" shall mean to deliver cash collateral to the Lender, ------------------- to be held as cash collateral for outstanding Letters of Credit, pursuant to documentation reasonably satisfactory to the Lender. Derivatives of such term have corresponding meanings. "Cash Equivalent Investment" shall mean, at any time, (a) any evidence of --------------------------- Debt, maturing not more than one year after such time, issued or guaranteed by the United States government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case (unless issued by the Lender or its holding company) rated at least A-l by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or P-l by Moody's Investors Service, Inc., (c) any certificate of deposit, time deposit or banker's acceptance, maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by the Lender or its holding company (or by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000), (d) any repurchase agreement entered into with the Lender, or other commercial banking institution of the nature referred to in clause (c), which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above, and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of the Lender, or other commercial banking institution, thereunder, (e) money market accounts or mutual funds which invest primarily in assets satisfying the foregoing requirements, and (f) other short term liquid investments approved in writing by the Lender. "Change of Control" shall mean the occurrence of any of the following ------------------ events: (a) KMS shall cease to own and control, directly or indirectly, 100% of the outstanding Capital Securities of KDS; (b) KDS shall cease to, directly or indirectly, own and control 100% of each class of the outstanding Capital Securities of KEXP and KINT or of the surviving or resulting corporation in the event of their merger or consolidation; (c) KMS shall cease to own and control, directly or indirectly, 100% of the outstanding Capital Securities of KNC; (d) KNC shall cease to, directly or indirectly, own and control 100% of each class of the outstanding Capital Securities of KFS and KFSO or of the surviving or resulting corporation in the event of their merger or consolidation or (e) the granting by KMS, directly or indirectly, of a security interest in its ownership 5 interest in any of the Borrowers, which could result in a change in the identity of the individuals or entities in control of such Borrower. For the purpose hereof, the terms "control" or "controlling" shall mean the possession of the power to direct, or cause the direction of, the management and policies of the Borrower(s) by contract or voting of securities or ownership interests. "Collateral" shall mean, with respect to any Borrower, any and all of their ---------- respective property, of any kind or description, tangible or intangible, wheresoever located and whether now existing or hereafter arising or acquired, along with the products and proceeds therefrom, including, but not limited to, the following: (a) all property of, or for the account of, such Borrower now or hereafter coming into the possession, control or custody of, or in transit to, the Lender or any agent or bailee for the Lender or any parent, Affiliate or Subsidiary of the Lender or any participant with the Lender in the Loans (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise), including all earnings, dividends, interest, or other rights in connection therewith and the products and proceeds therefrom, including the proceeds of insurance thereon; and (b) the additional property of such Borrower, whether now existing or hereafter arising or acquired, and wherever now or hereafter located, together with all additions and accessions thereto, substitutions, betterments and replacements therefor, products and Proceeds therefrom, and all of such Borrower's books and records and recorded data relating thereto (regardless of the medium of recording or storage), together with all of the Borrower's right, title and interest in and to all computer software required to utilize, create, maintain and process any such records or data on electronic media, identified and set forth as follows: (i) All Accounts and all Goods whose sale, lease or other disposition by such Borrower has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, such Borrower, or rejected or refused by an Account Debtor; (ii) All Inventory, including, without limitation, raw materials, work-in-process and finished goods; (iii) All Goods (other than Inventory), including, without limitation, embedded software, Equipment, vehicles, furniture and Fixtures; (iv) All Software and computer programs; (v) All Securities, Investment Property, Financial Assets and Deposit Accounts; 6 (vi) All Chattel Paper, Electronic Chattel Paper, Instruments, Documents, Letter of Credit Rights, all proceeds of letters of credit, Health-Care-Insurance Receivables, Supporting Obligations, notes secured by real estate, Commercial Tort Claims, intellectual property including copyrights and General Intangibles, including Payment Intangibles; and (vii) All Proceeds (whether Cash Proceeds or Noncash Proceeds) of the foregoing property, including, without limitation, all insurance policies and proceeds of insurance payable by reason of loss or damage to the foregoing property, including unearned premiums, and of eminent domain or condemnation awards. Notwithstanding the foregoing, Collateral shall not include (A) any real property of any of the Borrowers, (B) any property of or for account of, or any Borrower's interest in the Capital Securities of any other Borrower or any Subsidiary of any Borrower, including the Canadian Subsidiary. "Collateral Access Agreement" shall mean an agreement in form and substance --------------------------- reasonably satisfactory to the Lender pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of Inventory or other property owned by the Borrowers, acknowledges the Liens of the Lender and waives any Liens held by such Person on such property, and, in the case of any such agreement with a mortgagee or lessor, permits the Lender reasonable access to and use of such real property following the occurrence and during the continuance of an Event of Default, to assemble, complete and sell any collateral stored or otherwise located thereon. "Compliance Certificate" shall mean a Compliance Certificate in ------------------------ substantially the form of Exhibit A. --------- "Contingent Liability" and "Contingent Liabilities" shall mean, ---------------------- ------------------------ respectively, each obligation and liability of the Borrowers and all such obligations and liabilities of the Borrowers incurred pursuant to any agreement, undertaking or arrangement by which the Borrower: (a) guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments in the course of collection), including without limitation, any indebtedness, dividend or other obligation which may be issued or incurred at some future time; (b) guarantees the payment of dividends or other distributions upon the shares or ownership interest of any other Person; (c) undertakes or agrees (whether contingently or otherwise): (i) to purchase, repurchase, or otherwise acquire any indebtedness, obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, 7 working capital or other financial condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agrees to lease property or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) to induce the issuance of, or in connection with the issuance of, any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise to assure a creditor against loss. The amount of any Contingent Liability shall (subject to any limitation set forth herein) be deemed to be the outstanding principal amount (or maximum permitted principal amount, if larger) of the indebtedness, obligation or other liability guaranteed or supported thereby. "Cost of Funds Rate" shall mean a fixed rate of interest based upon the ------------------- then-current cost of funds index of the Lender for a four-year period. "Debt" shall mean, as to any Person, without duplication, (a) all ---- indebtedness of such Person; (b) all borrowed money of such Person (including principal, interest, fees and charges), whether or not evidenced by bonds, debentures, notes or similar instruments; (c) all obligations to pay the deferred purchase price of property or services; (d) all obligations, contingent or otherwise, with respect to the maximum face amount of all letters of credit (whether or not drawn), bankers' acceptances and similar obligations issued for the account of such Person (including the Letters of Credit), and all unpaid drawings in respect of such letters of credit, bankers' acceptances and similar obligations; (e) all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person (provided, however, if such Person has not assumed or otherwise become liable in respect of such indebtedness, such indebtedness shall be deemed to be in an amount equal to fair market value of the property subject to such Lien at the time of determination); (f) the aggregate amount of all Capitalized Lease Obligations of such Person; (g) all Contingent Liabilities of such Person, whether or not reflected on its balance sheet; (h) all Hedging Obligations of such Person; (i) all Debt of any partnership of which such Person is a general partner unless it is non-recourse to the general partner; and (j) all monetary obligations of such Person under (i) a so-called synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property (other than an operating lease) creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). Notwithstanding the foregoing, Debt shall not include (A) trade payables and accrued expenses incurred by such Person in accordance with customary practices and in the ordinary course of business of such Person, or (B) accumulated other comprehensive loss with respect to any unpaid liabilities relating to any Employee Plan of any Borrower as would be shown on a consolidated balance sheet of the Borrowers prepared in accordance with GAAP. "Default Rate" shall mean a per annum rate of interest equal to the Prime ------------- Rate plus two percent (2.00%). "Depreciation" shall mean the total amounts added to depreciation, ------------ amortization, obsolescence, valuation and other proper reserves, as reflected on each of the Borrower's financial statements and determined in accordance with GAAP. 8 "EBITDA" shall mean, for any specified period, the sum of the following for ------ such period: (a) Net Income, plus (b) Interest Charges; plus (c) federal and state income taxes (including the Illinois replacement tax); plus (d) Depreciation; plus (e) non-cash management compensation expense; plus (f) all other non-cash charges, in each case to the extent included in determining Net Income for such period. For purposes of determining compliance with Section 10.3 of this Agreement as of the end of any fiscal quarter, EBITDA for the 12-month period ending at the end of any such fiscal quarter shall include on a pro-forma bases EBITDA of PCD for any portion of such 12-month period that is prior to the acquisition by KMS of PCD and PCD, LLC. For the purpose hereof, EBITDA of PCD for the 12-month period preceding such acquisition shall be deemed to be $7,000,000, accumulated ratably over such 12-month period. "Eligible Account" and "Eligible Accounts" shall mean each Account and all ---------------- ------------------ such Accounts (exclusive of sales, excise or other similar taxes) owing to any of the Borrowers which meets each of the following requirements: (a) it is genuine in all respects and has arisen in the ordinary course of the Borrower's business from (i) the performance of services by the Borrowers, which services have been fully performed, acknowledged and accepted by the Account Debtor or (ii) the sale, license, assignment or lease of Goods or Software by the Borrowers, including C.O.D. sales, which Goods have been completed in accordance with the Account Debtor's specifications (if any) and delivered to and accepted by the Account Debtor, and the Borrowers have possession of, or have delivered to the Lender at the Lender's request, shipping and delivery receipts evidencing such delivery; (b) it is subject to a perfected (except in the case of Eligible Foreign Accounts), first priority Lien in favor of the Lender and is not subject to any other assignment, claim or Lien; (c) it is the valid, legally enforceable and unconditional obligation of the Account Debtor with respect thereto, and is not subject to the fulfillment of any condition whatsoever or any counterclaim, credit (except as provided in subsection (h) of this definition), trade or volume discount, allowance, discount, rebate or adjustment by the Account Debtor with respect thereto, or to any claim by such Account Debtor denying liability thereunder in whole or in part and, with respect to any Account other than a Account, the Account Debtor has not refused to accept and/or has not returned or offered to return any of the Goods or services which are the subject of such Account; (d) the Account Debtor with respect thereto is a resident or citizen of, and is located within, the United States, Canada (other than Quebec or Inuit), Australia, Belgium, the Caribbean Islands of the Bahamas, Bermuda, Cayman Islands, Jamaica or Puerto Rico, France, the United Kingdom, Germany, Spain, Switzerland, Norway, Portugal, Sweden, Greece, Italy, Singapore, Mexico or New Zealand, unless the sale of goods or services giving rise to such Account is on letter of credit, banker's acceptance or other credit support terms reasonably satisfactory to the Lender; 9 (e) it is not an Account (i) arising from a "sale on approval", "sale or return", "consignment", or "guaranteed sale", or are subject to any other repurchase or return agreement or (ii) arising from a "bill and hold"; (f) it is not an Account with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by the Borrower (or by any agent or custodian of the Borrower) for the account of, or subject to, further and/or future direction from the Account Debtor with respect thereto; (g) it arises out of contracts with the United States or any department, agency or instrumentality thereof (including the branches of the United States military) but only to the extent that such Accounts do not exceed an aggregate face amount of $1,000,000, unless the Borrowers have assigned its right to payment of such Account to the Lender pursuant to the Assignment of Claims Act of 1940, and evidence (reasonably satisfactory to the Lender) of such assignment has been delivered to the Lender, or any state, county, city or other governmental body, or any department, agency or instrumentality thereof (to the extent that such Accounts exceed an aggregate face amount of $1,000,000); (h) if the Borrower maintains a credit limit for an Account Debtor, the aggregate dollar amount of Accounts due from such Account Debtor, including such Account, does not exceed such credit limit; (i) if the Account is evidenced by chattel paper or an instrument, the originals of such chattel paper or instrument shall have been endorsed and/or assigned and delivered to the Lender or, in the case of electronic chattel paper, shall be in the control of the Lender, in each case in a manner satisfactory to the Lender; (j) it is an Account stated in a monthly statement or an Account invoiced (and dated as of such date) and, in each case, sent to the Account Debtor thereof within the Borrowers' normal monthly billing cycle, but in no event later than thirty (30) days after the shipment and delivery to the Account Debtor of the Goods giving rise thereto or the performance of the services giving rise thereto and (i) as to KDS and its Subsidiaries which is due and payable within ninety (90) days past the original invoice date (otherwise known as the monthly statement date) thereof, (ii) in the case of Accounts pertaining to KNC, KFS, KFSO and PCD LLC the Account is evidenced by an invoice which is due and payable within forty-five (45) days after the invoice date and is no more than sixty (60) days past the due date of the invoice, and (iii) in the case of Eligible Foreign Accounts, is evidenced by an invoice which is due and payable within one hundred and twenty (120) days after the invoice date, in each case according to the original terms of sale; (k) it is not an Account with respect to an Account Debtor that is located in any jurisdiction which has adopted a statute or other requirement with respect to which any Person that obtains business from 10 within such jurisdiction must file a notice of business activities report or make any other required filings in a timely manner in order to enforce its claims in such jurisdiction's courts unless (i) such notice of business activities report has been duly and timely filed or the Borrower is exempt from filing such report and has provided the Lender with satisfactory evidence of such exemption or (ii) the failure to make such filings may be cured retroactively by the Borrower for a nominal fee; (l) the Account Debtor with respect thereto is not any of the Borrowers or an Affiliate of a Borrower; (m) such Account does not arise out of a contract or order which, by its terms, forbids or makes void or unenforceable the assignment thereof by the Borrowers to the Lender and is not unassignable to the Lender for any other reason; (n) there is no bankruptcy, insolvency or liquidation proceeding pending by or against the Account Debtor with respect thereto, nor has the Account Debtor suspended business, made a general assignment for the benefit of creditors or failed to pay its debts generally as they come due, and/or no condition or event has occurred having a material adverse effect on the Account Debtor which would require the Accounts of such Account Debtor to be deemed uncollectible in accordance with GAAP; (o) it is not owed by an Account Debtor with respect to which thirty percent (30.00%) or more of the aggregate amount of outstanding Accounts owed at such time by such Account Debtor is classified as ineligible under clause (j) of this definition; (p) if the aggregate amount of all Accounts owed by the Account Debtor thereon exceeds thirty percent (30.00%), of the aggregate amount of all Accounts of such Borrowers at such time, then all Accounts owed by such Account Debtor to such Borrowers in excess of such amount shall be deemed ineligible; provided, that, upon the combination of any two Account Debtors who have Accounts owing to the Borrowers by reason of a merger, acquisition or otherwise, the Account Debtors shall be treated as separate entities for a period of three (3) months for the purpose of determining Eligible Accounts pursuant to this clause (p); provided, further, that if the aggregate amount of Accounts owed by such Account Debtors during such three (3) month period exceeds sixty percent (60.00%) of the aggregate amount of all Accounts of the Borrowers at such time, then all Accounts owed by such Account Debtors to the Borrowers in excess of such amount shall be deemed ineligible; (q) it is an Account otherwise eligible hereunder, to the extent of any excess of any reserve, as calculated in accordance with the applicable Borrowing Base Certificate, created by the Borrowers for future return of Goods or any adjustments in estimated returns of Goods as compared to actual returns of Goods to date; (r) it is an Account with respect to which the Borrower is or may become liable to the Account Debtor for goods sold or services rendered by 11 such Account Debtor to any of the Borrowers, but only to the extent in excess of the Borrowers' then aggregate liability to such Account Debtor; and (s) it does not violate the negative covenants and does satisfy the affirmative covenants of the Borrowers contained in this Agreement. An Account which is at any time an Eligible Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account. Further, with respect to any Account, if the Lender at any time hereafter determines in its reasonable discretion that the prospect of payment or performance by the Account Debtor with respect thereto is materially impaired for any reason whatsoever, such Account shall cease to be an Eligible Account after notice of such determination is given to the Borrowers. Lender reserves the right to amend the criteria for and definition of Eligible Accounts of PCD and PCD, LLC within thirty (30) days of completion of the Lender's initial field audit of PCD, LLC. "Eligible Costs" means with respect to Facility C Loan, ninety percent --------------- (90%) of the Lender-approved invoices (which shall not include transportation or installation costs) for Collateral up to an amount not to exceed the balance of the Facility C Loan Commitment. "Eligible Domestic Accounts" shall mean all accounts whereby the Account ---------------------------- Debtor is a resident or citizen of, and is located within, the United States or Canada (other than Quebec or Inuit). "Eligible Foreign Accounts" shall mean all Eligible Accounts whereby the --------------------------- Account Debtor is a resident or citizen of and is located within, Australia, Belgium, the Caribbean Islands of the Bahamas, Bermuda, Cayman Islands, Jamaica or Puerto Rico, France, the United Kingdom, Germany, Spain, Switzerland, Norway, Portugal, Sweden, Greece, Italy, Singapore, Mexico or New Zealand, . "Employee Plan" includes any pension, stock bonus, employee stock ownership ------------- plan, retirement, profit sharing, deferred compensation, stock option, bonus or other incentive plan, whether qualified or nonqualified, or any disability, medical, dental or other health plan, life insurance or other death benefit plan, vacation benefit plan, severance plan or other employee benefit plan or arrangement, including, without limitation, those pension, profit-sharing and retirement plans of the Borrowers described from time to time in the financial statements of the Borrowers and any pension plan, welfare plan, defined benefit plans (as defined in ERISA) or any multiemployer plan, maintained or administered by any Borrower or to which any Borrower is a party or has any liability or by which any Borrower is bound. "Environmental Laws" shall mean all present or future federal, state or ------------------- local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authority, in each case relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment or workplace, including any of the foregoing 12 relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Substance. "Equipment" shall mean "equipment" as defined in the UCC that is owned by --------- any Borrower, including, without limitation, any and all of such Borrower's machinery, equipment, vehicles, fixtures, furniture, computers, appliances, tools, and other tangible personal property (other than inventory), whether located on such Borrower's premises or located elsewhere, together with any and all accessions, parts and appurtenances thereto, whether presently owned or hereafter acquired by such Borrower. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Event of Default" shall mean any of the events or conditions which are set ---------------- forth in Section 11 hereof. "Facility A Interest Rate" shall mean the Borrowers' option of (i) a --------------------------- floating per annum rate of interest equal to the Prime Rate plus the Applicable Margin or (ii) the LIBOR Rate plus the Applicable Margin or (iii) the Fixed LIBOR Rate. "Facility A Loan" and "Facility A Loans" shall mean, respectively, each --------------- ---------------- direct advance and the aggregate of all such direct advances made by the Lender to the Borrowers under and pursuant to this Agreement, as set forth in Section 2.1 of this Agreement. "Facility A Loan Availability" shall mean, at any time, an amount equal to ---------------------------- the Facility A Loan Commitment minus the Letter of Credit Obligations. "Facility A Loan Commitment" shall mean Thirty Five Million and 00/100 --------------------------- Dollars ($35,000,000), subject to the Letter of Credit Commitment, as such amount may be reduced pursuant to Section 2.1(c)(ii) hereof. "Facility A Maturity Date" shall mean, the earlier of (i) May 1, 2010 and ------------------------- (ii) the acceleration of such Loan upon the occurrence of an Event of Default affecting such Loan, unless extended by the Lender pursuant to any modification, extension or renewal note executed by the Borrowers and accepted by the Lender in its sole and absolute discretion in substitution for a Facility A Revolving Note. "Facility A Revolving Note" shall mean a revolving note in the form of --------------------------- Exhibit B hereto, dated as of the date hereof, in the amount of the Facility A Loan Commitment and maturing on the Facility A Maturity Date, duly executed by the Borrowers and payable to the order of the Lender, together with any and all renewal, extension, modification or replacement notes executed by the Borrowers and delivered to the Lender and given in substitution therefor. "Facility B Interest Rate" shall mean 6.4% per annum. ------------------------ 13 "Facility B Loan" shall mean the term loan consolidating the aggregate of --------------- all prior direct advances made by the Lender under the Existing Loan Agreement, as set forth in Section 2.2 of this Agreement. "Facility B Loan Commitment" shall mean Three Million Thirty Six Thousand --------------------------- and 00/100 Dollars ($3,036,000.00). "Facility B Maturity Date" shall mean, the earlier of (i) December 31, 2009 ------------------------ and (ii) the acceleration of such Loan upon the occurrence of an Event of Default affecting such Loan, unless extended by the Lender pursuant to any modification, extension or renewal note executed by the Borrowers and accepted by the Lender in its sole and absolute discretion in substitution for a Facility B Term Note. "Facility B Term Note" shall mean a term note in the form of Exhibit C ---------------------- hereto, dated as of the date hereof, in the amount of the Facility B Loan Commitment and maturing on Facility B Maturity Date, duly executed by the Borrowers and payable to the order of the Lender, together with any and all renewal, extension, modification or replacement notes executed by the Borrowers and delivered to the Lender and given in substitution therefor. "Facility C CapEx Note" shall mean a capital expenditure note in the form --------------------- of Exhibit D hereto, dated as of the date hereof, in the amount of the Facility C Loan Commitment and maturing on the Facility C Maturity Date, duly executed by the Borrowers and payable to the order of the Lender, together with any and all renewal, extension, modification or replacement notes executed by the Borrowers and delivered to the Lender and given in substitution therefor. "Facility C Interest Rate" shall mean the Borrowers' option of (i) a --------------------------- floating per annum rate of interest equal to the Prime Rate plus the Applicable Margin, (ii) the LIBOR Rate plus the Applicable Margin or (iii) the Fixed LIBOR Rate. "Facility C Loan" and "Facility C Loans" shall mean, respectively, each --------------- ---------------- direct advance and the aggregate of all such direct advances made by the Lender to the Borrowers under and pursuant to this Agreement, as set forth in Section 2.3 of this Agreement. "Facility C Loan Commitment" shall mean One Million Five Hundred Thousand --------------------------- and 00/100 Dollars ($1,500,000.00), as such amount may be reduced pursuant to Section 2.3 hereof. "Facility C Maturity Date" shall mean, the earlier of (i) May 1, 2010 and ------------------------- (ii) the acceleration of such Loan upon the occurrence of an Event of Default affecting such Loan, unless extended by the Lender pursuant to any modification, extension or renewal note executed by the Borrowers and accepted by the Lender in its sole and absolute discretion in substitution for a Facility C CapEx Note. 14 "Facility D Interest Rate" shall mean the Borrowers' option of (i) a --------------------------- floating per annum rate of interest equal to the Prime Rate, (ii) the LIBOR Rate or (iii) the Fixed LIBOR Rate. "Facility D Loan" and "Facility D Loans" shall mean, respectively, each --------------- ---------------- direct advance and the aggregate of all such direct advances made by the Lender to the Borrowers under and pursuant to this Agreement, as set forth in Section 2.4 of this Agreement. "Facility D Loan Availability" shall mean, at any time, an amount equal to ---------------------------- the lesser of: (a) Facility D Loan Commitment or (b) the Bauer Sublimit Amount. "Facility D Loan Commitment" shall mean Ten Million and 00/100 Dollars --------------------------- ($10,000,000), as such amount may be reduced pursuant to Section 2.4 hereof. "Facility D Maturity Date" shall mean, the earlier of (i) May 1, 2010 and ------------------------- (ii) the acceleration of such Loan upon the occurrence of an Event of Default affecting such Loan, unless extended by the Lender pursuant to any modification, extension or renewal note executed by the Borrowers and accepted by the Lender in its sole and absolute discretion in substitution for a Facility D Revolving Note. "Facility D Revolving Note" shall mean a revolving note in the form of --------------------------- Exhibit E hereto, dated as of the date hereof, in the amount of the Facility D Loan Commitment and maturing on the Facility D Maturity Date, duly executed by the Borrowers and payable to the order of the Lender, together with any and all renewal, extension, modification or replacement notes executed by the Borrowers and delivered to the Lender and given in substitution therefor. "Fixed LIBOR Loan" shall mean a Loan bearing interest at the Fixed LIBOR ----------------- Rate made pursuant to Section 2.1(b) in the case of a Facility A Loan, Section 2.3(b) in the case of a Facility C Loan and Section 2.4(b) in the case of a Facility D Loan. "Fixed LIBOR Rate" shall mean, for each Fixed LIBOR Loan, a rate of ------------------ interest equal to LIBOR for a 30 day interest period on the first Business Day of a month plus the Applicable LIBOR Margin. "Funded Debt" shall mean, as to any Person, all Debt of such Person that ------------ matures more than one year from the date of its creation (or is renewable or extendible, at the option of such Person, to a date more than one year from such date). "GAAP" shall mean generally accepted accounting principles set forth from ---- time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination, provided, however, that interim financial statements or reports 15 shall be deemed in compliance with GAAP despite the absence of footnotes and fiscal year-end adjustments as required by GAAP. "Hazardous Substances" shall mean (a) any petroleum or petroleum products, --------------------- radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, radon gas and mold; (b) any chemicals, materials, pollutant or substances defined as or included in the definition of "hazardous substances", "hazardous waste", "hazardous materials", "extremely hazardous substances", "restricted hazardous waste", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure to, or release of which is prohibited, limited or regulated by any governmental authority or for which any duty or standard of care is imposed pursuant to, any Environmental Law. "Hedging Agreement" shall mean any interest rate, currency or commodity ------------------ swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices. "Hedging Obligation" shall mean, with respect to any Person, any liability ------------------- of such Person under any Hedging Agreement. "Indemnified Party" and "Indemnified Parties" shall mean, respectively, ------------------ -------------------- each of the Lender and any parent corporation, Affiliate or Subsidiary of the Lender, and each of their respective officers, directors, employees, attorneys and agents, and all of such parties and entities. "Intellectual Property" shall mean the collective reference to all rights, ---------------------- priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, patents, service marks and trademarks, and all registrations and applications for registration therefor and all licensees thereof, trade names, domain names, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated as ----------------------- of February 6, 2006, by and among Lender, Bauer and KDS as amended by First Amendment To Intercreditor Agreement dated as of April 27, 2006, and amended, modified or supplemented from time to time. "Interest Charges" shall mean, for any period, the sum of: (a) all ----------------- interest, charges and related expenses payable with respect to that fiscal period to a lender in connection with borrowed money or the deferred purchase price of assets that are treated as interest in accordance with GAAP, plus (b) ---- 16 the portion of Capitalized Lease Obligations with respect to that fiscal period that should be treated as interest in accordance with GAAP, plus (c) all charges paid or payable (without duplication) during that period with respect to any Hedging Agreements, plus (d) all debt, discount and expense amortized or ---- required to be amortized in the determination of Net Income for such period. "Investment" shall mean, with respect to any Person, any investment in ---------- another Person (other than a Borrower or a Subsidiary of a Borrower that becomes a Borrower under this Agreement), whether by acquisition of any debt or equity security, by making any loan or advance, by becoming obligated with respect to a Contingent Liability in respect of obligations of such other Person (other than travel and similar advances to employees in the ordinary course of business); provided, that any advance made to a publisher in the ordinary course of business in an amount not to exceed $1,500,000 in the aggregate and $500,000 to any one publisher shall not be considered an Investment hereunder. "Lender Product Agreements" shall mean those certain agreements entered -------------------------- into from time to time by the Borrowers with the Lender or any Affiliate of the Lender concerning Lender Products. "Lender Product Obligations" shall mean all obligations, liabilities, ---------------------------- contingent reimbursement obligations, fees, and expenses owing by the Borrowers to the Lender or any Affiliate of the Lender pursuant to or evidenced by the Lender Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising. "Lender Products" shall mean any service or facility extended to the ---------------- Borrowers by the Lender or any Affiliate of the Lender, including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, (g) Rate Management Transactions or (h) Hedging Agreements. "Letter of Credit" and "Letters of Credit" shall mean any Letter of Credit ---------------- ----------------- issued on behalf of Borrowers in accordance with Section 2.7of this Agreement. "Letter of Credit Application" shall mean, with respect to any request for ----------------------------- the issuance of a Letter of Credit, a letter of credit application in the form being used by the Lender at the time of such request for the type of Letter of Credit requested. "Letter of Credit Commitment" shall mean Two Hundred Fifty Thousand Dollars --------------------------- (US$250,000). "Letter of Credit Fee Rate" means 1.5% per annum. ------------------------- "Letter of Credit Maturity Date" shall mean the Facility A Maturity Date. ------------------------------ "Letter of Credit Obligations" shall mean, at any time, an amount equal to ----------------------------- the aggregate of the original face amounts of all Letters of Credit minus the 17 sum of (i) the amount of any reductions in the original face amount of any Letter of Credit which did not result from a draw thereunder, (ii) the amount of any payments made by the Lender with respect to any draws made under a Letter of Credit for which the Borrowers have reimbursed the Lender, (iii) the amount of any payments made by the Lender with respect to any draws made under a Letter of Credit which have been converted to a Facility A Loan as set forth in Section 2.5 and (iv) the portion of any issued but expired Letter of Credit which has not been drawn by the beneficiary thereunder. For purposes of determining the outstanding Letter of Credit Obligations at any time, the Lender's acceptance of a draft drawn on the Lender pursuant to a Letter of Credit shall constitute a draw on the applicable Letter of Credit at the time of such acceptance. "Liabilities" shall mean at all times all liabilities of the Borrowers that ----------- would be shown as such on a balance sheet of the Borrowers prepared in accordance with GAAP. "LIBOR" shall mean, with respect to any LIBOR Interest Period, a rate of ----- interest equal to (a) the per annum rate of interest at which United States dollar deposits for a period equal to the relevant LIBOR Interest Period are offered in the London Interbank Eurodollar market at 11:00 a.m. (London time) two Business Days prior to the commencement of such interest period (or three Business Days prior to the commencement of such Interest Period if banks in London, England were not open and dealing in offshore United States dollars on such second preceding Business Day), as displayed in the Bloomberg Financial Markets system (or other authoritative source selected by the Lender in its sole discretion), divided by (b) a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), or, if LIBOR is not determinable in accordance with the foregoing, as LIBOR is otherwise determined by the Lender in its reasonable discretion. The Lender's determination of LIBOR shall be conclusive, absent manifest error. "LIBOR Interest Period" shall mean, as to any LIBOR Loan, a period of ----------------------- either overnight or of thirty (30), sixty (60), ninety (90) or one hundred eighty (180) days commencing on a Business Day as selected by the Borrowers pursuant to this Agreement, as the case may be; provided that: (a) if any LIBOR Interest Period would otherwise end on a day that is not a Business Day, such LIBOR Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such LIBOR Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any LIBOR Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; and 18 (c) the Borrowers may not select any LIBOR Interest Period for a Facility A Loan, Facility C Loan or Facility D Loan beyond the scheduled Maturity Date. "LIBOR Loan" or "LIBOR Loans" shall mean that portion, and collectively ---------- ------------ those portions, of the aggregate outstanding principal balance of the Loans that bear interest at a LIBOR Rate for the Facility A Loans, the Facility C Loans or the Facility D Loans, as applicable. "LIBOR Rate" shall mean, for each LIBOR Loan, a rate of interest equal to ---------- LIBOR for the relevant LIBOR Interest Period plus the Applicable LIBOR Margin. "Lien" shall mean, with respect to any Person, any interest granted by such ---- Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person (including, without limitation, an interest in respect of a Capital Lease) which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise. "Loan Documents" shall mean each of the agreements, documents, instruments -------------- and certificates set forth in Section 3.1 hereof, and any and all such other instruments, documents, certificates and agreements from time to time executed and delivered by the Borrowers or any of their Affiliates for the benefit of the Lender pursuant to any of the foregoing, and all amendments, restatements, supplements and other modifications thereto. "Loans" shall mean, collectively, all Facility A Loans, the Facility B ----- Loan, all Facility C Loans, all Facility D Loans and all other extensions of credit made by the Lender to the Borrowers and all Letter of Credit Obligations, under and pursuant to this Agreement. "Lockbox" shall have the meaning set forth in Section 6.9(a) hereof. ------- "Lockbox Account" shall have the meaning set forth in Section 6.9(a) ---------------- hereof. "Lockbox Agreement" shall have the meaning set forth in Section 3.1(o) ------------------ hereof. "Master Letter of Credit Agreement" shall mean, at any time, with respect ---------------------------------- to the issuance of Letters of Credit, a Master Letter of Credit Agreement in the form being used by the Lender at such time. "Material Adverse Effect" shall mean (a) a material adverse change in, or a ----------------------- material adverse effect upon, the assets, business, properties, condition (financial or otherwise) or results of operations of the Borrowers taken as a whole which, if quantifiable, does or would be reasonably expected to result in a reduction in retained earnings of more than Three Million Dollars ($3,000,000) after taking into account all deductions, credits, or other tax benefits allowed with respect to the event (b) a material impairment of the ability of the Borrowers to perform any of the Obligations under any of the Loan Documents, or (c) a material adverse effect on (i) any substantial portion of the Collateral 19 of the Borrowers, (ii) the legality, validity, binding effect or enforceability against the Borrowers of any of the Loan Documents, (iii) the perfection or priority of the Liens on any substantial portion of the Collateral granted to the Lender under any Loan Document by the Borrowers, or (iv) the rights or remedies of the Lender with respect to the Borrowers under any Loan Document. "Maturity Date" shall mean, collectively, the Facility A Maturity Date, the ------------- Facility B Maturity Date, the Facility C Maturity Date, the Facility D Maturity Date and Letter of Credit Maturity Date. "Merger Agreement" shall mean the Agreement and Plan of Merger by and among ---------------- AMREP Corporation, Glen Garry Acquisition, Inc., KMS, PCD, PCD LLC, and the Sellers set forth in the agreement dated as of November 7, 2006 "Net Income" shall mean, with respect to the Borrowers for any period, the ---------- consolidated net income (or loss) of the Borrowers for such period as determined in accordance with GAAP, excluding any gains or losses (within the meaning of GAAP) from Asset Dispositions, any extraordinary gains or losses and any gains or losses from discontinued operations (within the meaning of GAAP). "Non-Excluded Taxes" shall have the meaning set forth in Section 2.8 ------------------- hereof. "Non-Utilization Fee" shall have the meaning set forth in Section 8.23 -------------------- hereof. "Note" and "Notes" shall mean, respectively, each of and collectively, the ---- ----- Facility A Revolving Note, the Facility B Term Note, the Facility C CapEx Note and the Facility D Revolving Note. "Obligations" shall mean the Loans, as evidenced by any Note, all interest ----------- accrued thereon (including interest which would be payable as post-petition interest in connection with any bankruptcy or similar proceeding, whether or not permitted as a claim thereunder), any fees due the Lender hereunder, any expenses incurred by the Lender hereunder and any and all other liabilities and obligations of the Borrowers to the Lender under this Agreement and any other Loan Document, including any reimbursement obligations of the Borrowers in respect of Letters of Credit and surety bonds, all Hedging Obligations of the Borrowers existing or entered onto during the term of this Agreement which are owed to the Lender or any Affiliate of the Lender, and all Lender Product Obligations of the Borrowers existing or entered into during the term of this Agreement, all in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, together with any and all renewals or extensions thereof. "Obligor" shall mean the Borrowers, any accommodation endorser, third party ------- pledgor, or any other party other than the Principal Shareholder liable with respect to the Obligations. 20 "OFAC" shall have the meaning specified in Section 8.3 of this Agreement. ---- "Organizational Identification Number" means, with respect to each ---------------------------------------- Borrower, the organizational identification number assigned to such Borrower by the applicable governmental unit or agency of the jurisdiction of organization of such Borrower. "Other Taxes" shall mean any present or future stamp or documentary taxes ----------- or any other excise or property taxes, charges or similar levies which arise from the execution, delivery, enforcement or registration of, or otherwise with respect to, this Agreement or any of the other Loan Documents. "Permitted Business" shall mean any business conducted by one or more of ------------------- the Borrowers on the closing date and all other businesses reasonably related thereto. "Permitted Liens" shall mean (a) Liens for federal or other material Taxes, --------------- assessments or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which the affected Person maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (b) Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, lessors, mechanics and materialmen and other similar Liens, and (ii) Liens in the form of deposits or pledges incurred in connection with worker's compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services, which do not in the aggregate materially detract from the value of the property or assets of the Borrowers or materially impair the use thereof in the operation of the Borrower's business and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (c) Liens described on Schedule 9.2 as of the closing ------------ date and the replacement, extension or renewal of any such Lien upon or in the same property subject thereto arising out of the extension, renewal or replacement of the Debt secured thereby (without increase in the amount thereof); (d) attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding Five Hundred Thousand and 00/100 Dollars ($500,000.00) arising in connection with court proceedings, provided the execution or other -------- enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings and to the extent such judgments or awards do not constitute an Event of Default under Section 11.8 hereof; (e) easements, rights of way, restrictions, minor defects - ------------ or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Borrowers; (f) subject to the limitation set forth in Section 9.1(e), Liens arising in --------------- connection with Capitalized Lease Obligations (and attaching only to the property being leased and products and proceeds thereof); (g) subject to the limitation set forth in Section 9.1(e), Liens that constitute purchase money --------------- security interests on any property securing Debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that -------- any such Lien attaches to such property within twenty (20) days of the 21 acquisition thereof and attaches solely to the property so acquired; (h) Liens granted to the Lender hereunder and under the Loan Documents; (i) usual and customary rights of set off; (j) other Liens which in the aggregate secure Obligations not exceeding Five Hundred Thousand and 00/100 Dollars ($500,000.00) and (k) Liens covering the Bauer Accounts and their proceeds securing the obligations of KDS under the Bauer Distribution Agreement. "Permitted Perfection Limitations" shall mean a limitation on the perfected -------------------------------- status of Collateral to the extent that (a) perfection would require a notation on the records of the issuer of title (such as motor vehicle titles) and no notation is requested or made or (b) the laws of a jurisdiction outside of the United States of America governs the issue of perfection. "Person" shall mean any natural person, partnership, limited liability ------ company, limited liability partnership, corporation, trust, joint venture, joint stock company, association, unincorporated organization, government or agency or political subdivision thereof, or other entity, whether acting in an individual, fiduciary or other capacity. "Prime Loan" or "Prime Loans" shall mean that portion, and collectively ---------- ------------ those portions, of the aggregate outstanding principal balance of the Loans that bear interest at the Prime Rate. "Prime Rate" shall mean the floating per annum rate of interest which at ---------- any time, and from time to time, shall be most recently announced by the Lender as its Prime or Base Rate, which is not intended to be the Lender's lowest or most favorable rate of interest at any one time. The effective date of any change in the Prime Rate shall for purposes hereof be the date the Prime Rate is changed by the Lender. The Lender shall not be obligated to give notice of any change in the Prime Rate. "Principal Shareholder" shall mean AMREP Corporation, an Oklahoma ----------------------- corporation. "Rate Management Transaction" shall mean any transaction (including an ----------------------------- agreement with respect thereto) now existing or hereafter entered into between Borrower and Lender which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures. "Regulatory Change" shall mean the introduction of, or any change in any ------------------ applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any governmental authority or any central bank or other fiscal, monetary or other authority having jurisdiction over the Lender or its lending office. 22 "Senior Debt" means all Debt of Borrowers other than Subordinated Debt. ----------- "Shareholder's Equity" shall mean at any time the total assets minus the --------------------- total liabilities adjusted to eliminate the effect of net accumulated other comprehensive loss with respect to any unpaid liabilities related to any Employee Plan as would be shown on a consolidated balance sheet of Borrowers prepared in accordance with GAAP. "Subordinated Debt" shall mean that portion of the Debt of the Borrowers ------------------ which is subordinated to the Obligations in a manner reasonably satisfactory to the Lender, including, but not limited to, right and time of payment of principal and interest. "Subsidiary" and "Subsidiaries" shall mean, respectively, with respect to ---------- ------------ any Person, each and all such corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships, joint ventures or other entities of which or in which such Person owns, directly or indirectly, such number of outstanding Capital Securities as have more than fifty percent (50.00%) of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the Borrower. "Taxes" shall mean any and all present and future taxes, duties, levies, ----- imposts, deductions, assessments, charges or withholdings, and any and all liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing. "Total Debt" shall mean all Debt of the Borrowers, determined on a ----------- consolidated basis, excluding (i) Contingent Liabilities (except to the extent constituting Contingent Liabilities in respect of the Debt of a Person other than Borrowers), (ii) Hedging Obligations, (iii) Debt of Borrowers to other Borrowers and Debt of Subsidiaries to Borrowers, and (iv) contingent obligations in respect of undrawn Letters of Credit. "UCC" shall mean the Uniform Commercial Code in effect in the state of --- Illinois from time to time. "United States Treasury Securities" means actively traded United States ----------------------------------- Treasury bonds, bills and notes. "Unmatured Event of Default" shall mean any event which, with the giving of -------------------------- notice, the passage of time or both, would constitute an Event of Default. "Voidable Transfer" shall have the meaning set forth in Section 13.22 ------------------ -------------- hereof. "Wholly-Owned Subsidiary" shall mean any Subsidiary of which or in which ------------------------ one or more of the Borrowers own, directly or indirectly, one hundred percent (100%) of the Capital Securities of such Subsidiary. 23 1.2 Accounting Terms. Any accounting terms used in this Agreement which are ---------------- not specifically defined herein shall have the meanings customarily given them in accordance with GAAP. Calculations and determinations of financial and accounting terms used and not otherwise specifically defined hereunder and the preparation of financial statements to be furnished to the Lender pursuant hereto shall be made and prepared, both as to classification of items and as to amount, in accordance with GAAP as used in the preparation of the financial statements of the Borrowers on the date of this Agreement except as otherwise required by changes in GAAP. If any changes in accounting principles or practices from those used in the preparation of the financial statements are hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Securities and Exchange Commission, the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or any successor thereto or agencies with similar functions), which results in a material change in the method of accounting in the financial statements required to be furnished to the Lender hereunder or in the calculation of financial covenants, standards or terms contained in this Agreement, the parties hereto agree to enter into good faith negotiations to amend such provisions so as equitably to reflect such changes to the end that the criteria for evaluating the financial condition and performance of the Borrowers will be the same after such changes as they were before such changes; and if the parties fail to agree on the amendment of such provisions, the Borrowers will furnish financial statements in accordance with such changes, but shall provide calculations for all financial covenants, perform all financial covenants and otherwise observe all financial standards and terms in accordance with applicable accounting principles and practices in effect immediately prior to such changes. Calculations with respect to financial covenants required to be stated in accordance with applicable accounting principles and practices in effect immediately prior to such changes shall be reviewed and certified by the Borrower's accountants. Calculations of all accounting items included within each financial covenant or other determination set forth in this Agreement shall be on a consolidated basis for the Borrowers. 1.3 Other Terms Defined in UCC. All other capitalized words and phrases --------------------------- used herein and not otherwise specifically defined herein shall have the respective meanings assigned to such terms in the UCC, to the extent the same are used or defined therein. 1.4 Other Interpretive Provisions. ----------------------------- (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. Whenever the context so requires, the neuter gender includes the masculine and feminine, the single number includes the plural, and vice versa, and in particular the word "Borrower" shall be so construed. (b) Section and Schedule references are to this Agreement unless otherwise specified. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement 24 (c) The term "including" is not limiting, and means "including, without limitation". (d) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including". (e) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement and the other Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, supplements and other modifications thereto, but only to the extent such amendments, restatements, supplements and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation shall be construed as including all statutory and regulatory provisions amending, replacing, supplementing or interpreting such statute or regulation. (f) To the extent any of the provisions of the other Loan Documents are inconsistent with the terms of this Agreement, the provisions of this Agreement shall govern. (g) This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and each shall be performed in accordance with its terms. Section 2. COMMITMENT OF THE LENDER. ------------------------ 2.1 Facility A Loans. ---------------- (a) Facility A Loan Commitment. Subject to the terms and conditions of -------------------------- this Agreement and the other Loan Documents, and in reliance upon the representations and warranties of the Borrowers set forth herein and in the other Loan Documents, the Lender agrees to make such Facility A Loans at such times as the Borrowers may from time to time request until, but not including, the Facility A Maturity Date, and in such amounts as the Borrowers may from time to time request, provided, however, that the aggregate principal balance of all Facility A Loans outstanding at any time shall not exceed the Facility A Loan Availability. Facility A Loans made by the Lender may be repaid and, subject to the terms and conditions hereof, borrowed again up to, but not including the Facility A Maturity Date unless the Facility A Loans are otherwise accelerated, terminated or extended as provided in this Agreement. The Facility A Loans shall be used by the Borrowers for the purpose of refinancing an existing line of credit, to provide for short term working capital needs and fund the acquisition of PCD and PCD, LLC. (b) Facility A Loan Interest and Payments. Except as otherwise ----------------------------------------- provided in this Section 2.1(b), the principal amount of the Facility A --------------- 25 Loans outstanding from time to time shall bear interest at the applicable Facility A Interest Rate. Borrowers may elect the 30 day Fixed LIBOR Rate effective the first Business Day of a month and may then draw upon and pay down Facility A Loans at that rate during the month without premium or penalty. Notwithstanding the foregoing, accrued and unpaid interest on the unpaid principal balance of all Facility A Loans outstanding from time to time shall be due and payable monthly, in arrears, commencing on the last Business Day of January, 2007 and continuing on the last Business Day of each calendar month thereafter, and on the Facility A Maturity Date. Accrued and unpaid interest on the unpaid principal balance of all Facility A Loans outstanding from time to time which are LIBOR Loans shall be payable on the last Business Day of each LIBOR Interest Period (provided, however, that for LIBOR Interest Periods of six months, accrued interest shall also be paid on the date which is three months from the first day of such LIBOR Interest Period), commencing on the first such date to occur after the date hereof, on the date of any principal repayment of a LIBOR Loan and on the Facility A Maturity Date. Any amount of principal or interest on the Facility A Loans which is not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest payable on demand at the Default Rate. (c) Facility A Loan Principal Payments. ---------------------------------- (i) Facility A Loan Mandatory Payments. All Facility A Loans ------------------------------------ hereunder shall be repaid by the Borrowers on the Facility A Maturity Date for Facility A Loans, unless payable sooner pursuant to the provisions of this Agreement. In the event the aggregate outstanding principal balance of all Facility A Loans and Letter of Credit Obligations hereunder exceeds the Facility A Loan Commitment, the Borrowers shall, without notice or demand of any kind, immediately make such repayments of the Facility A Loans or take such other actions as are satisfactory to the Lender as shall be necessary to eliminate such excess. Also, if the Borrowers choose not to convert any Facility A Loan which is a LIBOR Loan to a Prime Loan as provided in Section 2.5(a), then such Facility A Loan shall be due and payable -------------- on the last Business Day of the then existing LIBOR Interest Period or on such earlier date as required by law, all without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower. (ii) Optional Prepayments; Voluntary Reductions or Termination of ------------------------------------------------------------ the Facility A Loan Commitment. The Borrowers may from time to time ------------------------------- prepay the Facility A Loans, in whole or in part, without any prepayment penalty whatsoever, provided that any prepayment of the entire principal balance shall include accrued interest on such Facility A Loans to the date of such prepayment. The Borrowers may from time to time on at least five Business Days' prior written notice received by the Lender permanently reduce the Facility A Loan Commitment to an amount not less than the amounts then outstanding under any Facility A Loans plus the outstanding amount of all Letter of Credit Obligations. Any such reduction shall be in an amount not less than $100,000 or a higher integral multiple of $50,000. Concurrently with any reduction of the Facility A Loan Commitment to 26 zero, the Borrowers shall pay all interest on the Facility A Loans, all Non-Utilization Fees and all letter of credit fees and shall Cash Collateralize in full all Letters of Credit Obligations. 2.2 Facility B Loan. --------------- (a) Facility B Loan Commitment. Subject to the terms and conditions of -------------------------- this Agreement and the other Loan Documents, and in reliance upon the representations and warranties of the Borrowers set forth herein and in the other Loan Documents, the Lender agrees to make a Facility B Loan equal to the Facility B Loan Commitment. The Facility B Loan shall be available to the Borrowers in a single principal advance on such date as the conditions set forth in Section 3 shall have been satisfied or waived. The Facility B Loan shall be used by the Borrowers for consolidating the aggregate unpaid amount of all prior direct advances made by the Lender under the terms loans provided under the Existing Loan Agreement. The Facility B Loan may be prepaid in whole or in part at any time without penalty, but shall be due in full on the Facility B Maturity Date, unless the credit extended under the Facility B Loan is otherwise accelerated, terminated or extended as provided in this Agreement. (b) Facility B Loan Interest and Principal Payments. The outstanding ------------------------------------------------ principal balance of the Facility B Loan shall be repaid in equal monthly installments of principal each in the amount of Eighty Four Thousand Three Hundred Thirty Three and 33/100 Dollars ($84,333.33) plus interest at the Facility B Interest Rate, beginning on the last Business Day of January 2007, and continuing on the last day of each month thereafter, with a final payment of all outstanding principal and accrued interest due on the Facility B Maturity Date. Principal amounts repaid on the Facility B Term Note may not be borrowed again. Any amount of principal or interest on the Facility B Loan which is not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest payable on demand at the Default Rate. (c) Facility B Loan Optional Prepayments. Provided that no Event of -------------------------------------- Default then exists under this Agreement or the Loans, the Borrowers may voluntarily prepay the principal balance of the Facility B Loan, in whole or in part, without any prepayment penalty whatsoever, at any time on or after the date hereof. Each prepayment of the Facility B Loan shall be applied to the scheduled installments of the Facility B Loan in inverse order of maturity. 2.3 Facility C Loans. ---------------- (a) Facility C Loan Commitment. Provided that an Event of Default or --------------------------- any event which with notice, lapse of time or both would constitute an Event of Default does not then exist, the Lender shall extend to the Borrowers the Facility C Loan Commitment. Subject to the terms and conditions of this Agreement, from the date hereof through but not including May 1, 2008, the Lender shall from time to time make advances to the Borrowers hereunder in an aggregate amount not to exceed the lesser of (i) the Facility C Loan Commitment and (ii) the Eligible Costs. The 27 aggregate amount available under Facility C hereunder shall not exceed the Facility C Loan Commitment. Each advance under Facility C hereunder shall be called a "Facility C Loan". The Facility C Loans shall be evidenced by the Facility C CapEx Note in the amount of the Facility C Loan Commitment. No advance under Facility C may have a maturity date later than the Facility C Maturity Date. (b) Facility C Loan Interest and Principal Payments. ----------------------------------------------- (i) The Borrowers shall pay all interest at the applicable Facility C Interest Rate selected pursuant to Section 2.3(e) monthly in arrears on each Facility C Loan beginning on the last Business Day of the first full calendar month after such Facility C Loan was made hereunder and continuing on the last Business Day of each calendar month thereafter until all amounts due thereunder have been paid in full. Borrowers may elect the 30 day Fixed LIBOR Rate effective the first Business Day of a month and may then draw upon and pay down Facility C Loans at that rate during the month without premium or penalty. Accrued and unpaid interest on the unpaid principal balance of all Facility C Loans outstanding from time to time which are LIBOR Loans shall be payable on the last Business Day of each LIBOR Interest Period (provided, however, that for LIBOR Interest Periods of six months, accrued interest shall also be paid on the date which is three months from the first day of such LIBOR Interest Period), commencing on the first such date to occur after the date hereof, on the date of any principal repayment of a LIBOR Loan and on the Facility C Maturity Date. (ii) In addition to the interest payments set forth in (i) above, commencing on the last Business Day of the first full calendar month after each Facility C CapEx Note was initially funded (the "Facility C Funding Date") and continuing on the last Business Day of each calendar month through and including the Facility C Maturity Date for such Facility C CapEx Note, the Borrowers shall make equal monthly principal payments in the amount necessary to amortize fully such Facility C CapEx Note over a period of not more than forty-eight (48) months. The Borrowers shall pay the outstanding principal of and interest on the Facility C CapEx Note not later than on the Facility C Maturity Date. (iii) The Borrowers may from time to time prepay the Facility C Loans, in whole or in part, without any prepayment penalty whatsoever, provided that any prepayment of the entire principal balance shall include accrued interest on such Facility C Loans to the date of such prepayment. (c) Timing of Loans and Advances. Requests by the Borrowers for loans ---------------------------- or advances under Facility C Loans shall be made in writing at least two (2) Business Days prior to each proposed advance on forms reasonably acceptable to the Lender, but, at the Lender's sole discretion, the Lender may make an advance to the Borrowers upon the oral request of the Borrowers, subject to confirmation by the Borrowers in writing. Each such request shall be in the minimum amount of $100,000 and $50,000 increments 28 in excess thereof and shall be accompanied or preceded by invoices and certificates setting forth, in form and substance reasonably satisfactory to the Lender, the amount of Eligible Costs upon which the requested loan or advance is to be based. Not more than two (2) Business Days after the Lender's receipt of such request for advance, the Lender shall provide the Borrowers with notice of the amount of Eligible Costs approved by the Lender for such advance. As a condition to the Lender making an advance with respect to a Facility C Loan, the Borrowers shall deliver to the Lender the applicable invoices and certificates relating thereto. The Borrowers consent to the Lender filing further Uniform Commercial Code financing statements attaching such invoices and certificates. (d) One Loan or Advance. All Facility C Loans shall constitute one ------------------- obligation secured by the Lender's Lien in the Borrower Collateral and by all other Liens now or hereafter granted by the Borrowers to the Lender. (e) Applicable Rate. The Borrowers agree to pay interest on the daily ---------------- balance of each Facility C Loan. The Borrowers shall make an interest rate election per Facility C CapEx Loan selecting one of the following three interest rate modes to apply to the Facility C Loan for the period commencing on the date of the funding of the Facility C Loan through the Facility C Maturity Date or Facility C Maturity Date for such Facility C Loan, as applicable: (i) a variable interest rate equal to the Prime Rate; (ii) the LIBOR Rate; or (iii) the Fixed LIBOR Rate The foregoing notwithstanding, after the occurrence and during the continuance of an Event of Default under this Agreement, the rate per annum on such Facility C Loan shall be equal to the Default Rate. (f) Computation of Interest. In computing interest on a Facility C ------------------------ Loan, (i) the date of funding of such Facility C Loan shall be included and (ii) the date of payment of such Facility C Loan shall be excluded; provided that if a Facility C Loan is repaid on the same day on which it is made, one day's interest shall be paid on such Facility C Loan. 2.4 Facility D Loans. ---------------- (a) Facility D Loan Commitment. Subject to the terms and conditions of -------------------------- this Agreement and the other Loan Documents, and in reliance upon the representations and warranties of the Borrowers set forth herein and in the other Loan Documents, the Lender agrees to make such Facility D Loans at such times as the Borrowers may from time to time request until, but not including, the Facility D Maturity Date, and in such amounts as the Borrowers may from time to time request, provided, however, that the aggregate principal balance of all Facility D Loans outstanding at any time shall not exceed the Facility D Loan Availability. Facility D Loans made by 29 the Lender may be repaid and, subject to the terms and conditions hereof, borrowed again up to, but not including the Facility D Maturity Date unless the Facility D Loans are otherwise accelerated, terminated or extended as provided in this Agreement. The Facility D Loans shall be used by the Borrowers for the purpose of financing payments under the Bauer Distribution Agreement. (b) Facility D Loan Interest and Payments. Except as otherwise ----------------------------------------- provided in this Section 2.4(b), the principal amount of the Facility D Loans outstanding from time to time shall bear interest at the applicable Facility D Interest Rate. Borrowers may elect the 30 day Fixed LIBOR Rate effective the first Business Day of a month and may then draw upon and pay down Facility D Loans at that rate during the month without premium or penalty. Notwithstanding the foregoing, accrued and unpaid interest on the unpaid principal balance of all Facility D Loans outstanding from time to time shall be due and payable monthly, in arrears, commencing on the last Business Day of January, 2007 and continuing on the last Business Day of each calendar month thereafter, and on the Facility D Maturity Date. Accrued and unpaid interest on the unpaid principal balance of all Facility D Loans outstanding from time to time which are LIBOR Loans shall be payable on the last Business Day of each LIBOR Interest Period (provided, however, that for LIBOR Interest Periods of six months, accrued interest shall also be paid on the date which is three months from the first day of such LIBOR Interest Period), commencing on the first such date to occur after the date hereof, on the date of any principal repayment of a LIBOR Loan and on the Facility D Maturity Date. Any amount of principal or interest on the Facility D Loans which is not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest payable on demand at the Default Rate. (c) Facility D Loan Principal Payments. ---------------------------------- (i) Facility D Loan Mandatory Payments. All Facility D Loans ------------------------------------ hereunder shall be repaid by the Borrowers on the Facility D Maturity Date, unless payable sooner pursuant to the provisions of this Agreement. In the event the aggregate outstanding principal balance of all Facility D Loans exceeds the Facility D Loan Availability, the Borrowers shall, without notice or demand of any kind, immediately make such repayments of the Facility D Loans or take such other actions as are satisfactory to the Lender as shall be necessary to eliminate such excess. Also, if the Borrowers choose not to convert any Facility D Loan which is a LIBOR Loan to a Prime Loan as provided in Section 2.5(a), then such Facility D Loan shall be due and payable on the last Business Day of the then existing LIBOR Interest Period or on such earlier date as required by law, all without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower. (ii) Optional Prepayments; Voluntary Reductions or Termination of ------------------------------------------------------------ the Facility D Loan Commitment. The Borrowers may from time to time ------------------------------- prepay the Facility D Loans, in whole or in part, without any prepayment penalty whatsoever, provided that any prepayment of the entire principal balance shall include accrued interest on such Facility A Loans to the date of such prepayment. The Borrowers may 30 from time to time on at least five Business Days' prior written notice received by the Lender permanently reduce the Facility D Loan Commitment to an amount not less than the amounts then outstanding under all Facility D Loans. Any such reduction shall be in an amount not less than $100,000 or a higher integral multiple of $50,000. Concurrently with any reduction of the Facility D Loan Commitment to zero, the Borrowers shall pay all interest on the Facility D Loans and Non-Utilization Fees. 2.5 Additional LIBOR Loan Provisions. -------------------------------- (a) LIBOR Unavailability. If the Lender determines in its reasonable --------------------- good faith judgment (which determination shall be conclusive, absent manifest error) prior to the commencement of any LIBOR Interest Period that (i) the making or maintenance of any LIBOR Loan or Fixed LIBOR Loan would violate any applicable law, rule, regulation or directive, whether or not having the force of law, (ii) United States dollar deposits in the principal amount, and for periods equal to the LIBOR Interest Period for funding any LIBOR Loan or any Fixed LIBOR Loan are not available in the London Interbank Eurodollar market in the ordinary course of business, (iii) by reason of circumstances affecting the London Interbank Eurodollar market, adequate and fair means do not exist for ascertaining the LIBOR Rate to be applicable to the relevant LIBOR Loan or the Fixed LIBOR Rate to be applicable to the relevant Fixed LIBOR Loan, or (iv) the LIBOR Rate does not accurately reflect the cost to the Lender of a LIBOR Loan or the Fixed LIBOR Rate does not accurately reflect the cost to the Lender of a Fixed LIBOR Loan, the Lender shall promptly notify the Borrowers thereof and, so long as the foregoing conditions continue, none of the Loans may be advanced as a LIBOR Loan thereafter. In addition, at the Borrowers' option, each existing LIBOR Loan shall be immediately (i) converted to a Prime Loan, or (ii) due and payable without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrowers. (b) Regulatory Change. In addition, if, after the date hereof, a ------------------ Regulatory Change shall, in the reasonable good faith judgment of the Lender, make it unlawful for the Lender to make or maintain the LIBOR Loans or the Fixed LIBOR Loans, then the Lender shall promptly notify the Borrowers, and none of the Loans may be advanced as a LIBOR Loan or Fixed LIBOR Loans thereafter. In addition, at the Borrowers' option, as applicable, each existing LIBOR Loan and Fixed LIBOR Loan shall be immediately (i) converted to a Prime Loan (in the case of any LIBOR Loan, on the last Business Day of the then existing LIBOR Interest Period or on such earlier date as required by law), or (ii) due and payable without further demand (in the case of any LIBOR Loan, on the last Business Day of the then existing LIBOR Interest Period or on such earlier date as required by law), all without presentment, protest or notice of any kind, all of which are hereby waived by the Borrowers. (c) LIBOR Indemnity. If any Regulatory Change, or compliance by the --------------- Lender or any Person controlling the Lender with any request or directive of any governmental authority, central bank or comparable agency (whether 31 or not having the force of law) issued or promulgated after the date of this Agreement shall (i) impose, modify or deem applicable any assessment, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of or loans by, or any other acquisition of funds or disbursements by, the Lender; (ii) subject the Lender, any LIBOR Loan or any Fixed LIBOR Loan to any tax, duty, charge, stamp tax or fee or change the basis of taxation of payments to the Lender of principal or interest due from the Borrowers to the Lender hereunder (other than a change in the taxation of the overall net income of the Lender); or (iii) impose on the Lender any other condition regarding such LIBOR Loan or Fixed LIBOR Loan or the Lender's funding thereof, and the Lender shall determine in its reasonable good faith judgment (which determination shall be conclusive, absent manifest error) that the result of the foregoing is to increase the cost to, or to impose a cost on, the Lender or such controlling Person of making or maintaining such LIBOR Loan or to reduce the amount of principal or interest received by the Lender hereunder, then the Borrowers shall pay to the Lender or such controlling Person, on demand, such additional amounts as the Lender shall, from time to time, determine are sufficient to compensate and indemnify the Lender for such increased cost or reduced amount; provided that (i) the Lender provides Borrowers notice thereof within thirty (30) days of such Regulatory Change or applicable request or directive and (ii) if the Lender or such controlling Person could mitigate the amount by changing its lending office or taking similar action, it will do so as long as there are no detrimental consequences to the Lender or such controlling Person. 2.6 Interest and Fee Computation; Collection of Funds. Except as otherwise -------------------------------------------------- set forth herein, all interest and fees shall be calculated on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed. Principal payments submitted in funds not immediately available shall continue to bear interest until collected. If any payment to be made by the Borrowers hereunder or under any Note shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing any interest in respect of such payment. Notwithstanding anything to the contrary contained herein, the final payment due under any of the Loans must be made by wire transfer or other immediately available funds. All payments made by the Borrowers hereunder or under any of the Loan Documents shall be made without setoff, counterclaim, or other defense. To the extent permitted by applicable law, all payments hereunder or under any of the Loan Documents (including any payment of principal, interest, or fees) to, or for the benefit, of any Person shall be made by the Borrowers free and clear of, and without deduction or withholding for, or account of, any taxes now or hereinafter imposed by any taxing authority. 2.7 Letters of Credit. Subject to the terms and conditions of this ------------------- Agreement and upon (i) the execution by the Borrowers and the Lender of a Master Letter of Credit Agreement in form and substance reasonably acceptable to the Lender (together with all amendments, modifications and restatements thereof, the "Master Letter of Credit Agreement"), and (ii) the execution and delivery by the Borrowers, and the acceptance by the Lender, in its sole and absolute discretion, of a Letter of Credit Application, the Lender agrees to issue for 32 the account of the Borrowers such Letters of Credit in the standard form of the Lender and otherwise in form and substance reasonably acceptable to the Lender, from time to time during the term of this Agreement, provided that the Letter of Credit Obligations may not at any time exceed the Letter of Credit Commitment and provided further, that no Letter of Credit shall have an expiration date later than the Letter of Credit Maturity Date. The amount of any payments made by the Lender with respect to draws made by a beneficiary under a Letter of Credit for which the Borrowers have failed to reimburse the Lender upon the earlier of (i) the Lender's demand for repayment, or (ii) five (5) days from the date of such payment to such beneficiary by the Lender, shall be deemed to have been converted to a Facility A Loan as of the date such payment was made by the Lender to such beneficiary. Upon the occurrence and during the continuance of an Event of a Default and at the option of the Lender, all Letter of Credit Obligations shall be converted to Facility A Loans consisting of Prime Loans, all without demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrowers. To the extent the provisions of the Master Letter of Credit Agreement differ from, or are inconsistent with, the terms of this Agreement, the provisions of this Agreement shall govern. 2.8 Taxes. ----- (a) All payments made by the Borrowers under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Lender as a result of a present or former connection between the Lender and the jurisdiction of the governmental authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings (collectively, "Non-Excluded Taxes") or Other Taxes are required to be withheld from any amounts payable to the Lender hereunder, the amounts so payable to the Lender shall be increased to the extent necessary to yield to the Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrowers shall not be required to increase any such amounts payable to the Lender with respect to any Non-Excluded Taxes that are attributable to the Lender's failure to comply with the requirements of Section 2.8(c). (b) The Borrowers shall pay any Other Taxes to the relevant governmental authority in accordance with applicable law. (c) At the request of the Borrowers and at the Borrowers' sole cost, the Lender shall take reasonable steps to (i) contest its liability for any Non-Excluded Taxes or Other Taxes that have not been paid, or (ii) seek a refund of any Non-Excluded Taxes or Other Taxes that have been paid. 33 (d) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrowers, as promptly as possible thereafter the Borrowers shall send to the Lender a certified copy of an original official receipt received by the Borrowers showing payment thereof. If the Borrowers fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Lender the required receipts or other required documentary evidence or if any governmental authority seeks to collect a Non-Excluded Tax or Other Tax directly from the Lender for any other reason, the Borrowers shall indemnify the Lender on an after-tax basis for any incremental taxes, interest or penalties that may become payable by the Lender. (e) The agreements in this Section shall survive the satisfaction and payment of the Obligations and the termination of this Agreement. 2.9 Security Interest. The Loans and Letters of Credit shall be secured by ----------------- the Lender's priority security interest in and Lien upon all of the Collateral and by all other security interests, Liens, claims and encumbrances heretofore, now or at any time or times hereafter granted by the Borrowers to the Lender, subject to the Intercreditor Agreement. Section 3. CONDITIONS OF BORROWING. ----------------------- Notwithstanding any other provision of this Agreement, the Lender shall not be required to disburse or make all or any portion of the Loans to the Borrowers, if any of the following conditions pertaining to such Borrowers shall have occurred. 3.1 Loan Documents. The Borrowers shall have failed to execute and deliver -------------- to the Lender any of the following Loan Documents, all of which must be reasonably satisfactory to the Lender and the Lender's counsel in form, substance and execution: (a) Second Amended and Restated Loan and Security Agreement. Two ------------------------------------------------------------ copies of this Agreement. (b) Facility A Revolving Note. The Facility A Revolving Note. ------------------------- (c) Facility B Term Note. The Facility B Term Note. -------------------- (d) Facility C CapEx Note. The Facility C CapEx Note. --------------------- (e) Facility D Revolving Note. The Facility D Revolving Note. ------------------------- (f) Master Letter of Credit Agreement. Master Letter of Credit ------------------------------------- Agreement prepared by and reasonably acceptable to the Lender, duly executed by the Borrowers in favor of the Lender. 34 (g) Subordination Agreement. A Subordination Agreement dated as of the ----------------------- date of this Agreement, from each holder of Subordinated Debt, in the form prepared by and reasonably acceptable to the Lender in the form of Exhibit ------- F hereto. - (h) Patent and Trademark Security Agreement. Amended and Restated ------------------------------------------ Patent and Trademark Security Agreement prepared by and reasonably acceptable to the Lender, duly executed by the Borrowers in favor of the Lender in the form of Exhibit G hereto. --------- (i) Copyright Security Agreement. Copyright Security Agreement -------------------------------- prepared by and reasonably acceptable to the Lender, in favor of the Lender in the form of Exhibit H hereto. --------- (j) Collateral Access Agreement. If and when requested by Lender, a ----------------------------- Collateral Access Agreement from the owner, lessor or mortgagee, as the case may be, of any real estate whereon any Collateral is stored or otherwise located, in the form prepared by and reasonably acceptable to the Lender, except where the Borrowers have used commercially reasonable efforts to obtain the same and are unable to do so. (k) Borrowing Base Certificates. A Borrowing Base Certificate in the ---------------------------- form prepared by the Lender and attached as Exhibit I hereto, certified as accurate by the applicable Borrowers, and acceptable to the Lender in its sole discretion. (l) Search Results; Lien Terminations. Copies of UCC search reports ----------------------------------- dated such a date as is reasonably acceptable to the Lender, listing all effective financing statements which name the Borrowers and any of their Subsidiaries, under their present names and any previous names, as debtors, together with (i) copies of such financing statements, (ii) payoff letters evidencing repayment in full of all existing Debt to be repaid with the Loans, the termination of all agreements relating thereto and the release of all Liens granted in connection therewith, with UCC or other appropriate termination statements and documents effective to evidence the foregoing (other than Permitted Liens), and (iii) such other UCC termination statements as the Lender may reasonably request. (m) Organizational and Authorization Document. Copies of (i) the -------------------------------------------- Articles or Certificate of Incorporation or Articles or Certificate of Organization of each Borrower; (ii) resolutions of the board of directors, managers or members of the Borrowers approving and authorizing such Person's execution, delivery and performance of the Loan Documents to which it is party and the transactions contemplated thereby; (iii) signature and incumbency certificates of the officers or managers of the Borrowers executing any of the Loan Documents, each of which the applicable Borrower hereby certifies to be true and complete, and in full force and effect without modification, it being understood that the Lender may conclusively rely on each such document and certificate until actually advised by the Borrowers of any changes therein; and (iv) good standing certificates in the state of organization of the Borrowers and in each other state in which a Borrower does business. 35 (n) Insurance. Evidence satisfactory to the Lender of the existence of --------- insurance required to be maintained pursuant to Section 8.6, together with evidence that the Lender has been named as a loss payee on all related insurance policies (except that with respect to policies relating to PCD, LLC or PCD, Borrowers shall have thirty (30) days after closing to provide such evidence). (o) Lockbox Agreement. The Master Cash Management Service Agreement ------------------ and Supplement to the Master Cash Management Service Agreement Re: Wholesale Lockbox and Lockbox Related Services, entered into in connection with the Existing Loan Agreement is in full force and effect. (p) Opinion of Borrowers' Counsel. An opinion of counsel to the -------------------------------- Borrowers in the form prepared by and in substance reasonably acceptable to Lender's counsel. (q) Evidence of Palm Data Acquisition. A certified copy of the ------------------------------------- Certificate of Merger or other documentation reasonably satisfactory to Lender and its counsel that the acquisition of PCD and PCD, LLC by KMS has closed. (r) Additional Documents. Such other certificates, financial ---------------------- statements, schedules, resolutions, opinions of counsel, notes and other documents which are provided for hereunder or which the Lender shall require. 3.2 Event of Default. Any Event of Default, or Unmatured Event of Default ---------------- shall have occurred and be continuing. 3.3 Material Adverse Effect. The occurrence of a Material Adverse Effect. ----------------------- 3.4 Litigation. Any litigation or governmental proceeding shall have been ---------- instituted against any Borrower or any of its officers or shareholders having a Material Adverse Effect. 3.5 Representations and Warranties. Any representation or warranty of any ------------------------------- Borrower contained herein or in any Loan Document shall be untrue or incorrect in any material respect as of the date of any Loan as though made on such date, except to the extent such representation or warranty expressly relates to an earlier date. Section 4. NOTES EVIDENCING LOANS. ---------------------- 4.1 Facility A Revolving Notes. The Facility A Loans and the Letter of ---------------------------- Credit Obligations shall be evidenced by the Facility A Revolving Note. At the time of the initial disbursement of a Facility A Loan and at each time any additional Facility A Loan shall be requested hereunder or a repayment made in whole or in part thereon, a notation thereof shall be made on the books and records of the Lender. All amounts recorded shall be, absent manifest error, conclusive and binding evidence of (i) the principal amount of the Facility A Loans advanced hereunder and the amount of all Letter of Credit Obligations, (ii) any accrued and unpaid interest owing on the Facility A Loans, and (iii) 36 all amounts repaid on the Facility A Loans or the Letter of Credit Obligations. The failure to record any such amount or any error in recording such amounts shall not, however, limit or otherwise affect the obligations of the Borrowers under the Facility A Revolving Note to repay the principal amount of the Facility A Loans, together with all interest accruing thereon. 4.2 Facility B Term Note. The Facility B Term Loan shall be evidenced by -------------------- the Facility B Term Note. 4.3 Facility C CapEx Notes. The Facility C Loans shall be evidenced by the ---------------------- Facility C CapEx Note. At the time of the initial disbursement of a Facility C Loan and at each time any additional Facility C Loan shall be requested hereunder or a repayment made in whole or in part thereon, a notation thereof shall be made on the books and records of the Lender. All amounts recorded shall be, absent manifest error, conclusive and binding evidence of (i) the principal amount of the Facility C Loans advanced hereunder, (ii) any accrued and unpaid interest owing on the Facility C Loans, and (iii) all amounts repaid on the Facility C Loans. The failure to record any such amount or any error in recording such amounts shall not, however, limit or otherwise affect the obligations of the Borrowers under the Facility C CapEx Notes and repay the principal amount of the Facility C Loans, together with all interest accruing thereon. 4.4 Facility D Revolving Note. The Facility D Loans shall be evidenced by -------------------------- the Facility D Revolving Note. At the time of the initial disbursement of a Facility D Loan and at each time any additional Facility D Loan shall be requested hereunder or a repayment made in whole or in part thereon, a notation thereof shall be made on the books and records of the Lender. All amounts recorded shall be, absent manifest error, conclusive and binding evidence of (i) the principal amount of the Facility D Loans advanced hereunder, (ii) any accrued and unpaid interest owing on the Facility D Loans, and (iii) all amounts repaid on the Facility D Loans. The failure to record any such amount or any error in recording such amounts shall not, however, limit or otherwise affect the obligations of the Borrowers under the Facility D Revolving Note to repay the principal amount of and all interest on the Facility Loans. Section 5. MANNER OF BORROWING. ------------------- 5.1 Borrowing Procedures. Each Facility A Loan, Facility C Loan or Facility -------------------- D Loan may be advanced either as a Prime Loan, a Fixed LIBOR Loan or a LIBOR Loan, provided, however, that at any time, the Borrowers may identify no more than five (5) Facility A Loans, five (5) Facility C Loans and five (5) Facility D Loans which may be LIBOR Loans and Borrowers may have only one (1) Fixed LIBOR Loan Facility A Loan, one (1) Fixed LIBOR Loan Facility C Loan and one (1) Fixed LIBOR Loan Facility D Loan at any one time. Each Facility A Loan and Facility D Loan shall be made available to the Borrowers upon any written, electronic or telecopy loan request which the Lender in good faith believes to emanate from a properly authorized representative of the Borrowers, whether or not that is in fact the case. Each such notice shall be effective upon receipt by the Lender, 37 shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a LIBOR Loan, the initial LIBOR Interest Period therefor. The Borrowers shall select LIBOR Interest Periods so as not to require a payment or prepayment of any LIBOR Loan during a LIBOR Interest Period for such LIBOR Loan. The final LIBOR Interest Period for any LIBOR Loan must be such that its expiration occurs on or before the Maturity Date of such Loan. A request for a Prime Loan or an overnight LIBOR Loan Rate must be received by the Lender no later than 11:00 a.m. Chicago, Illinois time, on the day it is to be funded. A request for a LIBOR Loan (other than an overnight rate) or a Fixed LIBOR Loan must be (i) received by the Lender no later than 11:00 a.m. Chicago, Illinois time, three days before the day it is to be funded, and (ii) in an amount equal to One Hundred Thousand and 00/100 Dollars ($100,000.00) or a higher integral multiple of One Hundred Thousand and 00/100 Dollars ($100,000.00). The proceeds of each Facility A Loan shall be made available at the office of the Lender by credit to the account of the Borrowers or by other means requested by the Borrowers and acceptable to the Lender. The Borrowers do hereby irrevocably confirm, ratify and approve all such advances by the Lender and do hereby indemnify the Lender against losses and expenses (including court costs, attorneys' and paralegals' fees) and shall hold the Lender harmless with respect thereto. 5.2 LIBOR Conversion and Continuation Procedures. (a) Upon notice to the ---------------------------------------------- Lender as set forth above, the Borrowers may, subject to the terms and conditions of this Agreement, (i) elect, as of any Business Day, to convert any Facility A Loan , Facility C Loan or Facility D Loan that is a Prime Loan into a LIBOR Loan or a Fixed LIBOR Loan; or (ii) convert any LIBOR Loan into a Prime Loan or a Fixed LIBOR Loan and convert any Fixed LIBOR Loan into a Prime Loan or a LIBOR Loan. Such notice shall specify: (A) the proposed date of conversion; (B) the aggregate amount of Loans to be converted; and (B) the type of Facility A Loans, Facility C Loans or Facility D Loans, as applicable, resulting from the proposed conversion. (b) Unless the Borrowers request that a LIBOR Loan be converted to a Prime Loan or a Fixed LIBOR Loan in accordance with Section 5.2(a), upon --------------- the completion of the relevant LIBOR Interest Period for such LIBOR Loan all LIBOR Loans shall automatically be continued with the same LIBOR Interest Period as the LIBOR Interest Period then ended. 5.3 Letters of Credit. All Letters of Credit shall bear such application, ----------------- issuance, renewal, negotiation and other fees and charges, and bear such interest as charged by the Lender or otherwise payable pursuant to the Master Letter of Credit Agreement. In addition to the foregoing, all standby Letters of Credit issued under and pursuant to this Agreement shall bear an annual issuance fee equal to one and one-half percent (1.50%) of the face amount of such standby Letter of Credit, payable by the Borrowers, as applicable, quarterly, in advance, until (i) such Letter of Credit has expired or has been returned to the Lender, or (ii) the Lender has paid the beneficiary thereunder the full face amount of such Letter of Credit. 5.4 Automatic Debit. In order to effectuate the timely payment of any of ---------------- the Obligations when due, the Borrowers hereby authorize and direct the Lender, at the Lender's option, to debit the amount of the Obligations from any ordinary deposit account of the applicable Borrowers, or as applicable, hereunder to pay the amount of the Obligations. 38 5.5 Discretionary Disbursements. The Lender, in its sole and absolute ---------------------------- discretion, may immediately upon notice to the applicable Borrowers, disburse any or all proceeds of the Loans made or available to the applicable Borrowers pursuant to this Agreement to pay any fees, costs, expenses or other amounts required to be paid by the applicable Borrowers hereunder and not so paid. All monies so disbursed shall be a part of the Obligations, payable by the applicable Borrowers on demand from the Lender. Section 6. SECURITY FOR THE OBLIGATIONS. ---------------------------- 6.1 Security for Obligations. As security for the payment and performance ------------------------- of the Obligations each of the Borrowers does hereby pledge, assign, transfer and deliver to the Lender and do hereby grant to the Lender a continuing and unconditional first priority security interest in and to the Collateral subject to Permitted Liens and Permitted Perfection Limitations. 6.2 Possession and Transfer of Collateral. Unless an Event of Default ----------------------------------------- exists hereunder, the Borrowers shall be entitled to possession and use of the Collateral (other than Instruments or Documents, Tangible Chattel Paper, and other Collateral required to be delivered to the Lender pursuant to this Section 6). The cancellation or surrender of any Note, upon payment or otherwise, shall not affect the right of the Lender to retain the related Collateral for any other Obligations of the applicable Borrowers. Borrowers shall not effect any Asset Disposition involving Collateral. 6.3 Financing Statements. The Borrowers shall, at the Lender's request, at -------------------- any time and from time to time, execute and deliver to the Lender such financing statements, amendments and other documents and do such acts as the Lender deems reasonably necessary in order to establish and maintain valid, attached and perfected first priority security interests in the Collateral in favor of the Lender, free and clear of all Liens and claims and rights of third parties whatsoever, except Permitted Liens. The Borrowers hereby irrevocably authorize the Lender at any time, and from time to time, to file in any jurisdiction any initial financing statements and amendments thereto without the signature of the applicable Borrower that (a) indicate the Collateral (i) is comprised of all assets of such Borrower or words of similar effect, regardless of whether any particular asset comprising a part of the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed, or (ii) as being of an equal or lesser scope or within greater detail as the grant of the security interest set forth herein, and (b) contain any other information required by Section 5 of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed regarding the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the applicable Borrower is an organization, the type of organization and any Organizational Identification Number issued to such Borrower, and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of the 39 real property to which the Collateral relates. The Borrowers hereby agree that a photocopy or other reproduction of this Agreement is sufficient for filing as a financing statement and the Borrowers authorize the Lender to file this Agreement as a financing statement in any jurisdiction. The Borrowers agree to furnish any such information to the Lender promptly upon request. The Borrowers further ratify and affirm their authorization for any financing statements and/or amendments thereto, executed and filed by the Lender in any jurisdiction prior to the date of this Agreement. In addition, the Borrowers shall make appropriate entries on their books and records disclosing the Lender's security interests in the Collateral. 6.4 Additional Collateral. The Borrowers shall deliver to the Lender ---------------------- immediately upon its demand, such other collateral (such additional collateral shall under no circumstances include any real property of any of the Borrowers or any property of, or for the account of, or any Borrower's interest in the Capital Securities of any Borrower or any Affiliate or Subsidiary of any Borrower) as the Lender may from time to time request, should the value of the Collateral, in the Lender's reasonable discretion, decline, deteriorate, depreciate or become impaired, and do hereby grant to the Lender a continuing security interest in such other collateral, which, when pledged, assigned and transferred to the Lender shall be and become part of the Collateral. The Lender's security interests in all of the foregoing Collateral shall be valid, complete and perfected whether or not covered by a specific assignment. 6.5 Preservation of the Collateral. The Lender may, but is not required, to ------------------------------ take such actions from time to time as the Lender deems appropriate to maintain or protect the Collateral. The Lender shall have exercised reasonable care in the custody and preservation of the Collateral if the Lender takes such action as the Borrowers shall reasonably request in writing which is not inconsistent with the Lender's status as a secured party, but the failure of the Lender to comply with any such request shall not necessarily be deemed a failure to exercise reasonable care; provided, however, the Lender's responsibility for the safekeeping of the Collateral shall (i) be deemed reasonable if such Collateral is accorded treatment substantially equal to that which the Lender accords its own property, and (ii) not extend to matters beyond the control of the Lender, including, without limitation, acts of God, war, insurrection, riot or governmental actions. In addition, any failure of the Lender to preserve or protect any rights with respect to the Collateral against prior or third parties, or to do any act with respect to preservation of the Collateral, not so requested by the Borrowers, shall not necessarily be deemed a failure to exercise reasonable care in the custody or preservation of the Collateral. The Borrowers shall have the sole responsibility for taking such action as may be necessary, from time to time, to preserve all rights of the Borrowers and the Lender in the Collateral against prior or third parties. 6.6 Other Actions as to any and all Collateral. The Borrowers further agree ------------------------------------------ to take any other action reasonably requested by the Lender to ensure the attachment, perfection and first priority of, and the ability of the Lender to enforce, the Lender's security interest in any and all of the Collateral subject to Permitted Liens and Permitted Perfection Limitations including, without limitation, (a) causing the Lender's name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the Lender to enforce, the Lender's security interest in such Collateral, (b) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Lender to enforce, the Lender's security interest in such Collateral, (c) using commercially reasonable efforts to obtain 40 governmental and other third party consents and approvals, including without limitation any consent of any licensor, lessor or other Person obligated on Collateral, (d) obtaining waivers from mortgagees and landlords in form and substance reasonably satisfactory to the Lender, and (e) taking all actions required by the UCC in effect from time to time or by other law, as applicable in any relevant UCC jurisdiction, or by other law as applicable in any foreign jurisdiction. The Borrowers further agree to indemnify and hold the Lender harmless against claims of any Persons not a party to this Agreement concerning disputes arising over the Collateral. 6.7 Collateral in the Possession of a Warehouseman or Bailee. If any of the -------------------------------------------------------- Collateral at any time is in the possession of a warehouseman or bailee, the applicable Borrower shall at any time that Lender so requires notify the Lender thereof, and shall use commercially reasonable efforts to obtain a Collateral Access Agreement. 6.8 Lockbox Arrangement. (a) Each Borrower shall direct all of its Account ------------------- Debtors to make all payments on the Accounts directly to a post office box (the "Lockbox") designated by, and under the exclusive control of, the Lender. Pursuant to the Lockbox Agreement, the Borrowers (except KMS, PCD and PCD, LLC) have established the Lockbox and an account (the "Lockbox Account") in the Borrowers' names with the Lender into which all payments received in the Lockbox shall be deposited, and into which the Borrowers (except PCD, LLC until October, 2007 at which time PCD, LLC will execute the Lockbox Agreement) will immediately deposit all payments made for Inventory sold by the Borrowers or the performance of services by the Borrowers, and received by the Borrowers in the identical form in which such payments were made, whether by cash or check. If the Borrowers or any director, officer, employee, agent of the Borrowers, or any other Person acting for or in concert with the Borrowers shall receive any monies, checks, notes, drafts or other payments relating to or as proceeds of Accounts or other Collateral, the Borrowers and each such Person shall receive all such items in trust for, and as the sole and exclusive property of, the Lender and, immediately upon receipt thereof, shall remit the same (or cause the same to be remitted) in kind to the Lockbox Account. The Borrowers agree that all payments made to such Lockbox and Lockbox Account or otherwise received by the Lender, whether in respect of the Accounts or as proceeds of other Collateral or otherwise, will be applied in accordance with Section 12.8 of this Agreement. The Borrowers agree to pay all reasonable fees, costs and expenses which the Lender incurs in connection with opening and maintaining the Lockbox and the Lockbox Account and depositing for collection by the Lender any check or other item of payment received by the Lender on account of the Obligations. All of such fees, costs and expenses shall constitute Obligations hereunder, shall be payable to the Lender by the Borrowers upon demand, and, until paid, shall bear interest at the Default Rate and if not paid within thirty (30) days shall be treated as a Facility A Advance. All checks, drafts, instruments and other items of payment or proceeds of Collateral shall be endorsed by the Borrowers to the Lender, and, if that endorsement of any such item shall not be made for any reason, the Lender is hereby irrevocably authorized to endorse the same on the Borrowers' behalf. For the purpose of this section, the Borrowers irrevocably hereby make, constitute and appoint the Lender (and all Persons designated by the Lender for that purpose) as the Borrowers' true and lawful attorney and agent-in-fact (i) to endorse the Borrowers' name upon such items of payment and/or proceeds of Collateral and upon any Chattel Paper, document, instrument, 41 invoice or similar document or agreement relating to any Account of the Borrowers or goods pertaining thereto; (ii) to take control in any manner of any item of payment or proceeds thereof; and (iii) to have access to any lock box or postal box into which any of the Borrower's mail is deposited, and open and process all mail addressed to the Borrowers and deposited therein. 6.9 Letter-of-Credit Rights. Borrowers represent and warrant to Lender that ----------------------- they have no material Letter of Credit Rights. If a Borrower at any time is a beneficiary under a material letter of credit now or hereafter issued in favor of such Borrower, such Borrower shall promptly notify the Lender thereof and, at the request and option of the Lender, such Borrower shall, pursuant to an agreement in form and substance reasonably satisfactory to the Lender, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to the Lender of the proceeds of any drawing under the letter of credit, or (ii) arrange for the Lender to become the transferee beneficiary of the letter of credit, with the Lender agreeing, in each case, that the proceeds of any drawing under the letter to credit are to be applied as provided in this Agreement. 6.10 Release of Collateral. At any time that any of the Collateral is sold --------------------- or otherwise transferred to a Person (other than to a Borrower or any Subsidiary of a Borrower) in compliance with the terms of this agreement (any such Collateral being the "Sold Collateral"), the Liens on the Sold Collateral created by this Agreement shall be released and terminated immediately, and Lender shall take such actions as may be necessary to cause the Liens of record with respect to the Sold Collateral to be released within twenty (20) days after Lender receives written notice from Borrowers that such sale or transfer has occurred. 6.11 Electronic Chattel Paper and Transferable Records. Borrowers represent ------------------------------------------------- and warrant to Lender that they have no Electronic Chattel Paper in excess of $100,000. If a Borrower at any time holds or acquires an interest in any electronic chattel paper or any "transferable record", as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction in excess of $100,000 such Borrower shall promptly notify the Lender thereof and, at the request of the Lender, shall take such action as the Lender may reasonably request to vest in the Lender control under Section 9-105 of the UCC of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The Lender agrees with the Borrowers that the Lender will arrange, pursuant to procedures satisfactory to the Lender and so long as such procedures will not result in the Lender's loss of control, for the Borrowers to make alterations to the electronic chattel paper or transferable record permitted under Section 9-105 of the UCC or, as the case may be, Section 201 of the federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in control to make without loss of control. Section 7. REPRESENTATIONS AND WARRANTIES. ------------------------------ 42 To induce the Lender to make Loans to the Borrowers, each Borrower makes the following representations and warranties, to the Lender, each of which shall survive the execution and delivery of this Agreement. 7.1 Borrower Organization and Name. (a) Each Borrower is a corporation or -------------------------------- limited liability company duly organized, existing and in good standing under the laws of the state of its organization, with full and adequate power to carry on and conduct its business as presently conducted and is validly existing and in good standing under the laws of the jurisdiction of its organization. Each Borrower is duly licensed or qualified in all foreign jurisdictions wherein the nature of its activities require such qualification or licensing, except for such jurisdictions where the failure to so qualify would not have a Material Adverse Effect. The Borrowers' Organizational Identification Numbers are as set forth on Schedule 7.1 attached hereto. The exact legal name of the Borrowers are as set forth in the first paragraph of this Agreement, and except as set forth on Schedule 7.1 attached hereto, as of the date of this Agreement the Borrowers do not conduct, nor have they during the last five (5) years prior to the date of this Agreement conducted, business under any other names or trade names. 7.2 Authorization. The Borrowers have full right, power and authority to ------------- enter into this Agreement, to make the borrowings and execute and deliver the Loan Documents as provided herein and to perform all of their duties and obligations under this Agreement and the other Loan Documents. The execution and delivery of this Agreement and the other Loan Documents will not, nor will the observance or performance of any of the matters and things herein or therein set forth, violate or contravene any provision of law in any material respect or of the articles of incorporation or bylaws of the Borrowers. All necessary and appropriate action has been taken on the part of the Borrowers to authorize the execution and delivery of this Agreement and the Loan Documents. 7.3 Validity and Binding Nature. This Agreement and the other Loan ------------------------------ Documents are the legal, valid and binding obligations of the Borrowers, enforceable against the Borrowers in accordance with their terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors' rights generally and to general principles of equity. 7.4 Consent; Absence of Breach. The execution, delivery and performance of -------------------------- this Agreement, the other Loan Documents and any other documents or instruments to be executed and delivered by the Borrowers in connection with the Loans, and the borrowings by the Borrowers hereunder, do not and will not (a) require any consent, approval, authorization of, or filings with, notice to or other act by or in respect of, any governmental authority or any other Person (other than any consent or approval which has been obtained and is in full force and effect); (b) conflict with (i) in any material respect any provision of law or any applicable regulation, order, writ, injunction or decree of any court or governmental authority, (ii) the articles or certificate of incorporation or organization or bylaws or operating agreement of the Borrowers or any of their Subsidiaries, or (iii) in any material respect any material agreement, indenture, instrument or other document, or any judgment, order or decree, which is binding upon the Borrowers or any of their Subsidiaries or any of their 43 respective properties or assets; or (c) require, or result in, the creation or imposition of any Lien on any asset of the Borrowers or any of their Subsidiaries, other than Liens in favor of the Lender created pursuant to this Agreement. 7.5 Ownership of Properties; Liens. The Borrowers are the owners or lessees ------------------------------ of all of their respective material properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including material patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges and claims (including infringement claims with respect to patents, trademarks, service marks, copyrights and the like), other than Permitted Liens. 7.6 Equity Ownership. All issued and outstanding Capital Securities of the ---------------- Borrowers and each of their Subsidiaries are duly authorized and validly issued, fully paid, non-assessable, and free and clear of all Liens other than Permitted Liens and Liens in favor of the Lender, if any, and such securities were issued in compliance with all applicable state and federal laws concerning the issuance of securities. As of the date hereof, there are no pre-emptive or other outstanding rights, options, warrants, conversion rights or other similar agreements or understandings for the purchase or acquisition of any Capital Securities of the Borrowers and each of its Subsidiaries. 7.7 Intellectual Property. With respect to all material Intellectual ---------------------- Property used by the Borrowers, the Borrowers own and possess or have a license or other right to use all such Intellectual Property as are necessary for the conduct of the businesses of the Borrowers, without any infringement upon rights of others which would reasonably be expected to have a Material Adverse Effect upon the Borrowers, and no material claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property where such claim would reasonably be expected to have a Material Adverse Effect nor do they know of any valid basis for any such claim. 7.8 Financial Statements. All financial statements submitted to the Lender -------------------- have been prepared in accordance with GAAP on a basis, except as otherwise noted therein or on Schedule 3.4 to the Merger Agreement, with respect to the financial statements of PCD, consistent with the previous fiscal year and present fairly in all material respects in accordance with GAAP the financial condition of the Borrowers and the results of the operations for the Borrowers as of such date and for the periods indicated. Since the date of the most recent financial statement submitted by the Borrowers to the Lender, there has been no change in the financial condition or in the assets or liabilities of the Borrowers having a Material Adverse Effect. 7.9 Litigation and Contingent Liabilities. There is no litigation, ---------------------------------------- arbitration proceeding, demand, charge, claim, petition or governmental investigation or proceeding pending, or to the knowledge of the Borrowers, threatened, against the Borrowers, which, would reasonably be expected to have a Material Adverse Effect upon the Borrowers ("Proceedings"), except as set forth in Schedule 7.9 or disclosed in the Principal Shareholder's Securities and ------------ Exchange Commission reports. Borrowers will provide prompt written notice to Lender if any such report contains information with respect to previously undisclosed Proceedings. Other than any liability incident to such litigation or proceedings, the Borrowers have no material guarantee obligations, contingent 44 liabilities, liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not fully-reflected or fully reserved to the extent required by GAAP or that reasonably would be expected to result in a Material Adverse Effect. 7.10 Event of Default. (a) No Event of Default or Unmatured Event of ----------------- Default exists or would result from the incurrence by the Borrowers of any of the Obligations pertaining to the Borrowers hereunder or under any of the other Loan Documents, and the Borrowers are not in default (without regard to grace or cure periods) under any other contract or agreement to which it is a party, the effect of which would have a Material Adverse Effect upon the Borrowers. 7.11 Adverse Circumstances. No condition, circumstance, event, agreement, --------------------- document, instrument, restriction, litigation or proceeding (or threatened litigation or proceeding or basis therefor) exists which (i) would have a Material Adverse Effect upon the Borrowers, or (ii) constitutes a Event of Default or a Unmatured Event of Default. 7.12 Environmental Laws and Hazardous Substances. The Borrowers have not -------------------------------------------- generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Substances, on or off any of the premises of the Borrowers (whether or not owned by it) in any manner which at any time violates any Environmental Law or any license, permit, certificate, approval or similar authorization, which violation would have a Material Adverse Effect. The Borrowers comply in all material respects with all Environmental Laws and all licenses, permits certificates, approvals and similar authorizations thereunder except where failure to comply would not have a Material Adverse Effect. In each case which would have a Material adverse effect: (i) there has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other Person, nor is any pending or, to the best of the Borrower's knowledge, threatened, and the Borrowers shall immediately notify the Lender upon becoming aware of any such investigation, proceeding, complaint, order, directive, claim, citation or notice, and shall take prompt and appropriate actions to respond thereto, with respect to any non-compliance with, or violation of, the requirements of any Environmental Law by the Borrowers or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Material or any other environmental, health or safety matter, which affects the Borrowers or its business, operations or assets or any properties at which the Borrowers have transported, stored or disposed of any Hazardous Substances. The Borrowers have no material liability, contingent or otherwise, in connection with a release, spill or discharge, threatened or actual, of any Hazardous Substances or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Material. The Borrowers further agree to allow the Lender or its agent reasonable access to the properties of the Borrowers and its Subsidiaries to confirm compliance with all Environmental Laws, and the Borrowers shall, following determination by the Lender that there is material non-compliance, or any condition which requires any action by or on behalf of the Borrowers in order to avoid any material non-compliance, with any Environmental Law, at the Borrower's sole expense, 45 cause an independent environmental engineer acceptable to the Lender to conduct such tests of the relevant site as are appropriate, and prepare and deliver a report setting forth the result of such tests, a proposed plan for remediation and an estimate of the costs thereof. 7.13 Solvency, etc. As of the date hereof, and immediately prior to and -------------- after giving effect to the issuance of each Letter of Credit and each Loan hereunder and the use of the proceeds thereof, (a) the fair value of the Borrowers' assets are greater than the amount of their liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated as required under the Section 548 of the Bankruptcy Code, (b) the present fair saleable value of the Borrowers' assets are not less than the amount that will be required to pay the probable liability on their debts as they become absolute and matured, (c) the Borrowers are able to realize upon their assets and pay their debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business, (d) the Borrowers do not intend to, and do not believe that they will, incur debts or liabilities beyond their ability to pay as such debts and liabilities mature, and (e) the Borrowers are not engaged in business or a transaction, and are not about to engage in business or a transaction, for which their property would constitute unreasonably small capital. 7.14 ERISA Obligations. All Employee Plans meet the minimum funding ------------------ standards of Section 302 of ERISA and Section 412 of the Internal Revenue Code where applicable, and each Employee Plan that is intended to be qualified within the meaning of Section 401 of the Internal Revenue Code is qualified. No withdrawal liability has been incurred under any Employee Plan and no "reportable event" or "prohibited transaction" (as such terms are defined in ERISA), has occurred with respect to any Employee Plan, unless in the case of any prohibited transaction such transaction is the subject of a statutory or administrative exemption. The Borrowers have promptly paid and discharged all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a Lien against any of its properties or assets. 7.15 Labor Relations. Except as would not reasonably be expected to have a --------------- Material Adverse Effect, (i) there are no strikes, lockouts or other labor disputes against the Borrowers or, to the best knowledge of the Borrowers, threatened, (ii) hours worked by and payment made to employees of the Borrowers have not been in violation of the Fair Labor Standards Act or any other applicable law, and (iii) no unfair labor practice complaint is pending against the Borrowers or, to the best knowledge of the Borrowers, threatened before any governmental authority. 7.16 Security Interest. This Agreement creates a valid security interest in ----------------- favor of the Lender in the Collateral to the extent the same may be created by written agreement and, when properly perfected by filing in the appropriate jurisdictions, or by possession or Control of such Collateral by the Lender or delivery of such Collateral to the Lender, shall constitute a valid, perfected, first-priority security interest in such Collateral subject in each case to the Intercreditor Agreement, Permitted Liens and Permitted Perfection Limitations. 7.17 Lending Relationship. The relationship hereby created between the --------------------- Borrowers and the Lender is and has been conducted on an open and arm's length 46 basis in which no fiduciary relationship exists, and the Borrowers have not relied and are not relying on any such fiduciary relationship in executing this Agreement and in consummating the Loans. The Lender represents that it will receive any Note payable to its order as evidence of a bank loan. 7.18 Business Loan. The Loans, including interest rate, fees and charges as ------------- contemplated hereby, (i) are business loans within the purview of 815 ILCS 205/4(1)(c), as amended from time to time, (ii) are an exempted transaction under the Truth In Lending Act, 12 U.S.C. 1601 et seq., as amended from time to time, and (iii) do not, and when disbursed shall not, violate the provisions of the Illinois usury laws, any consumer credit laws or the usury laws of any state which may have jurisdiction over this transaction, the Borrowers or any property securing the Loans. 7.19 Taxes. Except as set forth in Schedule 7.19 attached hereto, the ----- -------------- Borrowers have timely filed all federal or material tax returns and reports required by law to have been filed by them and have paid all federal and other material taxes, governmental charges and assessments due and payable with respect to such returns, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books, are insured against or bonded over to the satisfaction of the Lender and the contesting of such payment does not create a Lien on the Collateral which is not a Permitted Lien. There is no material controversy or objection pending, or to the knowledge of the Borrowers, threatened in respect of any tax returns of the Borrowers. The Borrowers have made adequate reserves on their books and records in accordance with GAAP for all taxes that have accrued but which are not yet due and payable. The failure to file the tax returns as disclosed on Schedule 7.19 will not result in the occurrence of a Material Adverse Effect. - ------------- 7.20 Compliance with Regulation U. No portion of the proceeds of the Loans ---------------------------- shall be used by the Borrowers, or any Affiliate of the Borrowers, either directly or indirectly, for the purpose of purchasing or carrying any margin stock, within the meaning of Regulation U as adopted by the Board of Governors of the Federal Reserve System or any successor thereto. 7.21 Governmental Regulation. The Borrowers and their Subsidiaries are not, ----------------------- or after giving effect to any loan, will not be, subject to regulation under the Federal Power Act, the ICC Termination Act of 1995 or the Investment Company Act of 1940 or to any federal or state statute or regulation limiting its ability to incur indebtedness for borrowed money. 7.22 Bank Accounts. Except as listed on Schedule 7.22 attached hereto, all ------------- ------------- concentration Deposit Accounts and concentration operating bank accounts of the Borrowers and their Subsidiaries (other than the Canadian Subsidiary) are located at the Lender. 7.23 Place of Business. On the date of this Agreement, the principal place ----------------- of business, the location of books and records and the location of all Collateral, if other than at such principal place of business, is as set forth on Schedule 7.23 attached hereto and made a part hereof, and the applicable -------------- Borrowers shall promptly notify the Lender of any change in such locations. The Borrowers will not remove or permit the Collateral to be removed from such 47 locations without the prior written consent of the Lender, except for Inventory or non-material assets sold or disposed of in the usual and ordinary course of the Borrower's business. 7.24 Complete Information. This Agreement and all financial statements, --------------------- schedules, certificates and agreements previously or contemporaneously herewith furnished in writing by the Borrowers to the Lender for purposes of, or in connection with, this Agreement and the transactions contemplated hereby is, and all written information hereafter furnished by or on behalf of the Borrowers to the Lender pursuant hereto or in connection herewith will be, true and accurate in every material respect on the date as of which such information is dated or certified, and this Agreement foes not omit any material fact necessary to make such information not misleading in any material respect in light of the circumstances under which made (it being recognized by the Lender that any projections and forecasts provided by the Borrowers are based on good faith estimates and assumptions believed by the Borrowers to be reasonable as of the date of the applicable projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts may differ from projected or forecasted results). 7.25 Subordinated Debt. The subordination provisions of the Subordination ------------------ Agreement are enforceable against the holders of the Subordinated Debt by the Lender. The Obligations constitute Senior Debt entitled to the benefits of the subordination provisions contained in the Subordination Agreement. The Borrowers acknowledge that the Lender is entering into this Agreement and is making the Loans in reliance upon the subordination provisions of the Subordination Agreement and this Section 7.25. ------------ Section 8. AFFIRMATIVE COVENANTS. --------------------- 48 Each Borrower makes the following covenants. 8.1 Compliance with Lender Regulatory Requirements; Increased Costs. If the --------------------------------------------------------------- Lender shall reasonably determine that any Regulatory Change, or compliance by the Lender or any Person controlling the Lender with any request or directive issued or promulgated after the date hereof (whether or not having the force of law) of any governmental authority, central bank or comparable agency has or would have the effect of reducing the rate of return on the Lender's or such controlling Person's capital as a consequence of the Lender's obligations hereunder or under any Letter of Credit to a level below that which the Lender or such controlling Person could have achieved but for such Regulatory Change or compliance (taking into consideration the Lender's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by the Lender or such controlling Person to be material or would otherwise reduce the amount of any sum received or receivable by the Lender under this Agreement or under any Note with respect thereto, then from time to time, upon demand by the Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail), the Borrowers shall pay directly to the Lender or such controlling Person such additional amount as will compensate the Lender for such increased cost or such reduction, so long as such amounts have accrued on or after the day which is one hundred eighty days (180) days prior to the date on which the Lender first made demand. 8.2 Borrower Existence. Each Borrower shall at all times preserve and ------------------- maintain (a) its existence and good standing in the jurisdiction of its organization, and (b) its qualification to do business and good standing in each jurisdiction where the nature of its business makes such qualification necessary (other than such jurisdictions in which the failure to be qualified or in good standing would not reasonably be expected to have Material Adverse Effect). Borrower shall at all times continue as a going concern in a Permitted Business provided any Borrower may merge with or into another Borrower so long as, if KMS is a party to the merger, KMS is the survivor. If a Borrower does not have an Organizational Identification Number and later obtains one, such Borrower shall promptly notify the Lender of such Organizational Identification Number. 8.3 Compliance With Laws. Each Borrower shall use the proceeds of the Loans -------------------- for working capital, the acquisition of PCD and PCD, LLC and other general corporate or business purposes not in contravention of any requirements of law and not in violation of this Agreement, and shall comply in all respects, including the conduct of its business and operations and the use of its properties and assets, with all applicable laws, rules, regulations, decrees, orders, judgments, licenses and permits, except where failure to comply would not reasonably be expected to have a Material Adverse Effect. In addition, and without limiting the foregoing sentence, each Borrower shall (a) ensure that no person who owns a controlling interest in or otherwise controls such Borrower is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control ("OFAC"), the Department of the Treasury or included in any Executive Orders, (b) not use or permit the use of the proceeds of the Loans to violate any of the 49 foreign asset control regulations of OFAC or any enabling statute or Executive Order relating thereto, and (c) comply with all applicable Bank Secrecy Act ("BSA") laws and regulations, as amended. 8.4 Payment of Taxes and Liabilities. Each Borrower shall pay and ------------------------------------ discharge, prior to delinquency and before penalties accrue thereon, all property and other taxes, and all governmental charges or levies against it or any of the Collateral, as well as claims of any kind which, if unpaid, could become a Lien on any of its property; provided that the foregoing shall not require such Borrower to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto to the extent required by GAAP and, in the case of a claim which could become a Lien on any of the Collateral, such contest proceedings stay the foreclosure of such Lien or the sale of any portion of the Collateral to satisfy such claim. 8.5 Maintain Property. Each Borrower shall at all times maintain, preserve ----------------- and keep its material plant, properties and Equipment, including, but not limited to, any Collateral, in satisfactory repair, working order and condition, normal wear and tear excepted, and shall from time to time make all needful and proper repairs, renewals, replacements, and additions thereto so that at all times the efficiency thereof shall be fully preserved and maintained. Each Borrower shall permit the Lender to examine and inspect such plant, properties and Equipment, including, but not limited to, any Collateral, and at all reasonable times during normal business hours and upon reasonable prior notice. 8.6 Maintain Insurance. The Borrowers will keep its and each of its ------------------- Subsidiaries' insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance to such extent and against such risks as is reasonable and prudent, including commercial general liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it, director and officer liability insurance and business interruption insurance; and maintain such other insurance as may be required by applicable law, in each case naming the Lender as a loss payee, lien holder/mortgagee or additional insured. Each Borrower shall furnish to the Lender a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by such Borrower, which shall be reasonably acceptable in all respects to the Lender. Each Borrower shall cause each issuer of an insurance policy to provide the Lender with an endorsement (i) showing the Lender as lender loss payee with respect to each policy of property or casualty insurance; and (ii) providing that thirty (30) days notice will be given to the Lender prior to any cancellation of, material reduction or change in coverage provided by or other material modification to such policy. Borrowers shall have thirty (30) days from the closing date to provide Lender certificates of insurance and endorsements with respect to PCD and PCD, LLC. In the event a Borrower either fails to provide the Lender with evidence of the insurance coverage required by this Section or at any time hereafter shall fail to obtain or maintain any of the policies of insurance required above, or to pay any premium in whole or in part relating thereto, then the Lender, without waiving or releasing any obligation or default by such Borrower 50 hereunder, may at any time (but shall be under no obligation to so act), obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto, which the Lender deems advisable. This insurance coverage (a) may, but need not, protect such Borrower's interests in such property, including, but not limited to, the Collateral, and (b) may not pay any claim made by, or against, such Borrower in connection with such property, including, but not limited to, the Collateral. Such Borrower may later cancel any such insurance purchased by the Lender, but only after providing the Lender with evidence that such Borrower has obtained the insurance coverage required by this Section. If the Lender purchases insurance for the Collateral, such Borrower will be responsible for the costs of that insurance, including interest and any other charges that may be imposed with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to the principal amount of the Loans owing hereunder by such Borrower. The costs of the insurance may be more than the cost of the insurance such Borrower may be able to obtain on its own. 8.7 ERISA Liabilities; Employee Plans. Each Borrower shall (i) keep in full --------------------------------- force and effect any and all Employee Plans which are presently in existence or may, from time to time, come into existence under ERISA, and not withdraw from any such Employee Plans, unless such withdrawal can be effected or such Employee Plans can be terminated without liability to the Borrower in excess of One Million dollars ($1,000,000.00) after taking into account all deductions, credits, or other tax benefits allowed with respect to the termination; (ii) make contributions to all of such Employee Plans in a timely manner and in a sufficient amount to comply with the standards of ERISA; including the minimum funding standards of ERISA; (iii) comply with all material requirements of ERISA which relate to such Employee Plans; (iv) notify the Lender immediately upon receipt by the Borrowers of any notice concerning the imposition of any withdrawal liability or of the institution of any proceeding or other action which may result in the termination of any such Employee Plans or the appointment of a trustee to administer such Employee Plans; (v) promptly advise the Lender of the occurrence of any "Reportable Event" or "Prohibited Transaction" (as such terms are defined in ERISA), with respect to any such Employee Plans; and (vi) amend any Employee Plan that is intended to be qualified within the meaning of Section 401 of the Internal Revenue Code to the extent necessary to keep the Employee Plan qualified, and to cause the Employee Plan to be administered and operated in a manner that does not cause the Employee Plan to lose its qualified status. 8.8 Financial Statements. Each Borrower shall at all times maintain a --------------------- system of accounting consistent with their existing practices as modified from time to time in accordance with GAAP and generally accepted accounting standards, on the accrual basis of accounting and in all respects in accordance with GAAP, and KMS shall furnish to the Lender or its authorized representatives such information regarding the business affairs, operations and financial condition KMS and its Subsidiaries, including, but not limited to: (a) within five (5) Business Days of when available, and in any event, within one hundred and twenty (120) days after the close of each fiscal year, (i) a copy of the annual audited consolidated financial statements of the Borrowers, containing a balance sheet, statement of income and retained earnings and statement of cash flows for the fiscal year then ended and (ii) such other information (including non-financial information) as the 51 Lender may request, in reasonable detail, all such financial statements to be prepared in accordance with GAAP consistently applied and such financial statements to be reported on and accompanied by the unqualified opinion of McGladrey & Pullen LLP or such other independent certified public accountants selected by Borrowers and reasonably acceptable to Lender together with (i) a certificate from such accountants to the effect that, in making the examination necessary for the signing of such annual audit report, such accountants have not become aware of any Event of Default that has occurred and is continuing, or, if such accountants have become aware of any such event, describing it and the steps, if any, being taken to cure it and (ii) the computations of such accountants evidencing compliance by the Borrowers with the financial covenants contained in Section 10 of this ---------- Agreement; (b) Intentionally Omitted. (c) within five (5) Business Days of when available, and in any event, within forty-five (45) days following the end of the fiscal quarters ending in July, October and January of each year and within sixty (60) days following the end of the fiscal quarter ending in April of each year, (i) a copy of the consolidated financial statements of the Borrowers regarding such fiscal quarter, including a balance sheet, statement of income and retained earnings and statement of cash flows for the fiscal quarter then ended, and (ii) such other information (including non-financial information) as the Lender may reasonably request, in reasonable detail, prepared and certified as true and correct by the applicable Borrowers' treasurer or chief financial officer; and No change with respect to such accounting principles shall be made by the Borrowers without giving prior notification to the Lender. The Borrowers represent and warrant to the Lender that the financial statements delivered to the Lender at or prior to the execution and delivery of this Agreement and to be delivered at all times thereafter accurately reflect and will accurately reflect the financial condition of the Borrowers in all material respects in accordance with GAAP except as disclosed on Schedule 3.4 to the Merger Agreement, with respect to the financial statements of PCD. The Lender shall have the right at reasonable times during normal business hours to inspect the books and records of the Borrowers and make extracts therefrom, but, except after the occurrence and during the continuation of an Event of Default, no more frequently than once per calendar year. All such inspections shall be at the Lender's expense; provided that no Event of Default or Unmatured Event of Default exists. 8.9 Supplemental Financial Statements. Each Borrower shall immediately upon --------------------------------- receipt thereof, provide to the Lender copies of interim and supplemental reports if any, submitted to such Borrower by independent accountants in connection with any interim audit or review of the books of such Borrower. 8.10 Borrowing Base Certificates. KMS shall, within thirty (30) days after --------------------------- the end of each month, deliver to the Lender a Borrowing Base Certificate separately detailing Eligible Domestic Accounts, Eligible Bauer Accounts and 52 Eligible Foreign Accounts dated as of the last Business Day of such month, certified as true and correct by an authorized representative of the applicable Borrowers and reasonably acceptable to the Lender in accordance with this Agreement; provided, however, at any time an Event of Default exists, the Lender may require the Borrowers to deliver Borrowing Base Certificates more frequently. 8.11 Aged Accounts Schedule. Each Borrower shall, within thirty (30) days ---------------------- after the end of each month, deliver to the Lender an aged schedule of the Accounts of such Borrower, listing the name and amount due from each Account Debtor and showing the aggregate amounts due from (a) 0-30 days, (b) 31-60 days, (c) 61-90 days and (d) more than 90 days, and certified as accurate by such Borrower's treasurer or chief financial officer. 8.12 Covenant Compliance Certificate. The Borrowers shall, within ----------------------------------- forty-five 45 days of the end of each of their first three fiscal quarters and within sixty 60 days of the end of their fourth fiscal quarters, deliver to the Lender a duly completed compliance certificate, certified as true and correct by an appropriate officer of such Borrower (but without personal liability), containing a computation of each of the financial covenants set forth in Section ------- 10 and stating that such Borrowers have not become aware of any Event of Default - -- or Unmatured Event of Default, that has occurred and is continuing or, if there is any such Event of Default or Unmatured Event of Default describing it and the steps, if any, being taken to cure it. 8.13 Field Audits. The Borrowers shall permit the Lender to inspect the ------------- Inventory, other assets and/or other business operations of the Borrowers, to perform appraisals of the Equipment of the Borrowers and to inspect, audit, check and make copies of, and extracts from, the books, records, computer data, computer programs, journals, orders, receipts, correspondence and other data relating to Inventory, Accounts and any other Collateral, the results of which must be satisfactory to the Lender in the Lender's sole and absolute discretion. All such inspections or audits by the Lender shall be at the Lender's expense, provided that no Event of Default or Unmatured Event of Default exists. Notwithstanding the foregoing, the Borrowers shall reimburse the Lender for the expense of one inspection or audit to be performed on PCD, LLC on or before February 28, 2007 up to a maximum amount of $10,000. 8.14 Other Reports. Each Borrower shall, within such period of time as the ------------- Lender may reasonably specify, deliver to the Lender such other schedules and reports as the Lender may reasonably require, including copies of invoices on all machinery and equipment purchased. 8.15 Collateral Records. Each Borrower shall keep full and accurate books ------------------- and records relating to the Collateral to the extent necessary to prepare accurate balance sheets in accordance with GAAP and shall mark such books and records to indicate the Lender's Lien in the Collateral. 8.16 Intellectual Property. Each Borrower shall maintain, preserve and ---------------------- renew all material Intellectual Property necessary for the conduct of its business except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 53 8.17 Notice of Proceedings. Each Borrower, promptly upon becoming aware, ---------------------- shall give written notice to the Lender of any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Borrowers to the Lender which has been instituted or, to the knowledge of such Borrower, is threatened against such Borrower or any of its Subsidiaries or to which any of their respective properties is subject which would reasonably be expected to have a Material Adverse Effect. 8.18 Notice of Event of Default or Material Adverse Effect. The Borrowers ------------------------------------------------------ shall, immediately after the commencement thereof, give notice to the Lender in writing of the occurrence of any Event of Default or any Unmatured Event of Default, or the occurrence of any condition or event having a Material Adverse Effect. 8.19 Environmental Matters. If any release or threatened release or other ---------------------- disposal of Hazardous Substances shall occur or shall have occurred on any real property or any other assets of a Borrower or any of its Subsidiaries, such Borrower shall cause the prompt containment and removal of such Hazardous Substances and the remediation of such real property or other assets as necessary to comply with all Environmental Laws and to preserve the value of such real property or other assets unless the failure to do so would not reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, each Borrower shall comply in all material respects with any Federal or state judicial or administrative order requiring the performance at any real property of the Borrowers of activities in response to the release or threatened release of a Hazardous Substance. To the extent that the transportation of Hazardous Substances is permitted by this Agreement, each Borrower shall, and shall cause its Subsidiaries to, dispose of such Hazardous Substances, or of any other wastes, only at licensed disposal facilities operating in compliance with Environmental Laws in all material respects. 8.20 Further Assurances. Each Borrower shall take such actions as are ------------------- necessary or as the Lender may reasonably request from time to time to ensure that its Obligations under the Loan Documents are secured by substantially all of the assets of such Borrower and its Subsidiaries (other than any real property of any of the Borrowers or any property of, or for the account of, or the Borrowers' interests in the Capital Securities of any of its Subsidiaries) subject to Permitted Liens and Permitted Perfection Limitations, in each case as the Lender may reasonably determine, including (a) the execution and delivery of security agreements, pledge agreements, mortgages, deeds of trust, financing statements and other documents, and the filing or recording of any of the foregoing, and (b) the delivery of Collateral with respect to which perfection is obtained by possession. 8.21 Lockbox Agreement. Prior to October 2007, PCD, LLC shall become a ------------------ party to the Lockbox Agreement. 8.22 Banking Relationship. Each Borrower covenants and agrees, at all times -------------------- during the term of this Agreement, to utilize the Lender as its primary bank of account and depository for all financial services, including all receipts, disbursements, cash management and related service. 54 8.23 Non-Utilization Fee. The Borrowers agree to pay to the Lender a -------------------- Non-Utilization fee equal to one-quarter of one percent per annum of the total of (i) the Facility A Loan Commitment, minus (ii) the sum of (A) the daily average of the aggregate principal amount of all Facility A Loans outstanding, plus (B) the daily average of the aggregate amount of the Letter of Credit Obligations, and (ii) on the Facility D Loan Commitment, minus (ii) the sum of the daily average of the aggregate principal amount of all Facility D Loans outstanding which non-utilization fees shall be (x) calculated on the basis of a year consisting of 365 days, (y) paid for the actual number of days elapsed, and (z) payable quarterly in arrears on the last business day of each April, July, October and January, commencing on January 31, 2007, and on the Facility A Maturity Date and the Facility D Maturity Date. Section 9. NEGATIVE COVENANTS. ------------------ Each Borrower makes the following covenants. 9.1 Debt. Each Borrower shall not either directly or indirectly, create, ---- assume, incur or have outstanding any Debt (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other Person, except: (a) the Obligations under this Agreement and the other Loan Documents; (b) obligations of such Borrower for Taxes, assessments, municipal or other governmental charges; (c) obligations of such Borrower for accounts payable, other than for money borrowed, incurred in the ordinary course of business; (d) Hedging Obligations incurred in favor of the Lender or an Affiliate thereof for bona fide hedging purposes and not for speculation; (e) Capitalized Lease Obligations and Debt for Capital Expenditures incurred after the date of this Agreement, provided that, the aggregate amount of all such Debt incurred at any time shall not exceed $3,000,000 per year other than the Loans; (f) Debt of any Borrower to any other Borrower; (g) Debt described on Schedule 9.1 and any extension, renewal or refinancing thereof so long as the principal amount thereof is not increased; (h) Contingent Liabilities of any Borrower or any Subsidiary of any Borrower; and 55 (i) Debt of any Borrower which is subordinated in writing to the payment of such Borrower's Obligations under this Agreement and the other Loan Documents in substantially the form of Exhibit F to this Agreement. --------- 9.2 Encumbrances. Each Borrower shall not either directly or indirectly, ------------ create, assume, incur or suffer or permit to exist any Lien or charge of any kind or character upon any asset of such Borrower, whether owned at the date hereof or hereafter acquired, except for Permitted Liens. 9.3 Investments. Each Borrower shall not, either directly or indirectly, ----------- make or have outstanding any Investment, except: (a) the acquisition of PCD and PCD, LLC; (b) contributions by such Borrower to the capital of any Subsidiary which has granted a first perfected security interest in substantially all of its/their assets in favor of the Lender (other than assets excluded from the definition of Collateral); (c) Investments constituting Debt permitted by Section 9.1; ----------- (d) Contingent Liabilities constituting Debt permitted by Section 9.1 ----------- or Liens permitted by Section 9.2; ----------- (e) Cash Equivalent Investments; (f) bank deposits in the ordinary course of business, provided that on or after October 31, 2007 the aggregate amount of all such deposits which are maintained with any bank other than the Lender shall not at any time exceed $100,000; (g) Investments in securities of Account Debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors; (g) Investments by a Borrower in any other Borrower; and (h) Loans to publisher customers in an amount not exceeding $500,000.00 to any one publisher and not exceeding $1,500,000.00 outstanding at any one time; and (i) Investments listed on Schedule 9.3 as of the closing date; ------------ provided, however, that (i) any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (ii) no Investment otherwise permitted by subsections (b) or (c) shall be permitted to be made if, 56 immediately before or after giving effect thereto, any Event of Default or Unmatured Event of Default exists. 9.4 Transfer; Merger; Sales. Each Borrower shall not, whether in one ------------------------- transaction or a series of related transactions, (a) be a party to any merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets or any Capital Securities of any class of, or any partnership or joint venture interest in, any other Person (other than to effect an Investment or Acquisition permitted by this Agreement), except for any such merger, consolidation, sale, transfer, conveyance, lease or assignment of or by any Wholly-Owned Subsidiary into such Borrower or a merger of two Borrowers or a merger or consolidation to effect an Acquisition permitted by this Agreement, (b) pledge, sell, transfer, convey or lease all or any substantial part of its assets or Capital Securities (including the sale of Capital Securities of any Subsidiary), except for sales of Inventory in the ordinary course of business, (c) create any new Subsidiaries or (d) sell or assign, with or without recourse, any receivables. 9.5 Issuance of Capital Securities. Each Borrower shall not issue any -------------------------------- Capital Securities other than (a) any issuance of shares of such Borrower's common Capital Securities pursuant to any employee or director option program, benefit plan or compensation program, or (b) any issuance of Capital Securities by a Subsidiary to a Borrower. 9.6 Distributions. (a) Subject to the requirements of Section 10 hereof, ------------- the Borrowers may make any payments of management fees or similar payments to the Principal Shareholder and distributions, dividends, stock, repurchases to any of its equityholders, provided that (i) such distributions or dividends are from net income or retained earnings, and (ii) no Unmatured Event of Default or Event of Default exists as of the date of such distribution or dividend or would otherwise be created thereby. Notwithstanding the foregoing, any Borrower may make tax allocation payments to the Principal Shareholder so long as the allocations reasonably reflect economic reality, any Subsidiary may pay dividends or make other distributions payable to any Borrower, and Borrowers may make payments to the extent permitted under the Subordination Agreement(s) (b) The Borrowers shall not purchase or redeem any of their respective equity interests or any warrants, options or other rights in respect thereof except from another Borrower and in compliance with Section 10. 9.7 Transactions with Affiliates. Each Borrower shall not, directly or ------------------------------ indirectly, enter into or permit to exist any transaction with any of its Affiliates or with any director, officer or employee of such Borrower other than transactions in the ordinary course of the business of such Borrower and upon fair and reasonable terms which, if requested by the Lender, shall be fully disclosed to the Lender and are no less favorable to such Borrower than would be obtained in a comparable arm's length transaction with a Person that is not an Affiliate of such Borrower (other than payment of dividends, distributions, stock repurchases or Investments permitted by this Agreement). 57 9.8 Unconditional Purchase Obligations. Each Borrower shall not enter into ---------------------------------- or be a party to any contract for the purchase of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether delivery is ever made of such materials, supplies or other property or services. 9.9 Cancellation of Debt. Each Borrower shall not cancel any claim or debt -------------------- owing to it, except for reasonable consideration or in the ordinary course of business. 9.10 Inconsistent Agreements. Each Borrower shall not enter into any ------------------------ agreement containing any provision which would (a) be violated or breached in any material respect by any borrowing by such Borrower hereunder or by the performance by such Borrower of any of its Obligations hereunder or under any other Loan Document, (b) prohibit such Borrower from granting to the Lender a Lien on any of its assets or (c) create or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make other distributions to such Borrower, or pay any Debt owed to such Borrower, (ii) make loans or advances to such Borrower, or (iii) transfer any of its assets or properties to such Borrower, other than (A) customary restrictions and conditions contained in agreements relating to the sale of all or a substantial part of the assets of any Subsidiary, provided that such restrictions and conditions apply only to the Subsidiary or assets to be sold and such sale is permitted by this Agreement, (B) restrictions or conditions imposed by any agreement relating to purchase money Debt, Capital Leases and other secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt, and (C) customary provisions in leases and other contracts restricting the assignment thereof. 9.11 Use of Proceeds. No Borrower or any of such Borrower's Subsidiaries or --------------- Affiliates shall use any portion of the proceeds of the Loans, either directly or indirectly, for the purpose of purchasing any securities underwritten by ABN AMRO Incorporated, an Affiliate of the Lender. 9.12 Intentionally deleted. 9.13 Business Activities; Change of Legal Status and Organizational --------------------------------------------------------------------- Documents. Each Borrower shall not (a) engage in any line of business other than - --------- the Permitted Businesses, (b) without providing prior written notice to the Lender, change its name, its Organizational Identification Number, if it has one, its type of organization, its jurisdiction of organization or other legal structure, or (c) permit its charter, bylaws or other organizational documents to be amended or modified in any way which could reasonably be expected to materially adversely affect the interests of the Lender. Section 10. FINANCIAL COVENANTS. ------------------- 10.1 Shareholder's Equity. As of the end of each fiscal quarter, the --------------------- Borrowers shall maintain consolidated Shareholder's Equity in an amount not less than $40,000,000.00. 58 10.2 Fixed Charge Coverage. As of the end of each fiscal quarter for the ---------------------- trailing twelve months, the Borrowers shall maintain a ratio of (a) EBITDA eliminating the effect of any extraordinary items as determined in accordance with GAAP minus the sum, without duplication, of (i) all income taxes paid or ----- payable by the Borrowers (including pursuant to tax sharing agreements with the Principal Shareholder) with respect to their income, (ii) all Capital Expenditures of the Borrowers to the extent not financed with Funded Debt (iii) principal payments on Subordinated Debt, and (iv) all dividends paid in cash by the Borrowers during such period to (b) the sum of (i) Interest Charges plus ---- (ii) required payments of principal of Funded Debt (excluding principal due on the Facility A Maturity Date) and (iii) interest payments on Subordinated Debt of not less than 1.15 to 1.00. 10.3 Senior Debt to EBITDA Ratio. The Borrowers shall not permit the Senior --------------------------- Debt to EBITDA ratio as of the last day of any fiscal quarter to exceed the applicable ratio set forth below for such computation period: Computation Senior Debt to Periods Ending EBITDA Ratio -------------- ------------ 1/31/2007,4/30/2007,7/31/2007, 3.0 10/31/2007 and 1/31/2008 4/30/08,7/31/2008,10/31/2008 and 1/31/2009 2.5 4/30/09 and thereafter 2.0 Section 11. EVENTS OF DEFAULT. ----------------- Except as otherwise provided in this Agreement, the Borrowers, without notice or demand of any kind, shall be in default under this Agreement upon the occurrence of any of the following events (each an "Event of Default"). 11.1 Nonpayment of Obligations. Any amount due and owing on any Note or any ------------------------- of the Obligations, whether by its terms or as otherwise provided herein, is not paid within five (5) days after notice from the Lender that such amount was not paid when due. 11.2 Misrepresentation. Any written warranty, representation, certificate ----------------- or statement of any Borrower in this Agreement, the other Loan Documents or any other agreement with the Lender shall be false in any material respect when made or deemed made, or if any financial data or any other information now or hereafter furnished to the Lender by or on behalf of any Borrower shall prove to be false, inaccurate or misleading in any material respect. 11.3 Nonperformance. Any failure to perform or default in the performance -------------- of any covenant, condition or agreement contained in this Agreement and, if capable of being cured, such failure to perform or default in performance continues for a period of five (5) days after the Borrowers receive notice or knowledge from any source of such failure to perform or default in performance, or in the other Loan Documents or any other agreement with the Lender and such 59 failure to perform or default in performance continues beyond any applicable grace or cure period. 11.4 Default under Loan Documents. Any event of default under any of the ------------------------------ other Loan Documents, all of which covenants, conditions and agreements contained therein are hereby incorporated in this Agreement by express reference, shall be and constitute an Event of Default under this Agreement and any other of the Obligations if the default continues for fifteen (15) days after notice of the default. 11.5 Default under Other Debt. Any default by any Borrower in the payment ------------------------- of any Debt for any other obligation in an amount exceeding Three Hundred and Fifty Thousand and 00/100ths ($350,000.00) beyond any period of grace provided with respect thereto or in the performance of any other term, condition or covenant contained in any agreement (including, but not limited to any capital or operating lease or any agreement in connection with the deferred purchase price of property) under which any such obligation is created, the effect of which default is to cause or permit the holder of such obligation (or the other party to such other agreement) to cause such obligation to become due prior to its stated maturity or terminate such other agreement. 11.6 Other Material Obligations. Any default in the payment when due, or in -------------------------- the performance or observance of, any material obligation of, or condition agreed to by, any Borrower with respect to any material purchase or lease of goods or services where such default, singly or in the aggregate with all other such defaults, might reasonably be expected to have with respect a Material Adverse Effect. 11.7 Bankruptcy, Insolvency, etc. Any Borrower becomes insolvent or ----------------------------- generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or any Borrower applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for such Borrower or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for any Borrower or for a substantial part of the property of any thereof and is not discharged within sixty (60) days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of any Borrower, and if such case or proceeding is not commenced by such Borrower, it is consented to or acquiesced in by such Borrower, or remains undismissed for sixty (60) days; or any Borrower takes any action to authorize, or in furtherance of, any of the foregoing. 11.8 Judgments. The entry of any non-appealable final judgment, decree, --------- levy, attachment, garnishment or other process, or the filing of any Lien against any Borrower in respect of the foregoing which is not fully covered by insurance and such judgment or other process shall not have been, within sixty (60) days from the entry thereof, (i) bonded over to the satisfaction of the Lender, (ii) vacated, or (iii) discharged. 11.9 Change in Control. The occurrence of any Change in Control. ----------------- 60 11.10 Collateral Impairment. The entry of any judgment, decree, levy, ---------------------- attachment, garnishment or other process, or the filing of any Lien against, any of the Collateral or any collateral under a separate security agreement securing any of the Obligations and such judgment or other process shall not have been, within sixty (60) days from the entry thereof, (i) bonded over to the satisfaction of the Lender and appealed, (ii) vacated, or (iii) discharged, or the loss, theft, destruction, seizure or forfeiture, or the occurrence of any material deterioration or impairment of any of the Collateral or any of the collateral under any security agreement securing any of the Obligations, or any material decline or depreciation in the value or market price thereof (whether actual or reasonably anticipated), which causes the Collateral, in the sole opinion of the Lender acting in good faith, to become unsatisfactory as to value or character, or which causes the Lender to reasonably believe that it is insecure and that the likelihood for repayment of the Obligations is or will soon be impaired, time being of the essence. The cause of such deterioration, impairment, decline or depreciation shall include, but is not limited to, the failure by the Borrowers to do any act deemed reasonably necessary by the Lender to preserve and maintain the value and collectability of the Collateral. 11.11 Material Adverse Effect. The occurrence of any development, condition ----------------------- or event which has a Material Adverse Effect. For the avoidance of doubt and notwithstanding any other provision of this Agreement, the parties hereto expressly covenant and agree that for the purposes of this Agreement and the other Loan Documents, all Loans (a) shall be fully cross-collateralized by all of the assets of the Borrowers, (b) cross-defaulted with each other, except that a Bauer Event of Default will not constitute an Event of Default under this Agreement; it being understood, however, that in the event of a Bauer Event of Default Lender may (i) apply the remaining Bauer Collateral proceeds under the circumstances contemplated under Section 4(a)(ii)(3) of the Intercreditor Agreement, (ii) cease funding under Facility D and (iii) accelerate the Facility D Loan, and (c) the Facility D Loans shall be secured solely by the Bauer Accounts, but the Bauer Accounts shall also secure the Facility A Loans, the Facility B Loans and the Facility C Loans, in each case as governed by the Intercreditor Agreement. 61 Section 12. REMEDIES. -------- Upon the occurrence of an Event of Default, the Lender shall have all rights, powers and remedies set forth in the Loan Documents, in any written agreement or instrument (other than this Agreement or the Loan Documents) relating to any of the Obligations or any security therefor, as a secured party under the UCC or as otherwise provided at law or in equity. Without limiting the generality of the foregoing, the Lender may, at its option upon the occurrence of an Event of Default, declare its commitments to the Borrowers to be terminated and all Obligations to be immediately due and payable, provided, however, that upon the occurrence of an Event of Default under Section 11.7, all ------------ commitments of the Lender to the Borrowers shall immediately terminate and all Obligations shall be automatically due and payable, all without demand, notice or further action of any kind required on the part of the Lender. The Borrowers hereby waive any and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connection with the enforcement of Lender's rights under the Loan Documents, and hereby consent to, and waive notice of release, with or without consideration, of any of the Borrowers or of any Collateral, notwithstanding anything contained herein or in the Loan Documents to the contrary. Lender shall use commercially reasonable efforts to notify the Principal Shareholder prior to exercising any of the remedies available to Lender under this Section 12; provided, however, that Lender shall not be liable for failure to deliver notice, and the failure of Lender to notify the Principal Shareholder shall not in any way limit or impair Lender's rights and remedies under this Agreement. 12.1 Possession and Assembly of Collateral. From and after an Event of ---------------------------------------- Default, the Lender may, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral of which the Lender already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may at any time enter into any of the Borrowers' premises where any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of and the Lender shall have the right to store and conduct a sale of the same in any of the Borrower's premises without cost to the Lender. At the Lender's request, from and after an Event of Default, the Borrowers will, at the Borrowers' sole expense, assemble the Collateral and make it available to the Lender at a place or places to be designated by the Lender which is reasonably convenient to the Lender and the Borrowers. 12.2 Sale of Collateral. From and after an Event of Default, the Lender may ------------------ sell any or all of the Collateral at public or private sale, upon such terms and conditions as the Lender may deem proper, and the Lender may purchase any or all of the Collateral at any such sale. The Borrowers acknowledge that the Lender may be unable to effect a public sale of all or any portion of the Collateral because of certain legal and/or practical restrictions and provisions which may be applicable to the Collateral and, therefore, may be compelled to resort to one or more private sales to a restricted group of offerees and purchasers. The Borrowers consent to any such private sale so made even though at places and upon terms less favorable than if the Collateral were sold at public sale. The Lender shall have no obligation to clean-up or otherwise prepare the Collateral for sale. The Lender may apply the net proceeds, after deducting all costs, expenses, attorneys' and paralegals' fees incurred or paid at any time in the 62 collection, protection and sale of the Collateral and the Obligations, to the payment of any Note and/or any of the other Obligations, returning the excess proceeds, if any, to the Borrowers. The Borrowers shall remain liable for any amount remaining unpaid after such application, with interest at the Default Rate. Any notification of intended disposition of the Collateral required by law shall be conclusively deemed reasonably and properly given if given by the Lender at least ten (10) calendar days before the date of such disposition. The Borrowers hereby confirm, approve and ratify all acts and deeds of the Lender relating to the foregoing, and each part thereof, and expressly waive any and all claims of any nature, kind or description which it has or may hereafter have against the Lender or its representatives, by reason of taking, selling or collecting any portion of the Collateral. The Borrowers consent to releases of the Collateral at any time (including prior to default) and to sales of the Collateral in groups, parcels or portions, or as an entirety, as the Lender shall deem appropriate. The Borrowers expressly absolve the Lender from any loss or decline in market value of any Collateral by reason of delay in the enforcement or assertion or nonenforcement of any rights or remedies under this Agreement. 12.3 Standards for Exercising Remedies. To the extent that applicable law ---------------------------------- imposes duties on the Lender to exercise remedies in a commercially reasonable manner, each of the Borrowers acknowledges and agrees that it is not commercially unreasonable for the Lender (a) to fail to incur expenses reasonably deemed significant by the Lender to prepare Collateral for disposition or otherwise to complete raw material or work-in-process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against Account Debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other Persons, whether or not in the same business as the Borrowers, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, including, without limitation, any warranties of title, (k) to purchase insurance or credit enhancements to insure the Lender against risks of loss, collection or disposition of Collateral or to provide to the Lender a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by the Lender, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Lender in the collection or disposition of any of the Collateral. The Borrowers acknowledges that the purpose of this section is to provide non-exhaustive indications of what actions or omissions by the Lender would not be commercially unreasonable in the Lender's exercise of remedies against the Collateral and that other actions or omissions by the Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this section. Without limitation upon the foregoing, nothing contained in this 63 section shall be construed to grant any rights to the Borrowers or to impose any duties on the Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this section. 12.4 UCC and Offset Rights. From and after an Event of Default, the Lender --------------------- may exercise, from time to time, any and all rights and remedies available to it under the UCC or under any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement or in any other agreements between any Borrower and the Lender, and may, without demand or notice of any kind, appropriate and apply toward the payment of such of the Obligations, whether matured or unmatured, including costs of collection and attorneys' and paralegals' fees, and in such order of application as the Lender may, from time to time, elect, any indebtedness of the Lender to any Borrower, however created or arising, including, but not limited to, balances, credits, deposits, accounts or moneys of such Obligor in the possession, control or custody of, or in transit to the Lender. The Borrowers, on behalf of themselves and each Obligor, hereby waive the benefit of any law that would otherwise restrict or limit the Lender in the exercise of its right, which is hereby acknowledged, to appropriate at any time hereafter any such indebtedness owing from the Lender to any Obligor. 12.5 Additional Remedies. From and after an Event of Default, the Lender -------------------- shall have the right and power to: (a) instruct the Borrowers, at their own expense, to notify any parties obligated on any of the Collateral, including, but not limited to, any Account Debtors, to make payment directly to the Lender of any amounts due or to become due thereunder, or the Lender may directly notify such obligors of the security interest of the Lender, and/or of the assignment to the Lender of the Collateral and direct such obligors to make payment to the Lender of any amounts due or to become due with respect thereto, and thereafter, collect any such amounts due on the Collateral directly from such Persons obligated thereon; (b) enforce collection of any of the Collateral, including, but not limited to, any Accounts, by suit or otherwise, or make any compromise or settlement with respect to any of the Collateral, or surrender, release or exchange all or any part thereof, or compromise, extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder; (c) take possession or control of any proceeds and products of any of the Collateral, including the proceeds of insurance thereon; (d) extend, renew or modify for one or more periods (whether or not longer than the original period) any Note, any other of the Obligations, any obligation of any nature of any other obligor with respect to any Note or any of the Obligations; 64 (e) grant releases, compromises or indulgences with respect to any Note, any of the Obligations, any extension or renewal of any of the Obligations, any security therefor, or to any other obligor with respect to any Note or any of the Obligations; (f) transfer the whole or any part of securities which may constitute Collateral into the name of the Lender or the Lender's nominee without disclosing, if the Lender so desires, that such securities so transferred are subject to the security interest of the Lender, and any corporation, association, or any of the managers or trustees of any trust issuing any of such securities, or any transfer agent, shall not be bound to inquire, in the event that the Lender or such nominee makes any further transfer of such securities, or any portion thereof, as to whether the Lender or such nominee has the right to make such further transfer, and shall not be liable for transferring the same; (g) vote the Collateral; (h) make an election with respect to the Collateral under Section 1111 of the Bankruptcy Code or take action under Section 364 or any other section of the Bankruptcy Code; provided, however, that any such action of the Lender as set forth herein shall not, in any manner whatsoever, impair or affect the liability of the Borrowers hereunder, nor prejudice, waive, nor be construed to impair, affect, prejudice or waive the Lender's rights and remedies at law, in equity or by statute, nor release, discharge, nor be construed to release or discharge, the Borrowers, any guarantor or other Person liable to the Lender for the Obligations; and (i) at any time, and from time to time, accept additions to, releases, reductions, exchanges or substitution of the Collateral, without in any way altering, impairing, diminishing or affecting the provisions of this Agreement, the Loan Documents, or any of the other Obligations, or the Lender's rights hereunder, under any Note or under any of the other Obligations. Each of the Borrowers hereby ratify and confirm whatever the Lender may do in compliance with applicable law with respect to the Collateral and agrees that the Lender shall not be liable for any error of judgment or mistakes of fact or law with respect to actions taken in good faith in connection with the Collateral. 12.6 Attorney-in-Fact. Each Borrower hereby irrevocably makes, constitutes ---------------- and appoints the Lender (and any officer of the Lender or any Person designated by the Lender for that purpose) as such Borrower's true and lawful proxy and attorney-in-fact (and agent-in-fact) in such Borrower's name, place and stead, with full power of substitution, to (i) take such actions as are permitted in this Agreement, (ii) execute such financing statements and other documents and to do such other acts as the Lender may reasonably require to perfect and preserve the Lender's security interest in, and to enforce such interests in the Collateral, and (iii) carry out any remedy provided for in this Agreement, including, without limitation, endorsing such Borrower's name to checks, drafts, instruments and other items of payment, and proceeds of the Collateral, executing change of address forms with the postmaster of the United States Post 65 Office serving the address of such Borrower, changing the address of the Borrower to that of the Lender, opening all envelopes addressed to such Borrower and applying any payments contained therein to the Obligations. Each Borrower hereby acknowledges that the constitution and appointment of such proxy and attorney-in-fact are coupled with an interest and are irrevocable. Each Borrower hereby ratifies and confirms all that such attorney-in-fact may do or cause to be done by virtue of any provision of this Agreement. 12.7 No Marshaling. The Lender shall not be required to marshal any present ------------- or future collateral security (including but not limited to this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order. To the extent that it lawfully may, each of the Borrowers hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Lender's rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Borrowers hereby irrevocably waives the benefits of all such laws. 12.8 Application of Proceeds. The Lender will within a time period ------------------------- consistent with the terms of the Lockbox Agreement after receipt of cash or solvent credits from collection of items of payment, proceeds of Collateral or any other source pertaining to the Borrowers, apply the whole or any part thereof against the Obligations of the Borrowers secured hereby. After the occurrence and during the continuation of an Event of Default, the Lender shall further have the exclusive right to determine how, when and what application of such payments and such credits shall be made on the Obligations, and such determination shall be conclusive upon the Borrowers. After the occurrence and during the continuation of an Event of Default, any proceeds of any disposition by the Lender of all or any part of the Collateral may be first applied by the Lender to the payment of expenses incurred by the Lender in connection with the Collateral, including attorneys' fees and legal expenses as provided for in Section 13 hereof. Any excess proceeds shall be promptly remitted to the Borrowers 12.9 No Waiver. No Event of Default shall be waived by the Lender except in --------- writing. No failure or delay on the part of the Lender in exercising any right, power or remedy hereunder shall operate as a waiver of the exercise of the same or any other right at any other time; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. There shall be no obligation on the part of the Lender to exercise any remedy available to the Lender in any order. The remedies provided for herein are cumulative and not exclusive of any remedies provided at law or in equity. Each of the Borrowers agrees that in the event that the Borrowers fail to perform, observe or discharge any of their respective Obligations or liabilities under this Agreement or any other agreements with the Lender, no remedy of law will provide adequate relief to the Lender, and further agrees that the Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. 66 12.10 Letters of Credit. With respect to all Letters of Credit for which ----------------- presentment for honor shall not have occurred at the time of an acceleration pursuant to this Section 12, the Borrowers shall at such time deposit in a cash ---------- collateral account opened by the Lender an amount equal to the Letter of Credit Obligations then outstanding. Amounts held in such cash collateral account shall be applied by the Lender to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay the Obligations, in such order of application as the Lender may, in its sole discretion, from time to time elect. After all such Letters of Credit shall have expired or been fully drawn upon, all commitments to make Loans hereunder have terminated and all other Obligations have been indefeasibly satisfied and paid in full in cash, the balance, if any, in such cash collateral account shall be returned to the Borrowers or such other Person as may be lawfully entitled thereto. Section 13. MISCELLANEOUS. ------------- 13.1 Obligations Absolute. None of the following shall affect the --------------------- Obligations of the Borrowers to the Lender under this Agreement or the Lender's rights with respect to the Collateral: (a) acceptance or retention by the Lender of other property or any interest in property as security for the Obligations; (b) release by the Lender of the Borrowers or all or any part of the Collateral or of any party liable with respect to the Obligations; (c) release, extension, renewal, modification or substitution by the Lender of any Note, or any note evidencing any of the Obligations, or the compromise of the liability of the Borrowers of the Obligations; or (d) failure of the Lender to resort to any other security or to pursue the Borrowers or any other obligor liable for any of the Obligations before resorting to remedies against the Collateral. 13.2 Termination. This Agreement shall not terminate until the termination ----------- of and the full and complete performance and indefeasible satisfaction of all the Obligations (other than contingent indemnification obligations and any matters which expressly survive pursuant to Section 14.3 hereof), whereupon Lender shall promptly cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral to or on the order of the Borrowers. Lender shall also execute and deliver to each Borrower upon such termination such UCC termination statements and such other documentation as shall be reasonably requested by such Borrower to effect the termination and release of the Liens and security interests in favor of Lender affecting the Collateral. 13.3 Entire Agreement. This Agreement and the other Loan Documents (i) are ---------------- valid, binding and enforceable against the Borrowers and the Lender in 67 accordance with their respective provisions and no conditions exist as to their legal effectiveness; (ii) constitute the entire agreement between the parties with respect to the subject matter hereof and thereof; and (iii) are the final expression of the intentions of the Borrowers and the Lender. No promises, either expressed or implied, exist between the Borrowers and the Lender, unless contained herein or therein. This Agreement, together with the other Loan Documents, supersedes all negotiations, representations, warranties, commitments, term sheets, discussions, negotiations, offers or contracts (of any kind or nature, whether oral or written) prior to or contemporaneous with the execution hereof with respect to any matter, directly or indirectly related to the terms of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents are the result of negotiations among the Lender, the Borrowers and the other parties thereto, and have been reviewed (or have had the opportunity to be reviewed) by counsel to all such parties, and are the products of all parties. Accordingly, this Agreement and the other Loan Documents shall not be construed more strictly against the Lender merely because of the Lender's involvement in their preparation. 13.4 Amendments; Waivers. No delay on the part of the Lender in the -------------------- exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by the Lender of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and acknowledged by the Lender and the Borrowers, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 13.5 WAIVER OF DEFENSES. EACH OF THE BORROWERS, ON BEHALF OF ITSELF AND ANY ------------------ FUTURE GUARANTOR OF ANY OF THE OBLIGATIONS, WAIVES EVERY PRESENT AND FUTURE DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH THE BORROWER MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY THE LENDER IN ENFORCING THIS AGREEMENT. PROVIDED THE LENDER ACTS IN GOOD FAITH, EACH OF THE BORROWERS RATIFIES AND CONFIRMS WHATEVER THE LENDER MAY DO PURSUANT TO THE TERMS OF THIS AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWERS. 13.6 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED --------------------------------------------- HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. EACH OF THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS 68 FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH OF THE BORROWERS FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. EACH OF THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 13.7 WAIVER OF JURY TRIAL. THE LENDER AND EACH OF THE BORROWERS, AFTER --------------------- CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT, ANY OF THE OTHER OBLIGATIONS, THE COLLATERAL, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH THE LENDER AND THE BORROWERS ARE ADVERSE PARTIES, AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWERS. 13.8 Assignability. The Lender may at any time assign the Lender's rights ------------- in this Agreement, the other Loan Documents, the Obligations, or any part thereof and transfer the Lender's rights in any or all of the Collateral, and the Lender thereafter shall be relieved from all liability with respect to such Collateral; provided, that, at any time prior to the occurrence and continuance of an Event of Default, the Lender shall obtain the prior written consent of the Borrowers, which consent shall not be unreasonably withheld or delayed, to such assignment or transfer. In addition, the Lender may at any time without the consent of the Borrowers sell a participation in the Loans to one other party; provided, that such participation shall only transfer voting rights limited to changes in principal amounts, rates, fees and term. The Lender may with the prior written consent of the Borrowers sell participations in the Loans to more than one other party. The Borrowers may not sell or assign this Agreement, or any other agreement with the Lender or any portion thereof, either voluntarily or by operation of law, without the prior written consent of the Lender. This Agreement shall be binding upon the Lender and the Borrowers and their respective legal representatives and successors. All references herein to the Borrowers shall be deemed to include any successors, whether immediate or remote. In the case of a joint venture or partnership, the term "Borrowers" shall be deemed to include all joint venturers or partners thereof, who shall be jointly and severally liable hereunder. 69 13.9 Confirmations. The Borrowers and the Lender agree from time to time, ------------- upon written request received by it from the other, to confirm to the other in writing the aggregate unpaid principal amount of each of the Loans. 13.10 Confidentiality. The Lender agrees to use commercially reasonable --------------- efforts (equivalent to the efforts the Lender applies to maintain the confidentiality of its own confidential information) to maintain as confidential all information provided to them by the Borrowers and designated as confidential, except that the Lender may disclose such information (a) to Persons employed or engaged by the Lender in evaluating, approving, structuring, enforcing or administering the Loans who agree to maintain confidentiality; (b) to any permitted assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 13.10 (and ------------- any such assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any federal or state regulatory authority or examiner, or any insurance industry association, or as reasonably believed by the Lender to be compelled by any court decree, subpoena or legal or administrative order or process but in such case, Lender shall endeavor to give the Borrowers prior written notice of such disclosure; (d) as, on the advice of the Lender's counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which the Lender and the Borrowers are a party; (f) to any nationally recognized rating agency that requires access to information about the Lender's investment portfolio in connection with ratings issued with respect to the Lender; or (g) that ceases to be confidential through no fault of the Lender. 13.11 Binding Effect. This Agreement shall become effective upon execution -------------- by the Borrowers and the Lender. If this Agreement is not dated or contains any blanks when executed by the Borrowers, the Lender is hereby authorized, without notice to the Borrowers, to date this Agreement as of the date when it was executed by the Borrowers, and to complete any such blanks according to the terms upon which this Agreement is executed. 13.12 Governing Law. This Agreement, the Loan Documents and any Note shall ------------- be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of Illinois (but giving effect to federal laws applicable to national banks) applicable to contracts made and to be performed entirely within such state, without regard to conflict of laws principles. 13.13 Enforceability. Wherever possible, each provision of this Agreement -------------- shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by, unenforceable or invalid under any jurisdiction, such provision shall as to such jurisdiction, be severable and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 13.14 Survival of Borrower Representations. All covenants, agreements, ------------------------------------- representations and warranties made by the Borrowers herein shall, 70 notwithstanding any investigation by the Lender, be deemed material and relied upon by the Lender and shall survive the making and execution of this Agreement and the Loan Documents and the issuance of any Note, and shall be deemed to be continuing representations and warranties until such time as the Borrowers have fulfilled all of their applicable Obligations to the Lender, and the Lender has been indefeasibly paid in full in cash. The Lender, in extending financial accommodations to the Borrowers, is expressly acting and relying on the aforesaid representations and warranties. 13.15 Extensions of Lender's Commitment. This Agreement shall secure and ---------------------------------- govern the terms of (i) any extensions or renewals of the Lender's commitment hereunder, and (ii) any replacement note executed by the Borrowers and accepted by the Lender in its sole and absolute discretion in substitution for any Note. 13.16 Time of Essence. Time is of the essence in making payments of all ---------------- amounts due the Lender under this Agreement and in the performance and observance by the Borrowers of each covenant, agreement, provision and term of this Agreement. 13.17 Counterparts; Facsimile Signatures. This Agreement may be executed in ---------------------------------- any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. Electronic records of executed Loan Documents maintained by the Lender shall be deemed to be originals thereof. 13.18 Notices. Except as otherwise provided herein, the Borrowers waives ------- all notices and demands in connection with the enforcement of the Lender's rights hereunder. All notices, requests, demands and other communications provided for hereunder shall be in writing and addressed as follows: If to the Borrowers: Kable Media Services, Inc. Kable News Company, Inc., Kable Distribution Services, Inc., Kable News Export, Ltd. Kable News International, Inc. Kable Fulfillment Services, Inc., Kable Fulfillment Services of Ohio, Inc. Palm Coast Data Holdco, Inc. Palm Coast Data, LLC Kable Square Mount Morris, Illinois 61054-1473 Attention: Bruce Obendorf Telephone No.: (815) 734-5232 Facsimile No.: (815) 734-5233 71 with a courtesy copy to: Amrep Corporation 300 Alexander Park, Suite 204 Princeton, NJ 08540 Attention: Irving Needleman Telephone No.: (609) 716-8211 Facsimile No.: (609) 716-8255 with a courtesy copy to: Drinker Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103-6996 Attention: F. Douglas Raymond, III, Esq. Telephone No.: (215) 988-2458 Facsimile No. (215) 988-2757 If to the Lender: LaSalle Bank National Association 6958 Spring Creek Road Rockford, Illinois 61114 Attention: Mr. Kent N. Kohlbacher Telephone No.: (815) 636-3965 Facsimile No.: (815) 636-7621 with a courtesy copy to: Scott & Kraus, LLC 150 South Wacker Drive Suite 2900 Chicago, Illinois 60606 Attention: Drew J. Scott, Esq. Telephone No.: (312) 327-1055 Facsimile No.: (312) 327-1051 or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this subsection. All notices addressed as above shall be deemed to have been properly given (i) if served in person, upon acceptance or refusal of delivery; (ii) if mailed by certified or registered mail, return receipt requested, postage prepaid, on the third (3rd) day following the day such notice is deposited in any post office station or letter box; or (iii) if sent by recognized overnight courier, on the first (1st) day following the day such notice is delivered to such carrier. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances. 13.19 Release of Claims Against Lender. In consideration of the Lender ---------------------------------- making the Loans, the Borrowers and all other Obligors do each hereby release and discharge the Lender of and from any and all claims, harm, injury, and damage of any and every kind, known or unknown, legal or equitable, which any Obligor may have against the Lender from the date of their respective first 72 contact with the Lender until the date of this Agreement including, but not limited to, any claim arising from any reports (environmental reports, surveys, appraisals, etc.) prepared by any parties hired or recommended by the Lender. The Borrowers and all other Obligors confirm to Lender that they have reviewed the effect of this release with competent legal counsel of their choice, or have been afforded the opportunity to do so, prior to execution of this Agreement and the Loan Documents and do each acknowledge and agree that the Lender is relying upon this release in extending the Loans to the Borrowers. 13.20 Costs, Fees and Expenses. The Borrowers shall pay or reimburse the ------------------------- Lender for all reasonable costs, fees and expenses incurred by the Lender or for which the Lender becomes obligated in connection with the negotiation, preparation, consummation, collection of the Obligations or enforcement of this Agreement, the other Loan Documents and all other documents provided for herein or delivered or to be delivered hereunder or in connection herewith (including any amendment, supplement or waiver to any Loan Document), or during any workout, restructuring or negotiations in respect thereof, including, without limitation, reasonable consultants' fees and attorneys' fees and time charges of counsel to the Lender, which shall also include attorneys' fees and time charges of attorneys who may be employees of the Lender or any Affiliate of the Lender, plus costs and expenses of such attorneys or of the Lender; search fees, costs and expenses; and all taxes payable in connection with this Agreement or the other Loan Documents, whether or not the transaction contemplated hereby shall be consummated. In furtherance of the foregoing, the Borrowers shall pay any and all stamp and other taxes, UCC search fees, filing fees and other costs and expenses in connection with the execution and delivery of this Agreement, any Note and the other Loan Documents to be delivered hereunder, and agree to save and hold the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such costs and expenses. That portion of the Obligations consisting of costs, expenses or advances to be reimbursed by the Borrowers to the Lender pursuant to this Agreement or the other Loan Documents which are not paid on or prior to the date hereof shall be payable by the Borrowers to the Lender on demand. If at any time or times hereafter the Lender: (a) employs counsel for advice or other representation (i) with respect to this Agreement or the other Loan Documents, (ii) to represent the Lender in any litigation, contest, dispute, suit or proceeding or to commence, defend, or intervene or to take any other action in or with respect to any litigation, contest, dispute, suit, or proceeding (whether instituted by the Lender, the Borrowers, or any other Person) in any way or respect relating to this Agreement, the other Loan Documents or the Borrower's business or affairs, or (iii) to enforce any rights of the Lender against the Borrowers or any other Person that may be obligated to the Lender by virtue of this Agreement or the other Loan Documents; (b) takes any action to protect, collect, sell, liquidate, or otherwise dispose of any of the Collateral; and/or (c) attempts to or enforces any of the Lender's rights or remedies under the Agreement or the other Loan Documents, the costs and expenses incurred by the Lender in any manner or way with respect to the foregoing, shall be part of the Obligations, payable by the Borrowers to the Lender on demand. 13.21 Indemnification. The Borrowers agree to defend (with counsel --------------- reasonably satisfactory to the Lender), protect, indemnify, exonerate and hold harmless each Indemnified Party from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, 73 costs, expenses and distributions of any kind or nature (including, without limitation, the disbursements and the reasonable fees of counsel for each Indemnified Party thereto, which shall also include, without limitation, reasonable attorneys' fees and time charges of attorneys who may be employees of any Indemnified Party), which may be imposed on, incurred by, or asserted against, any Indemnified Party (whether direct, indirect or consequential and whether based on any federal, state or local laws or regulations, including, without limitation, securities laws, Environmental Laws, commercial laws and regulations, under common law or in equity, or based on contract or otherwise) in any manner relating to or arising out of this Agreement or any of the Loan Documents, or any act, event or transaction related or attendant thereto, the preparation, execution and delivery of this Agreement and the Loan Documents, including, but not limited to, the making or issuance and management of the Loans, the use or intended use of the proceeds of the Loans, the enforcement of the Lender's rights and remedies under this Agreement, the Loan Documents, any Note, any other instruments and documents delivered hereunder, or under any other agreement between the Borrowers and the Lender; provided, however, that the Borrowers shall not have any obligations hereunder to any Indemnified Party with respect to matters determined by a court of competent jurisdiction by final and nonappealable judgment to have been caused by or resulting from the willful misconduct or gross negligence of such Indemnified Party. To the extent that the undertaking to indemnify set forth in the preceding sentence may be unenforceable because it violates any law or public policy, the Borrowers shall satisfy such undertaking to the maximum extent permitted by applicable law. Any liability, obligation, loss, damage, penalty, cost or expense covered by this indemnity shall be paid to each Indemnified Party on demand, and failing prompt payment, together with interest thereon at the Default Rate from the date incurred by each Indemnified Party until paid by the Borrowers, shall be added to the Obligations of the Borrowers and be secured by the Collateral. The provisions of this Section shall survive the satisfaction and payment of the other Obligations and the termination of this Agreement. 13.22 Revival and Reinstatement of Obligations. If the incurrence or ------------------------------------------- payment of the Obligations by any Obligor or the transfer to the Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if the Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender, the Obligations shall automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 13.23 Customer Identification - USA Patriot Act Notice. The Lender hereby ------------------------------------------------- notifies the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001) (the "Act"), and the Lender's policies and practices, the Lender is required to obtain, verify and record certain information and documentation that identifies the Borrowers, 74 which information includes the name and address of the Borrowers and such other information that will allow the Lender to identify the Borrowers in accordance with the Act. 13.24 Interpretation. If any provision in this Agreement requires judicial -------------- interpretation, the judicial body interpreting or construing such provision shall not apply the assumption that the terms hereof shall be more strictly construed against one party because of the rule that an instrument must be construed more strictly against the party which itself or through its agents prepared the same; the parties hereby agreeing that all parties and their agents have participated in the preparation hereof equally. 13.25 Fraudulent Transfer. In order to avoid any possibility that this -------------------- Agreement or any other Loan Document may be ruled by a court of competent jurisdiction to be a fraudulent transfer or conveyance with respect to a Borrower, each Borrower and Lender hereby agree that, notwithstanding any other provision of this Agreement or any other Loan Document to the contrary, the maximum liability of a Borrower hereunder shall be limited to the greater of (a) the proceeds of the credit extended by Lender to the Borrowers under this Agreement and the other Loan Documents to the extent such proceeds are advanced, transferred or applied to or for the benefit of such Borrower, and (b) ninety-five percent (95.00%) of the difference between (i) the present fair salable value of such Borrower's assets as of the date of this Agreement or such other date as may be applicable under law, minus (ii) the amount of all liabilities of such Borrower, including probable exposure under contingent liabilities (including the amount under clause (a) above, but excluding any other probable exposure of such Borrower to Lender hereunder), as of such date. SECTION 14 CROSS-GUARANTY AND SURETYSHIP WAIVERS ------------------------------------------------ 14.1 Cross-Guaranty. In addition to, and without in any way limiting any -------------- Borrower's primary, direct, joint or several liability for any of the Obligations but subject to section 13.25, each Borrower (on a joint and several basis with the other Borrowers) hereby absolutely, unconditionally and irrevocably guaranties to the Lender the full and punctual payment and satisfaction of the Obligations of each and every other Borrower as and when due, whether at stated maturity, by acceleration or otherwise, and agrees to pay and satisfy in full any and all expenses that may be paid or incurred by the Lender in the collection of all or any portion of the Obligations or the exercise or enforcement of any one or more of the other rights, powers, privileges, remedies and interests of the Lender under this Agreement or any other Loan Document, irrespective of the manner or success of any such collection, exercise or enforcement, and whether or not such expenses constitute part of the Obligations (together with the balance of this Subsection, the other Subsections of this Section and the general terms and provisions of this Agreement, collectively, the "Cross-Guaranty"). 14.2 Continuing Agreement, Payment in Accordance with Terms, Etc. Each --------------------------------------------------------------- Borrower covenants and agrees that: (a) its joint and several liability for and Cross-Guaranty hereunder is a continuing liability for and guaranty of the full and timely payment and satisfaction of the Obligations, and such Borrower is not guarantying collectibility only, in each case whether the Obligations are now or hereafter existing, acquired or created, and irrespective of the fact that from 75 time to time under the terms and provisions of this Agreement and the other Loan Documents monies may be advanced, repaid and readvanced and the outstanding balance of the Loan may be zero; (b) its obligations under its Cross-Guaranty are part of the "Obligations" under this Agreement and are secured by the Collateral; (c) the Cross-Guaranty may not be revoked or terminated by any Borrower until such time as the monetary Obligations shall have been fully paid and satisfied (other than any contingent indemnification, defense or similar obligation that by its express terms extends beyond such payment); (d) none of the Obligations shall be deemed to have been otherwise fully paid and satisfied so long as the Lender shall have any remaining commitment under this Agreement or any other Loan Documents; and (e) the Obligations will be paid and satisfied in full in accordance with the terms and provisions of this Agreement and the other Loan Documents without regard to any applicable law now or hereafter in effect in any jurisdiction that might cause or permit to be invoked any alteration by any guarantor, pledgor or other surety (including any Borrower to the extent a guarantor or otherwise determined to be a surety, each a "Surety"), any Borrower or any other Person (other than the Lender) in the time, amount or manner of payment of any of their respective obligations to the Lender under any of this Agreement and the other Loan Documents. 14.3 Agreement Absolute, Survival of Representations, Etc. Each of the -------------------------------------------------------- payment obligations, cross guaranties, collateral grants, representations and warranties (as of the date(s) made or deemed made), covenants, waivers and other agreements and obligations of each Borrower (whether individual, joint, several or otherwise) contained in this Agreement and the other Loan Documents: (a) are and shall be absolute, irrevocable and unconditional, and shall survive and remain and continue in full force and effect in accordance with their respective terms and provisions, in each case without regard to (among other things) any invalidity, illegality, non-binding effect or unenforceability (in whole or in part) for any reason whatsoever of this Agreement or any other Loan Documents, or of any of the other terms and provisions of this Agreement, including (without limitation) by reason of the absence (in whole or in part) of any required authentication, authority, capacity, consent, consideration, disclosure, equivalent value, filing, notice, recordation, signature, writing or other action, or the presence (in whole or in part) of any contractual conflict, defense, illegality, misconduct, misrepresentation, mistake, prohibition, restriction or right of reimbursement, recoupment or setoff; (b) are and shall be absolute, irrevocable and unconditional with regard to, and shall survive and remain and continue in full force and effect in accordance with their respective terms and provisions following and without regard to, each of the following (among other things), (i) the execution and delivery of this Agreement or any other Loan Documents and the performance or non-performance of any Obligations or the obligations of any Surety under the Cross-Guaranty or any other Loan Documents ("Surety's Obligations"), (ii) any advance, accrual, payment, repayment or readvance of any amount under any other Loan Document, or any request or notice with respect thereto, or the inception, creation, acquisition, increase, decrease, satisfaction or existence from time to time of any Obligations or Surety's Obligations under any other Loan Document, in each case irrespective of the fact that from time to time the outstanding balance of the Loan and other monetary Obligations may be zero, (iii) any waiver, modification, extension, renewal, consolidation, spreading, amendment or restatement of or other change in any term or provision of (A) this Agreement or any other Loan Document or (B) any one or more of the Loan or other Obligations or any Surety's Obligations, including (without limitation) any extension or other change in the 76 time, manner, place or other term of payment or performance of any of the foregoing, in each case except as and to the extent expressly modified by the terms and provisions of any such extension, change, waiver, modification, renewal, consolidation, spreading, amendment or restatement, (iv) any full, partial or non-exercise of any of the rights, powers, privileges, remedies and interests of the Lender under any other Loan Document or applicable law, against the Borrower, any Surety or any other Person or with respect to any of the Obligations, any Surety's Obligations, any other obligations or any collateral or security interest therein, which exercise or enforcement may be delayed, discontinued or otherwise not pursued or exhausted for any or no reason whatsoever, or which may be waived, omitted or otherwise not exercised or enforced (whether intentionally or otherwise), (v) any surrender, repossession, sequestration, foreclosure, conveyance or assignment (by deed in lieu or otherwise), sale, lease or other realization, dealing, liquidation or disposition respecting any collateral or setoff respecting any account or other asset in accordance with this Agreement, any other Loan Document or applicable law (except as and to the extent the Obligations have been permanently reduced by the application of the net proceeds thereof), (vi) the perfected or non-perfected status or priority of any mortgage or other security interest in any such collateral, which may be held without recordation, filing or other perfection (whether intentionally or otherwise), (vii) any release, settlement, adjustment, subordination or impairment of all or any part of the Obligations, any Surety's Obligations, any other obligations or any collateral or any security interest therein under or with respect to this Agreement, any other Loan Document or applicable law, whether intentionally or otherwise (except as and to the extent expressly modified by the terms and provisions of any such release, settlement or adjustment), (viii) any extension, stay, moratorium or statute of limitations or similar time constraint under any applicable law, (ix) any investigation, analysis or evaluation by the Lender or its designees of the assets, business, cash flow, expenses, income, liabilities, operations, properties, prospects, reputation or condition (financial or otherwise) of any Borrower, any Surety, or any other Person, (x) any application to any obligations of any Borrower or any Surety other than any Obligations or Surety's Obligations of (A) any payments from such Person not specifically designated for application to the Obligations or Surety's Obligations or (B) any proceeds of collateral from such Person other than from the Collateral, (xi) any sale, conveyance, assignment, participation or other transfer by the Lender (in whole or in part) to any other Person of any one or more of this Agreement or any of this Agreement and the other Loan Documents or any one or more of the rights, powers, privileges, remedies or interests of the Lender herein or therein, or (xii) any act or omission on the part of the Lender or any other Person or any other act, event or circumstance that otherwise might constitute a legal or equitable defense, counterclaim or discharge of a borrower, co-obligor, indemnitor, guarantor, pledgor or surety; in each case in such manner and order, upon such terms and provisions and subject to such conditions as the Lender may deem necessary or desirable in its sole and absolute discretion, without notice to or further assent from any Borrower, any Surety, or any other Person (except for such notices as may be expressly required to be given to such party under this Agreement or applicable other Loan Document), and without affecting any of the rights, powers, privileges, remedies and other interests of the Lender under this Agreement, the other Loan Documents and applicable law; and (c) shall remain and continue in full force and effect without regard to any of the foregoing acts, events or circumstances until all of the Obligations have been 77 fully paid and satisfied (other than any contingent indemnification, defense or similar obligation that by its express terms extends beyond such payment); provided, however, that each Borrower retains the defense of payment. 14.4 Waivers of Notice, Etc. Each Borrower hereby absolutely, -------------------------- unconditionally, irrevocably and expressly waives forever each and all of the following except to the extent notice thereof is expressly required by this Agreement, any other Loan Document or applicable law: (a) acceptance and notice of any acceptance of this Agreement or any other Loan Document; (b) notice of any action taken or omitted in reliance hereon; (c) presentment and notice of any presentment; (d) demand for payment and notice of any such demand; (e) dishonor and notice of any dishonor; (f) protest and notice of any protest; (g) notice of any request for, any change in or any making, repayment or remaking of any loan, advance or other extension of credit at any time under this Agreement or any other Loan Document; (h) notice of any nonpayment or other event that constitutes, or with the giving of notice or the passage of time (or both) would constitute, any nonpayment, nonperformance, misrepresentation or other breach or default under this Agreement or any other Loan Document; (i) notice of any material and adverse effect, whether individually or in the aggregate, or other information respecting (A) the assets, business, cash flow, expenses, income, liabilities, operations, properties, prospects, reputation or condition (financial or otherwise) of any Borrower, any Surety or any other Person, (B) the ability of any of them to pay or otherwise satisfy (as and when due) any of their respective obligations under any of this Agreement and the other Loan Documents, or (C) any collateral securing the obligations of any of them under this Agreement and the other Loan Documents or its value or the validity, enforceability, perfection or priority of any security interest of the Lender therein; (j) notice of any act, event or circumstance described in subsection (b) of the immediately preceding Section (i.e., Agreement Absolute, Survival of Representations, Etc.) ; and (k) any other proof, notice or demand of any kind whatsoever with respect to any or all of the Obligations or Surety's Obligations or promptness in making any claim or demand under this Agreement or any other Loan Document. 14.5 No Personal Liability. For the avoidance of doubt and notwithstanding --------------------- anything in this Agreement to the contrary, Nicholas G. Karabots, the directors of the Principal Shareholder and the directors of the Borrowers ("Non-Liable Parties") shall have no personal liability by reason of this Agreement for any of the Obligations of any Borrower, including payment of principal, interest or any other amounts due Lender. The Lender shall have no recourse against the Non-Liable Parties, any entity controlling any Borrower (other than a Borrower), or their respective partners, directors, officers, members, managers, employees or agents for failure to pay principal and interest evidenced by the Notes or other costs or expenses under this Agreement or for the Borrowers' failure to perform their obligations hereunder and under the Loan Documents. The Lender shall never demand, claim or institute any suit, claim or demand at law or in equity against any of the Non-Liable Parties. Nothing contained in this paragraph shall be deemed to release, affect or impair the Obligations of the Borrowers or the Collateral or the Lender's rights to enforce its remedies under this Agreement. [SIGNATURE PAGES FOLLOW] 78 IN WITNESS WHEREOF, the Borrowers and the Lender have executed this Amended and Restated Loan and Security Agreement as of the date first above written. - --------------------------------------------------------------------------------------------------------------------- KABLE MEDIA SERVICES, INC., KABLE NEWS COMPANY, INC., a Delaware corporation a Delaware corporation By: /s/ Bruce Obendorf By: /s/ Bruce Obendorf ----------------------------------------- ----------------------------------------- Bruce Obendorf, Bruce Obendorf, Vice President Senior Vice President - --------------------------------------------------------------------------------------------------------------------- KABLE NEWS EXPORT, LTD., KABLE NEWS INTERNATIONAL, INC., a Delaware corporation a Delaware corporation By: /s/ Bruce Obendorf ----------------------------------------- By: /s/ Bruce Obendorf Bruce Obendorf, ----------------------------------------- Treasurer Bruce Obendorf, Vice President - --------------------------------------------------------------------------------------------------------------------- KABLE FULFILLMENT SERVICES, INC., a Delaware corporation KABLE FULFILLMENT SERVICES OF OHIO, INC., a Delaware corporation By: /s/ Bruce Obendorf ----------------------------------------- Bruce Obendorf, By: /s/ Bruce Obendorf Vice President ----------------------------------------- Bruce Obendorf, Vice President - --------------------------------------------------------------------------------------------------------------------- KABLE DISTRIBUTION SERVICES, INC., a Delaware corporation PALM COAST DATA, LLC a Delaware limited liability company By: /s/ Bruce Obendorf ----------------------------------------- Bruce Obendorf, By: /s/ John Meneough Senior Vice President ----------------------------------------- John Meneough, President - --------------------------------------------------------------------------------------------------------------------- PALM COAST DATA HOLDCO, INC., a Delaware corporation By: /s/ John Meneough ----------------------------------------- John Meneough, President - ---------------------------------------------------------------------------------------------------------------------
79 Agreed and accepted: LASALLE BANK NATIONAL ASSOCIATION, a national banking association By: /s/ Kent N. Kohlbacher ----------------------------------------- Kent N. Kohlbacher, First Vice President 80 EX-99 4 axr8k011607press.txt Exhibit 99.1 FOR IMMEDIATE RELEASE AMREP CORPORATION COMPLETES ACQUISITION OF PALM COAST DATA ---------------------------------------------------------- Princeton, NJ, January 16, 2007 - AMREP Corporation (NYSE - AXR) today reported that its subsidiary, Kable Media Services, Inc. ("Kable"), has completed its acquisition of Palm Coast Data Holdco, Inc. ("Palm Coast Data"). The total consideration was approximately $92.0 million plus an additional amount for working capital and certain other adjustments preliminarily estimated at $3.7 million. The acquisition was financed with a combination of internal funds and borrowings, including funds borrowed under an amendment to an existing Kable credit facility with LaSalle Bank National Association that was entered into in connection with the closing of the acquisition. "The acquisition of Palm Coast Data is a substantial step forward in Kable's strategy as a leading provider of fulfillment and magazine distribution services," said Kable president Michael Duloc. "Palm Coast Data has a strong market presence and an excellent reputation with its customers. The merger with Kable will enable the combined businesses to provide even more efficient service to their clients and will create a strong platform for future growth." John Meneough, president of Palm Coast Data, said "Joining with Kable gives Palm Coast a great opportunity to grow the business. Kable has a strong management team and has established an impressive record in delivering innovative solutions to its customers. We share this team's vision for the future and are excited by the opportunities this brings Palm Coast to provide additional value to our customers." Mr. Meneough will serve as president and chief operating officer of the combined Kable and Palm Coast fulfillment operations. About AMREP Corporation: AMREP Corporation is primarily engaged in two businesses: land development and magazine and product service operations. Its AMREP Southwest subsidiary is a major landholder and a leading developer of real estate in New Mexico. It is the founder of Rio Rancho, now the third largest city in New Mexico, where the focus of its current activity is on the entitlement, development and sale of land for residential, commercial and industrial uses. Its Kable Media Services business, which was founded in 1932, has major locations in Illinois, Colorado, Ohio and New York City, and provides an array of magazine and product fulfillment and fulfillment-related services to publishers and others and distributes magazines, both in the United States and elsewhere in the world. About Palm Coast Data: Palm Coast Data, LLC, located in the Florida city of Palm Coast, has been providing services to the magazine publishing industry since 1984 and is a leading provider of such services in the United States. The bulk of the company's business comes from the publishing industry with a smaller share coming from membership organizations and product marketers. Palm Coast Data, LLC is a wholly-owned subsidiary of Palm Coast Data Holdco, Inc. *** The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by AMREP or on its behalf. These statements are made on the basis of management's views and assumptions; as a result, there can be no assurance that management's expectations will necessarily come to pass. The actual financial impact of the transaction and other actual events and developments could differ materially from those expressed or implied in forward-looking statements. Important factors that could cause actual operating performance or financial condition or other actual events or developments to differ from those expressed or implied in the forward-looking statements include, but are not limited to, the ability of Kable to successfully integrate Palm Coast Data into its operations. Investors are also directed to consider the risks and uncertainties discussed in other documents AMREP has filed with the Securities and Exchange Commission. AMREP does not undertake to update any forward-looking statement that may be made from time to time by or on its behalf. CONTACT: AMREP Corporation Peter M. Pizza Vice President and Chief Financial Officer (609) 716-8210 -----END PRIVACY-ENHANCED MESSAGE-----