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<SEC-DOCUMENT>0000006207-07-000005.txt : 20070119
<SEC-HEADER>0000006207-07-000005.hdr.sgml : 20070119
<ACCEPTANCE-DATETIME>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
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>axr8k011707.txt
<TEXT>

                                  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))


<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>


                                    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 -
<PAGE>




                                  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.






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2
<SEQUENCE>2
<FILENAME>axr8k011707exh21.txt
<TEXT>

                                                                     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
- --------------------------------------------------------------------------------


<PAGE>

                                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
<PAGE>

                                   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 -

<PAGE>
            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 -
<PAGE>

                             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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

     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:
<PAGE>
                                   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 -
<PAGE>

     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 -
<PAGE>

          (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 -
<PAGE>

          (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 -
<PAGE>

          (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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

          (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 -
<PAGE>

          (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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

     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 -
<PAGE>

     (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 -
<PAGE>

     (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 -
<PAGE>

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 -
<PAGE>

     (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 -
<PAGE>

     (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 -
<PAGE>

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 -
<PAGE>

          (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 -
<PAGE>

     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 -
<PAGE>

     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 -
<PAGE>

     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 -
<PAGE>

     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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

     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 -
<PAGE>

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 -
<PAGE>

     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 -
<PAGE>

          (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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

     (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 -
<PAGE>

     (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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

     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 -
<PAGE>

     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 -
<PAGE>

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 -
<PAGE>

(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 -
<PAGE>

     (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 -
<PAGE>

     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 -
<PAGE>

     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 -
<PAGE>

                  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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

     (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 -
<PAGE>

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 -
<PAGE>

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 -
<PAGE>

     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


<PAGE>

                                               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


<PAGE>


                                               /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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>axr8k011707exh101.txt
<TEXT>

                                                                    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.
<PAGE>

     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
<PAGE>

<TABLE>
<S>           <C>                                    <C>                     <C>                    <C>

- ------------- -------------------------------------- ----------------------- ---------------------- ------------------
              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

- ------------- -------------------------------------- ----------------------- ---------------------- ------------------
</TABLE>

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
<PAGE>

     "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
<PAGE>

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
<PAGE>

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
<PAGE>

               (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
<PAGE>

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
<PAGE>

     "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
<PAGE>

          (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
<PAGE>

     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
<PAGE>

     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
<PAGE>

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
<PAGE>

     "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
<PAGE>

     "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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

               (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
<PAGE>

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
<PAGE>

     "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
<PAGE>

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
<PAGE>

     "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
<PAGE>

     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
<PAGE>

          (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
<PAGE>

     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
<PAGE>

          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
<PAGE>

     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
<PAGE>

     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
<PAGE>

     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
<PAGE>

          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
<PAGE>

     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
<PAGE>

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
<PAGE>

          (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
<PAGE>

          (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
<PAGE>

          (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
<PAGE>

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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

     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
<PAGE>

     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
<PAGE>

          (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
<PAGE>

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
<PAGE>

     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
<PAGE>

     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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

          (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
<PAGE>

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.



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<PAGE>

     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
<PAGE>

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
<PAGE>

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
<PAGE>

     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,


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<PAGE>

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
<PAGE>

             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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>

     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.

<TABLE>
<S>                                                          <C>


- ---------------------------------------------------------------------------------------------------------------------
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


- ---------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       79
<PAGE>

Agreed and accepted:

LASALLE BANK NATIONAL ASSOCIATION,
a national banking association


By:      /s/ Kent N. Kohlbacher
         -----------------------------------------
         Kent N. Kohlbacher, First Vice President





                                       80
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>axr8k011607press.txt
<TEXT>

                                                                    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:
<PAGE>

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




</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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