Document:

EXHIBIT
4.1

 

SENIOR
SUBORDINATED PROMISSORY NOTE

 

THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

 

AT ALL TIMES AFTER THE
EXECUTION OF AN INTERCREDITOR AGREEMENT (BUT IN NO EVENT PRIOR THERETO), THIS
NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY WILL BE SUBORDINATED IN THE MANNER
AND TO THE EXTENT SET FORTH IN THE INTERCREDITOR AGREEMENT AND EACH HOLDER OF
THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE INTERCREDITOR
AGREEMENT AT ALL TIMES AFTER THE 
EXECUTION THEREOF.

 

SECURITY
CAPITAL CORPORATION

 

10%-16% SENIOR
SUBORDINATED PROMISSORY NOTE

DUE SEPTEMBER 30, 2008

 

	
  $30,000,000.00

  	
   

  	
  New York, New
  York

  
	
   

  	
   

  	
  January 14,
  2004

  

 

FOR VALUE RECEIVED, the
undersigned, SECURITY CAPITAL CORPORATION, a Delaware corporation (“Company”), hereby
promises to pay to the order of J.H. Whitney Mezzanine Fund, L.P., a Delaware
limited partnership (“WMF”), or its registered assigns (the “Holder”), the
principal sum of THIRTY MILLION DOLLARS ($30,000,000.00) on September 30,
2008 (the “Maturity Date”),
with interest thereon from time to time as provided herein.

 

1.               Purchase
Agreement.  This Senior Subordinated
Promissory Note (the “Note”) is issued by the Company, on the date hereof,
pursuant to the Securities Purchase Agreement (the “Purchase Agreement”), dated as of the date
hereof by and between the Company and WMF, and is subject to the terms
thereof.  This Note, together with all
promissory notes issued pursuant to paragraph 12 hereof are hereinafter
referred to as the “Notes.”  The Holder is entitled to the benefits of
this Note and the Purchase Agreement, as it relates to the Note, and may
enforce the agreements of the Company contained herein and therein and exercise
the remedies provided for hereby and thereby or otherwise available in respect
hereto and thereto.  Capitalized terms
used

 

 

herein without definition
are used herein with the meanings ascribed to such terms in the Purchase
Agreement.

 

2.               Interest.  The Company promises to pay interest (“Interest”) on the
principal amount of this Note at the rate of (i) until the earlier of (x)
September 30, 2004 and (y) the completion of the Transaction (such earlier
date, the “Reset Date”),
10% per annum and (ii) thereafter, 16% (the “Interest Rate”).  Such Interest shall be payable as specified below.  Interest on this Note shall accrue from and
including the date of issuance through and until repayment of the principal
amount of this Note and payment of all Interest in full, and shall be computed
on the basis of a 360-day year of twelve 30-day months.  If the Company is required to withhold or
deduct any amount from any interest payment under the Note in respect of Taxes,
the Company shall withhold or deduct such amount, pay it to the appropriate
government authority and tender the Holder of the Note appropriate evidence of
such payment.  Any amounts so withheld
or deducted by the Company shall be treated as paid to the Holder for all purposes
of this Note and the Purchase Agreement. 
Interest shall be paid as follows:

 

(a)                                  Basic
Interest.  The Company shall pay
interest (the “Basic Interest”)
on the principal amount of this Note in cash at the rate of, until the Reset
Date, 10% per annum, and thereafter, 12% per annum (the “Basic Interest Rate”).  Such payments shall be made quarterly on
each March 31, June 30, September 30 and December 31 of
each year or, if any such date shall not be a Business Day, on the next
succeeding Business Day to occur after such date (each date upon which interest
shall be so payable, an “Interest Payment Date”), beginning on March 31,
2004, by wire transfer of immediately available funds to an account at a bank
designated in writing by the Holder.  In
the absence of any such written designation, any such Interest payment shall be
deemed made on the date a check in the applicable amount payable to the order
of Holder is received by the Holder at its last address as reflected in the
Company’s note register; if no such address appears, then to such Holder in
care of the last address in such note register of any predecessor holder of
this Note (or its predecessor).

 

(b)                                 PIK
Interest.  After the Reset Date, the
Company shall pay interest (“PIK Interest”) on the principal amount of this Note at a
rate of 4% per annum (the “PIK Interest Rate”), by delivery to the Holder, by a
date no later than each Interest Payment Date, of an additional promissory note
(each a “PIK Note”)
having an aggregate principal amount equal to the accrued but unpaid PIK
Interest on this Note (and the amount of accrued but unpaid PIK Interest on any
previously delivered PIK Notes) and otherwise having substantially identical
terms to this Note (including, with respect to the Interest Rate).  Interest (which, for the avoidance of doubt,
includes both Basic Interest and PIK Interest) on each PIK Note shall accrue
from the Interest Payment Date in respect of which such additional PIK Note was
issued until repayment of the principal and payment of all accrued interest in
full.  If for any reason one or more PIK
Notes shall not be delivered in accordance herewith, Interest shall accrue on
this Note such that the aggregate Interest due and payable on the Maturity Date
and on each Interest Payment Date would be the same as if all PIK Notes not issued
had been issued, and the principal payable on the Maturity Date with respect to
this Note shall be an amount equal to the sum of the principal outstanding
hereunder and the aggregate principal which would be outstanding if the PIK
Notes not issued had been issued.

 

 

(c)                                  Default
Rate of Interest.  Notwithstanding
the foregoing provisions of this Section 2, but subject to applicable law,
any overdue principal of and overdue Interest on this Note shall bear interest,
payable on demand in immediately available funds, for each day from the date
payment thereof was due to the date of actual payment, at a rate equal to the
sum of (i) the then applicable Interest Rate, and (ii) an additional
2% per annum, and, upon and during the occurrence of an Event of Default (as
hereinafter defined), this Note shall bear interest, from the date of the
occurrence of such Event of Default until such Event of Default is cured or
waived, payable on demand in immediately available funds, at a rate equal to
the sum of (i) the Interest Rate then applicable, and (ii) an
additional 2% per annum.  Subject to
applicable law, any interest that shall accrue on overdue interest on this Note
as provided in the preceding sentence and shall not have been paid in full on
or before the next Interest Payment Date to occur after the date on which the
overdue interest became due and payable shall itself be deemed to be overdue
interest on this Note to which the preceding sentence shall apply.

 

(d)                                 Calculation
of Interest.  Basic Interest shall
be computed at all times without regard to PIK Interest or the PIK Interest
Rate.  PIK Interest shall be computed at
all times without regard to Basic Interest or the Basic Interest Rate.

 

(e)                                  No
Usurious Interest.  The rate of
interest payable on this Note or other amount shall in no event exceed the
maximum rate permissible under Requirements of Law.  If the rate of interest payable on this Note or other amount is
ever reduced as a result of this Section and at any time thereafter the
maximum rate permitted by Requirements of Law shall exceed the rate of interest
provided for in this Note, then the rate provided for in this Note shall be
increased to the maximum rate provided by Requirements of Law for such period
as is required so that the total amount of interest received by the Holder is
that which would have been received by the Holder but for the operation of the
first sentence of this Section.  Any
payment by the Company of any interest amount in excess of that permitted by
law shall be considered a mistake, with the excess being applied to the
principal amount of this Note without prepayment premium or penalty; if no such
principal amount is outstanding, such excess shall be returned to Company.

 

3.               Mandatory
Prepayment/Redemption.

 

(a)                                  Qualified
Public Offering.  Upon the
consummation of a Qualified Public Offering, the Company shall, at the election
of each Holder, prepay the then outstanding principal amount of each Holder’s
Note in accordance with the redemption prices (the “Mandatory Redemption Prices”) set forth below
(expressed as a percentage of the then outstanding principal amount of the
Note(s)), together with Interest accrued thereon through the date of such
prepayment, and reasonable out-of-pocket costs and expenses (including,
reasonable fees, charges and disbursements of counsel), if any, associated with
such prepayment. If the consummation of a Qualified Public Offering shall occur
during the consecutive 12-month period immediately preceding January 14 of
the calendar year set forth below, the Mandatory Redemption Price shall be
determined based upon the percentage of the outstanding principal amount of the
Note(s) which corresponds to the period in question, as provided below.

 

	
  Period

  	
   

  	
  Mandatory
  Redemption Price

  	
   

  
	
  2005

  	
   

  	
  105

  	
  %

  
	
  2006

  	
   

  	
  103

  	
  %

  
	
  2007

  	
   

  	
  101

  	
  %

  
	
  Thereafter

  	
   

  	
  100

  	
  %

  

 

 

The Company shall pay the
Mandatory Redemption Price, together with Interest accrued thereon, within 3
Business Days after receipt by the Company or any of its Subsidiaries of the
proceeds of such Qualified Public Offering.

 

(b)                                 Change
of Control.  Upon the occurrence of
a Change of Control, the Company shall, at the election of each Holder, prepay
the outstanding principal amount of each Holder’s Note in accordance with the
Mandatory Redemption Prices set forth above in Section 3(a), together with
interest accrued thereon through the date of such prepayment.  If the occurrence of a Change of Control
shall occur during the consecutive 12-month period immediately preceding January 14  of
the calendar year set forth above in Section 3(a), the Mandatory
Redemption price shall be determined based upon the percentage of the
outstanding principal amount of the Note(s) which corresponds to the period in
question.  The Company shall pay the
Mandatory Redemption Price, together with interest accrued thereon, within 5
Business Days after the occurrence of a Change of Control.

 

(c)                                  Notice.  The Company shall give written notice to the
Holder of any mandatory prepayment pursuant to this Section 3 at least
three (3) Business Days prior to the date of such prepayment.  Such notice shall be given in the manner
specified in Section 11.02 of the Purchase Agreement.

 

(d)                                 Failure
to Consummate the Transaction or to Satisfy Release Conditions.  If on September 30, 2004 the
Transaction shall not yet have been consummated or any of the Release
Conditions (as defined in the Cash Collateral Pledge Agreement) shall not have
been satisfied, the Company shall, at the election of each Holder, prepay the
then outstanding principal amount of each Holder’s Note at a price equal to
par, together with Interest accrued thereon through the date of such
prepayment, and reasonable out-of-pocket costs and expenses (including,
reasonable fees, charges and disbursements of counsel), if any, associated with
such prepayment.  The Company shall pay
such amount, together with Interest accrued thereon, within 3 Business Days
after receipt by the Company of the Holder’s election under this
Section 3(e).

 

(f)                                    PIK
Notes Not Delivered.  If for any
reason one or more PIK Notes shall not be delivered in accordance with
Section 2(b) of this Note, the principal amount of this Note for purposes
of calculating the amounts due pursuant to this Section 3 shall be deemed
to be the principal of this Note plus the principal of all PIK Notes not so
delivered, provided, however, that the amounts due pursuant to this
Section 3 shall not exceed the amounts due pursuant to this Section 3
which would have been payable if all PIK Notes required to be delivered in
accordance with Section 2(b) of this Note had actually been delivered.

 

4.               Optional
Prepayment/Redemption.

 

(a)                                  Upon
notice given to the Holder as provided in Section 4(b), the Company, at
its option, may prepay all or any portion of the principal amount of this Note
at any time, by paying to the Holder an amount equal to the redemption prices
(the “Optional

 

 

Redemption Prices”) set forth below
(expressed as a percentage of the outstanding principal amount being prepaid,
from time to time) together with Interest accrued and unpaid thereon to the
date fixed for such prepayment, and reasonable out-of-pocket costs and expenses
(including, reasonable fees, charges and disbursements of counsel), if any,
associated with such prepayment, however, each prepayment of less than
the full outstanding balance of the principal amount of this Note shall be in
an aggregate principal amount of not less than $1,000,000.00, or integral
multiples of $250,000.00 in excess thereof, and; provided, further,
that unless this Note and all Notes shall be paid in full, the aggregate
principal balance of the Notes outstanding at any time shall be at least
$5,000,000.00.  If such prepayment is to
be made by the Company to the Holder before or on the Reset Date, the Optional
Redemption Price shall be 100%.  If such
prepayment is to be made by the Company to the Holder after the Reset Date and
during the consecutive 12-month period immediately preceding January 14,
of the calendar year set forth below, the Optional Redemption Price shall be
determined based upon the percentage of the then outstanding principal amount
of this Note which corresponds to the period in question:

 

	
  Period

  	
   

  	
  Optional
  Redemption Price

  	
   

  
	
  2005

  	
   

  	
  105

  	
  %

  
	
  2006

  	
   

  	
  103

  	
  %

  
	
  2007

  	
   

  	
  101

  	
  %

  
	
  Thereafter

  	
   

  	
  100

  	
  %

  

 

(b)                                 The
Company shall give written notice of prepayment of this Note, or any portion
thereof, pursuant to this Section 4 not less than 10 nor more than 60 days
prior to the date fixed for such prepayment. 
Such notice of prepayment pursuant to this Section 4 shall be given
in the manner specified in Section 11.02 of the Purchase Agreement.  Upon notice of prepayment pursuant to this
Section 4 being given by the Company, the Company covenants and agrees
that it will prepay, on the date therein fixed for prepayment, this Note or the
portion hereof so called for prepayment, at the applicable Optional Redemption
Price set forth above with respect to the outstanding principal amount of this
Note or the portion thereof so called for prepayment, together with Interest
accrued and unpaid thereon to the date fixed for such prepayment, and the costs
and expenses referred to in Section 4(a).

 

(c)                                  All
optional prepayments under this Section 4 shall include payment of accrued
Interest on the principal amount of this Note so prepaid and shall be applied
first to all costs, expenses and indemnities payable under the Purchase
Agreement, then to payment of default interest, if any, then to payment of the
Basic Interest, then to payment of the PIK Interest, and thereafter to
principal.

 

(d)                                 If
for any reason one or more PIK Notes shall not be delivered in accordance with
Section 2(b) of this Note, the principal amount of this Note for
purposes of calculating the Optional Redemption Price shall be deemed to be the
principal of this Note plus the principal of all PIK Notes not so delivered,
provided, however, that the Optional Redemption Price payable with respect to
this Note and all PIK Notes actually delivered pursuant hereto in the aggregate
shall not exceed the Optional Redemption Price which would have been payable if
all PIK Notes required to be delivered in accordance with
Section 2(b) of this Note had actually been delivered.

 

 

5.               Amendment.  Amendments and modifications of this Note
may be made only in the manner provided in Section 11.04 of the Purchase
Agreement.

 

6.               Defaults and
Remedies.

 

(a)                                  Events
of Default.  An “Event of Default”
shall occur if:

 

(i)                                     the
Company shall default in the payment of the principal of this Note, when and as
the same shall become due and payable, whether at maturity or at a date fixed
for prepayment or by acceleration or otherwise; or

 

(ii)                                  the
Company shall default in the payment of any part of any installment of Basic
Interest according to its terms, when and as the same shall become due and
payable and such default shall continue for a period of 5 Business Days or
Company shall fail to deliver any PIK Note, or an appropriate amount of cash in
lieu thereof pursuant to Section 2(b), when and as the same shall become
deliverable or payable, as the case may be, and such failure shall continue for
a period of 5 Business Days after request for the delivery or payment thereof,
as the case may be, by the Holder; or

 

(iii)                               the
Company shall default in the due observance or performance of any covenant to
be observed or performed pursuant to Sections 8.01, 8.02(a), 8.03, 8.09,
8.10, 8.11, 8.12(a) or 8.13 or Article 9 of the Purchase Agreement; provided,
however, that so long as WMF is the Holder of the entire unpaid
principal amount of the Note(s), a default under the foregoing Sections of
Article 8 or Article 9 shall become an Event of Default only if such
default shall continue for a period of 10 days after notice from WMF; or

 

(iv)                              the
Company or any other Group Member shall default in the due observance or
performance of any other covenant, condition or agreement on the part of the
Company or any other Group Member to be observed or performed pursuant to the
terms hereof or pursuant to the terms of the Purchase Agreement or any of the
Investment Documents (other than those referred to in clauses (i), (ii) or
(iii) of this Section 6(a)), and such default shall continue for 30 days
after the earliest of (A) the date the Company is required pursuant to the
Investment Documents or otherwise to give notice thereof to the Holder (whether
or not such notice is actually given), or (B) the date that written notice
thereof, specifying such default and, if such default is capable of being
remedied, requesting that the same be remedied, shall have been given to the
Company by any Holder; or

 

(v)                                 any
representation, warranty or certification made by or on behalf of the Company  or
any Group Member in the Purchase Agreement, this Note, any other Investment
Document or in any certificate or other document delivered pursuant hereto or
thereto shall have been incorrect when made in any material respect (except to
the extent such representation, warranty or certification by its terms is
already subject to a materiality limit or qualifier in whatever form, in which
case the last four words preceding this parenthetical shall not apply); or

 

(vi)                              the
Company or any other Group Member (a) defaults under any instrument
evidencing or relating to any Indebtedness of (or guaranteed by) the Company or
any other Group Member (except Senior Indebtedness under the Senior Loan Agreement,
which is

 

 

provided for in
clause (b) below), which default is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness before the expiration
of the grace period provided in such instrument or any other breach or default
(or other event or condition) shall occur under any such instrument, if the
effect of such breach or default (or such other event or condition) is to
cause, or to permit the holder or holders of such Indebtedness (or a Person on
behalf of such holder or holders) to cause (upon the giving of notice, the
lapse of time or both, or otherwise) such Indebtedness to become or be declared
due and payable prior to its stated maturity and the aggregate principal amount
of all such Indebtedness in default aggregates $500,000 or more, or
(b) defaults under any Senior Loan Document, which default is caused by a
failure to pay principal of or premium, if any, or interest on such Senior
Indebtedness outstanding thereunder before the expiration of any grace period provided
therefor in such instrument or any other breach or default (or other event or
condition) shall occur under any Senior Loan Documents and shall result in any
such Senior Indebtedness becoming or being declared due and payable prior to
its stated maturity; or

 

(vii)                           any
uninsured damage to or loss, theft or destruction of any assets of the Company
or any other Group Member shall occur that is in excess of $500,000
individually or in the aggregate; or

 

(viii)                        an
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking (A) relief in respect
of the Company or any other Group Member, or of a substantial part of its
property or assets, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (B) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company  or
any other Group Member, or for a substantial part of its property or assets, or
(C) the winding up or liquidation of the Company  or any other Group Member;
and such proceeding or petition shall continue undismissed for 60 days, or an
order or decree approving or ordering any of the foregoing shall be entered; or

 

(ix)                                the
Company  or
any other Group Member shall (a) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United States Code,
as now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (b) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (viii) of
this Section 6(a), (c) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company  or any other Group Member, or for a substantial part of its
property or assets, (d) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (e) make a general
assignment for the benefit of creditors, (f) become unable, admit in
writing its inability or fail generally to pay its debts as they become due, or
(g) take any action for the purpose of effecting any of the foregoing; or

 

(x)                                   one
or more judgments for the payment of money in an aggregate amount in excess of
$500,000 (to the extent not covered by insurance) shall be rendered against any
Group Member and the same shall remain undischarged for a period of 30 days
during which

 

 

execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to levy upon assets or properties of any Group Member to enforce any such
judgment; or

 

(xi)                                any
proceedings shall be instituted against the Company or any other Group Member
by Possible Dreams, any member of the Pumpkin Group or the P.D. Holdings Group,
any trustee in the Bankruptcy Proceeding or in any bankruptcy proceeding
involving any member of the Pumpkin Group or the P.D. Holdings Group, any
creditors committee appointed in the Bankruptcy Proceeding or in any bankruptcy
proceeding involving any member of the Pumpkin Group or the P.D. Holdings Group
or one or more creditors of Possible Dreams or any member of the Pumpkin Group
or the P.D. Holdings Group seeking (A) the recovery of any amount pursuant to
any alleged or actual guarantee, Contingent Obligation or otherwise, on any
theory of liability whatsoever, whether under the Bankruptcy Code or otherwise
or (B) any other right or remedy against or involving the Company or any Group
Member including remedies of substantive consolidation or veil piercing; or

 

(xii)                         (A) Any
Termination Event occurs that, when taken together with all other Termination
Events that have occurred, can reasonably be expected to result in a liability
of any Group Member or ERISA Affiliate in excess of $250,000; or

 

(B) any Group Member or
ERISA Affiliate shall have committed one or more failures described in Section 302(f)(1)
of ERISA and the amount determined under Section 302(f)(3) of ERISA for
all such failures is at least $250,000; or

 

(C) any Group Member or
ERISA Affiliate shall fail to make full payment (including all required
installments) when due of all amounts that, under the provisions of any Plan or
Multiemployer Plan or applicable law, such Person is required to pay as
contributions thereto or payments thereunder, which, together with all other
such failures, would result in a liability to any Group Member or ERISA
Affiliate exceeding $250,000; or

 

(D) any Group Member or
ERISA Affiliate shall have incurred any accumulated funding deficiency in
excess of $250,000, whether or not waived, with respect to any Plan, or any
lien is imposed on the assets of any Group Member or ERISA Affiliate which,
together with all other such liens, exceeds $250,000; or

 

(E) any Group Member or
ERISA Affiliate, as an employer under a Multiemployer Plan, shall have incurred
(or been notified by the sponsor of any such plan) of withdrawal liability in
an amount exceeding $250,000; or

 

(F) any Group Member or
ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan
that such plan is in reorganization, insolvency, or is being terminated, within
the meaning of Title IV of ERISA, if as a result of such reorganization,
insolvency, or termination, the aggregate annual contributions of all Group
Members and ERISA Affiliates to all Multiemployer Plans that are then in
reorganization, insolvency, or being terminated have been or will be increased
over the amounts contributed to such plans for the respective plan years that
include the Closing Date by an amount exceeding $250,000.

 

(b)                                 Acceleration.  If an Event of Default occurs under
Section 6(a)(viii) or (ix), then the outstanding principal of and all
accrued Interest on the Note shall automatically

 

 

become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived.  If
any other Event of Default occurs and is continuing, the Required Purchasers,
by written notice to the Company, may declare the principal of and accrued
Interest on the Note to be immediately due and payable.  Upon such declaration, such principal and
Interest shall become immediately due and payable.  The Required Purchasers may rescind an acceleration and its
consequences if all existing Events of Default have been cured or waived,
except nonpayment of principal or Interest that has become due solely because
of the acceleration, and if the rescission would not conflict with any judgment
or decree.  Any notice or rescission
shall be given in the manner specified in Section 11.03 of the Purchase
Agreement.

 

7.               Subordination.  At any time after the execution and delivery
of an Intercreditor Agreement with respect to this Note (but in no event prior
thereto), this Note shall be subordinate and junior in right of payment to the
Senior Indebtedness as provided in the Intercreditor Agreements.

 

8.               Use of Proceeds.  The Company shall use the principal amount
of this Note in accordance with the permitted uses described in
Section 8.10 of the Purchase Agreement.

 

9.               Suits for
Enforcement.

 

(a)                                  Subject
to the Intercreditor Agreements, upon the occurrence of any one or more Events
of Default, any Holder of this Note may proceed to protect and enforce its
rights hereunder by suit in equity, action at law or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in the Purchase Agreement or this Note or in aid of the exercise of
any power granted in the Purchase Agreement or this Note, or may proceed to
enforce the payment of this Note, or to enforce any other legal or equitable
right of the Holder of this Note.

 

(b)                                 In
case of any Default or Event of Default, the Company will pay to the Holder
such amounts as shall be sufficient to cover the costs and expenses of such
Holder due to such Default or Event of Default, as provided in Article 7
of the Purchase Agreement.

 

10.         Remedies Cumulative.  No remedy herein conferred upon the Holder
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.

 

11.         Remedies Not Waived.  No course of dealing between the Company and
the Holder or any delay on the part of the Holder in exercising any rights
hereunder shall operate as a waiver of any right.

 

12.         Transfer.

 

(a)                                  The
term “Holder”
as used herein shall also include any transferee of all or any portion of this
Note whose name has been recorded by the Company in the Note Register.  Each transferee of this Note acknowledges
that this Note has not been registered under the Securities Act, and may be
transferred only pursuant to an effective registration under the

 

 

Securities Act or
pursuant to an applicable exemption from the registration requirements of the
Securities Act.

 

(b)                                 The
Company shall maintain a register (the “Note Register”) in its principal offices for the purpose
of registering the Note and any transfer or partial transfer thereof, which
register shall reflect and identify, at all times, the ownership of record of
any interest in the Note.  Upon the
issuance of this Note, the Company shall record the name and address of the
initial purchaser of this Note in the Note Register as the first Holder.  Upon surrender for registration of transfer
or exchange of this Note at the principal offices of the Company, the Company
shall, at its expense, execute and deliver one or more new Notes of like tenor
and of denominations of at least $1,000,000 (except as may be necessary to
reflect any principal amount not evenly divisible by $1,000,000) of a like
aggregate principal amount, registered in the name of the Holder or a
transferee or transferees.  Every Note
surrendered for registration of transfer or exchange shall be duly endorsed, or
be accompanied by written instrument of transfer duly executed by the Holder of
such Note or such holder’s attorney duly authorized in writing.

 

(c)                                  This
Note may be transferred or assigned, in whole or in part, by the Holder at any
time, provided that no transfer may be made (i) to a Person that is not
an Eligible Assignee or (ii) if such transfer would result in there being more
than 8 holders of the Note.

 

13.         Replacement of Note.  On receipt by the Company of an affidavit of
an authorized representative of the Holder stating the circumstances of the
loss, theft, destruction or mutilation of this Note (and in the case of any
such mutilation, on surrender and cancellation of such Note), the Company, at
its expense, will promptly execute and deliver, in lieu thereof, a new Note of
like tenor.  If required by the Company,
such Holder must provide indemnity sufficient in the reasonable judgment of the
Company to protect the Company from any loss which it may suffer if a lost,
stolen or destroyed Note is replaced and/or is subsequently found or recovered.

 

14.         Covenants Bind
Successors and Assigns.  All the
covenants, stipulations, promises and agreements contained in this Note by or
on behalf of the Company shall bind its successors and assigns, whether so
expressed or not.

 

15.         Notices.  All notices, demands and other
communications provided for or permitted hereunder shall be made in writing in
accordance with Section 11.02 of the Purchase Agreement.

 

16.         GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES THAT WOULD REQUIRE THE
APPLICATION OF ANY OTHER LAW.

 

17.         Severability.  If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the

 

 

provisions held invalid,
illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.

 

18.         Rules of Construction.  Unless the context otherwise requires, “or”
is not exclusive, “including” is not limiting, and references
to sections or subsections refer to sections or subsections of this Note.  References in this Note to any agreement,
other document or law “as amended” or “as amended from time to time,”
or to amendments of any document or law, shall include any amendments,
supplements, replacements, renewals, waivers or other modifications.  References in this Note to any law (or any
part thereof) include any successor law and any rules and regulations
promulgated thereunder (or with respect to such part) by the relevant
Governmental Authority, as amended from time to time.

 

[REMAINDER OF THIS PAGE INTENTIONALLY
LEFT BLANK]

 

 

19.         Headings.  The headings in this Note are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

	
   

  	
  SECURITY CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ BRIAN D. FITZGERALD

  
	
   

  	
   

  	
  Name: Brian D.
  Fitzgerald

  
	
   

  	
   

  	
  Title: President and
  Chief Executive Officer

  

 

 

[SIGNATURE PAGE TO PROMISSORY NOTE]EXHIBIT 10.1

 

 

 

SECURITIES PURCHASE AGREEMENT

 

 

by and between

 

 

SECURITY CAPITAL CORPORATION

 

 

and

 

 

J.H. WHITNEY MEZZANINE FUND, L.P.

 

 

 

 

Dated as of January 14, 2004

 

 

 

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE 1 DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  1.01

  	
  Definitions

  	
   

  
	
  1.02

  	
  Accounting Terms; Financial Statements

  	
   

  
	
  1.03

  	
  Knowledge of the Company

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2 PURCHASE AND SALE OF THE
  NOTE

  	
   

  
	
   

  	
   

  	
   

  
	
  2.01

  	
  Purchase and Sale of the Note

  	
   

  
	
  2.02

  	
  Fees

  	
   

  
	
  2.03

  	
  Closing

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3 CONDITIONS TO THE
  OBLIGATIONS OF THE PURCHASER TO PURCHASE THE NOTE

  	
   

  
	
   

  	
   

  	
   

  
	
  3.01

  	
  Representations and Warranties

  	
   

  
	
  3.02

  	
  Compliance with This Agreement

  	
   

  
	
  3.03

  	
  Secretary’s Certificates

  	
   

  
	
  3.04

  	
  Purchase of Note Permitted by Applicable
  Laws

  	
   

  
	
  3.05

  	
  Opinion of Counsel

  	
   

  
	
  3.06

  	
  Approval of Counsel to the Purchaser

  	
   

  
	
  3.07

  	
  Consents and Approvals

  	
   

  
	
  3.08

  	
  No Material Judgment or Order

  	
   

  
	
  3.09

  	
  Pro Forma Balance Sheet

  	
   

  
	
  3.10

  	
  Good Standing Certificates

  	
   

  
	
  3.11

  	
  No Litigation

  	
   

  
	
  3.12

  	
  Senior Loan Documents

  	
   

  
	
  3.13

  	
  Solvency Certificate

  	
   

  
	
  3.14

  	
  Cash Collateral Agreement

  	
   

  
	
  3.15

  	
  Documents

  	
   

  
	
  3.16

  	
  Financial Condition

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4 CONDITIONS TO THE
  OBLIGATIONS OF THE COMPANY TO ISSUE AND SELL THE NOTE

  	
   

  
	
   

  	
   

  	
   

  
	
  4.01

  	
  Representations and Warranties

  	
   

  
	
  4.02

  	
  Compliance with this Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5 REPRESENTATIONS AND
  WARRANTIES OF THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  5.01

  	
  Corporate Existence and Power

  	
   

  
	
  5.02

  	
  Authorization; No Contravention

  	
   

  
	
  5.03

  	
  Governmental Authorization; Third Party
  Consents

  	
   

  

 

i

 

	
  5.04

  	
  Binding Effect

  	
   

  
	
  5.05

  	
  No Legal Bar

  	
   

  
	
  5.06

  	
  Litigation

  	
   

  
	
  5.07

  	
  No Default or Breach

  	
   

  
	
  5.08

  	
  Title to Properties

  	
   

  
	
  5.09

  	
  Use of Real Property

  	
   

  
	
  5.10

  	
  Taxes

  	
   

  
	
  5.11

  	
  SEC Reports; Financial Condition

  	
   

  
	
  5.12

  	
  Operating Company

  	
   

  
	
  5.13

  	
  Disclosure

  	
   

  
	
  5.14

  	
  Absence of Certain Changes or Events

  	
   

  
	
  5.15

  	
  Environmental Matters

  	
   

  
	
  5.16

  	
  Investment Company/Government Regulations

  	
   

  
	
  5.17

  	
  Subsidiaries

  	
   

  
	
  5.18

  	
  Private Offering

  	
   

  
	
  5.19

  	
  Broker’s, Finder’s or Similar Fees

  	
   

  
	
  5.20

  	
  Labor Relations

  	
   

  
	
  5.21

  	
  Employee Benefit Plans

  	
   

  
	
  5.22

  	
  Patents, Trademarks, Etc

  	
   

  
	
  5.23

  	
  Potential Conflicts of Interest

  	
   

  
	
  5.24

  	
  Trade Relations

  	
   

  
	
  5.25

  	
  Outstanding Borrowings

  	
   

  
	
  5.26

  	
  Material Contracts

  	
   

  
	
  5.27

  	
  Insurance

  	
   

  
	
  5.28

  	
  Products Liability.

  	
   

  
	
  5.29

  	
  Solvency

  	
   

  
	
  5.30

  	
  Other Documents

  	
   

  
	
  5.31

  	
  Payments

  	
   

  
	
  5.32

  	
  No Restrictions on Subsidiary Distributions to the Company

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6 REPRESENTATIONS AND
  WARRANTIES OF THE PURCHASER

  	
   

  
	
   

  	
   

  	
   

  
	
  6.01

  	
  Authorization; No Contravention

  	
   

  
	
  6.02

  	
  Binding Effect

  	
   

  
	
  6.03

  	
  No Legal Bar

  	
   

  
	
  6.04

  	
  Purchase for Own Account

  	
   

  
	
  6.05

  	
  Corporate Existence and Power

  	
   

  
	
  6.06

  	
  Broker’s, Finder’s or Similar Fees

  	
   

  
	
  6.07

  	
  Governmental Authorization; Third Party Consent

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7 INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  7.01

  	
  Indemnification

  	
   

  
	
  7.02

  	
  Procedure; Notification

  	
   

  

 

ii

 

	
  ARTICLE 8 AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  8.01

  	
  Financial Statements and Other Information

  	
   

  
	
  8.02

  	
  Preservation of Corporate Existence

  	
   

  
	
  8.03

  	
  Payment of Obligations

  	
   

  
	
  8.04

  	
  Compliance with Laws

  	
   

  
	
  8.05

  	
  Environmental Laws

  	
   

  
	
  8.06

  	
  Inspection

  	
   

  
	
  8.07

  	
  Payment of Note

  	
   

  
	
  8.08

  	
  Maintenance of Properties; Insurance

  	
   

  
	
  8.09

  	
  Books and Records

  	
   

  
	
  8.10

  	
  Board Nominees; Management Rights

  	
   

  
	
  8.11

  	
  Use of Proceeds

  	
   

  
	
  8.12

  	
  Guaranties; Liquidation of Non-Group
  Members

  	
   

  
	
  8.13

  	
  Minimum Cash Balance

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9 NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  9.01

  	
  Fundamental Changes; Consolidations,
  Mergers and Acquisitions

  	
   

  
	
  9.02

  	
  Transactions with Affiliates

  	
   

  
	
  9.03

  	
  No Inconsistent Agreements

  	
   

  
	
  9.04A

  	
  Limitation on Indebtedness of Group Members

  	
   

  
	
  9.05

  	
  Limitation on Liens

  	
   

  
	
  9.06

  	
  Dispositions of Assets

  	
   

  
	
  9.07

  	
  Limitations on Restricted Payments

  	
   

  
	
  9.08

  	
  Financial Covenants

  	
   

  
	
  9.09

  	
  Employee Benefit Plans

  	
   

  
	
  9.10

  	
  Limitation on Business of the Company

  	
   

  
	
  9.11A

  	
  Investments

  	
   

  
	
  9.12

  	
  Contingent Obligations

  	
   

  
	
  9.13

  	
  Management Fees and Compensation

  	
   

  
	
  9.14

  	
  Fiscal Year

  	
   

  
	
  9.15

  	
  Press Release; Public Offering Materials

  	
   

  
	
  9.16

  	
  Subsidiaries

  	
   

  
	
  9.17

  	
  No Negative Pledges

  	
   

  
	
  9.18

  	
  No Restrictions on Subsidiary Distributions
  to the Company

  	
   

  
	
  9.19

  	
  Modification of Senior Loan Agreements

  	
   

  
	
  9.20

  	
  Limitations on Layering

  	
   

  
	
  9.21

  	
  Sale Leasebacks

  	
   

  
	
  9.22

  	
  Hedging Agreements

  	
   

  
	
  9.23

  	
  Independent Directors

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10 PREPAYMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  10.01

  	
  Optional Prepayment

  	
   

  
	
  10.02

  	
  Mandatory Prepayment

  	
   

  

 

iii

 

	
  ARTICLE 11 MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  11.01

  	
  Survival of Representations and Warranties

  	
   

  
	
  11.02

  	
  Notices

  	
   

  
	
  11.03

  	
  Successors and Assigns

  	
   

  
	
  11.04

  	
  Amendment and Waiver

  	
   

  
	
  11.05

  	
  Signatures; Counterparts

  	
   

  
	
  11.06

  	
  Headings

  	
   

  
	
  11.07

  	
  GOVERNING LAW

  	
   

  
	
  11.08

  	
  JURISDICTION, JURY TRIAL WAIVER, ETC.

  	
   

  
	
  11.09

  	
  Severability

  	
   

  
	
  11.10

  	
  Rules of Construction

  	
   

  
	
  11.11

  	
  Entire Agreement

  	
   

  
	
  11.12

  	
  Certain Expenses

  	
   

  
	
  11.13

  	
  Publicity

  	
   

  
	
  11.14

  	
  Further Assurances

  	
   

  
	
  11.15

  	
  No Strict Construction

  	
   

  
	
  11.16

  	
  Tax Forms

  	
   

  
	
  11.17

  	
  Confidentiality

  	
   

  

 

	
  Schedule 5.01

  	
  Jurisdictions of
  Qualification

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.06

  	
  Litigation

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.09

  	
  Real Property

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.11(c)

  	
  PD Holdings or
  Pumpkin Group Investments and Contingent Obligations

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.14

  	
  Certain Events

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.15

  	
  Environmental
  Matters

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.17

  	
  Subsidiaries

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.19

  	
  Broker’s,
  Finder’s or Similar Fees

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.20

  	
  Labor Relations

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.21

  	
  Employee Benefit
  Plans

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.22

  	
  Patents,
  Trademarks, etc.

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.23

  	
  Potential
  Conflicts of Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.24

  	
  Trade Relations

  	
   

  

 

iv

 

	
  Schedule 5.25

  	
  Outstanding
  Borrowings

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.26

  	
  Material
  Contracts

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.27

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.28

  	
  Products
  Liability

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 5.31

  	
  Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 9.02

  	
  Affiliate
  Transactions

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 9.04

  	
  Permitted Indebtedness

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 9.12

  	
  Contingent
  Obligations

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Cash
  Collateral Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Form of Guaranty

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Form of Note

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Form of
  Compliance Certificate

  	
   

  

 

v

 

SECURITIES PURCHASE AGREEMENT

 

AGREEMENT,
dated as of January 14, 2004, by and between SECURITY CAPITAL CORPORATION,
a Delaware corporation (the “Company”), and J.H. WHITNEY MEZZANINE FUND, L.P., a
Delaware limited partnership (“WMF”).

 

RECITAL

 

A.                                   Several
of the Company’s subsidiaries are parties to the following credit agreements
(as the same may be amended subject to Section 9.19 hereof, the “Senior Loan Agreements”):  (i) the Loan Agreement, dated as of
April 5, 2002, among Primrose School Franchising Company, a Georgia
corporation, as borrower, Primrose Holdings, Inc., a Delaware corporation (“Primrose”), and the
Company, as guarantors, and Bank One, N.A., a national banking association, as
amended by the First Amendment thereto dated as of December 31, 2002 and
by the Second Amendment thereto dated as of September 30, 2003 and (ii)
the Amended and Restated Loan Agreement, dated October 3, 2003, among WC
Holdings, Inc. (as successor in interest to Health Power, Inc.), a Delaware
corporation (“WC
Holdings”), certain of WC Holdings’ subsidiaries, and Bank One,
N.A.; and

 

B.                                     The
Company wishes to sell to WMF, and WMF wishes to purchase from the Company, a
senior subordinated promissory note (the “Note”), due September 30, 2008, in the
principal amount of $30,000,000, upon the terms and subject to the conditions
herein set forth; and

 

C.                                     The
Company is planning to use the proceeds of the Note to finance all or a portion
of (i) a recapitalization, (ii) repurchases of certain outstanding capital
stock or (iii) other transactions (such as the issuance of special dividends,
future acquisitions, or the buyback of Capital Stock of Subsidiaries) of a
nature and on terms acceptable to each of the Purchasers as determined in their
sole discretion (any such transaction or series of related transactions, the “Transaction”).

 

AGREEMENT

 

NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

1.01                        Definitions.  As
used in this Agreement, and unless the context requires a different meaning,
the following terms have the meanings indicated:

 

“Advisory Services Agreement”
means the Advisory Services Agreement between the Company and Capital Partners
dated as of January 1, 2003, as amended from time to time to the extent
permitted by this Agreement.

 

 

“Affiliate” shall
mean with respect to any Person (the “Initial Person”) (a) any Person directly or
indirectly controlling, controlled by, or under common control with, the
Initial Person, (b) any Person directly or indirectly owning or holding 10% or
more of any equity interest in the Initial Person, (c) any Person 10% or more
of whose voting stock or other equity interests is directly or indirectly owned
or held by the Initial Person, (d) any executive officer or director of the
Initial Person, (e) any spouse, former spouse, family member, heir, executor,
administrator, testamentary trustee, legatee or beneficiary of any such
executive officer or director, or (f) any trust, the beneficiaries of which, or
any corporation or partnership or limited liability company, the stockholders,
general or limited partners or members of which, include any such executive
officer or director or any of the persons listed in clause (e) hereof.  For purposes of this definition, “control” (including
with correlative meanings, the terms “controlling,”  “controlled by” and under “common control with”)
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.  Without limitation, each of Capital Partners,
any Affiliate of Capital Partners, any director or executive officer of the
Group that is an employee of Capital Partners, Mr. Brian D. Fitzgerald, any
member of Mr. Fitzgerald’s family, and any trusts established on behalf of Mr.
Fitzgerald and/or any of his family members are Affiliates of the Company.

 

“Affiliated Group”
shall have the meaning set forth in Section 1504(a) of the Code.

 

“Agreement” shall
mean this Agreement, including the exhibits and schedules attached hereto, as
the same may be amended, supplemented or modified in accordance with the terms
hereof.

 

“Amount of Unfunded Benefit Liabilities”
has the meaning set forth in Section 4001(a)(18) of ERISA.

 

“Asset Disposition”
shall mean the disposition, whether by sale, lease, transfer, loss, damage,
destruction, condemnation or otherwise of any of the following:  (a) any of the Capital Stock in the Company
or any of its Subsidiaries (including by way of issuance of additional Capital
Stock of a Subsidiary), or (b) all or any material portion of the assets of the
Company or any of its Subsidiaries other than sales of inventory in the
ordinary course of business.

 

“Audited Financial Statements”
shall have the meaning set forth in Section 5.11(b).

 

“Bankruptcy Code”
shall mean Title 11 of the United States Code (11 U.S.C. Section 101 et
seq.), as amended from time to time.

 

“Bankruptcy Proceeding”
means the chapter 11 case commenced on October 22, 2003 by Possible
Dreams, identified as bankruptcy case number 03-18818 pending in the bankruptcy
court for the District of Massachusetts.

 

“Board of Directors”
means, with respect to any Person, the board of directors (or any similar
governing body) of such Person, or unless the context otherwise requires, any

 

2

 

authorized committee of
the board of directors (or such body) of such Person.  Unless otherwise specified, “Board of Directors” means the Board
of Directors of the Company.

 

“Business Day” shall
mean any day other than a Saturday, Sunday or other day on which commercial
banks in the City of New York are authorized or required by law or executive
order to close.

 

“By-laws” shall mean,
unless the context in which such term is used otherwise requires, the By-laws
of the Company or any of its Subsidiaries as in effect on the Closing Date.

 

“Capital Expenditures”
means all payments due (whether or not paid during any fiscal period) in
respect of the cost of any fixed asset or improvement, or replacement,
substitution, or addition thereto, which has a useful life of more than one
year, including, without limitation, those costs arising in connection with the
direct or indirect acquisition of such asset by way of increased product or
service charges or offset items or in connection with a Capital Lease, in each
case in accordance with GAAP.

 

“Capital Lease”
means, with respect to the Company, any lease of any property that is or
should, in accordance with GAAP, be classified and accounted for as a capital
lease on a balance sheet of the Company.

 

“Capital Lease Obligations”
of any Person shall mean the obligations of such Person to pay rent or other
amounts under any Capital Lease of (or other arrangement conveying the right to
use) real or personal property, or a combination thereof, and for the purposes
of this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with
GAAP.  The determination of Capital
Lease Obligations at the relevant time of determination with respect to the
Company and its Subsidiaries shall be made on a consolidated basis in
accordance with GAAP.

 

“Capital Partners”
means each of Capital Partners, Inc., a Connecticut corporation, CP
Acquisition, L.P. No. 1, a Delaware limited partnership, FGS Partners, L.P., a
Connecticut limited partnership, FGS Inc., a Delaware corporation, Mr. Brian D.
Fitzgerald, Mr. A. George Gebauer and Mr. William R. Schlueter, provided
that Mr. Gebauer and Mr. Schlueter shall only be included within the definition
of “Capital Partners” so long as they are employees of Capital Partners, Inc..

 

“Capital Stock” shall
mean (a) in the case of a corporation, capital stock, (b) in the case of an
association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of Capital Stock, (c) in the
case of a partnership, partnership interests (whether general or limited), (d)
in the case of a limited liability company, membership interests, and (e) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.

 

“Cash” shall mean the
currency of the United States of America.

 

“Cash Collateral Pledge Agreement”
shall mean the Cash Collateral Pledge Agreement, dated the date hereof, among
the Company, WMF and U.S. Bank, National

 

3

 

Association., as
Collateral Agent, substantially in the form of Exhibit A hereto, as amended
from time to time.

 

“Cash Equivalents”
shall mean:  (i) marketable direct
obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States, in each case maturing within 1 year from the date
of acquisition thereof; (ii) commercial paper maturing no more than 1 year from
the date issued and, at the time of acquisition, having a rating of at least
A-1 from Standard & Poor’s rating service or a least P-1 from Moody’s Investors
Service, Inc., (iii) certificates of deposit or bankers’ acceptances maturing
within 1 year from the date of issuance thereof issued by, or overnight reverse
repurchase agreements from, any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia
having combined capital and surplus of not less than $500,000,000; (iv) time or
demand deposits maturing no more than 30 days from the date of creation thereof
with commercial banks having membership in the Federal Deposit Insurance
Corporation in amounts not exceeding the lesser of $100,000 or the maximum
amount of insurance applicable to the aggregate amount of the Company’s and its
Subsidiaries’ deposits at such institution; and (v) deposits or investments in
money market mutual funds offered or sponsored by brokerage or other companies
having membership in the Securities Investor Protection Corporation in amounts
not exceeding the lesser of $100,000 or the maximum amount of insurance applicable
to the aggregate amount of the Company’s and its Subsidiaries’ deposits at such
institution.

 

“CERCLA” has the
meaning set forth in the definition of “Environmental Laws” below.

 

“Certificate of Incorporation”
shall mean, unless the context in which it is used shall otherwise require, the
Certificate of Incorporation of the Company as in effect on the Closing Date.

 

“Change of Control”
means (a) the failure of the Permitted Holders to maintain beneficial
ownership, directly or indirectly, of Capital Stock of the Company representing
at least (i) 51% percent of the combined voting power of all Capital Stock
ordinarily entitled to vote in elections for the Board of Directors of the
Company and (ii) 51% percent of the economic interests of the Company, whether
as a result of a merger or consolidation or otherwise, (b) the replacement of a
majority of the Board of Directors of the Company over a two-year period from
the directors who constituted the Board of Directors at the beginning of such
period, without the election or nomination for election of such replacements
having been approved by a vote of at least a majority of the Board of Directors
then still in office who either were members of such Board of Directors at the
beginning of such period or whose election or nomination as a member of such
Board of Directors was previously so approved, (c) the failure of the Permitted
Holders to maintain voting control of the Board of Directors of the Company,
whether as a result of a merger or consolidation or otherwise, or (d) the sale
or other disposition of all or substantially all of the assets of the
Company.  As used herein, “beneficial ownership”
shall have the meaning provided in Rule 13d-3 of the Commission promulgated
under the Securities Exchange Act of 1934, provided that any Permitted Holder
who shares voting power or investment power over Capital Stock with another
Person (other than a Permitted Holder) shall not be considered to have
beneficial ownership of such Capital Stock.

 

4

 

“Closing” shall have
the meaning set forth in Section 2.03.

 

“Closing Date” shall
have the meaning set forth in Section 2.03.

 

“Code” shall mean the
Internal Revenue Code of 1986, as amended.

 

“Commission” shall
mean the Securities and Exchange Commission or any similar agency then having
jurisdiction to enforce the Securities Act.

 

“Company” shall have
the meaning set forth in the introductory paragraph hereto.

 

“Compliance Certificate”
shall have the meaning given in Section 8.01(c).

 

“Contingent Obligation”
as applied to any Person, shall mean any direct or indirect liability,
contingent or otherwise, of that Person: 
(i) with respect to any indebtedness, lease, dividend or other
obligation of another Person 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; (ii) with respect to any letter of credit issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings; or (iii) under any foreign exchange contract,
currency swap agreement, interest rate swap agreement or other similar
agreement or arrangement designed to alter the risks of that Person arising
from fluctuations in currency values or interest rates.  Contingent Obligations shall include (a) the
direct or indirect guaranty, endorsement (other than for collection or deposit
in the ordinary course of business), co-making, discounting with recourse or
sale with recourse by such Person of the obligation of another, (b) the
obligation to make take-or-pay or similar payments if required regardless of
nonperformance by any other party or parties to an agreement, and (c) any
liability of such Person for the obligations of another through any agreement
to purchase, repurchase or otherwise acquire such obligation or any property
constituting security therefor, to provide funds for the payment or discharge
of such obligation or to maintain the solvency, financial condition or any
balance sheet item or level of income of another.  The amount of any Contingent Obligation shall be equal to the
amount of the obligation so guaranteed or otherwise supported or, if not a
fixed and determined amount, the maximum amount so guaranteed.

 

“Contractual Obligations”
shall mean as to any Person, any provision of any security issued by such
Person or of any agreement, instrument, undertaking, contract, indenture,
mortgage, deed of trust or other arrangement (whether in writing or otherwise)
to which such Person is a party or by which it or any of such Person’s property
is bound.

 

“Credit Parties”
means the Company and the Subsidiary Guarantors.

 

“Default” means any
event or condition that, with the giving of notice or the lapse of time, would,
unless cured or waived, be an Event of Default.

 

“Director” shall mean
a member of the Board of Directors of a Person.  Unless the context otherwise requires, “Director” means a
Director of the Company.

 

5

 

“EBITDA” means, with
respect to any fiscal period of Company and the other Group Members, the net
income of Company and the other Group Members after provision for income taxes
for such fiscal period, as determined in accordance with GAAP on a consolidated
basis and reported on the Financial Statements for such period, excluding any
and all of the following included in such net income:  (a) gain or loss arising from the sale or other disposal of any
capital assets; (b) gain or loss arising from any write-up or write-down in the
book value of any asset; (c) earnings or losses of any corporation or other
Person, substantially all the assets of which have been acquired by any Group
Member in any manner, to the extent realized by such other corporation or
Person prior to the date of acquisition; (d) earnings or losses of any business
entity (other than Subsidiaries that are Group Members) in which any Group
Member has an ownership interest, including earnings or loss of the P.D.
Holdings Group or Pumpkin Group, except to the extent such earnings are
actually received by any Group Member in the form of cash distributions; (e)
earnings or losses of any Person to which assets of any Group Member shall have
been sold, transferred or disposed of, or into which any Group Member shall
have been merged, or which has been a party with any Group Member to any
consolidation or other form of reorganization, prior to the date of such
transaction; (f) gain arising from the acquisition of debt or equity securities
of any Group Member  or from
cancellation or forgiveness of Indebtedness; (g) gain or loss arising from
extraordinary items, as determined in accordance with GAAP; (h) the sum of the
provisions for income tax, interest expense, depreciation and amortization
expense; (i) management fees permitted to be paid pursuant to
Section 9.13(c); (j) expenses of the issuance of the Note or attributable
to the Transaction; (k) after the first Release Date, the positive net income
of any Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that net income is not at the date
of determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
regulation applicable to that Subsidiary or the holders of its Capital Stock
(1) a charge not to exceed $1.9 million related to deferred compensation
payments to management of WC Holdings during the fourth quarter of 2003; and
(m) other exclusions mutually agreed upon from time to time in writing between
the Company and the Required Purchasers. 
For purposes of any Rolling Period ending on or before
September 30, 2004, EBITDA shall be calculated giving pro forma effect to the acquisition of
Octagon Risk Services, Inc. as of the first day of such period, provided that
such pro forma calculations shall
be made in a manner complying with Regulation S-X under the Securities Act.

 

“Eligible Assignee”
means (a) any Purchaser, any Affiliate of any Purchaser and, with respect to
any Purchaser that is an investment fund, any other investment fund that is
managed or advised by the same investment advisor as such Purchaser or by an
Affiliate of such investment advisor, and (b) any commercial bank, savings and
loan association or savings bank or any other entity which is an “accredited
investor” (as defined in Regulation D under the Securities Act of 1993) which
extends credit or buys loans or mezzanine investments as one of its businesses
(including insurance companies, mutual funds, hedge funds, lease financing
companies and commercial finance companies) and which is capable of becoming a
Purchaser without the imposition on the Company or any Subsidiary Guarantor of
any withholding or similar taxes; provided that (a) no competitor of the
Company or any of its Affiliates, or any Affiliate of any such competitor shall
be an Eligible Assignee and (b) in the case of any transfer of a Note to a
“vulture” investor, as reasonably determined by the transferring Purchaser,
such investor shall only constitute an Eligible Assignee if Purchaser shall
have offered its Note to

 

6

 

Capital Partners at a
price equal to the price offered by the investor and Capital Partners shall not
have accepted such offer within 7 Business Days and consummated the purchase
within 5 Business Days thereafter.

 

“Employee Benefit Plan”
shall mean any material Plan, Pension Plan, Foreign Pension Plan, Welfare Plan,
bonus, incentive, change of control, plant closing, severance, termination,
deferred compensation, employee stock ownership, employee stock purchase, stock
option, stock appreciation, restricted stock or other equity-based
compensation, loan or loan forgiveness, or other employee benefit plan or
arrangement, other than a Multiemployer Plan, whether or not funded, in which
any current or former employees, directors or other personnel of the Company or
any Subsidiary participates, from which any such persons may derive a benefit,
or with respect to which the Company or any Subsidiary has any obligation or
personal liability.

 

“Environmental Laws”
shall mean any past, present or future federal, state, territorial, provincial,
foreign or local law, common law doctrine, rule, order, decree, judgment,
injunction, license, permit or regulation relating to pollution or protection
of human health and the environment (including ambient air, land surface or
subsurface strata, surface water or ground water) including laws and
regulations relating to emissions, discharges, releases or threatened releases
of any Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation,
discharge or handling of any Hazardous Materials.  “Environmental Laws” include the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. 9601 et  seq.)
(“CERCLA”),
the Hazardous Material Transportation Act (49 U.S.C. 1801 et  seq.),
the Resource Conservation and Recovery Act (42 U.S.C. 6901 et  seq.)
(“RCRA”),
the Federal Water Pollution Control Act (33 U.S.C. 1251 et  seq.),
the Clean Air Act (42 U.S.C. 1251 et  seq.), the Toxic Substances
Control Act (15 U.S.C. 2601 et  seq.), and the Occupational Safety
and Health Act (29 U.S.C. 651 et  seq.), as such laws have been,
or are, amended, modified or supplemented heretofore or from time to time
hereafter and any analogous future federal, or present or future state or local
laws, statutes and regulations promulgated thereunder.

 

“ERISA” shall mean
the Employee Retirement Income Security Act of 1974, as amended from time to
time.

 

“ERISA Affiliate”
shall mean each person (as defined in Section 3(9) of ERISA) which
together with the Company would be deemed to be a single employer within the
meaning of Section 414(b) or (c) of the Code, and for the purpose of
Section 302 of ERISA and/or Section 412, 4971, 4977, 4980D, 4980E
and/or each “applicable section” under Section 414(t)(2) of the Code, within
the meaning of Section 414(b), (c), (m) or (o) of the Code.

 

“Event of Default”
shall have the meaning set forth in the Note.

 

“Exchange Act” shall
mean the Securities Exchange Act of 1934, as amended.

 

“Financial Statements”
shall mean the Audited Financial Statements and the Unaudited Financial
Statements.

 

“Fiscal Year” means
the fiscal year of the Company ending on December 31.

 

7

 

“Fixed Charge Coverage Ratio”
means, for any fiscal period, the ratio of (a) EBITDA for such fiscal period to
(b) the sum of (i) cash interest expense of the Group for such fiscal period
(including fees paid in cash incurred in connection with the Indebtedness of
the Group), (ii) taxes of the Group paid in cash during such fiscal period and
taxes with respect to which the Group is obligated to pay during such fiscal
period, (iii) Capital Expenditures of the Group paid in cash during such fiscal
period, (iv) scheduled principal payments of Indebtedness of the Group due
during such fiscal period, (v) to the extent not deducted in the determination
of EBITDA for such fiscal period, cash payments made by the Group with respect
to underfunded pension liabilities or restructuring costs, (vi) fees referred
to in Section 9.13(c) or (d) paid in cash during such fiscal period and
(vii) Restricted Payments permitted to be paid pursuant to
Section 9.07(a), provided that such sum shall be subject to
adjustments mutually agreed upon from time to time in writing between the
Company and the Required Purchasers.

 

“Foreign Pension Plan”
means any plan, fund, or similar program, other than social security or social
insurance, established or maintained outside the United States of America by
the Company or any of its Subsidiaries primarily for the benefit of employees of
the Company or any of its Subsidiaries residing outside the United States of
America, which plan, fund, or similar program provides, or results in,
retirement income, a deferral of income in contemplation of retirement or
payments to be made upon termination of employment, and which is not subject to
ERISA or the Code.

 

“GAAP” shall mean
generally accepted accounting principles in effect within the United States,
consistently applied, subject however, in the case of determination of
compliance with the financial covenants set out in Section 9.08, to the
provisions of Section 1.02.

 

“Governmental Approvals”
means all authorizations, consents, permits, approvals, licenses, exemptions
and other qualifications of, registrations and filings with, and reports to,
all Governmental Authorities.

 

“Governmental Authority”
shall mean the government of any nation, state, city, locality or other
political subdivision of any thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, regulation or compliance, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.

 

“Group” means the
Company and its Subsidiaries other than the P.D. Holdings Group and the Pumpkin
Group.

 

“Group Member” means
any Person that is part of the Group.

 

“Guaranty” shall mean
an unconditional guaranty of the Company’s obligations under the Note and this
Agreement, substantially in the form attached hereto as Exhibit B, in favor of
the Purchaser and its successors and assigns, as amended, from time to time.

 

“Hazardous Materials”
shall mean any chemicals, pollutants, contaminants, wastes or toxic substances,
including pesticides, radioactive substances, solid or hazardous wastes,
special, dangerous or toxic wastes, hazardous or toxic substances, chemicals or
materials regulated, listed, referred to, limited or prohibited under any
Environmental Law, including

 

8

 

without limitation:  (i) asbestos, asbestos-containing material,
polychlorinated biphenyls (PCBs), urea formaldehyde or gasoline or any other
petroleum product or byproduct; (ii) any “hazardous substance” as defined under
CERCLA or any Environmental Law or (iii) any hazardous waste defined under RCRA
or any Environmental Law.

 

“Holding Company”
shall mean, as to any Person, a corporation having ordinary voting power, by
the direct or indirect ownership of Capital Stock of such Person (other than stock
or such other ownership interests having such power only by reason of the
happening of a contingency) or otherwise, to elect a majority of the Board of
Directors of such Person, or otherwise having control, directly or indirectly,
of the management of such Person.

 

“Indebtedness” shall
mean as to any Person (a) all obligations of such Person for borrowed money
(including unfunded credit commitments), (b) all indebtedness, obligations or
liability of such Person (whether or not evidenced by notes, bonds, debentures
or similar instruments) whether matured or unmatured, liquidated or
unliquidated, direct or indirect, absolute or contingent, or joint or several,
that should be classified as liabilities in accordance with GAAP, including,
any items so classified on a balance sheet and any reimbursement obligations in
respect of letters of credit,  surety
bonds or obligations in respect of bankers acceptances, whether or not matured,
(c) all obligations of such Person to pay the deferred purchase price of property
or services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property), (f) all
Capital Lease Obligations of such Person, (g) all indebtedness secured by any
Lien (other than Liens in favor of lessors under leases other than leases
included in clause (f) above) on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby shall have been
assumed by that Person or is non-recourse to the other assets of that Person,
and (h) any Contingent Obligation of such Person.  The determination of the amount of the Indebtedness at the
relevant time of determination with respect to the Company and its Subsidiaries
shall be made on a consolidated basis in accordance with GAAP.

 

“Intercreditor Agreement”
means any Intercreditor Agreement entered into after the Closing Date pursuant
to Section 8.12.

 

“Interest Coverage Ratio”
means, for any fiscal period, the ratio of (a) EBITDA for such fiscal period to
(b) cash interest expense of the Group (including fees paid in cash incurred in
connection with the Indebtedness of the Group).

 

“Investment” shall
mean (i) any direct or indirect purchase or other acquisition by the Company or
any of its Subsidiaries of any beneficial interest in, including Capital Stock
of, any other Person (other than a Person that prior to the relevant purchase
or acquisition was a Subsidiary of the Company), or (ii) any direct or indirect
loan, advance or capital contribution by the Company or any of its Subsidiaries
to any other Person (other than a Subsidiary of the Company), including all
Indebtedness and accounts receivable from that other Person that are not

 

9

 

current assets or did not
arise from sales to that other Person in the ordinary course of business.  The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.

 

“Investment Documents”
shall mean, collectively, this Agreement, the Note, the Cash Collateral Pledge
Agreement, and after the first Release Date, the Guaranties and the Intercreditor
Agreements.

 

“IRS” means the
Internal Revenue Service of the United States or any successor thereto.

 

“Lien” shall mean any
mortgage, deed of trust, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge, claim, restriction
or preference, priority, right or other security interest or any other security
agreement or preferential arrangement of any kind or nature whatsoever
(excluding preferred stock and equity related preferences) including, those created
by, arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a Capital Lease Obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing.

 

“Material Adverse Effect”
shall mean a material adverse effect on (a) the assets, business, results of
operations, property or condition (financial or otherwise) of the Company and
the other Group Members taken as a whole, (b) the ability of any of the Company
and the other Group Members to perform its obligations when such obligations
are required to be performed, under this Agreement, the Note or any other
Investment Document, or (c) the enforceability of this Agreement, the Note or
any other Investment Documents or the material rights and remedies of the
Purchaser of the Note hereunder or thereunder.

 

“Multiemployer Plan”
shall mean a multiemployer plan within the meaning of Section 3(37) or
4001(a)(3) of ERISA or Section 414(f) of the Code.

 

“Multiple Employer Plan”
shall mean any Plan (i) as to which the Company or any ERISA Affiliate and at
least one other person (as defined in Section 3(9) of ERISA) other than
the Company and any ERISA Affiliate are making or accruing an obligation to
make contributions, or (ii) in respect of which the Company or any ERISA
Affiliate could have liability under Section 4063, 4064 or 4069 of ERISA
if such plan has been or were to be terminated or if the Company or any ERISA
Affiliate has withdrawn or withdraws therefrom.

 

“Net Proceeds” of any
Asset Disposition means cash proceeds received by the Company or any of its
Subsidiaries from any Asset Disposition (including insurance proceeds, awards
of condemnation, and payments under notes or other debt securities received in
connection with any Asset Disposition), net of (x) the costs of such sale,
lease, transfer or other disposition (including Taxes attributable to such
sale, lease or transfer and reasonable brokerage commissions and other fees and
expenses  (including, reasonable fees,
charges and disbursements of counsel and accountants, printing expenses, filing
fees and reasonable fees and

 

10

 

expenses of investment
bankers)), and (y) amounts applied to repayment of Indebtedness secured by a
Lien on the asset or property disposed.

 

“Note” shall mean the
senior subordinated promissory note in the principal amount of $30,000,000
referred to in Recital B hereof, which note is substantially in the form
attached hereto as Exhibit C.  “Note”
shall also include any such note issued upon transfer, in whole or in part, of
the note initially issued on the Closing Date.

 

“Outstanding Borrowings”
shall mean all Indebtedness of the Company and its Subsidiaries for money
borrowed (including letters of credit for which the Company is the account
party) that is outstanding at the relevant time of determination.

 

“PBGC” shall mean the
Pension Benefit Guaranty Corporation established pursuant to
Section 4002(a) of ERISA.

 

“P.D. Holdings” shall
mean P.D. Holdings, Inc., a Delaware corporation, or any successor thereto.

 

“P.D. Holdings Group”
shall mean P.D. Holdings and its Subsidiaries.

 

“P.D. Holdings Group Disposition Date”
means the first date on which (i) all of the Capital Stock of P.D. Holdings shall
have been disposed of by the Company, and (ii) no Group Member has any
Investment in, or is obligated on any Indebtedness to or has any Contingent
Obligation in respect of any member of the P.D. Holdings Group.

 

“P.D. Holdings Group Member”
means any Person part of the P.D. Holdings Group.

 

“Pension Plan” means
any Plan, other than a Multiemployer Plan, which is subject to the provisions
of Title IV of ERISA or Section 412 of the Code and which (a) is
maintained for employees of the Company or any ERISA Affiliate, (b) has at any
time within the preceding six years been maintained for the employees of the
Company or any ERISA Affiliate, or (c) with respect to which the Company or any
ERISA Affiliate has any obligation or potential liability, whether under ERISA,
an indemnity agreement or otherwise.

 

“Permitted Holders”
means Capital Partners, any Person acting in the capacity of an underwriter or
initial purchaser in connection with a public or private offering of the
Company’s or any Holding Company’s Capital Stock, or any Permitted Transferee
of any of the foregoing Persons.

 

“Permitted Transferee”
means, with respect to any Person (1) any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with such
specified Person; and (2) any investment fund or investment entity that is a
Subsidiary of such Person or a Permitted Transferee of such Person pursuant to
clause (1) or is managed by the same Person as that first Person, in each case
to whom such Person has transferred the beneficial ownership of any Capital
Stock of the Company or any Subsidiary.

 

11

 

“Person” shall mean
any individual, firm, corporation, limited liability company, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

 

“Plan” shall mean, at
any particular time, any “pension plan” (as defined in Section 3(2) of
ERISA) or any employee benefit plan that would be a “pension plan” if covered
by ERISA, under which the Company or any ERISA Affiliate is (or, if such plan
were terminated at such time, would under Section 4069 of ERISA be deemed
to be) an “employer” (as defined in Section 3(5) of ERISA), or with
respect to which the Company or any ERISA Affiliate has any obligation or
potential liability, whether pursuant to ERISA, an indemnity agreement or
otherwise.

 

“Possible Dreams”
shall mean Possible Dreams, Ltd., a Delaware corporation.

 

“Primrose” has the
meaning given to it in Recital A hereto.

 

“Pro Forma Balance Sheet”
shall mean the pro forma consolidated balance sheet of the Company and its
Subsidiaries delivered pursuant to Section 3.09.

 

“Prohibited Transaction”
shall mean any transaction prohibited under Section 4975 of the Code or
Section 406 or 407 of ERISA that is not exempt under Section 4975 of
the Code, Section 408 of ERISA or an administrative exemption issued by
the U.S. Department of Labor.

 

“Pumpkin Group” means
Pumpkin Masters Holdings, Inc., a Delaware corporation, and its successors and
Subsidiaries (including Pumpkin Ltd., a Delaware corporation).

 

“Purchaser” shall
mean WMF or any Person or Persons to whom all or any part of the Note is
transferred pursuant to Section 11.03 and the relevant provisions of the
Note.  If the Note shall have been
transferred in part, “Purchaser” or “any Purchaser” refers to each holder of a
part of the Note individually unless the context clearly otherwise requires.

 

“Qualified Public Offering”
shall mean the underwritten public offering on a primary basis by either the
Company, any of the other Group Members or any of its Holding Companies of its
Capital Stock pursuant to a registration statement (other than a registration
statement on Form S-8 (or any registration statement on Form S-1 or S-3
relating solely to securities issued pursuant to an employee benefits plan) or
S-4 or any successor form thereto) that has been filed under the Securities Act
and declared effective by the Commission; provided, however, that
for this purpose any offering under Rule 144A under the Securities Act or any
similar rule or regulation promulgated under the Securities Act shall not be
deemed to be a Qualified Public Offering.

 

“RCRA” has the
meaning set forth in the definition of “Environmental Laws.”

 

12

 

“Real Property” means
any real property owned or leased by the Company or any other Group Member,
together with all improvements thereon to the extent owned by any applicable
Group Member.

 

“Release Date” means
a date on which all or a portion of the proceeds of the Note will be released
from the cash collateral account established under the Cash Collateral Pledge
Agreement.

 

“Release Date Documents” means
(i) the Guaranties, (ii) amendments to the Senior Loan Documents, (iii)
documents to be executed in connection with the Transaction, and (iv) all other
documents to which any Group Member is a party that are contemplated to be
executed and delivered after the Closing Date but prior to the first Release
Date, as set forth in Section 19 of the Cash Collateral Pledge Agreement.

 

“Reportable Event”
shall mean any of the events set forth in Section 4043(b) or (c) of ERISA,
other than those events (except the events listed in Section 4043(c)(5),
(6) or (10)) as to which the thirty-day notice period is waived under PBGC Reg.
§ 4043.

 

“Required Purchasers”
shall mean Purchasers who hold at least a majority in interest in the principal
amount of the Note(s).

 

“Requirements of Law”
shall mean, as to any Person, provisions of the certificate of incorporation
and by-laws or other organizational or governing documents of such Person, and
each law, treaty, code, rule, regulation, right, privilege, qualification,
license or franchise or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject or pertaining to any or all of the transactions contemplated or
referred to herein.

 

“Restricted Payment”
shall mean, in respect of any Person: 
(i) any dividend or other distribution, direct or indirect, on account
of any shares of any class of Capital Stock of such Person or any of its
Subsidiaries now or hereafter outstanding, other than a dividend payable solely
in shares of that class of Capital Stock to the holders of that class and the
payment by any of the Company’s Subsidiaries of dividends or distributions to
the Company or other Group Members; (ii) any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of Capital Stock of that
Person or any of its Subsidiaries or of any Holding Company of such Person now
or hereafter outstanding; (iii) any payment or prepayment of interest on,
principal of, premium, if any, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Indebtedness
subordinated to the Indebtedness existing pursuant to the Note and this
Agreement; or (iv) any payment made to retire, or to obtain the surrender of,
any outstanding warrants, options or other rights to acquire shares of any
class of Capital Stock of such Person or any of its Subsidiaries now or
hereafter outstanding.

 

“Rolling Period”
means, as of any date, the most recent 4 consecutive fiscal quarters of the
Company completed on or before such date.

 

13

 

“SEC Reports” with
respect to any Person shall mean all forms, reports, statements and other
documents (including exhibits, annexes, supplements and amendments to such documents)
required to be filed by it, or sent or made available by it to its security
holders, under the Exchange Act, the Securities Act, any national securities
exchange or quotation system or comparable Governmental Authority since the
date of such Person’s initial public offering.

 

“Securities Act”
shall mean the Securities Act of 1933, as amended from time to time.

 

“Senior Creditor” means
a holder of Senior Indebtedness.

 

“Senior Indebtedness”
shall mean all Indebtedness of the Group currently outstanding or incurred in
the future pursuant to the Senior Loan Documents.

 

“Senior Loan Agreements”
shall have the meaning set forth in Recital A hereto.

 

“Senior Loan Documents”
shall mean the Senior Loan Agreements and all notes, security agreements,
pledge agreements, guarantees, mortgages and other loan documents related
thereto, in each case as amended from time to time.

 

“Solvent” means, as
to any Person on a particular date, that such Person (a) has capital sufficient
to carry on its business and transactions and all business and transactions in
which it is about to engage and is able to pay its debts as they mature, (b)
owns property having a value, both at fair valuation and at present fair
saleable value, greater than the amount required to pay its probable
liabilities (including contingencies), and (c) does not believe that it will
incur debts or liabilities beyond its ability to pay such debts or liabilities
as they mature.

 

“Subsidiary” shall
mean, as to any Person, a corporation, partnership, limited liability company
or other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which
is otherwise controlled, directly or indirectly by such Person.  Unless otherwise qualified, all references
to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.

 

“Subsidiary Guarantor”
means any Subsidiary that has executed and delivered to the Purchaser a
Guaranty.  Notwithstanding anything
herein to the contrary, no P.D. Holdings Group Member or any member of the
Pumpkin Group shall be required, permitted or otherwise deemed to be a
Subsidiary Guarantor.

 

“Tax” shall mean any
federal, state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Section 59A of the Code), customs duties, Capital
Stock, franchise profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on-minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto.

 

14

 

“Tax Return” shall
mean any return, declaration, report, claim for refund, or information return
or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.

 

“Termination Event”
means:  (a) a Reportable Event, or (b)
the withdrawal of the Company or any ERISA Affiliate from a Pension Plan during
a plan year in which it was a “substantial
employer” (as defined in Section 4001(a)(2) of ERISA), or (c)
the termination of a Pension Plan, the filing of a notice of intent to
terminate a Pension Plan or the treatment of a Pension Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate, or the appointment of a trustee with respect to, any
Pension Plan by the PBGC, or (e) any other event or condition which would
constitute grounds under Section 4042(a) of ERISA for the termination of,
or the appointment of a trustee to administer, any Pension Plan, or (f) the
partial or complete withdrawal of the Company or any ERISA Affiliate from a
Multiemployer Plan, or (g) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA with respect to any
Pension Plan, or (h) any event or condition which results in the reorganization
or insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA,
or (i) any event or condition which results in the termination of a
Multiemployer Plan under Section 4041A of ERISA or the institution by the
PBGC of proceedings to terminate a Multiemployer Plan under Section 4042
of ERISA, or (j) an event described in Section 4069(a), 4070, or 4212(c)
of ERISA or Section 401(a)(29) of the Code, or (k) the termination of a
Multiple Employer Plan, or the cessation of operations at a facility in the
circumstances described in Section 4062(e) of ERISA, or (l) the
termination or liquidation of any Foreign Pension Plan, in each case referenced
in clauses (a)-(l) above that would reasonably be expected to have a Material
Adverse Effect.

 

“Total Leverage Ratio”
means, with respect to the Group, for any fiscal period, the ratio of (a) all
Indebtedness of the Group outstanding as of the end of such fiscal period to
(b) EBITDA for such fiscal period.

 

“Transactions” shall
have the meaning set forth in Recital C.

 

“Unaudited Financial Statements”
shall have the meaning set forth in Section 5.11(b).

 

“WC Holdings” shall
have the meaning set forth in Recital A.

 

“Welfare Plan” means
a welfare benefit plan within the meaning of Section 3(1) of ERISA (or any
similar type of plan established or regulated under the laws of a foreign
country) in which any current or former employee of the Company or any ERISA
Affiliate participates or has beneficial rights.

 

“Wholly-Owned” means,
with respect to any Subsidiary that all the Capital Stock (except for
directors’ qualifying shares) of such Subsidiary is directly or indirectly
owned by the Company.

 

“WMF” shall have the
meaning set forth in the introductory paragraph hereto.

 

15

 

1.02                        Accounting
Terms; Financial Statements.  All
accounting terms used herein and not expressly defined in this Agreement shall
have the respective meanings given to them in conformance with GAAP.  Financial statements and other information
furnished after the date hereof pursuant to this Agreement or the other
Investment Documents shall be prepared in accordance with GAAP as in effect at
the time of such preparation, provided, however, that no
“Accounting Changes” (as defined below) shall be taken into account in
determining compliance with the financial covenants, standards or terms in this
Agreement.  “Accounting Changes” means changes subsequent to the Closing
Date:  (a) in accounting principles
required by GAAP and implemented by the Company; (b) in accounting principles
recommended by the Company’s certified public accountants and implemented by
the Company; and (c) in carrying value of the Company’s or any of its
Subsidiaries’ assets, liabilities or equity accounts resulting from (i) the
application of purchase accounting principles (A.P.B. 16 and/or 17 and EITF
88-16 and FASB 109) to the purchase and sale of the Note or the other
transactions described in the Investment Documents, or (ii) as the result of
any other adjustments that, in each case, were applicable to, but not included
in, the Pro Forma Balance Sheet.  All
such adjustments resulting from expenditures made subsequent to the Closing
Date (including, but not limited to, capitalization of costs and expenses or
payment of pre-Closing Date liabilities) shall be treated as expenses in the
period the expenditures are made.

 

1.03                        Knowledge
of the Company.  All
references to the knowledge of the Company or any other Group Member or to
facts known by the Company or any other Group Member shall mean actual
knowledge or notice of any Director or executive officer of the Company, any
other Group Member or any division of the Company or any other Group Member or
knowledge which such Person could reasonably have acquired through the exercise
of due inquiry.

 

ARTICLE 2

 

PURCHASE
AND SALE OF THE NOTE

 

2.01                        Purchase
and Sale of the Note. 
Subject to the terms and conditions herein set forth, the Company agrees
that it will issue and sell to WMF, and WMF agrees that it will acquire from
the Company on the Closing Date, the Note appropriately completed in conformity
herewith.  The purchase price of the
Note shall be Thirty Million Dollars ($30,000,000.00).

 

2.02                        Fees. 
Concurrently with the execution hereof, the Company shall (a) pay to
Whitney Mezzanine Management Company, LLC 
a placement fee of $375,000 and (b) reimburse the reasonable
out-of-pocket expenses (including, fees, charges and disbursements of counsel
and consultants) of the Purchaser incurred in connection with (i) the
negotiation and execution and delivery of this Agreement and the other
Investment Documents and their due diligence investigation, and (ii) the
transactions contemplated by this Agreement and the other Investment Documents,
which payments shall be made by wire transfer of immediately available funds to
an account or accounts designated by WMF. 
Upon the initial Release Date with respect to the Transaction, the
Company shall pay to Whitney Mezzanine Management Company, LLC an additional
fee of $375,000.

 

16

 

2.03                        Closing.  The
purchase and issuance of the Note shall take place at the closing (the “Closing”) to be held at the offices of Gibson, Dunn
& Crutcher LLP, 200 Park Avenue, New York, New York at 10:00 a.m. Eastern
Standard Time, on January 14, 2004 (the “Closing Date”) or such other date or time as is mutually
agreed by the parties hereto.  At the
Closing, the Company shall deliver the Note to WMF against delivery by WMF to
the Company of the purchase price therefor. 
Payment of such purchase price shall be by wire transfer to an account
or accounts designated by the Company in writing.

 

ARTICLE 3

 

CONDITIONS TO THE

OBLIGATIONS OF THE PURCHASER

TO PURCHASE THE NOTE

 

The
obligation of the Purchaser to purchase the Note and to pay the purchase price
therefor at the Closing and to perform any obligations hereunder shall be
subject to the satisfaction as determined by, or waived by, the Purchaser of
the following conditions on or before the Closing Date; provided, however,
that any waiver of a condition shall not be deemed a waiver of any breach of
any representation, warranty, agreement, term or covenant or of any
misrepresentation by the Company.

 

3.01                        Representations
and Warranties.  The
representations and warranties of the Company contained in the Investment
Documents (including Article 5 hereof) or in any certificate delivered in
connection therewith shall be true and correct at and as of the date hereof and
the Closing Date as if made at and as of such date, and the Purchaser shall
have received at the Closing a certificate to the foregoing effect, dated the
Closing Date, and executed by the chief executive officer of the Company.

 

3.02                        Compliance
with This Agreement.  The
Company shall have performed and complied with all of its agreements and
conditions set forth or contemplated herein that are required to be performed
or complied with by the Company on or before the Closing Date, and the
Purchaser shall have received at the Closing a certificate to the foregoing
effect, dated the Closing Date, and executed by the chief executive officer of
the Company.

 

3.03                        Secretary’s
Certificates.  The
Purchaser shall have received a certificate from the Company, dated the Closing
Date and signed by the Secretary or an Assistant Secretary of the Company,
certifying (a) that the attached copies of the Certificate of Incorporation and
By-laws (or similar organizational documents) and resolutions of the Board of
Directors of the Company approving the Investment Documents to which the
Company is a party and the transactions contemplated hereby and thereby are all
true, complete and correct and remain unamended and in full force and effect,
and (b) the incumbency and specimen signature of each officer of the Company
executing any Investment Document to which the Company is a party or any other
document delivered in connection herewith and therewith on behalf of the
Company.

 

3.04                        Purchase
of Note Permitted by Applicable Laws.  The acquisition of and payment for the Note
to be acquired by the Purchaser hereunder and the consummation of the

 

17

 

transactions contemplated hereby and by the Investment Documents (a)
shall not be prohibited by any Requirement of Law, (b) shall not subject the
Purchaser to any penalty or other onerous condition under or pursuant to any
Requirement of Law, and (c) shall be permitted by all Requirements of Law to
which the Purchaser or the transactions contemplated by or referred to herein
or in the Investment Documents are subject; and the Purchaser shall have
received such certificates or other evidence as it may reasonably request to
establish compliance with this condition.

 

3.05                        Opinion
of Counsel.  The
Purchaser shall have received an opinion of outside counsel to the Company,
dated as of the Closing Date, relating to the transactions contemplated by or
referred to herein, in form and substance acceptable to the Purchaser.

 

3.06                        Approval
of Counsel to the Purchaser.  All
actions and proceedings hereunder and all agreements, schedules, exhibits,
certificates, financial information, filings and other documents required to be
delivered by the Company hereunder or in connection with the consummation of
the transactions contemplated hereby on the Closing Date, and all other related
matters, shall have been in form and substance acceptable to Gibson, Dunn &
Crutcher LLP,counsel to the Purchaser, in
its reasonable judgment (including the opinion of counsel referred to in
Section 3.05 hereof).

 

3.07                        Consents
and Approvals.  All
material consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, all Governmental Authorities and other Persons in respect
of all Requirements of Law and with respect to those material Contractual
Obligations of the Group Members necessary or required in connection with the
execution, delivery or performance (including (i) the payment of interest on
the Note and (ii) the making of distributions to the Company in amounts
necessary to pay interest on the Note as and when due) by the Company or
enforcement against the Company of the Investment Documents to which it is or
will be a party shall have been obtained and be in full force and effect, and
the Purchaser shall have been furnished with appropriate evidence thereof, and
all waiting periods shall have lapsed without extension or the imposition of
any conditions or restrictions, provided that no amendments to the Senior Loan
Documents (or consents from the lenders thereunder) are required to be obtained
by the Closing Date to permit the actions under clause (ii).

 

3.08                        No
Material Judgment or Order. 
There shall not be on the Closing Date any judgment or order of a court
of competent jurisdiction or any ruling of any Governmental Authority or any
condition imposed under any Requirement of Law which, in the judgment of the
Purchaser, would prohibit the purchase of the Note hereunder or subject the
Purchaser to any penalty or other onerous condition under or pursuant to any
Requirement of Law if the Note were to be purchased hereunder.

 

3.09                        Pro
Forma Balance Sheet.  The
Company shall have delivered to the Purchaser as of the Closing Date a
consolidated and consolidating pro forma balance sheet of the Company and its
Subsidiaries, dated as of September 30, 2003 and giving pro forma effect
to the consummation of the transactions contemplated by the Investment
Documents, certified by the chief executive officer of the Company that it
fairly presents the pro forma adjustments reflecting the consummation of the
transactions contemplated by the Investment Documents, including all fees and
expenses in connection therewith.

 

18

 

3.10                        Good
Standing Certificates.  The
Company shall have delivered to the Purchaser as of the Closing Date, a good
standing certificate of the Company for its jurisdiction of organization and
all other jurisdictions in which it is qualified to do business.

 

3.11                        No
Litigation.  No
action, suit or proceeding before any court or any Governmental Authority shall
have been commenced or, to the knowledge of the Company, been threatened, no
investigation by any Governmental Authority shall have been commenced and, to
the knowledge of any Group Member, no action, suit or proceeding by any
Governmental Authority shall have been threatened against the Purchaser or any
Group Member (i) seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any of such
transactions, or (ii) which would, if resolved adversely to such Purchaser or Group
Member result in a Material Adverse Effect. 
No action, suit or proceeding before any court or any Governmental
Authority shall have been commenced or, to the knowledge of any Group Member,
been threatened, against the Purchaser or any Group Member that constitutes
(or, if commenced, would constitute) an Event of Default under
Section 6(a)(xi) of the Note.

 

3.12                        Senior
Loan Documents.

 

(a)                                  The Senior Loan Documents shall be
satisfactory to Purchaser in its discretion, provided that no amendments
to the Senior Loan Documents are required to be obtained by the Closing Date to
permit the actions described in clause (ii) of Section 3.07.

 

(b)                                 Purchaser shall have received a certificate
of the Secretary of the Company attaching true and complete copies of each of
the Senior Loan Documents and certifying that (i) such documents have been
executed and, if applicable, filed in substantially the form approved by the
relevant Person’s board of directors or similar body, (ii) such documents have
not been amended (except as provided in such certificate) and are in full force
and effect, and (iii) the Company is not in default in the performance or
compliance with any of the terms or provisions thereof.

 

3.13                        Solvency Certificate.  The Purchaser shall have received a certificate
from the chief executive officer of the Company stating that the Company is
Solvent after giving effect to the transactions contemplated to occur under the
Investment Documents.

 

3.14                        Investment Documents.  The Purchaser shall have received (a) the
Cash Collateral Pledge Agreement, executed and delivered by the Company and
U.S. Bank National Association, as Collateral Agent and (b) the Note executed
and delivered by the Company.

 

3.15                        Documents.  The
Purchaser shall have received true, complete and correct copies of such
agreements, schedules, exhibits, certificates, documents, financial information
and filings as it may request in connection with or relating to the
transactions contemplated hereby, all in form and substance satisfactory to the
Purchaser.

 

3.16                        Financial
Condition.  The
Company shall have delivered to the Purchaser evidence that, on a pro forma
basis after giving effect to the consummation of the transactions contemplated
by the Investment Documents (i) EBITDA for the Rolling Period ended
September 30, 2003 (calculated on a pro forma basis giving effect to the
acquisition of Octagon

 

19

 

Risk Services, Inc.) is no less than $21,500,000 and (ii) the aggregate
amount of the consolidated Indebtedness of the Group is no greater than
$65,000,000.

 

3.17                        UCC
Filings.

 

Each
document (including any Uniform Commercial Code financing statement) reasonably
requested by the Purchaser to be filed, registered, recorded in order to create
in favor of the Collateral Agent (as defined in the Cash Collateral Pledge
Agreement), for the benefit of the Purchasers, a perfected lien on the
Collateral, prior and superior in right to the Lien and other rights of any
other Person shall have been delivered and be in proper form for filing,
registration or recordation.

 

ARTICLE 4

 

CONDITIONS TO THE OBLIGATIONS

OF THE COMPANY TO ISSUE AND SELL THE NOTE

 

The
obligations of the Company to issue and sell the Note and to perform its other
obligations hereunder relating thereto shall be subject to the satisfaction as
determined by, or waived by, the Company of the following conditions on or
before the Closing Date:

 

4.01                        Representations
and
Warranties.  The
representations and warranties of the Purchaser contained in Article 6
hereof shall be true and correct at and as of the date hereof and the Closing
Date as if made at and as of such date.

 

4.02                        Compliance
with
this Agreement.  The
Purchaser shall have performed and complied with all of its agreements and
conditions set forth or contemplated herein that are required to be performed
or complied with by the Purchaser on or before the Closing Date.

 

ARTICLE 5

 

REPRESENTATIONS AND WARRANTIES OF THE
COMPANY

 

The
Company hereby represents and warrants to the Purchaser as follows; provided
that all representations and warranties relating to the Release Documents or
regarding matters to occur on a Release Date shall be deemed made only upon and
as of such Release Date as and if it occurs:

 

5.01                        Corporate
Existence and Power.  Each
Group Member:  (a) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation; (b) has all requisite organizational power and authority to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is currently proposed to be,
engaged; (c) is duly qualified as a foreign entity, licensed and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect; and (d) has the

 

20

 

organizational power and authority to execute, deliver and perform its
obligations under each Investment Document or Senior Loan Document to which it
is or will be a party and, in the case of the Company, to issue the Note.  Schedule 5.01 contains a true,
complete and correct list of each jurisdiction in which a Group Member is
qualified to do business as a foreign entity.

 

5.02                        Authorization;
No Contravention.  The
execution, delivery and performance by each Group Member of this Agreement,
each other Investment Document and each Senior Loan Document to which it is or
upon and after the first Release Date will be a party and the consummation of
the transactions contemplated hereby, including, the issuance of the Note:  (a) have been (or, in the case of the Release
Date Documents and the Transaction, will be, upon and after each Release Date)
duly authorized by all necessary corporate action, and if required, shareholder
action; (b) do not and will not contravene the terms of the Certificate of
Incorporation or By-laws (or similar organizational documents) of such Group
Member or any amendment thereof or any Requirement of Law applicable to such
Group Member or such Group Member’s assets, business or properties; (c) except
as stated in the immediately following sentence, do not and will not (or, in
the case of the Release Date Documents and the Transaction, will not upon and
after each Release Date) (i) conflict with, contravene, result in any violation
or breach of or default under (with or without the giving of notice or the
lapse of time or both), (ii) create in any other Person a right or claim of
termination or amendment of, or (iii) require modification, acceleration,
repurchase, redemption or cancellation of, any material Contractual Obligation
of the Company or any Group Member (including the Senior Loan Documents); and
(d) do not and will not result in the creation of any Lien (or obligation to
create a Lien) against any property, asset or business of any Group Member
other than as contemplated by the Cash Collateral Pledge Agreement.  The making of Guarantees by the Group
Members (other than the Company) and the payment of dividends by Group Members
to the Company in amounts sufficient to pay the interest on the Note as and
when due (both of which are transactions contemplated hereby) are presently
prohibited or limited by the provisions of the Senior Loan Documents, but, on
or prior to the first Release Date, the Senior Loan Documents will be amended
in the manner contemplated by Section 19(m) of the Cash Collateral Pledge
Agreement, and such prohibitions and limitations will no longer exist (or, in
the case of the limitation on payment of dividends, will be modified to only
limit such payments under certain circumstances where the relevant
Intercreditor Agreement would permit such payment to be “blocked” by the Senior
Creditors).

 

5.03                        Governmental
Authorization; Third Party Consents.  Each Group Member and, to the Group Members’
knowledge, each of its employees: (i) has all material Governmental Approvals
required by any Requirement of Law for the Company to conduct its business,
each of which is in full force and effect, (ii) is in material compliance with
each Governmental Approval applicable to the Company or its operations and with
all other Requirements of Law relating to such Group Member, its operations or
any of its respective properties, and (iii) except for Governmental Approvals
that may be required to consummate the Transaction and which will be obtained
prior to the first Release Date, has obtained all Governmental Approvals and
other consents and approvals required or necessary for the consummation of the
transactions contemplated by the Investment Documents or Senior Loan Documents
to which it is a party or the consummation of the transactions contemplated
hereby or thereby.  Except as may be
required to consummate the Transaction or for the Release Date Documents, all
of which will be obtained prior to the first Release Date, no material
approval, consent, compliance, exemption,

 

21

 

authorization, or other action by, or notice to, or filing with, any
other Person in respect of any Contractual Obligation, and no lapse of a
waiting period under a Contractual Obligation, is necessary or required in connection
with the execution, delivery or performance by (including the payment of
interest on the Note and the Guaranties), or enforcement against, any Group
Member of the Investment Documents or Senior Loan Documents to which it is a
party or the consummation of the transactions contemplated hereby or thereby
that have not been obtained.

 

5.04                        Binding
Effect.  This
Agreement has been, and each of the other Investment Documents to which any
Group Member is or will be a party is or will be (or in the case of the Release
Date Documents will be upon the first Release Date), duly executed and
delivered by such Group Member, and this Agreement, and such Investment
Documents and Senior Loan Documents constitute or will (or in the case of the
Release Date Documents will upon or after first Release Date) constitute, the
legal, valid and binding obligation of such Group Member enforceable against
such Group Member in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors’ rights generally and by
general principles of equity relating to enforceability.

 

5.05                        No
Legal Bar. 
Except as stated in the last sentence of Section 5.02, neither the
execution, delivery and performance of the Investment Documents and Senior Loan
Documents nor the issuance of or performance of the terms of the Note does or
will (or in the case of the Release Date Documents will upon or after the first
Release Date) violate any Requirement of Law or any Contractual Obligation of
any Group Member in any material respect. 
Other than the Senior Loan Documents as in effect on the date hereof and
to the extent consents are required thereunder to consummate the transactions
contemplated to occur on the Release Dates, no Group Member has previously
entered into any agreement which is currently in effect or to which such Group
Member is currently bound, granting any rights to any Person which are
inconsistent with the rights to be granted by such Group Member in any of the
Investment Documents.

 

5.06                        Litigation. 
Except for matters existing on the Closing Date and set forth on Schedule 5.06,
there are no actions, suits or proceedings pending or, to the knowledge of the
Company, threatened, against or in any other way adversely relating to or
affecting any Group Member, its operations or any of its properties in any
court or before any arbitrator of any kind or before or by any Governmental
Authority, which if adversely determined could reasonably be expected to have a
Material Adverse Effect.  No action,
suit or proceeding is pending before any court or any Governmental Authority
or, to the knowledge of the Company, has been threatened, against the Purchaser
or the Company that constitutes (or, if commenced, would constitute) an Event
of Default under Section 6(a)(xi) of the Note.  The Company has no knowledge or information relating to the
possible assertion of, or threats of, claims against the Company, any Group
Member or any officer or director thereof in the Bankruptcy Proceeding whether
by Possible Dreams, as Chapter 11 debtor, any creditors’ committee appointed in
the Bankruptcy Proceeding, any trustee, or any other Person including, without
limitation, claims asserting liabilities of the Company, any Group Member or
any officer or director thereof to Possible Dreams or its creditors, claims
asserting that the Company, any Group Member or any officer or director thereof
is liable or responsible for some or all of claims of creditors of Possible
Dreams, claims asserting that the Company, any Group Member or any officer or
director thereof has

 

22

 

liabilities to creditors of Possible Dreams, claims that Possible
Dreams should be substantively consolidated with the Company or any Group
Member or P.D. Holdings, or claims for piercing the veil of the Company or any
Group Member or P.D. Holdings.

 

5.07                        No
Default or Breach. 
Except for violations of the terms of the Senior Loan Documents that
would occur in connection with the issuance of the Guaranties if the Senior
Loan Documents were not first amended, no event has occurred and is continuing
or would result from the incurring of obligations by any Group Member under the
Investment Documents (including the Guaranties) which constitutes or, with the
giving of notice or lapse of time or both, would constitute an Event of
Default.  No Group Member is in default
under or with respect to any Contractual Obligation in any material respect.

 

5.08                        Title
to Properties.  Each Group
Member has such title to all Real Property owned by it and subsisting leasehold
interests in all Real Property leased by it, in each case as is necessary to
the conduct of its business and valid and legal title to all of its personal
property and assets owned by it.

 

5.09                        Use
of Real Property.  All
Real Properties are listed on Schedule 5.09.  Except as set forth on Schedule 5.09,
each Real Property used in connection with the business of the Group Members is
used and operated by the applicable Group Member in compliance and conformity
with all material Contractual Obligations and material Requirements of
Law.  No Group Member has received
notice of violation of any applicable zoning or building regulation, ordinance
or other law, order, regulation or other Requirement of Law relating to the
operations of the Group Members with respect to the Real Property, other than
with respect to such matters that could not reasonably be expected to have a
Material Adverse Effect.  There is no material
default on the part of any Group Member or event or condition which (with
notice or lapse of time, or both) would constitute a material default on the
part of any Group Member under any lease of any Real Property.  There are no service contracts, maintenance
contracts, union contracts, concession agreements, licenses, agency agreements
or any other Contractual Obligations affecting any Real Property other than
those listed on Schedule 5.09, except for Contractual Obligations
which are cancelable on no more than 30 days’ notice.  There are no pending or, to the knowledge of the Company
threatened, condemnation or eminent domain proceedings that would affect any
part of any Real Property.  There are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against any Real Property, at law or in equity, before any federal,
state, municipal or governmental department, commission, board, bureau, agency
or instrumentality which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect.

 

5.10                        Taxes.  Each
of the Company and its Subsidiaries has duly filed, or caused to be filed, all
material Tax Returns required to be filed and has paid, or caused to be paid,
or made adequate provision for the payment of, all material Taxes which are due
and payable, except to the extent the payment of such Taxes is being diligently
contested in good faith and adequate reserves therefor have been established in
accordance with GAAP.  Such Tax Returns
were true, correct and complete in all material respects when filed.  The provision for Taxes on the books of the
Company and each Subsidiary is adequate in all material respects for all years
not closed by the applicable statutes of limitation and the Company and its
Subsidiaries have no knowledge of

 

23

 

any material deficiency or additional assessment in connection
therewith not provided for on its books.

 

5.11                        SEC
Reports; Financial Condition.

 

(a)               The Company 
has filed all SEC Reports and has made available to the Purchaser each
SEC Report.  The SEC Reports of the
Company, including, without limitation, any financial statements or schedules
included or incorporated therein by reference, (i) comply in all material
respects with the requirements of the Exchange Act or the Securities Act or
both, as the case may be, applicable to those SEC Reports, and (ii) did not at
the time they were filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated or necessary in order to
make the statements made in those SEC Reports, in light of the circumstances
under which they were made, not misleading. 
No Subsidiary of the Company is subject to the periodic reporting
requirements of the Exchange Act or is otherwise required to file any documents
with the Commission or any national securities exchange or quotation service or
comparable Governmental Authority.

 

(b)              The Company has furnished the Purchaser with
true and complete copies of (i) the audited consolidated and consolidating
balance sheets of the Company and its Subsidiaries as of December 31, 2002
and December 31, 2001 and the related consolidated and consolidating
statements of income, stockholders’ equity and cash flow, together with the
notes thereto, of the Company and its Subsidiaries for the years then ended,
together with the report of Ernst & Young LLP thereon (the “Audited
Financial Statements”),
and (ii) the unaudited consolidated and consolidating balance sheets of the
Company and its Subsidiaries as of September 30, 2003 and the related
consolidated and consolidating statements of income, stockholders’ equity
and  cash flow, together with the notes
thereto, of the Company and its Subsidiaries for the nine-month period then
ended (the “Unaudited Financial Statements”). 
Each of the consolidated and consolidating balance sheets of the Company
and its Subsidiaries included in the Financial Statements and the related
statements of income, stockholders’ equity and cash flow, together with the
notes thereto, and such of them as are included in or incorporated by reference
into the SEC Reports of the Company, fairly present, in all material respects,
the consolidated and consolidating financial position of the Company and its
Subsidiaries as of the respective dates thereof, and the consolidated and
consolidating results of operations and cash flows of the Company and its
Subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with GAAP consistently applied during the periods
involved, except as otherwise set forth in the notes thereto and subject, in
the case of Unaudited Financial Statements, to normal year-end audit
adjustments and absence of footnotes in the Unaudited Financial
Statements.  As of the dates of the
Financial Statements, the Company and its Subsidiaries had no obligation,
indebtedness or liability (whether accrued, absolute, contingent or otherwise,
known or unknown, and whether due or to become due), which was not reflected or
reserved against in the balance sheets or the notes thereto which are part of
the Financial Statements, except for those incurred in the ordinary course of
business and which are fully reflected on the Company’s books of account and
which, individually or in the aggregate, would not result in a Material Adverse
Effect.

 

(c)               Except as set forth on Schedule 5.11(c),
the Group owes no Indebtedness to, and has no commitments to make Investments
in, and has no Contingent

 

24

 

Obligations in respect of obligations and liabilities of, any P.D.
Holdings Group Member or any member of Pumpkin Group.

 

(d)              The Pro Forma Balance Sheet delivered to the
Purchaser sets forth the assets and liabilities of the Group as of the date
thereof on a pro forma consolidated and consolidating basis after taking into
account the consummation of the transactions contemplated in this Agreement and
the other Investment Documents to be consummated as of the Closing Date.  The Pro Forma Balance Sheet has been
prepared by the Company in accordance with GAAP and fairly presents in all
material respects the assets and liabilities of the Group and each Group Member
as of the date thereof, reflecting the consummation of the transactions
contemplated in this Agreement to be consummated on the Closing Date and based
on the assumptions set forth therein.

 

(e)               The projections of the Company dated
January 13, 2004 for identification, heretofore delivered to WMF (i) were
prepared by the Company in the ordinary course of its operations consistent
with past practice, (ii) are the most current projections prepared by the
Company relating to the periods covered thereby, and (iii) are based on
assumptions which were reasonable when made and such assumptions and
projections are reasonable on the date hereof. 
Neither the Company nor any of its Subsidiaries has delivered to any
Person any later dated projections.

 

5.12                        Operating
Company.  The
Company is “an entity that is primarily engaged, directly or though a majority
owned subsidiary or subsidiaries, in the production or sale of a product or
service other than the investment of capital” within the meaning of the U.S.
Department of Labor plan asset regulations, 29 C.F.R. § 2510.3-101.

 

5.13                        Disclosure.

 

(a)               Agreement and Other
Documents.  This Agreement, together with all exhibits
and schedules hereto, and the agreements, certificates and other documents
furnished to the Purchaser by the Company and its Subsidiaries at the Closing,
do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.

 

(b)              Material Adverse Effect.  There
is no fact known to the Company which the Company has not disclosed to the
Purchaser in writing which could reasonably be expected to result in a Material
Adverse Effect.

 

5.14                        Absence
of Certain Changes or Events. 
Except as set forth on Schedule 5.14, since
September 30, 2003, other than as contemplated by the Investment
Documents, no Group Member has (i) issued any Capital Stock, bonds or other
securities, (ii) borrowed any amount or incurred any liabilities (absolute or
contingent) other than in the ordinary course of business, (iii) discharged or
satisfied any Lien or incurred or paid any obligation or liability (absolute or
contingent), other than in the ordinary course of business, in excess of
$10,000, (iv) declared or made any payment or distribution to stockholders or
members, as appropriate, or purchased or redeemed any shares of its Capital
Stock or other securities, (v) mortgaged, pledged or subjected

 

25

 

to Lien any of its assets, tangible or intangible, (vi) sold, assigned
or transferred any of its tangible assets, or canceled any debts or claims,
(vii) sold, assigned or transferred any patents, trademarks, trade names,
copyrights, trade secrets or other intangible assets, (viii) suffered any material
losses of property, or waived any rights of substantial value, (ix) suffered
any event or condition that has had a Material Adverse Effect, (x) expended any
material amount on or granted any bonuses or extraordinary salary increases,
(xi) entered into any transaction involving consideration in excess of $50,000,
or (xii) entered into any agreement or transaction, or amended or terminated
any agreement, with an Affiliate (including any loan to or Investment in any
P.D. Holdings Group Member or any member of Pumpkin Group).  To the knowledge of the Company, no event or
condition is threatened or reasonably likely to occur which could reasonably be
expected to result in a Material Adverse Effect.

 

5.15                        Environmental
Matters. 
Except as described on Schedule 5.15:

 

(a)               The properties owned, leased or operated by
the Company and its Subsidiaries now or in the past do not contain, and to
their knowledge have not previously contained, any Hazardous Materials in
amounts or concentrations which:  (i)
constitute or constituted a material violation of applicable Environmental
Laws, or (ii) could reasonably be expected to give rise to material liability
under applicable Environmental Laws;

 

(b)              The Company, its Subsidiaries and their
properties and all operations conducted in connection therewith are in material
compliance, and have been in material compliance, with all applicable
Environmental Laws, and to Company’s knowledge there is no contamination at,
under or about such properties or such operations which interferes with the
continued operation of such properties or materially impairs the fair saleable
value thereof;

 

(c)               Neither the Company nor any of its
Subsidiaries has received any written notice of violation, alleged violation,
non-compliance, liability or potential liability regarding Hazardous Materials,
or non-compliance with Environmental Laws, nor does the Company or any
Subsidiary have knowledge of or reason to believe that any such notice will be
received or is being threatened;

 

(d)              Hazardous Materials have not been disposed
at, or transported from the properties now or previously owned, leased or
operated by the Company or its Subsidiaries in any manner which, to their
knowledge, would give rise to material liability under Environmental Laws, nor
have any Hazardous Materials been generated, treated, stored, or disposed of
at, on or under any of such properties in violation of, or in a manner that
would give rise to material liability under, any applicable Environmental Laws;

 

(e)                                  No judicial proceedings or governmental or
administrative action is pending, or, to the knowledge of Company, threatened,
under any Environmental Law to which the Company or any Subsidiary is or will
be named as a party, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders outstanding under any
Environmental Law with respect to the Company or any Subsidiary, their business
operations or any of their real property; and

 

26

 

(f)                 There has been no release, or to the best of
the Company’s knowledge, threat of release, of Hazardous Materials at or from
properties owned, leased or operated by the Company or any Subsidiary, now or
in the past, in violation of or in a manner that could reasonably be expected
to give rise to material liability under any Environmental Law.

 

5.16                        Investment
Company/Government Regulations.  No Group Member is an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.  Neither the Company nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act, or
any federal or state statute or regulation limiting its ability to incur
Indebtedness.

 

5.17                        Subsidiaries.

 

(a)               Schedule 5.17 sets forth the name and jurisdiction of
organization of each Subsidiary and, as to each such Subsidiary, the percentage
of each class of Capital Stock owned by any Group Member and the names of and
percentage of each class of Capital Stock owned by other Persons.

 

(b)              Other than as listed on Schedule 5.17
hereto, neither the Company or any Subsidiary has, on the Closing Date,
outstanding options, warrants or other rights to purchase or subscribe to
Capital Stock of any Subsidiary or outstanding securities convertible into or
exchangeable for Capital Stock of any Subsidiary or contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
of any capital stock of any Subsidiary, any such convertible or exchangeable
securities or any such options, warrants or rights.

 

(c)               Other than as listed on Schedule 5.17,
hereto, no Group Member owns of record or beneficially, directly or indirectly
(i) any shares of outstanding Capital Stock or securities convertible into
Capital Stock of any other corporation, or (ii) any equity, voting or
participating interest in any limited liability company, partnership, joint
venture or other non-corporate business enterprises.

 

5.18                        Private
Offering.  No
form of general solicitation or general advertising was used by the Company or
any of its Subsidiaries, or their respective representatives in connection with
the offer or sale of the Note.  Assuming
the accuracy of the Purchaser’s representations and warranties herein, no
registration of the Note pursuant to the provisions of the Securities Act or
the state securities or “blue sky” laws will be required for the offer, sale or
issuance of the Note as contemplated by this Agreement.  The Company agrees that neither it, nor
anyone acting on its behalf, will offer to sell the Note or any other security
so as to require the registration of the Note pursuant to the provisions of the
Securities Act or any state securities or “blue sky” laws.

 

5.19                        Broker’s, Finder’s or Similar Fees. 
Except as set forth on Schedule 5.19, the Company does not
owe any fees or commissions of any kind, or know of any claim for any fees or
commissions, in connection with the transactions contemplated hereby, except
those contemplated hereby or paid directly to the administrative agents and the
lenders in connection with the Senior Loan Agreements.

 

27

 

5.20                        Labor
Relations.  No
Group Member is, as of the Closing Date, party to any collective bargaining
agreement nor has any labor union been recognized as the representative of its
employees except as set forth on Schedule 5.20.  There are no pending or, to any Group
Member’s knowledge, threatened or contemplated strikes, work stoppage or other
collective labor disputes involving its employees.

 

5.21                        Employee
Benefit Plans.

 

(a)               As of the Closing Date, neither the Company
nor any ERISA Affiliate maintains or contributes to, or has any obligation
under, or liability with respect to, any Employee Benefit Plan other than those
identified on Schedule 5.21;

 

(b)              Each Employee Benefit Plan has been operated
in all material respects in accordance with its terms, and the Company and each
ERISA Affiliate are in compliance, in all material respects, in both form and
operation, with all applicable provisions of ERISA, the Code or other
applicable law and the regulations and published interpretations thereunder
with respect to all Employee Benefit Plans except for any required amendments
with respect to a Plan for which the remedial amendment period as defined in
Section 401(b) of the Code has not yet expired.  Each Plan that is intended to be qualified under
Section 401(a) of the Code is the subject of an IRS favorable opinion or
determination letter and, to the knowledge of the Company, nothing has occurred
to adversely affect such qualification or the exempt status of any related
trust.  No material liability has been
incurred by the Company or any ERISA Affiliate which remains unsatisfied for
any taxes or penalties with respect to any Employee Benefit Plan or any
Multiemployer Plan;

 

(c)               No Pension Plan has been terminated, nor has
any accumulated funding deficiency (as defined in Section 412 of the Code)
been incurred (without regard to any waiver granted under Section 412 of
the Code), nor has any funding waiver from the IRS been received or requested
with respect to any Pension Plan, nor has the Company or any ERISA Affiliate
failed to make any contributions or to pay any amounts due and owing as
required by Section 412 of the Code, Section 302 of ERISA or the
terms of any Pension Plan or related agreement or other applicable law prior to
the due dates of such contributions thereunder, nor has there been any event
requiring any disclosure under Section 302(f)(4)(A), 4041(c)(3)(C) or
4063(a) of ERISA with respect to any Pension Plan or any Pension Plan amendment
requiring security under ERISA Section 307 or Code
Section 401(a)(29), in each case that would reasonably be expected to have
a Material Adverse Effect;

 

(d)              Neither the Company nor ERISA Affiliate
has:  (i) engaged in a Prohibited
Transaction or breach of fiduciary duty, (ii) incurred any liability to the
PBGC which remains outstanding other than the payment of premiums and there are
no PBGC premium payments which are due and unpaid, (iii) failed to make a
required contribution or payment to a Multiemployer Plan, or (iv) failed to
make a required installment or other required payment under Section 412 of
the Code, in each case that would reasonably be expected to have a Material
Adverse Effect;

 

(e)               No Termination Event has occurred or is
reasonably expected to occur;

 

28

 

(f)                 No proceeding, claim, lawsuit and/or
investigation is existing or, to the knowledge of the Company threatened,
concerning or involving any:  (i)
Employee Benefit Plan, or (ii) Multiemployer Plan, in each case that would
reasonably be expected to have a Material Adverse Effect;

 

(g)              The Company, each Subsidiary and each ERISA
Affiliate is in compliance with the requirements of the Health Insurance
Portability and Accountability Act of 1996, as amended, and the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, except where
noncompliance would not reasonably be expected to have a Material Adverse
Effect;

 

(h)              Neither the Company nor any of its
Subsidiaries maintains or contributes to or otherwise has any liability or
obligation with respect to any Welfare Plan which provides benefits to retired
or former employees (other than as required by Section 601 of ERISA or the
laws of any foreign jurisdiction);

 

(i)                  The Amount of Unfunded Benefit Liabilities
under all Plans, whether or not vested (but excluding all Plans with assets
greater than benefit liabilities), is not a material amount; and

 

(j)                  Each Foreign Pension Plan has been maintained
in material compliance with its terms and the requirements of applicable law,
and the amount of unfunded benefit liabilities thereunder, in the aggregate for
all such plans, is not a material amount.

 

5.22                        Patents, Trademarks, Etc. 
Except as set forth on Schedule 5.22, each Group Member owns
or possesses rights to use all franchises, licenses, copyrights, copyright
applications, patents, patent rights or licenses, patent applications,
trademarks, trademark rights, trade names, trade name rights, copyrights and
rights with respect to the foregoing which are material to the conduct of its
businesses.  No event has occurred which
permits, or after notice or lapse of time or both would permit, the revocation
or termination of any such rights, except if any of such events (either singly
or in the aggregate) could not reasonably be expected to have a Material
Adverse Effect, and, to its knowledge, no Group Member is liable to any Person
for infringement under Requirements of Law with respect to any such rights as a
result of its business operations.

 

5.23                        Potential
Conflicts of Interest. 
Except as set forth on Schedule 5.23, no officer, director,
stockholder or other holder of Capital Stock of the Company or any of its
Subsidiaries (other than public shareholders unknown to the Company):  (a) owns, directly or indirectly, any
interest in (excepting less than 5% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer, director,
employee or consultant of, any Person that is, or is engaged in business as, a
competitor, lessor, lessee, supplier, distributor, sales agent or customer of,
or lender to or borrower from, any Group Member; (b) owns, directly or
indirectly, in whole or in part, any tangible or intangible property that any
Group Member uses in the conduct of business; or (c) has any cause of action or
other claim whatsoever against, or owes or has advanced any amount to, any
Group Member, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under employee benefit plans, and
similar matters and agreements existing on the date hereof.

 

29

 

5.24                        Trade
Relations.  Set
forth on Schedule 5.24 is a true and correct list of the ten
largest customers and five largest suppliers of each of (a) Primrose and its
Subsidiaries and (b) WC Holdings and its Subsidiaries, in each case, as calculated
by sales and purchases during the twelve-month period ended December 31,
2002 and the nine-month period ended September 30, 2003, as well as any
sole source suppliers of goods or services for which there is no ready
alternative to the Group Members on comparable terms.  There exists no actual or, to the knowledge of the Company,
threatened termination, cancellation or limitation of, or any adverse
modification or change in, the business relationship of any Group Member or its
business with any customer or any group of customers whose purchases are
individually or in the aggregate material to the business of any Group Member,
or with any material supplier, and there exists no present condition or state
of facts or circumstances that could reasonably be expected to have a Material
Adverse Effect or prevent any Group Member from conducting its business after
the consummation of the transactions contemplated by this Agreement, in
substantially the same manner in which such business has heretofore been conducted.

 

5.25                        Outstanding
Borrowings.  Schedule 5.25
lists (i) the amount of all Outstanding Borrowings (other than Indebtedness
under this Agreement) of the Company and its Subsidiaries (other than P.D.
Holdings Group Members) as of the Closing Date, indicating in each case the
Person or Persons directly or indirectly obligated thereon, (ii) the Liens that
relate to such Outstanding Borrowings, indicating in each case the assets of
which of the Company and its Subsidiaries such Liens encumber, (iii) the name
of each lender thereof and (iv) the amount of any unfunded commitments
available to the Company and its Subsidiaries in connection with any
Outstanding Borrowings.  There does not
exist any Indebtedness prohibited by the second sentence of Section 9.04.

 

5.26                        Material
Contracts. 
Except as set forth in Schedule 5.26, no Group Member is
party to any Contractual Obligation, or subject to any charge, corporate
restriction, judgment, injunction, decree, or Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.  Schedule 5.26 lists all
contracts, agreements, commitments and other Contractual Obligations of the
Group Members as of the Closing Date, whether written or oral, other than (a)
the Investment Documents and the Senior Loan Documents, (b) purchase orders in
the ordinary course of business, (c) franchise agreements of Primrose and its
Subsidiaries, (d) customer contracts of WC Holdings and its Subsidiaries which
the Company or the relevant customers prefer to remain confidential and (e) any
other contracts, agreements, commitments and other Contractual Obligations of
Group Members that do not extend beyond one year and involve the receipt or
payment of not more than $100,000.  Each
of (i) the contracts, agreements, commitments and other Contractual Obligations
of the Group Members required to be set forth on Schedule 5.26,
(ii) those franchise agreements of Primrose and its Subsidiaries that would be
required to be set forth on Schedule 5.26 if not for the exclusion
in clause (c) above and (iii) those customer contracts of WC Holdings and its
Subsidiaries that would be required to be set forth on Schedule 5.26 if
not for the exclusion in clause (d) above, is in full force and effect (all
such Contractual Obligations referred to in clauses (i), (ii) and (iii),
collectively, the “Material Contracts,” and each, a “Material Contract”). 
Each Group Member has satisfied in full or provided for all of its
liabilities and obligations under each Material Contract to which it is a party
requiring performance prior to the date hereof in all material respects, and is
not in default under any of them, nor, to the knowledge of the Company, does
any condition exist that with notice or lapse of time or both would constitute
such a default.  To the knowledge of the

 

30

 

Company, no other party to any such Material Contract is in default
thereunder, nor does any condition exist that with notice or lapse of time or
both would constitute such a default. 
Except as set forth on Schedule 5.26, no approval or consent
of any Person is needed for all of the Material Contracts to continue to be in
full force and effect.

 

5.27                        Insurance.  Schedule 5.27
accurately summarizes all of the material insurance policies or programs of the
Group Members in effect as of the date hereof, and indicates the insurer’s
name, policy number, expiration date, amount of coverage, type of coverage,
annual premiums, exclusions and deductibles, and also indicates any self-insurance
program that is in effect.  All such
policies are in full force and effect, are underwritten by financially sound
and reputable insurers, are sufficient for all applicable Requirements of Law
and otherwise are in compliance with the criteria set forth in
Section 8.08 hereof.  All such
policies will remain in full force and effect and will not in any way be
affected by, or terminate or lapse by reason of any of, the transactions
contemplated in the Investment Documents.

 

5.28                        Products
Liability. 
Except as set forth on Schedule 5.28, there is no action,
suit, proceeding, inquiry or investigation pending, or, to the knowledge of the
Company, threatened, by or before any Governmental Authority against any Group
Member relating to any product alleged to have been sold by any Group Member
alleged to have been defective, or improperly designed or manufactured, nor to
the knowledge of the Company is there any valid basis for any such action,
proceeding or investigation.

 

5.29                        Solvency.  As
of the Closing Date and after giving effect to the transactions contemplated to
occur under the Investment Documents on or before the Closing, each Group
Member will be Solvent.

 

5.30                        Other
Documents.  The
Company has delivered or made available to the Purchaser, or the SEC Reports
contain, true, complete and correct copies of all material agreements,
schedules, exhibits, certificates, financial information, filings and other
documents relating to the Company and the other Group Members, and all
amendments and modifications thereto. 
Such documents comprise a full and complete copy of all material
agreements and understandings between the parties thereto with respect to the
subject matter thereof and all transactions related thereto, and there are no
material agreements or understandings, oral or written, or side agreements not
contained therein that relate to or modify the substance thereof in any
material respect.  Each of such
documents to which either the Company or any other Group Member is a party has
been duly authorized by all necessary organizational action on the part of the
Company or other Group Member party thereto, was validly executed or assumed
and delivered by such Person, and is the legal, valid and binding obligation of
such Person and such Person’s successors, enforceable in accordance with its
terms.  Each of such documents is in
full force and effect, and none of their provisions have been waived by any
party thereto.

 

5.31                        Payments. 
Except as set forth on Schedule 5.31, neither the execution,
delivery and performance by the Company of this Agreement, nor the execution,
delivery and performance by the Company or any other Group Member of any of the
other Investment Documents or the Release Documents, nor the consummation of
the transactions contemplated hereby or thereby, including the Transaction,
does or shall require any payment by any Group Member, in cash or kind, under
any other agreement, plan, policy, commitment or other

 

31

 

arrangement.  There are no agreements,
plans, policies, commitments or other arrangements with respect to any
compensation, benefits or consideration which will be materially increased, or
the vesting of benefits of which will be materially accelerated, as a result of
this Agreement, the other Investment Documents or the Release Documents or the
occurrence of any of the transactions contemplated hereby or thereby, including
the Transaction.  There are no payments
or other benefits payable by any Group Member, the value of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or the other Investment Documents or the Transaction.

 

5.32                        Company Funds on the Closing Date; No Restrictions on
Subsidiary Distributions to the Company on the Release Dates.  On
the Closing Date, the Company has cash and Cash Equivalents on hand equal to at
least $2,250,000.  On the Release Dates,
no consensual encumbrance or restriction of the type referred to in
Section 9.18 will exist and will not have been waived, that would restrict
the payment of dividends by any Group Member to the Company in amounts
sufficient to pay principal and interest on the Notes as and when due.

 

ARTICLE 6

 

REPRESENTATIONS AND

WARRANTIES OF THE PURCHASER

 

The
Purchaser hereby represents and warrants as follows:

 

6.01                        Authorization; No Contravention.  The execution, delivery and performance by
it of this Agreement: (a) is within its power and authority and has been duly
authorized by all necessary corporate action; (b) does not contravene the terms
of its organizational documents or any amendment thereof; and (c) will not
violate, conflict with or result in any breach or contravention of any of its
Contractual Obligations, or any order or decree directly relating to it.

 

6.02                        Binding Effect.  This
Agreement has been duly executed and delivered by it and this Agreement
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors’ rights generally or by equitable principles relating to
enforceability.

 

6.03                        No Legal Bar.  The
execution, delivery and performance of this Agreement by it will not violate
any Requirement of Law applicable to it.

 

6.04                        Purchase
for Own Account.  The
Purchaser is an accredited investor as defined in Rule 501 of Regulation D
under the Securities Act.  The Note to
be acquired by it pursuant to this Agreement is being or will be acquired for
its own account and with no intention of distributing or reselling such
security or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of the Note, under an effective registration statement under
the Securities Act, or under an exemption from such registration available
under the Securities Act, and subject, nevertheless, to the disposition of its
property being at all times within its control.  If the Purchaser should in the future decide to

 

32

 

dispose of any part of such securities, it understands and agrees that
it may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect.  It
agrees to the imprinting of a legend on certificates representing such
securities to the following effect: 
“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS.”

 

6.05                        Corporate
Existence
and Power.  The Purchaser is a duly organized and
validly existing Delaware corporation and in good standing under the state of
Delaware.

 

6.06                        Broker’s, Finder’s or Similar Fees. 
There are no brokerage commissions, finder’s fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with it or any action
taken by it.

 

6.07                        Governmental
Authorization;
Third Party Consent.  No
approval, consent, compliance, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law, and no lapse of a waiting period under a
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance by it or enforcement against it of this Agreement or
the transactions contemplated hereby.

 

ARTICLE 7

 

INDEMNIFICATION

 

7.01                        Indemnification.  In addition to all other sums due hereunder
or provided for in this Agreement, the Company agrees to indemnify and hold
harmless the Purchaser and its Affiliates and each of their respective
officers, directors, agents, employees, Subsidiaries, partners, members and
controlling persons (each, an “Indemnified Party”)
to the fullest extent permitted by law from and against any and all losses,
claims, damages, expenses (including, reasonable fees, disbursements and other
charges of counsel and costs of investigation incurred by an Indemnified Party
in any action or proceeding between the Company (or any of its Subsidiaries,
including any member of the P.D. Holdings Group, Possible Dreams as Chapter 11
debtor, any trustee of Possible Dreams, or any creditors’ committee of Possible
Dreams) and such Indemnified Party (or Indemnified Parties) or between an
Indemnified Party (or Indemnified Parties) and any third party or otherwise) or
other liabilities, losses, or diminution in value (including all fees, costs
and expenses arising out of or incurred in connection with the enforcement of
any of the Investment Documents and collection of any payments due to the
Purchaser) (collectively, “Liabilities”)
resulting from or arising out of any breach of any representation or warranty,
covenant or agreement of the Company in this Agreement, the Note, or the other
Investment Documents, including without limitation, the failure to make payment
when due of amounts owing pursuant to this Agreement, the Note or the other
Investment

 

33

 

Documents, on the due date thereof (whether at the scheduled maturity,
by acceleration or otherwise) or any matter arising in or in connection with
the Bankruptcy Proceeding (including any examination pursuant to Bankruptcy
Rule 2004) or any legal, administrative or other actions (including, actions
brought by the Purchaser, the Company or any of its Subsidiaries or any holders
of equity or indebtedness of the Company or any of its Subsidiaries or
derivative actions brought by any Person claiming through or in the Company’s
or any Subsidiary’s name), proceedings or investigations (whether formal or
informal), or written threats thereof, based upon, relating to or arising out
of the Investment Documents, the use of proceeds of the Note, the transactions
contemplated thereby, or any Indemnified Party’s role therein or in the
transactions contemplated thereby, or arising in any way out of the Transaction
or the Bankruptcy Proceeding; provided, however, that the Company
shall not be liable under this Section 7.01 to an Indemnified Party:  (a) for any amount paid by the Indemnified
Party in settlement of claims by the Indemnified Party without the Company’s consent
(which consent shall not be unreasonably withheld), (b) to the extent that it
is finally judicially determined that such Liabilities resulted primarily from
the willful misconduct or gross negligence of such Indemnified Party, or (c) to
the extent that it is finally judicially determined that such Liabilities
resulted primarily from the material breach by such Indemnified Party of any
representation, warranty, covenant or other agreement of such Indemnified Party
contained in this Agreement; provided, further, that if and to
the extent that such indemnification is unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
such Liabilities which shall be permissible under applicable laws.  In connection with the obligation of the
Company to indemnify for expenses as set forth above, the Company further
agrees, upon presentation of appropriate invoices containing reasonable detail,
to reimburse each Indemnified Party for all such expenses (including, fees,
disbursements and other charges of counsel and costs of investigation incurred
by an Indemnified Party in any action or proceeding between the Company (or any
of its Subsidiaries) and such Indemnified Party (or Indemnified Parties) or
between an Indemnified Party (or Indemnified Parties) and any third party or
otherwise) as they are incurred by such Indemnified Party; provided, however,
that if an Indemnified Party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Liabilities in question resulted primarily from
(i) the willful misconduct or gross negligence of such Indemnified Party, or
(ii) the breach by such Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained in this
Agreement or any other Investment Document.

 

7.02                        Procedure; Notification.  Each
Indemnified Party under this Article 7 will, promptly after the receipt of
notice of the commencement of any action, investigation, claim or other
proceeding against such Indemnified Party in respect of which indemnity may be
sought from the Company under this Article 7, notify the Company in
writing of the commencement thereof. 
The omission of any Indemnified Party so to notify the Company of any
such action shall not relieve the Company from any liability which it may have
to such Indemnified Party unless, and only to the extent that, such omission
results in the Company’s forfeiture of substantive rights or defenses.  In case any such action, claim or other
proceeding shall be brought against any Indemnified Party and it shall notify
the Company of the commencement thereof, the Company shall be entitled to
assume the defense thereof at its own expense, with counsel satisfactory to
such Indemnified Party in its reasonable judgment; provided, however,
that any Indemnified Party may, at its own expense, retain separate counsel to
participate in such

 

34

 

defense.  Notwithstanding the
foregoing, in any action, claim or proceeding in which the Company, on the one
hand, and an Indemnified Party, on the other hand, is, or is reasonably likely
to become, a party, such Indemnified Party shall have the right to employ
separate counsel at the Company’s expense and to control its own defense of
such action, claim or proceeding if, in the reasonable opinion of counsel to
such Indemnified Party, a conflict or potential conflict exists between the
Company, on the one hand, and such Indemnified Party, on the other hand, that
would make such separate representation advisable; provided, however,
that in no event shall the Company be required to pay fees and expenses under
this Article 7 for more than one firm of attorneys in any jurisdiction in
any one legal action or group of related legal actions.  The Company agrees that it will not, without
the prior written consent of the relevant Indemnified Parties, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding relating to the matters contemplated hereby (if any
Indemnified Party is a party thereto or has been actually threatened to be made
a party thereto) unless such settlement, compromise or consent includes an
unconditional release of the Purchaser and each other Indemnified Party from
all liability arising or that may arise out of such claim, action or
proceeding.  The Company shall not be
liable for any settlement of any claim, action or proceeding effected against
an Indemnified Party without its written consent, which consent shall not be
unreasonably withheld.  The rights
accorded to Indemnified Parties hereunder shall be in addition to any rights
that any Indemnified Party may have at common law, by separate agreement or
otherwise.

 

ARTICLE 8

 

AFFIRMATIVE COVENANTS

 

Until
the payment by the Company of all principal of and interest on the Note and all
other amounts due to Purchaser under this Agreement and the other Investment
Documents, including, all fees, expenses and amounts due in respect of
indemnity obligations under Article 7, the Company hereby covenants and
agrees with the Purchaser as follows (unless otherwise agreed by the Required
Purchasers):

 

8.01                        Financial
Statements and Other Information.  The Company shall maintain, and cause each
of its Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP (it being understood that
monthly and quarterly financial statements are not required to have footnote
disclosures).  The Company shall deliver
to the Purchaser each of the financial statements and other reports described
below (in each case, copies of each such financial statement or report, as the
case may be, shall be forwarded as follows: 
(i) 1 copy to the attention of Mr. Michael C. Salvator, the chief
financial officer of the Purchaser, (ii) 1 copy to Kevin Smith, and (iii) 1
copy to Robert M. Williams, Jr., in each case in accordance with the notice
provisions of Section 11.02 relating to WMF, or such other person or
persons as may be designated in writing by any Purchaser from time to time).

 

35

 

(a)             Monthly and Quarterly
Financial Information.

 

(i)                            As soon as available and in any event within
30 days after the end of each month, the Company shall deliver (x) the
consolidated (or unconsolidated in the case of clause (c) below) balance sheets
of each of (a) Primrose and its Subsidiaries, (b) WC Holdings and its
Subsidiaries and (c) the Company, in each case, as at the end of such month and
the related consolidated (or unconsolidated in the case of clause (c) above)
statements of income, stockholders’ equity and cash flow for such month and for
the period from the beginning of the then current Fiscal Year of the Company to
the end of such month, and (y) a schedule of the Outstanding Borrowings
describing in reasonable detail each such debt issue or loan outstanding and
the obligors thereon, principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan.

 

(ii)                         As soon as available and in any event within
55 days after the end of each quarter, the Company shall deliver the
consolidated and consolidating balance sheets of the Group, as at the end of
such quarter and the related consolidated and consolidating statements of
income, stockholders’ equity and cash flow of the Group for such quarter and
for the period from the beginning of the then current Fiscal Year of the
Company to the end of such quarter.

 

(b)            Year-End Financial
Information.  As soon as available and in any event within
100 days after the end of the Fiscal Year of the Company, the Company shall
deliver (i) the consolidated and consolidating balance sheets of the Company
and its Subsidiaries (and a consolidated balance sheet of the Group) as at the
end of such year and the related consolidated and consolidating statements of
income, stockholders’ equity and cash flow of the Company and its Subsidiaries
(and the related consolidated statement of income, stockholders’ equity and
cash flow of the Group) for such Fiscal Year, (ii) a schedule of the
Outstanding Borrowings describing in reasonable detail each such debt issue or
loan outstanding and the obligors thereon, principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan, and
(iii) a report with respect to the consolidated financial statements of the
Company and its Subsidiaries from Ernst & Young LLP or another nationally
recognized firm of certified public accountants selected by the Company and
reasonably acceptable to the Purchaser, which report shall be issued pursuant
to an audit conducted by such firm of certified public accountants in
conformity with GAAP.  Such report shall
contain an “Unqualified” opinion (as such term is defined in AU
Section 508.10 of the American Institute of Certified Public Accountants
Professional Standards or any successor provision).

 

(c)             Company’s Compliance
Certificate.  Together with each delivery of quarterly and
annual financial statements of the Group pursuant to Sections 8.01(a)(i) or
(ii) and 8.01(b) above, the Company shall deliver or cause to be delivered a
fully and properly completed compliance certificate (in substantially the form
attached hereto as Exhibit D or in such other form or substance as shall
be satisfactory to Purchaser and referred to as a “Compliance Certificate”) signed by the chief executive officer or
chief financial officer of the Company, which shall (i) state that to his or
her knowledge no Default or Event of Default shall have occurred during the
period covered thereby, except as specified in such certificate, and (ii) set
forth in reasonable detail the calculations of the ratios described in Section 9.08.  In case of any Accounting Change, the
Company shall prepare footnotes to each Compliance Certificate and

 

36

 

the financial statements required to be delivered hereunder that show
the differences between the basis for calculating financial covenant compliance
pursuant to Section 1.02 (which shall not be based upon nor reflect
Accounting Changes) and the financial statements delivered (which shall reflect
Accounting Changes).

 

(d)            Accountants’ Reports. Promptly upon receipt thereof, the Company
shall deliver copies of all significant reports submitted by the Company’s firm
of certified public accountants in connection with each annual, interim or
special audit or review of any type of the financial statements or related
internal control systems of the Company and its Subsidiaries made by such
accountants, including any comment letter submitted by such accountants to
management in connection with their services.

 

(e)             Management Reports. 
Together with each delivery of financial statements of the Company and
the other Group Members pursuant to Subsections 8.01(a) and 8.01(b), the
Company will deliver a management report (i) describing the operations and
financial condition of the Company and its Subsidiaries for the month then
ended and the portion of the current Fiscal Year then elapsed (or for the
Fiscal Year then ended in the case of year-end financials), (ii) setting forth
in comparative form the corresponding figures for the corresponding periods of
the previous Fiscal Year and the corresponding figures from the most recent
projections for the current Fiscal Year delivered pursuant to
Subsection 8.01(f), and (iii) discussing the reasons for any significant
variations.  The information above shall
be presented in reasonable detail and shall be certified by the chief financial
officer of the Company to the effect that such information fairly presents the
results of operations and financial condition of the Company and its
Subsidiaries as at the dates and for the periods indicated.

 

(f)               Projections. 
Prior to each Fiscal Year end, beginning with the end of the current
Fiscal Year, the Company shall prepare and deliver to Purchaser consolidated
and consolidating projections of the Group for the next succeeding Fiscal Year,
on a quarterly basis with respect to the Company and on a month to month basis
with respect to the other Group Members, including consolidated and
consolidating balance sheets as at the end of each relevant period and
consolidated and consolidating income statements and statements of cash flows
for each relevant period and for the period commencing at the beginning of the
Fiscal Year and ending on the last day of such relevant period.  The Company shall include a summary of the
material assumptions made in the preparation of such projections, which
assumptions shall be reasonable and made in good faith.

 

(g)            SEC Filings and Press
Releases.  At such time, and for so long as the Company
is subject to the reporting requirements of Section 13(a) or 15(d) of the
Exchange Act, promptly upon their becoming available, the Company shall deliver
copies of (i) all SEC Reports of the Company and each Subsidiary, (ii) all
financial statements, reports, notices and proxy statements sent or made available
by the Company or any of its Subsidiaries to their security holders, (iii) all
regular and periodic reports and all registration statements and prospectuses,
if any, filed by the Company or any of its Subsidiaries with any securities
exchange or with the Commission or any governmental or private regulatory
authority, and (iv) all press releases and other statements made available by
the Company or any of its Subsidiaries to the public concerning material
developments in the business of the Company or any of its Subsidiaries.

 

37

 

(h)            Events of Default, Etc. 
Promptly upon the Company obtaining knowledge of any of the following
events or conditions, the Company shall deliver copies of all notices given or
received by the Company or any of its Subsidiaries with respect to any such
event or condition and a certificate of the Company’s chief executive officer
specifying the nature and period of existence of such event or condition and
what action the Company has taken, is taking and proposes to take with respect
thereto:  (i) any condition or event
that constitutes a Default, Event of Default or breach of any provision of this
Agreement or any other Investment Document or any default or event of default
under the Senior Loan Documents; (ii) any notice that any Person has given to
the Company or any Subsidiary, or any other action, taken with respect to a
claimed default in any agreement evidencing Indebtedness or any other Material
Contract to which the Company or any Subsidiary is a party; or (iii) any event
or condition that could reasonably be expected to result in a Material Adverse
Effect.

 

(i)                Litigation; Bankruptcy
Proceeding.  Promptly upon any officer of the Company
obtaining knowledge of (i) the institution of any material action, suit,
proceeding, governmental investigation or arbitration against or affecting the
Company or any of its Subsidiaries or any property of the Company or any of its
Subsidiaries or purporting to invalidate or enjoin this Agreement, any Senior
Indebtedness or any Investment Document not previously disclosed by the Company
to the Purchaser, (ii) any development in the Bankruptcy Proceeding that is
significant to the Company or could be relevant to the Purchaser in any
material respect, including any litigation or threat of litigation, any claim
or assertion that the Company or any member of the Group is liable to Possible
Dreams or its creditors and any claim or threatened claim against present or
former officers or directors of any member of the Group, or (iii) any material
development in any action, suit, proceeding, governmental investigation or
arbitration at any time pending against or affecting the Company or any of its
Subsidiaries or any property of the Company or any of its Subsidiaries which,
in each case, is reasonably possible to have a Material Adverse Effect, the
Company will promptly give notice thereof to the Purchaser and provide such
other information as may be reasonably available to them to enable the
Purchaser and its counsel to evaluate such matter.

 

(j)                Subsidiaries.  Not
less than 15 days prior to creating a Subsidiary or acquiring the stock of, or
other equity interests in, a Person, such that such Person will become a
Subsidiary of any Group Member, the Company shall notify the Purchaser of the
Company’s or any of its Subsidiary’s intention to create such Subsidiary or
acquire such stock or equity interests, and following such notice such
Subsidiary will not be created or acquired until the Company has caused each
Subsidiary to execute a Guaranty and delivered to the Purchasers such legal
opinions and other documents as the Purchasers may reasonably request.

 

(k)             Supplemented Schedules;
Notice of Corporate Changes.  The Company shall provide prompt written notice
to the Purchaser of any material change after the Closing Date in the
authorized and issued Capital Stock of the Company or any other Group Member or
any other material amendment to their charter, by-laws or other organizational
documents, such notice, in each case, to identify the applicable jurisdictions,
capital structures or amendments as applicable.

 

(l)                Other Information.  With
reasonable promptness, the Company shall deliver such other information and
data with respect to the Company or any of its Subsidiaries as

 

38

 

from time to time may be reasonably required by any Purchaser,
including management letters prepared by independent accountants.

 

8.02                        Preservation
of Corporate Existence.  The
Company shall, and shall cause each Group Member to:

 

(a)                preserve, renew and maintain in full force
and effect its corporate (or, as applicable, limited liability partnership or
other entity) existence;

 

(b)               conduct its business in accordance with sound
business practices;

 

(c)                file or cause to be filed in a timely manner
all material reports, applications, estimates and licenses that shall be
required by each Governmental Authority; and

 

(d)               take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of its business.

 

8.03                        Payment
of Obligations.  The
Company shall, and shall cause each Group Member to, pay, discharge or
otherwise satisfy, at or before maturity, or before they become delinquent, as
the case may be, all their respective obligations and liabilities, including
without limitation:

 

(a)                all material Tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets, and any
additional costs that are imposed as a result of any failure to pay, discharge
or otherwise satisfy such obligations, unless the same are being contested in
good faith by appropriate proceedings and adequate reserves in accordance with
GAAP are being maintained by the Company or such Subsidiary;

 

(b)               all material lawful claims which the Company
and each of its Subsidiaries are obligated to pay, which are due and which, if
unpaid, might by law become a Lien upon its property, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
and

 

(c)                all material payments of principal, interest
and other material amounts when due on Indebtedness.

 

8.04                        Compliance
with Laws.  The
Company shall comply, and shall cause each Group Member to, comply, in all
material respects with all Requirements of Law and with the directions, orders,
requirements and demands of each Governmental Authority having jurisdiction
over them or their business or property (including, all applicable
Environmental Laws, as provided below), except where the failure to so comply
could not reasonably be expected to have a Material Adverse Effect.

 

8.05                        Environmental
Laws.  The
Company shall, and shall cause each of its Subsidiaries to:

 

39

 

(a)                Comply in all material respects with, and
undertake commercially reasonable efforts to ensure compliance in all material
respects by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply in all material respects with and
maintain, and undertake reasonable best efforts to ensure that all tenants and
subtenants obtain and comply in all material respects with and maintain, any
and all licenses, approvals, notifications, registrations or permits required
by applicable Environmental Laws;

 

(b)               Conduct and complete all investigations,
studies, sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply in all material respects
with all lawful orders and directives of all Governmental Authorities regarding
Environmental Laws except to the extent that the same are being contested in
good faith by appropriate proceedings and the pendency of such; and

 

(c)                Defend, indemnify and hold harmless the
Purchaser, and its employees, agents, officers and directors, from and against
any and all claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under, any Environmental Law
applicable to the operations of the Company or any of its Subsidiaries or its
properties, or any orders, requirements or demands of Governmental Authorities
related thereto, or relating to the presence of Hazardous Materials on any of
the properties of the Company or any Subsidiary, including, reasonable
attorney’s and consultant’s fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of
the foregoing arise out of the gross negligence, bad faith, or willful
misconduct of the party seeking indemnification therefor.  The agreements in this paragraph shall
survive repayment of the Note and all other amounts payable hereunder.

 

8.06                        Inspection.  The
Company shall permit, and shall cause each Group Member to permit,
representatives of the Purchaser, from time to time, and upon reasonable prior
notice and during regular business hours without disruption to the Company’s
and the other Group Members’ business, to: (a) once per year (or with unlimited
frequency during the existence of an Event of Default) (i) visit and inspect
the Company’s and the other Group Members’ properties; or (ii) inspect, audit
and make extracts from its books, records and files; and (b) discuss with the
Company’s and the other Group Members’ principal officers and its independent
accountants, the Company’s and the other Group Members’ business, assets,
liabilities, financial condition, results of operations and business prospects;
provided, however, that no such inspection or discussion, the
failure to conduct same, nor any knowledge of the Purchaser, including, without
limitation, any knowledge obtained by the Purchaser in connection with any such
inspection or discussion, shall constitute a waiver of any rights the Purchaser
may have under any representation, warranty, covenant, term or agreement under
any of the Investment Documents.

 

8.07                        Payment
of Note.  The
Company shall pay the principal of, premium on, interest on and other amounts
due in respect of, the Note on the dates and in the manner provided in the
Note.

 

40

 

8.08                        Maintenance
of Properties; Insurance.

 

(a)                The Company shall, and shall cause each other
Group Member to maintain or cause to be maintained in good repair, working
order and condition all material properties used in their respective businesses
and will make or cause to be made all appropriate repairs, renewals and
replacements thereof so that the efficiency of its business operations shall be
fully maintained and preserved.

 

(b)               The Company shall, and shall cause each other
Group Member to, maintain or cause to be maintained with financially sound and
reputable insurers that have a rating of “A” or better as established by Best’s
Rating Guide (or an equivalent rating with such other publication of a similar
nature as shall be in current use), public liability and property damage
insurance with respect to their respective businesses and owned properties
against loss or damage of the kinds customarily carried or maintained by
companies of established reputation engaged in similar businesses and in
amounts reasonably acceptable to Purchaser and will deliver evidence thereof to
Purchaser, and with respect to property leased by the Company or any other
Group Member, the applicable Group Member shall maintain the insurances
required by the relevant lease.  Without
limiting the foregoing, the Company will establish by  the Closing Date and maintain at all times
thereafter business interruption insurance in respect of the Group in an amount
satisfactory to the Purchaser.  All such
insurance policies shall provide that they may not be canceled unless the
insurance carrier gives at least 30 days prior written notice of such
cancellation to Purchaser.

 

8.09                        Books
and Records.  The
Company shall, and shall cause each of its Subsidiaries to, keep proper books
of record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and each of
its Subsidiaries in accordance with GAAP to the Company and its Subsidiaries
taken as a whole.

 

8.10                        Board
Nominees;
Management Rights.  The
Company shall give, and cause each of the other Group Members to give, WMF
notice of (in the same manner as notice is given to Directors), and permit one
Person designated by WMF to attend as observer at, all meetings of the
Company’s and each other Group Member’s Board of Directors and shall provide to
WMF the same information concerning the Company or other Group Members, and
access thereto, provided to Directors of the relevant Group Member.  The reasonable travel expenses incurred by
any such designee of WMF in attending any board meetings shall be reimbursed by
the Company.

 

8.11                        Use
of Proceeds.  The
Company shall deposit the proceeds of the sale of the Note hereunder in a
deposit account in the name of U.S. Bank, National Association, as Collateral
Agent for the Purchaser, to be pledged to such Collateral Agent (for the
benefit of the Purchasers) pursuant to the Cash Collateral Pledge
Agreement.  Such proceeds may be withdrawn
and used only as provided in the Cash Collateral Pledge Agreement.

 

8.12                        Release
Date;
Liquidation of Non-Group Members.

 

(a)                On or prior to the first Release Date, the
Company shall (i) cause all Capital Stock of WC Holdings and its Subsidiaries
not held by the Company or Group Members

 

41

 

on the Closing Date to be exchanged for Capital Stock of the Company so
that each such Group Member becomes Wholly-Owned, and (ii) cause each of the
other Group Members to execute and deliver a Guaranty and deliver to the
Purchasers such legal opinions and other documents as the Purchasers may
reasonably request consistent with the terms hereof relating to Subsidiary
Guarantors generally.  In connection
with such Guaranties being provided by Group Members, Purchaser shall enter
into Intercreditor Agreements with the administrative agents under the Senior
Loan Agreements to which such Group Members are a party, which Intercreditor
Agreements shall be in a form acceptable to each of the Purchasers in their sole
discretion.

 

(b)               The Company shall use commercially reasonable
efforts to sell or liquidate all members of P.D. Holdings Group and conclude
the Bankruptcy Proceeding, in each case as soon as reasonably practicable after
the Closing Date, and to cause all remaining net assets of P.D. Holdings Group
to be distributed to the Company (subject in each case to the Bankruptcy
Proceeding and the rules, regulations and orders of the Bankruptcy Court).

 

8.13                        Minimum
Cash Balance.  The Company
shall maintain at all times prior to the first Release Date a minimum amount of
cash and Cash Equivalents of $750,000.

 

ARTICLE 9

 

NEGATIVE COVENANTS

 

Until
the payment by the Company of all principal of and interest on the Note and all
other amounts due at the time of payment of such principal and interest to the
Purchaser under this Agreement and the other Investment Documents, including,
all fees, expenses and amounts due at such time in respect of indemnity
obligations under Article 7, the Company hereby covenants and agrees with
the Purchaser as follows (unless otherwise agreed by the Required Purchasers):

 

9.01                        Fundamental
Changes;
Consolidations, Mergers and Acquisitions.  The Company shall not, and shall not permit
any Group Member to, directly or indirectly: 
(a) amend, modify or waive any term or provision of its articles of
incorporation, certificate of designation (or corporate charter or other
similar organizational document) operating agreement or by-laws (or other
similar document) in any manner adverse to the interests of the Purchaser
hereunder or under any of the other Investment Documents, unless required by
law; (b) enter into any transaction of merger or consolidation; (c) liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution); (d) acquire
by purchase or otherwise all or any substantial part of the business or assets
of any other Person; or (e) change its Fiscal Year; provided, however, (1) any
Subsidiary Guarantor may merge with any other Subsidiary Guarantor or the
Company and (2) any Subsidiary Guarantor may wind-up into the Company or any
other Subsidiary Guarantor.

 

9.02                        Transactions
with Affiliates.  The
Company shall not, and shall not permit any Group Member to (a) enter into any
transaction or agreement or other Contractual Obligation with, or make any
payment whether or not in the ordinary course of business to, any Affiliate,
(b) amend or terminate any existing agreement with any Affiliate, (c) purchase
from or provide to an Affiliate any selling, general, management or administrative
services, except as permitted

 

42

 

by Section 9.13, (d) directly or indirectly make any sales to or
purchases from an Affiliate, or (e) increase the compensation being paid to an
Affiliate; except (i) pursuant to the reasonable requirements of its business,
(ii) upon fair and reasonable terms, (iii) as to each such transaction in
excess of $500,000, upon 10 days’ prior written notice to the Purchasers prior
to the consummation thereof, and (iv) in each case on terms that are no less
favorable to it than it would obtain in a comparable arm’s length transaction
with a Person not its Affiliate.  The
foregoing shall not apply to:

 

(a)                any employment agreements, non-competition
agreements, stock purchase or option agreements, collective bargaining
agreements, employee benefit plans or arrangements (including vacation plans,
health and life insurance plans, deferred compensation plans, stock loan plans,
directors’ and officers’ indemnification agreements and retirement, savings or
similar plans), related trust agreements or any similar arrangements, in each
case in respect of employees, officers or directors and entered into in the
ordinary course of business, on customary terms and consistent with past practice,
any payments or other transactions contemplated by any of the foregoing and any
other payments of compensation to employees, officers, or directors in the
ordinary course of business, on customary terms and consistent with past
practice;

 

(b)               transactions between or among the Company
and/or Subsidiary Guarantors;

 

(c)                transactions permitted under Sections 9.07,
9.11(b), (c) or (f), and 9.13;

 

(d)               any agreement as in effect on the Closing
Date set forth on Schedule 9.02 (other than an agreement subject to
Section 9.13), any renewal or extension thereof, or any amendment thereto,
permitted under this Agreement and any transaction contemplated thereby,
provided that any such renewal, extension or amendment is on terms not more
adverse to the Purchaser in any respect; and

 

(e)                any transaction on arm’s length terms with
non-affiliates that become Affiliates as a result of such transaction.

 

9.03                        No
Inconsistent Agreements.  The
Company shall not, and shall not permit any Group Member to, enter into any
Contractual Obligation or enter into any amendment or other modification to any
currently existing Contractual Obligation of the Company, or any Group Member,
which by its terms restricts or prohibits the ability of the Company to pay the
principal of or interest on the Note or to fully satisfy all of the obligations
under the Investment Documents of the Company or any Group Member.

 

9.04                        Limitation
on Indebtedness.  The
Company shall not, and shall not cause, suffer or permit any Group Member to,
directly or indirectly, collectively and in the aggregate, issue, contract,
create, assume, otherwise incur or permit to exist any Indebtedness, except the
following (each, a “Permitted Indebtedness”):

 

(a)                Indebtedness created under this Agreement,
the Note and the other Investment Documents;

 

43

 

(b)               Indebtedness (other than under the Senior
Loan Documents) listed on Schedule 5.25;

 

(c)                Senior Indebtedness (inclusive of
Indebtedness listed on Schedule 5.25), up to an aggregate
outstanding principal amount of $58,000,000 (reduced by the amount of any
principal repayments or prepayments of the term loans and reductions in the
revolving commitments under the Senior Loan Agreements, as refinanced and in
effect from time to time); provided that (i) Primrose and its
Subsidiaries shall not incur or permit to exist more than $14,500,000 (reduced
by the amount of any principal repayments or prepayments of the term loans and
reductions in the revolving commitments under the Senior Loan Agreement to
which Primrose and its Subsidiaries are parties, as refinanced and in effect
from time to time) of Indebtedness pursuant to this clause (c); and (ii) WC
Holdings and its Subsidiaries shall not in the aggregate incur or permit to
exist more than $43,500,000 (reduced by the amount of any principal repayments
or prepayments of the term loans and reductions in the revolving commitments
under the Senior Loan Agreement to which WC Holdings and its Subsidiaries are
parties, as refinanced and in effect from time to time) of Indebtedness
pursuant to this clause (c);

 

(d)               Non-current liabilities for post-employment
healthcare and other insurance benefits;

 

(e)                Trade payables and accrued expenses, in each
case arising in the ordinary course of business and not overdue by more than 90
days;

 

(f)                  Indebtedness in an aggregate principal amount
not to exceed $500,000 secured by a Lien permitted under Section 9.05(e);

 

(g)               Indebtedness between and/or among the Company
and other Group Members; provided that

 

(i)                                     such Indebtedness shall, at any time after 30
days from the Closing Date:

 

(A)         be subordinated in right of payment to all Indebtedness under the Note
and the other Investment Documents such that, (1) from and after such time as
any principal of the Indebtedness under the Note and this Agreement shall
become due and payable (whether at stated maturity, by acceleration or
otherwise), and (2) while any Default or Event of Default exists, no payment or
distribution shall be made in respect of principal or interest on such
Indebtedness no payment or distribution shall be made in respect of such
Indebtedness unless and until all Indebtedness under the Investment Documents
has been paid in full and in cash; and

 

(B)           have such other terms and provisions as the Purchaser may reasonably
require; and

 

(ii)                                  the aggregate principal amount of
Indebtedness of Subsidiaries that are not Subsidiary Guarantors to the Company
and/or other Group Members shall not exceed $500,000 at any time outstanding;
and

 

44

 

(h)                                 Refinancings, refundings or extensions of
Permitted Indebtedness under Section 9.04(b); provided, that any
such refinancings, refundings or extensions shall not:

 

(i)                                     together with any Indebtedness under
Section 9.04(b) not being refinanced, refunded or extended, exceed the
principal amount set forth on Schedule 5.25;

 

(ii)                                  shorten the maturity (or weighted average
life to maturity) of such Indebtedness or convert a revolving credit facility
into a facility which provides for the amortization of principal;

 

(iii)                               increase the interest rate applicable to such Indebtedness;

 

(iv)                              cause any covenants or undertakings (whether affirmative or negative)
of the Company or its Subsidiaries in respect of such Indebtedness to be materially
more restrictive than such covenants or undertakings had been prior to such
refinancing, refunding or extension;

 

(v)                                 facilitate the exercise or enforcement of any
remedies of any obligee of such Indebtedness in respect of any default or event
of default thereunder;

 

(vi)                              materially and adversely affect any obligations under the Investment
Documents to Purchaser; or

 

(vii)                           result in any amendments or modifications of any of the subordination
provisions applicable to such Indebtedness;

 

(i)                   Indebtedness under hedging agreements
permitted by Section 9.22;

 

(j)                   Contingent Obligations permitted by
Section 9.12; and

 

(k)                other unsecured Indebtedness, up to an
aggregate outstanding principal amount of $1,000,000, inclusive of Indebtedness
listed on Schedule 5.25.

 

The
Company will not permit:

 

(x)                                   any
Group Member to be directly or indirectly liable, as a result of any Contingent
Obligation or otherwise, on all or any portion of Indebtedness of any
Subsidiaries other than Group Members, except for the Indebtedness listed on
Schedule 9.04;

 

(y)                                 any
Group Member to, directly or indirectly, issue, contract, create, assume,
otherwise incur or permit to exist any Indebtedness a holder of which would be
entitled, upon the lapse of time or notice or otherwise, to accelerate such
Indebtedness or to require any Group Member to purchase, redeem or otherwise
pay such Indebtedness upon a default or event of default under any Indebtedness
or other obligation of any Subsidiary other than a Group Member; or

 

(z)                                   any
default or event of default under any Indebtedness of any Subsidiaries other
than Group Members to create any rights against any Group Member.

 

45

 

9.05                        Limitation
on Liens.  The
Company will not, and will not permit any Group Member to, directly or
indirectly, create, incur, assume or permit to exist any Lien on or with
respect to any property or asset (including, any document or instrument with
respect to goods or accounts receivable) of the Company or any Group Member,
whether now owned or hereafter acquired, or any income or profits therefrom,
except Permitted Encumbrances.  “Permitted Encumbrances” means the following:

 

(a)                Liens for Taxes, assessments, charges or
other governmental levies not yet due or which are being contested in good
faith by appropriate proceedings; provided that adequate reserves with
respect thereto are maintained on the books of the Company or Group Member, as
the case may be, in conformity with GAAP;

 

(b)               Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which are
incurred in the ordinary course of business for sums not more than 30 days
delinquent or which are being contested in good faith; provided that an
adequate reserve or other appropriate provision shall have been made therefor
and the aggregate amount of such Liens is less than $250,000;

 

(c)                Liens (other than any Lien imposed under or
in connection with ERISA) incurred or deposits made in the ordinary course of
business in connection with workers’ compensation, unemployment insurance and
other types of social security or to secure the performance of tenders, public
or statutory obligations, surety, stay, customs and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return of money bonds,
contractual or warranty obligations and other similar obligations (exclusive of
obligations for the payment of borrowed money);

 

(d)               deposits in an aggregate amount not to exceed
$100,000 made in the ordinary course of business to secure liability to
insurance carriers under insurance or self-insurance arrangements;

 

(e)                Liens securing purchase money obligations to
acquire assets or Capital Lease Obligations; provided that:

 

(i)                     each such Lien attaches to such asset
concurrently with or within 10 days after acquisition thereof;

 

(ii)                  each such Lien does not exceed the purchase
price of the relevant asset;

 

(iii)               the aggregate principal amount of all
Indebtedness secured by all such Liens shall not exceed $500,000; and

 

(iv)              each such Lien encumbers only the asset so
purchased;

 

(f)                  any attachment or judgment Lien not
constituting an Event of Default;

 

(g)               leases or subleases granted to others not
interfering in any material respect with the business of the Company or any of
its Subsidiaries;

 

46

 

(h)               easements, rights of way, restrictions,
building laws, land use and similar laws, municipal ordinances, restrictive
covenants encumbering the land or the use thereof, minor defects or
irregularities in title and other similar encumbrances not interfering in any
material respect with the value or use of the property to which such Lien is
attached; and

 

(i)                   Liens existing on the date hereof and set
forth on Schedule 5.25 hereto (other than Liens permitted by
Section 9.05(e)), and extensions, renewals and replacements thereof,
provided that such extension, renewal or replacement Lien shall be limited to
all or a part of the property which secured the Lien so extended, renewed or
replaced (plus improvements on such property).

 

9.06                        Dispositions
of Assets.  The
Company will not, and will not permit any of the other Group Members to,
directly or indirectly, convey, sell (pursuant to a sale/leaseback or
otherwise), lease, sublease, transfer or otherwise dispose of, or grant any
Person an option to acquire, in one transaction or a series of transactions,
any of its property, business or assets, including the Capital Stock of any
Subsidiary that is a Group Member, whether now owned or hereafter acquired,
except for (each, a “Permitted Disposition”):

 

(a)                bona fide sales of inventory to customers for
fair value in the ordinary course of business;

 

(b)               the sale, lease, transfer or other
disposition of obsolete machinery, parts, equipment and other assets no longer
used or useful in the conduct of the business of the Company or any other Group
Member, as appropriate, to customers for fair value in the ordinary course of
business so long as the Net Proceeds therefrom are used to repair or replace
obsolete property or to purchase or otherwise acquire new assets or property;

 

(c)                Asset Dispositions if all of the following
conditions are met:

 

(i)                                     the market value of assets sold or otherwise
disposed of (by the Company and the other Group Members taken as a whole) in
any Fiscal Year do not exceed $300,000;

 

(ii)                                  the Net Proceeds received are at least equal
to the fair market value of such assets;

 

(iii)                               at least 75% of the consideration received is
cash;

 

(iv)                              after giving effect to the sale or other
disposition of the assets included within the Asset Disposition and the
repayment of Indebtedness with the proceeds thereof, the Company would be in
compliance on a pro forma basis with the covenants set forth in
Section 9.08 hereof and is in compliance with all other terms and
conditions of this Agreement;

 

(v)                                 the Net Proceeds received are applied to
repay Senior Indebtedness or prepay the Note;

 

47

 

(vi)                              no Event of Default then exists or shall result
from such sale or other disposition; and

 

(vii)                           such Asset Disposition does not involve the
sale of some but not all of the Capital Stock of a Subsidiary Guarantor.

 

(d)               issuances of Capital Stock (other than by WC
Holdings and its Subsidiaries) upon exercise of options;

 

(e)                the disposition of Pumpkin Masters Holdings,
Inc., or P.D. Holdings or their Subsidiaries.; and.

 

(f)                  issuances by Primrose (but not any other
Group Member) of options to acquire its common stock, provided that
Primrose may make no such issuance if, as a result, the total amount of
options, warrants and other rights to acquire common stock of Primrose
outstanding at such time would exceed 10% of the aggregate number of shares of
Primrose common stock then outstanding or issuable under any such options,
warrants or other rights (assuming all such rights are exercisable at such
time).

 

9.07                        Limitations
on Restricted Payments.  The
Company shall not, and shall not permit any Group Member to, directly or
indirectly, declare, order, make or set apart any sum for any Restricted
Payment; provided that this Section 9.07 shall not prohibit the following:

 

(a)                the repurchase by the Company of shares of
Capital Stock of the Company owned by former, present or future employees of
the Company or its Subsidiaries or their assigns, estates and heirs; provided
that no such amounts shall be repurchased unless, at the time of such
repurchase, the Company shall, after taking into account the amount of such
repurchase (as if it were an expense incurred during the Rolling Period most
recently ended), be in compliance with the provisions of Section 9.08, and
provided, further, that the aggregate amount expended by the
Company pursuant to this clause (a) shall not in the aggregate exceed $500,000
in any Fiscal Year; provided that any repurchase which cannot be made in
cash as a result of the Company’s failure to be in compliance with the
provisions of Section 9.08 as aforesaid can be made (subject to the dollar
limitation set forth above) through the Company’s execution and delivery of a
promissory note which shall be subordinated to the Note and the Senior
Indebtedness on terms acceptable to the Purchaser.  Notwithstanding any provision of this Section 9.07(a) to the
contrary, the Company may repurchase shares of Capital Stock with (1) any
amounts contributed to the Company as a result of resales of such repurchased
shares of Capital Stock or the sale of Capital Stock of the Company to
employees, directors, officers or consultants of the Company or its Subsidiaries
that occurs in such Fiscal Year and (2) the cash proceeds from key man life
insurance policies received by the Company and its Subsidiaries in such
calendar year (including proceeds from the sale of such policies to the person
insured thereby);

 

(b)               repurchases of Capital Stock deemed to occur
upon exercise of stock options or warrants as a result of the payment of all or
a portion of the exercise price of such options or warrants with Capital Stock;

 

48

 

(c)                cancellation of Indebtedness relating to the
purchase of Capital Stock owing to the Company from employees, directors,
officers or consultants of the Company or any of its Subsidiaries in connection
with a repurchase of Capital Stock of the Company;

 

(d)               to the extent constituting Restricted
Payments, any payments expressly permitted by the terms of Section 9.13;
and

 

(e)                Restricted Payments upon consummation of the
Transaction in an aggregate amount not to exceed $60,000,000 (plus the net
proceeds of any equity issuance by the Company or any other Group Member
otherwise permissible under Section 9.16 after the date hereof, including
in connection with the exercise of stock options), provided that, after giving
effect to the Transaction including such Restricted Payments on a pro forma
basis as of the last day of the fiscal quarter most recently ended, the Company
shall be in compliance with Section 9.08 and no Default or Event of
Default shall have occurred and then be continuing.

 

9.08                        Financial
Covenants.

 

(a)  Maximum Total Leverage Ratio.  The Group will maintain a Total Leverage
Ratio the Rolling Period ending on the last day of any fiscal quarter of the
Fiscal Years set forth below of not more than the amount set forth below
opposite the relevant Fiscal Year in which such period ends:

 

	
  Fiscal
  Year

  	
   

  	
  Total Leverage Ratio

  	
   

  
	
  2004

  	
   

  	
  3.75 to 1.0

  	
   

  
	
  2005

  	
   

  	
  3.50 to 1.0

  	
   

  
	
  2006

  	
   

  	
  3.25 to 1.0

  	
   

  
	
  2007 and thereafter

  	
   

  	
  3.00 to 1.0

  	
   

  

 

(b)  Minimum
Fixed Charge Coverage Ratio.  The
Group will maintain a Fixed Charge Coverage Ratio for the Rolling Period ending
on the last day of any fiscal quarter of the Company of not less than 1.05 to
1.0.

 

(c)  Minimum
Interest Coverage Ratio.  The Group
will maintain an Interest Coverage Ratio for the Rolling Period ending on the
last day of any fiscal quarter of the Company of not less than 3.0 to 1.0.

 

(d) 
In the event that the Company or any Group Member refinances or amends
the financial covenants contained in any Senior Loan Agreement, the Purchasers
shall have the right, but not the obligation, to require the Company to agree
to an amendment of the covenant levels or the covenants contained in this
Section 9.08 (including any additional covenants that the Required
Purchasers may reasonably require) so that such covenant levels and covenants
(or any of them) will be conformed to those contained in such Senior Loan
Agreement, provided that (i) such revised covenant levels (and such additional
covenants) shall be less restrictive on the Company than the covenant levels
contained in such refinanced Senior Loan Agreement by a margin of no less than
10% and (ii) such amendment shall also make such changes to the definitions
used in this Section 9.08, as so amended, as the Required Purchasers shall
reasonably request consistent herewith.  
The Company and any Guarantor shall execute

 

49

 

and deliver any such amendment of this Section 9.08 no later than
10 Business Days after any Purchaser’s request in accordance herewith.

 

9.09                        Employee
Benefit
Plans.  The
Company shall not, and shall not permit any of its Subsidiaries or any ERISA
Affiliate to, without the prior approval of the Purchaser (a) establish or
materially increase its obligations under, any (i) Plan; (ii) Welfare Plan
which provides post-retirement welfare benefits (other than as required by
Section 601 of ERISA or the laws of any foreign jurisdiction) or (iii)
employee benefit plan or arrangement which provides “parachute payments”
(within the meaning of Section 280G(b) of the Code); (b) engage in any
Prohibited Transaction, fail to operate any Employee Benefit Plan in compliance
with its terms or applicable law, or engage in any conduct or commit any act or
suffer to exist any condition that, either alone or in the aggregate, would
give rise to any material excise tax, penalty, interest, or liability under the
Code or ERISA; (c) permit the Amount of Unfunded Benefit Liabilities under all
Plans (excluding Plans with no Amount of Unfunded Benefit Liabilities) to
exceed $250,000; (d) fail to make any payments or contributions to any Plan or
Multiemployer Plan that the Company or any ERISA Affiliate may be required to
make under any such Plan, Multiemployer Plan, any agreement relating thereto,
or any law pertaining thereto; (e) voluntarily terminate any Plan, if such
termination would result in the imposition of a Lien on the Company or any
ERISA Affiliate; (f) adopt any amendment to any Plan with respect to which
security is required under Section 307 of ERISA or Section 401(a)(29)
of the Code; (g) fail to make any required contribution to any Plan subject to
Section 412(n) of the Code or Section 302(e) of ERISA that with the
passage of time reasonably would result in a Lien upon the assets of the
Company or any ERISA Affiliate; (h) create or suffer to exist any liability
with respect to post-retirement benefits under any welfare benefit plan (as
defined in Section 3(1) of ERISA) if, after immediately giving effect to
such liability, the aggregate annualized cost with respect to such
post-retirement benefits for any fiscal year would exceed $250,000; (i) with
respect to any Pension Plan, permit any accumulated funding deficiency, within
the meaning of Section 302 of ERISA or Section 412 of the Code, to
exist, whether or not waived; (j) cause to suffer to exist any Termination
Event which, either alone or in the aggregate, could result in either the
imposition of a Lien on the Company or any ERISA Affiliate, or liability to the
Company or any ERISA Affiliate in excess of $250,000; (k) establish or increase
any unpredictable contingent event benefits (within the meaning of
Section 412(l)(7)(B)(ii) of the Code) with unfunded liabilities, either
alone or in the aggregate, in excess of $250,000; or (l) create or suffer to
exist any liability with respect to any employee benefit plan or arrangement,
either alone or in the aggregate, if, after immediately giving effect to such
liability, the present value of all such unfunded liabilities would exceed
$250,000.

 

9.10                        Limitation
on Business
of the Company.  The
Company shall not, and shall not permit any Group Member to engage in any
business or transaction other than the business in which it is currently
engaged and the transactions contemplated by, or permitted under, this
Agreement except for other businesses that are ancillary, incidental or
necessary to its ongoing business as presently conducted  and constitute an insubstantial part of the
business of the Group taken as a whole.  The Company shall cause P.D. Holdings not to
engage in any business or activity, other than the holding of Capital Stock of
Possible Dreams.

 

9.11        Investments.  The
Company shall not, and shall not permit any Group Member to, directly or
indirectly, make or own any Investment in any Person except:  (a) Investments in

 

50

 

Cash Equivalents; provided that such Cash Equivalents are not subject
to setoff rights in favor of the issuing bank arising from any existing banking
relationship; (b) (i) intercompany loans to the extent permitted under
Section 9.04, and (ii) other Investments by the Company or any Subsidiary
Guarantor into the Company or any other Subsidiary Guarantor; (c) loans and
advances to employees of the Group for moving, entertainment, travel and other
similar expenses in the ordinary course of business not to exceed $200,000 in
the aggregate at any time outstanding; (d) receivables owing to the Company or
any other Group Member and advances or prepayments to suppliers or other
advances in connection with the purchase of goods, in each case if created,
acquired or made in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (e) Investments
received in connection with the bankruptcy or reorganization of suppliers and
customers or in settlement of delinquent obligations of, and other disputes
with, customers and suppliers arising in the ordinary course of business; (f)
commission, travel, petty cash and similar advances to officers, employees,
consultants and agents in the ordinary course of business; (g) investments
consisting of hedging agreements, to the extent permitted under the Senior Loan
Agreements and Section 9.22; (h) investments consisting of (i) prepaid
expenses, (ii) negotiable instruments held for collection, (iii) lease,
utility, workers’ compensation, performance and other similar deposits, and
(iv) insurance claim receivables; (i) Investments in the Pumpkin Group and the
P.D. Holdings Group existing on the Closing Date (but not any increase thereof);
and (j) additional Investments in the form, however structured, of strategic
partnerships or joint ventures with Persons (other than Investments in any P.D.
Holdings Group Member, any member of Pumpkin Group or Persons who are
Affiliates of the Company prior to such Investment) engaged in businesses which
are the same or strategically related to the business of the Company but in no
event shall such additional Investments exceed $500,000 in the aggregate at any
one time outstanding.

 

9.12                        Contingent
Obligations.  The
Company shall not, nor shall it permit any of the other Group Members to,
directly or indirectly, create or become liable with respect to any Contingent
Obligation except those:  (a) resulting
from endorsements of negotiable instruments for collection in the ordinary
course of business; (b) arising under the Investment Documents; (c) existing on
the Closing Date and as described in Schedule 9.12 annexed hereto;
(d) arising with respect to customary indemnification and purchase price
adjustment obligations incurred in connection with any Asset Dispositions; (e)
incurred in the ordinary course of business with respect to surety and appeal
bonds, performance and return-of-money bonds and similar obligations not
exceeding any time outstanding $50,000 in aggregate liability; (f) incurred
with respect to any Indebtedness permitted pursuant to Section 9.04
hereof; (g) guarantees by the Company (other than guarantees of obligations of
Subsidiaries that are not Group Members) incurred in the ordinary course of
business for an aggregate amount not to exceed $250,000 at any one time; (h)
guarantees of obligations in connection with workmen’s compensation obligations
and general liability exposure of the Company and the other Group Members; or
(i) Contingent Obligations in respect of obligations of other Persons (other
than Subsidiaries that are not Group Members) not otherwise permitted by
clauses (a) through (h) above so long as any such Contingent Obligations shall
not exceed $100,000 in the aggregate at any time outstanding.

 

9.13                        Management
Fees and Compensation.  The
Company shall not, nor shall it permit any Group Member to, directly or
indirectly, pay any management, consulting or similar fees to any Affiliate
(other than the Company) or to any Director, officer or employee of the Company
or any of its Subsidiaries except (a) reasonable Director’s fees and expenses
(other

 

51

 

than Director’s fees
payable to Directors who are designees of Capital Partners and fees payable to
Directors of Subsidiaries who are not Group Members), (b) reasonable legal
fees payable to Samuel B. Fortenbaugh for services rendered to the Group
(or to Subsidiaries other than Group Members, but only to the extent of payments
received by the Company from such Subsidiaries related thereto),
(c) management fees payable to Capital Partners in an amount per fiscal
quarter not to exceed the sum of (i) the greater of 5% of the EBITDA of the
Group and $375,000 (reduced by the first $37,500 paid to the Company as
contemplated by clause (ii))], plus (ii) the amount of payments related thereto
received by the Company from Subsidiaries other than Group Members, plus (iii)
reasonable out-of-pocket fees and expenses incurred by Capital Partners attributable
to the Group (or to Subsidiaries other than Group Members, but only to the
extent of payments received by the Company from such Subsidiaries related
thereto) in connection with the provision of such management services (except
for rent, utilities and compensation for any employees of Capital Partners), in
each case payable quarterly pursuant to the Advisory Services Agreement, (d) if
the Company or any Group Member (or Subsidiaries other than Group Members, but
only to the extent of payments received by the Company from such Subsidiaries
related thereto) completes any acquisition or series of related acquisitions
which was presented to the Company by Capital Partners, an investment banking
advisory fee in connection therewith in an amount which is (x) reasonable and
customary for transactions of such size and complexity, (y) reasonably
agreed to by the Company and Capital Partners after negotiations on an arm’s
length basis and (z) no greater than $500,000 per acquisition or series of
related acquisitions, as applicable, (e) reimbursement of Capital Partners for
actual out of pocket expenses paid by Capital Partners in connection with the
relocation of the Company’s executive offices and related leasehold
improvements and office furnishings in an amount not to $400,000 in the
aggregate (but not including expenses properly attributable to the relocation
of Capital Partner’s offices and related leasehold improvements and office
furnishings), and (f) a fee payable to Capital Partners of $250,000 upon
consummation of the Transaction, provided that no such fees and expenses
under clauses (c) and (d) shall be paid unless (i) giving pro forma effect to
such payment as of the last day of the immediately preceding fiscal quarter,
the Company is in compliance with Section 9.08 and (ii) no Default or
Event of Default exists at the time of such payment or giving effect thereto.

 

9.14                        Fiscal Year. 
The Company shall not, nor shall it permit any Group Member to, change
its Fiscal Year without the prior consent of the Purchaser.

 

9.15                        Press Release; Public Offering
Materials.  Except as
required by law, neither the Company nor any of its Affiliates shall, nor shall
the Company or any of its Affiliates permit any of their respective
Subsidiaries to, disclose the name of the Purchaser or any of its Affiliates in
any press release or in any prospectus, proxy statement or other materials
filed with the governmental entity relating to a public offering of the Capital
Stock of the Company, any of its Affiliates or any of their respective
Subsidiaries without such Purchaser’s or such Affiliate’s prior written consent
which shall not be unreasonably withheld.

 

9.16                        Subsidiaries.  Except as permitted in Section 8.01(j), the Company shall
not, nor shall any Group Member be permitted to, directly or indirectly,
establish, create or acquire any new Subsidiary.  Except as expressly permitted by Section 9.06(e), the
Company will not sell, transfer, pledge, or otherwise dispose of any Capital
Stock in any of its Subsidiaries, nor will it permit any of the Group Members
(i) except as expressly permitted by Section 9.06(d), to issue,

 

52

 

sell, transfer, pledge or
otherwise dispose of any of their Capital Stock or (ii) except as expressly
permitted by Section 9.06(f), grant any options, warrants or similar
rights in respect of Capital Stock of Group Members.

 

9.17                        No Negative Pledges.  The Company will not, and will not permit
any Group Member to, directly or indirectly enter into or assume, or become
subject to, any agreement prohibiting, or otherwise restricting, the creation
or assumption of any Lien upon any of their properties or assets, whether now
owned or hereafter acquired, except (a) pursuant to the Senior Loan
Agreements; (b) pursuant to the Investment Documents; and (c) in
connection with any Permitted Encumbrance; provided
that any such restriction contained therein relates only to the asset or assets
subject to such Permitted Encumbrance.

 

9.18                        No Restrictions on Subsidiary Distributions
to the Company.  Except, at
any time prior to the Release Date pursuant to the Senior Loan Agreements as in
effect on the date hereof or as amended as permitted by Section 9.19, and
except for encumbrances and restriction contained herein and in the other
Investment Documents, the Company will not, and will not permit any other Group
Member to, directly or indirectly, create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction of any kind on
the ability of the Company or such Group Member to:  (a) pay
dividends or make any other distribution on any of such Subsidiary’s Capital
Stock owned by the Company or any Group Member; (b) subject to
subordination provisions for the benefit of and acceptable to Purchaser, pay
any Indebtedness or other obligation owed to the Company or any other Group
Member; (c) make loans or advances to the Company or any other Subsidiary;
or (d) sell, lease or transfer any of its property or assets to the
Company or any other Group Member.

 

9.19                        Modification of Senior Loan
Agreements.  The Company
will not, and will not permit any Group Member to, amend, replace, refinance or
otherwise modify the Senior Loan Agreements or any of the Senior Loan
Documents, as in effect on the Closing Date, in any way materially adverse to
the Purchaser.

 

9.20                        Limitations on Layering.  The Company shall not, and shall not permit
any other Group Member to, incur any Indebtedness that is expressly
(i) subordinate or junior in right of payment to any Indebtedness arising
under any Senior Indebtedness, and (ii) senior in any respect in right of
payment to any Indebtedness arising under this Agreement and the Note.

 

9.21                        Sale Leasebacks.  The Company shall not, nor shall it permit any of the other Group
Members to, directly or indirectly, become or remain liable as lessee or as
guarantor or other surety with respect to any lease, whether an operating lease
or a Capital Lease Obligation, of any property (whether real, personal or
mixed), whether now owned or hereafter acquired, (a) that the Company or
any other Group Member has sold or transferred or is to sell or transfer to a
Person which is not the Company or a Subsidiary thereof, or (b) that the
Company or any other Group Member intends to use for substantially the same
purpose as any other property which has been sold or is to be sold or
transferred by the Company or any other Group Member to another Person which is
not the Company or a Group Member thereof in connection with such lease except,
in each case, to the extent the disposition of such property would be a
Permitted Disposition, and the Indebtedness incurred would be Permitted
Indebtedness.

 

53

 

9.22                        Hedging Agreements.  Neither the Company nor any Group Member shall enter into,
create, incur, assume or suffer to exist any interest rate, currency, commodity
or other swap, collar or cap agreement or similar hedge, except in the ordinary
course of business for non-speculative purposes.

 

9.23                        Independent Directors.  The Company shall cause each member of
the Pumpkin Group to at all times have at least one director who is not an
employee, officer or director of any Group Member.

 

ARTICLE 10

 

PREPAYMENT

 

10.01                 Optional Prepayment.  Subject following the Release Date to
Section 7 of the Note, the Company may prepay outstanding principal
(together with accrued interest) on the Note in accordance with the “Optional
Prepayment” provisions set forth in Section 4 of the Note.

 

10.02                 Mandatory Prepayment.  Subject following the Release Date to
Section 7 of the Note, the Company shall prepay outstanding principal
(together with accrued interest) on the Note in accordance with the “Mandatory
Prepayment” provisions set forth in Section 3 of the Note.

 

ARTICLE 11

 

MISCELLANEOUS

 

11.01                 Survival of Representations and
Warranties.  All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, notwithstanding any investigation by or on behalf
of the Purchaser, acceptance of the Note and payment therefor, or termination
of this Agreement.

 

11.02                 Notices.  All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier (with receipt confirmed), courier service or personal delivery:

 

 

	
   

  	
  (a)

  	
  if to WMF:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  J.H. Whitney Mezzanine Fund, L.P.

  
	
   

  	
   

  	
  177 Broad Street

  
	
   

  	
   

  	
  Stamford, Connecticut  06901

  
	
   

  	
   

  	
  Telecopier No.:  (203) 973-1422

  
	
   

  	
   

  	
  Attention:

  	
  Mr. Kevin Smith

  
	
   

  	
   

  	
   

  	
  Mr. Michael Salvator

  

 

54

 

	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Gibson, Dunn & Crutcher LLP

  
	
   

  	
   

  	
  200 Park Avenue

  
	
   

  	
   

  	
  New York, New York 10166-0193

  
	
   

  	
   

  	
  Telecopier No.:  (212) 351-5276

  
	
   

  	
   

  	
  Attention: 
  Joerg Esdorn, Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  if to the Company:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Security Capital Corporation

  
	
   

  	
   

  	
  Three Pickwick Plaza

  
	
   

  	
   

  	
  Greenwich, CT 06830

  
	
   

  	
   

  	
  Telecopier No.:  203-625-0423

  
	
   

  	
   

  	
  Attention:

  	
  Brian D. Fitzgerald

  
	
   

  	
   

  	
   

  	
  William R. Schlueter

  
	
   

  	
   

  	
   

  	
  Diane M. LaPointe

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Morgan, Lewis & Bockius LLP

  
	
   

  	
   

  	
  101 Park Avenue

  
	
   

  	
   

  	
  New York, New York 10178

  
	
   

  	
   

  	
  Telecopier No.:  (212) 309-6273

  
	
   

  	
   

  	
  Attention:

  	
  Christopher T. Jensen, Esq.

  
	
   

  	
   

  	
   

  	
  Stephanie M. Gulkin, Esq.

  
					

 

All such notices and
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; if mailed, five Business Days after being deposited
in the mail, postage prepaid; or if telecopied, when receipt is acknowledged.

 

11.03                 Successors and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties
hereto.  Subject to applicable
securities laws and the terms of the Note, any Purchaser may transfer, in whole
or in part, the Note to any Person, who shall be deemed a Purchaser
hereunder.  Any such transferee of the
Note automatically shall be entitled to the benefits of this Agreement and the
other Investment Documents.  The Company
may not assign any of its rights, or delegate any of its obligations, under
this Agreement without the prior written consent of the Purchaser, and any such
purported assignment by the Company without the written consent of the
Purchaser shall be void and of no effect. 
Except as provided in Article 7, no Person other than the parties
hereto and their successors and permitted assigns is intended to be a
beneficiary of any of the Investment Documents.

 

11.04                 Amendment and Waiver.

 

(a)                                  No
failure or delay on the part of any of the parties hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or

 

55

 

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.  The
remedies provided for in this Agreement are cumulative and are not exclusive of
any remedies that may be available to the parties hereto at law, in equity or
otherwise.

 

(b)                                 No
amendment, supplement or modification of or to any provision in this Agreement
or the Note, or any waiver of any such provision or consent to any departure by
any party from the terms of any such provision may be made orally.

 

(c)                                  Any
(i) amendment, supplement or modification hereto or to any of the Investment
Documents, (ii) consent hereunder or under the other Investment Documents or
(iii) waiver of any provision (collectively, “Modification”)
of this Agreement or any of the other Investment Documents shall be effective
as to all Purchasers if given pursuant to a written agreement signed by the
Company, the Subsidiary Guarantors and the Required Purchasers; provided,
however, that no Modification with respect to this Agreement or any other
Investment Document shall (1) without the consent of the Purchaser holding such
Note, (A) decrease or forgive the principal of any Note, (B) extend the
originally scheduled time of payment of the principal of any Note or the time
of payment of interest on such Note, (C) reduce the rate or change the method
of payment of interest payable on any Note, or (D) reduce the redemption price
payable upon voluntary or mandatory redemption of such Note, or (2) without the
consent of each Purchaser, (A) permit any Modification of any Intercreditor
Agreement, (B)  release any Guarantor
from any of its obligations under any of the Guaranties or waive or otherwise
modify Section 8.11, or (C) prevent or restrict any payment required to be
made pursuant to the terms of, or release any amount under, the Cash Collateral
Pledge Agreement.  No Modification of
any of the provisions of Section 11.04(b), 11.04(c) or 11.04(d) shall be
effective without the prior written consent of all of the parties hereto,
including all Purchasers.

 

(d)                                 Any
Modification shall (i) apply to all of the parties hereto and their successors
and assigns and (ii) be effective only in the specific instance and for the
specific purpose for which made or given. 
Except where notice is specifically required by this Agreement, no
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.

 

11.05                 Signatures; Counterparts.  Facsimile transmissions of any executed
original document and/or retransmission of any executed facsimile transmission
shall be deemed to be the same as the delivery of an executed original.  At the request of any party hereto, the
other parties hereto shall confirm facsimile transmissions by executing duplicate
original documents and delivering the same to the requesting party or
parties.  This Agreement may be executed
in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

 

11.06                 Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

11.07                 GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH,
AND ENFORCED UNDER, THE LAW OF THE 

 

56

 

STATE OF NEW YORK, WITHOUT
REGARD TO ANY CHOICE OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF
ANY OTHER LAW.

 

11.08                 JURISDICTION, JURY TRIAL WAIVER, ETC.

 

(a)                                  EACH
PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE, THE OTHER
INVESTMENT DOCUMENTS OR ANY AGREEMENTS OR TRANSACTION CONTEMPLATED HEREBY OR
THEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND HEREBY
EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE
PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM
THAT SUCH COURTS ARE AN INCONVENIENT FORUM. 
EACH PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
ITS ADDRESS SET FORTH IN SECTION 11.02, SUCH SERVICE TO BECOME EFFECTIVE
10 DAYS AFTER SUCH MAILING.

 

(b)                                 THE
COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES, HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER INVESTMENT
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS.  THE
COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES (I) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF WMF HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT WMF WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS, AND (II) ACKNOWLEDGES THAT WMF HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT, AND THE OTHER INVESTMENT DOCUMENTS TO WHICH IT IS
PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.

 

11.09                 Severability. 
If any one or more of the provisions contained in this Agreement, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair
the benefits of the remaining provisions of this Agreement.  The parties hereto further agree to replace
such invalid, illegal or unenforceable provision of this Agreement with a
valid, legal and enforceable provision that will achieve, to the extent
possible, the economic, business and other purposes of such invalid, illegal or
unenforceable provision.

 

11.10                 Rules of Construction.  Unless the context otherwise requires, “or”
is not exclusive, “including” is not limiting, and references to sections or
subsections refer to sections

 

57

 

or subsections of this
Agreement.  References in this Agreement
to any agreement, other document or law “as amended” or “as amended from time
to time,” or to amendments of any document or law, shall include any amendments,
supplements, replacements, renewals, waivers or other modifications.  References in this Agreement to any law (or
any part thereof) include any successor law and any rules and regulations
promulgated thereunder (or with respect to such part) by the relevant
Governmental Authority, as amended from time to time.

 

11.11                 Entire Agreement.  This Agreement, together with the exhibits and schedules hereto
and the other Investment Documents, is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein and therein.  There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein or therein.  This Agreement, together with the exhibits
and schedules hereto, and the other Investment Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.

 

11.12                 Certain Expenses.  The Company will pay all reasonable expenses of the Purchaser
(including reasonable fees, charges and disbursements of counsel) in connection
with the Transaction (including any request by the Company for consent by the
Purchasers to the Transaction and the satisfaction of the Release Conditions as
defined in and pursuant to the Cash Collateral Pledge Agreement in connection
therewith), any amendment, supplement, modification or waiver of or to any
provision of this Agreement or any of the other Investment Documents or any
documents relating thereto (including, a response to a request by the Company
for the Purchaser’s consent to any action otherwise prohibited hereunder or
thereunder), or consent to any departure from, the terms of any provision of
this Agreement or such other documents, enforcement of any of the Investment
Documents and collection of any payments due to the Purchaser thereunder or
involvement or participation in any bankruptcy or insolvency case or
proceeding, insolvency proceeding or work-out.

 

11.13                 Publicity. 
Except as permitted in Section 9.15 or as otherwise may be required
by applicable law, none of the parties hereto shall issue a publicity release
or announcement or otherwise make any public disclosure concerning this
Agreement or the transactions contemplated hereby, without prior approval by
the other party hereto.  If any
announcement is required by law to be made by any party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment
thereon.  Notwithstanding the foregoing,
WMF and its affiliates may list the Company’s name and logo and describe the
Company’s business in their marketing materials and may post such information
on their website.

 

11.14                 Further Assurances.  Each of the parties shall execute such
documents and perform such further acts (including, obtaining any consents,
exemptions, authorizations, or other actions by, or giving any notices to, or
making any filings with, any Governmental Authority or any other Person) as may
be reasonably required or desirable to carry out or to perform the provisions
of this Agreement, including without limitation, any post-closing assignment(s)
by the Purchaser of a portion of the Note to a Person not currently a party
hereto.

 

58

 

11.15                 No Strict Construction.  The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and the other Investment
Documents.  In the event an ambiguity or
question of intent or interpretation arises under any provision of this
Agreement or any Investment Document, this Agreement or such other Investment
Document shall be construed as if drafted jointly by the parties thereto, and
no presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any of the provisions of this Agreement or any
other Investment Document.  No knowledge
of, or investigation, including without limitation, due diligence
investigation, conducted by, or on behalf of, the Purchaser shall limit, modify
or affect the representations set forth in Article 5 of this Agreement or
the right of the Purchaser to rely thereon.

 

11.16                 Tax
Forms.  On the Closing Date,
the Purchaser will provide the Company with one properly prepared and duly
executed Internal Revenue Service Form W-9.

 

11.17                 Confidentiality.  Purchaser agrees to keep confidential all non-public information
provided to it by the Company and its Subsidiaries pursuant to or in connection
with this Agreement that is designated by the provider thereof as confidential;
provided that nothing herein shall prevent Purchaser from disclosing any
such information (a) to any other Purchaser or any affiliate thereof,
(b) subject to an agreement to comply with the provisions of this Section,
to any actual or prospective transferee, (c) to its employees, directors,
agents, attorneys, accountants and other professional advisors or those of any
of its affiliates, (d) upon the request or demand of any Governmental
Authority, (e) in response to any order of any court or other Governmental
Authority or as may otherwise be required pursuant to any Requirement of Law,
(f) if requested or required to do so in connection with any litigation or
similar proceeding, (g) that has been publicly disclosed, (h) to the
National Association of Insurance Commissioners or any similar organization or
any nationally recognized rating agency that requires access to information about
a Purchaser’s investment portfolio in connection with ratings issued with
respect to such Purchaser, or (i) in connection with the exercise of any
remedy hereunder or under any other Investment Document.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]

 

59

 

IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed and delivered by their respective officers
hereunto duly authorized as of the date first above written.

 

	
   

  	
  SECURITY
  CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  BRIAN  D. FITZGERALD

  
	
   

  	
   

  	
  Name:
  Brian D. Fitzgerald

  
	
   

  	
   

  	
  Title:
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  J.H.
  WHITNEY MEZZANINE FUND, L.P.

  
	
   

  	
   

  
	
   

  	
  By:  Whitney GP, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  DANIEL J. O’BRIEN

  
	
   

  	
   

  	
  Name:
  Daniel J .O’Brien

  
	
   

  	
   

  	
  A
  Managing Member

  

 

 

Exhibit A to Securities Purchase
Agreement

 

CASH COLLATERAL PLEDGE AGREEMENT

 

This AGREEMENT (the “Agreement”), dated
as of January 14, 2004, by and among SECURITY CAPITAL CORPORATION, a
Delaware corporation (“Pledgor”), J. H. WHITNEY MEZZANINE FUND, L.P., a
Delaware limited partnership (“WMF”), and U.S. Bank National Association., as
collateral agent hereunder (the “Collateral Agent”). 
All capitalized terms used herein without definition shall have the
respective meanings set forth in the Purchase Agreement (as defined below).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to the terms of the
Securities Purchase Agreement (the “Purchase Agreement”), dated as of the date hereof, by
and between Pledgor and WMF, Pledgor is issuing to WMF a Senior Subordinated
Promissory Note, due September 30, 2008, in the initial principal amount
of $30,000,000 (together with all notes issued in substitution or replacement
or upon full or partial transfer thereof, the “Note”); and

 

WHEREAS, it is a condition to WMF’s
obligation to purchase the Note that the gross proceeds of such issuance be
deposited into a cash collateral account, to be held and disbursed pursuant to
the terms of this Agreement.

 

NOW, THEREFORE, in consideration of the
foregoing and of the mutual covenants contained herein, the parties hereto
agree as follows:

 

1.               Cash
Collateral Account; Delivery and Possession of Collateral; Grant of Security
Interest and Pledge.

 

(a)          WMF
hereby designates the Collateral Agent as collateral agent for itself as well
as all other holders from time to time of all or any part of the Note (together
with WMF, collectively, the “Holders” or, individually, a “Holder”) for the purposes set forth herein,
and the Collateral Agent hereby agrees to act as said Collateral Agent.

 

(b)         Pledgor
hereby authorizes and directs WMF to send or cause to be sent to the Collateral
Agent on the date hereof $30,000,000 (the “Deposit”) by wire transfer of immediately available
funds, constituting the purchase price for the Note required to be paid by WMF
to the Pledgor pursuant to Section 2.01 of the Purchase Agreement.  The Deposit shall be held in the name of the
Collateral Agent in trust account no. 744795000 (the “Cash Collateral Account”) at the offices of
U.S. Bank National Association (the “Bank”), 60 Livingston Avenue, St. Paul, MN 55107-2292,
entitled “U.S. Bank, as Collateral Agent under the Cash Collateral Pledge
Agreement with Security Capital Corporation - Cash Collateral Account.”

 

(c)          Monies
from time to time contained in the Cash Collateral Account shall be invested in
U.S. Bank money market time deposits (the “Initial Investment”), unless otherwise agreed by the
parties hereto (all such investments being the “Investments”).  All

 

 

Investments shall  be held in
the name of the Collateral Agent and all interest, dividends and other earnings
on Investments shall from time to time be credited to the Cash Collateral
Account.

 

(d)         As
collateral security for the prompt performance, observance and indefeasible
payment in full in cash of all of the Obligations (as hereinafter defined),
Pledgor hereby irrevocably assigns, pledges, hypothecates, transfers and sets
over to the Collateral Agent for the benefit of the Holders, and grants to the
Collateral Agent for the benefit of the Holders, a security interest in all of
Pledgor’s right, title and interest in, and a right of setoff against, the Cash
Collateral Account, the Deposit, the Investments, as increased by any
distributions, interest and other earnings thereon and as reduced by any losses
with respect thereto and distributions thereof in accordance with
Section 3 hereof, Pledgor’s residuary interest, if any, in the Deposit,
the Investments, the funds from time to time in the Cash Collateral Account,
and all monies, securities and other property now or hereafter held or received
by or in transit to the Collateral Agent or Holders from or for the account of
Pledgor, and all proceeds of the foregoing (all of the foregoing being
collectively referred to herein as the “Collateral”).

 

(e)          Subject
to the following sentence, the Cash Collateral Account and all other Collateral
shall be under the sole dominion and control of the Collateral Agent, and
neither Pledgor nor any person or entity claiming by, through or under the
Pledgor shall have any right, title or interest in, any control over the use
of, or any right to withdraw from, the Cash Collateral Account or any other
Collateral, except as provided in Section 3 hereof.  The Collateral Agent shall hold and release
the Collateral in accordance with the terms and conditions of this Agreement.

 

2.               Obligations
Secured.

 

The security interest and
lien in the Collateral granted to the Collateral Agent (for the benefit of the
Holders) pursuant to this Agreement shall secure the prompt performance,
observance and payment in full when due of any and all obligations, liabilities
and indebtedness owing by Pledgor to Holders under the Note, this Agreement and
the other Investment Documents, including, without limitation, Pledgor’s
obligation to make regularly scheduled payments of interest (and, upon maturity
or acceleration of the Note, principal and interest), charges, fees, costs and
expenses, whether now existing or hereafter arising, including interest
accruing after the commencement of any case with respect to Pledgor under the
United States Bankruptcy Code or any similar statute (whether allowable or
allowed as a claim in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Holders (all of
the foregoing being collectively referred to herein as the “Obligations”).

 

3.               Disposition
of Collateral.

 

(a)          In
the event a written certification is delivered by Pledgor to the Collateral
Agent to the effect that a mandatory prepayment of the Note is required
pursuant to Section 3 of the Note (a “Pledgor Prepayment Disbursement Request”), together
with a certification by Pledgor that it contemporaneously delivered a copy of
such Pledgor Prepayment Disbursement Request to the Holders (care of WMF) in
accordance with Section 10 hereof, the

 

2

 

Collateral Agent shall liquidate all Investments and pay to Holders all
amounts then contained in the Cash Collateral Account.  Upon receipt of a Pledgor Prepayment
Disbursement Request, the Collateral Agent shall instruct the Bank to make such
payment, on the date specified in such Pledgor Prepayment Disbursement Request
(but not earlier than the Business Day following receipt of such request by the
Collateral Agent), to the Holders by wire transfer of immediately available
funds, for application to the principal of, and premium, if any, and accrued
interest on, the Note and all other Obligations in such order and to such
account(s) as the Holders may decide.

 

(b)         Any
Holder may deliver to the Collateral Agent a written notice which notifies the
Collateral Agent of the acceleration of the principal and interest under the
Note in question (an “Initial Acceleration Notice”), which notice shall
specify that an Event of Default has occurred and is continuing, that the Note
of such Holder has been accelerated and the aggregate amount then due and owing
under the Note and the other Obligations held by such Holder, together with a
certification by such Holder that it contemporaneously delivered a copy of such
Initial Acceleration Notice to the Pledgor and to all of the other Holders, if
any.  Within 5 Business Days following
the date on which such Initial Acceleration Notice is delived to the Collateral
Agent,  each other Holder may deliver to
the Collateral Agent and to Pledgor written notice (the “Other Acceleration Notices” and, together
with the Initial Acceleration Notice, each, an “Acceleration Notice” and, collectively, the “Acceleration Notices”)
specifying that an Event of Default has occurred and is continuing, that the
Note of such Holder has been accelerated and the aggregate amount then due and
owing with respect to the Note and other Obligations held by  such Holder.  Promptly after receipt of any Acceleration Notice from any
Holder, the Collateral Agent shall  liquidate
the requisite amount of Investments and pay from the Collateral to the Holder
the amounts set forth in such Acceleration Notice.  Upon receipt of any such funds, each Holder shall be entitled to
apply such funds to the Obligations in such order as such Holder may elect in
its discretion.

 

(c)          Upon
receipt by the Collateral Agent of a joint notice (the “Transaction Release Notice”) from the
Pledgor and the Holders to the effect that the Release Conditions (as defined
in Section 19 below) have been satisfied, which notice shall state the
amount to be released from the Cash Collateral Account, the Collateral Agent
shall liquidate the requisite amount of Investments and release the amount
specified in such notice from the Cash Collateral Account to the Pledgor.  If agreed by the Pledgor and the Holders,
more than one Transaction Release Notice may be given, in which case the
Collateral Agent shall liquidate the requisite amount of Investments and
release upon receipt of any such notice so much of the funds in the Cash
Collateral Account as shall be specified in each such notice.

 

(d)         Upon
the indefeasible payment in full in cash of all principal, interest and other
Obligations, if any, due and owing under the Note and the other Investment
Documents, Pledgor shall be entitled to release of the Collateral.  In such case, Pledgor may provide written
notice (the “Release Request
Notice”) to the Collateral Agent, together with a certification
by Pledgor that a copy of the Release Request Notice has been delivered to each
Holder requesting that all remaining Collateral be released and stating the
basis for such release.  If the Release
Request Notice is received by the Collateral Agent while all principal,
interest and other Obligations, if any, due and owing under the Note and the
other Investment Documents

 

3

 

have not been indefeasibly paid in full in cash, then any Holder may
provide the Collateral Agent with a written notice to that effect (the “Counter Release Request Notice”),
instructing the Collateral Agent not to release the Collateral.  If at any time following the sending of a
Counter Release Request Notice by any Holder, such Person shall have received
indefeasible payment in full in cash under such Person’s Note and all other
Obligations owing to such Person have been paid and performed in full, such
Person shall promptly rescind in writing the Counter Release Request Notice
which it previously sent to the Collateral Agent.  In the event that a Counter Release Request Notice shall have
been received by the Collateral Agent as set forth above, within 2 Business
Days following the receipt by the Collateral Agent of the Release Request
Notice and shall not thereafter be rescinded by all Holders, then the
Collateral Agent shall not pay from the Collateral the amounts requested by
Pledgor to be released to it in the Release Request Notice, but instead shall
hold the Collateral specified in the Counter Release Request Notices until it
receives a Final Determination (as defined in Section 6(e) below) of the
rights of the applicable parties with respect to such Collateral directing payment
of such Collateral.  Upon receipt of a
Final Determination with respect to any portion of the Collateral, the
Collateral Agent shall pay such Collateral in accordance with such Final
Determination.  If the Collateral Agent
does not receive a Counter Release Request Notice within 2 Business Days
following the receipt by the Collateral Agent of the Release Request Notice,
the Collateral Agent shall promptly pay from the Collateral to Pledgor the
amount of such Collateral set forth on the Release Request Notice in the manner
specified in such notice.

 

4.               Representations,
Warranties and Covenants.

 

Pledgor hereby
represents, warrants and covenants with and to the Collateral Agent and Holders
that (all of such representations, warranties and covenants being continuing in
nature so long as any of the Obligations are outstanding):

 

(a)          The
Collateral is directly, legally and beneficially owned by Pledgor free and
clear of all claims, liens, pledges and encumbrances of any kind, nature or
description except for the pledge and security interest in favor of the
Collateral Agent (for the benefit of the Holders).

 

(b)         Except
as set forth herein or pursuant to the terms of the Purchase Agreement, the
Collateral is not subject to any restrictions relative to the transfer thereof,
and Pledgor has the right to pledge, transfer and deliver and grant a security
interest in and right of setoff against the Collateral free and clear of any
liens, encumbrances or restrictions. 
The Collateral is not subject to set off, counterclaim, defense,
allowance or adjustment or to dispute, objection or complaint and the Bank has
waived all rights in this regard.

 

(c)          The
Collateral is duly and validly pledged to the Collateral Agent for the benefit
of the Holders and no consent or approval of any governmental or regulatory
authority, nor any consent or approval of any other third party, was or is
necessary to the validity and enforceability of this Agreement.  Upon making of the Deposit into the Cash
Collateral Account, the Collateral Agent (for the benefit of the Holders) has a
perfected security interest in the Collateral, prior in right to all other
interests therein of third parties.

 

4

 

(d)         Pledgor
authorizes the Collateral Agent and Holders to perform any and all other acts
which the Collateral Agent and Holders in good faith deem reasonable and/or
necessary for the protection and preservation of the Collateral or its value or
the Collateral Agent’s security interest therein (for the benefit of the
Holders) or its first priority and to pay any charges or expenses which the
Collateral Agent or Holders deem necessary for the foregoing purpose, but
without any obligation to do so.

 

(e)          Pledgor
shall not create, incur, assume or suffer to exist any security interest,
pledge, lien, charge or other encumbrance or claim of any nature whatsoever on
or with respect to any of the Collateral, except for the pledge and security
interest of the Collateral Agent (for the benefit of the Holders), and Pledgor
shall not, assign, transfer, or otherwise dispose of any of the Collateral.

 

(f)            Pledgor
shall pay all charges, assessments, costs and expenses of any nature relating
to the Collateral.

 

(g)         Pledgor
shall promptly reimburse the Collateral Agent and the  Holders on demand, together with interest at the rate then
applicable to the Obligations set forth in the Note, for any charges,
assessments or expenses paid or incurred by them in their respective discretion
for the protection, preservation and maintenance of the Collateral and the
enforcement of the Collateral Agent’s or Holders’ rights hereunder, including,
without limitation, attorneys’ fees and legal expenses incurred by the
Collateral Agent or any Holder in seeking to protect, collect or enforce its
rights in the Collateral or otherwise hereunder.

 

(h)         Pledgor
waives: (i) all rights to require the Collateral Agent or Holders to proceed
against any other Person or collateral or to exercise any remedy, (ii) the
defense of the statute of limitations in any action upon any of the
Obligations, (iii) any right of subrogation or interest in the Obligations
or the Collateral until payment in full of the Obligations and (iv) any
rights to notice of any kind or nature whatsoever, unless specifically required
in this Agreement or non-waivable under any applicable law.  Pledgor agrees that the Collateral, other
collateral, or any other guarantor or endorser may be released, substituted or
added with respect to the Obligations, in whole or in part, without releasing
or otherwise affecting the liability of the Pledgor, the pledge and security
interests granted hereunder, or this Agreement.

 

(i)             The
Collateral Agent is entitled to all of the benefits of a secured party set
forth in Section 9-207 of the New York Uniform Commercial Code (the “UCC”).

 

(j)             Upon
the occurrence and during the continuance of an Event of Default, the
Collateral Agent, on behalf of the Holders, in addition to all its other
rights, powers and remedies under this Agreement and applicable law, shall
have, and may exercise, any and all of the rights, powers and remedies of a
secured party under the UCC.  Unless the
Collateral threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Collateral Agent will send or otherwise make
available to the Pledgor 10 days’ notice of the time and place of any public
sale or of the time on or after which any private sale of any Collateral is to
be made.

 

5

 

5.               Rights
and Remedies; Intercreditor Agreement.

 

(a)          All
of the the Collateral Agent’s and Holders’ rights and remedies, including those
arising under this Agreement and the Note, applicable law or otherwise, shall
be: (i) cumulative and not exclusive, (ii) enforceable, successively or
concurrently as the Collateral Agent or Holders may deem expedient, and (iii)
subject in their entirety to the terms and conditions of any Intercreditor
Agreement.  No failure or delay on the
part of the Collateral Agent or the Holders in exercising any of their options,
powers or rights or partial or single exercise thereof, shall constitute a
waiver of such option, power or right.

 

(b)         Notwithstanding
anything to the contrary contained herein, Pledgor shall be liable for any
Obligations that remain after application of the Collateral thereto.

 

6.               No
Liability of Collateral Agent.

 

(a)          The
duties and obligations of the Collateral Agent shall be determined solely by
the express provisions of this Agreement, and the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement. 
Without limiting the foregoing, the Collateral Agent shall not be liable
for any disbursement or release, strictly in accordance with this Agreement, of
all, or any portion, of the Collateral or any action taken in accordance with
written instructions from the Holders.. 
Furthermore, the Collateral Agent shall not be liable for any investment
losses incurred with respect to the Collateral or the Cash Collateral Account
and shall have no duty to achieve any particular level of return on the Cash
Collateral Account. The Collateral Agent shall not be responsible in any manner
whatsoever for any failure or inability of Pledgor or any Holder to perform or
comply with any of the provisions of this Agreement, the Note, the Purchase
Agreement, the other Investment Documents or any other agreement, instrument or
document.

 

(b)         In
the performance of its duties hereunder, the Collateral Agent shall be entitled
to rely upon any document, instrument or signature reasonably believed by it to
be genuine and to be signed by Pledgor or any Holder.  The Collateral Agent may assume that any Person purporting to
give any notice in accordance with the provisions hereof has been duly
authorized to do so.  Notwithstanding
any provision in this Agreement to the contrary, the Collateral Agent shall not
be charged with knowledge of, and shall not be required to take any action pursuant
to the terms of this Agreement with respect to, any “holders” of the Note other
than WMF unless such holder or holders shall have been identified in a written
notice received by the Collateral Agent from Pledgor or WMF or another Holder
or former Holder of a Note previously identified to the Collateral Agent in
writing by either a Holder or the Pledgor.Unless otherwise notified in writing
by WMF, the Collateral Agent shall be entitled to assume that WMF is the sole
Holder.

 

(c)          The
Collateral Agent shall not be bound by any modification, cancellation or
rescission of this Agreement unless in writing and signed by it, Pledgor and
the Required Holders and/or their respective successors and assigns (or, to the
extent Section 11.04(c) of the Purchase Agreement so requires, the
signature of each Holder).

 

6

 

(d)         The
Collateral Agent shall not be liable for any error of judgment, or otherwise
for any action taken or omitted to be taken hereunder, except in the case of
its gross negligence or willful misconduct determined by a final nonappealable
judgment of a court of appropriate jurisdiction.  The Collateral Agent shall be entitled to consult with counsel of
its choosing, subject to the preceding sentence, and shall not be liable for
any action taken or omitted by it in good faith in accordance with the advice
of such counsel.

 

(e)          In
the event that the Collateral Agent shall be uncertain as to its duties or
rights hereunder or shall receive instructions from any party hereto with
respect to any or all of the Collateral or income thereon which, in its
reasonable opinion, are in conflict with any of the provisions of this
Agreement or any instructions received from one of the other parties to this
Agreement, the Collateral Agent shall be entitled to (i) refrain from taking
any action other than to keep the Collateral or income thereon in question
until such time as there has been a Final Determination of the rights of the
applicable parties with respect to such Collateral or income thereon or (ii)
deposit at any time the Collateral into any court with competent jurisdiction
and to commence an action in the nature of interpleader to adjudicate the
parties’ rights thereto and thereafter shall have no further obligations or
liabilities to anyone under this Agreement. 
For purposes of Section 3(d) hereof and this subparagraph 6(e),
there shall be deemed to have been a “Final Determination” of the rights of the applicable
parties with respect to such Collateral in question or income thereon at such
time as any of the applicable parties shall file with the Collateral Agent (i)
an official certified copy of a court order, together with an opinion of
counsel of the party filing the foregoing, in form and substance reasonably
acceptable to the Collateral Agent and its counsel, stating that the court
order is a final determination of the rights of the parties hereto with respect
to the Collateral in question, that the time to appeal from such court order
has expired, and that such court order is binding upon the applicable parties,
or (ii) a fully executed agreement or consent by and among Pledgor, WMF and any
other Holders of the Note.

 

(f)            The
Collateral Agent (or any successor to it as Collateral Agent hereafter
appointed with the prior written consent of the Pledgor and WMF) may at any
time resign and be discharged of the duties imposed hereunder by giving no less
than 15 days prior written notice of its intention to do so to each of the
parties hereto, such resignation to take effect upon a successor Collateral Agent’s
acceptance of appointment by the Pledgor and WMF.  Upon any such resignation, WMF and the Pledgor shall cooperate in
good faith to appoint a successor Collateral Agent as promptly as reasonably
practicable, but in no event later than 15 days after receipt of notice of
resignation.

 

7.               Expenses
and Indemnification of Collateral Agent.

 

Pledgor shall reimburse
and indemnify the Collateral Agent for, and hold it harmless against, any and
all losses, liabilities, costs or reasonable expenses in connection herewith
(including reasonable fees, disbursements and other charges of counsel incurred
by the Collateral Agent in any dispute, controversy, action or legal proceeding
between it and one of the other parties hereto, or between it and a third
party), incurred by the Collateral Agent arising out of or in connection with
its acceptance of, or the performance of its duties and obligations under this
Agreement (except those arising out of or in connection with Collateral Agent’s
gross

 

7

 

negligence or
willful misconduct) as well as the costs and reasonable expenses of defending
against any claim or liability arising out of or relating to this Agreement.

 

8.               Payment
of Taxes.

 

Pledgor shall be
responsible for all income taxes on any interest that may accrue in respect of
the Collateral.  Pledgor will provide
the Collateral Agent all information, and will execute and deliver all IRS
forms, sufficient to enable Collateral Agent to comply with its tax reporting
obligations, reporting interest on the Collateral as interest of Pledgor for
Federal income tax purposes.

 

9.               Termination.

 

This Agreement and the
obligations of the Collateral Agent hereunder shall terminate upon the release
and delivery by the Collateral Agent of all Collateral in accordance with the
provisions of Section 3 hereof.

 

10.         Notice.

 

All notices, requests and
other communications to be given or otherwise made hereunder shall be deemed to
be sufficient if contained in a written instrument duly transmitted by telecopy
or telex or duly sent by overnight courier service or first class registered or
certified mail, postage prepaid, addressed to such party at the address set
forth below or at such other address as may hereafter be designated in writing by
the addressee to the addressor listing all parties:

 

	
   

  	
  (a)

  	
  if to Pledgor,
  addressed to it at:

  
	
   

  	
   

  	
   

  
	
   

  	
  Security Capital
  Corporation

  
	
   

  	
  Three Pickwick
  Plaza 

  
	
   

  	
  Greenwich, CT
  06830

  
	
   

  	
  Telecopier:  (203)
  625-0423

  
	
   

  	
  Attention:

  	
  Brian D.
  Fitzgerald

  
	
   

  	
   

  	
  William R. Schlueter

  
	
   

  	
   

  	
  Diane M.
  LaPointe

  
	
   

  	
   

  
	
   

  	
  with a copy to
  (which shall not constitute notice to Pledgor):

  
	
   

  	
   

  
	
   

  	
  Morgan, Lewis
  & Bockius LLP

  
	
   

  	
  101 Park Avenue

  
	
   

  	
  New York, New
  York 10178

  
	
   

  	
  Telecopier:  (212)
  309-6273

  
	
   

  	
  Attention:

  	
  Christopher T.
  Jensen, Esq.

  
	
   

  	
   

  	
  Stephanie M.
  Gulkin, Esq.

  
	
   

  	
   

  
	
   

  	
  (b)

  	
  if to WMF:

  
				

 

8

 

	
   

  	
  J. H. Whitney
  Mezzanine Fund, L.P.

  
	
   

  	
  177 Broad Street

  
	
   

  	
  Stamford,
  Connecticut 06901

  
	
   

  	
  Telecopier:  (203)
  975-1422

  
	
   

  	
  Attention:

  	
  Mr. Kevin Smith

  
	
   

  	
   

  	
  Mr. Michael C.
  Salvator

  
	
   

  	
   

  
	
   

  	
  with a copy to
  (which shall not constitute notice to WMF):

  
	
   

  	
   

  
	
   

  	
  Gibson, Dunn
  & Crutcher LLP

  
	
   

  	
  200 Park Avenue

  
	
   

  	
  New York, New
  York 10166-0193

  
	
   

  	
  Telecopier:

  	
  (212) 351-5276

  
	
   

  	
  Attention:

  	
  Joerg Esdorn,
  Esq.

  
	
   

  	
   

  
	
   

  	
  (c)

  	
  if to the
  Collateral Agent:

  
	
   

  	
   

  
	
   

  	
  60 Livingston
  Avenue

  
	
   

  	
  St. Paul, MN
  55107-2292

  
	
   

  	
  Phone (651)
  495-3913

  
	
   

  	
  Fax (651)
  495-8097

  
	
   

  	
  Internal mail
  EP-MN-WS3C

  
				

 

or to such other address
or addresses as shall have been furnished in writing to the other parties
hereto.  Any notices sent hereunder to
one party shall be copied and sent to the other parties hereto by the sending
party.

 

11.         Further
Assurances.

 

Pledgor agrees at any
time, and from time to time, upon the Collateral Agent’s or any Holder’s
request, to execute and deliver to the Collateral Agent or the Holders such
further documents and to do such further acts and things as the Collateral
Agent may reasonably request in order fully to effect the purposes of this
Agreement and the Collateral Agent’s rights (for the benefit of the Holders) in
the Collateral.

 

12.         Governing
Law.

 

This agreement shall be
governed by, construed in accordance with, and enforced under, the law of the
State of New York applicable to agreements or instruments entered into and
performed entirely within such State.  The
parties hereby agree and acknowledge that New York shall be the “bank’s
jurisdiction” and “securities intermediary’s jurisdiction” for purposes of the
Uniform Commercial Code.

 

9

 

13.         Successors
and Assigns.

 

This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
parties hereto, including, without limitation, any transfers of the Note or any
part thereof.  All references to Pledgor
and Holders, or to any other Person herein, shall include their respective
successors and assigns.

 

14.         Entire
Agreement; Amendments.

 

This Agreement contains
the entire agreement among the parties hereto with respect to the subject
matter hereof.  The obligations of the
parties hereto shall be deemed to be performed and shall not be deemed
executory in nature.  This Agreement may
be amended only in the manner provided in Section 11.04 of the Purchase
Agreement.  The words “hereof”,
“herein”, “hereunder”, “this Agreement” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this Agreement now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

 

15.         Severability.

 

If any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired, unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions hereof.

 

16.         Waivers.

 

No waiver by any party of
any breach of any term contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such breach or a waiver of any breach of any other term contained in this
Agreement.

 

17.         Paragraph
Headings.

 

The paragraph headings
contained in this Agreement are for convenience of reference only and shall not
limit or define the text thereof.

 

18.         Counterparts.

 

Facsimile transmissions
of any executed original document and/or retransmission of any executed
facsimile transmission shall be deemed to be the same as the delivery of an
executed original.  At the request of
any party hereto, the other parties hereto shall confirm facsimile
transmissions by executing duplicate original documents and delivering the same
to the requesting party or parties. 
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.

 

10

 

19.         Initial
Release Conditions.

 

The initial release of
the Collateral pursuant to Section 3(c) shall be conditioned upon satisfaction
of the following conditions precedent (the “Release Conditions”), unless otherwise agreed by each
Holder:

 

(a)          the
Transaction shall have been consummated or shall be consummated
contemporaneously with the release of funds from the Cash Collateral Account on
term and conditions acceptable to the Holders in their sole discretion;

 

(b)         no
Default or Event of Default shall then have occurred and be continuing;

 

(c)          the
representations and warranties of each Credit Party contained in the Investment
Documents (including Article 5 of the Purchase Agreement) or in any
certificate delivered in connection therewith shall be true and correct at and
as of the initial Release Date as if made at and as of such date in all
material respects,(except to the extent such representation, warranty or
certification by its terms is already subject to a materiality limit or
qualifier in whatever form, in which case the last four words preceding this
parenthetical shall not apply) and the Holders shall have received a certificate
to the foregoing effect, dated the initial Release Date, and executed by the
chief executive officer of the Company;

 

(d)         each
Credit Party shall have performed and complied with all of its agreements and
conditions set forth or contemplated in the Investment Documents, and the
Holders shall have received a certificate to the foregoing effect, dated the
initial Release Date, and executed by the chief executive officer of the
Company;

 

(e)          the
Holders shall have received a certificate from each Subsidiary Guarantor, dated
the date upon which such Subsidiary Guarantor delivers its Guaranty pursuant to
clause (p) below and signed by the Secretary or an Assistant Secretary of such
Subsidiary Guarantor, certifying (a) that the attached copies of the Certificate
of Incorporation and By-laws (or similar organizational documents) and
resolutions of the Board of Directors of such Subsidiary Guarantor approving
the Investment Documents to which such Subsidiary Guarantor is a party and the
transactions contemplated thereby are all true, complete and correct and remain
unamended and in full force and effect, and (b) the incumbency and
specimen signature of each officer of such Subsidiary Guarantor executing any
Investment Document to which such Subsidiary Guarantoris a party or any other
document delivered in connection therewith on behalf of such Subsidiary
Guarantor;

 

(f)            the
consummation of the transactions contemplated by the Investment Documents
(including the Transaction) (i) shall not be prohibited by any Requirement
of Law and (ii) shall not subject the Holders to any penalty or other
onerous condition under or pursuant to any Requirement of Law;

 

(g)         together
with the delivery by a Subsidiary Guarantor of its Guaranty pursuant to clause
(p) below, the Holders shall have received an opinion of outside counsel to
such Subsidiary Guarantor, dated as of the date of such Guaranty, relating to
such Guaranty, in form and substance reasonably acceptable to the WMF;

 

11

 

(h)         all
agreements, schedules, exhibits, certificates, financial information, filings
and other documents required to be delivered hereunder shall have been in form
and substance acceptable to Gibson, Dunn & Crutcher LLP,  counsel
to the Holders, in its reasonable judgment (including, the opinion of counsel
referred to in Section 19(g) hereof);

 

(i)             all
material consents, exemptions, authorizations, or other actions by, or notices
to, or filings with, all Governmental Authorities and other Persons in respect
of all material Requirements of Law and with respect to those material
Contractual Obligations of the Group Members necessary, desirable, or required
in connection with the Transaction or the execution, delivery or performance
(including (i) the payment of interest on the Note, (ii) the making of
distributions to the Company in amounts necessary to pay interest on the Note
as and when due, and (iii) the making of the Guaranties) by the Credit Parties
or enforcement against the Credit Parties of the Investment Documents to which
they are party shall have been obtained and be in full force and effect, and
the Holders shall have been furnished with appropriate evidence thereof, and
all waiting periods shall have lapsed without extension or the imposition of
any conditions or restrictions;

 

(j)             each
Subsidiary Guarantor shall have delivered to the Holders as of the date upon
which such Subsidiary Guarantor delivers its Guaranty pursuant to clause (p)
below, good standing certificates of such Subsidiary Guarantor for its
jurisdiction of organization and all other jurisdictions in which it is
qualified to do business.

 

(k)          no
action, suit or proceeding before any court or any Governmental Authority shall
have been commenced or, to the knowledge of the Company, been threatened, no
investigation by any Governmental Authority shall have been commenced and, to
the knowledge of the Company, no action, suit or proceeding by any Governmental
Authority shall have been threatened against the Holders or any Group Member (i) seeking
to restrain, prevent or change the transactions contemplated by the Investment
Documents (including the Transaction) or questioning the validity or legality
of any of such transactions, or (ii) which would, if resolved adversely to
such Holders or the Company result in a Material Adverse Effect;

 

(l)             no
action, suit or proceeding before any court or any Governmental Authority shall
have been commenced or, to the knowledge of the Company, been threatened,
against the Holders or any Group Member that constitutes (or, if commenced,
would constitute) an Event of Default under Section 6(a)(xi) of the Note;

 

(m)       the
Senior Loan Documents shall have been amended in a manner satisfactory to
Holders in their discretion; without limitation of the foregoing, the Senior
Loan Documents, pursuant to amendments executed on or prior to the first
Release Date, shall permit (i) the payment of dividends by Group Members to the
Company in amounts sufficient to pay the interest on the Note as and when due,
except under circumstances where the relevant Intercreditor Agreement would
permit such payment to be “blocked” by the Senior Creditors and (ii) the making
of the Guaranties by all Group Members on or prior to the first Release Date;

 

(n)         Holders
shall have received a certificate of the Secretary of the Company attaching
true and complete copies of each of the amendments to the Senior Loan

 

12

 

Documents and certifying that (i) such amendments have been
executed and, if applicable, filed in substantially the form approved by the
relevant Person’s board of directors or similar body, (ii) the Senior Loan
Documents have not been amended (except as provided herein and in such
certificate) and are in full force and effect, and (iii) neither the
Company nor any other Group Member is in default in the performance or
compliance with any of the terms or provisions of the Senior Loan Documents;

 

(o)         the
Holders shall have received a certificate from the chief executive officer of
the Company stating that the Company and the Group Members taken as a whole and
each Guarantor individually is Solvent after giving effect to the Transaction
and the other transactions contemplated by the Investment Documents and the
Senior Loan Documents to occur on the initial Release Date;

 

(p)         the
Holders shall have received Guarantees executed and delivered by each Group
Member other than the Company;

 

(q)         the
Holders shall have received (or been given the right to review) true, complete
and correct copies of such agreements, schedules, exhibits, certificates,
documents, financial information and filings as it may reasonably request in
connection with or relating to the transactions contemplated by the Investment
Documents (including the Transaction and including any documents disclosed on
any of the schedules to the Purchase Agreement not delivered to the Holders
before the date hereof and any Material Contracts), all of which shall be in
form and substance reasonably satisfactory to the Holders;

 

(r)            the
Holders shall not have become aware of any information not previously actually
known to them that they reasonably believe to be inconsistent in a material and
adverse manner with their actual understanding on the date hereof of the
business, assets, liabilities, operations, condition (financial or otherwise)
or prospects of the Group;

 

(s)          the
Holders shall have received a certificate from the chief executive officer of
the Company certifying that no Person other than the Group Members owns any
Capital Stock of any Group Member or any right or option to acquire the same,
except for shares of Capital Stock of Primrose and options to acquire the same
held by third parties as set forth on Schedule 5.17 of the Purchase
Agreement;

 

(t)            the
Company shall have delivered to the Holders evidence that, on a pro forma basis
after giving effect to the Transaction the aggregate amount of the consolidated
Indebtedness of the Group is no greater than $80,000,000;

 

(u)         Gibson,
Dunn & Crutcher LLP,  counsel to the Holders, shall have been
satisfied that all the Subsidiary Guarantors that are not wholly owned,
directly or indirectly, by the Company have the power to issue their respective
Guaranties;

 

(v)         since
the Closing Date, there shall not have occurred any event or circumstance that
would reasonably be expected to result in a Material Adverse Effect; and

 

(w)       the
Holders shall have received a certificate from the chief executive

 

13

 

officer of the Company certifying as to the satisfaction of the
foregoing conditions and such other matters as the Holders shall reasonably
request.

 

20.         Subsequent
Release Conditions.

 

Any release of the
Collateral on a Release Date subsequent to the initial Release Date shall be
subject to the fulfillment of conditions reasonably imposed by the Holders in
connection with the initial approval of the Transaction, but no other
conditions.

 

21.         Other
Investments.

 

Notwithstanding anything
herein or in any of the other Investment Documents to the contrary, the Pledgor
may at any time request that the Collateral Agent and/or the Bank be replaced
and the Collateral be moved to an account maintained by a replacement
Bank.  Upon receipt by WMF of such a
request from the Company, WMF shall cooperate with the Pledgor to replace the
Collateral Agent and/or the Bank, as applicable, with a replacement Collateral
Agent and/or Bank, as applicable, reasonably acceptable to both WMF and the
Pledgor, Merrill Lynch and all affiliates thereof being hereby pre-approved for
such purposes.  Upon the selection by
the Pledgor and WMF of a replacement Collateral Agent and/or Bank, as
applicable, and receipt of the joint instructions of the Company and WMF to do
so, the Collateral Agent shall promptly deliver the Collateral to such
replacement Collateral Agent and/or Bank, as applicable, and take such further
steps as are reasonably requested by the Pledgor or WMF to effectuate the
foregoing and the termination of the Collateral Account and this Agreement at
no cost to the Pledgor or WMF, except as provided below.  WMF agrees to work with the Pledgor in good
faith to agree on investment parameters with regard to the Collateral, whether
it be in the Collateral Account maintained at the Bank or any replacement
thereof.  Notwithstanding the foregoing,
if Investments other than the Initial Investment are agreed upon, or the
Collateral Agent is removed or the Deposit is transferred to another financial
institution, prior to the date that is 30 days after the date hereof, the
Pledgor shall pay to the Collateral Agent a fee in the amount of $1,000 as a
condition to such change in Investments, removal or transfer.  The Pledgor shall reimburse the Holders and
the Collateral Agent for all reasonable costs and expenses (including the
reasonable fees and expenses of legal counsel) associated with any such
removal, transfer or other transaction. 
In any of the foregoing cases, the Pledgor shall execute and/or deliver
to the Holder and the Collateral Agent such legal opinions and other documents
as Holder may reasonably request, the receipt and reasonable acceptability of
which shall be a condition to any such removal, transfer or other transaction.

 

22.         Certain
Agreements by the Bank.

 

The Bank hereby
represents to and agrees with WMF as follows:

 

(a)          The
Cash Collateral Account constitutes a “deposit account,” and the Bank is acting
with respect to the Cash Collateral Account as a “bank,” in each case within
the meaning of Section 9-102 the UCC.

 

(b)         The
Cash Collateral Account is not evidenced by a negotiable

 

14

 

instrument or any other writing that evidences a right to the payment
of a monetary obligation and is of a type that in the ordinary course of
business is transferred by delivery with any necessary endorsement or
assignment.

 

(c)          Bank
(i) waives, releases and agrees not to assert, exercise or claim any Lien
against the Cash Collateral Account or the funds contained therein or any other
Collateral from time to time (including setoff rights or rights to charge the
Cash Collateral Account), and (ii) shall neither advance credit against the
Cash Collateral Account nor hypothecate any funds carried in the Cash
Collateral Account or any other Collateral.

 

(d)         Bank
shall provide to WMF and Pledgor monthly, a statement showing the balance of
the Cash Collateral Account, in each case in reasonable detail and in form
acceptable to WMF and Pledgor.

 

(e)          Bank
does not know of any claim to, or interest in, the Cash Collateral Account or
any other Collateral, and shall promptly notify Holders if any other party
asserts any Lien upon any of the Collateral, and Bank shall not enter into any
agreement with any other party relating to the Collateral or agree to accept
instructions from any other party.

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

 

15

 

IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed on the date first above written.

 

	
   

  	
  SECURITY
  CAPITAL CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  BRIAN D. FITZGERALD

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Brian
  D. Fitzgerald

  	
   

  
	
   

  	
   

  	
  Title:

  	
  President
  and Chief Executive

  Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  J.
  H. WHITNEY MEZZANINE FUND, L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Whitney
  GP, L.L.C.,

  	
   

  
	
   

  	
   

  	
  Its
  General Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  DANIEL J. O’BRIEN

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Daniel
  J. O’Brien

  	
   

  
	
   

  	
   

  	
  A
  Managing Member

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION,

  as Collateral Agent hereunder

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  FRANK P. LESLIE III

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Frank
  P. Leslie III

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  	
   

  

 

 

[SIGNATURE
PAGE TO CASH COLLATERAL PLEDGE AGREEMENT]

 

16

 

Exhibit B to Securities Purchase
Agreement

 

[FORM OF]

GUARANTY

 

GUARANTY (this “Guaranty”), dated as
of [               ],
200[     ],
is made byeach of the entities executing this Guaranty as “Subsidiaries” (each
Subsidiary being a “Guarantor”).

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS, pursuant to that
certain Securities Purchase Agreement (the “Purchase Agreement”) by and between J. H. Whitney
Mezzanine Fund, L.P. (“WMF”), a Delaware limited partnership, and Security
Capital Corporation (the “Company”), a Delaware corporation and the ultimate
parent of each Guarantor, WMF will purchase from the Company a  senior subordinated promissory note (“Note”) in the
principal amount of $30,000,000.

 

WHEREAS, in order to
induce WMF to purchase the Note, the Company has agreed to cause each Guarantor
to execute and deliver this Guaranty pursuant to which such Guarantor will
guaranty, among other things, payment of all of the Obligations, as hereinafter
defined; and

 

WHEREAS, it is of
material benefit to each Guarantor that WMF purchase the Note.

 

Accordingly, each
Guarantor agrees for the benefit of WMF and each other holder from time to time
of all or any part of the Note (collectively, the “Holders”)  as follows:

 

1.                                      Certain
Terms.

 

(a)                                  Capitalized
terms used herein without definition have the respective meanings set forth in
the Purchase Agreement and the Note.

 

(b)                                 “Obligations”  means
all any and all present and future obligations and liabilities of the Company
of every type and description to the Holders, or any of their  successors
or assigns, or any Person entitled to indemnification under the Purchase
Agreement or any other Investment Document, whether for principal, interest,
premium or other reimbursement obligations, fees, expenses, indemnities or
other amounts (including attorneys’ fees and expenses), in each case whether
due or not due, direct or indirect, joint and/or several, absolute or
contingent, voluntary or involuntary, liquidated or unliquidated, determined or
undetermined, now or hereafter existing, renewed or restructured, whether or
not from time to time decreased or extinguished and later increased, created or
incurred, whether or not arising after the commencement of a proceeding under
the Bankruptcy Code (including post-petition interest) and whether or not
allowed or allowable as a claim in any such proceeding, and whether or not
recovery of any such obligation or liability may be barred by a statute of
limitations or such obligation or liability may otherwise be
unenforceable.  All Obligations shall be
conclusively presumed to have been created in reliance on this Guaranty.

 

1

 

2.                                      Guaranty.  Each Guarantor hereby, jointly and
severally, absolutely, unconditionally and irrevocably guaranties to the
Holders the full and punctual payment when due of all Obligations, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise, and such guaranty is not conditional or contingent upon pursuit by
any Holder of any prior action or proceeding for collection, or for any other
remedies any Holder may have, against the Company or any other Person.

 

3.                                      Expenses.  Each Guarantor shall pay to the
Holders any and all costs and expenses, (including attorneys’ fees and
expenses), that the Holders may incur in connection with (a) the
collection of all sums guarantied hereunder or (b) the exercise or
enforcement of any of the rights, powers or remedies of the Holders under this
Guaranty or applicable law.  All such
amounts and all other amounts payable hereunder shall be payable on demand,
together with interest at a rate equal to the lesser of (i) the then applicable
Interest Rate (plus, during the continuance of an Event of Default, an
additional 2% per annum), or (ii) the maximum rate allowed by applicable law,
from and including the due date to and excluding the date of payment.

 

4.                                      Consent.  Each Guarantor hereby consents and agrees
that the whole or any part of the security now or hereafter held for any
Obligation, if any, may be exchanged, compromised, released or surrendered from
time to time; that the time or place of payment of any Obligation or of any
security therefor may be exchanged or extended, in whole or in part, to a time
certain or otherwise, and may be renewed or accelerated, in whole or in part;
that any of the provisions of the Note or the other Investment Documents  may be renewed, extended, modified,
increased, accelerated, compromised, refinanced or waived; that the Company may
be granted indulgences or released from liability; that neither the insolvency,
bankruptcy and/or dissolution of the Company or any Guarantor shall affect the
obligations hereunder of any Guarantor; that neither the invalidity or unenforceability
of any of the Obligations shall affect the obligations hereunder of any
Guarantor; that no claim need be asserted against any trustee in bankruptcy or
receiver or other representative in the event the Company or any Guarantor is
adjudicated bankrupt or becomes insolvent; and that any property to the credit
of the Company or any Guarantor or any other party liable for payment of  any of the Obligations or liable upon any
security therefor may be released from time to time, in whole or in part, at,
before or after the stated, extended or accelerated maturity of such
Obligations, all of which (i) may be effected without notice to or further
assent by any Guarantor and (ii) shall not affect the obligations of any
Guarantor under this Guaranty.

 

5.                                      Waiver.  Each Guarantor hereby expressly waives:

 

(a)                                  Notice
of acceptance of this Guaranty;

 

(b)                                 Presentment
and demand for payment of any Obligation;

 

(c)                                  Protest
and notice of dishonor or default to such Guarantor or to any other party with
respect to any Obligation or any security for any Obligation;

 

(d)                                 Demand
for payment under this Guaranty;

 

2

 

(e)                                  Notice
of disposition of any security for any Obligation;

 

(f)                                    Any
defense by reason of impairment of (i) any security now or hereafter held for
any Obligation or (ii) recourse against any party liable for the payment of any
Obligation; and

 

(g)                                 Any
other defense or counterclaim whatsoever, other than payment and performance of
the Obligations.

 

6.                                      Guaranty
of Payment.  This Guaranty is a
guaranty of payment and not of collection. Each Guarantor (a) waives any claim
to marshaling of assets; (b) waives any right to require that an action be
brought against the Company or any other Person prior to action against such
Guarantor hereunder; and (c) waives any right to require that resort be had to
any security, as applicable, for the Note or any other Obligations guaranteed
hereunder prior to action by any Holder against such Guarantor hereunder.  Each Guarantor shall be released from all
liability hereunder only upon payment in full of all the Obligations.

 

7.                                      Binding
Effect.  The obligations of each
Guarantor hereunder shall be joint and several obligations of all of the
Guarantors.  The provisions of this
Guaranty shall be binding upon each Guarantor and its successors and assigns,
and shall inure to the benefit of each Holder and its successors and
assigns.  Each Holder shall be free to
assign its rights, benefits, duties and obligations under the Note, and the
benefit of this Guaranty shall automatically pass with any such assignment,
without the consent of any other party. 
No Guarantor may assign its rights, benefits, duties and obligations
under this Guaranty without the prior written consent of each Holder.

 

8.                                      Right
of Set Off.  To the extent that
a Guarantor has made payment hereunder to any Holder of all or any portion of
principal and interest required to be paid under the Note of such Holder, the
full amount of such payment shall be deducted from amounts allocable and
payable to such Holder pursuant to such Note.

 

9.                                      Limitation
of Guaranty. Any term or provision of this Guaranty or any other
Investment Document to the contrary notwithstanding, the maximum aggregate
amount of the Obligations for which each Guarantor shall be liable shall not
exceed the maximum amount for which such Guarantor can be liable without
rendering this Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer.

 

10.                               Reinstatement.  This Guaranty shall remain in full force and
effect and continue to be effective or be reinstated, as the case may be, if at
any time payment or performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise
be restored or returned by any obligee of the Obligations or such part thereof,
whether as a “voidable preference,” “fraudulent transfer,” or otherwise, all as
though such payment or performance had not been made.  In the event that, and to the extent that, any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Obligations
shall, to the fullest extent permitted by law, be reinstated, and shall be
deemed reduced only by such amount paid and not so rescinded, reduced, restored
or returned.

 

3

 

11.                               Subrogation.  After (and not before) all amounts payable
under or in respect of the Note and all other Obligations have been
indefeasibly paid in cash and performed, the Guarantors shall be subrogated to
the rights of the Holders to receive payments in respect of the Note.

 

12.                               Amendment.  This Guaranty may not be modified or amended
except by a writing duly executed by each Guarantor and each Holder.

 

13.                               Law.  THIS GUARANTY SHALL BE GOVERNED BY,
CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED
ENTIRELY WITHIN SUCH STATE.

 

14.                               Severability.  Wherever possible, each provision of this
Guaranty shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Guaranty shall be invalid
under such laws, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without affecting the remainder of such provision or
the remaining provisions of this Guaranty, which shall be binding and
enforceable to the fullest extent allowable by law.

 

15.                               Waiver.  Waiver by any Holder of a breach of this
Guaranty shall not operate as a waiver of any subsequent breach thereof.

 

16.                               Signatures;
Counterparts.  Telefacsimile
transmissions of any executed original document and/or retransmission of any
executed telefacsimile transmission shall be deemed to be the same as the
delivery of an executed original.  At
the request of any party hereto, the other parties hereto shall confirm
telefacsimile transmissions by executing duplicate original documents and
delivering the same to the requesting party or parties.  This Guaranty may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.

 

17.                               Notices.  All notices, requests and other
communications to be given or otherwise made to any party hereto shall be
deemed to be sufficient if contained in a written instrument duly transmitted
by telecopy or telex or duly sent by overnight courier service or first class registered
or certified mail, postage prepaid, addressed to such party at the address set
forth below or at such other address as may hereafter be designated in writing
by the addressee to the addressor listing all parties:

 

	
   

  	
  (a)

  	
  if to any
  Guarantor:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Telecopier:   (    )

  
	
   

  	
  Attention:

  

 

4

 

	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Morgan, Lewis
  & Bockius LLP

  
	
   

  	
  101 Park Avenue

  
	
   

  	
  New York, New
  York 10178

  
	
   

  	
  Telecopier:  (212)
  309-6273

  
	
   

  	
  Attention:

  	
  Christopher T.
  Jensen, Esq.

  
	
   

  	
   

  	
  Stephanie M.
  Gulkin, Esq.

  
	
   

  
	
   

  	
  (c)

  	
  if to any
  Holder:

  
	
   

  	
   

  	
   

  
	
   

  	
  to it c/o

  
	
   

  	
  J. H. Whitney
  Mezzanine Fund, L.P.

  
	
   

  	
  177 Broad Street

  
	
   

  	
  Stamford,
  Connecticut 06901

  
	
   

  	
  Telecopier:  (203)
  975-1422

  
	
   

  	
  Attention:

  	
  Mr. Kevin Smith

  
	
   

  	
   

  	
  Mr. Michael C.
  Salvator

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Gibson, Dunn
  & Crutcher LLP

  
	
   

  	
  200 Park Avenue

  
	
   

  	
  New York, New
  York 10166-0193

  
	
   

  	
  Telecopier:

  	
  (212) 351-5276

  
	
   

  	
  Attention:

  	
  Joerg Esdorn,
  Esq.

  
					

 

18.                               Consents
and Waivers Relating to Legal Proceedings.

 

(a)                                  EACH
OF THE PARTIES TO THIS GUARANTY, AND THE PURCHASERS BY THEIR ACCEPTANCE OF THIS
GUARANTY, HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION
AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY WAIVES ANY
CLAIM OF IMPROPER VENUE AND ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT
FORUM.  EACH SUCH PARTY HEREBY
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF
BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN
SECTION 17, SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.

 

5

 

(b)                                 EACH
GUARANTOR WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.  EACH GUARANTOR (X) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY HOLDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT ANY HOLDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS AND (Y) ACKNOWLEDGES THAT  THE HOLDERS HAVE BEEN INDUCED TO ENTER INTO
THE PURCHASE AGREEMENT BY, AMONG OTHER THINGS, THE AGREEMENT BY THE COMPANY TO
CAUSE THE GUARANTORS TO PROVIDE THE WAIVERS AND CERTIFICATIONS CONTAINED
HEREIN.

 

19.                               [Supplements
to Purchase Agreement Schedules. 
The Guarantors have attached hereto supplements to Schedules
          to the Purchase
Agreement.  Each Guarantor hereby certifies,
as of the date first written above, that such supplements are complete and
correct in all material respects.

 

20.                               ]*Representations,
Warranties and Covenants.  Each
Guarantor hereby makes each representation, warranty and covenant set forth in
the Purchase Agreement (as supplemented by the attached supplements to the
schedules) but only to the extent the same relates to such Guarantor.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]

 

 

* To be included only if necessary to
make the representations, warranties and covenants set forth in the Purchase
Agreement accurate.

 

6

 

IN WITNESS WHEREOF,
the undersigned have executed this Guaranty as of the
        day of [          ],
200[    ].

 

	
   

  	
  SUBSIDIARIES:

  
	
   

  	
   

  
	
   

  	
  [                                                                           ]

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [                                                                           ]

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Accepted:

  	
   

  
	
   

  	
   

  
	
  J.H. WHITNEY
  MEZZANINE FUND, L.P.

  	
   

  
	
   

  	
   

  
	
  By:  Whitney
  GP, L.L.C.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  A Managing
  Member

  	
   

  
						

 

[SIGNATURE PAGE TO GUARANTY]

 

7

 

EXHIBIT
C

Subordinated Note

 

[See
Exhibit 4.1 of Form 8-K]

 

D-1

 

Exhibit D to Securities Purchase Agreement

 

COMPLIANCE
CERTIFICATE

SECURITY
CAPITAL CORPORATION

Date:[           ]

 

This certificate is given
by SECURITY CAPITAL CORPORATION, a Delaware corporation (the “Company”), pursuant
to Section 8.01(c) of that certain Securities Purchase Agreement dated as
of January 14, 2004 by and between the Company and J.H. Whitney Mezzanine
Fund, L.P. a Delaware limited partnership, as such agreement may have been
amended, restated, supplemented or otherwise modified from time to time (the “Agreement”).  Capitalized terms used herein without
definition shall have the meanings set forth in the Agreement.

 

The officer executing
this certificate is the Chief Executive Officer or Chief Financial Officer of
the Company and as such is duly authorized to execute and deliver this
certificate on behalf of the Company. 
By executing this certificate such officer hereby certifies that:

 

(a)                                  the
financial statements delivered with this certificate in accordance with
Section 8.01(a) and/or 8.01(b) of the Agreement fairly present in all
material respects the consolidated or unconsolidated, as applicable, financial
condition of each of (a) Primrose and its Subsidiaries, (b) WC Holdings and its
Subsidiaries and (c) the Company (in the case of financial statements delivered
pursuant to Section 8.01(a)(i)), the consolidated and consolidating
financial condition of the Group (in the case of financial statements delivered
pursuant to Section 8.01(a)(ii)) or the consolidated and consolidating
financial condition of the Company and its Subsidiaries or the Group, as
applicable (in the case of financial statements delivered pursuant to
Section 8.01(b), as the case may be, as of the dates indicated, and their
consolidated, consolidating or unconsolidated, as the case may be, results of
operations and cash flows for the entities and periods indicated, in conformity
with GAAP, subject (in the case of financial statements delivered pursuant to
Section 8.01(a))  to normal
year-end adjustments and the absence of footnotes;

 

(b)                                 he
has reviewed the terms of the Agreement and the Note and has made, or caused to
be made under his supervision, a review in reasonable detail of the
transactions and conditions of the Company and its Subsidiaries during the
accounting period covered by such financial statements;

(c)                                  such
review has not disclosed the existence during or at the end of such accounting
period, and he has no knowledge of the existence as of the date hereof, of any
condition or event that constitutes a Default or an Event of Default, except as
set forth in Exhibit A hereto which includes a description of the
nature and period of existence of such Default or Event of Default and what
action the Company has taken, is undertaking and proposes to take with respect
thereto;

 

D-1

 

(d)                                 the
Company and its Subsidiaries are in compliance with the covenants contained in
Articles 8 and 9 of the Agreement, except as set forth or described in Exhibit
A;

 

(e)                                  For
the Rolling Period ended on the most recent date covered by the financial
statements referred to in clause (a) above:

 

(i)                                     the
Total Leverage Ratio was       to 1.0;

 

(ii)                                  the
Fixed Charge Coverage Ratio was        to 1.0;
and

 

(iii)                               the
Interest Coverage Ratio was        to 1.0; and

 

(f)                                    Exhibit B
attached hereto sets forth, in reasonable detail, calculations of the ratios
stated in clause (e);

 

(g)                                 Attached
hereto as Exhibit C is the schedule of Outstanding Borrowings
required by Section 8.01(a) or (b), as applicable.

 

D-2

 

IN WITNESS WHEREOF, the Company has caused
this Certificate to be executed by its [Chief Executive Officer/Chief Financial
Officer] this          day of
                  ,
200    .

 

	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  [Chief
  Executive Officer/Chief Financial Officer]

  
				

 

D-3

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