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EXHIBIT 10.1
ASSET AND STOCK PURCHASE AGREEMENT
BY AND AMONG
RACING CHAMPIONS, INC.,
▇▇▇▇-▇▇▇▇▇, LTD.,
RACING CHAMPIONS LIMITED,
▇▇▇▇▇▇▇ SERVICES, INC.,
HOSTEN INVESTMENT LIMITED,
▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇,
COLLECTIBLE CHAMPIONS, INC.
AND
BANERJAN COMPANY LIMITED
APRIL 30, 1996
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TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Asset and Stock Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Purchase and Sale of RCI Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Contribution of Stock of Foreign Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Purchase and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(i) Purchase and Sale of Assets of DM . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(ii) Assumption of Liabilities of DM . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(iii) Purchase Price For Assets of DM . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(iv) Purchase and Sale of Assets of RCL, GSI and HIL . . . . . . . . . . . . . . . . . . . 10
(v) Assumption of Liabilities of RCL, GSI and HIL . . . . . . . . . . . . . . . . . . . . 11
(vi) Purchase Price for Assets of RCL, GSI and HIL . . . . . . . . . . . . . . . . . . . 11
(vii) Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(viii) Cash Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(ix) Repayment of Minute Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Deliveries at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. Representations and Warranties of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Organization of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(f) Title to Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(g) Condition of Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(h) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(i) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(j) Events Subsequent to December 31,1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(k) Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(l) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(m) Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(n) Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(o) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(p) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(q) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(r) Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(s) Certain Business Relationships Concerning the Seller Stockholders . . . . . . . . . . . . . . 23
(t) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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(u) Product Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(v) Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(w) Environmental and Safety Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(x) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(y) Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(z) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(aa) Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(bb) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4. Representations and Warranties of RCI Stockholders Concerning the Stock Transaction . . . . . . . . . 26
(a) Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(e) RCI Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(f) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5. Representations and Warranties of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Organization of the Buyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(e) Conduct of Business; Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) By Seller Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) By Buyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(i) Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(ii) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(iii) Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(iv) Recoupment Under Notes and Preferred Stock . . . . . . . . . . . . . . . . . . . . . 31
(v) Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Matters Involving Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(e) Treatment of Indemnification Payments and Calculation of Losses . . . . . . . . . . . . . . . 35
7. Noncompetition and Nonsolicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8. Confidentiality and Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(a) Reimbursement of Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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(b) Post-Closing Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(i) Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(ii) Certain Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(iii) Cooperation on Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(iv) RCI Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(c) Press Releases and Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(d) No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(e) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(f) Succession and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(g) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(h) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(i) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(j) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(k) Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(l) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(m) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(n) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(o) Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(p) Incorporation of Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(q) Employee Benefits Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(r) Transfer of Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(s) Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(t) Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(u) Change of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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ASSET AND STOCK PURCHASE AGREEMENT
THIS ASSET AND STOCK PURCHASE AGREEMENT is entered into as of
April 30, 1996, by and among RACING CHAMPIONS, INC., an Illinois corporation
("RCI"), ▇▇▇▇-▇▇▇▇▇, LTD., an Illinois corporation ("DM"), RACING CHAMPIONS
LIMITED, a Hong Kong corporation ("RCL"), ▇▇▇▇▇▇▇ SERVICES, INC., a British
Virgin Island corporation ("GSI"), HOSTEN INVESTMENT LIMITED, a Hong Kong
corporation ("HIL") (each of the foregoing a "Seller" and collectively, the
"Sellers"), ▇▇▇▇▇▇ ▇▇▇▇ ("Dods"), ▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇"), ▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇,"
and collectively with Dods and ▇▇▇▇▇, the "Seller Stockholders") and
COLLECTIBLE CHAMPIONS, INC., a Delaware corporation ("Domestic Buyer") and
BANERJAN COMPANY LIMITED, a Hong Kong corporation ("Foreign Buyer," and
together with the Domestic Buyer, the "Buyers"). The Buyers, the Seller
Stockholders and the Sellers are referred to collectively herein as the
"Parties."
This Agreement contemplates a transaction in which (i) the
Domestic Buyer will purchase all of the outstanding capital stock of RCI, (ii)
the Domestic Buyer will purchase substantially all of the assets and assume
substantially all of the liabilities of DM and (iii) the Foreign Buyer will
purchase substantially all of the assets and assume substantially all of the
liabilities of RCL, GSI and HIL, all for aggregate consideration of cash in the
amount of $1,728,107, Minute Notes in the principal amount of $19,526,667,
Three Day Notes in the principal amount of $42,473,333, Senior Sub Notes in the
principal amount of $8,000,000, Junior Sub Notes (Series A) in the principal
amount of $16,675,251, Junior Sub Notes (Series B) in the principal amount of
$1,195,233, 13,163.36 shares of Series A Preferred, and 145,334 shares of
Voting Common.
Now, therefore, in consideration of the premises and the
mutual promises herein made, and in consideration of the representations,
warranties and covenants herein contained, the Parties agree as follows:
1. Definitions.
(a) "Accredited Investor" has the meaning set forth in
Regulation D promulgated under the Securities Act.
(b) "Acquired Assets" means, with respect to each Seller
other than RCI, all of the right, title and interest in and to all of the
assets of such Seller, including, without limitation, all of its (i) real
property, leaseholds and subleaseholds therein, improvements, fixtures and
fittings thereon, and easements, rights-of-way and other appurtenants thereto;
(ii) tangible personal property (such as machinery, equipment, inventories of
raw materials and supplies, manufactured and purchased parts, tooling, goods in
process and finished goods, furniture, automobiles, tools, molds, jigs and
dies); (iii) Intellectual Property, goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights thereunder,
remedies against infringements, misappropriations and violations thereof and
rights to protection of interests therein under the laws of all jurisdictions;
(iv) leases, subleases and rights thereunder; (v) agreements, contracts,
indentures, mortgages, instruments, Security Interests, guaranties, other
similar arrangements and rights
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thereunder; (vi) accounts, notes and other receivables (including, without
limitation, rights to receive payments pursuant to letters of credit); (vii)
securities (not included in the definition of Cash); (viii) claims, deposits,
prepayments, refunds, causes of action, choses in action, rights of recovery,
rights of set off and rights of recoupment (other than any such item relating
to Taxes, except as set forth in paragraph 1(b) of the Disclosure Schedule);
(ix) franchises, approvals, permits, licenses, orders, registrations,
certificates, variances and similar rights obtained from governments and
governmental agencies; and (x) books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings and specifications,
creative materials, advertising and promotional materials, studies, reports and
other similar printed or written materials. Notwithstanding the foregoing, the
Acquired Assets shall not include, with respect to each Seller other than RCI,
(i) the corporate charter, qualifications to conduct business as a foreign
corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals, minute books,
stock transfer books, blank stock certificates and other documents relating to
the organization, maintenance and existence of such Seller as a corporation,
(ii) any of the rights of such Seller under this Agreement (or under any side
agreement between such Seller on the one hand and any Buyer on the other hand
entered into on or after the date of this Agreement) and (iii) any of the
Excluded Assets of such Seller.
(c) "Affiliate" has the meaning set forth in Rule 12b-2
of the regulations promulgated under the Securities Exchange Act.
(d) "Affiliated Group" means any affiliated group within
the meaning of Code section 1504(a) or any similar group defined under a
similar provision of state, local or foreign law.
(e) "Applicable Rate" means the corporate base rate of
interest announced from time to time by Bank of Boston.
(f) "Assumed Liabilities" means, with respect to any
Seller, all liabilities and obligations of such Seller (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated and whether
due or to become due) incurred in the Ordinary Course of Business on or prior
to the Closing, including, without limitation, (i) all liabilities of such
Seller set forth on the Most Recent Balance Sheet; (ii) all liabilities of such
Seller described in the footnotes to such Seller's most recent audited balance
sheet described in paragraph 3(h) below, (iii) all liabilities of such Seller
which have arisen since the date of the Most Recent Balance Sheet in the
Ordinary Course of Business; (iv) all liabilities of such Seller for fees and
expenses (including legal, accounting and investment banking fees and expenses)
such Seller has incurred in connection with this Agreement and the
transactions contemplated hereby (including the expenses set forth on the
Schedule of Expenses); (v) all liabilities and obligations of such Seller under
their Employee Benefit Plans listed on the Schedule of Assumed Benefit Plans;
(vi) all liabilities and obligations of such Seller under the agreements,
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contracts, leases, licenses and other arrangements included in the Acquired
Assets with respect to such Seller; (vii) all liabilities and obligations of
such Seller for product liability claims or product warranty claims; and (viii)
all other liabilities and obligations of such Seller set forth in the Schedule
of Assumed Liabilities. Notwithstanding the foregoing, the Assumed Liabilities
shall not include, with respect to each Seller, (i) any liability or obligation
of such Seller under this Agreement (or under any side agreement between such
Seller on the one hand and any Buyer on the other hand entered into on or after
the date of this Agreement) and (ii) any of the Excluded Liabilities of such
Seller.
(g) "Buyer Indemnified Parties" means the Buyers and
their Affiliates, officers, directors, stockholders, employees, agents,
representatives, successors and assigns (including, without limitation, RCI (if
the Closing occurs)).
(h) "Buyer Preferred Stock" means, collectively, (i) the
Series A Preferred issued pursuant to this Agreement and (ii) the Domestic
Buyer's Series A Preferred and Series B Preferred Stock, par value $.01 per
share, to be issued to DM as of immediately following the Closing pursuant to a
Securities Purchase Agreement, dated as of the date hereof, by and between the
Domestic Buyer and DM.
(i) "Buyers" has the meaning set forth in the preface
above.
(j) "Cash" means cash and cash equivalents including
marketable securities and short term investments calculated in accordance with
GAAP applied on a basis consistent with the preparation of the Financial
Statements.
(k) "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act, as it may be amended from time to
time.
(l) "Closing" has the meaning set forth in paragraph 2(d)
below.
(m) "Closing Date" has the meaning set forth in paragraph
2(d) below.
(n) "Code" means the Internal Revenue Code of 1986, as
amended.
(o) "Confidentiality Agreement" means the Confidentiality
Agreement previously executed by RCI and ▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P.
(p) "Disclosure Schedule" has the meaning set forth in
paragraph 3 below.
(q) "Employee Benefit Plan" has the meaning set forth in
paragraph 3(r) below.
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(r) "Environmental, Health and Safety Laws" means all
statutes, regulations, ordinances and other provisions having the force or
effect of federal, state, local and foreign law, all judicial and
administrative orders and determinations, and all common law concerning worker
health and safety or the pollution or protection of the environment, including
without limitation CERCLA, the Resource Conservation and Recovery Act, the
Clean Water Act, the Clean Air Act and the Occupational Safety & Health Act,
each as it may be amended from time to time.
(s) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(t) "Excluded Assets" means, with respect to each Seller,
all (i) Cash of such Seller and (ii) assets of such Seller set forth on the
Schedule of Excluded Assets.
(u) "Excluded Liabilities" means, with respect to each
Seller, (i) all liabilities and obligations of such Seller (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated and whether
due or to become due) for any Tax (except as set forth in paragraph 1(u) of the
Disclosure Schedule), breach of contract (other than product warranty claims),
tort or violation of law including, without limitation, Environmental, Health
and Safety Laws, (ii) all Indebtedness for Borrowed Money of such Seller and
(iii) all liabilities and obligations of such Seller set forth for such Seller
on the Schedule of Excluded Liabilities.
(v) "Financial Statement" has the meaning set forth in
paragraph 3(h) below.
(w) "Foreign Buyer" has the meaning set forth in the
preface above.
(x) "GAAP" means United States generally accepted
accounting principles as in effect from time to time.
(y) "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended.
(z) "Hazardous Material" shall mean anything that is a
"hazardous substance" pursuant to CERCLA, any substance that is a "solid waste"
or "hazardous waste" pursuant to RCRA, any pesticide, pollutant, contaminant,
toxic chemical, petroleum product or byproduct, asbestos, polychlorinated
biphenyl, or radiation.
(aa) "Indebtedness for Borrowed Money" means, with respect
to any Person at any date, without duplication: (i) all obligations of such
Person for borrowed money or in respect of loans; (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar
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instruments; (iii) all obligations in respect of letters of credit, whether or
not drawn, and bankers' acceptances issued for the account of such Person; (iv)
all capitalized lease liabilities of such Person; (v) all interest rate
protection agreements of such Person (valued on a market quotation basis); (vi)
all obligations of such Person secured by a contractual lien; and (vii) all
guarantees of such Person in connection with any of the foregoing.
(bb) "Intellectual Property" means (a) all inventions
(whether or not patentable and whether or not reduced to practice), all
improvements thereto and all patents, patent applications and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof; (b)
all trademarks, service marks, trade dress, logos, trade names and corporate
names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated therewith and all
applications, registrations and renewals in connection therewith; (c) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith; (d) all mask works and all applications,
registrations and renewals in connection therewith; (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans
and proposals); (f) all computer software (including data and related
documentation); (g) all other proprietary rights; and (h) all copies and
tangible embodiments in any of the foregoing (in whatever form or medium).
(cc) "Junior Sub Note (Series A)" has the meaning set
forth in paragraph 2(a)(ii) below.
(dd) "Junior Sub Note (Series B)" has the meaning set
forth in paragraph 2(a)(ii) below.
(ee) "Junior Subordinated Notes" means, collectively, the
Junior Sub Notes (Series A) issued pursuant to this Agreement and the Junior
Sub Notes (Series B) issued pursuant to this Agreement.
(ff) "Knowledge" means actual knowledge together with such
knowledge that a reasonable person, acting in the capacity of a senior officer,
director or stockholder, would obtain in the conduct of a business of the type,
scope and scale of that which is conducted by the Sellers.
(gg) "Minute Note" has the meaning set forth in paragraph
2(c)(vi) below.
(hh) "Most Recent Balance Sheet" has the meaning set forth
in paragraph 3(h) below.
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10
(ii) "Most Recent Financial Statements" has the meaning
set forth in paragraph 3(h) below.
(jj) "Ordinary Course of Business" means the ordinary
course of business consistent with past custom and practice that is normal for
a company conducting operations of the type, scope and scale of that which is
conducted by the Sellers.
(kk) "Party" has the meaning set forth in the preface
above.
(ll) "Permitted Security Interest" means (i) mechanic's,
materialmen's and similar liens; (ii) liens for taxes not yet due and payable
or for taxes that the taxpayer is contesting in good faith through appropriate
proceedings and for which adequate reserves have been established in accordance
with GAAP; and (iii) other liens arising in the Ordinary Course of Business and
not incurred in connection with Indebtedness for Borrowed Money, each of which
liens is reflected in the Most Recent Balance Sheet except for such liens which
have arisen in the Ordinary Course of Business since the date of the Most
Recent Balance Sheet.
(mm) "Person" means an individual, a partnership, a
limited liability company, a corporation, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).
(nn) "Purchase Price" means an amount equal to the sum of
the Asset Purchase Price and the Stock Purchase Price set forth in paragraph 2
below.
(oo) "RCI Share" means any share of the Common Stock, no
par value per share, of RCI.
(pp) "RCI Stockholder" means any person who or which holds
any RCI Shares.
(qq) "RCRA" shall mean the Resource Conservation and
Recovery Act, as it may be amended from time to time.
(rr) "Related Person" means, with respect to a particular
individual: (a) each other member of such individual's Family; (b) any Person
that is directly or indirectly controlled by such individual or one or more
members of such individual's Family; (c) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest; and (d) any Person with respect to which such individual or
one or more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity). With respect to a
specified Person other than an individual, "Related Person" means: (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly
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11
or indirectly under common control with such specified Person; (b) any Person
that holds a Material Interest in such specified Person; (c) each Person that
serves as a director, officer, partner, executor, or trustee of such specified
Person (or in a similar capacity); (d) any Person in which such specified
Person holds a Material Interest; (e) any Person with respect to which such
specified Person serves as a general partner or a trustee (or in a similar
capacity); and (f) any Related Person of any individual described in clause (b)
or (c). For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange
Act) of voting securities or other voting interests representing at least 5% of
the outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
(ss) "Release" shall have the meaning set forth in CERCLA.
(tt) "Restricted Securities" means the Securities sold
hereunder and any securities issued with respect thereto by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering
them, (b) become eligible for sale pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or (c) been otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in paragraph 9(r)(i) have been delivered by the Domestic Buyer in
accordance with paragraph 9(r)(iii). Whenever any particular securities cease
to be Restricted Securities, the holder thereof shall be entitled to receive
from the Domestic Buyer, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in paragraph
9(r)(i).
(uu) "Securities" means, collectively, the Minute Notes,
the Three Day Notes, the Senior Sub Notes, the Junior Sub Notes (Series A), the
Junior Sub Notes (Series B), the Series A Preferred and the Voting Common.
(vv) "Securities Act" means the Securities Act of 1933, as
amended.
(ww) "Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended.
(xx) "Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest.
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12
(yy) "Seller Indemnified Parties" means the Sellers and
their Affiliates, officers, directors, stockholders, employees, agents,
representatives, successors and assigns.
(zz) "Seller Parties" means the Sellers (but not including
RCI after the Closing if the transaction contemplated to occur at the Closing
is consummated) and the Seller Stockholders.
(aaa) "Seller Stockholder" has the meaning set forth in the
preface above.
(bbb) "Senior Sub Note" has the meaning set forth in
paragraph 2(a)(ii) below.
(ccc) "Series A Preferred" has the meaning set forth in
paragraph 2(c)(vi) below.
(ddd) "Special Excluded Liabilities" means, with respect to
each Seller, (i) all Excluded Liabilities as to which any Seller Stockholder
has Knowledge as of the Closing, (ii) all liabilities and obligations of such
Seller (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated and whether due or to become due) for any Tax (except as set forth
in paragraph 1(u) of the Disclosure Schedule), and (iii) all Indebtedness for
Borrowed Money of such Seller.
(eee) "Stockholders Agreement" means the Stockholders
Agreement, dated as of the date hereof, by and among the Domestic Buyer, the
Seller Stockholders and others, as such agreement is amended, modified or
supplemented from time to time.
(fff) "Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority
of limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity, where "control" means the possession, directly or indirectly, of the
power to direct the management and policies of a Person, whether through the
ownership of voting securities, contract or otherwise.
- 8 -
13
(ggg) "Tax" or "Taxes" means (A) any federal, state, local,
or foreign income, franchise or other tax, of any kind whatsoever, gross
receipts, sales, use, value added or alternative or added on minimum tax,
including any interest, penalty, or addition thereto, whether disputed or not;
(B) the liability of any Seller for the payment of any amounts of the type
described in clause (A) as a result of any express or implied obligation to
indemnify or otherwise assume or succeed to the liability of any other Person.
(hhh) "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto.
(iii) "Three Day Note" has the meaning set forth in
paragraph 2(a)(ii) below.
(jjj) "Voting Common" has the meaning set forth in
paragraph 2(c)(vi) below.
2. Asset and Stock Purchase.
(a) Purchase and Sale of RCI Shares.
(i) Basic Transaction. On and subject to the
terms and conditions of this Agreement, the Domestic Buyer agrees to purchase
from each of the RCI Stockholders, and each of the RCI Stockholders agrees to
sell to the Domestic Buyer, all of his RCI Shares for the consideration
specified below in this paragraph 2(a).
(ii) Purchase Price. The Domestic Buyer agrees to
pay to each RCI Stockholder at the Closing the aggregate purchase price set
forth opposite the name of such RCI Stockholder on the Schedule of Sellers
attached hereto (the "Stock Purchase Price") by delivery to such RCI
Stockholder of:
[a] a Three Day Promissory Note (a
"Three Day Note") in the form of Exhibit A attached hereto (including
the irrevocable letter of credit attached thereto securing such note),
in the initial principal amount set forth opposite the name of such
RCI Stockholder on the Schedule of Sellers attached hereto, reduced
dollar-for-dollar by an amount equal to such RCI Stockholder's pro
rata portion of the obligations of RCI set forth on the Schedule of
RCI Obligations attached hereto (based on the percentage of all RCI
Shares to be sold by such RCI Stockholder);
[b] a Senior Subordinated Promissory
Note (a "Senior Sub Note") in the form of Exhibit B attached hereto,
in the initial principal amount set forth opposite the name of such
RCI Stockholder on the Schedule of Sellers attached hereto;
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14
[c] a Series A Junior Subordinated
Promissory Note (a "Junior Sub Note (Series A)") in the form of
Exhibit C attached hereto, in the initial principal amount set forth
opposite the name of such RCI Stockholder on the Schedule of Sellers
attached hereto;
[d] a Series B Junior Subordinated
Promissory Note (a "Junior Sub Note (Series B)") in the form of
Exhibit D attached hereto, in the initial principal amount set forth
opposite the name of such RCI Stockholder on the Schedule of Sellers
attached hereto.
(b) Contribution of Stock of Foreign Buyer. Immediately
after the consummation of the transactions contemplated by paragraph 2(a)
above, but before the consummation of the transactions contemplated by
paragraph 2(c) below, the Domestic Buyer shall contribute to RCI all of the
Foreign Buyer's shares of capital stock which are then issued and outstanding.
(c) Purchase and Sale of Assets.
(i) Purchase and Sale of Assets of DM. On and
subject to the terms and conditions of this Agreement, the Domestic Buyer
agrees to purchase from DM, and DM agrees to sell, transfer, convey and deliver
to the Domestic Buyer, all of the Acquired Assets of DM at the Closing for the
consideration specified in clauses (ii) and (iii) below; provided that, at the
Domestic Buyer's option, DM agrees to sell, transfer, convey and deliver all of
the Acquired Assets of DM to RCI (rather than the Domestic Buyer) at the
Closing.
(ii) Assumption of Liabilities of DM. On and
subject to the terms and conditions of this Agreement, the Domestic Buyer
agrees to assume and become liable for all of the Assumed Liabilities of DM at
the Closing; provided that, at the Domestic Buyer's option, RCI (rather than
the Domestic Buyer) will assume and become liable for all of the Assumed
Liabilities of DM at the Closing. Neither the Domestic Buyer nor RCI will
assume or have any responsibility, however, with respect to any liabilities of
DM (whether known or unknown, whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or unliquidated
and whether due or to become due) other than the Assumed Liabilities of DM.
(iii) Purchase Price For Assets of DM. The
Domestic Buyer agrees to pay to DM at the Closing the aggregate purchase price
set forth opposite DM's name on the Schedule of Sellers attached hereto (with
respect to DM, DM's "Asset Purchase Price") by delivery to DM of:
[a] cash in the amount set forth
opposite DM's name on the Schedule of Sellers attached hereto, which
cash will be paid by wire transfer of immediately available funds;
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15
[b] a Three Day Note in the initial
principal amount set forth opposite DM's name on the Schedule of
Sellers attached hereto;
[c] a Senior Sub Note in the initial
principal amount set forth opposite DM's name on the Schedule of
Sellers attached hereto;
[d] a Junior Sub Note (Series A) in the
initial principal amount set forth opposite DM's name on the Schedule
of Sellers attached hereto; and
[e] a Junior Sub Note (Series B) in the
initial principal amount set forth opposite DM's name on the Schedule
of Sellers attached hereto.
(iv) Purchase and Sale of Assets of RCL, GSI and
HIL. On and subject to the terms and conditions of this Agreement, the Foreign
Buyer agrees to purchase from each of RCL, GSI and HIL, and each of RCL, GSI
and HIL agrees to sell, transfer, convey and deliver to the Foreign Buyer, all
of the Acquired Assets of such Seller at the Closing for the consideration
specified in clauses (v) and (vi) below.
(v) Assumption of Liabilities of RCL, GSI and
HIL. On and subject to the terms and conditions of this Agreement, the Foreign
Buyer agrees to assume and become liable for the Assumed Liabilities of each of
RCL, GSI and HIL at the Closing. The Foreign Buyer will not assume or have any
responsibility, however, with respect to any of the liabilities of RCL, GSI and
HIL (whether known or unknown, whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or unliquidated
and whether due or to become due) other than the Assumed Liabilities of RCL,
GSI and HIL.
(vi) Purchase Price for Assets of RCL, GSI and
HIL. The Foreign Buyer agrees to pay to each of RCL, GSI and HIL at the
Closing the aggregate purchase price set forth opposite the name of such Seller
on the Schedule of Sellers attached hereto (with respect to each such Seller,
such Seller's "Asset Purchase Price") by delivery to such Seller of:
[a] a Minute Note (a "Minute Note") in
the form of Exhibit E attached hereto, in the initial principal amount
set forth opposite the name of such Seller on the Schedule of Sellers
attached hereto;
[b] a Senior Sub Note in the initial
principal amount set forth opposite the name of such Seller on the
Schedule of Sellers attached hereto;
[c] a Junior Sub Note (Series A) in the
initial principal amount set forth opposite the name of such Seller on
the Schedule of Sellers attached hereto;
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16
[d] the number of shares of the Domestic
Buyer's Series A Preferred Stock, par value $.01 per share (the
"Series A Preferred") set forth opposite the name of such Seller on
the Schedule of Sellers attached hereto; and
[e] the number of shares of the Domestic
Buyer's Common Stock, par value $.01 per share (the "Voting Common")
set forth opposite the name of such Seller on the Schedule of Sellers
attached hereto.
(vii) Allocation. The Parties agree to allocate
the aggregate Asset Purchase Price (and all other capitalizable costs) among
the Acquired Assets for all purposes (including financial accounting and tax
purposes) in accordance with the allocation schedule attached hereto as Exhibit
F.
(viii) Cash Payments. Immediately prior to the
Closing, RCI shall have paid to the RCI Stockholders an aggregate amount equal
to the Cash held by RCI as of the Closing. RCI may cause such payments to be
made to the RCI Stockholders in the form of a dividend or a redemption in
accordance with the allocation set forth on Exhibit G. Immediately prior to
the Closing, each of RCL, GSI and HIL shall have paid to their stockholders an
aggregate amount equal to the Cash held by such Sellers as of the Closing.
RCL, GSI and HIL may cause such payments to be made to their stockholders in
the form of a dividend or a redemption.
(ix) Repayment of Minute Notes. At the Closing,
the Foreign Buyer shall repay the Minute Notes in full in cash, which cash will
be paid by wire transfer of immediately available funds.
(d) The Closing. The closing of the transactions
contemplated by paragraphs 2(a), 2(b) and 2(c) of this Agreement (the
"Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ in Chicago,
Illinois, commencing at 9:00 a.m. local time on the date of this Agreement (the
"Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the
Sellers will execute, acknowledge (if appropriate) and deliver to the Buyers
[a] assignments (including real property and intellectual property transfer
documents) in the forms attached hereto as Exhibits H-1 through H-5 and [b]
such other instruments of sale, transfer, conveyance and assignment as the
Buyers and their counsel reasonably may request; (ii) the Buyers will execute,
acknowledge (if appropriate) and deliver to the Sellers [a] an assumption in
the form attached hereto as Exhibits H-1 through H-5 and [b] such other
instruments of assumption as the Sellers and their counsel reasonably may
request; (v) each of the RCI Stockholders will deliver to the Domestic Buyer
stock certificates representing all of his or its RCI Shares, endorsed in blank
or accompanied by duly executed assignment documents and (iii) the Buyers will
deliver to the Sellers and the RCI Stockholders the consideration
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17
specified on paragraphs 2(a)(ii), 2(c)(iii) and 2(c)(vi) above. In addition,
the Buyers shall repay the full amount of principal and interest, in the amount
of $1,140,000 outstanding under that certain Note, dated December 30, 1993,
from RCI in favor of ▇▇▇▇▇.
3. Representations and Warranties of the Sellers. The
Sellers and the Seller Stockholders hereby make the representations and
warranties set forth in this paragraph 3 as of the date of this Agreement,
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this paragraph 3.
(a) Organization of the Sellers. Each of the Sellers is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation (to the extent the concept of
"good standing" or an equivalent concept is applicable in such jurisdiction)
and is qualified to do business in every jurisdiction in which its ownership of
property or conduct of business requires it to qualify. Each Seller possesses
all requisite corporate power and authority and all material licenses, permits
and authorizations necessary to own and operate its properties, to carry on its
businesses as now conducted and presently proposed to be conducted and to carry
out the transactions contemplated by this Agreement. The copies of each
Seller's charter documents and bylaws, which have been furnished to the Buyers'
special counsel, reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete. The minute books
containing the records of meetings of the stockholders and board of directors,
the stock certificate books and the stock record books of RCI, which have been
delivered to the Buyers' special counsel, are correct and complete. No Seller
is in default under or in violation of any provision of its charter document or
bylaws.
(b) Authorization of Transaction. Each of the Sellers
has full corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. Without limiting the generality of
the foregoing, the board of directors of each of the Sellers and the
stockholders of each of the Sellers have duly authorized the execution,
delivery and performance of this Agreement by such Seller. This Agreement
constitutes the valid and legally binding obligation of each Seller,
enforceable in accordance with its terms and conditions, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and by
general equitable principles.
(c) Capitalization. The authorized, issued and
outstanding capital stock of each Seller is as set forth in the paragraph 3(c)
of the Disclosure Schedule attached hereto. All of the issued and outstanding
shares of each Seller's capital stock have been duly authorized, are validly
issued, fully paid and nonassessable, are not subject to, nor were they issued
in violation of, any preemptive rights, and are owned of record and
beneficially as set forth in the paragraph 3(c) of the Disclosure Schedule.
There are no outstanding or authorized options, warrants, rights, contracts,
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18
calls, puts, rights to subscribe, conversion rights or other agreements or
commitments to which any Seller is a party or which are binding upon any Seller
providing for the issuance, disposition or acquisition of any of their capital
stock (other than this Agreement). There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to any Seller.
There are no voting trusts, proxies or any other agreements or understandings
with respect to the voting of the capital stock of any Seller. Except as set
forth on paragraph 3(c) of the Disclosure Schedule, each Seller is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock.
(d) Noncontravention. Except as set forth in paragraph
3(d) of the Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in paragraph 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which any of the Sellers is subject or any
provision of the charter or by- laws of any of the Sellers or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which any of the Sellers is a party or by
which they are bound or to which any of their assets are subject (or result in
the imposition of any Security Interest upon any of their assets). The
foregoing representation and warranty shall not apply to any contract,
instrument or other arrangement pursuant to which any Seller licenses rights
from racing teams, sponsors, drivers, team owners or their agents or assigns
(the "Racing Licenses"). To the Knowledge of the Seller Stockholders,
paragraph 3(d) of the Disclosure Schedule lists each Racing License. Paragraph
3(d) of the Disclosure Schedule also identifies which of the listed Racing
Licenses expressly requires a consent to a change in control of RCI, and each
listed Racing License with respect to which such a consent has been obtained by
RCI. Paragraph 3(d) of the Disclosure Schedule also describes the steps the
Sellers have taken to reach their conclusion that the information set forth on
paragraph 3(d) of the Disclosure Schedule is accurate and complete. None of
the Sellers needs to give any notice to, make any filing with or obtain any
authorization, consent or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in paragraph 2
above); provided, however, that notwithstanding anything else in this Agreement
to the contrary, the Sellers make no representations or warranties as to the
requirements of the parties under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
(e) Brokers' Fees. No Seller has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which any Buyer
could become liable or obligated, except as set forth in paragraph 3(e) of the
Disclosure Schedule.
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19
(f) Title to Tangible Assets. Except as set forth in
paragraph 3(f) of the Disclosure Schedule, each of the Sellers has good title
to, or a valid leasehold interest in, all of its Acquired Assets, as of the
Closing, free and clear of any Security Interest (other than Permitted Security
Interests) or restriction on transfer. Except as set forth in paragraph 3(f)
of the Disclosure Schedule, RCI has good title to, or a valid leasehold
interest in, all of its assets, as of the Closing, free and clear of any
Security Interest (other than Permitted Security Interests). The Acquired
Assets of the Sellers, together with all of the assets of RCI, as of
immediately following the Closing will constitute all assets necessary for the
Buyers and RCI to conduct the business and operations of the Sellers as
currently conducted.
(g) Condition of Tangible Assets. Each tangible asset
included in the Acquired Assets, together with the assets owned by RCI, has
been maintained in accordance with normal industry practice and is in good
operating condition and repair (reasonable wear and tear excepted).
(h) Financial Statements. Attached hereto as Exhibit I
are the following financial statements (collectively the "Financial
Statements"): (i) audited, combined balance sheets and statements of income
and statements of shareholders' investment and cash flow as of and for the
fiscal years ended December 31, 1993, December 31, 1994 and December 31, 1995
for RCI and DM; (ii) audited balance sheets and statements of income, changes
in stockholders' equity and cash flow as of and for the fiscal years ended
March 31, 1993, March 31, 1994 and March 31, 1995 for RCL; (iii) an audited
balance sheet and statements of income, changes in stockholders' equity and
cash flow as of and for the fiscal year ended March 31, 1995 for HIL; (iv) an
unaudited, combined balance sheet and statements of income and changes in
stockholders' equity as of and for the fiscal years ended March 31, 1996, March
31, 1995, March 31, 1994 and March 31, 1993 for HIL, GSI and RCL; (v) unaudited
combined balance sheets and statements of income, changes in stockholders'
equity and cash flow as of and for the three months ended March 31, 1996 for
RCI and DM; (vi) unaudited combined balance sheets and statement of income and
changes in stockholders equity and cash flow as of and for the fiscal years
ended December 31, 1994, and, December 31, 1995 for the Sellers; and (vii) an
unaudited combined balance sheet (the "Most Recent Balance Sheet") and
statements of income and changes in stockholders equity and cash flow (the
"Most Recent Financial Statements") as of and for the three month period ended
March 31, 1996 for the Sellers. Except as set forth in paragraph 3(h) of the
Disclosure Schedule, the Financial Statements (including the notes thereto)
have been prepared from the books and records of the applicable Seller(s) in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of the applicable
Sellers as of such dates and the results of operations and cash flows of the
Sellers for such periods; provided, however, that the unaudited Financial
Statements, including the Most Recent Financial Statements, are subject to
normal year-end adjustments and lack footnotes and other presentation items.
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20
(i) Liabilities. Except as set forth on paragraph 3(i)
of the Disclosure Schedule, none of the Sellers has any existing liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), except for (i) liabilities disclosed on the
Most Recent Balance Sheet; (ii) all liabilities of such Seller described in the
footnotes to such Seller's most recent audited balance sheet described in
paragraph 3(h) above, (iii) liabilities which have arisen after the date of the
Most Recent Balance Sheet in the Ordinary Course of Business; (iv) liabilities
disclosed under any paragraph of the Disclosure Schedule; (v) the items
described in clauses (iv) through (viii) of the definition of "Assumed
Liabilities" in paragraph 1(f) above; and (vi) Assumed Liabilities incurred
after the date of Most Recent Balance Sheet. Without limiting the generality
of the foregoing, to the actual knowledge of the Seller Stockholders, none of
the Sellers has any existing liability (whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due) arising out of product
liability claims or warranty claims.
(j) Events Subsequent to December 31,1995. Since
December 31, 1995, there has not been any material adverse change in the
business, financial condition and results of operations of the Sellers taken as
a whole. Without limiting the generality of the foregoing, since that date,
except as set forth in paragraph 3(j) of the Disclosure Schedule or as
contemplated by this Agreement and the transactions contemplated hereby:
(i) none of the Sellers has sold, leased,
transferred or assigned any of its assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of
Business;
(ii) none of the Sellers has entered into any
agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) outside the Ordinary
Course of Business;
(iii) none of the Sellers has accelerated,
terminated, modified or canceled any agreement, contract, lease or
license (or series of related agreements, contracts, leases and
licenses) to which any of the Sellers is a party or by which any of
them is bound outside the Ordinary Course of Business;
(iv) none of the Sellers has imposed any Security
Interest upon any of its assets, tangible or intangible;
(v) none of the Sellers has made, failed to make,
or delayed making, any capital expenditure (or series of related
capital expenditures) outside the Ordinary Course of Business;
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21
(vi) none of the Sellers has made any capital
investment in, any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital investments,
loans and acquisitions);
(vii) none of the Sellers has issued any note, bond
or other debt security or created, incurred, assumed or guaranteed any
Indebtedness for Borrowed Money or capitalized lease obligation either
involving more than $500,000 singly or $1,000,000 in the aggregate;
(viii) none of the Sellers has delayed or postponed
the payment of accounts payable or other liabilities outside the
Ordinary Course of Business;
(ix) none of the Sellers has directly or
indirectly accelerated or taken any steps to accelerate receipt of (or
actually received) payment of accounts receivable or other current
assets outside the Ordinary Course of Business;
(x) none of the Sellers has delayed investments
in or advancements to other Persons;
(xi) none of the Sellers has canceled,
compromised, waived or released any right or claim (or series of
related rights and claims) outside the Ordinary Course of Business;
(xii) none of the Sellers has granted any license
or sublicense of any rights under or with respect to any Intellectual
Property;
(xiii) there has been no change made or authorized
in the charter or by-laws of any of the Sellers;
(xiv) none of the Sellers has issued, sold or
otherwise disposed of any of its capital stock, or granted any
options, warrants or other rights to purchase or obtain (including
upon conversion, exchange or exercise) any of its capital stock;
(xv) none of the Sellers has declared, set aside
or paid any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed, purchased or
otherwise acquired any of its capital stock;
(xvi) none of the Sellers has made any loan to, or
entered into any other transaction with, any of its directors,
officers and employees outside the Ordinary Course of Business;
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22
(xvii) none of the Sellers has granted any increase
in the base compensation of any of its directors, officers and
employees outside the Ordinary Course of Business;
(xviii) none of the Sellers has made any material
change in employment terms for any of its directors, officers and
employees outside the Ordinary Course of Business;
(xix) none of the Sellers has entered into any
employment contract or collective bargaining agreement or modified the
terms of any existing such contract or agreement;
(xx) none of the Sellers has adopted, amended,
modified or terminated any bonus, profit sharing, incentive, severance
or other plan, contract or commitment for the benefit of any of its
directors, officers and employees (or taken any such action with
respect to any other Employee Benefit Plan); and
(xxi) none of the Sellers has made or pledged to
make any charitable contribution outside the Ordinary Course of
Business; and
(xxii) none of the Sellers has committed to any of
the foregoing.
(k) Legal Compliance. Except as set forth on paragraph
3(k) of the Disclosure Schedule, each of the Sellers has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges thereunder) of federal, state,
local and foreign governments (and all agencies thereof), including all
Environmental, Health and Safety Laws.
(l) Tax Matters.
(i) Each of the Sellers has filed all Tax Returns
that it was required to file, and has paid all Taxes currently due and owing.
All such Tax Returns were prepared in compliance with all applicable laws and
regulations, and are correct and complete in all material respects. All Taxes
of RCI accrued as of the date of the Most Recent Balance Sheet are reserved for
on the Financial Statements. The charges, accruals and reserves for such Taxes
(excluding any provision for deferred income taxes) reflected on the Financial
Statements are adequate to cover such Taxes.
(ii) Paragraph 3(l) of the Disclosure Schedule
lists all Tax Returns filed with respect to each of the Sellers for taxable
periods ending on or after January 1, 1992, indicates those Tax Returns that
have been audited, indicates those Tax Returns that currently are the subject
of audit and contains a list of each state, territory and jurisdiction (whether
foreign or domestic) in
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23
which each Seller is required to file Tax Returns. The Sellers have delivered
to the Buyers correct and complete copies of all federal Tax Returns,
examination reports and statements of deficiencies assessed against or agreed
to by any of the Sellers for taxable periods ending on or after January 1,
1992.
(iii) None of the Sellers has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment, collection or deficiency.
(iv) None of the Sellers is a party to any Tax
allocation or sharing agreement.
(v) RCI has never been a member of an Affiliated
Group or filed or been included in a combined, consolidated or unitary Tax
Return, and none of the other Sellers has been a member of an Affiliated Group
filing a consolidated federal Tax Return (other than a group the common parent
of which was one of the Sellers).
(vi) Each of the Sellers has withheld and paid all
taxes required to have been withheld and paid in connection with amounts paid
or owing to any employee in connection with his or her employment with the
Sellers.
(vii) No deficiency or proposed adjustment which
has not been settled or otherwise resolved for any amount of Tax has been
proposed, asserted or assessed by any taxing authority against any Seller and
there is no action, suit, taxing authority proceeding or audit now in progress,
pending or, to the Knowledge of the Seller Stockholders, threatened against or
with respect to any Seller. No claim has ever been made by a taxing authority
in a jurisdiction where any Seller does not file Tax Returns that such Seller
is or may be subject to Taxes assessed by such jurisdiction. There are no
liens for Taxes (other than for current Taxes not yet due and payable) upon the
Acquired Assets of the Sellers or upon the assets of RCI as of immediately
prior to the Closing. The Assumed Liabilities do not include any obligation to
make any payments that will be nondeductible under section 280G of the Code (or
any corresponding provision of state, local or foreign income tax law). RCI
has not made any election under section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law). RCI will
not be required [a] as a result of a change in method of accounting for a
taxable period ending on or prior to the Closing Date, to include any
adjustment in taxable income for any taxable period (or portion thereof) ending
after the Closing Date or [b] as a result of any "closing agreement," as
described in section 7121 of the Code (or any corresponding provision of state,
local or foreign income tax law), to include any item of income in, or exclude
any item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date. No Seller owns an interest in real
property in the State of New York or in any other jurisdiction in which a Tax
(other than a net income or franchise tax) is imposed on the gain on a transfer
of an interest in real property. The Domestic Buyer will not be
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24
required to deduct and withhold any amount pursuant to section 1445(a) of the
Code upon the transfer of the Acquired Assets of DM or the RCI Shares to the
Domestic Buyer.
(m) Real Property.
(i) Except as set forth on paragraph 3(m) of the
Disclosure Schedule, the Sellers do not own, and have never owned, any real
property.
(ii) Paragraph 3(m)(ii) of the Disclosure Schedule
lists all real property leased or subleased to any of the Sellers. The Sellers
have delivered to the Buyers correct and complete copies of the leases and
subleases listed on paragraph 3(m)(ii) of the Disclosure Schedule
(collectively, the "Leases"). Each of the Leases is legal, valid, binding,
enforceable and in full force and effect. The Sellers are not, and to the
Knowledge the Seller Stockholders no other party to such Leases is, in breach
or default of such Lease and no event has occurred which, with notice or lapse
of time, would constitute such a breach or default by Sellers or permit
termination, modification or acceleration under the Leases. No Seller nor any
other party to any Lease has repudiated any provision thereof and there are no
material disputes, oral agreements or forbearance programs in effect as to any
Lease. The Leases have not been modified in any material respect, except to
the extent that such modifications are disclosed by the documents delivered to
Buyers, and the Sellers have not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the Leases. All buildings and
all components of all buildings, structures and other improvements included
within leased or subleased property are in good condition and repair
(reasonable wear and tear excepted) and adequate to operate such facilities as
currently used. There are no proceedings in eminent domain or other similar
proceedings pending or, to the Knowledge of any Seller Stockholders,
threatened, affecting any portion of the leased or subleased property, and
there exists no writ, injunction, decree, order or judgment outstanding, nor
any litigation, pending or threatened, relating to the ownership, lease, use,
occupancy or operation by any person of the leased or subleased property. All
facilities leased or subleased under the Leases have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the operation thereof and have been operated and maintained in
all material respects in accordance with applicable laws, rules and
regulations.
(n) Intellectual Property.
(i) Except as set forth on paragraph 3(n) of the
Disclosure Schedule, the Sellers are not infringing any Intellectual Property
rights of others in the operation of their businesses, as currently conducted,
nor to the Seller Stockholders' Knowledge, is any other person infringing the
Intellectual Property rights of the Sellers. Except as set forth on paragraph
3(n) of the Disclosure Schedule, the Sellers have not received any claim or
notice alleging any such
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25
infringement during the past 12 months (including any claim that any of the
Sellers must license or refrain from using any Intellectual Property rights of
any third party).
(ii) Paragraph 3(n)(ii) of the Disclosure Schedule
identifies each patent or registration which has been issued to or owned by any
of the Sellers with respect to any of its Intellectual Property, identifies
each pending patent application or application for registration which any of
the Sellers has made with respect to any of its Intellectual Property, and
identifies each license, agreement or other permission which any of the Sellers
has granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). The Sellers have delivered or made available
to the Buyers correct and complete copies of all such patents, registrations,
applications, licenses, agreements and permissions (as amended to date).
Paragraph 3(n)(ii) of the Disclosure Schedule also identifies each trade name
or unregistered trademark used by any of the Sellers in connection with any of
their businesses. With respect to each item of Intellectual Property required
to be identified in 3(n)(ii) of the Disclosure Schedule, except as set forth
therein:
[a] the Sellers possess all right, title
and interest in and to the item, free and clear of any Security
Interest;
[b] the item is not subject to any
outstanding injunction, judgment, order, decree, ruling or charge;
[c] no action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand is pending
or, to the Knowledge of the Seller Stockholders is threatened which
challenges the legality, validity, enforceability, use or ownership of
the item; and
[d] none of the Sellers has ever agreed
to indemnify any Person for or against any interference, infringement,
misappropriation or other conflict with respect to the item.
(iii) Paragraph 3(n)(iii) of the Disclosure
Schedule identifies each license, sublicense, agreement or permission pursuant
to which any of the Sellers use any material item of Intellectual Property that
any third party owns. The Sellers have delivered or made available to the
Buyers correct and complete copies of all such licenses, sublicenses,
agreements and permissions (as amended to date). With respect to each such
license, sublicense, agreement or permission:
[a] such license, sublicense, agreement
or permission is legal, valid, binding, enforceable and in full force
and effect;
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26
[b] the Sellers are not, and to the
Knowledge of the Seller Stockholders the other parties to such
license, sublicense, agreement or permission are not, in breach or
default thereunder;
[c] the underlying item of Intellectual
Property is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge;
[d] no action, suit, proceeding,
hearing, investigation, claim or demand is pending or, to the
Knowledge of the Seller Stockholders, is threatened which challenges
the legality, validity or enforceability of the underlying item of
Intellectual Property; and
[e] none of the Sellers has granted any
sublicense or similar right with respect to the license, sublicense,
agreement or permission.
The items of Intellectual Property set forth in paragraphs
3(n)(ii) and (iii) of the Disclosure Schedule comprise all of the Intellectual
Property rights necessary for the operation of the businesses of the Sellers
as currently conducted.
(o) Contracts. Paragraph 3(o) of the Disclosure Schedule
lists the following oral and written contracts to which any of the Sellers is a
party:
(i) any agreement (or group of related
agreements) for the lease of personal property to or from any Person
providing for lease payments in excess of $100,000 per annum;
(ii) any agreement (or group of related
agreements) for the purchase or sale of raw materials, commodities,
supplies, products or other personal property, or for the furnishing
or receipt of services, the performance of which will extend over a
period of more than one year or involve consideration in excess of
$100,000 (other than purchase orders with customers or suppliers
entered into in the Ordinary Course of Business);
(iii) any agreement concerning a partnership or
joint venture;
(iv) any agreement (or group of related
agreements) under which any Seller has created, incurred, assumed or
guaranteed any Indebtedness for Borrowed Money, or any capitalized
lease obligation in excess of $100,000 or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
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27
(v) any agreement restricting such Seller's
ability to compete with another Person;
(vi) any agreement involving any Seller
Stockholder or Related Person of such Seller Stockholder (other than
any of the Sellers) involving consideration in excess of $100,000;
(vii) any agreement with any other Seller outside
the Ordinary Course of Business;
(viii) any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation or severance plan
for the benefit of its current or former directors, officers and
employees;
(ix) any collective bargaining agreement;
(x) any agreement for the employment of any
individual on a full-time, part-time, consulting or other basis
providing annual compensation in excess of $50,000 or providing
severance benefits in excess of $50,000;
(xi) any agreement under which any Seller has
advanced or loaned any amount to any of its directors, officers and
employees in excess of $50,000; and
(xii) any other contract entered into outside the
Ordinary Course of Business (or group of related agreements) the
performance of which involves consideration in excess of $100,000.
The Sellers have delivered or made available to the Buyers a
correct and complete copy of each written contract or other agreement listed in
paragraph 3(o) of the Disclosure Schedule (as amended to date). With respect
to each such agreement, (i) the agreement is legal, valid, binding, enforceable
and in full force and effect; (ii) the Sellers are not, and to the Knowledge of
the Seller Stockholders the other party to such contract is not, in breach or
default of such agreement, and no event has occurred which with notice or lapse
of time would constitute a breach or default, or permit termination,
modification or acceleration, under the agreement; and (iii) the Sellers have
not, and to the Knowledge of the Seller Stockholders no other party to such
agreement has, repudiated any provision of the agreement.
(p) Inventory. The inventory of the Sellers consists of
finished goods, all of which is merchantable and fit for the purpose for which
it was procured or manufactured, and none
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of which is slow-moving, obsolete, damaged or defective, subject only to the
reserve for inventory writedown set forth on the Most Recent Financial
Statements.
(q) Litigation. Paragraph 3(q) of the Disclosure
Schedule sets forth each instance in which any Seller (i) is subject to any
outstanding injunction, judgment, order, decree, ruling or charge or (ii) is a
party or, to the Knowledge of the Seller Stockholders, is threatened to be made
a party to any action, suit, proceeding, hearing or investigation of, in or
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator.
(r) Employee Benefits.
(i) Paragraph 3(r) of the Disclosure Schedule
sets forth an accurate and complete list of (A) each "employee benefit plan"
(as such term is defined in section 3(3) of ERISA) at any time contributed to,
maintained or sponsored by any of the Sellers; and (B) each other deferred
compensation, severance, stock, bonus, incentive, insurance and any other
similar employee benefit arrangement (including, without limitation, each
employment, compensation, or severance agreement) of any kind contributed to,
maintained or sponsored by any of the Sellers for the benefit of any present
employee, consultant, officer or director of any of the Sellers. Each such
item listed in paragraph 3(r) of the Disclosure Schedule pursuant to this
subparagraph (i) is referred to herein as an "Employee Benefit Plan."
(ii) No Employee Benefit Plan is required or
intended to be qualified within the meaning of section 401(a) of the Code.
Each Employee Benefit Plan and any related trust, insurance contract or fund
has been maintained, funded and administered in compliance in all material
respects with its respective terms and in compliance in all material respects
with all applicable laws and regulations, including, but not limited to, ERISA
and the Code, and all required premiums, contributions, deposits and
reimbursement under each such Employee Benefit Plan as of the Closing Date have
been properly made. To the Knowledge of the Seller Stockholders, there are no
pending or threatened actions, suits, investigations or claims with respect to
any Employee Benefit Plan (other than routine claims for benefits).
(iii) None of the Sellers has at any time
contributed to, maintained, sponsored or incurred any liability with respect to
any "employee pension benefit plan" (as such term is defined in section 3(2) of
ERISA) or any "multiemployer plan" (as such term is defined in section 3(37) of
ERISA).
(iv) Except as set forth in paragraph 3(r) of the
Disclosure Schedule, none of the Employee Benefit Plans obligates any of the
Sellers to pay any separation, severance, termination or similar benefit in
excess of $50,000 (in the aggregate) solely as a result of any
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29
transaction contemplated by this Agreement or solely as a result of a change in
control or ownership within the meaning of section 280G of the Code.
(s) Certain Business Relationships Concerning the Seller
Stockholders. Except as set forth in paragraph 3(s) of the Disclosure
Schedule, no Seller Stockholder or Related Person of such Seller Stockholder,
is involved, or has been involved within the past five years, in any business
arrangement or relationship with any Sellers or any supplier, customer
licensee, licensor or lessor of any Seller (or any Related Person of such
Person), no Seller Stockholder or Related Person of such Seller Stockholder,
owns any asset, tangible or intangible, which is used in the business of any
Seller. Without limiting the generality of the foregoing, except as set forth
in paragraph 3(s) of the Disclosure Schedule, no Seller Stockholder or Related
Person of such Seller Stockholder, has any economic interest in any supplier,
customer licensee, licensor or lessor of any Seller (or any Related Person of
such Person) or has made payments of any kind to, has received payments of any
kind from, has made any loans or advances to, or guarantees for the benefit of,
or borrowed amounts from any supplier, customer licensee, licensor or lessor of
any Seller (or any Related Person of such Person).
(t) Accounts Receivable. The accounts receivable of the
Sellers as reflected on the Most Recent Financial Statements have arisen from
bona fide transactions in the Ordinary Course of Business and are collectible
net of any applicable reserves set forth on the Most Recent Financial
Statements.
(u) Product Warranty. Paragraph 3(u) of the Disclosure
Schedule sets forth a description of all express warranties provided by the
Sellers with respect to products sold by them and includes a copy of the
standard terms and conditions of sale for each of the Sellers. All anticipated
warranty expenses for products sold by the Sellers through the Closing Date
will not exceed $100,000.
(v) Labor Matters. The Sellers are not a party to or
bound by any union or collective bargaining agreement. The Sellers are not a
party to any pending arbitration or grievance proceeding or other claim
relating to any labor contract nor, to the Knowledge of the Seller
Stockholders, is any such action threatened. Within the previous 12 months,
the Sellers have not experienced any labor disputes, union organization
attempts or any work stoppage due to labor disagreements in connection with
their business, and there is currently no labor strike, request for
representation, slowdown or stoppage actually pending, or to the Knowledge of
the Seller Stockholders, threatened against the Sellers. Except as set forth
in paragraph 3(v) of the Disclosure Schedule, to the Knowledge of the Seller
Stockholders, no key executive employee and no group of employees or
independent contractors of any Seller currently intends to terminate his, her
or its employment or relationship as an independent contractor with any Seller.
Each Seller has complied in all material respects with all applicable laws
relating to the employment of personnel and labor,
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30
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes, the
Worker Adjustment and Retraining Act, and the Immigration Reform and Control
Act of 1986 (in each case only to the extent such laws are applicable to such
Seller). Paragraph 3(v) of the Disclosure Schedule sets forth the names,
present annual rate of compensation (including salary, bonuses and commissions)
of all persons employed by each Seller (including independent contractors)
whose annual rate of compensation exceeded $50,000 in 1995. The Sellers have
provided to Buyers all written employment agreements with employees of the
Sellers which are presently in effect.
(w) Environmental and Safety Matters.
(i) The Sellers have complied and are in
compliance with all Environmental, Health and Safety Laws.
(ii) No Seller has received any written or oral
notice, report or other information regarding any liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any Seller or the facilities of
any Seller and arising under Environmental, Health and Safety Laws.
(iii) No Seller has treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled or Released any
substance, including without limitation any Hazardous Material, or owned or
operated any facility or property, so as to give rise to liabilities of any
Seller for response costs, natural resource damages or attorneys fees pursuant
to CERCLA or other Environmental, Health and Safety Laws.
(x) Insurance. Paragraph 3(x) of the Disclosure Schedule
lists and briefly describes each insurance policy maintained by each Seller
with respect to its properties, assets and business. All of such insurance
policies are in full force and effect, and no Seller is in default with respect
to its obligations under any such insurance policies.
(y) Product Liability. None of the Sellers has received
any written claim in the three-year period prior to the date of this Agreement
arising out of any injury to individuals or property as a result of the
ownership, possession or use of any product manufactured, sold, leased or
delivered by any of the Sellers.
(z) Subsidiaries. No Seller owns or holds any rights to
acquire any shares of stock or any other security or interest in any other
Person, and no Seller has, or has ever had, any Subsidiaries.
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(aa) Investment Representations.
(i) Paragraph 3(aa) of the Disclosure Schedule
sets forth each Person who is the intended ultimate beneficial owner of the
cash and Securities which comprise the Purchase Price to be paid to the Sellers
and RCI Stockholders hereunder.
(ii) Each Seller understands that the Securities
have not been, and will not be, registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering; [b] is acquiring the Securities solely for its own account for
investment purposes, and not with a view to the distribution thereof; [c] is a
sophisticated investor with knowledge and experience in business and financial
matters; [d] has received certain information concerning the Domestic Buyer and
has had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Securities; [e] is
able to bear the economic risk and lack of liquidity inherent in holding the
Securities; and [f] is an Accredited Investor.
(bb) Disclosure. Neither the representations and
warranties contained in this Agreement nor the statements made in the
Disclosure Schedule contain any untrue statement of a material fact or, to the
Knowledge of the Seller Stockholders, omit, when considered as a whole, a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they were made, not misleading.
4. Representations and Warranties of RCI Stockholders
Concerning the Stock Transaction. Each of the RCI Stockholders hereby
individually, and not jointly, makes the representations and warranties set
forth in this paragraph 4 as to such RCI Stockholder as of the date of this
Agreement.
(a) Authorization of Transaction. The RCI Stockholder
has full power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the RCI Stockholder, enforceable in accordance
with its terms and conditions, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and by general equitable principles. The RCI
Stockholder need not give any notice to, make any filing with or obtain any
authorization, consent or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
(b) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will [a] violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge or other restriction
of any government, governmental agency or court to which the RCI Stockholder is
subject or [b] conflict
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32
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the RCI Stockholder is a party or by
which he is bound or to which any of his assets is subject.
(c) Brokers' Fees. The RCI Stockholder has no liability
or obligation to pay any fees or commissions to any broker, finder or agent
with respect to the transactions contemplated by this Agreement for which any
Buyer could become liable or obligated.
(d) Investment. The RCI Stockholder [a] understands that
the Securities have not been, and will not be, registered under the Securities
Act, or under any state securities laws, and are being offered and sold in
reliance upon federal and state exemptions for transactions not involving any
public offering; [b] is acquiring the Securities solely for his or its own
account for investment purposes, and not with a view to the distribution
thereof; [c] is a sophisticated investor with knowledge and experience in
business and financial matters; [d] has received certain information concerning
the Domestic Buyer and has had the opportunity to obtain additional information
as desired in order to evaluate the merits and the risks inherent in holding
the Securities; [e] is able to bear the economic risk and lack of liquidity
inherent in holding the Securities; and [f] is an Accredited Investor.
(e) RCI Shares. The RCI Stockholder holds of record and
owns beneficially the number of RCI Shares set forth next to his name on the
Schedule of Sellers, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims and demands. Except as set forth in paragraph 4(e) of the
Disclosure Schedule, the Seller is not a party to any option, warrant, purchase
right or other contract or commitment that could require the RCI Stockholder to
sell, transfer or otherwise dispose of any capital stock of RCI (other than
this Agreement). The RCI Stockholder is not a party to any voting trust, proxy
or other agreement or understanding with respect to the voting of any capital
stock of RCI.
(f) Capitalization. The entire authorized capital stock
of RCI consists of 5,000 RCI Shares, of which 1,000 RCI Shares are issued and
outstanding. All of the issued and outstanding RCI Shares held by the RCI
Stockholder have been duly authorized, are validly issued, fully paid and
nonassessable, and are held of record by the RCI Stockholders as set forth in
paragraph 4 of the Disclosure Schedule. Except as set forth in paragraph 4 of
the Disclosure Schedule, there are no outstanding or authorized options,
warrants, purchase rights, subscriptions rights, conversion rights, exchange
rights or other contracts or commitments that could require RCI to issue, sell
or otherwise cause to become outstanding any of its capital stock. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights
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33
with respect to RCI. There are no voting trusts, proxies or other agreements
or understandings with respect to the voting of the capital stock of RCI.
5. Representations and Warranties of the Buyer. The
Buyer hereby makes the representations and warranties set forth in this
paragraph 5 as of the date of this Agreement to the Sellers and the Seller
Stockholders.
(a) Organization of the Buyers. Each Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization.
(b) Authorization of Transaction. Each Buyer has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of each Buyer, enforceable in accordance with its
terms and conditions, except such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws generally affecting
creditors' rights generally and by general equitable principles.
(c) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby (including the assignments and assumptions referred to in
paragraph 2 above), will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge or other restriction
of any government, governmental agency or court to which the Buyer is subject
or any provision of its charter or by-laws or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which the Buyer is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). No Buyer needs to give any notice to, make
any filing with or obtain any authorization, consent or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement (including the assignments and
assumptions referred to in paragraph 2 above).
(d) Brokers' Fees. No Buyer has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which the
Sellers or Buyer could become liable or obligated, except as contemplated by
this Agreement.
(e) Conduct of Business; Liabilities. Prior to the
Closing, no Buyer has conducted any business, incurred any expenses,
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known to the Company, and whether due or
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to become due), violated any laws or governmental rules or regulations, or
entered into any contracts or agreements other than this Agreement and any
other agreements contemplated by such agreements. In addition, prior to the
Closing, no Buyer has violated any laws or governmental rules or regulations.
(f) Capitalization. The entire authorized, issued and
outstanding capital stock of each Buyer is as set forth on the Schedule of
Buyers' Capitalization. On consummation of the transactions contemplated by
this Agreement, the outstanding shares of Voting Common and Series A Preferred
will be as set forth on the Schedule of Buyers' Capitalization. Except as set
forth on the Schedule of Buyers' Capitalization, all of such shares will have
been duly authorized, validly issued, fully paid and nonassessable and are not
subject to, nor were they issued in violation of, any preemptive rights, and
are owned of record and beneficially as set forth on the Schedule of Buyers'
Capitalization. There are not and, immediately following the closing of the
transactions contemplated by this Agreement, there will not be any outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights or other contracts or commitments that could
require any Buyer to issue, sell or otherwise cause to become outstanding any
of its capital stock, except as provided on the Schedule of Buyers'
Capitalization, and there will be no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights with
respect to any Buyer, except as set forth on the Schedule of Buyers'
Capitalization. No Buyer is, and immediately following the Closing Date will
not be, a party to any voting trust, shareholder agreement, voting agreement or
other understandings with respect to the voting or transfer of capital stock of
such Buyer, other than the Stockholders Agreement. Each Buyer is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock.
6. Indemnification.
(a) By Seller Parties. Subject to the limitations set
forth in this paragraph 6, each of the Sellers (other than RCI) and Seller
Stockholders will indemnify each of the Buyer Indemnified Parties and hold each
of the Buyer Indemnified Parties harmless from and against any loss, liability,
claim, damage, costs or expenses (including reasonable legal expenses)
(collectively, "Losses") which any Buyer Indemnified Party may suffer, sustain
or become subject to, resulting from, arising out of or caused by:
(i) any breach by any Seller or Seller
Stockholder of any representation or warranty set forth in paragraph 3
or 4 (with respect to the RCI Stockholders) of this Agreement;
(ii) any liability or obligation of any Seller
(whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or
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unaccrued, whether liquidated or unliquidated and whether due or to
become due) which is not an Assumed Liability of such Seller
(including any such liability that becomes a liability of any Buyer
under any bulk transfer law of any jurisdiction, under any common law
doctrine of de facto merger or successor liability, or otherwise by
operation of law);
(iii) any liability or obligation of any Seller
which is a Special Excluded Liability (including any such liability
that becomes a liability of any Buyer under any bulk transfer law of
any jurisdiction, under any common law doctrine of de facto merger or
successor liability, or otherwise by operation of law); or
(iv) any failure of any Seller or Seller
Stockholder to perform any of the covenants or agreements to be
performed by such person under this Agreement.
It is understood and agreed by Buyers that, except as
expressly provided in this paragraph 6, after the Closing, the Seller Parties
will not have any obligation or liability to the Buyer Indemnified Parties,
and the Buyer Indemnified Parties will have no claim or recourse against the
Seller Parties, as a result of the events or circumstances set forth in
paragraph 6(a)(i), (ii), (iii) and (iv) above or otherwise arising out of or in
connection with the transactions contemplated by this Agreement (except to the
extent such claim or recourse arises out of another agreement to which a Seller
Party is a party), it being understood and agreed that the remedies provided
for in this paragraph 6 will be the sole and exclusive remedies for any such
claim by any Buyer for any such matters, whether such claims are framed in
contract, tort or otherwise.
(b) By Buyers. Subject to the limitations set forth in
this paragraph 6, the Buyers will indemnify the Seller Indemnified Parties and
hold them harmless from and against any Losses which any Seller Indemnified
Party may suffer, sustain or become subject to, resulting from, arising out of
or caused by:
(i) any breach by any Buyer of any representation
or warranty set forth in paragraph 5 of this Agreement;
(ii) any liability or obligation of the Sellers
which is an Assumed Liability; or
(iii) any failure of any Buyer to perform any of
the covenants or agreements to be performed by it under this
Agreement.
It is understood and agreed by Sellers and Seller Stockholders
that, except as expressly provided in this paragraph 6, after the Closing, the
Buyers will not have any obligation or liability to the Seller Indemnified
Parties, and they will have no claim or recourse against the Buyers,
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as a result of the events or of circumstances set forth in paragraph 6(b)(i),
(ii) and (iii) above or otherwise arising out of or in connection with the
transactions contemplated by this Agreement (except to the extent such claim or
recourse arises out of another agreement to which a Buyer is a party), it being
understood and agreed that the remedies provided for in this paragraph 6 will
be the sole and exclusive remedies for any such claim by the Seller Indemnified
Parties for any such matters, whether such claims are framed in contract, tort
or otherwise.
(c) Limitations. Notwithstanding the foregoing, the
Parties liability pursuant to this paragraph 6 will be subject to the following
limitations:
(i) Basket. The Seller Parties will not be
liable for any Losses described in paragraph 6(a)(i) or 6(a)(ii) above
unless and until the aggregate amount of all Losses described in such
paragraph exceeds $500,000, after which point the Seller Parties will
be obligated, to the extent required by this paragraph 6, to indemnify
the Buyer Indemnified Parties only to the extent such Losses exceed
$250,000.
(ii) Survival. The representations and warranties
of each of the Parties under this Agreement shall survive the Closing
Date (even if any Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of the Closing)
for a period of one year; provided, however, that the representations
contained in paragraph 3(l) shall survive the Closing Date for the
statute of limitations applicable to such Taxes, the representations
and warranties contained in paragraphs 3(e), 3(w), 4(c) and 5(d) shall
survive the Closing Date for a period of two years, and the
representations contained in paragraphs 3(a), 3(b), 3(c), 3(f), 3(z),
4(a), 4(b), 4(e), 4(f), 5(a), 5(b), 5(c) and 5(f) shall survive the
Closing indefinitely (subject to applicable statutes of limitations).
The Parties will not be liable for any Losses described in any of
paragraphs 6(a) through 6(b) above unless the Indemnified Party (as
defined below) has given the Indemnifying Party (as defined below)
written notice asserting the misrepresentation, breach or other matter
in question on or prior to the expiration of the applicable survival
period provided in the previous sentence), and the Indemnifying Party
shall have no obligation to indemnify or otherwise compensate the
Indemnified Party for any such Losses if the Indemnified Party has
failed to give such notice in the manner provided in paragraph
6(c)(iv) (if applicable) and 9(i) prior to such date and the
Indemnifying Party shall be obligated to indemnify and compensate the
Indemnified Party for all such Losses (including any losses the
Indemnified Party may suffer after the end of any applicable survival
period) if the Indemnified Party does give such notice prior to such
date.
(iii) Cap. The Seller Parties will not be liable
for any Losses described in paragraph 6(a)(i) or 6(a)(ii) to the
extent that the aggregate amount of all Losses described in such
paragraphs exceeds $18,000,000.
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(iv) Recoupment Under Notes and Preferred Stock.
[a] In seeking any indemnification to
which any Buyer Indemnified Party is entitled under this Agreement,
(I) such Buyer Indemnified Party shall be limited in recouping all or
any part of any Losses it may suffer pursuant to paragraphs 6(a)(i) or
6(a)(ii) only by reducing, and (II) such Buyer Indemnified Party shall
have the option to recoup all or any part of any Losses it may suffer
pursuant to paragraphs 6(a)(iii) or (iv) in cash or otherwise,
including by reducing, in each case in good faith after providing
Sellers and the Seller Stockholders with the opportunity to dispute
such indemnification obligation as set forth below, the amount
outstanding first under the Junior Subordinated Notes and then under
the Buyer Preferred Stock. This shall affect the timing and amount of
payments required under the Junior Subordinated Notes in the same
manner as if the Domestic Buyer had made a permitted prepayment
(without premium or penalty) thereunder. After amounts have been set
off under the Junior Subordinated Notes equal to the total obligations
under such Junior Subordinated Notes, such indemnification shall be
accomplished by canceling shares of the Buyer Preferred Stock. The
Buyers and the Buyer Indemnified Parties agree that their sole and
exclusive remedy against Sellers, Seller Stockholders and the RCI
Stockholders for such Losses pursuant to paragraphs 6(a)(i) or
6(a)(ii) shall be to set off in the manner provided in this paragraph
6(c)(iv) the principal payments due under the Junior Subordinated
Notes and then the amounts due under the Buyer Preferred Stock. Such
setoff shall be made against each of the outstanding Junior
Subordinated Notes and shares of Buyer Preferred Stock in proportion
to their original principal amount or number of shares, as applicable;
provided, however, that any such set off for a breach of the
representations and warranties made under paragraph 4 shall only apply
to the RCI Stockholder who breached the applicable representation and
warranty.
[b] Buyers agree to provide Sellers and
the RCI Stockholders written notice of Buyers' good faith intention to
reduce the amount outstanding under the Junior Subordinated Notes or
Buyer Preferred Stock pursuant to this paragraph 6 (each a " Notice of
Claim"). On the 30th day after the date the Sellers and the RCI
Stockholders receive a copy of a Notice of Claim as provided herein,
or earlier, if the Sellers and the RCI Stockholders consent in writing
to such proposed set off, Buyers shall have the right to set off
against the Junior Subordinated Notes (and thereafter against the
Buyer Preferred Stock) an amount equal to the amount set forth in the
Notice of Claim, unless prior to such day the Buyers receive written
notice from Sellers and the RCI Stockholders of a dispute as to the
right to payment for such claim ("Notice of Dispute"). The Notice of
Dispute shall state in detail the extent and basis of Sellers and the
RCI Stockholders objection to the claim including, if applicable, the
reasons Sellers and the RCI Stockholders believe that such claim is
not covered by the indemnification obligations of Sellers and the RCI
Stockholders. If the Sellers and the RCI Stockholders deliver a
timely Notice of Dispute, Buyer shall not have
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the right to set off against the Junior Subordinated Notes or Buyer
Preferred Stock until such time as the dispute has been resolved as
provided in paragraph 6(c)(v).
(v) Arbitration Procedure.
[a] The Buyers and the Seller Parties
agree that the arbitration procedure set forth below shall be the sole
and exclusive method for resolving and remedying claims for damages
arising out of the provisions of paragraphs 6(a) and 6(b) (the
"Disputes"). Nothing in this paragraph 6(c) shall prohibit a Party
hereto from instituting litigation to enforce any Final Determination
(as defined below) or availing itself of the other remedies set forth
in paragraph 9(k) below. The Parties hereby agree and acknowledge
that, except as otherwise provided in this paragraph 6(c) or in the
Commercial Arbitration Rules of the American Arbitration Association
as in effect from time to time, the arbitration procedures and any
Final Determination hereunder shall be governed by, and shall be
enforced pursuant to the Uniform Arbitration Act and applicable
provisions of, Illinois law.
[b] In the event that any Party asserts
that there exists a Dispute, such Party shall deliver a written notice
to each other Party involved therein specifying the nature of the
asserted Dispute and requesting a meeting to attempt to resolve the
same. If no such resolution is reached within ten business days after
such delivery of such notice, the Party delivering such notice of
Dispute (the " Disputing Person") may, within 30 business days after
delivery of such notice, commence arbitration hereunder by delivering
to each other Party involved therein a notice of arbitration (a "
Notice of Arbitration") and by filing a copy of such Notice of
Arbitration with the Chicago office of the American Arbitration
Association. Such Notice of Arbitration shall specify the matters as
to which arbitration is sought, the nature of any Dispute, the claims
of each Party to the arbitration and shall specify the amount and
nature of any damages, if any, sought to be recovered as a result of
any alleged claim, and any other matters required by the Commercial
Arbitration Rules of the American Arbitration Association as in effect
from time to time to be included therein, if any.
[c] The Seller Party (or the Seller
Parties, as the case may be) on the one hand and the Buyer (or the
Buyers, as the case may be) on the other hand each shall select one
independent arbitrator expert in the subject matter of the Dispute
(the arbitrators so selected shall be referred to herein as "Seller's
Arbitrator" and "Buyer's Arbitrator," respectively). In the event
that either Party fails to select an independent arbitrator as set
forth herein within 20 days from delivery of a Notice of Arbitration,
then the matter shall be resolved by the arbitrator selected by the
other Party. Seller's Arbitrator and Buyer's Arbitrator shall select
a third independent arbitrator expert in the subject matter of the
dispute, and the three arbitrators so selected shall resolve the
matter according to the
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procedures set forth in this paragraph 6(c)(v). If Seller's
Arbitrator and Buyer's Arbitrator are unable to agree on a third
arbitrator within 20 days after their selection, Seller's Arbitrator
and Buyer's Arbitrator shall each prepare a list of three independent
arbitrators. Seller's Arbitrator and Buyer's Arbitrator shall each
have the opportunity to designate as objectionable and eliminate one
arbitrator from the other arbitrator's list within seven days after
submission thereof, and the third arbitrator shall then be selected by
lot from the arbitrators remaining on the lists submitted by Seller's
Arbitrator and Buyer's Arbitrator.
[d] The arbitrator(s) selected pursuant
to paragraph [c] will determine the allocation of the costs and
expenses of arbitration based upon the percentage which the portion of
the contested amount not awarded to each Party bears to the amount
actually contested by such Party. For example, if the Buyers submit a
claim for $1,000, and if the Seller Parties contest only $500 of the
amount claimed by the Buyers, and if the arbitrator(s) ultimately
resolves the dispute by awarding the Buyers $300 of the $500
contested, then the costs and expenses of arbitration will be
allocated 60% (i.e. 300 / 500) to the Seller Parties and 40% (i.e.
200 / 500) to the Buyers.
[e] The arbitration shall be conducted
under the Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time, except as otherwise set
forth herein or as modified by the agreement of all of the Parties to
this Agreement. The arbitrator(s) shall so conduct the arbitration
that a final result, determination, finding, judgment and/or award
(the " Final Determination") is made or rendered as soon as
practicable, but in no event later than 90 business days after the
delivery of the Notice of Arbitration nor later than 10 days following
completion of the arbitration. The Final Determination must be agreed
upon and signed by the sole arbitrator or by at least two of the three
arbitrators (as the case may be). The Final Determination shall be
final and binding on all Parties and there shall be no appeal from or
reexamination of the Final Determination, except for fraud, perjury,
evident partiality or misconduct by an arbitrator prejudicing the
rights of any Party and to correct manifest clerical errors.
[f] The Buyers and the Seller Parties
may enforce any Final Determination in any state or federal court
having jurisdiction over the Dispute. For the purpose of any action
or proceeding instituted with respect to any Final Determination, each
Party hereto hereby irrevocably submits to the jurisdiction of such
courts, irrevocably consents to the service of process by registered
mail or personal service and hereby irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter
have as to personal jurisdiction, the laying of the venue of any such
action or proceeding brought in any such court and any claim that any
such action or proceeding brought in such court has been brought in an
inconvenient forum.
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(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party
(the "Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this paragraph 6, then the Indemnified Party shall
promptly (and in any event within five business days after receiving notice of
the Third Party Claim) notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder, except to the extent the Indemnifying Party thereby is
prejudiced. Such notice shall describe the claim, the amount thereof (to the
extent then known and quantifiable), and the basis thereof, in each case to the
extent known to the Indemnified Party.
(ii) Any Indemnifying Party will have the right at
any time to assume and thereafter conduct the defense of the Third Party Claim
with counsel of his or its choice reasonably satisfactory to the Indemnified
Party; so long as (A) the Indemnifying Party notifies the Indemnified Party in
writing within 15 days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the Indemnified
Party from and against the entirety of any Losses the Indemnified Party may
suffer resulting from or in connection with the Third Party Claim, (B) the
Indemnifying Party will have the financial resources to defend against the
Third Party Claim and fulfill its indemnification obligations hereunder, (C)
the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, and (D) the Indemnifying Party conducts
the defense of the Third Party Claim actively and diligently.
(iii) Unless and until an Indemnifying Party
assumes the defense of the Third Party Claim as provided in paragraph 6(d)(ii)
above, however, the Indemnified Party may defend against the Third Party Claim
in any manner he or it reasonably may deem appropriate.
(iv) If the Indemnifying Party has the right, but
does not assume control of defense of any claim in accordance with this
paragraph 6(d), then the Indemnifying Party may nonetheless participate (at its
own expense) in the defense of such claim and the Indemnified Party will
consult with the Indemnifying Party in respect of such defense. If the
Indemnifying Party has the right and does assume control of defense of any
claim in accordance with this paragraph 6(d), then the Indemnified Party may
nonetheless participate (at its own expense) in the defense of such claim and
the Indemnifying Party will consult with the Indemnified Party in respect of
such defense.
(v) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with paragraph
6(d)(ii) above, (A) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (not to be withheld
unreasonably),
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and (B) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(e) Treatment of Indemnification Payments and Calculation
of Losses. Each Party will treat all payments made pursuant to this paragraph
6(e) as adjustments to the Purchase Price for all purposes. The Parties shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Losses for purposes of this paragraph 6. The
amount of any Loss for which indemnification is provided under this paragraph 6
shall be net of any amounts recovered by the Indemnified Party under insurance
policies with respect to such Loss and shall be (i) increased to take account
of any net Tax cost incurred by the Indemnified Party arising from the receipt
or accrual of indemnity payments hereunder (grossed up for such increase) and
(ii) reduced to take account of any net Tax benefit realized by the Indemnified
Party arising from the incurrence or payment of any such Loss. In computing
the amount of any such Tax cost or Tax benefit, the Indemnified Party shall be
deemed to recognize all other items of income, gain, loss, deduction or credit
before recognizing any item arising from the receipt or accrual of any
indemnity payment hereunder or the incurrence or payment of any indemnified
Loss. Any indemnification payment hereunder shall initially be made without
regard to this paragraph and shall be increased or reduced to reflect any such
net Tax cost (including gross-up) or net Tax benefit only after the Indemnified
Party has actually realized such cost or benefit. For purposes of this
Agreement, an Indemnified Party shall be deemed to have "actually realized" a
net Tax cost or a net Tax benefit to the extent that, and at such time as, the
amount of Taxes payable by such Indemnified Party is increased above or reduced
below, as the case may be, the amount of Taxes that such Indemnified Party
would be required to pay but for the receipt or accrual of the indemnity
payment or the incurrence or payment of such Loss, as the case may be. The
amount of any increase or reduction hereunder shall be adjusted to reflect any
final determination (which shall include the execution of Form 870-AD or
successor form) with respect to the Indemnified Party's liability for Taxes and
payments between the Seller Parties and the Buyers to reflect such adjustment
shall be made if necessary. Any indemnity payment under this Agreement shall
be treated as an adjustment to the Purchase Price for Tax purposes, unless a
final determination (which shall include the execution of a form 870-AD or
successor form) with respect to the Indemnified Party or any of its Affiliates
causes any such payment not to be treated as an adjustment to the Purchase
Price for United States Federal income Tax purposes.
7. Noncompetition and Nonsolicitation. As an inducement
to Buyers to enter into this Agreement and consummate the transactions
contemplated hereby, each Seller Party agrees as follows:
(a) During the period from the Closing to and including
the fifth anniversary of the Closing Date (the "Noncompete Period"), such
Seller Party shall not have any affiliation (as
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42
defined below) with any Person, corporation, partnership or other business
entity or enterprise anywhere in the world (other than the Buyers and their
Affiliates) which engages in the design, manufacture, marketing or sale of die
cast replicas of vehicles; provided that nothing contained herein shall be
construed to prohibit such Seller Party from purchasing (A) securities of the
Buyers or (B) up to an aggregate of 5% of any class of the outstanding voting
securities of any Person whose securities are listed on a national securities
exchange or traded in NASDAQ (a "Public Company") or up to an aggregate of 10%
of any other class of securities of any Public Company (including, for purposes
of calculating the percentage of such securities which may be purchased by
Seller, the securities of such Public Company then owned by all Affiliates of
Seller to the extent such Persons are acting in concert or otherwise constitute
a "group" for purposes of Section 13(d)(3) of the Securities Exchange Act) if
such Seller Party does not have an active role in the management of such Public
Company, it being understood that the exercise of voting rights with respect to
any such voting securities, in and of itself, shall not constitute such a role.
For purposes of this subparagraph (a), the term "affiliation" shall mean any
direct or indirect interest in such entity or enterprise, whether as an
officer, director, employee, investor, partner, stockholder, sole proprietor,
trustee, consultant, agent, representative, broker, promoter or otherwise; and
(b) During the Noncompete Period, such Seller Party shall
not, and shall not permit any of his or its Affiliates to (i) induce or attempt
to induce any employee of any Buyer or its Subsidiaries to leave the employ of
any Buyer or its Subsidiaries, or in any way interfere with the relationship
between any Buyer or its Subsidiaries and any employee thereof, (ii) hire
directly or through an Affiliate any person who, to such Person's knowledge,
was an employee of any Buyer or its Subsidiaries within one year prior to the
time such employee was hired by such Person, or (iii) induce or attempt to
induce any customer, supplier, licensor, licensee or other business relation of
any Buyer or its Subsidiaries to cease doing business with any Buyer or its
Subsidiaries or in any way interfere with the relationship between any such
customer, supplier, licensor, licensee or business relation of any Buyer or its
Subsidiaries.
(c) Notwithstanding anything in this paragraph 7 to the
contrary, if at any time, in any judicial proceeding, any of the restrictions
stated in this paragraph 7 are found by a final order of a court of competent
jurisdiction to be unreasonable or otherwise unenforceable under circumstances
then existing, each Seller Party agrees that the period, scope or geographical
area, as the case may be, shall be reduced to the extent necessary to enable
the court to enforce the restrictions to the extent such provisions are
allowable under law, giving effect to the agreement and intent of the Parties
that the restrictions contained herein shall be effective to the fullest extent
permissible. Each Seller Party acknowledges and agrees that money damages may
not be an adequate remedy for any breach or threatened breach of the provisions
of paragraphs 7 (a) or (b) and that, in such event, Buyers or its successors or
assigns may, in addition to any other rights and remedies existing in its
favor, apply to any court of competent jurisdiction for specific performance,
injunctive and/or other relief in order to enforce or prevent any violations of
the provisions of this
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paragraph 7 (including the extension of the Noncompete Period applicable to
any Seller Party by a period equal to the length of court proceedings necessary
to stop such violation). Any injunction shall be available without the posting
of any bond or other security. Each Seller Party agrees that the restrictions
contained in this paragraph 7 are reasonable in all respects.
8. Confidentiality and Access to Records.
(a) The Seller Stockholders and the Sellers will use
their best efforts to maintain the confidentiality of all Confidential
Information they obtain regarding the Buyers and their Affiliates. Each Seller
Stockholder agrees to use its best efforts to maintain the confidentiality of
all Confidential Information regarding the Sellers. In the event of the breach
of any of the provisions of this paragraph 8, the non-breaching party, in
addition and supplementary to other rights and remedies existing in its favor,
may apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive or other relief (without the posting of bond or
other security) in order to enforce or prevent any violations of the provisions
hereof.
(b) In the event that any Party reasonably believes after
consultation with counsel that it is required by law to disclose any
Confidential Information described in this paragraph 8, the disclosing party
will (i) provide the other Party with prompt notice before such disclosure in
order that such other Party may attempt to obtain a protective order or other
assurance that confidential treatment will be accorded such confidential
information and (ii) cooperate with the other Party in attempting to obtain
such order or assurance.
(c) Where there is a legitimate purpose not injurious to
the other party and not related to prospective competition by such party with
the other party or if there is an audit by the Internal Revenue Service, other
governmental inquiry, or litigation or prospective litigation to which Sellers
or Seller Stockholders, on the one hand, and Buyers, on the other hand, is, or
may become, a party, making necessary Sellers' or Seller Stockholders' access
to the records of or relating to the Acquired Assets held by the Buyers or
making necessary Buyers' access to records of or relating to the Acquired
Assets held by Sellers or Seller Stockholders, each party, as the case may be,
will allow representatives of the other party access to such records during
regular business hours at such party's place of business for the sole purpose
of obtaining information for use as aforesaid; provided that the Sellers or
Seller Stockholders access to such records will be limited to records relating
only to periods prior to the Closing Date. Either party may at any time
dispose of the records in its possession relating to any of the Acquired
Assets, Assumed Liabilities or the transactions contemplated herein in
accordance with their respective record retention policies; provided that
either party may, at its own cost and expense, retain, or make arrangements for
the retention of, records in the possession of the other party to which it
would have a right of access under this paragraph (c), if it notifies in
writing the other party that it desires to obtain such records.
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44
9. Miscellaneous.
(a) Reimbursement of Tax Liabilities. Notwithstanding
anything in this Agreement to the contrary, in the event (i) the sum of (A) the
Cash held by DM and RCI as of the Closing, plus (B) all distributions made by
RCI and DM directly or indirectly to or on behalf of the Seller Stockholders,
whether as dividends or other distributions, in redemption of or to purchase
RCI Shares or DM shares or other equity interests from and after February 1,
1996 (except for payments of salary and reimbursement of reasonable business
expenses, each in the Ordinary Course of Business), is less than (ii) Interim
Period Taxes, the Domestic Buyer will cause RCI to pay to the Seller
Stockholders an amount equal to such difference (as and when any Seller
Stockholder pays any portion of such difference). For purposes of the
preceding sentence, the Parties agree that the special cash bonuses aggregating
$2,389,218 payable to certain employees of RCI will be paid by increasing RCI's
Indebtedness for Borrowed Money (rather than by using Cash held by RCI). The
Sellers shall provide written notice of the estimated amount of any such
difference at least three days prior to the Closing. "Interim Period Taxes"
means an amount equal to the difference of (x) the aggregate amount of federal
and state income Taxes for which the RCI Stockholders are liable with respect
to the taxable income of RCI and DM for the portion of the 1996 taxable year
ending on the Closing Date, minus (y) the aggregate amount of federal and state
income Taxes for which the RCI Stockholders would have been liable with
respect to the taxable income of RCI and DM for the portion of the 1996 taxable
year ending on the Closing Date if RCI and DM had no taxable income for the
portion of the 1996 taxable year ending on the Closing Date other than income
arising as a direct result of the transactions contemplated by this Agreement.
(b) Post-Closing Tax Matters. The following provisions
shall govern the allocation of responsibility as between Buyers and Sellers for
certain tax matters following the Closing Date:
(i) Prorations. All real property taxes,
personal property taxes, ad valorem obligations and similar taxes
imposed on a periodic basis, in each case levied with respect to the
Acquired Assets, other than conveyance taxes provided for in paragraph
9(b)(ii), for a taxable period which includes (but does not end on)
the Closing Date shall be apportioned between Sellers and Buyers as of
the Closing Date based on the number of days of such taxable period
included in the Pre-Closing Tax Period and the number of days of such
taxable period included in the Post-Closing Tax Period. Sellers shall
be liable for the proportionate amount of such taxes that is
attributable to the Pre-Closing Tax Period. Within 90 days after the
Closing, Sellers and Buyers shall present a reimbursement to which
each is entitled under this paragraph 9(b)(i) together with such
supporting evidence as is reasonably necessary to calculate the
proration amount. The proration amount shall be paid by the Party
owing it to the other within 10 days after delivery of such statement.
Thereafter, Sellers shall notify Buyers upon receipt of any ▇▇▇▇ for
real or personal property taxes relating
- 40 -
45
to the Purchased Assets, part or all of which are attributable to the
Post-Closing Tax Period, and shall promptly deliver such ▇▇▇▇ to the
appropriate Buyer who shall pay the same to the appropriate taxing
authority, provided that if such ▇▇▇▇ covers the Pre-Closing Tax
Period, Sellers shall also remit prior to the due date of assessment
to the appropriate Buyer payment for the proportionate amount of such
▇▇▇▇ that is attributable to the Pre-Closing Tax Period. In the event
that any Seller or Buyer shall thereafter make a payment for which it
is entitled to reimbursement under this paragraph 9(b)(i), the
reimbursing party shall make such reimbursement promptly but in no
event later than 30 days after the presentation of a statement setting
forth the amount of reimbursement to which the presenting party is
entitled along with such supporting evidence as is reasonably
necessary to calculate the amount of reimbursement. Any payment
required under this paragraph and not made within 10 days of delivery
of the statement shall bear interest at the rate per annum determined,
from time to time, under the provisions of Section 6621(a)(2) of the
Code for each day until paid. For purposes of this paragraph 9(b)(i),
with respect to any taxable period that begins before and ends after
the Closing Date, "Pre-Closing Tax Period" means the period beginning
with the first day of such taxable period and ending on (and
including) the Closing Date, and " Post-Closing Tax Period" means the
period beginning on the day after the Closing Date and ending on the
last day of such taxable period.
(ii) Certain Taxes. All transfer, documentary,
sales, use, stamp, registration and other similar taxes and fees
(including any penalties and interest) incurred in connection with
this Agreement shall be paid by Sellers when due, and Sellers will, at
their own expense, file all necessary tax returns and other
documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other similar taxes and fees, and, if
required by applicable law, the Buyers will, and will cause their
Affiliates to, join in the execution of any such tax returns and other
documentation.
(iii) Cooperation on Tax Matters. Buyers, Sellers
and Seller Stockholders shall cooperate fully, as and to the extent
reasonably requested by any Party, in connection with any audit,
litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon any Party's request)
the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
Buyers, Sellers and Seller Stockholders agree (A) to retain all books
and records with respect to Tax matters pertinent to the Sellers
relating to any taxable period beginning before the Closing Date until
the expiration of the statute of limitations (and, to the extent
notified by any Buyer or Seller, any extensions thereof) of the
respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the
appropriate Party reasonable written notice prior to transferring,
destroying or discarding any such books and records and,
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46
if such Party so requests, such Buyer or Seller, as the case may be,
shall allow such Party to take possession of such books and records.
(iv) RCI Tax Matters.
[a] The RCI Stockholders shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns
for RCI for all periods ending on or prior to the Closing Date which
are filed after the Closing Date. The RCI Stockholders shall permit
the Domestic Buyer to review and comment on each such Tax Return
described in the preceding sentence prior to filing.
[b] The Domestic Buyer shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns for
RCI for all periods beginning before and ending after the Closing
Date. The Domestic Buyer shall permit the RCI Stockholders to review
and comment on each such Tax Return described in the preceding
sentence prior to filing.
[c] Except as provided in paragraph
9(iv)[e], the RCI Stockholders have responsibility for any and all
Taxes of RCI for any Tax period or portion thereof ending on or before
the Closing Date. The RCI Stockholders shall reimburse the Domestic
Buyer for Taxes of RCI with respect to all periods or portions thereof
ending on or prior to the Closing Date within fifteen (15) days of
payment by the Domestic Buyer.
[d] For purposes of this paragraph
9(b)(iv), in the case of any Taxes of RCI that are imposed on a
periodic basis and are payable for a Taxable period that includes (but
does not end on) the Closing Date, the portion of such Tax which
relates to the portion of such Taxable period ending on the Closing
Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a fraction the numerator
of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the
entire Taxable period, and (y) in the case of any Tax of RCI based
upon or related to income or receipts be deemed equal to the amount
which would be payable if the relevant Taxable period ended on the
Closing Date. For purposes of this paragraph 9(b)(iv), in the case of
any Tax credit of RCI relating to a Taxable period that begins before
and ends after the Closing Date, the portion of such Tax credit which
relates to the portion of such Taxable period ending on the Closing
Date shall be the amount which bears the same relationship to the
total amount of such Tax credit as the amount of Taxes described in
(y) above bears to the total amount of Taxes for such Taxable period.
All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior practice
of the RCI.
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47
[e] (i) The RCI Stockholders and the
Domestic Buyer shall jointly make a timely election under Section
338(h)(10) of the Code, and any applicable corresponding or similar
provisions of state or local law, including any provisions
corresponding to Section 338(g) of the Code (the "338(h)(10)
Elections"), with respect to the acquisition of the RCI Shares. The
RCI Stockholders and the Domestic Buyer shall jointly prepare Internal
Revenue Service Form 8023-A with respect to RCI, and such other forms
and schedules as are necessary or required to make the 338(h)(10)
Elections, and each Seller and the Domestic Buyer shall execute such
Form 8023-A, and shall take all such other acts as are necessary to
make or perfect such 338(h)(10) Elections. The allocation of the
Purchase Price among RCI's assets shall be made in accordance with
Section 338 of the Code and applicable Treasury Regulations
thereunder. The Parties agree that the fair market value of RCI's
assets shall be determined jointly by the Domestic Buyer and the RCI
Stockholders reasonably and in good faith, and such valuations shall
be used by the Parties in allocating the Purchase Price and in
preparing (a) Form 8023-A and the schedules attached thereto for each
of the Domestic Buyer and the RCI Stockholders, and (b) all Tax
Returns. The RCI Stockholders are responsible for all Taxes resulting
from the 338(h)(10) Elections, other than Taxes imposed by Section
1374 of the Code and corresponding state and local provisions.
(ii) The Domestic Buyer shall cause
RCI to make an additional payment to the RCI Stockholders in an amount equal to
the amount the RCI Stockholders' federal, state and local income taxes
resulting directly from the payment of the Purchase Price and the 338(h)(10)
Elections are greater than the federal, state and local income taxes which
would have been imposed on the RCI Stockholders with respect to the
transactions contemplated herein had the 338(h)(10) Elections not been made
(such excess amount referred to herein as the "Tax Detriment"). The
computation of the Tax Detriment shall take into account any Tax benefit or
detriment to the RCI Stockholders resulting from (1) any increase in the deemed
sale price of RCI's assets as a result of any liability of RCI for Taxes
imposed under Code Section 1374 or any similar provision of state or local law,
(2) any increase in the RCI Stockholders' adjusted basis in the stock of RCI as
a result of any increase in income or gain recognized by RCI as a result of
any increase in deemed sale price described in clause (1) above, (3) any loss
allowed pursuant to Code Section 1366(f)(2), and (4) any reduction in the RCI
Stockholders' adjusted basis in the RCI stock pursuant to Code Section 1367 as
a result of clause (3) above. The following procedure shall be implemented to
determine the amount and payment of the Tax Detriment:
(A) The Domestic Buyer will
prepare and deliver to the RCI Stockholders a computation of the Tax Detriment.
For purposes of determining the Tax Detriment, (y) the state income tax rate
used in calculating the amount of any state income taxes imposed on the RCI
Stockholders shall be the highest marginal rate applicable to residents of
Illinois on the Closing Date, (z) the federal income tax rate used to
calculate the federal income tax that would have been or will be imposed on
gains from the sale of any capital asset shall be the federal
- 43 -
48
income tax rate applicable to the sale of such item on the Closing Date. If
the RCI Stockholders disagree with the computation of the Tax Detriment, the
RCI Stockholders may within thirty (30) days after receipt of the computation
of the Tax Detriment, deliver a notice (a "Tax Detriment Objection Notice") to
the Domestic Buyer setting forth the RCI Stockholders' calculation of the Tax
Detriment. The Domestic Buyer and the RCI Stockholders shall use reasonable
efforts to resolve any disagreements as to the computation of the Tax
Detriment, but if they do not obtain a final resolution within thirty (30) days
after the Domestic Buyer has received the Tax Detriment Objection Notice, the
Domestic Buyer and the RCI Stockholders will jointly retain an accounting firm
acceptable to both parties. The Domestic Buyer and the RCI Stockholders shall
direct such accounting firm to render a determination within fifteen (15) days
of its retention and the Domestic Buyer, the RCI Stockholders and their
respective employees and agents will cooperate with such accounting firm during
its engagement. Such accounting firm will consider only those items and
amounts in the Domestic Buyer's computation of the Tax Detriment set forth in
the Tax Detriment Objection Notice which the Domestic Buyer and the RCI
Stockholders are unable to resolve. Such accounting firm's determination will
be based on the procedure set forth herein to determine the Tax Detriment. The
determination of such accounting firm will be conclusive and binding upon the
Domestic Buyer and the RCI Stockholders. RCI, on the one hand, and the RCI
Stockholders, on the other hand (pro rata among the RCI Stockholders based on
the number of RCI Shares sold) will each pay one half of the fees and expenses
of such accounting firm. The amount of the Tax Detriment, as finally
determined pursuant to this Section 10(b)(iv)(E)(ii), is referred to herein as
the "Actual Tax Detriment Payment."
(B) The Domestic Buyer shall
cause RCI to deliver to the RCI Stockholders (pro rata among the RCI
Stockholders) the Actual Tax Detriment Payment not later than April 10, 1997.
(c) Press Releases and Public Announcements. No Party
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of the
other Parties.
(d) No Third-Party Beneficiaries. This Agreement shall
not confer any rights or remedies upon any Person other than the Parties and
their respective successors and permitted assigns.
(e) Entire Agreement. This Agreement (including the
documents referred to herein) constitutes the entire agreement between the
Parties and supersedes any prior understandings, agreements or representations
by or between the Parties, written or oral, to the extent they related in any
way to the subject matter hereof; provided, however, that the Confidentiality
Agreement shall survive the execution and delivery of this Agreement.
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49
(f) Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of the other Parties; provided, however, that any Buyer
may (i) assign any or all of its rights and interests hereunder to one or more
of its Subsidiaries or any of its or their successors, (ii) assign its rights
hereunder (including its right to indemnification) for collateral security
purposes to any source of Indebtedness for Borrowed Money and all extensions,
renewals, replacements, refinancings and refundings thereof in whole or in part
and (iii) designate one or more of its Subsidiaries to perform its obligations
hereunder (in any or all of which cases such Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
(g) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(h) Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(i) Notices. All notices, requests, demands, claims and
other communications hereunder will be in writing. Any notice, request,
demand, claim or other communication hereunder shall be deemed duly given if
(and then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Sellers or the Seller Stockholders:
c/o Racing Champions, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: President
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50
with a copy to:
Reinhart, Boerner, Van Deuren,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, s.c.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
If to the Buyers:
c/o Collectible Champions, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: President
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇ & Partners, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: Avy ▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. Perl
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery,
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51
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims and other communications
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.
(j) Governing Law. This Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Illinois
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Illinois or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Illinois.
(k) Specific Performance. Each of the Parties
acknowledges and agrees that the other Parties would be damaged irreparably in
the event any of covenants of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each of the
Parties agree that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the covenants of this Agreement and to
enforce specifically the covenants contained in Agreement in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy
to which it may be entitled, at law or in equity, other than claims for
monetary relief, which shall be governed by the terms of paragraph 6 hereof.
It is the intent of the Parties that no claims for breaches of representations
and warranties be made pursuant to this paragraph, but rather that any such
claims be made only pursuant to paragraph 6 above.
(l) Amendments and Waivers. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by the Buyers, the Sellers and Seller Stockholders. The Sellers may
consent to any such amendment at any time prior to the Closing with the prior
authorization of each of their respective Boards of Directors. No waiver by any
Party of any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(m) Severability. Any term or provision of this
Agreement that is invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(n) Expenses. Except as otherwise provided herein, the
Buyers, the Sellers and the Seller Stockholders will each pay all of their own
expenses (including fees and expenses of legal counsel, accountants,
investment bankers, brokers or other representatives and consultants and
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52
appraisal fees and expenses) incurred in connection with the negotiation of
this Agreement and the other agreements contemplated hereby and the performance
of its or their obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby (whether consummated or not);
it being understood that the Buyers will reimburse the Seller Parties at the
Closing for all reasonable fees and expenses of the Seller Parties incurred in
connection with this Agreement and the other agreements contemplated hereby and
the performance of its or their obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby (including the
fees and expenses set forth on the Schedule of Expenses) if all such
transactions are consummated.
(o) Construction. The Parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the authorship
of any of the provisions of this Agreement. Any reference to any federal,
state, local or foreign statute or law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" shall mean including without limitation.
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein unless the Disclosure
Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail.
(p) Incorporation of Exhibits and Schedules. The
exhibits and schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(q) Employee Benefits Matters. The Domestic Buyer will
cause RCI to adopt and assume at and as of the Closing each of the Employee
Benefit Plans maintained by DM which is set forth on the Schedule of Assumed
Benefit Plans and each trust, insurance contract, annuity contract or other
funding arrangement that DM has established with respect thereto. The Foreign
Buyer will adopt and assume at and as of the Closing Date each of the Employee
Benefit Plans maintained by RCL, GSI and HIL which is set forth on the Schedule
of Assumed Benefit Plans and each trust, insurance contract, annuity contract
or other funding arrangement that such Sellers have established with respect
thereto. The Foreign Buyer shall offer employment to all employees of RCL, GSI
and HIL on terms at least equal to those on which such employees are employed
at the time of the Closing. The Buyers will ensure that the Employee Benefit
Plans to be assumed by the Buyers treat employment by any of the Sellers prior
to the Closing Date the same as employment with any of the Buyers from and
after the Closing Date for purposes of eligibility, vesting, and benefit
accrual. DM will transfer (or cause the plan administrators and trustees to
transfer) at or promptly following the Closing all of the corresponding assets
associated with the Employee Benefit Plans of DM that the Domestic Buyer is
adopting and assuming. RCL, GSI and HIL will transfer (or cause the plan
administrators and trustees to transfer) at and as of the Closing all of the
corresponding assets
- 48 -
53
associated with the Employee Benefit Plans of such Sellers that the Foreign
Buyer is adopting and assuming.
(r) Transfer of Restricted Securities.
(i) Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
transfer of the securities represented by this certificate is
subject to the conditions specified in the Asset and Stock
Purchase Agreement, dated as of April 30, 1996, by and among
Collectible Champions, Inc. (the "Company"), certain investors
in the Company and certain other parties, and the Company
reserves the right to refuse the transfer of such securities
until such conditions have been fulfilled with respect to such
transfer. A copy of such conditions shall be furnished by the
Company to the holder hereof upon written request and without
charge."
(ii) Restricted Securities are transferable only
pursuant to (A) public offerings registered under the Securities Act, (B) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (C) subject to the
conditions specified in paragraph 9(r)(iii) below, any other legally available
means of transfer.
(iii) In connection with the transfer of any
Restricted Securities (other than a transfer described in clauses (ii)(A) or
(ii)(B) above), the holder thereof shall deliver written notice to the Domestic
Buyer describing in reasonable detail the transfer or proposed transfer,
together with an opinion of counsel reasonably satisfactory to the Domestic
Buyer to the effect that such transfer of Restricted Securities may be effected
without registration of such Restricted Securities under the Securities Act.
In addition, if the holder of the Restricted Securities delivers to the
Domestic Buyer an opinion of counsel satisfactory to the Domestic Buyer that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, the Domestic Buyer shall promptly upon such
contemplated transfer deliver new certificates for such Restricted Securities
which do not bear the Securities Act legend set forth in paragraph 9(r)(i)
above. If the Domestic Buyer is not required to deliver new certificates for
such Restricted Securities not bearing such legend, the holder thereof shall
not transfer the same until the prospective transferee has confirmed to the
Domestic Buyer in writing its agreement to be bound by the conditions contained
in this paragraph 9(r). Upon the request of any Seller or Seller Stockholder,
the Domestic Buyer shall
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54
promptly supply to such Person or its prospective transferees all information
regarding the Domestic Buyer required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
Upon the request of any holder of Restricted Securities, the Domestic Buyer
shall remove the foregoing legend from the certificates for such holder's
Restricted Securities; provided that such Restricted Securities are eligible
for sale pursuant to Rule 144(k) of the Securities and Exchange Commission.
(iv) Transfer of Restricted Securities is also
subject to the restrictions thereon set forth in the Stockholders Agreement.
(s) Bulk Transfer Laws. The Buyers acknowledge that the
Sellers will not comply with the provisions of any bulk transfer laws or
similar laws of any jurisdiction in connection with the transactions
contemplated by this Agreement.
(t) Submission to Jurisdiction. Each of the Parties
submits to the jurisdiction of any state or federal court sitting in Chicago,
Illinois, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each Party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with
respect thereto. Each of RCL, GSI, HIL and ▇▇▇▇▇ appoints the Foreign Buyer
(the "Process Agent") as his or its agent to receive on his or its behalf
service of copies of the summons and complaint and any other process that might
be served in the action or proceeding. Any Party may make service on any other
Party by sending or delivering a copy of the process (i) to the Party to be
served at the address and in the manner provided for the giving of notices in
Section 9(i) above or (ii) to the Party to be served in care of the Process
Agent at the address and in the manner provided for the giving of notices in
Section 9(i) above. Nothing in this Section 10(t), however, shall affect the
right of any Party to serve legal process in any other manner permitted by law
or at equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or at equity.
(u) Change of Name. Within 35 days following Closing,
RCL shall change its name to a name that does not include the words "Racing
Champions" or a variation thereof. RCL shall also immediately cease to use,
and thereafter refrain from using, a name with the words "Racing Champions" or
any variation thereof; provided that RCL may continue to use the name "Racing
Champions Limited" in connection with that certain golf club membership in Hong
Kong which is currently under the name "Racing Champions Limited."
* * * * *
- 50 -
55
IN WITNESS WHEREOF, the Parties hereto have executed this
Asset and Stock Purchase Agreement as of the date first above written.
COLLECTIBLE CHAMPIONS, INC.
BY /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
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Its
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BANERJAN COMPANY LIMITED
BY /s/ Avy ▇. ▇▇▇▇▇
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Its
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RACING CHAMPIONS, INC.
BY /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
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Its
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▇▇▇▇-▇▇▇▇▇, LTD.
BY /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
Its
-------------------
RACING CHAMPIONS LIMITED
BY /s/ ▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇
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Its
---------------------
56
[CONTINUATION OF SIGNATURE PAGE TO ASSET AND STOCK PURCHASE AGREEMENT]
▇▇▇▇▇▇▇ SERVICES, INC.
BY /s/ ▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇
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Its
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HOSTEN INVESTMENT LIMITED
BY /s/ ▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇
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Its
---------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------
▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------
▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇.▇. ▇▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇▇