RACING CHAMPIONS CORP, S-1, 1997-02-27

RACING CHAMPIONS CORP
S-1, 1997-02-27

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997.

REGISTRATION STATEMENT NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

RACING CHAMPIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 5090 36-4088307
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

800 ROOSEVELT ROAD
BUILDING C, SUITE 320
GLEN ELLYN, ILLINOIS 60137
(630) 790-3507
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ROBERT E. DODS
PRESIDENT
RACING CHAMPIONS CORPORATION
800 ROOSEVELT ROAD
BUILDING C, SUITE 320
GLEN ELLYN, ILLINOIS 60137
(630) 790-3507
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
MICHAEL T. PEPKE, ESQ. THOMAS J. MURPHY, ESQ.
JAMES M. BEDORE, ESQ. TIMOTHY R.M. BRYANT, ESQ.
REINHART, BOERNER, VAN DEUREN, MCDERMOTT, WILL & EMERY
NORRIS & RIESELBACH, S.C. 227 WEST MONROE STREET
1000 NORTH WATER STREET, SUITE
2100 CHICAGO, IL 60606-5096
MILWAUKEE, WI 53202 (312) 372-2000
(414) 298-1000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
===============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value $.01 Per
Share................................. 5,750,000 shares $14.00 $80,500,000 $24,393.94
===============================================================================================================================
</TABLE>

(1) Includes 750,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the Registration Fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1997

PROSPECTUS

5,000,000 SHARES

[LOGO]

COMMON STOCK
------------------------

All of the 5,000,000 shares of Common Stock offered hereby are being sold
by Racing Champions Corporation. Certain of the net proceeds to the Company will
be used to redeem all of the Company's outstanding shares of preferred stock and
to repay indebtedness to the Company's current stockholders. See "Use of
Proceeds."

Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for the
Common Stock will be between $12.00 and $14.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.

The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "RACN."

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE 7.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
==================================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
Per Share............................. $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3).............................. $ $ $
==================================================================================================================
</TABLE>

(1) The Company and certain stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses, estimated to be $750,000, payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
357,142 additional shares of Common Stock and certain stockholders of the
Company have granted the Underwriters a 30-day option to purchase up to
392,858 additional shares of Common Stock on the same terms and conditions
as set forth above to cover over-allotments, if any. The Company will not
receive any proceeds from the sale of any additional shares by these
stockholders. See "Principal Stockholders." If the Underwriters exercise the
over-allotment option in full, the total Price to Public will be $ ,
the total Underwriting Discounts and Commissions will be $ , the
total Proceeds to Company will be $ and the total proceeds to these
stockholders will be $ . See "Underwriting."

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

The shares of Common Stock offered hereby are offered by the several
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to their right to reject orders in whole or in
part. It is expected that delivery of the certificates representing shares of
Common Stock will be made on or about , 1997 through The
Depository Trust Company or at the offices of Robert W. Baird & Co.
Incorporated, Milwaukee, Wisconsin.

ROBERT W. BAIRD & CO.
INCORPORATED

WILLIAM BLAIR & COMPANY

J.C. BRADFORD & CO.

THE DATE OF THIS PROSPECTUS IS , 1997
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[PICTURES OF PRODUCTS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in the Prospectus. Unless indicated otherwise, the information
contained in this Prospectus (i) gives effect to the recapitalization
consummated on April 30, 1996 (see "The Recapitalization"), (ii) assumes that
the Underwriters' over-allotment option is not exercised, (iii) has been
restated to give retroactive effect to a stock split of 7.885261 shares for each
share of Common Stock and an amendment and restatement of the Company's
Certificate of Incorporation and By-Laws effected or to be effected prior to
consummation of the Offering, and (iv) gives effect to the conversion of all of
the outstanding shares of the Company's Nonvoting Common Stock, par value $.01
per share, into an aggregate of 937,084 shares of Common Stock upon the
completion of the Offering. Unless indicated otherwise, references to the
"Company" or "Racing Champions" are to Racing Champions Corporation and its
subsidiaries, including the operations of the RCI Group and the RCL Group prior
to April 30, 1996.

THE COMPANY

Racing Champions is a leading producer and marketer of collectible scaled
die cast vehicle replicas. The Company is best known for its extensive line of
officially licensed, high quality collectible replicas of actual race cars and
related vehicles from the five most popular U.S. professional racing series,
including NASCAR. Since its inception in 1989, the Company has capitalized on
the growing popularity of motor sports by offering an expanding line of high
quality, affordable racing replicas targeted toward racing fans and adult
collectors. The Company believes that it has the largest domestic market share
in the die cast racing replica category. Beginning in 1996, the Company
successfully expanded into non-racing collectibles by introducing the Racing
Champions Mint(TM) line of high quality die cast replicas of classic and
late-model vehicles. The Company is continuing this expansion in 1997 by
introducing an additional line of non-racing vehicle replicas and two new lines
of collectible pewter figures. From 1990, the Company's first full year of
operations, through 1996, the Company's net sales grew from approximately $5
million to $66 million. The Company intends to further its growth by (i)
continuing to capitalize on the growing popularity of motor sports to expand its
racing replica business, and (ii) leveraging its brand name, reputation with
collectors, and established distribution and manufacturing relationships by
developing new collectible products.

The Company's strategy is to develop affordable, collectible replicas
centered around themes for which significant enthusiast, hobbyist and collector
interest exists. In order to produce authentic products and create interest and
credibility with collectors and enthusiasts, the Company obtains official
licenses which allow for the reproduction of distinguishing characteristics,
trade names and trademarks. The Company enhances the collectibility of its
products by carefully managing product quantities and staggering product release
dates, continuously freshening its product offerings, producing special
editions, utilizing distinctive packaging and adding other special features. In
order to broaden the potential collector base for its products, the Company's
replicas are affordably priced, typically under $30 at retail. Although the
Company employs traditional collectible distribution channels such as collector
and hobby shops, the Company principally distributes its products through mass
merchants. The Company believes that its established shelf space at these mass
merchants enables it to (i) reach more customers with greater frequency given
the regular shopping patterns of its target market at mass merchants, and (ii)
sell a higher volume of products resulting in substantial economies of scale.
The resulting cost reductions make the Company's products more affordable to
consumers and more profitable for itself as well as retailers. In addition,
because of electronic links in place with its mass merchant customers, the
Company is better able to monitor retail inventories and point of sale
information and adjust production accordingly.

Racing Replicas. The racing replica category is well suited to the
Company's strategy because of (i) the popularity of major racing series such as
NASCAR, one of the fastest growing spectator sports in the United States, (ii)
the significant interest in collecting racing replicas among racing fans and
adult die cast collectors and (iii) the wide variety of frequently changing
vehicles to replicate. Racing Champions' largest product line is a comprehensive
collection of scaled stock cars, trucks and team transporters replicating most
of the vehicles competing in the current year's NASCAR Winston Cup Series, Busch
Grand National Series and
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Truck Series by Craftsman. The Company also produces replicas from other popular
racing series including National Hot Rod Association drag racing ("NHRA"),
Championship Auto Racing Teams ("CART") and Indy Racing League ("IRL") Indy
style racing, and World of Outlaws sprint car racing ("World of Outlaws"), as
well as Honda and Kawasaki racing motorcycles. Racing Champions produced over
900 different styles of racing replicas in 1996. The Company's racing replicas
range in size from 1:144 scale to 1:9 scale and retail at prices ranging from $1
to $30.

In order to produce its wide variety of racing replicas, the Company has
entered into over 450 different licensing agreements with racing teams, drivers
and sponsors, vehicle manufacturers and major racing series sanctioning bodies.
Because several aspects of a racing vehicle's outward appearance change
frequently due to changes in sponsors, vehicle styling, graphics and drivers,
many of the Company's replicas also change frequently, thereby enhancing their
collectibility. The Company further enhances collectibility by releasing
different monthly assortments of the various racing replicas, producing annual
and special editions and adding special features such as serial numbers, vehicle
display stands, die cast emblems and trading cards featuring the driver.
Established secondary markets exist for many of the Company's products and the
market values of the Company's products are regularly reported in a variety of
die cast collector magazines. In many cases, the value of a Racing Champions
product in the secondary markets exceeds the product's original retail price.

Non-racing Vehicle Replicas. In addition to racing replicas, the Company
has identified significant market opportunities for collectible non-racing die
cast vehicles. During 1996, the Company introduced Racing Champions Mint, a line
of high quality, collectible die cast vehicles replicating classic and
late-model cars and trucks from the 1930's to the present. The Racing Champions
Mint line features a series of limited production, serial numbered, highly
detailed replicas produced in color schemes matching those used on the actual
vehicle. This product line is sold through mass merchants at a retail price of
approximately $5 for each 1:64 scale vehicle and in its first year of production
generated sales for the Company of approximately $9.7 million. In early 1997,
the Company complemented the Racing Champions Mint series with the Racing
Champions Hot Rod Collection(TM), a new line of collectible die cast hot rod
replicas which is supported by licensing and marketing arrangements with
Petersen Publishing Company's Hot Rod Magazine.

Collectible Pewter Figures. The Company is targeting comic book and sports
enthusiasts and figure collectors with two new lines of collectible pewter
figures which it will begin shipping in 1997. The first line is a series of
pewter replicas of various comic book characters in action poses. Each figure is
mounted on a die cast stand in front of an encased miniature reproduction of a
comic book cover on which the character appeared ("Comic Book Champions"(TM)).
The Company has obtained licenses from Marvel Characters, Inc. and DC Comics (a
division of the Time Warner Entertainment Company L.P.), two of the leading
publishers of comic books in the United States, which will allow the Company to
replicate characters such as Superman(R), Batman(R) and Spiderman(R). The second
line consists of pewter replicas of popular athletes. Each athlete is mounted on
a die cast stand in front of an encased miniature reproduction of a Sports
Illustrated magazine cover on which the athlete appeared ("Sports
Champions"(TM)). In addition to a licensing arrangement with Sports Illustrated,
the Company is negotiating licenses from the major sports leagues (including the
National Football League, Major League Baseball, the National Hockey League and
the National Basketball Association) and popular athletes (including Muhammad
Ali, Frank Thomas, Ken Griffey, Jr., Joe Montana and Arnold Palmer). The Company
has received commitments from its major customers to purchase both the Comic
Book Champions and Sports Champions product lines.

Product Distribution and Supply. Approximately 76% of the Company's 1996
net sales were made through mass merchants, including K-Mart, Target, Toys 'R'
Us and Wal-Mart. Due to the success of its product offerings, the Company has
been able to increase shelf space for its products at each of its major
customers. The Company believes that its current shelf space and relationships
with its mass merchant customers provide it with a significant competitive
advantage in introducing new products and maintaining its leading share of the
racing replica market. The Company has maintained its profit margins while
selling through mass merchants by realizing economies of scale, diligently
controlling its costs and offering its mass market customers the opportunity to
earn an attractive mark-up on its products. Racing Champions also sells through
wholesalers who, in turn, distribute to hobby and collector shops (approximately
15% of 1996 net
4
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sales). The Company's remaining 9% of 1996 net sales were made through companies
which offered customized products for premium/promotional purposes.

Virtually all of the Company's products are manufactured by six
independently owned factories located in China. All but two of these factories
are exclusively dedicated to manufacturing the Company's products and all are
privately owned by independent Chinese entrepreneurs. The Company, through
Racing Champions Limited, its Hong Kong subsidiary, manages all key aspects of
its product manufacturing in China, including sourcing raw materials and
packaging, performing engineering and graphic art functions, executing
production schedules, providing on site quality control and safety testing and
delivering shipments for export from Hong Kong to the United States. The Company
believes its dedicated Chinese supplier base together with the local oversight
and coordination provided by its Hong Kong subsidiary provide it with certain
competitive advantages including a rapid product development capability as well
as a flexible, reliable and high quality supply source.

Formation. Racing Champions Corporation was formed in April 1996 by an
investor group led by Willis Stein & Partners, L.P., a private investment fund,
for the purpose of acquiring both Racing Champions, Inc., a privately held
Illinois corporation formed in 1989 (together with an affiliated company, the
"RCI Group"), and Racing Champions Limited, a privately held Hong Kong
corporation formed simultaneously in 1989 (together with certain affiliated
companies, the "RCL Group"). The RCI Group and the RCL Group, while under
different ownership, effectively operated as one entity with the RCI Group
managing the licensing, product development and sales operations, and the RCL
Group managing the overseas manufacturing and shipping operations. The RCI Group
was owned equally by Robert E. Dods and Boyd L. Meyer. The RCL Group was owned
by Peter K.K. Chung. Messrs. Dods, Meyer and Chung continue to serve as senior
executives of the Company and collectively will own approximately 26.7% of the
outstanding Common Stock following the Offering.

The Company's principal executive offices are located at 800 Roosevelt
Road, Building C, Suite 320, Glen Ellyn, Illinois 60137 and its telephone number
is (630) 790-3507. The Company maintains a World Wide Web site at
www.racingchamps.com.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company........... 5,000,000 shares
Common Stock to be outstanding after the
Offering....................................
12,885,240 shares(1)
Use of Proceeds...............................
To repay subordinated debt owed to stockholders of
the Company and bank borrowings, and to redeem all of
the outstanding shares of the Company's Series A
Preferred Stock and Series B Preferred Stock. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol........
RACN
</TABLE>

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

(1) Does not include 332,033 shares issuable upon exercise of options granted
pursuant to the Company's 1996 Key Employees Stock Option Plan. See
"Management -- Executive Compensation -- 1996 Key Employees Stock Option
Plan."
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
COMBINED
----------------------------------------------------
1993 1994 1995 1996 PRO FORMA(1)
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................. $ 31,047 $ 43,268 $ 48,592 $ 65,999
Gross profit.............................. 18,298 23,826 29,252 37,532
Operating income before nonrecurring bonus
expense and amortization of intangible
assets................................. 7,685 10,886 12,475 16,106
Operating income.......................... 7,685 10,886 12,475 11,478
Net income(2)............................. $ 6,938 $ 10,563 $ 12,182 $ 4,744
Net income per share...................... $ 0.36
Weighted average shares outstanding....... 13,214
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED(3)
-------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $(10,350) $ (4,150)
Total assets.............................. 109,080 109,080
Total debt................................ 86,299 35,117
Total stockholders' equity................ 11,413 62,595
</TABLE>

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

(1) Pro forma statement of income data for the year ended December 31, 1996
include a nonrecurring incentive bonus expense of $2,389,000 incurred in
connection with the Recapitalization and a purchase accounting inventory
write-up adjustment of $1,367,000 as a result of the Recapitalization.
Excluding the effects of the nonrecurring incentive bonus expense and the
inventory write-up adjustment, the Company's pro forma gross profit,
operating income before nonrecurring bonus expense and amortization of
intangible assets, operating income, net income and net income per share for
the year ended December 31, 1996 would have been $38,899,000, $17,473,000,
$15,234,000, $6,997,000 and $0.53 per share, respectively.

(2) Net income for the years ended 1993, 1994 and 1995 includes a provision for
Hong Kong income taxes at an effective rate of 16.5% for certain entities,
no provision for other entities structured as tax-free British Virgin
Islands entities and no federal income tax provision for certain entities
structured as S corporations.

(3) The "As Adjusted" amounts give pro forma effect to (i) the issuance of
5,000,000 shares of Common Stock in the Offering at an assumed price of
$13.00 per share, net of estimated underwriting discounts and commissions of
$4,550,000 and estimated offering expenses of $750,000 and (ii) the
repayment of $51,182,000 of indebtedness and the redemption of $8,518,000 of
preferred stock.
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RISK FACTORS

Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, in evaluating
the Company and its business before purchasing shares of the Common Stock
offered hereby. This Prospectus contains certain forward-looking statements that
involve risks and uncertainties. Future events and the Company's actual results
could differ materially from the results reflected in these forward-looking
statements.

CONSUMER ACCEPTANCE OF PRODUCTS

The markets for the Company's products are subject to rapidly changing
consumer preferences. The Company's historical growth has been based in part on
the growing interest in racing and motor sports and the evolution of the
preferences of racing enthusiasts and collectors toward the Company's products.
A decline in the popularity of racing and motor sports or a change in consumer
preferences could have a material adverse effect on the Company. The Company's
future growth will depend in large part upon its ability to continue to
conceive, design, source and market new products and upon continuing market
acceptance of its existing and future products. Significant delays in the
introduction of, or the failure to introduce, new products or additions to its
existing product lines or the failure of the Company's existing or future
products to maintain or receive substantial market acceptance could also have a
material adverse effect on the Company. In 1997, the Company plans to introduce
a collection of pewter figures, its first significant non-vehicle product. There
can be no assurance that such products will achieve consumer acceptance. See
"Business -- Products."

COMPETITION

The Company operates in a highly competitive market. The Company competes
with several larger domestic and foreign companies, such as Mattel, Inc.
("Mattel") and Hasbro, Inc. ("Hasbro") which have recently entered the racing
replica market, and with other smaller producers of racing replicas. The smaller
producers of racing replicas, such as Action Performance Companies, Inc.
generally distribute their products through direct marketing, collector clubs
and wholesalers who in turn distribute through hobby and collector shops. In
contrast, the Company distributes products primarily through national retailers
and mass merchants including K-Mart, Target, Toys 'R' Us and Wal-Mart. Mattel
and Hasbro also intend to distribute their racing replicas through national
retailers. The Company also competes with domestic and foreign producers of
scaled die cast toy vehicles. Many of the Company's competitors have greater
financial, technical, marketing and other resources than the Company. There can
be no assurance that the Company will continue to be able to compete
successfully in the future. See "Business -- Competition."

RELIANCE ON KEY SUPPLIERS

The Company depends upon six independently owned factories located in China
to manufacture its racing replicas and certain other products. As a result, any
difficulties encountered by the independent manufacturers which result in
product defects, production delays, cost overruns or the inability to fulfill
orders on a timely basis could have a material adverse effect on the Company.
Any significant accident, labor dispute or other disruption at one or more of
these factories also could adversely affect the Company's business. See
"Business -- Manufacturing" and "-- Risks of Foreign Manufacturing."

RISKS OF FOREIGN MANUFACTURING

The Company is subject to numerous risks inherent in foreign manufacturing,
including the following: fluctuations in currency exchange rates; economic and
political instability; restrictive actions by foreign governments; the laws and
policies of the United States affecting the importation of goods (including
duties, quotas and taxes); and trade and foreign tax laws.

Import Duties and Regulation. Substantially all of the Company's products
are subject to United States duties and regulations pertaining to the
importation of goods. Currently, the Company's products are imported duty free.
The United States may, from time to time, impose new duties, tariffs, quotas or
other charges or restrictions, or adjust presently prevailing quotas, duties or
tariff levies, which could adversely affect the Company's business, financial
condition or results of operations or its ability to continue to import products
at

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current or increased levels. From time to time, the Company may also be involved
in disputes with the United States Customs Service regarding the amount of duty
to be paid, the value of merchandise to be reported or other customs regulations
with respect to certain of the Company's imports, which may result in the
payment of additional duties and/or penalties. The Company cannot predict what
regulatory changes may occur or the type or amount of any financial impact on
the Company which those changes may have in the future.

Trading Status of China. China, where all of the Company's products are
manufactured, is currently afforded "Most Favored Nation" status and generally
is not subject to United States retaliatory duties. The "Most Favored Nation"
status of China was last renewed in June of 1996 and is reviewed on an annual
basis. Various commercial and legal practices widespread in China, including the
handling of intellectual properties, are under review by the United States
government and, accordingly, the duty treatment of goods imported from China is
subject to political uncertainties. To the extent China ceases to have "Most
Favored Nation" status or its exports become subject to political retaliation,
the cost of importing products from China could increase significantly. The
Company could also be subject to the imposition of retaliatory tariffs or other
import restrictions such as quotas as a result of a trade dispute between China
and the United States. These increased tariffs or other restrictions could be
imposed whether or not the trade dispute itself involves products of the type
imported by the Company. Such increased tariffs or other trade restrictions
could also have a material adverse effect on the Company.

Risks Relating to Hong Kong. The Company conducts operations in Hong Kong
through its Hong Kong Subsidiary. On July 1, 1997, sovereignty over Hong Kong
will be transferred from the United Kingdom to China, and Hong Kong will become
a Special Administrative Region of China. At the present time, the Company is
unable to predict the effect, if any, that such change will have on the
Company's or the Hong Kong Subsidiary's business, financial condition or results
of operations.

Foreign Currency Risk. The Company's sales are denominated in U.S. dollars.
The Company's purchases of finished goods from the Chinese manufacturers are
denominated in Hong Kong dollars. Expenses for these manufacturers are often
denominated in Chinese Renminbi. The Company is subject to a variety of risks
associated with changes among the relative values of the U.S. dollar, the Hong
Kong dollar and Renminbi. Any material increase in the value of the Hong Kong
dollar or Renminbi relative to the U.S. dollar would increase the Company's
expenses and therefore could have a material adverse effect on the Company.
Since 1983, the Hong Kong government has maintained a policy of linking the U.S.
dollar and the Hong Kong dollar. There can be no assurance that this link will
be continued, although the Company is not aware of any intention of the Hong
Kong government or China to abandon the link. There has been significant
volatility in the exchange rates of Renminbi to U.S. dollars in recent years.
Over the last five years, the Renminbi has experienced significant devaluation
against most major currencies. The Company does not hedge foreign currency risk.

DEPENDENCE ON SIGNIFICANT CUSTOMERS; CONCENTRATION OF ACCOUNTS RECEIVABLE

The Company's success is, in part, dependent upon the continuing
willingness of leading retailers to purchase and provide shelf space for the
Company's products. For example, during 1996, approximately 17%, 15%, 6% and 16%
of the Company's net sales were made to K-Mart, Target, Toys 'R' Us and
Wal-Mart, respectively. The Company does not have long-term contracts with its
customers. An adverse change in the Company's relationship with or the financial
viability of one or more of these customers could have a material adverse effect
on the Company. In addition, certain of these retailers generally purchase large
quantities of the Company's products on credit, which may cause a concentration
of accounts receivable among some of the Company's largest customers. Any
inability or unwillingness to pay these accounts receivable when due by one or
more of the Company's largest customers could adversely affect the Company's
financial condition. Although the Company maintains credit insurance to reduce
the risk associated with the accounts receivable from 14 of its major customers,
the amount of this insurance generally does not cover the total amount of the
accounts receivable from any particular customer. See "Business -- Sales and
Distribution."

DEPENDENCE ON LICENSING ARRANGEMENTS

The Company markets virtually all of its products under licenses from other
parties. For example, the Company markets its racing replicas pursuant to
licensing arrangements with race team owners, drivers,

8
<PAGE> 10

sponsors, agents, vehicle manufacturers and major racing series sanctioning
bodies. The Company markets its collectible figures pursuant to licensing
arrangements with popular sports figures and creators of certain comic book
characters. These licensing arrangements are generally limited in scope and
duration and generally authorize the sale of specific licensed products on a
nonexclusive basis for a limited period of time. The termination, cancellation
or inability to renew certain of the Company's existing licensing arrangements,
or the inability to develop and enter into new licensing arrangements, could
have a material adverse effect on the Company.

As a result of increased competition among manufacturers for licenses, the
Company may, in the future, be required to pay licensors higher royalties and
higher minimum guaranteed payments in order to obtain or retain attractive
properties for development of existing and new product lines. This increased
competition could have an adverse effect on the profitability of these licenses.
In addition, exclusive licensing arrangements granted to competitors or other
parties could limit the Company's future ability to produce replicas of certain
characters, athletes, vehicles, drivers and sponsors, including replicas of
vehicles or entities currently being produced.

The Company generally does not pursue exclusive licenses. However, the
Company has held the exclusive license to use the NASCAR trademark on die cast
racing replicas and related packaging since 1992. Beginning in 1998, NASCAR
intends to offer this license to the Company and other manufacturers on a
nonexclusive basis. The Company anticipates that certain of its competitors will
license the NASCAR trademark for use on racing replicas beginning in 1998. This
could result in increased competition for the Company's NASCAR racing replicas.
See "Business -- Licenses."

RELIANCE ON KEY PERSONNEL

The Company relies heavily on its senior managers, including Robert E.
Dods, Boyd L. Meyer and Peter K.K. Chung (the "Founding Managers"). Although the
Company has entered into employment agreements with the Founding Managers that
extend through April 30, 1999, there can be no assurance that the Company will
be able to retain them or its other key employees in the future. The loss of the
services of any of the Founding Managers could have a material adverse effect on
the Company. See "Management."

SEASONAL PRODUCT DEVELOPMENT AND SALES

The Company generally must adjust the styles of its racing replicas each
year to accurately replicate the various vehicles competing in major racing
series. Generally in the fourth quarter, the Company commences this process of
product development for the coming year by obtaining information about new race
cars. From that point until the release date of the particular replica during
the racing season, the Company, along with its Hong Kong subsidiary and the
foreign manufacturers, must complete the production process, including the
design of prototypes for the new racing replicas, the production of new tooling,
if any, and the manufacture of the racing replicas, and deliver the racing
replicas to retailers. Any inability by the Company to deliver the new racing
replicas to retailers by the start of the racing season could have a material
adverse effect on the Company. The Company's sales of racing replicas are also
seasonal, with 63.3% of the Company's net sales and 79.0% of its net income on
average over the last three fiscal years occurring during the second and third
quarters. See "Business -- Manufacturing."

PRODUCT LIABILITY AND OTHER CLAIMS

The Company faces product liability risks relating to the use of the
Company's products. Although the Company has not experienced any material
product liability costs or claims, the Company carries a policy of product
liability insurance against such contingencies. The Company may also be subject
to other legal claims, such as unfair competition or trademark infringement. Any
legal claims, if brought, could materially adversely affect the business or
financial condition of the Company.

CONTROL BY PRINCIPAL STOCKHOLDERS

Upon the closing of the Offering, the existing management and stockholders
of the Company will collectively own approximately 61.2% of the outstanding
Common Stock (56.6% if the Underwriters' over-

9
<PAGE> 11

allotment option is exercised in full). This share ownership would permit these
stockholders, if they chose to act together, to elect all of the Company's
directors and to control other actions requiring stockholder approval. See
"Principal Stockholders." Certain provisions of the Company's Certificate of
Incorporation and By-Laws and of the Delaware General Corporation Law could have
the effect of deterring hostile takeovers or delaying or preventing a change in
control of the Company. See "Description of Capital Stock -- Certain Statutory
and Other Provisions."

ABSENCE OF PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

There has been no public market for the Common Stock prior to the Offering,
and there can be no assurance that an active public market will develop or, if
developed, will be sustained following the Offering. The stock market has in the
past experienced price and volume fluctuations that have at times been unrelated
to corporate operating performance. Such market volatility may adversely affect
the market price of the Common Stock. Other factors, such as fluctuations in
quarterly operating results, changes in trade policy between China and the
United States and evolving business prospects of the Company's customers and
competitors, also could cause the market price of the Common Stock to fluctuate
substantially.

IMMEDIATE AND SUBSTANTIAL DILUTION

Assuming an initial offering price of $13.00 per share, purchasers in the
Offering will experience dilution in the net tangible book value per share of
the Common Stock of $14.28. The existing stockholders will receive an increase
per share in pro forma net tangible book value per share of $8.38. Additional
dilution will occur upon the exercise of outstanding stock options. Existing
stockholders will have paid an average price per share of Common Stock of $0.13
and new stockholders will have paid 98.5% of the total consideration received
for shares of Common Stock but will own only 38.8% of the Common Stock. See
"Dilution."

DIVIDEND POLICY

The Company currently anticipates that, after completion of the Offering,
all of its earnings will be retained for development and expansion of the
Company's business and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. See "Dividend Policy."

GOVERNMENT REGULATION

The Company is subject to numerous federal and state health, safety, tax
and other regulations. No assurance can by given that current government
regulations or future regulatory changes will not adversely affect the Company.
In addition, certain of the Company's tax positions could be subject to
examination and challenge by the Internal Revenue Service.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, the Company will have 12,885,240 shares of Common
Stock outstanding. Of these shares, 5,000,000 shares of Common Stock sold in the
Offering will be freely tradable in the market, except for shares purchased by
"affiliates" of the Company which will be subject to the resale limitations
(excluding the holding period requirement) of Rule 144 under the Securities Act
of 1933. Certain officers, directors and stockholders of the Company, who hold
in aggregate 7,885,240 shares of Common Stock, and the Company have agreed not
to sell any of their shares for a period of 180 days after the date of the
Prospectus without the prior written consent of Robert W. Baird & Co.
Incorporated. The Company believes that, following the expiration of such
180-day period, 7,885,240 of these shares will be eligible for immediate sale in
the public market, subject to Rule 144 resale limitations. Further, the exercise
of registration rights by certain of the Company's significant stockholders,
affiliates and executive officers would permit such persons to sell shares of
Common Stock upon registration without regard to the limitations of Rule 144.
The Company has granted registration rights covering a total of 7,885,240 shares
of Common Stock. See "Shares Eligible for Future Sale" and "Certain
Transactions -- The Recapitalization -- Registration Agreement."

10
<PAGE> 12

THE RECAPITALIZATION

On April 30, 1996, an investor group led by Willis Stein & Partners, L.P.
("Willis Stein") consummated a recapitalization (the "Recapitalization") which
involved the following: (i) the Company's purchase of all of the outstanding
stock of Racing Champions, Inc. ("RCI") and substantially all of the assets of
Dods-Meyer, Ltd. ("DML" and together with RCI, the "RCI Group"), (ii) the
acquisition by Banerjan Company Limited (subsequently renamed Racing Champions
Limited), a Hong Kong subsidiary of the Company (the "Hong Kong Subsidiary"), of
substantially all of the assets of Racing Champions Limited, Garnett Services,
Inc. and Hosten Investment Limited (collectively, the "RCL Group") and (iii) the
contribution by the Company of all of the outstanding stock of the Hong Kong
Subsidiary to RCI. Prior to the Recapitalization, the RCI Group was owned by
Robert E. Dods and Boyd L. Meyer and managed the Company's domestic operations,
and the RCL Group was owned by Peter K.K. Chung and managed the Company's
foreign operations. The management of the Company owns approximately 45.6% of
the Common Stock with the Founding Managers each owning 14.5% and other senior
management owning 2.0% collectively. The remaining 54.4% is held by an investor
group consisting of Willis Stein (37.8%), Baird Capital Partners II Limited
Partnership (8.0%), BCP II Affiliates Fund Limited Partnership (2.4%), Nassau
Capital Partners L.P. (6.2%) and NAS Partners I L.L.C. (0.5%) (the "Investor
Group"). Baird Capital Partners II Limited Partnership and BCP II Affiliates
Fund Limited Partnership are affiliates of Robert W. Baird & Co. Incorporated,
one of the co-managing Underwriters of the Offering.

The Recapitalization was financed with $40.0 million of bank borrowings and
the issuance to the three Founding Managers, other senior management and the
Investor Group of $8.0 million of Senior Subordinated Promissory Notes ("Senior
Notes"), approximately $38.2 million of Series A Junior Subordinated Promissory
Notes ("Series A Junior Notes"), approximately $1.2 million of Series B Junior
Subordinated Promissory Notes ("Series B Junior Notes"), approximately $6.7
million of the Company's Series A Preferred Stock (the "Series A Preferred
Stock"), approximately $1.2 million of the Company's Series B Preferred Stock
("Series B Preferred Stock"), approximately $119,000 of the Company's Nonvoting
Common Stock (the "Nonvoting Common Stock"), and approximately $881,000 of
Common Stock. See "Certain Transactions -- The Recapitalization."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby are expected to be approximately $59.7 million
($64.0 million if the Underwriters' over-allotment option is exercised in full),
based upon an assumed initial public offering price of $13.00 per share, after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by the Company. The Company will apply approximately $9.8
million of the net proceeds to repay indebtedness under the Company's credit
agreement (the "Credit Agreement") with the First National Bank of Boston, as
agent, and certain other lenders, $40.0 million to repay all of the Series A
Junior Notes, $1.4 million to repay all of the Series B Junior Notes and
approximately $8.5 million to redeem all outstanding shares of Series A
Preferred Stock and Series B Preferred Stock. See "Certain Transactions -- The
Recapitalization -- Certain Indebtedness," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Description of Capital
Stock -- Preferred Stock."

Pending the use for the foregoing purposes, the Company may invest the
proceeds in whole or in part in short-term, interest-bearing obligations. Any
funds received by the Company upon exercise of the Underwriters' over-allotment
option will be used to repay indebtedness under the Credit Agreement.

11
<PAGE> 13

DIVIDEND POLICY

Following the Offering, the Company intends to retain any earnings for use
in the operation and expansion of its business and therefore does not anticipate
declaring any cash dividends in the foreseeable future. The payment of future
dividends, if any, will be made at the discretion of the Company's Board of
Directors and will depend upon, among other things, future earnings, operations,
capital requirements, the general financial condition of the Company, general
business conditions and other factors. In addition, the Credit Agreement
contains a provision limiting the Company's ability to pay dividends.

DILUTION

The net tangible book value of the Common Stock as of December 31, 1996 was
a deficit of $76.2 million or $9.66 per share. Net tangible book value per share
represents the amount of the Company's total tangible assets less total
liabilities, divided by 7,885,240 shares of Common Stock outstanding as of
December 31, 1996. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of Common Stock in
the Offering and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering.

After giving effect to the sale of 5,000,000 shares of Common Stock in the
Offering at an assumed initial offering price of $13.00 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses, the pro forma net tangible book value as of December 31, 1996 would
have been a deficit of $16.5 million or $1.28 per share. This represents an
immediate increase in net tangible book value of $8.38 per share to the existing
stockholders and immediate dilution of net tangible book value of $14.28 per
share to purchasers of Common Stock in the Offering, as illustrated by the
following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $13.00
Deficit in net tangible book value at December 31, 1996... $(9.66)
Increase attributable to new investors.................... 8.38
------
Pro forma deficit in net tangible book value after the
Offering.................................................. (1.28)
------
Net tangible book value dilution to new investors........... $14.28
======
</TABLE>

The following table sets forth, as of December 31, 1996, the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share of Common Stock paid by existing stockholders
and new stockholders purchasing shares of Common Stock in the Offering, at an
assumed initial public offering price of $13.00 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 7,885,240 61.2% $ 1,000,000 1.5% $ 0.13
New stockholders................ 5,000,000 38.8 65,000,000 98.5 13.00
---------- ----- ----------- -----
Total................. 12,885,240 100.0% $66,000,000 100.0%
========== ===== =========== =====
</TABLE>

The foregoing discussion and tables assume no exercise of any outstanding
stock options. As of the date of the Prospectus, options to purchase 332,033
shares of Common Stock are outstanding. To the extent any options with an
exercise price of less than the public offering price are exercised, there will
be further dilution to new stockholders. See "Management -- Executive
Compensation -- 1996 Key Employees Stock Option Plan."

12
<PAGE> 14

CAPITALIZATION

The following table sets forth (i) the cash and cash equivalents,
short-term debt and capitalization of the Company as of December 31, 1996, and
(ii) the adjusted cash and cash equivalents, short-term debt and capitalization
to give effect to the issuance by the Company of 5,000,000 shares of Common
Stock in the Offering (assuming an initial public offering price of $13.00 per
share and after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company) and the application of the estimated
net proceeds therefrom. See "Use of Proceeds." The following table should be
read in conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Selected Financial Data."

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
ACTUAL ADJUSTMENTS(1) AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 5,898 $ -- $ 5,898
======= ======= =======
SHORT-TERM DEBT:
Current maturities of long-term bank notes................ $ 6,200 $(6,200) $ --
Senior subordinated debt due to stockholders.............. 8,020 -- 8,020
------- ------- -------
Total short-term debt............................. $14,220 $(6,200) $ 8,020
======= ======= =======
LONG-TERM DEBT:
Bank term notes, less current maturities.................. $30,700 $ 3,603 $27,097
Junior subordinated debt due to stockholders.............. 41,379 (41,379) --
------- ------- -------
Total long-term debt.............................. 72,079 (44,982) 27,097
------- ------- -------
STOCKHOLDERS' EQUITY:
Series A Preferred Stock:
100,000 shares authorized, 66,668 shares issued and
outstanding(2)....................................... 557 (557) --
Series B Preferred Stock:
20,000 shares authorized, 11,952 shares issued and
outstanding(2)....................................... 100 (100) --
Voting Common Stock:
20,000,000 shares authorized, 6,948,156 shares issued
and outstanding; 12,885,240 shares issued and
outstanding, as adjusted............................. 69 60 129
Nonvoting Common Stock:
1,000,000 shares authorized, 937,084 shares issued and
outstanding(2)....................................... 9 (9) --
Additional paid-in capital................................ 8,783 51,788 60,571
Retained earnings......................................... 1,895 -- 1,895
------- ------- -------
Total stockholders' equity............................. 11,413 51,182 62,595
------- ------- -------
Total capitalization................................. $83,492 $ 6,200 $89,692
======= ======= =======
</TABLE>

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

(1) Adjustments give pro forma effect to (i) the conversion of each share of the
Company's Nonvoting Common Stock into one share of Common Stock upon the
completion of the Offering, (ii) the issuance of 5,000,000 shares of Common
Stock in the Offering at an estimated price of $13.00 per share, net of
estimated underwriting discounts and commissions of $4,550,000 and estimated
offering expenses of $750,000 and (iii) the repayment of $51,182,000 of
indebtedness and the redemption of $8,518,000 of Series A Preferred Stock
and Series B Preferred Stock.

(2) Following the Offering, all of the outstanding shares of Series A Preferred
Stock and Series B Preferred Stock will be redeemed, each share of Nonvoting
Common Stock will be converted into one share of Common Stock and the
Certificate of Incorporation of the Company will be amended to eliminate the
classes of Series A Preferred Stock, Series B Preferred Stock and Nonvoting
Common Stock.

13
<PAGE> 15

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table sets forth selected financial data with respect to the
Company for each of the periods indicated. The selected financial data for the
year ended December 31, 1992 for the Predecessor - RCI Group and for the fiscal
years ended March 31, 1993 and 1994 for the Predecessor - RCL Group are derived
from unaudited combined financial statements, which are not included herein. The
data for the years ended December 31, 1993, 1994 and 1995 and for the four
months ended April 30, 1996 are derived from the combined financial statements
of the Predecessor - RCI Group, which have been audited by Arthur Andersen LLP,
independent public accountants. The unaudited consolidated financial statements
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the Company's consolidated
financial position and results of operations for the periods presented. The data
for the fiscal years ended March 31, 1995 and 1996 and for the one month ended
April 30, 1996 for the Predecessor - RCL Group are derived from combined
financial statements which have been audited by Ernst & Young, independent
auditors. The balance sheet data as of December 31, 1996 and the statement of
income data for the eight months ended December 31, 1996 are derived from the
Company's consolidated financial statements which have been audited by Arthur
Andersen LLP, independent public accountants. The pro forma financial data for
the year ended December 31, 1996, which give effect to the Recapitalization, the
Offering and the application of the estimated net proceeds from the Offering as
if each had occurred on January 1, 1996, are presented for informational
purposes only and are not necessarily indicative of the results of the future
operations of the Company or the actual results that would have been achieved
had the Recapitalization, the Offering and the application of the estimated net
proceeds from the Offering occurred on such date. All of the data set forth
below are qualified by reference to, and should be read in conjunction with, the
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR - RCI GROUP(1)(8) THE COMPANY
------------------------------------------------------ ------------------------------
FOUR MONTHS EIGHT MONTHS PRO FORMA
YEARS ENDED DECEMBER 31, ENDED ENDED YEAR ENDED
------------------------------------- APRIL 30, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996(2) 1996(2) 1996(2)(3)
------- ------- ------- ------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................... $45,845 $31,047 $43,268 $48,592 $16,614 $49,385 $65,999
Gross profit.................... 16,170 14,151 18,056 23,036 7,210 28,019 37,532
Operating income................ 4,943 6,141 8,565 9,724 108 11,236 11,478
Net income(4)................... $ 5,458 $ 5,722 $ 8,224 $ 9,392 $ 72 $ 2,551 $ 4,744
Net income per share............ $ 0.36
Weighted average shares
outstanding(5)................ 13,214
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR - RCL GROUP(1)(8)
------------------------------------------------------
ONE MONTH
FISCAL YEARS ENDED MARCH 31, ENDED
------------------------------------- APRIL 30,
1993 1994 1995 1996 1996
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................... $28,067 $18,399 $22,331 $37,322 $ 3,852
Gross profit.................... 6,105 4,801 5,288 7,085 752
Operating income................ 3,072 1,949 2,066 2,725 507
Net income(6)................... $ 2,693 $ 1,690 $ 2,079 $ 2,603 $ 488
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------
ACTUAL AS ADJUSTED(7)
------------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................. $(10,350) $ (4,150)
Total assets.................... 109,080 109,080
Total debt...................... 86,299 35,117
Total stockholders' equity...... 11,413 62,595
</TABLE>

(See page 15 for footnotes)

14
<PAGE> 16

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

(1) On April 30, 1996 the Company acquired the RCI Group and the RCL Group in
the Recapitalization (see "The Recapitalization"). Accordingly, certain
information provided for the predecessor groups is not comparable to the
data of the Company due to the effects of certain purchase accounting
adjustments and the financing related to the Recapitalization. Also, the
data from the predecessor groups is derived from different fiscal year ends
and is not comparable. Prior to the Recapitalization, the RCL Group included
Bergen Services Inc. ("Bergen"), an entity that did not have any tangible
assets or conduct any operations. The Company did not acquire Bergen
pursuant to the Recapitalization.

(2) Data for the four months ended April 30, 1996 and pro forma statement of
income data for the year ended December 31, 1996 include a nonrecurring
incentive bonus expense of $2,389,000 incurred in connection with the
Recapitalization, and data for the eight months ended December 31, 1996 and
pro forma statement of income data for the year ended December 31, 1996
include a purchase accounting inventory write-up adjustment of $1,367,000 as
a result of the Recapitalization. Excluding the effects of the nonrecurring
incentive bonus expense and the inventory write-up adjustment, the Company's
pro forma gross profit, operating income, net income and net income per
share for the year ended December 31, 1996 would have been $38,899,000,
$15,234,000, $6,997,000 and $0.53 per share, respectively.

(3) The pro forma statement of income data for the year ended December 31, 1996
give effect to the Recapitalization, the Offering and the application of the
estimated net proceeds of the Offering as if each had occurred on January 1,
1996 (see "Pro Forma Combined Statement of Income").

(4) Net income of the RCI Group does not include a provision for federal income
taxes as a result of the S corporation status for certain entities in this
group during the periods from January 1, 1992 to April 30, 1996.

(5) Weighted average shares outstanding has been computed using the treasury
stock method which includes dilutive Common Stock equivalents as if
outstanding during the respective periods.

(6) Net income of the RCL Group includes a provision for Hong Kong income taxes
at an effective rate of 16.5% for certain entities and no provisions for
other entities which were structured as tax-free British Virgin Inlands
entities.

(7) The "As Adjusted" amounts give pro forma effect to (i) the issuance of
5,000,000 shares of Common Stock in the Offering at an assumed price of
$13.00 per share, net of estimated underwriting discounts and commissions of
$4,550,000 and estimated offering expenses of $750,000 and (ii) the
repayment of $51,182,000 of indebtedness and the redemption of $8,518,000 of
Series A Preferred Stock and Series B Preferred Stock, including accrued
dividends.

15
<PAGE> 17

(8) The following supplemental combined data represent for 1993, 1994 and 1995 a
combination of the historical financial statement of income data of the RCI
Group and the RCL Group (converted from fiscal year end March 31 to December
31) for each year ended December 31. The year ended December 31, 1996 is
presented based upon the Pro Forma Combined Statement of Income data (see
"Pro Forma Combined Statement of Income"). In the opinion of management,
these combined operating results provide a meaningful presentation of, and
fairly present, the combined results of operations for the Company, the RCI
Group and the RCL Group.

SUPPLEMENTAL COMBINED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
COMBINED
------------------------------------------------
1993 1994 1995 1996 PRO FORMA
------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET SALES:
Company..................................... $ -- $ -- $ -- $ 49,385
RCI Group................................... 31,047 43,268 48,592 16,614
RCL Group................................... 15,658 23,672 32,301 13,027
Eliminations................................ (15,658) (23,672) (32,301) (13,027)
------- -------- -------- --------
Combined net sales....................... $31,047 $ 43,268 $ 48,592 $ 65,999
======= ======== ======== ========
GROSS PROFIT:
Company..................................... $ -- $ -- $ -- $ 27,839
RCI Group................................... 14,151 18,056 23,036 7,210
RCL Group................................... 4,147 5,770 6,216 2,483
------- -------- -------- --------
Combined gross profit.................... $18,298 $ 23,826 $ 29,252 $ 37,532
======= ======== ======== ========
OPERATING INCOME BEFORE NONRECURRING BONUS
EXPENSE AND AMORTIZATION OF INTANGIBLE
ASSETS:
Company..................................... $ -- $ -- $ -- $ 13,103
RCI Group................................... 6,141 8,565 9,724 2,497
RCL Group................................... 1,544 2,321 2,751 506
------- -------- -------- --------
Combined operating income before
nonrecurring bonus expense and
amortization of intangible assets...... $ 7,685 $ 10,886 $ 12,475 $ 16,106
======= ======== ======== ========
OPERATING INCOME:
Company..................................... $ -- $ -- $ -- $ 10,864
RCI Group................................... 6,141 8,565 9,724 108
RCL Group................................... 1,544 2,321 2,751 506
------- -------- -------- --------
Combined operating income................ $ 7,685 $ 10,886 $ 12,475 $ 11,478
======= ======== ======== ========
NET INCOME*:
Company..................................... $ -- $ -- $ -- $ 4,373
RCI Group................................... 5,722 8,224 9,392 72
RCL Group................................... 1,216 2,339 2,790 299
------- -------- -------- --------
Combined net income...................... $ 6,938 $ 10,563 $ 12,182 $ 4,744
======= ======== ======== ========
</TABLE>

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

* Combined net income for 1993 through 1995 does not include a provision for
federal income taxes as a result of the S corporation status for certain
entities in the RCI Group from January 1, 1992 to April 30, 1996 and includes
a provision for Hong Kong income taxes at an effective rate of 16.5% for
certain entities in the RCL Group and no provisions for other entities in the
RCL Group which were structured as tax-free British Virgin Islands entities.

16
<PAGE> 18

PRO FORMA COMBINED STATEMENT OF INCOME

The following unaudited Pro Forma Combined Statement of Income was prepared
to illustrate the estimated effects of the Recapitalization, the Offering and
the application of the estimated net proceeds of the Offering as if each had
occurred on January 1, 1996. The Pro Forma Combined Statement of Income does not
purport to represent what the Company's results of operations would actually
have been if the Recapitalization, the Offering and the application of the
estimated net proceeds of the Offering had occurred on January 1, 1996 or to
predict the Company's results of operations for any future period. The following
financial information should be read in conjunction with "Capitalization,"
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited Financial Statements and
the related Notes thereto included elsewhere in the Prospectus.

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------- PRO FORMA PRO FORMA OFFERING PRO FORMA
RCI GROUP(1) RCL GROUP(2) COMPANY(3) ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
------------- ------------- ----------- ------------ ---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $16,614 $13,027 $49,385 $(13,027)(4) $65,999 $ -- $65,999
Cost of sales............. 9,404 10,544 19,999 (13,027)(4) 27,100 -- 27,100
180(5)
Inventory
adjustments(6).......... -- -- 1,367 -- 1,367 -- 1,367
------- ------- ------- -------- ------- ------ -------
Gross profit.............. 7,210 2,483 28,019 (180) 37,532 -- 37,532
Selling, general &
administrative
expense................. 4,713 1,977 15,244 18(5) 21,426 -- 21,426
(526)(7)
------- ------- ------- -------- ------- ------ -------
Operating income before
non-recurring bonus
expense and amortization
of intangible assets.... 2,497 506 12,775 328 16,106 -- 16,106
Non-recurring bonus
expense(6).............. 2,389 2,389 -- 2,389
Amortization of intangible
assets.................. -- -- 1,539 700(5) 2,239 -- 2,239
------- ------- ------- -------- ------- ------ -------
Operating income.......... 108 506 11,236 (372) 11,478 11,478
Interest expense
(income)................ (16) 49 6,738 2,862(8) 9,633 (6,198)(9) 3,435
Other expense (income).... 13 (29) 153 -- 137 -- 137
------- ------- ------- -------- ------- ------ -------
Income before income
taxes................... 111 486 4,345 (3,234) 1,708 6,198 7,906
Income tax expense........ 39 187 1,794 (1,335)(10) 685 2,477(9) 3,162
------- ------- ------- -------- ------- ------ -------
Net income................ $ 72 $ 299 $ 2,551 $ (1,899) $ 1,023 $3,721 $ 4,744
======= ======= ======= ======== ======= ====== =======
Net income per share...... $ 0.12 $ 0.36
======= =======
Weighted average shares
outstanding............. 8,214 5,000(11) 13,214
</TABLE>

- ---------------
(1) Data for the RCI Group is for the four months ended April 30, 1996.

(2) Data for the RCL Group is for the four months ended April 30, 1996.

(3) Data for the Company is for the eight months ended December 31, 1996.

(4) Eliminates intercompany sales and service fees between the RCL Group and
the RCI Group during the period January 1, 1996 to April 30, 1996.

(5) Provides for the pro forma increase in depreciation and amortization of
goodwill resulting from the Recapitalization, for the period from January
1, 1996 through April 30, 1996. Pro forma 1996 depreciation expense is
$1,636,000.

(6) Data for the RCI Group include a nonrecurring incentive bonus expense of
$2,389,000 in connection with the Recapitalization and data for the Company
include a purchase accounting inventory write-up adjustment of $1,367,000
as a result of the Recapitalization. Excluding the effects of the
nonrecurring incentive bonus expense and the inventory write-up adjustment,
the Company's pro forma gross profit, operating income before nonrecurring
incentive bonus expense and amortization of intangible assets, operating
income, net income and net income per share for the year ended December 31,
1996 would have been $38,899,000, $17,473,000, $15,234,000, $6,997,000 and
$0.53 per share, respectively.

17
<PAGE> 19

(7) Eliminates for the four months ended April 30, 1996 RCL Group non-business
expenses of $179,000 and depreciation expense of $347,000 related to assets
not acquired by the Company pursuant to the Recapitalization.

(8) Represents the incremental interest expense from January 1, 1996 through
April 30, 1996, under borrowings incurred as part of the Recapitalization.

(9) Reflects the effect on interest expense, net of income taxes at 40.0%, of
the receipt of the estimated offering proceeds of $59,700,000, the
application of those proceeds to reduce outstanding borrowings under term
loans and junior subordinated debt and the expected lower interest rate of
7.0% on the remaining outstanding borrowings. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(10) Increases the provision for income taxes to 40.0% for the income that was
taxed at lower rates or not subject to income taxes as a result of S
corporation or tax free British Virgin Islands status after giving effect
to the adjustments to depreciation, amortization and selling, general and
administrative expenses and the incremental interest expense, all as
discussed in Notes 5 and 8 above.

(11) Reflects the sale by the Company of 5,000,000 shares of Common Stock in the
Offering.

18
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
consolidated Financial Statements and Notes thereto included elsewhere in the
Prospectus. The matters discussed in this section that are not historical or
current facts deal with potential future circumstances and developments. Such
forward-looking statements include, but are not limited to, the development and
market acceptance for new products, trends in the results of the Company's
operations and the Company's anticipated capital requirements and capital
resources. The Company's actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below as well as those
discussed under the caption "Risk Factors" and elsewhere in the Prospectus.

OVERVIEW

Racing Champions is a leading producer and marketer of collectible scaled
die cast replicas. The Company is best known for its extensive line of
officially licensed collectible scaled replicas of actual race cars and related
vehicles from popular professional racing series, including NASCAR, NHRA, CART,
IRL and World of Outlaws. The majority of its products are sold through mass
merchants, such as K-Mart, Target, Toys 'R' Us and Wal-Mart. The Company has
maintained strong profit margins while selling through the mass merchant channel
by offering high quality, collectible products, managing product availability,
continuously updating its products, diligently controlling costs and realizing
economies of scale.

The Company began in 1989 with an initial product line of die cast toys,
which included racing car replicas. In 1990, the Company shifted its focus to
collectible stock car replicas and in 1991 obtained the license to use the
NASCAR trademark and logo on its products and packaging. The Company's initial
racing replicas proved to be popular with racing fans and adult collectors with
net sales growing from $5.4 million in 1990 to $32.3 million in 1991. By 1992,
many of the Company's retail customers had overestimated short-term consumer
demand for racing replicas and placed significant orders for the Company's
products as well as for competitive products of varying quality and authenticity
introduced by new entrants to the racing replica market. While the Company's net
sales grew dramatically to $45.8 million in 1992, significant excess inventories
of racing replicas had built up at many of the Company's major customers. As a
result of these excess inventories, the Company anticipated reduced sales in
1993 and, in response, limited its production level. In order to preserve the
collector base it had already established and to further differentiate itself
from lower quality new market entrants, the Company took several steps to
enhance the collectibility of Racing Champions products in 1993. These steps
included introducing annual editions, limiting the number of units produced,
staggering release dates, adding serial numbers to certain production runs and
generally improving quality. Despite a net sales decline to $31.0 million in
1993, combined operating income as a percentage of net sales increased.

Over the next three years, the Company experienced considerable growth in
its NASCAR product line and through its introduction of collectible racing
replicas from other major professional racing series. The Company believes that
the measures it undertook from 1993 through 1996 have significantly enhanced the
Racing Champions brand name, thereby increasing demand for the Company's
products. In turn, the Company's mass merchant customers have responded by
providing increased shelf space for the Company's product lines. The Company
believes that its significantly broader product lines, enhanced brand name
recognition among collectors and retailers and increased shelf space have
positioned it to compete favorably in its principal channel of distribution.

Beginning in 1996, the Company successfully expanded into non-racing
collectibles by introducing the Racing Champions Mint(TM) line of high quality
classic and late model die cast vehicle replicas. The Company is continuing this
expansion in 1997 by introducing the Racing Champions Hot Rod Collection(TM), a
new line of collectible die cast hot rod car replicas which is supported by
licensing and marketing arrangements with Petersen Publishing Company's Hot Rod
Magazine. Also, beginning in 1997, the Company is targeting comic book and
sports enthusiasts and figure collectors with two new lines of collectible
pewter figures, to be

19
<PAGE> 21

marketed under the names Comic Book Champions and Sports Champions, which are
supported by licensing agreements with Marvel Characters, Inc., DC Comics (a
division of Time Warner Entertainment Company L.P.) and Sports Illustrated.

On April 30, 1996, the Investor Group consummated the Recapitalization in
which a new holding company, Racing Champions Corporation, acquired the domestic
operations of the RCI Group and the foreign operations of the RCL Group. These
acquisitions were accounted for using the purchase method. The acquisition costs
in excess of the fair value of net assets of the acquired businesses (goodwill)
is being amortized on a straight-line basis over a 40-year period and for income
tax purposes is deducted over a 15-year period. After the consummation of the
Recapitalization, management owned approximately 45.6% of the Common Stock,
while members of the Investor Group owned approximately 54.4%.

Racing Champions' sales are recognized as products are shipped. Mass
merchant retailers purchase the Company's product either in the United States
with credit terms ranging from 30 to 120 days or directly in Hong Kong with
payment made by irrevocable letter of credit or wire transfer. By acquiring the
products in Hong Kong, many of the Company's retail customers are able to
realize efficiencies with respect to cost and logistics. Because the Company
incurs significantly lower distribution and administrative costs with respect to
direct shipments to customers from Hong Kong, a price discount of approximately
15% to 25% is granted. As a result, Hong Kong shipments have lower gross profit
margins than domestic shipments. Therefore, the annual fluctuations in the mix
of United States versus Hong Kong shipments will affect year-to-year
comparability of net sales and gross profit margins. However, the Company
believes that the operating income margin is comparable for Hong Kong shipments
due to the saved distribution and administrative costs. For the years ended
December 31, 1994, 1995 and 1996, Hong Kong shipments constituted 28.7%, 44.9%
and 52.8%, respectively, of net sales.

The Company's three largest expense categories are cost of sales, royalties
and sales commissions. Cost of sales consists primarily of purchases of finished
products from the Company's manufacturing suppliers. Royalties vary by product
category and are paid on a quarterly basis. Multiple royalties may be paid on a
product to various licensors. In 1996, aggregate royalties by product ranged
from approximately 3% to 19% of the Company's selling price, and averaged
approximately 15.7%. Sales commissions ranging from 3% to 5% of net sales are
paid quarterly to the Company's external sales representative organizations. In
1996, sales subject to commissions represented 61.0% of total net sales and
sales commissions were 3.0% of total net sales.

RESULTS OF OPERATIONS

For purposes of the discussion set forth below, the years ended December
31, 1994 and 1995 represent the combined results of the RCI Group and RCL Group
(converted from fiscal year end March 31 to December 31) with all intercompany
transactions eliminated. The pro forma results of operations of the Company for
1996 give effect to the Recapitalization, the Offering and the application of
the estimated net proceeds of the Offering as if each had occurred on January 1,
1996. See "Pro Forma Combined Statement of Income."

20
<PAGE> 22

The following table sets forth for the periods indicated certain items
reflected in the Statements of Income of the Company and its predecessors and
the percentage of net sales represented by these items.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
COMBINED
---------------------------------------------------------
1994 1995 1996 PRO FORMA(1)
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $43,268 100.0% $48,592 100.0% $65,999 100.0%
Cost of sales................................ 19,442 44.9 19,340 39.8 27,100 41.0
Inventory adjustment......................... -- -- -- -- 1,367 2.1
------- ----- ------- ----- ------- -----
Gross profit............................... 23,826 55.1 29,252 60.2 37,532 56.9
Selling, general and administrative
expense.................................... 12,940 29.9 16,777 34.5 21,426 32.5
------- ----- ------- ----- ------- -----
Operating income before non-recurring bonus
expense and amortization of intangible
assets.................................. 10,886 25.2 12,475 25.7 16,106 24.4
Non-recurring bonus expense.................. -- -- -- -- 2,389 3.6
Amortization of intangible assets............ -- -- -- -- 2,239 3.4
------- ----- ------- ----- ------- -----
Operating income........................... 10,886 25.2 12,475 25.7 11,478 17.4
Interest expense (income).................... 238 0.5 113 0.2 9,633 14.6
Other expense (income)....................... (321) (0.7) (78) (0.1) 137 0.2
------- ----- ------- ----- ------- -----
Income before income taxes................. 10,969 25.4 12,440 25.6 1,708 2.6
Income tax expense........................... 406 0.9 258 0.5 685 1.0
------- ----- ------- ----- ------- -----
Net income................................. $10,563 24.5% $12,182 25.1% $ 1,023 1.6%
======= ===== ======= ===== ======= =====
</TABLE>

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

(1) Pro forma statement of income data for the year ended December 31, 1996
include a non-recurring incentive bonus expense of $2,389,000 in connection
with the Recapitalization and a purchase accounting inventory write-up
adjustment of $1,367,000 as a result of the Recapitalization. Excluding the
effects of the nonrecurring incentive expense and the inventory write-up
adjustment, the Company's pro forma gross profit, operating income before
nonrecurring bonus expense and amortization of intangible assets, operating
income and net income as a percentage of net sales as of December 31, 1996,
would have been 58.9%, 26.5%, 23.1% and 10.6%, respectively.

Product Categories. The following chart depicts sales by product category
for 1994, 1995 and 1996. Racing replicas include a comprehensive line of scaled
die cast cars, trucks and other vehicles representing many of the vehicles from
popular professional racing series, including NASCAR, NHRA, CART, IRL and World
of Outlaws. Non-racing vehicles include highly detailed die cast replicas of
classic and late-model cars and trucks and hot rods. Collectible pewter figures
include two new lines of collectible figures replicating certain comic book
characters and popular athletes. Other products included a line of vintage
automobile and airplane die cast coin banks produced by another company and
resold to wholesalers by the Company in 1994 and 1995, and certain premium and
promotional products sold in 1995 and 1996.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Racing replicas.............................. $38,117 88.1% $46,255 95.2% $55,480 84.1%
Non-racing vehicles.......................... -- -- -- -- 9,729 14.7
Collectible pewter figures................... -- -- -- -- -- --
Other........................................ 5,151 11.9 2,337 4.8 790 1.2
------- ----- ------- ----- ------- -----
Total.............................. $43,268 100.0% $48,592 100.0% $65,999 100.0%
======= ===== ======= ===== ======= =====
</TABLE>

21
<PAGE> 23

PRO FORMA COMBINED 1996 COMPARED TO COMBINED 1995

Net sales. Net sales increased $17.4 million, or 35.8%, to $66.0 million
for 1996 from $48.6 million for 1995. The sales growth for 1996 was primarily
attributable to growth in NASCAR racing replica sales, the expansion of product
offerings in the NHRA product line and the successful introduction of Racing
Champions Mint non-racing vehicle replicas.

Gross profit. Gross profit increased $8.2 million, or 28.0%, to $37.5
million for 1996 from $29.3 million for 1995. The gross profit margin (as a
percentage of net sales) decreased to 56.9% in 1996 from 60.2% in 1995. The
decrease was due to a purchase accounting inventory write-up adjustment which
resulted in an additional $1.4 million of cost of sales in 1996 and an increase
from 44.9% of 1995 net sales to 52.8% of 1996 net sales in Hong Kong shipments
which generate lower gross profit due to price discounts.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $4.6 million, or 27.4%, to $21.4 million for
1996 from $16.8 million for 1995. As a percentage of net sales, selling general
and administrative expenses decreased to 32.5% in 1996 from 34.5% in 1995. The
decrease in selling, general and administrative expenses as a percentage of net
sales was a result of reduced administrative expenses at the RCL Group, an
increase in the percentage of net sales represented by Hong Kong shipments and
the effect of spreading administrative expenses over higher sales volumes.
Special bonus expense of $2.4 million or 3.6% of net sales in 1996 related to a
one time payment of incentive compensation relating to the Recapitalization.
Amortization expense of $2.2 million or 3.3% of net sales in 1996 reflects the
amortization of intangible assets relating to the Recapitalization.

Operating income. Operating income, excluding the nonrecurring bonus of
$2.4 million and the amortization of intangible assets relating to the
Recapitalization of $2.2 million, increased $3.6 million, or 28.8%, to $16.1
million for 1996 from $12.5 million for 1995. As a percentage of net sales,
operating income, excluding the nonrecurring bonus and amortization of
intangible assets, decreased to 24.4% for 1996 from 25.7% in 1995. Operating
income decreased $1.0 million, or 8.0%, to $11.5 million for 1996 from $12.5
million for 1995. As a percentage of net sales, operating income decreased to
17.4% for 1996 from 25.7% for 1995.

Interest expense. Interest expense increased to $9.6 million for 1996 from
$113,000 for 1995. The increase was due to the bank term loans and subordinated
debt incurred in connection with the Recapitalization.

Income tax. Income tax expense for 1996 includes provisions for federal,
state and foreign income taxes at an effective rate of 40.0%. In 1995, the RCI
Group entities were structured as S corporations and therefore not subject to
federal income taxes and certain RCL Group entities were structured as tax free
British Virgin Islands entities.

COMBINED 1995 COMPARED TO COMBINED 1994

Net sales. Net sales increased $5.3 million, or 12.2%, to $48.6 million for
1995 from $43.3 million for 1994. The sales growth for 1995 was attributable to
strong growth in the NASCAR racing replica category, as the Company expanded its
NASCAR product offerings, and increases from other racing replica product lines
including the introduction in late 1995 of NHRA top fuel dragster replicas. The
sales increase in 1995 was accomplished despite the negative impact on first
quarter sales due to delays by the vehicle manufacturers in finalizing stock car
designs that in turn delayed the Company's ability to complete tooling on new
models.

Gross profit. Gross profit increased $5.5 million, or 23.1%, to $29.3
million for 1995 from $23.8 million for 1994. The gross margin increased to
60.2% in 1995 from 55.1% in 1994. The increase was due to price increases in
1995 coupled with purchasing, decorating and design efficiencies. In addition,
gross profit benefited in 1995 when the Company's products were classified as
import duty free beginning January 1, 1995, a reduction from 7.0% of product
cost in 1994.

Selling, general and administrative expense. Selling, general and
administrative expenses increased $3.9 million, or 30.2%, to $16.8 million for
1995 from $12.9 million for 1994. As a percentage of net sales, selling, general
and administrative expenses increased to 34.5% in 1995 from 29.9% in 1994. The
increase in

22
<PAGE> 24

selling, general and administrative expenses was a result of higher royalty fees
on new product categories and specialty promotional programs that carry higher
royalty rates as compared to earlier products. Commissions also increased as a
result of a higher percentage of total sales being made to customers assisted by
outside sales representatives.

Operating income. Operating income increased $1.6 million, or 14.7%, to
$12.5 million for 1995 from $10.9 million for 1994. As a percentage of net
sales, operating income increased to 25.7% for 1995 from 25.2% for 1994.

Income tax. Income tax expense for 1995 and 1994 includes provisions for
state replacement taxes for the RCI Group as these entities were S corporations
and therefore not subject to federal income taxes and Hong Kong income taxes on
certain entities in the RCL Group while certain entities were tax-free British
Virgin Islands entities.

LIQUIDITY AND CAPITAL RESOURCES

In connection with the Recapitalization, the Company and RCI entered into
the Credit Agreement with the First National Bank of Boston ("Bank of Boston"),
as agent, and certain other lenders. The Credit Agreement provides for a
Revolving Loan, Term Loan A, Term Loan B, a Deferred Term Loan and the issuance
of letters of credit. The Revolving Loan allows the Company to borrow up to $5.0
million at any time prior to April 30, 2001, based upon the levels of the
Company's accounts receivable, inventory and cash flows and the amount of letter
of credit exposure. The Company has not borrowed under the Revolving Loan as of
the date of the Prospectus. Term Loan A in the principal amount of $30.0 million
is due on April 30, 2001 and Term Loan B in the principal amount of $10.0
million is due on April 30, 2002. The proceeds of Term Loan A and Term Loan B
were used to finance the Recapitalization. The Credit Agreement also provides
the Company with the ability to borrow up to $8.0 million under a Deferred Term
Loan at any time between March 31, 1997 and April 30, 1997, to refinance the
$8.0 million Senior Notes. The Company intends to repay the Senior Notes on
March 31, 1997 from cash flow and proceeds from the Deferred Term Loan. The
Deferred Term Loan matures on April 30, 2001. All borrowings under the Credit
Agreement are secured by substantially all of the assets of the Company.

Term Loan A, the Revolving Loan and the Deferred Term Loan bear interest,
at the Company's option, at Bank of Boston's base rate plus a margin that varies
between 0.50% and 1.25% or at a reserve adjusted Eurodollar rate plus a margin
that varies between 2.00% and 3.25%. The applicable margin is based on the
Company's financial performance, and for Term Loan A, the Revolving Loan and the
Deferred Term Loan, the margin is currently 1.25% for base rate loans and 2.75%
for Eurodollar loans. Term Loan B bears interest at a reserve adjusted
Eurodollar rate plus 3.25%. The Credit Agreement requires the Company to pay a
commitment fee of one-half of one percent per annum on the average daily unused
portion of the Revolving Loan and the Deferred Term Loan.

At the completion of the Offering, the Company intends to replace the
Credit Agreement with a revised agreement permitting the Company to use the
proceeds of the Offering to repay certain indebtedness and redeem the Series A
Preferred Stock and Series B Preferred Stock and providing the Company with term
and revolving loan availability of approximately $30.0 million at lower interest
rates than currently provided by the Credit Agreement.

Bank of Boston's Hong Kong branch has made available to the Hong Kong
Subsidiary a line of credit of up to $5.0 million. Amounts borrowed under this
line of credit bear interest at the bank's cost of funds plus 2% and are
cross-guaranteed by RCI and the Hong Kong Subsidiary. As of January 31, 1997,
the Hong Kong Subsidiary had not borrowed under this line of credit.

The Company has met its working capital needs through funds generated from
operations and available borrowings under the Credit Agreement. The Company's
working capital requirements fluctuate during the year based on the timing of
the racing season. Due to seasonal increases in demand for the Company's racing
replicas, working capital financing requirements are usually highest during the
third quarter and early in the fourth quarter. Capital expenditures for the
eight month period ended December 31, 1996 were $2.3 million

23
<PAGE> 25

($3.3 million for the full year combined). The Company expects that capital
expenditures during 1997, principally for molds and tooling, will be
approximately $5.0 million. During 1996, the Company borrowed $40.0 million in
connection with the Recapitalization and repaid $3.1 million of principal
related to the bank term loans. The Company believes that its cash flow from
operations, cash on hand and borrowings under the Credit Agreement will be
sufficient to meet its working capital and capital expenditure requirements and
provide the Company with adequate liquidity to meet its anticipated operating
needs for the foreseeable future. However, any significant future product or
property acquisitions (including up-front licensing payments) may require
additional debt or equity financing.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25") "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
The Company has elected to continue to measure compensation cost under APB No.
25. If the APB No. 25 method is continued, pro forma disclosures are required as
if SFAS No. 123 accounting provisions were followed.

24
<PAGE> 26

BUSINESS

GENERAL

Racing Champions is a leading producer and marketer of collectible scaled
die cast vehicle replicas. The Company is best known for its extensive line of
officially licensed, high quality collectible replicas of actual race cars and
related vehicles from the five most popular U.S. professional racing series,
including NASCAR. Since its inception in 1989, the Company has capitalized on
the growing popularity of motor sports by offering an expanding line of high
quality, affordable racing replicas targeted toward racing fans and adult
collectors. The Company believes that it has the largest domestic market share
in the die cast racing replica category. Beginning in 1996, the Company
successfully expanded into non-racing collectibles by introducing the Racing
Champions Mint line of die cast replicas of classic and late-model vehicles. The
Company is continuing this expansion in 1997 by introducing an additional line
of non-racing vehicle replicas and two new lines of collectible pewter figures.
From 1990, the Company's first full year of operations, through 1996, the
Company's net sales grew from approximately $5 million to $66 million.

COLLECTIBLES INDUSTRY

The collectibles industry is composed of numerous niche markets served by a
wide variety of producers and distributors. Collectible products include
figurines, dolls, ceramic buildings, prints, plates, glass, ornaments, steins,
music boxes, trading cards and die cast items, including vehicles. Collectible
products are generally of high quality, produced in limited quantities and
targeted to adults. According to the Collectibles Industry Report for 1996 by
Unity Marketing, an independent market research firm, the collectibles industry
generated customer sales of approximately $8.0 billion in the United States in
1995. This represented a 13.0% increase from 1994 and a 23.0% increase from
1993. Demographic trends are expected to positively impact the industry, as the
baby boom generation ages and has higher discretionary income that can be spent
on leisure goods such as collectibles. The Company is currently focused on the
following two segments of the collectibles market.

DIE CAST VEHICLE REPLICAS

The die cast vehicle industry generated consumer sales of approximately $1
billion in the United States in 1996. Die cast vehicles include airplanes,
trains, tractors, and most significantly, automobiles and trucks and have been
produced for many years by a wide variety of companies. While a significant
percentage of die cast products have historically been sold as toys, an active
base of adult die cast collectors has developed over time. Various secondary
markets for die cast vehicles have subsequently developed with a number of
periodicals regularly reporting the secondary market value of a wide variety of
die cast vehicles.

Non-racing Vehicle Replicas. The non-racing die cast vehicle replicas
primary market is comprised of boys ages five and over and adults. Collectible
periodicals have for many years included die cast vehicles such as 1:64 scale
cars originally produced by Matchbox(R). While collector interest in die cast
cars continues, the Company believes that the quality of new 1:64 scale vehicles
has declined over the years as other manufacturers reduced features and costs in
order to compete on a price basis with toys. The Company has targeted its Racing
Champions Mint and Hot Rod Collection to adult collectors who make multiple
purchases of die cast vehicles because of their affinity for automobiles and
trucks, the authenticity of the replicas and the fun of collecting.

Racing Replicas. Due to the popularity of motor sports, racing replicas
emerged as a significant and growing category of the die cast vehicle industry.
The racing replica industry's primary market is racing fans and adult
collectors. The Company believes that its customers are predominately male with
approximately 80% age 24 and older. These fans are attracted to racing replicas
due to the highly detailed, precise nature of the replicas and the popularity of
racing and the teams, drivers and sponsors represented by the replicas.
Established secondary markets exist for racing replica products, including the
Company's, with market values reported in collector magazines such as Becketts,
Die Cast Digest and Tuff Stuff's RPM.

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<PAGE> 27

The Company believes that demand for racing replicas will continue to
increase as the interest in motor sports grows. The North American motor sports
industry currently enjoys a large and growing spectator base with total
attendance in 1996 exceeding 15.4 million at 215 sanctioned events. By
comparison, approximately 15.0 million people attended the 240 NFL regular
season games. The most popular of the motor sports circuits is the NASCAR
Winston Cup Series. From 1990 to 1996, attendance at Winston Cup events
increased from approximately 3.3 million to 5.5 million, an increase of
approximately 67%. During the same period, sales of NASCAR licensed merchandise
have increased from $60 million to $770 million, a compound annual growth rate
of approximately 53%. Racing Champions has contributed to this growth and has
been NASCAR's leading licensee since 1992. Overall Nielsen ratings for Winston
Cup telecasts increased approximately 20% from 1994 to 1996 and household
viewership increased approximately 27% for the same period. The growth in motor
sports in general, and NASCAR in particular, is expected to continue for a
number of reasons, including: (i) the opening of new superspeedways in the
Dallas/Ft. Worth and Los Angeles markets and the inclusion of these markets in
the 1997 Winston Cup Series; (ii) the expansion and upgrade of many existing
motor sports facilities throughout the U.S.; (iii) the conducting of IRL and
other non-NASCAR events at traditional NASCAR venues; and (iv) increased
television exposure in response to favorable ratings increases.

COLLECTIBLE FIGURES AND FIGURINES

Collectible figures and figurines are the largest category within the
collectibles industry with over $3 billion in consumer sales in 1996. These
figures and figurines are produced in various mediums including acrylic,
plastic, porcelain, crystal and pewter and depict characters from a wide variety
of themes including nostalgia, entertainment, sports and wildlife. The majority
of this market includes higher quality figures and figurines which are generally
intended for display. These items are often offered in limited edition sets,
which enhances their collectibility. A portion of this market includes
collectible "action" figures, which typically are plastic, and represent
characters from comics, movies, television shows or professional sports.
Established secondary markets exist for collectible action figures, with market
values reported in collector magazines such as White's Collecting Figures and
Action Figure Digest.

Comic Book Characters. Comic books have been an entertainment medium since
their inception in the late 1930's. Many of today's favorite mythical characters
were created in the pages of comic books, including such popular superheroes as
Batman, Superman and Spiderman. Related entertainment products such as movies
and television programs increase the reach of comic book characters to a wide
spectrum of consumers and collectors. Comic books and comic book characters have
grown into a significant adult collectibles category as a result of comic books'
60 year history, unique and imaginative characters and thousands of published
titles. The comic book character market primarily attracts adult males and is
supported through national and regional collector shows, auctions and dedicated
publications such as Overstreets Price Guides, Wizard Magazine and Fan Magazine.

Sports Collectibles. The sports collectible and memorabilia business has
grown over the last decade from primarily trading cards to encompass a large
variety of products including autographed equipment, pictures and replica
figures. The collector base consists of both children and adults, the majority
of whom are male. Sports memorabilia and collectible products are in high demand
due to the increase in media exposure and the celebrity status afforded past and
present athletes. Collector shows, auctions and dedicated publications such as
Becketts and Sports Collectors Digest help support the growth in secondary
market trading of sports collectibles and memorabilia which has further enhanced
collector interest in the category.

BUSINESS STRATEGY

The Company's objectives are to (i) expand its racing replica business by
capitalizing on the growing popularity of motor sports and (ii) leverage its
brand name, reputation with collectors and established distribution and
manufacturing relationships by developing new collectible products. The
Company's primary strategies for achieving these objectives are as follows:

Produce Highly Detailed, Authentic Replicas: A significant component of the
Company's success is its expertise in producing highly detailed, scaled replicas
known for their quality workmanship and authenticity.

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<PAGE> 28

Producing authentic collectibles generally requires the Company to secure
licensing agreements with the groups or individuals representing the item or
person to be replicated. As an example, the Company's racing replicas require
licensing agreements with racing teams, drivers and sponsors, vehicle
manufacturers and major racing series sanctioning bodies. The Company has
committed substantial resources toward the support of its licensing activities
which currently includes over 450 licenses and believes its licensing experience
and relationships with licensors provide it with a competitive advantage.

Develop New Collectible Products: The Company is continuously developing
new collectible products both within its current product categories and in new
areas. Management has developed specific criteria for evaluating and developing
new collectible products. These criteria include (i) the long-term viability and
market appeal of the person or object being replicated, (ii) the consumer's
desire to collect the product, (iii) the ability to produce ongoing series of
the product in a variety of styles, (iv) the suitability of the product for
distribution through mass merchant retailers and (v) an identifiable group of
targeted collectors for the product. These and other factors when taken together
allow Racing Champions to create innovative products designed to stimulate and
maintain collector interest. Since 1994, the Company has developed eight new
product lines, including Racing Champions Mint which generated $9.7 million in
net sales in its first year.

Foster Collectibility: To foster the collectibility of its product lines,
the Company carefully manages product quantities, staggers product release
dates, continuously freshens its product offerings, produces special editions,
utilizes distinctive packaging and adds additional features such as serial
numbers, display stands, emblems, trading cards and certificates of
authenticity. The Company has also enhanced collectibility by offering product
lines in a large variety of styles. As an example, the Company's racing replica
product category has over 900 different styles that are released in managed
quantities and require frequent updates due to changes in sponsors, vehicle
styling, graphics and drivers. The Company believes it has established
considerable brand loyalty among its collector base, many of whom purchase a
substantial number of the Company's products each year.

Offer Affordable Collectibles Through Mass Market Distribution: The Company
believes its distribution through mass merchants such as K-Mart, Target, Toys
'R' Us and Wal-Mart provides a strong demographic fit with its targeted
customers. By focusing on this high volume channel of distribution rather than
traditional collectible channels such as giftware, hobby and collector shops,
direct response and direct mail collector clubs, the Company also realizes
substantial economies of scale which lower its product and selling costs and in
turn allow the Company to sell at reduced prices without adversely affecting
quality. In order to broaden the potential collector base for its products, the
Company's replicas are affordably priced, typically under $30 at retail.

Maintain Dedicated External Manufacturing Relationships: The Company
believes that its dedicated supplier base together with the local oversight and
coordination provided by the Hong Kong Subsidiary provide it with certain
competitive advantages including a rapid product development capability and a
highly flexible, reliable and high quality supply source. All but two of its six
manufacturers are exclusively dedicated to the production of the Company's
products and all are privately owned by independent Chinese entrepreneurs. The
Company is not bound to specific order levels and consequently can quickly
adjust output levels in response to increased or decreased product demand. In
addition, the Company generally produces only enough product to satisfy current
outstanding orders which allows Racing Champions to maintain relatively low
inventory levels.

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<PAGE> 29

PRODUCTS

The Company produces products in the die cast racing replica, non-racing
vehicle replica and collectible figure categories. Since 1989, the Company has
continually introduced new products and expanded its product lines. The
Company's current products were introduced in the following years:

<TABLE>
<CAPTION>
YEAR OF INTRODUCTION PRODUCTS
- -------------------- --------
<C> <S>
1989 1:64 stock car
1990 1:87 team transporter
1991 1:64 team transporter; 1:24 stock car
1993 1:24 pit stop display; 1:64 and 1:24 Premier Edition stock
cars
1994 1:64 Indy style race car; 1:24 Indy style race car; 1:64
sprint car; 1:24 sprint car
1995 1:64 racing truck; 1:24 stock car with opening hood; 1:24
racing truck; 1:18 stock car with opening hood; 1:9 racing
motorcycle; 1:24 top fuel dragster
1996 1:64 stock car with opening hood; 1:144 stock car; 1:64
top fuel dragster; 1:64 funny car; 1:64 pro stock drag
racer; 1:24 funny car; 1:24 pro stock drag racer; 1:64
Racing Champions Mint
1997 1:144 racing truck; 1:144 team transporter; 1:144 top fuel
dragster; 1:144 funny car; 1:144 pro stock drag racer;
1:24 Hot Rod Collection; 1:64 Hot Rod Collection; Comic
Book Champions pewter figures; Sports Champions pewter
figures; 1:144 Racing Champions Mint
</TABLE>

RACING REPLICAS

The Company's racing replicas include a comprehensive line of scaled stock
cars, trucks and team transporters representing most of the vehicles competing
in the current year's NASCAR Winston Cup Series, Busch Grand National Series and
Truck Series by Craftsman. The Company also produces replicas from other popular
racing series including NHRA drag racing, CART and IRL Indy style racing and
World of Outlaws sprint car racing, as well as Honda and Kawasaki racing
motorcycles. In 1996, Racing Champions produced over 900 different styles of
racing replicas, including various sizes such as 1:9, 1:18, 1:24, 1:64, 1:87 and
1:144 scale. A 1:24 scale stock car replica is approximately eight inches long
whereas a 1:64 scale stock car replica is approximately three inches long. The
Company's racing replicas generally retail at prices ranging from $1 to $30.

NASCAR Vehicles: The NASCAR product line covers stock cars in the Winston
Cup and Busch Grand National Series and racing trucks in the NASCAR Truck Series
by Craftsman. NASCAR stock cars were the Company's initial offering in the
collectible racing replica category. NASCAR products include race cars and
trucks, team transporters and pit stop displays which are produced in various
sizes including 1:18, 1:24, 1:64, 1:87 and 1:144 scale. The NASCAR product line
is produced in an annual Regular Edition as well as special Premier and Preview
Editions. The Premier Edition is differentiated by more detailed painting,
special packaging and limited edition, serial numbered production runs. The
Preview Edition is released during the fourth quarter of a calendar year in
color schemes and sponsors anticipated for the upcoming year of racing. The
Company has entered into licenses with various NASCAR stock car and truck teams,
drivers, agents and sponsors, which allow the Company to replicate race cars and
race trucks and team transporters for over 100 teams.

Indy Style Cars: The Company began production of Indy style cars in 1994.
Indy style car products are produced in 1:24 and 1:64 scale sizes. The Company
has entered into licenses which allow the Company to replicate over 30 cars. The
Company also holds a license from the Indianapolis Motor Speedway to produce
special event related vehicles.

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<PAGE> 30

World of Outlaws Sprint Cars: The Company began production of the World of
Outlaws sprint car racing product line in 1994. Sprint car products are produced
in 1:24 and 1:64 scale sizes. The Company has entered into licenses which allow
the Company to replicate over 30 cars.

National Hot Rod Association Drag Racers: The Company introduced its NHRA
product line in 1995. NHRA products are currently produced in 1:24, 1:64 and
1:144 scale sizes. This product line includes licenses for the top fuel, funny
car and pro stock drag racing divisions which allow the Company to replicate
over 55 vehicles.

Honda/Kawasaki Motorcycles: The Company also introduced its Honda/Kawasaki
racing motorcycle product line in 1995. These products are produced in the 1:9
scale size. The Company has licensing agreements with Honda and Kawasaki to use
their team logos on the Company's products and packaging.

NON-RACING VEHICLE REPLICAS

Racing Champions Mint. In early 1996, the Company introduced the Racing
Champions Mint product line. The Racing Champions Mint is a new concept building
on the Company's racing replica success but still focusing on the collectible
die cast vehicle market. Each month the Company issues an assortment of six
serial numbered, highly detailed 1:64 scale replicas of classic and late model
cars and trucks in color schemes matching those used on the actual vehicle. Each
new issue is sequentially numbered and includes releases of new models and new
paint schemes. The replicas are selected from actual vehicles manufactured over
the past five decades. The limited production of these replicas enhances their
collectibility. In addition, the package contains a collector quality die cast
emblem of the vehicle's hood ornament or other insignia.

In 1997, the Company plans to introduce a 1:144 scale version of the Racing
Champions Mint. Also in 1997, the Company has entered into an agreement with
Petersen Publishing Company which allows for the use of the Motor Trend Magazine
trade name and trademarks on the Racing Champions Mint product line. The Company
believes that the Motor Trend name increases the authenticity of this product
line and creates additional interest with collectors and automobile enthusiasts.
In addition, the Company plans to promote this product line in Motor Trend
Magazine and on Motor Trend's cable television show.

Hot Rod Collection. Due to the success of Racing Champions Mint and
consumer feedback, the Company launched in early 1997 a new line of collectible
die cast hot rod car replicas. The Racing Champions Hot Rod Collection is based
on an exclusive license with Petersen Publishing Company's Hot Rod Magazine and
includes custom designed hot rod cars in 1:24 and 1:64 scale sizes. In addition
to the license, the Company will promote this product line in Hot Rod Magazine
and on Hot Rod Magazine's cable television show and Power Tour of various U.S.
cities. Like Racing Champions Mint, new Hot Rod Collection models and styles
will be released in monthly assortments. Each vehicle in the Racing Champions
Hot Rod Collection is produced in limited quantity and includes a serial number
to enhance collectibility.

COLLECTIBLE PEWTER FIGURES

In 1997, the Company introduced a new product category, collectible pewter
figures. High quality pewter figures had not previously been widely available
through mass merchants. The Company's initial focus related to this product
category is two proven and highly recognizable licensed properties -- comic book
characters and popular athletes. Products in this category will be released in
continuing series. Replicas of individual comic book characters and popular
athletes will be produced in limited production runs and will not be repeated.
In order to further collectibility, all products will be hand numbered and sold
with a certificate of authenticity. The initial two collectible pewter figure
product lines include:

Comic Book Champions. The Company recently began producing the Comic Book
Champions line of collectible pewter replicas, and expects to ship the first
Comic Book Champions replicas by March 1997. Comic Book Champions is a series of
pewter replicas of comic book characters in action poses. Each figure is mounted
on a die cast stand in front of an encased miniature reproduction of a comic
book cover on which the character appeared. Comic Book Champions will be
produced in Gold, Silver and Modern Age series, representing different eras of
comic book publishing. The Company has separate, nonexclusive licensing

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<PAGE> 31

agreements with Marvel Characters, Inc. and DC Comics to use the likenesses of
certain comic book characters and the reproductions of the comic book covers for
this product. Figures in the initial releases will include Superman(R),
Batman(R), Spiderman(R), Captain America(R), the Incredible Hulk(R) and the
Joker(R).

Sports Champions. The Company recently began producing the Sports Champions
line of collectible pewter replicas, and expects to ship the first Sports
Champions replicas by May 1997. Sports Champions is a series of pewter replicas
of popular athletes. Each replica is mounted on a die cast stand in front of an
encased miniature reproduction of a Sports Illustrated magazine cover on which
the athlete appeared. The Company has a licensing agreement with Sports
Illustrated to use its tradename and the reproductions of its magazine covers.
The Company is also negotiating licensing agreements with several major sports
leagues (including the National Football League, Major League Baseball, the
National Hockey League and the National Basketball Association) and has entered
into licenses with several professional athletes to use their likenesses on the
Sports Champions replicas. The Company anticipates entering into licensing
agreements with additional sports figures as the Sports Champions product line
is developed. The initial releases of the Sports Champions line will include
Muhammad Ali, Frank Thomas, Ken Griffey, Jr., Joe Montana and Arnold Palmer,
among others.

LICENSES

The Company markets virtually all of its products under licenses from other
parties. These licenses are generally limited in scope and duration and
authorize the sale of specific licensed products on a nonexclusive basis for a
limited period of time. The Company has over 450 licenses with various race team
owners, drivers, sponsors and agents, generally for terms of 1 to 3 years. The
Company's racing replicas are also officially licensed by major race sanctioning
bodies including NASCAR, CART, IRL, NHRA and World of Outlaws. Although the
Company generally does not pursue exclusive licenses, the Company's licensing
arrangements with NASCAR and World of Outlaws are exclusive through December 31,
1997. The Company has also obtained licenses to produce replicas of Honda and
Kawasaki racing motorcycles through January 31, 1998. The Company also has
license agreements with the major automobile and truck manufacturers, including
Chevrolet, Ford, Oldsmobile, Pontiac, Buick, Cadillac, Dodge, Chrysler and
Kenworth. The Company operates an office in Charlotte, North Carolina to
maintain its NASCAR and World of Outlaws licenses for racing replicas.

The Company has entered into additional licensing arrangements in
connection with the development of its Comic Book Champions and Sports Champions
product lines. The Company has separate licensing agreements with Marvel
Characters, Inc. and DC Comics (a division of Time Warner Entertainment Company
L.P.) to use the likenesses of certain comic book characters and the
reproductions of comic book covers on which they have appeared. The license
agreement with Marvel Characters, Inc. expires on December 31, 1999, while the
license agreement with DC Comics expires on December 31, 1998. The Company also
has a licensing agreement with Sports Illustrated to use its trade name and the
reproductions of magazine covers which expires on June 30, 1999. The Company is
negotiating licenses with the National Football League, Major League Baseball,
the National Hockey League and the National Basketball Association to produce
its Sports Champions replicas. The Company has entered into licensing agreements
with several professional athletes to use their likenesses on the Sports
Champions replicas, and anticipates entering into licensing agreements with
additional professional athletes as the Sports Champions product line is
developed.

Royalty rates for racing replicas vary by racing category but generally
range in aggregate for all licensors from 12% to 19% of the Company's sales
price. Certain special or limited edition products may carry higher royalty
rates. Royalty rates related to non-racing vehicle replicas range in aggregate
from 3% to 10% of the Company's sales price. For collectible pewter figures the
Company expects to pay royalty rates in aggregate from 10% to 23% of the
Company's sales price depending on the number of parties involved and the market
value of the property or athlete. Royalties are generally paid on a quarterly
basis.

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<PAGE> 32

PATENTS AND TRADEMARKS

The Company has registered several trademarks with the U.S. Patent and
Trademark Office, including the mark "Racing Champions." Other trademark
registrations are currently pending, including Racing Champions Mint(TM), Comic
Book Champions(TM), Sports Champions(TM) and Collectible Champions(TM). The
Company holds a U.S. patent for its trading card, display stand and model
vehicle, and has a patent application pending for its unique packaging system
which includes a die cast vehicle, emblem and display stand. The Company
believes that there is significant value in its Racing Champions trade name and
trademark and plans to build additional value through increased customer
awareness of many of the Company's trade names and trademarks.

SALES AND DISTRIBUTION

In 1996, approximately 76% of the Company's net sales were distributed
through national and regional retail chains including K-Mart, Target, Toys 'R'
Us, Wal-Mart, Hills, Meijers and ShopKo. The Company's products are sold at more
than 20,000 retail outlets throughout North America. The Company utilizes
electronic data interchange with its major retail customers to monitor retail
inventories and point of sale information and receive and process customer
orders.

In addition, the Company sells to a limited number of wholesale customers
which as a group represented approximately 15% of net sales for 1996. The
wholesale channel distributes Racing Champions' products to hobby and collector
shops throughout North America. The Company's sales to this channel on a
percentage basis have been declining as its distribution through major national
and regional retailers has increased.

The Company also distributes products through the premium/promotional
distribution channel. In total, this channel represented approximately 9% of net
sales for 1996. Premium/promotional customers include Texaco, John Deere, Citgo,
NAPA, Kellogg's, Procter & Gamble, Mac Tools and Snap-On Tools. The Company's
premium/promotional customers offer the Company's customized products to their
customers through their own distribution outlets (e.g., Texaco, John Deere and
Citgo), through special promotions (e.g., Kellogg's and Procter & Gamble) or
with the purchase of their product (e.g., Snap-On Tools).

In total, the Company sells to approximately 300 customers. The Company's
internal sales force provides direct customer contact with virtually all of the
Company's retail and wholesale accounts. This sales force is supplemented by
five external sales representative organizations. These external sales
representative organizations provide more frequent and wider coverage of the
national and regional retailers and support approximately 61% of the Company's
1996 net sales. The external sales representative organizations are divided
geographically. Sales representatives generally earn commissions of 3% to 5% of
the net sales price from their accounts.

MARKETING

The Company is introducing marketing programs which are directed toward
collectors and potential new customers that fit the demographic profile of the
Company's target market. The focus of the Company's marketing plan is to
increase awareness of the Company's product offerings and brand name. The
Company utilizes the following media in its marketing plan.

Print Advertising. The Company places advertisements in collector's
publications with high, specific market penetration such as die cast collector
publications and figure collector publications. The Company also advertises in
national publications read by its targeted collectors and enthusiasts, such as
NASCAR Magazine, Die Cast Digest, Hot Rod Magazine, Motor Trend, DC and Marvel
comic books, and Sports Illustrated.

Public Relations. The Company has developed a sustained public relations
effort to build relationships with editors at collector publications. Ongoing
product notices keep editors abreast of changing products, increase the
Company's credibility and market acceptance, and encourage the editorial staffs
of these publications to give adequate coverage to the Company's products.

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<PAGE> 33

Co-op Advertising. The Company works closely with retail chains to plan and
execute ongoing retailer driven promotions and advertising. The programs usually
involve promotion of the Company's products in retail customers' print
circulars, mailings and catalogs.

Direct Consumer. The Internet is an increasingly important part of the
Company's marketing plan as collectors have quickly adopted the Internet as a
preferred way to communicate with other enthusiasts about their hobby. The
Company has established a proprietary World Wide Web site (www.racingchamps.com)
on the Internet which highlights its products, lists product release dates and
collects information directly from consumers. The Company also gathers customer
information through customer letters, e-mail, telephone calls and product
surveys. The Company uses this customer information for market research and
dissemination of new product information.

COMPETITION

The Company believes that Racing Champions holds the largest domestic share
of the collectible scaled die cast racing replica category. The Company competes
with the other producers of collectible scaled die cast racing replicas, such as
Action Performance Companies, Inc., which generally distribute their products
through direct marketing, collector clubs and wholesalers who, in turn,
distribute through hobby and collector shops. In contrast, most of the Company's
products are distributed through the mass merchant channel of distribution.
Mattel and Hasbro have also recently entered the racing replica market and are
expected to distribute competing die cast racing replicas of similar or lower
quality to the Company's racing replicas in the mass merchant channel of
distribution.

The Company also competes with the producers of miniature die cast toy
vehicles such as Matchbox(R) and Hot Wheels(R) who, like the Company,
principally distribute through the mass merchant channel. In this market, the
Company competes with Tyco Toys, Inc. (Matchbox), Mattel, Inc. (Hot Wheels),
Lewis Galoob Toys, Inc. (Micro Machines(R)), Playing Mantis (Johnny
Lightning(R)) and Road Champs, Inc. as well as other domestic and foreign
producers of miniature die cast toy vehicles. Many of the Company's competitors
have greater financial, technical, marketing and other resources than the
Company.

The Company believes that its competitive position is enhanced by a number
of factors, including product quality, features, pricing and diversity, its
ability to recognize trends in its product markets and anticipate shifts in
consumer preferences, its success in designing and marketing new products, the
availability of adequate sources of manufacturing capacity and the ability of
its third party manufacturers to meet delivery schedules, and its ability to
renew existing licenses and to enter into new licenses. In addition, the Company
has sought to develop brand loyalty, to produce products with a proven track
record of collectibility, and to capture shelf space at leading mass merchants
and other retailers.

MANUFACTURING

Hong Kong Office. The Hong Kong Subsidiary is located in Kowloon, Hong Kong
and employs 28 people who oversee all aspects of the Company's product
manufacturing activities. The Hong Kong Subsidiary sources raw materials and
packaging, performs engineering and graphic art functions, executes the
production schedule, provides on-site quality control, facilitates third-party
safety testing and coordinates the delivery of shipments for export from Hong
Kong to the United States.

Die Cast Vehicle Manufacturing. Virtually all of the Company's die cast
vehicle products are manufactured by four independently owned factories located
in the Shenzhen region of China, approximately 30 to 40 miles from Hong Kong.
All of these factories (the "Dedicated Manufacturers") are exclusively dedicated
to manufacturing the Company's products and all are privately owned by
independent Chinese entrepreneurs. All products are manufactured to the
Company's specifications using molds and tooling that are owned by the Company.
The Dedicated Manufacturers own the manufacturing equipment and machinery, and
purchase raw materials, hire workers and plan production which includes
subassemblies, final assemblies and packaging. The Company purchases fully
assembled and packaged finished goods in master cartons for distribution to its
customers. Most of the Dedicated Manufacturers have been supplying the Company
for more than five years. The Company's purchases in 1996 from the Dedicated
Manufacturers, Win Yield, Sharp Success, Sunrise and

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<PAGE> 34

Shun Fung, were 31.3%, 29.9%, 22.9% and 15.8%, respectively, of the Company's
total purchases of die cast vehicle replicas. See "Certain Transactions."

Over the next 24 months, the Dedicated Manufacturers are planning to
upgrade their factory facilities. With oversight from the Company, the Dedicated
Manufacturers have located a site in Dongguan (approximately 50 miles from Hong
Kong) named the Racing Industrial Zone (the "RIZ Complex") which, when fully
developed, will serve as a complex in which each independent Dedicated
Manufacturer will operate a free standing factory facility. The factory
facilities at the RIZ Complex are being developed by a third party who will
lease the factory facilities to the Dedicated Manufacturers. The construction of
the first free standing facility is currently underway and is expected to be
completed and occupied by one of the Dedicated Manufacturers in mid-1997. The
Company intends to establish an office in the RIZ Complex. This office would
house many of the functions that are currently performed in the Company's
Kowloon, Hong Kong office as well as provide more direct oversight and
coordination of the production activities.

Pewter Figures Manufacturing. The Company has entered into a development
and supply agreement with M-B Sales, L.P. ("M-B") headquartered in Westmont,
Illinois. Under the direction of the Company, M-B is arranging for the sculpting
and manufacturing of the Company's new pewter figure product lines. M-B is best
known as a developer of figures and other creative promotional ideas for select
clients such as McDonald's Corporation and Nestle's. M-B has relationships with
over 20 independent manufacturing suppliers in the Far East and is employing two
of its primary manufacturing suppliers to produce the Comic Book Champions and
Sports Champions product lines to specifications set by the Company. M-B intends
to develop other manufacturing suppliers who will be capable of producing the
Company's pewter products.

Product Development. New product development is constantly occurring as the
Company seeks to improve quality, update styles and add product lines. New
product design and updates are generally initiated domestically. The designing
process can take several days or a number of months depending upon whether the
process involves an enhancement to an existing product or a new product design.
The Company has been able to develop new products and make design changes
quickly due to its rapid approval process, integrated Hong Kong Subsidiary and
dedicated manufacturing.

Tooling. The Company is continuously developing new tooling and molds to
produce its die cast and pewter products. The Company's engineering staff works
closely with outside tool makers to design and create new tooling. Depending on
the size and complexity of the model, tools can cost from $20,000 to $120,000.
The Company often produces back-up tools for high volume models. The Company
owns all of its tools and provides them to the manufacturers during production.
Tools are returned to the Company when a product is no longer in production and
are stored for future use or destroyed.

Graphics. Existing product enhancements typically include graphics changes
to the vehicles for new color schemes, sponsor changes and/or driver changes and
revisions to product packaging. Graphics changes are photographed and forwarded
to the Hong Kong Subsidiary for incorporation into the Company's product line.
The Company's graphic arts personnel will redesign the car decorating process in
order to reflect the graphics changes. All changes are reviewed domestically by
Company personnel and samples are sent to racing teams and sponsors prior to
production for their approval.

Product Safety. The Company's products are designed, manufactured, packaged
and labeled to conform with the safety requirements of the American Society for
Testing and Materials and the Consumer Product Safety Commission and are
periodically reviewed and approved by independent safety testing laboratories.
The Company carries product liability insurance coverage with a limit of $5.0
million per occurrence. As of the date of the Prospectus, the Company has never
received a product liability claim.

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EMPLOYEES

As of January 31, 1997, the Company had 80 employees, 78 of which were
employed full-time. The Company emphasizes the recruiting and training of high
quality personnel and, to the extent possible, promotes people from within the
Company. The Company's employees are not covered by collective bargaining
agreements, and the Company considers its employee relations to be good. The
Company's continued success will depend in part on its ability to attract, train
and retain qualified personnel at all of its locations.

FACILITIES

The Company's facilities are as follows:

<TABLE>
<CAPTION>
DESCRIPTION SQUARE FEET LOCATION LEASE EXPIRATION
----------- ----------- -------- ----------------
<S> <C> <C> <C>
Corporate Headquarters.... 9,269 Glen Ellyn, Illinois January 2000
Foreign Headquarters...... 7,900 Kowloon, Hong Kong July 1998
Warehouse................. 19,183 Chicago, Illinois December 1998
Licensing Office.......... 600 Charlotte, North Carolina Month-to-Month
</TABLE>

REGULATION AND LEGAL MATTERS

In the normal course of business the Company may be involved in various
legal proceedings from time to time. The Company does not believe it is
currently involved in any claim or action the ultimate disposition of which
would have a material adverse effect on the Company.

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MANAGEMENT

DIRECTORS AND OFFICERS

The directors and officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert E. Dods........... 48 President and Director
Boyd L. Meyer............ 55 Executive Vice President and Director
Peter K.K. Chung......... 43 President of Racing Champions Limited and Director
Curtis W. Stoelting...... 36 Vice President - Finance and Operations and Secretary
John F. Olsen............ 43 Vice President - Sales
Peter J. Henseler........ 38 Vice President - Marketing
M. Kevin Camp............ 39 Vice President - Licensing and Assistant Secretary
Helena Lo................ 37 Finance and Administration Manager
Kelvin Ng................ 36 Engineering Manager
Rose Lam................. 34 Marketing and Customer Service Manager
Jody L. Taylor........... 28 Controller
Michael A. Midtgaard..... 31 Information Systems Manager
Patrick A. Meyer......... 28 National Sales Manager
Avy H. Stein............. 42 Director
Samuel B. Guren.......... 50 Director
Daniel M. Gill........... 33 Vice President, Assistant Secretary and Director
</TABLE>

The Company's executive officers include the President, the President of
Racing Champions Limited and all Vice Presidents.

Robert E. Dods has served as a director and as President of Racing
Champions since April 1996. Mr. Dods co-founded RCI in 1989, and has served as
President of RCI since inception. Prior to founding RCI in 1989 Mr. Dods and
Boyd L. Meyer owned and operated Dods-Meyer, Ltd., a manufacturers'
representative agency which focused on selling products to mass merchants.

Boyd L. Meyer has served as a director and as Executive Vice President of
Racing Champions since April 1996. Mr. Meyer co-founded RCI in 1989, and has
served as Executive Vice President of RCI since inception. Prior to founding RCI
in 1989 Mr. Meyer and Robert E. Dods owned and operated Dods-Meyer, Ltd., a
manufacturers' representative agency which focused on selling products to mass
merchants.

Peter K.K. Chung has served as a director of Racing Champions and as
President of Racing Champions Limited since April 1996. Mr. Chung formed the RCL
Group in 1989 to handle the overseas operating activities of RCI and has served
as President of Racing Champions Limited since inception. Prior to 1989 Mr.
Chung was a contract manufacturer for various products for export from China to
the United States and Europe.

Curtis W. Stoelting has served as Vice President - Finance and Operations
and Secretary of Racing Champions since April 1996. Mr. Stoelting has also
served as Vice President - Finance and Operations of RCI since 1994. Prior to
joining RCI, Mr. Stoelting was employed for 12 years by Arthur Andersen LLP in
Chicago, most recently as a Senior Manager. Mr. Stoelting is a Certified Public
Accountant.

John F. Olsen has served as Vice President - Sales of Racing Champions
since April 1996. Mr. Olsen has also served as Vice President - Sales of RCI
since 1993. Prior to joining RCI, Mr. Olsen worked for a sales representative
organization located in New York and in this capacity represented the Racing
Champions line since 1989.

Peter J. Henseler has served as Vice President - Marketing of Racing
Champions since April 1996. Mr. Henseler has also served as Vice
President - Marketing of RCI since March 1996. Prior to joining RCI,

35
<PAGE> 37

Mr. Henseler was a director of marketing for McDonald's Corporation since 1988,
and was most recently responsible for in-store merchandising and worldwide
trademark licensing.

M. Kevin Camp has served as Vice President - Licensing and Assistant
Secretary of Racing Champions since April 1996. Mr. Camp has also served as Vice
President - Licensing of RCI since 1994. Prior to joining RCI, Mr. Camp held
various positions over a 10 year period while employed by NASCAR, most recently
serving as director of licensing and marketing.

Helena Lo has served as Finance and Administration Manager of Racing
Champions Limited since 1989. Ms. Lo received a bachelor's degree in Business
Administration and prior to joining Racing Champions Limited, Ms. Lo was
employed by a chartered accounting firm.

Kelvin Ng has served as Engineering Manager of Racing Champions Limited
since 1989. Mr. Ng is a degreed mechanical engineer with extensive experience in
replicating vehicles.

Rose Lam has served as Marketing and Customer Service Manager of Racing
Champions Limited since 1989. Prior to joining RCL, Ms. Lam pursued various
studies and received a bachelor's degree in economics.

Jody L. Taylor has served as Controller since June 1996. Prior to joining
the Company, Ms. Taylor was employed for five years by Arthur Andersen LLP in
Chicago, most recently as a manager. Ms. Taylor is a Certified Public
Accountant.

Michael A. Midtgaard has served as Information Systems Manager of Racing
Champions, Inc. since 1994. Prior to 1994, Mr. Midtgaard served RCI for over
three years in various operations and systems areas.

Patrick A. Meyer has served as National Sales Manager of Racing Champions
since July 1996. Prior to joining Racing Champions, Mr. Meyer was employed as a
sales representative by a seller of computer hardware from 1993 to 1996 and as a
sales representative by Adolph Coors Company from 1991 to 1993. Patrick A. Meyer
is the son of Boyd L. Meyer.

Avy H. Stein has served as a director since April 1996. Mr. Stein is a
founder and Managing Director of Willis Stein. Along with Mr. Willis, Mr. Stein
is responsible for managing Willis Stein. Prior to founding Willis Stein, Mr.
Stein served as a Managing Director of Continental Illinois Venture Corporation
from 1989 through 1994, where Mr. Stein, along with Mr. Willis, was responsible
for managing Continental's private equity investment activities. Mr. Stein is a
director of Tremont Corporation and Petersen Publishing Company.

Samuel B. Guren has served as a director since April 1996. Mr. Guren is a
Managing Director of Baird Capital Partners, an affiliate of Robert W. Baird &
Co. Incorporated. Prior to joining Baird Capital Partners in February 1996, Mr.
Guren was a co-founder and managing partner of venture funds affiliated with
William Blair & Company.

Daniel M. Gill has served as a director and as Vice President and Assistant
Secretary since April 1996. Mr. Gill is a founder and Managing Director of
Willis Stein. Prior to founding Willis Stein, Mr. Gill served as a Managing
Director of Continental Illinois Venture Corporation from 1989 through 1994,
where Mr. Gill was responsible for initiating and structuring acquisitions,
working with portfolio company management teams on an on-going basis and
arranging for the disposition of portfolio investments.

The Company's Board of Directors (the "Board of Directors"), in accordance
with the Amended and Restated By-Laws of the Company (the "By-Laws"), has fixed
the size of the Board of Directors at eight directors. Within 90 days after the
completion of the Offering, the Company intends to identify and appoint two
individuals who are not currently affiliated with the Company as the remaining
members of the Board of Directors. All directors are elected to serve until the
next annual meeting of stockholders and until their successors are elected and
qualified.

The Board of Directors intends to establish a Compensation Committee and an
Audit Committee upon or shortly after completion of the Offering. The Audit
Committee will be responsible for recommending to the Board of Directors the
appointment of independent auditors, reviewing the scope of annual audit
activities of the auditors, approving the audit fee payable to the auditors and
reviewing audit results. The Compensation

36
<PAGE> 38

Committee will review and recommend to the Board of Directors the compensation
structure for the Company's officers and other managerial personnel, including
salary rates, participation in incentive compensation and benefit plans, fringe
benefits, noncash perquisites and other forms of compensation. The Compensation
Committee will also administer the Company's 1996 Key Employees Stock Option
Plan.

Executive officers will be elected each year at the annual meeting of
directors and will hold office until their resignation, death or removal, or
until the Board of Directors appoints a different person to the office.

Directors who are employees of the Company or are affiliates of members of
the Investor Group receive no compensation for services as members of either the
Board of Directors or committees thereof. Other directors will receive an annual
retainer of $7,500, payable in cash, and will receive a fee of $1,000 for each
Board of Directors meeting attended and $1,000 for each committee meeting
attended. Such fees for attendance at Board of Directors meetings and committee
meetings may not exceed $1,000 per day.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION INFORMATION. The following table sets forth certain
information concerning compensation paid to, earned by or awarded to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers for the eight month period ended December
31, 1996. The persons named in the table are sometimes referred to herein as the
"named executive officers."

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(2) BONUS(3) OPTIONS (#) COMPENSATION(4)
--------------------------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Robert E. Dods, President...................... $333,333 $ -- -- $ --
Boyd L. Meyer, Executive Vice President........ 333,333 -- -- --
Peter K.K. Chung, President of Racing Champions
Limited...................................... 333,333 -- -- --
Curtis W. Stoelting, Vice President - Finance
and Operations and Secretary................. 100,178 139,072 83,008 1,381
John F. Olsen, Vice President - Sales.......... 83,511 80,350 41,304 2,024
</TABLE>

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

(1) All amounts are limited to compensation paid or earned after the
Recapitalization on April 30, 1996.

(2) Messrs. Dods, Meyer, Chung, Stoelting and Olsen receive annual base salaries
of $500,000, $500,000, $500,000, $150,000 and $125,000, respectively. See
"-- Employment Agreements."

(3) Consists of amounts paid pursuant to the Company's 1996 Key Employees
Performance Compensation Plan. See "-- 1996 Key Employees Performance
Compensation Plan."

(4) Consists of premiums paid by the Company for term life insurance under which
the named executive officer is the beneficiary.

37
<PAGE> 39

OPTIONS GRANTED DURING 1996. The following table provides certain
information regarding stock options granted to the named executive officers of
the Company during the year ended December 31, 1996.

OPTION/SAR GRANTS IN LAST YEAR

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
-------------------------------------------------------------------- RATES OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION
NUMBER OF SECURITIES OPTIONS GRANTED FOR OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE ---------------------
NAME GRANTED(1) FISCAL YEAR PRICE EXPIRATION DATE 5% 10%
---- -------------------- ---------------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Curtis W. Stoelting.... 83,008 25.0% $0.13 April 30, 2006 $6,786 $17,199
John F. Olsen.......... 41,504 12.5 0.13 April 30, 2006 3,393 8,600
</TABLE>

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

(1) Options become exercisable for 20% of the shares underlying the options on
April 30 of each year from 1997 to 2001.

FISCAL YEAR-END OPTION VALUES. The following table provides certain
information regarding the value of unexercised options held by the named
executive officers at December 31, 1996. No named executive officer exercised
any options during the year ended December 31, 1996.

AGGREGATED FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- -------------------------------------- -----------------------------------------
<S> <C> <C>
Curtis W. Stoelting........ 0/83,008 $0/1,068,313
John F. Olsen.............. 0/41,504 0/534,156
</TABLE>

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

(1) Calculated based on an assumed initial public offering price of $13.00 per
share.

1996 KEY EMPLOYEES STOCK OPTION PLAN. On April 30, 1996 in connection with
the Recapitalization, the Board of Directors adopted, and the Company's
stockholders subsequently approved, the 1996 Key Employees Stock Option Plan
(the "Stock Option Plan"). Under the Stock Option Plan, the Board of Directors,
or the Compensation Committee of the Board of Directors if so designated by the
Board of Directors, may grant options to purchase up to 415,041 shares of Common
Stock to executives or other key employees of the Company. Options granted under
the Stock Option Plan may be either "incentive stock options," which qualify for
special tax treatment under the Internal Revenue Code, or nonqualified stock
options. Options will expire at such time as the Board of Directors or
Compensation Committee determines, provided that no stock option may be
exercised later than the tenth anniversary (the fifth anniversary in certain
cases) of the date of its grant. Options cannot be exercised until the vesting
period, if any, specified by the Board of Directors or Compensation Committee
has expired. Options are not transferable other than by will or the laws of
descent and distribution, and may be exercised during the life of the employee
only by him or her. No options may be granted under the Stock Option Plan after
December 31, 2005, which is the date the Stock Option Plan terminates. However,
any options outstanding on December 31, 2005 will remain in effect in accordance
with their terms.

The option price per share is determined by the Board of Directors or the
Compensation Committee, but for incentive stock options cannot be less than 100%
(110% for certain stockholders) of the fair market value of the Common Stock on
the date such option is granted. Payment of the exercise price may be made in
cash or by the surrender of shares of Common Stock having a fair market value on
the date of exercise equal to the exercise price.

Prior to the date hereof, options to purchase 332,033 shares were granted
to certain employees of the Company. Each of these options become exercisable
20% each year over five years commencing on the first anniversary of the date of
grant.

38
<PAGE> 40

1996 KEY EMPLOYEES PERFORMANCE COMPENSATION PLAN. On April 30, 1996 the
Board of Directors adopted the 1996 Key Employees Performance Compensation Plan
(the "Performance Compensation Plan"). Under the Performance Compensation Plan,
certain executive officers and other key employees of the Company will be
entitled to receive a cash bonus in the first quarter of 1997 based upon the
Company's consolidated earnings before income taxes, depreciation and
amortization from April 30, 1996 to December 31, 1996.

EMPLOYMENT AGREEMENTS. On April 30, 1996 the Company entered into separate
employment agreements with Messrs. Dods, Meyer, Stoelting and Olsen, and the
Hong Kong Subsidiary entered into an employment agreement with Mr. Chung
(collectively, the "Employment Agreements"). The Employment Agreements with
Messrs. Dods, Meyer and Chung each has a term of three years, and the Employment
Agreements with Messrs. Stoelting and Olsen each has a term of two years.
Pursuant to the Employment Agreements, Messrs. Dods, Meyer, Chung, Stoelting and
Olsen will receive base salaries of $500,000, $500,000, $500,000, $150,000 and
$125,000, respectively, and are entitled to participate in the Performance
Compensation Plan and the Stock Option Plan. The Employment Agreements with
Messrs. Dods, Meyer and Chung also provide that the executive officer is
eligible to participate in any medical, health, dental, disability and life
insurance policy as are in effect for the other two most senior executives of
the Company, while the Employment Agreements with Messrs. Stoelting and Olsen
provide that the executive officer is eligible to participate in any medical,
health, dental, disability and life insurance policy as are in effect for other
senior management of the Company excluding Messrs. Dods, Meyer and Chung.
Pursuant to the Employment Agreements, each executive officer has agreed not to
compete with the Company during employment and for a period of two years
following termination of employment and has agreed to maintain the
confidentiality of the Company's proprietary information and trade secrets.

Under the Employment Agreements, the Company may terminate the executive
officer's employment upon the executive officer's death or disability or if the
Board of Directors determines that termination is in the Company's best
interests. The executive officer may resign and terminate the Employment
Agreement at any time. If the executive officer's employment is terminated for
disability or death, the Company is required to continue to pay the executive
officer, his designated beneficiary or estate, whichever is applicable, the base
salary for a period of six months after his termination of employment. If
employment is terminated by the Company without cause or by the executive
officer with good reason, the executive officer is entitled to receive payment
of his base salary until the later of the first anniversary of the date of
termination or the end of his employment term under the Employment Agreement. In
addition, in the event of termination for death, disability, by the Company
without cause or by the executive officer with good reason, the executive
officer is entitled to receive all fringe benefits under his Employment
Agreement accrued prior to the termination date. If employment is terminated by
the Company for cause or by the executive officer without good reason, the
executive officer is not entitled to receive any base salary or fringe benefits
for periods after the termination date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company did not have a Compensation Committee of the Board of Directors
prior to the completion of the Offering. As a result, the entire Board of
Directors was responsible for fixing the compensation to be paid to the
executive officers of the Company. Robert E. Dods and Boyd L. Meyer, the
Company's President and Executive Vice President, respectively, and Peter K.K.
Chung, President of Racing Champions Limited, participated in such deliberations
in their capacities as members of the Board of Directors.

39
<PAGE> 41

CERTAIN TRANSACTIONS

THE RECAPITALIZATION

On April 30, 1996, the Investor Group and the Company consummated the
Recapitalization which involved the following: (i) the Company's purchase of all
of the outstanding stock of RCI in exchange for the issuance by the Company of
three day notes in the principal amount of approximately $5.3 million (which the
Company has repaid in full), approximately $659,000 principal amount of Senior
Notes, approximately $1.4 million principal amount of Series A Junior Notes and
approximately $148,000 principal amount of Series B Junior Notes to each of
Robert E. Dods, the President and a director of the Company, and Boyd L. Meyer,
the Executive Vice President and a director of the Company, (ii) the Company's
purchase of substantially all of the assets of DML, a corporation 50% owned by
Robert E. Dods and 50% owned by Boyd L. Meyer, in exchange for a cash payment by
the Company of approximately $1.7 million and the issuance by the Company of
three day notes in the principal amount of approximately $28.3 million (which
the Company has repaid in full), approximately $4.0 million principal amount of
Senior Notes, approximately $8.4 million principal amount of Series A Junior
Notes and approximately $900,000 principal amount of Series B Junior Notes,
(iii) the acquisition by the Hong Kong Subsidiary of substantially all of the
assets of the RCL Group, foreign corporations owned by Peter K.K. Chung, a
director of the Company and the President of the Hong Kong Subsidiary, in
exchange for a cash payment of approximately $19.5 million and the issuance by
the Company of approximately $2.7 million principal amount of Senior Notes,
approximately $5.6 million principal amount of Series A Junior Notes, 13,163.36
shares of Series A Preferred Stock at a price of $100 per share and 1,145,996
shares of Common Stock at a price of $0.13 per share, and (iv) the contribution
by the Company of all of the outstanding stock of the Hong Kong Subsidiary to
RCI. DML was liquidated after the consummation of the Recapitalization, dividing
its assets equally between Robert E. Dods and Boyd L. Meyer. The amount of the
purchase price paid by the Company in each of these acquisitions was determined
through arms-length negotiations between representatives of the Investor Group
and Messrs. Dods, Meyer and Chung.

Pursuant to the Recapitalization, the Company also issued to the members of
the Investor Group, Curtis W. Stoelting, John F. Olsen, Peter J. Henseler and M.
Kevin Camp an aggregate of 4,447,252 shares of Common Stock at $0.13 per share,
51,082.48 shares of Series A Preferred Stock at $100 per share, and
approximately $21.6 million principal amount of Series A Junior Notes. The
foregoing purchasers acquired these securities in proportion to their current
ownership of Common Stock (Messrs. Henseler and Camp each currently own 19,713
shares of Common Stock). See "Principal Stockholders" and "--Other
Transactions."

Pursuant to the Recapitalization, the Company also issued to DML 2,422.06
shares of Series A Preferred Stock at a price of $100 per share, 11,952.33
shares of Series B Preferred Stock at a price of $100 per share, 1,354,908
shares of Common Stock at a price of $0.13 per share and 937,084 shares of
Nonvoting Common Stock at a price of $0.13 per share. These securities were
divided equally between Robert E. Dods and Boyd L. Meyer upon the liquidation of
DML.

Stockholders Agreement. In connection with the Recapitalization, the
Company entered into a Stockholders Agreement, dated as of April 30, 1996 (the
"Stockholders Agreement"), with the Investor Group, the RCL Group, DML, Robert
E. Dods, Boyd L. Meyer, Peter K.K. Chung, and certain other executive officers
of the Company. The Stockholders Agreement contains provisions with respect to
the election of directors of the Company and its subsidiaries, restrictions on
the transfer of shares of the Company's capital stock, preemptive rights and
cooperation among the parties in the event of a sale of the Company or an
initial public offering of shares of Common Stock. Each of the foregoing
provisions of the Stockholders Agreement will automatically terminate upon the
completion of the Offering.

Executive Securities Agreement. Pursuant to an Executive Securities
Agreement, dated as of April 30, 1996 (the "Executive Securities Agreement"), in
the event that Curtis W. Stoelting, John F. Olsen, Peter J. Henseler or M. Kevin
Camp cease to be employed by the Company or its subsidiaries for any reason,
first the Company and then the members of the Investor Group and Messrs. Dods,
Meyer and Chung (in proportion to the percentage of such securities held by each
such stockholder) have an option to purchase any or all of the Company's
securities held by such executive officer at its fair market value. The
provisions of the Executive Securities Agreement will automatically terminate
upon the completion of the Offering.

40
<PAGE> 42

Registration Agreement. Pursuant to a Registration Agreement, dated as of
April 30, 1996 (the "Registration Agreement"), the Company granted certain
registration rights. The Registration Agreement provides that the holders of a
majority of the shares of Common Stock held by the Investor Group may demand an
unlimited number of registrations, subject to certain limitations with respect
to timing and procedure. The holders of a majority of the shares of Common Stock
held by Robert E. Dods, Boyd L. Meyer, Peter K.K. Chung, DML and the RCL Group
may collectively demand one registration at any time after the first anniversary
of the completion of the Offering. Each of the foregoing parties, as well as
Curtis W. Stoelting, John F. Olsen, Peter J. Henseler and Kevin Camp, also have
the right to sell shares of Common Stock pursuant to any other registration,
subject to certain limitations.

CERTAIN INDEBTEDNESS

Senior Notes. The Company issued $8.0 million aggregate principal amount of
Senior Notes in connection with the Recapitalization. The Senior Notes mature on
April 30, 1997 and accrue interest at the Bank of Boston's prime rate. The
Senior Notes are unsecured obligations of the Company, and all payments under
the Senior Notes are subordinated to indebtedness under the Credit Agreement and
are senior to all existing and future subordinated indebtedness of the Company,
including amounts due under the Series A Junior Notes and the Series B Junior
Notes. Subject to the subordination provisions, the Company may prepay amounts
outstanding under the Senior Notes without penalty at any time, in whole or in
part. The Company intends to repay the Senior Notes on March 31, 1997 in part
using proceeds from the Deferred Term Loan under the Credit Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Series A Junior Notes. The Company issued approximately $38.2 million
aggregate principal amount of Series A Junior Notes in connection with the
Recapitalization. Principal amounts outstanding under the Series A Junior Notes
are due on April 30, 2004, 2005 and 2006. The Series A Junior Notes accrue
interest at 12% per year. The Series A Junior Notes are unsecured obligations of
the Company, and all payments under the Series A Junior Notes are subordinated
to indebtedness under the Credit Agreement and to amounts outstanding under the
Senior Notes, rank senior in right of payment to amounts outstanding under the
Series B Junior Notes. Subject to the subordination provisions, the Company may
prepay amounts outstanding under the Series A Junior Notes without penalty at
any time, in whole or in part. The Company anticipates using part of the
proceeds of the Offering to repay amounts outstanding under the Series A Junior
Notes. See " Use of Proceeds."

Series B Junior Notes. The Company issued approximately $1.2 million
aggregate principal amount of Series B Junior Notes in connection with the
Recapitalization. Principal amounts outstanding under the Series B Junior Notes
are due on April 30, 2004, 2005 and 2006. The Series B Junior Notes accrue
interest at 12% per year. The Series B Junior Notes are unsecured obligations of
the Company, and all payments under the Series B Junior Notes are subordinated
to indebtedness under the Credit Agreement and to amounts outstanding under the
Senior Notes and the Series A Junior Notes. Subject to the subordination
provisions, the Company may prepay amounts outstanding under the Series B Junior
Notes without penalty at any time, in whole or in part. The Company anticipates
using part of the proceeds of the Offering to repay amounts outstanding under
the Series B Junior Notes. See " Use of Proceeds."

OTHER TRANSACTIONS

The Company leases warehouse space from D. W. Realty, Inc., a corporation
wholly owned by William L. Dods, brother of Robert E. Dods, President and a
director of the Company. The amount of the lease payments in 1996 was $55,431
and the Company currently pays rent of $5,717 per month. The Company believes
that the terms of this lease are no less favorable to the Company than could
have been obtained from an unaffiliated third party.

Eric Meyer, son of Boyd L. Meyer, Executive Vice President and a director
of the Company, is a principal of Reicher-Goerdt-Meyer Sales and Marketing, Inc.
("Reicher Goerdt"), one of the Company's external sales representative
organizations. During 1996, Eric Meyer was allocated approximately $182,000 of

41
<PAGE> 43

the sales commissions paid by the Company to Reicher Goerdt. The Company expects
that Reicher Goerdt will receive more than 50% of the Company's total sales
commissions to external sales representative organizations in 1997. The Company
pays sales commissions to Reicher Goerdt at the same rate and on no more
favorable terms than for the Company's other sales representative organizations.

Kwong Fai, a Hong Kong corporation controlled by Peter K.K. Chung,
President of the Hong Kong Subsidiary and a director of the Company, leases
office space to the Hong Kong Subsidiary for use as the Company's Hong Kong
headquarters. The amount of lease payments in 1996 was $302,149 and the Hong
Kong Subsidiary currently pays rent of $25,180 per month. The Company believes
that the terms of this lease are no less favorable to the Company than could
have been obtained from an unaffiliated party.

James Chung, Peter K.K. Chung's brother, owns 70% of Sunrise, one of the
Dedicated Manufacturers. During 1996, the Company paid $5.6 million to Sunrise
for the purchase of die cast vehicle replicas. The Company expects to continue
to make purchases from Sunrise during 1997. The Company believes that the terms
for the purchase of products from Sunrise are no less favorable to the Company
than could have been obtained from an unaffiliated party.

Peter K.K. Chung had previously provided personal loans to two of the
Company's Dedicated Manufacturers, Sharp Success and Win Yield, of $129,366 and
$62,096, respectively. In order to secure these loans, Mr. Chung became the 50%
and 20% owner of Sharp Success and Win Yield, respectively. Prior to January 1,
1997, Mr. Chung disposed of his ownership interests in Sharp Success and Win
Yield for consideration equal to his outstanding personal loans. In the future,
Mr. Chung does not intend to make loans or own interests in the Dedicated
Manufacturers or other manufacturing suppliers to the Company. During 1996, the
Company paid $7.7 million to Win Yield and $7.1 million to Sharp Success for the
purchase of die cast vehicle replicas. The Company believes that the terms for
the purchase of products from Win Yield and Sharp Success during 1996 were no
less favorable to the Company than could have been obtained from an unaffiliated
party.

The Company loaned $120,758 to Peter J. Henseler, Vice
President -- Marketing of the Company, on April 30, 1996, evidenced by a
promissory note that bears interest at 8% per year. Mr. Henseler used the
proceeds of this loan to purchase 19,713 shares of Common Stock, 220.43 shares
of Series A Preferred Stock and $95,615 principal amount of Series A Junior
Notes, and these securities have been pledged as collateral for the note. Mr.
Henseler is required to use 25% of all bonus compensation received from the
Company to repay principal and interest outstanding under the note. The note is
due on the earlier of (i) April 30, 2001 or (ii) the date of termination of Mr.
Henseler's employment by the Company for any reason. As of January 31, 1997,
$128,003 of principal and interest was outstanding under this note. Upon
completion of the Offering, Mr. Henseler intends to repay all outstanding
amounts under this note.

Willis Stein, a stockholder of the Company, owns approximately 28% of the
equity securities of Petersen Holdings, L.L.C. ("Holdings") and 47% of the
common stock of Brightview Communications Group, Inc. ("Brightview"). Holdings
and Brightview in turn own all of the equity securities of Petersen Publishing
Company, L.L.C. ("Petersen"). In addition, Willis Stein has the contractual
ability to control the policies and operations of Petersen. The Company has
entered into licensing and marketing arrangements with Petersen in connection
with the Racing Champions Mint and Racing Champions Hot Rod Collection and
anticipates making payments of approximately $400,000 in 1997 to Petersen in
connection with these licenses.

The Audit Committee of the Board of Directors will be responsible for
reviewing all future transactions between the Company and any officer or
director of the Company or any entity in which an officer or director has a
material interest. Any such transaction must be on terms no less favorable than
those that could be obtained on an arms-length basis from independent parties.

42
<PAGE> 44

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of January 31, 1997, and after the consummation of
the Offering by: (i) each of the Company's directors and named executive
officers; (ii) all directors and executive officers of the Company as a group;
(iii) stockholders (the "Selling Stockholders") potentially selling pursuant to
the Underwriters' over-allotment option and (iv) each person or other entity
known by the Company to own beneficially more than 5% of the outstanding Common
Stock. Except as otherwise indicated in the footnotes, each of the holders
listed below has sole voting and investment power over the shares beneficially
owned.

<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
BENEFICIALLY OWNED
SHARES OF SHARES -----------------------------------------
COMMON STOCK SUBJECT TO BEFORE AFTER AFTER EXERCISE OF
BENEFICIALLY OVER-ALLOTMENT THE THE OVER-ALLOTMENT
NAME OWNED OPTION OFFERING OFFERING OPTION
---- ------------ -------------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Robert E. Dods................ 1,145,996 -- 14.5% 8.9% 8.7%
Boyd L. Meyer(1).............. 1,145,996 -- 14.5 8.9 8.7
Daniel M. Gill(2)............. 2,983,601 273,253 37.8 23.2 20.5
Peter K. K. Chung(3).......... 1,145,996 -- 14.5 8.9 8.7
Samuel B. Guren(4)............ 816,218 74,753 10.4 6.4 5.6
Avy H. Stein(5)............... 2,983,601 273,253 37.8 23.2 20.5
Curtis W. Stoelting........... 98,565 -- 1.2 * *
John F. Olsen................. 19,713 -- * * *
Willis Stein & Partners,
L.P.(6)..................... 2,983,601 273,253 37.8 23.2 20.5
Baird Capital Partners II
Limited Partnership(7)...... 629,306 57,635 8.0 4.9 4.3
Nassau Capital Partners
L.P.(8)..................... 485,866 44,498 6.2 3.8 3.3
BCP II Affiliates Fund Limited
Partnership................. 186,912 17,118 2.4 1.5 1.3
NAS Partners I L.L.C.......... 3,863 354 * * *
All directors and executive
officers as a group (10
persons)(9)................. 7,395,511 348,006 93.8 57.4 53.2
</TABLE>

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

* Denotes less than 1%.

(1) Includes 343,798 shares of Common Stock held by the Meyer Family Limited
Partnership, for which Mr. Meyer serves as a general partner and shares
voting and investment power with members of his immediate family who are the
other general partners.

(2) Represents shares of Common Stock held by Willis Stein, for which Mr. Gill
serves as a Managing Director and shares voting and investment power with
the other Managing Directors. Mr. Gill disclaims beneficial ownership in all
shares of Common Stock held by Willis Stein.

(3) Represents shares of Common Stock held by a corporation controlled by Mr.
Chung.

(4) Represents shares of Common Stock held by Baird Capital Partners II Limited
Partnership and BCP II Affiliates Fund Limited Partnership, entities for
which Mr. Guren serves as a Managing Director and shares voting and
investment power with the other Managing Directors. Mr. Guren disclaims
beneficial ownership in all shares of Common Stock held by Baird Capital
Partners II Limited Partnership or BCP II Affiliates Fund Limited
Partnership.

(5) Represents shares of Common Stock held by Willis Stein, for which Mr. Stein
serves as a Managing Director and shares voting and investment power with
the other Managing Directors. Mr. Stein disclaims beneficial ownership in
all shares of Common Stock held by Willis Stein.

43
<PAGE> 45

(6) The address of Willis Stein is 227 West Monroe Street, Suite 4300, Chicago,
Illinois 60606.

(7) The address of Baird Capital Partners II Limited Partnership is 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.

(8) The address of Nassau Capital Partners L.P. is 22 Chambers Street,
Princeton, New Jersey 08542.

(9) Includes (i) 1,145,996 shares of Common Stock held by a corporation
controlled by Mr. Chung, (ii) 343,798 shares of Common Stock held by the
Meyer Family Limited Partnership, for which Mr. Meyer serves as a general
partner and shares voting and investment power with members of his immediate
family who are the other general partners and (iii) 2,983,601 shares of
Common Stock for which Messrs. Gill and Stein share voting and investment
power and 816,218 shares of Common Stock for which Mr. Guren shares voting
and investment power. Messrs. Gill, Stein and Guren disclaim beneficial
ownership in such shares of Common Stock.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

Under the Company's Amended and Restated Certificate of Incorporation
("Certificate of Incorporation"), the authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), 1,000,000 shares of Nonvoting Common Stock, par value $.01 per share
("Nonvoting Common Stock"), 100,000 shares of Series A Preferred Stock, par
value $.01 per share ("Series A Preferred Stock"), and 20,000 shares of Series B
Preferred Stock, par value $.01 per share ("Series B Preferred Stock").

COMMON STOCK

As of January 31, 1997, there are 6,948,156 shares of Common Stock
outstanding owned by 12 holders of record. Following the Offering, there will be
12,885,240 shares of Common Stock outstanding. Holders of Common Stock are
entitled to one vote for each share on all matters voted on by stockholders.
Holders of Common Stock do not have cumulative voting rights in the election of
directors, which means that the holders of shares entitled to more than 50% of
the voting power are able to elect all of the directors to be elected. The first
annual meeting of stockholders following the Offering is expected to be held
during April 1998.

Holders of Common Stock do not have preemptive rights, or any subscription,
redemption or conversion privileges. Subject to the rights of any holders of
Series A Preferred Stock or Series B Preferred Stock, all of which the Company
intends to redeem with part of the proceeds of the Offering, holders of Common
Stock are entitled to participate ratably in dividends on the Common Stock, if
any, as declared by the Board of Directors, and are entitled to share ratably in
all assets available for distribution to stockholders in the event of
liquidation or dissolution of the Company. The outstanding shares of Common
Stock are, and the Common Stock to be issued in the Offering will be, legally
issued, fully paid and nonassessable.

NONVOTING COMMON STOCK

As of January 31, 1997, 937,084 shares of Nonvoting Common Stock were
outstanding and held by three holders of record. The Nonvoting Common Stock
shares ratably with the Common Stock in dividends and distributions upon any
liquidation, dissolution or winding up of the Corporation. Holders of shares of
Nonvoting Common Stock do not have voting rights, except as required by law.
Each outstanding share of Nonvoting Common Stock will be converted into one
share of Common Stock upon the closing of the Offering and thereafter the
Certificate of Incorporation will be amended to eliminate the class of Nonvoting
Common Stock.

PREFERRED STOCK

As of January 31, 1997, 66,668.5 shares of Series A Preferred Stock were
outstanding and held by 12 holders of record and 11,952.33 shares of Series B
Preferred Stock were outstanding and held by three holders

44
<PAGE> 46

of record. The Series A Preferred Stock and the Series B Preferred Stock each
have a liquidation preference, subject to adjustment, of $100 per share and
accrue annual cumulative dividends at 12% of the liquidation preference. The
Series A Preferred Stock and the Series B Preferred Stock share ratably in
dividends in priority to any dividends on the Common Stock or the Nonvoting
Common Stock. Upon the liquidation, dissolution or winding up of the Company,
holders of the Series A Preferred Stock are entitled to receive the liquidation
value plus all accrued and unpaid dividends prior to any payment with respect to
the Series B Preferred Stock, the Common Stock or the Nonvoting Common Stock,
and the holders of the Series B Preferred Stock are entitled to receive the
liquidation preference plus all accrued and unpaid dividends prior to any
payment with respect to the Common Stock or the Nonvoting Common Stock. The
holders of Series A Preferred Stock and Series B Preferred Stock are entitled to
one vote per share, voting as a single class with the holders of the Common
Stock. Upon the closing of the Offering, the Company intends to redeem all of
the outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
using $8.5 million of the proceeds of the Offering, and thereafter to amend the
Certificate of Incorporation to eliminate the classes of Series A Preferred
Stock and Series B Preferred Stock. See "Use of Proceeds."

TRANSFER AGENT

, will be the transfer agent for the Common Stock.

CERTAIN STATUTORY AND OTHER PROVISIONS

The provisions of the Certificate of Incorporation, the By-Laws and
Delaware statutory law described in this section may delay or make more
difficult acquisitions or changes of control of the Company not approved by the
Board of Directors. Such provisions have been implemented to enable the Company,
particularly (but not exclusively) in the initial years of its existence as a
publicly-traded company, to develop its business in a manner which will foster
its long-term growth without disruption caused by the threat of a takeover not
deemed by the Board of Directors to be in the best interests of the Company and
its stockholders. Such provisions could have the effect of discouraging
proposals involving an acquisition or change of control of the Company, although
such proposals, if made, might be considered desirable by a majority of the
Company's stockholders. Such provisions may also have the effect of making it
more difficult to cause the replacement of the current management of the Company
without the concurrence of the Board of Directors.

Number of Directors; Vacancies. The By-Laws provide that the number of
directors shall be determined from time to time exclusively by vote of a
majority of the then authorized number of directors. The Certificate of
Incorporation provides that the Board of Directors has the exclusive right to
fill vacancies in the Board of Directors, including vacancies created by
expansion of the Board or the removal of a director, and that any director
elected to fill a vacancy shall serve until the next election of the class for
which such director shall have been chosen.

Advance Notice for Raising Business or Making Nominations at Annual
Meetings. The By-Laws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders of the Company
and for nominations by stockholders of candidates for election as directors at
an annual meeting or a special meeting at which directors are to be elected.
Subject to any other applicable requirements, including, without limitation,
Rule 14a-8 under the Securities Exchange Act of 1934, or any successor
provision, only such business may be conducted at an annual meeting of
stockholders as has been brought before the meeting by, or at the direction of,
the Board of Directors, or by a stockholder who has provided the Secretary of
the Company timely written notice of the stockholder's intention to bring such
business before the meeting. Only persons who are nominated by, or at the
direction of, the Board of Directors, or who are nominated at the meeting by a
stockholder who has given timely written notice to the Secretary prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Company.

All such notices shall include: (i) a representation that the person
sending the notice is a stockholder of record and will remain such through the
record date for the meeting; (ii) the name and address, as they appear on the
Company's books, of such stockholder; (iii) the class and number of the
Company's shares

45
<PAGE> 47

which are owned beneficially and of record by such stockholder; and (iv) a
representation that such stockholder intends to appear in person or by proxy at
such meeting to make the nomination or move for the consideration of other
business set forth in the notice. Notice as to proposals with respect to any
business to be brought before the meeting other than the election of directors
shall also set forth the text of the proposal and may set forth any statement in
support thereof that the stockholder wishes to bring to the attention of the
Company, and shall specify any material interest of such stockholder in such
business. Notice as to nominations of a director shall identify the nominee and
include the written consent of each nominee to serve as a director if so
elected.

Amendments to By-Laws. The By-Laws provide that the holders of at least a
majority of all shares of Common Stock then outstanding and entitled to vote
thereon shall have the power to adopt, amend, alter, change or repeal the
By-Laws. The Certificate of Incorporation and the By-Laws provide that the Board
of Directors may amend or repeal the By-Laws by a majority vote, provided that:
(i) no By-Law adopted by stockholders shall be amended, repealed or readopted by
the Board of Directors if the By-Law so adopted so provides; and (ii) a By-Law
adopted or amended by the stockholders that fixes a greater or lower quorum
requirement or a greater voting requirement for the Board of Directors than
otherwise provided in the General Corporation Law of the State of Delaware may
not be amended or repealed by the Board of Directors unless the By-Law expressly
provides that it may be amended or repealed by a specified vote of the Board of
Directors. Action by the Board of Directors to adopt or amend a By-Law that
changes the quorum or voting requirement for the Board of Directors must meet
the same quorum requirement and be adopted by the same vote required to take
action under the quorum and voting requirement then in effect, unless a
different voting requirement is specified as provided by the preceding sentence.

Additional Common Stock. The Board of Directors has the authority to issue
additional Common Stock subject to the limitations on the number of shares
authorized for issuance under the Certificate of Incorporation. The Company
believes that the Board of Directors' ability to issue additional Common Stock
could facilitate certain financings and acquisitions and provide a means for
meeting other corporate needs that might arise. The authorized but unissued
shares of Common Stock will be available for issuance without further action by
the Company's stockholders, unless stockholder action is required by applicable
law or the rules of any stock exchange or system on which the Common Stock may
then be listed. The Board of Directors' ability to issue additional Common Stock
could, under certain circumstances, either impede or facilitate the completion
of a merger, tender offer or other takeover attempt.

Delaware Antitakeover Statute. Under Section 203 of the Delaware General
Corporation Law, certain "business combinations" between a Delaware corporation,
whose stock generally is publicly traded or held of record by more than 2,000
stockholders, and an "interested stockholder" are prohibited for a three-year
period following the date that such stockholder became an interested
stockholder, unless (i) the business combination was approved by the board of
directors of the corporation before the other party to the transaction became an
interested stockholder, (ii) upon consummation of the transaction that made it
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan), or (iii) the business
combination was approved by the board of directors of the corporation and
ratified by holders of 66 2/3% of the voting stock which the interested
stockholder did not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the corporation's directors.

The term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions which
increase an interested stockholder's percentage ownership of stock. The term
"interested stockholder" is defined generally as any stockholder who becomes the
beneficial owner of 15% or more of a Delaware corporation's voting stock.
Because Willis Stein became an "interested stockholder" before the amendment and
restatement of the

46
<PAGE> 48

Certificate of Incorporation and the Offering, Willis Stein is exempted from the
operation of Section 203 of the Delaware General Corporation Law.

It is possible that these provisions and the ability of the Board of
Directors to issue additional shares of Common Stock will discourage other
persons from making a tender offer for or acquisitions of substantial amounts of
the Common Stock, or may delay changes in control or management of the Company.

The foregoing description of certain provisions of the Certificate of
Incorporation and the By-Laws does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Certificate of
Incorporation and the By-Laws, including definitions of certain terms in each
respective document.

DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY

The Certificate of Incorporation and the By-Laws contain provisions
indemnifying directors and officers of the Company to the fullest extent
permitted by law. In addition, the Certificate of Incorporation contains
provisions limiting the personal liability of directors to the Company or
stockholders to the fullest extent permitted by law.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 12,885,240 shares of
Common Stock outstanding. Of these shares, the 5,000,000 shares of Common Stock
sold in the Offering will be freely tradable without restrictions under the
Securities Act of 1933 (the "Act"), except for shares purchased by an
"affiliate" of the Company which will be subject to the resale limitations (but
not holding period requirements) of Rule 144 thereunder. The remaining 7,885,240
shares of Common Stock were issued and sold by the Company in private
transactions in reliance upon various exemptions under the Act. Such shares will
be eligible for public sale if registered under the Act or sold in accordance
with Rule 144 thereunder. In general, under Rule 144 a person (or persons whose
shares are aggregated) including a person who may be deemed an "affiliate" of
the Company, who has beneficially owned his shares for at least one year is
entitled to sell within any three-month period that number of shares which does
not exceed the greater of 1% of the outstanding shares of Common Stock or the
average weekly trading volume during the four calendar weeks preceding each such
sale. Sales under Rule 144 also are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not and has not been deemed an "affiliate" of the Company for at least
three months and who has beneficially owned his shares for at least two years is
entitled to sell such shares under Rule 144(k) without regard to the limitations
discussed above. Based upon available information, the Company believes that,
following April 30, 1997, 7,885,240 of these shares, which are all held by
"affiliates" of the Company, will be immediately eligible for public sale,
subject to the resale limitations of Rule 144. However, the officers and
directors of the Company, certain stockholders and the Company have agreed not
to sell any of their shares of Common Stock to the public for a period of 180
days after the date of the Prospectus without the prior written consent of
Robert W. Baird & Co. Incorporated. The exercise of registration rights by
certain of the Company's significant stockholders, affiliates and executive
officers would permit such persons to sell shares of Common Stock upon
registration without regard to the limitations of Rule 144. The Company has
granted registration rights covering a total of 7,885,240 shares of Common
Stock. See "Certain Transactions -- The Recapitalization -- Registration
Agreement."

The preceding description does not give effect to the shares of Common
Stock which may be offered and sold pursuant to the Stock Option Plan. See
"Management -- Executive Compensation -- 1996 Key Employees Stock Option Plan."
The Company intends to file a registration statement on Form S-8 under the Act
not earlier than 90 days after the date of this Prospectus to register the
shares of Common Stock issuable under the Stock Option Plan, which shares, after
registration, will be immediately available for sale in the public market,
subject to the volume and other limitations of Rule 144 for shares held by
affiliates. As of the date of this Prospectus, options to purchase 332,033
shares of Common Stock have been granted under the Stock Option Plan, 62,256 of
which will be exercisable upon completion of the Offering.

47
<PAGE> 49

Since there has been no public market for the Common Stock prior to the
Offering, no predictions can be made as to the effect, if any, that market sales
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the Common
Stock, or the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock.

48
<PAGE> 50

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters listed
below, and the Underwriters, for whom Robert W. Baird & Co. Incorporated,
William Blair & Company, L.L.C. and J.C. Bradford & Co. are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company, the respective number of shares of Common Stock set forth opposite
their names below.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
------------ -----------------
<S> <C>
Robert W. Baird & Co. Incorporated..........................
William Blair & Company, L.L.C..............................
J.C. Bradford & Co..........................................

---------
Total............................................. 5,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated to
purchase all the shares of Common Stock offered hereby, excluding shares covered
by the over-allotment option granted to the Underwriters, if any are purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and may offer the Common
Stock to certain dealers at such prices less a concession of not in excess of
$ per share and that the Underwriters and such dealers may reallow a
concession of not in excess of $ per share to certain brokers or other
dealers. The public offering price and concessions and reallowances to dealers
may be changed by the Representatives after the commencement of the Offering.

As a result of the ownership of capital stock of the Company by Baird
Capital Partners II Limited Partnership and BCP II Affiliates Fund Limited
Partnership, the Company may be deemed an affiliate of Robert W. Baird & Co.
Incorporated within the meaning of Section 2720 of the Conduct Rules of the
National Association of Securities Dealers, Inc. and accordingly, the Offering
is being made in conformity with such Conduct Rules regarding the underwriting
of securities of an affiliate. In that regard William Blair & Company or J.C.
Bradford & Co. will assume the responsibilities of acting as a qualified
independent underwriter in pricing the Offering and conducting due diligence.
The initial public offering price will not be higher than the price recommended
by the qualified independent underwriter. See "The Recapitalization" and
"Certain Transactions" for a description of transactions between the Company and
Baird Capital Partners II Limited Partnership and BCP II Affiliates Fund Limited
Partnership.

The Company has granted to the Underwriters an option, exercisable within
30 days after the date of the Offering, to purchase up to an additional 357,142
shares of Common Stock and the Selling Stockholders have granted to the
Underwriters an option, exercisable within 30 days after the date of the
Offering, to purchase up to 392,858 shares of Common Stock to cover
over-allotments, at the same price per share to be paid by the Underwriters for
the other shares offered hereby. If the Underwriters purchase any such
additional shares pursuant to this option, each of the Underwriters will be
committed to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments, if any, in connection with the Offering.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify, or to contribute to payments made by, each other with respect to
certain civil liabilities, including certain civil liabilities under the Act.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation among the Company and the Representatives.

49
<PAGE> 51

Among the factors considered in determining the initial public offering price
include the history of and prospects for the business in which the Company
operates, past and present operations, revenues and earnings of the Company and
the trend of such earnings, the prospects for such earnings, the Company's
capital requirements, percentage of ownership to be held by investors following
the Offering, the general condition of the securities markets at the time of the
Offering and the demand for similar securities of reasonably comparable
companies. The estimated initial public offering price range set forth on the
cover page of the Prospectus is subject to change as a result of market
conditions and other factors.

The Representatives have informed the Company that the Underwriters do not
intend to make sales to any accounts over which they exercise discretionary
authority.

The Company and its directors, officers and certain other stockholders have
agreed not to sell, contract to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of the Prospectus without
the prior written consent of Robert W. Baird & Co. Incorporated.

The foregoing is a brief summary of the material provisions of the
Underwriting Agreement and does not purport to be a complete statement of its
terms and conditions. A copy of the Underwriting Agreement is on file with the
Commission as an exhibit to the Registration Statement of which this Prospectus
forms a part. See "Additional Information."

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, s.c., Milwaukee, Wisconsin. Certain legal matters will be passed
upon for the Underwriters by McDermott, Will & Emery, Chicago, Illinois.

EXPERTS

The Financial Statements and schedule of the Company at December 31 1996,
and for the eight months ended December 31, 1996 and the Financial Statements of
the RCI Group at December 31, 1995 and April 30, 1996 and for each of the two
years in the period ended December 31, 1995 and the four months ended April 30,
1996, appearing in the Prospectus and in the Registration Statement, have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their reports thereon appearing elsewhere herein and in the Registration
Statement, and are included herein in reliance upon such reports given upon the
authority of such firm as experts in giving said reports.

The Financial Statements of the RCL Group at March 31, 1996 and April 30,
1996, and for each of the two years in the period ended March 31, 1996 and the
one month period ended April 30, 1996, appearing in the Prospectus and in the
Registration Statement have been audited by Ernst & Young, independent auditors,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon such report
given upon the authority of such firm as experts in giving said report.

50
<PAGE> 52

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part)
under the Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in the Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Common Stock
offered hereby, reference is hereby made to the Registration Statement and such
exhibits and schedules. The Registration Statement and the exhibits and
schedules thereto may be inspected, without charge, at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such documents may be
obtained from the Commission at the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited financial statements
for the first three quarters of each year.

51
<PAGE> 53

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RACING CHAMPIONS CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheet as of December 31, 1996.......... F-3
Consolidated Statement of Income for the eight months ended
December 31, 1996......................................... F-4
Consolidated Statement of Stockholders' Equity for the eight
months ended December 31, 1996............................ F-5
Consolidated Statement of Cash Flows for the eight months
ended December 31, 1996................................... F-6
Notes to Consolidated Financial Statements for the eight
months ended December 31, 1996............................ F-7

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.
Report of Independent Public Accountants.................... F-13
Combined Balance Sheets as of December 31, 1995 and April
30, 1996.................................................. F-14
Combined Statements of Income for the years ended December
31, 1994 and 1995, and for the four months ended April 30,
1996...................................................... F-15
Combined Statements of Shareholders' Investment for the
years ended December 31, 1994 and 1995, and for the four
months ended April 31, 1996............................... F-16
Combined Statements of Cash Flows for the years ended
December 31, 1994 and 1995 and for the four months ended
April 30, 1996............................................ F-17
Notes to Combined Financial Statements for the years ended
December 31, 1994 and 1995 and for the four months ended
April 30, 1996............................................ F-18

RACING CHAMPIONS LIMITED, HOSTEN INVESTMENT LIMITED, GARNETT
SERVICES INC., BERGEN SERVICES INC.
Report of Independent Auditors.............................. F-21
Combined Balance Sheets as of March 31, 1995, 1996 and April
30, 1996.................................................. F-22
Combined Statements of Income for the years ended March 31,
1995 and 1996 and for the one month ended April 30,
1996...................................................... F-23
Combined Statements of Changes in Shareholders' Equity for
the years ended March 31, 1995 and 1996 and for the one
month ended April 30, 1996................................ F-24
Combined Statements of Cash Flows for the years ended March
31, 1995 and 1996 and for the one month ended April 30,
1996...................................................... F-25
Notes to Combined Financial Statements...................... F-26
</TABLE>

F-1
<PAGE> 54

After the stock split discussed in Note 9 to Racing Champions Corporation's
consolidated financial statements is effective, we expect to be in a position to
render the following report.

ARTHUR ANDERSEN LLP
February 15, 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Racing Champions Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheet of RACING
CHAMPIONS CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of December
31, 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for the eight months ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Racing
Champions Corporation and Subsidiaries as of December 31, 1996, and the results
of its operations and its cash flows for the eight months ended December 31,
1996, in conformity with generally accepted accounting principles.

Chicago, Illinois

F-2
<PAGE> 55

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,897,911
Accounts receivable, net of allowance for doubtful
accounts of $300,000................................... 5,480,231
Inventory................................................. 1,264,317
Deferred and prepaid taxes................................ 1,255,131
Prepaid expenses.......................................... 343,210
------------
Total current assets................................... 14,240,800
------------
Property and equipment:
Tooling................................................... 6,717,375
Other equipment........................................... 1,349,973
------------
8,067,348
Less -- accumulated depreciation.......................... (839,282)
------------
7,228,066
Excess purchase price over net assets acquired, net......... 87,139,838
Other assets................................................ 471,334
------------
Total assets...................................... $109,080,038
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,777,690
Accrued expenses.......................................... 5,757,175
Accrued royalties......................................... 1,890,857
Due to stockholders....................................... 945,373
Current maturities of bank term notes..................... 6,200,000
Senior subordinated debt to stockholders.................. 8,020,000
------------
Total current liabilities.............................. 24,591,095
Bank term notes, less current maturities.................... 30,700,000
Junior subordinated debt to stockholders.................... 39,441,054
Deferred interest on junior subordinated debt............... 1,938,083
Deferred income taxes....................................... 996,575
------------
Total liabilities................................. 97,666,807
------------
Stockholders' equity:
Preferred stock, Series A, $.01 par value, 100,000 shares
authorized, 66,668 issued and outstanding and
liquidation value of $7,223,107........................ 556,974
Preferred stock, Series B, $.01 par value, 20,000 shares
authorized, 11,952 issued and outstanding and
liquidation value of $1,294,333........................ 99,853
Common stock, voting, $.01 par value, 20,000,000 shares
authorized, 6,948,156 shares issued and outstanding.... 69,482
Common stock, nonvoting, $.01 par value, 1,000,000 shares
authorized, 937,084 shares issued and outstanding...... 9,371
Additional paid-in capital................................ 8,782,383
Retained earnings......................................... 1,895,168
------------
Total stockholders' equity............................. 11,413,231
------------
Total liabilities and stockholders' equity........ $109,080,038
============
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-3
<PAGE> 56

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
DECEMBER 31,
1996
------------
<S> <C>
Net sales................................................... $ 49,384,893
Cost of sales............................................... 21,365,444
------------
Gross profit.............................................. 28,019,449
Selling, general and administrative expense................. 15,244,449
------------
Operating income before amortization of intangible
assets................................................. 12,775,000
Amortization of intangible assets........................... 1,539,101
------------
Operating income.......................................... 11,235,899
Interest expense............................................ (6,891,196)
------------
Income before income taxes................................ 4,344,703
Income tax expense.......................................... 1,793,495
------------
Net income................................................ 2,551,208
Dividends accrued on preferred stock........................ 656,040
------------
Net income available to common stockholders............... $ 1,895,168
============
</TABLE>

The accompanying notes are an integral part of this statement.

F-4
<PAGE> 57

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERRED PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1996............ $78,853 $ 787 $8,782,383 $ -- $ 8,862,023
Net income.................... -- -- -- 2,551,208 2,551,208
Accrued dividends............. -- 656,040 -- (656,040) --
------- -------- ---------- ---------- -----------
Balance, December 31, 1996...... $78,853 $656,827 $8,782,383 $1,895,168 $11,413,231
======= ======== ========== ========== ===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE> 58

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
DECEMBER 31,
1996
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,551,208
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 826,052
Amortization on intangibles............................ 1,539,099
Amortization of deferred financing costs............... 745,820
Deferred income taxes.................................. 884,190
Deferred interest on junior subordinated debt.......... 1,938,083
Changes in operating assets and liabilities:
Accounts receivable.................................. (654,921)
Inventory............................................ 1,647,699
Prepaid expenses..................................... (220,591)
Accounts payable and accrued expenses................ 1,572,971
------------
Net cash provided by operating activities......... 10,829,610
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (2,348,107)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on bank term loans................................ (3,100,000)
Net cash proceeds from the Recapitalization............... 516,408
------------
Net cash used by financing activities............. (2,583,592)
------------
Net increase in cash and cash equivalents......... 5,897,911
Cash and cash equivalents, May 1, 1996...................... --
------------
Cash and cash equivalents, December 31, 1996................ $ 5,897,911
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the period.................. $ 5,422,846
Cash paid for taxes during the period..................... 4,339,689
============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of RCI and RCL and asset purchases of DML:
Assets acquired........................................ $ 16,007,798
Excess purchase price over net assets acquired......... 88,663,795
Liabilities assumed.................................... (5,984,637)
Bank, term, and shareholder notes issued............... (87,451,054)
Common and preferred stock issued...................... (8,862,023)
Cash paid for fees and expenses........................ (2,890,287)
------------
Net cash proceeds from the Recapitalization....... $ (516,408)
============
</TABLE>

The accompanying notes are an integral part of this statement.

F-6
<PAGE> 59

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1996

1. DESCRIPTION OF BUSINESS

Racing Champions Corporation ("RCC") and Subsidiaries (collectively "the
Company") is a producer and marketer of collectible scaled die cast vehicle
replicas. The Company is known for its extensive line of officially licensed,
high quality collectible replicas of actual race cars and related vehicles from
the most popular U.S. professional racing series, including NASCAR stock car
racing, National Hot Rod Association drag racing, Championship Auto Racing Teams
and Indy Racing League Indy-style racing, World of Outlaws sprint car racing as
well as Honda and Kawasaki racing motorcycles. Products are manufactured in
numerous styles for the following customer bases: national and regional retail
chains; collector and hobby shops and premium sales to corporations. Racing
Champions, Inc., a wholly owned subsidiary of Racing Champions Corporation, has
license agreements with the major U.S. automotive manufacturers and most of the
major motor sport sponsors, team owners and their drivers. The Company sells its
products primarily in North America. Racing Champions Limited ("RCL"), a wholly
owned Hong Kong subsidiary of RCI, oversees the production of the Company's
products.

2. RECAPITALIZATION

On April 30, 1996, an investor group consummated a recapitalization (the
"Recapitalization") which involved the following: (a) the Company's purchase of
all of the outstanding stock of Racing Champions, Inc. ("RCI") and substantially
all of the assets of Dods-Meyer, Ltd. ("DML") (collectively the "RCI Group");
(b) the acquisition by Banerjan Company Limited (subsequently renamed Racing
Champions Limited), of substantially all of the assets of Racing Champions
Limited, Garnett Services, Inc. and Hosten Investment Limited (collectively the
"RCL Group"); and (c) the contribution by the Company of all the outstanding
stock of the Hong Kong subsidiary to RCI. These acquisitions were accounted for
using the purchase method of accounting.

The Recapitalization was financed with $40,000,000 of bank borrowings and
the issuance to senior management and the investor group of $8,020,000 of Senior
Subordinated Notes, $38,245,820 of Series A Junior Subordinated Notes,
$1,195,234 of Series B Junior Subordinated Notes, $6,666,850 of the Company's
Series A Preferred Stock, $1,195,232 of the Company's Series B Preferred Stock,
$118,840 of the Company's Nonvoting Common Stock and $881,158 of the Company's
Common Stock.

3. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION

The financial statements consolidate the accounts of RCC and its wholly
owned subsidiaries. All intercompany items and transactions have been
eliminated.

Foreign subsidiary assets and liabilities are translated at the rates of
exchange at the balance sheet date while income statement accounts are
translated at the average exchange rates in effect during the period.

REVENUE RECOGNITION

The Company recognizes revenue based upon shipment of product to customers.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents. Such investments are
valued at market prices.

F-7
<PAGE> 60

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INVENTORY

Inventory consists of finished goods and is stated at the lower of cost or
market. Cost is determined by the first-in, first-out method, and market
represents the lower of replacement cost or estimated net realizable value.

PROPERTY AND EQUIPMENT

Property and equipment have been recorded at their fair value as of the
date of the Recapitalization; and for items purchased after the Recapitalization
were recorded at cost. Depreciation is computed using the straight-line method
for financial statement purposes with estimated useful lives for tooling of four
years and for other equipment of two to ten years. Accelerated methods are used
for income tax purposes.

EXCESS PURCHASE PRICE OVER NET ASSETS ACQUIRED

Excess of purchase price over net assets acquired is amortized over 40
years on a straight-line basis and is tax deductible over 15 years. The Company
periodically evaluates the carrying value of goodwill for possible impairment
based upon expected future undiscounted operating cash flows.

CONCENTRATION OF CREDIT RISK

Concentration of credit risk is limited to trade accounts receivable and is
subject to the financial conditions of certain major customers in which there
were three customers accounting for approximately 19%, 17% and 15% of net sales
for the eight months ended December 31, 1996. Additionally, at December 31,
1996, three customers accounted for approximately 27%, 14% and 13% of accounts
receivable. The Company does not require collateral or other security to support
customers' receivables. The Company conducts periodic reviews of its customers'
financial conditions and vendor payment practices to minimize collection risks
on trade accounts receivable. The Company has purchased insurance which covers a
portion of its receivables from major customers.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, receivables, accounts payables, accrued
expenses and notes payable approximate fair value because of the short-term
nature of the items. The carrying value of the debt resulting from the
recapitalization approximates its fair value based on current interest rates,
coupled with the expected near term payoff of the debt with the proceeds from
the proposed initial public offering.

ACCOUNTING FOR STOCK-BASED COMPENSATION

F-8
<PAGE> 61

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES:

The significant components of income tax expense for the eight-month period
ended December 31, 1996, are as follows:

<TABLE>
<S> <C>
Current
Federal................................................ $ 749,095
State.................................................. 160,210
----------
909,305
----------
Deferred
Federal................................................ 730,005
State.................................................. 154,185
----------
884,190
----------
$1,793,495
==========
</TABLE>

A reconciliation of statutory Federal tax rate and actual effective income
tax rate for the eight months ended December 31, 1996, is as follows:

<TABLE>
<S> <C>
Statutory rate........................................... 34.0%
State taxes, net of federal benefit...................... 4.8
Other.................................................... 2.5
----
Effective rate........................................... 41.3%
====
</TABLE>

The significant components of deferred tax assets and liabilities as of
December 31, 1996, are as follows:

<TABLE>
<S> <C>
Deferred income tax assets
Allowance for doubtful accounts......................... $ 18,205
Inventory reserve....................................... 94,180
--------
Total deferred income tax assets................ 112,385
--------
Deferred income tax liabilities
Intangible assets....................................... 732,416
Property and equipment.................................. 264,159
--------
Total deferred income tax liabilities........... 996,575
--------
$884,190
========
</TABLE>

5. DEBT

The Company entered into a Credit Agreement with a bank that provides for a
revolving loan, Term Loan A, Term Loan B and a Deferred Term Loan. The revolving
loan allows the Company to borrow up to $5 million prior to April 30, 2001,
based upon levels of the Company's accounts receivable, inventory and cash
flows. As of December 31, 1996, the Company had not borrowed under the revolving
loan. The Credit Agreement also provides the Company with the ability to borrow
up to $8 million under the Deferred Term Loan at any time between March 31,
1997, and April 30, 1997, to refinance the $8 million Senior Subordinated Notes.

Borrowings under the Credit Agreement bear interest, at the Company's
option, at the bank's base rate plus a margin that varies between .5% and 1.25%
or at a reserve adjusted Eurodollar rate plus a margin that varies between 2%
and 3.25%. All amounts outstanding under the Credit Agreement are secured by
substantially all assets of the Company and are subject to certain financial and
other covenants. At December 31, 1996, the Company was in compliance with these
covenants.

F-9
<PAGE> 62

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Senior Subordinated Notes are unsecured obligations of the Company and
all payments under these notes are subordinated to indebtedness under the Credit
Agreement and are senior to all existing and future subordinated indebtedness of
the Company including amounts due under the Series A and Series B Junior
Subordinated Notes.

The Series A Junior Subordinated Notes are unsecured obligations of the
Company and all payments under these notes are subordinated to indebtedness
under the Credit Agreement and to amounts outstanding under the Senior
Subordinated Notes, and rank senior in right of payment to amounts outstanding
under the Series B Junior Subordinated Notes.

The Series B Junior Subordinated Notes are unsecured obligations of the
Company, and all payments under these notes are subordinated to indebtedness
under the Credit Agreement and to amounts outstanding under the Senior
Subordinated Notes and the Series A Junior Subordinated Notes.

The Company's Hong Kong subsidiary entered into a credit agreement with a
bank that provides for a line of credit of up to $5 million. Amounts borrowed
under this line of credit bears interest at the bank's cost of funds plus 2% and
are cross-guaranteed by RCI and RCL. As of December 31, 1996, there were no
outstanding borrowings under this line of credit.

LONG-TERM DEBT AT DECEMBER 31, 1996, CONSISTS OF THE FOLLOWING:

<TABLE>
<S> <C>
Term note A payable to the bank, bearing interest at 8.25%
as of December 31, 1996, interest payable every quarter;
principal of $1,500,000 due every quarter from September,
1996, through April, 2001................................. $27,000,000
Term note B payable to the bank, bearing interest at 8.75%
as of December 31, 1996, interest payable every quarter;
principal of $50,000 due every quarter from September,
1996, through December, 2000, and $1,000,000 due March,
2001 to March, 2002, with a final payment of $4,100,000 in
April, 2002............................................... 9,900,000
Senior Subordinated notes payable to stockholders, interest
at a designated bank's base rate (8.25% at December 31,
1996), principal payable of $20,000, January 1, 1997; and
$8,000,000 with all accrued and unpaid interest due April
30, 1997.................................................. 8,020,000
Series A Junior Subordinated notes payable to stockholders;
interest at 12%; 40% of interest earned is payable each
March 1, June 1, September 1 and December 1; principal
amounts of $9,042,995 due each April 30 beginning 2004
with all accrued and unpaid interest due April 30, 2006... 38,245,820
Series B Junior Subordinated notes payable to stockholders;
interest at 12%; 40% of interest earned is payable each
March 1, June 1, September 1 and December 1; principal
payments of $398,411 due each April 30 beginning 2004,
with all accrued and unpaid interest due April 30, 2006... 1,195,234
-----------
84,361,054
-----------
Less -- Current maturities.................................. 14,220,000
-----------
$70,141,054
===========
</TABLE>

F-10
<PAGE> 63

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PRINCIPAL MATURITIES OF LONG-TERM DEBT ARE AS FOLLOWS:

<TABLE>
<S> <C>
1998........................................................ $ 6,200,000
1999........................................................ 6,200,000
2000........................................................ 6,200,000
2001........................................................ 7,000,000
2002........................................................ 5,100,000
Thereafter.................................................. 39,441,054
-----------
Total long-term debt.............................. $70,141,054
===========
</TABLE>

6. PREFERRED STOCK:

The preferred stock accrues dividends at 12% per year and dividends are
cumulative and accrue from day to day, whether or not earned or declared,
commencing with the date of issue of such share. No dividends have been paid to
date.

In the event of any liquidation, holders of the Series A Preferred Stock
are entitled to receive the liquidation value plus all accrued and unpaid
dividends prior to any payment with respect to the Series B Preferred Stock, the
Common Stock or the Nonvoting Common Stock. The holders of the Series B
Preferred Stock are entitled to receive the liquidation preference plus all
accrued and unpaid dividends prior to any payment with respect to the Common
Stock or the Nonvoting Common Stock.

7. STOCK OPTION PLAN:

The Company has adopted a 1996 Employee Stock Option Plan for its key
employees. The Employee Stock Option Plan is administered by the Board of
Directors. The Company has reserved 415,041 shares of common stock for issuance
under the plan. On April 30, 1996 and June 1, 1996, the Company granted 311,281
and 20,752 options, respectively, to purchase shares of common stock at an
exercise price equal to fair market value as determined by the Board of
Directors in connection with the Recapitalization. These options vest equally
over a five year period. The options will expire on the earlier of the tenth
anniversary of the date of grant or 30 days after the date of termination of the
employees' employment with the Company.

Stock option activity for the employees' stock option plan for the eight
months ended December 31, 1996, is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE PRICE
------- ----- --------
<S> <C> <C> <C>
Granted................................. 332,033 $0.13 $0.13
Exercised............................... -- -- --
Canceled................................ -- -- --
-------
Outstanding as of December 31, 1996..... 332,033 $0.13 $0.13
======= ===== =====
Stock options exercisable at
December 31, 1996..................... --
=======
Shares available for future grants...... 83,008
=======
</TABLE>

F-11
<PAGE> 64

RACING CHAMPIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. EMPLOYEE BENEFIT PLANS

The Company adopted a 401(k) savings plan as of December, 1996, which will
be effective on January 1, 1997. Employees meeting certain eligibility
requirements, as defined, may contribute up to 15% of pretax gross wages,
subject to certain restrictions. The Company will make matching contributions of
50% of the employees' contributions up to 5% of employee wages contributed to
the plan.

9. SUBSEQUENT EVENT

PROPOSED INITIAL PUBLIC OFFERING

In , 1997, the Company plans to file a Registration Statement
with regard to an initial public offering of its common stock. Under the
proposed offering, the Company intends to sell to the public 5,000,000 shares of
common stock. The Company proposes to use approximately $59,700,000 of the net
proceeds to repay subordinated debt owed to certain stockholders of the Company
and bank borrowings, and to redeem all of the outstanding shares of preferred
stock.

STOCK SPLIT

Effective , 1997, the Company authorized and issued a
7.885261-for-one stock split of common stock and increased in the number of
authorized shares to 20,000,000 shares of voting common stock and 1,000,000
shares of nonvoting common stock. The accompanying financial statements have
been retroactively adjusted to reflect the stock split.

F-12
<PAGE> 65

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Racing Champions, Inc. and Dods-Meyer, Ltd.:

We have audited the accompanying combined balance sheets of RACING
CHAMPIONS, INC. (an Illinois corporation) and DODS-MEYER, LTD. (an Illinois
corporation) as of December 31, 1995 and April 30, 1996, and the related
combined statements of income, shareholders' investment and cash flows for the
years ended December 31, 1994 and 1995 and for the four months ended April 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Racing Champions,
Inc. and Dods-Meyer, Ltd. as of December 31, 1995 and April 30, 1996, and the
results of their operations and their cash flows for the years ended December
31, 1994 and 1995 and for the four months ended April 30, 1996, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 15, 1997

F-13
<PAGE> 66

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1995 1996
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,461,234 $ 255,466
Accounts receivable, net of allowance for doubtful
accounts of $200,000 and $257,000 in 1995 and 1996,
respectively........................................... 3,495,736 3,569,178
Inventory................................................. 711,743 1,553,075
Other current assets...................................... 170,228 453,939
------------ ----------
Total current assets................................... 6,838,941 5,831,658
------------ ----------
Property and equipment:
Tooling................................................... 4,317,008 5,246,778
Other equipment........................................... 398,575 418,969
------------ ----------
4,715,583 5,665,747
Less-accumulated depreciation............................. 3,284,576 3,644,575
------------ ----------
1,431,007 2,021,172
------------ ----------
Total assets.................................... $ 8,269,948 $7,852,830
============ ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable.......................................... $ 83,510 $ 548,040
Accrued expenses.......................................... 2,401,413 2,258,583
Accrued bonus............................................. -- 2,501,439
Accrued royalties......................................... 1,477,506 863,673
Due to related party...................................... 900,522 1,500,489
Note payable to related party............................. 1,120,000 1,140,000
------------ ----------
Total current liabilities.............................. 5,982,951 8,812,224
------------ ----------
Shareholders' investment:
Common stock, Racing Champions, Inc., no par value, 5,000
shares authorized, 1,000 shares issued and
outstanding............................................ 400 400
Common stock, Dods-Meyer, Ltd., no par value, 10,000
shares authorized, 1,000 shares issued and
outstanding............................................ 1,000 1,000
Additional paid-in capital................................ 9,600 9,600
Retained earnings (deficit)............................... 2,275,997 (970,394)
------------ ----------
Total shareholders' investment......................... 2,286,997 (959,394)
------------ ----------
Total liabilities and shareholders'
investment.................................. $ 8,269,948 $7,852,830
============ ==========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-14
<PAGE> 67

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOUR MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- APRIL 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $43,267,924 $48,592,178 $16,614,029
Cost of sales, related party........................ 25,212,148 25,556,121 9,403,514
----------- ----------- -----------
Gross profit...................................... 18,055,776 23,036,057 7,210,515
Selling, general and administrative expenses........ 9,491,222 13,312,053 4,713,344
----------- ----------- -----------
Operating income before nonrecurring bonus
expense........................................ 8,564,554 9,724,004 2,497,171
Nonrecurring bonus expense.......................... -- -- 2,389,218
----------- ----------- -----------
Operating income.................................. 8,564,554 9,724,004 107,953
Interest expense.................................... (210,876) (132,758) (20,000)
Other income (expense).............................. 218,985 (5,360) 22,847
----------- ----------- -----------
Income before income taxes........................ 8,572,663 9,585,886 110,800
Income tax expense.................................. 348,699 193,500 39,000
----------- ----------- -----------
Net income........................................ $ 8,223,964 $ 9,392,386 $ 71,800
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-15
<PAGE> 68

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.

COMBINED STATEMENTS OF SHAREHOLDERS' INVESTMENT

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS INVESTMENT
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.................... $1,400 $9,600 $2,383,611 $2,394,611
Net income.................................. -- -- 9,392,386 9,392,386
Distributions............................... -- -- (9,500,000) (9,500,000)
------ ------ ---------- ----------
Balance, December 31, 1995.................... 1,400 9,600 2,275,997 2,286,997
Net income.................................. -- -- 71,800 71,800
Distributions............................... -- -- (3,318,191) (3,318,191)
------ ------ ---------- ----------
Balance, April 30, 1996....................... $1,400 $9,600 $ (970,394) $ (959,394)
====== ====== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-16
<PAGE> 69

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOUR MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- APRIL 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $8,223,964 $ 9,392,386 $ 71,800
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation..................................... 678,583 711,778 359,999
Deferred income taxes............................ 196,256 -- --
Changes in operating assets and liabilities
Accounts receivable............................ (274,665) (895,104) (73,442)
Inventory...................................... 602,899 (379,348) (841,332)
Other current assets........................... 32,694 (170,228) (283,711)
Accounts payable and accrued expenses.......... (395,462) 1,115,250 1,439,962
Due to related party........................... (51,254) 496,484 599,967
---------- ----------- -----------
Net cash provided by operating
activities............................. 9,013,015 10,271,218 1,273,243
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................. (1,128,788) (1,076,826) (950,164)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on bank note............................... (50,000) (950,000) --
Repayment of shareholders' notes payable............ (1,615,000) -- (22,000)
Distributions to shareholders....................... (3,100,000) (9,900,000) (2,506,847)
---------- ----------- -----------
Net cash used in financing activities..... (4,765,000) (10,850,000) (2,528,847)
---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 3,119,227 (1,655,608) (2,205,768)
Cash and cash equivalents, beginning of period........ 997,615 4,116,842 2,461,234
---------- ----------- -----------
Cash and cash equivalents, end of period.............. $4,116,842 $ 2,461,234 $ 255,466
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the period............ $ 220,340 $ 72,758 $ --
Cash paid for taxes during the period............... 871,395 88,968 --
========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-17
<PAGE> 70

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE FOUR MONTHS ENDED APRIL 30, 1996

1. DESCRIPTION OF BUSINESS

Racing Champions, Inc. ("RCI") and Dods-Meyer, Ltd. ("DML") (collectively
"the Company") is a leading producer and marketer of collectible scaled die cast
vehicle replicas. The Company is best known for its extensive line of officially
licensed, high-quality collectible replicas of actual race cars and related
vehicles from the most popular U.S. professional racing series, including NASCAR
stock car racing, National Hot Rod Association drag racing, Championship Auto
Racing Teams and Indy Racing League Indy-style racing, World of Outlaws sprint
car racing as well as Honda and Kawasaki racing motorcycles. Products are
manufactured in numerous styles for the following customer bases: national and
regional retail chains, collector and hobby shops and premium sales to
corporations. RCI has license agreements with the major U.S. automotive
manufacturers and most of the major motor sport sponsors, team owners and their
drivers.

RCI sells its products primarily in North America through sales
representatives of DML, which is owned by shareholders of RCI. Racing Champions
Limited ("RCL"), a Hong Kong company owned by a related party, oversees the
production of RCI products.

On April 30, 1996, the Company was part of a recapitalization which
involved the Company and RCL and other affiliates of RCL, whereby a new holding
company, Racing Champions Corporation, acquired all stock of RCI and all
operating assets of DML.

2. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF COMBINATION

The financial statements combine the accounts of RCI and DML after
elimination of intercompany items and transactions.

REVENUE RECOGNITION

The Company recognizes revenue based upon shipment of product to customers.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalent. Such investments are valued
at market prices.

USE OF ESTIMATES

INVENTORY

F-18
<PAGE> 71

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method for financial statement purposes with estimated useful
lives for tooling of two years and for other equipment of five to ten years.
Accelerated methods are used for income tax purposes.

INCOME TAXES

DML has elected to be treated as an S Corporation under the Internal
Revenue Code pursuant to which profits and losses are allocated to the
shareholders for inclusion in their personal tax returns. As of January 1, 1994,
RCI elected to be treated as an S Corporation. Accordingly, a deferred tax asset
of $196,256 was charged to tax expense as of January 1, 1994. The remaining tax
expense for 1995 and 1996 is due to Illinois replacement taxes.

RELATED-PARTY TRANSACTIONS

RCL's beneficial owner is a warrant holder in RCI. In addition to payments
related to the purchase of products, RCI paid RCL agency fees of $1,772,000 in
1994, $2,123,414 in 1995 and $831,832 in 1996.

STOCK DIVIDEND

On December 20, 1994, RCI's shareholders and directors declared a 24-to-1
stock dividend to shareholders of RCI's common stock, thereby effecting a
24-to-1 stock split. This split has been retroactively reflected in the
accompanying financial statements.

CONCENTRATION OF CREDIT RISK

Concentration of credit risk is limited to trade accounts receivable and is
subject to the financial conditions of certain major customers in which one
customer accounted for approximately 11% of net sales for the year ended
December 31, 1994, two customers accounted for approximately 15% and 10% of net
sales for the year ended December 31, 1995 and three customers accounted for
approximately 16%, 15% and 15% of net sales for the four months ended April 30,
1996. The Company does not require collateral or other security to support
customers' receivables. The Company conducts periodic reviews of its customers'
financial conditions and vendor payment practices to minimize collection risks
on trade accounts receivable. The Company insures its receivables for major
customers with a third party.

RECLASSIFICATION

Certain reclassifications have been made to the December 31, 1994 and 1995,
financial statements to conform to the April 30, 1996, presentation.

3. NOTES PAYABLE

During 1995, the Company entered into a revolving line of credit agreement
with a bank which extends through April, 1996. The maximum amount of borrowings
was the lesser of $4,000,000 or the collateral availability, as defined in the
agreement. The agreement required maintenance of certain covenants and was
secured by substantially all of the assets of the Company. As of April 30, 1996,
there was no outstanding balance on this line of credit. On April 30, 1996, as
part of the recapitalization (see Note 1) this agreement was canceled.

The Company has an unsecured promissory note payable to a related party (a
former shareholder) of $1,120,000 and $1,140,000 at December 31, 1995, and April
30, 1996, respectively, including accrued interest. Interest charged at 6% is
payable at maturity.

F-19
<PAGE> 72

RACING CHAMPIONS, INC. AND DODS-MEYER, LTD.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

4. STOCK OPTION PLAN

During 1994, RCI established a stock option plan, under which up to 100
shares of RCI's common stock may be granted to key employees. Under this Plan,
options to purchase a total of 74.76 shares of RCI common stock at $3,960 per
share were issued during 1994. The options were issued at an exercise price
equal to fair market value. The options are exercisable upon the earlier of a
change in control of RCI, as defined, or an initial public offering of RCI's
common stock. The options expire five years from the date they become
exercisable. The options outlined above were canceled in connection with the
recapitalization (see Note 1).

F-20
<PAGE> 73

REPORT OF INDEPENDENT AUDITORS

The Shareholders
Racing Champions Limited,
(Incorporated in Hong Kong with limited liability)
Hosten Investment Limited,
(Incorporated in Hong Kong with limited liability)
Garnett Services Inc.,
(Incorporated in the British Virgin Islands with limited liability)
Bergen Services Inc.,
(Incorporated in the British Virgin Islands with limited liability)

We have audited the accompanying combined balance sheets of Racing
Champions Limited, Hosten Investment Limited, Garnett Services Inc. and Bergen
Services Inc. (hereinafter collectively referred to as "the Racing Champions
Limited Group" or "the RCL Group") as of March 31, 1995, 1996 and April 30, 1996
and the related combined statements of income, changes in shareholders' equity
and cash flows for each of the two years in the period ended March 31, 1996 and
the one month period ended April 30, 1996. These financial statements are the
responsibility of the RCL Group's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the RCL
Group as of March 31, 1995, 1996 and April 30, 1996, and the combined results of
its operations and its cash flows for each of the two years in the period ended
March 31, 1996 and for the one month period ended April 30, 1996 in conformity
with accounting principles generally accepted in the United States of America.

ERNST & YOUNG
Hong Kong

February 19, 1997

F-21
<PAGE> 74

RACING CHAMPIONS LIMITED GROUP

COMBINED BALANCE SHEETS
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
MARCH 31,
----------------------- APRIL 30,
NOTES 1995 1996 1996
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 43,277 $ 301,240 $ 50,875
Trade receivables, net.......................... 996,405 1,739,938 1,470,941
Prepayments, deposits and other receivables..... 577,134 282,213 237,122
Amount due from Racing Champions, Inc.
("RCI")...................................... 596,828 442,660 572,434
Amount due from affiliates...................... 9 1,032,754 -- 111,965
---------- ---------- ----------
Total current assets......................... 3,246,398 2,766,051 2,443,337
Fixed assets...................................... 8 & 13 474,461 433,952 411,699
Other asset....................................... 3 -- -- 879,690
Deferred income taxes............................. 4,560 60,440 65,713
---------- ---------- ----------
Total assets............................ $3,725,419 $3,260,443 $3,800,439
========== ========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts, secured........................ 12 $ 320,384 $ -- $ --
Current portion of obligations under capital
lease........................................ 13 49,596 148,151 147,888
Accounts payable and accrued liabilities........ 7 794,598 723,655 992,660
Amount due to affiliates........................ 9 -- 218,790 --
Income tax payable.............................. 38,872 136,768 151,086
---------- ---------- ----------
Total current liabilities.................... 1,203,450 1,227,364 1,291,634
Long-term obligations under capital lease......... 13 72,834 175,320 163,237
---------- ---------- ----------
Total liabilities....................... 1,276,284 1,402,684 1,454,871
Contingencies and commitments..................... 16
Shareholders' equity:
Share capital................................... 14 129,369 129,369 129,369
Retained earnings............................... 2,319,766 1,728,390 2,216,199
---------- ---------- ----------
Total shareholders' equity................... 2,449,135 1,857,759 2,345,568
---------- ---------- ----------
Total liabilities and shareholders'
equity................................ $3,725,419 $3,260,443 $3,800,439
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-22
<PAGE> 75

RACING CHAMPIONS LIMITED GROUP

COMBINED STATEMENTS OF INCOME
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, ONE MONTH
------------------------------- ENDED
NOTES 1995 1996 APRIL 30, 1996
------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales:
Related party - RCI........................ $10,316,438 $11,308,084 $1,304,352
Other customers............................ 12,014,547 26,013,536 2,547,775
----------- ----------- ----------
Total sales............................. 22,330,985 37,321,620 3,852,127
----------- ----------- ----------
Cost of sales:
Related party purchases.................... 15 (8,161,941) (11,245,727) (1,719,700)
Other purchases............................ (4,776,869) (7,643,479) (307,945)
Commission paid to RCI..................... (5,777,498) (13,745,461) (1,331,278)
----------- ----------- ----------
Total cost of sales..................... (18,716,308) (32,634,667) (3,358,923)
----------- ----------- ----------
Commission received from RCI................. 1,673,212 2,398,325 258,387
Gross profit............................ 5,287,889 7,085,278 751,591
Depreciation of fixed assets................. (360,177) (392,079) (29,268)
Selling and administrative expenses.......... 15 (2,861,294) (3,968,028) (215,760)
----------- ----------- ----------
Operating income........................ 2,066,418 2,725,171 506,563
Financial expenses, net...................... 4 & 15 (55,239) (130,004) (12,755)
Other income, net............................ 5 113,085 178,534 28,512
----------- ----------- ----------
Income before income taxes.............. 2,124,264 2,773,701 522,320
Income taxes................................. 6 (45,312) (170,677) (34,511)
----------- ----------- ----------
Net income.............................. $ 2,078,952 $ 2,603,024 $ 487,809
=========== =========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-23
<PAGE> 76

RACING CHAMPIONS LIMITED GROUP

COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
COMBINED RETAINED
SHARE CAPITAL EARNINGS TOTAL
------------- ----------- -----------
<S> <C> <C> <C>
Balance at March 31, 1994.............................. $129,369 $ 2,868,872 $ 2,998,241
Net income........................................... -- 2,078,952 2,078,952
Dividends............................................ -- (2,628,058) (2,628,058)
-------- ----------- -----------
Balance at March 31, 1995.............................. 129,369 2,319,766 2,449,135
Net income........................................... -- 2,603,024 2,603,024
Dividends............................................ -- (3,194,400) (3,194,400)
-------- ----------- -----------
Balance at March 31, 1996.............................. 129,369 1,728,390 1,857,759
Net income........................................... -- 487,809 487,809
-------- ----------- -----------
Balance at April 30, 1996.............................. $129,369 $ 2,216,199 $ 2,345,568
======== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-24
<PAGE> 77

RACING CHAMPIONS LIMITED GROUP

COMBINED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, ONE MONTH
----------------------- ENDED
1995 1996 APRIL 30, 1996
---------- ---------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $2,078,952 $2,603,024 $ 487,809
Adjustments to reconcile net income to net cash
provided by operating activities:
Gains on disposal of fixed assets................... (51,809) (147,616) --
Depreciation........................................ 360,177 392,079 29,268
Deferred income taxes............................... (29,961) (55,880) (5,273)
Decrease (increase) in assets:
Trade receivables, net............................ (107,845) (743,533) 268,997
Prepayments, deposits and other receivables....... (201,268) 294,921 45,091
Amount due from RCI............................... 7,348 154,168 (129,774)
Amount due from affiliates........................ (679,856) 1,032,754 (111,965)
Tax refund........................................ 240,642 -- --
Increase (decrease) in liabilities:
Amounts due to affiliates......................... -- 218,790 (218,790)
Accounts payable and accrued liabilities.......... 63,950 (70,943) 269,005
Income taxes payable.............................. 38,355 97,896 14,318
---------- ---------- ---------
Net cash provided by operating activities...... 1,718,685 3,775,660 648,686
---------- ---------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets............................... (75,914) (35,390) (7,015)
Purchase of other asset................................ -- -- (879,690)
Proceeds from disposal of fixed assets................. 139,715 162,995 --
---------- ---------- ---------
Net cash provided by (used in) investing
activities................................... 63,801 127,605 (886,705)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (repayment) of bank overdrafts................ 320,384 (320,384) --
Dividends paid......................................... (2,628,058) (3,194,400) --
Net payments under finance lease....................... (112,426) (130,518) (12,346)
---------- ---------- ---------
Net cash used in financing activities.......... (2,420,100) (3,645,302) (12,346)
Net increase (decrease) in cash and cash
equivalents.................................. (637,614) 257,963 (250,365)
Cash and cash equivalents, at beginning of year.......... 680,891 43,277 301,240
---------- ---------- ---------
Cash and cash equivalents, at end of year................ $ 43,277 $ 301,240 $ 50,875
========== ========== =========
SUPPLEMENTARY CASH FLOWS DISCLOSURES:
Interest paid.......................................... $ 41,735 $ 67,038 $ 4,666
Income taxes paid...................................... 36,918 128,661 25,466
Inception of a capital lease contract.................. 112,894 331,559 --
========== ========== =========
</TABLE>

F-25
<PAGE> 78

RACING CHAMPIONS LIMITED GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Racing Champions Limited ("RCL"), Bergen Services Inc. ("BSI"), and Hosten
Investments ("HIL") were formed in 1989, 1989 and 1991, respectively to act as
purchasing and sales agents of collectible scaled replicas of race cars and
other vehicles for Garnett Services Inc. ("GSI"). BSI and GSI were incorporated
in the British Virgin Islands ("BVI"), and RCL and HIL were incorporated in Hong
Kong. RCL, BSI, GSI and HIL are collectively referred to as "the Racing
Champions Limited Group" or "the RCL Group".

Substantially all the RCL Group's products are sold to Racing Champions,
Inc. ("RCI"), a related party, and other customers in the United States of
America. Effective on May 1, 1996, the operations of RCL, HIL and GSI have been
acquired by Racing Champions, Inc.

2. BASIS OF PRESENTATION

The combined financial statements of the RCL Group have been prepared based
on the historical financial statements of the RCL Group of companies for the
years ended March 31, 1995 and 1996 and for one month ended April 30, 1996, in
accordance with accounting principles generally accepted in the United States of
America. All significant intercompany balances and transactions have been
eliminated.

3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

(A) FIXED ASSETS AND DEPRECIATION

Fixed assets are stated at cost less accumulated depreciation.

Depreciation of fixed assets is calculated on the straight-line basis to
write off the cost less estimated residual value of each asset over its
estimated useful life. The principal annual rates used for this purpose are as
follows:

<TABLE>
<S> <C>
Leasehold improvements...................................... 25%
Furniture and fixtures...................................... 20%
Office equipment............................................ 20%
Motor vehicles.............................................. 30%
</TABLE>

(B) INCOME TAXES

Income taxes are determined under the liability method as required by
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes".

The RCL Group's functional currency is Hong Kong dollars ("HK$"). Foreign
currency transactions and monetary assets and liabilities denominated in foreign
currencies are translated into HK$ at the respective applicable rates of
exchange. Monetary assets and liabilities denominated in foreign currencies are
translated into HK$ at the applicable rate of exchange at the balance sheet
date. The resulting exchange gains or losses are credited or charged to the
statements of income.

The financial statements of the RCL Group where the HK$ is the functional
currency have been translated into U.S. dollars for reporting purpose in
accordance with FASB Statement No. 52, "Foreign Currency Translation." All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Income statement accounts have been translated using
the average exchange rate for

F-26
<PAGE> 79

RACING CHAMPIONS LIMITED GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

the year. The gains and losses resulting from the changes in exchange rates from
year to year have been reported separately as a component of shareholders'
equity.

(D) OTHER ASSET

Other asset consists of a golf club membership debenture is stated at
purchase cost which approximates its fair market value.

(E) REVENUE RECOGNITION

Revenue from the sale of the RCL Group's products is recognized when the
products are shipped to customers.

(F) RETIREMENT BENEFITS

The RCL Group participates in a defined contribution retirement plan
administered by an insurance company (the "Retirement Plan"). All staff covered
under the Retirement Plan are entitled to a lump sum payment, payable by the
insurance company, upon their retirement equal to the sum of employees'
contributions plus the employer's contribution. The RCL Group is required to
make contributions to the Retirement Plan at a rate of 5% of the salaries of its
existing staff. The retirement benefits contributions are charged to the
statements of income as services are provided.

Contributions made to the retirement plan during the years ended March 31,
1995, 1996 and one month ended April 30, 1996 were $17,322, $17,540 and $1,068,
respectively.

(G) CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and demand deposits with
banks with a term to maturity of three months or less at the date of
acquisition.

(H) USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

4. FINANCIAL EXPENSES, NET

Financial expenses, net consist of:

<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEARS ENDED MARCH 31, APRIL 30,
1995 1996 1996
-------- --------- ---------
<S> <C> <C> <C>
Interest income.......................... $ 32,915 $ 13,982 $ 61
Interest expenses on:
Bank overdrafts........................ (28,315) (46,598) (2,843)
Capital leases......................... (13,420) (20,440) (1,823)
Bank charges............................. (46,419) (76,948) (8,150)
-------- --------- --------
$(55,239) $(130,004) $(12,755)
======== ========= ========
</TABLE>

F-27
<PAGE> 80

RACING CHAMPIONS LIMITED GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

5. OTHER INCOME, NET

Other income, net consists of:

<TABLE>
<CAPTION>
ONE MONTH
YEARS ENDED MARCH 31, ENDED
----------------------- APRIL 30,
1995 1996 1996
-------- -------- ---------
<S> <C> <C> <C>
Foreign exchange gains/(losses), net...... $(20,564) $ 3,265 $ 51
Gains on disposal of fixed assets......... 51,809 147,616 --
Miscellaneous income...................... 81,840 27,653 28,461
-------- -------- -------
$113,085 $178,534 $28,512
======== ======== =======
</TABLE>

6. INCOME TAXES

The companies in the RCL Group operate both in Hong Kong and other
jurisdictions. Details of the related provision for income taxes are as follows:

<TABLE>
<CAPTION>
ONE MONTH
YEARS ENDED MARCH 31, ENDED
----------------------- APRIL 30,
1995 1996 1996
---------- ---------- ---------
<S> <C> <C> <C>
Income before income taxes:
Hong Kong................................. $ 322,039 $1,182,021 $209,159
Other jurisdictions....................... 1,802,225 1,591,680 313,161
---------- ---------- --------
$2,124,264 $2,773,701 $522,320
========== ========== ========
Income tax provision:
Current:
Hong Kong.............................. $ 75,273 $ 226,557 $ 39,784
Other jurisdictions.................... -- -- --
---------- ---------- --------
75,273 226,557 39,784
---------- ---------- --------
Deferred, Hong Kong....................... (29,961) (55,880) (5,273)
---------- ---------- --------
$ 45,312 $ 170,677 $ 34,511
========== ========== ========
</TABLE>

Income earned by BSI and GSI outside the BVI is not subject to tax.

Those companies carrying on business in Hong Kong are subject to Hong Kong
profits tax on their income arising in or derived from Hong Kong after adjusting
for income and expense items which are not assessable or deductible for income
tax purposes. As such, current income taxes are calculated at a statutory tax
rate of 16.5%.

F-28
<PAGE> 81

RACING CHAMPIONS LIMITED GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory Hong Kong tax rates to the income before
income taxes is as follows:

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, ONE MONTH
--------------------- ENDED
1995 1996 APRIL 30, 1996
--------- --------- --------------
<S> <C> <C> <C>
Statutory Hong Kong tax rates.............. 16.5% 16.5% 16.5%
========= ========= ========
Computed expected tax expense.............. $ 350,503 $ 457,661 $ 86,183
Lower tax rate of BVI companies............ (297,367) (262,627) (51,672)
Non-deductible/(taxable) items:
Gains on disposal of fixed assets........ (8,548) (24,357) --
Expenses................................. 724 -- --
--------- --------- --------
$ 45,312 $ 170,677 $ 34,511
========= ========= ========
</TABLE>

Deferred income taxes represent temporary differences on depreciation
allowance of fixed assets. No valuation allowance for deferred income tax assets
has been recorded.

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of:

<TABLE>
<CAPTION>
MARCH 31,
-------------------- APRIL 30,
1995 1996 1996
-------- -------- ---------
<S> <C> <C> <C>
Accounts payable............................. $734,443 $552,361 $818,856
Accrued liabilities.......................... 60,155 171,294 173,804
-------- -------- --------
$794,598 $723,655 $992,660
======== ======== ========
</TABLE>

8. FIXED ASSETS

Fixed assets consist of:

<TABLE>
<CAPTION>
MARCH 31,
------------------------ APRIL 30,
1995 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Leasehold improvements.................. $ 506,553 $ 510,285 $ 510,285
Furniture and fixtures.................. 249,495 255,391 255,391
Office equipment........................ 258,198 253,319 260,334
Motor vehicles.......................... 487,677 453,239 453,239
---------- ---------- ----------
1,501,923 1,472,234 1,479,249
Less: Accumulated depreciation.......... (1,027,462) (1,038,282) (1,067,550)
---------- ---------- ----------
$ 474,461 $ 433,952 $ 411,699
========== ========== ==========
</TABLE>

F-29
<PAGE> 82

RACING CHAMPIONS LIMITED GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

9. AMOUNT DUE FROM (TO) AFFILIATES

Amounts due from (to) affiliates consist of:

<TABLE>
<CAPTION>
MARCH 31,
----------------------- APRIL 30,
1995 1996 1996
---------- --------- ---------
<S> <C> <C> <C>
Amount due from (to) directors........... $ (96,460) $ 450,385 $ 34,605
Amount due from shareholders............. 121,839 117,455 956,112
Amount due from (to) related companies... 1,007,375 (786,630) (878,752)
---------- --------- ---------
$1,032,754 $(218,790) $ 111,965
========== ========= =========
</TABLE>

10. CONCENTRATION OF RISKS

Financial instruments which potentially subject the RCL Group to a
concentration of credit risk consist of cash deposits and trade receivables.

(i) Cash deposits

The RCL Group places its cash deposits with international banks in
Hong Kong.

(ii) Trade receivables

As of April 30, 1996, approximately 28.0% and 48.8% of the total trade
receivables balance were due from Racing Champion, Inc. and the two other
largest customers, respectively. The RCL Group does not have a policy of
requiring collateral for trade receivables.

Racing Champions, Inc. and the two other largest customers account for
approximately 46% and 10%; 30% and 23%; 34% and 22% of net sales, respectively,
for each of the two years ended March 31, 1995 and 1996 and one month period
ended April 30, 1996.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments are set out as follows:

(i) Cash deposits

The cash deposits are stated at cost which approximates market value.

(ii) Trade receivables and amounts due from related companies

Trade receivables and the amounts due from related companies are
stated at their book value less provision for doubtful debts, which
approximates the fair market value.

(iii) Other asset

Other asset is stated at purchase cost which approximates its fair
value based on current market value.

(iv) Other financial instruments

All other financial instruments are stated at their book value which
approximates their fair values.

12. BANKING FACILITIES

The RCL Group has banking facilities of $13,628,719 for overdrafts and
trade finance. Unused facilities as of April 30, 1996 amounted to $13,628,719.

F-30
<PAGE> 83

RACING CHAMPIONS LIMITED GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

The banking facilities of the RCL Group were secured by mortgages over a
director's personal leasehold land and buildings and corporate guarantees given
by the RCL Group and two directors totalling $8,150,065.

The bank overdrafts carry interest at 2.5% above the Hong Kong prime
lending rate, a weighted average of 11.5% as of April 30, 1996.

13. CAPITAL LEASES

The RCL Group leases motor vehicles under capital leases. Leases meeting
certain specific criteria are accounted for as acquisition of an asset. The
principal amounts of leases that have been capitalized were as follows:

<TABLE>
<CAPTION>
MARCH 31,
------------------------------- APRIL 30,
1995 1996 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Motor vehicles......................... $ 487,677 $ 453,239 $ 453,239
Less: Accumulated amortization......... (361,278) (172,414) (183,745)
--------- --------- ---------
$ 126,399 $ 280,825 $ 269,494
========= ========= =========
</TABLE>

Amortization of the leased assets is included in depreciation expenses.

At April 30, 1996, future minimum payments under capital leases with
initial terms of one year or more consisted of the following:

<TABLE>
<S> <C>
Year ending April 30:
1996................................................... $ 170,026
1997................................................... 170,026
1998................................................... 16,603
---------
Total minimum lease payments............................. 356,655
Less: Interest elements.................................. (45,530)
---------
Present value of net minimum lease payments.............. 311,125
Less: current portion.................................... (147,888)
---------
Long term portion........................................ $ 163,237
=========
</TABLE>

14. SHARE CAPITAL

Share capital represented an aggregate amount of the nominal value of
issued share capital of RCL, HIL, GSI and BSI as follows:

<TABLE>
<CAPTION>
RCL HIL BSI GSI
------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Authorized share capital... HK$1,000,000 HK$10,000 US$50,000 US$50,000
Issued share capital....... HK$1,000,000 HK$ 2 US$ 2 US$ 1
Stated value per share..... HK$ 1 HK$ 1 US$ 1 US$ 1
</TABLE>

15. RELATED PARTY BALANCES AND TRANSACTIONS

A significant proportion of RCL Group's products was purchased from vendors
who were either directly or indirectly, and partially owned by the RCL Group's
shareholders. Also, RCL Group paid rents to affiliated companies of $539,385,
$554,274 and $40,065 for the years ended March 31, 1995 and 1996 and the one
month ended April 30, 1996, respectively.

F-31
<PAGE> 84

RACING CHAMPIONS LIMITED GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

16. CONTINGENCIES AND COMMITMENTS

As of April 30, 1996, the RCL Group had the following capital commitments
and contingencies:

(i) The RCL Group had bills discounted with recourse amounting to
approximately $256,668.

(ii) The RCL Group had guarantees of banking facilities granted to a
director amounting to approximately $2,018,111.

(iii) Operating leases:

The RCL Group leases land and buildings under non-cancellable
operating lease arrangements. Future minimum payments under
non-cancellable operating leases with initial terms of one year or more
consisted of the following at April 30, 1996.

<TABLE>
<S> <C>
For the year ended April 30,
1997...................................................... $ 59,931
1998...................................................... 186,287
--------
$246,218
========
</TABLE>

Rental expenses under all operating leases were $539,385 and
$554,274 for the years ended March 31, 1995 and 1996, respectively, and
$40,065 for the one month ended April 30, 1996.

17. POST BALANCE SHEET EVENTS

Subsequent to the balance sheet date, on May 1, 1996, RCL, HIL, GSI (the
"Companies") and Racing Champions, Inc. ("RCI") entered into an asset and stock
purchase agreement (the "Agreement"). Pursuant to the Agreement, the Companies
agreed to sell certain of their assets and liabilities to Banerjan Company
Limited ("Banerjan"), a wholly-owned subsidiary of RCI. Certain non-business
assets and the golf club membership debenture were not sold to Banerjan.
Thereafter, the Companies ceased business and the name of Racing Champions
Limited was released to Banerjan, which was renamed Racing Champions Limited, a
wholly owned subsidiary of RCI.

F-32
<PAGE> 85

======================================================

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
The Recapitalization................... 11
Use of Proceeds........................ 11
Dividend Policy........................ 12
Dilution............................... 12
Capitalization......................... 13
Selected Financial Data................ 14
Pro Forma Combined Statement of
Income............................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 25
Management............................. 35
Certain Transactions................... 40
Principal Stockholders................. 43
Description of Capital Stock........... 44
Shares Eligible for Future Sale........ 47
Underwriting........................... 49
Legal Matters.......................... 50
Experts................................ 50
Additional Information................. 51
Index to Financial Statements.......... F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================

5,000,000 SHARES

[LOGO]

COMMON STOCK

----------------------
PROSPECTUS
----------------------

ROBERT W. BAIRD & CO.
INCORPORATED

WILLIAM BLAIR & COMPANY

J.C. BRADFORD & CO.

, 1997

======================================================
<PAGE> 86

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Not including underwriting discounts and commissions, the expenses of
issuance and distribution which are to be paid by the Company are estimated as
follows:

<TABLE>
<CAPTION>
ITEM AMOUNT
---- -------
<S> <C>
Securities and Exchange Commission Registration Fee......... $24,394
NASD Filing Fee............................................. $ 8,550
NASDAQ Application Fee...................................... $50,000
Legal Fees and Expenses..................................... $ *
Transfer Agent Fees and Expenses............................ $ *
Accounting Fees and Expenses................................ $ *
Blue Sky Fees and Expenses.................................. $ *
Miscellaneous Expenses...................................... $ *
Printing and Engraving...................................... $ *
-------
Total............................................. $ *
=======
</TABLE>

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

* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Set forth below is a description of certain provisions of the Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") of
Racing Champions Corporation (the "Company"), the Amended and Restated By-Laws
of the Company (the "By-Laws") and the Delaware General Corporation Law
("DGCL"). This description is qualified in its entirety by reference to the
Certificate of Incorporation, the By-Laws and the DGCL.

The Certificate of Incorporation provides that, to the full extent provided
by law, a director will not be personally liable to the Company or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as a director. The DGCL provides that a corporation may limit
or eliminate a director's personal liability for monetary damages to the
corporation or its stockholders, except for liability (i) for any breach of the
director's duty of loyalty to such corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for paying a dividend or approving a stock
repurchase in violation of section 174 of the DGCL or (iv) with respect to any
transaction from which the director derived an improper personal benefit.

Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. With respect to actions by or in the right
of the corporation as a derivative action, section 145 of the DGCL provides that
a corporation may indemnify directors, officers and other persons as described
above, except if such person has been adjudged to be liable to the corporation,
unless the court in which such action or suit was brought determines in view of
all of the circumstances of the case that such person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.

The Certificate of Incorporation and Article V of the By-Laws provide for
the mandatory indemnification of directors, officers, employees or agents of the
Company to the full extent permitted by the DGCL. The By-Laws also contain a
nonexclusivity clause which provides in substance that the indemnification
rights under

II-1
<PAGE> 87

the Amended and Restated By-Laws shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under any
agreement with the Company, any By-Law or otherwise.

The DGCL permits and Article V of the By-Laws authorizes the Company to
purchase and maintain insurance on behalf of any director, officer, employee or
agent of the Company against any liability asserted against or incurred by them
in such capacity or arising out of their status as such whether or not the
Company would have the power to indemnify such director, officer, employee or
agent against such liability under the applicable provisions of the DGCL, the
Certificate of Incorporation or the By-Laws.

The general effect of the foregoing provisions is to reduce the
circumstances in which an officer or director may be required to bear the
economic burdens of the foregoing liabilities and expenses.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On April 30, 1996, the Company issued an aggregate of 4,447,252 shares of
Common Stock, 51,082.48 shares of Series A Preferred Stock and $21,570,570
principal amount of Series A Junior Subordinated Promissory Notes, for an
aggregate purchase price of $27,242,875 in cash and promissory notes to nine
purchasers, including four executive officers of the Company and five
institutional investors. The purchasers paid a purchase price of $0.13 per share
of Common Stock and $100 per share of Series A Preferred Stock, and paid face
value for the Series A Junior Subordinated Notes. These securities were issued
in reliance upon the exemption from registration provided by section 4(2) of the
Securities Act of 1933.

On April 30, 1996, the Company acquired all of the outstanding stock of
Racing Champions, Inc. and substantially all of the assets of Dods-Meyer, Ltd.
("DML"), and a subsidiary of the Company acquired substantially all of the
assets of Racing Champions Limited ("RCL"), Hosten Investment Limited ("HIL")
and Garnett Services, Inc. ("GSI"). In consideration for such stock and assets,
the Company and its subsidiary issued an aggregate principal amount of
$38,944,116 of Three Day Promissory Notes, an aggregate principal amount of
$19,526,667 of Minute Notes, an aggregate principal amount of $8,000,000 of
Senior Subordinated Promissory Notes, an aggregate principal amount of
$16,675,250 of Series A Junior Subordinated Promissory Notes, an aggregate
principal amount of $1,195,234 of Series B Junior Subordinated Promissory Notes,
an aggregate of 13,163.36 shares of Series A Preferred Stock and an aggregate of
1,145,996 shares of Common Stock, to RCL, HIL, GSI, DML, Robert Dods and Boyd
Meyer. These securities were issued in reliance upon the exemption from
registration provided by section 4(2) of the Securities Act of 1933.

On April 30, 1996, the Company issued 1,354,908 shares of Common Stock,
937,084 shares of Nonvoting Common Stock, 2,422.06 shares of Series A Preferred
Stock and 11,952.33 shares of Series B Preferred Stock to DML. DML paid a
purchase price of $0.13 per share of Common Stock, $0.13 per share of Nonvoting
Common Stock, $100 per share of Series A Preferred Stock and $100 per share of
Series B Preferred Stock. These securities were issued in reliance upon the
exemption from registration provided by section 4(2) of the Securities Act of
1933.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated By-Laws.
4.1* Amended and Restated Certificate of Incorporation (same as Exhibit 3.1).
4.2* Amended and Restated By-Laws (same as Exhibit 3.2).
5* Opinion of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
</TABLE>

II-2
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Asset and Stock Purchase Agreement, dated as of April 30, 1996, by and among the
Company, Racing Champions, Inc., Robert Dods, Boyd Meyer, Peter Chung, Dods-Meyer,
Ltd., Racing Champions Limited, Garnett Services, Inc., Hosten Investment Limited and
Banerjan Company Limited.
10.2 Stockholders Agreement, dated as of April 30, 1996, by and among the Company, Willis
Stein & Partners, L.P., Baird Capital Partners II Limited Partnership, BCP II
Affiliates Fund Limited Partnership, Nassau Capital Partners L.P., NAS Partners I
L.L.C., Robert Dods, Boyd Meyer, Peter Chung, Dods-Meyer, Ltd., Racing Champions
Limited, Garnett Services, Inc., Hosten Investment Limited, Curt Stoelting, John Olsen,
Peter Henseler and Kevin Camp.
10.3 Registration Agreement, dated as of April 30, 1996, by and among the Company, Willis
Stein & Partners, L.P., Baird Capital Partners II Limited Partnership, BCP II
Affiliates Fund Limited Partnership, Nassau Capital Partners L.P., NAS Partners I
L.L.C., Robert Dods, Boyd Meyer, Peter Chung, Dods-Meyer, Ltd., Racing Champions
Limited, Garnett Services, Inc., Hosten Investment Limited, Curt Stoelting, John Olsen,
Peter Henseler and Kevin Camp.
10.4 Executive Securities Agreement, dated as of April 30, 1996, by and among the Company,
Curt Stoelting, John Olsen, Peter Henseler, Kevin Camp, Willis Stein & Partners, L.P.,
Baird Capital Partners II Limited Partnership, BCP II Affiliates Fund Limited
Partnership, Nassau Capital Partners L.P., NAS Partners I L.L.C., Robert Dods, Boyd
Meyer and Peter Chung.
10.5 Securities Purchase Agreement, dated as of April 30, 1996, by and among the Company,
Willis Stein & Partners, L.P., Baird Capital Partners II Limited Partnership, BCP II
Affiliates Fund Limited Partnership, Nassau Capital Partners L.P., NAS Partners I
L.L.C., Curt Stoelting, John Olsen, Peter Henseler and Kevin Camp.
10.6 Amendment No. 1 to Securities Purchase Agreement, dated as of April 30, 1996, by and
among the Company, Willis Stein & Partners, L.P. and certain other purchasers of the
Company's stock.
10.7 Securities Purchase Agreement, dated as of April 30, 1996, by and between the Company
and Dods-Meyer, Ltd.
10.8 Promissory Note dated April 30, 1996 from Peter Henseler to the Company.
10.9 Executive Securities Pledge Agreement, dated as of April 30, 1996, between Peter
Henseler and the Company.
10.10 Credit Agreement, dated as of April 30, 1996, by and among the Company, Racing
Champions, Inc. and The First National Bank of Boston, as Agent.
10.11 Guarantee and Security Agreement, dated as of April 30, 1996, by and among the Company,
Racing Champions, Inc. and The First National Bank of Boston, as Agent.
10.12 Employment Agreement, dated as of April 30, 1996, by and between Racing Champions, Inc.
and Robert Dods.
10.13 Employment Agreement, dated as of April 30, 1996, by and between Racing Champions, Inc.
and Boyd Meyer.
10.14 Employment Agreement, dated as of April 30, 1996, by and between Banerjan Company
Limited and Peter Chung.
10.15 Employment Agreement, dated as of April 30, 1996, by and between Racing Champions, Inc.
and Curt Stoelting.
</TABLE>

II-3
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.16 Employment Agreement, dated as of April 30, 1996, by and between Racing Champions, Inc.
and Peter Henseler.
10.17 Employment Agreement, dated as of April 30, 1996, by and between Racing Champions, Inc.
and John Olsen.
10.18 Employment Agreement, dated as of April 30, 1996, by and between Racing Champions, Inc.
and Kevin Camp.
10.19 1996 Key Employees Stock Option Plan.
10.20 1996 Key Employees Performance Compensation Plan.
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young.
23.3* Consent of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c. (included in its
opinion filed as Exhibit 5 hereto).
24 Power of Attorney (included as part of the signature page hereof).
27 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

(b) FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<C> <C>
II Valuation and Qualifying Accounts
</TABLE>

ITEM 17. UNDERTAKINGS

The undersigned Registrant undertakes as follows:

(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriter to permit prompt delivery to
each purchaser.

(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(c) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(d) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offer therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 90

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Glen Ellyn, State of
Illinois, on the 26th day of February, 1997.

RACING CHAMPIONS CORPORATION

By /s/ ROBERT E. DODS
------------------------------------
Robert E. Dods, President

Each person whose signature appears below hereby appoints Robert E. Dods
and Curtis W. Stoelting, and each of them individually, his true and lawful
attorney-in-fact, with power to act with or without the other and with full
power of substitution and resubstitution, in any and all capacities, to sign any
or all amendments (including post-effective amendments or any abbreviated
Registration Statement, and any amendments thereto, filed pursuant to Rule
462(b) under the Securities Act of 1933) to the Registration Statement and file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT E. DODS President and Director February 26, 1997
- ----------------------------------------------------- (Principal Executive
Robert E. Dods Officer)

/s/ BOYD L. MEYER Executive Vice President February 26, 1997
- ----------------------------------------------------- and Director
Boyd L. Meyer

/s/ PETER K.K. CHUNG Director February 26, 1997
- -----------------------------------------------------
Peter K.K. Chung

/s/ SAMUEL B. GUREN Director February 26, 1997
- -----------------------------------------------------
Samuel B. Guren

/s/ AVY H. STEIN Director February 26, 1997
- -----------------------------------------------------
Avy H. Stein

/s/ DANIEL M. GILL Vice President, Assistant February 26, 1997
- ----------------------------------------------------- Secretary and Director
Daniel M. Gill

/s/ CURTIS W. STOELTING Vice President-Finance and February 26, 1997
- ----------------------------------------------------- Operations and Secretary
Curtis W. Stoelting (Principal Accounting
Officer and Principal
Financial Officer)
</TABLE>

II-5
<PAGE> 91

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Racing Champions Corporation and Subsidiaries and the
Shareholders of Racing Champions, Inc. and Dods-Meyer, Ltd.:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Racing Champions Corporation and
Subsidiaries and the combined financial statements of Racing Champions, Inc. and
Dods-Meyer, Ltd. included in this Registration Statement and issued our reports
thereon dated February 15, 1997. Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule of
Valuation and Qualifying Accounts is presented for purposes of complying with
the Securities and Exchange Commissions rules and is not a part of the basic
financial statements. This schedule has been subject to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 15, 1997
<PAGE> 92

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(FOR EACH INCOME STATEMENT PRESENTED)

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT --------------------------- BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO END OF
DESCRIPTION PERIOD EXPENSE OTHER ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowances deducted from related accounts
receivable balance sheet accounts of:
Racing Champions, Inc. and Dods-Meyer,
Ltd.
Year-ended December 31, 1994........... $240,000 $ -- $-- $ -- $240,000
Year-ended December 31, 1995........... 240,000 -- -- 40,000 200,000
Four months ended April 30, 1996....... 200,000 57,000 -- -- 257,000
Racing Champions Corporation
Eight months ended December 31, 1996... 257,000 43,000 -- -- 300,000
</TABLE>
<PAGE> 93

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation
3.2* Amended and Restated By-Laws.
4.1* Amended and Restated Certificate of Incorporation (same as
Exhibit 3.1).
4.2* Amended and Restated By-Laws (same as Exhibit 3.2).
5* Opinion of Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, s.c.
10.1 Asset and Stock Purchase Agreement, dated as of April 30,
1996, by and among the Company, Racing Champions, Inc.,
Robert Dods, Boyd Meyer, Peter Chung, Dods-Meyer, Ltd.,
Racing Champions Limited, Garnett Services, Inc., Hosten
Investment Limited and Banerjan Company Limited.
10.2 Stockholders Agreement, dated as of April 30, 1996, by and
among the Company, Willis Stein & Partners, L.P., Baird
Capital Partners II Limited Partnership, BCP II Affiliates
Fund Limited Partnership, Nassau Capital Partners L.P., NAS
Partners I L.L.C., Robert Dods, Boyd Meyer, Peter Chung,
Dods-Meyer, Ltd., Racing Champions Limited, Garnett
Services, Inc., Hosten Investment Limited, Curt Stoelting,
John Olsen, Peter Henseler and Kevin Camp.
10.3 Registration Agreement, dated as of April 30, 1996, by and
among the Company, Willis Stein & Partners, L.P., Baird
Capital Partners II Limited Partnership, BCP II Affiliates
Fund Limited Partnership, Nassau Capital Partners L.P., NAS
Partners I L.L.C., Robert Dods, Boyd Meyer, Peter Chung,
Dods-Meyer, Ltd., Racing Champions Limited, Garnett
Services, Inc., Hosten Investment Limited, Curt Stoelting,
John Olsen, Peter Henseler and Kevin Camp.
10.4 Executive Securities Agreement, dated as of April 30, 1996,
by and among the Company, Curt Stoelting, John Olsen, Peter
Henseler, Kevin Camp, Willis Stein & Partners, L.P., Baird
Capital Partners II Limited Partnership, BCP II Affiliates
Fund Limited Partnership, Nassau Capital Partners L.P., NAS
Partners I L.L.C., Robert Dods, Boyd Meyer and Peter Chung.
10.5 Securities Purchase Agreement, dated as of April 30, 1996,
by and among the Company, Willis Stein & Partners, L.P.,
Baird Capital Partners II Limited Partnership, BCP II
Affiliates Fund Limited Partnership, Nassau Capital Partners
L.P., NAS Partners I L.L.C., Curt Stoelting, John Olsen,
Peter Henseler and Kevin Camp.
10.6 Amendment No. 1 to Securities Purchase Agreement, dated as
of April 30, 1996, by and among the Company, Willis Stein &
Partners, L.P. and certain other purchasers of the Company's
stock.
10.7 Securities Purchase Agreement, dated as of April 30, 1996,
by and between the Company and Dods-Meyer, Ltd.
10.8 Promissory Note dated April 30, 1996 from Peter Henseler to
the Company.
10.9 Executive Securities Pledge Agreement, dated as of April 30,
1996, between Peter Henseler and the Company.
10.10 Credit Agreement, dated as of April 30, 1996, by and among
the Company, Racing Champions, Inc. and The First National
Bank of Boston, as Agent.
10.11 Guarantee and Security Agreement, dated as of April 30,
1996, by and among the Company, Racing Champions, Inc. and
The First National Bank of Boston, as Agent.
10.12 Employment Agreement, dated as of April 30, 1996, by and
between Racing Champions, Inc. and Robert Dods.
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.13 Employment Agreement, dated as of April 30, 1996, by and
between Racing Champions, Inc. and Boyd Meyer.
10.14 Employment Agreement, dated as of April 30, 1996, by and
between Banerjan Company Limited and Peter Chung.
10.15 Employment Agreement, dated as of April 30, 1996, by and
between Racing Champions, Inc. and Curt Stoelting.
10.16 Employment Agreement, dated as of April 30, 1996, by and
between Racing Champions, Inc. and Peter Henseler.
10.17 Employment Agreement, dated as of April 30, 1996, by and
between Racing Champions, Inc. and John Olsen.
10.18 Employment Agreement, dated as of April 30, 1996, by and
between Racing Champions, Inc. and Kevin Camp.
10.19 1996 Key Employees Stock Option Plan.
10.20 1996 Key Employees Performance Compensation Plan.
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young.
23.3* Consent of Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, s.c. (included in its opinion filed as Exhibit 5
hereto).
24 Power of Attorney (included as part of the signature page
hereof).
27 Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

<PAGE> 1
EXHIBIT 10.1

ASSET AND STOCK PURCHASE AGREEMENT

BY AND AMONG

RACING CHAMPIONS, INC.,

DODS-MEYER, LTD.,

RACING CHAMPIONS LIMITED,

GARNETT SERVICES, INC.,

HOSTEN INVESTMENT LIMITED,

ROBERT DODS,

BOYD MEYER,

PETER CHUNG,

COLLECTIBLE CHAMPIONS, INC.

AND

BANERJAN COMPANY LIMITED

APRIL 30, 1996
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C> <C>
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

</TABLE>

- i -
<PAGE> 3

<TABLE>
<S> <C> <C>
(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
</TABLE>

- ii -
<PAGE> 4

<TABLE>
<S> <C> <C>
(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
</TABLE>

- iii -
<PAGE> 5

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"), DODS-MEYER, LTD., an Illinois corporation ("DM"), RACING CHAMPIONS
LIMITED, a Hong Kong corporation ("RCL"), GARNETT 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"), Robert Dods ("Dods"), Boyd Meyer ("Meyer"), Peter Chung ("Chung,"
and collectively with Dods and Meyer, 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
<PAGE> 6

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,

- 2 -
<PAGE> 7

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 Willis Stein & 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.

- 3 -
<PAGE> 8

(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) "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino
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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<PAGE> 9

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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<PAGE> 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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<PAGE> 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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<PAGE> 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.

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<PAGE> 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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<PAGE> 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.

(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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<PAGE> 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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<PAGE> 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 Kirkland & Ellis 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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<PAGE> 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 Chung.

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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<PAGE> 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 Hart-Scott-Rodino 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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<PAGE> 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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<PAGE> 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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<PAGE> 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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<PAGE> 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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<PAGE> 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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<PAGE> 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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<PAGE> 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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<PAGE> 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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<PAGE> 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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<PAGE> 28

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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<PAGE> 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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<PAGE> 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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<PAGE> 31

(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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<PAGE> 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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<PAGE> 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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<PAGE> 34

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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<PAGE> 35

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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<PAGE> 36

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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<PAGE> 37

(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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<PAGE> 38

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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<PAGE> 39

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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<PAGE> 40

(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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<PAGE> 41

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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<PAGE> 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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<PAGE> 43

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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<PAGE> 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 bill for
real or personal property taxes relating

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<PAGE> 45

to the Purchased Assets, part or all of which are attributable to the
Post-Closing Tax Period, and shall promptly deliver such bill to the
appropriate Buyer who shall pay the same to the appropriate taxing
authority, provided that if such bill 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
bill 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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<PAGE> 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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<PAGE> 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

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<PAGE> 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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<PAGE> 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.
800 Roosevelt Road
Building C
Suite 320
Glen Ellyn, IL 60137
Fax: 708-790-9474
Attn: President

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<PAGE> 50

with a copy to:

Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
1000 North Water Street, Suite 2100
Milwaukee, WI 53202
Fax: 414-298-8097
Attn: Michael T. Pepke

If to the Buyers:

c/o Collectible Champions, Inc.
800 Roosevelt Road
Building C
Suite 320
Glen Ellyn, IL 60137
Fax: 708-790-9474
Attn: President

with a copy to:

Willis, Stein & Partners, L.P.
227 West Monroe Street
Suite 4300
Chicago, IL 60606
Fax: 312-422-2424
Attn: Avy H. Stein
Daniel Gill

with a copy to:

Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Fax: 312-861-2200
Attn: John A. Weissenbach
Sanford E. 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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<PAGE> 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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<PAGE> 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

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<PAGE> 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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<PAGE> 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 Chung 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."

* * * * *

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<PAGE> 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/ Daniel M. Gill
-------------------
Its
-------------------

BANERJAN COMPANY LIMITED

BY /s/ Avy H. Stein
-------------------
Its
-------------------

RACING CHAMPIONS, INC.

BY /s/ Robert E. Dods
-------------------
Its
-------------------

DODS-MEYER, LTD.

BY /s/ Boyd L. Meyer
-------------------
Its
-------------------

RACING CHAMPIONS LIMITED

BY /s/ Peter K. K. Chung
---------------------
Its
---------------------
<PAGE> 56

[CONTINUATION OF SIGNATURE PAGE TO ASSET AND STOCK PURCHASE AGREEMENT]

GARNETT SERVICES, INC.

BY /s/ Peter K. K. Chung
---------------------
Its
---------------------

HOSTEN INVESTMENT LIMITED

BY /s/ Peter K. K. Chung
---------------------
Its
---------------------

/s/ Robert E. Dods
------------------
Robert Dods

/s/ Boyd L. Meyer
------------------
Boyd Meyer

/s/ Peter K.K. Chung
--------------------
Peter Chung

<PAGE> 1
EXHIBIT 10.2

STOCKHOLDERS AGREEMENT

THIS STOCKHOLDERS AGREEMENT, dated as of April 30, 1996 (this
"Agreement"), is made by and among Collectible Champions, Inc., a Delaware
corporation (the "Company"), Willis Stein & Partners, L.P., a Delaware limited
partnership ("Willis Stein"), Baird Capital Partners II Limited Partnership, a
Wisconsin Limited Partnership ("Baird"), BCP II Affiliates Fund Limited
Partnership, a Wisconsin limited partnership ("BCP II"), Nassau Capital
Partners L.P., a Delaware limited partnership ("Nassau"), NAS Partners I
L.L.C., a Delaware limited liability company ("NAS"), Robert Dods ("Dods"),
Boyd Meyer ("Meyer"), Peter Chung ("Chung"), Dods-Meyer, Ltd., an Illinois
corporation ("DM"), Racing Champions Limited, a Hong Kong corporation ("RCL"),
Garnett Services, Inc., a British Virgin Island corporation ("GSI"), Hosten
Investment Limited, a Hong Kong corporation ("HIL"), Curt Stoelting
("Stoelting"), John Olsen ("Olsen"), Peter Henseler ("Henseler") and Kevin Camp
("Camp"). Willis Stein, Baird, BCP II, Nassau and NAS are referred to herein
collectively as the "Investors." Dods, Meyer, Chung, DM, RCL, GSI and HIL are
referred to herein collectively as the "Founders." Stoelting, Olsen, Henseler
and Camp are referred to herein collectively as the "Executives." The
Investors, the Founders and the Executives are referred to herein collectively
as the "Stockholders," and each individually as a "Stockholder." Certain
capitalized terms used herein are defined in Section 10 below.

WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purposes, among others, of (i) establishing the composition
of the Company's board of directors (the "Board"), (ii) assuring continuity in
the management and ownership of the Company and (iii) limiting the manner and
terms by which the Stockholder Shares may be transferred.

NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:

1. Board of Directors and Other Matters.

(a) From and after the date hereof and until the provisions of this
Section 1 cease to be effective, each holder of Stockholder Shares shall vote
all of the voting securities of the Company over which such Person has voting
control and shall take all other necessary or desirable actions within his or
its control (whether in his or its capacity as a stockholder, director, member
of a board committee or officer of the Company or otherwise, and including,
without limitation, attendance at meetings in person or by proxy for purposes
of obtaining a quorum and execution of written consents in lieu of meetings),
and the Company shall take all necessary or desirable actions within its
control (including, without limitation, calling special board and stockholder
meetings), so that:

(i) the authorized number of directors on the Board shall be
established at seven directors;

(ii) the following persons shall be elected to the Board at each
election of directors:
<PAGE> 2
(A) up to four representatives designated by the holders of a
majority of the Investor Shares from time to time (the "Investor
Directors"), with Avy H. Stein, Daniel Gill and Samuel Guren serving
as the initial Investor Directors;

(B) one representative designated by Dods (the "Dods
Director"), with Dods serving as the initial Dods Director, for so
long as Dods and his Permitted Transferees collectively hold directly
or indirectly more than 25% of the Stockholder Shares issued to DM
pursuant to the DM Securities Purchase Agreement, after which time
such position shall be filled by the holders of a majority of the
Investor Shares from time to time (in which case such director shall
be deemed to be an Investor Director and shall no longer be deemed to
be the Dods Director);

(C) one representative designated by Meyer (the "Meyer
Director"), with Meyer serving as the initial Meyer Director, for so
long as Meyer and his Permitted Transferees collectively hold
directly or indirectly more than 25% of the Stockholder Shares issued
to DM pursuant to the DM Securities Purchase Agreement, after which
time such position shall be filled by the holders of a majority of
the Investor Shares from time to time (in which case such director
shall be deemed to be an Investor Director and shall no longer be
deemed to be the Meyer Director); and

(D) one representative designated by Chung (the "Chung
Director"), with Chung serving as the initial Chung Director, for so
long as Chung and his Permitted Transferees collectively hold
directly or indirectly a majority of the Stockholder Shares issued to
RCL, GSI and HIL pursuant to the Acquisition Agreement, after which
time such position shall be filled by the holders of a majority of
the Investor Shares from time to time (in which case such director
shall be deemed to be an Investor Director and shall no longer be
deemed to be the Chung Director);

(iii) the composition of the board of directors of each of the
Company's Subsidiaries (each, a "Sub Board") shall be the same as that of
the Board;

(iv) any committees of the Board or a Sub Board shall be created
only upon the approval of at least a majority of the Board;

(v) any director designated hereunder shall be removed from the
Board (and thereupon from all Sub Boards and all committees of the
Board or any Sub Board) (with or without cause) at the written request of
the Person or Persons entitled to designate such director pursuant to (ii)
above, but only upon such written request and under no other circumstances;
and

(vi) in the event that any director designated hereunder for any
reason ceases to serve as a member of the Board or a Sub Board or any
committee thereof during

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<PAGE> 3

such director's term of office, the resulting vacancy on the Board or
such Sub Board or committee shall be filled by a representative designated
by the Person or Persons entitled to designate such director pursuant to
subparagraph (ii) above.

(b) The Company shall give each of Nassau and Baird (so long as such
Stockholder holds any Stockholder Shares) notice of each meeting of its board
of directors and each committee thereof at the same time and in the same manner
as notice is given to the directors, and the Company shall permit a
representative of each such Person to attend as an observer all meetings of its
board of directors and all committees thereof. Each representative shall be
entitled to receive all written materials and other information (including,
without limitation, copies of meeting minutes) given to directors in connection
with such meetings at the same time such materials and information are given to
the directors. If the Company proposes to take any action by written consent
in lieu of a meeting of its board of directors or of any committee thereof, the
Company shall give notice thereof to each such Person at the same time and in
the same manner as notice is given to the directors.

(c) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director named hereunder in connection with attending the
meetings of the Board, any Sub Board and any committee thereof.

(d) The provisions of this Section 1 will terminate upon the
completion of a Qualified Public Offering or a Sale of the Company.

(e) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this Section 1, the election of a person
to such directorship shall be accomplished in accordance with the Company's
bylaws and applicable law.

2. Restrictions on Transfer of Stockholder Shares.

(a) Participation Rights. At least 40 days prior to any sale,
transfer, assignment, pledge or other disposal (a "Transfer") of any Willis
Stein Shares of a certain class (other than (i) pursuant to a Public Sale or
(ii) a Transfer pursuant to Section 2(c) or Section 3), the transferring
Stockholder (the "Willis Stein Transferor") shall deliver a written notice (the
"Sale Notice") to the Company and each of the other Stockholders (the "Other
Stockholders"), specifying in reasonable detail the number of such class of
Stockholder Shares to be transferred, the identity of the prospective
transferee(s) and the terms and conditions of the Transfer, including the price
per Stockholder Share of such class. The Other Stockholders may elect to
participate in the contemplated Transfer by delivering written notice to the
Willis Stein Transferor within 30 days after delivery of the Sale Notice;
provided that if the Willis Stein Transferor intends to Transfer a strip of two
or more classes of Stockholder Shares and any Other Stockholder (including his
or its Permitted Transferees) holds all such classes of Stockholder Shares,
such Other Stockholder may only participate in such Transfer if such Other
Stockholder Transfers all such classes of Stockholder Shares in accordance with
the formula set forth in the following sentence. With respect to each class

- 3 -
<PAGE> 4

of Stockholder Shares to be Transferred, if any Other Stockholders have elected
to participate in such Transfer, the Willis Stein Transferor and each
participating Other Stockholder shall be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of Stockholder
Shares of such class equal to the product of (i) the quotient determined by
dividing (1) the number of Stockholder Shares of such class held by such Person
by (2) the aggregate number of Stockholder Shares of such class owned by the
Willis Stein Transferor and the Other Stockholders participating in such sale
and (ii) the aggregate number of Stockholder Shares of such class to be sold in
the contemplated Transfer. For purposes of the preceding sentence, (I) Common
Stock issuable upon exercise of employee stock options which have not vested
and become exercisable shall not be considered to be Stockholder Shares and
(II) all Stockholder Shares held by any Permitted Transferee of any Other
Stockholder shall be deemed held by such Other Stockholder himself or itself.
For purposes of this Agreement, references to Stockholder Shares of a certain
"class" means Stockholder Shares which are Notes, Preferred Stock or Common
Stock; provided that Voting Common and Nonvoting Common will be deemed to be of
the same "class;" provided further that Series B Subordinated Promissory Notes
will be deemed to be of the same class as Preferred Stock (rather than Series A
Subordinated Promissory Notes).

(b) First Refusal Rights. At least 40 days prior to any Transfer of
Minority Shares of a certain class (other than (i) pursuant to a Public Sale,
(ii) a Transfer to the Company, or (iii) a Transfer pursuant to Section 2(a),
Section 2(c) or Section 3), the Stockholder making such Transfer (the "Minority
Transferor") shall deliver a written notice (the "Transfer Notice") to the
Company and the holder(s) of Willis Stein Shares that it desires to Transfer
Stockholder Shares of such class, specifying in reasonable detail the identity
of the prospective transferee(s), the number to be transferred and the terms
and conditions of the Transfer, including the proposed price per Stockholder
Share of such class. The Company may elect to purchase all or any portion of
the Minority Shares to be transferred, upon the same terms and conditions as
those set forth in the Transfer Notice, by delivering a written notice of such
election to the Minority Transferor within 15 days after the Transfer Notice
has been given to the Company. If for any reason the Company does not elect to
purchase all of the Minority Shares to be transferred, the holders of Willis
Stein Shares shall be entitled to purchase the Minority Shares which the
Company has not elected to purchase (the "Available Shares"), upon the same
terms and conditions as those set forth in the Transfer Notice, by giving
written notice of such election to the Minority Transferor within 30 days after
the Transfer Notice has been given to holder(s) of Willis Stein Shares. If
more than one holder of Willis Stein Shares elects to purchase the Available
Shares, the Available Shares will be allocated among such electing holders pro
rata according to the number of Common Stockholder Shares on a Fully-Diluted
Basis owned by each such electing holder. The closing of the purchase of any
Minority Shares pursuant to this Section 2(b) shall take place within 60 days
after the date on which the parties to such purchase have been finally
determined pursuant to this Section 2(b). Notwithstanding the foregoing, if
the Company and the holders of Willis Stein Shares do not elect to purchase,
collectively, all of the Stockholder Shares of a class specified in the
Transfer Notice, then the Minority Transferor may transfer all of the
Stockholder Shares of such class specified in the Transfer Notice to the
transferee(s) identified in the Transfer Notice for (i) an amount of
consideration (whether in cash and/or property) which has a fair market value
no less than the price specified in

- 4 -
<PAGE> 5

the Transfer Notice and (ii) other terms no more favorable to the transferee(s)
thereof than specified in the Transfer Notice, during the 90-day period
immediately following the date on which the Transfer Notice has been given to
the Company and the holder(s) of Willis Stein Shares. Any Minority Shares not
transferred within such 90-day period will be subject to the provisions of this
Section 2(b) upon subsequent transfer.

(c) Permitted Transfers. The restrictions contained in this Section
2 shall not apply with respect to any Transfer of Stockholder Shares by any
Stockholder (i) in the case of a Stockholder who is an individual, pursuant to
applicable laws of descent and distribution, or among such individual's Family
Group, (ii) in the case of a Stockholder which is an entity, among such
entity's Affiliates, and (iii) in the case of each Investor, up to ten percent
of each class of Stockholder Shares held by such Investor on the date hereof,
to employees of, consultants to and advisors to (or any entity formed for their
benefit) such Investor or any of its Affiliates; provided that the restrictions
contained in this Section 2 shall continue to be applicable to the Stockholder
Shares after any of the foregoing Transfers, and provided further that the
transferees of such Stockholder Shares shall have agreed in writing to be bound
by the provisions of this Agreement which affect the Stockholder Shares so
transferred. All transferees permitted under this Section 2(c) are
collectively referred to herein as "Permitted Transferees." Each Permitted
Transferee shall be deemed a Stockholder for purposes of this Agreement.

(d) Termination of Restrictions. The restrictions set forth in this
Section 2 shall continue with respect to each Stockholder Share until the
earlier of (i) the transfer of such Stockholder Share in a Public Sale, or (ii)
the consummation of a Sale of the Company or a Qualified Public Offering.

3. Sale of the Company.

(a) If the Board and the holders of a majority of the Investor Shares
approve a Sale of the Company (the "Approved Sale"), all holders of Stockholder
Shares will consent to and not impede such Approved Sale. If the Approved Sale
is structured as a (i) merger or consolidation, each holder of Stockholder
Shares shall waive any dissenters rights, appraisal rights or similar rights in
connection with such merger or consolidation or (ii) sale of stock, each holder
of Stockholder Shares will agree to sell all of his or its Stockholder Shares
on the terms and conditions approved by the Board and the holders of a majority
of the Investor Shares. In furtherance of the foregoing, (A) each holder of
Stockholder Shares will take all necessary or desirable actions reasonably
requested by the Board in connection with the consummation of the Approved Sale
of the Company and (B) each holder of Stockholder Shares will make the same
representations, warranties and indemnities regarding the Company and its
business (the "Company Reps"). In the event the proceeds to the holders of
Stockholder Shares as a group are reduced (a "Loss") due to a claim under the
Company Reps by the purchaser or purchasers in such Approved Sale, each holder
of Stockholder Shares will be liable for a pro rata portion of such Loss (based
upon the net amount of proceeds received by the holders of Stockholder Shares
in connection with such Approved Sale),

- 5 -
<PAGE> 6

up to a maximum equal to the net amount of proceeds received by such holder of
Stockholder Shares in connection with such Approved Sale.

(b) The obligations of the holders of Stockholder Shares with respect
to the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of each class of Stockholder Shares shall receive in exchange for the
Stockholder Shares of such class held by such Person the same portion of the
aggregate consideration from such Approved Sale that such Stockholder would
have received if such consideration had been distributed by the Company in a
complete liquidation pursuant to the rights and preferences set forth in the
Company's certificate of incorporation as in effect immediately prior to such
Approved Sale; (ii) if any holders of any class of Stockholder Shares are given
an option as to the form and amount of consideration to be received, all
holders of such class will be given the same option; (iii) with respect to any
consideration (the "Additional Consideration") to be paid to any Stockholder
and/or any of its Affiliates with respect to, arising out of, or in connection
with the Approved Sale which is in addition to the consideration paid to such
Person as payment for, or distribution on, his or its Stockholder Shares
(including, without limitation, consulting fees, management fees,
noncompetition payments and transition service fees, but not including bona
fide employee wages and similar bona fide payments), each holder of Stockholder
Shares shall receive a portion of such Additional Consideration equal to the
amount that such Stockholder would have received if such Additional
Consideration had been distributed by the Company in a complete liquidation
pursuant to the rights and preferences set forth in the Company's certificate
of incorporation as in effect immediately prior to such Approved Sale; and (iv)
each holder of then currently exercisable rights to acquire shares of any class
of Stockholder Shares (including the Vested Options) will be given an
opportunity to exercise such rights prior to the consummation of the Approved
Sale and participate in such sale as holders of such class of Stockholder
Shares.

(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule
then in effect) promulgated by the Securities Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Stockholder Shares will,
at the request of the Company, appoint a purchaser representative (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Stockholder Shares appoints a purchaser representative designated by the
Company, the Company will pay the fees of such purchaser representative, but if
any holder of Stockholder Shares declines to appoint the purchaser
representative designated by the Company such holder will appoint another
purchaser representative (reasonably acceptable to the Company), and such
holder will be responsible for the fees of the purchaser representative so
appointed.

(d) The Company will pay the costs of any sale of Stockholder Shares
pursuant to an Approved Sale to the extent such costs are incurred for the
benefit of all holders of Stockholder Shares and are not otherwise paid by the
acquiring party, including the reasonable fees and disbursements of one counsel
chosen by the holders of a majority of the Stockholder Shares. Costs

- 6 -
<PAGE> 7

incurred by any holder of Stockholder Shares on its own behalf will not be
considered costs of the transaction hereunder.

(e) The provisions of this Section 3 will terminate upon the
completion of a Qualified Public Offering or a Sale of the Company.

4. Limited Preemptive Rights.

(a) Generally. If the Company authorizes the issuance or sale of any
of its equity securities or any securities containing options or rights to
acquire any equity securities (other than as a dividend on the outstanding
Common Stock or pursuant to exercise, conversion or exchange of securities or
rights previously issued by the Company subject to this Section 4) to any
Investor or any of its Affiliates, the Company shall first offer to sell to
each holder of Stockholder Shares a portion of such stock or securities equal
to the quotient determined by dividing (1) the number of Common Stockholder
Shares on a Fully-Diluted Basis then held by such holder by (2) the total
number of Common Stockholder Shares on a Fully-Diluted Basis then held by all
holders of Stockholder Shares. Each holder of Stockholder Shares shall be
entitled to purchase such stock or securities at the most favorable price and
on the most favorable terms as such stock or securities are to be offered to
any other Persons; provided that if all Persons entitled to purchase or receive
such stock or securities are required to also purchase other securities of the
Company, the holders of Stockholder Shares exercising their rights pursuant to
this Section shall also be required to purchase the same strip of securities
(on the same terms and conditions) that such other Persons are required to
purchase. The purchase price for all stock and securities offered to the
holders of Stockholder Shares shall be payable in cash.

(b) Notice. In order to exercise its purchase rights hereunder, a
holder of Stockholder Shares must within 15 days after receipt of written
notice from the Company describing in reasonable detail the stock or securities
being offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder. If all of the stock and securities offered to the holders
of Stockholder Shares is not fully subscribed by such holders, the remaining
stock and securities shall be reoffered by the Company to the holders
purchasing their full allotment upon the terms set forth in this Section,
except that such holders must exercise their purchase rights within five days
after receipt of such reoffer.

(c) Sale to the Investors or their Affiliates. Upon the expiration
of the offering periods described above, the Company shall be entitled to sell
such stock or securities which the holders of Stockholder Shares have not
elected to purchase during the 180 days following such expiration on terms and
conditions no more favorable to the Investors or their Affiliates than those
offered to such holders. Any stock or securities offered or sold by the
Company after such 180-day period must be reoffered to the holders of
Stockholder Shares pursuant to the terms of this Section.

- 7 -
<PAGE> 8

(d) Termination. The provisions of this Section 4 will terminate
upon the completion of a Qualified Public Offering or a Sale of the Company.

5. Initial Public Offering. In the event that the Board and the
holders of a majority of the Investor Shares approve an initial public offering
and sale of the Company's equity securities (a "Public Offering") pursuant to
an effective registration statement under the Securities Act, the holders of
Stockholder Shares shall take all necessary or desirable actions in connection
with the consummation of the Public Offering. In the event that such Public
Offering is an underwritten offering and the managing underwriters advise the
Company in writing that in their opinion the Company's capital stock structure
would adversely affect the marketability of the offering, each holder of
Stockholder Shares shall consent to and vote for a recapitalization,
reorganization and/or exchange of the Stockholder Shares into securities that
the managing underwriters, the Board and holders of a majority of the shares of
Investor Shares find acceptable and shall take all necessary or desirable
actions in connection with the consummation of the recapitalization,
reorganization and/or exchange; provided that the resulting securities reflect
and are consistent with the rights and preferences set forth in the Company's
Certificate of Incorporation as in effect immediately prior to such Public
Offering.

6. Financial Statements and Other Information. The Company shall,
during such periods of time as any Stockholder may request (so long as such
Stockholder holds any Stockholder Shares), deliver to such Stockholder:

(a) as soon as available but in any event within 45 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and consolidating
and consolidated balance sheets of the Company and its Subsidiaries as of the
end of such monthly period, setting forth in each case comparisons to the
annual budget and to the corresponding period in the preceding fiscal year, and
all such statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments;

(b) within 90 days after the end of each fiscal year, consolidating
and consolidated statements of income and cash flows of the Company and its
Subsidiaries for such fiscal year, and consolidating and consolidated balance
sheets of the Company and its Subsidiaries as of the end of such fiscal year,
setting forth in each case comparisons to the annual budget and to the
preceding fiscal year, all prepared in accordance with generally accepted
accounting principles, consistently applied, and accompanied by (a) with
respect to the consolidated portions of such statements, an opinion of an
independent accounting firm of recognized national standing, and (b) a copy of
such firm's annual management letter to the board of directors;

(c) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations or financial

- 8 -
<PAGE> 9

affairs given to the Company by its independent accountants (and not otherwise
contained in other materials provided hereunder);

(d) at least 30 days prior to the beginning of each fiscal year, an
annual budget prepared on a monthly basis for the Company and its Subsidiaries
for such fiscal year (displaying anticipated statements of income and cash
flows and balance sheets), and promptly upon preparation thereof any other
significant budgets prepared by the Company and any revisions of such annual or
other budgets, and within 30 days after any monthly period in which there is a
material adverse deviation from the annual budget, an Officer's Certificate
explaining the deviation and what actions the Company has taken and proposes to
take with respect thereto;

(e) promptly (but in any event within five business days) after the
discovery or receipt of notice of any default under any material agreement to
which it or any of its Subsidiaries is a party or any other material adverse
event or circumstance affecting the Company or any Subsidiary (including the
filing of any material litigation against the Company or any Subsidiary or the
existence of any dispute with any Person which involves a reasonable likelihood
of such litigation being commenced), an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;

(f) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or any of its officers or directors file with respect to the Company,
with the Securities and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press releases
and other statements made available generally by the Company to the public
concerning material developments in the Company's businesses; and

(g) with reasonable promptness, such other information and financial
data concerning the Company and its Subsidiaries as any Person entitled to
receive information under this Section 6 may reasonably request.

Notwithstanding the foregoing, the provisions of this Section 6 shall cease to
be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Person otherwise entitled to
receive information pursuant to this Section 6 all reports and other materials
filed by the Company with the Securities and Exchange Commission pursuant to
the periodic reporting requirements of the Securities Exchange Act.

7. Inspection Rights. The Company shall permit any representatives
designated by any Stockholder (so long as such Stockholder holds any
Stockholder Shares), upon reasonable notice and during normal business hours,
to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and

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<PAGE> 10

its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries.

8. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in
substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF APRIL 30, 1996 AND AS AMENDED AND MODIFIED FROM TIME TO TIME,
BETWEEN THE ISSUER (THE "COMPANY") AND CERTAIN INVESTORS, 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."

The Company shall imprint such legend on certificates evidencing Stockholder
Shares. The legend set forth above shall be removed from the certificates
evidencing any shares which cease to be Stockholder Shares in accordance with
the definition thereof in Section 10 hereof. In addition, upon consummation of
a Qualified Public Offering, the legend set forth above shall be removed from
all the certificates evidencing Stockholder Shares.

9. Transfer. Prior to transferring any Stockholder Shares (other than
in a Public Sale or subsequent to a Qualified Public Offering) to any person or
entity, the transferring Stockholder shall cause the prospective transferee to
execute and deliver to the Company and the other Stockholders a counterpart of
this Agreement.

10. Definitions.

"Acquisition Agreement" means the Asset and Stock Purchase Agreement, dated
as of the date hereof, by and among the Company, Racing Champions, Inc., the
Founders and Banerjan Company Limited.

"Affiliate" means, with respect to any Person, any other Person controlling,
controlled by or under common control with such Person and any partner of a
Person which is a partnership (so long as all distributions made by such
partnership are made pro rata among its partners based upon the economic
ownership of such partnership).

"Common Stock" means the Voting Common and the Nonvoting Common.

- 10 -
<PAGE> 11

"Common Stockholder Shares" means Stockholder Shares which are (i) Common
Stock, (ii) warrants, options or other rights to subscribe for or to acquire,
directly or indirectly, Common Stock, whether or not then exercisable or
convertible, and (iii) stock or other securities which are convertible into or
exchangeable for, directly or indirectly, Common Stock, whether or not then
convertible or exchangeable. As to any particular Common Stockholder Shares,
such shares shall cease to be Common Stockholder Shares when they have been
disposed of in a Public Sale or repurchased by the Company or any Subsidiary.

"DM Securities Purchase Agreement" means the Securities Purchase Agreement,
dated as of the date hereof, between the Company and DM.

"Family Group" means, with respect to an individual, such individual's
spouse and descendants (whether natural or adopted) and any trust solely for
the benefit of such individual and/or such individual's spouse and/or
descendants.

"Fully-Diluted Basis" includes, without duplication, (i) all shares of
Common Stock outstanding at the time of determination, (ii) all shares of
Common Stock issuable upon the exercise, conversion or exchange of all
warrants, options or other rights to subscribe for or to acquire, directly or
indirectly, Common Stock, whether or not then exercisable or convertible, and
(iii) all shares of Common Stock issuable upon the conversion or exchange of
all stock or other securities which are convertible into or exchangeable for,
directly or indirectly, Common Stock, whether or not then convertible or
exchangeable.

"Independent Third Party" means any Person who, immediately prior to the
contemplated transaction, does not own in excess of 15% of the Common Stock on
a Fully-Diluted Basis, who is not controlling, controlled by or under common
control with any such 15% owner of the Common Stock and who is not the spouse
or descendent (by birth or adoption) of any such 15% owner of the Common Stock.

"Investor Shares" means (i) the shares of Stock issued to the Investors
pursuant to the Securities Purchase Agreement and (ii) any shares of Stock
otherwise acquired by or issuable to the Investors, and (iii) all equity
securities issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i) and (ii) above by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. For purposes of this Agreement,
a Person shall be deemed to be a holder of Investor Shares whenever such Person
has the right to acquire such shares (upon conversion, exercise or exchange in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected. As to any particular Investor
Shares, such securities shall cease to be Investor Shares when they have been
sold in a Public Sale or repurchased by the Company or any Subsidiary of the
Company. References in this Agreement to "a majority of the Investor Shares"
shall be deemed to be references to a majority of the Investor Shares which are
Common Stockholder Shares (calculated on a Fully-Diluted Basis).

- 11 -
<PAGE> 12

"Minority Shares" means (i) the shares of Stock or Notes issued to Baird,
Nassau, NAS, and the Executives pursuant to the Securities Purchase Agreement,
(ii) the shares of Stock or Notes issued to the Founders pursuant to the
Acquisition Agreement, (iii) the shares of Stock issued to DM pursuant to the
Securities Purchase Agreement, dated as of the date hereof, by and between DM
and the Company, (iv) any shares of Stock or Notes otherwise acquired by or
issuable to Baird, Nassau, NAS, the Executives or the Founders, (v) all
securities issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i), (ii), (iii) and (iv) above by way of a
dividend or split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes
of this Agreement, a Person shall be deemed to be a holder of Minority Shares
whenever such Person has the right to acquire such shares (upon conversion,
exercise or exchange in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected. As to any
particular Minority Shares, such securities shall cease to be Minority Shares
when they have been sold in a Public Sale or Sale of the Company or repurchased
by Willis Stein, the Company, or any Subsidiary of the Company.

"Nonvoting Common" means the Company's Nonvoting Common Stock, par value
$.01 per share.

"Notes" means the Company's Series A Junior Subordinated Notes issued on the
date hereof and the Company's Series B Junior Subordinated Notes issued on the
date hereof.

"Officer's Certificate" means a certificate signed on behalf of the Company
by the Company's president or its chief financial officer, in his capacity as
such, stating that, to the best of such officer's knowledge, (i) the officer
signing such certificate has made or has caused to be made such investigations
as are necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) such certificate does not
misstate any material fact and does not omit to state any fact necessary to
make the certificate not misleading.

"Person" means any individual, partnership, corporation, limited liability
company, association, joint stock company, trust, joint venture, unincorporated
organization and any governmental entity or any department, agency or political
subdivision thereof.

"Preferred Stock" means the Company's Class A Preferred Stock, par value
$.01 per share and the Company's Class B Preferred Stock, par value $.01 per
share.

"Public Sale" means any sale of capital stock to the public pursuant to an
offering registered under the Securities Act, or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 or Rule
144A adopted under the Securities Act.

"Qualified Public Offering" means the sale in a firm commitment underwritten
public offering registered under the Securities Act of shares of Common Stock
to the public in which the aggregate offering price paid by the public is not
less than $20 million.

- 12 -
<PAGE> 13

"Sale of the Company" means the sale of the Company to an Independent Third
Party or group of Independent Third Parties pursuant to which such party or
parties acquire (i) capital stock of the Company possessing the voting power to
elect a majority of the Board (whether by merger, consolidation or sale or
transfer of the Company's capital stock) or (ii) all or substantially all of
the Company's assets determined on a consolidated basis.

"Securities Act" means the Securities Act of 1933, as amended.

"Securities Purchase Agreement" means the Securities Purchase Agreement,
dated as of the date hereof, by and among the Company, the Investors and the
Executives.

"Stock" means the Common Stock and the Preferred Stock.

"Stockholder Shares" means the Willis Stein Shares and the Minority Shares.

"Subsidiary" means, with respect to any Person, any corporation,
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 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 partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such partnership,
association or other business entity.

"Voting Common" means the Company's Common Stock, par value $.01 per share.

"Willis Stein Shares" means (i) the shares of Stock and Notes issued to
Willis Stein pursuant to the Securities Purchase Agreement, (ii) any shares of
Stock or Notes otherwise acquired by or issuable to Willis Stein, and (iii) all
securities issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i) and (ii) above by way of a dividend or
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, a
Person shall be deemed to be a holder of Willis Stein Shares whenever such
Person has the right to acquire such shares (upon conversion, exercise or
exchange in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected. As to any
particular Willis Stein Shares, such securities shall cease to be Willis Stein
Shares when they have been sold in a Public Sale or Sale of the Company or
repurchased by the Company or any Subsidiary of the Company.

- 13 -
<PAGE> 14

11. Representation and Agreement Regarding Stockholder Shares Issued
to GSI. Chung and GSI hereby represent and warrant, jointly and severally, to
the Company and each of the other Stockholders that Chung and members of his
immediate family , or a trust, the sole benefiaries of which are Chung and his
immediate family, are the sole beneficial owners of the Stockholder Shares
issued to GSI pursuant to the Purchase Agreement (the "GSI Shares"). To
effectuate the purposes of this Agreement, Chung and GSI each agrees with the
Company and each of the other Stockholders that it will take all steps
necessary to ensure that Chung and his immediate family family , or a trust,
the sole benefiaries of which are Chung and his immediate family, will continue
to be the sole beneficial owners of the GSI Shares, so long as such GSI Shares
are Stockholder Shares. Further, GSI agrees that, in the event of any breach
of any of the representations, warranties or covenants set forth in this
Section 11, the Company shall be entitled to repurchase all or any portion of
the GSI Shares from the holder thereof at a price not greater than the lesser
of (a) the fair market value of the GSI Shares so repurchased, as determined by
the Company's board of directors in good faith, or (b) the lowest value thereof
reflected in any direct or indirect transfer of interests in such GSI Shares by
GSI or the holder of any interest in GSI, also as determined by the Company's
board of directors in good faith. To the extent that at the time of any such
repurchase the Company is subject to any agreement prohibiting such a
repurchase for cash, the Company may repurchase such GSI Shares and pay the
purchase price thereof in promissory notes of the Company which are
subordinated to the prior payment in full of all of the Company's indebtedness
for borrowed money on terms satisfactory to the holders of such other
indebtedness, which note shall be repaid in three equal annual installments
commencing after repayment in full of all such indebtedness for borrowed money,
and shall bear interest at the Prime Rate as announced from time to time in the
U.S. edition of the Wall Street Journal. The Company may assign all or any
portion of its rights pursuant to this Section 11 to the Investors, in
proportion to their holdings of Common Stockholder Shares, and may exercise
such repurchase rights by written notice to the holder of the GSI Shares, and
at such holder's address, each as reflected on the Company's books. Each
certificate representing GSI Shares that are Stockholder Shares, and each
certificate issued in exchange for or upon the transfer of any GSI Shares that
are Stockholder Shares, shall bear a legend identifying such shares as GSI
Shares within the meaning of this Section 11.

12. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company and the holders of at
least a majority of the shares of Common Stock represented by Common
Stockholder Shares, calculated on a Fully-Diluted Basis; provided that no such
amendment or action which materially adversely affects any one holder of
Stockholder Shares, as such, vis-a-vis the other holders of Stockholder Shares,
as such, shall be effective against such holder of Stockholder Shares without
the prior written consent of such holder.

13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be

- 14 -
<PAGE> 15

ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.

14. Entire Agreement. Except as otherwise expressly set forth
herein, this agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.

15. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each holder of Stockholder Shares at the
address indicated on the books and records of the Company and to the Company at
the address indicated below:

Collectible Champions, Inc.
800 Roosevelt Road
Building C, Suite 320
Glen Ellyn, Illinois 60137
Attn: President

with copies to:

Willis Stein & Partners, L.P.
227 West Monroe Street
Suite 4300
Chicago, IL 60606
Fax: 312-422-2424
Attn: Avy H. Stein
Daniel Gill

and

Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Fax: 312-861-2200
Attn: John A. Weissenbach
Sanford E. Perl

- 15 -
<PAGE> 16

or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

16. Successors and Assigns; No Third Party Beneficiaries. Except as
otherwise expressly provided herein, this Agreement shall bind and inure to the
benefit of and be enforceable by the Company and its successors and assigns and
the Stockholders and any subsequent holders of Stockholder Shares and the
respective successors and assigns of each of them, so long as they hold
Stockholder Shares; provided that the rights set forth in Sections 6 and 7 are
not transferrable without the Company's prior written consent. Subject to the
preceding sentence, this Agreement shall not confer any rights or remedies upon
any Person other than the parties hereto and their respective successors and
assigns.

17. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.

18. Remedies. Any Person having rights under any provision of this
Agreement shall be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement, and
to exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.

19. Governing Law. The corporate law of Delaware will govern all
issues concerning the relative rights of the Company and its stockholders. All
other issues concerning this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Illinois.

20. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.

* * * * *

- 16 -
<PAGE> 17

IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.

COLLECTIBLE CHAMPIONS, INC.

By: /s/ Robert E. Dods
------------------------------------
Its: President
------------------------------------

WILLIS STEIN & PARTNERS, L.P.

By: Willis Stein & Partners, L.L.C.
Its: General Partner

By: /s/ Avy H. Stein
------------------------------

Its: Managing Director
-----------------------------

BAIRD CAPITAL PARTNERS II LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By: /s/ Samuel B. Guren
------------------------------
Its: Managing Director
-----------------------------

BCP II AFFILIATES FUND LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By: /s/ Samuel B. Guren
------------------------------
Its: Managing Director
-----------------------------

NASSAU CAPITAL PARTNERS L.P.

By: Nassau Capital L.L.C.
Its: General Partner

By: /s/ Johnathon Sweemar
------------------------------
Its: Member
-----------------------------

NAS PARTNERS I L.L.C.

By: Johnathon Sweemar
-------------------------------------
Its: Member
------------------------------------
<PAGE> 18

[CONTINUATION OF SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]

/s/ Robert E. Dods
----------------------------------
Robert Dods

/s/ Boyd L. Meyer
----------------------------------
Boyd Meyer

/s/ Peter K.K. Chung
----------------------------------
Peter Chung

/s/ Curt W. Stoelting
----------------------------------
Curt Stoelting

/s/ John F. Olsen
----------------------------------
John Olsen
----------------------------------
/s/ Peter Henseler
----------------------------------
Peter Henseler

/s/ Kevin Camp
----------------------------------
Kevin Camp

DODS-MEYER, LTD.

By: /s/Robert E. Dods
------------------------------
Its:
------------------------------

RACING CHAMPIONS LIMITED

By: /s/ Peter K.K. Chung
-------------------------------
Its:
------------------------------

GARNETT SERVICES, INC.

By: /s/ Peter K.K. Chung
-------------------------------
Its:
------------------------------

HOSTEN INVESTMENT LIMITED

By: /s/ Peter K.K. Chung
-------------------------------
Its
-------------------------------

<PAGE> 1
EXHIBIT 10.3

REGISTRATION AGREEMENT

THIS REGISTRATION AGREEMENT, dated as of April 30, 1996 (this
"Agreement"), is made by and among Collectible Champions, Inc., a Delaware
corporation, (the "Company"), Willis Stein & Partners, L.P., a Delaware
limited partnership ("Willis Stein"), Baird Capital Partners II Limited
Partnership, a Wisconsin Limited Partnership ("Baird"), BCP II Affiliates Fund
Limited Partnership, a Wisconsin limited partnership ("BCP II"), Nassau Capital
Partners L.P., a Delaware limited partnership ("Nassau"), NAS Partners I
L.L.C., a Delaware limited liability company ("NAS"), Robert Dods ("Dods"),
Boyd Meyer ("Meyer"), Peter Chung ("Chung"), Dods-Meyer, Ltd., an Illinois
corporation ("DM"), Racing Champions Limited, a Hong Kong corporation ("RCL"),
Garnett Services, Inc., a British Virgin Island corporation ("GSI"), Hosten
Investment Limited, a Hong Kong corporation ("HIL"), Curt Stoelting
("Stoelting"), John Olsen ("Olsen"), Peter Henseler ("Henseler") and Kevin Camp
("Camp"). Willis Stein, Baird, BCP II, Nassau and NAS are referred to herein
collectively as the "Investors." Dods, Meyer, Chung, DM, RCL, GSI and HIL are
referred to herein collectively as the "Founders." Stoelting, Olsen, Henseler
and Camp are referred to herein collectively as the "Executives." Certain
capitalized terms used herein are defined in Section 8 below.

1. Demand Registrations.

(a) Requests for Registration.

(i) Requests by Holders of Investor Registrable Securities. The
holders of at least a majority of the Investor Registrable Securities then
in existence may at any time request registration under the Securities Act
of all or any portion of their Registrable Securities on Form S-1 or any
similar long-form registration ("Long-Form Registrations") or, if available,
on Form S-2 or S-3 or any similar short-form registration ("Short-Form
Registrations"). All registrations requested pursuant to this Section
1(a)(i) are referred to herein as "Investor Demand Registrations." Each
request for an Investor Demand Registration shall specify the approximate
number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and
shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein
within 20 days after the receipt of the Company's notice.

(ii) Request by holders of Founder Registrable Securities. The
holders of at least a majority of the Founder Registrable Securities then in
existence may at any time after the date which is one year following the
date on which the Company completes a public offering of its Common Stock
under the Securities Act, request a Long-Form Registration or, if available,
a Short-Form Registration (the "Founder Demand Registration"). Such
<PAGE> 2

request for the Founder Demand Registration shall specify the approximate
number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and
shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein
within 20 days after the receipt of the Company's notice.

The Investor Demand Registrations and the Founder Demand Registration are
referred to collectively as the "Demand Registrations" and individually as a
"Demand Registration."

(b) Long-Form Registrations. The holders of a majority of the Investor
Registrable Securities then in existence shall be entitled to request an
unlimited number of Long-Form Registrations. The holders of a majority of the
Founder Registrable Securities then in existence shall be entitled to request
one Long-Form Registration. The aggregate offering value of the Registrable
Securities requested to be registered in any Long-Form Registration must equal
at least $10.0 million. The Company shall pay all Registration Expenses in
connection with any registration initiated as a Long-Form Registration whether
or not it has become effective. All Long-Form Registrations shall be
underwritten registrations.

(c) Short-Form Registrations. In addition to the Long-Form Registrations
provided pursuant to Section 1(b), the holders of a majority of the Investor
Registrable Securities then in existence shall be entitled to request an
unlimited number of Short-Form Registrations. In lieu of the Long-Form
Registration provided pursuant to Section 1(b), the holders of a majority of
the Founder Registrable Securities then in existence shall be entitled to
request one Short-Form Registration if the holders of a majority of the Founder
Registrable Securities have not theretofore exercised their right to one
Long-Form Registration. In addition to the Long-Form Registration provided
pursuant to Section 1(b) (or the Short-Form Registration provided pursuant to
the preceding sentence, as the case may be), the holders of a majority of the
Founder Registrable Securities then in existence shall be entitled to request
one Short-Form Registration. The aggregate offering value of the Registrable
Securities requested to be registered in any Short-Form Registration must equal
at least $1.0 million. The Company shall pay all Registration Expenses in
connection with any registration initiated as a Short-Form Registration whether
or not it has become effective. Demand Registrations shall be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended, the Company shall use its best
efforts to make Short-Form Registrations on Form S-3 available for the sale of
Registrable Securities. All Short-Form Registrations shall be underwritten
registrations, unless otherwise agreed to by the Company.

(d) Priority on Demand Registrations. The Company shall not include in
any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of at least a majority of the
Registrable Securities included in such

- 2 -
<PAGE> 3

registration. If a Demand Registration is an underwritten offering and the
managing underwriters advise the Company in writing that in their opinion the
number of Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold therein without
adversely affecting the marketability of the offering, the Company shall
include in such registration prior to the inclusion of any securities which are
not Registrable Securities the number of Registrable Securities requested to be
included which in the opinion of such underwriters can be sold without
adversely affecting the marketability of the offering, pro rata among the
respective holders thereof on the basis of the number of shares owned by each
such requesting holder.

(e) Restrictions on Demand Registrations. The Company shall not be
obligated to effect any Demand Registration within 180 days after the effective
date of a previous Demand Registration. The Company may postpone for up to 180
days the filing or the effectiveness of a registration statement for a Demand
Registration if the Company determines that such Demand Registration would
reasonably be expected to have a material adverse effect on any proposal or
plan by the Company or any of its Subsidiaries to engage in any acquisition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer, reorganization or similar transaction; provided
that in such event, the holders of Registrable Securities initially requesting
such Demand Registration shall be entitled to withdraw such request and, if
such request is withdrawn, such Demand Registration shall not count as one of
the permitted Demand Registrations hereunder and the Company shall pay all
Registration Expenses in connection with such registration.

(f) Demand Registration Expenses. The Registration Expenses of the
holders of Registrable Securities shall be paid by the Company in all Demand
Registrations.

(g) Selection of Underwriters. The Company shall select the investment
banker(s) and manager(s) to administer each Demand Registration, subject to
approval by the holders of a majority of the Registrable Securities requesting
such Demand Registration, which approval shall not be unreasonably withheld.

(h) Other Registration Rights. Except as provided in this Agreement, the
Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of at least a majority of the Registrable Securities.

2. Piggyback Registrations.

(a) Right to Piggyback. Whenever the Company proposes to register any of
its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the
Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall include in
such registration all Registrable

- 3 -
<PAGE> 4

Securities with respect to which the Company has received written requests for
inclusion therein within 20 days after the receipt of the Company's notice.

(b) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the securities the Company proposes to sell, (ii) second, the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
shares owned by each such requesting holder, and (iii) third, other securities
requested to be included in such registration.

(c) Priority on Secondary Registrations. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities other than holders of Registrable Securities (it being understood
that secondary registrations on behalf of holders of Registrable Securities are
addressed in Section 1 above rather than this Section 2(c)), and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the securities requested to be included therein by the holders
requesting such registration, (ii) second, the Registrable Securities requested
to be included in such registration, pro rata among the holders of such
Registrable Securities on the basis of the number of shares owned by each such
requesting holder, and (iii) third, other securities requested to be included
in such registration.

(d) Piggyback Registration Expenses. The Registration Expenses of the
holders of Registrable Securities shall be paid by the Company in all Piggyback
Registrations.

(e) Selection of Underwriters. The Company shall select the investment
banker(s) and manager(s) to administer each Piggyback Registration, subject to
approval by the holders of a majority of the Registrable Securities included in
such Piggyback Registration, which approval shall not be unreasonably withheld.

3. Holdback Agreements.

(a) Each holder of Registrable Securities hereby agrees to not effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable
or exercisable for such securities, during the seven days prior to and the
90-day period beginning on the effective date of any underwritten registered
public offering of equity securities of the Company or securities convertible
or exchangeable into or exercisable for equity securities of the Company
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering require a longer period, in which

- 4 -
<PAGE> 5

case each holder of Registrable Securities shall not effect any such sale or
distribution during such longer period; provided that such longer period shall
not extend beyond 180 days following such effective date.

(b) The Company (i) shall not effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-4 or S-8 or
any successor forms), unless the underwriters managing the registered public
offering otherwise agree, and (ii) shall cause each holder of at least 3% (on a
fully-diluted basis) of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any such securities during such period (except
as part of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.

4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to this Agreement, the Company shall use its reasonable best efforts
to effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant
thereto the Company shall as expeditiously as possible:

(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become
effective within 120 days of the date on which the holders of such Registrable
Securities have requested that such Registrable Securities be registered
pursuant to this Agreement (provided that before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish to the counsel selected by the holders of a majority of the
Registrable Securities covered by such registration statement copies of all
such documents proposed to be filed, which documents shall be subject to the
review and comment of such counsel);

(b) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;

(c) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned

- 5 -
<PAGE> 6

by such seller (provided that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subsection, (ii) subject itself to taxation in
any such jurisdiction or (iii) consent to general service of process in any
such jurisdiction);

(d) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;

(e) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed and,
if not so listed, to be listed on the NASD automated quotation system and, if
listed on the NASD automated quotation system, use its reasonable best efforts
to secure designation of all such Registrable Securities covered by such
registration statement as a Nasdaq Stock Market "national market system
security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange
Commission or, failing that, to secure Nasdaq Stock Market authorization for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such Registrable Securities with the NASD;

(f) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;

(g) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities (including effecting a stock split or a combination
of shares);

(h) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;

(i) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security

- 6 -
<PAGE> 7

holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months beginning with the first day of the Company's
first full fiscal quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;

(j) permit any holder of Registrable Securities which holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such registration
or comparable statement and to require the insertion therein of material,
furnished to the Company in writing, which in the reasonable judgment of such
holder and its counsel should be included;

(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its reasonable best efforts promptly to
obtain the withdrawal of such order;

(l) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the sellers thereof to consummate the disposition of such Registrable
Securities;

(m) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters, which letter shall be addressed to
the underwriters; and use its reasonable best efforts to cause such cold
comfort letter to also be addressed to the holders of such Registrable
Securities; and

(n) obtain an opinion from the Company's outside counsel in customary
form and covering such matters of the type customarily covered by such
opinions, which opinion shall be addressed to the underwriters and the holders
of such Registrable Securities.

5. Registration Expenses.

(a) All Registration Expenses shall be borne as provided in this
Agreement, except that the Company shall, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance
and the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.

- 7 -
<PAGE> 8

(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration.

6. Indemnification and Contribution.

(a) The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person
who controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses arising out of or based upon
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.

(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses arising out of or based upon any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only to the
extent that any information or affidavit so furnished in writing by such holder
contains such untrue statement or omits a material fact required to be stated
therein necessary to make the statements therein not misleading; provided that
the obligation to indemnify shall be individual to each holder and shall be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.

(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and

- 8 -
<PAGE> 9

indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not
be unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim shall not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim.

(d) If the indemnification provided for in this Section 6 is unavailable
or insufficient to hold harmless an indemnified party under Section 6(a) or
6(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in Section 6(a) or 6(b) above in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or parties
on the one hand and the indemnified party on the other in connection with the
statements or omissions which resulted in such losses, claims, demands or
liabilities as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the indemnifying party or parties on the one hand or the indemnified party on
the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this Section 6(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this Section 6(d). No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the foregoing,
the obligation to make any contributions hereunder shall be individual to each
holder and shall be limited to the net amount of proceeds received by such
holder from the sale of Registrable Securities pursuant to such registration
statement.

(d) The indemnification and contribution provided for under this
Agreement shall remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and shall survive the transfer of
securities.

7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.

- 9 -
<PAGE> 10

8. Definitions.

"Acquisition Agreement" means the Asset and Stock Purchase Agreement,
dated as of the date hereof, by and among the Company, Racing Champions, Inc.,
the Founders and Banerjan Investment Limited.

"Common Stock" means the Voting Common and the Nonvoting Common.

"Founder Registrable Securities" means (i) the shares of Voting Common
issued to the Founders pursuant to the Acquisition Agreement, (ii) the shares
of Voting Common issued or issuable upon conversion of the Nonvoting Common
issued pursuant to the Acquisition Agreement, (iii) the shares of Voting
Common issued to DM pursuant to the Securities Purchase Agreement, dated as of
the date hereof, by and between DM and the Company (the "DM Securities Purchase
Agreement"), (iv) the shares of Voting Common issued or issuable upon
conversion of the Nonvoting Common issued pursuant to the DM Securities
Purchase Agreement, and (v) all Voting Common issued or issuable directly or
indirectly with respect to the securities referred to in clauses (i), (ii),
(iii) and (iv) above upon conversion or exchange or by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. For purposes of this Agreement,
a Person shall be deemed to be a holder of Founder Registrable Securities
whenever such Person has the right to acquire such Registrable Securities (upon
conversion, exercise or exchange in connection with a transfer of securities or
otherwise, but disregarding any restrictions or limitations upon the exercise
of such right), whether or not such acquisition has actually been effected. As
to any particular Founder Registrable Securities, such securities shall cease
to be Founder Registrable Securities when they have been sold in a Public Sale
or repurchased by the Company or any Subsidiary of the Company.

"Investor Registrable Securities" means (i) the shares of Voting Common
issued to the Investors pursuant to the Securities Purchase Agreement and (ii)
all Voting Common issued or issuable directly or indirectly with respect to the
securities referred to in clause (i) above upon conversion or exchange or by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. For
purposes of this Agreement, a Person shall be deemed to be a holder of Investor
Registrable Securities whenever such Person has the right to acquire such
Registrable Securities (upon conversion, exercise or exchange in connection
with a transfer of securities or otherwise, but disregarding any restrictions
or limitations upon the exercise of such right), whether or not such
acquisition has actually been effected. As to any particular Investor
Registrable Securities, such securities shall cease to be Investor Registrable
Securities when they have been sold in a Public Sale or repurchased by the
Company or any Subsidiary of the Company.

"Nonvoting Common" means the Company's Nonvoting Common Stock, par value
$.01 per share.

- 10 -
<PAGE> 11

"Other Registrable Securities" means (i) the shares of Voting Stock issued
to the Executives pursuant to the Securities Purchase Agreement and (ii) any
shares of Voting Common issued or issuable upon exercise of options to acquire
stock of the Company issued to any Executive or any other employee of the
Company and/or its Subsidiaries who becomes a party to this Agreement and (iii)
all Common Stock issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i) and (ii) above upon conversion or
exchange or by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, a Person shall be deemed to be
a holder of Other Registrable Securities whenever such Person has the right to
acquire such Registrable Securities (upon conversion, exercise or exchange in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected. As to any particular Other
Registrable Securities, such securities shall cease to be Other Registrable
Securities when they have been sold in a Public Sale or repurchased by the
Company or any Subsidiary of the Company.

"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.

"Public Sale" means any sale of capital stock to the public pursuant to an
offering registered under the Securities Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 adopted under the
Securities Act.

"Registrable Securities" means the Investor Registrable Securities, the
Founder Registrable Securities and the Other Registrable Securities.

"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, fees and disbursements of custodians, and fees and disbursements of
counsel for the Company and all independent certified public accountants,
underwriters (excluding discounts and commissions) and other Persons retained
by the Company.

"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.

"Securities Purchase Agreement" means the Purchase Agreement, dated as of
the date hereof, by and among the Company, the Investors and the Executives.

- 11 -
<PAGE> 12

indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a 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 partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership,
association or other business entity gains or losses or shall be or control any
managing director or general partner of such partnership, association or other
business entity.

"Voting Common" means the Company's Common Stock, par value $.01 per
share.

9. Miscellaneous.

(a) No Inconsistent Agreements. The Company shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.

(b) Adjustments Affecting Registrable Securities. The Company shall not
take any action, or permit any change to occur, with respect to its securities
which would materially and adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would materially and adversely
affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).

(c) Remedies. Any Person having rights under any provision of this
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.

(d) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each holder of Registrable Securities at the
address indicated on the books and records of the Company and to the Company at
the address indicated below:

Collectible Champions, Inc.
800 Roosevelt Road

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<PAGE> 13

Building C, Suite 320
Glen Ellyn, Illinois 60137
Attn: President

with a copy to:

Willis Stein & Partners, L.P.
227 West Monroe Street
Suite 4300
Chicago, IL 60606
Fax: 312-422-2424
Attn: Avy H. Stein
Daniel Gill

with a copy to:

Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Fax: 312-861-2200
Attn: John A. Weissenbach
Sanford E. Perl

or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

(e) Amendments and Waivers. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the holders of Registrable Securities unless
such modification, amendment or waiver is approved in writing by the Company
and the holders of at least a majority of the Registrable Securities then in
existence; provided that no such amendment or action which materially adversely
affects any one holder of Registrable Securities, as such, vis-a-vis the other
holders of Registrable Securities, as such, shall be effective against such
holder without the prior written consent of such holder. The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.

(f) Successors and Assigns; No Third Party Beneficiaries. All covenants
and agreements in this Agreement by or on behalf of any of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto whether so expressed or not. In addition, whether or not
any express assignment has been made, the provisions of this Agreement which
are for the benefit of purchasers or holders of Registrable Securities are also
for the benefit of, and enforceable by, any subsequent holder of Registrable
Securities. Subject to the preceding

- 13 -
<PAGE> 14

sentence, this Agreement shall not confer any rights or remedies upon any
Person other than the parties hereto and their respective successors and
assigns.

(g) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.

(h) Entire Agreement. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.

(i) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.

(j) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.

(k) Governing Law. The corporate law of Delaware will govern all issues
concerning the relative rights of the Company and its stockholders. All other
issues concerning this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Illinois.

* * * * *

- 14 -
<PAGE> 15

IN WITNESS WHEREOF, the parties hereto have executed this Registration
Agreement on the day and year first above written.

COLLECTIBLE CHAMPIONS, INC.

By: /s/ Robert E. Dods
------------------
Its: President
------------------

WILLIS STEIN & PARTNERS, L.P.

By: Willis Stein & Partners, L.L.C.
Its: General Partner

By: /s/ Avy H. Stein
---------------------
Its: Managing Director
---------------------
BAIRD CAPITAL PARTNERS II LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By: /s/ Samuel B. Guren
-------------------
Its: Managing Director
-------------------

BCP II AFFILIATES FUND LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By: /s/ Samuel B. Guren
-------------------
Its: Managing Director
-------------------

NASSAU CAPITAL PARTNERS L.P.

By: Nassau Capital L.L.C.
Its: General Partner

By: /s/ Johnathon Sweemar
---------------------
Its: Member
--------------------
NAS PARTNERS I L.L.C.

By:/s/ Johnathon Sweemar
----------------------
Its: /s/ Member
--------------------
<PAGE> 16

[CONTINUATION OF SIGNATURE PAGE TO REGISTRATION AGREEMENT]

/s/ Robert E. Dods
--------------------
Robert Dods

/s/ Boyd L. Meyer
--------------------
Boyd Meyer

/s/ Peter Chung
--------------------
Peter Chung

/s/ Curt Stoelting
--------------------
Curt Stoelting

/s/ John F. Olsen
--------------------
John Olsen

/s/ Peter Henseler
--------------------
Peter Henseler

/s/ Kevin Camp
--------------------
Kevin Camp

DODS-MEYER, LTD.

By:/s/ Boyd L. Meyer
------------------
Its: Vice President
-----------------

RACING CHAMPIONS LIMITED

By:/s/ Peter K. K. Chung
---------------------
Its:
--------------------

GARNETT SERVICES, INC.

By:/s/ Peter K. K. Chung
---------------------
Its:
--------------------

HOSTEN INVESTMENT LIMITED

By:/s/ Peter K. K. Chung
---------------------
Its:
--------------------

<PAGE> 1
EXHIBIT 10.4

EXECUTIVE SECURITIES AGREEMENT

THIS EXECUTIVE SECURITIES AGREEMENT, dated as of April 30, 1996 (this
"Agreement"), is made by and among Collectible Champions, Inc., a Delaware
corporation (the "Company"), Curt Stoelting ("Stoelting"), John Olsen
("Olsen"), Peter Henseler ("Henseler"), Kevin Camp ("Camp"), Willis Stein &
Partners, L.P., a Delaware limited partnership, Baird Capital Partners II
Limited Partnership, a Wisconsin limited partnership, BCP II Affiliates Fund
Limited Partnership, a Wisconsin limited partnership, Nassau Capital Partners
L.P., a Delaware limited partnership, NAS Partners I L.L.C., a Delaware limited
liability company, Robert Dods, Boyd Meyer, and Peter Chung. Stoelting, Olsen,
Henseler and Camp are referred to herein collectively as the "Executives."
Certain capitalized terms used herein are defined in Section 3 below.

1. Acknowledgment of Purchase Agreement. The Company and the
Executives are parties to a Securities Purchase Agreement of even date herewith
(the "Purchase Agreement"), pursuant to which, among other things, the Company
shall sell to each Executive, and each Executive shall purchase from the
Company (i) the number of shares of Common Stock, par value $.01 per share (the
"Common") set forth opposite such Executive's name on the Schedule of
Purchasers attached to the Purchase Agreement, (ii) the number of shares of its
Series A Preferred Stock, par value $.01 per share (the "Series A Preferred")
set forth opposite such Executive's name on the Schedule of Purchasers attached
to the Purchase Agreement and (iii) Series A Junior Subordinated Promissory
Notes (the "Notes") in the principal amount set forth opposite such Executive's
name on the Schedule of Purchasers attached to the Purchase Agreement. The
Common and the Series A Preferred are collectively referred to herein as the
"Stock." The Stock and the Notes are collectively referred to herein as the
"Securities."

2. Repurchase Option.

(a) Generally. Subject to Section 2(f) below, in the event an
Executive ceases to be employed by the Company and its Subsidiaries for any
reason (the "Termination"), all of the Executive Securities purchased by such
Executive pursuant to the Purchase Agreement (the "Eligible Executive
Securities") (whether held by such Executive or any other Person) will be
subject to repurchase by the Company and/or the Investors, at their option,
pursuant to the terms and conditions set forth in this Section 2 (the
"Repurchase Option"); provided, that neither the Company nor the Investors
shall have any obligation to repurchase any Executive Securities.

(b) Repurchase Price. Upon exercise of the Repurchase Option, the
purchase price for each share of Executive Securities shall be (i) if
Executive's Termination is for Cause, the lesser of its Fair Market Value and
its Original Cost, or (ii) if Executive's Termination occurs for any reason
other than Cause, its Fair Market Value.

<PAGE> 2

(c) Company's Option. The Board of Directors of the Company (the
"Board") may elect to have the Company purchase all or any portion of the
Eligible Executive Securities by delivering written notice (the "Repurchase
Notice") to the holder(s) of such Eligible Executive Securities within 120 days
after the Termination Date; provided that Eligible Executive Securities may be
purchased only by purchasing a proportionate "strip" of all classes of such
Eligible Executive Securities. The Repurchase Notice will set forth the number
of shares of each class of Stock and the principal amount of the Notes to be
acquired from each holder by the Company and/or the Investors, the
consideration to be paid for such shares and notes and the time and place for
the closing of such purchase. For purposes of this Agreement, references to
Securities of a certain "class" means Securities which are Notes, Common Stock
or Preferred Stock.

(d) Repurchase by Investors. If for any reason the Company does not
elect to purchase all of the Eligible Executive Securities pursuant to the
Repurchase Option, the Investors shall be entitled to exercise the Repurchase
Option for all or any portion of the shares of Eligible Executive Securities
the Company has not elected to purchase (the "Available Securities"); provided
that Eligible Executive Securities may be purchased only by purchasing a
proportionate "strip" of all classes of such Eligible Executive Securities. As
soon as practicable after the Company has determined that there will be
Available Securities, but in any event within 60 days after the Termination,
the Company shall give written notice (each, an "Option Notice") to the
Investors setting forth the number of Available Securities of each class and
the purchase price for each class of Available Securities. Each Investor may
elect to purchase any quantity of Available Securities (in a proportionate
strip of such Securities) (his "Election Quantity") at the price and on the
terms specified therein by delivering written notice of such election to the
Company as soon as practical but in any event within 20 days after delivery of
the Option Notice. If the Election Quantities in aggregate exceed the number
of Available Securities, each Investor electing to purchase Available
Securities (each, a "Participating Investor") will be allocated first, up to
such Investor's Election Quantity, his or its pro rata portion based upon such
Investor's proportionate ownership of shares of Common Stock on a Fully-Diluted
Basis relative to the total number of shares of Common Stock owned by all
Participating Investors on a Fully-Diluted Basis, and then, if there are still
unallocated Available Securities, his or its pro rata portion of the remaining
Available Securities, up to his or its Election Quantity, based upon such
Investor's proportionate ownership of shares of Common Stock on a Fully-Diluted
Basis to the total number of shares of Common Stock owned by Participating
Investors on a Fully-Diluted Basis who, after the previous allocation, have not
been allocated their Election Quantity of Available Securities (with such
allocation being repeated until all Available Securities have been allocated).

(e) Closing. The closing of the purchase of the Eligible Executive
Securities pursuant to the Repurchase Option shall take place on the date
designated by the Company in the Repurchase Notice, which date shall not be
more than 60 days nor less than five days after the delivery of such notice.
The Company and/or the Investors will pay for the Eligible Executive Securities
to be purchased pursuant to the Repurchase Option by delivery of a check or
wire transfer of funds; provided that the Company shall be entitled to pay for
all or any portion of the Eligible Executive Securities to be purchased by it
by delivery of a subordinated promissory note with simple interest accruing at
the prime lending rate announced by The First National Bank of Boston from time
to time and with interest payable semi-annually and principal payable in three
equal annual

- 2 -
<PAGE> 3

installments; provided that any such notes shall contain subordination language
acceptable to the Company's lenders and other financing parties, and if any of
such parties prohibit payment on any such notes, the Company will pay the
principal and interest on such notes at the earliest time such payments are so
permitted. If the Executive's employment by the Company is terminated by
reason of death, Disability or by the Company without Cause or by the Executive
with Good Reason and the Company is exercising the Repurchase Option, the
Company shall pay Executive that portion of the purchase price of the Eligible
Executive Securities which is equal to the lesser of, with respect to each such
Eligible Executive Security, its Fair Market Value and its Original Cost in
cash at the earliest time such payment may be made under the Credit Agreement
(or the terms of any agreement pursuant to which the loans under Credit
Agreement are refinanced which are not more restrictive than the relevant terms
of the Credit Agreement) with the balance of the purchase price being payable
with promissory notes as described above. Furthermore, the Company may pay the
purchase price for such shares by offsetting amounts outstanding under any bona
fide debts for borrowed money owed by the Executive to the Company. If any
Eligible Executive Securities are purchased from a holder thereof by delivery
of a subordinated promissory note, the obligation of the Company under such
subordinated promissory note may, at the request of such holder, be secured by
a pledge of such Eligible Executive Securities. In connection with any
repurchase pursuant to the Repurchase Option, the purchasers of Eligible
Executive Securities hereunder shall be entitled to receive from the sellers of
Eligible Executive Securities customary representations and warranties
regarding ownership, title, and authority to sell the Eligible Executive
Securities, and to require all sellers' signatures to be guaranteed.

(f) Termination of Repurchase Right. The right of the Company and the
Investors to repurchase Eligible Executive Securities pursuant to this Section
2 shall terminate upon the consummation of a Qualified Public Offering.

3. Definitions.

"Cause," with respect to each Executive, has the meaning given such
term in such Executive's Employment Agreement.

"Code" means the Internal Revenue Code of 1986, as amended from time to
time.

"Common Stock" means the Common and the Nonvoting Common.

"Credit Agreement" means the Credit Agreement, dated as of the date
hereof, by and among the Company, certain affiliates of the Company and The
First National Bank of Boston, as lender and agent, an the other lenders named
therein, as amended, modified and supplemented from time to time.

"Disability," with respect to each Executive, has the meaning given
such term in such Executive's Employment Agreement.

- 3 -
<PAGE> 4

"Employment Agreement" means, with respect to each Executive, the
Employment Agreement, dated as of the date hereof, between such Executive and
Racing Champions, Inc., as amended from time to time.

"Executive Securities" means (i) the Securities issued to the
Executives pursuant to the Purchase Agreement and (ii) all securities issued or
issuable directly or indirectly with respect to the securities referred to in
clause (i) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. Executive Securities shall continue to be Executive Securities
in the hands of any holder other than the Executive (except for the Company,
the Investors and purchasers in a Public Sale or a Sale of the Company), and
each such transferee thereof shall succeed to the rights and obligations of a
holder of Executive Securities hereunder. As to any particular Executive
Securities, such securities shall cease to be Executive Securities when they
have been repurchased by the Company or any Investor, sold in a Public Sale or
pursuant to a Sale of the Company. References made in this Agreement to number
of shares of Executive Securities when made with respect to debt securities
shall be deemed to refer to the principal amount of such securities.

"Fair Market Value" with respect to any Executive Security means the
average of the closing prices of sale of such Executive Security on all
domestic securities exchanges on which such Executive Security may at the time
be listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day such Executive Security is not so listed,
the average of the representative bid and asked prices quoted in The Nasdaq
Stock Market as of 4:00 P.M., New York time, on such day, or, if on any day
such Executive Security is not quoted on The Nasdaq Stock Market, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Fair Market Value"
is being determined and the 20 consecutive business days prior to such day;
provided that if such Executive Security is listed on any domestic securities
exchange the term "business days" as used in this sentence means business days
on which such exchange is open for trading. If at any time such Executive
Security is not listed on any domestic securities exchange or quoted on The
Nasdaq Stock Market or the domestic over- the-counter market, the "Fair Market
Value" of such Executive Security shall be determined in good faith by the
Board; provided that if at such time there are any Founder Directors and the
Requisite Founder Directors do not concur with the "Fair Market Value"
determined by the Board with respect to a class of Executive Securities, the
Executive from whom the Company and/or the Investors propose to purchase such
Executive Securities may request that an investment banking firm mutually
acceptable to the Company and such Executive determine the "Fair Market Value"
of the Executive Securities of such class. The determination of such
investment banking firm shall be final and binding on the Company and all
holders of Executive Securities from which the Company and/or the Investors
propose to purchase such class of Executive Securities, and the fees and
expenses of such investment banking firm shall be paid 50% by the Company and
50% by such Executive. The definition of "Fair Market Value" for purposes of
any Executive's Option Agreement shall be this definition and not the
definition set forth for such term in such Option Agreement, notwithstanding
anything to the contrary set forth in such Executive's Option Agreement.

- 4 -
<PAGE> 5

"Founder Director" at any time means Robert Dods, Boyd Meyer or Peter
Chung if at such time such individual is a member of the Board.

"Good Reason," with respect to each Executive, has the meaning given
such term in such Executive's Employment Agreement.

"Investor" means any holder of Investor Registrable Securities (as such
term is defined in the Registration Agreement) and any holder of Founder
Registrable Securities (as such term is defined in the Registration
Agreement).

"Nonvoting Common" means the Company's Nonvoting Common Stock, par
value $.01 per share.

"Option Agreement" means, with respect to each Executive, the Stock
Option Agreement, dated as of the date hereof, between such Executive and the
Company, as amended from time to time.

"Original Cost" means, as of a given date, (i) with respect to each
share of Common, $1.00, and (ii) with respect to each share of Series A
Preferred, $100.00 (in each case, as adjusted for all subsequent stock splits,
stock dividends and other recapitalizations).

"Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization and governmental entity or any department, agency
or political subdivision thereof.

"Preferred Stock" means the Class A Preferred and the Company's Class B
Preferred Stock, par value $.01 per share.

"Public Sale" means any sale pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144 or Rule
144A promulgated under the Securities Act effected through a broker, dealer or
market maker.

"Qualified Public Offering" means the sale in a firm commitment
underwritten public offering registered under the Securities Act of shares of
Common Stock to the public in which the aggregate offering price paid by the
public is not less than $20 million.

- 5 -
<PAGE> 6

"Requisite Founder Directors" at any time means (i) if there are three
Founder Directors at such time, any two Founder Directors, (ii) if there are
two Founder Directors at such time, any one Founder Director or (iii) if there
is one Founder Director at such time, such Founder Director.

"Registration Agreement" means the Registration Agreement, dated as of
the date hereof, by and among the Company, the Executives and certain other
Persons, as amended from time to time.

"Sale of the Company" has the meaning given such term in the
Stockholders Agreement.

"Securities Act" means the Securities Act of 1933, as amended from time
to time.

"Stockholders Agreement" means the Stockholders Agreement, dated as of
the date hereof, by and among the Company, the Executives and certain other
Persons, as amended from time to time.

4. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Executive at the address set forth in such
Executive's Employment Agreement, to each Investor at the address indicated on
the books and records of the Company and to the Company at the addresses
indicated below:

- 6 -
<PAGE> 7

Notices to the Company:

Collectible Champions, Inc.
800 Roosevelt Road, Bldg. C-320
Glen Ellyn, IL 60137
Attn: President

with copies to:

Willis Stein & Partners, L.P.
227 West Monroe Street
Suite 4300
Chicago, IL 60606
Fax: 312-422-2424
Attn: Avy H. Stein
Daniel Gill

and to:

Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Fax: 312-861-2200
Attn: John A. Weissenbach
Sanford E. Perl

or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

5. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.

6. Complete Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.

- 7 -
<PAGE> 8

7. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.

8. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by the Executives, the Company, the
Investors and their respective heirs, successors and assigns, except that no
Executive may assign his rights or delegate his obligations hereunder without
the prior written consent of the Company (provided that if any party assigns
its rights hereunder, such party shall nonetheless remain responsible for the
performance of all of his or its obligations hereunder).

9. Governing Law. The corporate law of Delaware will govern all issues
concerning the relative rights of the Company and its stockholders. All other
issues concerning this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Illinois.

10. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and all of
the Executives, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement; provided that no provision of Section 2 which
affects the Investors may be amended or waived without the prior written
consent of the Investors which hold a majority of the Common Stock held by
Investors.

11. Remedies. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.

12. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.

* * * * *

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<PAGE> 9

IN WITNESS WHEREOF, the parties hereto have executed this Executive
Securities Agreement on the day and year first above written.

COLLECTIBLE CHAMPIONS, INC.

By:/s/ Robert E. Dods
--------------------
Its:President
-------------------

/s/ Curtis W. Stoelting
-----------------------
Curt Stoelting

/s/ John F. Olsen
-----------------------
John Olsen

/s/ Peter Henseler
-----------------------
Peter Henseler

/s/ Kevin Camp
-----------------------
Kevin Camp

WILLIS STEIN & PARTNERS, L.P.

By: Willis Stein & Partners, L.L.C.
Its: General Partner

By:/s/ Avy H. Stein
--------------------
Its: Managing Director

BAIRD CAPITAL PARTNERS II LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By:/s/ Samuel B. Guren
---------------------
Its: Managing Director
--------------------

BCP II AFFILIATES FUND LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By: /s/ Samuel B. Guren
--------------------
Its: Managing Director
--------------------
<PAGE> 10

[CONTINUATION OF SIGNATURE PAGE TO EXECUTIVE SECURITIES AGREEMENT]

NASSAU CAPITAL PARTNERS L.P.

By: Nassau Capital L.L.C.
Its: General Partner

By:/s/ Johnathon Sweemar
----------------------
Its: Member
---------------------
NAS PARTNERS I L.L.C.

By:/s/ Johnathon Sweemar
---------------------
Its: Member
-------------------

/s/ Robert E. Dods
------------------------
Robert Dods

/s/ Boyd L. Meyer
------------------------
Boyd Meyer

/s/ Peter K. K. Chung
------------------------
Peter Chung

<PAGE> 1
EXHIBIT 10.5

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT, dated as of April 30, 1996 (this
"Agreement"), is made by and among Collectible Champions, Inc., a Delaware
corporation (the "Company"), Willis Stein & Partners, L.P., a Delaware limited
partnership ("Willis Stein"), Baird Capital Partners II Limited Partnership, a
Wisconsin limited partnership ("Baird"), BCP II Affiliates Fund Limited
Partnership, a Wisconsin limited partnership ("BCP II"), Nassau Capital
Partners L.P., a Delaware limited partnership ("Nassau"), NAS Partners I
L.L.C., a Delaware limited liability company ("NAS"), Curt Stoelting
("Stoelting"), John Olsen ("Olsen"), Peter Henseler ("Henseler") and Kevin Camp
("Camp"). Willis Stein, Baird, BCP II, Nassau, NAS, Stoelting, Olsen, Henseler
and Camp are referred to herein collectively as the "Purchasers," and each
individually as a "Purchaser." Certain capitalized terms used herein are
defined in Section 5 below.

1. Authorization and Closing.

(a) Authorization of the Securities. The Company shall authorize the
issuance and sale to the Purchasers of (i) 563,998 shares of its Common Stock,
par value $.01 per share (the "Common"), (ii) 51,083.08 shares of its Series A
Preferred Stock, par value $.01 per share (the "Series A Preferred"), each
having the rights and preferences set forth in Exhibit A attached hereto, and
(iii) Series A Junior Subordinated Promissory Notes in the form set forth in
Exhibit B attached hereto (the "Notes") in the aggregate principal amount of
$21,570,569. The Common and the Series A Preferred are collectively referred
to herein as the "Stock." The Stock and the Notes are collectively referred to
herein as the "Securities."

(b) Purchase and Sale of the Securities. At the Closing, the Company
shall sell to each Purchaser and, subject to the terms and conditions set forth
herein, each Purchaser shall purchase from the Company (i) the number of shares
of Common set forth opposite such Purchaser's name on the Schedule of
Purchasers attached hereto at a price of $1.00 per share, (ii) the number of
shares of Series A Preferred set forth opposite such Purchaser's name on the
Schedule of Purchasers at a price of $100.00 per share, and (iii) a Note in the
principal amount set forth opposite such Purchaser's name on the Schedule of
Purchasers at a price equal to face.

(c) The Closing. The closing of the purchase and sale of the
Securities (the "Closing") shall take place at the same time and place as the
closing of the transactions contemplated by the Acquisition Agreement. At the
Closing, the Company shall deliver to each Purchaser (i) stock certificates
evidencing the Stock to be purchased by such Purchaser, each registered in such
Purchaser's or its nominee's name, and (ii) a Note in the principal amount to
be purchased by such
<PAGE> 2

Purchaser upon payment of the purchase price thereof by a cashier's or
certified check, or by wire transfer of immediately available funds to an
account designated by the Company.

2. Representations and Warranties of the Company. As a material
inducement to each Purchaser to enter into this Agreement and purchase the
Securities, the Company hereby represents and warrants that:

(a) Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The
Company has all requisite corporate power and authority to carry out the
transactions contemplated by this Agreement.

(b) Authorization; No Breach. The execution, delivery and
performance of this Agreement has been duly authorized by the Company. This
Agreement constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms. The execution and delivery by the
Company of this Agreement, the offering, sale and issuance of the Securities
hereunder and the fulfillment of and compliance with the respective terms
hereof and thereof by the Company, do not and shall not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's capital stock or assets pursuant to,
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to the charter or bylaws
of the Company, or any law, statute, rule or regulation to which the Company is
subject, or any agreement, instrument, order, judgment or decree to which the
Company is subject.

(c) Conduct of Business; Liabilities. Prior to the Closing, the
Company has not 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 to become due),
violated any laws or governmental rules or regulations, or entered into any
contracts or agreements other than this Agreement, the Acquisition Agreement
and any other agreements contemplated by such agreements. In addition, prior
to the Closing, the Company has not violated any laws or governmental rules or
regulations.

3. Transfer of Restricted Securities.

(a) Restricted Securities are transferable only pursuant to (i)
public offerings registered under the Securities Act, (ii) 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 (iii) subject to the conditions
specified in Section 3(b) below, any other legally available means of transfer.

- 2 -
<PAGE> 3

(b) In connection with the transfer of any Restricted Securities
(other than a transfer described in clause (i) or (ii) of Section 3(a) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion
of counsel reasonably satisfactory to the Company 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 Company an opinion of counsel
reasonably satisfactory to the Company that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act, the
Company shall promptly upon such contemplated transfer deliver new certificates
for such Restricted Securities which do not bear the Securities Act legend set
forth in Section 4(d) below. If the Company 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 Company in writing its agreement to be bound by the conditions
contained in this Section 3 and Section 4 below.

(c) Upon the request of any Purchaser, the Company shall promptly
supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.

(d) Upon the request of any holder of Restricted Securities, the
Company 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.

4. Purchasers' Investment Representations.

(a) Each of Willis Stein, Baird, Nassau, and NAS hereby represents
that it is an accredited investor as defined in Rule 501(a) of the Securities
Act and that the Securities to be acquired by such Purchaser pursuant to this
Agreement shall be acquired for such Purchaser's own account and not with a
view to, or intention of, distribution thereof in violation of the Securities
Act, or any applicable state securities laws, and that the Securities shall not
be disposed of in contravention of the Securities Act or any applicable state
securities laws; provided that nothing contained herein shall prevent such
Purchasers and subsequent holders of Restricted Securities from transferring
such securities in compliance with the provisions of Section 4 hereof.

(b) Each of Stoelting, Olsen, Henseler and Camp (each, an
"Executive") hereby represents that:

(i) the Securities to be acquired by such
Executive pursuant to this Agreement shall be acquired for such
Executive's own account and not with a view to, or intention of,
distribution thereof in violation of the Securities Act, or any
applicable state securities laws, and the Securities shall not be
disposed of in contravention of the Securities Act or any applicable
state securities laws; provided that nothing contained herein shall
pre-

- 3 -
<PAGE> 4

vent the Executives and subsequent holders of Restricted Securities
from transferring such securities in compliance with the provisions of
Section 4 hereof;

(ii) such Executive is an executive officer of the
Company, is sophisticated in financial matters and is able to evaluate
the risks and benefits of the investment in the Securities;

(iii) such Executive is able to bear the economic
risk of his investment in the Securities for an indefinite period of
time because the Securities have not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such
registration is available; and

(iv) such Executive has had an opportunity to ask
questions and receive answers concerning the terms and conditions of
the offering of Securities and has had full access to such other
information concerning the Company as he has requested.

(c) As an inducement to the Company to issue the
Securities to each Executive, as a condition thereto, such Executive
acknowledges and agrees that neither the issuance of the Securities to such
Executive nor any provision contained herein shall entitle such Executive to
remain in the employment of the Company and its Subsidiaries or affect the
right of the Company to terminate such Executive's employment at any time.

(d) Each certificate for Restricted Securities shall be
imprinted with a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON APRIL 30, 1996, AND 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
SECURITIES PURCHASE AGREEMENT, DATED AS OF APRIL 30, 1996, BETWEEN THE
ISSUER (THE "COMPANY") AND CERTAIN INVESTORS. A COPY OF SUCH
CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST AND WITHOUT CHARGE."

5. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:

"Acquisition Agreement" means the Asset and Stock Purchase
Agreement, dated as of the date hereof, by and among the Company, Racing
Champions, Inc., Dods-Meyer, Ltd., Racing Champions Limited, Garnett Services,
Inc., Hosten Investment Limited, the Founders and Banerjan Company Limited.

- 4 -
<PAGE> 5

"Affiliate" of any particular Person or entity means any other Person
or entity controlling, controlled by or under common control with such
particular Person or entity and, in the case of a limited partnership,
"Affiliate" includes limited partners of such limited partnership.

"Certificate of Incorporation" means the Company's certificate of
incorporation, as amended from time to time.

"Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization and any governmental entity or any department,
agency or political subdivision thereof.

"Restricted Securities" means (i) the Securities issued hereunder and
(ii) any securities issued with respect to the securities referred to in clause
(i) above 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 Section 4(d) have been delivered by the
Company in accordance with Section 3(b). Whenever any particular securities
cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Company, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in Section 4(d).

"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.

"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.

"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.

- 5 -
<PAGE> 6

partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such partnership,
association or other business entity.

6. Miscellaneous.

(a) Expenses. The Company agrees to pay and hold each Purchaser
harmless from and against liability for the payment of all fees and expenses
incurred in connection with the transactions contemplated by this Agreement and
each of the agreements contemplated hereby, including (i) reasonable
attorneys', consultants', and accountants' fees and expenses arising in
connection with the negotiation, execution and consummation of the transactions
contemplated by this Agreement and each of the agreements contemplated hereby,
(ii) reasonable fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effective) under or in respect of this
Agreement, the agreements contemplated hereby or the Certificate of
Incorporation, (iii) stamp and other taxes which may be payable in respect of
the execution and delivery of this Agreement, (iv) reasonable fees and expenses
incurred in respect of the enforcement of the rights granted under this
Agreement, the agreements contemplated hereby and the Certificate of
Incorporation, and (v) fees and expenses incurred by any Purchaser in filing
with any governmental agency with respect to its investment in the Company or
any other filing with any governmental agency with respect to the Company which
mentions any Purchaser.

(b) Remedies. The Purchasers shall have all rights and remedies
set forth in this Agreement and the Certificate of Incorporation and all rights
and remedies which the Purchasers has been granted at any time under any other
agreement or contract and all of the rights which the Purchasers has under any
law. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
Person having any rights under this Agreement may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.

(c) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of purchasers or holders of Securities are also for the benefit of, and
enforceable by, any subsequent holder of Securities.

(d) Consent to Amendments. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Purchasers unless such modification,
amendment or waiver is approved in writing by the Company and Purchasers
holding at least a majority of the Common issued hereunder; provided that no
such amendment or action which materially adversely affects any one Purchaser,
as such, vis-a-vis the other Purchasers, as such, shall be effective against
such Purchaser without the prior written consent of such Purchaser. No other
course of dealing between the Company and any

- 6 -
<PAGE> 7

Purchaser or any delay in exercising any rights hereunder or under the
Certificate of Incorporation shall operate as a waiver of any rights of such
Purchaser.

(e) Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by the Purchasers or on their behalf.

(f) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.

(g) Entire Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.

(h) Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.

(i) Governing Law. The corporate laws of the State of Delaware
will govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by and construed in
accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law 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.

(j) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

* * * * *

- 7 -
<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have executed this
Securities Purchase Agreement on the day and year first above written.

COLLECTIBLE CHAMPIONS, INC.

By: /s/ Robert E. Dods
----------------------------------------------
Its: President
---------------------------------------------

WILLIS STEIN & PARTNERS, L.P.

By: Willis Stein & Partners, L.L.C.
Its: General Partner

By: /s/ Avy H. Stein
--------------------------------
Its: Managing Director

BAIRD CAPITAL PARTNERS II LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By: /s/ Samuel B. Guren
--------------------------------
Its: Managing Director
-------------------------------

BCP II AFFILIATES FUND LIMITED PARTNERSHIP

By: Robert W. Baird & Co. Incorporated
Its: General Partner

By: /s/ Samuel B. Guren
--------------------------------
Its: Managing Director
-------------------------------

NASSAU CAPITAL PARTNERS L.P.

By: Nassau Capital L.L.C.
Its: General Partner

By: /s/ Johnathon Sweemer
--------------------------------
Its: Member
-------------------------------

NAS PARTNERS I L.L.C.

By: /s/ Johnathon Sweemer
----------------------------------------------
Its: Member
---------------------------------------------
<PAGE> 9

[CONTINUATION OF SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

/s/ Curtis w. Stoelting
---------------------------------------
Curt Stoelting

/s/ John F. Olson
---------------------------------------
John Olsen

/s/ Peter Henseler
---------------------------------------
Peter Henseler

/s/ Kevin Camp
---------------------------------------
Kevin Camp
<PAGE> 10

SCHEDULE OF PURCHASERS

<TABLE>
<CAPTION>
Shares of Initial Principal
Aggregate Shares of Series A Amount of Series A
Purchaser Purchase Price Common Stock Preferred Stock Junior Sub Notes
- ------------- -------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C>
Willis Stein $18,276,813 378,377 34,270.84 $14,471,352

Baird Capital 3,855,000 79,808 7,228.51 3,052,341
BCP II 1,145,000 23,704 2,146.99 906,597

Nassau Capital 2,976,309 61,617 5,580.87 2,356,604

NAS 23,691 490 44.42 18,758

Stoelting 603,789 12,500 1,132.16 478,073
Olsen 120,758 2,500 226.43 95,615

Henseler 120,758 2,500 226.43 95,615

Camp 120,758 2,500 226.43 95,615
----------- ------- --------- -----------
TOTAL $27,242,875 563,998 51,083.08 $21,570,570
=========== ======= ========= ===========
</TABLE>

<PAGE> 1
EXHIBIT 10.6

AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT

THIS AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT, dated as of
April 30, 1996 (this "Amendment"), to the Securities Purchase Agreement, dated
as of April 30, 1996 (the "Agreement"), by and among Collectible Champions,
Inc., a Delaware corporation (the "Company"), Willis Stein & Partners, L.P., a
Delaware limited partnership ("Willis Stein," and collectively with the Company,
the "Parties") and certain other purchasers of the Company's stock is made by
the Parties in accordance with Section 6(d) of the Agreement. Each capitalized
term not otherwise defined in this Amendment which is defined in the Agreement
shall have the meaning given such term in the Agreement.

WHEREAS, the Parties desire to amend the Agreement to permit Peter
Henseler to purchase the 2,500 shares of Common Stock, par value $.01 per share
(the "Common") and 226.43 shares of Series A Preferred Stock, par value $.01 per
share (the "Preferred") to be purchased by him under the Agreement by delivery
of a Promissory Note in the aggregate initial principal amount of $120,758
instead of payment in cash of $120,758 as set forth in the Agreement.

NOW THEREFORE, the Parties hereby agree as follows:

1. Amendment of Section 1(c). Section 1(c) of the Agreement is
hereby amended and restated in its entirety to read as follows:

The closing of the purchase and sale of the Securities (the
"Closing") shall take place at the same time and place as the
closing of the transactions contemplated by the Acquisition
Agreement. At the Closing, the Company shall deliver to each
Purchaser (i) stock certificates evidencing the Stock to be
purchased by such Purchaser, each registered in such Purchaser's
or its nominee's name, and (ii) a Note in the principal amount to
be purchased by such Purchaser upon payment of the purchase price
thereof (A) by each Purchaser other than Henseler, by a cashier's
or certified check, or by wire transfer of immediately available
funds to an account designated by the Company and (B) by Henseler,
by delivery of a Promissory Note in the aggregate initial
principal amount of $120,758 in the form attached hereto as
Exhibit C (the "Henseler Note"). Henseler's obligations under the
Henseler Note shall be secured by a pledge of all of the
Securities purchased by Henseler hereunder. In connection
therewith, Henseler shall enter into a pledge agreement with the
Company in the form of Exhibit D attached hereto. The Company
shall hold each certificate representing the Stock purchased by
Henseler hereunder and the Note purchased by Henseler hereunder
until such Securities are released from the pledge to the Company.

2. Full Force and Effect. Except as specifically amended hereby,
the Agreement shall remain in full force and effect.

-1-
<PAGE> 2

3. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.

4. Governing Law. The corporate laws of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by and construed in accordance
with the domestic laws of the State of Illinois, without giving effect to any
choice of law 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.

5. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.

* * * * *

-2-

<PAGE> 3

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year first above written.

COLLECTIBLE CHAMPIONS, INC.

By: /s/ Robert R. Dods
---------------------------------
Its: President
--------------------------------

WILLIS STEIN & PARTNERS, L.P.

By: Willis Stein & Partners, L.L.C.
Its: General Partner

By: /s/ Avy H. Stein
---------------------------------
Its: Managing Director
--------------------------------

<PAGE> 1
EXHIBIT 10.7

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT, dated as of April 30, 1996 (this
"Agreement"), is made by and between Collectible Champions, Inc., a Delaware
corporation (the "Company"), and Dods-Meyer, Ltd., an Illinois corporation (the
"Purchaser"). Certain capitalized terms used herein are defined in Section 5
below.

1. Authorization and Closing.

(a) Authorization of the Securities. The Company shall authorize the
issuance and sale to the Purchaser of (i) 171,828 shares of its Common Stock,
par value $.01 per share (the "Common"), (ii) 118,840 shares of its Nonvoting
Common Stock, par value $.01 per share (the "Nonvoting Common"), (iii) 2,422.06
shares of its Series A Preferred Stock, par value $.01 per share (the "Series A
Preferred"), and (iv) 11,952.32 shares of its Series B Preferred Stock, par
value $.01 per share (the "Series B Preferred"), each having the rights and
preferences set forth in Exhibit A attached hereto. The Common, Nonvoting
Common, Series A Preferred and Series B Preferred are collectively referred to
herein as the "Securities."

(b) Purchase and Sale of the Securities. At the Closing, the Company
shall sell to the Purchaser and, subject to the terms and conditions set forth
herein, the Purchaser shall purchase from the Company (i) the number of shares
of Common set forth opposite the Purchaser's name on the Schedule of Purchasers
attached hereto at a price of $1.00 per share, (ii) the number of shares of
Nonvoting Common set forth opposite the Purchaser's name on the Schedule of
Purchasers attached hereto at a price of $1.00 per share, (iii) the number of
shares of Series A Preferred set forth opposite the Purchaser's name on the
Schedule of Purchasers at a price of $100.00 per share, and (iv) the number of
shares of Series B Preferred set forth opposite the Purchaser's name on the
Schedule of Purchasers at a price of $100.00 per share

(c) The Closing. The closing of the purchase and sale of the
Securities (the "Closing") shall take place at the same time and place as the
closing of the transactions contemplated by the Acquisition Agreement. At the
Closing, the Company shall deliver to the Purchaser stock certificates
evidencing the Stock to be purchased by the Purchaser, each registered in the
Purchaser's or its nominee's name upon payment of the purchase price thereof by
a cashier's or certified check, or by wire transfer of immediately available
funds to an account designated by the Company.

2. Representations and Warranties of the Company. As a material
inducement to the Purchaser to enter into this Agreement and purchase the
Securities, the Company hereby represents and warrants that:
<PAGE> 2

3. Transfer of Restricted Securities.

- 2 -
<PAGE> 3

which do not bear the Securities Act legend set forth in Section 4 below. If
the Company 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 Company in writing
its agreement to be bound by the conditions contained in this Section 3 and
Section 4 below.

(c) Upon the request of the Purchaser, the Company shall promptly
supply to the Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.

4. Purchaser's Investment Representations. The Purchaser hereby
represents that it is an accredited investor as defined in Rule 501(a) of the
Securities Act and that the Securities to be acquired by the Purchaser pursuant
to this Agreement shall be acquired for the Purchaser's own account and not
with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and that the
Securities shall not be disposed of in contravention of the Securities Act or
any applicable state securities laws; provided that nothing contained herein
shall prevent the Purchaser and subsequent holders of Restricted Securities
from transferring such securities in compliance with the provisions of Section
3 hereof. Each certificate for Restricted Securities shall be imprinted with
a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON APRIL 30, 1996, AND 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 SECURITIES
PURCHASE AGREEMENT, DATED AS OF APRIL 30, 1996, BETWEEN THE ISSUER (THE
"COMPANY") AND A CERTAIN INVESTOR. A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND
WITHOUT CHARGE."

5. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:

"Acquisition Agreement" means the Asset and Stock Purchase Agreement,
dated as of the date hereof, by and among the Company, Racing Champions, Inc.,
Dods-Meyer, Ltd., Racing Champions Limited, Garnett Services, Inc., Hosten
Investment Limited, the Founders and Banerjan Company Limited.

- 3 -
<PAGE> 4

"Certificate of Incorporation" means the Company's certificate of
incorporation, as amended from time to time.

"Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization and any governmental entity or any department,
agency or political subdivision thereof.

"Restricted Securities" means (i) the Securities issued hereunder and
(ii) any securities issued with respect to the securities referred to in clause
(i) above 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 Section 4 have been delivered by the Company
in accordance with Section 3(b). Whenever any particular securities cease to
be Restricted Securities, the holder thereof shall be entitled to receive from
the Company, without expense, new securities of like tenor not bearing a
Securities Act legend of the character set forth in Section 4.

"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.

"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.

"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.

- 4 -
<PAGE> 5

association or other business entity if such Person or Persons shall be
allocated a majority of partnership, association or other business entity gains
or losses or shall be or control any managing director or general partner of
such partnership, association or other business entity.

6. Miscellaneous.

(a) Expenses. The Company agrees to pay and hold the Purchaser
harmless from and against liability for the payment of all fees and expenses
incurred in connection with the transactions contemplated by this Agreement and
each of the agreements contemplated hereby, including (i) reasonable
attorneys', consultants', and accountants' fees and expenses arising in
connection with the negotiation, execution and consummation of the transactions
contemplated by this Agreement and each of the agreements contemplated hereby,
(ii) reasonable fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effective) under or in respect of this
Agreement, the agreements contemplated hereby or the Certificate of
Incorporation, (iii) stamp and other taxes which may be payable in respect of
the execution and delivery of this Agreement, (iv) reasonable fees and expenses
incurred in respect of the enforcement of the rights granted under this
Agreement, the agreements contemplated hereby and the Certificate of
Incorporation, and (v) fees and expenses incurred by the Purchaser in filing
with any governmental agency with respect to its investment in the Company or
any other filing with any governmental agency with respect to the Company which
mentions the Purchaser.

(b) Remedies. The Purchaser shall have all rights and remedies set
forth in this Agreement and the Certificate of Incorporation and all rights and
remedies which the Purchaser has been granted at any time under any other
agreement or contract and all of the rights which the Purchaser has under any
law. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
Person having any rights under this Agreement may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.

(d) Consent to Amendments. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Purchaser unless such modification,
amendment or waiver is approved in writing by the Company and the Purchase. No
other course of dealing between the Company and the Purchaser or any delay in
exercising any rights hereunder or under the Certificate of Incorporation shall
operate as a waiver of any rights of the Purchaser.

- 5 -
<PAGE> 6

(e) Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by the Purchaser or on its behalf.

(h) Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.

(i) Governing Law. The corporate laws of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement will be governed by and construed in
accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law 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.

(j) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.

* * * * *

- 6 -
<PAGE> 7

IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase Agreement on the day and year first above written.

COLLECTIBLE CHAMPIONS, INC.

By: /s/ Daniel M. Gill
-----------------------------------
Its: Vice President
---------------------------------

DODS-MEYER, LTD.

By: /s/ Boyd L. Meyer
-----------------------------------
Its Vice President
-----------------------------------
<PAGE> 8

SCHEDULE OF PURCHASERS

Aggregate Shares of Shares of Shares of
Purchase Shares of Nonvoting Series A Series B
Purchaser Price Common Stock Common Stock Preferred Stock Preferred Stock
-------- ---------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Dods-Meyer, Ltd. $1,728,106 171,828 118,840 2,422.06 11,952.32

</TABLE>

<PAGE> 1
EXHIBIT 10.8

PROMISSORY NOTE

$120,758 April 30, 1996

For value received, Peter Henseler ("Executive") promises to pay to the
order of Collectible Champions, Inc., a Delaware corporation (the "Company"), at
its offices 227 West Monroe Street, Suite 4300, Chicago, Illinois, 60606, or
such other place as designated in writing by the holder hereof, the aggregate
principal sum of $120,758 together with interest earned thereon when due. This
Note was issued pursuant to and is subject to the terms of the Securities
Purchase Agreement (the "Purchase Agreement"), dated as of April 30, 1996,
between the Company, Executive and Racing Champions, Inc., a Delaware
corporation ("RCI"). Executive is also a party to an Employment Agreement,
dated as of April 30, between Executive and Racing Champions, Inc., a Delaware
corporation ("RCI") and is a participant in the Racing Champions, Inc. 1996 Key
Employees Performance Compensation Plan ("Performance Compensation Plan").
Capitalized terms used herein and not otherwise defined shall have the meanings
given such terms in the Purchase Agreement.

The unpaid principal amount of the Note and all interest accrued
thereon shall be due and payable on the earlier to occur of (a) April 30, 2001
and (b) the termination of Executive's Employment by RCI for any reason.
Executive shall promptly pay 25% of each bonus he receives from RCI (including,
without limitation, each payment of Performance Bonus (as such term is defined
in the Performance Compensation Plan) (including, without limitation, Bonus
Advances (as such term is defined in the Performance Compensation Plan)) he
receives under the Performance Compensation Plan) to pay principal and interest
under this Note. Executive agrees that the Company may offset 25% of each such
bonus payment to which he becomes entitled against principal and interest due an
owing under this Note in lieu of paying such amount to Executive when due (under
the Performance Compensation Plan or otherwise).

Interest shall accrue on the unpaid principal amount of this Note
outstanding from time to time at the rate of eight percent (8.0%) per annum (or,
if less, at the highest rate then permitted under applicable law) from and
including April 30, 1996 until the date on which the Note is paid in full
(computed on the basis of a 365-day year and the actual number of days elapsed
in any year). Any payment of principal by the Company shall be accompanied by
all accrued and unpaid interest on the principal sum being repaid. Any accrued
interest which is not paid on the date on which it is due and payable shall bear
interest at the same rate at which interest is then accruing on the principal
amount of this Note. Any accrued interest which for any reason has not
theretofore been paid shall be paid in full on the date on which the final
principal payment on this Note is made.

The amounts due under this Note are secured by a pledge of the
Securities acquired by Executive pursuant to the Purchase Agreement.

1
<PAGE> 2

In the event Executive fails to pay any amounts hereunder when due,
Executive shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.

Executive hereby waives diligence, presentment, protest and demand and
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agrees that this Note, or any payment hereunder, may be extended from time to
time and that the holder hereof may accept security for this Note or release
security for this Note, all without in any way affecting the liability of
Executive hereunder. The obligations of Executive hereunder may not be
assigned.

This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.

/s/ Peter Henseler
------------------------------------
Peter Henseler

<PAGE> 1
EXHIBIT 10.9

EXECUTIVE SECURITIES PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT is made as of April 30, 1996, between Peter
Henseler ("Pledgor"), and Collectible Champions, Inc., a Delaware corporation
(the "Company").

The Company and Pledgor are parties to an Securities Purchase
Agreement, dated as of the date hereof, (the "Purchase Agreement"), pursuant to
which Pledgor purchased 2,500 shares of the Company's Common Stock, par value
$.01 per share (the "Common"), (ii) 226.43 shares of its Series A Preferred
Stock, par value $.01 per share (the "Series A Preferred") and (iii) a junior
subordinated promissory note in the form set forth in Exhibit B to the Purchase
Agreement in the aggregate principal amount of $95,615 (the "Subordinated Note")
collectively, with the Common and the Series A Preferred, the "Pledged
Securities"). The Company has allowed Pledgor to purchase the Pledged
Securities under the Purchase Agreement by delivery to the Company of a
promissory note (the "Note") in the aggregate principal amount of $120,758. This
Pledge Agreement provides the terms and conditions upon which the Note is
secured by a pledge to the Company of the Pledged Securities.

NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
payment for the Pledged Securities, Pledgor and the Company hereby agree as
follows:

1. Pledge. Pledgor hereby pledges to the Company, and grants to the
Company a security interest in, the Pledged Securities as security for the
prompt and complete payment when due of the unpaid principal of and interest on
the Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.

2. Delivery of Pledged Securities. Upon the execution of this
Pledge Agreement, Pledgor shall deliver to the Company (i) the certificates
representing the Pledged Securities which are Stock and (ii) the instrument
representing the Subordinated Note together with duly executed forms of
assignment sufficient to transfer title thereto to the Company.

3. Voting Rights; Cash Dividends; Interest. Notwithstanding
anything to the contrary contained herein, during the term of this Pledge
Agreement until such time as there exists a default in the payment of principal
or interest on the Note or any other default under the Note or hereunder,
Pledgor shall be entitled to all voting rights with respect to the Pledged
Securities and shall be entitled to receive all cash dividends paid in respect
of the Pledged Securities. Upon the occurrence of and during the continuance of
any such default, (i) Pledgor shall no longer be able to vote the Pledged
Securities which are entitled to vote and (ii) the Company shall retain all
such cash dividends and interest payable on the Pledged Securities as additional
security hereunder.

<PAGE> 2

4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Securities (whether as a distribution in connection with
any recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Securities
hereunder.

5. Default. If Pledgor defaults in the payment of the principal or
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs (including the bankruptcy or insolvency of Pledgor), the
Company may exercise any and all the rights, powers and remedies of any owner of
the Pledged Securities (including the right to vote the Pledged Securities which
are stock and receive dividends and distributions with respect to such shares)
and shall have and may exercise without demand any and all the rights and
remedies granted to a secured party upon default under the Uniform Commercial
Code of Illinois or otherwise available to the Company under applicable law.
Without limiting the foregoing, the Company is authorized to sell, assign and
deliver at its discretion, from time to time, all or any part of the Pledged
Securities at any private sale or public auction, on not less than ten days
written notice to Pledgor, at such price or prices and upon such terms as the
Company may deem advisable. Pledgor shall have no right to redeem the Pledged
Securities after any such sale or assignment. At any such sale or auction, the
Company may bid for, and become the purchaser of, the whole or any part of the
Pledged Securities offered for sale. In case of any such sale, after deducting
the costs, attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied to the principal of and accrued
interest on the Note; provided that after payment in full of the indebtedness
evidenced by the Note, the balance of the proceeds of sale then remaining shall
be paid to Pledgor and Pledgor shall be entitled to the return of any of the
Pledged Securities remaining in the hands of the Company. Pledgor shall be
liable for any deficiency if the remaining proceeds are insufficient to pay the
indebtedness under the Note in full, including the fees of any attorneys
employed by the Company to collect such deficiency.

6. Costs and Attorneys' Fees. All costs and expenses (including
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Securities hereunder.

7. Payment of Indebtedness and Release of Pledged Securities. Upon
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Securities to Pledgor together with all forms of
assignment.

8. No Other Liens; No Sales or Transfers. Pledgor hereby
represents and warrants that he has good and valid title to all of the Pledged
Securities, free and clear of all liens, security interests and other
encumbrances, and Pledgor hereby covenants that, until such time as all of the
outstanding principal of and interest on each of the Note has been repaid,
Pledgor shall not

<PAGE> 3

(i) create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Securities or
Pledgor's rights or a holder thereof, other than pursuant to this Agreement and
the Executive Agreement, or (ii) sell or otherwise transfer any Pledged
Securities or any interest therein.

9. Further Assurances. Pledgor agrees that at any time and from
time to time upon the written request of the Company, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and do such
further acts and things as the Company may reasonably request in order to
effect the purposes of this Pledge Agreement.

10. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

11. No Waiver; Cumulative Remedies. The Company shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.

12. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall, together with the
rights and remedies of the Company hereunder, inure to the benefit of the
Company and its respective successors and assigns. This Pledge Agreement shall
be governed by, and be construed and interpreted in accordance with, the laws of
the State of Illinois.

* * * * *

3
<PAGE> 4

IN WITNESS WHEREOF, this Pledge Agreement has been executed as
of the date first above written.

/s/ Peter J. Henseler
------------------------------------
Peter Henseler

COLLECTIBLE CHAMPIONS, INC.

By: /s/ Robert E. Dods
---------------------------------
Its: President
--------------------------------

<PAGE> 1
EXHIBIT 10.10

================================================================================

RACING CHAMPIONS, INC.

CREDIT AGREEMENT

Dated as of April 30, 1996

THE FIRST NATIONAL BANK OF BOSTON, Agent

================================================================================

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions; Certain Rules of Construction............................ 1

2. The Credits........................................................... 25
2.1. Revolving Credit.............................................. 25
2.1.1. Revolving Loan............................................... 25
2.1.2. Maximum Amount of Revolving Credit........................... 25
2.1.3. Borrowing Requests........................................... 26
2.1.4. Revolving Notes.............................................. 26
2.2. Term Loan A Credit.................................................... 26
2.2.1. Term Loan A.................................................. 26
2.2.2. Term Loan A Notes............................................ 27
2.3. Term Loan B Credit.................................................... 27
2.3.1. Term Loan B.................................................. 27
2.3.2. Term Loan B Notes............................................ 27
2.4. Deferred Term Loan Credit............................................. 27
2.4.1. Deferred Term Loan........................................... 27
2.4.2. Deferred Term Loan Notes..................................... 27
2.5. Letters of Credit..................................................... 28
2.5.1. Issuance of Letters of Credit................................ 28
2.5.2. Requests for Letters of Credit............................... 28
2.5.3. Form and Expiration of Letters of Credit..................... 28
2.5.4. Lenders' Participation in Letters of Credit.................. 29
2.5.5. Presentation................................................. 29
2.5.6. Payment of Drafts............................................ 29
2.5.7. Uniform Customs and Practice................................. 29
2.5.8. Subrogation.................................................. 31
2.5.9. Modification, Consent, etc................................... 31
2.6. Application of Proceeds............................................... 31
2.6.1. Revolving Loan............................................... 31
2.6.2. Term Loan A.................................................. 32
2.6.3. Term Loan B.................................................. 32
2.6.4. Deferred Term Loan........................................... 32
2.6.5. Letters of Credit............................................ 32
2.6.6. Specifically Prohibited Applications......................... 32
2.7. Nature of Obligations of Lenders to Make Extensions of Credit......... 32

3. Interest; Eurodollar Pricing Options; Fees............................ 32
3.1. Interest...................................................... 32
3.2. Eurodollar Pricing Options.................................... 33
</TABLE>

-i-

<PAGE> 3
<TABLE>
<S> <C>
3.2.1. Election of Eurodollar Pricing Options.............................. 33
3.2.2. Notice to Lenders and Borrower...................................... 34
3.2.3. Selection of Eurodollar Interest Periods............................ 34
3.2.4. Additional Interest................................................. 35
3.2.5. Violation of Legal Requirements..................................... 35
3.2.6. Funding Procedure................................................... 36
3.3. Commitment Fees.............................................................. 36
3.3.1. Revolving Loan...................................................... 36
3.3.2. Deferred Term Loan.................................................. 36
3.4. Letter of Credit Fees........................................................ 36
3.5. Changes in Circumstances; Yield Protection................................... 37
3.5.1. Reserve Requirements, etc........................................... 37
3.5.2. Taxes............................................................... 37
3.5.3. Capital Adequacy.................................................... 38
3.5.4. Regulatory Changes.................................................. 38
3.5.5. Compensation Claims................................................. 38
3.5.6. Mitigation.......................................................... 39
3.6. Computations of Interest and Fees............................................ 39

4. Payment.............................................................................. 39
4.1. Payment at Maturity.......................................................... 39
4.2. Scheduled Required Prepayments............................................... 39
4.2.1. Term Loan A......................................................... 39
4.2.2. Term Loan B......................................................... 39
4.2.3. Deferred Term Loan.................................................. 40
4.3. Contingent Required Prepayments.............................................. 40
4.3.1. Excess Credit Exposure.............................................. 40
4.3.2. Excess Cash Flow.................................................... 40
4.3.3. Net Asset Sale Proceeds............................................. 40
4.3.4. Net Equity Proceeds................................................. 40
4.4. Voluntary Prepayments........................................................ 41
4.5. Letters of Credit............................................................ 41
4.6. Reborrowing; Application of Payments, etc.................................... 41
4.6.1. Reborrowing......................................................... 41
4.6.2. Order of Application................................................ 41
4.6.3. Payment with Accrued Interest, etc.................................. 42
4.6.4. Payments for Lenders................................................ 42

5. Conditions to Extending Credit....................................................... 42
5.1. Conditions on Initial Closing Date........................................... 42
5.1.1. Notes............................................................... 42
5.1.2. Payment of Fees..................................................... 42
5.1.3. Legal Opinions...................................................... 42

</TABLE>

-ii-

<PAGE> 4
<TABLE>
<S> <C>
5.1.4. Guarantee and Security Agreement; Hong Kong Documents.......... 43
5.1.5. Perfection of Security......................................... 43
5.1.6. Acquisition.................................................... 43
5.1.7. Capitalization, etc............................................ 44
5.1.8. Key Executive Agreements....................................... 45
5.1.9. Termination of Prior Credit Agreement.......................... 45
5.1.10. Proper Proceedings............................................ 45
5.1.11. General....................................................... 45
5.2. Conditions to Each Extension of Credit.................................. 46
5.2.1. Officer's Certificate.......................................... 46
5.2.2. Legality, etc.................................................. 46
5.3. Conditions on Deferred Term Loan Closing Date........................... 46
5.3.1. Deferred Term Loan Notes....................................... 46
5.3.2. Consolidated EBITDA; Pro Forma Covenant Compliance............. 46
5.3.3. Termination of Seller Subordinated Notes....................... 46
5.3.4. Officer's Certificate.......................................... 47
5.3.5. Legality, etc.................................................. 47
5.3.6. Proper Proceedings............................................. 47
5.3.7. General........................................................ 47

6. General Covenants............................................................... 47
6.1. Taxes and Other Charges; Accounts Payable............................... 47
6.1.1. Taxes and Other Charges........................................ 47
6.1.2. Accounts Payable............................................... 48
6.2. Conduct of Business, etc................................................ 48
6.2.1. Types of Business.............................................. 48
6.2.2. Maintenance of Properties...................................... 48
6.2.3. Statutory Compliance........................................... 48
6.2.4. Compliance with Material Agreements............................ 49
6.3. Insurance............................................................... 49
6.3.1. Property Insurance............................................. 49
6.3.2. Liability Insurance............................................ 49
6.3.3. Key Executive Life Insurance................................... 49
6.4. Financial Statements and Reports........................................ 49
6.4.1. Annual Reports................................................. 49
6.4.2. Quarterly Reports.............................................. 51
6.4.3. Borrowing Base Reports......................................... 52
6.4.4. Other Reports.................................................. 52
6.4.5. Notice of Litigation, Defaults, etc............................ 52
6.4.6. ERISA Reports.................................................. 53
6.4.7. Other Information; Audit....................................... 53
6.5. Certain Financial Tests................................................. 54
6.5.1. Consolidated Total Debt to Consolidated EBITDA................. 54

</TABLE>

-iii-

<PAGE> 5
<TABLE>
<S> <C>
6.5.2. Consolidated EBITDA to Consolidated Interest Expense.................. 54
6.5.3. Consolidated Adjusted EBITDA to Consolidated Fixed Charges............ 54
6.5.4. Consolidated EBITDA................................................... 54
6.5.5. Capital Expenditures.................................................. 55
6.5.6. Consolidated Manufacturers Accounts Payable........................... 55
6.6. Indebtedness................................................................... 56
6.7. Guarantees; Letters of Credit.................................................. 57
6.8. Liens.................................................................... 58
6.9. Investments and Acquisitions................................................... 59
6.10. Distributions.................................................................. 61
6.11. Asset Dispositions and Mergers................................................. 63
6.12. Lease Obligations.............................................................. 64
6.13. Issuance of Stock by Subsidiaries; Subsidiary Distributions.................... 64
6.13.1. Issuance of Stock by Subsidiaries.................................... 64
6.13.2. No Restrictions on Subsidiary Distributions.......................... 64
6.14. Voluntary Prepayments of Other Indebtedness.................................... 65
6.15. Derivative Contracts........................................................... 65
6.16. Negative Pledge Clauses........................................................ 65
6.17. ERISA, etc..................................................................... 65
6.18. Transactions with Affiliates................................................... 65
6.19. Interest Rate Protection....................................................... 66
6.20. Restricted Operations of Company and Banerjan.................................. 66

7. Representations and Warranties......................................................... 66
7.1. Organization and Business...................................................... 66
7.1.1. The Company........................................................... 66
7.1.2. Subsidiaries.......................................................... 67
7.1.3. Qualification......................................................... 67
7.1.4. Capitalization........................................................ 67
7.2. Financial Statements and Other Information; Material Agreements................ 67
7.2.1. Financial Statements and Other Information............................ 67
7.2.2. Material Agreements................................................... 69
7.3. Agreements Relating to Financing Debt, Investments, etc........................ 69
7.4. Changes in Condition........................................................... 69
7.5. Title to Assets................................................................ 69
7.6. Operations in Conformity With Law, etc......................................... 70
7.7. Litigation..................................................................... 70
7.8. Authorization and Enforceability............................................... 70
7.9. No Legal Obstacle to Agreements................................................ 70
7.10. Defaults....................................................................... 71
7.11. Licenses, etc.................................................................. 71
7.12. Tax Returns.................................................................... 72
7.13. Certain Business Representations............................................... 72
</TABLE>

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<PAGE> 6
<TABLE>
<S> <C>
7.13.1. Product Liability Matters................................... 72
7.13.2. Antitrust.................................................. 72
7.13.3. Consumer Protection........................................ 72
7.13.4. Future Expenditures........................................ 72
7.14. Transactions with Affiliates......................................... 73
7.15. Pension Plans........................................................ 73
7.16. Acquisition Agreement, etc........................................... 73
7.17. Foreign Trade Regulations; Government Regulation; Margin Stock....... 73
7.17.1. Foreign Trade Regulations.................................. 73
7.17.2. Government Regulation...................................... 74
7.17.3. Margin Stock............................................... 74
7.18. Disclosure........................................................... 74

8. Defaults..................................................................... 74
8.1. Events of Default.................................................... 74
8.1.1. Payment..................................................... 74
8.1.2. Specified Covenants......................................... 74
8.1.3. Other Covenants............................................. 75
8.1.4. Representations and Warranties.............................. 75
8.1.5. Cross Default, etc.......................................... 75
8.1.6. Ownership; Liquidation; etc................................. 76
8.1.7. Enforceability, etc......................................... 76
8.1.8. Judgments................................................... 76
8.1.9. ERISA....................................................... 76
8.1.10. Bankruptcy, etc............................................ 77
8.2. Certain Actions Following an Event of Default........................ 78
8.2.1. Terminate Obligation to Extend Credit....................... 78
8.2.2. Specific Performance; Exercise of Rights.................... 78
8.2.3. Acceleration................................................ 78
8.2.4. Enforcement of Payment; Credit Security; Setoff............. 78
8.2.5. Cumulative Remedies......................................... 79
8.3. Annulment of Defaults................................................ 79
8.4. Waivers.............................................................. 79

9. Expenses; Indemnity.......................................................... 79
9.1. Expenses............................................................. 79
9.2. General Indemnity.................................................... 80
9.3. Indemnity With Respect to Letters of Credit.......................... 80

10. Operations; Agent............................................................ 81
10.1. Interests in Credits................................................. 81
10.2. Agent's Authority to Act, etc........................................ 81
10.3. Borrower to Pay Agent, etc........................................... 81

</TABLE>

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<PAGE> 7
<TABLE>
<S> <C>
10.4. Lender Operations for Advances, Letters of Credit, etc............... 81
10.4.1. Advances................................................... 81
10.4.2. Letters of Credit.......................................... 82
10.4.3. Agent to Allocate Payments, etc............................ 82
10.4.4. Delinquent Lenders; Nonperforming Lenders.................. 82
10.5. Sharing of Payments, etc............................................. 83
10.6. Amendments, Consents, Waivers, etc................................... 84
10.7. Agent's Resignation.................................................. 85
10.8. Concerning the Agent................................................. 85
10.8.1. Action in Good Faith, etc.................................. 86
10.8.2. No Implied Duties, etc..................................... 86
10.8.3. Validity, etc.............................................. 86
10.8.4. Compliance................................................. 86
10.8.5. Employment of Agents and Counsel........................... 87
10.8.6. Reliance on Documents and Counsel.......................... 87
10.8.7. Agent's Reimbursement...................................... 87
10.9. Rights as a Lender................................................... 87
10.10. Independent Credit Decision.......................................... 87
10.11. Indemnification...................................................... 88

11. Successors and Assigns; Lender Assignments and Participations................ 88
11.1. Assignments by Lenders............................................... 88
11.1.1. Assignees and Assignment Procedures........................ 89
11.1.2. Terms of Assignment and Acceptance......................... 89
11.1.3. Register................................................... 90
11.1.4. Acceptance of Assignment and Assumption.................... 91
11.1.5. Federal Reserve Bank....................................... 91
11.1.6. Further Assurances......................................... 91
11.2. Credit Participants.................................................. 91
11.3. Replacement of Lender................................................ 92

12. Confidentiality.............................................................. 93

13. Foreign Lenders.............................................................. 94

14. Notices...................................................................... 95

15. Course of Dealing; Amendments and Waivers.................................... 95

16. Defeasance................................................................... 96

17. Venue; Service of Process.................................................... 96

</TABLE>

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<PAGE> 8
<TABLE>
<S> <C>
18. WAIVER OF JURY TRIAL................................................. 96

19. No Strict Construction............................................... 97

20. General.............................................................. 97
</TABLE>

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<PAGE> 9

EXHIBITS

<TABLE>
<S> <C>
1 - Financial Figures for Periods Prior to Initial Closing Date

2.1.4 - Revolving Note

2.2.2 - Term Loan A Note

2.3.2 - Term Loan B Note

2.4.2 - Deferred Term Loan Note

5.1.4 - Guarantee and Security Agreement

5.2.1 - Officer's Certificate

6.9.2 - Foreign Subsidiary Subordination Agreement

7.1 - Company and its Subsidiaries

7.2.2 - Material Agreements

7.3 - Financing Debt, Certain Investments, etc.

7.13.1 - Product Liability Claims

7.14 - Affiliate Transactions

7.15 - Multi-employer and Defined Benefit Plans

10.1 - Percentage Interests

11.1.1 - Assignment and Acceptance
</TABLE>

-xiv-

<PAGE> 10

RACING CHAMPIONS, INC.

CREDIT AGREEMENT

This Agreement, dated as of April 30, 1996, is among Collectible Champions,
Inc., a Delaware corporation, the Subsidiaries of Collectible Champions, Inc.
from time to time party hereto, including Racing Champions, Inc., the Lenders
from time to time party hereto and The First National Bank of Boston, both in
its capacity as a Lender and in its capacity as agent for itself and the other
Lenders. The parties agree as follows:

1. Definitions; Certain Rules of Construction. Certain capitalized terms are
used in this Agreement and in the other Credit Documents with the specific
meanings defined below in this Section 1. Except as otherwise explicitly
specified to the contrary or unless the context clearly requires otherwise, (a)
the capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof, (d) the word
"including" shall be construed as "including without limitation", (e) accounting
terms not otherwise defined herein have the meaning provided under GAAP, (f)
references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in each
case as from time to time in effect and (g) references to a particular Person
include such Person's successors and assigns to the extent not prohibited by
this Agreement and the other Credit Documents. References to "the date hereof"
mean the date first set forth above.

1.1. "Accumulated Benefit Obligations" means the actuarial present value of
the accumulated benefit obligations under any Plan, calculated in accordance
with Statement No. 87 of the Financial Accounting Standards Board.

1.2. "Acquisition" means the following acquisitions consummated in
accordance with the Acquisition Agreement: (a) the acquisition by the Company of
all the stock of the Borrower, (b) the acquisition by the Borrower of all the
assets of Dods-Meyer, Ltd. and (c) the acquisition by Banerjan of all the assets
of Racing Champions Limited, Garnett Services, Inc. and Hosten Investment
Limited.

1.3. "Acquisition Agreement" means the Asset and Stock Purchase Agreement
dated as of April 30, 1996 among the Company, the Borrower, Banerjan and the
Sellers furnished to the Lenders without subsequent modification or amendment
except to the extent permitted hereby.

1.4. "Affected Lender" is defined in Section 11.3.

1.5. "Affiliate" means, with respect to the Company (or any other specified
Person), any other Person directly or indirectly controlling, controlled by or
under direct or

<PAGE> 11

indirect common control with the Company (or such specified Person), and shall
include (a) any officer or director of the Company (or such specified Person)
and (b) any Person of which the Company (or such specified Person) or any
Affiliate (as defined in clause (a) above) of the Company (or such specified
Person) shall, directly or indirectly, beneficially own at least 10% of the
outstanding equity securities having the general power to vote.

1.6. "Agent" means Bank of Boston in its capacity as agent for the Lenders
hereunder, as well as its successors and assigns in such capacity pursuant to
Section 10.7.

1.7. "Agreement" means this Agreement as from time to time amended,
modified and in effect.

1.8. "Applicable Margin" means (a) through April 30, 1997, the highest
applicable percentage rate set forth below and (b) thereafter, the percentage in
the table below set opposite the ratio which (i) Consolidated Total Debt on the
last day of the most recent fiscal quarter for which financial statements have
been (or are required to have been) furnished to the Lenders in accordance with
Section 6.4.2 prior to the beginning of the then current fiscal quarter bore to
(ii) Consolidated EBITDA for the period of four consecutive fiscal quarters
ended on the last day of such most recent fiscal quarter:

<TABLE>
<CAPTION>
Base Rate Eurodollar
Ratio of Consolidated Total Debt Applicable Applicable
to Consolidated EBITDA Margin Margin
- --------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Greater than or equal to 300% 1.25% 2.75%
Less than 300% and greater than or equal to 250% 1.00% 2.50%
Less than 250% and greater than or equal to 200% 0.75% 2.25%
Less than 200% 0.50% 2.00%
</TABLE>

1.9. "Applicable Rate" means, at any date:

(a) with respect to each portion of the Loan (other than Term Loan
B) subject to a Eurodollar Pricing Option, the sum of the Applicable Margin
for Eurodollar Pricing Options plus the Eurodollar Rate with respect to
such Eurodollar Pricing Option;

(b) with respect to each other portion of the Loan (other than Term
Loan B), the sum of the Applicable Margin for the Base Rate plus the Base
Rate; and

(c) with respect to Term Loan B, the sum of 3.25% plus the
Eurodollar Rate with respect to Eurodollar Pricing Options applicable to
Term Loan B;

-2-

<PAGE> 12

provided, however, that the Applicable Rate shall be the sum of 3% plus the
Base Rate on the day the Agent notifies the Company that the interest rates
hereunder are increasing as a result of the occurrence and continuance of an
Event of Default until the earlier of such time as (i) such Event of Default is
no longer continuing or (ii) such Event of Default is deemed no longer to exist
pursuant to Section 8.3.

1.10. "Assignee" is defined in Section 11.1.1.

1.11. "Assignment and Acceptance" is defined in Section 11.1.1.

1.12. "Banerjan" means Banerjan Company Limited, a Hong Kong limited
liability company that is a Wholly Owned Subsidiary of the Borrower and that
will change its name to "Racing Champions Limited" after the Acquisition.

1.13. "Bank of Boston" means The First National Bank of Boston.

1.14. "Banking Day" means any day other than Saturday, Sunday or a day on
which banks in Boston, Massachusetts or Chicago, Illinois are authorized or
required by law or other governmental action to close and, if such term is used
with reference to a Eurodollar Pricing Option, any day on which dealings are
effected in the Eurodollars in question by first-class banks in the inter-bank
Eurodollar markets in New York, New York.

1.15. "Bankruptcy Code" means Title 11 of the United States Code.

1.16. "Bankruptcy Default" means an Event of Default referred to in
Section 8.1.10.

1.17. "Base Rate" means, on any date, the greater of (a) the rate of
interest announced by Bank of Boston at the Boston Office as its Base Rate or
(b) the sum of 1/2% plus the Federal Funds Rate.

1.18. "Borrower" means Racing Champions, Inc., an Illinois corporation.

1.19. "Borrowing Base" means, on any date, the sum of:

(a) 85% of Eligible Accounts Receivable,

plus (b) 50% of Eligible Inventory,

in each case as shown on the most recent monthly Borrowing Base report
furnished (or required to have been furnished) to the Lenders in accordance
with 6.4.3.

-3-

<PAGE> 13

1.20. "Boston Office" means the principal banking office of Bank of Boston
in Boston, Massachusetts.

1.21. "By-laws" means all written by-laws, rules, regulations and all
other documents relating to the management, governance or internal regulation
of any Person other than an individual, or interpretive of the Charter of such
Person, all as from time to time in effect.

1.22. "Capital Expenditures" means, for any period, amounts added or
required to be added to the property, plant and equipment or other fixed assets
account on the Consolidated balance sheet of the Company and its Subsidiaries,
prepared in accordance with GAAP, in respect of (a) the acquisition,
construction, improvement or replacement of land, buildings, machinery,
equipment, leaseholds and any other real or personal property, (b) to the
extent not included in clause (a) above, materials, contract labor and direct
labor relating thereto (excluding amounts properly expensed as repairs and
maintenance in accordance with GAAP) and (c) software development costs to the
extent not expensed.

1.23. "Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee in accordance with GAAP,
including Statement Nos. 13 and 98 of the Financial Accounting Standards Board.

1.24. "Capitalized Lease Obligations" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with GAAP, including Statement Nos.
13 and 98 of the Financial Accounting Standards Board.

1.25. "Cash Equivalents" means:

(a) negotiable certificates of deposit, time deposits (including
sweep accounts), demand deposits and bankers' acceptances having a
maturity of 12 months or less and issued by any United States financial
institution having capital and surplus and undivided profits aggregating
at least $100,000,000 and rated at least Prime-1 by Moody's or A-1 by S&P
or issued by any Lender;

(b) corporate obligations having a maturity of 12 months or less
and rated at least Prime-1 by Moody's or A-1 by S&P or issued by any
Lender;

(c) any direct obligation of the United States of America or any
agency or instrumentality thereof, or of any state or municipality
thereof, (i) which has a remaining maturity at the time of purchase of
not more than one year or which is subject to a repurchase agreement with
any Lender (or any other financial institution referred to in clause (a)
above) exercisable within one year from the time of purchase

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and (ii) which, in the case of obligations of any state or municipality,
is rated at least Aa by Moody's or AA by S&P;

(d) any mutual fund or other pooled investment vehicle rated at
least Aa by Moody's or AA by S&P which invests principally in obligations
described above; and

(e) any similar investments with comparable risk status issued by
Persons located in Hong Kong.

1.26. "Charter" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other
charter document of any Person other than an individual, each as from time to
time in effect.

1.27. "Closing Date" means the Initial Closing Date and each other date on
which any extension of credit is made pursuant to Sections 2.1, 2.2, 2.3, 2.4
or 2.5.

1.28. "Code" means the federal Internal Revenue Code of 1986.

1.29. "Commitment" means, with respect to any Lender, such Lender's
obligations to extend the credits contemplated by Section 2. The original
Commitments are set forth in Exhibit 10.1 and the current Commitments are
recorded from time to time in the Register.

1.30. "Company" means Collectible Champions, Inc., a Delaware corporation.

1.31. "Computation Covenants" means Sections 6.5, 6.6.7, 6.6.13, 6.6.14,
6.6.16, 6.9.6, 6.9.8, 6.10.3, 6.10.4, 6.10.5, 6.10.6, 6.10.7, 6.10.8, 6.11.1,
6.11.4 and 6.12.2.

1.32. "Consolidated" and "Consolidating", when used with reference to any
term, mean that term as applied to the accounts of the Company (or other
specified Person) and all of its Subsidiaries (or other specified group of
Persons), or such of its Subsidiaries as may be specified, consolidated (or
combined) or consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests in
Subsidiaries.

1.33. "Consolidated Adjusted EBITDA" means, for any period:

(a) Consolidated EBITDA,

minus (b) Capital Expenditures;

minus (c) taxes based upon or measured by net income that are
actually paid in cash during such period.

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1.34. "Consolidated EBITDA" means, for any period, the total of:

(a) Consolidated Net Income;

plus (b) all amounts deducted in computing such Consolidated Net
Income in respect of:

(i) depreciation, amortization and other non-cash expenses
and charges,

(ii) Consolidated Interest Expense,

(iii) taxes based upon or measured by net income, and

(iv) fees and expenses payable on or about the Initial
Closing Date with respect to the Acquisition or the Credit
Documents;

provided, however, that for periods prior to the Initial Closing Date,
Consolidated EBITDA shall be deemed to be the amount indicated in Exhibit
1.

1.35. "Consolidated Excess Cash Flow After Tax Shield Distributions"
means, for any period, Consolidated Excess Cash Flow Available for Tax Shield
Distributions minus Distributions paid in accordance with Sections 6.10.3 and
6.10.4 (tax shield).

1.36. "Consolidated Excess Cash Flow Available for Tax Shield
Distributions" means, for any period, the total of:

(a) Consolidated EBITDA,

minus (b) the aggregate amount of Capital Expenditures permitted
under Section 6.5.5 for such period,

minus (c) taxes based upon or measured by net income that are
actually paid in cash,

minus (d) Consolidated Fixed Charges (but in no event including
contingent prepayments required by Section 4.3),

minus (e) voluntary prepayments of Term Loan A, Term Loan B or the
Deferred Term Loan in accordance with Section 4.4,

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minus (f) voluntary permanent reductions of the Maximum Amount of
Revolving Credit pursuant to Section 2.1.2(b),

minus (g) in the event Consolidated Working Capital Factor is a
positive number, the lesser of:

(i) $1,000,000 or
(ii) Consolidated Working Capital Factor,

plus (h) in the event Consolidated Working Capital Factor is a
negative number, the lesser of:

(i) $1,000,000 or
(ii) Consolidated Working Capital Factor;
provided, however, that for all purposes of computing
Consolidated Excess Cash Flow, the amount of
Consolidated Working Capital Factor described in this
paragraph (h) shall be treated as a positive number;

provided, however, that Consolidated Excess Cash Flow Available for Tax Shield
Distributions for the year ending in December 1996 shall be computed for the
period from the Initial Closing Date through December 1996.

1.37. "Consolidated Fixed Charges" means, for any period, the sum of:

(a) Consolidated Interest Expense;

plus (b) the aggregate amount of all mandatory scheduled payments and
sinking fund payments (to the extent reduced by any voluntary
prepayments) with respect to principal paid by the Company and its
Subsidiaries in respect of Consolidated Total Debt, including payments in
the nature of principal under Capitalized Leases, but in no event
including contingent prepayments required by Section 4.3;

plus (c) any mandatory dividends required to be paid in cash by the
Company or any of its Subsidiaries to third parties;

provided, however, that for periods prior to the Initial Closing Date,
Consolidated Fixed Charges shall be deemed to be the amount indicated in
Exhibit 1.

1.38. "Consolidated Interest Expense" means, for any period, (a) the
aggregate amount of interest expense (other than PIK Interest and interest on
the Junior Subordinated Notes), including in any event commitment fees,
payments in the nature of interest under Capitalized Leases, net payments under
Interest Rate Protection Agreements and letter of

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credit fees and expenses, accrued by the Company and its Subsidiaries in
accordance with GAAP on a Consolidated basis minus (b) to the extent included
in the foregoing clause (a), amortization of Indebtedness financing costs;
provided, however, that for periods prior to the Initial Closing Date,
Consolidated Interest Expense shall be deemed to be the amount indicated in
Exhibit 1.

1.39. "Consolidated Manufacturers Accounts Payable" means, at any date,
all accounts payable owing to manufacturers of the products marketed by the
Company and its Subsidiaries accrued by the Company and its Subsidiaries in
accordance with GAAP on a Consolidated basis.

1.40. "Consolidated Net Income" means, for any period, the net income (or
loss) of the Company and its Subsidiaries, determined in accordance with GAAP
on a Consolidated basis; provided, however, that Consolidated Net Income shall
not include:

(a) the income (or loss) of any Person accrued prior to the date
such Person becomes a Subsidiary or is merged into or consolidated with
the Company or any of its Subsidiaries;

(b) the income (or loss) of any Person (other than a Subsidiary)
in which the Company or any of its Subsidiaries has an ownership
interest; provided, however, that (i) Consolidated Net Income shall
include amounts in respect of the income of such Person when actually
received in cash by the Company or such Subsidiary in the form of
dividends or similar Distributions and (ii) Consolidated Net Income shall
be reduced by the aggregate amount of all Investments, regardless of the
form thereof, made by the Company or any of its Subsidiaries in such
Person for the purpose of funding any deficit or loss of such Person;

(c) all amounts included in computing such net income (or loss) in
respect of (i) the write-up of any asset on or after the Initial Closing
Date, including the subsequent amortization or expensing of the
written-up portion of assets, or (ii) the retirement of any Indebtedness
or equity at less than face value after the Initial Closing Date;

(d) non-cash extraordinary or nonrecurring gains and losses;

(e) the income of any Subsidiary to the extent the payment of such
income in the form of a Distribution or repayment of Indebtedness to the
Company or a Wholly Owned Subsidiary is not permitted, whether on account
of any Charter or By-law restriction, any agreement, instrument, deed or
lease or any law, statute, judgment, decree or governmental order, rule
or regulation applicable to such Subsidiary; and

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<PAGE> 18

(f) any after-tax gains or losses attributable to returned surplus
assets of any Plan.

1.41. "Consolidated Net Revenue" means, for any period, the net revenues
(including reductions for returns, discounts and commissions) of the Company
and its Subsidiaries in accordance with GAAP on a Consolidated basis.

1.42. "Consolidated Total Debt" means, at any date, all Financing Debt of
the Company and its Subsidiaries on a Consolidated basis.

1.43. "Consolidated Working Capital Factor" means, for any period, the
amount (whether positive or negative) equal to:

Assets

(a) Accounts Receivable:

(i) the amount, if any, by which
accounts receivable at the end of such period were
greater than accounts receivable at the beginning of
such period,

minus (ii) the amount, if any, by which accounts
receivable at the end of such period were less than
accounts receivable at the beginning of such period,

(b) Inventory:

plus (i) the amount, if any, by which inventory at
the end of such period was greater than inventory at the
beginning of such period,

minus (ii) the amount, if any, by which inventory at
the end of such period was less than inventory at the
beginning of such period,

plus (i) the amount, if any, by which prepaid
expenses at the end of such period were greater than
prepaid expenses at the beginning of such period,

minus (ii) the amount, if any, by which prepaid
expenses at the end of such period were less than
prepaid expenses at the beginning of such period,

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(d) Manufacturers Advances and Manufacturers Notes Receivable:

plus (i) the amount, if any, by which manufacturers advances and
manufacturers notes receivable at the end of such period
were greater than manufacturers advances and
manufacturers notes receivable at the beginning of such
period,

minus (ii) the amount, if any, by which
manufacturers advances and manufacturers notes
receivable at the end of such period were less than
manufacturers advances and manufacturers notes
receivable at the beginning of such period,

Liabilities

(e) Accounts Payable:

plus (i) the amount, if any, by which accounts
payable at the end of such period were less than accounts
payable at the beginning of such period,

minus (ii) the amount, if any, by which accounts
payable at the end of such period were greater than
accounts payable at the beginning of such period,

(f) Accrued Expenses:

plus (i) the amount, if any, by which accrued
expenses at the end of such period were less than accrued
expenses at the beginning of such period,

minus (ii) the amount, if any, by which accrued
expenses at the end of such period were greater than
accrued expenses at the beginning of such period,

all with respect to the Company and its Subsidiaries as determined in
accordance with GAAP on a Consolidated basis.

1.44. "Credit Documents" means:

(a) this Agreement, the Notes, each Letter of Credit, each draft
presented or accepted under a Letter of Credit, the Guarantee and
Security Agreement, the Hong

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Kong Guarantee, the Hong Kong Collateral Debenture, the fee agreement
contemplated by Section 5.1.2 and each Interest Rate Protection Agreement
provided by a Lender (or an Affiliate of a Lender) to the Company or any
of its Subsidiaries, each as from time to time in effect;

(b) all financial statements, reports, mortgages, assignments, UCC
financing statements or officer certificates delivered to the Agent or
any of the Lenders by the Company, any of its Subsidiaries or any other
Obligor in connection herewith or therewith; and

(c) any other present or future agreement or instrument from time
to time entered into among the Company, any of its Subsidiaries or any
other Obligor, on one hand, and the Agent, any Letter of Credit Issuer or
all the Lenders, on the other hand, amending or modifying this Agreement
or any other Credit Document referred to above or which is stated to be a
Credit Document, each as from time to time in effect.

1.45. "Credit Obligations" means all present and future liabilities,
obligations and Indebtedness of the Company, any of its Subsidiaries or any
other Obligor owing to the Agent or any Lender (or any Affiliate of a Lender)
under or in connection with this Agreement or any other Credit Document,
including obligations in respect of principal, interest, reimbursement
obligations under Letters of Credit and Interest Rate Protection Agreements
provided by a Lender (or an Affiliate of a Lender), commitment fees, Letter of
Credit fees, amounts provided for in Sections 3.2.4, 3.5 and 9 and other fees,
charges, indemnities and expenses from time to time owing hereunder or under
any other Credit Document (whether accruing before or after a Bankruptcy
Default).

1.46. "Credit Participant" is defined in Section 11.2.

1.47. "Credit Security" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge (or intended or
required so to be subjected pursuant to the Guarantee and Security Agreement or
any other Credit Document) to secure the payment or performance of any of the
Credit Obligations, including the assets described in section 3.1 of the
Guarantee and the Security Agreement.

1.48. "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become an
Event of Default and the filing against the Company or any other Obligor of a
petition commencing an involuntary case under the Bankruptcy Code.

1.49. "Deferred Term Loan" is defined in Section 2.4.1.

1.50. "Deferred Term Loan Maturity Date" means December 31, 2001.

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1.51. "Deferred Term Loan Note" is defined in Section 2.4.2.

1.52. "Delinquency Period" is defined in Section 10.4.4.

1.53. "Delinquent Lender" is defined in Section 10.4.4.

1.54. "Delinquent Payment" is defined in Section 10.4.4.

1.55. "Designated Affiliate Equity Proceeds" means, with respect to a
particular covenant or other provision in this Agreement, the proceeds from the
issuance of shares of capital stock of the Company to, or from receipt by the
Company of capital contributions from, members of the Management Group, the
Willis Stein Group or officers, employees and directors of the Obligors, to the
extent that (a) the Company designates in writing to the Agent that such
proceeds will be applied to such covenant or provision and (b) such proceeds
are not then applied to any other covenant or provision.

1.56. "Distribution" means, with respect to the Company (or other
specified Person):

(a) the declaration or payment of any dividend or distribution,
including dividends payable in shares of capital stock of or other equity
interests in the Company (or such specified Person), on or in respect of
any shares of any class of capital stock of or other equity interests in
the Company (or such specified Person);

(b) the purchase, redemption or other retirement of any shares of
any class of capital stock of or other equity interest in the Company (or
such specified Person) or of options, warrants or other rights for the
purchase of such shares, directly, indirectly through a Subsidiary or
otherwise;

(c) any other distribution on or in respect of any shares of any
class of capital stock of or equity or other beneficial interest in the
Company (or such specified Person);

(d) any payment of principal or interest with respect to, or any
purchase, redemption or defeasance of, any Financing Debt of the Company
(or such specified Person) which by its terms or the terms of any
agreement is subordinated to the payment of the Credit Obligations; and

(e) any payment, loan or advance by the Company (or such specified
Person) to, or any other Investment by the Company (or such specified
Person) in, the holder of any shares of any class of capital stock of the
Company (or such specified Person),

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or any Affiliate of such holder, including the payment of management and
transaction fees and expenses;

provided, however, that the term "Distribution" shall not include (i) dividends
payable in perpetual common stock of or other similar equity interests in the
Company (or such specified Person) or (ii) payments in the ordinary course of
business in respect of (A) reasonable compensation paid to employees, officers
and directors, (B) advances and reimbursements to employees for relocation
expenses, travel expenses, drawing accounts and similar expenditures, or (C)
rent paid to, or accounts payable for services rendered or goods sold by,
non-Affiliates that own capital stock of or other equity interests in the
Company (or such specified Person).

1.57. "Domestic Subsidiary" means any Subsidiary that is not a Foreign
Subsidiary.

1.58. "Eligible Accounts Receivable" means, at any date,

(a) the aggregate amount carried as accounts
receivable (reduced in accordance with GAAP for doubtful
accounts and customer returns) on the Consolidated balance
sheet of the Company and its Subsidiaries determined in
accordance with GAAP;

minus (b) the aggregate amount of any such accounts receivable
that are more than 60 days past due except to the extent
guaranteed by a Person whose unsecured senior long-term debt
obligations are rated at least Baa by Moody's and BBB by S&P;

minus (c) discounts, commissions and distribution fees payable by
the Company or any Subsidiary (other than to the Company or
a Wholly owned Subsidiary) in respect of such accounts
receivable;

minus (d) the amount of such accounts receivable due from
Affiliates;

minus (e) all payments of such accounts receivable to be made in a
currency other than United States Funds that is not freely
convertible into United States Funds or that may not be freely
withdrawn from the country of origin;

minus (f) such accounts receivable subject to Liens other than
Liens securing the Credit Obligations.

1.59. "Eligible Inventory" means, at any date:

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(a) the aggregate amount carried as inventory, at
the lower of cost or market value, on the most recent
Consolidated balance sheet of the Company and its
Subsidiaries in accordance with GAAP;

minus (b) advance payments from customers reflected on such
balance sheet.

1.60. "Equity Transaction" means any issuance by the Company or any of its
Subsidiaries to any Person (other than any Obligors, their officers, employees
and directors, the Willis Stein Group or the Management Group) of any shares of
its capital stock, other equity interests or options, warrants or other
purchase rights to acquire such capital stock or other equity interests.

1.61. "ERISA" means the federal Employee Retirement Income Security Act of
1974.

1.62. "ERISA Group Person" means the Company, any Subsidiary of the
Company and any Person which is a member of the controlled group or under
common control with the Company or any Subsidiary within the meaning of section
414 of the Code or section 4001(a)(14) of ERISA.

1.63. "Eurodollars" means, with respect to any Lender, deposits of United
States Funds in a non-United States office or an international banking facility
of such Lender.

1.64. "Eurodollar Basic Rate" means, for any Eurodollar Interest Period,
the rate of interest at which Eurodollar deposits in an amount comparable to
the portion of the Loan as to which a Eurodollar Pricing Option has been
elected and which have a term corresponding to such Eurodollar Interest Period
are offered to Bank of Boston by first class banks in the inter-bank Eurodollar
market for delivery in immediately available funds at a Eurodollar Office on
the first day of such Eurodollar Interest Period as determined by Bank of
Boston at approximately 10:00 a.m. (Boston time) two Banking Days prior to the
date upon which such Eurodollar Interest Period is to commence (which
determination by Bank of Boston shall, in the absence of manifest error, be
conclusive).

1.65. "Eurodollar Interest Period" means any period, selected as provided
in Section 3.2.1, of one, two, three or six months, commencing on any Banking
Day and ending on the corresponding date in the subsequent calendar month so
indicated (or, if such subsequent calendar month has no corresponding date, on
the last day of such subsequent calendar month); provided, however, that
subject to Section 3.2.3, if any Eurodollar Interest Period so selected would
otherwise begin or end on a date which is not a Banking Day, such Eurodollar
Interest Period shall instead begin or end, as the case may be, on the
immediately preceding or succeeding Banking Day as determined by the Agent in
accordance with the then current banking practice in the inter-bank Eurodollar
market with respect to Eurodollar deposits at the

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applicable Eurodollar Office, which determination by the Agent
shall, in the absence of manifest error, be conclusive.

1.66. "Eurodollar Office" means such non-United States office or
international banking facility of any Lender as the Lender may from time to
time select.

1.67. "Eurodollar Pricing Options" means the options granted pursuant to
Section 3.2.1 to have the interest on any portion of the Loan computed on the
basis of a Eurodollar Rate.

1.68. "Eurodollar Rate" for any Eurodollar Interest Period means the rate,
rounded upward to the nearest 1/100%, obtained by dividing (a) the Eurodollar
Basic Rate for such Eurodollar Interest Period by (b) an amount equal to 1
minus the Eurodollar Reserve Rate; provided, however, that if at any time
during such Eurodollar Interest Period the Eurodollar Reserve Rate applicable
to any outstanding Eurodollar Pricing Option changes, the Eurodollar Rate for
such Eurodollar Interest Period shall automatically be adjusted to reflect such
change, effective as of the date of such change to the extent required by the
Legal Requirement implementing the change in the Eurodollar Reserve Rate.

1.69. "Eurodollar Reserve Rate" means the stated maximum rate (expressed
as a decimal) of all reserves (including any basic, supplemental, marginal or
emergency reserve or any reserve asset), if any, as from time to time in
effect, required by any Legal Requirement to be maintained by any Lender
against (a) "Eurocurrency liabilities" as specified in Regulation D of the
Board of Governors of the Federal Reserve System applicable to Eurodollar
Pricing Options, (b) any other category of liabilities that includes Eurodollar
deposits by reference to which the interest rate on portions of the Loan
subject to Eurodollar Pricing Options is determined, (c) the principal amount
of or interest on any portion of the Loan subject to a Eurodollar Pricing
Option or (d) any other category of extensions of credit, or other assets, that
includes loans subject to a Eurodollar Pricing Option by a non-United States
office of any of the Lenders to United States residents.

1.70. "Event of Default" is defined in Section 8.1.

1.71. "Exchange Act" means the federal Securities Exchange Act of 1934.

1.72. "Federal Funds Rate" means, for any day, the rate equal to the
weighted average (rounded to the nearest 1/8%) of the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, (a) as such weighted average is published for such
day (or, if such day is not a Banking Day, for the immediately preceding
Banking Day) by the Federal Reserve Bank of New York or (b) if such rate is not
so published for such Banking Day, as determined by the Agent using any

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reasonable means of determination. Each determination by the Agent of the
Federal Funds Rate shall, in the absence of manifest error, be conclusive.

1.73. "Financial Officer" of the Company (or other specified Person) means
its chief executive officer, chief financial officer, chief operating officer,
chairman, president, controller, treasurer, assistant treasurer or any of its
vice presidents whose primary responsibility is for its financial affairs, all
of whose incumbency and signatures have been certified to the Agent by the
secretary or other appropriate attesting officer of the Company (or such
specified Person).

1.74. "Financing Debt" means each of the items described in clauses (a)
through (f) of the definition of the term "Indebtedness" and, without
duplication, any Guarantees of such items; provided, however, that in no event
will the Junior Subordinated Notes constitute Financing Debt.

1.75. "First Maturity Date" means April 30, 2001.

1.76. "Foreign Subsidiary" means each Subsidiary that is organized under
the laws of, and conducting its business primarily in a jurisdiction outside
of, the United States of America.

1.77. "Foreign Trade Regulations" means (a) any act that prohibits or
restricts, or empowers the President or any executive agency of the United
States of America to prohibit or restrict, exports to or financial transactions
with any foreign country or foreign national, (b) the regulations with respect
to certain prohibited foreign trade transactions set forth at 22 C.F.R. Parts
120-130 and 31 C.F.R. Part 500 and (c) any order, regulation, ruling,
interpretation, direction, instruction or notice relating to any of the
foregoing.

1.78. "Funding Liability" means (a) any Eurodollar deposit which was used
(or deemed by Section 3.2.6 to have been used) to fund any portion of the Loan
subject to a Eurodollar Pricing Option, and (b) any portion of the Loan subject
to a Eurodollar Pricing Option funded (or deemed by Section 3.2.6 to have been
funded) with the proceeds of any such Eurodollar deposit.

1.79. "GAAP" means generally accepted accounting principles as from time
to time in effect, including the statements and interpretations of the United
States Financial Accounting Standards Board; provided, however, that for
purposes of compliance with Section 6 (other than Section 6.4) and the related
definitions, "GAAP" means such principles as in effect on December 31, 1995 as
applied by the Borrower and Dods-Meyer, Ltd. in the preparation of the annual
financial statements referred to in Section 7.2.1(a), and consistently
followed, without giving effect to any subsequent changes thereto.

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1.80. "Guarantee" means, with respect to the Company (or other specified
Person):

(a) any guarantee by the Company (or such specified Person) of the
payment or performance of, or any contingent obligation by the Company
(or such specified Person) in respect of, any Indebtedness or other
obligation of any primary obligor;

(b) any other arrangement whereby credit is extended to a primary
obligor on the basis of any promise or undertaking of the Company (or
such specified Person), including any binding "comfort letter" or "keep
well agreement" written by the Company (or such specified Person), to a
creditor or prospective creditor of such primary obligor, to (i) pay the
Indebtedness of such primary obligor, (ii) purchase an obligation owed by
such primary obligor, (iii) pay for the purchase or lease of assets or
services regardless of the actual delivery thereof or (iv) maintain the
capital, working capital, solvency or general financial condition of such
primary obligor;

(c) any liability of the Company (or such specified Person), as a
general partner of a partnership in respect of Indebtedness or other
obligations of such partnership;

(d) any liability of the Company (or such specified Person) as a
joint venturer of a joint venture in respect of Indebtedness or other
obligations of such joint venture;

(e) any liability of the Company (or such specified Person) with
respect to the tax liability of others as a member of a group (other than
a group consisting solely of the Company and its Subsidiaries) that is
consolidated for tax purposes; and

(f) reimbursement obligations, whether contingent or matured, of
the Company (or such specified Person) with respect to letters of credit,
bankers acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements,

whether or not any of the foregoing are reflected on the balance sheet of the
Company (or such specified Person) or in a footnote thereto; provided, however,
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Guarantee and
the amount of Indebtedness resulting from such Guarantee shall be the maximum
amount that the guarantor may become obligated to pay in respect of the
obligations (whether or not such obligations are outstanding at the time of
computation) and, for purposes of covenant calculations, shall be without
duplication of guaranteed Indebtedness that is already included in such
calculations.

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1.81. "Guarantee and Security Agreement" is defined in Section 5.1.4.

1.82. "Guarantor" means the Company, Banerjan and each Subsidiary which
subsequently becomes party to the Guarantee and Security Agreement or any other
Credit Document as a Guarantor.

1.83. "Hong Kong Collateral Debenture" means the Debenture dated as of the
date hereof, as from time to time in effect, from Banerjan to the Agent.

1.84. "Hong Kong Guarantee" means the Guarantee Agreement dated as of the
date hereof, as from time to time in effect, from Banerjan to the Agent.

1.85. "Indebtedness" means all obligations, contingent or otherwise, which
in accordance with GAAP are required to be classified upon the face of the
balance sheet of the Company (or other specified Person) as liabilities, but in
any event including (without duplication):

(a) borrowed money;

(b) indebtedness evidenced by notes, debentures or similar
instruments;

(d) the deferred purchase price of assets or securities, including
related noncompetition and consulting obligations, payable in cash (other
than ordinary trade accounts payable in the ordinary course of business);

(e) mandatory redemption or dividend rights on capital stock (or
other equity) required to be paid in cash;

(f) reimbursement obligations, whether contingent or matured, with
respect to letters of credit, bankers acceptances, surety bonds, other
financial guarantees and Interest Rate Protection Agreements (without
duplication of other Indebtedness supported or guaranteed thereby);

(g) liabilities secured by any Lien existing on property owned or
acquired by the Company (or such specified Person), whether or not the
liability secured thereby shall have been assumed; and

(h) all Guarantees in respect of Indebtedness of others.

1.86. "Indemnified Party" is defined in Section 9.2.

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1.87. "Initial Closing Date" means April 30, 1996 or such other date prior
to May 31, 1996 agreed to by the Company and the Agent as the first Closing
Date hereunder.

1.88. "Interest Rate Protection Agreement" means any interest rate swap,
interest rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed interest rates, fixed interest
rates into variable interest rates or other similar arrangements.

1.89. "Investment" means, with respect to the Company (or other specified
Person):

(a) any share of capital stock, partnership or other equity
interest, evidence of Indebtedness or other security issued to the
Company (or other specified Person) by any other Person;

(b) any loan, advance or extension of credit by the Company (or
other specified Person) to, or contribution to the capital of, any other
Person;

(d) any acquisition by the Company (or other specified Person) of
all, or any division or similar operating unit of, the business of any
other Person or the assets comprising such business, division or unit;
and

(e) any other similar investment.

The investments described in the foregoing clauses (a) through (e) shall
be included in the term "Investment" whether they are made or acquired by
purchase, exchange, issuance of stock or other securities, merger,
reorganization or any other method; provided, however, that the term
"Investment" shall not include (i) current trade and customer accounts
receivable for property leased, goods furnished or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms, (ii) deposits, advances or prepayments to suppliers or licensors for
property leased or licensed, goods furnished or services rendered in the
ordinary course of business, (iii) advances to employees for travel,
entertainment and relocation expenses, drawing accounts and similar
expenditures, (iv) stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due to the Company (or
such specified Person) or as security for any such Indebtedness or claim or (v)
demand deposits in banks or similar financial institutions.

In determining the amount of outstanding Investments:

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(A) the amount of any Investment shall be the cost thereof minus
any returns of capital in cash on such Investment (determined in
accordance with GAAP without regard to amounts realized as income on such
Investment);

(B) the amount of any Investment in respect of a purchase described
in clause (d) above shall include the amount of any Financing Debt
assumed in connection with such purchase or secured by any asset acquired
in such purchase (whether or not any Financing Debt is assumed) or for
which any Person that becomes a Subsidiary is liable on the date on which
the securities of such Person are acquired, and shall be reduced to the
extent of any reductions in such Financing Debt; and

(C) no Investment shall be increased as the result of an increase
in the undistributed retained earnings of the Person in which the
Investment was made or decreased as a result of an equity interest in the
losses of such Person.

1.90. "Junior Subordinated Notes" means the Company's $39,441,052 12%
Series A and Series B Junior Subordinated Notes due April 30, 2006 issued,
respectively, to the members of the Willis Stein Group and the Management Group
on the Initial Closing Date in the form furnished to the Lenders on the date
hereof, without subsequent modification or amendment except to the extent
otherwise permitted hereby.

1.91. "Legal Requirement" means any present or future requirement imposed
upon any of the Lenders or the Company and its Subsidiaries by any law,
statute, rule, regulation, directive, order, decree, guideline (or any
interpretation thereof by courts or of administrative bodies) of the United
States of America, or any jurisdiction in which any Eurodollar Office is
located or any state or political subdivision of any of the foregoing, or by
any board, governmental or administrative agency, central bank or monetary
authority of the United States of America, any jurisdiction in which any
Eurodollar Office is located, or any political subdivision of any of the
foregoing. Any such requirement imposed on any of the Lenders not having the
force of law shall be deemed to be a Legal Requirement for purposes of Section
3 if such Lender reasonably believes that compliance therewith is in the best
interest of such Lender.

1.92. "Lender" means each of the Persons listed as lenders on the
signature page hereto, including Bank of Boston in its capacity as a Lender and
such other Persons who may from time to time own a Percentage Interest in the
Credit Obligations, but the term "Lender" shall not include any Credit
Participant.

1.93. "Lending Officer" means such individuals whom the Agent may
designate by notice to the Company from time to time as an officer who may
receive telephone requests for borrowings under Section 2.1.3.

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1.94. "Letter of Credit" is defined in Section 2.5.1.

1.95. "Letter of Credit Exposure" means, at any date, the sum of (a) the
aggregate face amount of all drafts that may then or thereafter be presented by
beneficiaries under all Letters of Credit then outstanding, plus (b) the
aggregate face amount of all drafts that the Letter of Credit Issuer has
previously accepted under Letters of Credit but has not paid.

1.96. "Letter of Credit Issuer" means, for any Letter of Credit, Bank of
Boston or any other Lender designated by the Company to issue such Letter of
Credit in accordance with Section 2.5.

1.97. "Lien" means, with respect to the Company (or any other specified
Person):

(a) any lien, encumbrance, mortgage, pledge, charge or security
interest of any kind upon any property or assets of the Company (or such
specified Person), whether now owned or hereafter acquired, or upon the
income or profits therefrom;

(b) the acquisition of, or the agreement to acquire, any property
or asset upon conditional sale or subject to any other title retention
agreement, device or arrangement (including a Capitalized Lease);

(c) the sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the Company (or such
specified Person), with or without recourse; and

(d) the transfer of any tangible property or assets for the
purpose of subjecting such items to the payment of previously outstanding
Indebtedness in priority to payment of the general creditors of the
Company (or such specified Person).

1.98. "Loan" means, collectively, the Revolving Loan, Term Loan A, Term
Loan B and the Deferred Term Loan.

1.99. "Management Group" means each of the Sellers and those members of
management of the Company or any of its Subsidiaries party to the Stockholders
Agreement dated April 30, 1996 among the Company and the stockholders of the
Company as of the Initial Closing Date, as from time to time in effect.

1.100. "Margin Stock" means "margin stock" within the meaning of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.

1.101. "Material Adverse Change" means, since any specified date or from
the circumstances existing immediately prior to the happening of any specified
event, a material

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adverse change in (a) the business, assets, financial condition or income of
the Company and its Subsidiaries (on a Consolidated basis) or (b) the rights
and remedies of the Agent and the Lenders under the Credit Documents.

1.102. "Material Agreements" is defined in Section 7.2.2.

1.103. "Maximum Amount of Revolving Credit" is defined in Section 2.1.2.

1.104. "Moody's" means Moody's Investors Service, Inc.

1.105. "Multiemployer Plan" means any Plan that is a "multiemployer plan"
as defined in section 4001(a)(3) of ERISA.

1.106. "Net Asset Sale Proceeds" means the cash proceeds of the sale or
disposition of assets (including by way of merger) by the Company or any of its
Subsidiaries net of (a) any Indebtedness permitted by Section 7.6.7 (Capitalized
Leases and purchase money indebtedness) secured by assets being sold in such
transaction required to be paid from such proceeds, (b) taxes that, as estimated
by the Company in good faith, will be required to be paid by the Company or any
of its Subsidiaries in cash as a result of, and within 15 months after such sale
or disposition, (c) reasonable reserves for liabilities resulting from the sale
of assets and (d) all reasonable fees, commissions and expenses of the Company
or any of its Subsidiaries payable in connection with such sale or disposition;
provided, however, that "Net Asset Sale Proceeds" shall not include cash
proceeds of (i) asset sales permitted by clauses (a) and (b) of Section 6.11.1,
(ii) asset sales permitted by clause (c) of Section 6.11.1, the proceeds of
which are not expended within 30 days to make Capital Expenditures permitted by
Section 6.5.5, (iii) mergers permitted by Section 6.11.2 or (iv) sales of
accounts receivable permitted by Section 6.11.6.

1.107. "Net Equity Proceeds" means the cash proceeds received by the
Company or any of its Subsidiaries in connection with any Equity Transaction
(net of reasonable out-of-pocket fees and expenses).

1.108. "Nonfacility Letter of Credit Exposure" means, at any date, the sum
of (a) the aggregate face amount of all drafts that may then or thereafter be
presented by beneficiaries under all letters of credit permitted by Section
6.7.4 then outstanding, plus (b) the aggregate face amount of all drafts that
the issuers of such letters of credit have previously accepted under such
letters of credit but have not paid.

1.109. "Nonperforming Lender" is defined in Section 10.4.4.

1.110. "Notes" means, collectively, the Revolving Notes, the Term Loan A
Notes, the Term Loan B Notes and the Deferred Term Loan Notes.

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1.111. "Obligor" means the Borrower, each Guarantor and each Person
guaranteeing or providing collateral for the Credit Obligations.

1.112. "Overdue Reimbursement Rate" means, at any date, the highest
Applicable Rate then in effect.

1.113. "Payment Date" means the last Banking Day of each March, June,
September and December occurring after the Initial Closing Date.

1.114. "PBGC" means the Pension Benefit Guaranty Corporation or any
successor entity.

1.115. "Percentage Interest" means (a) at all times when no Event of
Default under Section 8.1.1 and no Bankruptcy Default exists, the ratio that the
respective Commitments of the Lenders bear to the total Commitments of all
Lenders as from time to time in effect and reflected in the Register, and (b) at
all other times, the ratio that the respective amounts of the outstanding Credit
Obligations (including Letter of Credit Exposure) owing to the Lenders in
respect of extensions of credit under Section 2 bear to the total outstanding
Credit Obligations owing to all Lenders.

1.116. "Performing Lender" is defined in Section 10.4.4.

1.117. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.

1.118. "PIK Interest" means any accrued interest payments on Financing Debt
and the Junior Subordinated Notes that are postponed, evidenced by book-entry
accrual or made through the issuance of "payment-in-kind" notes or other
securities, all in accordance with the terms of such Financing Debt or the
Junior Subordinated Notes; provided, however, that in no event shall PIK
Interest include payments made with cash or Cash Equivalents.

1.119. "Plan" means, at any date, any pension benefit plan subject to Title
IV of ERISA maintained, or to which contributions have been made or are required
to be made, by any ERISA Group Person within six years prior to such date.

1.120. "Prior Credit Agreement" means the Borrower's credit facility with
Northern Trust Bank/Dupage.

1.121. "Register" is defined in Section 11.1.3.

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1.122. "Replacement Lender" is defined in Section 11.3.

1.123. "Required Lenders" means, with respect to any approval, consent,
modification, waiver or other action to be taken by the Agent or the Lenders
under the Credit Documents which require action by the Required Lenders, such
Lenders as own at least a majority of the Percentage Interests; provided,
however, that with respect to any matters referred to in the proviso to Section
10.6, Required Lenders means such Lenders as own at least the respective
portions of the Percentage Interests required by Section 10.6.

1.124. "Revolving Loan" is defined in Section 2.1.4.

1.125. "Revolving Notes" is defined in Section 2.1.4.

1.126. "S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill Corporation.

1.127. "Securities Act" means the federal Securities Act of 1933.

1.128. "Sellers" means Boyd L. Meyer, Robert E. Dods, Peter Chung,
Dods-Meyer, Ltd., Racing Champions Limited, Garnett Services, Inc. and Hosten
Investment Limited.

1.129. "Seller Subordinated Notes" means the Company's $8,000,000 Prime
Rate Senior Subordinated Notes due April 30, 1997 issued to the Sellers on the
Initial Closing Date in the form furnished to the Lenders on the date hereof,
without subsequent modification or amendment except to the extent otherwise
permitted hereby.

1.130. "Specified Event of Default" means, collectively, a Bankruptcy
Default, an Event of Default under Section 8.1.1 and an Event of Default arising
under Section 8.1.2 as a result of the failure by the Company or any of its
Subsidiaries to perform or observe any of the provisions of Sections 6.5 through
6.12.

1.131. "Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own at least 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally, (b) hold at
least 50% of the partnership, joint venture or similar interests or (c) be a
managing general partner or managing joint venturer.

1.132. "Tax" means any present or future tax, levy, duty, impost,
deduction, withholding or other charges of whatever nature at any time required
by any Legal Requirement (a) to be paid by any Lender or (b) to be withheld or
deducted from any payment otherwise required hereby to be made to any Lender, in
each case on or with respect to its

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obligations hereunder, the Loan, any payment in respect of the Credit
Obligations or any Funding Liability not included in the foregoing; provided,
however, that the term "Tax" shall not include taxes imposed upon or measured by
the net income of such Lender (other than withholding taxes that are not
creditable for the jurisdiction imposing such withholding taxes against taxes
imposed upon or measured by the net income of such Lender) or franchise taxes.

1.133. "Term Loan A" is defined in Section 2.2.1.

1.134. "Term Loan A Note" is defined in Section 2.2.2.

1.135. "Term Loan B" is defined in Section 2.3.1.

1.136. "Term Loan B Maturity Date" means April 30, 2002.

1.137. "Term Loan B Note" is defined in Section 2.3.2.

1.138. "Three Day Notes" mean the Three Day Promissory Notes due May 3,
1996 (and the $20,000 note due in January 1997) issued by the Company pursuant
to section 2(a)(ii) of the Acquisition Agreement to the Sellers who are
stockholders of the Borrower prior to the Acquisition in an aggregate principal
amount not exceeding $40,000,000.

1.139. "Three Day Notes Letters of Credit" means the standby letters of
credit expiring by May 10, 1996 issued by Bank of Boston to the holders of the
Three Day Notes to provide credit support for the payment of such notes.

1.140. "Tranche" means each of the Revolving Loan, Term Loan A, Term Loan B
and the Deferred Term Loan, considered as a separate credit facility.

1.141. "Uniform Customs and Practice" is defined in Section 2.5.7.

1.142. "United States Funds" means such coin or currency of the United
States of America as at the time shall be legal tender therein for the payment
of public and private debts.

1.143. "Wholly Owned Subsidiary" means any Subsidiary of which all of the
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally (other than directors' qualifying shares and, in the case of
Foreign Subsidiaries, shares required by Legal Requirements to be held by
foreign nationals) is owned by the Company (or other specified Person) directly,
or indirectly through one or more Wholly Owned Subsidiaries.

1.144. "Willis Stein Group" means (a) Willis Stein & Partners, L.P., Nassau
Capital Partners L.P., NAS Partners I L.L.C., Baird Capital Partners II Limited
Partnership and BCP

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Affiliates Fund Limited Partnership, (b) Affiliates of any of the Persons
described in the foregoing clause (a) and (c) members, managers and limited and
general partners of the Persons described in the foregoing clause (a) and
investors in funds managed by Persons described in the foregoing clause (b).

2. The Credits.

2.1. Revolving Credit.

2.1.1. Revolving Loan. Subject to all the terms and conditions of
this Agreement and so long as no Default exists, from time to time on and
after the Initial Closing Date and prior to the First Maturity Date, the
Lenders will, severally in accordance with their respective Commitments in
the Revolving Loan, make loans to the Borrower in such amounts as may be
requested by the Borrower in accordance with Section 2.1.3. The sum of the
aggregate principal amount of loans made under this Section 2.1.1 at any
one time outstanding plus the Letter of Credit Exposure shall in no event
exceed the lesser of (a) the Borrowing Base or (b) the Maximum Amount of
Revolving Credit. In no event will the principal amount of loans at any
one time outstanding made by any Lender pursuant to this Section 2.1 exceed
such Lender's Commitment with respect to the Revolving Loan.

2.1.2. Maximum Amount of Revolving Credit. The term "Maximum Amount
of Revolving Credit" means, on any date, the lesser of (a) (i) $5,000,000
minus (ii) to the extent not used to reduce Term Loan A, the Deferred Term
Loan or Term Loan B in accordance with Section 4.3, Net Asset Sale Proceeds
described in Section 4.3.3 and Net Equity Proceeds described in Section
4.3.4, minus (iii) to the extent not used to reduce Term Loan A, the
Deferred Term Loan or Term Loan B in accordance with Section 4.3.2, 50% of
Consolidated Excess Cash Flow, or (b) the amount (in an integral multiple
of $100,000) to which the then applicable amount shall have been
irrevocably reduced from time to time by notice from the Borrower to the
Agent.

2.1.3. Borrowing Requests. The Borrower may from time to time
request a loan under Section 2.1.1 by providing to the Agent a notice
(which may be given by a telephone call received by a Lending Officer if
promptly confirmed in writing). Such notice must be not later than noon
(Boston time) on the first Banking Day (third Banking Day if any portion of
such loan will be subject to a Eurodollar Pricing Option on the requested
Closing Date) prior to the requested Closing Date for such loan. The
notice must specify (a) the amount of the requested loan (which shall be
not less than $100,000) and (b) the requested Closing Date therefor (which
shall be a Banking Day). Upon receipt of such notice, the Agent will
promptly inform each other Lender (by telephone or otherwise). Each such
loan will be made at the Boston Office by

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depositing the amount thereof to the general account of the Borrower with
the Agent or as otherwise directed by the Borrower. In connection with
each such loan, the Borrower shall furnish to the Agent a certificate in
substantially the form of Exhibit 5.2.1.

2.1.4. Revolving Notes. The aggregate principal amount of the loans
outstanding from time to time under this Section 2.1 is referred to as the
"Revolving Loan". The Revolving Loan shall be deemed owed to each Lender
having a Commitment therein severally in accordance with such Lender's
Percentage Interest therein, and all payments thereon shall be for the
account of each Lender in accordance with its Percentage Interest therein.
The Borrower's obligations to pay each Lender's Percentage Interest in the
Revolving Loan shall be evidenced by a separate note of the Borrower in
substantially the form of Exhibit 2.1.4 (the "Revolving Notes"), payable to
each Lender in accordance with such Lender's Percentage Interest in the
Revolving Loan.

2.2. Term Loan A Credit.

2.2.1. Term Loan A. Subject to all the terms and conditions of this
Agreement and so long as no Default exists, on the Initial Closing Date the
Lenders will, in accordance with their respective Commitments in Term Loan
A, severally lend $30,000,000 to the Borrower as a term loan. The aggregate
principal amount of the loans made pursuant to this Section 2.2.1 at any
one time outstanding is referred to as "Term Loan A". In connection with
Term Loan A, the Borrower shall furnish to the Agent a certificate in
substantially the form of Exhibit 5.2.1.

2.2.2. Term Loan A Notes. Term Loan A shall be made at the Boston
Office by depositing the amount of such loan to the general account of the
Borrower with the Agent against delivery to the Agent of the separate term
notes of the Borrower (the "Term Loan A Notes") payable to the respective
Lenders. The Term Loan A Note issued to each Lender shall be in a
principal amount equal to such Lender's Percentage Interest in Term Loan A,
and shall be in substantially the form of Exhibit 2.2.2.

2.3. Term Loan B Credit.

2.3.1. Term Loan B. Subject to the terms and conditions of this
Agreement and so long as no Default exists, on the Initial Closing Date
the Lenders will, in accordance with their respective Commitments in Term
Loan B, severally lend $10,000,000 to the Borrower as a term loan. The
aggregate principal amount of the loans made pursuant to this Section
2.3.1 at any one time outstanding is referred to as "Term Loan B". In
connection with Term Loan B, the Borrower shall furnish to the Agent a
certificate in substantially the form of Exhibit 5.2.1.

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2.3.2. Term Loan B Notes. Term Loan B shall be made at the Boston
Office by depositing the amount of such loan to the general account of the
Borrower with the Agent against delivery to the Agent of the separate term
notes of the Borrower (the "Term Loan B Notes") payable to the respective
Lenders. The Term Loan B Note issued to each Lender shall be in a
principal amount equal to such Lender's Percentage Interest in Term Loan B,
and shall be in substantially the form of Exhibit 2.3.2.

2.4. Deferred Term Loan Credit.

2.4.1. Deferred Term Loan. Subject to all the terms and conditions
of this Agreement (including Section 5.3) and so long as no Specified Event
of Default exists, on such Banking Day between March 31, 1997 and April 30,
1997 as the Borrower may request by at least two Banking Days prior written
notice to the Agent, the Lenders will, in accordance with their respective
Commitments in the Deferred Term Loan, severally lend up to $8,000,000 to
the Borrower as a term loan. The aggregate principal amount of the loans
made pursuant to this Section 2.4.1 at any one time outstanding is referred
to as the "Deferred Term Loan". In connection with the Deferred Term Loan,
the Borrower shall furnish to the Agent a certificate in substantially the
form of Exhibit 5.2.1 in accordance with Section 5.3.4. The Commitment of
the Lenders to extend the Deferred Term Loan terminates on the close of
business on April 30, 1997 or the first Closing Date on which credit is
extended under this Section 2.4.

2.4.2. Deferred Term Loan Notes. The Deferred Term Loan shall be
made at the Boston Office by depositing the amount of such loan to the
general account of the Borrower with the Agent against delivery to the
Agent of the separate term notes of the Borrower (the "Deferred Term Loan
Notes") payable to the respective Lenders. The Deferred Term Loan Note
issued to each Lender shall be in a principal amount equal to such Lender's
Percentage Interest in the Deferred Term Loan, and shall be in
substantially the form of Exhibit 2.4.2.

2.5. Letters of Credit.

2.5.1. Issuance of Letters of Credit. Subject to all the terms and
conditions of this Agreement and so long as no Default exists, from time to
time on and after the Initial Closing Date and prior to the First Maturity
Date, the Letter of Credit Issuer will issue for the account of the
Borrower one or more irrevocable documentary or standby letters of credit
(the "Letters of Credit"). Letter of Credit Exposure plus the Revolving
Loan shall in no event exceed the lesser of (a) the Borrowing Base or (b)
the Maximum Amount of Revolving Credit. Letter of Credit Exposure shall
not exceed $1,500,000 minus Nonfacility Letter of Credit Exposure at any
one time outstanding.

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2.5.2. Requests for Letters of Credit. The Borrower may from time
to time request a Letter of Credit to be issued by providing to the Letter
of Credit Issuer (and the Agent if the Letter of Credit Issuer is not the
Agent) a notice which is actually received not less than three Banking Days
prior to the requested Closing Date for such Letter of Credit specifying
(a) the amount of the requested Letter of Credit, (b) the beneficiary
thereof, (c) the requested Closing Date and (d) the principal terms of the
text for such Letter of Credit. Each Letter of Credit will be issued by
forwarding it to the Borrower or to such other Person as directed in
writing by the Borrower. In connection with the issuance of any Letter of
Credit, the Borrower shall furnish to the Letter of Credit Issuer (and the
Agent if the Letter of Credit Issuer is not the Agent) a certificate in
substantially the form of Exhibit 5.2.1 and any customary application forms
required by the Letter of Credit Issuer, which forms shall be used to
obtain the information provided by the Borrower therein and which, in the
case of conflict with this Agreement, shall be subject to the provisions of
this Agreement.

2.5.3. Form and Expiration of Letters of Credit. Each Letter of
Credit issued under this Section 2.5 and each draft accepted or paid under
such a Letter of Credit shall be issued, accepted or paid, as the case may
be, by the Letter of Credit Issuer at its principal office. No Letter of
Credit shall provide for the payment of drafts drawn thereunder, and no
draft shall be payable, at a date which is later than the earlier of (a)
the date 12 months after the date of issuance or (b) the First Maturity
Date. Each Letter of Credit and each draft accepted under a Letter of
Credit shall be in such form and minimum amount, and shall contain such
terms, as the Letter of Credit Issuer and the Borrower may agree upon at
the time such Letter of Credit is issued, including a requirement of not
less than three Banking Days after presentation of a draft before payment
must be made thereunder.

2.5.4. Lenders' Participation in Letters of Credit. Upon the
issuance of any Letter of Credit, a participation therein, in an amount
equal to each Lender's Percentage Interest in the Revolving Loan, shall
automatically be deemed granted by the Letter of Credit Issuer to each such
Lender on the date of such issuance and such Lenders shall automatically be
obligated, as set forth in Section 10.4, to reimburse the Letter of Credit
Issuer to the extent of their respective Percentage Interests in the
Revolving Loan for all obligations incurred by the Letter of Credit Issuer
to third parties in respect of such Letter of Credit not reimbursed by the
Borrower. The Letter of Credit Issuer will send to each Lender (and the
Agent if the Letter of Credit Issuer is not the Agent) a confirmation
regarding the participations in Letters of Credit outstanding during such
month.

2.5.5. Presentation. The Letter of Credit Issuer may accept or pay
any draft presented to it, regardless of when drawn and whether or not
negotiated, if such draft,

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the other required documents and any transmittal advice are presented to
the Letter of Credit Issuer and dated on or before the expiration date of
the Letter of Credit under which such draft is drawn. Except insofar as
instructions actually received may be given by the Borrower in writing
expressly to the contrary with regard to, and prior to, the Letter of
Credit Issuer's issuance of any Letter of Credit for the account of the
Borrower and such contrary instructions are reflected in such Letter of
Credit, the Letter of Credit Issuer may honor as complying with the terms
of the Letter of Credit and with this Agreement any drafts or other
documents otherwise in order signed or issued by an administrator,
executor, conservator, trustee in bankruptcy, debtor in possession,
assignee for benefit of creditors, liquidator, receiver or other legal
representative of the party authorized under such Letter of Credit to draw
or issue such drafts or other documents.

2.5.6. Payment of Drafts. At such time as a Letter of Credit Issuer
makes any payment on a draft presented or accepted under a Letter of
Credit, the Borrower will on demand pay to such Letter of Credit Issuer in
immediately available funds the amount of such payment. Unless the
Borrower shall otherwise pay to the Letter of Credit Issuer the amount
required by the foregoing sentence, such amount shall be considered a loan
under Section 2.1.1 and part of the Revolving Loan as if the Borrower had
paid in full the amount required with respect to the Letter of Credit by
borrowing such amount under Section 2.1.1.

2.5.7. Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, and any subsequent revisions thereof approved
by a Congress of the International Chamber of Commerce and adhered to by
the Letter of Credit Issuer (the "Uniform Customs and Practice"), shall be
binding on the Borrower and the Letter of Credit Issuer except to the
extent otherwise provided herein, in any Letter of Credit or in any other
Credit Document. Anything in the Uniform Customs and Practice to the
contrary notwithstanding:

(a) Neither the Borrower nor any beneficiary of any Letter of Credit
shall be deemed an agent of any Letter of Credit Issuer.

(b) With respect to each Letter of Credit, neither the Letter of
Credit Issuer nor its correspondents shall be responsible for or shall have
any duty to ascertain (unless the Letter of Credit Issuer or such
correspondent is grossly negligent or willful in failing so to ascertain):

(i) the genuineness of any signature;

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(ii) the validity, form, sufficiency, accuracy, genuineness or
legal effect of any endorsements;

(iii) delay in giving, or failure to give, notice of arrival,
notice of refusal of documents or of discrepancies in respect of which
any Letter of Credit Issuer refuses the documents or any other notice,
demand or protest;

(iv) the performance by any beneficiary under any Letter of
Credit of such beneficiary's obligations to the Borrower;

(v) inaccuracy in any notice received by the Letter of Credit
Issuer;

(vi) the validity, form, sufficiency, accuracy, genuineness or
legal effect of any instrument, draft, certificate or other document
required by such Letter of Credit to be presented before payment of a
draft if such instrument, draft, certificate or other document appears
on its face to comply with the requirements of the Letter of Credit,
or the office held by or the authority of any Person signing any of
the same; or

(vii) failure of any instrument to bear any reference or
adequate reference to such Letter of Credit, or failure of any Person
to note the amount of any instrument on the reverse of such Letter of
Credit or to surrender such Letter of Credit or to forward documents
in the manner required by such Letter of Credit.

(c) The occurrence of any of the events referred to in the Uniform
Customs and Practice or in the preceding clauses of this Section 2.5.7
shall not affect or prevent the vesting of any of the Letter of Credit
Issuer's rights or powers hereunder or the Borrower's obligation to make
reimbursement of amounts paid under any Letter of Credit or any draft
accepted thereunder.

(d) The Borrower will promptly examine (i) each Letter of Credit
(and any amendments thereof) sent to it by the Letter of Credit Issuer and
(ii) all instruments and documents delivered to it from time to time by the
Letter of Credit Issuer. The Borrower will notify the Letter of Credit
Issuer of any claim of noncompliance by notice actually received within
three Banking Days after receipt by the Borrower of any of the foregoing
documents, the Borrower being conclusively deemed to have waived any such
claim against such Letter of Credit Issuer and its correspondents unless
such notice is given. The Letter of Credit Issuer shall have no obligation
or responsibility to send any such Letter of Credit or any such instrument
or document to the Borrower.

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(e) In the event of any conflict between the provisions of this
Agreement and the Uniform Customs and Practice, the provisions of this
Agreement shall govern.

2.5.8. Subrogation. Upon any payment by a Letter of Credit
Issuer under any Letter of Credit and until the reimbursement of such
Letter of Credit Issuer by the Borrower with respect to such payment, the
Letter of Credit Issuer shall be entitled to be subrogated to, and to
acquire and retain, the rights which the Person to whom such payment is
made may have against the Borrower, all for the benefit of the Lenders.
The Borrower will take such action as the Letter of Credit Issuer may
reasonably request, including requiring the beneficiary of any Letter of
Credit to execute such documents as the Letter of Credit Issuer may
reasonably request, to assure and confirm to the Letter of Credit Issuer
such subrogation and such rights, including the rights, if any, of the
beneficiary to whom such payment is made in accounts receivable, inventory
and other properties and assets of any Obligor.

2.5.9. Modification, Consent, etc. If the Borrower requests or
consents in writing to any modification or extension of any Letter of
Credit, or waives any failure of any draft, certificate or other document
to comply with the terms of such Letter of Credit, and if the Letter of
Credit Issuer consents thereto, the Letter of Credit Issuer shall be
entitled to rely on such request, consent or waiver. This Agreement shall
be binding upon the Borrower with respect to such Letter of Credit as so
modified or extended, and with respect to any action taken or omitted by
such Letter of Credit Issuer pursuant to any such request, consent or
waiver.

2.6. Application of Proceeds.

2.6.1. Revolving Loan. Subject to Section 2.6.6, the Borrower will
apply the proceeds of the Revolving Loan to finance the Acquisition,
including permitted payments of interest on the Seller Subordinated Notes,
and for working capital and other lawful corporate purposes of the Company
and its Subsidiaries.

2.6.2. Term Loan A. The Borrower will apply the proceeds of Term
Loan A to finance the Acquisition, including cash collateral to secure
reimbursement obligations with respect to the Three Day Notes Letters of
Credit.

2.6.3. Term Loan B. The Borrower will apply the proceeds of Term
Loan B to finance the Acquisition, including cash collateral to secure
reimbursement obligations with respect to the Three Day Notes Letters of
Credit.

2.6.4. Deferred Term Loan. The Borrower will apply the proceeds of
the Deferred Term Loan to refinance the Seller Subordinated Notes.

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2.6.5. Letters of Credit. Letters of Credit shall be issued only
for such lawful corporate purposes as the Borrower has requested in
writing and to which the Letter of Credit Issuer consents, which consent
shall not be unreasonably withheld.

2.6.6. Specifically Prohibited Applications. The Borrower will
not, directly or indirectly, apply any part of the proceeds of any
extension of credit made pursuant to the Credit Documents to purchase or
to carry Margin Stock in amounts that would result in a violation of
Rules G, T, U or X of the Board of Governors of the Federal Reserve
System or to any transaction prohibited by the Foreign Trade Regulations,
by other Legal Requirements applicable to the Lenders or by the Credit
Documents.

2.7. Nature of Obligations of Lenders to Make Extensions of Credit. The
Lenders' obligations to extend credit under this Agreement are several and are
not joint or joint and several. If on any Closing Date any Lender shall fail
to perform its obligations under this Agreement, the aggregate amount of
Commitments to make the extensions of credit under this Agreement shall be
reduced by the amount of unborrowed Commitment of the Lender so failing to
perform and the Percentage Interests shall be appropriately adjusted. Lenders
that have not failed to perform their obligations to make the extensions of
credit contemplated by Section 2 may, if any such Lender so desires, assume, in
such proportions as such Lenders may agree, the obligations of any Lender who
has so failed and the Percentage Interests shall be appropriately adjusted.
The provisions of this Section 2.7 shall not affect the rights of the Borrower
against any Lender failing to perform its obligations hereunder.

3. Interest; Eurodollar Pricing Options; Fees.

3.1. Interest. The Loan shall accrue and bear interest at a rate per
annum which shall at all times equal the Applicable Rate. Prior to any stated
or accelerated maturity of the Loan, the Borrower will, on each Payment Date,
pay the accrued and unpaid interest on the portion of the Loan which was not
subject to a Eurodollar Pricing Option. On the last day of each Eurodollar
Interest Period or on any earlier termination of any Eurodollar Pricing Option,
the Borrower will pay the accrued and unpaid interest on the portion of the
Loan which was subject to the Eurodollar Pricing Option which expired or
terminated on such date. In the case of any Eurodollar Interest Period longer
than three months, the Borrower will also pay the accrued and unpaid interest
on the portion of the Loan subject to the Eurodollar Pricing Option having such
Eurodollar Interest Period at three-month intervals, the first such payment to
be made on the last Banking Day of the three-month period which begins on the
first day of such Eurodollar Interest Period. On the stated or any accelerated
maturity of the Loan, the Borrower will pay all accrued and unpaid interest on
the Loan, including any accrued and unpaid interest on any portion of the Loan
which is subject to a Eurodollar Pricing Option. Upon the occurrence and
during the continuance of an Event of Default, the Lenders may require accrued
interest to be payable at monthly intervals. All payments of
interest hereunder

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shall be made to the Agent for the account of each Lender in
accordance with such Lender's Percentage Interest.

3.2. Eurodollar Pricing Options.

3.2.1. Election of Eurodollar Pricing Options. Subject to all of
the terms and conditions hereof and so long as no Default exists, the
Borrower may from time to time, by irrevocable notice to the Agent
actually received not less than three Banking Days prior to the
commencement of the Eurodollar Interest Period selected in such notice,
elect to have such portion of the Loan as the Borrower may specify in
such notice accrue and bear interest during the Eurodollar Interest
Period so selected at the Applicable Rate computed on the basis of the
Eurodollar Rate. In the event the Borrower at any time fails to elect a
Eurodollar Pricing Option under this Section 3.2.1 for any portion of the
Loan, then, in the case of the Revolving Loan, Term Loan A and the
Deferred Term Loan, such portion of the Loan will accrue and bear
interest at the Applicable Rate based on the Base Rate and, in the case
of Term Loan B, the Borrower shall automatically be deemed to have
elected under this Section 3.2.1 a Eurodollar Interest Period of one
month for such portion of Term Loan B. Simultaneous elections by the
Borrower for the same Eurodollar Interest Period of a portion of either
the Revolving Loan, Term Loan A, Term Loan B or the Deferred Term Loan or
all of them on a combined basis shall be deemed to be the election of a
single Eurodollar Pricing Option. No election of a Eurodollar Pricing
Option shall become effective:

(a) if, prior to the commencement of any such Eurodollar Interest
Period, the Agent determines that (i) the electing or granting of the
Eurodollar Pricing Option in question would violate a Legal Requirement,
(ii) Eurodollar deposits in an amount comparable to the principal amount
of the Loan as to which such Eurodollar Pricing Option has been elected
and which have a term corresponding to the proposed Eurodollar Interest
Period are not readily available in the inter-bank Eurodollar market, or
(iii) by reason of circumstances affecting the inter-bank Eurodollar
market, adequate and reasonable methods do not exist for ascertaining the
interest rate applicable to such deposits for the proposed Eurodollar
Interest Period; or

(b) if any Lender shall have advised the Agent by telephone or
otherwise at or prior to noon (Boston time) on the second Banking Day
prior to the commencement of such proposed Eurodollar Interest Period
(and shall have subsequently confirmed in writing) that, after reasonable
efforts to determine the availability of such Eurodollar deposits, such
Lender reasonably anticipates that Eurodollar deposits in an amount equal
to the Percentage Interest of such Lender in the portion of the Loan as
to which such Eurodollar Pricing Option has been elected and which have a
term corresponding to the Eurodollar Interest Period in question will not
be offered in the Eurodollar market to such Lender at a rate of interest
that does not exceed the anticipated

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<PAGE> 44

Eurodollar Basic Rate (unless the foregoing results from a deterioration
subsequent to the date hereof in the creditworthiness of such Lender or a
change in the availability of Eurodollar markets to such Lender pursuant
to legal or regulatory restrictions).

3.2.2. Notice to Lenders and Borrower. The Agent will promptly
inform each Lender (by telephone or otherwise) of each notice received by
it from the Borrower pursuant to Section 3.2.1 and of the Eurodollar
Interest Period specified in such notice. Upon determination by the
Agent of the Eurodollar Rate for such Eurodollar Interest Period or in
the event such election shall not become effective, the Agent will
promptly notify the Borrower and each Lender (by telephone or otherwise)
of the Eurodollar Rate so determined or why such election did not become
effective, as the case may be.

3.2.3. Selection of Eurodollar Interest Periods. Eurodollar
Interest Periods shall be selected so that:

(a) the minimum portion of the Loan subject to any Eurodollar
Pricing Option shall be $5,000,000;

(b) no more than six Eurodollar Pricing Options shall be
outstanding at any one time;

(c) a portion of Term Loan A, Term Loan B and the Deferred Term
Loan equal to or greater than the amount of the next mandatory prepayment
required by Section 4.2 shall not be subject to a Eurodollar Pricing
Option on the date such mandatory prepayment is required to be made;

(d) no Eurodollar Interest Period with respect to any part of the
Loan subject to a Eurodollar Pricing Option shall expire later than, in
the case of the Revolving Loan and Term Loan A, the First Maturity Date,
in the case of the Deferred Term Loan, the Deferred Term Loan Maturity
Date and, in the case of Term Loan B, the Term Loan B Maturity Date; and

(e) prior to June 29, 1996 (i) no Eurodollar Interest Period shall
extend beyond June 29, 1996 except with the written consent of the Agent
and (ii) the Borrower and the Agent shall confer about the appropriate
scheduling of Eurodollar Interest Periods to facilitate the anticipated
syndication to additional Lenders of the credit facility provided herein.

3.2.4. Additional Interest. If any portion of the Loan subject to
a Eurodollar Pricing Option is repaid, or any Eurodollar Pricing Option
is terminated for any reason (including acceleration of maturity), on a
date which is prior to the last Banking Day of

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the Eurodollar Interest Period applicable to such Eurodollar Pricing
Option, the Borrower will pay to the Agent for the account of each Lender
in accordance with such Lender's Percentage Interest, in addition to any
amounts of interest otherwise payable hereunder, an amount equal to the
present value (calculated in accordance with this Section 3.2.4) of
interest for the unexpired portion of such Eurodollar Interest Period on
the portion of the Loan so repaid, or as to which a Eurodollar Pricing
Option was so terminated, at a per annum rate equal to the excess, if
any, of (a) the Eurodollar Basic Rate applicable to such Eurodollar
Pricing Option minus (b) the rate of interest obtainable by the Agent
upon the purchase of debt securities customarily issued by the Treasury
of the United States of America which have a maturity date approximating
the last Banking Day of such Eurodollar Interest Period. The present
value of such additional interest shall be calculated by discounting the
amount of such interest for each day in the unexpired portion of such
Eurodollar Interest Period from such day to the date of such repayment or
termination at a per annum interest rate equal to the interest rate
determined pursuant to clause (b) of the preceding sentence, and by
adding all such amounts for all such days during such period. The
determination by the Agent of such amount of interest shall, in the
absence of manifest error, be conclusive. For purposes of this Section
3.2.4, if any portion of the Loan which was to have been subject to a
Eurodollar Pricing Option is not outstanding on the first day of the
Eurodollar Interest Period applicable to such Eurodollar Pricing Option
other than for reasons described in Section 3.2.1, the Borrower shall be
deemed to have terminated such Eurodollar Pricing Option.

3.2.5. Violation of Legal Requirements. If any Legal Requirement
shall prevent any Lender from funding or maintaining through the purchase
of deposits in the interbank Eurodollar market any portion of the Loan
subject to a Eurodollar Pricing Option or otherwise from giving effect to
such Lender's obligations as contemplated by Section 3.2, (a) the Agent
may by notice to the Borrower terminate all of the affected Eurodollar
Pricing Options, (b) the portion of the Loan subject to such terminated
Eurodollar Pricing Options shall immediately bear interest thereafter at
the Applicable Rate computed on the basis of the Base Rate and (c) the
Borrower shall make any payment required by Section 3.2.4.

3.2.6. Funding Procedure. The Lenders may fund any portion of the
Loan subject to a Eurodollar Pricing Option out of any funds available to
the Lenders. Regardless of the source of the funds actually used by any
of the Lenders to fund any portion of the Loan subject to a Eurodollar
Pricing Option, however, all amounts payable hereunder, including the
interest rate applicable to any such portion of the Loan and the amounts
payable under Sections 3.2.4 and 3.5, shall be computed as if each Lender
had actually funded such Lender's Percentage Interest in such portion of
the Loan through the purchase of deposits in such amount of the type by
which the Eurodollar Basic Rate was determined with a maturity the same
as the applicable

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Eurodollar Interest Period relating thereto and through the transfer of
such deposits from an office of the Lender having the same location as
the applicable Eurodollar Office to one of such Lender's offices in the
United States of America.

3.3. Commitment Fees.

3.3.1. Revolving Loan. In consideration of the Lenders'
commitments to make the extensions of credit provided for in Section 2.1,
while such commitments are outstanding, the Borrower will pay to the
Agent for the account of the Lenders in accordance with the Lenders'
respective Commitments in the Revolving Loan, on each Payment Date and on
the First Maturity Date, an amount equal to accrued interest computed at
the rate of 0.50% per annum on the amount by which (a) the average daily
Maximum Amount of Revolving Credit during the three-month period or
portion thereof ending on such Payment Date exceeded (b) the sum of (i)
the average daily Revolving Loan during such period or portion thereof
plus (ii) the average daily Letter of Credit Exposure during such period
or portion thereof; provided, however, that the first such payment shall
be for the period beginning on the Initial Closing Date and ending on the
first Payment Date.

3.3.2. Deferred Term Loan. In consideration of the Lenders'
commitments to make the extensions of credit provided for in Section 2.4,
while such commitments are outstanding, the Borrower will pay to the
Agent for the account of the Lenders in accordance with the Lenders'
respective Commitments in the Deferred Term Loan, on each Payment Date
and either on the Closing Date on which credit is extended under Section
2.4 or April 30, 1997, as case may be, an amount equal to accrued
interest computed at the rate of 0.50% per annum on $8,000,000; provided,
however, that the first such payment shall be for the period beginning on
the Initial Closing Date and ending on the first Payment Date.

3.4. Letter of Credit Fees. The Borrower will pay to the Agent for the
account of each of the Lenders, in accordance with the Lenders' respective
Percentage Interests, on each Payment Date, a Letter of Credit fee equal to
interest at a per annum rate equal to the Applicable Margin then in effect for
Eurodollar Pricing Options with respect to the Revolving Loan on the average
daily Letter of Credit Exposure during the three-month period or portion
thereof ending on such Payment Date. The Borrower will pay to the Letter of
Credit Issuer customary service charges and expenses for its services in
connection with the Letters of Credit at the times and in the amounts from time
to time in effect in accordance with its general rate structure, including
reasonable fees and expenses relating to issuance, amendment, negotiation,
cancellation and similar operations.

3.5. Changes in Circumstances; Yield Protection.

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3.5.1. Reserve Requirements, etc. If after the date hereof any
Legal Requirement shall (a) impose, modify, increase or deem applicable any
insurance assessment, reserve, special deposit or similar requirement
against any Funding Liability or the Letters of Credit, (b) impose, modify,
increase or deem applicable any other requirement or condition with respect
to any Funding Liability or the Letters of Credit, or (c) change the basis
of taxation of Funding Liabilities or payments in respect of any Letter of
Credit (other than changes in the rate of taxes measured by the overall net
income of such Lender) and the effect of any of the foregoing shall be to
increase materially the cost to any Lender of issuing, making, funding or
maintaining its respective Percentage Interest in any portion of the Loan
subject to a Eurodollar Pricing Option or any Letter of Credit, to reduce
materially the amounts received or receivable by such Lender under this
Agreement or to require such Lender to make any material payment or forego
any material amounts otherwise payable to such Lender under this Agreement
(other than any Tax or any reserves that are included in computing the
Eurodollar Reserve Rate), then such Lender may claim compensation from the
Borrower under Section 3.5.5.

3.5.2. Taxes. All payments of the Credit Obligations shall be made
without set-off or counterclaim and free and clear of any deductions,
including deductions for Taxes, unless the Borrower is required by law to
make such deductions. If after the date hereof (a) any Lender shall be
subject to any Tax with respect to any payment of the Credit Obligations or
its obligations hereunder or (b) the Borrower shall be required to withhold
or deduct any Tax on any payment on the Credit Obligations, then such
Lender may claim compensation from the Borrower under Section 3.5.5.
Whenever Taxes must be withheld by the Borrower with respect to any
payments of the Credit Obligations, the Borrower shall promptly furnish to
the Agent for the account of the applicable Lender official receipts (to
the extent that the relevant governmental authority delivers such receipts)
evidencing payment of any such Taxes so withheld. If the Borrower fails to
pay any such Taxes when due or fails to remit to the Agent for the account
of the applicable Lender the required receipts evidencing payment of any
such Taxes so withheld or deducted, the Borrower shall indemnify the
affected Lender for any incremental Taxes and interest or penalties that
may become payable by such Lender as a result of any such failure. In the
event any Lender receives a refund of any Taxes for which it has received
payment from the Borrower under this Section 3.5.2, such Lender shall
promptly pay the amount of such refund to the Borrower, together with any
interest thereon actually earned by such Lender.

3.5.3. Capital Adequacy. If any Lender shall determine in good
faith that compliance by such Lender with any Legal Requirement regarding
capital adequacy of banks or bank holding companies has or would have the
effect of reducing the rate of return on the capital of such Lender and its
Affiliates as a consequence of such Lender's commitment to make the
extensions of credit contemplated hereby, or such

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Lender's maintenance of the extensions of credit contemplated hereby, to
a level below that which such Lender could have achieved but for such
compliance (taking into consideration the policies of such Lender and its
Affiliates with respect to capital adequacy immediately before such
compliance and assuming that the capital of such Lender and its
Affiliates was fully utilized prior to such compliance) by an amount
deemed by such Lender to be material, then such Lender may claim
compensation from the Borrower under Section 3.5.5.

3.5.4. Regulatory Changes. If any Lender shall determine that (a)
any change in any Legal Requirement (including any new Legal Requirement)
after the date hereof shall (i) reduce the amount of any sum received or
receivable by such Lender with respect to the Loan or the Letters of
Credit or the return to be earned by such Lender on the Loan or the
Letters of Credit, (ii) impose a cost on such Lender or any Affiliate of
such Lender that is attributable to the making or maintaining of, or such
Lender's commitment to make, its portion of the Loan or the Letters of
Credit, or (iii) require such Lender or any Affiliate of such Lender to
make any payment on, or calculated by reference to, the gross amount of
any amount received by such Lender under any Credit Document (other than
Taxes or income or franchise taxes), and (b) such reduction, increased
cost or payment shall not be fully compensated for by an adjustment in
the Applicable Rate or the Letter of Credit fees, then such Lender may
claim compensation from the Borrower under Section 3.5.5.

3.5.5. Compensation Claims. Within 30 days after the receipt by
the Borrower of a certificate from any Lender setting forth why it is
claiming compensation under this Section 3.5 and computations (in
reasonable detail) of the amount thereof, the Borrower shall pay to such
Lender such additional amounts as such Lender sets forth in such
certificate as sufficient fully to compensate it on account of the
foregoing provisions of this Section 3.5, together with interest on such
amount from the 30th day after receipt of such certificate until payment
in full thereof at the Overdue Reimbursement Rate. The determination by
such Lender of the amount to be paid to it and the basis for computation
thereof hereunder shall, in the absence of manifest error, be conclusive.
In determining such amount, such Lender may use any reasonable averaging
and attribution methods. The Borrower shall be entitled to replace any
such Lender in accordance with Section 11.3.

3.5.6. Mitigation. Each Lender shall take such commercially
reasonable steps as it may determine are not disadvantageous to it,
including changing lending offices to the extent feasible, in order to
reduce amounts otherwise payable by the Borrower to such Lender pursuant
to Sections 3.2.4 and 3.5 or to make Eurodollar Pricing Options available
under Sections 3.2.1 and 3.2.5. In addition, the Borrower shall not be
responsible for costs (a) arising more than 90 days prior to receipt by
the Borrower of the certificate from the affected Lender pursuant to
Section 3.5 or

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<PAGE> 49

(b) arising from the termination of Eurodollar Pricing Options more than
90 days prior to the demand by the Agent for payment under Section 3.2.4.

3.6. Computations of Interest and Fees. For purposes of this Agreement,
interest, commitment fees and Letter of Credit fees (and any other amount
expressed as interest or such fees) shall be computed on the basis of a 360-day
year for actual days elapsed. If any payment required by this Agreement
becomes due on any day that is not a Banking Day, such payment shall, except as
otherwise provided in the Eurodollar Interest Period, be made on the next
succeeding Banking Day. If the due date for any payment of principal is
extended as a result of the immediately preceding sentence, interest shall be
payable for the time during which payment is extended at the Applicable Rate.

4. Payment.

4.1. Payment at Maturity. On the First Maturity Date, the Borrower will
pay to the Agent for the account of the Lenders an amount equal to the
Revolving Loan, Term Loan A and Letter of Credit Exposure, together with all
accrued and unpaid interest and fees with respect thereto. On the Deferred
Term Loan Maturity Date, the Borrower will pay to the Agent for the account of
the Lenders an amount equal to the Deferred Term Loan, together with all
accrued and unpaid interest and fees with respect thereto. On the Term Loan B
Maturity Date, the Borrower will pay to the Agent for the account of the
Lenders an amount equal to Term Loan B, together with all accrued and unpaid
interest and fees with respect thereto and all other Credit Obligations then
outstanding. On the accelerated maturity of the Loan, the Borrower will pay to
the Agent for the account of the Lenders all Credit Obligations then
outstanding.

4.2. Scheduled Required Prepayments.

4.2.1. Term Loan A. On the last Banking Day of September 1996 and
on each Payment Date thereafter and on the First Maturity Date, the
Borrower will pay to the Agent for the account of the Lenders as a
prepayment of Term Loan A the lesser of (a) $1,500,000 or (b) the amount
of Term Loan A then outstanding.

4.2.2. Term Loan B. On the last Banking Day of September 1996 and
on each Payment Date thereafter and on the Deferred Term Loan Maturity
Date, the Borrower will pay to the Agent for the account of the Lenders
as a prepayment of Term Loan B the lesser of (a) the amount indicated in
the table below or (b) the amount of Term Loan B then outstanding.

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Payment Date Amount

September 1996 through December 2000 $50,000
March 2001 through March 2002 $1,000,000
Term Loan B Maturity Date $4,100,000

4.2.3. Deferred Term Loan. On the last Banking Day of June 1997
and on each Payment Date thereafter and on the Deferred Term Loan
Maturity Date, the Borrower will pay to the Agent for the account of the
Lenders as a prepayment of the Deferred Term Loan the lesser of (a) (i)
on each Payment Date through December 31, 2000, 5% of the original amount
of the Deferred Term Loan and (ii) on each Payment Date during 2001,
including the Deferred Term Loan Maturity Date, 6.25% of the original
amount of the Deferred Term Loan or (b) the amount of the Deferred Term
Loan then outstanding.

4.3. Contingent Required Prepayments.

4.3.1. Excess Credit Exposure. If at any time the Revolving Loan
exceeds the limits set forth in Section 2.1, the Borrower shall within
one Banking Day pay the amount of such excess to the Agent for the
account of the Lenders. If at any time the Letter of Credit Exposure
exceeds the limits set forth in Section 2.5, the Borrower shall within
one Banking Day pay the amount of such excess to the Agent for the
account of the Lenders to be applied as provided in Section 4.5.

4.3.2. Excess Cash Flow. Within three Banking Days after the date
annual financial statements have been (or are required to have been)
furnished by the Company to the Lenders in accordance with Section 6.4.1,
the Borrower shall prepay the Loan to be applied as provided in Section
4.6.2 in an amount equal to the lesser of (a) 50% of an amount equal to
Consolidated Excess Cash Flow After Tax Shield Distributions for its most
recently completed fiscal year or (b) the amount of the Loan.

4.3.3. Net Asset Sale Proceeds. Within three Banking Days after
the receipt by the Company and its Subsidiaries of Net Asset Sale
Proceeds, the Borrower shall pay to the Agent as a prepayment of the Loan
to be applied as provided in Section 4.6.2 the lesser of (a) the amount
of such Net Asset Sale Proceeds or (b) the amount of the Loan.

4.3.4. Net Equity Proceeds. Within three Banking Days after the
receipt by the Company or any of its Subsidiaries of Net Equity Proceeds,
the Borrower shall pay to the Agent as a prepayment of the Loan to be
applied as provided in Section 4.6.2 the lesser of (a) the amount of such
Net Equity Proceeds or (b) the amount of the Loan.

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4.4. Voluntary Prepayments. In addition to the prepayments required by
Sections 4.2 and 4.3, the Borrower may from time to time prepay all or any
portion of the Loan (in a minimum amount of $100,000 and an integral multiple
of $100,000, or such lesser amount as is then outstanding), without premium or
penalty of any type (except as provided in Section 3.2.4 with respect to the
early termination of Eurodollar Pricing Options). The Borrower shall give the
Agent at least one Banking Day prior notice of its intention to prepay,
specifying the date of payment, the total amount and portion of the Loan to be
paid on such date and the amount of interest to be paid with such prepayment.

4.5. Letters of Credit. If on the First Maturity Date or any accelerated
maturity of the Credit Obligations the Lenders shall be obligated in respect of
a Letter of Credit or a draft accepted under a Letter of Credit, the Borrower
will either:

(a) prepay such obligation by depositing with the Agent an amount
of cash, or

(b) deliver to the Agent a standby letter of credit (designating
the Agent as beneficiary and issued by a bank and on terms reasonably
acceptable to the Agent),

in each case in an amount equal to the portion of the then Letter of Credit
Exposure issued for the account of the Borrower. Any such cash so deposited
and the cash proceeds of any draw under any standby Letter of Credit so
furnished, including any interest thereon, shall be returned by the Agent to
the Borrower only when, and to the extent that, the amount of such cash held by
the Agent exceeds the Letter of Credit Exposure at such time and no Default
then exists; provided, however, that if an Event of Default occurs and the
Credit Obligations become or are declared immediately due and payable, the
Agent may apply such cash, including any interest thereon, to the payment of
any of the Credit Obligations as provided in section 3.5.6 of the Guarantee and
Security Agreement.

4.6. Reborrowing; Application of Payments, etc.

4.6.1. Reborrowing. The amounts of the Revolving Loan prepaid
pursuant to Section 4.4 may be reborrowed from time to time prior to the
First Maturity Date in accordance with Section 2.1, subject to the limits
set forth therein. No other portion of the Loan prepaid hereunder may be
reborrowed.

4.6.2. Order of Application. Prepayments of the Loan made
pursuant to Sections 4.3.2, 4.3.3 and 4.3.4 shall be applied as follows:
first to Term Loan A, then any balance to the Deferred Term Loan, then
any balance to Term Loan B, then any balance to the Revolving Loan.
Contingent required prepayments of Term Loan A, the Deferred Term Loan
and Term Loan B made pursuant to Sections 4.3.2, 4.3.3 or 4.3.4 shall be
applied to the installments required to be made pursuant to Section 4.2
in the inverse order thereof so that no partial prepayment pursuant to
such Sections shall

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reduce the next scheduled mandatory prepayment under Section 4.2.
Voluntary prepayments of Term Loan A, the Deferred Term Loan and Term
Loan B made pursuant to Section 4.4 shall be applied to the installments
required to be made pursuant to Section 4.2 pro rata in the chronological
order thereof. Any prepayment of Term Loan A, the Deferred Term Loan,
Term Loan B or the Revolving Loan shall be applied first to the portion
of the Loan not then subject to Eurodollar Pricing Options, then the
balance of any such prepayment shall be applied to the portion of the
Loan then subject to Eurodollar Pricing Options, in the chronological
order of the respective maturities thereof (or as the Borrower may
otherwise specify in writing), together with any payments required by
Section 3.2.4.

4.6.3. Payment with Accrued Interest, etc. Upon all prepayments
of Term Loan A, Term Loan B and the Deferred Term Loan, the Borrower
shall pay to the Agent the principal amount to be prepaid, together with
unpaid interest in respect thereof accrued to the date of prepayment.
Notice of prepayment having been given in accordance with Section 4.4,
and whether or not notice is given of prepayments pursuant to Sections
4.2 and 4.3, the amount specified to be prepaid shall become due and
payable on the date specified for prepayment.

4.6.4. Payments for Lenders. All payments of principal hereunder
shall be made to the Agent for the account of the Lenders in accordance
with the Lenders' respective Percentage Interests in the portion of the
Loan so paid.

5. Conditions to Extending Credit.

5.1. Conditions on Initial Closing Date. The obligations of the Lenders
to make any extension of credit pursuant to Section 2 shall be subject to the
satisfaction, on or before the Initial Closing Date, of the conditions set
forth in this Section 5.1 as well as the further conditions in Section 5.2. If
the conditions set forth in this Section 5.1 are not met on or prior to the
Initial Closing Date, the Lenders shall have no obligation to make any
extensions of credit hereunder.

5.1.1. Notes. The Borrower shall have duly executed and delivered
to the Agent the appropriate Notes for each Lender.

5.1.2. Payment of Fees. The Borrower shall have paid to the Agent
the fees contemplated by the separate agreement between the Agent and the
Borrower dated on or prior to the date hereof.

5.1.3. Legal Opinions. On the Initial Closing Date, the Lenders
shall have received from the following counsel their respective opinions
with respect to the

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transactions contemplated by the Credit Documents, which opinions shall
be in form and substance satisfactory to the Required Lenders:

(a) Kirkland & Ellis, special counsel for the Company.

(b) Johnson Stokes & Master, special Hong Kong counsel for the
Agent, and Deacons Graham & James, special Hong Kong counsel for the
Company.

(c) Confirmation to the Lenders of the opinion of Reinhart,
Boerner, Van Deuren, Norris & Rieselbach, S.C., counsel to the Sellers,
delivered pursuant to the Acquisition Agreement.

(d) Ropes & Gray, special counsel for the Agent.

The Company authorizes and directs its counsel to furnish the
foregoing opinions.

5.1.4. Guarantee and Security Agreement; Hong Kong Documents.
Each of the Borrower and the Guarantors (other than Banerjan) shall have
duly authorized, executed and delivered to the Agent a Guarantee and
Security Agreement in substantially the form of Exhibit 5.1.4 (the
"Guarantee and Security Agreement"). Banerjan shall have duly
authorized, executed and delivered to the Agent the Hong Kong Collateral
Debenture and the Hong Kong Guarantee.

5.1.5. Perfection of Security. Each Obligor shall have duly
authorized, executed, acknowledged, delivered, filed, registered and
recorded such security agreements, notices, financing statements and
other instruments as the Agent may have requested in order to perfect the
Liens purported or required pursuant to the Credit Documents to be
created in the Credit Security.

5.1.6. Acquisition. Other than as consented to by the Agent in
writing:

(a) The provisions of the Acquisition Agreement shall not have
been amended, modified, waived or terminated.

(b) All of the representations and warranties of the Sellers set
forth in the Acquisition Agreement shall be complete and correct in all
material respects on and as of the Initial Closing Date with the same
force and effect as though made on and as of such date.

(c) All of the other conditions to the obligations of the Company
set forth in the Acquisition Agreement shall have been satisfied.

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(d) Any material consent, authorization, order or approval of any
Person required in connection with the transactions contemplated by the
Acquisition Agreement shall have been obtained and shall be in full force
and effect.

(e) All of the items required to be delivered under the
Acquisition Agreement shall have been so delivered.

(f) Contemporaneously with the making by the Lenders of the first
extension of credit hereunder, the Lenders shall have received a
certificate of a Financial Officer of the Company to the effect that the
closing has occurred under the Acquisition Agreement and to the effect
that each of the conditions set forth in this Section 5.1.6 has been
satisfied.

5.1.7. Capitalization, etc.

(a) The Company shall have received (i) cash equity capitalization
of $4,927,163 in perpetual preferred stock owned by the Willis Stein
Group, $2,934,921 in perpetual preferred stock owned by the Management
Group, $543,998 in common stock owned by the Willis Stein Group and
$456,002 in common stock owned by the Management Group and (ii)
$8,000,000 from the Seller Subordinated Notes, $18,635,400 from the
Junior Subordinated Notes owned by the Management Group and $20,805,652
from the Junior Subordinated Notes owned by the Willis Stein Group. The
Company shall have invested at least $48,000,000 in the equity of the
Borrower and the Borrower shall have loaned at least $21,000,000 to
Banerjan, which loan shall be evidenced by a promissory note pledged to
the Agent pursuant to the Guarantee and Security Agreement.

(b) Fees and expenses for the Acquisition, the Credit Obligations
and other expenses associated with the Initial Closing Date and any other
transaction contemplated by this Agreement or the Acquisition Agreement
on the Initial Closing Date shall not exceed $5,000,000.

(c) After giving effect to the Acquisition and the incurrence of
the Seller Subordinated Notes, the Junior Subordinated Notes and the
Credit Obligations, the Company and its Subsidiaries, taken as a whole:

(i) will be solvent;

(ii) will have assets having a fair saleable value in excess
of the amount required to pay their probable liability on their
existing debts as such debts become absolute and mature;

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(iii) have access to adequate capital for the conduct of
their business; and

(iv) have the ability to pay their debts from time to time
incurred as such debts mature.

(d) The Company shall have furnished to the Lenders a certificate
of a Financial Officer to such effect, together with detailed
computations verifying the items in clauses (a) and (b) above and
calculations pursuant to Section 7.2.1(f) demonstrating compliance with
the Computation Covenants designated by the Agent, in each case giving
pro forma effect to the Acquisition and the incurrence of the Credit
Obligations.

5.1.8. Key Executive Agreements. The Company shall have furnished
to the Lenders employment agreements, reasonably satisfactory to the
Required Lenders, between the Borrower and Boyd L. Meyer, Robert E. Dods
and Peter Chung, respectively.

5.1.9. Termination of Prior Credit Agreement. Contemporaneously
with the initial advances hereunder, the Borrower shall have paid in full
all principal, interest and other accrued and outstanding amounts under
the Prior Credit Agreement, all commitments to extend further credit
under the Prior Credit Agreement shall have been terminated, all Liens
securing amounts owing under the Prior Credit Agreement shall have been
released and the Prior Credit Agreement shall have become terminated and
of no further force or effect (except for indemnity provisions that by
their terms survive the termination of the Prior Credit Agreement).

5.1.10. Proper Proceedings. This Agreement, each other Credit
Document and the transactions contemplated hereby and thereby shall have
been authorized by all necessary corporate or other proceedings. All
necessary consents, approvals and authorizations of any governmental or
administrative agency or any other Person of any of the transactions
contemplated hereby or by any other Credit Document shall have been
obtained and shall be in full force and effect.

5.1.11. General. All legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Agent and the Agent shall have
received copies of all documents, including certified copies of the
Charter and By-Laws of the Company and the other Obligors, records of
corporate proceedings, certificates as to signatures and incumbency of
officers and opinions of counsel, which the Agent may have reasonably
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.

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5.2. Conditions to Each Extension of Credit. The obligations of the
Lenders to make any extension of credit pursuant to Sections 2.1, 2.2, 2.3 and
2.5 shall be subject to the satisfaction, on or before the Closing Date for
such extension of credit, of the following conditions:

5.2.1. Officer's Certificate. The representations and warranties
contained in Section 7 shall be true and correct in all material respects
on and as of such Closing Date with the same force and effect as though
made on and as of such date (except as to any representation or warranty
which refers to a specific earlier date); no Default shall exist on such
Closing Date prior to or immediately after giving effect to the requested
extension of credit; no Material Adverse Change shall have occurred since
the Initial Closing Date; and the Borrower shall have furnished to the
Agent in connection with the requested extension of credit a certificate
to these effects, in substantially the form of Exhibit 5.2.1, signed by a
Financial Officer.

5.2.2. Legality, etc. The making of the requested extension of
credit shall not (a) subject any Lender to any penalty or special tax
(other than a Tax for which the Borrower is required to reimburse the
Lenders under Section 3.5) or (b) be prohibited by any Legal Requirement.

5.3. Conditions on Deferred Term Loan Closing Date. The obligations of
the Lenders to make any extension of the Deferred Term Loan pursuant to Section
2.4 shall be subject to the satisfaction, on or before the Closing Date for the
Deferred Term Loan, of the conditions set forth in this Section 5.3. If the
conditions set forth in this Section 5.3 are not met on or prior to April 30,
1997, the Lenders shall have no obligation to make any extensions of credit
under Section 2.4.

5.3.1. Deferred Term Loan Notes. The Borrower shall have duly
executed and delivered to the Agent the appropriate Deferred Term Loan
Notes for each Lender having a Commitment therein.

5.3.2. Consolidated EBITDA; Pro Forma Covenant Compliance.
Consolidated EBITDA for the fiscal year ending December 31, 1996 shall
equal or exceed $18,887,000 as set forth in the annual report for such
year furnished to the Lenders in accordance with Section 6.4.1, and the
Company shall have furnished to the Lenders a certificate of a Financial
Officer to such effect, together with detailed computations verifying
Consolidated EBITDA and calculations pursuant to Section 6.4.1(e)
demonstrating compliance with the Computation Covenants after giving
effect to the incurrence of the Deferred Term Loan.

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5.3.3. Termination of Seller Subordinated Notes.
Contemporaneously with the advance of the Deferred Term Loan hereunder,
the Company shall have paid in full all principal, interest and other
accrued and outstanding amounts under the Seller Subordinated Notes, and
such notes shall have been returned to the Company for cancellation.

5.3.4. Officer's Certificate. The representations and warranties
contained in Section 7 shall be true and correct in all material respects
on and as of such Closing Date with the same force and effect as though
made on and as of such date (except as to any representation or warranty
which refers to a specific earlier date); no Specified Event of Default
shall exist on such Closing Date prior to or immediately after giving
effect to the requested extension of credit; and the Borrower shall have
furnished to the Agent in connection with the requested extension of
credit a certificate to these effects, in substantially the form of
Exhibit 5.2.1 (with appropriate modifications to reflect the provisions
of this Section 5.3.4), signed by a Financial Officer.

5.3.5. Legality, etc. The making of the requested extension of
credit shall not (a) subject any Lender to any penalty or special tax
(other than a Tax for which the Borrower is required to reimburse the
Lenders under Section 3.5) or (b) be prohibited by any Legal Requirement.

5.3.6. Proper Proceedings. This Agreement, each other Credit
Document and the transactions contemplated hereby and thereby shall have
been authorized by all necessary corporate or other proceedings. All
necessary consents, approvals and authorizations of any governmental or
administrative agency or any other Person of any of the transactions
contemplated hereby or by any other Credit Document shall have been
obtained and shall be in full force and effect.

5.3.7. General. All legal and corporate proceedings in connection
with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Agent and the Agent shall have
received copies of all documents which the Agent may have reasonably
requested in connection with the Deferred Term Loan.

6. General Covenants. Each of the Borrower and the Guarantors covenants
that, until all of the Credit Obligations shall have been paid in full and until
the Lenders' commitments to extend credit under this Agreement and any other
Credit Document shall have been irrevocably terminated, the Company and its
Subsidiaries will comply with the following provisions:

6.1. Taxes and Other Charges; Accounts Payable.

6.1.1. Taxes and Other Charges. Each of the Company and its
Subsidiaries shall duly pay and discharge, or cause to be paid and
discharged, before the same

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becomes in arrears, all taxes, assessments and other governmental charges
imposed upon such Person and its properties, sales or activities, or upon
the income or profits therefrom, as well as all claims for labor, materials
or supplies which if unpaid might by law become a Lien upon any of its
property; provided, however, that any such tax, assessment, charge or claim
need not be paid if the validity or amount thereof shall at the time be
contested in good faith by appropriate proceedings and if such Person
shall, in accordance with GAAP, have set aside on its books adequate
reserves with respect thereto.

6.1.2. Accounts Payable. Each of the Company and its Subsidiaries
shall promptly pay when due, or in conformity with customary trade terms,
all accounts payable incident to the operations of such Person not referred
to in Section 6.1.1; provided, however, that any such Indebtedness need not
be paid if the validity or amount thereof shall at the time be contested in
good faith and if such Person shall, in accordance with GAAP, have set
aside on its books adequate reserves with respect thereto.

6.2. Conduct of Business, etc.

6.2.1. Types of Business. The Company and its Subsidiaries shall
engage only in the business of (a) acquiring, developing, manufacturing,
distributing, licensing or marketing consumer collectible products and (b)
other activities related thereto.

6.2.2. Maintenance of Properties. Each of the Company and its
Subsidiaries:

(a) shall keep its properties in such repair, working order and
condition, and shall from time to time make such repairs, replacements,
additions and improvements thereto as are reasonably necessary for the
efficient operation of its businesses and shall comply at all times in
all material respects with all material franchises, licenses and leases
to which it is party so as to prevent any loss or forfeiture thereof or
thereunder, except where failure to comply has not resulted, and does not
create a material risk of resulting, in the aggregate in any Material
Adverse Change; and

(b) shall do all things necessary to preserve, renew and keep in
full force and effect and in good standing its legal existence and
authority necessary to continue its business; provided, however, that
this Section 6.2.2(b) shall not prevent the merger, consolidation or
liquidation of Subsidiaries permitted by Section 6.11.

6.2.3. Statutory Compliance. Each of the Company and its
Subsidiaries shall comply in all material respects with all valid and
applicable statutes, laws, ordinances, zoning and building codes and other
rules and regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and

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other subdivisions and of any foreign country or other jurisdictions
applicable to such Person, except where failure so to comply has not
resulted, and does not create a material risk of resulting, in the
aggregate in any Material Adverse Change.

6.3. Insurance.

6.3.1. Property Insurance. Each of the Company and its
Subsidiaries shall keep its assets which are of an insurable character
insured by financially sound and reputable insurers against theft and
fraud and against loss or damage by fire, explosion and hazards insured
against by extended coverage to the extent, in amounts and with
deductibles at least as favorable as those generally maintained by
businesses of similar size engaged in similar activities.

6.3.2. Liability Insurance. Each of the Company and its
Subsidiaries shall maintain with financially sound and reputable insurers
insurance against liability for hazards, risks and liability to persons
and property, including product liability insurance, to the extent, in
amounts and with deductibles at least as favorable as those generally
maintained by businesses of similar size engaged in similar activities;
provided, however, that it may effect workers' compensation insurance or
similar coverage with respect to operations in any particular state or
other jurisdiction through an insurance fund operated by such state or
jurisdiction or by meeting the self-insurance requirements of such state
or jurisdiction.

6.3.3. Key Executive Life Insurance. From and after July 1, 1996
the Company shall maintain with financially sound and reputable insurers
life insurance policies on each of Boyd L. Meyer, Robert E. Dods and
Peter Chung in an amount of at least $2,000,000, each in form reasonably
satisfactory to the Agent. No later than June 1, 1996 each of such
executives shall have satisfactorily completed a physical examination
qualifying him for such life insurance.

6.4. Financial Statements and Reports. Each of the Company and its
Subsidiaries shall maintain a system of accounting in which correct entries
shall be made of all transactions in relation to their business and affairs in
accordance with generally accepted accounting practice. The fiscal year of the
Company and its Subsidiaries shall end on December 31 in

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each year and the fiscal quarters of the Company and its Subsidiaries shall
end on March 31, June 30, September 30 and December 31 in each year.

6.4.1. Annual Reports. The Company shall furnish to the Lenders as
soon as available, and in any event within 90 days after the end of each
fiscal year, the Consolidated and Consolidating balance sheets of the
Company and its Subsidiaries as at the end of such fiscal year, the
Consolidated and Consolidating statements of income and Consolidated
statements of changes in shareholders' equity and of cash flows of the
Company and its Subsidiaries for such fiscal year (all in reasonable
detail) and together, in the case of Consolidated financial statements
for years commencing after 1996, with comparative figures for the
immediately preceding fiscal year, all accompanied by:

(a) Reports of independent certified public accountants of
recognized national standing reasonably satisfactory to the Required
Lenders containing no material qualifications, to the effect that they
have audited the foregoing Consolidated financial statements in
accordance with generally accepted auditing standards and that such
Consolidated financial statements present fairly, in all material
respects, the financial position of the Company and its Subsidiaries
covered thereby at the dates thereof and the results of their operations
for the periods covered thereby in conformity with GAAP.

(b) The statement of such accountants that they have caused this
Agreement to be reviewed and that in the course of their audit of the
Company and its Subsidiaries no facts have come to their attention that
cause them to believe that any Default exists under Sections 6.5 through
6.20 or, if such is not the case, specifying such Default and the nature
thereof. This statement is furnished by such accountants with the
understanding that the examination of such accountants cannot be relied
upon to give such accountants knowledge of any such Default except as it
relates to accounting or auditing matters within the scope of their
audit.

(c) A certificate of the Company signed by a Financial Officer to
the effect that such officer has caused this Agreement to be reviewed and
has no knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the nature thereof, and what action the
Company has taken, is taking or proposes to take with respect thereto.

(d) Computations by the Company comparing the financial statements
referred to above with the most recent budget for such fiscal year
furnished to the Lenders in accordance with Section 6.4.4.

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(e) Computations by the Company demonstrating, as of the end of
such fiscal year, compliance with the Computation Covenants, certified by
a Financial Officer.

(f) Calculations, as at the end of such fiscal year, of (i) the
Accumulated Benefit Obligations for each Plan covered by Title IV of
ERISA (other than Multiemployer Plans) and (ii) the fair market value of
the assets of such Plan allocable to such benefits.

(g) Supplements to Exhibits 7.1, 7.3, 7.13.1 and 7.14 and exhibit
3.3 to the Guarantee and Security Agreement showing any changes in the
information set forth in such exhibits not previously furnished to the
Lenders in writing, as well as any changes in the Charter, Bylaws or
incumbency of officers of the Obligors from those previously certified to
the Agent.

(h) In the event of a change in GAAP after the Initial Closing
Date, computations by the Company, certified by a Financial Officer,
reconciling the financial statements referred to above with financial
statements prepared in accordance with GAAP as applied to the other
covenants in Section 6 and related definitions.

6.4.2. Quarterly Reports. The Company shall furnish to the
Lenders as soon as available and, in any event, within 45 days after the
end of each of the first three fiscal quarters of the Company (60 days
for the fiscal quarter ending in June 1996), the internally prepared
Consolidated and Consolidating balance sheets of the Company and its
Subsidiaries as of the end of such fiscal quarter, the Consolidated and
Consolidating statements of income and Consolidated statements of changes
in shareholders' equity and of cash flows of the Company and its
Subsidiaries for such fiscal quarter and for the portion of the fiscal
year then ended (all in reasonable detail) and together, in the case of
Consolidated statements for fiscal quarters commencing after March 1997,
with comparative figures for the same period in the preceding fiscal
year, all accompanied by:

(a) A certificate of the Company signed by a Financial Officer to
the effect that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material respects, the
financial position of the Company and its Subsidiaries covered thereby at
the dates thereof and the results of their operations for the periods
covered thereby, subject only to normal year-end audit adjustments and
the addition of footnotes.

(b) A certificate of the Company signed by a Financial Officer to
the effect that such officer has caused this Agreement to be reviewed and
has no knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the

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nature thereof and what action the Company has taken, is taking or
proposes to take with respect thereto.

(c) Computations by the Company comparing the financial statements
referred to above with the most recent budget for the period covered
thereby furnished to the Lenders in accordance with Section 6.4.4.

(d) Computations by the Company demonstrating, as of the end of
such quarter, compliance with the Computation Covenants, certified by a
Financial Officer.

(e) Supplements to Exhibits 7.1, 7.3, 7.13.1 and 7.14 and exhibit
3.3 to the Guarantee and Security Agreement showing any changes in the
information set forth in such exhibits not previously furnished to the
Lenders in writing, as well as any changes in the Charter, Bylaws or
incumbency of officers of the Obligors from those previously certified to
the Agent.

(f) In the event of a change in GAAP after the Initial Closing
Date, computations by the Company, certified by a Financial Officer,
reconciling the financial statements referred to above with financial
statements prepared in accordance with GAAP as applied to the other
covenants in Section 6 and related definitions.

6.4.3. Borrowing Base Reports. The Company shall furnish to the
Lenders, as soon as available and, in any event (a) within 10 days after
the end of each month, or (b) within 10 days following any request by the
Agent if more frequently than monthly, but not more frequently than once
per week, a certificate of a Financial Officer supplying computations of
the Borrowing Base at the end of such month (or week, as the case may
be).

6.4.4. Other Reports. The Company shall promptly furnish to the
Lenders:

(a) As soon as prepared and in any event within 30 days after the
beginning of each fiscal year, an annual budget for such fiscal year of
the Company and its Subsidiaries.

(b) Any material updates of such budget delivered to the Company's
Board of Directors for their review.

(d) All monthly financial statements furnished generally to the
shareholders of the Company.

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(e) Such registration statements, proxy statements and reports,
including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and 8-K, as may be filed
by the Company or any of its Subsidiaries with the Securities and
Exchange Commission.

(f) Any 90-day letter or 30-day letter from the federal Internal
Revenue Service (or the equivalent notice received from state or other
taxing authorities) asserting tax deficiencies against the Company or any
of its Subsidiaries.

6.4.5. Notice of Litigation, Defaults, etc. Promptly after any
Financial Officer acquires knowledge thereof, the Company shall furnish
to the Lenders notice of any litigation or any administrative or
arbitration proceeding (a) which creates a material risk of resulting,
after giving effect to any applicable insurance, in the payment by the
Company and its Subsidiaries of more than $500,000 or (b) which results,
or creates a material risk of resulting, in a Material Adverse Change.
Promptly after any Financial Officer acquires knowledge thereof, the
Company shall notify the Lenders of the existence of any Default or
Material Adverse Change, specifying the nature thereof and what action
the Company or any Subsidiary has taken, is taking or proposes to take
with respect thereto.

6.4.6. ERISA Reports. The Company shall furnish to the Lenders as
soon as available the following items with respect to any Plan:

(a) any request for a waiver of the funding standards or an
extension of the amortization period,

(b) any reportable event (as defined in section 4043 of ERISA),
unless the notice requirement with respect thereto has been waived by
regulation,

(c) any notice received by any ERISA Group Person that the PBGC
has instituted or intends to institute proceedings to terminate any Plan,
or that any Multiemployer Plan is insolvent or in reorganization,

(d) notice of the possibility of the termination of any Plan by
its administrator pursuant to section 4041 of ERISA, and

(e) notice of the intention of any ERISA Group Person to withdraw,
in whole or in part, from any Multiemployer Plan.

6.4.7. Other Information; Audit. From time to time at reasonable
intervals upon written request of any authorized officer of any Lender,
each of the Company and its Subsidiaries shall furnish to the Lenders
such other information (in a form

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substantially consistent with the information historically prepared by
the Company) regarding the business, assets, financial condition or
income of the Company and its Subsidiaries as such officer may reasonably
request, including copies of all tax returns and material licenses,
agreements, leases and instruments to which any of the Company or its
Subsidiaries is party. The Lenders' authorized officers and
representatives shall have the right during normal business hours upon
reasonable notice and at reasonable intervals to examine the books and
records of the Company and its Subsidiaries, to make copies and notes
therefrom for the purpose of ascertaining compliance with or obtaining
enforcement of this Agreement or any other Credit Document. The Agent,
upon reasonable advance notice, may undertake to have the Company and its
Subsidiaries reviewed by the Agent's commercial financial examiners one
time per year in the absence of an Event of Default and upon its request
upon the occurrence and during the continuance of an Event of Default.

6.5. Certain Financial Tests.

6.5.1. Consolidated Total Debt to Consolidated EBITDA.
Consolidated Total Debt shall not on the last day of any fiscal quarter
of the Company exceed the percentage set forth in the table below of
Consolidated EBITDA for the then most recently completed period of four
consecutive fiscal quarters.

Period Ending Percentage

Prior to January 1997 350%
January 1997 through June 1997 300%
July 1997 through December 1997 275%
January 1998 through December 1998 225%
January 1999 and thereafter 175%

6.5.2. Consolidated EBITDA to Consolidated Interest Expense. For
each period of four consecutive fiscal quarters, Consolidated EBITDA
shall equal or exceed 300% of Consolidated Interest Expense.

6.5.3. Consolidated Adjusted EBITDA to Consolidated Fixed Charges.
On the last day of each fiscal quarter, Consolidated Adjusted EBITDA for
the period of four consecutive fiscal quarters then ending shall equal or
exceed the percentage of Consolidated Fixed Charges for such period
specified in the table below:

Period Ending Percentage

Prior to January 1998 115%
January 1998 and thereafter 125%

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6.5.4. Consolidated EBITDA. For each fiscal quarter of the
Company, Consolidated EBITDA for the period of four consecutive fiscal
quarters then ending shall equal or exceed the amount indicated in the
table below:

Fiscal Quarter Ending Amount

June 30, 1996 $15,000,000
September 30, 1996 $16,000,000
December 31, 1996 $17,000,000
March 31, 1997 $17,250,000
June 30, 1997 $17,500,000
September 30, 1997 $17,750,000
December 31, 1997 $19,500,000
March 31, 1998 $19,750,000
June 30, 1998 $20,000,000
September 30, 1998 $20,250,000
December 31, 1998 $21,000,000
March 31, 1999 $21,250,000
June 30, 1999 $21,500,000
September 30, 1999 $21,750,000
December 31, 1999 and thereafter $22,500,000

6.5.5. Capital Expenditures. The aggregate amount of Capital
Expenditures in any fiscal year of the Company shall not exceed the sum
of:

(a) property insurance proceeds received as the result of the
destruction of property, plant or equipment,

plus (b) to the extent not used to make Distributions permitted by
Section 6.10 or prepayments of the Loan required by Section 4.3,
Consolidated Excess Cash Flow After Tax Shield Distributions for the most
recently completed fiscal year for which financial statements have been
(or are required to have been) furnished to the Lenders in accordance
with Section 6.4.1,

plus (c) Designated Affiliate Equity Proceeds,

plus (d) the excess of the amount of Capital Expenditures permitted
to be made under this Section 6.5.5 during the most recently completed
fiscal year over the amount of Capital Expenditures actually made during
such year,

plus (e) the amount indicated in the table below:

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Fiscal Year Ending Amount

December 1996 $3,300,000
December 1997 $4,250,000
December 1998 $3,250,000
December 1999 $3,250,000
December 2000 and thereafter $3,500,000

6.5.6. Consolidated Manufacturers Accounts Payable. On the last day
of each fiscal quarter, Consolidated Manufacturers Accounts Payable shall
not exceed 30% of Consolidated Net Revenue for such quarter.

6.6. Indebtedness. Neither the Company nor any of its Subsidiaries shall
create, incur, assume or otherwise become or remain liable with respect to any
Indebtedness, except the following:

6.6.1. Indebtedness in respect of the Credit Obligations.

6.6.2. Guarantees permitted by Section 6.7.

6.6.3. Current liabilities, other than Financing Debt, incurred in
the ordinary course of business.

6.6.4. To the extent that payment thereof shall not at the time be
required by Section 6.1, Indebtedness in respect of taxes, assessments,
governmental charges and claims for labor, materials and supplies.

6.6.5. Indebtedness secured by Liens of carriers, warehouses,
mechanics and landlords permitted by Sections 6.8.5 and 6.8.6.

6.6.6. Indebtedness in respect of judgments or awards (a) which have
been in force for not more than 10 days past the applicable appeal period
or (b) in respect of which the Company or any Subsidiary shall at the time
in good faith be prosecuting an appeal or proceedings for review and, in
the case of each of clauses (a) and (b), the Company or such Subsidiary
shall have taken appropriate reserves therefor in accordance with GAAP.

6.6.7. To the extent permitted by Section 6.8.9, Indebtedness in
respect of Capitalized Lease Obligations or secured by purchase money
security interests; provided, however, that the aggregate principal amount
of all Indebtedness permitted by this Section 6.6.7 at any one time
outstanding shall not exceed $500,000.

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6.6.8. Indebtedness in respect of deferred taxes arising in the
ordinary course of business.

6.6.9. Indebtedness in respect of inter-company loans and advances
among the Company and its Subsidiaries which are not prohibited by
Section 6.9.

6.6.10. Indebtedness of the Company evidenced by the Seller
Subordinated Notes, Junior Subordinated Notes and notes evidencing PIK
Interest with respect thereto and, prior to the date following the
Initial Closing Date, Indebtedness of Banerjan evidenced by the Minute
Notes (as defined in the Acquisition Agreement).

6.6.11. Unfunded pension liabilities and obligations with respect
to Plans so long as the Company is in compliance with Section 6.17.

6.6.12. Indebtedness outstanding on the date hereof and described
in Exhibit 7.3 and (except with respect to the Prior Credit Agreement,
which shall be terminated on the Initial Closing Date) all renewals and
extensions thereof not in excess of the amount thereof outstanding
immediately prior to such renewal or extension.

6.6.13. Guaranteed minimum payments under license agreements due
within 12 months in an aggregate amount not exceeding at any one time
outstanding 7 1/2% of Consolidated Net Revenue for the most recently
completed period of four consecutive fiscal quarters for which financial
statements have been (or are required to have been) furnished to the
Lenders in accordance with Sections 6.4.1 and 6.4.2.

6.6.14. Notes issued by the Company as payment for the redemption
of stock permitted by Section 6.10.7 in an aggregate amount not exceeding
the sum of $1,000,000 plus Designated Affiliate Equity Proceeds at any
one time outstanding, which notes shall be subordinated to the Credit
Obligations on terms satisfactory to the Required Lenders.

6.6.15. The Three Day Notes and reimbursement obligations with
respect to the Three Day Notes Letters of Credit and letters of credit
permitted by Section 6.7.4.

6.6.16. Indebtedness (other than Financing Debt) in addition to
the foregoing; provided, however, that the aggregate amount of all such
Indebtedness at any one time outstanding shall not exceed the sum of
$500,000 plus Designated Affiliate Equity Proceeds.

6.7. Guarantees; Letters of Credit. Neither the Company nor any of its
Subsidiaries shall become or remain liable with respect to any Guarantee,
including reimbursement

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obligations, whether contingent or matured, under letters of credit or other
financial guarantees by third parties, except the following:

6.7.1. Letters of Credit and Guarantees of the Credit Obligations.

6.7.2. Guarantees by the Company, the Borrower or any Subsidiary
of Indebtedness and other obligations incurred by its Subsidiaries and
permitted by Section 6.6.

6.7.3. The Three Day Notes Letters of Credit.

6.7.4. Documentary letters of credit issued by financial
institutions reasonably acceptable to the Required Lenders in the event
the Agent and the other Lenders refuse to issue Letters of Credit
requested by the Borrower at commercially reasonable rates; provided,
however, that the sum of (a) Nonfacility Letter of Credit Exposure plus
Letter of Credit Exposure shall not exceed $1,500,000 at any one time
outstanding.

6.8. Liens. Neither the Company nor any of its Subsidiaries shall create,
incur or enter into, or suffer to be created or incurred or to exist, any Lien
(or become contractually committed to do so), except the following:

6.8.1. Liens on the Credit Security that secure the Credit
Obligations.

6.8.2. Liens to secure taxes, assessments and other governmental
charges, to the extent that payment thereof shall not at the time be
required by Section 6.1.

6.8.3. Deposits or pledges made (a) in connection with, or to
secure payment of, workers' compensation, unemployment insurance, old age
pensions or other social security, (b) in connection with casualty
insurance maintained in accordance with Section 6.3, (c) to secure the
performance of bids, tenders, contracts (other than contracts relating to
Financing Debt) or leases, (d) to secure statutory obligations or surety
or appeal bonds, (e) to secure indemnity, performance or other similar
bonds in the ordinary course of business or (f) in connection with
contested amounts to the extent that payment thereof shall not at that
time be required by Section 6.1.

6.8.4. Liens in respect of judgments or awards, to the extent that
such judgments or awards are permitted by Section 6.6.6 but only to the
extent that such Liens are junior to the Liens on the Credit Security
granted to secure the Credit Obligations.

6.8.5. Liens of carriers, warehouses, mechanics and similar Liens,
in each case (a) in existence less than 180 days from the date of
creation thereof and the

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amount being secured thereby becoming due and payable or (b) being
contested in good faith by the Company or any Subsidiary in appropriate
proceedings (so long as the Company or such Subsidiary shall, in
accordance with GAAP, have set aside on its books adequate reserves with
respect thereto).

6.8.6. Encumbrances in the nature of (a) zoning restrictions, (b)
easements, (c) restrictions of record on the use of real property, (d)
landlords' and lessors' Liens on rented premises and (e) restrictions on
transfers or assignment of leases, which in each case do not materially
impair the use thereof in the business of the Company or any Subsidiary.

6.8.7. Restrictions under federal and state securities laws on the
transfer of securities.

6.8.8. Restrictions under Foreign Trade Regulations on the
transfer or licensing of certain assets of the Company and its
Subsidiaries.

6.8.9. Liens constituting (a) purchase money security interests
(including mortgages, conditional sales, Capitalized Leases and any other
title retention or deferred purchase devices) in real property, interests
in leases or tangible personal property (other than inventory) existing
or created on the date on which such property is acquired or within 180
days thereafter, and (b) the renewal, extension or refunding of any
security interest referred to in the foregoing clause (a) in an amount
not to exceed the amount thereof remaining unpaid immediately prior to
such renewal, extension or refunding; provided, however, that (i) each
such security interest shall attach solely to the particular item of
property so acquired, and the principal amount of Indebtedness (including
Indebtedness in respect of Capitalized Lease Obligations) secured thereby
shall not exceed the cost (including all such Indebtedness secured
thereby, whether or not assumed) of such item of property; and (ii) the
aggregate principal amount of all Indebtedness secured by Liens permitted
by this Section 6.8.9 shall not exceed the amount permitted by Section
6.6.7.

6.8.10. Liens as in effect on the date hereof described in Exhibit
7.3 and securing Indebtedness permitted by Section 6.6.12.

6.8.11. Cash collateral securing the Borrower's reimbursement
obligations with respect to the Three Day Notes Letters of Credit.

6.8.12. Licenses and sublicenses to other Persons to the extent
permitted by Section 6.11.

6.8.13. Setoff rights of depositary banks.

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6.8.14. Security interests in shipping documents, invoices and
warehouse receipts delivered against payment under letters of credit
permitted by Section 6.7.4 to secure the reimbursement obligations of the
Company and its Subsidiaries with respect thereto.

6.8.15. The sale of defaulted accounts receivable pursuant to a
contingent put exercised by the Company and its Subsidiaries under a
non-notification arrangement with a financial institution providing credit
support for accounts receivable.

6.9. Investments and Acquisitions. Neither the Company nor any of its
Subsidiaries shall have outstanding, acquire or hold any Investment (including
any Investment consisting of the acquisition of any business) (or become
contractually committed to do so regardless of compliance with this Agreement),
except the following:

6.9.1. Cash Investments of the Company and its Subsidiaries in (a)
the Borrower or Wholly Owned Subsidiaries which are Guarantors as of the
date hereof and (b) Persons that have become Wholly Owned Subsidiaries
and Guarantors after the date hereof; provided, however, that no such
Investment shall involve the transfer by the Company of any material
assets other than cash.

6.9.2. Intercompany loans and advances among the Company and its
Wholly Owned Subsidiaries to the extent reasonably necessary for
Consolidated tax planning and working capital management; provided,
however, that loans and advances from a Foreign Subsidiary to the Company
or a Domestic Subsidiary must be subordinated to the Credit Obligations
pursuant to a subordination agreement in substantially the form of
Exhibit 6.9.2.

6.9.3. Investments in Cash Equivalents.

6.9.4. Guarantees permitted by Section 6.7.

6.9.5. The Acquisition on the Initial Closing Date as contemplated
by the Acquisition Agreement.

6.9.6. Loans and advances in an aggregate amount not exceeding
$2,000,000 at any one time outstanding to manufacturers of the Borrower's
products, which loans and advances that exceed 270 days in duration
(including refinancings thereof by additional such loans and advances)
shall be evidenced by promissory notes and pledged to the Agent pursuant
to the Guarantee and Security Agreement or the Hong Kong Collateral
Debenture.

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6.9.7. So long as immediately before and after giving effect
thereto no Event of Default exists when a particular Investment is made,
Investments of the Company and its Wholly Owned Subsidiaries in Foreign
Wholly Owned Subsidiaries; provided, however, that (a) such Investments
shall not involve the transfer of substantial assets from the Company and
its Domestic Subsidiaries to its Foreign Subsidiaries, other than cash,
and (b) Investments of the Company and its Domestic Subsidiaries in
Foreign Subsidiaries made pursuant to this Section after the Initial
Closing Date shall be permitted only to the extent reasonably necessary
for working capital.

6.9.8. Loans by the Company to members of the Management Group and
other officers, employees or directors of the Obligors to finance the
purchase of stock in the Company so long as (a) the aggregate principal
amount of such loans does not exceed $500,000 at any one time outstanding
and (b) such loans are evidenced by notes that are pledged to the Agent
in accordance with the Guarantee and Security Agreement.

6.9.9. Loans, advances and capital contributions by the Company
and the Borrower in their Subsidiaries on or prior to the Initial Closing
Date in order to facilitate the Acquisition in accordance with the
Acquisition Agreement.

6.9.10. Mergers permitted by Section 6.11.

6.9.11. Investments outstanding on the date hereof and described
in Exhibit 7.3.

6.9.12. So long as immediately after giving effect thereto no
Default exists, Investments made directly from the proceeds of Designated
Affiliate Equity Proceeds.

6.10. Distributions. Neither the Company nor any of its Subsidiaries
shall make any Distribution, except for the following:

6.10.1. Subsidiaries of the Company may make Distributions to the
Borrower or any Wholly Owned Subsidiary of the Company and the Company
may make Investments permitted by Sections 6.9.1 and 6.9.2.

6.10.2. The Company may issue notes evidencing PIK Interest with
respect to the Seller Subordinated Notes and the Junior Subordinated
Notes.

6.10.3. So long as immediately before and after giving effect
thereto no Event of Default exists, in any fiscal year, the Company may
pay quarterly interest payments to the holders of Junior Subordinated
Notes; provided, however, that:

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(a) the sum of the aggregate amount of Distributions
pursuant to this Section 6.10.3 for the then current fiscal year
plus the excess, if any, of Distributions made during the previous
fiscal year under Sections 6.10.3 and 6.10.4 over Consolidated
Excess Cash Flow Available for Tax Shield Distributions for such
previous fiscal year shall not exceed

(b) the least of (i) 40% of interest accrued on the Junior
Subordinated Notes during the then current fiscal year, (ii)
$3,000,000 minus Distributions made in the then current fiscal year
pursuant to Section 6.10.4 or (iii) the Company's then good faith
estimate of Consolidated Excess Cash Flow Available for Tax Shield
Distributions for the then current fiscal year minus Distributions
made in the then current fiscal year pursuant to Section 6.10.4;

provided, however, that Distributions that otherwise would have been
permitted during a particular fiscal year under this Section 6.10.3 but
for the occurrence and continuance of an Event of Default may be paid
(and shall be deemed to have been made in such particular fiscal year)
when all Events of Default are cured or deemed no longer to exist in
accordance with Section 8.3.

6.10.4. So long as immediately before and after giving effect
thereto no Specified Event of Default exists, in any fiscal year, the
Company may pay quarterly interest payments to the holders of Seller
Subordinated Notes; provided, however, that:

(a) the sum of the aggregate amount of Distributions
pursuant to this Section 6.10.4 for the then current fiscal year
plus the excess, if any, of Distributions made during the previous
fiscal year under Sections 6.10.3 and 6.10.4 over Consolidated
Excess Cash Flow Available for Tax Shield Distributions for such
previous fiscal year shall not exceed

(b) the least of (i) 40% of interest accrued on the Seller
Subordinated Notes during the then current fiscal year, (ii)
$3,000,000 minus Distributions made in the then current fiscal year
pursuant to Section 6.10.3 or (iii) the Company's then good faith
estimate of Consolidated Excess Cash Flow Available for Tax Shield
Distributions for the then current fiscal year minus Distributions
made in the then current fiscal year pursuant to Section 6.10.3;

provided, however, that Distributions that otherwise would have been
permitted during a particular fiscal year under this Section 6.10.4 but
for the occurrence and continuance of a Specified Event of Default may be
paid (and shall be deemed to have been made in such particular fiscal
year) when all Specified Events of Default are cured or deemed no longer
to exist in accordance with Section 8.3.

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6.10.5. So long as immediately before and after giving effect
thereto no Event of Default exists, in any fiscal year after the annual
financial reports for the previous fiscal year have been furnished to the
Lenders in accordance with Section 6.4.1, the Company may pay cash
quarterly interest on the Junior Subordinated Notes in an aggregate
amount for the then current fiscal year not exceeding an amount equal to
50% of Consolidated Excess Cash Flow After Tax Shield Distributions for
the immediately preceding fiscal year minus Distributions made in the
then current fiscal year in accordance with Section 6.10.6.

6.10.6. So long as immediately before and after giving effect
thereto no Specified Event of Default exists, in any fiscal year after
the annual financial reports for the previous fiscal year have been
furnished to the Lenders in accordance with Section 6.4.1, after May 1,
1997 the Company may pay principal of and interest on the Seller
Subordinated Notes in an aggregate amount for the then current fiscal
year not exceeding an amount equal to 50% of Consolidated Excess Cash
Flow After Tax Shield Distributions for the immediately preceding fiscal
year minus Distributions made in the then current fiscal year in
accordance with Section 6.10.5.

6.10.7. The Company and its Subsidiaries may consummate the
Acquisition on the Initial Closing Date and thereafter pay the Sellers
tax reimbursement amounts in an amount not exceeding $1,000,000 in
accordance with sections 10(a) and (b) of the Acquisition Agreement.

6.10.8. So long as immediately before and after giving effect
thereto no Default exists, the Company may redeem stock owned by
employees, officers and directors of the Obligors in an aggregate amount
since the Initial Closing Date not exceeding the sum of (i) $250,000 in
cash in any fiscal year plus (ii) notes permitted by Section 6.6.14.

6.10.9. Distributions made directly from the proceeds of
Designated Affiliate Equity Proceeds.

6.10.10. The Company may reimburse members of the Willis Stein
Group for their out-of-pocket expenses in connection with the
Acquisition, the original incurrence of the Credit Obligations and the
ongoing management of the Company and its Subsidiaries.

6.10.11. Cash Distributions to the Company to pay its current
obligations in the ordinary course of business, including the payment of
amounts permitted by Section 6.9 and the other provisions of this Section
6.10.

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6.10.12. The Company may pay the Seller Subordinated Notes with
the proceeds of the Deferred Term Loan.

6.11. Asset Dispositions and Mergers. Neither the Company nor any of its
Subsidiaries shall merge or enter into a consolidation or sell, lease, sell and
lease back, sublease or otherwise dispose of any of its assets (or become
contractually committed to do so), except the following:

6.11.1. The Company and any of its Subsidiaries may sell or
otherwise dispose of (a) inventory and Cash Equivalents in the ordinary
course of business, (b) tangible assets to be replaced in the ordinary
course of business within 12 months by other tangible assets of equal or
greater value and (c) tangible assets that are no longer used or useful
in the business of the Company or such Subsidiary, the fair market value
(or book value if greater) of which shall not exceed $500,000 in any
fiscal year.

6.11.2. Any Wholly Owned Subsidiary of the Company may merge or be
liquidated into the Company or any other Wholly Owned Subsidiary of the
Company so long as after giving effect to any such merger to which the
Borrower is a party the Borrower shall be the surviving or resulting
Person.

6.11.3. Investments permitted by Section 6.9.5.

6.11.4. So long as immediately before and after giving effect
thereto no Default exists, the Company and its Subsidiaries may sell
assets having a fair market value (or book value if greater) not
exceeding $500,000 in any fiscal year so long as the Net Asset Sale
Proceeds thereof are applied to repay the Loan as required by Section
4.3.3.

6.11.5. Licensing of products and intangible assets for fair value
in the ordinary course of business.

6.11.6. Sales of defaulted accounts receivable permitted by
Section 6.8.15.

6.12. Lease Obligations. Neither the Company nor any of its Subsidiaries
shall be or become obligated as lessee under any lease except (or become
contractually committed to do so), except the following:

6.12.1. Capitalized Leases permitted by Sections 6.6.7 and 6.8.9.

6.12.2. Leases other than Capitalized Leases; provided, however,
that the aggregate fixed rental obligations for any year (excluding
payments required to be

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made by the lessee in respect of taxes and insurance whether or not
denominated as rent) shall not exceed $1,000,000.

6.13. Issuance of Stock by Subsidiaries; Subsidiary Distributions.

6.13.1. Issuance of Stock by Subsidiaries. No Subsidiary shall
issue or sell any shares of its capital stock or other evidence of
beneficial ownership to any Person other than (a) the Company or any Wholly
Owned Subsidiary of the Company, which shares shall have been pledged to
the Agent as part of the Credit Security to the extent required by the
Guarantee and Security Agreement and (b) directors of Subsidiaries as
qualifying shares to the extent required by Legal Requirements and, in the
case of Foreign Subsidiaries, shares required by Legal Requirements to be
held by foreign nationals.

6.13.2. No Restrictions on Subsidiary Distributions. Except for
this Agreement and the Credit Documents or to the extent required by law,
neither the Company nor any Subsidiary shall enter into or be bound by any
agreement (including covenants requiring the maintenance of specified
amounts of net worth or working capital) restricting the right of any
Subsidiary to make Distributions or extensions of credit to the Company
(directly or indirectly through another Subsidiary).

6.14. Voluntary Prepayments of Other Indebtedness. Except to the extent
permitted by Section 6.10 with respect to the Seller Subordinated Notes and the
Junior Subordinated Notes, neither the Company nor any of its Subsidiaries shall
make any voluntary prepayment of principal of or interest on any Financing Debt
(other than the Credit Obligations) or make any voluntary redemptions or
repurchases of Financing Debt (other than the Credit Obligations), in each case
except in order to facilitate a refinancing thereof permitted by Section 6.6.

6.15. Derivative Contracts. Neither the Company nor any of its
Subsidiaries shall enter into any Interest Rate Protection Agreement, foreign
currency exchange contract or other financial or commodity derivative contracts
except to provide hedge protection for an underlying economic transaction in the
ordinary course of business.

6.16. Negative Pledge Clauses. Neither the Company nor any of its
Subsidiaries shall enter into any agreement, instrument, deed or lease which
prohibits or limits the ability of the Company or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned or hereafter acquired, or
which requires the grant of any collateral for such obligation if collateral is
granted for another obligation, except the following:

6.16.1. This Agreement and the other Credit Documents.

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6.16.2. Covenants in documents creating Liens permitted by Section
6.8 prohibiting further Liens on the assets encumbered thereby.

6.17. ERISA, etc. Each of the Company and its Subsidiaries shall comply,
and shall cause all ERISA Group Persons to comply, in all material respects,
with the provisions of ERISA and the Code applicable to each Plan. Each of the
Company and its Subsidiaries shall meet, and shall cause all ERISA Group Persons
to meet, all minimum funding requirements applicable to them with respect to any
Plan pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the
fair market value of the assets of such Plan allocable to such benefits by more
than $500,000. The Company and its Subsidiaries shall not withdraw, and shall
cause all other ERISA Group Persons not to withdraw, in whole or in part, from
any Multiemployer Plan so as to give rise to withdrawal liability exceeding
$500,000 in the aggregate. At no time shall the actuarial present value of
unfunded liabilities for post-employment health care benefits, whether or not
provided under a Plan, calculated in a manner consistent with Statement No. 106
of the Financial Accounting Standards Board, exceed $500,000.

6.18. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries shall effect any transaction with any of their respective
Affiliates (except for the Company and its Subsidiaries) on a basis less
favorable to the Company and its Subsidiaries than would be the case if such
transaction had been effected with a non-Affiliate.

6.19. Interest Rate Protection. Within 30 days after the Initial Closing
Date, the Company shall obtain and thereafter keep in effect one or more
Interest Rate Protection Agreements conforming to International Securities
Dealers Association standards, each in form and substance reasonably
satisfactory to the Agent, covering an initial notional amount of the Loan equal
to at least $25,000,000 (reducing proportionately in accordance with the
scheduled amortization of the Loan under Section 4.2) in each case for an
aggregate period of not less than three years and providing protection against
increases in interest rates above a Eurodollar Rate of 9% per annum.

6.20. Restricted Operations of Company and Banerjan. The Company will
conduct no operations other than acquiring and owning the capital stock of the
Borrower and activities incidental thereto. The Company will own no material
assets other than the stock of the Borrower and cash expected to be spent within
90 days in the ordinary course of business. Each of Banerjan and any other
Foreign Subsidiary will own no cash or Cash Equivalents other than amounts
expected to be spent within 90 days in the ordinary course of business. On the
Initial Closing Date the Borrower will advance at least $21,000,000 to Banerjan
to fund a portion of the Acquisition, which advance, as well as all subsequent
advances of proceeds

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from the Revolving Loan and other Credit Obligations, shall be evidenced by a
grid note pledged to the Agent pursuant to the Guarantee and Security
Agreement.

7. Representations and Warranties. In order to induce the Lenders to extend
credit to the Company hereunder, each of the Company and such of its
Subsidiaries as are party hereto from time to time jointly and severally
represents and warrants as of the date hereof and each Closing Date as follows:

7.1. Organization and Business.

7.1.1. The Company. The Company is a duly organized and validly
existing corporation, in good standing under the laws of Delaware, with
all power and authority, corporate or otherwise, necessary to (a) enter
into and perform this Agreement and each other Credit Document to which
it is party, (b) grant the Agent for the benefit of the Lenders the
security interests in the Credit Security owned by it to secure the
Credit Obligations and (c) own its properties and carry on the business
now conducted or proposed to be conducted by it. Certified copies of the
Charter and By-laws of the Company have been previously delivered to the
Agent and are correct and complete. Exhibit 7.1, as from time to time
hereafter supplemented in accordance with Sections 6.4.1 and 6.4.2, sets
forth, as of the later of the date hereof or the end of the most recent
fiscal quarter for which financial statements are required to be
furnished in accordance with such Sections, (i) the jurisdiction of
incorporation of the Company, (ii) the address of the Company's principal
executive office and chief place of business, (iii) each name, including
any trade name, under which the Company conducts its business and (iv)
the jurisdictions in which the Company keeps tangible personal property.

7.1.2. Subsidiaries. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this
Agreement and each other Credit Document to which it is party, (b) incur
and guarantee the Credit Obligations, (c) grant the Agent for the benefit
of the Lenders the security interest in the Credit Security owned by such
Subsidiary to secure the Credit Obligations and (d) own its properties
and carry on the business now conducted or proposed to be conducted by
it. Certified copies of the Charter and By-laws of each Subsidiary of
the Company have been previously delivered to the Agent and are correct
and complete. Exhibit 7.1, as from time to time hereafter supplemented
in accordance with Sections 6.4.1 and 6.4.2, sets forth, as of the later
of the date hereof or the end of the most recent fiscal quarter for which
financial statements are required to be furnished in accordance with such
Sections, (i) the name and jurisdiction of organization of each
Subsidiary of the Company, (ii) the address of the chief executive office
and principal place of business of each such Subsidiary, (iii)

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each name under which each such Subsidiary conducts its business, (iv)
each jurisdiction in which each such Subsidiary keeps tangible personal
property, and (v) the number of authorized and issued shares and
ownership of each such Subsidiary.

7.1.3. Qualification. Each of the Company and its Subsidiaries is
duly and legally qualified to do business as a foreign corporation or
other entity and is in good standing in each state or jurisdiction in
which such qualification is required and is duly authorized, qualified
and licensed under all laws, regulations, ordinances or orders of public
authorities, or otherwise, to carry on its business in the places and in
the manner in which it is conducted, except for failures to be so
qualified, authorized or licensed which would not in the aggregate
result, or create a material risk of resulting, in any Material Adverse
Change.

7.1.4. Capitalization. From and after the Acquisition, no
options, warrants, conversion rights, preemptive rights or other
statutory or contractual rights to purchase shares of capital stock or
other securities of any Subsidiary now exist, nor has any Subsidiary
authorized any such right, nor is any Subsidiary obligated in any other
manner to issue shares of its capital stock or other securities.

7.2. Financial Statements and Other Information; Material Agreements.

7.2.1. Financial Statements and Other Information. The Company
has previously furnished to the Lenders copies of the following:

(a) The audited combined balance sheets of the Borrower and
Dods-Meyer, Ltd. as at December 31 in each of 1995 and 1994 and the
audited combined statements of income, of changes in shareholders' equity
and of cash flows of the Borrower and Dods-Meyer, Ltd. for each of the
three years in the period ended December 31, 1995.

(b) The unaudited combined balance sheets of the Borrower and
Dods-Meyer, Ltd. as at March 31, 1996 and the unaudited combined
statements of income and of cash flows of the Borrower and Dods-Meyer,
Ltd. for the portion of the fiscal year then ended.

(c) The audited combined balance sheets of Racing Champions
Limited, Garnett Services, Inc. and Hosten Investment Limited as at March
31 in each of 1995 and 1994 and the audited combined statements of
income, of changes in shareholders' equity and of cash flows of Racing
Champions Limited, Garnett Services, Inc. and Hosten Investment Limited
for each of the three years in the period ended March 31, 1995 .

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(d) The unaudited combined balance sheets of Racing Champions
Limited, Garnett Services, Inc. and Hosten Investment Limited as at March
31, 1996 and the unaudited combined statements of income and of cash
flows of Racing Champions Limited, Garnett Services, Inc. and Hosten
Investment Limited for the portion of the fiscal year then ended.

(e) The five-year financial and operational projections for the
Company and its Subsidiaries dated April 17, 1996.

(f) Calculations demonstrating pro forma compliance with the
Computation Covenants designated by the Agent as of the end of the most
recent month preceding the date hereof.

(g) Reports and analyses dated April 30, 1996 of Ernst & Young LLP
with respect to the financial statements and operating data of the
Borrower and the corporate Sellers.

The audited financial statements (including the notes thereto)
referred to in clauses (a) and (c) above were prepared in accordance with
GAAP and fairly present in all material respects the financial position
of the Persons covered thereby at the respective dates thereof and the
results of their operations for the periods covered thereby. The
unaudited financial statements referred to in clauses (b) and (d) above
were prepared in accordance with GAAP and fairly present in all material
respects the financial position of the Persons covered thereby at the
respective dates thereof and the results of their operations for the
periods covered thereby, subject to normal year-end audit adjustment and
the addition of footnotes. Neither the Company nor any of its
Subsidiaries has any known contingent liability material to the Company
and its Subsidiaries on a Consolidated basis which is not reflected in
the balance sheets referred to in clauses (a), (b), (c) or (d) above (or
delivered pursuant to Sections 6.4.1 or 6.4.2) or in the notes thereto.

In the Company's judgment, the financial and operational projections
referred to in clause (e) above constitute a reasonable basis as of the
Initial Closing Date for the assessment of the future performance of the
Company and its Subsidiaries during the periods indicated therein, it
being understood that any projected financial information represents an
estimate, based on various assumptions, of future results of operations
which may or may not in fact occur.

7.2.2. Material Agreements. The Company has previously furnished
to the Lenders correct and complete copies, including all exhibits,
schedules and amendments thereto, of the agreements, each as in effect on
the date hereof, listed in Exhibit 7.2.2 (the "Material Agreements").

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7.3. Agreements Relating to Financing Debt, Investments, etc. Exhibit 7.3,
as from time to time hereafter supplemented in accordance with Sections 6.4.1
and 6.4.2, sets forth (a) the amounts (as of the dates indicated in Exhibit 7.3,
as so supplemented) of all Financing Debt of the Company and its Subsidiaries
exceeding $100,000 and all agreements which relate to such Financing Debt, (b)
all Liens and Guarantees with respect to such Financing Debt, (c) all agreements
which directly or indirectly require the Company or any Subsidiary to make any
Investment exceeding $100,000, (d) material license agreements with respect to
the products of the Company and its Subsidiaries, including the parties thereto
and the expiration dates thereof and (e) all trademarks, tradenames, service
marks, service names and patents registered with the federal Patent and
Trademark Office (or with respect to which applications for such registration
have been filed). The Company has furnished the Lenders with correct and
complete copies of any agreements and information described in clauses (a), (b),
(c), (d) and (e) above requested by the Required Lenders.

7.4. Changes in Condition. Since December 31, 1995 no Material Adverse
Change has occurred. Between December 31, 1995 and the Initial Closing Date,
neither the Borrower nor any of Racing Champions Limited, Garnett Services,
Inc., Hosten Investment Limited, Banerjan or the Company has entered into any
material transaction outside the ordinary course of business except for the
transactions contemplated by this Agreement and the Material Agreements,
including the Acquisition Agreement.

7.5. Title to Assets. The Company and its Subsidiaries have good and
marketable title to, or license or leasehold rights in, all assets necessary for
or used in the operations of their business as now conducted by them and
reflected in the most recent balance sheet referred to in Section 7.2.1 (or the
balance sheet most recently furnished to the Lenders pursuant to Sections 6.4.1
or 6.4.2), and to all assets acquired subsequent to the date of such balance
sheet, subject to no Liens except for Liens permitted by Section 6.8 and except
for assets disposed of as permitted by Section 6.11.

7.6. Operations in Conformity With Law, etc. The operations of the Company
and its Subsidiaries as now conducted or proposed to be conducted are not in
violation of, nor is the Company or its Subsidiaries in default under, any Legal
Requirement presently in effect, except for such violations and defaults as do
not and will not, in the aggregate, result, or create a material risk of
resulting, in any Material Adverse Change. As of the Initial Closing Date, the
Company has received no notice of any such violation or default and has no
knowledge of any basis on which the operations of the Company or its
Subsidiaries, as now conducted and as currently proposed to be conducted after
the date hereof, would be held so as to violate or to give rise to any such
violation or default.

7.7. Litigation. No litigation, at law or in equity, or any proceeding
before any court, board or other governmental or administrative agency or any
arbitrator is pending or, to

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the knowledge of the Company or any Guarantor, threatened which is likely to
result in any final judgment, order or liability which, after giving effect to
any applicable insurance, has resulted, or is likely to result, in any Material
Adverse Change or which seeks to enjoin the consummation, or which questions
the validity, of any of the transactions contemplated by this Agreement or any
other Credit Document. No judgment, decree or order of any court, board or
other governmental or administrative agency or any arbitrator has been issued
against or binds the Company or any of its Subsidiaries which has resulted, or
is likely to result, in any Material Adverse Change.

7.8. Authorization and Enforceability. Each of the Company and each other
Obligor has taken all corporate action required to execute, deliver and perform
this Agreement and each other Credit Document to which it is party. No consent
of stockholders of the Company is necessary in order to authorize the
execution, delivery or performance of this Agreement or any other Credit
Document to which the Company is party. Each of this Agreement and each other
Credit Document constitutes the legal, valid and binding obligation of each
Obligor party thereto and is enforceable against such Obligor in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties and general principles of equity.

7.9. No Legal Obstacle to Agreements. Neither the execution and delivery
of this Agreement or any other Credit Document, nor the making of any
borrowings hereunder, nor the guaranteeing of the Credit Obligations, nor the
securing of the Credit Obligations with the Credit Security, nor the
consummation of any transaction (other than the Acquisition) referred to in or
contemplated by this Agreement or any other Credit Document, nor the
fulfillment of the terms hereof or thereof (other than the consummation of the
Acquisition) or of any other agreement, instrument, deed or lease contemplated
by this Agreement or any other Credit Document (other than the Acquisition
Agreement), has constituted or resulted in or will constitute or result in:

(a) any breach or termination of the provisions of any agreement,
instrument, deed or lease to which the Company, any of its Subsidiaries
or any other Obligor is a party or by which it is bound, or of the
Charter or By-laws of the Company, any of its Subsidiaries or any other
Obligor;

(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company, any of
its Subsidiaries or any other Obligor;

(c) the creation under any agreement, instrument, deed or lease of
any Lien (other than Liens on the Credit Security which secure the Credit
Obligations) upon any of the assets of the Company, any of its
Subsidiaries or any other Obligor; or

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(d) any redemption, retirement or other repurchase obligation of
the Company, any of its Subsidiaries or any other Obligor under any
Charter, By-law, agreement, instrument, deed or lease.

No approval, authorization or other action by, or declaration to or filing
with, any governmental or administrative authority or any other Person is
required to be obtained or made by the Company, any of its Subsidiaries or any
other Obligor in connection with the execution, delivery and performance of
this Agreement, the Notes or any other Credit Document, the transactions
contemplated hereby or thereby, the making of any borrowing hereunder, the
guaranteeing of the Credit Obligations or the securing of the Credit
Obligations with the Credit Security, other than filings necessary to perfect
the security interests in the Credit Security.

7.10. Defaults. Neither the Company nor any of its Subsidiaries is in
default under any provision of its Charter or By-laws. Neither the Company nor
any of its Subsidiaries is in default under any provision of any agreement,
instrument, deed or lease to which it is party or by which it or its property
is bound so as to result, or create a material risk of resulting, in any
Material Adverse Change. Neither the Company nor any of its Subsidiaries has
violated any law, judgment, decree or governmental order, rule or regulation,
in each case so as to result, or create a material risk of resulting, in any
Material Adverse Change.

7.11. Licenses, etc. The Company and its Subsidiaries have all patents,
patent applications, patent licenses, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights, licenses, franchises,
permits, authorizations and other rights as are reasonably necessary for the
conduct of the business of the Company and its Subsidiaries as now conducted by
them. All of the foregoing are in full force and effect in all material
respects, and each of the Company and its Subsidiaries is in substantial
compliance with the foregoing without any known conflict with the valid rights
of others which has resulted, or creates a material risk of resulting, in any
Material Adverse Change. No event has occurred which permits, or after notice
or lapse of time or both would permit, the revocation or termination of any
such license, franchise or other right or which affects the rights of any of
the Company and its Subsidiaries thereunder so as to result, or to create a
material risk of resulting, in any Material Adverse Change. No litigation or
other proceeding or dispute exists with respect to the validity or, where
applicable, the extension or renewal, of any of the foregoing which has
resulted, or creates a material risk of resulting, in any Material Adverse
Change.

7.12. Tax Returns. Each of the Company and its Subsidiaries has filed all
material tax and information returns which are required to be filed by it and
has paid, or made adequate provision for the payment of, all taxes which have
or may become due pursuant to such returns or to any assessment received by it,
other than taxes and assessments being contested by the

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Company and its Subsidiaries in good faith by appropriate proceedings
and for which adequate reserves have been taken in accordance with GAAP.
Neither the Company nor any of its Subsidiaries knows of any material
additional assessments or any basis therefor. The Company reasonably believes
that the charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of taxes or other governmental charges are adequate.

7.13. Certain Business Representations.

7.13.1. Product Liability Matters. Exhibit 7.13.1, as from time
to time hereafter supplemented in accordance with Sections 6.4.1 and
6.4.2, sets forth a listing and description of all products liability
claims, actions, suits or proceedings pending or threatened in writing
against the Company or any Subsidiary.

7.13.2. Antitrust. Each of the Company and its Subsidiaries is in
compliance in all material respects with all federal and state antitrust
laws relating to its business and the geographic concentration of its
business.

7.13.3. Consumer Protection. Neither the Company nor any of its
Subsidiaries is in violation of any rule, regulation, order, or
interpretation of any rule, regulation or order of the Federal Trade
Commission (including truth-in-lending), with which the failure to
comply, in the aggregate, has resulted, or creates a material risk of
resulting, in a Material Adverse Change.

7.13.4. Future Expenditures. Neither the Company nor any of its
Subsidiaries anticipate that the future expenditures, if any, by the
Company and its Subsidiaries needed to meet the provisions of any
federal, state or foreign governmental statutes, orders, rules or
regulations will be so burdensome as to result, or create a material risk
of resulting, in any Material Adverse Change.

7.14. Transactions with Affiliates. Exhibit 7.14, as from time to time
hereafter supplemented in accordance with Sections 6.4.1 and 6.4.2, and Exhibit
7.2.2 set forth all agreements and transactions between the Company, the
Borrower and any other Obligor on the one hand, and any Affiliate of such
Person on the other hand, except for (a) employee bonuses, benefits and
salaries paid in the ordinary course of business and (b) agreements and
transactions involving payments, property and services with a value of less
than $50,000 in the aggregate for each Affiliate since the Initial Closing
Date. The Company has furnished the Lenders with correct and complete copies
of any agreements described on Exhibit 7.14 requested by the Required Lenders.

7.15. Pension Plans. Each Plan (other than a Multiemployer Plan) and, to
the knowledge of the Company and its Subsidiaries, each Multiemployer Plan is
in material compliance with the applicable provisions of ERISA and the Code.
Each Multiemployer Plan

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and each Plan that constitutes a "defined benefit plan" (as defined in ERISA)
are set forth in Exhibit 7.15. Each ERISA Group Person has met all of the
funding standards applicable to all Plans that are not Multiemployer Plans, and
no condition exists which would permit the institution of proceedings to
terminate any Plan that is not a Multiemployer Plan under section 4042 of
ERISA. To the best knowledge of the Company and each Subsidiary, no Plan that
is a Multiemployer Plan is currently insolvent or in reorganization or has been
terminated within the meaning of ERISA.

7.16. Acquisition Agreement, etc. As of the Initial Closing Date, the
Acquisition Agreement is a valid and binding contract as to the Company and, to
the best of the Company's knowledge, as to the Sellers, in each case subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and general
principles of equity. As of the Initial Closing Date, the Company is not in
default in any material respect of its obligations under the Acquisition
Agreement and, to the best of the Company's knowledge, the Sellers are not in
default in any material respect of any of their obligations thereunder. The
representations and warranties of the Company set forth in the Acquisition
Agreement are true and correct in all material respect as of the date hereof
with the same force and effect as though made on and as of the date hereof. To
the best of the Company's knowledge all of the representations and warranties
of the Sellers set forth in the Acquisition Agreement are true and correct in
all material respects as of the date hereof with the same force and effect as
though made on and as of the date hereof.

7.17. Foreign Trade Regulations; Government Regulation; Margin Stock.

7.17.1. Foreign Trade Regulations. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making
by the Company of any borrowings hereunder, nor the guaranteeing of the
Credit Obligations by any Guarantor, nor the securing of the Credit
Obligations with the Credit Security, has constituted or resulted in or
will constitute or result in the violation of any Foreign Trade
Regulation.

7.17.2. Government Regulation. Neither the Company nor any of its
Subsidiaries, nor any Person controlling the Company or any of its
Subsidiaries or under common control with the Company or any of its
Subsidiaries, is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act,
the Interstate Commerce Act or any similar statute or regulation which
regulates the incurring by the Company or any of its Subsidiaries of
Financing Debt as contemplated by this Agreement and the other Credit
Documents.

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7.17.3. Margin Stock. Neither the Company nor any of its
Subsidiaries owns any Margin Stock in excess of 25% of the value of the
assets subject to any negative pledge arrangement.

7.18. Disclosure. Neither this Agreement nor any other Credit Document to
be furnished to the Lenders by or on behalf of the Company or any of its
Subsidiaries in connection with the transactions contemplated hereby or by such
Credit Document contains any untrue statement of material fact or omits to state
a material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
As of the Initial Closing Date, no fact is actually known to the Company or any
of its Subsidiaries which has resulted, or in the future (so far as the Company
or any of its Subsidiaries can reasonably foresee) will result, or creates a
material risk of resulting, in any Material Adverse Change, except to the extent
that present or future general economic conditions may result in a Material
Adverse Change.

8. Defaults.

8.1. Events of Default. The following events are referred to as "Events of
Default":

8.1.1. Payment. The Borrower shall fail to make any payment in
respect of: (a) interest or any fee on or in respect of any of the
Credit Obligations owed by it as the same shall become due and payable,
and such failure shall continue for a period of five days, or (b) any
Credit Obligation with respect to payments made by any Letter of Credit
Issuer under any Letter of Credit or any draft drawn thereunder within
five days after demand therefor by such Letter of Credit Issuer or (c)
principal of any of the Credit Obligations owed by it as the same shall
become due, whether at maturity or by acceleration or otherwise.

8.1.2. Specified Covenants. The Company or any of its
Subsidiaries shall fail to perform or observe any of the provisions of
Section 6.4.6 or Sections 6.5 through 6.20 and, in the case of a failure
to perform or observe any of the provisions of Section 6.5.1
(Consolidated Total Debt to Consolidated EBITDA) or Section 6.5.6
(Consolidated Manufacturers Accounts Payable), Designated Affiliate
Equity Proceeds shall not have been applied to reduce Consolidated Total
Debt or Consolidated Manufacturers Accounts Payable, as the case may be,
to a level that would have avoided such failure as of the last day of the
then most recently completed fiscal quarter within 10 days after actual
knowledge of such failure by a Financial Officer.

8.1.3. Other Covenants. The Company, any of its Subsidiaries or
any other Obligor shall fail to perform or observe any other covenant,
agreement or provision to be performed or observed by it under this
Agreement or any other Credit Document, and such failure shall not be
rectified or cured to the written satisfaction of the

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Required Lenders within 30 days after the earlier of (a) notice thereof
by the Agent to the Company or (b) a Financial Officer shall have actual
knowledge thereof.

8.1.4. Representations and Warranties. Any representation or
warranty of or with respect to the Company, any of its Subsidiaries or
any other Obligor made to the Lenders or the Agent in, pursuant to or in
connection with this Agreement or any other Credit Document shall be
materially false on the date as of which it was made.

8.1.5. Cross Default, etc.

(a) The Company or any of its Subsidiaries shall fail to make any
payment when due (after giving effect to any applicable grace periods) in
respect of any Financing Debt (other than the Credit Obligations)
outstanding in an aggregate amount of principal (whether or not due) and
accrued interest exceeding $500,000;

(b) the Company or any of its Subsidiaries shall fail to perform
or observe the terms of any agreement or instrument relating to such
Financing Debt, and such failure shall continue, without having been duly
cured, waived or consented to, beyond the period of grace, if any,
specified in such agreement or instrument, and such failure shall permit
the acceleration of such Financing Debt;

(c) all or any part of such Financing Debt of the Company or any
of its Subsidiaries shall be accelerated or shall become due or payable
prior to its stated maturity (except with respect to voluntary
prepayments thereof) for any reason whatsoever;

(d) any Lien on any property of the Company or any of its
Subsidiaries securing any such Financing Debt shall be enforced by
foreclosure or similar action; or

(e) any holder of any such Financing Debt shall exercise any right
of rescission with respect to the issuance thereof or put or repurchase
rights against any Obligor with respect to such Financing Debt (other
than any such rights that may be satisfied with "payment in kind" notes
or other similar securities).

8.1.6. Ownership; Liquidation; etc. Except as permitted by
Section 6.11:

(a) the Company shall cease to own, directly or indirectly, all
the capital stock of its Subsidiaries other than director qualifying
shares required by Legal Requirements and, in the case of Foreign
Subsidiaries, shares required by Legal Requirements to be owned by
foreign nationals; or

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(b) at any time prior to an underwritten public offering of the
Company's common stock registered under the Securities Act, Willis Stein
& Partners, L.P. and other funds managed by Willis Stein & Partners, LLC
shall cease to have the ability to elect a majority of the members of the
Company's board of directors; or

(c) any Person (other than members of the Willis Stein Group and
the Management Group), together with "affiliates" and "associates" of
such Person within the meaning of Rule 12b-2 of the Exchange Act, or any
"group" including such Person under sections 13(d) and 14(d) of the
Exchange Act, shall acquire after the date hereof beneficial ownership
within the meaning of Rule 13d-3 of the Exchange Act of 50% or more of
the voting stock of the Company; or

(d) the Company or any of its Subsidiaries or any other Obligor
shall initiate any action to dissolve, liquidate or otherwise terminate
its existence.

8.1.7. Enforceability, etc. Any Credit Document shall cease for
any reason (other than the scheduled termination thereof in accordance
with its terms) to be enforceable in accordance with its terms or in full
force and effect; or any party to any Credit Document shall so assert in
a judicial or similar proceeding; or the security interests created by
this Agreement or any other Credit Documents shall cease to be
enforceable and of the same effect and priority purported to be created
hereby.

8.1.8. Judgments. A final judgment (a) which, with other
outstanding final judgments against the Company and its Subsidiaries,
exceeds an aggregate of $500,000 in excess of applicable insurance
coverage after the application of Designated Affiliate Equity Proceeds
made within 10 days after actual knowledge of such final judgment by a
Financial Officer shall be rendered against the Company or any of its
Subsidiaries, or (b) which grants injunctive relief that results, or
creates a material risk of resulting, in a Material Adverse Change and in
either case if, (i) within 60 days after entry thereof, such judgment
shall not have been discharged or execution thereof stayed pending appeal
or (ii) within 60 days after the expiration of any such stay, such
judgment shall not have been discharged.

8.1.9. ERISA. Any "reportable event" (as defined in section 4043
of ERISA) shall have occurred that reasonably could be expected to result
in termination of a Plan or the appointment by the appropriate United
States District Court of a trustee to administer any Plan or the
imposition of a Lien covering an amount in excess of $500,000 in favor of
a Plan; or any ERISA Group Person shall fail to pay when due amounts
aggregating in excess of $500,000 which it shall have become liable to
pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent
to terminate a Plan shall be filed under Title IV of ERISA by any ERISA
Group Person or administrator; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to

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cause a trustee to be appointed to administer any Plan or a proceeding
shall be instituted by a fiduciary of any Plan against any ERISA Group
Person to enforce section 515 or 4219(c)(5) of ERISA and such proceeding
shall not have been dismissed within 30 days thereafter; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Plan must be terminated.

8.1.10. Bankruptcy, etc. The Company, any of its Subsidiaries or
any other Obligor shall:

(a) commence a voluntary case under the Bankruptcy Code or
authorize, by appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case;

(b) (i) have filed against it a petition commencing an involuntary
case under the Bankruptcy Code that shall not have been dismissed within
60 days after the date on which such petition is filed, or (ii) file an
answer or other pleading within such 60-day period admitting or failing
to deny the material allegations of such a petition or seeking,
consenting to or acquiescing in the relief therein provided, or (iii)
have entered against it an order for relief in any involuntary case
commenced under the Bankruptcy Code;

(c) seek relief as a debtor under any applicable law, other than
the Bankruptcy Code, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in such relief;

(d) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation or reorganization as a debtor or any
modification or alteration of the rights of its creditors or (iii)
assuming custody of, or appointing a receiver or other custodian for, all
or a substantial portion of its property; or

(e) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the
appointment of, or suffer to exist a receiver or other custodian for, all
or a substantial portion of its property.

8.2. Certain Actions Following an Event of Default. If any one or more
Events of Default shall occur, then in each and every such case:

8.2.1. Terminate Obligation to Extend Credit. The Agent on behalf
of the Lenders may (and upon written request of the Required Lenders the
Agent shall)

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terminate the obligations of the Lenders to make any further extensions
of credit under the Credit Documents by furnishing notice of such
termination to the Company.

8.2.2. Specific Performance; Exercise of Rights. The Agent on
behalf of the Lenders may (and upon written request of the Required
Lenders the Agent shall) proceed to protect and enforce the Lenders'
rights by suit in equity, action at law and/or other appropriate
proceeding, either for specific performance of any covenant or condition
contained in this Agreement or any other Credit Document or in any
instrument or assignment delivered to the Lenders pursuant to this
Agreement or any other Credit Document, or in aid of the exercise of any
power granted in this Agreement or any other Credit Document or any such
instrument or assignment.

8.2.3. Acceleration. The Agent on behalf of the Lenders may (and
upon written request of the Required Lenders the Agent shall) by notice
in writing to the Borrower (a) declare all or any part of the unpaid
balance of the Credit Obligations then outstanding to be immediately due
and payable, and (b) require the Borrower immediately to deposit with the
Agent in cash an amount equal to the then Letter of Credit Exposure
(which cash shall be held and applied as provided in Section 4.5), and
thereupon such unpaid balance or part thereof and such amount equal to
the Letter of Credit Exposure shall become so due and payable without
presentation, protest or further demand or notice of any kind, all of
which are hereby expressly waived; provided, however, that if a
Bankruptcy Default shall have occurred, the unpaid balance of the Credit
Obligations shall automatically become immediately due and payable.

8.2.4. Enforcement of Payment; Credit Security; Setoff. The Agent
on behalf of the Lenders may (and upon written request of the Required
Lenders the Agent shall) proceed to enforce payment of the Credit
Obligations in such manner as it may elect, to cancel, or instruct other
Letter of Credit Issuers to cancel, any outstanding Letters of Credit
which permit the cancellation thereof and to realize upon any and all
rights in the Credit Security. The Lenders may offset and apply toward
the payment of the Credit Obligations (and/or toward the curing of any
Event of Default) any Indebtedness from the Lenders to the respective
Obligors, including any Indebtedness represented by deposits in any
account maintained with the Lenders, regardless of the adequacy of any
security for the Credit Obligations. The Lenders shall have no duty to
determine the adequacy of any such security in connection with any such
offset.

8.2.5. Cumulative Remedies. To the extent not prohibited by
applicable law which cannot be waived, all of the Lenders' rights
hereunder and under each other Credit Document shall be cumulative.

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8.3. Annulment of Defaults. Once an Event of Default has occurred, such
Event of Default shall be deemed to exist and be continuing for all purposes of
the Credit Documents until cured by the Company and its Subsidiaries, the
Required Lenders or the Agent (with the consent of the Required Lenders) shall
have waived such Event of Default in writing, stated in writing that the same
has been cured to such Lenders' reasonable satisfaction or entered into an
amendment to this Agreement which by its express terms cures such Event of
Default, at which time such Event of Default shall no longer be deemed to exist
or to have continued. No such action by the Lenders or the Agent shall extend
to or affect any subsequent Event of Default or impair any rights of the
Lenders upon the occurrence thereof. The making of any extension of credit
during the existence of any Default or Event of Default shall not constitute a
waiver thereof.

8.4. Waivers. To the extent that such waiver is not prohibited by the
provisions of applicable law that cannot be waived, each of the Company and the
other Obligors waives:

(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by this Agreement or any
other Credit Document), protests, notices of protest and notices of
dishonor;

(b) any requirement of diligence or promptness on the part of any
Lender in the enforcement of its rights under this Agreement, the Notes
or any other Credit Document;

(c) any and all notices of every kind and description which may be
required to be given by any statute or rule of law; and

(d) any defense (other than payment in full) which it may now or
hereafter have with respect to its liability under this Agreement, the
Notes or any other Credit Document or with respect to the Credit
Obligations.

9. Expenses; Indemnity.

9.1. Expenses. Whether or not the transactions contemplated hereby shall
be consummated, the Borrower will pay:

(a) all reasonable expenses of the Agent (including the
out-of-pocket expenses related to forming the initial group of Lenders
and reasonable fees and disbursements of the counsel to the Agent) in
connection with the preparation and duplication of this Agreement and
each other Credit Document, examinations by, and reports of, the Agent's
commercial financial examiners and amendments, waivers, consents and
other operations hereunder and thereunder;

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(b) all recording and filing fees and transfer and documentary stamp
and similar taxes at any time payable in respect of this Agreement, any
other Credit Document, any Credit Security or the incurrence of the Credit
Obligations; and

(c) all other reasonable expenses incurred by the Lenders or the
holder of any Credit Obligation in connection with the enforcement of any
rights hereunder or under any other Credit Document, including costs of
collection and reasonable attorneys' fees (including a reasonable allowance
for the hourly cost of attorneys employed by the Lenders on a salaried
basis) and expenses.

9.2. General Indemnity. The Borrower shall indemnify the Lenders and the
Agent and hold them harmless from any liability, loss or damage resulting from
the violation by the Borrower of Section 2.6. In addition, the Borrower shall
indemnify each Lender, the Agent, each of the Lenders' or the Agent's directors,
officers and employees, and each Person, if any, who controls any Lender or the
Agent (each Lender, the Agent and each of such directors, officers, employees
and control Persons is referred to as an "Indemnified Party") and hold each of
them harmless from and against any and all claims, damages, liabilities and
reasonable expenses (including reasonable fees and disbursements of counsel with
whom any Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which any Indemnified
Party may incur or which may be asserted against any Indemnified Party in
connection with (a) the Indemnified Party's compliance with or contest of any
subpoena or other process issued against it in any proceeding involving the
Company or any of its Subsidiaries or their Affiliates, (b) any litigation or
investigation involving the Company, any of its Subsidiaries or their
Affiliates, or any officer, director or employee thereof, (c) the existence or
exercise of any security rights with respect to the Credit Security in
accordance with the Credit Documents, or (d) this Agreement, any other Credit
Document or any transaction contemplated hereby or thereby; provided, however,
that the foregoing indemnity shall not apply to litigation commenced by the
Borrower against the Lenders or the Agent which seeks enforcement of any of the
rights of the Borrower hereunder or under any other Credit Document and is
determined adversely to the Lenders or the Agent in a final nonappealable
judgment or to the extent such claims, damages, liabilities and expenses result
from a Lender's or the Agent's gross negligence or willful misconduct.

9.3. Indemnity With Respect to Letters of Credit. The Borrower shall
indemnify each Letter of Credit Issuer and its correspondents and hold each of
them harmless from and against any and all claims, losses, liabilities, damages
and reasonable expenses (including reasonable attorneys' fees) arising from or
in connection with any Letter of Credit, including any such claim, loss,
liability, damage or expense arising out of any transfer, sale, delivery,
surrender or endorsement of any invoice, bill of lading, warehouse receipt or
other document at any time held by the Agent, any other Letter of Credit Issuer
or held for their respective accounts by any of their correspondents, in
connection with any Letter of Credit, except to the

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extent such claims, losses, liabilities, damages and expenses result from gross
negligence or willful misconduct on the part of the Agent or any other Letter
of Credit Issuer.

10. Operations; Agent.

10.1. Interests in Credits. The Percentage Interest of each Lender in the
Loan and Letters of Credit, and the related Commitments, shall be computed
based on the maximum principal amount for each Lender as set forth in the
Register, as from time to time in effect. The current Percentage Interests are
set forth in Exhibit 10.1, which may be updated by the Agent from time to time
to conform to the Register.

10.2. Agent's Authority to Act, etc. Each of the Lenders appoints and
authorizes Bank of Boston to act for the Lenders as the Lenders' Agent in
connection with the transactions contemplated by this Agreement and the other
Credit Documents on the terms set forth herein. In acting hereunder, the Agent
is acting for the account of Bank of Boston to the extent of its Percentage
Interest and for the account of each other Lender to the extent of the Lenders'
respective Percentage Interests, and all action in connection with the
enforcement of, or the exercise of any remedies (other than the Lenders' rights
of set-off as provided in Section 8.2.4 or in any Credit Document) in respect
of the Credit Obligations and Credit Documents shall be taken by the Agent.

10.3. Borrower to Pay Agent, etc. The Borrower and each Guarantor shall
be fully protected in making all payments in respect of the Credit Obligations
to the Agent, in relying upon consents, modifications and amendments executed
by the Agent purportedly on the Lenders' behalf, and in dealing with the Agent
as herein provided. The Agent may charge the accounts of the Borrower, on the
dates when the amounts thereof become due and payable, with the amounts of the
principal of and interest on the Loan, any amounts paid by the Letter of Credit
Issuers to third parties under Letters of Credit or drafts presented
thereunder, commitment fees, Letter of Credit fees and all other fees and
amounts owing under any Credit Document.

10.4. Lender Operations for Advances, Letters of Credit, etc.

10.4.1. Advances. On each Closing Date, each Lender shall advance
to the Agent in immediately available funds such Lender's Percentage
Interest in the portion of the Loan advanced on such Closing Date prior
to 12:00 noon (Boston time). If such funds are not received at such
time, but all applicable conditions set forth in Section 5 have been
satisfied, each Lender authorizes and requests the Agent to advance for
the Lender's account, pursuant to the terms hereof, the Lender's
respective Percentage Interest in such portion of the Loan and agrees to
reimburse the Agent in immediately available funds for the amount thereof
prior to 2:00 p.m. (Boston time) on the day any portion of the Loan is
advanced hereunder; provided, however, that the Agent is not

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authorized to make any such advance for the account of any Lender who has
previously notified the Agent in writing that such Lender will not be
performing its obligations to make further advances hereunder; and
provided, further, that the Agent shall be under no obligation to make
any such advance.

10.4.2. Letters of Credit. Each of the Lenders authorizes and
requests each Letter of Credit Issuer to issue the Letters of Credit
provided for in Section 2.3 and to grant each Lender a participation in
each of such Letters of Credit in an amount equal to its Percentage
Interest in the amount of each such Letter of Credit. Promptly upon the
request of the Letter of Credit Issuer, each Lender shall reimburse the
Letter of Credit Issuer in immediately available funds for such Lender's
Percentage Interest in the amount of all obligations to third parties
incurred by the Letter of Credit Issuer in respect of each Letter of
Credit and each draft accepted under a Letter of Credit to the extent not
reimbursed by the Company. The Letter of Credit Issuer will notify each
Lender of the issuance of any Letter of Credit, the amount and date of
payment of any draft drawn or accepted under a Letter of Credit and
whether in connection with the payment of any such draft the amount
thereof was added to the Revolving Loan or was reimbursed by the Company.

10.4.3. Agent to Allocate Payments, etc. All payments of
principal and interest in respect of the extensions of credit made
pursuant to this Agreement, reimbursement of amounts paid by any Letter
of Credit Issuer to third parties under Letters of Credit or drafts
presented thereunder, commitment fees, Letter of Credit fees and other
fees under this Agreement shall, as a matter of convenience, be made by
the Borrower and the Guarantors to the Agent in immediately available
funds. The share of each Lender shall be credited to such Lender by the
Agent in immediately available funds in such manner that the principal
amount of the Credit Obligations to be paid shall be paid proportionately
in accordance with the Lenders' respective Percentage Interests in such
Credit Obligations, except as otherwise provided in this Agreement.
Under no circumstances shall any Lender be required to produce or present
its Notes as evidence of its interests in the Credit Obligations in any
action or proceeding relating to the Credit Obligations.

10.4.4. Delinquent Lenders; Nonperforming Lenders. In the event
that any Lender fails to reimburse the Agent pursuant to Section 10.4.1
for the Percentage Interest of such lender (a "Delinquent Lender") in any
credit advanced by the Agent pursuant hereto, overdue amounts (the
"Delinquent Payment") due from the Delinquent Lender to the Agent shall
bear interest, payable by the Delinquent Lender on demand, at a per annum
rate equal to (a) the Federal Funds Rate for the first three days overdue
and (b) the sum of 2% plus the Federal Funds Rate for any longer period.
Such interest shall be payable to the Agent for its own account for the
period commencing on the date of the Delinquent Payment and ending on the
date the Delinquent Lender

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reimburses the Agent on account of the Delinquent Payment (to the extent
not paid by the Borrower or any Guarantor as provided below) and the
accrued interest thereon (the "Delinquency Period"), whether pursuant to
the assignments referred to below or otherwise. Upon one Banking Day's
notice by the Agent, the Borrower will pay to the Agent the principal
(but not the interest) portion of the Delinquent Payment. During the
Delinquency Period, in order to make reimbursements for the Delinquent
Payment and accrued interest thereon, the Delinquent Lender shall be
deemed to have assigned to the Agent all interest, commitment fees and
other payments made by the Borrower under Section 3 that would have
thereafter otherwise been payable under the Credit Documents to the
Delinquent Lender. During any other period in which any Lender is not
performing its obligations to extend credit under Section 2 (a
"Nonperforming Lender"), the Nonperforming Lender shall be deemed to have
assigned to each Lender that is not a Nonperforming Lender (a "Performing
Lender") all principal and other payments made by the Borrower under
Section 4 that would have thereafter otherwise been payable under the
Credit Documents to the Nonperforming Lender. The Agent shall credit a
portion of such payments to each Performing Lender in an amount equal to
the Percentage Interest of such Performing Lender in an amount equal to
the Percentage Interest of such Performing Lender divided by one minus
the Percentage Interest of the Nonperforming Lender until the respective
portions of the Loan owed to all the Lenders are the same as the
Percentage Interests of the Lenders immediately prior to the failure of
the Nonperforming Lender to perform its obligations under Section 2. The
foregoing provisions shall be in addition to any other remedies the
Agent, the Performing Lenders or the Borrower may have under law or
equity against the Delinquent Lender as a result of the Delinquent
Payment or against the Nonperforming Lender as a result of its failure to
perform its obligations under Section 2.

10.5. Sharing of Payments, etc. Each Lender agrees that (a) if by
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of (i) a proportion of the aggregate amount due with respect to its
Percentage Interest in the Loan and Letter of Credit Exposure which is greater
than (ii) the proportion received by any other Lender in respect of the
aggregate amount due with respect to such other Lender's Percentage Interest in
the Loan and Letter of Credit Exposure and (b) if such inequality shall
continue for more than 10 days, the Lender receiving such proportionately
greater payment shall purchase participations in the Percentage Interests in
the Loan and Letter of Credit Exposure held by the other Lenders, and such
other adjustments shall be made from time to time (including rescission of such
purchases of participations in the event the unequal payment originally
received is recovered from such Lender through bankruptcy proceedings or
otherwise), as may be required so that all such payments of principal and
interest with respect to the Loan and Letter of Credit Exposure held by the
Lenders shall be shared by the Lenders pro rata in accordance with their
respective Percentage Interests; provided, however, that this Section 10.5
shall not impair the right of any Lender to exercise any right of set-off or
counterclaim it may otherwise have and to apply

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the amount subject to such exercise to the payment of Indebtedness of any
Obligor other than such Obligor's Indebtedness with respect to the Loan and
Letter of Credit Exposure. Each Lender that grants a participation in the
Credit Obligations to a Credit Participant shall require as a condition to the
granting of such participation that such Credit Participant agree to share
payments received in respect of the Credit Obligations as provided in this
Section 10.5. The provisions of this Section 10.5 are for the sole and
exclusive benefit of the Lenders and no failure of any Lender to comply with
the terms hereof shall be available to any Obligor as a defense to the payment
of the Credit Obligations.

10.6. Amendments, Consents, Waivers, etc. Except as otherwise set forth
herein, the Agent may (and upon the written request of the Required Lenders the
Agent shall) take or refrain from taking any action under this Agreement or any
other Credit Document, including giving its written consent to any modification
of or amendment to and waiving in writing compliance with any covenant or
condition in this Agreement or any other Credit Document (other than an
Interest Rate Protection Agreement) or any Default or Event of Default, all of
which actions shall be binding upon all of the Lenders; provided, however,
that:

(a) Except as provided below, without the written consent of the
Lenders owning at least a majority of the Percentage Interests (other
than Delinquent Lenders during the existence of a Delinquency Period so
long as such Delinquent Lender is treated the same as the other Lenders
with respect to any actions enumerated below), no written modification
of, amendment to, consent with respect to, waiver of compliance with or
waiver of a Default under, any of the Credit Documents (other than an
Interest Rate Protection Agreement) shall be made.

(b) Except as provided below, without the written consent of such
Lenders as own 100% of the Percentage Interests (other than Delinquent
Lenders during the existence of a Delinquency Period so long as such
Delinquent Lender is treated the same as the other Lenders with respect
to any actions enumerated below):

(i) No reduction shall be made in (A) the amount of
principal of the Loan or reimbursement obligations for payments
made under Letters of Credit, (B) the interest rate on the Loan
(other than amendments and waivers that modify defined terms used
in calculating the Applicable Margin or that waive an increase in
the Applicable Rate as a result of an Event of Default) or (C) the
Letter of Credit fees or commitment fees with respect to the credit
facility provided herein.

(ii) No change shall be made in the stated, scheduled time
of payment of all or any portion of the Loan (other than amendments
and waivers that modify defined terms used in calculating
Consolidated Excess Cash Flow) or interest thereon or reimbursement
of payments made under Letters of Credit or

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fees relating to any of the foregoing payable to all of the Lenders
and no waiver shall be made of any Default under Section 8.1.1.

(iii) No increase shall be made in the amount, or extension
of the term, of the stated Commitments beyond that provided for
under Section 2.

(iv) No alteration shall be made of the Lenders' rights of
set-off contained in Section 8.2.4.

(v) No release of any Credit Security or of any Guarantor
shall be made (except that the Agent may release particular items
of Credit Security or particular Guarantors in dispositions
permitted by Section 6.11 and may release all Credit Security
pursuant to Section 16 upon payment in full of the Credit
Obligations and termination of the Commitments without the written
consent of the Lenders).

(vi) No amendment to or modification of this Section 10.6(b)
shall be made.

(c) Without the written consent of such Lenders owning at least a
majority of the Percentage Interests in a particular Tranche (other than
Delinquent Lenders during the existence of a Delinquency Period so long
as such Delinquent Lender is treated the same as the other Lenders with
respect to any actions enumerated below) voting as a separate class, no
change may be made in the allocation of mandatory prepayments under
Section 4.3 among Term Loan A, the Deferred Term Loan, Term Loan B and
the Revolving Loan.

10.7. Agent's Resignation. The Agent may resign at any time by giving at
least 60 days' prior written notice of its intention to do so to each other of
the Lenders and the Company and upon the appointment by the Required Lenders of
a successor Agent satisfactory to the Company. If no successor Agent shall
have been so appointed and shall have accepted such appointment within 45 days
after the retiring Agent's giving of such notice of resignation, then the
retiring Agent may with the consent of the Company, which shall not be
unreasonably withheld, appoint a successor Agent which shall be a bank or a
trust company organized under the laws of the United States of America or any
state thereof and having a combined capital, surplus and undivided profit of at
least $100,000,000; provided, however, that any successor Agent appointed under
this sentence may be removed upon the written request of the Required Lenders,
which request shall also appoint a successor Agent satisfactory to the Company.
Upon the appointment of a new Agent hereunder, the term "Agent" shall for all
purposes of this Agreement thereafter mean such successor. After any retiring
Agent's resignation hereunder as Agent, or the removal hereunder of any
successor Agent, the provisions of this

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Agreement shall continue to inure to the benefit of such Agent as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.

10.8. Concerning the Agent.

10.8.1. Action in Good Faith, etc. The Agent and its officers,
directors, employees and agents shall be under no liability to any of the
Lenders or to any future holder of any interest in the Credit Obligations
for any action or failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of its counsel
shall conclusively be deemed to be in good faith. The Agent shall in all
cases be entitled to rely, and shall be fully protected in relying, on
instructions given to the Agent by the required holders of Credit
Obligations as provided in this Agreement.

10.8.2. No Implied Duties, etc. The Agent shall have and may
exercise such powers as are specifically delegated to the Agent under
this Agreement or any other Credit Document together with all other
powers incidental thereto. The Agent shall have no implied duties to any
Person or any obligation to take any action under this Agreement or any
other Credit Document except for action specifically provided for in this
Agreement or any other Credit Document to be taken by the Agent. Before
taking any action under this Agreement or any other Credit Document, the
Agent may request an appropriate specific indemnity satisfactory to it
from each Lender in addition to the general indemnity provided for in
Section 10.11. Until the Agent has received such specific indemnity, the
Agent shall not be obligated to take (although it may in its sole
discretion take) any such action under this Agreement or any other Credit
Document. Each Lender confirms that the Agent does not have a fiduciary
relationship to it under the Credit Documents. Each of the Company and
its Subsidiaries party hereto confirms that neither the Agent nor any
other Lender has a fiduciary relationship to it under the Credit
Documents.

10.8.3. Validity, etc. The Agent shall not be responsible to any
Lender or any future holder of any interest in the Credit Obligations (a)
for the legality, validity, enforceability or effectiveness of this
Agreement or any other Credit Document, (b) for any recitals, reports,
representations, warranties or statements contained in or made in
connection with this Agreement or any other Credit Document, (c) for the
existence or value of any assets included in any security for the Credit
Obligations, (d) for the effectiveness of any Lien purported to be
included in the Credit Security, (e) for the specification or failure to
specify any particular assets to be included in the Credit Security, or
(f) unless the Agent shall have failed to comply with Section 10.8.1, for
the perfection of the security interests in the Credit Security.

10.8.4. Compliance. The Agent shall not be obligated to ascertain
or inquire as to the performance or observance of any of the terms of
this Agreement or any other

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Credit Document; and in connection with any extension of credit under
this Agreement or any other Credit Document, the Agent shall be fully
protected in relying on a certificate of the Company as to the
fulfillment by the Company of any conditions to such extension of credit.

10.8.5. Employment of Agents and Counsel. The Agent may execute
any of its duties as Agent under this Agreement or any other Credit
Document by or through employees, agents and attorneys-in-fact and shall
not be responsible to any of the Lenders, the Company or any other
Obligor for the default or misconduct of any such agents or
attorneys-in-fact selected by the Agent acting in good faith. The Agent
shall be entitled to advice of counsel concerning all matters pertaining
to the agency hereby created and its duties hereunder or under any other
Credit Document.

10.8.6. Reliance on Documents and Counsel. The Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype message
or writing reasonably believed in good faith by the Agent to be genuine
and correct and to have been signed, sent or made by the Person in
question, including any telephonic or oral statement made by such Person,
and, with respect to legal matters, upon an opinion or the advice of
counsel selected by the Agent.

10.8.7. Agent's Reimbursement. Each of the Lenders severally
agrees to reimburse the Agent, in the amount of such Lender's Percentage
Interest, for any reasonable expenses not reimbursed by the Borrower or
the Guarantors (without limiting the obligation of the Borrower or the
Guarantors to make such reimbursement): (a) for which the Agent is
entitled to reimbursement by the Borrower or the Guarantors under this
Agreement or any other Credit Document, and (b) after the occurrence of a
Default, for any other reasonable expenses incurred by the Agent on the
Lenders' behalf in connection with the enforcement of the Lenders' rights
under this Agreement or any other Credit Document; provided, however,
that the Agent shall not be reimbursed for any such expenses arising as a
result of its gross negligence or willful misconduct.

10.9. Rights as a Lender. With respect to any credit extended by it
hereunder, Bank of Boston shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
it were not the Agent, and unless the context otherwise specifies, Bank of
Boston shall be treated in its individual capacity as though it were not the
Agent hereunder. Without limiting the generality of the foregoing, the
Percentage Interest of Bank of Boston shall be included in any computations of
Percentage Interests. Bank of Boston and its Affiliates may accept deposits
from, lend money to, act as trustee for and generally engage in any kind of
banking or trust business with the Company,

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any of its Subsidiaries or any Affiliate of any of them and any Person who may
do business with or own an equity interest in the Company, any of its
Subsidiaries or any Affiliate of any of them, all as if Bank of Boston were not
the Agent and without any duty to account therefor to the other Lenders.

10.10. Independent Credit Decision. Each of the Lenders acknowledges that
it has independently and without reliance upon the Agent, based on the
financial statements and other documents referred to in Section 7.2, on the
other representations and warranties contained herein and on such other
information with respect to the Company and its Subsidiaries as such Lender
deemed appropriate, made such Lender's own credit analysis and decision to
enter into this Agreement and to make the extensions of credit provided for
hereunder. Each Lender represents to the Agent that such Lender will continue
to make its own independent credit and other decisions in taking or not taking
action under this Agreement or any other Credit Document. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to such Lender, and no act by the Agent taken
under this Agreement or any other Credit Document, including any review of the
affairs of the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by the Agent. Except for notices, reports and other
documents expressly required to be furnished to each Lender by the Agent under
this Agreement or any other Credit Document, the Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition, financial or
otherwise, or creditworthiness of the Company or any Subsidiary which may come
into the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.

10.11. Indemnification. The holders of the Credit Obligations shall
indemnify the Agent and its officers, directors, employees and agents (to the
extent not reimbursed by the Obligors and without limiting the obligation of
any of the Obligors to do so), pro rata in accordance with their respective
Percentage Interests, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time be imposed on,
incurred by or asserted against the Agent or such Persons relating to or
arising out of this Agreement, any other Credit Document, the transactions
contemplated hereby or thereby, or any action taken or omitted by the Agent in
connection with any of the foregoing; provided, however, that the foregoing
shall not extend to actions or omissions which are taken by the Agent with
gross negligence or willful misconduct.

11. Successors and Assigns; Lender Assignments and Participations. Any
reference in this Agreement or any other Credit Document to any of the parties
hereto shall be deemed to include the successors and assigns of such party, and
all covenants and agreements by or on behalf of the Borrower, the Guarantors,
the Agent or the Lenders that are contained in this Agreement or any other
Credit Document shall bind and inure to the benefit of their respective
successors and assigns; provided, however, that (a) the Company and its
Subsidiaries may not

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assign their rights or obligations under this Agreement or any other Credit
Document except for mergers or liquidations permitted by Section 6.11, and (b)
the Lenders shall be not entitled to assign their respective Percentage
Interests in the credits extended hereunder or their Commitments except as set
forth below in this Section 11.

11.1. Assignments by Lenders.

11.1.1. Assignees and Assignment Procedures. Each Lender may (a)
without the consent of the Agent or the Company if the proposed assignee
is already a Lender hereunder or a Wholly Owned Subsidiary of the same
corporate parent of which the assigning Lender is a Subsidiary, or (b)
otherwise with the consents of the Agent and (so long as no Event of
Default exists) the Company (which consents will not be unreasonably
withheld), in compliance with applicable laws in connection with such
assignment, assign to one or more commercial banks or other financial
institutions (each, an "Assignee") all or a portion of its interests,
rights and obligations under this Agreement and the other Credit
Documents, including all or a portion, which need not be pro rata between
the Loan and the Letter of Credit Exposure, of its Commitment, the
portion of the Loan and Letter of Credit Exposure at the time owing to it
and the Notes held by it, but excluding its rights and obligations as a
Letter of Credit Issuer; provided, however, that:

(i) the aggregate amount of the Commitment of the assigning
Lender subject to each such assignment to any Assignee other than
another Lender (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the
Agent) shall be not less than $5,000,000; and

(ii) the parties to each such assignment shall execute and
deliver to the Agent an Assignment and Acceptance (the "Assignment
and Acceptance") substantially in the form of Exhibit 11.1.1,
together with the Note subject to such assignment and a processing
and recordation fee of $3,500 payable to the Agent by the assigning
Lender or the Assignee.

Upon acceptance and recording pursuant to Section 11.1.4, from and after
the effective date specified in each Assignment and Acceptance (which
effective date shall be at least five Banking Days after the execution
thereof unless waived by the Agent):

(A) the Assignee shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and

(B) the assigning Lender shall, to the extent
provided in such assignment, be released from its obligations
under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of

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an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections
3.2.4, 3.5 and 9, as well as to any fees accrued for its
account hereunder and not yet paid).

11.1.2. Terms of Assignment and Acceptance. By executing and
delivering an Assignment and Acceptance, the assigning Lender and
Assignee shall be deemed to confirm to and agree with each other and the
other parties hereto as follows:

(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection
with this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any other Credit
Document or any other instrument or document furnished pursuant hereto;

(b) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Company and its Subsidiaries or the performance or observance by the
Company or any of its Subsidiaries of any of its obligations under this
Agreement, any other Credit Document or any other instrument or document
furnished pursuant hereto;

(c) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 7.2 or Section 6.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;

(d) such Assignee will independently and without reliance upon the
Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement;

(e) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto; and

(f) such Assignee agrees that it will perform in accordance with
the terms of this Agreement all the obligations which are required to be
performed by it as a Lender.

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11.1.3. Register. The Agent shall maintain at the Boston Office a
register (the "Register") for the recordation of (a) the names and
addresses of the Lenders and the Assignees which assume rights and
obligations pursuant to an assignment under Section 11.1.1, (b) the
Percentage Interest of each such Lender as set forth in Exhibit 10.1 and
(c) the amount of the Loan and Letter of Credit Exposure owing to each
Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the Agent
and the Lenders may treat each Person whose name is registered therein
for all purposes as a party to this Agreement. The Register shall be
available for inspection by the Company or any Lender at any reasonable
time and from time to time upon reasonable prior notice.

11.1.4. Acceptance of Assignment and Assumption. Upon its receipt
of a completed Assignment and Acceptance executed by an assigning Lender
and an Assignee together with the Note subject to such assignment, and
the processing and recordation fee referred to in Section 11.1.1, the
Agent shall (a) accept such Assignment and Acceptance, (b) record the
information contained therein in the Register and (c) give prompt notice
thereof to the Borrower. Within five Banking Days after receipt of
notice, the Borrower, at its own expense, shall execute and deliver to
the Agent, in exchange for the surrendered Note, a new Note to the order
of such Assignee in a principal amount equal to the applicable Commitment
and Loan assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Lender has retained a Commitment and Loan, a new Note to
the order of such assigning Lender in a principal amount equal to the
applicable Commitment and Loan retained by it. Such new Note shall be in
an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note, and shall be dated the date of the surrendered
Note which it replaces.

11.1.5. Federal Reserve Bank. Notwithstanding the foregoing
provisions of this Section 11, any Lender may at any time pledge or
assign all or any portion of such Lender's rights under this Agreement
and the other Credit Documents to a Federal Reserve Bank; provided,
however, that no such pledge or assignment shall release such Lender from
such Lender's obligations hereunder or under any other Credit Document.

11.1.6. Further Assurances. The Company and its Subsidiaries
shall sign such documents and take such other actions from time to time
reasonably requested by an Assignee to enable it to share in the benefits
of the rights created by the Credit Documents.

11.2. Credit Participants. Each Lender may, without the consent of the
Company or the Agent, in compliance with applicable laws in connection with
such participation, sell to one or more commercial banks or other financial
institutions (each a "Credit Participant") participations in all or a portion
of its interests, rights and obligations under this Agreement

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and the other Credit Documents (including all or a portion of its Commitment,
the Loan and Letter of Credit Exposure owing to it and the Note held by it);
provided, however, that:

(a) such Lender's obligations under this Agreement shall remain
unchanged;

(b) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;

(c) the Credit Participant shall be entitled to the benefit of the
cost protection provisions contained in Sections 3.2.4, 3.5 and 9, but
shall not be entitled to receive any greater payment thereunder than the
selling Lender would have been entitled to receive with respect to the
interest so sold if such interest had not been sold; and

(d) the Company, the Borrower, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and such
Lender shall retain the sole right as one of the Lenders to vote with
respect to the enforcement of the obligations of the Company relating to
the Loan and Letter of Credit Exposure and the approval of any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications, consents or waivers requiring the consent of
100% of the Lenders described in clause (b) of the proviso to Section
10.6).

Each Obligor agrees, to the fullest extent permitted by applicable law, that
any Credit Participant and any Lender purchasing a participation from another
Lender pursuant to Section 12.5 may exercise all rights of payment (including
the right of set-off), with respect to its participation as fully as if such
Credit Participant or such Lender were the direct creditor of the Obligors and
a Lender hereunder in the amount of such participation.

11.3. Replacement of Lender. In the event that any Lender or, to the
extent applicable, any Credit Participant (the "Affected Lender"):

(a) fails to perform its obligations to fund any portion of the
Loan or to issue any Letter of Credit on any Closing Date when required
to do so by the terms of the Credit Documents or when excused pursuant to
Section 5.2.2(b), or fails to provide its portion of any Eurodollar
Pricing Option pursuant to Section 3.2.1 or on account of a Legal
Requirement as contemplated by Section 3.2.5;

(b) demands payment under the provisions of Section 3.5 in an
amount the Company deems materially in excess of the amounts with respect
thereto demanded by the other Lenders;

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<PAGE> 104

(c) refuses to consent to a proposed extension of the First
Maturity Date, the Deferred Term Loan Maturity Date or the Term Loan B
Maturity Date that is consented to by the other Lenders; or

(d) refuses to consent to a proposed amendment, modification,
waiver or other action requiring consent of the holders of 100% of the
Percentage Interests under Section 10.6(b) that is consented to by
Lenders owning at least two-thirds of the Percentage Interests;

then, so long as no Event of Default exists, the Company shall have the right
to seek a replacement lender which is reasonably satisfactory to the Agent (the
"Replacement Lender"). The Replacement Lender shall purchase the interests of
the Affected Lender in the Loan, Letters of Credit and its Commitment and shall
assume the obligations of the Affected Lender hereunder and under the other
Credit Documents upon execution by the Replacement Lender of an Assignment and
Acceptance and the tender by it to the Affected Lender of a purchase price
agreed between it and the Affected Lender (or, if they are unable to agree, a
purchase price in the amount of the Affected Lender's Percentage Interest in
the Loan and Letter of Credit Exposure, or appropriate credit support for
contingent amounts included therein, and all other outstanding Credit
Obligations then owed to the Affected Lender). No assignment fee pursuant to
Section 11.1.1(ii) shall be required in connection with such assignment. Such
assignment by the Affected Lender shall be deemed an early termination of any
Eurodollar Pricing Option to the extent of the Affected Lender's portion
thereof, and the Borrower will pay to the Affected Lender any resulting amounts
due under Section 3.2.4. Upon consummation of such assignment, the Replacement
Lender shall become party to this Agreement as a signatory hereto and shall
have all the rights and obligations of the Affected Lender under this Agreement
and the other Credit Documents with a Percentage Interest equal to the
Percentage Interest of the Affected Lender, the Affected Lender shall be
released from its obligations hereunder and under the other Credit Documents,
and no further consent or action by any party shall be required. Upon the
consummation of such assignment, the Borrower, the Agent and the Affected
Lender shall make appropriate arrangements so that new Notes are issued to the
Replacement Lender if it has acquired a portion of the Loan. The Borrower and
the Guarantors shall sign such documents and take such other actions reasonably
requested by the Replacement Lender to enable it to share in the benefits of
the rights created by the Credit Documents. Until the consummation of an
assignment in accordance with the foregoing provisions of this Section 11.3,
the Borrower shall continue to pay to the Affected Lender any Credit
Obligations as they become due and payable.

12. Confidentiality. Each Lender will make no disclosure of confidential
information furnished to it by the Company or any of its Subsidiaries unless
such information shall have become public, except:

(a) in connection with operations under or the enforcement of this
Agreement or any other Credit Document to Persons who have a reasonable
need to be furnished

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such confidential information and who agree to comply with the
restrictions contained in this Section 12 with respect to such
information;

(b) pursuant to any statutory or regulatory requirement or any
mandatory court order, subpoena or other legal process;

(c) to any parent or corporate Affiliate of such Lender or to any
Credit Participant, proposed Credit Participant or proposed Assignee;
provided, however, that any such Person shall agree to comply with the
restrictions set forth in this Section 12 with respect to such
information;

(d) to its independent counsel, auditors and other professional
advisors with an instruction to such Person to keep such information
confidential; and

(e) with the prior written consent of the Company, to any other
Person.

13. Foreign Lenders. If any Lender is not incorporated or organized under the
laws of the United States of America or a state thereof, such Lender shall
deliver to the Company and the Agent the following:

(a) Two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 or successor form, as the case may be,
certifying in each case that such Person is entitled to receive payments
under this Agreement, the Notes and reimbursement obligations under
Letters of Credit payable to it, without deduction or withholding of any
United States federal income taxes; and

(b) A duly completed Internal Revenue Service Form W-8 or W-9 or
successor form, as the case may be, to establish an exemption from United
States backup withholding tax.

Until such time as the Company and the Agent have received such forms
indicating that payments hereunder are not subject to deduction or withholding
of United States federal income tax, the Borrower shall withhold United States
federal income tax from such payments at the applicable statutory rate and
Section 3.5 shall not apply to such withholding.

Each such Lender that delivers to the Company and the Agent a Form 1001 or
4224 and Form W-8 or W-9 pursuant to this Section 13 further undertakes to
deliver to the Company and the Agent two further copies of Form 1001 or 4224
and Form W-8 or W-9, or successor applicable form, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Company and
the Agent. Such Forms 1001 or 4224 shall certify that such Lender is entitled
to receive payments under this Agreement without deduction or withholding of
any United States federal income

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taxes. Until such time as the Company and the Agent have received such forms
indicating that payments hereunder are not subject to United States withholding
tax or are subject to such tax at a rate reduced by an applicable tax treaty,
the Borrower shall withhold taxes from such payments at the applicable
statutory rate without regard to Section 3.5. The foregoing documents need not
be delivered in the event any change in treaty, law or regulation or official
interpretation thereof has occurred which renders all such forms inapplicable
or which would prevent such Lender from delivering any such form with respect
to it, or such Lender advises the Company that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax and, in the case of a Form W-8 or W-9, establishing an exemption from
United States backup withholding tax. In the event of clause (ii), the
Borrower shall withhold United States federal income tax from payments to such
Lender or Credit Participant in accordance with applicable law, and Section 3.5
shall not apply to such withholding. For purposes of the prior sentence, if
any such Lender or Credit Participant delivers two duly completed and executed
copies of Form 1001 or successor form establishing a reduced withholding tax
rate under an applicable tax treaty, the Borrower shall withhold United States
federal income tax from such payments at the reduced withholding tax rate
established in such treaty. Notwithstanding the foregoing, if a Lender or
Credit Participant has delivered the forms required to be delivered under
clauses (i) and (ii) certifying that such Lender or Credit Participant is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income tax and if, subsequently, any
change in treaty, law or regulation or official interpretation thereof occurs
which renders such forms inapplicable or which prevents such Lender or Credit
Participant from delivering any further such forms with respect to it, then the
Borrower shall withhold United States federal income tax form payments to such
Lender or Credit Participant in accordance with applicable law and Section 3.5
shall apply to such withholding; provided, however, that if an applicable tax
treaty provides for a reduced withholding tax rate, Section 3.5 shall only
apply if such Lender or Credit Participant delivers two duly completed and
executed copies of Form 1001 or successor form or otherwise complies with any
applicable requirements for establishing such reduced withholding tax rate.

14. Notices. Except as otherwise specified in this Agreement or any other
Credit Document, any notice required to be given pursuant to this Agreement or
any other Credit Document shall be given in writing. Any notice, consent,
approval, demand or other communication in connection with this Agreement or
any other Credit Document shall be deemed to be given if given in writing
(including telex, telecopy or similar teletransmission) addressed as provided
below (or to the addressee at such other address as the addressee shall have
specified by notice actually received by the addressor), and if either (a)
actually delivered in fully legible form to such address (evidenced in the case
of a telex by receipt of the correct answerback) or (b) in the case of a
letter, unless actual receipt of the notice is required by any Credit Document
five days shall have elapsed after the same shall have been deposited in the
United States mails, with first-class postage prepaid and registered or
certified.

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If to the Company or any of its Subsidiaries, to it at its address set
forth in Exhibit 7.1 (as supplemented pursuant to Sections 6.4.1 and 6.4.2), to
the attention of the chief financial officer.

If to any Lender or the Agent, to it at its address set forth on the
signature pages of this Agreement or in the Register, with a copy to the Agent.

15. Course of Dealing; Amendments and Waivers. No course of dealing between
any Lender or the Agent, on one hand, and the Borrower or any other Obligor, on
the other hand, shall operate as a waiver of any of the Lenders' or the Agent's
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. Each of the Borrower and the Guarantors acknowledges that
if the Lenders or the Agent, without being required to do so by this Agreement
or any other Credit Document, give any notice or information to, or obtain any
consent from, the Borrower or any other Obligor, the Lenders and the Agent
shall not by implication have amended, waived or modified any provision of this
Agreement or any other Credit Document, or created any duty to give any such
notice or information or to obtain any such consent on any future occasion. No
delay or omission on the part of any Lender of the Agent in exercising any
right under this Agreement or any other Credit Document or with respect to the
Credit Obligations shall operate as a waiver of such right or any other right
hereunder or thereunder. A waiver on any one occasion shall not be construed
as a bar to or waiver of any right or remedy on any future occasion. No
waiver, consent or amendment with respect to this Agreement or any other Credit
Document shall be binding unless it is in writing and signed by the Agent or
the Required Lenders.

16. Defeasance. When all Credit Obligations have been paid, performed and
reasonably determined by the Lenders to have been indefeasibly discharged in
full, and if at the time no Lender continues to be committed to extend any
credit to the Company hereunder or under any other Credit Document, this
Agreement and the other Credit Documents shall terminate and, at the Company's
written request, accompanied by such certificates and other items as the Agent
shall reasonably deem necessary, the Credit Security shall revert to the
Obligors and the right, title and interest of the Lenders therein shall
terminate. Thereupon, on the Obligor's demand and at their cost and expense,
the Agent shall execute proper instruments, acknowledging satisfaction of and
discharging this Agreement and the other Credit Documents, and shall redeliver
to the Obligors any Credit Security then in its possession; provided, however,
that Sections 3.2.4, 3.5, 9, 10.8.7, 10.11 and 12, shall survive the
termination of this Agreement.

17. Venue; Service of Process. Each of the Company and the other Obligors:

(a) Irrevocably submits to the nonexclusive jurisdiction of the
state courts of The Commonwealth of Massachusetts and to the nonexclusive
jurisdiction of the United States District Court for the District of
Massachusetts for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement or any other Credit Document
or the subject matter hereof or thereof.

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(b) Waives to the extent not prohibited by applicable law that
cannot be waived, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject matter
hereof or thereof, may not be enforced in or by such court.

Each of the Company and the other Obligors consents to service of process in
any such proceeding in any manner at the time permitted by Chapter 223A of the
General Laws of The Commonwealth of Massachusetts and agrees that service of
process by registered or certified mail, return receipt requested, at its
address specified in or pursuant to Section 14 is reasonably calculated to give
actual notice.

18. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE COMPANY, THE OTHER OBLIGORS, THE AGENT AND THE
LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT
OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE LENDERS, THE AGENT,
THE COMPANY OR ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR
OTHERWISE. Each of the Company and the other Obligors acknowledges that it has
been informed by the Agent that the provisions of this Section 18 constitute a
material inducement upon which each of the Lenders has relied and will rely in
entering into this Agreement and any other Credit Document, and that it has
reviewed the provisions of this Section 18 with its counsel. Any Lender, the
Agent, the Company or any other Obligor may file an original counterpart or a
copy of this Section 18 with any court as written evidence of the consent of
the Company, the other Obligors, the Agent and the Lenders to the waiver of
their rights to trial by jury.

19. No Strict Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement and the other Credit Documents with
counsel sophisticated in financing transactions. In the event an ambiguity or
question of intent or interpretation arises, this Agreement and the other
Credit Documents shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement and the other
Credit Documents.

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20. General. All covenants, agreements, representations and warranties made
in this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof.
The invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof. The headings in this
Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement and the other Credit
Documents (including any related fee agreements with the Agent or the Lenders)
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous
understandings and agreements, whether written or oral. This Agreement may be
executed in any number of counterparts which together shall constitute one
instrument. This Agreement shall be governed by and construed in accordance
with the laws (other than the conflict of laws rules) of The Commonwealth of
Massachusetts.

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<PAGE> 110

Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.

COLLECTIBLE CHAMPIONS, INC.

By /s/ Robert E. Dods
--------------------------------------
Title: President

RACING CHAMPIONS, INC.

By /s/ Boyd L. Meyer
--------------------------------------
Title: Executive Vice President

THE FIRST NATIONAL BANK OF BOSTON

By /s/ Peter R. White
--------------------------------------
Title: Managing Director

The First National Bank of Boston
Diversified Finance Division
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-4929 Telex: 940581

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<PAGE> 1
EXHIBIT 10.11

================================================================================

COLLECTIBLE CHAMPIONS, INC.

RACING CHAMPIONS, INC.

GUARANTEE AND SECURITY AGREEMENT

Dated as of April 30, 1996

THE FIRST NATIONAL BANK OF BOSTON, as Agent

================================================================================

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<Capiton>
Page
<S> <C>
1. Reference to Credit Agreement; Definitions; Certain Rules of Construction ..........................1
1.1. "Accounts".................................................................................1
1.2. "Agreement"................................................................................1
1.3. "Pledged Indebtedness".....................................................................1
1.4. "Pledged Rights"...........................................................................1
1.5. "Pledged Securities".......................................................................1
1.6. "Pledged Stock"............................................................................1
1.7. "UCC"......................................................................................2

2. Guarantee...........................................................................................2
2.1. Guarantee of Credit Obligations............................................................2
2.2. Continuing Obligation......................................................................2
2.3. Waivers with Respect to Credit Obligations.................................................3
2.4. Lenders' Power to Waive, etc...............................................................4
2.5. Information Regarding the Borrower, etc....................................................5
2.6. Certain Guarantor Representations..........................................................6
2.7. Subrogation................................................................................6
2.8. Subordination..............................................................................6
2.9. Future Subsidiaries: Further Assurances....................................................7
2.10. Contribution Among Guarantors..............................................................7

3. Security............................................................................................8

3.1. Credit Security............................................................................8
3.1.1. Tangible Personal Property.......................................................8
3.1.2. Rights to Payment of Money.......................................................8
3.1.3. Intangibles......................................................................8
3.1.4. Pledged Stock....................................................................8
3.1.5. Pledged Rights...................................................................9
3.1.6. Pledged Indebtedness.............................................................9
3.1.7. Chattel Paper, Instruments and Document..........................................9
3.1.8. Leases...........................................................................9
3.1.9. Deposit Accounts.................................................................9
3.1.10. Collateral......................................................................9
3.1.11. Books and Records...............................................................9
3.1.12. Insurance.......................................................................9
3.1.13. All Other Property..............................................................9
3.1.14. Proceeds and Products...........................................................9
3.1.15. Excluded Property..............................................................10
3.2. Additional Credit Security.......................................................................10

</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
3.2.1. Real Property.......................................................................10
3.2.2. Motor Vehicles and Aircraft.........................................................10
3.3. Representations, Warranties and Covenants with Respect to Credit Security....................11
3.3.1. Pledged Stock.......................................................................11
3.3.2. Accounts and Pledged Indebtedness...................................................11
3.3.3. No Liens or Restrictions on Transfer or Change of Control...........................11
3.3.4. Location of Credit Security.........................................................12
3.3.5. Trade Names.........................................................................12
3.3.6. Insurance...........................................................................12
3.3.7. Modifications to Credit Security....................................................13
3.3.8. Delivery of Documents...............................................................13
3.4. Administration of Credit Security............................................................13
3.4.1. Use of Credit Security..............................................................13
3.4.2. Deposits............................................................................13

4. Special Provision Concerning Cash Collateral.......................................................18

5. General............................................................................................18
</TABLE>

<PAGE> 4

EXHIBITS

3.3 - Obligors; Office and Principal Place of Business; Permitted
Jurisdiction for Personal Tangible Property; Trade Names; Depository
Institutions

iii

<PAGE> 5

COLLECTIBLE CHAMPIONS, INC.

RACING CHAMPIONS, INC.

GUARANTEE AND SECURITY AGREEMENT

This Agreement, dated as of April 30, 1996, is among Collectible
Champions, Inc., a Delaware corporation (the "Company"), the Subsidiaries of
the Company from time to time party hereto and The First National Bank of
Boston, as agent (the "Agent") for itself and the other Lenders under the
Credit Agreement (as defined below). The parties agree as follows:

1. Reference to Credit Agreement; Definitions; Certain Rules of Construction.
Reference is made to the Credit Agreement dated as of the date hereof, as from
time to time in effect (the "Credit Agreement"), among the Company, the
Subsidiaries of the Company from time to time party thereto, the Lenders and
the Agent. Capitalized terms defined in the Credit Agreement and not otherwise
defined herein are used herein with the meanings so defined. Certain other
capitalized terms are used in this Agreement as specifically defined below in
this Section 1. Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section shall include all subsections thereof, (d) the word
"including" shall be construed as "including without limitation", (e) terms
defined in the UCC and not otherwise defined herein have the meaning provided
under the UCC, (f) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or
rules, in each case as from time to time in effect and (g) references to a
particular Person include such Person's successors and assigns to the extent
not prohibited by this Agreement and the other Credit Documents. References to
"the date hereof" mean the date first set forth above.

1.1. "Accounts" is defined in Section 3.1.2.

1.2. "Agreement" means this Guarantee and Security Agreement as from time
to time in effect.

1.3. "Pledged Indebtedness" is defined in Section 3.1.6.

1.4. "Pledged Rights" is defined in Section 3.1.5.

1.5. "Pledged Securities" means the Pledged Stock, the Pledged Rights and
the Pledged Indebtedness, collectively.

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1.6. "Pledged Stock" is defined in Section 3.1.4.

1.7. "UCC" means the Uniform Commercial Code as in effect in
Massachusetts on the date hereof; provided, however, that with respect to the
perfection of the Agent's Lien in the Credit Security and the effect of
nonperfection thereof, the term "UCC" means the Uniform Commercial Code as in
effect in any jurisdiction the laws of which are made applicable by section
9-103 of the Uniform Commercial Code as in effect in Massachusetts.

2. Guarantee.

2.1. Guarantee of Credit Obligations. Each Guarantor unconditionally
guarantees that the Credit Obligations will be performed and paid in full in
cash when due and payable, whether at the stated or accelerated maturity
thereof or otherwise, this guarantee being a guarantee of payment and not of
collectability and being absolute and in no way conditional or contingent. In
the event any part of the Credit Obligations shall not have been so paid in
full when due and payable, each Guarantor will, immediately upon notice by the
Agent or, without notice, immediately upon the occurrence of a Bankruptcy
Default, pay or cause to be paid to the Agent for the account of each Lender in
accordance with the Lenders' respective Percentage Interests therein the amount
of such Credit Obligations which are then due and payable and unpaid. The
obligations of each Guarantor hereunder shall not be affected by the
invalidity, unenforceability or irrecoverability of any of the Credit
Obligations as against any other Obligor, any other guarantor thereof or any
other Person. For purposes hereof, the Credit Obligations shall be due and
payable when and as the same shall be due and payable under the terms of the
Credit Agreement or any other Credit Document notwithstanding the fact that the
collection or enforcement thereof may be stayed or enjoined under the
Bankruptcy Code or other applicable law.

2.2. Continuing Obligation. Each Guarantor acknowledges that the Lenders
have entered into the Credit Agreement (and, to the extent that the Lenders or
the Agent may enter into any future Credit Document, will have entered into
such agreement) in reliance on this Section 2 being a continuing irrevocable
agreement, and such Guarantor agrees that its guarantee may not be revoked in
whole or in part. The obligations of the Guarantors hereunder shall terminate
when the commitment of the Lenders to extend credit under the Credit Agreement
shall have terminated and all of the Credit Obligations have been indefeasibly
paid in full in cash and discharged; provided, however, that:

(a) if a claim is made upon the Lenders at any time for repayment
or recovery of any amounts or any property received by the Lenders from
any source on account of any of the Credit Obligations and the Lenders
repay or return any amounts or property so received (including interest
thereon to the extent required to be paid by the Lenders) or

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(b) if the Lenders become liable for any part of such claim by
reason of (i) any judgment or order of any court or administrative
authority having competent jurisdiction, or (ii) any settlement or
compromise of any such claim,

then the Guarantors shall remain liable under this Agreement for the amounts so
repaid or property so returned or the amounts for which the Lenders become
liable (such amounts being deemed part of the Credit Obligations) to the same
extent as if such amounts or property had never been received by the Lenders,
notwithstanding any termination hereof or the cancellation of any instrument or
agreement evidencing any of the Credit Obligations. Not later than five days
after receipt of notice from the Agent, the Guarantors shall pay to the Agent
an amount equal to the amount of such repayment or return for which the Lenders
have so become liable. Payments hereunder by a Guarantor may be required by
the Agent on any number of occasions.

2.3. Waivers with Respect to Credit Obligations. Except to the extent
expressly required by the Credit Agreement or any other Credit Document, each
Guarantor waives, to the fullest extent permitted by the provisions of
applicable law, all of the following (including all defenses, counterclaims and
other rights of any nature based upon any of the following):

(a) presentment, demand for payment and protest of nonpayment of
any of the Credit Obligations, and notice of protest, dishonor or
nonperformance;

(b) notice of acceptance of this guarantee and notice that credit
has been extended in reliance on such Guarantor's guarantee of the Credit
Obligations;

(c) notice of any Default or of any inability to enforce
performance of the obligations of the Borrower or any other Person with
respect to any Credit Document, or notice of any acceleration of maturity
of any Credit Obligations;

(d) demand for performance or observance of, and any enforcement of
any provision of the Credit Agreement, the Credit Obligations or any
other Credit Document or any pursuit or exhaustion of rights or remedies
with respect to any Credit Security or against the Borrower or any other
Person in respect of the Credit Obligations or any requirement of
diligence or promptness on the part of the Agent or the Lenders in
connection with any of the foregoing;

(e) any act or omission on the part of the Agent or the Lenders
which may impair or prejudice the rights of such Guarantor, including
rights to obtain subrogation, exoneration, contribution, indemnification
or any other reimbursement from the Borrower or any other Person, or
otherwise operate as a deemed release or discharge;

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(f) failure or delay to perfect or continue the perfection of any
security interest in any Credit Security or any other action which harms
or impairs the value of, or any failure to preserve or protect the value
of, any Credit Security;

(g) any statute of limitations or any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than the obligation of the
principal;

(h) any "single action" or "anti-deficiency" law which would
otherwise prevent the Lenders from bringing any action, including any
claim for a deficiency, against such Guarantor before or after the
Agent's or the Lenders' commencement or completion of any foreclosure
action, whether judicially, by exercise of power of sale or otherwise, or
any other law which would otherwise require any election of remedies by
the Agent or the Lenders;

(i) all demands and notices of every kind with respect to the
foregoing; and

(j) to the extent not referred to above, all defenses (other than
payment) which the Borrower may now or hereafter have to the payment of
the Credit Obligations, together with all suretyship defenses, which
could otherwise be asserted by such Guarantor.

Each Guarantor represents that it has obtained the advice of counsel as to the
extent to which suretyship and other defenses may be available to it with
respect to its obligations hereunder in the absence of the waivers contained in
this Section 2.3.

No delay or omission on the part of the Agent or the Lenders in exercising
any right under this Agreement or any other Credit Document or under any
guarantee of the Credit Obligations or with respect to the Credit Security
shall operate as a waiver or relinquishment of such right. No action which the
Agent or the Lenders or the Borrower may take or refrain from taking with
respect to the Credit Obligations, including any amendments thereto or
modifications thereof or waivers with respect thereto, shall affect the
provisions of this Agreement or the obligations of each Guarantor hereunder.
None of the Lenders' or the Agent's rights shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of any Obligor,
or by any noncompliance by the Borrower with the terms, provisions and
covenants of the Credit Agreement, regardless of any knowledge thereof which
the Agent or the Lenders may have or otherwise be charged with.

2.4. Lenders' Power to Waive, etc. Each Guarantor grants to the Agent
and the Lenders full power in their discretion, without notice to or consent of
such Guarantor, such notice and consent being expressly waived to the fullest
extent permitted by applicable law, and without in any way affecting the
liability of such Guarantor under its guarantee hereunder:

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(a) To waive compliance with, and any Default under, and to consent
to any amendment to or modification or termination of any terms or
provisions of, or to give any waiver in respect of, the Credit Agreement,
any other Credit Document, the Credit Security, the Credit Obligations or
any guarantee thereof (each as from time to time in effect);

(b) To grant any extensions of the Credit Obligations (for any
duration), and any other indulgence with respect thereto, and to effect
any total or partial release (by operation of law or otherwise),
discharge, compromise or settlement with respect to the obligations of
the Obligors or any other Person in respect of the Credit Obligations,
whether or not rights against such Guarantor under this Agreement are
reserved in connection therewith;

(c) To take security in any form for the Credit Obligations, and to
consent to the addition to or the substitution, exchange, release or
other disposition of, or to deal in any other manner with, any part of
any property contained in the Credit Security whether or not the
property, if any, received upon the exercise of such power shall be of a
character or value the same as or different from the character or value
of any property disposed of, and to obtain, modify or release any present
or future guarantees of the Credit Obligations and to proceed against any
of the Credit Security or such guarantees in any order;

(d) To collect or liquidate or realize upon any of the Credit
Obligations or the Credit Security in any manner or to refrain from
collecting or liquidating or realizing upon any of the Credit Obligations
or the Credit Security; and

(e) To extend credit under the Credit Agreement, any other Credit
Document or otherwise in such amount as the Lenders may determine,
including increasing the amount of credit and the interest rate and fees
with respect thereto, even though the condition of the Obligors
(financial or otherwise, on an individual or Consolidated basis) may have
deteriorated since the date hereof.

2.5. Information Regarding the Borrower, etc. Each Guarantor has made
such investigation as it deems desirable of the risks undertaken by it in
entering into this Agreement and is fully satisfied that it understands all
such risks. Each Guarantor waives any obligation which may now or hereafter
exist on the part of the Agent or the Lenders to inform it of the risks being
undertaken by entering into this Agreement or of any changes in such risks and,
from and after the date hereof, each Guarantor undertakes to keep itself
informed of such risks and any changes therein. Each Guarantor expressly
waives any duty which may now or hereafter exist on the part of the Agent or
the Lenders to disclose to such Guarantor any matter related to the business,
operations, character, collateral, credit, condition (financial or

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otherwise), income or prospects of the Borrower or its Affiliates or their
properties or management, whether now or hereafter known by the Agent or the
Lenders. Each Guarantor represents, warrants and agrees that it assumes sole
responsibility for obtaining from the Borrower all information concerning the
Credit Agreement and all other Credit Documents and all other information as to
the Borrower and its Affiliates or their properties or management as such
Guarantor deems necessary or desirable.

2.6. Certain Guarantor Representations. Each Guarantor represents that:

(a) it is in its best interest and in pursuit of the purposes for
which it was organized as an integral part of the business conducted and
proposed to be conducted by the Company and its Subsidiaries, and
reasonably necessary and convenient in connection with the conduct of the
business conducted and proposed to be conducted by them, to induce the
Lenders to enter into the Credit Agreement and to extend credit to the
Borrower by making the Guarantee contemplated by this Section 2;

(b) the credit available hereunder will directly or indirectly
inure to its benefit;

(d) it will not be rendered insolvent as a result of entering into
this Agreement;

(e) after giving effect to the transactions contemplated by this
Agreement, it will have assets having a fair saleable value in excess of
the amount required to pay its probable liability on its existing debts
as they become absolute and matured;

(f) it has, and will have, access to adequate capital for the
conduct of its business;

(g) it has the ability to pay its debts from time to time incurred
in connection therewith as such debts mature; and

(h) it has been advised by the Agent that the Lenders are unwilling
to enter into the Credit Agreement unless the Guarantee contemplated by
this Section 2 is given by it.

2.7. Subrogation. Each Guarantor agrees that, until the Credit
Obligations are paid in full, it will not exercise any right of reimbursement,
subrogation, contribution, offset or other claims against the other Obligors
arising by contract or operation of law in connection with any payment made or
required to be made by such Guarantor under this Agreement. After the payment
in full of the Credit Obligations, each Guarantor shall be entitled to exercise
against

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the Borrower and the other Obligors all such rights of reimbursement,
subrogation, contribution and offset, and all such other claims, to the fullest
extent permitted by law.

2.8. Subordination. Each Guarantor covenants and agrees that, after the
occurrence of an Event of Default, all Indebtedness, claims and liabilities
then or thereafter owing by the Borrower or any other Obligor to such Guarantor
whether arising hereunder or otherwise are subordinated to the prior payment in
full of the Credit Obligations and are so subordinated as a claim against such
Obligor or any of its assets, whether such claim be in the ordinary course of
business or in the event of voluntary or involuntary liquidation, dissolution,
insolvency or bankruptcy, so that no payment with respect to any such
Indebtedness, claim or liability will be made or received while any Event of
Default exists.

2.9. Future Subsidiaries: Further Assurances. The Company will from
time to time cause (a) any present Wholly Owned Subsidiary that is not a
Guarantor within 30 days after notice from the Agent or (b) any future Wholly
Owned Subsidiary within 30 days after any such Person becomes a Wholly Owned
Subsidiary, to join this Agreement as a Guarantor pursuant to a joinder
agreement in form and substance satisfactory to the Agent; provided, however,
that in the event such a Wholly Owned Subsidiary is prohibited by any valid
law, statute, rule or regulation from guaranteeing the Credit Obligations, such
guarantee will be limited to the extent necessary to comply with such
prohibition. Each Guarantor will, promptly upon the request of the Agent from
time to time, execute, acknowledge and deliver, and file and record, all such
instruments, and take all such action, as the Agent deems necessary or
advisable to carry out the intent and purpose of this Section 2.

2.10. Contribution Among Guarantors. The Guarantors agree that, as among
themselves in their capacity as guarantors of the Credit Obligations, the
ultimate responsibility for repayment of the Credit Obligations, in the event
that the Borrower fails to pay when due its Credit Obligations, shall be
equitably apportioned, to the extent consistent with the Credit Documents,
among the respective Guarantors (a) in the proportion that each, in its
capacity as a guarantor, has benefited from the extensions of credit to the
Borrower by the Lenders under the Credit Agreement, or (b) if such equitable
apportionment cannot reasonably be determined or agreed upon among the affected
Guarantors, in proportion to their respective net worths determined on or about
the date hereof (or such later date as such Guarantor becomes party hereto).
In the event that any Guarantor, in its capacity as a guarantor, pays an amount
with respect to the Credit Obligations in excess of its proportionate share as
set forth in this Section 2.10, each other Guarantor shall, to the extent
consistent with the Credit Documents, make a contribution payment to such
Guarantor in an amount such that the aggregate amount paid by each Guarantor
reflects its proportionate share of the Credit Obligations. In the event of
any default by any Guarantor under this Section 2.10, each other Guarantor will
bear, to the extent consistent with the Credit Documents, its proportionate
share of the defaulting Guarantor's obligation under this Section 2.10. This
Section 2.10 is intended to set forth only the rights and obligations of the
Guarantors among themselves and shall not in any way affect the

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obligations of any Guarantor to the Lenders under the Credit Documents (which
obligations shall at all times constitute the joint and several obligations of
all the Guarantors).

3. Security.

3.1. Credit Security. As security for the payment and performance of the
Credit Obligations, each Obligor mortgages, pledges and collaterally grants and
assigns to the Agent for the benefit of the Lenders and the holders from time
to time of any Credit Obligation, and creates a security interest in favor of
the Agent for the benefit of the Lenders and such holders in, all of such
Obligor's right, title and interest in and to (but none of its obligations or
liabilities with respect to) the items and types of present and future property
described in Sections 3.1.1 through 3.1.14 (subject, however, to Section
3.1.15), whether now owned or hereafter acquired, all of which shall be
included in the term "Credit Security":

3.1.1. Tangible Personal Property. All goods, machinery,
equipment, inventory and all other tangible personal property of any
nature whatsoever, wherever located, including raw materials, work in
process, finished parts and products, supplies, spare parts, replacement
parts, merchandise for resale, dies, molds, tools, computers, tapes,
disks and computer equipment.

3.1.2. Rights to Payment of Money. All rights to receive the
payment of money, including accounts and receivables, rights to receive
the payment of money under contracts, franchises, licenses, permits,
subscriptions or other agreements (whether or not earned by performance),
and rights to receive payments from any other source (all such rights,
other than Financing Debt, being referred to herein as "Accounts").

3.1.3. Intangibles. All of the following (to the extent not
included in Section 3.1.2): (a) contracts, franchises, licenses,
permits, subscriptions and other agreements and all other rights
thereunder; (b) rights granted by others which permit such Obligor to
sell or market items of personal property; (c) United States and foreign
common law and statutory copyrights and rights in literary property and
rights and licenses thereunder; (d) trade names, United States and
foreign trademarks, service marks, any registrations thereof and any
related good will; (e) United States and foreign patents and patent
applications; (f) computer software, designs, models, know-how, trade
secrets, rights in proprietary information, formulas, customer lists,
backlog, orders, subscriptions, royalties, catalogues, sales material,
documents, good will, inventions and processes; (g) judgments, causes in
action and claims, whether or not inchoate, and (h) all other general
intangibles and intangible property and all rights thereunder.

3.1.4. Pledged Stock. (a) All shares of capital stock or other
evidence of beneficial interest in any corporation, business trust or
limited liability company, (b) all

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limited partnership interests in any limited partnership, (c) all general
partnership interests in any general partnership, (d) all joint venture
interests in any joint venture and (e) all options, warrants and similar
rights to acquire such capital stock or such interests. All such capital
stock, interests, options, warrants and other rights are collectively
referred to as the "Pledged Stock".

3.1.5. Pledged Rights. All rights to receive profits or surplus
of, or other Distributions (including income, return of capital and
liquidating distributions) from, any partnership, joint venture or
limited liability company, including any distributions by any such Person
to partners, joint venturers or members. All such rights are
collectively referred to as the "Pledged Rights".

3.1.6. Pledged Indebtedness. All Financing Debt from time to time
owing to such Obligor from any Person (all such Financing Debt being
referred to as the "Pledged Indebtedness").

3.1.7. Chattel Paper, Instruments and Documents. All chattel
paper, non-negotiable instruments, negotiable instruments and documents.

3.1.8. Leases. All leases of personal property, whether such
Obligor is the lessor or the lessee thereunder.

3.1.9. Deposit Accounts. All general or special deposit accounts,
including any demand, time, savings, passbook or similar account
maintained by such Obligor with any bank, trust company, savings and loan
association, credit union or similar organization, and all money, cash
and cash equivalents of such Obligor, whether or not deposited in any
such deposit account.

3.1.10. Collateral. All collateral granted by third party Obligors
to, or held by, such Obligor with respect to the Accounts, Pledged
Securities, chattel paper, instruments, leases and other items of Credit
Security.

3.1.11. Books and Records. All books and records, including books
of account and ledgers of every kind and nature, all electronically
recorded data (including all computer programs, disks, tapes, electronic
data processing media and software used in connection with maintaining
such Obligor's books and records), all files and correspondence and all
receptacles and containers for the foregoing.

3.1.12. Insurance. All insurance policies which insure against any
loss or damage to any other Credit Security.

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3.1.13. All Other Property. All other property, assets and items
of value of every kind and nature, tangible or intangible, absolute or
contingent, legal or equitable.

3.1.14. Proceeds and Products. All proceeds, including insurance
proceeds, and products of the items of Credit Security described or
referred to in Sections 3.1.1 through 3.1.13 and, to the extent not
included in the foregoing, all Distributions with respect to the Pledged
Securities.

3.1.15. Excluded Property. Notwithstanding Sections 3.1.1 through
3.1.14, the payment and performance of the Credit Obligations shall not
be secured by:

(a) any rights arising under, and any property, tangible or
intangible, acquired under, any agreement which validly prohibits the
creation by such Obligor of a security interest in such rights or
property;

(b) any rights or property to the extent that any valid and
enforceable law or regulation applicable to such rights or property
prohibits the creation of a security interest therein; or

(c) the items described in Section 3.2 (but only in the event and
to the extent the Agent has not specified that such items be included in
the Credit Security pursuant thereto).

In addition, in the event any Obligor disposes of assets to third parties
in a transaction permitted by section 6.11 of the Credit Agreement, such
assets, but not the proceeds or products thereof, shall be released from the
Lien of the Credit Security.

3.2. Additional Credit Security. As additional Credit Security, each
Obligor covenants that it will mortgage, pledge and collaterally grant and
assign to the Agent for the benefit of the Lenders and the holders from time to
time of any Credit Obligation, and will create a security interest in favor of
the Agent for the benefit of the Lenders and such holders in, all of its right,
title and interest in and to (but none of its obligations with respect to) such
of the following present or future items as the Agent may from time to time
specify by notice to such Obligor, whether now owned or hereafter acquired, and
the proceeds and products thereof, except to the extent consisting of rights or
property of the types referred to in Section 3.1.15(a) through (b), subject
only to Liens permitted by Section 3.3.3, all of which shall thereupon be
included in the term "Credit Security":

3.2.1. Real Property. All real property and immovable property and
fixtures, leasehold interests and easements wherever located, together
with any and all estates and interests of such Obligor therein, including
lands, buildings, stores, manufacturing facilities and other structures
erected on such property, fixed plant, fixed equipment

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and all permits, rights, licenses, benefits and other interests of any
kind or nature whatsoever in respect of such real and immovable property.

3.2.2. Motor Vehicles and Aircraft. All motor vehicles and
aircraft.

3.3. Representations, Warranties and Covenants with Respect to Credit
Security. Each Obligor severally represents, warrants and covenants with
respect to itself and its respective Credit Security that:

3.3.1. Pledged Stock. All shares of capital stock, limited
partnership interests and similar securities included in the Pledged
Stock are and shall be at all times duly authorized, validly issued,
fully paid and (in the case of capital stock and limited partnership
interests) nonassessable. Each Obligor will deliver to the Agent
certificates representing the Pledged Stock, registered, if the Agent so
requests, in the name of the Agent or its nominee, as pledgee, or
accompanied by a stock transfer power executed in blank and, if the Agent
so requests, with the signature guaranteed, all in form and manner
satisfactory to the Agent. Pledged Stock that is not evidenced by a
certificate will be registered in the Agent's name as pledgee on the
issuer's records, all in form and substance satisfactory to the Agent.
The Agent may at any time after the occurrence of an Event of Default
transfer into its name or the name of its nominee, as pledgee, any
Pledged Stock. In the event the Pledged Stock includes any Margin Stock,
the Obligors will furnish to the Lenders Federal Reserve Form U-1 and
take such other action as the Agent may request to ensure compliance with
applicable laws.

3.3.2. Accounts and Pledged Indebtedness. All Accounts and Pledged
Indebtedness owed by an Affiliate of any Obligor shall be on open account
and shall not be evidenced by any note or other instrument; provided,
however, that all Pledged Indebtedness owed by an Affiliate of any
Obligor shall, if the Agent requests, be evidenced by a promissory note,
which note shall be delivered to the Agent after having been endorsed in
blank. Each Obligor will, immediately upon the receipt thereof, deliver
to the Agent any promissory note or similar instrument representing any
Account or Pledged Indebtedness, after having endorsed such promissory
note or instrument in blank.

3.3.3. No Liens or Restrictions on Transfer or Change of Control.
All Credit Security shall be free and clear of any Liens and restrictions
on the transfer thereof, including contractual provisions which prohibit
the assignment of rights under contracts, except for Liens permitted by
section 6.8 of the Credit Agreement. Without limiting the generality of
the foregoing, each Obligor will in good faith attempt to exclude from
contracts to which it becomes a party after the date hereof provisions
that would prevent such Obligor from creating a security interest in such
contract or any property acquired thereunder as contemplated hereby.
None of the Pledged Stock is

<PAGE> 16
subject to any option to purchase or similar rights of any Person.
Except with the written consent of the Agent, each Obligor will in good
faith attempt to exclude from any agreement, instrument, deed or lease
provisions that would restrict the change of control or ownership of the
Company or any of its Subsidiaries, or create a security interest in the
ownership of the Company or any of its Subsidiaries.

3.3.4. Location of Credit Security. Each Obligor shall at all
times keep its records concerning the Accounts at its chief executive
office and principal place of business, which office and place of
business shall be set forth in Exhibit 3.3 or, so long as such Obligor
shall have taken all steps reasonably necessary to perfect the Lenders'
security interest in the Credit Security with respect to such new
address, at such other address as such Obligor may specify by notice
actually received by the Agent not less than 10 Banking Days prior to
such change of address. No Obligor shall at any time keep tangible
personal property of the type referred to in Section 3.1.1 in any
jurisdiction other than the jurisdictions specified in Exhibit 3.3 or, so
long as such Obligor shall have taken all steps reasonably necessary to
perfect the Lenders' security interest in the Credit Security with
respect to such other jurisdiction, other jurisdictions as such Obligor
may specify by notice actually received by the Agent not less than 10
days prior to moving such tangible personal property into such other
jurisdiction.

3.3.5. Trade Names. No Obligor will adopt or do business under any
name other than its name or names designated in Exhibit 3.3 or any other
name specified by notice actually received by the Agent not less than 10
Banking Days prior to the conduct of business under such additional name.
Since its incorporation, no Obligor has changed its corporate name or
adopted or conducted business under any trade name other than a name
specified on Exhibit 3.3 (as from time to time supplemented in accordance
with sections 6.4.1 and 6.4.2 of the Credit Agreement).

3.3.6. Insurance. Each insurance policy included in, or insuring
against loss or damage to, the Credit Security shall name the Agent as
additional insured party or as loss payee. No such insurance policy
shall be cancelable or subject to termination or reduction in amount or
scope of coverage until after at least 30 days' prior written notice from
the insurer to the Agent. At least 10 days prior to the expiration of
any such insurance policy for any reason, each Obligor shall furnish the
Agent with a renewal or replacement policy and evidence of payment of the
premiums therefor when due. Each Obligor grants to the Agent full power
and authority as its attorney-in-fact, effective upon notice to such
Obligor after the occurrence of an Event of Default, to obtain, cancel,
transfer, adjust and settle any such insurance policy and to endorse any
drafts thereon. Any amounts that the Agent receives under any such
policy (including return of unearned premiums) insuring against loss or
damage to the Credit Security prior to the occurrence of an Event of
Default shall be delivered to the Obligors for the replacement,
restoration and maintenance of the Credit Security. Any such amounts

<PAGE> 17
that the Agent receives after the occurrence of an Event of Default
shall, at the Agent's option, be applied to payment of the Credit
Obligations or to the replacement, restoration and maintenance of the
Credit Security. If any Obligor fails to provide insurance as required
by this Agreement, the Agent may, at its option, purchase such insurance,
and such Obligor will on demand pay to the Agent the amount of any
payments made by the Agent or the Lenders for such purpose, together with
interest on the amounts so disbursed from five Banking Days after the
date demanded until payment in full thereof at the Overdue Reimbursement
Rate.

3.3.7. Modifications to Credit Security. Except with the prior
written consent of the Agent, no Obligor shall amend or modify, or waive
any of its rights under or with respect to, any material Accounts,
general intangibles, Pledged Securities or leases if the effect of such
amendment, modification or waiver would be to reduce the amount of any
such items or to extend the time of payment thereof, to waive any default
by any other party thereto, or to waive or impair any remedies of the
Obligors or the Lenders under or with respect to any such Accounts,
general intangibles, Pledged Securities or leases, in each case other
than consistent with past practice in the ordinary course of business and
on an arm's-length basis. Each Obligor will promptly give the Agent
written notice of any request by any Person for any material credit or
adjustment with respect to any Account, general intangible, Pledged
Securities or leases.

3.3.8. Delivery of Documents. Upon the Agent's request, each
Obligor shall deliver to the Agent, promptly upon such Obligor's receipt
thereof, copies of any agreements, instruments, documents or invoices
comprising or relating to the Credit Security. Pending such request,
such Obligor shall keep such items at its chief executive office and
principal place of business (as specified pursuant to Section 3.3.4).

3.3.9. Perfection of Credit Security. Upon the Agent's request
from time to time, subject to Section 5 hereof, the Obligors will execute
and deliver, and file and record in the proper filing and recording
places, all such instruments, including financing statements, collateral
assignments of copyrights, trademarks and patents, mortgages or deeds of
trust and notations on certificates of title, and will take all such
other action, as the Agent reasonably deems advisable for confirming to
it the Credit Security or to carry out any other purpose of this
Agreement or any other Credit Document.

3.4. Administration of Credit Security. The Credit Security shall be
administered as follows, and if an Event of Default shall have occurred,
Section 3.5 shall also apply.

3.4.1. Use of Credit Security. Until the Agent provides written
notice to the contrary upon an Event of Default, each Obligor may use,
commingle and dispose of

<PAGE> 18
any part of the Credit Security in the ordinary course of its business,
all subject to section 6.11 of the Credit Agreement.

3.4.2. Deposits. Each Obligor shall keep all its bank and deposit
accounts only with such financial institutions listed on Exhibit 3.3 (as
from time to time supplemented in accordance with sections 6.4.1 and
6.4.2 of the Credit Agreement).

3.4.3. Distributions on Pledged Securities.

(a) Until an Event of Default shall occur, the respective Obligors
shall be entitled, to the extent permitted by the Credit Documents, to
receive and retain all Distributions on or with respect to the Pledged
Securities (other than Distributions constituting additional Pledged
Securities). All Distributions constituting additional Pledged
Securities will be retained by the Agent (or if received by any Obligor
shall be held by such Person in trust and shall be immediately delivered
by such Person to the Agent in the original form received, endorsed in
blank) and held by the Agent as part of the Credit Security.

(b) If an Event of Default shall have occurred, all Distributions
on or with respect to the Pledged Securities shall be retained by the
Agent (or if received by any Obligor shall be held by such Person in
trust and shall be immediately delivered by it to the Agent in the
original form received, endorsed in blank) and held by the Agent as part
of the Credit Security or applied by the Agent to the payment of the
Credit Obligations in accordance with Section 3.5.6.

3.4.4. Voting Pledged Securities.

(a) Until an Event of Default shall occur, the respective Obligors
shall be entitled to vote or consent with respect to the Pledged
Securities in any manner not inconsistent with the terms of any Credit
Document, and the Agent will, if so requested, execute appropriate
revocable proxies therefor.

(b) If an Event of Default shall have occurred, if and to the
extent that the Agent shall so notify in writing the Obligor pledging the
Pledged Securities in question, only the Agent shall be entitled to vote
or consent or take any other action with respect to the Pledged
Securities (and any Obligor will, if so requested, execute appropriate
proxies therefor).

3.5. Right to Realize upon Credit Security. Except to the extent
prohibited by applicable law that cannot be waived, this Section 3.5 shall
govern the Lender's and the Agent's rights to realize upon the Credit Security
if any Event of Default shall have occurred. The provisions of this Section
3.5 are in addition to any rights and remedies available at law

<PAGE> 19
or in equity and in addition to the provisions of any other Credit Document.
In the case of a conflict between this Section 3.5 and any other Credit
Document, this Section 3.5 shall govern.

3.5.1. Assembly of Credit Security; Receiver. Each Obligor shall,
upon the Agent's request, assemble the Credit Security and otherwise make
it available to the Agent. The Agent may have a receiver appointed for
all or any portion of the Obligors' assets or business which constitutes
the Credit Security in order to manage, protect, preserve, sell and
otherwise dispose of all or any portion of the Credit Security in
accordance with the terms of the Credit Documents, to continue the
operations of the Obligors and to collect all revenues and profits
therefrom to be applied to the payment of the Credit Obligations,
including the compensation and expenses of such receiver.

3.5.2. General Authority. To the extent specified in written
notice from the Agent to the Obligor in question, each Obligor grants the
Agent full and exclusive power and authority, subject to the other terms
hereof and applicable law, to take any of the following actions (for the
sole benefit of the Agent on behalf of the Lenders and the holders from
time to time of any Credit Obligations, but at such Obligor's expense):

(a) To ask for, demand, take, collect, sue for and receive all
payments in respect of any Accounts, general intangibles, Pledged
Securities or leases which such Obligor could otherwise ask for, demand,
take, collect, sue for and receive for its own use.

(b) To extend the time of payment of any Accounts, general
intangibles, Pledged Securities or leases and to make any allowance or
other adjustment with respect thereto.

(c) To settle, compromise, prosecute or defend any action or
proceeding with respect to any Accounts, general intangibles, Pledged
Securities or leases and to enforce all rights and remedies thereunder
which such Obligor could otherwise enforce.

(d) To enforce the payment of any Accounts, general intangibles,
Pledged Securities or leases, either in the name of such Obligor or in
its own name, and to endorse the name of such Obligor on all checks,
drafts, money orders and other instruments tendered to or received in
payment of any Credit Security.

(e) To notify the third party payor with respect to any Accounts,
general intangibles, Pledged Securities or leases of the existence of the
security interest created hereby and to cause all payments in respect
thereof thereafter to be made directly to the Agent; provided, however,
that whether or not the Agent shall have so notified such

<PAGE> 20
payor, such Obligor will at its expense render all reasonable assistance
to the Agent in collecting such items and in enforcing claims thereon.

(f) To sell, transfer, assign or otherwise deal in or with any
Credit Security or the proceeds thereof, as fully as such Obligor
otherwise could do.

3.5.3. Marshaling, etc. Neither the Agent nor the Lenders shall be
required to make any demand upon, or pursue or exhaust any of their
rights or remedies against, any Obligor or any other guarantor, pledgor
or any other Person with respect to the payment of the Credit Obligations
or to pursue or exhaust any of their rights or remedies with respect to
any collateral therefor or any direct or indirect guarantee thereof.
Neither the Agent nor the Lenders shall be required to marshal the Credit
Security or any guarantee of the Credit Obligations or to resort to the
Credit Security or any such guarantee in any particular order, and all of
its and their rights hereunder or under any other Credit Document shall
be cumulative. To the extent it may lawfully do so, each Obligor
absolutely and irrevocably waives and relinquishes the benefit and
advantage of, and covenants not to assert against the Agent or the
Lenders, any valuation, stay, appraisement, extension, redemption or
similar laws now or hereafter existing which, but for this provision,
might be applicable to the sale of any Credit Security made under the
judgment, order or decree of any court, or privately under the power of
sale conferred by this Agreement, or otherwise. Without limiting the
generality of the foregoing, each Obligor (a) agrees that it will not
invoke or utilize any law which might prevent, cause a delay in or
otherwise impede the enforcement of the rights of the Agent or any Lender
in the Credit Security, (b) waives all such laws, and (c) agrees that it
will not invoke or raise as a defense to any enforcement by the Agent or
any Lender of any rights and remedies relating to the Credit Security or
the Credit Obligations any legal or contractual requirement with which
the Agent or any Lender may have in good faith failed to comply. In
addition, each Obligor waives any right to prior notice (except to the
extent expressly required by this Agreement or by law) or judicial
hearing in connection with foreclosure on or disposition of any Credit
Security, including any such right which such Obligor would otherwise
have under the Constitution of the United States of America, any state or
territory thereof or any other jurisdiction.

3.5.4. Sales of Credit Security. All or any part of the Credit
Security may be sold for cash or other value in any number of lots at
public or private sale, without demand, advertisement or notice;
provided, however, that unless the Credit Security to be sold threatens
to decline speedily in value or is of a type customarily sold on a
recognized market, the Agent shall give the Obligor granting the security
interest in such Credit Security 10 days' prior written notice of the
time and place of any public sale, or the time after which a private sale
may be made, which notice each of the Obligors and the Agent agrees to be
reasonable. At any sale or sales of Credit

<PAGE> 21
Security, any Lender or any of its respective officers acting on its
behalf, or such Lender's assigns, may bid for and purchase all or any
part of the property and rights so sold, may use all or any portion of
the Credit Obligations owed to such Lender as payment for the property or
rights so purchased, and upon compliance with the terms of such sale may
hold and dispose of such property and rights without further
accountability to the respective Obligors, except for the proceeds of
such sale or sales pursuant to Section 3.5.6. The Obligors acknowledge
that any such sale will be made by the Agent on an "as is" basis with
disclaimers of all warranties, whether express or implied. The
respective Obligors will execute and deliver or cause to be executed and
delivered such instruments, documents, assignments, waivers, certificates
and affidavits, will supply or cause to be supplied such further
information and will take such further action, as the Agent shall
reasonably request in connection with any such sale.

3.5.5. Sale without Registration. If, at any time when the Agent
shall determine to exercise its rights hereunder to sell all or part of
the securities included in the Credit Security, the securities in
question shall not be effectively registered under the Securities Act (or
other applicable law), the Agent may, in its sole discretion, sell such
securities by private or other sale not requiring such registration in
such manner and in such circumstances as the Agent may deem necessary or
advisable in order that such sale may be effected in accordance with
applicable securities laws without such registration and the related
delays, uncertainty and expense. Without limiting the generality of the
foregoing, in any event the Agent may, in its sole discretion, (a)
approach and negotiate with a single purchaser or one or more possible
purchasers to effect such sale, (b) restrict such sale to one or more
purchasers each of whom will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such securities and (c) cause to be placed on
certificates representing the securities in question a legend to the
effect that such securities have not been registered under the Securities
Act (or other applicable law) and may not be disposed of in violation of
the provisions thereof. Each Obligor agrees that such manner of
disposition is commercially reasonable, that it will upon the Agent's
request give any such purchaser access to such information regarding the
issuer of the securities in question as the Agent may reasonably request
and that the Agent and the Lenders shall not incur any responsibility for
selling all or part of the securities included in the Credit Security at
any private or other sale not requiring such registration,
notwithstanding the possibility that a substantially higher price might
be realized if the sale were deferred until after registration under the
Securities Act (or other applicable law) or until made in compliance with
certain other rules or exemptions from the registration provisions under
the Securities Act (or other applicable law). Each Obligor acknowledges
that no adequate remedy at law exists for breach by it of this Section
3.5.5 and that such breach would not be adequately

<PAGE> 22
compensable in damages and therefore agrees that this Section 3.5.5 may
be specifically enforced.

3.5.6. Application of Proceeds. The proceeds of all sales and
collections in respect of any Credit Security or other assets of any
Obligor, all funds collected from the Obligors and any cash contained in
the Credit Security, the application of which is not otherwise
specifically provided for herein, shall be applied as follows:

First, to the payment of the costs and expenses of such sales and
collections, the reasonable expenses of the Agent and the reasonable fees
and expenses of its special counsel;

Second, any surplus then remaining to the payment of the Credit
Obligations in such order and manner as the Agent may in its sole
discretion determine; provided, however, that any such payment of Credit
Obligations owed to all Lenders shall be proposed Policy rata in
accordance with the respective Percentage Interests of the Lenders in
such Credit Obligations; and

Third, any surplus then remaining shall be paid to the Obligors,
subject, however, to the rights of the holder of any then existing Lien
of which the Agent has actual notice.

3.6. Custody of Credit Security. Except as provided by applicable law
that cannot be waived, the Agent will have no duty as to the custody and
protection of the Credit Security, the collection of any part thereof or of any
income thereon or the preservation or exercise of any rights pertaining
thereto, including rights against prior parties, except for the use of
reasonable care in the custody and physical preservation of any Credit Security
in its possession. The Lenders will not be liable or responsible for any loss
or damage to any Credit Security, or for any diminution in the value thereof,
by reason of the act or omission of any agent selected by the Agent acting in
good faith.

4. Special Provision Concerning Cash Collateral. Notwithstanding anything to
the contrary contained herein (including, without limitation, pursuant to
Section 3.3.9 hereof), until the Agent shall exercise its remedies upon an
Event of Default, no Obligor shall be obligated to perform any act or execute
or deliver any document or instrument which conveys control over such Obligor's
cash, Cash Equivalents or deposit or similar depositary accounts.

5. General. Addresses for notices, consent to jurisdiction, jury trial
waiver, defeasance and numerous other provisions applicable to this Agreement
are contained in the Credit Agreement. The invalidity or unenforceability of
any term or provision hereof shall not affect the validity or enforceability of
any other term or provision hereof. The headings in this Agreement are for
convenience of reference only and shall not limit, alter or otherwise affect

<PAGE> 23
the meaning hereof. This Agreement and the other Credit Documents constitute
the entire understanding of the parties with respect to the subject matter
hereof and thereof and supersede all prior and current understandings and
agreements, whether written or oral. This Agreement is a Credit Document and
may be executed in any number of counterparts, which together shall constitute
one instrument. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of the
Commonwealth of Massachusetts, except as may be required by the UCC or other
applicable laws of other jurisdictions with respect to matters involving the
perfection of the Agent's Lien on the Credit Security located in such other
jurisdictions.

<PAGE> 24

Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
dated first written above.

COLLECTIBLE CHAMPIONS, INC.

By /s/ Robert E. Dods
--------------------------------
Title: President

RACING CHAMPIONS, INC.

By /s/ Boyd L. Meyer
--------------------------------
Title: Executive Vice President

THE FIRST NATIONAL BANK OF BOSTON,
as Agent under the Credit Agreement

By /s/ Peter R. White
--------------------------------
Title: Managing Director

<PAGE> 25
EXHIBIT 3.3

OBLIGORS; OFFICE AND PRINCIPAL PLACE OF BUSINESS;
PERMITTED JURISDICTION FOR PERSONAL TANGIBLE PROPERTY;
TRADE NAMES; DEPOSITORY INSTITUTIONS

1. Office and Principal Place of Business.

The address of the principal executive office and chief place of
business of both Collectible Champions, Inc. and Racing Champions, Inc.:

800 Roosevelt Avenue
Building C, Suite 320
Glen Ellyn, IL 60137

2. Permitted Jurisdiction for Personal Tangible Property.

The jurisdictions in which Collectible Champions, Inc. and its
subsidiaries keep material amounts of tangible personal property (other than
inventory in transit) are as follows:

Chicago, IL
Glen Ellyn, IL
Charlotte, NC
Dallas, TX
Hong Kong

3. Trade Names.

Neither Collectible Champions, Inc. nor Racing Champions, Inc. have
conducted business under any trade names or changed names since their
respective incorporations.

4. Depository Institutions.

The bank and deposit accounts of Collectible Champions, Inc. and/or
Racing Champions, Inc. are kept at the following financial institution(s):

21
<PAGE> 26

Northern Trust Bank, Chicago, Illinois
Belgian Bank, Kowloon, Hong Kong

<PAGE> 1
EXHIBIT 10.12

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 30,
1996, by and between Racing Champions, Inc., an Illinois corporation (the
"Company"), and Robert Dods (the "Employee"). The Company is a wholly-owned
Subsidiary of Collectible Champions, Inc., a Delaware corporation (the
"Parent").

RECITAL

The Company desires to employ the Employee and the Employee is
willing to make his services available to the Company on the terms and
conditions set forth below. Certain capitalized terms used herein are defined
in Section 10 below.

AGREEMENTS

In consideration of the premises and the mutual agreements which
follow, the parties agree as follows:

1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company on the terms and subject to
the conditions set forth in this Agreement.

2. Term. The term of the Employee's employment hereunder shall
commence on the date hereof and shall continue until terminated as provided in
section 6 below.

3. Duties. The Employee shall serve as the President of the
Company and will, under the direction of the Company's board of directors (the
"Board of Directors"), faithfully and to the best of his ability, perform the
duties of such position. The Employee shall be one of the principal executive
officers of the Company and shall, subject to the control of the Board of
Directors, have the normal duties, responsibilities and authority associated
with such position. The Employee shall also perform such additional duties and
responsibilities which may from time to time be reasonably assigned or
delegated by the Board of Directors. The Employee agrees to devote his entire
business time, effort skill and attention to the proper discharge of such
duties while employed by the Company.

4. Compensation. The Employee shall receive a base salary of
$500,000 per year, payable in regular and equal monthly installments (the "Base
Salary"). The Employee's Base Salary shall be reviewed annually by the Board
of Directors of the Company to determine appropriate increases, if any, in such
Base Salary.
<PAGE> 2

5. Fringe Benefits.

(a) Vacation. The Employee shall be entitled to five weeks of
paid vacation annually. The Employee and the Company shall mutually determine
the time and intervals of such vacation.

(b) Medical, Health, Dental, Disability and Life Coverage. The
Employee shall be eligible to participate in any medical, health, dental,
disability and life insurance policy in effect for the other two most senior
executives of the Company and its Subsidiaries (collectively, the "Senior
Management").

(c) Incentive Bonus and Stock Ownership Plans. The Employee
shall be entitled to participate in any incentive bonus or other incentive
compensation plan developed generally for the Senior Management of the Company
(including the Racing Champions, Inc. 1996 Key Employees Performance
Compensation Plan (the "1996 Bonus Plan")), on a basis consistent with his
position and level of compensation with the Company. The Employee shall also
be entitled to participate in any incentive stock option plan or other stock
ownership plan developed generally for the Senior Management of the Company, on
a basis consistent with his position and level of compensation with the Company
(including the Collectible Champions, Inc. 1996 Employee Stock Option Plan).

(d) Automobile. The Company agrees to reimburse the Employee
up to $990.00 per month, as such amount may be increased from time to time
consistent with the Company's reimbursement policy for Senior Management of the
Company to cover Employee's expenses in connection with his leasing of an
automobile. Additionally, the Company will pay for the gas used for business
purposes. All maintenance and insurance expense for the automobile is the
responsibility of the Employee.

(e) Reimbursement for Reasonable Business Expenses. The
Company shall pay or reimburse the Employee for reasonable expenses incurred by
him in connection with the performance of his duties pursuant to this Agreement
including, but not limited to, travel expenses, expenses in connection with
seminars, professional conventions or similar professional functions and other
reasonable business expenses.

(f) Key Man Insurance. The parties agree that the Company has
the option to purchase one or more key man life insurance policies upon the
life of the Employee. The Company shall own and shall have the absolute right
to name the beneficiary or beneficiaries of said policy. The Employee agrees
to cooperate fully with the Company in securing said policy, including, but not
limited to, submitting himself to any physical examination which may be
required at such reasonable times and places as Company shall specify.

- 2 -
<PAGE> 3

6. Termination.

(a) Termination of the Employment Period. The Employment
Period shall continue until (i) the third anniversary of the date hereof unless
the parties mutually agree to extend the term of this Agreement (such
anniversary of the date hereof or such extended date being referred to herein
as the "Expected Completion Date"), (ii) the Employee's death or Disability,
(iii) the Employee resigns or (iv) the Board of Directors determines that
termination of Employee's employment is in the best interests of the Company.

(b) Definitions.

(i) For purposes of this Agreement, "Disability" shall
mean a physical or mental sickness or any injury which renders the
Employee incapable of performing the services required of him as an
employee of the Company and which does or may be expected to continue for
more than six (6) months during any 12-month period. In the event
Employee shall be able to perform his usual and customary duties on behalf
of the Company following a period of disability, and does so perform such
duties, or such other duties as are prescribed by the Board of Directors
for a period of three continuous months, any subsequent period of
disability shall be regarded as a new period of disability for purposes of
this Agreement. The Company and the Employee shall determine the
existence of a Disability and the date upon which it occurred. In the
event of a dispute regarding whether or when a Disability occurred, the
matter shall be referred to a medical doctor selected by the Company and
the Employee. In the event of their failure to agree upon such a medical
doctor, the Company and the Employee shall each select a medical doctor
who together shall select a third medical doctor who shall make the
determination. Such determination shall be conclusive and binding upon
the parties hereto.

(ii) For purposes of this Agreement, "Cause" shall be
deemed to exist if the Employee shall have (1) violated the terms of
sections 7 or 8 of this Agreement; (2) committed a felony or a crime
involving moral turpitude; (3) engaged in serious misconduct which is
demonstrably injurious to the Company or any of its Subsidiaries; (4)
engaged in fraud or dishonesty with respect to the Company or any of its
Subsidiaries or made a material misrepresentation to the stockholders or
directors of the Company; or (5) committed acts of negligence in the
performance of his duties which are substantially injurious to the
Company.

(iii) For purposes of this Agreement, "Good Reason"
shall mean (1) the material diminution of the Employee's duties set forth
in Section 3 above or (2) the relocation of the offices at which the
Employee is principally employed to a location which is more than 50 miles
from the offices at which the Employee is principally employed as of the
date hereof; provided, that travel necessary for the performance of the
Employee's duties set forth in Section 3 above shall not determine the
location where the Employee is "principally employed."

- 3 -
<PAGE> 4

(c) Termination for Disability or Death. In the event of
termination for Disability or death, payments of the Employee's Base
Salary shall be made to the Employee, his designated beneficiary or his estate
for a period of six (6) months after the Termination Date in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage,
to the extent permitted under applicable policies, and will pay to the Employee
the fringe benefits pursuant to section 5 which have accrued prior to the
Termination Date.

(d) Termination by the Company without Cause or by the
Employee for Good Reason. If (i) the Employment Period is terminated by the
Company for any reason other than for Cause, Disability or death, (ii) if the
Employment Period is terminated by the Company for what the Company believes is
Cause or Disability, and it is ultimately determined that the Employment Period
was terminated without Cause or Disability or (iii) the Employee resigns for
Good Reason, the Employee shall be entitled to receive, as damages for such a
termination, his Base Salary from the Termination Date to the later to occur of
(i) the Expected Completion Date or (ii) the first anniversary of the
Termination Date. Such payment of Base Salary shall be made in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage,
to the extent permitted under applicable policies, and will pay to the Employee
the fringe benefits pursuant to section 5 which have accrued prior to the date
of termination.

(e) Termination by the Company for Cause or by the Employee
without Good Reason. If the Employment Period is terminated by the Company
with Cause or as a result of the Employee's resignation without Good Reason,
the Employee shall not be entitled to receive his Base Salary or any fringe
benefits or bonuses (except as specifically provided in the 1996 Bonus Plan)
for periods after the Termination Date.

(f) Effect of Termination. The termination of the Employment
Period pursuant to section 6(a) shall not affect the Employee's obligations as
described in sections 7 and 8.

7. Noncompetition and Nonsolicitation. The Employee acknowledges
and agrees that the contacts and relationships of the Company and its
Subsidiaries with its customers, suppliers, licensors and other business
relations are, and have been, established and maintained at great expense and
provide the Company and its Subsidiaries with a substantial competitive
advantage in conducting their business. The Employee acknowledges and agrees
that by virtue of the Employee's employment with the Company, the Employee will
have unique and extensive exposure to and personal contact with the Company's
customers and licensors, and that he will be able to establish a unique
relationship with those Persons that will enable him, both during and after
employment, to unfairly compete with the Company and its Subsidiaries.
Furthermore, the parties agree that the terms and conditions of the following
restrictive covenants are reasonable and

- 4 -
<PAGE> 5

necessary for the protection of the business, trade secrets and Confidential
Information (as defined in section 8 below) of the Company and its Subsidiaries
and to prevent great damage or loss to the Company and its Subsidiaries as a
result of action taken by the Employee. The Employee acknowledges and agrees
that the noncompete restrictions and nondisclosure of Confidential Information
restrictions contained in this Agreement are reasonable and the consideration
provided for herein is sufficient to fully and adequately compensate the
Employee for agreeing to such restrictions. The Employee acknowledges that he
could continue to actively pursue his career and earn sufficient compensation
in the same or similar business without breaching any of the restrictions
contained in this Agreement. The Employee acknowledges that one business of
the Company and its Subsidiaries is the design, production (including, without
limitation, the obtention of the licenses necessary therefor), marketing and
sale of die cast metal replicas of vehicles.

(a) Noncompetition. The Employee hereby covenants and agrees
that during the Employment Period and for two (2) years thereafter (the
"Noncompete Period"), he shall not, directly or indirectly, either individually
or as an employee, principal, agent, partner, shareholder, owner, trustee,
beneficiary, co-venturer, distributor, consultant, representative or in any
other capacity, participate in, become associated with, provide assistance to,
engage in or have a financial or other interest in any business, activity or
enterprise which is competitive with the Company or any of its Subsidiaries or
any successor or assign of the Company or any of its Subsidiaries. The
ownership of less than a one percent interest in a corporation whose shares are
traded in a recognized stock exchange or traded in the over-the-counter market,
even though that corporation may be a competitor of the Company, shall not be
deemed financial participation in a competitor. If the final judgment of a
court of competent jurisdiction declares that any term or provision of this
section is invalid or unenforceable, the parties agree that the court making
the determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified. The term
"indirectly" as used in this section and section 8 below is intended to include
any acts authorized or directed by or on behalf of the Employee or any
Affiliate of the Employee.

(b) Nonsolicitation. The Employee hereby covenants and agrees
that during the Noncompete Period, he shall not, directly or indirectly, either
individually or as an employee, agent, partner, shareholder, owner, trustee,
beneficiary, co-venturer, distributor, consultant or in any other capacity:

(i) canvass, solicit or accept from any Person who is a
customer or licensor of the Company or any of its Subsidiaries (any such
Person is hereinafter referred to individually as a "Customer," and
collectively as the "Customers") any business which in competition with
the business of the Company or any of its Subsidiaries or the successors
or assigns of the Company or any of its Subsidiaries, including, without
limitation, the canvassing, soliciting or accepting of business from any
Person which is or was a Customer

- 5 -
<PAGE> 6

of the Company within two years preceding the date hereof or with the
Company or any of its Subsidiaries during the Noncompete Period;

(ii) advise, request, induce or attempt to induce any of
the Customers, suppliers, or other business contacts of the Company or any
of its Subsidiaries who currently have or have had business relationships
with the Company within two years preceding the date hereof or with the
Company or any of its Subsidiaries during the Noncompete Period, to
withdraw, curtail or cancel any of its business or relations with the
Company or any of its Subsidiaries;

(iii) induce or attempt to induce any employee, sales
representative, consultant or other agent of the Company or any of its
Subsidiaries to terminate his relationship or breach any agreement with
the Company or any of its Subsidiaries; or

(iv) hire any person who was an employee, sales
representative, consultant or other agent of the Company or any of its
Subsidiaries at any time during the Noncompete Period.

8. Confidential Information. The Employee acknowledges and agrees
that the customers, business connections, customer lists, procedures,
operations, techniques, and other aspects of and information about the business
of the Company and its Subsidiaries (the "Confidential Information") are
established at great expense and protected as confidential information and
provide the Company and its Subsidiaries with a substantial competitive
advantage in conducting their business. The Employee further acknowledges and
agrees that by virtue of his past employment with the Company, and by virtue of
his employment with the Company, he has had access to and will have access to,
and has been entrusted with and will be entrusted with, Confidential
Information, and that the Company would suffer great loss and injury if the
Employee would disclose this information or use in a manner not specifically
authorized by the Company. Therefore, the Employee agrees that during the
Employment Period and for five (5) years thereafter, he will not, directly or
indirectly, either individually or as an employee, agent, partner, shareholder,
owner, trustee, beneficiary, co-venturer, distributor, consultant or in any
other capacity, use or disclose, or cause to be used or disclosed, any
Confidential Information, unless and to the extent that any such information
become generally known to and available for use by the public other than as a
result of the Employee's acts or omissions. The Employee shall deliver to the
Company at the termination of the Employment Period, or at any other time the
Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Confidential Information, Work Product (as defined below) or
the business of the Company or any Subsidiary which he may then possess or have
under his control. The Employee acknowledges and agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports and all similar or related information (whether or not patentable)
which relate to the Company's or any of its Subsidiaries' actual or anticipated
business, research and development or existing or future products or services
and which are conceived, developed or made by the Employee while employed by
the Company and its Subsidiaries ("Work Product") belong to the Company or such
Subsidiary, as the case may be.

- 6 -
<PAGE> 7

9. Common Law of Torts and Trade Secrets. The parties agree that
nothing in this Agreement shall be construed to limit or negate the common law
of torts or trade secrets where it provides the Company and its Subsidiaries
with broader protection than that provided herein.

10. Definitions.

"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person and any
partner of a Person which is a partnership.

"Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization and any governmental entity or any department,
agency or political subdivision thereof.

11. Specific Performance. The Employee acknowledges and agrees that
irreparable injury to the Company may result in the event the Employee breaches
any covenant or agreement contained in sections 7 and 8 and that the remedy at
law for the breach of any such covenant will be inadequate. Therefore, if the
Employee engages in any act in violation of the provisions of sections 7 and 8,
the Employee agrees that the Company shall be entitled, in addition to such
other remedies and damages as may be available to it by law or under this
Agreement, to injunctive relief to enforce the provisions of sections 7 and 8.

12. Waiver. The failure of either party to insist in any one or
more instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder or of the future performance of any such term, covenant or condition.

13. Notices. Any notice to be given hereunder shall be deemed
sufficient if addressed in writing, and delivered by registered or certified
mail or delivered personally, in the case of the Company, to its principal
business office, and in the case of the Employee, to his address appearing on
the records of the Company, or to such other address as he may designate in
writing to the Company.

- 7 -
<PAGE> 8

14. Severability. In the event that any provision shall be held to
be invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.

16. Amendment. This Agreement may only be amended by an agreement
in writing signed by each of the parties hereto.

17. Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the laws of the State of Illinois,
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Illinois and of any federal
court in the venue of Illinois for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.

18. Benefit. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against the Company, its successors
and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.

* * * * *

- 8 -
<PAGE> 9

IN WITNESS WHEREOF, the parties have executed or caused this
Employment Agreement to be executed as of the date first above written.

RACING CHAMPIONS, INC.

By: /s/ Daniel M. Gill
-----------------------------

Its: Vice President
-----------------------------

/s/ Robert R. Dods
---------------------------------
Robert Dods

<PAGE> 1
EXHIBIT 10.13

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 30,
1996, by and between Racing Champions, Inc., an Illinois corporation (the
"Company"), and Boyd Meyer (the "Employee"). The Company is a wholly-owned
Subsidiary of Collectible Champions, Inc., a Delaware corporation (the
"Parent").

RECITAL

AGREEMENTS

In consideration of the premises and the mutual agreements which
follow, the parties agree as follows:

1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company on the terms and subject to
the conditions set forth in this Agreement.

2. Term. The term of the Employee's employment hereunder shall
commence on the date hereof and shall continue until terminated as provided in
section 6 below.

3. Duties. The Employee shall serve as the Executive Vice
President of the Company and will, under the direction of the Company's board
of directors (the "Board of Directors"), faithfully and to the best of his
ability, perform the duties of such position. The Employee shall be one of the
principal executive officers of the Company and shall, subject to the control
of the Board of Directors, have the normal duties, responsibilities and
authority associated with such position. The Employee shall also perform such
additional duties and responsibilities which may from time to time be
reasonably assigned or delegated by the Board of Directors. The Employee
agrees to devote his entire business time, effort skill and attention to the
proper discharge of such duties while employed by the Company.

5. Fringe Benefits.

(a) Vacation. The Employee shall be entitled to five weeks of
paid vacation annually. The Employee and the Company shall mutually determine
the time and intervals of such vacation.

- 2 -
<PAGE> 3

6. Termination.

(b) Definitions.

- 3 -
<PAGE> 4

(c) Termination for Disability or Death. In the event of
termination for Disability or death, payments of the Employee's Base Salary
shall be made to the Employee, his designated beneficiary or his estate for a
period of six (6) months after the Termination Date in accordance with the
normal payroll practices of the Company. During this period, the Company shall
also reimburse the Employee for amounts paid, if any, to continue medical,
dental and health coverage pursuant to the provisions of the Consolidated
Omnibus Budget Reconciliation Act. During this period, the Company will also
continue Employee's life insurance and disability coverage, to the extent
permitted under applicable policies, and will pay to the Employee the fringe
benefits pursuant to section 5 which have accrued prior to the Termination
Date.

(d) Termination by the Company without Cause or by the Employee
for Good Reason. If (i) the Employment Period is terminated by the Company
for any reason other than for Cause, Disability or death, (ii) if the
Employment Period is terminated by the Company for what the Company believes is
Cause or Disability, and it is ultimately determined that the Employment Period
was terminated without Cause or Disability or (iii) the Employee resigns for
Good Reason, the Employee shall be entitled to receive, as damages for such a
termination, his Base Salary from the Termination Date to the later to occur of
(i) the Expected Completion Date or (ii) the first anniversary of the
Termination Date. Such payment of Base Salary shall be made in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage,
to the extent permitted under applicable policies, and will pay to the Employee
the fringe benefits pursuant to section 5 which have accrued prior to the date
of termination.

(f) Effect of Termination. The termination of the Employment
Period pursuant to section 6(a) shall not affect the Employee's obligations as
described in sections 7 and 8.

- 4 -
<PAGE> 5

- 5 -
<PAGE> 6

of the Company within two years preceding the date hereof or with the
Company or any of its Subsidiaries during the Noncompete Period;

(iv) hire any person who was an employee, sales
representative, consultant or other agent of the Company or any of its
Subsidiaries at any time during the Noncompete Period.

- 6 -
<PAGE> 7

10. Definitions.

"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person and any
partner of a Person which is a partnership.

"Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization and any governmental entity or any department,
agency or political subdivision thereof.

- 7 -
<PAGE> 8

16. Amendment. This Agreement may only be amended by an agreement
in writing signed by each of the parties hereto.

* * * * *

- 8 -
<PAGE> 9

IN WITNESS WHEREOF, the parties have executed or caused this
Employment Agreement to be executed as of the date first above written.

RACING CHAMPIONS, INC.

By /s/ Daniel M. Gill
---------------------------
Its: Vice President
--------------------------

/s/ Boyd L. Meyer
------------------------------
Boyd Meyer

<PAGE> 1
EXHIBIT 10.14

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 30,
1996, by and between Banerjan Company Limited, a Hong Kong corporation (the
"Company"), and Peter Chung (the "Employee"). The Company is a wholly-owned
Subsidiary of Racing Champions, Inc., a Delaware corporation ("RCI"), which is
a wholly-owned Subsidiary of Collectible Champions, Inc., a Delaware
corporation (the "Parent").

RECITAL

AGREEMENTS

In consideration of the premises and the mutual agreements which
follow, the parties agree as follows:

1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company on the terms and subject to
the conditions set forth in this Agreement.

2. Term. The term of the Employee's employment hereunder shall
commence on the date hereof and shall continue until terminated as provided in
section 6 below.

5. Fringe Benefits.

(a) Vacation. The Employee shall be entitled to five weeks of
paid vacation annually. The Employee and the Company shall mutually determine
the time and intervals of such vacation.

(b) Medical, Health, Dental, Disability and Life Coverage. The
Employee shall be eligible to participate in any medical, health, dental,
disability and life insurance policy in effect for the other two most senior
executives of RCI and its Subsidiaries (collectively, the "Senior Management").

(c) Incentive Bonus and Stock Ownership Plans. The Employee
shall be entitled to participate in any incentive bonus or other incentive
compensation plan developed generally for the Senior Management of RCI and its
Subsidiaries (including the Racing Champions, Inc. 1996 Key Employees
Performance Compensation Plan (the "1996 Bonus Plan")), on a basis consistent
with his position and level of compensation. The Employee shall also be
entitled to participate in any incentive stock option plan or other stock
ownership plan developed generally for the Senior Management of RCI and its
Subsidiaries, on a basis consistent with his position and level of compensation
(including the Collectible Champions, Inc. 1996 Employee Stock Option Plan).

(d) Automobile. The Company agrees to reimburse the Employee
up to $2,000 per month, as such amount may be increased from time to time
consistent with the Company's reimbursement policy for Senior Management of the
Company to cover Employee's expenses in connection with his leasing of an
automobile. Additionally, the Company will pay for the gas used for business
purposes. All maintenance and insurance expense for the automobile is the
responsibility of the Employee.

(f) Key Man Insurance. The parties agree that RCI and the
Company have the option to purchase one or more key man life insurance policies
upon the life of the Employee. RCI and the Company shall own and shall have
the absolute right to name the beneficiary or beneficiaries of said policy.
The Employee agrees to cooperate fully with RCI and the Company in securing
said policy, including, but not limited to, submitting himself to any physical
examination which may be required at such reasonable times and places as RCI or
the Company shall specify.

- 2 -
<PAGE> 3

6. Termination.

(b) Definitions.

(ii) For purposes of this Agreement, "Cause" shall be
deemed to exist if the Employee shall have (1) violated the terms of
sections 7 or 8 of this Agreement; (2) committed a felony or a crime
involving moral turpitude; (3) engaged in serious misconduct which is
demonstrably injurious to RCI or any of its Subsidiaries; (4) engaged in
fraud or dishonesty with respect to RCI or any of its Subsidiaries or made
a material misrepresentation to the stockholders or directors of RCI or
the stockholders or directors of the Company; or (5) committed acts of
negligence in the performance of his duties which are substantially
injurious to RCI or its Subsidiaries.

- 3 -
<PAGE> 4

(c) Termination for Disability or Death. In the event of
termination for Disability or death, payments of the Employee's Base Salary
shall be made to the Employee, his designated beneficiary or his estate for a
period of six (6) months after the Termination Date in accordance with the
normal payroll practices of the Company. During this period, the Company shall
also reimburse the Employee for amounts paid, if any, to continue medical,
dental and health coverage pursuant to the provisions of the Consolidated
Omnibus Budget Reconciliation Act. During this period, the Company will also
continue Employee's life insurance and disability coverage, to the extent
permitted under applicable policies, and will pay to the Employee the fringe
benefits pursuant to section 5 which have accrued prior to the Termination
Date.

(d) Termination by the Company without Cause or by the Employee
for Good Reason. If (i) the Employment Period is terminated by the Company
for any reason other than for Cause, Disability or death, (ii) if the
Employment Period is terminated by the Company for what the Company believes is
Cause or Disability, and it is ultimately determined that the Employment Period
was terminated without Cause or Disability or (iii) the Employee resigns for
Good Reason, the Employee shall be entitled to receive, as damages for such a
termination, his Base Salary from the Termination Date to the later to occur of
(i) the Expected Completion Date or (ii) the first anniversary of the
Termination Date. Such payment of Base Salary shall be made in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage,
to the extent permitted under applicable policies, and will pay to the Employee
the fringe benefits pursuant to section 5 which have accrued prior to the date
of termination.

(f) Effect of Termination. The termination of the Employment
Period pursuant to section 6(a) shall not affect the Employee's obligations as
described in sections 7 and 8.

7. Noncompetition and Nonsolicitation. The Employee acknowledges
and agrees that the contacts and relationships of RCI and its Subsidiaries with
its customers, suppliers, licensors and other business relations are, and have
been, established and maintained at great expense and provide RCI and its
Subsidiaries with a substantial competitive advantage in conducting their
business. The Employee acknowledges and agrees that by virtue of the
Employee's employment with the Company, the Employee will have unique and
extensive exposure to and personal contact with RCI and its Subsidiaries'
customers and licensors, and that he will be able to establish a unique
relationship with those Persons that will enable him, both during and after
employment, to unfairly compete with RCI and its Subsidiaries. Furthermore,
the parties agree that the terms and conditions of the following restrictive
covenants are reasonable and necessary for the protection of the business,

- 4 -
<PAGE> 5

trade secrets and Confidential Information (as defined in section 8 below) of
RCI and its Subsidiaries and to prevent great damage or loss to RCI and its
Subsidiaries as a result of action taken by the Employee. The Employee
acknowledges and agrees that the noncompete restrictions and nondisclosure of
Confidential Information restrictions contained in this Agreement are
reasonable and the consideration provided for herein is sufficient to fully and
adequately compensate the Employee for agreeing to such restrictions. The
Employee acknowledges that he could continue to actively pursue his career and
earn sufficient compensation in the same or similar business without breaching
any of the restrictions contained in this Agreement. The Employee acknowledges
that one business of RCI and its Subsidiaries is the design, production
(including, without limitation, the obtention of the licenses necessary
therefor), marketing and sale of die cast metal replicas of vehicles.

(a) Noncompetition. The Employee hereby covenants and agrees
that during the Employment Period and for two (2) years thereafter (the
"Noncompete Period"), he shall not, directly or indirectly, either individually
or as an employee, principal, agent, partner, shareholder, owner, trustee,
beneficiary, co-venturer, distributor, consultant, representative or in any
other capacity, participate in, become associated with, provide assistance to,
engage in or have a financial or other interest in any business, activity or
enterprise which is competitive with RCI or any of its Subsidiaries or any
successor or assign of RCI or any of its Subsidiaries. The ownership of less
than a one percent interest in a corporation whose shares are traded in a
recognized stock exchange or traded in the over-the-counter market, even though
that corporation may be a competitor of RCI, shall not be deemed financial
participation in a competitor. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this section is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified. The term "indirectly" as
used in this section and section 8 below is intended to include any acts
authorized or directed by or on behalf of the Employee or any Affiliate of the
Employee.

(i) canvass, solicit or accept from any Person who is a
customer or licensor of RCI or any of its Subsidiaries (any such Person is
hereinafter referred to individually as a "Customer," and collectively as
the "Customers") any business which in competition with the business of
RCI or any of its Subsidiaries or the successors or assigns of RCI or any
of its Subsidiaries, including, without limitation, the canvassing,
soliciting or accepting of business from any Person which is or was a
Customer of RCI within two years preceding the date hereof or with RCI or
any of its Subsidiaries during the Noncompete Period;

- 5 -
<PAGE> 6

(ii) advise, request, induce or attempt to induce any of
the Customers, suppliers, or other business contacts of RCI or any of its
Subsidiaries who currently have or have had business relationships with
RCI within two years preceding the date hereof or with RCI or any of its
Subsidiaries during the Noncompete Period, to withdraw, curtail or cancel
any of its business or relations with RCI or any of its Subsidiaries;

(iii) induce or attempt to induce any employee, sales
representative, consultant or other agent of RCI or any of its
Subsidiaries to terminate his relationship or breach any agreement with
RCI or any of its Subsidiaries; or

(iv) hire any person who was an employee, sales
representative, consultant or other agent of RCI or any of its
Subsidiaries at any time during the Noncompete Period.

8. Confidential Information. The Employee acknowledges and agrees
that the customers, business connections, customer lists, procedures,
operations, techniques, and other aspects of and information about the business
of RCI and its Subsidiaries (the "Confidential Information") are established at
great expense and protected as confidential information and provide RCI and its
Subsidiaries with a substantial competitive advantage in conducting their
business. The Employee further acknowledges and agrees that by virtue of his
past affiliation with RCI and past employment by and affiliation with Racing
Champions Limited, a Hong Kong corporation, Garnett Services, Inc., a British
Virgin Islands corporation and Hosten Investment Limited, a Hong Kong
corporation, and by virtue of his employment with the Company, he has had
access to and will have access to, and has been entrusted with and will be
entrusted with, Confidential Information, and that the Company and RCI would
suffer great loss and injury if the Employee would disclose this information or
use in a manner not specifically authorized by the Company. Therefore, the
Employee agrees that during the Employment Period and for five (5) years
thereafter, he will not, directly or indirectly, either individually or as an
employee, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant or in any other capacity, use or disclose,
or cause to be used or disclosed, any Confidential Information, unless and to
the extent that any such information become generally known to and available
for use by the public other than as a result of the Employee's acts or
omissions. The Employee shall deliver to the Company at the termination of the
Employment Period, or at any other time the Company may request, all memoranda,
notes, plans, records, reports, computer tapes, printouts and software and
other documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of RCI or any of
its Subsidiaries which he may then possess or have under his control. The
Employee acknowledges and agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports and
all similar or related information (whether or not patentable) which relate to
RCI's or any of its Subsidiaries' actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by the Employee while employed by RCI and its Subsidiaries
("Work Product") belong to RCI or such Subsidiary, as the case may be.

- 6 -
<PAGE> 7

10. Definitions.

"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person and any
partner of a Person which is a partnership.

"Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization and any governmental entity or any department,
agency or political subdivision thereof.

- 7 -
<PAGE> 8

16. Amendment. This Agreement may only be amended by an agreement
in writing signed by each of the parties hereto.

* * * * *

- 8 -
<PAGE> 9

IN WITNESS WHEREOF, the parties have executed or caused this
Employment Agreement to be executed as of the date first above written.

BANERJAN COMPANY LIMITED

By: /s/ Avy H. Sten
----------------------------

Its: Director
----------------------------

/s/ Peter K. K. Chung
--------------------------------
Peter Chung

<PAGE> 1
EXHIBIT 10.15

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 30,
1996, by and between Racing Champions, Inc., an Illinois corporation (the
"Company"), and Curt Stoelting (the "Employee").

RECITAL

The Company desires to employ the Employee and the Employee is willing to
make his services available to the Company on the terms and conditions set
forth below. Certain capitalized terms used herein are defined in Section 10
below.

AGREEMENTS

In consideration of the premises and the mutual agreements which follow,
the parties agree as follows:

1. Employment. The Company hereby employs the Employee and the Employee
hereby accepts employment with the Company on the terms and subject to the
conditions set forth in this Agreement.

2. Term. The term of the Employee's employment hereunder shall commence
on the date hereof and shall continue until terminated as provided in section 6
below.

3. Duties. The Employee shall serve as the Vice President-Finance and
Operations of the Company and will, under the direction of the Company's
President, faithfully and to the best of his ability, perform the duties of
such position. The Employee shall be one of the principal executive officers
of the Company and shall, subject to the control of the Company's board of
directors (the "Board of Directors"), supervise the accounting, financing and
operating functions of the Company. The Employee shall also perform such
additional duties and responsibilities which may from time to time be
reasonably assigned or delegated by the President of the Company. The Employee
agrees to devote his entire business time, effort skill and attention to the
proper discharge of such duties while employed by the Company.

4. Compensation. The Employee shall receive a base salary of $150,000
per year, payable in regular and equal monthly installments (the "Base
Salary"). The Employee's Base Salary shall be reviewed annually by the Board
of Directors of the Company to determine appropriate increases, if any, in such
Base Salary.
<PAGE> 2

5. Fringe Benefits.

(a) Vacation. The Employee shall be entitled to two weeks of paid
vacation annually, increasing to three weeks after three years of employment by
the Company and four weeks after six years of employment by the Company
(including employment by the Company prior to the term of this Agreement). The
Employee and the Company shall mutually determine the time and intervals of
such vacation.

(b) Medical, Health, Dental, Disability and Life Coverage. The
Employee shall be eligible to participate in any medical, health, dental,
disability and life insurance policy in effect for senior management of the
Company (excluding Robert Dods, Boyd Meyer and Peter Chung) (collectively, the
"Second Tier Management").

(c) Incentive Bonus and Stock Ownership Plans. The Employee shall
be entitled to participate in any incentive bonus or other incentive
compensation plan developed generally for the Second Tier Management of the
Company (including the Racing Champions, Inc. 1996 Key Employees Performance
Compensation Plan (the "1996 Bonus Plan")), on a basis consistent with his
position and level of compensation with the Company. The Employee shall also
be entitled to participate in any incentive stock option plan or other stock
ownership plan developed generally for the Second Tier Management of the
Company, on a basis consistent with his position and level of compensation with
the Company (including the Collectible Champions, Inc. 1996 Employee Stock
Option Plan).

(d) Automobile. The Company agrees to reimburse the Employee up to
$400.00 per month, as such amount may be increased from time to time consistent
with the Company's reimbursement policy for Second Tier Management of the
Company to cover Employee's expenses in connection with his leasing of an
automobile. Additionally, the Company will pay for the gas used for business
purposes. All maintenance and insurance expense for the automobile is the
responsibility of the Employee.

(e) Reimbursement for Reasonable Business Expenses. The Company
shall pay or reimburse the Employee for reasonable expenses incurred by him in
connection with the performance of his duties pursuant to this Agreement
including, but not limited to, travel expenses, expenses in connection with
seminars, professional conventions or similar professional functions and other
reasonable business expenses.

(f) Key Man Insurance. The parties agree that the Company has the
option to purchase one or more key man life insurance policies upon the life of
the Employee. The Company shall own and shall have the absolute right to name
the beneficiary or beneficiaries of said policy. The Employee agrees to
cooperate fully with the Company in securing said policy, including, but not
limited to, submitting himself to any physical examination which may be
required at such reasonable times and places as Company shall specify.

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<PAGE> 3

6. Termination.

(a) Termination of the Employment Period. The Employment Period
shall continue until (i) the second anniversary of the date hereof unless the
parties mutually agree to extend the term of this Agreement (such anniversary
of the date hereof or such extended date being referred to herein as the
"Expected Completion Date"), (ii) the Employee's death or Disability, (iii) the
Employee resigns or (iv) the Board of Directors determines that termination of
Employee's employment is in the best interests of the Company.

(b) Definitions.

(i) For purposes of this Agreement, "Disability" shall mean a
physical or mental sickness or any injury which renders the Employee
incapable of performing the services required of him as an employee of the
Company and which does or may be expected to continue for more than six (6)
months during any 12-month period. In the event Employee shall be able to
perform his usual and customary duties on behalf of the Company following a
period of disability, and does so perform such duties, or such other duties
as are prescribed by the Board of Directors or the President of the Company,
for a period of three continuous months, any subsequent period of disability
shall be regarded as a new period of disability for purposes of this
Agreement. The Company and the Employee shall determine the existence of a
Disability and the date upon which it occurred. In the event of a dispute
regarding whether or when a Disability occurred, the matter shall be
referred to a medical doctor selected by the Company and the Employee. In
the event of their failure to agree upon such a medical doctor, the Company
and the Employee shall each select a medical doctor who together shall
select a third medical doctor who shall make the determination. Such
determination shall be conclusive and binding upon the parties hereto.

(ii) For purposes of this Agreement, "Cause" shall be deemed to
exist if the Employee shall have (1) violated the terms of sections 7 or 8
of this Agreement; (2) failed to substantially perform his duties to the
reasonable satisfaction of the Board of Directors; provided that so long as
Robert Dods, Boyd Meyer or Peter Chung serves as a director of the Company,
any determination pursuant to this clause (2) must be approved by the
Requisite Founder Directors; (3) committed a felony or a crime involving
moral turpitude; (4) engaged in serious misconduct which is demonstrably
injurious to the Company or any of its Subsidiaries; (5) engaged in fraud or
dishonesty with respect to the Company or any of its Subsidiaries or made a
material misrepresentation to the stockholders or directors of the Company;
or (6) committed acts of negligence in the performance of his duties which
are substantially injurious to the Company.

(iii) For purposes of this Agreement, "Good Reason" shall mean (1)
the material diminution of the Employee's duties set forth in Section 3
above or (2) the relocation of the offices at which the Employee is
principally employed to a location which is more than 50 miles from the
offices at which the Employee is principally employed as of the date hereof;
provided, that travel necessary for the performance of the Employee's duties

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<PAGE> 4

set forth in Section 3 above shall not determine the location where the
Employee is "principally employed."

(c) Termination for Disability or Death. In the event of
termination for Disability or death, payments of the Employee's Base Salary
shall be made to the Employee, his designated beneficiary or his estate for a
period of six (6) months after the Termination Date in accordance with the
normal payroll practices of the Company. During this period, the Company shall
also reimburse the Employee for amounts paid, if any, to continue medical,
dental and health coverage pursuant to the provisions of the Consolidated
Omnibus Budget Reconciliation Act. During this period, the Company will also
continue Employee's life insurance and disability coverage, to the extent
permitted under applicable policies, and will pay to the Employee the fringe
benefits pursuant to section 5 which have accrued prior to the Termination
Date.

(d) Termination by the Company without Cause or by the Employee for
Good Reason. If (i) the Employment Period is terminated by the Company for any
reason other than for Cause, Disability or death, (ii) if the Employment Period
is terminated by the Company for what the Company believes is Cause or
Disability, and it is ultimately determined that the Employment Period was
terminated without Cause or Disability or (iii) the Employee resigns for Good
Reason, the Employee shall be entitled to receive, as damages for such a
termination, his Base Salary from the Termination Date to the first anniversary
of the Termination Date; provided that if the Employment Period is terminated
by the Company without Cause and the Requisite Founder Directors, if any, do
not approve such decision, the Employee shall be entitled to receive his Base
Salary from the Termination Date to the later of (A) the Expected Completion
Date and (B) the first anniversary of the Termination Date. Such payment of
Base Salary shall be made in accordance with the normal payroll practices of
the Company. During this period, the Company shall also reimburse the Employee
for amounts paid, if any, to continue medical, dental and health coverage
pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation
Act. During this period, the Company will also continue Employee's life
insurance and disability coverage, to the extent permitted under applicable
policies, and will pay to the Employee the fringe benefits pursuant to section
5 which have accrued prior to the date of termination.

(e) Termination by the Company for Cause or by the Employee without
Good Reason. If the Employment Period is terminated by the Company with Cause
or as a result of the Employee's resignation without Good Reason, the Employee
shall not be entitled to receive his Base Salary or any fringe benefits or
bonuses (except as specifically provided in the 1996 Bonus Plan) for periods
after the Termination Date.

(f) Effect of Termination. The termination of the Employment Period
pursuant to section 6(a) shall not affect the Employee's obligations as
described in sections 7 and 8.

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<PAGE> 5

advantage in conducting their business. The Employee acknowledges and agrees
that by virtue of the Employee's employment with the Company, the Employee will
have unique and extensive exposure to and personal contact with the Company's
customers and licensors, and that he will be able to establish a unique
relationship with those Persons that will enable him, both during and after
employment, to unfairly compete with the Company and its Subsidiaries.
Furthermore, the parties agree that the terms and conditions of the following
restrictive covenants are reasonable and necessary for the protection of the
business, trade secrets and Confidential Information (as defined in section 8
below) of the Company and its Subsidiaries and to prevent great damage or loss
to the Company and its Subsidiaries as a result of action taken by the
Employee. The Employee acknowledges and agrees that the noncompete
restrictions and nondisclosure of Confidential Information restrictions
contained in this Agreement are reasonable and the consideration provided for
herein is sufficient to fully and adequately compensate the Employee for
agreeing to such restrictions. The Employee acknowledges that he could
continue to actively pursue his career and earn sufficient compensation in the
same or similar business without breaching any of the restrictions contained in
this Agreement. The Employee acknowledges that one business of the Company and
its Subsidiaries is the design, production (including, without limitation, the
obtention of the licenses necessary therefor), marketing and sale of die cast
metal replicas of vehicles.

(a) Noncompetition. The Employee hereby covenants and agrees that
during the Employment Period and for two (2) years thereafter (the "Noncompete
Period"), he shall not, directly or indirectly, either individually or as an
employee, principal, agent, partner, shareholder, owner, trustee, beneficiary,
co-venturer, distributor, consultant, representative or in any other capacity,
participate in, become associated with, provide assistance to, engage in or
have a financial or other interest in any business, activity or enterprise
which is competitive with the Company or any of its Subsidiaries or any
successor or assign of the Company or any of its Subsidiaries. The ownership
of less than a one percent interest in a corporation whose shares are traded in
a recognized stock exchange or traded in the over-the-counter market, even
though that corporation may be a competitor of the Company, shall not be deemed
financial participation in a competitor. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this section is
invalid or unenforceable, the parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified. The term "indirectly" as
used in this section and section 8 below is intended to include any acts
authorized or directed by or on behalf of the Employee or any Affiliate of the
Employee.

(b) Nonsolicitation. The Employee hereby covenants and agrees that
during the Noncompete Period, he shall not, directly or indirectly, either
individually or as an employee, agent, partner, shareholder, owner, trustee,
beneficiary, co-venturer, distributor, consultant or in any other capacity:

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<PAGE> 6

(i) canvass, solicit or accept from any Person who is a customer
or licensor of the Company or any of its Subsidiaries (any such Person is
hereinafter referred to individually as a "Customer," and collectively as
the "Customers") any business which in competition with the business of the
Company or any of its Subsidiaries or the successors or assigns of the
Company or any of its Subsidiaries, including, without limitation, the
canvassing, soliciting or accepting of business from any Person which is or
was a Customer of the Company within two years preceding the date hereof or
with the Company or any of its Subsidiaries during the Noncompete Period;

(ii) advise, request, induce or attempt to induce any of the
Customers, suppliers, or other business contacts of the Company or any of
its Subsidiaries who currently have or have had business relationships with
the the Company within two years preceding the date hereof or with the
Company or any of its Subsidiaries during the Noncompete Period, to
withdraw, curtail or cancel any of its business or relations with the
Company or any of its Subsidiaries;

(iv) hire any person who was an employee, sales representative,
consultant or other agent of the Company or any of its Subsidiaries at any
time during the Noncompete Period.

8. Confidential Information. The Employee acknowledges and agrees that
the customers, business connections, customer lists, procedures, operations,
techniques, and other aspects of and information about the business of the
Company and its Subsidiaries (the "Confidential Information") are established
at great expense and protected as confidential information and provide the
Company and its Subsidiaries with a substantial competitive advantage in
conducting their business. The Employee further acknowledges and agrees that
by virtue of his past employment with the Company, and by virtue of his
employment with the Company, he has had access to and will have access to, and
has been entrusted with and will be entrusted with, Confidential Information,
and that the Company would suffer great loss and injury if the Employee would
disclose this information or use in a manner not specifically authorized by the
Company. Therefore, the Employee agrees that during the Employment Period and
for five (5) years thereafter, he will not, directly or indirectly, either
individually or as an employee, agent, partner, shareholder, owner, trustee,
beneficiary, co-venturer, distributor, consultant or in any other capacity, use
or disclose, or cause to be used or disclosed, any Confidential Information,
unless and to the extent that any such information become generally known to
and available for use by the public other than as a result of the Employee's
acts or omissions. The Employee shall deliver to the Company at the
termination of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes,
printouts and software and other documents and data (and copies thereof)
relating to the Confidential Information, Work Product (as defined below) or
the business of the Company or any Subsidiary which he may then possess or have
under his control.

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<PAGE> 7

The Employee acknowledges and agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports
and all similar or related information (whether or not patentable) which
relate to the Company's or any of its Subsidiaries' actual or anticipated
business, research and development or existing or future products or
services and which are conceived, developed or made by the Employee while
employed by the Company and its Subsidiaries ("Work Product") belong to the
Company or such Subsidiary, as the case may be.

9. Common Law of Torts and Trade Secrets. The parties agree that nothing
in this Agreement shall be construed to limit or negate the common law of torts
or trade secrets where it provides the Company and its Subsidiaries with
broader protection than that provided herein.

10. Definitions.

"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person and any
partner of a Person which is a partnership.

"Founder Director" at any time means Robert Dods, Boyd Meyer or Peter
Chung if at such time such individual is a member of the Board.

"Person" means any individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization and any governmental entity or any department,
agency or political subdivision thereof.

"Requisite Founder Directors" at any time means (i) if there are three
Founder Directors at such time, any two Founder Directors, (ii) if there are
two Founder Directors at such time, any Founder Director or (iii) if there is
one Founder Directors at such time, such Founder Director.

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<PAGE> 8

covenant will be inadequate. Therefore, if the Employee engages in any act in
violation of the provisions of sections 7 and 8, the Employee agrees that the
Company shall be entitled, in addition to such other remedies and damages as
may be available to it by law or under this Agreement, to injunctive relief to
enforce the provisions of sections 7 and 8.

12. Waiver. The failure of either party to insist in any one or more
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any such term, covenant or condition.

14. Severability. In the event that any provision shall be held to be
invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision of this
Agreement and the remaining covenants, restrictions and provisions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.

15. Complete Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way. Without limiting the generality of the foregoing, this
Agreement supersedes the Employment Agreement, dated as of December 20, 1994,
between the Company and the Employee (together with all amendments thereto, the
"Prior Agreement"). The Prior Agreement is hereby terminated and shall cease
to be of any further force or effect.

16. Amendment. This Agreement may only be amended by an agreement in
writing signed by each of the parties hereto.

17. Governing Law. This Agreement shall be governed by and construed
exclusively in accordance with the laws of the State of Illinois, regardless of
choice of law requirements. The parties hereby consent to the jurisdiction of
the state courts of the State of Illinois and of any federal court in the venue
of Illinois for the purpose of any suit, action or proceeding arising out of or
related to this Agreement, and expressly waive any and all objections they may
have as to venue in any of such courts.

- 8 -
<PAGE> 9

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<PAGE> 10

IN WITNESS WHEREOF, the parties have executed or caused this Employment
Agreement to be executed as of the date first above written.

RACING CHAMPIONS, INC.

By: /s/ Daniel M. Gill
-------------------------------

Its: Vice President
-------------------------------

/s/ Curtis W. Stoelting
-----------------------------------
Curt Stoelting

<PAGE> 1
EXHIBIT 10.16

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
April 30, 1996, by and between Racing Champions, Inc., an Illinois corporation
(the "Company"), and Peter Henseler (the "Employee").

RECITAL

AGREEMENTS

In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:

1. Employment. The Company hereby employs the Employee
and the Employee hereby accepts employment with the Company on the terms and
subject to the conditions set forth in this Agreement.

2. Term. The term of the Employee's employment
hereunder shall commence on the date hereof and shall continue until terminated
as provided in section 6 below.

3. Duties. The Employee shall serve as the Vice
President-Marketing of the Company and will, under the direction of the
Company's President, faithfully and to the best of his ability, perform the
duties of such position. The Employee shall be one of the principal executive
officers of the Company and shall, subject to the control of the Company's
board of directors (the "Board of Directors"), supervise the Company's
marketing and new product development activities. The Employee shall also
perform such additional duties and responsibilities which may from time to time
be reasonably assigned or delegated by the President of the Company. The
Employee agrees to devote his entire business time, effort skill and attention
to the proper discharge of such duties while employed by the Company.

4. Compensation. The Employee shall receive a base
salary of $125,000 per year, payable in regular and equal monthly installments
(the "Base Salary"). The Employee's Base Salary shall be reviewed annually by
the Board of Directors of the Company to determine appropriate increases, if
any, in such Base Salary.
<PAGE> 2

5. Fringe Benefits.

(a) Vacation. The Employee shall be entitled to
two weeks of paid vacation annually, increasing to three weeks after three
years of employment by the Company and four weeks after six years of employment
by the Company (including employment by the Company prior to the term of this
Agreement). The Employee and the Company shall mutually determine the time and
intervals of such vacation.

(b) Medical, Health, Dental, Disability and Life
Coverage. The Employee shall be eligible to participate in any medical,
health, dental, disability and life insurance policy in effect for senior
management of the Company (excluding Robert Dods, Boyd Meyer and Peter Chung)
(collectively, the "Second Tier Management").

(c) Incentive Bonus and Stock Ownership Plans.
The Employee shall be entitled to participate in any incentive bonus or other
incentive compensation plan developed generally for the Second Tier Management
of the Company (including the Racing Champions, Inc. 1996 Key Employees
Performance Compensation Plan (the "1996 Bonus Plan")), on a basis consistent
with his position and level of compensation with the Company. The Employee
shall also be entitled to participate in any incentive stock option plan or
other stock ownership plan developed generally for the Second Tier Management
of the Company, on a basis consistent with his position and level of
compensation with the Company (including the Collectible Champions, Inc. 1996
Employee Stock Option Plan).

(d) Automobile. The Company agrees to reimburse
the Employee up to $400.00 per month, as such amount may be increased from time
to time consistent with the Company's reimbursement policy for Second Tier
Management of the Company to cover Employee's expenses in connection with his
leasing of an automobile. Additionally, the Company will pay for the gas used
for business purposes. All maintenance and insurance expense for the
automobile is the responsibility of the Employee.

(e) Reimbursement for Reasonable Business
Expenses. The Company shall pay or reimburse the Employee for reasonable
expenses incurred by him in connection with the performance of his duties
pursuant to this Agreement including, but not limited to, travel expenses,
expenses in connection with seminars, professional conventions or similar
professional functions and other reasonable business expenses.

(f) Key Man Insurance. The parties agree that
the Company has the option to purchase one or more key man life insurance
policies upon the life of the Employee. The Company shall own and shall have
the absolute right to name the beneficiary or beneficiaries of said policy.
The Employee agrees to cooperate fully with the Company in securing said
policy, including, but not limited to, submitting himself to any physical
examination which may be required at such reasonable times and places as
Company shall specify.

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<PAGE> 3

6. Termination.

(a) Termination of the Employment Period. The
Employment Period shall continue until (i) the second anniversary of the date
hereof unless the parties mutually agree to extend the term of this Agreement
(such anniversary of the date hereof or such extended date being referred to
herein as the "Expected Completion Date"), (ii) the Employee's death or
Disability, (iii) the Employee resigns or (iv) the Board of Directors
determines that termination of Employee's employment is in the best interests
of the Company.

(b) Definitions.

(i) For purposes of this Agreement,
"Disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the services
required of him as an employee of the Company and which does or may be
expected to continue for more than six (6) months during any 12-month
period. In the event Employee shall be able to perform his usual and
customary duties on behalf of the Company following a period of
disability, and does so perform such duties, or such other duties as
are prescribed by the Board of Directors or the President of the
Company, for a period of three continuous months, any subsequent
period of disability shall be regarded as a new period of disability
for purposes of this Agreement. The Company and the Employee shall
determine the existence of a Disability and the date upon which it
occurred. In the event of a dispute regarding whether or when a
Disability occurred, the matter shall be referred to a medical doctor
selected by the Company and the Employee. In the event of their
failure to agree upon such a medical doctor, the Company and the
Employee shall each select a medical doctor who together shall select
a third medical doctor who shall make the determination. Such
determination shall be conclusive and binding upon the parties hereto.

(ii) For purposes of this Agreement,
"Cause" shall be deemed to exist if the Employee shall have (1)
violated the terms of sections 7 or 8 of this Agreement; (2) failed
to substantially perform his duties to the reasonable satisfaction of
the Board of Directors; provided that so long as Robert Dods, Boyd
Meyer or Peter Chung serves as a director of the Company, any
determination pursuant to this clause (2) must be approved by the
Requisite Founder Directors; (4) committed a felony or a crime
involving moral turpitude; (5) engaged in serious misconduct which is
demonstrably injurious to the Company or any of its Subsidiaries; (4)
engaged in fraud or dishonesty with respect to the Company or any of
its Subsidiaries or made a material misrepresentation to the
stockholders or directors of the Company; or (6) committed acts of
negligence in the performance of his duties which are substantially
injurious to the Company.

(iii) For purposes of this Agreement,
"Good Reason" shall mean (1) the material diminution of the Employee's
duties set forth in Section 3 above or (2) the relocation of the
offices at which the Employee is principally employed to a location
which is more than 50 miles from the offices at which the Employee is
principally employed as of the date hereof; provided, that travel
necessary for the performance of the Employee's duties

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<PAGE> 4

set forth in Section 3 above shall not determine the location where
the Employee is "principally employed."

(c) Termination for Disability or Death. In the
event of termination for Disability or death, payments of the Employee's Base
Salary shall be made to the Employee, his designated beneficiary or his estate
for a period of six (6) months after the Termination Date in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage,
to the extent permitted under applicable policies, and will pay to the Employee
the fringe benefits pursuant to section 5 which have accrued prior to the
Termination Date.

(d) Termination by the Company without Cause or
by the Employee for Good Reason. If (i) the Employment Period is terminated by
the Company for any reason other than for Cause, Disability or death, (ii) if
the Employment Period is terminated by the Company for what the Company
believes is Cause or Disability, and it is ultimately determined that the
Employment Period was terminated without Cause or Disability or (iii) the
Employee resigns for Good Reason, the Employee shall be entitled to receive, as
damages for such a termination, his Base Salary from the Termination Date to
the first anniversary of the Termination Date; provided that if the Employment
Period is terminated by the Company without Cause and the Requisite Founder
Directors, if any, do not approve such decision, the Employee shall be entitled
to receive his Base Salary from the Termination Date to the later of (A) the
Expected Completion Date and (B) the first anniversary of the Termination Date.
Such payment of Base Salary shall be made in accordance with the normal payroll
practices of the Company. During this period, the Company shall also reimburse
the Employee for amounts paid, if any, to continue medical, dental and health
coverage pursuant to the provisions of the Consolidated Omnibus Budget
Reconciliation Act. During this period, the Company will also continue
Employee's life insurance and disability coverage, to the extent permitted
under applicable policies, and will pay to the Employee the fringe benefits
pursuant to section 5 which have accrued prior to the date of termination.

(e) Termination by the Company for Cause or by
the Employee without Good Reason. If the Employment Period is terminated by
the Company with Cause or as a result of the Employee's resignation without
Good Reason, the Employee shall not be entitled to receive his Base Salary or
any fringe benefits or bonuses (except as specifically provided in the 1996
Bonus Plan) for periods after the Termination Date.

(f) Effect of Termination. The termination of
the Employment Period pursuant to section 6(a) shall not affect the Employee's
obligations as described in sections 7 and 8.

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<PAGE> 5

(a) Noncompetition. The Employee hereby
covenants and agrees that during the Employment Period and for two (2) years
thereafter (the "Noncompete Period"), he shall not, directly or indirectly,
either individually or as an employee, principal, agent, partner, shareholder,
owner, trustee, beneficiary, co-venturer, distributor, consultant,
representative or in any other capacity, participate in, become associated
with, provide assistance to, engage in or have a financial or other interest in
any business, activity or enterprise which is competitive with the Company or
any of its Subsidiaries or any successor or assign of the Company or any of its
Subsidiaries. The ownership of less than a one percent interest in a
corporation whose shares are traded in a recognized stock exchange or traded in
the over- the-counter market, even though that corporation may be a competitor
of the Company, shall not be deemed financial participation in a competitor.
If the final judgment of a court of competent jurisdiction declares that any
term or provision of this section is invalid or unenforceable, the parties
agree that the court making the determination of invalidity or unenforceability
shall have the power to reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be enforceable as
so modified. The term "indirectly" as used in this section and section 8 below
is intended to include any acts authorized or directed by or on behalf of the
Employee or any Affiliate of the Employee.

(b) Nonsolicitation. The Employee hereby
covenants and agrees that during the Noncompete Period, he shall not, directly
or indirectly, either individually or as an employee, agent, partner,
shareholder, owner, trustee, beneficiary, co-venturer, distributor, consultant
or in any other capacity:

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<PAGE> 6

(i) canvass, solicit or accept from any
Person who is a customer or licensor of the Company or any of its
Subsidiaries (any such Person is hereinafter referred to individually
as a " Customer," and collectively as the "Customers") any business
which in competition with the business of the Company or any of its
Subsidiaries or the successors or assigns of the Company or any of its
Subsidiaries, including, without limitation, the canvassing,
soliciting or accepting of business from any Person which is or was a
Customer of the Company within two years preceding the date hereof or
with the Company or any of its Subsidiaries during the Noncompete
Period;

(ii) advise, request, induce or attempt
to induce any of the Customers, suppliers, or other business contacts
of the Company or any of its Subsidiaries who currently have or have
had business relationships with the the Company within two years
preceding the date hereof or with the Company or any of its
Subsidiaries during the Noncompete Period, to withdraw, curtail or
cancel any of its business or relations with the Company or any of its
Subsidiaries;

(iii) induce or attempt to induce any
employee, sales representative, consultant or other agent of the
Company or any of its Subsidiaries to terminate his relationship or
breach any agreement with the Company or any of its Subsidiaries; or

(iv) hire any person who was an employee,
sales representative, consultant or other agent of the Company or any
of its Subsidiaries at any time during the Noncompete Period.

8. Confidential Information. The Employee acknowledges
and agrees that the customers, business connections, customer lists,
procedures, operations, techniques, and other aspects of and information about
the business of the Company and its Subsidiaries (the "Confidential
Information") are established at great expense and protected as confidential
information and provide the Company and its Subsidiaries with a substantial
competitive advantage in conducting their business. The Employee further
acknowledges and agrees that by virtue of his past employment with the Company,
and by virtue of his employment with the Company, he has had access to and will
have access to, and has been entrusted with and will be entrusted with,
Confidential Information, and that the Company would suffer great loss and
injury if the Employee would disclose this information or use in a manner not
specifically authorized by the Company. Therefore, the Employee agrees that
during the Employment Period and for five (5) years thereafter, he will not,
directly or indirectly, either individually or as an employee, agent, partner,
shareholder, owner, trustee, beneficiary, co-venturer, distributor, consultant
or in any other capacity, use or disclose, or cause to be used or disclosed,
any Confidential Information, unless and to the extent that any such
information become generally known to and available for use by the public other
than as a result of the Employee's acts or omissions. The Employee shall
deliver to the Company at the termination of the Employment Period, or at any
other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof) relating to the Confidential Information, Work Product (as
defined below) or the business of the Company or any Subsidiary which he may
then possess or have under his control.

-6-

<PAGE> 7

The Employee acknowledges and agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports and
all similar or related information (whether or not patentable) which relate to
the Company's or any of its Subsidiaries' actual or anticipated business,
research and development or existing or future products or services and which
are conceived, developed or made by the Employee while employed by the Company
and its Subsidiaries ("Work Product") belong to the Company or such Subsidiary,
as the case may be.

9. Common Law of Torts and Trade Secrets. The parties
agree that nothing in this Agreement shall be construed to limit or negate the
common law of torts or trade secrets where it provides the Company and its
Subsidiaries with broader protection than that provided herein.

10. Definitions.

"Affiliate" means, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person and
any partner of a Person which is a partnership.

"Founder Director" at any time means Robert Dods, Boyd Meyer
or Peter Chung if at such time such individual is a member of the Board.

"Person" means any individual, partnership, corporation,
limited liability company, association, joint stock company, trust, joint
venture, unincorporated organization and any governmental entity or any
department, agency or political subdivision thereof.

"Requisite Founder Directors" at any time means (i) if there
are three Founder Directors at such time, any two Founder Directors, (ii) if
there are two Founder Directors at such time, any Founder Director or (iii) if
there is one Founder Directors at such time, such Founder Director.

"Subsidiary" means, with respect to any Person, any
corporation, 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 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 partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such partnership,
association or other business entity.

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<PAGE> 8

12. Waiver. The failure of either party to insist in any
one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any such term, covenant or
condition.

13. Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing, and delivered by registered or
certified mail or delivered personally, in the case of the Company, to its
principal business office, and in the case of the Employee, to his address
appearing on the records of the Company, or to such other address as he may
designate in writing to the Company.

14. Severability. In the event that any provision shall
be held to be invalid or unenforceable for any reason whatsoever, it is agreed
such invalidity or unenforceability shall not affect any other provision of
this Agreement and the remaining covenants, restrictions and provisions hereof
shall remain in full force and effect and any court of competent jurisdiction
may so modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.

16. Amendment. This Agreement may only be amended by an
agreement in writing signed by each of the parties hereto.

17. Governing Law. This Agreement shall be governed by
and construed exclusively in accordance with the laws of the State of Illinois,
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Illinois and of any federal
court in the venue of Illinois for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.

18. Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against the Company,
its successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.

-8-

<PAGE> 9

IN WITNESS WHEREOF, the parties have executed or caused this
Employment Agreement to be executed as of the date first above written.

RACING CHAMPIONS, INC.

By: /s/ Daniel M. Gill
-----------------------------

Its: Vice President
-----------------------------

/s/ Peter J. Henseler
---------------------------------
Peter Henseler

<PAGE> 1
EXHIBIT 10.17

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
April 30, 1996, by and between Racing Champions, Inc., an Illinois corporation
(the "Company"), and John Olsen (the "Employee").

RECITAL

AGREEMENTS

In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:

1. Employment. The Company hereby employs the Employee
and the Employee hereby accepts employment with the Company on the terms and
subject to the conditions set forth in this Agreement.

2. Term. The term of the Employee's employment
hereunder shall commence on the date hereof and shall continue until terminated
as provided in section 6 below.

3. Duties. The Employee shall serve as the Vice
President-Sales of the Company and will, under the direction of the Company's
President, faithfully and to the best of his ability, perform the duties of
such position. The Employee shall be one of the principal executive officers
of the Company and shall, subject to the control of the Company's board of
directors (the "Board of Directors"), supervise the Company's independent sales
representatives and administer the sales functions of the Company. The Employee
shall also perform such additional duties and responsibilities which may from
time to time be reasonably assigned or delegated by the President of the
Company. The Employee agrees to devote his entire business time, effort skill
and attention to the proper discharge of such duties while employed by the
Company.

5. Fringe Benefits.

(a) Vacation. The Employee shall be entitled to
two weeks of paid vacation annually, increasing to three weeks after three
years of employment by the Company and four weeks after six years of employment
by the Company (including employment by the Company prior to the term of this
Agreement). The Employee and the Company shall mutually determine the time and
intervals of such vacation.

(b) Medical, Health, Dental, Disability and Life
Coverage. The Employee shall be eligible to participate in any medical,
health, dental, disability and life insurance policy in effect for senior
management of the Company (excluding Robert Dods, Boyd Meyer and Peter Chung)
(collectively, the "Second Tier Management").

(c) Incentive Bonus and Stock Ownership Plans.
The Employee shall be entitled to participate in any incentive bonus or other
incentive compensation plan developed generally for the Second Tier Management
of the Company (including the Racing Champions, Inc. 1996 Key Employees
Performance Compensation Plan (the "1996 Bonus Plan")), on a basis consistent
with his position and level of compensation with the Company. The Employee
shall also be entitled to participate in any incentive stock option plan or
other stock ownership plan developed generally for the Second Tier Management
of the Company, on a basis consistent with his position and level of
compensation with the Company (including the Collectible Champions, Inc. 1996
Employee Stock Option Plan).

(d) Automobile. The Company agrees to reimburse
the Employee up to $400.00 per month, as such amount may be increased from time
to time consistent with the Company's reimbursement policy for Second Tier
Management of the Company to cover Employee's expenses in connection with his
leasing of an automobile. Additionally, the Company will pay for the gas used
for business purposes. All maintenance and insurance expense for the
automobile is the responsibility of the Employee.

(e) Reimbursement for Reasonable Business
Expenses. The Company shall pay or reimburse the Employee for reasonable
expenses incurred by him in connection with the performance of his duties
pursuant to this Agreement including, but not limited to, travel expenses,
expenses in connection with seminars, professional conventions or similar
professional functions and other reasonable business expenses.

(f) Key Man Insurance. The parties agree that
the Company has the option to purchase one or more key man life insurance
policies upon the life of the Employee. The Company shall own and shall have
the absolute right to name the beneficiary or beneficiaries of said policy.
The Employee agrees to cooperate fully with the Company in securing said
policy, including, but not limited to, submitting himself to any physical
examination which may be required at such reasonable times and places as
Company shall specify.

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<PAGE> 3

6. Termination.

(a) Termination of the Employment Period. The
Employment Period shall continue until (i) the second anniversary of the date
hereof unless the parties mutually agree to extend the term of this Agreement
(such anniversary of the date hereof or such extended date being referred to
herein as the "Expected Completion Date"), (ii) the Employee's death or
Disability, (iii) the Employee resigns or (iv) the Board of Directors
determines that termination of Employee's employment is in the best interests
of the Company.

(b) Definitions.

(i) For purposes of this Agreement,
"Disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the services
required of him as an employee of the Company and which does or may be
expected to continue for more than six (6) months during any 12-month
period. In the event Employee shall be able to perform his usual and
customary duties on behalf of the Company following a period of
disability, and does so perform such duties, or such other duties as
are prescribed by the Board of Directors or the President of the
Company, for a period of three continuous months, any subsequent
period of disability shall be regarded as a new period of disability
for purposes of this Agreement. The Company and the Employee shall
determine the existence of a Disability and the date upon which it
occurred. In the event of a dispute regarding whether or when a
Disability occurred, the matter shall be referred to a medical doctor
selected by the Company and the Employee. In the event of their
failure to agree upon such a medical doctor, the Company and the
Employee shall each select a medical doctor who together shall select
a third medical doctor who shall make the determination. Such
determination shall be conclusive and binding upon the parties hereto.

(ii) For purposes of this Agreement,
"Cause" shall be deemed to exist if the Employee shall have (1)
violated the terms of sections 7 or 8 of this Agreement; (2) failed
to substantially perform his duties to the reasonable satisfaction of
the Board of Directors; provided that so long as Robert Dods, Boyd
Meyer or Peter Chung serves as a director of the Company, any
determination pursuant to this clause (2) must be approved by the
Requisite Founder Directors; (4) committed a felony or a crime
involving moral turpitude; (5) engaged in serious misconduct which is
demonstrably injurious to the Company or any of its Subsidiaries; (6)
engaged in fraud or dishonesty with respect to the Company or any of
its Subsidiaries or made a material misrepresentation to the
stockholders or directors of the Company; or (5) committed acts of
negligence in the performance of his duties which are substantially
injurious to the Company.

(iii) For purposes of this Agreement,
"Good Reason" shall mean (1) the material diminution of the Employee's
duties set forth in Section 3 above or (2) the relocation of the
offices at which the Employee is principally employed to a location
which is more than 50 miles from the offices at which the Employee is
principally employed as of the date hereof; provided, that travel
necessary for the performance of the Employee's duties

- 3 -
<PAGE> 4

set forth in Section 3 above shall not determine the location where
the Employee is "principally employed."

(c) Termination for Disability or Death. In the
event of termination for Disability or death, payments of the Employee's Base
Salary shall be made to the Employee, his designated beneficiary or his estate
for a period of six (6) months after the Termination Date in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage,
to the extent permitted under applicable policies, and will pay to the Employee
the fringe benefits pursuant to section 5 which have accrued prior to the
Termination Date.

(d) Termination by the Company without Cause or
by the Employee for Good Reason. If (i) the Employment Period is terminated by
the Company for any reason other than for Cause, Disability or death, (ii) if
the Employment Period is terminated by the Company for what the Company
believes is Cause or Disability, and it is ultimately determined that the
Employment Period was terminated without Cause or Disability or (iii) the
Employee resigns for Good Reason, the Employee shall be entitled to receive, as
damages for such a termination, his Base Salary from the Termination Date to
the first anniversary of the Termination Date; provided that if the Employment
Period is terminated by the Company without Cause and the Requisite Founder
Directors, if any, do not approve such decision, the Employee shall be entitled
to receive his Base Salary from the Termination Date to the later of (A) the
Expected Completion Date and (B) the first anniversary of the Termination Date.
Such payment of Base Salary shall be made in accordance with the normal payroll
practices of the Company. During this period, the Company shall also reimburse
the Employee for amounts paid, if any, to continue medical, dental and health
coverage pursuant to the provisions of the Consolidated Omnibus Budget
Reconciliation Act. During this period, the Company will also continue
Employee's life insurance and disability coverage, to the extent permitted
under applicable policies, and will pay to the Employee the fringe benefits
pursuant to section 5 which have accrued prior to the date of termination.

(e) Termination by the Company for Cause or by
the Employee without Good Reason. If the Employment Period is terminated by
the Company with Cause or as a result of the Employee's resignation without
Good Reason, the Employee shall not be entitled to receive his Base Salary or
any fringe benefits or bonuses (except as specifically provided in the 1996
Bonus Plan) for periods after the Termination Date.

(f) Effect of Termination. The termination of
the Employment Period pursuant to section 6(a) shall not affect the Employee's
obligations as described in sections 7 and 8.

- 4 -
<PAGE> 5

(a) Noncompetition. The Employee hereby
covenants and agrees that during the Employment Period and for two (2) years
thereafter (the "Noncompete Period"), he shall not, directly or indirectly,
either individually or as an employee, principal, agent, partner, shareholder,
owner, trustee, beneficiary, co-venturer, distributor, consultant,
representative or in any other capacity, participate in, become associated
with, provide assistance to, engage in or have a financial or other interest in
any business, activity or enterprise which is competitive with the Company or
any of its Subsidiaries or any successor or assign of the Company or any of its
Subsidiaries. The ownership of less than a one percent interest in a
corporation whose shares are traded in a recognized stock exchange or traded in
the over-the-counter market, even though that corporation may be a competitor
of the Company, shall not be deemed financial participation in a competitor.
If the final judgment of a court of competent jurisdiction declares that any
term or provision of this section is invalid or unenforceable, the parties
agree that the court making the determination of invalidity or unenforceability
shall have the power to reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be enforceable as
so modified. The term "indirectly" as used in this section and section 8 below
is intended to include any acts authorized or directed by or on behalf of the
Employee or any Affiliate of the Employee.

(b) Nonsolicitation. The Employee hereby
covenants and agrees that during the Noncompete Period, he shall not, directly
or indirectly, either individually or as an employee, agent, partner,
shareholder, owner, trustee, beneficiary, co-venturer, distributor, consultant
or in any other capacity:

- 5 -
<PAGE> 6

(i) canvass, solicit or accept from any
Person who is a customer or licensor of the Company or any of its
Subsidiaries (any such Person is hereinafter referred to individually
as a " Customer," and collectively as the "Customers") any business
which in competition with the business of the Company or any of its
Subsidiaries or the successors or assigns of the Company or any of its
Subsidiaries, including, without limitation, the canvassing,
soliciting or accepting of business from any Person which is or was a
Customer of the Company within two years preceding the date hereof or
with the Company or any of its Subsidiaries during the Noncompete
Period;

(ii) advise, request, induce or attempt
to induce any of the Customers, suppliers, or other business contacts
of the Company or any of its Subsidiaries who currently have or have
had business relationships with the the Company within two years
preceding the date hereof or with the Company or any of its
Subsidiaries during the Noncompete Period, to withdraw, curtail or
cancel any of its business or relations with the Company or any of its
Subsidiaries;

(iii) induce or attempt to induce any
employee, sales representative, consultant or other agent of the
Company or any of its Subsidiaries to terminate his relationship or
breach any agreement with the Company or any of its Subsidiaries; or

(iv) hire any person who was an employee,
sales representative, consultant or other agent of the Company or any
of its Subsidiaries at any time during the Noncompete Period.

8. Confidential Information. The Employee acknowledges
and agrees that the customers, business connections, customer lists,
procedures, operations, techniques, and other aspects of and information about
the business of the Company and its Subsidiaries (the "Confidential
Information") are established at great expense and protected as confidential
information and provide the Company and its Subsidiaries with a substantial
competitive advantage in conducting their business. The Employee further
acknowledges and agrees that by virtue of his past employment with the Company,
and by virtue of his employment with the Company, he has had access to and will
have access to, and has been entrusted with and will be entrusted with,
Confidential Information, and that the Company would suffer great loss and
injury if the Employee would disclose this information or use in a manner not
specifically authorized by the Company. Therefore, the Employee agrees that
during the Employment Period and for five (5) years thereafter, he will not,
directly or indirectly, either individually or as an employee, agent, partner,
shareholder, owner, trustee, beneficiary, co-venturer, distributor, consultant
or in any other capacity, use or disclose, or cause to be used or disclosed,
any Confidential Information, unless and to the extent that any such
information become generally known to and available for use by the public other
than as a result of the Employee's acts or omissions. The Employee shall
deliver to the Company at the termination of the Employment Period, or at any
other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof) relating to the Confidential Information, Work Product (as
defined below) or the business of the Company or any Subsidiary which he may
then possess or have under his control.

- 6 -
<PAGE> 7

The Employee acknowledges and agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports and
all similar or related information (whether or not patentable) which relate to
the Company's or any of its Subsidiaries' actual or anticipated business,
research and development or existing or future products or services and which
are conceived, developed or made by the Employee while employed by the Company
and its Subsidiaries ("Work Product") belong to the Company or such Subsidiary,
as the case may be.

9. Common Law of Torts and Trade Secrets. The parties
agree that nothing in this Agreement shall be construed to limit or negate the
common law of torts or trade secrets where it provides the Company and its
Subsidiaries with broader protection than that provided herein.

10. Definitions.

"Affiliate" means, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person and
any partner of a Person which is a partnership.

"Founder Director" at any time means Robert Dods, Boyd Meyer
or Peter Chung if at such time such individual is a member of the Board.

"Person" means any individual, partnership, corporation,
limited liability company, association, joint stock company, trust, joint
venture, unincorporated organization and any governmental entity or any
department, agency or political subdivision thereof.

"Requisite Founder Directors" at any time means (i) if there
are three Founder Directors at such time, any two Founder Directors, (ii) if
there are two Founder Directors at such time, any Founder Director or (iii) if
there is one Founder Directors at such time, such Founder Director.

"Subsidiary" means, with respect to any Person, any
corporation, 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 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 partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such partnership,
association or other business entity.

- 7 -
<PAGE> 8

12. Waiver. The failure of either party to insist in any
one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any such term, covenant or
condition.

13. Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing, and delivered by registered or
certified mail or delivered personally, in the case of the Company, to its
principal business office, and in the case of the Employee, to his address
appearing on the records of the Company, or to such other address as he may
designate in writing to the Company.

14. Severability. In the event that any provision shall
be held to be invalid or unenforceable for any reason whatsoever, it is agreed
such invalidity or unenforceability shall not affect any other provision of
this Agreement and the remaining covenants, restrictions and provisions hereof
shall remain in full force and effect and any court of competent jurisdiction
may so modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.

15. Complete Agreement. Except as otherwise expressly
set forth herein, this document embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way. Without limiting the
generality of the foregoing, this Agreement supersedes the Employment
Agreement, dated as of December 20, 1994, between the Company and the Employee
(together with all amendments thereto, the "Prior Agreement"). The Prior
Agreement is hereby terminated and shall cease to be of any further force or
effect.

16. Amendment. This Agreement may only be amended by an
agreement in writing signed by each of the parties hereto.

17. Governing Law. This Agreement shall be governed by
and construed exclusively in accordance with the laws of the State of Illinois,
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Illinois and of any federal
court in the venue of Illinois for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.

- 8 -
<PAGE> 9

18. Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against the Company,
its successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.

- 9 -
<PAGE> 10

IN WITNESS WHEREOF, the parties have executed or caused this
Employment Agreement to be executed as of the date first above written.

RACING CHAMPIONS, INC.

By: /s/ Daniel M. Gill
--------------------------

Its: Vice President
--------------------------

/s/ John F. Olsen
-----------------------------
John Olsen

<PAGE> 1
EXHIBIT 10.18

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of
April 30, 1996, by and between Racing Champions, Inc., an Illinois corporation
(the "Company"), and Kevin Camp (the "Employee").

RECITAL

AGREEMENTS

In consideration of the premises and the mutual agreements
which follow, the parties agree as follows:

1. Employment. The Company hereby employs the Employee
and the Employee hereby accepts employment with the Company on the terms and
subject to the conditions set forth in this Agreement.

2. Term. The term of the Employee's employment
hereunder shall commence on the date hereof and shall continue until terminated
as provided in section 6 below.

3. Duties. The Employee shall serve as the Vice
President-Motor Sports of the Company and will, under the direction of the
Company's President, faithfully and to the best of his ability, perform the
duties of such position. The Employee shall be one of the principal executive
officers of the Company and shall, subject to the control of the Company's
board of directors (the "Board of Directors"), supervise the Company's
licensing activities and assist the Company in maintaining relationships with
the racing community. The Employee shall also perform such additional duties
and responsibilities which may from time to time be reasonably assigned or
delegated by the President of the Company. The Employee agrees to devote his
entire business time, effort skill and attention to the proper discharge of
such duties while employed by the Company.

4. Compensation. The Employee shall receive a base
salary of $75,000 per year, payable in regular and equal monthly installments
(the "Base Salary"). The Employee's Base Salary shall be reviewed annually by
the Board of Directors of the Company to determine appropriate increases, if
any, in such Base Salary.
<PAGE> 2

5. Fringe Benefits.

(a) Vacation. The Employee shall be entitled to
two weeks of paid vacation annually, increasing to three weeks after three
years of employment by the Company and four weeks after six years of employment
by the Company (including employment by the Company prior to the term of this
Agreement). The Employee and the Company shall mutually determine the time and
intervals of such vacation.

(b) Medical, Health, Dental, Disability and Life
Coverage. The Employee shall be eligible to participate in any medical,
health, dental, disability and life insurance policy in effect for senior
management of the Company (excluding Robert Dods, Boyd Meyer and Peter Chung)
(collectively, the "Second Tier Management").

(c) Incentive Bonus and Stock Ownership Plans.
The Employee shall be entitled to participate in any incentive bonus or other
incentive compensation plan developed generally for the Second Tier Management
of the Company (including the Racing Champions, Inc. 1996 Key Employees
Performance Compensation Plan (the "1996 Bonus Plan")), on a basis consistent
with his position and level of compensation with the Company. The Employee
shall also be entitled to participate in any incentive stock option plan or
other stock ownership plan developed generally for the Second Tier Management
of the Company, on a basis consistent with his position and level of
compensation with the Company (including the Collectible Champions, Inc. 1996
Employee Stock Option Plan).

(d) Automobile. The Company agrees to reimburse
the Employee up to $400.00 per month, as such amount may be increased from time
to time consistent with the Company's reimbursement policy for Second Tier
Management of the Company to cover Employee's expenses in connection with his
leasing of an automobile. Additionally, the Company will pay for the gas used
for business purposes. All maintenance and insurance expense for the
automobile is the responsibility of the Employee.

(e) Reimbursement for Reasonable Business
Expenses. The Company shall pay or reimburse the Employee for reasonable
expenses incurred by him in connection with the performance of his duties
pursuant to this Agreement including, but not limited to, travel expenses,
expenses in connection with seminars, professional conventions or similar
professional functions and other reasonable business expenses.

(f) Key Man Insurance. The parties agree that
the Company has the option to purchase one or more key man life insurance
policies upon the life of the Employee. The Company shall own and shall have
the absolute right to name the beneficiary or beneficiaries of said policy.
The Employee agrees to cooperate fully with the Company in securing said
policy, including, but not limited to, submitting himself to any physical
examination which may be required at such reasonable times and places as
Company shall specify.

- 2 -

<PAGE> 3

6. Termination.

(a) Termination of the Employment Period. The
Employment Period shall continue until (i) the second anniversary of the date
hereof unless the parties mutually agree to extend the term of this Agreement
(such anniversary of the date hereof or such extended date being referred to
herein as the "Expected Completion Date"), (ii) the Employee's death or
Disability, (iii) the Employee resigns or (iv) the Board of Directors
determines that termination of Employee's employment is in the best interests
of the Company.

(b) Definitions.

(i) For purposes of this Agreement,
"Disability" shall mean a physical or mental sickness or any injury
which renders the Employee incapable of performing the services
required of him as an employee of the Company and which does or may be
expected to continue for more than six (6) months during any 12-month
period. In the event Employee shall be able to perform his usual and
customary duties on behalf of the Company following a period of
disability, and does so perform such duties, or such other duties as
are prescribed by the Board of Directors or the President of the
Company, for a period of three continuous months, any subsequent
period of disability shall be regarded as a new period of disability
for purposes of this Agreement. The Company and the Employee shall
determine the existence of a Disability and the date upon which it
occurred. In the event of a dispute regarding whether or when a
Disability occurred, the matter shall be referred to a medical doctor
selected by the Company and the Employee. In the event of their
failure to agree upon such a medical doctor, the Company and the
Employee shall each select a medical doctor who together shall select
a third medical doctor who shall make the determination. Such
determination shall be conclusive and binding upon the parties hereto.

(ii) For purposes of this Agreement,
"Cause" shall be deemed to exist if the Employee shall have (1)
violated the terms of sections 7 or 8 of this Agreement; (2) failed
to substantially perform his duties to the reasonable satisfaction of
the Board of Directors; provided that so long as Robert Dods, Boyd
Meyer or Peter Chung serves as a director of the Company, any
determination pursuant to this clause (2) must be approved by the
Requisite Founder Directors; (3) committed a felony or a crime
involving moral turpitude; (4) engaged in serious misconduct which is
demonstrably injurious to the Company or any of its Subsidiaries; (5)
engaged in fraud or dishonesty with respect to the Company or any of
its Subsidiaries or made a material misrepresentation to the
stockholders or directors of the Company; or (6) committed acts of
negligence in the performance of his duties which are substantially
injurious to the Company.

(iii) For purposes of this Agreement,
"Good Reason" shall mean (1) the material diminution of the Employee's
duties set forth in Section 3 above or (2) the relocation of the
offices at which the Employee is principally employed to a location
which is more than 50 miles from the offices at which the Employee is
principally employed as of the date hereof; provided, that travel
necessary for the performance of the Employee's duties

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<PAGE> 4

set forth in Section 3 above shall not determine the location where
the Employee is "principally employed."

(c) Termination for Disability or Death. In the
event of termination for Disability or death, payments of the Employee's Base
Salary shall be made to the Employee, his designated beneficiary or his estate
for a period of six (6) months after the Termination Date in accordance with
the normal payroll practices of the Company. During this period, the Company
shall also reimburse the Employee for amounts paid, if any, to continue
medical, dental and health coverage pursuant to the provisions of the
Consolidated Omnibus Budget Reconciliation Act. During this period, the
Company will also continue Employee's life insurance and disability coverage,
to the extent permitted under applicable policies, and will pay to the Employee
the fringe benefits pursuant to section 5 which have accrued prior to the
Termination Date.

(d) Termination by the Company without Cause or
by the Employee for Good Reason. If (i) the Employment Period is terminated by
the Company for any reason other than for Cause, Disability or death, (ii) if
the Employment Period is terminated by the Company for what the Company
believes is Cause or Disability, and it is ultimately determined that the
Employment Period was terminated without Cause or Disability or (iii) the
Employee resigns for Good Reason, the Employee shall be entitled to receive, as
damages for such a termination, his Base Salary from the Termination Date to
the first anniversary of the Termination Date; provided that if the Employment
Period is terminated by the Company without Cause and the Requisite Founder
Directors, if any, do not approve such decision, the Employee shall be entitled
to receive his Base Salary from the Termination Date to the later of (A) the
Expected Completion Date and (B) the first anniversary of the Termination Date.
Such payment of Base Salary shall be made in accordance with the normal payroll
practices of the Company. During this period, the Company shall also reimburse
the Employee for amounts paid, if any, to continue medical, dental and health
coverage pursuant to the provisions of the Consolidated Omnibus Budget
Reconciliation Act. During this period, the Company will also continue
Employee's life insurance and disability coverage, to the extent permitted
under applicable policies, and will pay to the Employee the fringe benefits
pursuant to section 5 which have accrued prior to the date of termination.

(e) Termination by the Company for Cause or by
the Employee without Good Reason. If the Employment Period is terminated by
the Company with Cause or as a result of the Employee's resignation without
Good Reason, the Employee shall not be entitled to receive his Base Salary or
any fringe benefits or bonuses (except as specifically provided in the 1996
Bonus Plan) for periods after the Termination Date.

(f) Effect of Termination. The termination of
the Employment Period pursuant to section 6(a) shall not affect the Employee's
obligations as described in sections 7 and 8.

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<PAGE> 5

(a) Noncompetition. The Employee hereby
covenants and agrees that during the Employment Period and for two (2) years
thereafter (the "Noncompete Period"), he shall not, directly or indirectly,
either individually or as an employee, principal, agent, partner, shareholder,
owner, trustee, beneficiary, co-venturer, distributor, consultant,
representative or in any other capacity, participate in, become associated
with, provide assistance to, engage in or have a financial or other interest in
any business, activity or enterprise which is competitive with the Company or
any of its Subsidiaries or any successor or assign of the Company or any of its
Subsidiaries. The ownership of less than a one percent interest in a
corporation whose shares are traded in a recognized stock exchange or traded in
the over- the-counter market, even though that corporation may be a competitor
of the Company, shall not be deemed financial participation in a competitor.
If the final judgment of a court of competent jurisdiction declares that any
term or provision of this section is invalid or unenforceable, the parties
agree that the court making the determination of invalidity or unenforceability
shall have the power to reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be enforceable as
so modified. The term "indirectly" as used in this section and section 8 below
is intended to include any acts authorized or directed by or on behalf of the
Employee or any Affiliate of the Employee.

(b) Nonsolicitation. The Employee hereby
covenants and agrees that during the Noncompete Period, he shall not, directly
or indirectly, either individually or as an employee, agent, partner,
shareholder, owner, trustee, beneficiary, co-venturer, distributor, consultant
or in any other capacity:

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<PAGE> 6

(i) canvass, solicit or accept from any
Person who is a customer or licensor of the Company or any of its
Subsidiaries (any such Person is hereinafter referred to individually
as a " Customer," and collectively as the "Customers") any business
which in competition with the business of the Company or any of its
Subsidiaries or the successors or assigns of the Company or any of its
Subsidiaries, including, without limitation, the canvassing,
soliciting or accepting of business from any Person which is or was a
Customer of the Company within two years preceding the date hereof or
with the Company or any of its Subsidiaries during the Noncompete
Period;

(ii) advise, request, induce or attempt
to induce any of the Customers, suppliers, or other business contacts
of the Company or any of its Subsidiaries who currently have or have
had business relationships with the the Company within two years
preceding the date hereof or with the Company or any of its
Subsidiaries during the Noncompete Period, to withdraw, curtail or
cancel any of its business or relations with the Company or any of its
Subsidiaries;

(iii) induce or attempt to induce any
employee, sales representative, consultant or other agent of the
Company or any of its Subsidiaries to terminate his relationship or
breach any agreement with the Company or any of its Subsidiaries; or

(iv) hire any person who was an employee,
sales representative, consultant or other agent of the Company or any
of its Subsidiaries at any time during the Noncompete Period.

8. Confidential Information. The Employee acknowledges
and agrees that the customers, business connections, customer lists,
procedures, operations, techniques, and other aspects of and information about
the business of the Company and its Subsidiaries (the "Confidential
Information") are established at great expense and protected as confidential
information and provide the Company and its Subsidiaries with a substantial
competitive advantage in conducting their business. The Employee further
acknowledges and agrees that by virtue of his past employment with the Company,
and by virtue of his employment with the Company, he has had access to and will
have access to, and has been entrusted with and will be entrusted with,
Confidential Information, and that the Company would suffer great loss and
injury if the Employee would disclose this information or use in a manner not
specifically authorized by the Company. Therefore, the Employee agrees that
during the Employment Period and for five (5) years thereafter, he will not,
directly or indirectly, either individually or as an employee, agent, partner,
shareholder, owner, trustee, beneficiary, co-venturer, distributor, consultant
or in any other capacity, use or disclose, or cause to be used or disclosed,
any Confidential Information, unless and to the extent that any such
information become generally known to and available for use by the public other
than as a result of the Employee's acts or omissions. The Employee shall
deliver to the Company at the termination of the Employment Period, or at any
other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof) relating to the Confidential Information, Work Product (as
defined below) or the business of the Company or any Subsidiary which he may
then possess or have under his control.

- 6 -
<PAGE> 7

The Employee acknowledges and agrees that all inventions, innovations,
improvements, developments, methods, designs, analyses, drawings, reports and
all similar or related information (whether or not patentable) which relate to
the Company's or any of its Subsidiaries' actual or anticipated business,
research and development or existing or future products or services and which
are conceived, developed or made by the Employee while employed by the Company
and its Subsidiaries ("Work Product") belong to the Company or such Subsidiary,
as the case may be.

9. Common Law of Torts and Trade Secrets. The parties
agree that nothing in this Agreement shall be construed to limit or negate the
common law of torts or trade secrets where it provides the Company and its
Subsidiaries with broader protection than that provided herein.

10. Definitions.

"Affiliate" means, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person and
any partner of a Person which is a partnership.

"Founder Director" at any time means Robert Dods, Boyd Meyer
or Peter Chung if at such time such individual is a member of the Board.

"Person" means any individual, partnership, corporation,
limited liability company, association, joint stock company, trust, joint
venture, unincorporated organization and any governmental entity or any
department, agency or political subdivision thereof.

"Requisite Founder Directors" at any time means (i) if there
are three Founder Directors at such time, any two Founder Directors, (ii) if
there are two Founder Directors at such time, any Founder Director or (iii) if
there is one Founder Directors at such time, such Founder Director.

"Subsidiary" means, with respect to any Person, any
corporation, 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 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 partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such partnership,
association or other business entity.

- 7 -
<PAGE> 8

12. Waiver. The failure of either party to insist in any
one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any such term, covenant or
condition.

13. Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing, and delivered by registered or
certified mail or delivered personally, in the case of the Company, to its
principal business office, and in the case of the Employee, to his address
appearing on the records of the Company, or to such other address as he may
designate in writing to the Company.

14. Severability. In the event that any provision shall
be held to be invalid or unenforceable for any reason whatsoever, it is agreed
such invalidity or unenforceability shall not affect any other provision of
this Agreement and the remaining covenants, restrictions and provisions hereof
shall remain in full force and effect and any court of competent jurisdiction
may so modify the objectionable provision as to make it valid, reasonable and
enforceable. Furthermore, the parties specifically acknowledge the above
covenant not to compete and covenant not to disclose confidential information
are separate and independent agreements.

15. Complete Agreement. Except as otherwise expressly
set forth herein, this document embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way. Without limiting the
generality of the foregoing, this Agreement supersedes the Employment
Agreement, dated as of December 20, 1994, between the Company and the Employee
(together with all amendments thereto, the "Prior Agreement"). The Prior
Agreement is hereby terminated and shall cease to be of any further force or
effect.

16. Amendment. This Agreement may only be amended by an
agreement in writing signed by each of the parties hereto.

17. Governing Law. This Agreement shall be governed by
and construed exclusively in accordance with the laws of the State of Illinois,
regardless of choice of law requirements. The parties hereby consent to the
jurisdiction of the state courts of the State of Illinois and of any federal
court in the venue of Illinois for the purpose of any suit, action or
proceeding arising out of or related to this Agreement, and expressly waive any
and all objections they may have as to venue in any of such courts.

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<PAGE> 9

18. Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against the Company,
its successors and assigns and the Employee, his heirs, beneficiaries and legal
representatives. It is agreed that the rights and obligations of the Employee
may not be delegated or assigned.

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<PAGE> 10

IN WITNESS WHEREOF, the parties have executed or caused this
Employment Agreement to be executed as of the date first above written.

RACING CHAMPIONS, INC.

By: /s/ Daniel M. Gill
-----------------------------

Its: Vice President
----------------------------

/s/ Kevin Camp
--------------------------------
Kevin Camp

<PAGE> 1
EXHIBIT 10.19

COLLECTIBLE CHAMPIONS, INC.
1996 KEY EMPLOYEES STOCK OPTION PLAN

ARTICLE I

PURPOSE OF PLAN

The 1996 Key Employees Stock Option Plan (the "Plan") of
Collectible Champions, Inc., a Delaware corporation (the "Company"), adopted by
the Board of Directors of the Company on April 30, 1996 and approved by the
Company's stockholders on the same date, is for executive and other key
employees of the Company, and is intended to advance the best interests of the
Company by providing those persons who have a substantial responsibility for
its management and growth with additional incentives by allowing them to
acquire an ownership interest in the Company and thereby encouraging them to
contribute to the success of the Company and to remain in its employ. The
availability and offering of stock options under the Plan also increases the
Company's ability to attract and retain individuals of exceptional managerial
talent upon whom, in large measure, the sustained progress, growth and
profitability of the Company depends. The Plan became effective as of the
date of stockholder approval set forth above and, unless sooner terminated
pursuant to the terms hereof, the Plan shall terminate on December 31, 2005.

ARTICLE II

DEFINITIONS

For purposes of the Plan, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:

"Board" shall mean the Board of Directors of the Company.

"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute.

"Committee" shall mean the committee of the Board which may be
designated by the Board to administer the Plan. The Committee shall be
composed of two or more directors as appointed from time to time to serve by
the Board.

"Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.

"Company" shall mean Collectible Champions, Inc., a Delaware
corporation, and any subsidiary thereof, as such term is defined in Section
425(f) of the Code.
<PAGE> 2

"Fair Market Value" of the Common Stock shall be determined in
good faith by the Committee or, in the absence of the Committee, by the Board.

"Participant" shall mean any executive or other key employee
of the Company who has been selected to participate in the Plan by the
Committee or the Board.

ARTICLE III

ADMINISTRATION

The Plan shall be administered by the Committee; provided,
however, that if for any reason the Committee shall not have been appointed by
the Board, all authority and duties of the Committee under the Plan shall be
vested in and exercised by the Board. Subject to the limitations of the Plan,
the Committee shall have the sole and complete authority to: (i) select
Participants, (ii) grant Options (as defined in Article IV below) to
Participants in such forms and amounts as it shall determine (including,
without limitation, with respect to designating Options as Incentive Stock
Options (as defined in Article V below) or nonqualified stock options), (iii)
impose such limitations, restrictions and conditions upon such Options as it
shall deem appropriate, (iv) interpret the Plan and adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(v) correct any defect or omission or reconcile any inconsistency in the Plan
or in any Option granted hereunder and (vi) make all other determinations and
take all other actions necessary or advisable for the implementation and
administration of the Plan, subject to such limitations as may be imposed by
the Code on the grant of Incentive Stock Options or other applicable law. The
Committee's determinations on matters within its authority shall be conclusive
and binding upon the Participants, the Company and all other persons. All
expenses associated with the administration of the Plan shall be borne by the
Company. The Committee may, as approved by the Board and to the extent
permissible by law, delegate any of its authority hereunder to such persons as
it deems appropriate.

ARTICLE IV

LIMITATION ON AGGREGATE SHARES

The number of shares of Common Stock with respect to which
options may be granted under the Plan (the "Options") and which may be issued
upon the exercise thereof shall not exceed, in the aggregate, 52,632 shares;
provided, however, that the type and the aggregate number of shares which may
be subject to Options shall be subject to adjustment in accordance with the
provisions of Section 6.7 below, and further provided that to the extent any
Options expire unexercised or are cancelled, terminated or forfeited in any
manner without the issuance of Common Stock thereunder, such shares shall again
be available under the Plan. The 52,632 shares of Common Stock available under
the Plan may be either authorized and unissued shares, treasury shares or a
combination thereof, as the Committee shall determine.

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<PAGE> 3

ARTICLE V

AWARDS

5.1 Options. The Committee may grant Options to
Participants in accordance with this Article V. In no event shall the
aggregate Fair Market Value per share of all Common Stock (determined at the
time the Option is awarded) with respect to which Incentive Stock Options are
exercisable for the first time by an individual during any calendar year (under
all plans of the Company and its subsidiaries) exceed $100,000.

5.2 Form of Option. Options granted under this Plan may
be "Incentive Stock Options" within the meaning of Section 422 of the Code or
nonqualified stock options. Unless otherwise indicated, references herein to
"Options" shall include Incentive Stock Options and nonqualified stock options.

5.3 Exercise Price. The option exercise price shall be
fixed by the Committee. If the Option is intended to be an Incentive Stock
Option, the option exercise price per share of Common Stock shall be fixed by
the Committee at not less than 100% of the Fair Market Value of a share of
Common Stock on the date of grant (or 110% of such Fair Market Value if the
holder of such Incentive Stock Option owns Common Stock possessing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any subsidiary determined with regard to the attribution rules of
Section 424(d) of the Code).

5.4 Exercisability. Options shall be exercisable at such
time or times as the Committee shall determine at or subsequent to grant.

5.5 Payment of Exercise Price. Options shall be
exercised in whole or in part by written notice to the Company (to the
attention of the Company's Secretary) accompanied by payment in full of the
option exercise price. Payment of the option exercise price shall be made in
cash (including check, bank draft or money order) or, in the discretion of the
Committee, by (a) delivery of an interest bearing promissory note or (b) the
surrender to the Company of shares of Common Stock having a Fair Market Value
equal to the option exercise price.

5.6 Terms of Options. The Committee shall determine the
term of each Option, which term shall in no event exceed ten years from the
date of grant. If the holder of an Incentive Stock Option owns Common Stock
possessing more than ten percent (10%) of the combined voting power of all
classes of stock of the Company or any subsidiary, determined with regard to
the attribution rules of Section 424(d) of the Code, the term of such Incentive
Stock Option shall not exceed five years from the date of grant.

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<PAGE> 4

ARTICLE VI

GENERAL PROVISIONS

6.1 Conditions and Limitations on Exercise. Options may
be made exercisable in one or more installments, upon the happening of certain
events, upon the passage of a specified period of time, upon the fulfillment of
certain conditions or upon the achievement by the Company of certain
performance goals, as the Committee shall decide in each case when the Options
are granted.

6.2 Written Agreement. Each Option granted hereunder to
a Participant shall be embodied in a written agreement (an "Option Agreement")
which shall be signed by the Participant and by the President of the Company
for and in the name and on behalf of the Company and shall be subject to the
terms and conditions prescribed therein.

6.3 Listing, Registration and Compliance with Laws and
Regulations. Options shall be subject to the requirement that if at any time
the Committee shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to the Options upon any
securities exchange or under any state or federal securities or other law or
regulation, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition to or in connection with the granting of
the Options or the issuance or purchase of shares thereunder, no Options may be
granted or exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. The holders of such Options
will supply the Company with such certificates, representations and information
as the Company shall request and shall otherwise cooperate with the Company in
obtaining such listing, registration, qualification, consent or approval. In
the case of officers and other persons subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Committee may at any time
impose any limitations upon the exercise of an Option that, in the Committee's
discretion, are necessary or desirable in order to comply with such Section
16(b) and the rules and regulations thereunder. If the Company, as part of an
offering of securities or otherwise, finds it necessary because of federal or
state regulatory requirements to reduce the period during which any Options may
be exercised, the Committee, may, in its discretion and without the
Participant's consent, so reduce such period on not less than 15 days' written
notice to the holders thereof.

6.4 Nontransferability. Options may not be transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the Participant, may be exercised only by such Participant (or his
legal guardian or legal representative). In the event of the death of a
Participant, exercise of Options granted hereunder shall be made only:

(i) by the executor or administrator of the
estate of the deceased Participant or the person or persons to whom
the deceased Participant's rights under the Option shall pass by will
or the laws of descent and distribution; and

- 4 -
<PAGE> 5

(ii) to the extent that the deceased Participant
was entitled thereto at the date of his death, unless otherwise
provided by the Committee in such Participant's Option Agreement.

6.5 Expiration of Options. In no event shall any part of
any Option be exercisable after the date of expiration thereof (the "Expiration
Date"), as determined by the Committee pursuant to Section 5.6 above.

6.6 Withholding of Taxes. The Company shall be entitled,
if necessary or desirable, to withhold from any amounts due and payable by the
Company to any Participant (or secure payment from such Participant in lieu of
withholding) the amount of any withholding or other tax due from the Company
with respect to any Option Shares issuable under the Plan, and the Company may
defer such issuance unless indemnified to its satisfaction. Upon the
disposition (within the meaning of Section 424(c) of the Code) of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to the expiration of the holding period requirements of Section 422(a)(1)
of the Code, the Participant shall be required to give notice to the Company of
such disposition and the Company shall have the right to require the payment of
the amount of any taxes that are required by law to be withheld with respect to
such disposition.

6.7 Adjustments. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Board or the Committee may, in order to
prevent the dilution or enlargement of rights under outstanding Options, make
such adjustments in the number and type of shares authorized by the Plan, the
number and type of shares covered by outstanding Options and the exercise
prices specified therein as may be determined to be appropriate and equitable.
Any such determination by the Committee shall be conclusive. Any fractional
shares resulting from such adjustments to options, rights, or restricted shares
shall be eliminated. The issuance by the Company of shares of stock of any
class, or options or securities exercisable or convertible into shares of stock
of any class, for cash or property, or for labor or services either upon direct
sales, or upon the exercise of rights or warrants to subscribe therefor, or
upon exercise or conversion of other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock then subject to outstanding Options. No adjustments
to any Incentive Stock Option shall be made pursuant to this Section 6.7 which
consist of a modification of such Incentive Stock Option under Section
422(h)(3)(C) of the Code.

6.8 Rights of Participants. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment at any time for any reason, nor confer upon any
Participant any right to continue in the employ of the Company for any period
of time or to continue his present (or any other) rate of compensation and,
except as otherwise provided under this Plan or by the Committee in the Option
Agreement, in the event of any Participant's termination of employment for any
reason any portion of such Participant's Option that was not previously vested
and exercisable will expire and be forfeited as of the date of such
termination. No employee shall have a right to be selected as a Participant
or, having been so selected, to be selected again as a Participant.

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<PAGE> 6

6.9 Amendment, Suspension and Termination of Plan. The
Board or the Committee may suspend or terminate the Plan or any portion thereof
at any time and may amend it from time to time in such respects as the Board or
the Committee may deem advisable; provided, however, that no such amendment
shall be made without stockholder approval to the extent such approval is
required by law, agreement or the rules of any exchange upon which the Common
Stock is listed, and no such amendment, suspension or termination shall impair
in any material respect the rights of Participants under outstanding Options
without the consent of the Participants affected thereby. No Options shall be
granted hereunder after the tenth anniversary of the adoption of the Plan.

6.10 Amendment, Modification and Cancellation of
Outstanding Options. The Committee may amend or modify any Option in any
manner to the extent that the Committee would have had the authority under the
Plan initially to grant such Option; provided that no such amendment or
modification shall impair in any material respect the rights of any Participant
under any Option without the consent of such Participant. With the
Participant's consent, the Committee may cancel any Option and issue a new
Option to such Participant.

6.11 Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board or the Committee, the
members of the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding; provided, however, that any such Committee member shall be
entitled to the indemnification rights set forth in this Section 6.11 only if
such member has acted in good faith and in a manner that such member reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe that such conduct was unlawful, and further provided that upon the
institution of any such action, suit or proceeding a Committee member shall
give the Company written notice thereof and an opportunity, at its own expense,
to handle and defend the same before such Committee member undertakes to handle
and defend it on his own behalf.

* * * * *

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<PAGE> 1
EXHIBIT 10.20

RACING CHAMPIONS, INC.
1996 KEY EMPLOYEES PERFORMANCE COMPENSATION PLAN

ARTICLE I

PURPOSE OF PLAN

The 1996 Key Employees Performance Compensation Plan (the
"Plan") of Racing Champions, Inc., a Delaware corporation (the "Company"),
adopted by the Board of Directors of the Company on April 30, 1996 (the "Plan
Adoption Date"), is for executives and other key employees of the Company, and
is intended to advance the best interests of the Company and its stockholders
by rewarding those persons who have a substantial responsibility for its
management and growth, thereby encouraging them to contribute to the success
of the Company and to remain in its employ.

ARTICLE II

DEFINITIONS

For purposes of the Plan, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:

"1996 EBITDA" means Audited EBITDA for the period beginning on
January 1, 1996 and ending on December 31, 1996.

"Audited EBITDA" means, for any period, Consolidated EBITDA
(as defined in the Credit Agreement) for such period plus any amount paid by
the Company as Performance Bonuses or Bonus Advances pursuant to the Plan
included in the determination of Consolidated EBITDA, as determined based upon
the Parent's audited consolidated financial statements such period, calculated
in accordance with generally accepted accounting principles, consistently
applied.

"Board" means the Board of Directors of the Company.

"Cause" (i) with respect to each Participant who has entered
into an employment agreement with the Company or any of its Subsidiaries which
contains a definition of "Cause," has the meaning given such term therein and
(ii) with respect to any other Participant, shall be deemed to exist if the
Participant shall have (a) failed to substantially perform his duties to the
reasonable satisfaction of the Board of Directors of the Company; provided that
so long as Robert Dods, Boyd Meyer or Peter Chung serves as a director of the
Company, any determination pursuant to this clause (a) must be approved by the
Requisite Founder Directors; (b) committed a felony or a crime involving moral
turpitude; (c) engaged in serious misconduct which is demonstrably injurious to
the Parent or any of its Subsidiaries; (d) engaged in fraud or dishonesty with
respect to the Parent or any of its Subsidiaries or made a material
misrepresentation to the stockholders or directors of the Parent or any of its
Subsidiaries; or (e) committed acts of negligence in the performance of his
duties which are substantially injurious to the Parent or any of its
Subsidiaries.
<PAGE> 2

"CCI EBITDA" means Audited EBITDA for the period beginning on
the Plan Adoption Date and ending on December 31, 1996.

"Credit Agreement" means the Credit Agreement, dated as of the
date hereof, by and among the Company, certain affiliates of the Company and
The First National Bank of Boston, as lender and agent, and the other lenders
named therein, as amended, modified and supplemented from time to time.

"Disability" (i) with respect to each Participant who has
entered into an employment agreement with the Company or any of its
Subsidiaries which contains a definition of "Disability," has the meaning given
such term therein and (ii) with respect to any other Participant, means a
physical or mental sickness or any injury which renders the Participant
incapable of performing the services required of him as an employee of the
Company and which does or may be expected to continue for more than six (6)
months during any 12-month period. In the event Participant shall be able to
perform his usual and customary duties on behalf of the Company following a
period of disability, and does so perform such duties, or such other duties as
are prescribed by the Board or the President of the Company, for a period of
three continuous months, any subsequent period of disability shall be regarded
as a new period of disability for purposes of this Agreement. The Company and
the Participant shall determine the existence of a Disability and the date upon
which it occurred. In the event of a dispute regarding whether or when a
Disability occurred, the matter shall be referred to a medical doctor selected
by the Company and the Participant. In the event of their failure to agree
upon such a medical doctor, the Company and the Participant shall each select a
medical doctor who together shall select a third medical doctor who shall make
the determination. Such determination shall be conclusive and binding upon the
parties hereto.

"Final Bonus Determination Date" means the date on which the
Parent's audited consolidated financial statements are issued for the period
beginning on January 1, 1996 and ending on December 31, 1996.

"Founder Director" at any time means Robert Dods, Boyd Meyer
or Peter Chung if at such time such individual is a member of the Board.

"Good Reason" (i) with respect to each Participant who has
entered into an employment agreement with the Company or any of its
Subsidiaries which contains a definition of "Good Reason," has the meaning
given such term therein and (ii) with respect to any other Participant, means
(a) the material diminution of the Participant's duties or (b) the relocation
of the offices at which the Participant is principally employed by the Company
or any of its Subsidiaries to a location which is more than 50 miles from the
offices at which the Participant is principally employed as of the date hereof;
provided, that travel necessary for the performance of the Participant's duties
set forth in Section 3 above shall not determine the location where the
Participant is "principally employed."

"Parent" means Collectible Champions, Inc., a Delaware
corporation and owner of 100% of the capital stock of the Company.

- 2 -
<PAGE> 3

"Person" means any individual, partnership, corporation,
limited liability company, association, joint stock company, trust, joint
venture, unincorporated organization and any governmental entity or any
department, agency or political subdivision thereof.

"Requisite Founder Directors" at any time means (i) if there
are three Founder Directors at such time, any two Founder Directors, (ii) if
there are two Founder Directors at such time, any Founder Director or (iii) if
there is one Founder Directors at such time, such Founder Director.

"Subsidiary" means, with respect to any Person, any
corporation, 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 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 partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such partnership,
association or other business entity.

"Unaudited EBITDA" means, for any period, Consolidated EBITDA
(as defined in the Credit Agreement) for such period plus any amount paid by
the Company as Performance Bonuses or Bonus Advances pursuant to the Plan
included in the determination of Consolidated EBITDA, as determined based upon
the Parent's unaudited consolidated financial statements such period,
calculated in accordance with generally accepted accounting principles,
consistently applied.

"Quarterly Bonus Advance Determination Date" means, with
respect to a fiscal quarter of the Company, the date on which the Parent's
unaudited consolidated financial statements are issued for such fiscal quarter.

ARTICLE III

PARTICIPANTS

The employees of the Company and its Subsidiaries selected to
participate in the Plan (the "Participants") are set forth on Schedule I
attached hereto. The President in consultation with the Board may select
additional employees of the Company and its Subsidiaries to participate in the
Plan, and such employees shall be deemed to be "Participants" for all purposes
of this Plan. The "Percentage Share" set forth on Schedule I which is deemed
"unallocated" shall be allocated among the Participants by the President in
consultation with the Board.

- 3 -
<PAGE> 4

ARTICLE IV

AWARD OF PERFORMANCE BONUS

4.1 Determination of Performance Bonus. If a Participant
is employed by the Company or any of its Subsidiaries on December 31, 1996, the
"Performance Bonus" of such Participant shall be equal to the Percentage Share
set forth next to such Participant's name on Schedule I multiplied by 5.12%
multiplied by CCI EBITDA; provided that the Performance Bonus of each
Participant shall be zero if 1996 EBITDA is less than $15,928,000. If a
Participant's employment is terminated on a date (the "Termination Date") prior
to December 31, 1996 for reason of death or Disability, by the Company without
Cause or by the Participant for Good Reason, such Participant's Performance
Bonus shall be equal to the Performance Bonus to which such Participant would
have been entitled had he or she been employed by the Company or any of its
Subsidiaries on December 31, 1996 multiplied by a fraction the numerator of
which is the number of days elapsed from the Plan Adoption Date to the
Termination Date and the denominator of which is the number of days elapsed
from the Plan Adoption Date to December 31, 1996.

4.2 Quarterly Advance of Performance Bonus. With respect
to the fiscal quarter of the Company ending June 30, 1996, the "Bonus Advance"
of each Participant in the Plan for such fiscal quarter shall be equal to the
Percentage Share set forth next to such Participant's name on Schedule I
multiplied by 5.12% multiplied by 50% multiplied by Unaudited EBITDA for the
period beginning on the Plan Adoption Date and ending June 30, 1996; provided
that the Bonus Advance of each Participant for such period shall be zero if
Unaudited EBITDA for the period beginning on the Plan Adoption Date and ending
June 30, 1996 is less than $3,318,333. With respect to the fiscal quarter of
the Company ending September 30, 1996, the Bonus Advance of each Participant in
the Plan for such fiscal quarter shall be equal to (A) the Percentage Share set
forth next to such Participant's name on Schedule I multiplied by 5.12%
multiplied by 50% multiplied by Unaudited EBITDA for the period beginning on
the Plan Adoption Date and ending September 30, 1996 minus (B) the amount of
any Bonus Advance received by such Participant with respect to the fiscal
quarter of the Company ending June 30, 1996 pursuant to the previous sentence;
provided that the Bonus Advance of each Participant for such period shall be
zero if Unaudited EBITDA for the period beginning on the Plan Adoption Date and
ending September 30, 1996 is less than $8,295,833. Each Participant shall be
entitled to receive his or her Bonus Advance with respect to a fiscal quarter
if and only if such Participant is employed by the Company or any of its
Subsidiaries on the Quarterly Bonus Advance Determination Date with respect to
such fiscal quarter. Each Bonus Advance with respect to a fiscal quarter shall
be paid within ten (10) business days of the Quarterly Bonus Advance
Determination Date with respect to such fiscal quarter.

4.3 Payment of Performance Bonus. With respect to each
Participant, (i) if such Participant's Performance Bonus is greater than the
amounts paid by the Company to such Participant pursuant to Section 4.2 above,
the difference shall be payable by the Company to such Participant within ten
(10) business days of the Final Bonus Determination Date; and (ii) if the
amounts paid by the Company to such Participant pursuant to Section 4.2 above
are greater than such Participant's Performance Bonus, the difference shall be
payable by such Participant to the Company within ten (10) business days of the
Final Bonus Determination Date.

- 4 -
<PAGE> 5

ARTICLE V

GENERAL PROVISIONS

5.1 Nontransferability. No person eligible to receive
any amount in accordance with the terms of this Plan shall have any rights to
pledge, assign or otherwise dispose of all or any portion of such payments,
either directly or by operation of law.

5.2 Rights of Participants. Nothing in the Plan shall
interfere with or limit in any way the right of the Company or any Subsidiary
thereof to terminate any Participant's employment at any time for any reason,
nor confer upon any Participant any right to continue in the employ of the
Company or such Subsidiary for any period of time or to continue his present
(or any other) rate of compensation. No employee shall have a right to be
selected as a Participant or, having been so selected, to be selected again as
a Participant.

5.3 Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members of the
Board shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding
to which they or any of them may be party by reason of any action taken or
failure to act under or in connection with the Plan, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding; provided,
however, that any such Board member shall be entitled to the indemnification
rights set forth in this Section 5.3 only if such member has acted in good
faith and in a manner that such member reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that such conduct was
unlawful, and further provided that upon the institution of any such action,
suit or proceeding a Board member shall give the Company written notice thereof
and an opportunity, at its own expense, to handle and defend the same before
such Board member undertakes to handle and defend it on his own behalf.

* * * * *

- 5 -
<PAGE> 6

SCHEDULE I

<TABLE>
<CAPTION>
PARTICIPANT PERCENTAGE SHARE
----------- ----------------
<S> <C>
Curt Stoelting 16.0%

John Olsen 12.0%

Peter Henseler 12.0%

Kevin Camp 12.0%

Helena Lo 5.0%

Kelvin Ng 5.0%

Rose Lam 3.0%

Jody Taylor 2.0%

Unallocated 33.0%

TOTAL 100.0%
===== ======
</TABLE>

- 6 -

<PAGE> 1
EXHIBIT 21

Subsidiaries of Racing Champions Corporation

As of the date of the Registration Statement to which this is an
exhibit, the subsidiaries of Racing Champions Corporation were as follows:

Name Incorporation

Racing Champions, Inc. Illinois
Racing Champions Limited Hong Kong

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

Re: Racing Champions Corporation
Form S-1 Registration Statement

As independent public accountants, we hereby consent to the use of our
reports dated February 15, 1997, and to all references to our Firm included in
or made a part of this Registration Statement.

s/ ARTHUR ANDERSEN LLP

Chicago, Illinois
February 26, 1997

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference of our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 19, 1997 with
respect to the Combined financial statements of Racing Champions Limited Group,
in the Registration Statement (Form S-1) and related Prospectus of Racing
Champions Corporation for the registration of 5,000,000 shares of its common
stock.

Hong Kong
February 26, 1997 s/ Ernst & Young

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RACING
CHAMPIONS CORPORATION AND SUBSIDIARIES, CONSOLIDATED BALANCE SHEET AS OF
12-31-96 AND CONSOLIDATED INCOME STATEMENT FOR THE 8 MONTH PERIOD ENDED 12-31-96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH RACING CHAMPIONS
CORPORATION, FORM S-1, REGISTRATION STATEMENT NO. 333- FILED ON FEBRUARY,
1997
</LEGEND>

<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,897,911
<SECURITIES> 0
<RECEIVABLES> 5,780,231
<ALLOWANCES> 300,000
<INVENTORY> 1,264,317
<CURRENT-ASSETS> 14,240,800
<PP&E> 8,067,348
<DEPRECIATION> 839,282
<TOTAL-ASSETS> 109,080,038
<CURRENT-LIABILITIES> 24,591,095
<BONDS> 86,299,137
0
656,827
<COMMON> 78,853
<OTHER-SE> 8,782,383
<TOTAL-LIABILITY-AND-EQUITY> 109,080,038
<SALES> 49,384,893
<TOTAL-REVENUES> 52,340,123
<CGS> 21,365,444
<TOTAL-COSTS> 36,609,893
<OTHER-EXPENSES> 10,223,792
<LOSS-PROVISION> 43,000
<INTEREST-EXPENSE> 6,891,196
<INCOME-PRETAX> 4,344,703
<INCOME-TAX> 1,793,495
<INCOME-CONTINUING> 2,551,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,551,208
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>