<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-22635
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Racing Champions Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-4088307
- --------------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
800 Roosevelt Road, Building C, Suite 320, Glen Ellyn, IL 60137
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(Address of principal executive offices)
Registrant's telephone number, including area code: 630-790-3507
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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On June 30, 1998, there were outstanding 15,960,794 shares of the Registrant's
$.01 par value common stock.
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RACING CHAMPIONS CORPORATION
FORM 10-Q
JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three Months Ended
June 30, 1998 and 1997 and for the Six Months Ended
June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 13
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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PART I.FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RACING CHAMPIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . $ 5,279 $ 6,903
Restricted cash . . . . . . . . . . . . . . . . . . . . - 3,300
Accounts receivable, net . . . . . . . . . . . . . . . 20,468 12,180
Inventory . . . . . . . . . . . . . . . . . . . . . . . 10,439 4,412
Other current assets . . . . . . . . . . . . . . . . . 2,993 2,445
Property and equipment, net . . . . . . . . . . . . . . 11,679 10,524
Excess purchase price over net assets acquired, net . . 100,797 101,569
Other non-current assets . . . . . . . . . . . . . . . 415 1,934
----------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . $ 152,070 $ 143,267
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses . . . . . . . . . $ 24,372 $ 15,976
Acquisition notes payable . . . . . . . . . . . . . . . 2,000 5,250
Bank term loans . . . . . . . . . . . . . . . . . . . . 24,177 21,946
Line of credit . . . . . . . . . . . . . . . . . . . . 7,631 7,230
Other liabilities . . . . . . . . . . . . . . . . . . . 111 1,262
----------- ------------
Total liabilities . . . . . . . . . . . . . . . . . 58,291 51,664
Stockholders' equity . . . . . . . . . . . . . . . . . 93,779 91,603
----------- ------------
Total liabilities and stockholders' equity . . . . . $ 152,070 $ 143,267
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
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RACING CHAMPIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales....................................... $ 42,693 $ 24,950 $ 71,332 $ 42,145
Cost of sales................................... 19,168 10,628 31,378 18,896
----------- ----------- ----------- ------------
Gross profit.................................... 23,525 14,322 39,954 23,249
Selling, general and administrative expenses.... 13,226 7,274 24,863 12,991
Amortization of intangible assets............... 669 554 1,333 1,112
Merger related costs............................ 5,525 - 5,525 -
----------- ----------- ----------- ------------
Operating income................................ 4,105 6,494 8,233 9,146
Interest expense................................ 743 2,142 1,535 4,551
Other expense................................... 39 42 156 85
----------- ----------- ----------- ------------
Income before income taxes...................... 3,323 4,310 6,542 4,510
Income tax expense.............................. 1,372 1,888 2,703 2,073
----------- ----------- ----------- ------------
Net income before discontinued operations and
extraordinary item.............................. 1,951 2,422 3,839 2,437
Discontinued operations, net of tax benefit of
$266 and $428................................... - 1,032 - 1,032
Extraordinary charge for early extinguishment of
debt, net of tax benefit of $1,188.............. 1,782 - 1,782 -
----------- ----------- ----------- ------------
Net income...................................... $ 169 $ 1,390 $ 2,057 $ 1,405
=========== ============ =========== ============
Net income available to common stockholders..... $ 169 $ 1,166 $ 2,057 $ 927
=========== ============ =========== ============
Net income per share from continuing operations:
Basic......................................... $ 0.12 $ 0.22 $ 0.24 $ 0.24
=========== =========== =========== ============
Diluted....................................... $ 0.12 $ 0.21 $ 0.24 $ 0.23
=========== =========== =========== ============
Net income per common share:
Basic......................................... $ 0.01 $ 0.11 $ 0.13 $ 0.09
=========== =========== =========== ============
Diluted....................................... $ 0.01 $ 0.10 $ 0.13 $ 0.09
=========== =========== =========== ============
Weighted average shares outstanding:
Basic......................................... 15,961 11,030 15,961 10,233
Diluted....................................... 16,292 11,394 16,289 10,577
</TABLE>
See accompanying notes to consolidated financial statements.
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RACING CHAMPIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1998 1997
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,057 $ 1,405
Depreciation and amortization . . . . . . . . . . . . . . 2,928 2,177
Deferred taxes and interest . . . . . . . . . . . . . . . 1,531 1,354
Provision for losses related to discontinued operations . - 348
Provision for allowances for doubtful accounts . . . . . . - 375
Other . . . . . . . . . . . . . . . . . . . . . . . . . . - 17
Changes in operating assets and liabilities . . . . . . . (7,089) 57
----------- ------------
Net cash (used) provided by operating activities . . . . (573) 5,733
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . (2,984) (1,649)
Purchase price in excess of net assets acquired . . . . . (554) 657
Increase in other non-current assets . . . . . . . . . . . (195) -
----------- ------------
Net cash used by investing activities . . . . . . . . . (3,733) (992)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing from bank, net . . . . . . . . . . . . . . . . . 2,632 (15,877)
Issuance of common stock . . . . . . . . . . . . . . . . . - 74,723
Redemption of preferred stock . . . . . . . . . . . . . . - (7,862)
Distributions to stockholders . . . . . . . . . . . . . . - (1,570)
Payments on acquisition loans . . . . . . . . . . . . . . (3,250) -
Payments on stockholder debt . . . . . . . . . . . . . . . - (51,847)
----------- ------------
Net cash used by financing activities . . . . . . . . . (618) (2,433)
----------- ------------
Net increase (decrease) in cash and cash equivalents . . (4,924) 2,308
Cash and cash equivalents, beginning of period . . . . . . . 10,203 6,216
----------- ------------
Cash and cash equivalents, end of period . . . . . . . . . . $ 5,279 $ 8,524
=========== ============
Supplemental information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 960 $ 6,372
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,450 $ 35
</TABLE>
See accompanying notes to consolidated financial statements.
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RACING CHAMPIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Racing Champions
Corporation ("the Company") and its wholly-owned subsidiaries, Racing
Champions, Inc., Racing Champions Limited, and Racing Champions South, Inc.
All intercompany transactions and balances have been eliminated.
The accompanying consolidated financial statements have been prepared by
management and, in the opinion of management, contain all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial position of the Company as of June 30, 1998 and the results of
operations for the three months and six months ended June 30, 1998 and the cash
flows of the Company for the six month period then ended.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements
and related notes included in the Company's Form 10-K for the year ended
December 31, 1997.
The results of operations for the three month and six month periods ended June
30, 1998 are not necessarily indicative of the operating results for the full
year.
NOTE 2 - BUSINESS COMBINATION
On June 12, 1998, a subsidiary of the Company merged with Wheels Sports Group,
Inc. ("Wheels"), subsequently renamed Racing Champions South, Inc. The merger
was effected by exchanging 2.7 million shares of the Company's common stock for
all of the common stock of Wheels. Each share of Wheels was exchanged for 0.51
shares of the Company's common stock. In addition, outstanding Wheels'
warrants and stock options were converted at the same exchange ratio into
warrants and options to purchase the Company's common stock.
The merger has been accounted for as a pooling-of-interests. Accordingly, all
prior period consolidated financial statements presented have been restated to
include the results of operations, financial position and cash flows of Wheels
as though it had always been a part of the Company. Certain reclassifications
were made to the Wheels financial statements to conform to the Company's
presentations.
The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow.
6
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<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1998 June 30, 1997
---------------- ----------------
<S> <C> <C>
Net sales:
Racing Champions $ 48,855 $ 38,132
Wheels 23,856 4,024
Intercompany sales (1,379) (11)
-------- --------
Combined $ 71,332 $ 42,145
======== ========
Net income:
Racing Champions $ 4,212 $ 2,915
Wheels (2,074) (1,510)
Intercompany eliminations (81) --
-------- --------
Combined $ 2,057 $ 1,405
======== ========
</TABLE>
In connection with the merger, the Company recorded a second quarter charge to
operating expenses of $5.5 million ($3.3 million after taxes, or $0.20 per
diluted common share) for direct and other merger related costs pertaining to
the merger and certain restructuring.
Merger transaction costs consisted primarily of fees for investment bankers,
attorneys, accountants, financial printing and other related charges.
Restructuring costs included severance for terminated employees and exit and
agreement extension costs.
Details of merger related costs follow.
<TABLE>
<S> <C>
Merger transaction costs $2.1
Restructuring costs 3.4
----
Total costs $5.5
====
</TABLE>
NOTE 3 - COMMON STOCK OFFERINGS
On June 17, 1997 the Company sold 5,357,142 shares of its common stock in an
underwritten public offering. The offering price was $14 per common share.
The net proceeds to the Company from the sale of the stock were approximately
$69 million, after deduction of commissions and offering expenses.
Approximately $9 million of the net proceeds was used to redeem preferred stock
issued in the Recapitalization; $43 million was used to repay shareholder notes
issued in the Recapitalization; and $17 million was used to repay bank
borrowings incurred in connection with the Recapitalization.
In April 1997, Wheels completed an initial public offering of 1,035,000 shares
of its common stock at a price of $6.00 per share, resulting in net proceeds of
$4.7 million. Included as part of this offering were warrants for the purchase
of an additional 517,500 shares of Wheels' common stock at an exercise price of
$7.08 per share. The warrants, which were immediately exercisable, expire in
April 2002 and have been converted at an exchange ratio of 0.51 into warrants
to purchase shares of the Company's common stock. The warrants may be redeemed
by the Company beginning in April 1998 at a price of $0.05 per warrant if the
closing bid price of the Company's common stock equals or exceeds $17.35 for 20
consecutive trading days and certain other terms and
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<PAGE> 8
conditions are met. Holders of outstanding warrants have no voting or other
rights as a stockholder of the Company.
NOTE 4 - 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 Racing Champions Limited to RCI.
The Recapitalization was financed with $40,000,000 of bank borrowings and the
issuance to 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, $6,666,790 of the Company's
Series A preferred stock, $1,195,233 of the Company's Series B preferred stock,
$118,840 of the Company's nonvoting common stock and $881,160 of the Company's
common stock.
The acquisitions were accounted for using the purchase method of accounting.
The excess purchase price over the book value of the net assets acquired was
$93,547,442. Of this excess, $88,663,805 has been recorded as an intangible
asset and is being amortized on a straight-line basis over 40 years and
$4,883,637 was recorded as inventory and property and equipment.
NOTE 5 - COMMON AND PREFERRED STOCK
Authorized and issued shares and par values of the Company's voting common
stock are as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING SHARES OUTSTANDING
AUTHORIZED SHARES PAR VALUE AT JUNE 30, 1998 AT DECEMBER 31, 1997
----------------- --------- ---------------- --------------------
<S> <C> <C> <C> <C>
Voting Common Stock 28,000,000 $.01 15,960,794 15,960,794
</TABLE>
On June 17, 1997, the Company filed its Restated Certificate of Incorporation
to eliminate the Series A preferred stock, Series B preferred stock and
nonvoting common stock.
In connection with the acquisition of Wheels in June, 1998, the Company
increased its authorized shares from 20,000,000 to 28,000,000.
NOTE 6 - DEBT
In conjunction with the merger, the Company amended its bank agreement on June
11, 1998. The amended credit agreement provides for a revolving loan and a
five-year term loan. The revolving loan allows the Company to borrow up to $12
million at any time prior to June 30, 2003, based upon levels of the Company's
accounts receivable, inventory and cash flows. At June 30, 1998, there was
$7,600,000 outstanding on the revolving loan. The term loan is in the
principal amount of $25 million, with final maturity at June 30, 2003. The
outstanding balance on the term loan at June 30, 1998 was $24,000,000, of which
$4,125,000 was current.
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Borrowings under the credit agreement bear interest, at the Company's option,
at the bank's base rate plus a margin that varies between 0.00% and 0.75% or at
a reserve adjusted Eurodollar rate plus a margin that varies between 1.50% and
2.25%. All amounts outstanding under the credit agreement are secured by
substantially all of the assets of the Company.
NOTE 7 - PER SHARE INFORMATION
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share." Furthermore, the consolidated
financial statements have been retroactively adjusted to reflect a
7.885261-for-one stock split issued on April 9, 1997.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition, results of operations, liquidity and capital resources. The
discussion and analysis should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto included
elsewhere herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales. Net sales increased $17.8 million, or 71.5%, to $42.7 million
for the three months ended June 30, 1998 from $24.9 million for the three
months ended June 30, 1997. The increase in sales was primarily attributable
to 52% growth in sales of NASCAR racing replicas. Sales in the custom and
classic vehicle category also increased by more than 100% in the second quarter
of 1998 as compared to the second quarter of 1997. Furthermore, sales of other
NASCAR merchandise contributed over $14 million in sales to the second quarter
1998 as compared with $2 million for the second quarter 1997.
Gross profit. Gross profit increased $9.2 million, or 64.3 %, to $23.5
million for the three months ended June 30, 1998 from $14.3 million for the
three months ended June 30, 1997. The gross profit margin (as a percentage of
net sales) decreased to 55.0% in 1998 compared to 57.4% in 1997 due to changes
in product mix. There were no major changes in the components of cost of
sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $5.9 million, or 80.8%, to $13.2 million for
the three months ended June 30, 1998 from $7.3 million for the three months
ended June 30, 1997. As a percentage of net sales, selling, general and
administrative expenses increased to 30.9% for the three months ended June 30,
1998 from 29.3% for the three months ended June 30, 1997. The increase in the
selling, general and administrative expenses is primarily due to the increased
advertising in the form of television and print media, which totaled
approximately $1.2 million or 2.8% of net sales. Advertising expense for the
second quarter of 1997 for print media was approximately $0.2 million or 0.8%
of net sales.
Operating income. Operating income decreased $2.4 million, or 36.9%, to
$4.1 million for the three months ended June 30, 1998 from $6.5 million for the
three months ended June 30, 1997. The decrease in operating income is a result
of the merger-related costs of approximately $5.5 million incurred in
conjunction with the Wheels acquisition, as well as the increase in selling and
administrative expenses noted above. As a percentage of net sales, operating
income excluding merger-related costs decreased to 22.6% for the three months
ended June 30, 1998 from 26.1% for the three months ended June 30, 1997 due to
lower operating margins related to the $14 million in sales in other NASCAR
merchandise.
Interest expense. Interest expense of $0.7 million for the three months
ended June 30, 1998 related primarily to bank term loans and $2.1 million for
the three months ended June 30, 1997 related primarily to bank term loans and
subordinated debt incurred in connection with the Recapitalization.
Income tax. Income tax expense for the three months ended June 30, 1998,
and June 30, 1997 include provisions for federal, state and Hong Kong income
taxes at an effective rate of 41.3% and 43.8%.
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SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales. Net sales increased $29.2 million, or 69.4%, to $71.3 million
for the six months ended June 30, 1998 from $42.1 million for the six months
ended June 30, 1997. The increase in sales was primarily attributable to 44%
growth in sales of NASCAR racing replicas. Sales in the custom and classic
vehicle category also increased by more than 150% in the first six months of
1998 as compared to the first six months of 1997. Furthermore, sales of other
NASCAR merchandise contributed over $23 million in sales year to date in 1998
as compared to $4 million in sales year to date in 1997.
Gross profit. Gross profit increased $16.8 million, or 72.4 %, to $40.0
million for the six months ended June 30, 1998 from $23.2 million for the six
months ended June 30, 1997. The gross profit margin (as a percentage of net
sales) increased slightly to 56.1% in 1998 compared to 55.1% in 1997. There
were no major changes in the components of cost of sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $11.9 million, or 91.5%, to $24.9 million for
the six months ended June 30, 1998 from $13.0 million for the six months ended
June 30, 1997. As a percentage of net sales, selling, general and
administrative expenses increased to 34.9% for the six months ended June 30,
1998 from 30.9% for six months ended June 30, 1997. The increase in selling,
general and administrative expenses as a percentage of net sales is primarily
due to the increased advertising in the form of television and print media,
which totaled approximately $2.2 million or 3.1% of net sales. Advertising
expense for the six months ended June 30, 1997 for print media was $0.4 million
or 0.9% of net sales.
Operating income. Operating income decreased $0.9 million, or 9.9%, to $8.2
million for the six months ended June 30, 1998 from $9.1 million for the six
months ended June 30, 1997. The decrease in operating income is a result of
the merger-related costs of $5.5 million incurred in conjunction with the
Wheels acquisition, as well as the increase in selling, general and
administrative expenses noted above. As a percentage of net sales, operating
income excluding merger-related costs decreased to 19.7% for the six months
ended June 30, 1998 from 21.6% for the six months ended June 30, 1997 due to
lower operating margins related to the $23 million of sales in other NASCAR
merchandise.
Interest expense. Interest expense of $1.5 million for the six months ended
June 30, 1998 related primarily to bank term loans and $4.6 million for the six
months ended June 30, 1997 related primarily to bank term loans and
subordinated debt incurred in connection with the Recapitalization.
Income tax. Income tax expense for the six months ended June 30, 1998, and
June 30, 1997 include provisions for federal, state and Hong Kong income taxes
at an effective rate of 41.3% and 46.0%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations used net cash of $0.6 million during the six months
ended June 30, 1998. This was primarily due to an increase in inventories.
Capital expenditures for the six months ended June 30, 1998 were approximately
$3.0 million, of which approximately $1.8 million was for molds and tooling.
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<PAGE> 12
On June 11, 1998, the Company amended its credit agreement with BankBoston,
N.A. and certain other lenders. The amended credit agreement provides for a
revolving loan, a five year term loan and the issuance of letters of credit.
The revolving loan allows the Company to borrow up to $12.0 million at any time
prior to June 30, 2003, based upon levels of the Company's accounts receivable,
inventory and cash flows and the amount of letter of credit exposure. The
Company had $7.6 million outstanding under the revolving loan at June 30, 1998.
The term loan in the principal amount of $25.0 million is due in scheduled
quarterly payments with final maturity on June 30, 2003. All borrowings under
the credit agreement are secured by substantially all of the assets of the
Company.
The term loan and the revolving term loan bear interest, at the Company's
option, at BankBoston's base rate plus a margin that varies between 0.00% and
0.75% or at a reserve adjusted Eurodollar rate plus margin that varies between
1.50% and 2.25%. The applicable margin is based on the Company's financial
performance and is currently 0.00% for base rate loans and 1.50% for Eurodollar
loans. The credit agreement requires the Company to pay a commitment fee of
0.50% per annum on the average daily unused portion of the revolving loan.
BankBoston's Hong Kong branch has made available to the Company's 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 Racing Champions Inc. and the Hong Kong subsidiary. At
June 30, 1998 the Hong Kong subsidiary had no outstanding borrowings under this
line of credit.
The Company's anticipated debt service obligations under the existing credit
facilities for 1998 for scheduled interest and principal payments and repayment
of the outstanding line of credit borrowings are approximately $10.7 million.
Average annual debt service obligations under these same facilities through
June, 2003 are approximately $5.8 million.
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 fourth quarters. The Company expects that capital
expenditures during 1998, principally for molds and tooling, will be
approximately $5.0 million. 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 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.
YEAR 2000 COMPLIANCE
The Company is reviewing its current computer applications with respect to the
year 2000 issue. The Company does not believe that the costs to modify its
internal computer applications with respect to year 2000 compliance will
have a material effect on the Company's financial condition or results of
operations. Although the Company has recently commenced communications with
certain of its significant customers regarding the year 2000 compliance of
these customers, the Company is unable to determine the effect on the Company
of year 2000 compliance by its customers.
FORWARD-LOOKING STATEMENTS
A number of the matters discussed in this report that are not historical or
current facts deal with potential future circumstances and developments. The
Company's actual results and future developments could differ materially from
the results or developments expressed in, or implied by, these forward-looking
statements. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, but are not
limited to, the following: (1) the Company's growth is dependent upon its
ability to continue to conceive, design, source and market new products and upon
continuing market acceptance of its existing and future products; (2)
competition in the markets for the Company's products may increase
significantly; (3) the Company is dependent upon continuing licensing
arrangements with race team owners, drivers, sponsors, agents, vehicle
manufacturers, major race sanctioning bodies and other licensors; (4) the
Company relies upon six independently owned factories located in China to
manufacture its racing replicas and certain other products; (5) the Company is
dependent upon the continuing willingness of leading retailers to purchase and
provide shelf space for the Company's products; (6) the Company's ability to
integrate and assimilate the business of Wheels; and (7) the Company may be
adversely affected by general economic conditions in its markets. Further
information on other factors which could affect the financial condition, results
of operations or business of the Company are described in the Company's other
filings with the Securities and Exchange Commission, including the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
12
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 5, 1997, Petty enterprises, Inc. filed a civil action in North
Carolina state court naming Racing Champions, Inc., a wholly-owned subsidiary
of the Company, as a defendant. The complaint relates to the Company's
production and sale of racing replicas bearing trademarks or trade names owned
by the plaintiff under a license agreement and makes a number of allegations
regarding unauthorized production, advertisement, use and sale by the Company
of such trademarks and trade names. The plaintiff seeks an unspecified amount
of compensatory and punitive damages and also seeks a court order that the
Company cease production, sale or promotion of products bearing the plaintiff's
trademarks or trade names and deliver all such products to the plaintiff for
destruction. The Company filed an answer on June 30, 1997, denying all claims
and asserting a counterclaim with respect to approximately $80,000 of unpaid
receivables. On July 12, 1997, the plaintiff filed a reply denying the
Company's counterclaim. The Company subsequently removed the case to the U.S.
District Court for the Middle District of North Carolina. Discovery is
proceeding in the case, and trial is currently scheduled for January 11, 1999.
The Company intends to vigorously defend the claims, although no assurances can
be given as to the outcome of this matter.
On May 4, 1997, a proposed class action lawsuit was filed in U.S.
District Court in Georgia against several trackside vendors, including Green's
Racing Souvenirs, Inc. ("GRS"), an indirect wholly-owned subsidiary of the
Company. The complaint alleges that the defendants have engaged in price
fixing activities at certain NASCAR events in violation of federal anti-trust
laws. Plaintiffs seek an unspecified amount of compensatory and punitive
damages and also an order enjoining the alleged price fixing practices. GRS
has entered into a joint defense agreement with certain co-defendants pursuant
to which defense costs are being reimbursed by defendant Americrown Service
Corporation. The existing joint defense agreement is to remain in effect
through class certification proceedings, which are expected to be completed
during late 1998. The Company expects that the action will be dismissed if
class certification is not obtained. In the event class certification is
obtained, the Company expects that GRS would vigorously defend against the
action, although no assurances can be given as to the outcome of this matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Company was held on June 11,
1998.
13
<PAGE> 14
The matters voted upon, including the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
as to each such matter were as follows:
Proposal 1: Approval of Amended and Restated Merger Agreement, dated as of
December 31, 1997, among the Company, WSG Acquisition, Inc. and Wheels Sports
Group, Inc. and the issuance of shares of Common Stock pursuant thereto
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
10,490,851 12,410 8,010 2,536,094
</TABLE>
Proposal 2: Amendment of Certificate of Incorporation to increase the total
number of authorized shares of Common Stock from 20,000,000 to 28,000,000
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
10,465,336 31,895 14,040 2,536,094
</TABLE>
Proposal 3: Election of directors
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
(a) John S. Bakalar 13,025,945 21,420
(b) Randy C. Baker 13,021,645 25,720
(c) Peter K.K. Chung 13,026,295 21,070
(d) Robert E. Dods 13,026,295 21,070
(e) Randy E. Duncan 13,026,145 21,220
(f) Daniel M. Gill 13,026,095 21,270
(g) Samuel B. Guren 13,026,095 21,270
(h) Boyd L. Meyer 13,026,295 21,070
(i) Victor H. Shaffer 13,026,145 21,220
(j) Avy H. Stein 13,026,095 21,270
(k) John J. Vosicky 13,026,295 21,070
</TABLE>
Proposal 4: Ratification of appointment of Arthur Andersen LLP as auditors of
the Company
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
12,999,870 8,915 38,580 0
</TABLE>
Proposal 5: Approval of amendment to the Company's Stock Incentive Plan
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
12,399,039 497,639 150,687 0
</TABLE>
ITEM 5. OTHER INFORMATION.
Not applicable.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Exhibits:
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger,
dated as of December 4, 1997, among the Company, WSG
Acquisition, Inc. and Wheels Sports Group, Inc.
(incorporated by reference to Exhibit 2.1 of the
Company's Registration Statement on Form S-4
(Registration No. 333-50865) filed by the Company with
the Securities and Exchange Commission on April 23,
1998).
3.1 Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit 3.1
of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (File No. 0-22635) filed
by the Company with the Securities and Exchange
Commission on August 14, 1997).
3.2 First Amendment to Amended and Restated Certificate of
Incorporation of the Company (incorporated by
reference to Exhibit 99.2 of the Company's Current
Report on Form 8-K dated June 12, 1998 (File No.
0-22635) filed by the Company with the Securities and
Exchange Commission on June 29, 1998).
3.3 Amended and Restated By-Laws of the Company.
10.1 Amendment No. 3 to Amended and Restated Credit
Agreement, dated as of June 11, 1998, by and among the
Company, Racing Champions, Inc., BankBoston, N.A., as
lender and agent, and the other lenders party thereto
(incorporated by reference to Exhibit 99.1 of the
Company's Current Report on Form 8-K dated June 12,
1998 (File No. 0-22635) filed by the Company with the
Securities and Exchange Commission on June 29, 1998).
10.2 Warrant Agreement, dated as of August 5, 1998, between
the Company and BankBoston, N.A., as warrant agent.
10.3 Warrant dated December 31, 1997, as amended, issued
by Wheels Sports Group, Inc. to Indosuez CM II, Inc.
10.4 Registration Rights Agreement, dated as of December
31, 1997, between Wheels Sports Group, Inc. and
Indosuez CM II, Inc.
10.5 Warrant dated April 27, 1997 issued by Wheels Sports
Group, Inc. to Schneider Securities, Inc.
10.6 Wheels Sports Group, Inc. 1996 Omnibus Stock Plan.
10.7 Employment Agreement, dated as of April 30, 1998,
between Racing Champions, Inc. and Curtis W.
Stoelting.
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
10.8 Employment Agreement, dated as of April 30, 1998,
between Racing Champions, Inc. and Peter J. Henseler.
10.9 Employment Agreement, dated as of April 30, 1998,
between Racing Champions, Inc. and John F. Olsen.
10.10 Employment Agreement, dated as of April 30, 1998,
between Racing Champions, Inc. and M. Kevin Camp.
10.11 Racing Champions Corporation Stock Incentive Plan, as
amended.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
The Company filed a Form 8-K on June 29, 1998, reporting the
following:
Item 2. Consummation of the merger of WSG
Acquisition, Inc., a wholly owned subsidiary
of the Company, with and into Wheels Sports
Group, Inc.
Execution of Amendment No. 3 to
the Company's Amended and Restated Credit
Agreement with Bank Boston, N.A., as lender
and agent, and the other lenders named
therein.
Item 7: The following financial statements were
filed:
(1) the audited consolidated financial
statements of Wheels Sports Group, Inc. at
December 31, 1997 and 1996 and for the three
years ended December 31, 1997; (2) the
audited financial statements of High
Performance Sports Marketing, Inc. at
December 31, 1996 and September 30, 1997 and
for the year ended December 31, 1996 and the
nine months ended September 30, 1997; and (3)
the audited financial statements of Press
Pass Partners at December 31, 1997 and 1996
and for the three years ended December 31,
1997. Unaudited financial statements of the
business acquired as of and for the six
months ended June 30, 1998 will be filed no
later than August 26, 1998.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated this 14th day of August 1998.
RACING CHAMPIONS CORPORATION
By /s/ Robert E. Dods
---------------------------------------
Robert E. Dods, Chief Executive Officer
By /s/ Curtis W. Stoelting
---------------------------------------
Curtis W. Stoelting, Executive Vice
President and Secretary
17
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BY-LAWS
OF
RACING CHAMPIONS CORPORATION
A Delaware Corporation
(Adopted on July 17, 1998)
<PAGE> 2
REFERENCE TABLE
AMENDED AND RESTATED BY-LAWS OF
RACING CHAMPIONS CORPORATION
Section Subject Matter Page
I. OFFICES
1.01 Registered Office 1
1.02 Other Offices 1
II. MEETINGS OF STOCKHOLDERS
2.01 Annual Meetings 1
2.02 Special Meetings 2
2.03 Place of Meetings 2
2.04 Notice 3
2.05 Stockholders List 3
2.06 Quorum 3
2.07 Adjourned Meetings 4
2.08 Vote Required 4
2.09 Voting Rights 4
2.10 Proxies 4
2.11 Action by Written Consent 5
III. DIRECTORS
3.01 General Powers 5
3.02 Number, Election and Term of Office 5
3.03 Removal and Resignation 6
3.04 Vacancies 6
3.05 Annual Meetings 6
3.06 Other Meetings and Notice 6
3.07 Quorum, Required Vote and Adjournment 6
3.08 Committees 6
3.09 Committee Rules 7
3.10 Communications Equipment 7
3.11 Waiver of Notice and Presumption of Assent 7
3.12 Action by Written Consent 8
3.13 The Chairman of the Board 8
3.14 Compensation of Directors 8
i
<PAGE> 3
IV. OFFICERS
4.01 Number 8
4.02 Election and Term of Office 8
4.03 Resignation and Removal 9
4.04 Vacancies 9
4.05 Compensation 9
4.06 Chief Executive Officer 9
4.07 President 10
4.08 Executive Vice President, Senior Vice Presidents
and Vice Presidents 10
4.09 Secretary 10
4.10 Treasurer 11
4.11 Assistants and Acting Officers 11
4.12 Other Officers, Assistant Officers and Agents 11
4.13 Absence or Disability of Officers 11
V. INDEMNIFICATION OF OFFICERS, DIRECTORS
AND OTHERS
5.01 Nature of Indemnity 12
5.02 Procedure for Indemnification of Directors and Officers 12
5.03 Not Exclusive 13
5.04 Insurance 13
5.05 Expenses 13
5.06 Employees and Agents 14
5.07 Contract Rights 14
5.08 Merger or Consolidation 14
VI. CERTIFICATES OF STOCK
6.01 Form 14
6.02 Lost Certificates 15
6.03 Fixing a Record Date for Stockholder Meetings 15
6.04 Fixing a Record Date for Action by Written Consent 16
6.05 Fixing a Record Date for Other Purposes 16
6.06 Registered Stockholders 16
6.07 Subscriptions for Stock 17
ii
<PAGE> 4
VII. GENERAL PROVISION
7.01 Dividends 17
7.02 Checks, Drafts or Orders 17
7.03 Contracts 17
7.04 Loans 17
7.05 Fiscal Year 18
7.06 Corporate Seal 18
7.07 Voting Securities Owned by Corporation 18
7.08 Inspection of Books and Records 18
7.09 Section Headings 18
7.10 Inconsistent Provisions 19
VIII. AMENDMENTS
8.01 By Stockholders 19
8.02 By Directors 19
8.03 Implied Amendments 19
iii
<PAGE> 5
ARTICLE I. OFFICES
SECTION 1.01. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at 1013 Centre Road,
Wilmington, Delaware, County of New Castle 19805. The name of the Corporation's
registered agent at such address shall be The Prentice-Hall Corporation System,
Inc. The registered office and/or registered agent of the Corporation may be
changed from time to time by action of the Board of Directors.
SECTION 1.02. Other Offices. The Corporation may also have
offices at such other places, both within and without the State of Delaware, as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II. MEETINGS OF STOCKHOLDERS
SECTION 2.01. Annual Meetings. Annual meetings of the
stockholders, commencing in 1998, shall be held each year on the third Wednesday
of April if not a legal holiday, and if a legal holiday, then on the next
business day following, at 10:00 a.m., or at such other date and time as may be
fixed by or under the authority of the Board of Directors and stated in the
notice of meeting, for the purpose of electing directors and conducting such
other proper business as may come before the meeting.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise brought before the meeting by or at the
direction of the Board of Directors, or (c) brought before the meeting by a
stockholder pursuant to this By-Law.
Only persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the procedures set forth
in this By-Law.
For business to be properly brought before an annual meeting
by a stockholder, and for nominations by stockholders for the election of
directors, the stockholder must have given timely notice thereof in writing to
the Secretary of the
<PAGE> 6
Corporation. All notices given pursuant to this section shall be in writing and
must be received by the Secretary of the Corporation not later than 90 days
prior to the anniversary date of the annual meeting of stockholders in the
immediately preceding year. 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 Corporation's books, of such stockholder, (iii) the class and
number of the Corporation's shares 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 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
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 Corporation, and shall specify any material interest of
such stockholder in such business. Notice as to nominations shall set forth the
name(s) of the nominee(s), address(es) of each, a description of all
arrangements or understandings between the stockholder and each nominee and any
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, the written consent
of each nominee to serve as a director if so elected and such other information
as would be required to be included in a proxy statement soliciting proxies for
the election of the nominee(s) of such stockholder. Nothing in these By-Laws
shall require the Corporation to include in any notice, proxy statement or other
mailing to stockholders any information regarding nominees or proposals made by
stockholders except as otherwise required by law.
The chairman of the meeting shall refuse to acknowledge the
nomination of any person or the consideration of any business not made in
compliance with the foregoing procedures.
SECTION 2.02. Special Meetings. Special meetings of
stockholders may be called for any purpose and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such special meeting
may be called at any time by the Board of Directors, the President or the
holders of at least a majority of the issued and outstanding shares of capital
stock entitled to vote thereat.
SECTION 2.03. Place of Meetings. The Board of Directors may
designate any place either within or without the State of Delaware, as the place
of meeting for any annual meeting or for any special meeting called by the Board
of Directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal business office of the
Corporation but
2
<PAGE> 7
any meeting may be adjourned to reconvene at any place designated by a majority
of the shares represented thereat.
SECTION 2.04. Notice. Whenever stockholders are required or
permitted to take action at a meeting, written or printed notice stating the
place, date, time, and, in the case special meetings, the purpose or purposes,
of such meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than 60 days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the Board of Directors, the President or the Secretary and if
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, postage prepaid, addressed to the stockholder at his, her or its
address as the same appears on the records of the Corporation. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends for the express purpose of objecting at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 2.05. Stockholders List. The officer or agent having
charge of the stock ledger of the Corporation shall make, at least ten days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote at such meeting arranged in alphabetical order, showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.06. Quorum. The holders of a majority of the
outstanding shares of capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders, except as otherwise provided by statute or by
the certificate incorporation. Once a holder is represented for any purpose at a
meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, such holder is considered present for
purposes of determining whether a quorum exists for the remainder of the meeting
and for any adjournment of that meeting unless a new record date is or must be
set for that meeting. If a quorum is not present, the holders of a majority of
the shares present in person or represented by proxy at the meeting, and
entitled to vote at the meeting, may adjourn the meeting or another time and/or
place.
3
<PAGE> 8
SECTION 2.07. Adjourned Meetings. When a meeting is adjourned
to another time and place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 2.08. Vote Required. When a quorum is present, the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the act
of the stockholders, unless the question is one upon which by express provisions
of an applicable law, the certificate of incorporation or these By-Laws a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
SECTION 2.09. Voting Rights. Except as otherwise provided by
the General Corporation Law of the State of Delaware or by the certificate of
incorporation of the Corporation or any amendments thereto and subject to
section 6.03, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
SECTION 2.10. Proxies. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
or her by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the Secretary or a person designated by
the Secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid.
4
<PAGE> 9
SECTION 2.11. Action by Written Consent. Unless otherwise
provided in the certificate of incorporation, any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
the state of Delaware, or the Corporation's principal place of business, or an
officer or agent of the Corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until such
consent or consents are actually received at the registered office. All consents
properly delivered in accordance with this section shall be deemed to be
recorded when so delivered. No written consent shall be effective to take the
corporate action referred to therein unless, within 60 days of the earliest
dated consent delivered to the Corporation as required by this section, written
consents signed by the holders of a sufficient number of shares to take such
corporate action are so recorded. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing. Any action taken
pursuant to such written consent or consents of the stockholders shall have the
same force and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III. DIRECTORS
SECTION 3.01. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.02. Number, Election and Term of Office. The number
of directors which shall constitute the whole Board shall be not less than three
nor more than 15, as may be designated from time to time by the Board of
Directors. The directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote in the election of directors. The directors shall be elected in this manner
at the annual meeting of the stockholders, except as provided in section 3.04.
Each director elected shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as
hereinafter provided.
5
<PAGE> 10
SECTION 3.03. Removal and Resignation. Any director or the
entire Board of Directors may be removed at any time, with or without cause, by
the holders of a majority of the shares then entitled to vote at an election of
directors. Any director may resign at any time upon written notice to the
Corporation.
SECTION 3.04. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
shall be filled by the Board of Directors for the unexpired portion of the term.
Each director so chosen shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as herein
provided.
SECTION 3.05. Annual Meetings. The annual meeting of each
newly elected Board of Directors shall be held without other notice than this
By-Law immediately after, and at the same place as, the annual meeting of
stockholders.
SECTION 3.06. Other Meetings and Notice. Regular meetings,
other than the annual meeting, of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by resolution of the Board. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board, the President or any
two directors on at least 24 hours notice to each director, either personally,
by private courier, by telephone, by mail, or by facsimile. Oral notice is
effective when communicated. Written notice is effective as follows: If
delivered in person, when received; if given by mail, when deposited, postage
prepaid, in the United States mail addressed to the director at his or her
business or home address (or such other address as the director may have
designated in writing filed with the Secretary); if given by facsimile, at the
time transmitted to a facsimile number at any address designated above; and if
given by private courier, when delivered to the private courier.
SECTION 3.07. Quorum, Required Vote and Adjournment. A
majority of the total number of directors shall constitute a quorum for the
transaction of business. The vote of a majority of directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 3.08. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
6
<PAGE> 11
committees, each committee to consist of one or more of the directors of the
Corporation, which to the extent provided in such resolution or these By-Laws
shall have and may exercise the powers of the Board of Directors in the
management and affairs of the Corporation except as otherwise limited by law.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
SECTION 3.09. Committee Rules. Each committee of the Board of
Directors may fix its own rules of procedure and shall hold its meetings as
provided by such rules, except as may otherwise be provided by a resolution of
the Board of Directors designating such committee. Unless otherwise provided in
such a resolution, the presence of at least a majority of the members of the
committee shall be necessary to constitute a quorum. In the event that a member
and that member's alternate, if alternates are designated by the Board of
Directors as provided in section 3.08, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
SECTION 3.10. Communications Equipment. Members of the Board
of Directors or any committee thereof may participate in and act at any meeting
of such Board or committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
SECTION 3.11. Waiver of Notice and Presumption of Assent. Any
member of the Board of Directors or any committee thereof who is present at a
meeting shall be conclusively presumed to have waived notice of such meeting
except when such member attends for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Such member shall be conclusively presumed
to have assented to any action taken unless his or her dissent shall be entered
in the minutes of the meeting or unless his or her written dissent to such
action shall be held with the person acting as the Secretary of the meeting
before the adjournment thereof or shall be forwarded by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to any member who voted in favor of such
action.
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SECTION 3.12. Action by Written Consent. Unless otherwise
restricted by the certificate of incorporation, any action required or permitted
to be taken at any meeting the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee
SECTION 3.13. The Chairman of the Board. The Board of
Directors may choose a Chairman of the Board who shall hold the position until
his or her successor is chosen and qualifies and who may be removed at any time
by the affirmative vote or a majority of the Board of Directors. Any vacancy
occurring in the position of Chairman of the Board may be filled by the Board of
Directors. The Chairman of the Board shall preside at all meetings of the Board
of Directors and stockholders, and shall have such other powers and duties as
may from time to time be prescribed by the Board of Directors, upon written
directions given to him or her pursuant to resolutions duly adopted by the Board
of Directors. The Chairman of the Board shall not be deemed to be an officer of
the Corporation as a result of his or her appointment as Chairman of the Board.
SECTION 3.14. Compensation of Directors. The Board of
Directors, irrespective of any personal interests of any of its members, may fix
the compensation of directors, including a fixed sum for attendance at each
meeting of the Board of Directors, a stated salary as director and/or
reimbursement of expenses, if any. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV. OFFICERS
SECTION 4.01. Number. The officers of the Corporation shall be
elected by the Board of Directors and shall consist of a Chief Executive
Officer, a President, an Executive Vice President, one or more Vice Presidents,
including Senior Vice Presidents, a Secretary, and such other officers and
assistant officers as may be deemed necessary and desirable by the Board of
Directors. Any number of offices may be held by the same person. In its
discretion, the Board of Directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of Chief Executive
Officer, President and Secretary shall be filled as expeditiously as possible.
SECTION 4.02. Election and Term of Office. The officers of the
Corporation shall be elected annually by the Board of Directors at its first
meeting
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held after each annual meeting of stockholders or as soon thereafter as
conveniently may be. Vacancies may be filled or new offices created and filled
at any meeting of the Board of Directors. Each officer shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
SECTION 4.03. Resignation and Removal. An officer shall hold
office until he or she resigns, dies, is removed hereunder, or a different
person is appointed to the office. An officer may resign at any time by
delivering an appropriate written notice to the Corporation. The resignation is
effective when the notice is delivered, unless the notice specifies a later
effective date and the Corporation accepts the later effective date. Any officer
may be removed by the Board of Directors with or without cause and
notwithstanding the contract rights, if any, of the person removed. Except as
provided in the preceding sentence, the resignation or removal is subject to any
remedies provided by any contract between the officer and the Corporation or
otherwise provided by law. Appointment shall not of itself create contract
rights.
SECTION 4.04. Vacancies. Any vacancy occurring in any office
because of death, resignation, removal, disqualification or otherwise, may be
filled by the Board of Directors for the unexpired portion of the term by the
Board of Directors then in office.
SECTION 4.05. Compensation. Compensation of all officers shall
be fixed by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of the
Corporation.
SECTION 4.06. Chief Executive Officer. The Chief Executive
Officer shall be the principal executive officer of the Corporation. He shall
supervise the day to day operations of the Corporation's business. In the
absence of the Chairman of the Board, or in the event that that office is for
any reason vacant, the Chief Executive Officer shall perform the functions of
the Chairman of the Board. The Chief Executive Officer shall perform such other
duties as may be prescribed from time to time by the Board of Directors. The
Chief Executive Officer is authorized to sign, execute and acknowledge, on
behalf of the Corporation, all deeds, mortgages, bonds, contracts, leases,
reports and all other documents or instruments necessary or proper to be
executed in the course of the Corporation's regular business, or which shall be
authorized by resolution of the Board of Directors; and, except as otherwise
provided by law or directed by the Board of Directors, the Chief Executive
Officer may authorize the President, the Executive Vice President or any Vice
President or other officer or agent of the Corporation to sign, execute and
acknowledge such documents or instruments in
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his or her place and stead. In general, the Chief Executive Officer shall
perform all duties incident to the office of Chief Executive Officer and such
other duties as may be prescribed by the Board of Directors from time to time.
SECTION 4.07. President. The President shall have
responsibility for the general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect, and in the absence of the Chairman of the
Board and the Chief Executive Officer or in the event of their inability or
refusal to act shall preside at all meetings of the stockholders and the Board
of Directors. The President shall have the authority to sign, execute and
acknowledge, on behalf of the Corporation, all contracts, deeds, mortgages,
bonds, stock certificates, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
Corporation's regular business, or which shall be authorized by resolution of
the Board of Directors. The President shall be subject to the control of the
Board of Directors and the Chief Executive Officer. In the absence of the Chief
Executive Officer or in the event of his death, disability or refusal to act,
the President shall perform the duties of the Chief Executive Officer and when
so acting shall have all the powers and duties of the Chief Executive Officer.
In general, he shall perform all duties incident to the office of the President
and such other duties as may be assigned to him from time to time by the Board
of Directors or the Chief Executive Officer.
SECTION 4.08. Executive Vice President, Senior Vice Presidents
and Vice Presidents. The Executive Vice President, any Senior Vice President or
any Vice President may sign with the Secretary, certificates for shares of the
Corporation; and shall perform such other duties and have such authority as from
time to time may be delegated or assigned to him or her by the Chief Executive
Officer, the President or the Board of Directors. The execution of any
instrument of the Corporation by the Executive Vice President, any Senior Vice
President or any Vice President shall be conclusive evidence, as to third
parties, of the authority of the Executive Vice President, the Senior Vice
President or the Vice President to act in the stead of the President.
SECTION 4.09. Secretary. The Secretary shall: (a) keep (or
cause to be kept) regular minutes of all meetings of the stockholders, the Board
of Directors and any committees of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation, if any, and see that
the seal of the Corporation, if any, is affixed to all documents which are
authorized to be executed on behalf of the Corporation under its seal; (d) keep
or arrange for the keeping of a register of the post office address of each
stockholder which shall be furnished to the Secretary by such stockholder; (e)
sign certificates for shares of
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the Corporation, the issuance of which shall have been authorized by resolution
of the Board of Directors; (f) have general charge of the stock transfer books
of the Corporation; and (g) in general perform all duties incident to the office
of Secretary and have such other duties and exercise such authority as from time
to time may be delegated or assigned to him or her by the President or by the
Board of Directors.
SECTION 4.10. Treasurer. The Treasurer shall: (a) have charge
and custody of and be responsible for all funds and securities of the
Corporation; (b) receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in such banks, trust companies or other depositories as shall
be selected by the Corporation; and (c) in general perform all of the duties
incident to the office of Treasurer and have such other duties and exercise such
other authority as from time to time may be delegated or assigned to him or her
by the President or by the Board of Directors.
SECTION 4.11. Assistants and Acting Officers. The Board of
Directors shall have the power to appoint any person to act as assistant to any
officer, or as agent for the Corporation in the officer's stead, or to perform
the duties of such officer whenever for any reason it is impracticable for such
officer to act personally, and such assistant or acting officer or other agent
so appointed by the Board of Directors shall have the power to perform all the
duties of the office to which that person is so appointed to be assistant, or as
to which he or she is so appointed to act, except as such power may be otherwise
defined or restricted by the Board of Directors.
SECTION 4.12. Other Officers, Assistant Officers and Agents.
Officers, assistant officers and agents, if any, other than those whose duties
are provided for in these By-Laws, shall have such authority and perform such
duties as may from time to time be prescribed by resolution of the Board of
Directors.
SECTION 4.13. Absence or Disability of Officers. In the case
of the absence or disability of any officer of the Corporation and of any person
hereby authorized to act in such officer's place during such officer's absence
or disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
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ARTICLE V. INDEMNIFICATION OF
OFFICERS, DIRECTORS AND OTHERS
SECTION 5.01. Nature of Indemnity. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he, or a
person of whom he is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another Corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment) against all expense,
liability and loss (including attorneys' fees actually and reasonably incurred
by such person in connection with such proceeding) and such indemnification
shall inure to the benefit of his heirs, executors and administrators; provided,
however, that, except as provided in section 2 hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the Board of Directors of the Corporation. The right to indemnification
conferred in this Article V shall be a contract right and, subject to sections
5.02 and 5.05, shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
SECTION 5.02. Procedure for Indemnification of Directors and
Officers. Any indemnification of a director or officer of the Corporation under
section 5.01 or advance of expenses under section 5.05 shall be made promptly,
and in any event within 30 days, upon the written request of the director or
officer, if a determination by the Corporation that the director or officer is
entitled to indemnification pursuant to this Article V is required, and the
Corporation fails to respond within 60 days to a written request for indemnity,
the Corporation shall be deemed to have approved the request. If the Corporation
denies a written request for indemnification or advancing of expenses, in whole
or in part, or if payment in full pursuant to such request is not made within 30
days, the right to indemnification or advances as granted by this Article V
shall be enforceable by the director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his or her right
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to indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
of the State of Delaware for the Corporation to indemnify the claimant for the
amount claimed, but the burden of such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, nor
an actual determination by Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense in the action or create
a presumption that the claimant has not met the applicable standard of conduct.
SECTION 5.03. Not Exclusive. The rights to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article V shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 5.04. Insurance. The Corporation may purchase and
maintain insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation or was
serving at the request of the Corporation as a director, officer, employee or
agent of another Corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the Corporation would have the power
to indemnify such person against such liability under this Article V.
SECTION 5.05. Expenses. Expenses incurred by any person
described in section 5.01 in defending a proceeding shall be paid by the
Corporation in advance of such proceeding's final disposition, unless otherwise
determined by the Board of Directors in the specific case, upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
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SECTION 5.06. Employees and Agents. Persons who are not
covered by the foregoing provisions of this Article V and who are or were
employees or agents of the Corporation, or who are or were serving at the
request of the Corporation as employees or agents of another Corporation,
partnership, joint venture, trust or other enterprise, may be indemnified to the
extent authorized at any time or from time to time by the Board of Directors.
SECTION 5.07. Contract Rights. The provisions of this Article
V shall be deemed to be a contract right between the Corporation and each
director or officer who serves in any such capacity at any time while this
Article V and the relevant provisions of the General Corporation Law of the
State of Delaware or other applicable law are in effect, and any repeal or
modification of this Article V or any such law shall not affect any rights or
obligations then existing with respect to any state of facts or proceeding then
existing.
SECTION 5.08. Merger or Consolidation. For purposes of this
Article V, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VI. CERTIFICATES OF STOCK
SECTION 6.01. Form. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by the Chairman of the Board, the President, the Executive Vice
President or a Vice President and the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares of a specific class or series owned
by such holder in the Corporation. If such a certificate is countersigned,
either manually or by facsimile, (1) by a transfer agent or an assistant
transfer agent other than the Corporation or its employee or (2) by a registrar,
other than the Corporation or its employee, the signature of any such Chairman
of the Board, President, Vice President, Secretary, or Assistant Secretary may
be facsimiles. In case any officer or officers who have signed, or who facsimile
signature or signatures have been used on, any such certificate or certificate
shall cease to be such officer or
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officers of the Corporation whether because of death resignation or otherwise
before such certificate or certificates have been delivered by Corporation, such
certificate or certificates may nevertheless be issued and delivered though the
person or persons who signed such certificate or certificates or whose facsimile
signature or signatures have been used thereon had not ceased to be such officer
or officers of the Corporation. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the person to whom
the shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the books of the Corporation. Shares of stock of the
Corporation shall only be transferred on the books of the Corporation by the
holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the Corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity such endorsement, transfer, authorization, and
other matters as the Corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The Board of Directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both connection with the transfer of any class or series of
securities of the Corporation.
SECTION 6.02. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 6.03. Fixing a Record Date for Stockholder Meetings.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than 60 nor less
than ten days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding
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the day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6.04. Fixing a Record Date for Action by Written
Consent. In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by statute, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by statute, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
SECTION 6.05. Fixing a Record Date for Other Purposes. In
order that the Corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment or any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purposes of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
SECTION 6.06. Registered Stockholders. Prior to the surrender
to the Corporation of the certificate or certificates for a share or shares of
stock with a request to record the transfer of such share or shares, the
Corporation may treat the registered owner as the person entitled to receive
dividends, to vote, to receive
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notifications, and otherwise to exercise all the rights and powers of an owner.
The Corporation shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof.
SECTION 6.07. Subscriptions for Stock. Unless otherwise
provided for in the subscription agreement, subscriptions for shares shall be
paid in full at such time, or in such installments and at such times, as shall
be determined by the Board of Directors. Any call made by the Board of Directors
for payment on subscriptions shall be uniform as to all shares of the same class
or as to all shares of the same series. In case of default in the payment of any
installment or call when such payment is due, the Corporation may proceed to
collect the amount due in the same manner as any debt due the Corporation.
ARTICLE VII. GENERAL PROVISIONS
SECTION 7.01. Dividends. Dividends upon the capital stock of
the Corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
SECTION 7.02. Checks, Drafts or Orders. All checks, drafts, or
other orders for payment of money by or to the Corporation and all notes and
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation, and in
such manner, as shall be determined by resolution of the Board of Directors or a
duly authorized committee thereof.
SECTION 7.03. Contracts. The Board of Directors may authorize
any officer or officers, or any agent or agents, of the Corporation to enter
into any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
SECTION 7.04. Loans. The Corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of
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the Corporation or of any subsidiary including any officer or employee who is
a director of the Corporation or any subsidiary, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
SECTION 7.05. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 7.06. Corporate Seal. The Board of Directors shall
provide a corporate seal which shall be in the form of a circle and shall have
inscribed thereon the name of the Corporation and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
SECTION 7.07. Voting Securities Owned by Corporation. Voting
securities in any other corporation held by the Corporation shall be voted by
the President, unless the Board of Directors specifically confers authority to
vote with respect thereto, which authority may be general or confined to
specific instances, upon some other person or officer. Any person authorized to
vote securities shall have the power to appoint proxies, with general power of
substitution.
SECTION 7.08. Inspection of Books and Records. Any stockholder
of record, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the Corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean any purpose reasonably related
to such person's interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in the State of Delaware or at its principal place of
business.
SECTION 7.09. Section Headings. Section headings in these
By-Laws are for convenience of reference only and shall not be given any
substantive effect in limiting or otherwise construing any provision herein.
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SECTION 7.10. Inconsistent Provisions. In the event that any
provision of these bylaws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-Laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VIII. AMENDMENTS
SECTION 8.01. By Stockholders. Unless otherwise provided in the
certificate of incorporation, these By-Laws may be amended or repealed and new
By-Laws may be adopted by the stockholders by majority vote of all shares of the
Corporation's stock then outstanding and entitled to vote thereon.
SECTION 8.02. By Directors. These By-Laws may also be amended
or repealed and new By-Laws may be adopted by the Board of Directors at any
meeting by the vote provided in section 3.07 or by written consent, but (a) no
By-Law adopted by the stockholders shall be amended, repealed or readopted by
the Board of Directors if the By-Law so adopted so provides and (b) 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 is 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.
SECTION 8.03. Implied Amendments. Any action taken or
authorized by the stockholders or by the Board of Directors, which would be
inconsistent with the By-Laws then in effect but is taken or authorized by a
vote that would be sufficient to amend the By-Laws so that the By-Laws would be
consistent with such action, shall be given the same effect as though the
By-Laws had been temporarily amended or suspended so far, but only so far, as is
necessary to permit the specific action so taken or authorized.
19
<PAGE> 1
EXHIBIT 10.2
WARRANT AGREEMENT
------------
RACING CHAMPIONS CORPORATION
AND
BANKBOSTON, N.A.
WARRANT AGENT
AUGUST 5, 1998
------------
<PAGE> 2
WARRANT AGREEMENT
THIS AGREEMENT dated as of August 5, 1998, between Racing Champions
Corporation, a Delaware corporation (the "Company"), and BankBoston, N.A. (the
"Warrant Agent").
WHEREAS:
In connection with a public offering (the "Public Offering"), Wheels Sports
Group, Inc., a North Carolina corporation ("Wheels"), issued 1,035,000 shares
(the "Shares") of Common Stock of Wheels, $.01 par value ("Wheels Common Stock")
and 1,035,000 warrants ("Wheels Warrants"), each two Wheels Warrants entitling
the Registered Owner thereof to purchase one share of Wheels Common Stock, or an
aggregate of 517,500 shares of Wheels Common Stock on exercise of all Wheels
Warrants; and
Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as
of December 4, 1997 (the "Merger Agreement"), among the Company, WSG
Acquisition, Inc., a North Carolina corporation and a wholly owned subsidiary of
the Company ("Acquisition"), and Wheels, Acquisition was merged (the "Merger")
effective June 12, 1998 with and into Wheels, with Wheels being the surviving
corporation and becoming a wholly owned subsidiary of the Company, and each
share of Wheels Common Stock issued and outstanding at the effective time of the
Merger was converted into the right to receive 0.51 shares (the "Exchange
Ratio") of Common Stock, par value $0.01, of the Company (the "Common Stock");
and
Pursuant to the Merger Agreement and the Warrant Agreement, dated as of
April 16, 1997 (the "Old Warrant Agreement"), between Wheels and American
Securities Transfer & Trust, Inc. (the "Old Warrant Agent"), upon the effective
time of the Merger, the Wheels Warrant were converted into warrants to purchase
shares of Common Stock (the "Warrants"), with each two Warrants entitling the
Registered Owner thereof to purchase 0.51 shares of Common Stock, or an
aggregate of 263,925 shares of Common Stock on exercise of all Warrants; and
<PAGE> 3
The Company has provided notice to the Old Warrant Agent terminating its
services pursuant to the Old Warrant Agreement and desires to enter into this
Agreement with the Warrant Agent to supercede the Old Warrant Agreement and to
provide for the issuance, registration, transfer, exchange and exercise of
certificates (the "Warrant Certificates") representing Warrants and for the
exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrant Certificates and the Warrants, and the respective rights and
obligations thereunder of the Company, the registered holders of the Warrant
Certificates and the Warrant Agent, the parties hereto agree as follows:
l. Definitions. As used herein:
(a) "Common Stock" shall mean Common Stock, $.01 par value per share,
of the Company, whether now or hereafter authorized, holders of which have the
right to participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
(b) "Corporate Office" shall mean the place of business of the
Warrant Agent (or its successor) located in Canton, Massachusetts, which office
is presently located at 150 Royall Street, Canton, Massachusetts 02021.
(c) "Effective Date" shall mean April 16, 1997, the date on which
Wheels' Registration Statement was declared effective by the Securities and
Exchange Commission.
(d) "Exercise Date" shall mean the date of surrender for exercise of
any Warrant Certificate, provided the exercise form on the back of the Warrant
Certificate or a form substantially similar thereto has been completed in full
by the Registered Owner or a duly appointed attorney and the Warrant Certificate
is accompanied by payment in full of the Exercise Price.
(e) "Exercise Period" shall mean the period commencing on the
Effective Date and extending to and through the Expiration Date.
2
<PAGE> 4
(f) "Exercise Price" shall mean a purchase price of $13.88 per share
of Common Stock; provided, however, that in the event the Company reduces the
Exercise Price in accordance with Section 9(i) hereof, the Exercise Price shall
be as established by the Company in accordance with such Section.
(g) "Expiration Date" shall mean 5:00 P.M. Eastern Standard or
Daylight Time on the last day of the 5 year period commencing on the Effective
Date, subject to the terms provided in Section 5 herein for redemption and
subject to extension by the Board of Directors of the Company; provided however,
if such date shall be a holiday or a day on which banks are authorized to close,
then Expiration Date shall mean 5:00 p.m., Eastern Standard or Daylight Time on
the next following day which in the State of Colorado is not a holiday or a day
on which banks are authorized to close. The Expiration Date may be extended from
time to time, by resolution of the Board of Directors of the Company, to a later
date upon giving notice to the Warrant Agent and the Registered Owners;
provided, however, that notice to the Registered Owners of an extension of the
Expiration Date may be made by publication or by release to Dow Jones, P.R.
Newswire or other means of general distribution. If the Company redeems the
Warrants as provided in Section 5 of this agreement, the Expiration Date shall
be the date fixed for redemption.
(h) "Registered Owner" shall mean the person in whose name any
Warrant Certificate shall be registered on the books maintained by the Warrant
Agent pursuant to Section 6 of this Agreement.
(i) "Registration Statement" shall mean Wheels' Registration
Statement on Form SB-2 (S.E.C. File No. 333-6340), as amended.
(j) "Subsidiary" shall mean any corporation of which shares having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (regardless of whether the shares of any other class or classes of
such corporation shall have or may have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the Company
or one or more subsidiaries of the Company.
3
<PAGE> 5
(k) "Warrant" or the "Warrants" shall mean and include up to
1,035,000 Warrants to purchase 263,295 authorized and unissued shares of Common
Stock.
(l) "Warrant Agent" shall mean BankBoston, N.A. (or its service agent
Boston EquiServe Limited Partnership), or its successor, as the transfer agent
and registrar of the Warrants.
(m) "Warrant Shares" shall mean and include up to 263,295 authorized
and unissued shares of Common Stock reserved for issuance on exercise of the
Warrants, and unless otherwise noted, shall include any additional shares of
Common Stock or other property which may hereafter be issuable or deliverable on
exercise of the Warrants pursuant to Section 9 of this Agreement.
2. Warrants and Issuance of Warrant Certificates. Each two Warrants shall
initially entitle the Registered Owner of the Warrant Certificates representing
such Warrants to purchase 0.51 shares of Common Stock on exercise thereof,
subject to modification and adjustment as hereinafter provided in Section 9.
Warrant Certificates representing the Warrants shall be executed by the proper
officers of the Company and delivered to the Warrant Agent for countersignature.
The Warrant Agent shall deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement.
Except as provided in Section 8 hereof, share certificates representing the
Warrant Shares shall be issued only on or after the Exercise Date on exercise of
the Warrants or on transfer or exchange of the Warrant Shares. The Warrant
Agent, if other than the Company's Transfer Agent, shall arrange with the
Transfer Agent for the issuance and registration of all Warrant Shares.
3. Form and Execution of Warrant Certificates. The Warrant Certificates
shall be substantially in the form attached as Exhibit "A" and may have such
letters, numbers or other marks of identification and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement.
The Warrant Certificates shall be dated as of the date of issuance, whether on
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates.
4
<PAGE> 6
The Warrant Certificates shall be executed on behalf of the Company by its
Chief Executive Officer or President and by its Secretary, by manual signatures
or by facsimile signatures printed thereon. The Warrant Certificates shall be
manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In the event any officer of the Company who
executed the Warrant Certificates shall cease to be an officer of the Company
before the date of issuance of the Warrant Certificates or before
countersignature and delivery by the Warrant Agent, such Warrant Certificates
may be countersigned, issued and delivered by the Warrant Agent with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be an officer of the Company.
4. Exercise. The exercise of Warrants in accordance with this Agreement
shall only be permitted during the Exercise Period.
Warrants shall be deemed to have been exercised immediately prior to the
close of business on the Exercise Date. The exercise form shall be executed by
the Registered Owner thereof or his attorney duly authorized in writing and
shall be delivered together with payment to the Warrant Agent, in cash or by
official bank or certified check, of an amount in lawful money of the United
States of America. Such payment shall be in an amount equal to the Exercise
Price as hereinabove defined.
The person entitled to receive the number of Warrant Shares deliverable on
such exercise shall be treated for all purposes as the Registered Owner of such
Warrant Shares as of the close of business on the Exercise Date. The Company
shall not be obligated to issue any fractional share interests in Warrant
Shares. If Warrants represented by more than one Warrant Certificate shall be
exercised at one time by the same Registered Owner, the number of full Warrant
Shares which shall be issuable on exercise thereof shall be computed on the
basis of the aggregate number of full Warrant Shares issuable on such exercise.
As soon as practicable on or after the Exercise Date and in any event
within 30 days after such date, the Warrant Agent shall cause to be issued and
delivered by the Transfer Agent to the person or persons entitled to receive the
same, a certificate or certificates for the number of Warrant Shares deliverable
on such exercise. No adjustment shall be made in respect of cash dividends on
Warrant Shares deliverable on
5
<PAGE> 7
exercise of any Warrant. The Warrant Agent shall promptly notify the Company
in writing of any exercise and of the number of Warrant Shares caused to
be delivered and shall cause payment of an amount in cash equal to the Exercise
Price to be made promptly to the order of the Company. The parties contemplate
such payments will be made by the Warrant Agent to the Company on a weekly basis
and will consist of collected funds only. The Warrant Agent shall hold any
proceeds collected and not yet paid to the Company in a Federally-insured escrow
account at a commercial bank selected by agreement of the Company and the
Warrant Agent, at all times relevant hereto. Following a determination by the
Warrant Agent that collected funds have been received, the Warrant Agent shall
cause the Transfer Agent to issue share certificates representing the number of
Warrant Shares purchased by the Registered Owner.
Expenses incurred by the Warrant Agent, including administrative costs,
costs of maintaining records and other expenses, shall be paid by the Company
according to the standard fees imposed by the Warrant Agent for such services.
All expenses incurred by the Warrant Agent and to be paid by the Company shall
be deducted from the Escrow Account prior to distribution of funds to the
Company.
A detailed accounting statement setting forth the number of Warrants
exercised, the number of Warrant Shares issued, the net amount of exercised
funds and all expenses incurred by the Warrant Agent shall be transmitted to the
Company on payment of each exercise amount. Such accounting statement shall
serve as an interim accounting for the Company during the Exercise Period. The
Warrant Agent shall render to the Company, at the completion of the Exercise
Period, a complete accounting setting forth the number of Warrants exercised,
the identity of persons exercising such Warrants, the number of Warrant Shares
issued, the amounts distributed to the Company, and all expenses incurred by the
Warrant Agent.
The Company may be required to deliver a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933, as amended (the "1933
Act") with delivery of the Warrant Shares and must have a registration statement
(or a post-effective amendment to an existing registration statement) effective
under the 1933 Act in order for the Company to comply with any such prospectus
delivery requirements. The Company will advise the Warrant Agent of the status
of any such registration statement under the 1933 Act and of the effectiveness
of the Company's registration statement or lapse of effectiveness.
6
<PAGE> 8
No issuance of Warrant Shares shall be made unless there is an effective
registration statement under the 1933 Act, and registration or qualification of
the Warrant Shares, or an exemption therefrom, has been obtained from state or
other regulatory authorities in the jurisdiction in which such Warrant Shares
are sold. The Company will provide to the Warrant Agent written confirmation of
all such registration or qualification, or an exemption therefrom, when
requested by the Warrant Agent.
5. Redemption. Commencing one year from the Effective Date, the Company
may, at its option, redeem the Warrant in whole, but not in part, for a
redemption price of $.05 per Warrant, on not less than 30 days' notice to the
Registered Owners. The right to redeem the Warrants may be exercised by the
Company following such one year period and during the Exercise Period only in
the event (i) the closing bid price for Company's shares of Common Stock has
equaled or exceeded $17.35 (125% of the Warrant Exercise Price) for 20
consecutive trading days, (ii) any notice of the call for redemption is given
not more than five (5) business days after the conclusion of the 20 consecutive
trading days referred to in the foregoing (i), (iii) the Company has a
registration statement (or a post-effective amendment to an existing
registration statement) pertaining to the Warrant Shares effective with the
Securities and Exchange Commission, which registration statement would enable a
Registered Owner to exercise the Warrants, and (iv) the expiration of the 30 day
notice period is within the Exercise Period. In the event the Company exercises
its right to redeem the Warrants, the Expiration Date will be deemed to be, and
the Warrants will be exercisable until the close of business on, the date fixed
for redemption in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the Registered Owner
thereof will be entitled only to the redemption price.
6. Reservation of Shares and Payment of Taxes. The Company covenants that
it will at all times reserve and have available from its authorized shares of
Common Stock such number of shares of Common Stock as shall then be issuable on
exercise of all outstanding Warrants. The Company covenants that all Warrant
Shares issuable shall be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof
The Registered Owner shall pay all documentary, stamp or similar taxes and
other government charges that may be imposed with respect to the issuance of the
Warrants, or
7
<PAGE> 9
the issuance, transfer or delivery of any Warrant Shares on exercise of the
Warrants. In the event the Warrant Shares are to be delivered in a name other
than the name of the Registered Owner of the Warrant Certificates, no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent or Transfer Agent the amount of any such taxes or charges incident
thereto.
The Company will supply the Warrant Agent with blank Warrant Certificates,
so as to maintain an inventory satisfactory to the Warrant Agent. The Company
will file with the Warrant Agent a statement setting forth the name and address
of its Transfer Agent for Warrant Shares and of each successor Transfer Agent,
if any.
7. Registration of Transfer. The Warrant Certificates may be transferred
in whole or in part and may be separately transferred from the Common Stock
share certificate to which such Warrant Certificate is attached upon initial
issuance, if any, at any time during the Exercise Period. Warrant Certificates
to be exchanged shall be surrendered to the Warrant Agent at its corporate
office. The Company shall execute and the Warrant Agent shall countersign, issue
and deliver in exchange therefor, the Warrant Certificate or Certificates which
the holder making the transfer shall be entitled to receive.
The Warrant Agent shall keep transfer books at its corporate office on
which Warrant Certificates and the transfer thereof shall be registered. On due
presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and deliver
to the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants.
All Warrant Certificates presented for registration of transfer or exercise
shall be duly endorsed or be accompanied by a written instrument or instruments
of transfer in form satisfactory to the Company and the Warrant Agent.
Prior to due presentment for registration of transfer thereof, the Company
and the Warrant Agent may treat the Registered Owner of any Warrant Certificate
as the absolute owner thereof (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company or the Warrant Agent) and
the parties hereto shall not be affected by any notice to the contrary.
8
<PAGE> 10
8. Loss or Mutilation. On receipt by the Company and the Warrant Agent of
evidence satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate, the Company shall execute and the Warrant
Agent shall countersign and deliver in lieu thereof, a new Warrant Certificate
representing an equal aggregate number of Warrants. In the case of loss, theft
or destruction of any Warrant Certificate, the Registered Owner requesting
issuance of a new Warrant Certificate shall be required to secure an indemnity
bond in favor of the Company and Warrant Agent in an amount satisfactory to each
of them. In the event a Warrant Certificate is mutilated, such Certificate shall
be surrendered and canceled by the Warrant Agent prior to delivery of a new
Warrant Certificate. Applicants for a substitute Warrant Certificate shall also
comply with such other regulations and pay such other reasonable charges as the
Company may prescribe.
9. Adjustment of Exercise Price and Shares.
(a) If at any time prior to the expiration of the Warrants by their
terms or by exercise, the Company increases or decreases the number of its
issued and outstanding shares of Common Stock, or changes in any way the rights
and privileges of such shares of Common Stock, by means of (i) the payment of a
share dividend or the making of any other distribution on such shares of Common
Stock payable in its shares of Common Stock, (ii) a split or subdivision of
shares of Common Stock, or (iii) a consolidation or combination of shares of
Common Stock, then the Exercise Price in effect at the time of such action and
the number of Warrants required to purchase each Warrant Share at that time
shall be proportionately adjusted so that the numbers, rights and privileges
relating to the Warrant Shares then purchasable upon the exercise of the
Warrants shall be increased, decreased or changed in like manner, for the same
aggregate purchase price set forth in the Warrants, as if the Warrant Shares
purchasable upon the exercise of the Warrants immediately prior to the event had
been issued, outstanding, fully paid and nonassessable at the time of that
event. Any dividend paid or distributed on the shares of Common Stock in shares
of any other class of shares of the Company or securities convertible into
shares of Common Stock shall be treated as a dividend paid in shares of Common
Stock to the extent shares of Common Stock are issuable on the payment or
conversion thereof.
9
<PAGE> 11
(b) In the event, prior to the expiration of the Warrants by exercise
or by their terms, the Company shall be recapitalized by reclassifying its
outstanding shares of Common Stock into shares with a different par value, or by
changing its outstanding shares of Common Stock to shares without par value or
in the event of any other material change in the capital structure of the
Company or of any successor corporation by reason of any reclassification,
recapitalization or conveyance, prompt, proportionate, equitable, lawful and
adequate provision shall be made whereby any Registered Owner of the Warrants
shall thereafter have the right to purchase, on the basis and the terms and
conditions specified in this Agreement, in lieu of the Warrant Shares
theretofore purchasable on the exercise of any Warrant, such securities or
assets as may be issued or payable with respect to or in exchange for the number
of Warrant Shares theretofore purchasable on exercise of the Warrants had such
reclassification, recapitalization or conveyance not taken place; and in any
such event, the rights of any Registered Owner of a Warrant to any adjustment in
the number of Warrant Shares purchasable on exercise of such Warrant, as set
forth above, shall continue and be preserved in respect of any stock, securities
or assets which the Registered Owner becomes entitled to purchase.
(c) In the event the Company, at any time while the Warrants shall
remain unexpired and unexercised, shall sell all or substantially all of its
property, or dissolves, liquidates or winds up its affairs, prompt,
proportionate, equitable, lawful and adequate provision shall be made as part of
the terms of such sale, dissolution, liquidation or winding up such that the
Registered Owner of a Warrant may thereafter receive, on exercise thereof, in
lieu of each Warrant Share which he would have been entitled to receive, the
same kind and amount of any stock, securities or assets as may be issuable,
distributable or payable on any such sale, dissolution, liquidation or winding
up with respect to each share of Common Stock of the Company; provided, however,
that in the event of any such sale, dissolution, liquidation or winding up, the
right to exercise the Warrants shall terminate on a date fixed by the Company,
such date to be not earlier than 5:00 P.M., Eastern Time, on the 30th day next
succeeding the date on which notice of such termination of the right to exercise
the Warrants has been given by mail to the Registered Owners thereof at such
addresses as may appear on the books of the Company.
(d) In the event prior to the expiration of the Warrants by exercise
or by their terms, the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to purchase its shares of Common Stock
at a price per share
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<PAGE> 12
more than 10% below the then-current market price per share (as defined below)
at the date of taking such record, then, (i) the number of Warrant Shares
purchasable pursuant to the Warrants shall be redetermined as follows: the
number of Warrant Shares purchasable pursuant to a Warrant immediately prior to
such adjustment (taking into account fractional interests to the nearest 1,000th
of a share) shall be multiplied by a fraction, the numerator of which shall be
the number of shares of Common Stock of the Company outstanding (excluding
shares of Common Stock then owned by the Company) immediately prior to the
taking of such record, plus the number of additional shares offered for
purchase, and the denominator of which shall be the number of shares of Common
Stock of the Company outstanding (excluding shares of Common Stock owned by the
Company) immediately prior to the taking of such record, plus the number of
shares which the aggregate offering price of the total number of additional
shares so offered would purchase at such current market price; and (ii) the
Exercise Price per Warrant Share purchasable pursuant to a Warrant shall be
redetermined as follows: the Exercise Price in effect immediately prior to the
taking of such record shall be multiplied by a fraction, the numerator of which
is the number of Warrant Shares purchasable immediately prior to the taking of
such record, and the denominator of which is the number of Warrant Shares
purchasable immediately after the taking of such record as determined pursuant
to clause (i) above; provided, however, (i) that any adjustment in the number of
shares issuable as set forth above shall be effective only to the extent
sufficient shares of Common Stock have been registered through a registration
statement effective under the 1933 Act, and (ii) that any adjustment in the
Exercise Price does not cause the Company to receive proceeds in excess of the
amount authorized by any such registration statement. For the purpose hereof,
the current market price per share at any date shall be deemed to be the average
of (i) the highest bid-and-asked prices as reported by The NASDAQ Stock Market,
Inc. if the Common Stock is quoted thereon, or (ii) if no such quotation is
available, the average of the mean between the bid and asked prices as quoted by
any two independent persons or entities making a market for the Common Stock.
Such bid and asked prices shall be for 10 consecutive business days commencing
30 business days prior to the record date.
(e) On exercise of the Warrants by the Registered Owners, the Company
shall not be required to deliver fractions of Warrant Shares; provided, however,
that the Company shall make prompt, proportionate, equitable, lawful and
adequate provisions in respect of any such fraction of one Warrant Share either
on the basis of adjustment in the then applicable Exercise Price or a purchase
of the fractional interest at
11
<PAGE> 13
the price of the Company's shares of Common Stock or such other reasonable basis
as the Company may determine.
(f) In the event, prior to expiration of the Warrants by exercise or
by their terms, the Company shall determine to take a record of the holders of
its shares of Common Stock for the purpose of determining shareholders entitled
to receive any stock dividend, distribution or other right which will cause any
change or adjustment in the number, amount, price or nature of the shares of
Common Stock or other stock, securities or assets deliverable on exercise of the
Warrants pursuant to the foregoing provisions, the Company shall give to the
Registered Owners of the Warrants at the addresses as may appear on the books of
the Company at least 30 days' prior written notice to the effect that it intends
to take such a record provided, however, that notice to the Registered Owners of
an extension of the Expiration Date may be made by publication or by release to
Dow Jones, P.R. Newswire or other means of general distribution. Such notice
shall specify the date as of which such record is to be taken; the purpose for
which such record is to be taken; and the number, amount, price and nature of
the shares of Common Stock or other stock, securities or assets which will be
deliverable on exercise of the Warrants after the action for which such record
will be taken has been completed. Without limiting the obligation of the Company
to provide notice to the Registered Owners of the Warrants of any corporate
action hereunder, the failure of the Company to give notice shall not invalidate
such corporate action of the Company.
(g) The Warrants shall not entitle the Registered Owner thereof to
any of the rights of shareholders or to any dividend declared on the shares of
Common Stock unless the Warrant is exercised and the Warrant Shares purchased
prior to the record date fixed by the Board of Directors of the Company for the
determination of holders of shares of Common Stock entitled to such dividend or
other right.
(h) No adjustment of the Exercise Price shall be made as a result of
or in connection with (i) the issuance of shares of Common Stock of the Company
pursuant to options, warrants, employee stock ownership plans and share purchase
agreements outstanding or in effect on the date hereof, (ii) the establishment
of additional option plans of the Company, the modification, renewal or
extension of any plan now in effect or hereafter created, or the issuance of
shares of Common Stock on exercise of any options pursuant to such plans, and
(iii) the issuance of shares of Common Stock in
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<PAGE> 14
connection with compensation arrangements for officers, employees or agents of
the Company or any subsidiary, and the like.
(i) The Company shall be empowered, in the sole and unconditional
discretion of the Board of Directors, at any time during the Exercise Period, to
reduce the applicable Exercise Price of the Warrants. Any such reduction in the
applicable Exercise Price shall be effective upon written notice to the Warrant
Agent, which notice shall be given pursuant to a duly and validly authorized
resolution of the Board of Directors of the Company. Any such reduction in the
Exercise Price shall not entitle the Registered Owners to issuance of any
additional Common Shares pursuant to the adjustment provisions set forth
elsewhere herein, regardless of whether the reduction in the Exercise Price was
effected either prior to or following exercise of Warrants by the Registered
Owners thereof. A nonexercising Registered Owner shall have no remedy or rights
to receive any additional Warrant Shares as a result of any reduction in any
applicable Exercise Price pursuant to this subsection.
(j) In the event, prior to the expiration of the Warrants by exercise
or by their terms, of any merger of the Company with or into another entity (the
"Successor Corporation") then, in such event, as condition to such merger, the
Company or the Successor Corporation, as the case may be, shall make prompt,
proportionate, equitable, lawful and adequate provision whereby any Registered
Owner of the Warrants shall thereafter have the right to purchase, on the basis
and the terms and conditions specified in this Agreement, in lieu of the Warrant
Shares theretofore purchasable on the exercise of any Warrant, such securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares theretofore purchasable on exercise of the Warrants had
such merger not taken place; and in any such event, the rights of any Registered
Owner of a Warrant to any adjustment in the number of Warrant Shares purchasable
on exercise of such Warrant, as set forth above, shall continue and be preserved
in respect of any stock, securities or assets which the Registered Owner becomes
entitled to purchase as a result of such merger. Subject to confirmation by the
Company to the Warrant Agent that the merger will not result in the receipt by
stockholders of any stock dividend, distribution or other rights which would
require prior notice to the Registered Owners of the Warrants of a record date
taken for such purpose, then, in such event, no prior notice of the intent to
take a record with respect to such merger shall be required to be given by the
Company to the Registered Owners of the Warrants. The Company shall instruct the
Warrant Agent to forward copies of the proxy
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<PAGE> 15
statement for any special or annual meeting of stockholders to the Registered
Owners of the Warrants in order to provide such Registered Owners notice of any
merger, which notice for all purposes shall be deemed adequate notice to the
Registered Owners of the Warrants of such merger.
10. Duties, Compensation and Termination of Warrant Agent. The Warrant
Agent shall act hereunder as agent and in a ministerial capacity for the
Company, and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not, by issuing and delivering Warrant Certificates or by
any other act hereunder, be deemed to make any representations as to the
validity, value or authorization of the Warrant Certificate or the Warrants
represented thereby or of the Warrant Shares or other property delivered on
exercise of any Warrant. The Warrant Agent shall not be under any duty or
responsibility to any holder of the Warrant Certificates to make or cause to be
made any adjustment of the Exercise Price or to determine whether any fact
exists which may require any such adjustments.
The Warrant Agent shall not (i) be liable for any recital or statement of
fact contained herein or for any action taken or omitted by it in reliance on
any Warrant Certificate or other document or instrument believed by it in good
faith to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in the Warrant Certificates, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or willful
misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in accordance
with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by its
President and attested by its Secretary or Assistant Secretary. The Warrant
Agent shall not be liable for any action taken or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or demand.
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<PAGE> 16
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse the Warrant Agent for its reasonable
expenses. The Company further agrees to indemnify the Warrant Agent against any
and all losses, expenses and liabilities, including judgments, costs and counsel
fees, for any action taken or omitted by the Warrant Agent in the execution of
its duties and powers hereunder, excepting losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties or the Company may terminate the
Warrant Agent and the Warrant Agent shall be discharged from all further duties
and liabilities hereunder (except liabilities arising as a result of the Warrant
Agent's own negligence or willful misconduct) on 30 days' prior written notice
to the other party. At least 12 days prior to the date such resignation is to
become effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Owner of each Warrant Certificate. On
such resignation or termination, the Company shall appoint a new Warrant Agent.
If the Company shall fail to make such appointment within a period of 30 days
after it has been notified in writing of the resignation by the Warrant Agent,
then the Registered Owner of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new Warrant Agent. Any new
Warrant Agent, whether appointed by the Company or by such court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its shareholders, of not less than $1,000,000, and having
its principal office in the United States.
After acceptance in writing of an appointment of a new Warrant Agent is
received by the Company, such new Warrant Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; provided, however, if it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed. The
Company shall file a notice of appointment of a new Warrant Agent with the
resigning Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Owner of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new Warrant Agent may
be converted or merged, or any corporation resulting from any consolidation to
which the
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<PAGE> 17
Warrant Agent or any new Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent shall be a
successor Warrant Agent under this Agreement, provided that such corporation is
eligible for appointment as a successor to the Warrant Agent. Any such successor
Warrant Agent shall promptly cause notice of its succession as Warrant Agent to
be mailed to the Company and to the Registered Owner of each Warrant
Certificate. No further action shall be required for establishment and
authorization of such successor Warrant Agent.
The Warrant Agent, its officers or directors and it subsidiaries or
affiliates may buy, hold or sell Warrants or other securities of the Company and
otherwise deal with the Company in the same manner and to the same extent and
with like effect as though it were not the Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company.
11. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement they
shall deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or mistake or error herein contained. Additionally, the
parties may make any changes or corrections deemed necessary which shall not
adversely affect the interests of the Registered Owners of Warrant Certificates;
provided, however, this Agreement shall not otherwise be modified, supplemented
or altered in any respect except with the consent in writing of the Registered
Owners of Warrant Certificates representing not less than a majority of the
Warrants outstanding. Additionally, no change in the number or nature of the
Warrant Shares purchasable on exercise of a Warrant or the Exercise Price
therefor shall be made without the consent in writing of the Registered Owner of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement.
12. Notices. All notices, demands, elections, opinions or requests
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by tested telex, telegram or
cable to, in the case of the Company:
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<PAGE> 18
Racing Champions Corporation
800 Roosevelt Road
Building C, Suite 320
Glen Ellyn, Illinois 60137
Attention: Chief Executive Officer
and in the case of the Warrant Agent:
BankBoston, N.A.
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
Attn: Client Administration
with a copy to:
James M. Bedore, Esq.
Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, s.c.
1000 North Water Street
Milwaukee, Wisconsin 53202
and if to the Registered Owner of a Warrant Certificate, at the address of such
Registered Owner as set forth on the books maintained by the Warrant Agent.
13. Persons Benefiting. This Agreement shall be binding upon and inure to
the benefit of the Company, the Warrant Agent and their respective successors
and assigns, and the Registered Owners and beneficial owners from time to time
of the Warrant Certificates. Nothing in this Agreement is intended or shall be
construed to confer on any other person any right, remedy or claim or to impose
on any other person any duty, liability or obligation.
14. Further Instruments. The parties shall execute and deliver any and all
such other instruments and shall take any and all such other actions as may be
reasonable or necessary to carry out the intention of this Agreement.
15. Severability. If any provision of this Agreement shall be held,
declared or pronounced void, voidable, invalid, unenforceable or inoperative for
any reason by any
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<PAGE> 19
court of competent jurisdiction, government authority or otherwise, such
holding, declaration or pronouncement shall not affect adversely any other
provision of this Agreement, which shall otherwise remain in full force and
effect and be enforced in accordance with its terms, and the effect of such
holding, declaration or pronouncement shall be limited to the territory or
jurisdiction in which made.
16. Waiver. All the rights and remedies of either party under this
Agreement are cumulative and not exclusive of any other rights and remedies as
provided by law. No delay or failure on the part of either party in the exercise
of any right or remedy arising from a breach of this Agreement shall operate as
a waiver of any subsequent right or remedy arising from a subsequent breach of
this Agreement. The consent of any party where required hereunder to any act or
occurrence shall not be deemed to be a consent to any other action or
occurrence.
17. General Provisions. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the Commonwealth of Massachusetts.
Except as otherwise expressly stated herein, time is of the essence in
performing hereunder. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, and this Agreement may not
be modified or amended or any term or provision hereof waived or discharged
except in writing signed by the party against whom such amendment, modification,
waiver or discharge is sought to be enforced. The headings of this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning thereof. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above mentioned.
THE COMPANY:
RACING CHAMPIONS CORPORATION
By:
------------------------------------------
Robert E. Dods, Chief Executive Officer
18
<PAGE> 20
THE WARRANT AGENT:
BANKBOSTON, N.A.
By:
------------------------------------------
Title:
---------------------------------------
ATTEST:
- -----------------------------
Title:
-----------------------
19
<PAGE> 1
EXHIBIT 10.3
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL (WHO MAY BE AN EMPLOYEE OF SUCH HOLDER) REASONABLY SATISFACTORY TO THE
COMPANY THAT REGISTRATION, QUALIFICATION OR OTHER SUCH ACTIONS ARE NOT REQUIRED
UNDER SAID ACT. THE OFFERING OF THIS SECURITY HAS NOT BEEN REVIEWED OR APPROVED
BY ANY STATE'S SECURITIES ADMINISTRATOR. THIS WARRANT AND THE SHARES OF COMMON
STOCK PURCHASABLE HEREUNDER ARE ALSO BENEFITED BY AND SUBJECT TO A REGISTRATION
RIGHTS AGREEMENT, DATED AS OF DECEMBER 31, 1997, BY AND AMONG THE COMPANY AND
THE OTHER PARTIES LISTED THEREIN, A COPY OF WHICH IS ON FILE WITH THE COMPANY
AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
Dated: December 31, 1997
WARRANT
To Purchase 509,358 Shares of Common Stock
EXPIRING December 31, 2007.
THIS IS TO CERTIFY THAT, for value received, INDOSUEZ CM II, INC., or
registered assigns (the "Holder") is entitled to purchase from Wheels Sports
Group, Inc., a North Carolina corporation (the "Company"), at any time or from
time to time prior to 5:00 p.m., New York City time, on December 31, 2007 at the
place where a Warrant Agency (as hereinafter defined) is located, at the
Exercise Price (as hereinafter defined), the number of shares of Common Stock,
par value $0.01 per share (the "Common Stock"), of the Company shown above, all
subject to adjustment and upon the terms and conditions as hereinafter provided,
and is entitled also to exercise the other appurtenant rights, power and
privileges hereinafter described. This Warrant is one of one or more warrants
(the "Warrants") of the same form and having the same terms as this Warrant. The
Holder shall designate at the time of exercise whether the shares of Common
Stock to be received shall be voting Common stock or nonvoting Common Stock.
<PAGE> 2
The Warrants granted to the Holder hereunder shall become exercisable
on December 31, 1997.
Certain terms used in this Warrant are defined in Article V.
ARTICLE I
EXERCISE OF WARRANTS
1.1 Method of Exercise. To exercise this Warrant in whole or in part,
the Holder shall deliver to the Company, at the Warrant Agency, (a) this
Warrant, (b) a written notice, in substantially the form of the Subscription
Notice attached hereto, of such Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
whether such shares are to be voting or nonvoting share, the denominations of
the share certificate or certificates desired and the name or names in which
such certificates are to be registered, and (c) payment of the Exercise Price
with respect to such shares. Notwithstanding the foregoing, this Warrant shall
be exercisable only, to the extent and at the time or times, that the Holder
could legally take possession and title of such shares. Payment made pursuant to
clause (c) above may be made, at the option of the Holder: (x) by cash, money
order, certified or bank cashier's check or wire transfer, (y) the surrender to
the Company of securities of the Company having a value equal to the aggregate
Exercise Price, as determined in good faith by the Company's board of directors,
or (z) the delivery of a notice to the Company that the Holder is exercising
this Warrant by authorizing the Company to reduce the number of shares of Common
Stock subject to this Warrant by the number of shares having an aggregate value
equal to the aggregate Exercise Price, as determined in good faith by the
Company's board of directors.
The Company shall, as promptly as practicable and in any event within
three Business Days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number and type of shares of Common Stock specified
in said notice. The share certificate or certificates so delivered shall be in
such denominations as may be specified in such notice or, if such notice shall
not
2
<PAGE> 3
specify denominations, shall be in the amount of the number of shares of
Common Stock for which the Warrant is being exercised, and shall be issued in
the name of the Holder or such other name or names as shall be designated in
such notice, subject to Section 1.4. Such certificate or certificates shall be
deemed to have been issued, and such Holder or any other Person so designated to
be named therein shall be deemed for all purposes to have become a holder of
record of such shares, as of the date the aforementioned notice is received by
the Company. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
the Holder a new Warrant evidencing the rights to purchase the remaining shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of the Holder,
appropriate notation may be made on this Warrant which shall then be returned to
the Holder. The Company shall pay all expenses, taxes and other charges payable
in connection with the preparation, issuance and delivery of share certificates
and new Warrants, except that, if share certificates or new Warrants shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all transfer taxes payable as a result of such transfer shall
be paid by the Holder at the time of delivering the aforementioned notice of
exercise or promptly upon receipt of a written request of the Company for
payment. Notwithstanding the foregoing, only shares of nonvoting Common Sock
shall be issued to a Regulated Stockholder if such issuance would result in a
violation of Regulation Y.
1.2 Shares To Be Fully Paid and Nonassessable. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable and free from all preemptive rights of any stockholder,
and from all taxes, liens and charges with respect to the issue thereof (other
than transfer taxes) and, if the Common Stock is then listed on any national
securities exchanges (as defined in the Exchange Act) or quoted on NASDQ within
120 days after completion of a public offering of the Company's Stock pursuant
to a Registration Statement under the Securities Act, be duly listed or quoted
thereon, as the case may be; provided the Company shall not be required to cause
any shares of nonvoting Common Stock to be listed or quoted.
1.3. No Fractional Shares To Be Issued. The Company shall not be
required to issue fractions of shares of Common Stock upon exercise of this
Warrant. If any fraction of a share would, but for this Section, be issuable
upon any exercise of this Warrant, and if the Company shall have elected not to
issue such fraction of a share, in lieu of such fractional share the Company
shall pay to the Holder, in cash, an amount equal to such fraction of the Fair
Market Value per share of outstanding Common Stock of the Company on the
Business Day immediately prior to the date of such exercise.
3
<PAGE> 4
1.4 Share Legend. Each certificate for shares of Common Stock issued
upon exercise of this Warrant, unless at the time of exercise such shares are
registered under the Securities Act, shall bear the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION
AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS
REGISTERED OR QUALIFIED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION OR OTHER SUCH
ACTIONS ARE NOT REQUIRED UNDER SAID ACT. THE OFFERING OF THIS SECURITY HAS
NOT BEEN REVIEWED OR APPROVED BY ANY STATE SECURITIES ADMINISTRATOR. THIS
SECURITY IS ALSO BENEFITED BY AND SUBJECT TO A REGISTRATION RIGHTS
AGREEMENT, DATED AS OF DECEMBER 31, 1997, BETWEEN THE COMPANY AND THE OTHER
PARTIES LISTED THEREIN, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND
WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act) shall also bear such legend unless, in the opinion of counsel
selected by the holder of such certificate (which may be an employee of such
holder) reasonably satisfactory to the Company, the securities represented
thereby are no longer subject to restrictions on resale under the Securities
Act.
1.5 Reservation; Authorization. The Company has reserved and will
keep available for issuance upon exercise of the Warrants the total number of
shares of Common Stock deliverable upon exercise of all Warrants from time to
time outstanding. The issuance of such shares has been duly and validly
authorized and, when issued and sold in accordance with the Warrants, such
shares will be duly and validly issued, fully paid and nonassessable.
4
<PAGE> 5
ARTICLE II
WARRANT AGENCY; TRANSFER, EXCHANGE
AND REPLACEMENT OF WARRANTS
2.1 Warrant Agency. If the Requisite Holders shall request
appointment of an independent warrant agency with respect to the Warrants, the
Company shall promptly appoint and thereafter maintain, at it own expense, an
agency, which agency may be the Company's then existing transfer agent (the
"Warrant Agency"), for certain purposes specified herein, and shall give prompt
notice of such appointment (and appointment of any successor Warrant Agency) to
all holders of Warrants. Until an independent Warrant Agency is so appointed,
the Company shall perform the obligations of the Warrant Agency provided herein
at its address set forth in Section 6.1 hereof or such other address as the
Company shall specify by notice to all Warrantholders.
2.2. Ownership of Warrant. The Company may deem and treat the Person
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by any Person
other than the Warrant Agency) for all purposes and shall not be affected by any
notice to the contrary, until presentation of this Warrant for registration of
transfer as provided in this Article II.
2.3 Transfer of Warrant. The Company agrees to maintain at the
Warrant Agency books for the registration of transfers of the Warrants, and
transfer of this Warrant and all rights hereunder shall be registered, in whole
or in part, on such books, upon surrender of this Warrant at the Warrant Agency,
together with a written assignment o this Warrant duly executed by the Holder
or his duly authorized agent or attorney, with (unless the Holder is the
original Warrantholder) signature guaranteed by a bank or trust company or a
broker or dealer registered with the NASD, and funds sufficient to pay any
transfer taxes payable upon such transfer. Upon surrender the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denominations specified in the instrument of assignment,
and this Warrant shall promptly be canceled. Notwithstanding the foregoing, a
Warrant may be exercised by a new holder in accordance with the procedures set
forth herein without having a new Warrant issued. The Warrant Agency shall not
be required to register any transfers if the Holder fails to furnish to the
Company, after a request therefor, an opinion of counsel reasonably satisfactory
to the Company that such transfer is exempt from the registration requirements
of the Securities Act; provided that the Company agrees not to request an
opinion of counsel with respect to transfers by an affiliate of Credit Agricole
Indosuez to its employees so
5
<PAGE> 6
long as such persons furnish documentation reasonably satisfactory to the
Company.
2.4 Division or Combination of Warrants. This Warrant may be divided
or combined with other Warrants upon surrender hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Warrant Agency,
together with a written notice specifying the names and denominations in which
the new Warrant or Warrants are to be issued, signed by the holders hereof and
thereof or their respective duly authorized agents or attorneys. Subject to
compliance with Section 2.3 as to any transfer which may be involved in the
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
2.5 Loss, Theft, Destruction or Mutilation of Warrants. Upon receipt
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Company (the original Warrantholder's or any institutional Holder's
indemnity being satisfactory indemnity in the event of loss, theft or
destruction of any Warrant owned by such holder), or, in the case of any such
mutilation, upon surrender and cancellation of such Warrant, the Company will
make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant,
a new Warrant of like tenor and representing the right to purchase the same
aggregate number of shares of Common Stock as provided for in such lost, stolen,
destroyed or mutilated Warrant.
2.6 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes or income taxes of a Holder) and
other charges payable in connection with the preparation, issuance and delivery
of Warrants and shares issuable upon exercise of the Warrants hereunder.
ARTICLE III
CERTAIN RIGHTS
3.1 Registration Rights. The Common Stock equable upon exercise of
this Warrant is entitled to the benefits of the Registration Rights Agreement
dated as of December 31, 1997, by and among the Company and the other parties
listed therein (the "Registration Rights Agreement"). The Company shall keep a
copy of the Registration Rights Agreement, and any amendments
6
<PAGE> 7
thereto, at the Warrant Agency and shall furnish copies thereof to the Holder
upon request.
3.2 Contest and Appraisal Rights. Upon each determination of Fair
Market Value hereunder (other than a determination relating solely to setting
the value of fractional shares), the Company shall promptly give notice thereof
to all Warrantholders, setting forth in reasonable detail the calculation of
such Fair Market Value and the method and basis of determination thereof, as the
case may be. If the Requisite Holders shall disagree with such determination and
shall, by notice to the Company given within 30 days after the Company's notice
of such determination, elect to dispute such determination, such dispute shall
be resolved in accordance with this Section 3.2. In the event that a
determination of Market Price, or a determination of Fair Market Value solely
involving Market Price, is disputed, such dispute shall be submitted, at the
Company's expense, to a New York Stock Exchange member firm selected by the
Company and acceptable to the Warrantholders, whose determination of Fair Market
Value and/or Market Price, as the case may be, shall be binding on the Company
and the Warrantholders. In the event that a determination of Fair Market Value,
other than a determination solely involving Market Price, is disputed, such
dispute shall be resolved through the Appraisal Procedure.
3.3 Certain Covenants. The Company covenants and agrees that:
(a) Promptly after the effective date of the Credit Agreement dated
as of December 31, 1997 among the Company, Credit Agricole Indosuez, as Agent
and Collateral Agent, and the lending institutions party from time to time
thereto and, in any case, prior to the time when this Warrant becomes
excercisable, the Company will use its best efforts to amend its certificate of
incorporation to authorize shares of nonvoting securities in form and substance
satisfactory to each Holder.
(b) Until exercise or cancellation of this Warrant, as soon as
available but not later than ninety (90) days after the close of the fiscal year
of the Company, the Company will deliver to each Holder a consolidated balance
sheet of the Company as at the end of such year and the related consolidated and
consolidating statements of income, of stockholders' equity and of cash flows
for such year, such consolidated statements to be audited by Arthur Andersen &
Co. LLP or other "Big Six" accounting firm;
(c) Until exercise or cancellation of this Warrant, as soon as
available but not later than forty-five (45) days after the end of each quarter,
the Company will deliver to each Holder a consolidated balance sheet of the
Company as at the end of, and the related consolidated statements of income, of
stockholders'
7
<PAGE> 8
equity and of cash flows for the portion of the Company's fiscal year then
elapsed, all prepared in accordance with generally accepted accounting
principles;
(d) Until exercise or cancellation of this Warrant, as soon as
available, the Company will deliver to each Holder any and all management
letters provided to the Company's board of directors or audit committee by the
Company auditors; and
(e) Until exercise or cancellation of this Warrant, as soon as
available, the Company will deliver to each Holder any and all reports filed by
the Company under the Securities Act and the Exchange Act.
3.4 Observation Rights. The initial holders of the Warrants (or
shares issued upon exercise thereof bearing the legend set forth in Section 1.4
hereof) shall, so long as they and their Affiliates own at least 50,000 Warrants
(or 50,000 shares issued upon exercise thereof), be entitled to designate one
observer (an "Observer") to attend all meetings of the Board and all committees
thereof. The Company will give the Observer reasonable prior notice (it being
agreed that the same prior notice given to the Board shall be deemed reasonable
prior notice) in any matter permitted in the Company's by-laws for notice to
directors of the time and place of any proposed meeting of the Board, such
notice in all cases to include true and complete copies of all documents
furnished to any director in connection with such meeting The Observer will be
entitled to be present in person as an observer to any such meeting or, if a
meeting is held by telephone conference, to participate therein for the purpose
of listening thereto. The Company will deliver to the Observer copies of all
papers which may be distributed from time to time to the directors of the
Company at such time as such papers are so distributed to them, including copies
of any written consent. The right to an Observer shall terminate upon the
earlier of the closing of the merger with Racing Champions Corporation or
December 31, 1999.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustments Generally. The Exercise Price and the number of
shares of Common Stock (or other securities or property) issuable upon exercise
of this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Article IV.
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<PAGE> 9
4.2 Common Stock Reorganization. If the Company shall after the date
of issuance of this Warrant subdivide its outstanding shares of Common Stock
into a greater number of shares or consolidate its outstanding shares of Common
Stock into a smaller number of shares (any such event being called a "Common
Stock Reorganization"), then (a) the Exercise Price shall be adjusted, effective
immediately after the record date at which the holders of shares of Common Stock
are determined for purposes of such Common Stock Reorganization, to a price
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on such record date before giving effect to such
Common Stock Reorganization and the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization, and (b) the number of shares of Common Stock subject to purchase
upon exercise of this Warrant shall be adjusted, effective at such time, to a
number determined by the number of shares of Common Stock subject to purchase
immediately before such Common Stock Reorganization by a fraction, the numerator
of which shall be the number of shares outstanding after giving effect to such
Common Stock Reorganization and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such Common Stock
Reorganization.
4.3 Common Stock Distribution. (a) If the Company shall after the
date of issuance of this Warrant issue or otherwise sell or distribute any
shares of Common Stock, otherwise than pursuant to Common Stock Reorganization
(any such event, including any event described in paragraphs (b) an (c) below,
being herein called a "Common Stock Distribution"), if such Common Stock
Distribution shall be for consideration per share less than the Fair Market
Value per share of outstanding Common Stock of the Company on the date of such
Common Stock Distribution, or on the first date of the announcement of such
Common Stock Distribution (whichever is less), then, effective upon such Common
Stock Distribution, the number of shares of Common Stock purchasable upon
exercise of this Warrant shall be adjusted by multiplying the number of shares
of Common Stock subject to purchase upon exercise of this Warrant by a fraction,
the numerator of which shall be the total number of shares of Common Stock
outstanding (and issuable upon exercise or conversion of outstanding options,
warrants and convertible securities) immediately prior to such Common Stock
Distribution plus the number of shares of Common Stock issued (or deemed to be
issued pursuant to paragraphs (b) and (c) below) in such Common Stock
Distribution and the denominator of which shall be an amount equal to the sum of
(A) the number of shares of Common Stock outstanding (and issuable upon exercise
or conversion of outstanding options, warrants and convertible securities)
immediately prior to such Common Stock Distribution, plus (B) the number of
shares of Common Stock which the aggregate consideration, if any, received by
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the Company (determined as provided below) for such Common Stock Distribution
would buy at the Fair Market Value thereof, as of the date immediately prior to
such Common Stock Distribution or as of the date immediately prior to the date
of announcement of such Common Stock Distribution (whichever is less). In the
event of any such adjustment, the Exercise Price for each Warrant shall be
adjusted to a number determined by dividing the Exercise Price immediately prior
to such Common Stock Distribution by the fraction used for purposes of the
aforementioned adjustment.
The provisions of this paragraph (a), including by operation of
paragraph (b) or (c) below, shall not operate to increase the Exercise Price or
to reduce the number of shares of Common Stock subject to purchase upon exercise
of this Warrant.
(b) If the Company shall after the date of issuance of this Warrant
issue, sell, distribute or otherwise grant in any manner (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to purchase,
or any warrants or options for the purchase of, Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such rights,
warrants or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
whether or not such Options or the rights to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(i) the aggregate amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Fair Market Value per share of outstanding
Common Stock of the Company on the date of granting such Options or on the date
of announcement thereof (whichever is less), then for purposes of paragraph (a)
above, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued as of the date of granting of such Options
and thereafter shall be deemed to be outstanding and the Company shall be deemed
to have received as consideration such price per share, determined as provided
above, therefor. Except
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as otherwise provided in paragraph (d) below, no additional adjustment of the
number of shares of Common Stock purchasable upon the exercise of this Warrant
or of the Exercise Price shall be made upon the actual exercise of such Options
or upon conversion or exchange of such Convertible Securities.
(c) If the Company shall after the date of issuance of this Warrant
issue, sell or otherwise distribute or grant (whether directly or by assumption
in a merger or otherwise) any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the aggregate amount received or receivable by the
Company as consideration for the issue, sale or distribution of such Convertible
Securities, plus, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the Fair Market
Value per share of outstanding Common Stock of the Company on the date of such
issue, sale or distribution or on the date of announcement thereof (whichever is
less), then, for purposes or paragraph (a) above, the total maximum number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued as of the date of the
issue, sale or distribution of such Convertible Securities and thereafter shall
be deemed to be outstanding and the Company shall be deemed to have received as
consideration such price per share, determined as provided above, therefor.
Except as otherwise provided in paragraph (d) below, no additional adjustment of
the number of shares of Common Stock purchasable upon exercise of this Warrant
or of the Exercise Price shall be made upon the actual conversion or exchange of
such Convertible Securities.
(d) If the purchase price provided for in any Option referred to in
paragraph (b) above, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in paragraph
(b) or (c) above, or the rate at which any Convertible Securities referred to in
paragraph (b) or (c) above are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against, and having the effect of protecting against, dilution upon
an event which results in a related adjustment pursuant to this Article IV), the
number of shares of Common Stock purchasable upon exercise of this Warrant and
the Exercise Price then in effect shall forthwith be readjusted (effective only
with respect to any exercise of this Warrant after such readjustment) to the
number of shares of Common Stock purchasable upon exercise of this Warrant and
the Exercise Price which would then be in effect had the adjustment made upon
the issue, sale, distribution or grant of such Options or Convertible Securities
been
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made based upon such changed purchase price, additional consideration or
conversion rate, as the case may be; provided, however, that such readjustment
shall give effect to such change only with respect to such Options and
Convertible Securities as then remain outstanding. If, at any time after any
adjustment of the number of shares of Common Stock purchasable upon exercise of
each Warrant or the Exercise Price shall have been made pursuant to this Article
IV on the basis of the issuance of any Option or Convertible Securities or after
any new adjustments of the number of shares of Common Stock purchasable upon
exercise of each Warrant or the Exercise Price shall have been made pursuant to
this paragraph, the right of conversion, exercise or exchange in such Option or
Convertible Securities shall expire or terminate, and the right of conversion,
exercise or exchange in respect of a portion of such Option or Convertible
Securities shall not have been exercised, such previous adjustment shall be
rescinded and annulled. Thereupon, a recomputation shall be made of the effect
of such Option or Convertible Securities on the basis of treating the number of
shares of Common Stock, if any, theretofore actually issued or issuable pursuant
to the previous exercise of such right of conversion, exercise or exchange as
having been issued on the date or dates of such conversion, exercise or exchange
and for the consideration actually received and receivable therefor, and
treating any such Option or Convertible Securities which then remain outstanding
as having been granted or issued immediately after the time of any such issuance
for the consideration per share for which shares of Common Stock are issuable
under such Option or Convertible Securities; and, if and to the extent called
for by the foregoing provisions of this Section on the basis aforesaid, a new
adjustment of the number of shares of Common Stock purchasable upon exercise of
each Warrant and the Exercise Price shall be made, which new adjustment shall
supersede (effective only with respect to an exercise of this Warrant after such
readjustment) the previous adjustment so rescinded and annulled.
(e) If the Company shall after the date of issuance of this Warrant
pay a dividend or make any other distribution upon any capital stock of the
Company payable in Common Stock, Options or Convertible Securities, then, for
purposes of paragraph (a) above, such Common Stock, Options or Convertible
Securities, as the case may be, shall be deemed to have been issued or sold
without consideration.
(f) If any shares of Common Stock, Options or Convertible Securities
shall be issued, sold or distributed for cash, the consideration received
therefor shall be deemed to be the amount received by the Company therefor net
of any underwriting commissions or concessions paid or allowed by the Company in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued, sold or distributed for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be
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deemed to be the Fair Market Value of such consideration, after deduction
of any expenses incurred and any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. If any shares of
Common Stock, Options or Convertible Securities shall be issued in connection
with any merger in which the Company is the surviving corporation, the amount
of consideration therefor shall be deemed to be the Fair Market Value of
such portion of the assets and business of the nonsurviving corporation as
shall be attributable to such Common Stock, Options or Convertible Securities,
as the case may be. If any Options shall be issued in connection with the issue
and sale of other securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued for
consideration to be determined pursuant to the Appraisal Procedure.
(g) If the Company shall take a record of the holders of the Common
Stock for the purpose of entitling them to receive a dividend or other
distribution payable in Common Stock, Options or Convertible Securities or to
subscribe for or purchase Common Stock, Options or Convertible Securities, then
such record date shall be deemed to be the date of the issue, sale, distribution
or grant of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(h) For purposes of determining whether any adjustment is required
pursuant to this Article IV, any security of the Company having rights
substantially equivalent to the Common Stock as to dividends or upon
liquidation, dissolution or winding up of the Company shall be treated as if
such security were Common Stock.
4.4 Dividends. If the Company shall after the date of issuance of
this Warrant issue or distribute to all or substantially all holders of shares
of Common Stock evidences of indebtedness, any other securities of the Company
or any property, assets or cash, and if such issuance or distribution does not
constitute a Common Stock Reorganization or a Common Stock Distribution (any
such nonexcluded event being herein called a "Dividend"), (i) the number of
shares of Common Stock subject to purchase upon exercise of this Warrant shall
be increased (but not decreased), effective immediately after the record date at
which the holders of shares of Common Sock are determined for purposes of such
Dividend, to a number determined by multiplying the number of shares of Common
Stock subject to purchase immediately before such Dividend by a fraction, the
numerator of which shall be the Fair Market Value per share of outstanding
Common Stock on such record date and the denominator of which shall be the Fair
Market Value per share of outstanding Common Stock of the
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<PAGE> 14
Company on such record date less the then Fair Market Value of the evidences
of indebtedness, securities, cash, or property or other assets issued or
distributed in such Dividend with respect to one share of Common Stock, and
(ii) the Exercise Price shall be decreased (but not increased) to a price
determined by multiplying the Exercise Price then in effect by a fraction, the
numerator of which shall be the number of shares of Common Stock subject to
purchase upon exercise of this Warrant immediately before such Dividend and the
denominator of which shall be the number of shares of Common Stock subject to
purchase upon exercise of this Warrant immediately after such Dividend. If after
the date of issuance of this Warrant the Company repurchases shares of Common
Stock for a per share consideration which exceeds the Fair Market Value (as
calculated immediately prior to such repurchase), then the number of shares of
Common Stock purchasable upon exercise of this Warrant and the Exercise Price
shall be adjusted in accordance with the foregoing provisions, as if, in lieu of
such repurchases, the Company had (I) distributed a Dividend having a Fair
Market Value equal to the Fair Market Value of all property and cash expended in
the repurchase, and (II) effected a reverse split of he Common Stock in the
proportion required to reduce the number of shares of Common Stock outstanding
from (A) the number of such shares outstanding immediately before such first
repurchase to (B) the number of such shares outstanding immediately following
all the repurchases.
4.5 Capital Reorganization. If after the date of issuance of this
Warrant there shall be any consolidation or merger to which the Company is a
party, other than a consolidation or a merger in which the Company is a
continuing corporation and which does not result in any reclassification of, or
change (other than a Common Stock Reorganization or a change in par value), in,
outstanding shares of Common Stock, or any sale or conveyance of the property of
the Company as an entirety or substantially as an entirety (any such event being
called a "Capital Reorganization"), then, effective upon the effective date of
such Capital Reorganization, the Holder shall have the right to purchase, upon
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive after such Capital Reorganization if this Warrant
had been exercised immediately prior to such Capital Reorganization, assuming
such holder (i) is not a person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or conveyance was made, as the case may be ("constituent person"), or an
Affiliate of a constituent person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such Capital Reorganization (provided that if the kind or amount
of securities, cash or other property receivable upon such Capital
Reorganization is not the same for each share of Common Stock held immediately
prior to such consolidation, merger, sale or conveyance by other than a
constituent person or an Affiliate thereof and in
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respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this Section the kind and
amount of shares of stock and other securities or other property (including
cash) receivable upon such Capital Reorganization shall be deemed to be the
kind and amount so receivable per share by a plurality of the non-electing
shares). As a condition to effecting any Capital Reorganization, the Company
or the successor or surviving corporation, as the case may be, shall execute
and deliver to each Warrantholder and to the Warrant Agency an agreement as
to the Warrantholder's rights in accordance with this Section 4.5, providing
for subsequent adjustments as nearly equivalent as may be practicable to the
adjustments provided for in this Article IV. The provisions of this Section
4.5 shall similarly apply to successive Capital Reorganizations.
4.6 Certain Other Events. If any event occurs after the date of
issuance of this Warrant as to which the foregoing provisions of this Article IV
are not strictly applicable or, if strictly applicable, would not, in the good
faith judgment of the Board of Directors of the Company, fairly protect the
purchase rights of the Warrants in accordance with the essential intent and
principles of such provisions, then such Board shall make such adjustments in
the application of such provisions, in accordance with such essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of such
Board, to protect such purchase rights as aforesaid, but in no event shall any
such adjustment have the effect of increasing the Exercise Price or decreasing
the number of shares of Common Stock subject to purchase upon exercise of this
Warrant, or otherwise adversely affect the Warrantholders.
4.7 Adjustment Rules. (a) Any adjustments pursuant to this Article IV
shall be made successively whenever an event referred to herein shall occur.
(b) If the Company shall set a record date to determine the holders
of shares of Common Stock for purposes of a Common Stock Reorganization, Common
Stock Distribution, Dividend or Capital Reorganization, and shall legally
abandon such action prior to effecting such Action, then no adjustment shall be
made pursuant to this Article IV in respect of such action.
(c) No adjustment in the amount of shares purchasable upon exercise
of this Warrant or in the Exercise Price shall be made hereunder unless such
adjustment increases or decreases such amount or price by one percent or more,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which together with any
adjustments so carried forward shall serve to adjust such amount or price by one
percent or more.
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(d) No adjustment in the Exercise Price shall be made hereunder if
such adjustment would reduce the exercise price to an amount below par value of
the Common Stock, which par value shall initially be $0.01 per share of Common
Stock.
(e) No adjustment shall be made pursuant to this Article IV in
respect of the issuance (or deemed issuance) or repurchase of shares of Common
Stock in connection with the exercise of the Warrants.
4.8 Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Article IV, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that the Company may thereafter validly and legally issue as fully paid
and nonassessable all shares of Common Stock which the holders of Warrants are
entitled to receive upon exercise thereof.
4.9 Notice of Adjustment. Not less than 30 nor more than 40 days
prior to the record date or effective date, as the case may be, of any action
which requires or might require an adjustment or readjustment pursuant to this
Article IV, the Company shall give notice to each Warrantholder of such event,
describing such event in reasonable detail and specifying the record date or
effective date, as the case may be, and, if determinable, the required
adjustment and the computation thereof. If the required adjustment is not
determinable at the time of such notice, the Company shall give notice to each
Warrantholder of such adjustment and computation promptly after such adjustment
becomes determinable.
ARTICLE V
DEFINITIONS
The following terms, as used in this Warrant, have the following
respective meanings:
"Appraisal Procedure" means a procedure whereby two independent
appraisers, one chosen by the Company and one by the Requisite Holders, shall
mutually agree upon the determinations then the subject of appraisal. Each party
shall deliver a notice to the other appointing its appraiser within 15 days
after the Appraisal Procedure is invoked. If within 30 days after appointment of
the two
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appraisers they are unable to agree upon the amount in question, a third
independent appraiser shall be chosen within 10 days thereafter by the mutual
consent of such first two appraisers or, if such first two appraisers fail to
agree upon the appointment of a third appraiser, such appointment shall be made
by the American Arbitration Association, or any organization successor thereto,
from a panel of arbitrators having experience in the appraisal of the subject
matter to be appraised. The decision of the third appraiser so appointed and
chosen shall be given within 30 days after the selection of such third
appraiser. If three appraisers shall be appointed and the determination of one
appraiser is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle
determination, then the determination of such appraiser shall be excluded, the
remaining two determinations shall be averaged and such average shall be binding
and conclusive on the Company and the Warrantholders; otherwise the average of
all three determinations shall be binding and conclusive on the Company and the
Warrantholders. The costs of conducting any Appraisal Procedure shall be borne
by the Warrantholders requesting such Appraisal Procedure, except (a) the fees
and expenses of the appraiser appointed by the Company and any costs incurred by
the Company shall be borne by the Company, (b) the fees and expenses of the
appraiser appointed by the Requisite Holders and any costs incurred by the
Requisite Holders shall be borne by the Requisite Holders, and (c) the fees and
expenses of a third appraiser shall be borne equally by the Company and the
Requisite Holders, provided that if such Appraisal Procedure shall result in a
determination that is disparate by 5% or more to the benefit of the holder from
the Company's initial determination, all costs of conducting such Appraisal
Procedure shall be borne by the Company.
"Business Day" shall mean (a) if any class of Common Stock is listed
or admitted to trading on a national securities exchange, a day on which the
principal national securities exchange on which such class of Common Stock is
listed or admitted to trading is open for business or (b) if no class of Common
Stock is so listed or admitted to trading, a day on which any New York Stock
Exchange member firm is open for business.
"Capital Reorganization" shall have the meaning set forth in Section
4.5.
"Closing Price" with respect to any security on any day means (a) if
such security is listed or admitted for trading on a national securities
exchange, the reported last sales price regular way or, if no such reported sale
occurs on such day, the average of the closing bid and asked prices regular way
on such day, in each case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such class of security is listed or admitted to
trading, or (b) if such security
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is not listed or admitted to trading on any national securities exchange,
the last quoted sales price, or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market on such day as reported
by NASDAQ or any comparable system then in use or, if not so reported, as
reported by any New York Stock Exchange member firm reasonably selected by
the Company for such purpose.
"Common Stock" shall have the meaning set forth in the first paragraph
of this Warrant subject to adjustment pursuant to Article IV.
"Common Stock Distribution" shall have the meaning set forth in
Section 4.3(a).
"Common Stock Reorganization" shall have the meaning set forth in
Section 4.2.
"Company" shall have the meaning set forth in the first paragraph of
this Warrant.
"Convertible Securities" shall have the meaning set forth in Section
4.3(b).
"Dividend" shall have the meaning set forth in Section 4.4.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
"Exercise Price" shall mean $3.50 per share of Common Stock purchased
pursuant to the exercise of this Warrant.
"Fair Market Value" means the fair market value of the business or
property in question, as determined in good faith by the Board of Directors of
the Company, provided, however, that the Fair Market Value of any security for
which a Closing Price is available shall be the Market Price of such security.
The Fair Market Value of the Common Stock shall be the Fair Market Value of the
entire equity interest in the Company and its subsidiaries as a going concern,
minus the Fair Market Value of the Company's equity securities, (if any)
entitled to a preference over the Common Stock in the event of a liquidation of
the Company. Notwithstanding the foregoing, if, at any date of determination of
the Fair Market Value of the entire equity interest in the Company, the Common
Stock of any class shall then be publicly traded, the Fair Market Value of the
Company on such date
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<PAGE> 19
shall be the Market price in such date multiplied by the number of shares of
Common Sock on a fully diluted basis, giving effect to any consideration
be paid to the Company in connection with the exercise or conversion of any
security.
"Holder" shall have the meaning set forth in the first paragraph of
this Warrant.
"Market Price" with respect to any security on any day means the
average of the daily Closing Prices of a share or unit of such security for the
10 consecutive Business Days ending on the most recent Business Day for which a
Closing Price is available; provided, however, that in the event that, in the
case of Common Stock, the Market Price is determined during a period following
the announcement by the Company of (A) a dividend or distribution of Common
Stock, or (B) any subdivision, combination or reclassification of Common Stock
and prior to the expiration of 20 Business Days after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Market Price
shall be appropriately adjusted to reflect the current market price per share
equivalent of Common Stock.
"NASD" means The National Association of Securities Dealers, Inc.
"NASDQ" means The National Association of Securities Dealers, Inc.
Automated Quotation System.
"Options" shall have the meaning set forth in Section 4.3(b).
"Registration Rights Agreement" shall have the meaning set forth in
Section 3.1.
"Regulated Stockholder" shall mean (i) any stockholder that is subject
to the provisions of Regulation Y of the Board of Governors of the Federal
Reserve System (12 C.F.R, Part 225) or any successor to such regulation
("Regulation Y"), so long as such stockholder shall hold, and only with respect
to, any voting Common Stock or nonvoting Common Stock, or securities issued upon
conversion(s) of such Common Stock, (ii) any affiliate of a Regulated
Stockholder that is a transferee of any voting Common Stock or nonvoting Common
Stock, so long as such affiliate shall hold, and only with respect to, any such
Common Stock or securities issued upon conversion(s) of such Common Stock and
(iii) any older to which such Regulated Stockholder or any of its affiliates has
transferred any voting Common Stock or nonvoting Common Stock, so long as such
transferee shall hold, and only with respect to, any Common Stock transferred by
such stockholder or affiliates or any securities issued upon conversion to such
Common
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Stock, but only if such Holder is (or any affiliate of such Holder is)
subject to the provisions of Regulation Y.
"Requisite Holders" means the Holders of Warrants to purchase a
majority of the shares of Common Stock issuable upon exercise of the Warrants
(excluding Warrants held by the Company or any of its subsidiaries) at the time
outstanding.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and any similar or successor federal statute, and the rules and regulations of
the Securities and Exchange Commission (or its successor) hereunder, all as the
same shall be in effect at the time.
"Warrant Agency" shall have the meaning set forth in Section 2.1.
"Warrantholder" means a holder of a Warrant.
"Warrants" shall have the meaning set forth in the first paragraph of
this Warrant.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be effective upon delivery in
person, faxed, or mailed by certified or registered mail, return receipt
requested, postage pre-paid, addressed as follows:
(i) if to the Company, to Wheels Sports Group, Inc., 149 Gasoline
Alley Drive, Mooresville, North Carolina 27028, Telecopy No. (704)
662-3005, Attention: Howard L. Correll, President; with a copy to Berliner
Zisser Walter & Gallegos, P.C., 1700 Lincoln Street, Suite 4700, Denver,
Colorado 80203-4547, Telecopy No. (303) 830-1705, Attention: Robert W.
Walter, Esq.;
(ii) if to an initial Holder of Warrants, to such Holder c/o Credit
Agricole Indosuez at 1211 Avenue of the Americas, 7th Floor, New York, New
York 10036, Telecopy No. (212) 278-2203, Attention: Michael Arougheti, with
a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York
10005, Telecopy No. (212) 269-5420, Attention: John
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Schuster, Esq., and if to any subsequent Holder of Warrants, to it at such
address as may have been furnished to the Company in writing by such
Holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Warrants) or to the
Holders of Warrants (in the case of the Company) in accordance with the
provisions of this paragraph.
6.2 Waivers; Amendments. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Company and the Requisite Holders; provided,
however, that no such amendment, modification or waiver shall, without the
written consent of each Warrantholder whose interest might be adversely affected
by such amendment, modification or waiver, (a) change the number of shares of
Common Stock subject to purchase upon the exercise of this Warrant, the Exercise
Price or provisions for payment thereof or (b) amend, modify or waive the
provisions of this Section or Articles III or IV. The provisions of the
Registration Rights Agreement may be amended, modified or waived only in
accordance with the respective provisions thereof.
Any such amendment, modification or waiver effected pursuant to this
Section or the applicable provisions of the Registration Rights Agreement shall
be binding upon the holders of all Warrants and Warrant Shares, upon each future
holder thereof and upon the Company. In the event of any such amendment,
modification or waiver the Company shall give prompt notice thereof to all
Warrantholders and, if appropriate, notation thereof shall be made on all
Warrants thereafter surrendered for registration of transfer or exchange.
No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
6.3 Governing Law. This Warrant shall be construed in accordance with
and governed by the laws of the State of New York without regard to principles
of conflicts of law.
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6.4 Survival of Agreements; Representations and Warranties, etc. All
representations, warranties and covenants made by the Company herein or in any
certificate or other instrument delivered by or on behalf of it in connection
with the Warrants shall be considered to have been relied upon by the Holder and
shall survive the issuance and delivery of the Warrants, regardless of any
investigation made by the Holder, and shall continue in full force and effect so
long as any Warrant is outstanding. All statements in any such certificate or
other instrument shall construe representations and warranties hereunder.
6.5 Covenants to Bind Successor and Assigns. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
6.6 Severability. In case any one or more of the provisions contained
in the Registration Rights Agreement or this Warrant shall be invalid, illegal
or unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
6.7 Section Headings. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
6.8 No Rights as Stockholder. This Warrant shall not entitle the
Holder to any rights as a stockholder of the Company.
6.9 No Impairment. The Company shall not by any action including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist if the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not, directly or indirectly, increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the amount payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonaccessable shares of Common Stock upon the exercise of this Warrant, and
(c) use its commercially
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<PAGE> 23
reasonable best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
6.10 Submission to Jurisdiction; Venue. (a) Any legal action or
proceeding with respect to this Warrant may be brought in the courts of the
State of New York or of the United States for the Southern District of New York,
and, by execution and delivery of this Warrant, the Company irrevocably accepts
for itself and in respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts. The Company further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to CT Corporation Systems at its
address at 1633 Broadway, New York, New York 10019, such service to become
effective 30 days after such mailing. Nothing herein shall affect the right of
the Holder to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against the Company in any other
jurisdiction.
(b) The Company hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Warrant brought in the
courts referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
IN WITNESS WHEREOF, Wheel Sports Group, Inc. has caused this Warrant
to be executed in its corporate name by one of its officers thereunto duly
authorized, as of the day and year first above written.
Wheel Sports Group, Inc.
By: /s/ Howard L. Correll, Jr.
-------------------------------------
Name: Howard L. Correll, Jr.
Title: President
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<PAGE> 24
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
TO
The undersigned hereby irrevocably elects to exercise the right to
purchase represented by the attached Warrant for, and to purchase thereunder,
_________________ shares of voting [nonvoting] Common Stock, as provided for
therein, and tenders herewith payment of the Exercise Price in full in
accordance with the term of the attached Warrant.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations:
If said number of Shares shall not be all the shares issuable upon
exercise of the attached Warrant, a new Warrant is to be issued in the name of
the undersigned for the balance remaining of such shares less any fraction of a
share paid in cash.
Dated: _____________, 19__
________________________________________
Note: The above signature should
correspond exactly with the name
on the face of the attached
Warrant or with the name of the
assignee appearing in the
assignment form below.
<PAGE> 25
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, __________________________________ hereby sells,
assigns and transfers unto ____________________ the attached Warrant, together
with all rights, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________ attorney to transfer said Warrant on
the books of ______________________, with full power of substitution in the
premises.
________________________________________
Note: The above signature should
correspond exactly with the name
on the face of the attached
Warrant.
<PAGE> 1
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as
of December 31, 1997, is made and entered into by and among Wheels Sports Group,
Inc., a North Carolina corporation (the "Company"), and the holders
(collectively, together with their assigns, the "Holders") of the Warrants (as
defined herein).
WHEREAS, concurrently with the issuance of the Warrants the
Company is entering into this Agreement to define the rights which exist among
the Holders, on the one hand, and the Company, on the other, with respect tothe
registration of the Common Stock (as defined herein) into which the Warrants are
exercisable;
NOW, THEREFORE, in consideration of the mutual premises,
agreements and covenants hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
Definitions
For purposes of this Agreement, the following terms shall have
the following respective meanings (each such meaning to be equally applicable to
the singular and plural forms thereof):
"Agreement" means this Registration Rights Agreement.
"Commission shall mean the Securities and Exchange Commission,
and any other similar or successor agency of the federal government at
the time administering the Securities Act or the Securities Exchange
Act.
"Common Stock" means the Company's Common Stock, par value
$0.01 per share, and any stock into which such Common Stock may
hereafter be changed or for which such Common Stock may be exchanged
after giving effect to the terms of such change or exchange (by way of
reorganization, recapitalization, merger, consolidation or otherwise)
and shall also include any Common Stock of the Company hereafter
authorized which has ordinary voting power for the election of
directors and any capital stock of the Company of any other class
hereafter authorized which is not preferred as to dividends or
distribution of assets in liquidation over any other class of capital
stock of the Company or which has ordinary voting power for the
election of directors of the Company.
<PAGE> 2
"Company" has the meaning assigned such term in the preamble
hereto.
"Holders" has the meaning assigned such term in the preamble
hereto.
"Holders of Registrable Securities" shall mean a person who
owns as Securities or has the right to acquire such Registrable
Securities, whether or not such acquisition has actually been effected
an disregarding any legal restrictions upon the exercise of such right.
"NASD" means the National Association of Securities Dealers,
Inc.
"Prospectus" mans the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the term of the offering, registering for sale any of the
Registrable Securities and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"Registrable Securities" means any Common Stock which has been
or may be acquired upon the exercise of the Warrants in accordance with
their terms; provided, that any security's status as a Registrable
Security shall cease when the registration rights with respect to such
Security shall have terminated pursuant to Section 2.6.
"Registration Statement" means any registration statement of
the Company which registers for sale any of the Registrable Securities
pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits and all material incorporated
by reference in such Registration Statement.
"Requisite Holders" means the holder, at any time, of the
outstanding Warrants representing more than 50% of the aggregate of
Registrable Securities at the time outstanding.
"Rule 144" mans Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission.
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<PAGE> 3
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any similar federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be
in effect at the time.
"Warrants" means the warrants to purchase shares of Common
Stock (i) issued by the Company to the Holders on the date hereof, and
(ii) which may be issued pursuant to the agreement between the Company
and Credit Agricole Indosuez dated the date hereof.
ARTICLE II
Registration Rights
SECTION 2.1. Registration on Demand
2.1.1 Demand. At any time following the date the warrants
become exercisable, upon the written request (the "Demand") of the Requisite
Holders (the "Demand Holders") that the Company effect the registration under
the Securities Act of the number of Registrable Securities specified by the
Demand Holders, the Company shall, subject to the provisions hereof, use its
best efforts to effect, as soon as practicable and in any event within 90 days
after the Demand is received from the Demand Holders, the registration under the
Securities Act of the Registrable Securities which the company has been so
requested to register by the Demand Holders.
2.1.2 Shelf Registration. At any time that the Company is
eligible to use a short-form registration statement for registering securities
for sale to the public at large, the Demand Holders may, at their option,
request (the "Shelf Demand") that any registration statement effected pursuant
to a Demand be effected on a delayed or continuous basis, pursuant to Rule 415
under the Securities Act (the "Shelf Registration"). The Company agrees to keep
effective such registration statement the ("Shelf Registration Statement") until
the earlier of (i) such date as of which all the Registrable Securities under
the Shelf Registration Statement have been disposed of in the manner described
in such registration statement, and (ii) 270 days after the date on which such
Shelf Registration Statement is declared effective.
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<PAGE> 4
2.1.3 Registration Statement Form. Registrations under this
Section 2.1 shall be on such appropriate registration form of the Commission as
shall be selected by the Company. The Company shall include in any such
registration statement all information which, in the opinion of counsel to the
Company, is required to be included.
2.1.4 Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become effective,
(ii) if after it has become effective, such registration is interfered with by
any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason not attributable to the
Holders and has not thereafter become effective, or (iii) if the conditions to
closing specified in the underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived or (iv) if a Shelf
Registration Statement, if such registration statement has not been kept
effective until the earlier of (a) such date as of which all of the Registrable
Securities under such Shelf Registration Statement have been disposed of in the
manner described in such registration statement and (b) 270 days after the date
on which such Shelf Registration Statement is declared effective.
2.1.5 Limitation on Registration on Demand, Shelf
Registrations. The Company shall not be required to prepare and file a
registration statement pursuant to this Section 2.1 which would become effective
within 90 days following the effective date of a registration statement (other
than pursuant to registrations on Form S-4 or Form S-8 or any successor form or
other forms not available for registering securities for sale to the public at
large) filed by the Company with the Commission pertaining to an underwritten
public offering of convertible debt securities or equity securities for cash for
the account of the Company or another holder of securities of the Company, and
in such case the Holders are afforded the opportunity to include Registrable
Securities in such registration pursuant to Section 2.2. Notwithstanding
anything in this Section 2.1 to the contrary, in no event shall the Company be
required (i) to effect in the aggregate, more than 2 registrations pursuant to
this Section 2.1 or (ii) to register any Common Stock which, upon giving effect
to the proposed disposition thereof, would be nonvoting Common Stock.
2.1.6 Holders' Ability to Withdraw Registration Statement. The
Holders of a majority of the Registrable Securities to be included in such
registration shall have the right to request that the Company not have a
registration statement filed pursuant to a Demand declared effective. Such
withdrawn registration statement shall not be counted for purposes of the
requests for
4
<PAGE> 5
registration to which such Demanding Holder is entitled pursuant to Section
2.1.5 hereof.
2.1.7 Selection of Underwriter. If a registration under this
Section 2.1 is an underwritten offering, the Holders of a majority of the
Registrable Securities to be included in such registration shall select a
managing underwriter or underwriters of recognized national standing reasonably
acceptable to the Company to administer the offering.
2.1.8 Registration of Other Securities. A registration
statement filed pursuant to the request of the Demand Holders may, subject to
the provisions of Section 2.5 hereof, include (i) Registrable Securities of
Holders not making a demand pursuant to this Section 2.1 and (ii) other
securities of the Company with respect to which registration rights have been
granted and may include securities of the Company being sold for the account of
the Company.
2.1.9 Suspension. The Company may delay, suspend or withdraw
the registration of the Registrable Securities required pursuant to this Section
2.1 or the preparation or furnishing of a supplemental or amended prospectus
pursuant to Section 2.3(i) for a period not exceeding 60 days if the Company
shall in good faith determine that any such registration would require the
Company to include disclosure that would reasonably be expected to have a
detrimental effect on any proposal, negotiations or plan by the Company or any
of its subsidiaries to engage in any acquisition or disposition of assets or any
merger, consolidation, tender offer, reorganization or similar transaction, or
any other material corporate event contemplated by the Company.
SECTION 2.2. Incidental Registration. If the Company, at any
time or any one or more occasions after the date of this Agreement, proposes to
register (other than pursuant to Section 2.1) any of its equity securities under
the Securities Act for sale to the public, whether for its own account or for
the account of other security holders; or both (other than pursuant to
registrations on Form S-4 or Form S-8 or any successor form or other forms not
available for registering securities for sale to the public at large), the
Company shall give not less than 30 days' nor more than 90 days' prior written
notice to each Holder of Registrable Securities of its intention to do so. Upon
the written request of any Holder of Registrable Securities given within 20 days
after receipt of such notice from the Company, the Company will use its best
efforts to cause the Registrable Securities requested to be registered to be so
registered under the Securities Act. A request pursuant to this Section 2.2
shall state the number of Registrable Securities requested to be registered and
the intended method of distribution thereof. In connection with any registration
subject to this Section 2.2, the Holders shall enter into such underwriting,
lock-up and other agreements, and shall execute and
5
<PAGE> 6
complete such questionnaires and other documents, as are customary in a
secondary offering. The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 2.2 prior to the
effectiveness of such registration whether or not any Holder has elected to
include any securities in such registration. Notwithstanding any other provision
of this Agreement, if the representative of the underwriters advises the Company
in writing that marketing factors require a limitation on the number of shares
to be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 2.5 hereof.
No registration effected under this Section 2.2 shall relieve
the Company of its obligation to effect the registration required under Section
2.1.
SECTION 2.3. Registration Procedures. In connection with the
registration of any Registrable Securities, the Company shall effect such
registrations to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company shall as expeditiously as possible:
(a) prepare and file with the Commission within the time
limits prescribed herein a Registration Statement with respect to such
securities and use its best efforts to cause such Registration
Statement to become effective and remain effective as provided herein;
(b) prepare and file with the Commission such amendments and
post-effective amendments to each Registration Statement as may be
necessary and use its best efforts to keep such Registration Statement
continuously effective; cause the related Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force)
under the Securities Act; and comply with the provisions of the
Securities Act, the Securities Exchange Act and the rules and
regulations of the Commission promulgated thereunder applicable to it
with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so
supplemented; the Company shall not be deemed to have used its best
efforts to keep a registration statement effective during a period if
it voluntarily takes any action that results in participating Holders
not being able to sell such Registrable Securities during such period,
unless such action (i) is required under applicable law or (ii) is
determined in good faith by the Board of Directors of the Company to be
in the Company's best interest;
6
<PAGE> 7
(c) notify the Holders of Registrable Securities and
underwriters, if any, promptly (but in any event within two business
days), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and,
with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of the issuance
(or, to the Company's best knowledge, the threat or contemplation) by
the Commission of any stop order suspending the effectiveness of such
Registration Statement or of any order preventing or suspending the use
of any preliminary prospectus or the initiation of an proceedings for
that purpose, and (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Registrable Securities for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose;
(d) use every reasonable effort to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any
of the Registrable Securities for sale in any jurisdiction, and, if any
such order is issued, to obtain the withdrawal of any such order at the
earliest possible moment;
(e) furnish to each seller and to each duly authorized broker
or underwriter of each seller such number of authorized copies of a
prospectus, including copies of a preliminary Prospectus, in conformity
with the requirements of the Securities Act, and such other customary
documents as such seller, broker or underwriter may reasonably request
in order to facilitate the public sale or other disposition of the
Registrable Securities owned by such seller;
(f) use its best efforts to register or qualify (and to keep
each such registration and qualification effective, including through
new filings, renewals or amendments, during the period such
registration statement is required to be kept effective) the securities
covered by such Registration Statement under such securities or blue
sky laws of such jurisdiction as each seller shall reasonably request,
and do any and all other reasonable acts and things which may be
necessary under such securities or blue sky laws to enable such seller
to consummate the public sale or other disposition in such
jurisdictions of the Registrable Securities to be sold by such seller,
except that the company shall not for any such purpose be required to
qualify or do business as a foreign corporation, or to consent to the
jurisdiction of any court or subject itself to suit in any jurisdiction
wherein it is not qualified;
7
<PAGE> 8
(g) before filing the Registration Statement or Prospectus or
amendments or supplement thereto, furnish to counsel for the Holders of
Registrable Securities included in such Registration Statement copies
of all such documents proposed to be filed, all of which shall be
subject to the review and comment of such counsel in the exercise of
their reasonable judgment;
(h) use its 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 exercising
jurisdiction over the Company as may be necessary to enable the seller
or sellers thereof to consummate the disposition of such Registrable
Securities;
(i) notify each seller of any such Registrable Securities
covered by such Registration Statement, at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act,
of the Company's becoming aware that the Prospectus included in such
Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstance under which they were made, not misleading,
and, at the written request of any such seller, promptly prepare and
furnish to such seller and each underwriter a reasonable number of
copies of a Prospectus supplemented or amended (whereupon all previous
versions of the Prospectus shall not be used by such seller or
underwriter and shall be promptly returned to the Company or destroyed)
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such Prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(j) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as
soon as reasonably practicable, an earnings statement covering the
period of at least twelve consecutive months beginning with the first
day of the Company's first calendar 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;
(k) use its best efforts to cause all such Registrable
Securities covered by such Registration Statement to be listed or
quoted on the principal securities exchange (including NASDAQ) on which
similar
8
<PAGE> 9
securities issued by the Company are then listed or quoted, if the
listing or quoting of such Registrable Securities is then permitted
under the rules of such exchange;
(l) provide a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later
than the effective date of such Registration Statement;
(m) cooperate with the selling holders of Registrable
Securities and the underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall not bear any
restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the underwriters, if
any, or holders may reasonably request at least two business days prior
to any sale of Registrable Securities in a firm commitment underwritten
public offering, or at least ten business days prior to any other such
sale;
(n) enter into such reasonable and customary agreements
(including an underwriting agreement in customary form) and take such
other reasonable and customary actions as the Requisite Holders shall
reasonably request in order to expedite or facilitate the registration
and disposition of such Registrable Securities;
(o) obtain an opinion from the Company's counsel and a "cold
comfort" letter from the Company's independent public accountants in
customary form and covering such matters as are customarily covered by
such opinion and "cold comfort" letters;
(p) upon execution and delivery of such confidentiality
agreements as the Company shall reasonably request (which agreement
shall not restrict any such person's obligations under applicable
securities laws), make available for inspection by any seller of such
Registrable Securities covered by such Registration Statement, by any
underwriter participating in any disposition to be effected pursuant to
such Registration Statement and by any attorney, accountant or other
agent retained by any such seller or any such underwriter, pertinent
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection
with such Registration Statement, all as necessary to conduct a
reasonable investigation within the meaning of Section 11 of the
Securities Act; and
9
<PAGE> 10
(q) permit any Holder of Registrable Securities which Holder,
in the sole reasonable judgment of such Holder, exercised in good
faith, might be deemed to be a controlling person of the Company to
participate through counsel in the preparation of such Registration
Statement and, if specifically requested by such counsel, in
discussions between the Company and the Commission or its staff with
respect to such Registration Statement, to require the insertion
therein of material, furnished in writing, which in the written opinion
of such counsel is necessary to include in order to avoid a likelihood
of potential liability for any such Holder of Registrable Securities or
such counsel.
If any such Registration Statement refers to any Holder by
name or otherwise as the holder of any securities of the Company, then such
Holder shall have the right to require (i) the insertion therein of language, in
form and substance satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not in the judgment
of the Company, as advised by counsel, required by the Securities Act or any
similar federal statute or any state "blue sky" or securities law then in force,
the deletion of the reference to such Holder.
SECTION 2.4. Expenses. All expenses incurred in effecting the
registrations (whether or not such registrations are consummated) provided for
in this Article II, including without limitation all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company,
expenses of any audits incident to or required by any such registration
(including the costs of any comfort letter) and expenses of complying with the
securities or blue sky laws of any jurisdictions pursuant to Subsection 2.3(f)
hereof, the costs and expenses associated with the filing required to be made by
the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD, provided such fees and expenses are not paid by the
underwriter), transfer taxes, fees of transfer agents and registrars, cost of
insurance (but excluding underwriting discounts and commissions to the extent
they relate to Registrable Securities), duplicating fees, delivery expenses,
expenses incurred with the listing of the securities on any securities exchange,
shall be paid by the Company, and the Company shall pay all reasonable fees and
disbursements of one counsel for the Holders of Registrable Securities for the
performance of the normal and customary functions of counsel for selling
shareholders in each such registration.
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<PAGE> 11
SECTION 2.5. Marketing Restrictions. If (i) any Holder of
Registrable Securities requests registration of Registrable Securities under
Section 2.1 or 2.2, (ii) the offering proposed to be made is to be an
underwritten public offering and (iii) the managing underwriters of such public
offering furnish a written opinion that the total amount of securities to be
included in such offering would exceed the maximum amount of securities (the
"Maximum Amount") (as specified in such opinion) which can be marketed at a
price reasonably related to the then current market value of such securities and
without materially and adversely affecting such offering, then the rights of the
Company, the Holders of Registrable Securities and the holder of other
securities having the right to include such securities in such registration to
participate in such offering shall be as follows:
If such registration shall have been proposed by the Company,
(i) the Company shall be entitled to participate in such registration
first; (ii) then Holders of Registrable Securities under this Agreement
shall be entitled to participate in such registration (pro rata based
on the number of Registrable Securities held by each) and (iii) other
security holders of the Company shall be entitled to participate in
such registration (pro rata based on the number of securities held by
each security holder and in accordance with the relative priorities, if
any, as shall exist among them). If such registration shall have been
requested by the Demand Holders of Registrable Securities pursuant to
Section 2.1 hereof, (i) the Holders of Registrable Securities shall be
entitled to participate in such registration (pro rata based on the
number of Registrable Securities held by each) first; and (ii) then the
Company and other security holders of the Company entitled to
participate will be entitled to participate in such registration (with
the holders of such securities being entitled to participate in
accordance with the relative priorities, if any, as shall exist among
them), in each case with further pro rata allocations to the extent any
such person has requested registration of fewer securities than such
person is entitled to have registered so that the number of securities
to be included in such registration will not exceed the Maximum Amount.
If such registration shall have been requested by the holders of other
securities pursuant to a right granted by the Company to request such
registration, (i) the holders requesting such registration shall be
entitled to participate in such registration (with such holders being
entitled to participate in accordance with the relative priorities, if
any, as shall exist among them); (ii) then the Holders of Registrable
Securities shall be entitled to participate in accordance with the
number of shares held by them (pro rata based on the number of
Registrable Securities held by each); and (iii) then the Company and
other security holders of the Company entitled to participate
will be entitled to participate
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<PAGE> 12
in such registration (with the holder of such securities being entitled
to participate in accordance with the relative priorities, if any, as
shall exist among them), in each case with further pro rata allocations
to the extent any such person has requested registration of fewer
securities than such person is entitled to have registered so that the
number of securities to be included in such registration will not
exceed the Maximum Amount;
and no securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition in a
transaction which would require registration under the Securities Act (but
excluding any issuance of shares pursuant to registrations on Form S-4 or Form
S-8 or any successor form or other forms not available for registering capital
stock for sale to the public at large) until the expiration of 90 days after the
effective date of the Registration Statement in which Registrable Securities
were included pursuant to Section 2.2 or such shorter period as may be
acceptable to the Company and the Holders of a majority of the Registrable
Securities who may be participating in such offering.
SECTION 2.6. Termination of Rights. Notwithstanding the
foregoing provisions of this Article II, the rights to registration shall
terminate as to any particular Registrable Securities when (a) a Registration
Statement covering such Registrable Securities has been declared effective and
such Registrable Securities have been disposed of in accordance with such
effective Registration Statement, (b) written opinion(s), to the effect that
such Registrable Securities may be sold without registration under the
Securities Act or applicable state law and without restriction as to the volume
and timing of such sale, shall have been received from counsel for the Company
reasonably acceptable to the Holder of a majority of such Registrable
Securities, (c) the Warrants expire unexercised or are otherwise terminated or
(d) such Registrable Securities have been sold through a broker, dealer or
underwriter in a public distribution or a public securities transaction in which
the transferee receives a certificate without a restrictive legend.
SECTION 2.7. Rule 144. The Company shall file the reports
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations promulgated thereunder (or, if the Company is
not required to file such reports, it will, upon the written request of any
Holder of Registrable Securities as soon as practicable, make publicly available
other information so long as such information is necessary to permit sales under
Rule 144), and will take such further actions as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemption provided by Rule 144.
Upon
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<PAGE> 13
the request of any Holder of Registrable Securities, the Company shall deliver
to such Holder a written statement as to whether it has complied with such
requirements.
SECTION 2.8. Indemnification. (a) In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
this Agreement, the Company will, and hereby does, indemnify and hold harmless,
to the fullest extent permitted by law, the seller of any Registrable Securities
covered by such Registration Statement, its directors and officers or general
and limited partners (and the directors and officers thereof) (each, a
"Person"), each person who participates as an underwriter or qualified
independent underwriter/pricer ("independent underwriter"), if any, in the
offering or sale of such securities, each officer, director or partner of such
underwriter or independent underwriter, and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act, against any and all losses, claims, damages or liabilities,
joint or several, and expenses (including fees of counsel and any amounts paid
in any settlement approved by the Company (which such approval shall not be
unreasonably withheld or delayed)) to which such seller, any such director or
officer or general or limited partner or any such underwriter or independent
underwriter, such officer, director or partner of such underwater or independent
underwriter or controlling person may become subject under the Securities Act,
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings, whether commenced or threatened, in respect
thereof), or expenses arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
statement under which such securities were registered under the Securities Act
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material of fact
contained in any preliminary, final or summary Prospectus (together with the
documents incorporated by reference or filed with the Commission) and any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading or (iii) any violation by the Company of
any federal or state rule or regulation applicable to the Company and relating
to action required of or inaction by the Company in connection with any such
registration, and the Company will reimburse as incurred such seller and each
such director, officer, general
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<PAGE> 14
or limited partner, underwriter, independent underwriter, director, or officer
or partner of such underwriter or independent underwriter and controlling person
for any legal or any other expenses incurred by any of them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, that the Company shall not be liable to any such seller or
any such director, officer, general or limited partner, underwriter, independent
underwriter, director or officer or partner or such underwriter or independent
underwriter or controlling person in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding, whether commenced or
threatened, in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement or amendment thereof or supplement thereto
or in any such preliminary, final or summary Prospectus in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of any such seller or any such director, officer, general or limited partner,
underwriter, independent underwriter, director or officer or partner of such
underwriter or independent underwriter or controlling person, expressly for use
in the preparation thereof.
(b) The Company, as a condition to including any Registrable
Securities in any Registration Statement filed in accordance with this
Agreement, shall have received an undertaking reasonably satisfactory to it from
the prospective seller of such Registrable Securities and any underwriter or
independent underwriter, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in paragraph (a) of this Section 2.8) the
Company and its directors and officers and all other prospective sellers and
their directors, officers, general and limited partners and respective
controlling Persons (within the meaning of the Securities Act) with respect to
any statement or alleged statement in or omission or alleged omission from such
Registration Statement, any preliminary, final or summary Prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or information has been furnished in writing to the
Company or its representative by or on behalf of such seller or underwriter
expressly for use in the preparation of such Registration Statement,
preliminary, final or summary Prospectus or amendment or supplement; provided,
however, that the aggregate amount which any such seller or prospective seller
shall be required to pay pursuant to such undertaking shall be limited to the
amount of the net proceeds received by such Person upon the sale of the
Registrable Securities pursuant to the Registration Statement giving rise to
such claim. Such indemnity shall remain in full force and effect following the
transfer of such securities by such seller.
(c) As soon as possible after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to this
Section 2.8, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding paragraphs of this Section 2.8, except to
the extent
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<PAGE> 15
that the indemnifying party is actually prejudiced by such failure to give
notice. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party; provided, that the indemnifying party shall not be entitled to so
participate or so assume the defense if, in the indemnified party's reasonable
judgment, a conflict of interest between the indemnified party and the
indemnifying party exists or may exist in respect of such claim. After notice
from the indemnifying party to such indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 2.8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof unless the indemnifying party has failed to assume the defense of such
claim or to employ counsel reasonably satisfactory to such indemnified party;
provided that the indemnified parties shall have the right to employ one counsel
(in each case together with appropriate local counsel) (such counsel to be
selected by the Holders of a majority of the Registerable Securities included in
such registration) to represent such indemnified parties if, in such indemnified
parties' reasonable judgment, a conflict of interest between the indemnified
parties and the indemnifying parties exists or may exist in respect of such
claim, and in that event the fees and expenses of such separate counsel shall be
paid as incurred by the indemnifying party; and provided, further that if, in
the reasonable judgment of any of the indemnified parties, a conflict of
interest between such indemnified parties, and any other indemnified parties
exists in respect of such claim, such indemnified parties shall be entitled to
additional counsel or counsels and the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimants or plaintiffs to such indemnified party of an unconditional
release from all liability in respect to such claim or litigation. No
indemnifying party will be liable for any settlement effected without its prior
written consent, which consent will not be unreasonably withheld or delayed.
(d) Indemnification similar to that specified in the preceding
paragraphs of this Section 2.8 (with appropriate modifications) shall be given
by the Company and each seller of Registrable Securities with respect to any
required registration or other qualification of securities under any state
securities and "blue sky" laws.
(e) If the indemnification provided for in this Section 2.8 is
unavailable or insufficient to hold harmless an indemnified party under Section
2.8(a) or (b) of this agreement, then each indemnifying party hall
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<PAGE> 16
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 2.8(a) or
(b) in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other hand
in connection with statements or omissions which resulted in such losses,
claims, damages 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 other omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omissions. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 2.8(e) were to be determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first sentence of this Section 2.8(e). 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 2.8(e) 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
shall be limited as provided in Section 2.8(c) if the indemnifying party has
assumed the defense of any such action in accordance with the provisions
thereof) which is the subject of this Section 2.8(e). 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. Promptly after receipt by an
indemnified party under this Section 2.8(e) of notice of the commencement of any
action against such party in respect of which a claim for contribution may be
made against an indemnifying party under this Section 2.8(e), such indemnified
party shall notify the indemnifying party in writing of the commencement thereof
if the notice specified in section 2.8(c) has not been given with respect to
such action provided that the omission so to notify the indemnifying party shall
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise under this Section 2.8(e), except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
Notwithstanding anything in this Section 2.8(e) to the contrary, no indemnifying
party (other than the Company) shall be required pursuant to this Section 2.8(e)
to contribute any amount in excess of the proceeds received by such indemnifying
party from the sale of Registrable Securities in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate.
(f) The provisions of this Section 2.8 shall be in addition to
any other rights to indemnification or contribution which any indemnified party
may
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<PAGE> 17
have pursuant to law or contract and shall remain in full force and effect
following the transfer of the Registrable Securities by any such party.
ARTICLE III
Changes in Common Stock
If, and as often as, there is any change in the Common Stock
by way of a combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the Registrable
Securities as so changed.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Holders the
Registrable Securities as of the date of this Agreement as follows:
(a) Due Authorization. The execution, delivery and performance
of this Agreement by the Company has been duly authorized by all
requisite action.
(b) Binding Obligation. This Agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
(c) No Violation. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated
herein, by the Company does not violate any provision of law, any order
of any court or other agency of government, any organizational document
of the Company or any provision of any material indenture, agreement or
other instrument to which the Company or any of its properties or
assets is bound, or conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever
upon any of the properties or assets
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<PAGE> 18
of the Company which violation, conflict, breach or default or lien,
charge, restriction or encumbrance would have a material adverse effect
on the business, condition (financial or otherwise) of the company
taken as a whole.
(d) Government Action. No action has been taken and no
statute, rule or regulation or order has been enacted, no injunction,
retraining order or order of any nature has been issued by a federal or
state court of competent jurisdiction and no action, suit or proceeding
is pending against or affecting or threatened against, the Company
before any court or arbitrator or any governmental body, agency or
official which, if adversely determined, would in any manner draw into
question the validity of this Agreement. Other than filings required
with the Commission and under state securities laws, no action or
approval by, or filing or registration with, any court or governmental
agency or body is required for the consummation of the transactions
contemplated by this Agreement by the Company.
ARTICLE V
Benefits of Agreement
The obligations of the Company under this Agreement shall
inure to the benefit of, and be enforceable by, the initial Holders and their
successors and permitted assigns without any further action on the part of any
party hereto.
ARTICLE VI
Miscellaneous
SECTION 6.1. Notices. All notices, requests, consents and
other communications provided for herein shall be in writing and shall be
effective upon delivery in person, faxed or telecopied, or mailed by certified
or registered mail, return receipt requested, postage pre-paid, addressed as
follows:
(i) if to the Company, to Wheels Sport Group, Inc., 149
Gasoline Alley Drive, Mooresville, North Carolina 27028, Telecopy No.
(704) 662-3005, Attention: Howard L. Correll, President; with a copy to
Berliner Zisser Walter & Gallegos, P.C., 1700 Lincoln Street, Suite
4700,
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<PAGE> 19
Denver, Colorado 80203-4547, Telecopy No. (303) 830-1705, Attention:
Robert W. Walter, Esq.;
(ii) if to an initial Holder of Registrable Securities, at
such address as may have been furnished to the Company in writing by
such Holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Registrable Securities) or
to the Holders of Registrable Securities (in the case of the Company) in
accordance with the provisions of this paragraph.
SECTION 6.2. Waivers; Amendments. No failure or delay of any
Holder of Registrable Securities or the Company in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
such Holder and the Company are cumulative and not exclusive of any right or
remedies which it would otherwise have. The provisions of this Agreement may be
amended, modified or waived with (and only with) the written consent of the
Company and a majority of the Holders of Registrable Securities outstanding
(exclusive of Registrable Securities then owned by the Company or any subsidiary
thereof). No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
SECTION 6.3. Governing Law. This Agreement shall be construed
in accordance with and governed by the laws of the State of New York without
regard to principles of conflicts of law.
SECTION 6.4. Survival of Agreements; Representations and
Warranties, etc. All warranties, representations and covenants made by the
Company herein or in any certificate or other instrument delivered by it or on
its behalf in connection with this Agreement shall be considered to have been
relied upon by the Holders of Registrable Securities and shall continue in full
force and effect so long as this Agreement is in effect regardless of any
investigation made by such Holders. All statements in any such certificate or
other instrument shall constitute representations and warranties hereunder.
SECTION 6.5 Covenants to Bind Successors and Assigns. All the
covenants, stipulations, promises and agreements in this Agreement contained by
or on behalf of the parties hereto shall bind their successors and assigns,
whether so expressed or not.
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<PAGE> 20
SECTION 6.6. Severability. In case any one or more of the
provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 6.7. Section Headings. The section headings used
herein are for convenience of reference only, are not part of this Agreement and
are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 6.8. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 6.9. Termination. The obligations of the Company to
register the Registrable Securities hereunder shall terminate in accordance with
the terms of this Agreement.
SECTION 6.10. Complete Agreement. This document and the
documents referred to herein contain the complete agreement between the parties
and supersede any prior understandings, agreements or representations by or
between the parties, written or oral, which may have related to the subject
matter hereof in any way, and any other agreements or understandings as to
securities registration or similar rights among the parties hereto are hereby
terminated.
SECTION 6.11. No More Favorable Agreements. The Company has
not previously, and will not hereafter, enter into any agreement with respect to
its securities with any person which grants such person rights that are, taken
as a whole, more favorable than the rights granted to the Holders in this
Agreement.
SECTION 6.12. Submission to Jurisdiction; Venue. (a) Any legal
action or proceeding with respect to this Agreement may be brought in the courts
of the State of New York or of the United States for the Southern District of
New York, and, by execution and delivery of this Agreement, the Company hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts. The
Company further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
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<PAGE> 21
thereof by registered or certified mail, postage prepaid, to CT Corporation
Systems at its address at 1633 Broadway, New York, New York 10019, such service
to become effective 30 days after such mailing. Nothing herein shall affect the
right of any Holder to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Company in any other
jurisdiction.
(b) The company hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first set forth above.
WHEELS SPORTS GROUP, INC.
By:
-------------------------------------
Name:
Title:
HOLDERS:
INDOSUEZ CM II, INC.
By:
--------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.5
THE REPRESENTATIVE'S WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND/OR WITH THE SECURITIES
ADMINISTRATORS OF CERTAIN STATES UNDER THE SECURITIES ("BLUE SKY") LAWS OF SUCH
STATES. HOWEVER, NEITHER THE REPRESENTATIVE'S WARRANTS NOR SUCH SECURITIES MAY
BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (i) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A SEPARATE
REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT AND UNDER THE APPLICABLE BLUE SKY LAWS.
THIS REPRESENTATIVE'S WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
OTHERWISE PROVIDED HEREIN AND THE HOLDER OF THIS REPRESENTATIVE'S WARRANT, BY
ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS
REPRESENTATIVE'S WARRANT EXCEPT AS OTHERWISE PROVIDED HEREIN.
WHEELS SPORTS GROUP, INC.
Representative's Warrant for Purchase of Common Stock
No. UWCS-001 90,000 Representative's Warrants
THIS CERTIFIES that, for receipt in hand of $10.00 and other value
received, SCHNEIDER SECURITIES, INC. (the "Holder"), is entitled to subscribe
for and purchase from WHEELS SPORTS GROUP, INC., a North Carolina corporation
(the "Company"), upon the terms and conditions set forth herein, at any time, or
from time to time, after April 16, 1998, and before 5:00 p.m. on April 16, 2002,
Mountain time (the "Exercise Period"), 90,000 shares of Common Stock (the
"Shares"), at a price of $8.55 per Share (the "Exercise Price"), which is 145%
of the offering price of Common Stock to be sold by the Company in a public
offering (the "Public Offering") through a registration statement under the
Securities Act of 1933 (Registration No. 333-6340) (the "Registration
Statement") at or prior to the date hereof.
The term the "Holder" as used herein shall include any transferee to whom
this Representative's Warrant has been transferred in accordance with the above.
As used herein the term "this Representative's Warrant" shall mean and include
this Representative's Warrant and any Representative's Warrants hereafter issued
as a consequence of the exercise or transfer of this Representative's Warrant in
whole or in part, and the term "Common Stock" shall mean and include the
Company's Common Stock with ordinary voting power, which class at the date
hereof is publicly traded.
<PAGE> 2
1. This Representative's Warrant may not be sold, transferred, assigned,
pledged or hypothecated until April 16, 1998, (12 months from the Effective Date
of the Registration Statement) except that it may be transferred, in whole or in
part, (i) to one or more officers or partners of the Holder (or the officers or
partners of any such partner); (ii) to a member of the underwriting syndicate
and/or its officers or partners; (iii) by reason of reorganization of the
Company; or (iv) by operation of law. After April 16, 1998, this
Representative's Warrant may be sold, transferred, assigned or hypothecated in
accordance with applicable law.
2. (a) This Representative's Warrant may be exercised during the
Exercise Period as to the whole or any lesser number of shares of Common
Stock, by the surrender of this Representative's Warrant (with the election
attached hereto duly executed) to the Company at its office at 1368
Salisbury Road, Mocksville, North Carolina 27028, or such other place as is
designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal to
the Exercise Price multiplied by the number of shares of Common Stock for
which this Representative's Warrant is being exercised.
(b) Upon written request of the Holder, and in lieu of payment for
the Shares by check in accordance with paragraph 2(a) hereof, the Holder
may exercise the Representative's Warrant (or any portion thereof) for and
receive the number of shares of Common Stock equal to a fraction, the
numerator of which equals (i) the amount by which the Current Market Price
(as defined in 2(c) below) of the Common Stock for the ten (10) trading
days preceding the date of exercise exceeds the Exercise Price per Share,
multiplied by (ii) the number of shares of Common Stock to be purchased;
the denominator of which equals the Current Market Price.
(c) For the purposes of any computation under this Representative's
Warrant, the "Current Market Price" at any date shall be the closing price
of the Common Stock on the business day next preceding the event requiring
an adjustment hereunder. The closing price shall be the reported last sale
price on such exchange on such day provided if trading of such Common Stock
is listed on any consolidated tape, the closing price shall be the reported
last sale price set forth on such consolidated tape. The closing price
shall be the last reported sale price on such date as set forth by the
Nasdaq National Market System or the Nasdaq SmallCap Market, or, if the
security is not quoted on either such market, the average closing bid and
asked prices as set forth in the National Quotation Bureau pink sheet or
the Electronic Bulletin Board System for such day. Notwithstanding the
foregoing, if there is no reported last sale price or average closing bid
and asked prices, as the case may be, on a date prior to the event
requiring an adjustment hereunder, then the current market price shall be
determined as of the latest date prior to such day for which such last sale
price or average closing bid and asked price is available.
3. Upon each exercise of this Representative's Warrant, the Holder shall
be deemed to be the holder of record of the Shares issuable upon such exercise,
notwithstanding that the transfer books of the Company shall then be dosed or
certificates representing such Shares shall not then have been actually
delivered to the Holder. As soon as practicable after each such
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<PAGE> 3
exercise of this Representative's Warrant, the Company shall issue and deliver
to the Holder a certificate or certificates for the Shares issuable upon
such exercise, registered in the name of the Holder or its designee. If this
Representative's Warrant should be exercised in part only, the Company shall,
upon surrender of this Representative's Warrant for cancellation, execute and
deliver a new Representative's Warrant evidencing the right of the Holder to
purchase the balance of the Shares (or portions thereof) subject to purchase
hereunder.
4. Any Shares issued upon the transfer or exercise in part of this
Representative's Warrant (together with this Representative's Warrant, the
"Representative's Warrants") shall be numbered and shall be registered in a
Representative's Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Representative's Warrant on the
Representative's Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Representative's Warrant on the part of any other person. The
Representative's Warrants shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Representative's
Warrant or Representative's Warrants to the person entitled thereto. The
Representative's Warrants may be exchanged, at the option of the Holder thereof,
for another Representative's Warrant, or other Representative's Warrants of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Shares (or portions thereof) upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Representative's Warrants to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Securities Act
of 1933, as amended (the "Act"), or applicable state blue sky laws and the rules
and regulations thereunder.
5. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of this Representative's Warrant, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company covenants
that all shares of Common Stock issuable upon exercise of this Representative's
Warrant shall be validly issued, fully paid, nonassessable, and free of
preemptive rights.
6. The following provisions of this paragraph 6 shall not apply to
Options (as hereinafter defined) or Convertible Securities (as hereinafter
defined) outstanding prior to the date hereof.
(a) In case the Company shall sell or issue hereafter either its
Common Stock or any rights, options, warrants or obligations or securities
containing the right to subscribe for or purchase any Common Stock
("Options") or exchangeable for or convertible into Common Stock
("Convertible Securities"), at a price per share, as determined pursuant to
paragraph (b) of this section, less than the Exercise Price then in
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<PAGE> 4
effect on the date of such sale or issuance, then the number of Shares
thereafter purchasable upon exercise of this Representative's Warrant shall
be determined by multiplying the number of Shares theretofore purchasable
upon exercise of this Representative's Warrant by a fraction, (i) the
numerator of which shall be the number of shares of Common Stock
outstanding on the date of issuance of such Common Stock, Options or
Convertible Securities and (ii) the denomination of which shall be the
number of shares of Common Stock outstanding on the date prior to the date
of issuance of such Common Stock or Convertible Securities plus the number
of shares of Common Stock which the aggregate consideration received by the
Company upon such issuance would purchase on such date at the Exercise
Price then in effect.
(b) The following provisions, in addition to other provisions of this
section shall be applicable in determining any adjustment under (a) above:
(i) In case of the issuance or sale of Common Stock part or all
of which shall be for cash, the cash consideration received by the
Company therefor shall be deemed to be the amount of cash proceeds of
such sale of shares less any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services or any expenses incurred in
connection therewith, plus the amounts, if any, determined as provided
in (b)(ii) below.
(ii) In case of the issuance or sale of Common Stock wholly or
partly for a consideration other than cash, the amount of the
consideration other than cash received by the Company for such Common
Stock shall be deemed to be the fair value of such consideration as
determined by a resolution adopted by the Board of Directors of the
Company acting in good faith, less any compensation paid or incurred
by the Company for any underwriting of, or otherwise in connection
with such issuance, provided, however, the amount of such
consideration other than cash shall in no event exceed the cost
thereof as recorded on the books of the Company. In case of the
issuance or sale of Common Stock (otherwise than upon conversion or
exchange) together with other stock or securities or other assets of
the Company for a consideration which is received for both such Common
Stock and other securities or assets, the Board of Directors of the
Company acting in good faith shall determine what part of the
consideration so received is to be claimed to be the consideration for
the issuance of such Common Stock, less any compensation paid or
incurred by the Company for any underwriting of, or otherwise in
connection with such issuance, provided, however, the amount of such
consideration other than cash shall in no event exceed the cost
thereof as recorded on the books of the Company. In case at any time
the Company shall declare a dividend or make any other distribution
upon any stock of the Company payable in Common Stock then such Common
Stock issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
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<PAGE> 5
(iii) The price per share of any Common Stock sold or issued by
the Company (other than pursuant to Options or Convertible Securities)
shall be equal to a price calculated by dividing (A) the amount of the
consideration received by the Company, as determined pursuant to
(b)(i) and (b)(ii) above, upon such sale or issuance by (B) the number
of shares of Common Stock sold or issued.
(iv) In case the Company shall at any time after the date hereof
issue any Options or Convertible Securities, the following provisions
shall apply in making any adjustment:
(A) The price per share for which Common Stock is issuable
upon the exercise of the Options or upon conversion or exchange
of the Convertible Securities shall be determined by (1) dividing
the total amount, if any, received or receivable by the Company
as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any payable to the Company upon exercise of
such Options or the conversion or exchange of such Convertible
Securities, by (2) the aggregate maximum number of shares of
Common Stock issuable upon the exercisable of such Options or
upon the conversion or exchange of such Convertible Securities.
(B) In determining the price per share for which Common
Stock is issuable upon exercise of the Options or conversion or
exchange of the Convertible Securities as set forth above and in
computing any adjustment pursuant to (a) above: the aggregate
maximum number of shares of Common Stock issuable upon the
exercise of such Convertible securities shall be considered to be
outstanding at the time such Options or Convertible Securities
were issued and to have been issued for such price per share as
determined pursuant to (b)(iv)(A), and the consideration for the
issuance of such Options or Convertible Securities and the amount
of additional consideration payable to the Company upon exercise
of such Options or upon the conversion or exchange of such
Convertible Securities shall be determined in the same manner as
the consideration received upon the issuance or sale of Common
Stock as provided in paragraphs (b)(i) and (b)(ii).
(C) On the expiration of such Options or the termination of
any right to convert or exchange any Convertible Securities, the
number of Shares subject to this Representative's Warrant shall
forthwith be readjusted to such number of Shares as would have
been obtained had the adjustments made upon the issuance of such
Options or Convertible Securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities.
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<PAGE> 6
(D) If the minimum purchase price per share of Common Stock
provided for in any Option, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
shall change or a different purchase price or rate shall become
effective at any time or from time to time (other than pursuant
to any anti-dilution provisions of such Options or Convertible
Securities) then upon such change becoming effective, the number
of Shares subject to this Representative's Warrant shall
forthwith be increased or decreased to such number of shares as
would have been obtained had the adjustments made upon the
granting or issuance of such Options or Convertible Securities
been made upon the basis of (1) the issuance of the number of
shares of Common Stock theretofore actually delivered upon the
exercise of such Options or upon the conversion or exchange of
such Convertible Securities, and the total consideration received
therefor, and (2) the granting or issuance at the time of such
change of any such Options or Convertible Securities then still
outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed
price or rate of exchange or conversion.
(v) Except as otherwise specifically provided herein, the date
of issuance or sale of Common Stock shall be deemed to be the date the
Company is legally obligated to issue such Common Stock or the date
the Company is legally obligated to issue any Option or Convertible
Security. If the Company shall take a record date for the purpose of
determining holders of Common Stock entitled to (A) receive a dividend
or other distribution payable in Common Stock or in Options or
Convertible Securities or (B) subscribe for or purchase Common Stock,
Options or Convertible Securities, such record date shall be deemed to
be the date of issue or sale of the Common Stock, Options or
Convertible Securities.
(vi) The number of shares of Common Stock outstanding at any
given time shall not include treasury shares but the disposition of
any such treasury shares shall be considered an issue or sale of
Common Stock for the purposes of this section.
(vii) Anything hereinabove to the contrary notwithstanding, no
adjustment shall be made pursuant to (a) above to the Exercise Price
or to the number of Shares purchasable upon:
(A) The issuance or sale by the Company of any Common Stock
or Options pursuant to these Representative's Warrants, any
securities offered in a public offering underwritten by Schneider
Securities, Inc., any shares, Options or Convertible Securities
issued and outstanding at the effective date of such public
offering, or any shares issuable pursuant to the Company's stock
option plan currently in effect, provided the total number of
shares issuable pursuant to such plan does not exceed 350,000.
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<PAGE> 7
(B) The issuance or sale of Common Stock pursuant to the
exercise of Options or conversion or exchange of Convertible
Securities hereinafter issued for which an adjustment has been
made (or was not required to be made) pursuant to the provisions
hereof.
(C) The increase in the number of shares of Common Stock
subject to any Option or Convertible Security referred to in
subsections (A) and (B) hereof pursuant to the provisions of such
Option or Convertible Securities designed to protect against
dilution.
(c) If the Company shall at any time subdivide its outstanding Common
Stock by recapitalization, reclassification or split-up thereof, the number
of Shares subject to this Representative's Warrant immediately prior to
such subdivision shall be proportionately increased, and if the Company
shall at any time combine the outstanding Common Stock by recapitalization,
reclassification or combination thereof, the number of Shares subject to
this Representative's Warrant immediately prior to such combination shall
be proportionately decreased. Any corresponding adjustment to the Exercise
Price shall become effective at the close of business on the record date
for such subdivision or combination.
(d) If the Company after the date hereof shall distribute to the
holders of its Common Stock any securities or other assets (other than a
distribution of Common Stock or a cash distribution made as a dividend
payable out of earnings or out of any earned surplus legally available for
dividends under the laws of the jurisdiction of incorporation of the
Company), the Board of Directors shall be required to make such equitable
adjustment in the Exercise Price in effect immediately prior to the record
date of such distribution as may be necessary to preserve the rights
substantially proportionate to those enjoyed hereunder by the Holder
immediately prior to such distribution. Any such adjustment made in good
faith by the Board of Directors shall be final and binding upon the Holder
and shall become effective as of the record date for such distribution.
(e) No adjustment in the number of Shares subject to this
Representative's Warrant shall be required unless such adjustment would
require an increase or decrease in such number of Shares of at least 1% of
the then adjusted number of Shares issuable upon exercise of this
Representative's Warrant, provided, however, that any adjustments which by
reason of the foregoing are not required at the time to be made shall be
carried forward and taken into account and included in determining the
amount of any subsequent adjustment; and provided further, however, that in
case the Company shall at any time subdivide or combine the outstanding
Common Stock or issue any additional Common Stock as a dividend, said
percentage shall forthwith be proportionately increased in the case of a
combination or decreased in the case of a subdivision or dividend of Common
Stock so as to appropriately reflect the same. If the Company shall make a
record of the holders of its Common Stock for the purpose of entitling them
to receive any dividend or distribution and legally abandon its plan to pay
or deliver such dividend or distribution then no adjustment in the number
of Shares subject to this Representative's Warrant shall be required by
reason of the making of such record.
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<PAGE> 8
(f) Whenever the number of Shares purchasable upon the exercise of
this Representative's Warrant is adjusted as provided herein, the Exercise
Price shall be adjusted (to the nearest one tenth of a cent) by
respectively multiplying such Exercise Price immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of
Shares purchasable upon the exercise of this Representative's Warrant
immediately prior to such adjustment, and the denominator of which shall be
the number of Shares purchasable immediately thereafter.
(g) In case of any reclassification of the outstanding Common Stock
(other than a change covered by (c) hereof or which solely affects the par
value of such Common Stock) or in the case of any merger or consolidation
of the Company with or into another corporation (other than a consolidation
or merger in which the Company is the continuing corporation and which does
not result in any reclassification or capital reorganization of the
outstanding Common Stock), or in the case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is
dissolved, the Holder of this Representative's Warrant shall have the right
thereafter (until the expiration of the right of exercise of this
Representative's Warrant) to receive upon the exercise hereof, for the same
aggregate Exercise Price payable hereunder immediately prior to such event,
the kind and amount of shares of stock or other securities or property
receivable upon such reclassification, capital reorganization, merger or
consolidation, or upon the dissolution following any sale or other
transfer, by a holder of the number of shares of Common Stock of the
Company obtainable upon the exercise of this Representative's Warrant
immediately prior to such event; and if any reclassification also results
in a change in Common Stock covered by (c) above, then such adjustment
shall be made pursuant to both this paragraph (g) and paragraph (c). The
provisions of this paragraph (g) shall similarly apply to successive
reclassifications, or capital reorganizations, mergers or consolidations,
sales or other transfers.
If the Company after the date hereof shall issue or agree to issue
Common Stock, Options or Convertible Securities, other than as described
herein, and such issuance or agreement would in the opinion of the Board of
Directors of the Company materially affect the rights of the Holders of the
Representative's Warrants, the Exercise Price and the number of Shares
purchasable upon exercise of the Representative's Warrants shall be
adjusted in such matter, if any, and at such time as the Board of Directors
of the Company, in good faith, may determine to be equitable in the
circumstances. The minutes or unanimous consent approving such action shall
set forth the Board of Director's determination as to whether an adjustment
is warranted and the manner of such adjustment. In the absence of such
determination, any Holder may request in writing that the Board of
Directors make such determination. Any such determination made in good
faith by the Board of Directors shall be final and binding upon the
Holders. If the Board fails, however, to make such determination within
sixty (60) days after such request, such failure shall be deemed a
determination that an adjustment is required.
(h) (i) Upon occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Shares purchasable upon exercise
of this Representative's Warrant in accordance with, and as required
by, the terms hereof, the Company shall
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<PAGE> 9
forthwith employ a firm of certified public accountants (who may be
the regular accountants for the Company) who shall compute the
adjusted Exercise Price and the adjusted number of Shares purchasable
at such adjusted Exercise Price by reason of such event in accordance
herewith. The Company shall give to each Holder of the
Representative's Warrants a copy of such computation which shall be
conclusive and shall be binding upon such Holders unless contested by
Holders by written notice to the Company within thirty (30) days after
receipt thereof.
(ii) In case the Company after the date hereof shall propose
(A) to pay any dividend payable in stock to the holders of its Common
Stock or to make any other distribution (other than cash dividends) to
the holders of its Common Stock or to grant rights to subscribe to or
purchase any additional shares of any class or any other rights or
options, (B) to effect any reclassification involving merely the
subdivision or combination of outstanding Common Stock, or (C) any
capital reorganization or any consolidation or merger, or any sale,
transfer or other disposition of its property, assets and business
substantially as an entirety, or the liquidation, dissolution or
winding up of the Company, then in each such case, the Company shall
obtain the computation described above and if an adjustment to the
Exercise Price is required, the Company shall notify the Holders of
the Representative's Warrants of such proposed action, which shall
specify the record date for any such action or if no record date is
established with respect thereto, the date on which such action shall
occur or commence, or the date of participation therein by the holders
of Common Stock if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action on the Exercise Price and the
number, or kind, or class of shares or other securities or property
obtainable upon exercise of this Representative's Warrant after giving
effect to any adjustment which will be required as a result of such
action. Such notice shall be given at least twenty (20) days prior to
the record date for determining holders of the Common Stock for
purposes of any such action, and in the case of any action for which a
record date is not established then such notice shall be mailed at
least twenty (20) days prior to the taking of such proposed action.
(iii) Failure to file any certificate or notice or to give any
notice, or any defect in any certificate or notice, shall not effect
the legality or validity of the adjustment in the Exercise Price or in
the number, or kind, or class of shares or other securities or
property obtainable upon exercise of the Representative's Warrants or
of any transaction giving rise thereto.
(i) The Company shall not be required to issue fractional Shares upon
any exercise of the Representative's Warrants. As to any final
fraction of a Share which the Holder of a Representative's Warrant
would otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final fraction
in an amount equal to the same fraction of the market price of a share
of such stock on the business day preceding the day of exercise. The
Holder of a Representative's Warrant, by his acceptance of a warrant
certificate, expressly waives any right to receive any fractional
shares of stock upon exercise of the Representative's Warrant.
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<PAGE> 10
(j) Regardless of any adjustments pursuant to this section in the
Exercise Price or in the number, or kind, or class of shares or other
securities or other property obtainable upon exercise of a
Representative's Warrant, a Representative's Warrant Certificate may
continue to express the Exercise Price and the number of Shares obtainable
upon exercise at the same price and number of Shares as are stated herein.
(k) The number of Shares, the Exercise Price and all other terms and
provisions of the Company's agreement with the Holder of this
Representative's Warrant shall be determined exclusively pursuant to the
provisions hereof.
(l) The above provisions of this section 6 shall similarly apply to
successive transactions which require adjustments.
(m) Notwithstanding any other language to the contrary herein, in the
event the anti-dilution terms provided in this Representative's Warrant,
if enforced in accordance with the terms hereof, would result in the
Holder receiving disproportionate rights, privileges or economic benefits
which are not provided to the purchasers of Common Stock in the public
offering thereof, the parties acknowledge and agree that the rights,
privileges and economic benefits of this Representative's Warrant may be
adjusted such that the Holder will receive rights, privileges or economic
benefits which are proportionate to that received by public investors. In
addition, notwithstanding any language to the contrary elsewhere herein,
the anti-dilution terms of this Representative's Warrant will not be
enforced so as to provide the Holder the right to receive, or for the
accrual of, cash dividends prior to the exercise of this Representative's
Warrant.
7. The issuance of any Shares or other securities upon the exercise of
this Representative's Warrant and the delivery of certificates or other
instruments representing such securities, or other securities, shall be made
without charge to the Holder for any tax or other charge in respect to such
issuance. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not
be required to issue or deliver any such certificate unless and until the person
or persons requesting the issue thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
8. (a) Piggyback Rights. If, at any time after April 16, 1997 (the
Effective Date of the Registration Statement), and ending April 16, 2004
(seven years after the Effective Date of the Registration Statement), the
Company shall file a registration statement (other than on Form S-4, Form
S-8, or any other inappropriate form) with the Securities and Exchange
Commission (the "Commission") while Shares are available for purchase upon
exercise of this Representative's Warrant or while any Shares (the
"Representative's Securities") are outstanding, the Company shall, on one
occasion only, give the Holder and all the then holders of such
Representative's Warrants and Representative's Securities at least 30 days
prior written notice of the filing of such registration statement. If
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<PAGE> 11
requested by the Holder of by any such holder in writing within 20 days
after receipt of any such notice, the Company shall, at the Company's sole
expense (other than the fees and disbursements of counsel for the Holder or
such holder and the underwriting discounts, if any, payable in respect of
the securities sold by the Holder or any such holder), register or qualify
the Representative's Securities or the Holder or any such holders who shall
have made such request concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and
sale of the Representative's Securities, and will use its best efforts
through its officers, directors, auditors and counsel to cause such
registration statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such
offering shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Representative's Securities
requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely
affect the distribution of such securities by the Company for its own
account, then the Holder or any such holder who shall have requested
registration of his or its Representative's Securities shall delay the
offering and sale of such Representative's Securities (or the portions
thereof so designated by such managing underwriter) for such period, not to
exceed 90 days, as the managing underwriter shall request, provided that no
such delay shall be required as to any Representative's Securities if any
securities of the Company are included in such registration statement for
the account of any person other than the Company and the Holder or any such
holder unless the securities included in such registration statement for
such other person shall have been reduced pro rata to the reduction of the
Representative's Securities which were requested to be included in such
registration.
(b) Demand Rights. If at any time after April 16, 1997 (the Effective
Date of the Registration Statement), and before April 16, 2002 (five years
after the Effective Date of the Registration Statement), the Company shall
receive a written request from holders of Representative's Securities who,
in the aggregate, own (or upon exercise of all Representative's Warrants
will own) a majority of the total number of Shares underlying such
Representative's Warrants, the Company shall, as promptly as practicable,
prepare and file with the Commission a registration statement sufficient to
permit the public offering and sale of the Representative's Securities, and
will use its best efforts through its officers, directors, auditors and
counsel to cause such registration statement to become effective as
promptly as practicable; provided, however, that the Company shall only be
obligated to file and obtain effectiveness of one such registration (other
than the fees and disbursements of counsel for the Holder or such holders
and underwriting discounts, if any, payable in respect of the
Representative's Securities sold by the Holder or any such holder) shall be
borne by the Company.
(c) In event of a registration pursuant to the provisions of this
paragraph 8, the Company shall use its best efforts to cause the
Representative's Securities so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the
Holder or such holders may reasonably request; provided, however, that the
Company shall not be required to qualify to do business in any state by
reason of
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<PAGE> 12
this paragraph 8(c) in which it is not otherwise required to
qualify to do business and provided further, that the Company has no
obligation to qualify the Representative's Securities where such
qualification would cause any unreasonable delay or expenditure by the
Company.
(d) The Company shall keep effective any registration or
qualification contemplated by this paragraph 8 and shall from time to
time amend or supplement each applicable registration statement,
preliminary prospectus, final prospectus, application, document and
communication for such period of time as shall be required to permit the
Holder or such holders to complete the offer and sale of the
Representative's Securities covered thereby. The Company shall in no event
be required to keep any such registration or qualification in effect for a
period in excess of nine months from the date on which the Holder and such
holders are first free to sell such Representative's Securities; provided,
however, that if the Company is required to keep any such registration or
qualification in effect with respect to securities other than the
Representative's Securities beyond such period, the Company shall keep
such registration or qualification in effect as it relates to the
Representative's Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of
such other securities.
(e) In the event of a registration pursuant to the provisions of this
paragraph 8, the Company shall furnish to the Holder and to each such
holder such reasonable number of copies of the registration statement and
of each amendment and supplement thereto (in each case, including all
exhibits), such reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto
(including each preliminary prospectus), all of which shall conform to the
requirements of the Act and the rules and regulations thereunder, and such
other documents, as the Holder or such holders may reasonably request in
order to facilitate the disposition of the Representative's Securities
included in such registration.
(f) In the event of a registration pursuant to the provisions of this
paragraph 8, the Company shall furnish the Holder and each holder of any
Representative's Securities so registered with an opinion of its counsel to
the effect that (i) the registration statement, preventing or suspending
the effectiveness of the registration statement, preventing or suspending
the use of the registration statement, any preliminary prospectus, any
final prospectus, or any amendment or supplement thereto has been issued,
nor to such counsel's actual knowledge has the Securities and Exchange
Commission or any securities or blue sky authority of any jurisdiction
instituted or threatened to institute any proceedings with respect to such
an order and (ii) the registration statement and each prospectus forming a
part thereof (including each preliminary prospectus), and any amendment or
supplement thereto, complies as to form with the Memorandum setting forth
the jurisdictions in which the Representative's Securities have been
registered or qualified for sale pursuant to the provisions of paragraph
8(c).
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(g) The Company agrees that until all the Representative's Securities
have been sold under a registration statement or pursuant to Rule 144 under
the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Representative's Securities to sell such securities under Rule 144.
(h) The Holder and any holders who propose to register their
Representative's Securities under the Act shall execute and deliver to the
Company a selling shareholder questionnaire on a form to be provided by the
Company.
9. (a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Holder, any holder of any of the
Representative's Securities, their officers, directors, partners,
employees, agents and counsel, and each person, if any, who controls any
such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from
and against any and all loss, liability, charge, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 9, but
not be limited to, attorneys' fees and any and all expense whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts
paid in settlement of any claim or litigation), as and when incurred,
arising out of, based upon, or in connection with (i) any untrue statement
or alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement
thereto, or (B) in any application or other document or communication (in
this Section 9 collectively called an "application") executed by or on
behalf of the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to register or
qualify any of the Representative's Securities under the securities or blue
sky laws thereof of filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect
to the Holder or any holder of any of the Representative's Securities by or
on behalf of such person expressly for inclusion in any registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation, warranty, covenant or agreement of the
Company contained in this Representative's Warrant. The foregoing agreement
to indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this Representative's
Warrant.
If any action is brought against the Holder or any holder of any of
the Representative's Securities or any of its officers, directors,
partners, employees, agents or counsel, or any controlling persons of such
person (an "indemnified party") in respect of which indemnity may be sought
against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in
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<PAGE> 14
writing of the institution of such action (but the failure so to
notify shall not relieve the Company from any liability it may otherwise
have to Holder or any holder of any of the Representative's Securities) and
the Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the
defense of such action or the Company shall not have promptly employed
counsel reasonably satisfactory to such indemnified party or parties to
have charge of the defense of such action or such indemnified party or
parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of
which events such fees and expenses shall be borne by the Company and the
Company shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties. Anything in this paragraph to
the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written
consent.
(b) The Holder and each holder agrees to indemnify the hold harmless
the Company, each director of the Company, each officer of the Company who
shall have signed any registration statement covering the Representative's
Securities held by the Holder and each holder and each other person, if
any, who controls the Company within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company to the Holder and each holder in paragraph 9(a),
but only with respect to statements or omissions, if any, made in any
registration statement, preliminary prospectus, or final prospectus (as
from time to time amended and supplemented), or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with
written information furnished to the Company with respect to the Holder and
each holder by or on behalf of the Holder and each holder expressly for
inclusion in any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be. If any action shall be brought against the
Company or any other person so indemnified based on any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, and in respect of which
indemnity may be sought against the Holder and each holder pursuant to this
paragraph 9(b), the Holder and each holder shall have the rights and duties
given to the Company, and the Company and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by the
provisions of paragraph 9(a).
a. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to paragraph
9(a) or 9(b) (subject to the limitations thereof) but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this
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Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the act, the
Exchange Act or otherwise because the indemnification provided for in this
Section 9 is for any reason held to be unenforceable by the Company and the
Holder and any holder, then the Company (including for this purpose any
contribution made by or on behalf of any director of the Company, any
officer of the Company who signed any such registration statement and any
controlling person of the Company), as one entity, and the Holder and any
holder of any of the Representative's Securities included in such
registration in the aggregate (including for this purpose any contribution
by or on behalf of the Holder or any holder), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses
whatsoever to which any of them may be subject, on the basis of relevant
equitable considerations such as the relative fault of the Company and the
Holder or any such holder in connection with the facts which resulted in
such losses, liabilities, claims, damages and expenses. The relative fault,
in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Company, by the Holder or by any holder of
Representative's Securities included in such registration, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement, alleged statement, omission or alleged
omission. The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and the Holder for
contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages and expenses (even if the
Holder and the other indemnified parties were treated as one entity for
such purpose) or by any other method of allocation that does not reflect
the equitable considerations referred to in this paragraph 9(c). No person
guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation. For purpose of this
paragraph 9(c), each person, if any, who controls the Holder or any holder
of any of the Representative's Securities within the meaning of Section 15
of the Act of Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent and counsel of each such person, shall have the
same rights to contribution as such person and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a), of the Exchange Act, each officer of the Company who shall have
signed any such registration statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each
case to the provisions of this paragraph 9(c). Anything in this paragraph
9(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This paragraph 9(c) is intended to supersede
any right to contribution under the Act, the Exchange Act or otherwise.
10. The securities issued upon exercise of the Representative's Warrants
shall be subject to a stop transfer order and the certificate or certificates
evidencing any such securities shall bear the following legend:
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<PAGE> 16
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF, IF ANY, (THE "SECURITIES") HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND WITH THE
SECURITIES ADMINISTRATORS OF CERTAIN STATES UNDER THE SECURITIES ("BLUE
SKY") LAWS OF SUCH STATES. HOWEVER, NEITHER THE REPRESENTATIVE'S WARRANTS
NOR SUCH SECURITIES MAY BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED
EXCEPT PURSUANT TO (I) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (II) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (III)
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND UNDER THE APPLICABLE BLUE
SKY LAWS.
11. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Representative's Warrant (and upon
surrender of any Representative's Warrant if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Warrant of like date, tenor
and denomination.
12. The Holder of any Representative's Warrant shall not have, solely on
account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Representative's Warrant.
13. This Representative's Warrant shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Dated: April 22, 1997
WHEELS SPORTS GROUP, INC.
By: \s\ Howard L. Correll, Jr.
-----------------------------------
Howard L. Correll, Jr.
President
[SEAL]
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<PAGE> 17
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Warrant.)
FOR VALUE RECEIVED, ________________________ hereby sells, assigns and
transfers unto ________________________ Representative's Warrants to purchase
______________ shares of Common Stock of Wheels Sports Group, Inc. (the
"Company"), together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint _______________________ attorney to transfer
such Representative's Warrants on the books of the Company, with full power of
substitution.
Date:_________________________
Signature:______________________________________
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Representative's Warrant in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
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<PAGE> 18
ELECTION TO EXERCISE
(To be executed by the holder if such holder desires to exercise the attached
Representative's Warrant)
The undersigned hereby exercises his or its rights to subscribe for
________ shares of Common Stock covered by the within Representative's Warrant
(each as defined in the within Representative's Warrant) and tenders payment
herewith in the amount of $____________ in accordance with the terms thereof,
and requests that certificates for such Warrants be issued in the name of, and
delivered to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print Name, Address and Social Security or
Tax Identification Number
and, if such number of Warrants (or portions thereof) shall not be all the
Warrants covered by the within Representative's Warrant, that a new
Representative's Warrant for the balance of the Representative's Warrants (or
portions thereof) covered by the within Representative's Warrant be registered
in the name of, and delivered to, the undersigned at the address stated below.
Name:___________________________________________________________________________
(Print)
Address:________________________________________________________________________
_______________________________________
(Signature)
Dated:_________________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the fact of this Representative's Warrant in every particular,
without alteration or enlargement of any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
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<PAGE> 1
EXHIBIT 10.6
WHEELS SPORTS GROUP, INC.
1996 OMNIBUS STOCK PLAN
1. PURPOSE
The purpose of this Plan is to promote the interest of the Corporation and
its stockholders and the Corporation's success by providing a method whereby a
variety of equity-based incentive and other Awards may be granted to Employees
and Directors of the Corporation and its Subsidiaries and to selected
Consultants. Upon the effectiveness of the merger of WSG Acquisition, Inc., a
North Carolina corporation and a wholly owned subsidiary of Parent, with and
into the Corporation, all Awards under this Plan shall relate to the Common
Stock of Parent.
2. DEFINITIONS
A. "AWARD" means any form of stock option, restricted stock, Performance
Unit, Performance Share, stock appreciation right, dividend equivalent or other
incentive award granted under the Plan.
B. "AWARD NOTICE" means any written notice from the Corporation to a
Participant or agreement between the Corporation and a Participant that
establishes the terms applicable to an Award.
C. "BOARD OF DIRECTORS" means the Board of Directors of Parent.
D. "CODE" means the Internal Revenue Code of 1986, as amended.
E. "COMMITTEE" means the Compensation Committee of the Board of
Directors, or such other committee designated by the Board of Directors, which
is authorized to administer the Plan under Section 3 hereof. The number of
persons who shall serve on the Committee shall be specified from time to time by
the
<PAGE> 2
Board of Directors; however, in no event shall there be fewer than two
members of the Committee.
F. "COMMON STOCK" means shares of Common Stock of Parent, $.01 par value.
G. "CONSULTANT" means any individual who renders services directly to the
Corporation or a Subsidiary or to the Corporation's customers as defined and
designated from time to time by the Committee.
H. "CORPORATION" means Wheels Sports Group, Inc.
I. "DIRECTOR" means a member of the Board of Directors or a member of the
Board of Directors of a Subsidiary.
J. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
K. "FAIR MARKET VALUE" means, "on any given date (i) if the Common Stock
is traded in the over-the-counter market and not in The Nasdaq Stock Market or
on any national securities exchange, the per share closing bid prices of the
Common Stock as reported by Nasdaq or an equivalent generally accepted reporting
service, (ii) if the Common Stock is traded in The Nasdaq Stock Market or on a
national securities exchange, the per share closing price of the Common Stock on
which it is so listed, as the case may be, (iii) if trading in the Common Stock
is not reported by Nasdaq, the lowest per share bid price of the Common Stock as
reported in the "pink sheets" published by National Quotation Bureau,
Incorporated, (iv) if no such reported price is reported for such date pursuant
to (i), (ii) or (iii) above, then the bid, closing sale or bid price
respectively, on the first preceding day on which so reported, or (v) if the
Common Stock is not so traded and/or reported for a 30-day period immediately
preceding the date for determining Fair Market Value, the Committee shall, in
good faith and in
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<PAGE> 3
conformity with the requirements of Section 422 of the Code, establish a method
for determining the Fair Market Value."
L. "EMPLOYEE" means any employee of the Corporation or a Subsidiary whose
performance the Committee determines can have a significant effect on the
success of the Corporation.
M. "PARENT" means Racing Champions Corporation, a Delaware corporation
and the sole stockholder of the Corporation.
N. "PARTICIPANT" means any individual to whom an Award is granted under
the Plan.
O. "PERFORMANCE SHARE" means a Unit expressed in terms of, or valued by
reference to, a share of Common Stock.
P. "PERFORMANCE UNIT" means a Unit valued by reference to designated
criteria established by the Committee, other than Common Stock.
Q. "PLAN" means this Plan, which shall be known as Wheels Sports Group,
Inc. 1996 Omnibus Stock Plan.
R. "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
S. "SUBSIDIARY" means a corporation or other business entity (i) of which
Parent directly or indirectly has an ownership interest of 50% or more, or (ii)
of which it has a right to elect or appoint 50% or more of the board of
directors or other governing body. A Subsidiary shall include both currently
owned Subsidiaries as well as any Subsidiary hereafter acquired.
T. "UNIT" means a bookkeeping entry used by the Corporation to record the
grant of an Award until such time as the Award is paid, cancelled, forfeited or
terminated.
3. ADMINISTRATION
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<PAGE> 4
A. The Plan shall be administered by the Committee. The Committee shall
have the authority to:
(i) construe and interpret the Plan;
(ii) promulgate, amend and rescind rules relating to the
implementation of the Plan;
(iii) make all determinations necessary or advisable for the
administration of the Plan, including the selection of
Employees, Consultants and affiliated individuals who shall be
granted Awards, the number of shares of Common Stock or Units to
be subject to each Award, the Award price, if any, the vesting
or duration of Awards, and the designation of stock options as
incentive stock options or nonqualified stock options;
(iv) determine the disposition of Awards in the event of a
Participant's divorce or dissolution of marriage;
(v) determine whether Awards will be granted alone or in combination
or in tandem with other Awards;
(vi) determine whether cash will be paid or Awards will be granted in
replacement of, or as alternatives to, other grants under the
Plan or any other incentive or compensation plan of the
Corporation, a Subsidiary or an acquired business unit.
B. Subject to the requirements of applicable law, the Committee may
correct any defect, supply any omission, or reconcile any inconsistency in the
Plan, any Award, or any Award Notice; take any and all other actions it
deems necessary or advisable for the proper administration of the Plan;
designate persons other than members of the Committee to carry out its
responsibilities; and prescribe such conditions and limitations as it may deem
appropriate; except that the Committee may not delegate its authority with
regard to the selection for participation of, or the granting of Awards to,
persons under Section 16 of the Exchange Act. Any determination, decision, or
action of the Committee in connection with the construction, interpretation,
administration, or application of the Plan shall be
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<PAGE> 5
final, conclusive and binding upon all persons validly claiming under or through
persons participating in the Plan.
C. The Committee may at any time, and from time to time amend or cancel
any outstanding Award, but only with the consent of the person to whom the Award
was granted.
4. ELIGIBILITY
A. Any Employee is eligible to become a Participant in the Plan.
B. Directors who are not Employees of the Corporation or a Subsidiary
shall receive Awards in accordance with Section 7.
C. Consultants who are not Directors of the Corporation shall be eligible
to receive Awards in accordance with Section 8.
5. SHARES AVAILABLE
Subject to Section 16 of the Plan, the maximum number of shares of Common
Stock available for Award grants (including incentive stock options) shall be
400,000. Notwithstanding the foregoing sentence, the maximum number of shares of
Common Stock that may be awarded under this Plan in the form of restricted stock
awards pursuant to Section 10 may be limited by the Committee.
6. TERM
The Plan shall become effective on December 13, 1996 and shall continue in
effect until December 13, 2006.
7. AWARDS TO NON-EMPLOYEE DIRECTORS
Options granted to Directors who are not Employees of the Corporation or a
Subsidiary shall be subject to the following terms:
(i) The exercise price shall be equal to 85% of the Fair Market
Value of the underlying Shares of Common Stock on the date of
the grant, payable in accordance with the alternatives stated in
Section 9.B.(ii) of the Plan;
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<PAGE> 6
(ii) The term of the options shall be ten (10) years;
(iii) The options shall be exercisable beginning one year after the
date of the grant if granted at or before the date of the
Corporation's initial public offering, or six months from the
date of the grant if granted subsequent to the date of the
Corporation's initial public offering; and
(iv) The options shall be subject to Section 14 of the Plan.
8. AWARDS TO CONSULTANTS
Consultants shall receive Awards in accordance with the following terms:
A. No Awards of incentive stock options shall be made to Consultants.
B. Awards of non-qualified stock options to such Consultants shall be
subject to the following terms:
(i) The exercise price shall be not less than 85% of the Fair Market
Value of the underlying shares of Common Stock on the date of
the grant, payable in accordance with the alternatives stated in
Sections 9.B(ii) and (iii) of the Plan;
(ii) The term of the options shall be ten (10) years;
(iii) The options shall be exercisable beginning one year after the
date of the grant if granted at or before the date of the
Corporation's initial public offering, or six months from the
date of the grant if granted subsequent to the date of the
Corporation's initial public offering; and
(iv) The options shall be subject to Section 14 of the Plan.
9. STOCK OPTIONS
A. Awards may be granted in the form of stock options. Stock options may
be incentive stock options within the meaning of Section 422 of the Code or
non-qualified stock options (i.e., stock options which are not incentive stock
options).
B. Subject to Section 9.C. relating to incentive stock options, options
shall be in such form and contain such terms as the Committee deems appropriate.
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<PAGE> 7
While the terms of options need not be identical, each option shall be subject
to the following terms:
(i) The exercise price shall be the price set by the Committee but
may not be less than 85% of the Fair Market Value of the
underlying shares of Common Stock on the date of the grant.
(ii) The exercise price shall be paid in cash (including check, bank
draft, or money order), or at the discretion of the Committee,
all or part of the purchase price may be paid by delivery of the
optionee's full recourse promissory note, delivery of Common
Stock already owned by the Participant for at least six (6)
months and valued at its Fair Market Value, or any combination
of the foregoing methods of payment. In the case of incentive
stock options, the terms of payment shall be determined at the
time of grant.
(iii) Promissory notes given as payment of the exercise price, if
permitted by the Committee, shall contain such terms as set by
the Committee which are not inconsistent with the following: the
unpaid principal shall bear interest at a rate set from time to
time by the Committee; payments of principal and interest shall
be made no less frequently than annually; no part of the note
shall be payable later than ten (10) years from the date of
purchase of the underlying shares of Common Stock; and the
optionee shall give such security as the Committee deems
necessary to ensure full payment.
(iv) The term of an option may not be greater than ten (10) years
from the date of the grant.
(v) Neither a person to whom an option is granted nor such person's
legal representative, heir, legatee or distributee shall be
deemed to be the holder of, or to have any of the rights of a
holder or owner with respect to, any shares of Common Stock
subject to such option unless and until such person has
exercised the option.
C. The following special terms shall apply to grants of incentive stock
options:
(i) Subject to Section 9.C.(ii) of the Plan, the exercise price of
each incentive stock option shall not be less than 100% of the
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<PAGE> 8
Fair Market Value of the underlying shares of Common Stock on
the date of the grant.
(ii) No incentive stock option shall be granted to any Employee who
directly or indirectly owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the
Corporation, unless at the time of such grant the exercise price
of the option is at least 110% of the Fair Market Value of the
underlying shares of Common Stock subject to the option and such
option is not exercisable after the expiration of five (5) years
from the date of the grant.
(iii) No incentive stock option shall be granted to a person in his
capacity as a Employee of a Subsidiary if the Corporation has
less than a 50% ownership interest in such Subsidiary.
(iv) Options shall contain such other terms as may be necessary to
qualify the options granted therein as incentive stock options
pursuant to Section 422 of the Code, or any successor statute,
including that such incentive stock options shall be granted
only to Employees, that such incentive stock options are
non-transferable, and which shall conform to all other
requirements of the Code.
10. RESTRICTED STOCK
A. Awards may be granted in the form of restricted stock.
B. Grants of restricted stock shall be awarded in exchange for
consideration in an amount determined by the Committee. The price, if any, of
such restricted stock shall be paid in cash, or at the discretion of the
Committee, all or part of the purchase price may be paid by delivery of the
Participant's full recourse promissory note, delivery of Common Stock already
owned by the Participant for at least six (6) months and valued at its Fair
Market Value, or any combination of the foregoing methods of payment, provided
no less than the par value of the stock is paid in cash, and the Participant has
rendered no less than three (3) months prior service to the Corporation.
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<PAGE> 9
C. Restricted stock awards shall be subject to such restrictions as the
Committee may impose and may include, if the Committee shall so determine,
restrictions on transferability and restrictions relating to continued
employment.
D. The Committee shall have the discretion to grant to a Participant
receiving restricted shares all or any of the rights of a stockholder while such
shares continue to be subject to restrictions.
11. PERFORMANCE UNITS AND PERFORMANCE SHARES
A. Awards may be granted in the form of Performance Units or Performance
Shares. Awards of Performance Units and Performance Shares shall refer to a
commitment by the Corporation to make a distribution to the Participant or to
his beneficiary depending on (i) the attainment of the performance objective(s)
and other conditions established by the Committee and (ii) the base value of the
Performance Unit or Performance Shares, respectively, as established by the
Committee.
B. Settlement of Performance Units and Performance Shares may be in cash,
in shares of Common Stock, or a combination thereof. The Committee may designate
a method of converting Performance Units into Common Stock, including, but not
limited to, a method based on the Fair Market Value of Common Stock over a
series of consecutive trading days.
C. Participants shall not be entitled to exercise any voting rights with
respect to Performance Units or Performance Shares, but the Committee in its
sole discretion may attach dividend equivalents to such Awards.
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<PAGE> 10
12. STOCK APPRECIATION RIGHTS
A. Awards may be granted in the form of stock appreciation rights. Stock
appreciation rights may be awarded in tandem with a stock option, in addition to
a stock option, or may be free-standing and unrelated to a stock option.
B. A stock appreciation right entitles the Participant to receive from
the Corporation an amount equal to the positive difference between (i) the Fair
Market Value of Common Stock on the date of exercise of the stock appreciation
right and (ii) the grant price or some other amount as the Committee may
determine at the time of grant (but not less than the Fair Market Value of
Common Stock on the date of grant).
C. With respect to persons subject to Section 16 of the Exchange Act, a
stock appreciation right may only be exercised during a period which (i) begins
on the third business day following a date when the Corporation's quarterly
summary statement of sales and earnings is released to the public and (ii) ends
on the 12th business day following such date. This Section 12.C shall not apply
if the exercise occurs automatically on the date when a related stock option
expires.
D. Settlement of stock appreciation rights may be in cash, in shares of
Common Stock, or a combination thereof, as determined by the Committee.
13. DEFERRAL OF AWARDS
At the discretion of the Committee, payment of an Award, dividend
equivalent, or any portion thereof may be deferred until a time established by
the Committee. Deferrals shall be made in accordance with guidelines established
by the Committee to ensure that such deferrals comply with applicable
requirements of the Code and its regulations. Deferrals shall be initiated by
the delivery of a written, irrevocable election by the participant to the
Committee or its nominee. Such election shall be made prior to the date
specified by the Committee. The Committee may also (A) credit interest
equivalents on cash payments that are
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<PAGE> 11
deferred and set the rates of such interest equivalents and (B) credit dividends
equivalents on deferred payments denominated in the form of shares of Common
Stock.
14. EXERCISE OF STOCK OPTIONS AWARDS UPON TERMINATION OF EMPLOYMENT OR
SERVICES.
A. Options granted under Sections 7 and 9 shall be exercisable until the
Participant's (i.e., Non-Employee Directors or Employees) termination of service
or within the following specified periods only. The definition of termination of
service applicable to Consultants shall be defined and determined by the
Committee in its sole discretion. Subject to Section 22, stock options granted
to other Participants may permit the exercise of options upon the Participant's
termination of employment within the following periods, or such shorter periods
as determined by the Committee at the time of grant:
(i) If on account of death, within twelve (12) months of such event
by the person or persons to whom the Participant s rights pass
by will or the laws of descent or distribution.
(ii) If on account of retirement (as defined from time to time by
Corporation policy), stock options may be exercised within 3
months of such termination.
(iii) If on account of resignation, options may be exercised within
one (1) month of such termination.
(iv) If for cause (as defined from time to time by Corporation
policy), no unexercised option shall be exercisable to any
extent after termination.
(v) If on account of the taking of a leave of absence for the
purpose of servicing the government or the country in which the
principal place of employment of the Participant is located,
either in a military or a civilian capacity, or for such other
purpose or reason as the Committee may approve, a Participant
shall not be deemed during the period of any such
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<PAGE> 12
absence alone, to have terminated his service, except as the
Committee may otherwise expressly provide.
(vi) If on account of disability, within one year following the
disability of the Participant.
(vii) If for any reason other than death, retirement, resignation,
cause, or disability, options may be exercised within three (3)
months of such termination.
B. An unexercised option shall be exercisable only to the extent that
such option was exercisable on the date the Participant's employment or service
terminated. Notwithstanding the foregoing, and except as provided in Section
14.A. above, terms relating to the exerciseability of options may be amended by
the Committee before or after such termination, except in respect to options
granted under Section 7.
C. In no case may an unexercised option be exercised to any extent by
anyone after expiration of its term.
D. To the extent any Award other than stock options is exercisable by a
Participant, such Award shall be exercisable only until termination (in the case
of Employees only) or within the time periods specified in A(i) to A(vii) above.
In the case of a non-Employee Participant, such Award will be exercisable in
accordance with the terms thereof unless the Committee has required continued
service to the Corporation or a Subsidiary as a condition to the exercise of an
Award, in which event the exercise of an Award following termination of services
by a non-Employee Participant shall be as provided for by the Committee.
15. ASSIGNABILITY
The rights of a Participant under the Plan shall be assignable by such
Participant, by operation of law or otherwise. No Participant may create a lien
on any funds, securities, rights or other property to which such Participant may
have
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<PAGE> 13
an interest under the Plan, or which is held by the Corporation for the account
of the Participant under the Plan.
16. ADJUSTMENT OF SHARES AVAILABLE
The Committee shall make appropriate and equitable adjustments in the
shares of Common Stock available for future Awards and the number of shares of
Common Stock covered by unexercised, unvested or unpaid Awards upon the
subdivision of the outstanding shares of Common Stock; the declaration of a
dividend payable in Common Stock; the declaration of a dividend payable in a
form other than Common Stock in an amount that has a material effect on the
price of the shares of Common Stock; the combination or consolidation of the
outstanding shares of Common Stock (by reclassification or other vise) into a
lesser number of shares of Common Stock; a recapitalization; or a similar event.
17. PAYMENT OF WITHHOLDING TAXES
As a condition to receiving or exercising an Award, as the case may be, the
Participant shall pay to the Corporation or the employer Subsidiary the amount
of all applicable Federal, state, local and foreign taxes required by law to be
paid or withheld relating to receipt or exercise of the Award. Alternatively,
the Corporation may withhold shares of Common Stock with an aggregate Fair
Market Value equal to such withholding taxes, from any Award in shares of Common
Stock, to the extent the withholding is required by law. The Corporation also
may deduct such withholding taxes from any Award paid in cash.
18. AMENDMENTS
The Board of Directors may amend the Plan at any time and from time to
time, subject to the receipt of stockholder approval where required by Rule
16b-3. Rights and obligations under any Award granted before amendment of the
Plan shall not be materially altered or impaired adversely by such amendment,
except with consent of the person to whom the Award was granted.
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19. REGULATORY APPROVALS AND LISTINGS
Notwithstanding any other provision in the Plan, the Corporation shall have
no obligation to issue or deliver certificates for shares of Common Stock under
the Plan prior to (A) obtaining approval from any governmental agency which the
Corporation determines is necessary or advisable, (B) admission of such shares
to listing on the stock exchange on which the Common Stock may be listed, and
(C) completion of any registration or other qualification of such shares under
any state or Federal law or ruling of any governmental body which the
Corporation determines to be necessary or advisable.
20. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
Participation in the Plan shall not give any Employee any right to remain
in the employ of the Corporation or any Subsidiary. Further, the adoption of
this Plan shall not be deemed to give any Employee or other individual the right
to be selected as a Participant or to be granted an Award.
21. NO RIGHT, TITLE, OR INTEREST IN CORPORATION ASSETS
No Participant shall have any rights as a stockholder of the Corporation
until Participant acquires an unconditional right under an Award to have shares
of Common Stock issued to such Participant. In the case of a recipient of a
stock option, the unconditional right to have shares of Common Stock issued to
such Participant shall be defined as the date upon which the Participant has
exercised the stock option and tendered valid consideration to the Corporation
for the exercise thereof. To the extent any person acquires a right to receive
payments from the Corporation under this Plan, such rights shall be no greater
than the rights of an unsecured creditor of the Corporation.
22. SPECIAL PROVISION PERTAINING TO PERSONS SUBJECT TO SECTION 16
Notwithstanding any other item of this Plan, the following shall apply to
persons subject to Section 16 of the Exchange Act, except in the case of death
or
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disability or unless Section 16 shall be amended to provide otherwise than as
described below, in which event this Plan shall be amended to conform to Section
16, as amended:
A. Restricted stock or other equity securities (within the meaning used
in Rule 16b-3 of the Exchange Act or any successor rule) offered pursuant to
this Plan must be held for at least six (6) months from the date of grant; and
B. At least six (6) months must elapse from the date of acquisition of
any stock option, Performance Unit, Performance Share, stock appreciation right
or other derivative security (within the meaning used in Rule 16b-3 of the
Exchange Act or any successor rule) issued pursuant to the Plan to the date of
disposition of such derivative security (other than upon exercise or conversion)
or its underlying equity security.
23. INDEMNIFICATION
In addition to such other rights of indemnification as they may have as
Directors, the members of the Board of Directors or the Committee administering
the Plan shall be indemnified by the Corporation against reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Award
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such member is liable for
negligence or misconduct in the performance of his duties; provided that within
60 days after institution of any
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such action, suit or proceeding, the member shall in writing offer the
Corporation the opportunity, at its own expense, to handle and defend the same.
24. MERGER, REORGANIZATION, EXCHANGE OR SALE OF ASSETS
A. In the event Parent enters into an agreement providing for the merger
of Parent into another corporation, an exchange of shares with another
corporation, the reorganization of Parent or the sale of substantially all of
Parent's assets, any Awards in the form of unvested stock options shall become
immediately exercisable as of the date of such merger agreement, exchange
agreement, reorganization or sale agreement.
B. If Parent shall be the surviving corporation in any merger,
consolidation, reorganization or similar transaction, any Awards in the form of
options granted hereunder shall automatically upon the consummation of such
merger, consolidation or reorganization pertain to and apply to the securities
to which a holder of the number of shares of Common Stock subject to the option
would have been entitled to receive in such merger, consolidation or
reorganization.
C. In the event of a dissolution or a liquidation of Parent or a merger,
consolidation, reorganization or similar transaction in which Parent is not the
surviving corporation, Parent shall cause every option outstanding hereunder to
terminate as of the effective date of the dissolution, liquidation, merger or
consolidation. However, as condition to the consummation of such transaction,
Parent shall provide that the optionee shall be offered a firm commitment
whereby the resulting or surviving corporation in a merger, consolidation or
reorganization will tender to the optionee an option (the "Substitute Option")
to purchase its shares on terms and conditions both as to number of shares and
otherwise, which will substantially preserve to the optionee the rights and
benefits of the option outstanding hereunder granted by Parent. The Committee
shall have absolute and
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uncontrolled discretion to determine whether the tendered Substitute Option
will substantially preserve to the optionee the rights and benefits of the
Option outstanding hereunder. In any event, any Substitute Option for an
Incentive Stock Option shall comply with the requirements of the Code.
D. Upon the consummation of any merger, exchange, reorganization or sale
of assets, each Performance Unit, Performance Share or stock appreciation right
shall either be assumed by the successor corporation or, if not so assumed, the
successor corporation shall substitute a Performance Unit, Performance Share or
stock appreciation right on substantially identical terms to the terms of
outstanding Awards in this form.
25. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware.
* * * * *
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of April 30, 1998, by and
between Racing Champions, Inc., an Illinois corporation (the "Company"), and
Curtis W. Stoelting (the "Employee"). The Company is a wholly owned subsidiary
of Racing Champions Corporation, a Delaware corporation ("Parent"). Certain
capitalized terms used herein are defined in section 10 below.
RECITAL
A. The Company and the Employee desire to terminate any and all
prior agreements, whether oral or written, between the parties and between the
Employee and Parent relating to the Employee's employment.
B. 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.
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 - Finance and Operations of the Company and, upon the
consummation of Parent's pending acquisition of Wheels Sports Group, Inc. (the
"Wheels Acquisition"), as Managing Director - Wheels Sports Group, 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, supervise the accounting, finance
and operating functions of the Company and, after the consummation of the Wheels
Acquisition, supervise the operations of Wheels Sports Group, Inc. 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
<PAGE> 2
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 $200,000 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.
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 the 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, 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.
(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 the 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.
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<PAGE> 3
(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.
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 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 section 7 or section 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 a
director of the Company, any determination pursuant to this
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<PAGE> 4
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 dishonest 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 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 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) 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 second anniversary
of the Termination Date, provided, however, that if such termination or
resignation occurs at any time after the occurrence of a Change of Control, then
Employee shall be entitled to receive his Base Salary from the Termination Date
to the third 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
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<PAGE> 5
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 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 Affiliates 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 Affiliates 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 Affiliates.
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 Affiliates and to prevent great damage or loss to
the Company and its Affiliates 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 Affiliates is
the design, production (including, without limitation, obtaining the licenses
necessary therefor), marketing and sale of die cast metal replicas of vehicles
and collectible pewter figures.
(a) Noncompetition. The Employee hereby
covenants and agrees that during the Employment Period and for two 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,
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<PAGE> 6
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 Affiliates or any successor or assign of the Company or any of its
Affiliates. 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 Affiliates
(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 Affiliates or the successors or assigns of
the Company or any of its Affiliates, 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 Affiliates 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 Affiliates 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 Affiliates during the Noncompete Period, to
withdraw, curtail or cancel any of its business or relations with the Company or
any of its Affiliates;
(iii) induce or attempt to induce any
employee, sales representative, consultant or other agent of the Company or any
of its Affiliates to terminate his relationship or breach any agreement with the
Company or any of its Affiliates; or
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<PAGE> 7
(iv) hire any person who was an employee,
sales representative, consultant or other agent of the Company or any of its
Affiliates 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 Affiliates (the "Confidential Information") are
established at great expense and protected as confidential information and
provide the Company and its Affiliates 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 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 of its Affiliates 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 Affiliate' 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 Affiliates ("Work
Product") belong to the Company or such Affiliate, 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
Affiliates with broader protection than that provided herein.
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<PAGE> 8
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.
"Change of Control" means:
(a) The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares of common
stock of Parent (the "Outstanding Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Parent entitled to vote
generally in the election of directors (the "Outstanding Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from Parent, (ii) any acquisition by
Parent, (iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Parent or any corporation controlled by Parent or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this definition; or
(b) Individuals who, as of the date hereof,
constitute the Board of Directors of Parent (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board of Directors of
Parent; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by Parent's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors of
Parent; or
(c) Approval by the stockholders of Parent of a
reorganization, merger or consolidation (a "Business Combination"), in each
case, unless, following such Business Combination, (i) all or substantially all
of the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Common Stock and Outstanding Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
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<PAGE> 9
corporation which as a result of such transaction owns Parent through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding
any employee benefit plan (or related trust) of Parent or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors of Parent, providing for
such Business Combination; or
(d) Approval by the stockholders of Parent of
(i) a complete liquidation or dissolution of Parent or (ii) the sale or other
disposition of all or substantially all of the assets of Parent, other than to a
corporation, with respect to which following such sale or other disposition, [a]
more than 60% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such sale or other disposition in substantially
the same proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be, [b] less than 20% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by any Person (excluding any employee benefit plan (or related
trust) of Parent or such corporation), except to the extent that such Person
owned 20% or more of the Outstanding Common Stock or Outstanding Voting
Securities prior to the sale or disposition, and [c] at least a majority of the
members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board of Directors of Parent, providing for such sale or other
disposition of assets of Parent or were elected, appointed or nominated by the
Board of Directors of Parent.
"Founder Director" at any time means Robert Dods, Boyd Meyer
or Peter Chung if at such time such individual is a member of the Company's
Board of Directors.
"Person" means any individual, partnership, corporation,
limited liability company, association, joint stock company, trust, joint
venture, unincorporated
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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 Director 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.
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.
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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 April 30, 1996,
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.
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.
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/ Robert E. Dods
-------------------------------------
Its: President
---------------------------------
/s/ Curtis W. Stoelting
----------------------------------------
Curtis W. Stoelting
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of April 30, 1998, by and
between Racing Champions, Inc., an Illinois corporation (the "Company"), and
Peter J. Henseler (the "Employee"). The Company is a wholly owned subsidiary of
Racing Champions Corporation, a Delaware corporation ("Parent"). Certain
capitalized terms used herein are defined in section 10 below.
RECITAL
A. The Company and the Employee desire to terminate any and all prior
agreements, whether oral or written, between the parties and between the
Employee and Parent relating to the Employee's employment.
B. 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.
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,
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.
<PAGE> 2
4. Compensation. The Employee shall receive a base salary of
$137,500 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.
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 the 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, 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.
(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 the 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.
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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.
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 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 section 7 or
section 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 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
3
<PAGE> 4
dishonest 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 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 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) 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. 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
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<PAGE> 5
shall not be entitled to receive his Base Salary or any fringe benefits or
bonuses 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 Affiliates
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 Affiliates 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 Affiliates. 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 Affiliates and to prevent
great damage or loss to the Company and its Affiliates 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
Affiliates is the design, production (including, without limitation, obtaining
the licenses necessary therefor), marketing and sale of die cast metal replicas
of vehicles and collectible pewter figures.
(a) Noncompetition. The Employee hereby covenants and agrees
that during the Employment Period and for two 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 Affiliates or any successor or assign
of the Company or any of its Affiliates. 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.
5
<PAGE> 6
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 Affiliates (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 Affiliates or the successors or assigns of the Company or any of
its Affiliates, 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
Affiliates 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 Affiliates 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 Affiliates during the Noncompete Period, to withdraw, curtail or cancel any
of its business or relations with the Company or any of its Affiliates;
(iii) induce or attempt to induce any employee, sales
representative, consultant or other agent of the Company or any of its
Affiliates to terminate his relationship or breach any agreement with the
Company or any of its Affiliates; or
(iv) hire any person who was an employee, sales
representative, consultant or other agent of the Company or any of its
Affiliates at any time during the Noncompete Period.
8. Confidential Information. The Employee acknowledges and agrees
that the customers, business connections, customer lists, procedures,
operations,
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<PAGE> 7
techniques, and other aspects of and information about the business of the
Company and its Affiliates (the "Confidential Information") are established
at great expense and protected as confidential information and provide
the Company and its Affiliates 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 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 of its Affiliates 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 Affiliate' 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 Affiliates ("Work Product") belong to the Company or such Affiliate, 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 Affiliates with
broader protection than that provided herein.
10. Definition.
"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 Company's Board of
Directors.
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<PAGE> 8
"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 Director 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.
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
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<PAGE> 9
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 April 30, 1996, 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.
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.
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/ Robert E. Dods
-----------------------------------
Its: President
------------------------------
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/s/ Peter J. Henseler
-----------------------------------
Peter J. Henseler
10
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of April 30, 1998, by and between
Racing Champions, Inc., an Illinois corporation (the "Company"), and John F.
Olsen (the "Employee"). The Company is a wholly owned subsidiary of Racing
Champions Corporation, a Delaware corporation ("Parent"). Certain capitalized
terms used herein are defined in section 10 below.
RECITAL
A. The Company and the Employee desire to terminate any and all prior
agreements, whether oral or written, between the parties and between the
Employee and Parent relating to the Employee's employment.
B. 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.
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, supervise the
Company's independent sales representatives and administrator 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.
<PAGE> 2
4. Compensation. The Employee shall receive a base salary of
$137,500 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.
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 the 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, 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.
(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 the 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
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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.
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 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 section 7 or
section 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 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
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dishonest 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 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 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) 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. 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
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shall not be entitled to receive his Base Salary or any fringe benefits or
bonuses 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
Affiliates 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 Affiliates 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 Affiliates.
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 Affiliates and to prevent great damage or loss to
the Company and its Affiliates 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 Affiliates is
the design, production (including, without limitation, obtaining the licenses
necessary therefor), marketing and sale of die cast metal replicas of vehicles
and collectible pewter figures.
(a) Noncompetition. The Employee hereby covenants and agrees
that during the Employment Period and for two 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 Affiliates or any successor or assign
of the Company or any of its Affiliates. 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.
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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 Affiliates (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 Affiliates or the successors or assigns of the Company or any of
its Affiliates, 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
Affiliates 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 Affiliates 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 Affiliates during the Noncompete Period, to withdraw, curtail or cancel any
of its business or relations with the Company or any of its Affiliates;
(iii) induce or attempt to induce any employee, sales
representative, consultant or other agent of the Company or any of its
Affiliates to terminate his relationship or breach any agreement with the
Company or any of its Affiliates; or
(iv) hire any person who was an employee, sales
representative, consultant or other agent of the Company or any of its
Affiliates at any time during the Noncompete Period.
8. Confidential Information. The Employee acknowledges and agrees
that the customers, business connections, customer lists, procedures,
operations,
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techniques, and other aspects of and information about the business of the
Company and its Affiliates (the "Confidential Information") are established
at great expense and protected as confidential information and provide
the Company and its Affiliates 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 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 of its Affiliates 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 Affiliate' 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 Affiliates ("Work Product") belong to the Company or such Affiliate, 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 Affiliates with
broader protection than that provided herein.
10. Definition.
"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 Company's Board of
Directors.
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"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 Director 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.
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
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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 April 30, 1996, 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.
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.
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/ Robert E. Dods
-----------------------------------
Its: President
-------------------------------
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/s/ John F. Olsen
-----------------------------------
John F. Olsen
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of April 30, 1998, by and
between Racing Champions, Inc., an Illinois corporation (the "Company"), and M.
Kevin Camp (the "Employee"). The Company is a wholly owned subsidiary of Racing
Champions Corporation, a Delaware corporation ("Parent"). Certain capitalized
terms used herein are defined in section 10 below.
RECITAL
A. The Company and the Employee desire to terminate any and all prior
agreements, whether oral or written, between the parties and between the
Employee and Parent relating to the Employee's employment.
B. 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.
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 - Licensing 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, 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.
<PAGE> 2
4. Compensation. The Employee shall receive a base
salary of $100,000 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.
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 the
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, 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.
(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 the 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
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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.
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 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 section 7 or section 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 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
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dishonest 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 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 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) 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. 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
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shall not be entitled to receive his Base Salary or any fringe benefits or
bonuses 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 Affiliates 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 Affiliates 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 Affiliates.
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 Affiliates and to prevent great damage or loss to
the Company and its Affiliates 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 Affiliates is
the design, production (including, without limitation, obtaining the licenses
necessary therefor), marketing and sale of die cast metal replicas of vehicles
and collectible pewter figures.
(a) Noncompetition. The Employee hereby
covenants and agrees that during the Employment Period and for two 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 Affiliates or any successor or assign of the Company or any of its
Affiliates. 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.
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<PAGE> 6
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 Affiliates
(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 Affiliates or the successors or assigns of
the Company or any of its Affiliates, 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 Affiliates 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 Affiliates 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 Affiliates during the Noncompete Period, to
withdraw, curtail or cancel any of its business or relations with the Company or
any of its Affiliates;
(iii) induce or attempt to induce any
employee, sales representative, consultant or other agent of the Company or any
of its Affiliates to terminate his relationship or breach any agreement with the
Company or any of its Affiliates; or
(iv) hire any person who was an employee,
sales representative, consultant or other agent of the Company or any of its
Affiliates at any time during the Noncompete Period.
8. Confidential Information. The Employee acknowledges
and agrees that the customers, business connections, customer lists, procedures,
operations,
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techniques, and other aspects of and information about the business of the
Company and its Affiliates (the "Confidential Information") are established at
great expense and protected as confidential information and provide the Company
and its Affiliates 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
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 of its Affiliates 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 Affiliate' 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 Affiliates ("Work
Product") belong to the Company or such Affiliate, 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
Affiliates with broader protection than that provided herein.
10. Definition.
"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 Company's
Board of Directors.
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"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 Director 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.
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
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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 April
30, 1996, 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.
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.
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/ Robert E. Dods
------------------------------------
Its: President
--------------------------------
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/s/ M. Kevin Camp
---------------------------------------
M. Kevin Camp
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EXHIBIT 10.11
RACING CHAMPIONS CORPORATION
STOCK INCENTIVE PLAN
Article 1. Establishment and Purpose
1.1 Establishment. Racing Champions Corporation, a Delaware
corporation (the "Company"), hereby establishes a stock option plan for
employees and others providing services to the Company, as described herein,
which shall be known as the Racing Champions Corporation 1997 Stock Incentive
Plan (the "Plan"). It is intended that certain of the options issued pursuant to
the Plan to employees of the Company may constitute incentive stock options
within the meaning of section 422 of the Internal Revenue Code, and that other
options issued pursuant to the Plan shall constitute nonstatutory options. The
Board shall determine which options are to be incentive stock options and which
are to be nonstatutory options and shall enter into option agreements with
recipients accordingly.
1.2 Purpose. The purpose of the Plan is to provide a means for the
Company to attract and retain competent personnel and to provide to
participating directors, officers and other key employees long term incentives
for high levels of performance by providing them with a means to acquire a
proprietary interest in the Company's success.
Article II. Definitions
2.1 Definitions. For purposes of this Plan, the following terms
shall be defined as follows:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means the definition of Cause in Optionee's
employment agreement, if any, with the Company. If no such
employment agreement or definition in such agreement exists,
Cause means (i) breach by Optionee of any covenant not to
compete or confidentiality agreement with the Company, (ii)
failure by Optionee to substantially perform his duties to the
reasonable satisfaction of the Board, (iii) serious misconduct
by Optionee which is demonstrably and substantially injurious
to the Company, (iv) fraud or dishonesty by Optionee with
respect to the Company, (v) material misrepresentation by
Optionee to a stockholder or director of the Company or (vi)
acts of negligence by Optionee in performance of
<PAGE> 2
Optionee's duties that are substantially injurious to the
Company. The Board, by majority vote, shall make the
determination of whether Cause exists.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(d) "Commission" means the Securities and Exchange Commission or
any successor agency.
(e) "Committee" means the Committee provided for by Article IV
hereof, which may be created at the discretion of the Board.
(f) "Company" means Racing Champions Corporation, a Delaware
corporation.
(g) "Consultant" means any person or entity, including an officer
or director of the Company who provides services (other than
as an Employee) to the Company and includes a Qualified
Director, as defined below.
(h) "Date of Exercise" means the date the Company receives notice,
by an Optionee, of the exercise of an Option pursuant to
section 9.1 of this Plan. Such notice shall indicate the
number of shares of Stock the Optionee intends to purchase
upon exercise of an Option.
(i) "Employee" means any person, including an officer or director
of the Company, who is employed by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(k) "Fair Market Value" means the fair market value of Stock upon
which an Option is granted under this Plan, as determined by
the Board. If the Stock is traded on an over-the-counter
securities market or national securities exchange, "Fair
Market Value" shall mean an amount equal to the average of the
highest and lowest reported sales prices of the Stock reported
on such over-the-counter market or such national securities
exchange on the applicable date or, if no sales of Stock have
been reported for that date, on the next preceding date for
which sales where reported.
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(l) "Incentive Stock Option" means an Option granted under this
Plan which is intended to qualify as an "incentive stock
option" within the meaning of section 422 of the Code.
(m) "IRS" means the Internal Revenue Service, or any successor
agency.
(n) "Nonstatutory Option" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option
within the meaning of section 422 of the Code. Nonstatutory
Options may be granted at such times and subject to such
restrictions as the Board shall determine without conforming
to the statutory rules of section 422 of the Code applicable
to incentive stock options.
(o) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified
period of time. For purposes of this Plan, an Option may be an
Incentive Stock Option, a Nonstatutory Option or a Reload
Option.
(p) "Optionee" means an Employee or Consultant holding an Option
under the Plan.
(q) "Parent Corporation" shall have the meaning set forth in
section 424(e) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(r) "Qualified Director" means a director who is both (a) a
"Non-Employee Director" as defined in Rule 16b-3(b)(3)(i), as
promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission, and (b) an
"Outside Director" as defined by section 162(m) of the Code
and the regulations promulgated thereunder, or any successor
definition adopted by the IRS.
(s) "Reload Option" means an Option granted pursuant to section
8.1 of this Plan.
(t) "Rule 16b-3" means Rule 16b-3, as promulgated by the
Commission under Section 16(b) of the Exchange Act, as amended
from time to time.
(u) "Significant Stockholder" means an individual who, within the
meaning of section 422(b)(6) of the Code, owns stock
possessing more than ten percent of the total combined voting
power of all
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classes of stock of the Company. In determining whether an
individual is a Significant Stockholder, an individual shall
be treated as owning stock owned by certain relatives of the
individual and certain stock owned by corporations in which
the individual is a partner, and estates or trusts of which
the individual is a beneficiary, all as provided in section
424(d) of the Code.
(v) "Stock" means the Common Stock, par value $.01 per share, of
the Company.
2.2 Gender and Number. Except when otherwise indicated by the
context, any masculine terminology when used in this Plan also shall include the
feminine gender and the definition of any term herein in the singular shall also
include the plural.
Article III. Eligibility and Participation.
3.1 Eligibility and Participation. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options. All Consultants are eligible to participate in this Plan and receive
Nonstatutory Options hereunder. Optionees in the Plan shall be selected by the
Board from among those Employees and Consultants who, in the opinion of the
Board, are in a position to contribute materially to the Company's continued
growth and development and to its long-term financial success.
Article IV. Administration.
4.1 Administration. The Board shall be responsible for
administering the Plan.
The Board is authorized to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to the Plan, to provide for conditions
and assurances deemed necessary or advisable to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations or other actions made or
taken by the Board pursuant to the provisions of this Plan shall be final and
binding and conclusive for all purposes and upon all persons.
At the discretion of the Board, this Plan may be administered by a
Committee which shall be a compensation committee of the Board, consisting
solely of two or more Qualified Directors. The members of such Committee may be
directors who are eligible to receive Options under this Plan, but Options may
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<PAGE> 5
be granted to such persons only by action of the full Board and not by action of
the Committee. Such Committee shall have full power and authority, subject to
the limitations of the Plan and any limitations imposed by the Board, to
construe, interpret and administer this Plan and to make determinations which
shall be final, conclusive and binding upon all persons, including, without
limitation, the Company, the stockholders, the directors and any persons having
any interests in any Options which may be granted under this Plan and, by
resolution providing for the creation and issuance of any such Option, to fix
the terms upon which, the time or times at or within which, and the price or
prices at which any such shares may be purchased from the Company upon the
exercise of such Option, which terms, time or times and price or prices shall,
in every case, be set forth or incorporated by reference in the instrument or
instruments evidencing such Option, and shall be consistent with the provisions
of the Plan.
The Board may from time to time remove members from, or add members to,
the Committee. The Board may terminate the Committee at any time. Vacancies on
the Committee, howsoever caused, shall be filled by the Board. The Committee
shall select one of its members as Chairman, and shall hold meetings at such
times and places as the Chairman may determine. A majority of the Committee at
which a quorum is present, or acts reduced to or approved in writing by all of
the members of the Committee, shall be the valid acts of the Committee. A quorum
shall consist of two-thirds of the members of the Committee.
Where the Committee has been created by the Board, references herein to
actions to be taken by the Board shall be deemed to refer to the Committee as
well, except where limited by this Plan or by the Board.
The Board shall have all of the enumerated powers of the Committee but
shall not be limited to such powers. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted under it.
4.2 Special Provisions for Grants to Officers or Directors. Rule
16b-3 provides that the grant of a stock option to a director or officer of a
company subject to the Exchange Act will be exempt from the provisions of
Section 16(b) of the Exchange Act if the conditions set forth in Rule 16b-3 are
satisfied. Unless otherwise specified by the Board, grants of Options hereunder
to individuals who are officers or directors of the Company for purposes of
Section 16(b) of the Exchange Act shall be made in a manner that satisfies the
conditions of Rule 16b-3.
Article V. Stock Subject to the Plan.
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5.1 Number. The total number of shares of Stock hereby made
available and reserved for issuance under the Plan shall be 600,000. The
aggregate number of shares of Stock available under this Plan shall be subject
to adjustment as provided in section 5.3. The total number of shares of Stock
may be authorized but unissued shares of Stock, or shares acquired by purchase
as directed by the Board from time to time in its discretion, to be used for
issuance upon exercise of Options granted hereunder.
5.2 Unused Stock; Payment with Stock. If an Option shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares of Stock subject thereto shall (unless the Plan shall have terminated)
become available for other Options under the Plan. In addition, upon the full or
partial payment of any option price by the transfer to the Company of shares of
Stock pursuant to section 7.7, upon satisfaction of tax withholding obligations
with shares of Stock pursuant to section 15.1 or any other payment made or
benefit realized under this Plan by the transfer or relinquishment of shares of
Stock, only the net number of shares of Stock actually issued or transferred by
the Company, after subtracting the number of shares of Stock so transferred or
relinquished, will be charged against the maximum share limitation set forth in
section 5.1 above.
5.3 Adjustment in Capitalization. In the event of any change in
the outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification or other similar corporate change, the
aggregate number of shares of Stock set forth in section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
Article VI. Duration of the Plan.
6.1 Duration of the Plan. The Plan shall be in effect for ten
years from the date of its approval by the Company's stockholders. Any Options
outstanding at the end of such period shall remain in effect in accordance with
their terms. The Plan shall terminate before the end of such period if all Stock
subject to the Plan has been purchased pursuant to the exercise of Options
granted under the Plan.
Article VII. Terms of Stock Options.
7.1 Grant of Options. Subject to section 5.1, Options may be
granted to Employees or Consultants at any time and from time to time as
determined by the
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<PAGE> 7
Board; provided, however, that Consultants may receive only Nonstatutory Options
and may not receive Incentive Stock Options. The Board shall have complete
discretion in determining the number of Options granted to each Optionee. In
making such determinations, the Board may take into account the nature of
services rendered by such Employee or Consultant, their present and potential
contributions to the Company, and such other factors as the Board in its
discretion shall deem relevant. The Board shall also determine whether an Option
is to be an Incentive Stock Option or a Nonstatutory Option.
In the cases of Incentive Stock Options, the total Fair Market Value
(determined at the date of grant) of shares of Stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year under all plans of the Company under which incentive
stock options may be granted (and all such plans of any Parent Corporation and
any subsidiary corporations of the Company) shall not exceed $100,000.
(Hereinafter, this requirement is sometimes referred to as the "$100,000
Limitation.")
Nothing in this Article VII of the Plan shall be deemed to prevent the
grant of Options permitting exercise in excess of the maximums established by
the preceding paragraph where such excess amount is treated as a Nonstatutory
Option.
7.2 No Tandem Options. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under section 422 of the Code.
7.3 Option Agreement; Terms and Conditions to Apply Unless
Otherwise Specified. As determined by the Board on the date of grant, each
Option shall be evidenced by an Option agreement (the "Option Agreement") that
includes the nontransferability provisions required by section 11.2 hereof and
specifies: whether the Option is an Incentive Stock Option or a Nonstatutory
Option; the Option price; the duration of the Option; the number of shares of
Stock to which the Option applies; any vesting or exercisability restrictions
which the Board may impose; in the case of an Incentive Stock Option, a
provision implementing the $100,000 Limitation; and any other terms and
conditions as shall be determined by the Board at the time of grant of the
Option.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
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<PAGE> 8
7.4 Option Price. No Incentive Stock Option granted pursuant to
this Plan shall have an Option price that is less than the Fair Market Value of
Stock on the date the Option is granted. Incentive Stock Options granted to
Significant Stockholders shall have an Option price of not less than 110 percent
of the Fair Market Value of Stock on the date of grant. The Option price for
Nonstatutory Options shall be established by the Board.
7.5 Term of Options. Each Option shall expire at such time as the
Board shall determine when it is granted, provided, however, that no Option
shall be exerciseable later than the tenth anniversary date of its grant.
7.6 Exercise of Options. Options granted under this Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 Payment. Payment for all shares of Stock shall be made at the
time that an Option, or any part thereof, is exercised, and no shares shall be
issued until full payment therefor has been made. Such payment may be made in
cash, outstanding shares of Stock, in combinations thereof, or any other method
of payment approved by the Board; provided, however, that (i) the deposit of any
withholding tax shall be made in accordance with applicable law and (ii) that
such shares of Stock used to pay the exercise price have been held by the
Participant for at least six months prior to the exercise date. If shares of
Stock are being used in part or full payment for the shares to be acquired upon
exercise of the Option, such shares shall be valued for the purpose of such
exchange as of the date of exercise of the Option at the Fair Market Value of
the shares. Any certificates evidencing shares of Stock used to pay the purchase
price shall be accompanied by stock powers duly endorsed in blank by the
registered holder of the certificate (with signatures thereon guaranteed). In
the event the certificates tendered by the holder in such payment cover more
shares than are required for such payment, the certificate shall also be
accompanied by instructions from the holder to the Company's transfer agent with
regard to the disposition of the balance of the shares covered thereby.
Article VIII. Reload Options.
8.1 Grants of Reload Options. Concurrently with any award of
Options, the Board may grant Reload Options to purchase a number of shares of
Stock equal to the sum of (i) the number of outstanding shares of Stock used to
exercise the underlying Option pursuant to section 7.7, and (ii) the number of
shares of Stock used to satisfy any tax withholding requirement incident to the
exercise of
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the underlying Options pursuant to section 15.1. If the Board grants
Reload Options in connection with a grant of Options, the Option Agreement with
respect to such underlying Options shall state that Reload Options have been
granted with respect to the underlying Options. Upon exercise of an underlying
Option, the Reload Option will be evidenced by an amendment to the underlying
Option Agreement. No additional Reload Options will be granted to the Optionee
when Options are exercised pursuant to the terms of this Plan following
termination of the Optionee's employment.
8.2 Terms of Reload Options. A Reload Option will be subject to
all of the terms and conditions of the underlying Option, except that (i) the
option price per share of Stock purchasable under a Reload Option shall be equal
to the Fair Market Value of the Stock at time of grant upon exercise of the
underlying Option, and (ii) the term of the Reload Option will equal the
remaining option term of the underlying Option.
Article IX. Written Notice, Issuance of Stock Certificates,
Stockholder Privilege.
9.1 Written Notice. An Optionee wishing to exercise an Option
shall give written notice to the Company, in the form and manner prescribed by
the Board. Full payment for the Options exercised, as provided in section 7.7
above, must accompany the written notice.
9.2 Issuance of Stock Certificate. As soon as practicable after
the receipt of written notice and payment, the Company shall deliver to the
Optionee or to a nominee of the Optionee a certificate or certificates for the
requisite number of shares of Stock.
9.3 Privileges of a Stockholder. An Optionee or any other person
entitled to exercise an Option under this Plan shall not have stockholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such Stock.
Article X. Termination of Employment or Services.
Except as otherwise expressly specified by the Board, all Options
granted under this Plan shall be subject to the following termination
provisions.
10.1 Death. If an Optionee's employment in the case of an
Employee, or provision of services as a Consultant in the case of a
Consultant, terminates by reason of death, the Option may thereafter be
exercised at any time prior to the expiration date of the Option or within 12
months after the date of such death, whichever period is the shorter, by the
person or persons entitled to do so under the
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Optionee's will or, if the Optionee shall fail to make a testamentary
disposition of an Option or shall die intestate, the Optionee's legal
representative or representatives. The Option shall be exercisable only to the
extent that such Option was exercisable as of the date of death.
10.2 Termination Other Than for Cause or Due to Death. In the
event of an Optionee's termination of employment in the case of an
Employee, or termination of the provision of services as a Consultant in the
case of a Consultant, other than for Cause or by reason of death, the Optionee
may exercise such portion of his Option as was exercisable by him at the date
of such termination (the "Termination Date") at any time within three months of
the Termination Date; provided, however, that where the Optionee is an
Employee, and is terminated due to disability within the meaning of Code
section 422, he may exercise such portion of his Option as was exercisable by
him on his Termination Date within one year of his Termination Date. In any
event, the Option cannot be exercised after the expiration of the original term
of the Option. Options not exercised within the applicable period specified
above shall terminate.
In the case of an Employee, a change of duties or position within the
Company, if any, shall not be considered a termination of employment for
purposes of this Plan. The Option Agreements may contain such provisions as the
Board shall approve with respect to the effect of approved leaves of absence
upon termination of employment.
10.3 Termination for Cause. In the event of an Optionee's
termination of employment in the case of an Employee, or termination of the
provision of services as a Consultant in the case of a Consultant, which
termination is by the Company for Cause, any Option or Options held by him under
the Plan, to the extent not exercised before such termination, shall forthwith
terminate.
Article XI. Rights of Optionees
11.1 Service. Nothing in this Plan shall interfere with or limit
in any way the right of the Company to terminate any Employee's employment, or
any Consultant's services, at any time, nor confer upon any Employee any right
to continue in the employ of the Company, or upon any Consultant any right to
continue to provide services to the Company.
11.2 Nontransferability. Options granted under this Plan shall be
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
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Article XII. Amendment, Modification
and Termination of the Plan
12.1 Amendment, Modification, and Termination of the Plan.
The Board may at any time terminate and from time to time may amend or modify
the Plan provided, however, that no such action of the Board, without approval
of the stockholders, may:
(a) increase the total amount of Stock which may be
purchased through Options granted under the Plan, except as
provided in Article V;
(b) change the class of Employees or Consultants
eligible to receive Options; or
(c) extend the maximum exercise period under section 7.5.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
Article XIII. Acquisition, Merger and Liquidation
13.1 Acquisition. Notwithstanding anything herein to contrary, in
the event that an Acquisition (as defined below) occurs with respect to the
Company, the Company shall have the option, but not the obligation, to cancel
Options outstanding as of the effective date of Acquisition, whether or not such
Options are then exercisable, in return for payment to the Optionees for each
Option of an amount equal to a reasonable, good faith estimate of an amount
(hereinafter the "Spread") equal to the difference between the net amount per
share payable in the Acquisition, or as a result of the Acquisition, less the
exercise price per share of the Option. In estimating the Spread, appropriate
adjustments to give effect to the existence of the options shall be made, such
as deeming the Options to have been exercised, with the Company receiving the
exercise price payable thereunder, and treating the shares receivable upon
exercise of the Options as being outstanding in determining the net amount per
share. For purposes of this section, an "Acquisition" shall mean any transaction
in which substantially all of the Company's assets are acquired or in which a
controlling amount of the Company's outstanding shares are acquired, in each
case by a single person or entity or an affiliated group of persons and/or
entities. For purposes of this section a controlling amount shall mean more than
50% of the issued and outstanding shares of stock of the Company. The Company
shall have such an option regardless of how the Acquisition is effectuated,
whether by direct purchase, through a merger
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or similar corporate transaction, or otherwise. In cases where the acquisition
consists of the acquisition of assets of the Company, the net amount per share
shall be calculated on the basis of the net amount receivable with respect to
shares upon a distribution and liquidation by the Company after giving effect to
expenses and charges, including but not limited to taxes, payable by the Company
before the liquidation can be completed.
Where the Company does not exercise its option under this section 13.1,
the remaining provisions of this Article XIII shall apply, to the extent
applicable.
13.2 Merger or Consolidation. Subject to section 13.1 and to any
required action by the stockholders, if the Company shall be the surviving
corporation in any merger or consolidation, any Option granted hereunder shall
pertain to and apply to the securities to which a holder of the number of shares
of Stock subject to the Option would have been entitled in such merger or
consolidation.
13.3 Other Transactions. Subject to section 13.1, dissolution or a
liquidation of the Company or a merger and consolidation in which the Company is
not the surviving corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of the dissolution, liquidation, merger or
consolidation. However, the Optionee either (i) shall be offered a firm
commitment whereby the resulting or surviving corporation in a merger or
consolidation will tender to the Optionee an option (the "Substitute Option") to
purchase its shares on terms and conditions both as to number of shares and
otherwise, which will substantially preserve to the Optionee the rights and
benefits of the Option outstanding hereunder granted by the Company, or (ii)
shall have the right immediately prior to such dissolution, liquidation, merger,
or consolidation to exercise any unexercised Options whether or not then
exercisable, subject to the provisions of this Plan. The Board shall have
absolute and uncontrolled discretion to determine whether the Optionee has been
offered a firm commitment and whether the tendered Substitute Option will
substantially preserve to the Optionee the rights and benefits of the Option
outstanding hereunder. In any event, any Substitute Option for an Incentive
Stock Option shall comply with the requirements of the Code.
Article XIV. Securities Registration
14.1 Securities Registration. In the event that the Company shall
deem it necessary or desirable to register under the Securities Act of 1933, as
amended, or any other applicable statute, any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any such Options or Stock under the Securities Act of 1933, as amended, or any
other
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statute, then the Optionee shall cooperate with the Company and take such
action as is necessary to permit registration or qualification of such Options
or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he is acquiring such
shares for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof, and (b) that before any
transfer in connection with the resale of such shares, he will obtain the
written opinion of counsel to the Company, or other counsel acceptable to the
Company, that such shares may be transferred. The Company may also require that
the certificates representing such shares contain legends reflecting the
foregoing.
Article XV. Tax Withholding
15.1 Tax Withholding. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements.
Unless otherwise determined by the Board, withholding obligations may be settled
with Stock, including Stock that is part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company, its subsidiaries
and affiliates shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the participant.
Article XVI. Indemnification
16.1 Indemnification. To the extent permitted by law, each person
who is or shall have been a member of the Board shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
it on his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's articles of incorporation or bylaws, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
13
<PAGE> 14
Article XVII. Requirements of Law
17.1 Requirements of Law. The granting of Options and the issuance
of shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 Governing Law. The Plan and all agreements hereunder shall
be construed in accordance with and governed by the laws of the state of
Delaware.
Article XVIII. Compliance with Code
18.1 Compliance with Code. Incentive Stock Options granted
hereunder are intended to qualify as "incentive stock options" under Code
section 422. If any provision of this Plan is susceptible to more than one
interpretation, such interpretation shall be given thereto as is consistent with
Incentive Stock Options granted under this Plan being treated as incentive stock
options under the Code. Options granted hereunder to any person who is a
"covered employee" under Code section 162(m) at any time when the Company is
subject to Code section 162(m) are intended to qualify as performance-based
compensation within the meaning of Code section 162(m)(4)(C). If any provision
of this Plan is susceptible to more than one interpretation, such interpretation
shall be given thereto as is consistent with Options granted under this Plan to
such "covered employees" being treated as performance-based compensation under
Code section 162(m).
14
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