SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
----------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): August 29, 1997
RT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-20436 65-0309477
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1875 East Lake Mary Boulevard, Sanford, Florida 32773
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (907) 322-4000
_______________________________________________________________________________
Former name or former address, if changed since last report
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Item 2. Acquisition and Disposition of Assets.
On August 29, 1997 (the "Closing"), Registrant's wholly-owned subsidiary,
QUAC Acquisition Corp. (the "Subsidiary"), consummated the merger contemplated
by the Merger Agreement, dated June 6, 1997 (the "Merger Agreement), by and
among Registrant, Subsidiary, Quality Automotive Company ("Quality") and all of
the stockholders of Quality (the "Quality Stockholders"). Quality was merged
with and into the Subsidiary and all of the outstanding shares of common stock
of Quality were converted into the right of the Quality Stockholders to receive:
(i) $3,000,000 ("Cash Contribution"); (ii) two promissory notes, in the
aggregate amount of $4,500,000, from the Subsidiary (the "Notes), which Notes
are guaranteed by the Registrant and secured by the Registrant's pledge of all
of its shares in Subsidiary; and (iii) 1,838,731 shares of Common stock, par
value of $.001 per share, of the Registrant (the "Merger Shares").
Quality is in the business of manufacturing, distributing and selling
automotive brake components (the "Business"). Following the Merger, the
Subsidiary changed its name to "Quality Automotive Company" and will conduct the
Business under such name.
Simultaneous with the Closing:
1. John K. Kenney ("Kenney") resigned as a director of the Registrant
effective as of the Closing, and as President of the Registrant effective as of
September 2, 1997. Kenney subsequently was nominated and elected, effective
September 9, 1997, to serve as Treasurer and Secretary of the Registrant.
2. Registrant increased the authorized number of directors constituting the
Board of Directors from three (3) to five (5) members. Mandel Sherman and David
Love, the remaining directors following the resignation of Mr. Kenney, elected
each of Martin Chevalier ("Chevalier") and John W. Kohut ("Kohut") as directors
of the the Registrant.
3. Chevalier was elected as President/Chief Executive Officer of the
Registrant and Subsidiary. The Registrant and Subsidiary also entered into a
three-year employment agreement with Chevalier, whereby Chevalier receives a
base salary at the
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rate of $225,000 per annum and is entitled to annual bonuses subject to a cap of
$500,000 in any given year of employment, equal to the greater of (A) 5% of the
first $1,000,000 in audited pre-tax consolidated profits of the Registrant and
Subsidiary for each fiscal year he is employed and 10% of the audited pre-tax
consolidated profits of the Registrant and Subsidiary in excess of $1,000,000
for each fiscal year he is employed or (B) a fixed sum of $100,000 and $50,000
in each of the 1997 and 1998 fiscal years, respectively, so long as the
consolidated gross sales of the Registrant and Subsidiary in such fiscal years
exceed $17,000,000. Chevalier was an owner of Quality and together with Malvina
B. Chevalier, as tenants by the entirety, received 1,102,503 of the Merger
Shares and $1,798,561.15 of the Cash Consideration.
4. Kohut was elected as Chairman of the Board of the Registrant. The
Registrant also entered into a three-year consulting agreement with RamKo
Venture Management, Inc. ("RamKo") whereby Ramko is entitled to receive a
quarterly fee of $45,000 based upon a maximum of 25 business days per quarter.
Kohut is the President of Ramko. Kohut was also an owner of Quality and,
together with Linda S. Ram, as tenants by the entirety, received 736,228 of the
Merger Shares and $1,201,438.05 of the Cash Consideration.
5. As security for the obligations under the Notes executed by Subsidiary,
the Registrant executed guaranties of the Promissory Notes in favor of the
Quality Stockholders and entered into a Stock Pledge and Security Agreement,
dated as of August 29, 1997, with Subsidiary and the Quality Stockholders (the
"Pledge Agreement"). Under the Pledge Agreement, Registrant pledged all of the
shares held in Subsidiary to the Quality Stockholders, subject to a superior
pledge arrangment between the Registrant and LaSalle Business Credit, Inc., a
lender to Quality.
6. Registrant and each of the Quality Stockholders entered into a
Registration Rights Agreement, providing for "piggyback" registration rights for
all of the Merger Shares and demand rights, with respect of up to the aggregate
number of Merger Shares held by the Quality Stockholders having an aggregate
value based upon the average bid and ask price for the five (5) trading days
proceeding the effective date of the registration statement equal to $2,500,000
following the first anniversary of the Closing. In addition, Quality
Stockholders entered into a Lock-Up Agreement with the Registrant, whereby each
agreed (A) not to sell any of the Merger Shares until after the first
anniversary of the Closing; (B) commencing as of the first anniversary of the
Closing until the third anniversary thereof, not to sell more than that number
of shares of the Merger Shares yielding aggregate proceeds greater than
$2,500,000; and (C) commencing as of the third anniversary of the Closing until
the fifth anniversary thereof, to limit their sales of the Merger Shares to
quantities and at times which are pari passu with another stockholder of the
Company, Elmgrove Associates II, L.P. Likewise, Elmgrove entered into a Lock-Up
Agreement with the Registrant, whereby it agreed, with respect to 750,000 shares
of the Common Stock (the "Elmgrove Shares"), (x) not to sell any of the Elmgrove
Shares until after the third anniversary of the Closing and (y) commencing as of
the third anniversary of the Closing until the fifth anniversary thereof, to
limit its sales of the Elmgrove Shares to quantities and at times which are pari
passu with the Quality Stockholders.
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The source of the consideration paid for the Business was cash and
authorized but unissued shares of common stock of the Registrant contributed to
Subsidiary. The amount of consideration paid by the Registrant and Subsidiary
for the Business was determined by arm's length negotiations.
The descriptions of the Merger Agreement and the other agreements described
herein are qualified in their entirety by reference to the copy of the Merger
Agreement and the other agreements which are filed exhibits to this Report and
which are incorporated herein by reference.
Item 4. Changes in the Registrant's Certifying Accountant.
(a)(1)
(i) On September 12, 1997, the Registrant dismissed BDO Seidman, LLP
("BDO") as its principal independent accountant.
(ii) Each of BDO's reports on the financial statements of the Company for
the fiscal years ended December 31, 1996 or December 31, 1995 were qualified as
to uncertainty with respect to the Registrant's ability to continue as a going
concern.
(iii) The decision to change accountants was approved by the Company's
Board of Directors.
(iv)-(v) During the fiscal years ended December 31, 1996 and December 31,
1995 and during the period from January 1, 1997 through September 12, 1997,
there were no disagreements with BDO on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure or any
reportable event.
(a)(2)
(i) On September 12, 1997, the Registrant engaged Arthur Andersen LLP
("Andersen") as its principal independent accountants who will audit and report
on the financial statements of the the Registrant for the fiscal year ending
December 31, 1997. Prior to engaging Andersen, neither the Registrant nor anyone
acting on its behalf consulted with Andersen regarding the application of
accounting principles to any specified transaction or the type of audit opinion
that might be rendered on the Registrant's financial statements. In addition,
during the the Registrant's fiscal years ended December 31, 1995 and December
31, 1996 and the interim period from January 1, 1997 to September 12, 1997,
neither the Registrant nor anyone acting on its behalf consulted with Andersen
with respect to any matters that were the subject of a disagreement (as defined
in paragraph 304(a)(1)(iv) of Regulation S-K or a reportable event (as described
in paragraph 304(a)(1)(v) of Regulation S-K).
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
A. Financial Statements of the Business Acquired.
It is impractical to provide the required financial information at this
time. The required financial information for the business acquired will be filed
under cover of Form 8 within 60 days of the date this Form 8-K was required to
be filed.
B. Pro Forma Financial Information and Exhibits.
It is impractical to provide the required pro forma financial information
at this time. The required pro forma financial information will be filed under
cover of Form 8 within 60 days of the date this Form 8-K was required to be
filed.
C. Exhibits.
10.1 Agreement and Plan of Merger dated as of June 6, 1997, by and among
the Registrant, the Subsidiary, Quality and the Quality Stockholders.
10.2 Ratification Letter, dated August 28, 1997, of Linda S. Ram.
10.3 Promissory Note, dated August 29, 1997, between Subsidiary and each
of Kohut and Linda S. Ram.
10.4 Promissory Note, dated August 29, 1997, between Subsidiary and each
of Chevalier and Malvina B. Chevalier.
10.5 Guaranty, dated August 29, 1997 between the Registrant and each of
Kohut and Linda S. Ram.
10.6 Guaranty, dated August 29, 1997 between the Registrant and each of
Chevalier and Malvina B. Chevalier.
10.7 Stock Pledge and Security Agreement, dated August 29, 1997, among the
Registrant, Subsidiary, Quality and the Quality Stockholders.
10.8 Registration Rights Agreement, dated August 29, 1997, between the
Registrant and the Quality Stockholders.
10.9 Lock-Up Letter, dated August 29, 1997 with Quality Stockholders.
10.10 Lock-Up Letter, dated August 29, 1997 with Elmgrove Associates II,
L.P.
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10.9 Letter from BDO Seidman, LLP regarding change in certifying accountant
(to be filed by amendment).
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.
RT INDUSTRIES, INC.
By: /s/ Martin Chevalier
----------------------------
Martin Chevalier, President
Date: September 12, 1997
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AGREEMENT AND PLAN OF MERGER
by and among
RT INDUSTRIES, INC., QUAC ACQUISITION CORP.,
and
QUALITY AUTOMOTIVE COMPANY,
and each of
MARTIN CHEVALIER, MALVINA B. CHEVALIER
and
JOHN W. KOHUT,
as individuals.
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As of June 6, 1997
----------------------
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TABLE OF CONTENTS
1. The Merger ........................................................... 1
1.1. The Merger ..................................................... 1
1.2. Effective Time ................................................. 2
1.3. Effect of the Merger ........................................... 2
1.4. Certificate of Incorporation; By-Laws .......................... 2
1.6. Conversion of Securities ....................................... 3
2. Representations and Warranties as to Quality ........................ 4
2.1. Organization, Standing and Power ............................... 4
2.2. Capitalization ................................................. 4
2.3. Ownership of Quality Common Stock .............................. 5
2.4. Interests in Other Entities .................................... 5
2.5. Authority ...................................................... 6
2.6. Noncontravention ............................................... 6
2.7. Financial Statements ........................................... 7
2.8. Accounts Receivables; Inventories .............................. 8
2.9. Absence of Undisclosed Liabilities ............................. 8
2.10. Properties .................................................... 8
2.11. Absence of Changes ............................................ 9
2.12. Litigation .................................................... 10
2.13. No Violation of Law; Environmental Matters .................... 10
2.14. Intangibles ................................................... 12
2.15. Tax Matters ................................................... 13
2.16. Insurance ..................................................... 14
2.17. Banks; Powers of Attorney ..................................... 15
2.18. Employee Arrangements ......................................... 15
2.19. Records ....................................................... 17
2.20. Brokerage Fees ................................................ 17
2.21. Suppliers and Providers of Services ........................... 17
2.22. Licenses ...................................................... 18
2.23. Certain Business Matters ...................................... 18
2.24. Certain Contracts ............................................. 19
2.25. Customers and Suppliers ....................................... 20
2.26. Business Practices and Commitments ............................ 20
2.27. Approvals/Consents ............................................ 20
2.28. Information as to Quality ..................................... 21
3. Representations and Warranties as to RTIC and Subsidiary ............ 21
3.1. Organization, Standing and Power ............................... 21
3.2. Interests in Other Entities .................................... 21
3.3. Incorporation Documents and By-Laws ............................ 21
3.4. Capitalization ................................................. 21
3.5. Authority ...................................................... 23
3.6. Noncontravention ............................................... 23
3.7. Securities and Exchange Commission Filings ..................... 23
3.8. Stock Issuable in Merger ....................................... 24
3.9. Absence of Undisclosed Liabilities ............................. 24
3.11. Litigation .................................................... 26
3.12. No Violation of Law ........................................... 26
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4. Indemnification ..................................................... 28
3.13. Tax Matters ................................................... 26
3.14. Licenses ...................................................... 27
3.15. Approvals/Consents ............................................ 27
3.16. Brokerage Fees ................................................ 27
3.17. Information as to RTIC and Subsidiary ......................... 28
4. Indemnification ..................................................... 28
4.1. Indemnification by the Quality Stockholders .................... 28
4.2. Indemnification by ............................................. 28
4.3. Third Party Claims ............................................. 29
4.4. Assistance ..................................................... 30
4.5. Limitations .................................................... 30
5. Covenants ........................................................... 30
5.1. Investigation .................................................. 30
5.2. Consummation of Transaction .................................... 31
5.3. Cooperation/Further Assurances ................................. 31
5.4. Accuracy of Representations .................................... 31
5.5. Notification of Certain Matters ................................ 32
5.6. Lock-up Restriction 32
5.8. Broker ......................................................... 32
5.9. Cash Escrow .................................................... 32
5.10. No Solicitation of Transactions ............................... 32
5.11. Employment Agreement .......................................... 33
5.17. Prohibited Conduct ............................................ 35
5.18. Tax Covenants ................................................. 37
6. Nondisclosure ....................................................... 38
7. Conditions of Merger ................................................ 38
7.1. Litigation ..................................................... 38
7.2. Ratification by All Stockholders of Quality .................... 39
7.3. No Materially Adverse Customer Reaction ........................ 39
8. The Closing ......................................................... 39
8.1. Deliveries by RTIC and Subsidiary .............................. 39
8.2. Management ..................................................... 41
8.3. Deliveries by Quality and the Quality Stockholders ............. 41
8.4. Other Deliveries ............................................... 42
9. Termination, Amendment and Waiver ................................... 42
9.1. Termination .................................................... 42
9.2. Effect of Termination .......................................... 43
9.3. Fees and Expenses .............................................. 44
9.4. Amendment ...................................................... 44
9.5. Waiver ......................................................... 44
10. Survival of Representations and Warranties ......................... 44
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11. General Provisions ................................................ 44
11.1. Notices ...................................................... 44
11.2. Severability ................................................. 45
11.3. Entire Agreement ............................................. 45
11.4. No Assignment ................................................ 46
11.5. Headings ..................................................... 46
11.6. Governing Law ................................................ 46
11.7. Attorneys' Fees .............................................. 46
11.8. Counterparts ................................................. 46
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 6, 1997 (the "Agreement"), by
and among RT Industries, Inc., a Delaware corporation ("RTIC"); QUAC ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of RTIC
("Subsidiary"); QUALITY AUTOMOTIVE COMPANY, a Delaware corporation ("Quality");
and each of JOHN W. KOHUT ("Kohut"), a resident of the State of New York, and
MARTIN CHEVALIER ("Chevalier") and MALVINA B. CHEVALIER, residents of the
Commonwealth of Virginia (collectively referred to as the "Quality
Stockholders").
W I T N E S S E T H :
WHEREAS, Quality is in the business of manufacturing, distributing and
selling automotive brake components (the "Quality Business") and RTIC is in a
similar business (the "RT Business"); and
WHEREAS, RTIC desires to combine the expertise of Quality in manufacturing,
production and management with the marketing and distribution experience of
RTIC; and
WHEREAS, the Board of Directors of RTIC, the Board of Directors of
Subsidiary, and RTIC, as the sole shareholder of Subsidiary, as well as the
Board of Directors of Quality have (a) determined that it is in the best
interests of their respective companies for Quality to be merged with and into
Subsidiary upon the terms and subject to the conditions set forth herein; and
(b) approved the merger of Quality with and into Subsidiary (the "Merger") in
accordance with the General Corporation Law of the State of Delaware ("Delaware
Law"), and upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. The Merger.
1.1. The Merger. At the Effective Time (as defined in Subsection 1.2), and
subject to and upon the terms and conditions of this Agreement and Delaware Law,
Quality shall be merged with and into Subsidiary, the separate corporate
existence of Quality shall cease, and Subsidiary shall continue as the surviving
corporation. Subsidiary, as the surviving corporation after the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
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1.2. Effective Time. At the Closing as set forth in Section 8 hereof,
Subsidiary and Quality shall cause the Merger to be consummated by filing a
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in the form of Exhibit 1.2 and making such other filing
as may be required by Delaware Law, in such form as required by and executed in
accordance with such laws (the time of the last of such filings to be made being
the "Effective Time").
1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the rights, privileges, powers, franchises and all property (real,
personal and mixed) of Quality and all debts due Quality shall vest in
Subsidiary, and all debts, liabilities, obligations and duties of Quality shall
become the debts, liabilities, obligations and duties of Subsidiary.
1.4. Certificate of Incorporation; By-Laws.
(a) The Certificate of Incorporation of Subsidiary, as in effect
immediately prior to the Effective Time (annexed hereto as Exhibit 1.4(a)),
except as amended to change its name as set forth in the Agreement of Merger,
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law or such Certificate of Incorporation.
(b) The By-Laws of Subsidiary, as in effect immediately prior to the
Effective Time (annexed hereto as Exhibit 1.4(b)), shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by law or the
Certificate of Incorporation of the Surviving Corporation or the By-Laws of the
Surviving Corporation.
1.5. Directors and Officers of Subsidiary.
(a) The initial directors of the Surviving Corporation immediately
following the Effective Date, as provided in Section 5.13 hereof, shall consist
of (i) the two existing directors of Subsidiary; (ii) each of Chevalier and
Kohut; and (iii) a fifth individual elected by a majority of the then existing
Board of Directors, each director to hold office in accordance with applicable
law, the Certificate of Incorporation and By-Laws of the Surviving Corporation
until their resignation, removal or replacement.
(b) Chevalier, who shall at the Effective Time be duly nominated and
elected as President and Chief Executive Officer of the Surviving Corporation as
provided by Section 5.13 hereof, and the other officers of Subsidiary
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immediately prior to the Effective Time shall constitute the initial officers of
the Surviving Corporation until their respective resignation, removal or
replacement. Kohut shall be duly nominated and appointed as Chairman of the
Board of Directors, and David Love, a current director of the Subsidiary, shall
be duly nominated and appointed as Chairman of the Audit Committee of the Board
of Directors of Subsidiary,
1.6. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of RTIC, Subsidiary, Quality or the
Quality Stockholders:
(a) All of the 16,680 issued and outstanding shares (the "Shares") of the
capital stock, par value $1.00 per share, of Quality (the "Quality Common
Stock") shall be converted into the right to receive: (i) $3,000,000 (the "Cash
Consideration"); (ii) promissory note(s), in the aggregate amount of $4,500,000,
from the Subsidiary (the "Notes"), which Notes shall be guaranteed by RTIC and
secured by RTIC's pledge of its shares in Subsidiary, in the forms of those
Notes, Guaranties (the "Guaranties") and Stock Pledge and Security Agreement
(the "Stock Pledge Agreement") annexed hereto as Exhibits 1.6(a)(1) - (7); and
(iii) that number of shares of Common Stock, par value of $.001 per share, of
RTIC ("RTIC Common Stock"), which when multiplied by the average of the closing
bid and ask price of RTIC Common Stock during the 20 trading days immediately
preceding the Closing (as defined in Section 8 hereof) equals $7,500,000 (the
"Share Consideration" and together with the Cash Consideration and the Note(s),
the "Merger Consideration") against the surrender to Subsidiary of the
certificates representing the Shares.
(b) Shares of the common stock, par value $.01 per share, of Subsidiary
issued and outstanding at the Effective Time shall remain outstanding and
unchanged and shall constitute all of the issued and outstanding shares of the
capital stock of the Surviving Corporation.
(c) Any share of Quality Common Stock held in the treasury of Quality shall
be cancelled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(d) At the Effective Time, the stock transfer books of Quality shall be
closed and there shall be no further registration of transfers of any Shares
thereafter on the records of Quality.
(e) From and after the Effective Time, the holders of certificates
evidencing ownership of Shares shall cease to have any rights with respect to
the Shares, except as otherwise provided herein or by law.
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(f) Notwithstanding anything to the contrary in this Subsection 1.6, no
party hereto shall be liable to a holder of a certificate or certificates
formerly representing Shares for any amount properly paid to a public official
pursuant to any applicable property, escheat or similar law.
(g) No fractional shares of RTIC Common Stock shall be issued in connection
with the Merger and the Quality Stockholders will be deemed to have received
cash in lieu of any fraction of a share, which cash shall be deemed included in
the Cash Consideration paid to the Quality Stockholders at the Closing.
(h) If between the date of this Agreement and the Effective Date the
outstanding Shares or RTIC Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split-up, combination, exchange of shares or
the like, and the ratio of shares of RTIC Stock to Shares to be issued in the
Merger shall be correspondingly adjusted.
2. Representations and Warranties as to Quality. Quality represents and
warrants and each of the Quality Stockholders represents and warrants to RTIC
and Subsidiary as follows:
2.1. Organization, Standing and Power. Quality is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified as a foreign corporation and is in good standing under
the laws of the Commonwealth of Virginia, with full corporate power and
corporate authority to (i) own, lease and operate its properties, (ii) carry on
the Quality Business as currently conducted by it and (iii) execute and deliver,
and perform under this Agreement and each other agreement and instrument to be
executed and delivered by it pursuant hereto. There are no states or
jurisdictions other than Virginia in which the character and location of any of
the properties owned or leased by Quality, or the conduct of the Quality
Business makes it necessary for Quality to qualify to do business as a foreign
corporation, where the failure to so qualify would have an adverse effect on the
business, operations or financial condition of Quality. True and complete copies
of the Certificate of Incorporation of Quality and all amendments thereof, and
of the By-Laws of Quality, as amended to date, have heretofore been or will be
furnished to RTIC. Quality's minute books heretofore exhibited to RTIC contains
complete and accurate records of all meetings and other corporate actions of
Quality's stockholders and Board of Directors (including committees of its Board
of Directors).
2.2. Capitalization. The authorized capital stock of Quality consists of
(i) 150,000 shares of Quality Common
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Stock, of which 16,680 shares are issued and outstanding and (ii) 20,000 shares
of preferred stock, par value $ 0.01 per share, of which no shares are issued
and outstanding. All issued shares of the Quality Common Stock have been duly
authorized, validly issued and outstanding and are fully paid and nonassessable
and owned of record and beneficially by the Quality Stockholders. There are no
outstanding options, warrants, rights, puts, calls, commitments, exchange,
conversion rights, plans or other agreements of any character to which Quality
or the Quality Stockholders (individually or jointly) are a party or otherwise
bound which provide for the acquisition, disposition or issuance of any issued
but not outstanding, or authorized and unissued shares, of Quality Common Stock.
Except as set forth on the Quality Disclosure Schedule, there is no personal
liability, and there are no preemptive or similar rights, attached to the
Quality Common Stock. There are no outstanding obligations, contingent or other,
of Quality to purchase, redeem or otherwise acquire any capital stock of Quality
and, except as set forth on the Quality Disclosure Schedule, there are no voting
trust agreements or other contracts, agreements, arrangements, commitments,
plans or understandings restricting or otherwise relating to voting, dividend or
other rights with respect to the capital stock of Quality.
2.3. Ownership of Quality Common Stock. The Quality Stockholders have good
and marketable title to all of the issued and outstanding shares of Quality
Common Stock, free and clear of any and all liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature whatsoever
(except for federal and state securities law restrictions of general
applicability and as set forth on Quality Disclosure Schedule), and on the
Closing Date will own all of such Quality Common Stock, free and clear of any
and all liens, adverse claims, security interests, pledges, mortgages, charges
and encumbrances of any nature whatsoever (except for federal and state
securities law restrictions of general applicability), including, but not
limited to, any claims by any present or former stockholders of Quality.
2.4. Interests in Other Entities.
(a) Except for the entities (collectively, the "Quality Subsidiaries") set
forth in the disclosure schedule and attached hereto as Exhibit 2 (the "Quality
Disclosure Schedule"), Quality does not (i) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation, (ii) have any ownership interest, direct or indirect, of
record or beneficially, in any unincorporated entity, and (iii) have any
obligation, direct or indirect, present or contingent, (A) to purchase or
subscribe for any interest in, advance or loan monies to, or in any way make
investments in, any other person or
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entity, or (B) to share any profits or capital investments or both.
(b) None of the Quality Stockholders (individually or jointly) (i) own,
directly or indirectly, of record or beneficially, any shares of voting stock or
other equity securities of any other corporation engaged in the same or similar
business to that business engaged in by Quality at the Effective Time (other
than not more than one percent (1%) of the publicly-traded capital stock of
corporations engaged in such business held solely for investment purposes); (ii)
have any ownership interest, direct or indirect, of record or beneficially, in
any unincorporated entity engaged in the same or similar business to that
business engaged in by Quality at the Effective Time; and (iii) have any
obligation, direct or indirect, present or contingent, (A) to purchase or
subscribe for any interest in, advance or loan monies to, or in any way make
investments in, any other person or entity engaged in the same or similar
business to that business engaged in by Quality at the Effective Time, or (B) to
share any profits or capital investments or both from a entity engaged in the
same or similar business to that business engaged in by Quality the Effective
Time.
2.5. Authority. The execution and delivery by Quality of this Agreement and
of all of the agreements to be executed and delivered by Quality pursuant hereto
(collectively, the "Quality Documents"), the performance by Quality of its
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
unanimous consent of the Board of Directors of Quality and, when approved by the
Quality Stockholders, Quality shall have all necessary corporate power and
corporate authority with respect thereto. The Quality Stockholders are
individuals having all necessary capacity, power and authority to execute and
deliver this Agreement and such other agreements to be executed and delivered by
any of them pursuant hereto (collectively, the "Quality Stockholder Documents")
and to consummate the transaction consummated hereby and thereby. This Agreement
is, and when executed and delivered by Quality and, when approved by the Quality
Stockholders, each of the other agreements to be delivered by either or both of
them pursuant hereto will be, the valid and binding obligations of Quality and
the Quality Stockholders, to the extent they are parties thereto, in accordance
with their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the rights of
creditors generally and subject to the rules of law governing (and all
limitations on) specific performance, injunctive relief, and other equitable
remedies.
2.6. Noncontravention. Except as set forth in the Quality Disclosure
Schedule, neither the execution and delivery by Quality or by the Quality
Stockholders of this
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Agreement or of any other Quality Documents or Quality Stockholder Documents to
be executed and delivered by either or both of them, nor the consummation of any
of the transactions contemplated hereby or thereby, nor the performance by
either or both of them of any of their respective obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would) (a) conflict with or result in a breach of any provision of the
Certificate of Incorporation, By-Laws or other constituent documents of Quality
or the Quality Subsidiaries, each as amended to date, or (b) give rise to a
default, or any right of termination, cancellation or acceleration, or otherwise
are in conflict with or result in a loss of contractual benefits to any of them,
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which any of
them is a party or by which any of them or any of their respective assets may be
bound, or, to the best of the Quality Stockholders' knowledge, require any
consent, approval or notice under the terms of any such document or instrument,
or (c) violate any order, writ, injunction, decree, law, statute, rule or
regulation of any court or governmental authority which is applicable to any of
them, or (d) to the best of the Quality Stockholders' knowledge, result in the
creation or imposition of any lien, adverse claim, restriction, charge or
encumbrance upon any of the assets or properties of Quality (the "Assets"), or
(e) interfere with or otherwise adversely affect the ability of Subsidiary to
carry on the Quality Business after the Closing Date on substantially the same
basis as is now conducted by Quality.
2.7. Financial Statements. Quality has heretofore delivered to each of RTIC
and Subsidiary, correct and complete copies of (a) its consolidated financial
statements consisting of the audited balance sheet for the year ended December
31, 1996 (the "Balance Sheet"), and the related statements of income and
stockholders' equity for the year ended on such date, certified without
qualification by Arthur Andersen LLP, independent certified public accountants,
and (b) its unaudited statements of operations and statement of retained
earnings for the three (3) month period ended March 31, 1997 (collectively, the
"Quality Financial Statements"). Except that the unaudited statements for the
three (3) months ended March 31, 1997 are subject to customary year-end
adjustments consistent with previous practices, the Quality Financial Statements
were prepared in accordance with generally accepted accounting principals
("GAAP"), consistently applied, and present fairly the financial position of
Quality as at the dates thereof and the results of operations for the periods
and the cash flow indicated. The books and records of Quality are complete and
correct in all material respects, have been maintained in accordance with good
business practices, and accurately reflect the basis for the financial
condition, results of operations and
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cash flow of Quality as set forth in the Quality Financial Statements.
2.8. Accounts Receivables; Inventories.
(a) The accounts receivable, net of the allowance for doubtful accounts
applicable thereto (which allowance is established on a basis consistent with
GAAP) included in the latest balance sheets included in the Quality Financial
Statements, are at the date hereof collectible in full over the period of usual
trade terms (by use of Quality's normal collection methods), and there do not
exist any defenses, counterclaims and set-offs which would materially adversely
affect such receivables representing obligations for the total dollar amount
thereof shown on the books of Quality. Quality has fully performed all
obligations with respect thereto which they were obligated to perform to the
date hereof. Quality has delivered to RTIC and Subsidiary an aging schedule for
the accounts receivable as of March 31, 1997.
(b) The inventories reflected on the Quality Financial Statements consist
of items of a quality and quantity usable or saleable in the ordinary course of
business, except for obsolete materials, slow-moving items and not readily
marketable items, all of which have been (i) written down to net realizable
value or (ii) adequately reserved against on the books and records of Quality or
(iii) to be marked-down pursuant to Quality's existing inventory practices,
consistently applied. All inventories are stated at the lower of cost or market
in accordance with generally accepted accounting principles.
2.9. Absence of Undisclosed Liabilities. Quality has no liabilities or
obligations of any nature whatsoever, whether accrued, matured, unmatured,
absolute, contingent, direct or indirect or otherwise, which have not been (a)
in the case of liabilities and obligations of a type customarily reflected on a
corporate balance sheet, prepared in accordance with GAAP, set forth on the
Balance Sheet, or (b) incurred in the ordinary course of business since December
31, 1996, or (c) in the case of other types of liabilities and obligations,
described in the Quality Disclosure Schedule delivered pursuant hereto or
omitted from said Quality Disclosure Schedule in accordance with the terms of
this Agreement, or arising under contracts or leases listed in such Quality
Disclosure Schedule or other contracts or leases which are omitted from such
Quality Disclosure Schedule in accordance with the terms of this Agreement, or
(d) incurred, consistent with past practice, in the ordinary course of business
of Quality (in the case of liabilities and obligations of the type referred to
in clause (a) above).
2.10. Properties. The Quality Disclosure Schedule sets forth all (a) real
property which is owned or leased (whether as lessor or lessee) or subject to
lease (whether
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as lessor or lessee) by Quality, or which is subject to a title retention or
conditional sales agreement or other security device, and (b) tangible personal
property which is owned, leased (whether as lessor or lessee) or subject to
contract or commitment of purchase or sale or lease (whether as lessor or
lessee) by Quality. Quality has sufficient title to all of the properties and
assets, reflected on the Quality Financial Statements as of the December 31,
1996 and March 31, 1997 or thereafter acquired, except properties or assets sold
or otherwise disposed of in the ordinary course of business, free and clear of
any and all mortgages, liens (including liens for current Taxes, as defined in
Subsection 2.15(b) hereof), pledges, claims, charges and encumbrances of any
nature whatsoever (hereinafter collectively, "Liens"), other than Liens set
forth on the Quality Disclosure Schedule and Liens not yet due and payable or
being contested in good faith by appropriate proceedings, and other than such
Liens or imperfections of title, if any, which are not substantial in character,
amount or extent and do not materially interfere with the present or continued
use of such property or otherwise materially adversely affect the value or
transferability thereof or otherwise materially impair the Quality Business or
operations of Quality as conducted on the date hereof. All plants, structures
and equipment which are utilized in the Quality Business and material to the
condition (financial or otherwise) of Quality are owned or leased by Quality and
are, except for some equipment which is in storage and not in use, in good
operating condition and repair (ordinary wear and tear excepted) and are
adequate and suitable for the purposes for which they are used.
2.11. Absence of Changes. Since December 31, 1996, Quality has not (a)
issued any stock, bond or other corporate or partnership security (including
without limitation securities convertible into or rights to acquire capital
stock of Quality); (b) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
and liabilities under contracts entered into, all of which were in the ordinary
course of business; (c) discharged or satisfied any lien or encumbrance or
incurred or paid any obligation or liability (absolute, accrued or contingent)
other than current liabilities shown on the most recent balance sheet included
in the Quality Financial Statements and current liabilities incurred in the
ordinary course of business; since the most recent balance sheet included in the
Quality Financial Statement; (d) declared or made any payment or distribution
(whether in cash, securities, other property or any combination thereof) on or
in respect of the capital stock of Quality or purchased or redeemed any shares
of its capital stock or other securities; (e) mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, (f) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim; (g) sold, assigned, transferred or
granted any license with respect to any
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trademark, trade name, service mark, copyright, trade secret or other intangible
asset; (h) suffered any material loss of property or waived any material right
of substantial value whether or not in the ordinary course of business; (i)
suffered any material adverse change in its relations with, or any material loss
or material threatened loss of, any of its Suppliers; (j) with respect to any of
its directors, officers, partners or employees with compensation in excess of
$35,000: (1) granted any severance or termination pay, (2) entered into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) or arrangement (3) increased any benefits
payable under any existing severance or termination pay policies or employment
agreements, or (4) increased the compensation, bonus or other benefits payable;
(k) made any material change in the manner of its business or operations; (l)
made any material change in any method of accounting or accounting practice; (m)
written off as uncollectible any accounts or notes receivable in excess of
reserves; (n) to the best of the Quality Stockholders' knowledge, entered into
any transaction except in the ordinary course of business or as otherwise
contemplated hereby; or (o) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
2.12. Litigation. There are no suits or actions, or administrative,
arbitration or other proceedings or governmental investigations, pending or, to
the best of the Quality Stockholders' knowledge, threatened, against or relating
to Quality, the Quality Subsidiaries, the Quality Stockholders, this Agreement,
the transactions contemplated hereby or any of the Assets. There are no
judgments, orders, stipulations, injunctions, decrees or awards in effect which
relate to Quality, the Quality Subsidiaries, this Agreement, the transactions
contemplated, the Quality Business or any of the Assets, the effect of which is
(a) to limit, restrict, regulate, enjoin or prohibit any business practice of
Quality, the Quality Subsidiaries or the Quality Subsidiaries in any area, or
the acquisition by Quality of any properties, assets or businesses, or (b)
otherwise materially adverse to the Quality Business or any of the Assets.
2.13. No Violation of Law; Environmental Matters.
(a) To the knowledge of Quality and Quality's Stockholders, neither Quality
nor the Quality Subsidiaries is engaging in any activity or omitting to take any
action as a result of which both (i) it is in violation of any law, rule,
regulation, zoning or other ordinance, statute, permit, order, injunction or
decree, or any other requirement of any court or governmental or administrative
body or agency, applicable to Quality, the Quality Subsidiaries, the Quality
Business or any of the Assets, including, but not limited to, those relating to:
occupational safety and health matters; issues of environmental and ecological
protection (e.g., the use, storage, handling,
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transport or disposal of pollutants, contaminants or hazardous or toxic
materials or wastes, and the exposure of persons thereto); business practices
and operations; labor practices; employee benefits; and zoning and other land
use, and (ii) Quality, the Quality Subsidiaries, the Quality Business and/or any
of the Assets to the knowledge of Quality and Quality's Stockholders are being
materially and adversely affected thereby.
(b) (i) Specifically, without limiting the representations contained in
subsection (a) hereof, to the best knowledge of Quality and Quality's
Stockholders and except as otherwise set forth in the Quality Disclosure
Schedule, no permits, licenses and other authorizations are required of Quality
or the Quality Subsidiaries to conduct the Quality Business under any Federal,
state, county and local statute, law, regulation, ordinance, rule, judgment,
order, decree, concession, grant, franchise, agreement or governmental
restriction relating to the environment or the general treatment, storage,
recycling, transportation, release or disposal of any Hazardous Materials (as
defined below) into the environment and Quality is in compliance in all material
respects with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any Environmental Law (as defined below) applicable to it in connection with the
conduct of the Quality Business or in any regulation, code, plan, permit, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved under any Environmental Law. "Environmental Law" means
any Federal, state, or local statute, regulation or ordinance relating to actual
or potential releases of Hazardous Materials (as defined below) into the
environment. In addition, no notice, notification, demand, request for
information, citation, summons, order, complaint, penalty, investigation, or
review is pending or to the best of the Quality Stockholders' knowledge,
threatened by any Federal, regional, state, county or local government or any
executive, legislative, judicial, regulatory or administrative entity, or other
governmental entity with respect to any alleged failure by Quality to have any
permit, license or authorization required in connection with the generation,
treatment, storage, recycling, transportation, release or disposal of any
pollutant, toxic or hazardous material, hazardous substance, hazardous
constituent or waste of any kind as defined under any Environmental Laws
(collectively "Hazardous Materials") generated by or relating to Quality or any
of its properties (or any predecessor to any of the businesses or Assets of
Quality or the Quality Subsidiaries with respect to such businesses or assets)
whether or not occurring at or on property owned, leased or operated by Quality
or the Quality Subsidiaries. To the knowledge of Quality and Quality's
Stockholders, Quality and the Quality Subsidiaries do not have, and their
respective properties are not subject to, any material liability, arising out of
or resulting from the release, leakage, pouring, emission, emptying, injection,
pumping, escaping,
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leaching, dumping, discharge, spillage, storage, burying or other disposal,
whether on their own premises or through other individuals or entities, of any
Hazardous Materials. There are no material citations, fines or penalties
heretofore assessed against Quality or the Quality Subsidiaries or with respect
to any of their respective property under any Federal, state or local law that
remain unpaid, nor has Quality or the Quality Subsidiaries received any notices
or any other material communications from the Environmental Protection Agency,
the Occupational Safety and Health Administration or any other regulatory agency
or other governmental entity with respect to any violations or alleged
violations of any Federal, state or local law, regulation, directive, guidance
or agency policy which have not been remedied prior to the date hereof.
(ii) Except as set forth on the Quality Disclosure Schedule, there are no
underground storage tanks for Hazardous Substances, active or abandoned, at any
of the properties now or previously owned or leased by Quality or the Quality
Subsidiaries with respect to their respective businesses.
(iii) There are no encumbrances in favor of any governmental entity for (A)
any liability under Environmental Laws or (B) damages arising from or costs
incurred by such governmental entity in response to a release or threatened
release of Hazardous Substances into the environment (collectively,
"Environmental Encumbrances") arising under or pursuant to any Environmental
Laws, and, no governmental actions have been taken or, to the knowledge of
Quality and Quality's Stockholders, are threatened which could reasonably be
anticipated to subject the Quality Business to such Environmental Encumbrances.
2.14. Intangibles/Inventions. The Quality Disclosure Schedule contains an
accurate and complete list of all trade names, trademarks, software licenses,
service marks, trademark registrations and applications, service mark
registrations and applications, and copyright registrations and applications
owned (in whole or in part), licensed to any extent or used or anticipated to be
used by Quality or the Quality Subsidiaries in the conduct of the Quality
Business, whether in the name of Quality, the Quality Subsidiaries, any employee
or otherwise (collectively, the "Intellectual Property"). With the exception of
commercially available and procured software used by Quality and the Quality
Subsidiaries, to the best of the Quality Stockholders' knowledge, Quality and
the Quality Subsidiaries have full right, title and interest in and to, or
possesses the right to use, the Intellectual Property used in the conduct of the
Quality Business (including without limitation the exclusive right to use and
license the same). Any item constituting part of the Intellectual Property in
which Quality or the Quality Subsidiaries has an ownership or license interest
has been, to the extent indicated on the Quality Disclosure Schedule, duly
registered with, filed in or issued by, as the case may be, the
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United States Patent and Trademark Office or such other governmental entities as
are indicated on the Quality Disclosure Schedule and such registrations, filing
and issuances remain in full force and effect. No claim of infringement or
misappropriation of trademarks, trade names, service marks, copyrights or trade
secrets of any other person has been made nor, to the best of Quality
Stockholders' knowledge, threatened against Quality or the Quality Subsidiaries
and, to the best of Quality Stockholders' knowledge, neither Quality nor the
Quality Subsidiaries is infringing or misappropriating any trademarks, trade
names, service marks, copyrights or trade secrets of any other person. Without
limiting any other provisions hereof, neither Quality nor the Quality
Subsidiaries has granted any license, franchise or permit to any person to use
any of the Intellectual Property of Quality or the Quality Subsidiaries and, to
the best of Quality Stockholders' knowledge, no other person has the right to
use the same trademarks, service marks or trade names used by Quality or the
Quality Subsidiaries or any similar trademarks, service marks or trade names
likely to lead to confusion. No proceedings have been instituted, are pending,
or to the best of Quality Stockholders' knowledge, are threatened which
challenge the rights of Quality or the Quality Subsidiaries with respect to the
Intellectual Property, if any, or its use thereof in connection with the Quality
Business and, to the best knowledge of Quality and the Quality Stockholders,
there is no valid basis for any such proceedings. Neither Quality nor the
Quality Subsidiaries has granted a license to third parties with regard to the
Intellectual Property except as contemplated above.
2.15. Tax Matters.
(a) Quality has filed with the appropriate governmental agencies all tax
returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, Taxes (as
defined herein) shown to be due or claimed to be due on such tax returns and
reports. The provisions for Taxes which will be set forth on the latest balance
sheet included in the Quality Financial Statements reflects and includes
adequate provisions for the payment in full of any and all Taxes for which
Quality is or could be liable, whether to any governmental entity or to other
persons (as, for example, under tax allocation agreements), not yet due for any
and all periods up to and including the date of such balance sheet; and all
Taxes for periods beginning thereafter through the Effective Time have been, or
will be, paid when due or adequately reserved against on the books of Quality
and an amount of cash equal to the amount of such reserve will have been set
aside for the payment of such Taxes. Quality has duly withheld all payroll
taxes, FICA and other federal, state and local taxes and other items requiring
to be withheld by it from employer wages, and has duly deposited the same in
trust for or paid over to the proper taxing authorities. Quality has not
executed or filed with any taxing authority any agreement
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extending the periods for the assessment or collection of any Taxes, and is not
a party to any pending or, to the best knowledge of the Quality Stockholders,
threatened, action or proceeding by any governmental authority for the
assessment or collection of Taxes. Except as set forth on the Quality Disclosure
Schedule, within the past three years, the United States federal income tax
returns of Quality have not been examined by the Internal Revenue Service ("the
IRS") nor has the State of Delaware or any taxing authority thereof examined any
merchandize, personal property, sales or use tax returns of Quality. There is no
tax lien, whether imposed by any Federal, state, county, local or foreign taxing
authority, outstanding against the assets, properties or business of Quality.
After the date hereof, no election or consent with respect to any Tax (or the
computation thereof) affecting Quality will be made without the prior written
consent of RTIC. Quality has not agreed to make or is required to make any
adjustment under Section 481(a) of the Code, by reason of a change in accounting
method or otherwise. Quality is not a party to any Tax sharing or allocation
agreement. Quality has not been a member of an affiliated group filing a
consolidated Federal income tax return or has any liability for Taxes under
Treas. Reg. ss. 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise.
(b) As used herein, the term "Taxes" means all federal, state, county,
local and other taxes and governmental assessments, including but not limited to
income taxes, estimated taxes, withholding taxes, excise taxes, ad valorem
taxes, payroll related taxes (including but not limited to premiums for worker's
compensation insurance and statutory disability insurance), employment taxes,
franchise taxes and import duties, together with any related liabilities,
penalties, fines, additions to tax or interest.
2.16. Insurance. The Quality Disclosure Schedule contains a complete and
correct list and summary description of all contracts and policies of insurance
relating to any of the Assets, the Quality Business, the Quality Stockholders
and employees in which Quality is an insured party, beneficiary or loss payable
payee. Each such policy is in full force and effect, is with insurance carriers
licensed to conduct business in Virginia and, to the best of the Quality
Stockholders' knowledge, is adequate in coverage and amount. All premiums with
respect to such insurance policies have been paid on a timely basis, and no
notice of cancellation or termination has been received with respect to any such
policy. Quality has not failed to give any notice or present any claim
thereunder in due and timely fashion. There are no pending claims against such
insurance by Quality as to which the insurers have denied coverage or otherwise
reserved rights. Quality has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to
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which it has applied for any such insurance or with which it has carried
insurance since the date it commenced operations.
2.17. Banks; Powers of Attorney. The Quality Disclosure Schedule is a
complete and correct list showing (a) the names of each bank in which Quality
has an account or safe deposit box and the names of all persons authorized to
draw thereon or who have access thereto, and (b) the names of all persons, if
any, holding powers of attorney from Quality.
2.18. Employee Arrangements. (a) The Quality Disclosure Schedule sets forth
a complete and correct list and summary description of all (i) union, collective
bargaining, employment, management, termination and consulting agreements to
which any of Quality is a party or otherwise bound, and (ii) compensation plans
and arrangements, bonus and incentive plans and arrangements, deferred
compensation plans and arrangements, pension and retirement plans and
arrangements, profit-sharing and thrift plans and arrangements, stock purchase
and stock option plans and arrangements, hospitalization and other life, health
or disability insurance or reimbursement programs, holiday, sick leave,
severance, vacation, tuition reimbursement, personal loan and product purchase
discount policies and arrangements, and other plans or arrangements providing
for benefits for employees of Quality including without limitation any "employee
pension plan" (as defined in Section 3(2) of ERISA) or any "employee benefit
plan", as such term is defined in Section 3(3) of ERISA, whether or not subject
to the provisions of ERISA (each such plan, contract, policy and arrangement
being herein referred to as an "Employee Plan"). Said Schedule also lists the
names and compensation of all employees of Quality whose earnings during the
last fiscal year were $35,000 or more (including bonuses and other incentive
compensation), and all employees who are expected to receive at least said
amount in respect of the current fiscal year. Except as set forth on the Quality
Disclosure Schedule, none of such personnel is a party and subject to any oral
or written employment, bonus, pension, profit-sharing, deferred compensation,
percentage compensation, employee benefit (including without limitation medical
disability, life insurance and other welfare benefit plans), incentive, pension
or retirement plans, fringe benefit or termination or severance agreements,
plans or commitments.
(b) With respect to each Employee Plan, Quality has delivered or will
provide access to RTIC true and complete copies of (i) each contract, plan
document, policy statement, summary plan description and other written material
governing or describing the Employee Plan and/or any related funding
arrangements (including without limitation any related trust agreement or
insurance company contract) or, if there are no such written materials, a
summary description of the Employee Plan; and (ii), where applicable, (1) the
last two annual reports (5500 series) filed with the IRS or the Department of
Labor; (2) the
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most recent balance sheet and financial statement; (3) the most recent actuarial
report or valuation statement; (4) the most recent determination letter issued
by the IRS, as well as any other determination letter, private letter ruling,
opinion letter or prohibited transaction exemption issued by the IRS or the
Department of Labor within the last six years and any application therefor which
is currently pending; and (5) the last PBGC-1 filed with the PBGC.
(c) Each Employee Plan has been maintained and administered in accordance
with its terms and in substantial compliance with the provisions of applicable
law, including without limitation applicable disclosure, reporting, funding and
fiduciary requirements imposed by ERISA and/or the Code. All contributions,
insurance premiums, benefits and other payments required to be made to or under
each Employee Plan have been made timely and in accordance with the governing
documents and in substantial compliance with applicable law. With respect to
each Employee Plan, (a) no application, proceeding or other matter is pending
before the IRS, the Department of Labor, PBGC or any other governmental agency;
(b) no action, suit, proceeding or claim (other than routine claims for
benefits) is pending or, to the best of Quality Stockholders' knowledge,
threatened; and (c) to the best of Quality Stockholders' knowledge, no facts
exist which could give rise to an action, suit, proceeding or claim which, if
asserted, could result in a material liability or expense to Quality or the plan
assets.
(d) The consummation of the transactions con- templated by this Agreement
will not (either alone or in conjunction with another event, such as a
termination of employment or other services) entitle any employee or other
person to receive severance or other compensation which would not otherwise be
payable absent the consummation of the transactions contemplated by this
Agreement or cause the acceleration of the time of payment or vesting of any
award or entitlement under any Employee Plan.
(e) To the best of Quality Stockholders' knowledge, Quality is not in
default with respect to any of the foregoing obligations or with respect to any
withholding or other employment taxes or payments with respect to accrued
vacation or severance pay on behalf of any employee for which it is obligated on
the date hereof and will maintain and continue to make all such necessary
payments or adjustments arising through the Effective Time.
(f) There have been no audits of the equal employment opportunity practices
of Quality and, to the best of Quality Stockholders' knowledge, no basis for any
violation of equal employment opportunity practices. No collective bargaining
agreement is currently being negotiated by Quality. Quality has not received
notice from any union or employees setting forth
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demands for representation, elections or for present or future changes in wages,
terms of employment or working conditions.
(g) The Quality Disclosure Schedule sets forth all outstanding loans and
other advances (other than travel advances in the ordinary course of business
which do not exceed $1,000 per individual) made by Quality to any of its
officers, directors, employees, stockholders, partners or consultants.
2.19. Records. To the best of the Quality Stockholders' knowledge,
Quality's business records accurately and validly reflect its transactions and
accounting controls are sufficient to insure that such transactions are (i) in
all material respects executed in accordance with management's general or
specific authorization and (ii) recorded in a business-like manner.
2.20. Brokerage Fees. With the exception of an agreement with RamKo Venture
Management, Inc. ("RamKo"), Quality has not retained any financial advisor,
broker, agent or finder or paid or agreed to pay any financial advisor, broker,
agent or finder on account of this Agreement or any transaction contemplated
hereby or any transaction of like nature that would be required to be paid by
Quality.
2.21. Suppliers and Providers of Services.
(a) The Quality Disclosure Schedule lists the ten (10) largest suppliers of
goods to, and providers of services to, Quality (collectively, "Suppliers") to
which Quality made payments during the fiscal year ended December 31, 1996, or
expects to make payments during the year ending December 31, 1997.
(b) To the best of Quality Stockholders' knowledge, neither Quality nor the
Quality Stockholders has information which might reasonably indicate that any of
the Suppliers listed on the Schedule have any disputes with Quality and the
Quality Business or intend to cease selling or rendering services to, or dealing
with, Quality on substantially the same basis as of the date hereof, nor has any
information been brought to their attention which might reasonably lead them to
believe any such Supplier intends to alter in any material respect the amount of
sales or service or the extent of dealings with Quality, or would alter in any
material respect the sales or service or dealings in the event of the
consummation of the Merger. To the best of Quality Stockholders' knowledge,
neither Quality nor any Quality Stockholders has information which might
reasonably indicate, nor has any information been brought to their attention
which might reasonably lead them to believe, that any Supplier will not be able
to fulfill outstanding or currently anticipated purchase orders placed by, or
service obligations to, Quality.
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(c) Neither Quality nor any of its officers or directors (or their
respective spouses) nor any entity controlled by one of more of the foregoing:
(i) owns, directly or indirectly, any interest in (excepting less than 2% stock
holdings for investment purposes in securities of publicly held and traded
companies), or is an officer, director, employee, partner or consultant of, any
person (1) which is, or is engaged in business as, a competitor, lessor, lessee
or Supplier of Quality, or (2) which is engaged in any business similar to that
conducted by Quality; (ii) owns, directly or indirectly, in whole or in part,
any tangible or intangible property that Quality uses in the conduct of its
business; or (iii) has any cause of action or other claim whatsoever against, or
owes any amount to, Quality, except for claims in the ordinary course of
business such as for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements existing on the date hereof.
2.22. Licenses. To the best of Quality Stockholders' knowledge, Quality,
the Quality Subsidiaries and their respective officers, directors and employees
possess all governmental registrations, certificates of need, consents,
qualifications and accreditations and other material licenses, permits,
authorizations and approvals that are required by every Federal, state and local
governmental entity or regulatory authority for the conduct of the Quality
Business and the use of its Assets presently conducted or used (collectively,
"Licenses"). The Quality Disclosure Schedule contains a true and complete list
of the Licenses, exclusive of any Licenses with respect to state or local sales,
use or other Taxes. All of the Licenses are in full force and effect and no
action or claim is pending nor, to the best of Quality Stockholders' knowledge,
is threatened to revoke or terminate any License or declare any License invalid
in any material respect. To the best of Quality Stockholders' knowledge, neither
Quality, the Quality Subsidiaries nor any of their respective officers,
directors, or employees is in default in any material respect under any of such
Licenses and, to the best knowledge of Quality, no event has occurred and no
condition exists which, with the giving of notice, the passage of time, or both,
would constitute a default thereunder, which default could reasonably be
expected to have a material adverse effect on the business.
2.23. Certain Business Matters. Except as is set forth in the Quality
Disclosure Schedule, (a) Quality is not a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale or distribution of any of the products and services of the
Quality Business, (b) Quality has no sole-source supplier of significant goods
or services (other than utilities) with respect to which practical alternative
sources are not available on comparable terms and conditions, (c) there are no
pending or, to the best knowledge of Quality and the Quality Stockholders,
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threatened labor negotiations, work stoppages or work slowdowns involving or
affecting the Quality Business, and there are no organizing activities, in
respect of any of the employees of Quality, (d) the product and service
warranties given by Quality or by which it is bound (complete and correct copies
or descriptions of which have heretofore been delivered by Quality to RTIC)
entail no greater obligations than are customary in the Quality Business, (e)
neither Quality nor the Quality Stockholders is a party to or bound by any
agreement which limits its or his, as the case may be, freedom to compete in any
line of business or with any person, or which is otherwise materially burdensome
to Quality or the Quality Stockholders and (f) Quality is not a party to or
bound by any agreement in which any officer, director or stockholder of Quality
(or any affiliate of any such person) has, or had when made, a direct or
indirect material interest.
2.24. Certain Contracts. The Quality Disclosure Schedule is a complete and
correct list of all material contracts, commitments, obligations and
understandings to which Quality is a party or otherwise bound, except for (a)
purchase orders from vendors or customers and (b) each of those which (i) were
made in the ordinary course of business and (ii) either (A) are terminable by
Quality (and will be terminable by Subsidiary) without liability, expense or
other obligation on 30 days' notice or less, or (B) may be anticipated to
involve aggregate payments to or by Quality of $5,000 (or the equivalent) or
less calculated over the full term thereof, and (C) are not otherwise material
to the Quality Business or Quality. Complete and correct copies of all
contracts, commitments, obligations and undertakings set forth in the Quality
Disclosure Schedule delivered pursuant to this Agreement have been furnished by
Quality to RTIC. Except as expressly stated on the Quality Disclosure Schedule,
(1) each of such material contract, commitment, obligation and understanding is
in full force and effect, no person or entity which is a party thereto or
otherwise bound thereby is in material default thereunder, and no event,
occurrence, condition or act exists which does (or which with the giving of
notice or the lapse of time or both would) give rise to a material default or
right of cancellation, acceleration or loss of contractual benefits thereunder;
(2) there has been no threatened cancellations thereof, and there are no
outstanding disputes thereunder; (3) none of them is materially burdensome to
Quality; and (4) each of them is fully assignable without the consent, approval,
order or any waiver by, or any other action of or with any individual or
individuals which will not be obtained before the Effective Time, without the
payment of any penalty, the incurrence of any additional debt, liability or
obligation of any nature whatsoever or the change of any term.
2.25. Customers and Suppliers. Quality has previously provided to RTIC a
complete and correct list setting forth, as of March 31, 1997, (a) the 10
largest customers of the
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Quality Business and the amount for which each such customer was invoiced, and
(b) the 10 largest suppliers of the Quality Business and the amount of goods and
services purchased from each such supplier. There are no outstanding material
disputes by such customers or suppliers with Quality and the Quality Business
or, to the best of Quality Stockholders' knowledge, there are no threatened
cancellations by the aforesaid customers or suppliers with respect to the
Quality Business, or material adverse changes in the business relationship
between the Quality Business and any such customer or supplier. To the best of
Quality Stockholders' knowledge, neither Quality nor the Quality Stockholders
has information which might reasonably indicate that any of the Suppliers listed
on the Quality Disclosure Schedule have any disputes with Quality and the
Quality Business or intend to cease selling or rendering services to, or dealing
with, Quality on substantially the same basis as of the date hereof, nor has any
information been brought to their attention which might reasonably lead them to
believe any such Supplier intends to alter in any material respect the amount of
sales or service or the extent of dealings with Quality, or would alter in any
material respect the sales or service or dealings in the event of the
consummation of the Merger. To the best of Quality Stockholders' knowledge,
neither Quality nor any Quality Stockholders has information which might
reasonably indicate, nor has any information been brought to its attention which
might reasonably lead them to believe, that any Supplier will not be able to
fulfill outstanding or currently anticipated purchase orders placed by, or
service obligations to, Quality.
2.26. Business Practices and Commitments. Set forth on the Quality
Disclosure Schedule is a description of (a) Quality's rebate and volume discount
practice, and obligations, (b) Quality's allowance and customer return practice
and obligations, (c) Quality's co-op advertising and other promotional
practices, and (d) Quality's warranty practices and obligations, as each of the
foregoing relate to Quality's customers and suppliers.
2.27. Approvals/Consents. Except as set forth on the Quality Disclosure
Schedule, and to the best of Quality Stockholders' knowledge, Quality currently
holds all governmental and administrative consents, permits, appointments,
approvals, licenses, certificates and franchises which are necessary for the
operation of the Quality Business, all of which are in full force and effect and
are transferable to Subsidiary without the payment of any penalty, the
incurrence of any additional debt, liability or obligation of any nature
whatsoever or the change of any term. No material violations of the terms
thereof have heretofore occurred or are known by the Quality Stockholders to
exist as of the date hereof.
2.28. Information as to Quality. None of the representations or warranties
made by the Quality Stockholders in
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this Agreement is, or contained in any of the Quality Documents or Quality
Stockholders' Documents to be executed and delivered hereto will be, false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements therein contained not misleading.
3. Representations and Warranties as to RTIC and Subsidiary. RTIC and
Subsidiary represent and warrant to Quality and the Quality Stockholders as
follows:
3.1. Organization, Standing and Power. Each of RTIC and Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its businesses as presently conducted
by it. There are no states or jurisdictions in which the character and location
of any of the properties owned or leased by RTIC or Subsidiary, or the conduct
of their respective businesses, makes it necessary for either of them to qualify
to do business as a foreign corporation.
3.2. Interests in Other Entities. The schedule delivered to Quality and the
Quality Stockholders, a copy of which is attached hereto as Exhibit 3 (the "RTIC
Disclosure Schedule"), sets forth, in part, a true and complete list of all
direct or indirect subsidiaries of RTIC (including the Subsidiary), together
with the jurisdiction of incorporation of each such subsidiary and the
percentage of each such subsidiary's outstanding capital stock owned by RTIC or
another of RTIC's subsidiaries. Each of such subsidiaries are duly organized
corporations, validly existing and in good standing under the laws of the
jurisdiction of its respective incorporation (as well as all applicable foreign
jurisdictions necessary to its business operations) and have the requisite
corporate power and authority and governmental authority to own, operate or
lease the properties that each purports to own, operate or lease and to carry on
the RT Business as it is now being conducted.
3.3. Incorporation Documents and By-Laws. Each of RTIC and Subsidiary have
heretofore or hereafter shall furnish to Quality a complete and correct copy of
their respective Certificate of Incorporation and the By-Laws, each as amended
to date. Such organizational documents are in full force and effect. Neither
RTIC nor Subsidiary is in violation of any of the provisions of any of the
aforesaid organizational documents.
3.4. Capitalization. (a) The authorized capital stock of RTIC consists of
30,000,000 shares of RTIC Common Stock and 5,000,000 shares of Preferred Stock,
par value $.01 per share (none of which are outstanding or held in the treasury
of RTIC). As of May 28, 1997, (i) 9,224,674 shares of RTIC Common Stock are
issued and outstanding, all of which are duly authorized, validly issued, fully
paid and nonassessable, (ii) 100,000 shares of RTIC
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Common Stock are issuable or available for issuance upon exercise of options
granted by RTIC; (iii) 5,809,200 shares of RTIC Common Stock are reserved for
future issuance upon exercise of outstanding warrants of RTIC and (iv)
approximately 1,625,500 shares of RTIC Common Stock are reserved for future
issuance upon conversion of certain outstanding debt securities (assuming a
trading price not less than $3.75 per share) granted by RTIC pursuant to
Regulation S as promulgated by the SEC under the 1933 Securities Act (the "Reg S
Offering"). Except as contemplated by the Merger and set forth hereinabove,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
RTIC or any of its subsidiaries or obligating RTIC or any of its subsidiaries to
issue or sell any shares of capital stock of or other equity interests in RTIC
or any of its subsidiaries. All shares of RTIC Common Stock issuable upon
exercise of outstanding options, warrants and convertible debt securities, or
pursuant to the Merger, will upon payment to RTIC of the exercise purchase price
thereof, or upon consummation of the Merger, on the terms and conditions
specified in the instruments pursuant to which they are issuable, be duly
authorized, validly issued, fully paid and nonassessable. Except for certain
registration rights granted to holders of approximately 8,969,600 shares of RTIC
Common Stock, warrants and/or debt securities of RTIC, all having been acquired
through private placements or the Reg S Offering, neither RTIC nor any of its
subsidiaries is a party to any agreement granting registration rights with
respect to any equity or debt securities of RTIC or its subsidiaries. There are
no preemptive rights with regard to the capital stock of RTIC or its
subsidiaries, and no right-of-first refusal or similar catch- up rights with
regard to such capital stock. Except for the Reg S Offering and the transactions
contemplated by this Agreement, there are no outstanding contractual obligations
or other commitments or arrangements of RTIC or any of its subsidiaries to (A)
repurchase, redeem or otherwise acquire any shares of RTIC Common Stock (or any
interest therein) or (B) to provide funds to or make any investment (in the form
of a loan, capital contribution or otherwise) in any such subsidiary or other
entity, or (C) issue or distribute to any person any capital stock of RTIC or
its subsidiaries, or (D) issue or distribute to holders of any of the capital
stock of RTIC or its subsidiaries any evidences of indebtedness or assets of
RTIC or its subsidiaries. All of the outstanding securities of RTIC and
Subsidiary have been, and all shares of RTIC Common Stock issuable in connection
with the Merger, and the exercise of the outstanding options and warrants will
be, offered, issued and sold by RTIC in full compliance with applicable federal
and state securities laws.
(b) The outstanding shares of capital stock of the Subsidiary are duly
authorized, validly issued, fully paid and nonassessable, and such shares are
owned by RTIC, free and clear of all security interests, liens, adverse claims,
pledges,
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agreements, limitations on RTIC's voting rights, charges and other encumbrances
of any nature whatsoever.
3.5. Authority. The execution and delivery by RTIC and Subsidiary of this
Agreement and of each agreement to be executed and delivered by either of them
pursuant hereto (collectively, the "RTIC Documents"), the compliance by each of
them with the provisions hereof and thereof, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of RTIC and Subsidiary,
and RTIC and Subsidiary have all necessary corporate power and corporate
authority with respect thereto. This Agreement is, and when executed and
delivered by RTIC and Subsidiary each other RTIC Document will be, the valid and
binding obligation of RTIC or Subsidiary, as the case may be to the extent it is
a party thereto, in accordance with the respective terms, thereof, except as the
same may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the rights of creditors generally and subject to the rules
of law governing (and all limitations on) specific performance, injunctive
relief, and other equitable remedies.
3.6. Noncontravention. Neither the execution and delivery by RTIC and/or
Subsidiary of any RTIC Document, nor the consummation of any of the transactions
contemplated hereby or thereby, nor the performance by either of them of any of
its respective obligations hereunder or thereunder, will (nor with the giving of
notice or the lapse of time or both would) (a) conflict with or result in a
breach of any provision of the Certificates of Incorporation or By-Laws of
either RTIC or Subsidiary, or (b) give rise to a default, or any right of
termination, cancellation or acceleration, or otherwise be in conflict with, or
result in a loss of contractual benefits to, either of them, under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which either of them is a party
or by which either of them or their respective assets may be bound, or require
any consent, approval or notice under the terms of any such document or
instrument, or (c) violate any order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental authority which is applicable to
either of them, or (d) result in the creation or imposition of any lien, adverse
claim, restriction, charge or encumbrance upon any of their assets, or (e)
interfere with or otherwise adversely affect the ability of RTIC or Subsidiary
to carry on their respective business after the Effective Time on substantially
the same basis as is now conducted by it.
3.7. Securities and Exchange Commission Filings. RTIC has filed, and is
current in all filings of, all forms, reports, statements and documents required
to be filed with the Securities and Exchange Commission ("SEC") since December
31, 1995 (collectively, the "SEC Reports"). Each of
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such SEC Reports has complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act") or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable, each as in effect on the date so filed. RTIC has delivered to
Quality, in the form filed with the SEC (including any amendments thereto), its
Annual Report on Form 10-KSB for its fiscal year ended December 31, 1996 (the
"RTIC 10-KSB") and its Quarterly Reports on Form 10-QSB for each of the fiscal
quarters 1996 (the "RTIC Q's"). None of such SEC Reports filed since December
31, 1995 (including but not limited to any financial statements or schedules
included or incorporated by reference therein) filed by RTIC, when filed (except
to the extent revised or superseded by a subsequent filing with the SEC)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
3.8. Stock Issuable in Merger. The Share Consideration, when issued, will
be duly authorized and validly issued, fully paid and non-assessable, will be
delivered hereunder free and clear of any liens, adverse claims, security
interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever, except that the shares of RTIC Common Stock constituting the Shares
Consideration will be "restricted securities", as such term is defined in the
rules and regulations of the SEC promulgated under the Securities Act and will
be subject to restrictions on transfers pursuant to such rules and regulations
and the laws of applicable states.
3.9. Absence of Undisclosed Liabilities. Except for potential obligations
arising out of the environmental assessment of RTIC's Florida facilities set
forth in a certain draft Phase II Due Diligence Assessment identified in the
RTIC Disclosure Schedule and except as otherwise set forth in the RTIC
Disclosure Schedule, RTIC has no liabilities or obligations of any nature
whatsoever, whether accrued, matured, unmatured, absolute, contingent, direct or
indirect or otherwise, which have not been (a) in the case of liabilities and
obligations of a type customarily reflected on a corporate balance sheet,
prepared in accordance with GAAP, set forth on the RTIC 10-KSB, or (b) to the
best of RTIC's knowledge, incurred in the ordinary course of business since
December 31, 1996, or (c) in the case of other types of liabilities and
obligations, described in the RTIC Disclosure Schedule delivered pursuant hereto
or omitted from such RTIC Disclosure Schedule in accordance with the terms of
this Agreement, or arising under contracts or leases listed in such RTIC
Disclosure Schedule or other contracts or leases which are omitted from such
RTIC Disclosure Schedules in accordance with the terms of this Agreement, or (d)
incurred, consistent with past practice, in the ordinary course of business of
RTIC
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(in the case of liabilities and obligations of the type referred to in clause
(a) above).
3.10. Absence of Changes. Since December 31, 1996, except as set forth in
the SEC Reports, the RTIC Disclosure Schedule or as otherwise contemplated by
this Agreement, RTIC has not (a) issued any stock, bond or other corporate or
partnership security (including without limitation securities convertible into
or rights to acquire capital stock of RTIC); (b) borrowed any amount or incurred
or become subject to any liability (absolute, accrued or contingent), except
current liabilities incurred and liabilities under contracts entered into, all
of which were in the ordinary course of business; (c) discharged or satisfied
any lien or encumbrance or incurred or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown in the
RTIC 10-KSB and current liabilities incurred in the ordinary course of business
since the most recent balance sheet included in the RTIC 10-KSB; (d) declared or
made any payment or distribution (whether in cash, securities, other property or
any combination thereof) on or in respect of the capital stock of RTIC or
purchased or redeemed any shares of its capital stock or other securities; (e)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, (f) sold, assigned or transferred any of its tangible assets except
in the ordinary course of business, or canceled any debt or claim; (g) sold,
assigned, transferred or granted any license with respect to any trademark,
trade name, service mark, copyright, trade secret or other intangible asset; (h)
suffered any material loss of property or waived any material right of
substantial value whether or not in the ordinary course of business; (i)
suffered any material adverse change in its relations with, or any loss or
threatened loss of, any of its Suppliers; (j) with respect to any of its
directors, officers, partners or employees with compensation in excess of $
50,000; (1) granted any severance or termination pay other than a proposed
severance package with respect to the current president of RTIC; (2) entered
into any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) or arrangement other than a proposed
consulting agreement with David Love and proposed amendments to that existing
consulting agreement with Mandel Sherman (3) increased any benefits payable
under any existing severance or termination pay policies or employment
agreements, or (4) increased the compensation, bonus or other benefits payable;
(k) made any material change in the manner of its business or operations; (l)
made any material change in any method of accounting or accounting practice; (m)
written off as uncollectible any accounts or notes receivable in excess of
reserves; (n) to the best of RTIC's knowledge, entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby;
or (o) entered into any commitment (contingent or otherwise) to do any of the
foregoing.
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3.11. Litigation. There are no suits or actions, or administrative,
arbitration or other proceedings or governmental investigations, pending or, to
the best of RTIC's knowledge, threatened, against or relating to RTIC, the
Subsidiary, this Agreement or the transactions contemplated hereby. There are no
judgments, orders, stipulations, injunctions, decrees or awards in effect which
relate to RTIC, the Subsidiary, this Agreement, or the transactions
contemplated, the effect of which is (a) to limit, restrict, regulate, enjoin or
prohibit any business practice of RTIC or the Subsidiary in any area, or the
acquisition by RTIC or the Subsidiary of any properties, assets or businesses.
3.12. No Violation of Law. Except for potential violations that may be
triggered by the environmental assessment of RTIC's Florida facilities set forth
in a certain draft Phase II Due Diligence Assessment identified in the RTIC
Disclosure Schedule, to the best of RTIC's knowledge, neither RTIC nor
Subsidiary are engaging in any activity or omitting to take any action as a
result of which both (a) it is in violation of any law, rule, regulation, zoning
or other ordinance, statute, order, permit, injunction or decree, or any other
requirement of any court or governmental or administrative body or agency,
applicable to either RTIC or Subsidiary, their respective business operations or
any of their respective assets, including, but not limited to, those relating
to: occupational safety and health matters; issues of environmental and
ecological protection (e.g., the use, storage, handling, transport or disposal
of pollutants, contaminants or hazardous or toxic materials or wastes, and the
exposure of persons thereto); business practices and operations; labor
practices; employee benefits; and zoning and other land use, and (b) RTIC or
Subsidiary, their business operations and/or any of their assets are being
materially and adversely affected thereby.
3.13. Tax Matters. RTIC has filed with the appropriate governmental
agencies all tax returns and reports required to be filed by it, and has paid in
full or contested in good faith or made adequate provision for the payment of,
Taxes shown to be due or claimed to be due on such tax returns and reports. The
provisions for Taxes which are set forth on its financial statements for the
year ended December 31, 1996 are adequate for all accrued and unpaid taxes of
RTIC as of December 31, 1996. RTIC has duly withheld all payroll taxes, FICA and
other federal, state and local taxes and other items requiring to be withheld by
it from employer wages, and has duly deposited the same in trust for or paid
over to the proper taxing authorities. RTIC has not executed or filed with any
taxing authority any agreement extending the periods for the assessment or
collection of any Taxes, and is not a party to any pending or, to the best
knowledge of RTIC, threatened, action or proceeding by any governmental
authority for the assessment or collection of Taxes. Within the past three
years, the United States federal income tax
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returns of RTIC have not been examined by the IRS, nor has the State of Delaware
or any taxing authority thereof examined any merchandize, personal property,
sales or use tax returns of RTIC.
3.14. Licenses. To the best of RTIC's knowledge, RTIC and Subsidiary and
their respective officers, directors and employees possess all governmental
registrations, certificates of need, consents, qualifications and accreditations
and other material licenses, permits, authorizations and approvals that are
required by every Federal, state and local governmental entity or regulatory
authority for the conduct of their respective businesses and the use of their
respective assets presently conducted or used (collectively, "Licenses"). The
RTIC Disclosure Schedule contains a true and complete list of the Licenses,
exclusive of any Licenses with respect to state or local sales, use or other
Taxes. All of the Licenses are in full force and effect and no action or claim
is pending nor, to the best of RTIC's knowledge, is threatened to revoke or
terminate any License or declare any License invalid in any material respect. To
the best of RTIC's knowledge, neither RTIC, Subsidiary nor any of their
respective officers, directors, or employees is in default in any material
respect under any of such Licenses and, to the best of RTIC's knowledge, no
event has occurred and no condition exists which, with the giving of notice, the
passage of time, or both, would constitute a default thereunder, which default
could reasonably be expected to have a material adverse effect on the RT
Business.
3.15. Approvals/Consents. Except as set forth on the RTIC Disclosure
Schedule, to the best knowledge of RTIC and Subsidiary, RTIC currently holds all
governmental and administrative consents, permits, appointments, approvals,
licenses, certificates and franchises which are necessary for the operation of
the RT Business, all of which are in full force and effect. Such RTIC Disclosure
Schedule is a complete and correct list of all such governmental and
administrative consents, permits, appointments, approvals, licenses,
certificates and franchises. No material violations of the terms thereof have
heretofore occurred or are known by RTIC to exist as of the date of this
Agreement.
3.16. Brokerage Fees. With the exception of agreement with Baroque
Investments, Inc., neither RTIC nor Subsidiary has retained any financial
advisor, broker, agent or finder or paid or agreed to pay any financial advisor,
broker, agent or finder on account of this Agreement or any transaction
contemplated hereby or any transaction of like nature that would be required to
be paid by RTIC or Subsidiary.
3.17. Information as to RTIC and Subsidiary. None of the representations or
warranties made by RTIC or Subsidiary in this Agreement, or contained in any of
the RTIC Documents to be executed and delivered hereto if any, is or will
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be, false or misleading with respect to any material fact, or omits to state any
material fact necessary in order to make the statements therein contained not
misleading.
4. Indemnification.
4.1. Indemnification by the Quality Stockholders. Each of the Quality
Stockholders, in proportion that his or her ownership of the Quality Common
Stock bears to the total number of Shares owned by the Quality Stockholders (as
set forth in the Quality Disclosure Schedule), hereby indemnifies and agrees to
defend and hold harmless each of RTIC and Subsidiary from and against any and
all losses, obligations, deficiencies, liabilities, claims, damages, costs and
expenses (including, without limitation, the amount of any settlement entered
into pursuant hereto, and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of any matter
indemnified pursuant hereto) which either of them may sustain, suffer or incur
and which arise out of, are caused by, relate to, or result or occur from or in
connection with any misrepresentation of a material fact contained in any
representation of Quality and/or the Quality Stockholders contained in, or the
breach by Quality or the Quality Stockholders of any warranty or covenant made
by any one or all of them in, any Quality Document and/or Quality Stockholders
Document. The foregoing indemnification shall also apply to direct claims by
RTIC and/or Subsidiary against Quality or the Quality Stockholders.
4.2. Indemnification by RTIC and Subsidiary. Each of RTIC and Subsidiary,
jointly and severally, indemnifies and agrees to defend and hold harmless the
Quality Stockholders from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, the amount of any settlement entered into pursuant hereto,
and all reasonable legal and other expenses incurred in connection with the
investigation, prosecution or defense of any matter indemnified pursuant
hereto), which it or he may sustain, suffer or incur and which arise out of, are
caused by, relate to, or result or occur from or in connection with (i) any
misrepresentation of a material fact contained in any representation of RTIC
and/or Subsidiary contained in, or the material breach by RTIC or Subsidiary of
any warranty or covenant made by either or both of them in, any RTIC Document or
(ii) without regard to the limitations set forth in Subsection 4.5, any claim,
demand, suit, action, proceeding or investigation whatsoever by any creditor or
security holder of RTIC or any administrative or governmental entity or agency
relating to (A) the consummation of the transactions contemplated herein
(provided, however, that the provisions of this subsection 4.2 shall not be
available to the extent that the damages result from the actions or omissions of
Quality or the Quality Stockholders) or (B) the affairs and operations of RTIC
prior to the Closing.
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The indemnification provisions herein shall also apply to direct claims by
Quality Stockholders against RTIC and/or Subsidiary.
4.3. Third Party Claims. If a claim by a third party is made against any
party or parties hereto and the party or parties against whom said claim is made
intends to seek indemnification with respect thereto under Subsections 4.1 or
4.2, the party or parties seeking such indemnification shall promptly notify the
indemnifying party or parties, in writing, of such claim, providing such details
of the claim (including the claimed amount) as are then known; provided,
however, that the failure to give such notice shall not affect the rights of the
indemnified party or parties hereunder except to the extent that such failure
materially and adversely affects the indemnifying party or parties due to the
inability to timely defend such action. The indemnifying party or parties shall
have 10 business days after said notice is given to elect, by written notice
given to the indemnified party or parties, to undertake, conduct and control,
through counsel of their own choosing (subject to the consent of the indemnified
party or parties, such consent not to be unreasonably withheld) and at their
sole risk and expense, the good faith settlement or defense of such claim, and
the indemnified party or parties shall cooperate with the indemnifying parties
in connection therewith; provided: (a) all settlements require the prior
reasonable consultation with the indemnified party and the prior written consent
of the indemnified party, which consent shall not be unreasonably withheld, and
(b) the indemnified party or parties shall be entitled to participate in such
settlement or defense through counsel chosen by the indemnified party or
parties, provided that the fees and expenses of such counsel shall be borne by
the indemnified party or parties. So long as the indemnifying party or parties
are contesting any such claim in good faith, the indemnified party or parties
shall not pay or settle any such claim; provided, however, that notwithstanding
the foregoing, the indemnified party or parties shall have the right to pay or
settle any such claim at any time, provided that in such event they shall waive
any right of indemnification therefor by the indemnifying party or parties. If
the indemnifying party or parties do not make a timely election to undertake the
good faith defense or settlement of the claim as aforesaid, or if the
indemnifying parties fail to proceed with the good faith defense or settlement
of the matter after making such election, then, in either such event, the
indemnified party or parties shall have the right to contest, settle or
compromise (provided that all settlements or compromises require the prior
reasonable consultation with the indemnifying party and the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld) the claim at their exclusive discretion, at the risk and expense of
the indemnifying parties; it being understood that payment by the indemnifying
parties of damages, costs and expenses to the indemnified party or parties shall
be on a thirty (30) day basis following submission to such
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indemnifying parties of invoices, etc. evidencing damage, costs and expenses
incurred by the indemnified party or parties.
4.4. Assistance. Regardless of which party is controlling the defense of
any claim, each party shall act in good faith and shall provide reasonable
documents and cooperation to the party handling the defense.
4.5. Limitations. Notwithstanding the foregoing (with the exception of the
provisions of Subparagraph 4.2(ii)), each of the parties covenants and agrees
that neither RTIC and Subsidiary (collectively, the "RTIC Group") nor the
Quality Stockholders shall be required to indemnify the other unless and until
the aggregate of all indemnifiable amounts sought against the indemnifying
parties first exceeds $300,000 in which event the party seeking indemnification
may seek indemnification for amounts in excess of $300,000. Notwithstanding any
obligations to indemnify pursuant hereto, the maximum cash liability of each
Quality Stockholder shall not exceed the pro rata share of the Cash
Consideration and, to the extent that funds have been paid to the Quality
Stockholders under the Notes during the first (1st) year after the Effective
Time (the "First Year Payments"), the First Year Payments. In the event that any
such obligation to indemnify exceeds the Cash Consideration and the First Year
Payments, the liability may be satisfied by and from the Share Consideration, as
valued at the "Effective Time."
5. Covenants
5.1. Investigation.
(a) Between the date hereof and the earlier of the Effective Date or the
termination date of this Agreement, RTIC and/or Subsidiary, on the one hand, and
Quality and/or the Quality Stockholders, on the other hand, may, directly and
through their representatives, make such investigation of each other corporate
party and their respective businesses and assets of the other corporate party or
parties as each deems necessary or advisable (the entity and/or its
representatives making such investigation being the "Investigating Party"), but
such investigation shall not affect any of the representations and warranties
contained herein or in any instrument or document delivered pursuant hereto. In
furtherance of the foregoing, the Investigating Party shall have reasonable
access, during normal business hours after the date hereof, to all properties,
books, contracts, commitments and records of each other, and shall furnish to
the other and their representatives such financial and operating data and other
information as may from time to time be reasonably requested relating to the
transactions contemplated by this Agreement. Each of RTIC and Subsidiary, on the
one hand, and Quality and the Quality stockholders, on the other, and the
respective management, employees, accountants and attorneys of
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the corporate parties shall cooperate fully with the Investigating Party in
connection with such investigation.
5.2. Consummation of Transaction. Each of the parties hereto hereby agrees
to use all reasonable efforts to cause all conditions precedent to his or its
obligations (and to the obligations of the other parties hereto to consummate
the transactions contemplated hereby) to be satisfied, including, but not
limited to, using all reasonable efforts to obtain all required (if so required
by this Agreement) consents, waivers, amendments, modifications, approvals,
authorizations, novations and licenses; provided, however, that nothing herein
contained shall be deemed to modify any of the absolute obligations imposed upon
or rights of any of the parties hereto under this Agreement or any agreement
executed and delivered pursuant hereto, including but not limited to the matters
set forth in Section 5.20 hereof.
5.3. Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees to fully cooperate with the
other parties hereto in preparing and filing any notices, applications, reports
and other instruments and documents which are required by, or which are
desirable in the reasonable opinion of any of the parties hereto, or their
respective legal counsel, in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the transactions
contemplated by this Agreement, subject to Section 5.20 hereof.
(b) Each of the parties hereto hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such other documents as may be required by this Agreement and as RTIC and/or
Subsidiary, on the one hand, and/or Quality and/or the Quality Stockholders, on
the other, or their respective legal counsel may reasonably require in order to
document and carry out the transactions contemplated by this Agreement.
5.4. Accuracy of Representations. Each party hereto agrees that prior to
the Closing Date he or it will enter into no transaction and take no action, and
will use his or its best efforts to prevent the occurrence of any event (but
excluding events which occur in the ordinary course of business and events over
which such party has no control), which would result in any of his, her or its
representations, warranties or covenants contained in this Agreement or in any
agreement, document or instrument executed and delivered by him or it pursuant
hereto not to be true and correct, or not to be performed as contemplated, at
and as of the time immediately after the occurrence of such transaction or
event.
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5.5. Notification of Certain Matters. Quality and the Quality Stockholders
shall give prompt notice to RTIC and Subsidiary, and RTIC or Subsidiary shall
give prompt notice to Quality and the Quality Stockholders, as the case may be,
of (a) the occurrence, or nonoccurrence, or any event the occurrence, or
nonoccurrence, of which would be likely to cause any representation contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time and (b) any material failure of Quality and/or the Quality
Stockholders, on the one hand, and of RTIC and/or Subsidiary, on the other, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by him or it hereunder; provided, however, that the delivery of any
notice pursuant to this Subsection 5.5 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
5.6. Lock-up Restriction. Each of the Quality Stockholders shall have
executed a lock-up agreement, substantially in the form of Exhibit 5.6 hereto
(the "Lock-Up Agreement"), to become effective upon the Effective Time.
5.7. Registration Rights. RTIC and each of the Quality Stockholders shall
enter into a Registration Rights Agreement, substantially in the form of Exhibit
5.7 attached hereto (the "Registration Rights Agreement").
5.8. Broker. Except as provided in Sections 2.20 and 3.16 hereof, each of
RTIC, Subsidiary, Quality and Quality Stockholders represents and warrants to
the other parties that no other broker or finder was engaged or dealt with in
connection with any of the transactions contemplated by this Agreement, and each
of the parties shall indemnify and hold the other harmless from and against any
and all claims or liabilities asserted by or on behalf of any alleged broker or
finder for broker's fees, finder's fees, commissions or like payments.
5.9. Cash Escrow. The parties hereto each acknowledge and agree that RTIC
will deposit the Cash Consideration in an escrow account (the "Escrow Account"),
to be held until the Effective Date or earlier termination of this Agreement
pursuant to the terms and conditions of an escrow agreement, in substantially
the form of Exhibit 5.9 hereto.
5.10. No Solicitation of Transactions.
(a) Prior to the earlier of the Effective Time or the termination of this
Agreement in accordance with its terms,none of Quality or the Quality
Stockholders will, directly or indirectly, through any director, officer,
employee, agent or otherwise, solicit, initiate or encourage the submission of
proposals or offers from any person relating to any acquisition
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or purchase of all or (other than in the ordinary course of business) any
portion of the Assets or Quality Business of, or any equity interest in,
Quality, or any business combination with Quality (other than the Merger) or,
except to the extent required by fiduciary obligations under applicable law, as
advised by counsel in writing, and other than with RTIC and/or Subsidiary,
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. Except to the extent required by
fiduciary obligations under applicable law, as advised by counsel in writing,
Quality and the Quality Stockholders shall immediately cease and cause to be
terminated any existing discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing (other than in respect of the
transaction contemplated hereby). The Quality or the Quality Stockholders shall
promptly notify RTIC if any such proposal or offer, or any inquiry or contact
with any person with respect thereto, is made and shall, in any such notice to
RTIC, indicate in reasonable detail the identity of the offeror and the terms
and conditions of any proposal or offer.
(b) Prior to the earlier of the Effective Time or the termination of this
Agreement, RTIC shall not, directly or indirectly (i) sell a controlling equity
interest in RTIC or Subsidiary, (ii) sell all or substantially all of the assets
of RTIC or Subsidiary, (iii) merge RTIC or Subsidiary with or into another
entity, other than pursuant to the Merger, (iv) purchase the assets or equity
interest of another entity, or (v) enter into any negotiations or agreements
related to any of the foregoing.
5.11. Employment Agreement. At the Closing, Martin Chevalier will enter
into an employment agreement with each of RTIC and Subsidiary substantially in
the form of Exhibit 5.11 hereto (the "Employment Agreement").
5.12. Consulting Agreements. At the Closing, RamKo (of which John Kohut is
a principal) shall enter into a consulting agreement with RTIC and Subsidiary
substantially in the form of Exhibit 5.12 hereto (the "Consulting Agreement").
5.13. Management and Administrative Matters. RTIC and/or Subsidiary, as the
case may be, shall, effective at the Closing, take any and all steps or actions
reasonably necessary to effect the following:
(a) nomination and appointment of Kohut and Chevalier to serve on the Board
of Directors of each of RTIC and Subsidiary until their successors are duly
elected and qualified, with each to hold office in accordance with the
respective Certificate of Incorporation and By-Laws;
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(b) nomination and election of Chevalier as President and Chief Executive
Officer of RTIC and Subsidiary and the nomination and appointment of each of
Kohut and David Love as Chairman of the Boards of Directors and Chairman of the
Audit Committee for the Boards of Directors of RTIC and Subsidiary,
respectively, each to serve until his successor is duly elected, appointed and
qualified in accordance with the Certificates of Incorporation and By-Laws of
Subsidiary and RTIC, as applicable; and
(c) transfer their principal offices to the Quality facilities located in
Tappahannock, Virginia.
5.14. Trade Name. Subject to the second sentence herein, RTIC shall,
effective as of the date hereof, adopt the name as well as do business solely
under the trading name of U.S. Automotive Manufacturing. Quality shall
immediately take all necessary steps to have its subsidiary of the same name (i)
license the use of such name to RTIC and (ii) as soon as possible after the
Closing, amend its corporate charter to change its name from U.S. Automotive
Manufacturing, Inc. RTIC covenants further that it shall, at its annual
stockholders' meeting to be held as soon as possible after the Closing, seek
shareholder authority to change its corporate name to U.S. Automotive
Manufacturing, Inc. and to use its best efforts to accomplish the name change.
5.15. Fairness Opinion. RTIC and Subsidiary shall have obtained a Fairness
Opinion with respect to the transactions contemplated by this Agreement.
5.16. Good Faith Solvency and Fair Consideration.
(a) Each of RTIC and Subsidiary, on the one hand, and Quality, on the other
hand, represents and covenants that (i) it has negotiated and entered into this
Agreement and the transactions contemplated hereunder in good faith and for
proper business purposes; (ii) it is not insolvent and will not be rendered
insolvent by the transactions contemplated hereunder and, after giving effect to
such transactions, it will not be left with unreasonably small capital with
which to engage in its anticipated business; it being hereby covenanted that it
will not have intended to incur, or will not have believed it has incurred,
debts beyond its ability to pay such debts as such debts mature.
(b) Each of RTIC and Subsidiary, on the one hand, and Quality, on the other
hand, further covenants that the Merger Consideration being exchanged hereunder
for the Shares constitutes fair consideration and reasonably equivalent value
for the Shares, as evidenced by a Fairness Opinion to be delivered by RTIC and
Subsidiary to Quality and the Quality Stockholders in accordance with Subsection
5.15 hereof.
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5.17. Prohibited Conduct. Each of Quality and the Quality Stockholders,
jointly and severally, covenants and agrees that, during the period from the
date hereof to the Effective Time, except pursuant to the terms hereof or unless
RTIC shall otherwise agree in writing, the Quality Business shall be conducted
only, and Quality shall not take any action except, in the ordinary course of
business and in a manner consistent with past practice and in compliance with
applicable laws; and Quality shall use its reasonable efforts to preserve intact
its Assets, the Quality Business and the business organization of Quality, to
keep available the services of the present officers, employees and consultants
of Quality, and to preserve the present relationships of Quality with customers,
suppliers and other persons with whom Quality has business relations. By way of
illustration, and not limitation, neither Quality or the Quality Stockholders
shall, between the date of this Agreement and the Effective Time, directly or
indirectly do, or propose or commit to do, any of the following without the
prior written consent of RTIC:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the Quality Common Stock, or (ii) split,
combine or reclassify any of the Quality Common Stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of the Quality Common Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber, any shares of Quality Common Stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities, convertible securities
or any other securities or equity equivalents;
(c) (i) increase the compensation payable or to become payable to any
officer, director, employees or consultant of Quality, except pursuant to the
terms of contracts, policies or benefit arrangements in effect on the date
hereof, or (ii) grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer, other employee or
consultant of Quality or any of its subsidiaries, except pursuant to the terms
of contracts, policies and benefit arrangements in effect on the date hereof, or
(iii) establish, adopt, enter into or amend any collective bargaining (other
than in accordance with past practice), bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund,
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policy or arrangement for the benefit of any directors, officers, employees or
consultants of Quality;
(d) amend the Certificate of Incorporation, By-Laws or other comparable
charter or organizational documents of Quality or alter through merger,
liquidation, reorganization, restructuring, or in any other fashion, the
corporate structure or ownership of Quality;
(e) acquire, or agree to acquire, (i) by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or corporation, partnership, joint venture, association or
other business organization or division thereof, or (ii) any assets that are
material, individually or in the aggregate, to Quality, except purchases
consistent with past practice;
(f) sell, lease, license, mortgage or otherwise encumber or subject to any
lien, security interest, pledge or encumbrance or otherwise dispose of any of
the Assets, except sales in the ordinary course of business consistent with past
practice;
(g) permit (i) Quality to incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
Quality, guarantee any debt securities of another person, or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business consistent
with past practice, or (ii) the Quality Stockholders to issue any guaranties of
any indebtedness of Quality;
(h) except in the ordinary course of business, enter into any agreement,
contract, commitment, involving a commitment on the part of Quality to purchase,
sell, lease or otherwise dispose of assets or require payment by Quality in
excess of $25,000;
(i) adopt a plan of complete or partial liquidation of Quality or
resolutions providing for or authorizing such a liquidation or the dissolution,
merger, consolidation, restructuring, recapitalization or reorganization of
Quality;
(j) cause Quality to recognize any labor union (unless legally required to
do so) or enter into or amend any collective bargaining agreement;
(k) change any accounting principles used by Quality;
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(l) make any tax election of, or settle, compromise any income tax
liability of, or prescribed by law, in the case of any of the foregoing,
material to the Quality Business, financial condition or results of the
operations of Quality and it s Subsidiaries, if any, taken as a whole;
(m) settle or compromise any litigation in which any of Quality is a
defendant (whether or not commenced prior to the date of this Agreement) or
settle, pay or compromise any claims not required to be paid, which payments are
individually in an amount in excess of $10,000 and in the aggregate in an amount
in excess of $30,000; and
(n) authorize any of, or commit or agree to take any of, the foregoing
actions.
5.18. Tax Covenants. The parties intend that the Merger constitutes a
tax-free reorganization by statutory merger of Quality with and into Surviving
Corporation within the meaning of section 368(a)(1)(A) and section 368(a)(2)(D)
of the Code and corresponding provisions of state income tax law, and the
parties agree to file all reports and statements with the IRS and state tax
authorities necessary to reflect such status and not to take any position
thereon or otherwise that is or would be inconsistent with such treatment.
5.19. Public Announcement. The public announcement attached as Exhibit 5.19
hereto shall be the first public announcement made with respect to this
Agreement and the transactions contemplated hereunder. The parties shall consult
with each other prior to issuing any further or future press release or
otherwise making any public statement with respect to the contents of this
Agreement or the transactions contemplated hereby, and none of the parties
hereto shall issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or applicable stock
exchange or NASDAQ regulations.
5.20. Quality Stockholders' Consent. Notwithstanding anything to the
contrary contained in this Agreement or any of the other documents contemplated
hereunder, including, but not limited to the Quality Documents and Quality
Stockholder Documents, the parties hereto acknowledge that the Quality
Stockholders have not yet voted to approve this Agreement and the transactions
contemplated hereunder and that the consummation of such transactions is subject
to the affirmative vote of the Quality Stockholders, and nothing contained
herein shall be deemed to obligate the Quality Stockholders to affirmatively
vote for such transactions, which affirmative vote of each of the Quality
Stockholders may be given or withheld in his or her sole discretion.
6. Nondisclosure.
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6.1. Each party hereto hereby agrees to retain in strict confidence all
Confidential Information received from any other party hereto pursuant to, or in
connection with, this Agreement. For purposes of this Agreement, "Confidential
Information" means all information and data of any kind belonging to any party
which by its nature is confidential or proprietary, including without limitation
the identity and description of goods and services used, purchasing, costs,
pricing, machinery and equipment, manufacturing processes, technology, research,
test procedures and results, formulae, customers and prospects, marketing, and
selling and servicing, and all other information and data which is so identified
in writing by any party; provided, however, that such information which can be
established by written records by the Quality Stockholders or RTIC, as the case
may be, to be in the public domain prior to the disclosure thereof to such party
or subsequently entered the public domain by some means other than as the result
of a breach of the provisions of subparagraph below. (such information not being
deemed to be in the public domain merely because it is embraced by more general
information which is in the public domain) shall not constitute Confidential
Information for purposes hereof.
6.2. No party shall disclose any Confidential Information to any person,
firm or corporation or use any such Confidential Information for any purpose not
contemplated by this Agreement. Notwithstanding the foregoing, each party may
disclose Confidential Information to its directors, officers, employees,
consultants and advisors, to the extent required for the performance of its
obligations under this Agreement, and to the extent required by law, regulation
or judicial order.
6.3. The undertakings of each party pursuant to this Section 6 shall
survive the expiration or termination of this Agreement.
7. Conditions of Merger.
The respective obligations of the parties hereto to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
7.1. Litigation. No order of any court or administrative agency shall be in
effect which restrains or prohibits the transactions contemplated hereby, and no
claim, suit, action, inquiry, investigation or proceeding in which it will be,
or it is, sought to restrain, prohibit or change the terms of or obtain damages
or other relief in connection with this Agreement or any of the transactions
contemplated hereby, shall have been instituted or threatened by any person or
entity, and which, upon the advice of either counsel to the parties hereto
(based on the reasonable likelihood of success and material consequences of such
claim, suit, action, inquiry or
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proceeding), makes it inadvisable to proceed with the consummation of such
transactions.
7.2. Ratification by All Stockholders of Quality. Seventy-five percent
(75%) of the stockholders of Quality shall have consented to the transactions
herein by the affirmative vote of all of the Quality Stockholders.
7.3. No Materially Adverse Customer Reaction.
(a) Quality shall not have elected to terminate this Agreement and the
transactions contemplated hereunder based upon a determination that Quality's
customers representing in the aggregate in excess of ten percent (10%) of the
annual sales revenue shall have, prior to the Effective Time and upon being
advised of the transactions contemplated hereunder, (i) cancelled purchases from
Quality; (ii) substantially reduced the rate of purchases from prior rates
and/or (iii) indicated unequivocally that such purchases will be curtailed or
substantially reduced as of the Effective Time.
(b) RTIC shall not have elected to terminate this Agreement and the
transactions contemplated hereunder based upon a determination that Quality's
customers representing in the aggregate in excess of fifteen percent (15%) of
the annual sales revenue shall have, prior to the Effective Time and upon
learning of the transactions contemplated hereunder, (i) cancelled purchases
from Quality; (ii) substantially reduced the rate of purchases from prior rates
and/or (iii) indicated unequivocal that such purchases will be curtailed or
substantially reduced as of the Effective Time.
8. The Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
9, the closing of the Merger (the "Closing") will take place at a location
mutually acceptable to the parties hereto as promptly as practicable, but in no
event shall the Closing occur (i) prior to June 30, 1997 or (ii) later than July
31, 1997 or such later date as shall have been fixed by a written instrument
signed by the parties (the "Closing Date"), after the delivery by the parties
hereto of the following upon the terms and conditions of this Agreement:
8.1. Deliveries by RTIC and Subsidiary. RTIC and Subsidiary, as applicable,
shall deliver:
(a) stock certificate(s), registered in the name of each of the Quality
Stockholders, representing their pro rata share of the Share Consideration;
(b) a wire transfer of immediately available funds, in the aggregate amount
of $3,000,000 payable to each of the Quality Stockholders, representing their
pro rata share of
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the Cash Consideration, against delivery of the certificate(s) representing the
Shares;
(c) the Notes (payable to each of the Quality Stockholders in the amount of
their pro rata share of their ownership interest in Quality) and the Guaranties,
duly executed by Subsidiary and/or RTIC , as the case may be, to each of the
Quality Stockholders;
(d) the Stock Pledge Agreement, duly executed by RTIC, together with
original stock certificates of all of the issued and outstanding shares of the
Subsidiary and stock powers duly executed in blank by RTIC, attached thereto, to
the Pledge Agent (as such term is defined in the Stock Pledge Agreement;
(e) copies of (i) resolutions adopted by the Boards of Directors of RTIC
and Subsidiary authorizing RTIC or Subsidiary, as the case may be, to execute
and deliver the RTIC Documents to which it is a party and to perform its
obligations thereunder, upon the terms and subject to the conditions set forth
therein and to effect the Merger upon the terms and subject to the conditions
set forth therein, duly certified by the Secretary or Assistant Secretary of
Subsidiary, (ii) resolutions adopted by the Board of Directors of RTIC
increasing the number of directors constituting the entire Board to five
members, duly certified by the Secretary or Assistant Secretary of RTIC, and
(iii) resolutions adopted by the Boards of Directors of RTIC and Subsidiary, as
the case may be, nominating and appointing the persons listed in Subsection
5.13(a);
(f) closing certificates from each of RTIC and Subsidiary, executed by
their respective presidents, dated the Closing Date, to the effect that all the
representations and warranties of RTIC or Subsidiary, as the case may be, are
true and complete in all material respects and all covenants to be performed by
each of RTIC or Subsidiary, as the case may be, at or as of the Closing have
been performed in all material respects and conditions to be satisfied at or as
of the Closing have been waived or satisfied in all material respects;
(g) confirmation, in the form satisfactory to the parties hereto, from the
State of Delaware or a filing service (jointly chosen by the parties hereto)
that the Certificate of Merger of Quality with and into the Subsidiary has been
filed with the Secretary of State of Delaware, together with a copy of the
executed form of such agreement;
(h) certificates of the Secretary or Assistant Secretary of each of RTIC
and Subsidiary certifying as to the incumbency and specimen signatures of the
officers of RTIC and Subsidiary executing the RTIC Documents on behalf of such
corporation;
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(i) the Registration Rights Agreement, duly executed by RTIC;
(j) the Employment Agreement, duly executed by RTIC and Subsidiary;
(k) the Consulting Agreement, duly executed by RTIC; and
(l) the opinion of Tenzer Greenblatt LLP, counsel for RTIC and Subsidiary,
dated the Closing Date.
8.2. Management. RTIC and/or Subsidiary, as the case may be, shall effect
the management structure set forth in Subsection 5.13 hereof.
8.3. Deliveries by Quality and the Quality Stockholders. Quality and/or the
Quality Stockholder, as the case may be, shall deliver:
(a) stock certificate(s) representing the Shares, duly endorsed for
transfer by the Quality Stockholders;
(b) copies of the resolutions of the Board of Directors of Quality, and the
written consent of the Quality Stockholders, authorizing Quality to execute and
deliver the Quality Documents, to perform its obligations thereunder and to
effect the Merger, duly certified by the Secretary or assistant Secretary of
Quality;
(c) closing certificates from each of Quality and the Quality Stockholders,
dated the Closing Date, to the effect that all the representations and
warranties of Quality and the Quality Stockholders are true and complete in all
material respects and all covenants to be performed by Quality and the Quality
Stockholder at or as of the Closing have been performed in all material respects
and conditions to be satisfied at or as of the Closing have been waived or
satisfied in all material respects;
(d) certificates of the Secretary or Assistant Secretary of Quality
certifying as to the incumbency and specimen signatures of the officers of
Quality executing the Quality Documents on behalf of such corporation;
(e) the Registration Rights Agreement, duly executed by the Quality
Stockholders;
(f) the Employment Agreement, duly executed by Chevalier;
(g) the Consulting Agreement, duly executed by RamKo;
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(h) the Lock-up Agreement, duly executed by the Quality Stockholders;
(i) the consents, waivers, approvals, licenses and authorizations by third
parties and governmental and administrative authorities (and all amendments or
modifications to existing agreements with third parties) required as a
precondition to the performance by Quality and the Quality Stockholders of their
respective obligations hereunder and under any agreement delivered pursuant
hereto, or which in the parties' reasonable judgment are, necessary to continue
unimpaired, subsequent to the Effective Time, any rights in and to the Assets
and/or the Quality Business which could be impaired by the Merger; and
(j) the opinion of McSweeney, Burtch & Crump, P.C., counsel for Quality,
dated the Closing Date.
8.4. Other Deliveries. In addition, the parties shall execute and deliver
such other documents as may be required by this Agreement and as either of them
or their respective counsel may reasonably require in order to document and
carry out the transactions contemplated by this Agreement.
9. Termination, Amendment and Waiver.
9.1. Termination. Subject to any cure period provided herein, this
Agreement may be terminated at any time prior to the Effective Time:
(a) By mutual consent of the Boards of Directors of RTIC, Subsidiary,
Quality and the Quality Stockholders; or
(b) By RTIC and Subsidiary, on the one hand, or Quality, on the other hand,
(and provided such parties are not then in material breach of their respective
obligations under this Agreement) pursuant to Subsection 7.3 hereof; provided
further, however, that the right to terminate this Agreement under this
Subsection 9.1(b) shall not be available to any party whose actions or omissions
can be shown to have been the direct cause of loss of business contemplated in
Subsection 7.3 hereof; or
(c) By RTIC and Subsidiary, on the one hand, or Quality, on the other hand,
if (i) the Merger shall not have been consummated by July 31, 1997, or such
later date as the parties shall have fixed by written instrument signed by the
parties hereto; provided, however, that the right to terminate this Agreement
under this Subsection 9.1(c) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date
or
-42-
<PAGE>
(ii) a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action (which order, decree, ruling or other action the
parties hereto shall use their reasonable efforts to vacate), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement.
(d) By RTIC and Subsidiary, on the one hand, or Quality, on the other hand,
(and provided such parties are not then in material breach of their respective
obligations under this Agreement) in the event, as provided for in Subsection
7.1 hereof, of any court or administrative agency order in effect or any claim,
suit, action, inquiry, investigation or proceeding.
(e) In the event RTIC or Subsidiary, on the one hand, or Quality, on the
other hand breaches or otherwise fails to perform any material part of this
Agreement, then the other party (or parties) hereto not in breach shall notify
in (writing) the party in material breach and demand that such material breach
or such material failure to perform be corrected within a stipulated period,
which period shall not be less than ten (10) days following notification. If the
party (or parties) in material breach fails to correct the material breach with
the period stated in the written notice of demand for correction, the other
party (or parties) may, in its (or their) sole discretion, immediately terminate
this Agreement by giving the party (or parties) in material breach written
notice of termination.
(f) Upon the failure of seventy-five percent (75%) of the Quality
Stockholders to consent to the transactions contemplated hereby by the
affirmative vote of the stockholders of Quality.
9.2. Effect of Termination. In the event of the termination of this
Agreement as provided in this Section 9, this Agreement shall, except with
respect to Section 6 and Subsection 9.3, forthwith become null and void and
there shall be no liability on the part of any party hereto under any provision
hereof; provided, however, that notwithstanding the provisions of the foregoing
sentence, nothing in this Agreement shall relieve any party from liability for
any wilful breach of the terms hereof.
9.3. Fees and Expenses.
Each of the parties shall be responsible for, and shall pay, its or his
respective fees and expenses incurred by such party in connection with the
Merger and the transactions contemplated by this Agreement. Notwithstanding the
foregoing, RTIC shall pay the reasonable fees and expenses incurred by Quality
and the Quality Stockholders in connection with the negotiation and
documentation of the transactions contemplated by
-43-
<PAGE>
this Agreement in the event this Agreement is terminated by the failure of RTIC
or Subsidiary to close and consummate the transactions contemplated hereunder
pursuant to the terms of this Agreement provided that Quality and the Quality
Stockholders are in compliance with the conditions and covenants to be satisfied
by them prior to the Closing.
9.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
9.5. Waiver. At any time prior to the Effective Time, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
10. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that all representations and
warranties made by or on behalf of him or it in this Agreement or in any
document or instrument delivered pursuant hereto shall survive the Closing Date
for a period of one (1) year after the Effective Time, except for the
representations and warranties contained in Subsection 2.15 and Subparagraph
4.2(ii), which shall survive for the applicable statute of limitations period.
11. General Provisions.
11.1. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the earlier of the date delivered or mailed if delivered personally, by
overnight courier or mailed by express, registered or certified mail (postage
prepaid, return receipt requested) or by facsimile transmittal, confirmed by
express, certified or registered mail, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice,
except that notices of changes of address shall be effective upon receipt):
If to RTIC or Subsidiary: RT Industries, Inc.
1875 East Lake Mary Blvd.
Sanford, FL 32773
Attn: John K. Kenney, President
Telecopier: 407-322-7477
-44-
<PAGE>
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Gary A. Schonwald, Esq.
Telecopier: (212) 885-5001
If to Quality or the
Quality Stockholders: Quality Automotive Company
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Attn: President
Telecopier:___________________
with a copy to: McSweeney, Burtch & Crump PC
11 South Twelfth Street
P.O. Box 1463
Richmond, VA 23219
Attn: Beverley L. Crump, Esq.
Telecopier: (804) 782-2130
11.2. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
11.3. Entire Agreement. This Agreement and the Confidentiality Agreement
and the agreements referred to herein constitute the entire agreement, and
supersede all prior agreements, representations and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof.
11.4. No Assignment. This Agreement shall not be assigned by operation of
law or otherwise, and any assignment shall be null and void.
11.5. Headings. Headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
-45-
<PAGE>
11.6. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of Delaware without regard to its choice
of law principles.
11.7. Attorneys' Fees. In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its reasonable attorneys' fees and costs
incurred in litigating, arbitrating, or otherwise settling or resolving such
dispute.
11.8. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of RTIC, Subsidiary and Quality, by their
respective officers thereunto duly authorized by their respective Boards of
Directors, and the Quality
-46-
<PAGE>
Stockholders, individually, have caused this Agreement to be executed as of the
date first written above.
RT INDUSTRIES, INC.
By:
------------------------------
John K. Kenney, President
QUALITY ACQUISITION CORP.
By:
------------------------------
President
QUALITY AUTOMOTIVE COMPANY
By:
------------------------------
President
- ---------------------------------
Martin Chevalier
- ---------------------------------
John W. Kohut
- ---------------------------------
Malvina B. Chevalier
-47-
Linda S. Ram
45 East 89th Street
Apartment 21B
New York, NY 10128
August 28, 1997
RT Industries, Inc.
Attn: John K. Kenney, President
1875 East Lake Mary Blvd.
Sanford, FL 32773
QUAC Acquisition Corp.
Attn: John K. Kenney, President
c/o RT Industries, Inc.
1875 East Lake Mary Blvd.
Sanford, FL 32773
Re: Merger with Quality Automotive Company
--------------------------------------
Gentlemen:
The Undersigned, Linda S. Ram, hereby ratifies, adopts and consents to the
merger (the "Merger") of Quality Automotive Company ("Quality") with and into
QUAC Acquisition Corp., upon the terms and conditions set forth in that
Agreement and Plan of Merger, dated June 6, 1997, by and among RT Industries,
Inc., QUAC Acquisition Corp., Quality and each of Marting and Malvina B.
Chevalier and John W. Kohut (the "Merger Agreement"), a copy of which is
attached hereto.
By executing this letter, the Undersigned also agrees and confirms that:
(i) she is a "Quality Stockholder" as such term is used in the Merger Agreement
and any ancillary or other agreement, document or instrument contemplated by the
merger (collectively, the "Ancillary Documents") and (ii) she is bound, as if a
party at the date of execution, by all the terms and conditions of the Merger
Agreement and the Ancillary Documents, as well as the obligations resulting
therefrom, including without limitation any and all representations, warranties
and covenants of the Quality Stockholders (as defined therein).
All prior agreements and understandings, whether written or oral, of
Undersigned and the other parties to the Merger Agreement, with respect to the
Merger Agreement and the transactions contemplated thereunder have been
integrated into, and are superseded by, the provisions of this letter agreement
and the other agreements and instruments executed on even date herewith and in
connection herewith. This letter agreement may not be modified by the
Undersigned unless, and then only to the
<PAGE>
RT Industries, Inc. et al.
August 27, 1997
Page 2
extent that, a written modification is executed by all of the parties to the
Merger Agreement.
Sincerely,
/s/ Linda S. Ram
-----------------------------
LINDA S. RAM
ACKNOWLEDGED AND CONSENTED TO THIS
28TH DAY OF AUGUST, 1997 BY:
/s/ John W. Kohut
- ----------------------------------
John W. Kohut, Quality stockholder
/s/ Martin Chevalier
- ----------------------------------
Martin Chevalier, Quality stockholder
/s/ Malvina B. Chevalier
- ----------------------------------
Malvina B. Chevalier, Quality stockholder
QUALITY AUTOMOTIVE COMPANY
By: /s/ Martin Chevalier President
----------------------------------
Martin Chevalier President
RT INDUSTRIES, INC.
By:
----------------------------------
John K. Kenney, President
QUAC ACQUISITION CORP.
By:
----------------------------------
John K. Kenney, President
$1,802,158.27 Tappahannock, Virginia
________ ______, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, QUALITY AUTOMOTIVE COMPANY, a Delaware
corporation formerly known as QUAC Acquisition Corp. (together with its assigns
or successors, the "Obligor"), hereby promises to pay to JOHN W. KOHUT, and
LINDA S. RAM, tenants by the entirety, without offset, at 45 East 89th Street,
Apartment 21B, New York, New York 10128 (collectively, the "Obligee") or at such
other place in the State of New York designated in writing by the holder of this
Note, on the second anniversary of the date of issuance of this Note (the
"Maturity") (or on such earlier date to which the maturity of this Note may have
been accelerated by reason of the occurrence of a Default (as herein defined) at
which time the unpaid principal balance of this Note and accrued interest is to
be paid in full, as hereinafter provided), the principal sum of One Million
Eight Hundred Two Thousand One Hundred Fifty-Eight and 27/100 Dollars
($1,802,158.27). The principal sum outstanding from time to time hereunder will
bear interest at the rate of eight percent (8%) per annum, which interest shall
be payable on the first business days of Septmber and December 1998 and the
first business days of March and June 1999 prior to Maturity, and at the
Maturity of this Note (together with the full unpaid principal sum of this
Note). All payments under this Note shall be made in immediately available funds
in money of the United States of America that is lawful for the payment of
public and private debts at the time such payment is due.
This Note is made and delivered pursuant to that certain Agreement and Plan
of Merger, dated June 6, 1997 (the "Merger Agreement"), among Obligor, Obligee,
RT Industries, Inc. ("Guarantor") and certain other parties and in conjunction
with two other promissory notes also made and delivered pursuant to the Merger
Agreement (such other promissory notes hereinafter referred to as the "Related
Notes").
If prior to the Maturity, Obligor or Guarantor raises net proceeds of $3
million or more through a public offering or private placement of its equity
securities, including, but not limited to, the sale of common or preferred
stock, the exercise of warrants or the sale of debt securities convertible into
common stock (an "Equity Infusion"), then Obligor will be obligated at the
closing of such Equity Infusion, to apply an amount equal to 40.04% of such net
proceeds in excess of $3 million as a prepayment (partial or whole, as the case
may be) of this Note; provided, however, that in no event will the aggregate
payment to the holder of this Note exceed an amount equal to the unpaid
principal balance of the Note, together with
<PAGE>
all accrued and unpaid interest and any other sums at the time due hereunder.
The unpaid principal balance of this Note may be prepaid in whole at any
time or in part from time to time, without premium or penalty. All payments
hereunder, including prepayments and any prepayment resulting from an Equity
Infusion, shall be applied first to the payment of accrued and unpaid interest
to the date on which any such payment is made, then to late charges and other
sums due hereunder and thereafter to the unpaid principal balance.
Notwithstanding anything to the contrary above, each of the following
events shall constitute an event of default hereunder (each, a "Default") under
this Note:
(i) With respect to this Note and/or any of the Related Notes, the
failure to pay any installment of interest within 15 days after the due
date thereof, the failure to pay principal in full at Maturity or the
failure to make a prepayment at the closing of an Equity Infusion;
provided, however, no Default under this clause (i) (with the exception of
a default with respect to an Equity Infusion) shall be deemed to have
occurred unless not more than 45 days, nor less than 30 days, prior to such
Maturity or due date the Obligee shall notify the Boards of Directors of
the Obligor and the Guarantor of such Maturity or due date to allow said
companies to consider their respective obligations to the Obligee; or
(ii) An voluntary or involuntary case or proceeding is commenced by or
against the Obligor or the Guarantor under the Federal Bankruptcy Code or
any other law relating to bankruptcy, bankruptcy reorganization, insolvency
or the relief of debtors applicable to Obligor or the Guarantor, and in the
event of an involuntary case or proceeding, such case or proceeding is not
dismissed within sixty (60) days from the date on which such case or
proceeding is commenced and provided Obligee provides notice of such
default to the Obligor and Guarantor; or
(iii) Obligor or the Guarantor defaults in the performance or
observance of, or in the compliance with, any of its obligations under this
Note, the Guaranty (as hereinafter defined) or the Pledge Agreement (as
hereinafter defined), other than with respect to the payment of money,
which default shall continue unremedied for a period of 15 consecutive days
after the receipt by Obligor and Guarantor of written notice from the
holder of this Note specifying such default in reasonable detail; or
(iv) The holder of any obligation evidencing indebtedness of the
Obligor or the Guarantor (including a capital lease) (A) to pay
indebtedness for borrowed money, (B)
-2-
<PAGE>
representing the deferred purchase price of a capital asset, or (C)
representing an operating lease of real or personal property, or of any
guaranty of the Guarantor guaranteeing the payment of any such indebtedness
of the Obligor, the amount of which indebtedness is $150,000 or more, shall
have duly accelerated the maturity of such indebtedness or shall have
otherwise duly caused the full amount thereof to have become immediately
due and payable or such obligation shall have matured in accordance with
its terms and any principal balance and other obligations shall not have
been paid; provided, however, that in the case of an acceleration of any
such indebtedness, no acceleration of this Note shall occur unless and
until the holder of such debt obligation shall have commenced or threatened
collection proceedings; and provided further that Obligor shall provide ten
(10) days notice prior to any such acceleration; or
(v) Except for transfers of inventory or equipment among Guarantor and
its subsidiaries made in the ordinary course of business for fair
consideration, and except for transfers consented to by the holders of this
Note and the Related Notes, if Obligor or Guarantor engages in, or causes
to be taken, any act or a series of acts (over a period of 12 months) which
result in the effective transfer to Guarantor of an ownership interest in
the assets of Obligor aggregating five percent (5%) or more of the
Obligor's net worth as of the most recent transfer, which default shall
continue unremedied for a period of 15 consecutive days after the receipt
by Obligor and Guarantor of written notice from the holder of this Note
specifying such default in reasonable detail.
Upon the occurrence of a Default, the holder of this Note may declare the unpaid
principal balance of this Note, together with any accrued unpaid interest
thereon and all other sums due hereunder, to be immediately due and payable,
whereon the same shall be immediately due and payable (without any requirement
to give notice of such declaration to the Obligor), together with interest
thereon at the annual rate of 12% until the amount so declared to be due and
payable is fully paid.
The Obligor shall pay to the Obligee a late charge of five percent (5%) of
any installment of interest not received by the Obligee within ten (10) days of
its due date. The Obligor shall pay any and all reasonable expenses actually
incurred by the holder of this Note in the collection of the indebtedness
evidenced by this Note, including reasonable fees and disbursements of the
holder's legal counsel.
This Note shall be binding upon the Obligor and its successors and
permitted assigns and shall inure to the benefit of the Obligee and any of its
successors and assigns.
-3-
<PAGE>
The Obligor hereby waives presentment, demand and protest, notice of
dishonor and except as otherwise provided herein, notice of nonpayment.
Anything in this Note to the contrary notwithstanding, the holder of this
Note shall not be permitted to charge, take or receive, and the Obligor shall
not be obligated to pay, interest in excess of the maximum rate from time to
time permitted by applicable law.
The payment of this Note is guaranteed by Guarantor pursuant to the terms
of a guaranty dated the date of this Note (the "Guaranty"), which Guaranty is
secured pursuant to the terms of a certain Stock Pledge and Security Agreement
dated the date hereof among Guarantor, as pledgor, the Obligee and certain other
persons, as pledgees, and certain others (the "Pledge Agreement").
No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any Default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy.
This Note is subject to that certain Subordination and Intercreditor
Agreement dated August 29, 1997, among the Obligor, the Obligee and LaSalle
Business Credit, Inc. pursuant to which this Note and the Obligor's obligations
hereunder are subordinated in the manner set forth therein to the prior payment
of certain obligations to the holders of Senior Indebtedness, as defined
therein.
All notices and/or other communications relating to this Agreement shall be
in writing and deemed delivered as of the date delivered, if delivered
personally, or one (1) business day after having been deposited with a courier,
if sent by overnight courier, or after being sent by telecopy, if sent by
telecopy (receipt confirmed), or three (3) business days after having been
mailed, if mailed by registered or certified mail, postage prepaid, return
receipt requested, sent as follows:
if to Obligor, to:
Quality Automotive Company
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Attn: President
Telecopier: (804) 443-5611
Telephone: (804) 443-5356
- and -
-4-
<PAGE>
RT Industries, Inc.
d/b/a US Automotive Manufacturing, Inc.
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Attn: President
Telecopier: 804-443-5611
Telephone: 804-443-5356
- and -
to each of the outside directors (or their duly appointed successors), as
follows:
Mandel Sherman David Love
Elmgrove Associates II, L.P. 68 Hammond Pond Parkway
210 Dartmouth Chestnut Hill, MA 02167
Pawtucket, RI 02860 Telecopier: (617)738-1663
Telecopier: (401)724-9707
with a copy to:
Frankfurt, Garbus, Klein & Selz
488 Madison Avenue, 9th Floor
New York, New York 10022
Attn: Gary A. Schonwald, Esq.
Telecopier: 212-593-9175
- and -
LaSalle Business Credit, Inc.
477 Madison Avenue
New York, New York 10022
Attn: Joseph Costanza
Telecopier: 212-371-2966
Telephone: 212-832-6650
with a copy to:
Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10022
Attn: Joseph Costanza
Telecopier: 212-371-2966
Telephone: 212-832-6650
<PAGE>
if to Obligee, to:
John W. Kohut and Linda S. Ram
45 East 89th Street
Apartment 21B
New York, New York 10128
Telecopier: 212-426-4902
with a copy to:
McSweeney, Burtch & Crump PC
11 South Twelfth Street
Richmond, VA 23212
Attn: Beverley L. Crump, Esq.
Telecopier: 804-782-2130
or to such other address as either of such parties shall have designated by like
notice to the other party.
This Note shall be governed in all respects, including validity,
interpretation and effect by the laws of the Commonwealth of Virginia. The
Obligor hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and of the
United States located in the Commonwealth of Virginia (the "Virginia Courts")
for any litigation arising out of or relating to this Note, waives any objection
to the laying of venue of any such litigation in the Virginia Courts and agrees
not to plead or claim that such litigation brought in any Virginia Courts has
been brought in an inconvenient forum.
IN WITNESS WHEREOF, the Obligor has caused this Note to be executed this
29th day of August 1997.
QUALITY AUTOMOTIVE COMPANY
By: /s/ John K. Kenney
------------------------------
Name: John K. Kenney
Title: President
-6-
$2,697,841.73 Tappahannock, Virginia
August 29, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, QUALITY AUTOMOTIVE COMPANY, a Delaware
corporation formerly known as QUAC Acquisition Corp. (together with its assigns
or successors, the "Obligor"), hereby promises to pay to MARTIN CHEVALIER and
MALVINA B. CHEVALIER, as tenants by the entirety, without offset, at 26
Piscataway Drive, Cold Cheer Farm Estates, Tappahannock, VA 22560 (collectively,
the "Obligee") or at such other place in the State of Virginia designated in
writing by the holder of this Note, on the second anniversary of the date of
issuance of this Note (the "Maturity") (or on such earlier date to which the
maturity of this Note may have been accelerated by reason of the occurrence of a
Default (as herein defined), at which time the unpaid principal balance of this
Note and accrued interest is to be paid in full, as hereinafter provided), the
principal sum of Two Million Six Hundred Ninety Seven Thousand Eight Hundred
Forty One Dollars and Seventy-Three Cents ($2,697,841.73). The principal sum
outstanding from time to time hereunder will bear interest at the rate of eight
percent (8%) per annum, which interest shall be payable on the first business
days of September and December 1998 and the first business days of March and
June 1999 prior to Maturity, and at the Maturity (together with the full unpaid
principal sum of this Note). All payments under this Note shall be made in
immediately available funds in money of the United States of America that is
lawful for the payment of public and private debts at the time such payment is
due.
This Note is made and delivered pursuant to that certain Agreement and Plan
of Merger, dated June 6, 1997 (the "Merger Agreement"), among Obligor, Obligee,
RT Industries, Inc. ("Guarantor") and certain other parties and in conjunction
with two other promissory notes also made and delivered pursuant to the Merger
Agreement (such other promissory notes hereinafter referred to as the "Related
Notes").
If prior to the Maturity, Obligor or Guarantor raises net proceeds of $3
million or more through a public offering or private placement of its equity
securities, including, but not limited to, the sale of common or preferred
stock, the exercise of warrants or the sale of debt securities convertible into
common stock (an "Equity Infusion"), then Obligor will be obligated at the
closing of such Equity Infusion, to apply an amount equal to 59.96% of such net
proceeds in excess of $3 million as a prepayment (partial or whole, as the case
may be) of this Note; provided, however, that in no event will the aggregate
payment to the holder of this Note exceed an amount equal to the unpaid
principal balance of the Note, together with
<PAGE>
all accrued and unpaid interest and any other sums at the time due hereunder.
The unpaid principal balance of this Note may be prepaid in whole at any
time or in part from time to time, without premium or penalty. All payments
hereunder, including prepayments and any prepayment resulting from an Equity
Infusion, shall be applied first to the payment of accrued and unpaid interest
to the date on which any such payment is made, then to late charges and other
sums due hereunder and thereafter to the unpaid principal balance.
Notwithstanding anything to the contrary above, each of the following
events shall constitute an event of default hereunder (each, a "Default") under
this Note:
(i) With respect to this Note and/or any of the Related Notes, the
failure to pay any installment of interest within 15 days after the due
date thereof, the failure to pay principal in full at Maturity or the
failure to make a prepayment at the closing of an Equity Infusion;
provided, however, no Default under this clause (i) (with the exception of
a default with respect to an Equity Infusion) shall be deemed to have
occurred unless not more than 45 days, nor less than 30 days, prior to such
Maturity or due date the Obligee shall notify the Boards of Directors of
the Obligor and the Guarantor of such Maturity or due date to allow said
companies to consider their respective obligations to the Obligee; or
(ii) An voluntary or involuntary case or proceeding is commenced by or
against the Obligor or the Guarantor under the Federal Bankruptcy Code or
any other law relating to bankruptcy, bankruptcy reorganization, insolvency
or the relief of debtors applicable to Obligor or the Guarantor, and in the
event of an involuntary case or proceeding, such case or proceeding is not
dismissed within sixty (60) days from the date on which such case or
proceeding is commenced and provided Obligee provides notice of such
default to the Obligor and Guarantor; or
(iii) Obligor or the Guarantor defaults in the performance or
observance of, or in the compliance with, any of its obligations under this
Note, the Guaranty (as hereinafter defined) or the Pledge Agreement (as
hereinafter defined), other than with respect to the payment of money,
which default shall continue unremedied for a period of 15 consecutive days
after the receipt by Obligor and Guarantor of written notice from the
holder of this Note specifying such default in reasonable detail; or
(iv) The holder of any obligation evidencing indebtedness of the
Obligor or the Guarantor (including a capital lease) (A) to pay
indebtedness for borrowed money, (B)
-2-
<PAGE>
representing the deferred purchase price of a capital asset, or (C)
representing an operating lease of real or personal property, or of any
guaranty of the Guarantor guaranteeing the payment of any such indebtedness
of the Obligor, the amount of which indebtedness is $150,000 or more, shall
have duly accelerated the maturity of such indebtedness or shall have
otherwise duly caused the full amount thereof to have become immediately
due and payable or such obligation shall have matured in accordance with
its terms and any principal balance and other obligations shall not have
been paid; provided, however, that in the case of an acceleration of any
such indebtedness, no acceleration of this Note shall occur unless and
until the holder of such debt obligation shall have commenced or threatened
collection proceedings; and provided further that Obligor shall provide ten
(10) days notice prior to any such acceleration; or
(v) Except for transfers of inventory or equipment among Guarantor and
its subsidiaries made in the ordinary course of business for fair
consideration, and except for transfers consented to by the holders of this
Note and the Related Notes, if Obligor or Guarantor engages in, or causes
to be taken, any act or a series of acts (over a period of 12 months),
which result in the effective transfer to Guarantor of an ownership
interest in the assets of Obligor aggregating five percent (5%) or more of
the Obligor's net worth as of the most recent transfer, which default shall
continue unremedied for a period of 15 consecutive days after the receipt
by Obligor and Guarantor of written notice from the holder of this Note
specifying such default in reasonable detail.
Upon the occurrence of a Default, the holder of this Note may declare the unpaid
principal balance of this Note, together with any accrued unpaid interest
thereon and all other sums due hereunder, to be immediately due and payable,
whereon the same shall be immediately due and payable (without any requirement
to give notice of such declaration to the Obligor), together with interest
thereon at the annual rate of 12% until the amount so declared to be due and
payable is fully paid.
The Obligor shall pay to the Obligee a late charge of five percent (5%) of
any installment of interest not received by the Obligee within ten (10) days of
its due date. The Obligor shall pay any and all reasonable expenses actually
incurred by the holder of this Note in the collection of the indebtedness
evidenced by this Note, including reasonable fees and disbursements of the
holder's legal counsel.
This Note shall be binding upon the Obligor and its successors and
permitted assigns and shall inure to the benefit of the Obligee and any of its
successors and assigns.
-3-
<PAGE>
The Obligor hereby waives presentment, demand and protest, notice of
dishonor and except as otherwise provided herein, notice of nonpayment.
Anything in this Note to the contrary notwithstanding, the holder of this
Note shall not be permitted to charge, take or receive, and the Obligor shall
not be obligated to pay, interest in excess of the maximum rate from time to
time permitted by applicable law.
The payment of this Note is guaranteed by Guarantor pursuant to the terms
of a guaranty dated the date of this Note (the "Guaranty"), which Guaranty is
secured pursuant to the terms of a certain Stock Pledge and Security Agreement
dated the date hereof among Guarantor, as pledgor, the Obligee and certain other
persons, as pledgees, and certain others (the "Pledge Agreement").
No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any Default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy.
This Note is subject to that certain Subordination and Intercreditor
Agreement dated August 29, 1997, among the Obligor, the Obligee and LaSalle
Business Credit, Inc., pursuant to which this Note and the Obligor's obligations
hereunder are subordinated in the manner set forth therein to the prior payment
of certain obligations to the holders of Senior Indebtedness, as defined
therein.
All notices and/or other communications relating to this Agreement shall be
in writing and deemed delivered as of the date delivered, if delivered
personally, or one (1) business day after having been deposited with a courier,
if sent by overnight courier, or after being sent by telecopy, if sent by
telecopy (receipt confirmed), or three (3) business days after having been
mailed, if mailed by registered or certified mail, postage prepaid, return
receipt requested, sent as follows:
if to Obligor, to:
Quality Automotive Company
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Attn: President
Telecopier: 804-443-5611
Telephone: 804-443-5356
- and -
-4-
<PAGE>
RT Industries, Inc.
d/b/a US Automotive Manufacturing, Inc.
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Attn: President
Telecopier: 804-443-5611
Telephone: 804-443-5356
- and -
to each of the outside directors (or their duly appointed successors), as
follows:
Mandel Sherman David Love
c/o Elmgrove Associates II, L.P. 68 Hammond Pond Parkway
210 Dartmouth Chestnut Hill, MA 02167
Pawtucket, RI 02860 Telecopier: (617)738-1663
Telecopier: (401)724-9707
with a copy to:
Frankfurt, Garbus, Klein & Selz
488 Madison Avenue - 9th floor
New York, New York 10022
Attn: Gary A. Schonwald, Esq.
Telecopier: 212-593-9175
Telephone: 212-826-5583
- and -
LaSalle Business Credit, Inc.
477 Madison Avenue
New York, NY 10022
Attn: Joseph Costanza
Telecopier: 212-371-2966
Telephone: 212-832-6650
with a copy to:
Hahn & Hessen, LLP
350 Fifth Avenue
New York, New York 10022
Attn: Joseph Costanza
Telecopier: 212-371-2966
Telephone: 212-832-6650
if to Obligee, to:
Martin and Malvina B. Chevalier
26 Piscataway Drive
Cold Cheer Farm Estates
-5-
<PAGE>
Tappahannock, VA 22560
with a copy to:
McSweeney, Burtch & Crump PC
11 South Twelfth Street
Richmond, VA 23212
Attn: Beverley L. Crump, Esq.
Telecopier: 804-782-2130
Telephone: 804-783-6800
or to such other address as either of such parties shall have designated by like
notice to the other party.
This Note shall be governed in all respects, including validity,
interpretation and effect by the laws of the Commonwealth of Virginia. The
Obligor hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and of the
United States located in the Commonwealth of Virginia (the "Virginia Courts")
for any litigation arising out of or relating to this Note, waives any objection
to the laying of venue of any such litigation in the Virginia Courts and agrees
not to plead or claim that such litigation brought in any Virginia Courts has
been brought in an inconvenient forum.
IN WITNESS WHEREOF, the Obligor has caused this Note to be executed this
29th day of August, 1997.
QUALITY AUTOMOTIVE COMPANY
By: /s/ John K. Kenney
----------------------------
Name: John K. Kenney
Title: President
-6-
GUARANTY
GUARANTY, dated August 29, 1997, by RT Industries, Inc., a Delaware
corporation ("Guarantor"), to John W. Kohut and Linda S. Ram, owners by the
entirety, residing in the State of New York at 45 East 89th Street, Apartment
21B, New York, New York 10128 ("Payee").
W I T N E S E T H:
WHEREAS, concurrently with the delivery of this Guaranty, the wholly-owned
subsidiary of Guarantor, Quality Automotive Company (formerly known as QUAC
Acquisition Corp. ("NewCo"), has executed and delivered to Payee a promissory
note (the "Note") in the principal amount of $1,802,158.27, in partial
consideration for the merger of Quality Automotive Company, of which Payee was a
stockholder, with and into NewCo pursuant to the terms of a merger agreement
dated June 6, 1997 (the "Merger Agreement"); and
WHEREAS, in order to induce the Payee to enter into, and in order to
consummate, the Merger Agreement, Guarantor has agreed to guarantee the payment
of the Note pursuant to the terms hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing Recitals and other good
and valuable consideration paid to Payee, the receipt and sufficiency of which
is hereby acknowledged, the Guarantor agrees as follows:
1. Guarantor does hereby guaranty to Payee the due and punctual payment of
all principal, interest and other sums due under the Note and performance of all
of the NewCo's obligations evidenced by the Note and all extensions, renewals or
refinancings thereof, whenever due and payable (collectively, the
"Obligations"). This is a Guaranty of payment and not of collection, and the
Guarantor expressly waives any rights to require that any action be brought
against the NewCo or to require that resort be had to any security.
2. This Guaranty is a continuing, absolute and unconditional guaranty and
shall remain in full force and effect until indefeasible payment in full of the
Obligations guaranteed hereunder and, except as otherwise provided herein, may
be proceeded upon immediately after failure by NewCo to pay the Obligations
under the Note. Guarantor hereby consents to and waives notice of the following,
none of which shall affect, change or discharge the liability of Guarantor
hereunder: (a) any change in the terms of any agreement between NewCo and Payee;
and (b) the acceptance, alteration, release or substitution by
<PAGE>
Payee of any security for the Obligations, whether provided by Guarantor or any
other person. The Guarantor shall remain liable hereunder notwithstanding the
NewCo's bankruptcy or any other occurrence, condition, circumstance or operation
of law that would prevent or prohibit the NewCo from meeting its obligations
under the Note.
3. Guarantor has not and will not set up or claim any defense,
counterclaim, set-off or other objection of any kind to the suit, action or
proceeding at law, in equity, or otherwise, or to any demand or claim that may
be instituted or made under and by virtue of the Guaranty, other than any
defense, counterclaim, set-off or other objection which would be available to
NewCo against Payee. All remedies of Payee by reason of or under the Guaranty
are separate and cumulative remedies, and it is agreed that no one of such
remedies shall be deemed in exclusion of any other remedies available to Payee.
4. This Guaranty may not be changed or terminated orally. No modification
or waiver of any provision of the Guaranty shall be effective unless such
modification or waiver shall be in writing and signed by Payee, and the same
shall then be effective only for the period and on the conditions and for the
specific instances and purposes specified in such writing. No course of dealing
between Guarantor and Payee in exercising any rights or remedies hereunder shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder. This Guaranty expresses the complete, final and entire understanding
of the parties as to subject matter hereof.
5. This Guaranty shall be construed in accordance with, and governed by,
the laws of the Commonwealth of Virginia.
6. This Guaranty shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
7. The Guarantor shall pay any and all expenses incurred by the Payee in
enforcement of the Guaranty, including reasonable attorney's fees, accrued
interest and other sums due and payable under the Note and hereunder.
8. The Guarantor's obligations hereunder are secured pursuant to the terms
of a certain Stock Pledge and Security Agreement dated the date hereof among
Guarantor, as Pledgor, the Payee and certain other persons, as Pledgees, and
certain others.
9. The Guarantor hereby waives presentment, demand, protest, notice of
nonpayment and notice of dishonor except that any notice required to be given to
NewCo under the Note shall be
2
<PAGE>
given to Guarantor in writing and deemed delivered as of the date delivered, if
delivered personally, or one (1) business day after having been deposited with a
courier, if sent by overnight courier, or after being sent by telecopy, if sent
by telecopy (receipt confirmed), or three (3) business days after having been
mailed, if mailed by registered or certified mail, postage prepaid, return
receipt requested, sent as follows:
RT Industries, Inc.
d/b/a US Automotive Manufacturing, Inc.
Attention: President
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Telefax: 804-443-5611
- and -
each of the outside directors (and their duly appointed successors),
as follows:
Mandel Sherman David Love
c/o Elmgrove Associates II, L.P. 68 Hammond Pond Parkway
210 Dartmouth Chestnut Hill, MA 02167
Pawtucket, RI 02860 Telecopier: (617)738-1663
Telecopier: (401)724-9707
with a copy to:
Frankfurt, Garbus, Klein & Selz
488 Madison Avenue
New York, New York 10022
Attention: Gary A. Schonwald, Esq.
Telefax: 212-593-9175
IN WITNESS WHEREOF, Guarantor has given and executed the Guaranty on the
date first above written.
RT INDUSTRIES, INC.
By: /s/ John K. Kenney
----------------------------
John K. Kenney, President
3
GUARANTY
GUARANTY, dated August 29, 1997, by RT Industries, Inc., a Delaware
corporation ("Guarantor"), to Martin Chevalier and Malvina B. Chevalier, owners
by the entirety, residing in the Commonwealth of Virginia at 26 Piscataway
Drive, Cold Cheer Farm Estates, Tappahannock, VA 22560 ("Payee").
W I T N E S S E T H:
WHEREAS, concurrently with the delivery of this Guaranty, the wholly-owned
subsidiary of Guarantor, Quality Automotive Company (formerly known as QUAC
Acquisition Corp. ("NewCo"), has executed and delivered to Payee a promissory
note (the "Note") in the principal amount of $2,697,841.73, in partial
consideration for the merger of Quality Automotive Company, of which Payee was a
stockholder, with and into NewCo pursuant to the terms of a merger agreement
dated June 6, 1997 (the "Merger Agreement"); and
WHEREAS, in order to induce the Payee to enter into, and in order to
consummate, the Merger Agreement, Guarantor has agreed to guarantee the payment
of the Note pursuant to the terms hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing Recitals and other good
and valuable consideration paid to Payee, the receipt and sufficiency of which
is hereby acknowledged, the Guarantor agrees as follows:
1. Guarantor does hereby guaranty to Payee the due and punctual payment of
all principal, interest and other sums due under the Note and performance of all
of the NewCo's obligations evidenced by the Note and all extensions, renewals or
refinancings thereof, whenever due and payable (collectively, the
"Obligations"). This is a Guaranty of payment and not of collection, and the
Guarantor expressly waives any rights to require that any action be brought
against the NewCo or to require that resort be had to any security.
2. This Guaranty is a continuing, absolute and unconditional guaranty and
shall remain in full force and effect until indefeasible payment in full of the
Obligations guaranteed hereunder and, except as otherwise provided herein, may
be proceeded upon immediately after failure by NewCo to pay the Obligations
under the Note. Guarantor hereby consents to and waives notice of the following,
none of which shall affect, change or discharge the liability of Guarantor
hereunder: (a) any change in the terms of any agreement between NewCo and Payee;
and (b) the acceptance, alteration, release or substitution by
<PAGE>
Payee of any security for the Obligations, whether provided by Guarantor or any
other person. The Guarantor shall remain liable hereunder notwithstanding the
NewCo's bankruptcy or any other occurrence, condition, circumstance or operation
of law that would prevent or prohibit the NewCo from meeting its obligations
under the Note.
3. Guarantor has not and will not set up or claim any defense,
counterclaim, set-off or other objection of any kind to the suit, action or
proceeding at law, in equity, or otherwise, or to any demand or claim that may
be instituted or made under and by virtue of the Guaranty, other than any
defense, counterclaim, set-off or other objection which would be available to
NewCo against Payee. All remedies of Payee by reason of or under the Guaranty
are separate and cumulative remedies, and it is agreed that no one of such
remedies shall be deemed in exclusion of any other remedies available to Payee.
4. This Guaranty may not be changed or terminated orally. No modification
or waiver of any provision of the Guaranty shall be effective unless such
modification or waiver shall be in writing and signed by Payee, and the same
shall then be effective only for the period and on the conditions and for the
specific instances and purposes specified in such writing. No course of dealing
between Guarantor and Payee in exercising any rights or remedies hereunder shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder. This Guaranty expresses the complete, final and entire understanding
of the parties as to subject matter hereof.
5. This Guaranty shall be construed in accordance with, and governed by,
the laws of the Commonwealth of Virginia.
6. This Guaranty shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
7. The Guarantor shall pay any and all expenses incurred by the Payee in
enforcement of the Guaranty, including reasonable attorney's fees, accrued
interest and other sums due and payable under the Note and hereunder.
8. The Guarantor's obligations hereunder are secured pursuant to the terms
of a certain Stock Pledge and Security Agreement dated the date hereof among
Guarantor, as Pledgor, the Payee and certain other persons, as Pledgees, and
certain others.
9. The Guarantor hereby waives presentment, demand, protest, notice of
nonpayment and notice of dishonor except that any notice required to be given to
NewCo under the Note shall be
2
<PAGE>
given to Guarantor, in writing and deemed delivered as of the date delivered, if
delivered personally, or one (1) business day after having been deposited with a
courier, if sent by overnight courier, or after being sent by telecopy, if sent
by telecopy (receipt confirmed), or three (3) business days after having been
mailed, if mailed by registered or certified mail, postage prepaid, return
receipt requested, sent as follows:
RT Industries, Inc.
d/b/a US Automotive Manufacturing, Inc.
Attention: President
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Telefax: 804-443-5611
- and -
each of the outside directors (and their duly appointed successors), as
follows:
Mandel Sherman David Love
c/o Elmgrove Associates II, L.P. 68 Hammond Pond Parkway
210 Dartmouth Chestnut Hill, MA 02167
Pawtucket, RI 02860 Telecopier: (617)738-1663
Telecopier: (401)724-9707
with a copy to:
Frankfurt, Garbus, Klein & Selz
488 Madison Avenue
New York, New York 10022
Attention: Gary A. Schonwald, Esq.
Telefax: 212-593-9175
IN WITNESS WHEREOF, Guarantor has given and executed the Guaranty on the
date first above written.
RT INDUSTRIES, INC.
By: /s/ John K. Kenney
-------------------------
John K. Kenney, President
3
STOCK PLEDGE AND SECURITY AGREEMENT
STOCK PLEDGE AND SECURITY AGREEMENT dated as of August 29, 1997, among RT
INDUSTRIES, INC. (the "Pledgor"), each of JOHN W. KOHUT, LINDA S. RAM, MARTIN
CHEVALIER and MALVINA B. CHEVALIER, individuals residing in New York and the
Commonwealth of Virginia, respectively (collectively, the "Pledgees"); and
QUALITY AUTOMOTIVE COMPANY (the "Issuer").
The parties hereto hereby agree as follows:
The covenants and agreements in this Stock Pledge Agreement are junior to
and subordinate to those obligations of the Pledgor contained in a certain
Pledge Agreement dated as of August __, 1997 (the "Senior Pledge Agreement"), by
and between the Pledgor and LaSalle Business Credit, Inc., (the "Senior
Lender"), wherein the same collateral secured by this Stock Pledge and Security
Agreement has been pledged to secure the obligations of the Issuer to the Senior
Lender. The Pledgor's representations, warranties and covenants contained in
this Pledge Agreement shall be construed as made with reference to the prior
obligations of Pledgor to, and the senior rights of the Senior Lender in the
collateral as set forth in that certain Subordination and Inter-Creditor
Agreement between Pledgees and the Senior Lender dated as of August 29, 1997
(the "Subordination Agreement").
1. Pledge of Securities and Grant of Security Interest.
(a) To secure the payment and performance by Pledgor of its obligations to
the Pledgees under two guaranties issued by Pledgor (the "Guaranties") to the
Pledgees guaranteeing the payment of two promissory notes (collectively, the
"Notes") issued by the Issuer, in the aggregate principal amount of $4,500,000
(collectively, the "Obligations"), the Pledgor hereby pledges to the Pledgees,
and grants to the Pledgees a continuing security interest in, all shares of the
common stock of the Issuer which are owned by the Pledgor, as more particularly
described on Schedule A hereto (the "Pledged Securities"). Upon termination of
the rights of the Senior Lender under the Senior Pledge Agreement, LaSalle
National Bank Trust Services ("LaSalle") shall deliver or cause to be delivered
the Pledged Securities, together with duly executed stockpowers, to (or retained
by as the case may be) LaSalle pursuant to an escrow agreement to be entered
into between LaSalle, the Pledgers and the Pledgor, or to such other entity
mutually agreeable to Pledgor and Pledgees who shall serve as pledge agent (the
"Pledge Agent").
<PAGE>
(b) In the event of any share dividend, stock split, reclassification,
readjustment or change is declared or made in the capital structure of the
Issuer resulting in the issuance of new, substituted or additional securities of
the Issuer in respect of the Pledged Securities or in the event subscription
warrants or other rights or options shall be issued in connection with the
Pledged Securities, the Pledgor shall deliver to the Pledge Agent all such new,
substituted and additional other securities issued and warrants, rights and
options, together with stock powers or other similar transfer documents duly
executed in blank, all of which shall be deemed to be part of Pledged Securities
and shall be held by the Pledge Agent under the terms of this Agreement.
2. Representations, Warranties and Covenants of Pledgor and/or Issuer.
Except for and subject to the provisions of the Subordination Agreement and the
Senior Pledge Agreement:
(a) The Pledgor represents, warrants and covenants that (i) it is, and at
all times during the term of this Agreement will be, the legal and beneficial
owner of the Pledged Securities, free and clear of any lien, security interest,
charge or other encumbrance except for the security interest created hereby and
(ii) it shall not sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Pledged Securities or vote to enable the
Issuer to, or otherwise permit the Issuer to, issue any other securities in
respect of, in lieu of or in substitution for, shares of the capital stock of
Issuer or otherwise.
(b) During the duration of this Agreement, Pledgor and Issuer jointly and
severally represent, warrant and covenant that (i) the Pledged Securities
constitute one-hundred percent (100%) of the issued and outstanding shares of
the capital stock of the Issuer and (ii) except in accordance with the terms
hereof or unless Pledgees shall otherwise consent or agree in writing, Issuer
shall not, issue, deliver, sell or agree to commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), pledge or otherwise encumber,
any shares of the capital stock of Issuer or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, convertible
securities or any other securities or equity equivalents.
3. Remedies.
(a) Unless and until a Default (as such term is defined in the Notes)
occurs and is continuing, the Pledgor shall be entitled to exercise any voting
and other consensual rights pertaining to the Pledged Securities and shall be
entitled to receive and retain any cash dividends thereon and any cash
distributions made in respect thereof.
-2-
<PAGE>
(b) In the event the Pledgees obtain possession of the Pledged Securities
hereunder, Pledgees shall have either of the following remedies:
(i) Pledgees shall have all of the rights of a secured party upon the
occurrence of a default under the Uniform Commercial Code in effect in the
Commonwealth of Virginia as of the date of this Agreement and without
limiting the generality of the foregoing, upon the occurrence of a Default,
the Pledgees shall have the right at any time or times to sell, resell,
assign and deliver, all in a commercially reasonable manner, the Pledged
Securities or any part thereof, in one or more parcels, at such price of
prices as shall be commercially reasonable, at public or private sale, at
any exchange or broker's board or elsewhere. The proceeds of any such sale
or sales, and any proceeds the Pledgees receive in respect of any
realization upon the Pledged Securities, shall be received and applied:
first, to the payment of the obligations under the respective Notes and,
second, any surplus thereafter remaining shall be paid to the Pledgor or to
whosoever may be lawfully entitled to receive the same.
(ii) Pledgees as a group shall have the option, which option may be
exercised by the Pledgees in their sole discretion, to take the following
actions in lieu of their other remedies hereunder and in lieu of their
rights and obligations under the Uniform Commercial Code:
(1) Transfer the Pledged Securities and ownership thereof to the
Pledgees and take ownership of the Pledged Securities;
(2) Cancel or otherwise terminate the Notes;
(3) Return all Share Consideration (as defined in that certain
Agreement and Plan of Merger, dated as of June 6, 1997, among the
Pledgees, Pledgor and its subsidiary, QUAC Acquisition Corp. (the
"Merger Agreement"), held by the Pledgees at the time of the Event of
Default; and
(4) Pay to the Pledgor the amount of $1,500,000.
Upon the exercise of such option and the taking of the foregoing actions by
the Pledgees, the Notes shall be deemed satisfied in full and this
Agreement shall terminate.
-3-
<PAGE>
(c) (i) In the event the Pledged Securities are delivered to Pledgees and
transferred in accordance with the provisions of 4(b)(i) of this Agreement and
the provisions of the Uniform Commercial Code, the Pledged Securities shall be
transferred to the Pledgees and/or other transferees, as the case may be,
without any requirement of recordation in the Issuer's stock transfer records or
stock transfer book or other action. Each of the Pledgor and Issuer hereby
agrees to recognize the Pledgees and/or other transferees as the legal and
beneficial owner(s) of the Pledged Securities upon the exercise by the Pledgees
of any of the remedies hereunder and to take such action as the Pledge Agent,
Pledgees and/or other transferees, as the case may be, may reasonably request to
confirm or evidence such transfer, including the execution of new stock
certificates in the name of the Pledgees and/or other transferees, as the case
may be, subject to the provisions of this Article 4 and the Uniform Commercial
Code.
(ii) In the event the Pledged Securities are delivered to Pledgees and
transferred in accordance with the provisions of 4(b)(ii) of this Agreement, the
Pledged Securities shall be transferred to the Pledgees without any requirement
of recordation in the Issuer's stock transfer records or stock transfer book or
other action. Each of the Pledgor and Issuer hereby agrees to recognize the
Pledgees as the legal and beneficial owner(s) of the Pledged Securities upon the
exercise by the Pledgees of any of the remedies hereunder and to take such
action as the Pledge Agent and/or the Pledgees may reasonably request to confirm
or evidence such transfer, including the execution of new stock certificates in
the name of the Pledgees, subject the provisions of this Article 4.
4. Legend. The certificates representing the Pledged Securities shall bear
the following legend:
THE STOCK REPRESENTED BY THIS STOCK CERTIFICATE IS HELD SUBJECT TO THE
TERMS OF A STOCK PLEDGE AND SECURITY AGREEMENT, DATED AS OF AUGUST 29, 1997
AMONG RT INDUSTRIES, INC., JOHN W. KOHUT, LINDA S. RAM, MARTIN CHEVALIER,
MALVINA B. CHEVALIER AND QUALITY AUTOMOTIVE COMPANY, AS PLEDGE AGENT, AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF EXCEPT AS PROVIDED IN SAID AGREEMENT. ANY PURPORTED
TRANSFER IN VIOLATION OF SAID AGREEMENT SHALL BE VOID.
5. Pledge Agent. The Pledge Agent may resign at any time and, in such
event, shall deliver the Pledged Securities pursuant to the joint written
instructions of the Pledgor and the Pledgees or, in the absence of such
instructions, may deposit the Pledged Securities with the clerk of an
appropriate court.
-4-
<PAGE>
6. Notices. All notices and/or other communications relating to this
Agreement shall be in writing and deemed delivered as of the date delivered, if
delivered personally, or one (1) business day after having been deposited with
courier, if sent by overnight courier, or after being sent by telecopy, if sent
by telecopy (receipt confirmed), or three (3) business days after having been
mailed, if mailed by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to Pledgor, to:
RT INDUSTRIES, INC.
d/b/a US Automotive Manufacturing
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Attn: President
Telephone: 804-443-5356
Telecopier: 804-443-5611
and
and each of the outside directors (or their respective duly appointed
successors), as follows:
Mandel Sherman David Love
Elmgrove Associates II, L.P. 68 Hammond Pond Parkway
210 Dartmouth Chestnut Hill, MA 02167
Pawtucket, RI 02860 Telecopier: (617) 738-1663
Telecopier: (401) 724-9707
with a copy to:
Frankfurt, Garbus, Klein & Selz
Attn: Gary A. Schonwald, Esq.
488 Madison Avenue
New York, New York 10022
Telephone: 212-826-5583
Telecopier: (212) 593-9175
if to Pledgees, to:
John W. Kohut Linda S. Ram
45 E. 89th Street 45 E. 89th Street
Apartment #21B Apartment #21B
New York, NY 10128 New York, NY 10128
Telecopier: 212-426-4902 Telecopier: 212-426-4902
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<PAGE>
Martin Chevalier Malvina B. Chevalier
26 Piscataway Drive 26 Piscataway Drive
Cold Cheer Farm Estates Cold Cheer Farm Estates
Tappahannock, VA 22560 Tappahannock, VA 22560
Telecopier: Telecopier:
with a copy to:
McSweeney, Burtch & Crump PC
Attn: Beverley L. Crump, Esq.
11 South Twelfth Street
Richmond, VA 23212
Telephone: (804) 783-6800
Telecopier: (804) 782-2130
or to such other address as either of such parties shall have designated by like
notice to the other party.
7. Miscellaneous. This Agreement (a) may only be modified by a written
instrument which is executed by both of the parties hereto; (b) shall be
governed by the laws of the Commonwealth of Virginia; (c) sets forth the entire
agreement of the parties with respect to the subject matter hereof; (d) may not
be assigned by either party hereto without the prior written consent of the
other party, and (e) shall inure to the benefit of, and be binding upon, each of
the parties hereto and their respectively successors and assigns.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first-above written.
RT INDUSTRIES, INC.
By: /s/ John K. Kenney
----------------------------
John K. Kenney, President
/s/ John W. Kohut
--------------------------------
JOHN W. KOHUT
/s/ Linda S. Ram
--------------------------------
LINDA S. RAM
/s/ Martin Chevalier
--------------------------------
MARTIN CHEVALIER
/s/ Malvina B. Chevalier
--------------------------------
MALVINA B. CHEVALIER
For purposes of the representations, warranties and covenants, agreements
and provisions of the Issuer set forth in Subsections 2(b) and 4(c) of the
foregoing Agreement, the undersigned has executed and delivered this Agreement
as of the date first-above written.
QUALITY AUTOMOTIVE COMPANY
By: /s/ Martin Chevalier
-----------------------------
Name: Martin Chevalier
Title: Chairman of the Board
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<PAGE>
SCHEDULE A
Stock Certificates Shares
----------------------------------------------
Certificate No. 1 100
-8-
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement ("Agreement") dated as of August 29, 1997,
among RT Industries, Inc., a Delaware corporation (the "Company"), and the
stockholders listed on the signature pages (each a "Holder" and collectively the
"Holders").
RECITALS
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do hereby agree as follows:
WHEREAS, the Company issued to the Holders on the date hereof pursuant to
the merger of Quality Automotive Company with and into a wholly-owned subsidiary
of the Company (the "Merger") an aggregate of 1,838,731 shares (the "Shares") of
the Company's common stock, par value $.001 per share (the "Common Stock"), as
more particularly provided for in a certain Agreement and Plan of Merger dated
June 6, 1997, among the Company, its subsidiary and each of the Holders (the
"Merger Agreement"); and
WHEREAS, it is a condition to the performance of the Holders' obligations
under the Merger Agreement that the Company enter into this Agreement with the
Holder;
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants herein contained, the parties hereto do hereby agree as follows:
1. Piggyback Registration.
(a) If, at any time after the first anniversary of the consummation of the
Merger the Company proposes to prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement, or post-effective
amendment to a previously filed registration statement, covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders, other than in connection with a merger, acquisition or pursuant to
a registration statement on Form S-4 or Form S-8 or any successor form (for
purposes of this Article 1, collectively, a "Registration Statement"), the
Company will give written notice of its intention to do so by certified mail
("Notice"), at least 20 days prior to the filing of each such Registration
Statement, to the Holder. Upon the written request of the Holder, made within 10
days after receipt of the Notice, that the Company include any of the Holder's
Shares in the proposed Registration Statement, the Company shall, as to the
Holder, use reasonable efforts to effect the registration under the Securities
Act of the Shares which it has been so requested to register ("Piggyback
Registration"), at the Company's sole cost and expense and at no cost or expense
to
<PAGE>
the Holder (other than any commission, discounts or counsel fees payable by the
Holder, as further provided in Section 3(c) hereof); provided, however, that if,
the Piggyback Registration is in connection with an underwritten public offering
and in the written opinion of the Company's underwriter or managing underwriter
of the underwriting group, if any, for such offering, the inclusion of all or a
portion of the Shares requested to be registered, when added to the securities
being registered by the Company or the selling shareholder(s), will exceed the
maximum amount of the Company's securities which can be marketed (i) at a price
reasonably related to their then current market value, or (ii) without otherwise
having a material adverse effect on the entire offering, then the Company may,
subject to the allocation priority set forth in the next paragraph, exclude from
such offering all or a portion of the Stock which it has been requested to
register. Without limiting the generality of the foregoing, such underwriter or
managing underwriter may condition its consent to the inclusion of all or a
portion of the Shares requested to be registered upon the participation by the
holders of such Shares in the underwritten public offering on the terms and
conditions thereof.
(b) If securities are proposed to be offered for sale pursuant to such
Registration Statement by other security holders of the Company and the total
number of securities to be offered by the Holder and such other selling security
holders is required to be reduced pursuant to a request from the underwriter or
managing underwriter (which request shall be made only for the reasons and in
the manner set forth above), the aggregate number of Shares to be offered by the
Holder pursuant to such Registration Statement shall equal the number which
bears the same ratio to the maximum number of securities that the underwriter or
managing underwriter believes may be included for all the selling security
holders (including the Holder) as the original number of Shares proposed to be
sold by the Holder bears to the total original number of securities proposed to
be offered by the Holder and the other selling security holders. Incidental
registration rights may be granted by the Company to other persons after the
date of this Agreement provided that, unless the Holder waives its rights
hereunder, such rights granted to such other persons are to be exercised pro
rata with, and not superior or prior to, the rights afforded to the Holder under
this Agreement.
(c) Notwithstanding the preceding provisions of this Section, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section (irrespective of whether any written request for
inclusion of such securities shall have already been made) to elect not to file
any proposed Registration Statement, or to withdraw the same after the filing
but prior to the effective date thereof.
-2-
<PAGE>
2. Demand Registration.
(a) At any time after the first anniversary of the consummation of the
Merger, the Holder(s) of Shares representing a "Majority" (as hereinafter
defined), of such securities shall have the right (which right is in addition to
the Piggyback Registration rights provided for under Section 1 hereof),
exercisable by written notice to the Company, which may be given ten (10) months
from the date hereof (a "Demand Registration Request"), to have the Company
prepare and file with the Commission, at the sole expense of the Company (except
as hereinafter provided), in respect of up to the aggregate number of Shares
held by the Holders having an aggregate value based upon the average bid and ask
price for the five (5) trading days proceeding the effective date of the
registration statement equal to $2,500,000 (the "Demand Shares"), a Registration
Statement so as to permit a public offering and sale of the Demand Shares;
provided however, that the Company is then eligible to register the Demand
Shares on Form S-3 (or successor form) and, if the Holder intends to distribute
the Demand Shares by means of an underwriting, then the Holder shall so notify
the Company in the Demand Registration Request. The underwriter shall be
selected by the Holder and be reasonably acceptable to the Company.
The Company and other stockholders may, at the Company's sole discretion,
have other shares of the Company's common stock included in such Registration
Statement, provided that in the event that an underwriter requires a limitation
in the total number of shares in the offering for marketing purposes, then only
the shares of the Company proposed to be offered by the Company and such other
stockholders shall be cutback, and the Holder's Demand Shares shall not be
subject to such cut-back.
For purposes of this Agreement, the term "Majority" in reference to the
Holders shall mean in excess of sixty-five percent (65%) of the then outstanding
Shares held by Holders that have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(b) The Company will use reasonable efforts to file the Registration
Statement as expeditiously as reasonably possible, but in no event later than 60
days following receipt of such Demand Registration Request; provided that
nothing herein shall require the Company to undergo an audit, other than in the
ordinary course of business; and provided further that no Registration Statement
shall become effective before the one (1) year anniversary of the consummation
of the Merger. In connection with any underwritten Demand Registration Request
and subject to Section 3(c) hereof, the Company will enter into any underwriting
agreement reasonably necessary to effect such offering, provided such
underwriting agreement (i) is with an underwriter selected by the Holder and
reasonably acceptable to
-3-
<PAGE>
the Company and (ii) contains customary underwriting provisions for offerings by
selling stockholders.
(c) Notwithstanding any provision of this Section 2 to the contrary, if, at
the time a Demand Registration Request is given to the Company under Section 2
hereof, the Company is negotiating a merger, consolidation, acquisition or sale
of all or substantially all of its assets or a similar transaction and if in the
opinion of counsel to the Company, the Registration Statement would be required
to include information concerning such transactions or the parties thereto which
is not reasonably available at the time, the Company shall promptly inform the
holders of the Demand Shares by written notice of such circumstances (a
"Postponement Notice") and, at the Company's election to be set forth in the
Postponement Notice, the filing of the Registration Statement may be postponed
for one (and not more than one) period not to exceed 180 days from the date on
which the Demand Registration Request is given to the Company under this Section
2 (notwithstanding any provisions herein to the contrary); provided that in the
event of such postponement, the Holder may withdraw the Demand Registration
Request during the 90 day period following the date on which the Notice of
Postponement was given by the Company, and thereafter the Holder will continue
to be entitled to a Demand Registration Request pursuant to this Section 2 until
such time as the Holder no longer possesses any Shares.
3. Covenants of the Company With Respect to Registration. The Company
hereby covenants and agrees as follows; provided, however, that any Registration
Statement for the Company filed subsequent to the consummation of the Merger
will not be declared effective by the Commission without the required
presentation under the Commission's Regulation S-B of an audited balance sheet
as at the end of the most recent fiscal year of the business acquired and
audited statements of income, cash flows and changes in stockholders' equity for
such business for each of the two fiscal years preceding the date of such
balance sheet:
(a) The Company shall use reasonable efforts to cause the Registration
Statement to become effective as promptly as possible under the circumstances at
the time prevailing and, if any stop order shall be issued by the Commission in
connection therewith, to use its reasonable efforts to obtain the removal of
such order.
(b) Following the effective date of a Registration Statement, the Company
shall, upon the request of the Holder, forthwith supply such reasonable number
of copies of the Registration Statement, preliminary prospectus and prospectus
meeting the requirements of the Securities Act, and other documents necessary or
incidental to the public offering of the Shares or Demand Shares, as shall be
reasonably requested by the
-4-
<PAGE>
Holder to permit the Holder to make a public distribution of the Holder's Shares
or Demand Shares. The obligations of the Company hereunder with respect to the
Holder's Shares or Demand Shares are expressly conditioned on the Holder's
furnishing to the Company such appropriate information concerning the Holder,
the Holder's Shares or Demand Shares and the terms of the Holder's offering of
such shares as the Company may request.
(c) The Company will pay all costs, fees and expenses in connection with
all Registration Statements filed pursuant to Sections 1 and 2 hereof,
including, without limitation, the Company's legal and accounting fees, printing
expenses and blue sky fees and expenses; provided, however, that the Holder
shall be solely responsible for the fees of any counsel retained by the Holder
in connection with such registration and any transfer taxes or underwriting
discounts, selling commissions or selling fees applicable to the Shares sold by
the Holder pursuant thereto.
(d) The Company will use reasonable efforts to qualify or register the
Shares included in a Registration Statement for offering and sale under the
securities or blue sky laws of such states as are requested by the Holder,
provided that the Company shall not be obligated to execute or file any general
consent to service of process (unless the Company is already then subject to
service in such jurisdiction) or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction, except as may be required by
the Securities Act and its rules and regulations.
4. Covenant of the Holder.
The Holder, upon receipt of notice from the Company that an event has
occurred which requires a post-effective amendment to the Registration Statement
or a supplement to the prospectus included therein, shall promptly discontinue
the sale of Shares until the Holder receives a copy of a supplemented or amended
prospectus from the Company, which the Company shall provide as soon as
practicable after such notice.
5. Indemnification.
(a) The Company shall indemnify, defend and hold harmless the Holder and
such person who controls such Holder within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended, from and against any and all losses, claims, damages and liabilities
caused by or arising out of any untrue statement (or alleged untrue statement)
of a material fact contained in the Registration Statement, any other
registration statement filed by the Company under the Securities Act, any
post-effective amendment to such registration statements, or any prospectus
included therein, or caused by or arising out of any omission to
-5-
<PAGE>
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission based
upon information furnished or required to be furnished in writing to the Company
by the Holder or the trustees thereof expressly for use therein, or arising out
of or caused by any violation by the Company of the Securities Act of any rule
or regulation thereunder applicable to the Company in connection with any such
registration; provided, however, that the indemnification in this Section 5(a)
with respect to any prospectus shall not inure to the benefit of the Holder on
account of any such loss, claim, damage or liability arising from the sale of
Shares or Demand Shares by the Holder, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holder by the Company prior to the subject sale and the
subsequent prospectus was not delivered or sent by the Holder to the purchaser
prior to such sale. The Holder(s) and their successors and assigns shall at the
same time, severally and jointly, indemnify the Company, its directors, each
officer signing the Registration Statement and each person, if any, who controls
the Company within the meaning of the Securities Act, from and against any and
all losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the Registration Statement, any other registration
statement filed by the Company under the Securities Act, any post-effective
amendments to such registration statements, or any prospectus included therein,
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission based upon information furnished in writing to the Company by the
Holder expressly for use therein; provided, however, that the obligation of
indemnity made by the Holder shall be limited to an amount equal to the proceeds
to the Holder of the Shares or Demand Shares sold in such registered offering.
(b) If for any reason the indemnification provided for in the preceding
Section 5(a) is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, claim, damage, liability or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
-6-
<PAGE>
(c) (i) Each party entitled to indemnification under this Agreement (each,
an "Indemnified Party") shall give notice to each party required to provide
indemnification (each, an "Indemnifying Party") promptly after such Indemnified
Party has knowledge of any claim for loss as to which indemnity may be sought,
and, in the event of any claim or demand asserted against an Indemnified Party
by a third party, shall permit the Indemnifying Party to assume the defense of
any such claim (and litigation resulting therefrom) as provided in Section
5(c)(ii) hereof. Notwithstanding anything to the contrary contained herein, any
failure by an Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its indemnity obligations under this Agreement
except to the extent that such failure materially and adversely affects the
Indemnifying Party due to the inability to defend such action timely.
(ii) The Indemnifying Party shall have ten (10) business days after the
aforesaid notice is given to elect, by written notice given to the Indemnified
Party, to undertake, conduct and control, through counsel of their own choosing
(subject to the consent of the Indemnified Party, which consent is not to be
unreasonably withheld or delayed) and at their sole risk and expense, the good
faith settlement or defense of such claim, and the Indemnified Party shall
cooperate with the Indemnifying Party in connection therewith; provided that:
(i) all settlements shall be made only upon the prior reasonable consultation
with the Indemnified Party and the prior written consent of the Indemnified
Party, which consent shall not be unreasonably withheld or delayed, and (ii) the
Indemnified Party shall be entitled to participate in such settlement or defense
through counsel chosen by the Indemnified Party (provided that the fees and
expenses of such counsel shall be borne by the Indemnified Party). So long as
the Indemnifying Party are contesting any such claim in good faith, the
Indemnified Party shall not pay or settle any such claim; provided, however,
that notwithstanding the foregoing, the Indemnified Party shall have the right
to pay or settle any such claim at any time, provided that in such event they
shall waive any right of indemnification therefor by the Indemnifying Party. If
the Indemnifying Party does not make a timely election to undertake the good
faith defense or settlement of the claim as aforesaid, or if the Indemnifying
Party fails to proceed with the good faith defense or settlement of the matter
after making such election, then, in either such event, the Indemnified Party
shall have the right to contest, settle or compromise (provided that all
settlements or compromises require the prior reasonable consultation with the
Indemnifying Party and the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed) the claim at their
exclusive discretion, at the risk and expense of the Indemnifying Party.
-7-
<PAGE>
(d) The Indemnified Party shall furnish such information regarding
themselves or the claim in question as the Indemnifying Parties may reasonably
request in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
6. Governing Law.
(a) This Agreement shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal substantive laws
of the State of New York, without giving effect to the choice of law rules
thereof.
(b) Each of the Company and the Holder hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States located in the County of New
York, State of New York (the "New York Courts") for any litigation arising out
of or relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the New
York Courts and agrees not to plead or claim that such litigation brought in any
New York Courts has been brought in an inconvenient forum.
7. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand, sent by telecopy (receipt confirmed), or mailed by express, registered or
certified mail, postage prepaid, return receipt requested, as follows:
If to the Company, at:
RT Industries, Inc.
c/o U.S. Automotive Manufacturing, Inc.
Route 627, Airport Drive
P.O. Box 1426
Tappahannock, VA 22560
Attn: President
Telefax: 804-443-5611
with a copy of the same to:
Frankfurt, Garbus, Klein & Selz
488 Madison Avenue
New York, New York 10022
Attn: Gary A. Schonwald, Esq.
Telefax: 212-593-9175
If to the Holder(s), at that address set forth under their name on the
signature page.
-8-
<PAGE>
with a copy of the same to:
McSweeney, Burtch & Crump, PC
11 South Twelfth Street
Richmond, VA 23219
Attn: Beverley L. Crump, Esq.
Telefax: 804-782-2130
Or such other address as has been indicated by either party in accordance
with a notice duly given in accordance with the provisions of this Section.
8. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY SUIT, ACTION, OR SIMILAR PROCEEDING
BROUGHT RELATING TO OR ARISING OUT OF THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY.
9. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and the Holders.
10. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
11. Assignment; Binding Effect; Benefits. Except as otherwise provided
below, the Holder may not assign the Holder's rights hereunder without the prior
written consent of the Company, which consent may be given or withheld for any
reason and any attempted assignment without having obtained such prior written
notice shall be void and of no force and effect. This Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and the permitted
assigns, heirs and legal representatives of the Holder and the Company and its
successors. Nothing herein contained, express or implied, is intended to confer
upon any person other than the parties hereto and their respective heirs, legal
representatives and successors, any rights or remedies under or by reason of
this Agreement.
12. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
13. Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the
-9-
<PAGE>
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
14. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
Company: RT INDUSTRIES, INC.
By: /s/ John K. Kenney
------------------------
Name: John K. Kenney
Title: President
Holders: /s/ Martin Chevalier
------------------------------
MARTIN CHEVALIER
Address: 26 Piscataway Drive
Cold Cheer Farm Estates
Tappahannock, VA 22560
Telefax:
/s/ Malvina B. Chevalier
------------------------------
MALVINA B. CHEVALIER
Address: 26 Piscataway Drive
Cold Cheer Farm Estates
Tappahannock, VA 22560
Telefax:
/s/ John W. Kohut
------------------------------
JOHN W. KOHUT
Address: 45 E. 89th Street
Apartment #21B
New York, NY 10128
Telefax:
/s/ Linda S. Ram
------------------------------
LINDA S. RAM
Address: 45 E. 89th Street
Apartment #21B
New York, NY 10128
Telefax:
-10-
August 29, 1997
RT Industries, Inc.
Attn: President
1875 E. Lake Mary Boulevard
Sanford, FL
Re: Lock-Up Agreement
Gentlemen:
In connection with the acquisition, by merger of Quality Automotive Company
("Quality") by QUAC Acquisition Corp. ("Subsidiary"), a Delaware corporation and
wholly-owned subsidiary of RT Industries, Inc. (the "Company"), pursuant to the
Agreement and Plan of Merger dated June 6, 1997, among the Company, Subsidiary,
Quality and all of the stockholders of Quality (the "Merger") and as a condition
of such Merger, each of the undersigned holders of securities in the Company who
have executed this Agreement at the end hereof, jointly and severally (the
"Undersigned"), hereby covenants and agrees:
1. Except as otherwise permitted in paragraphs 2 and 3 hereof, from the
date hereof (the "Effective Date") until the fifth (5th) anniversary of the
Effective Date, the Undersigned will not directly or indirectly, sell, offer for
sale, transfer or otherwise dispose of any securities of the Company acquired
and beneficially owned by the Undersigned in connection with the Merger (the
"Merger Shares"), in any manner whatsoever, pursuant to Rule 144 ("Rule 144") of
the rules and regulations promulgated under the Securities Act of 1933, as
amended, or otherwise.
2. Commencing as of the First Anniversary of the Effective Date and
continuing until the third (3rd) anniversary of the Effective Date, the
Undersigned may collectively sell, offer for sale, transfer or otherwise dispose
of, the Merger Shares (to the extent possible) up to an aggregate proceeds of
$2,500,000 in transactions pursuant to (i) Rule 144 and/or (ii) the registration
of such Merger Shares under registration rights granted to the Undersigned in
the Registration Rights Agreement entered into simultaneously herewith with the
Company (the "Rights Agreement"); provided, however, that in order to insure an
orderly market, the Undersigned agree and covenant that, except upon the prior
consent of the Company, they shall limit their sales, during any monthly period
notwithstanding the existence of an effective registration statement, of Merger
Shares (exclusive of any Merger Shares sold under Rule 144) to the approximate
aggregate value of $200,000 or less, based upon the proceeds of such
transaction. Notwithstanding anything to
<PAGE>
the contrary contained hereinabove, the monthly $200,000 aggregate value
limitation on transfers shall be cumulative in effect; provided that the
Undersigned were precluded from transferring the Merger Shares during such given
monthly period notwithstanding the prior consent of the Company.
3. Commencing as of the third (3rd) year anniversary of the Effective Date
and continuing until the fifth (5th) anniversary thereof, the Undersigned may
only sell, offer for sale, transfer or otherwise dispose of the Merger Shares
(whether pursuant to Rule 144 or the Rights Agreement) only in quantities and at
times which are pari passu with Elm Grove Associates II, L.P., which stockholder
simultaneously herewith has entered into a lock-up agreement with the Company on
terms identical to the terms of this Agreement.
4. Each of the Undersigned hereby consents to the Company giving the
Company's Stock Transfer Agent written stop-transfer instructions consistent
with the provisions of paragraphs 1, 2 and 3 hereof.
5. It is intended by the parties that this Agreement, upon execution by the
Undersigned, shall be and become a valid and binding restriction on transfer of
securities within the meaning of Section 202 of the Delaware General Corporation
Law ("DGCL") (or any successor provisions). Accordingly, the Undersigned
consents to the placement of an appropriate legend upon any certificates
evidencing his/her/its stock or right to acquire stock in the Company, as
contemplated by Section 202(a) of the DGCL (or any related or successor
provisions) and, upon request by the Company, the Undersigned will submit his or
her securities of the Company for legending in accordance with this agreement.
6. This Agreement shall be governed by, and construed in accordance with,
the law of the State of Delaware without regard to its choice of law principles.
7. This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
8. This Agreement and the agreements referred to herein constitute the
entire agreement, and supersede all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
9. A copy of this Agreement shall be maintained by the Company at its
principal place of business or registered office, and shall be made available
for examination by
2
<PAGE>
shareholders of the Company, in person or by agent or attorney, on the same
basis as the books and records of the Company are made available.
Very truly yours,
SECURITYHOLDERS:
Dated: August 29, 1997 /s/ Martin Chevalier
----------------------- ---------------------------
MARTIN CHEVALIER
Dated: August 29, 1997 /s/ Malvina B. Chevalier
----------------------- ---------------------------
MALVINA B. CHEVALIER
Dated: August 29, 1997 /s/ John W. Kohut
----------------------- ---------------------------
JOHN W. KOHUT
Dated: August 29, 1997 /s/ Linda S. Ram
----------------------- ---------------------------
LINDA S. RAM
3
August 29, 1997
RT Industries, Inc.
Attn: President
1875 E. Lake Mary Boulevard
Sanford, FL 32773
Re: Lock-Up Agreement
Gentlemen:
In connection with the lock up agreement (the "Quality Lock-Up") executed
simultaneously herewith by the former stockholders (the "Quality Stockholders")
of Quality Automotive Company ("Quality") pursuant to the Agreement and Plan of
Merger, dated June 6, 1997, between, among others, Quality, the Quality
Stockholders and RT Industries, Inc. (the "Company"), whereby Quality
Stockholders acquired securities in the Company in partial consideration of the
merger of Quality with and into QUAC Acquisition Corp., the wholly-owned
subsidiary of the Company, Elm Grove Associates II LP ("Elm Grove") hereby
covenants and agrees:
1. Except (i) with respect to the 1,180,000 shares underlying warrants,
dated February 1, 1996 and March 15, 1996, respectively, held by Elm Grove; (ii)
with respect to the shares underlying warrants (as adjusted in the event of
default(s) under the Note, dated as of May 30, 1997 from the Company to Elm
Grove); and (iii) except as otherwise permitted in paragraph 2 hereof,
commencing on the date hereof (the "Effective Date") until the third year
anniversary of the Effective Date, Elm Grove will not directly or indirectly,
sell, offer for sale, transfer or otherwise dispose of the 750,000 shares of the
Common Stock of the Company acquired and beneficially owned by Elm Grove as of
the date hereof (the "Elm Grove Shares"), in any manner whatsoever, including
but not limited to a sale pursuant to Rule 144 ("Rule 144") of the rules and
regulations promulgated under the Securities Act of 1933, as amended, or
otherwise.
2. Commencing as of the third (3rd) year anniversary of the Effective Date
and continuing until the fifth (5th) year anniversary thereof, Elm Grove may
only sell, offer for sale, transfer or otherwise dispose of the Elm Grove Shares
only in quantities and at times which are pari passu with sales by the Quality
Stockholders, which stockholders simultaneously herewith have entered into a
lock-up agreement with the Company on terms identical to the terms of this
Agreement.
3. This Agreement does not affect or limit in any manner the ability and
right of Elm Grove to sell or transfer
<PAGE>
shares of Common Stock of the Company acquired pursuant to the exercise by Elm
Grove of warrants heretofore or hereafter issued to it by the Company.
4. Elm Grove hereby consents to the Company giving the Company's Stock
Transfer Agent transfer instructions consistent with the provisions of
paragraphs 1 and 2 above.
5. It is intended by the parties that this Agreement, upon execution by Elm
Grove, shall be and become a valid and binding restriction on transfer of
securities within the meaning of Section 202 of the Delaware General Corporation
Law ("DGCL") (or any successor provisions). Accordingly, the undersigned
consents to the placement of an appropriate legend upon any certificates
evidencing his/her/its stock or right to acquire stock in the Company, as
contemplated by Section 202(a) of the DGCL (or any related or successor
provisions) and, upon request by the Company, the undersigned will submit his or
her securities of the Company for legending in accordance with this agreement.
6. This Agreement shall be governed by, and construed in accordance with,
the law of the State of Delaware without regard to its choice of law principles.
7. This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
8. This Agreement and the agreements referred to herein constitute the
entire agreement, and supersede all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
9. A copy of this Agreement shall be maintained by the Company at its
principal place of business or registered office, and shall be made available
for examination by shareholders of the Company, in person or by agent or
attorney, on the same basis as the books and records of the Company are made
available.
Very truly yours,
Dated: August 29, 1997 ELM GROVE ASSOCIATES II, L.P.
----------------
By: Sloan Capital Limited
By: /s/ Mandel Sherman
------------------------
Mandel Sherman, President
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