EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
RACING CHAMPIONS ERTL CORPORATION,
RBVD SUB I INC.,
RACING CHAMPIONS WORLDWIDE LIMITED,
RACING CHAMPIONS LIMITED,
AND
LEARNING CURVE INTERNATIONAL, INC.
February 3, 2003
Table of Contents
Page
ARTICLE I - DEFINITIONS
ARTICLE II - THE LEARNING CURVE MERGER
2.1 Learning Curve Merger . . . . . . . . . . . . . . . . . . 18
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Actions at the Closing . . . . . . . . . . . . . . . . . 19
2.4 Effects of the Learning Curve Merger . . . . . . . . . 20
2.5 Anti-Dilution Adjustment . . . . . . . . . . . . . . . . . 22
2.6 Dissenting Shares . . . . . . . . . . . . . . . . . . . . 22
2.7 No Fractional Shares . . . . . . . . . . . . . . . . . . 23
2.8 Procedure for Exchange. . . . . . . . . . . . . . . . . . 23
2.9 Closing of Stock Transfer Records. . . . . . . . . . . . 26
2.10 Learning Curve Stock Options and Warrants . . . . . . . 26
2.11 Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.12 Working Capital Adjustment Settlement. . . . . . . . . . 28
2.13 Post-Closing Earnout Payment. . . . . . . . . . . . . . . 30
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF LEARNING CURVE
3.1 Incorporation . . . . . . . . . . . . . . . . . . . . . . . 31
3.2 Foreign Qualification . . . . . . . . . . . . . . . . . . 31
3.3 Corporate Power and Authority . . . . . . . . . . . . . 31
3.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . 32
3.5 Execution, Delivery, and Enforceability. . . . . . . . . 32
3.6 Capitalization. . . . . . . . . . . . . . . . . . . . . . . 32
3.7 Notices, Filings, and Approvals. . . . . . . . . . . . . 34
3.8 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . 34
3.9 Noncontravention. . . . . . . . . . . . . . . . . . . . . . 34
3.10 Investments . . . . . . . . . . . . . . . . . . . . . . . . 35
3.11 Financial Statements . . . . . . . . . . . . . . . . . . . 35
3.12 No Undisclosed Liabilities. . . . . . . . . . . . . . . . 35
3.13 Accounting Controls. . . . . . . . . . . . . . . . . . . . 36
3.14 Off-Balance-Sheet Arrangements . . . . . . . . . . . . . . 36
3.15 Related-Party Transactions . . . . . . . . . . . . . . . . 36
3.16 Absence of Certain Developments. . . . . . . . . . . . . 36
3.17 Title to, and Sufficiency of, Assets . . . . . . . . . 40
3.18 Condition of Assets. . . . . . . . . . . . . . . . . . . 40
3.19 Intellectual Property. . . . . . . . . . . . . . . . . . . 40
3.20 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 41
TOC-1
3.21 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.23 Employment and Labor . . . . . . . . . . . . . . . . . . 46
3.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . 46
3.25 Environmental Matters . . . . . . . . . . . . . . . . . . 50
3.26 Importing and Exporting Activities . . . . . . . . . . . 51
3.27 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 52
3.28 Certain Payments . . . . . . . . . . . . . . . . . . . . . 52
3.29 No Broker's Commission . . . . . . . . . . . . . . . . . 52
3.30 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF RCE
4.1 Incorporation. . . . . . . . . . . . . . . . . . . . . . . 53
4.2 Foreign Qualification. . . . . . . . . . . . . . . . . . . 53
4.3 Corporate Power and Authority. . . . . . . . . . . . . . 53
4.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . 53
4.5 Execution, Delivery, and Enforceability. . . . . . . . . 53
4.6 Capitalization. . . . . . . . . . . . . . . . . . . . . . . 54
4.7 Notices, Filings and Approvals . . . . . . . . . . . . . 54
4.8 Noncontravention. . . . . . . . . . . . . . . . . . . . . . 54
4.9 SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . 55
4.10 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 55
4.11 Off-Balance Sheet Arrangements. . . . . . . . . . . . . . 55
4.12 Investigations. . . . . . . . . . . . . . . . . . . . . . . 56
4.13 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 56
4.14 Sub I. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4.15 Absence of Certain Developments. . . . . . . . . . . . . 56
ARTICLE V - ADDITIONAL AGREEMENTS
5.1 Conduct of Business . . . . . . . . . . . . . . . . . . . 56
5.2 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.3 Notices, Filings, and Approvals. . . . . . . . . . . . . 57
5.4 Registration Statement . . . . . . . . . . . . . . . . . . 57
5.5 Learning Curve Stockholders' Meeting; Written Consent 59
5.6 Amended Learning Curve Certificate of Incorporation 60
5.7 Board of Directors of RCE . . . . . . . . . . . . . . . 60
5.8 Non-Solicitation. . . . . . . . . . . . . . . . . . . . . . 61
5.9 Representations and Warranties. . . . . . . . . . . . . . 61
5.10 Notice of Adverse Developments . . . . . . . . . . . . . 61
TOC-2
5.11 General. . . . .. . . . . . . . . . . . . . . . . . . . . . 61
5.12 Learning Curve Projections. . . . . . . . . . . . . . . . 61
5.13 Employee Matters . . . . . . . . . . . . . . . . . . . . . 62
5.14 Repayment of Related Party Loans . . . . . . . . . . . 62
5.15 Termination of Manufacturing Agreement . . . . . . . . 62
5.16 Ownership of Certain Learning Curve Subsidiaries . . . 62
ARTICLE VI - CONDITIONS TO OBLIGATIONS TO CLOSE
6.1 Conditions to Obligation of RCE . . . . . . . . . . . . 63
6.2 Conditions to Obligations of Learning Curve. . . . . . 66
ARTICLE VII - INDEMNIFICATION
7.1 Survival of Representations and Warranties; Right to
Indemnification Not Affected by Knowledge. . . . . . . 68
7.2 Indemnification and Payment of Damages by the
Learning Curve Shareholders. . . . . . . . . . . . . . . . 68
7.3 Indemnification and Payment of Damages by RCE;
Cap on Indemnification . . . . . . . . . . . . . . . . . 70
7.4 Procedure for Indemnification . . . . . . . . . . . . . . 71
7.5 The Shareholder Representatives . . . . . . . . . . . . . 73
7.6 Indemnification Claims by RCE Indemnitees . . . . . . . 74
7.7 Deductibles . . . . . . . . . . . . . . . . . . . . . . . . 75
7.8 Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . 75
7.9 Amount of Damages . . . . . . . . . . . . . . . . . . . . 75
7.10 Materiality . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE VIII - TERMINATION
8.1 Termination of Agreement. . . . . . . . . . . . . . . . . 76
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . 77
ARTICLE IX - MISCELLANEOUS
9.1 Further Assurances. . . . . . . . . . . . . . . . . . . . 77
9.2 Fees and Expenses. . . . . . . . . . . . . . . . . . . . 77
9.3 Public Disclosures. . . . . . . . . . . . . . . . . . . . 78
9.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 78
9.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.6 Enforceability . . . . . . . . . . . . . . . . . . . . . . 80
9.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 80
9.8 Amendments . . . . . . . . . . . . . . . . . . . . . . . . 80
TOC-3
9.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 80
9.10 Modification and Severability. . . . . . . . . . . . . . 80
9.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 80
9.12 Construction . . . . . . . . . . . . . . . . . . . . . . . 80
9.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . 81
9.14 Multiple Counterparts . . . . . . . . . . . . . . . . . . 81
SCHEDULES
Affiliated Company Disclosure Schedule
RCE Disclosure Schedule
Schedule 1.1 - Calculation of Earnout Payment
Schedule 1.2 - Calculation of Working Capital Adjustment
Schedule 1.3 - Learning Curve Capital Lease Obligations as of December 31, 2002
Schedule 1.4 - Learning Curve Debt as of December 31, 2002
Schedule 1.5 - Learning Curve Brands
Schedule 2.4(d) - Directors and Officers of Learning Curve Surviving Corporation
Schedule 3.11 - Tax Provision Adjustments
Schedule 5.6 - Persons to hold Learning Curve Class C Common Shares
Schedule 5.13 - Learning Curve Severance Policy
Schedule 6.1(e) - Parties to Employment Agreements
Schedule 6.1(o) - Learning Curve Consents
Schedule 6.1(p) - Parties to Shareholder Releases
Schedule 6.1(q) - Parties to Employee Releases
Schedule 7.3(d) - WARN
EXHIBITS
Exhibit A - Learning Curve Certificate of Merger
Exhibit B - Form of Employment Agreement
Exhibit C - Form of Investment Representation Letter
Exhibit D - Legal Opinion of Xxxxxxxx Xxxxxxx Van Deuren s.c.
Exhibit E - Legal Opinion of Xxxxxxxxxxxx Xxxx & Xxxxxxxxx
Exhibit F - Form of Escrow Agreement
Exhibit G - [Intentionally Omitted]
Exhibit H - Form of Voting Agreement
Exhibit I - Form of Shareholder Release
TOC-4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 3, 2003, is by and
among RACING CHAMPIONS ERTL CORPORATION, a Delaware corporation ("RCE"), RBVD
SUB I INC., a Delaware corporation ("Sub I"), RACING CHAMPIONS WORLDWIDE
LIMITED, an English company ("Sub II"), RACING CHAMPIONS LIMITED, a Hong Kong
company ("Sub III"), and LEARNING CURVE INTERNATIONAL, INC., a Delaware
corporation ("Learning Curve"). RCE, the Acquisition Subsidiaries and Learning
Curve are referred to collectively herein as the "Parties."
RECITALS
A. RCE is a publicly held company whose common stock is traded on the
Nasdaq National Market. RCE is engaged in the business of producing and
marketing collectibles and toys. Sub I is a wholly owned subsidiary of RCE that
has been formed for the sole purpose of acquiring Learning Curve and has not
been, and is not, engaged in any other business activity. Sub II is a wholly
owned subsidiary of RCE and Sub III is an indirect wholly owned subsidiary of
RCE. Learning Curve is a corporation not subject to the Exchange Act that is
engaged in the business of designing, creating and marketing educational toys.
B. The Parties have determined that it is desirable and in their
respective best interests and the best interests of their respective
stockholders for Sub I to merge with and into Learning Curve, in a statutory
merger in accordance with applicable Law, and all on the terms and subject to
the conditions of this Agreement.
C. The Parties have determined that it is desirable and in their
respective best interests and the best interests of their respective
stockholders for Sub II to purchase from Learning Curve all of the capital stock
of LC SUB II owned by Learning Curve as of the Closing and for Sub III to
purchase all of the outstanding capital stock of LC SUB III, all on the terms
and subject to the conditions of this Agreement.
AGREEMENTS
Based on the foregoing, and in consideration of the mutual benefits to be
derived hereby and the mutual representations, warranties, agreements, and
covenants contained herein, the Parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the terms defined in this Article I shall
have the meanings assigned to them in this Article I and shall include the
plural as well as the singular versions of such terms.
2002 Audited Financial Statements. As defined in section 3.11 of this
------------------------------------
Agreement.
Acquisition Subsidiaries. Collectively Sub I, Sub II and Sub III.
-------------------------
Affiliate. As to any Person, another Person that directly, or indirectly
---------
through one or more intermediaries, Controls, is Controlled by, or is under
common Control with, such Person.
Affiliated Companies. Learning Curve and each of its Subsidiaries.
---------------------
Affiliated Company Balance Sheet Date. As defined in section 3.16 of this
--------------------------------------
Agreement.
Affiliated Company Contracts. As defined in section 3.20 of this
------------------------------
Agreement.
Affiliated Company Disclosure Schedule. The disclosure schedule prepared
----------------------------------------
by Learning Curve and arranged in sections corresponding to the section numbers
of the representations and warranties made by Learning Curve regarding the
Affiliated Companies in Article III of this Agreement. If a document or matter
is listed in one section of the Affiliated Company Disclosure Schedule, such
listing shall suffice, without specific repetition and with or without
cross-reference, as a response to any other section of the Affiliated Company
Disclosure Schedule if such response is readily apparent from such disclosure.
Affiliated Company Intellectual Property. All the Intellectual Property
-------------------------------------------
owned, licensed or used by any Affiliated Company.
Affiliated Company Shares. As defined in section 3.6 of this Agreement.
---------------------------
Agreement. This Agreement and Plan of Merger dated as of February 3, 2003,
---------
by and among the Parties, including all exhibits and schedules hereto, as the
same may from time to time be amended or supplemented by one or more instruments
executed by the Parties.
2
Balance Sheet Acceptance Notice. As defined in section 2.12(c) of this
----------------------------------
Agreement.
Balance Sheet Objection Notice. As defined in section 2.12(c) of this
---------------------------------
Agreement.
Xxxxx Warrant. Warrant No. 0001 to purchase 2,085 shares of Learning
--------------
Curve's Class A Common Stock issued by Learning Curve on April 5, 2001 to
Xxxxxxx Xxxxx & Company, L.L.C.
Business Day. Any day except a Saturday, a Sunday or any other day on
-------------
which commercial banks are required or authorized to close in Chicago, Illinois.
Canadian Purchase Notes. Promissory Note(s) to be dated prior to the
-------------------------
Learning Curve Effective Time, in the aggregate principal amount of $3,900,000
Canadian dollars to be issued by Learning Curve Canada Holdco, Inc.
Cash Consideration. The aggregate amount of the Preferred Consideration,
-------------------
the Class A/B Common Per Share Cash Consideration and the Class C Common Per
Share Cash Consideration payable pursuant to section 2.4(e).
Charter Documents. As defined in section 3.1 of this Agreement.
------------------
Claim. As defined in section 7.4(a) of this Agreement.
-----
Claim Notice. As defined in section 7.4(a) of this Agreement.
-------------
Class A/B Common Per Share Cash Consideration. An amount equal to
---------------------------------------------------
(A+(BxC))/D, where A = the Initial Merger Cash Consideration, B = the RCE Share
Amount, C = FMV per RCE Share, and D = the Common Denominator. Notwithstanding
the foregoing, in the event that the initial calculation of the Class C Common
Per Share Cash Consideration results in a negative number, then the Class C
Common Per Share Cash Consideration shall equal zero and the Class A/B Common
Per Share Cash Consideration shall be (x) the Initial Merger Cash Consideration
divided by (y) the number resulting from the Common Denominator minus the number
of Learning Curve Class C Common Shares issued and outstanding immediately prior
to the Learning Curve Effective Time.
Class C Common Per Share Cash Consideration. An amount equal to
-------------------------------------------------
(A-(BxC))/D, where A = the Initial Merger Cash Consideration, B = the Class A/B
Common Per Share Cash Consideration, C = the sum of the HIT Number plus the
aggregate number of Learning Curve Class A Common Shares and Learning Curve
Class B Common Shares issued and outstanding immediately prior to the
3
Learning Curve Effective Time, and D = the aggregate number of Learning Curve
Class C Common Shares issued and outstanding immediately prior to the Learning
Curve Effective Time. Notwithstanding the foregoing, in the event that the
initial calculation of the Class C Common Per Share Cash Consideration results
in a negative number, then the Class C Common Per Share Cash Consideration shall
equal zero and the Class A/B Common Per Share Cash Consideration shall be (x)
the Initial Merger Cash Consideration divided by (y) the number resulting from
the Common Denominator minus the number of Learning Curve Class C Common Shares
issued and outstanding immediately prior to the Learning Curve Effective Time.
Class C Common Per Share Equity Consideration. An amount of RCE Shares
-------------------------------------------------
equal to the RCE Share Amount divided by the number of Learning Curve Class C
Common Shares outstanding immediately prior to the Learning Curve Effective
Time.
Closing. As defined in section 2.2 of this Agreement.
-------
Closing Balance Sheet. As defined in section 2.12(c) of this Agreement.
-----------------------
Closing Certificate. As defined in section 6.1(r) of this Agreement.
--------------------
Closing Date. As defined in section 2.2 of this Agreement.
-------------
Code. The Internal Revenue Code of 1986, as amended, and the regulations,
----
rulings, and forms issued thereunder.
Common Denominator. The aggregate number of Learning Curve Common Shares
-------------------
outstanding immediately prior to the Learning Curve Effective Time plus the HIT
Number.
Confidentiality Agreement. The Confidentiality Agreement dated December
--------------------------
12, 2002 between RCE and Learning Curve.
Contaminant. (a) Any hazardous substance, within the meaning of that term
-----------
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, and any implementing regulations thereunder; (b) any
hazardous or toxic substance, waste or material within the meaning of any other
Environmental Laws applicable to the Parties; (c) any pollutant, contaminant or
special waste; (d) any petroleum, crude oil or any fraction thereof; or (e)
mold, asbestos, urea-formaldehyde or lead-based paint.
4
Contract. Any agreement, contract, commitment, undertaking, instrument,
--------
obligation, purchase order, sale order, license, franchise agreement,
distributor agreement, supplier agreement, dealer agreement, sales
representative agreement, agency agreement, operating agreement, joint venture
agreement, lease, employment agreement, consulting agreement, noncompetition
agreement, loan agreement, credit agreement, promissory note, indenture, letter
of credit, evidence of indebtedness, security or pledge agreement, whether
written or oral, to which a Person is a party or is otherwise bound.
Control. The possession, direct or indirect, of the power to direct or
-------
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract, or otherwise. "Controlling"
and "Controlled" have meanings correlative thereto.
Conversion Shares. Learning Curve Preferred Shares that have converted to
------------------
Learning Curve Common Shares prior to the Learning Curve Effective Time.
Court Order. A final order, decree or judgment of a court or other
------------
tribunal of competent jurisdiction.
Credit Agreement. The Amended and Restated Credit Agreement, dated as of
-----------------
August 29, 2001, as amended May 31, 2002 and January 7, 2003, by and among
Learning Curve, American National Bank and Trust Company of Chicago, as agent,
and certain other lenders.
Damages. Any loss, liability, claim, damage (including incidental and
-------
consequential damages), expense (including reasonable costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim.
Delaware Law. The General Corporation Law of the State of Delaware, as
-------------
amended.
Derivative Securities. Options, warrants, rights, shares of capital stock,
---------------------
or other securities (including evidence of indebtedness) that are convertible
into or exercisable or exchangeable for shares of capital stock.
Dissenting Shares. As defined in section 2.6 of this Agreement.
------------------
DOL. The Department of Labor of the United States Government.
---
5
Earnout Payment. The amount, if any, to be paid to the Escrow and Earnout
----------------
Participants pursuant to section 2.13 based upon the Income Statement and
determined as set forth on Schedule 1.1 hereto.
Employee Benefit Plan. Any "employee benefit plan" within the meaning of
-----------------------
ERISA section 3(3), any "specified fringe benefit plan" within the meaning of
Code section 6039D, and any other bonus, incentive compensation, profit-sharing,
equity, stock bonus, stock option, stock appreciation rights, restricted stock,
other stock-based incentive, executive compensation agreement, employment
agreement, deferred compensation, pension, stock purchase, employee stock
ownership, savings, pension, retirement, supplemental retirement, employment
related change-in-control, severance, salary continuation, layoff, welfare
(including, without limitation, health, medical, prescription, dental,
disability, salary continuation, life, accidental death, travel accident, and
other insurance), vacation, holiday, sick leave, fringe benefit, or other
benefit plan, program, or policy, whether written or oral, and whether qualified
or nonqualified, and any trust, escrow, or other agreement related thereto,
covering any present or former employees, directors or their respective
dependents.
Employment Agreement. An agreement substantially in the form of Exhibit B
---------------------
hereto.
Encumbrance. Any claim, lien (statutory or otherwise), hypothecation,
-----------
pledge, security interest, mortgage, deed of trust, option, charge, assessment,
covenant, restriction, easement, right-of-way, encroachment, building or use
restriction, defect in title, conditional or contingent sales agreement, title
retention agreement, encumbrance, environmental deed notice or restriction, or
web/internet-based registration or notice, relating or referring in any way to
the presence of any Contaminant on, at, in, upon, under or from any property, or
other burden of any kind or nature, whether voluntarily incurred or arising by
operation of Law, including, without limitation, any agreement or commitment to
provide for any of the foregoing in the future.
Environmental Law. Any local, state or federal Law, common law duty,
------------------
permit, license, authorization, order, decision or other binding determination
pertaining to Contaminants, the environment, environmental media, natural
resources, contamination, clean-up or disclosure, air, surface water, drinking
water, groundwater, landfills, open dumps, storage tanks (underground or
otherwise), waste, waste water, storm water run-off, emissions, releases, noise,
toxic substances or xxxxx, and human health and safety, now in effect or as
hereafter amended.
6
Escrow and Earnout Participants. The HIT Licensor and the holders of the
---------------------------------
Learning Curve Common Shares (including, without duplication, the Conversion
Shares) outstanding immediately prior to the Learning Curve Effective Time.
ERISA Affiliate. Any other entity (whether or not incorporated) which is
----------------
or was, together with any Affiliated Company, treated as a single employer under
section 414(b), (c), (m) or (o) of the Code.
ERISA. The Employee Retirement Income Security Act of 1974, as amended,
-----
and the rules, regulations, and forms issued thereunder.
Escrow Account. The account established and maintained by the Escrow Agent
--------------
pursuant to the terms and conditions of the Escrow Agreement.
Escrow Agent. As defined in section 2.11 of this Agreement.
-------------
Escrow Agreement. The Escrow Agreement in substantially the form of
-----------------
Exhibit F hereto, with such changes thereto as the Escrow Agent may reasonably
request.
Escrow Amount. As defined in section 2.11 of this Agreement.
--------------
Escrow Participation Amount. The part of the Escrow Amount, if any,
-----------------------------
payable to the Escrow and Earnout Participants at any time during or after the
end of the Escrow Period pursuant to section 2.11 and the Escrow Agreement equal
to (i) such part of the Escrow Amount, divided by (ii) the Common Denominator.
Escrow Period. As defined in section 2.11 of this Agreement.
--------------
Exchange Act. The Securities Exchange Act of 1934, as amended, and the
-------------
rules, regulations, and forms issued thereunder.
Exchange Agent. As defined in section 2.8(a) of this Agreement.
---------------
Exchange Documents. As defined in section 2.8(b) of this Agreement.
-------------------
Exchange Fund. As defined in section 2.8(a) of this Agreement.
--------------
February 2003 Capital Expenditure Budget Amount. As defined in section 5.1
-----------------------------------------------
of this Agreement.
FMV per RCE Share. An amount equal to the arithmetic mean of the closing
-------------------
price of a RCE Share as reported on the Nasdaq National Market for the
ten consecutive trading days immediately preceding the third Business Day prior
to the Learning Curve Effective Time.
7
GAAP. Generally accepted accounting principles in effect in the United
----
States of America.
General Deductible. As defined in section 7.7 of this Agreement.
-------------------
General Preferred Consideration. As defined in section 2.4(e)(i) of this
---------------------------------
Agreement.
Governmental Authority. Any federal, state, county, municipal, foreign, or
----------------------
other government or political subdivision, agency, or instrumentality thereof.
HIT Letter. The letter addressed to the HIT Licensor, in the form agreed
-----------
to by RCE and Learning Curve on or before the date of this Agreement.
HIT License. License Agreement No. TUL042 dated as of June 9, 1999 and
------------
effective as of January 1, 1999 between Xxxxx Xxxxxxxx Inc. and Learning Curve.
HIT Licensor. The licensor under the HIT License.
-------------
HIT Number. A number determined by Learning Curve reflecting the HIT
-----------
Licensor's proportional interest in the aggregate Merger Consideration payable
hereunder in accordance with the HIT License.
HIT Obligation. The obligation of Learning Curve to pay consideration to
---------------
the HIT Licensor pursuant to sections 13 and 20 of the HIT License Agreement.
HIT Payment. An amount equal to (i) the Class A/B Common Per Share Cash
------------
Consideration multiplied by (ii) the HIT Number.
HSR Act. The Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1974, as
--------
amended.
Income Statement Acceptance Notice. As defined in section 2.13(b) of this
-----------------------------------
Agreement.
Income Statement Objection Notice. As defined in section 2.13(b) of this
-----------------------------------
Agreement.
Income Statement. As defined in section 2.13(b) of this Agreement.
-----------------
8
Indemnified Person. As defined in section 7.4(a) of this Agreement.
-------------------
Indemnifying Person. As defined in section 7.4(a) of this Agreement.
--------------------
Initial Merger Cash Consideration. An amount equal to (i) $106,700,000
------------------------------------
less the Escrow Amount; minus (ii) the Learning Curve Debt, the Learning Curve
Capital Lease Obligations, the Preferred Consideration and any Transaction
Expenses; plus (iii) the Preliminary Closing Working Capital Adjustment, if a
positive number; minus (iv) the Preliminary Working Capital Adjustment, if a
negative number.
Insurance Policy. Any commercial, general liability, errors and omissions,
----------------
property, casualty, business interruption, products liability, environmental,
automobile, directors and officers, medical, prescription, dental, disability,
salary continuation, life, accidental death, travel accident, umbrella or other
insurance policy, binder therefor, or endorsement thereto.
Intellectual Property. Patents and pending patent applications, copyrights
---------------------
and pending applications for copyright registration, trademarks and pending
applications for trademark registration, trade names, trade dress, logos,
licenses, discoveries, inventions, trade secrets, know-how, and other
intellectual property.
Investment Representation Letter. As defined in section 6.1(g) of this
----------------------------------
Agreement.
IRS. The Internal Revenue Service of the United Stated Government.
---
January 2003 Capital Expenditure Budget Amount. As defined in section
---------------------------------------------------
3.16(e) of this Agreement.
Knowledge. (i) With respect to Learning Curve, the actual knowledge of
---------
Xxxxxxx X. Xxxxxxxx, Xxxx Xxxxxx Xxx XX, Xxxxx Xxxxxxxxx or Xxxxxxxx X. Xxxxxxxx
after a good faith inquiry of the Representatives of any of the Affiliated
Companies whom they believe in good faith might have knowledge as to such matter
and a good faith review of those books and records which they believe in good
faith to be appropriate; and (ii) with respect to RCE, the actual knowledge of
Xxxxxx X. Xxxxxxxxx, Xxxxx X. Xxxxxxxx, Xxxxx X.X. Xxxxx or Xxxx X. Xxxxxx after
a good faith inquiry of the Representatives of RCE or any of its Subsidiaries
whom they believe in good faith might have knowledge as to such matter and a
good faith review of those books and records which they believe in good faith to
be appropriate.
9
Law. Any federal, state, local or foreign law, statute, ordinance, rule,
---
regulation, judgment, order, injunction, decree, arbitration award, agency
requirement, or any license, or permit of, or agreement or written understanding
with, any Governmental Authority.
LC SUB II. Learning Curve Deutschland GmbH
-----------
LC SUB II Shares. As defined in section 3.6 of this Agreement.
-------------------
LC SUB II Stock Purchase. As defined in section 2.3 of this Agreement.
----------------------------
LC SUB II Stock Purchase Price. An amount determined by RCE prior to the
--------------------------------
Closing Date, payable by Sub II to Learning Curve pursuant to the LC SUB II
Stock Purchase, subject to the terms and conditions of this Agreement.
LC SUB III. LCI (H.K.) Limited, a Hong Kong company.
------------
LC SUB III Shares. As defined in section 3.6 of this Agreement.
--------------------
LC SUB III Stock Purchase. As defined in section 2.3 of this Agreement.
----------------------------
LC SUB III Stock Purchase Price. An amount determined by RCE prior to the
--------------------------------
Closing Date, payable by Sub III to Learning Curve pursuant to the LC SUB III
Stock Purchase, subject to the terms and conditions of this Agreement.
Learning Curve. As defined in the preface of this Agreement.
---------------
Learning Curve Brands. The brands and product lines of the Affiliated
-----------------------
Companies described on Schedule 1.5.
Learning Curve Capital Lease Obligations. All amounts outstanding as of
-------------------------------------------
the time immediately prior to the Learning Curve Effective Time under all
capital lease obligations of Learning Curve as determined under GAAP, including,
but not limited to, all amounts outstanding as of the time immediately prior to
the Learning Curve Effective Time under Learning Curve's lease financing
arrangements with Banc One Financing Corporation; provided, however, any
Contract disclosed in this Agreement or on the Affiliated Company Disclosure
Schedule that Learning Curve has not treated as a capital lease obligation will
not be treated as a Learning Curve Capital Lease Obligation for purposes of this
Agreement. By way of illustration, the amount of Learning Curve Capital Lease
Obligations from the Learning Curve Financial Statements as of December 31, 2002
is set forth on Schedule 1.3.
10
Learning Curve Certificate of Merger. As defined in section 2.3 of this
---------------------------------------
Agreement and substantially in the form of Exhibit A.
Learning Curve Class A Common Shares. As defined in section 3.6 of this
---------------------------------------
Agreement.
Learning Curve Class B Common Shares. As defined in section 3.6 of this
---------------------------------------
Agreement.
Learning Curve Class C Common Shares. As defined in section 5.6 of this
---------------------------------------
Agreement.
Learning Curve Closing Statement. As defined in section 2.12(a) of this
-----------------------------------
Agreement.
Learning Curve Common Shares. At any time of determination and without
-------------------------------
duplication, the shares of Learning Curve Class A Common Shares, Learning Curve
Class B Common Shares, and Learning Curve Class C Common Shares then issued and
outstanding. Without limiting the foregoing, immediately prior to the Learning
Curve Effective Time the "Learning Curve Common Shares" shall include any and
all Conversion Shares.
Learning Curve Debt. All amounts outstanding as of the time immediately
---------------------
prior to the Learning Curve Effective Time under the Credit Agreement, the
Senior Sub Debt Agreements, the Canadian Purchase Notes and any other similar
interest-bearing obligations, similar non-interest bearing obligations or
indebtedness for money borrowed of Learning Curve or any of its Subsidiaries as
well as any guarantees of any such obligations by Learning Curve or any of its
Subsidiaries to the extent not already included in the Learning Curve Debt and
any penalties, make-whole payments or additional payments or amounts payable in
connection with the prepayment of any Learning Curve Debt in full as of the time
immediately prior to the Learning Curve Effective Time. By way of illustration,
the amount of Learning Curve Debt from the Learning Curve Financial Statements
as of December 31, 2002 is set forth on Schedule 1.4.
Learning Curve Effective Time. As defined in section 2.4(a) of this
--------------------------------
Agreement.
Learning Curve Financial Statements. As defined in section 3.11 of this
--------------------------------------
Agreement.
Learning Curve Indemnitees. As defined in section 7.3 of this Agreement.
----------------------------
11
Learning Curve Indemnitors. As defined in section 7.2 of this Agreement.
----------------------------
Learning Curve Information Statement. As defined in section 5.5(b) of this
------------------------------------
Agreement.
Learning Curve Merger. As defined in section 2.1 of this Agreement.
-----------------------
Learning Curve Net Sales. The following amount for the year ending
---------------------------
December 31, 2003 by Learning Curve, any of its subsidiaries or RCE or any of
its subsidiaries: (i) gross sales for all products with SKU's sold under any of
the Learning Curve Brands, minus (ii) actual returns of all such products
received.
Learning Curve Preferred Shares. As defined in section 3.6 of this
----------------------------------
Agreement.
Learning Curve Proxy Statement. As defined in section 5.5(b) of this
---------------------------------
Agreement.
Learning Curve Shares. As defined in section 3.6 of this Agreement.
-----------------------
Learning Curve Stock Option Plan. The Learning Curve International, Inc.
----------------------------------
1999 Stock Option/Stock Issuance Plan, as amended through the date hereof, as
delivered to RCE.
Learning Curve Stock Options. The stock options granted by Learning Curve
-----------------------------
under the Learning Curve Stock Option Plan.
Learning Curve Stockholders' Meeting. As defined in section 5.5(a) of this
------------------------------------
Agreement.
Learning Curve Surviving Corporation. As defined in section 2.1 of this
---------------------------------------
Agreement.
Learning Curve Trading Margin. The following amount for the year ending
--------------------------------
December 31, 2003: (i) Learning Curve Net Sales, minus (ii) the factory cost of
all products reflected in the calculation of Learning Curve Net Sales (based on
actual cost from the factory, without any Hong Kong office expenses or freight
allocated).
Liability. Any direct or indirect obligation, indebtedness, commitment,
---------
expense, claim, deficiency, guaranty, endorsement or other liability of any
kind, whether known or unknown, direct or indirect, accrued or unaccrued,
absolute or
12
contingent, disputed or undisputed and whether or not the same is required to be
accrued on financial statements.
Licensed Affiliated Company Intellectual Property. All of the Intellectual
-------------------------------------------------
Property licensed to any Affiliated Company.
Litigation. As defined in section 3.27 of this Agreement.
----------
Litigation Deductible. As defined in section 7.7 of this Agreement.
----------------------
Manufacturing Agreement. The Contract Manufacturing Agreement between LCI
------------------------
(H.K.) Limited and Learning Curve.
Material Adverse Effect. Any state of facts, change, event, or effect that
-----------------------
individually or together with other states of facts, changes, events, or
effects, is materially adverse to the business, operations, assets, properties,
prospects (other than to the extent arising from any change in the level, amount
or composition of sales or order flow of Learning Curve during 2003), or
condition (financial or otherwise) of a Party and its Subsidiaries, taken as a
whole, or would impair the ability of any Party to consummate the transactions
contemplated by this Agreement, regardless of whether such Material Adverse
Effect arises in the ordinary course of business; provided, however, that none
of the following shall be considered a Material Adverse Effect: (a) any state
of facts, change, event, or effect arising from or relating to general business
or economic conditions (including prevailing interest rates and stock market
levels or general market disruptions); (b) any state of facts, change, event, or
effect arising from or relating to the general state of the industry and market
sectors in which the Party operates or war or the threat of war or actual or
threatened armed hostilities or acts of terror, except, to the extent such state
of facts, change, event, or effect has a materially disproportionate effect on
Learning Curve and its Subsidiaries, taken as a whole, or RCE and its
Subsidiaries, taken as a whole, as the case may be, (c) in the case of RCE, any
change in the market price of RCE Shares after the date hereof; or (d) any state
of facts, event, change or effect arising from or relating to FAO, Inc. and
companies affiliated with FAO, Inc. based on the facts and circumstances known
to both RCE and Learning Curve as of the date of this Agreement.
Merger Consideration. The consideration issuable to the holders of
---------------------
Learning Curve Shares pursuant to section 2.4(e).
Merger Shares. As defined in section 2.3 of this Agreement.
--------------
Nasdaq. The Nasdaq National Market.
------
13
Non-Compete Agreement. An agreement in substantially the form of Exhibit G
---------------------
hereto.
Off-Balance Sheet Arrangement. As to any Person, any transaction,
-------------------------------
agreement or other contractual arrangement to which an entity unconsolidated
with such Person is a party, under which such Person, whether or not a party to
the arrangement, has, or in the future may have: (i) any obligation under a
direct or indirect guarantee or similar arrangement; (ii) a retained or
contingent interest in assets transferred to an unconsolidated entity or similar
arrangement; (iii) derivatives to the extent that the fair value thereof is not
reflected as a liability or asset in such Person's financial statements; or (iv)
any Liability, including a contingent Liability, to the extent that it is not
fully reflected in such Person's financial statements, including, without
limitation, obligations that are not classified as a Liability according to
GAAP, contingent Liabilities as to which, as of the date of the financial
statements, it is not probable that a loss has been incurred or, if probable, is
not reasonably estimable, or Liabilities as to which the amount recognized in
the financial statements is less than the reasonable possible maximum exposure
to loss under the obligation as of the date of the financial statements.
Contingent Liabilities arising out of litigation, arbitration or regulatory
actions (not otherwise related to Off-Balance Sheet Arrangements) and operating
leases and licenses, including guarantees of operating leases and licenses, are
not Off Balance Sheet Arrangements.
Other HIT Consideration. The Escrow Participation Amount, the
-------------------------
Participants' Working Capital Adjustment and the Participants' Earnout
Consideration, if any, payable to the HIT Licensor at the same time as any
payment of such amounts to the other Escrow and Earnout Participants as if the
HIT Licensor held the number of Learning Curve Common Shares immediately prior
to the Learning Curve Effective Time equal to the HIT Number.
Owned Affiliated Company Intellectual Property. All of the Intellectual
-------------------------------------------------
Property owned by any Affiliated Company.
Participants' Working Capital Adjustment. An amount per share payable to
------------------------------------------
the Escrow and Earnout Participants equal to (i) the Post-Closing Working
Capital Adjustment, divided by (ii) the Common Denominator.
Participants' Earnout Consideration. An amount per share payable to the
-------------------------------------
Escrow and Earnout Participants equal to (i) the Earnout Payment, divided by
(ii) the Common Denominator.
Parties. As defined in the preface to this Agreement.
-------
14
PBGC. The Pension Benefit Guaranty Corporation of the United States
----
Government.
Permitted Liens. Any and all (a) liens for Taxes, assessments, and charges
---------------
of a Governmental Authority not yet due and payable, (b) mechanic's,
materialmen's, warehousemen's, or carriers' liens for sums not yet due and
payable, (c) liens incurred in connection with workers' compensation,
unemployment insurance, and other types of social security, (d) purchase money
security interests and other liens held by equipment lessors in leased
equipment, (e) in the case of any leased asset, (i) the rights of any lessor
under the applicable lease agreement or any lien granted by any lessor and (ii)
any statutory lien for amounts not yet due and payable or that are being
contested in good faith, (f) other liens arising in the ordinary course of
business and not incurred in connection with the borrowing of money, and (g)
liens that do not, individually or in the aggregate, materially detract from or
interfere with any use of or impair the value of any asset as currently used.
Person. Any natural person, company, corporation, professional
------
corporation, general partnership, limited partnership, limited liability
company, limited liability partnership, joint venture, trust, land trust,
business trust, or other association or organization, regardless of whether it
is a legal entity, or any Governmental Authority.
Personnel Documents. As defined in section 3.24(a) of this Agreement.
--------------------
Post-Closing Working Capital Adjustment. The amount determined as set
------------------------------------------
forth on Schedule 1.2 hereto.
Preferred Consideration. As defined in section 2.4(e)(ii) of this
------------------------
Agreement.
Preliminary Closing Date Balance Sheet. A consolidated balance sheet of
-----------------------------------------
Learning Curve and its subsidiaries immediately prior to the Learning Curve
Effective Time, reasonably estimated in good faith by Learning Curve as of five
Business Days prior to the Closing Date pursuant to section 2.12(a).
Preliminary Closing Working Capital Adjustment. The amount determined as
------------------------------------------------
the Preliminary Closing Working Capital Adjustment in accordance with Schedule
1.2 hereto.
Prospectus. The prospectus included in the Registration Statement,
----------
including any preliminary prospectus and all amendments and supplements to such
prospectus, including post-effective amendments, and all material incorporated
by reference in such prospectus.
15
RCE. As defined in the preface of this Agreement.
---
RCE Disclosure Schedule. The disclosure schedule prepared by RCE and
-------------------------
arranged in sections corresponding to the section numbers of the representations
and warranties made by RCE in Article IV of this Agreement. If a document or
matter is listed in one section of the RCE Disclosure Schedule, such listing
shall suffice, without specific repetition and with or without cross-reference,
as a response to any other section of the RCE Disclosure Schedule if such
response is readily apparent from such disclosure.
RCE Indemnitees. As defined in section 7.2 of this Agreement.
----------------
RCE Shares. Shares of common stock, par value $0.01 per share, of RCE.
-----------
RCE Share Amount. The 666,667 RCE Shares (subject to adjustment pursuant
------------------
to section 2.5) that RCE shall deliver to the Exchange Agent pursuant to section
2.3 of this Agreement.
RCE Subsidiary. A Subsidiary of RCE.
---------------
Registration Statement. As defined in section 5.4 of this Agreement.
-----------------------
Related Party. Any stockholder, director or officer of a Party, or any
--------------
family member of such stockholder, director or officer, or any other Person in
which any such stockholder, director, officer, or family member owns of record
or beneficially a material amount of capital stock or other securities or any
other equity or proprietary interest.
Representatives. As to any Party, the directors, officers, employees,
---------------
agents, contractors, attorneys, accountants, advisors, and other representatives
of such Person.
Sale. As defined in section 5.8 of this Agreement.
----
SEC. The Securities and Exchange Commission.
---
SEC Reports. As defined in section 4.8 of this Agreement.
------------
Securities Act. The Securities Act of 1933, as amended, and the rules and
---------------
regulations issued thereunder.
Senior Sub Debt Agreements. The Securities Purchase Agreement dated August
--------------------------
6, 1996 by and among Learning Curve, Xxxx Xxxxxxx Mutual Life Insurance Company
and Xxxx Xxxxxxx Variable Life Insurance Company, and the Securities Purchase
Agreement dated May 8, 1998 by and among Learning Curve, Xxxx Xxxxxxx Mutual
Life Insurance Company and Xxxx Xxxxxxx Variable Life Insurance Company.
16
Series A Preferred Shares. As defined in section 3.6 of this Agreement.
----------------------------
Series B Preferred Shares. As defined in section 3.6 of this Agreement.
----------------------------
Series C Preferred Consideration. As defined in section 2.4(e)(ii) of this
--------------------------------
Agreement.
Series C Preferred Shares. As defined in section 3.6 of this Agreement.
----------------------------
Series D Preferred Shares. As defined in section 3.6 of this Agreement.
----------------------------
Series E Preferred Shares. As defined in section 3.6 of this Agreement.
----------------------------
Shareholder Release. A release in substantially the form of Exhibit I
--------------------
hereto.
Shareholder Representatives. As defined in section 7.5(a) of this
----------------------------
Agreement.
Shareholders' Auditor. As defined in section 2.12(c) of this Agreement.
----------------------
Stock Option Loans. Any loan (including accrued interest thereon) to a
--------------------
participant in the Learning Curve Stock Option Plan to fund the exercise of any
Learning Curve Stock Options by that participant.
Sub I. As defined in the preface of this Agreement.
------
Sub II. As defined in the preface of this Agreement.
-------
Sub III. As defined in the preface of this Agreement.
--------
Subsidiary. As to any Person, any Affiliate that is Controlled by such
----------
Person directly or indirectly through one or more intermediaries. Without
limiting the foregoing, Flair Leisure Products PLC will not be deemed a
"Subsidiary" of Learning Curve.
Tax Contest. As defined in section 7.4(f) of this Agreement.
------------
Tax Returns. All returns, declarations, reports, statements, and other
------------
documents required to be filed in respect of Taxes.
17
Taxes. All federal, state, county, municipal, foreign, and other net
-----
income, gross income, gross receipts, profits, capital gains, sales, use,
value-added, ad valorem, transfer, franchise, license, lease, service,
withholding, payroll, employment (including Social Security and Medicare),
excise, severance, golden parachute, property, stamp, customs, or other taxes,
fees, assessments, duties, impositions, or charges of any kind whatsoever,
together with all interest, penalties, additions to tax, and additional amounts
with respect thereto.
Transaction Expenses. Any Liability or obligation of Learning Curve or any
--------------------
of its Subsidiaries for any (i) investment banking fees, financial advisory
fees, brokerage fees, commissions, finder's fees, attorney's fees and expenses,
accountants' fees and expenses or similar fees incurred in connection with the
transaction contemplated by this Agreement, (ii) the amounts set forth in the
letter agreement between Learning Curve and RCE dated the date hereof and
delivered in connection herewith reflecting certain potential severance costs,
(iii) the amount of the "tail insurance" premium contemplated by the letter
agreement between Learning Curve and RCE dated the date hereof and delivered in
connection herewith regarding certain director and officer insurance coverage,
and (iv) any other fees, costs or expenses incurred by Learning Curve or any of
its Subsidiaries in connection with the transactions contemplated by this
Agreement (excluding the costs and expenses associated with the Affiliated
Companies' employees and overhead), including, without limitation, Learning
Curve's 50% of the HSR fees pursuant to section 9.2.
Unrelated Accounting Firm. As defined in section 2.12(c) of this
---------------------------
Agreement.
Voting Agreement. An agreement in substantially the form of Exhibit H
-----------------
hereto.
WARN. The Worker Adjustment and Retraining Notification Act and the
----
regulations promulgated thereunder.
ARTICLE II
THE LEARNING CURVE MERGER
2.1 Learning Curve Merger. On the terms and subject to the conditions
----------------------
of this Agreement and in accordance with Delaware Law, Sub I shall merge with
and into Learning Curve (the "Learning Curve Merger") at the Learning Curve
Effective Time. Learning Curve shall be the corporation surviving the Learning
Curve Merger (the "Learning Curve Surviving Corporation").
18
2.2 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall occur by telephone with deliveries of Closing
documents by overnight courier, or in person at a mutually convenient location,
or by such other method as shall be mutually agreeable to the Parties. Any
executed Closing documents sent by a Party or its counsel to the other Party or
its counsel prior to the Closing shall be held in escrow by such other Party or
its counsel until such executed documents are authorized to be released and
delivered by an executive officer of the sending Party or by the sending Party's
counsel. The Closing shall occur at 9:00 a.m. (Central time) on the second
Business Day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions that the respective Parties will
take at the Closing itself) or such other date as the Parties may mutually
determine (the "Closing Date").
2.3 Actions at the Closing. At the Closing, (a) Learning Curve shall
-----------------------
deliver to RCE the various documents, instruments, and certificates referred to
in section 6.1 hereof, (b) RCE and the Acquisition Subsidiaries shall deliver to
Learning Curve the various documents, instruments, and certificates referred to
in section 6.2 hereof, (c) a certificate of merger for the Learning Curve Merger
shall be filed with the office of the Secretary of State of the State of
Delaware in the form attached hereto as Exhibit A (the "Learning Curve
Certificate of Merger"), (d) Learning Curve shall sell, assign, transfer, convey
and deliver all of the LC SUB II Shares held by Learning Curve to Sub II, free
and clear of all Encumbrances, and Sub II shall purchase, acquire and accept
from Learning Curve such LC SUB II Shares in exchange for the payment by Sub II
to Learning Curve of the LC SUB II Stock Purchase Price (the "LC SUB II Stock
Purchase"), (e) Learning Curve shall sell, assign, transfer, convey and deliver
all of the LC SUB III Shares to Sub III, free and clear of all Encumbrances, and
Sub III shall purchase, acquire and accept from Learning Curve such LC SUB III
Shares in exchange for the payment by Sub II to Learning Curve of the LC SUB III
Stock Purchase Price (the "LC SUB III Stock Purchase"), (f) RCE shall deliver to
the Exchange Agent certificates evidencing 666,667 RCE Shares to be issued
pursuant to the Learning Curve Merger (the "Merger Shares") and cash in an
amount sufficient to pay the aggregate Cash Consideration in the manner provided
in section 2.8(a) hereof, (g) RCE will, on behalf of Learning Curve, cause all
unpaid Learning Curve Debt under the Credit Agreement and the Senior Sub Debt
Agreements to be paid in full (subject to the receipt by RCE of payoff letters
for all such Learning Curve Debt on or before the Closing Date) and (h) RCE
shall, on behalf of Learning Curve, pay the HIT Payment as provided in section
2.10(c) hereof.
19
2.4 Effects of the Learning Curve Merger.
-----------------------------------------
(a) The Learning Curve Merger shall become effective at the time
the Learning Curve Certificate of Merger is filed with the Secretary of State of
the State of Delaware or such later time as is specified in the Learning Curve
Certificate of Merger (the "Learning Curve Effective Time"). The Learning Curve
Merger shall have the effects set forth in the Delaware Law. The Learning Curve
Surviving Corporation may, at any time after the Learning Curve Effective Time,
take any action (including executing and delivering any document) in the name
and on behalf of either Learning Curve or Sub I in order to carry out and
effectuate the transactions contemplated by this Agreement.
(b) The Certificate of Incorporation of the Learning Curve
Surviving Corporation shall be amended and restated at and as of the Learning
Curve Effective Time to read as did the Certificate of Incorporation of Sub I
immediately prior to the Learning Curve Effective Time (except that the name of
the Learning Curve Surviving Corporation shall be such name as RCE shall
specify), until duly amended further in accordance with the terms thereof and
the Delaware Law.
(c) The by-laws of the Learning Curve Surviving Corporation shall
be amended and restated at and as of the Learning Curve Effective Time to read
as did the by-laws of Sub I immediately prior to the Learning Curve Effective
Time (except that the name of the Learning Curve Surviving Corporation shall be
such name as RCE shall specify), until duly amended further in accordance with
the terms thereof and the Delaware Law.
(d) The directors and officers of the Learning Curve Surviving
Corporation shall be the individuals listed on Schedule 2.4(d) hereto.
(e) Subject to the terms and conditions of this Agreement, at and
as of the Learning Curve Effective Time, by virtue of the Learning Curve Merger
and without any action on the part of any holder of any Learning Curve Shares:
(i) Each of the Learning Curve Preferred Shares issued and
outstanding immediately prior to the Learning Curve Effective Time, other than
the Series C Preferred Shares, the Dissenting Shares and Learning Curve
Preferred Shares held in treasury, shall automatically be converted into the
right to receive their respective redemption price per share pursuant to the
Learning Curve Certificate of Incorporation as of the Learning Curve Effective
Time, as set forth in the Closing Certificate (the aggregate amount that such
holders are entitled to receive is hereinafter referred to as the "General
Preferred Consideration").
20
(ii) Each of the Series C Preferred Shares issued and
outstanding immediately prior to the Learning Curve Effective Time, other than
Dissenting Shares and Series C Preferred Shares held in treasury, if any, shall
automatically be converted into the right to receive an amount equal to
$8,000,000 divided by the aggregate number of Series C Preferred Shares issued
and outstanding immediately prior to the Learning Curve Effective Time (the
aggregate amount that such holders are entitled to receive is hereinafter
referred to as the "Series C Preferred Consideration", and together with the
General Preferred Consideration, the "Preferred Consideration").
(iii) Each of the Learning Curve Class A Common Shares and
the Learning Curve Class B Common Shares issued and outstanding immediately
prior to the Learning Curve Effective time, other than Dissenting Shares and
Learning Curve Class A Common Shares and Learning Curve Class B Common Shares
held in treasury, shall automatically be converted into the right to receive [a]
cash in an amount equal to the Class A/B Common Per Share Cash Consideration,
without interest; [b] the Escrow Participation Amount upon release thereof (as
described more fully in section 2.11 and the Escrow Agreement); [c] the
Participants' Working Capital Adjustment if and to the extent paid after Closing
as determined pursuant to section 2.12; and [d] the Participants' Earnout
Consideration if and to the extent paid after Closing as determined pursuant to
section 2.13.
(iv) Each of the Learning Curve Class C Common Shares issued
and outstanding immediately prior to the Learning Curve Effective Time, other
than Dissenting Shares and Learning Curve Class C Common Shares held in
treasury, shall automatically be converted into the right to receive [a] the
number of the Merger Shares equal to the Class C Common Per Share Equity
Consideration; [b] cash in an amount equal to the Class C Common Per Share Cash
Consideration, without interest; [c] the Escrow Participation Amount upon
release thereof (as described more fully in section 2.11 and the Escrow
Agreement); [d] the Participants' Working Capital Adjustment if and to the
extent paid after Closing as determined pursuant to section 2.12; and [e] the
Participants' Earnout Consideration if and to the extent paid after Closing as
determined pursuant to section 2.13.
(f) At and as of the Learning Curve Effective Time, each Learning
Curve Share held in treasury by Learning Curve immediately prior to the Learning
Curve Effective Time shall, by virtue of the Learning Curve Merger and without
any action on the part of Learning Curve, be canceled and retired, and no cash,
RCE Shares or other consideration shall be issuable with respect thereto.
21
(g) At and as of the Learning Curve Effective Time, each share of
common stock of Sub I issued and outstanding immediately prior to the Learning
Curve Effective Time shall, by virtue of the Learning Curve Merger and without
any action on the part of any Party, be converted into and become one fully paid
and nonassessable share of common stock of the Learning Curve Surviving
Corporation and shall constitute the only outstanding shares of capital stock of
the Learning Curve Surviving Corporation. No shares of capital stock of Sub I
shall be deemed to be outstanding or to have any rights after the Learning Curve
Effective Time.
2.5 Anti-Dilution Adjustment. If, subsequent to the date hereof and
-------------------------
prior to the Learning Curve Effective Time, RCE shall change or declare a change
in the number of RCE Shares or securities convertible or exchangeable into or
exercisable for RCE Shares, issued and outstanding prior to the Learning Curve
Effective Time as a result of a reclassification, stock split, stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer or other similar transaction, then in each such case, from and after the
record date for determining the stockholders entitled to receive such RCE Shares
or other securities, an appropriate adjustment (if any) shall be made to the
conversion formula set forth in section 2.4(e)(iii)[a] above, for purposes of
determining the number of Merger Shares into which the Learning Curve Class C
Common Shares shall be converted to the extent necessary to preserve the
proportional interest of the Merger Shares. For purposes hereof, the payment of
a dividend in RCE Shares, or the distribution on RCE Shares in securities
convertible into RCE Shares, shall be deemed to have effected an increase in the
number of outstanding RCE Shares equal to the number of RCE Shares into which
such securities shall be initially convertible without the payment by the holder
thereof of any consideration other than the surrender for cancellation of such
convertible securities. Notwithstanding the foregoing, this section shall not
apply to any stock options issued under option plans of RCE existing as of the
date of this Agreement.
2.6 Dissenting Shares.
------------------
(a) Notwithstanding any other term or provision of this Agreement
to the contrary, any Learning Curve Shares that are outstanding immediately
prior to the Learning Curve Effective Time that are held by stockholders who (i)
have not consented to the Learning Curve Merger, (ii) have demanded appraisal
rights for such Learning Curve Shares in accordance with the provisions of
section 262 of Delaware Law (if such provisions provide for appraisal rights for
such Learning Curve Shares) and (iii) have not failed to perfect or have not
effectively withdrawn such demand or otherwise lost their appraisal rights (each
a "Dissenting Share" and collectively, the "Dissenting Shares"), shall
22
not be converted into or represent the right to receive the Merger Consideration
pursuant to this Article II. Such stockholders shall be entitled to have such
Learning Curve Shares held by them appraised in accordance with Delaware Law,
except that all Dissenting Shares held by stockholders who have failed to
perfect or have effectively withdrawn or otherwise lost their right to appraisal
of such Learning Curve Shares under Delaware Law shall thereupon be deemed to
have been converted into, and to have become exchangeable for, as of the
Learning Curve Effective Time, the right to receive the Merger Consideration
issuable in exchange therefor pursuant to this Article II, upon surrender of the
certificates that formerly represented such Learning Curve Shares in accordance
with section 2.8 hereof.
(b) Learning Curve shall give RCE prompt notice of any demand for
appraisal received by it, withdrawals of demands for appraisal, and any other
instrument served on it by a stockholder pursuant to Delaware Law.
2.7 No Fractional Shares. Notwithstanding any other provision of this
---------------------
Agreement, no certificates or scrip for fractional RCE Shares shall be issued in
the Learning Curve Merger, and any fractional interests of RCE Shares resulting
from the calculations provided in section 2.4 hereof shall not entitle the owner
thereof to vote such fractional shares or to any other rights of a security
holder with respect thereto. Each holder of Learning Curve Shares who would
otherwise have been entitled to receive a fraction of a RCE Share pursuant to
this Article II shall, in lieu thereof, be paid an amount in cash equal to $15
per RCE Share. For purposes of determining whether and to what extent a
stockholder is entitled to receive a RCE Share in lieu of a fractional share
pursuant to this section 2.7, the Learning Curve Shares held of record by such
stockholder and represented by two or more stock certificates of Learning Curve
shall be aggregated.
2.8 Procedure for Exchange.
------------------------
(a) Immediately prior to the Learning Curve Effective Time, RCE
shall deposit with EquiServe Trust Company, N.A., or such other exchange agent
selected by RCE and reasonably acceptable to Learning Curve, (the "Exchange
Agent") for the benefit of the holders of Learning Curve Shares, for exchange in
accordance with this Article II through the Exchange Agent, cash, including the
Cash Consideration, and certificates representing the Merger Shares (such cash,
certificates for Merger Shares, and cash in lieu of fractional shares (if any),
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") payable or issuable pursuant to
section 2.4(e) in exchange for the outstanding Learning Curve Shares.
23
(b) As soon as reasonably practicable after the Learning Curve
Effective Time, the Exchange Agent shall mail or personally deliver to each
holder of record (or his or her attorney-in-fact) of Learning Curve Shares which
were converted into the right to receive Cash Consideration and/or Merger Shares
pursuant to section 2.4(e) and cash in lieu of fractional shares (if any) and
the other Merger Consideration pursuant to section 2.4(e), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the certificate or certificates which immediately prior to the
Learning Curve Effective Time, represented outstanding Learning Curve Shares
(the "Certificates") shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as RCE
may reasonably specify), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for Cash Consideration and/or
certificates representing Merger Shares (together, the "Exchange Documents").
With respect to any Conversion Shares, the Certificate for such Conversion
Shares may be represented by a certificate representing the Learning Curve
Preferred Shares which have converted into Conversion Shares prior to the
Learning Curve Effective Time. Upon request of Learning Curve not less than ten
Business Days prior to the Learning Curve Effective Time, RCE shall cause the
Exchange Documents to be delivered to all of the holders of Learning Curve
Shares identified by Learning Curve. At the Learning Curve Effective Time and
upon surrender of a Certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Cash Consideration and/or
a certificate representing that number of whole Merger Shares which such holder
has the right to receive in respect of the Certificate surrendered pursuant to
the provisions of this Article II (after taking into account all Learning Curve
Shares then held by such holder) and cash in lieu of fractional shares (if any),
and the Certificate so surrendered shall forthwith be canceled and the Cash
Consideration and/or cash in lieu of fractional shares and/or certificate
representing Merger Shares shall be sent as promptly as practicable to such
holder; provided, however, that any holder of a Certificate who, prior to the
Closing Date, surrenders such Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, and wire
transfer instructions in proper form shall be entitled to receive the Cash
Consideration and cash in lieu of fractional shares, if any, which such holder
has the right to receive in respect of the Certificate surrendered pursuant to
the provisions of this Article II by wire transfer on the Closing Date in
accordance with such wire transfer instructions as well as, if applicable, the
delivery, on the Closing Date or as soon thereafter as reasonably practicable,
of a certificate representing that number of whole Merger Shares which such
holder has a right to receive. Notwithstanding the foregoing, any Cash
Consideration payable to a holder of a Certificate shall be net of the amounts
due, if any, as of the Closing Date by such holder to Learning Curve under any
Stock Option Loan to which such holder is a party. In the event
24
of a transfer of ownership of Learning Curve Shares which is not registered in
the transfer records of Learning Curve, Cash Consideration and/or cash in lieu
of fractional shares and/or a certificate representing the proper number of
Merger Shares may be issued to a transferee if the Certificate representing such
Learning Curve Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. The Exchange Agent shall make
reasonable efforts to make available additional letters of transmittal and
instructions to all such persons who become holders (or beneficial owners) of
Learning Curve Shares. Until surrendered as contemplated by this section
2.8(b), each Certificate shall be deemed at any time after the Learning Curve
Effective Time to represent only the right to receive upon such surrender Cash
Consideration and/or the certificate representing Merger Shares and cash in lieu
of any fractional Merger Shares as well as the rights to any Participants'
Working Capital Adjustment, Participants' Earnout Consideration and Escrow
Participation Amount as contemplated by section 2.4(e).
(c) RCE shall not pay any dividend or make any distribution on
RCE Shares, with a record date at or after the Learning Curve Effective Time, to
any record holder of Learning Curve Shares unless and until the holder
surrenders for exchange the stock certificate or certificates that formerly
represented the holder's Learning Curve Shares. RCE instead shall pay the
dividend or make the distribution to the Exchange Agent in trust for the benefit
of the holder pending the surrender and exchange. No holder of Learning Curve
Shares shall be entitled to any interest or earnings on the dividend or
distribution held in trust by the Exchange Agent pending receipt thereof by the
holder upon surrender for exchange of the Learning Curve Share certificates.
(d) In the event any certificate representing Learning Curve
Shares shall have been lost, stolen, or destroyed, upon the making of an
affidavit of such fact by the Person claiming such certificate has been lost,
stolen, or destroyed, and if reasonably required by RCE, the posting by such
Person of a bond in customary amount as indemnity against any claim that may be
made against it with respect to such certificate, the Exchange Agent will issue
in exchange for such documentation of the lost, stolen, or destroyed
certificate, the applicable Cash Consideration, RCE Shares and any unpaid
dividends or other distributions in respect thereof.
(e) RCE may terminate the Exchange Fund and cause the Exchange
Agent to return any portion of the Exchange Fund remaining unclaimed 180 days
after the Closing Date, and thereafter each remaining record holder of Learning
Curve Shares who has not surrendered for exchange the certificates representing
the Learning Curve Shares shall be entitled to look to RCE (subject to
25
abandoned property, escheat, and other similar Laws) as a general creditor
thereof with respect to the Merger Consideration to which the holder is entitled
upon surrendering for exchange the stock certificate or certificates that
formerly represented the holder's Learning Curve Shares. Notwithstanding the
foregoing, none of RCE, the Learning Curve Surviving Corporation, LC SUB II
Surviving Corporation, LC SUB III Surviving Corporation, or the Exchange Agent
shall be liable to any Escrow and Earnout Participants for any amounts properly
delivered to a public official pursuant to applicable abandoned property,
escheat, or similar Laws.
(f) RCE shall pay all fees, expenses, and other charges of the
Exchange Agent.
2.9 Closing of Stock Transfer Records. After the close of business on
----------------------------------
the Closing Date, no transfer of Learning Curve Shares outstanding prior to the
Closing Date shall be registered in the stock transfer records of Learning
Curve.
2.10 Learning Curve Stock Options and Warrants.
----------------------------------------------
(a) Pursuant to section III.A of Article Two of the Learning
Curve Stock Option Plan, any Learning Curve Common Shares subject to outstanding
Learning Curve Stock Options shall vest in full so that such Learning Curve
Stock Options shall, immediately prior to the Learning Curve Effective Time,
become fully exercisable for all the Learning Curve Shares subject to such
Learning Curve Stock Options. All Learning Curve Stock Options shall terminate
and cease to be outstanding or of any force or effect immediately following the
Learning Curve Effective Time pursuant to section III.C. of Article Two of the
Learning Curve Stock Option Plan and neither Learning Curve nor the Plan
Administrator (as defined in the Learning Curve Stock Option Plan) shall take
any action to cause or permit any of the Learning Curve Stock Options to remain
outstanding or be assumed by RCE or any of its Subsidiaries immediately
following the Learning Curve Effective Time or to otherwise fail to be
terminated and of no force or effect pursuant to section III.C. of Article Two
of the Learning Curve Stock Option Plan immediately following the Learning Curve
Effective Time. Learning Curve shall require any holder of Learning Curve Stock
Options who exercises any Learning Curve Stock Options at or prior to the
Learning Curve Effective Time to remit to Learning Curve an amount sufficient to
satisfy any federal, state and local tax withholding requirements to the extent
not withheld by Learning Curve.
(b) Learning Curve shall give notice of the Learning Curve Merger
to the holder of the Xxxxx Warrant, which notice shall (i) comply in all
respects with the requirements of section 7 of the Xxxxx Warrant, and (ii) be
received by the holder of the Xxxxx Warrant more than 20 days prior to the
Closing Date. The Xxxxx Warrant shall terminate upon the Learning Curve
Effective Time pursuant to section 7 of the Xxxxx Warrant.
26
(c) Not less than five Business Days prior to the Closing Date,
Learning Curve shall provide RCE with a copy of the HIT Letter, signed by the
HIT Licensor, together with payment instructions to submit the HIT Payment to
the HIT Licensor. On the Closing Date, RCE shall, on behalf of Learning Curve,
pay the HIT Payment to the HIT Licensor in accordance with such payment
instructions. Once RCE pays the HIT Payment to the HIT Licensor in accordance
with such payment instructions, the HIT Obligation shall terminate and be of no
further force or effect and no further payment to the HIT Licensor shall be
required from RCE or the Learning Curve Surviving Corporation in connection with
the HIT Obligation except for the Other HIT Consideration.
(d) Learning Curve shall ensure that no Learning Curve Stock
Options or other Derivative Securities of Learning Curve (including, but not
limited to, the Xxxxx Warrant and the HIT Obligation) shall remain outstanding
upon the consummation of the Learning Curve Merger and no shares of capital
stock of Learning Curve or the Learning Curve Surviving Corporation shall be
issued or outstanding with respect to any such Learning Curve Stock Options or
other Derivative Securities upon the consummation of the Learning Curve Merger.
2.11 Escrow. At the Closing, RCE shall deposit $12,000,000 (the
------
"Escrow Amount") and deliver the Escrow Amount to an escrow agent (the "Escrow
Agent") as described herein, to be held by the Escrow Agent to secure the rights
of RCE and any other RCE Indemnitee to (i) indemnity under Article VII and (ii)
any Post-Closing Working Capital Adjustment that may be due to RCE pursuant to
section 2.12 below, all in accordance with the terms of this Agreement and the
Escrow Agreement. RCE shall also (x) deposit into the Escrow Account an amount
equal to the tax benefit, if any, of the part of the Other HIT Consideration
relating to the Participants' Earnout Consideration, if any, promptly following
the final determination of the Earnout Payment and the amount of such tax
benefit, if any, and (y) deposit into the Escrow Account for distribution to the
Escrow and Earnout Participants pursuant to the Escrow Agreement an amount equal
to the tax benefit, if any, of the part of the Other HIT Consideration relating
to the Escrow Participation Amount, if any, promptly following the end of the
Escrow Period and the final determination of the amount of such tax benefit, if
any. The Escrow Amount shall be held pursuant to the terms of the Escrow
Agreement. The Escrow Amount will be held by the Escrow Agent for a period to
end as set forth in the Escrow Agreement (the "Escrow Period"); provided,
however, that in the event RCE has made a claim under the Escrow Agreement prior
to the end of the Escrow Period, then the Escrow Period shall continue (and the
Escrow Agent will continue to hold, in accordance with the Escrow Agreement some
or all of the Escrow Amount, as required by the Escrow Agreement), until such
claim is fully and finally resolved, all as provided in the Escrow Agreement.
In the event that this Agreement is adopted by the holders of the Learning Curve
27
Shares, then all such holders shall, without any further act of any holder, be
deemed to have consented to and approved (i) the use of the Escrow Amount to
secure the rights of RCE and the Learning Curve Surviving Corporation in the
manner set forth herein and in the Escrow Agreement, and (ii) the appointment of
the Shareholder Representatives as the representatives of the persons receiving
Merger Consideration under this Agreement and as the attorney-in-fact and agent
for and on behalf of each such person (other than holders of Dissenting Shares).
RCE shall promptly deliver a notice to the Escrow Agent pursuant to section 5(h)
of the Escrow Agreement, with a copy to the Shareholder Representatives, after
the Litigation has resolved by a settlement agreement or a Court Order of a
court or other tribunal of competent jurisdiction and time for appeal has
expired and no appeal has been perfected as more particularly described in
section 5(h) of the Escrow Agreement.
2.12 Working Capital Adjustment Settlement.
----------------------------------------
(a) Preliminary Closing Working Capital Adjustment. On or prior
-----------------------------------------------
to the fifth Business Day prior to the Closing Date, Learning Curve shall
furnish to RCE the Preliminary Closing Date Balance Sheet and a statement (the
"Learning Curve Closing Statement") setting forth the Preliminary Closing
Working Capital Adjustment. Learning Curve shall prepare the Preliminary
Closing Date Balance Sheet and the Learning Curve Closing Statement, and make
the calculations set forth therein, in good faith and in accordance with GAAP,
and, to extent the principles used by Learning Curve are consistent with GAAP,
the principles will be applied consistent with the most recent Learning Curve
Financial Statements. Learning Curve shall consult with RCE in the preparation
of the Learning Curve Closing Statement and shall provide to RCE for its review
any work papers, schedules and other documents prepared by Learning Curve in
connection with its preparation of the Preliminary Closing Date Balance Sheet.
(b) Post-Closing Working Capital Adjustment. Promptly, but in no
---------------------------------------
event later than five Business Days after the final determination of the
Post-Closing Working Capital Adjustment pursuant to section 2.12(c) below, one
of the following adjustments shall be made:
(i) If the Post-Closing Working Capital Adjustment is a
negative number, RCE shall be entitled to instruct the Escrow Agent to release
to RCE from the Escrow Account an amount equal to the Post-Closing Working
Capital Adjustment.
(ii) If the Post-Closing Working Capital Adjustment is a
positive number, RCE shall promptly pay to the Escrow and Earnout Participants
an amount equal to the Participants' Working Capital Adjustment to which each
such holder is entitled.
28
(c) Determination of Post-Closing Working Capital Adjustment.
------------------------------------------------------------
The Post-Closing Working Capital Adjustment shall be determined as of
immediately prior to the Learning Curve Effective Time on the basis of the
consolidated balance sheet of Learning Curve and its subsidiaries immediately
prior to the Learning Curve Effective Time (the "Closing Balance Sheet"). The
Closing Balance Sheet shall be prepared by RCE in accordance with GAAP, and, to
extent the principles used by Learning Curve are consistent with GAAP, the
principles will be applied consistent with the most recent Learning Curve
Financial Statements. RCE shall deliver to the Shareholder Representatives the
Closing Balance Sheet within 45 days after the Closing Date. KPMG LLP or such
other independent accounting firm engaged by the Shareholder Representatives at
the sole expense of the Escrow and Earnout Participants (which shall not be the
Unrelated Accounting Firm referred to below) ("Shareholders' Auditor") shall
have the opportunity to observe the taking of the inventory of Learning Curve in
connection with the preparation of the Closing Balance Sheet, and to examine the
work papers, schedules and other documents prepared by RCE in connection with
its preparation of the Closing Balance Sheet. The fees and expenses of the
Shareholders' Auditor pursuant to this section 2.12(c) and section 2.13 may be
deducted from the Escrow Account in an amount not to exceed $100,000 in the
aggregate. Within 30 days following the delivery of the Closing Balance Sheet,
the Shareholder Representatives shall deliver to RCE a notice of objection (a
"Balance Sheet Objection Notice") or a notice of acceptance (a "Balance Sheet
Acceptance Notice") with respect to the Closing Balance Sheet. Such Closing
Balance Sheet shall be final and binding on the parties if a Balance Sheet
Acceptance Notice is delivered to RCE or if no Balance Sheet Objection Notice is
delivered to RCE within such 30 day period. Any Balance Sheet Objection Notice
shall specify in reasonable detail the items on the Closing Balance Sheet which
are disputed and shall describe in reasonable detail the basis for the
objection, as well as the amount in dispute. If a Balance Sheet Objection
Notice is given, the parties shall consult with each other with respect to the
objection. If the parties are unable to reach agreement within 20 days after a
Balance Sheet Objection Notice has been given, any unresolved disputed items
shall be promptly referred to PricewaterhouseCoopers LLP or another firm of
independent public accountants mutually acceptable to RCE and the Shareholder
Representatives (the "Unrelated Accounting Firm"). The Unrelated Accounting
Firm shall be directed to render a written report on the unresolved disputed
issues with respect to the Closing Balance Sheet within 30 days after the
dispute is submitted to them and to resolve only those issues of dispute set
forth in the Balance Sheet Objection Notice. The resolution of the dispute by
the Unrelated Accounting Firm shall be final and binding on the parties. The
fees and expenses of the Unrelated Accounting Firm shall be borne equally by RCE
and the Escrow and Earnout Participants (and RCE shall be authorized to deduct
such amount that the Escrow and Earnout Participants are responsible for from
the Escrow Account after abiding by the procedures set forth therein).
29
2.13 Post-Closing Earnout Payment.
------------------------------
(a) Promptly, but in no event later than three Business Days
after the final determination of the Earnout Payment pursuant to section 2.13(b)
below, RCE shall pay to the Escrow and Earnout Participants an amount equal to
the Participants' Earnout Consideration to which each such holder is entitled.
(b) The amount of the Earnout Payment shall be determined on the
basis of the consolidated income statement of Learning Curve and its
subsidiaries for the year ending December 31, 2003 (the "Income Statement").
The Income Statement shall be prepared by RCE in accordance with GAAP,
consistent with RCE current practices and policies, and shall include a
certificate of RCE's Chief Financial Officer regarding the amount of the
Learning Curve Net Sales and the Learning Curve Trading Margin for the year
ending December 31, 2003 as well as the calculation of the amount of the Earnout
Payment. RCE shall deliver to the Shareholder Representatives the Income
Statement by March 15, 2004. The Shareholders' Auditor shall have the
opportunity to examine the work papers, schedules and other documents prepared
by RCE in connection with its preparation of the Income Statement. Within 30
days following the delivery of the Income Statement, the Shareholder
Representatives shall deliver to RCE a notice of objection (an "Income Statement
Objection Notice") or a notice of acceptance (an "Income Statement Acceptance
Notice") with respect to the Income Statement. The Income Statement shall be
final and binding on the parties if an Income Statement Acceptance Notice is
delivered to RCE or if no Income Statement Objection Notice is delivered to RCE
within such 30 day period. Any Income Statement Objection Notice shall specify
in reasonable detail the items on the Income Statement which are disputed and
shall describe in reasonable detail the basis for the objection, as well as the
amount in dispute. If an Income Statement Objection Notice is given, the
parties shall consult with each other with respect to the objection. If the
parties are unable to reach agreement within 20 days after an Income Statement
Objection Notice has been given, any unresolved disputed items shall be promptly
referred to the Unrelated Accounting Firm. The Unrelated Accounting Firm shall
be directed to render a written report on the unresolved disputed issues with
respect to the Income Statement within 30 days after the dispute is submitted to
them and to resolve only those issues of dispute set forth in the Income
Statement Objection Notice. The resolution of the dispute by the Unrelated
Accounting Firm shall be final and binding on the parties. The fees and
expenses of the Unrelated Accounting Firm shall be borne equally by RCE and the
Escrow and Earnout Participants (and RCE shall be authorized to deduct such
amount that the Escrow and Earnout Participants are responsible for from the
Escrow Account after abiding by the procedures set forth therein).
30
(c) RCE agrees and covenants that during the period from the
Closing Date until December 31, 2003: (i) RCE will operate the Affiliated
Companies' business in good faith and not in a manner intentionally designed to
reduce the amount of the Earnout Payment; (ii) there will be no allocation of
corporate overhead or new expenses for the purposes of calculating the Learning
Curve Trading Margin or other items upon which the calculations for the Earnout
Payment are based; (iii) neither RCE nor Learning Curve will engage in
activities or transactions which are intended to have the effect of deferring
the receipt or recognition of revenue or the accelerating the payment or
recognition of expenses taken into account in calculating the Earnout Payment;
and (iv) RCE will not, and will not cause any of the Affiliated Companies or any
other Subsidiary of RCE to, dispose of or take any actions intended to
materially reduce (x) the sales of any products included within any of the
Learning Curve Brands or (y) any assets necessary to continue conduct of the
business relating to the sale of any products included within any of the
Learning Curve Brands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LEARNING CURVE
Learning Curve, as to itself and each of the other Affiliated Companies,
represents and warrants to RCE as follows:
3.1 Incorporation. Each Affiliated Company is a corporation duly
-------------
incorporated, validly existing, and in good standing under the Laws of the
jurisdiction of its incorporation. Each Affiliated Company has delivered to RCE
complete and correct copies of its articles or certificate of incorporation,
by-laws or other charter or similar documents adopted or filed in connection
with its creation, formation or organization, each as amended to date (the
"Charter Documents"). Each Affiliated Company's Charter Documents so delivered
are in full force and effect.
3.2 Foreign Qualification. Each Affiliated Company is duly qualified
----------------------
to conduct business as a foreign corporation and is in good standing under the
Laws of each jurisdiction where the ownership or operation of its properties and
assets or the conduct of its business requires such qualification, except where
the lack of such qualification would not have a Material Adverse Effect.
3.3 Corporate Power and Authority. Each Affiliated Company has
--------------------------------
corporate power and authority to carry on the businesses in which it is engaged,
to own and use the properties owned and used by it. Learning Curve has the
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated by this
Agreement.
31
3.4 Authorization. The board of directors of Learning Curve has duly
-------------
authorized the execution and delivery of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated
hereby. Learning Curve has taken all corporate actions necessary to authorize
its execution and delivery of this Agreement, the performance of its obligations
hereunder, and the consummation of the transactions contemplated hereby, except
with respect to the consummation of the Learning Curve Merger, the approval and
adoption of this Agreement by the holders of the outstanding Learning Curve
Shares.
3.5 Execution, Delivery, and Enforceability. This Agreement has been
-----------------------------------------
executed and delivered by a duly authorized officer of Learning Curve,
constitutes a legal, valid, and binding obligation of Learning Curve, and is
enforceable against Learning Curve in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
3.6 Capitalization. The authorized capital stock of Learning Curve
--------------
consists solely of 848,736 shares of Class A Common Stock, par value $.001 per
share, of which 446,275 shares are issued and outstanding (the "Learning Curve
Class A Common Shares"); 67,858 shares of Class B Common Stock, par value $.001
per share (the "Learning Curve Class B Common Shares"), of which39,743 shares
are issued and outstanding as of the date of this Agreement; 468,435 shares of
Series A Preferred Stock, par value $.001 per share, of which 468,435 shares are
issued and outstanding ("Series A Preferred Shares"); 117,109 shares of Series B
Preferred Stock, par value $.001 per share, of which 117,109 shares are issued
and outstanding ("Series B Preferred Shares"); 48,930 shares of Series C
Preferred Stock, par value $.001 per share, of which 48,930 shares are issued
and outstanding ("Series C Preferred Shares"); 474,256 Series D Preferred Stock,
par value $.001 per share, of which 474,256 shares are issued and outstanding
("Series D Preferred Shares"); and 118,564 shares of Series E Preferred Stock,
par value $.001 per share, of which 118,564 shares are issued and outstanding
("Series E Preferred Shares") (such Series A Preferred Shares, Series B
Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and
Series E Preferred Shares, are collectively referred to as the "Learning Curve
Preferred Shares" and, together with the Learning Curve Common Shares (without
duplication), as the "Learning Curve Shares"). Learning Curve is, and at the
Closing will be, the record and beneficial owner of at least 80% of the equity
interest of LC SUB II (the "LC SUB II Shares"), free and clear of any
Encumbrance, and at the Closing, Learning Curve will transfer and deliver to Sub
II good and valid title to all of such LC SUB II Shares and any additional LC
Sub II
32
Shares owned by Learning Curve as of the Closing, free and clear of any
Encumbrance. Learning Curve is the record and beneficial owner of at least 90%
of the equity interest of LC SUB III (the "LC SUB III Shares"), and at the
Closing will be the record and beneficial owner of 100% of the LC SUB III
Shares, in each case free and clear of any Encumbrance, and at the Closing,
Learning Curve will transfer and deliver to Sub III good and valid title to all
of such LC SUB III Shares, free and clear of any Encumbrance. The Learning
Curve Shares, the LC SUB II Shares, and the LC SUB III Shares are referred to
collectively herein as the "Affiliated Company Shares." All the issued and
outstanding Affiliated Company Shares have been duly authorized and validly
issued and are fully paid and nonassessable. None of the issued and outstanding
Affiliated Company Shares (a) was offered or sold in violation of any provision
of the Securities Act or (b) was issued in violation of any preemptive rights or
any similar rights that entitle any Person to acquire any Affiliated Company
Shares upon the issuance or sale thereof. Except as disclosed in section 3.6 of
the Affiliated Company Disclosure Schedule, there are no authorized or
outstanding Derivative Securities of any Affiliated Company that are convertible
into or exercisable or exchangeable for any Affiliated Company Shares or other
shares of capital stock or securities of any Affiliated Company, and there are
no preemptive or other authorized or outstanding rights, options, warrants,
calls, redemption rights, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments to which any
Affiliated Company is a party or by which it is bound providing for the
issuance, transfer, sale, or other disposition of any Affiliated Company Shares
or other shares of capital stock or securities of any Affiliated Company.
Except as disclosed in Section 3.6 of the Affiliated Company Disclosure
Schedule, there are no authorized or outstanding stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Affiliated
Company Shares or other shares of capital stock of any Affiliated Company.
Except as disclosed in Section 3.6 of the Affiliated Company Disclosure
Schedule, no Affiliated Company has any outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote (or that are
convertible into or exercisable for securities having the right to vote) with
the stockholders of any Affiliated Company on any matter. Pursuant to the
Learning Curve Stock Option Plan and any other agreements, instruments or other
documents governing the terms of the Learning Curve Stock Options or any other
Derivative Securities of Learning Curve, all Learning Curve Stock Options and
other Derivative Securities of Learning Curve outstanding immediately prior to
the Learning Curve Effective Time will terminate as provided by section 2.10 and
no shares of capital stock of Learning Curve or the Learning Curve Surviving
Corporation shall be issued or outstanding with respect to any such Learning
Curve Stock Options or other Derivative Securities upon the consummation of the
Learning Curve Merger.
33
3.7 Notices, Filings, and Approvals. Except as disclosed in section
----------------------------------
3.7 of the Affiliated Company Disclosure Schedule and except filings under the
HSR Act and filing of the merger certificate in Delaware, no notice to, filing
with, or approval, authorization, consent, order, or other action by, any Person
is required of any Affiliated Company for the execution and delivery of this
Agreement, the performance of its obligations hereunder, or the consummation of
the transactions contemplated hereby.
3.8 Compliance. Each Affiliated Company is in compliance in all
----------
materials respects with all the provisions of (a) its Charter Documents; (b) all
applicable Laws and all applicable rules and regulations of all Governmental
Authorities; (c) all permits, approvals, authorizations, licenses, privileges,
and registrations necessary for the ownership of its assets and properties and
the conduct of its business; and (d) all judgments, decrees, orders, writs,
injunctions, and other rulings of all Governmental Authorities, and other
authorities having jurisdiction over the Affiliated Company or any of its
properties, assets, or operations. Each Affiliated Company has all permits,
licenses, variances, exemptions, orders, and other governmental authorizations,
consents, and approvals necessary to conduct its business as presently
conducted, and each such permit, license, variance, exemption, order, and other
governmental authorization, consent, and approval is as of the date hereof, and
will continue to be following the consummation of the Learning Curve Merger and
the other transactions contemplated by this Agreement, valid and in full force
and effect. No Affiliated Company has received any written notice or
communication of any material failure to comply with any of the foregoing that
has not been cured (as evidenced by a written notice to such effect, a copy of
which has been provided to RCE) as of the date hereof. In the past three years,
no Affiliated Company has had any license, certificate of authority, or permit
revoked or has had any Governmental Authority deny any of its applications for a
license, permit, or certificate of authority. The foregoing representations in
this section 3.8 shall be superseded by section 3.21 hereof with respect to Laws
applicable to Taxes and by section 3.25 hereof with respect to Environmental
Laws.
3.9 Noncontravention. Except as disclosed in section 3.9 of the
----------------
Affiliated Company Disclosure Schedule, neither the execution or delivery by
Learning Curve of this Agreement, nor the performance of its obligations
hereunder, nor the consummation of the transactions contemplated hereby, does or
will, whether with or without the giving of notice or the passage of time or
both, (a) result in any violation of or conflict with any provision of (i)
Charter Documents of any Affiliated Company, (ii) subject to making the filings
referred to in section 3.7 hereof, any applicable Law currently in effect, (iii)
any permit, approval, authorization, license, privilege, or registration
necessary for the ownership of its assets and properties and the conduct of its
business, or (iv) any
34
judgment, decree, order, writ, injunction, or other ruling of any Governmental
Authority, or other authority having jurisdiction over any Affiliated Company or
any of its properties, assets, or operations, (b) conflict with, result in a
breach of, constitute a default or event of default under, result in the
acceleration of performance under, result in the termination of, loss of a
material benefit under, or create in any party the right to accelerate,
terminate, cancel, or modify, any provision of any Contract to which any
Affiliated Company is a party or is otherwise bound, or (c) result in the
imposition of any Encumbrance upon any assets or properties of any Affiliated
Company.
3.10 Investments. Except as disclosed in section 3.10 of the
-----------
Affiliated Company Disclosure Schedule, each Affiliated Company has no
Subsidiaries and does not own of record or beneficially any capital stock or
other securities of, or any other equity or proprietary interest in, any other
Person.
3.11 Financial Statements. True and complete copies of Learning
---------------------
Curve's audited balance sheets as of December 31, 2001, and December 31, 2000,
its audited statements of income, stockholders' equity, and cash flow for the
years ended December 31, 2001, and December 31, 2000, its unaudited balance
sheet as of December 31, 2002, and its unaudited statements of income and cash
flows for the year ended December 31, 2002 (collectively, the "Learning Curve
Financial Statements") are set forth in section 3.11 of the Affiliated Company
Disclosure Schedule. The Learning Curve Financial Statements have been prepared
in accordance with GAAP applied on a consistent basis throughout the respective
periods covered thereby, and present fairly, in all material respects, the
financial position of Learning Curve as of the respective dates thereof, and the
results of operations, changes in stockholders' equity, and cash flows of
Learning Curve for the respective fiscal years and periods covered thereby. Not
less than five days prior to Closing, Learning Curve shall deliver to RCE the
audited balance sheet of Learning Curve as of December 31, 2002 and its audited
statements of income, stockholders' equity and cash flow for the year ended
December 31, 2002 (the "2002 Audited Financial Statements"). The 2002 Audited
Financial Statements will not reflect any material changes or differences from
the unaudited Learning Curve Financial Statements for the same date or period,
other than ordinary course audit adjustments which are not material individually
or in the aggregate. Except as disclosed in Schedule 3.11, the 2002 Audited
Financial Statements will be prepared in accordance with GAAP applied on a
consistent basis throughout the respective periods covered thereby, and present
fairly, in all material respects, the financial position of Learning Curve for
the fiscal year end and periods covered thereby.
3.12 No Undisclosed Liabilities. Except as disclosed in section 3.12
----------------------------
of the Affiliated Company Disclosure Schedule, no Affiliated Company has any
35
material Liabilities that would be required to be reflected on a balance sheet
prepared in accordance with GAAP, except for (a) the Liabilities reflected or
reserved against in the most recent Learning Curve Financial Statements; (b)
current Liabilities incurred in the ordinary course of business consistent with
past practice since the date of the most recent Learning Curve Financial
Statement; and (c) Liabilities for Transaction Expenses.
3.13 Accounting Controls. Learning Curve maintains a system of
--------------------
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary to permit the
preparation of financial statements in conformity with GAAP and to maintain
accountability for assets, (c) access to assets is permitted only in accordance
with management's general or specific authorization, and (d) the recorded
amounts for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
3.14 Off-Balance-Sheet Arrangements. No Affiliated Company has any
-------------------------------
Off-Balance Sheet Arrangements.
3.15 Related-Party Transactions. Except as disclosed in section 3.15
---------------------------
of the Affiliated Company Disclosure Schedule and except for regular payments of
salary or other compensation in the ordinary course of business consistent with
past practice to any Related Party who is an employee of Learning Curve, there
are no transactions or business relationships in excess of $25,000, individually
or in the aggregate, between an Affiliated Company and any Related Party.
Except as disclosed in section 3.15 of the Affiliated Company Disclosure
Schedule, no Affiliated Company is a party to or bound by any Contract in excess
of $25,000, individually or in the aggregate, with any Related Party. Except as
disclosed in section 3.15 of the Affiliated Company Disclosure Schedule, none of
the Affiliated Companies has any Liability in excess of $25,000, individually or
in the aggregate, to any Related Party, or vice versa, arising from or in
connection with any such transaction or business relationship. Except as
disclosed in section 3.15 of the Affiliated Company Disclosure Schedule, no
Related Party owns or leases any assets or properties of any Affiliated Company
in excess of $25,000, individually or in the aggregate.
3.16 Absence of Certain Developments. Except as disclosed in section
---------------------------------
3.16 of the Affiliated Company Disclosure Schedule, since December 31, 2002 (the
"Affiliated Company Balance Sheet Date"), there has not been any state of facts,
change, circumstance, development, or event that has had or would reasonably be
expected to have a Material Adverse Effect on the Affiliated Companies, taken as
a whole. In particular, except as disclosed in section 3.16 of the Affiliated
Company Disclosure Schedule, since the Affiliated Company Balance Sheet Date
through the date hereof, no Affiliated Company has:
36
(a) conducted its business outside the ordinary course of
business consistent with past practice;
(b) made or suffered any material change in the nature or conduct
of its business, regardless of whether such change has had or could reasonably
be expected to have a Material Adverse Effect;
(c) received notice that any of its 20 largest customers or 20
largest suppliers, by volume of sales with respect to customers and purchases
with respect to suppliers, for its fiscal year ended December 31, 2002, intends
to materially alter the amount of business conducted with Learning Curve or to
cease conducting business with Learning Curve altogether;
(d) entered into, amended in any material respect, or terminated
in whole or in material part any material Affiliated Company Contract;
(e) (i) made or incurred any capital expenditure, except in the
ordinary course of business consistent with past practice, or (ii) made or
incurred any capital expenditures in January 2003 in an aggregate amount in
excess of the total amount of capital expenditures (the "January 2003 Capital
Expenditure Budget Amount") set forth in the January 2003 capital expenditure
budget in the form previously delivered by Learning Curve to RCE;
(f) sold, assigned, licensed, exchanged, leased, transferred or
otherwise disposed of any material portion of its material assets or properties,
other than for a fair consideration (except for sales of slow moving, obsolete
or excess inventory in the ordinary course of business) and except in the
ordinary course of business consistent with past practice with suitable
replacements being obtained therefor to the extent necessary to operate the
business;
(g) suffered any material damage to or destruction or loss of any
of its assets or properties, regardless of whether such damage, destruction, or
loss was covered by insurance;
(h) purchased, leased, or otherwise acquired any assets or
properties, except in the ordinary course of business consistent with past
practice;
(i) (i) incurred any Liability to any Person in excess of
$25,000 in the aggregate, except in the ordinary course of business consistent
with past practice, or (ii) incurred any Liability to any Person involving
actual or potential aggregate future payments by an Affiliated Company in excess
of $150,000, except for purchase orders for products made in the ordinary course
of business consistent with past practice;
37
(j) borrowed any money or issued any bonds, debentures, notes, or
other instruments evidencing borrowed money, except borrowings under the Credit
Agreement, and except that Learning Curve or an Affiliated Company may execute
and deliver the Canadian Purchase Notes;
(k) paid, discharged, or satisfied any of its material
Liabilities, except in the ordinary course of business consistent with past
practice;
(l) failed to pay, discharge, or satisfy any of its material
Liabilities when due and payable or delayed doing any of the foregoing, except
for such Liabilities that it believes in good faith are not owed and do not
exceed, individually or in the aggregate, $35,000;
(m) received notice that any Person party thereto has
accelerated, terminated, modified, or cancelled any material Affiliated Company
Contract;
(n) made any loan or advance of money to any Person in an amount
in excess of $5,000 or made loans or advanced money to Persons in the aggregate
in excess of $25,000, other than Stock Option Loans (which Stock Option Loans
will be paid in full from the Cash Consideration payable to the borrower
pursuant to the Learning Curve Merger) and ordinary expense reimbursement and
use of company credit cards by employees consistent with Learning Curve's past
practices;
(o) compromised, canceled, waived, or released any material claim
or right of an Affiliated Company or any material Liability of any other Person;
(p) received notice that any material Liability has been asserted
against an Affiliated Company;
(q) subjected any of its assets or properties, or permitted any
of its assets or properties to be subjected to, any Encumbrance except for
Permitted Liens;
(r) granted any general increase in compensation to its employees
as a class, except in accordance with past practice or as required by Law, or
increased by more than 5% the total annual cash compensation payable to any
employee whose total annual cash compensation prior to such increase was less
than $50,000;
38
(s) except as required by Law, made any material change in the
employment terms of any director, officer, or employee outside the ordinary
course of business consistent with past practice, or entered into or made a
material amendment to any employment, severance or special pay arrangement with
respect to termination of employment or other similar arrangements or agreements
with any directors, officers or employees to increase the benefits provided or
to provide additional or new benefits to any such person;
(t) (i) except as required by Law, adopted, established, made a
material amendment to, or terminated any Employee Benefit Plan, or (ii) paid any
amount or provided any benefit under any Employee Benefit Plan, except in the
ordinary course of business consistent with past practice;
(u) (i) experienced any labor organizational effort, strike,
organized work stoppage or interruption, or organized work slowdown, (ii)
received any written claim or grievance, unfair labor practice charge or
complaint, charge of discrimination, or occupational health and safety citation
or complaint involving any present or former employee or other personnel
retained by an Affiliated Company other than routine individual grievances, or
(iii) experienced any change in its employee relations that has had or could
reasonably be expected to have a Material Adverse Effect;
(v) (i) amended or authorized amendment of its certificate of
incorporation or by-laws, or (ii) rescinded or modified or authorized rescission
or modification of any resolutions adopted by its board of directors or
stockholders;
(w) (i) changed its authorized capital stock, (ii) effected any
stock split, reverse stock split, or other recapitalization affecting its
capital stock, (iii) issued or sold or otherwise disposed of any of its capital
stock, options, warrants, calls, or other rights to purchase capital stock, any
securities convertible into or exchangeable for capital stock, or other
securities, or (iv) purchased, redeemed, retired, or otherwise acquired any of
its capital stock or other securities;
(x) declared, paid, or set aside for payment any dividends,
distributions, or payments on its capital stock (whether in cash, stock,
property or otherwise);
(y) (i) changed any of its accounting methods, principles,
assumptions, or practices, or (ii) written up, down, or off the value of any of
its assets;
(z) failed to perform in all material respects all obligations
required to be performed by it under any material Affiliated Company Contract;
39
(aa) received notice that its business requires a new or
additional permit, consent or permission from any Governmental Authority
pursuant to any Environmental Laws;
(bb) failed to pay when due any premium with respect to any
insurance policy covering an Affiliated Company or its business, assets,
properties, directors, officers, or employees, or (ii) canceled or failed to
renew any such insurance policy; or
(cc) agreed, committed, or otherwise arranged to take or suffer
the taking of any action described in this section 3.16, regardless of whether
such agreement, commitment, or other arrangement is oral, written or otherwise.
3.17 Title to, and Sufficiency of, Assets. Except as disclosed in
-----------------------------------------
section 3.17 of the Affiliated Company Disclosure Schedule, and except for
assets disposed of in the ordinary course of business consistent with past
practice, each Affiliated Company has full legal and beneficial title to or a
valid license or leasehold interest in all the assets and properties owned or
used by it and reflected on the most recent Learning Curve Financial Statements
(including, without limitation, all furniture, fixtures, fixed assets,
equipment, personal property, real property, leasehold interests and
improvements, cash and cash equivalents, accounts receivable, notes receivable,
negotiable instruments, chattel paper, deposits, inventory, Contract interests,
Affiliated Company Intellectual Property, computer software (including source
codes), permits, business books and records, business materials, corporate books
and records, tax credits and refunds, and insurance policies and rights with
respect thereto), free and clear of all Encumbrances except for Permitted Liens.
Such assets constitute all of the assets and properties necessary to conduct its
business as currently conducted. Section 3.17 of the Affiliated Company
Disclosure Schedule contains a complete list of all product tooling with an
original cost of $20,000 or more possessed or used by any Affiliated Company
that is not owned by an Affiliated Company or one of its Subsidiaries.
3.18 Condition of Assets. All assets and properties owned or used by
---------------------
any Affiliated Company in the conduct of its business are in good condition and
working order, ordinary wear and tear excepted.
3.19 Intellectual Property. An Affiliated Company owns, or has other
----------------------
legitimate and recognized license rights in, all the Affiliated Company
Intellectual Property necessary to conduct the Affiliated Company's business as
currently conducted. All rights of each Affiliated Company in the Affiliated
Company Intellectual Property currently used by such Affiliated Company are
valid and subsisting. Except as disclosed in section 3.19 of the Affiliated
Company
40
Disclosure Schedule, each Affiliated Company has taken all commercially
reasonable measures to protect its rights with respect to its Owned Affiliated
Company Intellectual Property, including those measures required by Law. All
maintenance, annuity, renewal, and other fees required to be paid by any
Affiliated Company as of the date hereof with respect to the registration and
protection of its Affiliated Company Intellectual Property have been timely paid
or, if not timely paid, paid late together with the payment of any fees or
penalties required in order for such late payment to not result in any adverse
effect on the Affiliated Company's current use or ownership of such Affiliated
Company Intellectual Property. To Learning Curve's Knowledge, no Affiliated
Company is required to pay any royalty, honorarium, fee, or other amount to any
Person for its use of any Affiliated Company Intellectual Property other than
(i) fees and payments to the respective government offices required to be paid
by the Affiliated Company for obtaining and maintaining protection of the
Affiliated Company Intellectual Property and (ii) royalties and other license
fees under Contracts with respect to Licensed Affiliated Company Intellectual
Property. Any Affiliated Company's use of any of the Owned Affiliated Company
Intellectual Property and, to Learning Curve's Knowledge, any of the Licensed
Affiliated Company Intellectual Property, does not infringe or has not infringed
any Intellectual Property right of any Person, nor has it, through such use,
misappropriated or improperly used or disclosed any Intellectual Property of any
Person. Except as disclosed in section 3.19 of the Affiliated Company
Disclosure Schedule, there is no pending or, to the Knowledge of Learning Curve,
threatened claim, charge, demand, inquiry, investigation, action, suit,
arbitration, or other legal proceeding relating to any of the Owned Affiliated
Company Intellectual Property. Except as disclosed in section 3.19 of the
Affiliated Company Disclosure Schedule, there is no pending claim, charge,
demand, inquiry, investigation, actions, suit, arbitration, or other legal
proceeding against any Affiliated Company relating to any of the Licensed
Affiliated Company Intellectual Property, or, to the Knowledge of Learning
Curve, any threatened claim, charge, demand, inquiry, investigation, actions,
suit, arbitration, or other legal proceeding relating to any of the Licensed
Affiliated Company Intellectual Property or, to the Knowledge of Learning Curve,
any pending claim, charge, demand, inquiry, investigation, actions, suit,
arbitration, or other legal proceeding against any licensor relating to any of
the Licensed Affiliated Company Intellectual Property. Following the Learning
Curve Merger and the other transactions contemplated by this Agreement, an
Affiliated Company will continue to own or have the uninterrupted right to use
the Affiliated Company Intellectual Property pursuant to the same terms and
conditions existing on the date hereof.
3.20 Contracts. Except as disclosed in section 3.20 of the Affiliated
---------
Company Disclosure Schedule, no Affiliated Company is a party to or bound by any
of the following Contracts (collectively, the "Affiliated Company Contracts"):
41
(a) Contract that involves or could reasonably be expected to involve
aggregate future payments by an Affiliated Company in excess of $75,000 that is
not in the ordinary course of business;
(b) Contract that (i) involves or could reasonably be expected to involve
aggregate future payments by an Affiliated Company in excess of $75,000 and (ii)
is not terminable by an Affiliated Company within 90 days after giving notice to
the other party to the Contract without any penalty, premium, or continuing
Liability being imposed on an Affiliated Company, except customer and vendor
purchase orders entered into in the ordinary course of business consistent with
past practice;
(c) Contract that involves or could reasonably be expected to involve
aggregate future payments by an Affiliated Company with any Related Party;
(d) Contract for the sale, assignment, license, exchange, lease, transfer,
or other disposition of any of its assets or properties in an amount in excess
of $35,000, except customer and vendor purchase orders entered into in the
ordinary course of business consistent with past practice and except in the
ordinary course of business consistent with past practice;
(e) Contract for the purchase, lease, or other acquisition of any assets or
properties in an amount in excess of $35,000, except vendor purchase orders
entered into in the ordinary course of business consistent with past practice
and except in the ordinary course of business consistent with past practice;
(f) Contract for the merger, consolidation, recapitalization, or any other
reorganization of an Affiliated Company, except for this Agreement;
(g) Contract for the borrowing of money from any Person;
(h) Contract for the lending or advancing of money in an amount to any
Person other than for ordinary expense reimbursement and use of company credit
cards by employees consistent with Learning Curve's past practices;
(i) Contract with any Governmental Authority;
(j) Contract for the employment of any Person (other than employment that
is terminable at will) or for consulting, contracting, agency, or other similar
services by any Person in excess of $50,000;
42
(k) Contract relating to the termination of any Person's employment or
providing severance or other post-termination benefits in connection therewith;
(l) Contract with any labor union, including any collective bargaining
agreement;
(m) Contract that limits the right of an Affiliated Company to engage in
any business or to compete with any Person;
(n) Contract that is in violation of Law or the performance of which is or
would be in violation of Law;
(o) Contract that requires the approval, authorization, or consent of any
party thereto to the consummation of the transactions contemplated by this
Agreement;
(p) any other Contract the performance of which involves consideration in
excess of $35,000 except customer and vendor purchase orders entered into in the
ordinary course of business consistent with past practice; or
(q) any Contract with any consultant or independent contractor which
involves the payment of compensation in excess of $35,000 or a term greater than
six months.
Learning Curve has delivered true and complete copies of all of the
Affiliated Company Contracts to RCE prior to the date hereof. Except as
disclosed in section 3.20 of the Affiliated Company Disclosure Schedule, each
Affiliated Company Contract is as of the date hereof, and will continue to be
following the consummation of the Learning Curve Merger and the other
transactions contemplated by this Agreement, valid, in full force and effect,
and enforceable against each other party thereto in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally. Except as disclosed in items
numbered 41 and 42 of section 3.20 of the Affiliated Company Disclosure
Schedule, there is no material conflict, disagreement, or dispute regarding any
Affiliated Company Contract between the Affiliated Company and any other party
thereto. Except as disclosed in items numbered 41 and 42 of section 3.20 of the
Affiliated Company Disclosure Schedule, no Affiliated Company has threatened,
and Learning Curve has no Knowledge that any other party has threatened, to
cancel any Affiliated Company Contract. Except as disclosed in items numbered
41 and 42 of section 3.20, section 3.7, section 3.9 and section 3.27 of the
Affiliated Company Disclosure
43
Schedule, there is no material breach or default under any Affiliated Company
Contract by an Affiliated Company or any other party thereto. To the Knowledge
of Learning Curve, no act, omission, event, development, condition, or
circumstance has occurred or is existing that, with or without the giving of
notice or the passage of time or both, would become or result in any material
breach or default under any Affiliated Company Contract by an Affiliated Company
or any other party thereto. Except as disclosed in sections 3.7, 3.9 and 3.27
of the Affiliated Company Disclosure Schedule and without making any admissions
with respect thereto, each Affiliated Company is in compliance in all material
respects with all the provisions of all Affiliated Company Contracts to which it
is a party or otherwise bound. Except as disclosed in items numbered 41 and 42
of section 3.20 of the Affiliated Company Disclosure Schedule, no Affiliated
Company has released or waived any material right or remedy under any Affiliated
Company Contract. Each Affiliated Company, to Learning Curve's Knowledge, is
not subject to any material legal obligation, and Learning Curve has no
Knowledge that any other party has any legal right, to materially renegotiate
any Affiliated Company Contract. Except as disclosed in section 3.27 of the
Affiliated Company Disclosure Schedule, Learning Curve has no Knowledge of any
pending or threatened bankruptcy, insolvency, or similar proceeding with respect
to any other party to the Affiliated Company Contracts.
3.21 Taxes. Except as disclosed in section 3.21 of the Affiliated
-----
Company Disclosure Schedule, all Tax Returns required to be filed by an
Affiliated Company with all taxing authorities on or before the date hereof have
been timely filed. Except as disclosed in section 3.21 of the Affiliated
Company Disclosure Schedule, all such filed Tax Returns have been prepared in
accordance with all applicable Laws and correctly reflect in all material
respects the facts regarding the Affiliated Company's income, business, assets,
operations, activities, and status and all other information required to be
shown thereon as of the date of filing. Except as disclosed in section 3.21 of
the Affiliated Company Disclosure Schedule, each Affiliated Company has timely
paid all Taxes shown on the books and records of the Affiliated Company to be
due and reflected on such filed Tax Returns. Except as disclosed in section
3.21 of the Affiliated Company Disclosure Schedule, each Affiliated Company has
timely made all required deposits and estimated payments with respect to accrued
Taxes as of the date of such statements. Except as disclosed in section 3.21 of
the Affiliated Company Disclosure Schedule, the reserves for Taxes contained in
its most recent Affiliated Company Financial Statement are adequate to cover all
accrued and unpaid Taxes as of the date thereof. Each Affiliated Company has
withheld or collected from each payment made to each of its employees the amount
of all Taxes required to be withheld or collected therefrom, and the Affiliated
Company has paid the same to the appropriate taxing authority or depository.
Learning Curve (a) is not currently subject to audit by any taxing authority,
(b) has no Knowledge that any
44
taxing authority has threatened or given notice of an intended audit, (c) has
not received from any taxing authority any written notice of deficiencies,
adjustments, assessments, or other charges with respect to Taxes paid or payable
(that have not previously been settled, paid or otherwise resolved), or (d) made
any payment, or provided any benefit, to any present or former director,
officer, or employee that is not allowable as a deduction under the Code. No
extension of time for the filing of Tax Returns or the payment of Taxes by any
Affiliated Company is in effect on the date hereof. No Affiliated Company has
within the last five years (i) redeemed, retired, or otherwise acquired any of
its capital stock or other securities, or (ii) declared, paid or set aside for
payment any dividends, distributions, or payments on its capital stock except as
disclosed in section 3.21 of the Affiliated Company Disclosure Schedule.
3.22 Insurance. All Insurance Policies to which an Affiliated Company
---------
is a party or under which it is covered as of the date of this Agreement are
disclosed in section 3.22 of the Affiliated Company Disclosure Schedule, and
Learning Curve has delivered true and complete copies of all such Insurance
Policies (and correspondence relating to the current availability of coverage or
any outstanding claims thereunder) and of all pending applications for Insurance
Policies to RCE prior to the date hereof. Each of the Insurance Policies to
which an Affiliated Company is a party or that provides coverage to it is as of
the date hereof, and will continue to be immediately following the consummation
of the Learning Curve Merger and the other transactions contemplated by this
Agreement, valid, in full force and effect, and enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally. Each Affiliated
Company has paid when due all premiums and other costs with respect to each
Insurance Policy to which it is a party or that provides coverage to it and has
otherwise performed all of its obligations under each such Insurance Policy. All
Insurance Policies, taken together, are sufficient for compliance with all Laws
applicable to each Affiliated Company and with all Affiliated Company Contracts.
There is no claim insured under any Insurance Policy in excess of $25,000 of
which an Affiliated Company has not properly and timely notified the applicable
insurer other than any claim which may still be properly and timely notified.
There is no pending claim filed by an Affiliated Company under any Insurance
Policy as to which the insurer has denied coverage or is defending under a
reservation of rights. No Affiliated Company has received (a) any refusal of
coverage or any notice that a defense will be afforded with reservation of
rights or (b) any notice of cancellation or any other indication that any
Insurance Policy is no longer in full force or effect or that the applicable
insurer is not willing or able to perform its obligations thereunder. Except as
disclosed in section 3.22 of the Affiliated Company Disclosure
Schedule, no Affiliated Company is obligated under any Contract to provide
insurance coverage to any third party (including Related Parties).
45
3.23 Employment and Labor. No Affiliated Company is delinquent in any
---------------------
material respect in the payment of any wages, salaries, commissions, bonuses,
reimbursements, or other compensation payable to any of its present or former
employees. Except as disclosed in section 3.23 of the Affiliated Company
Disclosure Schedule, the employment of each employee of an Affiliated Company is
terminable at will without any cost or Liability to the Affiliated Company,
except for the payment of accrued wages, salaries, commissions, bonuses,
reimbursements, and other compensation and the provision of benefits under the
Employee Benefit Plans. Learning Curve has no Knowledge that any of its
directors, officers, or other management-level employees intends to terminate
his or her employment with an Affiliated Company, except as contemplated by this
Agreement. Each Affiliated Company is in compliance with all applicable Laws
relating to employment and employment practices, terms and conditions of
employment, wages and hours, occupational health and safety, and the employment
of nonresidents, except for such instances of noncompliance that in the
aggregate have not had and could reasonably be expected not to have a Material
Adverse Effect. There is no outstanding and unresolved written claim or
grievance, unfair labor practice charge or complaint, charge of discrimination,
or health and safety citation or complaint involving any present or former
employee or other personnel retained by an Affiliated Company other than routine
individual grievances. There is no pending or, to the Knowledge of Learning
Curve, threatened claim, charge, demand, inquiry, investigation, action, suit,
arbitration, or other legal proceeding concerning any Affiliated Company's
employment practices. No Affiliated Company is a party to any collective
bargaining agreement or other Contract with any labor union and has not received
written notice of any labor organizational efforts with respect to its
employees. No Affiliated Company has experienced any strike, organized work
stoppage or interruption, or organized work slowdown by its employees during the
last three years.
3.24 Employee Benefit Plans.
------------------------
(a) All Employee Benefit Plans maintained or operated by an
Affiliated Company or an ERISA Affiliate of an Affiliated Company or under which
it has any Liability are disclosed in section 3.24 of the Affiliated Company
Disclosure Schedule. Section 3.24 of the Affiliated Company Disclosure Schedule
contains a true and complete list of all employee handbooks, manuals, brochures,
publications or similar documents of each Affiliated Company regarding personnel
matters and hiring, evaluation, supervision, training, termination and promotion
of employees of an Affiliated Company, including but not limited to an
Affiliated Company's affirmative action plan, if any, kept in the ordinary
course of business ("Personnel Documents"). Learning Curve has furnished to RCE
true and correct copies of all the documents listed in section 3.24 of the
Affiliated
46
Company Disclosure Schedule. True, complete and correct copies of the following
have been made available to RCE: (i) each Employee Benefit Plan, and a written
summary of any Employee Benefit Plan not in writing, (ii) the most recent
opinion letter received from the Internal Revenue Service, (iii) the summary
plan description and all summaries of material modifications and all material
communications to employees with respect to any Employee Benefit Plan, (iv) the
five most recent annual reports on Internal Revenue Service Form 5500 or 5500C
required to be filed for each Employee Benefit Plan including Schedule A and
Schedule B thereto (except in the case of an Employee Benefit Plan that has been
in existence for less than 5 years, in which case, for as long as it has been in
existence), (v) actuarial reports, if applicable, and the most recent periodic
accounting of related plan assets, and (vi) all related trust agreements,
annuity contracts, insurance contracts or other funding arrangements which
implement any Employee Benefit Plan, and (vii) in the case of stock options or
stock appreciation rights issued under any Employee Benefit Plan which is a
stock option or stock appreciation rights plan, a list of holders, dates of
grant, number of shares, exercise price per share and dates exercisable, and
(viii) each Personnel Document.
(b) The plan sponsor for Learning Curve's Employee Benefit Plan
which is intended to be qualified under Code section 401(a) and which has been
adopted by Learning Curve has received a favorable opinion letter dated
September 18, 2001 with respect to its prototype non-standardized profit sharing
plan. To the Knowledge of Learning Curve, no act, omission, event, development,
condition, or circumstance has occurred or is existing that would cause any
Employee Benefit Plan to become disqualified for purposes of Code section
401(a). No Affiliated Company has any trust which is intended to qualify under
Code section 501(c)(9). Each Affiliated Company is, and each Employee Benefit
Plan is maintained and operated, in compliance with all applicable Laws relating
to Employee Benefit Plans (including, without limitation, Code section 401(a)
and ERISA) and all the terms of such Employee Benefit Plan, except for such
instances of noncompliance that in the aggregate have not had and could
reasonably be expected not to have a Material Adverse Effect. No Affiliated
Company has incurred any Liability to the IRS, the DOL, or the PBGC in
connection with any Employee Benefit Plan.
(c) Except as disclosed in section 3.24 of the Affiliated Company
Disclosure Schedule, neither an Affiliated Company nor any of its officers or
directors, has taken any action directly or indirectly which obligates an
Affiliated Company to institute or modify or change any Employee Benefit Plan,
any actuarial or other assumption used to calculate funding obligations with
respect to any of the Affiliated Company's Employee Benefit Plans, or the manner
in which contributions to any of the Employee Benefit Plans are made or the
basis on which such contributions are determined.
47
(d) With respect to each Employee Benefit Plan (i) no prohibited
transaction as defined in ERISA section 406 or Code section 4975 has occurred,
(ii) neither an Affiliated Company nor any of its current or former directors,
officers, employees or any other "fiduciary," within the meaning of ERISA
section 3(21), has committed any breach of fiduciary responsibility imposed by
ERISA or any other applicable Law, or has any Liability for failure to comply
with ERISA or the Code for any action or failure to act in connection with the
administration or investment of the assets of any Employee Benefit Plan, and
there is no pending, or to the Knowledge of Learning Curve, threatened or
anticipated action, suit, grievance, arbitration or other manner of litigation
or claim under any Employee Benefit Plan or with respect to the assets thereof,
or by or on behalf of any current or former director, officer or employee, or
dependent or beneficiary thereof, or otherwise (other than routine claims for
benefits where the plan's administrative claims procedure has not yet been
exhausted), including but not limited to any action, suit, grievance,
arbitration or other manner of litigation or claim regarding conduct which
allegedly interferes with the attainment of rights under any Employee Benefit
Plan, and (iii) neither Learning Curve nor any of its directors or officers or
any fiduciary of any Employee Benefit Plan has any Knowledge of any facts which
could give rise to arbitration or other manner of litigation or claims with
respect to any Employee Benefit Plan, except for, with respect to (i), (ii) and
(iii) above, such instances of noncompliance that in the aggregate have not had
and could reasonably be expected not to have a Material Adverse Effect.
(e) All reports and descriptions of the Employee Benefit Plans
(including, without limitation, IRS Form 5500 annual reports, summary annual
reports, and summary plan descriptions) required to be filed within the past
five years by an Affiliated Company with the IRS, the DOL, or the PBGC on or
before the date hereof have been timely filed, and as appropriate, have been
timely provided to the participants in the Employee Benefit Plans.
(f) There is no pending or, to the Knowledge of Learning Curve,
threatened claim, charge, demand, inquiry, investigation, action, suit,
arbitration, or other legal proceeding relating to any Employee Benefit Plan,
except for claims for benefits thereunder made in the ordinary course.
(g) Except as disclosed in section 3.24 of the Affiliated Company
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not accelerate the time of vesting or payment, or increase the
amount, of the compensation or benefits to be paid or provided to any present or
former officer or employee of an Affiliated Company. Except as disclosed in
section 3.24 of the Affiliated Company Disclosure Schedule, no Contract or
Employee Benefit Plan provides for any "excess parachute payment," within the
meaning of Code section 4999, upon or in connection with the consummation of the
transactions contemplated by this Agreement.
48
(h) No Affiliated Company has been liable at any time for
contributions to any Employee Benefit Plan that is or was subject to ERISA Title
IV.
(i) Each Affiliated Company or an ERISA Affiliate of the
Affiliated Company, as applicable, has made all contributions required to be
made by it pursuant to the terms of any Employee Benefit Plan or any collective
bargaining agreement to which it is a party or as otherwise required by
applicable law. With respect to each Employee Benefit Plan, subject to only
normal retrospective adjustments in the ordinary course, all insurance premiums,
including premiums to the PBGC, have been paid in full for policy years or other
applicable policy periods ending on or prior to the date hereof. There exists
no "accumulated funding deficiency" within the meaning of ERISA section 302 and
Code section 412, with respect to any Employee Benefit Plan, regardless of
whether such deficiency has been waived.
(j) Each Affiliated Company does not have, and the consummation
of the transactions contemplated by this Agreement will not result in, any
Liability for (i) any minimum funding contribution required under ERISA section
302(c)(11) or Code section 412(c)(11), (ii) any payment required under ERISA
section 302(e) or Code section 412(m), (iii) any lien imposed under ERISA
section 302(f) or Code section 412(n), (iv) any excise tax imposed with respect
to an accumulated funding deficiency under Code section 4971, (v) the
termination of or withdrawal from any plan under ERISA sections 4062, 4063, or
4064, or (f) the withdrawal from any multi-employer plan under ERISA section
4201.
(k) Except as disclosed in section 3.24 of the Affiliated Company
Disclosure Schedule, no Employee Benefit Plan is (i) a "multiemployer plan"
within the meaning of ERISA sections 3(37) or 4001(a)(3) or Code section 414(f),
(ii) a "multiple employer welfare plan" or a "multiple employer welfare
arrangement" within the meaning of ERISA section 514(b)(6), or a "welfare
benefit fund" within the meaning of Code section 419(e). Each Affiliated
Company has not incurred and does not expect to incur any withdrawal Liability
(either as a contributing employer or as part of a controlled group which
includes a contributing employer) to any multiemployer plan, in connection with
any complete or partial withdrawal from such plan occurring on or before the
Closing Date or as a result of the transactions contemplated under this
Agreement.
(l) Except as disclosed in section 3.24 of the Affiliated Company
Disclosure Schedule, no Employee Benefit Plan provides medical, life or other
welfare benefits (whether or not insured), with respect to current or former
employees after retirement or other termination of service (other than coverage
49
mandated by applicable Law). With respect to any Contract or arrangement with
an insurance company providing funding under any Employee Benefit Plan, there is
no Liability for any retroactive rate adjustment. Each Affiliated Company has
the right to amend or terminate its participation with respect to each Employee
Benefit Plan in accordance with its terms. Each Employee Benefit Plan that is a
"group health plan," within the meaning of Code section 5000 has been operated
in compliance with Code section 4980B or ERISA sections 601 through 608, ERISA
sections 701 through 713, the administrative simplification provisions of the
Health Insurance Portability Act of 1996, as applicable, and the secondary payor
requirements of section 1862(b) of the Social Security Act. No claim for
medical benefits has been incurred (but not reported) under any Employee Benefit
Plan with respect to any current or former employee (or the spouse of dependent
of such employee) which is in excess of $25,000.
(m) The total aggregate potential maximum liability for the
entire current fiscal year and any remaining earned but unpaid amounts for prior
fiscal years under any cash bonus plan listed in section 3.24 of the Affiliated
Company Disclosure Schedule is $100,000, of which 100% has been accrued as a
liability on the balance sheet of Learning Curve as of December 31, 2002. Each
Affiliated Company has continued to accrue since December 31, 2002 all amounts
payable pursuant to any cash bonus plan in accordance with its past practice.
3.25 Environmental Matters.
----------------------
(a) Except as disclosed in section 3.25 of the Affiliated Company
Disclosure Schedule, each Affiliated Company and its business are in compliance
in all material respects with all applicable Environmental Laws in connection
with the ownership, operation and condition of its properties (whether owned or
leased), assets, and business and have all permits, licenses, approvals, and
other such authorizations from Governmental Authorities to operate its business
in full compliance with Environmental Law, and, as of the date of this
Agreement, neither an Affiliated Company nor its business has received any
notice, order or directive from any Person or Governmental Authority alleging a
violation of any Environmental Law.
(b) With respect to each Affiliated Company:
(i) There are no Contaminants located on, contained in,
present at or otherwise part of an Affiliated Company's properties (whether
owned or leased), assets, or business other than in accordance with applicable
Law that do or will require any response, investigation or remediation, and
there has not been any past or ongoing release of Contaminants from the
operation of any its properties (whether owned or leased), assets, or business
into the environment;
50
(ii) There are no PCBs and there is no mold,
asbestos-containing material, lead-based paint or urea-formaldehyde that is or
are located on, contained in, present at or otherwise a part of its properties
(whether owned or leased), assets, or business;
(iii) No Person has or may have suffered any injury or
incurred any damage of any type whatsoever as the result of the release or
presence of or exposure to Contaminants from, at or on its properties (whether
owned or leased), assets, or business; and
(iv) There are no locations where Contaminants from its
operation of its properties (whether owned or leased), assets, or business have
been present, stored, treated, or recycled or disposed of, other than in
accordance with applicable Law.
(c) There are no (and have not been any) underground or above
ground storage tanks located upon any Affiliated Company's properties (whether
owned or leased) or assets.
(d) Neither an Affiliated Company nor its business has received,
as of the date of this Agreement, any written directive, order or notice from
any Governmental Authority or any other Person alleging that either an
Affiliated Company or its business is actually or potentially liable under any
Environmental Law for the costs of response, investigation or remediation of any
property (whether owned or leased, real or personal) to which Contaminants
generated in connection with an Affiliated Company's business were transferred,
transported or otherwise come to be located at, upon or in. Copies of any
environmental investigations, studies, audits, tests, reviews, or analyses
relating to any properties (whether owned or leased), business or assets
conducted by or on behalf of an Affiliated Company or provided by any Person to
the Affiliated Company within the last five years, have been provided to RCE.
3.26 Importing and Exporting Activities. An Affiliated Company has
-------------------------------------
paid when due all customs duties owing with respect to any and all imported
merchandise, and all customs entry information provided by the Affiliated
Company to Governmental Authorities in connection with the import thereof has
been true and correct in all material respects. No issues have been raised with
an Affiliated Company by any Governmental Authority that are currently pending
in connection with any customs entry or any export transaction or relating to
any audit, examination, or investigation of an Affiliated Company's import or
export activities. There are no unresolved issues or unpaid deficiencies, fines
or penalties relating to any audit, examination, or investigation of an
Affiliated Company's customs entries or export transactions. All of each
Affiliated Company's exports have been made in accordance with U.S. export
controls Laws. No Affiliated Company is subject to any governmental action that
would bar it from exporting or otherwise limit its exporting activities.
51
3.27 Legal Proceedings. Except as disclosed in section 3.27 of the
------------------
Affiliated Company Disclosure Schedule, there is no claim, charge, demand,
inquiry, investigation, action, suit, arbitration, or other legal proceeding
pending or, to the Knowledge of Learning Curve, threatened by or against an
Affiliated Company. No claim, charge, demand, inquiry, investigation, action,
suit, arbitration, or other legal proceeding disclosed in section 3.27 of the
Affiliated Company Disclosure Schedule concerns the ownership or other rights
with respect to the Affiliated Company Shares. The claims, charges, demands,
inquiries, investigations, actions, suits, arbitrations, and other legal
proceedings disclosed in section 3.27 of the Affiliated Company Disclosure
Schedule, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect, except as set forth in item number 1 in section 3.27 of the
Affiliated Company Disclosure Schedule (the "Litigation"). During the past
three years, to the Knowledge of Learning Curve, it has not been the target or
subject of any audit, inspection, inquiry, investigation, survey, or other form
of review by any Governmental Authority, industry or trade association,
professional review organization, accrediting organization, certifying agency or
other Person relating to any actual or alleged improper activity on the part of
the Affiliated Company or any of its officers or directors. No such reviews are
pending, and to the Knowledge of Learning Curve, none are threatened.
3.28 Certain Payments. Neither an Affiliated Company nor any Person
-----------------
associated with or acting for or on behalf of the Affiliated Company has,
directly or indirectly, (a) made in violation of applicable Law any
contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other
payment, whether in the form of money, property, or services, to any Person,
private or public, (i) to obtain favorable treatment in securing business or to
compensate for favorable treatment for business secured or (ii) to obtain
special concessions or to compensate for special concessions obtained, or (b)
established or maintained any fund or asset that is not recorded in the books
and records of an Affiliated Company.
3.29 No Broker's Commission. Except for the fee of Banc of America
------------------------
Securities LLC (which is included among the Transaction Expenses pursuant to
section 9.2), no broker's commission, finder's fee, investment banker's fee, or
other similar payment is or will become payable by an Affiliated Company or RCE
pursuant to any Contract entered into by an Affiliated Company as a result of or
in connection with entering into this Agreement or consummating the transactions
contemplated hereby.
3.30 Disclosure. None of the representations or warranties of Learning
----------
Curve contained in this Agreement, the Affiliated Company Disclosure Schedule or
any certificate delivered by Learning Curve pursuant to this Agreement contain
any untrue statement of a material fact or omit to state a material fact
required to be stated herein or therein or necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not false or misleading.
52
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RCE
RCE, as to itself and all the RCE Subsidiaries (in which case the term
"RCE" shall mean Racing Champions Ertl Corporation and all the RCE Subsidiaries,
except with respect to sections 4.3, 4.4 and 4.5), represents and warrants to
Learning Curve as follows:
4.1 Incorporation. RCE is a corporation duly incorporated, validly
-------------
existing, and in good standing under the Laws of the jurisdiction of its
incorporation. RCE will make available to Learning Curve complete and correct
copies of its certificate of incorporation and by-laws, each as amended to date.
RCE's certificate of incorporation and by-laws so made available are in full
force and effect.
4.2 Foreign Qualification. RCE is duly qualified to conduct business
----------------------
as a foreign corporation and is in good standing under the Laws of each
jurisdiction where the ownership or operation of its properties and assets or
the conduct of its business requires such qualification, except where the lack
of such qualification would not have a Material Adverse Effect.
4.3 Corporate Power and Authority. RCE has corporate power and
--------------------------------
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. Each of RCE and the Acquisition
Subsidiaries has corporate power and authority to enter into this Agreement, to
perform its obligations hereunder, and to consummate the transactions
contemplated by this Agreement.
4.4 Authorization. The board of directors of each of RCE and the
-------------
Acquisition Subsidiaries has duly authorized the execution and delivery of this
Agreement, the performance of its obligations hereunder, and the consummation of
the transactions contemplated hereby. RCE, as the sole stockholder of each
Acquisition Subsidiary, has duly adopted this Agreement. Each of RCE and the
Acquisition Subsidiaries has taken all corporate actions necessary to authorize
the execution and delivery of this Agreement, the performance of its obligations
hereunder, and the consummation of the transactions contemplated hereby.
4.5 Execution, Delivery, and Enforceability. This Agreement has been
-----------------------------------------
executed and delivered by a duly authorized officer of RCE and each Acquisition
Subsidiary, constitutes a legal, valid, and binding obligation of RCE and each
Acquisition Subsidiary, and is enforceable against RCE and each Acquisition
Subsidiary in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally.
53
4.6 Capitalization. The authorized capital stock of RCE consists
--------------
solely of 28,000,000 shares of common stock, par value $0.01 per share, of which
16,463,371 shares are issued and outstanding as of the date of this Agreement.
All the issued and outstanding RCE Shares have been duly authorized and validly
issued and are fully paid and nonassessable. None of the issued and outstanding
RCE Shares (a) was offered or sold in violation of any provision of the
Securities Act or (b) was issued in violation of any preemptive rights or any
similar rights that entitle any Person to acquire any RCE Shares upon the
issuance of sale thereof. Except as disclosed in section 4.6 of the RCE
Disclosure Schedule, there are no authorized or outstanding Derivative
Securities of RCE that are convertible into or exercisable or exchangeable for
any RCE Shares or other shares of capital stock or securities of the RCE, and
there are no preemptive or other authorized or outstanding rights, options,
warrants, calls, redemption rights, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments to which
RCE is a party or by which it is bound providing for the issuance, transfer,
sale, or other disposition of any RCE Shares or other shares of capital stock or
securities of RCE. There are no authorized or outstanding stock appreciation,
phantom stock, profit participation, or similar rights with respect to the RCE
Shares or other shares of capital stock of RCE. RCE does not have any
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or that are convertible into or exercisable for
securities having the right to vote) with the stockholders of RCE on any matter.
The RCE Shares to be issued pursuant to this Agreement are duly authorized and
will upon issuance be validly issued, fully paid and nonassessable and free of
any Encumbrances (except those created by the holder thereof and restrictions on
transfer under the Securities Act) and not subject to any preemptive rights or
rights of first refusal created by statute or the certificate of incorporation
or bylaws of RCE or any agreement to which RCE is a party or is bound.
4.7 Notices, Filings, and Approvals. Except as disclosed in section
----------------------------------
4.7 of the RCE Disclosure Schedule, and except filings under the HSR Act and
filing of the merger certificate in Delaware, no notice to, filing with, or
approval, authorization, consent, order, or other action by, any Person is
required of RCE for the execution and delivery of this Agreement, the
performance of its obligations hereunder, or the consummation of the
transactions contemplated hereby.
4.8 Noncontravention. Except as disclosed in section 4.8 of the RCE
----------------
Disclosure Schedule, neither the execution or delivery by RCE of this Agreement,
nor the performance by RCE of its obligations hereunder, nor the consummation of
the transactions contemplated hereby, does or will, whether with or without the
giving of notice or the passage of time or both, (a) result in any violation of
or conflict with any provision of (i) the certificate of incorporation or
by-laws of RCE, (ii) subject to making the filings referred to in section 4.7
hereof, any
54
applicable Law currently in effect, (iii) any permit, approval, authorization,
certificate of convenience or necessity, license, privilege, or registration
necessary for the ownership of RCE's assets and properties and the conduct of
its business, or (iv) any judgment, decree, order, writ, injunction, or other
ruling of any Governmental Authority, or other authority having jurisdiction
over RCE or any of its properties, assets, or operations, (b) conflict with,
result in a breach of, constitute a default or event of default under, result in
the acceleration of performance under, result in the termination of, loss of a
material benefit under, or create in any party the right to accelerate,
terminate, cancel, or modify, any provision of any Contract to which RCE is a
party or is otherwise bound, or (c) result in the imposition of any Encumbrance
upon any assets or properties of RCE.
4.9 SEC Reports. RCE has filed with the SEC all reports and materials
------------
(including the related schedules and exhibits thereto) required to be filed by
it under the Exchange Act since January 1, 2001 (collectively, the "SEC
Reports"). Each SEC Report, as of its respective filing date, complied in all
material respects with the Exchange Act. None of the SEC Reports, including
financial statements and schedules incorporated by reference, as of their
respective filing dates, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the SEC Reports (including the related notes and schedules)
fairly presents the consolidated financial position of RCE and its Subsidiaries
as of its date and each of the consolidated statements of income, cash flows and
stockholders' equity included in or incorporated by reference into the SEC
Reports (including any related notes and schedules) fairly presents the results
of operations, earnings and changes in financial position, as the case may be,
of RCE and its subsidiaries for the periods set forth therein (subject, in the
case of unaudited financial statements to notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
accordance with GAAP consistently applied.
4.10 Disclosure. None of the representations or warranties of RCE in
----------
this Agreement, the RCE Disclosure Schedule or any certificate delivered by RCE
pursuant to this Agreement contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein or
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not false or misleading.
4.11 Off-Balance Sheet Arrangements. RCE has no Off-Balance Sheet
--------------------------------
Arrangements.
55
4.12 Investigations. During the past three years, to the Knowledge of
--------------
RCE, it has not been the target or subject of any audit, inspection, inquiry,
investigation, survey, or other form of review by the SEC or the IRS relating to
any actual or alleged improper activity on the part of the Affiliated Company or
any of its officers or directors. To the Knowledge of RCE, no such reviews are
pending, and none are threatened.
4.13 Legal Proceedings. There is no action, suit, arbitration or legal
-----------------
proceeding pending or, to the Knowledge of RCE, threatened against RCE before
any court, arbitrator or Governmental Authority that would reasonably be
expected to have a Material Adverse Effect.
4.14 Sub I. Sub I was organized for the purpose of consummating the
------
transactions contemplated by this Agreement, has not engaged in any business
activity and is not a party to any contract or agreement.
4.15 Absence of Certain Developments. Except as disclosed in section
---------------------------------
4.15 of the RCE Disclosure Schedule, since September 30, 2002, there has not
been any state of facts, change, circumstance, development or event that has had
or would reasonably be expected to have a Material Adverse Effect on RCE.
ARTICLE V
ADDITIONAL AGREEMENTS
The Parties agree and covenant that, from the date of this Agreement and
until the Closing or earlier termination of this Agreement:
5.1 Conduct of Business. Except as specifically set forth in this
---------------------
Agreement, each Affiliated Company shall conduct its business in the ordinary
course of business consistent with past practice. Except as contemplated by
this Agreement, no Affiliated Company shall take, or cause or allow to be taken,
any action described in clauses (a), (b), (d)-(f), (h)-(l), (n), (o), (q)-(t),
(v)-(z) and (bb)-(cc) of section 3.16 hereof. To the extent consistent with the
foregoing, each Affiliated Company shall use commercially reasonable efforts to
preserve intact its current business organization, keep available the services
of its officers and employees, maintain and keep its properties in as good
repair and condition as present, ordinary wear and tear excepted, and maintain
its relations and goodwill with suppliers, customers, landlords, creditors,
employees, and others having business relationships with it. The Affiliated
Companies will not make or incur any capital expenditures (i) from February 1,
2003 to the earlier of the Learning Curve Effective Time or February 28, 2003 in
an aggregate amount in excess of the sum of (x) total amount of capital
expenditures set forth in the February 2003 capital expenditure budget in the
form previously delivered by Learning Curve to
56
RCE plus (y) the part, if any, of the January 2003 Capital Expenditure Budget
Amount, not made or incurred in January 2003 (the sum of (x) and (y), the
"February 2003 Capital Expenditure Amount") and (ii) from March 1, 2003 to the
earlier of the Learning Curve Effective Time or March 31, 2003 in an aggregate
amount in excess the sum of (x) the total amount of capital expenditures set
forth in the March 2003 capital expenditure budget in the form previously
delivered by Learning Curve to RCE plus (y) the part, if any, of the February
2003 Capital Expenditure Budget Amount, not made or incurred in February 2003.
5.2 Access. Except to the extent prohibited by Law, each Affiliated
------
Company shall permit RCE and its Representatives to have free and full access to
all its premises, properties, employees and other personnel, Contracts, and
books and records, upon reasonable notice, during regular business hours, and in
a manner that does not unreasonably interfere with the Affiliated Company's
normal business operations, so that the RCE, at its sole expense, may have an
opportunity to make such examinations, investigations, and reviews as may be
desired, including, without limitation, Phase I/II surface/subsurface
environmental investigations. Each Affiliated Company shall cause its
Representatives to cooperate fully with, and to make full and prompt disclosure
of all information (including, without limitation, updated operating performance
data and unaudited financial statements and financial information) requested
during such examinations, investigations, and reviews, provided, however, that
no investigation pursuant to this section shall affect or be deemed to modify
any representation or warranty made by an Affiliated Company. All such
information will be governed by the terms of the Confidentiality Agreement.
5.3 Notices, Filings, and Approvals. As soon as reasonably practicable
-------------------------------
after the date hereof, each Party shall give all notices to, make all filings
with, and use its commercially reasonable efforts to obtain all approvals,
authorizations, consents, orders, and other actions by, all Persons that are
required to be given, made, or obtained by the Party for the performance of its
obligations hereunder and the consummation of the transactions contemplated
hereby. Each Party shall cooperate with each other Party to the extent
reasonably practicable to secure such requisite approvals, authorizations,
consents, orders, or other actions. The Parties agree that each shall use its
best efforts to file notification as required by the HSR Act on or before
February 10, 2003.
5.4 Registration Statement.
-----------------------
(a) As soon as reasonably practicable after the Closing, RCE shall
prepare and file with the SEC a registration statement under the Securities Act
(together with the Prospectus and any amendments including post-effective
amendments, or supplements thereto, and all exhibits and all material
57
incorporated by reference therein, the "Registration Statement") providing for
the registration for resale under the Securities Act of up to 20% of the Merger
Shares, as requested by the shareholders receiving Merger Shares. The
Registration Statement shall comply in all material respects with the
requirements of the Securities Act and the applicable SEC form and shall include
all information, financial statements, financial statement schedules, and
exhibits required by the SEC to be included therein. Learning Curve and the
selling shareholders shall provide RCE with such information to be included in
the Registration Statement as RCE may reasonably request. RCE shall use
commercially reasonable efforts to respond as expeditiously as possible to any
and all comments made by the SEC staff with respect to the Registration
Statement and to have the Registration Statement declared effective by the SEC
as soon as reasonably practicable after it is filed with the SEC. RCE shall use
its reasonable best efforts to continue the effectiveness of the Registration
Statement for a period of 180 days following initial effectiveness. RCE shall
make any and all filings and take any and all other actions that may be
necessary, appropriate, or advisable under the applicable state securities laws
in furtherance of the offer and sale of the applicable Merger Shares. RCE shall
furnish, without charge, to each holder of Merger Shares included in the
Registration Statement such number of copies of the Registration Statement
(including the Prospectus), each amendment and supplement thereto, and such
other documents as such holder may reasonably request in order to facilitate the
disposition of the Merger Shares included therein owned by such holder, and RCE
hereby consents to the use of each Prospectus by each such holder in connection
with the offering and sale of the Merger Shares covered by the Registration
Statement. RCE agrees to cause the Merger Shares (whether included in the
Registration Statement or not) to be listed on each securities exchange or
market where RCE securities of the same class are listed.
(b) RCE agrees to indemnify and reimburse and hold harmless, to
the extent permitted by Law, each holder of Merger Shares included in the
Registration Statement against all losses, claims, damages, liabilities and
expense (including reasonable legal expenses and any expenses incurred in
investigation any claims) caused by any untrue or alleged untrue statement of
material fact contained in the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or any other violation or breach of the Securities Act, the Exchange
Act or any state securities or blue sky Law by RCE or any other Person acting on
RCE's behalf, except, as to the holder of Merger Shares, insofar as the same are
caused by or contained in any information furnished in writing to RCE by such
holder of Merger Shares specifically for use in the preparation of the
Registration Statement or by such holder's failure to deliver a copy of the
Registration Statement or Prospectus after RCE has furnished a sufficient number
of copies of the same.
58
(c) RCE shall pay all of its own expenses incident to its
performance of or compliance with this section 5.4, including all registration
and filing fees, printing, messenger, telephone and delivery expenses, fees and
disbursements of counsel for RCE and fees and disbursements of all independent
auditors of RCE. Each holder of Merger Shares included in the Registration
Statement shall pay all of its own expenses, including but not limited to, fees
and disbursements of its counsel and any broker fees and commissions.
5.5 Learning Curve Stockholders' Meeting; Written Consent.
----------------------------------------------------------
(a) Learning Curve shall take all action necessary under its
certificate of incorporation and by-laws and all applicable Laws to either (i)
call, give notice of, convene and duly hold a meeting of the holders of the
Learning Curve Shares (the "Learning Curve Stockholders' Meeting") to consider,
act upon and vote upon the adoption and approval of this Agreement and the
Escrow Agreement and approval of the Merger and the other transactions
contemplated by this Agreement or (ii) request the valid and effective written
consent in lieu of a meeting of the holders of a sufficient number of the
Learning Curve Shares to validly adopt and approve this Agreement and the Escrow
Agreement and approve the Merger and the other transactions contemplated by this
Agreement. In the event a Learning Curve Stockholders' Meeting is held, it will
be held as promptly as practicable and, in any event, within 20 days after the
date hereof.
(b) In the event a Learning Curve Stockholders' Meeting is held,
Learning Curve will distribute to the holders of the Learning Curve Shares in
connection with the Learning Curve Stockholders' Meeting a proxy statement in
compliance with all applicable Laws and the certificate of incorporation and
by-laws of Learning Curve (the "Learning Curve Proxy Statement"). Learning
Curve shall use its reasonable best efforts to solicit from holders of the
Learning Curve Shares proxies relating to the approval and adoption of this
Agreement, the Merger and other transactions contemplated by this Agreement and
to take all other actions reasonably necessary or in RCE's reasonable judgment
advisable to secure such vote as promptly as practicable. In the event a
Learning Curve Stockholders' Meeting is not held, Learning Curve will distribute
to the holders of the Learning Curve Shares in connection with obtaining written
consents an information statement in compliance with all applicable Laws and the
certificate of incorporation and by-laws of Learning Curve (the "Learning Curve
Information Statement"). Learning Curve shall include in the Proxy Statement or
Information Statement any information with respect to the offering of RCE Shares
to the holders of the Learning Curve Class C Common Shares that RCE may
reasonably request. Learning Curve will provide RCE with a copy of any Proxy
Statement or Information Statement a reasonable time prior to mailing and
Learning Curve will not mail any Proxy Statement or Information Statement, or
any amendment or supplement thereto, to which RCE reasonably and timely objects.
59
(c) The Board of Directors of Learning Curve shall recommend that
the holders of Learning Curve Shares vote in favor of and adopt and approve this
Agreement and the Escrow Agreement, and approve the Merger and the other
transactions contemplated by this Agreement at the Learning Curve Stockholders'
Meeting or in connection with obtaining the valid and effective written consent
in lieu of a meeting of the holders of Learning Curve Common Shares. The
Learning Curve Proxy Statement or Information Statement shall include a
statement to the effect that the Board of Directors of Learning Curve has
recommended that Learning Curve's stockholders vote in favor of, or consent in
writing to, and adopt and approve this Agreement and approve the Merger and the
other transactions contemplated by this Agreement at the Learning Curve
Stockholders' Meeting or in connection with the written consent, as the case may
be. Neither the Board of Directors of Learning Curve nor any committee thereof
shall withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify, in a manner adverse to RCE, the recommendation of the Board of Directors
of Learning Curve that Learning Curve's stockholders vote in favor of the
adoption and approval of this Agreement, the Escrow Agreement and the approval
of the Merger and the other transactions contemplated by this Agreement. Such
recommendation shall have been approved by all of the directors present at a
duly held meeting of the Board of Directors of Learning Curve and, for purposes
of this Agreement, the recommendation of the Board of Directors shall be deemed
to have been modified in a manner adverse to RCE if any member of the Board of
Directors dissents from, votes against or makes any statement in opposition to
such recommendation.
(d) Learning Curve will use commercially reasonable efforts to
cause each holder of Learning Curve Shares that is a party to a Voting Agreement
to comply with the terms and conditions of such Voting Agreement.
5.6 Amended Learning Curve Certificate of Incorporation. Prior to the
----------------------------------------------------
Learning Curve Effective Time, (i) Learning Curve shall amend its certificate of
incorporation to provide for an additional class of common stock designated as
"Class C Common," par value $.001 per share ("Learning Curve Class C Common
Shares"), and (ii) Learning Curve shall authorize and issue Learning Curve Class
C Common Shares to the Persons listed on Schedule 5.6 in exchange for either
Learning Curve Class A Common Shares or Learning Curve Class B Common Shares.
5.7 Board of Directors of RCE. Immediately prior to the Closing, and
---------------------------
subject to effectiveness and consummation of the Learning Curve Merger, RCE
shall take all necessary and appropriate actions to appoint Xxxxxxx Xxxxxxxx as
a member of the Board of Directors of RCE and to nominate Xxxxxxx Xxxxxxxx for
election as a director at RCE's 2003 annual meeting of stockholders.
60
5.8 Non-Solicitation. From the date hereof through and until the
----------------
earlier of the termination of this Agreement pursuant to Article VIII or the
Closing, other than with respect to the Learning Curve Merger, the LC SUB II
Stock Purchase and the LC SUB III Stock Purchase, Learning Curve shall not, and
Learning Curve shall use its reasonable best efforts not to permit any of its
respective agents, employees, officers, directors, shareholders, advisors,
attorneys, Representatives or Affiliates, to directly or indirectly (a) solicit,
negotiate, initiate or encourage any offers or expressions of interest from any
other party to acquire its business, whether by sale of substantially all of its
assets, stock sale, merger, business combination, consolidation,
recapitalization, liquidation or otherwise (a "Sale"); (b) enter into or
continue any negotiations regarding the terms of any agreement for a Sale; (c)
permit access to its premises or provide any information to any third party for
the purposes of reviewing its business or operations in connection with a Sale;
(d) enter into any oral or written agreement to accomplish a Sale or engage
anyone to enter into such an agreement; or (e) take any similar action regarding
the disposition of assets, stock or an interest in it which would have an
adverse effect on the ability of RCE or any of the Affiliated Companies to
consummate the transactions contemplated by this Agreement.
5.9 Representations and Warranties. Each Party shall use commercially
-------------------------------
reasonable efforts to ensure that all representations and warranties made by the
Party in this Agreement are true and correct on and as of the Closing Date.
5.10 Notice of Adverse Developments. Each Party shall give prompt
---------------------------------
written notice to the other Party in accordance with this section 5.10 if it has
Knowledge of the occurrence of any act, omission, or event or the existence of
any condition or circumstance that has resulted or could reasonably be expected
to result in (a) a breach of any representation and warranty made by the Party
in this Agreement or (b) a breach of covenant, or obligation contained in this
Agreement that is to be performed and complied with by the Party on or before
the Closing Date; provided, however, that no such notice by any Party shall be
deemed to amend or supplement the Affiliated Company Disclosure Schedule or the
RCE Disclosure Schedule, as applicable, or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by the Party.
5.11 General. Without limiting the generality of the foregoing, each
-------
Party shall use its reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, appropriate, or
advisable to consummate the transactions contemplated by this Agreement as soon
as possible.
5.12 Learning Curve Projections. RCE acknowledges that none of the
----------------------------
forecasts or projections made available to RCE in connection with RCE's review
of Learning Curve's business constitute representations or warranties of
Learning
Curve regarding the future performance of Learning Curve pursuant to this
Agreement.
61
5.13 Employee Matters. As soon as reasonably practicable after the
-----------------
Learning Curve Effective Time, RCE shall provide that each individual who is an
employee of an Affiliated Company immediately prior to the Learning Curve
Effective Time (an "Affiliated Company Employee"), and who continues as an
employee after the Closing Date, shall be entitled to participate in the plans,
programs and arrangements of RCE relating to employee benefits on the same terms
as similarly situated employees of RCE and its Subsidiaries. Each Affiliated
Company Employee shall be credited with all years of service for purposes of
eligibility, vesting and benefit accrual for which he or she was credited before
the Closing Date. In addition, RCE agrees to provide severance benefits set
forth on Schedule 5.13 to any Affiliated Company Employee who is notified on or
within 30 days after the Closing Date that his or her employment is being
terminated. RCE shall provide severance benefits thereafter to any Affiliated
Company Employee in accordance with RCE's written severance policy on the same
terms as similarly situated employees of RCE and its Subsidiaries.
5.14 Repayment of Related Party Loans. Learning Curve shall
------------------------------------
cause any Related Party that has any obligation to Learning Curve or any of its
Subsidiaries pursuant to any loan, advance or other debt outstanding as of the
date of this Agreement to repay such loan, advance or other debt in full at or
prior to the Closing Date; provided, however, that the Stock Option Loans shall
be repaid as provided in section 2.8 hereof.
5.15 Termination of Manufacturing Agreement. Learning Curve
-----------------------------------------
shall cause the Manufacturing Agreement to be terminated at or prior to the
Learning Curve Effective Time in a manner that, to the reasonable satisfaction
of RCE, results in neither Learning Curve nor any of its Subsidiaries having any
obligations or Liabilities under the Manufacturing Agreement after the Learning
Curve Effective Time.
5.16 Ownership of Certain Learning Curve Subsidiaries. Learning
-------------------------------------------------
Curve shall (a) use commercially reasonable efforts to cause LC SUB II to be
directly wholly owned by Learning Curve at or prior to the Learning Curve
Effective Time in a manner reasonably satisfactory to RCE on the terms more
particularly described below, and (b) cause LC SUB III to be directly wholly
owned by Learning Curve at or prior to the Learning Curve Effective Time in a
manner reasonably satisfactory to RCE. Learning Curve shall have no obligation
to pay consideration for the purchase of any interest in LC SUB II, and if RCE
requests that any consideration be paid to acquire any interest in LC SUB II or
obtain a waiver of any preemptive rights with respect to the transactions
contemplated by this Agreement, any payments shall be borne by RCE and shall not
reduce or increase any Merger Consideration, the Preliminary Closing Working
Capital Adjustment, the Post-Closing Working Capital Adjustment or the Earnout
Payment hereunder.
62
ARTICLE VI
CONDITIONS TO OBLIGATIONS TO CLOSE
6.1 Conditions to Obligation of RCE. The obligation of RCE to
-----------------------------------
consummate the transactions contemplated by this Agreement is subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions, any one or more of which may be waived in writing by RCE except in
the event that such condition is a requirement of Law:
(a) Representations and Warranties. All representations and
--------------------------------
warranties made by Learning Curve in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on and as of the Closing Date as if made thereon, except to
the extent that any such representation and warranty is already qualified as to
materiality, in which case such representation and warranty shall be true and
correct without further qualification.
(b) Covenants. Learning Curve shall have performed and complied
---------
with in all material respects all agreements, covenants, and obligations
contained in this Agreement that are to be performed and complied with by
Learning Curve on or before the Closing Date.
(c) Certificate of Chief Executive Officer. RCE shall have
------------------------------------------
received from Learning Curve a certificate of the Chief Executive Officer of
Learning Curve, dated as of the Closing Date, as to the satisfaction of the
conditions contained in sections 6.1(a), 6.1(b) and 6.1(d) hereof.
(d) No Material Adverse Effect. No Material Adverse Effect shall
--------------------------
have occurred with respect to Learning Curve since the date of this Agreement.
(e) Employment Agreement. RCE shall have received a fully
---------------------
executed copy of an Employment Agreement from each of the employees identified
on Schedule 6.1(e).
(f) [INTENTIONALLY OMITTED]
(g) Investment Representation Letter. Each holder of Learning
----------------------------------
Curve Class C Common Shares shall have completed and delivered an investment
representation letter in the form attached hereto as Exhibit C (the "Investment
Representation Letter") in a manner which would reasonably allow RCE to rely on
such Investment Representation Letter in connection with RCE's compliance with
an exemption from the registration requirement of the Securities Act relating to
the offering of Merger Shares pursuant to the Learning Curve Merger.
63
(h) Certificate of Secretary. RCE shall have received from
--------------------------
Learning Curve a certificate of the Secretary of Learning Curve, dated as of the
Closing Date, as to certain corporate matters.
(i) Legal Opinion. RCE shall have received a legal opinion,
--------------
dated as of Closing Date, of Xxxxxxxxxxxx Xxxx & Xxxxxxxxx, counsel for Learning
Curve, in substantially the form attached as Exhibit E to this Agreement.
(j) Documents. RCE shall have received from Learning Curve all
---------
documents and instruments necessary to consummate the transactions contemplated
by this Agreement and all such other documents, instruments, certificates,
opinions, and other materials relating thereto as RCE may have reasonably
requested, all of which shall be reasonably satisfactory in form and substance
to RCE.
(k) Dissenting Shares. Holders of not more than 2% of the
------------------
outstanding Learning Curve Shares shall have properly exercised and not revoked
their rights to dissent to the Learning Curve Merger under applicable Law.
(l) Notices, Filings, and Approvals. Learning Curve shall have
---------------------------------
obtained all material approvals, authorizations, consents, orders, and other
actions by, all Governmental Authorities that are required to be given, made, or
obtained by Learning Curve for the performance of its obligations hereunder and
the consummation of the transactions contemplated hereby. The waiting period
(and any extension thereof) applicable to the Learning Curve Merger under the
HSR Act shall have expired or terminated and the Learning Curve Certificate of
Merger shall have been filed with the Secretary of State of the State of
Delaware.
(m) Learning Curve Stockholder Approval. The stockholders of
--------------------------------------
Learning Curve shall have duly adopted and approved this Agreement and the
Escrow Agreement, and duly approved the Merger and other transactions
contemplated by this Agreement.
(n) No Adverse Legal Proceedings or Rulings. No inquiry,
--------------------------------------------
investigation, action, suit, arbitration, or other legal proceeding shall be
pending before any Governmental Authority, or other authority seeking to
restrain, enjoin, or otherwise prevent or hinder, or to obtain damages on
account of, the consummation of the transactions contemplated by this Agreement
which could reasonably be expected to have a Material Adverse Effect. No
judgment, decree, order, writ, injunction, or other ruling by any Governmental
Authority, or other authority restraining, enjoining, or otherwise preventing or
hindering the consummation of the transactions contemplated by this Agreement
shall have been entered and be in effect.
64
(o) Necessary Consents, Waivers, Authorizations or Approvals.
------------------------------------------------------------
Learning Curve shall have delivered to RCE all consents, waivers, authorizations
and approvals set forth on Schedule 6.1(o).
(p) Shareholder Release. RCE shall have received an executed
--------------------
Shareholder Release from each holder of Learning Curve Shares listed on Schedule
6.1(p) dated as of the Closing Date.
(q) Employee Releases. RCE shall have received an executed
------------------
release in form and substance reasonably acceptable to RCE from each employee of
Learning Curve listed on Schedule 6.1(q).
(r) Certificate of Chief Financial Officer. RCE shall have
------------------------------------------
received a certificate (the "Closing Certificate") from the Chief Financial
Officer of Learning Curve setting forth a good faith determination of the
estimated Learning Curve Debt, Learning Curve Capital Lease Obligations, and
Transactions Expenses, and the amount of the Preferred Consideration, as of the
Learning Curve Effective Time and certifying that such amounts of the Learning
Curve Debt, Learning Curve Capital Lease Obligations and Transaction Expenses
are a good faith estimate and that such amounts of the Preferred Consideration
are true and correct.
(s) LC SUB II Stock Purchase. Sub II shall have received the
----------------------------
stock certificates, if any, evidencing the LC SUB II Shares held by Learning
Curve along with one or more executed stock powers duly endorsed in blank or
other instruments of transfer, dated the Closing Date, transferring to Sub II
all of Learning Curve's right, title and interest in and to the LC SUB II Shares
held by Learning Curve, free and clear of any Encumbrance.
(t) LC SUB III Stock Purchase. Sub III shall have received the
---------------------------
stock certificates, if any, evidencing the LC SUB III Shares held by Learning
Curve along with one or more executed stock powers duly endorsed in blank or
other instruments of transfer, dated the Closing Date, transferring to Sub III
all of Learning Curve's right, title and interest in and to the LC SUB III
Shares held by Learning Curve, free and clear of any Encumbrance.
In the event that any of the foregoing conditions to Closing shall not have
been satisfied, RCE and the Acquisition Subsidiaries may elect to (i) terminate
this Agreement without liability to RCE and Acquisition Subsidiaries other than
with respect to any breach of representation, warranty, covenant or agreement by
RCE or any of the Acquisition Subsidiaries, or (ii) consummate the transactions
contemplated herein despite such failure, and (in the case of either (i) or
(ii)) RCE and the Acquisition Subsidiaries may seek appropriate remedies for any
and all damages, costs and expenses incurred by RCE and Acquisition Subsidiaries
65
by reason of the breach by any of the Affiliated Companies of any of the
representations, warranties, covenants or agreements of any of the Affiliated
Companies contained herein or in any document or agreement executed and/or
delivered by any of the Affiliated Companies pursuant hereto, including, but not
limited to, any such breach that may have caused any such conditions not to have
been satisfied; provided that, in the event of the Closing of the transactions
contemplated herein, such remedies shall be as set forth in Article VII.
6.2 Conditions to Obligations of Learning Curve. The obligation of
-----------------------------------------------
Learning Curve to consummate the transactions contemplated by this Agreement is
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, any one or more of which may be waived in writing by
Learning Curve except in the event that such condition is a requirement of Law:
(a) Representations and Warranties. All representations and
--------------------------------
warranties made by RCE in this Agreement shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects on and as of the Closing Date as if made thereon, except to the extent
that any such representation and warranty is already qualified as to
materiality, in which case such representation and warranty shall be true and
correct without further qualification.
(b) Covenants. RCE and the Acquisition Subsidiaries shall have
---------
performed and complied with in all material respects all agreements, covenants,
and obligations contained in this Agreement that are to be performed and
complied with by RCE or the Acquisition Subsidiaries on or before the Closing
Date.
(c) Certificate of Chief Executive Officer. Learning Curve shall
--------------------------------------
have received from RCE a certificate of the Chief Executive Officer of RCE,
dated as of the Closing Date, as to the satisfaction of the conditions contained
in sections 6.2(a), 6.2(b) and 6.2(d) hereof.
(d) No Material Adverse Effect. No Material Adverse Effect shall
--------------------------
have occurred with respect to RCE since the date of this Agreement.
(e) Certificate of Secretary. Learning Curve shall have received
------------------------
from RCE a certificate of the Secretary of RCE, dated as of the Closing Date, as
to certain corporate matters.
(f) Legal Opinion. Learning Curve shall have received a legal
--------------
opinion, dated as of Closing Date, of Xxxxxxxx Xxxxxxx Van Deuren s.c., counsel
for RCE, in substantially the form attached as Exhibit D to this Agreement.
66
(g) Documents. Learning Curve shall have received from RCE all
---------
documents and instruments necessary to consummate the transactions contemplated
by this Agreement and all such other documents, instruments, certificates,
opinions, and other materials relating thereto as Learning Curve may have
reasonably requested, all of which shall be reasonably satisfactory in form and
substance to Learning Curve.
(h) Notices, Filings, and Approvals. RCE and the Acquisition
----------------------------------
Subsidiaries shall have obtained all material approvals, authorizations,
consents, orders, and other actions by, all Governmental Authorities that are
required to be given, made, or obtained by RCE or the Acquisition Subsidiaries
for the performance of their respective obligations hereunder and the
consummation of the transactions contemplated hereby. The waiting period (and
any extension thereof) applicable to the Learning Curve Merger under the HSR Act
shall have terminated or expired and the Learning Curve Certificate of Merger
shall have been filed with the Secretary of State of the State of Delaware.
(i) Learning Curve Stockholder Approval. The stockholders of
--------------------------------------
Learning Curve shall have duly adopted and approved this Agreement and the
Escrow Agreement, and duly approved the Merger and the other transactions
contemplated by this Agreement.
(j) No Adverse Legal Proceedings or Rulings. No inquiry,
--------------------------------------------
investigation, action, suit, arbitration, or other legal proceeding shall be
pending before any Governmental Authority, or other authority seeking to
restrain, enjoin, or otherwise prevent or hinder, or to obtain damages on
account of, the consummation of the transactions contemplated by this Agreement
which could reasonably be expected to have a Material Adverse Effect. No
judgment, decree, order, writ, injunction, or other ruling by any Governmental
Authority, or other authority restraining, enjoining, or otherwise preventing or
hindering the consummation of the transactions contemplated by this Agreement
shall have been entered and be in effect.
(k) LC SUB II Stock Purchase. Sub II shall have paid the LC SUB
-------------------------
II Purchase Price to Learning Curve.
(l) LC SUB III Stock Purchase. Sub III shall have paid the LC
----------------------------
SUB III Purchase Price to Learning Curve.
In the event that any of the foregoing conditions to Closing shall not have
been satisfied Learning Curve may elect to (i) terminate this Agreement without
liability to Learning Curve other than with respect to any breach of
representation, warranty, covenant or agreement by Learning Curve, or (ii)
67
consummate the transactions contemplated herein despite such failure, and (in
the case of either (i) or (ii)) Learning Curve may seek appropriate remedies for
any and all damages, costs and expenses incurred by Learning Curve by reason of
the breach by RCE or any of the Acquisition Subsidiaries of any of the
representations, warranties, covenants or agreements of any of RCE or any of the
Acquisition Subsidiaries contained herein or in any document or agreement
executed and/or delivered by RCE or any of the Acquisition Subsidiaries or of
their Subsidiaries pursuant hereto, including, but not limited to, any such
breach that may have caused any such conditions not to have been satisfied;
provided that, in the event of the Closing of the transactions contemplated
herein, such remedies shall be as set forth in Article VII.
ARTICLE VII
INDEMNIFICATION
7.1 Survival of Representations and Warranties; Right to
----------------------------------------------------------
Indemnification Not Affected by Knowledge. All representations and warranties
-------------------------------------------
of the Parties shall survive and remain in full force and effect for a period of
24 months after the Closing Date. Notwithstanding anything to the contrary in
the previous sentence, any claim of indemnification pursuant to this Article VII
relating to a breach of a representation or warranty asserted in writing
(stating the nature of the claim, the identity of the underlying claimants, if
applicable, an estimated amount of the claim, if known, and the basis for the
claim) on or before 24 months after the Closing Date shall survive until
resolved or judicially determined. The right to indemnification, payment of
Damages or other remedy based on the representations, warranties, covenants, and
obligations of the parties hereto will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of
this Agreement or the Closing Date, with respect to the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant, or
obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
7.2 Indemnification and Payment of Damages by the Learning Curve
-------------------------------------------------------------------
Shareholders. From and after the Closing Date, subject to the terms and
------------
conditions set forth herein the Escrow and Earnout Participants (the "Learning
Curve Indemnitors") will, pursuant to and solely in accordance with the terms of
the Escrow Agreement and this Article VII, and only to the extent of the
undistributed aggregate of the Escrow Amount and the Earnout Payment, if any,
defend, indemnify and hold harmless RCE and the Learning Curve Surviving
68
Corporation and their respective representatives, officers, directors,
employees, agents, shareholders, controlling persons, subsidiaries and
Affiliates (collectively, the "RCE Indemnitees") from, and will pay to the RCE
Indemnitees the amount of, any Damages arising, directly or indirectly, from or
in connection with:
(a) any breach of any representation or warranty made by any of
Learning Curve in this Agreement, the Affiliated Company Disclosure Schedule or
any other certificate delivered by Learning Curve pursuant to this Agreement;
(b) any breach by any Affiliated Company of any covenant or
obligation of such Affiliated Company in this Agreement or any other certificate
or document delivered by any Affiliated Company pursuant to this Agreement;
(c) any claim by any Person for broker or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with any Affiliated Company (or any
Person acting on its behalf) in connection with any of the transactions
contemplated by this Agreement;
(d) any Learning Curve Debt, Learning Curve Capital Lease
Obligations, Preferred Consideration or Transaction Expenses to the extent not
either (i) subtracted in the calculation of the Initial Merger Cash
Consideration or (ii) reflected as a current liability on the Preliminary
Closing Date Balance Sheet or the Closing Balance Sheet but not reflected as a
current liability on Learning Curve's consolidated balance sheet as of December
31, 2002;
(e) any Liability for Taxes of Learning Curve or any of its
Subsidiaries for any period prior to the Learning Curve Effective Time to the
extent not reflected as a current liability on the Preliminary Closing Date
Balance Sheet or the Closing Balance Sheet unless reflected as a current
liability on Learning Curve's consolidated balance sheet as of December 31,
2002;
(f) any Liability arising from or relating to any claims,
charges, inquiries, investigations or actions arising from, or in connection
with the Litigation; or
(g) any payment arising from the HIT Obligation in addition to
the HIT Payment and the Other HIT Consideration.
From and after the Closing Date, recourse to the Escrow Amount and the
Earnout Payment, if any, as provided for in this Article VII will be the sole
and exclusive remedies available to RCE, the Learning Curve Surviving
Corporation and the other RCE Indemnitees with respect to the matters set forth
69
above and to any other claim relating to this Agreement or the transactions
contemplated hereby, except for (i) claims based on fraud or (ii) a claim or
action for breach of covenant or for specific enforcement of any obligation of a
Learning Curve Indemnitor pursuant to this Agreement or an agreement entered
into in connection with this Agreement.
7.3 Indemnification and Payment of Damages by RCE. From and after the
----------------------------------------------
Closing Date, RCE will indemnify and hold harmless each holder of Learning Curve
Shares and each of their respective representatives, officers, directors,
employees, agents, stockholders, controlling persons, subsidiaries and
Affiliates (collectively, the "Learning Curve Indemnitees") from, and will pay
to the Learning Curve Indemnitees the amount of, any Damages arising, directly
or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by RCE or
any Acquisition Subsidiary in this Agreement, the RCE Disclosure Schedule or any
other certificate or document delivered by RCE or any Acquisition Subsidiary
pursuant to this Agreement;
(b) any breach by RCE or any Acquisition Subsidiary of any
covenant or obligation of RCE or any certificate or document delivered by RCE or
any Acquisition Subsidiary pursuant to this Agreement;
(c) any claim by any Person for broker or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with RCE or any Acquisition
Subsidiary (or any Person acting on its behalf) in connection with any of the
transactions contemplated by this Agreement;
(d) Damages under WARN or similar state or foreign Laws with
respect to the termination of employment, including any constructive
termination, after the Learning Curve Effective Time of any individual employed
by any of the Affiliated Companies prior to the Learning Curve Effective Time,
including with respect to any termination prior to the Learning Curve Effective
Time set forth on Schedule 7.3(d) which results in liability under such Law
because it is aggregated with any termination after the Learning Curve Effective
Time;
(e) any Liability resulting from the LC SUB II Stock Purchase or
the LC SUB III Stock Purchase; or
(f) any amount (which would be paid to the Escrow and Earnout
Participants) by which the amount subtracted in the calculation of the Initial
Merger Cash Consideration with respect to the Learning Curve Debt, Learning
Curve
70
Capital Lease Obligations, Preferred Consideration or Transaction Expenses
exceeds the actual amount as finally determined of the Learning Curve Debt,
Learning Curve Capital Lease Obligations, Preferred Consideration or Transaction
Expenses to the extent not reflected as an adjustment adding to current assets
on the Preliminary Closing Date Balance Sheet or the Closing Balance Sheet;
provided, however, that if an excess amount with respect to the Learning Curve
Debt, Learning Curve Capital Lease Obligations, Preferred Consideration or
Transaction Expenses is paid to any Person by Learning Curve or RCE, RCE shall
not be obligated for indemnification under this section 7.3(e) for such excess
amount unless and until such excess amount is returned to Learning Curve or RCE.
From and after the Closing Date, the remedies provided in this section
7.3 will be the sole and exclusive remedies available to Learning Curve, the
holders of Learning Curve Shares and the other Learning Curve Indemnitees with
respect to the matters set forth above and to any other claim relating to this
Agreement or the transactions contemplated hereby, except for (i) claims based
on fraud, (ii) a claim or action for breach of covenant or for specific
enforcement of any obligation of RCE pursuant to this Agreement or an agreement
entered into in connection with this Agreement or (iii) with respect to the
holders of Learning Curve Class C Common Shares, a claim brought by any holders
of RCE Shares generally as a class.
7.4 Procedure for Indemnification.
-------------------------------
(a) As soon as is reasonably practicable after any RCE Indemnitee
or Learning Curve Indemnitee becomes aware of any claim, event or circumstance
(a "Claim") that has or might give rise to an indemnification obligation under
section 7.2 or section 7.3 of this Agreement, such RCE Indemnitee or Learning
Curve Indemnitee, as the case may be (an "Indemnified Person"), shall give
written notice thereof (a "Claim Notice") to the party or parties from which
indemnification is sought (the "Indemnifying Persons"). The Claim Notice shall
describe the Claim in reasonable detail, and shall indicate the amount
(estimated if necessary and to the extent feasible) of the Damages that have
been or may be suffered by the Indemnified Person. The failure of any
Indemnified Person to promptly give the Indemnifying Persons a Claim Notice
shall not preclude such Indemnified Person from obtaining indemnification under
this Article VII, except to the extent, and only to the extent, that such
Indemnified Person's failure has actually prejudiced the rights or increased the
liabilities and obligations of any of the Indemnifying Persons hereunder.
(b) With respect to any Claim Notice, the Indemnifying Persons
shall have the right by written notice to the Indemnified Person not later than
30 days after receipt of such Claim Notice, to assume the control of the
defense,
71
compromise or settlement of such Claim, provided that (i) such assumption shall,
by its terms, be without cost to the Indemnified Person, (ii) each of the
Indemnifying Persons agree in writing that they are responsible to indemnify the
Indemnified Person for such Claim upon the terms and subject to the conditions
set forth herein, and (iii) any settlement of such Claim shall involve only the
payment of money damages by the Indemnifying Persons.
(c) Upon the assumption of control by the Indemnifying Persons as
provided in section 7.4(b), the Indemnifying Persons shall diligently proceed
with the defense, compromise or settlement of the Claim at the Indemnifying
Persons' sole expense, including employment of counsel reasonably satisfactory
to the Indemnified Person and, in connection therewith, the Indemnified Person
shall cooperate fully, but at the expense of the Indemnifying Persons, to make
available to the Indemnifying Persons all pertinent information and witnesses
under the Indemnified Person's control, and to take such other steps as in the
opinion of counsel for the Indemnifying Persons are necessary to enable the
Indemnifying Persons to conduct such defense.
(d) The final, non-appealable determination of any Claim,
including all related costs and expenses, shall be binding and conclusive upon
the Indemnifying Persons and the Indemnified Person as to the amount of the
indemnification; provided, however, that in the Indemnifying Persons' defense of
such Claim, except with the written consent of the Indemnified Person, the
Indemnifying Persons shall not consent to entry of any judgment or enter into
any settlement, which does not include as an unconditional term thereof the
provision by the claimant to the Indemnified Person of a release of the
Indemnified Person from all liability in respect of such Claim.
(e) Should the Indemnifying Persons fail to give notice to the
Indemnified Person as provided in section 7.4(b), the Indemnified Person shall
be entitled to defend, settle or compromise the Legal Claim as in its sole
discretion may appear advisable, and such final determination, settlement or
compromise of the Legal Claim shall be binding upon the Indemnifying Persons.
(f) Notwithstanding the foregoing, RCE agrees to provide the
Shareholder Representatives with written notice (the "RCE Notice") not more than
30 days after receiving written notice of any audits, examinations or
proceedings relating to the Affiliated Companies that are related to a Liability
for any Taxes for which the Learning Curve Indemnitors would be required to
indemnify any RCE Indemnitee pursuant to section 7.2(e) (a "Tax Contest"). The
failure of RCE to promptly give the Shareholder Representatives the RCE Notice
shall not preclude any RCE Indemnitees from obtaining indemnification under this
Article VII with respect to a Tax Contest, except to the extent, and only to the
72
extent, that RCE's failure has actually prejudiced the rights or increased the
liabilities and obligations of any of the Learning Curve Indemnitors hereunder.
The Shareholder Representatives shall have the right to control and conduct the
Tax Contest relating to the Affiliated Companies by giving written notice to RCE
not more than 30 days after receiving the RCE Notice, including the right to
determine, to the extent reasonably satisfactory to RCE, such issues as (i) the
forum, administrative or judicial, in which to contest any proposed adjustment,
(ii) the attorney and/or accountant to represent the applicable Affiliated
Company in the Tax Contest, (iii) whether or not to appeal any decision of any
administrative or judicial body, and (iv) whether to settle any such Tax
Contest. Any such control and conduct of a Tax Contest by the Shareholder
Representatives shall be without cost to any RCE Indemnitee and each of the
Shareholder Representatives shall agree in writing that the Learning Curve
Indemnitors are responsible to indemnify the RCE Indemnitees in connection with
such Tax Contest upon the terms and subject to the conditions set forth in this
Article VII. The RCE Indemnitees shall cause the applicable Affiliated Company
to deliver to the Shareholder Representatives any power of attorney required to
allow the Shareholder Representatives and their counsel to represent the
applicable Affiliated Company in connection with the Tax Contest and shall use
commercially reasonably efforts to provide the Shareholder Representatives with
such assistance as may be reasonably requested by the Shareholder
Representatives in connection with the Tax Contest. Notwithstanding the
foregoing, the Shareholder Representatives shall consult in good faith with RCE
with respect to the conduct of, and before entering into any settlement of, any
Tax Contest, but the Shareholder Representatives shall alone be entitled to
determine whether, and on what terms, any such settlement shall be entered into,
provided that any such settlement shall involve only monetary payments. Should
the Shareholder Representatives fail to give the LCI Notice to RCE within 30
days after receipt of the RCE Notice as provided above in this section 7.4(f)
with respect to a Tax Contest, RCE shall be entitled to control and conduct such
Tax Contest as in its reasonable discretion may appear advisable, and any final
determination, settlement or compromise of the Tax Contest shall be binding upon
the Learning Curve Indemnitors.
7.5 The Shareholder Representatives.
---------------------------------
(a) Each of Xxxxxxx X. Xxxxxxxx and Xxxxxxx Xxxxxxx are hereby
appointed as the representative and agent of each of the Learning Curve
Indemnitors (collectively, the "Shareholder Representatives") with the power and
authority to fulfill the role of Shareholder Representatives hereunder.
(b) In the event of the death, resignation or incapacity of any
Shareholder Representative, his successor shall be appointed by consent of the
majority in interest in Learning Curve Shares within 30 days of such event. The
73
decisions and actions of any successor Shareholder Representative shall be, for
all purposes, those of a Shareholder Representative as if originally named
herein. The death or incapacity of any Shareholder Representative shall not
terminate the authority and agency of the Shareholder Representatives. Any
Shareholder Representative may resign at any time upon notice to RCE and each
holder of Learning Curve Shares given at least 30 days prior to the effective
date of such resignation, provided that no such resignation shall be effective
until his successor has been appointed in accordance with this section 7.5(b),
and has accepted such appointment.
(c) The Shareholder Representatives shall take any actions as he
may deem appropriate with respect to (i) any Claim Notice as provided in this
Article VII, (ii) any dispute regarding the payment of amounts from the Escrow
Account pursuant to the Escrow Agreement, (iii) any Tax Contest as provided in
section 7.4(f) and (iv) the determination of any adjustments pursuant to section
2.12 or 2.13. The Shareholder Representatives shall have full power and
authority to receive all Claim Notices with respect to Claims by any RCE
Indemnitee, to control the defense, compromise or settlement of any Claims by
any RCE Indemnitee and otherwise to act on behalf of the holders of the Learning
Curve Shares for all purposes of this Agreement and the Escrow Agreement, and
any action by either Shareholder Representative within the scope of such
authority shall be binding on all of the holders of the Learning Curve Shares.
In performing any of his duties hereunder, a Shareholder Representative shall
not incur any liability to anyone for damages, losses or expenses, except for
willful misconduct.
7.6 Indemnification Claims by RCE Indemnitees; Cap on Indemnification.
------------------------------------------------------------------
The sole and exclusive means for any of the RCE Indemnitees to satisfy any Claim
for indemnification hereunder shall be giving notice of a Claim to the Escrow
Agent and the Shareholder Representatives under the Escrow Agreement and
receiving payment from the Escrow Account of the amount to which the RCE
Indemnitee may be entitled under this Article VII. In addition, if (i) there is
a Claim by any RCE Indemnitee outstanding or unpaid at the time when any payment
is to be made by RCE under section 2.12 or 2.13 of this Agreement, then RCE may
reduce the amount of the payment to be made under section 2.12 or 2.13, as
applicable, by the amount of such Claim and instead pay such amount to the
Escrow Agent to be held pursuant to the terms and conditions of the Escrow
Agreement and this Article VII and to be available for satisfaction of Claims by
RCE Indemnitees or otherwise distributed to the Escrow and Earnout Participants
pursuant to the terms and conditions of the Escrow Agreement and this Article
VII, and (ii) one or more Claims by any RCE Indemnitee have been finally
determined prior to the time when any payment is to be made by RCE under section
2.12 or 2.13 of this Agreement, then RCE may reduce the amount of the payment to
be made under section 2.12 or 2.13, as applicable, by the aggregate
74
amount of such Claims and instead pay such amount to the Escrow Agent to be held
pursuant to the terms and conditions of the Escrow Agreement and this Article
VII and to be available for satisfaction of Claims by RCE Indemnitees or
otherwise distributed to the Escrow and Earnout Participants pursuant to the
terms and conditions of the Escrow Agreement and this Article VII or, if no
funds remain in the Escrow Account at such time, RCE may setoff the aggregate
amount of such Claims against the payment to be made by RCE under section 2.12
or 2.13 of this Agreement. No Learning Curve Indemnitee shall be entitled to
recover, and RCE shall not be obligated to pay to any Learning Curve Indemnitee
any amount pursuant to this Article VII or otherwise (except as provided in the
last paragraph of section 7.3) any amount in excess of $12 million plus the
amount of the Earnout Payment.
7.7 Deductibles. No Indemnified Person shall be entitled to recover
-----------
any amount pursuant to section 7.2(a), 7.2(g) or 7.3(a), as applicable, until
and unless the amount which all RCE Indemnitees or Learning Curve Indemnitees,
as applicable, are entitled to recover exceeds, in the aggregate, $500,000 (the
"General Deductible"), in which event, RCE Indemnitees or all Learning Curve
Indemnitees, as applicable, shall only be entitled to recover amounts for Claims
in excess of the General Deductible.
The RCE Indemnitees shall only be entitled to recover 50% of all amounts
recoverable pursuant to section 7.2(f) until the total aggregate amount
recoverable (without taking into account the 50% limitation provided for
herein), as Damages pursuant to section 7.2(f) exceeds, in the aggregate,
$1,000,000 (the "Litigation Deductible") and shall be entitled to recover 100%
of amounts for Claims of recoverable Damages in excess of the Litigation
Deductible.
7.8 Mitigation. Each Indemnified Person shall take commercially
----------
reasonable actions to mitigate Damages, and shall reasonably consult and
cooperate with each Indemnifying Person with a view towards mitigating Damages,
in connection with Claims for which an Indemnified Person seeks indemnification
under this Article VII.
7.9 Amount of Damages. The amount of any Damages payable hereunder
-------------------
shall be reduced by (a) any insurance proceeds or litigation or other monetary
recoveries (net of any increased premiums or expenses of obtaining such proceeds
or monetary recoveries) which the Indemnified Person actually receives with
respect to the event or occurrence giving rise to such Damages for which
indemnification is sought under this Article VII, (b) the amount of any
reduction of an actual Tax Liability (provided that no such reduction shall be
made prior to the taxable period in which the Indemnified Person actually
receives the benefit of such reduced Tax Liability and, if such reduced Tax
Liability will accrue in periods
75
after the indemnification payment is due, the Indemnifying Person shall be
required to pay the full indemnification amount subject to the Indemnified
Person's obligation to pay the amount of such reduction when such reduced Tax
Liability is actually realized to the Indemnifying Person (or, with respect to a
reduced Tax Liability by any RCE Indemnitee, pay into the Escrow Account during
the term of the Escrow Agreement)) realized by the Indemnified Party in
connection with such Damages, (c) the amount of any reserves or accruals
reflected as a current liability on the Closing Date Balance Sheet which
specifically relate to the facts giving rise to the payment of such Damages
hereunder, and (d) to the extent the matter was addressed in calculating the
Preliminary Closing Working Capital Adjustment or the Post-Closing Working
Capital Adjustment. The Indemnified Person shall use commercially reasonable
efforts to pursue insurance claims or third party claims that may reduce or
eliminate Damages. If the Indemnified Person both collects proceeds from any
insurance company or third party and received a payment from the Indemnifying
Person hereunder subject to reduction pursuant to this section 7.9 after the
payment of the related indemnification amounts to such Indemnified Person, then
the Indemnified Person shall promptly pay to the Indemnifying Person (or, with
respect to proceeds received by any RCE Indemnitee, pay into the Escrow Account
during the term of the Escrow Agreement), or offset against other outstanding
Claims of the Indemnified Person, the amount of such proceeds.
7.10 Materiality. Any qualifications in the representations,
-----------
warranties and covenants with respect to a Material Adverse Effect, materiality,
material or similar terms will not have any effect with respect to the
calculation of the amount of any Damages or losses or the application of the
General Deductible or the Litigation Deductible pursuant to this Article VII.
However, such qualifications will have an effect in determining whether a breach
has occurred.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. Notwithstanding anything herein or
--------------------------
elsewhere to the contrary, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time before the Closing as follows:
(a) by the Parties in a written agreement executed and delivered
by all the Parties;
(b) by RCE, pursuant to a written notice given to each Affiliated
Company, if any of the conditions set forth in section 6.1 hereof has not been
fulfilled or has become incapable of fulfillment on or before 5 p.m. (Central
time) on March 15, 2003, except in the event that such nonfulfillment is the
result, directly or indirectly, of any act or omission by RCE that constitutes a
material breach or default under this Agreement;
76
(c) by Learning Curve, pursuant to a written notice given to RCE,
if any of the conditions set forth in section 6.2 hereof has not been fulfilled
or has become incapable of fulfillment on or before 5 p.m. (Central time) on
March 15, 2003, except in the event that such nonfulfillment is the result,
directly or indirectly, of any act or omission by an Affiliated Company that
constitutes a material breach or default under this Agreement;
(d) by Learning Curve or RCE (i) if there has been a breach in
any material respect of any representation, warranty, covenant or agreement on
the part of the other Party, set forth in this Agreement; or (ii) if any
representation or warranty of the other Party shall be discovered to have become
untrue in any material respect such that the conditions set forth in section
6.1(a) or section 6.2(a), as the case may be, would not be satisfied and such
breach or other condition has not been cured within 20 Business Days following
receipt by the nonterminating Party of notice of such breach or other condition;
provided, however, this Agreement may not be terminated pursuant to this section
8.1(d) by the breaching Party or Party making any representation or warranty
which shall have become untrue in any material respect; or
(e) by either RCE or Learning Curve if any permanent injunction
by a court of competent jurisdiction preventing the consummation of the Merger
shall have become final and nonappealable.
8.2 Effect of Termination. If any Party terminates this Agreement
-----------------------
pursuant to section 8.1 hereof, this Agreement shall be of no further force or
effect and all rights and Liabilities of the Parties hereunder shall terminate,
except (a) that sections 9.2, and 9.3 hereof shall survive such termination and
remain in full force and effect as provided therein and (b) for any Liability of
any Party for any breach or default under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Further Assurances. At any time and from time to time after the
-------------------
Closing Date, the Parties shall execute and deliver such additional documents
and instruments and shall take such other actions as may be reasonably
necessary, appropriate or advisable to consummate the transactions contemplated
by this Agreement.
9.2 Fees and Expenses. Each Party shall be responsible for and pay all
-----------------
fees and expenses (including, without limitation, financial advisors',
attorneys', accountants' and other professional fees and expenses) incurred by
the Party in connection with, relating to, or arising out of the negotiation,
execution, and
77
delivery of this Agreement and all other documents and instruments contemplated
herein, the performance of the Party's obligations hereunder and thereunder, and
the consummation of the transactions contemplated hereby; provided, however,
that the filing fees in connection with filings required under the HSR Act by
RCE and Learning Curve will be shared equally by RCE and Learning Curve.
Notwithstanding anything herein or elsewhere to the contrary, this section 9.2
and the rights and Liabilities of the Parties hereunder shall survive the
termination of this Agreement for any reason.
9.3 Public Disclosures. Except as otherwise required by applicable
-------------------
Laws or rules or regulations of any stock exchange or Nasdaq, all press
releases, publicity, and other public disclosures concerning the transactions
contemplated by this Agreement shall be made only upon the prior agreement of
all the Parties; provided, however, that this section 9.3 shall not apply to
communications made by any Party with its Representatives. In the case of any
such public disclosure that is required by applicable Laws or rules or
regulations of any stock exchange or Nasdaq, the disclosing Party shall, prior
to making such disclosure, give the other Parties a reasonable opportunity to
review and comment upon the disclosure, consult with the other Parties regarding
the disclosure, and attempt in good faith to agree with the other Parties with
respect to the disclosure.
Notwithstanding anything herein or elsewhere to the contrary, this
section 9.3 and the rights and Liabilities of the Parties hereunder shall
survive the termination of this Agreement for any reason.
9.4 Entire Agreement. This Agreement, including the attached schedules
----------------
and exhibits (which are incorporated herein) and agreements executed in
connection herewith constitutes the full understanding of the Parties, a
complete allocation of risks among them, and a complete and exclusive statement
of the terms and conditions of their agreement relating to the subject matter
hereof and supersedes any and all prior negotiations, understandings and
agreements, whether written or oral, among the Parties; provided, however, that
the Confidentiality Agreement dated December 12, 2002 between RCE and Learning
Curve shall survive the execution of this Agreement.
9.5 Notices. All notices required or permitted to be given hereunder
-------
shall be made in writing and may be delivered by the United States mail, hand,
facsimile, or a nationally recognized delivery service. Notices delivered by
the United States mail shall be deemed given three Business Days after being
deposited in the mail, postage prepaid, registered or certified mail, and return
receipt requested. Notices delivered by hand, facsimile, or a nationally
recognized delivery service shall be deemed given upon receipt; provided,
however, that a notice delivered by facsimile shall be effective only if such
notice is also delivered
78
by hand or is deposited in the United States mail, postage prepaid, registered
or certified mail, and return receipt requested, on or before two Business Days
after delivery by facsimile. All notices shall be addressed as follows:
If to RCE or any Acquisition Subsidiary:
Racing Champions Ertl Corporation
000 Xxxxxxxxx Xxxx, Xxxxxxxx X
Xxxxx 000
Xxxx Xxxxx, XX 00000
Attn: Xxxx Xxxxxxxxx, Chief Executive Officer
Facsimile: 000-000-0000
With a copy to:
Xxxxxxxx Xxxxxxx Van Deuren s.c.
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx
Facsimile: 414-298-8097
If to any Affiliated Company:
Learning Curve International, Inc.
000 Xxxx Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxx, XX 00000-0000
Attn: Xxxxxxx Xxxxxxxx
Facsimile: 000-000-0000
with a copy to:
Xxxxxxxxxxxx Xxxx & Xxxxxxxxx
0000 Xxxxx Xxxxx
Xxxxxxx, XX 00000
Attn.: Xxxxxxx X. Xxxx
Facsimile: 312-876-7934
Any Party may change its address for the purposes of notice hereunder by
notifying the other Parties thereof in accordance with the provisions of this
section 9.5.
79
9.6 Enforceability. This Agreement shall be enforceable by and against
--------------
the Parties and their respective successors and permitted assigns and, with
respect to Article VII, by any Indemnified Person and with respect to section
5.13, by any individual who would be a beneficiary of such provision against the
Party undertaking such obligation.
9.7 Assignment. No Party shall assign, convey, transfer, or otherwise
----------
dispose of any or all of its interest in, or any or all of its rights and
Liabilities under, this Agreement without the prior written consent of all the
other Parties. Any such assignment, conveyance, transfer, or other disposition
made or attempted in breach of this section 9.7 shall be null and void and of no
force or effect.
9.8 Amendments. This Agreement may be altered, amended, modified or
----------
changed (other than any waiver which shall be effective only if made in
accordance with section 9.9 hereof) only by a written agreement executed by all
the Parties.
9.9 Waiver. No provision of this Agreement may be waived by any Party
------
unless such waiver is set forth in writing and executed by the waiving Party.
The waiver of any breach or default under any provision of this Agreement shall
not be deemed to constitute a waiver of any other breach or default under the
same or any other provision of this Agreement.
9.10 Modification and Severability. If a court of competent
-------------------------------
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, such provision shall be modified automatically to the extent
necessary to make such provision fully legal, valid or enforceable. If such
court does not modify any such provision as contemplated herein, but instead
declares it to be wholly illegal, invalid or unenforceable, such provision shall
be severed from this Agreement, this Agreement and the rights and obligations of
the Parties shall be construed as if this Agreement did not contain such severed
provision, and this Agreement otherwise shall remain in full force and effect.
9.11 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.12 Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event that any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement.
80
9.13 Governing Law. This Agreement shall be governed and controlled as
-------------
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal Laws of the State of Delaware applicable to contracts
made in that state, without regard to any choice or conflict of laws provisions,
principles, or rules (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the Laws of any jurisdiction
other than the State of Delaware.
9.14 Multiple Counterparts. This Agreement may be executed by the
----------------------
Parties in one or more counterparts, each of which shall be deemed an original
for all purposes, and all of which together shall constitute one and the same
instrument.
[Remainder of page intentionally left blank. Signature page follows.]
81
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
RACING CHAMPIONS ERTL CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxxxxx,
Chief Executive Officer
LEARNING CURVE INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx,
Chief Executive Officer
RBVD SUB I INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxxxxx,
Chief Executive Officer
RACING CHAMPIONS WORLDWIDE LIMITED
By: /s/ Xxxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxxxxx, Director
RACING CHAMPIONS LIMITED
By: /s/ Xxxxxx X. Xxxx
Xxxxxx X. Xxxx, Director
82
