-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GDh+gEpxDXzGHu+5iElHDlCAKWNmOndd/Gb7u/qvDGVAl0I9vQ/gBpCMDQWg3pPU TFfy7OU8/uMks1Fcbj0MiA== 0000950147-97-000026.txt : 19970124 0000950147-97-000026.hdr.sgml : 19970124 ACCESSION NUMBER: 0000950147-97-000026 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970108 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970123 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTION PERFORMANCE COMPANIES INC CENTRAL INDEX KEY: 0000892147 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090] IRS NUMBER: 860704792 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21630 FILM NUMBER: 97509689 BUSINESS ADDRESS: STREET 1: 2401 W 1ST ST STREET 2: STE 130 CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6028940100 MAIL ADDRESS: STREET 1: 2401 W 1ST STREET CITY: TEMPE STATE: AZ ZIP: 85281 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 8, 1997 ACTION PERFORMANCE COMPANIES, INC. --------------------------------------- (Exact name of registrant as specified in its charter) ARIZONA 0-21630 86-0704792 --------------- ------------- ----------------- (State or other (Commission File No.) (IRS Employer ID No.) jurisdiction of incorporation) 2401 West First Street, Tempe, Arizona 85281 ------------------------------------------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (602) 894-0100 ACTION PERFORMANCE COMPANIES, INC. CURRENT REPORT ON FORM 8-K ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. Acquisition of Motorsport Traditions On January 8, 1997, Action Performance Companies, Inc. (the "Company"), through MTL Acquisition, Inc. ("MTL Acquisition"), a wholly owned subsidiary, acquired the business and substantially all of the assets and assumed specified liabilities of Motorsport Traditions Limited Partnership, a North Carolina limited partnership ("MTL"). Also on January 8, 1997, the Company acquired all of the outstanding capital stock of Creative Marketing and Promotions, Inc., a North Carolina corporation ("CMP" and, together with MTL, "Motorsport Traditions") from Kenneth R. Barbee and 1995 Nascar Winston Cup Champion driver Jeff Gordon. The effective date of the acquisition of Motorsport Traditions is January 1, 1997. Motorsport Traditions markets and distributes licensed motorsports products, including apparel and other souvenir items, through a network of wholesale distributors, trackside events, and fan clubs. The Company intends to continue to operate the business of Motorsport Traditions in conjunction with the business of Sports Image, Inc., which the Company acquired in November 1996. The purchase price paid by the Company for the assets of MTL consisted of (i) cash in the amount of $5,400,000; (ii) a promissory note issued by MTL Acquisition in the principal amount of $1,600,000 (the "Purchase Price Note"); and (iii) 57,143 shares of the Company's Common Stock (the "MTL Shares"). The Purchase Price Note bears interest at 4% per annum, matures on December 31, 1998, and has been guaranteed by the Company. The Company acquired all of the outstanding capital stock of CMP from Messrs. Barbee and Gordon in exchange for an aggregate of 285,714 shares of the Company's Common Stock (the "CMP Shares"). In connection with the issuance of the MTL Shares, the Company entered into a registration agreement with MTL and the general and limited partners of MTL. In connection with the issuance of the CMP Shares, the Company entered into a registration agreement with Messrs. Barbee and Gordon. These agreements require the Company to file a registration statement covering the MTL Shares and CMP Shares no later than January 31, 1997, and to use its best efforts to cause the registration statement to become effective as soon as practicable and to remain effective until December 31, 1999. In addition, the registration agreements grant the holders of the MTL Shares and the CMP Shares "piggyback" registration rights. Financing Transactions In connection with the acquisition of Motorsport Traditions and the Company's November 1996 acquisition of Sports Image, on January 2, 1997, the Company entered into a $16.0 million credit facility with First Union National Bank of North Carolina (the "Credit Facility"). The Credit Facility consists of a revolving line of credit for up to $10.0 million through September 30, 1997, and up to $6.0 million from September 30, 1997 to March 31, 1998 (the "Line of Credit") and a $6.0 million letter of credit/bankers' acceptances facility (the "Letter of Credit/BA Facility"). The Line of Credit bears interest, at the Company's option, at a rate equal to either (i) the greater of (a) the bank's publicly announced prime rate or (b) a weighted average Federal Funds rate plus 0.5%, or (ii) LIBOR plus 1.9%. The Line of Credit is guaranteed by Sports Image and Motorsport Traditions. The Company utilized $4.0 million of the Line of Credit to provide part of the cash portion of the purchase price for Motorsport Traditions and an additional $4.0 million of the Line of Credit to repay a portion of the $24.0 million 2 promissory note issued in connection with the acquisition of Sports Image. The Letter of Credit/BA Facility is available for issuances of letters of credit and eligible bankers' acceptances in an aggregate amount up to $6.0 million to enable the Company to finance purchases of products from its overseas vendors. The Credit Facility will mature on March 31, 1998. The Credit Facility contains certain provisions that, among other things, will require the Company to comply with certain financial ratios and net worth requirements and will limit the ability of the Company and its subsidiaries to incur additional indebtedness or to sell assets or engage in certain mergers or consolidations. On January 2, 1997, the Company issued an aggregate of $20.0 million principal amount of senior notes (the "Senior Notes") to three insurance companies. The Senior Notes bear interest at the rate of 8.05% per annum, provide for semi-annual payments of accrued interest, and will mature on January 2, 1999. The Company may not prepay the Senior Notes prior to maturity, but will be required to offer to redeem the Senior Notes in the event of a "Change of Control" of the Company, as defined in the Senior Notes. The Senior Notes contain certain provisions that, among other things, will require the Company to comply with certain financial ratios and net worth requirements and will limit the ability of the Company and its subsidiares to incur additional indebtedness or to sell assets or engage in certain mergers on consolidations. The Senior Notes are guaranteed by Sports Image and Motorsport Traditions. The Company utilized the proceeds from the Senior Notes to repay the remainder of the promissory note issued in connection with the acquisition of Sports Image. License and Endorsement Agreements In connection with the acquisition of Motorsport Traditions, the Company acquired the exclusive rights to manufacture and market various apparel and souvenir products bearing the name, likeness, and signature of Jeff Gordon and the likeness of his race car, pursuant to a license agreement with an affiliate of Mr. Gordon (the "Apparel and Souvenir License"). The Apparel and Souvenir License expires on December 31, 2000, subject to renewal by agreement between the parties. The Apparel and Souvenir License requires the Company to pay the licensor royalties based on a percentage of the wholesale price of licensed products sold by the Company, with minimum royalty payments each year during the term of the agreement. Also in connection with the acquisition of Motorsport Traditions, the Company entered into a license agreement (the "Die-Cast License") with an affiliate of Jeff Gordon, pursuant to which the Company has the exclusive right to manufacture and market die-cast replicas of Mr. Gordon's race car and related vehicles. The Die-Cast License excludes the right to manufacture and market certain die-cast collectibles currently licensed by a third party until that license expires in September 1997. The Die-Cast License expires on December 31, 2000. The Die-Cast License requires the Company the pay the licensor royalties based on a percentage of the wholesale price of licensed products sold by the Company, with minimum royalty payments each year during the term of the agreement. In connection with the Die-Cast License, the Company entered into a personal service and endorsement agreement with Jeff Gordon and an affiliate of Mr. Gordon (the "Endorsement Agreement"). The Endorsement Agreement expires on December 31, 2000. During the term of the Endorsement Agreement, the Company will have the right to use Mr. Gordon's name, likeness, signature, and endorsement in connection with the advertisement, promotion, and sale of the die-cast collectibles to be produced under the Die-Cast License. The Endorsement Agreement requires Mr. Gordon to make two personal appearances and to participate in photo shoots and the production of one television commercial and two radio commercial production sessions per year during the term of the Endorsement Agreement, to the extent that the Company requests him to do so. 3 Employment and Consulting Agreements In connection with the acquisition of Motorsport Traditions, the Company entered into a two-year employment agreement (the "Employment Agreement") with Kenneth R. Barbee, who served in various executive capacities with Motorsport Traditions prior to the acquisition. Pursuant to the terms of the Employment Agreement, Mr. Barbee will serve as a Vice President of the Company's wholly owned subsidiary, Sports Image, at a salary of $120,000 per year. In addition, Mr. Barbee will be eligible to receive an annual bonus of up to $24,000, as determined by the Company's Board of Directors based upon factors that it deems relevant, including Mr. Barbee's performance. The Company also granted to Mr. Barbee six-year options to acquire 15,000 shares of the Company's Common Stock at an exercise price of $17.50 per share. Of the options granted, options to acquire 7,500 shares were vested at the date of grant and options to acquire the remaining 7,500 shares will vest on the first anniversary of the date of grant. Also in connection with the acquisition of Motorsport Traditions, the Company entered into a four-year consulting agreement (the "Consulting Agreement") with John Bickford pursuant to which Mr. Bickford will provide consulting services with respect to representing the Company in the motorsports community, creating new marketing and promotional campaigns, and advising the Company with respect to the motorsports industry. The Company will pay Mr. Bickford an annual fee of $100,000 for services provided in connection with the Consulting Agreement. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Businesses Acquired. As of the date of filing of this Current Report on Form 8-K, it is impracticable for the Registrant to determine whether it is required to provide the financial statements required by this Item 7(a). In the event that the Company determines that it is required to provide the financial statements required by this Item 7(a), such financial statements shall be filed by amendment to this Form 8-K no later than March 24, 1997, in accordance with Item 7(a)(4) of Form 8-K. (b) Pro Forma Financial Information. As of the date of filing of this Current Report on Form 8-K, it is impracticable for the Registrant to determine whether it is required to provide the pro forma financial information required by this Item 7(b). In the event that the Company determines that it is required to provide the financial statements required by this Item 7(b), such financial statements shall be filed by amendment to this Form 8-K no later than March 24, 1997, in accordance with Item 7(b) of Form 8-K. 4 (c) Exhibits. Exhibit No. Description of Exhibit - ----------- ---------------------- 10.39 Asset Purchase Agreement dated as of January 1, 1997, among Action Performance Companies, Inc., MTL Acquisition, Inc., Motorsport Traditions Limited Partnership, Midland Leasing, Inc., and Motorsports By Mail, Inc. 10.40 Exchange Agreement dated as of January 1, 1997, among Action Performance Companies, Inc., Kenneth R. Barbee, and Jeffery M. Gordon 10.41 Promissory Note dated January 1, 1997, in the principal amount of $1,600,000 issued by MTL Acquisition, Inc., as Maker, to Motorsport Traditions Limited Partnership, as Payee, together with Guarantee of Action Performance Companies, Inc. 10.42 Note Purchase Agreement dated as of January 2, 1997, among Action Performance Companies, Inc., Jefferson-Pilot Life Insurance Company, Alexander Hamilton Life Insurance Company of America, and First Alexander Hamilton Life Insurance Company, together with form of Note, form of Subsidiary Guaranty, and form of Subsidiary Joinder 10.43 Credit Agreement dated as of January 2, 1997, among Action Performance Companies, Inc., Sports Image, Inc., MTL Acquisition, Inc., and First Union National Bank of North Carolina 10.44 Registration Agreement dated as of January 1, 1997, among Action Performance Companies, Inc., Motorsport Traditions Limited Partnership, Midland Leasing, Inc., and Motorsports By Mail, Inc. 10.45 Registration Agreement dated as of January 1, 1997, among Action Performance Companies, Inc., Kenneth R. Barbee, and Jeffery M. Gordon 10.46 Employment Agreement dated as of January 1, 1997, between Action Performance Companies, Inc. and Kenneth R. Barbee 10.47 Consulting Agreement dated as of January 1, 1997, between Action Performance Companies, Inc. and John Bickford 5 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. January 23, 1997 ACTION PERFORMANCE COMPANIES, INC. By: /s/ Christopher S. Besing --------------------------------- Christopher S. Besing Vice President, Chief Financial Officer, and Treasurer 6 EX-10.39 2 ASSET PURCHASE AGREEMENT - -------------------------------------------------------------------------------- ASSET PURCHASE AGREEMENT DATED AS OF JANUARY 1, 1997 AMONG ACTION PERFORMANCE COMPANIES, INC., MTL ACQUISITION, INC., MOTORSPORT TRADITIONS LIMITED PARTNERSHIP, MIDLAND LEASING, INC., AND MOTORSPORTS BY MAIL, INC. - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- SECTION 1 TRANSFER OF ASSETS............................ 1 1.1 Purchase and Sale of Assets....................................... 1 1.2 Assumption of Liabilities......................................... 1 SECTION 2 PURCHASE PRICE.............................. 2 2.1 Purchase Price.................................................... 2 2.2 Allocation of Purchase Price...................................... 2 SECTION 3 REPRESENTATIONS AND WARRANTIES...................... 2 3.1 Representations and Warranties of Seller.......................... 2 (a) Organization, Good Standing, and Qualification............. 2 (b) Authority.................................................. 2 (c) Subsidiaries............................................... 3 (d) Financial Statements....................................... 3 (e) Books and Records.......................................... 3 (f) No Material Change......................................... 3 (g) Actions in the Ordinary Course of Business................. 3 (h) Title to Properties........................................ 3 (i) Litigation................................................. 4 (j) Rights and Licenses........................................ 4 (k) No Violation............................................... 4 (l) Taxes...................................................... 4 (m) Accounts Receivable........................................ 4 (n) Contracts.................................................. 4 (o) Compliance with Law and Other Regulations.................. 5 (p) Insurance.................................................. 5 (q) Certificate of Limited Partnership and Books............... 5 (r) Employees.................................................. 5 (s) No Payments to Officers, Partners or Others................ 5 (t) Intent and Access.......................................... 5 (u) Accuracy of Statements..................................... 6 3.2 Further Representations and Warranties of Designated MTL Partners. 6 (a) Ownership of Partnership Interests in Seller............... 6 (b) Rights to Acquire Partnership Interests in Seller.......... 6 (c) Power to Execute Agreement................................. 6 (d) Agreement Not in Breach of Other Instruments............... 6 3.3 Representations and Warranties of Buyer........................... 6 (a) Due Incorporation, Good Standing, and Qualification........ 6 (b) Corporate Authority........................................ 7 (c) Capital Stock.............................................. 7 (d) Options, Warrants, and Rights.............................. 7 (e) Subsidiaries............................................... 7 (f) Financial Statements....................................... 7 (g) No Material Change......................................... 8 (h) Title to Assets and Properties............................. 8 i (i) Litigation................................................. 8 (j) Rights and Licenses........................................ 8 (k) No Violation............................................... 8 (l) Taxes...................................................... 8 (m) Accounts Receivable........................................ 9 (n) Contracts.................................................. 9 (o) Compliance with Law and Other Regulations.................. 9 (p) Insurance.................................................. 9 (q) Articles, Bylaws, and Minute Books......................... 9 (r) Employees.................................................. 9 (s) SEC Reports................................................ 9 (t) Accuracy of Statements..................................... 10 (u) Status of Buyer's Common Stock Being Issued................ 10 3.4 Survival of Representations and Warranties........................ 10 SECTION 4 COVENANTS OF SELLER........................... 10 4.1 Covenants of Seller............................................... 10 (a) Satisfaction of Obligations................................ 10 (b) Filing of Tax Returns and Forms............................ 10 (c) Change of Name............................................. 10 4.2 Further Assurances................................................ 10 SECTION 5 GENERAL................................. 11 5.1 Costs and Indemnity Against Finders............................... 11 5.2 Controlling Law................................................... 11 5.3 Notices........................................................... 11 5.4 Binding Nature of Agreement; No Assignment........................ 11 5.5 Entire Agreement.................................................. 11 5.6 Paragraph Headings................................................ 12 5.7 Counterparts...................................................... 12 ii ASSET PURCHASE AGREEMENT AGREEMENT dated as of January 1, 1997, among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation ("Buyer"); MTL ACQUISITION, INC., an Arizona corporation ("Designated Subsidiary"); MOTORSPORT TRADITIONS LIMITED PARTNERSHIP, a North Carolina limited partnership ("Seller"); and MIDLAND LEASING, INC., a North Carolina corporation, and MOTORSPORTS BY MAIL, INC., a North Carolina corporation (collectively, the "Designated MTL Partners" and with all partners of Seller the "MTL Partners"). Buyer desires to acquire, and Seller desires to transfer, substantially all of the assets, properties, rights, and goodwill of Seller upon the terms and conditions set forth in this Agreement. To facilitate the transactions contemplated hereby, Buyer has formed Designated Subsidiary, which is a wholly owned subsidiary of Buyer and has not conducted any business activities prior to the date of this Agreement (the "Closing Date"). The Designated MTL Partners own substantially all the partnership interests of Seller. NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein, the parties agree as follows: SECTION 1 TRANSFER OF ASSETS 1.1 Purchase and Sale of Assets. Based upon and subject to the representations, warranties, covenants, agreements, and other terms and conditions set forth in this Agreement, Seller hereby sells, conveys, transfers, assigns, and delivers, and Designated Subsidiary hereby purchases, acquires, and accepts, as provided herein, all of the assets, properties, rights, and goodwill of Seller of every kind and description, wherever located, including, without limitation, (a) all assets and properties, tangible or intangible, real, personal or mixed, (b) notes and accounts receivables, (c) computer equipment, (d) office and warehouse equipment, (e) vehicles, (f) reserves, (g) prepayments, (h) inventories, (i) deposits, (j) bank accounts, (k) cash and securities, (l) claims and rights under contracts, agreements, leases, and commitments of Seller of whatever nature, including, but not limited to, those agreements listed on Schedule 1.1(b) hereto, (m) the name "Motorsport Tradition," (n) all computer programs, data bases, records, systems, and processes and all know how, information, and trade secrets relating thereto, and (o) all books and records of Seller relating to Seller's business. The assets, properties, rights, and goodwill conveyed, transferred, assigned, and delivered by Seller are sometimes herein called the "Transferred Assets" and shall include, without limitation, all of the assets and properties shown on or reflected in the Balance Sheet of Seller as at November 30, 1996 (the "Base Balance Sheet") and all assets and properties acquired by Seller after the date of the Base Balance Sheet and to the Closing Date. There is, however, excluded from the assets and properties sold and purchased pursuant to this Agreement, (i) those assets listed on Schedule 1.1(b) hereto; (ii) any assets and properties disposed of by Seller since November 30, 1996 in the ordinary course of business, (iii) Seller's limited partnership franchises, limited partnership record books containing the minutes of meetings of general and limited partners, and such other records as have to do exclusively with Seller's organization or capitalization, and (iv) Seller's tax and employee records. 1.2 Assumption of Liabilities. Designated Subsidiary hereby assumes, and Buyer shall cause Designated Subsidiary to pay or discharge when due, all debts, obligations, and liabilities of Seller reflected and accrued on the Base Balance Sheet or incurred and accrued after the date of the Base Balance Sheet in the ordinary course of business and all other debts, obligations, and liabilities of Seller specifically listed in the Seller's Disclosure Schedule described in Section 3.1; provided, however, that Designated Subsidiary does not assume, and Buyer shall have no obligation to cause Designated Subsidiary to pay or discharge when due, any debts, obligations, or liabilities of Seller (a) that are listed on Schedule 1.2 hereto, (b) that are in existence on the date of the Base Balance Sheet and do not appear thereon or in the Seller's Disclosure Schedule, (c) that arise under agreements and commitments that have not been assigned to Designated Subsidiary pursuant to this Agreement, (d) the existence of which would conflict with or constitute a breach of any representation, warranty, covenant, or agreement made by Seller in this Agreement, except to the extent disclosed in the Seller's Disclosure Schedule, (e) that arise in connection with lawsuits, which are not reflected in the Base Balance Sheet or as described in Seller's Disclosure Schedule, brought against Seller based on any circumstances that occurred on or prior to the Closing Date, (f) that arise by reason of or for any default, breach, or penalty of or by Seller under any agreement or commitment, which are not reflected in the Base Balance Sheet or as described in the Seller's Disclosure Schedule, (g) that relate to any federal, state, or local income, sales, personal property, transfer, or other taxes, if any, which may be imposed on Seller or the MTL Partners in connection with the transactions contemplated by this Agreement or the liquidation and dissolution of Seller, or (h) that arise in connection with negotiating the terms of this Agreement, effecting the transactions contemplated by this Agreement, and liquidating or dissolving Seller, including the fees and expenses of Seller's legal counsel, accountants, and other consultants and advisers. SECTION 2 PURCHASE PRICE 2.1 Purchase Price. The purchase price for the Transferred Assets acquired pursuant to Section 1.1, in addition to the assumption of liabilities pursuant to Section 1.2, is an amount equal to $8,000,000 consisting of (a) cash in the amount of $5,400,000; plus (b) a promissory note of Buyer or Designated Subsidiary ("Buyer's Promissory Note") in the principal amount of $1,600,000 plus (c) 57,143 shares of Common Stock of Buyer ("Buyer's Common Stock") valued at $17.50 per share. 2.2 Allocation of Purchase Price. Buyer and Seller agree that the total purchase price (including liabilities assumed) for the assets and properties purchased pursuant to this Agreement shall be allocated to those assets and properties as set forth in Exhibit A as prepared by Buyer and approved by Seller (such approval not to be unreasonably withheld), which shall be attached to this Agreement within 60 days after the date hereof. Buyer and Seller agree that the allocation set forth in Exhibit A shall be made in accordance with the requirements of Section 1060 of the Internal Revenue Code of 1986, as amended and any applicable Treasury Regulations promulgated thereunder. Buyer and Seller, each at its own expense, also agree to file appropriate forms with the Internal Revenue Service setting forth the information required to be furnished to the Internal Revenue Service by Section 1060 and the applicable Treasury Regulations thereunder. SECTION 3 REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Seller and Designated MTL Partners. Except as otherwise set forth in the Seller Disclosure Schedule heretofore delivered by Seller to and acknowledged as received by Buyer, Seller and the Designated MTL Partners jointly and severally represent and warrant to Buyer and Designated Subsidiary as follows: (a) Organization, Good Standing, and Qualification. Seller is a limited partnership duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization with all requisite power and authority to own, operate, and lease its assets and properties and to carry on its business as now being conducted. Seller is not subject to any material disability by reason of the failure to be duly qualified for the transaction of business or to be in good standing under the laws of any jurisdiction. Seller has heretofore delivered to Buyer a list setting forth, as of the date of this Agreement, each jurisdiction in which Seller conducts its business on any basis and each jurisdiction in which Seller is qualified to do business. (b) Authority. Seller has the requisite power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. The MTL Partners have duly authorized the execution, delivery, and performance of this Agreement. No other proceedings on the part of Seller are necessary to authorize the execution and delivery by Seller of this Agreement or the consummation by Seller of the transactions contemplated hereby. This Agreement has been duly executed and delivered by, and constitutes a legal, valid, and binding agreement of, Seller and the MTL Partners, enforceable against Seller and the MTL Partners in accordance with 2 its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (c) Subsidiaries. Seller has no subsidiaries. Seller does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest in any corporation, partnership, or other business. (d) Financial Statements. The Balance Sheet of Seller as of November 30, 1995 and the Statements of Income and Retained Earnings and Cash Flows of Seller for the year ended November 30, 1995, and all related schedules and notes to the foregoing, have been audited by Greer & Walker L.L.P., certified public accountants, and the Balance Sheet of Seller as of November 30, 1996 and the Statements of Income and Retained Earnings and Cash Flows of Seller for the 12 months ended November 30, 1996 have been prepared by Seller without audit. All of the foregoing financial statements have been prepared in accordance with generally accepted accounting principles, which were applied on a consistent basis, are correct and complete, and present fairly, in all material respects, the consolidated financial position, results of operations, and changes in financial position of Seller as of their respective dates and for the periods indicated. Seller does not have any material liabilities or obligations of a type that would be included in a balance sheet prepared in accordance with generally accepted accounting principles, whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated, or otherwise, except as and to the extent disclosed or reflected in the Base Balance Sheet or Seller's Disclosure Schedule or incurred since the date of the Base Balance Sheet in the ordinary course of business. (e) Books and Records. The books of account and other corporate records of Seller are complete and accurate, have been maintained in accordance with good business practices, and the matters contained therein are appropriately reflected in Seller's financial statements. (f) No Material Change. Since November 30, 1996, there has not been and there is not threatened (i) any material adverse change in the business, assets, properties, financial condition, or operating results of Seller, (ii) any loss or damage (whether or not covered by insurance) to any of the assets or properties of Seller, which materially affects or impairs its ability to conduct its business, or (iii) any mortgage or pledge of any assets or properties of Seller, or any indebtedness incurred by Seller other than indebtedness, not material in the aggregate, incurred in the ordinary course of business. (g) Actions in the Ordinary Course of Business. Since November 30, 1996, Seller has not (i) taken any action outside of the ordinary and usual course of business other than in consultation with Buyer; (ii) borrowed any money or become contingently liable for any obligation or liability of another; (iii) failed to pay all of its debts and obligations as they became due; (iv) incurred any debt, liability or obligation of any nature to any party except for obligations arising from the purchase of goods or the rendition of services in the ordinary course of business, none of which aggregate more than $100,000 with respect to the same supplier or customer; (v) knowingly waived any right of substantial value; (vi) failed to use its best efforts to preserve its business organization intact, to keep available the services of its employees, or to preserve its relationships with its customers, suppliers, and others with which it deals other than in consultation with Buyer; or (vii) increased or committed to increase the salary, fee or compensation of any officer, employee, independent contractor, agent, firm or person performing services for it. (h) Title to Properties. Seller has good and marketable title to all of its real and personal assets and properties, including all assets and properties reflected in the Base Balance Sheet or acquired subsequent to November 30, 1996, except assets or properties disposed of subsequent to that date in the ordinary course of business. Such assets and properties are subject to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security interest, or title retention or other security arrangement, except for liens for the payment of federal, state, and other taxes, the payment of which is neither delinquent nor subject to penalties, and except for other liens and encumbrances incidental to the conduct of the business of Seller or the ownership of its assets or properties, 3 which were not incurred in connection with the borrowing of money or the obtaining of advances and which do not in the aggregate materially detract from the value of the assets or properties of Seller or materially impair the use thereof in the operation of its business, except in each case as disclosed in the Base Balance Sheet. All leases pursuant to which Seller leases any substantial amount of real or personal property are valid and effective in accordance with their respective terms. (i) Litigation. There are no actions, suits, proceedings, or other litigation pending or, to the knowledge of Seller, threatened against Seller, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality that, if determined adversely to Seller, would individually or in the aggregate have a material adverse effect on the business, assets, properties, operating results, prospects, or condition, financial or otherwise, of Seller. (j) Rights and Licenses. Seller has provided Buyer with a list of all of its trademarks, trademark rights, trade names, trade name rights, and licenses. (k) No Violation. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate or result in a breach by Seller of, or constitute a default under, or conflict with, or cause any acceleration of any obligation with respect to, (i) any provision or restriction of any partnership agreement, loan agreement, indenture, or mortgage of Seller, or (ii) any provision or restriction of any lien, lease agreement, contract, instrument, order, judgment, award, decree, ordinance, or regulation or any other restriction of any kind or character to which any assets or properties of Seller is subject or by which Seller is bound. (l) Taxes. Seller has duly filed in correct form all Tax Returns (as defined below) relating to the activities of Seller required or due to be filed (with regard to applicable extensions) on or prior to the Closing Date. All such Tax Returns are accurate and complete in all material respects, and Seller has paid or made provision for the payment of all Taxes (as defined below) that have been incurred or are due or claimed to be due from it by federal, state, or local taxing authorities for all periods ending on or before the Closing Date, other than Taxes or other charges that are not delinquent or are being contested in good faith and have not been finally determined and have been disclosed to Buyer. The amounts set up as reserves for Taxes on the books of Seller are sufficient in the aggregate for the payment of all unpaid Taxes (including any interest or penalties thereon), whether or not disputed, accrued, or applicable. No claims for taxes or assessments are being asserted or threatened against Seller. Seller has furnished to Buyer copies of all Tax Returns filed by or for it since its inception. For purposes of this Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies, or other assessments, including, without limitation, income, gross receipts, excise, property, sales, transfer, license, payroll, and franchise taxes, imposed by the United States, or any state, local or foreign government or subdivision or agency thereof and any interest, penalties or additions attributable thereto, and the term "Tax Return" shall mean any report, return, or other information required to be supplied to any taxing authority or required by any taxing authority to be supplied to any other person. (m) Accounts Receivable. The accounts receivable of Seller have been acquired in the ordinary course of business and, to the knowledge of Seller, are valid and enforceable, and are fully collectible, subject to no known defenses, set-offs, or counterclaims, except to the extent of the reserve reflected in the books of Seller or Seller's Disclosure Schedule or in such other amount not greater than $500,000 unless subject to setoff as a result of actions by Buyer. (n) Contracts. Seller is not a party to (i) any plan or contract providing for bonuses, pensions, options, stock purchases, deferred compensation, retirement payments, or profit sharing, (ii) any collective bargaining or other contract or agreement with any labor union, (iii) any lease, installment purchase agreement, or other contract with respect to any real or personal property used or proposed to be used in its operations, excepting, in each case, items included within aggregate amounts disclosed or reflected in the Base Balance Sheet, (iv) any employment agreement or other similar arrangement not terminable by it upon 30 days or less notice without penalty to it, (v) any contract or agreement for the purchase of any commodity, material, fixed asset, or equipment in excess of $100,000, (vi) any contract or agreement creating an obligation of $100,000 or 4 more, (vii) any contract or agreement that by its terms does not terminate or is not terminable by it upon 30 days or less notice without penalty to it, (viii) any loan agreement, indenture, promissory note, conditional sales agreement, or other similar type of arrangement, (ix) any material license agreement, or (x) any contract that may result in a material loss or obligation to it. All material contracts, agreements, and other arrangements to which Seller is a party are valid and enforceable in accordance with their terms; Seller and, to Seller's knowledge, all other parties to each of the foregoing have performed in all material respects all obligations required to be performed to date; and neither Seller nor, to Seller's knowledge, any such other party is in default or in arrears under the terms of any of the foregoing. (o) Compliance with Law and Other Regulations. Seller is not subject to or has been threatened with any material fine, penalty, liability, or disability as the result of its failure to comply with any requirement of federal, state, local, or foreign law or regulation or any requirement of any governmental body or agency having jurisdiction over it, the conduct of its business, the use of its assets and properties, or any premises occupied by it. (p) Insurance. Seller maintains in full force and effect insurance coverage on its assets, properties, premises, operations, and personnel in such amounts as Seller deems appropriate, all as set forth on Seller's Disclosure Schedule. (q) Certificate of Limited Partnership and Books. Seller has heretofore delivered to Buyer true and complete copies of the Certificate of Limited Partnership of Seller as currently in effect. The books of Seller contain complete and accurate records of all meetings and other partnership actions held or taken by the general partners and limited partners of Seller since its organization. (r) Employees. Seller has never maintained or contributed to any "employee benefit plan," as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including, without limitation, any stock option plan, stock purchase plan, deferred compensation plan, or other similar employee benefit plan. Seller never contributed to any "multi-employer pension plan," as such term is defined in Section 3(37)(A) of ERISA. (s) No Payments to Officers, Partners or Others. Except to the extent that the following will have no material adverse effect on the purchase by Buyer or Designated Subsidiary of the assets and properties of Seller to be purchased pursuant to Section 1.1 hereof or the assumption by Designated Subsidiary of the obligations of Seller to be assumed by Designated Subsidiary pursuant to Section 1.2 hereof, since November 30, 1996, there has not been any purchase or redemption of any partnership interests of Seller or any transfer, distribution or payment by Seller, directly or indirectly, of any money or other assets or properties to any officer, partner, or any of their affiliates or other person other than the payment of compensation for services actually rendered at rates not in excess of the rates prevailing on the Base Balance Sheet or payments in the ordinary course of business or for goods or services in other than arm's length transactions. (t) Intent and Access. Seller is acquiring the shares of Buyer's Common Stock and Buyer's Promissory Note without a view to the public distribution or resale in violation of any applicable federal or state securities laws. Seller and the MTL Partners acknowledge that Buyer's Common Stock and Buyer's Promissory Note are not registered under the Securities Act of 1933, as amended or any state securities laws and cannot be sold publicly without registration thereunder or an exemption from such registration. Seller and the MTL Partners understand that certificates for such shares and such note will contain a legend with respect to the restrictions on transfer under federal and applicable state securities laws as well as the fact that the shares and note are "restricted securities" under such federal and state laws. Seller and the MTL Partners have been furnished with such information, both financial and non-financial, with respect to the operations, business, capital structure, and financial position of Buyer and its subsidiaries as they believe necessary and have been given the opportunity to ask questions of and receive answers from Buyer and its subsidiaries and their officers concerning Buyer and its subsidiaries. Without limiting the foregoing, Seller and the MTL Partners specifically acknowledge the receipt of Buyer's Form 10-KSB Report for the fiscal year ended September 30, 1996, Buyer's Proxy Statement dated January 29, 1996, 5 Buyer's 1995 Annual Report to Shareholders, Buyer's Prospectus dated May 29, 1996, Buyer's Current Report on Form 8-K dated June 20, 1996, and Buyer's Current Report on Form 8-K dated November 7, 1996. Notwithstanding the foregoing, Seller understands that Buyer will promptly undertake to register the Buyer's Common Stock. (u) Accuracy of Statements. Neither this Agreement nor any statement, list, certificate, or other information furnished by Seller to Buyer in connection with this Agreement or any of the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of circumstances in which they are made, not misleading. 3.2 Further Representations and Warranties of Designated MTL Partners. Each Designated MTL Partner makes the following further representations and warranties as to such Designated MTL Partner: (a) Ownership of Partnership Interests in Seller. Such MTL Partner owns the partnership interests in Seller as set forth in the Seller Disclosure Schedule beside such MTL Partner's name. (b) Rights to Acquire Partnership Interests in Seller. Such MTL Partner does not have any outstanding options or other rights to purchase or subscribe for or contracts or commitments to sell, or any interests, instruments, evidences of indebtedness or other securities convertible in any manner into, any partnership interests in Seller. (c) Power to Execute Agreement. Such MTL Partner has full power and authority to execute, deliver, and perform this Agreement, and this Agreement is the legal and binding obligation of such MTL Partner, enforceable against such MTL Partner in accordance with its items, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (d) Agreement Not in Breach of Other Instruments. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, and the fulfillment of the terms hereof, will not result in the breach of any term or provision of, or constitute a default under, or conflict with, or cause the acceleration of any obligation under, any agreement or other instrument of any description to which such MTL Partner is a party or by which such MTL Partner is bound, or any judgment, decree, order or award of any court, governmental body or arbitrator, or any law, rule or regulation applicable to such MTL Partner. (e) Reliance Upon MTL Partner's Advisors. Such MTL Partner acknowledges that such person has been encouraged to rely upon the advice of his, her, or its legal counsel and accountants or other financial advisers with respect to the financial, tax, and other considerations relating to the transactions contemplated by this Agreement. Such MTL Partner represents and warrants that such person has reviewed with his, her or its own tax advisors the federal, state, local, and foreign tax consequences of the transactions contemplated by this Agreement. Such MTL Partner is relying solely on such advisors and not on any statements or representations of Buyer or any of its officers, directors, employees, or agents and understands that such MTL Partner (and not Buyer) shall be responsible for his, her, or its own tax liability, if any, that may arise as a result of the transactions contemplated by this Agreement. 3.3 Representations and Warranties of Buyer. Except as otherwise set forth in the Buyer Disclosure Schedule heretofore delivered by Buyer to Seller, and except as disclosed in any document heretofore filed by Buyer with the Securities and Exchange Commission ("SEC"), Buyer represents and warrants to Seller as follows: (a) Due Incorporation, Good Standing, and Qualification. Buyer and each of its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of their 6 jurisdictions of incorporation with all requisite corporate power and authority to own, operate, and lease their assets and properties and to carry on their business as now being conducted. Neither Buyer nor any of its subsidiaries is subject to any material disability by reason of the failure to be duly qualified as a foreign corporation for the transaction of business or to be in good standing under the laws of any jurisdiction. As used in this Agreement with reference to Buyer, the term "subsidiaries" shall include all direct or indirect subsidiaries of Buyer, including Designated Subsidiary. (b) Corporate Authority. Buyer and Designated Subsidiary have the corporate power and authority to enter into this Agreement and carry out the transactions contemplated hereby. The Boards of Directors of Buyer and Designated Subsidiary have duly authorized the execution, delivery, and performance of this Agreement. No other corporate proceedings on the part of Buyer or Designated Subsidiary, including a meeting of Buyer's shareholders, are necessary to authorize the execution and delivery by Buyer of this Agreement or the consummation by Buyer or Designated Subsidiary of the transactions contemplated hereby. This Agreement has been duly executed and delivered by, and constitutes a legal, valid, and binding agreement of, Buyer and Designated Subsidiary, enforceable against them in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (c) Capital Stock. As of the date hereof, Buyer has authorized capital stock consisting of 25,000,000 shares of Common Stock, $.01 par value, of which 13,094,962 shares are issued and outstanding, and 5,000,000 shares of Preferred Stock, no par value, of which no shares are issued and outstanding. As of such date, 1,166,303 shares of Buyer Common Stock were reserved for issuance upon the exercise of outstanding stock options and warrants. All of the issued and outstanding shares of capital stock of Buyer and each of its subsidiaries have been validly authorized and issued and are fully paid and nonassessable. (d) Options, Warrants, and Rights. Neither Buyer nor any of its subsidiaries has outstanding any options, warrants, or other rights to purchase, or securities or other obligations convertible into or exchangeable for, or contracts, commitments, agreements, arrangements or understandings to issue, any shares of their capital stock or other securities, other than those referred to in Section 3.3(c). (e) Subsidiaries. The outstanding shares of capital stock of the subsidiaries of Buyer owned by Buyer or any of its subsidiaries are owned free and clear of all claims, liens, charges, and encumbrances. Buyer does not own, directly or indirectly, any capital stock or other equity securities of any other corporation or have any direct or indirect equity or ownership interest in any other corporation or other business. (f) Financial Statements. The Consolidated Balance Sheets of Buyer and its subsidiaries as of September 30, 1995 and September 30, 1996 and the Consolidated Statements of Operations, the Consolidated Statements of Shareholders' Equity, and the Consolidated Statements of Cash Flows of Buyer and its subsidiaries for the three years ended September 30, 1996, and all related schedules and notes to the foregoing, have been reported on by Arthur Andersen LLP, independent public accountants. All of the foregoing financial statements have been prepared in accordance with generally accepted accounting principles, which were applied on a consistent basis (except as described therein), are correct and complete, and present fairly, in all material respects, the financial position, results of operations, and changes of financial position of Buyer and its subsidiaries as of their respective dates and for the periods indicated. Neither Buyer nor any of its subsidiaries has any material liabilities or obligations of a type that would be included in a balance sheet prepared in accordance with generally accepted accounting principles, whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated or otherwise, except as and to the extent disclosed or reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30, 1996, or incurred since September 30, 1996, in the ordinary course of business or as contemplated by this Agreement. 7 (g) No Material Change. Since September 30, 1996, there has not been and there is not threatened (i) any material adverse change in the business, assets, properties, financial condition, or operating results of Buyer or its subsidiaries taken as a whole, (ii) any loss or damage (whether or not covered by insurance) to any of the assets or properties of Buyer or its subsidiaries, which materially affects or impairs their ability to conduct their business, or (iii) any mortgage or pledge of any material amount of the assets or properties of Buyer or any of its subsidiaries, or any indebtedness incurred by Buyer or any of its subsidiaries, other than indebtedness, not material in the aggregate, incurred in the ordinary course of business. (h) Title to Assets and Properties. Buyer and its subsidiaries have good and marketable title to all of their respective real and personal assets and properties, including all assets and properties reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30, 1996, or acquired subsequent to September 30, 1996, except assets or properties disposed of subsequent to that date in the ordinary course of business. Such assets and properties are subject to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security interest, or title retention or other security arrangement, except for liens for the payment of federal, state, and other taxes, the payment of which is neither delinquent nor subject to penalties, and except for other liens and encumbrances incidental to the conduct of the business of Buyer and its subsidiaries or the ownership of their assets or properties, which were not incurred in connection with the borrowing of money or the obtaining of advances, and which do not in the aggregate materially detract from the value of the assets or properties of Buyer and its subsidiaries taken as a whole or materially impair the use thereof in the operation of their respective businesses, except in each case as disclosed in the Consolidated Balance Sheet as of September 30, 1996. All leases pursuant to which Buyer or any of its subsidiaries lease any substantial amount of real or personal property are valid and effective in accordance with their respective terms. Buyer and each of its subsidiaries own or have the right to use all assets and properties necessary to conduct their business as currently conducted. (i) Litigation. There are no actions, suits, proceedings, or other litigation pending or, to the knowledge of Buyer, threatened against Buyer or any of its subsidiaries, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality that, if determined adversely to Buyer or its subsidiaries, would individually or in the aggregate have a material adverse effect on the business, assets, properties, operating results, prospects, or condition, financial or otherwise, of Buyer and its subsidiaries taken as a whole. (j) Rights and Licenses. Neither Buyer nor any of its subsidiaries is subject to any material disability or liability by reason of its failure to possess any trademark, trademark right, trade name, trade name right, or license. (k) No Violation. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate or result in a breach by Buyer or any of its subsidiaries of, or constitute a default under, or conflict with, or cause any acceleration of any obligation with respect to, (i) any provision or restriction of any charter, bylaw, loan, indenture, or mortgage of Buyer or any of its subsidiaries, or (ii) any provision or restriction of any lien, lease agreement, contract, instrument, order, judgment, award, decree, ordinance, or regulation or any other restriction of any kind or character to which any assets or properties of Buyer or any of its subsidiaries is subject or by which Buyer or any of its subsidiaries is bound. (l) Taxes. Buyer has duly filed in correct form all Tax Returns relating to the activities of Buyer and its subsidiaries required or due to be filed (with regard to applicable extensions) on or prior to the Closing Date. All such Tax Returns are accurate and complete in all material respects, and Buyer has paid or made provision for the payment of all Taxes that have been incurred or are due or claimed to be due from it by federal, state, or local taxing authorities for all periods ending on or before the Closing Date, other than Taxes or other charges that are not delinquent or are being contested in good faith and have not been finally determined and have been disclosed to Seller. The amounts set up as reserves for Taxes on the books of Buyer and its subsidiaries are sufficient in the aggregate for the payment of all unpaid Taxes (including any interest or penalties thereon), whether or not disputed, accrued, or applicable. No claims for taxes or assessments are being asserted or threatened against Buyer or any of its subsidiaries. 8 (m) Accounts Receivable. The accounts receivable of Buyer and its subsidiaries have been acquired in the ordinary course of business, are valid and enforceable, and are fully collectible, subject to no known defenses, set-offs, or counterclaims, except to the extent of the reserve reflected in the books of Buyer and its subsidiaries or in such other amount that is not material in the aggregate. (n) Contracts. Neither Buyer nor any of its subsidiaries is a party to (i) any plan or contract providing for bonuses, pensions, options, stock purchases, deferred compensation, retirement payments, or profit sharing, (ii) any collective bargaining or other contract or agreement with any labor union, (iii) any lease, installment purchase agreement, or other contract with respect to any real or personal property used or proposed to be used in its operations excepting, in each case, items included within aggregate amounts disclosed or reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30, 1996, (iv) any employment agreement or other similar arrangement not terminable by it upon 30 days or less notice without penalty to it, (v) any contract or agreement for the purchase of any commodity, material, fixed asset, or equipment in excess of $100,000, (vi) any contract or agreement creating an obligation of $100,000 or more, (vii) any contract or agreement that by its terms does not terminate or is not terminable by it upon 30 days or less notice without penalty to it, (viii) any loan agreement, indenture, promissory note, conditional sales agreement, or other similar type of arrangement, (ix) any material license agreement, or (x) any contract that may result in a material loss or obligation to it. All material contracts, agreements, and other arrangements to which Buyer or any of its subsidiaries is a party are valid and enforceable in accordance with their terms; Buyer, its subsidiaries, and all other parties to each of the foregoing have performed all obligations required to be performed to date; neither Buyer, nor any of its subsidiaries, nor any such other party is in default or in arrears under the terms of any of the foregoing; and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute a default under any of them. (o) Compliance with Law and Other Regulations. Neither Buyer nor any of its subsidiaries is subject to or has been threatened with any material fine, penalty, liability, or disability as the result of its failure to comply with any requirement of federal, state, local, or foreign law or regulation or any requirement of any governmental body or agency having jurisdiction over it, the conduct of its business, the use of its assets and properties, or any premises occupied by it. (p) Insurance. Buyer and each of its subsidiaries maintains in full force and effect insurance coverage on their assets, properties, premises, operations, and personnel in such amounts as Buyer deems appropriate. (q) Articles, Bylaws, and Minute Books. Buyer has heretofore delivered to Seller true and complete copies of the Articles of Incorporation and Bylaws of Buyer and Designated Subsidiary as currently in effect. The minute books of Buyer and Designated Subsidiary contain complete and accurate records of all meetings and other corporate actions held or taken by the Boards of Directors (or committees of the Boards of Directors) and shareholders of Buyer and its subsidiaries, as the case may be, since their respective incorporations. (r) Employees. Neither Buyer nor any of its subsidiaries has ever maintained or contributed to any "employee benefit plan," as such term is defined in Section 3(3) of ERISA, including, without limitation, any stock option plan, stock purchase plan, deferred compensation plan, or other similar employee benefit plan, other than Buyer's Stock Option Plans. Neither Buyer nor any of its subsidiaries has ever contributed to any "multi-employer pension plan," as such term is defined in Section 3(37)(A) of ERISA. (s) SEC Reports. Buyer's report on Form 10-KSB for the fiscal year ended September 30, 1996 filed with the SEC and all reports and proxy statements filed by Buyer thereafter pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934 do not contain a misstatement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading as of the time the document was filed. Since the filing of such report on Form 10-KSB, no other report, proxy statement, or other document has been required to be filed by Buyer pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934 that has not been filed. 9 (t) Accuracy of Statements. Neither this Agreement nor any statement, list, certificate, or other information furnished by Buyer to Seller in connection with this Agreement or any of the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. (u) Status of Buyer's Common Stock Being Issued. The shares of Buyer's Common Stock issued in partial payment for the Transferred Assets are validly authorized and issued, fully paid, nonassessable, authorized for trading on the Nasdaq National Market, and free of preemptive or other similar rights, but subject to the resale restrictions required by Rule 144 promulgated pursuant to the Securities Act of 1933, as amended ("Rule 144"). 3.4 Survival of Representations and Warranties. Each of the representations and warranties contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement irrespective of any investigations or inquiries made by any party or any knowledge that any party may possess, and each party shall be entitled to rely upon such representations and warranties irrespective of any investigations, inquiries, or knowledge. Notwithstanding the foregoing, no claims for indemnity arising out of a false, misleading, or otherwise incorrect representation or warranty may be made after one year from the Closing Date, and neither Buyer or Designated Subsidiary on the one hand nor Seller or the Designated MTL Partners on the other shall be responsible for any indemnity claim for an amount less than $250,000 or greater than $4,000,000 arising out of a false, misleading, or otherwise incorrect representation or warranty relating to this Agreement; provided, however, that the foregoing limitation will have no force or effect with respect to any defect in the stock or promissory note constituting a portion of the purchase price for the assets and properties being sold hereunder. SECTION 4 COVENANTS OF SELLER AND MTL PARTNERS 4.1 Covenants of Seller and MTL Partners. Seller and the Designated MTL Partners further agree, unless Buyer otherwise agrees in writing, subsequent to the Closing Date: (a) Satisfaction of Obligations. Seller shall pay and discharge, as promptly as practicable after the Closing Date, all outstanding obligations and liabilities not being assumed by Designated Subsidiary or provide adequate reserves so that Designated Subsidiary will have no responsibilities to Seller's creditors except as specifically assumed pursuant to Section 1.2. (b) Filing of Tax Returns and Forms. As promptly as practicable after the Closing Date, Seller or the MTL Partners shall, at their cost and expense, (i) prepare and file or cause to be prepared and filed all federal, state, and local partnership and income tax returns and pay any amounts due for taxes for all prior fiscal years and the period from the end of its last fiscal year to the date of its liquidation and dissolution, and (ii) prepare and file or cause to be prepared and filed all federal, state, and local forms (including, but not limited to, Forms 1099 and W-2) and pay all taxes or withholding amounts for all employment-related taxes for all periods through the Closing Date. (c) Change of Name. Seller shall promptly change its name to a name that does not include the words "Motorsport Traditions." 4.2 Further Assurances. From time to time, on and after the Closing Date, as and when requested by Buyer or Designated Subsidiary, the general partners of Seller as of the Closing Date shall, for and on behalf and in the name of Seller or otherwise, execute and deliver all such deeds, bills of sale, assignments, and other instruments and shall take or cause to be taken such further or other actions as Buyer or Designated Subsidiary may deem necessary or desirable in order to confirm of record or otherwise to Buyer or Designated Subsidiary title to and possession of all of the Transferred Assets and otherwise to carry out fully the provisions and purposes of this 10 Agreement. In addition, Seller shall give Buyer access to all records of Seller not purchased hereunder, and Buyer shall give Seller access to all records of Buyer to the extent relevant to the transactions contemplated hereby. SECTION 5 GENERAL 5.1 Costs and Indemnity Against Finders. Each party hereto shall be responsible for its own costs and expenses in negotiating and performing this Agreement and hereby indemnifies and holds the other parties harmless against any claim for finders' fees based on alleged retention of a finder by it. 5.2 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance, and enforcement shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-law provisions to the contrary. 5.3 Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or when deposited in the United States mails, first class postage prepaid, addressed as set forth below:
If to Buyer or Designated Subsidiary: If to Seller or the Designated MTL Partners: 2401 West First Street 2835 Armentrout Drive Tempe, Arizona 85281 Concord, North Carolina 28205 Attention: Fred W. Wagenhals Attention: Kenneth R. Barbee Tel: (602) 894-0100 Tel: (704) 784-2700 Fax: (602) 967-1403 Fax: (704) 784-2707 with a copy given in the manner with a copy given in the manner prescribed above, to: prescribed above, to: O'Connor, Cavanagh, Anderson, Robinson, Bradshaw & Hinson, P.A. Killingsworth & Beshears, P.A. 101 North Tryon Street, Suite 1900 One East Camelback Road Charlotte, North Carolina 28246-1900 Phoenix, Arizona 85012 Attention: Stokley G. Caldwell, Jr., Esq. Attention: Robert S. Kant, Esq. Tel: (704) 377-8332 Tel: (602) 263-2606 Fax: (704) 378-4000 Fax: (602) 263-2900
Any party may alter the address to which communications or copies are to be sent by giving notice to such other parties of change of address in conformity with the provisions of this paragraph for the giving of notice. 5.4 Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, and assigns, except that no party may assign, delegate, or transfer its rights or obligations under this Agreement without the prior written consent of the other parties hereto. Any assignment, delegation, or transfer made in violation of this Section 5.4 shall be null and void. 5.5 Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, inducements, and conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 11 5.6 Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 5.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACTION PERFORMANCE COMPANIES, INC. MIDLAND LEASING, INC. By:_______________________________ By:_______________________________ Its:______________________________ Its:______________________________ MTL ACQUISITION, INC. MOTORSPORTS BY MAIL, INC. By:_______________________________ By:_______________________________ Its:______________________________ Its:______________________________ MOTORSPORT TRADITIONS LIMITED PARTNERSHIP By:_______________________________ General Partner 12 EX-10.40 3 EXCHANGE AGREEMENT - -------------------------------------------------------------------------------- EXCHANGE AGREEMENT DATED AS OF JANUARY 1, 1997 AMONG ACTION PERFORMANCE COMPANIES, INC., KENNETH R. BARBEE, AND JEFFERY M. GORDON - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- SECTION 1 EXCHANGE OF SHARES............................ 1 SECTION 2 REPRESENTATIONS AND WARRANTIES...................... 1 2.1 Representations and Warranties of Seller............................ 1 (a) Due Incorporation, Good Standing, and Qualification........ 1 (b) Capital Stock.............................................. 1 (c) Options, Warrants, and Rights.............................. 1 (d) Subsidiaries............................................... 2 (e) Financial Statements....................................... 2 (f) Books and Records.......................................... 2 (g) No Material Change......................................... 2 (h) Actions in the Ordinary Course of Business................. 2 (i) Title to Properties........................................ 2 (j) Litigation................................................. 3 (k) Rights and Licenses........................................ 3 (l) No Violation............................................... 3 (m) Taxes...................................................... 3 (n) Accounts Receivable........................................ 3 (o) Contracts.................................................. 3 (p) Compliance with Law and Other Regulations.................. 4 (q) Insurance.................................................. 4 (r) Articles, Bylaws, and Minute Books......................... 4 (s) Employees.................................................. 4 (t) No Payments to Directors, Officers, Shareholders or Others. 4 (u) Accuracy of Statements..................................... 4 2.2 Further Representations and Warranties of Sellers................... 4 (a) Ownership of Capital Stock of CMP.......................... 5 (b) Rights to Acquire Shares................................... 5 (c) Power to Execute Agreement................................. 5 (d) Agreement Not in Breach of Other Instruments............... 5 (e) Reliance Upon Seller's Advisors............................ 5 (f) Intent and Access.......................................... 5 2.3 Representations and Warranties of Buyer............................. 5 (a) Due Incorporation, Good Standing, and Qualification........ 6 (b) Corporate Authority........................................ 6 (c) Capital Stock.............................................. 6 (d) Options, Warrants, and Rights.............................. 6 (e) Subsidiaries............................................... 6 (f) Financial Statements....................................... 6 (g) No Material Change......................................... 7 (h) Title to Assets and Properties............................. 7 (i) Litigation................................................. 7 (j) Rights and Licenses........................................ 7 (k) No Violation............................................... 7 i (l) Taxes...................................................... 7 (m) Accounts Receivable........................................ 8 (n) Contracts.................................................. 8 (o) Compliance with Law and Other Regulations.................. 8 (p) Insurance.................................................. 8 (q) Articles, Bylaws, and Minute Books......................... 8 (r) Employees.................................................. 8 (s) SEC Reports................................................ 8 (t) Accuracy of Statements..................................... 9 (u) Status of Buyer Common Stock Being Issued.................. 9 2.4 Survival of Representations and Warranties.......................... 9 SECTION 3 COVENANTS OF SELLERS........................... 9 3.1 Covenants of Sellers................................................ 9 (a) Filing of Tax Returns and Payment of Taxes................. 9 (b) Section 338(h)(10) Election................................ 9 3.2 Further Assurances......................................... 10 SECTION 4 GENERAL................................. 10 4.1 Costs and Indemnity Against Finders................................. 10 4.2 Controlling Law..................................................... 10 4.3 Notices............................................................. 10 4.4 Binding Nature of Agreement; No Assignment.......................... 10 4.5 Entire Agreement.................................................... 11 4.6 Paragraph Headings.................................................. 11 4.7 Counterparts........................................................ 11 ii EXCHANGE AGREEMENT AGREEMENT dated as of January 1, 1997, among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation ("Buyer"); and KENNETH R. BARBEE and JEFFERY M. GORDON (each, a "Seller" and together, "Sellers"). Buyer and Sellers desire that Buyer acquire all of Sellers' shares of capital stock (the "Shares") of Creative Marketing and Promotions, Inc., a North Carolina corporation ("CMP") in exchange for shares of Buyer's Common Stock, all on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein, the parties agree as follows: SECTION 1 EXCHANGE OF SHARES 1.1 Exchange of Shares. Based upon and subject to the representations, warranties, covenants, agreements, and other terms and conditions set forth in this Agreement, as of the date of this Agreement (the "Closing Date"), the Sellers hereby convey, transfer, assign, and deliver the Shares to Buyer in exchange for an aggregate of 285,714 shares of Buyer's common stock, par value $.01 per share (the "Buyer's Common Stock"), valued at $17.50 per share. Each Seller hereby conveys, transfers, assigns, and delivers to Buyer the number of Shares set forth beside such Seller's name on Schedule 1.1 hereto, in exchange for the number of shares of Buyer's Common Stock set forth beside such Seller's name on Schedule 1.1 hereto. Buyer and each of the Sellers hereby acknowledges receipt of the Shares and the Buyer's Common Stock, respectively. SECTION 2 REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of Sellers. Except as otherwise set forth in the Sellers' Disclosure Schedule heretofore delivered by Sellers to and acknowledged as received by Buyer, Sellers jointly and severally represent and warrant to Buyer as follows: (a) Due Incorporation, Good Standing, and Qualification. CMP is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation with all requisite corporate power and authority to own, operate, and lease its assets and properties and to carry on its business as now being conducted. CMP is not subject to any material disability by reason of the failure to be duly qualified as a foreign corporation for the transaction of business or to be in good standing under the laws of any jurisdiction. Sellers have heretofore delivered to Buyer a list setting forth, as of the date of this Agreement, each jurisdiction in which (i) CMP currently conducts it business or has in the past conducted its business on any basis, (ii) CMP is qualified to do business, and (iii) CMP is qualified for the purposes of sales and income taxes. (b) Capital Stock. As of the date hereof, CMP has an authorized capital stock consisting of 100,000 shares of Common Stock, $1.00 par value, of which 4,000 shares are issued and outstanding and all of which are owned by Sellers, free and clear of all claims, liens, charges, and encumbrances. All of the issued and outstanding shares of capital stock of CMP have been validly authorized and issued and are fully paid and nonassessable. (c) Options, Warrants, and Rights. CMP does not have outstanding any options, warrants, or other rights to purchase, or securities or other obligations convertible into or exchangeable for, or contracts, commitments, agreements, arrangements, or understandings to issue, any shares of its capital stock or other securities. (d) Subsidiaries. CMP has no subsidiaries. CMP does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest in any corporation or other business. (e) Financial Statements. The Balance Sheet of CMP as of November 30, 1995, and the Statements of Income and Retained Earnings and Cash Flows of CMP for the year ended November 30, 1995 have been audited by Greer & Walker, L.L.P., certified public accountants, and the Balance Sheet of CMP as of November 30, 1996 and the Statements of Income and Retained Earnings and Cash Flow of CMP for the 12 months ended November 30, 1996 have been prepared by CMP without audit. All of the foregoing financial statements have been prepared in accordance with generally accepted accounting principles, which were applied on a consistent basis, are correct and complete, and present fairly, in all material respects, the consolidated financial position, results of operations, and changes in financial position of CMP as of their respective dates and for the periods indicated. CMP does not have any material liabilities or obligations of a type that would be included in a balance sheet prepared in accordance with generally accepted accounting principles, whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated, or otherwise, except as and to the extent disclosed or reflected in the Base Balance Sheet or Sellers' Disclosure Schedule or incurred since the date of the Base Balance Sheet in the ordinary course of business. (f) Books and Records. The books of account and other corporate records of CMP are complete and accurate, have been maintained in accordance with good business practices, and the matters contained therein are appropriately reflected in CMP's financial statements. (g) No Material Change. Since November 30, 1996, there has not been and there is not threatened (i) any material adverse change in the business, assets, properties, financial condition, or operating results of CMP, (ii) any loss or damage (whether or not covered by insurance) to any of the assets or properties of CMP, which materially affects or impairs its ability to conduct its business, or (iii) any mortgage or pledge of any assets or properties of CMP, or any indebtedness incurred by CMP other than indebtedness, not material in the aggregate, incurred in the ordinary course of business. (h) Actions in the Ordinary Course of Business. Since November 30, 1996, CMP has not (i) taken any action outside of the ordinary and usual course of business; (ii) borrowed any money or become contingently liable for any obligation or liability of another; (iii) failed to pay all of its debts and obligations as they became due; (iv) incurred any debt, liability or obligation of any nature to any party except for obligations arising from the purchase of goods or the rendition of services in the ordinary course of business, none of which aggregate more than $100,000 with respect to the same supplier or customer; (v) knowingly waived any right of substantial value; (vi) failed to use its best efforts to preserve its business organization intact, to keep available the services of its employees, or to preserve its relationships with its customers, suppliers and others with which it deals; or (vii) increased or committed to increase the salary, fee or compensation of any officer, employee, independent contractor, agent, firm or person performing services for it. (i) Title to Properties. CMP has good and marketable title to all of its real and personal assets and properties, including all assets and properties reflected in the Base Balance Sheet or acquired subsequent to November 30, 1996, except assets or properties disposed of subsequent to that date in the ordinary course of business. Such assets and properties are subject to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security interest, or title retention or other security arrangement, except for liens for the payment of federal, state, and other taxes, the payment of which is neither delinquent nor subject to penalties, and except for other liens and encumbrances incidental to the conduct of the business of CMP or the ownership of its assets or properties, which were not incurred in connection with the borrowing of money or the obtaining of advances and which do not 2 in the aggregate materially detract from the value of the assets or properties of CMP or materially impair the use thereof in the operation of its business, except in each case as disclosed in the Base Balance Sheet. All leases pursuant to which CMP leases any substantial amount of real or personal property are valid and effective in accordance with their respective terms. (j) Litigation. There are no actions, suits, proceedings, or other litigation pending or, to the knowledge of CMP, threatened against CMP, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality that, if determined adversely to CMP, would individually or in the aggregate have a material adverse effect on the business, assets, properties, operating results, prospects, or condition, financial or otherwise, of CMP. (k) Rights and Licenses. CMP has provided Buyer with a list of all of its trademarks, trademark rights, trade names, trade name rights, and licenses. (l) No Violation. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate or result in a breach by CMP of, or constitute a default under, or conflict with, or cause any acceleration of any obligation with respect to, (i) any provision or restriction of any charter, bylaw, loan, indenture, or mortgage of CMP, or (ii) any provision or restriction of any lien, lease agreement, contract, instrument, order, judgment, award, decree, ordinance, or regulation or any other restriction of any kind or character to which any assets or properties of CMP is subject or by which CMP is bound. (m) Taxes. CMP has duly filed in correct form all Tax Returns (as defined below) relating to the activities of CMP required or due to be filed (with regard to applicable extensions) on or prior to the Closing Date. All such Tax Returns are accurate and complete in all material respects, and CMP has paid or made provision for the payment of all Taxes (as defined below) that have been incurred or are due or claimed to be due from it by federal, state, or local taxing authorities for all periods ending on or before the Closing Date, other than Taxes or other charges that are not delinquent or are being contested in good faith and have not been finally determined and have been disclosed to Buyer. The amounts set up as reserves for Taxes on the books of CMP are sufficient in the aggregate for the payment of all unpaid Taxes (including any interest or penalties thereon), whether or not disputed, accrued, or applicable. No claims for taxes or assessments are being asserted or threatened against CMP. Sellers have furnished to Buyer copies of all Tax Returns filed for or by CMP since its inception. For purposes of this Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies, or other assessments, including, without limitation, income, gross receipts, excise, property, sales, transfer, license, payroll, and franchise taxes, imposed by the United States, or any state, local or foreign government or subdivision or agency thereof and any interest, penalties or additions attributable thereto, and the term "Tax Return" shall mean any report, return, or other information required to be supplied to any taxing authority or required by any taxing authority to be supplied to any other person. CMP has duly and validly filed elections for S corporation status under the Internal Revenue Code; none of such elections have been revoked or terminated; and neither CMP nor any shareholder of CMP has taken any action that would cause a termination of such S election. (n) Accounts Receivable. The accounts receivable of CMP have been acquired in the ordinary course of business and, to the knowledge of Seller, are valid and enforceable, and are fully collectible, subject to no known defenses, set-offs, or counterclaims, except to the extent of the reserve reflected in the books of CMP or in CMP's Disclosure Schedule or in such other amount not greater than $500,000 unless subject to setoff as a result of actions by Buyer. (o) Contracts. CMP is not a party to (i) any plan or contract providing for bonuses, pensions, options, stock purchases, deferred compensation, retirement payments, or profit sharing, (ii) any collective bargaining or other contract or agreement with any labor union, (iii) any lease, installment purchase agreement, or other contract with respect to any real or personal property used or proposed to be used in its operations, excepting, in each case, items included within aggregate amounts disclosed or reflected in the Base 3 Balance Sheet, (iv) any employment agreement or other similar arrangement not terminable by it upon 30 days or less notice without penalty to it, (v) any contract or agreement for the purchase of any commodity, material, fixed asset, or equipment in excess of $100,000, (vi) any contract or agreement creating an obligation of $100,000 or more, (vii) any contract or agreement that by its terms does not terminate or is not terminable by it upon 30 days or less notice without penalty to it, (viii) any loan agreement, indenture, promissory note, conditional sales agreement, or other similar type of arrangement, (ix) any material license agreement, or (x) any contract that may result in a material loss or obligation to it. All material contracts, agreements, and other arrangements to which CMP is a party are valid and enforceable in accordance with their terms; CMP and, to CMP's knowledge, all other parties to each of the foregoing have performed in any material respects all obligations required to be performed to date; and neither CMP nor, to CMP's knowledge, any such other party is in default or in arrears under the terms of any of the foregoing. (p) Compliance with Law and Other Regulations. CMP is not subject to or has been threatened with any material fine, penalty, liability, or disability as the result of its failure to comply with any requirement of federal, state, local, or foreign law or regulation or any requirement of any governmental body or agency having jurisdiction over it, the conduct of its business, the use of its assets and properties, or any premises occupied by it. (q) Insurance. CMP maintains in full force and effect insurance coverage on its assets, properties, premises, operations, and personnel in such amounts as CMP deems appropriate, all as set forth on Sellers' Disclosure Schedule. (r) Articles, Bylaws, and Minute Books. Sellers have heretofore delivered to Buyer true and complete copies of the Articles of Incorporation and Bylaws of CMP as currently in effect. The minute books of CMP contain complete and accurate records of all meetings and other corporate actions held or taken by the Boards of Directors (or committees of the Boards of Directors) and shareholders of CMP since its incorporation. (s) Employees. CMP has never maintained or contributed to any "employee benefit plan," as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including, without limitation, any stock option plan, stock purchase plan, deferred compensation plan, or other similar employee benefit plan. CMP never contributed to any "multi-employer pension plan," as such term is defined in Section 3(37)(A) of ERISA. (t) No Payments to Directors, Officers, Shareholders or Others. Except to the extent that the following will have no material adverse effect on the purchase by Buyer of the Shares or the business, assets, or properties of CMP pursuant to this Agreement, since November 30, 1996, there has not been any purchase or redemption of any shares of capital stock of CMP or any transfer, distribution or payment by CMP, directly or indirectly, of any money or other assets or properties to any director, officer, shareholder or any of their affiliates or other person other than the payment of compensation for services actually rendered at rates not in excess of the rates prevailing on the Base Balance Sheet or payments in the ordinary course of business or for goods or services in other than arm's length transactions. (u) Accuracy of Statements. Neither this Agreement nor any statement, list, certificate, or other information furnished by CMP or Sellers to Buyer in connection with this Agreement or any of the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of circumstances in which they are made, not misleading. 2.2 Further Representations and Warranties of Sellers. Each Seller makes the following further representations and warranties as to himself: 4 (a) Ownership of Capital Stock of CMP. Such Seller owns the number of Shares set forth beside such Seller's name on Schedule 1.1 hereto. Such Seller has good, marketable and unencumbered title to such Shares, and there are no restrictions on his right to transfer such Shares to Buyer pursuant to this Agreement. (b) Rights to Acquire Shares. Such Seller does not have any outstanding options, warrants, or other rights to purchase or subscribe for or contracts or commitments to sell, or any interests, instruments, evidences of indebtedness or other securities convertible in any manner into, any shares of CMP's capital stock. (c) Power to Execute Agreement. Such Seller has full power and authority to execute, deliver, and perform this Agreement, and this Agreement is the legal and binding obligation of such Seller, enforceable against such Seller in accordance with its items, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (d) Agreement Not in Breach of Other Instruments. The execution and delivery of this Agreement, the consummation of the transactions hereby contemplated, and the fulfillment of the terms hereof, will not result in the breach of any term or provision of, or constitute a default under, or conflict with, or cause the acceleration of any obligation under, any agreement or other instrument of any description to which such Seller is a party or by which such Seller is bound, or any judgment, decree, order or award of any court, governmental body or arbitrator, or any law, rule or regulation applicable to such Seller. (e) Reliance Upon Seller's Advisors. Such Seller acknowledges that he has been encouraged to rely upon the advice of his legal counsel and accountants or other financial advisers with respect to the financial, tax, and other considerations relating to the acquisition of the Buyer's Common Stock. Such Seller represents and warrants that he has reviewed with the his own tax advisors the federal, state, local, and foreign tax consequences of the investment in Buyer's Common Stock. Such Seller is relying solely on such advisors and not on any statements or representations of Buyer or any of its officers, directors, employees, or agents and understands that such Seller (and not Buyer) shall be responsible for his own tax liability, if any, that may arise as a result of the acquisition of Buyer's Common Stock or the transactions contemplated by this Agreement. (f) Intent and Access. Such Seller is acquiring the shares of Buyer's Common Stock without a view to the public distribution or resale in violation of any applicable federal or state securities laws. Such Seller acknowledges that the shares of Buyer's Common Stock are not registered under the Securities Act of 1933, as amended or any state securities laws and cannot be sold publicly without registration thereunder or an exemption from such registration. Such Seller understands that certificates for such shares will contain a legend with respect to the restrictions on transfer under federal and applicable state securities laws as well as the fact that the shares are "restricted securities" under such federal and state laws. Such Seller has been furnished with such information, both financial and non-financial, with respect to the operations, business, capital structure, and financial position of Buyer and its subsidiaries as he believes necessary and has been given the opportunity to ask questions of and receive answers from Buyer and its subsidiaries and their officers concerning Buyer and its subsidiaries. Without limiting the foregoing, such Seller specifically acknowledges the receipt of Buyer's Form 10-KSB Report for the fiscal year ended September 30, 1996, Buyer's Proxy Statement dated January 29, 1996, Buyer's 1996 Annual Report to Shareholders, Buyer's Prospectus dated May 29, 1996, Buyer's Current Report on Form 8-K dated June 20, 1996, and Buyer's Current Report on Form 8-K dated November 7, 1996. Notwithstanding the foregoing, Sellers understand that Buyer will promptly undertake to register the Buyer's Common Stock. 2.3 Representations and Warranties of Buyer. Except as otherwise set forth in the Buyer Disclosure Schedule heretofore delivered by Buyer to Sellers, and except as disclosed in any document heretofore filed by Buyer with the Securities and Exchange Commission ("SEC"), Buyer represents and warrants to Sellers as follows: 5 (a) Due Incorporation, Good Standing, and Qualification. Buyer and each of its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of their jurisdictions of incorporation with all requisite corporate power and authority to own, operate, and lease their assets and properties and to carry on their business as now being conducted. Neither Buyer nor any of its subsidiaries is subject to any material disability by reason of the failure to be duly qualified as a foreign corporation for the transaction of business or to be in good standing under the laws of any jurisdiction. As used in this Agreement with reference to Buyer, the term "subsidiaries" shall include all direct or indirect subsidiaries of Buyer. (b) Corporate Authority. Buyer has the corporate power and authority to enter into this Agreement and carry out the transactions contemplated hereby. The Board of Directors of Buyer has duly authorized the execution, delivery, and performance of this Agreement. No other corporate proceedings on the part of Buyer, including a meeting of Buyer's shareholders, are necessary to authorize the execution and delivery by Buyer of this Agreement or the consummation by Buyer of the transactions contemplated hereby. This Agreement has been duly executed and delivered by, and constitutes a legal, valid, and binding agreement of, Buyer, enforceable against it in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (c) Capital Stock. As of the date hereof, Buyer has authorized capital stock consisting of 25,000,000 shares of Common Stock, $.01 par value, of which 13,094,962 shares are issued and outstanding, and 5,000,000 shares of Preferred Stock, no par value, of which no shares are issued and outstanding. As of such date, 1,166,303 shares of Buyer Common Stock were reserved for issuance upon the exercise of outstanding stock options and warrants. All of the issued and outstanding shares of capital stock of Buyer and each of its subsidiaries have been, and Buyer's Common Stock, when issued pursuant to this Agreement will be, validly authorized and issued and fully paid and nonassessable. (d) Options, Warrants, and Rights. Neither Buyer nor any of its subsidiaries has outstanding any options, warrants, or other rights to purchase, or securities or other obligations convertible into or exchangeable for, or contracts, commitments, agreements, arrangements or understandings to issue, any shares of their capital stock or other securities, other than those referred to in Section 2.2(c). (e) Subsidiaries. The outstanding shares of capital stock of the subsidiaries of Buyer owned by Buyer or any of its subsidiaries are owned free and clear of all claims, liens, charges, and encumbrances. Buyer does not own, directly or indirectly, any capital stock or other equity securities of any corporation or have any direct or indirect equity or ownership interest in any corporation or other business. (f) Financial Statements. The Consolidated Balance Sheets of Buyer and its subsidiaries as of September 30, 1995 and September 30, 1996 and the Consolidated Statements of Operations, the Consolidated Statements of Shareholders' Equity, and the Consolidated Statements of Cash Flows of Buyer and its subsidiaries for the three years ended September 30, 1996, and all related schedules and notes to the foregoing, have been reported on by Arthur Andersen LLP, independent public accountants. All of the foregoing financial statements have been prepared in accordance with generally accepted accounting principles, which were applied on a consistent basis (except as described therein), are correct and complete, and present fairly, in all material respects, the financial position, results of operations, and changes of financial position of Buyer and its subsidiaries as of their respective dates and for the periods indicated. Neither Buyer nor any of its subsidiaries has any material liabilities or obligations of a type that would be included in a balance sheet prepared in accordance with generally accepted accounting principles, whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated or otherwise, except as and to the extent disclosed or reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30, 1996, or incurred since September 30, 1996, in the ordinary course of business or as contemplated by this Agreement. 6 (g) No Material Change. Since September 30, 1996, there has not been and there is not threatened (i) any material adverse change in the business, assets, properties, financial condition, or operating results of Buyer or its subsidiaries taken as a whole, (ii) any loss or damage (whether or not covered by insurance) to any of the assets or properties of Buyer or its subsidiaries, which materially affects or impairs their ability to conduct their business, or (iii) any mortgage or pledge of any material amount of the assets or properties of Buyer or any of its subsidiaries, or any indebtedness incurred by Buyer or any of its subsidiaries, other than indebtedness, not material in the aggregate, incurred in the ordinary course of business. (h) Title to Assets and Properties. Buyer and its subsidiaries have good and marketable title to all of their respective real and personal assets and properties, including all assets and properties reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30, 1996, or acquired subsequent to September 30, 1996, except assets or properties disposed of subsequent to that date in the ordinary course of business. Such assets and properties are subject to no mortgage, indenture, pledge, lien, claim, encumbrance, charge, security interest, or title retention or other security arrangement, except for liens for the payment of federal, state, and other taxes, the payment of which is neither delinquent nor subject to penalties, and except for other liens and encumbrances incidental to the conduct of the business of Buyer and its subsidiaries or the ownership of their assets or properties, which were not incurred in connection with the borrowing of money or the obtaining of advances, and which do not in the aggregate materially detract from the value of the assets or properties of Buyer and its subsidiaries taken as a whole or materially impair the use thereof in the operation of their respective businesses, except in each case as disclosed in the Consolidated Balance Sheet as of September 30, 1996. All leases pursuant to which Buyer or any of its subsidiaries lease any substantial amount of real or personal property are valid and effective in accordance with their respective terms. Buyer and each of its subsidiaries own or have the right to use all assets and properties necessary to conduct their business as currently conducted. (i) Litigation. There are no actions, suits, proceedings, or other litigation pending or, to the knowledge of Buyer, threatened against Buyer or any of its subsidiaries, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality that, if determined adversely to Buyer or its subsidiaries, would individually or in the aggregate have a material adverse effect on the business, assets, properties, operating results, prospects, or condition, financial or otherwise, of Buyer and its subsidiaries taken as a whole. (j) Rights and Licenses. Neither Buyer nor any of its subsidiaries is subject to any material disability or liability by reason of its failure to possess any trademark, trademark right, trade name, trade name right, or license. (k) No Violation. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate or result in a breach by Buyer or any of its subsidiaries of, or constitute a default under, or conflict with, or cause any acceleration of any obligation with respect to, (i) any provision or restriction of any charter, bylaw, loan, indenture, or mortgage of Buyer or any of its subsidiaries, or (ii) any provision or restriction of any lien, lease agreement, contract, instrument, order, judgment, award, decree, ordinance, or regulation or any other restriction of any kind or character to which any assets or properties of Buyer or any of its subsidiaries is subject or by which Buyer or any of its subsidiaries is bound. (l) Taxes. Buyer has duly filed in correct form all Tax Returns relating to the activities of Buyer and its subsidiaries required or due to be filed (with regard to applicable extensions) on or prior to the Closing Date. All such Tax Returns are accurate and complete in all material respects, and Buyer has paid or made provision for the payment of all Taxes that have been incurred or are due or claimed to be due from it by federal, state, or local taxing authorities for all periods ending on or before the Closing Date, other than Taxes or other charges that are not delinquent or are being contested in good faith and have not been finally determined and have been disclosed to Seller. The amounts set up as reserves for Taxes on the books of Buyer and its subsidiaries are sufficient in the aggregate for the payment of all unpaid Taxes (including any interest or penalties thereon), whether 7 or not disputed, accrued, or applicable. No claims for taxes or assessments are being asserted or threatened against Buyer or any of its subsidiaries. (m) Accounts Receivable. The accounts receivable of Buyer and its subsidiaries have been acquired in the ordinary course of business, are valid and enforceable, and are fully collectible, subject to no known defenses, setoffs, or counterclaims, except to the extent of the reserve reflected in the books of Buyer and its subsidiaries or in such other amount that is not material in the aggregate. (n) Contracts. Neither Buyer nor any of its subsidiaries is a party to (i) any plan or contract providing for bonuses, pensions, options, stock purchases, deferred compensation, retirement payments, or profit sharing, (ii) any collective bargaining or other contract or agreement with any labor union, (iii) any lease, installment purchase agreement, or other contract with respect to any real or personal property used or proposed to be used in its operations excepting, in each case, items included within aggregate amounts disclosed or reflected in the Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30, 1996, (iv) any employment agreement or other similar arrangement not terminable by it upon 30 days or less notice without penalty to it, (v) any contract or agreement for the purchase of any commodity, material, fixed asset, or equipment in excess of $100,000, (vi) any contract or agreement creating an obligation of $100,000 or more, (vii) any contract or agreement that by its terms does not terminate or is not terminable by it upon 30 days or less notice without penalty to it, (viii) any loan agreement, indenture, promissory note, conditional sales agreement, or other similar type of arrangement, (ix) any material license agreement, or (x) any contract that may result in a material loss or obligation to it. All material contracts, agreements, and other arrangements to which Buyer or any of its subsidiaries is a party are valid and enforceable in accordance with their terms; Buyer, its subsidiaries, and all other parties to each of the foregoing have performed all obligations required to be performed to date; neither Buyer, nor any of its subsidiaries, nor any such other party is in default or in arrears under the terms of any of the foregoing; and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute a default under any of them. (o) Compliance with Law and Other Regulations. Neither Buyer nor any of its subsidiaries is subject to or has been threatened with any material fine, penalty, liability, or disability as the result of its failure to comply with any requirement of federal, state, local, or foreign law or regulation or any requirement of any governmental body or agency having jurisdiction over it, the conduct of its business, the use of its assets and properties, or any premises occupied by it. (p) Insurance. Buyer and each of its subsidiaries maintains in full force and effect insurance coverage on their assets, properties, premises, operations, and personnel in such amounts as Buyer deems appropriate. (q) Articles, Bylaws, and Minute Books. Buyer has heretofore delivered to Sellers true and complete copies of its Articles of Incorporation and Bylaws of Buyer as currently in effect. The minute books of Buyer contain complete and accurate records of all meetings and other corporate actions held or taken by the Boards of Directors (or committees of the Boards of Directors) and shareholders of Buyer since its incorporation. (r) Employees. Neither Buyer nor any of its subsidiaries has ever maintained or contributed to any "employee benefit plan," as such term is defined in Section 3(3) of ERISA, including, without limitation, any stock option plan, stock purchase plan, deferred compensation plan, or other similar employee benefit plan, other than Buyer's Stock Option Plans. Neither Buyer nor any of its subsidiaries has ever contributed to any "multi-employer pension plan," as such term is defined in Section 3(37)(A) of ERISA. (s) SEC Reports. Buyer's report on Form 10-KSB for the fiscal year ended September 30, 1996 filed with the SEC and all reports and proxy statements filed by Buyer thereafter pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934 do not contain a misstatement of a material fact or omit to state 8 a material fact required to be stated therein or necessary to make the statements therein not misleading as of the time the document was filed. Since the filing of such report on Form 10-KSB, no other report, proxy statement, or other document has been required to be filed by Buyer pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of 1934 that has not been filed. (t) Accuracy of Statements. Neither this Agreement nor any statement, list, certificate, or other information furnished by Buyer to Sellers in connection with this Agreement or any of the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. (u) Status of Buyer Common Stock Being Issued. The shares of Buyer's Common Stock issued in exchange for the Shares are validly authorized and issued, fully paid, nonassessable, authorized for trading on the Nasdaq National Market, and free of preemptive or other similar rights, but subject to the resale restrictions required by Rule 144 promulgated pursuant to the Securities Act of 1933, as amended ("Rule 144"). 2.4 Survival of Representations and Warranties. Each of the representations and warranties contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement irrespective of any investigations or inquiries made by any party or any knowledge that any party may possess, and each party shall be entitled to rely upon such representations and warranties irrespective of any investigations, inquiries, or knowledge. Notwithstanding the foregoing, no claims for indemnity arising out of a false, misleading, or otherwise incorrect representation or warranty may be made after one year from the Closing Date, and neither Buyer nor Sellers shall be responsible for any indemnity claim for an amount less than $250,000 or greater than $4,000,000 arising out of a false, misleading, or otherwise incorrect representation or warranty relating to this Agreement; provided, however, that the foregoing limitation will have no force or effect with respect to any defect of Buyer's Common Stock. SECTION 3 COVENANTS OF SELLERS 3.1 Covenants of Sellers. Each Seller further agrees, unless Buyer otherwise agrees in writing, subsequent to the Closing Date: (a) Filing of Tax Returns and Payment of Taxes. As promptly as practicable after the Closing Date, Sellers shall, at their cost and expense, prepare or cause to be prepared all federal, state, and local S corporation Tax Returns for all periods prior to the Closing Date. Not less than 30 days prior to the anticipated date for filing such returns, Sellers shall provide a copy of each such Tax Returns to Buyer for its review and consent or approval. Sellers shall make any revisions to such Tax Returns that Buyer may reasonably request. Upon approval of such Tax Returns by Buyer, such approval not to be unreasonably withheld, Sellers shall promptly file such Tax Returns or cause them to be filed. Each Seller agrees that Sellers shall be jointly and severally responsible for any and all tax obligations of CMP or the Sellers arising as a result of CMP's status as an S corporation prior to the Closing Date. Each Seller agrees that Sellers shall promptly pay any and all Taxes determined to be owed by CMP or either or both of the Sellers as a result of CMP's status as an S corporation prior to the Closing Date. (b) Section 338(h)(10) Election. In the event that Buyer determines that it is eligible to file an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, with respect to the exchange of Shares and Buyer's Common Stock pursuant to this Agreement, Sellers will, upon request by Buyer, promptly join in the filing of such an election and in making corresponding elections under any state or local tax law. Buyer shall be responsible for preparing all such elections, including preparation of forms required to be filed in order to make such elections. 9 3.2 Further Assurances. On and after the Closing Date, Sellers and Buyer shall execute and deliver all such deeds, bills of sale, assignments, and other instruments and shall take or cause to be taken such further or other actions as any party may reasonably request from time to time in order to effectuate the transactions provided for herein. The parties shall cooperate with each other and with their respective counsel and accountants in connection with any steps to be taken as a part of their respective obligations under this Agreement. SECTION 4 GENERAL 4.1 Costs and Indemnity Against Finders. Each party hereto shall be responsible for its own costs and expenses in negotiating and performing this Agreement and hereby indemnifies and holds the other parties harmless against any claim for finders' fees based on alleged retention of a finder by it. 4.2 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance, and enforcement shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-law provisions to the contrary. 4.3 Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or when deposited in the United States mails, first class postage prepaid, addressed as set forth below: If to Buyer: If to Sellers: 2401 West First Street 2835 Armentrout Drive Tempe, Arizona 85281 Concord, North Carolina 28205 Attention: Fred W. Wagenhals Attention: Kenneth R. Barbee Tel: (602) 894-0100 Tel: (704) 784-2700 Fax: (602) 967-1403 Fax: (704) 784-2707 with a copy given in the manner with a copy given in the manner prescribed above, to: prescribed above, to: O'Connor, Cavanagh, Anderson, Robinson, Bradshaw & Hinson, P.A. Killingsworth & Beshears, P.A. 101 North Tryon Street One East Camelback Road Suite 1900 Phoenix, Arizona 85012 Charlotte, North Carolina 28246-1900 Attention: Robert S. Kant, Esq. Attention: Stokley G. Caldwell, Jr., Esq. Tel: (602) 263-2606 Tel: (704) 377-8332 Fax: (602) 263-2900 Fax: (704) 378-4000 Any party may alter the address to which communications or copies are to be sent by giving notice to such other parties of change of address in conformity with the provisions of this paragraph for the giving of notice. 4.4 Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, and assigns, except that no party may assign, delegate, or transfer its rights or obligations under this Agreement without the prior written consent of the other parties hereto. Any assignment, delegation, or transfer made in violation of this Section 4.4 shall be null and void. 10 4.5 Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, inducements, and conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 4.6 Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 4.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACTION PERFORMANCE COMPANIES, INC. By:___________________________________ Its:__________________________________ ______________________________________ Kenneth R. Barbee ______________________________________ Jeffery M. Gordon 11 EX-10.41 4 PROMISSORY NOTE PROMISSORY NOTE $1,600,000 January 1, 1997 FOR VALUE RECEIVED, MTL ACQUISITION, INC., an Arizona corporation, its successors and assigns ("Maker"), hereby promises to pay to the order of MOTORSPORT TRADITIONS LIMITED PARTNERSHIP, a North Carolina limited partnership or its successors or assigns ("Payee"), at the office of Payee, located at 2835 Armentrout Drive, Concord, North Carolina 28205, the principal amount of $1,600,000, together with interest on the principal balance outstanding hereunder, from (and including) the date hereof until (but not including) the date of payment, at the interest rate specified below, in accordance with the following terms and conditions: 1. Stated Interest Rate. Except as provided in Section 2 below, the principal balance outstanding hereunder shall bear interest, until fully paid, at 4% per annum (the "Stated Interest Rate"). 2. Default Interest Rate. The Default Interest Rate shall be 12% per annum. The principal balance outstanding hereunder from time to time shall bear interest at the Default Interest Rate from the date of the occurrence of an Event of Default (as hereinafter defined) hereunder until the earlier of (a) the date on which the principal balance outstanding hereunder, together with all accrued interest and other amounts payable hereunder, is paid in full; or (b) the date on which such Event of Default is timely cured. 3. Payments. This Note shall be payable as follows: (a) Twenty-three (23) equal monthly installments of principal of Sixty-six Thousand Dollars ($66,000.00) each, due and payable on the first day of each month, commencing on February 1, 1997, together with interest on the unpaid balance at the Stated Interest Rate. (b) All unpaid principal and accrued but unpaid interest thereon and all other amounts payable hereunder shall be due and payable on December 31, 1998. 4. Prepayment. Maker may prepay all or any portion of the interest and the unpaid principal balance of this Note at any time, or from time to time, without penalty or premium. 5. Application and Place of Payments. Payments received by Payee with respect to the indebtedness evidenced hereby shall be applied in such order and manner as Payee in its sole and absolute discretion may elect. Unless Payee otherwise elects, payments received by Payee shall be applied first to accrued and unpaid interest, next to the principal balance then outstanding hereunder, and the remainder to Additional Sums (as hereinafter defined) or other costs or added charges provided for in this Note. Payments hereunder shall be made at the address for Payee first set forth above or at such other address as Payee may specify to Maker in writing. 6. Events of Default; Acceleration. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder, and upon such Event of Default, the entire principal balance outstanding hereunder, together with all accrued interest and other amounts payable hereunder, at the election of Payee, shall become immediately due and payable, without any notice to Maker, provided that in the case of any of the Events of Default in paragraphs (b), (c) or (d) below, the remainder of the debt evidenced hereby shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Maker: (a) Nonpayment of principal, interest, or other amounts when the same shall become due and payable hereunder, and Maker does not cure such failure to pay within three days after the date such payment is due; or (b) The failure of Maker to comply with any provision of this Note; or (c) The dissolution, winding-up, liquidation or termination of the existence of Maker or the sale or disposition of substantially all of the assets of Maker's business; or (d) The making by Maker of an assignment for the benefit of its creditors; or (e) The appointment of a receiver for Maker or the involuntary filing against Maker, which is not stayed or dismissed within 30 days of filing, or the voluntary filing by Maker of a petition or application for relief under federal bankruptcy law or any similar state or federal law. (f) An Event of Default by Maker under the License Agreement of even date between Maker and JG Motorsports, Inc., the License Agreement of even date among Maker, JG Motorsports, Inc., and Hasbro, Inc. (to the extent such default arises from circumstances involving Maker rather than Hasbro, Inc.), or the License Agreement dated as of September 1, 1996 between JG Motorsports, Inc. and Creative Marketing and Promotions, Inc. (to the extent such default arises from circumstances occurring after January 1, 1997). 7. Contracted For Interest. (a) Maker agrees to pay an effective contracted for rate of interest equal to the rate of interest resulting from all interest payable as provided in this Note, plus the additional rate of interest resulting from the Additional Sums. The Additional Sums shall consist of all fees, charges, goods, things in action, or any other sums or things of value (other than interest payable as provided in this Note) paid or payable by Maker, pursuant to this Note, that may be deemed to be interest for the purpose of any law of the state of Arizona that may limit the maximum amount of interest to be charged with respect to this lending transaction. The Additional Sums shall be deemed to be interest for the purposes of any such law only. (b) Maker understands and believes that this transaction complies with the usury laws of the state of Arizona; however, if any interest or other charges in connection with this transaction are ever determined to exceed the maximum amount permitted by law, then Maker agrees that (i) the amount of interest or charges payable pursuant to this transaction shall be reduced to the maximum amount permitted by law; and (ii) any excess amount previously collected from Maker in connection with this transaction, which exceeded the maximum amount permitted by law, will be credited against the principal balance then outstanding hereunder. If the outstanding principal balance hereunder has been paid in full, the excess amount paid will be refunded to Maker. 8. Costs of Collection. Maker agrees to pay all costs of collection, including, without limitation, attorneys' fees, whether or not suit is filed, and all costs of suit and preparation for suit (whether at trial or appellate level), in the event any payment of principal, interest, or other amount is not paid when due, or if at any time Payee should incur any attorneys' fees in any proceeding under any federal bankruptcy law (or any similar state or federal law) in connection with the obligations evidenced hereby. In the event of any court proceeding, court costs and attorneys' fees shall be set by the court and not by the jury and shall be included in any judgment obtained by Payee. 9. No Waiver by Payee. Maker hereby waives presentment, protest, notice of dishonor, and notice of acceleration of maturity. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a past-due installment, or other indulgence granted from time to time shall be construed as a novation of this Note or as a waiver of such right of acceleration or of the right of Payee thereafter to insist upon strict compliance with the terms of this Note or to prevent the exercise of such right of acceleration or any other right granted hereunder or by applicable law. No extension of the time for payment of this Note shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Payee agrees otherwise in writing. Maker agrees to continue to remain bound for the payment of principal, interest, and all other sums due under this Note notwithstanding any changes by way of release, surrender, exchange, modification, substitution of, failure to perfect or maintain perfection of any security for this Note. No 2 delay or failure of Payee in exercising any right hereunder shall affect such right, nor shall any single or partial exercise of any right preclude further exercise thereof. 10. Governing Law. This Note shall be construed in accordance with and governed by the laws of the state of Arizona without regard to the choice of law rules of the state of Arizona. 11. Time of Essence. Time is of the essence of this Note and each and every provision hereof. 12. Conflicts; Inconsistency. In the event of any conflict or inconsistency between the provisions of this Note and the provisions of any one or more of the other documents executed in connection with this transaction, the provisions of this Note shall govern and control to the extent necessary to resolve such conflict or inconsistency. 13. Amendments. No amendment, modification, change, waiver, release, or discharge hereof and hereunder shall be effective unless evidenced by an instrument in writing and signed by the party against whom enforcement is sought. 14. Severability. The invalidity of any provision of this Note or portion of a provision shall not affect the validity of any other provision of this Note or the remaining portion of the applicable provision. 15. Binding Nature. The provisions of this Note shall be binding upon and inure to the benefit of Maker and Payee and their respective heirs, personal representatives, successors, and assigns, as applicable. 16. Notices. All notices, requests, demands, and other communications required or permitted under this Note shall be in writing and shall be deemed to have been duly given, made, and received when delivered against receipt, upon receipt of a facsimile transmission, or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: If to Maker: 2401 West First Street Tempe, Arizona 85281 Attention: Fred W. Wagenhals Phone: (602) 517-3710 Fax: (602) 967-1403 with a copy: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. Suite 1100 One East Camelback Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. Phone: (602) 263-2606 Fax: (602) 263-2900 3 If to Payee: 2835 Armentrout Drive Concord, North Carolina 28205 Attention: Kenneth R. Barbee Phone: (704) 784-2700 Fax: (704) 784-2707 with a copy to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street, Suite 1900 Charlotte, North Carolina 28246-1900 Attention: Stokley G. Caldwell, Jr., Esq. Phone: (704) 377-8332 Fax: (704) 378-4000 Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this section for the giving of notice. 17. Construction. Maker and Payee participated in the drafting of this Note, and this document was reviewed by the respective legal counsel for Maker and Payee. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be applied to the interpretation of this Note. The language of this Note shall be construed as a whole according to its fair meaning. The word "include(s)" means "include(s), without limitation," and the word "including" means "including, but not limited to." No inference in favor of, or against, Maker or Payee shall be drawn from the fact that one party has drafted any portion hereof. IN WITNESS WHEREOF, Maker has executed this Note as of the date first set forth above. MTL ACQUISITION, INC. By:______________________________________ Its:_____________________________________ 4 GUARANTEE --------- The undersigned, Action Performance Companies, Inc. ("Guarantor"), hereby unconditionally guarantees the performance, including without limitation, the payment obligations (the "Obligations"), of MTL Acquisition, Inc. ("Maker") under the $1,600,000 promissory note of MTL Acquisition, Inc. dated January 1, 1997 (the "Note") payable to Motorsport Traditions Limited Partnership ("Payee"). The undersigned agrees that the term "maker" in the Note shall include the undersigned with respect to any obligations, events of default, or similar matters set forth in the Note. The Guarantor hereby expressly waives: (a) notice of acceptance of this Guaranty by Payee and of all extensions of credit to Maker by Payee; (b) presentment and demand for payment of any of the Obligations; (c) protest and notice of dishonor or of default to the Guarantor or to any other party with respect to the Obligations or with respect to any security therefor; (d) notice of Payee's obtaining, amending, substituting for, releasing, waiving or modifying any security interest, liens, or encumbrances now or hereafter securing the Obligations, or Payee's subordinating, compromising, discharging or releasing such security interests, liens or encumbrances; (e) to the extent permitted by applicable law, all other notices to which the Guarantor might otherwise be entitled; (f) any requirement that Payee protect, secure, perfect or insure any security interest, lien or other charge or encumbrance on any property; (g) demand for payment under this Guaranty; and (h) any right to assert against Payee, as a defense, counterclaim, set-off, or cross-claim any defense (legal or equitable), set-off, counterclaim or claim that the Guarantor may now or hereafter have against Maker. The Guarantor agrees that this Guaranty may be enforced by Payee without the necessity at any time of resorting to or exhausting any other security or collateral and without the necessity at any time of having recourse to the Note or any collateral now or hereafter securing the Obligations or otherwise, and Guarantor hereby waives the right to require Payee to proceed against Maker, or any co-guarantor or to require Payee to pursue any other remedy or enforce any other right. The Guarantor further agrees that nothing contained herein shall prevent Payee from suing on the Note or foreclosing its security interest in or lien on any collateral now or hereafter securing the Obligations or from exercising any other rights available to them under the Note, the Asset Purchase Agreement between Maker, Guarantor and Payee of even date herewith, or any other document or instrument executed in connection with the Obligations if neither Maker nor the Guarantor timely perform the obligations of Maker thereunder, and the exercise of any of the aforesaid rights and the completion of any foreclosure proceedings shall not constitute a discharge of any of the Guarantor's obligations hereunder; it being the purpose and intent of the Guarantor that the Guarantor's obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. Neither the Guarantor's obligations under this Guaranty nor any remedy for the enforcement thereof shall be impaired, modified, changed or released in any manner whatsoever by an impairment, modification, change, release or limitation of the liability of Maker or any co-guarantor or by reason of Maker's or any co- guarantor's bankruptcy or insolvency. The Guarantor acknowledges that the term "Obligations" as used herein includes any payments made by Maker to Payee and subsequently recovered by Maker or a trustee for Maker pursuant to Maker's bankruptcy or insolvency. ACTION PERFORMANCE COMPANIES, INC. By:______________________________________ Its:_____________________________________ Dated: January 1, 1997 5 EX-10.42 5 NOTE PURCHASE AGREEMENT EXECUTION COPY - -------------------------------------------------------------------------------- ACTION PERFORMANCE COMPANIES, INC. $20,000,000 IN AGGREGATE PRINCIPAL AMOUNT 8.05% SENIOR NOTES DUE JANUARY 2, 1999 ------------------------- NOTE PURCHASE AGREEMENT ------------------------- Dated as of January 2, 1997 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Section Page - ------- ---- 1. AUTHORIZATION OF NOTES.............................................. 1 2. SALE AND PURCHASE OF NOTES; USE OF PROCEEDS......................... 2 2.1. Sale and Purchase of Notes................................. 2 2.2. Use of Proceeds............................................ 2 2.3. Subsidiary Guaranty........................................ 2 3. CLOSING............................................................. 2 4. CONDITIONS TO CLOSING............................................... 3 4.1. Representations and Warranties............................. 3 4.2. Performance; No Default.................................... 3 4.3. Compliance Certificates.................................... 3 4.4. Opinions of Counsel........................................ 4 4.5. Purchase Permitted By Applicable Law, etc.................. 4 4.6. Absence of Certain Events.................................. 4 4.7. Sale of Other Notes........................................ 4 4.8. Payment of Fees............................................ 5 4.9. Private Placement Number................................... 5 4.10. Consents and Approvals..................................... 5 4.11. Subsidiary Guaranty........................................ 5 4.12. Proceedings and Documents.................................. 5 4.13. Existing Liens............................................. 5 4.14. Standby Letter of Credit................................... 5 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 6 5.1. Organization; Power and Authority.......................... 6 5.2. Authorization, etc......................................... 6 5.3. Disclosure................................................. 6 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates................................................. 7 5.5. Financial Statements....................................... 7 5.6. Compliance with Laws, Other Instruments, etc............... 8 5.7. Governmental Authorizations, etc........................... 8 5.8. Litigation; Observance of Agreements, Statutes and Orders.. 8 5.9. Taxes...................................................... 9 5.10. Title to Property; Leases.................................. 9 5.11. Licenses, Permits, etc..................................... 9 5.12. Compliance with ERISA...................................... 10 i Section Page - ------- ---- 5.13. Private Offering by the Company............................ 11 5.14. Use of Proceeds; Margin Regulations........................ 11 5.15. Existing Debt; Future Liens................................ 11 5.16. Foreign Assets Control Regulations, etc.................... 12 5.17. Status under Certain Statutes.............................. 12 5.18. Environmental Matters...................................... 12 5.19. No Event of Default........................................ 13 5.20. Internal Accounting Controls............................... 13 6. REPRESENTATIONS OF THE PURCHASER.................................... 13 6.1. Purchase for Investment.................................... 13 6.2. Source of Funds............................................ 13 7. INFORMATION AS TO COMPANY........................................... 14 7.1. Financial and Business Information......................... 14 7.2. Officer's Certificate...................................... 17 7.3. Inspection................................................. 17 8. PREPAYMENT OF THE NOTES............................................. 18 8.1. No Prepayment.............................................. 18 8.2. Mandatory Offer to Prepay in Event of Change of Control.... 18 8.3. Maturity; Surrender, etc................................... 19 8.4. Purchase of Notes.......................................... 20 8.5. Make-Whole Amount.......................................... 20 9. AFFIRMATIVE COVENANTS............................................... 21 9.1. Compliance with Law........................................ 21 9.2. Insurance.................................................. 22 9.3. Maintenance of Properties.................................. 22 9.4. Maintenance of Licenses.................................... 22 9.5. Payment of Taxes and Claims................................ 22 9.6. Corporate Existence, etc................................... 23 9.7. Nature of Business......................................... 23 9.8. Notice of Certain Events and Conditions.................... 23 9.9. Payment of Notes; Maintenance of Books and Office.......... 23 9.10. Compliance with ERISA...................................... 24 9.11. Further Assurances......................................... 24 10. NEGATIVE COVENANTS.................................................. 24 10.1. Maintenance of Consolidated Funded Debt to Consolidated EBITDA..................................................... 24 10.2. Fixed Charges Coverage Ratio Maintenance................... 25 10.3. Maintenance of Consolidated Net Worth...................... 25 10.4. Limitations on Liens....................................... 25 10.5. Subsidiary Debt............................................ 25 ii Section Page - ------- ---- 10.6. Consolidation and Merger................................... 26 10.7. Sale of Assets............................................. 26 10.8. Transactions with Affiliates............................... 26 10.9. Advances to Dormant Subsidiaries........................... 27 11. EVENTS OF DEFAULT................................................... 27 12. REMEDIES ON DEFAULT, ETC............................................ 29 12.1. Acceleration............................................... 29 12.2. Other Remedies............................................. 30 12.3. Rescission................................................. 30 12.4. No Waivers or Election of Remedies, Expenses, etc.......... 30 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES....................... 31 13.1. Registration of Notes...................................... 31 13.2. Transfer and Exchange of Notes............................. 31 13.3. Replacement of Notes....................................... 32 14. PAYMENTS ON NOTES................................................... 32 14.1. Place of Payment........................................... 32 14.2. Home Office Payment........................................ 33 15. EXPENSES, ETC....................................................... 33 15.1. Transaction Expenses....................................... 33 15.2. Survival................................................... 34 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT........................................................... 34 17. AMENDMENT AND WAIVER................................................ 34 17.1. Requirements............................................... 34 17.2. Solicitation of Holders of Notes........................... 34 17.3. Binding Effect, etc........................................ 35 17.4. Notes held by Company, etc................................. 35 18. NOTICES............................................................. 35 19. REPRODUCTION OF DOCUMENTS........................................... 36 20. CONFIDENTIAL INFORMATION............................................ 36 21. SUBSTITUTION OF PURCHASER........................................... 37 iii Section Page - ------- ---- 22. MISCELLANEOUS....................................................... 38 22.1. Successors and Assigns..................................... 38 22.2. Payments Due on Non-Business Days.......................... 38 22.3. Indemnity for Funds Availability at Closing................ 38 22.4. Severability............................................... 39 22.5. Construction............................................... 39 22.6. Counterparts............................................... 39 22.8. Governing Law.............................................. 39 22.9. Jury Trial................................................. 39 22.10.Consent to Jurisdiction....................................... 40 SCHEDULE I -- INFORMATION RELATING TO PURCHASERS SCHEDULE II -- DEFINED TERMS SCHEDULE 4.6 -- Assumption of Certain Liabilities SCHEDULE 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.8 -- Certain Litigation SCHEDULE 5.11 -- Patents, etc. SCHEDULE 5.15 -- Existing Debt SCHEDULE 5.18 -- Environmental Matters SCHEDULE 5.20 -- Confidential Information EXHIBIT A -- Form of 8.05% Senior Note due January 2, 1999 EXHIBIT B -- Form of Subsidiary Guaranty EXHIBIT C-I -- Form of Opinion of Special Counsel for the Company EXHIBIT C-II -- Form of Opinion of Special Counsel for the Purchasers iv ACTION PERFORMANCE COMPANIES, INC. 2401 West First Street Tempe, Arizona 85281 Telephone: (602) 894-0100 Telecopier: (602) 894-6316 ==================================== NOTE PURCHASE AGREEMENT ==================================== Dated as of January 2, 1997 TO EACH OF THE PURCHASERS OF THE NOTES (AS DEFINED HEREIN) NAMED IN THE ATTACHED SCHEDULE I: ----------- Ladies and Gentlemen: Action Performance Companies, Inc., an Arizona corporation (the "Company"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company has duly authorized the issue and sale of $20,000,000 in aggregate principal amount of its 8.05% Senior Notes due January 2, 1999 (such notes, together with all notes in the form annexed hereto as Exhibit A issued in exchange or replacement for, or on registration of transfer of, such notes, including any such notes issued in substitution therefor pursuant to Section 13 hereof or the Other Agreements (as hereinafter defined) are hereinafter called the "Notes"). Each Note shall bear interest from the date thereof until such Note shall become due and payable in accordance with the terms thereof and hereof (whether at maturity, by acceleration or otherwise) at the rate of 8.05% per annum, payable semiannually on each January 15 and July 15 (each an "Interest Payment Date"), commencing July 15, 1997, and shall have a stated maturity of January 2, 1999. Interest shall be computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months. Each Note shall bear interest on any overdue principal, including any overdue payment or prepayment of principal and premium, if any, and (to the extent permitted by applicable law) on any overdue installment of interest, at the rate equal to 2% per annum in excess of the interest rate applicable to timely payments thereon. If the Company shall have paid or agreed to pay any interest or premium on any Note in excess of that permitted by law, then it is the express intent of the Company and the holder thereof that all excess amounts previously paid or to be paid by the Company be applied to reduce the principal balance of such Note, and the provisions thereof immediately be deemed reformed and the amounts thereafter collectable thereunder reduced, without the necessity of the execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for thereunder. 2. SALE AND PURCHASE OF NOTES; USE OF PROCEEDS. 2.1. Sale and Purchase of Notes. Upon and subject to the terms and conditions hereof and in reliance on your representations and warranties contained in Section 6.1 and Section 6.2 of this Agreement and the representations and warranties of the Other Purchasers contained in Section 6.1 and Section 6.2 of the Other Agreements, the Company agrees to sell to you, and upon and subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Company contained in this Agreement, you agree to purchase from the Company, Notes in the aggregate principal amount specified opposite your name in Schedule I hereto at a purchase price equal to one hundred percent (100%) of such principal amount (the "Purchase Price"). Contemporaneously with entering into this Agreement, the Company is entering into separate Note Purchase Agreements (the "Other Agreements") identical with this Agreement with each of the other purchasers named in Schedule I hereto (the "Other Purchasers"), providing for the sale at such Closing to each of the Other Purchasers of Notes in the principal amount specified opposite its name in Schedule I hereto. Your obligations hereunder and the obligations of each Other Purchaser (each, a "Purchaser") under this Agreement and under the Other Agreements are several and not joint obligations and you shall have no obligation under any Other Agreement and no liability to any Person for the performance or non-performance by any Other Purchaser thereunder. 2.2. Use of Proceeds. The proceeds of the sale of the Notes on the Closing Date will be used by the Company to repay a portion of the outstanding principal amount of and accrued interest on the $24,000,000 Promissory Note, dated November 7, 1996, issued by SII Acquisition, Inc., a Subsidiary of the Company which is an Arizona corporation now known as Sports Image, Inc. in connection with the acquisition of the assets of Sports Image, Inc., a North Carolina corporation. 2.3. Subsidiary Guaranty. The Notes will be unconditionally guaranteed by each of the Subsidiary Guarantors pursuant to the Subsidiary Guaranty. 3. CLOSING. The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, 18th Floor, New York, New York 10103, at 10:00 a.m., New York City time, at a closing (the "Closing") on January 2, 1997 or on such other Business Day thereafter on or prior to January 15, 1997 (the "Closing Date") as may be agreed upon by the Company and you and the Other 2 Purchasers. At the Closing, the Company will deliver to you one or more duly executed Notes dated the Closing Date and registered in your name (or in the name of your nominee) and in the principal amount or amounts specified opposite your name in Schedule I hereto, against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 2-000-000-450506 at First Union National Bank of North Carolina, Charlotte, North Carolina, ABA # 053000-219. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 hereof shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. Representations and Warranties. The representations and warranties of the Company in this Agreement or otherwise made in writing by or on behalf of the Company in connection with the transactions contemplated hereby shall be correct when made and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such Closing Date. 4.2. Performance; No Default. The Company shall have performed and complied with all agreements, conditions and obligations contained in this Agreement required to be performed or complied with by it prior to or on the Closing Date, and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 2.2 hereof) no Default or Event of Default shall have occurred and be continuing. 4.3. Compliance Certificates. (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.6 have been fulfilled. (b) Secretary's Certificate. The Company and each Subsidiary Guarantor shall have delivered to you a certificate certifying (i) the name and signature of each of the officers (A) who is authorized to sign on its behalf, as applicable, the Agreement, the Other Agreements, the Subsidiary Guaranty and the Notes and (B) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with the Agreement, the Other Agreements, the Subsidiary Guaranty and the Notes, as applicable and (ii) as to its 3 certificate of incorporation, by-laws and resolutions attached to such certificate and other corporate proceedings relating to the authorization, execution and delivery of the Notes, this Agreement, the Other Agreements and the Subsidiary Guaranty, as applicable. 4.4. Opinions of Counsel. You shall have received opinions in form and substance satisfactory to you, dated the Closing Date (i) from O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A., special counsel for the Company, substantially in the form set forth in Exhibit C-I hereto and covering such other matters incident to the transactions contemplated hereby as you or your special counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you), and (ii) from Orrick, Herrington & Sutcliffe LLP, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit C-II hereto and covering such other matters incident to the transactions contemplated hereby as you may reasonably request. 4.5. Purchase Permitted By Applicable Law, etc. On the Closing Date, your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6. Absence of Certain Events. Since September 30, 1996, there shall not have occurred any Material Adverse Effect and neither the Company nor any Subsidiary shall have changed its jurisdiction of incorporation, consolidated with, merged into, or sold, leased or otherwise disposed of its assets and properties as an entirety or substantially as an entirety to any Person or, except as set forth on Schedule 4.6 hereto, succeeded to all or substantially all or any substantial part of the liabilities of any other Person. 4.7. Sale of Other Notes. Contemporaneously with the Closing the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase from the Company the Notes to be purchased by them at the Closing as specified in Schedule I hereto. 4 4.8. Payment of Fees. The Company shall have paid the reasonable legal fees and disbursements of Orrick, Herrington & Sutcliffe LLP and all other fees and disbursements for which the Company is obligated pursuant to Section 15.1 hereof and for which the Company shall have received invoices on or prior to the Business Day preceding the Closing Date. 4.9. Private Placement Number. A private placement number shall have been assigned to the Notes by the CUSIP Service Bureau of Standard & Poor's Ratings Group, at the Company's expense, and evidence thereof shall have been delivered to you and your special counsel. 4.10. Consents and Approvals. The Company shall have delivered to each Purchaser an Officer's Certificate, dated the Closing Date, listing any necessary consents, waivers, approvals, authorizations, registrations, filings and notifications of the character referred to in Section 5.7 hereof, to which shall be attached evidence satisfactory to you that the same have been obtained or made and are in full force and effect, or stating that none is necessary. 4.11. Subsidiary Guaranty. The Subsidiary Guaranty shall have been duly executed and delivered by each Subsidiary Guarantor. 4.12. Proceedings and Documents. All corporate and other proceedings and actions taken on or prior to the Closing Date in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 4.13. Existing Liens. The Company shall have delivered to you a copy of an executed Uniform Commercial Code termination statement, in a form sufficient for filing, releasing all Liens of Wells Fargo HSBC Trading Bank N.A. on the assets and properties of the Company. 4.14. Standby Letter of Credit First Union National Bank of North Carolina shall have issued a Standby Letter of Credit in favor of Wells Fargo HSBC Trading Bank N.A., in form and substance satisfactory to you, dated the Closing Date, and supporting the obligations of the Company under the Credit 5 Agreement, dated April 1996, by and between the Company and Wells Fargo HSBC Trading Bank, N.A. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: 5.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Other Agreements and the Notes and to perform the provisions hereof and thereof. 5.2. Authorization, etc. This Agreement and the Other Agreements and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and each of this Agreement and the Other Agreements, constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Subsidiary Guaranty has been duly authorized by all necessary corporate action on the part of each Subsidiary Guarantor, and the Subsidiary Guaranty constitutes a legal, valid and binding obligation of each such Subsidiary Guarantor, enforceable against such Subsidiary Guarantor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3. Disclosure. Except as disclosed in Schedule 5.3 hereto, this Agreement, the Other Agreements, the Subsidiary Guaranty, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5 hereto, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as expressly described in Schedule 5.3 hereto, since September 30, 1996 there has been 6 no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 hereto contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 hereto as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4 hereto). (c) Each Subsidiary identified in Schedule 5.4 hereto is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the Other Agreements, the Subsidiary Guaranty, the agreements listed on Schedule 5.4 hereto and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 5.5. Financial Statements. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5 hereto. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the 7 respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.6. Compliance with Laws, Other Instruments, etc. Neither the Company nor any Subsidiary is in violation of any term or provision of its corporate charter or by-laws or certificate of partnership or partnership agreement, as the case may be. Neither the Company nor any Subsidiary is in violation of any term or provision of any agreement, indenture, mortgage, lease or other instrument or agreement to which it is a party or by which it or any of its properties may be bound or affected, or in violation of any existing law, governmental rule or regulation or any order of any court, arbitrator or other Governmental Authority applicable to it, the consequences of which violation, either in any one case or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Neither the execution and delivery of this Agreement, the Other Agreements, the Subsidiary Guaranty and the Notes nor the consummation of the transactions contemplated hereby and thereby nor the performance of the terms and provisions hereof and thereof will result in any breach of, or constitute a default under, or result in (or require) the creation of any Lien in respect of any property of the Company or any Subsidiary under any indenture, mortgage, lease, bank loan, credit agreement, other agreement or instrument, or partnership agreement, partnership certificate, corporate charter or by-law to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, or violate any existing law, governmental rule or regulation or any order of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary, except, any such breach, default, creation of Lien or violation which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 5.7. Governmental Authorizations, etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement, the Other Agreements or the Notes or in connection with the execution, delivery or performance by the Subsidiary Guarantors of the Subsidiary Guaranty, or the consummation of the transactions contemplated hereby and thereby, including the offer, issuance, sale and delivery by the Company of the Notes to you, or the fulfillment of, or compliance by the Company or the Subsidiary Guarantor with, the terms and provisions hereof and thereof. 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) Except as disclosed in Schedule 5.8 hereto, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 8 (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9. Taxes. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries, if any, in respect of federal, state or other taxes for all fiscal periods are adequate. The federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all Fiscal Years up to and including the Fiscal Year ended September 30, 1996. 5.10. Title to Property; Leases. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 hereof or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens other than Permitted Liens. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11. Licenses, Permits, etc. Except as disclosed in Schedule 5.11 hereto and notwithstanding the exception set forth in the last sentence of Section 5.6 hereof, (a) the Company and its Subsidiaries own or possess the rights to use and hold free from burdensome restrictions and known conflicts with the rights of others all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, and all rights with respect to the foregoing, necessary for the conduct of their respective businesses as now conducted and as proposed to be conducted; 9 (b) to the best knowledge of the Company, no product of the Company infringes any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12. Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities determined as of the end of such Plan's most recently ended plan year. The term "benefit liabilities" has the meaning specified in Section 4001 of ERISA and the terms "current value" and "present value" have the meanings specified in Section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected post-retirement benefit obligation (determined as of the last day of the Company's most recently ended Fiscal Year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by Section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Sec- 10 tion 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to (i) the accuracy of your representation in Section 6.2 hereof as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you and (ii) the assumption, made solely for the purpose of making such representation, that Department of Labor Interpretive Bulletin 75-2 with respect to prohibited transactions remains valid in the circumstances of the transactions contemplated herein. 5.13. Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than you, the Other Purchasers and not more than twenty-five (25) other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act or to the registration or qualification requirements of any securities or blue sky law of any applicable jurisdiction. 5.14. Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes as set forth in Section 2.2 hereof. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207, as amended), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224, as amended) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220, as amended). None of the transactions contemplated by this Agreement (including, without limitation, the direct or indirect use of the proceeds from the sale of the Notes hereunder) will violate or result in a violation of Section 7 of the Exchange Act or any regulations issued pursuant thereto, including, without limitation, said Regulation G, Regulation T and Regulation X. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation G. 5.15. Existing Debt; Future Liens. (a) Schedule 5.15 hereto sets forth a complete and correct list of all outstanding Debt of the Company and its Subsidiaries as of the date hereof, and shows as to each item of Debt listed thereon the obligor, the aggregate principal amount outstanding on the date hereof and the final maturity thereof, since which date there has been no Material change in the amounts, interest rates, sinking funds, instalment payments or maturities of the Debt of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect in the payment of any principal or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, 11 or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) The Company has delivered to each Purchaser true, correct and complete copies of each of the executed Bank Documents and neither the Company nor any Subsidiary is in default under any term of any of the Bank Documents. (c) Except as disclosed in Schedule 5.15 hereto, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien other than a Permitted Lien. The Company will file the Uniform Commercial Code termination statement described in Section 4.13 hereof, or cause such termination statement to be filed, on the Closing Date. 5.16. Foreign Assets Control Regulations, etc. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. 5.18. Environmental Matters. Except as disclosed in Schedule 5.18 hereto, neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as disclosed in Schedule 5. 18 hereto, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; 12 (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 5.19. No Event of Default. No event has occurred and is continuing, and no condition exists, that, if the Notes had been issued and were outstanding on the date hereof, would constitute a Default or and Event of Default. 5.20. Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability and (iii) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 6. REPRESENTATIONS OF THE PURCHASER. 6.1. Purchase for Investment. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof; provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only in accordance with Section 13.2 hereof. 6.2. Source of Funds. You represent to the Company that the purchase of the Notes either (a) is being funded solely out of an insurance company general investment account which either (i) would be exempt from the prohibited transactions rules of ERISA and the Code under Prohibited Transaction Class Exemption 95-60, published by the Department of Labor in the Federal 13 Register on July 12, 1995 (60 F.R. 35925, July 12, 1995) or (ii) exclusively supports either contracts not issued to any "employee benefit plan" as defined in Section 3(3) of ERISA which is subject to Title I of ERISA or any "plan" within the meaning of Section 4975 of the Code or policies which constitute "guaranteed benefit policies" under Section 401(b) of ERISA; (b) is not being funded with the assets of any (i) "employee benefit plan" within the meaning of Section 3(3) of ERISA which is subject to Title I of ERISA, (ii) "plan" within the meaning of Section 4975 of the Code or (iii) entity deemed to hold "plan assets" within the meaning of 29 C.F.R. ss.2510.3-101 of any such employee benefit plan or plans, with respect to which the Company or any ERISA Affiliate is a party in interest (as defined in Section 3(14) of ERISA) or a disqualified person (as defined in Section 4975 of the Code) or (c) is not a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code because you have a statutory, class or administrative exemption from such prohibited transaction rules for the purchase and holding of Notes. 7. INFORMATION AS TO COMPANY. 7.1. Financial and Business Information. The Company shall deliver to each holder of Notes: (a) Quarterly Statements -- within forty-five (45) days after the end of each Fiscal Quarter in each Fiscal Year of the Company (other than the last Fiscal Quarter of each such Fiscal Year), duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such Fiscal Quarter, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such Fiscal Quarter and (in the case of the second and third Fiscal Quarters) for the portion of the Fiscal Year ending with such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous Fiscal Year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments; provided that delivery of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a) if such delivery is made within one (1) Business Day after the date such Quarterly Report on Form 10-Q has been timely filed or deemed to have been timely filed; (b) Annual Statements -- within ninety (90) days after the end of each Fiscal Year of the Company, duplicate copies of, 14 (i) an audited consolidated balance sheet of the Company and its Subsidiaries, as at the end of such Fiscal Year, and (ii) audited consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all in reasonable detail, prepared in accordance with GAAP, and accompanied (A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances; and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit); provided that the delivery of the Company's Annual Report on Form 10-K for such Fiscal Year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b) if such delivery is made within one (1) Business Day after the date such Annual Report on Form 10-K has been timely filed or deemed to have been timely filed; (c) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; 15 (d) Notice of Default or Event of Default -- promptly, and in any event within five (5) days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f) hereof, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA Matters -- promptly, and in any event within five (5) days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any "reportable event", as defined in Section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multi- employer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to "employee benefit plans" (as defined in Section 3(3) of ERISA), or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA, such penalty or excise tax provisions or Section 401(a)(29) or Section 412 of the Code, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) Notices from Governmental Authority -- promptly, and in any event within thirty (30) days of receipt thereof, copies of any notice to the Company or any Subsidiary from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (g) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any holder of Notes. 16 7.2. Officer's Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a certificate of a Senior Financial Officer, in such capacity, setting forth: (a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.8 hereof, inclusive, during and as of the end of the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. Inspection. The Company shall permit the representatives of each holder of Notes: (a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and its independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), and to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default -- if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, 17 finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PREPAYMENT OF THE NOTES. 8.1. No Prepayment. Except as provided in Section 8.2 hereof, the Company shall not prepay the Notes in whole or in part at any time prior to January 2, 1999 without the prior written consent of the Required Holders. 8.2. Mandatory Offer to Prepay in Event of Change of Control. (a) In the event that a Change of Control (as defined in Section 8.2(d) hereof) is to occur, the Company shall (i) deliver to each holder of a Note a Section 8.2 Notice and Offer to Prepay pursuant to Section 8.2(b) hereof and (ii) unless such holder declines prepayment as to one or more Notes it holds by delivering a Section 8.2(c) Response pursuant to Section 8.2(c) hereof, prepay all, but not less than all, of the Notes held by such holder as to which prepayment is not declined, as hereinafter provided. Any prepayment of Notes pursuant to this Section 8.2 shall be made at a prepayment price equal to the principal amount of Notes to be prepaid, together with interest accrued thereon to the date of prepayment, plus a premium equal to the Make-Whole Amount. (b) Not later than thirty (30) days and not more than sixty (60) days prior to a Change of Control, the Company shall give written notice to each holder of a Note that the Company anticipates or has knowledge of a Change of Control and of such holder's right to elect to be prepaid hereunder arising as a result thereof (a "Section 8.2 Notice and Offer to Prepay"). Such Section 8.2 Notice and Offer to Prepay shall state: (i) that such notice is delivered pursuant to this Section 8.2(b); (ii) the proposed date of and a description of the circumstances surrounding such Change of Control; (iii) the date by which a holder of a Note must deliver a Section 8.2 Response pursuant to Section 8.2(c) hereof in order to decline prepayment; and (iv) the date on which the Company will prepay the Notes held by such holder of a Note if the holder of a Note does not deliver a Section 8.2(c) Response pursuant to Section 8.2(c) hereof, which prepayment date shall be the date of the occurrence of a Change of Control (the "Section 8.2 Special Prepayment Date"). No failure by the Company to deliver a Section 8.2 Notice and Offer to Prepay to any holder of a Note shall limit the holder's right to exercise such election. In the event that the Company fails to deliver a Section 8.2 Notice and Offer to Prepay to any holder of a Note prior to the occurrence of the Change of Control, such holder shall be deemed for the purposes of this Section 8.2 to have received such Section 8.2 Notice and Offer to Prepay on the earlier of (i) the date on which it first obtains actual knowledge of a Change of Control or (ii) the Section 8.2 Special Prepayment Date, and, unless such holder delivers a Section 8.2(c) Response pursuant to Section 8.2(c) hereof, the Company shall prepay the Notes held by such holder on the Section 8.2 Special Prepayment Date. (c) To decline prepayment pursuant to this Section 8.2 of one or more of the Notes held by it, a holder of a Note shall deliver to the Company such holder's notice that it 18 declines prepayment pursuant to this Section 8.2 with respect to the Notes designated therein (a "Section 8.2(c) Response"). Such Section 8.2(c) Response shall be delivered to the Company (i) on or before the fifteenth (15th) Business Day prior to the Section 8.2 Special Prepayment Date if the Company delivers a Section 8.2 Notice and Offer to Prepay pursuant to Section 8.2(b) or (ii) at any time on or prior to the Section 8.2 Special Prepayment Date if the Company fails to deliver a Section 8.2 Notice and Offer to Prepay. The Section 8.2(c) Response shall set forth the name of such holder and the statement that it declines prepayment pursuant to this Section 8.2 with respect to the Notes designated therein. Promptly and in any event within two (2) Business Days after receipt of a holder's Section 8.2(c) Response, the Company shall, by written notice to such holder of a Note, acknowledge receipt thereof. If the Company has delivered a Section 8.2 Notice and Offer to Prepay to each holder of a Note and on or prior to the fifteenth (15th) day prior to the Section 8.2 Special Prepayment Date, the Company shall not have received a Section 8.2(c) Response from a holder of a Note (or shall have received a Section 8.2(c) Response with respect to some but not all the Notes held by such holder), (i) the Company shall promptly, but in any case within one (1) Business Day after the expiration of such 15-day period, deliver written notice to such holder that all of the Notes held by such holder (or all of the Notes held by such holder with respect to which such holder shall not have declined prepayment in such holder's Section 8.2(c) Response) will be prepaid pursuant to this Section 8.2 on the Section 8.2 Special Prepayment Date and (ii) the full unpaid principal amount of the Notes outstanding, together with interest accrued thereon to the Section 8.2 Special Prepayment Date, plus a premium equal to the Make-Whole Amount, shall become due and payable on the Section 8.2 Special Prepayment Date. (d) For the purposes of this Section 8.2, a "Change of Control" shall be deemed to have occurred in the event that: (i) the Principal Shareholder shall cease to own, directly or indirectly, at least 1,700,000 shares of the Voting Stock of the Company, free and clear of Liens; provided that, in the event the Company shall at any time subdivide its outstanding shares of Voting Stock into a greater number of shares or combine its outstanding shares of Voting Stock into a smaller number of shares, the number of shares required to be owned by the Principal Shareholder pursuant to this clause (i) shall be proportionately increased or decreased, as the case may be; (ii) the Principal Shareholder shall cease to be entitled, directly or indirectly, through ownership of Voting Stock of the Company, by contract or otherwise, to direct or cause the direction of the management and policies of the Company (including the power to name a majority of the members of the Board of Directors of the Company); or (iii) the Principal Shareholder shall cease to be the chief executive officer of the Company (a) for any reason other than his death or legal disability, or (b) due to his death or legal disability, and a successor satisfactory to the Required Holders does not assume his responsibilities and position within thirty (30) days of such cessation. 8.3. Maturity; Surrender, etc. In the case of each prepayment of Notes pursuant to Section 8.2 hereof, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the 19 interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.4. Purchase of Notes. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 8.5. Make-Whole Amount. The term "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal; provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "Called Principal" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 hereof or has become or is declared to be immediately due and payable pursuant to Section 12.1 hereof, as the context requires. "Discounted Value" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Access Service (or such other display as may replace Page 678 on Telerate Access Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date; or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of 20 such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or Section 12.1 hereof. "Settlement Date" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 hereof or has become or is declared to be immediately due and payable pursuant to Section 12.1 hereof, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants and agrees that so long as any of the Notes are outstanding: 9.1. Compliance with Law. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 21 9.2. Insurance. The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3. Maintenance of Properties. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times; provided that this Section 9.3 shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4. Maintenance of Licenses. (a) The Company will maintain the rights to use and will hold free from burdensome restrictions and known conflicts, and will cause each of its Subsidiaries to maintain the rights to use and hold free from burdensome restrictions, all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names or rights thereto necessary for the conduct of their respective businesses as now conducted or as proposed to be conducted; provided that this Section 9.4(a) shall not prevent the Company or any Subsidiary from terminating or discontinuing the use of any such license, permit, franchise, authorization, patent, copyright, service mark, trademark or trade name if such termination or discontinuance is desirable in the conduct of its business and, such termination or discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) The Company will fully comply with, and will cause each of its Subsidiaries to fully comply with, the terms and conditions of each license, permit, franchise, authorization, patent, copyright, service mark, trademark or trade name referred to in Section 9.4(a) and the terms and conditions of any agreements relating thereto, unless, in the good faith judgment of the Company, the noncompliance with any such terms and conditions could not, individually or in the aggregate, have a Material Adverse Effect. 9.5. Payment of Taxes and Claims. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes 22 and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary; provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.6. Corporate Existence, etc. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Section 10.6 and Section 10.7 hereof, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 9.7. Nature of Business. The Company will not, and will not permit any Subsidiary to, engage in any line of business other than the lines of business in which the Company is engaged on the Closing Date, or any other related business which is substantially related to the lines of business in which the Company is currently engaged, namely, the design and marketing of licensed products relating to motorsports racing, unless the revenues generated by such other lines of business do not exceed twenty percent (20%) of Consolidated Revenues for any Fiscal Quarter. 9.8. Notice of Certain Events and Conditions. The Company will give prompt written notice to each holder of an outstanding Note of any event of default (or any event which with notice of lapse of time or both would constitute an event of default) under any evidence of Debt in an aggregate amount of $1,000,000 or more of the Company or any of its Subsidiaries or under any indenture, mortgage or other agreement or instrument relating to any such evidence of Debt, or under any other agreement or instrument relating to preferred stock (or comparable equity interest) of the Company or any Subsidiary or under any Material lease for or in respect of which the Company or any Subsidiary may be liable. 9.9. Payment of Notes; Maintenance of Books and Office. The Company will duly and punctually pay the principal of, premium (if any) and interest on the Notes in accordance with the terms of the Notes, this Agreement and the Other Agreements. The Company will, and will cause each of its Subsidiaries to, maintain a system of accounting established and administered in accordance with GAAP, keep proper books of 23 record and account in which full, true and correct entries are made of its business transactions and set aside appropriate reserves, all in accordance with GAAP. The Company will maintain its principal office at a location in the United States of America where notices, presentations and demands in respect of this Agreement and the Notes may be made upon it and will notify, in writing, each holder of a Note of any change of location of such office, and such office shall be maintained at 2401 West First Street, Tempe, Arizona, 85281 until such time as the Company shall notify the holders of the Notes of any such change. 9.10. Compliance with ERISA. The Company shall, and shall cause its ERISA Affiliates to comply with the provisions of ERISA and the Code with respect to any Plan sponsored by or contributed to by it or any ERISA Affiliate except for instances of noncompliance that could not reasonably be expected to result in a Material Adverse Effect. The Company shall not (i) terminate or permit any ERISA Affiliate to terminate any Plan in a manner that results in any Material liability (other than liabilities to pay benefits pursuant to the terms of such Plans or collectively bargained agreements) of the Company or any ERISA Affiliate to the PBGC or any other Person or (ii) permit the occurrence of any Reportable Event that presents a material risk of a termination by the PBGC of any Plan pursuant to Section 4042 of ERISA or any other event or condition that presents such a material risk. The Company shall, and shall cause its ERISA Affiliates to make full and timely payment of all amounts required to be contributed under the terms of each Plan and each Multiemployer Plan and the laws applicable thereto. 9.11. Further Assurances. The Company agrees that it will, and will cause each Subsidiary to, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged or delivered, all such other acts, agreements, instruments and assurances, including the execution and delivery by each future Subsidiary of a Subsidiary Joinder in the form of Attachment 1 to Exhibit B hereto, as the holders of the Notes shall reasonably require to better accomplish and effectuate the intentions and provisions of the Notes, the Subsidiary Guaranty, this Agreement, and the Other Agreements. 10. NEGATIVE COVENANTS. The Company covenants and agrees that so long as any of the Notes are outstanding: 10.1. Maintenance of Consolidated Funded Debt to Consolidated EBITDA. The Company will not permit, at any time, the ratio of Consolidated Funded Debt to Consolidated EBITDA to be greater than 2.00 to 1.00. 24 10.2. Fixed Charges Coverage Ratio Maintenance. The Company will not permit, at any time, the Fixed Charges Coverage Ratio to be less than 5.00 to 1.00. 10.3. Maintenance of Consolidated Net Worth. The Company will not permit, at any time, Consolidated Net Worth to be less than the sum of (a) $26,000,000, plus (b) an aggregate amount equal to fifty percent (50%) of its Consolidated Net Income for each completed Fiscal Quarter beginning with the Fiscal Quarter that includes the Closing Date (but, in each case, only if a positive number). 10.4. Limitations on Liens. Neither the Company nor any Subsidiary will create, incur, assume or suffer to exist any Lien other than Permitted Liens. In any case wherein any such assets are subjected or become subject to a Lien in violation of this Section 10.4, the Company will make or cause to be made provision whereby the Notes will be secured equally and ratably with all obligations secured by such Lien, and in any case the Notes shall have the benefit, to the full extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such assets securing (in the manner as aforesaid) the Notes and such other obligations; provided, however, that any Lien created, incurred or suffered to exist in violation of this Section 10.4 shall constitute an Event of Default hereunder, whether or not any such provision is made pursuant to this Section 10.4. 10.5. Subsidiary Debt. The Company will not at any time permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee, have outstanding, or otherwise become or remain directly or indirectly liable with respect to, any Debt other than: (a) Debt of a Subsidiary outstanding on the Closing Date and disclosed in Schedule 5.15 hereto and any extension, renewal or refunding thereof, provided that the principal amount thereof is not increased on or after the Closing Date and no Default or Event of Default exists at the time of such extension, renewal or refunding; (b) Debt of a Subsidiary owed to the Company; (c) Debt of a Subsidiary outstanding at the time such Subsidiary becomes a Subsidiary and any extension, renewal or refunding thereof, provided that (i) such Debt shall not have been incurred in contemplation of such Subsidiary becoming a Subsidiary and (ii) immediately after such Subsidiary becomes a Subsidiary no Default or Event of Default shall exist, and provided further that the principal amount of such Debt is not increased on or after the Closing Date as a result of any extension, renewal or refunding thereof and no Default or Event of Default exists at the time of such extension, renewal or refunding; and 25 (d) Debt of a Subsidiary in addition to that otherwise permitted by the foregoing provisions of this Section 10.5, provided that on the date the Subsidiary incurs or otherwise becomes liable with respect to any such additional Debt and immediately after giving effect thereto and the concurrent retirement of any other Debt, (i) no Default or Event of Default exists, and (ii) the sum of (x) the aggregate amount of Debt of the Company secured by Liens and (y) the total amount of all Debt for which all Subsidiaries are then liable (excluding the Subsidiary Guaranty and Debt owed to the Company) does not exceed five percent (5%) of Consolidated Total Assets. 10.6. Consolidation and Merger. Neither the Company nor any Subsidiary will merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it except: (a) the Company may permit any Person to merge into it so long as (i) the Company shall be the surviving entity, and (ii) immediately before and after giving effect to the transaction, no Default or Event of Default shall exist; and (b) any Subsidiary may merge into or consolidate with the Company, so long as the Company shall be the surviving entity, and any Subsidiary may permit any Person to merge into it, so long as the Subsidiary shall be the surviving entity, in each case, so long as, immediately before and after giving effect to the transaction, no Default or Event of Default shall exist. 10.7. Sale of Assets. The Company will not, and will not permit any Subsidiary to, make any Transfer except (a) the Company may, and may permit any Subsidiary to, make a Transfer, in the ordinary course of its business, of assets that constitute inventory held for sale or materials or equipment no longer required in the operation of its business; (b) the Company may, and may permit any Subsidiary to, make a Transfer to any Subsidiary, or to the Company, as the case may be; or (c) the Company may, and may permit any Subsidiary to, make a Transfer, so long as all assets subject to any Transfers occurring from the date hereof until January 2, 1999 (i) do not have a cumulative Disposition Value exceeding twenty-five percent (25%) of Consolidated Total Assets as of the last day of the Fiscal Quarter most recently ended and (ii) did not account for more than twenty-five percent (25%) of Consolidated Revenues during the four Fiscal Quarters (taken as a whole) most recently ended. 10.8. Transactions with Affiliates. The Company will not and will not permit any Subsidiary to enter into directly or indirectly any transaction or group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and 26 upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 10.9. Advances to Dormant Subsidiaries. The Company will not and will not permit any Subsidiary to make any Transfer of its assets, capital contribution or loan to, or otherwise advance any funds to, either of the Dormant Subsidiaries. 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five (5) Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Sections 10.1 through 10.8; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within thirty (30) days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); provided, however, that if the Company shall have commenced to remedy such default within such thirty (30) day period, then the Company shall have an additional thirty (30) day period to complete the remedy of such default; or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any Material respect on the date as of which made; or (f) (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least $1,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Debt in an aggregate outstanding principal amount of at least $1,000,000 or of any mortgage, indenture or other agreement relating thereto or any 27 other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared (or one or more Persons are entitled to declare such Debt to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), (x) the Company or any Subsidiary has become obligated to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $1,000,000, or (y) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay Debt in an aggregate outstanding principal amount of at least $1,000,000; or (g) the Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed within sixty (60) days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $5,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under Section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA Section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any 28 such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of Section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $500,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect; or (k) the Subsidiary Guaranty shall cease to be in full force and effect for any reason other than as a result of the merger or consolidation of any Subsidiary Guarantor into the Company or another Subsidiary, or the Company or any Subsidiary Guarantor shall assert in writing that the Subsidiary Guaranty has ceased to be in full force and effect. 12. REMEDIES ON DEFAULT, ETC. 12.1. Acceleration. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 hereof, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 66 2/3% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 hereof has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) 29 and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2. Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1 hereof, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3. Rescission. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1 hereof, if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the rate specified in the Notes, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17 hereof, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes, then (i) if the Notes have been declared due and payable pursuant to clause (b) of Section 12.1 hereof, the holders of not less than 66 2/3% in principal amount of the Notes then outstanding may rescind and annul any such declaration and its consequences, by written notice to the Company and (ii) if the Notes have been declared due and payable pursuant to clause (c) of Section 12.1 hereof, any holder or holders of Notes at the time outstanding may rescind and annul any such declaration made by such holder or holders and its consequences, by written notice to the Company. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4. No Waivers or Election of Remedies, Expenses, etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15 hereof, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or 30 collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1. Registration of Notes. The Company shall keep, at its expense, at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note, promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2. Transfer and Exchange of Notes. (a) Subject to Section 13.2(b) hereof, upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder's attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit A hereto. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $1,000,000; provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $1,000,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2 hereof. (b) No transfer or sale (including, without limitation, by pledge or hypothecation) of the Notes by any holder shall be effective unless (a) the Notes are registered under the Securities Act or such transfer is permitted pursuant to an available exemption from such registration requirement and (b) the proposed transferee represents to you that such transfer or sale of the Notes either (i) is being funded solely out of an insurance company general investment account which either (x) would be exempt from the prohibited transactions rules of ERISA and the Code under Prohibited Transaction Class Exemption 95-60, published by the 31 Department of Labor in the Federal Register on July 12, 1995 (60 F.R. 35925, July 12, 1995) or (y) exclusively supports either contracts not issued to any "employee benefit plan" as defined in Section 3(3) of ERISA which is subject to Title I of ERISA or any "plan" within the meaning of and which is subject to Section 4975 of the Code or policies which constitute "guaranteed benefit policies" under Section 401(b) of ERISA; (ii) is not being funded with the assets of any (x) "employee benefit plan" within the meaning of Section 3(3) of ERISA which is subject to Title I of ERISA, (y) "plan" within the meaning of and which is subject to Section 4975 of the Code or (z) entity deemed to hold "plan assets" within the meaning of 29 C.F.R. ss.2510.3-101 of any such plan, with respect to which the Company or any ERISA Affiliate is a party in interest (as defined in Section 3(14) of ERISA) or a disqualified person (as defined in Section 4975 of the Code) or (iii) is not a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code because a statutory, class or administrative exemption from such prohibited transaction rules applies to the purchase and holding of Notes. 13.3. Replacement of Notes. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or any Affiliate thereof, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.1. Place of Payment. Subject to Section 14.2 hereof, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Tempe, Arizona at the principal office of the Company at 2401 West First Street in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in the United States jurisdiction or the principal office of a bank or trust company in the United States. 32 14.2. Home Office Payment. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 hereof or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule I hereto, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1 hereof. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2 hereof. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Other Agreements, the Subsidiary Guaranty or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Other Agreements, the Subsidiary Guaranty or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Other Agreements, the Subsidiary Guaranty or the Notes, or by reason of being a holder of any Note, and (b) the reasonable costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 33 15.2. Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement, the Other Agreements, the Subsidiary Guaranty or the Notes, and the termination of this Agreement, the Other Agreements or the Subsidiary Guaranty. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1. Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Sections 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing; and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 hereof relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. 17.2. Solicitation of Holders of Notes. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this 34 Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into any waiver or amendment of any of the terms and provisions hereof by any holder of Notes unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3. Binding Effect, etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4. Notes held by Company, etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (b) by registered or certified mail with return receipt requested (postage prepaid) or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule I hereto, or at such other address as you or it shall have specified to the Company in writing; 35 (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing; or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Fred W. Wagenhals or at such other address as the Company shall have specified to the holder of each Note in writing, with a copy to Christopher Besing at such address and a copy to Robert S. Kant, O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A., Suite 1100, One East Camelback Road, Phoenix, Arizona 85012-1656; or Notices under this Section 18 will be deemed given only when actually received. 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed; (b) documents received by you at the Closing (except the Notes themselves); and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary or is identified on Schedule 20 hereto as being confidential information of the Company or any Subsidiary previously delivered to you; provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure; (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf; (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 hereof that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you; provided that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and 36 affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes); (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20; (iii) any other holder of any Note, (iv) any Person to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you; (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. Subject to Section 13.2(b) hereof, you shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6 hereof. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 37 22. MISCELLANEOUS. 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not, except that in the case of a successor to the Company by consolidation or merger or a transfer of its assets, this Agreement shall inure to the benefit of such successor or transferee only if it becomes such in accordance with either Section 10.6 or Section 10.7 hereof. The provisions of this Agreement are intended to be for the benefit of all holders from time to time of the Notes, and shall be enforceable by any such holder, whether or not an express assignment to such holder of rights under this Agreement has been made by you or your successor or assign. 22.2. Payments Due on Non-Business Days. If the last or appointed day for the taking of any action required or permitted hereby or by the Notes (including, but not limited to, the payment of principal of, or interest or premium, if any, on the Notes) shall be a Saturday, Sunday or a day which is not a Business Day in New York, New York, Phoenix, Arizona or Greensboro, North Carolina, then such action may be taken on the next succeeding day which is a Business Day in such city; provided, however, that if, pursuant to the provisions of this Section 22.2, the time for the payment of any amount in respect of the Notes is postponed, interest on such amount shall continue to accrue during the period of such postponement. 22.3. Indemnity for Funds Availability at Closing. In connection with the closing under this Agreement, the Company is requesting that you make available for funding an amount equal to the Purchase Price. If, for any reason, the closing does not occur as scheduled on the Closing Date, the Company hereby agrees to protect, indemnify and hold you harmless from and against any and all losses, liabilities, obligations, expenses (including, with limitation, reasonable attorneys' fees and expenses) imposed upon or incurred by or asserted against you in any way resulting from, caused by or arising out of the failure of the closing to occur as scheduled on the Closing Date, including, without limitation, any and all losses resulting from the inability to reinvest any amounts reserved, set aside or otherwise to be made available at the scheduled closing at a rate of interest equal to or greater than the rate of interest on the Notes. The obligations of the Company under this Section 22.3 shall survive the payment or prepayment of the Notes and the termination of this Agreement. 38 22.4. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.5. Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.7. Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP; all computations made pursuant to this Agreement shall be made in accordance with GAAP and all balance sheets and other financial statements shall be prepared in accordance with GAAP. 22.8. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. 22.9. Jury Trial. THE COMPANY AND THE NOTEHOLDERS, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT. 39 22.10. Consent to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE OTHER AGREEMENTS, THE SUBSIDIARY GUARANTY OR THE NOTES MAY BE BROUGHT BY ANY HOLDER IN THE COURTS OF THE STATE OF NEW YORK OR THE STATE OF NORTH CAROLINA OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK OR FOR THE MIDDLE DISTRICT OF NORTH CAROLINA, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE BASED ON THE GROUNDS OF FORUM NONCONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTION. * * * * * 40 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, ACTION PERFORMANCE COMPANIES, INC. By /s/Christopher S. Besing ---------------------------------- Name: Christopher S. Besing Title: Vice President, Treasurer, and Chief Financial Officer The foregoing is hereby agreed to as of the date thereof. JEFFERSON-PILOT LIFE INSURANCE COMPANY By: /s/Robert E. Whalen, II ----------------------------- Name: Robert E. Whalen, II Title: Second Vice President ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA By: /s/Robert E. Whalen, II ----------------------------- Name: Robert E. Whalen, II Title: Second Vice President FIRST ALEXANDER HAMILTON LIFE INSURANCE COMPANY By: /s/ Robert A. Reed ----------------------------- Name: Robert A. Reed Title: Secretary 41 SCHEDULE II ----------- DEFINED TERMS ------------- As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "Affiliate" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, 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. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "Agreement" means this Note Purchase Agreement (together with the Schedules and Exhibits hereto) as it may be from time to time amended, modified or supplemented in accordance with its terms. "Bank Documents" means the Credit Agreement, dated as of the Closing Date, among the Company, certain Subsidiaries and Affiliates of the Company and First Union National Bank of North Carolina and all other documents, instruments and agreements executed in connection with the $16,000,000 credit facility made available to the Company by First Union National Bank of North Carolina pursuant to such Credit Agreement. "Business Day" means any day other than a Saturday, a Sunday or a day on which commercial banks in New York City or Phoenix are required or authorized to be closed. "Capitalized Lease Obligations" means, with respect to any Person, the aggregate amount which, in accordance with GAAP, is required to be reported as a liability on the balance sheet of such Person at such time in respect of such Person's interest as lessee under a Capital Lease. "Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Change of Control" is defined in Section 8.2. II-1 SCHEDULE II ----------- "Closing" is defined in Section 3. "Closing Date" is defined in Section 3. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "Company" means Action Performance Companies, Inc., an Arizona corporation. "Confidential Information" is defined in Section 20. "Consolidated" means, when used with reference to Fixed Charges or Funded Debt, the aggregate of Fixed Charges or Funded Debt, as the case may be, of the Company and its Subsidiaries, after eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other terms required to be eliminated in accordance with GAAP. Calculations of Consolidated EBITDA, Consolidated Revenues, Consolidated Fixed Charges and Consolidated Income Available for Fixed Charges shall be made on a consolidating pro forma basis, as if (i) any consolidation or merger with or into any Person by the Company or any Subsidiary, any Transfer of all or substantially all of the assets of the Company or any Subsidiary to any Person or any Transfer of all or substantially all of the assets of any Person to the Company or any Subsidiary that has occurred during the preceding four Fiscal Quarters had occurred at the commencement of such period and (ii) any Debt incurred or assumed by the Company and its Subsidiaries during the preceding four Fiscal Quarters (other than any refinancing of Debt to the extent that the principal amount of such Debt did not increase) had been in effect at the commencement of such period. "Consolidated EBITDA" means, with respect to any date of determination, the sum of (a) Consolidated Net Income for the most recently ended four Fiscal Quarters and (b) the amount of all Interest Charges, depreciation, amortization, income taxes, deferred items and other non-cash expenses of the Company and its Subsidiaries, but only to the extent deducted in the determination of Consolidated Net Income for the most recently ended four Fiscal Quarters. "Consolidated Net Income" means, with reference to any period, the net income (or loss) of the Company and its Subsidiaries for such period (taken as a cumulative whole), as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other terms required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP; provided that there shall be excluded: II-2 (a) subject to clause (i) of the definition of "Consolidated" herein, the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Company or a Subsidiary, and the income (or loss) of any Person, substantially all of the assets of which have been acquired in any manner, realized by such other Person prior to the date of acquisition; (b) the income (or loss) of any Person (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Company or such Subsidiary in the form of cash dividends or similar cash distributions; (c) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary; (d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period; (e) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, conversion, exchange or other disposition of capital assets (such term to include, without limitation, (i) all non-current assets and, without duplication, (ii) the following, whether or not current: all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets, and all Securities); (f) any gains resulting from any write-up of any assets (but not any loss resulting from any writedown of any assets); (g) any net gain from the collection of the proceeds of life insurance policies; (h) any gain arising from the acquisition of any Security, or the extinguishment, under GAAP, of any Debt, of the Company or any Subsidiary; (i) any net income or gain (but not any net loss) during such period from (i) any change in accounting principles in accordance with GAAP, (ii) any prior period adjustments resulting from any change in accounting principles in according with GAAP, (iii) any extraordinary items, or (iv) any discontinued operations or the disposition thereof; (j) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary; and (k) any portion of such net income that cannot be freely converted into United States Dollars. II-3 "Consolidated Income Available for Fixed Charges" means, with respect to any period, Consolidated Net Income for such period plus all amounts deducted in the computation thereof on account of (a) Fixed Charges and (b) taxes imposed on or measured by income or excess profits. "Consolidated Net Worth" means, at any time, (a) Consolidated Total Assets minus (b) the total liabilities of the Company and its Subsidiaries which would be shown as liabilities on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP. "Consolidated Revenues" means the revenue of the Company and its Subsidiaries for the applicable period, as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other terms required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP. "Consolidated Total Assets" means, as of any date of determination, the total assets of the Company and its Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. "Current Maturities of Funded Debt" means, at any time and with respect to any item of Funded Debt, the portion of such Funded Debt outstanding at such time which by the terms of such Funded Debt or the terms of any instrument or agreement relating thereto is due on demand or within one year from such time (whether by sinking fund, other required prepayment or final payment at maturity) and is not directly or indirectly renewable, extendible or refundable at the option of the obligor under an agreement or firm commitment in effect at such time to a date one year or more from such time. "Debt" means, with respect to any Person, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its Capital Lease Obligations; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); II-4 (e) its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); and (f) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (e) hereof. Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (f) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Disposition Value" means, at any time, with respect to any property (a) in the case of property that does not constitute Subsidiary Stock, the book value thereof, valued at the time of such disposition in good faith by the Company, and (b) in the case of property that constitutes Subsidiary Stock, an amount equal to that percentage of book value of the assets of the Subsidiary that issued such stock as is equal to the percentage that the book value of such Subsidiary Stock represents of the book value of all of the outstanding capital stock of such Subsidiary (assuming, in making such calculations, that all Securities convertible into such capital stock are so converted and giving full effect to all transactions that would occur or be required in connection with such conversion) determined at the time of the disposition thereof, in good faith by the Company. "Dormant Subsidiary" means each of Racing Collectibles, Inc., a Florida corporation and Racing Collectables, Inc., a Florida corporation. "Environmental Laws" means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under Section 414 of the Code. "Event of Default" is defined in Section 11. II-5 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fiscal Quarter" means a fiscal quarter of the Company or any of its Subsidiaries which shall be any quarterly period ending on March 31, June 30, September 30 or December 31 of any year. "Fiscal Year" means, with respect to any Person, a fiscal year of such Person. The term "Fiscal Year," when used without reference to any Person, shall mean a Fiscal Year of the Company ending on September 30, of any year. "Fixed Charges" means, with respect to any date of determination, the sum of (a) Interest Charges for the most recently ended four Fiscal Quarters and (b) Lease Rentals for the most recently ended four Fiscal Quarters. "Fixed Charges Coverage Ratio" means, as of any date of determination thereof, the ratio of (a) Consolidated Income Available for Fixed Charges for the most recently ended four Fiscal Quarters to (b) Consolidated Fixed Charges for such period. "Funded Debt" means, with respect to any Person, all Debt of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, one year or more from, or is directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more (including, without limitation, an option of such obligor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more) from, the date of the creation thereof; provided that Funded Debt shall include, as at any date of determination, Current Maturities of Funded Debt. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Governmental Authority" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such II-6 Person guaranteeing or in effect guaranteeing (whether by reason of being a general partner of a partnership or otherwise) any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Hazardous Material" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polycholorinated biphenyls). "holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "Institutional Investor" means (a) any original purchaser of a Note and (b) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "Interest Payment Date" is defined in Section 1. "Interest Charges" means, with reference to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with II-7 GAAP): (a) all interest in respect of Debt of the Company and its Subsidiaries (including imputed interest on Capitalized Lease Obligations) deducted in determining Consolidated Net Income for such period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, and (b) all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period. "Lease Rentals" means, with reference to any period, the sum of rental and other obligations required to be paid during such period by the Company or any Subsidiary as lessee under all leases of real or personal property (other than Capital Leases), excluding any amount required to be paid by the lessee (whether or not therein designated as rental or additional rental) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges; provided that, if at the date of determination, any such rental or other obligations (or portion thereof) are contingent or not otherwise definitely determinable by the terms of the related lease, the amount of such obligations (or such portion thereof) (i) shall be assumed to be equal to the amount of such obligations for the period of 12 consecutive calendar months immediately preceding the date of determination or (ii) if the related lease was not in effect during such preceding 12-month period, shall be the amount estimated by a Senior Financial Officer of the Company on a reasonable basis and in good faith. "Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "Make-Whole Amount" is defined in Section 8.6. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company, or the Company and its Subsidiaries taken as a whole. "Material Adverse Effect" means a Material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company, or the Company and its Subsidiaries taken as a whole; or (b) the ability of the Company to perform its obligations under this Agreement, the Other Agreements and the Notes; or (c) the validity or enforceability of this Agreement, the Other Agreements or the Notes. "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). "Notes" is defined in Section 1. "Officer's Certificate" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. II-8 "Other Agreements" is defined in Section 2. "Other Purchasers" is defined in Section 2. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in Title IV of ERISA or any successor thereto. "Permitted Liens" means: (a) Liens for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with the provisions of GAAP; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens (other than any lien imposed under ERISA or Section 401(a)(29) or 412 of the Code) imposed by law and created in the ordinary course of business and Liens on deposits made to obtain the release of such Liens if (i) the underlying obligations are not overdue or (ii) such Liens are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with the provisions of GAAP; (c) Liens (other than any lien imposed under ERISA or Section 401(a)(29) or 412 of the Code) incurred on deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than the repayment of Debt), statutory obligations and other similar obligations or arising as a result of progress payments under contracts; (d) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and other restrictions, charges or encumbrances (whether or not recorded) which do not interfere materially with the ordinary conduct of the business of the Company or its Subsidiaries and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Company or its Subsidiaries; (e) building restrictions, zoning laws and other statutes, laws, rules, regulations, ordinances and restrictions, and any amendments thereto, now or at any time hereafter adopted by any Governmental Authority having jurisdiction; (f) any judgment Lien unless it constitutes or may create an Event of Default; (g) Liens (including any Capital Leases) originally created to secure payment of a portion of the purchase price relating to any property which the Company or any Subsidiary acquires after the Closing Date, but, with respect to any such Lien, such property shall be purchased not more than 60 days prior to the date of the creation of such Lien; provided, II-9 however, that (i) no such Lien shall be created in or attach to any other asset at the time owned by the Company or any Subsidiary and (ii) the outstanding principal amount of Debt secured by any such Lien shall not at any time exceed 75% (or 100% in the case of property the acquisition of which is financed through a Capital Lease) of the fair market value of such property at the time of acquisition thereof; (h) Liens on property or assets of the Company or any of its Subsidiaries securing Debt owing to the Company or to another Subsidiary; (i) Liens existing on the Closing Date and listed in Schedule 5.15 hereto; (j) other Liens not otherwise permitted by clauses (a) through (i) of this definition of "Permitted Liens" securing Debt of the Company or any of its Subsidiaries permitted hereunder; provided that at all times the sum of (i) the aggregate amount of such Debt of the Company secured by such Liens and (ii) all Debt of the Subsidiaries (excluding the Subsidiary Guaranty and Debt owed to the Company) does not exceed five percent (5%) of Consolidated Total Assets; and (k) extensions, renewals or replacements of any Lien referred to in clauses (a) through (j) of this definition of "Permitted Liens"; provided that the principal amount of the debt or obligation secured thereby is not increased and that any such extension, renewal or replacement is limited to the property originally encumbered by the Lien. "Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "Plan" means an "employee benefit plan" (as defined in Section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "Principal Shareholder" means Fred W. Wagenhals, the president and chief executive officer of the Company. "property" or "properties" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "Purchase Price" is defined in Section 2.1. "Purchaser" is defined in Section 2.1. II-10 "QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "Required Holders" means, at any time, the holders of at least 662/3% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "Responsible Officer" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement. "Section 8.2 Notice and Offer to Prepay" is defined in Section 8.2. "Section 8.2 Special Prepayment Date" is defined in Section 8.2. "Section 8.2(c) Response" is defined in Section 8.2. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Security" has the meaning set forth in Section 2(1) of the Securities Act. "Senior Financial Officer" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "Subsidiary Stock" means, with respect to any Person, the stock (or any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of any Subsidiary of such Person. "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Subsidiary Guarantor" means each of Sports Image, Inc., an Arizona corporation, and MTL Acquisition, Inc., an Arizona corporation, and each other Subsidiary of the Company that from time to time becomes a party to the Subsidiary Guaranty or otherwise guarantees the obligations of the Company pursuant to this Agreement. "Subsidiary Guaranty" means the Subsidiary Guaranty dated as of the Closing Date, substantially in the form of Exhibit B hereto, as it may be modified and supplemented and in effect from time to time. II-11 "Transfer" means the sale, lease, transfer, conveyance, abandonment or other disposition, directly or indirectly, in a single transaction or a series of transactions of all or any part of a Person's assets. "Voting Stock" as applied to any corporation or limited liability company shall mean all shares of any class or classes (however designated), or other securities of such corporation or limited liability company, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). II-12 EXHIBIT A [FORM OF NOTE] ACTION PERFORMANCE COMPANIES, INC. 8.05% SENIOR NOTE DUE JANUARY 2, 1999 No. [_____] January 2, 1997 $[_______] PPN: 004933 A* 8 FOR VALUE RECEIVED, the undersigned, ACTION PERFORMANCE COMPANIES, INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Arizona, hereby promises to pay to [ ], or registered assigns, the principal sum of [ ] DOLLARS on January 2, 1999, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 8.05% per annum from the date hereof, payable semiannually, on the fifteenth day of January and July in each year, commencing July 15, 1997, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to 2% per annum in excess of the interest rate applicable to timely payments hereon. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the office of the Company at 2401 West First Street, Tempe, Arizona 85281 or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below, in each case subject to the right of the registered holder hereof under the Note Purchase Agreement to receive direct payment in immediately available funds. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of January 2, 1997 (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representations set forth in Section 6.2 of the Note Purchase Agreements. A-1 This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to prepayment, in whole, at the times and on the terms specified in Section 8.2 of the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. This Note shall be governed by and construed in accordance with the law of the State of New York. ACTION PERFORMANCE COMPANIES, INC. By: ________________________________ Name: Title: A-2 EXHIBIT B SUBSIDIARY GUARANTY ------------------- THIS SUBSIDIARY GUARANTY, dated as of January 2, 1997, is executed by each of the undersigned (each such entity and each entity which hereafter executes and delivers a Subsidiary Joinder in substantially the form of Attachment 1 hereto to be referred to herein as a "Guarantor"), in favor of each of the holders from time to time of the 8.05% Senior Notes due January 2, 1999 (the "Notes") issued by Action Performance Companies, Inc., an Arizona corporation (the "Company") (collectively, the "Noteholders"). RECITALS -------- A. The Company and the original Noteholders have entered into separate but identical Note Purchase Agreements, each dated as of January 2, 1997 (as each may be amended from time to time, the "Agreements"), pursuant to which $20,000,000 in aggregate principal amount of the Notes were issued. Capitalized terms used herein and not otherwise defined herein are used with the meanings assigned thereto in the Agreements. B. Each Guarantor is a direct or indirect Subsidiary of the Company. Each Guarantor acknowledges that the issuance of the Notes by the Company pursuant to the Agreements will benefit each such Guarantor by making funds available to such Guarantor through the Company and by enhancing the financial strength of the consolidated group of which each Guarantor and the Company are members. C. The execution and delivery of this Subsidiary Guaranty by each existing Subsidiary of the Company is a condition precedent to the execution and delivery by the original Noteholders of the Agreements and the Company has covenanted in the Agreements that Subsidiary Joinders shall be duly executed by each future Subsidiary of the Company. AGREEMENT --------- NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each Guarantor hereby agrees with the Noteholders as follows: 1. Definitions and Interpretation. ------------------------------- (a) Definitions. When used in this Subsidiary Guaranty, the following terms shall have the following respective meanings: B-1 "Adjusted Maximum Guaranty Amount" shall mean, with respect to any Guarantor, the Maximum Guaranty Amount of such Guarantor, limited to the extent provided in Subparagraph 2(d) hereof (except that, for purposes of the Adjusted Maximum Guaranty Amount of a Guarantor only, any assets or liabilities of such Guarantor arising under Paragraph 5 hereof shall be ignored). "Adjusted Net Worth" shall mean, with respect to a Guarantor at any time, the remainder of (i) the fair value of the assets of such Guarantor as of such date, minus (ii) the fair value of the liabilities of such Guarantor as of such date (excluding, however, any liability of such Guarantor hereunder), such assets and liabilities to be determined in accordance with any state or federal fraudulent conveyance or transfer law which is applicable to this Subsidiary Guaranty. "Agreements" shall have the meaning given to that term in the Recital A hereof. "Aggregate Guaranty Payments" shall mean, with respect to any Guarantor at any time, the aggregate net amount of all payments made by such Guarantor under this Subsidiary Guaranty (including, without limitation, under Paragraph 5 hereof) at or prior to such time. "Company" shall have the meaning given to that term in the preamble hereof. "Disallowed Post-Commencement Interest and Expenses" shall mean interest computed at the rate provided in the Agreements and claims for reimbursement, costs, expenses or indemnities under the terms of the Agreements, the Subsidiary Guaranty or the Notes accruing or claimed at any time after the commencement of any Insolvency Proceeding, if the claim for such interest, reimbursement, costs, expenses or indemnities is not allowable, allowed or enforceable against Company in such Insolvency Proceeding. "Fair Share" shall mean, with respect to any Guarantor at any time, an amount equal to (i) a fraction, the numerator which is the Maximum Guaranty Amount of such Guarantor and the denominator of which is the aggregate Maximum Guaranty Amounts of all Guarantors, multiplied by (ii) the aggregate amount paid by all Funding Guarantors under this Subsidiary Guaranty at or prior to such time. "Fair Share Shortfall" shall mean, with respect to any Guarantor at any time, the amount, if any, by which the Fair Share of such Guarantor at such time exceeds the Aggregate Guaranty Payments of such Guarantor at such time. "Funding Guarantor" shall have the meaning given to that term in Paragraph 5 hereof. "Guaranteed Obligations" shall mean all principal (including any prepayments of principal), premium, if any, and all interest on the Notes, and all other indebtedness and obligations of the Company to the Noteholders under the Agreements and the Notes, B-2 including, without limitation, all fees, taxes, charges, expenses, attorneys' fees and accountants' fees chargeable to the Company or payable by the Company thereunder. "Guarantor" shall have the meaning given to that term in the preamble hereof. "Insolvency Proceeding" shall mean any case or proceeding under the United States Bankruptcy Code or any other similar law, rule or regulation of the United States or any jurisdiction or any other action or proceeding for the reorganization, liquidation, appointment of a receiver, rearrangement of debts, marshalling of assets or similar action relating to the Company or any Guarantor, their respective creditors or any substantial part of their respective assets, whether or not any such case, proceeding or action is voluntary or involuntary. "Notes" shall have the meaning given to that term in the preamble hereof. "Noteholders" shall have the meaning given to that term in the preamble hereof. "Maximum Guaranty Amount" shall mean, with respect to any Guarantor, at any time, the greatest of (a) ninety-five percent (95%) of the Adjusted Net Worth of such Guarantor at such time, (b) ninety-five percent (95%) of the Adjusted Net Worth of such Guarantor on the date hereof and (c) the value derived by such Guarantor from the Guaranteed Obligations incurred at or prior to such time. "Subsidiary Joinder" shall mean an instrument substantially in the form of Attachment 1 hereto. Unless otherwise indicated in this Subsidiary Guaranty, all accounting terms used in this Subsidiary Guaranty shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP. 2. Guaranty. (a) Payment Guaranty. Each Guarantor unconditionally guarantees and promises to pay and perform as and when due, whether at stated maturity, upon acceleration or otherwise, any and all of the Guaranteed Obligations. If any Insolvency Proceeding relating to the Company is commenced, each Guarantor further unconditionally guarantees and promises to pay and perform, upon the demand of any Noteholder any Guaranteed Obligations allocable to such Noteholder (including any related Disallowed Post-Commencement Interest and Expenses) in accordance with the terms of the Agreements and the Notes, whether or not such obligations are then due and payable by the Company and whether or not such obligations are modified, reduced or discharged in such Insolvency Proceeding. This Subsidiary Guaranty is a guaranty of payment and not of collection. B-3 (b) Continuing Guaranty. This Subsidiary Guaranty is an irrevocable continuing guaranty of the Guaranteed Obligations which shall continue in effect until all of the Guaranteed Obligations have been fully, finally and indefeasibly paid. If any payment on any Guaranteed Obligation is set aside, avoided or rescinded or otherwise recovered from any Noteholder, such recovered payment shall constitute a Guaranteed Obligation hereunder and, if this Subsidiary Guaranty was previously released or terminated, it automatically shall be fully reinstated, as if such payment was never made. (c) Independent Obligation. The liability of each Guarantor hereunder is independent of the Guaranteed Obligations and of the obligations of each other Guarantor hereunder, and a separate action or actions may be brought and prosecuted against each Guarantor irrespective of whether action is brought against the Company, any other Guarantor or any other guarantor of the Guaranteed Obligations or whether the Company, any other Guarantor or any other guarantor of the Guaranteed Obligations is joined in any such action or actions. (d) Fraudulent Transfer Limitation. If, in any action to enforce this Subsidiary Guaranty, any court of competent jurisdiction determines that enforcement against any Guarantor for the full amount of the Guaranteed Obligations is not lawful under or would be subject to avoidance under Section 548 of the United States Bankruptcy Code or any applicable provision of any comparable law of any state or other jurisdiction, the liability of such Guarantor under this Subsidiary Guaranty shall be limited to the maximum amount lawful and not subject to such avoidance. (d) Maximum Guaranty Amount. The liability of each Guarantor under this Subsidiary Guaranty shall not at any time exceed such Guarantor's Maximum Guaranty Amount; provided, however, that the Noteholders may permit the Guaranteed Obligations to exceed the foregoing limitation without affecting each Guarantor's liability hereunder. 3. Authorizations, Waivers, Etc. (a) Authorizations. Each Guarantor authorizes the Noteholders, in their discretion, without notice to such Guarantor, irrespective of any change in the financial condition of the Company, such Guarantor, any other Guarantor or any other guarantor of the Guaranteed Obligations since the date hereof, and without affecting or impairing in any way the liability of such Guarantor hereunder, from time to time to: (i) renew, compromise, extend, accelerate or otherwise change the time for payment or performance of, or otherwise amend or modify the Agreements and the Notes or change the terms of the Guaranteed Obligations or any part thereof, including increase or decrease of the rate of interest thereon; (ii) accept and hold security for the payment or performance of the Guaranteed Obligations and exchange, enforce, waive or release any such security; apply such security B-4 and direct the order or manner of sale thereof; and purchase such security at public or private sale; (iii) otherwise exercise any right or remedy they may have against the Company, such Guarantor, any other Guarantor, any other guarantor of the Guaranteed Obligations; (iv) settle, compromise with, release or substitute any one or more makers, endorsers or guarantors of the Guaranteed Obligations; and (v) assign the Guaranteed Obligations, this Subsidiary Guaranty, the Agreements or the Notes in whole or in part to the extent provided herein and in the Agreements and the Notes. (b) Waivers. Each Guarantor hereby waives: (i) any right to require any Noteholder to (A) proceed against the Company, any other Guarantor or any other guarantor of the Guaranteed Obligations, (B) proceed against or exhaust any security received from the Company, such Guarantor, any other Guarantor or any other guarantor of the Guaranteed Obligations or otherwise marshall the assets of the Company, such Guarantor, any other Guarantor or any other guarantor of the Guaranteed Obligations or (C) pursue any other remedy in the Noteholder's power whatsoever; (ii) any defense arising by reason of the application by the Company of the proceeds of any borrowing; (iii) any defense resulting from the absence, impairment or loss of any right of reimbursement, subrogation, contribution or other right or remedy of Guarantor against the Company, any other Guarantor, any other guarantor of the Guaranteed Obligations or any security, whether resulting from an election by any Noteholder to foreclose upon security by nonjudicial sale, or otherwise; (iv) any setoff or counterclaim of the Company or any defense which results from any disability or other defense of the Company or the cessation or stay of enforcement from any cause whatsoever of the liability of the Company (including, without limitation, the lack of validity or enforceability of any of the Subsidiary Guaranty, the Agreements and the Notes); (v) any defense based upon any law, rule or regulation which provides that the obligation of a surety must not be greater or more burdensome than the obligation of the principal; (vi) until all of the Guaranteed Obligations have been fully, finally and indefeasibly paid, any right of subrogation, reimbursement, indemnification or contribution and other similar right to enforce any remedy which, the Noteholders or any other Person now has or may hereafter have against the Company on account of the Guaranteed Obligations, and any B-5 benefit of, and any right to participate in, any security now or hereafter received by any Noteholder or any other Person on account of the Guaranteed Obligations; (vii) all presentments, demands for performance, notices of non-performance, notices delivered under the Agreements, the Subsidiary Guaranty and the Notes, protests, notice of dishonor, and notices of acceptance of this Subsidiary Guaranty and of the existence, creation or incurring of new or additional Guaranteed Obligations and notices of any public or private foreclosure sale; (viii) the benefit of any statute of limitations to the extent permitted by law; (ix) any appraisement, valuation, stay, extension, moratorium redemption or similar law or similar rights for marshalling; (x) any right to be informed by any Noteholder of the financial condition of the Company, any other Guarantor or any other guarantor of the Guaranteed Obligations or any change therein or any other circumstances bearing upon the risk of nonpayment or nonperformance of the Guaranteed Obligations; (xi) until all of the Guaranteed Obligations have been fully, finally and indefeasibly paid, any right to revoke this Subsidiary Guaranty; (xii) any defense arising from an election for the application of Section 1111(b)(2) of the United States Bankruptcy Code which applies to the Guaranteed Obligations; (xiii) any defense based upon any borrowing or grant of a security interest under Section 364 of the United States Bankruptcy Code; and (xiv) any right it may have to a fair value hearing to determine the size of a deficiency judgment following any foreclosure on any security for the Guaranteed Obligations. (c) Financial Condition of the Company, Etc. Each Guarantor is fully aware of the financial condition and affairs of the Company. Each Guarantor has executed this Subsidiary Guaranty without reliance upon any representation, warranty, statement or information concerning the Company furnished to such Guarantor by any Noteholder and has, independently and without reliance on any Noteholder, and based on such documents and information as it has deemed appropriate, made its own appraisal of the financial condition and affairs of the Company and of other circumstances affecting the risk of nonpayment or nonperformance of the Guaranteed Obligations. Each Guarantor is in a position to obtain, and assumes full responsibility for obtaining, any additional information about the financial condition and affairs of the Company and of other circumstances affecting the risk of nonpayment or nonperformance of the Guaranteed Obligations and will, independently and without reliance upon any Noteholder, and based on such documents and information as it B-6 shall deem appropriate at the time, continue to make its own appraisals and decisions in taking or not taking action in connection with this Subsidiary Guaranty. 4. Subordination. Each Guarantor hereby subordinates any and all debts, liabilities and obligations owed to such Guarantor by the Company or any Subsidiary of Company (the "Subordinated Obligations") to the Guaranteed Obligations as provided in this Paragraph 4. (a) Prohibited Payments, Etc. Until the occurrence of a Default or an Event of Default or any default by any Guarantor hereunder, each Guarantor and its Subsidiaries may receive regularly scheduled payments from the Company on account of Subordinated Obligations. After the occurrence and during the continuance of any Default or Event of Default or any default by any Guarantor hereunder (including the commencement and continuation of any Insolvency Proceeding relating to the Company), however, unless the Required Holders otherwise request, no Guarantor shall, demand, accept or take any action to collect any payment on account of the Subordinated Obligations. (b) Prior Payment of Guaranteed Obligations. In any Insolvency Proceeding relating to the Company, each Guarantor agrees that the Noteholders shall be entitled to receive payment of all Guaranteed Obligations (including any and all Disallowed Post-Commencement Interest and Expenses) before such Guarantor receives payment of any Subordinated Obligations. (c) Turn-Over. After the occurrence and during the continuance of any Default or Event of Default (including the commencement and continuation of any Insolvency Proceeding relating to Company), each Guarantor shall, if the Required Holders so request, collect, enforce and receive payments on account of the Subordinated Obligations as trustee for the Noteholders and deliver such payments to the Noteholders on account of the Guaranteed Obligations (including any and all Disallowed Post-Commencement Interest and Expenses), together with any necessary endorsements or other instruments of transfer, but without reducing or affecting in any manner the liability of such Guarantor under the other provisions of this Subsidiary Guaranty. (d) Authorization to Enforce Subordinated Obligations. After the occurrence and during the continuance of any Default or Event of Default or any default by a Guarantor hereunder (including the commencement and continuation of any Insolvency Proceeding relating to the Company), any Noteholder is authorized and empowered (but without any obligation to so do), in its discretion, (i) in the name of each Guarantor, to collect and enforce, and to submit claims in respect of, Subordinated Obligations and to apply any amounts received thereon to the Guaranteed Obligations (including any and all Disallowed Post-Commencement Interest and Expenses), and (ii) to require each Guarantor (A) to collect and enforce, and to submit claims in respect of, Subordinated Obligations and (B) to pay any amounts received on such obligations to such Noteholder for application to the Guaranteed Obligations (including any and all Disallowed Post-Commencement Interest and Expenses). B-7 5. Contribution among Guarantors. The Guarantors desire to allocate among themselves, in a fair and equitable manner, their rights of contribution from each other when any payment is made by any Guarantor under this Subsidiary Guaranty. Accordingly, if any payment is made by any Guarantor under this Subsidiary Guaranty (a "Funding Guarantor") that exceeds its Fair Share, the Funding Guarantor shall be entitled to a contribution from each other Guarantor in the amount of such other Guarantor's Fair Share Shortfall, so that all such contributions shall cause each Guarantor's Aggregate Guaranty Payments to equal its Fair Share. The amounts payable as contributions hereunder shall be determined by the Funding Guarantor as of the date on which the related payment or distribution is made by the Funding Guarantor, and such determination shall be binding on the other Guarantors absent manifest error. The allocation and right of contribution among the Guarantors set forth in this Paragraph 5 shall not be construed to limit in any way the liability of any Guarantor under this Subsidiary Guaranty or the amount of the Guaranteed Obligations. 6. Indemnification by Guarantors. Without limitation of any other obligations of Guarantors or remedies of the Noteholders under this Guaranty, the Guarantors shall indemnify, defend and save and hold harmless the Noteholders from and against, and shall pay on demand, any and all losses, liabilities, damages, and reasonable costs and expenses (including the reasonable fees and disbursements of the Noteholders' legal counsel) suffered or incurred by any Noteholder as a result of any failure of any of the Guaranteed Obligations to be the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency or other similar Laws affecting the rights of creditors generally. 7. Miscellaneous. (a) Notices. Except as otherwise provided herein, all notices, requests, demands, consents, instructions or other communications to or upon any Guarantor or any Noteholder under this Subsidiary Guaranty shall be in writing and faxed, mailed or delivered, if to a Guarantor, at its respective facsimile number or address set forth below or in the respective Subsidiary Joinder for such Guarantor or, if to any Noteholder, at the address or facsimile number specified beneath the heading "All other communications" under the name of such Noteholder in Schedule I to the Agreements (or to such other facsimile number or address for any party as indicated in any notice given by that party to the other parties). All such notices and communications shall be effective (i) when sent by overnight service of recognized standing, on the second Business Day following the deposit with such service; (ii) when mailed, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (iii) when delivered by hand, upon delivery; and (iv) when faxed, upon confirmation of receipt. B-8 Guarantor: Sports Image, Inc. 2401 West First Street Tempe, Arizona 85281 Attn: Fred W. Wagenhals Telephone: (602) 894-0100 Facsimile: (602) 894-6316 Guarantor: MTL Acquisition, Inc. 2401 West First Street Tempe, Arizona 85281 Attn: Fred W. Wagenhals Telephone: (602) 894-0100 Facsimile: (602) 894-6316 with copies to: Action Performance Companies, Inc. 2401 West First Street Tempe, Arizona 85281 Attn: Christopher S. Besing Telephone: (602) 894-0100 Facsimile: (602) 894-6316 O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. Suite 1100 One East Camelback Road Phoenix, Arizona 85012-1656 Attn: Robert S. Kant Telephone: (602) 263-2606 Facsimile: (602) 263-2900 (b) Payments. Each Guarantor shall make all payments required hereunder to any Noteholder in accordance with the payment information set forth on Schedule I to the Agreements on demand. If any amounts required to be paid by a Guarantor under this Subsidiary Guaranty are not paid when due, such Guarantor shall pay interest on the aggregate, outstanding balance of such amounts from the date due until those amounts are paid in full at a rate equal to 2% per annum in excess of the interest rate applicable to timely payments on the Notes. (c) Expenses. Each Guarantor shall pay on demand (i) all reasonable fees and expenses, including reasonable attorneys' fees and expenses, incurred by the Noteholders in connection with the preparation, execution and delivery of, and the exercise of its duties under, this Subsidiary Guaranty and the preparation, execution and delivery of amendments and waivers B-9 hereunder and (ii) all reasonable fees and expenses, including reasonable attorneys' fees and expenses, incurred by the Noteholders in connection with the enforcement or attempted enforcement of this Subsidiary Guaranty or any of the Guaranteed Obligations or in preserving any of the Noteholders' rights and remedies (including, without limitation, all such fees and expenses incurred in connection with any "workout" or restructuring affecting the Agreements, the Notes, the Subsidiary Guaranty or the Guaranteed Obligations or any bankruptcy or similar proceeding involving Guarantor, any other Guarantor, the Company or any of their affiliates). (d) Waivers; Amendments. This Subsidiary Guaranty may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by each Guarantor and the Required Holders. Each waiver or consent under any provision hereof shall be effective only in the specific instances for the purpose for which given. No failure or delay on any Noteholder's part in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right. (e) Assignments. This Subsidiary Guaranty shall be binding upon and inure to the benefit of the Noteholders, the Guarantors and their respective successors and assigns; provided, however, that no Guarantor may assign or transfer any of its rights and obligations under this Subsidiary Guaranty without the prior written consent of the Required Holders, and, provided, further, that any Noteholder may sell, assign and delegate its respective rights and obligations hereunder only as permitted by the Agreements. All references in this Subsidiary Guaranty to any Person shall be deemed to include all permitted successors and assigns of such Person. (f) Cumulative Rights, etc. The rights, powers and remedies of the Noteholders under this Subsidiary Guaranty shall be in addition to all rights, powers and remedies given to the Noteholders by virtue of any applicable law, rule or regulation of any Governmental Authority, the Agreement, the Notes or any other agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing any Noteholder's rights hereunder. Each Guarantor waives any right to require any Noteholder to proceed against any Person or to pursue any remedy in such Noteholder's power. (g) Payments Free of Taxes, Etc. All payments made by each Guarantor under this Subsidiary Guaranty shall be made by each Guarantor free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions and withholdings. In addition, each Guarantor shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance and enforcement of this Subsidiary Guaranty. If any taxes, levies, charges or other amounts are required to be withheld from any amounts payable to any Noteholder hereunder, the amounts so payable to such Noteholder shall be increased to the extent necessary to yield to such Noteholder (after payment of all such amounts) any such amounts payable hereunder in the amounts specified in this Subsidiary Guaranty. Upon request by any Noteholder, each Guarantor shall furnish evidence satisfactory to such Noteholder that all requisite authorizations and B-10 approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies and charges have been paid. (h) Partial Invalidity. If at any time any provision of this Subsidiary Guaranty is or becomes illegal, invalid or unenforceable in any respect under the law or any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of this Subsidiary Guaranty nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. (i) Joint and Several Obligation. The obligations of the Guarantors under this Subsidiary Guaranty are joint and several obligations of each Guarantor and may be freely enforced against each Guarantor, for the full amount of the Guaranteed Obligations, without regard to whether enforcement is sought or available against any other Guarantor. (j) Governing Law. This Subsidiary Guaranty shall be governed by and construed in accordance with the laws of the State of New York without reference to conflicts of law rules. (k) Jury Trial. EACH GUARANTOR AND THE NOTEHOLDERS, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SUBSIDIARY GUARANTY. (l) Consent to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS SUBSIDIARY GUARANTY MAY BE BROUGHT BY ANY NOTEHOLDER IN THE COURTS OF THE STATE OF NEW YORK OR THE STATE OF NORTH CAROLINA OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK OR FOR THE MIDDLE DISTRICT OF NORTH CAROLINA, AND, BY EXECUTION AND DELIVERY OF THIS SUBSIDIARY GUARANTY OR ITS RESPECTIVE SUBSIDIARY JOINDER, EACH GUARANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE BASED ON THE GROUNDS OF FORUM NONCONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTION. B-11 IN WITNESS WHEREOF, each Guarantor has caused this Subsidiary Guaranty to be executed as of the day and year first above written. SPORTS IMAGE, INC. By:________________________ Name: Title: MTL ACQUISITION, INC. By:________________________ Name: Title: B-12 ATTACHMENT 1 ------------ SUBSIDIARY JOINDER ------------------ THIS SUBSIDIARY JOINDER (this "Joinder"), dated as of ____________, ____, is executed by [NEW SUBSIDIARY], a _________ [corporation] [partnership] [etc.] (the "New Subsidiary") in favor of each of the holders from time to time of the 8.05% Senior Notes due January 2, 1999 (the "Notes") issued by Action Performance Companies, Inc., an Arizona corporation (the "Company") (collectively, the "Noteholders"). RECITALS -------- A. The Company and the original Noteholders have entered into separate but identical Note Purchase Agreements, each dated as of January 2, 1997 (as each may be amended from time to time, the "Agreements"), pursuant to which $20,000,000 in aggregate principal amount of the Notes were issued. B. The New Subsidiary is a direct or indirect Subsidiary of the Company and acknowledges that the issuance of the Notes by the Company pursuant to the Agreements will benefit the New Subsidiary by making funds available to the New Subsidiary through the Company and by enhancing the financial strength of the consolidated group of which the New Subsidiary and the Company are members. C. The execution and delivery of the Subsidiary Guaranty by the then existing Subsidiaries of the Company was a condition precedent to the execution and delivery by the original Noteholders of the Agreements and the Company has covenanted in the Agreements that Subsidiary Joinders shall be duly executed by each future Subsidiary of the Company. AGREEMENT --------- NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the New Subsidiary hereby agrees with the Noteholders as follows: 1. Definitions and Interpretation. Unless otherwise defined herein, all capitalized terms used herein and defined in the Subsidiary Guaranty shall have the respective meanings given to those terms in the Subsidiary Guaranty. 1-1 2. Agreement to be Bound. The New Subsidiary agrees that, on and as of the Effective Date, it shall become a Guarantor under the Subsidiary Guaranty and shall be bound by all the provisions of the Subsidiary Guaranty to the same extent as if the New Subsidiary had executed the Subsidiary Guaranty on the Closing Date. 3. Waiver. Without limiting the generality of the waivers in the Subsidiary Guaranty, the New Subsidiary specifically agrees to be bound by the Subsidiary Guaranty and waives any right to notice of acceptance of its execution of this Joinder and of its agreement to be bound by the Subsidiary Guaranty. 4. Governing Law. This Joinder shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the New Subsidiary has caused this Joinder to be executed by its duly authorized officer. [NEW SUBSIDIARY] By:________________________ Name: Title: Address: [_________________________] [_________________________] [_________________________] Attn: [___________________] Telephone: [(___) ___-____] Facsimile: [(___) ___-____] 1-2 EX-10.43 6 CREDIT AGREEMENT CREDIT AGREEMENT Dated as of January 2, 1997 among ACTION PERFORMANCE COMPANIES, INC. as Borrower, Certain Subsidiaries and Affiliates, as Guarantors, AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA TABLE OF CONTENTS SECTION 1 DEFINITIONS..........................................................1 1.1 Definitions.......................................................1 1.2 Computation of Time Periods......................................21 1.3 Accounting Terms.................................................21 SECTION 2 CREDIT FACILITIES...................................................21 2.1 Revolving Loans..................................................21 (a) Commitment.......................................................21 (b) Notices..........................................................22 (c) Interest Rate....................................................22 (d) Repayment........................................................22 (e) Revolving Note...................................................22 2.2 Letter of Credit Facility........................................22 2.3 Bankers' Acceptances.............................................25 SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES......................26 3.1 Default Rate.....................................................26 3.2 Extension and Conversion.........................................26 3.3 Prepayments......................................................27 3.4 Termination and Reduction of Commitments.........................27 3.5 Fees.............................................................28 3.6 Capital Adequacy.................................................28 3.7 Inability To Determine Interest Rate.............................29 3.8 Illegality.......................................................29 3.9 Requirements of Law..............................................29 3.10 Taxes...........................................................30 3.11 Indemnity.......................................................31 3.12 Payments, Computations, Etc.....................................32 SECTION 4 GUARANTY............................................................32 4.1 The Guarantee....................................................32 4.2 Obligations Unconditional........................................33 4.3 Reinstatement....................................................34 4.4 Certain Additional Waivers.......................................34 4.5 Remedies.........................................................34 4.6 Rights of Contribution...........................................35 4.7 Continuing Guarantee.............................................35 SECTION 5 CONDITIONS..........................................................35 5.1 Conditions to Closing............................................35 5.2 Conditions to All Extensions of Credit...........................37 SECTION 6 REPRESENTATIONS AND WARRANTIES......................................38 6.1 Financial Condition..............................................38 6.2 No Changes or Restricted Payments................................38 i 6.3 Organization; Existence; Compliance with Law.....................38 6.4 Power; Authorization; Enforceable Obligations....................39 6.5 No Legal Bar.....................................................39 6.6 No Material Litigation...........................................39 6.7 No Default.......................................................40 6.8 Ownership of Property; Liens.....................................40 6.9 Intellectual Property............................................40 6.10 No Burdensome Restrictions......................................40 6.11 Taxes...........................................................40 6.12 ERISA...........................................................40 6.13 Governmental Regulations, Etc...................................42 6.14 Subsidiaries....................................................43 6.15 Purpose of Extensions of Credit.................................43 6.16 Environmental Matters...........................................43 SECTION 7 AFFIRMATIVE COVENANTS...............................................44 7.1 Financial Statements.............................................44 7.2 Certificates; Other Information..................................45 7.3 Notices..........................................................46 7.4 Payment of Obligations...........................................47 7.5 Conduct of Business and Maintenance of Existence.................47 7.6 Maintenance of Property; Insurance...............................47 7.7 Inspection of Property; Books and Records; Discussions...........48 7.8 Environmental Laws...............................................48 7.9 Financial Covenants..............................................49 7.10 Additional Guaranties...........................................49 7.11 Use of Proceeds.................................................49 SECTION 8 NEGATIVE COVENANTS..................................................49 8.1 Indebtedness.....................................................50 8.2 Liens............................................................51 8.3 Nature of Business...............................................51 8.4 Consolidation, Merger, Sale or Purchase of Assets, Capital Expenditures, etc................................................51 8.5 Advances, Investments and Loans..................................52 8.6 Transactions with Affiliates.....................................52 8.7 Ownership of Equity Interests....................................52 8.8 Fiscal Year......................................................53 8.9 Prepayments of Indebtedness, etc.................................53 8.10 Restricted Payments.............................................53 8.11 Sale Leasebacks.................................................53 8.12 No Further Negative Pledges.....................................53 SECTION 9 EVENTS OF DEFAULT...................................................54 9.1 Events of Default................................................54 9.2 Acceleration; Remedies...........................................56 SECTION 10 MISCELLANEOUS......................................................57 10.1 Notices.........................................................57 ii 10.2 Right of Set-Off................................................58 10.3 Benefit of Agreement............................................58 10.4 No Waiver; Remedies Cumulative..................................58 10.5 Payment of Expenses, etc........................................59 10.6 Amendments, Waivers and Consents................................59 10.7 Counterparts....................................................59 10.8 Headings........................................................60 10.9 Survival........................................................60 10.10 Governing Law; Submission to Jurisdiction; Venue...............60 10.11 Severability...................................................60 10.12 Entirety.......................................................61 10.13 Binding Effect; Termination....................................61 10.14 Conflict.......................................................61 iii SCHEDULES Schedule 2.1(b) Form of Notice of Borrowing Schedule 2.1(e) Form of Revolving Note Schedule 2.2(b) Form of Notice of Request for Letter of Credit Schedule 2.3(b) Form of Notice of Request for Banker's Acceptance Schedule 3.2 Form of Notice of Extension/Conversion Schedule 5.1(f) Secretary's Certificate Schedule 6.6 Description of Legal Proceedings Schedule 6.8 Liens Schedule 6.14 Subsidiaries Schedule 7.2(b) Form of Officer's Compliance Certificate Schedule 7.11-1 Form of Joinder Agreement Schedule 8.1 Indebtedness Schedule 8.5 Existing Investments iv CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of January 2, 1997 (the "Credit Agreement"), is by and among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (the "Borrower"), the subsidiaries and affiliates identified on the signature pages hereto and such other subsidiaries and affiliates as may from time to time become Guarantors hereunder in accordance with the provisions hereof (the "Guarantors") and FIRST UNION NATIONAL BANK OF NORTH CAROLINA (the "Bank"). W I T N E S S E T H WHEREAS, the Borrower has requested that the Bank provide a $16 million credit facility for the purposes hereinafter set forth; WHEREAS, the Bank has agreed to make the requested credit facility available to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS ----------- 1.1 Definitions. As used in this Credit Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: "Additional Credit Party" means each Person that becomes a Guarantor after the Closing Date by execution of a Joinder Agreement. "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (ii) directly or indirectly owning or holding ten percent (10%) or more of the equity interest in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Alternate Base Rate" means for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean, at any time, the rate of interest per annum publicly announced from time to time by the Bank at its principal office in Charlotte, North Carolina as its prime rate. Each change in the Prime 1 Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by the Bank as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Bank from three federal funds brokers of recognized standing selected by it. If for any reason the Bank shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Bank to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the opening of business on the date of such change. "Alternate Base Rate Loan" means any Loan bearing interest at a rate determined by reference to the Alternate Base Rate. "Attributed Principal Amount" means, on any day, with respect to any Securitization Transaction entered into by any member of the Consolidated Group, the aggregate amount (with respect to any such transaction, the "Invested Amount") paid to, or borrowed by, such Person as of such date under such Securitization Transaction, minus the aggregate amount received by the applicable Receivables Financier and applied to the reduction of the Invested Amount under such Securitization Transaction. "BA Commitment" means the commitment of the Bank to create and discount Bankers' Acceptances, and to honor payment obligations relating thereto. "BA Discount Reference Rate" shall mean, with respect to any Bankers' Acceptance, the current quoted discount rate for bankers' acceptances of the Bank on the date of creation of such Bankers' Acceptance for bankers' acceptances in an amount substantially equal to the face amount of such Bankers' Acceptance and having the same maturity as such Bankers' Acceptance. "BA Documents" shall mean, with respect to any Bankers Acceptance such documents and agreements as the Bank reasonably may require in connection with the creation of such Bankers' Acceptance. "BA Obligations" means, at any time, without duplication, the sum of (i) the maximum aggregate amount which is, or at any time thereafter may become, payable by the Bank under all Bankers' Acceptances then outstanding, plus (ii) the aggregate BA Reimbursement Obligations at such time. 2 "BA Reimbursement Obligation" means, at any time, with respect to any Bankers' Acceptance, the obligation of the Borrower to reimburse the Bank for the face amount of a matured Bankers' Acceptance. "Bankers' Acceptance" means a draft drawn by the Borrower, on and accepted and discounted by, the Bank in accordance with the provisions of Section 2.3. "Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Bankruptcy Event" means, with respect to any Person, the occurrence of any of the following with respect to such Person: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of sixty (60) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. "Borrower" means the Person identified as such in the heading hereof, together with any permitted successors and assigns. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or Phoenix, Arizona are authorized or required by law to close, except that, when used in connection with a LIBOR Rate Loan, such day shall also be a day on which dealings between banks are carried on in U.S. dollar deposits in London, England, Charlotte, North Carolina and New York, New York. "Capital Lease" means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Capital Lease Obligation" means the capital lease obligations relating to a Capital Lease determined in accordance with GAAP. 3 "Cash Equivalents" means (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) U.S. dollar denominated time deposits and certificates of deposit of (i) the Bank, or (ii) any domestic commercial bank of recognized standing (y) having capital and surplus in excess of $500,000,000 and (z) whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any the Bank being an "Approved Bank"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent corporation thereof) and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by a Person with the Bank or trust company (including any of the Banks) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, (e) obligations of any State of the United States or any political subdivision thereof, the interest with respect to which is exempt from federal income taxation under Section 103 of the Code, having a long term rating of at least AA- or Aa-3 by S&P or Moody's, respectively, and maturing within three years from the date of acquisition thereof, (f) Investments in municipal auction preferred stock (i) rated AAA (or the equivalent thereof) or better by S&P or Aaa (or the equivalent thereof) or better by Moody's and (ii) with dividends that reset at least once every 365 days and (g) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Borrower Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $100,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a), (b), (c), (e) and (f). "Change of Control" shall be deemed to have occurred in the event that: (i) the Principal Shareholder shall cease to own, directly or indirectly, at least 1,700,000 shares of Voting Stock of the Borrower, free and clear of Liens; (ii) the Principal Shareholder shall cease to be entitled, directly or indirectly, through ownership of Voting Stock of the Borrower, by contract or otherwise, to direct or cause the direction of the management and policies of the Borrower (including the power to name a majority of the members of the Board of Directors of the Borrower); (iii) the Principal Shareholder shall cease to be the chief executive officer of the Borrower (a) for any reason other than his death or legal disability, or (b) due to his death or legal disability, and a successor satisfactory to the Bank 4 does not assume his responsibilities and position within thirty (30) days of such cessation. "Closing Date" means the date hereof. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. "Commitment" means the Revolving Commitment, the LOC Commitment and the BA Commitment. "Commitment Fee" shall have the meaning given such term in Section 3.5(a). "Commitment Period" means the period from and including the Closing Date to but not including the earlier of (i) the Termination Date, or (ii) the date on which the Revolving Commitment terminates in accordance with the provisions of this Credit Agreement. "Consolidated" means, when used with reference to Fixed Charges or Funded Debt, the aggregate of Fixed Charges or Funded Debt, as the case may be, of the Borrower and its Subsidiaries, after eliminating all offsetting debts and credits between the Borrower and its Subsidiaries and all other terms required to be eliminated in accordance with GAAP. Calculations of Consolidated EBITDA, Consolidated Revenues, Consolidated Fixed Charges and Consolidated Income Available for Fixed Charges shall be made on a consolidating pro forma basis, as if (i) any consolidation or merger with or into any Person by the Borrower or any Subsidiary, any Transfer of all or substantially all of the assets of the Borrower or any Subsidiary to any Person or any Transfer of all or substantially all of the assets of any Person to the Borrower or any Subsidiary that has occurred during the preceding four Fiscal Quarters had occurred at the commencement of such period and (ii) any Indebtedness incurred or assumed by the Borrower and its Subsidiaries during the preceding four Fiscal Quarters (other than any refinancing of Indebtedness to the extent that the principal amount of such Indebtedness did not increase) had been in effect at the commencement of such period. "Consolidated EBITDA" means, with respect to any date of determination, the sum of (a) Consolidated Net Income for the most recently ended four Fiscal Quarters and (b) the amount of all Interest Charges, depreciation, amortization, income taxes, deferred items and other non-cash expenses of the Borrower and its Subsidiaries, but only to the extent deducted in the determination of Consolidated Net Income for the most recently ended four Fiscal Quarters; "Consolidated Group" means the Borrower and its consolidated subsidiaries, as determined in accordance with GAAP. 5 "Consolidated Income Available for Fixed Charges" means, with respect to any period, Consolidated Net Income for such period plus all amounts deducted in the computation thereof on account of (a) Fixed Charges and (b) taxes imposed on or measured by income or excess profits. "Consolidated Net Income" means, with reference to any period, the net income (or loss) of the Borrower and its Subsidiaries for such period (taken as a cumulative whole), as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Borrower and its Subsidiaries and all other terms required to be eliminated in the course of the preparation of consolidated financial statements of the Borrower and its Subsidiaries in accordance with GAAP; provided that there shall be excluded: (a) subject to clause (i) of the definition of "Consolidated" herein, the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or a Subsidiary, and the income (or loss) of any Person, substantially all of the assets of which have been acquired in any manner, realized by such other Person prior to the date of acquisition; (b) the income (or loss) of any Person (other than a Subsidiary) in which the Borrower or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Borrower or such Subsidiary in the form of cash dividends or similar cash distributions; (c) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary; (d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period; (e) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, conversion, exchange or other disposition of capital assets (such term to include, without limitation, (i) all non-current assets and, without duplication, (ii) the following, whether or not current: all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets, and all Securities); (f) any gains resulting from any write-up of any assets (but not any loss resulting from any writedown of any assets); (g) any net gain from the collection of the proceeds of life insurance policies; 6 (h) any gain arising from the acquisition of any Security, or the extinguishment, under GAAP, of any Indebtedness, of the Borrower or any Subsidiary; (i) any net income or gain (but not any net loss) during such period from (i) any change in accounting principles in accordance with GAAP, (ii) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP, (iii) any extraordinary items, or (iv) any discontinued operations or the disposition thereof; (j) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary; and (k) any portion of such net income that cannot be freely converted into United States Dollars. "Consolidated Net Worth" means, at any time, (a) Consolidated Total Assets minus (b) the total liabilities of the Borrower and its Subsidiaries which would be shown as liabilities on a consolidated balance sheet of the Borrower and its Subsidiaries as of such time prepared in accordance with GAAP. "Consolidated Revenues" means the revenue of the Borrower and its Subsidiaries for the applicable period, as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Borrower and its Subsidiaries and all other terms required to be eliminated in the course of the preparation of consolidated financial statements of the Borrower and its Subsidiaries in accordance with GAAP. "Consolidated Total Assets" means, as of any date of determination, the total assets of the Borrower and its Subsidiaries which would be shown as assets on a consolidated balance sheet of the Borrower and its Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. "Consolidated Total Tangible Assets" means Consolidated Total Assets less and except goodwill and other intangible assets of the Borrower and its Subsidiaries on a consolidated basis determined in accordance with GAAP. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any material agreement, instrument or undertaking to which such Person is a party or by which it or any of its Property is bound. "Credit Documents" means a collective reference to this Credit Agreement, the Revolving Note, the LOC Documents, the BA Documents, each Joinder Agreement and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto. 7 "Credit Party" means any of the Borrower and the Guarantors. "Current Maturities of Funded Debt" means, at any time and with respect to any item of Funded Debt, the portion of such Funded Debt outstanding at such time which by the terms of such Funded Debt or the terms of any instrument or agreement relating thereto is due on demand or within one year from such time (whether by sinking fund, other required prepayment or final payment at maturity) and is not directly or indirectly renewable, extendible or refundable at the option of the obligor under an agreement or firm commitment in effect at such time to a date one year or more from such time. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Dollars" and "$" means dollars in lawful currency of the United States of America. "Domestic Credit Party" means any Credit Party which is incorporated or organized under the laws of any State of the United States or the District of Columbia. "Domestic Subsidiary" means any Subsidiary which is incorporated or organized under the laws of any State of the United States or the District of Columbia. "Eligible Bankers' Acceptance" means a Bankers' Acceptance which meets the requirements of 12 U.S.C. ss.372(a). "Environmental Laws" means any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA Affiliate" means an entity which is under common control with any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes the Borrower and which is treated as a single employer under Sections 414(b) or (c) of the Code. 8 "ERISA Event" means (i) with respect to any Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; (iii) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (vi) the complete or partial withdrawal of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions for imposition of a lien under Section 302(f) of ERISA exist with respect to any Plan; or (vii) the adoption of an amendment to any Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA. "Eurodollar Reserve Percentage" for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%), which is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities, as defined in Regulation D of such Board as in effect from time to time, or any similar category of liabilities for a member bank of the Federal Reserve System in New York City. "Event of Default" means such term as defined in Section 9.1. "Extension of Credit" means, as to the Bank, the making of, or participation in, a Loan by the Bank, the issuance or extension of a Letter of Credit or the creation and discount of a Bankers' Acceptance. "Fees" means all fees payable pursuant to Section 3.5. "First Union" means First Union National Bank of North Carolina and its successors. "Fiscal Quarter" means a fiscal quarter of the Borrower or any of its Subsidiaries which shall be any quarterly period ending on March 31, June 30, September 30 or December 31 of any year. "Fiscal Year" means, with respect to any Person, a fiscal year of such Person.. The term "Fiscal Year, " when used without reference to any Person, shall mean a Fiscal Year of the Borrower ending on September 30, of any year. "Fixed Charges" means, with respect to any date of determination, the sum of (a) Interest Charges for the most recently ended four Fiscal Quarters and (b) Lease Rentals for the most recently ended four Fiscal Quarters. 9 "Fixed Charges Coverage Ratio" means, as of any date of determination thereof, the ratio of (a) Consolidated Income Available for Fixed Charges for the most recently ended four Fiscal Quarters to (b) Consolidated Fixed Charges for such period. "Foreign Credit Party" means a Credit Party which is not a Domestic Credit Party. "Foreign Subsidiary" means a Subsidiary which is not a Domestic Subsidiary. "Funded Debt" means, with respect to any Person, all Indebtedness of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, one year or more from, or is directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more (including, without limitation, an option of such obligor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more) from, the date of the creation thereof; provided that Funded Debt shall include, as at any date of determination, Current Maturities of Funded Debt. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3 hereof. "Gordon Transactions" means (i) the acquisition by the Borrower of all of the outstanding stock of Creative Marketing and Promotions, Inc., a North Carolina corporation ("CMP"), and (ii) the acquisition by MTL Acquisition, Inc., an Arizona corporation ("MTL") of the assets and assumption of certain liabilities of Motorsports Traditions Limited Partnership, a North Carolina limited partnership. "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantor" means each of those other Persons identified as a "Guarantor" on the signature pages hereto, and each Additional Credit Party which may hereafter execute a Joinder Agreement, together with their successors and permitted assigns. "Guaranteed Obligations" means, as to each Guarantor, without duplication, (i) all obligations of the Borrower to the Bank, whenever arising, under this Credit Agreement , the Revolving Note or the other Credit Documents relating to the Obligations hereunder, and (ii) all liabilities and obligations, whenever arising, owing from the Borrower to the Bank, or any Affiliate of the Bank, arising under any Hedging Agreement relating to Obligations hereunder. "Guaranty Obligations" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and 10 including without limitation any obligation, whether or not contingent, (i) to purchase any such Indebtedness or any Property constituting security therefor, (ii) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (iii) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made. "Hedging Agreements" means any interest rate protection agreement or foreign currency exchange agreement between the Borrower and the Bank, or any Affiliate of the Bank. "Indebtedness" of any Person means (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (iii) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (iv) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (v) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (vi) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, provided that for purposes hereof the amount of such Indebtedness shall be limited to the greater of (A) the amount of such Indebtedness as to which there is recourse to such Person and (B) the fair market value of the property which is subject to the Lien, (vii) all Guaranty Obligations of such Person, (viii) the principal portion of all obligations of such Person under Capital Leases, (ix) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging agreements (including, but not limited to, the Hedging Agreements), (x) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (xi) all preferred stock issued by such Person and required by the terms thereof to be redeemed, or for which mandatory sinking fund payments are due, by a fixed date, (xii) the outstanding Attributed Principal Amount under any Securitization Financing and (xiii) the principal balance outstanding under any synthetic lease, tax retention operating lease, off- balance sheet loan 11 or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, but only to the extent to which there is recourse to such Person for payment of such Indebtedness. "Interest Charges" means, with reference to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Borrower and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Borrower and its Subsidiaries in accordance with GAAP): (a) all interest in respect of Indebtedness of the Borrower and its Subsidiaries (including imputed interest on Capital Lease Obligations) deducted in determining Consolidated Net Income for such period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, and (b) all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period. "Interest Payment Date" (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding, (b) as to any LIBOR Rate Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any LIBOR Rate Loan having an Interest Period longer than three months, each day which is three months after the first day of such Interest Period and the last day of such Interest Period. "Interest Period" with respect to any LIBOR Rate Loan, (i) initially, the period commencing on the borrowing date or conversion date, as the case may be, with respect to such LIBOR Rate Loan and ending one, two, three or six months thereafter, as selected by the Borrower in the notice of borrowing or notice of conversion given with respect thereto; and (ii) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR Rate Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Bank not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that the foregoing provisions are subject to the following: (A) if any Interest Period pertaining to a LIBOR Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; 12 (B) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month; (C) if the Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected an Alternate Base Rate Loan to replace the affected LIBOR Rate Loan; (D) any Interest Period in respect of any Loan that would otherwise extend beyond the Termination Date shall end on the Termination Date; and (E) no more than 4 LIBOR Rate Loans may be in effect at any time. For purposes hereof, LIBOR Rate Loans with different Interest Periods shall be considered as separate LIBOR Rate Loans, even if they shall begin on the same date and have the same duration, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Rate Loan with a single Interest Period. "Invested Amount" shall have the meaning given such term in the definition of Attributed Principal Amount. "Investment", in any Person, means any loan or advance to such Person, any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of, or equity interest in, such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any Guaranty Obligation incurred for the benefit of such Person. "Joinder Agreement" means a Joinder Agreement substantially in the form of Schedule 7.10 hereto, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 7.10. "Lease Rentals" means, with reference to any period, the sum of rental and other obligations required to be paid during such period by the Borrower or any Subsidiary as lessee under all leases of real or personal property (other than Capital Leases), excluding any amount required to be paid by the lessee (whether or not therein designated as rental or additional rental) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges; provided that, if at the date of determination, any such rental or other obligations (or portion thereof) are contingent or not otherwise definitely determinable by the terms of the related lease, the amount of such obligations (or such portion thereof) (i) shall be assumed to be equal to the amount of such obligations for the period of 12 consecutive calendar months immediately preceding the date of determination or (ii) if the related lease was not in effect during such preceding 12-month period, shall be the amount estimated by the chief financial officer or controller of the Borrower on a reasonable basis and in good faith. 13 "Letter of Credit" means any letter of credit issued by the Bank for the account of the Borrower in accordance with the terms of Section 2.2. "Letter of Credit Fee" shall have the meaning given such term in Section 3.5(b). "LIBOR" means the arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered rates for deposits in U.S. Dollars for a period equal to the Interest Period selected which appears on the Telerate Page 3750 at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period. If, for any reason, such rate is not available, then "LIBOR" shall mean the rate per annum at which, as determined by the Bank, U.S. Dollars in the amount of $5,000,000 are being offered to leading banks at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected. "LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Bank pursuant to the following formula: LIBOR Rate = LIBOR ------------------------------------------- 1.00 minus Eurodollar Reserve Percentage "LIBOR Rate Loan" means Loans the rate of interest applicable to which is based on the LIBOR Rate. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "Loan" or "Loans" means the Revolving Loans. "LOC/BA Committed Amount" means such term as defined in Section 2.2. "LOC Commitment" means the commitment of the Bank to issue, and to honor payment obligations under, Letters of Credit hereunder. "LOC Documents" means, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (i) the rights and obligations of the parties concerned or at risk or (ii) any collateral security for such obligations. 14 "LOC Obligations" means, at any time, the sum of (i) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit plus (ii) the aggregate amount of all drawings under Letters of Credit honored by the Bank but not theretofore reimbursed. "Material Adverse Effect" means a material adverse effect on (i) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of the Consolidated Group taken as a whole, (ii) the ability of the Credit Parties taken as a whole to perform any material obligation under the Credit Documents to which it is a party or (iii) the rights and remedies of the Bank under the Credit Documents. "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Moody's" means Moody's Investors Service, Inc., or any successor or assignee of the business of such Borrower in the business of rating securities. "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA. "Multiple Employer Plan" means a Plan which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate and at least one employer other than the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate are contributing sponsors. "Non-Excluded Taxes" means such term as is defined in Section 3.10. "Notice of Borrowing" means a written notice of borrowing in substantially the form of Schedule 2.1(b), as required by Section 2.1(b). "Notice of Extension/Conversion" means the written notice of extension or conversion in substantially the form of Schedule 3.2, as required by Section 3.2. "Obligations" means, collectively, the Revolving Loans, the LOC Obligations and the BA Obligations. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any Property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor. "Organizational Documents" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person. 15 "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereof. "Permitted Investments" means Investments which are either (i) cash and Cash Equivalents; (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments consisting of stock, obligations, securities or other property received in settlement of accounts receivable (created in the ordinary course of business) from bankrupt obligors; (iv) Investments existing as of the Closing Date and set forth in Schedule 8.5, (v) Guaranty Obligations permitted by Section 8.1; (vi) acquisitions permitted by Section 8.4(d); (vii) transactions permitted by Section 8.6, (viii) loans to employees, directors or officers in connection with the award of convertible bonds or stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement in the aggregate not to exceed $500,000 (calculated on the exercise price for any such shares) in the aggregate at any time outstanding; (ix) other advances or loans to employees, directors, officers or agents not to exceed $250,000 in the aggregate at any time outstanding; (x) advances or loans to customers or suppliers that do not exceed $250,000 in the aggregate at any one time outstanding, (xi) Investments by members of the Consolidated Group and their Subsidiaries and Affiliates existing on the Closing Date, (xii) Investments by a Credit Party in and to a Domestic Credit Party and (xiii) other loans, advances and investments of a nature not contemplated in the foregoing subsections in an amount not to exceed in the aggregate at any time outstanding an amount equal to the sum of $250,000 plus an amount equal to the "unused" portion of Restricted Payments which are permitted, but not made, in any fiscal year. "Permitted Liens" means: (i) Liens in favor of the Bank; (ii) Liens (other than Liens created or imposed under ERISA) for taxes, assessments or governmental charges or levies not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business, provided that such Liens secure only amounts not yet due and payable or, if due and payable, are unfiled and no other action has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); 16 (iv) Liens (other than Liens created or imposed under ERISA) incurred or deposits made by the Borrower and its Subsidiaries in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (v) Liens in connection with attachments or judgments (including judgment or appeal bonds) provided that the judgments secured shall, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall have been discharged within 30 days after the expiration of any such stay; (vi) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered Property for its intended purposes; (vii) Liens securing purchase money and sale/leaseback Indebtedness (including Capital Leases) to the extent permitted under Section 8.1(d), provided that any such Lien attaches only to the Property financed or leased and such Lien attaches thereto concurrently with or within 90 days after the acquisition thereof in connection with the purchase money transactions and within 30 days after the closing of any sale/leaseback transaction; (viii) leases or subleases granted to others not interfering in any material respect with the business of any member of the Consolidated Group; (ix) any interest of title of a lessor under, and Liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Credit Agreement; (x) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xi) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 8.5; (xii) normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions; and (xiii) Liens existing as of the Closing Date and set forth on Schedule 6.8; provided that no such Lien shall at any time be extended to or cover any Property other than the Property subject thereto on the Closing Date. 17 "Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA. "Principal Shareholder" means Fred W. Wagenhals, the president and chief executive officer of the Borrower. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Receivables Financier" means, in connection with a Securitization Transaction, the Person which provides financing for such transaction whether by purchase, loan or otherwise in respect of Receivables. "Regulation G, T, U, or X" means Regulation G, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Materials of Environmental Concern). "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation. "Requirement of Law" means, as to any Person, any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property is subject. "Responsible Officer" means the Chief Financial Officer and the Controller. "Restricted Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock now or hereafter outstanding, except (A) a dividend payable solely in shares of that class to the holders of that class and (B) dividends and other distributions payable to a Credit Party, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock now or hereafter outstanding, and (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock now or hereafter outstanding. 18 "Revolving Commitment" means the commitment of the Bank to make Revolving Loans hereunder. "Revolving Commitment Increase Date" means the date upon which all of the following shall have occurred: (a) the definitive acquisition agreements relating to the Gordon Transactions shall have been delivered to, and reviewed and approved by, the Bank; (b) the Bank shall have completed such due diligence relating to the Gordon Transactions as it may deem appropriate; (c) the Gordon Transactions shall have been consummated prior to or contemporaneously with the increase in the Revolving Commitment on the Revolving Commitment Increase Date; (d) CMP shall be joined as a Guarantor hereunder in accordance with the provisions of Section 7.10 (accompanied by supporting resolutions, incumbency certificates, corporate formation and organizational documentation and opinions of counsel as the Bank may reasonably request); (e) the conditions of Section 5.2 shall be met as if an Extension of Credit were made on such date. "Revolving Committed Amount" means such term as defined in Section 2.1(a). "Revolving Loans" shall have the meaning assigned to such term in Section 2.1(a). "Revolving Note" means the promissory note of the Borrower in favor of the Bank evidencing the Revolving Loans in substantially the form attached as Schedule 2.1(e), as such promissory note may be amended, modified, supplemented, extended, renewed or replaced from time to time. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities. "Securitization Transaction" means any financing transaction or series of financing transactions that have been or may be entered into by a member of the Consolidated Group pursuant to which such member of the Consolidated Group may sell, convey or otherwise transfer to (i) a Subsidiary or affiliate, or (ii) any other Person, or may grant a security interest in, any Receivables or interests therein secured by merchandise or services financed thereby (whether such Receivables are then existing or arising in the future) of such member of the Consolidated Group, and any assets related thereto, including without limitation, all security interests in merchandise or services financed thereby, the proceeds of such Receivables, and other assets which are 19 customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. "Security" shall have the meaning set forth in Section 2(1) of the Securities Act of 1933, as amended from time to time. "Senior Note Agreement" means the Note Purchase Agreement dated as of January 2, 1997 issued by the Borrower in connection with the Senior Notes, as modified, supplemented, renewed and replaced from time to time. "Senior Notes" means those $20,000,000, 8.05% Senior Notes of the Borrower due January 2, 1999, as amended, modified, supplemented, renewed and replaced from time to time. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan. "Subsidiary" means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries has more than 50% of the voting interests at any time. Unless otherwise identified, "Subsidiary" or "Subsidiaries" shall mean Subsidiaries of the Borrower. "Termination Date" means March 31, 1998, or if extended with the written consent of the Bank, such later date as to which the Termination Date may be extended. "Transfer" means the sale, lease, transfer, conveyance, abandonment or other disposition, directly or indirectly, in a single transaction or a series of transactions of all or any part of a Person's assets. "Voting Stock" means, with respect to any Person, capital stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "Wells Fargo Letter of Credit" means that standby Letter of Credit issued hereunder on the Closing Date in favor of Wells Fargo HSBC Trade Bank, N.A. in support of certain existing commercial letters of credit issued for the account of the Borrower and its Subsidiaries. "Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of whose Voting Stock or other equity interests is at the time owned by such Person directly or indirectly through other Wholly Owned Subsidiaries. 20 1.2 Computation of Time Periods. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.3 Accounting Terms. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Bank hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 hereof (or, prior to the delivery of the first financial statements pursuant to Section 7.1 hereof, consistent with the annual audited financial statements referenced in Section 6.1(i)); provided, however, if (a) the Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Bank shall so object in writing within 30 days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Borrower to the Bank as to which no such objection shall have been made. SECTION 2 CREDIT FACILITIES ----------------- 2.1 Revolving Loans. (a) Commitment. During the Commitment Period, subject to the terms and conditions hereof, the Bank agrees to make revolving loans to the Borrower upon request up to an aggregate principal amount at any time outstanding (the "Revolving Committed Amount") of: (i) from the Closing Date until the sooner of the Revolving Commitment Increase Date or September 30, 1997, SIX MILLION DOLLARS ($6,000,000); (ii) from the Revolving Commitment Increase Date until September 30, 1997, TEN MILLION DOLLARS ($10,000,000); and (iii) from September 30, 1997 until the Termination Date, SIX MILLION DOLLARS ($6,000,000). The Loans hereunder may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof; provided that no more than 4 LIBOR Rate Loans may be outstanding at any time. The obligation of the Bank to make Loans hereunder and to extend, or convert Loans 21 into, LIBOR Rate Loans is subject to the condition that the Representations and Warranties set forth herein are true and correct in all material respects (except as to items stated as of a particular time). (b) Notices. Requests by the Borrower for Loans hereunder, and for extensions or conversions of Loans hereunder, shall be made by written notice (or telephone notice promptly confirmed in writing) by 12:00 Noon Charlotte, North Carolina time on (i) the Business Day prior to the requested borrowing, extension or conversion in the case of Alternate Base Rate Loans and (ii) the third Business Day prior to the requested borrowing, extension or conversion in the case of LIBOR Rate Loans. Each request shall be in a minimum principal amount of $1,000,000 in the case of LIBOR Rate Loans and $100,000 in the case of Alternate Base Rate Loans and, in each case, integral multiples of $100,000 in excess thereof, and shall specify the date of the requested borrowing, extension or conversion, the aggregate amount to be borrowed, extended or converted and if an extension of conversion, the Loan which is being extended or converted, and whether the borrowing, extension or conversion shall consist of LIBOR Rate Loans, Alternate Base Rate Loans or combination thereof. If the Borrower shall fail to specify (A) the type of Loan requested for a borrowing, the request shall be deemed a request for a Alternate Base Rate Loan, (B) the duration of the applicable Interest Period in the case of LIBOR Rate Loans, the request shall be deemed to be a request for an Interest Period of one month. Unless extended in accordance with the provisions hereof, LIBOR Rate Loans shall be converted to Alternate Base Rate Loans at the end of the applicable Interest Period. A form of Notice of Borrowing is attached as Schedule 2.1(b). (c) Interest Rate. Subject to the provisions of Section 3.1, the Revolving Loans hereunder shall bear interest at a per annum rate equal to (i) in the case of LIBOR Rate Loans, the LIBOR Rate plus 1.90%, and (ii) in the case of Alternate Base Rate Loans, the Alternate Base Rate. Interest will be payable in arrears on each Interest Payment Date. (d) Repayment. The Revolving Loans shall be due and payable on the Termination Date, together with accrued interest and fees. (e) Revolving Note. The Revolving Loans shall be evidenced by the Revolving Note. 2.2 Letter of Credit Facility. (a) Issuance. During the Commitment Period, subject to the terms and conditions hereof and of the LOC Documents, if any, and such other terms and conditions which the Bank may reasonably require, the Bank shall issue such Letters of Credit as the Borrower may request for its own account or for the account of another Credit Party as provided herein, in a form 22 acceptable to the Bank, for the purposes hereinafter set forth; provided that the sum of LOC Obligations plus BA Obligations shall not exceed SIX MILLION DOLLARS ($6,000,000) at any time (the "LOC/BA Committed Amount). Other than the Wells Fargo Letter of Credit, Letters of Credit issued hereunder shall be trade or commercial letters of credit (as opposed to standby letters of credit) and shall not have an original expiry date more than six months from the date of issuance or extension, nor an expiry date, whether as originally issued or by extension, extending beyond the Termination Date. Each Letter of Credit shall comply with the related LOC Documents The issuance date of each Letter of Credit shall be a Business Day. (b) Notice and Reports. The request for the issuance of a Letter of Credit shall be submitted by the Borrower to the Bank at least three (3) Business Days prior to the requested date of issuance (or such shorter period as may be agreed by the Bank). A form of Notice of Request for Letter of Credit is attached as Schedule 2.2(b). (c) Reimbursement. In the event of any drawing under any Letter of Credit, the Bank will promptly notify the Borrower. The Borrower promises to reimburse the Bank on the day of drawing under any Letter of Credit (either with the proceeds of a Revolving Loan obtained hereunder or otherwise) in same day funds. If the Borrower shall fail to reimburse the Bank as provided hereinabove, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Alternate Base Rate plus two percent (2%). The Borrower's reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of setoff, counterclaim or defense to payment the Borrower may claim or have against the Bank, the beneficiary of the Letter of Credit drawn upon or any other Person, including without limitation any defense based on any failure of the Borrower or any other Credit Party to receive consideration or the legality, validity, regularity or unenforceability of the Letter of Credit. (d) Designation of other Credit Parties as Account Parties. Notwithstanding anything to the contrary set forth in this Credit Agreement, including without limitation Section 2.2(a) hereof, a Letter of Credit issued hereunder may contain a statement to the effect that such Letter of Credit is issued for the account of a Credit Party, provided that notwithstanding such statement, the Borrower shall be the actual account party for all purposes of this Credit Agreement for such Letter of Credit and such statement shall not affect the Borrower's reimbursement obligations hereunder with respect to such Letter of Credit. (e) Renewal, Extension. The renewal or extension of any Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder. (f) Uniform Customs and Practices. The Bank may have the Letters of Credit be subject to The Uniform Customs and Practice for Documentary Credits, as published as of the date of issue by the International Chamber of Commerce (the "UCP"), in which case the UCP may be incorporated therein and deemed in all respects to be a part thereof. (g) Indemnification; Nature of Bank's Duties. (i) In addition to its other obligations under this Section 2.2, the Borrower hereby agrees to protect, indemnify, pay and save the Bank harmless from and against any and all 23 claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) that the Bank may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or (B) the failure of the Bank to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions, herein called "Government Acts"). (ii) As between the Borrower and the Bank, the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Bank shall not be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (D) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (E) for any consequences arising from causes beyond the control of the Bank, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of the Bank's rights or powers hereunder. (iii) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Bank, under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put the Bank under any resulting liability to the Borrower or any other Credit Party. It is the intention of the parties that this Credit Agreement shall be construed and applied to protect and indemnify the Bank against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower (on behalf of itself and each of the other Credit Parties), including, without limitation, any and all Government Acts. The Bank shall not, in any way, be liable for any failure by the Bank or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of the Bank. (iv) Nothing in this subsection (g) is intended to limit the reimbursement obligations of the Borrower contained in subsection (c) above. The obligations of the Borrower under this subsection (g) shall survive the termination of this Credit Agreement. No act or omissions of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the Bank to enforce any right, power or benefit under this Credit Agreement. (v) Notwithstanding anything to the contrary contained in this subsection (i), the Borrower shall have no obligation to indemnify the Bank in 24 respect of any liability incurred by the Bank (A) arising out of the gross negligence or willful misconduct of the Bank, as determined by a court of competent jurisdiction, or (B) caused by the Bank's failure to pay under any Letter of Credit after presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit, as determined by a court of competent jurisdiction, unless such payment is prohibited by any law, regulation, court order or decree. (h) Conflict with LOC Documents. In the event of any conflict between this Credit Agreement and any LOC Document (including any letter of credit application), this Credit Agreement shall control. 2.3 Bankers' Acceptances. --------------------- (a) Bankers' Acceptance Commitment. During the Commitment Period, subject to the terms and conditions hereof and of the BA Documents, if any, executed in connection with the creation of each Bankers' Acceptance and such other terms and conditions which the Bank may reasonably require, the Bank shall create and discount such Bankers' Acceptances as the Borrower may request from time to time as provided herein, in a form acceptable to the Bank; provided that the sum of LOC Obligations plus the BA Obligations shall not at any time exceed the LOC/BA Committed Amount, and provided further that the Borrower shall not be entitled to request any Bankers' Acceptance which, if created, would result in more than ten (10) separate Bankers' Acceptances being outstanding hereunder at any time. The maturity of any Bankers' Acceptances shall be the date 30, 60 or 90 days after the creation thereof, as the Borrower may elect; provided that, no such maturity shall extend beyond the date falling five (5) days before the Termination Date. Each Bankers' Acceptance shall comply with the related BA Documents and shall be executed on behalf of the Borrower and presented to the Bank pursuant to such procedures as are provided for in such BA Documents or otherwise provided or required by the Bank. The face amount of any Bankers' Acceptance shall be in a minimum amount of $500,000 and integral multiples of $500,000 in excess thereof. The creation and maturity date of each Bankers' Acceptance shall be a Business Day. Notwithstanding the foregoing, the Bank shall not be obligated to create or discount any Bankers' Acceptance (i) that is not an Eligible Bankers' Acceptance, or (ii) if creation thereof would cause the BA Agent to exceed the maximum amount of outstanding bankers' acceptances permitted by applicable law. (b) Notice and Requests. Any request for the creation and discount of a Bankers' Acceptance shall be submitted to the Bank by 9:30 A.M. (Charlotte, North Carolina time) on the requested date of creation and discount by completion of a Bankers' Acceptance Request substantially in the form of Schedule 2.3(b) (a "BA Request") and shall be accompanied by such documents as are specified therein and in the related BA Documents. (c) Discount of Bankers' Acceptances. Upon the creation by the Bank of a Bankers' Acceptance, the Bank shall discount such Committed Bankers' Acceptance by deducting from the face amount thereof a discount equal to the sum of BA Discount Reference Rate plus 1.90% (the "Applicable BA Discount Rate") applied against the face amount of the Bankers' Acceptance for the term thereof, and the Bank shall make the net amount available in immediately available funds to the Borrower. The Bank may retain or rediscount, at its election, any Bankers' Acceptance and 25 the amount received by the Bank upon payment thereof at maturity or upon rediscounting shall be solely for the account of the Bank. (d) Reimbursement. The Bank shall give prompt notice to the Borrower in each case of its honor of a mature Bankers' Acceptance. The Borrower shall thereupon reimburse the Bank on the same day on which the Bank honors a matured Bankers' Acceptance for the full amount of the related BA Reimbursement Obligation in Dollars and in immediately available funds. If the Borrower shall fail to reimburse the Bank as provided hereinabove, the related BA Reimbursement Obligation shall bear interest at a per annum rate equal to the Alternate Base Rate plus two percent (2%). The Borrower's reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of set-off, counterclaim or defense to payment the Borrower may claim or have against the Bank or any other Person. (e) Eligibility Requirement. The Borrower agrees that, in the event that any Bankers' Acceptance created (or to be created) shall not be an Eligible Bankers' Acceptance, the Borrower shall, upon demand by the Bank, pay to the Bank additional amounts sufficient to compensate the Bank for any increased costs resulting therefrom (including without limitation costs resulting from any reserve requirement, premium liability to the Federal Deposit Insurance Corporation, or a higher discount rate). A detailed statement as to the amount of such increased costs, prepared in good faith and submitted by the Bank to the Borrower, shall be conclusive and binding for all purposes, absent manifest error in computation. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES ---------------------------------------------- 3.1 Default Rate. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then 2% greater than the Alternate Base Rate). 3.2 Extension and Conversion. Subject to the terms of Section 5.2, the Borrower shall have the option, on any Business Day, to extend existing Loans into a subsequent permissible Interest Period or to convert Loans into Loans of another interest rate type; provided, however, that (i) except as provided in Section 3.8, LIBOR Rate Loans may be converted into Alternate Base Rate Loans only on the last day of the Interest Period applicable thereto, (ii) LIBOR Rate Loans may be extended, and Alternate Base Rate Loans may be converted into LIBOR Rate Loans, only if no Default or Event of Default is in existence on the date of extension or conversion, (iii) Loans extended as, or converted into, LIBOR Rate Loans shall be subject to the terms of the definition of "Interest Period" set forth in Section 1.1 and shall be in such minimum amounts as provided in Section 2.1(b), and (iv) any request for extension or conversion of a LIBOR Rate Loan which shall fail to 26 specify an Interest Period shall be deemed to be a request for an Interest Period of one month. Each such extension or conversion shall be effected by the Borrower by giving a Notice of Extension/Conversion (or telephone notice promptly confirmed in writing) to the Bank prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case of the conversion of a LIBOR Rate Loan into a Alternate Base Rate Loan, and on the third Business Day prior to, in the case of the extension of a LIBOR Rate Loan as, or conversion of a Alternate Base Rate Loan into, a LIBOR Rate Loan, the date of the proposed extension or conversion, specifying the date of the proposed extension or conversion, the Loans to be so extended or converted, the types of Loans into which such Loans are to be converted and, if appropriate, the applicable Interest Periods with respect thereto. Each request for extension or conversion shall be irrevocable and shall constitute a representation and warranty by the Borrower of the matters specified in subsections (a) through (d) of Section 5.2. In the event the Borrower fails to request extension or conversion of any LIBOR Rate Loan in accordance with this Section, or any such conversion or extension is not permitted or required by this Section, then such LIBOR Rate Loan shall be automatically converted into a Alternate Base Rate Loan at the end of the Interest Period applicable thereto. The Bank shall give the Bank notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. 3.3 Prepayments. (a) Voluntary Prepayments. Revolving Loans may be repaid in whole or in part without premium or penalty; provided that (i) LIBOR Rate Loans may be prepaid only upon three (3) Business Days' prior written notice to the Bank and must be accompanied by payment of any amounts owing under Section 3.11, and (ii) partial prepayments shall be minimum principal amounts of $1,000,000, in the case of LIBOR Rate Loans, and $100,000, in the case of Alternate Base Rate Loans, and in integral multiples of $100,000 in excess thereof. (b) Mandatory Prepayments. If at any time, (A) the aggregate principal amount of Revolving Loans shall exceed the Revolving Committed Amount, or (B) the sum of LOC Obligations plus BA Obligations shall exceed the LOC/BA Committed Amount, the Borrower shall immediately make payment on the Revolving Loans and/or to a cash collateral account in respect of the LOC Obligations and/or BA Obligations, in an amount sufficient to eliminate the deficiency. (c) Application. Unless otherwise specified by the Borrower, prepayments made hereunder shall be applied first to Alternate Base Rate Loans, then to LIBOR Rate Loans in direct order of Interest Period maturities and then to a cash collateral account to secure LOC Obligations and BA Obligations. Amounts prepaid hereunder may be reborrowed in accordance with the provisions hereof. 3.4 Termination and Reduction of Commitments (a) Voluntary Reductions. The Commitments hereunder may be terminated or permanently reduced in whole or in part upon three (3) Business Days' prior written notice to the Bank, provided that (i) after giving effect to any such voluntary reduction the aggregate amount of Revolving Loans shall not exceed the Revolving Committed Amount and the sum of LOC Obligations plus BA Obligations shall not exceed the LOC Committed Amount, and (ii) 27 partial reductions shall be minimum principal amount of $1,000,000, and in integral multiples of $100,000 in excess thereof. (b) Mandatory Reduction. The Commitments hereunder shall terminate on the Termination Date. 3.5 Fees. (a) Commitment Fee. In consideration of the Revolving Commitments hereunder, the Borrower agrees to pay to the Bank a commitment fee (the "Commitment Fee") equal to three-eighths of one percent (.375%) per annum on the average daily unused amount of the Revolving Committed Amount for the applicable period. The Commitment Fee shall be payable quarterly in arrears on the 5th day following the last day of each calendar quarter for the immediately preceding quarter (or portion thereof) beginning with the first such date to occur after the Closing Date. (b) Letter of Credit Fees. The Borrower agrees to pay to the Bank (collectively, the "Letter of Credit Fees"): (A) with regard to standby Letters of Credit (including the Wells Fargo Letter of Credit), a fee equal to 1.90% per annum on the average daily maximum amount available to be drawn under standby Letters of Credit from the date of issuance to the date of expiration, payable quarterly in arrears at the end of each calendar quarter thereafter; (B) with regard to trade or commercial Letters of Credit, such fronting and negotiation fees as may be mutually agreed upon by the Bank and the Borrower from time to time; and (C) customary charges of the Bank with respect to the issuance, amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit as may be mutually agreed upon by the Bank and the Borrowers from time to time. (c) Upfront Fee. The Borrower agrees to pay to the Bank on or before the Closing Date an upfront fee of $25,000 (against which the $2,500 Due Diligence deposit shall be credited). 3.6 Capital Adequacy. If the Bank has determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital or assets as a consequence of its 28 commitments or obligations hereunder to a level below that which the Bank could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy), then, upon notice from the Bank to the Borrower, the Borrower shall be obligated to pay to the Bank such additional amount or amounts as the Bank determines in good faith will compensate the Bank for such reduction. Each determination by the Bank of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. 3.7 Inability To Determine Interest Rate. If prior to the first day of any Interest Period, the Bank shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, the Bank shall give telecopy or telephonic notice thereof to the Borrower as soon as practicable thereafter. If such notice is given (a) any LIBOR Rate Loans requested to be made on the first day of such Interest Period shall be made as Alternate Base Rate Loans and (b) any Loans that were to have been converted on the first day of such Interest Period to or continued as LIBOR Rate Loans shall be converted to or continued as Alternate Base Rate Loans. Until such notice has been withdrawn by the Bank, no further LIBOR Rate Loans shall be made or continued as such, nor shall the Borrower have the right to convert Alternate Base Rate Loans to LIBOR Rate Loans. 3.8 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof occurring after the Closing Date shall make it unlawful for the Bank to make or maintain LIBOR Rate Loans as contemplated by this Credit Agreement, (a) the Bank shall promptly give written notice of such circumstances to the Borrower (which notice shall be withdrawn whenever such circumstances no longer exist), (b) the commitment of the Bank hereunder to make LIBOR Rate Loans, continue LIBOR Rate Loans as such and convert a Alternate Base Rate Loan to LIBOR Rate Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for the Bank to make or maintain LIBOR Rate Loans, the Bank shall then have a commitment only to make a Alternate Base Rate Loan when a LIBOR Rate Loan is requested and (c) the Loans then outstanding as LIBOR Rate Loans, if any, shall be converted automatically to Alternate Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a LIBOR Rate Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to the Bank such amounts, if any, as may be required pursuant to Section 3.11. 3.9 Requirements of Law. If, after the date hereof, the adoption of or any change in any Requirement of Law or in the interpretation or application thereof applicable to the Bank, or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made subsequent to the Closing Date: 29 (a) shall subject the Bank to any tax of any kind whatsoever with respect to any Letter of Credit, any LIBOR Rate Loans made by it or its obligation to make LIBOR Rate Loans, or change the basis of taxation of payments to the Bank in respect thereof (except for (i) Non-Excluded Taxes covered by Section 3.10 (including Non-Excluded Taxes imposed solely by reason of any failure of the Bank to comply with its obligations under Section 3.10) and (ii) changes in taxes measured by or imposed upon the overall net income of the Bank or its applicable lending office, or any branch or affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of the Bank or its applicable lending office, or any branch or affiliate thereof, in each case imposed in lieu of net income taxes); (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of the Bank which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (c) shall impose on the Bank any other condition (excluding any tax of any kind whatsoever); and the result of any of the foregoing is to increase the cost to the Bank, by an amount which the Bank deems to be material, of making, converting into, continuing or maintaining LIBOR Rate Loans or issuing or participating in Letters of Credit or creating and discounting Bankers' Acceptances or to reduce any amount receivable hereunder in respect thereof, then, in any such case, upon notice to the Borrower from the Bank in accordance herewith, the Borrower shall be obligated to promptly pay the Bank, upon its demand, any additional amounts necessary to compensate the Bank for such increased cost or reduced amount receivable, provided that, in any such case, the Borrower may elect to convert the LIBOR Rate Loans made by the Bank hereunder to Alternate Base Rate Loans by giving the Bank at least one Business Day's notice of such election, in which case the Borrower shall promptly pay to the Bank, upon demand, without duplication, such amounts, if any, as may be required pursuant to Section 3.11. If the Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall provide prompt notice thereof to the Borrower certifying (x) that one of the events described in this Section has occurred and describing in reasonable detail the nature of such event, (y) as to the increased cost or reduced amount resulting from such event and (z) as to the additional amount demanded by the Bank and a reasonably detailed explanation of the calculation thereof. Such a certificate as to any additional amounts payable pursuant to this Section submitted by the Bank to the Borrower shall be conclusive and binding on the parties hereto in the absence of manifest error. This covenant shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.10 Taxes. Except as provided below in this Section, all payments made by the Borrower under this Credit Agreement and the Revolving Note shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, 30 collected, withheld or assessed by any court, or governmental body, agency or other official, excluding taxes measured by or imposed upon the overall net income of the Bank or its applicable lending office, or any branch or Affiliate thereof, and all franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of the Bank or its applicable lending office, or any branch or Affiliate thereof, in each case imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the laws of which the Bank, applicable lending office, branch or Affiliate is organized or is located, or in which its principal executive office is located, or any nation within which such jurisdiction is located or any political subdivision thereof; or (ii) by reason of any connection between the jurisdiction imposing such tax and the Bank, applicable lending office, branch or Affiliate other than a connection arising solely from the Bank having executed, delivered or performed its obligations, or received payment under or enforced, this Credit Agreement or the Revolving Note. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non- Excluded Taxes") are required to be withheld from any amounts payable to the Bank hereunder or under the Revolving Note, (A) the amounts so payable to the Bank shall be increased to the extent necessary to yield to the Bank (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Credit Agreement and the Revolving Note, and (B) as promptly as possible thereafter the Borrower shall send to the Bank for its own account, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Bank the required receipts or other required documentary evidence, the Borrower shall indemnify the Bank for any incremental taxes, interest or penalties that may become payable by the Bank as a result of any such failure. The agreements in this Section shall survive the termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.11 Indemnity. The Borrower promises to indemnify the Bank and to hold the Bank harmless from any loss or expense which the Bank may sustain or incur (other than through the Bank's gross negligence or willful misconduct) as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of LIBOR Rate Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Credit Agreement, (b) default by the Borrower in making any prepayment of a LIBOR Rate Loan after the Borrower has given a notice thereof in accordance with the provisions of this Credit Agreement or (c) the making of a prepayment of LIBOR Rate Loans on a day which is not the last day of an Interest Period with respect thereto. With respect to LIBOR Rate Loans, such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such LIBOR Rate Loans provided for herein over (ii) the amount of interest (as reasonably determined by the Bank) which would have accrued to the Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. The covenants of the Borrower set forth in this Section 3.11 shall survive the 31 termination of this Credit Agreement and the payment of the Loans and all other amounts payable hereunder. 3.12 Payments, Computations, Etc. Except as otherwise specifically provided herein, all payments hereunder shall be made to the Bank in Dollars in immediately available funds, without offset, deduction, counterclaim or withholding of any kind, at the Bank's office specified in Section 10.1 not later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Bank may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower maintained with the Bank (with notice to the Borrower). The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Bank the Loans, LOC Obligations, BA Obligations, Fees, interest or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Bank shall apply such payment in such manner as the Bank may determine to be appropriate in respect of obligations owing by the Borrower hereunder). Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension), except that in the case of LIBOR Rate Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and Fees shall be made on the basis of actual number of days elapsed over a year of 360 days, except with respect to computation of interest on Alternate Base Rate Loans which (unless the Alternate Base Rate is determined by reference to the Federal Funds Rate) shall be calculated based on a year of 365 or 366 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. SECTION 4 GUARANTY -------- 4.1 The Guarantee. Each of the Guarantors hereby jointly and severally guarantees to the Bank, to each Affiliate of the Bank that enters into a Hedging Agreement and to the Bank as hereinafter provided the prompt payment of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Guaranteed Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 32 Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents or Hedging Agreements, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 4.2 Obligations Unconditional. The obligations of the Guarantors under Section 4.1 hereof are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents or Hedging Agreements, or any other agreement or instrument referred to therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor of the Guaranteed Obligations for amounts paid under this Guaranty until such time as the Bank (and any Affiliates of the Bank entering into Hedging Agreements) has been paid in full, all Commitments under the Credit Agreement have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Bank in connection with monies received under the Credit Documents or Hedging Agreements. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; (iv) any Lien granted to, or in favor of, the Bank as security for any of the Guaranteed Obligations shall fail to attach or be perfected; or 33 (v) any of the Guaranteed Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor). With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Bank exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 4.3 Reinstatement. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Bank on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Bank in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under the Bankruptcy Code, insolvency or similar law. 4.4 Certain Additional Waivers. Without limiting the generality of the provisions of this Section 4, each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. ss.ss. 26-7 through 26-9, inclusive. Each Guarantor further agrees that such Guarantor shall have no right of recourse to security for the Guaranteed Obligations, except through the exercise of the rights of subrogation pursuant to Section 4.2. 4.5 Remedies. The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Bank, on the other hand, the Guaranteed Obligations may be declared to be forthwith due and payable as provided in Section 9.2 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Guaranteed Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Guaranteed Obligations being deemed to have become automatically due and payable), the Guaranteed Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of said Section 4.1. 4.6 Rights of Contribution. 34 The Guarantors hereby agree, as among themselves, that if any Guarantor shall become an Excess Funding Guarantor (as defined below), each other Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the succeeding provisions of this Section 4.6), pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Guarantor) of such Excess Payment (as defined below). The payment obligation of any Guarantor to any Excess Funding Guarantor under this Section 4.6 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Section 4, and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this Section 4.6, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations arising under the other provisions of this Section 4 (hereafter, the "Excess Funding Guarantied Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata Share of the Excess Funding Guarantied Obligations; (ii) "Excess Payment" shall mean, in respect of any Excess Funding Guarantied Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Excess Funding Guarantied Obligations; and (iii) "Pro Rata Share", for the purposes of this Section 4.6, shall mean, for any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which the aggregate present fair saleable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (b) the amount by which the aggregate present fair saleable value of all assets and other properties of the Borrower and all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date (if any Guarantor becomes a party hereto subsequent to the Closing Date, then for the purposes of this Section 4.6 such subsequent Guarantor shall be deemed to have been a Guarantor as of the Closing Date and the information pertaining to, and only pertaining to, such Guarantor as of the date such Guarantor became a Guarantor shall be deemed true as of the Closing Date). 4.7 Continuing Guarantee. The guarantee in this Section 4 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. SECTION 5 CONDITIONS ---------- 5.1 Conditions to Closing. This Credit Agreement shall become effective, and the initial Extensions of Credit may be made, upon the satisfaction of the following conditions precedent: 35 (a) Execution of Credit Agreement and Credit Documents. Receipt of fully executed copies of this Credit Agreement and the Revolving Note. (b) Senior Note Placement. Evidence satisfactory to the Bank of the issuance by the Borrower of the Senior Notes and receipt of the net proceeds therefrom, together with certified copies of the Senior Notes and the Senior Note Agreement relating thereto. (c) Financial Information. Receipt of financial information regarding the Borrower and its Subsidiaries, as may be requested by, and in each case in form and substance satisfactory to the Bank. (d) Absence of Legal Proceedings. Except as disclosed in Schedule 6.6, the absence of any action, suit, investigation or proceeding pending in any court or before any arbitrator or governmental instrumentality which if adversely determined could reasonably be expected to have a Material Adverse Effect on the Consolidated Group taken as a whole. (e) Legal Opinions. Receipt of an opinion of counsel for the Credit Parties relating to the Credit Documents and the transactions contemplated herein, in form and substance satisfactory to the Bank. (f) Corporate Documents. Receipt of the following (or their equivalent) for each of the Credit Parties: (i) Articles of Incorporation. Copies of the articles of incorporation or charter documents certified to be true and complete as of a recent date by the appropriate governmental authority of the state of its incorporation. (ii) Resolutions. Copies of resolutions of the Board of Directors approving and adopting the respective Credit Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary as of the Closing Date to be true and correct and in force and effect as of such date. (iii) Bylaws. Copies of the bylaws certified by a secretary or assistant secretary as of the Closing Date to be true and correct and in force and effect as of such date. (iv) Good Standing. Copies, where applicable, of certificates of good standing, existence or its equivalent certified as of a recent date by the appropriate governmental authorities of the state of incorporation and each other state in which the failure to so qualify and be in good standing would have a Material Adverse Effect on the business or operations in such state. (v) Officer's Certificate. An officer's certificate for each of the Credit Parties dated as of the Closing Date substantially in the form of Schedule 5.1(f) with appropriate insertions and attachments. 36 (g) Fees. Receipt of all Fees, if any, owing to the Bank. (h) Section 5.2 Conditions. The conditions specified in Section 5.2 shall be satisfied. (i) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Credit Agreement shall be reasonably satisfactory in form and substance to the Bank. 5.2 Conditions to All Extensions of Credit. The obligation of the Bank to make any Extension of Credit hereunder (including the initial Extension of Credit to be made hereunder) is subject to the satisfaction of the following conditions precedent on the date of making such Extension of Credit: (a) Representations and Warranties. The representations and warranties made by the Credit Parties herein or in any other Credit Documents or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct in all material respects on and as of the date of such Extension of Credit as if made on and as of such date (except for those which expressly relate to an earlier date). (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Credit Agreement. (c) No Material Adverse Effect. No circumstances, events or conditions shall have occurred since the date of the audited financial statements referenced in Section 6.1 which would have a Material Adverse Effect. (d) Additional Conditions to Revolving Loans. If a Revolving Loan is made pursuant to Section 2.1, all conditions set forth therein shall have been satisfied. (e) Additional Conditions to Letters of Credit. If such Extension of Credit is made pursuant to Section 2.2, all conditions set forth therein shall have been satisfied. (f) Additional Conditions to Bankers' Acceptances. If such Extension of Credit is made pursuant to Section 2.3, all conditions set forth therein shall have been satisfied. Each request for Extension of Credit (including extensions and conversions) and each acceptance by the Borrower of an Extension of Credit (including extensions and conversions) shall be deemed to constitute a representation and warranty by the Borrower as of the date of such Extension of Credit that the applicable conditions in subsections (a), (b) and (c), and in (d), (e) or (f) of this Section have been satisfied. 37 SECTION 6 REPRESENTATIONS AND WARRANTIES ------------------------------ To induce the Bank to enter into this Credit Agreement and to make Extensions of Credit herein provided for, each of the members of the Consolidated Group parties hereto hereby represents and warrants to the Bank that: 6.1 Financial Condition. Each of the financial statements described below (copies of which have heretofore been provided to the Bank), have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby, are complete and correct in all material respects and present fairly the financial condition and results from operations of the entities and for the periods specified, subject in the case of interim Borrower-prepared statements to normal year-end adjustments: (i) an audited consolidated balance sheet of the Borrower and its consolidated subsidiaries dated as of September 30, 1996, together with related statements income and cash flows certified by Arthur Andersen LLP, certified public accountants; and (ii) a Borrower-prepared consolidated balance sheet of the Borrower and its consolidated subsidiaries dated as of June 30, 1996, together with related consolidated statements of income and cash flows. 6.2 No Changes or Restricted Payments. Since the date of the audited financial statements referenced in Section 6.1(i), (a) there has been no circumstance, development or event relating to or affecting the members of the Consolidated Group which has had or would be reasonably expected to have a Material Adverse Effect, and (b) except as permitted herein, no Restricted Payments have been made by any members of the Consolidated Group, other than those permitted hereunder. 6.3 Organization; Existence; Compliance with Law. Each of the members of the Consolidated Group (a) is a corporation duly organized, validly existing in good standing under the laws of the jurisdiction of its organization, (b) has the corporate or other necessary power and authority, and the legal right to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than in such jurisdictions where the failure to be so qualified and in good standing would not, in the aggregate, have a Material Adverse Effect, and (d) is in compliance with all Organizational Documents and Requirements of Law, except to the extent that the failure to comply therewith would not, in the aggregate, be reasonably expected to have a Material Adverse Effect. 6.4 Power; Authorization; Enforceable Obligations. 38 Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of the Credit Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery or performance of any Credit Documents by the Credit Parties (other than those which have been obtained, such filings as are required by the Securities and Exchange Commission and to fulfill other reporting requirements with Governmental Authorities) or with the validity or enforceability of any Credit Document against the Credit parties. Each Credit Document to which it is a party constitutes a legal, valid and binding obligation of such Credit Parties enforceable against such Credit Parties in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.5 No Legal Bar. The execution, delivery and performance of the Credit Documents, the borrowings hereunder and the use of the Extensions of Credit will not violate any Requirement of Law or any Contractual Obligation of any member of the Consolidated Group (except those as to which waivers or consents have been obtained, and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation other than the Liens arising under or contemplated in connection with the Credit Documents. No member of the Consolidated Group is in default under or with respect to any of its Contractual Obligations in any respect which would reasonably be expected to have a Material Adverse Effect. 6.6 No Material Litigation. Except as disclosed on Schedule 6.6 (as updated from time to time with the consent of the Bank), no claim, litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Credit Parties, threatened by or against, any members of the Consolidated Group or against any of their respective properties or revenues which (a) relate to the Credit Documents or any of the transactions contemplated hereby or thereby, (b) if adversely determined, would reasonably be expected to have a Material Adverse Effect. Set forth on Schedule 6.6 (as updated from time to time with the consent of the Bank) is a summary of all material claims, litigation, investigations and proceedings pending or, to the best knowledge of the Credit Parties, threatened by or against the members of the Consolidated Group or against any of their respective properties or revenues, and none of such actions, individually or in the aggregate, if adversely determined is reasonably expected to have a Material Adverse Effect, except as disclosed on Schedule 6.6 (as updated from time to time with the consent of the Bank). 6.7 No Default. 39 No Default or Event of Default has occurred and is continuing. 6.8 Ownership of Property; Liens. Each of members of the Consolidated Group has good record and marketable title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien, except for Permitted Liens. 6.9 Intellectual Property. Each of the members of the Consolidated Group owns, or has the legal right to use, all United States trademarks, tradenames, copyrights, technology, know-how and processes, if any, necessary for each of them to conduct its business as currently conducted (the "Intellectual Property") except for those the failure to own or have such legal right to use would not be reasonably expected to have a Material Adverse Effect. No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does any Credit Party know of any such claim, and the use of such Intellectual Property by the members of the Consolidated Group does not infringe on the rights of any Person, except for such claims and infringements that in the aggregate, would not be reasonably expected to have a Material Adverse Effect. 6.10 No Burdensome Restrictions. No Requirement of Law, Organizational Document or Contractual Obligation of the members of the Consolidated Group would be reasonably expected to have a Material Adverse Effect. 6.11 Taxes. Each of the members of the Consolidated Group has filed or caused to be filed all United States federal income tax returns and all other material tax returns which, to the best knowledge of the Credit Parties, are required to be filed and has paid (a) all taxes shown to be due and payable on said returns or (b) all taxes shown to be due and payable on any assessments of which it has received notice made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any (i) taxes, fees or other charges with respect to which the failure to pay, in the aggregate, would not have a Material Adverse Effect or (ii) taxes, fees or other charges the amount or validity of which are currently being contested and with respect to which reserves in conformity with GAAP have been provided on the books of such Person), and no tax Lien has been filed, and, to the best knowledge of the Credit Parties, no claim is being asserted, with respect to any such tax, fee or other charge. 6.12 ERISA Except as would not reasonably be expected to have a Material Adverse Effect: 40 (a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the best knowledge of the Credit Parties, no event or condition has occurred or exists as a result of which any ERISA Event could reasonably be expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan. (b) The actuarial present value of all "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer Plan, as of the last annual valuation date prior to the date on which this representation is made or deemed made (determined, in each case, in accordance with Financial Accounting Standards Board Statement 87, utilizing the actuarial assumptions used in such Plan's most recent actuarial valuation report), did not exceed as of such valuation date the fair market value of the assets of such Plan. (c) No member of the Consolidated Group nor any ERISA Affiliate has incurred, or, to the best knowledge of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. No member of the Consolidated Group nor any ERISA Affiliate would become subject to any withdrawal liability under ERISA if any member of the Consolidated Group or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No member of the Consolidated Group nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit Parties, reasonably expected to be in reorganization, insolvent, or terminated. (d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or may subject any member of the Consolidated Group or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any member of the Consolidated Group or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability. (e) No member of the Consolidated Group nor any ERISA Affiliates has any material liability with respect to "expected post-retirement benefit obligations" within the meaning of the Financial Accounting Standards Board Statement 106. Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects of such sections. 6.13 Governmental Regulations, Etc. 41 (a) No part of the proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation G or Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by the Bank, the Borrower will furnish to the Bank a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. No indebtedness being reduced or retired out of the proceeds of the Loans was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meanings of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Borrower and its Subsidiaries. None of the transactions contemplated by this Credit Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or regulations issued pursuant thereto, or Regulation G, T, U or X. (b) None of the members of the Consolidated Group is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Borrower Act of 1940, each as amended. In addition, none of the members of the Consolidated Group is (i) an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company, or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (c) No director, executive officer or principal shareholder of any member of the Consolidated Group is a director, executive officer or principal shareholder of the Bank. For the purposes hereof the terms "director", "executive officer" and "principal shareholder" (when used with reference to the Bank) have the respective meanings assigned thereto in Regulation O issued by the Board of Governors of the Federal Reserve System. (d) Each of the members of the Consolidated Group has obtained all material licenses, permits, franchises or other governmental authorizations necessary to the ownership of its respective Property and to the conduct of its business. (e) None of the members of the Consolidated Group is in violation of any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or any other jurisdiction, or of any agency thereof (including without limitation, environmental laws and regulations), which violation could reasonably be expected to have a Material Adverse Effect. (f) Each of the members of the Consolidated Group is current with all material reports and documents, if any, required to be filed with any state or federal securities commission or similar agency and is in full compliance in all material respects with all applicable rules and regulations of such commissions. 42 6.14 Subsidiaries. Set forth on Schedule 6.14 are all the Subsidiaries of the Borrower at the Closing Date, the jurisdiction of their incorporation and the direct or indirect ownership interest of the Borrower therein. 6.15 Purpose of Extensions of Credit. The Extensions of Credit will be used to refinance existing Funded Debt, finance the Gordon Transactions and other permitted acquisitions and to finance working capital and other corporate purposes. The Letters of Credit shall be used only for or in connection with appeal bonds, reimbursement obligations arising in connection with surety and reclamation bonds, reinsurance, domestic or international trade transactions and obligations not otherwise aforementioned relating to transactions entered into by the applicable account party in the ordinary course of business. 6.16 Environmental Matters. Except as disclosed on Schedule 6.6 and as would not reasonably be expected to have a Material Adverse Effect: (a) Each of the facilities and properties owned, leased or operated by the members of the Consolidated Group (the "Properties") and all operations at the Properties are in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to the Properties or the businesses operated by the members of the Consolidated Group (the "Businesses"), and there are no conditions relating to the Businesses or Properties that could give rise to liability under any applicable Environmental Laws. (b) None of the Properties contains, or has previously contained, any Materials of Environmental Concern at, on or under the Properties in amounts or concentrations that constitute or constituted a violation of, or could give rise to liability under, Environmental Laws. (c) None of the members of the Consolidated Group has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Businesses, nor does any member of the Consolidated Group have knowledge or reason to believe that any such notice will be received or is being threatened. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties, or generated, treated, stored or disposed of at, on or under any of the Properties or any other location, in each case by or on behalf any members of the Consolidated Group in violation of, or in a manner that would be reasonably likely to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of any Credit Party, threatened, under any Environmental Law to which any 43 member of the Consolidated Group is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any member of the Consolidated Group, the Properties or the Businesses. (f) There has been no release or, threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations (including, without limitation, disposal) of any member of the Consolidated Group in connection with the Properties or otherwise in connection with the Businesses, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. SECTION 7 AFFIRMATIVE COVENANTS --------------------- Each of the Credit Parties covenants and agrees that on the Closing Date, and so long as this Credit Agreement is in effect and until the Commitments have been terminated, no Obligations remain outstanding and all amounts owing hereunder or in connection herewith have been paid in full, each of the members of the Consolidated Group party hereto shall: 7.1 Financial Statements. Furnish, or cause to be furnished, to the Bank: (a) Audited Financial Statements. As soon as available, but in any event within 90 days after the end of each fiscal year, an audited consolidated balance sheet of the Borrower and its subsidiaries as of the end of the fiscal year and the related consolidated statements of income, retained earnings, shareholders' equity and cash flows for the year, audited by Arthur Andersen LLP, or other firm of independent certified public accountants of nationally recognized standing reasonably acceptable to the Bank, setting forth in each case in comparative form the figures for the previous year, reported without a "going concern" or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification. (b) Borrower-Prepared Financial Statements. As soon as available, but in any event (i) within 45 days after the end of each of the first three fiscal quarters, a Borrower-prepared consolidated balance sheet of the Borrower and its subsidiaries as of the end of the quarter and related Borrower-prepared consolidated statements of income, retained earnings, shareholders' equity and cash flows for such quarterly period and for the fiscal year to date; (ii) within 60 days after the end of the fourth fiscal quarter, a Borrower- prepared consolidated balance sheet of the Borrower and its subsidiaries as of the end of the quarter and related Borrower-prepared consolidated statements of 44 income, retained earnings, shareholders' equity and cash flows for such quarterly period and for the fiscal year to date; (iii) within 30 days prior to the end of each fiscal year, an annual business plan and budget for the members of the Consolidated Group, containing, among other things, pro forma financial statements for the next fiscal year, in each case setting forth in comparative form the consolidated figures for the corresponding period or periods of the preceding fiscal year or the portion of the fiscal year ending with such period, as applicable, in each case subject to normal recurring year-end audit adjustments. All such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year-end audit adjustments) and to be prepared in reasonable detail and ,in the case of the annual and quarterly financial statements provided in accordance with subsections (a) and (b) above, in accordance with GAAP applied consistently throughout the periods reflected therein) and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change in the application of accounting principles as provided in Section 1.3. 7.2 Certificates; Other Information. Furnish, or cause to be furnished, to the Bank: (a) Accountant's Certificate and Reports. Concurrently with the delivery of the financial statements referred to in subsection 7.1(a) above, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate. (b) Officer's Certificate. Concurrently with the delivery of the financial statements referred to in Sections 7.1(a) and 7.1(b) above, a certificate of a Responsible Officer in such capacity and not individually stating that, to the best of such Responsible Officer's knowledge and belief, (i) the financial statements fairly present in all material respects the financial condition of the parties covered by such financial statements, (ii) during such period the members of the Consolidated Group have observed or performed in all material respects the covenants and other agreements hereunder and under the other Credit Documents relating to them, and satisfied in all material respects the conditions, contained in this Credit Agreement to be observed, performed or satisfied by them, (iii) such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (iv) such certificate shall include the calculations required to indicate compliance with Section 7.9. A form of Officer's Certificate is attached as Schedule 7.2(b). (c) Accountants' Reports. Promptly upon receipt, a copy of any final (as distinguished from a preliminary or discussion draft) "management letter" or other 45 similar report submitted by independent accountants or financial consultants to the members of the Consolidated Group in connection with any annual, interim or special audit. (d) Public Information. Within thirty days after the same are sent, copies of all reports (other than those otherwise provided pursuant to subsection 7.1) and other financial information which any member of the Consolidated Group sends to its public stockholders, and within thirty days after the same are filed, copies of all financial statements and non-confidential reports which any member of the Consolidated Group may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority. (e) Other Information. Promptly, such additional financial and other information as the Bank may from time to time reasonably request. 7.3 Notices. Give notice to the Bank of: (a) Defaults. Immediately (and in any event within two (2) Business Days) after a Responsible Officer of a Credit Party knows or has reason to know thereof, the occurrence of any Default or Event of Default. (b) Contractual Obligations. Promptly, the initiation of any default or event of default under any Contractual Obligation of any member of the Consolidated Group which would reasonably be expected to have a Material Adverse Effect. (c) Legal Proceedings. Promptly, any litigation, or any investigation or proceeding (including without limitation, any environmental proceeding) known to any member of the Consolidated Group (other than those disclosed in Schedule 6.6), or any material development in respect thereof (including those matters disclosed on Schedule 6.6), affecting any member of the Consolidated Group which, if adversely determined, would reasonably be expected to have a Material Adverse Effect. (d) ERISA. Promptly, after any Responsible Officer of the Borrower knows or has reason to know of (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or might reasonably lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against any of their ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which the members of the Consolidated Group or any ERISA Affiliate are required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect; or (iv) any change in the funding status of any Plan that reasonably could be expected to have a Material Adverse Effect; together with a description of any such event or condition or a copy of any such notice and a statement 46 by the chief financial officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Parties with respect thereto. Promptly upon request, the members of the Consolidated Group shall furnish the Bank with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA). (e) Other. Promptly, any other development or event which a Responsible Officer determines could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Credit Parties propose to take with respect thereto. 7.4 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, in accordance with prudent business practice (subject, where applicable, to specified grace periods) all material obligations of each member of the Consolidated Group of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations, except (i) when the amount or validity of such obligations and costs is currently being contested in good faith by appropriate proceedings and reserves, if applicable, in conformity with GAAP with respect thereto have been provided on the books of the Consolidated Group, as the case may be, and (ii) to the extent that the failure to so pay, discharge or otherwise satisfy such obligations would not have a Material Adverse Effect. 7.5 Conduct of Business and Maintenance of Existence. Continue to engage in business of the same general type as now conducted by it on the date hereof and similar or related businesses with respect to motorsports products except to the extent that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect; preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges, licenses and franchises necessary or desirable in the normal conduct of its business; and comply with all Contractual Obligations and Requirements of Law applicable to it except to the extent that failure to comply with such Contractual Obligations and Requirements of Law would not, in the aggregate, have a Material Adverse Effect. 7.6 Maintenance of Property; Insurance. Keep all material Property useful and necessary in its business in reasonably good working order and condition (ordinary wear and tear excepted); maintain with financially sound and reputable insurance companies casualty, liability and such other insurance (which may 47 include plans of self-insurance) with such coverage and deductibles, and in such amounts as may be consistent with prudent business practice and in any event consistent with normal industry practice (except to any greater extent as may be required by the terms of any of the other Credit Documents); and furnish to the Bank, upon written request, full information as to the insurance carried. 7.7 Inspection of Property; Books and Records; Discussions. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice, the Bank to visit and inspect any of its properties and examine and make abstracts (including photocopies) from any of its books and records (other than materials protected by the attorney-client privilege and materials which the Credit Parties may not disclose without violation of a confidentiality obligation binding upon them) at any reasonable time, and to discuss the business, operations, properties and financial and other condition of the members of the Consolidated Group with officers and employees of the members of the Consolidated Group and with their independent certified public accountants. The cost of the inspection referred to in the preceding sentence shall be for the account of the Bank unless an Event of Default has occurred and is continuing, in which case the cost of such inspection shall be for the account of the Credit Parties. 7.8 Environmental Laws. (a) Comply in all material respects with, and take reasonable actions to ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and take reasonable actions to ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the failure to do or the pendency of such proceedings would not reasonably be expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless the Bank, and its employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the members of the Consolidated Group or the Properties, or any orders, 48 requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this paragraph shall survive repayment of the Loans and all other amounts payable hereunder, and termination of the Commitments. 7.9 Financial Covenants. (a) Maintenance of Consolidated Funded Debt to Consolidated EBITDA. The Borrower will not permit, at any time, the ratio of Consolidated Funded Debt to Consolidated EBITDA to be greater than 2.00 to 1.00. (b) Fixed Charges Coverage Ratio Maintenance. The Borrower will not permit, at any time, the Fixed Charges Coverage Ratio to be less than 5.00 to 1.00. (c) Maintenance of Consolidated Net Worth. The Borrower will not permit, at any time, Consolidated Net Worth to be less than the sum of (a) $26,000,000, plus (b) an aggregate amount equal to fifty percent (50%) of its Consolidated Net Income for each completed Fiscal Quarter beginning with the Fiscal Quarter that includes the Closing Date (but, in each case, only if a positive number). 7.10 Additional Guaranties. (a) Domestic Subsidiaries. At any time any Person becomes a Domestic Subsidiary, the Borrower will promptly notify the Bank thereof and cause such Domestic Subsidiary to become a Guarantor hereunder by (i) execution of a Joinder Agreement, and (ii) delivery of supporting resolutions, incumbency certificates, corporation formation and organizational documentation and opinions of counsel as the Bank may reasonably request. (b) Foreign Subsidiaries. At any time any Person becomes a Foreign Subsidiary, the Borrower will promptly notify the Bank thereof and cause delivery of supporting resolutions, incumbency certificates, corporation formation and organizational documentation and opinions of counsel as the Bank may reasonably request. 7.11 Use of Proceeds. Extensions of Credit will be used solely for the purposes provided in Section 6.15. SECTION 8 NEGATIVE COVENANTS ------------------ Each of the Credit Parties covenants and agrees that on the Closing Date, and so long as this Credit Agreement is in effect and until the Commitments have been terminated, no 49 Obligations remain outstanding and all amounts owing hereunder or in connection herewith, have been paid in full, no member of the Consolidated Group shall: 8.1 Indebtedness. Contract, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness arising or existing under this Credit Agreement and the other Credit Documents; (b) Indebtedness evidenced by the Senior Notes in an aggregate principal amount not to exceed $20,000,000; (c) Indebtedness set forth in Schedule 8.1, and renewals, refinancings and extensions thereof on terms and conditions no less favorable than for such existing Indebtedness; (d) Capital Lease Obligations and Indebtedness incurred, in each case, to provide all or a portion of the purchase price or costs of construction of an asset or, in the case of a sale/leaseback transaction as described in Section 8.11, to finance the value of such asset owned by a member of the Consolidated Group, provided that (i) such Indebtedness when incurred shall not exceed the purchase price or cost of construction of such asset or, in the case of a sale/leaseback transaction, the fair market value of such asset, (ii) no such Indebtedness shall be refinanced for a principal amount in excess of the principal balance outstanding thereon at the time of such refinancing, and (iii) the total amount of all such Indebtedness shall not exceed $2,000,000 at any time outstanding; (e) Indebtedness and obligations owing under interest rate protection agreements relating to the Obligations hereunder and under interest rate, commodities and foreign currency exchange protection agreements entered into in the ordinary course of business to manage existing or anticipated risks and not for speculative purposes; (f) unsecured intercompany Indebtedness owing by a member of the Consolidated Group to another member of the Consolidated Group (subject, however, to the limitations of Section 8.5 in the case of the member of the Consolidated Group extending the intercompany loan, advance or credit); (g) other unsecured Funded Debt of the Borrower in the aggregate at any time outstanding of up to an amount equal to five percent (5%) of Consolidated Total Tangible Assets as of the end of the immediately preceding Fiscal Quarter; and (h) Guaranty Obligations of Indebtedness permitted under this Section 8.1. 8.2 Liens. 50 Contract, create, incur, assume or permit to exist any Lien with respect to any of their respective property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, except for Permitted Liens. 8.3 Nature of Business. Alter the character of their business in any material respect from that conducted as of the Closing Date and similar or related businesses with respect thereto. 8.4 Consolidation, Merger, Sale or Purchase of Assets, Capital Expenditures, etc. (a) Dissolve, liquidate or wind up their affairs, except (i) in connection with a disposition of assets permitted by the terms of subsection (c) hereof and (ii) for the dissolution and liquidation of a wholly-owned Subsidiary of a Credit Party where the parent Credit Party receives the assets of such Subsidiary; (b) Enter into any transaction of merger or consolidation; provided, however, that, so long as no Default or Event of Default would be directly or indirectly caused as a result thereof, (i) a member of the Consolidated Group (other than the Borrower) may merge or consolidate with another member of the Consolidated Group, provided that (A) if the Borrower is a party thereto, it shall be the surviving corporation, (B) if a Credit Party shall be a party thereto, it shall be the surviving corporation, and (C) the surviving corporation shall be a Domestic Credit Party or shall become a Domestic Credit Party pursuant to the terms of Section 7.10 concurrently with consummation of the merger or consolidation; (ii) a member of the Consolidated Group (other than the Borrower) may merge or consolidate with any Person that is not a Subsidiary, provided that the applicable conditions set forth in the foregoing subsection (i) of this Section 8.4(b), in Section 7.10 regarding joinder of certain Subsidiaries as Credit Parties, and in Section 8.4(d) regarding acquisitions, are complied with in connection with any such acquisition by merger. (c) Sell, lease, transfer or otherwise dispose of any Property (including without limitation pursuant to any sale/leaseback transaction) other than (i) the sale of inventory in the ordinary course of business for fair consideration, (ii) the sale or disposition of machinery and equipment no longer used or useful in the conduct of such Person's business, and (iii) other sales of assets, provided that (A) after giving effect to such sale or other disposition, the aggregate book value of assets sold or otherwise disposed of pursuant to this clause (iii), or the revenues therefrom, in any given fiscal year does not exceed an amount equal to the lesser of 15% of Consolidated Total Tangible Assets as of the end of the immediately preceding Fiscal Quarter or 15% of Consolidated Revenues for the immediately preceding four Fiscal Quarters, and (B) after giving effect to such sale or other disposition, no Default or Event of Default would exist hereunder. 51 (d) Except (i) for the Gordon Transactions, (ii) as otherwise permitted by Section 8.4(b)(i), and (iii) for Investments in entities in which less than 50% is (or, as a result of the transaction, will be) owned by a Credit Party where such Investments are permitted by subclause (xiii) of the definition of "Permitted Investments", purchase, lease or otherwise acquire (in a single transaction or a series of related transactions) all or any substantial part of the Property of any other Person, at a purchase price or acquisition cost (including Indebtedness assumed) in any given fiscal year in the aggregate for all such acquisitions in excess of an amount equal to five percent (5%) of Consolidated Total Tangible Assets as of the end of the immediately preceding Fiscal Quarter, without the prior written consent of the Bank. (e) Take or permit any action, or fail to take any action, the effect of which would be to cause a Domestic Credit Party to lose its status as such, other than as expressly permitted in this Section. 8.5 Advances, Investments and Loans. Lend money or extend credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, or otherwise make an Investment in, any Person except for Permitted Investments. 8.6 Transactions with Affiliates. Enter into or permit to exist any transaction or series of transactions, whether or not in the ordinary course of business, with any officer, director, shareholder or Affiliate other than (i) transactions permitted by Section 8.1, Section 8.4(b), Section 8.5 or Section 8.10, (ii) customary fees and expenses paid to directors and (iii) where such transactions are on terms and conditions substantially as favorable as would be obtainable in a comparable arm's-length transaction with a Person other than an officer, director, shareholder or Affiliate. 8.7 Ownership of Equity Interests. Issue, sell, transfer, pledge or otherwise dispose of any partnership interests, shares of capital stock or other equity or ownership interests ("Equity Interests") in any member of the Consolidated Group other than the Borrower, except (i) issuance, sale or transfer of Equity Interests to a Credit Party by a Subsidiary of such Credit Party, (ii) in connection with a transaction permitted by Section 8.4, and (iii) as needed to qualify directors under applicable law. 8.8 Fiscal Year. 52 Change its Fiscal Year. 8.9 Prepayments of Indebtedness, etc. (a) After the issuance thereof, amend or modify (or permit the amendment or modification of), the terms of any other Funded Debt in a manner adverse to the interests of the Bank (including specifically shortening any maturity or average life to maturity or requiring any payment sooner than previously scheduled or increasing the interest rate or fees applicable thereto); (b) Make any prepayment, redemption, defeasance or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), or refund, refinance or exchange of any Funded Debt (other than intercompany Indebtedness permitted hereunder) other than regularly scheduled payments of principal and interest on such Funded Debt, except to the extent permitted by Section 8.10. 8.10 Restricted Payments. Make or permit Restricted Payments in the aggregate for any Fiscal Year in excess of an amount equal to 35% of Consolidated Net Income (if positive) for the immediately preceding Fiscal Year, without the prior written consent of the Bank. 8.11 Sale Leasebacks. Except as permitted pursuant to Section 8.1(c) and (d) hereof, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed), whether now owned or hereafter acquired, (i) which such Person has sold or transferred or is to sell or transfer to any other Person other than a Credit Party or (ii) which such Person intends to use for substantially the same purpose as any other Property which has been sold or is to be sold or transferred by such Person to any other Person in connection with such lease. 8.12 No Further Negative Pledges. Except with respect to the Senior Note Agreement relating to (i) the Senior Notes, (ii) Indebtedness incurred pursuant to Section 8.1(g), and (iii) prohibitions against other encumbrances on specific Property encumbered to secure payment of particular Indebtedness (which Indebtedness relates solely to such specific Property, and improvements and accretions thereto, and is otherwise permitted hereby), no member of the Consolidated Group will enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation. 53 SECTION 9 EVENTS OF DEFAULT ----------------- 9.1 Events of Default. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): (a) Payment. Any Credit Party shall (i) default in the payment when due of any principal of any of the Loans or of any reimbursement obligations relating to Letters of Credit or Bankers' Acceptances, or (ii) default, and such defaults shall continue for five (5) or more Business Days, in the payment when due of any interest on the Loans or on any reimbursement obligations, or of any Fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith; or (b) Representations. Any representation, warranty or statement made or deemed to be made herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or (c) Covenants. (i) Default in the due performance or observance of any term, covenant or agreement contained in Section 7.3(a), 7.9, 7.10 or 8.1 through 8.12 (except in the case of negative covenants contained in Sections 8.1 through 8.12, those Defaults which may occur or arise other than on account of or by affirmative or intentional act of the Borrower or event or condition which the Borrower shall with knowledge permit to exist, all of which shall be subject to the provisions of clause (ii) hereof), inclusive, or (ii) Default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this Section 9.1) contained in this Credit Agreement and such default shall continue unremedied for a period of at least 30 days after the earlier of a responsible officer of a Credit Party becoming aware of such default or notice thereof by the Bank or, if such default cannot reasonably be remedied within such 30 day period, an additional period not to exceed 30 days, provided that remedy is commenced within the original 30 day period and is diligently and continuously pursued; or (d) Other Credit Documents. (i) Any Credit Party shall default in the due performance or observance of any material term, covenant or agreement in any of the other Credit Documents (subject to applicable grace or cure periods, if any), or (ii) except as to the 54 Credit Party which is dissolved, released or merged or consolidated out of existence as the result of or in connection with a dissolution, merger or disposition permitted by Section 8.4(a), Section 8.4(b) or Section 8.4(c), any Credit Document shall fail to be in full force and effect or to give the Bank any material part of the Liens, rights, powers and privileges purported to be created thereby; or (e) Guaranties. Except as to the Credit Party which is dissolved, released or merged or consolidated out of existence as the result of or in connection with a dissolution, merger or disposition permitted by Section 8.4(a), Section 8.4(b) or Section 8.4(c), the guaranty given by any Guarantor hereunder or any material provision thereof shall cease to be in full force and effect, or any Guarantor hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such guaranty, or any Guarantor shall default in payment under such guaranty; or (f) Bankruptcy, etc. A Bankruptcy Event shall occur with respect to any member of the Consolidated Group; or (g) Defaults under Other Agreements. With respect to any Indebtedness (other than Indebtedness outstanding under this Credit Agreement) in excess of $1,000,000 in the aggregate for the Consolidated Group taken as a whole, without duplication, (A) (1) any member of the Consolidated Group shall default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to any such Indebtedness, or (2) the occurrence and continuance of a default in the observance or performance relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Indebtedness (or trustee or agent on behalf of such holders) to cause any such Indebtedness to become due prior to its stated maturity; or (B) any such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or (h) Judgments. Any member of the Consolidated Group shall fail within 30 days of the date due and payable to pay, bond or otherwise discharge any judgment, settlement or order for the payment of money which judgment, settlement or order, when aggregated with all other such judgments, settlements or orders due and unpaid at such time, exceeds $2,000,000, and which is not stayed on appeal (or for which no motion for stay is pending) or is not otherwise being executed; or (i) ERISA. Any of the following events or conditions, if such event or condition could reasonably be expected to have a Material Adverse Effect: (1) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of a member of the Consolidated Group or any ERISA Affiliate in favor of the PBGC or a Plan; (2) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Bank, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (3) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Bank, likely to result in (i) the termination of such Plan for purposes of Title IV of ERISA, or (ii) a member of the Consolidated 55 Group or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency of (within the meaning of Section 4245 of ERISA) such Plan; or (4) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject a member of the Consolidated Group or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which a member of the Consolidated Group or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or (j) Ownership. There shall occur a Change of Control; or (k) Senior Notes. The occurrence of an Event of Default under the Senior Notes. 9.2 Acceleration; Remedies. Upon the occurrence of an Event of Default, and at any time thereafter, the Bank may, by written notice to the Borrower and the other Credit Parties take any of the following actions: (i) Termination of Commitments. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (ii) Acceleration. Declare the unpaid principal of and any accrued interest in respect of all Loans, any reimbursement obligations relating to Letters of Credit and Bankers' Acceptances and any and all other indebtedness or obligations of any and every kind owing by the Credit Parties to the Bank hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each of the Credit Parties. (iii) Cash Collateral. Direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default under Section 9.1(f), it will immediately pay) to the Bank additional cash, to be held by the Bank in a cash collateral account as additional security for the LOC Obligations and BA Obligations in an amount equal to the maximum aggregate amount which may be drawn under all Letters of Credits and Bankers' Acceptances then outstanding. (iv) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Credit Documents and all rights of set-off. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(f) shall occur, then the Commitments shall automatically terminate and all Loans, all reimbursement obligations relating to Letters of Credit and Bankers' Acceptances, all accrued interest in respect thereof, all accrued and unpaid Fees and other indebtedness or obligations owing to the Bank hereunder automatically shall immediately become due and payable without presentment, demand, protest 56 or the giving of any notice or other action by the Bank, all of which are hereby waived by the Credit Parties. SECTION 10 MISCELLANEOUS ------------- 10.1 Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the Business Day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Borrower, Guarantors and the Bank, set forth below or at such other address as such party may specify by written notice to the other parties hereto: if to the Borrower or the Guarantors: ACTION PERFORMANCE COMPANIES, INC. 2401 West First Street Tempe, Arizona 85281 Attn: Fred W. Wagenhals Telephone: (602) 894-0100 Telecopy: (602) 967-1403 with a copy to: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears One East Camelback Road, Suite 1100 Phoenix, Arizona 85012-1656 Attn: Robert S. Kant Telephone: (602) 263-2606 Telecopy: (602) 263-2900 if to the Bank: First Union National Bank of North Carolina 201 South College Street, Suite 1300 Charlotte, North Carolina 28288-0656 Attn: Portfolio Management Telephone: (704) 383-4369 Telecopy: (704) 374-4820 57 with a copy to: First Union National Bank of North Carolina 301 S. Tryon Street, N.C. Corporate Banking Charlotte, North Carolina 28288-0145 Attn: Tracey Gillespie Vice Preisdent Telephone: (704) 383-7645 Telecopy: (704) 374-4000 10.2 Right of Set-Off. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, the Bank is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by the Bank (including, without limitation branches, agencies or Affiliates of the Bank wherever located) to or for the credit or the account of any Credit Party against obligations and liabilities of such Person to the Bank hereunder, under the Revolving Note, the other Credit Documents or otherwise, irrespective of whether the Bank shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of the Bank subsequent thereto. 10.3 Benefit of Agreement. This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided that none of the Credit Parties may assign or transfer any of its interests without prior written consent of the Bank. 10.4 No Waiver; Remedies Cumulative. No failure or delay on the part of the Bank in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Bank and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Bank would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Borrower or any other Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Bank to any other or further action in any circumstances without notice or demand, except as expressly provided otherwise herein or in other Credit Documents. 58 10.5 Payment of Expenses, etc. The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses (A) of the Bank in connection with the negotiation, preparation, execution and delivery and administration of this Credit Agreement and the other Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and expenses of Moore & Van Allen, PLLC, special counsel to the Bank) and any amendment, waiver or consent relating hereto and thereto including, but not limited to, any such amendments, waivers or consents resulting from or related to any work-out, renegotiation or restructure relating to the performance by the Credit Parties under this Credit Agreement and (B) of the Bank in connection with enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, in connection with any such enforcement, the reasonable fees and disbursements of counsel for the Bank); (ii) pay and hold the Bank harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to the Bank) to pay such taxes; and (iii) indemnify the Bank, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of (A) any investigation, litigation or other proceeding (whether or not the Bank is a party thereto) related to the entering into and/or performance of any Credit Document or the use of proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any other transactions contemplated in any Credit Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding or (B) the presence or Release of any Materials of Environmental Concern at, under or from any Property owned, operated or leased by the Borrower or any of its Subsidiaries, or the failure by the Borrower or any of its Subsidiaries to comply with any Environmental Law (but excluding, in the case of either of clause (A) or (B) above, any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of gross negligence or willful misconduct on the part of the Person to be indemnified). 10.6 Amendments, Waivers and Consents. Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing entered into by, or approved in writing by, the Bank and the Credit Parties directly affected thereby. 10.7 Counterparts. This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart. 10.8 Headings. 59 The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 10.9 Survival. All indemnities set forth herein, including, without limitation, in Section 2.2(i), 3.9, 3.11 or 10.5 shall survive the execution and delivery of this Credit Agreement, the making of the Loans, the issuance of the Letters of Credit, the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder, and all representations and warranties made by the Credit Parties herein shall survive delivery of the Revolving Note and the making of the Loans hereunder. 10.10 Governing Law; Submission to Jurisdiction; Venue. (a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of North Carolina in Mecklenburg County, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Credit Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Nothing herein shall affect the right of the Bank to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE BANK, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.11 Severability. If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in 60 full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 10.12 Entirety. This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. 10.13 Binding Effect; Termination. (a) This Credit Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by the Borrower, the Guarantors and the Bank, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors and the Bank and their respective successors and assigns. (b) The term of this Credit Agreement shall be until no Loans or other Obligations or any other amounts payable hereunder or under any of the other Credit Documents shall remain outstanding and until all of the Commitments hereunder shall have expired or been terminated. 10.14 Conflict. To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Credit Document, on the other hand, this Credit Agreement shall control. [Signature Page to Follow] 61 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written. BORROWER: ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation By:/s/Christopher S. Besing ------------------------ Name: Christopher S. Besing Title: Vice President, Treasurer and Chief Financial Officer GUARANTORS: SPORTS IMAGE, INC., an Arizona corporation By:/s/Christopher S. Besing ------------------------ Name: Christopher S. Besing Title: Vice President, Treasurer and Chief Financial Officer MTL ACQUISITION, INC., an Arizona corporation By:/s/Christopher S. Besing ------------------------ Name: Christopher S. Besing Title: Vice President, Treasurer and Chief Financial Officer BANK: FIRST UNION NATIONAL BANK OF NORTH CAROLINA By:/s/David Silands ------------------------ Name: David Siland Title: Vice President Schedule 2.1(b) --------------- FORM OF NOTICE OF BORROWING First Union National Bank of North Carolina 201 S. College Street, Suite 1300 Charlotte, North Carolina 28288-0656 Attention: Portfolio Management Re: Credit Agreement dated as of January 2, 1997 (as amended and modified, the "Credit Agreement") among ACTION PERFORMANCE COMPANIES, INC., the Guarantors identified therein and First Union National Bank of North Carolina. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Ladies and Gentlemen: The undersigned, ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation, being the Borrower under the above-referenced Credit Agreement hereby gives notice pursuant to Section 2.1(b) of the Credit Agreement of a request for a Revolving Loan as follows (A) Date of Borrowing (which is a Business Day) _______________________ (B) Principal Amount of Borrowing _______________________ (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2 of the Credit Agreement, the undersigned Borrower hereby certifies that: (a) The representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the date of this request, and will be true and correct after giving effect to the requested Extension of Credit (except for those which expressly relate to an earlier date). (b) No Default or Event of Default exists, or will exist after giving effect to the requested Extension of Credit. (c) No circumstances, events or conditions have occurred since the date of the audited financial statements referenced in Section 6.1 of the Credit Agreement which would have a Material Adverse Effect. (d) All conditions set forth in Section 2.1 as to the making of Revolving Loans have been satisfied. Very truly yours, ACTION PERFORMANCE COMPANIES, INC. By:_______________________________ Name: Title: 2 Schedule 2.1(e) --------------- FORM OF REVOLVING NOTE $10,000,000 January 2, 1997 FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the order of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, and its successors and assigns, on or before the Termination Date to the office of the Bank in immediately available funds as provided in the Credit Agreement, the principal amount of the Bank's Revolving Committed Amount or, if less, the aggregate unpaid principal amount of all Revolving Loans made by the Bank to the undersigned Borrower, together with interest thereon at the rates and as provided in the Credit Agreement. This Note is the Revolving Note referred to in the Credit Agreement dated as of January 2, 1997 (as amended and modified, the "Credit Agreement")among Action Performance Companies, Inc., an Arizona corporation, the Guarantors identified therein and First Union National Bank of North Carolina. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. The holder may endorse and attach a schedule to reflect borrowings evidenced by this Note and all payments and prepayments thereon; provided that any failure to endorse such information shall not affect the obligation of the undersigned Borrower to pay amounts evidenced hereby. Upon the occurrence of an Event of Default, all amounts evidenced by this Note may, or shall, become immediately due and payable as provided in the Credit Agreement without presentment, demand, protest or notice of any kind, all of which are waived by the undersigned Borrower. In the event payment of amounts evidenced by this Note is not made at any stated or accelerated maturity, the undersigned Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorneys' fees. This Note and the Loans and amounts evidenced hereby may be transferred only as provided in the Credit Agreement. This Note shall be governed by, and construed and interpreted in accordance with, the law of the State of North Carolina. IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be duly executed as of the date first above written. ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation By_________________________________ Name: Title: 3 Schedule 2.2(b) --------------- Form of Notice of Request for Letter of Credit [Date] First Union National Bank of North Carolina 201 S. College Street, Suite 1300 Charlotte, NC 28288-0656 Attention: Portfolio Management Re: Credit Agreement dated as of January 2, 1997 (as amended and modified, the "Credit Agreement") among ACTION PERFORMANCE COMPANIES, INC., the Guarantors identified therein and First Union National Bank of North Carolina. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Ladies and Gentlemen: Pursuant to subsection 2.2(b) of the Credit Agreement, the undersigned Borrower, ACTION PERFORMANCE COMPANIES, INC., hereby requests that the following Letters of Credit be made on [date] as follows (the "Proposed Extension"): (1) Account Party: (2) For use by: (3) Beneficiary: (4) Face Amount of Letter of Credit: (5) Date of Issuance Delivery of Letter of Credit should be made as follows: In accordance with the requirements of Section 5.2 of the Credit Agreement, the undersigned Borrower hereby certifies that: (a) The representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the date of this request, and will be true and correct after giving effect to the requested Extension of Credit (except for those which expressly relate to an earlier date). (b) No Default or Event of Default exists, or will exist after giving effect to the requested Extension of Credit. 4 (c) No circumstances, events or conditions have occurred since the date of the audited financial statements referenced in Section 6.1 of the Credit Agreement which would have a Material Adverse Effect. (d) All conditions set forth in Section 2.2 as to the issuance of a Letter of Credit have been satisfied. Very truly yours, ACTION PERFORMANCE COMPANIES, INC. By:_______________________________ Name: Title: 5 Schedule 3.2 ------------ Form of Notice of Extension/Conversion First Union National Bank of North Carolina 201 S. College Street, Suite 1300 Charlotte, North Carolina 28288-0656 Attention: Portfolio Management Re: Credit Agreement dated as of January 2, 1997 (as amended and modified, the "Credit Agreement") among ACTION PERFORMANCE COMPANIES, INC., the Guarantors identified therein and First Union National Bank of North Carolina. Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement. Ladies and Gentlemen: The undersigned Borrower, ACTION PERFORMANCE COMPANIES, INC. hereby gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an extension or conversion of a Revolving Loan outstanding under the Credit Agreement, and in connection therewith sets forth below the terms on which such extension or conversion is requested to be made: (A) Date of Extension or Conversion (which is the last day of the the applicable Interest Period) _______________________ (B) Principal Amount of Extension or Conversion _______________________ (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2 of the Credit Agreement, the undersigned Borrower hereby certifies that: (a) The representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the date of this request, and will be true and correct after giving effect to the requested Extension of Credit (except for those which expressly relate to an earlier date). (b) No Default or Event of Default exists, or will exist after giving effect to the requested Extension of Credit. (c) No circumstances, events or conditions have occurred since the date of the audited financial statements referenced in Section 6.1 of the Credit Agreement which would have a Material Adverse Effect. (d) All conditions set forth in Section 2.1 as to the making of Revolving Loans have been satisfied 7 Very truly yours, ACTION PERFORMANCE COMPANIES, INC. By:_________________________________ Name: Title: 8 Schedule 7.11-1 --------------- Form of Joinder Agreement THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________, 19__, is by and between _____________________, a ___________________ (the "Applicant Guarantor"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, under that certain Credit Agreement dated as of January 2, 1997 (as amended and modified, the "Credit Agreement") by and among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation, the Guarantors identified therein and First Union National Bank of North Carolina, as Bank. All of the defined terms in the Credit Agreement are incorporated herein by reference. The Applicant Guarantor has indicated its desire to become a Guarantor or is required by the terms of Section 7.10 of the Credit Agreement to become, a Guarantor under the Credit Agreement. Accordingly, the Applicant Guarantor hereby agrees as follows with the Bank: 1. The Applicant Guarantor hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Applicant Guarantor will be deemed to be a party to the Credit Agreement and a "Guarantor" for all purposes of the Credit Agreement and the other Credit Documents, and shall have all of the obligations of a Guarantor thereunder as if it had executed the Credit Agreement and the other Credit Documents. The Applicant Guarantor agrees to be bound by, all of the terms, provisions and conditions contained in the Credit Documents, including without limitation (i) all of the affirmative and negative covenants set forth in Sections 7 and 8 of the Credit Agreement and (ii) all of the undertakings and waivers set forth in Section 4 of the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the Applicant Guarantor hereby (A) jointly and severally together with the other Guarantors, guarantees to the Bank as provided in Section 4 of the Credit Agreement, the prompt payment and performance of the Guaranteed Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. and (B) agrees that if any of the Guaranteed Obligations are not paid or performed in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Applicant Guarantor will, jointly and severally together with the other Guarantors, promptly pay and perform the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal. 2. The Applicant Guarantor acknowledges and confirms that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto. The information on the Schedules to the Credit Agreement are amended to provide the information, if any, shown on the attached Schedule A. 14 3. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract. 4. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the Applicant Guarantor has caused this Joinder Agreement to be duly executed by its authorized officers, and the Bank has caused the same to be accepted by its authorized officer, as of the day and year first above written. APPLICANT GUARANTOR By:__________________________________ Name: Title: Address for Notices: Attn: _______________________ Telephone: Telecopy: Acknowledged and accepted: FIRST UNION NATIONAL BANK OF NORTH CAROLINA By:______________________________________ Name: Title: EX-10.44 7 REGISTRATION AGREEMENT REGISTRATION AGREEMENT REGISTRATION AGREEMENT dated as of January 1, 1997, among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (the "Company"); MOTORSPORTS TRADITIONS LIMITED PARTNERSHIP, a North Carolina limited partnership ("MTL"); and MIDLAND LEASING, INC., a North Carolina corporation, ("Midland"), and MOTORSPORTS BY MAIL, INC., a North Carolina corporation ("MBM"), which owns substantially all of the partnership interests of MTL. (MTL, Midland, MBM, and the other partners of MTL are collectively referred to as the "Holders.") WITNESSETH The Company acquired substantially all of the assets of MTL under the terms of an Asset Purchase Agreement of even date. A portion of the consideration for the assets of MTL included 57,142 shares of Company's Common Stock (the "Shares"). The Shares are "restricted securities" as defined in Rule 144 under the Securities Act of 1933, as amended. As a result, there are substantial restrictions on the ability of the Holders to sell the Shares in the absence of registration under the Securities Act of 1933 and applicable state securities laws. In order to enable the Holders to sell all or a portion of the Shares, the Company has agreed to the terms of this Agreement. NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged by the parties, the parties hereby agree as follows: 1. REGISTRATION 1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Blackout Period" means any period (A) beginning on the date on which the Company notifies the Holders (as defined below) that (i) the Board of Directors of the Company, in its good faith judgment, has determined that there are material developments with respect to the Company such that it would be seriously detrimental to the Company and its shareholders to utilize a registration statement pursuant to Sections 1.2 or 1.3 below; (ii) the Board of Directors of the Company, in its good faith judgment, has determined that financial statements with respect to the Company, which may be required to utilize a registration statement pursuant to Sections 1.2 or 1.3 below, are unavailable; or (iii) the Company has notified the Holders that it intends to file a registration statement for a Subsequent Financing within 30 days of the mailing of such notice in accordance with Section 2.3 hereof, and (B) ending on the date (1) with respect to clause (i) above, as soon as practicable but not more than 30 days after the date on which the Company notifies the Holders of the Board of Directors' determination; (2) with respect to clause (ii) above, as soon as financial statements sufficient to permit Company to file or permit the utilization of a registration statement under the Act have become available; and (3) with respect to clause (iii) above, 90 days after the effective date of the registration statement for the Subsequent Financing. (c) The term "Holders" means those persons owning or having the right to acquire Registrable Securities (as defined below). (d) The term "Maximum Includable Securities" shall mean the maximum number of shares of each type or class of the Company's securities that a managing or principal underwriter, in its good faith judgment, deems practicable to offer and sell at that time in a firm commitment underwritten offering without materially and adversely affecting the marketability or price of the securities of the Company to be offered. When more than one type or class of the Company's securities are to be included in a registration, the managing or principal underwriter of the offering shall designate the maximum number of each such type or class of securities that is included in the Maximum Includable Securities. (e) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (f) The term "Registrable Security" shall refer to (i) the Shares, and (ii) any shares of Common Stock or other securities of the Company that may subsequently be issued or issuable with respect to the Shares as a result of a stock split or dividend or any sale, transfer, assignment, or other transaction by the Company or a Holder involving the Shares and any securities into which the Shares may thereafter be changed as a result of merger, consolidation, recapitalization, or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Act or sold to the public through a broker, dealer, or market-maker in compliance with Rule 144 under the Act. (g) "SEC" means the Securities and Exchange Commission. (h) The term "Subsequent Financing" means an offering of the Company's Common Stock or other securities convertible or exercisable into shares of the Company's Common Stock within 36 months after the date of this Agreement. 1.2 Mandatory Registration. (a) Not later than 30 days after the date of this Agreement, the Company shall file a registration statement under the Act with the SEC, and under any applicable state securities laws, covering the Shares and shall use its best efforts to cause the registration statement to become effective as soon as practicable and to remain effective for a period of three years after the date of this Agreement. (b) The Company may include Additional Shares of Common Stock or other securities to be sold by the Company and/or by other holders of Common Stock or other securities in any registration statement to be filed pursuant to this Section 1.2. 1.3 Piggy-Back Registration Rights. (a) Except as provided in Section 1.3(e), if at any time the Company proposes to file on its behalf and/or on behalf of any of its securityholders a registration statement under the Act on Form S-1, S-2, or S-3 (or any other appropriate form for the general registration of securities) with respect to any of its capital stock or other securities, the Company shall give each Holder written notice at least 20 days before the filing with the SEC of such registration statement. If any Holder desires to have Registrable Securities registered pursuant to this Section 1.3, such Holder shall so advise the Company in writing within 15 days after the date of mailing of such notice from the Company. The Company shall thereupon include in such filing the number of Registrable Securities for which registration is so requested, subject to its right to reduce the number of Registrable Securities as hereinafter provided, and shall use its best efforts to effect registration under the Act of such Registrable Securities. Notwithstanding the foregoing, the Company shall not be required to provide notice of filing of a registration statement and to include therein any Registrable Securities if the proposed registration is (i) a registration of stock options, stock purchases, or compensation or incentive plans, or of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan, on Form S-8 or other comparable form then in effect; or (ii) a registration of securities proposed to be issued in exchange for securities or assets of, or in connection with, a merger or consolidation with another corporation. 2 (b) In the event the offering in which any Holder's Registrable Securities are to be included pursuant to this Section 1.3 is to be underwritten, the Company shall furnish the Holders with a written statement of the managing or principal underwriter as to the Maximum Includable Securities as soon as practicable after the expiration of the 15-day period provided for in Section 1.3(a). If the total number of securities proposed to be included in such registration statement is in excess of the Maximum Includable Securities, the number of securities to be included within the coverage of such registration statement shall be reduced to the Maximum Includable Securities as follows: (i) no reduction shall be made in the number of shares of capital stock or other securities to be registered for the account of the Company or on behalf of any of its securityholders that have the right to require the Company to initiate a registration of such securities; and (ii) the number of Registrable Securities and other securities that may be included in the registration, if any, shall be allocated among the Holders of Registrable Securities and holders of other securities (the "Other Holders") requesting inclusion on a pro rata basis, with the number of each type or class of securities of each Holder and Other Holder thereof included in the registration to be that number determined by multiplying (A) the total number of such type or class of security included in the Maximum Includable Securities less (B) the number of such type or class of security to be registered for the account of the Company, by a fraction, the numerator of which will be the total number of such type or class of security that such Holder or Other Holder owns, and the denominator of which will be the total number of such type or class of security owned by all Holders and Other Holders that have requested inclusion of such type or class of security in the registration. (c) The Company shall, in its sole discretion, select the underwriter or underwriters, if any, that are to undertake the sale and distribution of the Registrable Securities to be included in a registration statement filed under the provisions of this Section 1.3. (d) At such time that the Company intends to effect a Subsequent Financing, it shall notify the Holders of such intent and shall designate the proposed offering as a Subsequent Financing. Except to the extent that the Company, in its sole discretion, may otherwise permit, the Holders shall have no right to have any Registrable Securities registered pursuant to this Section 1.3 in any Subsequent Financing. (e) The right to registration provided in this Section 1.3 is in addition to and not in lieu of the demand registration rights provided in Section 1.2. The provisions of this Section 1.3 shall not apply, however, to any Holders requesting registration pursuant to this Section 1.3 that are or may be free, at the time, to sell within the next 90-day period all of the Registrable Securities with respect to which such registration was requested in accordance with Rule 144 (or any similar rule or regulation) under the Act. 1.4 Obligations of the Company. Whenever required under Section 1.2 or Section 1.3 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement on such form as the Company deems appropriate with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective. With respect to registration statements filed pursuant to Section 1.3 hereof, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, the Company shall keep such registration statement effective for up to 180 days, or such shorter period as is reasonably required to dispose of all securities covered by such registration statement. (b) Notify the Holders promptly after it has received notice of the time when such registration statement has become effective or any supplement to any prospectus forming a part of such registration statement has been filed. (c) Prepare and file with the SEC, and promptly notify the Holders of the filing of, such amendments and supplements to such registration statement and the prospectus used in connection with such 3 registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (d) Advise each Holder promptly after it has received notice or obtained knowledge thereof of the issuance of any stop order by the SEC suspending the effectiveness of any such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. (e) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (f) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process, or to become subject to tax liability in any such states or jurisdictions, or to agree to any restrictions as to the conduct of its business in the ordinary course thereof. (g) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering, together with each Holder participating in such underwritten offering, as provided in Section 1.5(c). (h) Prepare and promptly file with the SEC, and promptly notify such Holders of the filing of, any amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Act, any event has occurred as the result of which any such prospectus must be amended in order that it does not make any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (i) In case any of such Holders or any underwriter for any such Holders is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under the Act, prepare promptly upon request such amendment or amendments to such registration statement and such prospectus as may be necessary to permit compliance with the requirements of the Act. (j) If any of the Registrable Securities are then listed on any securities exchange or the Nasdaq Stock Market, the Company will cause all such Registrable Securities covered by such registration statement to be listed on such exchange or the Nasdaq Stock Market. 1.5 Obligations of Holders. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement that each of the selling Holders shall: (a) Furnish to the Company such information regarding themselves, the Registrable Securities held by them, the intended method of sale or other disposition of such securities, the identity of and compensation to be paid to any underwriters proposed to be employed in connection with such sale or other disposition, and such other information as may reasonably be required to effect the registration of their Registrable Securities. (b) Notify the Company, at any time when a prospectus relating to Registrable Securities covered by a registration statement is required to be delivered under the Act, of the happening of any event with respect to such selling Holder as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 4 (c) In the event of any underwritten public offering, each Holder participating in such underwriting shall enter into and perform its obligations under the underwriting agreement for such offering, and if requested to do so by the underwriters managing such offering, each Holder shall enter into a customary holdback agreement. 1.6 Expenses of Mandatory Registration. The Company shall bear and pay all expenses incurred in connection with registrations, filings, or qualifications pursuant to Section 1.2 (other than underwriting discounts and commissions with respect to Registrable Securities included in such registration and any fees and costs of the Holders' legal counsel or other advisors), including (without limitation) all registration, filing, and qualification fees, Blue Sky fees and expenses, printers' and accounting fees, costs of listing on Nasdaq, costs of furnishing such copies of each preliminary prospectus, final prospectus, and amendments thereto as each Holder may reasonably request, and fees and disbursements of counsel for the Company. 1.7 Expenses of Piggy-Back Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to each of the registrations pursuant to Section 1.3 (other than underwriting discounts and commissions with respect to Registrable Securities included in such registration and any fees and costs of the Holders' legal counsel or other advisors), including (without limitation) all registration, filing, and qualification fees, Blue Sky fees and expenses, printers' and accounting fees, costs of listing on Nasdaq, costs of furnishing such copies of each preliminary prospectus, final prospectus, and amendments thereto as each Holder may reasonably request, and fees disbursements of counsel for the Company. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Holder, the officers and directors of each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which such person or persons may become subject under the Act, the 1934 Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions, or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse each such Holder, officer or director, underwriter, or controlling person for any legal or other expenses reasonably incurred by such person or persons in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company, nor shall the Company be liable in any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon (i) a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter, or controlling person, or (ii) the failure of such Holder, underwriter, or controlling person to deliver a copy of the registration statement or the prospectus, or any amendments or supplements thereto, after the Company has furnished such person with a sufficient number of copies of the same. (b) Each selling Holder will indemnify and hold harmless the Company, each of its officers and directors, and each person, if any, who controls the Company within the meaning of the Act, any underwriter and any other Holder selling securities in such registration statement or any of its directors or officers or any person who controls such Holder, against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such officer, director, controlling person, or underwriter or controlling person may become subject, under the Act, the 1934 Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) 5 that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such officer, director, controlling person, underwriter or controlling person, other Holder, officer, director, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Holder. Notwithstanding anything to the contrary herein contained, a Holder's indemnity obligation, in such person's capacity as a Holder, shall be limited to the net proceeds received by such Holder from the offering out of which the indemnity obligation arises. (c) Promptly after receipt by an indemnified party under this Section 1.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnified party, except that such fees and expenses shall be paid by the indemnifying party if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8. (d) The indemnification provided by this Section 1.8 shall be a continuing right to indemnification and shall survive the registration and sale of any of the Registrable Securities hereunder and the expiration or termination of this Agreement. 1.9 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act, the Company agrees to use its best efforts to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder, as long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Act, and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form. 1.10 Amendment and Waiver. Any amendment or waiver of any provision under this Agreement may be effected only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities then outstanding. 1.11 Remedies. The parties hereto acknowledge and agree that the breach of any part of this Agreement may cause irreparable harm and that monetary damages alone may be inadequate. The parties hereto therefore agree that any party shall be entitled to injunctive relief or such other applicable remedy as a court of 6 competent jurisdiction may provide. Nothing contained herein will be construed to limit any party's right to any remedies at law, including recovery of damages for breach of any part of this Agreement. 2. MISCELLANEOUS 2.1 Notification for Benefit of Holders. In the event that (i) the Company is actively pursuing the preparation and filing of a registration statement for an underwritten offering in which it may be possible for the Holders to participate pursuant to Section 1.3 of this Agreement, and (ii) the Holders are not actively pursuing an offering or selling Registrable Securities pursuant to an offering at that time, the Company shall promptly notify the Holders of such activity. Upon receipt of such notice, the Holders shall cease any sales of Registrable Securities pursuant to any registration statement or otherwise until the earlier of (a) 90 days after receipt of such notice; (b) two trading days after the Company files such registration statement or publicly announces its intention to file such registration statement (subject to the restrictions on any such sales provided for elsewhere in this Agreement); or (c) the Company notifies the Holder that it no longer is actively pursuing such underwritten offering. The Company shall promptly notify the Holders of any changes in its plans for or active pursuit of such underwritten offering. 2.2 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-law provisions to the contrary. 2.3 Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made, and received when delivered against receipt, upon receipt of a facsimile transmission, or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: (a) If to the Company: 2401 West First Street Phoenix, Arizona 85281 Attention: Fred W. Wagenhals Phone: (602) 517-3710 Facsimile: (602) 967-1403 with a copy given in the manner prescribed above, to: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. One East Camelback Road Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. Phone: (602) 263-2606 Facsimile: (602) 263-2900 (b) If to any Holder: 2835 Armentrout Drive Concord, North Carolina 28205 Attention: Kenneth R. Barbee Phone: (704) 784-2700 Facsimile: (704) 784-2707 7 with a copy given in the manner prescribed above, to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street, Suite 1900 Charlotte, North Carolina 28246-1900 Attention: Stokley G. Caldwell, Jr., Esq. Phone: (704) 377-8332 Facsimile: (704) 378-4000 Any party may alter the address to which communications or copies are to be sent by giving notice of such change to each of the other parties hereto in conformity with the provisions of this paragraph for the giving of notice. 2.4 Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns. 2.5 Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 2.6 Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 2.7 Gender. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. 2.8 Indulgences, Not Waivers. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege preclude any other or further exercise of the same or any other right, remedy, power, or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. 2.9 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Any photographic or xerographic copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as of it were an executed counterpart of this Agreement. 2.10 Provisions Separable. The provisions of this Agreement are independent and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 2.11 Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays, and holidays; provided, however, that if the final day of any time period 8 falls on a Saturday, Sunday, or holiday, then the final day shall be deemed to be the next day which is not a Saturday, Sunday, or holiday. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date and year first above written. MOTORSPORTS TRADITIONS LIMITED ACTION PERFORMANCE PARTNERSHIP COMPANIES, INC. By:___________________________ By:_________________________________ General Partner Its:________________________________ MIDLAND LEASING, INC. By:___________________________ Its:__________________________ MOTORSPORTS BY MAIL, INC. By:___________________________ Its:__________________________ 9 EX-10.45 8 REGISTRATION AGREEMENT REGISTRATION AGREEMENT REGISTRATION AGREEMENT dated as of January 1, 1997, among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (the "Company"); KENNETH R. BARBEE and JEFFERY M. GORDON together referred to as the "Holders.") WITNESSETH The Company acquired all of the shares of capital stock of Creative Marketing and Promotions, Inc., a North Carolina corporation ("CMP") under the terms of an Exchange Agreement of even date. The consideration for the capital stock of CMP included 285,714 shares of Company's Common Stock (the "Shares"). The Shares are "restricted securities" as defined in Rule 144 under the Securities Act of 1933, as amended. As a result, there are substantial restrictions on the ability of the Holders to sell the Shares in the absence of registration under the Securities Act of 1933 and applicable state securities laws. In order to enable the Holders to sell all or a portion of the Shares, the Company has agreed to the terms of this Agreement. NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged by the parties, the parties hereby agree as follows: 1. REGISTRATION 1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Blackout Period" means any period (A) beginning on the date on which the Company notifies the Holders (as defined below) that (i) the Board of Directors of the Company, in its good faith judgment, has determined that there are material developments with respect to the Company such that it would be seriously detrimental to the Company and its shareholders to utilize a registration statement pursuant to Sections 1.2 or 1.3 below; (ii) the Board of Directors of the Company, in its good faith judgment, has determined that financial statements with respect to the Company, which may be required to utilize a registration statement pursuant to Sections 1.2 or 1.3 below, are unavailable; or (iii) the Company has notified the Holders that it intends to file a registration statement for a Subsequent Financing within 30 days of the mailing of such notice in accordance with Section 2.3 hereof, and (B) ending on the date (1) with respect to clause (i) above, as soon as practicable but not more than 30 days after the date on which the Company notifies the Holders of the Board of Directors' determination; (2) with respect to clause (ii) above, as soon as financial statements sufficient to permit Company to file or permit the utilization of a registration statement under the Act have become available; and (3) with respect to clause (iii) above, 90 days after the effective date of the registration statement for the Subsequent Financing. (c) The term "Holders" means those persons owning or having the right to acquire Registrable Securities (as defined below). (d) The term "Maximum Includable Securities" shall mean the maximum number of shares of each type or class of the Company's securities that a managing or principal underwriter, in its good faith judgment, deems practicable to offer and sell at that time in a firm commitment underwritten offering without materially and adversely affecting the marketability or price of the securities of the Company to be offered. When more than one type or class of the Company's securities are to be included in a registration, the managing or principal underwriter of the offering shall designate the maximum number of each such type or class of securities that is included in the Maximum Includable Securities. (e) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (f) The term "Registrable Security" shall refer to (i) the Shares, and (ii) any shares of Common Stock or other securities of the Company that may subsequently be issued or issuable with respect to the Shares as a result of a stock split or dividend or any sale, transfer, assignment, or other transaction by the Company or a Holder involving the Shares and any securities into which the Shares may thereafter be changed as a result of merger, consolidation, recapitalization, or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Act or sold to the public through a broker, dealer, or market-maker in compliance with Rule 144 under the Act. (g) "SEC" means the Securities and Exchange Commission. (h) The term "Subsequent Financing" means an offering of the Company's Common Stock or other securities convertible or exercisable into shares of the Company's Common Stock within 36 months after the date of this Agreement. 1.2 Mandatory Registration. (a) Not later than 30 days after the date of this Agreement, the Company shall file a registration statement under the Act with the SEC, and under any applicable state securities laws, covering the Shares and shall use its best efforts to cause the registration statement to become effective as soon as practicable and to remain effective for a period of three years after the date of this Agreement. (b) The Company may include Additional Shares of Common Stock or other securities to be sold by the Company and/or by other holders of Common Stock or other securities in any registration statement to be filed pursuant to this Section 1.2. 1.3 Piggy-Back Registration Rights. (a) Except as provided in Section 1.3(e), if at any time the Company proposes to file on its behalf and/or on behalf of any of its securityholders a registration statement under the Act on Form S-1, S-2, or S-3 (or any other appropriate form for the general registration of securities) with respect to any of its capital stock or other securities, the Company shall give each Holder written notice at least 20 days before the filing with the SEC of such registration statement. If any Holder desires to have Registrable Securities registered pursuant to this Section 1.3, such Holder shall so advise the Company in writing within 15 days after the date of mailing of such notice from the Company. The Company shall thereupon include in such filing the number of Registrable Securities for which registration is so requested, subject to its right to reduce the number of Registrable Securities as hereinafter provided, and shall use its best efforts to effect registration under the Act of such Registrable Securities. Notwithstanding the foregoing, the Company shall not be required to provide notice of filing of a registration statement and to include therein any Registrable Securities if the proposed registration is (i) a registration of stock options, stock purchases, or compensation or incentive plans, or of securities issued or issuable pursuant to any such plan, or a dividend reinvestment plan, on Form S-8 or other comparable form then in effect; or (ii) a registration of securities proposed to be issued in exchange for securities or assets of, or in connection with, a merger or consolidation with another corporation. (b) In the event the offering in which any Holder's Registrable Securities are to be included pursuant to this Section 1.3 is to be underwritten, the Company shall furnish the Holders with a written statement 2 of the managing or principal underwriter as to the Maximum Includable Securities as soon as practicable after the expiration of the 15-day period provided for in Section 1.3(a). If the total number of securities proposed to be included in such registration statement is in excess of the Maximum Includable Securities, the number of securities to be included within the coverage of such registration statement shall be reduced to the Maximum Includable Securities as follows: (i) no reduction shall be made in the number of shares of capital stock or other securities to be registered for the account of the Company or on behalf of any of its securityholders that have the right to require the Company to initiate a registration of such securities; and (ii) the number of Registrable Securities and other securities that may be included in the registration, if any, shall be allocated among the Holders of Registrable Securities and holders of other securities (the "Other Holders") requesting inclusion on a pro rata basis, with the number of each type or class of securities of each Holder and Other Holder thereof included in the registration to be that number determined by multiplying (A) the total number of such type or class of security included in the Maximum Includable Securities less (B) the number of such type or class of security to be registered for the account of the Company, by a fraction, the numerator of which will be the total number of such type or class of security that such Holder or Other Holder owns, and the denominator of which will be the total number of such type or class of security owned by all Holders and Other Holders that have requested inclusion of such type or class of security in the registration. (c) The Company shall, in its sole discretion, select the underwriter or underwriters, if any, that are to undertake the sale and distribution of the Registrable Securities to be included in a registration statement filed under the provisions of this Section 1.3. (d) At such time that the Company intends to effect a Subsequent Financing, it shall notify the Holders of such intent and shall designate the proposed offering as a Subsequent Financing. Except to the extent that the Company, in its sole discretion, may otherwise permit, the Holders shall have no right to have any Registrable Securities registered pursuant to this Section 1.3 in any Subsequent Financing. (e) The right to registration provided in this Section 1.3 is in addition to and not in lieu of the demand registration rights provided in Section 1.2. The provisions of this Section 1.3 shall not apply, however, to any Holders requesting registration pursuant to this Section 1.3 that are or may be free, at the time, to sell within the next 90-day period all of the Registrable Securities with respect to which such registration was requested in accordance with Rule 144 (or any similar rule or regulation) under the Act. 1.4 Obligations of the Company. Whenever required under Section 1.2 or Section 1.3 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement on such form as the Company deems appropriate with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective. With respect to registration statements filed pursuant to Section 1.3 hereof, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, the Company shall keep such registration statement effective for up to 180 days, or such shorter period as is reasonably required to dispose of all securities covered by such registration statement. (b) Notify the Holders promptly after it has received notice of the time when such registration statement has become effective or any supplement to any prospectus forming a part of such registration statement has been filed. (c) Prepare and file with the SEC, and promptly notify the Holders of the filing of, such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. 3 (d) Advise each Holder promptly after it has received notice or obtained knowledge thereof of the issuance of any stop order by the SEC suspending the effectiveness of any such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. (e) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (f) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process, or to become subject to tax liability in any such states or jurisdictions, or to agree to any restrictions as to the conduct of its business in the ordinary course thereof. (g) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering, together with each Holder participating in such underwritten offering, as provided in Section 1.5(c). (h) Prepare and promptly file with the SEC, and promptly notify such Holders of the filing of, any amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Act, any event has occurred as the result of which any such prospectus must be amended in order that it does not make any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (i) In case any of such Holders or any underwriter for any such Holders is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under the Act, prepare promptly upon request such amendment or amendments to such registration statement and such prospectus as may be necessary to permit compliance with the requirements of the Act. (j) If any of the Registrable Securities are then listed on any securities exchange or the Nasdaq Stock Market, the Company will cause all such Registrable Securities covered by such registration statement to be listed on such exchange or the Nasdaq Stock Market. 1.5 Obligations of Holders. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement that each of the selling Holders shall: (a) Furnish to the Company such information regarding themselves, the Registrable Securities held by them, the intended method of sale or other disposition of such securities, the identity of and compensation to be paid to any underwriters proposed to be employed in connection with such sale or other disposition, and such other information as may reasonably be required to effect the registration of their Registrable Securities. (b) Notify the Company, at any time when a prospectus relating to Registrable Securities covered by a registration statement is required to be delivered under the Act, of the happening of any event with respect to such selling Holder as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (c) In the event of any underwritten public offering, each Holder participating in such underwriting shall enter into and perform its obligations under the underwriting agreement for such offering, and if requested to do so by the underwriters managing such offering, each Holder shall enter into a customary holdback agreement. 4 1.6 Expenses of Mandatory Registration. The Company shall bear and pay all expenses incurred in connection with registrations, filings, or qualifications pursuant to Section 1.2 (other than underwriting discounts and commissions with respect to Registrable Securities included in such registration and any fees and costs of the Holders' legal counsel or other advisors), including (without limitation) all registration, filing, and qualification fees, Blue Sky fees and expenses, printers' and accounting fees, costs of listing on Nasdaq, costs of furnishing such copies of each preliminary prospectus, final prospectus, and amendments thereto as each Holder may reasonably request, and fees and disbursements of counsel for the Company. 1.7 Expenses of Piggy-Back Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to each of the registrations pursuant to Section 1.3 (other than underwriting discounts and commissions with respect to Registrable Securities included in such registration and any fees and costs of the Holders' legal counsel or other advisors), including (without limitation) all registration, filing, and qualification fees, Blue Sky fees and expenses, printers' and accounting fees, costs of listing on Nasdaq, costs of furnishing such copies of each preliminary prospectus, final prospectus, and amendments thereto as each Holder may reasonably request, and fees disbursements of counsel for the Company. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Holder, the officers and directors of each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which such person or persons may become subject under the Act, the 1934 Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions, or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse each such Holder, officer or director, underwriter, or controlling person for any legal or other expenses reasonably incurred by such person or persons in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company, nor shall the Company be liable in any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon (i) a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter, or controlling person, or (ii) the failure of such Holder, underwriter, or controlling person to deliver a copy of the registration statement or the prospectus, or any amendments or supplements thereto, after the Company has furnished such person with a sufficient number of copies of the same. (b) Each selling Holder will indemnify and hold harmless the Company, each of its officers and directors, and each person, if any, who controls the Company within the meaning of the Act, any underwriter and any other Holder selling securities in such registration statement or any of its directors or officers or any person who controls such Holder, against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such officer, director, controlling person, or underwriter or controlling person may become subject, under the Act, the 1934 Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such officer, director, controlling person, underwriter or controlling person, other Holder, officer, director, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement 5 contained in this Section 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Holder. Notwithstanding anything to the contrary herein contained, a Holder's indemnity obligation, in such person's capacity as a Holder, shall be limited to the net proceeds received by such Holder from the offering out of which the indemnity obligation arises. (c) Promptly after receipt by an indemnified party under this Section 1.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnified party, except that such fees and expenses shall be paid by the indemnifying party if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8. (d) The indemnification provided by this Section 1.8 shall be a continuing right to indemnification and shall survive the registration and sale of any of the Registrable Securities hereunder and the expiration or termination of this Agreement. 1.9 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act, the Company agrees to use its best efforts to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder, as long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Act, and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form. 1.10 Amendment and Waiver. Any amendment or waiver of any provision under this Agreement may be effected only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities then outstanding. 1.11 Remedies. The parties hereto acknowledge and agree that the breach of any part of this Agreement may cause irreparable harm and that monetary damages alone may be inadequate. The parties hereto therefore agree that any party shall be entitled to injunctive relief or such other applicable remedy as a court of competent jurisdiction may provide. Nothing contained herein will be construed to limit any party's right to any remedies at law, including recovery of damages for breach of any part of this Agreement. 6 2. MISCELLANEOUS 2.1 Notification for Benefit of Holders. In the event that (i) the Company is actively pursuing the preparation and filing of a registration statement for an underwritten offering in which it may be possible for the Holders to participate pursuant to Section 1.3 of this Agreement, and (ii) the Holders are not actively pursuing an offering or selling Registrable Securities pursuant to an offering at that time, the Company shall promptly notify the Holders of such activity. Upon receipt of such notice, the Holders shall cease any sales of Registrable Securities pursuant to any registration statement or otherwise until the earlier of (a) 90 days after receipt of such notice; (b) two trading days after the Company files such registration statement or publicly announces its intention to file such registration statement (subject to the restrictions on any such sales provided for elsewhere in this Agreement); or (c) the Company notifies the Holder that it no longer is actively pursuing such underwritten offering. The Company shall promptly notify the Holders of any changes in its plans for or active pursuit of such underwritten offering. 2.2 Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-law provisions to the contrary. 2.3 Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made, and received when delivered against receipt, upon receipt of a facsimile transmission, or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: (a) If to the Company: 2401 West First Street Phoenix, Arizona 85281 Attention: Fred W. Wagenhals Phone: (602) 517-3710 Facsimile: (602) 967-1403 with a copy given in the manner prescribed above, to: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. One East Camelback Road Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. Phone: (602) 263-2606 Facsimile: (602) 263-2900 (b) If to any Holder: 2835 Armentrout Drive Concord, North Carolina 28205 Attention: Kenneth R. Barbee Phone: (704) 784-2700 Facsimile: (704) 784-2707 7 with a copy given in the manner prescribed above, to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street, Suite 1900 Charlotte, North Carolina 28246-1900 Attention: Stokley G. Caldwell, Jr., Esq. Phone: (704) 377-8332 Facsimile: (704) 378-4000 Any party may alter the address to which communications or copies are to be sent by giving notice of such change to each of the other parties hereto in conformity with the provisions of this paragraph for the giving of notice. 2.4 Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns. 2.5 Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 2.6 Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 2.7 Gender. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. 2.8 Indulgences, Not Waivers. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege preclude any other or further exercise of the same or any other right, remedy, power, or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. 2.9 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Any photographic or xerographic copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as of it were an executed counterpart of this Agreement. 2.10 Provisions Separable. The provisions of this Agreement are independent and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 2.11 Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays, and holidays; provided, however, that if the final day of any time period 8 falls on a Saturday, Sunday, or holiday, then the final day shall be deemed to be the next day which is not a Saturday, Sunday, or holiday. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date and year first above written. ACTION PERFORMANCE COMPANIES, INC. By:______________________________________ Its:_____________________________________ ----------------------------------------- Kenneth R. Barbee ----------------------------------------- Jeffery M. Gordon 9 EX-10.46 9 EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 1997 BETWEEN ACTION PERFORMANCE COMPANIES, INC. AND KENNETH R. BARBEE - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- 1. Employment.......................................................... 1 2. Full Time Occupation................................................ 1 3. Compensation and other Benefits..................................... 1 (a) Salary..................................................... 1 (b) Bonus...................................................... 1 (c) Stock Options.............................................. 1 (d) Fringe Benefits............................................ 1 (e) Reimbursement.............................................. 2 4. Term of Employment.................................................. 2 (a) Employment Term............................................ 2 (b) Termination Under Certain Circumstances.................... 2 (c) Result of Termination...................................... 2 5. Competition and Confidential Information............................ 2 (a) Interests to be Protected.................................. 2 (b) Non-Competition............................................ 3 (c) Non-Solicitation of Employees.............................. 3 (d) Confidential Information................................... 3 (e) Return of Books and Papers................................. 4 (f) Equitable Relief........................................... 4 (g) Restrictions Separable..................................... 4 6. Miscellaneous....................................................... 4 (a) Notices.................................................... 4 (b) Indulgences................................................ 5 (c) Controlling Law............................................ 5 (d) Binding Nature of Agreement................................ 5 (e) Execution in Counterpart................................... 5 (f) Provisions Separable....................................... 5 (g) Entire Agreement........................................... 5 (h) Paragraph Headings......................................... 6 7. Successors And Assigns.............................................. 6 i EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of the 1st day of January, 1997, by and between ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation ("Employer") and KENNETH R. BARBEE ("Employee"). As of the date of this Agreement, Employer has acquired all of the outstanding stock of Creative Marketing and Promotions, Inc., a North Carolina corporation ("CMP"), and Employer's wholly owned subsidiary, MTL Acquisition, Inc., an Arizona corporation, has purchased substantially all the assets of Motorsport Traditions Limited Partnership, a North Carolina limited partnership (together with CMP, "Motorsport Traditions"). Employee served in various executive capacities with Motorsport Traditions prior to the acquisition. Employer intends to continue the business of Motorsport Traditions. Employer desires that Employee serve as General Manager of Motorsport Traditions and perform various other services for Employer, and Employee desires to accept such employment, upon the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth in this Agreement, the parties hereto agree as follows: 1. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment, as Vice President of Employee's wholly owned subsidiary, Sports Image, Inc., an Arizona corporation ("SII"), and in such other capacities and for such other duties and services of an executive nature as shall from time to time be specified by Employer. 2. Full Time Occupation. Employee shall devote such of Employee's business time, attention, and efforts as shall be reasonably necessary for the performance of Employee's duties under this Agreement and shall serve Employer faithfully and diligently. 3. Compensation and other Benefits. (a) Salary. Employer shall pay to Employee, as compensation for the services rendered by Employee during Employee's employment under this Agreement, a salary at a rate of $120,000 per annum, to be paid in equal monthly installments or in such other periodic installments upon which Employer and Employee mutually agree. (b) Bonus. Employee shall be eligible to receive an annual bonus in an amount of up to 20% of Employee's salary with the amount to be determined by the Board of Directors of Employer based upon such factors as may be deemed relevant by the directors, including the performance of Employee. (c) Stock Options and Awards. Employee shall be granted qualified stock options under Employer's Stock Option Plan to purchase a total of 15,000 shares of Employer's Common Stock at a price equal to $17.50 per share at any time or from time to time within six years of the date of grant, such options to vest 50% on the date of grant and 50% on the first anniversary of the grant. (d) Fringe Benefits. Employee shall be entitled to participate in any group insurance, pension, retirement, vacation, expense reimbursement, and other plans, programs, or benefits approved by Employer's Board of Directors and made available from time to time to executive personnel of Employer generally during the term of Employee's employment hereunder. The foregoing shall not obligate Employer to adopt or maintain any particular plan, program, or benefit. (e) Reimbursement. Employer shall reimburse Employee for all travel and entertainment expenses and other ordinary and necessary business expenses incurred by Employee in connection with the business of Employer and Employee's duties under this Agreement; provided, however, that Employee shall not incur such expenses in an amount in excess of $5,000 during any month without written authorization from Employer. The term "business expenses" shall not include any item not deductible in whole or in part by Employer for federal income tax purposes. To obtain reimbursement, Employee must submit to Employer receipts, bills, or sales slips for the expenses incurred. Reimbursements will be made by Employer monthly within 10 days of presentation by Employee of satisfactory evidence of the expenses incurred. 4. Term of Employment. (a) Employment Term. The term of Employee's employment under this Agreement shall be for a period of two years commencing on the date of this Agreement and continuing from year to year thereafter, unless and until terminated by either party giving written notice to the other not less than 60 days prior to the end of the then-current term of Employee's employment under this Agreement. (b) Termination Under Certain Circumstances. Notwithstanding anything to the contrary herein contained: (i) Death. Employee's employment shall automatically terminate, without notice, effective upon the date of Employee's death. (ii) Disability. If Employee shall fail, for a period of more than 60 consecutive days, or for 60 days within any 180-day period, to perform any of Employee's duties under this Agreement as the result of illness or other incapacity, Employer, at its option and upon notice to Employee, may terminate Employee's employment effective on the date of that notice. (iii) Unilateral Decision of Employer. Employer, at its option and upon notice to Employee, may terminate Employee's employment effective on the date of that notice. (iv) Unilateral Decision by Employee. Employee, at his option, may terminate Employee's employment upon 90 days prior notice to Employer. (v) Certain Acts. If Employee engages in an act or acts involving a felony, moral turpitude, fraud, or dishonesty, Employer, at its option and upon notice to Employee, may terminate Employee's employment effective on the date of that notice. (c) Result of Termination. In the event of the termination of Employee's employment pursuant to Sections 4(b)(i), (ii), (iv) or (v) above, Employee shall receive no further compensation under this Agreement. In the event of the termination of Employee's employment pursuant to Section 4(b)(iii) above, Employee shall continue to receive Employee's fixed compensation during the remainder of the then-current term of Employee's employment under this Agreement prior to such termination if termination is before the end of the two-year term beginning on the date of this Agreement. Employee shall receive no severance compensation in the event of the termination of Employee's employment for any reason after the initial two-year term. 5. Competition and Confidential Information. (a) Interests to be Protected. The parties acknowledge that Employee will perform essential services for Employer, its employees, and its shareholders during the term of Employee's employment with Employer. Employee will be exposed to, have access to, and work with, a considerable amount of Confidential Information (as defined below). The parties also expressly recognize and acknowledge that the personnel of Employer have been trained by, and are valuable to, Employer and that Employer will incur substantial recruiting and training expenses if Employer must hire new personnel or retrain existing personnel to fill vacancies. The parties expressly recognize that it could seriously impair the goodwill and diminish the value of Employer's business 2 should Employee compete with Employer in any manner whatsoever. The parties acknowledge that this covenant has an extended duration; however, they agree that this covenant is reasonable and it is necessary for the protection of Employer, its shareholders, and employees. For these and other reasons, and the fact that there are many other employment opportunities available to Employee if he should terminate his employment, the parties are in full and complete agreement that the following restrictive covenants are fair and reasonable and are entered into freely, voluntarily, and knowingly. Furthermore, each party was given the opportunity to consult with independent legal counsel before entering into this Agreement. (b) Non-Competition. During the later of (i) 12 months of the date of this Agreement or (ii) the term of Employee's employment with Employer and for the period ending six months after the termination of Employee's employment with Employer (voluntarily by Employee or with cause by Employer), Employee shall not (whether directly or indirectly, as owner, principal, agent, stockholder, director, officer, manager, employee, partner, participant, or in any other capacity) engage or become financially interested in any competitive business conducted within the Restricted Territory (as defined below) or otherwise circumvent any license agreements of Employer relating to the business of Employer. As used herein, the term "competitive business" shall mean (i) the design and manufacture of collectible die-cast and pewter miniature replicas of motorsports vehicles and the design and manufacture of licensed apparel, souvenirs, and other motorsports consumer items, including t-shirts, hats, jackets, mugs, key chains, and drink bottles, in each case to be distributed and sold through collector and fan clubs, wholesale distribution, authorized retail dealers, trackside events, and promotional programs for corporate sponsors; (ii) the development of marketing and product promotional programs for corporate sponsors of motorsports, featuring Employer's die-cast replicas or other products as premium awards, intended to increase brand awareness of the products or services of the corporate sponsors; and (iii) the design, manufacture, and sale of motorsports-related products (consisting of die cast miniature replicas of motorsports vehicles and motorsports-related apparel and souvenirs) specifically designed for the mass-merchandise market; and the term "Restricted Territory" shall mean any state in which Employer or its subsidiaries sells products or provides services during Employee's employment hereunder. Employer acknowledges that Employee's ownership or operation of Chase Raceware, L.L.C., Racing for Kids, L.L.C., Motorsports by Mail, Inc., Race World, L.L.C., American Motorsports Marketing, Inc., and Cararrus Plastics, Inc. (in the production of plastic products under manufacturing or similar arrangements), as the businesses of such enterprises currently are conducted, shall not be deemed "competitive businesses." (c) Non-Solicitation of Employees. During the term of Employee's employment and for a period of 12 months after the termination of Employee's employment with Employer, regardless of the reason therefor, Employee shall not directly or indirectly, for himself, or on behalf of, or in conjunction with, any other person, company, partnership, corporation, or governmental entity, seek to hire or hire any of Employer's or its subsidiaries' personnel or employees for the purpose of having any such employee engage in services that are the same as or similar or related to the services that such employee provided for Employer or its subsidiaries. (d) Confidential Information. Employee shall maintain in strict secrecy all confidential or trade secret information relating to the business of Employer and its subsidiaries (the "Confidential Information") obtained by Employee in the course of Employee's employment, and Employee shall not, unless first authorized in writing by Employer, disclose to, or use for Employee's benefit or for the benefit of, any person, firm, or entity at any time either during or subsequent to the term of Employee's employment, any Confidential Information, except as required in the performance of Employee's duties on behalf of Employer and its subsidiaries. For purposes hereof, Confidential Information shall include without limitation any engineering, drawings, or other reproduction of any kind; any trade secrets, knowledge, or information with respect to processes, inventions, machinery, manufacturing techniques and know-how and to the management, operational, marketing, licensing, and distribution policies and practices of Employer and its subsidiaries; any business methods or forms; any names or addresses of customers or data on customers or suppliers; and any business policies or other information relating to or dealing with the purchasing, production, sales, marketing, and distribution policies or practices of Employer or its subsidiaries or relating to or dealing with the management, operational, or investment policies or practices of Employer or its subsidiaries. 3 (e) Return of Books and Papers. Upon the termination of Employee's employment with Employer for any reason, Employee shall deliver promptly to Employer all samples or demonstration models, catalogues, files, lists, books, records, manuals, memoranda, drawings, and specifications; all cost, pricing, and other financial data; all customer, licensee, and supplier information; all other written or printed materials that are the property of Employer or its subsidiaries (and any copies of them); and all other materials that may contain Confidential Information relating to the business of Employer and its subsidiaries, which Employee may then have in Employee's possession, whether prepared by Employee or not. (f) Equitable Relief. In the event a violation of any of the restrictions contained in this Section is established, Employer shall be entitled to preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits, and other benefits arising from such violation, which right shall be cumulative and in addition to any other rights or remedies to which Employer may be entitled. In the event of a violation of any provision of subsection (b), (c), (f), or (g) of this Section, the period for which those provisions would remain in effect shall be extended for a period of time equal to that period beginning when such violation commenced and ending when the activities constituting such violation shall have been finally terminated in good faith. (g) Restrictions Separable. If the scope of any provision of this Agreement (whether in this Section 5 or otherwise) is found by a Court to be too broad to permit enforcement to its full extent, then such provision shall be enforced to the maximum extent permitted by law. The parties agree that the scope of any provision of this Agreement may be modified by a judge in any proceeding to enforce this Agreement, so that such provision can be enforced to the maximum extent permitted by law. Each and every restriction set forth in this Section 5 is independent and severable from the others, and no such restriction shall be rendered unenforceable by virtue of the fact that, for any reason, any other or others of them may be unenforceable in whole or in part. 6. Miscellaneous. (a) Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made, and received (i) if personally delivered, on the date of delivery, (ii) if by facsimile transmission, upon receipt, (iii) if mailed, three days after deposit in the United States mail, registered or certified, return receipt requested, postage prepaid, and addressed as provided below, or (iv) if by a courier delivery service providing overnight or "next-day" delivery, on the next business day after deposit with such service addressed as follows: (1) If to Employer: 2401 West First Street Tempe, Arizona 85281 Attention: Fred W. Wagenhals Phone: (602) 517-3710 Fax: (602) 967-1403 with a copy given in the manner prescribed above, to: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. One East Camelback Road Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. Phone: (602) 263-2606 Fax: (602) 263-2900 4 (2) If to Employee: Unit 407 First Turn Condominiums Harrisburg, North Carolina 28075 Phone: (704) 455-3954 with a copy given in the manner prescribed above, to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street, Suite 1900 Charlotte, North Carolina 28246-1900 Attention: Stokley G. Caldwell, Jr., Esq. Phone: (704) 377-8332 Fax: (704) 378-4000 Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 6 for the giving of notice. (b) Indulgences; Waivers. Neither any failure nor any delay on the part of either party to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any other occurrence. No waiver shall be binding unless executed in writing by the party making the waiver. (c) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-interest provisions to the contrary. (d) Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns, except that no party may assign or transfer such party's rights or obligations under this Agreement without the prior written consent of the other party. (e) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as the signatories. (f) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (g) Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, inducements and conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 5 (h) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 7. Successors And Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto; provided that because the obligations of Employee hereunder involve the performance of personal services, such obligations shall not be delegated by Employee. For purposes of this Agreement, successors and assigns shall include, but not be limited to, any individual, corporation, trust, partnership, or other entity that acquires a majority of the stock or assets of Employer by sale, merger, consolidation, liquidation, or other form of transfer. Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of Employer to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. Without limiting the foregoing, unless the context otherwise requires, the term "Employer" includes all subsidiaries of Employer including SII. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ACTION PERFORMANCE COMPANIES, INC. By:___________________________________________ Its:__________________________________________ ---------------------------------------------- Kenneth R. Barbee 6 EX-10.47 10 CONSULTING AGREEMENT - -------------------------------------------------------------------------------- CONSULTING AGREEMENT DATED AS OF JANUARY 1, 1997 BETWEEN ACTION PERFORMANCE COMPANIES, INC. AND JOHN BICKFORD - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- 1. Engagement.......................................................... 1 (a) The Engagement............................................. 1 (b) Duties of Consultant....................................... 1 2. Extent of Duties.................................................... 1 3. Compensation........................................................ 1 (a) Fixed Compensation......................................... 1 (b) Reimbursement.............................................. 1 4. Term of Engagement.................................................. 1 (a) Engagement Term............................................ 1 (b) Termination Under Certain Circumstances.................... 1 5. Competition and Confidential Information............................ 2 (a) Interests to be Protected.................................. 2 (b) Non-Competition............................................ 2 (c) Non-Solicitation of Employees.............................. 3 (d) Confidential Information................................... 3 (e) Return of Books and Papers................................. 3 (f) Equitable Relief........................................... 3 (g) Restrictions Separable..................................... 3 6. Miscellaneous....................................................... 3 (a) Notices.................................................... 3 (b) Indulgences................................................ 4 (c) Controlling Law............................................ 4 (d) Binding Nature of Agreement................................ 4 (e) Execution in Counterparts.................................. 5 (f) Provisions Separable....................................... 5 (g) Entire Agreement........................................... 5 (h) Paragraph Headings......................................... 5 7. Successors And Assigns.............................................. 5 i CONSULTING AGREEMENT AGREEMENT made as of the 1st day of January, 1997, by and between ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (hereinafter called "Company") and JOHN BICKFORD (hereinafter called "Consultant"). W I T N E S S E T H: Company desires to engage Consultant and Consultant desires to accept such engagement, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth in this Agreement, the parties hereto agree as follows: 1. Engagement. (a) The Engagement. Company hereby engages Consultant and Consultant hereby accepts such engagement as an independent contractor to perform the duties set forth in this Agreement. (b) Duties of Consultant. During Consultant's engagement by Company pursuant to this Agreement, Consultant shall render such advice and recommendations to Company as Company may reasonably request with respect to representing Company in the motorsports community, creating new marketing and promotional campaigns, and advising Company with respect to the motorsports industry. 2. Extent of Duties. Consultant shall devote such of Consultant's business time, attention and efforts as are reasonably necessary to the performance of Consultant's duties under this Agreement, shall perform such duties faithfully and diligently, and shall not engage in same or similar activities for himself or any other person, firm, or entity while engaged by Company. 3. Compensation. (a) Fixed Compensation. Company shall pay to Consultant as full compensation for the duties performed by Consultant during Consultant's engagement under this Agreement, a fee at a rate of $100,000 per annum to be paid in equal monthly installments, or in such other periodic installments upon which Company and Consultant shall mutually agree. (b) Reimbursement. Company shall reimburse Consultant for all travel and entertainment expenses and other ordinary and necessary business expenses incurred by Consultant in connection with the business of Company and Consultant's duties under this Agreement; provided, however, that Consultant shall not incur such expenses in an amount in excess of $1,000 during any month without written authorization from Company. The term "business expenses" shall not include any item not deductible by Company for federal income tax purposes. To obtain reimbursement, Consultant shall submit to Company receipts, bills or sales slips for the expenses incurred. Reimbursements shall be made by Company monthly within 30 days of presentation by Consultant of evidence of the expenses incurred. 4. Term of Engagement. (a) Engagement Term. The term of Consultant's engagement hereunder shall commence on January 1, 1997 and shall continue until December 31, 2000, and from year to year thereafter, unless and until terminated by either party giving written notice to the other not less than 60 days prior to the end of the then current term. (b) Termination Under Certain Circumstances. Notwithstanding anything to the contrary herein contained: (i) Consultant's engagement shall be automatically terminated, without notice, effective upon the date of Consultant's death; (ii) If Consultant shall fail, for a period of more than 30 consecutive days, or for 30 days within any 60 day period, to perform any of Consultant's duties under this Agreement as the result of illness or other incapacity, Company, at its option, upon notice to Consultant, may terminate Consultant's engagement effective on the date of that notice; (iii) If Consultant shall breach or violate any of the provisions of this Agreement, or fail to perform in a manner reasonably satisfactory to Company any of the duties required of Consultant and such breach, violation or failure shall continue for a period of 30 days after Company shall have given Consultant written notice specifying the nature thereof in reasonable detail, Company, at its option, upon notice to Consultant, may terminate Consultant's engagement effective on the date of that notice. 5. Competition and Confidential Information. (a) Interests to be Protected. The parties acknowledge that Consultant will perform essential services for Company, its employees, and its shareholders during the term of Consultant's engagement with Company. Consultant will be exposed to, have access to, and work with, a considerable amount of Confidential Information (as defined below). The parties also expressly recognize and acknowledge that the personnel of Company have been trained by, and are valuable to, Company and that Company will incur substantial recruiting and training expenses if Company must hire new personnel or retrain existing personnel to fill vacancies. The parties expressly recognize that it could seriously impair the goodwill and diminish the value of Company's business should Consultant compete with Company in any manner whatsoever. The parties acknowledge that this covenant has an extended duration; however, they agree that this covenant is reasonable and it is necessary for the protection of Company, its stockholders, and employees. For these and other reasons, and the fact that there are many other engagement opportunities available to Consultant if he should terminate his engagement, the parties are in full and complete agreement that the following restrictive covenants are fair and reasonable and are entered into freely, voluntarily, and knowingly. Furthermore, each party was given the opportunity to consult with independent legal counsel before entering into this Agreement. (b) Non-Competition. During the later of (i) 12 months of the date of this Agreement or (ii) the term of Consultant's engagement with Company and for the period ending six months after the termination of Consultant's engagement with Company (voluntarily by Company or with cause by Consultant), Consultant shall not (whether directly or indirectly, as owner, principal, agent, stockholder, director, officer, manager, employee, partner, participant, or in any other capacity) engage or become financially interested in any competitive business conducted within the Restricted Territory (as defined below) or otherwise circumvent any license agreement of Company relating to the business of Company. As used herein, the term "competitive business" shall mean (i) the design and manufacture of collectible die-cast and pewter miniature replicas of motorsports vehicles and the design and manufacture of licensed apparel, souvenirs, and other motorsports consumer items, including t-shirts, hats, jackets, mugs, key chains, and drink bottles, in each case to be distributed and sold through collector and fan clubs, wholesale distribution, authorized retail dealers, trackside events, and promotional programs for corporate sponsors; (ii) the development of marketing and product promotional programs for corporate sponsors of motorsports, featuring Company's die-cast replicas or other products as premium awards, intended to increase brand awareness of the products or services of the corporate sponsors; and (iii) the design, manufacture, and sale of motorsports- related products (consisting of die cast miniature replicas of motorsports vehicles and motorsports-related apparel and souvenirs) specifically designed for the mass-merchandise market; and the term "Restricted Territory" shall mean any state in which Company or its subsidiaries sells products or provides services during Consultant's engagement hereunder. Company acknowledges that Consultant's ownership or operation of Chase Raceway, L.L.C., Racing for Kids, L.L.C., Motorsports by Mail, Inc., Race World, L.L.C., American Motorsports Marketing, Inc., and any other company authorized in writing by Company, as such enterprises currently are conducted, shall not be deemed "competitive businesses." 2 (c) Non-Solicitation of Employees. During the term of Consultant's engagement and for a period of 12 months after the termination of Consultant's engagement with Company, regardless of the reason therefor, Consultant shall not directly or indirectly, for himself, or on behalf of, or in conjunction with, any other person, company, partnership, corporation, or governmental entity, seek to hire or hire any of Company's or its subsidiaries' personnel or employees for the purpose of having any such employee engage in services that are the same as or similar or related to the services that such employee provided for Company or its subsidiaries. (d) Confidential Information. Consultant shall maintain in strict secrecy all confidential or trade secret information, whether patentable or not, relating to the business of Company and its subsidiaries (the "Confidential Information") obtained by Consultant in the course of Consultant's engagement, and Consultant shall not, unless first authorized in writing by Company, disclose to, or use for Consultant's benefit or for the benefit of any person, firm, or entity at any time either during or subsequent to the term of Consultant's engagement, any Confidential Information, except as required in the performance of Consultant's duties on behalf of Company and its subsidiaries. For purposes hereof, Confidential Information shall include without limitation any engineering drawings, or other reproductions or materials of any kind; any trade secrets, knowledge or information with respect to processes, inventions, formulae, machinery, manufacturing techniques and know-how and to the management, operational, marketing, licensing, and distribution policies and practices of Employer and its subsidiaries; any business methods or forms; any names or addresses of customers or data on customers or suppliers; and any business policies or other information relating to or dealing with the purchasing, production, sales, or distribution policies or practices of Company or its subsidiaries or relating to or dealing with the management, operational, or investment policies or practices of Company or its subsidiaries. (e) Return of Books and Papers. Upon the termination of Consultant's engagement with Company for any reason, Consultant shall deliver promptly to Company all samples or demonstration models, catalogues, files, lists, books, records, manuals, memoranda, drawings, and specifications; all cost, pricing, and other financial data; all customer, licensee, and supplier information; all other written or printed materials that are the property of Company or its subsidiaries (and any copies of them); and all other materials that may contain Confidential Information relating to the business of Company or its subsidiaries, which Consultant may then have in his possession, whether prepared by Consultant or not. (f) Equitable Relief. In the event a violation of any of the restrictions contained in this Section is established, Company shall be entitled to preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which right shall be cumulative and in addition to any other rights or remedies to which Company may be entitled. In the event of a violation of any provision of subsections (b), (c), (f), or (g) of this Section, the period for which those provisions would remain in effect shall be extended for a period of time equal to that period beginning when such violation commenced and ending when the activities constituting such violation shall have been finally terminated in good faith. (g) Restrictions Separable. If the scope of any provision of this Agreement (whether in this Section 5 or otherwise) is found by a Court to be too broad to permit enforcement to its full extent, then such provision shall be enforced to the maximum extent permitted by law. The parties agree that the scope of any provision of this Agreement may be modified by a judge in any proceeding to enforce this Agreement, so that such provision can be enforced to the maximum extent permitted by law. Each and every restriction set forth in this Section 5 is independent and severable from the others, and no such restriction shall be rendered unenforceable by virtue of the fact that, for any reason, any other or others of them may be unenforceable in whole or in part. 6. Miscellaneous. (a) Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made, and received (i) if personally delivered, on the date of delivery, (ii) if by facsimile transmission, upon receipt, (iii) if mailed, three days after deposit in the United States mail, registered or certified, return receipt requested, postage prepaid, and 3 addressed as provided below, or (iv) if by a courier delivery service providing overnight or "next-day" delivery, on the next business day after deposit with such service addressed as follows: (1) If to Company: 2401 West First Street Tempe, Arizona 85281 Attention: Fred W. Wagenhals Phone: (602) 517-3710 Fax: (602) 967-1403 with a copy given in the manner prescribed above, to: O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. One East Camelback Road Phoenix, Arizona 85012 Attention: Robert S. Kant, Esq. Phone: (602) 263-2606 Fax: (602) 263-2900 (2) If to Consultant: 1094 Berkley Place Concord, North Carolina 28027 with a copy given in the manner prescribed above, to: Robinson, Bradshaw & Hinson, P.A. 101 North Tryon Street, Suite 1900 Charlotte, North Carolina 28246-1900 Attention: Stokley G. Caldwell, Jr., Esq. Phone: (704) 377-8332 Fax: (704) 378-4000 Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 6 for the giving of notice. (b) Indulgences; Waivers. Neither any failure nor any delay on the part of either party to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any other occurrence. No waiver shall be binding unless executed in writing by the party making the waiver. (c) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the state of Arizona, notwithstanding any Arizona or other conflict-of-interest provisions to the contrary. (d) Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns except that 4 no party may assign or transfer such party's rights or obligations under this Agreement without the prior written consent of the other party. (e) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the parties reflected hereon as the signatories. (f) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (g) Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements and conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. (h) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. 7. Successors And Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto; provided that because the obligations of Consultant hereunder involve the performance of personal services, such obligations shall not be delegated by Consultant. For purposes of this Agreement successors and assigns shall include, but not be limited to, any individual, corporation, trust, partnership, or other entity that acquires a majority of the stock or assets of Company by sale, merger, consolidation, liquidation, or other form of transfer. Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would be required to perform it if no such succession had taken place. Without limiting the foregoing, unless the context otherwise requires, the term "Company" includes all subsidiaries of Company. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ACTION PERFORMANCE COMPANIES, INC. By:______________________________________________ Its:_____________________________________________ ------------------------------------------------- John Bickford 5 -----END PRIVACY-ENHANCED MESSAGE-----