Agreement And Plan Of Merger

AGREEMENT AND PLAN OF MERGER


by and among


RT INDUSTRIES, INC., QUAC ACQUISITION CORP.,


and


QUALITY AUTOMOTIVE COMPANY,


and each of


MARTIN CHEVALIER, MALVINA B. CHEVALIER


and


JOHN W. KOHUT,


as individuals.


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As of June 6, 1997


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TABLE OF CONTENTS


1. The Merger ........................................................... 1
1.1. The Merger ..................................................... 1
1.2. Effective Time ................................................. 2
1.3. Effect of the Merger ........................................... 2
1.4. Certificate of Incorporation; By-Laws .......................... 2
1.6. Conversion of Securities ....................................... 3


2. Representations and Warranties as to Quality ........................ 4
2.1. Organization, Standing and Power ............................... 4
2.2. Capitalization ................................................. 4
2.3. Ownership of Quality Common Stock .............................. 5
2.4. Interests in Other Entities .................................... 5
2.5. Authority ...................................................... 6
2.6. Noncontravention ............................................... 6
2.7. Financial Statements ........................................... 7
2.8. Accounts Receivables; Inventories .............................. 8
2.9. Absence of Undisclosed Liabilities ............................. 8
2.10. Properties .................................................... 8
2.11. Absence of Changes ............................................ 9
2.12. Litigation .................................................... 10
2.13. No Violation of Law; Environmental Matters .................... 10
2.14. Intangibles ................................................... 12
2.15. Tax Matters ................................................... 13
2.16. Insurance ..................................................... 14
2.17. Banks; Powers of Attorney ..................................... 15
2.18. Employee Arrangements ......................................... 15
2.19. Records ....................................................... 17
2.20. Brokerage Fees ................................................ 17
2.21. Suppliers and Providers of Services ........................... 17
2.22. Licenses ...................................................... 18
2.23. Certain Business Matters ...................................... 18
2.24. Certain Contracts ............................................. 19
2.25. Customers and Suppliers ....................................... 20
2.26. Business Practices and Commitments ............................ 20
2.27. Approvals/Consents ............................................ 20
2.28. Information as to Quality ..................................... 21


3. Representations and Warranties as to RTIC and Subsidiary ............ 21
3.1. Organization, Standing and Power ............................... 21
3.2. Interests in Other Entities .................................... 21
3.3. Incorporation Documents and By-Laws ............................ 21
3.4. Capitalization ................................................. 21
3.5. Authority ...................................................... 23
3.6. Noncontravention ............................................... 23
3.7. Securities and Exchange Commission Filings ..................... 23
3.8. Stock Issuable in Merger ....................................... 24
3.9. Absence of Undisclosed Liabilities ............................. 24
3.11. Litigation .................................................... 26
3.12. No Violation of Law ........................................... 26


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4. Indemnification ..................................................... 28
3.13. Tax Matters ................................................... 26
3.14. Licenses ...................................................... 27
3.15. Approvals/Consents ............................................ 27
3.16. Brokerage Fees ................................................ 27
3.17. Information as to RTIC and Subsidiary ......................... 28


4. Indemnification ..................................................... 28
4.1. Indemnification by the Quality Stockholders .................... 28
4.2. Indemnification by ............................................. 28
4.3. Third Party Claims ............................................. 29
4.4. Assistance ..................................................... 30
4.5. Limitations .................................................... 30


5. Covenants ........................................................... 30
5.1. Investigation .................................................. 30
5.2. Consummation of Transaction .................................... 31
5.3. Cooperation/Further Assurances ................................. 31
5.4. Accuracy of Representations .................................... 31
5.5. Notification of Certain Matters ................................ 32
5.6. Lock-up Restriction 32
5.8. Broker ......................................................... 32
5.9. Cash Escrow .................................................... 32
5.10. No Solicitation of Transactions ............................... 32
5.11. Employment Agreement .......................................... 33
5.17. Prohibited Conduct ............................................ 35
5.18. Tax Covenants ................................................. 37


6. Nondisclosure ....................................................... 38


7. Conditions of Merger ................................................ 38
7.1. Litigation ..................................................... 38
7.2. Ratification by All Stockholders of Quality .................... 39
7.3. No Materially Adverse Customer Reaction ........................ 39


8. The Closing ......................................................... 39
8.1. Deliveries by RTIC and Subsidiary .............................. 39
8.2. Management ..................................................... 41
8.3. Deliveries by Quality and the Quality Stockholders ............. 41
8.4. Other Deliveries ............................................... 42


9. Termination, Amendment and Waiver ................................... 42
9.1. Termination .................................................... 42
9.2. Effect of Termination .......................................... 43
9.3. Fees and Expenses .............................................. 44
9.4. Amendment ...................................................... 44
9.5. Waiver ......................................................... 44


10. Survival of Representations and Warranties ......................... 44


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11. General Provisions ................................................ 44
11.1. Notices ...................................................... 44
11.2. Severability ................................................. 45
11.3. Entire Agreement ............................................. 45
11.4. No Assignment ................................................ 46
11.5. Headings ..................................................... 46
11.6. Governing Law ................................................ 46
11.7. Attorneys' Fees .............................................. 46
11.8. Counterparts ................................................. 46


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AGREEMENT AND PLAN OF MERGER


AGREEMENT AND PLAN OF MERGER dated as of June 6, 1997 (the "Agreement"), by and among RT Industries, Inc., a Delaware corporation ("RTIC"); QUAC ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of RTIC ("Subsidiary"); QUALITY AUTOMOTIVE COMPANY, a Delaware corporation ("Quality"); and each of JOHN W. KOHUT ("Kohut"), a resident of the State of New York, and MARTIN CHEVALIER ("Chevalier") and MALVINA B. CHEVALIER, residents of the Commonwealth of Virginia (collectively referred to as the "Quality Stockholders").


W I T N E S S E T H :


WHEREAS, Quality is in the business of manufacturing, distributing and selling automotive brake components (the "Quality Business") and RTIC is in a similar business (the "RT Business"); and


WHEREAS, RTIC desires to combine the expertise of Quality in manufacturing, production and management with the marketing and distribution experience of RTIC; and


WHEREAS, the Board of Directors of RTIC, the Board of Directors of Subsidiary, and RTIC, as the sole shareholder of Subsidiary, as well as the Board of Directors of Quality have (a) determined that it is in the best interests of their respective companies for Quality to be merged with and into Subsidiary upon the terms and subject to the conditions set forth herein; and (b) approved the merger of Quality with and into Subsidiary (the "Merger") in accordance with the General Corporation Law of the State of Delaware ("Delaware Law"), and upon the terms and subject to the conditions set forth herein.


NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto do hereby agree as follows:


1. The Merger.


1.1. The Merger. At the Effective Time (as defined in Subsection 1.2), and subject to and upon the terms and conditions of this Agreement and Delaware Law, Quality shall be merged with and into Subsidiary, the separate corporate existence of Quality shall cease, and Subsidiary shall continue as the surviving corporation. Subsidiary, as the surviving corporation after the Merger, is hereinafter sometimes referred to as the "Surviving Corporation."


1.2. Effective Time. At the Closing as set forth in Section 8 hereof, Subsidiary and Quality shall cause the Merger to be consummated by filing a Certificate of Merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware in the form of Exhibit 1.2 and making such other filing as may be required by Delaware Law, in such form as required by and executed in accordance with such laws (the time of the last of such filings to be made being the "Effective Time").


1.3. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the rights, privileges, powers, franchises and all property (real, personal and mixed) of Quality and all debts due Quality shall vest in Subsidiary, and all debts, liabilities, obligations and duties of Quality shall become the debts, liabilities, obligations and duties of Subsidiary.


1.4. Certificate of Incorporation; By-Laws.


(a) The Certificate of Incorporation of Subsidiary, as in effect immediately prior to the Effective Time (annexed hereto as Exhibit 1.4(a)), except as amended to change its name as set forth in the Agreement of Merger, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law or such Certificate of Incorporation.


(b) The By-Laws of Subsidiary, as in effect immediately prior to the Effective Time (annexed hereto as Exhibit 1.4(b)), shall be the By-Laws of the Surviving Corporation until thereafter amended as provided by law or the Certificate of Incorporation of the Surviving Corporation or the By-Laws of the Surviving Corporation.


1.5. Directors and Officers of Subsidiary.


(a) The initial directors of the Surviving Corporation immediately following the Effective Date, as provided in Section 5.13 hereof, shall consist of (i) the two existing directors of Subsidiary; (ii) each of Chevalier and Kohut; and (iii) a fifth individual elected by a majority of the then existing Board of Directors, each director to hold office in accordance with applicable law, the Certificate of Incorporation and By-Laws of the Surviving Corporation until their resignation, removal or replacement.


(b) Chevalier, who shall at the Effective Time be duly nominated and elected as President and Chief Executive Officer of the Surviving Corporation as provided by Section 5.13 hereof, and the other officers of Subsidiary


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immediately prior to the Effective Time shall constitute the initial officers of the Surviving Corporation until their respective resignation, removal or replacement. Kohut shall be duly nominated and appointed as Chairman of the Board of Directors, and David Love, a current director of the Subsidiary, shall be duly nominated and appointed as Chairman of the Audit Committee of the Board of Directors of Subsidiary,


1.6. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of RTIC, Subsidiary, Quality or the Quality Stockholders:


(a) All of the 16,680 issued and outstanding shares (the "Shares") of the capital stock, par value $1.00 per share, of Quality (the "Quality Common Stock") shall be converted into the right to receive: (i) $3,000,000 (the "Cash Consideration"); (ii) promissory note(s), in the aggregate amount of $4,500,000, from the Subsidiary (the "Notes"), which Notes shall be guaranteed by RTIC and secured by RTIC's pledge of its shares in Subsidiary, in the forms of those Notes, Guaranties (the "Guaranties") and Stock Pledge and Security Agreement (the "Stock Pledge Agreement") annexed hereto as Exhibits 1.6(a)(1) - (7); and (iii) that number of shares of Common Stock, par value of $.001 per share, of RTIC ("RTIC Common Stock"), which when multiplied by the average of the closing bid and ask price of RTIC Common Stock during the 20 trading days immediately preceding the Closing (as defined in Section 8 hereof) equals $7,500,000 (the "Share Consideration" and together with the Cash Consideration and the Note(s), the "Merger Consideration") against the surrender to Subsidiary of the certificates representing the Shares.


(b) Shares of the common stock, par value $.01 per share, of Subsidiary issued and outstanding at the Effective Time shall remain outstanding and unchanged and shall constitute all of the issued and outstanding shares of the capital stock of the Surviving Corporation.


(c) Any share of Quality Common Stock held in the treasury of Quality shall be cancelled and extinguished without any conversion thereof and no payment shall be made with respect thereto.


(d) At the Effective Time, the stock transfer books of Quality shall be closed and there shall be no further registration of transfers of any Shares thereafter on the records of Quality.


(e) From and after the Effective Time, the holders of certificates evidencing ownership of Shares shall cease to have any rights with respect to the Shares, except as otherwise provided herein or by law.


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(f) Notwithstanding anything to the contrary in this Subsection 1.6, no party hereto shall be liable to a holder of a certificate or certificates formerly representing Shares for any amount properly paid to a public official pursuant to any applicable property, escheat or similar law.


(g) No fractional shares of RTIC Common Stock shall be issued in connection with the Merger and the Quality Stockholders will be deemed to have received cash in lieu of any fraction of a share, which cash shall be deemed included in the Cash Consideration paid to the Quality Stockholders at the Closing.


(h) If between the date of this Agreement and the Effective Date the outstanding Shares or RTIC Stock shall have been changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split-up, combination, exchange of shares or the like, and the ratio of shares of RTIC Stock to Shares to be issued in the Merger shall be correspondingly adjusted.


2. Representations and Warranties as to Quality. Quality represents and warrants and each of the Quality Stockholders represents and warrants to RTIC and Subsidiary as follows:


2.1. Organization, Standing and Power. Quality is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified as a foreign corporation and is in good standing under the laws of the Commonwealth of Virginia, with full corporate power and corporate authority to (i) own, lease and operate its properties, (ii) carry on the Quality Business as currently conducted by it and (iii) execute and deliver, and perform under this Agreement and each other agreement and instrument to be executed and delivered by it pursuant hereto. There are no states or jurisdictions other than Virginia in which the character and location of any of the properties owned or leased by Quality, or the conduct of the Quality Business makes it necessary for Quality to qualify to do business as a foreign corporation, where the failure to so qualify would have an adverse effect on the business, operations or financial condition of Quality. True and complete copies of the Certificate of Incorporation of Quality and all amendments thereof, and of the By-Laws of Quality, as amended to date, have heretofore been or will be furnished to RTIC. Quality's minute books heretofore exhibited to RTIC contains complete and accurate records of all meetings and other corporate actions of Quality's stockholders and Board of Directors (including committees of its Board of Directors).


2.2. Capitalization. The authorized capital stock of Quality consists of (i) 150,000 shares of Quality Common


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Stock, of which 16,680 shares are issued and outstanding and (ii) 20,000 shares of preferred stock, par value $ 0.01 per share, of which no shares are issued and outstanding. All issued shares of the Quality Common Stock have been duly authorized, validly issued and outstanding and are fully paid and nonassessable and owned of record and beneficially by the Quality Stockholders. There are no outstanding options, warrants, rights, puts, calls, commitments, exchange, conversion rights, plans or other agreements of any character to which Quality or the Quality Stockholders (individually or jointly) are a party or otherwise bound which provide for the acquisition, disposition or issuance of any issued but not outstanding, or authorized and unissued shares, of Quality Common Stock. Except as set forth on the Quality Disclosure Schedule, there is no personal liability, and there are no preemptive or similar rights, attached to the Quality Common Stock. There are no outstanding obligations, contingent or other, of Quality to purchase, redeem or otherwise acquire any capital stock of Quality and, except as set forth on the Quality Disclosure Schedule, there are no voting trust agreements or other contracts, agreements, arrangements, commitments, plans or understandings restricting or otherwise relating to voting, dividend or other rights with respect to the capital stock of Quality.


2.3. Ownership of Quality Common Stock. The Quality Stockholders have good and marketable title to all of the issued and outstanding shares of Quality Common Stock, free and clear of any and all liens, adverse claims, security interests, pledges, mortgages, charges and encumbrances of any nature whatsoever (except for federal and state securities law restrictions of general applicability and as set forth on Quality Disclosure Schedule), and on the Closing Date will own all of such Quality Common Stock, free and clear of any and all liens, adverse claims, security interests, pledges, mortgages, charges and encumbrances of any nature whatsoever (except for federal and state securities law restrictions of general applicability), including, but not limited to, any claims by any present or former stockholders of Quality.


2.4. Interests in Other Entities.


(a) Except for the entities (collectively, the "Quality Subsidiaries") set forth in the disclosure schedule and attached hereto as Exhibit 2 (the "Quality Disclosure Schedule"), Quality does not (i) own, directly or indirectly, of record or beneficially, any shares of voting stock or other equity securities of any other corporation, (ii) have any ownership interest, direct or indirect, of record or beneficially, in any unincorporated entity, and (iii) have any obligation, direct or indirect, present or contingent, (A) to purchase or subscribe for any interest in, advance or loan monies to, or in any way make investments in, any other person or


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entity, or (B) to share any profits or capital investments or both.


(b) None of the Quality Stockholders (individually or jointly) (i) own, directly or indirectly, of record or beneficially, any shares of voting stock or other equity securities of any other corporation engaged in the same or similar business to that business engaged in by Quality at the Effective Time (other than not more than one percent (1%) of the publicly-traded capital stock of corporations engaged in such business held solely for investment purposes); (ii) have any ownership interest, direct or indirect, of record or beneficially, in any unincorporated entity engaged in the same or similar business to that business engaged in by Quality at the Effective Time; and (iii) have any obligation, direct or indirect, present or contingent, (A) to purchase or subscribe for any interest in, advance or loan monies to, or in any way make investments in, any other person or entity engaged in the same or similar business to that business engaged in by Quality at the Effective Time, or (B) to share any profits or capital investments or both from a entity engaged in the same or similar business to that business engaged in by Quality the Effective Time.


2.5. Authority. The execution and delivery by Quality of this Agreement and of all of the agreements to be executed and delivered by Quality pursuant hereto (collectively, the "Quality Documents"), the performance by Quality of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by the unanimous consent of the Board of Directors of Quality and, when approved by the Quality Stockholders, Quality shall have all necessary corporate power and corporate authority with respect thereto. The Quality Stockholders are individuals having all necessary capacity, power and authority to execute and deliver this Agreement and such other agreements to be executed and delivered by any of them pursuant hereto (collectively, the "Quality Stockholder Documents") and to consummate the transaction consummated hereby and thereby. This Agreement is, and when executed and delivered by Quality and, when approved by the Quality Stockholders, each of the other agreements to be delivered by either or both of them pursuant hereto will be, the valid and binding obligations of Quality and the Quality Stockholders, to the extent they are parties thereto, in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of creditors generally and subject to the rules of law governing (and all limitations on) specific performance, injunctive relief, and other equitable remedies.


2.6. Noncontravention. Except as set forth in the Quality Disclosure Schedule, neither the execution and delivery by Quality or by the Quality Stockholders of this


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Agreement or of any other Quality Documents or Quality Stockholder Documents to be executed and delivered by either or both of them, nor the consummation of any of the transactions contemplated hereby or thereby, nor the performance by either or both of them of any of their respective obligations hereunder or thereunder, will (nor with the giving of notice or the lapse of time or both would) (a) conflict with or result in a breach of any provision of the Certificate of Incorporation, By-Laws or other constituent documents of Quality or the Quality Subsidiaries, each as amended to date, or (b) give rise to a default, or any right of termination, cancellation or acceleration, or otherwise are in conflict with or result in a loss of contractual benefits to any of them, under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which any of them is a party or by which any of them or any of their respective assets may be bound, or, to the best of the Quality Stockholders' knowledge, require any consent, approval or notice under the terms of any such document or instrument, or (c) violate any order, writ, injunction, decree, law, statute, rule or regulation of any court or governmental authority which is applicable to any of them, or (d) to the best of the Quality Stockholders' knowledge, result in the creation or imposition of any lien, adverse claim, restriction, charge or encumbrance upon any of the assets or properties of Quality (the "Assets"), or (e) interfere with or otherwise adversely affect the ability of Subsidiary to carry on the Quality Business after the Closing Date on substantially the same basis as is now conducted by Quality.


2.7. Financial Statements. Quality has heretofore delivered to each of RTIC and Subsidiary, correct and complete copies of (a) its consolidated financial statements consisting of the audited balance sheet for the year ended December 31, 1996 (the "Balance Sheet"), and the related statements of income and stockholders' equity for the year ended on such date, certified without qualification by Arthur Andersen LLP, independent certified public accountants, and (b) its unaudited statements of operations and statement of retained earnings for the three (3) month period ended March 31, 1997 (collectively, the "Quality Financial Statements"). Except that the unaudited statements for the three (3) months ended March 31, 1997 are subject to customary year-end adjustments consistent with previous practices, the Quality Financial Statements were prepared in accordance with generally accepted accounting principals ("GAAP"), consistently applied, and present fairly the financial position of Quality as at the dates thereof and the results of operations for the periods and the cash flow indicated. The books and records of Quality are complete and correct in all material respects, have been maintained in accordance with good business practices, and accurately reflect the basis for the financial condition, results of operations and


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cash flow of Quality as set forth in the Quality Financial Statements.


2.8. Accounts Receivables; Inventories.


(a) The accou ...