OPTION SUBSTITUTION AGREEMENT
OPTION SUBSTITUTION AGREEMENT (the "Agreement"), made and entered into
as of the 15th day of December, 1997, by and among Arcade Holding Corporation,
a Delaware corporation ("Arcade"), Roger L. Barnett ("Barnett"), and AHC I
Acquisition Corp., a Delaware corporation ("Acquiror").
Recitals
WHEREAS, pursuant to a Stock Option Agreement dated as of August 4,
1994 ("Option Agreement"), Arcade granted to Barnett an option (the "Option")
to purchase 2,096 shares of the common stock of Arcade ("Common Stock"),
WHEREAS, Arcade, its shareholders, and Acquiror have entered into a
Stock Purchase Agreement dated as of November 14, 1997, as amended by that
certain First Amendment to Stock Purchase Agreement dated as of December 2,
1997 and that certain Second Amendment to Stock Purchase Agreement dated as of
December 12, 1997 (as amended, the "Stock Purchase Agreement"), pursuant to
which Acquiror will acquire all the Common Stock (the "Transaction");
WHEREAS, in connection with the Transaction, a portion of the Option
will be acquired pursuant to the terms of the Stock Purchase Agreement, and a
portion of the Option (the "Surrendered Option") will be surrendered for
cancellation and in lieu thereof, Acquiror will grant Barnett a substitute
option ("Replacement Option") to purchase 15% Senior Preferred Stock due 2012,
par value $.01 per share, of Acquiror ("Acquiror Stock").
Agreement
NOW, THEREFORE, the parties agree as follows:
1. Surrender and Cancellation of Surrendered Option. The Surrendered
Option is for 1,368. 55 shares of Common Stock. Barnett agrees that, on the date
(the "Effective Date") of the closing of the Transaction (the "Closing"), and
concurrently therewith, Barnett shall, and hereby does, surrender to Arcade the
Surrendered Option for cancellation, and hereby relinquishes all right, title
and interest in and to the Surrendered Option and any Common Stock that would
be issuable upon exercise of such Surrendered Option. Upon such surrender,
which shall take place concurrently with the consummation of the Closing, the
Surrendered Option shall be, and hereby is cancelled and terminated.
2. Issuance of Acquiror Option.
a. On the Effective Date, and concurrently with the consummation of
the Closing, Acquiror shall grant to Barnett a Replacement Option to purchase
100,000 shares of Acquiror Stock ("Replacement Share Number") and at an
exercise price ("Replacement Exercise Price") equal to $1.37 per share.
b. The Replacement Option shall be subject to terms and conditions
substantially as set forth in the form of replacement option agreement
("Replacement Option. Agreement") attached hereto and hereby made a part
hereof.
3. Certain Warranties and Understandings of Barnett. Barnett
represents and warrants to Arcade and Acquiror that (a) he is the owner, of
record and beneficially, of the Option, free and clear of any liens, claims,
encumbrances, restrictions on transfer (except for those existing under
applicable securities laws) and any other rights of others, (b) he has all
power and authority necessary to enter into and perform his obligations under
this agreement, (c) the execution and delivery of this Agreement shall
constitute his valid and binding obligation, enforceable against him in
accordance with its terms, and (d) the execution, delivery and performance of
this Agreement by him will not breach or violate any contract or agreement to
which he is a party or by which he is bound or any law, court order, rule or
regulation applicable to him,
4. Certain Warranties of Arcade and Acquiror. Each of Arcade and
Acquiror represent and warrant to Barnett that (a) It has all corporate power
and authority to enter into and perform its obligations under this Agreement,
(b) the execution, delivery and performance of this Agreement by it will not
breach or violate its corporate charter or by laws or any contract or agreement
to which it is a party or by which it is bound or any law, court order, rule or
regulation applicable to it, (c) the execution and delivery of this Agreement
shall constitute a valid and binding obligation, enforceable against it in
accordance with its terms, and (d) the purchase price per share being paid to
Acquiror for Acquiror Stock on the date hereof in connection with the
consummation of the Transaction is $25.00, except with respect to Acquiror
Stock issued as a unit with notes and common stock of Acquiror.
5. Miscellaneous.
a. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns,
spouses, heirs and personal and legal representatives. None of the parties may
assign its rights or delegate its obligations under this Agreement without the
prior written consent of the other parties hereto,
b. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
c. Amendments/Waivers. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a
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waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver,
d. Invalid Provisions. If any provision of this Agreement is held to
be invalid or unenforceable, such provision shall be automatically severed from
this Agreement and there shall be added to this Agreement a provision as
similar as possible to such severed provision as may be valid and enforceable,
and the validity and enforceability of the other provisions of this Agreement
shall not be affected thereby.
e. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, other than its laws
respecting choice of laws.
f. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
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g. Entire Agreement. This Agreement evidences the entire understanding
and agreement of the parties relative to the matters discussed herein. This
Agreement supersedes any and all other agreements and understandings, whether
written or oral, relative to the matters discussed herein,
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above,
ARCADE HOLDING CORPORATION
By /s/ David Wittels
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Name:
Title:
AHC I ACQUISITION CORP.
By /s/ David Wittels
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Name:
Title:
/s/ Roger Barnett
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Roger L. Barnett
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