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) December 31, 1997
ACTION PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Florida 000-13118 59-2095427
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
344 Cypress Road, Ocala, Florida 34472-3108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (352) 687-2202
Not applicable
(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets.
As of December 31, 1997, American Outdoor Products, Inc., a Colorado
corporation (the "Purchaser"), entered into an Asset Purchase Agreement (the
"Agreement") with Action Products International, Inc., a Florida corporation
(the "Registrant"). Pursuant to the Agreement, the Purchaser agreed to purchase
the assets relating to Registrant's product line of Action Snacks(r) food items,
including inventory, intellectual property rights, contract rights, marketing
materials, and trademarks (collectively, the "Assets"). The aggregate
consideration for the Assets was $2,200,000 allocated as follows: $1,900,000
allocated to the purchase price of the Assets, $250,000 allocated to the non-
compete obligations of certain principals of the Registrant, and $50,000
allocated to the obligation of Registrant's President and other members of
management to provide certain consulting services to Purchaser. Of the total
purchase price, $350,000 was paid at closing by wire transfer and $1,850,000 by
delivery of two secured promissory notes, one for $1,597,727 for the Assets,
bearing interest at 11.2743% and one non-interest bearing for $252,273, for the
consulting and non-compete agreements. The amounts of the notes resulted from
the pro-rata allocation of the $350,000 down payment. The above secured
promissory notes are payable in twenty-five (25) equal quarterly installments
commencing on April 1, 1998.
The sale of the Action Snacks(r) food product line was in furtherance
of the implementation of Management's plan to focus Registrant's operations on
its core product lines of educational toys and publishing. Management intends
to use the proceeds from this transaction for the development and marketing of
the Registrant's core product lines. Additional impetus for the sale was while
management has been focusing on increasing its gross profit margins in all its
product lines, the gross profit margins related to the Action Snacks(r) food
product line were less than those being realized by the Registrant's core lines.
The $2.2 million consideration represents approximately three times the 1997
revenues attributable to the Action Snacks(r) food product line.
Item 7. Financial Statements and Exhibits.
a. Financial Statements of Business Acquired. Not applicable.
b. Pro Forma Financial Information.
A narrative description of the pro forma effects of the disposition of
the assets discussed in Item 2 is filed with this report with respect to the
Balance Sheet as of September 30, 1997 and with respect to the Income Statement
for the period ending September 30, 1997.
c. Exhibits.
2.1 Asset Purchase Agreement, dated as of December 31, 1997 by
and between Registrant and Purchaser.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ACTION PRODUCTS INTERNATIONAL, INC.
Date: 26 February, 1998 By: /s/ Ronald Kaplan
Ronald Kaplan, President
Date: 26 February, 1998 By: /s/ Delton G. de Armas
Delton G. de Armas, Secretary
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ACTION PRODUCTS INTERNATIONAL, INC.
Pro Forma Financial Information
The adjustments necessary to reflect the sale of assets relating to Action
Snack(r) food and the receipt of proceeds therefor result in the following pro
forma changes to the Balance Sheet as of September 30, 1997:
Assets - The increase in cash, the creation of the current portion of the
note receivable, and decreases in inventory and prepaid assets would result in a
net increase in Current Assets of approximately $120,000. Net Property Plant
and Equipment would be decreased by approximately $100,000, Long Term Notes
Receivable would increase and Other Assets would decrease for a net change in
Long Term Assets of approximately $950,000, resulting in a net increase to Total
Assets of approximately $1,070,000.
Liabilities - The net change in Current Liabilities would be about $75,000
due to an increase in the current portion of deferred revenue. Long Term
Liabilities would be increased by the creation of the long term portion of
deferred revenue of approximately $225,000. Change in Total Liabilities would
be approximately $300,000.
Shareholders' Equity - Retained Earnings (Accumulated Deficit) would be
increased by approximately $770,000 as a result of the gain or loss recognized
on the disposition of assets.
The adjustments necessary for this transaction result in the following
changes to the Income Statement for the period ending September 30, 1997. Other
Income, and subsequently Net Income Before Income Taxes, would increase by about
$770,000 as a result of the gain or loss recognized on the disposition of
assets. A provision for income taxes of approximately $300,000 would become
necessary, resulting in an increase in Net Income of approximately $470,000.
Accordingly, Net Income Per Share would increase by about $0.30 per share
(primary) and $0.17 per share (diluted).
No other significant changes to the financial statements would be
considered necessary.
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ASSET PURCHASE AGREEMENT
by and between
American Outdoor Products, Inc.
a Colorado corporation
("Purchaser")
and
Action Products International, Inc.,
a Florida corporation
(the "Company")
Dated as of December 31, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of December ___,
1997 by and between Action Products International, Inc., a Florida corporation
(the "Company"), American Outdoor Products, Inc., a Colorado corporation
("Purchaser") and Ronald E. Smith and Janice G. Smith, husband and wife,
individually and as trustees of the Ronald and Janice Smith Family Trust u/a/d
August 18, 1992 ("Guarantors"). Definitions of capitalized terms used in
Articles 1 through 9 herein which are not otherwise defined are set forth in
Section 10.1.
W I T N E S S E T H:
WHEREAS, Purchaser desires to purchase, and the Company desires to sell,
the specific assets relating to and consisting of the Company's entire line of
Action Snacks(r) food items described in Section 1.1.
NOW, THEREFORE, in consideration of the foregoing premises, and the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
<PAGE>
ARTICLE 1
PURCHASE AND SALE OF ASSETS
SECTION 1.1 Purchase and Sale. Subject to the provisions of this
Agreement, on the Closing Date, the Company shall sell, convey, transfer, assign
and deliver to Purchaser, appropriate instruments in form reasonably
satisfactory to Purchaser, and Purchaser shall purchase and accept, for the
consideration hereinafter provided, the following specific assets relating to
various food products, including freeze dried foods under the name Action
Snacks(r) (sometimes collectively the "Assets" and/or the "Product Line"). All
other assets of the Company shall be retained by the Company, including but not
limited to, all the assets of the Company not specifically relating to and used
in connection with the Product Line and all trade and accounts receivable
generated by sales of items of the Product Line shipped prior to the Closing
Date.
(a) Inventory. All Product Line inventory on hand on the Closing
Date and fixed assets, identified on Schedule 1.1(a);
(b) Intellectual Property. All technical processes, and/or other
such information, all know-how, trade secrets, and all processes, manufacturing
or marketing procedures, formulae, vendor, distributor and/or customer lists of
the Company (which lists will contain the information described on Schedule
1.1(b) (collectively hereinafter referred to as the "Intellectual Property"),
related to or used in connection with the Product Line; provided, however, that
the parties acknowledge and agree that certain Intellectual Property, related to
or connected with the Product Line, is and will continue to be used by the
Company in connection with its other business operations and that the transfer
of the Intellectual Property to Purchaser is limited solely to its use in
connection with the Product Line;
(c) Contracts. All contract rights and obligations of the Company
relating to the Product Line, and made in the ordinary course of business
including, without limitation, contracts or orders from customers or
distributors for the purchase or delivery of the items in the Product Line,
contracts or orders with suppliers and manufacturers, purchase orders, written
and oral proposals to customers, suppliers and/or manufacturers, sales orders
and rights to purchase (collectively "Contract Rights");
(d) Marketing Materials. All marketing materials and brochures, used
exclusively in connection with the Product Line;
(e) Trademarks. The exclusive use of the name "Action Snacks(r)" and
all other trade names of the Company used exclusively in connection with the
Product Line and all goodwill associated therewith which are set forth on
Schedule 1.1(e) attached hereto; and
Subject to the provisions of Section 1.3, the sale of the Assets shall be
made free and clear of all Liabilities and Liens whatsoever.
SECTION 1.2 Consideration to be Paid
(a) The aggregate consideration to be paid by Purchaser to the Company
under this Agreement shall be $2,200,000.00, which amount shall be allocated and
payable as follows:
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(i) The sum of $1,900,000.00, shall be allocated to the purchase
price of the Assets in a manner set forth on Schedule 1.2(a) hereto and shall be
payable as hereinafter set forth. The sum of $302,273.00 shall be payable by
Purchaser to the Company at the Closing, by wire transfer funds, and the balance
of $1,597,727.00 shall be evidenced by Purchaser's negotiable promissory note
made and delivered by Purchaser to the Company at Closing, in the form attached
as Exhibit A hereto ("Promissory Note I").
(ii) The sum of $250,000.00 shall be allocated to the Company's,
Ronald Kaplan's, Warren Kaplan's and Judy Kaplan's obligation to be bound by the
Non-Competition Agreement in the form attached as Exhibit B. The sum of
$39,772.50 shall be payable by Purchaser to the Company at Closing, by wire
transfer funds, and the balance of $210,227.50 shall be evidenced by Purchaser's
negotiable promissory note made and delivered by Purchaser to the Company at
Closing, in the form attached as Exhibit C hereto ("Promissory Note-II").
(iii) The sum of $50,000.00 shall be allocated to Kaplan's
obligation to provide consulting services to Purchaser pursuant to the
provisions contained in the Consulting Agreement in the form attached as Exhibit
D. The sum of $7,954.50 shall be payable by Purchaser to the Company at Closing
by wire transfer funds, and the balance of $42,045.50 shall be evidenced by
Promissory Note-II.
(b) Promissory Note-I shall provide for interest at the rate of 11.2743%
per annum. The principal sum of $1,597,727.00 plus accrued interest thereon,
shall be payable in twenty-five equal quarterly installments of $89,909.08, with
the first quarterly installment being due and payable on the first day of April,
1998, and with the subsequent quarterly payments being due and payable on the
first day of each July, October, January and April of each year thereafter until
paid in full.
(c) Promissory Note-II shall not bear interest and shall be payable in
twenty-five equal quarterly installments of $10,090.92, with the first quarterly
installment being due and payable on the first day of April, 1998, and with the
subsequent quarterly payments being due and payable on the first day of each
July, October, January and April of each year thereafter until paid in full.
(d) Each Promissory Note shall provide the following:
(i) The acceleration of the unpaid balance and the right to declare
all unpaid installments on the Promissory Notes immediately due and payable upon
the occurrence of an Event of Default; and
(ii) The right of Purchaser to prepay the unpaid portion of the
Promissory Notes in full or in part at any time, and from time to time;
provided, however, that no prepayment of any promissory note shall be permitted
unless each promissory note is prepaid on a pro rata basis, prepayments shall
reduce the interest and principal payable under the Notes as set forth in the
attached Exhibit "E".
(e) Purchaser shall be responsible for the payment of all documentary
stamps on the Promissory Notes, if any.
(f) For purposes of this Agreement, the occurrence of any one of the
following events, which is not cured by the terms of the applicable instrument,
shall constitute an "Event of Default" under the Promissory Notes:
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(i) Purchaser's failure to pay in full, when due any installment of
principal and/or interest under either Promissory Note;
(ii) The occurrence of a material default by Purchaser or any
Subsidiary under the Security Agreement;
(iii) The occurrence of a material default by Purchaser under the
Pledge Agreement;
(iv) The occurrence of a material default by Guarantors under the
Guaranty;
(v) The occurrence of a material default by Guarantors, Ryan Smith or
Rodney Smith, under their respective Third Party Pledge Agreements;
(vi) The occurrence of a material default by Guarantors under the
Guarantors' Security Agreement or any document or other agreements required to
be executed and delivered pursuant to the Guarantors' Security Agreement.
(vii) Guarantors' failure to maintain and keep in force, at
Guarantors' sole cost and expense, the life insurance policies (the "Insurance
Policies") insuring the lives of Ronald E. Smith and Janice G. Smith;
(viii) Upon a "Change of Control" of Purchaser or any Subsidiary;
or
(ix) Guarantors' or Purchaser's material failure to perform promptly
and completely any and all of their respective obligations, covenants, terms or
provisions contained in this Agreement, or a material breach by Guarantors or
Purchaser of any of their respective obligations, cove-nants, representations,
or warranties contained in this Agreement.
(g) As security for the payment of Purchaser's obligations under the
Promissory Note Purchaser, each Subsidiary and/or Guarantors shall execute and
deliver to the Company, at Closing the following:
(i) Purchaser and each Subsidiary shall execute and deliver to the
Company, at Closing, a security agreement in the form attached as Exhibit F (the
"Security Agreement"), which Security Agreement shall grant to the Company a
first lien security interest in and to all of the assets of Purchaser and each
Subsidiary ("Purchaser's Assets"), except for the security interests in Colorado
Spice, Inc. held by Ellwood L. Ziegler, as evidenced by UCC-1 financing
statement, document #952094900, filed with the Colorado Secretary of State and
First Interstate Bank of Englewood, N.A., as evidenced by UCC-1 financing
statement, document #942074881, filed with the Colorado Secretary of State
(hereinafter referred to as the "Colorado Spice Security Interests").
(ii) Purchaser shall execute and deliver to the Company, at Closing, a
Pledge Agreement in the form attached as Exhibit G granting to the Company a
first lien security interest in and to all of the shares of capital stock owned
by Purchaser in each Subsidiary ("Subsidiaries' Shares").
(iii) Guarantors shall execute and deliver to the Company, at
Closing, a guaranty in the form attached as Exhibit H, pursuant to which
Guarantors, shall agree to guaranty, all of Purchaser's obligations under the
Promissory Note, this Agreement and any Transaction Document which any of them
is a party.
<PAGE>
(iv) Guarantors, Rodney Smith and Ryan Smith shall each execute and
deliver to the Company, at Closing, a pledge agreement in the form attached as
Exhibit I ("Third Party Pledge Agreements"), granting to the Company a security
interest in and to all of their shares and/or options to acquire shares in
Purchaser or any Subsidiary now or hereafter acquired by any of them identified
as Exhibit H ("Purchaser's Shares").
(v) Guarantors shall collaterally assign to the Company certain
insurance policies ("Life Insurance Policies"), pursuant to a collateral
assignment ("Collateral Assignment of Insurance"), in the form substantially
identical to Exhibit J attached, and shall maintain and keep the Insurance
Policies in force, at the Guarantors' sole cost and expense (Purchaser's Assets,
Subsidiaries' Shares, Purchaser's Shares, Guarantors' Collateral and the
Insurance Policies collectively referred to as the "Collateral").
(vi) Purchaser and/or Guarantors shall execute and deliver to the
Company, at Closing, the documents listed in Section 2.2(a)(xii) - (xiv) in the
forms attached hereto as Exhibits K through N, granting to the Company a first
lien security interest in and to certain assets of Guarantors, which assets are
identified on Schedule 1.2(f).
SECTION 1.3 Assumed Liabilities Purchaser agrees to assume on and as of
the Closing Date the performance of the Contracts and accounts payable set forth
on Schedule 1.3 (the "Assumed Liabilities"). Purchaser shall not assume any
obligations or liabilities whatsoever other than the Assumed Liabilities. All
obligations and liabilities of the Company, whether existing or hereafter
arising, which are not specifically set forth on Schedule 1.3 and identified as
"Assumed Liabilities" shall remain the sole responsibility of the Company
(hereinafter referred to as "Retained Liabilities"). Purchaser shall have no
responsibility or obligation whatsoever for any Retained Liabilities or any
other liabilities relating to, arising out of or in connection therewith.
ARTICLE 2
CLOSING
SECTION 2.1 The Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place on December 31,
1997 at 2:00 p.m. at the offices of Cohen, Berke, Bernstein, Brodie & Kondell,
P.A., Terremark Centre, 2601 S. Bayshore Drive, 19th Floor, Miami, FL 33133.
The date of the Closing shall be referred to as the "Closing Date".
SECTION 2.2 Deliveries at Closing. At the Closing:
(a) There shall be delivered to the Company;
(i) Certificates of Good Standing of Purchaser and each
Subsidiary;
(ii) Certified Resolutions of the Boards of Directors of
Purchaser and each Subsidiary approving all transactions contemplated hereby;
(iii) Executed Certificates required by Section 6.3(d);
(iv) The Consulting Agreement;
<PAGE>
(v) The Non-Competition Agreement;
(vi) Opinion of Purchaser's counsel in the form attached as
Exhibit N;
(vii) The Security Agreement and all documents required to be
executed and delivered thereunder;
(viii) The Pledge Agreement and all documents required to be
executed and delivered thereunder;
(ix) The Guaranty;
(x) The Third Party Pledge Agreements and all documents required
to be executed and delivered thereunder;
(xi) Collateral Assignment of Insurance;
(xii) Collateral Assignment of the Notes Receivable;
(xiii) Deed of Trust - California Real Property;
(xiv) Assignments of Deed of Trust - Colorado Real
Properties;
(xv) The cash portion of the Purchase Price;
(xvi) The Promissory Notes; and
(xvii) All other documents reasonably requested by the Company
and its counsel as shall be necessary for the Company to perfect a first lien
security interest in and to the Collateral, except for the Colorado Spice
Security Interests.
(b) There shall be delivered to Purchaser:
(i) Certificate of good standing of the Company;
(ii) Certified resolutions of the Board of Directors of the
Company approving all transactions contemplated hereby;
(iii) Executed Certificates required by Section 6.2(d);
(iv) Opinion of the Company's counsel in the form attached as
Exhibit O;
(v) Consulting Agreement;
(vi) Non-Competition Agreement; and
(vii) All applicable assignments, material consents and other
conveyance documents, including a Bill of Sale and General Assignment, and
Assignment of Trademark in the form attached as Exhibits "P" and "Q"
respectively;
<PAGE>
(c) Each of the parties agree to cooperate with the other and execute
and deliver to the other party such other instruments and documents and take
such other actions as may be reasonably requested, from time to time, by any
other party as necessary to carry out, evidence and confirm the intended
purposes of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and Guarantors as follows:
SECTION 3.1 Statutory Existence and Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida, and has all requisite corporate powers and all material
permits required to carry on the Product Line as now conducted. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a material adverse effect on the Product Line or the
Assets.
SECTION 3.2 Authority Relative to this Agreement. The Company has full
power, capacity and authority to execute and deliver this Agreement and each
other Transaction Document to which it is a party and to consummate the
transactions contemplated hereby and thereby (the "Contemplated Transactions").
The execution and delivery of this Agreement and the consummation of the
Contemplated Transactions to which the Company is a party have been duly and
validly authorized by the Company and no other proceedings on the part of the
Company (or any other person) are necessary to authorize the execution and
delivery by the Company of this Agreement or the consummation of the
Contemplated Transactions to which the Company is a party. This Agreement and
the other Transaction Documents to which the Company is a party have been duly
and validly executed and delivered by each of the Company and (assuming the
valid execution and delivery thereof by the other parties thereto) constitute
the legal, valid and binding agreements of the Company enforceable against the
Company in accordance with their respective terms.
SECTION 3.3 No Conflicts, Consents. The execution, delivery and
performance by the Company of this Agreement and each other Transaction Document
to which it is a party, the consummation of the Contemplated Transactions to
which the Company is a party or the contemplated transfer of Assets, will not
(i) violate any provision of the Articles of Incorporation or By-laws of the
Company; (ii) require the Company to obtain any consent, approval or action of
or waiver from, or make any filing with, or give any notice to, any Governmental
Body or any other person except as set forth on Schedule 3.3 (the "Required
Consents"); (iii) if the Required Consents are obtained prior to Closing,
violate, conflict with or result in a breach or default under (after the giving
of notice or the passage of time or both), or permit the termination of, any
contract to which the Company is a party or by which it or any of its Assets may
be bound or subject, or result in the creation of any Lien upon any of the
Assets of the Company pursuant to the terms of any such contract which would
have a material adverse effect on the Product Line or the Company's ability to
consummate the Contemplated Transactions; or (iv) if the Required Consents are
obtained prior to Closing, to the knowledge of the Company would violate any Law
or Order of any Governmental Body against, or binding upon, the Company or upon
the Assets.
<PAGE>
SECTION 3.4 Charter Documents. The Company has heretofore delivered to
Purchaser true and complete copies of the Articles of Incorporation and Bylaws,
as in effect on the date hereof.
SECTION 3.5 Financial Information. The Company has heretofore made
available to the Purchaser true and complete copies of (i) the Company's
financial statement at and for the calendar year ended December 31, 1996, and
(ii) the Company's unaudited financial statement at and as of September 30, 1997
("Latest Balance Sheet"). Each delivered balance sheet fully sets forth in all
material respects all assets and liabilities of the Company relating to the
Product Line existing as of its date which, under GAAP, should be set forth
therein.
SECTION 3.6 Claims and Proceedings. There are no outstanding Orders of
any Governmental Body against or involving the Company which would have a
material adverse effect on the Product Line. Except as set forth on Schedule
3.6, there are no actions, suits, claims or counterclaims or legal,
administrative or arbitral proceedings or investigations (collectively,
"Claims") (whether in respect thereof are covered by insurance), pending or, to
the knowledge of the Company, threatened on the date hereof, against or
involving the Company which would have a material adverse effect on the Product
Line or the Company's ability to consummate the Contemplated Transactions.
SECTION 3.7 Bulk Sales Transfer Laws. No bulk sales transfer laws are
applicable to the transfer of the Assets by the Company to Purchaser pursuant to
this Agreement.
SECTION 3.8 Assets. The tangible personal property comprising a portion
of the Assets (other than food products) are in good condition and usable in the
ordinary course of business, free and clear of any Liens or Liabilities except
as set forth on Schedule 1.3. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
SPECIFICALLY SET FORTH ABOVE, THE COMPANY MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESSED OR IMPLIED, TO PURCHASER OR GUARANTORS WITH RESPECT TO THE
COMPANY, OR THE PRODUCT LINE DUE TO THE FACT THAT PURCHASER HAS CONCLUDED ITS
DUE DILIGENCE PROCESS, AND PURCHASER IS AGREEING TO ACQUIRE THE PRODUCT LINE "AS
IS" WITHOUT ANY REPRESENTATIONS, EXPRESSED OR IMPLIED, AS TO MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
SECTION 3.9 Compliance with Laws. To the best of the Company's
knowledge, the Company is not in violation of any order, judgment, injunction,
award, citation, decree, consent decree or writ applicable to the Company
(collectively, "Orders"), or any law, statute, code, ordinance, rule, regulation
or other requirement (collectively, "Laws"), of any government or political
subdivision thereof, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any court or
arbitrator (collectively, "Governmental Bodies") which would have a material
adverse effect on its Assets or the Product Line or its ability to consummate
the Contemplated Transactions.
SECTION 3.10 Finders Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of the Company who might be entitled to any fee or commission from the
Company upon consummation of the Contemplated Transactions. The Company is
solely responsible for payment of all fees and commissions of the type required
to be set forth on Schedule 3.10 and at Closing, no claims will exist against
the Purchaser, any Subsidiary or Guarantors for any such fees or commissions.
<PAGE>
SECTION 3.11 Disclosure. Neither this Agreement, nor the Schedules
hereto, or any audited or unaudited financial statements, documents or
certificates furnished or to be furnished to Purchaser by or on behalf of the
Company pursuant to this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. Notwithstanding any right of
Purchaser to fully investigate the affairs of the Company nor any knowledge of
facts determined or determinable by Purchaser to such investigation, Purchaser
has the right to rely fully upon the representations, warranties, covenants and
agreements of the Company contained herein or listed or disclosed on any
Schedule hereto or in any instrument delivered in connection herewith or any of
the foregoing.
SECTION 3.12 Accuracy of Information. No representation, statement or
information made or furnished by the Company to Purchaser, in this Agreement,
the Transaction Documents and the schedules hereto and thereto contains, or
shall contain, any untrue statement of fact or omits or shall omit any fact
necessary to make the information contained in such representation, or
information not misleading, and, there are no obligations, contingent or
otherwise, of the Company that are not reflected on the Latest Balance Sheet or
shown on any schedule to this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND GUARANTORS
Purchaser and Guarantors, jointly and severally, make the following
representations and warranties to the Company:
SECTION 4.1 Statutory Existence and Power. Purchaser and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Colorado, and has all requisite
corporate powers and all material permits required to carry on the respective
businesses as now conducted. Purchaser and each Subsidiary is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities make such qualification necessary, except for those
jurisdictions which the failure to be so qualified would not, individually or
any aggregate, have a material adverse effect on the business or assets,
financial condition, prospects or the results of operations of Purchaser or any
Subsidiary taken as a whole (collectively the "Condition of the Business").
SECTION 4.2 Authority Relative to this Agreement. Purchaser, each
Subsidiary and Guarantors have full power, capacity and authority to execute and
deliver this Agreement and each other Transaction Document to which any of them
is a party and to consummate the Contemplated Transactions. The execution and
delivery of this Agreement and the consummation of the Contemplated Transactions
to which the Purchaser, any Subsidiary or Guarantors is a party have been duly
and validly authorized by the Purchaser, each such Subsidiary and Guarantors and
no other proceedings on the part of the Purchaser, each such Subsidiary and
Guarantors (or any other person) are necessary to authorize the execution and
delivery by the Purchaser, each Subsidiary and Guarantors of this Agreement or
the consummation of the Contemplated Transactions to which the Purchaser, any
Subsidiary or Guarantors is a party. This Agreement and the other Transaction
Documents to which the Purchaser, any Subsidiary and/or Guarantors is a party
have been duly and validly executed and delivered by each of the Purchaser,
Subsidiary and Guarantors and (assuming the valid execution and delivery thereof
by the other parties thereto) constitute the legal, valid and binding agreements
of the Purchaser, each Subsidiary and Guarantors enforceable against them in
accordance with their respective terms.
<PAGE>
SECTION 4.3 Capitalization; Corporate Books. The authorized capital
stock of Purchaser and each Subsidiary is set forth on Schedule 4.3. All of
Purchaser's and each Subsidiary's shares are validly issued and are fully paid
and non-assessable. Neither the Purchaser nor any Subsidiary has outstanding
any securities convertible into any class of its capital stock or convertible
into securities in turn so convertible, and none of them has outstanding, or is
bound by, any options, warrants or other rights or agreements calling for the
issuance, sale or delivery of any shares of their capital stock or any such
convertible securities except as set forth on Schedule 4.3.
SECTION 4.4 Ownership of Shares.
(a) Guarantors own of record, and beneficially, the shares of
Purchaser set forth on Schedule 4.4. Purchaser owns of record and beneficially
the shares in each Subsidiary set forth on Schedule 4.4. Ryan Smith and Rodney
Smith, own of record, and beneficially, the options to acquire shares of
Purchaser set forth on Schedule 4.4.
(b) Guarantors have good title to Purchaser's Shares and Purchaser
has good title to the Subsidiaries' Shares, free and clear of any and all Liens
or Liabilities. Upon the Closing of the Contemplated Transactions and delivery
of Purchaser's Shares and the Subsidiaries' Shares pursuant to the terms and
conditions of the Pledge Agreement and Third Party Pledge Agreement, the Company
shall have a first lien security interest in and to such shares. Neither
Purchaser nor Guarantors is bound by any outstanding subscriptions, options,
warrants, conversion, exchange or purchase rights, cause, understandings,
commitments or agreements of any kind or character calling for or requiring the
purchase, issuance or sale or pertaining to the voting of Purchaser's Shares,
Subsidiaries' Shares or other equity security of Purchaser or any Subsidiary or
any securities representing the right to purchase or otherwise receive or vote
any shares of capital stock in Purchaser or any Subsidiary or any other equity
security interest in Purchaser or any Subsidiary, except as set forth in
Schedule 4.4.
SECTION 4.5 Financial Information. The Purchaser has furnished to the
Company true and complete copies of (i) Purchaser's and Subsidiaries
consolidated financial statements at and for the fiscal years ended 1996, 1995
and 1994, (ii) their unaudited financial statements at and for each calendar
month of 1997 through July 31, 1997 ("Latest Balance Sheet"). Each financial
statement presents fairly in all material respects the financial position of
Purchaser and Subsidiaries as of its date, and their earnings, changes in
stockholders' equity and cash flow for the periods then ended. Each delivered
balance sheet fully sets forth all assets and liabilities of Purchaser and each
Subsidiary existing as of its date which, under GAAP, should be set forth
therein, and each delivered statement of earnings sets forth the items of income
and expense of the Purchaser and Subsidiaries which should appear therein under
GAAP. All financial and accounting books, ledgers, accounts and official and
other records relating to the Purchaser and Subsidiaries have been properly and
accurately kept and completed in all material respects.
SECTION 4.6 Liabilities. Except as and to the extent reflected in the
Latest Balance Sheet, Purchaser and Subsidiaries do not have any material
liabilities or obligations. Except as described in Schedule 4.6, and
liabilities reflected on the Latest Balance Sheet since the date of the Latest
Balance Sheet, there has been (i) no material adverse change in the assets or
liabilities, or in the business or condition of the Purchaser or any Subsidiary,
financial or otherwise, or the result of operations of Purchaser or any
Subsidiary, and (ii) no change in the assets or liabilities or in the business
or condition of Purchaser or any Subsidiary, financial or otherwise, or in the
results of operations or prospects of Purchaser or any
<PAGE>
Subsidiary, except in the ordinary course of business; and (iii) no factor or
condition exists or, to Purchaser's and Guarantors' knowledge and belief, is
contemplated or threatened, which might cause such a change in the future;
provided, however, that the parties recognize that Planetary Gear, Inc. is a
start-up company with a modest operating history and no assurances can be given
with regard to its probability for success.
SECTION 4.7 Properties.
(a) Schedule 4.7 sets forth a complete list and description of all
real property owned or leased by Purchaser or any Subsidiary (the "Real
Property"), which constitutes all of the real property owned, used or occupied
by Purchaser and/or any Subsidiary. The lease for the Real Property is in full
force and effect and Purchaser or any Subsidiary holds a valid and existing
leasehold interest and a right to quiet enjoyment of the such Real Property for
the term set forth in Schedule 4.7. The leasehold interest in such Real
Property is not subject to or subordinate to any Lien. Copies of all title
insurance policies, deeds, appraisal reports, surveys and environmental reports
with respect to such Real Property held or controlled by Purchaser, if any, have
been provided to the Company. All structures and buildings of the business of
Purchaser are in good operating condition (subject to normal wear and tear) with
no structural or other defects known to Purchaser that would materially
interfere with the operation of the business of Purchaser or any Subsidiary, and
are suitable for the purposes for which they are currently used. To the
knowledge of Purchaser, each Subsidiary and Guarantors, the business of
Purchaser or any Subsidiary is not in violation in any material respect of any
building, zoning, anti-pollution, health, occupational safety or other Law or
any Order or Permit in respect of such Real Property, structures and buildings.
No person, other than Purchaser or any Subsidiary, has any right to occupy or
possess any of the Real Property or any such structures or buildings.
(b) Purchaser and each Subsidiary have good and marketable title to
all of the assets, including, without limitation, personal property used in
their respective businesses, free and clear of all Liens or Liabilities, except
for the Colorado Spice Security Interests. The machinery, equipment and other
tangible personal property constituting a part of the assets (whether owned or
leased) are in good condition and repair (subject to normal wear and tear) and
are adequate in quantity and quality for the operation of businesses as
presently conducted by them.
(c) Upon the Closing of the Contemplated Transactions, and the
execution and delivery of the Pledge Agreement, the Security Agreement and each
of the documents contemplated to be executed and delivered by Purchaser and the
Subsidiaries pursuant to the terms of such agreements, the Company shall have
the first lien security interest in and to all of the assets of Purchaser and
each Subsidiary, except for the Colorado Spice Security Interests.
SECTION 4.8 Taxes. Purchaser and each Subsidiary have timely filed or,
if not yet due, will timely file all Tax Returns required to be filed by them
for all taxable periods ending on or before the Closing Date and all such Tax
Returns are true, correct and complete in all material respects. Purchaser and
each Subsidiary have paid or, if payment is not yet due, will pay to the
appropriate Tax Authority or has established, in accordance with GAAP and
consistent with past practice, accruals that are reflected on the Latest Balance
Sheet for the payment of, all their Taxes for all taxable periods ending on or
before the Closing Date. No extension of time has been requested or granted for
the Purchaser or any Subsidiary to file any Tax Return that has not yet been
filed or to pay any Tax that has not yet been paid. Neither Purchaser nor any
Subsidiary has received notice of a determination by a Tax authority that Taxes
are owed by Purchaser or any Subsidiary (such determination to be
<PAGE>
referred to as a "Tax Deficiency") and, to the knowledge of the Purchaser or
Guarantors, no Tax Deficiency is proposed or threatened. All Tax Deficiencies,
if any, have been paid or finally settled and all amounts determined by
settlement to be owed have been paid. There are no Tax Liens on or pending
against Purchaser or any Subsidiary or any of their Assets other than liens for
current taxes not yet due and payable. There are no presently outstanding
waivers or extensions or requests for waiver or extension of the time within
which a Tax Deficiency may be asserted or assessed. No issue has been raised in
any examination, investigation, audit, suit, action, claim or proceeding
relating to Taxes (a "Tax Audit") which, by application of similar principles to
any past, present or future period, would result in a Tax Deficiency for such
period. There are no pending or, to the knowledge of Purchaser or Guarantors,
threatened Tax Audits of Purchaser or any Subsidiary. Purchaser does not have
any deferred intercompany gains or losses that have not been fully taken into
income for income Tax purposes. Purchaser and each Subsidiary have collected
and remitted to the appropriate Tax Authority all sales and use or similar Taxes
required to have been collected on or prior to the Closing Date and have been
furnished properly completed exemption certificates for all exempt transactions.
Purchaser shall be responsible for the payment of all state and local Taxes, if
any, arising from or relating to the sale of the Assets and the Contemplated
Transactions.
SECTION 4.9 No Conflicts, Consents. The execution, delivery and
performance by Purchaser, each Subsidiary and Guarantors of this Agreement
and/or each other Transaction Document to which any of them is a party, the
consummation of the Contemplated Transactions to which any of them is a party,
will not (i) violate any provision of the Articles of Incorporation or By-laws
of the Purchaser or any Subsidiary; (ii) require Purchaser, any Subsidiary or
Guarantors to obtain any Required Consents; (iii) violate, conflict with or
result in a breach or default under (after the giving of notice or the passage
of time or both), or permit the termination of, any contract, mortgage, lien,
lease, agreement, instrument, license, franchise, or any statute, regulation,
order, judgement, decree to which the Purchaser, any Subsidiary or Guarantors
are a party or by which any of them or any of their assets may be bound or
subject, or result in the creation of any Lien upon any of the assets pursuant
to the terms of any such contract which would have an adverse material effect on
Purchaser, any Subsidiary, Guarantors on the Collateral, or the ability of any
of them to consummate the Contemplated Transactions; or (iv) to the knowledge of
Purchaser, any Subsidiary, or Guarantors would violate any Law or Order of any
Governmental Body against, or binding upon, the Purchaser, any Subsidiary or
Guarantors or upon their assets or respective businesses, or their ability to
consummate the Contemplated Transactions.
SECTION 4.10 Charter Documents and Corporate Records. Purchaser has
heretofore delivered to the Company true and complete copies of the Articles of
Incorporation and Bylaws of Purchaser and each Subsidiary, as in effect on the
date hereof. The minute and transfer books of the Purchaser and each Subsidiary
have been made available to the Company for inspection and are true and
complete.
SECTION 4.11 Claims and Proceedings. To the best of their knowledge, there
are no outstanding Orders of any Governmental Body against or involving
Purchaser, any Subsidiary or Guarantors or the business or assets of any of
them. Except as set forth on Schedule 4.11, there are no actions, suits, claims
or counterclaims or legal, administrative or arbitral proceedings or
investigations (collectively, "Claims") (whether in respect thereof are covered
by insurance), pending or, to the knowledge of Purchaser or Guarantors,
threatened on the date hereof, against or involving Purchaser, any Subsidiary or
Guarantors, any of Purchaser's, any Subsidiary's or Guarantors' assets or the
businesses.
SECTION 4.12 Guarantors' Collateral. Guarantors have good title to
Guarantors'
<PAGE>
Collateral, free and clear of any and all Liens and Liabilities, except for the
residential lease currently in effect with respect to the California rental
property. Upon the Closing of the Contemplated Transactions, and delivery of
the Guarantors' Security Agreement, the Third Party Pledge Agreement, and each
of the documents contemplated to be executed and delivered by Guarantor pursuant
to the terms and conditions of such agreements, the Company shall have a first
lien security interest in and to all of Guarantors' Collateral.
SECTION 4.13 Collateral. The aggregate fair market value of the Collateral
is in excess of $3,500,000.00.
SECTION 4.14 Compliance with Laws. To the best of their knowledge after
investigation, neither Purchaser, any Subsidiary nor Guarantors is in violation
of any Orders, or Laws, of any Governmental Bodies affecting their assets or the
businesses or their ability to consummate the Contemplated Transactions.
SECTION 4.15 Finders Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Purchaser or Guarantors who might be entitled to any fee or commission
from the Company upon consummation of the Contemplated Transactions. Purchaser
and Guarantors are solely responsible for payment of all fees and commissions of
the type described above and at Closing, no claims will exist against the
Purchaser or any Subsidiary for any such fees or commissions.
SECTION 4.16 Disclosure. Neither this Agreement, nor the Schedules hereto,
or any financial statements, documents or certificates furnished or to be
furnished to the Company by or on behalf of Purchaser, any Subsidiary or
Guarantors pursuant to this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading. Notwithstanding any
right of the Company to fully investigate the affairs of Purchaser, any
Subsidiary or Guarantors nor any knowledge of facts determined or determinable
by the Company to such investigation, the Company has the right to rely fully
upon the representations, warranties, covenants and agreements of Purchaser, any
Subsidiary or Guarantors contained herein or listed or disclosed on any Schedule
hereto or in any instrument delivered in connection herewith or any of the
foregoing.
SECTION 4.17 Accuracy of Information. No representation, statement or
information made or furnished by Purchaser, any Subsidiary or Guarantors, in
this Agreement, the Transaction Documents and the schedules hereto and thereto
contains, or shall contain, any untrue statement of fact or omits or shall omit
any fact necessary to make the information contained in such representation, or
information not misleading.
SECTION 4.18 Insolvency Proceedings. No insolvency proceedings, including
bankruptcy, receivership, reorganization, composition or arrangement with
creditors, are pending or threatened against Purchaser, any Subsidiary or
Guarantors.
ARTICLE 5
CONDUCT OF BUSINESS
SECTION 5.1 Covenants of Purchaser and Guarantors. From the date hereof
until the Promissory Notes are paid in full, Purchaser and Guarantors shall
conduct themselves as follows:
<PAGE>
(a) Purchaser and Guarantors agree to cause Purchaser and each
Subsidiary to conduct their respective operations according to their ordinary
and usual course of business consistent with past practices and to otherwise use
best efforts to preserve their respective businesses.
(b) Except as provided in paragraph (c) below, neither Purchaser, any
Subsidiary nor Guarantors shall sell, transfer, assign, market, pledge and
encumber or permit the creation of any lien or security interest with respect to
the Collateral; provided, however, that Company acknowledges that Guarantors
intend to sell the California rental property identified on Schedule 1.2(f) and
the parties agree that upon such sale the proceeds shall be applied as follows:
$100,000 to the April 1998 payment due under the Notes, $100,000 to the July,
1998 payment due under the Notes, and the remainder to reduce the principal of
the Notes, pro rata. Purchaser shall receive an appropriate reduction in
interest due to such prepayment of quarterly payments and principal. Purchaser
further agrees that upon the prepayment of any principal or interest of the
notes receivable secured by first mortgages identified on Schedule 1.2(f), the
proceeds of such sale or note prepayment shall promptly be paid by Guarantors to
the Company and applied as a pro rata reduction to the principal of the
Promissory Notes.
(c) Neither Purchaser nor any Subsidiary will (other than the
ordinary course of business consistent with past practices), without the prior
written consent of the Company, which consent shall not be unreasonably
withheld; (i) change its Articles of Incorporation, Bylaws, or organizational
structure, (ii) incur any debt or financial obligations or otherwise undertake
or assume any obligations, which, individually or in the aggregate exceeds
$100,000 in the 1997, 1998 or 1999 calendar years and thereafter in the
aggregate exceeds $300,000 per calendar year; (iii) modify, assign or
hypothecate any existing material agreement; (iv) declare any dividends or make
any distributions of assets or cash with respect to their capital stock; (v)
authorize, sell, issue, restructure or exchange any debt or equity security,
(including without limitations stock options or warrants) except as set forth on
Schedule 4.4; (vi) sell, discount, or factor any accounts receivables or enter
into any other similar arrangements; (vii) increase compensation payable to or
to become payable to any officer, shareholder, director, consultant, agent or
employee or otherwise modify benefits payable to any of them other than in
amounts consistent with past practices; or (viii) pay, discharge, settle or
satisfy any material claim or liability.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING
SECTION 6.1 Conditions to the Obligations of the Parties. The
obligations of the Company, on the one hand, and Purchaser and Guarantors, on
the other, to consummate the Contemplated Transactions are subject to the
satisfaction of the following conditions, which, in the case of Section 6.1(b),
may be waived by the parties.
(a) No Injunction. No provision of any applicable Law and no Order
shall prohibit the consummation of the Contemplated Transactions.
(b) No Proceeding or Litigation. No Claim instituted by any person,
shall have been commenced or pending against any party hereto which Claim seeks
to restrain, prevent, change or delay in any material respect the Contemplated
Transactions or seeks to
<PAGE>
challenge any of the material terms or provisions of this Agreement or seeks
material damages in connection with any of such transactions.
SECTION 6.2 Conditions to the Obligations of the Company. All
obligations of the Company hereunder are subject to the fulfillment prior to or
at the Closing of each of the following conditions:
(a) Performance. Purchaser and Guarantors shall have performed and
complied in all material respects with all agreements, obligations and covenants
required by this Agreement to be performed or complied with by it or him at or
prior to the Closing Date.
(b) Representations and Warranties. The representations and
warranties of Purchaser and Guarantors contained in this Agreement, any
Transaction Document and in any certificate or other writing delivered by
Purchaser, any Subsidiary, Guarantors, Ryan Smith and/or Rodney Smith pursuant
hereto or thereto shall be true in all material respects at and as of the
Closing Date as if made at and as of such time.
(c) Consents. All Required Consents shall have been obtained.
(d) Certificate. There shall have been delivered to the Company a
certificate, dated the Closing Date, of the President of Purchaser confirming
the matters set forth in Section 6.2(a) and (b) hereof.
(e) Instruments Granting Security Interests. The Purchaser, each
Subsidiary, Guarantors, Ryan Smith and Rodney Smith shall have furnished to the
Company all assignments or instruments of transfer, consents and waivers
necessary to grant to the Company a perfected first lien security interest in
and to the Collateral, except for the Colorado Spice Security Interests, as
contemplated by this Agreement in proper statutory form for recording, if
recording is necessary.
(f) No Adverse Changes. No change, other than as contemplated or
permitted by this Agreement shall have occurred with respect to Purchaser, the
Subsidiaries, Guarantors, and/or the Collateral, which have been material and
adverse to any of them or the Collateral.
(g) Deliveries. All deliveries required to be made to the Company
pursuant to Section 2.2(a) shall have been made.
SECTION 6.3 Conditions to the Obligations of Purchaser and Guarantors.
All obligations of Purchaser and Guarantors hereunder are subject, at the option
of Purchaser and Guarantors, to the fulfillment prior to or at the Closing of
each of the following further conditions:
(a) Performance. The Company shall have performed and complied in
all respects with all agreements, obligations and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
(b) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement and in any certificate or
other writing delivered by the Company pursuant hereto shall be true in all
respects at and as of the Closing Date.
(c) Consents. All Required Consents shall have been obtained.
<PAGE>
(d) Certificate. There shall have been delivered to Purchaser a
certificate dated the Closing Date of the Company confirming the matters
relating to it set forth in Sections 6.3(a) and (b).
(e) Instruments of Assignment. The Company shall have furnished to
Purchaser all assignments or instruments of transfer, necessary to transfer to
and effectively vest in Purchaser all right, title and interest to and in the
Assets as contemplated by this Agreement in proper statutory form for recording,
if such recording is necessary.
(f) No Adverse Changes. No change, other than is contemplated or
permitted by this Agreement shall have occurred with respect to the Product Line
which may have been material and adverse to the Product Line, provided, however,
that the parties acknowledge and agree that in reliance of the prior good faith
negotiations to the parties and execution of this Agreement, the Company may
cease production of inventory items in the Product Line and sell off inventory
on hand in the ordinary course of business, therefore, any such cessation or
reduction in the production of inventory and the decrease in sales resulting
therefrom will not be deemed a material adverse change in the financial
condition, prospects or results of operation of the Product Line.
(g) Deliveries. All deliveries required to be made to the Company
pursuant to Section 2.2(b) shall have been made.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1 Survival of Representations and Warranties.
(a) Notwithstanding any right of the parties to fully investigate the
affairs of each other and their respective assets and businesses and
notwithstanding any knowledge of facts determined or determinable by any party
pursuant to such investigation or right of investigation, each party has the
right to rely fully upon the representations, warranties, covenants and
agreements of the other party contained in this Agreement, or listed or
disclosed on any Schedule hereto or in any instrument delivered in connection
with or pursuant to any of the foregoing. All such representations, warranties,
covenants and agreements shall survive the execution and delivery of this
Agreement and the Closing hereunder. Notwithstanding the foregoing, all
representations and warranties of the parties contained in this Agreement, on
any Schedule hereto or in any Transaction Document in connection with or
pursuant to this Agreement, and the indemnification obligations of the parties
in respect of the matters specified in Section 7.2 shall terminate and expire
seven (7) years after the Closing Date or upon the payment in full of all
amounts due under the Promissory Notes, whichever is earlier; provided, however,
that the liability of any Party shall not terminate as to any specific claim or
claims of the type referred to in Section 7.2 hereof, whether or not fixed as to
liability or liquidated as to amount, with respect to which such party has been
given specific notice on or prior to the date on which such liabilities would
otherwise terminate pursuant to the terms of this Section 7.1.
<PAGE>
SECTION 7.2 Obligation to Indemnify. Purchaser and Guarantors, on the
one hand, and the Company, on the other hand, agree to indemnify, defend and
hold harmless the other (and its or his respective directors, officers,
employees, Affiliates, successors and assigns) from and against all Claims,
losses, liabilities, damages, deficiencies, judgments, settlements, costs of
investigation or other expenses (including interest, penalties and reasonable
attorneys' fees and disbursements and expenses incurred in enforcing this
indemnification) (collectively, the "Losses") suffered or incurred by the other
party or any of the foregoing persons arising out of (i) any material breach of
the representations and warranties of Purchaser contained in this Agreement or
in the Schedules or any Transaction Document, or (ii) any material breach of the
covenants and agreements of the parties contained in this Agreement or in the
Schedules or any Transaction Document.
SECTION 7.3 Notice and Opportunity to Defend Third Party Claims.
(a) Promptly after receipt by any party hereto (the "Indemnitee") of
notice of any demand, claim, circumstance or audit which would or might give
rise to a claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that may result in a Loss,
the Indemnitee shall give prompt notice thereof (the "Claims Notice") to the
party or parties obligated to provide indemnification pursuant to Section 7.2
(collectively, the "Indemnifying Party"). The Claims Notice shall describe the
Asserted Liability in reasonable detail and shall indicate the amount
(estimated, if necessary, and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee. The rights of the Indemnifying Party to
defend Asserted Liabilities under Section 7.3(b) in the case of Asserted
Liabilities against the Company shall be exercised by the Company.
(b) The Indemnifying Party may elect to defend, at its own expense
and with its own counsel, any Asserted Liability unless (i) the Asserted
Liability seeks an injunction or other equitable or declaratory relief against
the Indemnitee or (ii) the Indemnitee shall have reasonably concluded that there
is a conflict of interest between the Indemnitee and the Indemnifying Party in
the conduct of such defense. If the Indemnifying Party elects to defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the defense of such Asserted Liability. If the Indemnifying Party
elects not to defend the Asserted Liability, is not permitted to defend the
Asserted Liability by reason of the first sentence of this Section 7.3(b), fails
to notify the Indemnitee of its election as herein provided or contests its
obligation to indemnify under this Agreement with respect to such Asserted
Liability, the Indemnitee may pay, compromise or defend such Asserted Liability
at the sole cost and expense of the Indemnifying Party. Notwithstanding the
foregoing, neither the Indemnifying Party nor the Indemnitee may settle or
compromise any claim over the reasonable written objection of the other,
provided that the Indemnitee may settle or compromise any claim as to which the
Indemnifying Party has failed to notify the Indemnitee of its election under
this Section 7.3(b) or as to which the Indemnifying Party is contesting its
indemnification obligations hereunder and provided further, that if any
Indemnitee shall fail to consent to the monetary terms of any proposed
settlement or compromise of any Asserted Liability, the Indemnifying Party shall
not thereafter be obligated to pay the Indemnitee in respect of such Asserted
Liability under this Article 7 in excess of the amount it would have been
required to pay to the Indemnitee in connection with such proposed settlement or
compromise. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of any Asserted Liability. If
the Indemnifying Party chooses to defend any Asserted Liability, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
Any Losses of any Indemnitee for which indemnification is available hereunder
shall be paid within thirty (30) days following written demand therefor.
<PAGE>
SECTION 7.4 Offset. Notwithstanding anything contained herein to the
contrary and in addition to, without limiting any of Purchaser's other rights
and remedies hereunder, Purchaser may, at its option, deduct, withhold and/or
otherwise offset the sum of any and all Losses from or against any payments due
and payable hereunder, including without limitation, the Purchase Price, in the
event of any Losses incurred by Purchaser for which indemnification is
available.
ARTICLE 8
CONFIDENTIALITY
SECTION 8.1 Confidentiality. All information provided to or from any
party or their representatives or advisors, shall be held in confidence. In the
event that the Contemplated Transactions do not close, all information so
provided, will either be promptly returned or destroyed. Notwithstanding the
foregoing, no information provided which is already in the public domain shall
be deemed confidential.
ARTICLE 9
MISCELLANEOUS PROVISIONS
SECTION 9.1 Notices. All notices which are permitted or required under
this Agreement shall be in writing and delivered personally or by certified
mail, postage prepaid, addressed as follows, or to such other person or address
as may be designated by written notice by one party to the other parties:
If to Purchaser: American Outdoor Products, Inc.
6350 Gunpark Drive
Boulder, Colorado 80301
Attention: Ronald Smith, President
With a copy to: Hutchinson Black and Cook, LLC
1215 Spruce Street
Boulder, Colorado 80302-4818
Attention: Carla W. Sledge. Esq.
If to Guarantors: Mr. & Mrs. Ronald Smith
c/o American Outdoor Products, Inc.
6350 Gunpark Drive
Boulder, Colorado 80301
With a copy to: Hutchinson Black and Cook, LLC
1215 Spruce Street
Boulder, Colorado 80302-4818
Attention: Carla W. Sledge, Esq.
<PAGE>
If to the Company: Action Products International, Inc.
344 Cypress Road
Ocala, Florida 34474
Attention: Ronald Kaplan, President
With a copy to: Eileen Trautman, Esq.
Cohen, Berke, Bernstein, Brodie & Kondell, P.A.
2601 S. Bayshore Drive, 19th Floor
Miami, Florida 33133
Notices shall be deemed delivered when delivered personally or four (4) days
after mailing when mailed by prepaid certified or registered mail with return
receipt requested, or air courier which provides for evidence of delivery. The
addresses set forth above shall be conclusive for all purposes unless and until
written notice of a change of address shall be sent to the parties herein.
SECTION 9.2 No Assignment. This Agreement may not be assigned by either
party without the prior written consent of the other party. Notwithstanding the
foregoing, Purchaser reserves the right to assign all of its rights under this
Agreement to a Subsidiary and if so assigned, Purchaser, the Company, each
Subsidiary and Guarantors shall remain responsible for all duties and
obligations to the Company under this Agreement and shall execute and deliver
any agreements that shall be reasonably requested by the Company and its
counsel, to ensure continued liability hereunder and thereunder.
SECTION 9.3 Severability. Any provision of this Agreement which is
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability, without affecting in any way the remaining provision
hereof.
SECTION 9.4 Governing Law. This Agreement is deemed to have been made
in the State of Florida and its interpretations, its construction and the
remedies for its enforcement or breach are to be applied pursuant to, and in
accordance with, the laws of the State of Florida for contracts made and to be
performed in that State.
SECTION 9.5 Schedules. It is acknowledged and agreed that all exhibits
and schedules to this Agreement are an integral part hereof and are
incorporated, in total, by reference fully as a part of this Agreement in all
respects.
SECTION 9.6 Incorporation and Amendment. This writing and the
agreements referenced herein constitutes the entire Agreement of the parties
superseding and extinguishing all prior agreements or understandings,
representations or warranties, relating to the subject matter hereof. This
Agreement may not be modified, amended or terminated except by written agreement
specifically referring to this Agreement signed by the parties hereto.
SECTION 9.7 Remedies. Each of the parties hereto agrees that any
dispute arising among the parties hereto shall be settled by a court of
competent jurisdiction in accordance with applicable law and that the parties
shall be free to petition the court for all appropriate legal and/or equitable
remedies inclusive of specific performance and injunctive relief.
SECTION 9.8 Waiver. No waiver of any breach or default hereunder shall
be considered valid unless in writing and signed by the party giving such
waiver, and no such
waiver shall be deemed a waiver of any subsequent breach or default of the same
or similar nature.
SECTION 9.9 Headings. The paragraph headings contained herein are for the
purpose of convenience only and are not intended to define or limit the contents
of said paragraphs.
SECTION 9.10 Further Action. Each party hereto shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by the other party in order to carry out the provisions and purposes
of this Agreement.
SECTION 9.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
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SECTION 9.12 Venue. The parties hereto mutually agree that proper venue
with respect to any dispute arising hereunder, related hereto and connected
herewith shall be Dade County, Florida.
SECTION 9.13 No Third-Party Beneficiary. Except as otherwise provided
herein, nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any person other than the parties hereto and
their respective heirs and permitted successors or assigns hereunder any rights
or remedies under or by reason of this Agreement.
SECTION 9.14 Remedies Cumulative. No remedy made available by any of the
provisions of this Agreement is intended to be exclusive of any other remedy,
each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity.
SECTION 9.15 Attorneys' Fees. In the event a civil proceeding is brought
by a party to this Agreement to enforce any of the provisions hereof, or to seek
remedy for any breach thereof, the prevailing party shall be entitled to receive
its reasonable attorneys' fees and disbursements incurred in connection with
such civil proceedings, including fees and expenses incurred in any appellate
proceedings.
SECTION 9.16 Public Announcements. The parties hereby acknowledge and
agree that any public announcement relating to the Contemplated Transactions
shall be subject to the review and approval of all parties; provided, however,
that the Company may make public announcements or disclosures to third parties
without the approval of Purchaser or Guarantors to the extent required by law.
SECTION 9.17 Expenses. The parties shall each pay all of its own expenses
incurred by it in connection with the negotiation of the Agreement and the
consummation of the Contemplated Transactions.
ARTICLE 10
DEFINITIONS
SECTION 10.1 Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" of any person means any other person directly or
indirectly through one or more intermediary persons, controlling, controlled by
or under common control with such person.
The term "audit" or "audited" when used in regard to financial
statements shall mean an examination of the financial statements by a firm of
independent certified public accountants in accordance with generally accepted
auditing standards for the purpose of expressing an opinion thereon.
"Change of Control" for purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred when:
(i) If fifty percent (50%) or more of the combined voting power of
the outstanding equity securities of Purchaser or any Subsidiary is sold,
assigned or otherwise disposed of (whether voluntarily or by operation of law),
or if Purchaser or any Subsidiary
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issues any equity securities resulting in the holders of the outstanding equity
securities of Purchaser or any Subsidiary, prior to the issuance, holding less
than fifty-one percent (51%) of the combined voting shares or voting power of
Purchaser or any Subsidiary after such issuance.
(ii) If all or substantially all of the assets of Purchaser or any
Subsidiary are disposed of pursuant to a liquidation of Purchaser or any
Subsidiary, sale of assets of Purchaser or any Subsidiary, or otherwise;
(iii) If Purchaser or any Subsidiary, except Planetary Gear, Inc.,
(A) files a voluntary petition under any bankruptcy or insolvency law or a
petition for the appointment of a receiver or makes an assignment for the
benefit of creditors; (B) is subjected involuntarily to such a petition or
assignment or to an attachment or other legal or equitable interest with respect
to the assets of Purchaser or any Subsidiary and such involuntary petition,
assignment or attachment is not discharged within thirty (30) days after its
effective date; or (C) admits in writing its inability, or is generally unable,
to pay its debts as its debts become due; or
(iv) If Purchaser or any Subsidiary shall merge into or merge or
consolidate with another corporation or entity under such terms as to result in
the holders of the outstanding equity securities of Purchaser or any Subsidiary
receiving less than fifty-one percent (51%) of the combined voting shares or
voting power of the resulting or continuing corporation or other entity.
(v) Notwithstanding the foregoing provisions of this definition, the
consolidation of Purchaser with a Subsidiary shall not constitute a Change of
Control; provided, that Guarantors remains at least a 51% holder of the combined
voting shares or voting power of the resulting or continuing corporation.
"GAAP" shall mean generally accepted accounting principles in effect
on the date hereof as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States.
The term "knowledge" with respect to (a) any individual shall mean
actual knowledge and (b) any corporation shall mean the actual knowledge of the
directors and the executive officers of such corporation; and "knows" has a
correlative meaning.
"Liability" shall mean any direct or indirect indebtedness, liability,
assessment, claim. loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, choate or inchoate. liquidated or unliquidated, secured or
unsecured, accrued, absolute, actual or potential, contingent or otherwise
(including any liability under any guaranties, letters of credit, performance
credits or with respect to insurance loss accruals).
"Lien" shall mean, with respect to any asset, any mortgage, lien
(including mechanics, warehousemen, laborers and landlords liens), claim,
pledge, charge, security interest, preemptive right, right of first refusal,
option, judgment, title defect, or encumbrance of any kind in respect of or
affecting such Asset.
The term "person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity,
including a government or political subdivision or an agency or instrumentality
thereof.
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"Subsidiary" shall mean any corporation that is wholly or partly owned
by Purchaser including, without limitation, Planetary Gear, Inc., a Colorado
corporation and Colorado Spice, Inc., a Colorado corporation.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean (i) any net income, gross income, gross receipts, sales,
use, ad valorem, transfer, transfer gains, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, rent, recording,
occupation, premium, real or personal property, intangibles, environmental or
windfall profits tax, alternative or add-on minimum tax, customs duty or other
tax, fee, duty, levy, impost, assessment or charge of any kind whatsoever
(including but not limited to taxes assessed to real property and water and
sewer rents relating thereto), together with any interest and any penalty,
addition to tax or additional amount imposed by any Governmental Body (domestic
or foreign) (a "Tax Authority") responsible for the imposition of any such tax,
(ii) any liability for the payment of any amount of the type described in the
immediately preceding clause (i) as a result of Purchaser being a member of an
affiliated or combined group with any other corporation at any time on or prior
to the Closing Date and (iii) any liability for the payment of any amounts of
the type described in the immediately preceding clause (i) as a result of a
contractual obligation to indemnify any other person.
"Tax Liabilities" shall mean any and all Liabilities for Taxes (other
than Tax Liabilities arising out of the Contemplated Transactions that are
payable by the Purchaser or any Subsidiary hereunder) pursuant to Law or that
are payable by Purchaser or any Subsidiary arising out of events, transactions,
facts or circumstances occurring or existing on or prior to the Closing Date.
"Tax Return" shall mean any return or report (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to any Tax Authority.
"Transaction Documents" shall mean, collectively, this Agreement, and
each of the other agreements and instruments to be executed and delivered by all
or some of the parties hereto in connection with the consummation of the
transactions contemplated hereby.
SECTION 10.2 Interpretation. Unless the context otherwise requires, the
terms defined in Section 10.1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. All accounting terms defined in Section 10.1,
and those accounting terms used in this Agreement not defined in Section 10.1,
except as otherwise expressly provided herein, shall have the meanings
customarily given thereto in accordance with GAAP. When a reference is made in
this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. 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. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
THE COMPANY:
ACTION PRODUCTS INTERNATIONAL, INC., a Florida
corporation
By: /s/ Ronald Kaplan
Ronald Kaplan, President
PURCHASER:
AMERICAN OUTDOOR PRODUCTS, INC.,
a Colorado corporation
By: /s/ Ronald E. Smith
Ronald E. Smith, President
GUARANTORS:
/s/ Ronald E. Smith
Ronald E. Smith, Co-Trustee of the
Ronald and Janice Smith Family Trust
/s/ Janice G. Smith
Janice G. Smith, Co-Trustee of the
Ronald and Janice Smith Family Trust
/s/ Ronald E. Smith
Ronald E. Smith, individually
/s/ Janice G. Smith
Janice G. Smith, individually
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