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): November 7, 1996
ACTION PERFORMANCE COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
ARIZONA 0-21630 86-0704792
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(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction of incorporation)
2401 West First Street, Tempe, Arizona 85281
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (602) 894-0100
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ACTION PERFORMANCE COMPANIES, INC.
CURRENT REPORT ON
FORM 8-K
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Acquisition of Sports Image, Inc.
On November 7, 1996, Action Performance Companies, Inc. (the
"Company"), through SII Acquisition, Inc. ("SII"), a wholly owned subsidiary,
acquired the business and substantially all of the assets and assumed specified
liabilities of Sports Image, Inc. ("Seller" or "Sports Image"), a North Carolina
corporation owned by seven-time Nascar Winston Cup Champion driver Dale
Earnhardt and his wife. Following the acquisition, SII Acquisition, Inc. changed
its name to Sports Image, Inc. Sports Image markets and distributes licensed
motorsports products, including apparel and other souvenir items, through a
network of wholesale distributors, trackside events, and fan clubs. The Company
intends to continue to operate the business of Seller through its wholly owned
subsidiary.
The purchase price paid by the Company for the assets of Seller
consisted of (i) a promissory note issued by SII in the principal amount of
$24.0 million (the "Purchase Price Note"), and (ii) 403,361 shares of the
Company's Common Stock (the "Shares") valued at $14.875 per share, which was
slightly less than the closing price per share of the Company's Common Stock on
November 6, 1996. The Purchase Price Note bears interest at 8% per annum,
matures on January 2, 1997, and is secured by all of the transferred assets as
well as the Company's guaranty of SII's obligation under the note. In connection
with the issuance of the Shares, the Company entered into a registration
agreement with Seller, Mr. Earnhardt, and Mr. Earnhardt's wife (the
"Registration Agreement"). The Registration Agreement grants the holders of the
Shares the right to one "demand" registration as well as "piggyback"
registration rights.
The Company and Mr. Earnhardt also entered into a license agreement
(the "License Agreement") pursuant to which the Company has the right to market
licensed motorsports products utilizing the likeness of Dale Earnhardt. Pursuant
to the License Agreement, Mr. Earnhardt also granted the Company the right of
first refusal to make, have made, use, sell, or otherwise distribute any new
licensable products that Mr. Earnhardt becomes aware of and approves for
marketing. The term of the License Agreement is 15 years and from year to year
thereafter unless terminated by either party.
In connection with the acquisition of the assets of Seller, the Company
entered into a three-year employment agreement (the "Employment Agreement") with
Joe Mattes, the principal operating officer of Seller. Pursuant to the terms of
the Employment Agreement, Mr. Mattes will serve as the President of SII at a
salary of $225,000 per year. In addition, Mr. Mattes will be eligible to receive
an annual bonus of up to $67,500, as determined by the Company's Board of
Directors based upon factors that it deems relevant, including Mr. Mattes'
performance. The Company also granted to Mr. Mattes five-year options to acquire
50,000 shares of the Company's Common Stock at an exercise price of $14.875 per
share. Of the options granted, options to acquire 30,000 shares were vested at
the date of grant, options to acquire 10,000 shares will vest on November 7,
1997, and options to acquire the remaining 10,000 shares will vest on November
7, 1998.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
As of the date of filing of this Report on Form 8-K, it is
impracticable for the Registrant to provide the financial statements required by
this Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial
statements shall be filed by amendment to this Form 8-K no later than January
21, 1997.
(b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the pro forma financial information
required by this Item 7(b). In accordance with Item 7(b) of Form 8-K, such
financial statements shall be filed by amendment to this Form 8-K no later than
January 21, 1997.
(c) Exhibits.
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Exhibit No. Description of Exhibit
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10.33 Asset Purchase Agreement dated as of November 7, 1996, among Action Performance
Companies, Inc., SII Acquisition, Inc., Sports Image, Inc., and R. Dale Earnhardt and
Teresa H. Earnhardt.
10.34 Promissory Note dated November 7, 1996, in the principal amount of $24,000,000 issued
by SII Acquisition, Inc., as Maker, to Sports Image, Inc., as Payee, together with Guarantee
of Action Performance Companies, Inc.
10.35 Security Agreement dated November 7, 1996, between Sports Image, Inc. and SII
Acquisition, Inc.
10.36 Registration Agreement dated as of November 7, 1996, among Action Performance
Companies, Inc., Sports Image, Inc., and R. Dale Earnhardt and Teresa H. Earnhardt.
10.37 License Agreement dated as of November 7, 1996, among SII Acquisition, Inc., Dale
Earnhardt, and Action Performance Companies, Inc.
10.38 Employment Agreement dated as of November 7, 1996, between Action Performance
Companies, Inc. and Joe Mattes.
21.1 List of Subsidiaries of Action Performance Companies, Inc.
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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.
November 21, 1996 ACTION PERFORMANCE COMPANIES, INC.
By:/s/ Christopher Besing
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Christopher S. Besing
Vice President, Chief Financial Officer, and Treasurer
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ASSET PURCHASE AGREEMENT
DATED AS OF NOVEMBER 7, 1996
AMONG
ACTION PERFORMANCE COMPANIES, INC.,
SII ACQUISITION, INC.,
SPORTS IMAGE, INC., AND
R. DALE EARNHARDT AND
TERESA H. EARNHARDT
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TABLE OF CONTENTS
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SECTION 1
TRANSFER OF ASSETS.............................................................................................. 1
1.1 Purchase and Sale of Assets................................................................. 1
1.2 Assumption of Liabilities................................................................... 1
SECTION 2
PURCHASE PRICE.................................................................................................. 2
2.1 Purchase Price.............................................................................. 2
2.2 Allocation of Purchase Price................................................................ 2
SECTION 3
REPRESENTATIONS AND WARRANTIES.................................................................................. 2
3.1 Representations and Warranties of Seller.................................................... 2
(a) Due Incorporation, Good Standing, and Qualification.................................. 2
(b) Corporate Authority.................................................................. 2
(c) Capital Stock........................................................................ 3
(d) Options, Warrants, and Rights........................................................ 3
(e) Subsidiaries......................................................................... 3
(f) Financial Statements................................................................. 3
(g) No Material Change................................................................... 3
(h) Title to Properties.................................................................. 3
(i) Litigation........................................................................... 4
(j) Rights and Licenses.................................................................. 4
(k) No Violation......................................................................... 4
(l) Taxes................................................................................ 4
(m) Accounts Receivable.................................................................. 4
(n) Contracts............................................................................ 4
(o) Compliance with Law and Other Regulations............................................ 4
(p) Insurance............................................................................ 5
(q) Articles, Bylaws, and Minute Books................................................... 5
(r) Employees............................................................................ 5
(s) Intent and Access.................................................................... 5
(t) Accuracy of Statements............................................................... 5
3.2 Representations and Warranties of Buyer..................................................... 5
(a) Due Incorporation, Good Standing, and Qualification.................................. 5
(b) Corporate Authority.................................................................. 5
(c) Capital Stock........................................................................ 6
(d) Options, Warrants, and Rights........................................................ 6
(e) Subsidiaries......................................................................... 6
(f) Financial Statements................................................................. 6
(g) No Material Change................................................................... 6
(h) Title to Assets and Properties....................................................... 7
(i) Litigation........................................................................... 7
(j) Rights and Licenses.................................................................. 7
(k) No Violation......................................................................... 7
(l) Taxes................................................................................ 7
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(m) Accounts Receivable.................................................................. 7
(n) Contracts............................................................................ 8
(o) Compliance with Law and Other Regulations............................................ 8
(p) Insurance............................................................................ 8
(q) Articles, Bylaws, and Minute Books................................................... 8
(r) Employees............................................................................ 8
(s) SEC Reports.......................................................................... 8
(t) Accuracy of Statements............................................................... 8
(u) Status of Buyer Common Stock Being Issued............................................ 9
3.3 Survival of Representations and Warranties.................................................. 9
SECTION 4
COVENANTS TO SELLER............................................................................................. 9
4.1 Covenants of Seller......................................................................... 9
(a) Complete Liquidation and Dissolution................................................. 9
(b) Filing of Tax Returns................................................................ 9
(c) Dividends............................................................................ 9
(d) Change of Corporate Name............................................................. 9
4.2 Further Assurances.......................................................................... 9
SECTION 5
GENERAL......................................................................................................... 10
5.1 Costs and Indemnity Against Finders......................................................... 10
5.2 Controlling Law............................................................................. 10
5.3 Notices..................................................................................... 10
5.4 Binding Nature of Agreement; No Assignment.................................................. 10
5.5 Entire Agreement............................................................................ 10
5.6 Paragraph Headings.......................................................................... 10
5.7 Counterparts................................................................................ 10
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ASSET PURCHASE AGREEMENT
AGREEMENT dated as of November 7, 1996, among ACTION
PERFORMANCE COMPANIES, INC., an Arizona corporation ("Buyer"); SPORTS IMAGE,
INC., a North Carolina corporation ("Seller"); SII ACQUISITION, INC., an Arizona
corporation ("Designated Subsidiary"); and R. DALE EARNHARDT and TERESA H.
EARNHARDT (together "Shareholder").
Buyer desires to acquire, and Seller desires to transfer,
substantially all of the assets, properties, rights, and goodwill of Seller upon
the terms and conditions set forth in this Agreement.
To facilitate the transactions contemplated hereby, Buyer has
formed Designated Subsidiary, which is a wholly owned subsidiary of Buyer and
has not conducted any business activities prior to the date of this Agreement
(the "Closing Date"). Shareholder owns all the capital stock of Seller.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants set forth herein, the parties agree as follows:
SECTION 1
TRANSFER OF ASSETS
1.1 Purchase and Sale of Assets. Based upon and subject to the
representations, warranties, covenants, agreements, and other terms and
conditions set forth in this Agreement, Seller hereby sells, conveys, transfers,
assigns, and delivers, and Designated Subsidiary hereby purchases, acquires, and
accepts, as provided herein, all of the assets, properties, rights, and goodwill
of Seller of every kind and description, wherever located, including, without
limitation, (a) all assets and properties, tangible or intangible, real,
personal or mixed, (b) notes and accounts receivables, (c) computer equipment,
(d) office and warehouse equipment, (e) vehicles, (f) reserves, (g) prepayments,
(h) inventories, (i) deposits, (j) bank accounts, (k) cash and securities, (l)
claims and rights under contracts, agreements, leases, and commitments of Seller
of whatever nature (including all agreements and contract arrangements with R.
Dale Earnhardt), (m) the name "Sports Image, Inc., (n) all computer programs,
data bases, records, systems, and processes and all know how, information, and
trade secrets relating thereto, and (o) all books and records of Seller relating
to Seller's business. The assets, properties, rights, and goodwill conveyed,
transferred, assigned, and delivered by Seller are sometimes herein called the
"Transferred Assets" and shall include, without limitation, all of the assets
and properties shown on or reflected in the Balance Sheet of Seller as at
September 30, 1996 (the "Base Balance Sheet") and all assets and properties
acquired by Seller after the date of the Base Balance Sheet and to the Closing
Date. There is, however, excluded from the assets and properties sold and
purchased pursuant to this Agreement, (i) any assets and properties disposed of
by Seller since September 30, 1996 in the ordinary course of business, (ii)
Seller's corporate franchises, stock record books, corporate record books
containing the minutes of meetings of directors and shareholders, and such other
records as have to do exclusively with Seller's organization or stock
capitalization, and (iii) Seller's tax and employee records.
1.2 Assumption of Liabilities. Designated Subsidiary hereby
assumes, and Buyer shall cause Designated Subsidiary to pay or discharge when
due, all debts, obligations, and liabilities of Seller reflected and accrued on
the Base Balance Sheet or incurred and accrued after the date of the Base
Balance Sheet in the ordinary course of business and all other debts,
obligations, and liabilities of Seller specifically listed in the Seller's
Disclosure Schedule described in Section 3.1; provided, however, that Designated
Subsidiary does not assume, and Buyer shall have no obligation to cause
Designated Subsidiary to pay or discharge when due, any debts, obligations, or
liabilities of Seller (a) that are in existence on the date of the Base Balance
Sheet and do not appear thereon or in the Seller's Disclosure Schedule, (b) that
arise under agreements and commitments that have not been assigned to Designated
Subsidiary pursuant to this Agreement, (c) the existence of which would conflict
with or constitute a breach of any representation, warranty, covenant, or
agreement made by Seller in this Agreement, except to the extent disclosed in
the Seller's Disclosure Schedule, (d) that arise in connection with lawsuits,
which are not reflected in the Base Balance Sheet or as described in Seller's
Disclosure Schedule, brought against Seller based on any circumstances that
occurred on or prior to the Closing Date, (e) that arise by reason of or for any
default, breach, or penalty of or by Seller under any agreement or commitment,
which are not reflected in the Base Balance Sheet or as described in the
Seller's Disclosure Schedule, (f) that related to any federal, state, or local
income,
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sales, personal property, transfer, or other taxes, if any, which may be imposed
on Seller in connection with the transactions contemplated by this Agreement or
the liquidation and dissolution of Seller, or (g) that arise in connection with
negotiating the terms of this Agreement, effecting the transactions contemplated
by this Agreement, and liquidating or dissolving Seller, including the fees and
expenses of Seller's legal counsel, accountants, and other consultants and
advisers.
SECTION 2
PURCHASE PRICE
2.1 Purchase Price. The purchase price for the Transferred
Assets acquired pursuant to Section 1.1, in addition to the assumption of
liabilities pursuant to Section 1.2, is an amount equal to $30,000,000
consisting of (a) a promissory note of Buyer or Designated Subsidiary ("Buyer's
Promissory Note") in the principal amount of $24,000,000 due and payable on
January 2, 1997 together with interest on the unpaid principal balance at a rate
of 8% per annum, plus (b) $6,000,000 in shares of Common Stock of Buyer
("Buyer's Common Stock") valued at $14.875 per share, less any dividends or
other distributions to the shareholders of Seller paid between the date of the
Base Balance Sheet and the Closing Date that exceed the amount of Shareholder's
tax obligation for Seller through October 31, 1996, which amount, if any, shall
be deducted from the promissory note portion of the purchase price.
2.2 Allocation of Purchase Price. Buyer and Seller agree that
the total purchase price (including liabilities assumed) for the assets and
properties purchased pursuant to this Agreement shall be allocated to those
assets and properties as set forth in Exhibit A as prepared by Buyer, which
shall be attached to this Agreement within 60 days after the date hereof. Buyer
and Seller agree that the allocation set forth in Exhibit A shall have been made
in accordance with the requirements of Section 1060 of the Internal Revenue Code
of 1986, as amended and any applicable Treasury Regulations promulgated
thereunder. Buyer and Seller, each at its own expense, also agree to file
appropriate forms with the Internal Revenue Service setting forth the
information required to be furnished to the Internal Revenue Service by Section
1060 and the applicable Treasury Regulations thereunder. In consideration for
agreeing to such allocation and the structure of the transactions contemplated
hereby, Buyer shall cause Designated Subsidiary to pay to or to the order of
Seller, not later than 90 days after the end of each year during the 15-year
period following the date of this Agreement, an amount equal to the lesser of
(a) 10% of the federal tax savings for such year resulting from tax deductible
good will relating to the transaction contemplated hereby or (b) $66,000.
SECTION 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller and Shareholder.
Except as otherwise set forth in the Seller Disclosure Schedule heretofore
delivered by Seller to and acknowledged as received by Buyer, Seller and
Shareholder jointly and severally represent and warrant to Buyer and Designated
Subsidiary as follows:
(a) Due Incorporation, Good Standing, and
Qualification. Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation with all
requisite corporate power and authority to own, operate, and lease its assets
and properties and to carry on its business as now being conducted. Seller is
not subject to any material disability by reason of the failure to be duly
qualified as a foreign corporation for the transaction of business or to be in
good standing under the laws of any jurisdiction. Seller has heretofore
delivered to Buyer a list setting forth, as of the date of this Agreement, each
jurisdiction in which Seller is qualified to do business.
(b) Corporate Authority. Seller has the corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Board of Directors and shareholders of
Seller have duly authorized the execution, delivery, and performance of this
Agreement. No other corporate proceedings on the part of Seller are necessary to
authorize the execution and delivery by Seller of this Agreement or the
consummation by Seller of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by, and constitutes a legal, valid, and
binding agreement of, Seller and Shareholder, enforceable against Seller and
Shareholder in accordance with its terms, except that (i) such enforcement may
be subject to
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bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefore may be brought.
(c) Capital Stock. As of the date hereof, Seller has
an authorized capital stock consisting of 10,000,000 shares of Common Stock,
$.10 par value, of which 500,000 shares are issued and outstanding and all of
which are owned by Shareholder, free and clear of all claims, liens, charges,
and encumbrances. All of the issued and outstanding shares of capital stock of
Seller have been validly authorized and issued and are fully paid and
nonassessable.
(d) Options, Warrants, and Rights. Seller does not
have outstanding any options, warrants, or other rights to purchase, or
securities or other obligations convertible into or exchangeable for, or
contracts, commitments, agreements, arrangements, or understandings to issue,
any shares of its capital stock or other securities.
(e) Subsidiaries. Seller has no subsidiaries. Seller
does not own, directly or indirectly, any capital stock or other equity
securities of any corporation or have any direct or indirect equity or ownership
interest in any corporation or other business.
(f) Financial Statements. The Balance Sheet of Seller
as of December 31, 1995 and September 30, 1996, and the Statements of Income and
Retained Earnings and Cash Flows of Seller for the year ended December 31, 1995,
and the nine months ended September 30, 1996, have been compiled by Gregg &
Company, P.A., certified public accountants. All of the foregoing financial
statements have been prepared in accordance with standards established by the
American Institute of Certified Public Accountants, which were applied on a
consistent basis, are correct and complete, and present fairly, in all material
respects, the consolidated financial position, results of operations, and
changes in financial position of Seller as of their respective dates and for the
periods indicated. Seller does not have any material liabilities or obligations
of a type that would be included in a balance sheet prepared in accordance with
generally accepted accounting principles, whether related to tax or non-tax
matters, accrued or contingent, due or not yet due, liquidated or unliquidated,
or otherwise, except as and to the extent disclosed or reflected in the Base
Balance Sheet or Seller's Disclosure Schedule or incurred since the date of the
Base Balance Sheet in the ordinary course of business.
(g) No Material Change. Since September 30, 1996,
there has not been and there is not threatened (i) any material adverse change
in the business, assets, properties, financial condition, or operating results
of Seller, (ii) any loss or damage (whether or not covered by insurance) to any
of the assets or properties of Seller, which materially affects or impairs its
ability to conduct its business, or (iii) any mortgage or pledge of any assets
or properties of Seller, or any indebtedness incurred by Seller other than
indebtedness, not material in the aggregate, incurred in the ordinary course of
business.
(h) Title to Properties. Seller has good and
marketable title to all of its real and personal assets and properties,
including all assets and properties reflected in the Base Balance Sheet or
acquired subsequent to September 30, 1996, except assets or properties disposed
of subsequent to that date in the ordinary course of business. Such assets and
properties are subject to no mortgage, indenture, pledge, lien, claim,
encumbrance, charge, security interest, or title retention or other security
arrangement, except for liens for the payment of federal, state, and other
taxes, the payment of which is neither delinquent nor subject to penalties, and
except for other liens and encumbrances incidental to the conduct of the
business of Seller or the ownership of its assets or properties, which were not
incurred in connection with the borrowing of money or the obtaining of advances
and which do not in the aggregate materially detract from the value of the
assets or properties of Seller or materially impair the use thereof in the
operation of its business, except in each case as disclosed in the Base Balance
Sheet. All leases pursuant to which Seller leases any substantial amount of real
or personal property are valid and effective in accordance with their respective
terms. Seller owns or has the right to use all assets and properties necessary
to conduct its business as currently conducted.
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(i) Litigation. There are no actions, suits,
proceedings, or other litigation pending or, to the knowledge of Seller,
threatened against Seller, at law or in equity, or before or by any federal,
state, municipal, or other governmental department, commission, board, bureau,
agency, or instrumentality that, if determined adversely to Seller, would
individually or in the aggregate have a material adverse effect on the business,
assets, properties, operating results, prospects, or condition, financial or
otherwise, of Seller.
(j) Rights and Licenses. Seller is not subject to any
material disability or liability by reason of its failure to possess any
trademark, trademark right, trade name, trade name right, or license.
(k) No Violation. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
violate or result in a breach by Seller of, or constitute a default under, or
conflict with, or cause any acceleration of any obligation with respect to, (i)
any provision or restriction of any charter, bylaw, loan, indenture, or mortgage
of Seller, or (ii) any provision or restriction of any lien, lease agreement,
contract, instrument, order, judgment, award, decree, ordinance, or regulation
or any other restriction of any kind or character to which any assets or
properties of Seller is subject or by which Seller is bound.
(l) Taxes. Seller has filed all federal, state,
foreign, local, and any other tax returns and reports required to be filed and
has paid in full all taxes and assessments, if any, shown due thereon (together
with all interest, penalties, assessments, and deficiencies assessed in
connection therewith due through the date hereof). All such tax returns are
accurate and complete in all material respects. No claims for taxes or
assessments are being asserted or threatened against Seller. Seller has
furnished to Buyer a list of all tax returns filed for it. Seller has duly and
validly filed elections for S corporation status under the Internal Revenue
Code; none of such elections have been revoked or terminated; and neither Seller
nor any shareholder of Seller has taken any action that would cause a
termination of such S elections.
(m) Accounts Receivable. The accounts receivable of
Seller have been acquired in the ordinary course of business, are valid and
enforceable, and are fully collectible, subject to no known defenses, set-offs,
or counterclaims, except to the extent of the reserve reflected in the books of
Seller or in such other amount that is not material in the aggregate.
(n) Contracts. Seller is not a party to (i) any plan
or contract providing for bonuses, pensions, options, stock purchases, deferred
compensation, retirement payments, or profit sharing, (ii) any collective
bargaining or other contract or agreement with any labor union, (iii) any lease,
installment purchase agreement, or other contract with respect to any real or
personal property used or proposed to be used in its operations, excepting, in
each case, items included within aggregate amounts disclosed or reflected in the
Base Balance Sheet, (iv) any employment agreement or other similar arrangement
not terminable by it upon 30 days or less notice without penalty to it, (v) any
contract or agreement for the purchase of any commodity, material, fixed asset,
or equipment in excess of $100,000, (vi) any contract or agreement creating an
obligation of $100,000 or more, (vii) any contract or agreement that by its
terms does not terminate or is not terminable by it upon 30 days or less notice
without penalty to it, (viii) any loan agreement, indenture, promissory note,
conditional sales agreement, or other similar type of arrangement, (ix) any
material license agreement, or (x) any contract that may result in a material
loss or obligation to it. All material contracts, agreements, and other
arrangements to which Seller is a party are valid and enforceable in accordance
with their terms; Seller and all other parties to each of the foregoing have
performed all obligations required to be performed to date; neither Seller nor
any such other party is in default or in arrears under the terms of any of the
foregoing; and no condition exists or event has occurred that, with the giving
of notice or lapse of time or both, would constitute a default under any of
them.
(o) Compliance with Law and Other Regulations. Seller
is not subject to or has been threatened with any material fine, penalty,
liability, or disability as the result of its failure to comply with any
requirement of federal, state, local, or foreign law or regulation or any
requirement of any governmental body or agency having jurisdiction over it, the
conduct of its business, the use of its assets and properties, or any premises
occupied by it.
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(p) Insurance. Seller maintains in full force and
effect insurance coverage on its assets, properties, premises, operations, and
personnel in such amounts as Seller deems appropriate, all as set forth on
Seller's Disclosure Schedule.
(q) Articles, Bylaws, and Minute Books. Seller has
heretofore delivered to Buyer true and complete copies of the Articles of
Incorporation and Bylaws of Seller as currently in effect. The minute books of
Seller contain complete and accurate records of all meetings and other corporate
actions held or taken by the Boards of Directors (or committees of the Boards of
Directors) and shareholders of Seller since its incorporation.
(r) Employees. Seller has never maintained or
contributed to any "employee benefit plan," as such term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, without limitation, any stock option plan, stock purchase
plan, deferred compensation plan, or other similar employee benefit plan. Seller
never contributed to any "multi-employer pension plan," as such term is defined
in Section 3(37)(A) of ERISA.
(s) Intent and Access. Seller is acquiring the shares
of Buyer's Common Stock and Buyer's Promissory Note without a view to the public
distribution or resale in violation of any applicable federal or state
securities laws. Seller and Shareholder acknowledge that Buyer's Common Stock
and Buyer's Promissory Note are not registered under the Securities Act of 1933,
as amended or any state securities laws and cannot be sold publicly without
registration thereunder or an exemption from such registration. Seller and
Shareholder understand that certificates for such shares and such note will
contain a legend with respect to the restrictions on transfer under federal and
applicable state securities laws as well as the fact that the shares and note
are "restricted securities" under such federal and state laws. Seller and
Shareholder have been furnished with such information, both financial and
non-financial, with respect to the operations, business, capital structure, and
financial position of Buyer and its subsidiaries as they believe necessary and
have been given the opportunity to ask questions of and receive answers from
Buyer and its subsidiaries and their officers concerning Buyer and its
subsidiaries. Without limiting the foregoing, Seller and Shareholder
specifically acknowledge the receipt of Buyer's Form 10-K Report for the fiscal
year ended September 30, 1996, Buyer's Form 10-Q for the nine months ended June
30, 1996, Buyer's Proxy Statement dated July 29, 1996, Buyer's 1996 Annual
Report to Shareholders, and Buyer's Prospectus dated May 29, 1996.
Notwithstanding the foregoing, Seller shall have the right to transfer a portion
of the Shares to Joe Mattes, David Furr, and Donald Hawk, each of whom is
familiar with the transactions contemplated hereby and each of whom is an
"accredited investor" under applicable rules of the Securities and Exchange
Commission.
(t) Accuracy of Statements. Neither this Agreement
nor any statement, list, certificate, or other information furnished by Seller
to Buyer in connection with this Agreement or any of the transactions
contemplated hereby contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein, in light of circumstances in which they are made, not misleading.
3.2 Representations and Warranties of Buyer. Except as
otherwise set forth in the Buyer Disclosure Schedule heretofore delivered by
Buyer to Seller, and except as disclosed in any document heretofore filed by
Buyer with the Securities and Exchange Commission ("SEC"), Buyer represents and
warrants to Seller as follows:
(a) Due Incorporation, Good Standing, and
Qualification. Buyer and each of its subsidiaries are corporations duly
organized, validly existing, and in good standing under the laws of their
jurisdictions of incorporation with all requisite corporate power and authority
to own, operate, and lease their assets and properties and to carry on their
business as now being conducted. Neither Buyer nor any of its subsidiaries is
subject to any material disability by reason of the failure to be duly qualified
as a foreign corporation for the transaction of business or to be in good
standing under the laws of any jurisdiction. As used in this Agreement with
reference to Buyer, the term "subsidiaries" shall include all direct or indirect
subsidiaries of Buyer including Designated Subsidiary.
(b) Corporate Authority. Buyer and Designated
Subsidiary have the corporate power and authority to enter into this Agreement
and carry out the transactions contemplated hereby. The Boards
5
<PAGE>
of Directors of Buyer and Designated Subsidiary have duly authorized the
execution, delivery, and performance of this Agreement. No other corporate
proceedings on the part of Buyer or Designated Subsidiary, including a meeting
of Buyer's shareholders, are necessary to authorize the execution and delivery
by Buyer of this Agreement or the consummation by Buyer or Designated Subsidiary
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by, and constitutes a legal, valid, and binding agreement of,
Buyer and Designated Subsidiary, enforceable against them in accordance with its
terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, or other similar laws now or hereafter
in effect relating to creditors' rights, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefore may be brought.
(c) Capital Stock. As of the date hereof, Buyer has
authorized capital stock consisting of 25,000,000 shares of Common Stock, $.01
par value, of which 12,669,769 shares are issued and outstanding, and 5,000,000
shares of Preferred Stock, no par value, of which no shares are issued and
outstanding. As of such date, 1,044,553 shares of Buyer Common Stock were
reserved for issuance upon the exercise of outstanding stock options and
warrants. All of the issued and outstanding shares of capital stock of Buyer and
each of its subsidiaries have been validly authorized and issued and are fully
paid and nonassessable.
(d) Options, Warrants, and Rights. Neither Buyer nor
any of its subsidiaries has outstanding any options, warrants, or other rights
to purchase, or securities or other obligations convertible into or exchangeable
for, or contracts, commitments, agreements, arrangements or understandings to
issue, any shares of their capital stock or other securities, other than those
referred to in Section 3.2(c).
(e) Subsidiaries. The outstanding shares of capital
stock of the subsidiaries of Buyer owned by Buyer or any of its subsidiaries are
owned free and clear of all claims, liens, charges, and encumbrances. Buyer does
not own, directly or indirectly, any capital stock or other equity securities of
any corporation or have any direct or indirect equity or ownership interest in
any corporation or other business.
(f) Financial Statements. The Consolidated Balance
Sheets of Buyer and its subsidiaries as of September 30, 1994 and September 30,
1995 and the Consolidated Statements of Operations, the Consolidated Statements
of Shareholders' Equity, and the Consolidated Statements of Cash Flows of Buyer
and its subsidiaries for the three years ended September 30, 1995, and all
related schedules and notes to the foregoing, have been reported on by Arthur
Andersen LLP, independent public accountants, and the Consolidated Balance Sheet
of Buyer and its subsidiaries as of June 30, 1996 and the Consolidated Statement
of Operations, the Consolidated Statement of Shareholders' Equity, and the
Consolidated Statement of Cash Flows of Buyer and its subsidiaries for the nine
months ended June 30, 1996 have been prepared by the Company without audit. All
of the foregoing financial statements have been prepared in accordance with
generally accepted accounting principles, which were applied on a consistent
basis (except as described therein), are correct and complete, and present
fairly, in all material respects, the financial position, results of operations,
and changes of financial position of Buyer and its subsidiaries as of their
respective dates and for the periods indicated. Neither Buyer nor any of its
subsidiaries has any material liabilities or obligations of a type that would be
included in a balance sheet prepared in accordance with generally accepted
accounting principles, whether related to tax or non-tax matters, accrued or
contingent, due or not yet due, liquidated or unliquidated or otherwise, except
as and to the extent disclosed or reflected in the Consolidated Balance Sheet of
Buyer and its subsidiaries as of June 30, 1996, or incurred since June 30, 1996,
in the ordinary course of business or as contemplated by this Agreement.
(g) No Material Change. Since June 30, 1996, there
has not been and there is not threatened (i) any material adverse change in the
business, assets, properties, financial condition, or operating results of Buyer
or its subsidiaries taken as a whole, (ii) any loss or damage (whether or not
covered by insurance) to any of the assets or properties of Buyer or its
subsidiaries, which materially affects or impairs their ability to conduct their
business, or (iii) any mortgage or pledge of any material amount of the assets
or properties of Buyer or any of its subsidiaries, or any indebtedness incurred
by Buyer or any of its subsidiaries, other than indebtedness, not material in
the aggregate, incurred in the ordinary course of business.
6
<PAGE>
(h) Title to Assets and Properties. Buyer and its
subsidiaries have good and marketable title to all of their respective real and
personal assets and properties, including all assets and properties reflected in
the Consolidated Balance Sheet of Buyer and its subsidiaries as of June 30,
1996, or acquired subsequent to June 30, 1996, except assets or properties
disposed of subsequent to that date in the ordinary course of business. Such
assets and properties are subject to no mortgage, indenture, pledge, lien,
claim, encumbrance, charge, security interest, or title retention or other
security arrangement, except for liens for the payment of federal, state, and
other taxes, the payment of which is neither delinquent nor subject to
penalties, and except for other liens and encumbrances incidental to the conduct
of the business of Buyer and its subsidiaries or the ownership of their assets
or properties, which were not incurred in connection with the borrowing of money
or the obtaining of advances, and which do not in the aggregate materially
detract from the value of the assets or properties of Buyer and its subsidiaries
taken as a whole or materially impair the use thereof in the operation of their
respective businesses, except in each case as disclosed in the Consolidated
Balance Sheet as of June 30, 1996. All leases pursuant to which Buyer or any of
its subsidiaries lease any substantial amount of real or personal property are
valid and effective in accordance with their respective terms. Buyer and each of
its subsidiaries own or have the right to use all assets and properties
necessary to conduct their business as currently conducted.
(i) Litigation. There are no actions, suits,
proceedings, or other litigation pending or, to the knowledge of Buyer,
threatened against Buyer or any of its subsidiaries, at law or in equity, or
before or by any federal, state, municipal, or other governmental department,
commission, board, bureau, agency, or instrumentality that, if determined
adversely to Buyer or its subsidiaries, would individually or in the aggregate
have a material adverse effect on the business, assets, properties, operating
results, prospects, or condition, financial or otherwise, of Buyer and its
subsidiaries taken as a whole.
(j) Rights and Licenses. Neither Buyer nor any of its
subsidiaries is subject to any material disability or liability by reason of its
failure to possess any trademark, trademark right, trade name, trade name right,
or license.
(k) No Violation. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
violate or result in a breach by Buyer or any of its subsidiaries of, or
constitute a default under, or conflict with, or cause any acceleration of any
obligation with respect to, (i) any provision or restriction of any charter,
bylaw, loan, indenture, or mortgage of Buyer or any of its subsidiaries, or (ii)
any provision or restriction of any lien, lease agreement, contract, instrument,
order, judgment, award, decree, ordinance, or regulation or any other
restriction of any kind or character to which any assets or properties of Buyer
or any of its subsidiaries is subject or by which Buyer or any of its
subsidiaries is bound.
(l) Taxes. Buyer has duly filed in correct form all
Tax Returns relating to the activities of Buyer and its subsidiaries required or
due to be filed (with regard to applicable extensions) on or prior to the
Closing Date. All such Tax Returns are accurate and complete in all material
respects, and Buyer has paid or made provision for the payment of all Taxes that
have been incurred or are due or claimed to be due from it by federal, state, or
local taxing authorities for all periods ending on or before the Closing Date,
other than Taxes or other charges that are not delinquent or are being contested
in good faith and have not been finally determined and have been disclosed to
Seller. The amounts set up as reserves for Taxes on the books of Buyer and its
subsidiaries are sufficient in the aggregate for the payment of all unpaid Taxes
(including any interest or penalties thereon), whether or not disputed, accrued,
or applicable. No claims for taxes or assessments are being asserted or
threatened against Buyer or any of its subsidiaries. For purposes of this
Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies, or
other assessments, including, without limitation, income, gross receipts,
excise, property, sales, transfer, license, payroll, and franchise taxes,
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof and any interest, penalties or additions
attributable thereto, and the term "Tax Return" shall mean any report, return,
or other information required to be supplied to a taxing authority or required
by a taxing authority to be supplied to any other person.
(m) Accounts Receivable. The accounts receivable of
Buyer and its subsidiaries have been acquired in the ordinary course of
business, are valid and enforceable, and are fully collectible, subject to no
known defenses, setoffs, or counterclaims, except to the extent of the reserve
reflected in the books of Buyer and its subsidiaries or in such other amount
that is not material in the aggregate.
7
<PAGE>
(n) Contracts. Neither Buyer nor any of its
subsidiaries is a party to (i) any plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement payments,
or profit sharing, (ii) any collective bargaining or other contract or agreement
with any labor union, (iii) any lease, installment purchase agreement, or other
contract with respect to any real or personal property used or proposed to be
used in its operations excepting, in each case, items included within aggregate
amounts disclosed or reflected in the Consolidated Balance Sheet of Buyer and
its subsidiaries as of June 30, 1996, (iv) any employment agreement or other
similar arrangement not terminable by it upon 30 days or less notice without
penalty to it, (v) any contract or agreement for the purchase of any commodity,
material, fixed asset, or equipment in excess of $100,000, (vi) any contract or
agreement creating an obligation of $100,000 or more, (vii) any contract or
agreement that by its terms does not terminate or is not terminable by it upon
30 days or less notice without penalty to it, (viii) any loan agreement,
indenture, promissory note, conditional sales agreement, or other similar type
of arrangement, (ix) any material license agreement, or (x) any contract that
may result in a material loss or obligation to it. All material contracts,
agreements, and other arrangements to which Buyer or any of its subsidiaries is
a party are valid and enforceable in accordance with their terms; Buyer, its
subsidiaries, and all other parties to each of the foregoing have performed all
obligations required to be performed to date; neither Buyer, nor any of its
subsidiaries, nor any such other party is in default or in arrears under the
terms of any of the foregoing; and no condition exists or event has occurred
that, with the giving of notice or lapse of time or both, would constitute a
default under any of them.
(o) Compliance with Law and Other Regulations.
Neither Buyer nor any of its subsidiaries is subject to or has been threatened
with any material fine, penalty, liability, or disability as the result of its
failure to comply with any requirement of federal, state, local, or foreign law
or regulation or any requirement of any governmental body or agency having
jurisdiction over it, the conduct of its business, the use of its assets and
properties, or any premises occupied by it.
(p) Insurance. Buyer and each of its subsidiaries
maintains in full force and effect insurance coverage on their assets,
properties, premises, operations, and personnel in such amounts as Buyer deems
appropriate.
(q) Articles, Bylaws, and Minute Books. Buyer has
heretofore delivered to Seller true and complete copies of the Articles of
Incorporation and Bylaws of Buyer and Designated Subsidiary as currently in
effect. The minute books of Buyer and Designated Subsidiary contain complete and
accurate records of all meetings and other corporate actions held or taken by
the Boards of Directors (or committees of the Boards of Directors) and
shareholders of Buyer and its subsidiaries, as the case may be, since their
respective incorporations.
(r) Employees. Neither Buyer nor any of its
subsidiaries has ever maintained or contributed to any "employee benefit plan,"
as such term is defined in Section 3(3) of ERISA, including, without limitation,
any stock option plan, stock purchase plan, deferred compensation plan, or other
similar employee benefit plan, other than Buyer's Stock Option Plans. Neither
Buyer nor any of its subsidiaries has ever contributed to any "multi-employer
pension plan," as such term is defined in Section 3(37)(A) of ERISA.
(s) SEC Reports. Buyer's report on Form 10-K for the
fiscal year ended September 30, 1995 filed with the SEC and all reports and
proxy statements filed by Buyer thereafter pursuant to Section 13(a) or 14(a) of
the Securities Exchange Act of 1934, including Buyer's Form 10-Q Report for the
quarter ended June 30, 1996, do not contain a misstatement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading as of the time the document was filed.
Since the filing of such report on Form 10-K, no other report, proxy statement,
or other document has been required to be filed by Buyer pursuant to Section
13(a) or 14(a) of the Securities Exchange Act of 1934 that has not been filed.
(t) Accuracy of Statements. Neither this Agreement
nor any statement, list, certificate, or other information furnished by Buyer to
Seller in connection with this Agreement or any of the transactions contemplated
hereby contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.
8
<PAGE>
(u) Status of Buyer Common Stock Being Issued. The
shares of Buyer's Common Stock issued in partial payment for the Transferred
Assets are validly authorized and issued, fully paid, nonassessable, authorized
for trading on the Nasdaq National Market, and free of preemptive or other
similar rights, but subject to the resale restrictions required by Rule 144
promulgated pursuant to the Securities Act of 1933, as amended ("Rule 144").
3.3 Survival of Representations and Warranties. Each of the
representations and warranties contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement irrespective of
any investigations or inquiries made by any party or any knowledge that any
party may possess, and each party shall be entitled to rely upon such
representations and warranties irrespective of any investigations, inquiries, or
knowledge.
SECTION 4
COVENANTS TO SELLER
4.1 Covenants of Seller. Seller further agrees, unless Buyer
otherwise agrees in writing, subsequent to the Closing Date:
(a) Complete Liquidation and Dissolution. Seller
shall completely liquidate and dissolve as promptly as practicable after the
Closing Date, and in connection therewith, Seller shall distribute to its
shareholders all of its assets and properties (including the Buyer's Common
Stock and Buyer's Promissory Note issued pursuant to Section 2.1) after paying
outstanding obligations and liabilities not being assumed by Designated
Subsidiary and providing adequate reserves so that Designated Subsidiary will
have no responsibilities to Seller's creditors except as specifically assumed
pursuant to Section 1.2.
(b) Filing of Tax Returns. As promptly as practicable
after the Closing Date, Seller shall file all federal, state, and local
corporate and income tax returns for its last fiscal year and covering the
period from the end of its last fiscal year to the date of its liquidation and
dissolution.
(c) Dividends. Nothing in this Agreement shall limit
the ability or right of Seller to declare or pay dividends to its shareholders
subsequent to the Closing Date.
(d) Change of Corporate Name. Seller shall promptly
change its corporate name to a name that does not include the words "Sports
Image."
4.2 Further Assurances. From time to time, on and after the
Closing Date, as and when requested by Buyer or Designated Subsidiary, the
proper officers and directors of Seller as of the Closing Date shall, for and on
behalf and in the name of Seller or otherwise, execute and deliver all such
deeds, bills of sale, assignments, and other instruments and shall take or cause
to be taken such further or other actions as Buyer or Designated Subsidiary may
deem necessary or desirable in order to confirm of record or otherwise to Buyer
or Designated Subsidiary title to and possession of all of the Transferred
Assets and otherwise to carry out fully the provisions and purposes of this
Agreement. In addition, Seller shall give Buyer access to all records of Seller
not purchased hereunder, and Buyer shall give Seller access to all records of
Buyer to the extent relevant to the transactions contemplated hereby.
9
<PAGE>
SECTION 5
GENERAL
5.1 Costs and Indemnity Against Finders. Each party hereto
shall be responsible for its own costs and expenses in negotiating and
performing this Agreement and hereby indemnifies and holds the other parties
harmless against any claim for finders' fees based on alleged retention of a
finder by it.
5.2 Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance, and enforcement shall be governed
by and construed in accordance with the laws of the state of Arizona,
notwithstanding any Arizona or other conflict-of-law provisions to the contrary.
5.3 Notices. All notices, requests, demands, and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received when delivered
against receipt or when deposited in the United States mails, first class
postage prepaid, addressed as set forth below:
<TABLE>
<S> <C>
If to Buyer or Designated Subsidiary: If to Seller or Shareholder:
2401 West First Street 5301 West WT Harris Boulevard
Tempe, Arizona 85281 Charlotte, North Carolina 28269
Attention: Fred W. Wagenhals Attention: R. Dale Earnhardt
with a copy given in the manner with a copy given in the manner
prescribed above, to: prescribed above, to:
O'Connor, Cavanagh, Anderson, Gray, Layton, Drum, Kersh, Solomon,
Killingsworth & Beshears, P.A. Sigmon & Furr, P.A.
One East Camelback Road 516 South New Hope Road
Phoenix, Arizona 85012 Gastonia, North Carolina 28053
Attention: Robert S. Kant, Esq. Attention: David Furr, Esq.
</TABLE>
Any party may alter the address to which communications or copies are
to be sent by giving notice to such other parties of change of address in
conformity with the provisions of this paragraph for the giving of notice.
5.4 Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, and assigns, except that no party may assign,
delegate, or transfer its rights or obligations under this Agreement without the
prior written consent of the other parties hereto. Any assignment, delegation,
or transfer made in violation of this Section 5.4 shall be null and void.
5.5 Entire Agreement. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
inducements, and conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
5.6 Paragraph Headings. The paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not affect
its interpretation.
5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
10
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ACTION PERFORMANCE COMPANIES, INC.
By:_______________________________
President
[Corporate Seal] By:_______________________________
Secretary
SII ACQUISITION, INC.
By:_______________________________
President
[Corporate Seal] By:_______________________________
Secretary
SPORTS IMAGE, INC.
By:_______________________________
President
[Corporate Seal] By:_______________________________
Secretary
__________________________________
R. Dale Earnhardt
__________________________________
Teresa H. Earnhardt
11
PROMISSORY NOTE
$24,000,000 November 7, 1996
FOR VALUE RECEIVED, SII ACQUISITION, INC., an Arizona
corporation, its successors and assigns ("Maker"), hereby promises to pay to the
order of SPORTS IMAGE, INC., a North Carolina corporation or its successors or
assigns ("Payee"), at the office of Payee, located at 5301 West WT Harris
Boulevard, Charlotte, North Carolina 28269, the principal amount of $24,000,000,
together with interest on the principal balance outstanding hereunder, from (and
including) the date hereof until (but not including) the date of payment, at the
interest rate specified below, in accordance with the following terms and
conditions:
1. Stated Interest Rate. Except as provided in Section 3
below, the principal balance outstanding hereunder shall bear interest, until
fully paid, at 8% per annum (the "Stated Interest Rate").
2. Default Interest Rate. The Default Interest Rate shall be
15% per annum. The principal balance outstanding hereunder from time to time
shall bear interest at the Default Interest Rate from the date of the occurrence
of an Event of Default (as hereinafter defined) hereunder until the earlier of
(a) the date on which the principal balance outstanding hereunder, together with
all accrued interest and other amounts payable hereunder, is paid in full; or
(b) the date on which such Event of Default is timely cured.
3. Payments. This Note shall be payable as follows:
(a) Interest. Accrued and unpaid interest at the
Stated Interest Rate or, to the extent applicable, the Default Interest Rate,
shall be payable on the date set forth in Subsection 3(b) below for payment of
the principal balance outstanding hereunder.
(b) Principal. The principal balance outstanding
hereunder, together with all accrued interest and other amounts payable
hereunder, if not sooner paid as provided herein, shall be due and payable on
January 2, 1997.
4. Application and Place of Payments. Payments received by
Payee with respect to the indebtedness evidenced hereby shall be applied in such
order and manner as Payee in its sole and absolute discretion may elect. Unless
Payee otherwise elects, payments received by Payee shall be applied first to
accrued and unpaid interest, next to the principal balance then outstanding
hereunder, and the remainder to Additional Sums (as hereinafter defined) or
other costs or added charges provided for in this Note. Payments hereunder shall
be made at the address for Payee first set forth above or at such other address
as Payee may specify to Maker in writing.
5. Events of Default; Acceleration. The occurrence of any one
or more of the following events shall constitute an "Event of Default"
hereunder, and upon such Event of Default, the entire principal balance
outstanding hereunder, together with all accrued interest and other amounts
payable hereunder, at the election of Payee, shall become immediately due and
payable, without any notice to Maker:
(a) Nonpayment of principal, interest, or other
amounts when the same shall become due and payable hereunder, and Maker does not
cure such failure to pay within three days after the date such payment is due;
or
(b) The failure of Maker to comply with any provision
of this Note; or
(c) The dissolution, winding-up, or termination of
the existence of Maker; or
(d) The making by Maker of an assignment for the
benefit of its creditors; or
(e) The appointment of a receiver for Maker or the
involuntary filing against Maker, which is not stayed or dismissed within 30
days of filing, or the voluntary filing by Maker of a petition or application
for relief under federal bankruptcy law or any similar state or federal law.
<PAGE>
(f) An Event of Default under the License Agreement
of even date between Maker and R. Dale Earnhardt.
6. Contracted For Interest.
(a) Maker agrees to pay an effective contracted for
rate of interest equal to the rate of interest resulting from all interest
payable as provided in this Note, plus the additional rate of interest resulting
from the Additional Sums. The Additional Sums shall consist of all fees,
charges, goods, things in action, or any other sums or things of value (other
than interest payable as provided in this Note) paid or payable by Maker,
pursuant to this Note, that may be deemed to be interest for the purpose of any
law of the state of North Carolina that may limit the maximum amount of interest
to be charged with respect to this lending transaction. The Additional Sums
shall be deemed to be interest for the purposes of any such law only.
(b) Maker understands and believes that this
transaction complies with the usury laws of the state of North Carolina;
however, if any interest or other charges in connection with this transaction
are ever determined to exceed the maximum amount permitted by law, then Maker
agrees that (i) the amount of interest or charges payable pursuant to this
transaction shall be reduced to the maximum amount permitted by law; and (ii)
any excess amount previously collected from Maker in connection with this
transaction, which exceeded the maximum amount permitted by law, will be
credited against the principal balance then outstanding hereunder. If the
outstanding principal balance hereunder has been paid in full, the excess amount
paid will be refunded to Maker.
7. Costs of Collection. Maker agrees to pay all costs of
collection, including, without limitation, attorneys' fees, whether or not suit
is filed, and all costs of suit and preparation for suit (whether at trial or
appellate level), in the event any payment of principal, interest, or other
amount is not paid when due, or if at any time Payee should incur any attorneys'
fees in any proceeding under any federal bankruptcy law (or any similar state or
federal law) in connection with the obligations evidenced hereby. In the event
of any court proceeding, court costs and attorneys' fees shall be set by the
court and not by the jury and shall be included in any judgment obtained by
Payee.
8. No Waiver by Payee. No delay or failure of Payee in
exercising any right hereunder shall affect such right, nor shall any single or
partial exercise of any right preclude further exercise thereof.
9. Governing Law. This Note shall be construed in accordance
with and governed by the laws of the state of North Carolina without regard to
the choice of law rules of the state of North Carolina.
10. Time of Essence. Time is of the essence of this Note and
each and every provision hereof.
11. Conflicts; Inconsistency. In the event of any conflict or
inconsistency between the provisions of this Note and the provisions of any one
or more of the other documents executed in connection with this transaction, the
provisions of this Note shall govern and control to the extent necessary to
resolve such conflict or inconsistency.
12. Amendments. No amendment, modification, change, waiver,
release, or discharge hereof and hereunder shall be effective unless evidenced
by an instrument in writing and signed by the party against whom enforcement is
sought.
13. Severability. The invalidity of any provision of this Note
or portion of a provision shall not affect the validity of any other provision
of this Note or the remaining portion of the applicable provision.
14. Binding Nature. The provisions of this Note shall be
binding upon and inure to the benefit of Maker and Payee and their respective
heirs, personal representatives, successors, and assigns, as applicable.
15. Notices. All notices, requests, demands, and other
communications required or permitted under this Note shall be in writing and
shall be deemed to have been duly given, made, and received when delivered
2
<PAGE>
against receipt, upon receipt of a facsimile transmission, or upon actual
receipt of registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:
If to Maker:
2401 West First Street
Tempe, Arizona 85281
Attention: Fred W. Wagenhals
with a copy:
O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears, P.A.
Suite 1100
One East Camelback
Phoenix, Arizona 85012
Attention: Robert S. Kant, Esq.
If to Payee:
5301 West WT Harris Boulevard
Charlotte, North Carolina 28269
Attention: R. Dale Earnhardt
with a copy to:
Gray, Layton, Drum, Kersh, Solomon,
Sigmon & Furr, P.A.
516 South New Hope Road
Gastonia, North Carolina 28053
Attention: David Furr, Esq.
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this section for the giving of notice.
16. Construction. Maker and Payee participated in the drafting
of this Note, and this document was reviewed by the respective legal counsel for
Maker and Payee. The normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be applied
to the interpretation of this Note. The language of this Note shall be construed
as a whole according to its fair meaning. The word "include(s)" means
"include(s), without limitation," and the word "including" means "including, but
not limited to." No inference in favor of, or against, Maker or Payee shall be
drawn from the fact that one party has drafted any portion hereof.
17. Security Agreement. The rights and remedies of the Payee
of this Note and any instrument securing the Note shall be cumulative and may be
pursued singly or successively pursuant to the Security Agreement securing this
Note in the sole discretion of Payee. The failure to exercise any such right or
remedy shall not be a waiver or release of such rights or remedies or the right
to exercise any of them at such other time.
IN WITNESS WHEREOF, Maker has executed this Note as of the
date first set forth above.
SII ACQUISITION, INC.
By:_____________________________________
3
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GUARANTEE
---------
The undersigned, Action Performance Companies, Inc., hereby guarantees
the performance (including the payment obligations) of SII Acquisition, Inc.
("Maker") under the $24.0 million promissory note of SII Acquisition, Inc. dated
November 7, 1996 payable to Sports Image, Inc. The undersigned agrees that the
term "maker" in the promissory note shall include the undersigned with respect
to any obligations, events of default, or similar matters set forth in the note.
ACTION PERFORMANCE COMPANIES, INC.
By:_______________________________
Dated: November 7, 1996
STATE OF NORTH CAROLINA )
)
COUNTY OF MECKLENBURG )
SECURITY AGREEMENT
------------------
Security Agreement between SPORTS IMAGE, INC., a North Carolina
corporation (herein referred to as "Secured Party") and SII ACQUISITION, INC.
(herein referred to as "Debtor").
W I T N E S S E T H:
1. Collateral. The collateral of this Security Agreement is all of
Debtor's right, title, and interest in the assets, properties, rights and
goodwill transferred by Secured Party to Debtor pursuant to an Asset Purchase
Agreement dated November 7, 1996 (the "Asset Purchase Agreement") among Debtor,
Secured Party, and Dale and Teresa Earnhardt, including but not limited to, (i)
all assets and properties, tangible or intangible, real, personal or mixed, (ii)
notes and accounts receivable; (iii) computer equipment; (iv) office and
warehouse equipment; (v) vehicles; (vi) reserves; (vii) prepayments; (viii)
inventories; (ix) deposits; (x) bank accounts; (xi) cash and securities; (xii)
claims and rights under contracts, agreements, licenses, and leases; (xiii) all
computer programs, data bases, records, systems, processes, and all know how,
information, and trade secrets relating thereto; (xiv) the name "Sports Image"
and (xv) and all books and records; together with any additions, replacements,
proceeds, and proceeds of proceeds thereof (the "Collateral").
2. Debtor's Obligations.
A. Obligation to Pay. This Agreement secures the payment and
performance of Debtor's obligations under the Promissory Note for the purchase
of such Collateral described in paragraph 1 above pursuant to this Security
Agreement and in accordance with the terms of the Asset Purchase Agreement. The
obligations to pay money as set forth herein and the additional obligations in
paragraph B below are hereinafter referred to as "Debtor's Obligations."
B. Additional Obligations.
(1) Protection of Collateral. The Collateral:
(a) Will be used or sold in the ordinary
course of business by Debtor unless Secured
Party consents in writing to another use,
and
(b) Will not be misused or abused, wasted or
allowed to deteriorate, except for the
ordinary wear and tear, and
(c) Will be insured until this Security
Agreement is terminated under such insurance
policies and in such amounts as Secured
Party may reasonably require and with said
policies indicating insurance proceeds
payable to both Secured Party and Debtor as
their interests may appear. In the event of
a loss, the Secured Party may, at its
discretion, use the proceeds therefrom to
replace the Collateral or
<PAGE>
apply said proceeds against the Debtor's
obligation arising from the transaction
contemplated herein.
(d) Will be kept at Debtor's or Secured
Party's present business location where
Secured Party may inspect it at reasonable
times after 48 hours prior notice except for
its temporary removal in connection with its
ordinary use or unless Debtor notifies
secured party in writing and Secured Party
consents in writing in advance of its
removal to another location.
(2) Protection of Security Interest.
(a) The noninventory Collateral will not be
sold, leased, transferred, conveyed,
assigned, or otherwise disposed of except in
the ordinary course (i.e. obsolescence) or
be subject to any unpaid charge, including
but not limited to, taxes, assessments,
governmental charges, except liens in favor
of Secured Party or to which the Collateral
was subject when transferred to Debtor, or
to any subsequent interest of a third party
created or suffered by Debtor voluntarily or
involuntarily, unless the Secured Party
consents in advance in writing to such
charge, transfer, disposition or subsequent
interest;
(b) Debtor will sign and execute along with
Secured Party such financing statements or
other documents or procure such documents,
and pay all reasonable connected costs as
may be reasonably necessary to protect or
defend title and the security interest
created under this Security Agreement
against the rights or interest of third
persons, and
(c) Debtor will reimburse Secured Party for
reasonable costs associated with any action
to remedy a default which Secured Party
elects pursuant to the terms hereof,
including but not limited to reasonable
attorneys' fees, costs of retaking, holding
and preparing the Collateral for sale,
insurance, and such other expenses as
Secured Party may reasonably incur in the
liquidation of said Collateral in a
commercially reasonable manner. Should the
proceeds from the sale of the Collateral be
insufficient to cover the obligations of the
Debtor and the costs incurred in such
liquidation, the Debtor shall forthwith pay
any deficiency. Should the proceeds from
such liquidation exceed the liabilities of
the Debtor, then, in any event, the Debtor
shall be entitled to any surplus funds
arising from said liquidation.
(d) Debtor will give Secured Party full and
prompt written notice of any default or any
situation, which would constitute a default
but for a lapse of time. Debtor will also
serve Secured Party promptly notice of any
legal, condemnation, forfeiture, or
foreclosure
2
<PAGE>
proceeding against or regarding said Debtor,
its property or the Collateral.
3. Default. The occurrence of any of the following shall constitute an
event of default:
A. Any representation or warranty made herein shall, at the
time made, be false or misleading in any material respect;
B. Failure to pay any principal or interest under the
Promissory Note when the same shall be due and payable or within three days
thereafter.
C. Debtor shall voluntarily file a petition under the Federal
Bankruptcy Act, as such Act may from time to time be amended, or under any
similar or successor Federal statute relating to bankruptcy, insolvency,
arrangements or reorganizations, or under any state bankruptcy or insolvency
act, or file an answer in an involuntary proceeding admitting insolvency or
inability to pay debts, or if Debtor shall fail to obtain a vacation or stay or
voluntary proceedings brought for the reorganization, dissolution, or
liquidation of Debtor, or if Debtor shall be adjudged a bankrupt, or if a
trustee or receiver shall be appointed for Debtor or a property, or if the
property shall become subject to the jurisdiction of a Federal bankruptcy court
or similar state court, or if Debtor shall make an assignment for the benefit of
Debtor's creditors, or if there is an attachment, execution, or other judicial
seizure of any portion of Debtor's assets and such seizure is not discharged
within thirty (30) days;
D. Final judgment for the payment of money in excess of
$10,000 shall be rendered against the Debtor, and the same shall remain
undischarged and shall not have been effectively stayed for a period of thirty
(30) days.
4. Secured Party's Rights and Remedies.
A. Secured Party may assign this Security Agreement only if
the indebtedness under the Promissory Note is assigned simultaneously to the
same person or entity, and
(1) If Secured Party does assign this Security
Agreement, the Assignee shall be entitled, upon
notifying the Debtor, to performance of all of
Debtor's obligations and agreements hereunder, and
Assignee shall be entitled to all of the rights and
remedies of Secured Party under this paragraph, and
B. Upon Debtor's default, Secured Party may exercise its
rights of enforcement under the Uniform Commercial Code in force in North
Carolina at the date of this Security Agreement.
5. Rights and Remedies of Debtor. Debtor shall have all of the rights
and remedies before or after default provided in Article 9 of the Uniform
Commercial Code in force in North Carolina at the date of this Security
Agreement. Debtor shall not, however, assign any and all of its interest in the
Security Agreement without the prior written consent of the Secured Party, which
consent shall not be unreasonably withheld.
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<PAGE>
6. Additional Agreements and Affirmations.
A. Debtor Agrees and Affirms.
(1) That information supplied and statements made by
it in the negotiation of the purchase and sale of
Collateral and any financial or credit statement
prepared by it or on its behalf or application for
credit prior to this Security Agreement are true and
accurate, and
(2) That the address of Debtor's place of business is
that appearing below.
(3) That the Secured Party shall have a valid
security interest in the Collateral.
B. Mutual Agreements.
(1) "Debtor" and "Secured Party" as used in this
Security Agreement include the heirs, executors and
administrators, successors or assigns of those
parties.
(2) Except as herein otherwise provided the law
governing this Secured Transaction shall be that of
the State of North Carolina in force at the date of
this Security Agreement.
(3) Neither failure or delay on the part of the
Secured Party nor partial exercise of any power,
right or privilege granted hereunder shall be
construed as a waiver of the same power, right or
privilege held by the Secured Party. This Agreement
shall not be modified except by written consent of
the parties hereto. Debtor hereby waives protest of
all instruments included or evidencing any liability
by the Debtor, and any and all other demands
whatsoever, whether or not relating specifically to
such instruments.
(4) If any part, term or condition of this Agreement
shall be determined by the Court to be invalid or
unenforceable, all other provisions nevertheless
shall remain valid and effective as it is the
intention of the parties that each provision hereof
is being agreed upon separately.
(5) This Agreement may not be changed or terminated
orally. Any attempt to change, terminate or waive any
provision hereof shall not be binding unless reduced
to writing and executed by the parties against whom
the same is sought to be enforced. All notices
required by the provisions of this Agreement shall be
delivered to the parties by certified mail, return
receipt requested, at the addresses as set forth
below, or such other addresses as the parties may
hereafter designate:
4
<PAGE>
To Secured Party: Sports Image, Inc.
Attn: Dale Earnhardt
1675 Coddle Creek Highway
Mooresville, North Carolina 2815
With a copy to: David M. Furr, Esq.
Gray, Layton, Drum, Kersh,
Solomon, Sigmon & Furr, P.A.
P.O. Box 2636
516 South New Hope Road
Gastonia, North Carolina 28053
To Debtor: Action Performance Companies, Inc.
SSI Acquisition, Inc.
Attn: Fred Wagenhals
2401 West First Street
Tempe, Arizona 85281
With a copy to: Robert S. Kant, Esq.
O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears
One East Camelback Road
Suite 1100
Phoenix, Arizona 85012
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the 7th day of November, 1996.
SPORTS IMAGE, INC.
By:_______________________________
Title:____________________________
SSI ACQUISITION, INC.
By:_______________________________
Title:____________________________
5
REGISTRATION AGREEMENT
REGISTRATION AGREEMENT dated as of November 7, 1996, among ACTION
PERFORMANCE COMPANIES, INC., an Arizona corporation (the "Company"); SPORTS
IMAGE, INC., a North Carolina corporation ("SII"); and R. DALE EARNHARDT and
TERESA H. EARNHARDT (together "Earnhardt") who own all the capital stock of SII.
(SII and Earnhardt are referred to as the "Holders.")
WITNESSETH
The Company acquired substantially all of the assets of SII under the
terms of an Asset Purchase Agreement of even date. The consideration for the
assets of SII included shares of Company's Common Stock (the "Shares"). The
Shares are "restricted securities" as defined in Rule 144 under the Securities
Act of 1933, as amended. As a result, there are substantial restrictions on the
ability of the Holders to sell the Shares in the absence of registration under
the Securities Act of 1933 and applicable state securities laws. In order to
enable the Holders to sell all or a portion of the Shares, the Company has
agreed to the terms of this Agreement.
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt, adequacy, and sufficiency of which are
hereby acknowledged by the parties, the parties hereby agree as follows:
1. REGISTRATION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Blackout Period" means any period (A) beginning
on the date on which the Company notifies the Holders (as defined below) that
(i) the Board of Directors of the Company, in its good faith judgement, has
determined that there are material developments with respect to the Company such
that it would be seriously detrimental to the Company and its shareholders to
utilize a registration statement pursuant to Sections 1.2 or 1.3 below; (ii) the
Board of Directors of the Company, in its good faith judgment, has determined
that financial statements with respect to the Company, which may be required to
utilize a registration statement pursuant to Sections 1.2 or 1.3 below, are
unavailable; or (iii) the Company has notified the Holders that it intends to
file a registration statement for a Subsequent Financing within 30 days of the
mailing of such notice in accordance with Section 2.3 hereof, and (B) ending on
the date (1) with respect to clause (i) above, as soon as practicable but not
more than 30 days after the date on which the Company notifies the Holders of
the Board of Directors' determination; (2) with respect to clause (ii) above, as
soon as financial statements sufficient to permit Company to file or permit the
utilization of a registration statement under the Act have become available; and
(3) with respect to clause (iii) above, 90 days after the effective date of the
registration statement for the Subsequent Financing.
(c) The term "Holders" means those persons owning or having
the right to acquire Registrable Securities (as defined below).
(d) The term "Maximum Includable Securities" shall mean the
maximum number of shares of each type or class of the Company's securities that
a managing or principal underwriter, in its good faith judgment, deems
practicable to offer and sell at that time in a firm commitment underwritten
offering without materially and adversely affecting the marketability or price
of the securities of the Company to be offered. When more than one type or class
of the Company's securities are to be included in a registration, the managing
or principal underwriter of the offering shall designate the maximum number of
each such type or class of securities that is included in the Maximum Includable
Securities.
<PAGE>
(e) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Security" shall refer to (i) the
Shares, and (ii) any shares of Common Stock or other securities of Company that
may subsequently be issued or issuable with respect to the Shares as a result of
a stock split or dividend or any sale, transfer, assignment, or other
transaction by the Company or a Holder involving the Shares and any securities
into which the Shares may thereafter be changed as a result of merger,
consolidation, recapitalization, or otherwise. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
have been distributed to the public pursuant to an offering registered under the
Act or sold to the public through a broker, dealer, or market-maker in
compliance with Rule 144 under the Act.
(g) "SEC" means the Securities and Exchange Commission.
(h) The term "Subsequent Financing" means an offering of the
Company's Common Stock or other securities convertible or exercisable into
shares of the Company's Common Stock within 36 months after the date of this
Agreement.
1.2 Demand Registration Rights.
(a) If the Company shall receive at any time a written request
from the Holders (the "Initiating Holders") of Shares requesting the
registration of Registrable Securities, then the Company shall, within 10 days
of the receipt thereof, give written notice of such request to all Holders and
shall, subject to the limitations of Section 1.2(b), effect as soon as
practicable the registration under the Act of all Registrable Securities that
the Holders request to be registered within 60 days of the mailing of such
notice by the Company in accordance with the notice provisions of Section 2.3
hereof.
(b) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2 a certificate signed by the President of the Company stating that a Blackout
Period is in effect, the Company shall have the right to defer such filing
during the term of such Blackout Period.
(c) If the Holders give written notice requesting registration
of their Registrable Securities pursuant to this Section 1.2, and if the Company
at that time is not eligible to register its securities on Form S-3, the Company
shall prepare and file a registration statement on Form S-1 or S-2 (or other
appropriate form for the general registration of securities) as may be
appropriate in accordance with the terms and conditions set forth in this
Section 1.2.
(d) The Company may propose to include Additional Shares of
Common Stock or other securities to be sold by the Company and/or by other
holders of Common Stock or other securities in any registration statement to be
filed pursuant to this Section 1.2. The Holders shall have the right to reduce
the number of Additional Shares requested to be registered by the Company
pursuant to this Section 1.2(c) (including, if necessary, to zero) if, in the
good faith opinion of the underwriter or underwriters of such offering, the
inclusion of such Additional Shares would materially and adversely affect the
marketability or price of the Registrable Securities to be offered by the
Holders in such registration.
(e) The Company shall be obligated to effect only one such
registration pursuant to this Section 1.2.
2
<PAGE>
(f) The Holders shall have the right to select the underwriter
or underwriters, subject to the approval of the Company, which approval shall
not be unreasonably withheld, that will undertake the sale and distribution of
the Shares to be included in a registration statement filed under the provisions
of this Section 1.2.
1.3 Piggy-Back Registration Rights.
(a) Except as provided in Section 1.3(e), if at any time the
Company proposes to file on its behalf and/or on behalf of any of its
securityholders a registration statement under the Act on Form S-1, S-2, or S-3
(or any other appropriate form for the general registration of securities) with
respect to any of its capital stock or other securities, the Company shall give
each Holder written notice at least 20 days before the filing with the SEC of
such registration statement. If any Holder desires to have Registrable
Securities registered pursuant to this Section 1.3, such Holder shall so advise
the Company in writing within 15 days after the date of mailing of such notice
from the Company. The Company shall thereupon include in such filing the number
of Registrable Securities for which registration is so requested, subject to its
right to reduce the number of Registrable Securities as hereinafter provided,
and shall use its best efforts to effect registration under the Act of such
Registrable Securities. Notwithstanding the foregoing, the Company shall not be
required to provide notice of filing of a registration statement and to include
therein any Registrable Securities if the proposed registration is
(i) a registration of stock options, stock purchases,
or compensation or incentive plans, or of securities issued or issuable pursuant
to any such plan, or a dividend reinvestment plan on Form S-8, or other
comparable form then in effect; or
(ii) a registration of securities proposed to be
issued in exchange for securities or assets of, or in connection with, a merger
or consolidation with another corporation.
(b) In the event the offering in which any Holder's
Registrable Securities are to be included pursuant to this Section 1.3 is to be
underwritten, the Company shall furnish the Holders with a written statement of
the managing or principal underwriter as to the Maximum Includable Securities as
soon as practicable after the expiration of the 15-day period provided for in
Section 1.3(a). If the total number of securities proposed to be included in
such registration statement is in excess of the Maximum Includable Securities,
the number of securities to be included within the coverage of such registration
statement shall be reduced to the Maximum Includable Securities as follows:
(i) no reduction shall be made in the number of
shares of capital stock or other securities to be registered for the account of
the Company; and
(ii) the number of Registrable Securities and other
securities that may be included in the registration, if any, shall be allocated
among the Holders of Registrable Securities and holders of other securities (the
"Other Holders") requesting inclusion on a pro rata basis, with the number of
each type or class of securities of each Holder and Other Holder thereof
included in the registration to be that number determined by multiplying (A) the
total number of such type or class of security included in the Maximum
Includable Securities less (B) the number of such type or class of security to
be registered for the account of the Company, by a fraction, the numerator of
which will be the total number of such type or class of security that such
Holder or Other Holder owns, and the denominator of which will be the total
number of such type or class of security owned by all Holders and Other Holders
that have requested inclusion of such type or class of security in the
registration.
(c) The Company shall, in its sole discretion, select the
underwriter or underwriters, if any, that are to undertake the sale and
distribution of the Registrable Securities to be included in a registration
statement filed under the provisions of this Section 1.3.
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<PAGE>
(d) At such time that the Company intends to effect a
Subsequent Financing, it shall notify the Holders of such intent and shall
designate the proposed offering as a Subsequent Financing. Except to the extent
that the Company, in its sole discretion, may otherwise permit, the Holders
shall have no right to have any Registrable Securities registered pursuant to
this Section 1.3 in any Subsequent Financing.
(e) The right to registration provided in this Section 1.3 is
in addition to and not in lieu of the demand registration rights provided in
Section 1.2. The provisions of this Section 1.3 shall not apply, however, to any
Holders requesting registration pursuant to this Section 1.3 that are or may be
free, at the time, to sell within the next 90-day period all of the Registrable
Securities with respect to which such registration was requested in accordance
with Rule 144 (or any similar rule or regulation) under the Act.
1.4 Obligations of the Company. Whenever required under Section 1.2 or
Section 1.3 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement on
such form as the Company deems appropriate with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective. With respect to registration statements filed pursuant to
Section 1.2 or Section 1.3 hereof, upon the request of the Holders of a majority
of the Registrable Securities registered thereunder, the Company shall keep such
registration statement effective for up to 180 days, or such shorter period as
is reasonably required to dispose of all securities covered by such registration
statement, provided that the Company shall keep a registration statement filed
pursuant to Section 1.2 effective for an additional 90 days if reasonably
required to dispose of all securities covered by such registration statement.
(b) Notify the Holders promptly after it has received notice
of the time when such registration statement has become effective or any
supplement to any prospectus forming a part of such registration statement has
been filed.
(c) Prepare and file with the SEC, and promptly notify the
Holders of the filing of, such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(d) Advise each Holder promptly after it has received notice
or obtained knowledge thereof of the issuance of any stop order by the SEC
suspending the effectiveness of any such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
(e) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(f) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business, to file a general consent
to service of process, or to become subject to tax liability in any such states
or jurisdictions, or to agree to any restrictions as to the conduct of its
business in the ordinary course thereof.
(g) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering, together with
each Holder participating in such underwritten offering, as provided in Section
1.5(c).
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<PAGE>
(h) Prepare and promptly file with the SEC, and promptly
notify such Holders of the filing of, any amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event has occurred as
the result of which any such prospectus must be amended in order that it does
not make any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
(i) In case any of such Holders or any underwriter for any
such Holders is required to deliver a prospectus at a time when the prospectus
then in effect may no longer be used under the Act, prepare promptly upon
request such amendment or amendments to such registration statement and such
prospectus as may be necessary to permit compliance with the requirements of the
Act.
(j) If any of the Registrable Securities are then listed on
any securities exchange or the Nasdaq Stock Market, the Company will cause all
such Registrable Securities covered by such registration statement to be listed
on such exchange or the Nasdaq Stock Market.
1.5 Obligations of Holders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Registrable Securities held by them, the intended method of sale
or other disposition of such securities if the registration is pursuant to
Section 1.2, the identity of and compensation to be paid to any underwriters
proposed to be employed in connection with such sale or other disposition if the
registration is pursuant to Section 1.2, and such other information as may
reasonably be required to effect the registration of their Registrable
Securities.
(b) Notify the Company, at any time when a prospectus relating
to Registrable Securities covered by a registration statement is required to be
delivered under the Act, of the happening of any event with respect to such
selling Holder as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(c) In the event of any underwritten public offering, each
Holder participating in such underwriting shall enter into and perform its
obligations under the underwriting agreement for such offering, and if requested
to do so by the underwriters managing such offering, each Holder shall enter
into a customary holdback agreement.
1.6 Expenses of Demand Registration. The Company shall bear and pay all
expenses incurred in connection with registrations, filings, or qualifications
pursuant to Section 1.2 (other than underwriting discounts and commissions with
respect to Registrable Securities included in such registration and any fees and
costs of the Holders' legal counsel or other advisors), including (without
limitation) all registration, filing, and qualification fees, Blue Sky fees and
expenses, printers' and accounting fees, costs of listing on Nasdaq, costs of
furnishing such copies of each preliminary prospectus, final prospectus, and
amendments thereto as each Holder may reasonably request, and fees and
disbursements of counsel for the Company; provided, however, that the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 1.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case the Holders participating in such
offering and favoring such withdrawal shall bear such expenses); provided
further, however, that if such registration request has been withdrawn by virtue
of a material adverse change in the condition, business, or prospects of the
Company from that known to the Holders at the time of their request, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant Section 1.2.
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1.7 Expenses of Piggy-Back Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to each of the
registrations pursuant to Section 1.3 (other than underwriting discounts and
commissions with respect to Registrable Securities included in such registration
and any fees and costs of the Holders' legal counsel or other advisors),
including (without limitation) all registration, filing, and qualification fees,
Blue Sky fees and expenses, printers' and accounting fees, costs of listing on
Nasdaq, costs of furnishing such copies of each preliminary prospectus, final
prospectus, and amendments thereto as each Holder may reasonably request, and
fees disbursements of counsel for the Company.
1.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company will indemnify and hold harmless each Holder,
the officers and directors of each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which such person or persons may become
subject under the Act, the 1934 Act, or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions, or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company will reimburse each
such Holder, officer or director, underwriter, or controlling person for any
legal or other expenses reasonably incurred by such person or persons in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 1.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company, nor shall the Company be liable in any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon (i) a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, underwriter, or controlling person, or (ii) the
failure of such Holder, underwriter, or controlling person to deliver a copy of
the registration statement or the prospectus, or any amendments or supplements
thereto, after the Company has furnished such person with a sufficient number of
copies of the same.
(b) Each selling Holder will indemnify and hold harmless the
Company, each of its officers and directors, and each person, if any, who
controls the Company within the meaning of the Act, any underwriter and any
other Holder selling securities in such registration statement or any of its
directors or officers or any person who controls such Holder, against any
losses, claims, damages, or liabilities (joint or several) to which the Company
or any such officer, director, controlling person, or underwriter or controlling
person may become subject, under the Act, the 1934 Act, or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such officer, director, controlling person, underwriter or controlling
person, other Holder, officer, director, or controlling person in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 1.8(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Holder. Notwithstanding anything to the contrary herein
contained, a Holder's indemnity obligation, in such person's capacity as a
Holder, shall be limited to the net proceeds received by such Holder from the
offering out of which the indemnity obligation arises.
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(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnified party, except that such fees and expenses shall be paid by
the indemnifying party if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.8.
(d) The indemnification provided by this Section 1.8 shall be
a continuing right to indemnification and shall survive the registration and
sale of any of the Registrable Securities hereunder and the expiration or
termination of this Agreement.
1.9 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, as long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Act, and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such form.
1.10 Amendment and Waiver. Any amendment or waiver of any provision
under this Agreement may be effected only with the written consent of the
Company and the Holders of at least a majority of the Registrable Securities
then outstanding.
1.11 Remedies. The parties hereto acknowledge and agree that the breach
of any part of this Agreement may cause irreparable harm and that monetary
damages alone may be inadequate. The parties hereto therefore agree that any
party shall be entitled to injunctive relief or such other applicable remedy as
a court of competent jurisdiction may provide. Nothing contained herein will be
construed to limit any party's right to any remedies at law, including recovery
of damages for breach of any part of this Agreement.
2. MISCELLANEOUS
2.1 Notification for Benefit of Holders. In the event that (i) the
Company is actively pursuing the preparation and filing of a registration
statement for an underwritten offering in which it may be possible for the
Holders to participate pursuant to Section 1.3 of this Agreement, and (ii) the
Holders are not actively pursuing an offering or selling Registrable Securities
pursuant to an offering at that time, the Company shall promptly notify
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the Holders of such activity. Upon receipt of such notice, the Holders shall
cease any sales of Registrable Securities pursuant to any registration statement
or otherwise until the earlier of (a) 90 days after receipt of such notice; (b)
two trading days after the Company files such registration statement or publicly
announces its intention to file such registration statement (subject to the
restrictions on any such sales provided for elsewhere in this Agreement); or (c)
the Company notifies the Holder that it no longer is actively pursuing such
underwritten offering. The Company shall promptly notify the Holders of any
changes in its plans for or active pursuit of such underwritten offering.
2.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the laws of the state of Arizona, notwithstanding
any Arizona or other conflict-of-law provisions to the contrary.
2.3 Notices. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made, and received when delivered against
receipt, upon receipt of a facsimile transmission, or upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
(a) If to the Company:
2401 West First Street
Phoenix, Arizona 85281
Attention: Fred W. Wagenhals
Phone: (602) 894-0100
Facsimile: (602) 967-1403
with a copy given in the manner
prescribed above, to:
O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears, P.A.
One East Camelback Road
Phoenix, Arizona 85012
Attention: Robert S. Kant, Esq.
Phone: (602) 263-2606
Facsimile: (602) 263-2900
(b) If to any Holder:
5301 West WT Harris Boulevard
Charlotte, North Carolina 28269
Attention: R. Dale Earnhardt
Phone: (704) 599-8100
Facsimile: (704) 599-8126
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with a copy given in the manner
prescribed above, to:
Gray, Layton, Drum, Kersh, Solomon,
Sigmon & Furr, P.A.
516 South New Hope Road
Gastonia, North Carolina 28053
Attention: David M. Furr, Esq.
Phone: (704) 865-4400
Facsimile: (704) 866-8010
Any party may alter the address to which communications or
copies are to be sent by giving notice of such change to each of the other
parties hereto in conformity with the provisions of this paragraph for the
giving of notice.
2.4 Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors, and assigns.
2.5 Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
2.6 Section Headings. The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
2.7 Gender. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
2.8 Indulgences, Not Waivers. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power, or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power, or privilege preclude any other or further
exercise of the same or any other right, remedy, power, or privilege, nor shall
any waiver of any right, remedy, power, or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power, or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
2.9 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories. Any photographic or xerographic copy of this Agreement, with all
signatures reproduced on one or more sets of signature pages, shall be
considered for all purposes as of it were an executed counterpart of this
Agreement.
2.10 Provisions Separable. The provisions of this Agreement are
independent and separable from each other, and no provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any reason any
other or others of them may be invalid or unenforceable in whole or in part.
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2.11 Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays, and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday, or holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday, or holiday.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date and year first above written.
ACTION PERFORMANCE COMPANIES, INC.
By:_______________________________
SPORTS IMAGE, INC.
By:_______________________________
__________________________________
R. Dale Earnhardt
__________________________________
Teresa H. Earnhardt
10
11/6/96
LICENSE AGREEMENT
License Agreement entered into as of the 7th day of November, 1996 (the
"Effective Date") among SII Acquisition, Inc. ("SII or Licensee"), an Arizona
corporation, that plans to change its corporate name to Sports Image, Inc.; Dale
Earnhardt, an individual, on behalf of himself and on behalf of Dale Earnhardt,
Inc., a North Carolina corporation (together "Earnhardt or Licensor"); and
Action Performance Companies, Inc., an Arizona corporation ("APC").
I. DEFINITIONS:
A. "Likeness of Dale Earnhardt or Earnhardt" shall mean the name,
signature, copyrights and trademarks (including, without limitation, those set
forth on Schedule A attached), image or likeness of Dale Earnhardt relating to
his personal motorsports racing; and to the extent Earnhardt has the right to
grant a license, the likeness of his car(s) and its/their numbers, his racing
colors, and his sponsor's, owner's or car manufacturer's name and trademarks,
also relating to his personal motorsports racing.
B. "Personal endorsement contracts" means contracts for the personal
services of Dale Earnhardt to promote the sales of products or services.
C. "Motorsports Racing Products" means all products utilizing,
embodying or incorporating the Likeness of Dale Earnhardt in connection with
motorsports racing, including but not limited to racing collectibles, die cast
products, souvenirs, apparel, and accessories.
D. "Licensable Products" means all Motorsports Racing Products that are
the same or similar to those products advertised or sold by SII and/or APC,
except the following: (1) those products endorsed by Earnhardt pursuant to the
personal endorsement contracts; and (2) those products that are the subject
matter of the contracts listed on Schedule B, attached.
E. "Licensed Products" means Licensable Products of which SII has
exercised its right of first refusal granted in this Agreement or listed as a
current channel of distribution in Schedule B. Licensed Products do not include
products purchased by SII from third parties licensed directly or otherwise
authorized by Earnhardt.
F. "Adjusted Gross Revenues" means the revenue derived by SII from the
sale of Licensed Products represented by the quantity of each Licensed Product
sold or otherwise distributed by SII multiplied by its wholesale sales price,
exclusive of any government assessments imposed as taxes or otherwise, less
returns actually refunded.
II. LICENSE:
A. GRANT OF LICENSE: Earnhardt hereby grants to SII the right of first
refusal to make, have made, use, sell, or otherwise distribute throughout the
world (hereafter "Market") Licensable Products bearing the Likeness of Dale
Earnhardt.
<PAGE>
B. TERM: The term of this Agreement shall be 15 years from the
Effective Date and shall continue from year to year thereafter until terminated
by either party upon 60 days prior written notice.
C. EXERCISE OF RIGHT: SII hereby exercises its right of first refusal
to Market the Licensable Products currently Marketed by Sports Image, Inc. a
North Carolina corporation ("SII-NC") as well as those Licensable Products
listed in Schedule C, attached.
D. NON-COMPETITION: If SII exercises its right of first refusal as to
any Licensable Product, Earnhardt will not Market or permit any other person or
entity to Market through the then current channels of distribution of SII and/or
APC or their successors, the Likeness of Dale Earnhardt for use on or in
connection with the same or similar product.
E. NOTIFICATION OF NEW PRODUCTS: Earnhardt agrees to inform SII in
writing of any new Licensable Product that Earnhardt becomes aware of and
approves for marketing within 15 days after approving such new Licensable
Product for marketing. SII shall have 15 days after receipt in writing of notice
from Earnhardt in which to inform Earnhardt in writing of its intent to exercise
its right of first refusal.
F. THIRD PARTY LICENSES: If SII does not exercise its right of first
refusal with respect to a Licensable Product, Earnhardt shall have the right to
license third parties to Market the product, provided however, that Earnhardt
will require the third party to agree to sell the Licensable Product to SII
and/or APC or their successors at a price not greater than the lowest price
offered by the third party to similarly situated purchasers of similar
quantities of the product.
III. QUALITY CONTROL:
A. APPROVAL RIGHTS: SII will present to Earnhardt or Earnhardt's
designee, with adequate advance notice, for approval, sample designs, prototypes
or other representations of all new Licensable Products and the proposed
distribution channels. Approval by Earnhardt or Earnhardt's designee shall not
unreasonably be withheld or delayed.
B. QUALITY AND APPEARANCE: SII agrees that all Licensed Products
Marketed by it will be of high quality and of such style and appearance as to
enhance the prestige and the goodwill represented by the Likeness of Dale
Earnhardt. Earnhardt reserves the right to inspect any and all Licensed Products
Marketed by SII bearing any registered trademarks for quality and appearance.
SII agrees that if Earnhardt rejects any Licensable Products for failing to meet
reasonable quality standards, those products will not be distributed unless and
until they can be made to comply.
IV. COPYRIGHTS AND TRADEMARKS:
A. OWNERSHIP: Licensee recognizes the unique value of the Licensed
Products, the likeness of Dale Earnhardt and the goodwill and secondary meaning
associated therewith in the minds of the public. Licensee acknowledges that
Licensee's use of the Licensed Products
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or the likeness of Dale Earnhardt shall not confer or imply a grant of any
right, title or interest in or to the Licensed Products, the likeness of Dale
Earnhardt, or any goodwill associated therewith, and that the ownership of all
copyright, trademark, service mark, trade name, design patent, trade dress and
all other rights in or derived from the Licensed Products, the likeness of Dale
Earnhardt and any articles, photographs, logos, adoptions, artwork, packaging,
test, advertising, promotional and other materials, and all works derived
therefrom, of any kind or nature whatsoever whether now known or hereafter
devised (whether or not developed by or for Licensee) and all goodwill
pertaining thereto (collectively, "Proprietary Material(s)" shall be, and at all
times shall remain, the property of Licensor; provided, however, that the
definition of Proprietary Materials does not include any of the actual Licensed
Products.
B. TRADEMARKS DEVELOPED BY LICENSEE: If Licensee develops any new
trademark, service mark, trade name or trade dress for use on or in connection
with the Licensed Products, Licensee shall present to Licensor a full and
complete trademark search report and opinion letter from trademark counsel
attesting to the availability of the trademark, service mark, trade name or
trade dress along with Licensee's request for approval of use thereof on or in
connection the Licensed Products. Upon approval by Licensor, the new trademark,
service mark, trade name or trade dress shall become Licensed Product. Without
Licensor's approval, no new trademark, service mark, trade name or trade dress
shall be used by Licensee in connection with any Licensed Products.
C. WORKS MADE FOR HIRE: Licensee shall insure that all Proprietary
material are "works made for hire" within the meaning of the U.S. Copyright Act
of 1976, as amended. All Proprietary Materials, shall be prepared by Licensee's
employees under Licensee's sole supervision, responsibility, direction, control
and monetary obligation, within the course and scope of each such person's
employment by Licensee. If third parties who are not employees of Licensee
contribute to the creation of any Proprietary Material, Licensee shall obtain
from each such third party, prior to commencement of work, a complete, absolute,
irrevocable and unconditional written assignment, in form and substance
satisfactory to Licensor, by which all right, title and interest in the
applicable Proprietary Materials (including, but not limited to, all copyrights
and rights under copyright), throughout the universe in perpetuity, whether now
known or hereafter devised, shall vest in Licensor irrevocably, exclusively and
unconditionally. Nothing contained herein or otherwise shall, or shall be deemed
to construed to, convey to Licensee any right, title or interest in or to any of
the Proprietary Materials.
D. DELIVERY OF PROPRIETARY MATERIALS TO LICENSOR: Promptly at the
expiration or sooner termination of the Term set forth in Section II(B), and
from time to time as Licensor may elect, Licensee shall deliver to Licensor all
originals or duplicates (cost for duplication to be borne by Licensee) of all
Proprietary Materials, whether supplied by Licensor or created by or on behalf
of Licensee.
E. COPYRIGHT AND TRADEMARK NOTICES: As a material condition to the
continuation of this Agreement, Licensee shall comply fully with all applicable
trademark, copyright and other proprietary rights notice requirements, and any
other notices which Licensor from time to time may require. Subject to
Licensor's approval of the content, size and placement thereof, Licensee shall
have the right to place its own copyright and trademark notices
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<PAGE>
on any materials it owns or creates hereunder which are separate and apart from,
and not related to, the Licensable Product or any Proprietary Material.
F. PROTECTION OF COPYRIGHTS, TRADEMARKS AND GOODWILL: Licensee shall
procure, maintain, defend and enforce Licensor's rights in the Licensed Products
and Proprietary Material; and Licensor hereby grants to Licensee the right to do
so to the maximum extent legally permissible. Licensee shall execute,
acknowledge and deliver, and shall cause to be executed, acknowledged and
delivered, to Licensor all additional documents and instruments Licensor may
require (including, but not limited to, those necessary or appropriate to record
Licensee as a registered user of any trademarks or to cancel any such
recordation), each in form and substance satisfactory to Licensor. If Licensee
fails to execute, acknowledge or deliver any such document or instrument, or to
cause any such document or instrument to be delivered, Licensee hereby appoints
Licensor as its attorney-in-fact to do any of the foregoing on Licensee's behalf
and in Licensee's name, and Licensee acknowledges that such appointment is
coupled with an interest and is irrevocable with full powers of substitution and
delegation. Licensor makes no representation or warranty that copyright,
trademark or any other protection has been or will be secured or maintained for
any of the Licensable Product. Licensee shall prosecute absolutely all
infringement claims or litigation to be brought against third parties involving
or affecting the Licensed Products, and Licensor may join Licensee as a party
thereto at Licensor's sole cost and expense.
V. INDEMNIFICATION:
A. Licensee shall defend, indemnify and hold harmless Licensor, and its
officers, shareholders, directors, employees, partners, agents and other
representatives, and their respective successors, assigns, parents,
subsidiaries, affiliates, partners, heirs, executors, trustees, administrators
and other representatives, and all other parties associated with the Licensed
Products, from and against any and all claims, liabilities, losses, costs,
damages and expenses (including reasonable attorneys' fees) arising out of or in
connection with Licensee's acts or omissions in connection with this Agreement,
the Licensed Products including, but not limited to, any defect (whether obvious
or hidden and whether or not present in any sample approved by Licensor) in a
Licensed Product or arising from personal injury or any infringement of any
rights of anyone in connection with the manufacture, advertising, promotion,
sale, possession or use of Licensed Product or any failure to comply with any
applicable laws, treaties, regulations or standards (collectively, "Law(s)").
B. Licensor shall defend, indemnify and hold harmless Licensee, its
officers, shareholders, directors, employees, partners, agents and other
representatives, and their respective successors, assigns, parents,
subsidiaries, affiliates, partners, heirs, executors, trustees, administrators
and other representatives, and all other parties associated with the Licensed
Products for, from and against any and all claims, liabilities, laches, costs,
damages and expenses (including reasonably attorneys' fees) arising out of or in
connection with Licensor's acts or omissions in connection with this Agreement,
with respect to Licensor's ownership or right to use the Likeness of Dale
Earnhardt or any failure to comply with any applicable Laws.
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VI. PRODUCT LIABILITY AND GENERAL LIABILITY INSURANCE:
A. INSURANCE: Licensee, at its sole cost, will obtain and maintain
throughout the Term, and will provide Licensor written evidence from the
insurance carrier of commercial general liability insurance including broad form
coverage for contractual liability, products liability and personal injury
liability (including bodily injury and death), and advertiser's liability
insurance, each from a legally qualified insurance company reasonably acceptable
to Licensor:
(1) in an amount, with respect to the Product Liability Insurance, not
less than $2,000,000 combined single limited for each single occurrence and with
a deductible no greater than $10,000;
(2) in an amount, with respect to the other general liability
insurance, not less than $1,000,000/$3,000,000 with a deductible no greater than
$10,000;
(3) naming Licensor (and its designees from time to time) as additional
named insureds and providing that each such insurance company shall waive any
rights of subrogation against Licensor (and its designees from time to time);
(4) non-cancelable and non-modifiable except on 30 days' prior written
notice to Licensor and only if replaced so that there is no lapse in coverage as
required herein.
(5) providing that such insurance shall be primary insurance
notwithstanding the existence or coverage of any other policy of insurance
maintained by Licensor or by any other insured or third party;
(6) as proof of such insurance, fully paid certificates of insurance
shall be submitted to Licensor, naming each of the parties identified in
subparagraph (3) above as additional named insureds, shall be submitted to
Licensor by Licensee for Licensor's prior written approval before any Licensed
Product is distributed or sold, not later than 30 days after the date of this
Agreement. Each such certificate shall provide for no less than 30 days prior
written notice to Licensor of any lapse, cancellation or termination of such
insurance, and any proposed change in any certificate of insurance shall be
submitted to Licensor for its prior written approval. Each party named as an
additional insured as herein described shall be entitled to a copy of the then
prevailing certificate of insurance at any time, upon request, which promptly
shall be furnished by Licensee. No such party shall have any responsibility or
liability for any deductible, premium or over-limit liability.
VII. EVENTS OF DEFAULT:
The following shall be Events of Default and cure, if any, shall be
evidenced in each subsection:
A. INSOLVENCY: If Licensee becomes unable to pay its debts as they
become due, or if Licensee files or has filed against it a petition in
bankruptcy, reorganization or for the adoption of an arrangement under any
present or future bankruptcy, reorganization or similar
5
<PAGE>
law (which petition, if filed against Licensee, is not dismissed within 30 days
after the filing date), or if Licensee makes an assignment of all or
substantially all of its property for the benefit of its creditors or is
adjudicated bankrupt, or if a receiver, trustee, liquidator or sequestrator of
all or substantially all of Licensee's property is appointed, or if Licensee
discontinues its business, the license granted herein automatically shall
terminate forthwith upon written notice to Licensee.
B. CHANGE OF CONTROL: If Licensee's business is sold or transferred by
operation of law or otherwise, and if there is a substantial change in
Licensee's management, Licensor, in its sole and absolute discretion, shall have
the right to convert this Agreement to a yearly term upon written notice to
Licensee.
C. FAILURE TO RENDER STATEMENTS OR MAKE ROYALTY PAYMENTS WHEN DUE: If
Licensee fails to deliver to Licensor any statement accompanied by payment of
Royalties then due, and continues to fail to render such statement and/or make
payment of Royalties then due during the 30 business days immediately following
Licensor's written notice of such default, Licensor may terminate this Agreement
upon final written notice to Licensee. Notwithstanding the foregoing, the
parties agree that any disputes regarding payment amounts will be resolved
pursuant to Section IX (B) hereof.
D. BREACH OF OTHER AGREEMENT: If APC breaches, without cure within the
applicable time period, which shall include notice and opportunity to cure, that
certain 1997- 2000 License Agreement ($500,000 minimum Advance Royalty
Guarantee) between Licensee and Licensor, Licensor may terminate this Agreement
upon written notice to Licensee.
E. FAILURE TO COMPLETE PURCHASE OF LICENSEE: If APC fails to pay when
due the $24 million promissory note to SII-NC, then this Agreement shall
terminate immediately upon such failure.
F. NO DISPARAGEMENT: If APC or SII commits an act or becomes involved
in a situation or occurrence which, in Earnhardt's good faith opinion, tends to
bring it or him into public disrepute, contempt, scandal or ridicule and tends
to provoke, shock or offend the community or any sizable group or class thereof
so that there is an unfavorable reflection on Earnhardt's reputation, or if APC
or SII publicly disparages Earnhardt, then Earnhardt may terminate this
Agreement effective at any time after the date on which Earnhardt first acquires
knowledge and notifies APC and SII in writing thereof and after which no good
faith action shall be promptly taken by APC or SII to cure the same to
Earnhardt's good faith satisfaction.
G. MISCELLANEOUS: If (A) Licensee (i) manufactures, offers to sell,
sells, distributes or otherwise disposes of articles in any way utilizing any of
the Licensed Products which are not approved as provided herein; (ii) purchases
materials, products, or services from or acts as a broker, seller, distributor,
or retailer for, any third party whom Licensor has given Licensee written notice
is an infringer or Licensor's proprietary rights; (iii) registers or attempts to
register any claim to copyright, trademark, service mark, design patent or any
other right in or to any element of the Licensed Product or Likeness of
Earnhardt; or (iv) fails to obtain or maintain insurance coverage as required
hereunder, and (B) Licensee fails to cure any such
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condition within 30 days written notice of the occurrence thereof from Licensor,
Licensor may terminate this Agreement upon written notice to Licensee.
VIII. CONSIDERATION:
A. ROYALTY: SII agrees to pay to Earnhardt a royalty equal to 20% of
the Adjusted Gross Revenue for the full term of this Agreement, including any
extensions.
B. INVENTORY LIQUIDATION: Notwithstanding anything in this Agreement to
the contrary, if SII is required or deems it advisable to liquidate certain
Licensed Products at a price that results in a gross margin of less than 40%,
SII will pay to Earnhardt a royalty equal to one-half of the gross margin of the
Licensed Product so liquidated.
IX. REPORTING AND PAYMENT:
A. QUARTERLY REPORTS AND PAYMENTS: Within 20 days after the end of each
calendar quarter during the term of this Agreement, SII shall report to
Earnhardt its Adjusted Gross Revenue, revenue and margins for any liquidated
Licensed Products, and cumulative royalties due for the immediately preceding
quarter, in a format having sufficient detail for reasonable verification of the
royalty payment. Reports shall be signed and certified by an officer of SII as
true and accurate and shall be accompanied by the applicable cumulative
royalties payment.
B. BOOKS AND RECORDS: SII shall keep full, clear and accurate books and
records with respect to all sales or other disposition of Licensed Products
subject to this Agreement. The books and records shall be maintained in such a
manner that the quarterly royalty reports required herein shall be readily
verifiable. Earnhardt and Earnhardt's authorized agent, shall have the right to
examine and audit SII's records on SII's premises upon reasonable prior notice
to SII and during normal business hours. In no event shall Earnhardt be entitled
to examine and audit SII's records more than twice per calendar year unless a
prior audit by Earnhardt in that year revealed a deficiency. In the event
Earnhardt's audit reveals an overpayment in any royalty due under this
Agreement, such amounts will be credited against the royalty next due. In the
event Earnhardt's audit reveals a deficiency in any royalty due under this
Agreement, SII shall remit the deficiency within 10 days together with interest
at a rate of 10% per annum. In the event such audit shows a deficiency greater
than 5% with respect to the funds that should have been paid to Earnhardt, the
cost of such audit shall be paid by SII. Should Earnhardt fail to examine
records for a period of three years from the date of any quarterly report which
they were compiled, that quarterly report shall be deemed final and binding and
Earnhardt shall have no further right to contest the report or payment of
royalties called for therein. Notwithstanding the foregoing, in the event that
SII disagrees with the results of an audit by Earnhardt, SII and Earnhardt shall
mutually agree upon a "Big Six" accounting firm to review Earnhardt's audit and
the results thereof shall be binding on Earnhardt and SII.
7
<PAGE>
X. MISCELLANEOUS PROVISIONS:
A. ASSIGNMENT: This Agreement may not be assigned by SII, Earnhardt, or
APC without the written consent of the other party.
B. THIRD PARTY BENEFICIARY AND GUARANTOR: This Agreement is entered
into in connection with an Asset Purchase Agreement of even date among SII, APC
and others. Accordingly, the parties agee that APC is also contemplated as third
party beneficiary of this Agreement and APC shall also unconditionally guarantee
all performance and all payment obligations and duties of SII under this
Agreement as evidenced by the signature hereto.
C. BINDING ON HEIRS AND APPROVED ASSIGNEES: This Agreement is binding
on the parties, their heirs, successors and their approved assigns.
D. REPRESENTATIONS AND WARRANTIES: The parties hereto each represents
that they are authorized and empowered to enter into this Agreement and that by
entering into this Agreement they will not be in breach of any other agreement
with any person or entity.
E. NOTICES: All notices or other communications required or permitted
under this Agreement shall be in writing and shall be sent by first class,
certified mail, return receipt requested, postage prepaid, to the party
concerned at the address set forth below. Notice may be sent by facsimile
provided confirmation is delivered as described above. Unless otherwise
specifically provided to the contrary herein, any such notice shall be
considered made on the date of receipt at the address of the intended recipient.
To Earnhardt: To SII:
1675 Coddle Creek Highway Attn: Fred Wagenhals
Mooresville, North Carolina 28115 Action Performance Companies
2401 W. First Street
Tempe, Arizona 85281
With a copy to: With a copy to:
David M. Furr Robert S. Kant, Esq.
Gray, Layton, Drum, Kersh, O'Connor, Cavanagh
Solomon, Sigmon & Furr, P.A. One East Camelback Road
P.O. Box 2636 Suite. 1100
Gastonia, North Carolina 28053 Phoenix, Arizona 85012
or such change in address as may be given in writing according to the terms of
this section.
F. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement shall
constitute a joint venture or legal partnership between the parties. The
relationship of the parties is that of licensor and licensee.
8
<PAGE>
G. CONTINGENCIES: The delay or failure of either party to perform any
obligation otherwise due, as a result of force majeure, including but not
limited to governmental action, laws, orders, regulations, directions or
requests, or events such as war, acts of public enemies, strikes or other labor
disturbances, fires, floods, acts of God or any causes of like or different
kind, in each instance beyond the control of such party, but excluding delay or
failure of SII to pay royalties promptly when due, shall be excused for so long
as the cause exists and provided that party gives the other party timely notice
of the cause of the delay or failure and exercises reasonable diligence to
eliminate the cause or to find an alternative by which to resume performance.
H. CHOICE OF LAW: This Agreement shall be interpreted under the laws of
the State of North Carolina without resort to the choice of law provisions
thereof and proper venue shall also reside in North Carolina.
I. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior and contemporaneous agreements, understandings and
communications between the parties relating to the subject matter hereof except
existing License Agreements to which any or all of the parties hereto may be
parties. No modification of this Agreement shall be effective unless made in
writing, signed by all parties. Delay or inaction by any party will not
constitute a waiver of its rights conferred by this Agreement.
J. CONSTRUCTION: The parties acknowledge and agree that each party has
participated in the drafting of this Agreement and that this document has been
reviewed by their respective legal counsel. Accordingly, the parties agree that
any ambiguity is not to be resolved against the drafting party. No inference in
favor of, or against, any party will be drawn from the fact that one party has
drafted any portion of this Agreement.
K. COUNTING OF DAYS: For the purpose of calculating periods of time
specified or allowed under this Agreement, all days are counted, including
weekends and holidays. If the last day of the period is Saturday, Sunday, or
legal holiday in the State of North Carolina, then the period will be extended
through the next business day.
L. EQUITABLE RELIEF: Licensee and Licensor each acknowledges that its
failure to comply with any of the terms of this Agreement including, but not
limited to, Licensee's obligation to cease the manufacture, sale or distribution
of Licensed Products at the termination or expiration of this Agreement, will
cause immediate and irreparable damage to the other and that, in addition to any
and all other remedies, the other shall have the right to equitable relief for
any breach including, but not limited to, temporary restraining order,
preliminary and permanent injunction or other alternative relief without the
necessity of posting any bond or other security or proving any damages.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SII ACQUISITION, INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
DALE EARNHARDT, INC.
By:___________________________________________
Dale Earnhardt
Title:________________________________________
ACTION PERFORMANCE COMPANIES, INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
________________________________________(Seal)
Dale Earnhardt
10
EMPLOYMENT AGREEMENT
DATED AS OF NOVEMBER 7, 1996
BETWEEN
ACTION PERFORMANCE COMPANIES, INC.
AND
JOE MATTES
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment........................................ 1
2. Full Time Occupation.............................. 1
3. Compensation and other Benefits................... 1
(a) Salary................................... 1
(b) Bonus.................................... 1
(c) Stock Options............................ 1
(d) Fringe Benefits.......................... 1
(e) Reimbursement............................ 2
4. Term of Employment................................ 2
(a) Employment Term.......................... 2
(b) Termination Under Certain Circumstances.. 2
(c) Result of Termination.................... 2
5. Competition and Confidential Information.......... 2
(a) Interests to be Protected................ 2
(b) Non-Competition.......................... 3
(c) Non-Solicitation of Employees............ 3
(d) Confidential Information................. 3
(e) Return of Books and Papers............... 3
(f) Disclosure of Information................ 4
(g) Assignment............................... 4
(h) Equitable Relief......................... 4
(i) Restrictions Separable................... 4
6. Miscellaneous..................................... 4
(a) Notices.................................. 4
(b) Indulgences.............................. 5
(c) Controlling Law.......................... 5
(d) Binding Nature of Agreement.............. 5
(e) Execution in Counterpart................. 5
(f) Provisions Separable..................... 5
(g) Entire Agreement......................... 5
(h) Paragraph Headings....................... 6
(i) Gender................................... 6
(j) Number of Days........................... 6
7. Successors And Assigns............................ 6
i
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 7th day of November, 1996
by and between ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation
("Employer") and JOE MATTES ("Employee").
Employer's wholly owned subsidiary, SII Acquisition, Inc., an
Arizona corporation ("SII"), has purchased substantially all the assets of
Sports Image, Inc., a North Carolina corporation ("SNC"). Employee served as the
President of SNC prior to the acquisition. SII, which plans to change its
corporate name to Sports Image, Inc., will continue the business of SNC.
Employer desires that Employee serve as President of SII and perform various
other services for Employer and Employee desires to accept such employment upon
the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants set forth in this Agreement, the parties hereto agree as
follows:
1. Employment.
Employer hereby employs Employee, and Employee hereby accepts
such employment, as Vice President of Employer and as President of Employer's
SII subsidiary and in such other capacities and for such other duties and
services of an executive nature as shall from time to time be specified by
Employer.
2. Full Time Occupation.
Employee shall devote Employee's entire business time,
attention, and efforts to the performance of Employee's duties under this
Agreement, shall serve Employer faithfully and diligently, and shall not engage
in any other employment while employed by Employer.
3. Compensation and other Benefits.
(a) Salary. Employer shall pay to Employee, as
compensation for the services rendered by Employee during Employee's employment
under this Agreement, a salary at a rate of $225,000 per annum, to be paid in
equal monthly installments or in such other periodic installments upon which
Employer and Employee mutually agree.
(b) Bonus. Employee shall be eligible to receive an
annual bonus in an amount of up to 30% of Employee's salary with the amount to
be determined by the Board of Directors of Employer based upon such factors as
may be deemed relevant by the directors, including the performance of Employee.
(c) Stock Options and Awards. Employee shall be
granted qualified stock options under Employer's Stock Option Plan to purchase a
total of 50,000 shares of Employer's Common Stock at a price equal to $14.875
per share at any time or from time to time within five years of the date of
grant, such options to vest 60% on the date of grant, 20% on the first
anniversary of the grant, and 20% on the second anniversary of the grant.
(d) Fringe Benefits. Employee shall be entitled to
participate in any group insurance, pension, retirement, vacation, expense
reimbursement, and other plans, programs, or benefits approved by Employer's
Board of Directors and made available from time to time to executive personnel
of Employer generally during the term of Employee's employment hereunder. The
foregoing shall not obligate Employer to adopt or maintain any particular plan,
program, or benefit.
<PAGE>
(e) Reimbursement. Employer shall reimburse Employee
for all travel and entertainment expenses and other ordinary and necessary
business expenses incurred by Employee in connection with the business of
Employer and Employee's duties under this Agreement; provided, however, that
Employee shall not incur such expenses in an amount in excess of $5,000 during
any month without written authorization from Employer. The term "business
expenses" shall not include any item not deductible in whole or in part by
Employer for federal income tax purposes. To obtain reimbursement, Employee must
submit to Employer receipts, bills, or sales slips for the expenses incurred.
Reimbursements will be made by Employer monthly within 10 days of presentation
by Employee of satisfactory evidence of the expenses incurred.
4. Term of Employment.
(a) Employment Term. The term of Employee's
employment under this Agreement shall be for a period of three years commencing
on the date of this Agreement and continuing from year to year thereafter,
unless and until terminated by either party giving written notice to the other
not less than 60 days prior to the end of the then-current term of Employee's
employment under this Agreement.
(b) Termination Under Certain Circumstances.
Notwithstanding anything to the contrary herein contained:
(i) Death. Employee's employment shall
automatically terminate, without notice, effective upon the date of Employee's
death.
(ii) Disability. If Employee shall fail, for
a period of more than 60 consecutive days, or for 60 days within any 180-day
period, to perform any of Employee's duties under this Agreement as the result
of illness or other incapacity, Employer, at its option and upon notice to
Employee, may terminate Employee's employment effective on the date of that
notice.
(iii) Unilateral Decision of Employer.
Employer, at its option and upon notice to Employee, may terminate Employee's
employment effective on the date of that notice.
(iv) Unilateral Decision by Employee.
Employee, at his option, may terminate Employee's employment upon 90 days prior
notice to Employer.
(v) Certain Acts. If Employee engages in an
act or acts involving a crime, moral turpitude, fraud, or dishonesty, Employer,
at its option and upon notice to Employee, may terminate Employee's employment
effective on the date of that notice.
(c) Result of Termination. In the event of the
termination of Employee's employment pursuant to Sections 4(b)(i), (ii), or (v)
above, Employee shall receive no further compensation under this Agreement. In
the event of the termination of Employee's employment pursuant to Section
4(b)(iii) above, Employee shall continue to receive Employee's fixed
compensation during the remainder of the then-current term of Employee's
employment under this Agreement prior to such termination if termination is
before the 24th month. After the 24th month and during any renewal term,
Employee shall have a rolling 12 month severance compensation. In the event of
the termination of Employee's employment pursuant to 4(b)(iv) above, Employee
shall be entitled to receive an amount equal to Employee's fixed salary as
provided in Section 3(a) above during the four-month period immediately
following the termination.
5. Competition and Confidential Information.
(a) Interests to be Protected. The parties
acknowledge that Employee will perform essential services for Employer, its
employees, and its stockholders during the term of Employee's employment with
2
<PAGE>
Employer. Employee will be exposed to, have access to, and work with, a
considerable amount of Confidential Information (as defined below). The parties
also expressly recognize and acknowledge that the personnel of Employer have
been trained by, and are valuable to, Employer and that Employer will incur
substantial recruiting and training expenses if Employer must hire new personnel
or retrain existing personnel to fill vacancies. The parties expressly recognize
that it could seriously impair the goodwill and diminish the value of Employer's
business should Employee compete with Employer in any manner whatsoever. The
parties acknowledge that this covenant has an extended duration; however, they
agree that this covenant is reasonable and it is necessary for the protection of
Employer, its stockholders, and employees. For these and other reasons, and the
fact that there are many other employment opportunities available to Employee if
he should terminate his employment, the parties are in full and complete
agreement that the following restrictive covenants are fair and reasonable and
are entered into freely, voluntarily, and knowingly. Furthermore, each party was
given the opportunity to consult with independent legal counsel before entering
into this Agreement.
(b) Non-Competition. During the term of Employee's
employment with Employer and for the period ending six months after the
termination of Employee's employment with Employer, provided termination is
pursuant to Section 4(b)(iv) (but 12 months if pursuant to Section 4(b)(ii) or
Section 4(b)(v)), Employee shall not (whether directly or indirectly, as owner,
principal, agent, stockholder, director, officer, manager, employee, partner,
participant, or in any other capacity) engage or become financially interested
in any competitive business conducted within the Restricted Territory (as
defined below). As used herein, the term "competitive business" shall mean any
business that sells or provides or attempts to sell or provide products or
services the same as or substantially similar to the products or services sold
or provided by Employer during Employee's employment hereunder, and the term
"Restricted Territory" shall mean any state in which Employer sells products or
provides services during Employee's employment hereunder. If termination of
employment pursuant to Section 4(b)(iii), then this Section is not applicable.
(c) Non-Solicitation of Employees. During the term of
Employee's employment and for a period of 12 months after the termination of
Employee's employment with Employee, regardless of the reason therefor, Employee
shall not directly or indirectly, for himself, or on behalf of, or in
conjunction with, any other person, company, partnership, corporation, or
governmental entity, seek to hire or hire any of Employer's personnel or
employees for the purpose of having any such employee engage in services that
are the same as or similar or related to the services that such employee
provided for Employer.
(d) Confidential Information. Employee shall maintain
in strict secrecy all confidential or trade secret information relating to the
business of Employer (the "Confidential Information") obtained by Employee in
the course of Employee's employment, and Employee shall not, unless first
authorized in writing by Employer, disclose to, or use for Employee's benefit or
for the benefit of, any person, firm, or entity at any time either during or
subsequent to the term of Employee's employment, any Confidential Information,
except as required in the performance of Employee's duties on behalf of
Employer. For purposes hereof, Confidential Information shall include without
limitation any materials, trade secrets, knowledge, or information with respect
to management, operational, or investment policies and practices of Employer;
any business methods or forms; any names or addresses of customers or data on
customers or suppliers; and any business policies or other information relating
to or dealing with the management, operational, or investment policies or
practices of Employer.
(e) Return of Books and Papers. Upon the termination
of Employee's employment with Employer for any reason, Employee shall deliver
promptly to Employer all files, lists, books, records, manuals, memoranda,
drawings, and specifications; all cost, pricing, and other financial data; all
other written or printed materials that are the property of Employer (and any
copies of them); and all other materials that may contain Confidential
Information relating to the business of Employer, which Employee may then have
in Employee's possession, whether prepared by Employee or not.
3
<PAGE>
(f) Disclosure of Information. Employee shall
disclose promptly to Employer, or its nominee, any and all ideas, designs,
processes, and improvements of any kind relating to the business of Employer,
whether patentable or not, conceived or made by Employee, either alone or
jointly with others, during working hours or otherwise, during the entire period
of Employee's employment with Employer or within six months thereafter.
(g) Assignment. Employee hereby assigns to Employer
or its nominee, the entire right, title, and interest in and to all inventions,
discoveries, and improvements, whether patentable or not, that Employee may
conceive or make during Employee's employment with Employer, or within six
months thereafter, and which relate to the business of Employer.
(h) Equitable Relief. In the event a violation of any
of the restrictions contained in this Section is established, Employer shall be
entitled to preliminary and permanent injunctive relief as well as damages and
an equitable accounting of all earnings, profits, and other benefits arising
from such violation, which right shall be cumulative and in addition to any
other rights or remedies to which Employer may be entitled. In the event of a
violation of any provision of subsection (b), (c), (f), or (g) of this Section,
the period for which those provisions would remain in effect shall be extended
for a period of time equal to that period beginning when such violation
commenced and ending when the activities constituting such violation shall have
been finally terminated in good faith.
(i) Restrictions Separable. If the scope of any
provision of this Agreement (whether in this Section 5 or otherwise) is found by
a Court to be too broad to permit enforcement to its full extent, then such
provision shall be enforced to the maximum extent permitted by law. The parties
agree that the scope of any provision of this Agreement may be modified by a
judge in any proceeding to enforce this Agreement, so that such provision can be
enforced to the maximum extent permitted by law. Each and every restriction set
forth in this Section 5 is independent and severable from the others, and no
such restriction shall be rendered unenforceable by virtue of the fact that, for
any reason, any other or others of them may be unenforceable in whole or in
part.
6. Miscellaneous.
(a) Notices. All notices, requests, demands, and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given, made, and received (i) if
personally delivered, on the date of delivery, (ii) if by facsimile
transmission, upon receipt, (iii) if mailed, three days after deposit in the
United States mail, registered or certified, return receipt requested, postage
prepaid, and addressed as provided below, or (iv) if by a courier delivery
service providing overnight or "next-day" delivery, on the next business day
after deposit with such service addressed as follows:
(1) If to Employer:
2401 West First Street
Tempe, Arizona 85281
Attention: Fred W. Wagenhals
4
<PAGE>
with a copy given in the manner
prescribed above, to:
O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears, P.A.
One East Camelback Road
Phoenix, Arizona 85012
Attention: Robert S. Kant, Esq.
(2) If to Employee:
5301 West WT Harris Boulevard
Charlotte, North Carolina 28269
with a copy given in the manner
prescribed above, to:
Gray, Layton, Drum, Kersh, Solomon,
Sigmon & Furr, P.A.
516 South New Hope Road
Gastonia, North Carolina 28053
Attention: David Furr, Esq.
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 6 for the giving of notice.
(b) Indulgences; Waivers. Neither any failure nor any
delay on the part of either party to exercise any right, remedy, power, or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power, or privilege preclude
any other or further exercise of the same or of any other right, remedy, power,
or privilege, nor shall any waiver of any right, remedy, power, or privilege
with respect to any occurrence be construed as a waiver of such right, remedy,
power, or privilege with respect to any other occurrence. No waiver shall be
binding unless executed in writing by the party making the waiver.
(c) Controlling Law. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement, shall be
governed by and construed in accordance with the laws of the state of Arizona,
notwithstanding any Arizona or other conflict-of-interest provisions to the
contrary.
(d) Binding Nature of Agreement. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors, and assigns, except that
no party may assign or transfer such party's rights or obligations under this
Agreement without the prior written consent of the other party.
(e) Execution in Counterpart. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This Agreement shall
become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as the
signatories.
5
<PAGE>
(f) Provisions Separable. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(g) Entire Agreement. This Agreement contains the
entire understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings, inducements and conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(h) Paragraph Headings. The paragraph headings in
this Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
(i) Gender. Words used herein, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine,
or neuter, as the context requires.
(j) Number of Days. In computing the number of days
for purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays, and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday, or holiday, then the final day shall be
deemed to be the next day that is not a Saturday, Sunday, or holiday.
7. Successors And Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto;
provided that because the obligations of Employee hereunder involve the
performance of personal services, such obligations shall not be delegated by
Employee. For purposes of this Agreement successors and assigns shall include,
but not be limited to, any individual, corporation, trust, partnership, or other
entity that acquires a majority of the stock or assets of Employer by sale,
merger, consolidation, liquidation, or other form of transfer. Employer will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and/or
assets of Employer to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Employer would be required to
perform it if no such succession had taken place. Without limiting the
foregoing, unless the context otherwise requires, the term "Employer" includes
all subsidiaries of Employer including SII.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ACTION PERFORMANCE COMPANIES, INC.
By:_____________________________________
Its:____________________________________
________________________________________
JOE MATTES
6
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Subsidiary State of Incorporation
- ---------- ----------------------
Sports Image, Inc. Arizona
Racing Collectibles, Inc. Florida
Racing Collectables Club of America, Inc. Florida
