ASSET PURCHASE AGREEMENT
DATED AS OF NOVEMBER 7, 1996
AMONG
ACTION PERFORMANCE COMPANIES, INC.,
SII ACQUISITION, INC.,
SPORTS IMAGE, INC., AND
R. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ AND
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
TABLE OF CONTENTS
Page
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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. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ (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.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇), (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,
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 ▇▇▇▇▇ &
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 ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇▇, 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
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 ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ 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.
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(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.
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(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.
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(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.
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SECTION 5
GENERAL
5.1 Costs and Indemnity Against Finders. Each party hereto
shall be responsible for its own costs and expenses in negotiating and
performing this Agreement and hereby indemnifies and holds the other parties
harmless against any claim for finders' fees based on alleged retention of a
finder by it.
5.2 Controlling Law. This Agreement and all questions relating
to its validity, interpretation, performance, and enforcement shall be governed
by and construed in accordance with the laws of the state of Arizona,
notwithstanding any Arizona or other conflict-of-law provisions to the contrary.
5.3 Notices. All notices, requests, demands, and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received when delivered
against receipt or when deposited in the United States mails, first class
postage prepaid, addressed as set forth below:
If to Buyer or Designated Subsidiary: If to Seller or Shareholder:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Attention: R. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
with a copy given in the manner with a copy given in the manner
prescribed above, to: prescribed above, to:
▇'▇▇▇▇▇▇, Cavanagh, Anderson, Gray, Layton, Drum, Kersh, Solomon,
▇▇▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.A. ▇▇▇▇▇▇ & ▇▇▇▇, P.A.
One East Camelback Road ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq. Attention: ▇▇▇▇▇ ▇▇▇▇, Esq.
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.
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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. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
__________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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