Asset Purchase Agreement

ASSET PURCHASE AGREEMENT


This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of November 13, 1997, by and among Bollinger Industries, Inc., a Delaware corporation ("Parent"), NBF, Inc., a Georgia corporation and wholly owned subsidiary of Parent ("Seller"), and Hedstrom Corporation, a Delaware corporation ("Purchaser").


RECITALS:


A. Seller presently conducts the business (the "Business") of designing, manufacturing and marketing trampolines (the "Products"); and


B. Seller and Parent desire to sell, and Purchaser desires to purchase, certain assets, rights and properties of Seller and Parent used or useful in the operation of the Business and, in connection with such purchase and sale, Purchaser is willing to assume certain obligations and liabilities relating to the Business, all on the terms and subject to the conditions set forth in this Agreement.


NOW, THEREFORE, the parties hereto agree as follows:


ARTICLE I. PURCHASE OF ASSETS


I.1. Purchase and Sale of Assets. On the terms and subject to the conditions hereof and subject to Sections 1.2 and 1.3, at the Closing (as defined in Section 4.1), Seller and Parent will sell, transfer, convey, assign and deliver, and Purchaser will purchase and accept, all right, title and interest of Seller and Parent, respectively, in and to all rights, properties and assets of Seller and Parent, respectively, described in this Section 1.1, wherever located (collectively, the "Purchased Assets"), free and clear of all mortgages, liens, claims, charges, pledges, or other encumbrances of any nature whatsoever, including without limitation licenses, leases, chattel or other mortgages, collateral security arrangements, pledges, security interests, conditional and installment sales agreements or charges of any kind and other title or interest retention arrangements, reservations or limitations of any nature (collectively, "Encumbrances") other than Permitted Encumbrances (as defined in Section 5.1.9):


I.1.1. Inventories. All items of finished goods inventory of Seller (excluding trampoline products of forty-eight (48) or less inches), including, without limitation, all finished goods, component parts, samples and supply and packaging items (collectively, the "Inventories");


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I.1.2. Equipment. All spare parts, tools, machinery, equipment, and other tangible personal property listed or described on Schedule 1.1.2 (collectively, the "Equipment");


I.1.3. Manufacturers' and Vendors' Warranties. All rights under manufacturers' and vendors' warranties relating to items included in the Purchased Assets and all similar rights against third parties relating to items included in the Purchased Assets to the extent that such rights may be assigned or transferred to Purchaser (provided, however, that Parent and Seller shall use their commercially reasonable efforts to obtain prior to the Closing any consents, approvals and waivers necessary to assign or transfer any rights that are not freely assignable or transferrable);


I.1.4. Intellectual Property. All right, title and interest in and to all domestic and foreign letters patent, patents, patent applications, patent licenses, software licenses and know-how licenses, trade names, trademarks, registered copyrights, service marks, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications owned or used by Seller in the operation of the Business and all trade secrets, technical knowledge, know-how and other confidential proprietary information and related ownership, use and other rights of Seller, including but not limited to those listed or described on Schedule 1.1.4 (collectively, the "Intellectual Property") (provided, however, that the foregoing shall not include any right, title or interest in or to the name "Bollinger," the use of which by Purchaser shall be governed exclusively by a trademark license agreement substantially in the form attached hereto as Exhibit A to be executed and delivered by Parent, Seller and Purchaser at the Closing (the "Trademark License Agreement");


I.1.5. Books and Records. All the books and records of Seller and Parent relating primarily to the Purchased Assets, including without limitation all books and records relating to the purchase of materials, supplies and services, product engineering, research and development, manufacture and sale of products and all files and documents (including credit information) relating to customers and suppliers of the Business;


I.2. Excluded Assets. Notwithstanding anything contained in this Agreement to the contrary, none of the Inventories which have been transferred or consumed by Seller prior to the Closing in the ordinary course of the conduct of the Business consistent with past practice (collectively, the "Excluded Assets") shall be included in the Purchased Assets.


ARTICLE II. ASSUMPTION OF LIABILITIES


II.1. Assumed Liabilities. As of the Closing, Purchaser will assume and thereafter in due course pay and fully satisfy all liabilities and obligations of Seller in respect of the Product warranty and repair work obligations that arise after the Closing Date except to the extent that


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3 such obligations are required to be performed by Seller pursuant to the terms of a Supply and Services Agreement substantially in the form attached hereto as Exhibit B to be executed and delivered by Seller and Purchaser at the Closing (the "Supply and Services Agreement").


The liabilities and obligations assumed by Purchaser pursuant to this Section 2.1 are referred to herein as the "Assumed Liabilities."


II.2. Retained Liabilities. Notwithstanding anything contained in this Agreement to the contrary, Purchaser does not assume or agree to pay, satisfy, discharge or perform, and will not be deemed by virtue of the execution and delivery of this Agreement or any document delivered at the Closing pursuant to this Agreement, or as a result of the consummation of the transactions contemplated by this Agreement, to have assumed, or to have agreed to pay, satisfy, discharge or perform, any liability, obligation or indebtedness of Seller (including, without limitation, any liabilities or obligations with respect to defective products), whether primary or secondary, direct or indirect, other than the Assumed Liabilities (the "Retained Liabilities").


ARTICLE III. PURCHASE PRICE


III.1. Unadjusted Purchase Price. At the Closing, in addition to assuming the Assumed Liabilities, Purchaser will pay for the Purchased Assets and the covenants of Seller and Parent included herein an aggregate purchase price in the amount of $14,250,000 (the "Unadjusted Purchase Price"), subject to adjustment as provided in Section 3.2 (as adjusted, the "Purchase Price"), which amount shall be payable as follows:


(a) $13,250,000 of the Purchase Price (the "Cash Portion")
shall be paid to Seller by wire transfer of immediately available funds
to an account designated by Seller in writing;


(b) $1,000,000 of the Purchase Price (the "Escrow Portion")
shall be deposited with an escrow agent mutually acceptable to the
parties (the "Escrow Agent") pursuant to the terms of an escrow
agreement substantially in the form attached hereto as Exhibit C (the
"Escrow Agreement") to be executed by Parent, Seller, Purchaser and the
Escrow Agent on the Closing Date. The Escrow Portion of the Purchase
Price shall be held in, and released from, escrow in accordance with
the terms of the Escrow Agreement to secure Parent's and Seller's
indemnity obligations pursuant to Section 10.3; and


(c) any amounts payable after the Closing on account of
adjustments to the Unadjusted Purchase Price pursuant to Section 3.2
shall be paid by the party required to make such payment in the amount
and at the time specified in Section 3.2.


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III.2. Adjustment to Unadjusted Purchase Price for Changes in Inventories.


(a) The Unadjusted Purchase Price shall be adjusted following the Closing Date as follows:


(i) if the value of the Inventories (as set forth on
the Inventory Statement (as defined in Section 3.2(b)) as of the
Closing Date is less than $1,500,000, the Unadjusted Purchase Price
shall be decreased by an amount equal to such difference; and


(ii) if the value of the Inventories (as set forth on
the Inventory Statement) as of the Closing Date is greater than
$1,500,000, the Unadjusted Purchase Price shall be increased by an
amount equal to such difference;


provided, however, that in no event shall the Purchase Price, as adjusted pursuant to this Section 3.2, exceed $14,950,000 (the "Purchase Price Cap").


(b) As used herein, the term "Inventory Statement" shall mean the statement of Inventories of the Business to be prepared by Seller as of the Closing Date in accordance with this Section 3.2 and to be delivered to Purchaser at the Closing. The Inventory Statement shall (i) present the Inventories at the lower of cost or market (with adequate provision for excess, obsolete and distressed merchandise) and (ii) identify the locations of the Inventories. The quantity of the Inventories reflected on the Inventory Statement shall be based on the Physical Inventory described in Section 3.2(c) below.


(c) In connection with the preparation of the Inventory Statement, a physical inventory of all finished goods inventories (excluding trampoline products of forty-eight (48) inches or less), including, without limitation, all finished goods, component parts, samples and supply and packaging items, held by Seller shall be taken as of the Closing Date by Seller, at Seller's sole expense, and observed by Purchaser or its representatives (the "Physical Inventory"). Purchaser shall have the opportunity to examine the work papers, schedules and other documents prepared by Seller in connection with its preparation of the Inventory Statement. The Inventory Statement shall be final and binding on the parties, and the net amount of the adjustments set forth therein shall be paid by the party obligated to make such payment hereunder within thirty (30) days after delivery thereof to Purchaser, unless, within such thirty (30) day period notice is given by Purchaser to Seller of its objection setting forth in reasonable Purchaser's basis for objection. If notice of objection is given, the parties shall consult with each other with respect to the objection. Any amount that is not in dispute will be promptly paid by the party obligated to make such payment hereunder to the party entitled to receive such payment hereunder by wire transfer of immediately available funds. If the parties are unable to reach agreement within fifteen (15) days after the notice of objection has been given, the dispute shall be referred for resolution to the a "Big 6" accounting firm mutually acceptable to the parties (the "Accountants") as promptly as practicable. The Accountants will make a determination as to each of the items in dispute, which determination will be (i) in writing, (ii) furnished to each of the parties hereto as promptly as practicable after the items in dispute have been referred to the Accountants, (iii) made in accordance with this Agreement,


4 5 and (iv) conclusive and binding upon each of the parties hereto. In connection with their determination of the disputed items, the Accountants will be entitled to rely on the workpapers, trial balances and similar materials, if any, prepared by Seller's auditors in connection with such firm's examination of the financial statements of Seller, and the fees and expenses of the Accountants will be shared equally by Purchaser and Seller. Each of Purchaser and Seller shall use commercially reasonable efforts to cause the Accountants to render their decision as soon as practicable, including without limitation by promptly complying with all reasonable requests by the Accountants for information, books, records and similar items. Upon the final determination of the Accountants as to the disputed items, the net amount of the remaining adjustments shall be promptly paid by the party required to make such payment hereunder by wire transfer of immediately available funds.


III.3. Allocation of Purchase Price. Seller, Parent and Purchaser agree that the Purchase Price (including the Assumed Liabilities) shall be allocated among the Purchased Assets as set forth on Schedule 3.3 hereto, as the same may be adjusted after the Closing Date in connection with any adjustments to the Unadjusted Purchase Price pursuant to Section 3.2 (the "Allocation"). Seller, Parent and Purchaser agree to prepare and file all Tax Returns (as defined in Section 5.15) (including Form 8594) in a manner consistent with the Allocation. Seller, Parent and Purchaser agree to consult with each other with respect to all issues related to such Allocation in connection with any tax audits, controversy or litigation.


ARTICLE IV. THE CLOSING


IV.1. Date of Closing. The consummation of the purchase and sale of the Purchased Assets contemplated hereby (the "Closing") shall take place on November 21, 1997 at the offices of Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas (or at such other place as the parties may designate) or such other date designated by the parties in writing, after each of the conditions specified in Article VII has been fulfilled (or waived by the party entitled to waive that condition). The date on which the Closing is effected is referred to in this Agreement as the "Closing Date." At the Closing, the parties shall execute and deliver the documents referred to in Article VIII.


ARTICLE V. REPRESENTATIONS AND WARRANTIES


V.1. Representations and Warranties of Seller. Each of Seller and Parent, jointly and severally, makes the following representations and warranties to Purchaser, each of which is true and correct as of the date hereof and shall be true and correct as of the Closing Date and shall be unaffected by any investigation heretofore or hereafter made by Purchaser.


V.1.1. Organization and Good Standing. Seller and Parent are corpora- tions duly organized, validly existing and in good standing under the laws of the States of Georgia and Delaware, respectively. Each of Seller and Parent has the requisite corporate power and authority to own or otherwise hold the Purchased Assets owned or otherwise held by it and to carry on the Business as presently conducted by it.


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V.1.2. Authorization of Agreement; Binding Obligation. Each of Seller and Parent has the requisite corporate power to execute and to deliver this Agreement, the Escrow Agreement, the Supply and Services Agreement, a supplemental lockbox procedures letter agreement with Foothill Capital Corporation substantially in the form attached hereto as Exhibit D (the "Lockbox Letter Agreement") and the Trademark License Agreement (collectively, the "Transaction Documents") and to perform the transactions contemplated by the Transaction Documents to be performed by them. The execution and delivery by each of Seller and Parent of the Transaction Documents and the performance by them of the transactions contemplated by the Transaction Documents to be performed by them have been duly authorized by all necessary corporate and shareholder action on the part of Seller and Parent. This Agreement has been, and the Transaction Documents will be, duly executed and delivered by duly authorized officers of each of Seller and Parent and, assuming the due execution and delivery of the Transaction Documents by the other parties thereto, this Agreement constitutes, and the other Transaction Documents will constitute, valid and binding obligations of Seller and Parent enforceable against them in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).


V.1.3. No Restrictions Against Sale of the Purchased Assets; Required Consents. The execution and delivery of this Agreement by Seller and Parent does not and the execution and delivery of the other Transaction Documents by Seller and Parent will not, and the performance by Seller and Parent of the transactions contemplated by the Transaction Documents to be performed by them will not (a) conflict with the articles or certificate of incorporation or by-laws of either Seller or Parent, (b) conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a benefit under, any contract, permit, order, judgment or decree to which either Seller or Parent is a party or by which any of their properties are bound, (c) constitute a violation of any law or regulation applicable to either Seller or Parent, or (d) result in the creation of any Encumbrance upon any of the Purchased Assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any domestic or foreign court, government, governmental agency, authority, entity or instrumentality ("Governmental Entity") is required to be obtained or made by or with respect to Seller or Parent in connection with the execution and delivery of the Transaction Documents by Seller or Parent or the performance by Seller or Parent of the transactions contemplated by the Transaction Documents to be performed by either of them, except for such of the foregoing as are listed or described on Schedule 5.1.3 and any filings, if required, with the Federal Trade Commission and Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") or with the United States Securities and Exchange Commission pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended.


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V.1.4. No Third Party Options. There are no existing agreements with, options or rights of, or commitments to any person to acquire any of the Purchased Assets or any interest therein, except for those contracts entered into in the normal course of business consistent with past practice for the sale of Inventories.


V.1.5. Financial Statements. Attached hereto as Schedule 5.1.5 are true and complete copies of unaudited balance sheets of Seller at December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997 and the related statements of income for the periods then ended, all of which have been prepared in accordance with Seller's internal accounting procedures consistently applied throughout the periods involved. Such balance sheets, including the related notes, fairly present the financial position, assets and liabilities (whether accrued, absolute, contingent or otherwise) of Seller at the dates indicated and such statements of income fairly present the results of operations of Seller for the periods indicated. The unaudited financial statements as at and for the periods ending December 31, 1997, March 31, 1997, June 30, 1997 and September 30, 1997 contain all adjustments, which are solely of a normal recurring nature, necessary to present fairly the financial position and results of operations of Seller for the periods then ended.


V.1.6. Inventories. All Inventories (i) have been acquired and maintained in the ordinary course of the Business; (ii) are of good and merchantable quality; (iii) consist substantially of a quality, quantity and condition usable or saleable in the ordinary course of the Business; (iv) are valued at the lower of cost or market (with adequate provision for excess, obsolete and distressed merchandise); and (v) are not subject to any write-down or write-off.


V.1.7. Books of Account. The books, records and accounts of Seller maintained with respect to the Business accurately and fairly reflect, in reasonable detail, the transactions and the assets and liabilities of Seller with respect to the Business.


V.1.8. Contracts and Commitments. Except as described on Schedule 5.1.8, Seller is not a party to any written or oral:


(i) distribution, dealer, representative or sales agency agreement, contract or commitment relating to the Business;


(ii) lease under which Seller is either lessor or lessee relating to the Purchased Assets;


(iii) agreement, contract or commitment limiting or restraining Seller any successor thereto from engaging or competing in any manner in the Business, nor, to Seller's knowledge, is any employee of Seller engaged in the conduct of the Business subject to any such agreement, contract or commitment;


(iv) license, franchise, distributorship or other agreement


7 8 which relates in whole or in part to any software, patent, trademark, trade name, service mark or copyright or to any ideas, technical assistance or other know-how of or used by Seller in the conduct of the Business; or


(v) material agreement, contract or commitment relating to the Business not made in the ordinary course of business.


V.1.9. Title to Purchased Assets. Except for Encumbrances with respect to which duly executed releases, termination statements, or payoff letters in form and substance satisfactory to Purchaser have been delivered by Seller and Parent, as applicable, at the Closing pursuant to Section 8.1.7, Seller has, and following the Closing, Purchaser will have, good, valid and marketable title to the Purchased Assets free and clear of all Encumbrances, other than those listed or described on Schedule 5.1.9 ("Permitted Encumbrances").


V.1.10. Intellectual Property. Schedule 1.1.5 contains an accurate and complete list of all Intellectual Property owned or used by Seller in the operation of the Business. Except as set forth on Schedule 5.1.9, Seller owns the entire right, title and interest in and to the Intellectual Property (including, without limitation, the right to use and license the same). Except as set forth in Schedule 5.1.10, there are no pending, or to the knowledge of Seller, threatened actions of any nature affecting the Intellectual Property. Schedule 5.1.10 lists all notices or claims currently pending or received by Parent or Seller which claim infringement of any domestic or foreign letters patent, patent applications, patent licenses, software licenses and know-how licenses, trade names, trademark registrations and applications, service marks, copyrights, copyright registrations or applications, trade secrets, technical knowledge, know-how or other confidential proprietary information. Except as set forth on Schedule 5.1.10, there is, to the knowledge of Parent and Seller, no reasonable basis upon which any claim may be asserted against Parent or Seller for infringement or misappropriation of any domestic or foreign letters patent, patents, patent applications, patent licenses, software licenses, and know-how licenses, trade names, trademark registrations and applications, trademarks, service marks, copyrights, copyright registrations or applications, trade secrets, technical knowledge, know-how or other confidential proprietary information. Except as set forth on Schedule 5.1.10, all letters patent, registrations and certificates issued by any Governmental Entity relating to any of the Intellectual Property and all licenses and other agreements pursuant to which Seller uses any of the Intellectual Property, are valid and subsisting, have been properly maintained and neither Parent, Seller, nor to the knowledge of Parent or Seller, any other person, is in default or violation thereunder.


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V.1.11. Condition of Equipment. All the Equipment is in good operating condition and repair, subject to normal wear and maintenance, usable in the regular and ordinary course of business and conforms to all applicable laws, ordinances, codes, rules and regulations relating to their construction, use and operation.


V.1.12. Customers and Suppliers. Schedule 5.1.12 sets forth (a) a list of (i) the ten largest customers of Seller based on sales during the fiscal year ended March 31, 1997 and (ii) the ten largest customers of Seller based on sales during the 6 months ended September 30, 1997, showing the number and sales prices of units sold and the total sales by Seller to each such customer during the fiscal year ended March 31, 1997 and the 6 months ended September 30, 1997, respectively, and (b) a list of (i) the ten largest suppliers of Seller based on purchases during the fiscal year ended March 31, 1997, and (ii) the ten largest suppliers of Seller based on purchases during the 6 months ended September 30, 1997, showing the type, unit numbers and sales prices of goods purchased and the total amount of purchases by Seller from each such supplier during the fiscal year ended March 31, 1997, and the 6 months ended September 30, 1997, respectively. Except as described on Schedule 5.1.12, there has not been any adverse change in the business relationship of Seller with any customer or supplier named in Schedule 5.1.12, and Seller has no reason to believe that there will be any such adverse change in the future either as a result of the consummation of the transactions contemplated by this Agreement or otherwise. Except as described on Schedule 5.1.12, Seller has not prepared any "deal sheets" or "customer profiles" for, or made any similar arrangements with, any customer identified on Schedule 5.1.12 or amended or changed any of such "deal sheets" or arrangements.


V.1.13. Litigation; Decrees. (a) There are no judicial or administrative actions, proceedings or investigations pending or, to Parent's or Seller's knowledge, threatened that question the validity of the Transaction Documents or any action taken or to be taken by Parent or Seller in connection with the Transaction Documents. Except as listed or described on Schedules 5.1.13(a), there are no (i) lawsuits, claims, administrative or other proceedings or investigations relating to the Business, the Products or the Purchased Assets pending or, to Parent's or Seller's knowledge, threatened by, against or affecting Parent or Seller or any Affiliate (as defined in Section 12.18) thereof or (ii) judgments, orders or decrees of any Governmental Entity binding on the Business, the Products or the Purchased Assets.


(b) Without limiting the generality or effect of any other provision hereof, (i) all claims or allegations asserted since May 1, 1994 that any Product was defective or caused any injury or harm to any person, including, without limitation, all such claims and allegations relating to any failure to warn, breach of warranties of merchantability or fitness for any purpose or use or similar matters are described on Schedule 5.1.13(b) and (ii) to Parent's and Seller's knowledge, no basis exists for any person to make any such claim except as so described.


(c) The statements of income described in Section 5.1.5 properly reflect the


9 10 costs and expenses for returns and warranty claims relating to the Business and Products for the periods covered by such statements. Schedule 5.1.13(c) reflects accurate summaries of returns and return allowances for each of K-Mart and WalMart. Neither Parent nor Seller has any knowledge of any facts or circumstances that could give rise to return and warranty claims relating to the Business or the Products ...