-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MU3m+1+CnvBtejj7fOuZATmTLqy1x8QxMF1CXkgbrbLuKAR3pr4rakfWZ2QFWl4L gIqlV80pT1ViB4tBv6/jjQ== 0001144204-03-002903.txt : 20030529 0001144204-03-002903.hdr.sgml : 20030529 20030529151301 ACCESSION NUMBER: 0001144204-03-002903 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20030529 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTION PRODUCTS INTERNATIONAL INC CENTRAL INDEX KEY: 0000747435 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 592095427 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-105641 FILM NUMBER: 03723431 BUSINESS ADDRESS: STREET 1: 344 CYPRESS RD CITY: OCALA STATE: FL ZIP: 34472-3108 BUSINESS PHONE: 3526872202 MAIL ADDRESS: STREET 1: 344 CYPRESS ROAD CITY: OCALA STATE: FL ZIP: 34472-3108 FORMER COMPANY: FORMER CONFORMED NAME: ACTION PACKETS INC DATE OF NAME CHANGE: 19880818 S-3 1 s-3.txt AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 2003 REGISTRATION STATEMENT NO. 333-_______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ ACTION PRODUCTS INTERNATIONAL, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter)
FLORIDA 59-2095427 - ------------------------------------------------------------- -------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) ROBERT L. BURROWS, CFO ACTION PRODUCTS INTERNATIONAL, INC. 390 N. ORANGE AVE., SUITE 2185 390 N. ORANGE AVE., SUITE 2185 ORLANDO, FLORIDA 32801 ORLANDO, FLORIDA 32801 (407) 481-8007 (407) 481-8007 ------------------------------------------------------------ ----------------------------------------- (Address, including zip code, and telephone (Name, address, including zip code, and number, including area code, of registrant's telephone number, including area code, of principal executive offices) agent for service)
------------------ With copies to: JAMES G. SMITH, ESQ. RAICE PAYKIN & KRIEG, LLP 185 MADISON AVENUE, 10TH FLOOR NEW YORK, NY 10016 (212) 725-4423 ------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: |X| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: |_|_____ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: |_|_____ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box:|_| ------------------
CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TO BE OFFERING PRICE AGGREGATE REGISTRATION TITLE OF EACH CLASS OF SECURITIES BEING REGISTERED REGISTERED PER SECURITY(1)OFFERING PRICE(1) FEE - --------------------------------------------------------------------------------------------------------------------------------- Common Stock underlying $2.00 warrant..................... 60,000 $ 2.00 $120,000 Total......................................................................................... $120,000 $10 - ---------------------------------------------------------------------------------------------------------------------------------
(1) For purposes of calculating the registration fee for the common stock underlying the warrant, based on the exercise price of the warrant pursuant to Rule 457(g) under the Securities Act. THIS REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8, MAY DETERMINE. ================================================================================ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED MAY 29, 2003 PROSPECTUS 60,000 SHARES OF COMMON STOCK ACTION PRODUCTS INTERNATIONAL, INC. -------------------------------------------- CEOCast, Inc. may, from time to time, offer and sell up to 60,000 shares of our common stock issuable upon exercise of an outstanding warrant. The prices at which the selling shareholder may sell its shares will be determined by the prevailing market price for its shares or in negotiated transactions. We will not receive any of the proceeds from the sale of the common stock being offered by this prospectus. Our common stock is listed on the Nasdaq SmallCap Market under the symbol "APII." On May 27, 2003, the last reported sale price of the common stock on the Nasdaq SmallCap Market was $1.68 per share. --------------------------- INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 5. --------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------------- The date of this Prospectus is May , 2003 TABLE OF CONTENTS PAGE Special Note Regarding Forward-Looking Statements............................ 2 Where You Can Find More Information About Us................................. 2 Prospectus Summary........................................................... 3 Risk Factors................................................................. 5 Use of Proceeds.............................................................. 10 Selling Shareholder.......................................................... 10 Plan of Distribution......................................................... 10 Legal Matters................................................................ 11 Experts .................................................................... 11 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling shareholder is offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus. References in this prospectus to "we", "us", "our" and similar terms means Action Products International, Inc., a Florida corporation. 1 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Our Company," "Risk Factors" and elsewhere in this prospectus are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by those forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of those terms or other comparable words. We believe that the expectations reflected in the forward-looking statements are reasonable, but we cannot guarantee future results, levels of activity, performance, or achievements. We do not promise to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus may not occur. WHERE YOU CAN FIND MORE INFORMATION ABOUT US We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file with the Commission at the Public Reference Room at the Commission, located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information concerning the Public Reference Room. The Commission also makes these documents and other information available on its web site at http://www.sec.gov. We have filed with the Commission a registration statement on Form S-3 under the Securities Act of 1933, as amended, relating to the common stock offered by this prospectus. This prospectus is a part of the registration statement but does not contain all of the information in the registration statement and its exhibits. For further information, we refer you to the registration statement and its exhibits. The Commission allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to another document we have filed with the Commission. The information incorporated by reference is an important part of this prospectus and information that we file later with the Commission will automatically update and supersede this information. We incorporate by reference the following: o our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 filed with the Commission on March 26, 2003, as amended on March 31, 2003; o our Proxy Statement filed with the Commission on May 7, 2003; o our Quarterly Report on Form 10-QSB for the quarter year ended March 31, 2003 filed with the Commission on April 30, 2003; o any future filings we make with the Commission until the selling shareholder sells all of the common stock offered by it by this prospectus. You may request a copy of these filings, at no cost, by writing or telephoning us at Action Products International, Inc., Attn: Investor Relations, 390 N. Orange Ave., Suite 2185, Orlando, Florida 32801, (407) 481-8007. 2 - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY OUR COMPANY We are a brand-focused, educational toy company. We design, manufacture and market a diversified portfolio of educational and non-violent brands of toy products, to various retailing channels such as toy stores, specialty retailers, education outlets, museums, and attractions in the United States and throughout the world. Our revenues for the twelve months ended December 31, 2002 and the three months ended March 31, 2003 were approximately $6,429,000 and $1,385,000, respectively. We incurred net losses for the twelve months ended December 31, 2002 and the three months ended March 31, 2003 of approximately $1,306,000 and $130,000, respectively. We were originally incorporated, and began our operations, in New York in 1977, and relocated and re-incorporated in Florida in 1980 as a distributor of education oriented toys and children's books, stationery and souvenirs, supplying museum gift shops. Under new executive leadership, a new business model was developed and implemented around our toy and publishing businesses. From 1997 through 2002 we successfully developed or acquired and brought to market a core portfolio of proprietary branded product lines to replace sales of divested non-core lines. Our first internally-developed proprietary toy brand, Space Voyagers(R), generated approximately $1.0 million in its first full year on the market. During the past three fiscal years, we have continued to develop other new proprietary products through internal development, licensing and acquisition. In October 2002 we began shipping our newest brand, Jay Jay The Jet Plane(TM), based on a PBS television show, videos and children's books of the same name. Our business model is based on the expansion of core brands, while developing new brands through internal product development, favorable licensing agreements and prudent acquisitions. Our growth strategy is based on diversifying distribution channels, while creating and increasing brand equity. We sell our educational toy product lines under the umbrella name "Action Products(TM)." Our marketing and promotion communications focus on our individual brands such as, Space Voyagers(R), Climb@tron(TM), I DIG DINOSAURS(R), Woodkits(TM), Drop Zone Extreme(R), Play & Store(TM) and Jay Jay The Jet Plane(TM). Products include action figures, play-sets, activity kits and various other toys with a strategic emphasis on non-violent and educational and fun topics such as space, dinosaurs, science, and nature. The EarthLore(R) I DIG DINOSAURS(R) brand acquired in October 2000 continues to grow in popularity and contributed over $1.5 million to net sales in 2002. The introduction of the new Jay Jay The Jet Plane(TM) brand in the fourth quarter 2002 added another $0.4 million in net sales. Our other brands including Drop Zone Extreme(TM), Space Voyagers(R) and Play & Store(TM) contributed the remaining $4.5 million net sales in 2002. In addition to the development of internal brands, we actively pursue prudent acquisition opportunities and licensing arrangements. On October 2000, we acquired certain assets of Earth Lore Ltd., an award-winning, privately held Canada-based maker of popular educational excavation kits for children. The acquisition provided us with an appropriate product line extension, and channels of distribution that complemented our existing bases. In 2001, we acquired a license agreement with the developers of the PBS children's show Jay Jay The Jet Plane(TM) to develop and launch our new Wooden Adventure System(TM) based on the episodes, videos and books of this popular children's series. We launched this product line in the fourth quarter 2002 to popular reception from trade and consumers. Our mailing address and telephone number of our principal executive offices are Action Products International, Inc., 390 N. Orange Ave., Suite 2185, Orlando, Florida 32801, (407) 481- 8007. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- RECENT EVENTS On April 24, 2003, our Board of Directors declared a warrant dividend so that our shareholders will receive, for each Action Products common share owned as of June 12, 2003, one warrant. Each warrant will entitle the holder to purchase one share of Action Products common stock for $2.00. The warrants will be exercisable for one year after they are issued. THE OFFERING
Securities Offered: 60,000 shares of common stock issuable upon exercise of an outstanding warrant. Common Stock Currently outstanding: 3,100,065 shares After exercise of the warrant: 3,160,065 shares Shares being offered as a percent of total outstanding shares 2% Common Stock Market Symbol: Nasdaq SmallCap Market - "APII" Use of Proceeds: The selling shareholder will receive the net proceeds from the sale of the shares. We will receive none of the proceeds from the sale of the shares offered by this prospectus. Proceeds from the exercise of the warrant will be used for general corporate purposes. Risk Factors: An investment in the shares involves a high degree of risk. See "Risk Factors" commencing on the next page.
- -------------------------------------------------------------------------------- 4 RISK FACTORS You should carefully consider the risks described below before making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to any of these risks and you may lose all or part of your investment. RISKS ASSOCIATED WITH OUR BUSINESS WE INCURRED SIGNIFICANT NET LOSSES IN FISCAL 2002 AND 2001. IF WE CONTINUE TO INCUR NET LOSSES, OUR ABILITY TO SATISFY OUR CASH REQUIREMENTS MAY BE MORE DIFFICULT. We incurred net losses of approximately $1.3 million and $0.5 million in fiscal 2002 and 2001. There can be no assurance that we will return to profitability in the future. If we fail to generate operating income and net income, we could have difficulty meeting our working capital requirements. WE HAVE SUBSTANTIAL CASH REQUIREMENTS AND MAY REQUIRE ADDITIONAL SOURCES OF FUNDS. ADDITIONAL SOURCES OF FUNDS MAY NOT BE AVAILABLE OR AVAILABLE ON REASONABLE TERMS. We have substantial cash requirements in connection with our operations and debt service obligations. In addition, new product development, which is key to the success of our business, is cash intensive. If the cash we generate from our operations or from our other sources is not available when needed or is insufficient to satisfy our requirements, we may require additional sources of funds. Our credit facility matures in June 2003. While we intend to renew that credit facility, we cannot assure you that we will be able to do so on acceptable terms or at all. We also cannot assure you that any other required additional sources of funds would be available or available on reasonable terms. If we do not generate sufficient amounts of capital to meet our cash requirements at the times and on the terms required by us, our business will be adversely affected. CHANGING CONSUMER PREFERENCES MAY NEGATIVELY IMPACT OUR PRODUCT LINES. As a result of changing consumer preferences, many toys are successfully marketed for only one or two years, if at all. We cannot assure you that any of our current successful products or product lines will continue to be popular with consumers for any significant period of time, or that new products and product lines will achieve an acceptable degree of market acceptance, or that if such acceptance is achieved, it will be maintained for any significant period of time. Our success is dependent upon our ability to enhance existing product lines and develop new products and product lines. The failure of our new products and product lines to achieve and sustain market acceptance and to produce acceptable margins could have a material adverse effect on our financial condition and results of operations. WE MAY NEED ADDITIONAL FINANCING. Effective March 22, 2001, we entered into an agreement with Citrus Bank, pursuant to which Citrus Bank provides us with a revolving line of credit for up to $2.0 million as described in the agreement. The borrowings under the line of credit are utilized to finance accounts receivable, inventory and other operating and capital requirements. This line of credit matures June 30, 2003 and contains covenants relating to our financial condition. If we fail to maintain compliance with the financial covenants contained in the line of credit, the maturity date could be accelerated. OUR CUSTOMERS' INVENTORY MANAGEMENT SYSTEMS MAY CAUSE US TO PRODUCE EXCESS INVENTORY THAT MAY BECOME OBSOLETE AND INCREASE OUR INVENTORY CARRYING COSTS. Most of our largest retail customers utilize an inventory management system to track sales of products and rely on reorders being rapidly filled by us and other suppliers, rather than maintaining large product inventories. These types of systems put pressure on suppliers like us to promptly fill customer orders and also shift some of the inventory risk from the retailer to suppliers. Production of excess inventory by us to meet anticipated retailer demand could result in our carrying obsolete inventory and increasing our inventory carrying costs. Similarly, if we fail to predict consumer demand for a product, we may not 5 be able to deliver an adequate supply of products on a timely basis and will, as a result, lose sales opportunities. RETURNS AND MARKDOWNS COULD IMPACT OUR REVENUES. As is customary in the toy industry, we have historically permitted, on a minimum basis, certain customers to return slow-moving items for credit. We expect that we will continue to make such accommodations in the future. Any significant increase in the amount of returns could have a material adverse effect on our financial condition and results of operations. THERE ARE RISKS RELATED TO OUR ACQUISITION STRATEGY. We may, from time to time, evaluate and pursue acquisition opportunities on terms management considers favorable. A successful acquisition involves an assessment of the business condition and prospects of the acquisition target, which includes factors beyond our control. This assessment is necessarily inexact and its accuracy is inherently uncertain. In connection with such an assessment, we perform a review we believe to be generally consistent with industry practices. This review, however, will not reveal all existing or potential problems, nor will it permit us to become sufficiently familiar with the acquisition target to assess fully its deficiencies. We cannot assure you that any such acquisition would be successful or that the operations of the acquisition target could be successfully integrated with our operations. Any unsuccessful acquisition could have a material adverse effect on our financial condition and results of operations. WE ARE DEPENDENT ON CONTRACTS WITH MANUFACTURERS, MOST OF WHICH ARE SHORT-TERM. We conduct substantially all of our manufacturing operations through contract manufacturers, many of which are located in the People's Republic of China (PRC), Hong Kong, Singapore and Taiwan. We generally do not have long-term contracts with our manufacturers. Foreign manufacturing is subject to a number of risks including, but not limited to, o transportation delays and interruptions, o political and economic disruptions, o the impositions of tariffs and import and export controls, and o changes in governmental policies. While we have not experienced any material adverse effects due to such risks to date, we cannot assure you that such events will not occur in the future and possibly result in increases in costs and delays of, or interferences with, product deliveries resulting in losses of sales and goodwill. WE ARE DEPENDENT ON INTELLECTUAL PROPERTY RIGHTS AND CANNOT ENSURE THAT WE WILL BE ABLE TO SUCCESSFULLY PROTECT SUCH RIGHTS. We rely on a combination of trademark, copyright, patent and other proprietary rights laws to protect our rights to valuable intellectual property related to our brands. We also rely on license and other agreements to establish ownership rights and to maintain confidentiality. We cannot assure you that such intellectual property rights can be successfully asserted in the future or that they will not be invalidated, circumvented or challenged. In addition, laws of certain foreign countries in which our products are sold, or in which we operate, do not protect intellectual property rights to the same extent as the laws of the U.S. The failure to protect our proprietary information and any successful intellectual property challenges or infringement proceedings against us could have a material adverse affect on our business, financial condition or results of operations. THERE ARE SPECIFIC RISKS ASSOCIATED WITH INTERNATIONAL SALES. We have sold products to customers in the United Kingdom, Canada, Korea, Japan, Australia and New Zealand. We expect to augment our presence in international markets. Accordingly, our business, and our ability to expand our operations internationally, is subject to various risks inherent in international business activities. We may have difficulty in safeguarding our intellectual property in countries where intellectual property laws are not well developed or are poorly enforced. General economic conditions and political conditions of various countries may be subject to severe fluctuations at any time. Such 6 fluctuations could hinder our performance under contracts in those countries or could hinder our ability to collect for product and services delivered in those countries. Unexpected changes in foreign regulatory requirements could also make it difficult or too costly for us to conduct business internationally. In addition, although we have normally been successful in stipulating that our foreign customers pay in U.S. dollars, any payment provisions involving foreign currencies may result in less revenue than expected due to foreign currency rate fluctuations. Other risks associated with international operations include o import and export licensing requirements, o trade restrictions, o changes in tariff rates, o overlapping tax structures, o transportation delays, o currency fluctuations, o potentially adverse tax consequences, and o compliance with a variety of foreign laws and regulations. Any of the foregoing factors could have a material adverse effect on our ability to expand our international sales. Increased exposure to international markets creates new areas with which we may not be familiar and could place us in competition with new vendors. We cannot assure you that we will be successful in our efforts to compete in these international markets. WE FACE POTENTIAL LIABILITY FROM PRODUCT SAFETY CLAIMS. Products that have been or may be developed or sold by us may expose us to potential liability from personal injury or property damage claims by end-users of such products. We have never been and are not presently a defendant in any product liability lawsuit; however, we cannot assure you that such a suit will not be brought against us in the future. We currently maintain product liability insurance coverage in the amount of $1.0 million per occurrence, with a $2.0 million excess umbrella policy. We cannot assure you that we will be able to maintain such coverage or obtain additional coverage on acceptable terms, or that such insurance will provide adequate coverage against all potential claims. Moreover, even if we maintain adequate insurance, any successful claim could materially and adversely affect our reputation and prospects, and divert management's time and attention. The U.S. Consumer Products Safety Commission, or CPSC, has the authority under certain federal laws and regulations to protect consumers from hazardous goods. The CPSC may exclude from the market goods it determines are hazardous, and may require a manufacturer to repurchase such goods under certain circumstances. Some state, local and foreign governments have similar laws and regulations. In the event that such laws or regulations change or we are found in the future to have violated any such law or regulation, the sale of the relevant product could be prohibited and we could be required to repurchase such products. WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENTAL REGULATION. In the U.S., we are subject to the provisions of, among other laws, the Federal Consumer Product Safety Act and the Federal Hazardous Substances Act. These acts empower the CPSC to protect the public against unreasonable risks of injury associated with consumer products, including toys and other articles. The CPSC has the authority to exclude from the market articles, which are found to be hazardous and can require a manufacturer to repair or repurchase such toys under certain circumstances. Any such determination by the CPSC is subject to court review. Violations of these acts may also result in civil and criminal penalties. Similar laws exist in some states and cities in the U.S. and in many jurisdictions throughout the world. We maintain a quality control program, including the retention of independent testing laboratories, to ensure compliance with applicable laws. We believe we are currently in substantial compliance with these laws. In general, we have not experienced difficulty complying with such regulations, and compliance has not had an adverse effect on our business. 7 THERE ARE RISKS RELATED TO OUR CUSTOMERS' PAYMENT TERMS. The majority of our customers receive trade terms to which payments for products are delayed for up to 30 days and some receive up to 90 days, pursuant to various sales promotion programs. To reduce our exposure to uncollectible accounts receivable, in March 2001 we secured a business credit insurance policy to guarantee the majority of our accounts receivable. Although we have secured such a policy, the insolvency or business failure of one or more of our customers with large accounts receivable could have a material adverse affect on our future sales. SEASONALITY MAY AFFECT OUR RESULTS OF OPERATIONS. Our sales have historically been seasonal in nature, reflecting peak sales in the third and fourth quarters and slower sales in the first and second quarters. RISKS ASSOCIATED WITH INVESTING IN US WE EXPECT OUR STOCK PRICE TO BE VOLATILE. The market price of the shares of our common stock has been, and will likely continue to be, subject to wide fluctuations in response to several factors, such as o actual or anticipated variations in our results of operations, o new services or product introductions by us or our competitors, o changes in financial estimates by securities analysts, and o conditions and trends in the consumer toy industry. The stock markets generally, and the Nasdaq SmallCap Market in particular, have experienced extreme price and volume fluctuations that have particularly affected the market prices of equity securities of many companies and that often have been unrelated or disproportionate to the operating performance of those companies. These market fluctuations, as well as general economic, political and market conditions such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. IF OUR COMMON STOCK IS DELISTED FROM NASDAQ, LIQUIDITY IN OUR COMMON STOCK WILL LIKELY BE ADVERSELY AFFECTED. Our common stock is listed for trading on the Nasdaq SmallCap Market. In order to continue to be listed on Nasdaq, however, we must meet certain criteria, including one of the following o maintaining $2,500,000 in shareholders' equity, o having a market capitalization of at least $35,000,000, or o generating net income of $500,000. In addition, the minimum bid price of our common stock must be at least $1.00 per share and the market value of the public float must be at least $1,000,000. On May 20, 2003, our bid price was $1.56. The dilution to our shareholders which could be caused by the additional shares of our common stock being sold into the market could cause the per share value of our common stock to drop below the minimum bid price of $1.00. As of March 31, 2003, we had shareholders' equity of $2,736,200 but did not satisfy the requirements for market capitalization or net income. The failure to meet Nasdaq's maintenance criteria may result in the delisting of our common stock from Nasdaq, and trading, if any, in our securities would thereafter be conducted in the non-Nasdaq over-the- counter market. As a result of such delisting, you could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our securities. IF OUR COMMON STOCK IS DELISTED FROM NASDAQ, OUR COMMON STOCK MAY BECOME SUBJECT TO THE PENNY STOCK RULES. Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 other than securities registered on certain national securities exchanges or quoted on Nasdaq provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. 8 The rules require that, prior to a transaction in a penny stock not otherwise exempt from the rules, the broker-dealer must o deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market, o provide the customer with current bid and offer quotations for the penny stock, o disclose the compensation of the broker-dealer and its salesperson in connection with the transaction, o provide the customer monthly account statements showing the market value of each penny stock held in the customer's account, and o make a special written determination that the penny stock is a suitable investment for the customer and receive the customer's written agreement to the transaction. These disclosure requirements may have the effect of reducing the liquidity of penny stocks. If our securities are subject to the penny stock rules, you may find it more difficult to sell your shares of our common stock. OUR OFFICERS AND DIRECTORS CONTROL A LARGE PERCENTAGE OF OUTSTANDING STOCK AND MAY BE ABLE TO EXERCISE SIGNIFICANT CONTROL. Our current officers and directors beneficially own approximately 59% of our common stock on a fully diluted basis. As a result, current management will be able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION OF US AT A PREMIUM PRICE. Certain provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects and may delay, defer or prevent a take-over attempt of us. We are subject to the "affiliated transactions" and "control share acquisition" provisions of the Florida Business Corporation Act. These provisions require, subject to certain exceptions, that an "affiliated transaction" be approved by the holders of two-thirds of the voting shares other than those beneficially owned by an "interested shareholder" or by a majority of disinterested directors. Voting rights must also be conferred on "control shares" acquired in specific control share acquisitions. Lastly, our articles of incorporation authorize the issuance of up to 10,000,000 shares of preferred stock with such rights and preferences as may be determined form time to time by our board, of which all shares remain without designation and available for issuance. We include such preferred stock in our capitalization in order to enhance our financial flexibility. However, the issuance of large blocks of preferred stock may have a dilutive effect with respect to existing holders of our common stock. WE DEPEND ON KEY PERSONNEL. Our success largely depends on a number of key employees. The loss of services of one or more of these employees could have a material adverse effect on our business. We are especially dependent upon the efforts and abilities of certain of our senior management, particularly Ronald S. Kaplan, our President and Chief Executive Officer. Currently, we do not maintain key man life insurance on Mr. Kaplan or any other executive officer. We believe that our future success will also depend, in part, upon our ability to attract, retain and motivate qualified personnel. We cannot assure you, however, that we will be successful in attracting and retaining such personnel. WE DO NOT PLAN TO PAY CASH DIVIDENDS. We expect that we will retain all available earnings generated by our operations for the development and growth of our business. Accordingly, we do not anticipate paying any cash dividends on our common stock. THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK OR THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS WILL DILUTE THE INTERESTS OF OUR SHAREHOLDERS. As of May 20, 2003, we had 3,100,065 shares of our common stock outstanding. Our board has the ability, without further shareholder approval, to issue up to approximately 11,900,000 additional shares of common stock. Such issuance 9 may result in a reduction of the book value or market price of our outstanding common shares. Issuance of additional common stock will reduce the proportionate ownership and voting power of the then existing shareholders. Further, if all our outstanding options and warrants are exercised, we will have approximately 3,626,000 shares outstanding. Thus, the percentage of shares owned by all existing shareholders will be reduced proportionately as options and warrants are exercised. USE OF PROCEEDS All of the shares of common stock offered by this prospectus are being offered by the selling shareholder listed under "Selling Shareholder." We will not receive any proceeds from sales of common stock by the selling shareholder. Proceeds from the exercise of the warrant will be used for general corporate purposes. SELLING SHAREHOLDER On May 15, 2003, we entered into an agreement with CEOCast, Inc., the selling shareholder. CEOCast will provide us with certain investor relations and related services for three months. As consideration for these services, we will pay CEOCast $7,500 per month plus a warrant to purchase 60,000 shares of our common stock at $2.00 per share. The following table sets forth information as of May 20, 2003 about the selling shareholder and the number of shares of common stock beneficially owned by the selling shareholder, all of which are offered by this prospectus. For purposes of computing the number and percentage of shares beneficially owned by the selling shareholder on May 20, 2003, any shares which such person has the right to acquire within 60 days after such date are deemed to be outstanding:
SHARES OWNED UPON PERCENT SHARES BEING PERCENT OWNED COMPLETION OWNED AFTER NAME OF SELLING SHAREHOLDER OFFERED BEFORE OFFERING OF OFFERING OFFERING --------------------------- --------- ---------------- ------------ --------- CEOCast, Inc. 60,000 (1) 1.6% 0 0 --- TOTAL 60,000 1.6% 0 0
(1) Represents 60,000 shares underlying a warrant exercisable at $2.00 per share. PLAN OF DISTRIBUTION The selling shareholder may sell the common stock being offered by this prospectus from time to time directly to other purchasers, or to or through dealers or agents. The selling shareholder will act independently of us in making decisions regarding the timing, manner and size of each sale. It may sell its common stock in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The sales may be made in transactions (which may involve crosses or block transactions) o on any exchange or market on which the common stock may be listed or quoted at the time of sale, o in the over-the-counter market, o in negotiated transactions, or o through the writing of options. In connection with sales of the common stock, the selling shareholder may enter into hedging transactions with broker-dealers, and those broker-dealers may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling shareholder may also sell short the common stock and deliver the common stock offered by this prospectus to 10 close out such short positions, or lend or pledge such common stock to broker-dealers that in turn may sell such securities. The selling shareholder and any brokers, dealers or agents described above may be deemed "underwriters" as that term is defined by the Securities Act. The selling shareholder and any other persons participating in a distribution of securities will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, that may limit the timing of purchases and sales of securities by the selling shareholder and others participating in a distribution of securities. In addition, under Regulation M, those engaged in a distribution of securities may not at the same time make a market in the securities or take other actions that may affect the market price of the securities for a specified period of time before the beginning of the distribution, subject to some exceptions or exemptions. All of the restrictions described above may affect the marketability of the securities offered by this prospectus. The selling shareholder has advised us that it has not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of its shares underlying the warrant. If a dealer is used in the sale of any common stock where this prospectus is delivered, the selling shareholder may sell the common stock to the public at varying prices to be determined by the dealer at the time of resale. In connection with the sale of common stock, dealers or agents may receive discounts, concessions, or commissions from the selling shareholder or from purchasers of the common stock for whom they may act as agents. Agents and dealers participating in the distribution of the common stock may be deemed to be underwriters, and any compensation received by them and any profit on the resale of common stock by them may be deemed to be underwriting discounts or commissions under the Securities Act. Under the registration rights agreement between us and the selling shareholder, we have agreed to pay costs and expenses associated with the registration of the shares of common stock to be sold by this prospectus. In addition, the selling shareholder may be entitled to indemnification against certain liabilities under the registration rights agreement. We will make copies of this prospectus available to the selling shareholder and have informed the selling shareholder of the need to deliver a copy of this prospectus to each purchaser before or at the time of such sale. LEGAL MATTERS The validity of the issuance of shares of common stock offered by this prospectus will be passed upon for us by Raice Paykin & Krieg, LLP. Elissa Paykin, the spouse of one of the partners of the firm, owns 237,254 shares of our common stock. Ms. Paykin is the sister of Ronald Kaplan, a director and our President and Chief Executive Officer, and is the daughter of two of our directors, Warren and Judith Kaplan. EXPERTS Our consolidated balance sheet as of December 31, 2002 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2002 have been incorporated by reference in this prospectus and in 11 the registration statement in reliance on the report of Moore Stephens Lovelace, P.A., independent auditors, given upon the authority of that firm as experts in accounting and auditing. 12 ACTION PRODUCTS INTERNATIONAL, INC. 60,000 SHARES OF COMMON STOCK ----------------------------------------------------- PROSPECTUS ----------------------------------------------------- MAY , 2003 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses in connection with the distribution of the securities being registered, all of which are to be paid by the registrant, are as follows: Securities and Exchange Commission Registration Fee $10 Printing 500 Legal Fees and Expenses 5,000 Accounting Fees and Expenses 2,500 Miscellaneous Fees and Expenses 990 Total $9,000 - ----------- All amounts other than the registration fee are estimates. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 607.0850 of the Florida Business Corporation Act ("FBCA") generally permits each corporation to indemnify its directors, officers, employees or other agents who are subject to any third-party actions because of their service to the corporation if such persons acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation. If the proceeding is a criminal one, such person must also have had no reasonable cause to believe his conduct was unlawful. In addition, the corporation may indemnify its directors, officers, employees or other agents who are subject to derivative actions against expenses and amounts paid in settlement which do not exceed, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, including any appeal thereof, actually and reasonably incurred in connection with the defense or settlement of such proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation. To the extent that a director, officer, employee or other agent is successful on the merits or otherwise in defense of a third-party or derivative action, such person will be indemnified against expenses actually and reasonably incurred in connection therewith. This Section also permits each corporation to further indemnify such persons by other means unless a judgment or other final adjudication establishes that such person's actions or omissions which were material to the cause of action constitute (1) a crime (unless such person had reasonable cause to believe his conduct was lawful or had no reasonable cause an action to believe it unlawful), (2) a transaction from which he derived an improper personal benefit, (3) an action in violation of FBCA Section 607.0834 (unlawful distributions to shareholders), or (4) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of such registrant to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. Furthermore, FBCA Section 607.0831 provides, in general, that no director shall be personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, unless: (a) the director 1 breached or failed to perform his duties as a director; and (b) the director's breach of, or failure to perform, those duties constitutes (i) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) a circumstance under which the liability provisions of FBCA Section 607.0834 are applicable, (iv) in a proceeding by or in the right of a registrant to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation, or willful misconduct, or (v) in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. The term "recklessness", as used above, means the action, or omission to act, in conscious disregard of a risk: (a) known, or so obvious that it should have been known, to the director; and (b) known to the director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission. Under Article VI of the registrant's Bylaws, the registrant has agreed to indemnify each director and officer of the registrant who it is empowered to indemnify to the fullest extent permitted by the provisions of the FBCA. The registrant's Bylaws also provide that the indemnification rights provided thereby shall not be deemed to be exclusive of any other rights to which the registrant's directors and officers may be entitled, including, without limitation, any rights of indemnification to which they may be entitled pursuant to any agreement, insurance policy, or otherwise. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to officers and directors under any of the foregoing provisions, the registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits Exhibit No. Description 5.1 Form of opinion of Raice Paykin & Krieg, LLP 10.1 Warrant Agreement issued to CEOCast,Inc. May 15, 2003 23.1 Consent of Moore Stephens Lovelace, P.A. 23.3 Consent of Raice Paykin & Krieg, LLP (included in Exhibit 5) (b) Financial Statement Schedules Schedules are omitted because they are either not required, are not applicable or because equivalent information has been included in the financial statements, the notes thereto or elsewhere herein. ITEM 17. UNDERTAKINGS a. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post- effective amendment to this registration statement: 2 (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(a) and (1)(b) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. b. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the Registration Statement shall by deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. c. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment to the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. d. The undersigned registrant hereby undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective, and 3 (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on a Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Orlando, State of Florida, on the 20th day of May, 2003. ACTION PRODUCTS INTERNATIONAL, INC. By: /s/ RONALD S. KAPLAN -------------------- Name: Ronald S. Kaplan Title: Chief Executive Officer KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Ronald S. Kaplan with full power to act as his or her true and lawful attorney-in-fact and agent for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement including without limitation any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully, for all intents and purposes, as he or she could or might do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities on May 20, 2003. By: /s/ RONALD S. KAPLAN -------------------- Ronald S. Kaplan President, Chief Executive Officer and Director (principal executive officer) By: /s/ ROBERT L. BURROWS --------------------- Robert L. Burrows Chief Financial Officer and Secretary (principal financial officer and principal accounting officer) By: /s/ WARREN KAPLAN ----------------- Warren Kaplan Chairperson of the Board By: /s/ JUDITH KAPLAN ----------------- Judith Kaplan Director By: /s/ NEIL SWARTZ --------------- Neil Swartz Director By: /s/ SCOTT RUNKEL ---------------- Scott Runkel Director 5 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 5.1 Form of opinion of Raice Paykin & Krieg, LLP 10.1 Warrant Agreement issued to CEOCast, Inc. May 15, 2003 23.1 Consent of Moore Stephens Lovelace, P.A. 23.3 Consent of Raice Paykin & Krieg, LLP (included in Exhibit 5) - ---------------- 6 EX-5.1 3 ex5-1.txt EXHIBIT 5.1 - FORM OF OPINION OF RAICE PAYKIN & KRIEG, LLP [RAICE PAYKIN & KRIEG, LLP LETTERHEAD] May 28, 2003 Action Products International, Inc. 390 N. Orange Ave., Suite 2185 Orlando, Florida 32801 Re: Form S-3 Registration Statement Ladies and Gentlemen: We have acted as counsel for Action Products International, Inc., a Florida corporation, (the "Corporation"), in connection with the referenced Registration Statement on Form S-3 (the "Registration Statement") being filed by the Corporation with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, and covering 60,000 shares of the Corporation's Common Stock, $0.001 par value ("Common Stock"), that have been issued, or may be issued pursuant to the warrant, referenced in the Registration Statement. This Opinion Letter is rendered pursuant to Item 16 of Form S-3 and Item 601(b)(5) of Regulation S-K. We have examined the Articles of Incorporation of the Corporation, as amended, the Bylaws of the Corporation, as amended, records of proceedings of the Board of Directors of the Corporation deemed by us to be relevant to this opinion letter, the Registration Statement and other documents and agreements we deemed necessary for purposes of expressing the opinion set forth herein. We also have made such further legal and factual examinations and investigations as we deemed necessary for purposes of expressing the opinion set forth herein. As to certain factual matters relevant to this opinion letter, we have relied upon certificates and statements of officers of the Corporation and certificates of public officials. We have made no independent investigation with regard thereto, and, accordingly, we do not express any opinion as to matters that might have been disclosed by independent verification. This opinion letter is provided to the Corporation and the Commission for their use solely in connection with the transactions contemplated by the Registration Statement. The only opinion rendered by us consists of those matters set forth in the sixth paragraph hereof, and no opinion may be implied or inferred beyond those expressly stated. We are admitted to practice law in the State of New York, and we render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the United States of America, of the State of New York and of the Business Corporation Act of the State of Florida and applicable case law. Based on the foregoing, it is our opinion that the 60,000 shares of Common Stock covered by the Registration Statement to be issued pursuant to the warrant referenced in the Registration Statement, when issued in accordance with the terms and conditions of the warrant will be, legally issued, fully paid and non-assessable. We consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the use of our firm name wherever appearing in the Registration Statement. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder. Sincerely, /s/ RAICE PAYKIN & KRIEG, LLP 7 EX-10.1 4 ex10-1.txt EXHIBIT 10.1 - WARRANT AGREEMENT NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT THE PROPOSED SALE, PLEDGE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS. For the Purchase of No. 1 60,000 shares of Common Stock DATE OF WARRANT: MAY 15, 2003 WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK OF ACTION PRODUCTS INTERNATINAL, INC. (A FLORIDA CORPORATION) FOR VALUE RECEIVED, Action Products International, Inc. ("Company"), hereby certifies that CEOCast, Inc. ("Holder"), or his, her or its Permitted Transferees with its principal executive offices located at 55 John Street, 11th Floor, New York, New York 10038 is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time during the period commencing on the date hereof and expiring on May 14, 2004, Sixty Thousand (60,000) shares of Common Stock, par value $.001 per share, of the Company ("Common Stock"), at a purchase price equal to $2.00 per share (the "Warrant"). The number of shares of Common Stock purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Exercise Price," respectively. 1. EXERCISE (a) PROCEDURE FOR EXERCISE. This Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the Notice of Exercise form attached hereto duly executed by such Holder) at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment to the Company of the Exercise Price multiplied by the number of Warrant Shares to be purchased ("Aggregate Purchase Price") (i) in cash, (ii) by certified check, (iii) by wire transfer, or (iv) by a combination of (i), (ii) and (iii). (b) DATE OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant, together with the Notice of Exercise form attached hereto duly executed by such Holder or Permitted Transferee shall have been surrendered to the Company. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (c) ISSUANCE OF CERTIFICATE. As soon as practicable after the exercise of the purchase right represented by this Warrant, and in any event within ten (10) business days thereafter, the Company at its expense will use its best efforts to cause to be issued in the name of, and delivered to, the Holder, or, subject to the terms and conditions hereof, to such other individual or entity as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct (i) a certificate or certificates for the number of full shares of Warrant Shares to which such Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Holder would otherwise be entitled, an additional share as determined pursuant to Section 3 hereof, and (ii) in case such exercise is in part only, a new Warrant or Warrants (dated the date hereof) of like tenor, stating on the face or faces thereof the number of shares currently stated on the face of this Warrant minus the number of such shares purchased by the Holder upon such exercise as provided in Section 1(a) above. The Company covenants and agrees that it will pay when due any and all state and federal issue taxes which may be payable in respect of the issuance of this Warrant or the issuance of any Warrant Shares upon exercise of this Warrant. (d) CASHLESS EXERCISE. As an alternative to the exercise procedures set forth in Section 1(a), this Warrant may be exercised by the Holder at any time on or after October 12, 2003, by directing the Company to retain from the Warrant Shares being purchased Warrant Shares with an aggregate Fair Market Value as of the date of exercise equal to the Aggregate Purchase Price. For purposes of this Warrant, "Fair Market Value" means, with respect to a share of Common Stock, either: (x) if there shall not then be a public market for the Common Stock, the fair market value per share of Common Stock as determined by the Board of Directors in good faith exercising its fiduciary duties; or (y) if there shall then be a public market for the Common Stock, the Daily Market Prices (as defined below) for the Trading Day during which the Holder delivers to the Company written notice of exercise under this Section 1(d), provided, however, if such notice is after the close of trading on such Trading Day, the Holder must deliver such notice to the Company prior to commencement of trading of the Common Stock on the following Trading Day. The "Daily Market Price" for such Trading Day shall be: (A) the last sale price on such day on the principal stock exchange or the Nasdaq Stock Market ("Nasdaq") on which the Common Stock is then listed or admitted to trading; (B) if no sale takes place on such day on any such exchange or Nasdaq, the average of the last reported closing bid and ask prices on such day as officially quoted on any such exchange or Nasdaq; (C) if the Common Stock is not then listed or admitted to trading on any stock exchange or Nasdaq, the average of the last reported closing bid and ask prices on such day in the over-the-counter market as furnished by the Nasdaq or the National Quotation Bureau, Inc.; (D) if neither Nasdaq nor the National Quotation Bureau, Inc. is, at the time, engaged in the business of reporting bid and ask prices, as furnished by any similar firm then engaged in such business; or (E) if there is no such firm, as furnished by any member of the National Association of Securities Dealers (the "NASD") selected by the Holder and the Company or, if they cannot agree upon such selection, the average furnished by two such members of the NASD, one of which shall be selected by the Holder and one of which shall be selected by the Company. "Trading Day" for this purpose means any day that the New York Stock Exchange is open for trading. The right of the Holder under this Section 1(d) shall terminate on the date the Securities and Exchange Commission declares effective a registration statement registering the offer and sale by the Holder of the Warrant Shares under the Securities Act of 1933, as amended. 2. ADJUSTMENTS. (a) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the outstanding shares of the Company's Common Stock at any time while this Warrant remains outstanding and unexpired shall be subdivided or split into a greater number of shares, or a dividend in Common Stock shall be paid in respect of Common Stock, the Exercise Price in effect immediately prior to such subdivision or at the record date of such dividend shall, simultaneously with the effectiveness of such subdivision or split or immediately after the record date of such dividend (as the case may be), shall be proportionately decreased. If the outstanding shares of Common Stock shall be combined or reverse-split into a smaller number of shares, the Exercise Price in effect immediately prior to such combination or reverse split shall, simultaneously with the effectiveness of such combination or reverse split, be proportionately increased. When any adjustment is required to be made in the Exercise Price, the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Exercise Price in effect immediately prior to such adjustment, by (ii) the Exercise Price in effect immediately after such adjustment. 2 (b) RECLASSIFICATION REORGANIZATION, CONSOLIDATION OR MERGER. In the case of any reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided for in Section 2(a) above), or any reorganization, consolidation or merger of the Company with or into another corporation (other than a merger or reorganization with respect to which the Company is the continuing corporation and which does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful provision shall be made so that the Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof, the kind and amount of shares of stock or other securities or property which such Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, such Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Holder of this Warrant such that the provisions set forth in this Section 2 (including provisions with respect to the Exercise Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) MERGER, CONSOLIDATION, SHARE EXCHANGE, REORGANIZATION, ETC. If all or any portion of this Warrant shall be exercised subsequent to any merger, consolidation, recapitalization, exchange of shares, or reorganization of the Company, sale or transfer of substantially all of the assets of the Company, or other similar event, occurring after the date hereof, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of securities of the Company or another entity, then lawful provision shall be made by the Company so that the Holder exercising this Warrant shall receive, for the aggregate Exercise Price paid upon such exercise, the aggregate number and class of shares which such Holder would have received if this Warrant had been exercised immediately prior to such merger, consolidation, recapitalization, exchange of shares, reorganization, sale or other similar event. (d) NO LIMITATIONS ON THE COMPANY. This Warrant shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets. Nothing herein shall be construed as creating any limitations upon the right and authority of the Board of Directors of the Company to adopt such incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or individuals) as the Board of Directors in its discretion determines desirable, including, without limitation, the granting of stock options or stock appreciation rights. (e) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such actions as may be necessary or appropriate in order to protect against impairment of the rights of the Holder of this Warrant to adjustments in the Exercise Price. 3. FRACTIONAL SHARES. The Company shall not be required to issue fractions of shares of Common Stock upon exercise. If any fractions of a share would, but for this Section 3, be issuable upon any exercise, in lieu of such fractional share the Company shall round up to the nearest whole number. 4. LIMITATION ON SALES. Each holder of this Warrant acknowledges that this Warrant and the Warrant Shares, as of the date of original issuance of this Warrant, have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or 3 otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise in the absence of (a) an effective Registration Statement under the Securities Act as to this Warrant or such Warrant Shares or (b) an opinion of counsel, reasonably acceptable to the Company, that such registration and qualification are not required. The Warrant Shares issued upon exercise thereof shall be imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT THE PROPOSED SALE, PLEDGE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS." The Holder hereof and the Company agree to execute such other documents and instruments as the Company reasonably deems necessary to effect the compliance of the issuance of this Warrant and any shares of Common Stock issued upon exercise hereof with applicable federal and state securities laws. The Company covenants and agrees that (i) all Warrant Shares which may be issued upon exercise of the Warrant, upon issuance, shall be fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof; (ii) the Company will not close its books against the exercise of the Warrant or the transfer of the Common Stock issued or issuable upon exercise of the Warrant in any manner which would interfere with the timely exercise of the Warrant; and (iii) the Company will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of effecting the exercise of the Warrant, the full number of shares of Common Stock which would be deliverable upon the exercise of the Warrant. 5. TRANSFER OF WARRANT. This Warrant may not be transferred, in whole or in part, whether by operation of law or otherwise, to any person or business entity, without the prior written consent of the Company, and any assignment to the contrary shall be null and void and of no force and effect. Notwithstanding the foregoing, but subject to the provisions of Section 4, the Holder may transfer the Warrant or a portion thereof to one or more trusts established for the exclusive benefit of such Holder and/or one or more of the Holder's spouse, children, grandchildren, parents, siblings, nieces or nephews (collectively, "Permitted Transferees"), or at death to the Holder's estate, to any of the Holder's Permitted Transferees, or to one or more trusts all of the beneficiaries of which are one or more of the Holder's Permitted Transferees; provided, however, that any such transferee shall hold the transferred Warrant subject to the terms and conditions of this Agreement. Any transfer permitted by the immediately preceding sentence shall be made by presentation of the Warrant to the Company with written instructions for such transfer, including evidence that the transfer is permitted hereunder. Upon such presentation for transfer, the Company shall promptly execute and deliver a new Warrant or Warrants in the form hereof in the name of the assignee or assignees and in the denominations specified in such instructions. The Company shall pay all expenses incurred by it in connection with the preparation, issuance and delivery of Warrants as permitted under this Section. 6. GENERAL RESTRICTIONS. The Company shall not be required to sell or issue any Warrant Shares under this Warrant if the sale or issuance of such Warrant Shares would constitute a violation by the individual exercising the Warrant or by the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration, or qualification of any Warrant Shares subject to the Warrant upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the 4 issuance or purchase of Warrant Shares hereunder, the Warrant may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Warrant. Specifically, in connection with the Securities Act, unless a registration statement under the Securities Act is in effect with respect to the Warrant Shares covered by the Warrant, the Company shall not be required to sell or issue such Warrant Shares unless the Company has received evidence satisfactory to it that the holder of the Warrant may acquire such Warrant Shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Company shall be final, binding, and conclusive. Except as provided herein, the Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of the Warrant or the issuance of Warrant Shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that the Warrant shall not be exercisable unless and until the Warrant Shares covered by the Warrant are registered or are subject to an available exemption from registration, the exercise of the Warrant (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. The Warrant shall not be exercisable unless the Holder shall have received all required regulatory approvals with respect to ownership of the Warrant Shares to be issued upon such exercise. 7. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 8. TRANSFERS. The Company will maintain a register containing the names and addresses of the Holders of this Warrant. Any Holder may change its, his or her address as shown on the warrant register by written notice to the Company requesting such change. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 9. PAYMENT OF TAXES. The Holder agrees to promptly pay in cash to the Company, upon demand, any taxes that Company (or any affiliate of the Company) may be required to withhold or collect in connection with any exercise of the Warrant. 10. CERTAIN NOTICES (a) NOTICE OF ADJUSTMENT. Upon any adjustment of the Exercise Price, the Company shall forthwith give written notice thereto to the Holder of this Warrant describing the event requiring the adjustment, stating the adjusted Exercise Price and the adjusted number of shares purchasable upon the exercise hereof resulting from such event, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (b) NOTICES OF RECORD DATE. In case: (i) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or (ii) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (iii) of 5 the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the notice shall not affect the legality or validity of any such action. (c) FORM AND DELIVERY REQUIREMENTS. All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Warrant ("Notices") shall be in writing and shall be provided or given in one of the following five ways: (i) personal delivery, (ii) overnight courier service which provides a receipt acknowledging delivery, (iii) express mail or registered mail, return receipt requested, (iv) first class or priority mail, or (v) facsimile transmission. Within twenty four (24) hours of the time the party providing or giving the Notice deposits with or turns over the Notice (1) to the agent for personal delivery, (2) to an overnight courier service for delivery, (3) to a postal service office for delivery, return receipt requested, by express mail or registered mail, or (4) to a postal service box or office for delivery by first class or priority mail, such party providing or giving the Notice shall also transmit via facsimile a copy of such Notice, if less than fifty pages in length, to the other party at its facsimile number herein provided. All such Notices shall be deemed to have been so provided or given as follows: (a) provided or given by personal delivery--upon actual delivery to or refusal to accept delivery by party of the Notice, (b) provided or given by overnight courier service which provides a receipt acknowledging delivery--upon actual delivery to or refusal to accept delivery by party of the Notice during normal business hours, (c) provided or given by express mail or registered mail, return receipt requested--upon actual delivery to or refusal to accept delivery by party of the Notice during normal business hours, (d) provided or given by first class or priority mail--the date and time the party who is the sender receives from party who is a recipient a statement or acknowledgement signed by receiving party that such party received the Notice, and (e) provided or given by facsimile transmission--the date and time party who is transmitting the Notice by facsimile receives from the party who is receiving the Notice a statement or acknowledgment signed by such party that the Notice was received by facsimile transmission. Notices to a party shall be addressed to such party at its following address and facsimile number, or at such other address and facsimile number, and to the attention of such other officers or individuals as it may from time to time designate to the other parties in writing: (i) If to the Company: Action Products International, Inc. Attn: Chief Financial Officer 390 N. Orange Ave., Suite 2185 Orlando, Florida 32801 Facsimile No.: (407) 481-2781 (ii) If to Holder, the address of the Holder as maintained on the books and records of the Company, or to such other address as may be designated by a party in a notice to the other. Each notice, demand, request or communication that shall be given or made in the manner described above shall be deemed sufficiently given or made for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, the affidavit of messenger or (with respect to a facsimile) the facsimile confirmation report being deemed 6 conclusive but not exclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 11 . REGISTRATION RIGHTS. 11.1 PIGGYBACK REGISTRATION. (a) RIGHT TO PIGGYBACK. If (i) the Company proposes to register any of its Common Stock under the Securities Act except for offerings pursuant to registration statements relating to employee benefit plans or with respect to corporate reorganization or other transactions under Rule 145 of the Securities Act or otherwise registered on Form S-4 under the Securities Act (a "Qualified Public Offering") and (ii) the registration form to be used may be used for the registration of the Holder Registrable Securities (a "Piggyback Registration"), the Company will at least thirty (30) days prior to a Qualified Public Offering give written notice to the Holder of its intention to effect such a public offering. If the Holder desires to dispose of any the Holder Registrable Securities (as defined below) in the public offering, it shall provide written notice thereof to the Company within fifteen (15) days after the receipt of any such notice, specifying the Holder Registrable Securities intended to be disposed of by the Holder. Subject to Section 11.1(b), the Company will use its commercially reasonable efforts to effect the registration under the Securities Act of all Holder Registrable Securities which the Company has been so requested to register by the Holder on the same terms and conditions as the securities otherwise being sold in such registration, to the extent requisite to permit the disposition of the Holder Registrable Securities requested to be so registered. Nothing in this Section 11.1 shall prevent the Company from abandoning, at any time, an offering under which the Holder has requested a Piggyback Registration. (b) Priority in Piggyback Registrations. When a registration pursuant to this Section 11.1 involves an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company, to be distributed by or through one or more underwriters, if the managing underwriter of such underwritten offering informs the Company in writing of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in (or during the time of) such offering without adversely affecting the price to be received thereon, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in (or during the time of) such offering, first, all securities proposed by the Company to be sold for its own account or all securities (other than Holder Registrable Securities) proposed by the Company to be sold for the account of the holders thereof who had requested such registration, as the case may be; second, other registrable securities with priority over the Registrable Securities (based on the Company's agreements with the holders thereof); third, such Holder Registrable Securities requested to be included in such registration so proposed to be sold and so requested to be included; and fourth, other securities requested to be included in such registration, in such proportion as the Company may determine (based upon its agreements with the holders thereof). The Company agrees that any such determination is to be made solely by the managing underwriter and the Company agrees that it will act in good faith in seeking to have sold in the offering all of the shares requested to be sold. 11.2 REGISTRATION PROCEDURES. If, whenever and to the extent that the Company is required to use commercially reasonable efforts to effect the registration of any Holder Registrable Securities under the Securities Act as provided in Section 11.1, the Company will as expeditiously as possible: (i) prepare and file with the Commission the requisite registration statement to effect such registration and thereafter use commercially reasonable efforts to cause such registration statement to become and remain effective for a period of one hundred eighty (180) days or, if earlier, until all of such Holder Registrable Securities have been disposed of, provided that the Company may discontinue any registration of its securities at any time prior to the effective date of the registration statement relating thereto; 7 (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period set forth in Section 11.3(i) above; (iii) furnish to Holder such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as Holder may reasonably request in order to dispose of the Holder Registrable Securities; (iv) use commercially reasonable efforts to register or qualify all Holder Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such United States jurisdictions as Holder shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, except that the Company shall not for any such purpose (a) be required to qualify generally to do business as a foreign corporation in any jurisdiction, (b) to subject itself to taxation in any such jurisdiction or (c) to consent to general service of process in any such jurisdiction; (v) notify Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event 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 any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and (vi) use its commercially reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters. 11.3 HOLDBACK AGREEMENTS. If, in connection with a public offering of shares of Common Stock of the Company registered pursuant to the Securities Act, the managing underwriter for such registration shall so request, the Holder shall not sell, make any short sale of, grant any option for the purchase of, or otherwise dispose of any Holder Registrable Securities (other than those Holder Registrable Securities included in such registration) without the prior written consent of the Company for a period designated by the Company in writing to the Holder, which period shall begin not more than thirty (30) days prior to the date the Company has fixed plans to file the registration statement pursuant to which such public offering shall be made and shall not last more than one hundred eighty (180) days (or such other period as the officers and directors of the Company shall determine) after the effective date of such registration statement while this Warrant remains outstanding and unexpired.. 11.4 COPIES OF REGISTRATION STATEMENTS. The Company shall promptly provide the Holder with copies of all registration statements the Company files with the Commission under the Securities Act during the term of this Warrant Agreement. 11.5 INDEMNIFICATION. 8 (a) Indemnification by the Company. In the event of any registration of any Holder Registrable Securities under the Securities Act, to the extent permitted by law, the Company will indemnify and hold harmless Holder, its officers and directors, each underwriter for Holder, and each other Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several ("Losses"), to which the Holder or any such director or officer or underwriter or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, (ii) any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto or any document incident to registration or qualification of any Holder Registrable Securities, (iii) 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 or, with respect to any prospectus, necessary to make the statements therein in light of the circumstances under which they were made not misleading, or (iv) any violation by the Company of the Securities Act or state securities or blue sky laws applicable to the Company and relating to action or inaction required of the Company in connection with such registration or qualification under such state securities or blue sky laws (clauses (i) - (iv) above referred to hereafter as, a "Violation"); provided (i) that the Company shall not be liable in any such case to the extent that any such Losses (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company for use in connection with such registration; (ii) that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Holder Registrable Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such Losses (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the Person asserting a Violation at or prior to the written confirmation of the sale of Holder Registrable Securities to such Person if such Violation was corrected in such final prospectus; and (iii) that the Company shall not be liable for any amounts paid in settlement of any Losses or action if such settlement is effected without the consent of the Company. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer, underwriter or controlling Person and shall survive the transfer of such securities by such seller. (b) Indemnification by Holder. In the event of any registration of the Holder Registrable Securities under the Securities Act, to the extent permitted by law, the Holder will indemnify and hold harmless the Company, each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Person selling securities under such registration statement or any of such other Person's partners, directors or officers or any Person who controls such Person, against any Losses, to which the Company or any such director, officer, controlling Person, underwriter, or such director, officer or controlling Person of such Person may become subject under the Securities Act or Exchange Act or other federal or state law, if such Losses arise out of or relate to a Violation that arose out of or related to the Company's reliance upon written information furnished to the Company about the Holder for use in the preparation of such registration. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by the Holder. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 11.5, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations 9 under the preceding subdivisions of this Section 11.5, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable for any settlement made by the indemnified party without its consent (which consent will not be unreasonably withheld) or for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution. If the indemnification provided for in this Agreement shall for any reason be unavailable to an indemnified party under Section 11.5(a) or 11.5(b) hereof in respect of any Losses (or any action or proceeding in respect thereof), then each indemnifying party shall, in lieu of indemnifying such party, contribute to the amount paid or payable by such indemnified party as a result of such Losses (or action or proceeding in respect thereof), in such proportion as shall be appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Holder included in the offering on the other hand, from the offering of the Holder Registrable Securities, and (ii) the relative fault of the Company on the one hand and the holders of the Holder Registrable Securities included in the offering on the other, with respect to the statements or omissions which resulted in such Losses (or action or proceeding in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Holder on the other with respect to such offering shall be deemed to be in the same proportion as the sum of the total subscription price paid to the Company in respect of the securities sold pursuant to the offering plus the total net proceeds from the offering of the securities (before deducting expenses) received by the Company bears to the amount by which the total net proceeds from the offering of the securities (before deducting expenses) received by the Holder with respect to such offering exceeds the Exercise Price paid to the Company in respect of the Holder Registrable Securities, and in each case the net proceeds received from such offering shall be determined as set forth on the table of the cover page of the prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Holder, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holder agree that it would not be just and equitable if contribution pursuant to this Section 11.5 were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to in this Section 11.5 shall be deemed to include, for purposes of this Section 11.5, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Survival of Indemnity Obligations. The obligations of the Company and the Holder under this Section 11.5 shall survive completion of any offering of Holder Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 10 (f) Limitation on Preliminary Prospectus Liability. The foregoing indemnity agreements of the Company and the Holder are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement in question becomes effective or the amended prospectus filed with the Commission pursuant to Commission Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any Person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the Person asserting the Losses at or prior to the time such action is required by the Securities Act. 11.6 NO ASSIGNMENT OF REGISTRATION RIGHTS. The rights hereunder to cause the Company to register the Holder Registrable Securities may not be assigned by Holder except in connection with an assignment of the Warrant made in accordance with the terms of this Warrant Agreement. 11.7 REGISTRATION EXPENSES. (a) Company Expenses. All expenses incident to the Company's performance of or compliance with this Agreement, and fees and disbursements of counsel for the Company and its independent certified public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but excluding discounts and commissions and transfer taxes, if any) and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), will be borne by the Company, and in addition the Company will pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), and the expense of any annual audit or quarterly review, the expense of any liability insurance or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. (b) Holder Expenses. To the extent Registration Expenses are not required to be paid by the Company, Holder will pay those Registration Expenses allocable to the registration of the Warrant Shares so included, including fees of counsel for Holder, and any Registration Expenses not so allocable will be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered. 11.8 FURTHER COVENANTS RELATING TO AND LIMITATIONS ON REGISTRATION RIGHTS OF THE HOLDER. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 11.1 that Holder (i) agrees to sell any Holder Registrable Securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. (b) The Company may require Holder to furnish to the Company such information regarding the Holder and the distribution of Warrant Shares as the Company may from time to time reasonably request in writing. The Company will give Holder copies of any registration statements and each prospectus filed with the Commission, and each amendment thereof or supplement thereto. (c) The Holder agrees by acquisition of such Holder Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 11.3(v), the Holder will forthwith discontinue such Holder's disposition of Holder Registrable Securities pursuant to the 11 registration statement relating to such Holder Registrable Securities until receipt of the copies of the supplemented or amended prospectus contemplated by Section 11.3(v) and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, then in the Holder's possession of the prospectus relating to such Holder Registrable Securities current at the time of receipt of such notice. (d) The Holder shall have no right to obtain or seek an injunction restraining or otherwise delaying any registration of the Company's securities as the result of controversy that might arise with respect to the interpretation or implementation of this Agreement. (e) The Company shall have no obligation with respect to any registration requested pursuant to Section 11.1 or 11.2 to the extent the aggregate net proceeds reasonably anticipated to be received by the Holder in consideration for such Holder Registrable Securities would exceed the then outstanding amount of the Judgment. 11.9 DEFINITIONS. As used in this Section 11, unless the context otherwise requires, the following terms have the following respective meanings: Commission: The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. Exchange Act: The Securities Exchange Act of 1934, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar federal statute. Holder Registrable Securities: Common Stock issued pursuant to this Warrant and (ii) any shares of Common Stock issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization, or similar event. Shares of Common Stock shall only be treated as Registrable Securities if they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction or (B) sold or, in the opinion of counsel to the Company, are available for sale in a single transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. Person: A corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, an estate, a governmental or political subdivision thereof or a governmental agency. Securities Act: The Securities Act of 1933, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Act of 1933 shall include a reference to the comparable section, if any, of any such similar federal statute. 11.10 TERMINATION. The right to request registration or inclusion in any registration pursuant to Section 11.1 shall terminate on the date that the Holder Registrable Securities may immediately be sold under Rule 144 during any 90-day period. 12. REDEMPTION. (a) Right of Redemption. The Company may, on twenty (20) days prior written notice, redeem this Warrant at $0.001 per share of Common Stock issuable upon exercise of this Warrant as of the Redemption Date (as defined below), provided, however, that before any such call for redemption of this Warrant 12 can take place there shall be in effect a registration statement under the Securities Act which registered the resale of the Common Stock issuable upon exercise of the Warrant. (b) Redemption Procedure. In the event the Company exercises its right to redeem all of this Warrant, it shall give or cause to be given notice to the Holder of this Warrant, by mailing to such Holder a notice of redemption, first class, postage prepaid, not later than the twentieth (20th) day before the date fixed for redemption, at its last address as shall appear on the records of the Company. Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. The notice of redemption shall specify (i) the redemption price, (ii) the date fixed for redemption, (iii) the place where this Warrant shall be delivered and the redemption price shall be paid, and (iv) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the Trading Day immediately preceding the date fixed for redemption. The date fixed for the redemption of this Warrant shall be the "Redemption Date", provided, however, that the Redemption Date may not be prior to August 13, 2003. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to the Holder (A) to whom notice was not mailed or (B) whose notice was defective. An affidavit of the Secretary or Assistant Secretary of the Company that notice of redemption has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (c) Right to Exercise. Any right to exercise a warrant shall terminate at 5:00 p.m. (New York time) on the Trading Day immediately preceding the Redemption Date. The redemption price payable to Holder shall be mailed to the Holder at its address of record. 13. NO RIGHTS AS SHAREHOLDER. Until the exercise of this Warrant, the Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of the Company. Holder will have and may exercise rights as a shareholder on all stock of the Company held by Holder. 14. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 15. AMENDMENTS. The terms and provisions of this Warrant may not be modified or amended, or any provisions hereof waived, temporarily or permanently, except by written consent of the Company and the Holder hereof. 16. BINDING EFFECT. Subject to all restrictions provided for in this Warrant and by applicable law relating to assignment and transfer of this Warrant, this Warrant shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and permitted assigns. 17. ENTIRE AGREEMENT. This Warrant constitutes the entire agreement and supersedes all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. Neither this Warrant nor any term hereof may be amended, waived, discharged, or terminated except by a written instrument signed by the Company and the Holder; provided, however, that the Company or the Holder unilaterally may waive any provision hereof in writing to the extent that such waiver does not adversely affect the interests of the other party hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof. 18. COUNTERPARTS. To facilitate execution, this Warrant may be executed in counterparts. It shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single contract. It shall not be necessary in making proof of this Warrant to produce or account for more than a number of counterparts containing the respective 13 signatures of, or on behalf of, all of the parties hereto. Without limiting the generality of the foregoing, the exchange by the parties hereto of counterparts by facsimile transmission shall be sufficient by create a binding and enforceable agreement. 19. GOVERNING LAW. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Florida (excluding the choice of law rules thereof). 20. JURISDICTION AND VENUE. Any legal suit, action or proceeding arising out of or relating to this Warrant shall be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York. Each party hereto waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum for such suit, action or proceeding and irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding. Each party hereto further agrees to accept and acknowledge service or any and all process which may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and agrees that service of process upon it mailed by certified mail to its address shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. IN WITNESS WHEREOF, each of the parties hereto has executed this Warrant or caused this Warrant to be duly executed on its behalf as of the date first above written. ISSUER: ACTION PRODUCTS INTERNATIONAL, INC. By: /s/ RONALD S. KAPLAN -------------------- Title: PRESIDENT AND CEO HOLDER: CEOCast, Inc. By: /s/ Title: PRESIDENT --------- 14 NOTICE OF EXERCISE TO: Action Products International, Inc. Attn: Chief Financial Officer 390 N. Orange Ave., Suite 2185 Orlando, Florida 32801 1. The undersigned hereby elects to purchase ________ shares of the Common Stock of Action Products International, Inc., pursuant to terms of the attached Warrant, and tenders herewith payment of the Exercise Price of such shares in full, together with all applicable transfer taxes, if any, in the following manner: (check one box) [ ] cash [ ] certified check [ ] wire transfer [ ] a combination of any of the foregoing 2. Please issue a certificate or certificates representing said shares of the Common Stock in the name of the undersigned or in such other name as is specified below: 3. The undersigned represents that he/she/it will only sell the shares of Common Stock pursuant to an effective Registration Statement under the Securities Act of 1933, as amended, or an exemption from registration thereunder. - ----------------------------------------- (Name) - ----------------------------------------- (Address) - ----------------------------------------- - ----------------------------------------- (Telephone Number) - ----------------------------------------- (Facsimile Number) - ----------------------------------------- (E-mail Address) - ----------------------------------------- (Taxpayer Identification Number) By: _____________________________________ Title: __________________________________ Date: ___________________________________ 15 EX-23.1 5 ex23-1.txt EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" in the Registration Statement of Action Products International, Inc., on Form S-3, for the registration of 60,000 shares of its common stock, and to the incorporation by reference therein, and in the related prospectus, of our report dated January 30, 2003, except for Note 11, as to which the date is March 12, 2003, with respect to the consolidated financial statements of Action Products International, Inc. and subsidiary included in its Annual Report on Form 10-KSB for the year ended December 31, 2002, filed with the Securities and Exchange Commission. /s/ MOORE STEPHENS LOVELACE, P.A. MOORE STEPHENS LOVELACE, P.A. CERTIFIED PUBLIC ACCOUNTANTS Orlando, Florida May 28, 2003 -----END PRIVACY-ENHANCED MESSAGE-----