<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
RACING CHAMPIONS CORPORATION
(Name of Registrant as Specified in Its Charter)
Registrant
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE> 2
RACING CHAMPIONS CORPORATION
800 ROOSEVELT ROAD
BUILDING C, SUITE 320
[RACING CHAMPIONS LOGO] GLEN ELLYN, ILLINOIS 60137
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Racing Champions Corporation, a
Delaware corporation (hereinafter called the Corporation), will be held at the
Hyatt Regency Oakbrook, 1909 Spring Road, Oakbrook, Illinois 60523, on Thursday,
May 13, 1999, at 11:00 a.m., local time, for the following purposes:
1. To elect nine directors to serve until the 2000 Annual Meeting of
Stockholders.
2. To approve and adopt an amendment to the Racing Champions
Corporation Stock Incentive Plan to increase the aggregate number of shares
of the Corporation's common stock that may be issued pursuant thereto from
600,000 to 1,500,000.
3. To ratify the appointment of Arthur Andersen LLP, independent
public accountants, as auditors of the Corporation for its fiscal year
ending December 31, 1999.
4. To take action with respect to any other matters that may be
properly brought before the meeting and that might be considered by the
stockholders of a Delaware corporation at their annual meeting.
By order of the Board of Directors
Glen Ellyn, Illinois
April 12, 1999
CURTIS W. STOELTING,
Secretary
STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON MARCH 26, 1999 ARE
ENTITLED TO VOTE AT THE MEETING. YOUR VOTE IS IMPORTANT TO ENSURE THAT A
MAJORITY OF THE STOCK IS REPRESENTED. PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING. IF YOU LATER FIND THAT YOU MAY BE PRESENT AT THE
MEETING OR FOR ANY OTHER REASON DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT
ANY TIME BEFORE IT IS VOTED.
<PAGE> 3
RACING CHAMPIONS CORPORATION
800 ROOSEVELT ROAD,
BUILDING C, SUITE 320
[RACING CHAMPIONS LOGO] GLEN ELLYN, ILLINOIS 60137
PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1999
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Racing Champions Corporation of proxies, in the
accompanying form, to be used at the Annual Meeting of Stockholders of the
Corporation to be held at the Hyatt Regency Oakbrook, 1909 Spring Road,
Oakbrook, Illinois 60523 on May 13, 1999 and any adjournments thereof. This
proxy material is being mailed on or about April 12, 1999 to stockholders of
record at the close of business on March 26, 1999.
The shares represented by each valid proxy received in time will be voted
at the meeting and, if a choice is specified on the proxy, it will be voted in
accordance with that specification. If no instructions are specified in a signed
proxy returned to the Corporation, the shares represented thereby will be voted
in FAVOR of the election of the directors listed in the enclosed proxy, in FAVOR
of a proposal to amend the Racing Champions Corporation Stock Incentive Plan
(the "Incentive Plan") to increase the aggregate number of shares of the
Corporation's common stock, par value $0.01 per share (the "Common Stock"), that
may be issued pursuant thereto from 600,000 to 1,500,000, and in FAVOR of the
ratification of the appointment of Arthur Andersen LLP as the Corporation's
auditors for fiscal 1999.
Stockholders may revoke proxies at any time to the extent they have not
been exercised by giving written notice to the Corporation or by a later
executed proxy. Attendance at the Annual Meeting will not automatically revoke a
proxy, but a stockholder attending the Annual Meeting may request a ballot and
vote in person, thereby revoking a prior granted proxy. The cost of solicitation
of proxies will be borne by the Corporation. Solicitation will be made primarily
by use of the mails; however, some solicitation may be made by employees of the
Corporation, without additional compensation therefor, by telephone, by
facsimile, or in person. Only shareholders of record at the close of business on
March 26, 1999 will be entitled to notice of and to vote at the meeting. On the
record date, the Corporation had outstanding 16,085,997 shares of Common Stock
entitled to one vote per share.
A majority of the votes entitled to be cast with respect to each matter
submitted to the stockholders, represented either in person or by proxy, shall
constitute a quorum with respect to such matter. Approval of each matter
specified in the notice of the meeting requires the affirmative vote of a
majority, or in the case of the election of directors a plurality, of the shares
represented at the meeting. Abstentions and broker non-votes (i.e., shares held
by brokers in street name, voting on certain matters due to discretionary
authority or instructions from the beneficial owners but not voting on other
matters due to lack of authority to vote on such matters without instructions
from the beneficial owner) will count toward the quorum requirement and will not
count toward the determination of whether such matters are approved or directors
are elected. The Inspector of Election appointed by the Board of Directors will
count the votes and ballots.
ELECTION OF DIRECTORS
It is intended that shares represented by proxies in the enclosed form will
be voted for the election of the nominees named in the following table to serve
as directors for a term of one year and until their successors are elected,
unless contrary instructions are received. As indicated below, each person
nominated by the Board of Directors is an incumbent director. The Corporation
anticipates that the nominees listed in this Proxy Statement will be candidates
when the election is held. However, if an unexpected occurrence should make it
necessary, in the judgment of the proxy holders, to substitute some other person
for any of the nominees, proxies will be voted for a substitute nominee selected
by the proxy holders (except where a proxy withholds authority with respect to
the election of directors).
<PAGE> 4
<TABLE>
<CAPTION>
DIRECTOR
NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND DIRECTORSHIPS AGE SINCE
- ---------------------------------------------------------------- --- --------
<S> <C> <C>
ROBERT E. DODS................................................ 50 1996
Chief Executive Officer of the Corporation since July 1998.
President of the Corporation from April 1996 to July 1998. Mr
Dods co-founded Racing Champions, Inc. ("RCI") in 1989, and
served as President of RCI from inception to July 1998, at which
time Mr. Dods was appointed as Chief Executive Officer of RCI
BOYD L. MEYER................................................. 57 1996
President of the Corporation since July 1998. Executive Vice
President of the Corporation from April 1996 to July 1998. Mr
Meyer co-founded RCI in 1989, and served as Executive Vice
President of RCI from inception to July 1998, at which time Mr
Meyer was appointed as President of RCI
PETER K.K. CHUNG.............................................. 45 1996
President of Racing Champions Limited ("RCL") since April 1996.
Mr. Chung formed the predecessors to RCL in 1989 to handle the
overseas operating activities of RCI and served as President of
such predecessors from inception to April 1996.
AVY H. STEIN.................................................. 43 1996
A founder and Managing Director of Willis Stein & Partners, L.P.
Along with Mr. Willis, Mr. Stein is responsible for managing
Willis Stein. Prior to founding Willis Stein & Partners, L.P.,
Mr. Stein served as a Managing Director of Continental Illinois
Venture Corporation from 1989 through 1994. Mr. Stein is a
director of Tremont Corporation and UC Television Network Corp.
DANIEL M. GILL................................................ 35 1996
A founder and Managing Director of Willis Stein & Partners, L.P.
Prior to founding Willis Stein & Partners, L.P. Mr. Gill served
as a Managing Director of Continental Illinois Venture
Corporation from 1989 through 1994.
SAMUEL B. GUREN............................................... 52 1996
A Managing Director of Baird Capital Partners, an affiliate of
Robert W. Baird & Co. Incorporated. Prior to joining Baird
Capital Partners in February 1996, Mr. Guren was a co-founder
and managing partner of venture funds affiliated with William
Blair & Company
JOHN S. BAKALAR............................................... 51 1997
Mr. Bakalar is currently a private investor. From May 1993 to
November 1997, Mr. Bakalar was President and Chief Operating
Officer of Rand-McNally, Inc., a printing and publishing company
JOHN J. VOSICKY............................................... 50 1997
Executive Vice President and Chief Financial Officer of
Comdisco, Inc., a technology services company, since July 1994.
Senior Vice President and Chief Financial Officer of Comdisco
Inc. from November 1985 to July 1994. Mr. Vosicky serves as a
director of Comdisco Inc.
VICTOR H. SHAFFER............................................. 38 1998
Executive Vice President of Racing Champions South, Inc. (a
wholly owned subsidiary of the Corporation) since January 1998.
Chief Executive Officer and President of Press Pass Partners (a
producer and marketer of collective sports trading cards which
was acquired by Racing Champions South in December 1997) from
September 1992 to December 1997.
</TABLE>
2
<PAGE> 5
DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Board of Directors held five meetings in 1998, and all directors other than
Peter K.K. Chung attended at least 75% of the meetings of the Board and the
committees thereof of which they were a member.
The Board's Audit Committee is comprised of Messrs. Gill (Chairman),
Bakalar and Vosicky. The Audit Committee is responsible for recommending to the
Board the appointment of independent auditors, reviewing the scope of annual
audit activities of the auditors, approving the audit fee payable to the
auditors and reviewing audit results. The Audit Committee held one meeting in
1998 and all committee members were present at such meeting.
The Board's Compensation Committee is comprised of Messrs. Stein
(Chairman), Dods, Guren and Vosicky. The Compensation Committee, in addition to
such other duties as may be specified by the Board, reviews and recommends to
the Board the compensation structure for the Corporation's officers and other
managerial personnel, including salary rates, participation in incentive
compensation and benefit plans, fringe benefits, noncash perquisites and other
forms of compensation. The Compensation Committee also administers the
Corporation's 1996 Key Employees Stock Option Plan and the Incentive Plan. The
Compensation Committee held two meetings in 1998 and all committee members were
present at each meeting.
COMPENSATION OF DIRECTORS
Directors who are employees of the Corporation or are affiliates of Willis
Stein & Partners, L.P. or Baird Capital Partners receive no compensation for
services as members of either the Board of Directors or committees thereof.
Other directors receive an annual retainer of $7,500, payable in cash, and
receive a fee of $1,000 for each Board meeting attended and $1,000 for each
committee meeting attended. Such fees for attendance at Board meetings and
committee meetings may not exceed $1,000 per day. In September 1998, the
Corporation issued options to purchase 10,000 shares of Common Stock to each of
Messrs. Bakalar and Vosicky, the Company's outside directors, at an exercise
price of $13.50 per share. These options were issued in lieu of certain retainer
and meeting fees.
EXECUTIVE OFFICERS
The following table sets forth the name, age, current position and
principal occupation and employment during the past five years of the executive
officers of the Corporation who are not directors:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
<S> <C> <C> <C>
Curtis W. Stoelting..... 39 Executive Vice Vice President -- Finance and Operations
President -- Finance and Secretary from April 1996 to July 1998
and Operations and and Vice President -- Finance and
Secretary since July Operations of RCI from 1994 to July 1998,
1998 at which time Mr. Stoelting was appointed
Executive Vice President -- Finance and
Operations of RCI. Prior to joining RCI,
Mr. Stoelting was employed for 12 years by
Arthur Andersen LLP in Chicago, most
recently as a Senior Manager.
Peter J. Henseler....... 40 Senior Vice President Vice President -- Marketing from April 1996
--Sales and Marketing to July 1998. Vice President -- Marketing
since July 1998 of RCI from March 1996 to July 1998, at
which time Mr. Henseler was appointed
Senior Vice President -- Sales and
Marketing of RCI. Prior to joining RCI, Mr.
Henseler was a director of marketing for
McDonald's Corporation since 1989.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION OTHER POSITIONS
- ---- --- ---------------- ---------------
<S> <C> <C> <C>
John F. Olsen........... 47 Vice President -- Vice President -- Sales of RCI since 1993.
Sales since April 1996
M. Kevin Camp........... 41 Vice President -- Vice President -- Licensing of RCI since
Licensing and 1994.
Assistant Secretary
since April 1996
</TABLE>
SECURITY OWNERSHIP
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of January 15, 1999 by (i) each director
and named executive officer (as defined below), (ii) all directors and executive
officers as a group, and (iii) each person or other entity known by the
Corporation to beneficially own more than 5% of the outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
COMMON COMMON
STOCK STOCK
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED
- ---- ------------ ------------
<S> <C> <C>
Robert E. Dods.............................................. 1,288,701 8.0%
Boyd L. Meyer(1)............................................ 1,303,701 8.1
Daniel M. Gill(2)........................................... 2,381,249 14.8
Peter K. K. Chung(3)........................................ 1,303,701 8.1
Samuel B. Guren(4).......................................... 651,431 4.1
Avy H. Stein(5)............................................. 2,381,249 14.8
John S. Bakalar(6).......................................... 10,000 *
John J. Vosicky(7).......................................... 20,000 *
Victor H. Shaffer(8)........................................ 84,329 *
Curtis W. Stoelting(9)...................................... 158,765 1.0
Peter J. Henseler(10)....................................... 56,661 *
Willis Stein & Partners, L.P.(11)........................... 2,381,249 14.8
Munder Capital Management(12)............................... 1,020,200 6.3
All directors and executive officers as a group (13
persons)(13).............................................. 7,371,770 45.2
</TABLE>
- ---------------
* Denotes less than 1%
(1) Includes 343,798 shares of Common Stock held by the Meyer Family Limited
Partnership, for which Mr. Meyer serves as a general partner and shares
voting and investment power with members of his immediate family who are
the other general partners.
(2) Represents shares of Common Stock held by Willis Stein & Partners, L.P. Mr.
Gill may be deemed to beneficially own the shares of Common Stock owned by
Willis Stein by virtue of his status as a Founding Member of Willis Stein &
Partners, L.L.C., the general partner of Willis Stein & Partners, L.P.
(3) Represents shares of Common Stock held by a corporation controlled by Mr.
Chung.
(4) Represents shares of Common Stock held by Baird Capital Partners II Limited
Partnership and BCP II Affiliates Fund Limited Partnership, entities for
which Mr. Guren serves as a Managing Director and shares voting and
investment power with the other Managing Directors. Mr. Guren disclaims
beneficial ownership in all shares of Common Stock held by Baird Capital
Partners II Limited Partnership or BCP II Affiliates Fund Limited
Partnership.
4
<PAGE> 7
(5) Represents shares of Common Stock held by Willis Stein & Partners, L.P. Mr.
Stein may be deemed to beneficially own the shares of Common Stock owned by
Willis Stein by virtue of his status as a Founding Member of Willis Stein &
Partners, L.L.C., the general partner of Willis Stein & Partners, L.P.
(6) Consists of 10,000 shares of Common Stock subject to stock options.
(7) Includes 10,000 shares of Common Stock subject to stock options.
(8) Includes 18,275 shares of Common Stock subject to stock options.
(9) Includes 60,200 shares of Common Stock subject to stock options.
(10) Includes 36,948 shares of Common Stock subject to stock options.
(11) The general partner of Willis Stein & Partners, L.P. is Willis Stein &
Partners, L.L.C., a Delaware limited liability company, of which John R.
Willis, Avy H. Stein, Daniel M. Gill, Beth F. Johnston, and Daniel H.
Blumenthal are the Founding Members. Each such person may, through Willis
Stein & Partners, L.L.C., be deemed to share the power to direct the voting
and disposition of all of the Common Stock held by Willis Stein & Partners,
L.P. The address of Willis Stein & Partners, L.P. is 227 West Monroe
Street, Suite 4300, Chicago, Illinois 60606.
(12) Munder Capital Management, Munder Capital Center, 480 Pierce Street, Suite
300, P.O. Box 3043, Birmingham, Michigan 48012-3043, filed a Schedule 13G
dated February 15, 1999, reporting that it was the beneficial owner of
1,020,200 shares of Common Stock. The shares of Common Stock beneficially
owned by Munder Capital Management include 920,210 shares as to which it
has sole voting power and 1,020,200 shares as to which it has sole
investment power.
(13) Includes (i) 1,303,701 shares of Common Stock held by a corporation
controlled by Mr. Chung, (ii) 343,798 shares of Common Stock held by the
Meyer Family Limited Partnership, for which Mr. Meyer serves as a general
partner and shares voting and investment power with members of his
immediate family who are the other general partners, (iii) 2,381,249 shares
of Common Stock for which Messrs. Gill and Stein share voting and
investment power and 651,431 shares of Common Stock for which Mr. Guren
shares voting and investment power (Messrs. Gill, Stein and Guren disclaim
beneficial ownership in such shares of Common Stock) and (iv) 209,319
shares of Common Stock subject to stock options.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Corporation's directors and executive officers,
and persons who own more than 10% of a registered class of the Corporation's
equity securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of beneficial ownership and reports of changes in
beneficial ownership of the Corporation's equity securities. The rules
promulgated by the Commission under section 16(a) of the Exchange Act require
those persons to furnish the Corporation with copies of all reports filed with
the Commission pursuant to section 16(a). Based solely upon a review of such
forms actually furnished to the Corporation, and written representations of
certain of the Corporation's directors and executive officers that no forms were
required to be filed, all directors, executive officers and 10% shareholders
have filed with the Commission on a timely basis all reports required to be
filed under section 16(a) of the Exchange Act.
PERFORMANCE GRAPH
The chart below shows a comparison of the cumulative return since June 12,
1997 had $100 been invested at the close of business on June 11, 1997 in each of
the Common Stock, the Nasdaq Composite Index (all issuers), and a peer group
constructed by the Corporation comprised of the following publicly traded
producers and distributors of collectibles or die cast vehicle replicas: Action
Performance Companies, Inc., Department 56, Inc., Empire of Carolina, Lewis
Galoob Toys, Inc., Hasbro, Inc., Mattell Inc., Play by Play Toys & Novelties
Inc., Russ Berrie & Co. Inc., Stanhome Inc., Toy Biz, Inc. and Zindart Limited
(the "Peer Group").
5
<PAGE> 8
CUMULATIVE TOTAL RETURN COMPARISON*
THE CORPORATION VERSUS PUBLISHED INDICES (NASDAQ COMPOSITE INDEX AND THE PEER
GROUP)
CORP. VS. PUBL. INDICES
<TABLE>
<CAPTION>
6/11/97 12/31/97 12/31/98
------- -------- --------
<S> <C> <C> <C>
Racing Champions**.......................................... 100 49 85
Nasdaq Composite Index...................................... 100 112 158
The Peer Group.............................................. 100 116 94
</TABLE>
- ---------------
* Total return assumes reinvestment of dividends
** The closing price of the Common Stock on June 11, 1997 was $15.75, the
closing price on December 31, 1997 was $7.75, and the closing price on
December 31, 1998 was $13.38.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's Compensation Committee, which is comprised of four
members of the Board of Directors, is responsible for considering and approving
compensation arrangements for the Corporation's senior management, including
executive officers. The objectives of the Compensation Committee in establishing
compensation arrangements for senior management are to: (i) attract and retain
key executives who are important to the continued success of the Corporation;
and (ii) provide strong financial incentives, at reasonable cost to the
stockholders, for senior management to enhance stockholder value.
The primary components of the Corporation's executive compensation program
are (i) base salary, (ii) incentive compensation bonuses and (iii) stock
options.
Base Salaries. The base salaries of the Corporation's executive officers
have been set by their respective employment agreements. Each of the employment
agreements provides that the Corporation may increase the executive officer's
base salary throughout the term or any renewal term of the agreement. During
1998, each executive officer received the minimum base salary set forth in their
respective employment agreements. In the future, the Compensation Committee will
consider appropriate increases in the base salaries of the Corporation's
executive officers based on individual performance and comparative industry
compensation levels.
Incentive Bonuses. The Corporation grants annual bonuses to certain of its
executive officers and key employees. The purpose of the Corporation's bonus
program is to provide incentive compensation in a form which relates the
financial reward to an increase in the value of the Corporation to its
stockholders. Participants under the bonus program received a cash bonus during
the first quarter of 1999 based upon the Corporation's consolidated earnings
before interest, taxes, depreciation and amortization for the year ended
6
<PAGE> 9
December 31, 1998 ("1998 EBITDA"). A bonus pool was created equal to 5.12% of
1998 EBITDA. The bonus pool was then allocated among the participants in the
bonus program based on specified percentages.
Stock Inventive Plan. In 1997, the Corporation established the Incentive
Plan. The Incentive Plan authorizes the Compensation Committee to grant stock
options to officers and other key employees. In February 1998, the Compensation
Committee granted options to purchase Common Stock to the named executive
officers as shown in the Summary Compensation Table.
Compensation of the Chief Executive Officer. During 1998, Mr. Dods
received a base salary as provided in his employment agreement. Mr. Dods does
not participate in the Corporation's bonus program. Mr. Dods was not awarded any
stock options under the Incentive Plan in 1998. The Compensation Committee
believes that the size of Mr. Dods existing holdings of Common Stock places Mr.
Dods potential benefits in alignment with stockholder interests.
COMPENSATION COMMITTEE:
Avy H. Stein (Chairman)
Robert E. Dods
Samuel B. Guren
John J. Vosicky
7
<PAGE> 10
EXECUTIVE COMPENSATION
CASH COMPENSATION
The table which follows sets forth certain information for the years
indicated below concerning the compensation paid by the Corporation to the
Corporation's Chief Executive Officer and the four other most highly compensated
executive officers in fiscal 1998 (collectively, the "named executive
officers"):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(2) OPTIONS (#) COMPENSATION
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert E. Dods, Chief Executive
Officer............................. 1998 $500,000 $ -- -- $ --
1997 500,000 -- -- --
1996 333,333 -- -- --
Boyd L. Meyer, President.............. 1998 500,000 -- -- --
1997 500,000 -- -- --
1996 333,333 -- -- --
Peter K.K. Chung, President of Racing
Champions Limited................... 1998 500,000 -- -- --
1997 500,000 -- -- --
1996 333,333 -- -- --
Curtis W. Stoelting, Executive Vice
President -- Finance and Operations
and Secretary....................... 1998 182,692 270,686 11,440 7,214(3)
1997 150,000 245,066 33,653 5,943(3)
1996 100,178 139,072 83,008 1,381(3)
Peter J. Henseler, Senior Vice
President -- Sales and Marketing.... 1998 141,349 190,761 8,580 8,213(4)
1997 125,000 171,546 25,338 7,964(4)
1996 86,538 80,350 41,304 2,142(4)
</TABLE>
- ---------------
(1) For 1996, all amounts are limited to compensation paid or earned after the
formation and recapitalization of the Corporation on April 30, 1996.
(2) Consists of amounts paid pursuant to the Corporation's bonus program.
(3) For 1996, consists of premiums paid by the Corporation for term life
insurance under which Mr. Stoelting is the beneficiary. For 1997, consists
of $1,193 of premiums paid by the Corporation for term life insurance under
which Mr. Stoelting is the beneficiary and $4,750 of matching contributions
under the Racing Champions Savings Plan. For 1998, consists of premiums of
$2,214 paid by the Corporation for term life insurance under which Mr.
Stoelting is the beneficiary and $5,000 of matching contributions under the
Racing Champions Savings Plan.
(4) For 1996, consists of premiums paid by the Corporation for term life
insurance under which Mr. Henseler is the beneficiary. For 1997, consists of
$3,213 of premiums paid by the Corporation for term life insurance under
which Mr. Henseler is the beneficiary and $4,750 of matching contributions
under the Racing Champions Savings Plan. For 1998, consists of $3,213 of
premiums paid by the Corporation for term life insurance under which Mr.
Henseler is the beneficiary and $5,000 of matching contributions under the
Racing Champions Savings Plan.
8
<PAGE> 11
STOCK OPTIONS
The following table provides certain information regarding stock options
granted to the named executive officers of the Corporation during the year ended
December 31, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS/SARS OPTION
UNDERLYING GRANTED TO TERM($)(2)
OPTIONS/SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ------------- ------------ -------------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Curtis W. Stoelting............. 11,440(1) 3.1 11.03 February 18, 2008 79,356 201,104
Peter J. Henseler............... 8,580(1) 2.3 11.03 February 18, 2008 59,517 150,828
</TABLE>
- ---------------
(1) Options with respect to 20% of the underlying shares become exercisable on
February 18 of each year from 1999 to 2003.
(2) The dollar amounts under these columns are the result of theoretical
calculations at 5% and 10% rates set by the Commission, and therefore are
not intended to forecast possible future appreciation, if any, in the Common
Stock.
FISCAL YEAR-END OPTION VALUES. The following table provides certain
information regarding the value of unexercised options held by the named
executive officers at December 31, 1998. No named executive officer exercised
any options during the year ended December 31, 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL VALUE OF UNEXERCISED IN-THE-MONEY
YEAR-END OPTIONS AT FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- ------------------------------- ---------------------------------
<S> <C> <C>
Curtis W. Stoelting................. 57,912/70,189 $439,940/686,800
Peter J. Henseler................... 35,232/40,190 219,977/350,115
</TABLE>
- ---------------
(1) Calculated based on closing sale price of $13.38 per share on December 31,
1998.
EMPLOYMENT AGREEMENTS
On April 30, 1996 the Corporation entered into separate employment
agreements with Messrs. Dods and Meyer and Racing Champions Limited entered into
an employment agreement with Mr. Chung. The Employment Agreements with Messrs.
Dods, Meyer and Chung each has a term of three years. Pursuant to the Employment
Agreements, Messrs. Dods, Meyer and Chung each will receive base salaries of
$500,000. The Employment Agreements with Messrs. Dods, Meyer and Chung also
provide that the executive officer is eligible to participate in any medical,
health, dental, disability and life insurance policy as are in effect for the
other two most senior executives of the Corporation. Pursuant to the Employment
Agreements, each executive officer has agreed not to compete with the
Corporation during employment and for a period of two years following
termination of employment and has agreed to maintain the confidentiality of the
Corporation's proprietary information and trade secrets. The Employment
Agreements provide that if the executive officer's employment is terminated by
the Corporation without "cause" or by the executive officer for "good reason,"
the executive officer will be entitled to continuation of his then effective
base salary for a period equal to the greater of (i) one year, or (ii) the
remaining term of the Employment Agreement.
On April 30, 1998, the Corporation entered into separate employment
agreements with Messrs. Stoelting and Henseler. The Employment Agreements each
has a term of three years. Pursuant to the Employment
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<PAGE> 12
Agreements, Messrs. Stoelting and Henseler will receive base salaries of
$200,000 and $137,500, respectively, and are entitled to participate in the
Corporation's bonus program and the Stock Option Plan. The Employment Agreements
with Messrs. Stoelting and Henseler provide that the executive officer is
eligible to participate in any medical, health, dental, disability and life
insurance policy as are in effect for other senior management of the Corporation
excluding Messrs. Dods, Meyer and Chung. Pursuant to the Employment Agreements,
each executive officer has agreed not to compete with the Corporation during
employment and for a period of two years following termination of employment and
has agreed to maintain the confidentiality of the Corporation's proprietary
information and trade secrets. The Employment Agreements provide that if the
executive officer's employment is terminated by the Corporation without "cause"
or by the executive for "good reason," the executive officer will be entitled to
continuation of his then effective base salary for two years following the date
of termination, provided, however, that if such termination occurs with respect
to Mr. Stoelting's employment at any time after a "change in control" with
respect to the Corporation, Mr. Stoelting will be entitled to continuation of
his then effective base salary for three years following the date of
termination.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation leases warehouse space from D. W. Realty, Inc., a
corporation wholly owned by William L. Dods, brother of Robert E. Dods, Chief
Executive Officer and a director of the Corporation. The amount of the lease
payments for the year ended December 31, 1998 was $82,120 and the Corporation
currently pays rent of $7,970 per month. The Corporation believes that the terms
of this lease are no less favorable to the Corporation than could have been
obtained from an unaffiliated third party.
Eric Meyer, son of Boyd L. Meyer, President and a director of the
Corporation, is a principal of Reicher-Goerdt-Meyer Sales and Marketing, Inc.
("Reicher Goerdt"), one of the Corporation's external sales representative
organizations. For year ended December 31, 1998, Eric Meyer was allocated
approximately $283,226 of the sales commissions paid by the Corporation to
Reicher Goerdt. The Corporation pays sales commissions to Reicher Goerdt at the
same rate and on no more favorable terms than for the Corporation's other sales
representative organizations.
Willis Stein & Partners, L.P., a stockholder of the Corporation, owns
approximately 28% of the equity securities of Petersen Holdings, L.L.C.
("Holdings") and 47% of the common stock of Brightview Communications Group,
Inc. ("Brightview"). Holdings and Brightview in turn own all of the equity
securities of Petersen Publishing Company, L.L.C. ("Petersen"). In addition,
Willis Stein & Partners, L.P. has the contractual ability to control the
policies and operations of Petersen. The Corporation has entered into licensing
and marketing arrangements with Petersen in connection with two of the
Corporation's product lines and made payments of approximately $445,000 during
the year ended December 31, 1998 to Petersen in connection with these licenses.
James Chung, brother of Peter K.K. Chung, President of Racing Champions
Limited and a director of the Corporation, owns 70% of one of the Corporation's
dedicated manufacturers. For the year ended December 31, 1998, the Corporation
paid $8.2 million to this manufacturer for the purchase of die cast vehicle
replicas. The Corporation expects to continue to make purchases from this
manufacturer during 1999. The Corporation believes that the terms for the
purchase of products from this manufacturer are no less favorable to the
Corporation then could have been obtained from an unaffiliated party.
Samuel B. Guren, a director of the Corporation, is a managing director of
an affiliate of Robert W. Baird & Co. Incorporated. Such firm provided
investment banking and advisory services to the Corporation in 1998 and it is
anticipated that such firm will provide such services in 1999.
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<PAGE> 13
AMENDMENT TO STOCK INCENTIVE PLAN
PURPOSE AND EFFECT OF PROPOSED AMENDMENT
Proposed Amendment. Subject to stockholder approval, the Board of
Directors has amended the Incentive Plan to increase from 600,000 to 1,500,000
the aggregate number of shares of Common Stock that may be issued or transferred
thereunder upon the exercise or payment of stock options.
Purpose of Proposed Amendment. The Corporation recognizes the importance
of attracting and retaining key employees of merit and stimulating the active
interest of those individuals in the development and financial success of the
Corporation. The Board of Directors believes that the Incentive Plan is
critically important to the furtherance of these objectives. The Board of
Directors also believes that, through the Incentive Plan, the Corporation is
able to enhance the prospects for its business activities and objectives and
more closely align the interests of key employees with those of shareholders by
offering key employees the opportunity to participate in the Corporation's
future through proprietary interests in the Corporation.
In March 1999, the Corporation granted options to purchase an aggregate of
152,882 shares of Common Stock to executive officers and other key employees.
After giving effect to these grants, absent stockholder approval of the proposed
amendment to increase the aggregate number of shares of Common Stock available
for issuance under the Incentive Plan, there are no shares of Common Stock
remaining available for issuance with respect to additional stock options under
the Incentive Plan. The absence of an adequate number of shares of Common Stock
available for issuance or transfer under the Incentive Plan restricts both the
ability and the flexibility of the Corporation to effectively attract and retain
and adequately compensate key employees. The Board of Directors believes that it
is both necessary and desirable to increase from 600,000 to 1,500,000 the
aggregate number of shares of Common Stock available for issuance or transfer
under the Incentive Plan in order to continue to maintain the effectiveness of
the Incentive Plan. The Corporation intends to grant additional stock options
under the Incentive Plan promptly after the approval of the proposed amendment
to the Incentive Plan at the Annual Meeting.
DESCRIPTION OF INCENTIVE PLAN
The following description of the Incentive Plan is qualified in its
entirety by reference to the Incentive Plan, as amended, which is attached
hereto as Appendix A.
Under the Incentive Plan, the Board of Directors, or the Compensation
Committee if so designated by the Board of Directors, may grant options to
purchase shares of Common Stock to executives, other key employees, directors
and consultants of the Corporation. As of the date of this Proxy Statement, 40
persons hold stock options under the Incentive Plan. Options granted under the
Incentive Plan may be either "incentive stock options," which qualify for
special tax treatment under the Internal Revenue Code, or nonqualified stock
options. Options will expire at such time as the Board of Directors or
Compensation Committee determines, provided that no stock option may be
exercised later than the tenth anniversary (the fifth anniversary for certain
stockholders) of the date of its grant. Options cannot be exercised until the
vesting period, if any, specified by the Board of Directors or Compensation
Committee has expired. Options are not transferable other than by will or the
laws of descent and distribution, and may be exercised during the life of the
employee only by him or her. No options may be granted under the Incentive Plan
after April 8, 2007, which is the date the Incentive Plan terminates. However,
any options outstanding on April 8, 2007 will remain in effect in accordance
with their terms.
The option price per share is determined by the Board of Directors or the
Compensation Committee, but for incentive stock options cannot be less than 100%
(110% for certain stockholders) of the fair market value of the Common Stock on
the date such option is granted. Payment of the exercise price may be made in
cash or by the surrender of shares of Common Stock having a fair market value on
the date of exercise equal to the exercise price.
In the discretion of the Board of Directors or the Compensation Committee,
any option granted under the Incentive Plan may be accompanied by a reload
option. A reload option may be granted to an optionee who pays for the exercise
of all or part of an option with shares of Common Stock. The reload options
represent an additional option to acquire the same number of shares of Common
Stock as is used by the optionee to pay for
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<PAGE> 14
the exercise of his underlying option. A reload option is subject to all of the
terms and conditions of the underlying option, except that the exercise price
for a reload option will be at least equal to 100% of the fair market value of
the Common Stock covered thereby on the date the reload option is granted (i.e.,
the date the underlying option is exercised). The reload option may only be
exercised if the option period of the underlying option to which the reload
option relates has not expired.
INCENTIVE PLAN BENEFITS
Set forth in the table below are the numbers of stock options granted in
1998 to each of the named executive officers and certain groups.
<TABLE>
<CAPTION>
NAME AND POSITION OR GROUP NUMBER OF OPTIONS
- -------------------------- -----------------
<S> <C>
Robert E. Dods, Chief Executive Officer..................... --
Boyd L. Meyer, President.................................... --
Peter K.K. Chung, President of Racing Champions Limited..... --
Curtis W. Stoelting, Executive Vice President -- Finance and
Operations and Secretary.................................. 11,440
Peter J. Henseler, Senior Vice President -- Sales and
Marketing................................................. 8,580
All executive officers, as a group.......................... 37,180
All directors who are not executive officers, as a group.... 20,000
All employees as a group.................................... 370,601
</TABLE>
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting is required for approval of the
proposed amendment to the Incentive Plan.
BOARD OF DIRECTORS RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSED
AMENDMENT TO THE INCENTIVE PLAN.
AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
selected Arthur Andersen LLP to be the Corporation's auditors for the 1999
fiscal year. Although this appointment is not required to be submitted to a vote
of stockholders, the Corporation believes it appropriate as a matter of policy
to request that the stockholders ratify the appointment. If stockholder
ratification is not received, the Board of Directors may reconsider the
appointment. It is expected that a representative of Arthur Andersen LLP will be
present at the Annual Meeting and will have the opportunity to make a statement
if he desires to do so and will be available to respond to appropriate
questions.
THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS FOR THE PURPOSE OF AUDITING THE FINANCIAL STATEMENTS OF THE
CORPORATION FOR FISCAL 1999.
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K
The Corporation is required to file an annual report, called a Form 10-K,
with the Commission. A copy of Form 10-K for the fiscal year ended December 31,
1998 will be made available, without charge, to any person entitled to vote at
the Annual Meeting. Written request should be directed to Jody L. Taylor, Vice
President -- Finance, Racing Champions Corporation, 800 Roosevelt Road, Building
C, Suite 320, Glen Ellyn, Illinois 60137.
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<PAGE> 15
SHAREHOLDER PROPOSALS
Proposals which shareholders intend to present at the 2000 Annual Meeting
of Stockholders pursuant to Rule 14a-8 under the Exchange Act must be received
at the Corporation's principal offices in Glen Ellyn, Illinois no later than
December 14, 1999 for inclusion in the proxy material for that meeting.
Proposals submitted other than pursuant to Rule 14a-8 will be considered
untimely if received after February 13, 2000 and the Corporation will not be
required to present any such proposal at the 2000 Annual Meeting of
Stockholders. If the Board of Directors decides to present a proposal despite
its untimeliness, the people named in the proxies solicited by the Board of
Directors for the 2000 Annual Meeting of Stockholders will have the right to
exercise discretionary voting power with respect to such proposal.
OTHER MATTERS
The Directors of the Corporation know of no other matters to be brought
before the meeting. If any other matters properly come before the meeting,
including any adjournment or adjournments thereof, it is intended that proxies
received in response to this solicitation will be voted on such matters in the
discretion of the person or persons named in the accompanying proxy form.
BY ORDER OF THE BOARD OF DIRECTORS
RACING CHAMPIONS CORPORATION
Curtis W. Stoelting, Secretary
Glen Ellyn, Illinois
April 12, 1999
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<PAGE> 16
APPENDIX A
RACING CHAMPIONS CORPORATION
STOCK INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. Racing Champions Corporation, a Delaware corporation
(the "Company"), hereby establishes a stock option plan for employees and others
providing services to the Company, as described herein, which shall be known as
the Racing Champions Corporation Stock Incentive Plan (the "Plan"). It is
intended that certain of the options issued pursuant to the Plan to employees of
the Company may constitute incentive stock options within the meaning of section
422 of the Internal Revenue Code, and that other options issued pursuant to the
Plan shall constitute nonstatutory options. The Board shall determine which
options are to be incentive stock options and which are to be nonstatutory
options and shall enter into option agreements with recipients accordingly.
1.2 PURPOSE. The purpose of the Plan is to provide a means for the
Company to attract and retain competent personnel and to provide to
participating directors, officers and other key employees long term incentives
for high levels of performance by providing them with a means to acquire a
proprietary interest in the Company's success.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS. For purposes of this Plan, the following terms shall be
defined as follows:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means the definition of Cause in Optionee's employment
agreement, if any, with the Company. If no such employment agreement or
definition in such agreement exists, Cause means (i) breach by Optionee of
any covenant not to compete or confidentiality agreement with the Company,
(ii) failure by Optionee to substantially perform his duties to the
reasonable satisfaction of the Board, (iii) serious misconduct by Optionee
which is demonstrably and substantially injurious to the Company, (iv)
fraud or dishonesty by Optionee with respect to the Company, (v) material
misrepresentation by Optionee to a stockholder or director of the Company
or (vi) acts of negligence by Optionee in performance of Optionee's duties
that are substantially injurious to the Company. The Board, by majority
vote, shall make the determination of whether Cause exists.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(d) "Commission" means the Securities and Exchange Commission or any
successor agency.
(e) "Committee" means the Committee provided for by Article IV hereof,
which may be created at the discretion of the Board.
(f) "Company" means Racing Champions Corporation, a Delaware
corporation.
(g) "Consultant" means any person or entity, including an officer or
director of the Company who provides services (other than as an Employee)
to the Company and includes a Qualified Director, as defined below.
(h) "Date of Exercise" means the date the Company receives notice, by
an Optionee, of the exercise of an Option pursuant to section 9.1 of this
Plan. Such notice shall indicate the number of shares of Stock the Optionee
intends to purchase upon exercise of an Option.
(i) "Employee" means any person, including an officer or director of
the Company, who is employed by the Company.
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(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(k) "Fair Market Value" means the fair market value of Stock upon
which an Option is granted under this Plan, as determined by the Board. If
the Stock is traded on an over-the-counter securities market or national
securities exchange, "Fair Market Value" shall mean an amount equal to the
average of the highest and lowest reported sales prices of the Stock
reported on such over-the-counter market or such national securities
exchange on the applicable date or, if no sales of Stock have been reported
for that date, on the next preceding date for which sales where reported.
(l) "Incentive Stock Option" means an Option granted under this Plan
which is intended to qualify as an "incentive stock option" within the
meaning of section 422 of the Code.
(m) "IRS" means the Internal Revenue Service, or any successor agency.
(n) "Nonstatutory Option" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option within the
meaning of section 422 of the Code. Nonstatutory Options may be granted at
such times and subject to such restrictions as the Board shall determine
without conforming to the statutory rules of section 422 of the Code
applicable to incentive stock options.
(o) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified period of time.
For purposes of this Plan, an Option may be an Incentive Stock Option, a
Nonstatutory Option or a Reload Option.
(p) "Optionee" means an Employee or Consultant holding an Option under
the Plan.
(q) "Parent Corporation" shall have the meaning set forth in section
424(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(r) "Qualified Director" means a director who is both (a) a
"Non-Employee Director" as defined in Rule 16b-3(b)(3)(i), as promulgated
by the Commission under the Exchange Act, or any successor definition
adopted by the Commission, and (b) an "Outside Director" as defined by
section 162(m) of the Code and the regulations promulgated thereunder, or
any successor definition adopted by the IRS.
(s) "Reload Option" means an Option granted pursuant to section 8.1 of
this Plan.
(t) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.
(u) "Significant Stockholder" means an individual who, within the
meaning of section 422(b)(6) of the Code, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Company. In determining whether an individual is a Significant
Stockholder, an individual shall be treated as owning stock owned by
certain relatives of the individual and certain stock owned by corporations
in which the individual is a partner, and estates or trusts of which the
individual is a beneficiary, all as provided in section 424(d) of the Code.
(v) "Stock" means the Common Stock, par value $.01 per share, of the
Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender and the definition of any term herein in the singular shall also include
the plural.
ARTICLE III. ELIGIBILITY AND PARTICIPATION.
3.1 ELIGIBILITY AND PARTICIPATION. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options. All Consultants are eligible to participate in this Plan and receive
Nonstatutory Options hereunder. Optionees in the Plan shall be selected by the
Board from among those Employees and Consultants who, in the opinion of the
Board, are in a position to contribute materially to the Company's continued
growth and development and to its long-term financial success.
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ARTICLE IV. ADMINISTRATION.
4.1 ADMINISTRATION. The Board shall be responsible for administering the
Plan.
The Board is authorized to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to the Plan, to provide for conditions
and assurances deemed necessary or advisable to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations or other actions made or
taken by the Board pursuant to the provisions of this Plan shall be final and
binding and conclusive for all purposes and upon all persons.
At the discretion of the Board, this Plan may be administered by a
Committee which shall be a compensation committee of the Board, consisting
solely of two or more Qualified Directors. The members of such Committee may be
directors who are eligible to receive Options under this Plan, but Options may
be granted to such persons only by action of the full Board and not by action of
the Committee. Such Committee shall have full power and authority, subject to
the limitations of the Plan and any limitations imposed by the Board, to
construe, interpret and administer this Plan and to make determinations which
shall be final, conclusive and binding upon all persons, including, without
limitation, the Company, the stockholders, the directors and any persons having
any interests in any Options which may be granted under this Plan and, by
resolution providing for the creation and issuance of any such Option, to fix
the terms upon which, the time or times at or within which, and the price or
prices at which any such shares may be purchased from the Company upon the
exercise of such Option, which terms, time or times and price or prices shall,
in every case, be set forth or incorporated by reference in the instrument or
instruments evidencing such Option, and shall be consistent with the provisions
of the Plan.
The Board may from time to time remove members from, or add members to, the
Committee. The Board may terminate the Committee at any time. Vacancies on the
Committee, howsoever caused, shall be filled by the Board. The Committee shall
select one of its members as Chairman, and shall hold meetings at such times and
places as the Chairman may determine. A majority of the Committee at which a
quorum is present, or acts reduced to or approved in writing by all of the
members of the Committee, shall be the valid acts of the Committee. A quorum
shall consist of two-thirds of the members of the Committee.
Where the Committee has been created by the Board, references herein to
actions to be taken by the Board shall be deemed to refer to the Committee as
well, except where limited by this Plan or by the Board.
The Board shall have all of the enumerated powers of the Committee but
shall not be limited to such powers. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted under it.
4.2 SPECIAL PROVISIONS FOR GRANTS TO OFFICERS OR DIRECTORS. Rule 16b-3
provides that the grant of a stock option to a director or officer of a company
subject to the Exchange Act will be exempt from the provisions of Section 16(b)
of the Exchange Act if the conditions set forth in Rule 16b-3 are satisfied.
Unless otherwise specified by the Board, grants of Options hereunder to
individuals who are officers or directors of the Company for purposes of Section
16(b) of the Exchange Act shall be made in a manner that satisfies the
conditions of Rule 16b-3.
ARTICLE V. STOCK SUBJECT TO THE PLAN.
5.1 NUMBER. The total number of shares of Stock hereby made available and
reserved for issuance under the Plan shall be 1,500,000. The aggregate number of
shares of Stock available under this Plan shall be subject to adjustment as
provided in section 5.3. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 UNUSED STOCK; PAYMENT WITH STOCK. If an Option shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares of Stock subject thereto shall (unless the Plan shall have terminated)
become available for other Options under the Plan. In addition, upon the full or
partial payment
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of any option price by the transfer to the Company of shares of Stock pursuant
to section 7.7, upon satisfaction of tax withholding obligations with shares of
Stock pursuant to section 15.1 or any other payment made or benefit realized
under this Plan by the transfer or relinquishment of shares of Stock, only the
net number of shares of Stock actually issued or transferred by the Company,
after subtracting the number of shares of Stock so transferred or relinquished,
will be charged against the maximum share limitation set forth in section 5.1
above.
5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification or other similar corporate change, the
aggregate number of shares of Stock set forth in section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
ARTICLE VI. DURATION OF THE PLAN.
6.1 DURATION OF THE PLAN. The Plan shall be in effect for ten years from
the date of its approval by the Company's stockholders. Any Options outstanding
at the end of such period shall remain in effect in accordance with their terms.
The Plan shall terminate before the end of such period if all Stock subject to
the Plan has been purchased pursuant to the exercise of Options granted under
the Plan.
ARTICLE VII. TERMS OF STOCK OPTIONS.
7.1 GRANT OF OPTIONS. Subject to section 5.1, Options may be granted to
Employees or Consultants at any time and from time to time as determined by the
Board; provided, however, that Consultants may receive only Nonstatutory Options
and may not receive Incentive Stock Options. The Board shall have complete
discretion in determining the number of Options granted to each Optionee. In
making such determinations, the Board may take into account the nature of
services rendered by such Employee or Consultant, their present and potential
contributions to the Company, and such other factors as the Board in its
discretion shall deem relevant. The Board shall also determine whether an Option
is to be an Incentive Stock Option or a Nonstatutory Option.
In the cases of Incentive Stock Options, the total Fair Market Value
(determined at the date of grant) of shares of Stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year under all plans of the Company under which incentive
stock options may be granted (and all such plans of any Parent Corporation and
any subsidiary corporations of the Company) shall not exceed $100,000.
(Hereinafter, this requirement is sometimes referred to as the "$100,000
Limitation.")
Nothing in this Article VII of the Plan shall be deemed to prevent the
grant of Options permitting exercise in excess of the maximums established by
the preceding paragraph where such excess amount is treated as a Nonstatutory
Option.
7.2 NO TANDEM OPTIONS. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under section 422 of the Code.
7.3 OPTION AGREEMENT; TERMS AND CONDITIONS TO APPLY UNLESS OTHERWISE
SPECIFIED. As determined by the Board on the date of grant, each Option shall
be evidenced by an Option agreement (the "Option Agreement") that includes the
nontransferability provisions required by section 11.2 hereof and specifies:
whether the Option is an Incentive Stock Option or a Nonstatutory Option; the
Option price; the duration of
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the Option; the number of shares of Stock to which the Option applies; any
vesting or exercisability restrictions which the Board may impose; in the case
of an Incentive Stock Option, a provision implementing the $100,000 Limitation;
and any other terms and conditions as shall be determined by the Board at the
time of grant of the Option.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 OPTION PRICE. No Incentive Stock Option granted pursuant to this Plan
shall have an Option price that is less than the Fair Market Value of Stock on
the date the Option is granted. Incentive Stock Options granted to Significant
Stockholders shall have an Option price of not less than 110 percent of the Fair
Market Value of Stock on the date of grant. The Option price for Nonstatutory
Options shall be established by the Board.
7.5 TERM OF OPTIONS. Each Option shall expire at such time as the Board
shall determine when it is granted, provided, however, that no Option shall be
exerciseable later than the tenth anniversary date of its grant.
7.6 EXERCISE OF OPTIONS. Options granted under this Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 PAYMENT. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Such payment may be made in cash,
outstanding shares of Stock, in combinations thereof, or any other method of
payment approved by the Board; provided, however, that (i) the deposit of any
withholding tax shall be made in accordance with applicable law and (ii) that
such shares of Stock used to pay the exercise price have been held by the
Participant for at least six months prior to the exercise date. If shares of
Stock are being used in part or full payment for the shares to be acquired upon
exercise of the Option, such shares shall be valued for the purpose of such
exchange as of the date of exercise of the Option at the Fair Market Value of
the shares. Any certificates evidencing shares of Stock used to pay the purchase
price shall be accompanied by stock powers duly endorsed in blank by the
registered holder of the certificate (with signatures thereon guaranteed). In
the event the certificates tendered by the holder in such payment cover more
shares than are required for such payment, the certificate shall also be
accompanied by instructions from the holder to the Company's transfer agent with
regard to the disposition of the balance of the shares covered thereby.
ARTICLE VIII. RELOAD OPTIONS.
8.1 GRANTS OF RELOAD OPTIONS. Concurrently with any award of Options, the
Board may grant Reload Options to purchase a number of shares of Stock equal to
the sum of (i) the number of outstanding shares of Stock used to exercise the
underlying Option pursuant to section 7.7, and (ii) the number of shares of
Stock used to satisfy any tax withholding requirement incident to the exercise
of the underlying Options pursuant to section 15.1. If the Board grants Reload
Options in connection with a grant of Options, the Option Agreement with respect
to such underlying Options shall state that Reload Options have been granted
with respect to the underlying Options. Upon exercise of an underlying Option,
the Reload Option will be evidenced by an amendment to the underlying Option
Agreement. No additional Reload Options will be granted to the Optionee when
Options are exercised pursuant to the terms of this Plan following termination
of the Optionee's employment.
8.2 TERMS OF RELOAD OPTIONS. A Reload Option will be subject to all of
the terms and conditions of the underlying Option, except that (i) the option
price per share of Stock purchasable under a Reload Option shall be equal to the
Fair Market Value of the Stock at time of grant upon exercise of the underlying
Option, and (ii) the term of the Reload Option will equal the remaining option
term of the underlying Option.
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ARTICLE IX. WRITTEN NOTICE, ISSUANCE OF STOCK CERTIFICATES, STOCKHOLDER
PRIVILEGE.
9.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the Options exercised, as provided in section 7.7 above, must
accompany the written notice.
9.2 ISSUANCE OF STOCK CERTIFICATE. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
9.3 PRIVILEGES OF A STOCKHOLDER. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such Stock.
ARTICLE X. TERMINATION OF EMPLOYMENT OR SERVICES.
Except as otherwise expressly specified by the Board, all Options granted
under this Plan shall be subject to the following termination provisions.
10.1 DEATH. If an Optionee's employment in the case of an Employee, or
provision of services as a Consultant in the case of a Consultant, terminates by
reason of death, the Option may thereafter be exercised at any time prior to the
expiration date of the Option or within 12 months after the date of such death,
whichever period is the shorter, by the person or persons entitled to do so
under the Optionee's will or, if the Optionee shall fail to make a testamentary
disposition of an Option or shall die intestate, the Optionee's legal
representative or representatives. The Option shall be exercisable only to the
extent that such Option was exercisable as of the date of death.
10.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH. In the event of an
Optionee's termination of employment in the case of an Employee, or termination
of the provision of services as a Consultant in the case of a Consultant, other
than for Cause or by reason of death, the Optionee may exercise such portion of
his Option as was exercisable by him at the date of such termination (the
"Termination Date") at any time within three months of the Termination Date;
provided, however, that where the Optionee is an Employee, and is terminated due
to disability within the meaning of Code section 422, he may exercise such
portion of his Option as was exercisable by him on his Termination Date within
one year of his Termination Date. In any event, the Option cannot be exercised
after the expiration of the original term of the Option. Options not exercised
within the applicable period specified above shall terminate.
In the case of an Employee, a change of duties or position within the
Company, if any, shall not be considered a termination of employment for
purposes of this Plan. The Option Agreements may contain such provisions as the
Board shall approve with respect to the effect of approved leaves of absence
upon termination of employment.
10.3 TERMINATION FOR CAUSE. In the event of an Optionee's termination of
employment in the case of an Employee, or termination of the provision of
services as a Consultant in the case of a Consultant, which termination is by
the Company for Cause, any Option or Options held by him under the Plan, to the
extent not exercised before such termination, shall forthwith terminate.
ARTICLE XI. RIGHTS OF OPTIONEES
11.1 SERVICE. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment, or any
Consultant's services, at any time, nor confer upon any Employee any right to
continue in the employ of the Company, or upon any Consultant any right to
continue to provide services to the Company.
11.2 NONTRANSFERABILITY. Options granted under this Plan shall be
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
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ARTICLE XII. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board may
at any time terminate and from time to time may amend or modify the Plan
provided, however, that no such action of the Board, without approval of the
stockholders, may:
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in Article V;
(b) change the class of Employees or Consultants eligible to receive
Options; or
(c) extend the maximum exercise period under section 7.5.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
ARTICLE XIII. ACQUISITION, MERGER AND LIQUIDATION
13.1 ACQUISITION. Notwithstanding anything herein to contrary, in the
event that an Acquisition (as defined below) occurs with respect to the Company,
the Company shall have the option, but not the obligation, to cancel Options
outstanding as of the effective date of Acquisition, whether or not such Options
are then exercisable, in return for payment to the Optionees for each Option of
an amount equal to a reasonable, good faith estimate of an amount (hereinafter
the "Spread") equal to the difference between the net amount per share payable
in the Acquisition, or as a result of the Acquisition, less the exercise price
per share of the Option. In estimating the Spread, appropriate adjustments to
give effect to the existence of the options shall be made, such as deeming the
Options to have been exercised, with the Company receiving the exercise price
payable thereunder, and treating the shares receivable upon exercise of the
Options as being outstanding in determining the net amount per share. For
purposes of this section, an "Acquisition" shall mean any transaction in which
substantially all of the Company's assets are acquired or in which a controlling
amount of the Company's outstanding shares are acquired, in each case by a
single person or entity or an affiliated group of persons and/or entities. For
purposes of this section a controlling amount shall mean more than 50% of the
issued and outstanding shares of stock of the Company. The Company shall have
such an option regardless of how the Acquisition is effectuated, whether by
direct purchase, through a merger or similar corporate transaction, or
otherwise. In cases where the acquisition consists of the acquisition of assets
of the Company, the net amount per share shall be calculated on the basis of the
net amount receivable with respect to shares upon a distribution and liquidation
by the Company after giving effect to expenses and charges, including but not
limited to taxes, payable by the Company before the liquidation can be
completed.
Where the Company does not exercise its option under this section 13.1, the
remaining provisions of this Article XIII shall apply, to the extent applicable.
13.2 MERGER OR CONSOLIDATION. Subject to section 13.1 and to any required
action by the stockholders, if the Company shall be the surviving corporation in
any merger or consolidation, any Option granted hereunder shall pertain to and
apply to the securities to which a holder of the number of shares of Stock
subject to the Option would have been entitled in such merger or consolidation.
13.3 OTHER TRANSACTIONS. Subject to section 13.1, dissolution or a
liquidation of the Company or a merger and consolidation in which the Company is
not the surviving corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of the dissolution, liquidation, merger or
consolidation. However, the Optionee either (i) shall be offered a firm
commitment whereby the resulting or surviving corporation in a merger or
consolidation will tender to the Optionee an option (the "Substitute Option") to
purchase its shares on terms and conditions both as to number of shares and
otherwise, which will substantially preserve to the Optionee the rights and
benefits of the Option outstanding hereunder granted by the Company, or (ii)
shall have the right immediately prior to such dissolution, liquidation, merger,
or consolidation to exercise any unexercised Options whether or not then
exercisable, subject to the provisions of this Plan. The Board shall have
absolute and uncontrolled discretion to determine whether the Optionee has been
offered a firm commitment and whether the tendered Substitute Option will
substantially preserve to the
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<PAGE> 23
Optionee the rights and benefits of the Option outstanding hereunder. In any
event, any Substitute Option for an Incentive Stock Option shall comply with the
requirements of the Code.
ARTICLE XIV. SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualification of such Options or
Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he is acquiring such
shares for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof, and (b) that before any
transfer in connection with the resale of such shares, he will obtain the
written opinion of counsel to the Company, or other counsel acceptable to the
Company, that such shares may be transferred. The Company may also require that
the certificates representing such shares contain legends reflecting the
foregoing.
ARTICLE XV. TAX WITHHOLDING
15.1 TAX WITHHOLDING. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements.
Unless otherwise determined by the Board, withholding obligations may be settled
with Stock, including Stock that is part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company, its subsidiaries
and affiliates shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the participant.
ARTICLE XVI. INDEMNIFICATION
16.1 INDEMNIFICATION. To the extent permitted by law, each person who is
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of judgment
in any such action, suit or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's articles of incorporation or bylaws, as a matter of law, or otherwise,
or any power that the Company may have to indemnify them or hold them harmless.
ARTICLE XVII. REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the state of Delaware.
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ARTICLE XVIII. COMPLIANCE WITH CODE
18.1 COMPLIANCE WITH CODE. Incentive Stock Options granted hereunder are
intended to qualify as "incentive stock options" under Code section 422. If any
provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stock options under
the Code. Options granted hereunder to any person who is a "covered employee"
under Code section 162(m) at any time when the Company is subject to Code
section 162(m) are intended to qualify as performance-based compensation within
the meaning of Code section 162(m)(4)(C). If any provision of this Plan is
susceptible to more than one interpretation, such interpretation shall be given
thereto as is consistent with Options granted under this Plan to such "covered
employees" being treated as performance-based compensation under Code section
162(m).
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<PAGE> 25
PROXY
RACING CHAMPIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert E. Dods and Curtis W. Stoelting, or
either one of them, each with full power of substitution and resubstitution, as
proxy or proxies of the undersigned to attend the Annual Meeting of Stockholders
of Racing Champions Corporation to be held on May 13, 1999 at 11:00 a.m., local
time, at the Hyatt Regency Oakbrook, 1909 Spring Road, Oakbrook, Illinois 60523,
and at any adjournment thereof, there to vote all shares of Common Stock which
the undersigned would be entitled to vote if personally present as specified
upon the following matters and in their discretion upon such other matters as
may properly come before the meeting.
1. ELECTION OF DIRECTORS (terms expiring at the 2000 Annual Meeting)
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below
</TABLE>
NOMINEES: ROBERT E. DODS, BOYD L. MEYER, PETER K.K. CHUNG, AVY H. STEIN,
DANIEL M. GILL, SAMUEL B. GUREN, JOHN S. BAKALAR, JOHN J. VOSICKY AND
VICTOR H. SHAFFER
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
the name of the nominee(s) on the space provided below.)
___________________________________________________________________
2. APPROVAL AND ADOPTION OF PROPOSED AMENDMENT TO THE RACING CHAMPIONS
CORPORATION STOCK INCENTIVE PLAN.
<TABLE>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
3. TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS AUDITORS FOR RACING
CHAMPIONS CORPORATION FOR YEAR ENDING DECEMBER 31, 1999.
<TABLE>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(continued on reverse side)
<PAGE> 26
PROXY NO. NO. OF SHARES
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and accompanying Proxy Statement, ratifies all that said proxies
or their substitutes may lawfully do by virtue hereof, and revokes all former
proxies.
Please sign exactly as your name appears hereon, date and return this Proxy.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO GRANT AUTHORITY TO ELECT
THE NOMINEES AS DIRECTORS, TO APPROVE THE AMENDMENT TO THE RACING CHAMPIONS
CORPORATION STOCK INCENTIVE PLAN AND TO RATIFY THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS AUDITORS. IF OTHER MATTERS COME BEFORE THE MEETING, THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES APPOINTED.
DATED: ___________________
_______________________________________
(SIGNATURE OF STOCKHOLDER)
_______________________________________
(SIGNATURE IF JOINTLY HELD)
If signing as attorney, executor,
administrator, trustee or guardian,
please add you full title as such. If
shares are held by two or more persons,
all holders must sign the Proxy.
2
